Many people in Cuba are poor. Average purchasing power parity is around $11,500 but there is widespread inequality within Cuba. For example, a typical state employee makes $25 a month. Tourism has the potential to create jobs and raise incomes but there are far fewer tourists in Cuba than there ought to be.
One of the main constraints on developing the tourist sector has been the government: Cuba is a communist dictatorship in a time warp. The big hotels, majority-owned by the state and often managed by companies controlled by the army, charge five-star prices for mediocre service. Showers, wi-fi and lifts, for example, are all unreliable.
Nevertheless, the number of visitors from the United States has jumped since Barack Obama restored diplomatic ties in 2015. However, Cuba still earns less than half as much from tourism as the Dominican Republic, a similar-sized but less famous tropical neighbour.
With better policies, Cuba could attract three times as many tourists by 2030. That would generate $10bn a year in foreign exchange, twice as much as the island earns now from merchandise exports.
Relations with the USA are not fully re-established. American credit cards don’t work in Cuba, and Americans are not technically allowed to visit the island as tourists. (They have to pretend they are going for a family visit or a “people-to-people exchange”.)
Investment in new rooms has been slow. Cuba is cash-strapped, and foreign hotel bosses are reluctant to risk large-scale investment because they are unsure whether Donald Trump will try to tighten the embargo, lift it or do nothing. He is a protectionist, so few Cubans are optimistic about his intentions.
Another hindrance is the ways in which the Cuban government stifles entrepreneurs. Hotel owners are not allowed to import them because imports are a state monopoly. Cubans with spare cash (typically those who receive remittances from relatives in the USA or do business with tourists) are rushing to revamp rooms and rent them out. But no one is allowed to own more than two properties, so ambitious hoteliers register extra ones in the names of relatives. This works only if there is trust.
The currency system is bizarre. One American dollar is worth one convertible peso (CUC), which is worth 24 ordinary pesos (CUP). But in transactions involving the government, the two kinds of peso are often valued equally. Foreign firms pay an employment agency, in CUC, for the services of Cuban staff. Those workers are then paid in CUP at one to one. That is, the agency and the government take 95% of their wages. Fortunately, tourists tip in cash.
The government says it wants to promote small private businesses. The number of Cubans registered as self-employed has jumped from 144,000 in 2009 to 535,000 in 2016.
Cubans doubt that there will be any big reforms before February 2018, when Raúl Castro, who is 86, is expected to hand over power to Miguel Díaz-Canel, his much younger vice-president. Mr Díaz-Canel is said to favour better internet access and a bit more openness. But the kind of economic reform that Cuba needs would hurt a lot of people, both the powerful and ordinary folk.