1

Remittancerecipientsandthepresentandfutureofmicroentrepreneurship
activitiesinCuba
1

Introduction
ThisbriefingexplorestheextenttowhichCubanremittancerecipientsarerespondingtotheCuban
governmentseconomicreformswhichseektoincentivizeentrepreneurialactivitiesasaneconomic
growthstrategyandstateliberalizationpolicy.Theanalysisisbasedonfieldworkandasurveyof
remittancerecipientsinCuba.

Thefindingsshowthatremittancescontinuetoplayanimportantroleintheeconomicsurvivalof
Cubans,withmoneycomingfromtheU.S.andotherpartsoftheworld.Wefindthatanimportant
percentofrecipientswanttoownabusinessandanothergrouphasalreadyestablishedone.Inboth
cases,thebusinessesaregearedtowardtheservicesectorandledbymicroenterprisesaimedat
achievingselfsubsistenceratherthanwealthgeneration.

InlightofthereformsintroducedbytheCubangovernment,thereseemstobeamismatchbetween
governmentpoliciesandpeoplesinterests.Manyoftheeconomicactivitiesthatrecipientswouldlike
toundertakethroughasmallbusinessarenotwithinthescopeofthenewreforms.Moreover,these
policiesmaynotbesufficienttoenableanamenableenvironmentforbusinessdevelopment.Inlightof
theseshortcomings,thereisanexpectationamongremittancerecipientswillingtosetupabusiness
thatremittancesandfamiliesabroadwillhelpthemfinanceit.However,theseinflowsdonotconstitute
aformalmechanismforsmallbusinessdevelopment,andrathershouldfunctionascomplementto
possiblepolicyanddevelopmentincentives.Giventheprecariouspositionofongoingandpotential
businesses,andreformsthatwouldprovidelimitedincentivesforgrowth,itisimportanttoconsider
implementingstrategiesthatrespondtotheprevailingconditionsoftheseenterprises,suchas
microcreditortechnicaladviceonbusinessdevelopment.

A. CurrenttrendsinremittancestoCuba
RemittanceshavecontinuedtoflowintoCubawithtransferspredominantlyfromtheUnitedStates,but
alsofromEuropeandmorerecentlyLatinAmerica,Venezuelainparticular.Threemainaspects
characterizetheseflows.First,theU.S.continuestodominatetransfers,butwithlesspresencethanin
earlierperiods;EuropeandLatinAmericahavetakenanincreasinglypredominantrole.Second,despite
the2009changesinU.SremittancepolicytoCuba,fewremittancetransferoperatorshaveenteredthe
marketandtheuseofinformaltransfermechanismscontinues.Third,theamountreceivedhas
remainedthesameordeclined,mostlikelyasasymptomoftherecession.Fourth,remittances
continuetorepresentatleastonehalfoftotalincomeandrecipientsareabletosave,thoughtheytend
todosoinformally.

1
ManuelOrozco,InterAmericanDialogue,May2
nd
,2011.

Inthefirstcase,68%ofremittancerecipientsinterviewedreceivedmoneyfromrelativesintheUnited
States,13%receivedfromEurope(primarilySpain)and19%receivedremittancesfromLatinAmerica
andotherdevelopingcountries,ofwhich8%werefromCubanworkersinVenezuela.Thislast
observationcanbeexplainedbythestrongerrelationsbetweenCubaandVenezuela,includinglabor
contractstobringdoctorsandnursestoVenezuela.

Asecondrelevantissueisthatinformalnetworkscontinuetobeprevalent.Althoughpolicychangesin
theU.S.haveliberalizedpreviousrestrictionssetin2005,fewbusinesseshaveenteredtheremittance
markettooffertransferstoCuba.NotehoweverthatinformaltransfersfromtheU.S.arelowerthan
thosefromLatinAmerica,wheremostrecipientssaidtheystillrelyonfriendsormulastoreceive
money.

Third,transferstoCubahavenotincreaseddespitetheeconomicrecoveryandrelaxedrestrictions.In
fact,amountshavenotchangedsubstantiallyinrelationtopreviousyears.Amajorreasonisthatthe
citiesfromwhichflowsemanateareplaceswhereeconomicrecoveryhasbeentheslowest;this
includessouthernFlorida,MadridandBarcelona.Moreover,thoughremittancesfromLatinAmerica
havebeengrowinginvolume,theytypicallyexhibitloweramountsremitted,furtherreducingthe
averages.However,sendingfrequencyhasincreasedtoeighttimesasopposedtosixin2005.

Table1:RemittancestransferstoCuba,somecharacteristics
2005 2010/2011
ReceivingfromtheU.S. 81% 68%
ReceivingfromtheSpain 12% 7%
Numberofyearsreceiving 4 9
Amountreceived $150 $125
Frequencyreceivingperyear 6 9
Receivingfromparents 18% 20%
Receivingfromsiblings 22% 35%
ReceivesviaMTO 44% 47%
Receivesviamula,informal 54% 50%

Fourth,recipientsownfewassetsthatcouldserveasresourcesinproductiveorcommercialactivities
andmostdonotownbankaccounts(87%).However,alloftherespondentsacknowledgetheysave
utilizingvariousmethods,mostofwhichareinformal.Whiletheirassetsarelimited,theyhave
accumulatedliquidassetsintheformofcashsavingsamountingtoareserveorstockofnearlyUS$900.

Table2:Assetownershipsamongremittancerecipients
Assettype
(%)
Land 6.3
Machineryandequipment 23.3
Computers 51.5

3
Furnitureandofficesupplies 5.8
Cars 18.0
Cellphone 81.6

Table3:TraditionalSavingsmethodsusedbyremittancerecipientsandamountsaved
(%) (US$)
Iputmoneyasidefromwhatisleftoverattheendofthemonth 57 $827
Iinvestitonabusiness 2 $2000
Iworkextrahours 3 $1900
Takeadvantageofspecialsales 36 $758
Ibuydurablegoods 3 $2600

Thesefeaturessuggestthatthecharacteristicsofremittancerecipientshavenotchangedsubstantially
despitepolicyreformsintheU.S.Informalitywouldhavebeenexpectedtodecreaseandtheamount
senttoincreaseasaresultoftheinitiativesintheObamaadministration.However,changesand
adaptationtoCubapolicyareslowandmaytakelongerforCubanmigrantstochangetheirpractices,
particularlygiventhesloweconomicrecovery.

Anotherimportantpointtohighlightisthatincomedependenceonremittancesinvariablyremains
below60%.Cubanremittancerecipientearningsrangeunder$100amonth.Thisfigureisimportantin
thatitpointstoafewbroaderissuesthatrelatetotheCubaneconomy.Earningsamongremittance
recipientshintattheextentofthesizeoftheirfinancialstocktypically,remittancerecipientssave
morethannonrecipientsandinamountsbetweenUS$1,000andUS$2000.Togetherwithotherassets,
thesefundsconstituteabasisforpotentialbusinessinvestment.

B. Cubanreformsandsmallbusinessoperations
TheeffortoftheCubangovernmenttoreformitseconomybyencouragingsmallbusiness
entrepreneurshipamongitspopulationhasbroughtattentiontothepotentialroleofremittancesand
theirrecipientsintriggeringbusinessdevelopment.
2
Beforeexploringthatrole,thissectionoffersabrief
overviewoftheeconomicstrategiesandreformsapprovedbytheCubanCommunistPartysSixthParty
Congress.

Thegoalsintheliberalizationprocesscanbesummarizedasfollows:
Increasegovernmentrevenuethroughtaxationofnewlyformalizedsmallbusinesses,
Freeupgovernmentpayrollsbyreducinggovernmentemploymentandpromotingthe
absorptionoflaidoffgovernmentworkersintoanemergingSMEprivatesector,and

2
Goldstein,Josh,Cuba&Remittances:CantheMoneyintheMailDriveReform?CenterforFinancialInclusion,
http://centerforfinancialinclusionblog.wordpress.com/2011/02/01/remittancesakeydriverofeconomicreform
incuba/

4
Boostexports,strengthenthecurrency,andincreasewagesthroughincreasedoutputand
productivity.

Inthesmallbusinesssector,thereformsauthorizetheestablishmentofbusinessenterprisesfor178
economicactivitieswithintheCubaneconomy.Theactivitiesgenerallyfallintocategoriesofmanual
labor,services,artisanshipandperformance,thelasttwoofwhichcouldbeconsideredpartofCubas
importanttouristindustry.
3
Smallbusinessesaretobetaxedata25%rate,whilebusinesseswith
employeesmaybetaxedatarateofupto50%.Guidelinesforsalarylevelsforemployeesstipulatethat
wagesmustincreaseasthenumberofemployeesincrease,suchthatminimumsalaryforemployees
workingatafirmwith15ormoreworkersisthreetimesthemedianmonthlysalary.
4

C. Remittancerecipientsinterestinestablishingmicroenterprisesorsmall
businesses
Giventhechangingcontextforsmallbusinessesandtheassumptionthatremittancerecipientsmaybe
morepronetoinvestinabusiness,thissectionexplorestheextenttowhichtheserecipientsdecideto
engageinabusinessactivity.Theresultsshowthattherearethreedistinctgroups:Thosewhoarenot
interestedinestablishingabusiness,thosewhoareandthosewhoalreadyownabusiness.Fortythree
percentofrecipientsexpressedtheywouldnotbeinterestedinformingabusinessinCuba,whereas
34%did,and23%saidtheyalreadyhadabusiness.Herewelookatthosewhoareinterestedtosetup
abusinessaswellasthosewhoalreadyhaveabusiness.Ageneralfindingshowsthat,giventheir
economicposition,thisisapopulationwhosepotentialandactualbusinessesarelimitedtosubsistence
enterprises.

Thoseinterestedinestablishingabusinessareprimarilymen(67%)andsuggesttheywouldinvest
predominantlyinacommercialactivityinvolvingfoodorclothingwhileafifthwouldbeinterestedina
manufacturingtrade.Infact,theactivitieslistedastheirpotentiallineofbusinessincludedthesaleof
food,clothing,orCDs/DVDs.TheseactivitiesareapartialfitintothelistofbusinessesthattheCuban
governmentadvertisedasthosethatcouldbeallowedbythestate.

Table4:Economicactivitiesofinterestforbusinessstartup
Activities (%)
Sellfood 19
Sellorrepairclothes 15
Constructionandcarpentry 11
Artisancrafts 10
CD/DVDsales 8

3
Themusicalgroup"LosMambises"anddanceduoAmorareexamplesofthesurprisingspecificityofthe
regulationswithintheperformancecategory.Actividadesautorizadasparaelejerciciodeltrabajoporcuenta
propia.JuventudRebelde.September24,2010.online.
4
EspinosaChepe,Oscar.CambiosenCuba:Pocos,Limitados,yTardios.(Havana2011).

5
Agriculture 7
Rentrooms 5
Paladar 5
Teachlanguages 4
Renttechnologyequipment 3
Driver 3
Other 11

Whenaskedaboutthepurposeofthatbusiness,themajorityexpressedthatitfollowsasacomplement
totheircurrentjoborasasurvivalstrategyafterlosingtheircurrentjob.Onlyasmallgroup(9%)
statedtheywantedtoownabusinessasamatterofinterest.Theseresponsesareimportantinthat
theysetthecuesastothedirectionofapossibleentrepreneurialactivity.Thosewhoengageina
businessoutofnecessityduetojoblossortoaddtotheirincomearelesslikelytogrowtheirenterprise
substantiallyafterachievingselfsubsistence.Moreover,ifthebusinessisunabletoobtainfinancing,
andstrengthenitsmarketabilitythroughadditionaltraining,itscompetitiveedgedecreases.

Table5:Purposetosetupabusinessamongremittancerecipients
(%)
Startanewjobafterhavinglostthecurrentone 44
Complementmycurrentincome 38
Toownmyownbusiness,Iliketodobusiness 9
Supportmyfamily 8
Other 1

Whenthinkingaboutthepositionofabusinessinthemarket,asuccessfulenterpriseistheresultof
variousfactors,suchasaccesstocapital,linkagestothevaluechain,entrepreneurialskillandsupport
fromtheregulatoryenvironment.Evenwhenabusinessiscreatedoutofnecessity,gettingaccessto
financing,beingcompetitiveorenjoyinggovernmentsupportorincentivescanhelpthesebusinessesto
growandaccumulatewealth.Inturn,enterprisesareabletoreinvestinjobs,machinery,oraccumulate
personalwealth.

Acloserlookattheserecipientsshowsimportantfeaturesthatcharacterizetheirpotentialfor
engagementandperformanceinthebusinessenvironmentasitpertainstoavailableresources,access
tofinancing,andexpertiseinthetrade.Overall,95%ofthoseinterestedinsettinguptheirown
businessconsiderthattheirinvestmentwouldinvolvelessthanUS$5,000andmostlikelyunder
US$1,000.
5
Moreover,whenaskedaboutwhatresourcestheyhadavailabletostartthebusiness,one
quarteraffirmedtheyalreadyhadsufficientsavings,whereas30%saidtohavealocaletooperate,and
16%hadworkingcapital.Thosewithcashinhandandworkingcapitalheldsavingsworthupto
USS$1600.

5
US$1000islessthantheaveragesavedandwouldrepresenttheminimumstartupinvestment,plusthe
resourcestheysaytheywouldusetoestablishthebusiness.

6
Table6:Availableresourcesandsavings

(%) Savings(US$)
Locale 30
$1117
Merchandizeandothermaterial 27
$765
Cash 25
$186
Workingcapital 16
$1608
Other 1
$250
None 2
$400

Inadditiontotheirexistinginvestmentstock,remittancerecipientswereaskedaboutsourcesof
financingthatcouldcomplementtheirinitialinvestment,businessupkeep,andavailableguarantees.
Justoveraquarterstatedthattheirownresourcesservedastheiradditionalfinancingsource,and
nearlytwothirdsrespondedthattheywouldseekfinancingfromrelativeslivingabroad.This
dependencyorexpectationofsupportfromrelativesabroadconfirmssimilarexpectationsinthemedia
abouttheroleoftheCubancommunityintheUnitedStatesinparticular.Moreover,nooneconsidered
institutionalsupporttofinancetheirbusiness,andforthemostparttheysawtheirsavingsorthe
relativeabroadthemselvesasaguaranteetofinancing.

Table7:Resourcesavailabletostartbusiness
(%)
Fromfinancingfromfriendsandfamilylivingabroad 62
Onmyownresources 27
FromfinancingfromfriendsandfamilyinCuba 11
Other 1

Despitetheirfinancialweaknessandnoformalfinancialaccess,mostoftheseindividualshavesome
experienceinthetradeinwhichtheyplantoengage.Suchconditionwouldgivethemanedgewere
theytocompeteinthemarket,unlessitisalreadysaturated.

Table8:Experienceortraininginthetrade

(%)
Iusedtohaveasimilarbusinessbeforestartingthisone 48
Ihaveexperienceandwastrainedinthistrade 46
Ivebeentoldthisbusinessisprofitable 5

Theseresponsespointtoindividualsseekingtoformrelativelysmall,subsistenceoperations,forwhich
theywilldependonsupportfromfamilieslivingabroadandthatmaybeoutsidethescopeof
governmentsupport.Inturn,theywillhavealimitedimpactoneconomicgrowthandbusiness
development.

7
D. Aboutcurrentbusinessesamongremittancerecipients
Thosewhoalreadyownedabusiness(23%)sharesimilarcharacteristicstothosewhowanttostarta
newone,exceptthatsixtypercentofownersarewomen(against33%amongthoseinterestedinsetting
upanewbusiness).Theseentrepreneursworkpredominantlyinservicesandsales,inmanycaseson
activitiessimilartothosewhowanttostartanenterprise.Twentytwopercentsellfood,and4%owna
paladar.Seventypercentofthesebusinessesincludetheownerhimself/herselfastheemployee,and
onlytheresthaveonlyoneadditionalemployee.Also,mostofthesebusinesses(62%)havealicenseto
operate,exceptforthoseinstreetsalesandothertradesthatoperateinformally(38%).Inordertokeep
thebusinessrunning,63%fundtheoperationsfrombusinesssales,and27%useremittancesto
subsidizethebusiness.Theentrepreneurstypicallyhavetheirbusinessoperatingattheirplaceof
residence(80%),orarestreetvendors(12%).

TheaveragevalueofmonthlysalesisUS$200,anamountthatmayaddlittletotheirtotalincome.
Becausemorethanhalfoftheirincomeiscomingfromremittances,theseentrepreneurialactivitiesmay
complementtheirearningsfromadditionalworkbutmaynotrepresenthalfofallincomeunless40%of
theirsalesgointosalaries.

Table9:Economicactivitiesofentrepreneurs
(%) (US$)
Foodsales 22 $123
Beautyparlor(manicure),
hairdresser
19 $60
Sell,repairgarments 8 $95
Rentrooms 4 $1400
Rentandsellvideos 7 $40
Artisancrafts 4 $233
Paladar 4 $500
Agriculture 3 $75
Childcare 3 $110
Import/export 3 $550
Teacher 3 $100
Ponchero 3 $200
Other 15 $200

Table10:Meanstofinancethedaytodaybusiness
Meansoffinancing
(%)
Withtherevenuefromsales 63
Remittances 27
Withmyownormyfamilysavings 9
Loanfromfamiliesandfriends 1

8
Someconclusionsasmodeofobservation
TheresultsofthissurveyshowthatCubanremittancerecipientscontinuetorelyonremittancesto
managetheirdaytodaysurvival.Moreover,thereareindicationsthatthoseinterestedinsettingupa
businessorwhoalreadyhaveonearepredominantlyoperatingatasubsistencelevelandarenotableto
generateadditionalwealth.Asthesereformsareputintoplaceitisimportanttoconsidertheissues
thatmaycontributetothedevelopmentofsmallbusinessesinCuba.Itisalsoimportanttounderstand
thecorrespondencebetweenthetypeofenterpriseemergingintheCubancontext,resourcesneeded
tostrengthenanddeveloptheseintosuccessfulenterprisesandtheshortandlongtermimpacts.

Inanysocietysmallbusinessesarefacedwithstrikingabalancebetweenachievingsuccessand
overcomingchallenges.Dependingonthetypeofbusiness,theissuestodealwithmayvary.Business
successdependsonachievingincreasingprofitmargins,maintainingfinancialliquidity,coveringlabor
costs,seekinginnovation,andconsistentlysellingqualitygoodsorservices.Theyalsoareconfronted
withvariouschallenges,someinherenttoabusiness(capitalaccess,linkedtovaluechain)others
associatedtotheglobaleconomy(manageriallyandcommerciallycompetitive)andthemotivationsof
entrepreneurship.BecausecurrentCubanentrepreneursarepredominantlysubsistenceenterprises,
whatiscriticalistoidentifytheinstrumentsthatcanenablethesebusinessestodevelopandgrowthas
enterprisesthatcangeneratewealth.Thismaymeanlookingatthedevelopmentoftheirbusiness
capabilities,theirinsertionintotheglobalanddomesticvaluechains,theaccesstofinancialresourcesto
functionandexpand,aswellastheincentivesneededtooperateinaformalizedenvironment.

First,relyingonremittancesorsavingsaccruedasaprimarymeanstoinvestisnotanidealsituationas
suchresourcesaretypicallyfungibleandcanbeusedforvariousotheractivities.Savingscanserveas
partofafinancialguaranteeforaloanbutnotastheprimaryfinancingsource:iftheyaredepleted
beforethebusinessfullydevelops,theenterprisecanfailandtheentrepreneurisleftworseoff.
Second,theroleofmicrofinanceispivotalasitcanhelpputthesebusinessesinabetterpositionto
expandtheiractivitiesandbecomesustainable.Becauseongoingbusinessesdonotamounttoannual
revenuesoverUS$3,000,projectingtherightamountoffinancingneededtohelpabusinessgrowispart
ofafinancingstrategy.Moreover,onthatbasisandassumingabout100,000smallandmicroenterprise
operationsareopenedfollowingthesereforms,creditportfoliosmayneedtorepresentUS$300million
atleast.Third,trainingtoorientinterestedentrepreneurstowardsactivitiesthatarecompetitive,are
directlyconnectedtocommercialvaluechains,andexhibitthepotentialtoreacheconomiesofscaleis

9
important.Manyoftherespondentswereinterestedinsettingupbusinessesoractivitiesthatmaynot
becompetitive,ormaybemarketsaturated.Thus,assessingthemarketplaceforcommercialand
productiveactivitiescancoincidewithtechnicaladvicetobusinessesonwheretoinvestandestablish
theirenterprise,andhowtogoaboutit.Fourth,thecurrentregulatoryenvironmentisnotentirely
friendlytoentrepreneurs.Theimposedtaxquotasontheseindividualswillstrangletheircapacityto
operateandreinvestinbusinessgrowth;suchanenvironmentwillnotprolongsubsistencelevel
businesses.Exemptingnewbusinessesfrompayingtaxesduringacertainperiodandgradually
introducingthemintothetaxstructurecanhelpthemgrowintheshortterm.Finally,becausetheseare
relativelysmallbusinessoperationsrunbytheownerhimself/herself,providingfinancialadvisingabout
moneymanagementinahouseholdwithatleasttwoorthreesourcesofincomewouldbeanimportant
strategy.Smallsubsistencebusinessestypicallykeeppooraccountingproceduresoftheirbusiness
activitiesandmixrevenueswithothersourcesofincome,makingitdifficulttoascertainhowthe
businessperforms.

10

Appendix

Aboutthesurveymethodology
ThesurveyinCubawasconductedvariouscitiesacrossthecountry,50%inHavanabyateamof
researchers.Researchersworkedonarepresentativesampleofthepopulationssocial,demographic,
ethnic,regional,andsocialstrata.However,giventheCubanpoliticalcontext,researchersdidnotdo
randomstreetinterviewingbutinsteadthesampleunitsreliedonthesnowballprocedureamong
peoplethatcouldbeinterviewedinconfidentiality.Thesamplesizewas300remittancerecipients.
RecipientsinterestinsettingupabusinessinCuba
Not
interested
Interested Ialready
owna
business
Age 46 42 46
None
60.00% 55.90% 72.10%
Publicplaces
16.20% 17.60% 10.30%
Internetaccess
Athome
23.80% 26.50% 17.60%
Male
39.20% 66.70% 39.70%
Sex
Female
60.80% 33.30% 60.30%
University
76.20% 44.10% 42.60%
SomeUniversity
17.70% 37.30% 42.60%
Education
Highschool
6.20% 18.60% 14.70%
Married
24.60% 37.30% 47.10%
Livingtogether
30.00% 30.40% 26.50%
Single
25.40% 27.50% 7.40%
Divorced
14.60% 3.90% 19.10%
Status
Widowed
5.40% 1.00% 0.00%
1
2.30% 1.00% 0.00%
2
23.10% 28.40% 14.70%
3
51.50% 31.40% 61.80%
4
20.80% 37.30% 19.10%
5
1.50% 0.00% 4.40%
Numberofpeoplelivinginthehousehold
6
0.80% 2.00% 0.00%
No
96.90% 70.60% 97.10%
Wereyouaffectedbythemassivelayoffs?
Yes
3.10% 29.40% 2.90%
No
11.50% 8.80% 5.90%
Doyouthinkthatyouorsomeoneinyour
familywillbeaffectedbythelayoffs?
Yes
88.50% 91.20% 94.10%
AfroCaribbean
20.80% 33.30% 19.10%
Ethnicity
White
79.20% 66.70% 80.90%