Thank you, Mr. Chairman, and members of Parliament, people in the audience.
First, I'd like to thank you for inviting me. I look forward to hearing your questions.
If there are questions in French, I will also answer them.
My presentation today is going to focus on the economic development strategy that Canada and other donors are advancing in Haiti. I plan to outline our approach and make some suggestions on how, in my view, it might be improved.
Just to be clear from the outset, I'm using today a poverty reduction lens to judge our economic development plan in Haiti. In other words, I'm interested in exploring how the economic development approach we are using will affect the country's poorest citizens. The emphasis on poverty reduction is in part normative, but it is also due to the importance that both peace-building experts and development experts have assigned to this goal.
For example, the International Crisis Group notes that much of the violence that plagues Haiti is due to the “chronic failure to tackle the poverty, social deprivation, and exclusion that endanger most of the population”. Basically, donors have accepted that poverty and inequality are among those factors leading to violence, insecurity, and political instability in Haiti. In fact, in a recent strategy paper on Haiti, CIDA argues that Canada's primary challenge is to find and implement strategies that will foster poverty reduction.
Over half of all Haitians, about 56%, live on less than one dollar U.S. per day, making the country's poverty deeper and more pervasive than in the rest of Latin America. Haiti's peasant farmers make up the most destitute segment of the population, with rural residents accounting for 75% of the country's poor. Haiti also suffers the starkest division between rich and poor of any Caribbean country.
Canada and the international community have a threefold strategy for economic renewal in Haiti. The first goal is to build stronger links with members of the Haitian diaspora. The second is to strengthen the private sector, which is viewed as the primary engine of economic growth. The third is to re-establish Haiti's assembly manufacturing export sector.
Today I will argue that while these focuses may help to reactivate the economy, they are unlikely to significantly improve the lot of Haiti's poor. This is because there is very little in this plan for the country's rural majority. But I will expand on that later. Due to time constraints today, I will say only a few words about two of these strategies--boosting the private sector and re-establishing the export assembly sector.
With regard to the first strategy, although the country's private sector is fragile and weak, it is a major development objective of the Canadian government. For instance, Ottawa is supporting an initiative designed to train Haitian business leaders inside Haiti. Canada also recently acted as host for the first ever meeting between the Inter-American Development Bank, President Enrique Iglesias, and members of the Haitian private sector. This was to discuss the private sector's role in rebuilding Haiti.
While the private sector can contribute to economic renewal, this focus is not without challenges. For instance, international development agencies have tended to view the Haitian private sector with suspicion. Haitian business elites have long been suspected of being more interested in turning a quick profit than in long-term economic development. Moreover, past links between private sector players in Haiti, former Haitian dictators, the army, and paramilitary groups are a continued source of concern for many development agencies, and rightly so.
Progressive elements in the private sector are beginning to alter this perception, but this is a very slow process. The fact that Canada hosted this IDB-private sector meeting will undoubtedly help create the kind of valuable links between these two partners, but again, the democratic and development credentials of this sector remain tainted.
More importantly, though, if we turn back to the objective of poverty reduction, it's important to note that there is little data to support the assumption that the poorest Haitians, most of whom make their living from the rural areas and the informal sector, will automatically benefit from a more robust private sector.
Even the World Bank, a staunch supporter of private sector development, notes that the evidence on small and medium-sized businesses, growth and poverty, does not support the contention that small and medium-sized businesses are particularly effective job creators. The bank's analysis also reveals that the size of the small and medium-sized business sector is not significantly associated with the income of the poorest quintile of society, or the percentage of the population living below the poverty line, or the poverty gap.
So while prosperous and thriving economies usually have a strong small and medium-sized business sector, cross-country comparisons do not indicate that the small and medium-sized business sector exerts a particularly beneficial impact on the incomes of the poor.
Regarding export assembly operations, this part of the economic development plan is very much in line with conventional economic thinking. A country like Haiti's comparative advantage lies in its cheap labour and proximity to U.S. shores. Hence, encouraging export assembly operations seems reasonable. Interestingly, though, this was actually tried in Haiti during the 1970s and 1980s. What I want to point out today is that this earlier attempt to promote light industry through assembly production failed to spark development. In fact, it actually increased inequality and poverty levels.
Jean-Claude Duvalier championed export development manufacturing between 1971 and 1986, offering various incentives: a tax holiday of 10 years, complete profit repatriation, and a guaranteed non-unionized workforce. This did lead to a massive expansion of assembly operations. Exports from light industry grew at an average annual rate of 40% during the 1970s.
By the early 1980s Haiti was second only to Mexico among US-centred subcontracting territories in the western hemisphere. It had about 240 multinational corporations, employing between 40,000 and 60,000 workers, depending on whose numbers you're going to choose.
In 1985, one year before Duvalier was forced into exile, Haiti was ranked ninth in the world in the assembly of goods for U.S. consumption. In fact, it's often said that every baseball in the United States at that time was made in Haiti. The sector generated more than a half of the country's industrial exports and earned one-quarter of its foreign exchange.
Despite this tremendous expansion, the effects on Haiti's overall economy were disappointing, especially in terms of the number of Haitians living at or below the poverty line. The country's debt increased; foreign exchange reserves were exhausted by 1981. Commenting on Haiti's balance of payments, World Bank officials conceded that the assembly industry had, in the long term, made “almost no fiscal contribution” to the economy. Repercussions for Haiti's poorest citizens were significant as well.
First, faced with a shortfall in revenues from imports, because all manner of imports, goods, luxury goods were now entering the country free of taxes on the pretext that they were essential to assembly firms, the Haitian government turned to consumption taxes, which studies have shown adversely affected rural peasants and members of the urban lower classes, in particular.
Another effect of this plan was that food costs increased as production diminished. The production diminished because of the mass exodus from rural areas to Port-au-Prince, which was the primary site of the manufacturing sector. Between 1975 and 1985 the average price of all foodstuffs more than doubled, again hurting the poorest households the most.
Although the model provided some economic growth, it also increased poverty and economic polarization by favouring the economic development of Port-au- Prince, the urban sector, over the rest of the country, the rural sector. In short, poverty was not reduced, mostly because the slight industry strategy explicitly averted the rural world, although I have to admit that appalling levels of corruption under Duvalierism were also an important contributing factor here.
Ignoring the needs of the agrarian sector has been customary in Haiti, and it also reflects a long-term pattern among donors. The economic development plans of the 1990s allocated only 7% of assistance to agriculture, the source of income for 80% of all Haitians living below the poverty line. Current donors, including Canada, argue that agriculture in Haiti is neither sustainable nor ecologically sound. To be sure, rural development is a daunting challenge.
Haiti's landholdings are small, mainly on steep slopes, making mechanical farming virtually impossible, and close to one-third of all plots are in agriculturally marginal areas. Still, Haiti experts argue that it is these abysmal conditions that make rural development absolutely essential, if for no other reason than to prevent the rural poor from slipping further into poverty. Restoring agricultural production and improving food security for rural households must be established as a strategic priority for international donors who make poverty reduction their primary objective.
Canada showed real leadership when it released its 2003 policy paper entitled Promoting Sustainable Rural Development Through Agriculture, especially since it did so on the heels of substantial cuts to aid to agriculture and rural development by bilateral and multilateral agencies throughout the 1990s. Regrettably, though, Ottawa decided in 2005 to drop agriculture as a focus of its foreign aid program. This has enormous repercussions for countries like Haiti, where promoting sustainable rural development through agriculture is crucial to poverty alleviation. Aid to peasant agriculture would encourage small-scale producers to remain on the land and improve their livelihoods through production of food for consumption and for sale to local markets.
To be sure, Canada's priorities, its new priorities--health, education, good governance, environment, and the private sector--are important; however, it is difficult to imagine putting an end to extreme poverty in Haiti without a strong and sustained plan that targets the rural world.
In conclusion, when it comes to addressing economic development, that is, reducing poverty and inequality, and building a viable economy, Canada has decided to follow the lead of other major donors in applying a predominantly urban-based development strategy. This approach proved unsuccessful in the 1970s and 1980s when the Haitian government chose to overlook its rural sector in favour of promoting export processing zones, and it also proved unsuccessful most recently in the mid-1990s when donors overlooked this sector as well.
The argument here today is not that Canada or foreign donors should orient the bulk of their aid and loans to the agricultural sector. Given the level of environmental degradation in Haiti, overpopulation, and increased division of land holdings, agriculture will never become Haiti's primary engine of economic growth. However, if poverty reduction is indeed a primary objective for Canada, restoring agricultural production and improving food security for rural households must be a strategic priority.
