ECONOMIC EYE ON CUBA©3 January 2000 To 9 January 2000 U.S. Dollar
Unchanged Against The Peso- 1 U.S. DOLLAR
UNCHANGED AGAINST THE PESO- Republic of Cuba government-operated
Cajas de Cambio S.A. (CADECA) sold the Convertible Peso, equal to US$1.00,
for 21 Pesos while purchasing the U.S. Dollar for 21 Pesos. The
official international exchange rate of one Peso to one U.S. Dollar,
in effect for more than thirty years, remained unchanged. The
government of the Republic of Cuba maintains a fixed exchange rate for
its international dealings and a more flexible exchange rate for domestic
use. The government of the Republic of Cuba does not fluctuate
the value of the Peso for commercial transactions regardless of any
fluctuation with the value of the U.S. Dollar or other currencies on
the international market. The Peso and the U.S. Dollar circulate
freely in the Republic of Cuba.
CANADA COMPANY ESTABLISHES SECOND SHOE FACTORY, WATCH, JEWELRY, FURNITURE NEXT- Habalear S.A., a Republic of Cuba-based joint venture between Canada-based International Clothing and Republic of Cuba government-operated la Union del Cuero y Calzado of the Ministry of Light Industry of the Republic of Cuba, has established a second shoe factory in the city of Havana. The facility, which will employ forty workers and has a capacity to produce 500,000 pairs of shoes annually, will focus upon sales to Republic of Cuba government-operated U.S. Dollar retail stores and establishing export markets. Habalear S.A. also plans to establish a watch assembly facility and a costume jewelry assembly facility. International Clothing is negotiating a furniture assembly joint venture with Republic of Cuba government-operated Union del Mueble of the Ministry of Light Industry of the Republic of Cuba. 1989-1999 DIRECT
FOREIGN INVESTMENT REPORTED AS US$2 BILLION- H.E. Dr. Carlos Lage,
a Vice President of the Council of State of the Republic of Cuba, reported
that total direct foreign investment in the Republic of Cuba was US$2
billion, with another US$2 billion committed through the signing of
joint ventures. On 15 March 1999, the United States Department
of State in Washington, D.C., reported that an estimated total of US$1.7
billion in direct foreign investment had been invested in the Republic
of Cuba since 1990 with the largest sectors being: Telecommunications
with US$650 million; Mining with US$350 million; and Tourism with US$200
million. According to the government of the Republic of Cuba,
there are approximately 400 currently operating joint ventures (located
both within the Republic of Cuba and in other countries) between Republic
of Cuba government-operated companies and non-Republic of Cuba-based
companies. Reports issued by the government of the Republic of
Cuba place total U.S. Dollar and Peso investment during the period 1989
through 1999 at a combined US$19 billion and Pesos, with a reported
approximately 65% to 70% of the combined total in Republic of Cuba Pesos
and the remainder in U.S. Dollars, although no official breakdown of
the numbers was reported.
INTEREST RATES ON U.S. DOLLAR SAVINGS ACCOUNTS AND CD’S REDUCED- The Central Bank of the Republic of Cuba continued to reduce the rates of interest paid by Republic of Cuba government-operated banks on all U.S. Dollar-denominated personal savings accounts, first authorized at the end of 1997. As of 1 January 2000, interest rates paid to establish personal accounts were reduced by .50%, interest rates paid on 12-month Certificates of Deposits were reduced by .50%, and interest rates paid on 18-month Certificates of Deposits were reduced by .25%. During the last twelve months, the Central Bank of the Republic of Cuba has reduced the annual rate of interest paid on U.S. Dollar-denominated personal savings accounts from 2% to 1%, has reduced the annual rate of interest paid on 6-month Certificates of Deposit from 2.5% to 2%, has reduced the annual rate of interest paid on 12-month Certificates of Deposit from 3% to 2.5%, has reduced annual rate of interest paid on 18-month Certificates of Deposit from 4% to 3%, has reduced the annual rate of interest paid on 24-month Certificates of Deposit from 5% to 3.5%, and has reduced the annual rate of interest paid on 36-month Certificates of Deposit from 7% to 4%. There was neither an official explanation on the interest rate policy from officials of the Central Bank of the Republic of Cuba nor an official explanation for the reason why Peso-denominated Certificates of Deposit, which were first authorized in 2000, were paying interest rates equal to that paid on U.S. Dollar-denominated accounts twelve months ago, or from 20% to 40% more than U.S. Dollar-denominated accounts. One non-Republic of Cuba-based economist suggested that a reason for the annual interest rate reductions is to increase spending by Republic of Cuba nationals in Republic of Cuba government-operated retail stores where price markups are an average of 240%, thus providing the government of the Republic of Cuba with increased cash flows. Republic of Cuba-based economists suggested that a reason for the higher interest rates being paid on Peso-denominated accounts could be explained, in part, as an effort by the government of the Republic of Cuba to strengthen the value of the Peso through the obtaining of Pesos in circulation into accounts for a specific period of time. H.E. Francisco Soberon, Minister-President of the Central Bank of the Republic of Cuba, reported at the end of December 1999 that greater confidence in the banking system had resulted in a 57% increase in U.S.-denominated deposits in 1999. Personal U.S.-denominated deposits were estimated at US$50 million in 1998. INCREASE IN
PESOS IN CIRCULATION, PERSONAL LOANS AT 330 MILLION PESOS- H.E.
Francisco Soberon, Minister-President of the Central Bank of the Republic
of Cuba, reported that the increase in salaries for social service workers,
the resumption of personal loans, and other fiscal measures implemented
in 1999 was not meant to signal a retreat from austerity measures first
introduced in 1994. He reported that liquidity had been maintained
despite total increased wage payments of 620 million Pesos, as well
as, 330 million Pesos in personal loans issued by Republic of Cuba government-operated
banks. He reported Pesos in circulation in 1999 were 9.78 billion,
an increase of 0.7% from the 9.71 billion Pesos in circulation reported
for 1998. Of the 9.78 billion Pesos in circulation in 1999, 5.335
billion Pesos were in savings accounts.
2% U.S. DOLLAR PROPERTY TAX IMPLEMENTED- As of 1 January 2000, the Ministry of Finances and Prices of the Republic of Cuba has imposed a 2% annual property tax on homes, apartments, and timeshare units purchased in U.S. Dollars. The property tax is based on the purchase price of the property, and payable in Convertible Pesos, equal to the U.S. Dollar, by 30 June of each year. The property tax was authorized in August 1994 within a tax reform bill enacted by the National Assembly of People’s Power of the Republic of Cuba. This is the first property tax established by the Government of the Republic of Cuba since property taxes were abolished soon after the 1959 revolution. The resolution presented in the National Assembly of People’s Power of the Republic of Cuba establishing the new property tax states specifically that it is applicable to Republic of Cuba nationals and non-Republic of Cuba nationals. However, Republic of Cuba nationals are currently prohibited from purchasing homes, apartments, and timeshare units for U.S. Dollars. The property tax will effect the owners of existing condominiums and residences; condominiums and other residences under construction; and condominiums and residences planned. There are approximately twenty-one joint venture residential real estate companies operating within the Republic of Cuba developing a total of approximately 2,000 residential units (homes, apartments, condominiums, timeshare units, etc.) of which 31 units have been completed, sold, and occupied thus far. The property tax is also targeted at the future owners of thousands of timeshare units planned by the tourism industry, many in joint ventures with non-Republic of Cuba-based companies. GROSS DOMESTIC
PRODUCT UPDATE- H.E. Jose Luis Rodriguez, Minister of Economy and
Planning of the Republic of Cuba, reported that the gross domestic product
(GDP) had increased 6.2% in 1999, with sixteen industrial sectors out
of twenty-one industrial sectors reporting increases in overall performance.
Productivity reportedly improved 5.4%, energy consumed per million pesos
produced reportedly decreased 5.4%, return on investments (ROI) reportedly
increased 8.8%, and U.S. Dollar spending per U.S. Dollar earned reportedly
decreased 2.8%.
According to the
government of the Republic of Cuba, GDP decreased a total of 35% from
1989 through 1994, and recovered a total of 12% from 1995 through 1998.
However, Republic of Cuba-based economists and non-Republic of Cuba-based
economists believe that GDP decreased a total of approximately 70% from
1989 through 1994. The Republic of Cuba’s officially-reported
GDP, at 1981 prices, in millions of Pesos was reported as follows:
DOMESTIC LENDING US$1.4 BILLION- H.E. Francisco Soberon, Minister-President of the Central Bank of the Republic of Cuba, reported that Republic of Cuba government-operated banks loaned a combined US$1.4 billion to Republic of Cuba-based companies in 1999, an increase of 40% from the US$1 billion in combined loans reported in 1998, and compared to the US$600 million to US$700 million in combined loans reported in 1997 and US$500 million in combined loans reported in 1996. In 1998, Republic of Cuba nationals and non-Republic of Cuba nationals reportedly held a combined US$50 million in U.S. Dollar personal (not commercial) deposits at Republic of Cuba government-operated banks. Minister Soberon reported that most loans were short term and were focused primarily toward Republic of Cuba-based companies (Republic of Cuba government-operated companies, joint ventures, economic associations, etc.) that focused on exports and those that focused on substituting imports. Annual interest rates were reported to be in the range of 15% to 21%, similar to the rates paid by Republic of Cuba government-operated companies in the international markets. Minister Soberon reported that Republic of Cuba government-operated banks had obtained US$50 million for lending purposes from non-Republic of Cuba-based banks (presumably the partners in two joint ventures established since 1997). Reportedly, a total of approximately US$500 million in medium term credits and long term credits were obtained from 1998 through 1999. But, most of the US$500 million represented past due, short-term government trade credits that had been rolled-over into medium term loans of five years duration. The Republic of Cuba is not a member of the World Bank, International Monetary Fund (IMF), or other multilateral lateral lending organizations. At the end of 1998, the Central Bank of the Republic of Cuba reported that total foreign debt was US$11.2 billion, not including debt to the former U.S.S.R., former U.S.S.R.-dominated countries, People’s Republic of China, or Vietnam. The Republic of Cuba ceased debt payments in 1984 and restructuring negotiations in 1989. The Central Bank of the Republic of Cuba recently resumed bilateral debt talks, and has restructured and resumed payment on approximately US1$ billion of the debt. The Central Bank of the Republic of Cuba has commenced technical discussions with the Paris Club of creditor nations, although not including Paris Club of creditor nations member United States. NICKEL PLUS COBALT PRODUCTION UPDATE- The Republic of Cuba plans to produce a record 75,000 tons of nickel plus cobalt in 2000, compared to reportedly 67,800 tons of nickel plus cobalt produced in 1999. Nickel plus cobalt exports are the Republic of Cuba’s third-largest U.S. Dollar gross revenue earner after tourism and raw sugar. H.E. Marcos Portal, Minister of Basic Industry of the Republic of Cuba, reported that the nickel plus cobalt production annual production goal was 125,000 tons, once all facilities were functioning and planned new facilities were operational. Minister Portal reported in November 1999 that nickel plus cobalt production would be less than 70,000 tons, due to bad weather in Holguin Province, 850 kilometers east of Havana, where the country’s three operating nickel plus cobalt ore processing plants are located. The nickel plus cobalt ore is shipped primarily to a processing facility located in Canada, and to processing facilities located in Europe and in Asia, as there is no refining capacity within the Republic of Cuba. The Ministry of Basic Industry of the Republic of Cuba had reported that nickel plus cobalt production would be 75,000 tons in 2000, while H.E. Jose Luis Rodriguez, Minister of Economy and Planning of the Republic of Cuba, reported that nickel plus cobalt production in 2000 would increase 9.6%. Minister Portal reported that the Pedro Sotto Alba plant, a 50%-50% joint venture with Toronto, Canada-based Sherritt International Corporation, produced 12% above its 25,000 ton capacity in 1999, or 28,000 tons. He reported that the Republic of Cuba government-operated Ernesto Che Guevara plant produced at its 30,000-ton capacity, while the Republic of Cuba government-operated Rene Ramos Latour plant (constructed in the 1940’s) produced below its estimated 20,000-ton capacity as the facility was being modernized. Minister Portal said efforts continued to complete the “Las Camariocas” nickel plant in Holguin Province, which was 70% completed when the U.S.S.R. collapsed in 1991. In May 1999, Russian Federation-based RAO Norilsk Nickel signed a Letter of Intent with Republic of Cuba government-operated Caribbean Nickel S.A. to complete the plant and to operate the plant. In 1997, Caribbean Nickel S.A. signed a joint venture agreement valued at US$650 million with Southbank, Australia-based Westminer Holdings Ltd., a subsidiary of Melbourne, Australia-based Western Mining Corporation (WMC), to construct a plant and refinery in the Pinares de Mayari area of Holguin Province. The venture, in which WMC holds 65% of the shares, has yet to begin construction due to previously low nickel prices and a lack of financing. Caribbean Nickel S.A. also has a joint venture with Republic of Cuba-based San Felipe Mining Ltd., a subsidiary of Australia’s QNI Ltd., which is itself a subsidiary of London, United Kingdom-based Billiton Plc (the third-largest mining company headquartered in the United Kingdom), to construct a nickel processing plant and to mine ore in central Camaguey Province, approximately 500 kilometers east of Havana. The project, in which San Felipe Mining Ltd., holds 75% of the equity, is in an exploratory phase. Industry sources said they did not expect the projects to move into the construction stage in the near future. Nickel produced within the Republic of Cuba is considered to be Class II with an average 90% nickel content. Republic of Cuba government-operated National Minerals Resource Center of the Republic of Cuba reported that 1) Holguin Province has 34% (second largest) of the world's known proven reserves (800 million tons) of nickel plus cobalt 2) Holguin Province has 2.2 billion tons of probable reserves of nickel plus cobalt 3) lesser quantities of reserves of nickel plus cobalt are located in other areas of the Republic of Cuba and 4) the Republic of Cuba has the world's second largest reserves of cobalt. MONTHLY FOOD
PRICE CHECK- The following is the monthly free-market price check
for the cities of Havana, Camaguey, and Santiago de Cuba, 500 kilometers
and 850 Kilometers east of Havana, respectively. This Monthly
Food Price Check compares end of January 1998 prices with early January
2000 prices in order to avoid normal late December price increases during
the holidays. The government of the Republic of Cuba has reported
that the average monthly wage is approximately 223 Pesos (versus 217
Pesos in January 1999, 214 Pesos in 1998, and 203 Pesos in 1997).
[The government of the Republic of Cuba reported in December 1999 that
the average monthly wage in 1999 increased to 223 Pesos from 211 Pesos
in 1998 (although the government of the Republic of Cuba had previously
reported that the average monthly wage in 1999 was approximately 230
Pesos and that the average monthly wage in 1998 was 217 Pesos)].
In 1999, the government of the Republic of Cuba reported that the number
of Republic of Cuba nationals receiving U.S. Dollar bonuses or U.S.
Dollar-based bonuses was 1,796,000 (out of a total reported workforce
of 4,500,000) and that the total value of the bonuses (U.S. Dollar bonuses
and U.S. Dollar-based bonuses), reported to be equal to 1 to 7 times
the average monthly wage, was US$52.3 million, an increase of 18.9%
from 1998. In July 1998, the Ministry of Finances and Prices of
the Republic of Cuba reported that 1,100,000 Republic of Cuba nationals
(out of a workforce of approximately 4,500,000), or 24%, were receiving
U.S. Dollar or U.S. Dollar-related bonuses equal to 1 to 7 times their
monthly wage. In July 1997, approximately 1,300,000 workers (out
of a then reported workforce of approximately 4,200,000), or 30%, were
reported to have received U.S. Dollar or U.S. Dollar-related bonuses
equal to 1 to 7 times their monthly wage. The government of the
Republic of Cuba reported in December 1999 that access to U.S. Dollars
increased to 62% in 1999, compared to 56.3% in 1998, and 49.5% in 1997.
[Republic of Cuba-based economists and non-Republic of Cuba-based
economists believe that the percentage of Republic of Cuba nationals
with continuing access to U.S. Dollars in 1999 was 27% to 35%].
The percentage with access to U.S. Dollars is highest in the city of
Havana, where approximately 20% of the island’s 11 million citizens
reside. The government of the Republic of Cuba reports that approximately
56% of Republic of Cuba nationals have access to United States Dollars.
All Cubans receive a limited subsidized monthly food ration (which generally
provides nutrition for approximately two weeks), free health care and
education, and pay no more than 10% of their wage for housing.
Workers, with the exception of the self-employed all receive various
forms of social security coverage. KEY: LB- per pound.
U- Per unit. ( )- End of January 1999 price. NA- not available.
SSB-soda-sized bottle. S- Soft. H- Hard. B- Bunch.
All prices are in Cuban Pesos.
Updated Speaking Schedule Mr. John S. Kavulich II, President of the U.S.-Cuba Trade and Economic Council, has accepted an invitation from Ronan, Montana-based Travel Learning Conferences, Inc., to speak at the annual Nonprofits in Travel Conference (NPTC) at the Omni Shoreham Hotel in Washington, D.C., on 10 February 2000. The NPTC is “the premiere national forum for nonprofit organizations offering life-long learning through educational travel programs. The mission of these organizations is educational, and they use travel revenue to subsidize their non-travel programs, provide educational outreach, and maintain strong and loyal connections with members/alumni.” For additional information, please access www.nptc2000.com on the Internet or contact Ms. Sara Swan, Program Coordinator, at telephone: (406) 676-2255 or facsimile: (406) 676-8524 or e-mail: tlc@ronan.net Mr. John S. Kavulich
II, President of the U.S.-Cuba Trade and Economic Council, has accepted
an invitation from the New Haven, Connecticut-based Yale University
School of Management, to be a guest speaker at the seminar, “Cuba
as an Emerging Market” on 18 February 2000. For additional
information, please contact Mr. Gualberto J. Rodriguez at telephone
(203) 773-9006 or e-mail: gualberto.rodriguez@yale.net
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