Reforms and informal market hit Cuban state's retail sales

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* State's retail sales fall 17 percent over two years

* Durable good sales hit by informal imports

* New customs duties may limit "non-state" sector sales

By Marc Frank

HAVANA, Sept 14 (Reuters) - Retail sales by Cuban state-run businesses declined significantly over the last two years, the government reported this week, as privately imported goods and a growing "non-state" sector took their toll.

The report, which would be shocking in any other economy as it would signal a drastic fall in consumer spending, in the case of Cuba reveals the difficult balancing act of Cuba's communist leaders as they attempt to reduce the state bureaucracy and encourage private sector growth in a major transformation of its centrally planned economy.

Retail sales fell 17 percent, or from 11 billion pesos in 2009 to 9.3 billion last year, the National Statistics Office said in its 2011 statistical year book, which is gradually being released on its Web Page (www.one.cu).

The most dramatic decline came in durable goods, from 1.2 billion pesos in 2009 to 266 million last year, as Cuban Americans brought in flat-screen TVs, video game and DVD players and other domestic appliances for relatives and sale after U.S. President Barack Obama lifted all restrictions on interaction with their homeland.

Hygiene and cleaning products fell from 920 million pesos in 2010 to 338 million in 2011 as the Cuban Americans joined thousands of Cubans who took advantage of lax visa regulations to move to Ecuador in recent years, where some set up trading schemes to move clothing, personal hygiene and other products to the island for sale through informal networks of door to door distributors and the mom and pop businesses like those in central Havana.

NEW CUSTOMS DUTIES

Up until this month, when import duties were drastically increased at airports, ports and post offices, presumably to slow the decline in retail sales, the informally imported goods were cheaper and often of better quality than those at the state-run stores, chipping away at sales.

A walk along Neptuno or San Rafael streets in Central Havana, one of the busiest areas in the city, tells at least part of the story.

Dozens of private makeshift shops in people's doorways and living rooms, which began opening over the last two years, sell privately imported clothing, under-garments, hardware and other items right next door to state-run stores with similar goods.

"It's bad, really bad," Susana, who sells bras and other items from her doorway on Neptuno Street, said when asked about the higher customs duties.

Like other vendors in the area, she said new goods had yet to be brought in under the higher tariffs, but she assumed they would be more expensive and force her to raise prices.

REFORMS KICK IN

As part of an overall reform of Cuba's Soviet-style economy, the Communist Party loosened regulations on small, retail service-related businesses in 2010 and began moving thousands of state-run outlets into the "non-state" sector.

This resulted in a boom of private cafeterias and restaurants, presumably responsible for a fall in state food service revenues from 14.1 billion pesos in 2010 to 12.7 billion pesos last year, according to the government report.

Cuba is gradually moving state-run retail services, such as barber shops, appliance and other goods repair and small cafeterias, into a new system where employees rent the premises, set their own prices, pay taxes and compete with small, privately owned businesses.

Most of these state establishments have always operated at a loss, due to fixed prices, theft and the expense of controlling them, so less revenues in this case could translate into more money for the state through rent and taxes.

Revenues from men's haircuts at state-run establishments fell from 14.5 million pesos in 2009 to 6.4 million last year, and at the state hairdressers from 66.7 million pesos to 53 million.

While the retail sales report listed all values in pesos, many items are mainly sold in state-run dollar shops where goods are priced in a local equivalent, the convertible peso, officially valued at a dollar but exchanged by the government on the street at 25 pesos.

The "dollar" shops tack on a minimum 240 percent mark up on their goods, which many Cubans complain are of poor quality.

A few blocks away off San Rafael, 30-year-old Jose Angel Hernandez sat outside the doorway to his ground floor apartment and living room turned clothing store.

Hernandez called the new duties "abusive," as a group of women leaving his shop stood around nodding their heads in agreement.

But he doubted they would drive him out of business.

"They don't have sales because they don't have good quality, a variety of sizes or any flexibility," he said.

"Here people can bargain down a price by a few dollars, while if a price at a state store is $15.95, its exactly $15.95," Hernandez said.