In the midst of an unprecedented situation for the world and for Cuba, the island’s authorities decided to try to resolve one of the most repeated demands of the private sector. For years there was a demand for agile, safe and legal mechanisms to import or export, as well as a wholesale market. Based on an enormous need to expand the sources of income in freely convertible currency and also to advance more quickly in the economic transformations pending implementation since the last two congresses of the Communist Party of Cuba (PCC), four legal norms were issued, grouped in the Gaceta Oficial Nº 59 of this year. These regulations, with the forced intermediation of almost 40 state enterprises, create a new scenario for the economy’s private actors to participate in the country’s foreign trade.
Like almost everything in life, what was announced combines a group of positive and negative elements. Personally, I don’t usually expect idyllic solutions when it comes to facing problems. I prefer to walk with my thoughts on the ground and my feet in the sky, to take advantage of the opportunities that come by, even if they are incomplete or perfectible, at the same time that I argue, debate, and try to influence the way in which things are decided and carried out.
That’s why, after having studied these regulations and shared opinions with some colleagues in the union, I decided to put them on a two-plate scale, one positive and the other negative.
Among the issues that I consider positive about the new mechanism for import and export by private actors, I highlight the following:
- The commercial margins that the state-owned enterprises will apply for their intermediation in operations are really low, even if they are discounted from private actors in freely convertible currency. They range between 2 and 5% in many cases.
- The amount of documents required of private parties to open bank accounts for these operations and to enter the portfolios of suppliers/clients of state enterprises is minimal and practical. The national sin, quite common, of complicating everything with a thousand useless papers was avoided.
- There are no limits to the nature or type of products to be exported/imported since state enterprises can make full use of their authorized nomenclature. That is, according to these regulations, a private individual may import through them any of the products that are authorized to enter the country. Even in the case of unauthorized goods, they will be allowed to request eventual permits. This constitutes an interesting difference with respect to the existing mechanism for individuals through CIMEX, where a defined group of products can be purchased. In this new case, private actors will have at their disposal the nomenclatures of the authorized enterprises.
- For the self-employed, but not for cooperatives, the designed mechanisms allows for making cash deposits into bank accounts, transfers from abroad, or from FINCIMEX mechanisms. All of this finally connects remittances with the possibility of turning them into capital to finance the purchase of supplies and equipment. This had been happening for a long time but outside the existing formal channels.
- The state intermediary enterprise fully assumes all the procedures, which entail time, technical knowledge, resources and interaction with various state institutions. Anyone who has imported or exported in Cuba knows that for this one has to be armed with a special patience and calm.
- The private actor has the possibility of requesting the conclusion of business with the supplier or client of his interest as well as choosing the offer that suits him.
For its part, I would load the negative plate of the balance with these “weights”:
- It is the only mechanism that private actors may use for the moment to enter foreign trade. There should also be the possibility of trading with the world directly without intermediaries for individuals fit and trained to do so. In the end, an intermediary makes things more expensive, it is an unnecessary link in the distribution chains and reduces competitiveness. Therefore, working with them should be a business decision justified by expected tangible benefits and not an administrative obligation.
- In the case of cooperatives, being a legal entity, they are not allowed to deposit cash in the account in freely convertible currency. This constitutes a difficulty in opening them because it considerably reduces these actors’ possibility to open them. Where are they going to get the freely convertible currency if they are not allowed, at least for the first time, to make a cash deposit of the required 100 USD? If this is not resolved, it can become a barrier for this type of economic actor’s entry that, due to its social nature, would be expected to be especially encouraged in a country like ours.
- To be included in the client/supplier portfolio of the state enterprise and open the bank account, it is mandatory to present the self-employment license. But, to obtain this license in some activities such as restaurant, cafeterias and landlord, the origin of the equipment and tools to be used must be declared and even have evidence such as invoices, which is verified in an inspection prior to granting the permit. Here there’s a contradiction. How is an “aspiring self-employed person” going to import through this new channel if the Ministry of Labor and Social Security requests a declaration of the origin of the equipment, invoices and verifies them in an inspection to give them the license? These requirements leave out of this option all the people who aspire to start a business. As a solution to this nonsense, it could be recommended that they import via CIMEX through the mechanisms previously created for individuals. But to know if this can be a feasible solution, two key questions should be answered. Does CIMEX handle the same commercial margins used by the 37 intermediary enterprises authorized to deal with private parties? Can the same variety of products included in the extensive nomenclature of these entities be imported through CIMEX?
- There are no financial mechanisms to support these operations, which is extremely necessary and at the same time difficult in a context of chronic shortages of freely convertible currency. Everything indicates that the regulations, in principle, point to remittances or money “hidden under the mattress” as the main fuel to start this engine. Certainly, the State also suffers from the lack of foreign exchange. A mechanism that, once the current epidemiological situation is overcome, will make it possible to acquire this currency is highly desirable. If this issue is not resolved, the effectiveness of these measures may be significantly reduced.
- The payment of 20% of the freely convertible currency entered by export through a counter value in CUC, a measure with a clear collection flavor, can become a disincentive for operations in certain markets. How was this value decided? Why not establish an economic mechanism for its determination instead of an administrative regulation? Furthermore, in a context in which it is already evident that the CUC will die, receiving them in exchange for freely convertible currency raises more doubts than certainties.
Speaking to the state sector
I usually write these lines from the prism of what I am, a self-employed person who advises other entrepreneurs. But in the final part of this article, on this occasion, I will wear a new suit to make three recommendations to the state business community with the hope that this marriage is happy.
First: The 37 enterprises authorized for this type of service, if they aspire to be successful with this new actor, will have to see the private sector truly as a client in the case of imports and as their ally, partner for export. To assume yourself as a mere intermediary and not as a promoter and facilitator of mutually beneficial businesses would be a strategic mistake.
Second: To be successful, it will be essential for state-owned enterprises to understand how the private sector works, what its needs and its “metabolism” are. They will have to spend time and resources studying it, observing it, and understanding its logic. State entrepreneurs should open the doors of their enterprises for constant dialogue and networking.
Third: The time factor will be crucial. As a rule, the private actor is flexible, makes agile decisions, is chained in a matter of moments like other businesses and tries to immediately take advantage of opportunities in the market. The state enterprise, much larger than private businesses, with economic but also sometimes social priorities and with a different “biorhythm” will have to be highly empathetic to offer a service that meets the expectations of these small clients. The internal procedures they will have to develop to organize this new front cannot obstruct or deny what is defined by the regulations and must be in tune with the characteristics of private businesses.
Having said all this, perhaps the reader wants to ask the person who is writing these lines if in his opinion the scale is balanced or not. Are negative weights too heavy? Or will the positive ones be enough for this mechanism to yield the results we all need?
Well, life, with its indisputable logic, will provide those answers. We will see both positive and negative stories. There will be state and private entrepreneurs who will grab these opportunities with both hands, and there will be those who end up crushed by some of the weights or immobilized by lack of initiative. The really important thing is to be ready to quickly correct the shot and clear the way, a responsibility of both parties but in which the State and its enterprises will play a key role. So be it.