Crony Capitalism in Cuba
Juan José, a private entrepreneur in Cuba, spent a year and a half trying to find a place to install a mini-brewery west of Havana. “He greased the palms of several government officials in the Playa municipality with bills to speed up the procedures. But no go. Things never loosened up,” said a relative of Juan José.
Two years ago, on February 21, 2021, the state newspaper Juventud Rebelde published this news: “Companies from China and Cuba sign an agreement to install a mini-brewery in Havana.” According to the official press, the Cuban ambassador in Beijing, Carlos Miguel Pereira, commented that the agreement was signed by the company Jinan China-Germany Co LTD and the Cuban company Maquimport.
“This is the first import of this type carried out by the Foreign Trade Business Group in the Asian State, to support a non-state form of management. Pereira explained that the purchased equipment will go to a vacant locale of the Playa Municipal Government, west of Havana, which will be converted into a gastronomic complex,” the report reads.
On April 5 of that same year, Cubadebate published an extensive report entitled “Local Project without a locale, or, the dream that dissipates like beer foam,” and showed the extensive catalog of economic absurdities that operate on the Island.
What the entrepreneur Juan José and his group have experienced is an authentic criollo farce. They invested a considerable sum of dollars to import the machinery, following to the letter the convoluted regulation instituted for “non-state forms of management”, as the regime pompously calls private businesses.
Goodbye to the dream
Juan José went through all the twists and turns designed by the Cuban bureaucracy, trying to obtain a license that would allow him to produce top quality malt and beer. But the state bureaucracy monopoly did not approve him. He bid goodbye to the dream of opening a business that would generate 30 new jobs and could produce up to 4,500 liters of malt and beer daily.
Why was Juan José not approved? “A guy with more money and better connections appeared on the scene. It’s that simple,” says a former Communist party official in the capital. He tells Diario Las Américas* about the shady dealings behind a legal bidding process, or the granting of a permit to a private business or “Micro, Small, or Medium Enterprise” (MSME). Here is his testimony:
“I know the case of the brewery that was going to be set up in Playa. Those entrepreneurs passed the screening and internal investigations. We were still in the pandemic stage and it was urgently needed to reactivate the economy and generate new businesses in goods and services. But in Cuba there is no marketplace to determine, according to the proposals presented, who is to be granted permission to open the business.”
Under the table
“Everything works through relationships and money moving ‘under the table’ [to buy influence]. After the MSME is approved by the ministries of finance and prices, economy and planning, and other government functionaries, the mayor of the municipality is the one who gives the OK. From the outset, they saw a gold mine in the emerging MSMEs. Those are big chunks of money. To approve a certain business, such as a restaurant that sells food or a mini-industry that produces preserves, you have to pay between 3 and 5,000 dollars or its equivalent in pesos.
“The money is there for the taking. If the business is a construction cooperative, party officials in the municipality or province are in charge of getting you the jobs. For example, a contract to paint a certain state company is valued at 300,000 pesos and from that money the president of the cooperative pays 30 or 40,000 pesos to the mayor. Of course, never directly.
“With the MSMEs, the business is more succulent and a flock of government vultures are hovering around those ‘businesses’ that fork out money. From the import permit (state importers charge a fee of up to 20%), to paying 300 dollars to the little guys to speed up the operation or 2,000 or 3,000 dollars to a high-level official to lease you premises in a central area of the city”.
According to the former official, the government’s intention is to approve as many MSMEs as possible. Since the process began in September 2021, and until November 2022, the Ministry of Economy and Planning had approved 5,643 private MSMEs, 68 state-owned MSMEs, and 59 non-agricultural cooperatives.
“In the corridors of the provincial government headquarters it is rumored that MSMEs are going to sell their merchandise even in the warehouses of the Ministry of Interior Commerce. Businesses that can invest hundreds of thousands of dollars or one or two million are being favored. The strategy is to dismantle the blockade (US trade embargo), because those private businesses can import directly from the United States and OFAC grants them a license,” he clarifies.
“Of course, not all the people who manage these businesses are politically reliable. That is why a group of mysterious MSMEs have burst on the scene, run by ‘heavyweights’ from the Revolutionary Armed Forces, the Ministry of the Interior, or relatives and friends of important government officials. This business has the approval of the Russians, who are currently advising the Cuban economy. The State does not disburse a single dollar. All expenses are paid by the MSMEs, which are charged 30 or 35% taxes. It’s a good deal,” concludes the former official.
An employee of a Havana MSME confesses that all “these businesses do not have the same rank. There are MSMEs that move a few thousand dollars and others that handle millions. The government has its eye on those. Almost all of them are in a conspiracy with the authorities or the high-ranking government officials who own the business”. And he describes the modus operandi to replenish themselves with dollars and have a clientele on the side.
“As the State banks do not sell you dollars–only privileged MSMEs are sold foreign currency at a lower price and are allowed to import products directly–the others buy euros and dollars on the informal market, according to the daily exchange rate published on the site, El Toque. But because right now there is a deficit of dollars, I am paying the dollar at 195 pesos, one or two pesos above the daily rate. Then, when we buy the container of foodstuffs, that increase in the price of the dollar is added to the cost of sale. As the dollar becomes more expensive, the prices of the products we sell go up. Some MSMEs are allowed to import pork, chicken, cheese, and sausages. The owner of the business sells a part of it on the leased premises and another part is sold on the informal market–in order not to avoid taxes–to VIP clients, usually restaurant owners and others who pay in cash with dollars and buy large quantities”.
From repressor to businessman
Former FAR and MININT officers have been allowed to open private businesses. Yoandy Riverón, identified as agent ‘Cristian’ of State Security–who harassed and repressed dissident activists in Villa Clara province and is now a businessman–owns the shoe store Jona’s SURL in the town of Camajuaní. A former manager of CIMEX [the state-owned Domestic Business, External Market conglomerate], emphasizes that there is “a strategy to convert a group of retired military and civil servants into business owners so that in the future they can circumvent the yanqui blockade. For some time now, government heavyweights have had accounts in tax havens and are owners of very lucrative businesses. They use frontmen and foreign citizens as intermediaries to establish companies abroad”.
The dictatorship tries to monopolize the most profitable private businesses and tack on an incipient oligarchy obedient to its interests. As happens in Russia. There is a segment of commerce–online food sales paid with international credit cards–whose owners are important government figures. This is the case of Supermarket, run by Guillermo García Frías, a nonagenarian former combatant in Fidel Castro’s guerrilla forces in the Sierra Maestra, who no longer holds any political office, but he has more power than any minister. Or Ramiro Valdés, another of the so-called ‘historical’ ones, at the head of COPEXTE [National Electronics], who manages a digital business in dollars.
Hugo Cancio, a Cuban-American businessman, owner of the company Fuego Enterprise, does not belong to the official nomenklatura nor is he affiliated with the Communist party, but he manages a food sales business that imports directly from the United States. And recently OFAC granted him a license to import automobiles to Cuba.
The crony capitalism that prevails in Cuba brings us ever closer to Haiti.
Translated by: Alicia Barraqué Ellison