New entrepreneurs in Cuba get mixed results

PAUL HAVEN - Associated Press
April 9, 2011
In this photo taken April 1, 2011, Giselle de la Noval attends to a client at a pizzeria she and her boyfriend Julio Cesar Hidalgo operate from their home in Havana, Cuba. It has been six months since President Raul Castro opened this tightly-controlled communist country to free-market capitalism. As Cuba's new business class journeys cautiously forth, some, like Hidalgo and Noval, are enjoying the first fruits of success. Others say the terrain has been rockier than anticipated. Some have already closed the door on their entrepreneurial dreams. Former state employee Julio Cesar Hidalgo and his girlfriend Giselle de la Noval opened Baldoquin's Cafeteria on March 8, 2011. (AP Photo/Franklin Reyes)
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In this photo taken April 1, 2011, Giselle de la Noval attends to a client at a pizzeria she and her boyfriend Julio Cesar Hidalgo operate from their home in Havana, Cuba. It has been six months since President Raul Castro opened this tightly-controlled communist country to free-market capitalism. As Cuba's new business class journeys cautiously forth, some, like Hidalgo and Noval, are enjoying the first fruits of success. Others say the terrain has been rockier than anticipated. Some have already closed the door on their entrepreneurial dreams. Former state employee Julio Cesar Hidalgo and his girlfriend Giselle de la Noval opened Baldoquin's Cafeteria on March 8, 2011.

There was no colorful bunting to mark the grand opening, and no way to advertise in the local press. There was not even money to hand out fliers in this decaying Havana neighborhood of potholed streets and crumbling one-story homes.

So when the freshly painted front window of the tiny pizzeria swung open on the most important afternoon in Julio Cesar Hidalgo's life, nobody noticed at first.

Hidalgo and his girlfriend Gisselle de la Noval waited for half an hour, then another, and another. Finally, 92-year-old Estrella Soto shuffled up to the takeout counter and ordered a medium pizza with onion toppings.

"I love it," she declared, and Hidalgo and de la Noval have barely sat down since.

They sold seven more pizzas in the next 15 minutes, and a total of 30 on their March 8 opening day. The following Saturday they had their best afternoon yet, churning out 60 pies from a used gas oven that looks too narrow even for a small family's needs.

It has been six months since President Raul Castro opened this tightly controlled communist country to a smattering of free-market capitalism, in the most significant change to its economy in decades.

By March 8, entrepreneurs had taken out more than 171,000 business licenses, according to state-run media, more than two-thirds of the 250,000 goal for all of 2011.

As Cuba's new business class journeys cautiously forth, some are enjoying the first fruits of success. Others say the terrain has been rockier than anticipated. Some have already closed the door on their entrepreneurial dreams.

The Associated Press began following the fortunes of a group of would-be small business owners in December. Four months later, their experiences seem to reflect the sweep of Cuba's grand experiment, as well as the sometimes cruel vicissitudes of the free market.

There is Javier Acosta, who is struggling to get customers into his upscale Havana restaurant. And Yusdany Simpson, a young single mother making a modest income selling coffee and sandwiches from her front yard, a humble venture that resembles a child's lemonade stand.

Then there is Danilo Perez, a 21-year-old bookkeeper who got a license to sell pirated DVDs, only to give up bitterly after authorities suddenly quadrupled his taxes.

"Cubans are entrepreneurial people and to the extent they are allowed to work and make some money, they will," said Lorenzo Perez, a former IMF economist and member of the Association of the Study of the Cuban Economy, a nonpartisan Washington, D.C.-based think tank.

But he added the new enterprises face stiff challenges in a country where few have business acumen, raw materials are hard to find, tax rates can be exorbitant and myriad government regulations still restrict basic activities.

"All over the world, the percentage of small businesses that succeed is very small, even in the United States," Perez said. "In Cuba, the difficulties are enormous, because the environment is not very conducive yet to business ... but that doesn't mean it can't be done."

Dozens of restaurants have opened, some of them remarkably chic for an island of 11 million people where it can be hard to find such basics as matching tables and chairs, and an explosion of private apartments have been put on the rental market.

Those who have sought out licenses say the process is fast and straightforward. Fears that government inspectors — some looking for kickbacks — would undo the free market drive have not materialized, perhaps because there are not yet enough to check in regularly on the unexpectedly large number of new businesses.

Meanwhile, the government has pushed back indefinitely plans to lay off 500,000 state workers, acknowledging the move was extremely difficult and had to be handled with the utmost delicacy. More details are likely to be announced at a key Communist Party Congress slated to begin April 16.

But it has not all been smooth sailing for the entrepreneurs.

Perez, the DVD seller, threw in the towel two weeks ago. He said when he went to get a license in December, officials told him he needed to pay $2.50 a month to operate a streetside kiosk. But when he went back in March, they told him the rates had gone up to $10.50 a month, with an extra month's taxes in advance.

"There were many people protesting — some even crying — because they didn't have the money to pay," said Perez, who is unemployed and getting help from his parents to make ends meet.

Javier Acosta, the owner of a new restaurant in the Playa neighborhood, said he did not make enough in his first month to even cover the monthly tax of $458, and so had to dip into his savings to pay the government and his employees. The next month Acosta did cover his costs, barely, and he is hoping nervously the trend continues.

"There are days when nobody has come, absolutely nobody," Acosta said. "Sometimes I've had one table, or two, but I know how this works. ... One must go slowly, little by little, and build a reputation through word of mouth."

Simpson, the single mother, has had more success, albeit with far more modest goals. Before she opened her kiosk in Havana's Vedado neighborhood, she was unemployed and dependent on remittances sent from abroad to raise her 2-year-old son. Now, she makes about $25 a month selling coffee, soft drinks and mayonnaise sandwiches for pennies apiece, a little more than the average Cuban monthly salary.

"This isn't going to make me rich, but I make enough to get by," she said.

Back at Hidalgo's pizza parlor, the strains of business ownership were evident. Hidalgo has spent more than $1,000 to get the pizzeria off the ground, much of it a gift from a cousin in the United States.

Now that it is open, he spends hours standing up each day next to the hot oven, and hours more each week lugging sacks of flour and large cans of tomato sauce back on his bicycle. He has been able to find all the ingredients he needs in official shops, a sign, he says, that the government is making good on promises to increase access to raw materials.

Hidalgo said he has had no time to contemplate success because he falls asleep at the end of each long day before his head hits the pillow.

He said his lowest moment came when a housing inspector turned up to fine him because he did not have a permit for carving out the pizzeria at the front of his house.

At first, it looked like he would have to pay the equivalent of $75, but in the end he was told the fine would be forgiven if he got an architect to retroactively draw up plans for the building work — something that will cost him just $4.

Hidalgo said no inspectors have been by to check his books or demand copies of his receipts, a major change from his experience opening another pizzeria with his cousin in the 1990s. Then, inspectors paid them weekly visits, and drove the venture out of business when they discovered the pair were buying ingredients on the black market.

This time around, Hidalgo had planned to take a leave of absence from his $11-a-month job at a state-owned bakery, but he quickly realized his heart was in his new venture and quit outright.

He said there are still slow days, particularly at the end of the month when many people run short of cash, but he reckoned he averages selling 20 pies a day. On a good afternoon, he can easily make more than in an entire month at his old job, though profits are split with de la Noval and Hidalgo's aunt, the owner of the house.

Hidalgo charges from 50 cents for a small cheese pizza to $3 for a family-size pie piled high with toppings, a small fortune on an island where the average salary is just $20 a month.

Some Cuban economists have warned that the fiscal changes might not work in part because islanders won't have enough spending money to support the new ventures. But many Cubans receive money from abroad, and almost everyone makes cash on the side, either stealing items from their government workplace or doing odd jobs.

When asked where his clients get the cash for his pizzas, Hidalgo smiled.

"There are people who live off their salary or pension, but there's always money that comes in in other ways," he said, pulling another pie out of the oven and wiping the sweat from his brow. "If it were only for the salaries, people would be living on the street in loincloths."

Hidalgo and his girlfriend say the business has changed their outlook on the country.

A year ago, both were looking to emigrate: her through a quickie marriage to a Cuban-American, him to live in Atlanta with the cousin who was once his business partner.

"We took a risk. We believed in the country and the changes they are making," said de la Noval. "We are hoping that things are only going to get better."

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Associated Press writers Anne-Marie Garcia and Andrea Rodriguez contributed to this report.