Cuba strengthens regulations on the nascent private sector

Cuba’s booming private companies were bracing for the impact of new government measures, which began implementing a series of rules on Wednesday aimed at more strictly regulating the sector.

The new rules come three years after private companies were legalised following a decades-long ban put in place by the former leader Fidel Castro.

The measures end incentives for new business creation, restrict independent wholesalers and add new requirements for those seeking to start a company. They also raise taxes, reinforce workers’ rights, tighten accounting requirements and sharpen oversight of the private sector.

The new regulations come into force as Cuba endures its worst economic crisis in decades, with severe shortages of food, fuel and medicine and a record exodus of its citizens.

“The Cuban government needs the private sector to help the economy recover, but it distrusts it and wants to keep it under strict state control,” said William LeoGrande, a professor at American University in Washington.

The government says the rules are needed to “correct distortions” in the economy and ensure that private enterprise benefits the general population. Cities and towns can now deny a license to a company that does not conform to a local development plan, and municipalities can set prices in some cases.

“This is not a crusade against non-state forms of management (…) but rather to frame them within the law,” said the Minister of Economy and Planning, Joaquín Alonso Vázquez.

The stakes are high, says Oniel Díaz, co-founder of the consultancy firm AUGE, which advises more than 200 Cuban small business clients.

Diaz said some of the rules, such as the fight against tax evasion, are understandable, while others will only further slow the economy.

“The question is (…) whether these measures (…) contribute or not to getting the country out of the economic crisis into which it has found itself, and the answer is no,” Díaz added.

The private sector has been a rare bright spot in an otherwise anemic economy that has failed to recover from the COVID-19 pandemic and remains hobbled by a decades-old U.S. trade embargo.

In three years, Cuba has approved 11,355 private companies.

Workers in the sector, along with 600,000 self-employed workers, now account for 25% of jobs and 15% of imports, according to official data.

Small, private retailers may be hardest hit by new accounting hurdles and a rule requiring wholesalers to work through state-owned companies when importing from abroad.

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