Because of Cuba's strategic location, the Spanish used the island mainly as a naval base and shipping centre. Havana was occupied briefly by the British between 1762 and 1763. By 1860, Cuba had a large sugar industry  which was a major supplier to the United States. Slavery, a major factor in the expansion of the sugar industry, was  abolished in Cuba in 1886.  British and subsequently American capital began to play a major role in the economy during this period.

Increasing Cuban nationalism led to wars of independence during 1868-78, and in 1895 revolution broke out under the leadership of the legendary poet José Martí. He was killed in battle , and remains a revered martyr in Cuba today.  Following an  explosion aboard the USS Maine in Havana Harbour, the US joined the conflict on the side of the rebels, declaring war against Spain on April 25, 1898, leading to the end of Spanish rule. Under the subsequent Treaty of Paris, Spain ceded possession of  Cuba which became  "independent" on January 1, 1899 as an American protectorate. The new constitution included clauses imposed upon Cuba by the US under the Platt Amendment, which seriously compromised Cuban sovereignty. The US intervened militarily on subsequent occasions to support the parties it favoured. Governments of this period were characterized by corruption, racism and violence.  

In 1934, under the so-called "good neighbour policy", Franklin D. Roosevelt sponsored initiatives that abrogated the Platt Amendment, except for continuing rights to the American naval base at Guantánamo Bay. A former army sergeant Fulgencio Batista dominated the political scene for much of the next twenty-five years. He overthrew    President Machado in 1933 with support from the United States. After exercising power directly and through surrogates for several terms, Batista stepped down and emigrated to Florida in 1944. He returned to Cuba in 1951 to re-enter politics. He displaced the elected government in a coup d'etat in March 1952 and ruled through a brutal and corrupt dictatorship. His government was recognized by the US within two weeks of the coup.

Two years later, Castro took power on New Year's Day, 1959. At that time, foreign interests (largely American) owned three-quarters of the arable land, 90 percent of transportation, electrical and telecommunications services, and close to half of the sugar industry.  The creation of a centrally planned economy  under the Cuban Communist Party made it the first communist state in the Western Hemisphere.

The American government initially recognized the Castro regime, but was wary of its new ties with the Soviet Union. The situation deteriorated in early 1960 when American-owned oil refineries in Cuba refused to process oil bought from the Soviets. This provided the impetus for a series of decree laws which ultimately nationalized all of Cuban industry. Initially, the government nationalized the oil companies, followed by the telecommunications company and the sugar plantations. Relations between the US and Cuba fell apart rapidly in a series of retaliatory moves, including break in diplomatic relations and imposition of economic sanctions on Cuba by the US in 1962. Foreign businesses with a book value of around US $1 billion, the bulk of which were American-owned, were nationalized. The Cuban government eventually negotiated compensation agreements with all of the countries involved, except the United States. Cuban officials say that the US refuses to negotiate on this issue.  

One outcome of these events  was  a closer association with the former Soviet Union, including close economic, political and defence ties. According to some estimates, Cuba received massive subsidies in the order of US $40 billion between 1962 to 1989, some of which was compensation for military cooperation. Soviet military bases were installed after the ill-fated invasion of Cuba by Cuban exiles at Playa Girón ( Bay of Pigs), which was sponsored by the United States.  Growing defence cooperation with the Soviet Union also led to the Missile Crisis of October 1962.

In a bid to overcome its difficulties, the Government was compelled to introduce reforms. Several sectors of the economy - tourism, Energy, Nickel, services, beverages, tobacco etc. - were opened to attract foreign investment opportunities. In September 1993 it introduced co-operative farming with a provision for small individual share in place of erstwhile State farming, under a new reorganisation 'Agriculture Production Basic Units (APBU)'. In October 1994 the Government introduced free markets for agriculture and artisan products to stimulate production to meet severe domestic shortages.  Taxes on consumer items, salaries, profit and toll were introduced for the first time to correct the imbalances in the economy. A new Investment Law introduced in September 1995 provides for 100% equity participation in certain cases and investment guarantees on mutually agreeable terms with a view to encouraging foreign participation in the Cuban economy. The internal migration from interior to prosperous cities like Havana and Santiago de Cuba was regulated. The widely prevalent practice of renting to tourists and foreigners was legalised, but taxes were imposed.  In July 1993 the Government for the first time legalised holding of dollars and gave permission to Cuban exiles to return to Cuba. However, w.ef from 8 th November 2004, all cash transactions within the country have to be done in Cuban Convertible Peso only. The government also imposed a surcharge of 10% on  exchange of cash dollars for CUC   .  In April 2005 the Government revaluated CUC by 8% against USD and all other currencies.

 Countries like Canada, Spain, Germany, U.K, Italy,  France , Brazil , Norway and Belgium are cautiously making investments from a long-term perspective. Priority areas for overseas investment include Oil and Gas, nickel, biotechnology, software development, hotel development and financing. While the number of joint ventures has come down from 403 in 2002 to 236 in 2006, export earnings from foreign collaborations have gone up substantially. Cuba as of end 2005 concluded Mutual Investment Promotion and Protection Agreement with 51 countries. The Cuban companies are also looking for investing abroad as joint Ventures, contractual Economic associations or on 100% capital participation basis. As of Nov 2006, Cuban companies have invested in 100 projects abroad (52 in Latin America and Caribe, 19 in EU, 17 in Africa, and 12 in Asia) mostly in construction , biotechnology , basic Industry  and  agro- chemical sectors. Local companies and entities  like SIME( Iron and steel) , Labiofam ( vaccines, medicines, larvicides, toiletries) , Quiminaz,(  Consultancy and R& D in sugar industry) tecnoazucar(  designing, construction and operation of sugar plants, consultancy),CATEC( Agricultural technology, services and consultancy) and CubaTecnica ( skilled manpower supply and technical administration) have been the leading investors abroad.

Strict fiscal discipline and check on money in circulation saw the Peso gaining strength against Dollar from 140 at the beginning of 1994 to 24 in April 2005.The Cuban convertible Currency (CUC) was appreciated 8% against the USD and other currencies in 2005.For the second consecutive year the Cuban Central bank reported a positive Balance of payments situation (US$ 300 mn. in 2005, US$ 102 in 2004). Except for sugar other sectors of the economy have shown decent growth. Tourism continues to be the engine of the Cuban growth. Net earnings from medical services provided to countries in Latin America and Africa reached a record US$ 1.2 Billion in 2005.   Cuba's Principal exports include Nickel, biotech products, Coffee, Tobacco, Citrus, Rum, Sugar and Sea-food and its imports include food items, Oil & Lubricants, Fertilisers & Chemicals, Textiles & Garments. Preferential oil imports from political ally Venezuela and payments for the medical and social services being undertaken in the oil rich country have been instrumental in the buoyancy of the Cuban economy.