By Michael Fairbanks, ,
Published May 07, 2015
The earthquake that took place one year ago today in Haiti demonstrates more than ever that the two nations that simply co-exist on the island of Hispaniola need to forge closer economic ties. In fact, there is no solution that builds long term prosperity in Haiti that does not focus on the relationship between the political and commercial elites of Haiti and the Dominican Republic.
Haiti is weaker than ever before. Billions of dollars of aid never showed up. The promise of charity paralyzed decision makers, even as some NGOs bulge at the seams with cash and lick their chops. American development professionals wait for their orders from politicians who exhausted themselves by preening for the press.
The challenges grow worse every day. There are unconfirmed numbers showing that unemployment in Haiti is at least seventy percent. Inter-American Development Bank President, Luis Alberto Moreno, told me, “The country needs immediate, low-skilled jobs more than anything else.” Hispaniola is about to become Survivor Island.
The D.R. has shed almost 100,000 textile jobs since 2000 because labor is too expensive compared to China. The CAFTA-D.R. agreement with the United States mandates that all textiles need to have U.S. raw materials to be allowed into the U.S. with low tariffs, which prevents them from being able to compete. As a result, in 2007 the D.R. exported USD 1.4bn in textiles, and in 2009 that number shrank to USD 900mm.
Harvard’s Marcela Escobari says, “It should be a marriage made in heaven. Haiti has lower salaries than China and under the HOPE Act, they can source fabrics from anywhere in the world (at half price of what the D.R. can), and still export it to the U.S. with low tariffs."
This makes a lot of sense, especially in light of the fact that a short time ago, FoxConn, the world’s largest electronics manufacturer announced that it was raising wages by over 30% at its largest facilities in Southern China, where it makes the Apple iPad and iPhones. And, according to most analysts, this trend will continue throughout the so-called “special economic zones” in China.
Pierre Marie Boisson, a Harvard-trained, Haitian bank director says, “It’s logical to have a single island economy; but under current circumstances, the complete integration or one island economy scenario is unlikely, politically.” He adds, “What we are facing is free trade, at best; in that case, the two economies' great disparities create a great risk of trade diversion as opposed to the desirable trade creation.”
Trade diversion simply means that a lot of the products that Haiti currently imports from other countries would be imported from the D.R.
Boisson says, “But Haiti itself would only marginally benefit, primarily because of existing impediments to business investment; we can’t liberalize trade without greatly improving Haiti's competitiveness.”
Here is how it might work:
The Dominican Republic runs 56 successful free trade zones in the country, most of them private; they are islands of efficiency and provide a world-class industrial environment. We need to deploy know-how to a new “Special Zone” on the frontier between Haiti and the D.R., where the U.S. validates the HOPE act, and the D.R. allows ‘controlled’ legal immigration. The factories currently closing could hire Haitians, who are hard working, and combine this with the institutional strength on Dominican soil.
Escobari suggests, “Haiti/D.R. could create incentives to get Dominican entrepreneurs to create microcosms of efficiency and security in Haiti, and provide them the political and institutional support to help them succeed.”
Business strategist Rob Henning insists, “The model already exists at the Codevi Free Zone near Ouanaminthe. Grupo M from the D.R. merged its technical expertise with Haiti’s labor and market access to the U.S. This combines the lowest cost labor in the hemisphere with only 2.5 days transit time to Miami.”
There are few occasions as good as this one, where the public and private sectors, working towards a common vision, could quickly alter the fate of a fragile country.
Should the wage pressure in China continue, China would no longer be a low-cost producer in many lower value-added industries, such as textiles and apparel. This presents a significant opportunity for the Dominican Republic, Haiti, and other countries in the region. The logic of co-production, where textile plants in the Dominican Republic with D.R.-CAFTA benefits, combined with sewing operations in Haiti with preferential market access under HOPE and HELP legislation, could achieve world-class efficiencies.
All Haitians benefit if co-production, special zones and the inevitability of free trade and integration encourages Haiti to put its house in order and adopt an effective investment-led growth agenda. Boisson warns us, “Having a market of 20 million instead of 10 million people can only stimulate investment, job creation, and prosperity. But we need to make sure that it is done for the benefit of the 20 million island inhabitants and not for the 10 million living in the D.R. and a handful of Haiti’s richest businessmen.”
Unless and until, the administration of President Obama applies pressure on Haiti and the Dominican Republic to create a common market, to foster human initiative and spur innovation, Hispaniola will deteriorate into Survivor Island.
Even President Préval expressed to me that what Haiti needs is not just a reconstruction, but also a “refoundation," a complete change in its strategies, institutions, and the mindset of its political and commercial elites.
Michael Fairbanks is an author and entrepreneur who has advised the leaders of both the Dominican Republic and Haiti on enterprise solutions to poverty.