Traditionally, one of the world's leading cane sugar producers, Cuba has been primarily an agricultural nation. Sugar was the leading earner of foreign exchange until 1992, when tourism revenues outstripped sugar revenues. Agriculture's contribution to GDP has decreased from 24% in 1965 to 10% in 1985, to 7% in 2000. Manufacturing increased from 23% of GDP in 1965 to 36% by 1985. In 2000, the contribution of the industrial sector fell to 34.5% as services, including tourism, became more dominant.
After 1959, the revolutionary government, following policies espoused by Ernesto "Che" Guevara, attempted to liberalize the sugar economy in order to achieve agricultural diversification and industrialization. When this policy proved disastrous to the sugar crop, Castro reversed the Guevara program in 1962 and announced a goal of 10-million-ton crop by 1970. Despite a severe drought in 1968–69, Cuba did achieve a record 7.6-million-ton output of refined sugar in 1970. Efforts to diversify foreign trade during the early 1970s were aided by record high prices for sugar. Between 1971 and 1975, the Cuban economy grew by about 10% annually, and moderate growth averaging about 4.4% per year continued through most of the 1980s. The special relationship with the Soviet Union, whereby it supplied Cuba with oil below market prices and bought its sugar at above market prices, insulated the Cuban economy from the varagies of the two oil shocks of the 1970s and the Third World debt crisis of the early 1980s. However, commercial agreements with Argentina, Canada, Spain, France, the UK, Italy, and the FRG indicated Cuba's keen desire to move away from nearly exclusive reliance on the Socialist countries for both imports and exports. Trade with the then-USSR and other CMEA members, nevertheless, made up the bulk of Cuba's foreign commerce, and Soviet aid remained essential to the economy.
From 1981 to 1985, Cuba's GDP growth averaged 7.3% due mainly to increased sugar production. In 1986 and 1987, however, GDP growth dropped to approximately 1.7% due mainly to the collapse of oil prices, a depressed world sugar market, prolonged drought in Cuba, and the fall in the value of the dollar. The situation worsened when the Soviet bloc collapsed in 1989, eliminating its assistance and subsidied markets. Cuban GDP fell 35% between 1989 and 1993. The Castro government restricted public expenditure and in 1993–1994 introduced a series of market-oriented reforms. It legalized the dollar, allowed trading with market economies and developed new sources of foreign currency. The government placed special emphasis on the promotion of foreign investment and the development of sugar and tourism. About 150 occupations were opened up for self-employment. The econmy began to expand again in 1994, and by 1996 GDP growth was at 7.8%. Tourism established new records in 1996, with arrivals increasing by 35% to 1,001,739, and gross revenues rising by 18% to $1.3 billion. The number of self-employed rose to over 200,000, but after income taxes were introduced, fell to an estimated 100,000 by 2001. By the end of 2000, nearly 400 joint ventures with foreign companies had been established representing a total invesment of between $4.2 billion and $4.5 billion.
In 1997, growth fell to 2.5% and then to 1.2% in 1998. Annual inflation was almost nonexistent in 1998, down from 19.0% in 1995. Growth increased to 6.2% in 1999 and 5.6% in 2000 as tourist arrivals rose to 1.7 million in 2000, and gross receipts to about $1.9 billion. In 2001, in the context of a global economic slowdown, the aftermath of the 11 September 2001 terrorist attacks in the United States, and a devastating hurricane in November, tourist arrivals increased only marginally and gross receipts remained unchanged. Tourism was estimated to have declined in 2002. Overall GDP growth fell to 3% in 2001 and an estimated 1.1% in 2002, with inflation at about 7.1%.
In 2002, the government introduced a comprehensive restructuring of the sugar sector. Over half of Cuba's 156 mills were to be closed, leaving only the 71 most efficient. 100,000 of the 400,000 employed in the mills were to be retrained for other jobs. More rice and other crops are to be grown. Sugar production, at 8 million tons a year in 1989, had fallen below 4 million tons a year, and for 2002/03 sugar production was expected to be 3.2 million tons.
Between 75% and 90% of adult Cubans are still employed by the state. Jobs pay between 250 pesos and 500 pesos a month, equivalent to only $10 to $20. However, education, medical care, housing and other public services are free or highly subsidized, and there are no taxes on public jobs. Although there has been an increasing infusion of dollars and other hard currencies into the economy, the society still faces a painful transition out of its isolated socialism.