Supporting Small Business in Cuba

In January 2011, the Cuba Study Group and the Center for Financial Inclusion at ACCION International sponsored a Cuba Small Business Summit in collaboration with Americas Societyband Council of the Americas in New York. The summit brought together experts in the fields of micro-finance, business education and economic development to identify ways to support entrepreneurship and self-employment in Cuba.

The goal of the summit, and this paper, is to identify specific steps that private-sector leaders, foundations, nongovernmental organizations (NGOs) and the governments of Cuba and the United States can take to improve conditions for micro and small businesses. One product of the summit was a set of recommendations for public- and private-sector leaders and foundations. This white paper, which will be updated to reflect developments at the Cuban Communist Party’s Sixth Party Congress in April 2011, covers the following topics:

• The future role that small businesses and those who are self-employed can play in Cuba’s economy.
• Lessons from other countries that have undertaken reforms to promote small business.
• Short- and medium-term initiatives for individuals and NGOs to support and nurture entrepreneurship and self-employment.
• Steps the U.S. government can take to ensure its own policies do not hinder small business development in Cuba.
• The Cuban government has begun implementing reforms to allow greater private economic activity to reduce government expenditures, increase productivity and raise wages. If fully enacted, these reforms will constitute the most far-reaching economic remodeling in Cuba in half a century. Despite these steps, numerous obstacles could inhibit the creation of a friendly environment for small businesses: lack of access to capital, dysfunctional wholesale markets, regulatory issues, insufficient business training, anemic domestic demand and U.S. sanctions against Cuba.

China, Vietnam, Bolivia, and Singapore’s past experiences offer important lessons to the Cuban government. For small businesses to flourish, the Cuban government will likely need to simplify the business creation process, reduce tax burdens on entrepreneurs, revamp its regulatory frameworks and liberalize prices, similar to what occurred in China and Vietnam.

The Cuban government should also adopt consistent pro-entrepreneur policies; take steps to guard against unexpected inflation; and promote access to foreign capital and technical know-how through multinational financial institutions, NGOs, development banks and other international partners. An orderly, market-oriented economic reform process is decidedly in the best interests of Cuba, the United States and the region.

Short- and medium-term initiatives for individuals and NGOs could include business training and market research programs to provide experience-based learning and business mentorships, partnerships with Cuban universities to facilitate training workshops, and the development of online entrepreneur communities and other Web-based resources. In the medium to long term, remittances can be leveraged to support entrepreneurs through online giving portals modeled after well-known examples like www.Kiva.org. Family lending programs could also boost remittances and enable Cubans living abroad to sign promissory notes for loans and then remit the money to their relatives in Cuba. The establishment of micro-lending funds for Cuba could also help emerging entrepreneurs get access to capital and dramatically assist in the development of small and micro-enterprises.

As the Cuban government begins to reform its economy to allow greater private economic activity and self-employment, the U.S. government must evaluate the impact of its economic sanctions on small business development in Cuba. The United States should seize the opportunity to support micro and small enterprises on the island and should take additional measures to loosen rules in this area. The Obama Administration has recently taken positive steps by creating new licenses for remittances and travel. Nevertheless, the U.S. government can do more. An orderly, market-oriented economic reform process is decidedly in the best interests of Cuba, the United States and the region.