259
CHAPTER VIII. REFORMS AND PERFORMANCE OF THE
MANUFACTURING SECTOR
A. INTRODUCTION. THE CUBAN INDUSTRY: EVOLUTION AND SITUATION
AT THE END OF THE 1980s1
An incipient process of industrialization was evident in Cuba as the 1950s drew to a close. This
process reflected the country’s specialization in the elaboration of primary goods and its focus on
tourism, as well as the weakness of the domestic market. In the early 1960s, the break in economic
ties with the United States and subsequent linking up with the CMEA countries prompted a process
of industrial development and diversification in the subsequent decade; however, this trend was
strongly tied to the nation’s sugar industry for obvious trade-related reasons.
An effort was made during the 1960s to promote the industrialization of the country, but an active
policy was only put into place during the 1970s with the aim of converting the manufacturing
industry into the driving force of national economic growth. The amount of resources allotted for
industrial development, especially in the 1980s, boosted manufacturing production, whose growth
rate was an annual 5%, which allowed the industry to account for roughly 25% of gross domestic
product by the end of that decade.
Progress in achieving import substitution was moderate execpt for activities that were developed in
relation to the sugar industry, which allowed 60% of sugar mill needs to be met by domestic
production. During the second half of the 1980s, the country’s total imports of goods and services
represented approximately 40% of GDP and in 1989, intermediate goods, primarily destined for
industrial use, accounted for 67% of total overseas purchases.
Cuba’s growing ties with the CMEA led to the adoption of an industrial development model
different from those of other Latin-American countries. While clearly there was a trend toward
inward growth, it was not the result of a deliberate protectionist approach to the domestic market,
especially in the case of final consumer goods. Rather, this process was due to the insufficiencies
and high costs of supplies from the socialist countries (construction materials), domestic hurdles
faced by the Cuban economy (electric power generation), or the needs of export specialization
(sugar and nickel).
The break in ties with the United States, beginning in the 1960s, raised the need for adjustment
imperatives that sacrificed many of the efficiency considerations common to market economies
with largely unrestricted access to supplies from international markets. Some of the problems faced
in rearticulating external productive ties included the stark differences in the previously existing
stock of capital goods and those available from new sources and the growing multiplicity of
technologies or inventories of replacement parts.
1
In this chapter we use industry and manufacturing interchangeably, except when otherwise stipulated. The sugar
industry, which was dealt with extensively in the first chapter of this third section, is not included.
260
As a result, it was necessary to use equipment developed in the CMEA countries that aside from
frequently proving to be technologically behind the best practices used in the West, was designed to
deal with conditions that were different from—and often diametrically opposed to—those existing
in Cuba. Structural lags and inefficiencies tended to be magnified by the large size of plants and
their overspecialization largely arising out of the division of tasks imposed by five-year trade plans,
an excessive consumption of energy sources—which were abundant in the former Soviet Union—
and the dependency this arrangement implied in terms of inputs, replacement parts and capital
goods. Thus, the pattern of industrialization beginning in the 1970s was marked by a limited
diversification of production and an export structure that specialized in traditional products with
only very modest surpluses of other goods available for overseas sales.
Furthermore, two interrelated factors changed the economic calculation used in assigning
investments. The first consideration was the use of administered prices in most commercial
transactions with CMAE member states, a practice that tended to imply various types of cross
subsidies. The second ingredient was that when seeking equipment, Cuba had to settle for what was
available from the supplier countries and such machinery often could not be fully adapted to the
country’s specific needs. In addition, there was a great deal of flexibility in the way socialist
countries financed Cuba’s trade deficits2, a situation that on one level favored capital formation and
the development of manufacturing in Cuba, but on another plane resulted in a less disciplined
approach in choosing technologies and investment projects, which is particularly evident today
when it is necessary to rearticulate ties with the West.
Between mid 1970s and late 1980s, investment in manufacturing (excluding the sugar industry)
fluctuated at around 20% of total investment. A significant part of capital formation was focused on
the two sectors deemed top priorities for the domestic and external markets. As a result, between
1960 and 1990, sugar and energy complexes (see the sections dealing with these two sectors
elsewhere in this book) absorbed no less than 8% of total investment in the Cuban economy. On a
sectorial level, the focus was on promoting: i) agroindustrial integration, which led to multiplier
effects on other agriculture-related sectors such as the fertilizer, pesticide, animal feed, packaging
and machinery industries; ii) the development of an industry based on sugarcane by-products,
which are now used for a wide variety of applications including as an alternative energy source; iii)
the steel industry and boosting the production of machine tools primarily designed to meet the
equipment needs of sugar and agriculture in general; iv) the building materials industry with an eye
toward covering the country’s housing and infrastructure needs; and v) the pharmaceuticalbiotechnological industry, which later achieved competitiveness thanks to the technological
innovations and developments on the island3.
In brief, some of the main structural characteristics of industry at the end of the 1980s were the
following:
i.
2
Considerable dependence on external sources of raw materials and components for products
earmarked for the domestic market and imports of inputs tied to exports.
For example, during the five-year period of 1981-1985, an agreement was reached with the socialist countries to
extend 4.00 billion rubles in credits on terms that were very favorable for Cuba.
3
For a more detailed description of progress achieved in the industrialization of Cuba, see Figueras, 1994 and 1994.
261
The country’s industrial plants and equipment were largely characterized by technological
obsolescence, oversized facilities and difficulties in acquiring spare parts and other hurdles to
their normal use.
iii. An industrial structure with little domestic linkages, dominated by large-scale companies that
displayed an excessive degree of vertical integration, thus leaving little room in which
smaller enterprises could function4.
iv. Diminished plant efficiencies and flexibilities due to technological reasons, excessive
machinery, a lack of inputs and other restrictions.
Low levels of development of complementary industrial services, which existing plants were
v.
largely left to provide a practice that led to additional inefficiencies.
vi. Distortions in the characteristics and breakdown of management-level personnel with an
excessive number of professional and technically skilled workers combined with a shortage
of employees with experience in marketing, finances and business administration and
management.
vii. Highly differentiated priorities in allocating foreign currencies and energy inputs arising out
of the foreign stranglehold stemming from the breakdown in economic relations with the
CMEA countries.
viii. Industrial specialization that was a vestige of relations with the CMEA countries, which had
often been detrimental to Cuban interests.
ii.
Cuban industry began the 1990s in extraordinarily difficult circumstances. The problems faced in
the macroeconomic sphere had a major impact on manufacturing and industry’s structural and
operating deficiencies became quite evident between 1989-1993. Manufacturing output (excluding
the sugar industry) fell 68% in real terms, fixed-capital accumulation slipped 32% below 1989
levels and the use of installed capacity did not surpass 30%5. Manufacturing output contracted 37%
during this period, a much less significant decline than the setbacks reported in production, a gap
that is probably a result of the plunge in imports of intermediate goods used in the productive
process.
In 1994, a recovery related to emergency measures adopted beginning in mid 1993 began, while
more structural reforms designed to return the country to the path of sustained growth began to
have an effect. It is hoped that measures such as down-sizing companies, the liberalization of
foreign investment, the decentralization of some decision-making processes and a system for
perfecting company operations will allow for a recovery in the process of capital accumulation and
give way to higher rates of industrial growth. Nevertheless, by 1999 manufacturing output had yet
to return to the real production levels registered in the late 1980s.
The rest of the chapter has been organized in the following manner. We begin with an analysis of
the linkage between the priorities implied by the adjustment and both macroeconomic and
institutional reforms, as well as the connections between the main programs and transformations
undertaken in manufacturing during the 1990s. In section C, we provide an overview of how
4
In other words, while other countries were moving toward a productive structure in which small enterprises
occupied a growing role, the exact opposite was the case in Cuba.
5
The decline in overall industrial production (mining and quarries, sugar, manufacturing, electricity, gas and water)
was less dramatic (61%) due to a less negative performance by the sugar sector, whose weight in total industrial
activity grew from 14% in 1989 to 17% in 1993.
262
manufacturing has evolved during the “Special Period” starting with the general modification of the
productive structure through a range of meso- and macroeconomic measures. This section also
includes an assessment of the effect these developments have had on the productivity and
international competitiveness of Cuban manufacturing.
Later, in section D, we undertake an analysis of how each sector of industry has evolved. Our
breakdown was organized in relation to the institutional sectoral structure currently in place in
Cuba. In other words, we followed the lead of the Cuban government’s criteria for dividing
productive industries between specific government ministries: the ministries for the Food Industry
(Minal), Light Industry (Minil), Basic Industrywith particular emphasis in nickel
operations(Minbas), machinery and electronics (SIME), building materials (Micons) and the
medical and pharmaceutical industry (the Public Health and Scientific Research Ministry). Also
included is a small section on the current role and potential of small-scale businesses.
In section E we offer a few considerations on the prospects of the manufacturing sector and the
challenges facing industrial policy in Cuba. We stress macroeconomic constraints, the need to
perfect industrial restructuring, the role of foreign trade and selective import substitution and
finally, the development of small and medium-sized industries as well as their linkage with large
enterprises. The section concludes with a summary and our main conclusions.
B. MACROECONOMIC REFORMS AND INDUSTRIAL POLICY
Changes in Cuba’s manufacturing industry should be examined in light of the macroeconomic
adjustments undertaken since the early 1990s. The immediate aim of policies in this field has been
to reestablish macroeconomic balances, but also to include more thoroughgoing reforms, such as
the opening to foreign direct investment that, taken as a whole, is having sweeping effects on the
industrial sector.
One of the chief mechanisms for achieving changes in the microeconomic sphere is the demand
that companies balance their foreign-exchange budgets. This measure leads to an increasing focus
on production for export, tourism and liberalized industrial markets. The fundamental goal is to
boost foreign-currency generation and rebuild the export sector even at the cost of temporarily
reducing production of final consumer goods for the domestic market. In this regard, a priority
has been placed on tourism and related industries, the production of sugar, foodstuffs, nickel,
pharmaceuticals and biotechnology. Specific policies are being designed and implemented that
correspond to the characteristics and peculiarities of each industry on the level of technology,
administration, labor, credit and wage issues. The instrumentation of these reforms has been
particularly fast paced in sectors most closely linked with foreign investment such as basic industry,
machine tools, telecommunications and tourism-related endeavors (Marquetti, 1996).
With the global objective of improving efficiencies and competitiveness, industrial policy in the
1990s has sought to address two main issues. The first of these refers to the restrictions imposed by
the overall process of adjustment in which industry has had to passively adapt to the need to
reestablish basic macroeconomic balances. In other words, rather than pursuing a formal industrial
263
policy per se, the idea has been to implement a survival strategy in response to the crisis in the first
half of the decade, followed by (from 1995 to 1999) the pragmatic application of measures
primarily geared toward supporting those activities capable of generating foreign currencies. The
second issue deals with the strategic importance of certain fields of industry that can satisfy
essential consumption needs or expand the country’s import capacity.
The above-mentioned strategic approaches have translated into a number of distinct measures. To
begin with, major changes have been made to the institutional framework. Secondly, actions have
been taken to improve competitiveness and industrial development. Lastly, at the microeconomic
level emphasis has been placed on recovering production levels and raising competitiveness and
efficiencies in priority companies and activities. In the following pages we will describe the main
actions undertaken during the “Special Period”; later, section D contains a detailed analysis of their
characteristics and effects on each industry.
The opening to foreign investment in the 1980s marked the beginning of the reforms aimed at
restructuring the external sector. The subsequent changes made to foreign-investment legislation in
1995 brought the Cuban regime more in line with the most liberal practices in the Americas and
marked the relaunching of an external sector increasingly focused on Western markets. Foreign
investors are now allowed to form wholly owned enterprises in practically all areas of the economy
as officials seek to attract investment that can facilitate access to technology, capital or markets6.
The areas of manufacturing activity most favored by foreign investors are nickel, soaps and
detergents, perfumes, lubricants and food items and tobacco. Most other foreign investment is
focused on tourism, telecommunications and oil. In mid 1999, associations involving foreign
capital totaled 362, with one-third of them in manufacturing. The law allowing the creation of free
trade zones and industrial parks adopted in 1996 is another example of efforts to attract foreign
capital (see the chapter on “International Economic Relations”).
The decentralization and relative autonomy of decision-making with regard to production and
investment led to the partial elimination of a planning system based on defining targets and material
allocations (raw materials, other inputs and foreign currency). Within the industrial sector, the
decision-making process is broken down in keeping with existing hierarchical structures between
corporate management, industry-wide bodies, ministries and the Council of State.
New foreign currency self-financing schemes have been put into place, which assure greater
company autonomy. In previous years, resource, input and capital requirements had to be presented
to the government, which then allocated them in accordance with physical production goals; lax
budgetary restrictions afforded companies almost automatic access to such resources. The prices of
inputs and of final products incorporated considerable subsidies aimed at reducing the price of the
basket of basic goods, whereas those of nonessential items such as cigarettes and alcoholic
beverages were kept high to offset the cost of such subsidies, a practice that remains in place.
6
A detailed description of Legal Decree 77 can be found in CEPAL (1996 and 1995) and Alvarez (1996). Regarding
the promotion of investments in Cuba. See ONUDI (1996).
264
Today companies providing goods and services must draw up a foreign-currency statement of
income and current expenditures (including debt-servicing costs) and capital7. These statements
include the contributions and wage, dividend and tax payments made by foreign investors. Foreignexchange allocations are centralized, but their management is not. The companies subject to this
foreign-currency self-financing arrangement have tended to display a competitive edge. Such
enterprises must demonstrate their autonomous economic and financial viability and achieve
efficiency and competitive parameters that are similar to those prevailing in international markets
and perform in line with market norms (Marquetti & García Alvarez, 1999).
The foreign-currency rationing system has played a crucial role in financial reorganization and the
recovery of sectors and companies tied to the external sector. The system has promoted more
disciplined management practices and has been further strengthened by limiting access to credit,
which was not the case in the past. Bank financing now tends to conform to market criteria so that
loans bear precise interest rates must be backed by guarantee, and each credit request is subject to
technical valuations of credit worthiness. In recent years, Cuban banks have accounted for a
growing percentage of credit activities alongside foreign-financial institutions, thus contributing to
the industrial recovery. In 1998, the domestic financial system issued US$544 million dollars in
foreign-currency denominated loans, 54% of total foreign-currency denominated credit and a
41% increase compared to 1997.
Major changes have also occurred on the level of marketing, an activity in which manufacturing
companies were not previously engaged. Now such companies can assume responsibility for
commercial ties with their customers, which is a factor in their competitiveness, especially in the
domestic market in foreign currencies. Thus, Cuban companies are trying to obtain a competitive
edge with regard to other domestic enterprises and imports. In 1992, the State monopoly on foreign
trade was eliminated; today there are more than 300 companies (compared to a mere 50 in 1989)
that are involved in foreign-trade transactions, a major increase from the 28 companies engaged in
such operations in 1997.
At the end of 1994, the Free Industrial and Artisan Markets System was established, which
specializes in the direct marketing of final goods with prices determined by supply and demand. As
a result, networks of retail shops, street fairs and public markets were created to sell any surpluses
above and beyond the production plan. Furthermore, independent producers and artisans can even
sell their wares in the shopping areas operated by the Internal Commerce Ministry, whereas
government-run companies are only allowed to sell surpluses that do not affect the supply of Statesold goods. The past three years have witnessed a marked expansion of sales in these markets, but
they still represent a small percentage of total production (see the appendix to chapter I in the first
section of this book).
The aim of the industrial down-sizing program is to raise industrial efficiency levels and generate
savings, particularly in the case of companies with significant foreign currency needs that often
arise out of an intensive use of energy and imported inputs. The basic mechanism consists of
adapting productive capacity to the supply of scarce inputs and real market demand. In practice, the
government’s rescaling policy can include a rationalization of installed capacity (both in terms of
7
Public/private-sector joint ventures and State-owned enterprises that do not receive foreign currency from their own
activities, but do receive such resources from State allocations must also submit their foreign-currency budgets.
265
physical and human capital), the relocation of production, a division of operations, a partial or total
shutdown of installations, a shortening of shifts and the introduction of technological, productive
and Entrepreneurship upgrading8. While in theory the program should be applied to all
manufacturing activities, important variations have arisen in terms of the depth, intensity and
degree of progress in its implementation, depending on the specific conditions of each company
and industry (see section D later in this chapter).
In general terms, the policy of industrial rescaling should basically cover three phases (Marquetti
1996 and Rodríguez 1996). The first involves determining production capacity, which needs to be
streamlined in terms of competitive and technological positioning, company or sector priorities, the
extent of demand and growth potential. There is considerable idle capacity as production levels
remain depressed and physical assets are either obsolete or run down from lack of maintenance.
This situation suggests that further investments to replace physical assets will be needed over time.
The second stage consists of jointly determining with company managers the specific needs of each
enterprise and the best means for achieving the necessary adjustments in production. Specific
measures and goals regarding capacity, production, export, employment and efficiency levels are
set on a case-by-case basis. During the third stage, company operations are transformed through
measures ranging from the total or partial closing of facilities and layoffs to the adoption of new
production methods, reconversion of equipment and the use of new technologies. In some cases,
the process of rescaling plants has led to layoffs. Efforts have been made to soften their impact
through a variety of measures to make adjustments compatible with higher social objectives.
Sometimes, workers are transferred to other companies, become self-employed or join agricultural
cooperatives. If they become unemployed, they continue to receive up to 60% of their wages
(depending on their length of service) and access to all social benefits.
Business management remains a significant microeconomic weakness and will assume a growing
importance as the Cuban economy becomes more exposed to international competition. Strong
impetus has therefore been given to higher education and postgraduate programs related to business
administration as well as research and courses focused on industry needs. At the same time,
industry-university cooperation has been stepped up with encouraging results. One interesting
approach has been to organize self-improvement courses taught by government ministry officials
and representatives of foreign corporations. Efforts to constitute groups of companies with an eye
toward promoting international competitiveness are slowly generating positive results.
The emergence of new State-run economic entities such as corporations, business groups and
alliances that in coordination with groups of companies has established a new top tier of business
management in charge of designing production policies and strategies, coordinating inter-company
cooperation, promoting the introduction of new technologies, undertaking market studies and
commercial promotion while seeking sources of financing and business projects involving foreign
investors.
A program has recently emerged from within companies run by the Armed Forces aimed at
enhancing business performance. The Management Up-grading System is primarily geared toward
enhancing microeconomic efficiencies by taking better advantage of resources. Enterprises are
8
For a detailed description of the initiatives and priorities adopted, see Rodríguez (1996).
266
provided greater room for decision-making in such matters as worker incentives, a point that will
be taken up in greater detail later in this section. At the end of 1999, only a handful of companies
had been authorized to participate in this program.
A gradual reduction over the past five years in subsidies needed to cover company losses offers
evidence of the progress achieved thanks to this new approach to the management of manufacturing
enterprises. The 1999 budget allotted 1.10 billion pesos for such purposes (16% less than in 1998),
with 55% of that total earmarked for the sugar industry and 29% for agriculture. The remaining
16% of this budget item was absorbed by 25 companies in basic, light and machine tool industries
as well as 36 local enterprises largely engaged in retail sales, transportation and construction.
Labor incentives. Measures have been taken to compensate the wages of different groups of
workers with payments that are increasingly made in foreign currencies. These incentives are
awarded for achieving certain production levels or quality standards not only on the level of an
individual’s performance, but for departments or the company as a whole. An effort has also been
made to sustain the level of social benefits available prior to the “Special Period”. Wage incentives
in pesos include bonuses, payment in keeping with final results and when production surpasses
target levels. Foreign-currency incentives take the form of both direct and indirect payments that
allow workers to make purchases in special shops to which the preferential exchange rate is applied
(INIE, 1997). Payment is also made in kind in the form of apparel, footwear and personal care
items.
At the end of 1997, 1.3 million workers (roughly one third of the total workforce) benefited from
special incentives both in the form of direct payments in foreign currencies (126,000) and indirect
payments (1,176,000). The largest segment (548,000) corresponded to the Ministry of the Sugar
Industry. This is an imperfect substitute for a more general reform of the wage system and a partial
recovery of real salary levels, goals that cannot be realized while the economy faces inelastic
supply. Under such circumstances, wage hikes would generate pressures on the balance of
payments or inflation.
It can be inferred from the previous paragraphs that the measures adopted as part of the
government’s industrial policy are progressively taking shape as part of a comprehensive strategy
especially on the level of long-term development perspectives. This process is conditioned,
however, on the actions taken to respond to urgent needs and problems of the “Special Period”, that
is, short-term adjustments. The government has put into place long-term strategies for the main
areas of industry such as inputs for tourism and biotechnology and the promotion of export activity
and import substitution. Furthermore, an even longer-range approach is beginning to take shape
aimed at improving efficiency and competitiveness, as well as solving the problem of obstacles to
accessing international markets. Nevertheless, the fine details of the new industrial promotion
policy have yet to be defined beyond the general needs of macroeconomic stabilization and foreign
trade.
Despite the grave industrial setbacks experienced between 1989 and 1993, adjustment policies
succeeded in preventing economic chaos and its social consequences. The economy continued to
function, albeit on a lower scale and with setbacks and minimum consumption levels continued to
be guaranteed. Some of the measures taken to deal with the emergency will remain a priority over
the medium term—such as exports and improved competitiveness—but others will have to be
267
replaced or supplemented with strategies to promote the country’s new development pattern. The
new model will have to be different from the one followed until 1989 and that of the “Special
Period”, especially in terms of the long-term structural approach to economic reconstruction. In the
last section of this chapter, we offer a series of reflections regarding the design and implementation
of a competitiveness strategy for Cuba.
C. INDUSTRIAL PERFORMANCE: ADJUSTMENT AND STRUCTURAL CHANGES
1. Industry during the “Special Period”
Two phases in the pace of economic growth can be distinguished in the performance of the
industrial sector during the past decade. The first, running from 1989 to 1993-1994, was
characterized by a sharp drop in industrial output while the second phase began in 1994-1995 with
a slight upturn that was gradually consolidated during the following years. Despite this period of
recovery, most industries have yet to regain the real production levels registered in the late 1980s.
In keeping with trends evident in the rest of the economy, the manufacturing industry experienced
setbacks during the second half of the 1980s that translated into a deep recession by 1989-1990.
Between 1985 and 1993, manufacturing experienced an almost uninterrupted decline that led to a
40% drop in output while the industry’s real contribution to GDP slipped from 25% to 22% (see
graph VIII.1). As a result, the use of installed capacity plunged from 70% in 1989 to less than 30%
in 1993. Similarly, by 1994 industrial investment plummeted to less than one third of 1989 levels,
thus becoming one of the main obstacles to achieving sustained economic development.
Sectorial production has experienced notable changes in the 1990s as each segment of
manufacturing displayed sharply different rates of growth (see chart VIII.1). Priority areas, which
are those with the strongest demand for foreign currencies, occupied a greater percentage of the
mix to the detriment of producers of goods to be sold in Cuban pesos. Chart 2 offers an overview of
the changes in the composition of manufacturing production between 1989 and 1998. The food
industry continues to occupy the largest share of output and along with fishing, beverages and
tobacco (all export industries), accounted for 47% of total production in 1998 compared to less than
43% in 1989. Other industries that have gained ground are nonferrous metallurgy—thanks to the
strength of nickel production—chemicals—in response to a rebound in soaps and cosmetics—and
electric and nonelectric machinery—in response to increased foreign-currency sales. Meanwhile,
the weight of textiles, garment, paper and cardboard and glass in the manufacturing mix declined
significantly.
268
Graph VII.1. CUBA: MANUFACTURING' S SECTOR GDP
(Millions of pesos at 1981)
5 500
5 000
Break with
tthe CMEA
Stagnation
"Special Period"
4 500
Recovery
Crisis
4 000
3 500
3 000
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data and CEPAL estimates.
In the labor market, employment in the manufacturing sector (excluding the sugar industry)
declined from roughly 549,500 to 422,800 workers between 1989 and 1994. The reduction in
industry employment partly arose as a result of policies aimed at achieving a more rational use of
labor power and enhances productivity (see graph VIII.2). At the same time, underemployment
grew considerably. During the second half of the decade, employment continued to decline as
programs for down-sizing enterprises and strengthening efficiency took their toll. In 1998, the
number of workers in manufacturing was 395,300 or 154,200 less than in 19899.
The various segments of manufacturing were treated in different ways during the emergency
period. Although all sectors have experienced declines, certain activities were better able to
withstand the crisis as the government emphasized the need to spur export sales. While exportrelated industries were the least affected, production of capital goods and nonpriority consumption
suffered the sharpest setbacks. The high levels of energy consumption by export industries
exacerbated the recession in other sectors of manufacturing due to the limited supply of energy
(García Hernández, 1996). Moreover, throughout the recession the weakened linkages between the
various segments of industry hindered export supply until a comprehensive approach was taken to
solving the problem.
9
If the sugar industry were included, total manufacturing employment would fall by 127,000 jobs during this period.
269
Chart VIII.1
INDUSTRIAL GROWTH IN THE CYCLE
Average annual growth rate
1989-1994
Total manufacturing industry
Food
Fishing
Beverages and tobacco
Textiles
Garment
Leather
Pulp and paper
Industrial graphics
Forest products and wood
Construction materials
Glass and ceramics
Chemicals
Metal products
Mining and ferrous metallurgy
Mining and nonferrous metallurgy
Manufacture of nonelectric machinery
Electro-technical and electronics
1998 production vs. 1989 (%)
1994-1998
-14.6
-11.7
-8.0
-9.1
-30.5
-31.2
-20.3
-27.1
-14.0
-10.7
-24.5
-22.7
-11.1
-19.8
-25.9
-9.8
-14.0
-20.7
8.9
5.6
4.2
6.8
0.8
7.4
5.3
4.3
6.6
-5.4
13.4
11.8
8.5
17.0
20.6
24.4
11.2
32.6
63.8
66.7
77.8
80.7
16.7
20.5
39.6
24.4
60.5
45.4
40.6
43.0
77.1
62.1
47.2
143.4
71.9
97.0
Source: CEPAL, based on data from the National Statistics Office (ONE).
During the 1989-1993 period, manufacturing output (excluding sugar) declined by almost 70%. On
the level of specific sectors, food industry output fell by more than 50% with major consequences
for the well-being of the country’s population. The least dramatic setbacks, which were still of
considerable dimensions, were reported in the tobacco (-32%) and beverage (-50%) segments,
while the sharpest reductions were experienced in the wood (-91%), mining and metallurgy (-84%),
pulp and paper (-86%), garment (-88%) and textile (-79%) industries and in the production of
radios and televisions (-91%). There is no other country in the recent history of the world economy
that has experienced such a dramatic contraction and escaped a mushrooming of social tensions.
By mid 1990s, industry began to register notable improvements, with manufacturing output
growing 7.6% in 1994 and 6.4% in 1995. During 1996-1997, manufacturing output continued to
expand before falling 3.3% in 1998, along with a greater differentiation of sectorial performance.
For example, some export segments such as nickel and rum climbed above 1989 production levels.
Others, such as processed meats, refined oil and soft drinks, all of which are primarily geared
toward solvent foreign-currency markets, also surpassed 1989 levels10. In contrast, production of
most food items and intermediate goods continued to display a significant lag (see chart VIII.3)11.
Some of these segments even registered declines in 1994-1998 (sugar, oil, milk, paper and fuel oil).
These markets now face the prospect of a process of rapid import substitution.
10
Solvent markets are those that receive revenue in foreign currencies; in other words, exports, dollar stores and
tourism.
11
It is also worthwhile noting that the industrial structure that emerged out of the transformations of the “Special
Period” make it difficult to evaluate the performance of the various sectors of the economy.
270
Graph VIII.2. Cuba: Manufacturing employment sector a/
(Thousands of people)
550
500
450
400
350
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ Average number of manufacturing workers (excluding the fuel, energy and sugar segments as well as other
industrial activities).
Chart VIII.2
SECTORIAL BREAKDOWN OF CONTRIBUTION TO TOTAL MANUFACTURING
PRODUCTION, 1989-1998
1989
Total manufacturing industry
Food, beverages and tobacco a/
Textiles, garment and leather
Paper and printing
Forest products and wood
Construction materials
Glass and ceramics
Chemicals
Mining and metallurgy
Metal products
Nonelectric machinery
Electro-technical and electronics
100.0
42.7
9.1
5.2
2.4
7.6
1.0
7.4
5.3
3.7
12.5
3.1
1994
100.0
53.2
3.9
3.5
3.0
4.1
0.6
9.1
4.9
2.7
12.9
2.2
1997
100.0
48.2
3.2
3.3
1.6
5.1
0.7
8.5
8.0
3.5
14.0
3.9
1998
100.0
47.0
3.3
3.1
1.7
4.9
0.7
9.0
8.0
3.6
14.0
4.7
Source: CEPAL, based on ONE data.
a/ Includes fishing.
Several factors account for the upturn in industrial production during the past five years, among
them the financial discipline stemming from limits on foreign-currency allocations; new
organizational and management criteria applied by sectoral ministries; the establishment of
271
administration, marketing and negotiation systems between companies and ministries; and
productivity incentives for workers in practically all branches of manufacturing. In addition, the
1993 decision to decriminalize possession of foreign currencies and work incentives have served to
expand the purchasing power of Cubans. Similarly, the tourism boom has also made it possible to
reactivate and rearrange production chains thanks to special financing plans for activities that supply
the industry, such as the food, beverage, textile and garment segments and products and services of
the metal and electronic machinery, construction materials and other sectors. In 1996, domestic
manufacturing accounted for approximately 30% of the tourism industry’s demand for such goods
and services and roughly 35% of that of the dollar stores (TRD). Two years after they opened, 44%
of the products such stores offered were of Cuban origin (Rodríguez, 1998). By 1999, the tourism
group Cubanacán estimated than more than half of items used at hotels were supplied by domestic
industries competing on an equal footing with imports.
Chart VIII.3
GROWTH OF PRODUCTION OF SELECT GOODS, 1989-1998
Average annual
growth rate
19891994
Consumer goods
96° sugar
Canned meats
Wheat flour
Nonpowdered
milk
Bread
Pasta
Fish
Lobster
Rum
Beer
Soft drinks
Tobacco
Footwear
Detergents a/
Intermediate
goods
Vegetable oil
Lumber
19941998
Production
1998 vs. 1989
Average annual
growth rate
%
19891994
-11.9
-0.2
-7.8
-17.3
-4.9
4.9
2.3
-2.0
43.4
120.9
73.1
35.7
-6.6
-14.2
-25.2
-4.9
2.9
-18.5
-8.7
-9.4
2.5
5.0
12.1
-3.2
-2.3
10.0
13.7
9.1
78.3
56.4
37.1
68.2
105.0
52.8
106.1
86.7
-20.0
-17.2
27.8
27.1
87.1
96.6
-19.2
-14.8
-20.9
21.5
13.4
98.0
Intermediate goods
Paper
Oil fuel
Fertilizers
New tires
Gray cement
Concrete blocks
Steel
Steel structures
Nickel + cobalt
Capital goods a/
Plows
Sugar industrial
machinery b/
Gas stoves
Color televisions
Diesel motors
Sugarcane harvesters
19941998
Production
1998 vs. 1989
%
-30.1
-29.3
-31.4
-18.7
-17.3
-13.3
3.5
10.2
7.8
10.0
17.4
52.3
-22.0
-21.1
-14.0
-35.9
-10.4
12.1
8.0
17.2
17.7
25.9
45.6
41.5
88.5
20.7
145.4
18.8
-13.6
0.7
25.3
193.7
109.3
-49.1
-48.9
18.6
111.0
120.7
30.7
63.0
73.6
342.3
-55.7
-4.3
3.4
Source: Statistical Annex based on ONE data.
Note: Calculations based on volume figures.
a/ For these products calculations were made for the 1990-1994, 1994-1997 and 1997 periods compared to 1990.
b/ On the basis of peso figures.
The effort to enhance the competitiveness of Cuban industry is reflected in the growing volume and
diversity of domestically produced goods available and sold at dollar stores, a trend that has
272
contributed to an efficient process of import substitution12. While it is too early to detect a
generalized trend, import substitution has become the key growth element in some sectors such as
nonelectric machinery, chemicals and food13.
A number of factors nevertheless have hindered economic recovery. The branches of industry that
are leading the reactivation are also those that consume high amounts of energy, which pressures
the availability of foreign currencies. During the 1995-1998 rebound, it was possible to take
advantage of the idle capacity that emerged during the downturn of 1989 to 1993. Over the medium
term, however, it will be necessary to give impetus to and reorient capital formation, as a large part
of the industrial apparatus is not in a position to sustain the industrial recovery either because it is
too old, suffers from a lack of maintenance, or reflects the technological dependence on the
countries of the former CMEA.
Manufacturing investment grew a nominal 16% between 1994 and 1998, a modest rebound that
was largely the result of the general economic recovery and the formation of joint ventures
involving foreign companies. Nevertheless, in 1998 investment was only one-fourth that of the late
1980s. The last half of the 1990s witnessed a recovery in the use of installed capacity; however,
inefficiencies and high operating costs were still in evidence. Investment rebounded very unevenly
as the incentives adopted in the “Special Period” continued to privilege projects that guaranteed
short-term gains on the level of sales, foreign currencies and profitability. This situation contributed
to lags in the technological modernization of many industries and it is estimated that 30% of
industrial equipment is obsolete. In the same vein, expenditures for science and technology and
research and development were constant at 1.53% of GDP during 1990-1994, but fell to 0.96% in
1995-1998.
Foreign companies or joint ventures could play a more active and diversifying role in capital
accumulation within Cuban manufacturing and the economy as a whole, a trend that would be
facilitated by a relaxation of the restrictions imposed by the Helms-Burton Act. In general, the
experience of recent years has shown that foreign-capital partnerships have favored industrial
performance (for example in cement, nickel, perfumery and cosmetics) and have also improved
management practices. It should be recalled that manufacturing accounts for one third of ventures
involving foreign investments (113 out of a total of 362 enterprises as of September 1999, largely
in the basic, light and food industries). Lastly, it will be essential to improve inter-industry links. In
the past, the sugar industry was responsible for linking everything from raw-materials sectors to the
production of capital goods. The sugar industry can and should play a similar role today, but other
manufacturing enclaves must be established to strengthen and complement its efforts. For example,
the full development of sugarcane by-products would strengthen links in the productive chain while
also allowing for increased import substitution and a wider range of tradable goods.
12
Substitution of imported products for local production in competitive conditions, without favoring domestic
industry.
13
In general terms, it is estimated that domestic production covered 70% of apparent industrial consumption in 1996,
marking an improvement over the 60% figure reported between 1975 and 1989 (Marquetti & García Alvarez, 1999).
273
2.
Structural changes
Changes designed to establish a new productive structure have been encouraged and have emerged
throughout the “Special Period”. Most rearrangements are still in progress and are likely to
continue generating considerable costs and benefits. A preliminary characterization of the main
problems and changes of the past decade can be summed up as follows:
i.
ii.
iii.
The improvements in business management practices in State-run companies and
liberalization are stimulating competition, efficiencies and productivity. One of the main
achievements in this field has been the reduction in subsidies for losses registered by such
enterprises although there is still a long road ahead to improve competitiveness.
The productive structure remains very uneven and unarticulated. On the positive side, exportoriented industries have gained ground, although such businesses generate little in the way of
value added and largely base their operations on the use of the comparative advantages of
utilizing natural resource by-products. Conversely, the most technologically intensive
activities (electronics, machine tools, chemistry) occupy a minimal share of exports. For the
time being, there is an obvious need to strengthen inter-industry linkages and make them a
key ingredient in the medium-term industrialization strategy. The achievements to date in
relation to export-oriented industries provide a good example of the benefits that can be
obtained by consciously strengthening ties between sources of inputs and production,
especially when these serve to free up foreign-currency resources. The trend toward
producing goods for which there is a solvent market has an impact on the country’s
productive performance, which should have a multiplying effect throughout the chain of
production—as in the case of tourism—and help draw such enterprises into corporate
streamlining and management enhancement programs.
Slow but detectable progress is still being made in energy savings generated per unit of
production largely in response to the priority placed on strategic activities (such as the sugar
and nickel industries) that consume large amounts of fuel and to the understandable
deficiencies in allocating investments for the modernization of the production base in general
and the energy sector in particular. It was only in the past three years that the most significant
progress was achieved. During the depths of the crisis (1989-1993) energy efficiency
indicators weakened in response to low installed capacity utilization along with a high
structural consumption of energy by Cuban industry. These indicators deteriorated between
1989 and 1994 before beginning to display a modest recovery as production recovered,
greater use of installed capacity was achieved and improved production processes were
introduced. The most dramatic reductions in energy use have been registered in the soap and
detergent, nickel, paper, cement and steel sectors, but significant challenges are apparent in
the rest of industry as chart VIII.4 indicates.
274
Chart VIII.4
INDICES OF ENERGY CONSUMPTION PER UNIT PRODUCED
(1989 = 100)
Product
1990
1993
1994
1997
Common steel (t/MIM)
110.5
163.2
139.8
88.4
Nickel (t/Tm)
102.6
132.5
147.1
105.5
Soap and detergents (t/MIM)
100.0
159.6
99.3
47.9
Medicines (t/MMP)
102.5
248.4
318.7
143.8
Paper and cardboard (t/Tm)
105.3
186.3
266.3
105.5
Gray cement (t/MIM)
102.6
117.4
145.1
118.8
Bottles (t/MMU)
114.6
264.5
266.1
294.2
Fabrics (t/Mm2)
100.0
107.4
111.7
119.1
Raw sugar (t/MIM)
94.9
128.7
148.3
135.3
Fishing catch (t/MIM)
97.8
111.8
118.1
56.0
Meats (t/MIM)
104.2
165.9
161.1
174.4
Dairy (MIM)
100.7
145.5
166.2
174.1
Alcoholic beverages (t/MHL)
126.6
101.3
98.2
106.7
Beer (t/MHL)
62.8
65.9
98.4
119.5
Tourism (t/MMp)
86.8
56.7
63.1
63.7
Source: CEPAL, based on the database of the National Institution of Economic Research (INIE).
n.a.: not available
iv.
v.
vi.
1998
97.3
101.0
n.a.
n.a.
111.8
115.6
172.9
102.8
160.4
49.6
165.0
167.1
n.a.
129.1
n.a.
Although still not generalized, the trend has been toward achieving improved international
competitiveness thanks to the recovery in investment levels and the introduction of deepgoing structural changes. The effort to improve efficiency in companies often has been
hampered by excessive financial burdens and the logistics of sustaining social benefits and
other company-financed services, including transportation for workers, canteens, on-site
doctors and factory facilities unrelated to core businesses. Since 1996-1997 and as enterprises
down-sizing programs advance, enterprises have begun to spin such activities off to more
specialized units.
Four years after having been initiated, company rescaling initiatives have begun to offer
promising results in some sectors such as basic, light and metal-tool industries. Many
companies have been able to downsize their plant facilities to levels that are more in keeping
with demand. Installed capacity utilization has been rationalized and a range of new
enterprises have been established to take charge of providing the additional services that
manufacturing companies once assumed directly, thus allowing the latter to fully focus on
their core business. Where a massive plant once operated, a series of factories and companies
have emerged, benefiting from the outsourcing of services. The rescaling program has
allowed many companies with more than 1,000 workers to pare their payrolls to a third of
previous levels as the number of enterprises with less than 200 workers had doubled. The
economic viability and true efficiency of companies has benefited from passing the cost of
excess labor power onto the State budget.
Lastly, however successful, the policies adopted by the government during the “Special
Period” have generated additional costs that could increase with the passing of time. The
urgency of the crisis meant placing emphasis on the export sector and its domestic suppliers,
thereby combining foreign sales to international markets with import substitution, albeit on a
limited scale. It will be important, however, not to limit domestic production to one side for
275
too long or to cease efforts to strengthen private activities in the secondary market, which is
characterized by weak demand, insufficient supply of inputs and, in some cases, a lack of
access to financing. This would not only have negative consequences in terms of a dynamic
industrial articulation, but also unfavorably impact on the essential principles of social justice
inherent in the Cuban model.
3. Productivity, competitiveness and structural change in foreign trade
The drop in production during the past few years has had a strong negative impact on labor
productivity (see “Analysis of the Labor Market” in chapter V). Furthermore, the extreme
underutilization of capacity in oversized, very vertically integrated plants and the policy of making
effort to maintain the workforce have further affected labor efficiency, although it has recently
begun to recover significantly, the result of the reactivation in production.
Although productivity in general declined during the first half of the 1990s, this tendency has
varied from industry to industry, partly because of the impact of worker benefits and varied
efficiency incentives. In general terms, priority and export activities have performed more
effectively than those that have not been emphasized or whose production is mainly for the
domestic market (textiles, clothing, glass, paper, wood). Available figures show that productivity
reached its lowest level in 1993, and that since 1994 it has improved substantially (11% between
1994 and 1998, see chart VIII.5), as a result of an upturn in production and a steady decrease in
excess labor power.
As was the case with industrial development, Cuba's foreign trade was strongly conditioned by its
relations with the countries of the former socialist bloc. As has already been noted, trade exchanges
were carried out under tightly programmed but preferential conditions for Cuba. The island
specialized in exports of raw materials and manufactured goods with reduced value added and low
technological content, whereas the CMEA countries supplied intermediate and capital goods that
were often technologically backward in comparison to Western supplies. Cuba essentially
maintained the same pattern of insertion in international trade as had prevailed in the postrevolutionary period. The most obvious examples, in terms of their importance to foreign trade, are
sales of sugar, which Cuba exported at prices higher than those of international markets and oil,
which it imported from the Soviet Union at subsidized prices for domestic consumption and
reexport14.
Cuban industry, therefore, lacked the incentive to develop and diversify its exports or to promote
import substitution, so its trade deficit expanded and by 1989 had reached US$2.7 billion dollars or
13% of GDP.
14
At the end of the 1980s, sugar accounted for 73% of total exports of goods, while oil represented 32% of all
imports. At the same time, 80% of Cuban trade was with the USSR and the Eastern European countries (see the
second half of chapter IV).
276
Chart VIII.5
MANUFACTURING PRODUCTIVITY, 1993-1998
(1989 = 100)
1993
1994
1997
Total manufacturing industry
48.5
58.9
81.8
Food
50.2
59.8
67.4
Fishing
72.4
70.6
125.8
Beverages and tobacco
69.7
83.5
132.4
Textiles
22.6
26.9
32.7
Garment
19.6
26.6
36.1
Leather
42.3
45.9
47.8
Pulp and paper
19.7
33.1
44.8
Graphics industry
52.2
57.1
85.4
Forest products and wood
59.0
63.0
60.1
Construction materials
32.2
38.7
71.0
Glass and ceramics
33.3
41.9
75.8
Chemicals
52.6
63.0
73.0
Mining and ferrous metallurgy
17.8
24.8
60.0
Mining and nonferrous metallurgy
42.9
48.8
126.6
Metal products
40.1
52.4
89.3
Nonelectric machinery
47.6
65.9
80.6
Electrical and electronics
32.8
42.4
98.2
Source: CEPAL, based on ONE data.
Note: Productivity is defined as the coefficient between production at constant prices and employment.
1998
88.7
71.5
125.9
123.9
34.8
42.2
53.4
50.1
91.9
71.2
75.1
80.5
83.4
62.3
165.5
95.8
87.5
132.5
Export growth began to slacken in mid 1980s, when foreign sales stagnated at about US$5.5 billion
dollars and imports stood at nearly US$8 billion dollars. The main reason for the stagnation of
exports was the decrease in sugar sales, which dropped from US$4.4 billion dollars in 1985 to
US$3.9 billion dollars in 1989. The increase in nickel exports from US$295 million dollars to
US$486 million dollars during the same period and the rise in sales of medicines, marble and other
products prevented the trade deficit from growing further.
When economic links with the CMEA countries were severed, Cuba's trade transactions fell
substantially. Exports dropped 80% between 1990 and 1993, while imports plunged 73% during the
same period. Once again, the reduction in foreign sales was due primarily to lower sugar exports
and the main factor on the import side was the decrease in purchases of oil and other raw materials,
which have traditionally accounted for a high share of total imports.
Exports began to recover in 1994, led by nickel, canned foods and molasses. Imports have
expanded in recent years in response to increased economic growth, which has resulted in a
widening trade gap. While a 1998-trade deficit of US$2.785 billion dollars was similar to that of
1989, the volume of total trade has declined significantly since the late 1980s.
Manufacturing exports (excluding sugar) fell sharply between 1990-1993, and have since
experienced a gradual recovery in keeping with the revival of economic activity in general. Nickel
has served as a prime generator of foreign currencies for the country, while all other manufacturing
segments have lagged considerably in this regard. Since 1997, however, export promotion policies
277
began to show results, especially on the level of machine tooling, construction materials and light
industry segments. The weight of manufactured goods in the country’s export mix has also grown,
in part due to declines in sugar sales. As a result, the percentage of manufactured goods in total
exports has steadily risen from 10% in 1990 to 37% in 1997 with 23% corresponding to nickel
products. Other manufactured goods that have expanded their share of the export total include
canned fish products, beverages and tobacco, chemicals, cement, medicines, steel and iron.
New measures have been taken with an eye toward fulfilling the Cuban economy’s need for foreign
currencies. Industries have sought to prioritize the so-called solvent markets where payments are
made in foreign currencies and possibilities exist for acquiring inputs from abroad. In recent years,
sales have greatly expanded in export markets, the tourism industry and dollar stores. It is estimated
that production for these markets grew 25% between 1994 and 1998 and accounted for 18.5% of
total sales in 1997. Exports and sales in both dollar stores and to the tourism industry as a
percentage of total sales reached 12.9%, 3.0% and 2.5%, respectively in 1997.
Export competitiveness. The shortage of foreign currency has forced Cuba to seek new export
products and markets. One of the central components of economic reforms has been to undertake
efforts at all levels to improve the international competitiveness of Cuban products and the
geographical coverage of the country’s exports has already been expanded. However, less progress
has been made in diversifying the range of export goods, except in a few fields that have a marginal
effect on total overseas sales, such as medicines.
There are several obstacles to gaining greater and better access to world markets: the uneven
quality of final goods, insufficient internal linkages, limited network of support industries, deficient
transportation and telecommunications infrastructure, reduced competition between companies that
produce goods to substitute imports, incipient development of promotion plans, poor packaging and
delays in delivery times and follow-up services. In recent years, the quality of these services have
improved but problems remain.
From the conceptual point of view and in general terms, there are several methodological means of
estimating competitiveness. The approach taken in this study focuses on a country's capacity to
increase its share of exports in world trade15. These competitive gains are considered of greatest
significance when they occur in industries that are the fastest growing on a global scale.
In keeping with this hypothesis, two factors account for the competitive strength of a country's
exports, namely: i) the change in the share of specific group of products’ exports in world markets
during a given period; and ii) the change in that group of products’ share of world imports in
relation to imports in the international market over the same period. The first indicator is known as
the “market share” and the second is referred to as “sector contribution” and combining them
makes it possible to draw up a typology of the performance of exports by defining the four groups
shown in chart VIII.6.
15
Other valuation methods for gauging the competitiveness of Cuban manufacturing run up against diverse practical
obstacles. For example, the system of administered prices makes it difficult to arrive at reliable figures for key
indicators such as costs and production. Section D discusses the qualitative aspects of enhanced competitiveness and
efficiency in a series of specific industries.
278
Chart VIII.6
SECTOR TYPOLOGY
Rising stars (RS)
Waning stars (WS)
Lost opportunities (LO)
Regressions (R)
Market share
Increases
Increases
Decreases
Decreases
Sector contribution
Increases
Decreases
Increases
Decreases
This typology makes it possible to establish criteria to rate the competitive performance of Cuban
exports. An initial approximation is shown in chart VIII.7. To begin with, it can be seen that Cuban
exports have a very low share of the world market, which can be explained by their close links for
three decades with the CMEA countries16. For purposes of evaluating the competitiveness of
exports, however, what is important is not so much the level of that share but the change that has
taken place. Thus, in the 1989-1996 period it is apparent that RS and WS sectors—in other words,
those that have managed to expand their share of OECD markets—represented 44% of Cuban
exports with RS companies accounting for less than 1% of the total. These numbers suggest that
Cuba has yet to achieve a significant penetration of global trade flows. If we combine RS and WS
sectors, the market share is a mere 0.05%.
Chart VIII.8 offers a more detailed look at the trends just commented upon (three digits of the
CUCI). It can be seen that export diversification is very limited, as sugar and common metals
(nickel) represent more than half of the value of total overseas sales (sugar alone accounted for the
same percentage in 1980). What has changed is the growing share of the export mix represented by
nontraditional products such as fish, fruits and nuts and canned fruit. Even though sugar’s share of
exports has dropped over the past 20 years, it still accounts for one-fifth of the total. Likewise, the
drop in sugar production meant that its share of the OECD market fell from 6.4% in 1980 to 1.9%
in 1996.
16
For methodological purposes, the global market is the equivalent of OECD imports.
279
Chart VIII.7
CUBA: COMPETITIVENESS MATRIX, 1989-1996
Indicator
Rising stars
25 CUCI groups
Percentages
1989
1996
0.000
0.001
14.57
17.83
0.16
0.75
0.01
0.05
20.16
18.41
8.24
43.17
0.02
0.01
18.77
23.07
14.71
14.58
0.08
0.04
23.13
20.01
75.25
41.32
Market share a/
Sectorial contribution b/
Contribution c/
Waning stars
Market share
39 CUCI groups
Sectorial contribution
Contribution
Lost opportunities
Market share
34 CUCI groups
Sectorial contribution
Contribution
Regressions
Market share
42 CUCI groups
Sectorial contribution
Contribution
Source: Based on CEPAL data (1999).
a/ Cuban exports' share of OECD markets.
b/ Share of OECD imports of such products to total OECD imports.
C/ Share of Cuban exports of such products as a percentage of total exports.
In contrast, foreign sales of nickel (item 287 in chart VIII.8) as a percentage of total exports rose
from 7% in 1980 to around 32% in 1996, which also meant that their share of OECD imports
tripled. These two products, together with tobacco (raw and manufactured) and fish and shellfish,
accounted for 82% of total exports of goods from Cuba in 1996.
4. The Management Perfection System
A general diagnosis of management practices among industrial enterprises in the early 1990s can be
characterized by the following points (see “Empresa de la Goma Conrado Piña”, 1999).
Centralization of decision-making at the highest levels led to a lack of company initiative, creativity
and responsibility, as well as minimal input from workers in problem solving. It also resulted in a
lack of material incentives and control, analysis and evaluations were made based on quantitative
indicators with no regard for efficiency; production was conducted with little thought to cost
efficiencies as evaluations were made with an eye toward the number of goods produced and
without accounting for their qualitative and cost aspects. Management and leadership practices
were mechanically copied; decision-making tended to be homogenous with no consideration given
to the peculiarities of each industry or enterprise. Improvement programs were applied in isolated
instances and were not sustained. In the face of these types of problems, officials have designed a
system for improving managerial functioning.
280
Chart VIII.8
CUBA: EXPORT STRUCTURE AND COMPETITIVENESS, 1980, 1989 Y 1996
(Percentages)
CUCI Description and type a/
Total
034
036
037
057
058
061
071
072
112
121
122
282
287
288
289
291
292
684
844
971
Contribution to total Cuban exports
1980
1989
1996
100.00
100.00
100.00
Share of OECD markets
1980
1989
1996
0.06
0.03
0.02
Fresh, refrigerated or frozen fish (LO)
1.68
0.54
0.43
0.24
0.02
0.02
Peeled or unpeeled crustaceans and mollusks (LO)
11.04
17.62
11.16
1.85
0.96
0.50
Fish and seafood etc., prepared or canned (LO)
1.69
4.84
4.90
0.59
0.56
0.43
Fresh or dried fruits and nuts (except oil seeds) (WS)
0.69
1.36
2.74
0.50
0.04
0.08
Canned and prepared fruits (RS)
0.40
0.52
3.65
0.10
0.40
0.23
Sugar and molasses (R)
52.18
27.94
20.36
6.43
3.14
1.89
Coffee and coffee substitutes (R)
2.52
6.08
2.62
0.15
0.35
0.13
Cacao (R)
0.30
0.62
0.16
0.05
0.10
0.02
Alcoholic beverages (RS)
0.09
0.36
1.28
0.01
0.01
0.04
Raw tobacco; tobacco residues (R)
2.97
6.51
3.58
0.70
1.03
0.54
Manufactured tobacco (LO)
4.72
6.61
8.67
2.04
0.94
0.79
Scrap iron and steel (WS)
0.02
0.79
1.08
0.01
0.11
0.12
Ores and concentrates of common metals (WS)
7.30
3.87
32.49
0.43
0.15
1.51
Nonferrous metal by products (WS)
0.33
1.47
1.21
0.70
0.13
0.11
Precious minerals and their concentrations (WS)
0.01
1.59
0.28
0.00
0.72
0.09
Bulk-animal products (R)
0.32
0.88
0.47
0.15
0.21
0.10
Bulk-vegetable products (RS)
0.01
0.23
0.16
0.00
0.01
0.01
Aluminum (RS)
0.00
0.18
0.23
0.00
0.00
0.01
Knitted lingerie (except stitching and crochet) (RS)
0.02
0.26
0.25
0.01
0.03
0.02
Nonmonetary gold (WS)
0.03
3.20
0.66
0.00
0.15
0.03
Other products
13.68
14.53
3.63
...
...
...
Source: Based on CEPAL data (CAN, 1998).
a/ The initial abbreviations in parentheses indicate sectorial typology; "RS": Rising Stars; "LO": Lost Opportunities; "WS": Waning Stars, "R":
Regressions.
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The Entrepreneurship-Upgrading System (or SPE for its initials in Spanish), is primarily aimed at
enhancing the efficiencies and competitiveness of State-owned enterprises. With this in mind, the
program affords the management teams of eligible companies leeway in defining their
responsibilities and policies geared toward achieving technological innovations and promoting
worker and management productivity. Such companies are expected to draw up yearly plans and
detailed prospectuses that lay out the next steps that need to be adopted in order to improve
company efficiency. They are also required to maintain reliable bookkeeping records in accordance
with conventional accounting standards.
The leading principle is that these State enterprises function without any need for subsidies, that is,
that they become self-financing and generate profit margins. General government measures are
involved, but above all the program contemplates the need to award greater autonomy in exchange
for enterprises designing and implementing specific efficiency improvements in keeping with each
company’s specific scale. While it is understood that systemic factors contribute to the low
productivity and lack of competitiveness among State-owned enterprises, it is believed that
overcoming such problems demands the ex profeso design of initiatives for each production unit.
In order to promote such a process, the government names management personnel, but at the same
time, regards the unions as an indispensable player in promoting the participation of workers and
obtaining their support in the implementation of measures designed to raise competitiveness and
efficiency levels. The company’s management administers financial, material and human capital
resources, and while a commitment is maintained on the level of seeking fairness in wage and
employment levels, companies registered with the SPE are free to offer material and moral
incentives as a way of stimulating efficiency and to expand or trim payrolls with the union’s
agreement.
Similarly, companies are free to acquire commercial bank loans, outsource activities, and even
launch new joint ventures in alliance with foreign capital following government authorization.
Meanwhile, the State is committed to offer training in accounting and financial questions as well
as in management and productivity to company personnel. Companies participating in the system
are authorized, pending approval from the corresponding government agencies, to distribute part
of their after-tax profits to workers and earmark another share for future investments. Thus, pari
passu efficiency and profitability gains are used to improve wage levels for workers and
management. It should be noted that workers at SPE enterprises pay a special social security fee
ranging between 5% and 7% of their wages to help pay for the reforms of the social security
system.
In summary, the SPE is an instrument that could allow for a more flexible and autonomous
handling of company internal resources, a selective use of material incentives to encourage
workers and a modern management functioning, all of which are conditioned on achieving gains
in efficiency. As a result, the SPE is an effort aimed at breaking the “parastatal” (State-owned
enterprises) sector’s dependence on central government subsidies with an emphasis on each
company’s ability to produce managerial results outside the confines of traditional bureaucratic
procedures.
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The SPE is expected to contribute to the modernization of company management in “parastatal”
enterprises. However, there is still much to be done before the country achieves an industry
producing tradable goods and services that are globally competitive without the need to resort to
protectionist measures. One limitation that the SPE may face is the need to design measures and
decisions on a company level without first establishing a global and sectorial framework for
identifying the value-added chains that must be developed. There is a danger that this State of
affairs may put a drag on or distort the activities of enterprises due to the lag experienced by
other companies—whether suppliers or customers—that are not part of the SPE. The SPE needs a
more comprehensive view of these factors if it is to fully take advantage of greater economies of
scale and the possibilities of consolidating gains on a systemic level.
D. CRISIS AND RESTRUCTURING IN THE “SPECIAL PERIOD”
This section offers a brief overview of how each segment of the manufacturing industry has
evolved in the past decade. We have included a description of each sector’s characteristics and a
discussion of how it fared during the “Special Period” in terms of production, employment and
foreign trade). The section also contains performance indicators regarding such items as
productivity and efficiencies in the use of energy sources and delves into the changes and
institutional reforms affecting each segment and concludes with a series of considerations regarding
their medium-term prospects.
1. The food industry
a)
Description
The food industry in Cuba is the largest component of Cuban manufacturing and accounts for
roughly 30% of total production. Al present, there are 350 factories and 94,000 workers in the
industry (see graph VIII.3)17. The sector is comprised of 115 companies, eight of which are joint
ventures with the rest corresponding to State-owned enterprises organized into 10 industry
chambers or unions: meat, dairy, mills, candies, canned vegetables, beverages, beer, Cuba Ron and
Cubalse (a holding company). The development of this industry between 1959-1989 was based on
the creation of large-scale enterprises using technologies imported from the CMEA countries
designed for mass production. Operating costs were often very high and have since displayed their
negative impact on efficiency levels.
17
These figures refer to data published by the Minal; they do not include the 40,000 employees of provincial coffee,
bread and cookie and candy companies controlled by local governments.
283
Graph VIII.3: CUBA. Production and employment in the food industry a/
110.0
2 500
Employment (thousands)
Production b/
105.0
2 000
95.0
1 500
90.0
1981 million pesos
Thousands of people
100.0
1 000
85.0
80.0
500
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ At company prices.
b)
Developments in the 1990s
Between 1989 and 1994, the drop in production was 55% in real terms, although in 1994 the
trend reverted with 10% growth, followed by another upturn of 7% in 1995, and a further 10%
increase in 1996. During the succeeding two years, the recovery began to lose steam, and by 1998,
production was only two-thirds of that of 1989.
The crisis in the food industry can basically be explained by the massive fall in the availability of
raw materials and inputs of both domestic and foreign origin, as well as the shortage of packing
materials. By way of example, deliveries of livestock to the industry fell 65% between 1989 and
1994, milk dropped 78% and tomatoes plummeted eightfold, while overseas purchases of
agricultural raw materials diminished 66% and wheat and flour imports fell from 1.3 million to
953,000 metric tons. Furthermore, supplies of packing materials and containers were also
insufficient, forcing deliveries to be made in bulk and increasing the shortages. Another example is
beer. When malt, hops and barley imports from the Czech Republic ceased, production dropped to
less than half.
Since 1994 there has been an upturn in production of beverages, meat products, canned foods,
milled goods and sweets and candies and their reactivation has been linked to marketing in dollar
284
stores and in hotels and restaurants that receive payments in foreign currencies. In addition,
partnerships with foreign capital have led to a rise in demand and the availability of hard currency
has contributed to the sector's recovery. Nevertheless, in 1996 capacity was still very much
underused and was generally below 50% (see inset VIII.1). A sample of 23 food and beverage items
reveals that by 1998, only rum, canned meats (including those with soy content) and soft drinks had
surpassed 1989 levels (see chart VIII.3).
Investments are reviving slowly and largely in response to demand from tourists, dollar stores and
the export market. Other investments are earmarked for satisfying domestic consumer demand and
roughly 25% of industrial investment is geared toward tackling environmental concerns. A recent
US$12 million dollars investment to recover the production capacity of the beer industry
(refrigeration and steam equipment) allowed for an 18% savings in energy use although more
investments are needed in bottling lines. Five new beer bottling and shipment lines have been
opened to supply dollar stores and the foreign-currency market in general.
For the production of cooking oil, investments have been made in the Santiago de Cuba plant,
while US$6.8 million dollars have been invested in Regla for soy and sunflower oil. This financing
is 100% Cuban in origin. There is another joint venture underway with foreign partners in Santiago
de Cuba for the extraction of soy oil to be used in refining activities, which currently are totally
dependent on imports. Meanwhile, import substitution now covers half of domestic demand for the
production of candies.
INSET VIII.1. Reconversion of the dairy industry: from cow’s milk to soymilk
Founded in 1974 with a processing capacity of one million liters, the Havana Dairy Complex reached a
maximum production level of 640,000 liters during the 1980s. Among the products it processes are milk,
yogurt, butter, ice cream, lactose and protein. Production of cheese was recently abandoned for cost reasons.
Its main market is Havana, where it covers most of the city’s needs.
The impact of the “Special Period” on the dairy’s activities began to be felt in 1991. The main effect
stemmed from the drop in the production of cow’s milk, which led the same plant to begin production of
soymilk using its existing facilities and making only minor technological innovations. In 1994, the dairy
began to produce soy yogurt primarily for children between the ages of seven and 13 (250 milliliters daily
per child), since children under seven are still given cow's milk. This made it possible to preserve the plant’s
employment levels (of about 1,300 workers) and increase production, although installed-capacity utilization
remains low. The current strategy calls for penetrating the domestic foreign-currency market with products
such as yogurt and ice-cream popsicles.
The production levels of soy yogurt are more or less continuous and stable in response to constant demand,
but output of other products sometimes results in suspending operations, depending on orders, on the
frequency of deliveries of raw materials and on the company’s liquidity. All of these factors have a bearing
on the low use of installed capacity, which in turn affects the efficiency of the company’s operations. Fixed
costs and equipment amortization become proportionally higher and the company must cope with additional
fixed expenses, which have little to do with the dairy business and serve as a burden on the company’s
finances.
285
The dairy complex has recently undertaken joint ventures involving the production of pasteurized milk and
plastics. Under the terms of these ventures, a foreign investor supplies the necessary financing and
technology in exchange for royalties that are paid over a predetermined period of time. However, the
management and assets remain in Cuban hands and the foreign investor does not share in the profits of these
operations.
In 1998, the dairy spent US$1 million dollars largely to waterproof the installations, and in 1999, plans
called for capital expenditures totaling US$4 million dollars and 3 million Cuban pesos, in part to install a
facility for the production of ultra-pasteurized milk. During the first eight months of 1999, production rose
8%, productivity increased 22% and energy costs per unit metric ton of production have dropped by half.
A unit producing containers, lids and other plastic products also functions at the complex for internal supply,
but capacity utilization is minimal even though in recent years this division has begun to fill orders for other
customers. The plastics facility now produces boxes for the beer industry, as well as sacks and cones. The
dairy complex also provides a range of services and additional benefits (which are either subsidized or free
of charge), including transportation, uniforms and work boots, on-site doctors, a canteen, laundry and dry
cleaner for work clothes and the personal apparel of those employed at the factory, a beachfront spa, a social
center complete with a restaurant, cultural and recreational excursions for the children of plant employees
and special vacation services. The company also maintains a vegetable and fruit garden to cover its own
produce needs, as well as a facility for producing animal fodder.
In 1996, the program for rightsizing the complex was launched. The approach taken differed from the ones
applied in other industries, where a focus was maintained on decentralizing activities. The dairy sustained
its vertical integration and maintained its capacity to provide its operations with a range of additional
services. With an eye toward becoming part of the Management Perfection System, plans call for dividing
the complex into smaller units. One company is to focus exclusively on transportation services, while
another is to handle plant maintenance. In this way, plastics, ice cream and other production units will be
spun off as specialized companies that will have to directly pay for such services as steam and electric
power, water and marketing, among others.
c)
Changes in the “Special Period”
Restrictions on the availability of foreign currency and the lack of coordination in commodityproducing sectors have promoted the retrofitting of the industry and the substitution of certain
inputs and products. For example, the short supply of livestock led to the use of soy—soybeans are
currently being imported—as a meat substitute, as a result of which processing levels were
recovered, reaching record figures in 1995. Soya is also used to make milk and cheese. In the same
vein, the Agricultural Research Institute has developed a soy-based cereal and yogurt, which are
now being successfully marketed as a substitute for cow's milk18.
In light of the foreign-exchange limitations, production aimed at the domestic market and priced in
Cuban pesos tended to decline rapidly. The quantity and variety of goods contained in the basket of
basic goods obtained through the ration booklet have deteriorated, forcing consumers to
complement their purchases with products priced in dollars. The supply of such products has
increased and diversified in recent years, while their prices have declined.
18
Children up to the age of seven are still being provided with cow's milk and 7-13 year-olds are given soymilk. Soy
meat already accounts for 30% of total canned meat production.
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In the drive to transform this industry, foreign-capital partnerships have been sought, aimed at
securing capital, technology and markets. Joint ventures have been established in the nonalcoholic
beverage, wine, beer, meat products, cacao and soy by-products industries and the marketing of
equipment to produce ice-cream. Production payable in foreign currencies on the domestic market
has grown since 1994, thus favoring import substitution of dairy and meat products, fruits and
vegetables. An estimated 17% of production of processed foods is earmarked for the dollardenominated domestic market, while 3% is destined for export markets. The idea is to step up
exports of canned fruit and vegetables, cocoa butter, candies and beer.
An interesting effort is being mounted on the level of business management by the Ministry of the
Food Industry, which has launched a project to train businessmen with emphasis on strategic
leadership, assessment of investments and marketing, among other aspects. Efficiency levels in the
use of energy remain low. For example, energy use per unit produced remains high in the meat and
dairy industries, but are more encouraging in the case of beer and alcoholic beverages (see chart
VIII.4).
d)
Outlook
The food industry has the potential to substitute imports, particularly those currently being
marketed in dollar stores or in the tourism industry. In the short term, the reactivation strategy could
place priority on those markets; in the medium term, exports could be increased and diversified,
while promoting supplies to the domestic market. Normalization of domestic supply will depend on
the funds freed up by stabilization and structural adjustments and on social policy priorities, as well
as on the easing of external pressures. The industry’s export strategy is aimed at achieving a
diversification to include nontraditional products such as bottled water, soft drinks, canned meats,
fruits and vegetables and beer. Farm production remains a major stumbling bloc and the Minal has
sought to overcome this problem by coordinating efforts with the agricultural sector to prioritize the
production of items needed for the export market.
2.
a)
Light industry
Description
Light industry includes textiles, clothing, leather and footwear, perfumes, cosmetics, cleaning
products, publishing and printing, furniture and plastic articles. The Ministry for Light Industry
(Minil) oversees seven corporate groups (unions), nine independent State organizations and close to
600 factories of different sizes corresponding to 123 companies. Each corporation has its own
marketing company, which directly imports and exports. Light industry employed a total of 85,000
workers in 1999, down from 108,000 in 1988. As in other branches of industry, there are also
provincial companies that are run along the same lines, but controlled and funded by local
governments.
Light industry is largely dependent on the availability of foreign inputs, a situation that became
critical as a result of the external crisis. This was compounded by the drop in domestic demand,
which could not be compensated for by exports due to problems related to access to foreign
currency, insufficient competitiveness and a lack of marketing channels.
287
b)
Changes in the 1990s
The crisis reached its peak in 1993, when production amounted to 22% of 1989 output. The
industry had to adopt a survival strategy, which hindered medium-term planning and forced layoffs
of skilled labor. Moreover, the food industry was not included among priority activities in terms of
foreign-exchange allocations and strategic inputs. Nevertheless, as of 1994 production experienced
an upturn: 18% growth that year, 8% in 1995 and an annual average of 10% between 1996 and
1998, although figures for this latter year remained below those of 1989.
Sales of apparel, footwear and personal hygiene products in the domestic market in foreign
currency have grown from US$19 million dollars in 1995 to US$110 million dollars in 1998. A
total of US$27.5 million dollars of such products were sold in the tourist industry, while US$11.3
million dollars were exported in 1998.
One of the most affected branches has been textiles, where production dropped 77% in real terms
between 1989 and 1994, and despite a later recovery, in 1998 output stood at a mere 40% of 1989
levels. The excessive size of textile plants, technological backwardness, high-energy consumption
and lack of imported raw materials (cotton, polyester and rayon)19 have paralyzed production or
resulted in the closing of many factories. The drop in production meant that the share of textiles in
light industry fell by half in the first half of the 1990s.
The textile crisis dragged clothing production down with it, with output plummeting 86% during
the same period. Clothing factories faced a shortage of raw materials, serious technological
problems or a lack of markets. Today, there is a clear trend toward a normalization of supplies of
imported raw materials and inputs. International competitiveness has been achieved in the
production of shirts and underwear, sometimes based on contracts with in-bond manufacturers.
Both textile and especially garment industries show signs of a recovery (see graphs VIII.4 and 5).
Between 1994 and 1998, textile output rose 3% while the production of garments grew by 33%. As
an example, the production of apparel and towels (reactivated in response to demand from hotels)
rose 23.6% and 8.6%, respectively, between 1996 and 1998. Between 1995-1998, the textilegarment industry was the recipient of US$5 million dollars in technological investments, while
another US$5 million dollars were invested in 1999 for the production of polypropylene bags.
Limited supplies of leather resulting from the decline in the country’s cattle herd have hampered
the footwear industry. Taken together, leather and footwear production dropped almost 70%
between 1989 and 1994. Due to inter-sectorial links, falling supply has reduced domestic selfsufficiency. However, an effort has been made to fill the gap by promoting the use of substitute
inputs in footwear production. In 1999, a synthetic leather plant was set up to supply the footwear
industry. A further obstacle to recovery is the shortage of working capital in various processes. This
has led to fluctuations in production, which increased by 43% in 1995, dropped 14% in 1996 and
latter sustained average growth of 12% through 1998. During this latter two-year period, production
of leather climbed by an average of 4%.
19
Imports of cotton, mainly from the former USSR, dropped from 45,000 metric tons in 1989 to only 4,000 metric
tons in 1994.
288
The furniture industry has partly compensated for shrinking domestic demand by supplying the
tourism sector.
In plastics, the main stumbling bloc is the shortage of foreign exchange to acquire imported raw
material. The bulk of production consists of polyethylene items such as bags, containers and
packaging. Nevertheless, modernization programs are being implemented with the resources
accrued from improved efficiencies.
The soap and cosmetics industry began an early process of recovery thanks to infusions of foreign
capital. Today, this sector is one of the few that have managed to surpass 1989 levels. The rapid
expansion of the tourism industry and the development of the parallel dollarized market and
incipient exports have created a series of complementary incentives. This is one of the successful
examples of foreign-capital partnerships. In fact, thanks to gains in technology, quality and
diversified production, the Suchel company has been consolidating its share of the domestic market
(import substitution), and also exports part of its output.
The domestic market in hard currency provides many opportunities for import substitution of
light manufactured goods. Except for soap (which absorbs 80% of domestic demand), the share
of Cuban products such as textiles, clothing and footwear is still very low. The aim is to use the
earnings obtained in this market to finance lines of production for the market in local currency.
Another way is substituting imports of goods for agriculture, sugarcane cultivation and the sugar
industry (footwear, gloves, work clothes).
c)
Transformations in the “Special Period”
Due to the implementation of the new law on foreign investment, by 1998 a total of 31 jointventure contracts had been signed in various segments of light industry. Aside from institutional
reforms—ownership rights, market liberalization and the role of foreign investment—permanent
measures continue to be implemented to reorganize business management and promote exports.
The aim is not only to revitalize industry but also to raise productivity and efficiency at the same
time. Similarly, the aim is to eliminate the losses absorbed by the Ministry for Light Industry,
which amounted to 150 million pesos in 1993, dropped to 118 million pesos in 1995 and to 80
million pesos in 1996, 70% of which corresponded to the textile industry.
The textile industry is one of the clearest examples of oversized facilities. Special efforts have
been undertaken to make production more efficient and profitable. Many factories have high idle
capacity and others are at a partial standstill as efforts are still underway to restructure production
and achieve technological modernization. The greatest achievement has been to reduce rates of
energy consumption per unit produced by 19% in 1997 and 14% in 1998, implying a virtual
return to 1989 levels (see chart VIII.4).
The restructuring of the textile industry has brought about changes in productive specialization
and company product lines. The goods that have benefited most are those that meet the demand
of the tourism sector and the domestic market in foreign currency (underwear, bed and chart
linen, towels, hosiery, denim, etc.), as well as other self-financed activities (canvas, sisal rope and
cord). Other production lines that have been reactivated are polypropylene sacks, sewing thread
and certain articles of clothing.
289
Although the branches of light industry generally share the aim of achieving greater efficiency, they
tend to differ in regard to rescaling and restructuring needs, strategies and actions. Small workshops
have been closed in the clothing industry and the aim is to make full use of capacity. In leather and
footwear, organization, selection and quality have improved, but equipment is needed to open more
lines of production and improve design. The plastics industry union plans to repair, modernize and
make use of the most efficient equipment, while eliminating obsolete machinery. In cosmetics
manufacturing, the Suchel company has made substantial progress in retrofitting; and output has
been revitalized as a result of organizational changes, concentrating production, closing inefficient
plants and introducing modern technology (Ministry for Light Industry, 1996).
A common denominator in the strategy to improve company efficiency is the stress placed on
reordering production and lines of authority in order to streamline production and decentralize
functions and responsibilities. The current focus is on customer satisfaction by providing prompt
and effective service. The idea is to reorganize supply, sometimes by diversifying and, at times,
through economies of scale. In addition to streamlining production, the attributes of the lines of
authority between enterprises, corporations and the Minil have been altered. Today, corporations
play a much more active role in the design of sectorial strategies and companies assume greater
responsibility for the implementation of such plans.
It has become common practice to redouble efforts at lowering production costs for items that are
being produced in a series of facilities belonging to a single company. A wide variety of training
programs for managers and other personnel have also being implemented. Along with these
measures, efforts to adapt technologies, improve management practices and implement worker
incentives have led to promising results. As a result, productivity in light industry (as measured by
the value added by each worker) increased 16% in 1995, 26% in 1996, 9% in 1997 and 12% en
1998. It should be noted that efforts to enhance efficiencies even have led to reductions in the staff
of the Minil from 536 in 1989 to less than 150 by 1998.
Much progress has been achieved on the level of rightsizing light industry. One example is the
Wajay industrial park, which was developed to accommodate several companies while adjusting
their size to market demand. Within the installations that were previously occupied exclusively by
the textile manufacturer Hilatex, a trimmer Hilatex operates alongside factories producing bed
mattresses, footwear and synthetic leathers needed by footwear companies. A knitwear facility and
a company marketing leather and footwear are also expected to begin operations at the same site.
Furthermore, an independent service provider at the park should prove profitable and be capable of
tending to industries located outside of this industrial park. This arrangement allows for greater
efficiencies and a fuller use of installed capacity both on the level of physical production and
services. In addition, the reorganization process assures that each company pays for its share of
utilities at the park, such as water and electricity.
d)
Rescaling the textile industry
As they were designed in coordination with the CAEM countries with an eye toward meeting
planned exchange arrangements, textile plants are one of the most striking examples of factory
oversizing in Cuba. Hence the central aim of the program to streamline this industry has been to
290
raise productive and energy efficiency by substantially reducing and making better use of operating
capacity. Progress in implementing the program has been uneven; some plants having almost
finished accommodated their capacity to established goals, and consequently, have also readjusted
their personnel. The program encompasses 10 companies and 45 factories distributed throughout
the country. The goals set for the new capacity reflect the magnitude of this industry’s oversizing.
The production levels for fabrics, thread, knitwear and kenaf products are to be cut by more than
50% from the levels that prevailed at the beginning of the 1990s; production capacity for stockings
is to be pared by 19% (see chart VIII.9).
Chart VIII.9
TEXTILE INDUSTRY: PRODUCTION CAPACITY
Pre-rightsizing
Post-rightsizing
Change (%)
capacity
capacity (1998)
Stockings
Millions of pairs
28.3
22.8
-19.4
Cloth
Millions of square meters
280.0
126.9
-54.7
Thread
Thousands of metric tons
14.8
6.3
-57.4
Knitwear
Millions of garments
49.3
24.4
-50.5
Millions of sacks
48.0
22.7
-52.7
Kenaf products
Source: Based on report by the Ministry for Light Industry, "Situación Actual y Perspectiva de la Actividad
Energética", mimeographed edition, Havana, July 1996.
Industry
Unit measurement
More efficient use of energy is a key aspect in restructuring the textile industry. The new goals
that have been set for once the rescaling process is complete are indicative of energy that is
wasted in textile plants. The electricity and fuel oil-consumption indices in 1995 were
significantly higher than the targets set for 1998. It will probably take several years to reach
energy efficiency goals, particularly if the necessary investment is not stepped up.
e)
Perspectives
Modest progress has already been made in rescaling the textile industry, but it will have to be
strengthened through other measures to ensure that it is sustained. The main challenges include
reducing costs, mainly by cutting back energy consumption; improving product image;
diversifying designs; improving delivery times; and increasing product promotion. The
introduction in 1996 of ISO 9000 standards in a group of textile industries will contribute to these
efforts. Plans are also afoot to improve the system of workplace incentives and reinforce
measures to reduce personnel turnover.
291
Graph VIII.4. Cuba: Textile industry production and employment
45.0
240
Employment (thousands)
220
Production a/
40.0
200
180
160
1981 million pesos
Thousands of people
35.0
140
30.0
120
100
25.0
80
60
20.0
40
15.0
20
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ At company prices.
Graph VIII.5. Cuba: Production and employment in the textile industry a/
35.0
250
Employment (thousands)
200
Production a/
25.0
150
20.0
100
15.0
50
10.0
0
1989
1990
1991
1992
1993
1994
Source: CEPAL, based on official data.
1995
1996
1997
1998
Millones de pesos de 1981
Thousands of people
30.0
292
3. Basic industry
a)
Description
Basic industry in Cuba is made up of the following activities: the electrical industry, fuels (from
extraction to distribution), nickel (three plants), geology and mining (salt, lead, copper),
chemicals (fertilizers, pesticides, soda, chlorine, paint), rubber, paper and glass20. The Ministry
for Basic Industry (Minbas) oversees these activities21 and registered sales of 1.21 billion pesos in
1997 and 1.94 billion pesos in 1998. Minbas operations employ 100,000 workers.
INSET VIII.2. Fragmentation of production: the case of Kalony footwear
Kalony illustrates the problems of oversizing in Cuban industry and exemplifies the rescaling undertaken
during the “Special Period”. As was common throughout industry, up to the late 1980s this company—
founded in 1966—focused on executing large-scale production plans in a similar way to commodities. In
contrast to most countries, key factors in competition in this industry, such as design and marketing, did not
form part of the company’s overall strategy.
Since mid 1990s, Kalony has undergone far-reaching administrative and productive changes. After several
attempts to bring processes under the same roof, it was decided to divide the facilities into nine plants that
would manufacture different products and have autonomy in controlling production, whereas the holding
company would take charge of financial and corporate operations.
The introduction of “just in time” total quality systems and the greater flexibility resulting from dividing up
the factory led to a considerable improvement in productive efficiency: a switch was made from consecutive
to parallel manufacturing processes, which shortened the production cycle from 13 to two days; production
lines were diversified and defects were substantially reduced.
A training program for factory hands that focused on making a greater number of tasks more efficiently
accompanied the rescaling process. The workforce of 600 (450 direct jobs) remained unchanged throughout
the process and reclassifying jobs made it possible to raise wages, which are paid on the basis of collective
piece work in keeping with production results and national pay scales. Furthermore, incentives have been
implemented based on efficiency, productivity and on production volume that meets certain preestablished
quality standards (98 % of footwear must be defect-free), and as a result, workers can receive up to 40%
more than the basic wage.
Most production is made to order and is mainly aimed at the domestic market in foreign currency (pumps,
ballet slippers and sports shoes) where the company faces strong competition from imported footwear (a
30% import tariff is levied to protect domestic production). The company also produces special shoes for
elementary and middle-school students, workers and those requiring orthopedic footwear.
20
21
The electric-power and fuel industries will de taken up in the following chapter.
In 1999, the cement industry was also integrated into the Minbas.
293
While progress has been achieved in right-sizing production, problems remain. The most significant hurdle
is the supply of raw materials. Leather production has plummeted, so most footwear is now made from
imported synthetic leathers, which sometime fail to arrive on time. Product quality has improved, but is a
long way from being internationally competitive. Despite the increase in production, it is 60% below 1989
levels, which makes it difficult to achieve greater cost efficiencies. The installation of a new synthetic leather
factory in 1999 will surely contribute to improving supplies of raw material to the company.
b)
Evolution in the 1990s
Following the sharp declines in production experienced during the early 1990s, a recovery has been
achieved in companies with access to foreign currencies. Most areas of production registered
rebounds beginning in 1994-1995, although the paper and glass industries remain depressed (see
graph VIII.6 through 8). Even the industries that have posted the strongest growth have yet to
recoup 1989 levels (except for nickel) and their workforces have been pared significantly. As a
result of the crisis in the early 1990s and the ensuing restructuring process, 20,000 employees were
laid off at Minbas industries, although they have since been relocated.
Official policy tends to favor sustaining production in basic industries that are unprofitable22, only
when social considerations enter the picture or possibilities appear to arise of returning the
operations to profitability. The rubber industry has recovered since 1996 without any need for
foreign investments (see chart VIII.3), and by 1997, production had rebounded to 45% of 1989
levels. In contrast, the glass industry is virtually paralyzed and the prospects for bringing it back to
life depend on the development of the rest of the industry. In this regard, hopes are placed primarily
on a revival of Cuban breweries. A recovery is currently underway in the production of safety
glass, goblets, drinking glasses, jars and vials. Some glass items are being exported to the
Caribbean, but production is fundamentally geared toward import substitution.
The paper industry has experienced ups and downs; by 1997, production was a scant 16% of 1989
output. This sector consists of eight plants: three are dedicated to processing sugarcane pulp, while
four of the eight are inactive and work was suspended at the largest facility in 1995. The products
experiencing a revival are toilet paper and napkins. Recently three joint ventures have been
launched to revive production at the idle plants and foreign investment is expected to play a role in
the industry’s recovery.
22
The double system for setting prices in the domestic market and other distortions pose problems for accurately
measuring the intrinsic profitability of operations.
294
Graph VIII.6. Cuba: Production and employment in the pulp and paper industry a/
9.0
250
Employment (thousands)
Production a/
8.0
200
150
1981 million pesos
Thousands of people
7.0
6.0
100
5.0
50
4.0
3.0
0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ At company prices.
Graph VIII.7. Cuba: Production and employment in the glass and ceramic industries.
70
8.0
Employment (thousands)
60
Production a/
50
6.0
40
5.0
30
4.0
20
3.0
10
1989
1990
1991
1992
1993
1994
Source: CEPAL, based on official data.
a/ At company prices.
1995
1996
1997
1998
1981 million pesos
Thousands of people
7.0
295
INSET VIII.3. Perfecting management in the rubber industry
The first—and until September 1999, the only—Minbas company enrolled in the EntrepreneurshipUpgrading System (SPE) was Conrado Piña Díaz, a producer of tires, footwear and other rubber products.
Production at this company experienced a dramatic decline in the early 1990s, but rebounded beginning in
1996 and is currently only slightly below its 1986-1990 average. The company has improved its profitability
indicators, and in order to participate in the SPE, it agreed to a rationalization and reorganization process that
consisted of offering workers basic training programs, conducting a comprehensive study of the plant and
applying corrective measures for the problems that were detected, among them the need to expand its
markets in search of additional capital and improving incentives programs and other services for workers.
The fundamental changes that are currently contemplated include empowering workers to assume new tasks
and responsibilities with the central goal of improving efficiencies. It is hoped that workers will engage in
more collective efforts with an eye toward maintaining production for meeting demand based on the rules of
the market. Plans call for trimming the structure and number of management personnel at the company’s
main office, while affording each business unit that directly depends on the corporate administration greater
leeway in decision-making, a step that should help reduce the need for middle-management personnel. These
business units comprise an innovative structure that includes companies offering maintenance,
supplementary services, sales and purchasing operations, as well as the production of car and truck tires,
textile/rubber footwear and bicycles tires.
Management at Conrado Piña offers workers incentives based on both individual and collective
performance. Two payment formats are used under this system: quantitative and qualitative performance is
awarded based on salary in the form of a direct payment added to wages, while an average of 13 convertible
pesos per month are deposited in workers’ debit card/ATM accounts as an additional form of incentive pay.
A top dress-maker can earn up to 400 pesos a month, plus additional 15 convertible pesos in incentive pay.
Expansion plans presuppose a better use of installed capacity and an 8% increase in production during 1999,
while expanding productivity (9%), median wages (8%) and pre-tax profits (23%). Over the medium term
(2003), targets include doubling production of automobile tires (to total 95,000), producing 1.5 million
bicycles tires and satisfying domestic demand for rubber and plastic goods.
The situation in the chemical industry has also been mixed. While production of fertilizers declined
dramatically in 1997, output of other chemical products has recovered by leaps and bounds, and by
1998, it allowed the sector to regain 84% of 1989 production levels.
Export diversification has progressed slowly in the case of basic industry. Nickel remains the
sector’s leading export but other mining products have achieved a greater share of the export mix,
such as copper, chrome, gold and zeolite; a similar increase in export activity has been recorded in
pressed glasses, rubber footwear and cloth. At the same time, headway has been achieved in import
substitution for such products as paper, fertilizers and pesticides. Despite this progress, at the end of
the 1990s it appeared that there is still considerable room for growth in domestic production.
296
Graph VIII.8. Cuba: Production and employment in the chemical industry
31.0
550
Employment (thousands)
500
Production a/
30.0
450
400
28.0
350
27.0
1981 million pesos
Thousands of people
29.0
300
26.0
250
25.0
200
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ At company prices.
c)
Changes in the “Special Period”
During the 1980s, the Ministry for Basic Industry had 785 employees; now its total workforce
consists of no more than 140 people. The Ministry continues exercising control and supervisory
functions, but is no longer involved in production matters, which have become the direct
responsibility of companies. In fact, a corporate system was established in which factories are
responsible for their own management and are goal-oriented. Boards of directors are headed by a
corporate director and are made up of the directors of major companies. In terms of employment,
restructuring has reduced workforce by 14%.
Measures have been taken to trim company costs and determine real productivity levels. If factory
equipment remains idle for more than three months, fixed costs are eliminated from company
results. Similarly, the State directly assumes responsibility for the wages of idle workers after a
reasonable period off the job. In general, increased financing and supplies of raw materials have
enabled basic industry to begin its recovery while at the same time improving technical conditions
in plants and boosting export production. Streamlined production has also lowered company losses.
297
550
500
450
400
350
300
250
200
150
100
7.0
6.0
5.0
4.0
3.0
Dollars per pound
Millions of dollars
Graph VIII.9. Cuban exports and nickel prices in the London Metal Exchange
2.0
1.0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
Nickel exports
Dollars per pound
Source: CEPAL, based on IMF data.
Minbas calculates that roughly 100 companies are in a position to join the Management
Perfection System and will do so over the course of 2000. All workers in basic industry are
eligible to receive added incentives, which range between 25 and 50 convertible pesos per month.
In fact, 84% of the 100,000 workers in Minbas companies receive some form of incentives;
33,000 in the form of cash payments, while the remainder are paid through ATM cards.
Chart VIII.10
STRUCTURE OF GLOBAL CONSUMPTION OF NICKEL, 1997
By type of product
%
By geographical region
%
By final consumers
%
Stainless steel
60 Europe
38.7 Transportation equipment
18
Nickel alloys
12 Japan
20.0 Electric machinery
21
Steel alloys
9 Rest of Asia
19.6 Nonelectric machinery
19
Nickel plating
9 United States
15.6 Construction
9
Others
10 Other regions
6.1 Others
33
Total
100
100
100
Sources: Ministry of Planning and Economy, "Industria del Níckel", Havana, undated; Eva María Quintana,
"Tendencias en el Mercado Mundial del Níckel", Cuba Foreign Trade, No. 2, 1998; United Nations, "Industrial
Commodity Statistics Yearbook", New York, 1966; United Nations, "International Trade Statistics Yearbook",
volume 2, New York, 1995.
298
d)
The nickel industry
Nickel is regarded as a priority as it is the country’s second largest export product after sugar, and
accounted for 23% of the value of total Cuban exports of goods in 1997. The weakening of market
demand in the first part of the 1990s had a major impact on the industry, as the CMEA countries
had accounted for 73% of total nickel export sales and 87% of the industry’s inputs. The
breakdown in relations with this trade bloc not only implied a major drop in export revenue, but
also posed significant problems for sustaining output and maintaining production facilities as the
industry was suddenly faced with the need to readapt its technology to respond to other sources and
types of inputs.
As part of the institutional reforms, priority was placed on converting and rebuilding nickel export
markets. In 1991, nickel-processing plants were allowed to directly market their output and obtain
financing and inputs for their operations. At the same time, efforts were made to establish
partnerships with foreign companies. To date, one of the most successful partnerships has been
with Sherrit, a Canadian company that merged with the Cuban concern Pedro Soto in 1994. Sherrit
owns 50% of the new company, while Cuba now holds a 50% share of the Sherrit refinery in
Alberta, Canada.
INSET VIII.4: The global nickel market
Nickel is one of the leading nonferrous metals with properties that make it ideal for use in a wide range of
industrial processes. It is employed in the production of stainless steel, which accounts for 60% of total
demand. It is also widely used in the chemical, petrochemical, electronics, aerospace, automotive and tool
industries. Global production of primary nickel (which has been refined from ore) grew at an annual rate
of 2.2% during the past decade and by 1997 reached 987,000 metric tons with Cuba supplying 3.6% of the
total. The leading producers are the Russian Federation (21% of global production), Canada (13%), Japan
(13%), Australia (7%) and Norway (6%). Cuba ranks sixth among producer countries with 68,000 metric
tons (1998), of which 35,000 metric tons correspond to metallurgy production as indicated in chart VIII.10
with the remainder consisting of Ni+Co sulfides, an unfinished form of the mineral that is produced at the
Moa plant.
Growth of the world’s nickel industry is critically dependent on the evolution of the steel industry, which
absorbs a growing percentage of global nickel supplies (rising from 40% in the 1970s to 60% in the last
decade). Nickel prices fluctuated considerably in the 1990s, although they have performed better than most
commodities. Between 1987 and 1997, the price of nickel on the London Metals Exchange climbed from
US$2.22 dollars to US$3.14 dollars per pound. In the interim, strong demand by the steel industry led to a
spike in prices to roughly US$6 dollars per lb. in 1988-1989.
In the early 1990s, excess inventories accumulated in response to strong demand in preceding years,
combined with a reduced pace of global economic growth and the entry of Russian nickel into international
markets, pressured prices to as low as US$2.4 dollars per lb. in 1993, coinciding with the worst moments of
Cuba’s economic crisis. By the mid 1990s, the nickel industry cycle experienced a brief upturn largely in
response to a revival of Asia’s steel industries. Nevertheless, the financial crisis that swept the region in 1997
and a new slowdown in global economic activity pulled prices lower, where they remained at the end of
1999 (see graph VIII.9).
299
As a result of the joint investments and comprehensive improvement programs, productive
infrastructure has been enhanced, technology has been adapted, energy efficiency has increased and
marketing channels have been regenerated23. These achievements are reflected in a rebound in
production, which rose from 24,000 metric tons in 1994 to almost 68,000 metric tons in 1998 (with
73,000 metric tons expected in 1999) thus surpassing previous annual record highs (50,000 metric
tons) and pushing production 45% above 1989 levels. Plentiful reserves of nickel and cobalt (a
related product), which are the second largest in the world, make this an industry with high
development potential in the medium term.
Chart VIII.11
CUBA: NICEL-COBALT PRODUCTION AND EXPORTS, 1989-1998
1989
Production volume (thousands of metric tons)
46.6
Exports
1. Value (millions of dollars)
486.4
Ni+Co sinter
124.8
Ni+Co oxide
145.5
Ni+Co sulfide
216.1
2. Export share of total value
9.0
3. Volume (thousands of metric tons)
46.0
Ni+Co sinter
11.2
Ni+Co oxide
15.0
Ni+Co sulfide
19.8
4. Implicit export prices (thousands of dollars per
metric ton)
10.6
Ni+Co sinter
11.1
Ni+Co oxide
9.7
Ni+Co sulfide
10.9
Source: CEPAL, based on National Statistics Office data.
1993
30.2
1994
26.9
1995
42.7
1996
53.7
1997
61.6
142.4
60.7
15.2
66.5
12.3
26.6
11.8
2.9
11.9
196.0
86.3
5.6
104.1
14.7
29.1
14.7
0.9
13.5
323.6
143.0
1.3
179.4
21.7
38.0
17.8
0.1
20.0
416.8
214.1
1.6
201.1
22.3
55.2
29.4
0.2
25.6
415.3
217.7
2.8
194.9
22.8
59.5
32.5
0.3
26.6
5.3
5.1
5.2
5.6
6.7
5.9
6.5
7.7
8.5
8.0
9.8
8.9
7.6
7.3
8.0
7.9
7.0
6.7
9.3
7.3
1998
67.7
INSET VIII.5. The Ernesto Che Guevara nickel plant
The Ernesto Che Guevara plant, located in the eastern province of Holguín, is an example of cooperation
between Cuba and the former Soviet Union. Construction of the plant was concluded in 1986, with an annual
production capacity of 30,000 metric tons of nickel+cobalt sulfide-grade product. Technological deficiencies
posed obstacles when production first got underway. It was possible to document a wide range of problems
that prevented normal functioning of the facility.
23
Contracts have also been signed with other Australian, Canadian, Panamanian and Venezuelan companies with a
view to prospecting for gold, silver and nonferrous metal deposits.
300
Following the dismemberment of the Soviet Union at the end of the 1980s, production practically came to a
standstill. Markets dried up, deliveries of inputs were suspended and there was no means for financing
operations. At that time, the furnaces represented the most severe bottleneck. Major efforts allowed for a
successful resolution of these and other problems with the plant, thus allowing for improved efficiency
indicators, a process that extended until 1996. New technologies were introduced to replace those supplied
by the Soviet Union. Significant improvements were registered in those critical areas of production where
fuel consumption was greatest, while other obstacles to production were gradually overcome.
Beginning in 1996, production once again was on the rise, unit costs were reduced, economies of scale were
taken advantage of and the expenses related to repairs were greatly diminished. Today, the plant is operating
at full capacity with a workforce of 2,500 (down from a previous level of more than 6,000) and output
surpassed original installed capacity to reach 28,000 metric tons in 1998.
When the plant began operations at the end of the 1980s, it used 36 metric tons of fuel for each metric ton of
nickel produced, a figure that has since been reduced to between 15 and 18 metric tons, which is comparable
to international industry standards. Workers have been trained in the use of new automated production
techniques. The rescaling program has also produced positive results: supplementary services including the
plant canteen, transportation, housing, maintenance and repairs were decentralized beginning in 1996. A
research center now collaborates in the design of investment planning.
The plant acquires ore from two open pits, one of which is located less than 2 km from the plant and the
other 10 km away. The company holds a concession to exploit these deposits and reserves are expected to
last for more than 30 years. The plant produces nickel oxide and sinter nickel by calcifying its carbonate
composition and a mixed nickel- and cobalt-sulfuric precipitate.
Officials have decided that the installation of a refinery at the plant would offer significant advantages such
as a fuller exploitation of existing infrastructure; expanding the percentage of cobalt recovered from ore to as
much as 40% (up from a current 20% average); and, enhanced product quality that would draw higher prices
in international markets. The future facility is to be armed with technology designed to have a minimal
24
environmental impact generating residues that are easily managed . It is estimated that the refinery will cost
US$90 million dollars, with an annual installed capacity of 34,800 metric tons of nickel and 1,200 metric
tons of cobalt (98.8% pure). It is estimated that the refinery could begin production in 15 months and that the
new facility will employ 1,400 workers, including in the refinery and ore processing operations.
This branch of industry is organized around the Nickel Union, which integrates plans for
development, organization, investment and infrastructure, as well as areas of management planning
including budgets, human resource development, research and development and business plans.
The union, which employs 14,000 workers, plays a key role as a supplier of foreign currencies, and
on this level, it is surpassed in importance only by the tourism and sugar sectors. With the
exception of output at mixed-ownership companies, international trade is handled by Cubaníquel,
which is an agency attached to the Foreign-Trade Ministry. In 1996, a new financing policy for the
nickel industry was approved, which allows for decentralized use of much of the foreign-exchange
revenue that it generates. The Nickel Union can thus directly import inputs and increase its access
to foreign credit, which will facilitate the operating of processing facilities and finance expansion
plans. Nonetheless, some decisions are still centrally adopted.
24
See “Basic Industry”, (Industria del Níquel), mimeographed edition, Havana, 1999.
301
Nickel processing is conducted at three plants: Nicaro, which was founded in 1943, Pedro Soto
(established in 1959 and now functioning as a joint venture with the Canadian-based Sherrit) and
Che Guevara (1986). The first and last of these three facilities operate using an ammoniac
carbonate process, while the second uses an acid-based technology. A fourth processing facility that
currently lays idle requires new investments to resume production. Following the industry-wide
crisis of the early 1990s, production has recovered and posted a record level of 67,700 metric tons
in 1998, broken down as follows: Che Guevara 28,000 metric tons, Pedro Soto 27,700 and Nicaro
12,000.
i.
Some background. Although it was already known at the end of the last century that Cuba
had nickel deposits, the country's first industrial plant (Nicaro) did not begin operating until 1943.
It used U.S. technology and, to a great extent, began operating in response to the great demand for
steel in the United States during World War II. A new economic activity thus emerged and, at the
same time, Cuban export capacity was strengthened. However, operations in this plant came to a
halt after the war (1947), when the country was already the world’s fourth largest nickel producer25.
The outbreak of the Korean War renewed U.S. demand for strategic raw materials and the company
resumed operations and expanded its capacity by 75% to 22,700 metric tons. Thus, between 1952
and 1958 nickel production increased at an average annual rate of over 10%.
In 1960, a second plant (Moa-Pedro Soto) was put into operation with the capacity to process some
24,000 metric tons of nickel and cobalt. However, following the Cuban Revolution tensions rose
between Washington and Havana and the plant was shut down, although it reinitiated operations in
1961 this time without U.S. support.
Investment was stepped up when links were established with what was then the former Soviet
Union, and Cuba joined the CMEA in 1972. That year, an agreement was signed with the Soviet
Union to rehabilitate the Nicaro and Moa plants and to build a new facility in Punta Gorda. A
large-scale investment program led to the development of the plant and the area’s infrastructure
including port facilities, an airport, a mechanized industrial complex and a polytechnic institute.
This promoted the sustained growth of nickel production, which reached a record 46,600 metric
tons in 1989 (between 1959-1989 production grew at a median annual rate of more than 3%.).
ii.
The crisis and the “Special Period”. Until the late 1980s, the countries of the now defunct
CMEA guaranteed a secure market and high prices for Cuban nickel and also provided fuel, spare
parts, capital goods and other inputs. However, with the collapse of the Eastern European
socialist bloc, demand declined and production dropped in the early l990s. In 1994, it was only
26,900 metric tons, down to the levels that Cuba had achieved 30 years earlier and 20,000 metric
tons below 1989 production levels (see chart VIII.11).
The loss of foreign exchange caused by fewer exports was also exacerbated by the fall in nickel
prices (US$6.03 dollars per pound in 1989 to US$2.40 dollars in 1993). Export revenue thus
dropped by more than half between 1989 and 1994 (see chart VIII.11). The situation became so
critical that operations were almost shut down altogether in 1994. Low use of capacity led to
25
In its 40 months of operation, the plant processed more than three million metric tons of ore and produced some
28,000 metric tons of nickel.
302
extremely high costs; furthermore, there was a shortage of fuel, spare parts and other inputs and the
industry was rapidly losing capital investment.
During the second half of 1994, a number of factors arose that helped reverse the crisis in the nickel
industry. International prices rose and some lines of credit were secured, while new schemas for
self-financing in foreign exchange were introduced and the Moa plant in Eastern Cuba began to be
modernized. A substantial recovery has been underway since 1995 that has led to much higher
export levels, which in 1997 accounted for almost 23% of total overseas sales of goods (see chart
VIII.11 again). The value of exports declined in 1997 in response to weakened global market
prices, but rebounded once again in 1998. Since the mid 1990s, exports have been redirected,
mainly toward Western Europe and Canada.
iii.
Restructuring and reactivating industry. As we have previously indicated, a decisive factor
in the recent recovery of the nickel industry has been the establishment of a company—classified as
an international economic partnership—jointly owned by the Compañía General del Níquel, a
shareholder in the Moa nickel and cobalt concentrate plant and Sherrit Gordon of Canada.
Established in 1994 and called Moa Níquel, the new company's operations include nickel and
cobalt extraction, refining and marketing. Prior to 1994, Sherrit purchased a large part of the nickel
and cobalt sulfides produced by the Moa plant as raw material for its refinery in Canada. This plant
was originally designed for an annual production capacity of 24,000 metric tons thanks to worker
incentives, resolving bottlenecks and the inclusion of Sherrit, the plant is currently operating above
the previously-mentioned installed-capacity levels.
The joint company's assets include the Moa plant, the refinery in Fort Saskatchewan, Alberta, and a
marketing corporation located in the Bahamas. Cuba granted mining concessions to the company
for 60 million metric tons of nickel-producing limonite with 80% proven reserves, which will
ensure raw material for the Moa plant’s operations for 25 years. In addition, it conceded the rights
to 15,000 hectares with sufficient reserves for another 25 years.
Company projections include investments to improve and expand the capacity of the Moa plant.
Plant technology and management have already improved significantly, as reflected in rising
efficiency indicators. Consumption of four to five metric tons of oil per metric ton of cobalt is now
approaching international standards. The ore obtained is nickel-sulfide plus cobalt, which must be
refined. Since the necessary refining facilities do not exist on the island, it is processed at the
Sherrit refinery in Alberta (one metric ton of sulfide is equivalent to 550 kilograms of nickel, plus
cobalt and one metric ton of nickel, plus cobalt is 91% nickel).
The Nicaro and Ernesto Guevara plants in Punta Gorda, both State-owned, have also benefited
from the partnership in that technology, management and administration have improved and the
workforce has been retrained in new skills. The plants now operate according to monthly plans and
goals, improved equipment maintenance techniques are being applied, new accounting methods are
being used, industrial safety standards have improved and bottlenecks are gradually being
eliminated. All the companies currently have technological development areas and there is now an
institute for advanced mining and metallurgy studies in the Moa region. More than 300 researchers,
professors, engineers, project designers, mid-level technicians and skilled workers are involved in
these activities (INIE, 1997).
303
The old Nicaro plant is being technologically modernized. The end product is quality-two sinter,
which is 90% nickel and does not require further processing, in contrast to the Moa product.
Modernization consists of improving technical and economic parameters to make production
more competitive. In the past two years, fuel consumption at the plant was pared from 20 metric
tons of oil per metric ton of nickel to 16 metric tons, a level that is in keeping with international
standards. Furnace technology is being modified to replace anthracite with additive oil, which
ensures greater energy efficiency. Sinter from the Che Guevara and Nicaro plants is of inferior
quality, compared to that nickel+cobalt-sulfide of the joint venture. At present, the three plants
are engaged in cooperative competition. The experience of the Canadian firm has served to train
workers at nickel plants and in other Minbas companies with regard to such issues as
maintenance, marketing, economics and there has been cooperation between the Che Guevara
and Pedro Soto operations.
Industrial rescaling has also taken place in the nickel sector. In the past, the company relied on
“reserve units” to tackle frequent technical and maintenance problems, an arrangement that
required an unnecessarily large allocation of equipment. Today, maintenance is only provided when
necessary, records of daily costs are kept and work brigades have been established with their own
budgets. Workplace incentives are used as a means for insuring that production and cost targets are
met. The industry has improved competitiveness by 50%, thus bringing it up to international
standards. Plans call for decentralizing mining operations in an effort to lower costs. The
establishment of specialized service companies has allowed for improvements in quality and price.
There is a fourth plant in the municipality of Moa with the same technology as Nicaro with an
installed capacity of 3,000 metric tons, but the facility has been left at 70% completion. Work on
the plant was begun as a joint project with the CMEA. Construction was subsequently resumed, but
investments of US$300 million dollars are required to complete it and the project has since been
placed on hold. Lastly, letters of intent have been signed with an Australian company to build a
fifth plant in Pinares de Mayari.
iv.
Prospects. The recent performance of the nickel industry indicates that the recovery
initiated in 1995 is likely to continue. Favorable investment prospects to modernize, expand
capacity and explore new deposits are likely to increase nickel’s share of GDP and exports. The
potential for development is considered promising, in view of the low cost of extraction (from
open-pit mines); good infrastructure (ports, airports, highways, services, etc.); skilled, retrained
staff; competitive wages; improved technology; and efficient energy consumption.
Global demand is expected to grow modestly in the future. New projects have been planned that
will expand global capacity and exert downside pricing pressures in the coming years. Cuba’s
mineral reserves are expected to last for 200 years and current goals call for sustaining international
competitiveness by raising production and improving efficiencies. Authorities have expressed the
need to diversify production to other fields—such as super alloys and nickel plating—and markets
(currently concentrated in Canada, Europe and Asia) to improve the quality of nickel used to
manufacture stainless steel, since international demand calls for increasingly higher standards.
304
4. The steel, machinery and electronics industries
a)
Description
During the post-revolutionary period, this sector was largely confined to the workshops created to
manufacture spare parts to cover maintenance needs in sugar, construction, mining and metal
industry installations. Today, the sector includes companies and institutions whose basic activities
are focused on the metal, machine tooling, electronics, data processing and recycling industries.
The Ministry for the Machinery and Electronics Industry (SIME) brings together 94 industrial
enterprises with more than 130 factories, 12 research and development centers, four engineering
firms, 20 raw material recycling operations, 32 data processing projects, two transportation
concerns, one construction firm, 34 commercial enterprises, three service providers and two
professional improvement centers. The SIME is in charge of defining the industry’s major priorities
and global strategies, the members of the boards of each company; and production strategies, while
each company takes responsibility for decision-making regarding its own production (see graphs
VIII.10 through 12).
More than 70,000 workers (35% less than in 1989) are employed in these 203 enterprises, of which
almost 10,000 are university graduates, 16,000 are middle-level technicians and more than 30,000
are skilled workers. The products produced in this sector include steel and rod derivatives,
nonferrous metal products, farm machinery, transportation vehicles, equipment used for both
industrial purposes and for social infrastructure (medical and kitchen equipment), electrical
machine, electronics and software, as well as other consumer and intermediate goods.
b)
Progress in the 1990s
A high degree of diversification had already been achieved by the end of the 1980s, but
subsequently major setbacks were experienced. The iron and steel industry mainly produced billets
and corrugated reinforcing bars, while the machinery branch responded to the various needs of the
sugarcane industry (processing plants, spare parts, harvesters). As previously noted, domestic
industry provides 60% of sugar-mill components. Other important products are medical equipment
and stainless steel for the food and biotechnology industries, containers and tanks, auto parts, auto
bodies and household appliances. The electronics industry has begun to manufacture articles such
as televisions sets, radios, computer hardware and some software.
305
Graph VIII.10. Cuba: Production and employment in the nonelectric machinery industry
90.0
900
Employment (thousands)
800
Production a/
85.0
700
600
75.0
500
70.0
1981 million pesos
Thousands of people
80.0
400
65.0
300
60.0
200
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ At company prices.
Graph VIII.11. Cuba: Production and employment in electric- and electro-technical industry
15.0
225
E m ploym ent (thousands)
200
14.0
P roduction a/
150
12.0
125
11.0
100
10.0
75
9.0
50
1989
1990
1991
1992
1993
1994
Source: CEPAL, based on official data.
a/ At company prices.
1995
1996
1997
1998
1981 m illion pesos
Thousands of people
175
13.0
306
Production in the iron and steel and electronics industry decreased 78% and 69%, respectively,
between 1989 and 1994. Various investment projects were also suspended, since their completion
depended on the continuation of cooperation programs with the former socialist countries. The
manufacturing of certain items, such as omnibuses and stainless steel products, practically stopped.
However, the industry began to recover as of 1994. As a result, between 1994 and 1997 significant
growth was registered in the production of metal products, machinery and equipment and electrical
and electronic articles, although the fabrication of transportation equipment continued to decline.
Overall industry production remained roughly 40% lower than in 1989 (see chart VIII.12).
Chart VIII.12
TRENDS IN PRODUCTION OF METAL PRODUCTS, MACHINERY AND EQUIPMENT, 1989-1997
Compound annual growth rate
1997-1989 comparison
(%)
1989-1994
1994-1997
Production of common metals
-15.0
29.0
95.2
Metal products, except machinery and equipment
-31.9
14.6
22.1
Machinery and equipment
-28.3
20.9
33.6
Machinery and electrical appliances
-20.0
16.5
51.7
Radio, TV and communications equipment
-39.1
75.6
45.5
Medical, optical and precision instruments
-47.5
26.5
8.1
Transportation equipment
-24.2
-9.8
18.4
Source: CEPAL, based on National Statistics Office data and the Statistical Annex.
Investment, which was significantly curtailed between 1989 and 1993, began to revive by 1996,
although it is estimated that even in 1999 it will continue to considerably lag behind pre-crisis
levels. For example, in 1998 capital accumulation in nonelectrical machinery was a mere 37% of
1989 levels, with similar figures for the electronics and electrical industry and metal products
standing at 13% and 7.5%, respectively. Some examples of recent investment projects include a gas
cylinder factory, as well as plants for producing refrigerators, televisions and canned soft drinks and
beer. There are 15 joint ventures involving foreign investors who mainly supply technologies.
The ATEC company offers a special example of the ups and downs of the consumer electronics
industry. Launched in 1974 with Soviet technology with an eye toward producing 100,000
television sets per year, the best the company ever managed was to manufacture 96,000 units in
1986. With the onset of the “Special Period”, production plunged to a low of 2,000 sets (1992), at
which point companies such as Samsung, Goldstar (now LG Electronics) and Daewoo were
approached regarding the possibility of reconverting and developing the industry. Under an
agreement with Goldstar, 16,000 television sets rolled off production lines in 1996, and
following the signing of an agreement with LG, output was expanded to 53,000 units. Headway
has been registered in achieving an increased degree of domestic integration of operations; at
present all packaging materials are produced in Cuba and the domestic production of cabinets is
soon to get underway. Plans call for one third of all pieces and components to be produced by
local industries. A new assembly line was to be acquired in 1999 to allow the plant to produce
five LG and three Daewoo, as well as a Cuban-designed model (by Jesús Salcines in 1999) to be
marketed under the ATEC brand name.
307
Graph VIII.12. Cuba: Production and employment in the metal-products industry
18.0
250
Employment (thousands)
225
Production a/
200
175
150
14.0
125
1981 million pesos
Thousands of people
16.0
100
12.0
75
10.0
50
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
Stainless steel production was renewed, albeit with ups and downs and high costs and domestic
demand shows some signs of a recovery, although exports take up 80% of the supply (mainly
corrugated bars and billets). The industry's high-energy consumption (energy and scrap iron
account for 60% of total costs) prompted the implementation of energy-saving measures, including
a changeover to electric furnaces. Steel, in particular, has faced international market pressures, as
demand and prices have fallen in the recent past.
INSET VIII.6. Production of machinery and replacement parts
Domestic production of industrial equipment and replacement parts evolved in recent decades in tandem,
with technological and production trends prevailing among the CMEA countries. The dramatic curtailment
of economic and trade ties to such countries in the early 1990s produced a severe contraction in domestic
and foreign supplies of capital and intermediate goods.
Those enterprises attached to the Ministry for the Machinery and Electronics Industries (SIME) fill most of
the country’s need for spare parts. Other public-sector agencies, such as the Ministry for the Sugar Industry
(Minaz), produce replacement parts for covering the industry’s own equipment and transportation needs, in
addition to manufacturing machinery and equipment for sugar mills including boilers, industrial gauge
pumps and a series of less complex items.
Meanwhile, the Ministry for Basic Industry (Minbas) produces parts and equipment for developing the
sector, including transformers and other equipment for the energy sector.
308
The Revolutionary Armed Forces Ministry (Minfar) and Interior Ministry (Minint) have established plants to
produce the pieces required to cover the repair needs of the Cuban military while also supplying 20% of
domestic production of the machine tooling required in the country’s tourism industry.
The Construction Ministry (Micons) produces machinery, equipment, parts, replacement pieces and
accessories needed by the sector. The Agricultural Ministry (Minag) manufactures simple machinery and
equipment and parts required by the sector.
The Transportation Ministry (Mitrans) has set up a network of workshops around the country that produce
limited volumes of spare parts and accessories for repairing their own equipment. The Ministry for the
Fishing Industry (MIP) produces spare parts and accessories for repairing ships and manufactures small and
auxiliary boats.
The Ministry for the Food Industry (Minal) produces spare and replacement parts, furnaces and specialdimension equipment, as well as conservation technologies.
In synthesis, adverse developments abroad has prompted the establishment of factories and workshops for
producing spare parts and accessories that allow Cuban industry to continue to function despite a general
shortage of foreign currencies, although this area of production continues to suffer from the absence of
economies of scale. Nevertheless, the institutionally disperse nature of such operations tends to stimulate
competition for the SIME, a trend that favors improved quality in units produced and offsets the adverse
effect of economies of scale on the level of production costs.
The machine tool industry continues to be affected by the lack of supplies and the decrease in
demand. The paralysis of the construction and automotive industries also reduced the size of the
market and led to the shutdown or conversion of some product lines. The bus factory began
manufacturing bicycles and now has the capacity to produce 600,000 a year. Nevertheless, a
substantial percentage of capacity remains idle26. Another company that manufactured trailers now
assembles motorcycles. The notable recovery of the machine tool industry in 1996-1997 (see chart
VIII.12) was accompanied by increased productivity, so production has surpassed pre-crisis levels.
It is estimated that the vast majority of the companies in this branch are showing a profit.
A process of import substitution has produced promising results to date. On the demand side of the
equation, there is no preference for domestically produced goods. Cuban-made products such as
corrugated bars, wire, gas cylinders, conductors, cables, water heaters, fans, major home
appliances, equipment for the nickel industry, compressors, containers and air conditioners must
compete in quality and price against imports.
c)
The policies of the “Special Period”
Measures to offset the crisis began to be implemented in 1992, focused particularly on reorganizing
company operations and the Ministry’s functions. A decision was made to replace the previous
system with strategic business units. In the process, new executive, business management and
administrative systems were adopted with the support of academic institutions and universities and
efforts were made to improve staff training at all levels. The Ministry has been divided into
corporations that plan industrial strategies. Each company’s management structure is comprised of
26
In fact, considering the size of the Cuban population, total production capacity appears to be excessive.
309
a president, three vice presidents (for marketing, exports and imports) and an administrative team
with no more than 20 members. Their basic tasks consist of designing and implementing strategies.
The corporation and its companies hold meetings to discuss and negotiate the best options and
procedures.
In 1993, SIME established two basic guidelines: to focus production on solvent markets and to
meet the needs of the agroindustrial sector, while increasing competitiveness by converting and
resizing industry. In more specific terms, efforts are being aimed at raising quality standards and
lowering costs to achieve a majority share of the solvent market (i.e. the domestic market in foreign
currency) while gaining a share of foreign markets27. In this regard, the reactivation of this industry
has benefited from the financing obtained from these markets and clients, such as the sugarcane
industry, agriculture, the nickel industry, tourism, chains of retail stores, etc.
The industry has undergone different reconversion processes, which in some cases could be
considered regressive, since complex production systems have been replaced by simpler systems to
meet the needs of the moment. Thus, as stated, a bus-assembly plant was turned into a bicycle
factory and part of the plants that previously manufactured medical equipment were adapted to
produce goods for the tourism industry. Production of industrial-kitchen equipment for hotels was
promoted and has led to significant foreign-exchange savings. The dynamic growth of tourism has
made it an important consumer of goods and services, while also substituting imports. The share of
inputs and services of domestic origin has risen from 12% of the total in 1985 to 40% in 1994
(Garcia A., 1996). Light and food industry have made substantial contributions in this regard.
Reconversion and rightsizing efforts have been geared toward assuring the supply of inputs and
capital goods that the country requires, thus reducing the foreign-currency drain and seeking
alternative uses for existing installed capacity.
Another important change in the way the industry operates lies in trade activities. The ministry for
the sector administers foreign sales through companies that are free to export and import. Other
companies provide a marketing system for spare parts and equipment, as well as post-sale service
and maintenance.
Foreign investment in the industry has slowly begun to increase. In the case of iron fittings,
hardware articles, air conditioning systems, elevators and medical equipment, foreign capital has
played a significant role and recently some foreign investment has been undertaken in
transportation equipment. Nevertheless, technological retrofitting efforts have been predominantly
domestic and progress has been somewhat slow. This helps explain why capacity remains underused and work productivity remains below 1990 levels, although trends have shown an upturn over
the past three years.
In the context of the sharp decline in investment, the necessary resources are still being made
available for training and preparing skilled personnel, including company directors, technicians and
specialists who take courses at the SIME’s special training institute.
27
The industry has resumed exports of iron fittings, containers, farm machinery (mainly for the sugarcane industry),
software and electronic and telephonic cables.
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The Unecamoto Group proved to be a successful experience in the automotive industry during the
“Special Period”. As a holding company for automotive enterprises, it serves as Cuba’s prime
source of cars, trucks, omnibuses and internal combustion engines. The company is also engaged
in operations for replacing or converting motors to diesel use; automotive services and technical
assistance; import and export of automotive units, parts and accessories; as well as handling the
storage and control of inventories of State-owned automobiles. This conglomerate consists of
four production divisions (special applications, auto parts, omnibuses and trucks and engines), a
marketing firm, two joint ventures, one corporation, a research-development-production center
and 24 enterprises (22 production units and two export firms). The group’s structure allows it to
aid the development of the country’s automotive manufacturing industry, import substitution and
personnel training.
This conglomerate employs a 7,164-strong workforce. Beginning in 1994, production was
expanded, increasing from 47 million to more than 100 million pesos in 1997, thus surpassing
1987-1989 levels. At the same time, profits and costs favorably evolved (sales are expected to
total 140 million pesos in 2000). These positive results have made it easier for the group to
acquire credit from financial institutions; in fact, domestic banks supply the group with the funds
needed to finance the entire industrial cycle including imports and working capital. Nevertheless,
the group faces obstacles such as the lack of total financial autonomy needed to offer collateral
for some loans, the absence of financial strategies and weak collections. All of these factors
imply higher financial costs and, as a result, a reduction in profits and the threat of defaulting on
debt amortizations. As a result, the group’s financial strategy hinges on establishing strategic
alliances with banks that are related to or maintain a working relationship with the company’s
clients. Management also attempts to take maximum advantage of the presence of Banco
Nacional de Cuba offices outside the country. Another option involves credit issued by foreign
banks and at present the group is negotiating a US$291 million-dollar-line credit from a syndicate
of Korean, Italian and Brazilian banks.
d)
Outlook
The machinery sector is facing a very uneven road toward recovery. In some areas, output has
surpassed 1989 levels as with the case of such farm tools and industrial machinery as plows, diesel
motors, trailers, irrigation equipment and machinery used in the sugar sector. However, other
segments of the industry continue to seriously lag behind the production levels registered a decade
earlier as is the case of construction equipment, molds, steel structures, transportation equipment,
motors for omnibuses, sugarcane combines, refrigeration equipment and a range of additional
products. It is necessary to determine which items are viable and worthwhile to continue to produce
locally. The aim is to contribute to a selective process of import substitution and production of
parts. Indeed, progress has been registered on the level of some products, such as television sets
based on Soviet technology that have proven to be high consumers of electric power. In 1999, the
industry is expected to surpass the previous record level of mercantile production of 941 million
pesos reached in 198728.
28
Mercantile production refers to units that are sold on the market as opposed to those made for self-consumption.
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5. Medical-pharmaceutical industry
a)
Description
The pharmaceutical industry in Cuba has specific characteristics because it has achieved a high
degree of endogenous development. Many of the technologies it uses are its own, although there
are also others that are shared as a result of associations with foreign companies. Despite the
country’s economic crisis, the government decided to prevent public health-care services from
deteriorating as much as possible, and therefore has tried to maintain the objective of efficiency
from the financial point of view in terms of medical attention. For this reason, personnel cutbacks
were not introduced in the system and medical services have been maintained.
The medicine industry in Cuba has been recognized as one of the priority and strategic sectors in
public policies. Resources for investment are decided on the highest level and the central
government directly allocates such funds. The Medical Pharmaceutical Industry Division
(IMEFA), attached to the Public Health Ministry, is the agency responsible for the production
and distribution of medicines and pharmaceutical products. It is comprised of 19 companies with
41 factories and a research and development center. The industry’s workforce totals 7,000
employees, of which 1,800 are professionals and technicians. IMEFA also operates a marketing
company and a maintenance firm and the rest of its operations correspond to manufacturing
dental and optical instruments, bandages and other hospital-related materials, containers, raw
materials or active ingredients and medications. Of the country’s total consumption of medicines,
87% corresponds to IMEFA in value terms. These include a variety of medicines in the form of
pills, injections, semi-solids, those applied in oral-liquid form, eyewashes, capsules, as well as
biological products, raw materials, articles, hygienic-sanitary material and dental products. At the
same time, the Scientific Pole, attached to the Council of State, contains a series of research and
development institutions, as well as those specializing in the production and commercialization of
medications.
b)
Evolution of the industry in the 1990s
Contrary to what occurred in most of the Cuba’s industrial branches, in the pharmaceutical sector
attention was placed on maintaining investment. The associations with foreign companies in the
commercial sphere (in the productive domain, investment is 100% national) have expanded,
thanks to the attractiveness of the market, the availability of skilled labor and low costs.
Maintaining capital formation has contributed to the modernization and expansion of production
of different medications. At the same time, exports have also been increased for products such as
ateromixol (PPG) and vaccines against meningitis, hepatitis B and monoclonal antibodies, all
manufactured by companies belonging to the Scientific Pole.
Thus, the decision to maintain investments, linked to research and development (R&D) activity,
mitigated against the effects of the economic crisis. The production of medications only
diminished 15% between 1989 and 1993, which compares very favorably with the contraction in
the rest of the industry. To a certain degree, the pharmaceutical sector is a special case, since
decades previously it had already adopted a firm policy of preparing and training high-quality
professional cadre and promoted an intense import substitution process. However, it was not able
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to advance with the same degree of success in perfecting backward linkages or in reducing
dependence on specialized raw materials and pharmaco-chemical products acquired abroad. At
present, close to 15% of Cuba’s total production is exported to 18 countries mainly in Latin
America, but 90% of the raw material used in the production of medicines is imported.
In the past five years, import substitution has allowed for hard-currency savings of US$300 million
dollars. Maintaining the spending R&D has contributed to the recovery of production, which in
1999 exceeded 1989 levels and to an improvement in quality and diversification. In 1997,
commercial production totaled 93 million pesos, which rose to 103 million pesos in 1998, with 110
million pesos expected in 1999. Promoting exports is a key aspect of the sector’s policy with efforts
centered on attacking the Latin-American market. The goal of the Center for Research and
Development of Medications is to substitute imports of medicines and develop exports.
The main products that are exported are hemoderivatives, cephalosporins, steroids, anesthetics
and products for family use. As part of the industry’s business strategy, investment has been
reactivated in the recent period and attempts are being made to attract direct foreign investment in
several areas, including the production and commercialization of pharmaceutical raw materials,
medications that use natural substances as their active ingredient, hospital and medical inputs,
research and development of new medications and the design and operation of overseas
pharmaceutical plants, among others.
INSET VIII.7. Havana’s scientific and technological pole
The western part of the city of Havana is home to different research and development centers in the medical
and biotechnological sciences, whose role has been key in Cuba’s rise as an important supplier of
medications in Latin America. The priority and the support that the Cuban government has given to
scientific research and the investment sustained throughout three decades has allowed the country to build
up an extensive scientific and technological infrastructure that enjoys the recognition of health-care and
scientific institutions from all over the world.
The Instituto Finlay is devoted to research and production of vaccines for human use. Among its main
achievements are the creation and production of the first and only vaccine effective on a world level
against group B meningococcus (VA-MENGOC-BC). It is also developing research to discover vaccines
against illnesses that still are resistant to prophylactic-healing measures. The Institute’s four divisions
work in different projects, the most important of which are vaccines against leptospirosis and cholera, the
combined meningitis BC/hepatitis B vaccine and the tetanus-diphtheria-Pertusis vaccine (improved).
The mission of the Molecular Immunology Center is to develop medications to fight cancer. As proof that
this activity is a high priority, it should be recalled that the center was built in the most critical moment of the
“Special Period”, at the beginning of the 1990s. The center also markets a product that prevents the body
from rejecting transplanted organs and has a risk contract with Canada for conducting clinical trials in that
country. At present, the center is developing a series of indicators to measure their effectiveness.
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The Genetic Engineering and Biotechnology Center (CIGB) was founded in 1986 and has become one of
the most important in the biosciences in Cuba. In its beginnings, the CIGB was devoted to the production
and commercialization of a single medication in small quantities; today, it produces many different
medicines in industrial quantities that are sold in the domestic market and are also exported, mainly to the
Far East. The center’s research is focused on the recombination of DNA, transgenic work with vegetable
and animal cells, the generation of monoclonal antibodies, the chemical synthesis of biomolecules and
other cutting-edge technologies, in addition to its zeal to find a vaccine against AIDS. Key in the CIGB’s
development has been its ties with a marketing company, Hebert Biotec, founded in 1991, which has
significantly boosted its sales.
The National Center for Biologically Prepared Products (BioCen), founded in 1992, is an industrial
complex dedicated to different productive lines in the field of biotechnology and pharmaceuticals. Their
products are used in microbiological procedures, fermentations, the food industry and environmental
control, products for senior citizens, high-performance athletes and the ill, among other applications.
BioCen’s research is focused on obtaining and subsequently improving: i) new forms of cultivation and
nutritional bases; ii) allergenic extracts for diagnosis and immunotherapy; iii) monoclonal antibodies; and
iv) diagnostic experiments and reagents. To develop its activities, the Center has highly trained personnel
and its production process meets ISO standards.
Recently, the U.S. government gave its consent so that the British company Smith Kline Beecham
could collaborate with Cuban researchers in testing a vaccine against meningitis, for its possible use
in the United States. Cuban researchers report that the vaccine, developed in 1989 by the Instituto
Finlay, is 83% effective. Cuba has already sold it to Brazil, Argentina and Colombia. According to
the agreement, the British company has worldwide rights to market the vaccine outside of Cuba and
will pay the Institute a certain sum for each approval of the vaccine and patent rights once sales
begin.
c)
Policies in search of competitiveness
In order to improve the use of resources, a rationalization and savings program was undertaken,
encompassing both medications and other inputs such as financial resources. A base level family
medical program was also developed to correct the unnecessary use of the country’s hospital
infrastructure. As a result, the occupation index in hospitals diminished, as did the average length
of hospital stays. Finally, the practice of “indulgence prescriptions" was combated and it has been
possible to reduce complementary medical examinations by 30%.
Six companies in the pharmaceutical industry have been identified for their proposed
participation in the Entrepreneurship-Upgrading System, with the objective of continuing to
improve management practices and workplace training. Guaranteeing quality takes place through
adherence to regulatory guidelines and ISO 9000 norms. The industry earmarks important
resources for research and development, what has made it possible to produce 322 formulas in all
therapeutic categories of generic medications. It should be noted that some companies in the
sector provide their workers with incentives.
314
d)
Perspectives
Despite the crisis, the pharmaceutical industry has not interrupted its development. It has continued
encouraging investment and export projects. The need is clear to advance in the medium term in
redefining the scope of production, in improving interindustrial articulation and at the same time to
promote exports, which could contribute to the signing of agreements with transnational companies
that dominate world markets and production. In the medium term, the industry seeks to: i) achieve a
greater diversity in the medicines it supplies; ii) increase exports; and iii) boost scientific and
technological development.
6. Construction materials
a)
Description
The construction material industry has been key in Cuban industrial development, as well as in
satisfying the basic needs of infrastructure, housing, education, health-care and now tourism. The
main items that it produces are: i) cement, the key input of the construction industry, which has
been recovering its previous production levels; ii) marble, which is extracted and cut and
processed in three complexes with a productive capacity of 450,000 square meters. Its main use is
in the tourism sector and 10% of production is exported (previously the figure was 25%); iii)
asbestos sheets, pipes, tanks, in four production complexes; and iv) waterproofing, plastic parts,
white ceramic, floors, coatings and bathroom fixtures, two complexes with an investment
program that will triple current capacity. About 66% of Cuba’s input in this field is imported. The
technology used by the industry is mature and most of the raw materials are domestically
produced. There are also local companies that transform raw materials obtained from nearby
sources and complexes that produce bricks, thin walls, pottery, etc., which operate with highenergy costs.
b)
Evolution in the 1990s
The industry entered in crisis starting from 1989, when investments fell and thousands of jobs
were lost. The main cause of the crisis was the collapse in construction activity, which reduced
output by almost fourfold in real terms between 1990 and 1994. The production of construction
materials declined 76% between 1989 and 1993, and then it initiated a rebound marked by 2.8%
growth in 1994 with a gradual recovery in subsequent years. For example, the production of
sawed lumber grew 21.5% annually on average in the 1994-1998 period, gray cement 12% and
concrete blocks 8%. Despite everything, production continues to be depressed, although in the
case of wood, 1998 output was very close to 1989 levels (see graph VIII.13). In 1997, the
construction material industry grew 10% in 1998, 3%; and in 1999, a 3% increase is projected,
that is, a similar rhythm to that of the construction industry. Industry employment has decreased
thanks to greater efficiency. Salary incentives are provided based on results. There are stores that
sell construction materials to the population in Cuban pesos.
This activity, due to its high consumption of energy, has been especially affected given
limitations in supplies. However, promotional efforts have boosted overseas sales. Cement
represents 80% of the industry’s exports, with the rest corresponding to marble, ceramics and
materials for housing and marble plaster. Exports of cement rose from less than US$1 million
315
dollars at the beginning of the decade to US$32 million dollars in 1997, while overseas sales of
marble declined from more than US$1 million dollars in 1990 to US$379,000 dollars in 1997.
c)
Policies in the “Special Period”
The need to make the industry self-financing in terms of foreign currencies has placed a priority, as
has been said, on an export-orientation for production. Thus, objectives of the new corporate
entities have been cancelled in favor of establishing goals in terms of expansion and diversification
of exports and to reorganize overseas marketing. A good part of the production absorbed by the
domestic home market is earmarked for the tourism sector, which in exchange provides financing
in foreign currencies to the construction material industry. In addition, joint ventures in production
and marketing in international markets have been successfully promoted.
Graph VIII.13. Cuba: Production and employment in the construction material industry
60.0
500
Employment (thousands)
450
55.0
400
50.0
350
45.0
300
250
40.0
1981 million pesos
Thousands of people
Production a/
200
35.0
150
30.0
100
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Source: CEPAL, based on official data.
a/ At company prices.
The hard currency crisis and the oil discoveries led the cement industry to gradually substitute the
use of fuel oil and other light fuels with heavy domestic crude. The building construction program
has managed to considerably bring down the use of construction materials. In addition, low-cost
traditional techniques that use local technologies and materials have been resurrected, which has
allowed for the substitution of imported products. In reducing costs, what has been key is
streamlining capacity in accordance with the demand of solvent markets (which spurs a reduction
in energy consumption), as well as import substitution.
316
The maintenance of the rhythm of housing construction in 1995-1998 (44,000 per year) reflects
the efforts undertaken to increase energy efficiency and the use of low-cost local construction
materials. The strategy of import substitution has led to the construction of two refractories for
cement and pigments. Imported asbestos cement was replaced by sugarcane pulp by-products. In
addition, 18 research programs were implemented.
d)
Perspectives
In the construction material industry, energy consumption, transportation logistics, the productive
processes and management efforts are the factors that have the most impact on competitiveness. In
order to increase competitiveness, the government seeks to promote exports, credit from suppliers,
substitute imports and guarantee the delivery of material on time with adequate quality. For this
reason, coordination groups have been formed with the tourism sector in Havana, Varadero and
Cayo Coco, which it is hoped will contribute to strengthening the industry’s linkages with investors
and manufacturers.
7. The small company
As in the vast majority of countries, the presence in Cuba of small companies in the manufacturing
industry was very common and generalized. At the end of the 1950s, 80% of nonsugar industry
establishments employed less than 25 people. From that point on, the development of large-scale
vertically integrated companies was promoted, albeit not very articulated with the rest of the
country’s production base and going against the opposite trend in the world, in which since the mid
1970s the participation of small, flexible enterprises has been strengthened, capable of
differentiating products and taking advantage of modern computer technologies.
At the end of the 1980s, small industrial companies in Cuba were a not very common phenomenon.
However, two elements point to a reverse trend. To begin with, the deregulation of markets and the
legalization of self-employment created spaces for the resurgence of small-scale activities. In the
same sense, there was pressure from the displacement of surplus labor power as a result of the crisis
and the demands of productive reconversion. Apart from this, due to companies’ exaggerated
vertical integration, it was advisable to segregate out auxiliary activities that could be carried out
better and at a lower cost by small-decentralized businesses.
Thus, in recent years there has been a growing market participation by small companies, although
they generally continue being integrated or subordinated to a higher management level. Between
1992 and 1999, the number of government companies remained practically the same, while 1,447
low-level business enterprises emerged with new forms of organization, mainly due to the
fragmentation of the public corporations and the conversion of factories or shops into companies
with their own legal status. The industrial structure by company size shows a trend toward
smaller units, although large enterprises continue dominating the scene. In 1999, State enterprises
with more than 200 workers represented 61% of the total, compared to 91% in 1991.
In any event, it would be worthwhile to promote the formation and development of small
companies in activities employing mature technologies and with low investment requirements
(Trueba, 1996). Examples of this would be the production of items for personal use, processed
foods, wooden furniture, handicrafts, the repair of different articles, production of metal parts,
industrial maintenance, among others. In this field, the first condition to be met would consist of
317
opening up some access to bank financing and then to support small industry through outsourcing
schemas with the State consortia, the creation of common services and technical support.
E. CHALLENGES POSED BY INDUSTRIAL POLICIES
As we have been reiterating in this section, the jumping off point for Cuba’s de facto industrial
policy is the chronic shortage of foreign currencies. With this in mind, a priority has been placed on
activities capable of bringing in foreign currencies through exports, sales to solvent markets and
import substitution. As a result, the industrial sector’s performance in recent years has been uneven
and the privileged activities have made greater headway than production earmarked for the
domestic market. At the same time, this lack of foreign-currency conditions macroeconomic
policies, which seek to maintain external accounts under control.
The formation of a new industrial policy in Cuba will have to advance hand in hand with the results
of the macroeconomic adjustment. In normal circumstances, international experience indicates that
the probability of success is greater in a stable macroeconomic environment. Industrial
development policies are usually more effective an economy is characterized by low inflation,
healthy public finances and a reasonable balance in the foreign-exchange market and external
accounts. It is also advisable to have a banking sector committed to encouraging savings and
investment, an apparatus that promotes production and a productive system less encumbered by
bureaucratic obstacles.
Such premises are barely beginning to appear today in Cuba. The country is being forced to pass
through a period of transition and adjustment in which a return to macroeconomic stability and a
structural change that imposes a renewed viability on economic growth must simultaneously be
achieved. Both requirements prevent implementation of conventional medium and long-term
industrial strategies since the circumstances demand that the most urgent necessities be attended to,
while the most important structural factors receive partial attention, such as the reconstruction of
external economic ties or resolving bottlenecks in energy supplies. The transitional stage has
already been underway for almost a decade now and it should not be prolonged for too long a
period. With this in mind, efforts should be undertaken so that the changes in economic strategy are
also accompanied by deliberate and substantial modifications in the institutional framework, as can
already be seen in the agrarian, fiscal, bank reforms or in the liberalization of some markets.
The rest of this section will succinctly explore some elements that can be considered indispensable
in a discussion on the need to instrument an explicit industrial development policy in Cuba. Such a
consideration is based on a recognition of the restrictions derived from the adjustment program and
outside attempts to economically strangle the country, as well as the agreements adopted within the
World Trade Organization. Later on, discussion will focus on the central issues that will have to be
dealt with in such a discussion (see García Hernández, 1996).
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1.
Energy efficience
The solution to the lack of domestic sources of energy and the high intrinsic and technological use
of energy by the main productive industries, in particular the export sector, raises one of the central
problems of the development of the Cuban economy. To improve energy efficiency requires
enormous investments in the reconversion of the production base or in the installation of fuel
saving systems. To increase the energy supply would also generate a strong demand for capital,
both to conclude work on the country’s thermoelectric nuclear-power plant, as well as to intensify
the exploration, extraction and refining of crude oil or to develop alternative sources of energy.
Increasing the supply of imported fuel would be another type of solution, but this depends on
alleviating the strangulating effect of such overseas payments.
Advances have been registered in terms of reducing energy consumption, the reconversion of
technologies and equipment, increasing domestic oil output and generating greater foreign-currency
inflows. Nonetheless, major problems remain that would place limits on the rhythm of the
economic recovery of industry, even on its structural remodeling. Solutions to this problem reside
in the development of long-term productive and export activities that involve less intensive use of
energy or in the development of new power sources. All of this could be more easily achieved if
Cuba had access to temporary foreign-financial aid.
2.
Industrial restructuring
The process of industrial restructuring has advanced albeit with certain slowness. The activities
undertaken in this regard show promising results, but the industrial dynamics ultimately depend on
the pace of the structural reforms, that is, on lifting the restrictions of the “Special Period”. To date,
the policy of industrial restructuring had had to concentrate on the closing of production lines, the
reorganization of the productive flows, reconversion and rationalization of production and, in some
cases, layoffs, although very often the affected workers are later reintegrated in the plants. The
acquisition of new equipment or the application of technological improvements involves
understandable delays due to the shortage of foreign currencies.
The technological upgrading and the reorientation of industry toward activities that generate
foreign currencies, either through exports or import substitution, will have to continue at a forced
pace. Such an effort demands deepening the analysis and the policies on a sectorial and microeconomic scale. In this context it would be worthwhile to make a distinction between different
policies applicable to different industrial branches (Marquetti, 1996): i) branches that with more
moderate technological innovations could soon achieve levels of efficiency comparable to those of
the leading countries in Latin America. It should be recalled that Cuba’s technological support
infrastructure includes 210 research centers and 20,000 researchers; ii) industries that would
demand a considerable reconversion effort, but which are considered profitable or a priority in the
medium term; and iii) sectors that due to their technological backwardness, priority, or other
considerations, should be considered unviable in terms of their reactivation.
The previous elements could be complemented with criteria related to social efficiency, linked to
the satisfaction of the population’s basic necessities (food, employment), which would lead to
temporarily reactivating some production, independently of competitive conditions. This would
also be justified due to the large workforce that these industries traditionally absorb and the wide
margin that exists for substituting imports.
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In any case, industrial modernization will mean the segregation of part of the workforce. It is
estimated that this process already affects about 200,000 workers. The displaced workers are
receiving retraining, in accordance with the needs of industrial reconversion and the country’s new
domestic productive characteristics. In addition, it would be advisable to make legal stipulations on
self-employment more flexible in order to encourage and diversify the deregulated activities and to
give a spurt to the creation of small productive units.
3.
Regional/subsectorial focus
The tendency in most Latin-American countries indicates the prevalence of horizontal industrial
development policies, that is, policies that do not discriminate between branches or companies or
select “winning activities”. The basic objective is to “even out the playing field” so that all
companies face similar competitive conditions. In some countries this paradigm has been
insufficient or counterproductive when it is not complemented with actions of a more precise and
specific nature, especially given the deep going liberalizations in foreign trade (Peres 1996 &
Secofi 1996).
In Cuba, a pragmatic approach that combined actions of a horizontal nature, in which in fact the
country has several comparative advantages (education, support infrastructure and technological
services) with microeconomic programs, in function of national priorities, could be advisable,
especially in light of the long experience in the field of planning and the shortage of financial
resources. In addition, industrial planning could be enriched with regional focuses that would
explicitly allow regions or localities with industrial potential or susceptibility to be incorporated.
The abundant availability of labor power and trained technicians, as well as the infrastructure
developed in numerous localities within the country, suggest that such a strategy could bare fruits
in the short term, further strengthening the potential for balanced regional development.
At this point, it would be worth emphasizing the importance of recovering the links between
primary activities and the industrial sector, especially in the food agroindustry area. The reasons are
obvious: their contribution to satisfying basic needs, to import substitution, to employment, to
providing greater efficiency by taking better advantage of installed capacity and, later on, to
overseas sales. All this would generate multiplier effects in the entire production base. In any
economy, developed or developing, it is common that the food industry absorbs a good part of
manufacturing output and employment. In Cuba, most of the food industry installations are
producing less, in real terms, than 10 years ago, and therefore it is urgent that a common policy
involving the agricultural-cattle breeding and manufacturing sectors be coordinated, aimed at
rapidly recovering production and competitiveness.
In any case, independently of the industrial development focus that Cuba choosesranging
from horizontal to the most micro-oriented policiesit is of key importance to advance even
further in the decentralization of decision-making. Without slighting the progress that has been
made, the demands of modernization and the international markets are forcing companies to
respond quickly and flexibly, which is rendered more difficult in a complex framework of
pyramidal decision-making.
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4.
Promotion of exports and import substitution
The objective of increasing revenue from exports and to reconstruct the country’s foreign-trade
networks will continue being a major priority, both to ameliorate the pressures of external attempts
to strangle the economy as well as to make future sustained development viable. The goal of
efficient import substitution, in which Cuban industry is gradually advancing, fulfills the same
functions. This is related to the need for Cuban industry to occupy or recover domestic demand
niches that are currently satisfied to a great extent with excessive imports. The strengthening and
greater scope of such a strategy would facilitate inter-industrial articulations and generate multiplier
effects that would become an important source of dynamism for manufacturing activities.
The recent substitution of imports has been an essential consequence of the need for foreign
currencies and the supply of inputs and services to the export sector. In the future, it would be
advisable to more precisely delineate a strategy of efficient and selective import substitution. As
has been said, very broad possibilities exist for the penetration of Cuban products in the country’s
own market (inputs for tourism, textiles, clothing, footwear, chemical products, tires, electrical
appliances, paper, containers, among other items). This would lead growth strategies to expand
both outwardly and inwardly, as has occurred in the most successful Southeast Asian countries.
This, to be sure, requires redoubled efforts as regards productivity, because, as has been said,
industry should compete in equal conditions vis-à-vis imports.
Thus, far overseas sales involve few products, but soon other goods will join their ranks and pose
new export goals. At present, exports are concentrated in traditional products of low industrial
value added (sugar and other processed foods, nickel and light manufactured goods). This pattern
of specialization will continue dominating foreign-currency generation in the short and medium
terms, but it would be worthwhile to include new products that take advantage of the existing
comparative benefits or to develop other new items that try to incorporate technician progress and
knowledge.
It should be kept in mind that the efforts to increase exports tend, at least in the short term, to spur
an increase in marginal tendencies to import items, in view of the scarce internal articulation of the
economy and the difficulties to reactivate the production of intermediate goods. Therefore, it is
important to promote a process of productive rearticulation, first of all oriented to the integration of
chains around the sources of industrial dynamism and then toward other sectors that have lagged
behind. This approach would only produce results in the medium-long term, but now is the time to
begin.
In summary, from a dynamic perspective, Cuba’s industrial development strategy should maintain a
focus of stimulating exports that currently compete advantageously in the world market and
gradually strengthen the selective substitution of imports. Toward the medium term, programs
should be undertaken with a view to diversifying exports.
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5. The role of the small company
The world experience has demonstrated that a balanced regional development is favorable for the
emergence and establishment of small production units in localities that are also small. As was
previously mentioned, in Cuba small industry has begun to reemerge, particularly due to the
fragmentation of large companies, corrections in excessive vertical integration or the possibility of
establishing family businesses in many industrial and services divisions. The steps taken to promote
a greater participation by such units in productive activity are moderate in scope, but could be
deepened with regional development policies and plans for the formation of interconnected
company networks.
In fact, the transformations in the industrial apparatus point to the formation of smaller-size
companies and perfecting decentralized managerial policies that are innovative and offer more
autonomy. In addition, there are elements that favor the development of small modern companies,
such as an educated population, a trained workforce and the existence of a technological-support
infrastructure. Many large companies that are currently characterized by an excessive level of
vertical integration could outsource certain activities related to the productive process or support
services to small companies. This would encourage an efficient and complementary cooperation
among different size companies.
In conclusion, the strategy of reactivating Cuban industry could be broken down into several
priorities and phases (García, 1996). In the immediate term, production for export and food should
be attended to, along with the more efficient use of energy resources. Simultaneously, it would be
necessary to perfect the export sector’s internal linkages and take advantage of the greater
purchasing capacity of revenue from exports and tourism, as well as to reactivate imports of
intermediate and capital goods inputs for very diverse industries. In addition, it would be necessary
to facilitate spaces for small and medium-sized industry, to promote managerial, commercial and
business professional formation, as well as to more precisely determine other microeconomic
necessities.
F. SUMMARY AND CONCLUSIONS
1.
2.
At the end of the 1990s, Cuban manufacturing is undergoing a process of moderate reactivation,
following the collapse of production and investment from 1989-1993. The favorable tendencies
noted in 1995-1997 have been maintained with different rhythms and intensities, depending on
the sector. As the crisis affected the industrial branches differently, the recovery is also unequal.
In general, the manufacturing activities connected the foreign-currency circuit are recovering
more rapidly than those oriented to the domestic market. Thus, the production of some products,
for example, exceeds levels of a decade ago, but most of the industries remain below their 1989
output and the weakness of investment hinders the sustained reactivation of the manufacturing
sector.
Cuban industry continues to be characterized by a high degree of dependence on imported raw
materials. In some cases, such a dependence is justifiable due to technological reasons and
economies of scale, but there is ample space for the efficient substitution of a great diversity of
imports. To date, the process displays a sustained, although measured growth trend. In the short
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3.
4.
5.
6.
7.
8.
9.
term, the priority placed on exports will lead to an increase in the inclination to import, although
here a certain displacement of overseas purchases is already taking shape.
The program of business streamlining has registered progress and concrete achievements. Plant
sizes have decreased, better advantage is being taken of installed capacity and numerous services
that previously were undertaken in the manufacturing installations themselves have been
outsourced. These advances are significant in basic industry, metal-mechanics and in some
branches of the light industry, such as clothing and footwear. This has also contributed to
improving energy efficiency, although in general, industry is far from reaching international
levels. In particular, in the textile industryone of the major energy consumersprogress has
been limited.
The decentralization in decision-making has scored moderate advances, partly because a selfmanagement culture has not totally permeated among businessmen, even though there are many
companies that manage their budgets in foreign currencies and apply salary-incentive formulas.
In addition, some bottlenecks remain that must be eliminated to promote business administration.
For example, companies cannot decide on their product mix or set prices and investments above a
certain amount must be analyzed and approved by higher authorities.
Foreign-investor participation is concentrated in certain activities (nickel, personal hygiene
products), although it has been gradually expanding to new fields. Moreover, the “cooperated
production” modality is gaining ground, through which a foreign partner contributes financing
and technology to investment projects and receives royalties during a preestablished period of
time. Cuban ownership remains intact and the company administration is also Cuban. Contrary to
the mixed-ownership-company format, there is no profit distribution for the foreign partner.
The Entrepreneurship-Upgrading System (SPE) has been implemented, which seeks to promote a
more efficient use of the material, financial and human resources that the companies have at their
disposal, through greater autonomy in decision-making. Expectations are favorable for program’
medium-term results due to its tendency to expand its scope, provided the system encompasses a
growing number of companies. Competitiveness is a systemic phenomenon and it makes it
difficult for companies in the SPE program to fully develop their capacities when only based on a
“world-class productive enclave”.
The number of workers who receive material incentives in the manufacturing industry has
increased considerably in the past three years. Although this system began by mainly providing
incentives in kind, now a growing trend is underway to offer cash. In any event, it should be
noted that the improvements in efficiency and productivity have a limit that will be difficult to
surpass, as long as there is no sustained reactivation of investment. In summary, capital formation
must be made more dynamic to take maximum advantage of the gains in productivity. But at this
point, this effort collides with external attempts to strangle the economy, which obstructs access
to international capital markets and limits the availability of hard currency for investment.
The options for Cuban manufacturing to technologically advance bare a critical relation to the
availability of resources for investment and these, in turn, are linked with a gradual loosening of
external restrictions. There are cases in which technological updating is subordinated to
investment priorities and efforts at innovation, as well as technological development (for
example, nickel). However, in many other activities a low technological level is maintained,
which only allows companies to survive in markets in which there is less competitive pressure
(for example, the domestic market in pesos or nontradable goods).
Industrial companies are achieving gradual access to local bank financing. Loans are in Cuban
pesos and in foreign currencies, and the interest rates remain relatively high (12%-14%).
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10.
11.
12.
13.
14.
However, this represents progress compared to the situation in mid 1990s, when domestic credit
was very scarce and external financing nonexistent or very expensive.
The manufacturing activities conducted by self-employed artisans continue to have very little
weight in industry as a whole. The State’s policies do not contemplate measures to actively
promote their development, and the radius of action of these activities is mainly reduced to
simple tasks, such as repair services, more than manufacturing as such.
Apprehension over the crisis has led industrial strategy in Cuba to be expressed in support for
those activities that generate net foreign currencies or substitute imports. What is promoted is
production earmarked for solvent markets, such as exports, tourism and the domestic market in
foreign currencies. Production that does not have demand in these marketsexcept in priority
segments, such as certain foods, clothing and medicationscontinues falling behind. Meanwhile,
the foreign currencies contributed by exports and import substitution help maintain social
production, for example, medications, vaccines and items for newborn babies, among others.
Macroeconomic restrictions remain in effect. The maximum efforts in the country’s economic
policy are mainly geared to maintaining a balance in foreign trade, a restriction that industry must
adjust to. The imbalances that persist, notably in the foreign-exchange market, hinder the
operations of manufacturing companies. To the degree that the country advances in resolving its
external strangulation, it is felt that it would be advisable to proceed in defining an industrial
development strategy. Throughout the “Special Period” the industrial policy has been able to
establish a strategy of survival and, in some, cases, of developing exports and import substitution.
At the same time, in the medium term it will be indispensable to implement a less defensive
strategy, more active in incorporating the backward sectors, especially those that attend to the
domestic market.
Trends in production have an impact on the configuration of a new productive and technological
profile for Cuban industry, in which activities with demand in international markets or in solvent
domestic markets gain weight within the country’s production, while those that depend on
domestic demand fall behind. On this level, it is particularly noteworthy that a good part of the
new investments and joint projects are in association with foreign companies that do not always
offer the best technology, but are the only ones available with which to sign agreements.
In summary, Cuban industry has posted improvements in the past three years. Such signs are not
generalized and imply a modest expansion that, at the same time, is insufficient for the sector to
resume a leadership role in the country’s growth. Without ignoring the advances, it is necessary
to reinforce efforts in terms of efficient and interlinked import substitution, export promotion and
a greater articulation of the production base. On the other side of the ledger, it is necessary to
recognize that with the obstacles and most important deficiencies clearly delineated, solutions go
beyond the reach of the microeconomic scope of Cuba’s industrial policies. The solutions have to
be gradual and measured in accordance with the pace at which hard currency restrictions can be
alleviated. To a certain extent, the increase in exports will allow the manufacturing sector to be
modernized more rapidly, which, in turn, will enable it to contribute through an effective
substitution of foreign purchases to a virtuous circle that gradually eliminates the greatest
obstacle to the growth of the economy.