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Posted May 07, 2003 by publisher in Business In Cuba

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By Marc Frank | Forbes.com

HAVANA (Reuters) - Cuba’s economy has stagnated so far this year, despite a surge in tourism that has helped to compensate for the near collapse of the Communist-run Caribbean island’s sugar industry, government sources said Monday.

“The economic situation is uneven, with emerging sectors like tourism doing well, while others, for example sugar, are in crisis. Overall the economy was more or less flat through March,” said a mid-level official who asked not to be named.

President Fidel Castro’s government, under fire from many countries over a massive crackdown on dissidents last month, is facing the threat of new economic sanctions from the United States, which imposed a trade embargo four decades ago, and from some European countries.

Cuba’s annual tourism fair opened Monday with state-run media reporting a record of nearly 800,000 arrivals through April, 19 percent more than the same period last year, and 2 percent above the previous record set in 2001. The majority of tourists traveling to Cuba are from Canada and the European Union.

At the same time local analysts are forecasting this year’s raw sugar production will weigh in at around 2 million tons, a 40 percent decline from 3.6 million tons in 2002 and 80 percent less than the 8.1 million tons produced in 1989.

The government has not commented on the island’s economic situation since December, when it said the year was the most difficult since recovery began in 1994 from an economic crisis caused by the fall of former-benefactor the Soviet Union.

Public transportation has noticeably declined and power outages increased, while many Cubans remain hard pressed to meet their basic food, clothing and other needs.

The government warned in December that 2003 would be another difficult year, and forecast economic growth at 1.5 percent, compared with 1.1 percent in 2002, 3 percent in 2001 and 6 percent during the 1999-2000 period.

A leading Cuban economist said that the economy had not crashed with sugar because a 12-year effort to restructure the economy was paying off.

“Before 1990 the economy was based on the production of goods and now it is based on services. We have moved from sugar to tourism,” Juan Triana, director of the University of Havana’s Center for the Study of the Cuban Economy, told Reuters.

More than 90 percent of Cuba’s foreign exchange in 1990 came from sugar sales to the Soviet Union, which provided the island with generously priced oil supplies in return.

Tourism now accounts for around 50 percent of Cuba’s foreign exchange earnings and the country produces 50 percent of the oil it consumes. Nickel is the island’s main export.

“I’m optimistic. Tourism is up, nickel prices are the best they have been in two years, oil production is increasing,” Triana said, while admitting a serious foreign exchange shortage persisted.

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