Development Economics in Haiti Grade 12 Economics Case Study

WEEK 1

  • Introduction:
  • Before Haiti established its independence from French administration in 1804, Haiti ranked as the world's richest and most productive colony. In the formative years of independence, Haiti suffered from isolation on the international stage, as evidenced by the early lack of diplomatic recognition accorded to it by Europe and the United States; this had a negative impact on willingness of foreigners to invest in Haiti. It is now one of the poorest and most politically unstable countries in the Caribbean.
  • The original economic basis for the Spanish colonies on Hispaniola was sugar plantations. The French continued the sugar economy and introduced coffee. There were other plantation crops grown such as cotton and cacao for chocolate but it was sugar and coffee that were the most important. Under the French plantation system, based upon slave labor, Haiti was an enormously profitable operation. The Haitian sugar economy was in competition with the northeast region of Brazil, which previously had been the major source of sugar for Europe. The French sugar and coffee operations in Haiti were so productive that its exports to Europe were comparable and perhaps exceeded the total exports of the British North American colonies.
  • After the battles associated with independence there was some attempts to retain the large scale plantation agriculture of the colonial period but that effort was doomed. Land was distributed into small scale farms but these units devoted only a fraction of their resources to growing export crops like sugar and coffee. Often the output is consumed domestically and there are no exports of sugar or coffee.
  • In the latter part of the 20th century tourism became an important element of the economic base of Haiti. But the political instability and the public's association of Haiti with AIDS severely crippled the Haitian tourism industry.
  • In recent decades the low wage rates of Haiti have attracted manufacturing assembly operations. Haiti is one of the few countries that has pay scales low enough to compete with China.
  • The development of manufacturing assembly operations in Haiti was helped greatly by changes in the tariff rules that allowed Haitian operations to function much like the maquilidoras of the U.S.-Mexican border areas where the products assembled from material from U.S. sources could re-enter the U.S. without duties being charged.
  • Haiti faces important challenges to generate faster growth and fight poverty. Economic growth continues to decelerate from 2.8% in fiscal year 2014, to 1.2% in 2015 and is expected to be around 0.8% in 2016, due to lower investments, uncertain political environment and a modest recovery of the agricultural sector after a severe drought.
  • In 2005, Haiti's total external debt reached an estimated US$1.3 billion, which corresponds to debt per capita of US$169, in contrast to the debt per capita of the United States which is US$40,000. Following the democratic election of Aristide in December 1990, many international creditors responded by cancelling significant amounts of Haiti's debt, bringing the total down to US$777 million in 1991. However, new borrowing during the 1990s swelled the debt to more than US$1 billion.
  • In 2010, an earthquake caused damages in excess of 150 percent of GDP and destroyed most of the infrastructure. This caused more than 80% of the population to live in poverty.
  • Haiti relies heavily on remittances and foreign aid. The most important sector of the economy is substance agriculture which employs over 40% of the labor force.
  • Despite having one the lowest trade tariffs in the Caribbean and a preferential trade agreement with the United States, Haiti failed to boost its trade due to lack of infrastructure and bureaucracy.
  • Furthermore, the lack of a functioning legal system and endemic corruption make foreign investors reluctant to set up companies.
  • Its population as of 2017 is 10.9 million, about double what it was in 1970. Because the majority are below 21, this means that there will be high mobility of jobs in the near future so Haiti can expect GDP to rise as this population comes of age.
  • For more information on Haiti's economic indicators, go to http://www.tradingeconomics.com/haiti/indicators.
Haiti's GDP Annual Growth Rate from 1997 to 2016

Brief comparison of Haiti vs Ethiopia: http://country-facts.findthedata.com/compare/84-158/Ethiopia-vs-Haiti

WEEK 2

Comparison: Trends in Health Care and Education for Russia and Haiti

WEEK 3

  • Education in Haiti:
  • Haiti's literacy rate of about 61% (64.3% for males and 57.3% for females) is below the 90% average literacy rate for Latin American and Caribbean countries.
  • Almost all schools in Haiti are privately run and most schools ask for tuition fees. Thus, because of instability and lack of high incomes, education is a barrier for many
  • However, recently, enrollment rates have risen from 78% to 90%. Haiti's waiving tuition fees are also in place to help children be in a grade that’s appropriate for their age
  • Because of the lack of education resources and thus literacy rate, Haiti's working force is not as skilled nor competitive as the rest of the world, reflected through their bad economy and slow growth.
  • Source: http://www.worldbank.org/en/news/feature/2015/03/12/four-things-you-need-to-know-about-education-in-haiti
  • Property Rights in Haiti:
  • Real property interests are affected by the absence of a comprehensive civil registry. Bona fide property titles are often non-existent. If they do exist, they are often in conflict with other titles for the same property. Verification of property titles can take several months or longer. The Embassy regularly receives reports of fraudulent or fraudulently recorded land titles. Mortgages exist, but real estate mortgages are expensive and involve cumbersome procedures.
  • Haitian law protects copyrights, patent rights, and inventions, as well as industrial designs and models, special manufacturers' marks, trademarks, and business names. The law penalizes individuals or enterprises involved in infringement, fraud, or unfair competition; however, enforcement is weak. Haiti is a signatory to the Buenos Aires Convention of 1910, the Paris Convention of 1883 regarding patents, and the Madrid Agreement regarding trademarks. Haiti has ratified the Bern Copyright Convention.
  • The current draft trademark law appears to reflect the Haitian government's determination to revise its intellectual property legislation in line with its international agreements. As noted, weak enforcement mechanisms, inefficient courts, and judges' inadequate knowledge of commercial law may impede the effectiveness of statutory protections.
  • Source: https://www.export.gov/article?id=Haiti-Protection-of-Property-Rights
  • The Use of Appropriate Technology: primarily farming technology
  • The use of purchased inputs, such as fertilizers, pesticides, machinery, and irrigation, was rare; farmers in Haiti employed traditional agricultural practices more than did farmers in any other part of the Western Hemisphere. Although Haitian farmers used increased amounts of chemical fertilizers in the 1970s and the 1980s, their use of an average of only seven kilograms per hectare ranked Haiti ahead of Bolivia, only, among Western Hemisphere countries. Peasants applied mostly natural fertilizers, such as manure, mulch, and bat guano.
  • The minimal amount of research on agriculture and the limited number of extension officers that MARNDR provided gave little assistance to already low levels of farming technology. Foreign organizations, such as the Inter-American Institute for Cooperation in Agriculture, carried out the most research. Foreign organizations also provided more technical assistance in agriculture than the government.
  • Source: http://countrystudies.us/haiti/50.htm
  • Access to Credit
  • Peasant attitudes and limited access to credit also helped to explain the traditional nature of farming. Most observers blamed agricultural underdevelopment on peasants' individualistic nature, their proclivity toward superstition, and their unwillingness to innovate. Small farmers also lacked access to credit. Informal credit markets flourished, but credit was not always available at planting time. When credit was available, it was usually provided at usurious rates. The country's major public financial institutions provided loans to the agricultural sector, but this lending benefited less than 10 percent of all farmers. Major credit sources included the Agricultural Credit Bureau, agriculture credit societies, credit unions, cooperatives, and institutions created by nongovernmental organizations.
  • Source: http://countrystudies.us/haiti/50.htm
  • Women's Empowerment:
  • Reducing rates of GBV and empowering women are critical priorities for promoting Haiti's long term economic and democratic development. To do so calls for a sustained engagement through legislative action, effective law enforcement, community outreach, increased literacy, and economic empowerment.
  • USAID works with the Haitian government, civil society organizations and the international community to address barriers to women’s advancement across sectors.
  • Activities and Strategies:
  • Connecting women farmers and entrepreneurs to resources: Feed the Future Haiti supports women - led farmer associations, provide s master farmer training and connects women to markets. USAID invests in female entrepreneurs and helps connect women to formal banking services and credit.
  • Democracy, human rights & good governance: USAID supported the Haitian parl iament and the executive branch to pass and enact legislation that positively impacts the lives of women and children. USAID activities work with the Electoral Council and Haitian civil society advocacy groups to ensure that women are fully integrated into every aspect of the electoral process.
  • Protecting mothers and infants: USAID activities promote nutrition, prevention of mother - to - child transmission of HIV, family planning, and training for health care providers in maternal and child health.
  • Safe school environment: USAID works with the Ministry of Education to maintain schools that are free from any refusal and bias based on gender and to promote awareness of GBV.
  • Key Effects/Accomplishments of Strategies:
  • Improving legislation: With support from USAID, the Haitian government passed two new laws to combat trafficking in persons and to promote responsible parenthood, and drafted legislation on the elimination of violence against women , now pending adoption.
  • Growing opportunities for women farmers: USAID’s Feed the Future Haiti program has trained nearly 3,500 female farmers and certified over 900 female master farmers, helping to increase farm yields. Additionally, half of the 26,000 farmers enrolled in the Haiti Hope mango program are women.
  • Catalyzing growth in women - owned businesses: Roughly one - third of enterprises supported by USAID’s economic growth project s are women - owned or women - led. These enterprises have received nearly $2 million in funds, along with business management training.
  • Connecting GBV survivors to services & institutionalizing support: USAID’s human rights project developed a mapping tool for child protection and sexual violence and GBV services covering 42 communes, now managed by the Ministry of Women’s Affai rs and Haiti’s child welfare agency .
  • Expanding women’s participation in politics: USAID’s elections support project has made critical contributions to ensuring women’s participation in Haiti’s electoral process.
  • Connecting low - income women to legal services: USAID’s free legal clinics have provided legal aid to nearly 1,500 women in FY 2015, who in many cases are victims of GBV and domestic abuse.
  • Reinforcing gender - sensitive basic education: USAID developed curricula, educational materials and school activities to promote equity between girls and boys and incorporat e specific strategies for ensuring adequate attention to their d ifferent needs.
  • See: https://www.usaid.gov/sites/default/files/documents/1862/Women%20and%20Gender%20Fact%20Sheet%20FINAL%20Jan%202016.pdf for the full brief but thorough fact-sheet on Women and Gender in Haiti.
  • Political Stability:
  • Haiti's political situation has improved in recent years, but remains fragile. The uncertainty that periodic vacancies in the prime minister’s position, cabinet changes, and infighting in Parliament created has hindered both reconstruction efforts and passage of important legislation. However, political violence is rare, and recent statistics suggest increasing capacity of law enforcement officials to deter and prosecute violent crime.
  • Thus, one can assume that this instability, when coupled with the massive earthquake, has also contributed to the negative economic development in Haiti. However, since the government has been working to repair the economy, infrastructure and Haiti has slowly started working towards more stable politics, this can contribute to the explanation in the recent increase in economic development since aid comes from this stability.
  • Source: http://www.globalsecurity.org/military/world/haiti/politics.htm
  • Degree of Corruption:
  • In 2006, Haiti was at the very bottom of Transparency International's Corruption Perception Index (CPI). Preval promised a fight on poverty and his Prime Minister, Jacques Édouard Alexis, said the government would implement "draconian" measures to combat corruption.
  • Haiti was ranked 159/176 on the Corruption Perceptions Index 2016, with a corruption score of 20/100.
  • This indicates that corruption most likely did not contribute to the negative economic development that occurred. However, one must consider these figures carefully as sometimes, low figures can indicate moderate levels of corruption as the government may manipulate these figures.

WEEK 4

  • Over-specialization and Price Volatility:
  • Price volatility is the rate at which the price of a security increases or decreases for a given set of returns.
  • A major challenge to Haiti's economic development and growth is its over-specialization in the agricultural, primary sector (specifically in the production of crops, such as maze). Thus, this results in a small range of exports from Haiti to other trading countries, hindering Haiti's economy to prosper.
  • Furthermore, Haiti's food price volatility on domestic and foreign markets given the prevailing instability on world markets and the insufficient contribution of domestic production has also acted as an economic development barrier. This has resulted in spenders and investors having uncertainty in Haiti's economy, resulting in little spending and investment in the economy. This partially explains the low economic growth and development that has been occurring with Haiti.

WEEK 5

  • MEANS OF ACHIEVING ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT:
  • The Role of WTO:
  • WTO has significantly contributed to Haiti's economic growth and development, mainly because of the way in which global trade and technology are developing is conducive to Haiti’s comparative advantages and because the WTO’s governance of global trade has evolved and continues to evolve in order better to accommodate the special features and needs of Haiti and other least developed countries.
  • Haiti’s economy offers a wide range of possibilities. These have become more accessible as a result of the changes in the global economy. Nevertheless, the global trading system is not only a question of the economy, it also has legal aspects. To ensure that the system provides the utmost potential for development, the underlying rules must be adapted to the special features of developing countries, especially the least developed. This is the WTO’s current role. Since the late 1970s, the principle of special and differential treatment has been incorporated into the WTO’s rules. This principle recognizes that developing countries cannot have the same obligations as developed countries, and gives them more flexibility for their trade policy so that it can be adapted to their economic situations.
  • The Doha negotiating mandate provides that the Members of the WTO commit themselves to the objective of duty-free and quota-free access to markets for products originating in the least developed countries, including Haiti. It is likely that this will include several provisions in favor of least developed countries, meaning also Haiti.
  • The WTO has taken action in order to reinforce Haiti’s integration into a development-oriented global trading system is Aid for Trade. Many developing countries in fact face barriers that restrict their capacity to develop their international trade. These barriers may be physical, such as the lack of transport and telecommunications networks. They may also be non-physical, for example, problems in complying with the regulations in export markets. If an exporter of cut flowers in a developing country is unable to obtain a label proving that the flowers do not contain any pesticide that is banned in the EU, he cannot export his flowers to the EU, even if the customs duty applicable is 0%. Through Aid for Trade, the WTO coordinates contributions of the funds needed by developing countries, especially least developed countries, in order to build their export capacity. However, the countries concerned must be able to state their needs and manage this support. This is the purpose of the Integrated Framework, an organization whose action in this respect is reserved for LDCs.
  • The WTO’s trade rules are being adapted to the needs of the least advanced economies. The Aid for Trade programme builds export capacity.
  • Thus, Haiti has been benefitting from global trade, and the WTO has been at its side to ensure that these opportunities have been realized. This is how the WTO has contributed to Haiti's economic growth and development.
  • More at https://www.wto.org/english/news_e/sppl_e/sppl285_e.htm
  • Trade Liberalization:
  • Haiti is known for its essential use of the primary/agricultural sector, with a rate of around 70%. Thus, it comes as no surprise that trade liberalization has impacted this. Below is a passage entailing its effect on rice production: The decline in rice production in Haiti corresponds directly with the trade liberalization that began during the mid 1980s. Before 1986, Haiti was self-sufficient in rice production even in the midst of low yields and traditional farming practices. An influx of rice imports from the United States priced lower than domestic rice has slowly displaced Haitian rice. Producers have found that they are unable to compete with the cheaper imported rice. The low tariffs on rice in Haiti prevent Haitian producers from being able to compete with lower priced imported rice. In 1995, tariffs on rice were decreased from 35 percent to 3 percent. The majority of the rice imported into Haiti originated from the United States, where farmers receive heavy subsidies from the government. As a result, the price of the imported rice does not reflect true production costs. Since Haitian producers are not subsidized, Haitian producers are at disadvantage.
  • The Haitian economy has been heavily liberalized in the 1980s and the 1990s. Haiti is now a net importer with a decreasing export sector and a high trade deficit. The extreme and radical economic liberalization that is in place in Haiti is the result of two rounds of structural adjustment programs, one in 1986 and the other in 1994, quickly implemented, with no transition management. The 50% Tariff on imported products such as rice, beans and maize in place in the 1970s dropped respectively to 3%, 0% and 15% after the liberalization of trade. The actual average tariff on import in Haiti is 2.9%. These reforms have encouraged a massive and rapid increase of the food import, causing the collapse of the prices of domestic agricultural commodities.
  • Trade liberalization has an adverse impact on the agricultural production in Haiti. The food crops production that represents the major category within the agricultural production in terms of providing income to the rural poor and ensuring food security for both rural and urban poor is the sector that suffers the most from liberalization. The expectation was that cash crops would benefit from opening the border by promoting trade of the agricultural productions that Haiti was producing, branching out its netwrok and possibly specializing in trade. However, opening the border has not increased the cash crops production that did not respond to the trade liberalization process, as well as the livestock production. The proponents of liberalization may advocate the benefits of free trade on the agricultural sector that represents more opportunities for farmers in terms of income increase or diversification through trade. However, the results provide another story. While the food production loses with liberalization, the cash crops production, on the other hand, does not benefit from free trade.
  • Sources: https://dspace.mit.edu/handle/1721.1/28350, http://www.lenational.org/trade-liberalization-and-agricultural-growth-in-haiti/
  • For a detailed report on the effects of trade liberalization on Haiti, see http://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=2108&context=theses

WEEK 6

ODA in Haiti
  • Aid:
  • After the earthquake of 2010, Haiti's economy received vast amounts of foreign aid from various different countries, as shown in the figure above. In 2013, foreign aid made up 13.6% of Haiti's GNI. Though these percentages may seem quite small, the earthquake required more humanitarian resources such as volunteer work, doctoring and donation of food and water resources: cheaper goods. So, though maybe not noticeable at first, aid has made large contributions to Haiti's economic development. Without it, it is possible that a lot of the workforce may not be existent today and may have resulted in a smaller younger population, which would decrease the strength of the future Haitian workforce. This means that, indirectly, aid has contributed to the guarantee of a minimum of sustainability in Haiti.
Trade in Haiti
  • Trade:
  • As evidenced from the graph, we can see that Haiti has had a consistent trade imbalance: much more imports than exports. Though it would be normal if this trade deficit occurred as a result of the Haiti earthquake due to halts in the country's production leading to the need for an increase in imports, it is noticeable that this trade deficit increased before 2010.
  • Deficit nations experience a greater degree of foreign direct investment and foreign ownership of government debt. For a small country, this could be detrimental, as a large proportion of the country's assets and resources become owned by foreigners who can then control and influence how those assets and resources are used.
  • So, we can assume that this trade imbalance has not positively contributed to Haiti's economic development as it is expected that such deficits will be detrimental to a nation's economic outlook by negatively impacting employment, growth, and devaluing its currency.
  • More statistics on trade in Haiti at: http://atlas.media.mit.edu/en/profile/country/hti/
Haiti's FDI (billion dollars)
Haiti's FDI (% of GDP)
  • Foreign Direct Investment:
  • As seen from the graphs, since the 2010 earthquake, the general trend has been that foreign direct investment has decreased. This is most likely due to the uncertainty that pertained after the natural disaster, so that the risk and uncertainty in Haiti made it seem less attracted and resulted in an overall decrease in FDI in terms of Haiti's GDP (as a percentage).
  • Thus, FDI has not contributed to the economic development of the country. If it has, it has been very minimal due to its decrease in recent years. Foreign aid after the earthquake is therefore the most likely the biggest contributor of the three towards Haiti's economic development.

WEek 7

  • International Debt:
  • The reparations Haiti sent to France stagnated its development, so much that international financial institutions (“predatory lenders” one may call them) closed in on this desperately poor nation. In the past few decades, Haiti’s debt has grown exponentially, from $302 million in 1980 to $1.134 billion in 2004 (Farmer 2004 3). In 1986 the country took out an IMF loan of $25 million, on conditions of structural adjustment that included privatizing infrastructure and transferring responsibility for service delivery to NGOs (Nicholls xxi; Beeton 2). Haiti had to pay so much in arrears of these debts that as of July 2003 Haiti was sending 90% of its foreign reserves to financial institutions in Washington D.C.(Farmer 2004 3). In 2007 Haiti’s foreign debt totaled $1.54 billion, which represented 27% of its GDP (Weisbrot 5). 78.5% of this debt was owed to the InterAmerican Developmental Bank (IDB) and the World Bank (Weisbrot 4).
  • A large portion of these loans, about 40%, were taken out by the Duvalier dictators, who led Haiti from 1957 to 1986 (Farmer 2004 3). It is estimated that when Baby Doc fled the country he took $900 million of these loans with him (von Tunzelmann 2). Still more of these loans were taken out by the military regimes that ruled from 1986 to 1990 (Farmer 2004 3). Though the abuses and resource misuses of the Duvaliers and military regimes were widely known and reported, countries and financial institutions continued to lend to them (Lytje 2). This debt was used, not for the benefit of the people, but to fund their oppression. Thus it is “odious debt” (a categorization the United States developed in the 1920s when it refused to pay Cuba’s debt to Spain), and as specified by international law, it does not need to be repaid (Farmer 2004 3). Though these loans to Haiti’s cruelest leaders have not benefitted the public, it is the Haitian people who are now responsible for the debt their former leaders accrued. As Marx wrote 150 years ago, “The only part of the so-called national wealth that actually enters into the collective possession of a modern nation is – the national debt” (Marx 919). Indeed, in Haiti it is the suffering from debt, not the benefits of new resources that loans bring, that the public owns.
  • Haiti’s foreign debt was so substantial that many groups, including the Jubilee Network, Jubilee South, and Jubilee Debt Campaign, and the Center for Economic and Policy Research, called for its cancellation (see Lytje and Weisbrot, among others). They argued that the country was so heavily burdened by debt and so impoverished by its history of debt that it could not move forward. In 2007 Mark Weisbrot also goes on to argue that the funds freed up through debt cancellation could be used by the Haitian government to respond to national disasters, such as hurricanes, which between 2004 and 2007 caused destruction of homes and loss of lives that could have been prevented (11). His words proved alarmingly true three years later when the devastating earthquake struck Haiti and the government had little resources to respond.
  • In June 2009, Haiti had $1.2 billion in debt to the World Bank, IMF, and United States canceled through the Heavily Indebted Poor Countries (HIPC) program. (Lytje 1). This program was established in 1996 by the IMF and World Bank to reduce the debt burden of severely under-developed nations (Lytje 1). It requires recipient countries to first lower poverty, government spending, and inflation before debt cancellation is granted (Weisbrot 9, von Tunzelmann 2). Not only are the conditionalities in this process difficult to achieve, but they also require HIPC countries to rely on loans, thereby creating new debt, while trying to erase old debt (Bretton Woods Project 12 Feb). Haiti’s debt cancellation through this program was delayed and put on hold until the United States agreed to contribute a $20 million advance payment to cover what Haiti owed in debt service, a loan which Haiti would need to later repay to the U.S. (Lytje 1). While this cancellation represented a huge step in relieving Haiti’s debt, 1/3 of Haiti’s total debt remained, which came from loans made since 2004 by Venezuela, the IDB and the IMF (Lytje 1).
  • Following the devastating earthquake of January 12th, 2010, many nations and institutions responded to Haiti’s dire need by canceling its debt. Prior to the earthquake Haiti’s foreign debt totaled $1.25 billion (Bretton Woods Project 12 Feb). Debt from bilateral loans from Venezuela and the G7 countries was quickly canceled (Bretton Woods Project 12 Feb). On September 30th the IDB erased the $484 million that Haiti owed it, in part because the United States gave this institution a $204 million contribution to cover the remainder of Haiti’s debt to them (IDB).
  • The recent erasure of debt, through both the HIRC program and responses to the earthquake, challenges Marx’s ideas of subjugation through debt, and yet in some ways also reaffirms them. Marx would not have anticipated the acts of solidarity made by the world’s capitalists towards the suffering Haitians. This humanitarian endeavor of debt cancellation releases colonies from the hold of their neo-colonizers (i.e. financial institutions and sovereign nations). It alleviates the “brute force” of financial colonization, providing hope for a path forward, debt-free. Yet the debt cancellation processes that require structural adjustment and new loans perpetuate the cycle of debt. Upon closer examination these debt erasure programs are merely shams, methods of re-instituting new debt and new forms of control over the financial dealings of the nation. They illuminate the lasting power of the international credit system as Marx saw it. Civil society organizations like the various Jubilee campaigns, which advocate for true debt cancellation without conditions and new loans, may eventually exert enough pressure to achieve real debt erasure. But until that time, international financial institutions and lender nations continue to control the resources and future of Haiti through debt.
  • For a full discussion of Haiti's history on debt, its recent and new debt and future predictions, see: https://globalsouth12.wordpress.com/an-unending-debt/
  • To view statistics on Haiti's debt, see: https://www.imf.org/external/np/country/2010/012710.htm

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