Cuba and its economy in the first half: Some Reviews

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By José Luis Rodríguez *

At the last meeting of the Council of Ministers were announced some macroeconomic results on the performance of the Cuban economy during the first half of this year. In this regard it was reported that there was a higher slowing down than expected and, as a result, the economy grew 0.6% in the first six months of this year, so it is expected to increase from 1.4% of GDP by 2014, a figure less than 2.2% expected.

Among the causes of this performance, economy and Planning Minister mentioned that planned external revenues, the presence of adverse weather conditions and the internal shortcomings of the economy fail.

An assessment of some of these factors allows to illustrate its impact on registered economic developments.

Sugar production, which was expected to increase to 1.8 million tons, reported increased 4.2%, representing an estimated 1.6 million, 12% below expected.

According to the specialists of AZCUBA, in the outcome, played a role diminishing performance industry, affected by rains and high temperatures, the low utilization of the potential capacity and difficulties in cutting and shooting. In such a way, despite the fact that improving the sugarcane yield per hectare – that rose to 43 tons – the potential yield of sugarcane is reduced in relation to the previous harvest, which hit 100 thousand tons of sugar that has failed to produce.

On the other hand, the trend of prices of raw sugar on the international market was maintained with slight increases, less than 1%. Also, according to criteria of some specialists, approved, business structure in which the sugar mills ceased to be companies and became business units of base (UEB), is not impacting positively on its management, while the logistics chain of assurance of spare parts and other inputs – including the availability of fuel for the transport of cane – showed failures that impacted negatively on the results.

In connection with the production of nickel, the best news has been increased by more than 30% of the prices of ore on the world market, a phenomenon that has exceeded the forecasts for this year, with some forecasts which make it even over 20 thousand USD per ton. However, the production capacity – located about 62 thousand tons in 2013 – has been reduced by the closure of the plant of Nicaro – the first built in the country, in 1943 – due to its calculated, as well as the entry into capital of the Che Guevara plant repair process, built in 1986, with a potential of 30 thousand tons of nickel production more cobalt.

The previous situation points to a decline in revenue for exports, although they may be partially offset by the increase in prices.

Other exportable products have been affected, since the coffee harvest reached 6,105 tons, 2% below the expected.

On the other hand, reported the plan of exports of medicines, including the products of the biotechnology industry, was fulfilled which is encouraging.

In the case of tourism, the country planned a 10.4% increase in the number of visitors for this year, after a meager increase of only 0.5% in 2013. This sector, whose growth revolved around 17% per year between 1992 and 2003, slowed to 3.7% between 2004 and 2013, with a high level of concentration in tourism of Sun and beach – in the form all included-, which reaches 78% of visitors, but with a level of employment of around 50% on the hotel floor.

In this variant it operates with a high level of competition based on prices, with a strong pressure to increase competitiveness by Cuba against markets such as Dominican Republic and Quintana Roo in Mexico, all of which affect Cuban tourism.

In this context, during the first five months of this year the number of visitors has grown 5%, so that, taking into account the seasonality of this flow, it will require an extraordinary effort to reach the three million visitors in the second half of 2014, taking into account especially the greater presence of Canadian tourism in the first part of the year.

Equally, in terms of the expected revenue is recently announced that revenues from export of medical services should reach about 8 billion dollars this year. In this sense is has continued advancing in the diversification of markets receivers, with the expansion of services in Brazil and the presence in other countries like Ecuador and South Africa, among the most significant.

The other part of the analysis of the net income from abroad demand a review of imports and financial flows in the first stage of the current year, as well as its prospects.
– See more at: http://www.cubacontemporanea.com/en/news/cuba-and-its-economy-first-half-some-reviews-i#sthash.4pchj12F.dpuf,

II

An essential aspect to measure internal impacts in the Cuban economy is the behavior of imports. In this sense, the dynamics of purchases in other countries during the first half of 2014 showed a more complex development than in the previous year.

In relation to food, already during 2013 was recorded an estimated increase of about 19 per cent in prices, which must have approached shopping bill on the outside to a figure between 1 and 900 and $ 2 billion.

Prices for 2014 forecasts pointed last year to a decrease in a food group and increase in others, which was to produce a certain level of compensation in the total bill.

Nevertheless, the data offered by the Central bank of Cuba show that if the prices between beginnings of July of 2014, with same date of 2013 only reflect significant decreases in the family of soy and wheat bread. Meanwhile, in the fundamental foods the country imports increases are striking. As well – for example – the price per ton of powdered milk reaches 5 569 USD, reflecting a growth of 16%. So that to have an idea of what this means, and assuming that a similar amount was bought to the year 2012, at that price the imported dairy bill would reach 234,8 million, which represents an increase of 43% compared to paid two years ago.

The case of other essential foods in the diet of the Cuban also shows sensitive increments. Thus, in the rice price increased 21.7%; in 24.3% beans; in a 49.9% peas; in the chicken quarters in a 9.4%; leg of pork a 33.1%; in a 37.8% Arabic coffee and cocoa a 42.4%.

According to data of the Monthly Report of the Price of Foods elaborated by the FAO, the tendency to the increase of prices in Latin America and the Caribbean led to an increase of 8.9% in 2012, 10.3% in 2013 and until May of this year already reached 11.4%. These upward trends are driven by multiple factors, including the effects of climate change, the use of food as a fuel, as well as the financing of the economy and speculation that goes with it.

In the case of Cuba must be added the effects that imposed the blockade in terms of cost, insurance and freight, which raise further the level of the food bill.

In addition, policies aimed at replacing in the importation of food by national productions – which can potentially cover 60% of the value of the purchased abroad now – have not produced the expected results. It affects organizational factors of high significance – such as little stimulating stock prices-, but it has a decisive weight the high level of asset-stripping of agricultural production, whose improvement requires heavy investment. In this sense, some specific programs such as the production of rice and beans seem to have favorable expectations to replace imports in the next 5 years, while others, such as the production of meat and milk will require longer periods of time.

As for the import of fuel the value of the Venezuelan oil basket spent 97,31 USD per barrel in December of last year to 99,11 at the end of June, for a slight increase of 1.8%. Additionally, and according to Venezuelan sources, the level of delivery of oil to Cuba by PDVSA has set at 70,000 barrels per day, which could be reflecting a reduction, according to information published in February of this year.

The decrease of the high dependence of the fuel imported for electricity generation has a high priority at the moment. According to Cuban Minister of energy and mines, the policy of substitution of imports in the energy field is reduced 13% the cost of generation of a KWH, which currently reaches 0.211 0,183 dollars in 2030. For it is projected that for the last year 24% of the electricity that is consumed comes from renewable sources of energy, compared to 4.3% currently. However, this will require heavy investments, including the contribution of foreign capital, taking into account that $ 3 billion are required only to develop this program, and in total will have to invest 6 billion to raise the efficiency of the national electro energetic system.

The program for the development of renewable energy sources includes 633 MW from wind energy. Additionally it is planned to generate with 19 plants bioelectrical associated with the sugar industry and the use of the marabou as fuel, with a potential of 755 MW. The scheme is completed with approximately 700 MW that can generate solar and 56 MW by Hydro.

From the international financial point of view, during the first half of the year is continued progress in the processes of renegotiation of debts. In this sense, the final phase to remission of 90% of the debt with the former USSR was recently approved by the Russian Parliament, and – according to Russian sources – reached 35 billion dollars. The payment of 3 520 million remaining must occur within a period of ten years and credits by the Russian Federation will be granted.

Also The Federation continued to advance in the process of revision of the so-called common position by Cuba and the European Union. This process includes to return to the issue of the payment of the Cuban debt with the Paris Club, which does not run since 1986 from the unworkable position taken by creditors during long years of failed talks.

On the other hand, this year has increased the pressure of the American blockade, especially with regard to the criminalization of financial institutions that do business with Cuba. The example of a fine of 8 970 million dollars to the French bank BNP-PARIBAS recently imposed sets a new record in this regard, and supposed immediately to Cuba a deterioration in the conditions of obtaining international financing. In synthesis, the Cuban economy is experiencing strong tensions during the year 2014, which poses new challenges for successful implementation of economic and social policy guidelines approved in 2011. Despite the seriousness of the reported impacts, they can be evaluated as short-term, in the midst of an economic policy rationally addressed to establish a more efficient management.

However, in the short term will need to take into account new elements which allow to reduce the effect of this negative situation with a view to increase the labor productivity and avoid further deterioration in the consumption of the population.

*The author is an advisor of the Center of research of the global economy (ICES).
– See more at: http://www.cubacontemporanea.com/en/news/cuba-and-its-economy-first-half-some-reviews-ii#sthash.F8NDWTXR.dpuf,

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