Lessons for Cuban business

Lessons for Cuban business
January 30, 2012 8:19 am by John Paul Rathbone

President Raúl Castro wants the recent liberalisation of small
businesses to bolster Cuba's sagging economy and absorb the 1m state
workers he says will eventually be laid off.

But Cuba's budding micro-entrepreneurs – over 350,000 had registered as
of November 2011 – lack almost everything that start-ups need, from
premises and relevant skills to capital. Will they ever really get off
the ground?

A bustling restaurant in Havana's colonial centre – which opened in
January 2011, is appropriately called "La Moneda Cubana", the Cuban
coin, and is run by Miguel Ángel, a 37-year old entrepreneur - suggests
some answers.

First, the premises. The three-storey restaurant, which once belonged to
Ángel's grandfather, was nationalised in the 1960s. But the family has
lived continuously at the premises since then – indeed, ever since 1924.
As a result, Ángel was able to set up operations immediately.

And what a location it enjoys: La Moneda Cubana lies just a few steps
from the cathedral, has a sweeping view of the Havana bay from its roof
terrace, and enjoys a regular stream of tourists. Few are so fortunate.
Indeed, the process of leasing state properties remains incipient.

Second, necessary skills. Ángel worked for several years in the state
tourist sector, first at the Floridita, where Ernest Hemmingway once
drank daiquiris; then in the kitchens of the nearby Hotel Sevilla. "I
learnt there everything I needed to run my kitchen," Ángel told beyondbrics.

However, similar backward linkages are rarer elsewhere. "A good
restaurant also needs a manager and an accountant," he adds. Such skills
are hard to come by in Cuba's Soviet-style economy – hence the business
skills training program the Catholic church set up last year.

Third, funds. The usual supposition is that Cubans turn to their émigré
relatives for start-up capital. This is entirely legal under Castro's
new rules – indeed, it is tacitly encouraged.

Be that as it may, the cagey habits of under-the-table informality that
Cubans developed over decades socialism remain deeply engrained.

Ángel, for example, insists he restored the three-story building "all
with my own resources".

Be that as it may, Ángel says his operation is now self-financing. La
Moneda Cubana's intense footfall suggests this may indeed be so. That is
just as well, as the notion of Cuba's creaking banking system offering
credit is entirely novel – although there is government talk it will do so.

Fourth, inputs. Cubans can now buy construction materials directly from
the state. As for food, Ángel still buys from the state rather than
private farmers. "They can't ensure a steady and reliable supply," he says.

That is changing fast, however. According to state media, 71 contracts
have been executed between private farmers and state-run hotels – a huge
change that will strip out the inefficient state-distribution system.

Cuba's small business sector is still fragile and Ángel's success will
not be replicated everywhere. Business generally remains very small
scale. Most entrepreneurs sell out of their homes, or from makeshift
street stalls. Havana is far from becoming a neon-wrapped landscape.

But the popularity of the reforms and Castro's mantra that they will be
implemented "slowly, but without pause" also means they are
irreversible. Ahead of the Communist Party's conference over the
weekend, even state newspaper Granma talked of the need "to leave behind
prejudices against the non-state sector" and to overcome the
"psychological barrier" of "obsolete dogmas".

One of these is work habits. Ángel, for one, has already turned on its
head the old socialist rubric of "everyone pretends to work and the
state pretends to pay." Compared to state wages worth around $20 a month
but paid in Cuban pesos, his staff get a percentage of profits in hard
currency. "They like that, very much," he says.

As for his own workday: "I get here early in the morning and usually
leave around 3am." Does he mind? "One has to do what one has to or wants
to do – and I do. This is as much an emotional adventure as a financial
one," he says, with a smile.

http://blogs.ft.com/beyond-brics/2012/01/30/lessons-for-cuban-business/#axzz1mHeihRK2