cS

Report No. 2165-HA P.%rE VW T v I fI.%I r- 1 U rIN I %.j.Cu irrent Ern,nn,mir Pn,citirn ,nA InrPFP TS Fc;TI%_u-o tA X I %t IU^ I L 1 I 1 JI I I %- 1 .1 -.r _,, I CA I %.A-

rluspecLS ui rfldILI ONE WEEK(in Two Volumes)%/,,. .p 1. IkA,;v QpD . 11F aN mm _,vuiuiiic: 1. lviaiii rxW[JIL 21"i P 'IL D\

December 22, 1978 l wU X

Latin America and the CaribbeanCountry Programs I

nfD rFIlAl I ICIF AJl V. .*t ,. . ~._.. . *.

Document of the World Bank

This document has a restricted distiibution and may be used by recipientsonly in the nerformance of their official duties. Its contents may nototherwise be disclosed without World Bank authorization.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

ABBREVIATIONS

BCA Bureau de Credit Agricole

BHPI Bureau Haitien de Promotion Industrielle

BNRH Banque Nationale de la Republique d'Haiti

CONADEP Conseil National de Developpement et de Planificacion(since Nov. 78: Secretairerie d'Etat du Plan)

DARNDR Departement de l'Agriculture, des Resources Naturelleset du Developpement Rural

DFC Development Finance Company

IDAI Institut de Developpement Agricole et Industriel

IHPCADE Institut Haitien de Promotion du Cafe et desDenrees d'Exportation

IICA Instituto Interamericano de Ciencias Agricolas

SEN Societe d'Equipement National

CURRENCY EQUIVALENT

Currency Unit = Goiirde (G)

US$1 = G 5.00

G I = I TOA9 0f

L.ote: nll fLLgures refLer to the Lscal Ylear ending Septemb er JV.

FOR OFFICIAL USE ONLY

This report is based on the findings of an economic mission,

which visited Haiti in January/February 1978. The mission

was led by Ulrich Thumm and included the following members:

Caroline Doggart (consultant, industriai sector, public

investment), Nevin Fahmy (external debt), Dominique Hachette

(consultant, balance of payments, money, banking), and

John Pelissier (agricultural sector). A report summarizing

the mission's preliminary findings was discussed with the

authorities in June 1978, and an earlier draft of this report

was discussed in November 1978.

This document has a restricted distribution and may be used by recipients only in the performanceof their offi.ca! duties. Its conntents may not otherwise be disclosed without World Bank authorization.

-- -- -J~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

- i-

Current Economic Position and Prospects of Haiti

Volume I: Main Report

Table of Contents

Page No.

COUNTRY DATAMAPSUMMARY AND CONCLUSIONS .............................. i

OVERALL ECONOMIC PERFORMANCE .......................... 1

A. Aggregate production and demand I...... ........... 1

B. Balance of payments ............. ........... ...... 3

C. Public finaince ............ *.................................... 4

D. Money, credit, and prices ............ . ........... 6

SECTORAL DEVELOPMENT AND ISSUES ....................... 9

A. Agriculture ...................................... ........... 9

Production trends ................................ 9

Technical constraints ... . ...... . . . . . . . . . .......... . 11

Institutionial constraints == =., 12

Marketing and prices ........................................... 13

Recommendations for agricultural policy , 17

B. Industry .1...... 9

Produuctior. trend ar.d structure .......................... , 9

Investment .................... ................... 22

Employment and wages .... ....... ........ , ,,, 22Assessment of industrialization ............ .... 24Constraints ............. ......................... 26

Recommendat:ions for future industrial development 28

C. Banking ........................................... 30

D. External Sector ....... .. ...... ............. 32

Main trends; ................................................ 32

Structure of exports . ........... ..... ............ 32

Structure of imports ............................. 36

Financing of balance of goods and services ....... J9

Major weaknesses .... . ............................ 40

E. Public Sector ................. . ........... ....... 41

Financial issues ......... ..... .................. 41

Institutional issues .......... ..... . .......... 43

Recommended policy measures .. .................... 45

Table of Contents (Continued)

Page No.

III. SOCIAL AND SPATIAL ASPECTS OF DEVELOPMENT ............. 48

A. Population and employment .# ...................... 48

Size, growth, and structure ...................... 48Regional structure and migration ................. 50Population policy ................. ....... 52Population projections ..... ...................... 53Employment ................ .................................. 54

B. Spatial imbalances . ................... .... ....... 55

Spatial pattern of population andeconomic activities .............................. 55

Impact of government policies .................... 56New spatial strategy ........ . . . .............................. . 58

C. Income distribution and poverty .................. 59

Inter-regional income distribution .. ............. 59Inter-personal income distribution .............. . 61Incidence of absolute poverty .................... 63

IV. PROSPECTS FOR FUTURE DEVELOPMENT ...................... 64

A. Orientation of long-term development .... .......... 64

Government goals ........ . ...... ........................ 64Constraints , ...... . ....... 65Policy recommendations ........................... 66

B. Long-term growth projections ..................... 68

Scenario I ................................................. 69ScenarJio II' ... .. .. .. ..... ....................I. 70

Annex I - Regional Resource Base and Development Potential .... 75

II - Situation and Prospects for Main Crops and OtherPrimary Sector Activities ..... .................... 83

iII - Selected Industrial Project ideas ................. 9i

IV - Implementation Problems of Selected DevelopmentProjects .......................................... 94

Table of Contents (Continued)

Page No.

Text Tables

I GDP and GDP Growth by Sector ........ . ........ . 12 GDY and GDY Growth by Demand Components, 1970-77 ....... 2

3 Summary Balance of Payments, 1970-77 ... 00.00.....6* 44 Government Revenues and Expenditures, 1972-77. 5

5 Summary Public Sector Accounts, 1972-77 ... ........... 6

6 Change of Money Supply, GDP, and Prices, 1971-77 ..... o. 77 Extension of Credits of the Banking System, 1970-77 8

8 Domestic and International Prices, 1960-77 ..... o ... o 99 Average Yields of Selected Crops .. ....... ...&..&.& . 10

10 Monthly Index of Grain Prices at Port-au-Prince ..... 15

11 Inter-regional Price Differentials for Maize and Beans . 1512 Yearly Index of Grain Prices at Port-au-Prince, 1968-78. 1613 International and Domestic Grain Prices, 1974-78 ... 1614 Comparative Le,vels of Industrialization, Haiti and

Selected Latin American Countries, 1976 ..... ......... 19

15 Distribution of Net Value Added bv the ModernIndustrial Sector, 1976 ..... *.oo ........ o ..... o 24

16 Expenditures on Gross Value Added by the ModernIndustrial Sector, 1976 .o ............................. 26

17 Summary Net Exports, 17 1 0974, a.d !977 asaosaviAs- 33

18 Exports, Imports and Value Added of the Assembly

A.dustries,~ 197=7 o.*............................ .............. 35

19 Summary Net Mechandise Imports, 1970-76 ....... o .... . 37

20 Est'mrate o'L Nor,-Esser.;ial Im-ports, 109714=76 .*v@@* .39.o ..

21 Population by Age and Sex, 1950 and 1971 .. o.......... 5022 Net Migration (Lnternal ndu Elxternalj uy epartment, 1j973 51

23 Spatial Distribution of Public Investment, Population

and National Income .* ... ...... . .. ..... ... ... *.o 59.24 Average National Income per Capita by Region .6025 Distribution of National income by Income Classes, 1976. 61

26 Per Capita Incomes and Relative Poverty by Regions, 1976 6227 Balance-of-Payments Projection, Scenarios I and II,

1977, 1983, and 1990 .. 7128 Export and Import Projection, Scenarios and II, i977,

1983, and 19-90 - - o - .. . - -. . .. o. . .. 72

29 Projection of Main Economic Variables, Scenarios i andII, 1977, 1933 and 1990 --.......... o...... .. 73

Pae. I of 2

COIYNRY DATA- HAITI

AREA POPULATIODN DENSITY

27,700 sq ko 4.7 million (moid 1976) 168 per sq kmu

FLate of growth 1.6 t (true 1971 to 1976) 393 per sq ho of cultivated land

POPUL.ATrIc CHARACrERISTICS (1976) HEALTH (1974)

Crude Btrth Rate (per 1.000) 36.8 Population per physician 8,510Crude Death Rate (per 1,000) 14.5 ~~~~~~PopuLation per hospital bed (1972) total 1,450

.Mortal,t (per 1.000 11cac birdhie) 149.1 -rban29rrl 5,270

INCOOE DISTRIBUTION ACCESS TO LELECTRICITY (1973-746)

t of national incoa. hLighest quintile n.e. . of dwellings total 2.9

lowest quintile n.S.EIDUCTTON

ACCESS TO SAP!, WATER (1975)

I of population total 12.0 ~~~~~~~~~~Adult literacy rate (1971)It of population total 12.0 ~~~~~~~~~Priasry school1 enrollmnt (1975) total 8

urban 46,0rural 3.0

NUTRITION

Calorie intake as I of requiranenta n.e.

Per-calpita protein LocdaeeUS.

GNP PER WAI1A Eli 1977: $232

(Atlas methodology, 1975-77 base period)

GROSS NATIONAL PROUCr IN 1977 A___U_L' ____L_______C___________PRIM

US$ Million 3. 1960-67 1967-72 1972-77

GNP at Market Prices 1,1fl.7 100. 0.1 L.7 1.

Crass Doolostic Investmnt 207.2 17.6 -3.0 18.5 11.4

Gross NaLtional Saving 1/ 106.9 9. 1 416.5 23.4 -4. 3

LLirylflL Accoutu. Banlcm -6.4 -4145Expwt of Goods, lIPS 242.5 20.6 -2.2 11.2 5.

imports of Goods, lNP 535.8 28.5 0.2 L1.0 11.9

01UTpUT. LABOR FottSe A;DFu 10CEVT INI 1977

Value Added Labor Porces V.A. per WAorker

US$ Million % HI.% S

Agriculture 44. 5 57.7 -

Induacry 1 204. 2 17.2 .

Services 533,0 4SA 1Unallocated(Manufacturing) (118.81 10.0

Total/Average L,184.7 100O.0 . 100.0 .. 100.0

%OVfllKEKf PiHANOE

G;eneral Govrerent Central Government(G KUL&O~~ % ot Ml (C million) % of CDP

cilli, ~~~~~~1977 M9y677L977 1976-77

Correnc tsc..tpce 678.31 U1.5 11.4 637.2 10.8 10.8

current Expauditur "S0.c 90j, *.1.0 -. 3 6489 11.0 10.3

Currant surplus/Deficit 29.6 0.5 L.1 -11.7 -0.2 0.5

Capital Expenditures 534.7 L' 9.0 9.8 332.9 6.0 6.2

E5trs.nl Assistance (net) 474.5 I.' 8.0 7.2 6.

MOHR Cuou1 AND PIn S

_1970 1971 IIUZ 1973 1974 1975 lZ, 122.7(aillian G oYutstanding end period)

Money xad Quasi Hoeay 198 .2 231.2 322.7 410.2 532.5 597.6 800.5 958.3

Bank Credit to Public Sector V9 1~l.1 9.2 202.5 2 10.41 236,9 324.9 402.3 494.1 549.7

Bank Credit to Private Sector 15.3 78.5 110.4 188.1 328.8 477.6 549,8 682.1

(percentages index umbsers)

Money aud Quasia Honey as 3. of CDP L0.0 11.3 13.6 14.4 15.3 14.5 15.8 16.2

General Price ledex (1965 - 100) WI0 114.6 120.3 127.2 148.8 l69.4 203.0 229.1 260.6

Annual P-arestrs, Changes inGeneral Pri.a Index 3.3 4.9 5.7 17.0 15.6 19.8 12.9 13.77

Bank credit to Public Sector 9/ -2.1 7.0 3.8 12.7 37.2 23.8 22.8 11.3

Bank Credit to Private Sector 9.9 20.2 40.6 70.4 74.8 45.3 15.1 24.1

Hots: All converislons to dollars in thie table are at the average exchange rate prevailing during the period cowered.

I' Data refers to PT "dndlg September 30.2/ Does not include current transfers.

it Mining,. manufacturing, public utilities, construction.t±/ Conaolidated acco,unts oR Central Governmen and Public Ente-priseesAl Central Goverssant total current revenuesl 4 operating surpluses of public enterprisaes

A/ Central Government total expenditure + capicta e.xpenditure of public enterprises + operating deficits of public enterprises - total public sector

,de-velopmenst expen=ditu-re2!Total public stector development expenditure (inc. technical assistgance).

St Nost disbursemente of loans + Ertats.1/Includeg IDB loans to the public sector channeled through the National Bank.

1-0/ GOP deflator.Latin America and thae CaribbeanCountry Prograw IDecember 5. :'978

Page 2 of 2

TR6DE PAYM 3 AND CAPITAL FLOS 1/

BALAQCE OF PAYMENTS NMRCHANDISE EXPORTS (AVERACE 1975-77)

1974 1975 1976 1977 0S$ Million I

(Killion of US$)Coffee 42.0 24.0

export.of Good., NF8 132.5 156.9 209.8 242.5 Sugar 3.7 2.1

Ioport. of Goods, N8 169.8 209.4 272.3 33. g.otia1 Oil. 6.5 3.7

Resource Gap (deficit - ) -37.3 -52.5 -62.5 -93.3 Sisal 1.9 1.1

Bauxite 15.4 8.8

Interest Paynonto (nat) -0.6 -1.5 -2.0 -2.4 Sal1 Industries and hgndioraft 89.4 (531

(A.-biy iOdustvvy, o.t, (14.8) 'S.3)

Other Factor Payneot. (net) -5.3 -5.6 -5.2 -4.6 All Other Canditia* 16.1 9.2

Net Transfer 269 9 4 65.0 68.3 Tot l 170 100.0

8Bs ace of Current Actount -16.3 -20.2 -4.7 -32.0

Direct Foreig.n Invstint 7.9 2.6 5.0 3.0

Net MiT Borrowing Public Debt, incl. guarsnte;d 151.4

Disbbrsnt 10.9 23.9 39.7 61.9 Non-Guarante_d Priate Debt_

ADortitian t l 6.8 5 ,j S Zotai ont.-MAg aD- ia5l.6

Subtotal 4.8 17.1 30.5 51.6

Ot1r ies i n, .i-56 -23.7 -11.0 -11.3 7.

Intr.s. in eor. (+5 -19.2 -24.2 19.8 11.3Public Debt. inel. garanted 5.1

Gr. Rtserves 2/ 14.7 12.7 28.3 35.9 Non-Guaranteed Privata Debt

Set teervee 2/ -0.6 -24.8 -5.0 6.3 Total outstanding nd Diobuored 5.1

Fuel and tolated Material. IRD/IDA LENDING. (SEP7TER 30. 19775 (KILLION U8S)

Inports 12.4 12.9 17.1 20.3

Exporto _ _ _ _ I

Outstanding nd Dieb.rned - 37.3Undiob.rsed - 2.

RSATE OF IXCRANCet Otstanding intl. ndiab.re.d - 61

Throuno - 1971 Sint - 1971USSI 00 - C5.00 US91.00 - G5.00

G1.00 * US50.20 G1.00 - 0850.20

1/ Data ratfr. to fi-cl Years ndig Spt.ob.r 30.2/ S ptber 30.3/ Ratio of Debt S.r-ite in Foreign C.rranc end Good. to leporta 9f Goods nd Not-FP tor S.r-i.c.

not availablenon applicable

L_atjn Aceric& nd the Ceribbeco

Country Progr IDecteber 5, 1978

ATlANTIC OCEAN A 7 L A N T / C CF A N%' , A f I A IV T I C 0 E fA NV@e f ,

7007 DR PAIX

Po_; , ffinF r , jaeI.'p CR/oz4,

4S E .. -a a. -......b.f,_ -

a~~~~~->__,,_; r -4 |' ,<D"''

ASPHALT OI --LD4} ' r|1

_S ASPHAL RE O S RI C E -t aA. Alt .41 3 .. ..., A ", /i...........4 .'

- = C ;2 , 'IRA V E L ' c B ; -,:t-

slit EAR----H--- E0,

M__ _OUNTAIN RANGES, 'I_-., .t:

_ PLATEAU4 | -, .

[= PLAINS ~ _^ < \ t ! : - .< U .2_2S r 1 I°c: cDEPARTMEN4T BOUNDARIES ,,r -m< * , -I.l

- -INTERNATI()NAL BOIJNDARIES r -_. ; -; ' .", ' , > u( f~, I -RIVERS .... .-... ., 0- p "'n

10 ID 20 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~~~~~~. II?

IC C s3 2,0 /;C __\ < S * s A 2 i . t i i ' '-' t'' ~~~~~~~~~~~~~~~~~~~~-7 I, '.-i i '10~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~0

1 ASHAT RECNSRUTE *,*. N>- - tv- 7 sy* , 4 iAP LT, E UNDER-RECOSTR I A'

MOUNTAIN RANGES ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~RTA-PIC

;. . v sJit @ ;t % (-~~~ A R E R A IV S L A . h-7. . r

t ; 73 PLATU73 3- 12,R

__" _ _ , _ __. .J

SUMMARY AND CONCLUSIONS

i. Haiti, with a GNP per capita of $232 in ;977 1/, is the puoresLcountry of the Americas and among the 30 poorest countries in the world.The country faces serious land constraints with a population density of 168persons per square kilometer of national territory or 393 persons per squarekilometer of cultivated j.and. High population pressure, poverty and depen-dence on agricultural income, and low agricultural technology, result inover-utilization of land and severe erosion, which further reduces landresources.

Past Overall Performance

2. Some economic progress was made since the beginning of the 1970s.While during the 1960s the economy stagnated and real per-capita GDP declined,real GDP grew at an average annual rate of 4.1 percent (or 2.4 percent inper-capita terms) during 1970-77. Following the massive increase in coffeeprices, the country's terms of trade improved substantially since 1975; as aresult, average annual growth of Gross Domestic Income (GDY) for the wholeperiod was 4.4 percent or 2.7 percent per capita. Since 1970, manufacturingindustries, construction, and public utilities have emerged as the countriesmost dynamic economic sec:tors with a combined average contribution of 17 per-cent to GDP and 40 percernt to GDP growth. This favorable development wasdue to: (a) the establishment of new industries, especially export-orientedassembly industries; (b) increased government efforts towards socio-economicdevelopment, nart4irularly hv hbu.1ding un the country's infrastructure:(c) strong increases in private consumption and housing investment related torapidti u1rba-ni7ztion.% Sinrcf ncgrircultuare had a dnminant share in G.DP annd qtrnnglv

depended on weather hazards, the year-to-year pattern of GDP growth, however,was rather erratic.

2 DnArnr -n -..1

--- 1- - Fm-a - 4 caleo -n- Nf tho m-i 4 reascone for, 1* ±JLJ 0

6,^ u > L LM s.._ s .. _ .Li,a. IJ*

.' ScI ~LS,. L&.oa .. L , S

Haiti's widening resource gap, which in 1977 equaled 7.9 percent of GDP, upL Uo 3.2 percent in 19710. Agric.LuLULaA. exporULL.s WhichLL, UULr.LLL, 1907 /Uon

average, accounted for 53 percent of total net exports, declined at an annualrate of 2.4 percent in real terms. Or.n the other h.and, food i.ports experiencedsteep increases at 20 percent p.a. in real terms during 1970-76 and accounted4L UL d.UUUL J) U LlL UL . LU WA 4LUL LO iC L V D OCU1.- 1 AL1 L D LLIjJU LO J.X,

1976. Haiti's foreign-trade position is extremely vulnerable: during 1970-77,totaL exports paid only fLor 7 percer[t o' imports. Sluggish export dUeveClopmentand rapidly rising imports may partly be due to the differential betweendomestic and international prices, which de-velopeu over the years (up to 10-20percent since 1960) and was further amplified by the decline in averagetariffs from 26 percent in 1960 to aDout 9 percent Lin 1977. Dut thaLnki s tosubstantial transfers (increasingly in the form of grants to the Government)and loans from official sources on concessionary terms, the country has notfaced serious balance-of-payments difficulties during the past few years. Theprecarious balance-of-payments situation reflects the numerous structuralweaknesses of Haiti's economy; it will constitute a constraint to futuredevelopment unless specific measures are taken to tackle key issues.

1/ World Bank Atlas Methodology, 1975-77 base period.

Agricultural Sector Issues

4. The main weakness lies in the agricultural sector, which, during1970-77, contributed about 43 percent to GDP and, in 1971, absorbed about

74 percent of the labor force. The most important constraint in agricul-ture is the low level of production technology, which translates directly

into low yields of the main crops and contributes to the paradoxical under-

utilization of productive lowlands and overutilization of marginal uplands.The maior areas of technical Droblems are: (i) use of low-vieldine varieties:

(ii) poor crop management; (iii) inadequate use of water resources; (iv)insufficient soil and water conservation; (v) endemic nest nroblems.

5. The general weakness of agricultural sunnort services has allowed

these problems to persist for a long time. The effectiveness of the differentservices of the Minictru nf Agrircltiire (DARNDR), which nre the mnQt imnnrtant

support elements, is hampered by deficient funding and insufficient personnel.Dur4n- 1970-77, less than 8 percent of operational budaet expendituiras was

allocated to agriculture (including rural education). Even considering the

use of PL 480 funds for support of DANDR's current budget, the picturechanges only slightly. This low share compares unfavorably with the sector'simportance in the national economy and results in. low salaries and limited

outlays for operational purposes in the field. Only 85 of DARNDR's 218

gradUuate technicians operate in t ILL Ue di sL .Ltric tL s M I.T r r -1 ati o ofL exter.=

sion workers to farmers (1:7250) is well below what is considered to be thele-vel iecessary for a positive impact (1:800).

0. Other important aspects o'L thLe unfavorable fLarm ervronment are

deficient marketing (lack of roads and storage facilities, intricate

marketing channels) and inadequate price incentives. With the exception

of sugar and cotton, for which prices are regulated, agricultural pricesare subject to free market forces. Domestic food crop prices have almost

persistently been higher than world market prices, while farmgate pricesfor industrial and export crops have been lower than economic prices(=f.o.b. prices adjusted for transport and processing costs). For sugar,

the actual farmgate price in 1976 was only 38 percent of the economicfarmgate price; for coffee, 57 percent; for cotton, 90 percent. Netbenefits per hectare of cultivated land vary widely according to crop

yields and prices. Unimproved cotton, coffee, and unimproved sugarcane

compare unfavorably with food crops. Inadequate price incentives seemto be an important reason for stagnating or declining coffee sugar, and

cotton production. On the other hand, food crops, in spite of favorable

prices, performed poorly because of the low technological level and corres-pondingly low yields.

Industrial Sector Issues

7. During 1970-77, industrial growth averaged 7 percent per year --a dramatic improvement over the 0.6 percent yearly average of the 1960s.The manufacturing industry contributed about 13 percent to GDP in 1977; its

imDortance as source of employment, however, is limited (6-7 percent of

labor force); its effect on income distribution at best is neutral,while its direct and indirect impact on the balance on goods and services

is negative. The sector owes much of its expansionary drive to the export

processing industries, but also to a rapid increase in output ot construc-

tion materials. With the exception of goods processed for export, the

gamut of locally manufactured products reflects the limited market poten-tial of an economy at the early stages of development.

8. Because of a large number of constraints, industry was unableto realize its full potential as dynamic force of development. This is

particularly serious in view of the urgent need for non-agricultural sources

of employment to alleviate both the population pressure on scarce agricul-

tural land and urban poverty. Because of the domestic market's limited

potential, import substi'tution opportunities are becoming less obvious.

Exports of textiles and certain sports goods, two of the fastest growing

activities, have reached the ceiling of U.S. import quotas. Too little

attention has been given to systematic identification and development of new

and promising demand areas. The private sector has insufficient market

knowledge and lacks the technical and economic capacity for proiect prepara-

tion. Public support services do not fill this gap adequately, and exportpromotion. which is Vital for Haiti's economy, is not systematic. Lack

of infrastructure facilities has been a deterrent to both the establishment

of large and technologi�cally more advanred units and the decentralization

of industry. Inter-industry linkages are minimal, and the supply of domestic

agricultural raw materials is not coordinated with proressing raparityv which

is often underutilized. Labor, although physically abundant, is another

important constraint. 'There is an acute shortage of craftsmen, technical

personnel as well as entrepreneurial and managerial talent.

9. The lack of quality control hinders not only export sales, but alsodoruestci. sales. It i0s re.ated to thnue la-or problem but also reflects th-

weakness of the institutional framework. Organizations established to control

product standards are not operating adequately. Other public sector entitiessuch as the Institut de Developpement Agricole et Industriel (IDAI) and its

affiliate, Societe d'Equipement National (SEN), which were set up to play adynamic role in the country's industrialization, have failed to do so forlack of competent personnel and inadequate organizational structures. TheMinistry of Commerce and. Industry is chronically short of administrativeand technical personnel and has, therefore, not been able to work on

comprehensive industrial and trade policies.

10. The overall supply of capital, thus far, has probably not been a

bottleneck to industrial development. But there is a shortage of capital forsmall industrial projects. IDAI has so far failed to fill this gap, and privatebanks do not cater to this market because of legal restrictions and high risk.For establish-ed=firms withi good record, it has been easy to mobilize capitalfrom non-institutional sources or through roll-over arrangements from private

banks. For newc6-medrs, howe'ver, it is often impossible to obtain credit forlack of adequate collateral. This impediment is mainly due to the lack ofmodern legal regulations such as the provision of chattel mortgages.

Public Sector Issues

11. Weak government institutions are, to a large extent, the result ofinadequate mobilization of financial resources. Information on resourceavailabilities is incomplete. In 1977, about 35 percent of total revenues 1/came from unidentified sources, and 39 percent of total expenditures i!were channeled through special checking accounts held at the National Bank.The existence of these substantial flows outside normal budgetary proceduresand an intricate earmarking system do not provide a clear picture of totalavailabilities and requirements and make it difficult to allocate resources inline with changing development priorities. The Government recently decided toimplement major fiscal reforms that essentially aim at integrating all govern-ment revenues into the budget, establishing sound accounting procedures, andstrengthening the tax collection system. These measures are complementedby personnel training and recycling in the recently created Ecole Nationaled'Administration Financiere (ENAF).

12. Apart from the existence of resources that, in the past, were notmade available for general budgetary allocations, the inadequate volumeof government resources is linked to three major problems characterizingHaiti's fiscal system. Firstly, the tax system consists of a large numberof taxes with correspondingly high administrative costs. Secondly, about40 percent of taxes are levied on a specific base and are, therefore, subjectto rapid erosion, especially during periods of high inflationary pressure.This applies in particular to import duties, which, in 1977, accountedfor almost one third of tax revenues. Thirdly, the whole system reliesalmost exclusively on indirect taxes. Taxes on corporate and individualincomes contributed only about 16 percent to total tax revenues in 1977.These general features cause the system's low elasticity, which is estimatedat 0.76.

13. Among the most visible consequences of insufficient governmentreouiircr are the low salaries of government emnlovees and the limitedoutlays for operation and maintenance-related purchases of goods andservices. Real income of government employees declined at about 6 percentp.a. since 1973. Their average monthly salary was about $100 in 1977.The public Sector fails to eain and attrat capeable tand dedicated tech-nical personnel. Outside activities are widespread. Current expendituresfPor -le purchase oil goolds an' ser`ie --- --- rll ----- in reair to1-4- _ - _

LJA L jU .LLa e .JL taiiu V CLL L L = r,~LL~L CLLJ..y LUW ALL L AJ.=4.L±..JLL Lu

personnel costs. The usefulness of some administrations is seriouslyhampered by low b'uudget allocations for operational outlays. The Governmentis planning substantial changes in the level and structure of remunerationof its employees. The increase will initially be financed from PL 480 fundsand then gradually from tax revenues in line with increasing resource avail-abilities.

1/ As reported by the National Bank.

14. Financial and institutional shortcomings limit the country's

absorptive capacity in terms of adequate project implementation. During

the first Five-Year Plan (1971-76), actual development expenditures (for

both fixed investment and technical assistance) were 13 percent below

aggregate budgeted targets (with shortfalls in certain sectors of up to

90 percent). Taking unforeseen inflation into consideration the real

shortfall may well have exceeded 20 percent. In 1977, actual expenditures

again fell by some 20 percent short of budget provisions. Sectors that

have shown the most persistent shortfalls are agriculture, manufacturing,

and water supply. The reasons most frequently advanced for implementation

problems are: firstly, administrative delays in agreeing on project proposals

and their financial provisions; secondly, the lack of skilled technical and

administrative personnel; thirdly, physical obstacles that might have been

discovered if feasibility studies had been thorough; fourthly, the lack of

coordination among different entities within the Haitian public sector as well

as between the Haitian Government and external donor agencies; finally,

inadequate funding.

15. The planning and budgeting process for public sector expenditures

is rather rudimentary= The develonment biidget is drawn up by CONADEP. the

National Planning Board, from information provided by different government

departments, state enterprises, and external assistance agencies on a proiect-

by-project basis. Links between current and development budgets are tenuous.

Ni,,o estimates have been made of what -resenrt inuetment nrnoramq will require

in terms of current public expenditures in the years to come. Furthermore,

the seconlu Five=Year Plan. (-s progressivel- lost its quality 2S an

orientation instrument. Planned sectoral priorities, as reflected by projects

approved by February 1078, a-ready diverge markedly frnm the noriinal tarrets,

and the Plan's projected decline in real development expenditures after 1978

poLnts to the lack oL fLirm pro3ectL ieas or prepareA projects at the time the

Plan was elaborated. In spite of substantial technical assistance, the lack

of adequately prepared (bankable) new projects continues to be a problem

that might hamper the development monentum during the next three years.

Spatial Structure

16. Haiti's socio-economic system suffers from marked spatial

imbalances, which are the result of a strongly centralized political and

administrative system and spatially unbalanced government policies in the

past. These imbalances, as reflected by the differential in per-capita Lncome

among rural areas, provincial towns, and the Port-au-Prince metropolitan area

of 1 to 3.7 to 6.7 in 1976, cause strong rural-urban migration, particularly

from the periphery to Port-au-Prince, where annual population growth is

between 5 and 6 percent. This differential widened considerably under the

impact of recent economic. development, which was mainly fueled by industry,

commerce, and construction -- activities that are highly concentrated in the

Port-au-Prince area. With the beginning of the second Five-Year Plan (1976-81),

the Government has initiated a deliberate policy of decentralization, which is

expected to have a positive impact on the spatial pattern of development.

- vi -

Income Distribution and Poverty

17. The interpersonal distribution of income is extremely skewed,especially in urban areas. While the average per-capita national income in1976 was about $190, more than 60 percent of the population had to liveon annual incomes as low as $60. At the upper end of the distribution curve,some 5 percent of the population accumulated more than 50 percent of nationalincome, and the average per capita income in the highest income bracket(comprising less than 1 percent of the population) is 176 times as high asthat in the lowest bracket (comprising about 61 percent of the nopulation).The absolute poverty line in 1976 stood at $140 per person and year for thecountry as a whole and varied between about $164 in Port-au-Prince, $150in provincial towns, and $135 in rural areas. In 1976, almost 75 percentof the population lived under conditions of absolute poverty: this meansthat the overwhelming majority could not afford what is considered theminimum standard of consumption of food and non-food items. The inci-dence of absolute poverty on population varied for the different parts ofthe countrvy from about 40 nperrent in Port-au-Prince, over 74 percentprovincial towns to 78 percent in rural areas. This resulted in wide-spread malnutrition and even starvation. Malnutrition is particularlyserious among children. According to a 1974-75 survey, only 13 percentof children were considered normally nourished.

Policy recommendations

18. Government policies should aim at the eliminat -on, or at leastF- ~~~~~~~~~~~~~~~~~~~~~~~LL -L.L L _L~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~LUi~O L ± a

reduction, of the most crucial constraints to development identified in thisreport. A maJor aspect is tLI'Le strengthenning of tle country's absorptivecapacity (in both financial and institutional terms) to allow for an effec-ive absorption ofL increased foreign assLstance, wnich is indispensable

for further socio-economic development. An important element in this respectis a comprehensive fiscal reform, which, to be meaningful, will have tostart with the integration of all government revenues and expenditures' intothe budget. hne Government recently committed itself to major reforms inthis direction. Although this measure, by making additional funds avail-able for general budgetary purposes, will solve some of the most pressingproblems, it will not be sufficient in the long run. Since the fiscal systemhas a relatively low elasticity, it is unlikely that government revenues willkeep pace with the longer-term financial requirements. Measures to mobilizeadditional resources are, therefore, considered indispensable. The bestsolution would be a comprehensive review of the whole revenue system. Thereview should aim at: (i) simplification of the system reducing the numberof taxes and consolidating the collection system; (ii) concentration onhighest yielding sources of taxation, enforcement of existing legislation,and modification of some regulations; (iii) elimination of elements creatingdisincentives for domestic production. Besides the elimination of a numberof low-yielding taxes and the reduction of administrative costs (or anincrease in cost effectiveness), the proposed measures concentrate onincome taxes and import duties. With more systematic collection effortsand some changes in the application of customs duties, it should be possibleto gradually mobilize an additional a 54C million per year or 5.2 percent of

GDP by 1983. Besides generating additional government revenues, the proposedfiscal measures are expected to have a favorable impact on income distribution,resource allocation, and the balance of payments.

19. The proposed fiscal measures will provide the financial prerequisitefor tLe necessary strengtueung of' government institutions. An essential stepwill have to be the reform and increase of salaries of government employees.This measure should be complemented by efforts to bring expatriate Haitiancitizens with technical, economic, and administrative experience back to thecountry. Tne strengthening of staff together with organizational measuressuch as improved planning and budgeting procedures should help to make theadministration more effective and provide better support for agricultural andindustrial development.

20. In view of the emerging balance-of-payments difficulties, which,to a large extent, will be due to food imports, every possible effort shouldbe undertaken to increase domestic agricultural production both to substitutefor imports and to create exportable surpluses. Programs should be gearedto the most urgent needs with preference for rapidly offpaying actions,such as an extension of DlRDR's ongoing food grain program to about200,000 ha within the next: four years, the rehabilitation of irrigationsystems, construction of feeder roads, and soil and water conservationincluding tree planting. Massive increases in agricultural productionpresuppose that the various technical constraints be overcome. To this end,the strengthening of the different support services (extension, credit, andmarketing) as well as a rational pricing policy are crucial. The strengthen-ing of the extension service is already under way; 100 additional extensionagents were recently recruited.

21. Further industrial development also essentially depends on thestrengthening of support services with a view to systematic market research,project identification and preparation, improved credit supply, especiallyfor small-scale industries. industrial nromotion and attraction of foreigninvestors, improved quality control, and export promotion. Major effortsshould be made to help small-scale industries to activate the growth poten-tial of local and foreign markets. In this context, action should also betaken to attract expatriate Haitians and to train technical and manoagerialpersonnel. A reorganized IDAI, the proposed private-sector DFC, and theHaitian Industrial Promotion Office (BHPI) will have to play active rolesin this process.

22. Given the structure of production (with strong dependence ona-riculture) and the fragi.Le situation of the balance of payments (withstrong dependence on agricultural exports, transfers, and governmentborrowing, on the one b.and., and hi.gh,. andtn increasing ifLood iLmLports, on theother), future economic devrelopment in Haiti, to a large extent, will becontingent on agricultural anud balance-of=payme.ts perflormance. "Mt thesame time, the industrial sector is expected to play an increasinglyimportant part, partLcularLy with regard to exports. I' current develop-ment trends will continue, it is likely that the country will experienceserious balance-Of-payments difficulties ('see scenario I below). Tneabove policy measures will, therefore, be crucial to improve economicperformance and avoid a balance-of-payments crisis (see scenario !I below).

Growth prospects

23. Scenario I is built essentially around the assumption that trendsobserved during the past seven years will continue, with some changes toreflect the expected impact of ongoing government development policies.Total exports of goods and non-factor services are expected to grow at5.6 percent per year in real terms during 1977-83 and at 5.7 percent duringi983-90; total imports at 5.5 percent (1i77-83) and 5.7 percent (1983-90).Deteriorating terms of trade, mainly as a result of declining coffee prices,will cause current export earnings to lag substantially behind imports;the resource gap will reach 13.1 percent of GDP at current prices in 1983,14.2 percent in 1990. Even rapidly increasing current transfers, 80 percentof which are assumed to be from official sources, and growing governmentborrowing on concessionary terms would not be sufficient to bridge the gap.Substantial amounts of supplementary lending would have to materialize tosustain the increasingly precarious situation and avoid balance-of-paymentsdifficulties.

24. Under scenario II, the proposed measures are expected to result ingradually accelerating growth of GDP (from 4.0 percent per year under scenarioI to 4.4 percent during 1977-83 and from 4.3 percent to 5.0 percent during1983-90) and exports (from 5.6 percent per year under scenario I to 6.4percent during 1977-83 and from 5.7 percent to 6.2 percent during 1983-90).On the import side, the declining volume of food imports and slightly reducedgrowth of imports of other consumer goods and some raw materials will becompensated by faster growing imports of capital and intermediate goods, whichwill result from faster growth of domestic production. The growth of totalimports of goods and non-factor services is, therefore, expected to be aboutthe same as under scenario I, but the elasticity with regard to GDP will hpsubstantially lower. Accelerated and more diversified exports will reduce theressuircp gap and uiirrent- arorint tipfif-it- Penpectped iiunder sc-pnario I. The

resource gap will amount to 11.1 percent of GDP at current prices in 1983 andto 9.4 nprepnt in 1990 s crnmnnrpd to 13.1 nprrcnt and IL-9 nperce-nt- ,nder

scenario I. Assuming slightly higher inflows of direct foreign investmentand of current transfers but urnchanged net disbursements from public and

publicly guaranteed loans, the remaining gap to be filled by supplementarylending will be considerably lower thOan under s.enario T.. Takifng into --cunL

that, based on the assumed availability of bankable projects, an additional$25 million i4n 1983 anA an additionall $10 mi411-on nin cou 1990 col be~ U44.44..~ 4. QLISA a4~..±LLJLIa. 9 W L J.LJULi _L X 47.7 vJ_JLU U U~_ LIi

the form of traditional project lending, the projected "gap" of about $17million in 1983 and $18 million in 1990 would completely disappear. Even iradditional project lending were not to materialize, the gap of about $17mlU_Li pe a is considereU a

I. OVERALL ECONOMIC PERFORMANCE

A. Aggregate production and demand

!. During the 1960s, the Huaitin annnomy virtuallv stagnated and real

per-capita GDP declined. But during the 1970s the situation improved, andfrom 1970 to 1977 GDP showed average annual increases of 41 npercent or, on a

per-capita basis, of 2.4 percent. Following the massive increase in coffee

prices, tihe country's t-erms of trade improved sir.ce 1975 (adparticularly in

1977), and as a result average annual growth of Gross D'omestic Income (GDY) 1/for the w`hLole periLodj was 4.4 percent or 2.7 percent per capita. In 1975-77,

total increase in GDY was 21.2 percent, about 40 percent of which is due to

the improvement in the terms of trade.

2. The growth process followed a ratl c year-t-year pattern;

annual changes in GDP varied between -1.6 percent in 1975 and 7.8 percent in

1974. Tnese overall results were strongly influenced by the performance oLthe agricultural sector, which during the past 7 years contributed an average43 percent to GDP and a total of 26 percent to GDP growth (see table ;).Since this sector is subject to a number of physical and economic constraints

fluctuations in production are marked, ranging from -2.7 percent in 1975 to93 percent in 1974. Data for 1976 and 1977 confirm this growth pattern. In1976, agricultural production increased by 6.6 percent over the previous

drought year; GDP growth stood at 9.4 percent. Estimates for 1977, another

year of severe drought, are 0 percent for agriculture and 2.6 percent for GDP.

Table 1: GDP AND GDP GROWTH BY SECTOR, 1970-77

(Percentage figures)

Contribution toGDP GDP growth

1970 1977 1970 - 1977

Agriculture 44.8 40.3 26.3Mining, quarrying 1.8 1.6 0.7

Manufacturing 10.5 12.8 19.9Construction 2.4 5.0 13.4Public utilities 1.4 2.6 6.2

Transport, communications 3.6 4.0 4.9Commerce 10.5 11.1 13.1Banking, insurance 0.5 0.7 1.5Housing 10.1 8.5 3.9Government 7.8 6.8 3.7

Personal Services 6.6 6.6 6.4GDP at market prires (%) 100.0 100.0 100.0

G millinn

(1955 prices) 1,560.7' 2,061.6 500.9

Source: See table 2.1, Statiuitf an Appendrx.

1/ GDY = GDP adjusted for change in terms of trade.

3. Since 1970, manufacturing industries, construction and publicutilities have emerged as the most consistently dynamic activities with annualaverage growth rates of 7.0 percent, 16.0 percent and 13.7 percent, respec-tively. Their combined share in real GDP averaged 17 percent, but their totalcontribution to GDP growth during the 7-year period was around 40 percent.These figures reflect the three major tendencies that shaped economic develop-ment during the past few years: (a) establishment of new industries, espe-cially of the export-oriented type; (b) considerably increased governmentefforts towards socio-economic development, especially in building new infra-structural facilities; and (c) a strong increase in private consumption andhousing investment related to a rapid pace of urbanization. The strongest(autonomous) impulses came from investment (particularly in the public sector)with a net share (net of imports) in-the real growth of GDY of about 27 percent.Equally important was the export sector with a net share of 26 percent, to alarge extent due, however, to the improvement of the country's terms of trade(13.2 percent). Consumption, mainly private with a heavy urban bias, accountedfor the remaining 47 percent of growth (see Table 2).

Table 2: GDY AND GDY GROWTH BY DEMAND COMPONENTS, 1970-77

(percentage figures)

Net-of-Imports /aCGros Net-of-imnorts /n Cnntributions to

Contributions to Contributions to GDY GrowthGDY nY 1Q970-1977

1970 1977 1970 1977

Consumption 93.5 95.9 74.6 67.4 47.1

Investment 11.1 17.1 6.0J 11.5 2.0

Exports /bu /2.5 31. 1.J4 21.1 .

imports -27.1 43.3

GDY % 100.0 100.0 10. 100 0.,t. vo .An n .A n ~ ~~~~~ .m v 0.n O i ,mn

G million 1,561.5 2,115.0 1,561.5 2,115.0 553.5(1955 prices)

/a Direct and indirect imports./b Exports adjusted for changes in terms of trade.

Source: See table 1.3, Statistical Appendix.

-3-

B. Balance of payments

4. During 1975-77, Haiti's balance-of-trade performance was strongly

influenced by the massive increase in coffee prices: while the increase in

total merchandise exports was $80.8 million, increased coffee export earnings

accounted for $45.2 million or about 56 percent. The Government's share of

the increased earnings amounted to about 23 percent; the rest went to the

private sector nnd fueled the imnort of consumer goods.

5. Economic development during 1970-77 was accompanied by a rapid

increase in imports of goods and services; annual growth of net imports (net of

inputs for assembly industries) averaged 87 npercent; which is high compared

to an average increase of real GDY of 4.4 percent; the resulting import

elasticity is 2.0. T is estimated that only a fraction of the inrrease in

imports (about 30 percent) was either directly or indirectly linked to invest-

ment, and that export=related imports (excluding the assembly industry)

increased only at relatively low rates. The bulk of import growth was directly

or indirectly geIerated. by rapidly increasing consumption, mostly private

and urban. Food imports (mainly wheat, rice, and vegetable oils), which in

1976 accounted for about 60 percent of these consumption=oriented imports,

were a major factor behind this development. During 1970-76, they increased at

about 20 percent per year in real terms because of agr'culture's generally

poor performance and its extreme dependence on weather conditions. This also

explains the sluggish development of exports, which are preaominanitly of

agricultural origin. Consumer durables and other non-essential items, which

accounted for slightly more than 30 percent of consumption-oriented im-ports

were the other major driving force.

6. Net exports (net of imported inputs for assembly industries),

during 1970-77, increased at about 3.4 percent per year in real terms.

Thanks to recent improvements in Haiti's terms of trade, the terms of trade

adjusted net exports (purchasing power of exports) increased at an annual

average rate of 5.7 percent. This growth came exclusively from industrial

exports (mainly from small industries, handicraft, and assembly industries);

these exports started from a small base, and real increases during 1970-77

averaged 13.7 percent per year. Agricultural exports, which accounted

for about 53 percent of net exports on an average, declined at a compound

rate of 2.4 percent. And the decline of mining exports at 1.7 percent a

year added to poor overall performance (see table 3.4, Statistical Appendix).

7. The result of these divergent developments was a widening resource

gap: from 3.2 percent of GDP in 1970 to 7.9 percent in 1977. In the early

1970s, transfers were sufficient to bridge the gap and to provide even for a

small current account surplus. During 1973-75, however, the financing of

the resource gap resulted in net foreign reserve losses of the Banking System.

During the past two years, the country had no balance-of-payments diffi-

culties since grants and loans on concessionary terms were readily avail-

able to finance the increased food and development-program related imports.

As a result, the country's net reserves that were negative from 1974 to

1976 reached a level of $6.3 million as at the end of September 1977.

Gross reserves amounted to $26.7. million, equivalent to about one month's

imports of goods and non-factor services.

- 4 -

8. The main sources of financing were transfers and government borrowing;direct investment played only a minor part (see table 3).

Table 3: SUMMARY BALANCE OF PAYMENTS, 1970-77

($ million)

1970 1971 1972 1973 1974 1975 1976 1977

Exports a/ 61.2 72.7 78.8 102.3 132.7 157.2 210.8 243.5Imports a/ 77.4 90.0 103.9 123.9 175.9 216.8 280.5 343.8Net transfers 21.9 18.9 34.1 i9.i 26.9 39.4 65.0 68.3Current account 5.7 1.6 9.0 -2.5 -16.3 -20.2 -4.7 -32.0

Governmentborrowing 3.0 1.3 -0.4 -2.3 4.8 17.1 30.5 51.6

Private capital -6.0 4.2 -0.3 3.4 -7.7 -21.1 -6.0 -8.3SDR allocations 2.5 2.0 2.1 -- -- -- -- --

Change in reserves -5.2 -9.1 -10.4 1.4 19.2 24.2 -19.8 -11.3(increase -)

a! Goods and all services.

Source: See table 3.1, Statistical Appendix.

Transfers increased from $19.1 million in 1973 to $68.3 million in 1977.While private transfers (mainly remittances from expatriate Haitians) showeda somewhat erratic behavior, public transfers (mainly food aid and technicalassistance) increased steadily and at a rapid pace. In 1977, public transfersaccounted for more than 63 percent of total transfers. Beginning in 1975,disbursements of loans from multilateral and bilateral sources to support theGovernment's development efforts increased dramatically. Most of the loanswere on highly concessionary terms (1974-77 average: 2 percent interest; 40.4years maturity; 68.3 percent grant element). The debt service, therefore,amounted only to S12.4 million or 5.1 nercent of exports of goonds nd sprvirpe

C. Public finance

9. Dur4ng 1972-77, total government revenues increased at an averageannual rate of 18 percent, while growth of GDP at current prices averaged 20.0percent (see t.aOle 4). T*-.he buoyancy of the -. system amuounte to aoutL

0.9. Discounting for non-recurring events that took place during 1972-77,h .tt aa sL! t £1 L-L t SJ kAuC.t i±.LJn.L ijt a inew e7 mC. o ff IDOtaux it ie t Oaax -L t i o n, LL 0 suc" asteitouto fanwsse fbuietxto, LtLe rise in.

coffee prices, and a large jump in unidentifiable revenues, and on the basisoLf tax Leg0aislatiLon 1in effect in 1977, tLe system's elast0ic ity is estimated ot

be only about 0.76.

_ 5 -

Table 4: GOVERNMENT REVENUES AND EXPENDITURES, 1972-77

(G million)

AverageAnnual Growth

1972-77107') 10724 107/, 1C7R 107A 1077

Total revenues 278.8 303.6 334.7 463.4 546.6 637.2 18.0

Operating budget 173.5 191.5 205.7 225.0 285.3 357.9 15.6

Other 105.3 112.1 129.0 2O8.4 261.3 279.3 21.5

Total expenditures 313.5 298.2 386.5 536.3 646.6 782.2 20.8

Operating budget 16-9.1 182.5 187.9 204.3 231.7 272.3 iO.0

Other 1-34.4 115.7 198.6 332.0 419.9 510.0 30.6Surplus or deficit -2.4.7 5.4 -51.8 -72.9 -100.0 -145.0 --

Memo: GDP at currentmarket prices 2,376.7 2,843.0 3,489.4 4,112.3 5,076.9 5,923.6 20.0

Source: See tables 2.2 and 5.1, Statistical Appendix.

10. Total government expenditures went up at an average annual rateof 20.8 percent during 1972-77, more rapidly than current revenues. The over-all deficit increased from. about 1 percent of GDP in 1972 to about 2.4 percentin 1977. This development resulted from steep increases in expendituresoutside the operating budget (30.6 percent p.a.), which are largely linked toGovernment's increased development efforts. 1/ Total public sector developmentexpenditures experienced an average annual growth of 44.2 percent from 1972to 1977. Operating budget expenditures, however, expanded at a low pace ofabout 10 percent p.a. (1972-77); in real terms. they declined at an averagerate of 3.4 percent p.a. Consequently, a growing imbalance exists betweendevelopment expenditures for, among others, economic and social infrastructureon the one hand, and recurrent outlays for the operation and maintenance ofthese farilities- on the other hand.

I/ Duri-n 1Q79-77, tntal dvcelonnment ,exnpnditurpes- on an avp' aCCoUnted

for about 95 percent of expenditures outside the operational budget (seetale 4nd 5).

- 6 -

11. Public sector development expenditures, which comprise both invest-ment anu techn.ical assiLstance, dUuriLrg 17 I -7 I I,increased, tL ar. average a-ual

rate of 44.2 percent (about 27.6 percent in real terms). The increase wasparticularly steep since 1974, lanks tLo the rapid growth in foreign financialand technical assistance. For the 1972-76 period (first Five-Year Plan) onaverage, development expenditures were financed to about 61 percent fromabroad through grants (38 percent) and loans (23 percent) and to about39 percent domestically through public sector savings (26 percent) anddomestic credit (13 percent). In 1977, development expenditures totaledG 534.7 million. Net disbursements from foreign loans and grants increasedsharply, and domestic financing from savings and credit was about 11 percent(see table 5).

Table 5: SUMMARY PUBLIC SECTOR ACCOUNTS, 1972-77

(G million)

AverageAnnual Growth1972-1977

1972 1973 1974 1975 1976 1977 (X)

Current receipts /a 293.9 317.2 347.7 479.4 572.7 678.5 20.5Current expenditures /b 260.8 252.6 324.6 416.2 487.8 648.9 20.0Current surplus 33.1 64.6 34.1 63.2 84.9 29.6Development expenditures 85.9 101.3 167.9 291.1 437.5 534.7 44.2Overall deficit -52.8 -36.7 -144.8 -227.9 -352.6 -505.1Financing (net) 52.8 36.7 144.8 227.9 352.6 -505.1Internal (net) /c 16.8 3.2 57.3 47.4 30.6 30.6External (net) 36.0 33.5 87.5 180.5 322.0 474.5

Loans (net) -2.0 -11.5 24.0 85.5 152.5 258.0Grants 38=0 45=0 63 9 95.0 169-9 216-9

Memo: GDP a-t currer.tmarket prices 2,376.7 2,843.0 3,489.4 4,112.3 5,076.9 5,923.6 20.0

a4 .atVCLui.LL.tI 1.CVCL.UUC IJpSLat..La oW.Lp.aLbco Vw jJuJ-^ ---lw-r-wo- ;w%-.LALe

Regie du Tabac).{' otal Governmer.;n expenditures iLncl. grants + capital expendi4tures of

public enterprises - total public sector development expenditures.Ic Including statistical difference.

Source: See tables 5.4 and 5.7, tat'LstLcal Appendix.

D. Money, credit, and.prices

12. Since Haiti's economy is "doliarized,"--the U.S. dollar is used as a

legal tender and may account for 30-40 percent of currency in circulation--domestic money supply and credit have had little impact on output and prices

- 7 -

in Haiti. Because of the economy's general structural features (high shareof agriculture in GDP, open economy without exchange controls), output andprices depend more on events beyond the country s control, such as weather,condition of U.S. market, and international inflation. Money supply and credit,thus, become rather endogenous than exogenous (policy) variables. Neverthe-less, both should be carefully controlled because, even if their effect onproduction and prices may be limited or, at most, of short duration, theireffect on the balance of payments is direct. Money supply and credit, byfueling imports and capital flight, may be the main sources of disequilibriumin the balance of payments.

13. During 1970-77, money supply, defined in the traditional wayas domestic currency outside banks and demand deposits (M 1), showed a rathererratic development. A comparison of the changes in M. and GDP would suggestthat the demand for cash in Haiti is highly volatile. Since the U.S. dollar,however, is also used as legal tender, a more meaningful concept of M- wouldhave to include U.S. currency outside banks, which depends on the flows fromtouirism and nrivAte tranrfpr- thp mAin .niirrR nf rirriO1qtinc dn11qrq- Dlvl-opment of the more broadly defined money supply, M , was more stable (seetable 6). This reflected a considerable increase in (intre e ina)

savings and time deposits, which is due partly to a shift from cash balancesdurfing the years of high inflationary, pressure, partly toincreased private

transfers in response to the positive interest rate differential between theTT C A Hal_ A - - - - -4---A C M _- A r T'%D _ .. AA|A_ -1 In |A |4 ..A .A1. u. 1. OLLU AiJL L. - 1 _awJLU3 L .LO.JLL uL vi2 'aL L 0 LO aLL C-^. L. L La U.J oiUs4ua By

increasing monetization of Haiti s economy.

'rt -- -.,.t¶rw, fl n., 1, -'nn mm A.1's - -r . I nfl7 1 ' -7Ta ble 6:r C'1NEO MNYSPL, GDP, DPRnICES,19-7

(percentage figures)

M .100 M .100GDP at 1 2Current Consumer

M1 M2 Prices Prices GDP GDP

1971 24 32-4 12.4 5.8 8R0 11L31972 23.5 40.4 6.6 4.9 9.3 13.71973 58.6 40n0 15-4 19.3 9.7 15.01974 15.8 55.5 26.7 16.1 8.9 15.41975 -4.3 34 9 18.6 18.6 7-2 14-61976 8.5 29.3 18.6 6.7 7.3 15.81977 8.R 29 . I1. 6R 7 6i 7 16 n

Sources: National Bank; IMF; Haitian Statistical Institute; missionestimates.

- 8 -

14. Bank credit increased substantially over the past 7 years, ataL,,,inuall rates fluctuating between 9.8 percent anA 57.8 p9er ent. (see table 7).

Table 7: EXTENSION OF CREDITS OF THE BANKING SYSTEM, 1970-77

Credit to Public Sector Credit to Private Sector TotalAnnual Annual Annual

G Million Change (%) G Million Change (%) G Million Change (%)

1970 189.2 - 65.3 - 230.1 -1971 202.5 7.0 78.5 20.2 252.6 9.81972 210.1 3.8 110.4 40.6 284.2 12.51973 236-8 12-7 188.1 70=4 385.0 35.5

1974 324.9 37.2 328.8 74.8 607.7 57.81975 402.3 23.8 477.6 45.3 843.3 38R1976 494.1 22.8 549.8 15.1 1,004.1 19.11977 549Q7 11L3 6R2A1 24-1 L1217.8 21-3

/1 Including interbank float and unclassified credit.

Source: National Bank; IMF.

urowth was partiLcuLarly steep 'or creULt grLnteU to the priLvate sector, which,

since 1974, was the main recipient of domestic credit. Credit expansionwas high compared to GDP growth. This low "production elasticity" partlyresulted from the Haitian economy's transformation into a monetized marketeconomy, but mainly from the use of substantiai amounts of credit for thefinancing of operations abroad, without (immediate) impact on domestic produc-tion. Medium and long-term foreign liabilities became an increasinglyimportant source of financing of domestic credit. This was the result ofincreased foreign financial assistance to Haiti's planned development ettorts,and the greater opening of the economy towards the rest of the world.

15. Free convertibility of the gourde and a fixed exchange rate againstthe U.S. dollar make domestic prices (as measured by the Port-au-Prince costof living index, the only available calculation of domestic prices) closelyfollow international price movements. Following the international trend,price hikes were steepest from 1973 to 1975, with an annual average of about18 percent. Sluggish development of domestic agricultural production andrapidly increasing urban demand resulted in additional pressure on domesticprices. This tendency led to a differential between domestic and internationalprices which attained about 16 percent in 1977 as compared to 1960 (seetable 8). Considering that about 20 percent of tradeable goods are actuallyimported, the real differential between domestic and international prices in1977 may well have exceeded 20 percent.

-9-

Table 8: DOMIESTIC AND INTERNATIONAL PRICES, 1960-77

(index figures)

Inter-Port;au=Frince Cor.sumer Price Index nati-al Diffe-

Total Food Clothing Housing Tradeables /a Prices /b rential /c

I W. i~( A I fr%i0 An AI A ifl A MM nnn iA

190, 10.0VV 0.0V 100.0 10U.0 10. 1 !.0

1965 119.8 122.1 131.4 120.5 124.2 104.7 1.186

1970 133.8 136.0 134.3 112.8 135.6 110.8 1.2241971 141.5 142.3 134.4 130.8 140.5 120.7 1.164

1972 148.4 153.5 149.2 128.6 152. 5 132.9 1.147

1973 177.1 193.2 153.7 141.5 184.4 157.1 1.174

1974 205.6 220.2 188.4 168.7 213.1 194.9 1.093

1975 243.9 256.0 263.1 178.8 257.6 229.1 1.124

1976 266.8 287.5 267.9 188.4 283.1 238.8 1.186

1977 284.7 308.6 265.1 216.0 298.9 256.7 1.164

/a Tradeables = food + clothing, weighted average.

/b Developed countries CIF index of US$ prices of manufactured exports,calculated by IBRD; adjusted for Haitian fiscal year.

/c Ratio between domestic prices for tradeables and international prices.

Source: Haitian Statistical Institute; IBRD; mission estimates.

II. SECTORAL DEVELOPMENTS AND ISSUES

A. Agriculture

Production trends

16. In the absence of firm production statistics it is difficult to

assess the agricultural sector's performance. Declining agricultural exportsand rapidly rising food imports, however, indicate poor performance. On the

basis of rudimentarv-Droduction figures compiled by the Ministry of Agriculture(DARNDR), it is estimate-d that, during 1970-75, crop production increasedat an annual average-rate of 2.2 percent, with fluctuations ranging from -2.7

percent to 9.3 percent (see tables 7.1 and 7.2, Statistical Appendix). Produc-

tion indexes comp-Jt<d bv_FAO and U.S.. Denartment of Agriculture indicate slower,

but more stable developme'it. Available data on food production, exports, and

im-orts suggest that the, -pparent domestic demand for food, since 1970, in-

creased at an. annual average rate of 3.5-3.7 percent (per capita: 1.8-2.0

percent). With regard to the annual average growth of Der-capita GDY of 2.7

percent, the income elasticity of food demand is about 0.7. Because of numerous

- It -

constraints, domestic food production failed to keep pace with demand, andfood imports rose at annual rates averaging 20 percent in real terms over thepast few years accounting for 16 percent of total food consumption in 1976.

17. Haiti's land area is roughly 2.8 million hectares. Almost 40percent is unsuitable for cropping. The remaining 60 percent is used forcrops (40 percent), animal production (11 percent) and forestry (9 percent). 1/Almost 60 percent of agricultural land is used for food crops (mainly corn,sorghum/millet, plantain, beans, rice), about 40 percent for export andindustrial crops (coffee, sugarcane, cocoa, cotton, coconut) (see table7.3, Statistical Appendix). Average yields are low compared to those obtainedin the Dominican Republic or to potential yields as achieved in a project inthe Cul-de-Sac plain (see table 9). 2/

Table 9: AVERAGE YIELDS OF SELECTED CROPS

(Kg/ha)

Country Average /a Dominican Republic /b Bas Boen Project /c(Cul-de-Sac-Plaiin)

Sorghum 980 - 3,500Beans 520 840 1,500Maize 1,080 1,300 3,500Plantain 2,390 -Rice (paddy) 2,500 3,500Cocoa 300 500Coffee 2,250 500Sugarcane 40,000 58,000Cotton 340 1,800Gassava 3,000 7,900

/a Source: CONADEP, 1971; IICA 1975./b Source: IBRD./c Source: Israeli mission.

18. Poor agricultural performance results from very compiex physical,tecnnical, social and institutional constraints. Most of the physicalconstraints, such as mountainous terrain and scarce precipitation insome areas, have to be taken as given. Irrigation, reforestation, and other

1/ See Appendix I: Regional Resource Base and Development Potential.

2/ The situation and prospects for the main agricultural crops andother agricultural activities are described in Annex II.

soil conservation measures will certainly help to enhance or rehabilitate

the country's potential., But the scope is relatively limited. Social

constraints, such as farm size and fragmentation, are the direct result of

the high population density (393 people per Km2 of cultivated land) and legal

regulations concerning i'nheritance. Substantive improvement could only be

expected if massive employment creation were to take place outside the

agricultural sector, thus providing the population with an alternative

economic base. Since this is not expected to happen to the required extent

in the foreseeable future, the social constraints are also considered as

given. Therefore, the analysis concentrates on technical and institutional

constraints that could be tackled within a reasonable time horizon.

Technical constraints

19. The most important constraint in agriculture is the low level of

production technology. The only nrodurers that aDnlv improved technology

are agribusiness firms growing sisal or sugarcane, and small holders in

scattered sections of thie countrv following imnroved nractices introduced

through outside technical assistance. The low level of technology translatesdire-t-ly 4i-n 1-o yields of the main crops. It imparts to Haitian agricul-

ture one of its main and most paradoxical characteristics: the underutiliza-

tion of the productive lowlands, and the overutilization of the marginal

uplands with resulting erosion.

20. The five major areas of technical problems are: (i) use of low

yielding varieties; (ii) poor crop management; (iii) inadequate use of water

resources; (iv) insufficient soil and water conservation; (v) endemic pest

problems. Crop varietiEs used in Haiti were introduced during colonial times.

They are characterized by low yields, long cycles (four to six months) and --

in the case of cereals -- long stems. These characteristics make crops

vulnerable to drought, parasites, and wind damage. Some progress was made

over the last 20 years with the introduction of improved varieties of sugar=

cane, cotton, rice, and maize. The most encouraging development has been the

recent introduction of high yielding varieties of rice, maize, and sorghum.

2i. Poor crop management also has negative effects on y'ields. Weed

control generally is insufficient, use of purchased inputs (fertilizers,pesticides), limited (mcst often justifiably, since local varieties would

not give an economic response). Coffee and sugarcane growing are little

more than picking or cutting exercises, with little or no management. Land

preparation by hand is also relatively poor and often constitutes a bottleneck.

Furthermore, disregard of quality and lack of quality control adversely affect

returns from industrial and export crops. For example, there is no premium

for sugar content of cane or lint quality of cotton, and poor quality of

coffee and vetiver oil results in low export prices.

22. Some 226,000 ha of soils would be suitable for irrigation, if suffi-

cient water were available at reasonable cost. Out of this area, 66,000 ha

are currently under some form of irrigation. It is estimated that another

11,000 ha could be irrigated without major investment. The irrigation poten-

tial in the country is not precisely known because of lack of streamflow data

- 12 -

and knowledge of groundwater resources. Only a few thousand hectares benefitfrom full water control, which is necessary to achieve highest returns fromirrigated agriculture. Much of the irrigation system is old, sometimes builtin colonial times, and in need of renovation. The irrigation infrastructurehas been destroyed or damaged by floods, especially by the hurricanes of the1960s. Water intakes and canals have silted up as the result of erosion.Many areas are water-logged for lack of drainage or because of deteriorationof distribution systems. Over-irrigation sometimes also is a nroblem.Irrigation efficiency is further impaired by the lack of leveling, the presenceof trees scattered in the fields, and farmers' inadequate knowledge of cropwater needs.

23. Soil erosion affects most areas of Haiti; it results from heavynonpil2tion nressure on land and forests, scarcity of flat or moderatelysloping land, and poor utilization of soil resources, especially the produc-tive valleys and plains4 According to FAO estimates, the country loses some15 million cubic meters of soil each year, corresponding to 6,000 ha of land.Although most of the erosion affected lar,d is still usable, especially fortree planting, the productivity declines rapidly. Other erosion effects are:(i) poor utilization of water because of excessive runoff and higher fluctua-tions of the underground water supply, causing shortages of irrigation waterin dry areas; (ii) disruption o LirrLgated agriculture; (ii) rapid siltationof the Peligre reservoir.

Institutional constraints

24. The general weakness of agricultural support services has allowedthe above-mentioned technical constraints to persist for a long time. Themost important support elements are the different services of the Ministryof Agriculture (DARNDK). Their effectiveness is hampered by deficient funding.During 1971-77, an average of less than 8 percent of operational budget expen-ditures was allocated to agriculture (including rural education); sharesin 1975-77 were considerably lower (see table 5.5, Statistical Appendix).Even considering the use of PL 480 funds for support of DARNDR's currentbudget, the picture changes only slightly. The low share in operationalbudget expenditures compares unfavorably with the sector's relative importancein the national economy (contribution to GDP about 43 percent; share ineconomically active population about 73 percent); it translates directly intolow salaries for employees (average monthly salary in 1977: G 360 as comparedto G 620 for the rest of the public administration) and limited outlays foroperational purposes in the field (about 5 percent of DARNDR's total oper-ational budget expenditures). Out of DARNDR's 218 graduate technicians, only85 are operating in the districts. The resulting ratio of extension workersto farmers (1:7250) is well below levels necessary for a positive impact(1:800). Whatever staff is assigned to the field, lacks the means to operateefficiently. Strengthened field programs are restricted to areas or projectssupported by external agencies.

25. Duplication of efforts, lack of coordination, and lack of effectiveprograms aggravate the situation. In some areas, district agronomists operateside by side with regional development agencies, the latter having first callon government resources. At the field level, extension services are provided

- 13 -

under the district agronomist, by the Coffee Institute (IHPCADE), IDAI, andBCA. The activities carried out by various technical assistance and voluntaryagencies are not coordinated; this often results in poor utilization ofresources. Programs are often fragmented and uncoordinated and lack firmorientation towards specific goals. The absence of technical packages, whichiq tiiR p to the natucitv of research data and the lack of continuitv of technical

assistance programs, is striking. The trend towards the establishment ofreoinnnl agnrice shniold heln ensure that all agencies within a region move inthe same direction and participate together in well-planned regional programs.

26. Another important aspect of the institutional framework is thegenera! weakr.ess of community organi-zations. Th Ha itian farmar is rharac-

terized by strong individualistic attitudes, and cooperativism has onlylitt1-le tradition. Differer.t organizations (Poum.bites escouaides, -agricuil tuiral

credit societies, community councils), however, exist on the village level,wLLhcLL iay developed to become effective instrumer.ts of rurall developmen.t.The coumbites are informal temporary groups for mutual aid in agricultural

tasks such as 'Land preparation. ThIe escouadues are m Loreh -p-erm-anen--t, weLl

structured groupings of Eive of 15 members. They are fairly stable andcan become effective vehLcles OL rura'L development, iL given 'Legal statusand encouraged to form federations. The Organisme de Developpement du Nord(ODN) is promoting credii: associations to become labor-sharing associations(societes agricoles de travail) according to the escouade system. A numberof agricultural credit societies (SACs) have been created to secure creditand ensure collective guarantee. Community councils have been createdthroughout the country for community improvement (road repair, maintenanceof irrigation works, school building and maintenance) through self help.They are promoted by DARNIDR and HACHO (Haitian American Community HelpOrganization).

Marketing and prices

27. Dispersed agricultural production, which is the result of smallholdings, land fragmentation, and lack of roads, tend to make marketing acomplex operation. The marketing system is quite different for food andexport or industrial crops. The differences may be summarized as follows:

- 14 -

Food Crops Export Crops

Agent Woman (Madame Sarah) Man

Producer/trader Sale by farmer; bargaining; Purrhasp by huyvpr (Speculatevur);relationships regular customer no bargaining; no fixed

c1 i antsl C.

MpeIIrp Voluime Weight

Prirc Tnfrmatin Limited Passable

Place of Marketin Markets StorsL , wahous.LL s

Transportati.4on S- 11 quant ties zc om -a g -quar.;ities;-

panied unaccompanied

Credit Rarely available Available (high interest)

Taxation Abolished in 1974 High

28. Marketing of food crops follows a well structured, intricate route.The farmer sells his produce to intermediaries (Madame Sarah), either directlyon the farm or on rural or regional markets. The Madame Sarah plays a key rolein food crop marketing. She (a) finances purchases in rural markets, usuallybulking a single commodity from a number of growers; (b) travels by truckwith her stock to the city; (c) stores her stock in rented facilities; and(d) sells the commodity to warehouse owners or retailers. Marketing is laborintensive and, therefore, a source of employment for many people. It isestimated that every week more than 10,000 Madames Sarah bring produce intothe Port-au-Prince area. In addition, some 11,000 retailers make a livingfrom the sale of food products. Given the features of the marketing process,marketing costs must be considered modest. According to a bean marketingstudy in the Cul-de-Sac plain near Port-au-Prince, the marketing margin wasestimated to total 25 percent of the producer price. In other areas, marketingis probably more expensive because of higher transport costs. Many marketshave either no or poor road connections.

29. Coffee is purchased from growers by licensed purchasing agents,called "speculateurs", who operate buying posts in drying facilities andwarehouses, in towns and villages. There are about 820 speculateurscompared to some 384,000 growers. The average speculateur buys about 400sacks (60 kg) per year, which he transports to one of 113 buying postsin the port cities. The speculateur is usually financed by one of the23 exporters to whom he sells the coffee. The exporters handle drying,cLearing. sorting. grading. and shipning of coffee.

- 15 -

30. Cocoa purchasing, until recently, was the monopsony of HAMASCOSA(Haitian Manufacturing and Specialty Co.), a private firm, which processes andexports cocoa. Another private firm, HAMPCO, has been awarded monopoly rightson all slaughtering in the Port-au-Prince zone; the firm exports beef to theUS. The marketing monopoly for cotton is in the hands of IDAI. Vetiver,amyris, lime, and bitter orange are purchased by processors for distillationof essential oils.

31. The lack of storage facilities for grains translates into consider-able seasonal price fluctuations (see table 10). Price fluctuations aresufficiently important as to probably justify investment in on-farm orcommunity-level storage facilities. Regional price differentials are alsomarked (see table 11), reflecting the lack of both roads and storage facilities.

Tahle 10: MONTHLY INDEX OF GRAIN PRICES AT PORT-AU-PRINCE

(198R-74E noaveraogs)

G/lb J F M A M J J A S 0 N D

Corghum _ n inn 017 in) 1A7 07 1 n A 1i n7 1 n7 1t70 L L UE JV XVV 7 I *V W | VW 9 I - V I-|V - 4 -V S

Maize .32 100 105 114 123 127 168 132 132 123 123 114 109Red Bean .69 100r I0 106 I 113 a 12 11 n 132 10 13 11 117 116J,If 103£L.eu L o7atJ.U LU' U'.JJ J.U J'S -J.1 UL L UJ _. .L 'S .L J..F L..J. LUL I ~LU' LUS

Premium Rice .83 100 99 104 113 110 110 123 111 112 118 107 102

Source: IICA.

Table 11: INTERREGIONAL PRICE DIFFERENTIALS FOR MAIZE AND BEANS

(Averages July-September 1977)

G/lbMaximum Minimum

Maize - Grain (six regional markets) .53 .30(six rural markets) .60 .38(six urban markets) 61 .43

Red Bean (five regional markets) 1.24 .94(six rural markets) 1.13 .84(five urban markets) 1.50 1.10

Source: IICA.

- 16 -

32. With the exception of sugar and cotton, for which prices areregulated, agricultural prices are subject to free market forces. During1968-77, domestic agricultural prices generally followed a strong upwardtrend. The bumper crop in the second half of 1977, however, resulted in asharp decline (see table 12). Domestic food crop prices have almost persis-tently been considerably higher than world market prices (see table 13), whilefarmgate prices for industrial and export crops have been lower than economicprices (= FOB prices adjusted for transport and processing costs). For sugar,the actual farmgate price in 1976 was only 38 percent of the economic farmgateprice; for coffee, 57 percent; for cotton, 90 percent (see tables 7.4-7.6,Statistical Appendix).

Table 12: YEARLY INDEX OF GRAIN PRICES AT PORT-AU-PRINCE. 1968-78

G. / lh TT n TJn.

(1968) 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978

Ma-i-ze .21 100 76 81 900 110 29 205 295 224 3/ 0 200Sorghum .26 100 96 - 104 104 162 165 192 - 154 115DA Bean 1 10 0/. 07 10n; 191 1C: 17/. 910 I 10 10R 101

Premium Rice .65 100 89 105 142 132 208 197 262 246 271 194

Source: IA

Table 13: INTERNATIONAL AND DOMESTIC GRAIN PRICES, 1974-78

($ per ton)

International Prices Domestic PricesJan. Jan.

1974 1975 1976 1977 1978 1974 1975 1976 1977 1978

Rice /a 650.4 435.6 305.4 326.6 406.2 564.6 750.9 705.0 776.7 556.0Maize /b 151.8 137.5 129.3 109.6 110.2 189.8 273.1 207.4 287.0 185.2Sorghum /b 139.2 128.7 121.0 101.7 101.7 189.1 220.1 N.A. 176.5 131.8

/a FOB Bangkok + 20 percent for freight, insurance, distribution./b FOB Gulf Ports + 15 percent for freight, insurance, distribution.

Source: IBRD; IICA.

- 17 -

33. Actual crop yields and agricultural prices result in a wide varia-tion of npt benefits per hectare of cultivuted lnnd= Uinimnroved cottongives, by far, the lowesi: return. Coffee and unimproved sugarcane alsocomnare unfavorablu wi-th fo-od crops (see table 7.7, Staticrirnl Appendix)=Thus, inadequate price incentives seem to be an important reason for stagnatingor declii-ng coffee, sugar, and cotton production. On the other hand, foodproduction did not keep pace with demand in spite of favorable domesticprices. The area dedicated to food crops may well lave beer, expandIed. But,until recently, the low t:echnological level, which is reflected by low yields,was thL.Le main reason fLor Lhe poor perfLormance o.U foodU crops.

Recommendations for aRricultural piolicy

34. Some progress-has recently been made with regard to the role of theMinistry of Agriculture in guiding and supporting agricultural and ruraldevelopment. Tne Ministry's technical staff has been strengthened, a SectoralCommittee for Agricultural Policy (COSEPA) headed by the Minister of Agricul-ture has been set up to coordinate all activities related to the agriculturalsector, and new efforts have been made to increase agricultural productionthrough the introduction of hybrid corn and sorghum dombined with use offertilizers. Further imp,rovements are vital to enhance the agriculturalsector's part in overall development. The provision of adequate financialresources, more in line writh the sector's importance within the nationaleconomy, is fundamental for institutional strengthening. This, of course,depends mainly on the adoption of fiscal measures discussed in paragraphs101-106, since present resource availabilities would hardly allow major re-allocations. Furthermore, the efficiency of existing support services shouldbe increased through better coordination and the introduction of more appro-priate organizational structures. At the national level, there is need toseparate functions, such as extension, credit, supply of agricultural inputs,collection of statistics, and regulatory work. With respect to extension,the aim should be a simple service, with the field extension worker advisingon all crops; as a temporary measure, a crop-oriented extension service maybe required, for instance, for cotton, coffee, or vegetables. At the regionallevel, there is a need for regional master plans to orient and coordinatethe activities of all agencies according to a. set of priorities. Whileregional development agencies are desirable, the Ministry of Agricultureneeds to reinforce its role as coordinator of policies and programs (e.g.,research, soil conservation) and clearing house for technical information.The strengthening of agricultural support services is now under way; DARNDRrecently recruited 100 additional extension agpnts.

35. The structure of incentives for agricuiltur21 nroduction has notyet been sufficiently studied. Available price data, however, suggest thatrelative prices (at the f.armgate level) have gradually changed in favor offood crops, thus resulting in disincentives for export and industrial crops.Technolooical changes (introductinn of hybrid corn and sorghum) and favorableweather resulted in a drop in food crop prices in late 1977. A stabilizationof these new price relations should help to encourage the production of exportand industrial crops, such as coffee, cocoa, and sugar. Nevertheless, marketforces should be complemented by a flexible system. of floor prices for major

- 18 -

crops in order to give the producer sufficiently predictable price signalsand security. The gradual elimination of export taxes recommended inparagraph 106 would be an additional element for the design of an agricul-tural pricing policy. Modern inputs, such as improved seeds, fertilizer, andirrigation water, will be increasingly used and become major cost elements.Their prices, therefore, would have also to be defined within a comnrehensiveagricultural pricing policy. Subsidies have been established for hybridseeds and fertilizer either throughout the country or in connection withcertain projects, depending on the crop or the donor agency involved. Thereis need to establish uniform subsidies; and to envisage the progressiveelimination of subsidies as farmers become acquainted with the efficientuse of innuts. There is also need for a uniform policy governing watercharges; these should cover operating and maintenance costs, and the largestpossible share of investment costs.

36. In order to further enhance the development of the agriculturalsector, other specific measures have to be taken. Currently ongoing develop-ment project s are addressing some of the most crucial problem areas, andthe measures recommended in paragraphs 34 and 35 should help to make theseefforts more efLective. Additional measures to be envisaged in the nearfuture will have to be both a continuation of ongoing projects and a spreadof siimdilar Uevelopment eLlorts to other parts ol th[e country. in view ofthe many problems the agricultural sector is facing, programs have to becarried out in many areas. This makes it difficult to establish priorities.Programs should address the most urgent needs, and preference should be givento actions that are likely to pay off rapidly. Thus, an extension of theMinistry's recently started food grain program to about 200,000 ha withinthe next four years seems to merit highest priority. Other high priorityareas are the rehabilitation of irrigation systems, construction of ruralfeeder roads in different areas, and tree plantings for fuel wood productionas well as soil and water conservation.

37. Soil erosion can be considerably alleviated through the abovemeasures of agricultural intensification which, through production increasesin the highly productive lowlands, alleviates the pressure on marginal land.Lasting soil conservation, however, is a long-range endeavor. It shouldinclude both mechanical measures (terracing, contour cropping, gully control)and conservation farming on hillsides (amenagement des mornes). It cruciallydepends on farmers' direct involvement, and immediate returns. Because of themagnitude and long-term nature of the erosion problem, action should be takenaccording to the following priorities: (a) plantings of economic tree crops(fruit and fuel wood) on the steepest slopes; on smallholder land, provisioncould be made for initial intercropping with food crops; (b) reforestation ofwatersheds in dry areas to ensure a steady supply of water; (c) stream bankprotection immediately upstream from irrigation intakes; (d) watershed protec-tion upstream from future dam sites.

38. Agricultural development projects are underway in the mainagricultural areas of the country: Artibonite, Northern Plain_ Cul de Sac,Gonaives, Miragoane; Les Cayes. Three regions are inadequately covered anddeserve snecial considprntion for integrated develonment: (a) The SouthernPeninsula, which benefits from isolated projects supported by USAID (LesCayes), CIDA (Miragoane) and FAC (Tacmel), suffers from high population

- 19 -

pressure and out-migration to Port-au-Prince, destruction of infrastructure(roads, irrigation) by the hurricanes of the 1960s, lack of feeder roads,and lack of data on the resource base of the Grande Anse region; (b) TheCentral Plateau suffers from lack of infrastructure, especially roads, andknowledge of its resource base. Once the potential becomes better knownthrough a UNDP-financed Rtudv to be started in 1978, integrated regionaldevelopment can be considered; (c) The Northwest, the "Haitian Sahel", whichhenefits from isonlated pri-jori-c Qsunpponrpd hv USAID (Jean Rabel). HACHO/CARE(all over the area) and FAO (Trois Rivieres), suffers from low and erraticrainfall and was severely hit- b thh droughts nf 1975 and 1976-77. Agricultural

improvement should aim at the most efficient use of limited water resources(irigti4on, dry farming, using genetic material and t-pchninuesp develoned by

the International Crop Research Institute for the Semi-Arid Tropics, (ICRISAT),and at tree pA for waller conser-ation a --- -- h h oalindustry.

B. Industry

Production trend and structure

39. The manufacturing sector's contribution to GDP is still low. Itaveraged 10 percent of real GDP during the 1960s, and reached about 13 percentin 1977. Haiti is close to industrialization levels prevailing in Bolivia andGuatemala (table 14), but still lags far behind the neighboring DominicanRepublic and Mexico. The gap is wider in terms of industrial product per head.

Table i4: COMPARA1TIVE LEVELS OF INDUSTRIALIZA1ION, HAITI AND

SELECTED LATIN AMERICAN COUNTRIES, 1976

Degree of Indus- Industrial Product

trialization /a per HeadZ US$

Haiti 12.2 13.24

Dominican Republic 17.3 71.70Bolivia 13.7 19.86Colombia 19.1 33.90Costa Rica 16.5 77.80El Salvador 18.0 53.58Guatemala 14.3 57.03Mexico 23.9 104.65

/a Contribution of manufacturing to GDP in 1970 prices.

Source: UN/ECLA, Economic Survey of Latin America; mission estimates for Haiti.

- 20 -

Average annual growth of manufacturing reached 7 percent during the 1970s--adramatic imnrovement over the 0.6 nercent yeArly averaop of t-he 1960s, UTnt-il20 years ago, the sector, mainly of the cottage type, centered on processingof aaricultuiral raw materials for Iocal ronnQmpntioin andi oeport. Tmport

substitution was a major factor in the diversification that took place duringthe qAn6s Thoe lQ60s also saw the heinnin of gowh in xotrt -- o-cesrI m

industries, to which the sector owes much of its recent expansionary drive.qr~nc hyt,nIn 4,nn a ,nf t'I,o A_m.,4r -f F-4nSoe ------ening ot the domestic Ftroduction base for consumer goods took placeduring the 1970s, as well as a rapid increase in output of constructionmater4als .

40U. Food, leverages an' tobuacco (ab out .5 percer,t of industrial production),leather and clothing (about 20 percent), and textiles (about 17 percent) arethe most impULoLrLt industrial branches (see table 8.3, StaListical Appendix).These branches also account for almost 60 percent of industrial employment(see table 8.1, Statistical Appendix). Construction materials are anotherimportant branch with about 8 percent of industrial production and 4 percentof employment. These figures point to the traditionai industry mix at theearly stages of industrialization.

41. Above average growth in food production during the last five years(tables 8.2 and 8.3, Statistical Appendix) was due mainly to a doublingin flour output between 1972 and 1977. The flour mill, now an autonomousstate organization, is operated under contract by a Canadian firm. Thecontract expires in 1982. The company is currently engaged on a $3 millionexpansion program that will increase annual capacity from 69,000 tons to138,000 tons by the end of 1978, equivalent to about 80 grams of flour perday and head of population. At the same time, a diversification programis under way including the production of AKIOO (50 percent maize, 35 percentmillet, and 15 percent cotton seed). The flour mill also has an essentialoils plant at Mont Louis, and is planning cattle and poultry feed production.The company hat exported wheat bran to Puerto Rico, but currently, most of itis sold locally. Sugar production, the other major food industry, declinedbetween 1972 an 1977. This was due to reduced supplies of sugarcane, whichalso affected output of molasses, rapadou and rum. Performance of smallerfood industries, with the exception of cocoa processing, was generally poor.Most of these industries depend on local raw materials and, therefore, onagricultural performance.

42. Growth in the beverage industry has been boosted by a new $3 mil-lion brewery, which came on stream in 1976. Output in the tobacco industryaveraged annual growth of 11 percent between 1972 and 1977. Among non-foodconsumer goods industries; growth has been most rnnid in brnnrhpq that did notdepend on domestically produced raw materials. Thus, a declining trend inlocal nrodtiction of cotton textiles and denim clothing hbcame insignificant

beside the enormous increase in output of textiles and clothing based onimnorted innpits= A similnr development took place in the footwear industry.

- 21 -

43. The cement plant's output grew at an average annual rate of 24 percentduring 1972-77. Its capacity has been increased from 85,000 tons to 320,000tons since 1972. Sales t:o the local market absorbed 170,000 tons in 1976-77.

The balance of production, about 80,000 tons, was exported at a lower than thelocal price, due to the depressed state of the Caribbean cement market. Thesteel mill, another major development in the construction materials industry,

produced about 8,500 tons of merchant steels (concrete reinforcing rounds,

squares and anales) in 1976-77. Output from the plant, which now suppliesabout half of Haiti's re(quirements for structural steel, is protected by animnort h:n an roinfnrringr rouinds . The Rtstl mill was originallv intended tohave its own steel making capacity in form of an electric arc furnace, whichwould have used imorted scrap. To dat-e i-he equipment for the arc furnaceremains stored at the steel plant because of insufficient power supply.Meanwhile, the plant reli es on imported raw steel for its rolling andwire drawing mills. A galvanizing plant will be added to existing facilities

Wit LI t11 L nI e fLewL yea r- .

44. - Export industries performed dynamically during the last six years;they played a dominating part in changing the face of Haiti's manufacturingsector. Out of the 300 or so enterprises that make up LLIIh modUer i[LUUsLLral

sector, some 200 are export industries established since 1971. They catermainly to the U.S. market, wnence they also import their raw materials; thisallows them to re-export without incurring U.S. import duties. A rough

estimate shows that gross value added by these industries has risen from$2.8 million in 1970 to $523 million in 1977 (see table 3.2, StatisticalAppendix), representing an average of 26 percent of the industries' grossexports. Out of the firms established up to 1976, 52 percent produced clothing;16 percent, baseballs and softballs; 4 percent, toys; 2 percent, leather goods;and the remaining 26 percent, simple electronic components. All these indus-

tries are labor intensive and have created some 18,000 new jobs since 1971,compared with about 2,000) new jobs in modern industries working for the localmarket. Investment per job averaged $2,305 in 1975/77 (see table 8.5,Statistical Appendix). Apart from directly providing a living for up to70,000 people, the indust:ries have stimulated some ancillary employmentparticularly in local transport and catering services.

45. The push for the development of export processing industriesoriginally came from outside, mainly from the U.S. But in recent years,the number of Haitian ent:repreneurs in this sector has risen rapidly.The principal factors behind the sector's growth are: (i) an abundantsupply of labor that is cheap, unskilled but dextrous, and relatively non-militant; (ii) the proximlity to the U.S. market; (iii) the absence ofexchange controls, and free circulation of the dollar; (iv) lack of govern-

ment interference, (v) a system of tax incentives, which provides incometax exemption for five years, progressively eliminated during a furtherfive-year period.

- 22 -

Investment

46. Comprehensive data on investment in industry do not exist. TheMinistry of Commerce and Industry collects information on the proposed capitaloutlays 1/ of enterprises requesting special treatment under the fiscalincentives system. Capital expenditures of non-eligible industries and ofthe artisan sector are unrecorded. In 1975, 41 enterprises with privilegedinvestment status reported total investment plans amounting to $5.92 million;in 1976, 32 enterprises, a total of $5.7 million; and in 1977, 34 enterprises,a total of 86-A million- These investments would have accounted for about6.4 percent of total private investment during 1975-77.

47. Average capital outlays per new enterprise with tax-favored treat-ment rose from $144,300 in 1975 to $177,500 in 1976, and $184;700 in 1977.Average figures, however, are distorted by a few major projects, notablythe steel plant and the brewery. Most large enterprises (employing 100 ormore) seem to propose initial capital outlays of about $100,000. New enter-prises EpArc-l4a..1 _,rly in. ; labnr-int4e-L Fiei torS .-C'.AC tf o crrt e mr,Aoo- tpt 1o co COa I. 4%. u.aj 43. tAL .LaJL 471t LCLLO 4 VC O%%..L O %.LL1AJ 1 JG-*V-9;LAAtVWX t.V% 3

One of the assembly industries visited by the mission had started in 1972/73w.it 80 .1- . J 4.and an.- initia C1nvest,ment)n of $ 0,000 By 1078 tW LLIi UVCU e _LUYCCo~ CaLLu aiL LL1i.L L-L.L Lilc L~.L 'J VA ' 'J'J'J*w ". ~JI'J, plant had been expanded at a cost of about $1.8 million and employed around1,000l people. Similar developmer,ts took- place in otler assembly industries.IUUIJ p L Li A. UL.Ld U L~U11LL LUU _LaLCLIULIL~OLUL LCOL.L

Thus, the officially collected investment figures only represent a portion of.~~~~~~~~~~~~~- - a-- r Z _ __A_ t_____ _ I n 7rthe manufacturing sector's annual Capital UULayb. A LUUghl esbLtUmte fUo 171U

places fixed investment expenditures in the modern industrial sector in theorder of $i6 million.

48. Among the industries visited, the majority owned, rather than rentedtheir factory space. Equipment was mostly imported new, not second hand.Most of the large industrial units have stand-by generators or power plants.Labor-intensive industries (like textiles, clothing, footware, electronics,toys and sports goods) use simple machinery, which can be maintained by localtechnicians. But the more capital-intensive industries (such as the flour mill,brewery, cement and steel plants) employ foreign technicians to operate,repair and maintain machinery. In the small industry and handicraft sector,which employs most of the manufacturing work force, production techniquesinvolve a minimum of equipment. The machinery used is often obsolete, parti-cularly in small-scale sugar processing, clairin distilling, essential oils,furniture and wood, and metal mechanical industries.

Employment and wages

49. Despite its rapid growth, industry only provides work for about6 percent of the economically active population (see table 1.14, StatisticalAppendix). Census data indicated that the industrial labor force amountedto some 120,000 people in 1971. By 1977, it totaled about 145,000, of which

1/ There is no check on whether these investment proposals are realized,nor is there any monitoring system for ongoing investment by tax-nriuilegaed indusQtris oncep t-hpv have hben PqitfahliqhPd.

- 23 -

over 100,000 were occupied in small-scale cottage industries, and another 15,000to 20,000 in quasi-artisanal operations that rarely employ more than 15 people.The modern industrial sector employed about 25,000 people with an aboveaverage proportion of women (about 65 percent as compared to the 45.7 percentfemale share in labor force). OFATMA (Office d'Assurances Accidents duTravail, Maladie et Maternite), which covers part of the modern industrialsector, reported 992 formal industrial establishments with 18,645 officiallyemployed people and a payroll of $12.4 million (see table 8.1, StatisticalAppendix).

50. Average annual earnings for all workers covered by OFATMA insuranceamnuinterd tn 8665 in 1976- Eninpneers bv far the hest naid emnlovees;s madean average $5,040 in 1976, seven times more than a skilled worker ($720 p.a.)and 70 peroont more thao an assictant manager nr rhief crcnunt2nt ($3,000 n.2. -).Some employers organize their own recruiting drives among expariate Haitians,whoo normally request a salary equal to that previously earned abroad (usuallyin the U.S.). The result of such ventures has been a widening gap between thehIigbest anAdthe lowest pad worklers in ind4-idual industries asW wl as

between the private and public sector. In September 1977, minimum wages wereraLseu 'rom l.ln per 'Uay %Y., a mont.. t y-. 4 rr uay iv- A_ /,tAQ

Specific minima apply to individual industries. Most export industries aresubject to higher rates, oL between $1.80 per day ($54 per month) and $2.00per day ($60 per month). 1/ Skilled workers in large industries earn wellover the minimum, averaging about $80 a month.

51. Apart from technical personnel, tne level oL sKills required inmost manufacturing establishments is low. In the assembly industries, theaverage training period is rarely more than two months. Government trainingschemes for industrial workers, through the National Vocational TrainingInstitute (INFP) and the pilot Centre for Vocationai Training (CPFP), arebarely operational and, so far, have made little contribution to the availablepool of skills. 2/ Blue collar workers, both skilled and unskilled, accountfor 85 to 93 percent of total labour force in large enterprises. 3/ Dependingon the type of industry, between 3 and 8 percent of the labor force aretrainees or apprentices.

1/ Furs and fur garments, electronic components, components and accessoriesfor mechanical industries: $2.0 per day; footwear, leather products,cassettes and cartridges, fishing equipment, baseballs and softballs,hand embroidery and wigs $1.80 per day; machine embroidery, plasticproducts, plus toys, dolls and clothing $1.60 per day; others 1.70 perday.

2/ Vocational training programmes are financed by the apprenticeship tax,payable by employers at the rate of one percent of total labor expenses.

3/ See Caracteristiques de l'Emploi dans l'Industrie (Department duCommerce et de l'Industrie - Service de Programmation Industrielle, 1977).

- 24 -

Assessment of industrialization

52. In order to assess the effects of industrialization on the economy,an attempt is made to estimate the distribution of income derived from themodern industrial sector as well as the disposition of these incomes includingthe external transactions. A series of estimates for 1976 (see tables 8.7 and8.8, Statistical Appendix; table 15 below) suggest that employees as a groupobtain the highest share of net value added by the modern industrial sertor.The entrepreneurs' share is only slightly less important, while the Government'stax take is fairlv modest- mainly berause most modern enrprnrisPe are operatingunder the fiscal incentives laws, which exempt them from profits tax, at leastfor the first years nf onprntion.

Table 15: DISTRIBUTION OF NET VALUE ADDED BY THEM.ODER1N INDUSTRIAT SECTOR, 19176

rIetL V'afue Ut: tlUUeU dL et:L VdLa'UCu ±mUUteU da

Market Prices Factor CostGJ M±±il_.lUUL %, G3 I.Li-LLon 10

Government tax revenues 29.2 17.0 14.2 9.1Entrepreneurial income

(net) 64.6 37.6 64.6 41.2(gross) (82.4j /Ia (48.0) (76.0) (48.5)

Employees' income(net) 77.9 45.4 77.9 49.7(gross) (89.3) /a (52.0) (80.7) (51.5)

Total net value added 171.7 100.0 156.7 100.0

/a including indirect taxes

Source: Mission estimates

53. Government tax revenues from industry consist of profits tax,income tax on wages and salaries, license tax and other indirect taxes (seetable 8.7, Statistical Appendix). The cost of profit tax waivers under thefiscal incentive program is considered a hidden transfer to entrepreneurs.Furthermore, among the public services used by industry, water may involve adegree of subsidy. Water rates are uneconomically low, but arbitrary assess-ments, unreliable service and frequent breakdowns have probably wiped out thesubsidy element. The entrepreneurs' gross share of gross value added by themodern industrial sector is the highest share attributable to any 2roup(factor of production). A high proportion, however, goes for depreciation andreinvestment- often on a cross-induistrv basis. After allowing for depreiat1onand profit taxes, aggregate entrepreneurial net income is somewhat lower than

- 25 -

aggregate employees' net income. With regard to an estimated stock of fixedinvestment of G 300 million (see technical note with tables 8.7 and 8.8.,

Statistical Appendix) and working capital requirements of G 50 million, entre-

preneurial income in 1976 represented an average return on capital of about18.5 percent. The entrepreneurs' share (capital income) in industrial factor

income (48 percent) is hiRher than that in total national income (39 percent).

On the other hand, tax revenues as percentage of value added are higher (17

percent) than on a national average (6.7 percent). Thus, the overaLl distri-

butional effects of the modern industrial sector may be considered about

neutral with regard to the rest of the economy on an average.

54. The disposition of income (expenditures for consumption and invest-

ment of entrepreneurs, employees, and Government including external transac-

tions) -a- oni- be estimated in broad terms, roughly in line with macroeconomicaggregates (see table 8.8, Statistical Appendix and table 16 below). While

the propensity to consume of entrepreneurs is lower than that of emplovees,

the import content of entrepreneurial consumption is likely to be higher.Thus, imports of consumer goods for entrepreneurial households are higher thanthose for employees. In addition, a certain amount of entrepreneurial savingsfilters out of the country, particularly into U.S. real estate. The imnorts

of producers' goods (both intermediate and capital goods) are, of course, by

far the most important import item. Total exports of the modern industrialsector fall short of total imports attributable to its operations. The

deficit of the balance on goods and services amounts to 16.8 percent of grossvalue added as compared to 6.2 percent for the whole economy in 1976. Thus,

the modern industrial sector uses more foreign excha,nge than it earns.

This negative effect may be considered typical for the early stages of indus-

trialization. it may be offset in the longer run (at least partially) bybuilding up an industrial labor force, which could help to increase the

exportable value added. the impact that industry has had on the developmentof the economy as a whole has remained limited. Even in the last five years,while expansion was particularly marked, little of this dynamism trickled down

to other sectors. Because of a large number of constraints, industry was

unable to realize its full potential during this period.

- 26 -

Table 16: EXPENDITURES ON GROSS VALUE ADDED BY THEMODERN INDUSTRIAL SECTOR, 1976 -

G Million %

Consumption 125.7 62.3Entrepreneurs 51.7 25.6Employees 74.0 36.7Government 29.2 14.5

Investment 80.7 40.0Balance on goods and services -33.9 -16.8

Exports 509.5 252.6Imports 543.4 269.4

Gross value added 201.7 100_0

Source: Mission estimates.

Constraints

55. On the demand side, 4n regard of the limited domestic market, importsubstitution opportunities are becoming less obvious; in some cases, they aremore capital intensive than the econoy s lim4ied resources appear to Justify.k, -1~.aL L LC-IJ IC ~jjC L L U L . L

Export demand is likely to provide the main impetus for future growth, but thesectoral Compos4tion is 1lkly Lto clange. In particular, Haiti [as reachedthe ceiling of U.S. import quotas for textile products and certain sportsgoods; this will slow down expansionr in two of the fastest growing industries.Meanwhile, too little attention has been given to systematic identificationand development of new anid promising demand areas, both foreign and domestic.Generally speaking, the Haitian private sector has insufficient marketknowledge and lacks the technical and economic capacity for proJect identi-fication and preparation. Public sector support services do not fill thisgap adequately. in addition, export promotion, which is absolutely vitalfor Haiti's economy with an export share of 20.5 percent of GDP in 1977, isnot systematic.

56. Supply constraints are comparatively more serious and apply toall factors of production. Thinly spread infrastructure facilities have actedas a deterrent both to the establishment of large and technologically moreadvanced units and to the decentralization of industry. Domestic suppliesof raw materials, mainly from agriculture, but also from fishing, forestryand quarrying, also constitute a major obstacle. Apart from local purchasesof packaging materials (made of wholly imported inputs), interindustrylinkages are minimal, and backward integration (except for a tannery-shoeupper plant) practically non-existent. By nature, the primary sector and

- 27 -

agricultural processing industries are more closely interrelated. But with

few exceptions, the supply of raw materials is not coordinated with processingcapacity, which is often underutilized. The imbalance is particularly striking

in the cotton processing industries (spinning, weaving, and cottonseed oil

production), where imports are being substituted for local raw materials,

and in the sugar industry. Interindustry linkages are unlikely to become

closer in the next few years, but good prospects exist for closer integration

of industry with agricultlure. Labor, although physically in abundant supply,

is another important constraint. There is an acute shortage of craftsmen,technical personnel as well as managerial and entrepreneurial talent. An

important aspect of this problem is the resulting lack of quality control

over Haitian produced goods; this does not only hinder export sales (a

recurrent problem in the coffee and essential oils industries), but: also

domestic sales. Although in some cases the domestic consumer's preference for

foreign-made goods resides more in conspicuous consumption than in real

necessities, in many other cases the quality of local products is either

irregular or consistently inferior to competitively priced imports. Machetes,the maior capital assets of many farmers, continue to be a rapidly growingimport item, because the Local product is badly finished and in irregularsupnnl v

57= The lack of quaLity contronl also reflects the weakness of the

institutional framework. Organizations set up specifically to controlproduct standards (as wit.h essential oilQ) are nt onperating qt-ifactnri1y

Other public sector entitiLes, which were meant to provide support and

A4rectior, to the private sector, have f-iled to do so for lack of competent

personnel or other reasons. IDAI and its affiliate SEN were set up to playa dynamic role 4n the country's 4ndustr4alizatio part-4- l by1-- identi-4

fying and preparing projects and finding investors. In fact, investorst- 2 TThAT IC'T'M fl.... A.-4A .J-1.., PIP;1es an .A

LLave avo-ided IJ/S. BIuLreaucraLLc de.Lays, financial d ultis n

conflict of interests were all mentioned as important reasons. Nor has IDAI

come up with its own new project ideas. CONADEP's role in industrial develop-

ment is practically that of a clearing house for project information. Lack of

personnel has prevented CONADEP from making an original contribution tothe country's industrial development program, which consists of a list ofiDAi/SEN sponsored projeci:s. IDAI has failed to Lu.LL± its idustrial

investment program, but CONADEP has no effective means of persuading IDAIto become more active or to direct private investors towards priority areas.

The Ministry of Commerce and Industry is mainly concerned with the processing

of applications from companies wishing to operate under the investment

incentives system. The Ministry is chronically short of administrative

and technical personnel and has, therefore, not been able to work on

comprehensive industrial and trade policies.

58. Most of Haiti's industry is privately owned. Cottage industries

and most larger manufacturing units producing for the domestic market are

owned by nationals. Foreign capital, mainly from the U.S., has played an

important part in financing export processing industries. Foreign owner-

ship is estimated at between 50 and 60 percent. In the public sector, the

most important single enterprise is the flour mill. Through SEN, the public

- 28 -

sector has a 16.5 percent shareholding in the cement plant and controls aspinning mill, a machete factory, a slaughterhouse, and a number of othersmall enterprises. In the private sector, most industries are familyventures. Even among corporate enterprises, the shareholders were usuallyclosely related. The concentration of ownership is mostly due to the limitednumber of entrepreneurs. Many industrial conglomerates have been built uphaphazardly, investing profits from successful ventures or using a good recordto raise capital for further investments. Hence, the combinations withinfamily industry groups of printing and tomato paste manufacturing, denim jeansand soap, packaging materials and doll's clothes, or cotton spinning andsteel.

59. The overall supply of capital, thus far, has probably not been abottleneck for industrial development, mostly because at the early stages ofindustrialization, capital requirements for industrial investments in newfirms tend to be small relative to some individuals' personal assets. ButHaiti is no exception to the international shortage of capital for smallindustrial proiects. IDAI, has so, far failed to fill this gap. Medium andlong-term capital for manufacturing projects in the range of $20,000 andunwards has been easv to obtain for investors with a zood record. usuallvthrough private groups of friends, relatives, and associates. Despite legalrestrictions to the granting of loans of over one year's duration, the commer-cial banks have been able to provide roll-over facilities to meet workingcrnnifl rPniiiremPnts-= Fnr npwrnmprs it has hben miirh mnrp diffiriilt nr PePn

impossible to obtain credit for lack of adequate collateral. This impedimentis mainly due to the lack of modern legal regulations cnnrcrning the provisionof industrial credit, e.g., the provision of chattel mortgages.

Recommendations for future industrial development

60. The Government's industrial development strategy, although notfPormaiiy an' compreher.sively AdefcinedA, isbasedAon three mao ------- sL1J L U.L J..L %A PIJ LiJ ~I~ J.. U L ±L. U , .L Ua. u MJJ.LiiJ UJ .J L~ L1L

employment creation, export growth, and spatial decentralization. The fiscalincentitve programme is the principal means to promote thLee aims. The pursuitof employment creation has led to encourage labor-intensive industries likeexport-oriented assembling activities, despite misgi-vings about their stabilityand their lack of integration with the rest of the economy. Meanwhile, thereis a strong commitment to both expansion and diversification of exports.Spatial decentralization, a more recent intention, is pursued through improve-ment of regionai infrastructure, spatiaily differentiated incentives, and --indirectly -- promotion of agricultural production. Import substitution isnot being given special attention. Import substitution industries benetitfrom the general system of fiscal incentives, but have not been given specialtariff and other protective shields. 1/ This liberal policy has not acted asan investment deterrent: the last 10, and particularly the last 5 years, saw

1/ One exception concerns the steel plant; it has been given protectionagainst imports of reinforcing rounds, which are being traded inter-nationally at dumping prices because of current worldwide surplussteel making capacity.

- 29 -

the establishment of many of the more obvious import substitution industries

(and some less obvious anes like the steel mill). But given the small size

and slow growth of the market, the opportunities for further import substitu-

tion are limited. Strong emphasis has, therefore, to be laid on export

orientation.

61. To maintain the momentum of industrialization during the 1970s, the

maior constraints identified in paragraphs 55-59 will have to be eliminated or

at least reduced. Most of the measures recommended in various sections of

this report will have a nositive impact also on industrial development. For

example, increased Government revenues will make it possible to strengthen

industrial suppv-ort Services, narticulariv to have the Ministry of Commerce and

Industry and CONADEP play more active roles in guiding and promoting industrial

development; enhanced a,gricultural development will contribute to make the

supply of agricultural raw materials more abundant and secure; the construction

of new roads a,nd ports, the exransion of power and water supply systems, also

in provincial towns, and vocational training will create external economies

and improve the conditicns for industrial production. Tn addition, specific

measures have to be taken to diversify the industrial structure and create

more Jobs.

62.. Various easks lave to Le performed such as systematic market

research (both at home and abroad); project identification and preparation;

improved credit supply, especially for small-scale industries; industrial

promotion and attraction of foreign investors; improved quality control for

Haitian products. Part of these tasks have been vested into IDAT, which,

however, so far has not been a successful vehicle for industrialization. A

thorough reorganization of IDAI/SEN is recommended wiLth, at the same time, a

certain reorientation of the group's activities. Its manpower capabilities

will have to be strengthened to allow the institution to play a more active

role. With its experience in both agriculture and industry, IDAI should be

made an appropriate instrument to bridge the gap between agricultural and

industrial development, and particularly to promote agricultural processing

activities. It is also recommended that IDAI be relieved of the responsi-

bility for quality control of essential oils, and that this role, accompanied

by adequate finance for the equipment of a modern laboratory and remuneration

of a competent technica]. staff, should be transferred to the Essential Oils

Commercialization Office. In general, quality control, which is essential

for further industrial (levelopment, should be established on the level of

industry-specific organizations.

63. The free exchange market has helped to attract foreign investment

capital. Local capital supplies, generally, are also adequate. However,

difficulties arise where new and small-scale investors are concerned, partly

because of term limitations on bank loans, and partly because of excessive

requirements of collateral. This gap could be filled by a specialized indus-

trial development finance company (DFC), which would combine industrial

project financing with other support services, such project identification,

prepa-ration, and promotion. Such a DFC would not necessarily have to be a

separate institution; it: could as well be set up as a subsidiary of an

- 30 -

existing commercial bank. USAID has commissioned a study for a DFC, to beestablished as private sector venture. Duch an i1nstitutio[l should -work i'nclose cooperation with the Bureau Haitien de Promotion Industrielle (BHPI)and be linked to a possible UNDP project, which is to support industrialinvestment promotion abroad. In its technical assistance role, the DFCwould probably have to rely on outside consultants, particularly for techni-cal and organizational support for small industries. The DFC would notreplace IDAI but rather complement it. !DA!, after the recommended reorgani-zation, would have a well-defined role to play in agriculture and possiblyin agricultural processing industries, where there would be room for bothinstitutions. Other industrial activities would best be serviced only bythe specialized DFC.

64. Major efforts are required to orientate managerial talent insmall-scale industries towards the growth potential of local and foreignmarkets. In this context, efforts should also be made to attract expatriateHaitians. In addition, more should be done for training of technical andmanagerial personnel; scholarships should be made available for businessadministration studies, and for traineeships abroad. The DFC and the BHPIcould play the main part in conceiving and channeling these efforts, which,of course, will have to be undertaken in conjunction with the systematicand continuous development of an industrial project pipeline. Some projectideas are listed in Annex III.

65. The existing fiscal incentives laws 1/ are similar to those in otherparts of the Caribbean region, which Haiti competes with for foreign invest-ment capital. They are not as generous as those offered by Puerto Rico(30-year tax holidays, 25 percent payroll subsidies) or the Bahamas, but, sofar, they have proved to be adequate. It seems that Haiti's continuingcheap labor supply and political stability are far greater investment incen-tives than fiscal exemptions. Nevertheless, some additinnnl rpaiiIations inthe incentive laws would be susceptible to further enhance industrial develop-ment. It is recommended to adont snecifir rpaii1atinns to facilitate therepatriation of Haitian technical and professional staff; moreover, the taxexemntions should be araded accordina to the local content of final productsto stimulate integration of industry with the rest of the economy.

C. Banking

66. Haiti's banking system comprises the Central Bank (Banque Nationalede .la IJUbl Lqu LI.L, - NYLI)XLL , which aIlso functions as a comULercial bank-; t encommercial banks, six of which are foreign owned; two Government-owned develop-muerLt bianks, thle 'InstiLtut ue Deve'loppement Agricole eL In LstrieLel (LDAI)J andUthe Bureau de Credit Agricole (BCA); and a number of cooperative "Caissespopulaires". Financial relatiuons amiong the different institutions are tenuous,

1/ The laws grant import duty exemptions for imported capital and interme-diate goods (uniess they are locally produced) as well as complete incometax exemptions for 5 to 10 years (depending on the location), andgradually declining exemptions for another 5 to 10 years.

- 31 -

mostly limited to the cash reserves that the commercial banks are required to

hold with BNRH. Consequently, there are no open market operations. BNRH's

monetary policy instrumtents are limited to reserve and portfolio requirements,

rediscount, regulations of interest rates, and credit to the public sector.

The actual use of these instruments does not go very far. Monetary and credit

policy is hampered by BNRH's ambiguous roles as central and commercial bank.

A complete separation of central bank and commercial bank operations would

help BNRH to enforce monetary and credit policy measures with more authority.

67. The 10 commercial banks operate a network of 27 offices and

2 agencies, of which, 10 offices and the 2 agencies are run by BNRH. While

BNRH's offices cover the whole country, other bank facilities are concentrated

in the Port-au-Prince area. Credit to the public sector is almost exclusively

the BNRH's domain. BNRH also holds the leading position in credit extended to

the private sector. Credit to the private sector is mostly in the form of

three-month loans and overdrafts for commercial and export operations, while

loans to agriculture and industry represent only a small share in total bank

credite Commercfal banks do not lend to agriculture, and their lending to

industry is but a small fraction of total assets. IDAI and BCA, the only insti-

tutions specializing in agricultural and industrial credit, account only for

about 4 percent of total credit. Thus, in spite of a rapid increase in the

volume of credit (see tables 6.1.. 6.2. 6.3. Statistical Appendix), the impact

on the development of production was limited. High interest rates, require-

ment of collaterals, portfolio renuirements imposed by BNRH. legal characteris-

tics of mortgages, and high administrative costs of small credits to agricul-

ture are important factors behind this development. Various measures could be

taken to change this state of affairs.

68. Interest rates, fixed by BNRH, vary between 6 percenf and 8 percent

orn time deposits and between 11 percent and 15 percent on loans; IDAI charges

12 percent on credits to industry; agricultural credit from BCA and IDAI is

given at 9 percent. The discount rate, which could vary from 2 percent to

8 percent, is irrelevant, since it has hardly been used by BNRH. Even with a

30 percent reserve requirement orn all deposits the spreaAbetwee. interest

rates is sufficient to charge the minimum rate on loans (11 percent) or even

lower rates l/. Some b,anks are williLg to do AO . Besides, the banking system

has been operating with free reserves during the last years. A lower minimum

interest rate on loans would make loans more attractiLve.

69. while conditions for agricultural arnd irndustrial loans extended

by IDAI and BCA are favorable, the credit volume is insignificant (see

tables 6.4, 6.8 and 6.9, Statistical Appendix). More funrds could be channeled

to these sectors by expanding IDAI and BCA and setting up a new DFC (see

paragraph 63). In addition, rediscount facilities for agr'cultural and

industrial loans granted by commercial banks would help to expand credit

1/ There are, of course, differences of efficiency among banks, and a lower

spread may create difficulties to some of them. Greater efficiency of

the banking system should be a major concern of BNRH. This is a require-

ment to enhance a better use of financial savings.

- 32 -

supply. In view of the risks involved in such operations, the establishmentof rediscount facilities should be accompanied by a credit guarantee schemesimilar to those existing in other developing countries, such as India,Ivory Coast, Upper Volta, or Ghana. 1!

70. Present portfolio requirements limit commercial banks in supplyingmedium and long term loans for investment: only up to 10 percent of assetscan be placed in loans with more than one year maturity. Even if 70 percentof banks' liabilities is withdrawable on demand, this demand is sufficientlystable to allow the tranformation of a substantial part of funds into mediumand long term loans. A greater proportion of domestic assets should, there-fore be allowed to be lent on longer term conditions. New legal regulationsas to collateral requirements providing, inter alia, for chattel mortgages,hire-purchase arrangements, or cooperative guarantees 2- and a credit guaranteescheme should help to keep the higher risk that is involved in longer termoperationrs, manageable for commercial banks. Some banks recently startedproviding hire-purchase arrangements.

D. External sector

Main trends

71. The analyses in paragraphs 4-8 identified the following trends inHaiti's balance of payments: the widening resource gap, which is due mainlyto rapidly increasing imports of food and other consumer goods, and to thesluggish development of exports; the substantial flow of current transfers,increasingly from official sources and related to specific development projects;the rapid increase in government borrowing on concessionary terms, mainly frommulti-lateral aid agencies and also related to specific development projects.In 1977, exports financed only 70.8 percent of total imports of goods andservices, total current transfers and net government borrowing, 34.9 percent.The flow of emigrant remittances, official grants (in form of technicalassistance and food aid) and loans (mostly from official sources on conces-sionary terms) reflects the international awareness of the extreme povertythat affects most of Haiti's population and a changed perception of theGovernment's attitude toward economic and social development.

Structure of exports

72. During 1970-77, total exports grew at an average annual rate of7.6 percent in real terms. On a net basis, (i.e., net of imports of assemblyindustries), however, exports grew only at 3.5 percent p.a. Agriculturalexports, on average, accounted for 52.7 percent of total net expnorts;

1/ See IMF: The Financial System of Haiti and the Instruments ofMonetary Policy, November 1976, Appendix I.

2/ See World Bank: Emnlovment and Development of Small Enterprises, SectorPolicy Paper, February 1978.

- 33 -

mining, for 13 percent; industry and handicrafts for the remaining 34.3percent. Although growth. of industrial net exports was dynamic (averageannual growth 14.3 percent), the overall picture is heavily influenced by thedecline in agricultural and mining exports (see table 17).

Table 17: SUiMMARY NET EXPORTS /a, 1970, 1974, and 1977

Average AnnualStructure of Net Exports (%) Growth in Real Terms1970 1974 1977 1970-77 (%)

Agriculture 58.7 55.4 51.3 -2.8

of which: Coffee 35.1 31.8 42.2 -0.2Sugar 6 5 2.4 - -16-6 /hSisal 4.2 6.1 0.7 -23.2 /bEssential oils 6.2 8.6 4.2 8.1 lb

Mining 15.9 9.2 11.5 -1.7

Industry 25.4) 35.4 A7.3 14.

of ..i-.ch: A>s l - rdsr -. 5 16.7 15. 24.8a

Ir I~~~~~~1r A A f I An AItA ATota'l IVV L iv. 1UU. v

Total in $ million 43.3 75.4 151.0

/a Exports net of imported inputs of assembly industries./b 1970-76.

Source: See tables 3.2 and 3.4, Statistical Appendix.

73. Coffee is, by f.ar, the' single most important export commodity,contributing an average:of 35.2 percent to the country's net exports during1970-77. While the export volume has been subject to a long-term downwardtrend, the substantial ri:se in world coffee prices during 1976 and 1977resulted in an.increase of the coffee share in total exports (see tables 3.2and 3.5, Statistical Appendix). The price-induced increase in coffee exportearnings accounted for about 56 percent of merchandise export growth and forabout 27 percent of GDY growth during 1975-7.7. The lion's share of this"windfall profit" went to the private sector and fueled the import of consumergoods.

74. The decline in the volume of coffee exports is the result of declin-ing (or, at best, stagnating) production and increasing local consumption.The production trend reflects farmers' relative neglect of coffee, which seems

- 34 -

to be a reaction to relatively low benefits as compared to benefits obtainedfrom food crops (see paragraph 32 and table 7.7, Statistical Appendix).The farmgate price of coffee represents less than 50 percent of the FOB price(see table 7.5, Statistical Appendix). The farmer's low share in coffeebenefits is due to high coffee export taxes and the oligopsonistic structureof the coffee market, which keeps the margin of marketine high and makes theexport taxes fall completely on the small coffee farmers. The export taxesalso have the effect of subsidizing the domestic consumption of coffee annthe production of other crops for domestic consumption. Thus, while a lotcan be done to improve coffee production, adequate nrice incentives seem tobe crucial for a lasting reversal of the past production trend. A gradualelimination of export taxes (see paragraph 109) would help in this respect.

75. Sugar used to be one of the country's most import-ant exportcommodities, but in 1977, Haiti became a net importer of sugar. During1970-76, sugar contributed an average 5.3 percet- t-o tstal ne' exports. Thedownward trend, which underlies the heavily fluctuating sugar export volumes,started in the early 1960s. Poor production techniques, increasing domesticsugar demand, and unfavorable farmgate prices are the main factors behindthis trend. Low sugarcane prices are again a result of heavy taxation ofboth exports and local consumption, and of the oligopsonistic structure ofthe market. Moreover, sugarcane prices do not take the sucrose contentinto account, thus constituting a disincentive to quality improvements.

76. Sisal, also once a major export item, followed a downward trendsince the early 1950s. DurLng 1970-77, it contributed only 2.3 percent oftotal net exports. Sisal is subject to strong competition from both syntheticiLber and the major suppliers of sisal in the world market, Mexico and Brazil.The recovery during 1973 and 1974, as a result of the impact of increasedoil prices on the price of synthetic fibers, proved to be only temporary,and the downward trend continued ever since.

77. Essential oils have experienced a relatively favorable development,in terms ot both export volume and prices. During 1970-77, their contributionto total net exports averaged 6.2 percent. After a steeply increasing trendduring the 1960s, however, the development of export volume seems to taperoff. Haiti holds a dominating share in the relatively small world marketfor essential oils. Improved quality control is considered indispensableto maintain the country's position; this should also help to obtain betterprices. Moreover, diversification into other essential oils, particularlyYlang-Ylang, would enhance export prospects for this commodity group.

78. Bauxite, after coffee the most important export item, contributedan average 12.5 percent to total net exports during 1970-77. The volume ofexports peaked in 1974. On the basis of the agreement reached in 1975between the Haitian Government and the bauxite mining company, it is likelythat exports will stabilize around 650,000 t during the foreseeable future.The 1975 agreement also changed the basis of taxation from the (somewhatarbitrarily established) value of bauxite to the value of aluminum to beobtained from bauxite. This, together with increased world market prices,contributed to the substantial increase in foreign exchange earnings frombauxite since 1974.

- 35 -

79. The assembly indlustries have emerged as the country's most importantexporters of manh1fartured nrodtirts. Starting from a small basis in 1970.equivalent to 6.5 percent of total net exports, net exports of assembly indus-tries totalled $23O millLon in 1977 or 19-2 nprrpnt Of total net exnorts.With an average annual increase of 35.1 percent at current prices or 24.8percent in rea1 terms (See table 18), the aselmlyI indAiustrl sx werp Hai ti 'most dynamic export activity. The assembly industries cover a wide spectrumof articles (see table 3.3, Statistical Appendix) with a strong cnce-ntrntin

in clothing, sporting art:icles, and electronic components. Low labor costs(lower than 4n other Caribbean or Central American countries),taexmios

and the proximity to the IJ.S. market are the driving forces behind the indus-tries' dueve'lopment-, which, Lhowever, i-s strongly dependent on the US m-arket--itsfluctuations and limitations in terms of quotas (textiles) and regulationsuy the General oystem oL pLreferences. ILLUS, UJdiVesLifLiL.CaL.LULL, b0th sectorall

and geographical, is important for maintaining the momentum of industrialexports.

Table 18: EXE'ORTS, IMPORTS AND VALUE ADDED OF THEASSEUBLY INDUSTRIES, 1970-77

($ million)

Averageannual increase

1970 1.971 1972 1973 1974 1975 1976 1977 /a 1970-77 (x)

Exports 6.8 12.0 19.6 32.1 48.1 60.3 81.4 84.3 43.3Imports 4.0 1.0.2 16.7 22.8 35.5 44.3 58.9 61.3 47.7

Value Added

current prices 2.8 1.8 2.9 4.8 7.2 9.1 12.2 23.0 35.11970 prices 2.8 1.8 2.7 4.3 5.4 5.9 7.5 13.2 24.8

/a calendar year.

Source: BNRH; U.S. Department of Commerce; mission estimates

80. Tourism, which in 1977 accounted for about 11 percent of Haiti'sgross foreign exchange earnings from exports of goods and services, is only arecent development. In 1970, after fifteen years of stagnation, tourismstarted to develop steadily with arrivals climbing from an average annualtotnl of 50-000 dtiring the sixties to some 293.000 in 1977. More than two-thirds of total tourist arrivals (about 200,000) are cruise ship passengers

- 36 -

spending few hours in Port-au-Prince or Cap Haitien; the balance includes86,000 air passengers and some 5.000 visitors coming by land from the DominicanRepublic. Since 1970, annual increases in arrivals by air averaged 27 percent;from cruise ships, 31 percent. Net foreign exchange earnings are highest fromtourists arriving by airplane; they totaled $20.0 million in 1977 (see table3.6; Statistical Annendix). The averaae length of stay of viqitors inhotels is estimated to be 4 days, and of visitors in private homes, 15 days.For all the _onsidprahlp in_rease of vacation tourism in recent years, nomajor change has occurred in the length of stay of hotel visitors, whichis generally shorter than in other Caribbean tourist destinations. Cruiseship passengers stay only for one day on average.

81. Tourism development has been characterized by a concentration ofa~~..JnP.a VCI VI A. O.L.. X .. 0 a Lu ULLC * CU *L GLxa CVS M t A. .LULLC _ F , WLLAL VI PAC:. L t_ L _ .A7

Haiti's 2,600 rooms are located. Beach hotels account only for about 200rooms, lIthIe i rdevelopment ha CLv in been hamere until reen- by lac -of 3. I- -I* ~tl0, LL~L OC LJjUJ.LLL 1~V 115UCCLL LIaLUPJCL U ULLL.LJ. L-CL-C[L.Ly WY -LdLtN LIL

accessibility to attractive beaches. The size of hotels for internationalclientele averages 40 rooms, the largest h'ote'l Lin Haiti accountiLng 'or.L IL. LC v. -tU LLU1v LI L 1 IL. U dL. CUU1iL U

110 rooms. Hotel operation is mostly a family venture.

82. The major constraints to tourism development are the country'simuage wLthin the foreLgn tourism markeLs, the lack of suitabDe air and iandtransportation, and the limited efficiency of government institutions involvedin the tourism sector. Expansion of tourism would require continued governmentefforts to improve Haiti's image as a tourist destination. Promotion of suchassets as personal safety for visitors and the natural friendliness ot theHaitian population should be part of these efforts. While recently completedand ongoing improvements ot the transport infrastructure will facilitate, forexample, the access to the northern region, which has some historical monumentsand suitable beaches, air transport capacity during the high season fallsshort of demand, and internal tourism transportation, monopolized by theAssociation of Chauffeurs-Guides, is overpriced and inadequate.

83. The main option for further development lies in beach-based tourism.Although Haiti's beaches and natural assets are not more attractive than thosein other Caribbean countries, beach tourism development will be supported bythe country's different historical and cultural attractions. Hotel construc-tion and operating costs 20-30 percent below the Caribbean average should alsoprove to be an incentive to hotel investors. Some beach hotels, which areprofessionally operated, attain yearly occupancy rates of 70-80 percent andreport substantial returns on investments (20-30 percent). Market prospectsfor beach hotels are mainly based on organized tours flown into the country onchartered planes. Experience, so far, has been encouraging.

Structure of imports

84. Total imports of goods and non-factor services increased at an annualaverage rate of 11.6 percent in real terms during 1970-77. Net merchandiseimnorts (net of imnOrrS of asspmhlv induistries) roep hv R=1 npr_ent pna= inreal terms between 1970 and 1976. Food imports experienced the steepest

- 37 -

increase (19.6 percent p.a.), since agricultural production failed to keep

pace with domestic food demand. The growth of capital goods imports was also

fairly high (12.2 percent p.a.); this reflects the increased investment

activity in recent years, particularly by the public sector (see table 19).

Table 19: SUMMARY NET MERCHANDISE IMPORTS ia, 1970-76

Average Annual GrowthStructure of Imports (%) in Real Terms,

1970 1973 1976 1970-76 (%)

Producer goods 55.2 54.9 41.8 1.5

Mineral fuels 6.0 6.5 10.4 7.6

Capital goods 16.3 17.3, 20.2 12.2

Raw materials andintermediate goods 32.9 31.1 11.2 -9.4

Consumer goods 44.8 45.1 58.2 14.3

Food products 22.3 28.7 37.8 19.6

Con.sumer durables 5.4 5.3 3.7 2.5

Other 17.1 11.1 16.7 8.7

Total (%) 100.0 100.0 100.0 8.1

$ million 48.0 66.5 164.2

/a Net ofj imported inputs of assembly ir.dustries

Source: eee table 3.7, '7tatistical Appendix; mission estimates*.2ULL.. dUA.~~ I 1 1 --

85. Imports of producer goods (net of imports of assembly industries),

which accounted for more than 55 percent of total net merchandise imports in

1970, developed at 1.5 percent p.a. in real terms from 1970 to 1976. By 1976,their share in tctal imports had fallen to about 42 percent. 4 - imports

of mineral fuels and capLtal goods increased at annual average rate of

7.6 percent and 12.2 percent respectively, imports of raw materials and

intermediate products dropped by 9.4 percent annually. Imports of raw

materials and intermediate products (other than those of the assembly indus-

tries) followed an erratLc pattern from 1970 to 1974 with an-average annual

growth of 2.1 percent. In 1975, they experienced a sharp drop, which 's

probably the cumulative result of various developments, such as a sharp

decline in textile production, a slight decline in overall industrial pro-

duction, staSnation in the construction industry, and a sharp drop in the

- 38 -

number of newly established industrial enterprises and, thus, in the rate ofbuilding up inventories. Imports of mineral fuels do not weigh heavilyin the country's import bill. In 1974, after the substantial oil pricehike, they attained a maximum of 12.4 percent of total net merchandiseimports. In 1976, their share had declined to 10.6 percent. In spite of thecountry's rapidly increasing motorization, growth of fuel imports has been keptmanageable mainly thanks to the availability of hydropower from the Peligredam. In 1977, however, fuel imports went up steeply under the influenceof the severe drought that also affected hydropower production and called formore thermopower generation. Transport equipment and capital goods, increas-ingly related to public development projects, accounted for more than 20percent of total net merchandise imports in 1976, up from 16 percent in 1970.The share in total imports seems to be relatively low. This, on the one hand,reflects the country's strong dependence on consumer goods imnorts, mainlyfood; on the other hand, the structure of investment, which is heavilyconcentrated in infrastructure and house construction with correspondinglyhigh domestic content.

86. Imports of consumer goods accounted for more than 58 percent oftt ~--net imports in 1976, up from about 45 percent, in 19±7 0. LlTe rapidincrease is mainly due to soaring food imports, among which wheat, flour,rice, dai-y roducts, and oils and fats are the mosmt .mporlan.t. MAost of these

- -- J t± i I rnC .L iL~ LaiL V1L L . i LIb

imports are essential in the absence of sufficient domestic agriculturalproduction. It is estimated that increased domestic production could directlysubstitute for up to 50 percent of these imports; active promotion of lessthan perfect substitutes, and corresponding imuport and pricing policies couldeven result in higher substitution. Part of the food imports are considerednon=essential. Together with other non-essential consumer goods imports(see table 20), they account for about one sixth of total net merchandiseimports. Most of these non-essential imports, the definition-of which, ofcourse, implies value judgements, are bought by middle and high income groups.Depending on actual price elasticities of demand, the introduction of addi-tional import duties would help both to increase government revenues and tocurb demand.

Table 20: ESTIMATE OF NON-ESSENTIAL IMPORTS, 1974-76

($ Millions)

1974 1975 1976

Non-essential food 4.3 4.4 7.6Beverages and tobacco 2.2 2.6 3.6Passenger cars and household appliances 5.5 7.3 9.4Others 4.8 11.6 5.8

Total 17.2 25.9 26.4

(% of total net merchandise imports) (17.8) (21.2) (16.1)

Source: See table 7.8, Statistical Appendix.

- 39 -

Financing of the balance of goods and services

87. Until 1972,.the unbalanced demand for foreign goods and serviceswas mostly financed by unrequited private and public transfers. Since then,even rapidly increasing transfers were not sufficient to bridge the gap, andthe Government had to apply for foreign loans. At the same time, the Bankingsystem lost previously accumulated foreign reserves (see table 3.1, StatisticalAppendix), and a stand-by arrangement with the IMF was negotiated. During 1976and 1977, however, unrequited transfers and use of loans were higher than thebalance on goods and services. Thus, the country accumulated foreign reservesat a rate that allowed a marked change in the net position: from net foreignliabilities of $24.8 million in 1975 to npt foreign assset of S6.3 million in1977. It is also possible,. although impossible to prove, that the privatenon-banking sector arreimii1atPd foreign rpqprvpq diiring the same nprind.

RR8 The unba1anrced damnnd for foreign goods andi srviecs reached

$69.7 million in 1976 and $100.3 million in 1977. These high deficits_qWa~r.1-,L .t- V. 0 * --- yt.~S ~+- .107AN .A~f A1. j.Lfll. . 77I Sit -fj.l& i - Aequivalent to 33.0 percea -176 -n 4.1 percent (1977 of export's of goods-and services are rather the result of readily available foreign resources,WIIJ.L.II .LL LItJ ;jJPL.±L X.LL. U~VUCV=jLL IL VJi. VJJ B LD aLU LLLLJ LVV CU a ELU, LL112LI LAL=

result of buoyant autonomous domestic demand.

89. Unrequited transfers grew steadily from $19.1 in 1973 to $68.3milion in II//. Tne so-mewhat erratic uenavior of private transfers wascompensated by rapidly growing transfers made to the Government ($8.4 millionin 1973; $43.3 million in 1977). The importance of private transfers forthe overall balance-of-p.ayments performance should, however, not be under-estimated. Systematic promotion efforts through public-relations campaignsand attractive interest rates on savings and time deposits could help toincrease the inflow.

90. Net Government borrowing, mainly from official multilateral andbilateral sources and on highly concessionary terms, increased rapidly frominsignificant or even negative levels in the early 70s to $51.6 million in1977. Loans were channeled mainly into transport (highway, ports), power,agriculture and rural development, education (mainly rural), and healthand sanitation (potable water, rural health services) (see table 4.3,Statistical Appendix).

91. Foreign direct investment has not been important in Haiti. Thelimited market, the lack of infrastructure or.its high cost, low capitalrequirements and increas:Lng interest of Haitian capital in the assemblyindustry explain the low figures. Net investment income payments from foreignconcerns in Haiti are higher than net foreign investments, leaving a negativecontribution to the balance of payments of $3.2 million in 1976 and$5.0 million in 1977. Siince foreign investments have obtained generous taxrebates, exemption of dul:ies on imports of capital-goods and inputs, it isdifficult to think of new incentives to attract more foreign capital. Moreefforts could be made, however, in systematic industrial promotion (seeparagraphs 63 and 64).

- 40 -

92. Foreign reserves were accumulated in 1976 and 1977 (see table 3.11,Statistical Annendix), mainly because of an increased use of foreign loans.The immediate availability of reserves within the banking system, whichamounted tn S26.5 millinn in Ocrthpr 1977, Pniivalent to 10-4 nprcpnt of

imports of goods and services net of transfers and inputs of the assemblyindustry or 9.3 percent of total imports, seems to be inadenqiite AnUTo01or in

addition to reserves within the banking system, there are non-bank holdings offoreign. currencies eith4er in foreign accounts or. i,n circulation. Signifi ~ 4cant-

amounts of foreign currency could be easily available to pay for privateLIL LIUpVlL Lbr. mlIIL erC.LV L= LLiI 13 u UL L W L L0ML V UCe [LU L bUCU dC dLU L,

as a first look would suggest.

Major weaknesses

93. To the extent that the widening resource gap is caused by investmentrelated imports, it is not considered critical. it has to be recognized thatthe country, at its present level of development (and thus with its limitedsavings capacity), nas to rely on roreign savings to attain more rapideconomic growth that would permit the population's basic needs graduallyto be met. However, the widening gap nas to be attributed mainly to thesluggish development of agricultural exports and rapidly increasing imports offood and non-essential consumer goods. Had food imports increased in linewith domestic demand at 3.5 percent p.a. (which would have presupposed growthof agricultural production at a similar rate) and had imports of non-essentialconsumer goods grown in line with GDY at 4.4 percent p.a. (both in realterms), growth of exports at current prices (21.7 percent p.a. from 1970-77)would have outstripped aggregate import growth (about 18.5 percent p.a.instead of 24.2 percent p.a.); the resource gap would then have disappeared.This arithmetic example is to identify the main problem areas, namely agricul-tural production (with regard to both food crops for domestic consumption andexport crops) and consumption of non-essential imports in urban areas. Thanksto unprecedented inflows of private and public transfers these structuralweaknesses did not result in balance-of-payments problems. The bulk offood imports were financed by foreign loans and grants. However, these importflows result either from or create new consumption patterns that may, withouteffective control, develop their own dynamics. In the event that transfers donot keep pace with the demand for food and other consumer goods in the future,the balance-of-payments situation would be untenable, particularly in view ofthe expected deterioration of Haiti's terms of trade over the next few vears.

94. Substantial increases in domestir agricultural nrnductinn, whichwould be part of the solution of the country's foreign trade problems (onboth the export and import side), fae a n1imhbr nf physical, technical andinstitutional problems. 1/ The discrepancy between domestic and internationalprices, which developed over the yeams, however, could suggest t-hat rel-at l ve

prices of imports and exports, on the one hand, and domestic prices, on theother, allso constituted an o'bstacle to domestc producton o food an' otl-er

goods. Since 1960, the differential between domestic and international prices

1/ See paragraphs t19 nii / 'ee paragraphis 19 anim 12.o

- 41 -

varied in a range of 10 to 20 percent. Methodological shortcomings related

to both price indexes used for their comparison do not permit any firm

conclusion. At the same time, however, the system of import duties was subject

to both erosion (inherent to specific tariffs) and increasing exemptions (see

tables 3.9 and 3.10, Statistical Appendix), thus bringing the actual average

tariff down from about 26 percent in 1960 to about 9 nercent in 1977 and

further affecting price relations in favo.r of imports in the order of 13 percent

for the whole period. In the case o' food, the average tariff declined from

about 12 percent in 1971 t:o about 4 percent in 1976. The two effects combined

are of an order that is not negligible. To a certairn extent, they are a

disincentive to effective exploitation of Haiti's production potential with

regard to both exports and substitution of imports. In the case of Haiti,

a change in relations between international and domestic prices could be

best achieved by an increase in import duties. Measures to increase customs

duties, which are discussed in paragraphs 107-109, have to fight two adverse

trends: the proliferation of tax exemptions and the erosion of specific

tariffs due to inflation.

D. Public sector

Financial issues

95. Total government revenues as reported by the National Bank attained

G 637 million or 10.8 percent of GDP in 1977. Adding the gross revenues of the

Regie du Tabac from commissions, estimated at about G 95 million 1/, and

revenues from surtaxes on certain imports accruing to IDAI, estimated at about

G 16 million, government resources are on the order of 13 percent of GDP.

Total available resources are thus about in line with those of other countries

at a comparable level of development. However, because of the low elasticity

of the fiscal system, available resources are expected to decline in relation

to GDP. On the basis of an annual increase of nominal GDP of 9.8 percent over

the next 6 years, total revenues are expected to grow at about 7.4 percent.

Finanrial requirements both for the provision of counterpart funds for develop-

ment projects and for current expenditures resulting therefrom are expected to

increase at annual rates of 16 percent. Thus, the Government's financial

position would become untenable unless measures are taken to mobilize additional

resourrese

96. Information on total resource availabilities is incomplete. In 1977,

at least 35 percent of total government revenues 2/ came from unidentified

sources, and 39 percent of total exnenditures 2/ were channeled through

special checking accounts held at the National Bank (see tables 5.1 and 5.2,

Statistical Appe-dix). The existence of these substantial flows outside

1/ This rough estimate was derived from data given by the Regie du Tabac,

which indicate profits of G 64.4 million for 1977, and from projections

based on Tanzi's estimates (V. Tanzi: Report on the Public Revenues

o ~ 'aii, 1973). Th- ProJec ons were based on estimates of nroduction

or import volumes of different articles subjected to the Regie's

commiss ions.

2/ As reported by the National Bank.

- 42 -

normal budgetary procedures and an intricate earmarking system do not providea clear picture of total availabilities and requirements and make it difficultto allocate resources according to changing development priorities.

97. The Government recently announced its decision of major fiscalreforms with the following main obiprtivups (i) integration of all governmentrevenues into the budget and centralization of spending authority in theTreasury; (ii) consolidation of tax collection and removal of para-fiscalfunctions from the Regie du Tabac; and (iii) establishment of sound accountingprocedures for government revenues and expenditures. The measures, rellectedin the 1979 budget, took effect in November 1978; their full implementationwill, however. take some time, since considerable orgar.zational and proceduralchanges are involved. The IMF will continue to extend technical assistance tothe institutions involved to help establish the necessary accounting and pro-cedural framework. The package of reform measures will be complemented bytraining and recycling of administrative personnel in the recently createdEcole Nationale d'Administration Financiere (ENAF), which opened its doorsin Novembuer I9 78.

98. Apart from the existence of resources that, in the past, were notmade available for general budgetary allocations, the inadequate volume ofgovernment resources is linked to three major problems characterizing Haiti'sfiscal system. Firstly, the tax system consists of a large number of taxes,many of wnich yield revenues of by far less than G I million per year. Thus,administrative costs are relatively high. Secondly, about 40 percent of taxesare levied on a specific base and are, therefore, subject to rapid erosion,especially during periods of high inflationary pressure. This applies inparticular to import duties, which, in 1977, accounted almost for one third oftax revenues. The average "tariff" (defined as import duties: total imports)declined from 22.1 percent in 1970 to 9 percent in 1977 because of erosion andthe parallel increase in the proportion of duty exempted imports (see tables3.9 and 3.10, Statistical Appendix). 1/ Thirdly, the whole system reliesalmost exclusively on indirect taxes. Taxes on corporate and individualincomes contributed only about 16 percent to total tax revenues in 1977 (seetable 5.2, Statistical Appendix). Defining the income tax base as incomesfrom all sources exceeding G 1,000 per month (which is about in line with theregulations of the new income tax law), actual income tax revenues representedonly about 3 percent of the taxable base in 1976 (see table 1.19, StatisticalAppendix).

99. Among the most visible consequences of insufficient government re-sources are the low salaries paid to government employees and the limitedoutlays for operation-and-maintenance related purchases of aoods and services(see tables 5.5 and 5.6, Statistical Appendix). Real income of governmentemployees declined at about 6 percent p.a. since 1973 In 1977, the averagemonthly salary was about G 490. Effective October 1, 1977, salaries wereincreased at an average rate of about 14 nercent (or an estimated 6 percent in

1/ The average "tariff" on taxable imports declined from 36.6 percent in1970 to 18=9 percent in 1Q76.

- 43 -

real terms). Low salaries, however, continue to be a serious problem:

the public sector fails to retain and attract capable and dedicated technicalpersonnel. Outside activities are widespread. In addition, average salariesvary substantially among the different administrations: in 1977, the lowest

average salary was about G 360 per month in the Ministry of Agriculture,the highest about G 2,950 in the Ministry of Foreign Affairs. It is evident

that these average figures depend strongly on the structure of personnel.However, there is no comprehensive salary scale that would apply to all

government services -- a fact that adds to the overall problem and results inconsiderable interdepartmental variation of staff quality.

100. Current expenditures for the purchase of goods and services aregenerally low in relation to personnel expenses. The ratio declined fromabout I to 3 in 1971 to about 1 to 4.5 in 1974. After 1975, supplementarycredits allowed the proportion to rise considerably. Some administrations areseriously hampered by low budget allocations for operational outlays. The

Ministry of Agriculture, Eor example, spent only the equivalent of about 5

percent of nersonnel expenditures for the nurchase of goods and services (suchas gasoline and maintenance of equipment). This shortfall translates directlyinto noor research and extension activites.

Institut-ional issues

101. Financial and tuolshortcomings limit the rcninrrv' absorn-tive capacity in terms. of adequate project implementation. During the periodof the first Five-Year Plan (1971-76), actual development expenditures were 13percent below aggregate budgeted targets, with shortfalls in certain sectorsof up to 90J percent (see able 55.84, StatiS,4 cal Appendix) Taking unforeseen

inflation into consideration, the real shortfall may well have exceeded 20

percenLt. Ln 19777, actual expendU.Ltures agauin fell buy some 20. percentL short of

budget figures. Sectors that have shown the most persistent shortfalls with

regard to budgeted expenditures are agriculture, manufacturing, and water

supply. The reasons most frequently advanced for delays in implementing

particular projects are: firstly, administrative delays in agreeing onproject proposals and their financial provisions; secondly, the lack ofskilled technical and administrative personnel, at both the initial stage of a

project and later stages of implementation and operation; thirdly, physicalobstacles (inadequate access roads, unexpected terrain difficulties), which

might have been discovered if feasibility studies had been more thorough;

fourthly, the lack of coordination among different entities within the Haitianpublic sector as well as between the Haitian Government and external donoragencies; finally, inadequate financial provisions. In the agriculturalsector, the sheer volume c,f projects handled during the period 1972-76 strainedthe sector's absorptive capacity and put a brake on overaii performance. Thedifferent services were entrusted with almost 50 different projects during

this period representing total expenditures of G 105.3 million. Some of themost crucial problems of implementation are highlighted for selected develop-ment projects in Annex IV.

102. The planning and budgeting process for public sector expenditures is

rather rudimentary. The development budget is drawn up by CONADEP, the National

- 44 -

Planning Council 1/, from information provided by different government depart-ments, state enterprises and external assistance agencies on a project-by-project basis. The budgeting for one year ahead amounts to a relativelysimple process of cataloguing of whatever information is available. In somecases, projects lack firm implementation schedules and disbursement plans.Annual budget allocations then reflect a rather arbitrary distribution oftotal estimated project costs over time. Few government agencies are able toestablish financial plans for more than two years ahead. As a result. thebudgeting process is only based on short-term knowledge of current developmentnrnipc'tc LinkrA bptfwpn thp nnprnti-nn:l nrnd dIpuplnnmpnt- hiiricot nq Wpll aq

between planning of expenditures and revenues are tenuous. In most cases,there are no estimntes of what nresent investment programs will require interms of current public expenditures (for operation and maintenance) in theyears to come. In the absence of prospective thinking with regard to govern-ment expenditures. there is no active approach towards planning of revenueseither. CONADEP is aware of these serious problem.s but lacks ~th -- ersonnel for any short-term remedial action. They recommend, however, that new projectsshould notlS be approved, unlaess an assessment of opertin costs after prjectcompletion is made.

103. The second Five-Year Plan (1976-81) has progressively lost itsquality as an orientation iLnstrument. lianne[ sectora i ULities, asreflected by projects approved by February 1978, already diverge strongly fromthLe orgiLnal targets see tabie 5.10, Statistical Appendix). This is partiallydue to Haiti's strong dependence on external financial assistance and theduonor agencies' preference for certain sectors such as agriculture, trans-portation, education, and health in proportion different from that laid down inthe Plan. Another aspect is that the Plan itself projects real developmentexpenditures to decline after 1978 (see table 5.9, Statistical Appendix); thesharp drop in new foreign aid commitments in 1977 already points in thisdirection (see table 4.2a and b, Statistical Appendix). This reflects a lack offirm project ideas or prepared projects at the time the Plan was elaborated.In spite of substantial technical assistance, the lack of adequately prepared(bankable) new projects continues to be a problem that could hamper thedevelopment momentum during the next three years. So far, efforts to identifyand prepare new projects are not systematic and suffer from lack of coor-dination among Haitian entities as well as between the Government and foreigndonor agencies. CONADEP now intends to overcome these shortcomings byparticipating more actively in project identification and preparation, whichhas, so far, been carried out almost exclusively by sectoral agencies.

Recommended policy measures

104. Insufficient availability and suboptimal use of government resourceshas been a concern for years. The Government lately took some measures toincrease revenues. Among these are the levy of an additional specific coffeeexport tax, which is applicable at prices above $1.00 per kg. adoption of a

1/ In November 1978, CONDADEP was raised to ministerial rank as Secretaireried'Etat du Plan.

- 45 -

new system of taxation of bauxite exports, and efforts towards more effective

collection of import duties and corporate income taxes. Moreover, a new incometax law, which became effective October 1, 1977, increases the taxation of

higher incomes, mainly those of the liberal professions. Finally, a new

customs code was published on June 5, 1978. Its application is likely to

result in a slight increase of customs revenues. Furthermore, the measures

announced in July 1978 to integrate all government revenues into the budget

are likely to substantially increase resources available for general purposes.

The additional funds from the parafiscal operations of the Regie du Tabac, an

autonomous public sector monopoly, are estimated at G 50 million per year, 1/

G 20 million being already allocated to the National Investment Fund in 1977-78

Development Budget.

105. In spite of the measures already taken or to be implemented in the

near future, it is unlikely that government revenues will keep pace withfinancial reauirements. Therefore, measures to mobilize additional resources

are considered indispensable. With regard to the long-term viability of the

fiscal svstem (and the economy in general), the best solution to the problem

would be a comprehensive: review of the whole revenue system. Such a reviewshould be guided bv three basic nrinciples: (i) simplification of the

system by reducing the number of taxes and consolidating the collectionsystem, thus assuring better enforcement and, at the same time, cutting

back on administrative expenses; (ii) concentration on highest yielding

sources of taxation, enforcement of existing lpgislatinn, and modification of

some regulations; and (iii) elimination of elements creating disincentives for

Uomestic production.

1VV. ' number of excise and other indirect taxes could be eliminated

without significantly affecting total revenues. Administrative personnelwouldU bue re'leasedu andu coulA be reassigned to h-elp enforce the -collectionWUU±U UC L ~ ~~ diIU LLUJ U ~ 1. LA. .. ..'h-

of higher yielding taxes. A similar effect could be expected from a reorgani-

zation of thle collectLion system. LnsteaU of Lour agencies (including the

Regie du Tabac and -- tc some extent -- the National Bank) it would be better

1/ The Regie's total revenues are estimated at G 95 million in 1977, ofwhich some G 50 million are attributed to its parafiscal funct'ons(imposition of tax-like commissions), some G 45 million to earnings from

its commercial operations, which mainly consist of buying and sellingcement, flour, and sugar. The Government pledged to strip the Regie of

its parafiscal functions and to collect these revenues through the Customsand Internal Revenue Administrations respectively so as to make theserevenues available for general budgetary purposes. Taking into account

that the 1977 decre.e that allocates 50 percent of the Regie's grossprofits to the National Development Fund will be applied to the (remain-

ing) earnings from commercial operations and considering that actual

allocations in 1978 were G 20 million, there would be a net increase in

available government revenues of about G 50 million (equivalent to some

8 percent of total revenues as reported by the National Bank in 1977).

- 46 -

to have just two technical agencies (Administration Generale des Contributionsand Administration Generale de Douane) under the overall reskponsibility ofthe Ministry of Finance. The quasi-decentralized status of contributions andcustoms administration does not seem to offer any technical or administrativeadvantages. In any case, the amounts earmarked for the operation of thetwo agencies (10 npercent and 7 percent of the corresponding tax collections,respectively) represent relatively high administrative costs. The costeffectiveness of tax collection should be carefully studied. It is likelythat costs could be reduced (or rendered more effective) by fully integratingthese administrations into the Ministry of Finance and defraying their currentoutlays through the general budget.

107. The highest yielding sources of tax revenues are (corporate andindividual) ircomes and LoreLign traue. Actual revenues from these sourcesare far below their potential, the main reasons being undervaluation of therespective taxable bases and a generous system of exemptions. The Government,aware of the problem, is taking measures to tighten collection of import dutiesand corporate income taxes. For example, the control of 54 enterprises inDecember 1977 resulted in an increase of the tax base of about 24 percent.But these measures are just the very first steps in the direction of makingbetter use of existing sources of taxation. It is estimated that throughsystematic and broadly based efforts as well as a gradual modification oflegal regulations concerning imports, total government revenues could beincreased from G 637 million in 1977 1/ to about G 1,520 million in 1983, orfrom 10.8 percent of GDP to about 15 percent at an annual rate of about 16percent. Revenues expected on the basis of past trends would only amount toG 980 million or 9.4 percent of GDP (see table 10.9, Statistical Appendix). 2/Such an increase would presuppose rather rigorous assessments of incomes fromall sources in order to bring declared incomes closer to the actual taxablebase. It is considered feasible to improve assessment techniques and controlin a way that by 1983 the average income tax rate 3/ would reach 10 percent ascompared with 3 percent at present and a potential rate of about 27 percent. 4/At the same time, the estimated increase in total revenues would requirethat import-duty exemptions be gradually eliminated and average tariffs inad-valorem terms be maintained at their present level of 19 percent. Suchmeasures would not only make the Haitian tax system yield substantially more,but also make it less regressive and, thus, more equitable and more elastic.

108. The increased importance of duty-free imports accompanied by theerosion of specific tariffs through inflation did not only affect tax revenues,but also created distortions among sectors, factors of nroduction, and popu-lation groups. Therefore, this system should be gradually eliminated, and the

1/ Figure reported by the National Bank.

2/ All figures at current prices; assumed inflation: 5.2 percent p.a.(GDP deflator); 5.8 percent p.a. (consumer prices).

3/ Income tax rdvenues divided by tax base, where the latter is defined asincome from all sources over G 1,000 per month.

4/ The notential rate was calculated by applying specific income tax rates

as stipulated in the income tax law to incomes over G 1,000 per month.See also paraUraph 141.

- 47 -

application of tariffs should be generalized throughout the economy with theexception of imported inputs of the assembly industries and imports of equ4pn-ment, perhaps limited to imports of used equipment. Although the presentcustoms code stinulates ad-valorem and snecifir rates (for m any items both,to be applied alternatively) 1/, actual tax collection relies heavily on theannlination of specific tariffs. Thus, the s-stem is sub4ect to stron-erosion from inflation; the decline in average tariffs on taxable importsexactly followed price inflation for Haitian imports since 1960. Tn orAerto eliminate this effect, the application of ad-valorem rates should beg.eneralized. S4r,ce ir.n o:any cases th -e controls ofL customs dec'laratior.s ,Lorthe application of ad-vaLlorem tariffs might cause problems, the alternativelevy of specifLic rates W.L.L.L rLUUabUly ave to continue Lor some tiLme. Inthis case, however, they should be gradually adjusted for world marketinflation. Since most of the tariffs date from 1961, the appropriate adjust-ment factor for specific, rates as of the end of FY77 would be 1.89. FortarLifs that took effect at a later date, the adjustment factor would have tobe lower. After these adjustments for inflation in the past, the specifictariffs should be automatically adjusted once a year according to worldinflation.

109. Increased import-duty collections would aim at solving variousproblems at the same time: besides the merely fiscal impact, resourceallocation and aggregate demand would be affected, since imports would becomemore expensive. Price relations would change in favor of domestic production;therefore, an incentive would be given for import substitution (whereverfeasible). For items with high price elasticity of demand that cannot beproduced locally, the measures are likely to curb imports. Additional incen-tives for domestic production, especially coffee, could be envisaged bygradually eliminating taxes on all exports, with the exception of bauxite,where export taxes rather have the character of royalties. Revenues fromexport taxes (excluding bauxite) currently represent 1.3 percent of GDP.They are expected to decline to about 0.7 percent of GDP by 1983. Theirgradual abolishment would not cause any fiscal problems if the above-mentionedmeasures with regard to Lncome and import taxation were implemented.

110. Haiti's absorptive capacity has been strained during the past tenyears. Its ability to adequately implement and operate the large number ofcurrently ongoing projects is not only limited by the scarcity of governmentresources but also by institutional shortcomings in general and a lack ofmanagerial and technical personnel in particular. The Government is awareof these problems and has taken remedial steps: institutional strengtheningis one of the second Five-Year Plan's highest priorities, and technicalassistance for prolect preparation and implementation has been considerablyincreased; furthermore, the general salary increase for civil servantseffective October 1, 1977 and the topping of salaries for key personnel fromforeign-aid sources may have had some strengthening effects. However, inorder to attract and retain competent and dedicated neonle to the publ4r

1/ The new customs code, effective June 5, 1978, does not make significantchanges as compared to the old svstem (adonted in 1961, and frenuentlyamended thereafter).

sector, it is indispensable that salaries are not only adequate; i.e., com-petiLtLve wi thIL benefl.1ts fLromL oth LLer emp'loyment opportunities [in thLLe privatesector, but also governed by a rational and uniform salary scale applicablethroughout the public sector. The problem should be studied imm_ediately,and a salary scale would have to be designed carefully and graduallyimplemented in line with the measures to increase Government's resources.Measures to improve civil servants' remuneration should be complemented by asystematic recruitment policy, which shouid offer strong incentives forexpatriated Haitian citizens to return to the country. The Government is plan-ning substantial changes in the level and structure of remuneration of itsemployees. The increase will initially be financed from PL 480 funds and thengradually from tax revenues in line with increasing resource availabilities.

111. The planning and budgeting process presently followed does notadequately provide for coordination between the development and operationalbudgets. Recurrent expenditures for the operation and maintenance of thedifferent development projects are not fully anticipated and matched by anactive forward looking approach towards resource mobilization. A BudgetCommittee was recently set up within the Ministry of Finance to tackle theseproblems. This committee, which comprises the directors of differentdivisions within the Ministry and a representative of CONADEP, will have toestablish a medium-term fiscal planning system, which would permit the Govern-ment to assess its medium-term financial requirements and availability ofresources and to use the resources in line with declared development priorities.A uniform system of codification of development projects would ease theplanning tasks and would help to avoid double-counting and omissions that haveoccurred in the development budget.

III. SOCIAL AND SPATIAL ASPECTS OF DEVELOPMENT

A. Population and employment

Size, growth, and structure

112. Total population in 1976 was estimated at 4.7 million persons,un frnm 4.3 million in 1971 and 3.1 million in 1950, (see table 1.1,

Statistical Appendix). Population growth has been moderate at average annualrates of 1.6 percent during 1950'-71 and about 1.8 percent aL present. Th11iemoderate growth has been the result of relatively low natural increase (atpresent about 2.2 percent per year) andU substantiLa'L em'LgratiLon (about 0.4percent per year). The relatively low rate of natural increase has resultedfrom b-oth1 a higcude L.irth- rate 1/ (36.8)\ and cr-de det`rt /- (;.)£WIJLLI dt iL~IiL L-LUU~ L-L LIt LidLtf 1/ %-U.Uj a[LU CLUUe Ut!acu race ZY k1L+.J),

the latter being heavily influenced by high infant mortality 3/.

./ rudue birth rate - number or live births per year per i,O00 personsof midyear population.

2/ Crude death rate = number of deaths per year per 1,000 persons ofthe midyear population.

3/ infant mortality rate = annual number of deaths of children under1 year of age per 1,000 live births in the same calendar year.

- 49 -

113. Mortality levels are high, although declining during the past

twenty-five years. The crude death rate 1/ fell from 23.2 in 1950-55 to16.3 in 1970-75 and 14.5 in 1976 (see table 1.2, Statistical Appendix).The decline in mortality is also reflected 4n the rise in the exnectation

of life from 40.5 years in 1950-55 to 50 years in 1970-75, and 52.2 yearsLin 19.76,. T.nftant 4n 1076, was estimated at 149 deaths per thousand

live births. The corresponding figure for 1962 was 200. These figurescompare unfavorably with YtLonduras, a country with similar per capita incomme,where infant mortality stood at 117 deaths per thousand live births in

1971-72. L/

114. Tne deficiency of vital statistics and the lim.itations of censusdata make it difficult to give a precise account of the fertility pattern.All available data, however, point to a relatively high (lalthough declining)

fertility. It is estimated that the crude birth rate fell from 40.3 ini950-55 to 35.8 in 1970-75 and 36.8 in 1976 (see table 1.3, Statistical

Appendix). Results of the 1973 Demographic Survey, conducted by the Haitian

Statistical institute, indicate that fertility is lower in urban areas (totalfertility rate: 3.5) than in rural areas (total fertility rate: 5.6), (see

table 1.4, Statistical Appendix). The 1976 estimate or the totai fertility

rate 3/ for the whole country is 5.0 (see table 1.5, Statistical Appendix).

115. Haiti's population is predominantly female and young. In 1971,

the sex ratio was 93 males per 100 females (compared to 95 per 100 in 1950).For the population aged 15-39 years, the sex ratio is even more skewed: 85

males per 100 females in 1971. This sex ratio contributes to widespread

"polygamy" 4/ -- a phenomenon that is conducive to high fertility. The share

of young persons under age 15 increased from 37.9 percent in 1950 to 41.2

percent in 1971 (see table 21). The median age of the population of 19.0

years in 1971 (down from 21.2 years in 1950) also points to the predominantly

young structure of population. The population in primary school age (7-12

years old) was estimated at 15.7 percent of total population in 1975, that in

secondary school age (13-19 years old) at 16.2 percent. Given Haiti's low

level of economic development, the school age population represents a rela-tively heavy burden. Many families depend on income earned by children and,

1/ Crude death rate = number of deaths per year per 1,000 persons of

the midyear population.

2/ Robert W. Fox, Population and Urban Trends in Central America and Panama,

Inter-American Development Bank, Washington, D.C., 1977.

3/ Total fertility rate = average number of children that would be

borne per woman if she were to live to the end of her childbearingyears and to bear chLldren according to a given set of age-

specific fertility rates.

4/ "Polygamy" is used in a wide sense to comprise all sorts of relationssuch as co.n1mon living arrangements or visiting relationships=

- 50 -

therefore, cannot afford to send them to school. This situation is reflectedby low enrollment ratios, which are on the order of 50 percent (see table1.7, Statistical Appendix).

Table 21: POPULATION BY AGE AND SEX, 1950 AND 1971

(percentages)

1950 1971Age Total Males Females Total Males Females

0-14 37.0 19.0 18.9 41.2 20.6 20.615-39 41.0 19.1 21.9 37e6 17.3 20.340-64 16.7 8.5 8.2 16.7 8.4 8.365+ 4.0 1.8 2,2 4.5 2.0 2.5Unknown 0.4 0.2 0.2 - - -Total 100.0 48.6 51.4 100.0 48.3 51.7

(Thousand) (3,097) (1,505) (1,592) (4,330) (2,090) (2,240)

Source: See table 1.6, Statistical Appendix.

Regional structure and internal migration

116. Haiti still is a predominantly rural society. According to the1971 census, only 20.3 percent of the population lived in urban areas, ascomnared to 12.1 ercent 4Q 1950 (see tabLe 1.08, Statistical Appendix).In 1976, urban population was estimated at 23.1 percent of total population.Growth of urban population averaged 4.1 percent per year during 1950-71.The urbanization process is dominated by the growth of the Port-au-Princemetropolitan area, which averaged 5.9 percent per year during 1950-71. Thepopulation in other urban centers grew only at an annual average rate of2.4 percent. Rural population growth averaged 1.1 percent per year.

117. Population density with 168 persons per square kilometer(393 persons per square kilometer of agricultural land) is high. In theWestern Hemisphere, Haiti ranks second only after El Salvador. The Westdepartment, comprising the Port-au-Prince metropolitan area, is the mostdensely populated department; Cap Haitien, the most densely populatedarrondissement (see table 1.9, Statistical Appendix).

118. Internal migration has been mainly from rural to urban areas.With the exception of some in-migration into the rural part of the WestDepartment, rural-rural migration has not been of a significant magnitude.A rough estimate of interdepartmental migration based on the national

- 51 -

growth-rate method 1/ shoDws that all (old) departments but the departmentWest, experienced out-migration (see table 1.10, Statistical Appendix). Thedepartment West, with the Port-au-Prince metropolitan area as center ofattraction, has drawn migrants from all over the country, mainly from ruralareas. This pattern of migration is confirmed by the results of the 1973survev shown in table 22 and table 1.11, Statistical Appendix. Out-migrationis particularly strong in the (old) department South with its main originprobably being the northern part; i.e., the present department Grande Anse(see table 1.8, Statistical Appendix).

Table 22: NET MIGRATION (INTERNAL AND EXTERNAL) BY DEPARTMENT. 1973

PerThousand Population

Net M.iRration ~~of mid !973Department Internal International Total Population (thousand)

- O 07 ) I~ 1.1 + 0 .cA I. A1 I 7qA OJuest + 23,83i - 1 4 + 8,459 + 4.9 J.) 1,i730

Nord - 2,946 - 1,236 - 4,182 - 5.8 718.6Ar L onite - 3O,82 - 882 - 4,702 - 6.1 773.7

Sud - 14,649 - 852 - 15,501 - 15.6 990.7Nord-Ouest - 2,458 - 173 - 2,631 - 11.7 224.7Total 0 - 18,557 - 18,557 - 4.2 4,437.7

Source: Institut Haitien. de Statistique: Resultats complementairesdu recensement general de la population, du logement et deiiagriculture (September 19i71), without year.

119. Three main motives seem to govern the migration process in Haiti:firstly, the desire for work and higher income 2/; secondly,'the desire forbetter education 2/; and thirdly, the desire tor security within the extendedfamily 3/. The existing urban-rural and inter-urban income differential(see paragraphs 136-137) suggests a simple economic motivation for migrationinto the Port-au-Prince area; actually the economic motive may be more complex.

1/ This method assumes that population growth is uniform throughoutthe country and that differences between actual departmentalgrowth and average national growth are due to internal migration.

2/ H. de Ronceray: Impact des migrations internes sur les conditions dulogement a Port-au-Prince, in: Les Cahiers du CHISS, Septembre 1976.

3/ See U. Locher: RuraL-urban migration and the alleged demise of theextended family: The Haitian case in comparative perspective. Centrefor developing area studies, McGill University, Montreal, August 1977(Working Paper No. 20).

- 52 -

Although rewards for certain services rendered by unskilled labor in urbanareas may be higher than a corresponding labor income in rural areas, highopen and disguised unemployment in urban centers (and particularly in Port-au-Prince) reduce the expected value of income and the actual rural-urban incomedifferential shrinks or might even completely disappear for the lowest strataof society (see table 1.18, Statistical Appendix). On the other hand, therural-urban or interurban differential that the potential migrant perceivesdoes not only denend on the income differential he can actually exnect. It islikely that the average income differential existing between the differentnprts nf thp nouintryv Although by no means an adequiiatP Pstimator for thechances of the average migrant, mostly shapes aspirations.

120. According to a 1972 survey (Ronceray, 1976), education is one of thepopulation's fundna-ntal v,alues. It is also considered one of the primemotivations for migration. Education-oriented migration is not surprising11n thLie Y.aitilan context LWbLere chances for eAucation -in rural areas are poorbecause of difficult access to schools, curricula of little relevance, andh-10 stuAent=teach-er ratios. Ir. aAAition, there is some edua--ion-linkedLU±L LL 0- L .%C LCOiLUL t O .L$J LI 0tA'L. 1. Ul LIC. t OJU U LOL LL0L Xful_

migration, which is actually guided by economic motives: people thatenjoyed some education (especially people from pro-vincial toWils) are seek!ingbetter employment opportunities corresponding to their acquired skillsand, therefore, migrate to the Port-au-Prince area.

;1/. wnile the economic and educational motivation may be consiaereuas primary forces of migration, the existence of the extended family tendsto reinforce the process by inducing chain migration. Tne "urban members"of the kinship group provide a foothold for a whole migration chain;additional migrants are attracted by providing them with shelter andother help as basic security when they arrive in the city (Locher, 1977).Migrant households, therefore, tend to expand rapidly.

Population policy

122. During the 1960s, Haitian officials came to realize that evenrelatively modest population growth was intensifying the country's alreadycomplex economic and social problems. In 1968, technical assistance forfamily planning was requested from the Pan American Health Organization. Butit was not until 1971 that a new law created a Division of Family Hygiene tocoordinate public and private maternal/child health services, including familyplanning (MCH/FP) and a national family planning program within the maternaland child health system became official policy.

123. A pilot project to demonstrate the feasibility of a national maternalchild health/family planning progam within the existing health system began inMarch 1973 in Haiti's two main maternity hospitals. In 1974, the nationalprogram was begun under the supervision and coordination of the Division ofFamily Hygiene. The 1975-79 Five-Year Plan articulated by the Division ofFamily Hygiene included a two-phase family planning plan of action. The firstnhaqp rnlled for eArahlishing and organizing 20 maternal/child health andfamily planning clinics in hospitals, 16 in urban, and 4 in rural areas. Thisnhase ended in Decemher 1975. The second phase- which began in July 1976 andwill run to June 1979, called for an expansion of the program by increasing

* - 53 -

the number of clinics and services available. The number of acceptors of

government supported services, athough increasing, is still relatively low

(see table 1.12, Statistical Appendix). The national program promotes the use

of nonprescription contraceptives. The condom has been the most popular

method, followed by orals, vaginal creams, and IUDs. While a prescription is

necessary to obtain oral contraceptives, resupply can be carried out by

non-medical personnel. A small number of female sterilizations are performed

in urban areas, but vasectomy is not yet available.

124. The United Nations Fund for Population Activities (UNFPA) has

provided major financial support to Haiti's national family planning program,

particularly by establishing a Demographic Research and Analysis Unit, and

carrying out the World Fertility Survey. USAID has allocated a total of $7.7

million through FY81 to the MCH/FP program in an effort to reduce morbidity,

mortality, and births throughout Haiti by establishing a nationwide health

service, and by strengthening the administrative capability of the Government

to supply these services. A number of grants from Family Planning International

Assistance to the Center of Family Hygiene have allowed the continuation of an

information, education and communication program. This includes the develop-

ment of an educational curriculum for primary school students, development of

a slide series for family planning, training booklets for adults, text books,

and a training program for teachers. In addition, assistance has come from

Columbia University's Center for Population and Family Health, the Ford

Foundation, Oxfam,.the Pathfinder Fund, the Rockefeller Foundation, the

Unitarian Universalist Service Committee, and World Neighbors to name a few.

Population Projections

125. Total population is expected to grow from about 4.7 million in

lg76 Ito about L. millio.n in 1986 ar.d 6.6 million in 2001 (see table 1.13,

Statistical Appendix). This projection assumes continuing net emigration of

about 20,000 persons per year, continuing rural-urban migration, and successfiil

health and population policy resulting in declining mortality and fertility.

Annual growth is expected to decline to an average 1.6 percent during 1976-86

and 1.3 percent during 1986-2001. i/ Reduced population growth will have a

considerable imipact onr the age structure of populatio: the child dependencv

ratio 2/ is expected to decline from 623 in 1976, to 550 in 1986, and 458 in

/ This projection is based oi, proJections at the departmental level (see

IBRD, Haiti - Urban Sector Survey), which may somewhat overestimate the

decline in fertility due to anL assumedu change in Ihile reproductive behavior

of migrants. Total population by the year 2000 is about 6 percent lowerthan that resulting from the UN medium projection, and considerably lower

than that resulting from the WDR projection (see World Bank: World

Development Report, August 1978). This latter projection was based on,

relatively high fertility rates, which, in light of the results of the

1973 Demographic Survey, do no longer appear to be realistic.

2/ Child dependency ratio = ratio of child population (0-14) to the remainder

of the population times 1,000.

- 54 -

2001; on the other hand, the age dependency ratio 1/ will decline from 742 in1976 to 667 in 1986 and then increase again to 701 in 2001. The primaryschool-age population is expected to grow at 0.9 percent per year during1976-86 and at 0.6 percent per year during 1981-2001. Although the expectedgrowth is relatively low, it calls for continuous increases in the educationalsystem, which, at nresent,, is heavily burdened by expansion programs tofacilitate access to education in rural areas and, thus, increase enrollmentratios.

Emplovment

126= Employment and unemployment are concepts that are difficult to applyin the Haitian context; on the one hand, the country is so poor that fewpeople can really afford to be unemployed; on the other hand, many activities,especially those performed by children, hardly qualify for the traditionaldefinition of eu.ploy,er.t. Statistical information on labor force and employ-ment, therefore, is weak.

127. According to the 1971 census, total population amounted to 4.3million people. The population of working age (defined as population aged10 years and over) amounted to 3.1 million people, of which 2.2 millionpeople were considered economically active, with 1.9 million or 85.8 percentemployed and 323,000 or 14.2 percent unemployed (see table 1.14, StatisticalAppendix). This latter figure refers to open unemployment, which in Haitiis a rather shaky and subjective concept. Apart from open unemployment,underemployment or disguised unemployment is widespread, particularly inagriculture and informal sector activities. Rough estimates point to disguisedunemployment in the agricultural sector as high as 40-55 percent. 2/

128. Although agricultural employment shrank slightly during 1950-71,agriculture still offered the bulk of employment in 1971 (73.5 percent oftotal jobs). During the same period, employment in the non-agriculturalactivities more than doubled from 245,000 jobs in 1950 to 515,000 iobs in 1974(see table 1.15, Statistical Appendix). The modern sectors, however, providedonly relatively small numbers of new jobs; most of the additional employmenttook place in the informal sector, particularly in commerce and services. Thesituation is particularly striking in Port-au-Prince where, in 19759 70 percentof employment was in the informal sector (see table 1.16, Statistical Appendix).

1/ Age dependency ratio = ratio of the combined rhild (0-14 years) and aged(65+) population to the population of intermediateage (15-64 years). This measure is frequentlyused to indicate the burden that must be borne bythe productive population.

2/ See OIT: Problemes de main-d'oeuvre et d'emploi - Haiti, Geneve 1976.

- 55 -

129. Total labor force is estimated to increase at an annual rate of 0.6percent during the next ten years. Migration, changes in the age structure,and declining participation rates will cause a slight reduction in the rurallabor force. At the same time, the urban labor force will experience strongincreases of about 4 percent p.a. over the next ten years (see tabie 1.17,Statistical Appendix). This expected increase in the urban labor force willadd to the precarious situation on urban labor markets and makes the creationof employment opportunities in the non-agricultural sectors an urgent necessity.

B. Spatial imbalances 1/

Spatial pattern of population and economic activities

130. Population growth is unevenly distributed across the country becauseof natural growth varying among regions and internal migration. While totalpopulation growth averaged 1.6 percent p.a. during 1950-71, urban populationgrew at an annual average rate of 4.1 percent and rural population at only1.1 percent (see table 1.1, Statistical Appendix). Urban population accountedfor 23.1 percent of total population in 1976, up from 12.2 percent in 1950 and20.3 percent in 1971 (see table 1.8, Statistical Appendix).

131. The urban population is highly concentrated in the Port-au-Princemetropolitan area, which accounted for about 60 percent of urban populationin 1976 and more than 70 percent of urban population growth during 1950-76.In 1975, Port-au-Prince was almost 12 times the size of Cap Haitien, thesecond largest town in the country. This disproDortion noints to the factthat Port-au-Prince virtually monopolizes all urban activities and that thedevelopment of provincial towns falls far behind. The domination is particu-larly marked in the industrial sector. All export processing and heavyindustries (rpmpnt and s most light indtit-ries nf t-he modern sector, and

the majority of cottage industries are located in the Port-au-Prince area.Av2i1' lalp infrrastricture a 3nd proximity toservices, particularly Governme.ntand educational facilities, have accelerated the concentration movement duringt-he Iast- fivep -ears of rapid expansior.4. Tn 1976, 67 percent of the industrial

enterprises covered by OFATMA with 92.5 percent of the insured labor forcewere situated in and around the capital*. The second industrial centre is CapHaitien (fruit juices, clairin distillery, essential oils, pottery, sisalpro-ce-ssing -A an annnMarc in-eq: pw pant), f o by Saint Mar. "small food

processing and beverages industries), Les Cayes (sugar, essential oils, two0 .lau.s 5 .n L.C C- a small dairy, an. aL inLladjute FowL pLLLant, GnLaIMVes

(cottonspinning, vegetable oil, tomato paste, and matches), and Jacmel (once ath'riving commercial centrez will little industry: bask-etweaving, sugar, coffee,LLIL. LVJI L _UULL LOLt WLLI -L.L L LJ .LUUbLLy. L bU~ LL00

pulping, and adequate power supplies).

1/ This chapter draws on the results of an Urban Sector Mission, see IBRD:naiti - Urban Sector Survey, 1978.

- 56 -

132. Population growth in rural areas was also uneven. While the ruralsector as a whole at an actual growth of 1.1 percent p.a. (1950-71) hasexperienced net emigration, there are some rural areas that show demographicdevelopment at (or even slightly above) the pace of natural growth. In someareas, however, net migration was so extensive that total resident populationdecreased in absolute terms (see table 1.8, Statistical Appendix). Internalmigration, mostly rural-urban, follows the strong polarization of Haiti'ssocio-economic system and, therefore, results in net emigration from the fourperipheral departments and net immigration into the Departement de l'Ouest,with Port-au-Prince as the center of gravity.

Impact of government policies

133. The spatial pattern of socio-economic development is the result ofa strongly centralized political and administrative system and spatiallyunbalanced government policies in the past. Rough estimates of the spatialincidence of taxes show that Port-au-Prince contributes about 47 percent tototal tax revenues; other urban areas together, about 12 percent; ruralareas, the remaining 41 percent. The urban-rural distribution is in linewith the distribution of national income, but not with the regional ability topay as reflected by per-capita income. The pattern is strongly influenced bythe incidence of the coffee export tax that contributed about 16 npercent tooverall tax revenues in 1976. Within the urban sector, the distributionbetween Port-au-Prince and the other towns is 80:20 (as compared to 66:34 forincome) and may, therefore, more adequately reflect the respective ability topay. The picture is shaped by the snecific features of the tax system, whichheavily relies on indirect taxation, and, therefore, tends to be regressive.The spatial incidence of fiscal expenditures is even more concentrated on 'hePort-au-Prince area: in 1976, 83 percent of fiscal expenditures were incurredin Port-au-Prince, 17 percent in the rest of the country. Taking recurrentexpenditures of municipalities into account, which in 1976 amounted to G 3.1million (net of government subsidies, which are comprised irn fiscal expendi-tures), the incidence would slightly change. Furthermore, even consideringthe low effectiveness of the Haitian civil service, part of the servicesrendered and, thus, part of the salaries paid in Port-au-Prince as well aspart of the onerating expenditures incurred in Port-au-Prince actually benefitthe rest of the country. A rough estimate of the actual (as opposed to theabove given formal) incidence of government expenditures brings the figure forPort-au-Prince to a range of 50-55 percent. This, however, would still meanthat the expenditure pattern is strongly favoring Port-au-Prince.

1_4a Atn analysis of the 1976 development budget suggests that about 49percent of the development expenditures directly or indirectly benefittedthe Port-au=Prince area, while 51 percent were channeled to the rest of thecountry. Considering both recurrent and development expenditures, theactual incidence on the Port-au-Prince area is estimated to amount to about50 percent. Thus, the incidence of expenditures corresponds roughly to theincidence of tax revenues. The figures show, however, that, so far, thewhole fiscal system supported the dominating role of Port-au-Prince withinthe socio-economic system of Haiti. The pattern of expenditures did notprovide for any spatially redistributive effects, and the tax system is not

- 57 -

designed according to personal or regional ability to pay. Planned expendi-tures in the 1976-81 Development Plan are likely to result in considerablechanges. The incidence of government expenditures on the Port-au-Prince areamay well fall below the 40 percent mark. Furthermore, the application ofthe new income tax law (effective October 1, 1977) is likely to increasethe relative importance of income taxes within the whole tax system, thusallowing also for a more equitable personal and regional incidence of revenues.

135. Until recently, the agricultural sector ranked low among the Govern-ment's priorities. Inadequate support and price distorsions, which weredisincentives for domestic production, resulted in-the perpetuation of complexproblems that hampered agricultural development (see paragraphs 19-26). Lowlevel and slow growth of agricultural production translate directly into lowincome in rural areas. In 1976, average per-capita income in rural areasamounted only to about G 500 or 53 percent of the national average.

136. Given the infrastructural equipment of the country and the centrali-zation nf t1he- political and adminiQtratiue striututre, it ic clearlyr th Port-au-Prince area that benefitted most from industrial development during recentyears. To counteract the centripetal forces in industrial location, a new lawissued in 1977 gives additional tax incentives to firms that will be establishedoutside Port-au-Prince and its surrounding areas. It is doubtful whether thisadditional incentive will have an effect on the entrepreneurial behavior,since it cannot compensate for the lak.k ofL infrastructure thLat constitutes acrucial problem in provincial towns. Its impact on the present value of agi ve p r o J L t's cash 'Clow is small I. relea a ll. Thus, withouL

probably affecting the locational behavior, the law will contribute tofurther reduuc[Ling tax revenues andU 'eneit industries, the location of whichis not sensitive to spatially differentiated tax incentives but to otherfactors, such as the-availability of raw materials in the case of agricul-tural processing industries.

137. Education has long been a neglected area. In 1976, only 1 percentof GDP or 13 percent of government current expenditures were devoted to publiceducation which, when compared with other, even very poor countries, is ex-tremely low. The education system has mainly been catering to a small urban

1/ According to the law, income from eligible projects is fully exemptedfrom income tax during the first 5 years (15 years for locations outsidethe Port-au-Prince area). Starting in the 6th (16th) year, the taxableincome is gradually increased to reach 100 percent in the 11th (21st)year. The following example is to show the impact of tax exemptions ona project's present value for two different locations. The investmentis assumed to generate a net income of $100 over 25 years. The incomewould be taxable at a rate of 50 percent subject to the above incometax exemptions. The difference in the present value of income aftertaxes between the two locations at a discount rate of 33 percent (whichwould be in line with a 3 year pay-off period) is only about 7 percent.Since the normal pay-off period in any case would certainly not be morethan 5 years, any differentiation of the tax scheme seems to be irrelevant.

- 58 -

elite, while the vast majority of children and adults (especially in rural

areas) have been excluded. The most neglected area seems to be the ruralsection of the (old) department South. Enrollment in primary educationamounts to 41 percent of school-age population in rural areas and to 176percent 1/ in urban areas. The urban-rural differential is, however, worsein terms of completion: only 2 percent of children in rural areas completeprimary education versus 27 percent in urban areas. Curricula and syllabi inprimary education, which are designed to prepare for a certificate at the endof the 6th grade, appear mostly irrelevant to the country's socio-economicdevelopment and inappropriate to the learning capacity of children. Thesegeneral features combined with high drop-out rates (specially in rural areas)make education expenditures in rural areas almost a complete loss: most ruralchildren receive basically irrelevant education for a short time in a language(French. the official language) that they do not understand. Thus, education,so far, has not been a positive factor in rural development. Since, on thent-hpr hand, eduication is considered a fundamental value it is not surnrising

that the lack of adequate facilities in rural areas contributes to additionallyfiialin-o tha ruirai-iirhnn miar:ntifn nrnrroRR

New spatia-l S- tR

138. The Government now makes an effort to correct the spatial imhnlianc,sThe Second Five-Year Plan defines a spatial development strategy in broad

.j * J "' if' ''*clC 0 L G a LdeveLI.L Ld e LenTrali. _ z14 A I _. .t.A U .eJ Ati of

non-agricultural activities. Given the early stage of physical planning andthILe lacLk of: specifEic information, t4he spatia'. development strategy as outl"ned4in the Plan actually does not yet govern the spatial allocation of the invest-ment program. Decentralization is pursued or.Ly to the extent thlat more emphIIasisis laid on agricultural and rural development and on non-agricultural develop-ment (particularly infrastructural equipment) outside Port-au-Prince. nowever,comprehensive regional development programs or an explicit regionalization ofsectoral investment programs do not yet exist. Nevertheless, marked changeshave taken place with regard to the regional orientation of government develop-ment expenditures. While a rough estimate for 1976 points to an incidence onthe Port-au-Prince area of about 49 percent, an analysis of the 1976-81 programon the basis of projects approved as of February 1978 shows that the share ofPort-au-Prince decreased to about 28 percent. The incidence of developmentexpenditures and benefits on provincial towns is estimated at about 18 percent,that on rural areas, at about 54 percent (see table 23).

1/ Percentage exceeding 100 percent due to enrollment of overaged children.

2/ See CONADEP: Plan Quinquennal 1976-81, October 1976 (Tome I, Chapter 3).Additionally, there is a more detailed background paper: CONADEP:Regionalisation et Strategie de Developpement Regional, Juin 1976.

- 59 -

Tnhlp 273: PATTAI. fTTTRTRI1TTON OF PUBLIC TNVESTMENT; POPULATION;

AND NATIONAL INCOME

(Percentages)

Spatial Incidence Spatial Distribution ofof 1976-81 Population National Income

Investment Program 1976 1976

Urban areas 46.1 23.1 57.6Metropolitan

Port-au-Prince 28.2 14.0 38.7Other towns 17.9 9.1 18.9

Rural areas 53.9 76.9 42.4

Total 100.0 100.0 100.0

Source: IBRD - Haiti , Urban Sector Survey, 1978; population from IHS.

The comparison of the spatial incidence of development expenditures with thespatial distribution of national income reveals the envisaged spatial redistri-bution or decentralization. Thus, in the longer run, the pursuit of the presentpublic investment program is likely to change gradually the spatial structureof Haiti's socio-economi, system--a process which may be reinforced by theimpact it exerts on private investment.

C. Income distribution and poverty

Interregional income distribution

139. Haiti, with a GNP per capita of $232 in 1977 1/, is the poorestcountry of the Americas and among the 30 poorest countries in the world.Yet there are differences on the order of I to 7 between the different parts ofthe country (see table 24) and 1 to 75 between the different income groups (seetable 25). Average per-capita income in rural areas reaches only slightlymnre thn 90 nperrent of ]-he national average, compared to about 3.5 times the

national average in the Port-au-Prince area. The interregional distributionof "labor income", whic-h aronuints for aboiit 61 npercnt of national income 2/is less unequal than that: of total national income: while the relation for

1/ I',orld Bank Atl-as me!:hodology1 !Q75-77 hbas perinod

2' See technical not-e -1.74 tables 1.18 Rand 1.19, Staticticrl Annandixv

- 60 -

per-capita labor income among rural areas, provincial towns, and Port-au-Prince is 1 to 1.3 to 2.2, the corresponding relation for total per-capitaincome (which includes pre-tax profits) is 1 to 3.9 to 6.7; this is due to aheavy concentration of commercial and industrial activities in urban areas,particularly in Port-au-Prince.

Table 24: AVERAGE NATIONAL INCOME PER-CAPITA BY REGION, 1976

Urban Areas RuralCountry Total Port-au-Prince Other AreasTotal Metropolitan Towns

Area

Labor incomeGourdes 581.9 891.0 1107.1 636.3 504.4Index (rural areas

=100) 115 117 220 126 100

Total national incomeGourdes 951.8 2j735 3 3,400=0 1,953.8 504.4Index (rural areas

=100) 189 542 674 367 100

Source: IBRD, Haiti - Urban Sector Survey, 1978.

140. A comparison with income distribution data for 1970 I/ shows thatthe interregional differential has changed under the influence of recenteconomic development anA 4nflation. The Lnterregional Listr'but'on of laborincome among rural areas, provincial towns, and Port-au-Prince has changed froma relation of 1 to 1.5 to 2.0 in 1970 to L to 1.3 to 2.2 in 1976. Tnis changeprobably reflects some of the distributional effects of inflation: whileagricultural prices (and thus the bulk of incomes in rural areas) kept pacewith inflation, some urban labor incomes lost ground, probably with theexception of a small elite in the modern commercial and industrial sectors ofPort-au-Prince. The lagging development of part of urban labor incomes isbest exemplified by government employees, whose salaries were increased onlyby about 6.1 percent p.a. (1971-76), while the increase in consumer prices was13.5 percent p.a. On the other hand, recent economic development was mainlyfueled by industry, commerce, and construction; i.e., activities that arehighly concentrated in the Port-au-Prince area. This development did not onlyboost entrepreneurial incomes but also result in further concentration of

1/ See IBRD: Current Economic Position and Prospects of Haiti, 1976 (ReportNo. 1243-HA).

- 61 -

wealth in the Port-au-Prince area. A comparison Detween 1970 i/ and i976shows a change in the relation of total national income per capita among ruralareas, provincial towns, and Port-au-Prince trom i to 3.6 to 4.8 to i to 3.9 to6.7.

Interpersonal income distribution

141. The income distribution data also reveal uneven interpersonal distri-bution, especially in urban areas. The overall picture for the country issummarized in table 25. While the average per capita income is estimated atabout G 950 ($190), more than 60 percent of the population have to live onannual incomes as low as I 300 ($60). According to standard definitions, thisper capita income, which equals about 32 percent of national average, delimi-tates the group of people living under conditions of relative poverty.

Table 25: DISTRIBUTION OF NATIONAL INCOME BY INCOME CLASSES, 1976

Average Per Capita % of % ofIncome in Gourdes Population National Income

307 61.4 19.865S 21-1 16.0

1,087 10.7 12.51,682 1.8 3.61,812 1.1 2.02,100 0.6 1.53,000 0.3 0.9

R/. Alo 0. 43*#27

Source: IBRD - Haiti, Urban Sector Survey, 1978.

At the upper enu oL thle UjstributLon curve, some 5 percent of the populationaccumulate more than 50 percent of national income, and the average per capitaincome in the highest income bracket is 176 times as high as that in thebottom bracket. It is est:imated that there are some 4,000 families in thecountry whose average annual income exceeds $90,000. Out of this group about3,000 families live in the Port-au-Prince area. These high incomes represent

1/ 1970 data have been adjusted for non-labor income according to themethodology explainecl in the technical note accompanying table 1.18,Statistical Appendix).

- 62 -

a high potential for taxation, wnich, according to the 1977 income tax law,could be taxed at an average rate of about 27 percent. Actually, this sourceis hardly tapped; the average tax rate on taxable incomes amounted only toabout 3 percent in 1976. This striking underutilization of the tax potentialis a major reason for insufficient government revenues. Measures to mobilizeadditional resources will have to be specifically designed to make better useof this tax source (see paragraph 107).

142. A brief analysis of the different economic activities suggests threemain sources of these high incomes: commercial and financial intermediation,especially foreign trade related (about 30 percent); operating surpluses frommanufacturing (about 25 percent); rental and other non-labor income fromagriculture (about 30 percent); the remaining 15 percent are shared by theconstruction industry, the liberal professions, and other services such astransport and tourism.

143. The interpersonal income distribution varies considerably among thedifferent regions. To summarize the picture, some rough estimates of "relativepoverty" (as summary statement on income distribution) are compiled in table 26.In rural areas, where the average per capita income amounts to about G 504($101), the threshold of relative poverty (defined as one-third of averageper capita income) lies at an income of G 168 ($34), and about 17 percent ofthe rural population live in relative poverty. In provincial towns, thethreshold is G 651 ($130), with 68 percent of the population being affected;in the Port-au-Prince area, G 1,133 ($227), with 65 percent of the populationaffected. Thus, while rural areas are considerably poorer than urban areas,income distribution is more equal with a relatively low incidence of relativepoverty. On the other hand, high percentages for population living underconditions of relative poverty indicate a very skewed income distribution inurhbn areas- narticilarlv in Port-ati-Prinrp.

Table 26: PER CAPITA INCOMES AND RELATIVE POVERTY BY REGIONS, 1976

Urban AreasCountry Total Metropolitan Other RuralTotal Port=zu-Prince £ .ownLOs A reas

Average per capitaIf, Ar1 0 Q 1 7'C n A I.n n I nA 1 ] 0 ni/. I.iLncome kV/ 7-J1.u LI IJ. 7 Jvv . v I 7JJ.tO JVF.

Relative povertyincome (G) 317.3 912.0 1,133.3 651.3 168.1

% of populationaffected byrelative poverty 26.7 64.9 62.0 68.4 17.1

Source: IBRD, Haiti - Urban Sector Survey, 1978.

- 63 -

Incidence of absolute pc'verty

144. With the exception of the Port-au-Prince area, absolute poverty ismore widespread than relative poverty. It is estimated that the minimum percapita consumption, which would allow for the intake of a recommended minimumdiet and for the acquisition of essential non-food items, amounted to aboutG 1,000 ($200) in 1976 for the country as a whole, with a high of aboutG 1,110 ($220) in Port-au-Prince and a low of about G 980 ($195) in ruralareas (see tables 1.20 and 1.21, Statistical Appendix). The estimates ofnon-food items are based. on the results of a 1970 survey. Although expendi-tures for rent and water use to be high in Haiti, the share of minimum consumerexpenditures on non-food items taken to be equal to food items appears over-estimated. An alternative estimate, therefore, assumes that non-food expendi-tures amount to only 40 percent of food expenditures throughout the country(or about 29 percent of total minimum expenditures). Thus, minimum expendi-tures would amount to about G 700 ($140) for the country as a whole varyingbetween about G 820 ($164) in Port-au-Prince, G 750 ($150) in provincialtowns, and G 675 ($135) in rural areas.

145. The confrontation of these minimum consumption estimates with theactual purchasing power of the population (as derived from income distributiondata) shows that almost 90 percent (75 percent) 1/ of Haiti's population liveunder conditions of absolute poverty; this means that the overwhelming majoritycannot afford what is considered the minimum standard of consumDtion of foodand non-food items. The incidence of absolute poverty varies for the differentnprts- nf the coint-rvy frnm ahn,ot 60 nprrpnr (40 nprcpnt) 1/ in Pnrt-aun-Prinrceover 83 percent (74 percent) 1/ in provincial towns, to 94 percent (78nprcenr) I/ in riiral aroa (see tnhle 1=21j S isticrl Appendix).-

146. The recoammended minim.um per capita calorie intake for Haiti is ofthe order of 2,000 cal/day (see table 1.20, Statistical Appendix). Since thecost of such a diet exceeds what mostO faLiles can afford to spend for food,actual per capita food consumption is lower; the results are widespread mal-Lutrition andU even starvatiLon. Am numbuer ofL surveys carriLeLU outL in the late1960s indicate, on average, a daily per capita food consumption of about1,700 calori4es. 2/ This consuumpt-ion level does not only fall shr f t-herecommended minimum of 2,000 calories, but the underlying diet is also

unblLanced in proteins anAd fats. Muany people suffer fol.lil urtoa

1/ Percentages in parentheses are based on lower estimate of expendituresfUor non-foodu iLtems.

/ U.S. Department of Health, Euucat'ion andU Welfare. oyncrisis. The

Dynamics of Health, IV: Haiti (revised), 1976. Recent FAO data basedon the apparent consumption durlng 197/-74 Indicating a Uaily per capLtaintake of 2,028 calories, seem to overestimate the real situation. SeeFAO: Monthly Builetin of Agricuitural Economics and Statistics, April1976.

- 64 -

de'iciencies as indicated by symptons such as underweight, poor muscular devel-opiaent, and short stature. Malnutrition is particularly serious among children.According to the most recent survey (1974-75), only 13 percent of childrenwere considered normally nourished (see table 1.22, Statistical Appendix).About 31 percent were first-degree malnourished; 38 percent, second degree;and 17 percent, third degree. 1/ A comparison with the results of a 1958survey, which classified only about 21 percent of children aged 0-6 years asfirst and second-degree malnourished, 2/ indicates a marked deterioration ofthe nutritional situation. The malnutrition of children causes retardation thatis irreversible even with excellent nutrition at later stages of development.

IV. PROSPECTS FOR FUTURE DEVELOPMENT

A. Orientation of long-term development

Government goals

147. The second Five-Year Plan (1976-81), which is a continuation ofdevelonment efforts started under the first Five-Year Plan (1971-76); aims atimproved living standards for the whole population. This general goal ispursued throuah four high nrioritv actions: (i) develonment of agricuiltutrewith a view to feeding the growing population, increasing rural incomes andwidening the internal market, supplying the industrial sector with rawmaterials, and reducing rural-urban migration; (ii) development of infrastruc-ture with a view to the cnountry' a and a better balancbetween Port-au-Prince and the provincial towns; (iii) development of educationwith a-i vi to imp-n p l for SUL t--ul. p latir through easieraccess to primary education and supporting agricultural and industrial develop-ment throughi -expanded vocatior.al trainin6g; (fiv)j d-eveltopment ofL the iLr.stiLtu-tional structure with a view to supporting the development process and increas-

_ LL X c L.UUuILLL o auou.JLkJL±ve pa,u.Ly. _ eJ.& ULUaU UL. llLaLAULI are tI.LL1b.±LeU

into a quantitative macroeconomic framework and sectoral investment programs,tIe implementation of -whLich over-welmingly depends on roreign financial andtechnical assistance.

148. Government's changed attitude towards socio-economic developmentnot ensue with the 197o-o1 rlan; it dates back to the early 1970s. The

country's liberalization did not fail to have positive effects on the develop-ment of manufacturing industries, tourism, and investment in general. Economicdevelopment gained momentum, and, as a result of increased internationalsupport for new government programs, public development expenditures have

1/ According to Gomez classification based on weight/age relation:

Normal = 90 percent-110 percent of normal weight; first degree =75-89 percent of normal weight; second degree = 60-74 percent ofnormal weight; third degree = less than 60 percent of normalweight.

2/ Jeliffe survey of 1958. Results given in US-HEW, op. cit.

- 65 -

rapidly increased since 1974. Given the country's general situation, theGovernment's development efforts have been geared almost exclusively towardsbuilding up the economic and social infrastructure; even agricultural devel-opment has mainly been infrastructural development in rural areas. The imnactof increased investment on economic growth has, therefore, thus far beenlimited, particularly in the aaricultural sector. A stronger orientation ofdevelopment towards directly productive activities (and thus economic growth)will have to tackla a larap ntimber of ronRtraints which were identif4ed in

various sections of the report and will be summarized below.

Constraints

149. The single most important constraint with the broadest impact onover--!! development is to be found in the public sector's fLinanclal an' insti-.~~ ~ ~ LLI. LL U.JAO~. IL I ±L L LLG a u J.LI LJ.

tutional situation (see paragraphs 95-103). Government resources, even takinginto accouunt the immediate impact of recent measures 'see paragraphs 97 and104), are insufficient to meet the rapidly increasing financial requirementsf rom development expenditures andu -- perhap:s eveu more important -- recurrentexpenditures for adequate operation and maintenance of new facilities andservices. ,.e scarc'Lty o funuds is linked to a number of problems: (i) theretention of substantial revenues for other than general budgetary purposes;i/ (ii) tne neavy reiiance on specific taxes (particuiarly import duties),which are subject to erosion; (iii) the low actual taxation of incomes and theregressiveness of the whole system; tiv) tne nign administrative costs ot acomplicated and low yielding tax system. Low government salaries (hence lowcaliber staff and widespread outside activities) and limited outlays foroperation-and-maintenance related purchases of goods and services (hence,inter alia, poor support services for agriculture and industry) are theimmediate consequences. The public sector's financial and human resourcesproblems limit the country's capacity to effectively absorb the substantiallyincreased foreign assistance; this is reflected by both implementation problemsin ongoing projects and insufficient generation of new projects.

150. Declining agricultural exports and rapidly increasing food importspoint to the constraints that hamper agricultural production (see paragraphs19-26). Most important is the low level of technology that translates intogenerally low yields; it results in underutilization of productive lowlands,overutilization of marginal soils, and erosion. Weak support services havecaused the technical problems to persist for a long time. Moreover, pricedistortions (both among different crops and between domestic and internationalprices) are also import.nt factors behind poor agricultural performance.

151. Industry, although one of the most dynamic forces of economicdevelopment in the 1970s, suffers from a number of demand and supplyconstraints (see 'paragrAphs 55-59). Too little attention has been given toa systematic identification of new and promising demand areas, both foreignand domestic. The private sector's market knowledge is weak, its capacity for

1/ Sep honwever; narairranh 155.

- 66 -

project preparation insufficient. Public support services do not fill thisgap. On the supply side, lack of adequate infrastructural facilities, insuffi-cient and irregular supply of agricultural raw materials, the shortage ofskilled personnel, lack of quality control, and inadequate supply of lona;termcredit for small industries are major obstacles. Moreover, public supportservices failed to play an active role; in many cases, they were even addi-tional obstacles to private sector development.

152. Income distribution (both interregional and interpersonal) has alsobeen identified as a serious nroblem (see naraaranhs 139-143): it rpnrpepntsa condensate of the country's complex development problems. The skewed distri-hut inn is not only a so_ial concern, but it has far-reaching impacts oneconomic development by limiting the domestic market, favoring a consumptionnattern with high import content and, therefore, contributing too potentialbalance-of-payments difficulties. Moreover, the high incidence of absolutepoverty, which results in -iA-s--- mAln- trition, tnds tn perpetuste islfby hampering the productivity of the poor.

153. Haiti's low general level of development and the large number ofconstraints are reflected by a low savings capacity anu Latent balance-of-payments difficulties. To attain the economic growth that is necessary toreach a more acceptable 'leve'l of de-v=elopment for th hoepouato, hL eaLII IUUL ~ LL.~jJ LUJ~ J~VP. UJLLL LtL LLIL WLILJ.L-- PLJjUdL.tLJULL, LiLLt

country strongly depends on foreign savings. Rapidly increasing transfers andgovernment lending from officia- sources helped to finance growing importrequirements. Projections based on past trends (scenario I, see paragraphs164-167) indicate that, in view of the likely deterioration of Haiti's termsof trade and the slow development of its exports, it will be increasinglydifficult to bridge the widening resource gap. Decisive policy measures arerequired (see paragraphs 154-161) if the development process, started in theearly 1970s, is to continue and to gain momentum (scenario II, see paragraphs168-170).

Policy recommendations

154. The policy recommendations summarized in this section are geared toa wide range of problems spread throughout the social and economic system ofHaiti. Generally speaking, they are oriented towards the elimination, or atleast the reduction, of the most crucial constraints to development identifiedand discussed throughout this report. A major aspect is the strengthening srthe country's absorptive capacity (in both financial and institutional terms)to allow for an effective absorption of increased foreign assistance, which isindispensable for further socio-economic development. This also requiresidentification and preparation of new development projects, especially withregard to directly productive activities, to accelerate economic growth andcreate new employment opportunities. The Government is aware of many of theabovementioned constraints and of their impact on development. In some cases9,action has been initiated or is about to be undertaken. Thus, the recommenda-tions hardly ever represent measures that have to be designed and implementedab ovo. They are rather a continuation and strengthening of political actionthat has been taken recently.

- 67 -

155. The fiscal reforms that were announced in July 1978 and took effectin November can hardly be overemphasized, since Haiti's fiscal system has beena major concern of the external agencies for a long time. The reforms speci-fically aim at: (i) integrating all government revenues into the budgetand centralizing spending authority in the Treasury; (ii) consolidatingtax collection and removing para-fiscal functions from the Regie du Tabac;(iii) establishing sound accounting procedures for government revenues andexpenditures; and (iv) mobilizina additional resources, mninly by enforcingexisting legislation. Although these measures, by making additional fundsavailable for oeneral budgetary purposes, would solve some of the most pressingproblems, they would not be sufficient in the long run. Since the fiscalsystem has a relativeLy low elasticity, it is unlikely that government revenueswill keep pace with the longer-term financial requirements. Therefore,measures to mobilize addtional resources are considered indispensable. Thebest sQlution would be a comprehensive review of the whole revenue system.The review should aim at: (i) simplification of the system reducing thenumber of taxes and consolidating the collection system; (ii) concentration onh4ghest yielding sour;es o' taxation, en'oLcement of existing legislation, andmodification of some regulations; (iii) elimination of elements creatingdisincentives for domestic production (see paragraphs 105-109). Besides theelimination of a number of low-yielding excise and other indirect taxes andthe reduction of administrative costs (or an increase in cost effectiveness),the proposed measures concentrate on income taxes and import duties. Withmore systematic collection efforts and some changes in the application ofcustoms duties (see paragraphs 107 and 108), it should be possible to graduallymobilize an additional G 540 million per year or 5.2 percent of GDP by 1983(see table 10.9, Statistical Appendix).

156. Besides generating additional government revenues, the proposedfiscal measures are expected to have a favorable impact on income distribution,resource allocation, and the balance of payments. Higher incomes would haveto carry a higher tax burden, wnich would help finance development programswith positive impact cn the poor; hence the favorable effect on income dis-tribution. At the saute time, increased income taxes are likely to curb con-sumption and imports of consumer goods. Increased import duties will havethe same effect and, by changing price relations between domestic and importedgoods, give incentives for import substitution. Additional incentives fordomestic production, especially coffee, should be given by gradually abolishingexport taxes, in line with increases in revenues from other sources.

157. The proposed fiscal measures will provide the financial prerequisitefor the necessary strengthening of government institutions. An essential stepwill have to be the reform and increase of salaries of government employees.Salaries should be competitive with benefits in the private sector; theyshould also be structured according to a rational and uniform scale applicablethroughout the public sector. These measures should be complemented by effortsto bring expatriate Haitian citizens with technical, economic, and administra-tive experience back to the country (see paragraph 110). The strengthening ofstaff together with orgzanizational measures such as improved planning andbudgeting procedures should help to make the administration more effectiveand provide better support for agricultural and industrial develonment.

- 68 -

158. The Government s development efforts in recent years were mainlyconcentrated on improvement of economic and social infrastructure. Even inagricultural and rural development projects this has been the main emphasis.The projects have directly benefitted the population by providing basicservices. Considering, however, the country's low level of productivity andincome, the high level of disguised unemployment, and the increasing food gap,more specific efforts should be made to increase production and to create newemployment opportunities (or make existing employment more productive). Thisnew emphasis should not only translate itself into the identification andpreparation of new projects in agriculture, industry, handicraft, or tourism,but also apply to ongoing projects. For example, rural development projectsshould be more focussed on production and employment. This same orientationshould guide the design of any policy measures, irrespective of the specificarea or sector.

159. In view of the emerging balance-of-payments difficulties, which,to a large extent, will be due to food imports, every possible effort should beundertaken to increase domestic aRricultural production both to substitute forimports and to create exportable surpluses. Programs should be geared to themost ur2ent needs with preference for rapidly offpaying actions. In thisrespect, highest priority should be attributed to the extension of DARNDR'songoing food grain proRram to about 200,000 ha within the next four years.Other high priority areas are the rehabilitation of irrigation systems, roadconRiriuiction tn anon thp P1ltpaii Cpntrnl rnnqtr,irtinn nf fpedpr rnidl indifferent areas, and soil and water conservation including tree planting.

160. Massive increases in agricultural production presuppose that thevarious constraints identified in paragraphs 19-33 will be overcome. To thisend, the strengthening of the different support services (extension, credit,and .ats ( rUCJal as well as the adoption of a ratio1al pr4.ici -1li4-(see paragraph 35).

161. Further industrial development also essentially depends on thestrengtheniing of support serviLces with a view to systematiLc market research(both at home and abroad), project identification and preparation, improvedcredit supply, especially for small-scale industries, industrial promotLoL andattraction of foreign investors, improved quality control for Haitian products,and export promotion. Major efforts should be made to heip smaii-scaieindustties to activate the growth potential of local and foreign markets. Inthis context action should also be taken to attract expatriate Haitians andto train technical and managerial personnel. A reorganized IDAI, the proposedprivate-sector DFC, and the BHPI will have to play active roles in thispro zess.

B. Long-term growth projections

162. Given the structure of production (with strong dependence on agricul-tu:e) and the fragile situation of the balance of payments (with strong de-perndence on agricultural exports, transfers, and government borrowing, on theonr. hand, and high and increasing food imports, on the other), future economicdevelopment in Haiti, to a large extent, will be contingent on agriculturaland balance-of-payments performance. At the same time, the industrial sectoris expected to play an increasingly important part, particularly with regardto exports.

- 69 -

163. Government has a decisive role to perform. Current developmenttrends are likely to result in serious balance-of-payments difficulties,which would inhibit a continuation of the present pattern of growth(scenario I). The policy measures recommended throughout the report andsummarized in paragraphs 154-161 will be crucial to improve economicperformance and avoid a balance-of-payments crisis (scenario II). Bothscenarios have been translated into a set. of quantitative assumptions, whichare the basis for medium and long-term proiections.

Scenario I

164_ _rpnario T iS built essentially around the assumption that trendsobserved during the past seven years will continue. Some changes in pasttrends were introduced to reflect the expected i.mpact of ongoing governmentdevelopment efforts and policies. For example, it was assumed that the agri-cultural development policy pursued by Government will result in fastergrowth of production, thus, slightly faster growth of agricultural exports,hgher domesti. spply of foo an slwe growin foodLLL imprts itDUL) was a'lso

assumed that current government policies would be sufficient to maintain thepace of LnAustrial proAUc tor. an' exports observed durnig the past seven years(see tables 28 and 29).

165. The assumptions and results of the projections are summarized intables 27-29. Assuming some growthi in the exports of coffee, essential oils,cocoa, and meat, as well as a continuing decline in sisal exports and no resump-tion of sugar exports, overali agricultural exports are expected to grow atreal average annual rates of 3.1 percent (1977-83) and 2.5 percent (1983-90),compared to -2.8 percent during i970-77. Bauxite exports are assumed to re-main constant at the 1978 level 1/, exports of assembly industries and otherindustries to continue at recent growth rates. Total exports of goods arethen expected to grow at real average annual rates of 5.0 percent (1977-83)and 5.2 percent (1983-90). Ongoing developments in the tourism sector andfurther improvements of the country's general infrastructure are expected toresult in substantial increases in tourist arrivals. This trend, togetherwith slightly increasing average stay and spending, is assumed to amount toreal average annual increases in foreign exchange earnings from tourism of 9.7percent (1977-83) and 8.0 percent (1983-90). As a result, total exports ofgoods and non-factor services are expected to grow at 5.6 percent per year inreal terms during 1977-83 and at 5.7 percent during 1983-90; i.e., at a pacein line with the development observed during 1970-77.

166. Because of favorable weather and, therefore, satisfactory agricul-tural production in 1977-78, food imports in 1978 are expected to be sub-stantially lower than in previous years. From 1979 on, they are likely toresume growth. Growth rates, however, are expected to be lower than in thepast because of some improvements of agricultural performance as a result ofcurrently ongoing development efforts. Growth rates (1978-83: 6.1 percent

1/ The 1978 export volume was slightly higher than the volume stipulated inthe 1976 agreement between Government and mining company.

p.a.) are assumed to be slightly higher than population and income growth witha tenUency towardUs UeceLeratLon .1...... 4.3 percer,; p.a.). Imports ofcapital goods will grow in line with investment, imported inputs for assemblyindustries and other intermediate goods, in line with exports Uo assemblyindustries and other industrial growth, respectively. Imports of petroleumand derivatives are likely to grow with an elasticity to GDr growtn of aDout1.6; i.e., slightly lower than that observed during 1970-76 because of theeffect of higher prices both for petroleum products and electricity. Totalimports of goods and non-factor services are expected to increase at realaverage annual rates of 5.5 percent (1977-83) and 5.7 percent (1983-90).This increase is substantially lower than in the past mainly because of theexpected slowdown in food imports.

167. The parallel development of real exports and imports (at averageannual rates of about 6 percent) will result in a further widening of theresource gap to about 13 percent of real GDP. Deteriorating terms of trade,mainly as a result of declining coffee prices, will cause current exportearnings to lag substantially behind imports; the gap will reach 13.1 percentof GDP at current prices in 1983, 14.2 percent in 1990. Even rapidly increas-ing current transfers, some 80 percent of which are assumed to be from officialsources, and growing government borrowing on concessionary terms from tradi-tional lenders, mainly IDA and IDB, would not be sufficient to bridge the gap.Substantial amounts of supplementary lending would have to materialize tosustain the increasingly precarious situation and avoid balance-of-paymentsdifficulties (see table 27). Supplementary lending might actually be lowerthan projected. Part of it (about $25 million in 1983, about $80 million in1990) could be in the form of traditional proiect lending in line with theavailability of bankable projects. I/ Even considering this possibility, thegap to be filled would amount to about $40 million in 1983 and $130 million in1990. This clearly indicates that the assumed development is financiallyuntenable. New nolicv measures, as recommended ini paragraphs 154-161, willhave to be adopted to change the current pattern of development.

Scenario II

168. The proposed measures essentially aim at mobilizing additional govern-ment resources and strengthening institutions. This, in turn, implie4 t-he 4m-

proving of income distribution, curbing of consumer demand and imports, andLchangn opri c geain in LfavoC-4- C-_r --f doesi proucton and ---AthneL~LdI~LI~,UL p £ .L%t L~ 1 .±a L XLULO LLL £ V UL LJ.L %A%LU~0 L.LLjJ. .U LLLJL, OLLLL rL L.~L5 LCIiU

government institutions as well as the proposed DFC should be instrumental inenih1ancing prouductJion -an export._ A ---- --- i inres in domestic production,t~IUdII.LI~ p UUL LLULdLIU ~AJ%9UL L.0 .ML VLUL.J & 1 aJ.U LL~.L~0 LlA .LL F LL U.LLUL&% L±JLLL

an accelerated substitution of food imports, and a more dynamic development ofagricultural andu i-ndustrial exports are the sallient assumLiptiLons of' scenario IITreflecting the expected impact of the proposed policy measures.

1/ Commitments and disbursements of loans from IDA, IDB and bilateral agencies(U.S. and Germany) were assumed on the basis of existing lending programsand past trends. Tne assumed investment growth, which presupposes theavailability of technically and economically feasible projects, is higher.If this latter development were to take place, there would be a chancefor increased project lending, which is reflected in the category "publicand publicly guaranteed loans".

Table 7: BALANCE-OF-PAYMENTS PROJECTION IY, SCENARIOS I AND' 11, 1977, 1983 AND 1990

($ Million)

Average Annual Growth (2l11983 -- - 1990 1977-83 1983-90

1977 Scenario I Scenario 1i Scenario I Scenario 11 Scenario I Scenario II Scenario I Scenario Il'

Exports of Igoods and non-factor services 242.5 430.0 451.5 948.¶ 1,035.8 10.0 10.9 12.0 L2.6

Imports of Igoods and noni-factor services 335.8 691.1 679.1 1,492.SI 1,423.9 12.8 12.5 11.6 L L.2

Resource balance -92.3 -261.0 --227.6 -5414.0 -388.1

Factor service income, niet -7.0 10.9 -10.3 -2'8.8 -21.3 7.7 6.6 14.9 10.9

Current transfers, net 68.3 142.4 153.0 2319.4 259.6 13.0 14.4 7.7 7.8

Balance On current account -32.0 -129.6 -84.9 - 333.3 -149.8

Direct foreign investment, ner 3.0 5.6 6.7 11.0 17.9 11.0 14.3 10.1 15.1

Capital graints and granIt-like flow 2.1 -0.3 - 0.3 - 1.4 -1.4

PublJc and publicly gua.tanteed loans, rt 49.4 79.2 79.2 144.6 144.6 8.2 8.2 9.0 '9.0

Supplementary landing, not 0 63.1 16.8 209.7 18.4 18.7 1.7

Capital not included elsewhere, net -11.3 -5.2 - 5.2 - 5.4 -- 5.4

Change in reserves ( - increase) -11.3 -12.9 -12.3 -- 25.1 -'24.3

a/ Small differences due to iroundiig.

Source: Mission estimates; for detaiils see tables 10.1 and 10.5, Statist:ical Appendix

Table 28: EXPORT AND IMPORtT PROJECTION Al. SCENARIO I AND lI, 1977, 1983, AND 1990

(millions of 1976 $)

_ =_________ Average Annual Growth (Zl _1983 1990 1977-83 _1983-90

1977 Scenario I Scenario 1I Scenario I Sce!nario 11 Scenario I Scenario II Scenario I Scenario II

ExportsCoffee 26.1 30.8 34.1 35.3 43.0 2.8 4.6 2.0 3.4Essentiakl oils 6.0 7. 6 7.6 10.2 10.2 4.0 4.0 4.3 4.3Sugar 0 C 4.0 0 4.9 0 - ID 2.9Cocoa 2.2 3.4 3.4 4.7 4.7 7.5 7.5 4.7 4.7Sisal 1.0 0.7 0.7 0.7 0.7 -5.8 -5.8 I) 0Meat 0.9 1.1 1.1 1.3 1.3 3.4 3.4 2.4 2.4Bauxite 17.3 16.6 16.6 16.6 16.6 -0.7 -1.2 0 0 BAssembly industries 78.8 115.0 119.4 178.8 1'98.1 6.5 7.2 6.,5 7.5Other industrial exports 31.0 41.9 43.9 66.1 66.1 6.0 6.0 6.,0 6.0Other gooda 1.1 1.1 1.4 1.1 1.9 0 4.1 0 4.5

Exports of goods 164.5 220.2 232.2 314.7 34 7.5 5.0 5.9 5.2 5.9Tourism 24.5 42.6 42.6 7 7 8.0 8.0otlher non-factor services 3.8 5.1 5.1 7.2 7.2 5.0 5.0 5.0 5.0

Exports of non-factor services 28.3 47.7 47.7 80.3 130.3 9.1 9.1 7.7 7.7Total exports 192.8 26i'.9 2'79.9 393i 427.8 5.7 6.2

ImportsFood 57.7 b/ 68.5 58.9 91.9 45.9 2.9 0D.3 4.3 -3.5Otlher consumer goods 65.8 b/ 91.1 85.7 128.3 116.6 5.6 4.5 5.0 4.5Petroleuim and derivatives 18.8 b/ 27.4 28.2 45.5 51.0 6.5 7.0 7.5 8.8Inlputs for aissembly industries 57.3 b/ 83.7 86.9 130.0 142.8 6.5 7.2 6.5 7.4Other intermediate goods 25.4 b/ 36.1 36.1 54.2 54.2 6.0 6.0 6.0 6.0Calpital goods 45.8 b/ 65.5 68.7 98.5 110.3 6.1 7.0 6.0 7.0

Imports of goods 270.8 b/ 372.3 364.4 548.3 520.8 5.4 '5.1 5.7 5.2Non-factor services 47.3 b/ 66.0 66.7 98.8 100.0 5.7 15.9 5.9 6.0

Total imports 318.1 b/ 438.3 431.1 647.2 620.8 5.5 5.2 5.7 5.3

a/ Small differences due to rounding.b/ Estimate.

Source: Mission estimates; for detailEs see tablee 10.2, 10.3, 10.7 and 10.8, Statistical Appendix.

*tTable 29: ]PROJECTION OF 14I5N ECONOMIC VAIUABLES . SCEIARIOS 1 AND 11, 1977, 1983 ANID 1990

(MItltoim, of 1976 toi-dets)

Pe centage Strctcre (GDP-100) _ AvereRe Annm"l Grouth (1983 1990 1983 190 1977-83- 1983-90

1977 Scenario I Scenrio 11 Sceario I Sceario 71 1977 S.cenario I Scenario 11 Scenario I ScenarIo 11 Scenario I S earlo S a T Sceaio 1

Agri..ltuire 2,034.0 2,452.4 2,49:1.2 3,0115.1 3,150.6 40.0 37.1 36.9 3S.0 33.3 2.8 3.0' 3.0 3.4

Industry hi 1,151.6 1,278.2 1,760.7 2,775.2 2,921.2 22.1 26.2 26.1 31.3 30.9 7.0 7.3 7.0 7.5

other act*Lvitise 1,972.7 2,425.0 2,496.0 3.08a5.2 3,396.:7 37.9 36.7 37.0 34.8 35.9 3.5 4.0 3.5 4.5

GDP at erket p.tres 5.208.3 6,605.6 6 749.9 887,5 Le6O=, IfiLfn lnl_l !00r' nfn e n n c i.

C eOni.ption 4,867.7 6,071.4 6,061i.6 8,053.4 8,122.7 93.5 91.9 90.2 90.7 86.7 3.8 3.7 4.1 4.3

Private 4,433.1 5,,521.6. 5,4667.5 7,329.9 7,251.2 85.1 83.6 81.3 82.6 77.5 3.7 3.6 4.1 4.1

Publi( 434.5 549.8 59Yi. 721.5 871.5 8.3 8.0 8.9 0.2 . 9.2 4.0 5.5 6.0 5.5

Inveetinnt 968.0 1,,386.1 1,43i.1 2,08S.2 2,311.0 18.6 21.0 21.5 23.5 24.6 6.2 6.8 6.0 7.0

Re"ource balance -622.4 .851.9 .755.8 -1.261.0 -965.r -12.0 -12.9 -11.2 -14.2 -10.2

E.ports 964.1 1,,339.6 1,39.5 1,975.1 2,139.0 L8.S 20.3 20.7 12.3 22.6 5.6 6.4 5.7 6.2

- lm4orts 1,591.5 2,191.5 2,153.3 3,215.1 3,104.7 10.6 33.2 21.9 3L.5 32.0 5.5 5.2 5.7 5.4

Net factor er.ice Income -32.6 -35.1 -32.9 -64.2 -47.15 -0.6 -0.5 0.5 .0.7 -0.5

MNP at arket prtres 5,175.7 6,570.4 6,717.0 8,812.3 9,420.9 99.4 99.5 99.5 99.3 9.5 4.1 4.4 4.3 5.0

Tore. of trade djustOment 182.2 24.1 31.1 81.9 112.0 \. 0.4 0.5 0.9 1.2

Crooc doae.tic tnem.- c/ 5,390g. 5 6,629.7 6,783.1 8,958.4 9,580.5 103.5 100.4 300.5 ItO.9 101.2 3.5 3.9 4.4 5. 1

Grog. doOestie eaviL.g 522. 9 558.3 6915.9 905.0 1,367.5 10.0 8.5 10.3 10.2 14.4 1.1 4.9 7.1 10.1

Groiss national avilnge _/ 490. 3 523.2 664.0 1,84D.98 .319.3 9.4 7.9 9.8 9.5 13.9 1.1 5.2 7.0 10.3

af Seal) differe.nen doe to romnding.bt Inductry - otlning + nanofac coring industry + ceonstructlon + publlc utliltie..

e, GVP adjunted for tern of trade effeet.df Escl of net current tranefers hich are mostly fro. officiial nourcen for tec-nical a..Lutance and food aid.

Source: minseon eatt-etee; for d.tcit. ee tal,tes 10.4 *nd 10.8. Statietical Appendlt.

- 74 -

169. Improved support services and stronger price incentives (by graduaily

eliminating import duty exemptions and export taxes) are assumed to result in

increased agricultural production (see table 29). This would allow for

(i) more rapidly increasing coffee exports from 1980 on; (ii) a resumption

of sugar exports by 1980 and gradual increases thereafter; (iii) a gradual

substitution of up to 50 percent of food imports by 1990 (see table 28). More

systematic industrial promotion, a change in relative prices (through gradual

elimination of import duty exemptions and regular adjustrent of tariff's). and

an improved supply of agricultural raw ',iaterials arc expect..l te -ni'n±

industrial production and exports (see tables 2.8 and 29). Overall, the pro-

posed measures will result in gradually accelerating growth of GDP (from 4.0

percent per year under scenario I to 4.4 percent during 1977-83 and from 4.3

percent to 5.0 percent during 1983-90) and exports (from 5.6 percent per year

under scenario I to 6.4 percent during 1977-83 and from 5.7 percent to 6.2

percent during 1983-90). On the import side, the declining volume of food

imports and the reduced growth of imports of other consumer goods and some raw

materials will be compensated by faster growing imports of capital and inter-

mediate goods, which will result from faster growth of domestic production.

Growth of total imports of goods and non-factor services is, therefore,

expected to be about the same S uTnder scenario I. but the elasticitv withregard to GDP will be substantially lower: 1.18 vs. 1.38 under scenario Iduring 1977-83 and 1=08 vs. 1.33 during 1983-90.

1 7A. Accelerated ar.d more divers4f4iA ex-pnrts will reduce the resource

gap and current account deficit expected under scenario I (see table 27).

Ile resource gap will amount to 11.1 percent of GDP at current prices in 1983

and to 9.4 percent in 1990 as compared to 13.1 percent and 14.2 percent undersI. Structural chan.ges of export-s and imports also have favorable

scen-arto £. LLU LUL.J . .. eeffects on the terms of trade. Assuming slightly higher inflows of direct

foreign investment anrd private transfers but otherwise unchanged flows of

net disbursements from public and publicly guaranteed loans, the remaining gap

to be filled by supplementary lending will be considerably lower than under

scenario I. Taking into account that, based on the assumed availability of

bankable projects, an additional $25 million in 1983 and an additional $100

million in 1990 could be in the form of traditional project lending, the

projected "gap" of about $17 million in 1983 and $18 million in 1990 wouldcompletely disappear. Even if additional project lending were not to material-

ize, the "gap" of about $17 million per year is considered manageable. On the

one hand, the projections assume a continuing increase in reserves of $6-24

million per year, which is unlikely to materialize in view of the precarious

balance-of-payments situation. On the other hand, some borrowing from private

sources, although not reflected in the projections, is likely to take place.

Furthermore, additional resources will be available from the IMF under the

Extended Fund Facility.

- 75 -

ANNEX I

REGIONAL RESOURCE BASE AND DEVELOPMENT POTENTIAL

A. General characteristics

Located between. iatitudes 10 ana 2I NiUorth., lHaiti has tropical

climate with average temperatures fluctuating between 240 and 27 C. The

northeastern trade winds bring abundant rainfall to many parts of the country,

up to 3,600 mm in the mountainous parts of the southwest. Large sections,however, receive only 600 mm or less, especially the northeastern peninsula,

the neighboring Plaine des Gonaives and the southeastern coastal area. Rains

are irregular. The northwest peninsula, for instance, suffered from severe

droughts in 1967-68, 1972, 1975 and 1976-77. On the other hand, rainfall

intensity is high and causes severe erosion.

2The country covers 27,700 km , most of it mountainous as shown by

the following distribution:

Elevation (m) % of Land

Cl-200 2020Ci-500 4050CI-800 20above 800 20

Furthermore, 63 percent of the land area is on slopes with an

inclin.ation of more than 20 nercent. Land resources are scarce compared topopulation (average density: 168 people per sq km), particularly when land

suitability (see soil classification) and actual land use (see land-use

classification) are taken into account (587 people per sq km of arable land;393 people per sq km of astuallv cultivated land).

- 76 -A%jWjVV T

LAND SUITABILITY

Soil Class Potential % of Total Area

II Suitable for rainfed and irrigated agriculture;few limitations 8.4

III Suitable for rainfed agriculture and for irrigationof high value crops; more limitations; requires soil

conservation measures 11.0

IV Limited possibilities for field crops; suitable for

permanent crops (pastures, trees) 9.2

V Severe limiting factors (salinity, drainage,

ferti1ity); requires substantial investments for

field crops such as rice 2.8

VI Suitable for trees and pastures; requires terracing

for field crops 13.8

V'II Suitable for tree crop-s forestrv, and pastures 51.0

VIITTT Mountai areas and coastal marshes, best suited as

forest or game reserves 3.8

Total 100.0

Total in 1,000 km 27,700

LAND USE

Irrigated cropping 2.6

Rainfed crops - plains and valleys 10.4

Rainfed crops - mountains 29.9

Pastures 10.8

Forests 9.3

Waste land 37.0

Total 100.0

Source: IICA

The comparison between land suitability and use shows that more than

40 percent of the land is cropped while less than 30 percent is suited for

cronping. The overutilization of marginal land results in severe erosion.

- 77 -ANNEX I

DARNDR proposed, seven homogeneous agricultural development regionsfor the purpose of agricultural planning. Each region coincides with thelimits of a catchment area and, with few exceptions, with those of thearrondissements. The regions differ in area and population, as shown below:

Region Area Population (1971) DensityWain An km Ruiral Totnal Rural Total

----'00oo ----0 persons/sq km

North 2.69 424 8 528 9 158 197Northwest 4.46 433.3 500.0 97 112Artibonite 7.18 722.8 80o.7 102 113Zt L±.LUUL.L L F S I -- - -'JJ I - .I

Port-au-Prince 4.71 628.6 1,151.8 133 2451). A e s2 24 33 2 122 141A

South 4.04 618.1 670.0 153 165A_~LU £1L11 A.. U £. J*.U a 2nJA..I LA.1tIA1GJrand'e Ar,se 2 .1 26. 328 19 '

naiti 27.7I 3 543J.0 4.314.J ___ ±JU

B. The Northern Region

The northern region includes the major part of the North and NortheastDepartments, excluding the southern slopes of the Massif du Nord, which draininto the Artibonite basin. An alluvial plain, the Plaine du Nord, covers muchof the area. The clay and clay loam soils are among the most productive ofthe country. Some areas are poorly drained or subject to flooding. Excellentalluvial soils also occupy the Limbe valley and the small Plaine du Borgne.The Massif du Nord, essentially a limestone formation, rises to an average of900 m; the potential of its soils is limited by slope and shallowness, exceptfor valley bottoms.

Rainfall averages 1,300 mm in the plain (about 1,800 mm in the west,less than 1,000 mm in the east), and 1,500 to 2,000 mm on the northern slopesof the Massif du Nord. Rivers flowing from the Massif du Nord and undergroundwater resources create a good potential for irrigation.

A large portion of the plain is devoted to sugarcane, some of itgrown in relatively large holdings (8 ha or more). Rainfed crops includecorn, sorghum, plantain, cassava, beans, yam, cocoyam, rice; coffee and cocoaare also grown on the foothills and mountain slopes. In the eastern part,sisal has declined and has been replaced in part by cattle ranches. Currentlysome 2.000 ha are irrigated in the Quartier Morin district. Rehabilitationof the existing system, expansion of the irrigated areas, and intensificationof irrigated agriculture should be priority actions. In addition, given thelow levels of technology and inadequate land use, simple, low-input improve-ments are nossible for rainfed crons. Furthermore, there is ample room forimprovement of coffee growing and expansion of fruit tree plantings on theunland slonns in pnnnertion with erosion control.

- 78 -ANNEX I

Currently, the northern region benefits from several important

projects: agricultural development in the Plaine du Nord with IDA assistance,

soil conservation in the Limbe basin, with FAO assistance, coffee improvement

with USAID assistance, and improvement of the transport infrastructure with

IDA and USAID assistance.

Ca The Northwest Revion

The nnrthtwzt regiut, cowovises the NuiLiwest Department, the

Plaisance, Marmelade and Gonaives Districts, and part of the Dessalines

district or, in other. terms, the Northwej L Peninsula, the Plaine des Gonaives

and the downstream area of the Estere River.

The Northwestern Peninsula is mostly hilly (limestone), but also

has J30 to 4,0 h a oil plains, partly coasLtal, partly river (Trois

Rivieres). The Gonaives Plain has an irrigated alluvial section, and an arid

section called Savaue Desolee.

Tne northwest region's main feature is thle ariLdU ciiUL . Limaate

averages less than 600 mm in most parts. The Port-de-Paix area receives 1,200

mm, the higher elevations (Massif du Nord) over 2,000 mm allowing for coffee

and cocoa growing.

Subsistence smallholders prevail throughout the peninsula. Banana

production, important for export until the 1950s, is negligible. Small to

medium scale irrigation can be developed in the plains, while much of the

highlands are best suited for forestry, with some scope for coffee and cocoa

expansion. The area is currently subject to deforestation for charcoal pro-

duction.

The Savane Desolee supports practically no population. The alluvial

part of the Gonaives plain supplies dryland cotton and sorghum and, from

several thousand hectares of irrigated land, cotton, corn, plaintain, bananas,

beans, and vegetables.

The northwest was hard hit by drought in 1975 and 1976-77, which led

to disaster relief programs. Long-term projects are under way in community

development through the HACHO program with CARE support, and tubewell irriga-

tion with German technical assistance. New programs include irrigation of the

Trois Rivieres valley with IDB support, and of the Jean Rabel plain with USAID

support. Furthermore, the new IDA-supported coastal shipping port at Port-de-

Paix will facilitate the integration of the Northwest Region with the rest of

the country.

D. The Artibonite Region

The AL6' bonite region covers the entire Artibonite watershed, with

the Centre Deflartti-nt (plus the southern slopes of the Massif du Nord) and the

Artibonite Depa:tment (ev-'-';ng tne areas included in the northwesterna rc- on).

It comprises ti- diqtinr, agricultural zones: the Canw:ral Plateau and the ower

Artibhnite Val.> townsz-r-a_ from the Peligre Dam) each with specific deve_cp-

en-… ,r.…-; ;-e e` T

- 79 -A TVllrv T

The Central Plateau (about 200,000 ha) appears as trough shapedbasin surrounded by the Massif du Nord and the Montagne Noire with elevationsranging from 400 m along i:he edges to about 200 m at the center and southeast.Thirty-five streams and alluvial valleys cut deeply through the sedimentaryformations (limestone, conglomerate, sand, sandstone, marl). Soils over

sediments are subject to erosion, and have low fertility, but good potential

for irrigation. Rainfall averages 1,500 mm (concentrated in seven months,from April to October) in the center and southeast, but only about 700 mm in

the northwest. Water resources for irrigation and village water supply are

hardly known.

The northern part consists of about 100,000 ha of grass savannah,

which is snarsely populated and, in spite of some excellent soils, poorlyutilized. The reason is not clear; it could be the limited or erratic rain-fa11 or the fact that Government owns some 80,000 ha of land. The savannah

was an important livestockc raising area until the enactment of a law requiringtet-hering of grazing stoc!ck. The area is probably suitable for controlled

grazing, and for crops adapted to limited rainfall.

The center consLsts of a slightly undulating plain, while the south-

east is more dissected and therefore more prone to drought. The area is

fairly densely populated. It used to be important for tobacco and perennialcottor.. Cotton production declined sharply from 19Q3 to 196I AS the reRisltof boll weevil infestations. Other crops include sugarcane, sorghum, sweetpotatoes, corn, and fruit;;.

vn account Or thie savar.nahs, LILe Centrall Plateau has a lower aerage

population density than the rest of the country (about 100 per km2). Farm

incomes remain below the national average, apparently because o' limited market=ing. Lack of transport infrastructure appears to be the main constraint todevelopment.

Any development program has to establish first an adequate knowledgeof the resource base (especially soils and hydrology) and the agriculturalproduction potential. A resource base survey ana development plannirg -will

shortly be undertaken with UNDP assistance. Government intends to set aside5,000 ha for sugarcane. FAO intends to start a cattle project, and IDB has$18 million in its lending program for a rural development project in theregion.

The Artibonite 'Valle stretches toward the northeast, between the

Montagne Noire, the Chaine des Matheux, and the Chaine du Trou d'Eau. The

valley, downstream from the Peligre Dam, widens to some 30 km and comprisesabout 33,000 ha of alluvial soil suitable for irrigation. Rainfall decreases

from over 2,000 mm in the Peligre area to 600 mm in the lower semi arid part.

Soils in the lower valley have salinity problems; reclamation through irriga-tion and drainage is possible.

- 80 -AMMVV T

The Artibonite Valley offers the highest agricultural potential inthe country. it should, therefore, be given high priority in the country'sagricultural development strategy. The current irrigation system serves about24,000 ha (72 percent of the irrigable area); it needs renabiiitation,protection from erosion, and provision for drainage. The Artibonite ValleyDevelopment Agency, ODVA, is responsible for agricultural development of tneentire valley. Some 4,000 ha are now being rehabilitated with IDB support.

E. Port-au-Prince Region

The Port-au-Prince region covers the West Department, plus theLeogane District. It comprises the metropolitan area, the Cul-de-Sac plain,the coastal plains of Duvalierville and Leogane, Petit Goave, and the GonaveIsland.

The Massif de la Selle and the Chaine des Matheux are made up oflimestone formations. The Cul-de-Sac, Duvalierville, Leogane, and Petit Goaveplains occupy coastal limestone terraces of moderate productivity. Rainfallis relatively high in the Massif de la Selle and the Leogane/Petit Goaveareas, but marginal to deficient in the Cul-de-Sac and Duvalierville areas(600 mm in the eastern Cul-de-Sac plain).

The region benefits from proximity to the country's main market,the metropolitan area. Sizable parts of the Cul-de-Sac plain are irrigatedand produce sugarcane and vegetables. Corn, sorghum, and cassava are themain rainfed crops. The eastern part of the plain supports no agriculturebecause of salinity and arid climate. The other plains are also irrigatedand produce vegetables, plantain, sugarcane, and rice; irrigation systemsshould be rehabilitated and expanded. The Cul-de-Sac plain additionally needsdrainage. In the mountain area, south of the capital, the production ofvegetables and fruits has developed especially around Kenscoff. but the areasuffers from severe deforestation and ensuing erosion. The eastern part ofthe Massif de la Selle is best suited to forestry.

The Gul-de-Sac plAin has hbnefited frnm a program nf imnrnupd irri-

gated agriculture with Israeli aid. Further irrigation development will becarri-ea ou,,t- w4t-h USATID ond TIDB suppor Arn int-eante,d eural deiveloment-

project, including irrigation and soil conservation, is implemented in thePetit G-oave and Petit Trou Ae NiJppe --- w4ith CIDA support (DRIPP - ).

LI S-outheast RRoI' ...) .JULiI~a LX=K.LUL1

The southeast region coincides with the SouthLeast Department. It

consists essentially of the southern slopes of the Massif de la Selle, and aseries of narrow coastal plains with productive alluvial soils: Bainet,Jacmel, Marigot, Belle Anse, Anse a Pitre. The Massif, mostly steep slopes,also includes a limestone plateau (plateau de Savane Zombi), and a number ofnarrow but fertile valleys. Rainfall is abundant to adequate, except in thesoutheastern coastal area (Belle Anse, Anse a Pitre) wnere it drops to 600 mm.

- 81 -A AMIrV VT

The mountain area is devoted to coffee and fruit trees, with cerealsin the valleys. Tne Plateau de Savane Zombi produces potatoes, maize, vege-tables, and pastures. The small plains of Belle Anse and Anse a Pitre offerlimited possibilities because of arid climate and lack of good roads. TheJacmel and Bainet plains are intensely cultivated with bananas and coconut.While the Bainet plain suffers from lack of transport infrastructure, theJacmel plain is linked to Port-au-Prince by a lately rebuilt road. Irrigationcan be improved and expanded, but the plains are subject to flooding. Thearea also has a good potential for tourism.

Currently, FAC supports agricultural development in Jacmel, andUSAID will finance rehabilitation of the Marigot irrigation scheme.

G. The Southern Region

The southern region comprises the South Department, and the NippesDistrict of the Grande Anse Department. It corresponds to the middle sectionof the southern peninsula, which is crossed by the Massif de la Hotte, amostly calcareous mountain with inkenuous and metamorphic areas. Soils areshallow and rocky, except for the small valleys. The Rochelois plateau inthe center of the region includes the relatively important inland alluvialvalley of the Serpente river. The region has a number of alluvial plainswith excellent soils suitable for irrigation: Aquin, Cayes. Miragoane, Ansea Veau, Baradere, Cateaux, Tiburon. The Plaine des Cayes, with over 6,000 haunder irrigation and good to fair soil8j is the most important. The entire

region benefits from adequate rainfall (1,000 - 2,000 mm), but the Aquin plainis rlativlydry,

Coffee a,nd fruits are gro.w i. the higher npat-a whila the plains

and valleys are devoted to sugarcane, corn, rice, vetiver, and animal husbandry.The mountain tops re st-ill well forested 4n the west, but- deforestatior in.-

creases toward the east.

The region is densely populated; emigration to the Port-au-Princearea is h .g It 's estimated tblat more than 60 percent of net internal

migration to Port-au-Prince comes from the Southeast, South, and Grande Anseregions. Some of tLe reasons for m'gration appear to be: (a) cut=off oppor-

tunities for seasonal employment in sugarcane cutting in Cuba since the 1960s;(b) the hurricanes in ;961, ;963, and ;964, -which devastateu coffee andu other

tree plantations and did extreme damage to the irrigation systems; and (c) thelack of public investments in the area until recently. The region suffersfrom lack of communications. While the main road linking les Cayes to Port-au-Prince will be completely paved by mid 1979, the nortnern coast is prac-tically cut off from the rest of the country. Besides the improvement oftransport infrastructure, the region needs rehabilitation and expansion ofirrigation systems, improvement of hillside agriculture, and soil conservation.The ongoing USAID supported scheme in the Cayes plain involves 900 ha of theDubreuil irrigation system together with soil conservation in the watershed,applied research, and extension.

- 82 -

ANNEX I

H. The Grande Anse Region

The Grande Anse region corresponds to the Grande Anse Department,less the Nippes district. The region has physical features similar to thoseof the southern region, except that the mountains reach higher altitudes withsteeper slopes, the rainfall is higher (up to 3,600 mm), and there are fewervalleys and coastal plains. The main agricultural area is in the Grande Anseplain and valley (50,000 ha) and the Plaine des Abricots.

The region's agricultural potential is hardly known. Main resourcesare forest and tree plantings (coffee, cocoa, fruit, and rubber!. The area isalso important for corn and cocoyam, and it offers the potential for renova-tion and expansion of cocoa plantings.

The region's maior nroblem is its isolation from the rest of thecountry and the lack of roads within the region. At present, the region isaccessible only by sea and by air, A road linkage will be studied with FACassistance, and the new IDA-supported coastal shipping port at Jeremie willcontrlibute to the reaion's integration with the rest of the country.

Currently, the regocon does t.ot benefitfrom any large-scale ruraldevelopment project.

- 83 -ANNEX II

SITUACION AND PROSPECTS FOR MAIN CROPSAND OTHiER PRIMARY SECTOR ACTIVI1IES

A. Food crops

(a) Maize

Maize, the staple food of the majority of Haitians, occupies aboutabout 239,000 ha or one fifth of the cultivated area; it is traditionallygrown in rainfed areas, often mixed with sorghum and sugarcane. Localvarieties of the Antilles type are characterized by long stems, a long growthcycle (up to 6 months), and low productivity. They cannot be expected torespond substantially to irrigation or fertilization. Because of the longcycle, production is often affected by the vagaries of weather (drought,flooding).

Unidentified improved varieties have been introduced in different

parts of the country by individuals or non-governmental organizations. In

recent years, DARNDR started introducing and testing high yielding varieties

(HYVs) from CIMMYT. the International Center for the Improvement of Maize and

Wheat in Mexico. Eto Amarillo, an open pollinated variety, was found to giveconsistently hiaher vielsd than. other varieties, and DARNDR started a seed

production program. Meanwhile, new varieties, some of them developed byCIMMYT or by other Caribbean countries, are being tested. some showine betterperformance than Eto Amarillo. For instance, the USAID sponsored project inthe Les Cayes -lain "short liste-d" 12 outast-anding varieties for further testing.

A.oth-er recent deveopen ---- ihntroductior. of commercialhybrids (Pioneer 304A) from the U.S., under an emergency program initiated inresponse to the droughts of 1975 and 1976. Under a mini program in early 1977,

the hybrids were first introduced throughout the country. During the latterpart of 1977, 16,000 ha were planted with moderate amounts of fertilizer.Except for areas with inadequate rain, the hybrid performed well, with yieldsreportedu to average 2. 715 ton/hza (up to 3. 75q ton/hna under irrigation), ac nagiairt

1.5 ton/ha for the local maize during the season. The hybrid's taste andtexture suit local pre'erences. LimALatiLons are tbt tle ears are sub4ect to

disease if rain occurs just before maturity, and that the grain does not keepwell in storage if not properly dried. knother problem is the cost of hybridseed (G 3 per lb or G 120 per ha). Commercial hybrids should only be used in astop-gap program to rapidly increase maize output, -while the program ol varietytesting and seed production should lead to the large-scale adoption of adaptedHYVs.

(b) Sorghum and miilet

Sorghum and millet occupy some 220,000 ha or 19 percent of thecultivated area, and provide the staple food in areas where rainfall isinadequate for maize. Millet occupies the driest areas (northwest peninsula,Gonaives plain). The traditional varieties suffer from the same limitationsas maize.

- 84 -ANNEX II

DARNDR's 1977 emereencv program included the introduction of hybridsorghum: Pioneer G202 (90 days) for dry areas (northwest), and W821 (90 days)elsewhere. W202 has a soft, white grain which does not suit local tastes,but DARNDR reported average yields of 1.75 ton/ha in the northwest compared to0.6 ton/ha for local sorghum. W8211 which can also g4ve a ratoon crop, has thestructure and red skin preferred by the population. In 1977, yields, underrainfed conditions, were reported to have averaged 3 tonr/ha as compared to0.8 - 0.9 ton/ha for local varieties. Sorghum production could be substantiallyincrpased through the dissemination of hybrid seed. A drawback, however, isthe commercial seed's relatively high cost of G 70/ha. For a viable long-termsolution, DARNDO should launch- a prog ram OL adaptation trLi.aLs o L nY1 VW thLLI

possible assistance from ICRISAT (International Crop Research Institute forthe Semi-Arid Trop4cs), which has primary responsibility Lor sorghum andmillet improvement.

(c) Rice

Rice occupies some 39,000 ha or 3.3 percent of the cultivated area.It is consumed mainly in urban areas and commands higher prices than maize andsorghum. Low yielding varieties (0.6 - 0.7 ton/ha), with long cycle (upto 7 monLths) have been traditionally grown in flooded or irrigated fieldsor under rainfed conditions. Several improved varieties, "Bluebonnet" and"!Madame Gugusse," were introduced from the U.S. in recent years. With thesevarieties and partial water control, yields in the Artibonite Valley (about20,000 ha) average 2.5 - 3 ton/ha per crop or 5 - 6 ton/ha per year.

Tne Chinese mission in the Artibonite valley has introduced HYVsthat outyield the U.S. varieties, but have undesirable cooking qualities.The mission is now crossing Far Eastern and American varieties to combinequality and productivity, and is studying fertilizer and pest control require-ments. Increases in rice output are possible depending on (i) development ofthe technical package by the Chinese mission; (ii) expansion of irrigation inthe Artibonite Valley; (iii) rehabilitation of irrigation and drainagefacilities; (iv) adoption of effective water control techniques at the fieldlevel.

(d) Peas and beans

Red beans, pigeon peas, and blackeye peas occupy some 82,000 ha or7 percent of the cultivated area; they provide an important source of nroteinsRed beans are grown mostly under irrigation. Traditional varieties yield 0.6- 0.7 ton/ha. Imported varieties of red kidney beans reach 1.3 - 1 4 ton/ha;in the Bas Boen project in the Cul de Sac plain, the best farmers obtain5 ton/ha with triple cropping. Furrow irrigation results in yield increasesof 20 - 30 percent over flooding flat parcels. Pigeon pea is grown rainfed.Cowpea is imnortant in dry areas because of drought resistance. Output ofboth crops could be improved by introducing varieties from the internationalresearch centers.

- 85 -

ANNEX !I

(e) Plantain

Plantain, another important staple of the national diet, coversover 86,000 ha or 7 percent: of the cropped area. It is grown in associationwith other food crops and coffee. No information is, however, available inthe country on means to improve output.

B. Industrial and export crops

(a) Coffee

The area under coffee is estimated at 132,800 ha or 11.4 percent ofthe total cultivated. Cofiee is the country's main net foreign exchangeearner and an important source of employment and income. The average coffeeplantation is small; intercropping with plantain and food crops prevails. Thelocal types of arabica are of low productivity, yet they yield high-qualitybeans, which, with proper handling of the crop, would command high prices.

Coffee yields. avera2ing 250 kg of dry beans per ha, are low.Coffee exports have gradua]ly declined, and the country persistently failedtn fill thp quota set bv the International Coffee Organization. This poorperformance results from various factors. According to a recent survey,52 nprcpnt nf all cnffee nplntations are over 20 years old They are not

renewed but rather replaced by food crops with higher returns. Existingplanti.ngs are usually to tc s thick, shdng too den se, nand m-aintenance (prun4ngweeding) poor. Fertilization is not used, and should not be, unless plantpopulati4on, sbading, and maLintenance are saal4sfactory. Between 1096 to !967,the industry suffered from hurricanes, which.destroyed an estimated 75 milliont-rees; it also suffered froim low world mar'-el prices dur-ing .he 60s and

L L ~ .LL .L~~ U. L L. U .L A.LU .U U. .LU L AL ~I. L . L UUI A.L LALL~.'~ G

relatively heavy export taxes resulting in low producer prices.

Coffee rehabilitation would be important for Haiti's economy. Sub-stantial renovation, however, presupposes sufficient incentives to growers;a price stabilization mechanism, and lowering of coffee export taxes deserveconsideration. With adequate incenti-ves anu effective extensiLon, growers canbe expected to improve output of existing plantations through shade and plantpopulation control, and better maintenance. A renovation program started in1975 with USAID assistance. Productive varieties have been introduced fromthe Turrialba Station in Costa Rica, especially Caturra, Geisha, and MundoStation Novo. With fertilization and little or no shade, these types reachaverage yields of 750 kg/ha. Coffee plantings can also be extended to newmountain areas. Coffee grown on slopes on the contour would be an excellentmeans to combine erosion control with profitable land use.

(b) Cocoa

Information on cocoa is scarce. The cultivated area is estimatedto be in the order of 10,000 ha; production, 3,000 tons per year. About halfof the plantings are in the Grande Anse area on the southern peninsula, theother half in the mountains of the north. The plant material is mostly of theunimproved Amelonado type.

- 86 -ANNEX II

Plantings are old (30 - 40 years) with yields averaging 250 - 300 kg

of dry beans per ha. Renovation of plantings would, therefore, be indicated.

Plantations could also be expanded to the Jacmel, Fond de Negres, and

St. Louis du Nord areas. This would involve the introduction of hybrids that

produce higher and earlier crops. HAMASCOSA, a private company having the

cocoa monopoly, operates an extension program and a nursery in the north

aiming at annual increases in production of 10 percent over the next five

years.

(c) Essential oils

Vetiver is grown on some 3,400 ha in different parts of the country,

mainly on the southern neninsula. Oil is extracted in a number of small

plants. The crop yields about 2 tons/ha of roots with 1.2 percent of

essential oil. Total nroduction amounts to some 250 tons of vetiver oil. In

addition, Haiti produces annually some 230 tons of amyris oil, 200 tons of

lime oil, and 25 tons of bitter orange oils. Lemon grass (citronella) has been

planted on steep slopes for soil conservation purposes. This crop is not

processed into essential oil; the world demand is laroely satisfied bv

Guatemala. Good prospects exist for Ylang-Ylang, a tree that grows naturally

in Haiti. This crop would also have the advantage of beino labor intensa,v

Product diversification and stricter quality control would enhance prospects

or exports of essen4 ta' oilS in general.

(d) Sugarcane

Sugarcane occupLes about 126,000 ha or 10.8 percent of the cultIvated

area. The crop is grown: (a) on relatively large farms in the irrigated

plains near the industrial sugar mills; (b) on smaller plots in pure stands,

rainfed or irrigated, for delivery to industrial mills or small local units;

or (c) in the Central Plateau in association with corn for delivery to small

local units. About half of the sugar output is processed into unrefined sugar

(rapadou) and local rum (clairin) by local mills and distilleries.

Yields are generally low. Estimates vary between 30 and 40 tons of

cane per ha, the sugar content being about 10 percent. The low yields

(average for the Dominican Republic: 58 tons) result from: (a) use of low-

yielding varieties such as PPQK and 2714; (b) inadequate water management in

irrigated areas; (c) poor crop management; (d) excessive time allowed between

replantings; (e) lack of fertilization. Because of poor production per-

formance and rising domestic consumption, Haiti's sugar exports declined

steadily; now, the country has become a net importer. There is some evidence,

especially near Port-au-Prince, that smallholders shift to (more profitable)

food crops when irrigation water becomes available.

Higher yielding varieties with higher sugar content such as PR980

and PR1016 are being introduced by the Caldos Sugar Company in the north.

Production can be intensified through improved management and irrigation,

fertilization and earlier replanting of old fields. Large-scale intensifica-

tion is unlikely unless growers are given sufficient price incentives.

- 87 -ANNEX I

(e) Sisal

Sisal is grown by both agribusiness, firms and smallholders in dry

areas. The cultivated area was estimated at 17,000 ha in 1976, down from33,000 ha in 1950. Fiber production in recent years fluctuated between 10,000

and 29,000 tons; in 1977 it dropped to 6,000 tons. The industry has declined

because of shrinking exports. Competition is strong from synthetics and the

main exporters of natural fibers, Mexico and Brazil. As a result, the main

exporting firm, which accounted for nearly one fifth of the acreage and

80 percent of the export, diversifies away from sisal. Sisal is partlynrocessed by rural crafts into mats, rugs, dolls, bags, and artifacts for the

tourist trade. There is scope to expand this labor-intensive industry and,

thus, to maintain a certain level of sisal production.

(f) Cotton

Cotton production, which reached a peak of 4i.000 tons of seed

cotton in the 1930s, had declined by 1977 to about 1,400 tons grown on 2,600

ha. Haiti has become an importer of fiber. The traditional crop was a

perennial type (G. Barbadense), grown mostly in the Central Plateau. The

industry declinred sharply J.llowing insect infestations (boll weevil). The

annual variety Stoneville (G. Hirsutun) was introduced in the 1950s. It

produces higher yields of higher quality lint, but requires more inputs(fertilizers and insecticides); it has substantially replaced perennialcotton, wnich now accounts Lfor oL.y aUout 25 percent of the national lint

production. Current production has shifted essentially to the Gonaives plain.

Because of competition from food crops, cotton is grown mostly on marginal

soils. Yields in 1976 averaged less than 400 kg/ha.

A technical package to improve cotton production remains to be

developed. The Stoneville variety may not be the best adapted and the most

productive. Gossypol-free varieties offer good prospects, since the oil cake

would be non-toxic and suitable as high-protein food for human consumption.

(g) Oil crops

Peanut is grown in areas with moderate rainfall on soils with coarse

texture. Production, mostly for food consumption as nut or butter, was esti-

mated at 3,000 tons in 1976. Commonly used varieties are: Virginia, Valencia,

and Spanish with cycles ranging from 3 to 5 months. Costs of production are

close to $150/ha. Market prices (G 0.8 - 2/lb against 0.7 in the Dominican

Republic) are favorable. They should encourage farmers to expand production

as a food crop. But current prices are too high for oil processing.

Coconut production, from about 480,000 trees, is estimated at

24 million nuts pet year. Coconuts are grown for local consumption in mixed

stands around the houses and in fields; industrial plantations have disappeared.

production is largely restricted to coastal zones, especially the Cayes and

Aquin plains on the southern peninsula. Most of the trees belong to the ";Tal1::

type. About 40 percent are over 60 years old and, therefore, low yielding.

- 88 -ANNEX II

Lethal yellowing disease prevails in the northern areas, and insects,

especially aceria, constitute another problem.

Coconuts offer reasonable prospects for some degree of rehabilitation.New varieties, in favorable areas (1,500 - 1,800 mm rainfall), could yield

5 tons of copra or 3.5 tons of oil per ha annually. A program of renovationwould require testing of productive hybrids (Malaysia dwarf, Jamaica tall)resistant to lethal yellowing and introduction of aceria control and fertil-ization. The cost of establishing and operating an adaptation trial andseed orchard for 5 years would amount to about $100,000.

Sesame, at present hardly grown in Haiti, offers good possibilitiesfnr eynnipa nn. Sppe rpneiirpments (5 - 8 kgIha) are low. returns (yields of

1,000 - 1,500 kg/ha selling for G 1 - 1.8 per lb) acceptable. The oil content(50 percent) i8 hiah nand nreacs caks are sit-ahle for hiimn cnsiumnt-ion n2S 2

high protein food.

Castor bean grows spontaneously around houses, along hedges, or mixedwith coffee or cCastor beans can be a source of foreign exchange.

While possibilities for commercial production and expansion are limited forlack of space, output could be increased by organizng anefficent syste-m of

collection and marketing.

(h) Vegetables

Vegetables - tropical and temperate types - are an important cropanu source of ilncome, especially in the mountaiLns south_'i of' Port-au-Prince,

and in irrigated areas of the Artibonite and Gonaives plains. Possibilitiesexist to expand production as urban demand and canning industries grow.Export of fresh vegetables to the U.S. market would require careful marketingstudies.

(ij Fruits

Haitian ecology is ideal for production of a wide array of fruits:mangoes, citrus, papayas, bananas, avocados, guavas, and others. Banana forexport was produced in the north, but the industry disappeared as a result ofthe Panama disease. As in the case of vegetables, the improvement and expan-sion of the fruit industry depend mostly on markets (urban demand, canning,export of fresh produce). Fruits sometimes are not harvested because of lackof transport or seasonal excess supply. Yet, an expansion of fruit production,besides offering additional income, would be desirable with a view to soilconservation, since fruit trees represent one of the best forms of land use onsteep slopes.

Mango grows spontaneously in most of the country at elevations below600 - 700 m. Harvesting is generally limited to the summer (April-September).New varieties could be introduced with fruits that mature during the rest ofthe year. In 1976, the country exported about 1,000 tons of mango, mainly tothe U.S.

- 89 -ANNEXr IrI

C. Animal husbandry

Animal production is estimated *to account for about 10 percent ofagricultural output. The animal population, according to a 1971 estimate, was:cattle, 636,000; pigs, 1,140,600; goats, 842,600; sheep, 105,500; poultry,4,164,120. The main producing areas are the large plains (North, Cul de Sac),

the Central Plateau, and the Seguin plateau in the southeast.

Farmers typicalLy raise one to three heads of cattle, a few goats,pigs, and chickens, mainly on the basis of available vegetation and domestic

refuse. Large animals relpresent a form of savings and insurance. The creolebreed of cattle is small and bony, but well adapted to local conditions.Crosses with imported breeds (Zebu, Brown Swiss, Jersey, Holstein) are perform-

ing well. The local swine breed can be improved by cross with large whiteDevoe Jersey and Poland/China; chicken breeds, by cross with New Hampshire,Rhode Island, and Plymoutlh Rock. Further improvement would result from upgrad-ing veterinarv services and encouraging the use of protein concentrates andminerals in the ration.

D. Forest resources

Forests have long been one of the country's major resources. In1845, the country exported !8,640l m3 mahogany; by 1934, all exports had ceasede

The area under forest is now estimated at 250,000 ha (9 percent of thecountry's total area); anotbher one million ha (36 percent of the total) bearsome form of tree or bush cover. In 1975, FAO estimated that total annual

wood consumption averaged 4.75 million m3, of which 73 percent is used for-domestic fuel (firewood and charcoal), 22 percent for industrial fuel (bakeries,lime production, distilleries), 4 percent for traditional wood production, and1 percent for commercial lumber. FAO expected fuel consumption to doublewithin 15 to 20 years. Accordingly, forest resources would be depleted 'n

about 25 years, accompanied by the irreversible depletion of soil and water

resources through erosion and the loss of income and employment for thousandsof families.

Charcoal and fuelwood will be the main energy sources for domesticpurposes for some time. rhe known lignite deposits are rich in sulfur and,theYefore, not directly suitable for domestic use. Cheap solar energy is not

yet available either.

Reforestation s'hould, therefore, be considered an urgent task inthe form of both smallholder and state forests on marginal land. Accordingto FAO estimates, fast growing trees, such as eucalyptus and Caribbean pine,would yield 7-8 cubic meters of wood per ha annually (equivalent to about one

ton of charcoal), starting the 6th year after planting. Investment and earlymaintenance costs would average $500-600/ha.

- 90 -

raNNELA LII

E. Fisheries

In a recent survey, current sea resources were estimated at 5,000-6,500 tons of benthic species (of which 600 tons of lobster), and 12,000-21,500 tons of pelagic species. The catch increased from 2,300 tons in 1955to 8,000 tons in 1976, representing 30-50 percent of the available harvest.The value of the catch was about G 22 million, 30 percent of which wasmarketed. Most fishermen operate at the subsistence level, some 3,000 full-time, and 8,000 part-time. Some have to rent boats on a "sharecropping"arrangement (50-50). The country is a net importer of fish. A thoroughinventory of fish resources is currently under way with IDB financing. It maylead to the preparation of a project for improved fishing.

- 91 -

ANNEX III

SELECTED INDUSTRIAL PROJECT IDEAS

1. Industries using local raw materials

(a) Cocoa processi:ig: HAMASCOSA, so far the sole local exporter andprocessor, 1/ is engaged on a program that is expected to raise output by

10 percent a year during the next five years. Output in 1977 was 1,800 tons(1,440 tons of cocoa beans. 215 tons of unsweetened chocolate. 145 tons of

waste products, including cocoa butter, and 750 kg of oil). Opportunities forincreased local sales Or xpnorts of tinsweetened chocolate and cocoa butterremain unexplored.

(b) Vegetable oils:: There is a chronic shortage of vegetable oils andfats on the domestic market that ha bn met from imports, including those

under PL 480. An increase in cotton output could lead to a revival in cotton-seeA o41 production. Greater use could be made also of cocoa by-products,

and crop diversification into groundnuts and soyabeans is both possible anddesiLrabUle.

(c)l Mteat., Product-lLon bUo'Lth for domestic anU Afor export 'consumption c-an

be expanded. Slaughtering facilities should be improved.

(d) Dairy products:, Imports of tinned and dried milk, and of butterhave been rising rapidly.. The IDAI dairy at Les Cayes should be reorgan'zedas a first step towards iLmproving the industry's performance.

(e) Canned vegetables and fruits: This is one of the industries proposedto the private sector in the development plan. Currently, at least threeprojects are at differeni: stages of preparation (La Famosa in Port-au-Prince;CONASA at Cap Haitien, and FACOLEF at Cavaillon) which may result in a con-siderable domestic surplus of canned tomato products and peas. Investmentforeseen 1978-81: $8 million; job creation: 300 in industry and 1,000 inagriculture.

(f) Salt: The first development plan as well as the current one featurea marine salt extraction unit with sodium carbonate as a by-product. Promo-tion of this project is in the hands of SEN and has not made much progress.It would be linked with t:he development of fisheries resources and soap pro-duction. Investment foreseen: $0.3 million; job creation: about 50.

(g) Cattle and poultry feed: The flour mill has received tenders fora $1.2 million cattle feed plant that should rely partly on local raw materials(50 percent maize, 16'.5 percent soya or cotton flour, 30 percent wheat by-products, mainly bran, and 3.5 percent premixed additives). This will befollowed by the establishment of a poultry feed plant, and eventually bydiversification into bothb cattle and poultry farming. Investment foreseen1978-81: $2 million; job creation: '100.

1/ Its officially approved monopsony was abolished in November 1978.

- 92 -

ANNEX III

(h) Cotton textiles: Due to the fall in raw cotton production, localmanufacturers increasingly rely on imported supplies. Capacity in both spin-ning and weaving plants is underused and should be modernized and diversifiedas to sizes and qualities of cioth produced. An interdisciplinary study ofthe cotton sector will be a prerequisite for this project.

(i) Clothing: Apart from the manufacture of denim jeans from dwindlingsupplies of locally produced denim, output is based on imported raw materials.The capacity is there to absorb locally produced cotton textiles provided thatthe quality (size, texture, dyes) is right.

(j) Leatherware: The production of hides and skins is closely linkedto the development of animal husbandry, in particular cattle and goats. Atpresent, there is only one industrial tannery, linked to the manufacture ofshoe uppers. The tannery has organized its own network of buyers and suppliersbut is constantly faced with the problem of irregular quality and quantity ofraw materials available. If this could be improved, there would be scope forexpanding production of leather goods other than footwear; e.g., belts, bags,and travel goods, particularly at cottage industry level.

(k) Wood industries: The development of wood processing for handicrafts,furniture, and building materials is dependent on the proposed reforestationprogram.

(1) Paver: There is no local production of paper or newsprint, andimports of paper products show a rapidly rising trend. The possibility oflocal naner nroduction based on bagasse should be explored.

(n) Potterv and ceramics: The notential for exnansion in this field hasbeen much studied and has been found good. Two small enterprises alreadyexist in thin field and a larogr nne i8 ciurrent-lv uinder diaru,imnn with IFC

and a group of private Haitian investors. Production would be limited todecorative wall and floor tiles maini- for export. There is a local market

for bricks and rooftiles for construction. Investment foreseen 1978-81: $4u4llion; J cr .ea*4on: 200.

fn IOU .. 1 A- J.. 1. k,.. J -C UlJ~Jo. _ J(n)J LLarm aceuticalo- L. 1ru inventory hLL'as Ueer. made uL Haitis m edicinal

plants without leading to any concrete proposals for their commercial exploi-tation. Tne possibility of growing barbasco for the local production ofsteroid drugs, both for the domestic market and for export, should be explored.Currently Mexico dominates the world market in barbasco derivatives.

(o) Essential oils: Increase of exports of essential oils depends ona promotion program for production, diversification, and quality control. TheEssential Oils Commercialization Office, a public sector organization, wouldlike to set up its own control laboratory to by-pass IDAI whose current controlsystem is slow (up to four months) and inadequate (only part of the obsoleteequipment is operational, and there is no properly qualified personnel).Foreign buyers have no confidence in the Haitian product until they have testedit themselves, and this is reflected in the price. If small processors areto continue in this industry, a credit program for modernization (including

- 93 -

ANNEX III

alternatives to charcoal burners and adequate storage materials) is vital.When properly produced and bottled, Haitian products can command premiumprices. There are good prospects for increased exports of vetiver, lime,bitter orange (bigarade) oils, and preliminary experiments with Ylang Ylangare encouraging. Because of its deforestation effects, amyris oil productionshould be phased out, the more so as world prices are low ($9.15/kg) comparedwith those of other oils: $50.60/kg for vetiver. $13.20/kg for lime and$39.42/kg for bitter orange.

2. Industries using imported raw materials

(a) Agricultural tools: Machetes are the only agricultural toolsmanufactured locally. Both blade steel and wooden hndles are imported.The plant, Outilagri, in which IDAI has a dominant share, can produce 60 to80 dozen machetes of three different tvnes per day. It has incurred losses inmost of its ten years of operation. The product quality is poor, and pricesare hiah comnared with imported machetes. One of the Outilagri shareholdersis also involved in a possible project to expand tool production, notablyhammers, nuts and bolts,, and locks, but no real feasibl1ity studies have beendone. Meanwhile, imports have been growing rapidly, of both machetes andother handtools, which suggests that the industry has a good potential. Thisproject should be studied and promoted among potential new investors possiblyin coni- -ti-n with the steel mil.l, or i.nL a regiona'l UCaribbean context.

(b Electronic com-p; ents: I-Uong the export processing industries, thisis expected to be a major growth area. Established producers all have expan-sion p'lans including one project tlat wouuld 'Link two firms in the assemblyof a composite product.

(c) Toys: The U.S. toy market, and the world toy market generally aregro-wing rapidly despite silower rises in consumer spending. Haiti's provencomparative advantage in t:his field should be actively promoted.

(d) Sports goods: E[aiti has reached the ceiling of duty-free baseballana softball exports to thte U.S.,fbut at least two major local enterpriseshave expansion plans into other types of sports goods.

(e) Footwear, leather, and plastic goods: Existing export producershave expansion plans, and there is scope for further growth in production bothfor the local market and for export.

- 94 -ANNEX IV

IMPLEMENTATION PROBLEMS OF SELECTEDDEVELOPMENT PROJECTS 1/

A. Gonaives plain project (Project code number 6221576)

Between 1963 and 1967. FAO completed a study of the developmentpotential in North-West Haiti, which led, inter-alia, to a project proposalfor the Gonaives Dlain. The DroDosal was acceDted bv Government. A presiden-tial commission produced a detailed project proposal in 1970. In 1973, theICO (International Coffee Organization) expanded the prolect (irrigationinfrastructure and agricultural development), and the OAS added a pilotprojert proposal (c2dcatrel i,rupv- farmers' organizations; and agro-economic

aspects). In 1972, the ODPG (Organisme de Developpement de la Plaine desLT~arrai-a n.A M"rV--v,a$-A a4t-h t-ha t-ga. n4i.1- a mi4crtlQ Goraivs) as reaedand ent__te with. the technical,adisttvean

financial responsibility for the implementation of the project. A directorgeneral was appointed, and the Ministry of A-4-lur O.. ADn) was to provide

technical personnel. The financial plan was established in 1973 and has beenleftL substanti.ally unch-angedL. T.h.e 5-year p- c ltota cost was - _stima4ted

at $4.1 million, for which the Government would provide $768,000 in counterpartf und s, West rermany $1.7 mil Jlon for technical asa S stance .n establishing a

network of boreholes, ICO $737,000 for infrastructural work and equipment, IDB$500,000r to L Lnance an IDI grcutua credit fund ir. the- ---. I --- ea,-Y9JUU,UUU LU L.tIdIiCe all LJ.JLJ c5LriC _LULd ~LUL LUU JLU LII~_ FLUJUCL. areal,UNDP/WFP $424,000 for a FAO expert and soil preparation work, and IICA $9,000for the pillot project study. Infrastructural work is now close to completion(although a parallel project to build a hydro-electric plant with West Germanaid is not). But the second vital phase in which the new infrastructure wouldbe put to full agricultural use, particularly in the pilot project, is notready.

Tne project has suffered delays and setbacks of various kinds.Actual spending on the project has been consistently below budgeted levels.To begin with, the borehole drilling program only started in 1973 havingbeen delayed for almost a year because the equipment arrived damaged and thenthe road proved to be impassable for the 26-ton rig. There was some delayin reallocating funds to necessary road construction.

Further problems fall into three main categories: (i) personnel;(ii) finance; and (iii) relations with other administrations. The ODPG had3 director-generals in 3 years until the appointment of the present one in1976. This also entailed changes in key aides. Furthermore, the personnelthat DARNDR assigned on secondment lacked dedication to the project, which,because of low remuneration, they considered a subsidiary occupation. Lackof technical personnel and initiative so far prevented the implementation ofthe pilot project of water management and extension work. A thorough re-organization and a manpower development program have now been completed.

1/ The projects were selected because of persistent discrepancies betweenbudgeted and actual expenditures as reported by CONADEP (Resultatsd' execution. Plan quinquennal 1971-76, Vol I: Classification desprevision et des depenses).

- 95 -

ANNEX IV

ODPG is planning improved salary scales for the second phase of the projectand has also applied for 2 German experts (an agronomist and an irrigationengineer) to work on the project for 2 years and train local counterparts.

The financial problems are such that by the end of FY1978 theproject will show a deficit of $400,000. One major setback occurred at thebeginning of 1976-77 when DARNDR stopped paying the salaries of personnel onsecondment to ODPG. ODPG was obliged to take over this charge without amatching increase in income. ODPG can now barely finance its payroll, and nofunds are left for other current expenses or for essential investments invehicles. Although the Government has already exceeded its commitments to theproject by-$200,000, the disbursement of counterpart funds has been subject todelays! which have immobilized vital work as the prolect waited for spareparts or diesel oil.

Major problems in inter-agency relations have occurred with IDAI(Inst4tut de Development A2ricole et Industriel), which received a $500,000IDB loan to provide credit and agricultural inputs to farmers in the projectarea. IDA! oniy lends to farmers who have at leaet 0.5 ha nianted with aparticular crop (the average holding is less than 0.96 ha). The supply ofir.puts is deficien.t, and IDA! appears to rush cotton production at the expenseof other, possibly more profitable crops to supply its-cotton-spinning andcottor. seed oil plan.ts ir. tbhe proiect a-a.----

… i.~J l..~ ~ 4,,,.d ,4- .1. A of VV107Q -,411

ILn concl.usion, tie Won,-,aiLves proJect, at thLe enr. of . ....have spent some $5.0 million since 1972, mainly on the provision of basicirrigation facilities, some mLnor rosus, a cauastraL survey and an, as yet,unsatisfactoryagricultural credit system for the region. The operationalframework for agricultural and comunity development, one of the originalgoals, is lacking. The Federal Republic of Germany may increase its technicalassistance for i978-79 by $0.5 million. But unless further technical supportis provided for the second phase of the project, the initial investment may belargely wasted.

GONAIVES PLAIN PROJECT: BuDGETED AND ACTUAL EXPENDITURES 1972-78

(G million)

1972 1973 1974 1975 1976 1977 1978

Budget estimate 1.6 4.3 5.5 5.0 5.0 15.1 4.2Actual 0.5 0.7 5.0 2.6 2.8 n.a. -

Balance -1.1 -3.6 -0.5 -2.4 -2.2 n.a.

Budget implementationrate % 31.2 16.3 90.9 52.0 56.0

Source: CONADEP

- 96 -

ANNEX IV

B. rCoffe .. to pro1ect

IWo related coffe proJect *il -- analyzed;-one supoLrted b S

(Project Code No. Haiti 0073), the other supported by UNDP/FAO (Project CodeNio. VdAI '74-010). .l% TTSATID spoted project ("smal I farmerdelomn"JIU. ru.L /q VL'J, LLLe UZL~.LAJ suppor~J L~. Level~.a&.LLLAflJ

resulted from a joint multidisciplinary study done bv USAID. ECO, and TICA.The project, -which started in 1974, provides credit to small farmers for the

purchase of chemical fertilizers; it should also finance the construction andequipment of eignt coffee centers. USAID has allocated $7,458,000 to theproject, which runs from 1974 to 1980; local counterpart expenditures areestimated at $2.2 million. BCA (Bureau de Credit Agricole) is to administerthe credit programme ($5 million), IHPCADE (Institut Haitien de Promotiondu Cafe et des Denrees d-Exportation) to build and equip the regionai coffeecenters.

In 1974, it was agreed that the USAID project would be supplementedby a UNDP/FAO technical assistance project, which provides $484,600 forexperts, equipment, and maintenance of transport equipment. The Government scontribution was to be $162,350 for local personnel and accomodation. The5-year project became operational in January 1975. The designated counter-part organization was again IHPCADE. Problems encountered in implementingthe two projects led UNDP to put an end to its project in December 1976,having spent $205,600 on it. It was partly revived within a larger projectto provide agricultural extension services, approved in 1977 (Project CodeNo. HAI/77/03, Vulgarisation Agricole).

Meanwhile, major delays had occurred on the USAID project, thereasons being poor project preparation, personnel and financial problems, anddifficulties of interagency coordination. The poor project preparationbecame manifest when, during implementation, there was a basic disagreementon the project's orientation: while foreign experts recommended thereplacement of existing plantations over 4 or 5 years. the national agencies,fearing farmers' resistance, supported a program ot improvements, whicheventually has been followed. Another aspect of unrealistic proiect designwas the planned extension of fertilizer use without the prerequisite ofimprovine existing planting and management practices. Personnel problemsoccurred on various levels: the projects, although counting with a coordi-nating rnmmittpe, never had a 4innt direntor who might have nursiued the

projects' interests with the counterpart agencies; the expert on fertilizerUQ:nOp did nnt hprnmP nvnlanhlP i,nt-il 1Q76- AndI thP nrnmiQpd PTnPrt An2i1A-nt

never materialized; the participation by 2 designated IHPCADE counterparts

mainly of shortfalls in the IHPCADE contribution: in 1975, instead of$47,750 (incl uAir.g office andA laboratory) or,ly a token contrib.ution of $3,000O

was made, and the FAQ experts were left without offices or laboratory facili-te ir. 1976, LL1L'.LnE' budgeteU $'2 l,7 contriLution was iLnterpreteLU as

having been calculated in gourdes and was reduced to only $5,550. Meanwhile,constructLon of reg'LoaL coLiee centers uy rI'dPuCA Wa UadU.Ly UdlayeU, as

was the training program, which the centers were intended to house.

- 97 -ANNEX IV

Relations with other authorities were a major stumbling block.While the experts had laid down specific requirements for fertilizer usage,these were ignored by IHPCADE and BCA, which started with the fertilizercredit program in 1975. Moreover, the regional administration (IHPCADE andBCA) sponsored the establishment of 312 SAC (Societe Agricole de Credit)among coffee growers. Their potential is not fully exploited because BCAlimits membership to 7-15 members and scope for action, to credit for jointpurchases of agricultural inputs.

Although the program was redesigned in 1976-77, it continues toface problems. The distrLbution of fertilizers is proceeding at a fasterpace than the renewal of coffee plantations; economic returns of the fertilizerprogram will. therefore, probably be lower than expected. Only one of theregional coffee centers has become fully operational, the experimental programremains to be defined, and local technical staff still have to be selected andtrained. In the short term it is recommended that the potential of the SACshould be used by giving i:hem greater freedom of action- including wide invest-ment opportunities, so that they can develop into production cooperatives. Anronosal for a nilot project was submitted to the UN and was expected to t2Frtin 1978 (Project Code No. HAI/77/C-31; planned expenditure 1977-81: $287,000;executina aaency INCMrF!TLT.0)

COFFEE PROJECTS: BUDGETED AND ACTUAL EYPENDITUPES, !974-78

(r million')

1974 1971 176 17I7 1Q70

USAID Small Farmer Development

Budgeted 2.3 7.8 7.3 7.5 4.3Actual 1.4 4.3 6.1 10.0 -

UNDPIFAO Coffee Production

Budgeted - 0.6 0.8 - -

Actual - 0.4 0.7 0 _

Balance -0.9 -3.7 -1.3 +2.5

Budget implementationrate % 60.9 56.0 84.0 133.3

Sources: UNDP, USAID, CONADEP

- 98 -ANNEX IV

C. Industrial sector projects

In the industrial sector, the reason for the consistent discrepancy

between actual and budgeted expenditures is simple. The sector is mainly

run by private enterprise. The public sector's role is concentrated in the

activities of IDAT and its subsidiary, SEN (Societe d'Equipement National).

The development budget includes projects considered for financing by IDAI.

IDAI h'las most'Ly failed to implement these proJects because proposals are

inadequate and/or because there is no driving force behind them. Most of

the investments made are attributable to the flour mill, the maJor pub lUic

industrial enterprise, and the building up of the industrial park on the

outskirts of Port-au-Prince.

INDUSTRIAL INVESTMENT: BUDGETED AND ACTUAL EXPENDITURES, 1972-78

(G million)

1972 1973 1974 1975 1976 1977 1978

Industrial investment

Budgeted 8.0 5.6 10.7 17.1 15.2 36.7 37.0

Actual 4.9 1.5 4.4 10.3 10.2 n.a. -

Balance -3.1 -4.1 -6.3 -6.8 -5.0

Budget implemen-tation rate % 61.3 26.8 41.1 60.2 67.1

Source: CONADEP

D. Port-au-Prince Water SuDplv Proiect (Proiect Code Nos. 261 and 261(a) SF-HA)

Shortfalls in actual as compared to budgeted expenditures can be

attributed mostly to implementation problems encountered by CAMEP (Centrale

Auitonome Metronolitainp d' Eau Potable). The Port-au-Prince potable water

system suffers from a socially regressive distribution network, too few

legal connections, and high systems lnsses= Water rates are low and collected

erratically. The IDB made a loan of $7.4 million to CAMEP to improve the

A4stribuUtion system.

The project has been fraught with personnel and financianl diffi-

culties. Staff at all levels has proved inadequate to handle the IDB

supported2 investment program. This was the mainr reason for delays in

construction. Technical assistance during the initial period (1971-76) waslimited to consultan, serv4ces retained by IDB for project preparation and

construction supervision, and one PAHO engineer to assist in overall planning

- 99 -

ANNEX IV

at the upper mana8ement Level. Shortcomings and abuses increased as the

system physically expanded: water meters have not been installed, clandestine

connections are thriving! valve operators' services are irregular, and leaks

and breaks take a long time to be repaired. Moreover, planning and coor-

dination are deficient: large parts of the city are without trunklines, main

pipes are laid to serve small groups of higher income houses, and provision ofpublic standpipes for deosely ponulated areas has been minimal. What planning

has come out of CAMEP has been at odds with projections made by other agenciesfor other urban development nroiprts.

Financiia1 problems have also beset the project. The absorntion of

a $10 million investment program by an unprofitable organization with

annual operating income of $0.7 million has been highly problemnt-in Tn

1978 expenditures including depreciation and interest will amount to $2.47

million., leaving a book Loss of $1.77 million. Although CAMMEP is not required

to make a profit under its statutes, this situation is untenable. The IDB

is now concentrating Lts ass'Lstance or managemer,t an.d staff development: one

project - (Project Code Number ATN/CD. (PP)/1338 HA) provides consultants for

institutional strengthening ($200,000); another prolject (Project Code Number

447/SF-HA, now nearing completion, aims at a definitive plan for the city's

water distribution system ($iUU,000). Meanwhile, IDB has financed another

water supply investment study which would require capital expenditures of

$19 million between now and 1982. Tnis project should not be started before

CAMEP's management capacity, personnel and financial structure have been

strengthened. Moreover, a thorough investigation of the region's water

resources is considered a precondition for any further development.

CAMEP WATER SUPPLY FOR PORT-AU-PRINCE:

BUDGETED AND ACTUAL EXPENDITURES, 1973-78

(G million)

1973 1974 1975 1976 1977 1978

Budget Estimate 9.2 15.5 17.4 36.5 9.5 1.1

Actual 0.8 0.5 3.0 32.7 n.a. -

Balance -8.4 -15.0 -14.4 -3.8

Budget implementationrate % 8.7 3.2 17.2 89.6

Source: IDB, CONADEP

- 100 -

ANNEX IV

E. Transport projects

Although the overall implementation rate for transport projects hasbeen well above average in most years, some of these projects too, have encoun-tered maior problems. Works on the proiect to enlarge the port of Port-au-Prince for example, started three years after the loan was first approved. Thenroiect was supported by IDB with a loan of $10 million approved in December1972, followed by a second loan of $7.5 million approved in September 1975(Prnipr't Cnd Nne. 329/SF-HA and 329(A)/SF-HA). The nroiect includes construc-

tion of a new reinforced concrete quay, two warehouses, a storage area, andadminiQtrativub hiIldngs. A new channel has been dredged to nrovide acressfor vessels of up to 52,000 tons, and a 30-ton crane and other cargo-handlingequipment will beinstalled

T.h.e delay in starting work onn the project twas due to adminstrative

problems, mainly the choice of contractor. Since the project started, workh-,as proceeded relatively smooa.hly. The project will probably be completed

in 1978 and the loan wholly disbursed by mid-1979.

As with many other development projects, it was realized during theinfras.tructure build=up- peri that eth authoriy1 - n f- 4 or ---- a-t.g

the completed project was inadequately staffed. The IDB has added an6/0U,UVU technical assistance prLgLam, which is intended to restructure the

Port Authority, improve port operational capacity, and strengthen the port's

financial management.

PORT OF PORT-AU-PRINCE: BUDGETED AND ACTUAL EXPENDITURES 1972-78

(G million)

1972 1973 1974 1975 1976 1977 1978

Budget estimates 5.0 14.6 17.8 22.6 24.0 30.0 11.9Actual 2.9 1.3 3.2 19.7 22.1 20.9 -

Balance -2.1 -13.3 -14.6 -2.9 -1.9 -9.1

Budget implementationrate % 58.0 8.9 18.0 87.2 92.1 69.6

Source: IDB, CONADEP

The Southern Road, another IDB supported proiect, (Proiect Code Nos:365/SF-HA and 365(A)/SF-HA) has had to overcome major physical problems,and reuilting fin2nci2l difficurltip. A loan of $22.2 million was to finance

- 101 -

ANNEX IV

the whole stretch from Leogane to Les Cayes. But when bids were called, it

turned out that available funds would only cover the section from Leogane to

Vieux Bourg d'Aquin. A second loan of $25 million was then agreed to finance

a bridge over the river Momance and the road from Vieux Bourg d'Aquin to Les

Cayes. Major delays occurred in construction of the road due to slow mobil-

ization by the contractor., some errors in project preparation, fundamental

changes in road standard i:hroughout the construction period, problems in

awarding contracts under l:he second loan and poor proJect management. As a

result there will be a cost overrun of at least $8 million, including a 50

percent cost overrun on the bridge. The Government has met $3.6 million of

the increased costs, while IDB has provided a further $5 million to complete

the project.

SOUTHERN ROAD: BUDGETED AND ACTUAL EXPENDITURES 1974-78

(G million)

1974 1975 1976 1977 1978

Budget Estimates 0.2 35.7 60.5 97.5 107.5

Actual 1.8 32.4 49.7 n.a. -

RAIancp +1.6 - 3.3 -10.8

Bud-et implementation ratet % 900.0 90.8 82.1

Source: CONADEP