North & Central America and Caribbean

Cuba
Last reviewed: 10 July 2008

Country information

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ECONOMY

Basic Economic Facts

Nominal GDP: US$45.5 billion (2007 est)
Nominal GDP per head: US$4,051 (2007 est)
Inflation rate: 2.8% (2007 est)
Main industries: tourism, sugar, nickel, tobacco, and agriculture and rum.Please note that Cuba calculates its GDP to include "social services". These estimated figures, taking that into account, are provided by the Economist Intelligence Unit..

The Cuban economy has experienced a gradual recovery since its 'freefall' in the early 1990s. This followed the collapse of the former Soviet Union, Cuba's preferential partner in trade and aid, and Cuba was forced to take tough economic measures. These included the legalisation of the use of hard currency (US dollars) and of some private enterprises, as well as reform of agricultural production and land tenure to permit more private ownership. Nonetheless private enterprise is still heavily restricted. Furthermore, 2003/2004 proved to be difficult years for the Cuban economy, with droughts, hurricanes and power shortages, increasing US economic restrictions and falling foreign investment. Tourism is now a key foreign exchange earner for Cuba, with over 2 million visitors a year bringing in about $2bn dollars in revenue. However, GDP levels are still below those of the late 1980s. In October 2004, the government announced that the dollar would no longer be used in commercial transactions, ostensibly to reduce the vulnerability of the Cuban economy to US measures throughout 2004 to limit the flow of hard currency to the island. The Cuban peso and Cuban Convertible Peso were both revalued (the latter by 8% - 1 CUC = 1.08 USD) against the US Dollar and other foreign currencies in early 2005.

Shortages of basic foodstuffs and medicines, and poor public transport are all still regular features of daily life for ordinary Cubans, although transport is improving in the capital. The national average wage is roughly $10-15 a month at real market prices. The state provides basic rations of food; education and health are free and universal; utilities are subsidised heavily and most, if they do not 'own' their houses, pay little or no rent. Nevertheless only those with regular access to foreign currency - through remittances (now limited by US measures introduced in May 2004), or by working or providing services for foreigners - can achieve a reasonable standard of living and ownership of cars and freedom to travel are extremely limited.

The Cuban authorities remain firmly committed to maintaining a planned economy, but will continue to carry out enterprise restructuring and to seek foreign business participation.

Under the Foreign Investment Law passed in 1995 (which allows 100% foreign ownership in certain circumstances), Cuba started actively seeking foreign participation in commercial activities. There are opportunities for establishing joint ventures or other forms of commercial association in Cuba, although investors face practical difficulties, and often need patience. Since 2004, the Cuban Government has prioritised and actively encouraged investment from Latin America, China and Vietnam (especially in the nickel and energy sectors), while cutting back on the small and medium sized private investment joint ventures. Through central planning and sacrifice, Cuba has, for the region, an unusually diversified economy - including a prominent biotechnology industry. Other positive developments include the re-structuring of the banking sector, resulting in the formation of the new Central Bank (both in May 1997). A poor hard currency debt situation, lack of medium and long-term finance and a perception of threat from the Helms/Burton legislation (US legislation to penalise foreign companies with business interests in Cuba) remain significant potential deterrents for foreign suppliers.

Further information on US extraterritorial legislation and how it may affect foreign companies trading with Cuba can be found on the following pages of Department for Business, Enterprise and Regulatory Reform’s (BERR) website.

Department for Business, Enterprise and Regulatory Reform (BERR)