In Cuba, there remains a certain conceptual resistance to the adoption of private property within the socialist model. Although this concept is contemplated in the Constitution and in the governing documents of national development, the theoretical consensus has been broken when faced with practical implementation. To a certain extent, a fear/rejection/reproach toward the private sector has been cultivated, which offers no solutions. Instead, it divides us.
Why this stigma? And, more importantly, can the private sector in Cuba grow to the point that justifies it?
Historically, the 1959 Revolution was founded on a criticism of production relations based on exploitation and a heavy dependence on foreign capital, especially U.S. capital, characteristics that marked the Cuban economy in the first half of the last century. In 1968, the so-called Revolutionary Offensive almost completely eliminated private businesses, consolidating a dominant state-owned model that, with the fall of the Soviet socialist bloc, became evident.
In contrast, other socialist countries such as China and Vietnam, beginning in the 1970s and 1980s, undertook profound reforms aimed at integrating private enterprise and the market. Thus, China has become the world’s second largest power and a central player in the global geopolitical reconfiguration, while Vietnam aspires to become one of the world’s top 30 economies within five years.
Cuba has not even undertaken half of the economic reforms of China and Vietnam. Current laws keep Cuba’s private sector small by definition. Its expansion has clear boundaries. Their growth reaches a limit. It seems there are too many MSMEs because the starting point was zero, but the fear that they will control the economy, privatize everything and sell out the country, besides being exaggerated and malicious, is unfounded. Let me explain:
Private entrepreneurs in Cuba complain about the lack of regulation to promote MSMEs, self-employed workers, cooperatives and other businesses. But one thing is perfectly regulated: its limits. This is much less talked about. Let’s demystify the idea that the Cuban private sector can displace state-owned enterprises and “take over” the country:
Regulatory limits
Size
This is fundamental. Private enterprise, which is the type of business with the greatest growth potential, is micro, small or medium-sized by definition. An MSME can only have 100 employees. This limit curbs investment once they reach the maximum size. It will be impossible to find a “small or medium-sized” private business in Cuba with 500, 1,000 or 5,000 employees and hundreds of commercial outlets throughout the country.
For self-employed workers, the largest form of business, the restriction is greater: they can only hire up to three people, whether they are family members or not.
In the case of cooperatives, under the principle that in these organizational forms all members contribute their labor, they can only employ 10% of the number of members. In other words, a cooperative with ten members could only hire one employee.
One member, one MSME
The “one member, one MSME” principle establishes that one person can only be a member (owner) in an MSME. No one can own more than one business, under the maxim of avoiding “concentration of ownership,” as provided for in the Constitution.
Anyone acting as a front man commits one of the most serious violations, according to Decree-Law 91/2024, which implies “the confiscation of assets and the definitive cancellation for the self-employed worker and forced dissolution for micro, small and medium-sized enterprises, and non-agricultural cooperatives.…”
Strategic sectors
No non-state-owned business can invest in sectors declared strategic by the State, such as mineral extraction, oil production, biopharmaceutical manufacturing, the sugar industry, education, healthcare, aeronautics and rail transportation, etc.
All of these are captive markets for state-owned enterprises. In some, foreign investors are allowed to participate, even though there is no opportunity for national private investors. Examples include the nickel and tobacco industries, and the manufacturing and export of pharmaceuticals.
In other sectors, such as tourism, the ban is not total, but it does present significant barriers. Private individuals can offer accommodation services (such as private homes), but they cannot create a private hotel chain or operate as travel agencies. The hotel tourism market is different from that of private accommodation. This is an example where, rather than competing, the state and private sectors complement the demand of different market segments.
Other prohibited activities
There is another broad set of economic activities that, while not strategic, are prohibited for private individuals under current legislation. Decree 107/2024 includes vehicle sales, television and radio broadcasting and financial intermediation in its list. The manufacturing of medical equipment, electricity generation (except for that produced from renewable sources) and solid waste collection, among many others, are also prohibited. Various goods are not marketable by private individuals: medicines, weapons, timber and so on. In other words, only the State participates in this range of activities where, as in strategic sectors, private individuals are vetoed.
Professional activities such as consulting, engineering, architecture, advertising agencies and legal services deserve special mention. The market for these services has grown; the state-run offer does not cover them and are not specialized in small businesses. Faced with the impossibility of practicing legally, some entrepreneurs have opted for informality. The worst part: those who choose not to take the risk decide to emigrate, and many find professional fulfillment where they can establish or join businesses of this type.
Access to real estate and land
The transfer of property ownership is tightly controlled in Cuba. An individual can only own a maximum of two homes. One must be the home where they permanently reside. The other can only be a vacation or holiday home, according to the General Housing Law.
Ownership in private legal entities (MSMEs and non-agricultural cooperatives) is not regulated. In practice, MSME partners cannot transfer ownership of their homes to their enterprise’s assets, even free of charge. The treatment of housing in Cuba as an unseizable asset means that owners cannot offer them as collateral or security.
So how do they do it? Most private businesses that require an establishment to carry out their activities do so in two ways: 1) within the owner’s home, 2) leased in a state-owned building or other private residence.
The situation with land is similar. The laws in force prior to the MSMEs’ existence do not prohibit it, but they also do not regulate the procedure for granting land to these legal entities, whether in ownership or usufruct. However, the draft Law on Land, which must be approved in the coming months, makes it clear: Cuban legal entities will not be able to own or lease land.
Barriers to access to land and real estate are significant constraints on the growth of the private sector as a whole. They inherently hinder its physical and, consequently, its economic expansion. At the same time, they limit the potential of private MSMEs to enter, for example, the deteriorating agricultural sector.
The famous foreign trade monopoly
All goods imported by private individuals pass through state entities. Raw materials, machinery, food and beverages.… No private economic actor — as far as is publicly known — can import goods directly. In the case of direct exports, although implementing them would be a regulatory incentive, they are also not permitted.
These intermediaries, while their function is to facilitate trade management, often operate bureaucratically and add additional costs without adding value. Given the increase in private sector foreign trade operations, the number of state entities authorized to act as intermediaries grew to more than 70. However, in an attempt to maximize control, the government cut the number to 48 last year.
The government holds the “key” to private individuals’ foreign trade.
Foreign investment
Foreign investment transactions (wholly foreign companies, joint ventures and international economic association contracts) are centrally reviewed and approved by the Council of Ministers.
In July 2022, the then Minister of Foreign Trade and Foreign Investment (MINCEX) announced before parliament that “some seven foreign investment projects linked to non-state management” were being studied. That same year, the national press mentioned one that would receive external financing to produce pork, but ultimately that case did not come to fruition. To date, no (formal) foreign investment in MSMEs has been reported to have materialized.
Other limits
Beyond regulatory barriers, Cuban ventures face the economic and financial constraints of the context: shortage of foreign currency, inconvertibility of the peso, lack of wholesale markets, inflation, low productivity, energy deficit.…
As if that weren’t enough, in addition to all the design and contextual constraints, there are discretionary limitations, such as the halting of the creation of MSMEs. In the ten months from September 2024 to July 2025, only 231 “new” economic actors were approved.
So what happened?
The state’s retreat from activities where it predominated five years ago is evident. The most palpable example is retail trade: Cuban families do 55% of their shopping in private stores, according to the ONEI (National Institute of Statistics and Information).
Is this because MSMEs have “taken” market share from state-owned companies that sold food in the CUP (Cuban pesos)? No, what has happened is that the state has practically withdrawn from that market. Private enterprises are barely trying to fill the gaps.
But this doesn’t mean that the private sector is “displacing” the state sector. Even in its most difficult times, the state sector controls large industries and factories, dominates exports and imports, is the only national actor in foreign investment in Cuba, has no competitors in various branches of the economy, its enterprises are repeatedly saved from bankruptcy, and it employs more than two million Cubans.
The clarity of the legal limits established for the private sector in Cuba is unquestionable.
Does the country need to focus on “cornering” (more) MSMEs? Or do state-owned enterprises need the profound reforms that have been pending for years?
The Law on Enterprises has been announced since 2015. Ten years and several postponements have gone by. We are wasting time arguing about whether MSMEs are “good” or “bad,” even whether they are a “necessary evil.”
Let’s discuss how to transform Cuban state-owned enterprises to make them more efficient, competitive and autonomous. But let’s discuss this seriously, without falling into the voluntaristic debate that each director or employee in the state sector should fulfill their individual duty to solve all the problems. The solution essentially lies in political will expressed in economic policy decisions.
