Cuba has a dual monetary system. Two currencies are in circulation: the CUC is equivalent to 1.08 USD and to 24 Cuban pesos (CUP). Although there are plans to formulate a strategy to move towards a single currency, which is expected to remove a major barrier to economic growth, the slowing down of the economy in 2009 delayed efforts to bring the two national currencies (CUC and CUP) into closer alignment.
The economy has a rather competitive external component (nickel, tourism, biotechnology, services) for which the CUC is used, and a protected and not very efficient domestic component managed in CUP, as well as a parallel economy.
In view of its geographical and economic characteristics – small economy, overall poorly developed industrial base, low productivity of the agricultural sector – Cuba depends mostly on imports for its current operation. In 2008, asset imports rose by 43.8 percent and exports by 2.1 percent. The result is a negative trade balance of 10.7 billion CUC (11.5 billion USD), which increased by 4 billion compared to 2007, i.e. a progression equivalent to almost 70 percent of the deficit.
Three key trade partners have emerged since the beginning of the decade: a) Venezuela, under the Caracas and Petro Caribe agreements, b) China, with priority being given by the authorities to purchases of consumer and industrial goods of Chinese origin, and c) the United States, which became Cuba’s 5th largest partner in 2007 in spite of the embargo (one way – Cuba can not export to the US). Imports from the US, which had been prohibited by US law since 1961, resumed in 2002, but trade with the US is restricted to imports of food and agricultural and pharmaceutical products. Canada and Spain also carry considerable weight.
In 2008, Cuba spent 50 percent of its current budget on agricultural and energy imports. Cuba has the world’s third largest reserves of nickel and cobalt; it exports high quality cigars and rum, and has a service industries, high-tech biotechnology and a high level of performance in ICT and health. Offshore oil drilling operations in the Exclusive Economic Zone (EEZ), initially planned for 2009, have been postponed. The Cuban government estimates that there could be 20 billion barrels of oil reserves in its offshore fields. Cuba currently imports 50 percent of its oil from Venezuela on highly preferential terms.
Tourism is another important source of income for Cuba, with over 2 million visitors every year bringing gross revenues of 2 billion USD. If the US Congress decided to lift its ban on US citizens travelling to Cuba, this could represent a potential further flow of 2 to 3 billion USD annually.
The living conditions of Cuban people are not easy. Overall, the current economic situation of Cuba is serious. Adding to the structural weaknesses of the economic system, coupled with the long-standing impact of the US embargo, the Cuban economy was seriously affected by the combined effect of the 2008 hurricanes (500,000 houses destroyed or damaged, temporary evacuation of some three million Cubans, and overall damage and losses estimated at almost ten billion dollars, i.e. over 20 per cent of Cuban GDP), rising food prices (Cuba imports 80 percent of its food).
The whole economy is controlled by the state, which acts not only as a provider of both commercial and non-commercial services, but also as a controller of trade in services. In 1990, the agriculture sector accounted for 10.8 percent of GDP; today, it is estimated at less than 4 percent, even though it employs 18.57 percent of the population. The decline of the sugar industry, a lack of finance for agricultural imports and the weak incentives for farmers have all resulted in a fall in the share of agriculture in the Cuban economy.
Until 2002, sugar accounted for around one half of the land area under cultivation, but a radical restructuring programme initiated during that year has halved this area. Today, there are 700,000 hectares devoted to sugar cane in the country, of which close to 50 percent are harvested each year. Eventually, this is expected to facilitate an expansion of other export crops (mainly citrus and tropical fruits), as well as food crops and forestry.
Industry accounted for an estimated 25 percent of GDP in 2007, down from 32 percent in 1990. After a sharp decline in industrial production in the early 1990s, new investments have brought a recovery in some industries. These include: nickel mining, steel production, light industries supplying the tourism sector and -since the launch of a new housing programme in the second half of 2005 - the construction materials industry.
Food security has been declared an issue of national security. The effects of the 2008 hurricanes, the rapid and sustained increase in international food prices, the lack of foreign currency both for imports and for food production inputs, and energy constraints have contributed to ensure that increasing national food production, especially by using endogenous resources and appropriate (low-input) technologies, is a national overarching priority. In this context, a series of measures are gradually being put in place to increase food production by small-holders, as well as improving its efficiency and quality.
As such a reform of the agricultural sector is crucial in order to ensure the sustainability of the process. Main challenges are modernisation, diversification and increase of production. A further difficulty is the economic sustainability of food production in a double currency system. Whereas 60% of inputs are obtained in CUC, by state decree, 90% of sales are in (non-convertible) CUP, thus providing little economic incentive to farmers and cooperatives. Given the above, the sustainable expansion of food production in the Cuban smallholder agricultural sector will primarily depend on the capacity of the Government to facilitate access to inputs (for production and processing) and credit.
Environment and climate change
Economic growth and the promotion of a sustainable and equitable social development, while safeguarding the environment and rationalising the use of natural resources, are at the very heart of Cuba's national policies. However, although Cuba has the knowledge, the human capacity and a clear understanding of its needs and priorities, it lacks the financial resources to expand its efforts and to undertake further environment-related studies and investments in key sectors.