Cuban Economy Grows as Relations with U.S. Improves

Analysts project that the Cuban economy will grow 4.0 percent in the first half of 2015, due to gains in such areas as manufacturing, trade and construction. Tourism also shot up 15 percent in the first few months of 2015.

Analysts project that the Cuban economy will grow 4.0 percent in the first half of 2015, due to gains in such areas as manufacturing, trade and construction. Tourism also shot up 15 percent in the first few months of 2015.

President Obama signaled in December 2014 that he may restore diplomatic ties to the nation, which has many wondering how the Cuban economy will change. Analysts expect American travel to Cuba to grow over 50 percent in 2015. Leisure travel is still banned by the U.S. government, but cultural and business travel is permitted. In 2014, 350,000 Cuban Americans travelled to Cuba, including 100,000 Americans. Experts expected an improvement in tourism, but gains in other areas of the economy came as a surprise to many.

Part of this is attributed to President Raul Castro introducing market-based reforms to the economy, such as creating a healthy atmosphere for foreign investors and making more space available for small businesses. Castro also introduced market fundamentals in the agriculture sector, as well as the leasing of fallow land. The agriculture sector increased 13 percent in the first part of the year, and recent sugar production grew 18 percent. With that being said, Cuba’s growth rate has suffered in the last few years, and other parts of the economy never gained traction. For instance, communications, transportation and warehousing all dropped below analyst expectations.

In addition, Cuba imports more than it exports, although trade remains positive for the year. Cuba would fare better as an export economy in order to upgrade trade negotiations and boost foreign exchange. So far, Cuba is on the right track, with manufacturing being one of the sectors that advanced in 2015, and the island would need to find the right demand markets for export.

In the financial sector, Cuba must build a robust banking network that allows locals and foreigners to borrow and save money. Cuba has two forms of currency, a “soft” peso, or CUP, and a “hard” currency, CUC, which is reserved for foreigners. Neither forms of currency are traded away from the island. Experts also suggest that Cuba would benefit from foreign finance. Cuba joining such world bodies as the International Monetary Fund and the World Bank would give the island access to foreign lending.

Whether Cuba wishes to become beholden to foreign creditors down the road is up for debate, and Cuba’s relations with certain private investors have been frosty at best. Cuba is already undergoing fundamental transformations, regardless of potential improved relations with the United States, and it remains to be seen if Cuba will become a fully integrated member of the world community.