Cuban Government Imposes Restrictions on Private Sector: What Are the Implications?

The Cuban government, through the Council of Ministers, announced on Monday the publication of Decree 107, which establishes new restrictions on micro, small, and medium-sized private enterprises (MSMEs), non-agricultural cooperatives, and self-employed workers.

This decree nullifies and replaces Decree 49 of 2021 and identifies a total of 125 activities that these economic actors are not allowed to perform. Among the most notable activities now banned for the private sector are the manufacturing of pharmaceutical products, financial intermediation, book publishing and layout, television programming and broadcasting, telecommunications activities, and various forms of transportation and storage.

Additionally, sensitive sectors such as defense, public security, and the administration of social services are also off-limits. Decree 107 reflects the regime’s strategy to maintain centralized control over key economic sectors, but it could have adverse effects on economic growth, job creation, and social well-being.

According to prominent economist Pedro Monreal, the decree "confirms the squeezing out of private activity and the market as part of state measures to allegedly 'correct distortions and boost the economy’.”

Economic and Social Impact

The implementation of this decree represents a significant challenge for the development of the private sector in Cuba, as it limits the diversification and growth of new economic initiatives in strategic areas. In a context where the state sector faces significant limitations, preventing private actors from accessing these sectors could perpetuate the lack of competitiveness, innovation, and efficiency in the Cuban economy.

The decree also imposes restrictions on sectors that could have directly benefited local development and employment, such as the production of audiovisual media, transport management, and the provision of technology services. This could result in a lower supply of services and products, negatively impacting the population's well-being.

The tightening of restrictions could also discourage foreign investment and the participation of Cubans in the diaspora in the national economy, thereby limiting opportunities for financing and the much-needed inflow of foreign currency.

Miguel Díaz-Canel: "It's Time to Take Action"

“It’s time to take action!” With this phrase, Cuban leader Miguel Díaz-Canel confirmed the regime’s shift in its policy of timid economic openness and reiterated his intention to subject the activities of the “new economic actors” to state guidelines and centralized economic planning.

“It’s time to move beyond diagnoses and take action,” said Díaz-Canel at the end of July, during his closing speech of the third regular session of the X Legislature of the National Assembly of People's Power (ANPP).

The process of “debate and exchange” with the owners of MSMEs to convince them of the need to cap prices of essential products that the state cannot sell through the regulated family basket has ended. The result is another example of the repressive and coercive nature of the Cuban totalitarian regime.

Despite insisting that the government has not started a “witch hunt” against MSMEs, Díaz-Canel emphasized the intention to rein in the commercial activities of the “new actors” that he himself promoted.

“Regarding our responsibilities in the uncertain and complex realm of the economy, it is necessary to recognize that in the effort to comply with the economic and social policy guidelines of the VIII Congress of the Party, by unblocking processes and promoting the formation of MSMEs, there was not enough firmness in the requirement to create sufficiently robust and comprehensive normative bases to guide the functioning of this form of management that was already operating in the economy but without formal recognition,” he pointed out.

The lack of regulation of MSMEs, according to the leader, caused chaos in the Cuban economy, driving inflation and accentuating inequality in the country.

“Therefore, we must ensure that what has been approved is fulfilled, clearly defining the objectives, better preparing the executors of each measure, providing political, communicational, material, and financial assurance, and organizing actions with an implementation schedule so that they do not remain just rhetoric. And above all, exert control over corrections and adjustments with the necessary feedback.”

“Post-controls have shown that many of these businesses did not respond to the state’s trust with the honesty and transparency demanded and required by a minimally organized society. Consequently, no violator of the tax system and legality in general can question the demands arising from the analysis of the errors and distortions of the process. As has been said at this time, the law and order must prevail if we want all forms of economic management to succeed and strengthen,” he added.

“It’s time to take action” is the new slogan of the regime that has been in power for 65 years, but Díaz-Canel does not want to scare the emerging entrepreneurs. “I want to reiterate that there is no and will not be a witch hunt against private MSMEs, as some claim, manipulate, or suggest.”

According to the also First Secretary of the Communist Party of Cuba (PCC), “the confrontation will be against lack of control, illegalities, tax evasion, speculation, and fraud, whether they come from non-state or state companies.”

“This is a battle against illegality and not against forms of property and management,” concluded the leader appointed by General Raúl Castro to steer the “continuity” and implement the economic measures emanating from the VIII Congress of the PCC, which led to the failed “ordering.”

The "Step to Action": A Predictable Move by the Cuban Regime

“Remember that we are all here to save the Revolution and socialism,” Díaz-Canel warned at the beginning of July during a meeting of the Council of Ministers, reaffirming once again the centrality of the socialist model in Cuba’s economy.

Recently, during his report to the Economic Commission of the ANPP, the Cuban leader announced an "ordering" plan for the private and state sectors, due to the "irresponsible manner" in which some of these institutions are conducting themselves, he noted.

In this regard, he insisted that it is not a “witch hunt” against any specific form of management or property. However, the official discourse has been attacking MSMEs for months, especially those that import finished products or do not comply with price caps.

“What we are proposing here is an order so that there is the greatest amount of goods and services available at appropriate prices for the population, and that everyone contributes everything they have to contribute,” he stated.

For now, the “step to action” has resulted in the withdrawal of import licenses from almost a third of the private businesses authorized to do so. According to Prime Minister Manuel Marrero Cruz, “it was decided to close this faculty to 24 of the 73 approved companies for importing, due to low activity levels and poor performance.”

“In the analysis we conducted, there were many blunders, errors...,” said Marrero Cruz days ago before ANPP deputies. “The resulting document from the work done by MINCEX allowed us to conclude that we had to close this faculty to 24 companies, due to low activity levels and poor performance,” emphasized the prime minister, announcing significant changes in regulations for MSMEs and self-employed work (TCP).

There is no “witch hunt,” but recently the Minister of Finance and Prices in Cuba, Vladimir Regueiro Ale, warned MSME owners that hiding merchandise and not selling it to the population is a “serious crime.”

The official appeared on Cuban television to explain the initial control actions the regime has agreed upon following the recent implementation of Resolution 225, which imposes a price cap on six essential products in the country.

Regueiro highlighted that hiding merchandise and obstructing commerce can be considered serious crimes or infringements. “We are warning, and where we have identified these cases, we have summoned the municipal governments to the economic actors who are the owners,” he said. MSME owners are summoned to government headquarters to receive guidance on the measures to follow in each situation.

“In many cases, we have had to order the forced sale of merchandise. As of July 13, we had ordered 151 forced sale actions of products,” he said. He also specified that the most significant violations are in the commercialization of chicken and oil.

In an intensive operation conducted between July 12 and 13, the Cuban government shut down 53 private businesses after carrying out 891 inspections across the country. Marrero Cruz reported that during these inspections, more than 4,000 violations were detected, and fines exceeding 13 million pesos were imposed on MSMEs. Among the main infractions detected were the concealment of products following the government-imposed price caps and the sale of goods at unregulated prices.