February 21, 2008
CUBA'S ECONOMIC CRISIS
Tough Challenges Ahead for Raul Castro
By Knut Henkel
Fidel Castro was the face of the revolution, now he leaves behind a
difficult legacy. Despite its successes in education, Cuba is plagued by
a serious economic crisis.
As Fidel Castro retires Cuba is left with an uncertain economic future.
It's hard to miss the giant billboard with the call to "Save Energy."
Displayed on the road connecting Havana and Matanzas, the colors of the
poster may have faded but the campaign is more relevant than ever. New
buses for Cuba's city and regional public transport system and new
Chinese-made trains are intended to improve the energy efficiency on the
island. And the government has declared war on ancient energy-guzzling
It's all part of what Fidel Castro has dubbed the "energy revolution."
The aim: to drastically reduce energy costs on the island. The aged
revolutionary leader announced back in 2004 that the investment in the
energy savings program would soon pay for itself in the savings made.
Whether that sum adds up is disputed in Cuba. It is certain that the
"Revolución energetíca" was the last great economic vision from the
Comandante en Jefe — a vision that has at least paid off for a number
of German firms that are involved in the modernization of Cuba's power
stations and generators.
It looks like these economic contacts are set to become even closer in
the future, with more cooperation in the areas of medical technology,
biotechnology and sewage disposal on the agenda. Cuba provides an
interesting opportunity for companies around the world — thanks to an
important legacy of the revolutionary leader: education.
It was Fidel Castro who personally began the impressive crusade for
education in Cuba following the 1959 revolution. The drive for literacy
across the island was to provide the basis for a knowledge society. The
former president is still proud of this today. In his resignation letter
published in the party paper Granma on Tuesday, he couldn't help but
point out that every Cuban has completed an average of 12 years of basic
education. The Comandante had made the Cubans a nation of high-school
graduates, and the island a location for science and research.
This has paid off in the past, and it could still count in the future.
For example, Cuba is one of the leading countries in the world when it
comes to biotech-pharmaceutical research. Scientists in Havana are
working on vaccinations against AIDS, Leprosy and Cholera and have
developed some of the first vaccinations against cancer, which are
almost ready to go on the market.
One of these vaccinations, Osag101, is intended to stop the spread of
cancerous cells in the brain, throat and neck. A German company,
Oncoscience, based in Wendel near Hamburg, has the license for selling
the drug in 46 countries. Osag101 is currently undergoing clinical tests
in Germany and Oncoscience chairman Ferdinand Bach is confident that it
will soon be approved.
The drug is just one example of Cuba's success in the biotech sector.
According to industry magazines and conferences, the country's
scientists are working on a number of different medicines. But their
weak point is when it comes to marketing them.
Cuba's Brain Drain
Another problem is the fact that many of Cuba's researchers have been
unable to resist the temptations of the West. The brain drain of
scientists is a constant topic in the well-equipped laboratories of
Havana. Highly qualified Cubans are simply paid better in San Francisco,
Paris or London. In response, Cuba has given its researchers many
privileges, including foreign currency bonuses, nice apartments and
further training abroad. However, the standard of living is not high on
the island, and there are always shortages of even the most everyday items.
The primary problem, though, is that in Cuba things may be tightly
controlled but little is produced. Fidel Castro has not succeeded in
transforming his unquestionable success in educational policy into
economic dynamism. The "biotech Revolution" that was introduced in 1981
makes no more than half a billion dollars a year. That is just pocket
change compared to the profits of biotech companies in the US.
Things look just as unimpressive in many other parts of the Cuban
economy. The best example is agriculture. According to the Granma
newspaper, Cuba had to sink $1.7 billion into food imports in the last
year alone. In 2002, at the Commandante's behest, the country had to cut
back on sugar production in order to put more into manufacturing foodstuffs.
Even Cuban agricultural experts admit that the results have been
devastating. Most often to blame are the centralized,
over-bureaucratized decision-making and planning processes. At the same
time, salaries can't keep pace with the cost of living. Carmelo
Mesa-Lago, Cuba expert at the University of Pittsburgh, estimates that
the Cuban peso has lost 76 percent of its purchasing power since 1989.
But Fidel Castro has paid little attention to Cubans' suffering and the
economy's poor productivity and been all too happy to ascribe it to the
trade embargo of the evil USA.
State Bureaucrats Strangle the Economy
Particularly atrocious are the effects that the "bear with it" policy
has had on the agricultural sector, where reforms address all but the
central problem — that of land ownership. Armado Nova of the Center for
the Study of the Cuban Economy (CEEC) in Havana puts it clearly: "Why
should I invest in the land, if it doesn't belong to me?"
Fidel Castro can hardly offer Cuban youth many prospects. The economy is
being strangled by state bureaucrats. Following the collapse of the
sugar economy, the country wanted to build up new sectors of production
— but the project has failed miserably. Now it's up to Castro's younger
brother Raul to clean up the mess.
He, unlike the ex-president, will not hesitate to talk about home-grown
problems. One of these is the dependency on Venezuela, which is
providing the island with oil. At the moment, roughly 30,000 Cuban
experts — from doctors to engineers — are in Venezuela. Their work is
being well rewarded and according to experts at the CEEC, their pay
constitutes Cuba's most significant source of revenue.
Dependency on Venezuela
In colonial times, Cuba was slave to Spain, then to the US and, after
the revolution, to the Soviet Union. Now it is dependent on Venezuela
and its President Hugo Chavez — but that's only discussed behind closed
doors in Cuba. A legacy of the Commandante, from which the country is