I don’t think it is necessary to prove that micro, small and medium-sized enterprises (MSMEs) are important for any country, even for the most “developed” ones.
I believe it’s not necessary to prove either that depending on the countries’ level of development, the technological complexity of their production processes, these MSMEs acquire one or another role, both in their contribution to the product, as well as to employment and innovation; they are established truths.
It doesn’t need to be proved either that the level of education of the population plays a decisive role in these processes.
That the quality of the institutions — of the rules of the game —, of the competition and of the “business environment” are decisive factors in the birth, development and disappearance of MSMEs, is also a proven fact.
Cuba was probably the only country in the world that, after 1990, had “the luxury” of living with its back to that reality and for a time insisted on denying the need for this type of business structure for its economy, and, after having recognized that reality, it took 10 years to achieve a legal system that would regulate the existence of MSMEs.
But, at last, we have that set of rules. They may not satisfy everyone, it is likely that some have even suffered some disappointment, big or small; it is also very likely that some are still trying to understand all that great body of recently approved regulations. In fact, it is very likely that both the institutions that must apply them and their officials are also part of this exercise. Undoubtedly, many workshops will be needed, not to disseminate and raise awareness about good practices in garage sales, but to disseminate, train, and sensitize about good practices for the promotion and facilitation of MSMEs.
As a formally recognized economic form, MSMEs are something new for Cuba. They disappeared in 1968 and only now are they being admitted to the island’s economic context. It is true that before, since the early 1990s, many private businesses were, de facto, MSMEs, but they were not recognized as such. Grudgingly accepted, these small private businesses survived in a legal limbo not conducive to their qualitative growth, they were always dependent on the ups and downs of political appreciation and pending, many times, the interpretation of officials who assumed powers that went beyond their mandates.
With little access to credit, without financial institutions adequate to their needs, with a very strong market segmentation, with legal prohibitions on access to markets, with underdeveloped and poorly stocked wholesale markets, without any possibility of importing intermediate goods for their productions, with rare exceptions (Cultural Goods Fund, for example), with two currencies and more than two exchange rates, in other words, “with a very unfavorable business environment,” these small businesses were if anything doomed. To survive, however, they knew how to do it and in fact, they became a revitalizing segment of employment and supply, despite Trump and the pandemic.
That is why I believe that having a body of regulations that formalizes the existence of these small businesses is very good, it is, as a general balance, positive for the national economy and for the people involved in these activities, even though I am convinced that we will see changes in these rules, if it is really desired that the MSMEs become a strength of the national economy and that they contribute significantly to territorial development strategies.
From my perspective, there is space to improve the conception of MSMEs in Cuba, to make the regulations more coherent with the current vision of the country, with the strategic focal points, and with the war situation we are experiencing, to strengthen their role in the dynamics of the national economy, to take advantage of the opportunities they (MSMEs) provide to increase external financing flows, to consolidate the relationship with Cuban emigration and, above all, to find spaces to reduce the negative impact of the U.S. blockade.
I understand, from reading this recently approved body of regulations:
1. That the will to collect has prevailed over the intention of promoting and developing MSMEs. A 35% tax, even with the argument that the tax burden has not increased, is far from being a positive incentive.
These rules apply and are imposed for the entire country, for all the island’s territories, regardless of their level of wealth and prosperity and clearly limits the possibilities of local governments to encourage an economic actor that, at the level of territories, can be important in employment and in the development of specific productions. El Vedado is not the same as Taguasco. The territorial distribution of wealth in Cuba is very uneven. The verticality of these regulations imposed (for the whole country) goes against the empowerment of local governments, which is a key piece in the government system based on science and innovation.
The argument that this is intended to put all actors on an equal footing is, in my opinion, nonsense. First, because it is not possible to give equal treatment to entities that are in fact unequal, both due to their size and the level of risk they run. For a large socialist enterprise, the already existing 35% tax may not be decisive, but for a small enterprise that is just born it is, and for the intention of starting a business as well.
It is true that tax collection is decisive for the State, even more so for ours, with its great social commitments; however, the paradox of this situation is that available income is that which remains after deducting taxes and contributions and it is this available income that allows consumption and investment. The higher the taxes, the less income to consume and invest, it is an elementary formula. Generally, to resolve this great diatribe, it is preferred to increase the tax base — that is, the number of taxpayers — and not the amount of tax. It seems that in this case the solution that has been given does not go that way.
It is also possible that it is intended in this way to avoid the “accumulation of wealth,” however, it could cause the expansion of poverty. And I don’t think the latter is an option for our country today.
It would have been more appropriate to put a tax bracket starting with the very low 5-10% of the tax, up to 35%.
2. That the possibility of opening MSMEs is limited to Cubans residing in the country, excluding non-resident Cubans and foreigners, this measure cuts off possible sources of fresh income, which Cuba so badly needs.
What the small opening from 2014 to 2018 proved is that these sources came to invest annually as much as the Foreign Direct Investment (FDI) covered by Law 118 and mainly aimed at large projects.
This small private investment, national and foreign, was responsible for the growth of the extra-hotel network and the construction of more than 24,000 rooms, in which the Cuban State did not invest a dollar, nor a peso, unlike those large empty hotels that have cost us billions.
Thus, the opportunity to consolidate the relationship with Cuban emigrants is lost, to take advantage not only of capital but also their experience, to promote technological improvement, to encourage production and supply, and even for the country to be able to insert itself into international production and value chains.
If what is wanted is to promote productive transformation and international insertion, I see no reason to voluntarily give up this opportunity, both with emigration and with foreign citizens. I would like to be wrong, but based on experience, in any case this insertion will occur informally, and it will not be transparent or taxable.
Arguing that these actors can invest through Law 118 does not seem to be supported by reality if we look at the modest advances that FDI and its procedures have experienced in all these years, even before Trump and the pandemic.
On the other hand, opening and diversifying these businesses would contribute to making the prosecution of the U.S. Treasury Department and OFAC more difficult, considering, above all, that MSMEs are not yet on any list of “persecuted enterprises.”
3. That the borrowing capacity of future MSMEs is limited only to credits in Cuban pesos (CUP) and only granted by the national banking system.
It is another opportunity that is voluntarily given up. If one of the most serious problems facing Cuba today is the lack of financing, how to understand that decision? Does the national banking system have the financial capacity to grant credits in foreign currency (dollars or euros) to these new actors? Is it impossible for some international financial institution, banking or non-banking, to find some small business interesting and finds the formula to get its money back? Are these new actors less than those that already exist? Isn’t this another opportunity to remove one more brick from the blockade wall and to be less dependent on the dictates of U.S. administrations?
4. That one of the strategic central points on which our “Development Plan until 2030” is based is that of “human potential, science, technology and innovation.” Science and innovation are also two of the pillars of the government management system.
In the document of the “Development Plan,” in number 130 it is stated that “One of the main sources of growth at the international level has been the training and mobilization of human potential. In fact, there is a recognized relationship between a country’s capacity to generate knowledge and innovation, and its growth and economic and social development” and further on in 132 it is stated that “Productivity gains must come from the innovative capacity and the development of knowledge-intensive activities and greater added value,” then, in 137, the following is defined as the first objective to be achieved in this area: “To develop highly qualified human potential and to guarantee conditions for their protection and stability.”
Is the development and efficient use of human potential an exclusive right of the state sector? Has this sector proven to be efficient in that purpose? Does the state sector have the capacity to offer adequate jobs to the human potential that exists in the country today? What does the data and scientific research say about it? Is protecting highly qualified personnel and providing conditions for their stability only a task that can be fulfilled in the state sector?
What the facts confirm in all these years is the existence of a high number of young, highly qualified people who have emigrated to other countries, among other reasons, because they have not been able to find in their country, in their homeland, the opportunity to develop their personal projects. The data is there, even if it is not public.
So, on the one hand, we are facing the process of aging of our population and of our qualified personnel and, on the other, we are also facing a process of emigration of the few highly qualified young people who remain on the island. Then how to understand the continued refusal to allow Cuban professionals to have their own small businesses in their specialty?
From my point of view, this prohibition, without foundation in the facts, is incoherent with what is stated in the strategic focal point of the country’s “Development Plan,” unless it is understood that protection and stability can only be provided by the sector. state. Do not all economic actors contribute to the vision of the nation? Is it that the construction of socialism is not a collective work?
When the reasons why this type of small business was not allowed in Cuba were explained, I was suffering from COVID-19, then I attributed my difficulty to understand the explanation to the disease. A few days later I read the written version, I was no longer ill, but it was still impossible to understand the reasons — which in fact I could not find — for such a decision.
The sad thing about all this is that we do have the possibility of, at least, combatting the exodus of qualified personnel by giving them opportunities that do not cost much. Are we taking advantage of this?
Welcome to the regulations, let’s understand them as a learning process and successive approaches to what our country really needs.