03/17/97 ENTREPRENEURS: BIG HOPES, BIG PAINS (int'l edition)

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ENTREPRENEURS: BIG HOPES, BIG PAINS (int'l edition)
Small businesses battle tight credit, high taxes, and restrictions on employment
Tucked amongst the cement and stucco houses in a residential section of Havana, a bamboo fence and gate are the only signs of the nascent furniture factory owned by Orlando Mena. Inside, a converted house serves as a showroom and storage area for bamboo rocking chairs, headboards, bed frames, tables, magazine racks, and even clocks. ''I am the owner, the boss, and the father,'' asserts the 56-year-old Mena. He and his son, Akim, set up the business, called Cubambu, in 1991.
The Menas represent a still-rare but growing collection of entrepreneurs in Cuba. An estimated 350,000 people--nearly 10% of the workforce--now work for themselves, in occupations from manicurists to repairmen, or in tiny family restaurants. Castro allowed ''artisans'' such as the Menas to set up shop in the early 1990s and legalized self-employment in other areas in 1993. About half are officially registered, while the others operate in a growing gray market.
Although they sell their goods and services at free-market prices and earn profits, these businesses operate within the constraints of Castro's ideology. Entrepreneurs, for example, are permitted to employ only family members as workers. But specially recognized ''artisan groups'' such as Mena's are allowed to hire skilled workers and apprentices--a total of 18 at CubambPound.
THORNY PROBLEMS. Such ventures can be winners. In the six years since Mena quit his job as a Havana lawyer to join with his son in the furniture business, they have built up a solid clientele among private citizens and state stores. Starting with just a few pieces, they now finish six to seven a month. For each piece of furniture, 30% of the sale price goes to the workers who made that particular piece, 30% pays for materials, and 40% goes for marketing and overhead of the workshop. Later this year, the Menas expect a big boost from their first export order from Spanish department store Corte Ingles.
Despite the potential, the Menas and other entrepreneurs face thorny problems. Bank loans for private businesses aren't allowed, for example. Instead, the Menas borrowed money from friends to get started; they now use cash flow to buy materials. The lack of capital and credit also hinders expansion. And , the Menas worry about taxes. They must pay 7% on their earnings up to $2,400 a year and 10% for anything above that.
As a furniture maker, Orlando Mena says he works harder now than he ever did as a lawyer. But he likes it and admits that he is making a lot more money. His example shows that small private businesses in Cuba can develop. But Castro will have to allow them far more freedom to grow if the island is to prosper.
By Gail DeGeorge and Gail Reed in Havana

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