“MSMEs are not meeting their objective.”
“Too many were approved.”
“They are responsible for many problems.”
These are phrases that abound in debates about the economy and the private sector. They express dissatisfaction with scarcity, inflation, poverty and other distortions in the economy that have worsened in recent years. But what is the “goal” of MSMEs? Are there really “too many”? What does the real data say four years after their emergence? The answers, like everything in economics, are not simple.
The 2021 reform
In September 2021, the Cuban government introduced sweeping reforms in the private sector to increase its size and reach in the economy:
- Authorization of private enterprises. For the first time since the 1960s, the establishment of private businesses with legal status was permitted. Clear legislation and a fluid creation procedure allowed for the authorization of more than 11,000 MSMEs.
- Adjustments to the scope of self-employment. The number of employees allowed in this modality was limited to three, more similar to international practice. This meant that many businesses had to convert to MSMEs.
- Expansion of private economic activity. The list of permitted activities was eliminated and a list of unauthorized activities was established. In practice, authorized activities increased from 127 to more than 2,000.
These three measures are the basis for the current expansion. They represent a shift in paradigm toward a model where state-owned enterprises maintain their hegemony, but allow for more private, cooperative and other forms of participation already present, such as foreign investment. MSMEs are the ones that have taken the most advantage of the opening, competing and even dominating in some sectors and indicators. But why were they created?
MSMEs’s famous “objective”
Cuban law establishes that MSMEs “have as their fundamental objective the development of the production of goods and the provision of services that satisfy the needs of society and contribute to the development of the country.” Let’s analyze some implications:
Production of goods and services. All MSMEs, like any business, produce a good or provide a service. If they don’t, they go bankrupt and have to close. Whether manufacturing furniture, running a restaurant, remodeling a home or selling food in a convenience store, MSMEs are meeting the needs of people and other businesses.
As reported by the National Office of Statistics and Information (ONEI), in 2024 the private sector surpassed the state sector in retail sales for the first time: Cuban families purchase 55% of the products they consume from the private sector. MSMEs alone account for 29.3% of total market sales.
This expansion is relative because, although private enterprises are selling more than before, there has simultaneously been a significant decline in state supply. Individuals have tried to “fill the gaps” left by their state competitors. In any case, Cubans satisfy part of their consumption (primarily food) thanks to private supply.
Imports and exports. In the first half of 2025, private enterprises imported $1.195 billion in goods. MSMEs are responsible for 70%. Assuming a linear trend, private imports would exceed $2 billion by the end of the year, a record figure. There are no specific data, but it is clear that the majority are final products.
Regarding exports, although they amounted to just $21 million, they registered a 30% growth. A distortion is evident, not due to the form of ownership or management, but rather a structural one. Private enterprises (as well as state-owned enterprises) have not broken the import model because the mechanisms and incentives of the economy have not changed either. Willpower is not enough to produce in Cuba, much less to export.
Employment. The non-state sector employs 1.3 million Cubans, or 31.5% of the employed population, mostly self-employed workers and their employees. Surprisingly, although MSMEs are the form of entrepreneurship that has grown the most in several aspects, they are following a very modest trend in employment. They employ only 57,900 people, or 1.4% of the total, according to the National Employment Survey of ONEI (2024). This is partly explained by a very burdensome tax system that discourages employment and generates another problem: informal employment.
Partnerships with the State. Partnerships between state and private companies are one of the government’s flagship projects in its official discourse on the non-state sector. There are many excellent experiences, but authorities regret that they are still very few. This is not surprising, since for this type of partnership, willpower is not enough; instead, mechanisms must exist to facilitate and promote them. Two examples suffice to justify the “slowness” of these partnerships: the multiple exchange rates with which MSMEs and state-owned enterprises operate, and the absence of a legal provision establishing and promoting joint ventures between Cuban legal entities.
Tax contributions. Tax collection has grown for two reasons: increased taxes (on sales and the elimination of tax exemptions) and the growth in the number of private entities. The Ministry of Finance and Prices projects that by 2025 MSMEs alone will contribute 36.3 billion pesos to the state budget, which represents 60% of all annual private contributions. If the Finance Ministry’s estimate is met, MSMEs will contribute 30% more than in 2024.
Although the National Tax Administration Office (ONAT) declared at the close of its last campaign that only 36 failed to file their Income Tax Returns, tax evasion and avoidance still exist. MSMEs and individuals who commit these offenses should be sanctioned accordingly, but generalizing that all MSMEs are evaders by nature fuels a distrust that must be eradicated.
A notable point is that MSME contributions are primarily allocated to the municipalities where they are domiciled. Local authorities can use these resources to support their development strategies. This is undoubtedly an incentive for each municipality to promote the emergence of more businesses within their borders.
Life projects. The entrepreneurs who have founded MSMEs and the workers who have decided to work for them are legitimately pursuing their life projects. The labor market has diversified and state-run labor is no longer the only option available: people can choose from private enterprises, self-employment, agricultural and non-agricultural cooperatives, foreign companies, joint ventures, among others.
Cuba remains an economy in crisis, with critical financial restrictions and the ongoing economic war waged by the United States. To the question of whether MSMEs are fulfilling their objective, my answer is: Yes, they are doing the best they can under the conditions they have. Now, is it enough? The answer is no. Their integration to contribute to sustainable development can be more effective, but not only a stable economic environment is needed, an adequate regulatory framework is also needed.
The most important thing: where are we going?
One of the main limitations of the 2021 reform was its narrow focus on creating this economic entity. No policy was conceived to encourage and promote these ventures, except for isolated measures that were later eliminated.
To a certain extent, it is natural that the beginning was this way. The same regulatory package from that year provided for a review and update of MSME legislation, following a period of experience in its implementation. This review took place in 2024, but only introduced two significant changes: 1) MSMEs will be approved by municipal governments, and 2) an Institute is created to serve the private sector.
In practice, the authorization of MSMEs by municipalities is stagnant. As reported in the parliamentary session of July of this year, the 44 authorized municipalities approved only 231 new enterprises of this type in ten months. For its part, the aforementioned Institute has had little action one year after its creation, and in the spaces where it has, it has focused its discourse on control. Similar institutes in other countries not only control, but, above all, direct promotion and development policies.
Currently, state policy toward MSMEs appears to have been reduced to a mere exercise in control and sanctions, far removed from a strategic vision of development. Far from being integrated into a component of the national roadmap for transforming the productive matrix, they are treated as a residual sector, lacking effective public policies to boost their competitiveness, innovation or sustainable growth. This is a direct responsibility of the state, as it is in charge of designing and implementing comprehensive strategies for economic development at all levels.
For MSMEs to “better” meet the objective for which they were created, public policy must transition to new paradigms:
- From restrictive supervision to encouragement and promotion.
- From bureaucratic procedures to expedited business creation.
- From generalizing stigmatization to individual responsibility.
- From tax homogeneity to differentiated incentives that enhance productive, innovative or socially responsible results.
- From seeing them as lifelines for state-owned enterprises to building sustainable alliances.
MSMEs are neither the problem nor the miracle cure. They are, simply, an essential part of the broader economic reform that Cuba needs. Control alone does not generate wealth or change realities: it is more strategic to embrace them as important partners for a productive transformation that will allow us to build the prosperous society all Cubans aspire to.
