Cuba's economy has fluctuated in the last 20 years due to international relations, GDP growth, and natural disasters. Following the dissolution of the Soviet Union in 1991, Cuba's GDP declined sharply as it lost its largest trading partner. Sugar production was also impacted by hurricanes in the early 1990s. While nickel and oil production have provided some economic gains, sugar and oil still dominate Cuba's economy. Of the three major exports (sugar, oil, nickel), nickel may offer the lowest risk investment opportunity due to steady global demand, though state ownership policies still concern investors. Overall, Cuba's economy remains vulnerable as a single-commodity exporter and further diversification is needed for long-term stability.

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Cuba’s Economy in the Last 20 Years (Question 12)
Colin Liu, Professor John Mark, Principles of Macroeconomics
The purpose of this essay is to show how Cuba’s economy have fluctuated because of
international relations, GDP growth, population size, agricultural production/supply, and natural
disasters during and after its 54 years of being under an United States’ embargo. There will also
be an assessment of Cuba’s largest exports in direct correlation with where investment should
go.
HistoricalBackground
The Cuban economy has stagnated ever since an embargo the United States placed on the
nation in 1959, when Fidel Castro gained control over the island after catalyzing the Cuban
Revolution (1953-1959). As a result of the revolution, Cuban imports halted, and Cuba adapted
to its newfound autarkic economy. By 1961, Castro implemented many socialist ideals and by
the late 1960s, all Cuban children were receiving some education (compared with less than half
before 1959), unemployment and corruption were reduced, and great improvements were made
in hygiene and sanitation.
The U.S. embargo progressively worsened the nation though, as in 1963, all U.S. exports were
exempted from Cuba. In addition, Cuba’s sugar exports were no longer bought by the U.S. and
the same went for oil. However, Castro found a business partner in the Soviets and the two
nations began trades, a desperate move that ultimately saved the little nation. Even with the fall
of the Soviets in 1991, the new Russian government continued importing Cuban sugar. By the
1990s, all of Cuban properties were nationalized and this included oil refineries, sugar
plantations, and even some properties on U.S. soil. Thus, with continued trade and labor
growth, Cuba was able to lift itself out of its autarkic economy and initiated heavier involvement
in international trade, at one point, exporting about 40% of the world’s sugar.
In 2014, the Cuban embargo was finally lifted by the United States, as President Barack Obama
had hoped to mend relations. With the embargo lifted, the economy has slowly reintegrated
itself into the U.S. market. For this essay, I will detail the integral exports of the Cuban economy
and how they have changed during and after the time of its embargo. The three major Cuban
products are: Raw Sugar, Refined Petroleum, and Raw Nickel.

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Raw Sugar
In 1990, Cuba turned into the model for industrial agriculture as most of the land was converted
into sugarcane plantations. They would export most of the sugar to the Soviet Union in
exchange for food and oil. In fact, much of what was grown in Cuba was exported while food
supplies such as wheat, fruit, and vegetables were imported from the Soviets. However, when
the USSR collapsed in 1991, the market for Cuban sugar took a big hit as about 65% of its
sugar exports were to the USSR. Thus, GPD growth halted and unemployment rose greatly.
As shown in the above figure, in 1991, Cuba took a sharp decline in annual GDP growth rate
because they failed to meet their necessary exports. Yet, the minimum of the figure seems to be
around the year 1993. Unfortunately for Cuba, just as they had negotiated sugar cane export for
UN aid, hurricanes and storms wiped out their plantations and as a result, the economy went
into a recession. “The sugar export crop, which accounted for 65% of all foreign exchange
earnings in 1992, was down to 25% in 1993, the lowest level in 30 years. Other export crops
(e.g., citrus and tobacco) and domestic staples (e.g., bananas and cassava) were also ruined”
(Cameron).
In late 1993, Castro revised his economic strategy through a macroeconomic adjustment in
which he reduced the money supply by decreasing subsidies to enterprises and used the
decline in state expenditure to his advantage by decreasing aggregate market prices. Although
the GDP deflator rose by 12 percent, the increase in government dissaving led to a decline in
monetary overhang. Combined with more employment opportunities in the private sector, the
rise in unemployment was limited to an increase of only 1.2 percent, which although was very
high, it was a sacrifice that Castro was willing to make for the survival of Cuba.
As China and Russia transitioned to more industrialized countries, their populations rose and
naturally, they requested higher imports. Thus, with a growing population rate in Cuba as well,
sugar was produced much more efficiently. Overall, both the GDP and GDP per capita rates
increased through the 2000s because of higher exports. There was an abundance of labor with

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an increase in sugarcane plantations as well. In 2007, during the global economic crisis, Cuba
actually benefited because of its economy’s reliance on sugar cane, a normal good. As a result,
Cuba began producing an even larger supply of sugar to satisfy the rising demand, which in turn
required more labor, ultimately lowering the unemployment rate and increasing the GDP per
capita during a time of great economic crisis in other parts of the world.
Refined Petroleum
Cuba to this day, continues to rely on imports in order to satisfy the country’s demand for refined
oil. In the past, they satisfied their need for oil through trading with the Soviet Union, but the
USSR’s disbandment left Cuba with an oil crisis. Castro partially solved the issue through his
nationalization of oil refineries, but their domestic production still left a glaring gap in terms of
the country’s demand. As suggested in the figure for annual GDP growth, Cuba’s economy
shrank by almost 35 percent in 1991 because of their failure to meet the oil demand, which
ultimately hindered sugar production because of its heavy reliance on tractors and other
harvesting machines that ran on oil.
During this time, Cuba was forced to change its societal and economic ideals. The major
changes were the introduction of sustainable agriculture, decreased use of vehicles, and an all-
around different approach towards their lifestyle because of Cuba’s immediate drop from 60 to
10 percent in oil imports. Unsurprisingly, there were also massive losses in Cuban agricultural
productivity and exports because of the oil reliant machines. Through a period of 5 years,
Cubans adapted to a more efficient use of their domestic oil supply and slowly agricultural
productivity increased to a stable level, though there were still high levels of inflation and
unemployment.
This changed in the late 2000s when Cuba had discovered significant offshore reserves in the
Gulf of Mexico. In 2009, Cuba consumed 169,000 barrels of oil per day. With domestic
production from existing oil wells at around 50,000 bpd (barrels per day), Cuba still relied on
120,000 barrels per day in imports, a number that could be significantly reduced by recovering
the newlyfound oil. “Cuba’s oil zone is divided into 59 blocks and agreements for exploratory

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wells have already been reached with state oil companies and conglomerates from China,
Russia, Angola, Vietnam, Venezuela, Malaysia, Norway, Canada and India.” With the high
demand, Cuba was essentially able to sell off each zone to the highest bidder.
However, even as crude oil demand were at some of its highest levels in the late 2000s,
investors became less interested in buying from the specific zones. Investors blamed Cuba’s
previous mishaps in recovering crude oil as one of the biggest turnoffs. Another reason that was
keeping investors away was the fact that Cuba had made it clear that while there was the
potential for joint ventures in exploration and production, it would have been a state-run game
for the most part: any major deal would have majority Cuban ownership.
Therefore, GDP growth stagnated as interest ceased, for initial agreements to buy those zones
stalled. Buyers were well aware in the Cuban government’s plan to snaggle their profit and as a
result of the sudden break offs in several deals, Cuba was left with a staggering amount of
unrecovered crude oil with less than competent labor and technology to increase the
productivity and efficiency, explaining why the figure above shows areas of stagnant productivity
in the late 2000s.
Raw Nickel
Something interestingly less spoken about is the production of nickel in Cuba. Whereas raw
sugar and refined petroleum accounted for $392M and $314M respectively, another major
product is nickel, which contributed to just under $110M in 2014.
Once again, many of the Asian tigers are involved in the import and demand for raw Nickel,
which comes as to no surprise for developing countries like China and Malaysia who holds large
populations. “Nickel-containing materials play a major role in our everyday lives – food
preparation equipment, mobile phones, medical equipment, transport, buildings, power
generation, the list is almost endless. They are selected because compared with other
materials, they offer better corrosion resistance, better toughness, better strength at high and
low temperatures, and a range of special magnetic and electronic properties” (Nickel Institute).

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Cuban mineral production is largely state-controlled, although the government has made steps
to amend the mineral laws. Cuba is an important nickel producer, ranking sixth in the world in
terms of nickel. It has been one of Cuba’s most consistent exports and one could argue that it
initiated Cuba’s initial growth.
Although there was a decline in Cuban industrial production in the late 2000s, it also accounted
for the oil zone fiasco, when in reality, Cuban nickel production was relatively consistent. In
2006, there was a decline in industrial production of epic proportions, which can be seen in the
above figure. This can be explained through outside pacts that countries had made with each
other, specifically China, who had signed a deal to exclusively import Russian nickel, which
ultimately drove down the demand for Cuban nickel, for Russia offered as a cheaper alternative.
Cuba was essentially losing more money in the short run than it could sustain, so nickel
production came to a halt.
This changed when the embargo was lifted as one can notice that U.S. demand led to a
staggering 17.8 percent increase in productivity, which contributed to the small increase in
annual GDP growth and started to decrease the unemployment level. As a result, GDP per
capita has risen since 2014 and inflation levels have decreased slightly.
Where Should You Invest, If At All?
Let’s begin with raw sugar. This is definitely the most intriguing, yet most difficult investment to
predict. The productivity of sugar varies from year to year depending on the climate and
availability of labor. Currently, Cuba has been relatively open to foreign investment, though
countries such as the Thailand and Brazil act as cheaper alternatives in raw sugar exporters,
and countries have thus shied away from buying Cuban sugar. Cuba produced just 1.2 million
tonnes of raw sugar three seasons ago, compared with 8 million tonnes in the early 1990s,
making investing look a bit risky. Combined with the fact that Cuba consumes a large portion of
the sugar it harvests, this investment would take a lot of effort and patience to earn the easy

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dividends that Brazil and Thailand offers. Investors would be essentially playing the long run
game.
Refined petroleum is in the same boat as raw sugar. Cuba has a history of being unable to
safely and efficiently recover crude oil. The risk of an oil spill and economical/moral
responsibilities such as the one BP endured after their spill in the Gulf of Mexico all jump out to
say no to this investment. That combined with the current lack of U.S. interest paints a story of
just how much risk an investor will have to take in hoping that Cuba can retrieve the crude oil
from deep-sea drilling. Recently, oil prices have also significantly reduced going down to about
$30 per barrel, so profit will be significantly lower than in previous years when a barrel of oil had
peaked at around $100. The biggest issue though, is still the fact that the Castro government
continues to want a stake in ownership should an investor come along. This has already
swayed China and Russia the other way, for the Cuban government is simply asking for too
much. The Cubans want to take the least of responsibilities should an accident occur, but they
want to reap the benefits as well. Again, this investment would be one that is anticipating and
predicting the long-run game, as in the short-run, risk outweigh reward.
The one investment I do give a nod towards is raw nickel. Nickel is still regarded as a normal
good without any close or cheap substitutes. Should Cuba offer the right price, I believe that
investors will bite as global giants such as China (even with Russia’s pact) and the United
States all still demand nickel. Since there is still some Russian and American tension, investors
could take advantage in selling nickel exclusively to the Americans, as I believe the Americans
would buy at a higher price from one of its own producers rather than Russia, simply because of
pride. I believe that raw nickel is the best and safest bet out of these three products.
Conclusion
The biggest takeaway from my research is that Cuba is still regarded as a developing nation
and it will take some time before they can compete with industrialized nations again, if ever. The
U.S. lifting the trade embargo was a giant step towards changing the small country. Although
economic growth (GDP and unemployment rate) still relies on the interdependence of raw sugar
and oil, Cuba is finding ways in expanding its productivity in nickel and oil refining. Ultimately, a
one-product economy is traditionally risky for the long-term health of an economy. Inevitably, the
product will become less important on a global scale and that will begin to weaken the GDP.
Look no further than the oil-based economies of Venezuela and Russia that have been
destabilized due to oil prices. It is definitely in the right of interest for Cuba to expand its
production frontiers, but there is still a long way for Cuba to go if they want to have a sustainable
economy.

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Work Cited
http://www.tradingeconomics.com/cuba/
http://www.britannica.com/place/Cuba-Year-In-Review-1993
http://atlas.media.mit.edu/en/profile/country/cuba/
http://www.economist.com/node/2076774
https://www.nickelinstitute.org/NickelUseInSociety/AboutNickel/WhereWhyNickelIsUsed.aspx
http://www.mining.com/over-240-mining-and-energy-projects-waiting-for-investors-in-cuba/