Cuban modernization confined to pockets

Posted on Mon, Aug. 07, 2006

Cuban modernization confined to pockets
BY JANE BUSSEY
jbussey@MiamiHerald.com

In movies and memories, sepia-tinted snapshots depict the Cuban economy
of the past -- sugar cane fields, bejeweled tourists in casinos, the
unmistakable presence of wealth.

Then came portraits of the Soviet years -- of lines, ration cards and an
economy crippled by bureaucracy.

Today, Cuba is both and neither. Nearly half a century after Fidel
Castro took power, the Cuban economy is such a study in jarring
contrasts that few images can capture its reality.

There are showrooms where you can buy a Mercedes or Peugeot, sparkling
hotels built and managed by foreigners, and a budding cellphone culture.
There is oil, nickel and mineral ore, such as limestone and iron. China
is investing, and Venezuela plowed in $900 million in 2004.

Yet the prosperous, modern pockets are mostly outposts of foreign
corporations. Cubans still live in crumbling buildings with broken-down
appliances. And the eight-million-ton sugar harvest of 1989 is just a
memory -- only 1.3 million tons were cut last year.

''To get a good picture of what Cuba really is, rather than what people
think it is, would be a good idea,'' said Miami consultant Teo Babun,
who has spent the past few years studying the island's electricity, road
and railroad infrastructure.

The numbers illustrate how difficult it is to get a realistic picture of
Cuba.

Last year, Cuba revised the way it calculates gross domestic product,
giving more weight to social and health services -- pricing doctors'
services sent abroad -- in overall output.

The result is an economy that grew at 11.8 percent annually in 2005 and
12.5 percent in the first quarter of this year, enabled by generous
energy subsidies from Venezuela.

Economists question those numbers. But even if the Cuban economy is not
growing at that clip, it is expanding.

The construction and transportation sectors are expected to climb 15
percent this year, according to a report from the Economic Commission
for Latin America and the Caribbean. The commission said the country is
expected to construct 150,000 homes by the end of the year.

Tourism income will rise 8 percent. The sector brought in $2.1 million
last year. And high nickel prices have helped Cuba participate in the
commodities boom that has lifted the rest of Latin America, with nickel
exports worth about $800 million.

The infrastructure is extensive, if in need of repair. Consultant Babun
said he was surprised by how much money was invested in building
power-line distribution in remote areas -- although access to energy is
still tricky because of the country's energy shortage. Leaky water
lines, paint-starved buildings and aging electricity poles sit side by
side with road, bridge and cable construction.

Cuba boasts a working telecommunication system, thanks to Italian
investment, and even shopping malls like Galerías Paseo in the Vedado
neighborhood. Businesses can go to the Miramar Trade Center for offices
newly built with Israeli investment. And visitors can take their
cellphones to Cubacel offices, purchase a chip and call all over the world.

Cuba's still nothing like a modern metropolis along the lines of Sao
Paulo, Brazil, but it clearly has modernized, said Antonio Zamora, a
Miami lawyer who travels to Cuba.

''It looks more like Latin America,'' he said.

MONEY FROM ABROAD

Besides energy subsidies, the key to Cuba's development is foreign
investment.

Fifteen years ago, after the Soviet Union ended its largess, Castro
launched the country into an austerity period, called the Special Period
in Time of Peace. It brought not only belt tightening but also
experimentation with limited free markets and foreign investment.

Canada's Sherritt energy company started drilling for oil and investing
in the Moa nickel mine. Spanish hotel chains stepped up management of
existing hotels and refurbished or built new ones. And hundreds of joint
ventures were formed.

Recently several Spanish firms have complained they are being forced
out. Zamora said he was not surprised the government was getting more
picky with its partners. ''A lot of those [early] companies were really
marginal,'' said Zamora.

But more money is on the way. The Chinese have plans for investments in
two nickel mines, in Las Camariocas and San Felipe.

Venezuela in particular has helped Cuba survive the loss of its former
deep-pocketed patrons. Venezuela plans to invest some $300 million in
the Cienfuegos oil refinery, built by the Russians and never used.

The investment means Cuba is integrating in fits and starts with the
global economy. And although economists agree the Cuban government is
tightening its control over the economy, there is no turning back the
clock on foreign investment.

SUGAR SUFFERS

However, Cuba's economy is still strangled in other areas, such as
agriculture. The sugar industry for which the country was once known is
a dwarf of its former self. There are shortages of fertilizer,
pesticides and other products. And, hampered by antiquated Soviet farm
machinery, many small producers even resort to animal labor.

''Agricultural production suffered significantly when it lost the Soviet
subsidies,'' Cuban economist Oscar Espinosa Chepe said in a tape
recording played at the annual meeting in Miami of the Association for
the Study of the Cuban Economy on Thursday. ``The unfavorable conditions
continue.''

The picture is not universally negative -- fruit and vegetable
production was up by two to three times in 2000-2004 compared to
1985-89. But larger segments of the agriculture industry, notably sugar,
are far from robust.

Remittances have also fallen, and some production has never recovered
from the decline during the period of austerity. Cuba produced less
cement and detergent last year than it did in 1989. That means while
Cubans don't have to worry about a $30,000 hospital bill -- the
government pays for the basics in cradle-to-grave welfare -- it can be
daunting to find laundry detergent, aspirin or other consumer goods.

Then there's the energy bill. The country lives in what Cuban energy
expert Jonathan Benjamin-Alvarado described as the ''Magic Kingdom of
energy'' -- it does not actually pay the annual $1 billion to $2 billion
tab for the Venezuelan oil, gasoline and jet fuel it imports.

''They are not exposed to the vagaries of the global markets of
energy,'' said Benjamin-Alvarado, a University of Nebraska professor who
has studied the country's energy future.

''Cuba continues to be dependent, whether it's dependent on donations,
on favorable trade agreements,'' said John Kavulich, senior advisor to
the U.S.-Cuba Business Council in New York. ``They are not independent.''

PLAY MONEY

Cuba has mimicked the Chinese model by forcing Cubans and visitors to
turn over all dollars to the government and use convertible currency,
nicknamed chavitos, or play money. By doing this, the Cuban government
took control of dollars as people turned over money stored under their
mattresses.

The measure took the wind out of the highly organized black market on
the island.

''There still is a black market,'' said Babun, who runs Babun Group
Consulting. ``It's just not very lucrative.''

MILITARY'S IMPACT

A big question going forward is what will happen to the numerous sectors
placed under military control by the Castro brothers?

The military-run Business Administration Group oversees a vast range of
companies, from the tourism companies Gaviota and Cabanacán to GeoCuba,
a real estate and mining administrator. Top brass also controls the
Ministry of Sugar, the Ministry of Tourism and Civil Aviation, among
other entities.

The military took over administration when Soviet funding ended and the
Cuban army was downsized.

''The military were generally well-educated and organized, so Raúl
[Castro] persuaded his brother to let them move into the economic
area,'' Zamora said.

Some economists believe Raúl Castro could follow the Chinese model of
more entrepreneurship under state control. But others question how the
Cuban leadership would accept the side effects of capitalism --
concentrated wealth.

''I just can't see a whole class of millionaires in Cuba under Raúl
Castro,'' said economist Jorge Pérez-López at the conference Thursday.
``The prospect of a China-ization of the Cuban economy is not realistic.''

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