Cuba’s Economy Report

Development Levels of Cuba

Despite having a strong health and education systems, Cuba is ranked among developing countries because Cuba has low purchasing power parity per capita. Although recently Cuba has diversified into other sectors like tourism, the country still depends on exporting primary products. The minimum human development index for a developing is 9.0 while that of Cuba is 8.7. Moreover, the country imports three-quarters of its food substances (Sullivan 74).

Contribution of Natural Factors and Human Capital in Cuba’s Development

Cuba has high literacy levels; thus the country can get skilled labor force whenever required. However, this has not had much impact on the development of the country due to inefficiencies in the government.

It is important to note that the private sector is restricted in Cuba and the government plays a vital role in employment. Cuba has deposits of oil and other natural resources like nickel (Ulrich 80). However, it has not made good use of them, and only nickel is effectively exploited.

Effects of Environmental Externalities and Income Inequality

Cuba depended on the Union of Soviet Socialist Republic (USSR) for trade and subsidies. As a result, it was hit hard by the fall of the USSR. On the same note, Cuba’s sugar industry which was once the largest export of the country has declined because of various factors, including global price decline and natural disasters.

The disparity in income distribution is roughly low which has led to increased human development index (Solares 293). However, this is bound to change shortly due to the legalization of private sector investors who already pay more than the state.

Development Barriers

A higher percentage of taxes to the government of Cuba comes from indirect and sales taxes. This is due to the shift from direct taxes to indirect taxes for political benefits by the government. This tax system places a heavier burden on low-income earners and the private sector.

This has highly discouraged private investments thus reducing the rate of economic development in the country. On the same note, this has made many people operate without being registered thus reducing the revenue of the government.

Technological advancements are very crucial for the development of any nation. Unfortunately, technological penetration has been low in Cuba. Access to the Internet is limited and monitored, therefore, limiting the number of people who can access information technology.

Transport and telecommunication sectors are also poor developed (Abrahams and Arturo 69). It is also important to note that access to electricity is also limited especially in rural areas. All these factors highly hinder development in the country.

The main exports of Cuba are agricultural products and nickel, which are exported as raw materials. Manufacturing and value addition have not been given priority. Primary products require a lot of input in terms of the number of hours to produce. Unfortunately, they have very low prices internationally.

This has made the country’s export earnings far much lower compared to imports. Consequently, the government has to fund its imports with resources from other sectors, thus reducing savings and investments.

Cuba has not been able to trade with the United States for a long time due to restrictions from the US. On the same note, Cuba exports raw products which are constantly ranked low, and receive low prices compared to industrial products from developed countries.

The inability to bargain for good sugar prices and other products has made the value of exports drop significantly (Abrahams and Arturo 84). This has negative impacts on the saving rates of the country.

Cuba is majorly a communist country where the government controls almost every means of production. Up to quite recently, no private investors were allowed in Cuba. This made the economy highly dependent on the public sector which is largely inefficient.

The laws against some western technology have highly hindered the development in various sectors. On the same note, the protectionist laws have discouraged foreign direct investment as well as private investors.

Development Assistance Received

The government of Cuba receives aid from foreign countries to assist in development. In the year 2010, the foreign assistance amounted to $129 million about 0.23% of the gross domestic product (Sullivan 67).

This figure increases each year. Though Cuba had not been allowing enhancement of the credit sector, reforms were implemented in 2011 which sought to provide credit to enhance production. This has led to the development of micro-credit organizations especially to support farmers and private entrepreneurs.

Government Policy

The government aims at reducing its dependency on imports and has thus initiated policies to expand its production sector. The government has partially allowed private as well as foreign direct investment. Moreover, the government provides credit to individuals to boost the ability of the country’s production. The US government has imposed sanctions on Cuba which inhibits foreign investment.

However, some countries still invest in Cuba, and the figure of foreign direct investment as of 2010 was $85.54 million (Abrahams and Arturo 147). Arguably, the mining industry especially nickel is among the major beneficiaries of foreign direct investment.

Possible Solution to Achieve High Development

Protectionist laws have proved harmful. Government control is inefficient and just serves to distort the market. Consequently, Cuba needs to open up its economy to increase the role of the private sector. This will increase competition which leads to efficiency in production. On the same note, this will increase the average levels of income.

Works Cited

Abrahams, Harlan, and Arturo Lopez-Levy. Raul Castro and the New Cuba: A Close-up View of Change. Jefferson: McFarland, 2011. Print.

Solares, Andres J. Cuba: The Disaster of Castro’s Revolution. Bloomington: Xlibris Corporation, 2010. Print.

Sullivan, Mark P. Cuba: U. S. Restrictions on Travel and Remittances. Darby: DIANE Publishing, 2011. Print.

Urlich, Aron T. Focus on Cuba: Current Issues and Developments. New York: Nova Publishers, 2008. Print.

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