Peeking Behind the Curtain of the Cuban Economy

After decades of Cold War era embargoes and secrecy, Cuba has allowed the veil over its economy to lift just a bit in recent years. In an effort to join the rest of the world economically, Cuba has slowly loosened a few of its own policies geared toward preventing outside influence that could undermine the communist government’s control. This has allowed an array of American businesses, from airlines to law firms, to dip a toe into Cuba’s economic pool, and generally, Americans seem to find the climate hospitable enough.

After decades of Cold War era embargoes and secrecy, Cuba has allowed the veil over its economy to lift just a bit in recent years. In an effort to join the rest of the world economically, Cuba has slowly loosened a few of its own policies geared toward preventing outside influence that could undermine the communist government’s control. This has allowed an array of American businesses, from airlines to law firms, to dip a toe into Cuba’s economic pool, and generally, Americans seem to find the climate hospitable enough.

In fact, according to a study conducted by Pew Research, fully two-thirds of Americans favor the notion of loosening or totally dropping trade embargoes against Cuba. Still, wanting to engage in trade and actually being able to effectively remain two different concepts.

The biggest problem is understanding Cuba’s relative position in the world economy. Much like Venezuela, Cuba uses two currencies with differing exchange rates. One is intended for trade outside the nation and is artificially valued at the same price as the US dollar. The other is for domestic transactions and is, as one might expect of a country of Cuba’s relative size, significantly less valuable than the US dollar. Both are called pesos, and this creates a confusing morass of exchange rates and muddied terminology when trying to analyze reports issued by the nation’s own financial authorities.

Still, change is in the air in Cuba, and it seems to point toward more favorable relations with the United States. According to a survey conducted and reported by The Washington Post, 79% of Cubans indicated that they were dissatisfied with the country’s economic system.  Additionally, 70% said they would like to start their own business, and 64% said normalizing relations with the U.S. would change the economic system (whether for better or worse was unclear), but only 37% thought the political system would change, as well.

With all of that change in the air, many American investors are considering making a few changes to their portfolios, as well, to include Cuba. Yet, doing so remains difficult, and the things still left unknown about Cuba often outweigh the things that are known. Largely, this is because Cuba’s government still owns three-quarters of its GDP output. That makes it easy for the government to conceal a number of indicators and reports.

Still, Americans managed to do $300 million in export business to Cuba in 2014. Researchers also know that the Cuban economy appears to have contracted sharply over the last several years, expanding just 1.3 percent in 2014. Nevertheless, if Cuba’s government continues to improve relations with the United States that could provide opportunities for export that would give the Cuban economy a much-needed shot in the arm. More investors that are American could also help to lift Cuban enterprise over the next several years.

Thus, Cuba may become an interesting new emerging market for more investors that are American as the curtain surrounding the island nation further parts.