Private Hospital, School Building Prohibited in Cuba: Precons III
Cuba’s Construction Sector Faces Crisis Under New Pricing System
Table of Contents
- Cuba’s Construction Sector Faces Crisis Under New Pricing System
- Cuba’s Construction Crisis: A Q&A on the Precons III System & Its Impact
HAVANA (AP) — A new construction pricing system in Cuba, known as Precons III, is drawing criticism from private business owners who fear it will stifle development rather than stimulate it. Yulieta Hernández Díaz, who heads the MSME Pillares Construcciones, voiced concerns after analyzing resolutions 153 and 173 issued in May by the Ministry of Finance and Prices (MFP) and the Ministry of Construction.
Key Restrictions Under Precons III
The regulations impose several restrictions, including a maximum 15% profit margin over direct costs, labor rates capped at five times the current rates, and limits on indirect expenses. These include a coefficient of 1.0 (maximum) on the cost of direct labor and 0.3 on equipment use.
Moreover, Precons III mandates that all transactions occur exclusively in Cuban pesos, denying access to foreign currency in an economy where an estimated 60% of inputs are acquired in U.S. dollars or Euros. All costs must also be verifiable and auditable.
Hernández, in an analysis posted on social media, stated that these conditions make it “not feasible for private construction companies to work with the State without assuming losses.”
Currency Market Distortions
Hernández also highlighted the impact of forced banking and the lack of a formal exchange market. Private builders,unable to obtain foreign currency through official channels,are forced to rely on the informal market,where the dollar trades at approximately 370 CUP,considerably higher than the official rate of 120 CUP. This disparity drives up costs in Cuba’s de facto dollarized economy.
Labor Market Challenges
The new model also prevents companies from covering the actual costs of qualified labor, Hernández argued.Many skilled workers have migrated to the informal sector or sought opportunities abroad due to the inability to sustain themselves under outdated salary scales. While some workers in Havana can earn upwards of 150,000 CUP per month, official tables place their salaries at just 3,000 CUP.
Structural contradictions
Hernández emphasized a essential contradiction: the state’s need for construction clashes with policies that hinder the onyl sector with the operational capacity to meet that need.
“Public (state) construction companies have no materials, tools, equipment, means of protection, or human resources. Private construction companies are not feasible with these resolutions to build for the public (state) sector. Who will build hospitals and schools?”
Yulieta Hernández Díaz, CEO of Pillares Construcciones
She also pointed to limitations affecting sectors like tourism and real estate, where Cuban private construction companies are often excluded from hotel projects in favor of foreign firms, even when those firms’ designs may not be suited to the Cuban context.
Hernández also lamented the absence of national competitions that would allow cuban architects and engineers to design projects tailored to the local surroundings.
Proposed Solutions
The businesswoman proposed several concrete measures, including:
- Relaxing cost restrictions.
- Allowing private construction companies to participate in state projects.
- Opening financing channels and credit access.
- Recognizing independent architects and engineers.
She also suggested a model for rehabilitating deteriorated real estate with private investment, where builders would deliver a portion of the project to the state and sell the remainder to cover costs and generate a reasonable profit. These reforms, she argued, would boost investment, optimize resources, and foster more enduring growth without relying heavily on direct state investment.
Hernández believes that Cuba faces a public infrastructure crisis stemming from structural paralysis and a pricing system that does not reflect the country’s economic realities. “Without deep reforms, national infrastructure will continue to be a statistical mirage,” she warned.”Urgent changes are needed to avoid the collapse of the sector.”
Government’s Viewpoint
precons III, slated to take effect in July, has been presented by authorities as a legal update designed to regulate the construction sector, correct distortions, and curb unjustified budget increases in state projects.
While the MFP views it as “a key tool to combat inflation in construction services, promoting a more favorable environment for the development of projects,” critics argue that its actual effect will be to exclude MSMEs and private builders from the public sector, as they will be unable to operate under a system that does not allow them to cover their basic costs.
Cement Price Hike Adds Pressure
Adding to the sector’s woes, the Cuban government announced a substantial increase in wholesale prices for domestically produced cement. while authorities claim the measure is necessary to ensure the industry’s financial sustainability, it comes amid an acute economic crisis, rampant inflation, material shortages, and a growing housing demand.
The cement price increase will affect state companies, private builders, and individuals attempting to build or repair their homes, further escalating costs throughout the construction chain.
Housing Construction Decline
Housing construction figures reflect the depth of Cuba’s economic and social crisis. In 2024, the number of homes built was 5.5 times lower than in 1984 and 15 times lower than in 2006. Even during the critical “special period” of 1992,nearly three times as many houses were built compared to last year,according to economist Pedro Monreal.
Only 1,344 homes were built in the first quarter of 2025, representing just 12.4% of the official plan of 10,795. This data underscores the collapse of the state construction program and the government’s inability to meet one of the population’s most pressing needs.
Tourism vs. Housing
Recent statistics reveal a trend of increased investment in tourism at the expense of key sectors like housing and social infrastructure. This prioritization, despite economic stagnation and widespread deterioration in areas such as public health and food, highlights a growing disconnect between the Cuban government’s priorities and the population’s real needs.
Frequently Asked Questions
what is the Precons III system in Cuba?
Precons III is a new construction price system in Cuba designed to regulate the construction sector, correct distortions, and curb budget increases in state projects. However, it has been criticized for imposing restrictions that hinder the participation of MSMEs and private builders in public projects.
How does Precons III affect MSMEs in Cuba?
Precons III imposes economic restrictions that make it arduous for MSMEs to work with the State without incurring losses. Regulations limit profits, require operating exclusively in Cuban pesos, and deny access to foreign currency, which is unfeasible in an economy where most supplies are acquired in dollars or euros.
Why do Cuban msmes face difficulties in operating under the new system?
MSMEs face difficulties due to price restrictions,lack of access to foreign currency,and the rising cost of supplies. Forced banking and the absence of a formal exchange market force private builders to rely on the informal market, driving up costs and making operations unsustainable under the new regulations.
What criticisms has Precons III received, according to private entrepreneurs in Cuba?
Private entrepreneurs criticize Precons III for imposing unsustainable barriers for MSMEs and private builders, limiting their ability to participate in state projects.They denounce the restrictions on salaries, profits, and expenses that make any commercial relationship with the State unfeasible, along with the lack of a formal currency market that increases construction costs.
Okay, here’s the Q&A-style blog post, designed to be comprehensive, engaging, and SEO-friendly, based on the provided article about Cuba’s construction sector crisis and the new Precons III pricing system.
Cuba’s Construction Crisis: A Q&A on the Precons III System & Its Impact
Cuba’s construction sector is facing a significant crisis. Wiht new regulations, rising costs, and economic challenges, both state-owned and private builders are struggling to meet the nation’s needs.This Q&A breaks down the core issues, offering clarity on the Precons III pricing system and its wide-ranging impacts.
Q: What is the Precons III system in Cuba?
A: Precons III is a new construction pricing system introduced by the Cuban government. Officially, it’s presented as a method to regulate the construction sector, correct financial ‘distortions,’ and curb excessive budget increases in state projects. However, it’s being heavily criticized by private construction companies.
Q: What problems does Precons III aim to solve?
A: According to the Ministry of Finance and prices, Precons III is intended to address issues like:
Inflation Control: The system is meant to keep construction costs in check.
Regulation: It seeks to provide order and clarity to the construction sector, standardizing processes.
Budget Control: The government wants to ensure that state construction projects are implemented efficiently and at a reasonable cost.
Q: What are the main restrictions imposed by Precons III?
A: Precons III introduces several restrictions, including:
Profit Margin Caps: A maximum profit margin of onyl 15% over direct costs is allowed.
Strict Labor Rate Limits: Labor rates are capped at five times the current official rates, even though skilled labor frequently enough demands much higher wages.
Indirect Expense Limitations: Coefficients are placed on indirect expenses,such as a maximum of 1.0 for direct labor costs and 0.3 for equipment use.
Currency Restrictions: All transactions must be conducted exclusively in Cuban pesos (CUP), severely limiting access to the foreign currency (like USD or Euros) that is needed to purchase materials and equipment.
Auditing requirements: all costs need to be verifiable and auditable.
Q: What are the biggest concerns about Precons III for private construction companies (MSMEs) in Cuba?
A: the primary concern among private businesses is the feasibility of operations. The restrictions are seen as making it nearly unfeasible to operate profitably, or even break even, when taking on state-funded projects. The combination of profit limitations, currency restrictions, and the reliance on the informal market for essential supplies creates significant financial burdens.
Q: How does the lack of access to foreign currency impact construction companies?
A: In Cuba’s dollarized economy, around 60% of construction inputs must be acquired in foreign currency (USD or Euros). Precons III mandates payments in Cuban pesos but denies access to official foreign exchange channels. This forces companies to buy foreign currency on the informal market, where the exchange rate is drastically higher than the official rate. This disparity dramatically inflates costs.
Q: What are the challenges related to the labor market under Precons III?
A: The system makes it difficult to pay skilled workers a competitive wage. The outdated official salary scales are insufficient, leading many qualified professionals to seek work in the informal sector or abroad. this skill drain could seriously hinder the ability to complete construction projects.
Q: Why is housing construction declining in Cuba?
A: Several factors contribute to the decline in housing construction:
Economic Crisis: Cuba faces an acute economic crisis with high inflation, material shortages, and currency devaluation.
Funding Constraints: The new pricing system may be discouraging private sector participation, hindering the ability of the state to fund or commission projects.
Shifting Priorities: There’s a trend of increased investment in tourism at the expense of essential sectors, like housing.
Q: What are the consequences of the decline in housing construction?
A: The consequences are severe and widespread:
Meeting Basic Needs: The government is failing to meet the most pressing needs of its population.
Social Impact: A decline in housing can exacerbate social issues and discontent.
Economic Stagnation: The lack of housing can make attract workers or businesses and impede economic growth.
Q: How does the rising price of cement contribute to the problems in the construction sector?
A: The Cuban government recently increased wholesale prices for domestically produced cement. This price hike, combined with the economic constraints of Precons III, further increases costs for everyone involved: state companies, private builders, and individuals building or repairing homes.
Q: What solutions do private construction entrepreneurs propose to alleviate the crisis?
A: Yulieta Hernández Díaz, CEO of Pillares Construcciones, and other business owners have proposed solutions such as:
Relaxing Cost Restrictions: Allowing for more realistic profit margins and expense calculations.
Inclusion in State Projects: Allowing private companies to participate in public works.
Improved Financing: Opening up access to credit and financing channels.
Recognition of Professionals: Recognizing and working with autonomous architects and engineers.
* Rehabilitation Model: A suggested model, involving private investments, in wich construction companies would deliver a portion of the project to the State and sell private assets to recoup costs and gain profits.
Q: Why are state-owned construction companies unable to fulfill the country’s construction needs?
A: As cited by Yulieta Hernandez Díaz in the original article:
“Public (state) construction companies have no materials, tools, equipment, means of protection, or human resources. Private construction companies are not feasible with these resolutions to build for the public (state) sector. Who will build hospitals and schools?”
Q: What is the government’s viewpoint of the construction crisis?
A: The government views Precons III as a necessary step to regulate the sector and control costs. They also claim that this will improve the situation for all stakeholders and will not impact the private sector.
Q: What is the long-term outlook for Cuba’s construction sector, according to Yulieta Hernández Díaz?
A: According to Hernández, without “deep reforms,” national infrastructure will continue to be a ‘statistical mirage’.She believes that ”urgent changes are needed to avoid the collapse of the sector.”
Q: What is the broader impact of the construction crisis on Cuba?
A: the crisis in the construction sector is emblematic of the larger economic challenges facing cuba. It affects the country’s ability to develop essential infrastructure,meet the needs of its population,and perhaps attract long-term investment. Prioritizing tourism over housing and social programs suggests a disconnect between the government’s priorities and the needs of the people, potentially impacting social stability.
By addressing these core questions,this article provides a clear and engaging overview of the critical issues in Cuba’s construction sector.