Wednesday, September 13, 2017

After the News Cycle: The Long Term Economic Effects of Hurricane Irma on Cuba

(Damaged pool chairs are seen in a hotel a day after the passage of Hurricane Irma in Varadero, Cuba September 10, 2017. Picture taken September 10, 2017. REUTERS/Alexandre Meneghini)

Hurricane Irma has come and gone.  And with its passing has gone sustained interest in the aftermath of its occurrence.  But for the communities directly affected, the economic consequences of the hurricane will be felt for a long time.  Some of these effects will be perversely positive--jobs and business opportunities for the hurricane recovery sector.  Some will augment anti-social tendencies among individuals--the scams and frauds that attend tragedies will likely stretch from Texas to Florida. Yet some parts of the affected communities may take a very longtime to recover--or not recover at all.  The aftermath of hurricane Katrina provides a template--the core affected areas remained the same for some social sectors,but for others the storm was radically transformative.  But since we tend to understand phenomena in the aggregate,a net positive recovery generally tends to mask the sometimes large negative effects among sub-portions of this aggregate.  

But what happens when these fairly well known effects consumes an entire nation rather than a smaller region within a much larger national state? The answer can begin to be understood by examining the after effects of Hurricane Irma on Cuba.  It is true enough that Cuba tends to be well prepared for the relatively frequent occurrence. But the ability to mitigate anticipated damage does not avoid its effects,both singular and (with the frequency of storms increasing in the recent past) cumulatively. 

Recent reporting by Marc Frank and Sarah Marsh ("Hurricane Irma batters already struggling Cuban economy," Reuters (12 Sept. 2017)) suggest that the effects of Irma on Cuba will be substantial in the short and medium term.  Drawing on analysis of Pavel Vidal, now a professor at Universidad Javeriana Cali in Colombia, and Omar Everleny, both formerly with the University of Havana, the report suggests that there will be areas of positive and negative effect from the hurricane (for example, while the storm reversed some of the effects of a prolonged drought, it also destroyed crops). The bigger question revolves around the effect of the storm on the political calculations of the state and on the forward pace of economic reform.  Those questions remain unanswered for the most part.  Also interesting will be the effect of the storms in the short term on the relationship between the Island and the Cuban diaspora in Miami.  Lastly,the effects on U.S.-Cuba normalizaiton negotiating positions remains a mystery.

The report follows.  Further reporting, especially with respect to the economic effects on Cuba's key economic sectors can be found at Marc Frank, "Irma lays waste to Cuba’s dreams of prosperity," Financial Times 14 Sept. 2017 ("“Irma will have a big impact on the economy this year and this could make difficult the growth the government hoped for,” said Omar Everleny, a Cuban economist. Mr Everleny, who was fired last year from Havana University for strenuously advocating reform, said the state should get off the backs of farmers, open up the private sector further and start signing long stalled foreign investment projects." Ibid.).

Reuters (12 Sept. 2017)

HAVANA, Sept 12 (Reuters) - Cuba's cash-strapped economy has suffered this year from a decline in aid from its chief ally Venezuela, lower exports and a brake on market reforms. And then came Hurricane Irma.

The strongest storm to strike Cuba in more than 80 years ravaged infrastructure throughout the country, collapsing the power grid and damaging crops after it slammed ashore late Friday. In the keys along the northern coast, it battered beach resorts popular with foreign tourists and knocked out the airport they use.

"The probability that the economy stays in recession are now much greater," said former Cuban central bank economist Pavel Vidal, now a professor at Universidad Javeriana Cali in Colombia, of chances for a second straight full-year contraction in 2017.

"With the impact on installations in the keys and on the country's general infrastructure, tourism will lose dynamism."

* * *

A 23 percent rise in foreign visitors to Cuba helped the economy return to growth in the first half of 2017, the government said, after it tipped into recession in 2016.

The outlook has darkened in the second half of the year.

First U.S. President Donald Trump said he was tightening restrictions on Americans traveling to Cuba. Then the Cuban government said last month it would not hand out new licenses for much of the private sector until it had "perfected" its functioning.

Then Irma arrived, grazing along the island's coast from east to west. Packing sustained winds of more than 157 miles (253 km) per hour

The keys - whose pristine beaches are home to around a quarter of Cuba's four- and five-star hotels - are now littered with felled trees and lamp posts, animal corpses and shredded furniture, according to state-run media.

Irma destroyed much of the area's single-runway airport, which receives more than 485,000 passengers a year.

The region's biggest beach resort Varadero was left mostly intact.

President Raul Castro vowed on Monday that tourism infrastructure would be fixed before the start of the winter high season at year-end.

* * *

Still, hotels in the keys face revenue loss for the months that tour package operators sent their clients elsewhere and it could prove tricky to rebuild the area's reputation.


Damage in the agricultural sector will both weigh on state finances as well as tighten food supply in the short term. Fuller reservoirs due to Irma's torrential rains could in the long run prove advantageous after a severe drought.

Some 300,000 hectares (740,000 acres) of sugarcane - an area roughly twice the size of Houston - were affected to different degrees, the state sugar monopoly said.

Forty percent of mills were damaged in the industry that remains one of Cuba's most important in terms of employment and export earnings.

Even though Cuba had rushed to harvest what it could before Irma hit, other crops such as platano and rice had also reportedly been affected, said Laura Melo, the Cuba representative for the United Nations' World Food Programme.

"Some of these areas were already seriously affected by drought so this is an accumulation of shocks to Cuba's capacity to produce food, both in terms of income and availability of food," said Melo.

Looking ahead, Cuba will need to repair tens of thousands of houses as well as roads, bridges, public buildings and the power grid. Irma also damaged a thermoelectric plant that provides a fifth of the country's electricity.

"If this year, the budget deficit was estimated at around 12 percent," said Cuban economist Omar Everleny. "That will undoubtedly have increased with these enormous losses."

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