Cuban foreign trade: between lights and shadows

The open nature of the Cuban economy and its external dependency condition that the evolution of its business relationships is a key variable to explain the problems faced and assess future prospects. Therefore, it is essential to know the challenges that the country’s trade and integration into the international economy to avoid making new mistakes and repeating some.

Increasing the amount of exports of goods and services, proceeding to a change in the material structure of exports and implementing efficiently the process of reduction and replacement of purchases made in increasingly complex international markets, inaccessible and unpredictable volatile in terms of price, it is an urgent task for Cuba.

It sounds easy, but this is a complex processes in which interact, internally, structural failures of an excessively centralized model with financial and monetary problems, of infrastructure and logistics, insufficient internal dynamic characteristic of efficient economic processes, and economic subjects who are unrelated, unmotivated and sometimes disqualified.

The following table shows the performance of trade in goods and services with the uniqueness of a global surplus balance of trade (export revenues exceeding expenditures on imports) determined by the significant surplus of net exports of Cuban professional services to several developing countries.

Cuba: foreign trade in goods and services between 2008-2013Fuente: ONEI. Statistical Yearbook of Cuba, 2012, Havana. Economic and Social Panorama of Cuba, 2013. Edition April 2014. (*) Data on exports and imports of services are estimates of the author.

Cuba changed the disproportionate concentration on the production and export of sugar and other commodities for export of professional services, which in recent years have provided more than twice the total income from merchandise exports.

Undoubtedly, this transformation in international specialization profile of the country has meant significant foreign exchange earnings in the short-term that have enabled Cuba coping with external commitments in better condition, but a low multiplier effect of these revenues on the Cuban productive sector is perceived, and justified concerns about the long-term sustainability of such exports are detected.

The geographical orientation of foreign trade

The ten main trading partners of Cuba, in terms of total foreign trade of goods are Venezuela, China, Spain, Canada, Holland, Brazil, Mexico, USA, Italy and France; in that order. The first three accounted for 45.7 percent of total Cuban foreign trade in 2007, and by 2012 they had raised this stake to 58.9 percent.

The Venezuelan market is the main destination of Cuban exports and the largest supplier of goods to Cuba. In 2007 the total trade with China accounted for 19.6 percent of foreign trade in goods, but in 2012 this ratio had climbed to 44.2 percent, reflecting a high level of concentration of trade and causes a structural weakness which must be mitigated with penetration strategies and consolidation in other markets.

The importance of Cuba’s relations with Latin America and the Caribbean and, in particular, with its strategic partners inside and outside the area is far from reasonable doubt, however, is equally determining the policy of maintaining and promoting linkages with other areas for economic reasons and also to consolidate various spaces and not incur errors on concentration and with the former Socialist block.

The inclusion of the United States within the major trading partners of Cuba can draw attention to a reader not linked directly to these issues, but is explained with simplicity and evident windows of opportunity that represents the exchange for each of the parties involved .

Trade between the two countries is essentially the export some food to Cuba as a result of a consensual Amendment under the administration of President George W. Bush to the law governing the sanctions of US trade with Cuba (Trade Sanctions Reform and Export Enhancement Act).

As part of the current regulations, Cuba must pay cash prior to shipment to the US food exporter, but since 2009 the cash payment is allowed when cargo arrives in a Cuban port provided before landing the goods. According to Cuban experts, the United States has become –due to this exception to the rules of embargo- the main supplier of Cuba for foods like soy, frozen chicken, corn, frozen pork, wheat and beans.

Purchases of agricultural products and food by Cuba from the US is very advantageous due to lower transportation and insurance costs, lower prices and high quality products that could offset the problems of domestic supply by the depressed levels of domestic agricultural production. However, a significant volume of difficulties related to blockade and political intransigence make difficult for the Cuban people and US farmers to benefit from this process.

Diversify and convince in the base of external economic relations

Other elements are significant in analyzing Cuba’s trade relations; among these are included, besides the already mentioned geographic diversification and can be expressed in the necessary links with the European Union (EU) and other countries in Asia and Africa, payment of external financial obligations of the country and increasing its financial credibility.

The importance of the ongoing negotiations with the EU for the economy and for the reforming and diversification of foreign economic relations of Cuba in the near future, is transcendental.

Despite the crisis in that region, more than 20 percent of total Cuban exports and imports of goods, about 22 percent of international tourism receipts and a significant portion of investments and joint ventures with foreign companies in Cuba are run with European counterparts.

The first round of EU-Cuba negotiations concluded on April 30, 2014 in Havana and, according to the points made by the two delegations, the meeting was an important step towards full normalization of reciprocal links. As a result, the roadmap including important economic and trade issues was established.

Ties with China are clearly inadequate despite advances in the negotiating process especially in investment and financing but is a complex issue that requires at least more space. It will be another chance with the rest of the BRICS economies.

The Cuban difficult external financial situation and particular previous negative events related to non-payment of its debt obligations has been one of the most driven elements to delegitimize the financial credibility of the country and raise premiums in international capital markets ; However, there have been positive steps in recent years aimed at recovering debt markets and the resumption of negotiations and understandings with creditors.

In the past three years, Cuba restructured its commercial debt with China, Japan, Mexico and Russia; with the latter creditor the agreement included the cancellation of 90 percent of the accumulated debt and substantial cuts were achieved in exchange for payment plans. Some international media have reported that Cuba has expressed interest in a formula of renegotiation with the Paris Club that would include forgiveness of debt, payment of another over a period of 10 years, and redemption from the rest by shareholdings in joint ventures, which is very important to raise the Cuban participation in global foreign direct investment.

It has complied with the payment of the obligations of restructured debts and has normalized the situation with foreign currency obligations that the State had with foreign suppliers, which certainly implies a greater external credibility of the country and opens doors for access to international markets.

Still, the sustainability of growth to ensure social prosperity goals pursued by the Cuban model requires the achievement of a pattern of international integration has not yet reached that forces us to postpone dreams, I hope not for too long.

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