From Instability to Investment

In late 2006, we were blogging about Haiti’s kidnapping crisis.  Now in late 2009, we are blogging about investment opportunities.  Much has changed.  Just last week, hundreds of potential investors gathered for the largest investment conference ever held in Haiti, organized by the Inter American Development Bank with financial support from the Canadian government.  Will trade become more important than aid some  day?  This depends on the answers to two questions.  First, can investors make a return on their investments?  Second, will the government allocate new resources in an effective, accountable way that benefits all of Haiti and not just the cities?

At the investment conference, more than 500 private sector representatives ttended including US, Canadian, Dominican, Brazilian and Colombian corporations.  Gap, Levi Strauss and American Eagle Outfitters were there, enticed by the HOPE II Legislation through which duties on apparel assembled in Haiti are removed.  Citibank and Scotiabank were present in order to discuss loans for interested investors, important given that so few commercial and industrial properties are being constructed, at least in part, because of a lack of credit.

According to the Miami Herald, 74% participants said they had an investment project in Haiti in mind and preferred a joint venture with projects of $5 million and more.  Most came away with a more positive opinion about investing in Haiti but 96(!) percent of those surveyed named a lack of electricity and roads as the primary concern.  Security came in second at 48%.

Clinton called on the investors to help promote Haiti's image abroad as a tourist destination. Royal Caribbean International is building a $55 million cruise ship pier in Labadee that has hosted 10 million visitors since 1985.  It is hoped that the Labadie beach resort can draw up to 1 million tourists a year by 2011.  Of Haiti's 800,000 visitors last year, 500,000 were ferried in by Royal Caribbean.  The cruise line charged each a $6 government tax, adding $3 million to government's coffers.  The fee will be increased to $10 after the pier is completed, with the additional funds being used for operations and improvement.

Royal Caribbean committed to boosting the local economy by buying food from Haitian producers.  They will also establish a vocational training school to train people in the hospitality industry.  But tourism in Haiti face major obstacles including a lack of hotel rooms and infrastructure.  Jacqueline Charles of the Miami Herald notes that this tourism push comes in the context of the United States and other nations downgrading travel warnings to Haiti, the country's southern coast enjoying a resurgence of domestic tourism, and Port-au-Prince's international airport undergoing a $1 million modernization.

Clinton called for expanding the Cap-Haitian airport for international flights so that visitors can avoid Port-au-Prince and the long, harrowing drive to the north.  If not for the instability, this would have been done long ago.  Looking at Jamaica, for example, it would certainly hurt their tourism industy if all tourists had to go through Kingston.  Thanks to the Montego Bay secondary airport, it is not an issue. The upgrading of Cap Haitian’s modest airport so that jets can land, after many delays, may actually happen.  Parliament has reportedly ratified a $30 million loan agreement with Venezuela to do so.

The Haitian Ministry of Tourism is eager to benefit from tourism as all countries of the Caribbean do to some extent.   The Citadelle, perhaps the most awe inspiring fort in the Western Hemisphere, the San Souci Palace, and the beaches along the northern coast are seen as potential tourism anchors.  Forty million will be invested into the town of Milot to create a vibrant tourist village with arts and craft markets, restaurants, etc.

Concerning industry, the Soros Economic Development Fund and the WIN group recently launched a $25 million equity investment fund with the potential of growing to $150 million. Its first investment is a new $50 million industrial park near Cité Soleil that is poised to create 25,000 new jobs.  Located on a 60-acre parcel, the West Indies Free Zone is expected to be completed by late 2012.  The project’s initial phase of construction is scheduled for the Fall of 2010.  The industrial park will be located directly adjacent to Cité Soleil's port, and will benefit from reliable, nearby sources of energy and water.

A Brazilian textile delegation visited Haiti in early October.  It included representatives from the Brazilian Association of Textile and Clothing (ABIT) and the Brazilian Association of Man-Made Fibers (ABRAFAS). The group visited textile assembly plants in Port-au-Prince and the free-trade zone of Ouanaminthe.

Irish tax refund company Taxback will open a call center in Haiti to provide clients with tax documentation help. The project is expected to create about two dozen new jobs.  It’s small, but consider it a pilot project.  If it works, there may be opportunities for future service oriented jobs in Haiti.

The U.S. State Department Hemispheric Affairs’ main coordinator for economic initiatives, Charles Shapiro, emphasizes that it makes good sense for the Dominican Republic and Haiti to partner on economic projects.  Shapiro cited Dominican entrepreneurs with investments in Haiti, and Haitians who work on Dominican side of the border and send money back to their country.  Haiti and the Dominican Republic have begun discussions over an air traffic agreement between the two countries.  It is rumored that American Airlines may soon begin service between Port-au-Prince and Santo Domingo.

Several other important conferences are coming up.  The 10th Annual Caribbean Business Forum will be held for October 21 to 24 in Haiti.  Funding is provided agai n by the Inter-American Development Bank with additional support from the government of Taiwan. The Organization of American States (OAS) and the Mexican government will host a meeting in November to discuss international cooperation for promoting development in Haiti.

But investment is about more than companies. As Paul Farmer put it, “When I talk about the private sector, I don’t mean big business people only, but the ‘Madanm Sara’ (street merchants), the peasants who represent an incredible workforce for this country.  We need to sustain them.  And we also need to make sure that these people find capital to grow their crops and small businesses.  And finally, their children should be able to go to school.”

Both Clinton and the IDB agree on the promise of growing local companies. One such company is Caribbean Harvest, a tilapia farm on the outskirts of Port-au-Prince that Clinton spent Thursday afternoon touring.  At the farm, fish are raised in an aluminum pool for two months before being sold at 10 cents each to local farmers who put them in a cage.  The cage is then put in the river, and the fish are fed three times a day for the next four months.  Those that weigh one pound are sold back to the farm, while undersized ones are sold by local merchant women who earn as much as $30 a day selling them on the streets.  Those sold back to the farm are then processed and sold to local restaurants, markets and hotels.  The profits are then shared between the business and the farmer.  This could be a promising model to replicate throughout Haiti.

In order to maximize investment, Haiti needs reliable, affordable energy.  The Brazilian government has provided $3 million in start-up costs on construction of a new hydroelectric plant in Mirebalais.  The project will eventually flood 450 hectares of arable land, and frankly, that makes me nervous.  Hydroelectic power has a sad history in Haiti.  The World Bank approved a $5 million grant to implement a two year Electricity Loss Reduction Project in Haiti.  This project is intended to improve Electricite D'Haiti (EDH) ovrsight of the energy sector.  And they need that help.  The Haitian Parliament also ratified an energy agreement between Haiti, Cuba, and Venezuela.  Venezuela will provide 20,000 barrel per day oil refinery near Gonaives.  Biofuels company Bio Tek and the Haitian government are partnering to increase the use of biofuels in Haiti, in order to create jobs for local sugar cane farmers.  You can see powerpoint presentations on biofuel possibilities presented during the investment conference here.  Some progress so far, but much more investment and reform is needed in the Haitian energy sector.

Concerning communications, Digicel is the poster company for successful international investment in Haiti – providing Haitians much needed cellular service, at a reasonable price, making a tidy profit, a portion of which is invested in educational charities. In addition, the Bahamas Telecommunications Company (BTC) is confirming a contract with one of several data service providers in Haiti and two more to come by the year's end, according to Guardian Business.  Interconnecting with BTC and its new fiber optic cable to the Haitian capital of Port-au-Prince gives cell phone service providers access to a more reliable, faster and more secure transmission method, something which BTC believes is important in a hurricane-sensitive zone.

All this attention is welcome and a sign of progress.  But let’s face it – Haiti is still a tough place to business. The World Bank 2010 Doing Business Report ranked Haiti as one of the worst countries for doing business.  Although it has improved three ranks, to 151 from 154.  But despite this difficult environment, there have been some successes – The government has decreased the amount of time it takes to form a company from almost 300 days to 70...still too much but a significant improvement.  Digicel and Royal Caribbean are expanding. Roads are improving and there is a new electrical plant outside of Cite Soleil.  There are new hotels, restaurants, and shopping centers.  Things are not changing as fast as we all would like, but they are changing.

Haiti will not overtake Taiwan in attracting foreign investments anytime soon.  But as Maguire noted in his recently released USIP report, Haiti can learn from Taiwan.  Before Taiwan became a modern, industrial economy, it first passed land reforms and got its agricultural house in order.  Factory jobs alone won’t lift Haiti out of poverty.  Only agriculture, in which 66% of the Haitian population is employed, can do that.  It is up to the Haitian government to make sure that the entire country benefits, otherwise inequality and instability will persist.

Considering investing in Haiti?  If so, in what?  Please feel free to post in the comments section below. 

Bryan