ARTICLE - INSTABILITY HITS INVESTMENT

INSTABILITY HITS INVESTMENT IN HAITI
(Financial Times) - By Matt Kennard in Washington


Political uncertainty and a slow-moving $5.3bn reconstruction effort is hurting Haiti’s ability to attract the private sector investment it craves as it tries to recover from the devastating earthquake in January 2010, according to major donors to the country.

Many of the basic functions of the state – from healthcare to sanitation and water – are being carried out by the 7,500 non-governmental organisations still working there since the earthquake that killed an estimated 300,000 people and displaced 1.5m, creating one of the biggest humanitarian emergencies to ever hit the hemisphere.

But the aid and lending community is worried about the willingness of the private sector to take over these functions. “Free services such as healthcare, education and water are being provided to hundreds of thousands of vulnerable people,“ said Cinta Pluma, spokesperson for Oxfam in Haiti, which has raised $98m for its three-year response plan. “But while this is saving countless lives, it is also having a negative effect on the small Haitian private companies and individuals who traditionally provide many of these services.”

The accusations of fraud that marred the recent elections and the ongoing political uncertainty have led foreign investors to question the ability of the government to maintain stability. “To say that the private sector is rushing into Haiti right now would not be exactly what’s happening,” said Pamela Cox, the World Bank’s vice-president for Latin America and the Caribbean. “I think the problem for Haiti has been that not only did they get hit by the earthquake, they then get hit by a cholera epidemic, they then get hit by another hurricane, so they get hit by these disasters, and then they have a political disaster. None of this encourages people to come and invest.”

The World Bank promised $479m in March 2010 and so far has delivered two-thirds of the funds for emergency response and construction, among other projects. As part of that total, it wrote off the $39m of debt Haiti owed. The World Bank’s private sector arm, the IFC, has put $49m of direct investment into Haiti, investing in the cell phone system Digicell alongside money for businesses to maintain jobs in the aftermath of the earthquake.

According to a senior official, the World Bank will be pledging a “substantially increased amount” at the beginning of July for the next three years of investment. But the process is made more difficult as the election run-off drags on. “We are not yet in consultations until there is a legitimate government,” said Ms Cox.

Another of the major players in the reconstruction is the Inter-American Development Bank, which disbursed more grant money, $177bn, than any other multilateral source in 2010. “What’s really going to change Haiti and make this process different from all the previous ones is [the] development of the private sector, and I think there’s a consensus in that,” said Agustín Aguerre, Haiti manager for the IDB. But he admits that the perception of the country as risky and unruly is damaging the reconstruction effort. “There is a big problem of branding and this is something we will be working with the next government on,” he said. “Of course, it’s difficult to launch an optimistic view today of Haiti as it deals with so many political problems.”

Haiti has not traditionally been a lightning rod for investment from around the world, coming in at 161st in the 2011 World Bank ranking of “ease of doing business”. But the IDB says it is working with the ministry of finance to enact measures that could take the country up 50 places in that ranking, for example by improving the time it takes to set up a new firm or get construction permits. “Easy stuff,” added Mr Aguerre.

Not everyone thinks it will be so easy. “The Haitian bureaucracy couldn’t be worse than it is,” said Larry Birns, director of the Council of Hemispheric Affairs. “It’s like the ocean that these fish swim in. There are no ingredients for an honest man.”

A key worry for foreign investors is poor infrastructure – from the lack of a national power grid to dirt roads. “There are a whole bunch of factors that create an incentive for private sector to invest, and one is clearly infrastructure,” said Paul Weisenfeld, deputy assistant administrator in the US Agency for International Development’s Latin American and Caribbean bureau, which pledged $1bn for the initial emergency relief effort.

To compound these barriers to investment, many of the records on land ownership and rights were lost in the disasater. “A very important bottleneck for both reconstruction and investment is land titles,” said Corinne Delechat, Haiti mission chief for the IMF, which disbursed $100m for emergency relief in the aftermath of the earthquake and cancelled the $216m in debt it was owed. “It’s very complicated and there could have been decisions taken by the government early on.”

But according to some analysts, the money needed to build a functioning infrastructure, is simply not there. “If you look at estimates made about rebuilding Haiti after the earthquake, they were huge, you know $15bn, even more than that,” said Mark Weisbrot, co-director of the Center for Economic and Policy Research in Washington DC. “They haven’t come up with anything like that, even a fraction of that. It’s a small country but it’s still 10m people and so if you don’t clear the rubble, you don’t have roads, you don’t have housing, you don’t have water, you don’t have sanitation, so what kind of economy are you going to get out of that? That’s the real problem.”

The only major deal signed so far is with the South Korean textile company Sae-A Trading which invested in a fledgling industrial park that has been set up in the north of Haiti. The company will become the biggest private sector employer in Haiti, promising to create 20,000 jobs. It has been attracted by the favourable conditions of the HELP Act passed by the US, which cut tariffs on imported Haitian garments.

Another flagship project, brokered by the Multilateral Investment Fund division of the IDB, is an initiative with Coca-Cola which has created a new soda called “Mango-Tango” to be produced using mangoes from new producers. A similar deal with Starbucks seeks to transform individual farmers into cooperatives and market it as Haitian coffee.

Critics have called this the “sweatshops and mangoes” development model. They argue that a better model for development would be one focused on the growth of the agricultural sector.


“They need roads, they need irrigation in the countryside, but that’s the other thing these guys won’t do,” said Mr Weisbrot.