Cuba clamps down on much-promoted private sector plan amid crisis and exodus

Andres Oppenheimer

Cuba’s decision to impose new restrictions on small and medium-sized private firms should not come as a surprise to anyone: it’s part of the island’s dictatorship’s effort to cling to power amid a rapidly growing economic crisis.

According to a new ruling published Dec. 5 in Cuba’s Official Gazette, small and medium-sized private companies — known as Mipymes — will no longer be allowed to make wholesale sales unless they do so in partnership with the state. It was the latest — and one of the most significant — of several recent rules to tighten the grip on private businesses.

The measure is triggering fears of a new wave of migration from the island. The exodus of Cubans has already reached record levels over the past two years amid the island’s worst economic crisis in decades. There are widespread shortages of food and medicines and intermittent blackouts.

A whopping 10% of the island’s population left the country between 2022 and 2023, according to Cuban government data. By the end of 2024 that figure is likely to have reached 20%, independent studies show.

The Cuban economy contracted by 1.9% in 2023, and will not grow this year, government data show. Tourism, the island’s main source of income, is hurting badly, as many foreigners are opting for other Caribbean destinations rather than visiting an island where street lights go dark at night.

And there is no quick fix in sight for Cuba’s blackouts, because the island’s obsolete electrical grid was further damaged in recent months by hurricanes Oscar and Rafael.

“Cuba is in disastrous shape socially, politically and economically,” says Ricardo Zuñiga, a former top State Department official during the Biden administration. “The level of resentment is higher than at any time in recent history.”

In a rare public display of internal dissent, Havana-based former Cuban ambassador to the European Union Carlos Alzugaray tweeted on Dec. 8, in an apparent reference to the latest government measures, that “It seems like someone wants to lead Cuba directly to economic suicide.” He added that the new rules may also be “an act of political suicide.”

The Cuban regime had announced in 2021 new regulations giving greater economic freedoms to small and medium-sized private businesses in hopes of revamping the economy.

By early 2024, there were more than 11,000 small and medium-sized firms on the island, employing nearly 300,000 people, in addition to 600,000 self-employed entrepreneurs, according to Cuba’s Ministry of Economy and Planning.

Some of the Mipymes import food and consumer goods from the United States and distribute it to the island’s privately-run restaurants and grocery stores. The U.S. trade embargo on Cuba has exemptions for food items.

Retail sales by small firms and self-employed entrepreneurs skyrocketed from 4% of all retail sales in Cuba in 2020 to 44% in 2023, according to Cuban economists.

Asked why the Cuban government is cracking down on private sector entrepreneurs, Zuñiga told me that “the government is trying to squeeze every dollar that they possibly can because they have no other sources of revenue.”

Under the new regulations, private entrepreneurs will have to buy many goods from the state, rather than directly from U.S. exporters, he explained.

“The honeymoon with the Mipymes is over,” an accountant of a privately owned small Cuban firm told the independent news website 14 y Medio. “Now, the state is showing its real abusive face to the private sector.”

The Cuban regime may also have placed restrictions on the private sector in an effort to maintain political control in the country. Several government officials were running Mipymes through third parties and keeping the profits for themselves, according to Cuba’s official media.

“These officials were becoming too rich and powerful, and a potential threat to the government,” says Emilio Morales, head of the Miami-based Havana Consulting Group.

But, in an effort to save itself, the Cuban regime may be shooting itself in the foot. The latest measures to crack down on the private sector will only sink the economy further and create more social discontent.