Analysis: Cuba Remittances and the Shifting Pattern of Cuban Emigration

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President Obama’s Jan. 12, 2017, announcement abolishing the “wet foot, dry foot” policy that had long granted residency to any Cuban who set foot on American soil, ended the hopes of thousands of Cubans already planning emigrate to the United States. Many thousands more will now never make the attempt.

The repeal of this policy marks the end of an era of unrestricted Cuban immigration to the U.S. and begins of an era with substantially reduced numbers of Cubans arriving on U.S. shores.

This new scenario starts just as cash remittances to Cuba reached a record $3.4 billion last year, an increase of 2.7 percent from 2015. Of this amount, 56 percent is estimated to have arrived by formal means, 44 percent by informal means.

The rise in remittances was mainly due to the increase in Cuban migration to the U.S., principally through informal routes (of the approximately 80,000 Cubans who arrived last year, 50,000 came informally, i.e.under the wet-foot, dry-foot policy). And new immigrants tend to send more money home to friends and relatives than those who have been in the U.S. longer.

Another factor boosting remittances was a jump in air traffic to Cuba from U.S. airports, especially after regular commercial flights to the island began in late 2016. Cuban-American passenger counts rose as the cost of round-trip tickets—which had averaged about $450—tumbled by more than half.

The number of Cuban citizens traveling to the United States also rose substantially. Many make several trips a year, working informally for two or three months before returning to the island with the money they’ve saved. Studies conducted by THCG reveal that about 30,000 Cubans with Spanish citizenship travel to the U.S. more than once a year. Most come to work in factories and farms, and in healthcare. Between 20,000 and 40,000 Cubans, blessed with five-year U.S. visas, travel several times a year to the United States.

During the eight years President Obama was in office (2009-16), the State Department granted 188,115 tourist visas to Cuban citizens, in addition to more than 20,000 migrant visas per year. Cuban authorities report that from January 2013 to December 2016, some 671,000 Cubans traveled off the island, making 1,745,000 trips.

The Remittances Impact

Foreign currency remittances sent by Cuban exiles was decriminalized by the Cuban government in 1993, and have gradually gained a preponderant place in the country’s economy. Remittances are now the main support of the dollarized retail sector of the island, and their value exceeds that of the six of most important export commodities and services of the Cuban economy. In 2015 Cuba’s receipt of remittances in cash and merchandise totaled $6.85 billion, while the combined value of exports of nickel, sugar, drugs, tobacco, and fresh and frozen seafood, and of tourism sales, amounted to about $5 billion.

Undoubtedly migration has greatly influenced these figures. In the last 12 years, 644,047 Cubans emigrated to the United States via formal and informal means. These new arrivals boosted remittance growth in recent years; so did the Obama administration’s lifting of all regulations that limited Cuban-American travel and money transfers to the island. Large remittance companies have taken advantage of that by initiating correspondence procedures with Cuban authorities so they can operate in the Cuban market.

The Wet-Foot, Dry-Foot Impact

Analysts now wonder if the repeal of the 1966 Cuban Adjustment Act—informally known as the “wet-foot, dry-foot”policy—will shrink remittances. The slowdown in migration will result in 20,000 to 25,000 Cubans emigrating to the United States annually, based on the minimum number of visas Washington is committed to giving Cubans under a bilateral accord. This is signficantly less than the 70,000 to 80,000 who were arriving annually in recent years. In other words, 183,000 fewer Cubans will emigrate to the U.S. in the next three years than in the previous three.

If we assume the same patterns of sending remittances observed in the last years—$200 dollars average per month for each Cuban that sends remittances to the island—plus the $3,500 each traveler carries on average on their annual trip to Cuba to visit family and friends, the potential loss of income for Cuba would more than $1 billion.

Another way to look at emigration projections is via accumulated numbers of emigres for the period 2005 to 2020. Assuming that President Trump will adopt a policy of zero tolerance towards illegal emigration and will limit legal emigration to the minimum level possible, the accumulated emigration would be about 724,047 Cuban emigres in 2020. If the wet-foot, dry-foot policy had not be rescinded, and if legal emigration were expanded to the maximum level permitted, accumulated emigration in 2020 would have reached about 964,047.

In this secnario, the potential loss of income for Cuba would be about $ 1.4 billion. Even if we base the estimates on the potential shares of the 240,00 people who would theoretically
have sent remittances to Cuba, using 40 percent as the lower end of the range and 70 percent as the higher, the loss in 2020 would range between $566 and $991 millions dollars.

What alternatives could counteract this potential loss of remittances?

All indications suggest that the growth in remittances will decline over the next few years. However, some variables could offset the effect of repealing the wet-foot, dry-foot policy.

The Cuban government could counter the potential decline of remittance growth by liberalizing or opening the economy. Specifically, there are five variables that could stimulate a faster growth of the flow of remittances to the island.

These five variables are: Opening the real estate market to foreigners; reducing restrictions on private auto ownership; allowing investments from Cubans living abroad; passing new laws to permit more small and medium-sized enterprises; and dramatically increasing internet access.

Currently, the areas associated with these five variables are all restricted and their development limited. Liberalizing them would immediately boost remittances and improve the economy. And there would be a multiplier effect, generating hundreds of thousands of new jobs, injecting investment capital into the economy, improving living conditions for hundreds of thousands of Cubans, stimulating foreign investment, and creating a more competitive market—all contributing to a big leap in remittance flows.

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