Monday, October 17, 2011

Globe & Mail Report on Emerging Private Sector

CAPITALISM In Cuba, it's Viva la evolucion!
HAVANA— From Thursday's Globe and Mail
Published Wednesday, Oct. 12, 2011 8:42PM EDT
Last updated Thursday, Oct. 13, 2011 9:21PM EDT

Barbershops, beauty salons, restaurants and car washes have sprung up across Cuba in the year since the Communist Party allowed citizens to open small, private businesses in an effort to save the country from ruin.

The government says more than 157,000 people have qualified for business permits and are currently self-employed. This new generation of Cuban entrepreneurs is quietly reshaping the island’s stagnant revolution in a way that was inconceivable when Fidel Castro was in control. The economic changes brought about by his brother Raul, however, are proving slow to take hold.

Many are being implemented by young Cubans with virtually no memory of life before communism. Some new entrepreneurs are struggling to understand how to pay small-business taxes or navigate the country’s labyrinthine bureaucracy. With virtually no access to bank loans or credit, most are relying on family living abroad to float their new ventures.

Still, Cuba is buzzing with new energy as people attempt, for the first time in their lives, to make money outside of the underground economy. Business owners are experimenting with novel concepts, such as advertising and open competition. It’s unclear, however, how far the Cuban authorities will allow the reforms to go – whether small business owners will be permitted to accumulate vast amounts of wealth, for example, or build empires.

At the moment, however, these new entrepreneurs seem content enough to turn a profit they can officially pocket.


His idea for a restaurant might ring a bell: a fast-food joint with a red and yellow colour scheme where, for a couple of bucks, clients get a meal deal.

Mr. Pena, 39, spent a decade of his life as a poorly paid information officer in Cuba’s tourism department before he decided to open Tio Tito’s in January. He siphoned his savings, hawked his personal gym equipment and sold his mobile phone to finance the construction of a modest grill in his front yard, borrowing refrigerators and Tupperware from friends.

“Some of my friends thought I was crazy. Others encouraged me,” recalled Mr. Pena, his voice partially drowned out by the song Stand By Me blasting from a super woofer on a shelf, next to the mustard.

With no restaurant experience to speak of, he relied on what he gleaned as a customer from previous trips abroad, to Spain, Chile and Portugal. An American friend offered to design and build a website, which is hosted in Miami. He hired six employees, including his brother, Tito, who works as head chef, paying them the equivalent of $25 a month, plus a commission.

His inspired colour scheme? “If it works for McDonald’s it can work for me,” he reasoned.

The family has yet to recover their initial investment of $3,000. Business is brisk, however, and Mr. Pena is hopeful that soon he will turn a profit.

“I want Tio Tito franchises all over Havana,” he said.

He prefers the life of an entrepreneur to his previous existence as a bureaucrat.

“You’re obtaining profit from your own work. If you work more you will earn more. The disadvantage is that this is much more work than being an information officer.”


He’s led a double life since officially entering Cuba’s work force: During the day, he worked construction for a government ministry; by night he worked as an underground mechanic, fixing cars for friends and relatives at an unofficial workshop.

Between his two gigs, he earned about $15 a month.

His fortunes, however, changed in December when he quit his day job and applied for a business licence to open his own garage. Since officially opening shop, his income has tripled.

“I still have the same clients, but now I can do the work in the open,” Mr. Rafael, 31, said standing in the shade outside his seaside apartment in Havana’s quiet Miramar neighbourhood.

His wife, Rachel, is an economist in the provincial Communist Party office. Under Cuba’s new economic plan, her job could be in jeopardy as the country seeks to drastically trim its public service by half a million workers over five years.

With his own thriving business for them to fall back on, Mr. Rafael isn’t particularly worried. His biggest problem at the moment is finding a garage to rent – or even buy – when Cuba changes the law to allow people to purchase private property in the coming months.

For now he works on the street, which is strewn with cables and car parts.

Today, he is trying to coax an aging Peugeot to start. Five more cars await service with troubles ranging from a trunk failing to open to a broken headlight.

A team of government inspectors has paid a visit to demand proof he has paid his last instalment of taxes.

Mr. Rafael produced a bank receipt showing he paid the $40, but the inspectors said the government has not received it, and ordered him to pay it again.

“The system is not yet perfect,” he says, “but at least we are moving in the right direction.”


When she worked as a cook in a state-run cafeteria, her kitchen was fully stocked when she arrived at work each morning. Now, as her own boss, she scrambles to find basic supplies in the shops.

“This is very hard,” the mother of two teenagers said, standing behind the counter of La Jugada Perfecta, her baseball-themed restaurant dedicated to the Industriales, Cuba’s wildly popular baseball team that was founded 50 years ago in the wake of the revolution. The restaurant name translates as A Perfect Play.

“We are not used to this and we have to go out and find everything we need. It’s not like working for the state,” she added.

Sometimes she comes up short. Unable to source proper kitchen appliances, she appealed to relatives in Miami who sent a brand-name blender and two bright orange coolers from Home Depot.

Ms. Alvarez’s husband, an accountant, helped set up the books, but the restaurant is women-owned and women-run.

Most days, clients line up all the way to the sidewalk to order an Extra Base (hamburger with fries) or a Strike (bacon burger). The prices are roughly twice that of a state-run cafeteria.

“I don’t mind paying for quality,” said a 26-year-old economist named Alfredo Garcia, sipping on a strawberry milkshake.

Ms. Alvarez used to earn the equivalent of $80 dollars a month. Now she pays $16 tax every month, as well as about $4 in social security for each of her two employees, both cousins.

She is ploughing all her profits back into the restaurant, and hopes to one day pay back the relatives in Miami who floated her.

“Up to this point I believe we made the right choice,” Ms. Alvarez said.

“This is a new thing for us, but as time goes by I hope we are going to be well,” she said.


She’s a life-long bureaucrat who currently presides as director of the office for work and social services in Havana’s Plaza Revolucion.

She harbours no ambition to start her own business, but anyone in the neighbourhood who does must first receive the blessing of her staff, which issues all permits for the district.

Since the new law came into effect, about 40 people file through this crumbling building each day, searching for door No. 6, where a handful of state workers surrounded by broken filing cabinets sort through applications. The process takes about eight minutes.

Applicants submit their identity cards with two pictures and a written application. Five days later, they come back to pick up their permits. The process has been simplified from a few months ago, when applications had to be reviewed by the neighbourhood Committee to Protect The Revolution before permits could be issued.

On this day, Nara Creas, a 63-year-old who constructs costumes and pinatas for children’s birthday parties, has come to renew her license. Nelson Cruz, a 26-year-old taxi driver, is also applying for a permit, to turn his illegal taxi business into something official.

“Our department rarely takes five days to complete the application process. We can do it in one or two days,” Ms. Legra said with pride. Her office has processed roughly 6,000 applications since last October, when the decree came into effect.

Permit in hand, entrepreneurs then proceed to the local tax office for an assessment of how much they will pay per month.

After that, they can officially open for business.

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