With Few Resources, Cuba’s Resourceful Entrepreneurs Find a Way

Friday, June 17, 2016

Amy Gillett is vice president of education at the William Davidson Institute. Her article was originally published on the WDI affiliated site, NextBillion, on June 9, 2016. To read more her recent trip to Cuba and the potential for economic development there, please click here.

Ernesto and Yudiel operate a “Cool Coconut Water” stand in Havana. My colleague at the William Davidson Institute, Diana Paez-Cook, and I met them recently on our trip to Cuba to assess the entrepreneurial landscape there. I work on designing and delivering entrepreneurship programs in emerging markets, and Diana directs global grant projects. We sampled their refreshing coconut water on a very warm day in May. Just as we thought our fieldwork couldn’t get any better, Ernesto took our empty shells, freed up the delicious meat, and handed the coconuts back to us with a smile.

The coconut entrepreneurs – like many private business people we would encounter on our four-day trip – displayed some of the traits that explain why, despite resource constraints, entrepreneurship is booming in Cuba. Raw materials are hard to find on the island. The government allows entrepreneurs only limited access to government-run wholesale stores (prior to April 2016, they had no access). The solution for Ernesto and Yudiel was therefore to build a business with what is available on the island. They source their coconuts from trees three blocks away. Their stand is adorned with a large tile rooster provided by the artist José Fuster – so local that he lives right across the street (more on him in a bit).

Ernesto and Yudiel are part of a growing class of Cubans forgoing the traditional route of government employment – and its average monthly salary of just $25 – and striking out on their own. There are some 500,000 entrepreneurs today in Cuba, up from 150,000 in 2010. President Raúl Castro has called the huge state sector “bloated” and has declared private business a key part of Cuba’s new economic model. In May, the communist government passed legislation allowing small businesses to become legal entities, thus making the private sector official. Previously, entrepreneurs were classified as “self-employed.” The state recognizes 201 job categories for private business. Taxes on these businesses are very high, often claiming more than half of earnings.

Ernesto and Yudiel had the savvy to position their coconut water cart right across the street from the home of Fuster, known as the “Picasso of the Caribbean.” Over three decades ago, Fuster had a vision of transforming his home in a fishing village into a tiled wonderland. Undaunted by the absence of tile on the island, he managed to get tiles – thousands of them – hand-carried in from the United States. He not only turned his home into the fantastical “Fusterlandia” but he also decorated his neighbors’ houses. Now tourists flock to Fusterlandia and the surrounding 100-plus houses bedecked by his tiles. Fuster is one of the many registered – and thus government-approved – “independent artists” in Cuba. Everything on the walls of Fuster’s house is for sale, and he does a brisk trade selling his tiles for $30 each directly from his workshop. The tourist traffic has spawned other businesses in the neighborhood, including the coconut stand and several souvenir shops.

Another venture we visited was Clandestina, a charming boutique selling hand-printed T-shirts and notebooks in Havana. Although the store does not have a lot of inventory, it’s beautifully displayed. Here again we were reminded of the resourcefulness of the Cuban entrepreneurs. The perky green “Clandestina” sign on the outside of the shop, which wouldn’t attract a second glance in most other emerging markets, really stood out there. The vast majority of the advertising in the city comes courtesy of the government, with rather somber billboards reading “Patria o Muerte” (Homeland or Death) and “Bloqueo: el genocidio más largo de la historia” (The Embargo: the longest genocide in history). The clerk at Clandestina was friendly, saying she really enjoyed working at the shop. She told us the store has been there for about a year and that the two owners were currently in the United States buying supplies. This is how many Cuban entrepreneurs get their raw materials.

When Diana and I were in Miami awaiting our flight to Havana, we were surrounded by travelers checking in massive plastic-wrapped boxes of goods. These so-called “mules” help alleviate the shortage of goods in Cuba by transporting a huge variety of goods – from toilet paper and ibuprofen and spices to the raw materials needed by the island’s entrepreneurs. FedEx recently filed with the U.S. Department of Transportation to start cargo flights to Cuba and UPS is also exploring opportunities. Soon, we should see more efficient transfer of raw materials into Cuba.

The entrepreneur we got to know best during our visit was Raquel, the owner of our “casa particular,” or B&B. The Cuban government started allowing Cubans to rent out their homes and apartments in 1997. Last year, Airbnb started offering listings in Cuba. Tourism is a huge business in Cuba, with many tourists coming from Canada and Europe and an increasing number coming on people-to-people tours from the United States. Obama authorized such tours in March 2016 just prior to his own visit to the island.

While the outside of Raquel’s building bears the same signs of government neglect as most others in Havana, she has done a wonderful job of decorating the inside. Raquel’s hospitality seemed to know no limits. When she found out it was my birthday, she threw me a surprise party complete with mojitos, cake and “son” cubano music.

With seven women occupying Raquel’s three rooms, we apparently taxed the building’s infrastructure. We ran out of water and the toilet and air-conditioning gave out on day three of our visit, but Raquel’s service made our stay great. As we were leaving, she handed us “L’Auberge de Raquel” business cards and asked us to go on TripAdvisor to rate her “casa.” Raquel has no internet access (only a tiny percentage of the population does and the government monitors its usage), but still she understands the importance of this online service to drive future business.

Cuban entrepreneurs today still face many hurdles – lack of raw materials, high taxes, bureaucratic rules that are not always clear. But we raise our mint-stuffed mojito glasses and say “salud” to the entrepreneurs of Cuba for their resourcefulness and positive spirit. Further access to raw materials at wholesale prices will provide a huge lift. Another boost will be provided when the U.S. lifts the trade embargo against Cuba, which has been in effect since 1960 but has started to loosen. Cuba will have a new leader in 2018 when Raul Castro steps down. The prospects for better U.S.-Cuban relations are strong and would engender the opening of trade between the two countries. This would provide a huge boon to the island’s entrepreneurs.

There is a final ingredient needed for Cuba’s economic transformation: business training. Business education in Cuba has traditionally focused on economics – and the economics of running a centrally planned economy. Training in topics such as marketing, finance, accounting and human resource management will help Cuba’s entrepreneurs launch or scale their businesses. We look forward to continuing our work in this fascinating country and to helping Cuba’s entrepreneurs access such training.

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