Cuba and its economy: Growth of 4.7% in the first half-year
by José Luis Rodríguez
An indispensable starting point when analyzing the Cuban economy during the first half of 2015 is that last year’s results were not favorable. This has had an impact on the current performance, although a group of factors appear to be offseting these negative effects.
According to the National Office of Statistics and Information, the Cuban economy grew only by 1.3% in 2014 against an expected 2.2%. Decreases were reported in investments (-8.9%), manufacturing (-3.6%) and construction (-2.3%), while the fiscal deficit rose to -2.3% in relation to the GDP. On the other hand, the economy saw a growth in the agricultural sector (2%), the sugar industry (4.2%), trade (3.2%) and tourism―5.3% in visitors, but only 2.1% in income.
It became evident that the nation could not reduce further its level of imports, taking into account that a 1% increase in GDP demanded an increase of 2%-3% on foreign purchases. During the ordinary session of the National Assembly in December 2014, an adjustment to the policy of the country’s external financing was announced: debt obligations were planned to be met in the amount of USD 5.661 billion―equivalent to 30% of the value of exports―in order to take up again a similar figure and make possible the volumes of imports needed to improve the growth rate of the economy.
Consequently, the 2015 plan included a 13.3% increase in the imports of goods and 5% in exports. This would support the 28.7% increase in investments, 11.2% in manufacturing and 4.1% in agriculture, among other indicators of major importance to ensure a growth of 4%.
The past meeting of the Council of Ministers announced that the economy had grown by 4.7% in the first six months of the year, with the sugar industry showing the most favorable results. Its production grew by 18% reaching around 1.9 million tons, although with a drop of 24.3% in prices. A modest recovery, however, is expected sometime in the year. Other sectors that also showed favorable performances were agriculture, which grew by 4.8%, manufacturing by 8.6%, construction by 8.7%, and trade and transport by 6.5%. Productivity also grew by 5.3%. the warehousing and communications sectors showed some difficulties. Meanwhile, nickel prices evolved negatively falling by 18.1%, although there should be some recovery in the second half of the year. The failure to contract a number of products on time in 2014, along with nonfulfillment in the domestic industry have caused a shortage this year, requiring an additional 40 million dollars to cover the deficit.
With regard to the export of services, from the beginning of the process of normalization of relations between Cuba and the US, as well as from certain some economic improvement in Europe, there has been an increasing number of visitors, reaching 16% at the end of June. This is influenced by a 36% growth of visitors from the US until early May. At the end of the semester, the tourism sector had invoiced 1.7 billion dollars, which predicts an increase potentially higher than 20%, by the end of 2015, against the 2.7 billion dollars gained last year.
On the positive side, Cuba has benefited from the decline in oil prices as of the second half of 2014. This has made a favorable impact on this year’s bill of around 500 million dollars. Similarly, there has been a significant reduction in the price of imported food, with a planned tab of around 2.1 billion dollars in the year, which will decrease by an estimated 174 million.
The process of reducing the external financial imbalance continued to show a favorable trend, although strong tensions remain. So far in 2015, the renegotiation of debts with the Paris Club have begun to be renegotiated. Around 15 billion dollars are outstanding since 1986. In this regard, the Club’s President, Bruno Bézard, was confident in developing a favorable renegotiation process this year. In addition, the creditors of the commercial debt¸ which are grouped in the London Club, have begun to mobilize a possible renegotiation. Lastly, an announcement was made that Uruguay would cancel the Cuban debt, which amounts to 31.5 million dollars.
Overall, improvements are beginning to be seen from the economic policy that the Cuban government has been implementing, coupled with the impact of a new scenario in the economic relations with the US, especially given its effect on European and Latin American businesses already present in Cuba. However, until the US blockade against Cuba is eliminated, these improvements will be only partial.