The inflow of hard currency through sectors such as the tourism and remittances form a significant part of revenues earned for the Cuban economy. Many developing nations with smaller economies depend on this type of revenue by virtue of their size. The impact of remittances for developing economies is of great importance not only for the families that receive the money, but also as a contributor to total Gross Domestic Product (GDP).
How important are the remittances to the economy? Local economies of developing nations are often not diverse enough to provide all the opportunities people want and need. The American embargo has also had a long term and devastating effect on both the economy and the individual lives of its citizens.
Remittances are sent by families living in the United States or other countries overseas. This money is sent to Cuba through both official and non-official routes. Official channels for sending money abroad include such companies as Western Union in the U.S., or Transcard in Canada.
It is difficult to determine the exact amount of remittances because of the fact that some money is sent through officials channels and an unknown amount through informal channels. Estimated figures are generally based on the annual amounts transferred by Western Union which sends about $400 million a year.
Cuban economists estimate that the total figure of remittances range from $500 million to $1.2 billion annually. The Comision Economica para American Latina estimates the number at $800 million. Source Whatever the number, officially or unofficially, remittances are a huge contributor to GDP and the lives of people.
Remittances are a significant contribution to Gross Domestic Product (GDP) and balance of payments. If the figure of $800 million of remittances sent to Cuba is correct, remittances could be estimated at 4.5 to 5 percent of Cuba’s GDP. In other developing nations, remittances account for as much as 50% of total GDP. An increase in GDP helps to raise the standard of living, reducing relative poverty, and also the funding of small businesses.
In 1993, remittances became legal after a period of limitations by the Cuban and American governments. Restrictions resulting from the embargo were also a contributing factor. Recently, President Barack Obama removed restrictions on the amounts of remittances sent by people living in the United States.
Ironically some of the staunchest supporters (some Cuban Americans in Miami) of the embargo against Cuba also send financial assistance to their families in Cuba. The decades old embargo was a policy designed to ruin the Cuban economy. What we have here is the contradiction. On the one hand these people support the embargo, but on the other hand the same people are also propping up the economy by sending money into the economy. This contraction, although puzzling, is a good thing.
Remittances are helping provide startup capital for private businesses. With the income from remittances, private enterprise startups are funded, jobs are created. The Cuban government recently legalized small and medium-sized which has generated much needed economic activity and growth at both micro and macro levels.
Families abroad are helping drive this new wave of entrepreneurship in Cuba. These entrepreneurs or cuenta propistas as they are known, open up small businesses such as private restaurants, jewelry, food stores, specialty chocolate or clothing shops. In turn, these small private enterprises are creating jobs in Cuba. Private entrepreneurship has rapidly become an important part of the Cuban economy.
But, as with anything, there is always a problem. The ones who benefit most are the Cubans with family living or working abroad. For Cubans without the advantage of having family members living abroad, they do not have access to extra cash. The problem with this model is that it has the potential create a division in society, a group of “haves” and “have nots.”
So significant are the remittances to Cuba, that U.S. companies in attendance at the recently held IMTC 2016 conference (remittances and financial services ) in Havana showed an interest in working with Fincimex, the Cuban financial institution which handles money transfers.