A new business model being rolled out by Communist-run Cuba as part of wide-ranging economic reforms has performed poorly in its first test - this year's sugar harvest - and revealed shortcomings in the plan, local and foreign experts said this week.

Changes aimed at giving state companies more autonomy proved to be too limited, they said, echoing a common complaint about Cuban President Raul Castro's efforts to remake the island's struggling economy. In pursuit of greater profits and productivity, Cuban ministries are shedding their business activity in favour of state-run holding companies, and in some cases are closing entirely.

The companies keep a percentage of their profits and in theory are freer to make day-to-day decisions, set wages, and hire and fire. The country's emblematic Sugar Ministry was replaced last year by a state-run holding company that spokesperson Lionel Perez said at the time represented the first sector to complete its "economic reorganisation."

The new holding company is composed of 26 subsidiaries, including 13 provincial companies that manage the mills. The sugar company (AZCUBA) promised output would top 1.45 million tonnes this year, a 19 percent increase, but it came in at around 1.4 million tonnes. Plans for the mills to operate at 80 percent of capacity failed to live up to expectations: only 60 percent was achieved. The industry did turn a profit and the cost of producing a tonne of sugar declined, state-run media reported, but that was due mainly to layoffs, not productivity.

The problem, said Richard Feinberg, a non-resident senior fellow of the Washington-based Brookings Institution and author of a recent study on the Cuban economy, is that not enough has changed. "It's early in the restructuring process and some gains were reported, but the new firms still face the same old constraints of weak incentives, distorted prices, severe capital shortages, and infrastructure bottlenecks," he told Reuters.

The chronic problems that led to a steady decline of the sugar industry from 8 million tonnes in 1990 to 1.2 million in 2011 persisted this year. There was more cane as yields increased from 33 tonnes per hectare (2.47 acres) to 40.3 tonnes, still well below international norms.

source: brecorder

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