Grupo M’s factory at Codevi, near Ouanaminthe
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| IMF SPECIAL: THE PLACES THAT FINANCE FORGOT |
It’s an understatement to say that the island of Hispaniola in the Caribbean is one of contrasts. The land mass contains two countries – the Dominican Republic and Haiti.
The former has been one of the fastest growing economies in Latin America for 20 years – GDP growth averaged around 5% during that period – and it has a strong business and finance community.
The international investment community has followed its international bond deals down in yields, out in tenors and even into local currency-denominated transactions.
Meanwhile, Haiti is the poorest country in the western hemisphere. Per capita GDP is $1,800 (the Dominican Republic’s is $17,000), putting the country 213th in the world, according to US government statistics.
Some 60% of the populations lives under the poverty line, while 40% are unemployed. Remittances are worth 25% of the country’s $20 billion GDP.
Haiti has always been poor. A dysfunctional political system has stood in the way of any economic and physical development. In addition to the man-made problems there have also been natural disasters.
In 2010, an earthquake killed an estimated 300,000 people and wrecked the capital and many other towns – leaving 1.5 million of the 10 million population homeless. Six years later, Hurricane Matthew – the fiercest Caribbean storm in a decade – made landfall in Haiti with 140 mile-an-hour winds. It affected more than two million Haitians and almost destroyed the country’s subsistence agriculture and basic infrastructure.
Given the continually dire situation in Haiti, most of the international financial community’s engagement with the country has been in the form of relief: after the 2010 earthquake, creditor countries wrote off the country’s debt. Unfortunately the financial breathing space was squandered – debt is again approaching $3 billion, much owed to Venezuela through the Petrocaribe oil programme (and of which up to $2 billion has disappeared).
Engagement
But despite the difficulties of operating in the country there have been some important engagements from multilateral organizations.
(Effectively there isn’t a government in place with which to negotiate at the moment – there hasn’t been a prime minister since March this year and the president recently survived an impeachment vote.)
Following the 2010 earthquake, the US Congress passed the Haiti Economic Lift Program (Help) Act, making goods from Haiti free from all import duties – even if they include inputs from third-party countries.
There are a lot of US companies that are in China and Asia that want to be closer to the US market, and we are only two days away [by sea] from the east coast of the US – Fernando Capellan, Grupo M
The US went further. In cooperation with the Inter-American Development Bank (IDB) it financed a $350 million industrial park at Caracol, near the Haitian coast.
Hillary Clinton, then US secretary of state, opened the park and predicted that it would generate 60,000 jobs. That level never materialized; in 2015 the Miami Herald reported employment was just 10% of that projection.
Worse, the IDB rushed through the planning stages and in 2011 displaced 4,000 Haitians, sparking a legal process that was only settled in January 2019.
Incentives
There have been more successful examples of the private sector responding to the US’s regulatory incentives. Some companies have opened textile factories along the border of Haiti and the Dominican Republic – exports need to go through Dominican Republic ports as there are no suitable ports in Haiti.
Grupo M developed an apparel factory for exports to the US, with a development called Codevi near the town of Ouanaminthe, which opened in 2012 with $3 million funding from the IFC.
Grupo M CEO Fernando Capellan
Fernando Capellan, president and chief executive of Grupo M and Codevi, says the tax incentive into the US, along with low labour costs, was too good an opportunity to ignore and provided his business with a competitive edge against the dominant Asian producers such as China and Vietnam.
Grupo M now employs 12,000 Haitians and is about to expand operations that will take the workforce to 16,000; a further development will push that up to around 20,000.
Capellan says that Grupo M works closely with Haitian authorities. (Euromoney couldn’t get any reply from any of the public-sector bodies it contacted for an interview – and many of our senior banker contacts in the Dominican Republic said they, too, had no knowledge of contacts at these organizations.)
However, Capellan adds that the biggest challenge to his business is taking joint responsibility for the provision of basic services in the areas near the factory.
Grupo M is involved in the provision of security and water services, as well as designing and implementing other policies (for example, Ouanaminthe has just banned the use of charcoal and has moved to natural gas). Codevi has also built a range of health and social services on its site for employees as government provision of these services is non-existent.
Opportunities
Textiles now make up 90% of Haiti’s total exports and are worth 10% of its GDP – exports are expected to top $1 billion this year. Capellan also says the current trade tensions between China and the US are drawing the interest of other light manufacturing companies to the country.
“There are a lot of US companies that are in China and Asia that want to be closer to the US market, and we are only two days away [by sea] from the east coast of the US,” says Capellan, who notes that the renovation of the port of Manzanillo will add to export capacity. “There is a huge opportunity to create jobs in Haiti along the northern corridor [at the border of Haiti and the Dominican Republic], given what is happening in China.”
When Euromoney first visited the Codevi site in early 2016, there was ambitious talk about extending bi-national cooperation along the border. The apparel industry was, it was said, just the first of a four-stage development plan that was to include power generation, agriculture and the leisure sector.
The IDB was in discussions to help the projects by supplying political risk guarantees to allow sponsors to tap US institutional investors for funding.
So far, the plan is stuck in phase one. Why?
“Our expectations were higher,” deadpans Capellan. “We are trying to explain to the Dominican and Haitian business communities and governments all the opportunities that exist for all different types of businesses along the border.”
Capellan’s plan is to put together a roundtable meeting that includes US lawmakers, the IFC and the IDB, as well as Haitian and Dominican stakeholders that can “create a single agenda for the development of these towns,” he says. “If we can accomplish that then jobs and progress will follow.”
There is a huge opportunity to create jobs in Haiti along the northern corridor [at the border of Haiti and the Dominican Republic], given what is happening in China – Fernando Capellan
What Capellan is too diplomatic to say is that it has been left to him and other business leaders dotted along the northern part of the border to develop the businesses with little help from Haitian or Dominican authorities or banks.
Capellan says US banks with presence in both countries have been more interested than the locals – although he maintains good relations with banks in both countries. A Haitian bank provides weekly FX services, for example, for local currency to pay the employees’ wages.
For their part, bankers at the big Dominican Republic banks say they are open to developing cross-border business for the benefit of both countries, but the regulatory framework is lacking. It is also not likely to be a priority given the lack of financial development in Haiti.
A recent report from economist Réginald Surin, says access to bank credit in Haiti is available to only 48 families, of which 28 are considered the “traditional economic elite”.
Ultimately, while business leaders see an opportunity for Haiti to become a low-cost, near-shore base for US companies (especially given trade tensions with China), economic and financial development will be frustrated by Haitian authorities.
As Capellan puts it: “We need some political stability in Haiti. That’s the main concern we have as foreign investors.
“Haiti needs to create some common ground between its business community and its politicians; they need to identify which points they both agree on and start working on those areas of consensus. Because the sky is the limit in terms of creating jobs.”
