In Cuba, a certain conceptual resistance persists towards the adoption of private property within the socialist model. Although this figure is contemplated in the Constitution and in the guiding documents of national development, the theoretical consensus has been broken when faced with practical implementation. To a certain extent, a fear/rejection/reproach has been cultivated of the private sector that does not provide solutions. Instead, it divides us.
Why this stigma? And, more importantly, can the private sector in Cuba grow to the point that justifies it?
Historically, the 1959 Revolution was founded on criticism of production relations based on exploitation and strong dependence on foreign capital, especially American, characteristics that marked the Cuban economy in the first half of the last century. In 1968, the so-called Revolutionary Offensive almost completely eliminated private businesses, consolidating a dominant state ownership model that, with the fall of the Soviet socialist camp, showed its exhaustion.
In contrast, other socialist countries such as China and Vietnam undertook, starting in the 1970s and 1980s, profound reforms aimed at integrating private initiative and the market. Thus, China has become the second world power and a central actor in the global geopolitical reconfiguration, while Vietnam aspires to become one of the top 30 economies of the world within five years.
Cuba has not even undertaken half the economic reforms of China and Vietnam. Current laws keep Cuba’s private sector small by definition. Its expansion has clear boundaries. Its growth reaches a limit. It seems that there are too many MSMEs because the starting point was zero, but the fear that they will control the economy, privatize everything and sell out the country, in addition to being exaggerated and malicious, is unfounded. Let me explain:
Private entrepreneurs in Cuba complain about the lack of regulation to promote MSMEs, self-employed workers, cooperatives and other businesses. But there is something that is perfectly regulated: its limits. This is much less talked about. We are going to demystify the idea that the Cuban private sector can overthrow the state company and “take over” the country:
Regulatory limits
Size
This is essential. The private company, which is the type of business with the greatest growth potential, is micro, small or medium by definition. An MSME can only have 100 employees. This cap stops investment once they reach the maximum size. It will be impossible to see in Cuba a “small or medium” private company with 500, one thousand or 5 thousand employees and hundreds of commercial points throughout the country.
For self-employed workers (TCP), the largest form of business, the restriction is greater: they can only hire up to three people, whether they are family members or not.
In the case of cooperatives, under the principle that in these organizational forms all members contribute their work, they can only employ 10% of the number of members. That is, a cooperative of ten members (cooperativists) could only hire one employee.
A partner, a MSME
The principle of “one partner, one MSME” establishes that a person can only be a partner (owner) in an MSME. No one can be the owner of more than one company, under the maxim of avoiding the “concentration of ownership”, provided for in the Constitution.
Whoever acts as a front man commits one of the most serious contraventions, according to the Decree-Law 91/2024which implies “(…) the confiscation of assets and the definitive cancellation for the self-employed worker and forced dissolution for micro, small and medium-sized companies, and non-agricultural cooperatives (…)”.
Strategic sectors
No business in the non-state sector can invest in sectors that the State has declared strategic, such as mineral extraction, oil production, manufacturing of biopharmaceutical products, sugar industry, education, health, aeronautics and railway transportation, etc.
All of these are captive markets for state companies. In some, the participation of foreign investors is admitted, even when there is no chance for national private investors. Examples are the nickel, tobacco, medicine manufacturing and export industries.
In other sectors, such as tourism, the ban is not total, but with important barriers. Private companies can offer accommodation services (such as private houses), but cannot create a private hotel chain or operate as a travel agency. The hotel tourism market is different from that of private accommodation. It is an example where, rather than competing, the state and private sectors complement the demand of different market segments.
Other prohibited activities
There is another broad set of economic activities that, although not strategic, are prohibited for private parties under current legislation. He Decree 107/2024 It includes in its list the sale of vehicles, television and radio broadcasting or financial intermediation. The manufacture of medical equipment, generation of electrical energy (except that produced with renewable sources) or collection of solid waste, among many others, are also not permitted. Various goods cannot be marketed by private parties: medicines, weapons, wood… In other words, only the State participates in this range of activities where, as in strategic sectors, private parties are prohibited.
Professional activities such as consulting, engineering, architecture, advertising agencies and legal services deserve special mention. The market for these services has grown; The state offer does not cover them and is not specialized in small businesses. Faced with the impossibility of practicing legally, some entrepreneurs have opted for informality. The worst: those who choose not to take the risk decide to emigrate, and many find their professional fulfillment where they can found or be part of businesses of this type.
Access to property and land
The transfer of ownership of homes is tightly controlled in Cuba. A natural person can only own a maximum of two homes. One must be the house where you permanently reside. The other can only be one in a rest or summer area, according to the General Housing Law.
Property in private legal entities (MSMEs and non-agricultural cooperatives) is not regulated. In practice, MSME partners cannot transfer the ownership of their homes to the assets of their companies, not even for free. The treatment of housing in Cuba as a non-seizable asset implies that the owners cannot offer them as a guarantee or pledge.
How do they do it then? Most private businesses that require an establishment to carry out their activities do so in two ways: 1) within the owner’s home, 2) rented in a state premises or other private home.
The situation with land is similar. Current laws, prior to MSMEs, do not prohibit, but do not regulate the procedure for granting land to these legal entities, whether in ownership or usufruct. However, the draft of the Land Law which must be approved in the coming months, makes it clear: Cuban legal entities will not be able to be owners or tenants of land.
Barriers to access to land and real estate are significant limits on the growth of the private sector as a whole. They per se limit its physical and, consequently, economic expansion. At the same time, they limit the potential of private MSMEs to insert themselves, for example, in the deteriorated agricultural sector.
The famous foreign trade monopoly
All goods imported by private parties pass through state entities. Raw materials, machinery, food and beverages… No private economic actor – publicly known – can import goods directly. In the case of direct export, although applying it would be a regulatory incentive, it is not permitted either.
These intermediaries, although they have the function of facilitating commercial management, often operate bureaucratically and add additional costs without adding value. Given the increase in private sector foreign trade operations, the number of state entities authorized to mediate grew to more than 70. However, in an attempt to maximize control, the Government cut the number to 48 last year.
The Government has “the key” to private foreign trade.
Foreign investment
Foreign investment deals (wholly foreign company, joint venture and international economic partnership contract) are reviewed and approved centrally by the Council of Ministers.
In July 2022, the then Minister of Foreign Trade and Foreign Investment (MINCEX) advertisement before parliament that “(…) about seven foreign investment projects linked to forms of non-state management” were being studied. That same year, the national press mentioned one that would receive external financing for produce porkbut in the long run that case did not bear fruit. To date, there is no known foreign (formal) investment with MSMEs that has been completed.
Other limits
Beyond the regulatory barriers, Cuban enterprises face the economic and financial limitations of the context: shortage of foreign currency, inconvertibility of the peso, nonexistence of wholesale markets, inflation, low productivity, energy deficit…
As if that were not enough, discretionary limitations are added to all the design and contextual limitations, such as the paralysis of the creation of MSMEs. In the ten months from September 2024 to July 2025, were only approved 231 “new” economic actors.
So what has happened?
The withdrawal of the State in activities where it was predominant five years ago is evident. The most palpable example is retail trade: Cuban families make the 55% of your purchases in private stores, according to the ONEI.
Is this happening because MSMEs have “snatched” market share from state companies that sold food in CUP? No, what has happened is that the State has practically withdrawn from that market. The private ones are just trying to fill gaps.
But this does not mean that the private sector is “displacing” the state sector. Even in its most difficult moment, the state sector controls large industries and factories, dominates exports and imports, is the only national actor in foreign investments in Cuba, has no competitors in dissimilar branches of the economy, its companies are saved from bankruptcy again and again, it employs more than two million Cubans…
The clarity of the legal limits established for the private sector in Cuba is unquestionable.
Does the country have to focus on “corraling” MSMEs (more)? Or does the state company need the profound reform that has been pending for years?
The Companies Law is announced since 2015. Eight years and several postponements have passed. We are wasting time arguing whether MSMEs are “good” or “bad”, even if they are a “necessary evil”.
Let’s discuss how to transform the Cuban state company so that it is more efficient, competitive and autonomous. But let’s discuss seriously, without falling into the voluntarist debate that each director or worker in the state sector fulfills his or her individual duty to solve all problems. The solution essentially involves political will expressed in economic policy decisions.
