Haiti: Economy

When the January 12, 2010 earthquake struck Port-au-Prince and surrounding communities, the Haitian economy had been growing slowly since 2005, with GDP growth (2.9%) barely outstripping population growth in FY 2009. Despite optimistic investment and revenue growth in the first quarter of FY 2010, the magnitude 7.0 earthquake set the economy back, and it contracted by 5.3% in FY 2010. The International Monetary Fund (IMF) expected growth to rebound strongly in FY 2011, to about 9%, driven mostly by reconstruction and foreign investments. The January 2010 earthquake and the multiple hurricanes of late 2008 exacerbated Haiti’s position as the least-developed country in the Western Hemisphere and one of the poorest in the world. Per capita GDP is under $2 per day, and comparative social and economic indicators continue to decline. Haiti ranks 146th of 177 countries in the UN's Human Development Index, and its pre-earthquake ranking in the World Bank’s 2011 Doing Business report went up marginally, from 163rd in the world in 2010 to 162nd.

According to a Post-Disaster Needs Assessment (PDNA) undertaken by the World Bank, UN, European Commission (EC), and Inter-American Development Bank (IDB), the value of damage and losses caused by the January 2010 earthquake was estimated at U.S. $7.863 billion, or the equivalent of more than 120% of Haiti’s 2009 GDP. Most damage and losses were experienced by the private sector ($5.5 billion, or 70%), while the public sector impact was $2.4 billion (or 30% of the total). The value of destroyed physical assets--including housing units, schools, hospitals, buildings, roads and bridges, ports, and airports--was estimated at $4.302 billion (55% of the total effects of the disaster). Economic losses--loss of production, reduction in turnover, loss of employment and salaries, increased costs of production, etc.--reached $3.561 billion (the equivalent of 45% of the total). Housing is the sector most affected by the earthquake, with damages estimated at about $2.3 billion. The other sectors, in decreasing order of magnitude in terms of the impact sustained, are trade (damage and losses of $639 million, or 8% of the total), transport and government buildings ($595 million each), and education and health (with an average of 6% of the total).

Inflation was nearly 20% in FY 2008 due to rising food and fuel prices, -4.7% for FY 2009, and 4.7% in FY 2010. Twelve-month inflation (January 2010 to January 2011) was about 3.7%. The Central Bank has maintained the Haitian gourde (HTG) exchange rate at around 40 HTG per U.S. dollar. Conservative investments by the Haitian commercial banking sector spared the sector from major losses during the global financial crisis but kept loan rates high and credit scarce for anyone but the best borrowers. Low Government of Haiti revenue collection rates (barely 10% of GDP) are due to a large informal economy, inefficient tax administration, widespread tax evasion, and the initial negative impact of the January 2010 earthquake. The majority of government revenues are obtained through customs duties at the Port-au-Prince APN port. These revenues remain insufficient for the Haitian Government to provide adequate social services and to invest in physical and human capital.

International donor assistance and remittances (transfers) from the Haitian Diaspora (which average nearly a billion dollars per year) represent almost half the national budget and approximately 20% of GDP, respectively. Since the earthquake, most of Haiti’s external debt has been forgiven, including remaining debt at the World Bank ($36 million) and the IDB ($447 million). The World Bank announced that $479 million would be made available to support Haiti’s recovery and development through June 2011, including $250 million in new funding. The IDB agreed to provide $200 million annually to a grant facility for Haiti from 2010-2020 (for a total of $2.2 billion over 10 years). The IMF approved the full cancellation of Haiti’s outstanding debt ($268 million), while approving new credit. The International Fund for Agricultural Development (IFAD) also agreed to forgive Haiti’s debt of $50 million.

The United States is Haiti’s largest trading partner, with bilateral trade totaling more than $1.6 billion in 2010. Haitian exports to the U.S. totaled $536.1 million in FY 2010, a 1.5% increase over FY 2009. Haitian exports to the United States fell precipitously immediately following the January 2010 earthquake, but recovered throughout the rest of 2010, and exceeded month-on-month totals in many cases. Textiles account for over 80% of Haiti’s total exports to the United States, and mangoes represent the country’s most important agricultural export, averaging over $10 million annually. Haiti is eligible for duty-free entry of textiles irrespective of the source of inputs pursuant to the Caribbean Basin Trade Partnership Act (CBTPA), the Haitian Hemispheric Opportunity through Partnership Encouragement Act (HOPE), and the May 2010 Haitian Economic Lift Program (HELP) Act, which increased the apparel quotas (from 70 million to 200 million square meter equivalents) and extended the CBTPA and the HOPE Act through September 30, 2020. Despite the earthquake, HOPE/HELP-related employment had increased steadily every month since 2009, with more than 25,000 workers in the garment industry as of July 2010.

In addition, the creation of a new industrial park near Cap Haitien, a combined effort between the Haitian Government, the U.S. Government, and the Inter-American Development Bank, is projected to create 20,000 permanent jobs through investment by anchor tenant Sae-A alone, and has the potential for up to 65,000 direct jobs. The park creation also fulfills priorities in the Government of Haiti’s national action plan to create centers of economic development outside of Port-au-Prince and to bring much-needed jobs to Haiti’s underserved regions. The Interim Commission for the Reconstruction of Haiti facilitated and approved this effort, marking the first major public-private partnership to bring permanent jobs to Haiti since the earthquake. Economic growth post-earthquake, however, continues to be slowed by investor concerns over security, lack of access to credit, and legal and physical infrastructure constraints.

Haiti's relative economic stagnation pre-earthquake was the result of earlier inappropriate economic policies, political instability, a shortage of good arable land, environmental deterioration, continued reliance on traditional technologies, under-capitalization and lack of public investment in human resources, migration of large portions of the skilled population, a weak national savings rate, and the lack of a functioning judicial system.

The 1991 coup that toppled President Aristide and the irresponsible economic and financial policies of the de facto regime resulted in a sharp economic decline from 1991-94. Following the coup, the United States adopted mandatory sanctions, and the OAS instituted voluntary sanctions aimed at restoring constitutional government. International sanctions culminated in the May 1994 UN embargo of all goods entering Haiti except humanitarian supplies, such as food and medicine. The assembly sector, heavily dependent on U.S. markets, employed over 100,000 workers in the mid-1980s. During the embargo, employment fell below 17,000.

The country’s current economic agenda remains essentially the same as with previous administrations, consisting of trade/tariff liberalization, measures to control government expenditure and increase tax revenues, civil service downsizing, financial sector reform, some privatization of state-owned companies (including the telecommunications company, the sale of which was finalized in April 2010), the provision of private sector management contracts, particularly in the electricity sector, and public-private investment. Workers in Haiti are guaranteed the right of association. Unionization is protected by the labor code. In October 2009, the legal minimum wage was raised from 70 gourdes a day (about $1.75) to 200 gourdes (about $5) for most workers and to 125 gourdes (about $3.15) for textile workers.

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