Cuba’s Glum Economic Forecast – Bloomberg View

If you are wondering, the World Bank measures Cuban GDP at over $6,000 per capita, but that is based on a planned economy and an unrealistic exchange rate. In reality, Cuba probably is richer than Nicaragua, where GDP per capital is approximately $2,000, but we don’t know by how much. Cuba does have relatively high levels of health care and education, but we’ve learned from post-Soviet reform experiences that it is easy for a nation to lose those advantages. There are already shortages of many basic health care items, including medical technology and antibiotics.

Alternatively, to better understand Cuba’s future, look at its exports. Medical services are about 40 percent of exports, but some of the main buyers, such as Brazil, Algeria and Angola, are expected to reduce their demand.Sugar prices surged in 2016, but they are still well below their 2012 levels, and commodity prices do not seem to be on the verge of a major comeback. Other Cuban agricultural exports include citrus, fish, cigars and coffee, but those are rarely paths to riches. The reality is worse yet, namely that Cuba has to import 70 to 80 percent of its food, which eats up valuable foreign exchange.

Cuba is simply not in a good position to ramp up production. For instance, the demand for coffee in the U.S. has grown sharply, and some global supplies have been sluggish, so there is an opportunity. Still, there are more countries making quality coffee than ever before, and it’s hard to see Cuba’s corrupt institutional framework, even after Castro, allowing them to take markets from the highly experienced business cultures of Brazil or Colombia.  As for industrial production, the country’s output remains below half of its pre-1989 levels. Rates of savings and investment are at about 10 percent, about half of Latin American averages, and the legal framework is hostile to direct foreign investment. The election of Donald Trump also has introduced uncertainty about U.S. policy toward the island.

Perhaps most importantly, Cuba has not yet repudiated either communism or Fidelism. Cuba expert Richard E. Feinberg describes the stasis as such: “Bureaucratically, over 50 years the Cuban state has become so multilayered, so burdened with thick red tape and so risk-averse that the decision-making procedures are broken.” In other words, Castro was hardly the only problem, and it is not obvious that an ideological turnaround is in the offing.Had Cuba not had a communist revolution in 1959, it could have been one of the most successful Latin American economies. But the past matters, and turning back the clock is easier said than done. Right now, the place seems impossibly far from being the next Costa Rica, much less the Singapore of the Caribbean.

Source: Cuba’s Glum Economic Forecast – Bloomberg View