Lack of customers dooms many Cuban businesses

Posted on Friday, 12.27.13



Lack of customers dooms many Cuban businesses

BY ANDREA RODRIGUEZ AND ANNE-MARIE GARCIA

THE ASSOCIATED PRESS



HAVANA -- The dented metal pizza trays are packed away, so too the old

blender that never worked when it was needed. Gone is the sweet smell of

rising dough that infused Julio Cesar Hidalgo's Havana apartment when he

and his girlfriend were in business for themselves, churning out cheesy

pies for hungry costumers.



Two years on the front lines of Cuba's experiment with limited free

market capitalism has left Hidalgo broke, out of work and facing a

possible crushing fine. But the 33-year-old known for his wide smile and

sunny disposition says the biggest loss is harder to define.



"I feel frustrated and let down," Hidalgo said, slumped in a rocking

chair one recent December afternoon, shrugging his shoulders as he

described the pizzeria's collapse. "The business didn't turn out as I

had hoped."



The Associated Press recently checked in with nine small business owners

whose fortunes it first reported on in 2011 as they set up shop amid the

excitement of President Raul Castro's surprising embrace of some free

enterprise.



Among them were restaurant and cafeteria owners, a seamstress and

taekwondo instructor, a vendor of bootleg DVDs and a woman renting her

rooms out to well-heeled tourists.



Their fates tell a story of divided fortunes.



Of the six ventures that relied on revenue from cash-strapped islanders,

four are now out of business, their owners in more dire financial

straits than when they started. But the three enterprises that cater to

well-heeled foreigners, and to the minority of well-paid Cubans who work

for foreign businesses, are still going and in some cases thriving.



While the sample size is small, the numbers point to a basic problem

that economists who follow Cuba have noted from the start: There simply

isn't enough money to support a thriving private sector on an island

where salaries average $20 a month.



"Clearly, there is a macroeconomic environment that does not favor the

private sector or the expansion of demand that the private sector

requires," said Pavel Vidal, a former Cuban Central Bank economist.



Vidal has long called on Communist authorities to adopt a huge stimulus

package or more aggressively seek capital from foreign investors. Now a

professor at Colombia's Javeriana University, he says one has only to

look at the trends since 2011 to see the private sector economy is

nearly tapped out. After a surge of enthusiasm, the number of islanders

working for themselves has stalled for the past two years at about

444,000 — or 9 percent of the workforce.



Even in developed countries where entrepreneurs have access to capital,

loans and a wide pool of paying customers, startups are risky ventures.

According to the U.S. Small Business Administration, about half of all

new establishments in America close within five years, and two-thirds

are gone within a decade. The failure rate of Cuban entrepreneurs

followed by AP was 44 percent in less than two years, and worse if one

considers only those that relied primarily on Cuban customers.



"There's not enough money circulating in the economy in the hands of

everyday people," said Ted Henken, a professor of Latin American studies

at Baruch College in New York and author of an upcoming book on private

enterprise in Cuba. "You're all competing for the same customers, most

of whom are poor and have very limited disposable income."



Economists have criticized the Cuban government for a series of measures

to crack down on what it sees as illegal activities — including banning

private movie cinemas, taxing the import of hard-to-get products in

travelers' luggage, and banning the sale of imported clothing. But on

Saturday, Castro came down firmly in favor of increased regulation,

sternly warning entrepreneurs that "those pressuring us to move faster

are moving us toward failure."



Henken and Vidal said Cuba must find a way to raise state salaries,

expand state-funded microcredits and create a functional wholesale

market to service the new businesses. They also noted that for a

relatively well-educated society like Cuba's, there are remarkably few

white collar jobs on the list of nearly 200 activities that have been

legalized.



Still, not every entrepreneur is struggling.



High-end bars and glamorous new restaurants have become common in

Havana, with shiny state tour buses disgorging photo-snapping travelers

to sample lobster tail and filet mignon at upward of $20 a plate.

Private rooms and homes that rent to foreigners can go for $25-$100 a

night, less than most tourist hotels. Cubans with the means, and the

business sense, to tap into the gravy train can do very well.



Chef-owner Javier Acosta sank more than $30,000 into Parthenon, a

private restaurant catering to tourists and diplomats. He struggled at

first, telling the AP back in 2011 that there were nights when nobody

came in and he and his four waiters just sat around.



But the restaurant slowly gained a reputation, in part because Acosta

makes a potent Cuban mojito and offers a special suckling pig that can

feed up to five people for $50.



These days, Acosta is expanding. He recently added tables in a new room

decked out with mosaic tiles and faux Greek pillars, and plans to build

a roof deck. He even has started advertising, paying $300 a year to have

his establishment included in a tourist magazine.



"I haven't yet managed to recover my initial investment and the other

money we've put into the place," the 40-year-old said. "But in two or

three more years maybe I can."



Even more humble operations can do well, as long as they have some

access to foreign money. One woman who rents an apartment to foreigners

for $25 a night in the upscale Vedado neighborhood says her business

provides a stable income that supports her and allows her to help her

son and granddaughter.



Two women who sell $1.25 box lunches to Cubans and foreigners in a

building in Old Havana with many international firms and consular

offices have managed to stay afloat despite a sharp drop in customers

following the departure of several companies, and what they say has been

a steady rise in prices of key ingredients like black beans, rice,

cooking oil and pork.



"This has become difficult," said Odalis Lozano, 48. "But we're still

here, because we can always make some money."



For those without access to that foreign cash line, the results have

been grim. Besides, the failed pizzeria, a DVD salesman, seamstress and

street-side cafe owner who allowed the AP to tell their stories shut

down after less than a year in business, citing high monthly taxes, a

lack of customers and limited resources and business sense.



The only two operations that rely on everyday Cubans for revenue which

remain in business are gymnasiums. One is run by Maria Regla Zaldivar,

who in 2011 was giving taekwondo classes to children in Nuevo Vedado and

dreamed of converting a ruined dry cleaning factory into a proper

gymnasium. The factory remains a crumbling shell, but Zaldivar said her

business continues. She declined to grant a formal interview, but said

in a brief phone call that she had rented a small space near her

apartment and continued to give classes.



The other success story belongs to Neysi Hernandez, the mother of Julio

Cesar Hidalgo's girlfriend. Hernandez opened a simple gymnasium for

women in the courtyard and garage of her home in Havana's La Lisa

neighborhood, charging the equivalent of $5 a month for membership. Two

years later, she has 25 paying clients and ekes out a small profit.



Hernandez says her customers are loyal, despite the fact the gymnasium

lacks basic amenities like a shower room, lockers and towels. Unable to

afford imported equipment, Hernandez uses sand-filled plastic water

bottles for weights. Her three exercise bicycles and mechanical

treadmill are creaky and aging.



"My gymnasium is modest, but they like it," Hernandez said, adding she

has dreams of one day installing a small massage room and sauna. "A

little bit at a time."



For the pizza man Hidalgo, however, the experience with private

enterprise has been a bitter one. He says he lost between $800 and

$1,000 on the pizzeria. He is appealing a $520 fine levied by tax

authorities who accuse him of understating his profits, even though the

business failed.



He has had bouts with illness, and has been unemployed since the

pizzeria closed in April.



Hidalgo says he has not given up on the idea of opening a new business

one day. But he is also setting his sights beyond Cuba's shores.



"What I wanted was to work and make money so that I could live a normal

life, have money to buy myself shoes, eat, and go out with my

girlfriend," Hidalgo said, punctuating each modest desire with a flip of

his hand and a rueful smile. "I hope that kind of work materializes in

my country, but if the opportunity presents itself to work somewhere

else, I won't turn it down."



Recently, Hidalgo's girlfriend, Gisselle de la Noval, 25, took out a

license to operate a nail salon in the space once occupied by the

pizzeria. The salon has been open a matter of weeks and it is too soon

to know if it will do well. But she says she is content, charging about

40 cents for a manicure and slightly more for a pedicure.



"I don't miss the pizzeria, but I am sad it wasn't a success," she says

with a shrug. "But I am young, so whatever. Now I'm dedicated to this."



Associated Press writers Michael Weissenstein in Havana and Paul Haven

in Mexico City contributed to this report.



Source: HAVANA: Lack of customers dooms many Cuban businesses - Business

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