According to official Cuban data, the island nation’s economy fell 0.9% in 2016.
A political and economic crisis in key trading partner Venezuela is to blame, according to President Raul Castro at a speech at Cuba’s National Assembly on Tuesday. He predicting a slightly brighter outlook for 2017.
The impact of Cuba’s sharp economic contraction occurred in the second half of the year after the cash-strapped government slashed imports, investment and fuel in response to lower exports and a drop in highly subsidized oil deliveries from Venezuela. It had reported 1% growth for the first half.
“Restrictions in cash and in the provision of fuel worsened in the second half,” Castro said, according to excerpts published by official media outlet Cubadebate.
“Financial tensions and challenges that might intensify again in certain circumstances will persist, but we hope that gross domestic product (GDP) will grow moderately, by around 2 percent (in 2017).”
Lack of economic diversification remains a key bottleneck for the struggling communist country. For Cuba, Venezuela’s cheap oil has been reduced in volume by as much as 50% in the last two years. The secondary impact stems from oil’s steep price decline over the same period.
The drop in global commodities prices is crippling Cuban exports of nickel, refined oil products and sugar.
On the investment side, a de facto 50% foreign ownership restriction and unfavorable labor laws crimp interest from potential foreign investors. Cuba cannot compete with regional investment jurisdictions that do not have such restrictions.
In terms of travel and tourism, there is potential but Cuba’s restrictive policies towards foreign investors results in slow growth.
In 2015, Havana along hosted 1.7 million visitors, and the Ministry of Tourism (MINTUR) projects a 37% jump in 2016.
Yet Cuba as a whole runs little risk of becoming overrun by foreigners. There is plenty of scope for the expansion of tourism. One common indicator of a nation’s tourism potential is the ratio of international tourist arrivals relative to its population. By way of comparison, this ratio in the Dominican Republic is 0.49, in Costa Rica 0.53, and in Jamaica 0.76, whereas in Cuba the ratio of tourists to the population had only reached 0.26 in 2014. Source: Tourism in Cuba, Riding the Wave Toward Sustainable Prosperity
In agriculture, Cuba faces shortages in agricultural production and is forced to import up to 75% of its food – this despite an abundance of fertile soil and massive underemployment. In a recent change of policy, Cuban farmers are now allowed to hire laborers directly rather than through cooperatives. This news emerged amid media reports of tourists causing shortages of food in the island nation. “The new resolution aims fundamentally to stimulate the hiring of workers related to agricultural labor in an agile, orderly and legal way,” according to Cuban state-run media.
Producing more if its own food will provide employment and reduce the need to spend foreign exchange reserves on food imports.