Cuba's little capitalists are ready to rumba

Cuba's little capitalists are ready to rumba
By Jeff Franks
HAVANA | Fri May 4, 2012 6:10am EDT

(Reuters) - When Ojacy Curbello and her husband opened a restaurant at
their home in Havana in late December, not a single customer showed up.

It was a disheartening debut for Bollywood, the first Indian restaurant
in the Cuban capital. Curbello worried that their dream of cashing in on
recent reforms in this Communist-run country would collapse.

The next day customers began trickling in. As word spread, the trickle
became a flood. Many nights the couple had to turn people away or serve
them at the family dining table and call in extra help. Today they are
planning to increase the 22-seat capacity by expanding their 1950s home
and putting tables and a bar in what is now their bedroom.

"It has been amazing how quickly it has taken off," said Curbello, still
looking slightly stunned. She sat with her husband, Cedric Fernandez, a
Londoner of Sri Lankan descent, in the main dining area, hung with
prints of Indian figures.

Bollywood's story is an example of how life is slowly changing in Cuba
since President Raul Castro launched a string of limited economic
reforms in 2010.

After his ailing older brother, Fidel, stepped down as president four
years ago, Raul Castro began to encourage self-employment. He initiated
changes in sectors previously restricted to the state or which had
operated illegally in Cuba's vast black market.

He has given Cubans the right, with some restrictions, to buy and sell
homes and cars for the first time since the early days of the 1959
revolution, led by Fidel.

Would-be farmers can lease land from the government. New small
entrepreneurs are being allowed to enter into contracts with state
companies and local governments.

As a result, more Cubans are setting up their own businesses as the
cash-strapped government moves to cut spending and boost tax revenue.

The self-employed, known on the Caribbean island as "cuenta propistas,"
literally "on their own account," are selling food, services and
assorted goods out of their homes or off sidewalk tables. Private
restaurants are opening, and the cries of street vendors, common before
the revolution, again echo through neighborhoods.

Havana says more than 371,000 Cubans are self-employed, up from 157,000
before President Castro announced his private-enterprise measures in
September 2010. Economy Minister Adel Yzquierdo Rodriguez has said as
many as 240,000 more nonstate jobs will be added in 2012.

More such change may be in the works. In April, a senior Communist Party
official, Estaban Lazo Hernandez, said in a speech that Cuba will move
nearly 50 percent of the country's economic activity to the "nonstate"
sector in the coming five years, up from 5 percent now.

This is not capitalism for capitalism's sake, however - and political
reform is not part of the program.

The goal is to keep the Communist Party in power by nurturing a larger
private sector and a smaller, more efficient state bureaucracy. Cuba
says it is developing its own model, but think China 30 years ago, on a
far more modest scale.

Whether it will work is one of the great unknowns about Cuba's future.

Interviews with a wide range of cuenta propistas found a mixed record of
success and failure, with most doing well enough to keep going but only
moderately improving their lives.

A few said they are succeeding hugely. Others have already quit or are
thinking about it. Roughly 25 percent of the new businesses have failed,
local economists say.

Cuba needs the budding private sector to thrive because in the future
the government will no longer offer what essentially has been guaranteed
employment.

The state employs about 85 percent of its 5.2 million workers. The plan
is to cut a million jobs by 2015, with the hope that many of those laid
off will go to work for themselves.

CONSERVING POWER

Some observers believe Castro is opening a Pandora's box with his
reforms. Allowing a little capitalism could lead to a desire for more
and perhaps pose a threat to the future of communism he envisions.
Others think that if Cubans become less dependent on the government,
they will be less accepting of its social and political control.

For that reason, said Marifeli Perez-Stable, a Cuban-American professor
of sociology at Florida International University in Miami, Castro is
proceeding cautiously.

"Raul is going slowly because he knows what he faces," she said. "They
are being conservative because they want to conserve power."

Cubans seem generally pleased that economic change is afoot. Some like
the idea they can strike out on their own, with an opportunity to earn
more than the paltry state wages. The average Cuban salary rose slightly
in 2011 to the equivalent of $19 a month.

While most Cubans say change is needed, they also worry about losing
their social safety net if there is too big a dose of capitalism. They
get low-cost or free housing, a heavily subsidized monthly food ration,
and free health care and education.

Cuba, which nationalized all businesses in the years after the
revolution, allowed a brief blush of private enterprise in the mid-1990s
following the collapse of Havana's patron, the Soviet Union. When that
grim time -- known in Cuba as the "special period" - began to ease, the
government put the brakes on the low-level capitalism that had bloomed
and used onerous regulations to run many cuenta propistas out of business.

This time, government leaders have said the reforms are not temporary.

"We are not applying patches or improvising, but looking for permanent
solutions to old problems," 81-year-old Vice President Jose Ramon
Machado Ventura said in a speech in central Ciego de Avila last July.

"It's deeper, the scope is much bigger, and the objective is larger,"
says Philip Peters, a Cuba expert at the Lexington Institute in
Virginia. "In the 1990s the goal was to make a few adjustments to the
model to get their heads back above water. ... This time they are making
changes to the model."

Cuba's new entrepreneurs face challenges common everywhere, as well as
some peculiar to a country where private enterprise has been largely
prohibited for a half century. Many lack startup capital and experience,
and their customers have limited purchasing power.

A vice minister in Cuba's Labor Ministry recently said the self-employed
are heavily concentrated in the making and selling of food, transporting
cargo and passengers, and working as contract laborers.

Two-thirds were not working when they started their businesses, he said.
A state television report said 16 percent are pensioners.

Former agriculture worker Oscar Oquendo is 78 years old. A tall man with
wispy gray hair and a withered face, he walks along a crumbling central
Havana street selling pastries he makes at home.

Like many of his generation, he says he is loyal to the Castros and
communism, but needs money to supplement his monthly pension, equivalent
to $10.

4 CENTS APIECE

Oquendo, 78, sells his pastries for one Cuban peso, or 4 cents, apiece.
Without a word, he pulls a pastry from his bag, holds it up to a
potential customer's startled face, looks him in the eye and waits for a
response.

It works - he says he is earning $33 a month.

"I'm very happy with that. I'm helping myself and my country," Oquendo
said as he prepared to confront another passerby.

Success has been more elusive for Rafael Barrios, who sells plumbing
items from a stand on 10 de Octubre Avenue, where dust swirls past
century-old buildings.

At 42, he wonders if he should have left his job at a state warehouse.
The insecurity and the long hours needed to earn a little more money are
wearing on him.

"At least there I didn't have to work very hard and I got paid every
month," he grumbles from behind a table he set up in between abandoned
buildings.

But with the government cutting jobs, there is no turning back for him.
He is scouting new locations.

Leather goods salesman Arle Toro Perez, 58, faced the same dilemma as
Barrios, glumly sitting on a folding chair in a gravel-strewn driveway
with few customers to buy the few belts, key chains and wallets he hung
from a stand.

He was making about three times more than the $13 a month he earned at
the state job he had quit, but still just scraping by. Taxes were high
and business slower than he hoped. Some days he sold nothing at all.

He later moved to a new location across from the Havana Libre hotel,
which opened in 1958 as the Havana Hilton, and things picked up. There
were more tourists and more sales. Today he has a much bigger inventory
and a smile on his face.

"Some days I'm making twice as much as I did at the old location. I can
take better care of my family," he said.

Some of the new entrepreneurs are stretching the limits set out by the
government and doing well.

Alex, who spoke on condition that his last name not be used, was an
architect before he discovered the profitability of "pirateria." Today
he sells counterfeit DVDs from a dingy, makeshift storefront in central
Havana.

He moves between shoppers examining his movie selection, heavy on the
latest Hollywood features. One customer looks over a copy of "Killer
Elite," starring Robert De Niro and Clive Owen, then hands it back.

Alex has had the business for years, but before the reforms the store
was illegal, though not the copyright violations. In Cuba, copyright
laws are ignored and state television and movie theaters routinely show
pirated movies.

Now, his feel for capitalism unleashed, Alex is diversifying, expanding
and, by Cuban standards, making a bundle of money - about $80 a day.

"I have two other stands like this one, and with the money I've
accumulated I'm getting into the food business," he said. "I've got a
big house with four bedrooms and I've got two cars."

TOURISM TROVE

Much of the entrepreneurship is aimed at the lucrative tourist trade. In
the colonial city of Trinidad, 175 miles southeast of Havana, Osmary and
Alberto jumped into the business out of necessity.

In late 2010, shortly after Raul Castro announced the opening for the
self-employed, the restaurant where Alberto worked closed. They painted
their home bright orange and turned it into a guest house, renting rooms
to tourists.

One of the first guests praised it on the travel website
TripAdvisor.com, and it has been mostly full ever since. The couple
began with two rooms, expanded to four and now want to add another and
perhaps a pool. A chef now cooks for guests.

"We are more comfortable," Alberto says, declining to divulge numbers.
He praised the reforms for giving Cubans a chance to do better. "The
people have many ideas."

As a group, the splashiest new businesses are home-grown restaurants, or
"paladares" as they are known in Cuba, which have exploded in number in
the past year. ("Paladar" means "palate" in English and was the name
given to a chain of restaurants opened by a small-time vendor in a
popular Brazilian soap opera.)

Expatriates and visitors used to complain that there were too few good
places to eat in Havana. Now they have trouble keeping track of all the
new ones.

An Internet list showed 93 paladares in Havana districts where foreign
residents and tourists are centered. Some date back to the 1990s, but
the latest have popped up so quickly they are not yet cited.

The eastern province of Santiago de Cuba had four such eateries before
the reforms; now there are 104. In the same period, the total number of
self-employed in the province jumped from 8,000 to 25,800.

Many of the new paladares are upscale, with names like Le Chansonnier,
El Partenon and Cafe Laurent. They are usually in nicely renovated
homes, with fancy decor and hefty prices. Filet mignon with pepper
sauce, grilled lobster, roast duck, and fish with white wine replace the
usual Cuban fare of rice, beans and pork.

Some owners complain that business has not lived up to expectations and
taxes are high. The self-employed must pay 10 percent sales tax every
month, a monthly license fee that varies according to profession, and a
yearly income tax that also varies but is 50 percent for paladares.

The government says it keeps taxes high because it needs money and
doesn't want its reforms to lead to wide class differences, with some
people accumulating great wealth.

RAMPANT REAL ESTATE SALES

But the housing market, which the government has opened, could be a
major source of capital for Cubans, with the potential to boost living
standards and infuse money into the economy. Cuba has billions of
dollars worth of real estate that could be turned into liquid assets,
and prices are already rising.

"Home ownership is very high in Cuba, about 85-90 percent," says Antonio
Zamora, a Cuban-American lawyer who visits Cuba regularly and has
studied its investment laws.

Cubans who stayed after the revolution were allowed to keep their homes.
Over the years, through laws designed to do away with the for-profit
real estate market, renters were also able to earn title to the places
where they live. Selling homes was not permitted, and instead a
home-exchange system was introduced.

"The net value of Cubans and the country as a whole is going to go
through the roof," Zamora said.

Interest in buying and selling homes is running high. A recent check
showed 11,025 listings on revolico.com, an Internet marketplace for
Cubans, with prices ranging from a few thousand dollars for cramped
apartments to several hundred thousand for spacious homes built before
the revolution.

On Paseo del Prado, a main Havana avenue, unlicensed sales agents say
the market for less expensive properties in better neighborhoods has
been so brisk that stock is running low. The Cuban government says the
country needs another 600,000 homes. Foreigners are still largely barred
from buying Cuban property.

Retired government worker Jose Leon said he turned down an offer equal
to $100,000 from a European buyer with a Cuban wife for his 1950s
three-bedroom apartment in Havana's once-exclusive Miramar neighborhood.
He did not want to pay the 10 percent fee the agents charge and thinks
prices will go up.

Many believe that as long as keeping communism afloat is Castro's goal,
he will not go far enough to make much of a difference to their lives.
Others think he will, but slowly. Castro has said his reforms will take
five years to implement because the leadership wants to avoid making
mistakes.

Skeptics point out that the government still tells people how many homes
they can own and how many chairs they can have in their restaurants. It
has set out 181 jobs in which self-employment is allowed - but everyone
must be licensed for their jobs.

Alex, the seller of pirated DVDs, nonetheless argues that the changes
have put Cuba on an irreversible path. "Three years ago we didn't even
think about having cell phones, now we have cell phones," he says. "For
years we couldn't sell houses, now we can sell houses. For years, we
couldn't buy a car, now we can buy a car.

"And now we can have a business. They are small, they are
micro-businesses. But it's yours, and it depends on your ability, your
effort, your tenacity."

(Additional reporting by Nelson Acosta, Rosa Tania Valdes in Havana and
David Adams in Miami; Editing by Kieran Murray, David Adams and Prudence
Crowther)

http://www.reuters.com/article/2012/05/04/us-cuba-economy-reforms-idUSBRE8430K320120504