Cuba Experiences First Decline in Small and Medium Enterprises

For the first time since their inception, Cuba's government has reported an official decrease in the number of micro, small, and medium enterprises (SMEs). Cuban economist Pedro Monreal shared an analysis on social media highlighting the sectors most affected by this gradual decline, which has been ongoing since September 2024. Monreal pointed out that the regime's decision to reduce these enterprises comes amid an economic crisis exacerbated by recession and inflation.

Challenges Facing SMEs in Key Sectors

The reduction of SMEs has primarily impacted six economic activities, with three sectors experiencing contractions above the national average:

Hospitality and Restaurants: Monreal suggests that the primary factor for this decline might be the downturn in international tourism, particularly noticeable by the end of 2024.

Industry: Various factors could have led to the reduction in industrial SMEs, which account for 36.5% of the total national contraction. Hypothetical causes include the energy crisis, investment and working capital challenges, and agricultural input shortages.

Commerce: SMEs in the commerce sector represent 9.5% of the national reduction. While this figure may seem modest, it could signal a more significant issue, as private SMEs accounted for 25% of total retail sales in 2023.

Government restrictions on wholesale trade, the energy crisis, and declining consumer purchasing power have been critical factors in this scenario. Monreal also emphasizes the threat posed by the "growing monopolistic state competition in dollars" to these businesses.

Regulatory Framework and Approval of SMEs in Cuba

SMEs were officially approved in Cuba through Decree-Law 46, published in August 2021, establishing their operation as limited liability companies. Concurrently, Decree-Law 44, concerning self-employment, defined the scope and regulatory limits for private enterprises. Since their legalization, SMEs experienced rapid growth, increasing their share from 4.1% of retail sales in 2022 to 25% in 2023. The figures for 2024 have yet to be released.

Future Outlook and Governmental Scrutiny of SMEs

Despite the recent decline, SMEs remain crucial to the Cuban economy, particularly in job creation and the distribution of goods and services. However, their sustainability is threatened not only by economic and structural crises but also by government rhetoric increasingly portraying them as a threat to the socialist model.

In September 2024, an inspection by the Ministry of Domestic Trade (MINCIN) resulted in the closure of 58 businesses for failing to comply with regulations regarding electronic payment channels. Since then, the Cuban government, led by Prime Minister Manuel Marrero, has insisted on preventing "wealth concentration" through these private enterprises, even though many have emerged as viable alternatives to the inefficient state sector.

Marrero has reiterated that SMEs must "respect the socialist model," which, according to experts like Monreal, could result in stricter regulations and increased operational restrictions. As state enterprises continue to demonstrate inefficiency and lack of competitiveness, the government seems to be criminalizing SMEs, accusing them of excessive enrichment when, in reality, they have revitalized the market and provided jobs in a persistently crisis-ridden environment.

Monreal argues that the "pinch" on SMEs is further evidence of structural problems within Cuba's economy.