Copyright: First published on FT.com (Financial Times) on February 14th 2013
The view from the bridge at Dajabon between Haiti and the Dominican Republic will remain tattooed in my mind. On the Haitian side, you can see for miles past the muddy banks of the river, small rickety wooden huts dotting the naked, deforested plane. On the Dominican side, thick forest forms an imposing wall along the river bank, and a big concrete building rises above the tree line like a periscope. The scene gives the story away: these are not just two different countries, they are two different worlds.
I should explain what I was doing in Haiti and the Dominican Republic and how it relates to my MBA. I was on a study trip with 24 other Stanford students to explore the theme of job creation within Haiti and the Dominican Republic. Every Stanford Graduate School of Business student goes on at least one study trip abroad. There are myriad destinations, with 30 trips going this year. Destinations range from Rwanda to Indonesia. Many of the trips have a theme; for example, the trip to Antarctica centred around climate change, and hence had several environmentalists accompanying the group.
Each trip is organised by second year MBA students. They are able to ensure the itineraries are relevant to our studies and interests. For example, the second year MBA students who led a trip to Brazil organised meetings with some of country’s leading tech and energy entrepreneurs, because these are sectors of particular interest for many in my class.
The trips are typically organised by students from the countries being visited, so the level of access is very high. Those in India were hosted by Ratan Tata, those in Mexico by Carlos Slim, while those in Rwanda met with President Kagame to discuss the drivers of the country’s rapid growth.
Comparing Haiti and the Dominican Republic makes for an intriguing case study. The countries, which share the island of La Hispanola, have very similar topographic, climatic and demographic characteristics. In the 1960s, their respective GDPs per capita were almost level, and yet now the Dominican Republic’s GDP per capita ($9,400) is 8 times that of Haiti ($1,200) according the CIA World Factbook. Many factors have contributed to the diverging fortunes of these two countries, but most find their root cause in politics.
The lack of government investment in Haiti is immediately visible as you drive along the pot-holed roads. Rubbish lies on the streets, border posts feel chaotic and routes to ports are laden with traffic. I was not that surprised to learn the Haiti ranks 165th out of the 174 countries in Transparency International’s Corruption Index. Haiti’s poor infrastructure deters many companies from outsourcing manufacturing there. The manager from one of the few companies to be outsourcing operations to Haiti, a garment manufacturer, explained the challenges posed by poorly-maintained roads and an undersized port. The entire country also lacks a reliable supply of electricity, which hinders many companies from operating during power cuts.
Other problems include an unreliable legal system: the Director of an NGO described to us how they had negotiated an agreement with the government enabling them to import goods without customs taxes, but that border guards nevertheless continued to charge import fees.
Well-founded concerns about civil security have also hampered tourism and foreign investment: the CEO of Meds for Kids, which manufactures peanut bars to fight malnutrition, told us that it was difficult for their factory to operate a night shift because of the risks employees faced when walking to and from the factory at night.
The Dominican Republic, on the other hand, has managed to confront many of these challenges. The Dominican government has invested heavily in infrastructure, building seven international airports, eight major seaports and a network of modern, well-maintained roads. A heightened police presence in touristic zones has improved the safety for travelers, facilitating a boom in tourism. The Dominican Republic now has 70,000 hotel beds, which is more per capita than any other country in the world.
Recent government investment has also upgraded their information technology and telecommunication systems, enabling the Dominican Republic to become the third biggest provider of call centres, behind only India and Egypt. The Dominican Republic’s low wages continue to attract manufacturers looking for cheap outsourcing opportunities, particularly within the clothing sector. Improving education standards are also paving the way for a fully-fledged services industry. I spoke with the CEO of one company, for example, that develops software for large US entertainment companies.
Despite these positives, the Dominican Republic does still face challenges. It too has poor electricity distribution, with 35-40 per cent of electricity lost from the grid due predominantly to theft. The government’s renegotiation of several large trade contracts has also created doubts among foreign investors about government reliability.
So far, my argument has provided anecdotal support for Daron Acemoglu and James Robinson’s theory, proposed in Why Nations Fail: The Origins of Power, Prosperity, and Poverty, that a country’s prosperity depends primarily on its political institutions. Yet political institutions are not the only drivers of growth or causes of failure. So I shall spend the rest of this blog assessing how Haiti can emerge from the murky waters through both non-political and political means.
Haiti is definitely not a lost case. I came across many inspiring examples of creativity and entrepreneurship, which could help it bridge the divide with its neighbour, the Dominican Republic. Street painters would remember your name three days later, selling more effectively than any European or American street artist. Locals, several of whom spoke five languages fluently, would act as unofficial guides at old citadels. Traders would rush to refill their stock from another shop so as not to miss out on a single sale. Certain sectors of people have the right mindset, taking responsibility for their livelihoods, as well as for their broader societies.
So the Haitians themselves have the drive to grow, but the country’s economic topsoil needs to be more fertile. Firstly, the government’s current incentives for foreign companies to invest do not suffice to attract large capital investments, because of the lack of both long-term economic stability and a regulatory framework. Putting up billboards all over the country claiming that “Haiti is open for business” is good for morale, but it does little to solve power shortages or roadblocks. Secondly, foreign-backed NGOs should better coordinate their valiant efforts, for many of them are inefficiently attempting to solve the same problems: two recycling NGOs we encountered, for example, were both competing to collect rubbish in the same town, which led to inefficient usage of their trucks and sorting facilities.
Solutions exist, but they are not quick wins.
Firstly, Haiti really needs to retain local talent. Currently, for every 800 Haitian children, only twelve go to university. Of these twelve, eleven end up working abroad. Yet the educated few who stay have a tremendous impact, coordinating the efforts of large foreign organisations like USAID or managing factories. Haiti needs to retain more of their talent, incentivising them with scholarships and attractive jobs to stay on home turf.
For a long time, the inner circle of former President Jean-Bertrand Aristide had a grip on the country’s industrial sectors, limiting the opportunities available to the younger generation by stalling promotions and hindering entrepreneurs. Michel Martelly, the pop star turned President, promised economic reform. He seems to be trying, but currently the political cost of fixing corruption is too great for him.
Secondly, Haiti needs to capitalise on its assets. It has some of the finest landscapes and beaches within a couple of hours of the US, giving it the potential to be a real tourist hotspot, if only safety levels were improved. It has well-irrigated, fertile land that merits better protection against deforestation, which then leads to erosion. It also has a cheap labour force, capable of providing extensive manufacturing and service outsourcing for the US and France, with linguistic capabilities in English and French.
Thirdly, NGOs should teach skills rather than providing goods. A non-trivial proportion of Haitians enjoy 365 days of Christmas gifts from NGOs. NGOs could have more impact through training and healthcare services than through handouts. Such training programmes have far more widespread effects. I sat beside a Haitian businessman at a dinner who was teaching farmers to improve the productivity of their peanut crops. They had managed to share their learning with dozens of other farmers. This kind of learning is sustainable because it builds people’s capabilities.
I really hope Haiti can cope with its challenges and retain talent, leverage its assets and better harness help from NGOs. Haiti has great reason to be proud of its history: it was the first independent country in Latin America and the Caribbean, thanks to a successful slave revolution. Now Haiti’s people need to rebel once more against the status quo, but peacefully. It is time for Haiti to be proud of its present, not just of its past.