Cuba’s private sector entrepreneurs fear new regulations may force them to shut down

HAVANA — His business was among the first registered in Cuba in 2021 when the communist-run country began allowing private enterprise, banned since 1968.

Now, as the government tightens its grip over the private sector, Gabriel Mosquera Mourlot, 24, fears he may lose the wholesale business he runs, importing items such as pasta, rice, chicken and appliances in a country known for chronic shortages. He then sells them to businesses in the eastern province of Santiago and in the capital, Havana. 

“I don’t think private businesses are going to grow,” Mosquera said at a hotel lobby in Havana. “On the contrary, we are going to ‘de-evolutionize’.” 

A flurry of new restrictions on Cuba’s fledgling private sector, which has been flourishing since the government permitted private enterprise three years ago, has rattled many entrepreneurs. Privately run stores are a lifeline for those who can afford to buy food there. By some estimates, the private sector has surpassed the state as the largest employer.

Many advocates of the private sector, especially in the United States, have seen it as a vehicle for political change in Cuba, something the government staunchly rejects. Then-President Barack Obama made strengthening its private sector a centerpiece of his engagement policy toward the country.

The Cuban government blames the private sector for galloping inflation and corruption. The regulations on top of the already existing bureaucracy has left many, like Mosquera, feeling uncertain and worried about the future.

Restrictions target a growing area

The last round of restrictions targets the private wholesale industry, an area that has exploded in business in the past three years by limiting whom they can sell to. Previously, the government was the sole source for imports on the island.

But according to the government, the private sector has undergone such rapid growth that it will have imported $1.5 billion worth of goods by the end of the year — which is on par with the state, which is estimated to import between $1.7 million and $2 billion. As it is, private sector entrepreneurs must use a state-run company to import. Soon, they will have to go through another state-run company to sell.

Other recent measures include price caps on six popular products, such as chicken and vegetable oil. Some businesses lost money when these went into effect in July.

Private companies will soon have to pay for goods from Cuban bank accounts, which is nearly impossible. Cuban banks have very limited amounts of hard currency to exchange and many companies around the world avoid using Cuban banks, because of the U.S. embargo. Most Cuban businesses use bank accounts in a third country to pay vendors.

Only Cubans and foreigners with Cuban residency who spend more than six months a year on the island can open a business, limiting Cuban Americans who want to invest. And a new national institute will oversee private businesses.

The wave of restrictions comes as Cuba’s economy has been in a downward spiral with less tourism and tightened U.S. sanctions that began under the Donald Trump administration and continued under President Joe Biden. Inflation, shortages in medicine and food in state-run stores, as well as hourslong blackouts in many parts of the country due to lack of fuel, have made daily life tough.

Privately owned stores offer relief to those who can afford it, like Cubans who receive remittances from their family abroad. They remain out of reach to Cubans who rely on a state salary or pension. The economic crisis has led to the emigration of more than 1 million Cubans, about 10% of the population, between 2022 and 2023, according to government figures.

Many economists agree the private sector already plays a vital role in the economy and is essential for improving economic conditions.

“What the government should be doing is precisely the opposite,” said Ricardo Torres, a faculty fellow at American University in Washington, D.C., who was previously with the Center for the Study of the Cuban Economy at the University of Havana. “They should be taking measures to incentivize the private sector and give them the security they need to invest more, expand and create more employment.”

He thinks restrictions are being taken because in the public eye, the government wants to blame the private sector for high inflation, something many economists disagree with, and show it is doing something about it. He said he believes the government wants to rein in the private sector because it’s undergoing rapid growth at a level the government is not comfortable with. Meanwhile, state enterprises, a fundamental component of Cuba’s economic model, are less productive.

“They fear the private sector because it’s autonomous, they make their own decisions, and they see that as threat,” Torres said.

Cuba’s government did not respond to a request for comment about its new policies. Officials have acknowledged in the past that the country needs the private sector, but have said that regulations are necessary to curb inflation they blame on the private sector, and also to rout out corruption. Prime Minister Manuel Marrero said during a National Assembly session in July that the regulations are aimed to control the private sector and not shut them down. In the past, he has referred to entrepreneurs as being “millionaires,” something the communist government is uncomfortable with.

Cuban President Miguel Díaz-Canel said at the same session that “there isn’t nor will there be a witch hunt” against the private sector. He also said the private sector must contribute to the national economy as part of its “responsibility with society.”

The government has reiterated businesses continue to be limited to 100 employees and an individual cannot own more than one business, meaning growth is capped. It stopped approving and registering companies in May.

Cuba’s long road to private enterprise began in 1978 when the government began allowing very rudimentary private business, like barbers working from their home. They called it “trabajo por cuenta propia” and avoided terms associated with capitalism. Throughout the decades, the industries that people were permitted to operate in were expanded little by little. It wasn’t until 2021 that the government officially lifted a ban on private enterprise in place since 1968. Since then, more than 11,200 small- and medium-sized enterprises, known as Mipymes in Cuba, have been registered by the government. There are more than 596,000 small businesses that are not Mipyme. They all comprise the private sector and operate under heavy regulations.

For Cubans, even Biden’s move allowing Cuban entrepreneurs to open bank accounts in the U.S. has been fruitless. So far, it does not appear that any U.S. banks have allowed Cubans to open accounts, according to Ricardo Herrero, executive director of the Cuba Study Group.

“With the presidential election looming and the fact that it takes a few months for banks to put together a compliance program for the Cuban market, everyone seems to be adopting a wait and see approach,” he said.

If Trump wins, the expectation is that Cuba will once again be put under maximum pressure sanctions, making banks reluctant to open accounts to Cuban entrepreneurs. If there is a continuation of current U.S. policy under a Democratic administration, then some banks may be willing to open commercial bank accounts to Cuban entrepreneurs. Personal bank accounts are already accessible to Cuban individuals.

A small-business owner in his late 20s who wanted his name withheld because he fears the government will misinterpret his statements, co-owns a small store with his business partner selling some food and household items like detergent.

He says the feeling of hope he had when he opened the store in the Vedado neighborhood of Havana a few months ago is fading with the new restrictions.

“This doesn’t help us advance, and in the long run, it will set us back and it will harm us and the population,” he said. “The government should not get involved with things that should be within our control.”

Orlando Matos reported from Havana and Carmen Sesin reported from Miami.