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Cuban capital Havana is seeing more private ventures, ranging from consulting firms to popular cabarets and restaurants. (Photo: Madaki)
Wednesday, April 15, 2015
Special Reports

Cuba: A Door Opens

A closer look at some entrepreneurs taking advantage of recent reforms in Cuba.

LATINVEX SPECIAL
Knowledge@Wharton

Attorney Jorge Jordan Rodriguez recently took advantage of new reforms to establish his own consulting firm in Havana, Ambar Servicios Profesionales Cooperativa. It took nearly two years to establish Ambar, one of more than 300 non-agricultural professional services entities that have been authorized to form independent cooperatives. The firm is now working with Cuban and overseas corporations, especially on trade deals for food imports from Miami and to establish foreign companies in the special economic zone connected to the port of Mariel. It’s a start, he says, that will inevitably lead to a demand among international investors for assets on the ground.

Jordan is among those Cuban entrepreneurs fortunate enough to have lived abroad. He spent a year in Port of Spain, Trinidad, in 2004, working with EY, before returning to Cuba to rejoin the ranks of government employed attorneys, biding his time for the right moment to invest in his own firm.

Jordan isn’t alone. Many entrepreneurs with international experience are returning to Cuba to set up shop, encouraged by the most recent rounds of economic reforms.

Luis Gell spent eight years studying photography and working in Europe. He specialized in still life and architectural photography and worked with some of Italy’s top architects. Upon returning to Cuba, he established Studio 50, a full service independent production studio cooperative offering professional photography, videography and design services. He works with Cuba’s three state-owned music labels, BIS Music, EGREM and Producciones Colibri, as well as with private clients from Cuba and abroad.

“Cuba is not yet competitive in this field if you compare an audiovisual production company like ours with similar peers in the U.S., Europe or even Latin America,”Gell says. “But we are aiming to bring a more cutting-edge sensibility to the local market, and we’re confident that with time, we’ll be able to credibly state that we’re world class in this field.”

Studio 50 publishes a monthly online magazine, Vistar, featuring the latest in Cuba’s contemporary art and music scene. The magazine is published using characteristic Cuban inventiveness to overcome the logistical constraints that would otherwise make such a venture impossible. Gell contracts with a hosting service in the Dominican Republic and features the design work it performs on behalf of its clients rather than selling advertising, which would not currently be a permitted business model, Gell notes. The first print edition of Vistar is expected to launch in the coming months.

Former minister of culture Abel Prieto, who now serves as an advisor to President Raul Castro, has become a champion for greater access to technology in Cuba, particularly to build capacity in information technology and as a tool to promote culture and the arts. If Prieto’s record is anything to go by, Vistar might soon host the website for its electronic magazine on home turf.

Perhaps no entrepreneur better reflects the changes underway in Cuba and the newfound confidence they instill than Richard Egues. A longtime resident of Paris, Egues has launched a restaurant and cabaret in a penthouse overlooking the U.S. interest section and Havana’s famed seafront promenade. Egues took advantage of a reform to the seat limit in privately run restaurants — previously set at 12 and now increased to 50 — and invested some $150,000 to transform an apartment into a sleek restaurant, bar and cabaret, complete with terrace and swimming pool, where live musicians perform seven nights a week. The restaurant is packed to capacity virtually every night, and the families of both Fidel and Raul Castro have been frequent guests.

Egues says he felt it was the right time to return to his native Cuba given the relaxation of controls on private enterprise. The business is not without its challenges, especially where procurement is concerned, but the 32-year-old entrepreneur is moving full speed ahead, with plans in the works to rent another unit in the same building to launch a cigar bar.

HERE COMES THE TAX MAN

Beneath the fervor surrounding greater economic freedoms that allow Cuban entrepreneurs to participate in the island’s nascent private sector, is a much less popular responsibility: taxes. While the per capita income in U.S. dollar terms has for decades been insufficient to cover basic needs unmet by the rations of foodstuffs allocated to each household at subsidized prices, the vast majority of Cubans living on the island have never known taxes. The country’s tax structure is now in the process of being overhauled, and the creation of a regime that encourages compliance may be the biggest challenge for Raul Castro in the years ahead as more and more Cubans opt to work for themselves rather than rely on the state.

An important first step in overhauling the fiscal regime, according to Ambar Asesores attorney Jorge Jordan, will be to redirect the social safety net toward those who rely on it most. “In the U.S., the social security system is designed to help those who are most in need,” he notes. “In Cuba, it’s like the entire country is on food stamps; whether you earn US$30 a month or US$1,000 a month, you’re entitled to the same rations. Under a system where salaries vary widely, it’s unviable and constitutes a misappropriation of resources that will need to be addressed.”

According to Ted Henken, a professor at Baruch College in New York and author of Entrepreneurial Cuba: The Changing Policy Landscape, the idea of egalitarianism “is dead in Cuba; even the government has said egalitarianism is wrong and [that it] shouldn’t pursue that.” The government is committed to ensuring equality of opportunity and rights, but it has taken the position that egalitarianism creates lazy freeloaders, which would have negative consequences for efficiency and productivity throughout the economy, Henken adds. “The reforms are in that vein, to grant freedoms and allow a disciplined workforce to be rewarded.”

As Cuba warily opens its doors to greater engagement with the U.S., any erosion of the social guarantees Cubans have long considered their birthright will face resistance from those who rely most on the state for their day-to-day sustenance. Cuban policymakers will need to summon all the inventiveness their people are known for to strike the right balance between provider and facilitator as the state cedes space for private enterprise to flourish.

This is an excerpt of a longer report on Cuba from Knowledge@Wharton.

Republished with permission from 
http://www.knowledge.wharton.upenn.edu -- the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

 

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