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Country Report Cuba September 2017

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Country Report Cuba September 2017 _________________________________________________________________________________________________________________________________________________________ Country Report Cuba Generated on September 15th 2017 Economist Intelligence Unit 20 Cabot Square London E14 4QW United Kingdom _________________________________________________________________________________________________________________________________________________________ The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York The Economist Intelligence Unit The Economist Intelligence Unit 20 Cabot Square The Economist Group London 750 Third Avenue E14 4QW 5th Floor United Kingdom New York, NY 10017, US Tel: +44 (0) 20 7576 8181 Tel: +1 212 541 0500 Fax: +44 (0) 20 7576 8476 Fax: +1 212 586 0248 E-mail: [email protected] E-mail: [email protected] Hong Kong Geneva The Economist Intelligence Unit The Economist Intelligence Unit 1301 Cityplaza Four Rue de l’Athénée 32 12 Taikoo Wan Road 1206 Geneva Taikoo Shing Switzerland Hong Kong Tel: +852 2585 3888 Tel: +41 22 566 24 70 Fax: +852 2802 7638 Fax: +41 22 346 93 47 E-mail: [email protected] E-mail: [email protected] This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by contacting a local sales representative. The whole report may be viewed in PDF format, or can be navigated section-by-section by using the HTML links. In addition, the full archive of previous reports can be accessed in HTML or PDF format, and our search engine can be used to find content of interest quickly. Our automatic alerting service will send a notification via e-mail when new reports become available. Copyright © 2017 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 2047-4598 Symbols for tables "0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable Cuba 1 Cuba Forecast Highlights Outlook for 2017-21 3 Political stability 3 Election watch 4 International relations 4 Policy trends 5 Fiscal policy 5 Monetary policy 5 International assumptions 6 Economic growth 6 Inflation 7 Exchange rates 7 External sector 7 Forecast summary Data and charts 8 Annual data and forecast 9 Annual trends charts 10 Monthly trends charts 11 Comparative economic indicators Summary 11 Basic data 13 Political structure Recent analysis Economy 15 Forecast updates 18 Analysis Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Cuba 2 Highlights Editor: Mark Keller Forecast Closing Date: September 1, 2017 Outlook for 2017-21 The president, Raúl Castro, will retain control until his term ends in February 2018, and will remain head of the ruling party thereafter. He will focus on assuring a smooth succession and managing gradual economic reforms. The first vice ­president, Miguel Díaz­ Canel, is the likely successor to Mr Castro, but his accession is not assured. Other officials, including powerful figures in the military, are likely to compete for authority in the post-2018 period. Relations with the US will cool following the reinstatement by the US president, Donald Trump, of some travel-related and commercial sanctions. However, relations with the EU will improve under a new bilateral co- operation accord. Economic liberalisation will be cautious and tightly controlled. The government will entrench existing reforms rather than introduce major new ones. The non-state sector will expand, but the government will limit its pace of growth. Cuts in aid from Venezuela, lower exports and austerity measures will keep GDP growth low. It will pick up notably in 2021, helped by better access to financing, growth in tourism and progress on economic reforms. The authorities will try to engineer a gradual appreciation of the Cuban peso in preparation for the eventual removal of the convertible peso from circulation, which is likely to occur by the end of the forecast period. The current-account surplus will turn to deficit by 2021, but the external accounts will be supported by foreign direct investment and renewed access to external financing following the renegotiation of Paris Club debt. Review A leaked video of Mr Díaz­Canel has shown him taking a tough stance on US relations, dissidents and press freedom. The video dashed his reformist image, but may have been a performance for his hardline audience. Sixteen US diplomats and five from Canada have reported suffering the effects of sonic attacks in Cuba. The Cuban government denies responsibility. The US nonetheless expelled two Cuban diplomats in retaliation. Recent data shows that nearly 20% of the Cuban population is now over 60 years of age. The rapidly aging population owes to high levels of healthcare and outward migration, and poses various economic problems. In August the government launched several crackdowns on the private sector, including limiting the issue of new licenses for private-sector activity. It said the restrictions were so it could consolidate and organise the sector. Recent data show that in 2016 the value of Cuba's goods trade with Venezuela (largely fuel) declined by almost three-quarters from its 2012 peak. This outpaced the oil-price drop, which was 60% in the period. Country Report September 2017 www.eiu.com © Economist Intelligence Unit Limited 2017 Cuba 3 Outlook for 2017-21 Political stability The political scene in 2017-21 will be dominated by a transition to a new generation of leaders, coinciding with a process of ongoing but cautious economic reform. The president, Raúl Castro, will step down at the end of his second five year term in February 2018, but will retain power as head of the ruling Partido Comunista de Cuba (PCC) and probably of the armed forces. His likely successor as president is the first vice­president, Miguel Díaz­Canel, but a smooth transfer of power is not assured. Other officials, especially military figures, are likely to gain prominence, including the president's son and close advisor, Alejandro Castro. Once the veterans of the 1959 revolution have left the scene, younger leaders will vie for authority, raising risks for stability. The government and the PCC, wary of destabilisation, will maintain tight control over the leadership shift and economic reforms. Social frustration could rise if the reforms do not generate more opportunities and better living standards for most Cubans. The security apparatus will prevent major unrest, and an economic lift from a growing tourism industry and increased remittances will mitigate the risk of social discontent. The Economist Intelligence Unit does not view moves by the US administration of Donald Trump to reinstate travel and commercial restrictions as significant enough to alter the status quo in Cuba, and little risk is posed to political stability. Although economic reforms will be gradual, there will be major adjustments to institutions and the structure of the economy, with greater private activity and a smaller role for the state. The one-party system will continue, but power will become less centralised. More business-friendly regulation is likely in the forecast period, but this will occur in fits and starts. Corruption is uncommon at senior levels, but is rife further down the public-sector ranks, fuelled by low incomes, consumer goods shortages and institutional weaknesses. The govern ment will tackle pilfering of state resources through tighter auditing and improved accountability. Crime rates remain low by regional standards. Election watch Under Cuba’s one­party system, elections for the national and provincial assemblies are held every five years; the next are due in February 2018. Candidates are nominated through municipal councils (elected every two and a half years, with the next election set to take place in October) and by members of mass organisations, although the final decision rests with the Comisión de Candidaturas Nacional (national candidates commission). Candidates are not required to be PCC members, but most are. Voters can accept the official list (a “united vote”), select some candidates and not others (a “selective vote”), post a spoiled or blank ballot, or abstain. Although only one candidate is nominated for each seat in National Assembly elections, candidates must secure over 50% of the vote for each post. The turnout and proportion choosing a united vote (91% and 81% respectively in 2013) are viewed as signs of confidence
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