10 October 2017

What it takes to be an entrepreneur in Havana

You need to flex the rules when faced with dreadful infrastructure, self-interested officials and the odd threat from Trump.

Purita has been selling herbs and spices out of Havana for the last four years. In that time it’s gone door to door hawking dried garlic, almost gone bankrupt, and now has a 10-shop chain — an impressive feat in an economy dominated by state-run enterprises. The big idea was to turn fresh fruits and vegetables from local farmers into dried products that could be sold year-round.

‘Earth, sun and plants are all we need,’ says co-founder Liuder Raspall. He hoped the venture would decrease Cuba’s reliance on imports – always a hot issue on the island. Purita holds a record in Cuba. The venture was one of the first to land a government loan when it secured a £25,000 credit line from the state bank in 2014. Back then, there were other positive signs that things were changing. Barack Obama was eager to ease relations with Cuba, eventually visiting the country last year and meeting cuentapropistas (the Cuban term for an entrepreneur) like Raspall.

The co-op crew

However, Purita faced a series of crises in its early years that exposed just how hard it is to do business in Cuba. For starters, the country’s laws meant businesses weren’t considered legal entities, so Purita’s founders had to form a cooperative of 13 original members in order to register.

In doing so, they became one of the first non-agricultural co-ops in the country. Not long after, Purita found itself on the brink of bankruptcy. Half its founding members cut their losses and left. The surviving team has gone on to create a securely profitable business, but getting there has been far from easy.

Raspall calls the problems they faced ‘social variables’; they struggled in the face of a clunking bureaucracy (plus a lack of all-important personal connections to help navigate it) and a widespread suspicion towards new ways of doing things.

Dehydrating

Getting hold of raw produce was also harder than expected. Market prices in Cuba are fixed at the same rate for businesses and consumers alike, meaning companies have no competitive advantage.

Purita also had a pressing practical concern to deal with: it had to find a way to dry the fresh fruit, veg and herbs at scale, despite Cuba’s humid conditions. An industrial dehydrating machine was needed, but Cuba’s import rules meant Purita couldn’t source one. Luckily, one of the co-op’s founders had studied engineering in the UK and decided it would be viable to make one from parts.

Steel imports

Even with this in-house talent, the process wasn’t simple. A recent rule change meant none of the state-run steel companies would sell raw materials to Purita. ‘Someone decided that steel imports should flow only to state-run companies, not the private entrepreneurs,’ Raspall explains.

He says in order to build the machinery, they relied on friends travelling to and from the US bringing in steel parts, piece by piece, with the machines then assembled over a period of time in Cuba. At first, Purita tried to sell through state-owned retailers, but dealing with a startup was unprecedented for many of the big state-owned firms. Most were not open to working with new private entities.

Raspall says one government official was more interested in having a reason for his annual trade negotiation trips abroad than helping to fortify Cuban industries.

More than garlic

Purita resorted to a rudimentary tactic: door-to-door sales. When they proved popular, it started selling at events and festivals including Havana’s International Book Fair. Eventually, the co-op built up enough of a network to set up its own stores. Purita now has a payroll of 14 staff and 10 shops – something previously unimaginable for a private business in Cuba. By selling through a third-party website it also reaches people outside the island looking to buy supplies for friends and family on the island. The co-op has expanded its range to add 14 more dried herbs and spices to its staple, dried garlic.

Volatile politics

Purita’s growth was a large part due to the realisation that, as a co-op, it could legally circumvent the market and make deals directly with farmers. To encourage the farmers to sell their produce to Purita, the founders offered better prices than the state-backed entities and made commitments to pay on time and keep farmers on as suppliers for as long as Purita stays in business.

The co-op currently has 15 contracts with farmers. It produces 500kg of herbs and spices a month, up from just 40kg in 2014, with monthly sales of around £7,000. All this doesn’t mean the business is running free. A volatile political climate means the government could shut down the venture at any time. President Raúl Castro recently announced the co-op ‘experiment’ would continue, but updated regulation has banned the granting of new licences in a variety of sectors. The finance ministry recently shut down another large co-op, simply accusing it of ‘indiscipline’. Raspall worries Purita could suffer a similar fate.

Part 2
Foreign dollars

Tourism may have been the major growth engine of Cuba’s economy in recent years, but foreign companies are also slowly entering the country. One local design firm, Kroma Studios, is trying to cash in. Kroma designs booths for the large number of foreign and state-backed agencies now eager to exhibit at Cuban trade shows. It has positioned itself as the studio foreign companies turn to when they pitch up without much sense of the local market. But, like many in Kroma’s position, a lot of what they do isn’t technically legal: there’s no mechanism to pay tax for overseas work.

Off the books

In 2010, the Cuban government issued a list of 178 approved self-employed occupations. It came at a time when Barack Obama was working to improve US-Cuba relations, and the government was itself seeking investment from China, Canada and Europe. Kroma, founded in Havana in 2009, was well positioned to profit from the new investment.

Unfortunately, designers weren’t included on the list of approved freelance jobs – they were represented by a state-backed organisation called the Cuban Association of Social Communicators (ACCS) which didn’t allow members to accept overseas work.

Like many in its position, Kroma powered on regardless. Last year, the studio covered seven trade events, designing and making 22 booths for six national and foreign clients.

Material concerns

There hasn’t been much demand for expo booths in Cuba’s recent history, and materials are in short supply. It’s a problem referred to locally as diseño de resistencia: resistant design. As a result, Kroma hoards plasterboard when it becomes available in state-run shops and recycles wherever possible. Sometimes it’s not enough. ‘We try to keep our purchases within the legal margin as much as possible,’ co-founder Fernando Arias says diplomatically.

Havana based founders generally agree there’s no way to grow a business in Cuba completely legally. The current system is pushing them under the table. For example, a 50% tax rate is applied to private business owners earning over £17,000 a year. While a salary of this size is around five times what people earn in the public sector, many company heads argue they are being unfairly burdened.

The combination of high tax rates and cash-in-hand payments from foreign companies has encouraged tax evasion and a culture of informal payments among Cubans. Despite 30% of the country’s workforce being in the private sector, on record it counts for only around 8% of the country’s GDP. These growing pains are to be expected in a country that’s only recently become receptive to private business.

Until they are resolved, Cubans will continue to find creative workarounds; highly-skilled public sector workers are struggling with stagnating salaries and it’s not uncommon to find doctors moonlighting as private taxi drivers or waiting tables to make up their wages. Arias is just hoping there’s time to work out the kinks before the system crumbles. Whereas Obama promoted optimism during his presidency, visiting Cuba and meeting with many cuentapropistas, Donald Trump’s election has meant a return to frosty US relations, with announced restrictions on trade and travel.

‘Before Trump’s speech many of us thought the US blockade was on its way out, with the promise of clients coming from America and the market opening up wide. Now things have shifted again,’ says Arias. But he says he’ll stay optimistic, whatever happens: ‘I’m sure we will find a way to reinvent ourselves.’

Part 3
Rock against the state

American music has long been hard to come by in Cuba. A Cuban music studio, Band Era, wants to change that. Musicians Wilfredo Gatell and Miguel Comas have been producing music tracks and videos from their cramped apartment in Havana for several years.

In 2016 the pair teamed up with local photographer Alejandro Menéndez to form their own record label, Band Era Studio.

The name is a rather symbolic pun. In Spanish, bandera means flag; the label intends to fly the flag for a new generation of Cuban musicians. It’s a set-up reminiscent of the underground music scenes that exist in many countries, but in Cuba the significance is greater as rock and roll has historically been demonised by the state.

The Beatles’ music was banned by a young Fidel Castro 1964, and the following year he declared that the genre was the ‘the music of the enemy’. ‘Even now, when cultural institutions in Cuba no longer censor rock and roll as they once did, a tradition of that taboo remains,’ Menéndez says.

For musicians in Cuba, there are limited ways to get tracks out to the public. All local imprints are run by Egrem, the state-owned national record label, and tend to reflect the local genres the state is most comfortable with.

The official nod

Record labels aren’t one of the small businesses recognised by the state, so Band Era is currently an illegal enterprise. It’s trying to change that. ‘We presented our project to them [Egrem] three months ago,’ says Menéndez. ‘And next week we’ll meet with two of the three national recording labels in Cuba because, of course, we’re glad for any help.’ The bureaucratic landscape makes it difficult for music businesses to operate in other ways, too.

Menéndez points to a lack of legal framework for contracting musicians, meaning the best the label can do is seal its deals with a handshake. ‘We don’t even have a copyright law for music,’ he says. Currently, the only way Band Era could obtain a legal status is by applying for three separate permits to run the business – as a photographer, audio operator and CD vendor.

Menéndez’s proposed solution is that each founder applies for one of the three. Band Era’s vision is to elevate the popularity of genres that aren’t covered by Egrem – such as rock and roll, blues, folk and pop rock – to the mainstream.

Internet-free network

But while video-streaming services like Boiler Room have used the internet to promote underground music scenes and artists on the cheap elsewhere, Band Era is trying to build a scene in a country with low connectivity. It’s estimated only 32% of Cubans have internet access – compared to 93% of the population in the UK and 82% in Spain.

Even Menéndez and his colleagues struggle to get online. ‘We used to have internet here in the studio – don’t ask how I can’t tell – until a few weeks ago, when our antenna was stolen,’ says Menéndez. ‘We want our website to have the ability to stream, download and purchase music tracks. We’ve been working at it for a year, but we’re not there yet.’

Despite these potential setbacks, the business’s ambitions are lofty. Band Era is currently seeking a partner to license its records in order to make them available on the global market.

Dealing with dual exchange rates

Since 1994, Cuban citizens have been switching between two local currencies in circulation. The Cuban peso (CUP) – the original ‘national’ currency – is currently worth around $0.04.

The second currency, the convertible peso (CUC), was introduced for tourists, and to phase out the use of American dollars. Its value is pegged to the US dollar, meaning one CUC is worth $1 and about 27 CUP. For Cubans, food and other essential items are bought using the Cuban peso, while the convertible peso can be used to purchase ‘luxury’ items at so-called ‘dollar stores’. In day-to-day life, the dual currencies cause little more than an arithmetical headache for citizens. For company owners, however, the issue is something very different.

The government insists on using a like-for-like exchange rate when converting between the two currencies. If a business wants to exchange money it’s made from tourists, it will end up with 25 times less than it started with. Many businesses are left shortchanged by unfavourable currency exchanges.

In October 2013, Raúl Castro announced plans to scrap the convertible currency; however little progress appears to have been made.

First appeared in issue 19 Oct/Nov