Pozisyon Ekonomik Aktyèl ak Pwospè Ayiti

FIE 'CRY Report No.1243-HA CurrentEconomic Position and Prospects of Haiti (In Two Volumes) Volume l: MainReport flU L 1 A & fILE December 7, 1976 Latin Americaand the Caribbean Regional Office FOR OFFICIALUSEONLY Document of the World Bank Thisdocumenthasa restricteddistributionand maybe usedby recipients onlyin the performance of theirofficialduties. Its contents maynot otherwise be disclosed without World Fankauthorization. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Currency Equivalents Currency Unit = Gourde (G) US$1 = G5.00 Gl = US$0.20 GI million = US$200,000 Fiscal Year October 1 - September 30 FOR OFFICIAL USE ONLY CURRENT ECONOMIC POSITION AND PROSPECTS OF HAITI. Latin America and the Caribbean Regional Office This Report is based on the findings of an economic mission which visited Haiti in April 1976. The mission was led by Alexandre Nowicki and included the following members: Alberto Eguren (Economist), Jean-Paul Pinard (Economist), Laszlo Garamfalvi (IMF - Public Finance) and Michael Zuntz (OAS - Balance of Payments). The mission also benefitted from the brief assistance of Gerardo Soto (Agriculture). TPA docwnSnt hasa utricted diWibution UM maybe wed by recipentsonly in the performance of theirofficial duties. Its contents maynototlwise bediuciced without World bank authorization. CURRENT ECONOMIC POSITION AND PROSPECTS OF HAITI Table of Contents VOLUME I: MAIN REPORT Page No. COUNTRY DATA MAP SUMMARY AND CONCLUSIONS ................................ i-v I. INVENTORY OF RESOURCES FOR GROWTH ...................... 1 II. LONG-TERM TRENDS ....................................... 5 Fconomic fTLends ...................... , 5 Social Trends ..................... 7 III. RECENT DEVELOPMENTS .................................... 11 Growth ............................................ 14 Foreign Trade ..................................... 14 Private Consumnption and its Social and Economic Implications ..... ......................15 International Comparisons .......... .. ............. 16 IV. MANAGEMENT OF TIhE ECONOMY ......................... .... 19 Institutions .. ............ 19 Money and Prices ....... .......... ................. 26 Public Finance .................................... 30 Balance of Payments .................. 45 V. STRUCf[JRE,(DF TfIE ElCONOMY ................................ 63 Agriculture ....................................... 63 Manufacturing .. 69 infrastructure .. ........... 72 Transport .. ....................................... 72 Telecommunications ................ ................ 73 Water Supply and Sewerage . . 74 Social Sectors ....... ........... .................. 75 Education .................... ..................... 77 VI. FUTURE PROSPECTS ....................... 81 Reorganization of Public Finance Management ... .... 81 Inivestment Requirements ........................... 82 Financing of Public Investment .................... 86 TABLE OF CONTENTS (Continued) TEXT TABLES (Continued) Page No. Table 22 Expenditures on Health 42 Table 23 Health Expenditures per capita 42 Table 24 Financing of Public Sector Development Expenditures 43 Table 25 Financing of the Public Sector Deficit 44 Table 26 Summary Balance of Payments 46 Table 27 Gross and Net Exports, 1970-75 47 Table 28 Small Industry Exports Including Assembled Components 52 Table 29 Tourism: Some Indicators of Trends, 1973-75 54 Table 30 Merchandise Imports 55 Table 31 Imports of Large Groups of Products 56 Table 32 Capital Goods Imports 57 Table 33 Estimate of Non-essential Imports 59 Table 34 Capital Movements and Reserve Position of the Banking System of Haiti 61 Table 35 Health Indicators in Selected Countries 75 Table 36 Public Investment 86 Table 37 Public Sector Finance, 1976-80 88 Table 38 Financing of Development Expenditures of the Public Sector: 1976-80 89 Table 39 Public Savings Requirements 89 VOLUME II: STATISTICAL APPENDIX TABLE OF CONTENTS (Continued) TEXT TABLES Page No. Table 1 Basic Aggregates of Haitian Development 13 Table 2 Financing of Private Consumption 16 Table 3 Basic Economic Indicators Compared with Expected Values 18 Table 4 Public Revenue Collection in Haiti 21 Table 5 Role of the Public Institutions In the Collection and Expenditure of Public Funds 22 Table 6 Execution of Investment Plans 24 Table 7 Money and Price Movements 28 Table 8 Transactions Demand for Money 29 Table 9 Sources of Financing of Net Domestic Credit of the Banking System 29 Table 10 Source of Expenditure Growth 31 Table 11 Public Finance Deficit and its Financing 31 Table 12 Consolidated Public Sector Savings 1974-75 32 Table 13 Revenues in Percentages of GDP 33 Table 14 Growth of Central Government Revenue, 1971-75, in Percentages Per Annum 34 Table 15 Composition of Tax Revenues 35 Table 16 Customs Duty Collections 36 Table 17 Central Government Revenue and Deficit 37 Table 18 Central Government Budgetary Current Expenditures by Function 38 Table 19 Central Government Extrabudgetary Expenditures - Development and Current 39 Table 20 Expenditures on Education 40 Table 21 Current Expenditures on Primary Education 41 Page 1 of 2pages ECONOMIC INDICATORS 11 GROSS NATIONAL PRODUCT IN 1975 ANNUAL RATEOF GROW1H (%, constant prices) US$ Mln. S 1960 -67 1967 -72 1972-1975 GNP at Market Prices 870.5 100.0 0.1 2.9 3.0 Gross Domestic Investment 98.0 11.3 .3.0 18.5 12.5 Gross National Saving 55.1 6.3 -16.5 44.2 -23.0 Current Account Balance -2.8 -0.3 Exports of Goods, NFS 118. 3 13.6 -2.2 9.2 -1.2 Imports of Goods, NFS 154.4 17.7 0.2 7.0 11.0 OUTPUT, LABOR FORCEAND PRODUCTIVIITY IN 1975 Value Added Labor Force V. A. Per Worker US$ EIn. . % U Agriculture 398.3 45.4 ,, Industry 150.0 17.1 Services 329.0 37.5 * Unallocated Total/Average 877.3 100.0 ,. .. 100.0 GOVERET FINANCE General Goverrment 2/ Central Government G Mln.) __ of GDP ( G ln.) % of GDP 1 1975 197475 1-97 1975 1974- 75 Current Receipts 489.4 3/ 11.2 10.5 3/ 475.4 10.8 10.2 Current Expenditure 456.4 / 10.4 9.8 4/ 452.6 10.3 9.8 Current Surplus 33.0 O.o7 2 ob7 Capital Expenditures./ 288.4 6.6 5.7 213.9 4.9 L.1 External Assistance (net) 4 t 206.3 4.7 3.1 182.0 4.1 2.8 MONEY, CREDITand PRICES 1970 1971 1972 1973 1974 l975 (Mllion G outstanding end periodT Money and Quasi Money 198.2 251.2 321.1 408.4 530.7 595.5 Bank credit to Public Sectorl/ 189.2 202.5 215.3 244.7 331.6 415.6 Bank Credit to Private Sector 6s.3 78.5 92.1 170.6 310.6 451.3 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 1 9.7 11.3 13.8 14.4 14.8 13.6 General Price Index (1965 - 100) - 109.8 112.8 116.2 145.8 164.3 201.6 Annual percentage changes ins General Price Index 3.3 2.8 3.0 25.5 12.7 22.7 Bank credit to Public Sector 7/ -2.1 7.0 5.4 13.7 35.5 25.3 Bank credit to Private Sector 9.9 20.2 19.6 85.2 82.0 45.3 NOTEt All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/ Data refers to fiscal years ending September 30 2/ Consolidated 4ccounts of.the-2entral Government and Puiblic Enterprises 3/ Includes net operating surpluses of public corporations / Includes net operating deficits of public corpcrations 5/ Includes technical assistance expenditures 6/ Net loans and grants 7/ Includes IDB and ID: credits to the nublic seeto' channeled through the National Bank 8/ GDP deflator not available not applicable TRADE PAYMENTS AND CAPITAL FL0WS BALANCEOF PAYMENTS MERCHANDISE EXPORTS '-AGE 1 Liyj 197 4 197 5 US $ Mln % (Millions US $) Exports of Goods, NFS 7.-0 115.2 118.3 Coffee 21.0 25.8 Imports of Goods, NFS 95.7 134.9 154.4 Sugar 4.7 5.8 Rsr GP(fi= -) - 7 Essential Oils 5.0 6.1 Resource Gap (deficit -17.7 -19.7 3 Sisal 3.0 3.7 Interest Payments (net) -o.6 -o.6 -0.5 Bauxite 7.9 9-7 Small Industries 37.9 46.5 Other Factor Payments (net) -3.c -5.3 -6.3 Net Transfers 19.1 26.9 40.1 All other comnmodities 2.0 2 4 Balance on Current Account -3.o 1.3 - Total .5 _ 00.0 Direct Foreign Investment 7.0 7.9 2.6 EXTERNAL DEBT DECEMER 31, 1975 Net MLT Borrowing Disbursements .2 8.4 22.4 US Mln Amortization -6.1 -4.8 -6,9 Subtotal -2.9 3- 1.2 Public Debt, incl. guaranteed 62.0 Non-Guaranteed Private Debt Total outstanding & Disbursed 62.0 Other items n.e.i -2.2 -2-7 -39.5 3/ Increase in Reserves (+) 1.1 -19.9 -23.5 DEBT SERVICE RATIO for 1975- Gross Reserves 2 20.1 14.7 12.8 Net Reserves 4 19.5 -0.b -24.1 Public Debt, incl. guaranteed 5-7 Non-Guaranteed Private Debt Fuel and Related Materials Total outstanding & Disbursed 5.7 Imports 4.3 12.4 11.2 Exports - - - IBRD/IDA LENDING, (I C -,157s (Million US $): IBRD IDA RATE OF EXCHANGE _ Outstanding & Disbursed - 1'.3 Throth -1971 Since -1971Unibre US $ 1.00-Undisbursed US 1.00 US = 1.00 G5.0 Outstanding incl. Undisbursed - 51.6 G 1.00 = TJS $ 0.20 G 1.00 = IJS $ 0.20 1/ Data refers to fiscal years ending September 50. 2' September 50 Ratio of Debt Service to Exports of Goods and Non-Factor Services. not available not applicable Country Programs I Latin America and the Caribbean Regional Office r'.tober 26, 19 76 73' 7; 7 72 ~~~~~~~~~~~ 10955 s S A I' } A < rD ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~7772' i t ,, v ~~~~~~~~~~~~~~~~~~A T Z A N T C ot- _ OC A 2 \ r,: ~~~~~~~~A 7 I A N) t / O ¢C FA I Ch > nf 2 \ . oh o Posnt ]wQn ;v!eS t~~~~~~~~~~~~~~~~~~~~~~~~ORT.DE-?AIX , (_> E , ' Xl</ X < ~~~~~~~~~~~.6E Te ., FlLEr~~~~~ A R 78 /# E A I S IF A \b zt_Ae8/) : TRANSPORTATION AND RELIEF 4 ' >,- ; '- > o C7c 05 i' MAJOR ROAD PROJECTS 1, T7':'. l 4--noLV'-s.;l N 5 f TH E RlN RO A D (R EC O 7N STR UCT IO N ) ; : \ l o 5 | X x J x ? ASPHALT,s f ' MUNTAIN RANGES . bwsqei ,;! xr° ~~~~~PILATEAU 'V rep. , ,r>el > > a 0;; DEPAvRTMENT BOUNDARIES __° " :*,1 INTERNATIONAL BOUNDARIES e ,i .r.M \ .. . -1: 0 ~--~RIVERS t+'i.>If e.eSA: Ip e r7 A9 7|0 __ _, 1 < < t $ / Sentul,# W , Si 7->+-<\ < < $ r ZL E7;E C KILO.ETERS ed < X f> z '~~~~~~7 , = NCW . P~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~-\\:aIe.r fbvn0Svd &L) C ,4~~~~~~~~~~~T k'; / sSEf \ FAAs ir e1LS 7r30 '~~~~~~~~~~ i- 33 X 713 1 >iQy SUMMARY AND CONCLUSIONS 1. Haiti is at present among the thirty or so poorest countries in the world - overpopulated, with limited arable land, scant proven and commercially exploitable mineral resources and largely illiterate population. The rift between the cities and the rural areas, resistance to technical progress and to the need to modernize administration, long periods of insecurity and the existence of an elitist system of education are factors which explain the country's inadequate development. 2. During the last five years of the new Haitian adanirlistrAtion, some major positive departures from the practices of the recent past have taken place. In particular the country became open to foreign expertise and direct foreign investment and sought to obtain substantial concessionary financing for new and important projects. 3. In spite of these favorable indicators, a number of constraints to economic and social development persist. Chief among these constraints is the slow growth in agriculture, which contributes almost one-half of Haiti's GDP and provides a livelihood to 80 percent of its population. The growth of the sector, which was negative during the decade of the sixties partly because of natural disasters, has somewhat accelerated in the seventies, reaching 1.2 percent per annum in 1971-75. As population growth in rural areas was on the order of 1.1 percent per annum there was practically no increase in per capita income in rural areas for a long time. The average income of about 90 percent of the population of rural areas was not more than US$45 in 1970, a level considered as below the threshold of absolute poverty in HaitL. While this level is calculated to have attained presently about US$80, this increase could be attributed almost exclusively to the price inflation. 4. The growth dynamics of sectors located in the urban areas provides more reasons for optimism. In particular, the manufacturing and construction sectors while still in their infancy, grew at more impressive rates. The manufacturing sector which presently accounts for only 12 percent of GDP, grew at 6.8 percent per annum since 1971. Besides a few medium-sized plants producing simple goods for the domestic market, it also consisted of about 150 export-oriented small plants assembling imported inputs and largely owned by foreign capital. The construction industry was buoyant. It grew by some 18 percent per annum and catered in the last year or so to the new large infra- structure projects financed to a large extent by foreign assistance agencies, and otherwise to the middle and high income population of Port-au-Prince, who were the first beneficiaries of the urban centered growth of the last few years. 5. Haiti has an open economy. There are no controls on foreign capital flows and on foreign exchange movements. Its domestic currency is fully convertible. With the international community's revived interest in Haiti, the movements of private and public capital accelerated and began to have an impact on the country's economy and social life. Thus, firstly, the net current transfers into the country attained by 1975, a record level of US$40 million, equal to 4.6 percent of GDP and were sufficient to fill the wide - ii - foreign resource gap of that year. These transfers consisted partly of capital repatriated by returning Haitian residents and partly of grants received from official agencies and private organizations. Secondly, net disbursements of medium and long-term capital, mostly official, amounted to US$21 million in 1975 and compare favorably with hardly US$3 million annually during the preceding four years. Thirdly, the borr6wing abroad by the Haitian banking system has also been substantial. The net foreign liabilities of the banking system increased by some US$20 million annually during the last three years. Most of it was used to finance increases in domestic credit, predo- minantly to the private sector and exclusively on short-term. Fourthly, private direct investment started to establish itself in the country. The amounts were relatively small, never exceeding a total of US$8 million annually but this investment was widely distributed over low cost equipment installed in many small enterprises. 6. Effects of these capital movements were widely divergent. In the broad sense they substantially increased the resource availability of the country. Thus while the GDP in Haiti grew, according to Mission estimates, by only 2.5 percent annually during 1971-1975, its resource availability grew by 5.2 percent during the same period. This helped to step up the public invest- ment effort and public investment began to grow at 32 percent per annum since 1971. A part of the resources contributed by the foreign sector was also chan- nelled into an increase of consumption, reflecting, no doubt, the fact that some private transfers were destined originally for this purpose. Overall consump- tion was growing by more than 4 percent annually, and private consumption was growing by more than 5 percent, while at the same time public consumption underwent a steady decline. In turn, practically the entire increase in private consumption accrued to the population of Port-au-Prince, where the per capita annual growth of consumption reached about 10 percent per annum. 7. This contributed to a further polarization of differences between the city and the rural areas. While per capita consumption in Port-au-Prince was twice that of rural areas in 1970, this ratio had increased to 3.2 times by 1975. The number of jobs in productive sectors in the metropolitan area increased since 1971 by some 9,000 in the manufacturing industry and by 12,000 in the construction industry, compared to an increase of about 80,000 in the metropolitan area's labor force during the same period of which over two thirds came from the rural areas. While, outside the above sectors, additional employment outlets were found in the quickly growing services and in marginal activities, the level of open unemployment in the Port-au-Prince area was estimated to be in excess of 16 percent. As much as 60 percent of the city's population resides in quarters where the living space per person does not exceed 8 square meters and where per capita consumption of electricity is limited to 0.4 kw/h per month. 8. The difference between per capita incomes in the lowest and highest income groups in Port-au-Prince is 1:27, with 2.5 percent of the population receiving almost 20 percent of income and 54 percent of population receiving only 15 percent of income. The middle income group, which in Haitian condi- tions represented income brackets of US$240 per capita per annum in 1970, was - iii - growing quickly. It is composed to a large extent of middlemen and employees in various services in the capital city. A rapid injection of wealth into the Port-au-Prince area and its unequal distribution spilled over in the import bill and the highest and middle income groups accounted for substantial imports of non-essential consumer goods. 9. WThile the difference between the lowest and highest incomes is considerable, unlike in other developing countries, the number of those who receive annual average incomes from labor of about US$1,200 (1970) is small -- about 4,000 persons in all, of whom three-quarters are in the capital city. As they get a relatively small fraction of the entire income of the country, policies aiming to redistribute incomes could alleviate the lot of the poor only if the revenue from increased taxation of luxury consumption is used to assist the rural sector in increasing agricultural production. 10. The balance of payments situation is precarious. Firstly, the net current transfers consist of temporary components, such as donations of private organizations and repatriation of Haitian capital from abroad, and it cannot be expected in future that these components could be maintained at the high level of the last year. Secondly, the growth of profits in industrial and construction activity and the increasingly divergent domestic and foreign price trends, make it both possible and profitable for Haitians to place their capital earnings abroad. The balance of payments residual item of unrecorded transactions, while a rather imperfect measure of this phenomenon, might be considered as an indicator of this trend. They in- creased markedly from around US$9 million annually in the early 70's to over US$40 million annualy in the mid-70's. 11. Recent trade trends make the balance of payments situation even more vulnerable. Haiti's volume of exports of traditional goods--coffee, sugar, cocoa and sisal--was declining or, at best, remained stagnant. The parallel increase in industrial exports contributed only to slow down the decline in overall exports to some two percent annually in real terms since 1971. Exports of light manufactures, assembled from imported inputs, grew from US$13 million in 1971 to US$38 million in 1975, but only one half of these exports could be considered as domestic value added, of which a part of the profit was also often transferred abroad. Conversely, Haiti's imports grew quickly, at 9.1 percent per annum in real terms during 1971-75, and the elasticity of imports to GDP reached a high level of 3.6. A substantial part of these imports, about one half of the total, were consumer goods, of which about 45 percent were of non-essential type. Imports of non-essential goods, equal to US$30 million in 1975 and destined predominantly for consumption in Port-au-Prince, exceeded imports of capital goods by a wide margin. 12. Generally, the country's economic administration needs to be strengthened if the important economic problems accumulated over a long period of time are to be solved. This required improvement of public ad- ministration cannot be achieved unless the recent decline in the salaries of public servants is arrested and reversed so that the public sector can attract and retain qualified personnel. The influence of the public institutions - iv - in their respective areas of economic activity is unclear, whether because it has not been redefined for a long time or because centrally-taken decisions cut across these areas, or, finally because of inadequate flows of information available at the highest levels of economic decision-making. There were only 200 civil servants in Haiti receiving salaries in excess of US$400 per month in 1972 and incomes of the preponderant majority of civil servants were about 40 percent below the average labor income in Port-au-Prince. The Ministry of Finance holds accounts of and exerts control over only 47 percent of revenues collected by its agencies and over 32 percent of total public current and development expenditures. The Planning Agency (CONADEP) directly controls about one-tenth only of total public investment expenditures; not unrelated to this is the fact that investment targets set by it for the key goods-producing sectors, mainly for agriculture, were achieved only to an extent of 52 percent during 1971-75. 13. The key to Haiti's immediate future lies in the development of agriculture. This development should help the Haitian economy along the way toward.regaining an equilibrium between imports and exports at first by halting the tendency of increasing food imports and later by providing addi- tional agricultural products for exports. It should also help in restoring a proper balance between urban and rural incomes and consequently between urban and rural consumption levels. If these objectives are to be achieved, development expenditures in agriculture must increase substantially from their low 9 percent share of total development expenditures during the 1973-75 period. The Government declared in mid-1975 its intention of raising the share of agriculture to an average of 20 percent of development expenditures during the 1976-81 period. 14. An equally important task for Haiti is to restore the leading role and effectiveness of public administration. At present about US$48 million or more than one-third of total public expenditures is made outside the system subject to official recording and accounting. It is desirable that a large part of this expenditure return to the official budget during the forthcoming period, so that it be at least partly utilized to increase public servants' salaries and to provide adequate funds for investment maintenance, the absence of which provoked disrepair of major irrigation and road networks of the country. 15. The international agencies have already committed or are about to commit substantial credit funds to Haiti. These funds are expected to amount to US$60 million annually - US$41 million in credits and US$18 million in grants - contributing the major part of US$87 million necessary for the public sector to finance investment, technical assistance and to provide transfers to private agriculture and industry. To assure that savings of the public sector reach an annual average of US$28 million during 1976-80 up from the level of about US$7 million attained during the last two years, a substantial effort will have to be undertaken by the Haitian administra- tion to increase custom duties, the imposition and collection of which are lagging behind the trend of quickly growing imports. - v - 16. A Joint Commission representing the Haitian Government and foreign aid agencies was created last year to coordinate implementation of foreign assistance to Haiti. The Haitian authorities attach considerable importance to the operation of this Commission and in turn, the participating foreign agencies maintain a close contact between one another. Also, the highest authorities of the Haitian Government seem to be increasingly aware of the country's urgent priorities and may decide to undertake necessary action aimed at designing and implementing new policies, hopefully along the lines suggested above. CHAPTER I INVENTORY OF RESOURCES FOR GROWTH 1. Haiti is the poorest country of the Americas and one of the thirty poorest countries in the world. It is also an overpopulated country. With a total area of only 27,750 square kilometers and a population of about 4.6 mil- lion inhabitants in 1975, the average population density is about 170 persons per square kilometer, comparable to that of the most densely populated countries in the world. The scarcity of arable land worsens the situation of Haiti's population. Arable land hardly accounts for one-third of total land and, if this is taken into account, the average density of Haitian population would amount to about 515 inhabitants per square kilometer, com- pared to 445 persons per square kilometer of arable land in El Salvador, the second most densely populated country in the Western Hemisphere. 2. The country's proven mineral wealth is limited both in scope and extent. Bauxite, the most plentiful mineral, has been mined since 1957. About 700,000 tons of bauxite are exported annually. Copper ore--sedimentary and in veins and usually found in Haiti associated with gold and molibdene-- has been mined since the early 1960's and exported in small quantities. Further copper exploration by two major international copper mining concerns is being carried out at present as well as off-shore oil prospecting. Commercial exploitation of these resources would most probably begin at the end of this decade. In various parts of the country moderate quantities of limestone, sand, gravel, clay, building stone and salt are intermittently extracted for local consumption. Lignite deposits are extensive and there are some manganese deposits, but both remain undeveloped. 3. Agriculture was and remains the exclusive source of livelihood of four-fifths of the Haitian population. The principal food crops are rice and corn, which account, together, for 40 percent of the value of agricultural production. The main export products, coffee and sugar cane, account for another 30 percent of production. Agricultural yields are strikingly low. The soil suffered much from erosion, as trees were cut down to be used for charcoal. Agricultural methods used are those of the past century. With the average farm size estimated at no more than 1.4 hectares and with 88 percent of the peasants still illiterate, there was hitherto little inducement nor, indeed, possibility for modernization of agriculture. The average value of annual crops is about US$290 per hectare at present, and with two-thirds of the rural population holding on average 0.64 hectares per family, average annual income per capita on these small holdings is about US$45 (in 1975 prices) or about one-fourth of the country's GNP. 4. The existing productive capital in Haiti and the country's infra- structure are both scant and underutilized. During the last two decades, 1955-75, the incremental capital output ratio for the entire period amounted to 5.2. Given the length of time, for which this ratio has been calculated, the integral capital-output ratio may be very close to the incremental one. This compares rather unfavorably with the capital-output of 3.2, calculated for developing countries for the 1950-64 period. 1/ 5. The country has about 2,300 miles of roads, of which only 350 miles are paved. Of these, the main highway linking Port-au-Prince with Cap Haitien - the northernmost port - accounts for 170 miles. To travel this short distance, a seven hours' trip is necessary. There was no major highway construction since the mid-1950's until 1974 and in the meantime the road network has deteriorated badly because of an almost complete lack of maintenance. The country's inventory of transport equipment is low. There are, for instance, three passenger cars per 1,000 inhabitants. Of a number of Haitian ports, which in the past assured coastal and international connections, only the port of Port-au-Prince is, at present, being expanded. Despite the increase in the number of cruise ships which might call at Haitian ports and even though coastal shipping accounts for 18 percent of all freight, Cap lHaitien,the second largest port and the principal tourist attraction, can harbor only one ship at a time. 6. Fixed capital in the manufacturing industry is distributed among a few medium sized plants--a cement plant, a flour mill, one large and two small sugar refineries, and a cotton ginning mill. Some amounts of fixed capital were invested in numerous small-size enterprises producing consumer goods (soap, footwear, clothing) and in assembly shops, assembling export goods from imported inputs. 7. Electrical energy capacity is still at its inception, about 70 MW in all. This includes 47 MW of installed hydroenergy, with the remainder distributed among old diesel plants. National average of per capita elec- tricity consumption is at present 32 kwh, about one-third of the consumption level in India. The telecommunicationnetwork is scant, with only 14,500 telephone lines, of which all but 500 are situated in the metropolitan area. 1/ The incremental capital-output ratio for 1960-70, calculated for 37 LDC's was 3.2, according to Hollis B. Chenery and Nicholas C. Carter in the "Internal and External Aspects of Development Plans and Performance, "1960-70, Table 6, Development Policy Staff Working Paper No. 141, World Bank, Washington, D.C., February 1973. While it is clear that the marginal capital-output ratio depends on the rate of growth of the economy, and while the latter does not depend exclusively on capital but on such exogenous factors as influence of weather on crops or influence of international market situation on a country's exports, it is also true that the capital-output ratio calculated for the group of 13 countries showing the slowest growth rates was still as low as 4.0, far more favorable than the Haitian ratio. Of all 37 countries only two (Ghana and Argentina) show a capital-output ratio comparable to that of Haiti. - 3 - In per capita terms there is one line per 45 inhabitants in the Port-au-Prince area, compared with one line per 7,200 inhabitants in the rest of the country. While there are 16 active broadcasting stations, and a 2-channel TV station, availability of receivers amounted to only 17 radios per 1,000 persons in the early 1970's, one-seventh of that in Guatemala or El Salvador. 8. A housing inventory of Haiti shows that there were 908,000 houses in the country, of which 721,000 are in the rural areas. The national ave- rage is, therefore, 4.7 persons per house, and this ratio is roughly comparable between urban and rural areas. Most of these houses are small, however, and when converted into a number of rooms, the overcrowding in the country becomes evident by any standards, with 2.3 persons per room (2.5 in the metropolitan area). 9. Squatter settlements proliferate around Port-au-Prince and there are indications that in the early 70's no more than one-fifth of the popula- tion was adequately housed. While no quantitative data are available with respect to the material used in housing construction, surveys indicate that both in the countryside and in the working-class urban communities, the most frequently encountered material is "clissage" (wattle), usually covered with a layer of mud or plaster and sometimes whitewashed. Few of the urban and almost none of the rural housing have electricity. A majority of the popu- lation relies for lighting on kerosene lamps. Water is obtained from streams or wells in the countryside and, in the cities, many domestic households rely on water vendors. 10. Finally, the health equipment is also grossly inadequate. On average, there is one hospital bed per 1,300 inhabitants. Outside urban centers where district hospitals are located, there are few personnel and facilities available. 11. Labor is probably the most important--and certainly the least utilized--resource of the country. Haiti's population was, in 1975, about 4.6 million. There were 1.9 million people in the country in 1919 and 3.1 million in 1950. Its crude birth rate is high, 3.6 percent, but this is largely offset by one of the highest crude death rates in the world, 1.6 percent, (the rate of infant mortality at 150 per 1000 live births exceeds that of India) and by a 0.4 percent emigration rate. Net population growth is estimated to be 1.6 percent per annum. The age structure is that of a young population, with 42 percent below 14 years of age. 12. Unemployment is rampant, and open unemployment alone was estimated at 12.3 percent in the whole country in 1971 and even higher, 16.2 percent in Port-au-Prince. Almost 80 percent of the active population is employed in agriculture, at a rate of 1.7 laborers per hectare, out of 5 inhabitants per hectare. It is calculated that with the use of appropriate crop rota- tion method, the real need for labor in agriculture could be reduced to only 0.4 laborer per hectare. While this indicates that some underemployment in agriculture may now be as much as 75 percent of the active rural labor force, the reality is somewhat less dramatic when one considers that family help has been included in the calculation, that between 10 and 20 percent of farmers have also other occupations beside that in agriculture and that cattle, forestry and fishing could provide 10 to 15 percent of employ- ment not included in the above calculatien. But even the most optimistic estimates yield strikingly high rates of open and hidden unemployment equal to some 49 percent for agriculture and to 62 percent for the entire country. 1/ 13. Only 19.6 percent of the country's population was literate in the early 70's. While the school enrollment is, at 37 percent, still low, the rate of attrition is high. Only five percent of children entering school reach the end of the primary education. The difficulties in gaining access to education, to support oneself throughout school, to graduate and to find employment afterwards are compounded throughout the process. This notwith- standing, a generally high value is placed by the Haitian people on education. But even while beirng largely deprived of the benefits of education, Haiti's population is remarkably perceptive, easily trainable and hard working. 1/ From "Haiti - Problemes de main d'oeuvre et d'emploi, OIT, Geneve, 1976," p. 16. - 5 - CHAPTER II LONG-TERM TRENDS 14. If past long-term economic trends were not favorable to Haiti, it was only partly on account of the country's scarcity of proven exploitable resources, soil aridity or over-population. Other reasons of a less immedi- ately perceptible nature existed. They reside in the sociological background of Haiti. This report would be incomplete if these reasons were not, at least lightly, touched on. Economic Trends 15. The country's present statistical base is still severely inadequate and the information relating to its past is even more so. Suffice it to men- tion, however, that the production of each of its two principal export crops-- coffee and sugar--more than a century ago was as high or higher than it is at present. 1/ 16. Comparisons limited to a somewhat shorter period, including only 50 years of the current century, are equally unfavorable. Thus, during the 1916-26 period, Haiti's annual exports were equal to US$15 million. Since then, prices for Haitian exports grew 3.8 times and its population 2.3 times. Therefore, if per capita exports in real terms were to be maintained, they should have attained in nominal terms some US$131 million by 1975. Actually, their value was only US$93 million gross or US$76 million net. The latter, instead of counting the entire value of sales, includes only the value added of reexported assembled products. The real value of export per capita was declining, depending on the method used, by 0.6-1.0 percent annually during the last half of the century. 17. Success or failure of exports always had a strong influence upon the business cycle of the Haitian economy. Therefore, the slow long term decline of exports combined with cyclical fluctuations resulted in the economy having suffered, during the 36 years between 1921 and 1956, from 8 years of acute crises, 9 years of depression, and 13 years of recession, with only 6 years of relative prosperity. 2/ 18. In these circumstances, per capita income could hardly have been expected to increase. There is no reliable quantitative information on the period preceding 1955, except that economic growth took place in only six years between 1921 and 1956. During the following two decades of 1955-75, 1/ Ragatz, L.J. Fall of the Planter Class - A Study in Social and Economic History (New York, 1928. p. 125). 2/ J. Vilgrain, Les fluctuations cycliques de l'economie haitienne: etude econometrigue, Port-au-Prince (no date) p. 45. - 6 - the Haitian domestic product has been increasing, in real terms, by about 1.7 percent per annum, which implies that there has been practically no increase in per capita income. 19. The main reason for the quasi-stagnation prevailing over this long period of time is the slow development of agriculture. Production of the agricultural sector, which accounted for 49 percent of GDP in 1955 and for 45 percent in 1975, was growing at 1.3 percent per annum during the whole period. The principal compensatory influence came from three sectors-- manufacturing, construction and commerce---the combined growth of which was 2.4 percent per annum during the same period. The fruits of growth contributed by these three sectors benefitted principally the urban minority of Port-au-Prince. 20. During the 1955-75 cycle, the long-term growth of exports of goods and non-factor services, calculated at 2.7 percent per annum, was more favor- able than that of domestic production. However, it should be recalled that an increasing part of exports in the most recent period consisted of goods assembled from imported components, which inflate the gross value of export figures. The specific export dynamics of other exported products is less impressive. Thus, during 1955-75, 1/ the volume of exported coffee was dropping by 1.8 percent annually, that of sugar by 2.2 percent annually and that Qf sisal by as much as 7.1 percent per annum. Cultivation of these products which accounted together at the beginning of the 20 years' cycle in 1955 for as much as 88 percent of total exports, benefitted mainly the rural population and exports were therefore, the main growth incentive of agricul- tural production. The relative importance of these products was displaced by bauxite, and by reexports of products assembled by small scale industries, which, together, accounted for some 45 percent of total exports at the end of this cycle. The assembly of products by small-scale industries benefitted some 20,000 2/ workers employed in Port-au-Prince or if dependents are added, some 80,000 persons in all, compared to some 3.4 million inhabitants of the rural areas who participate in the production of coffee, sisal and sugar cane. It is true that a country should diversify its exports but Haiti is not, and will not for some time, be in a situation where diversi- fication of exports implies a displacement of one item by another. With its labor in abundant supply, the diversification of exports by Haiti should have implied an addition of new items, with existing items con- tinuing their upward trend. This has not happened. 21. During the last two decades or so, the process of urbanization of Haiti became particularly pronounced. The population of Port-au-Prince was 1/ To eliminate the influence of unfavorable crop years, the average of two years was taken at the beginning and at the end of the twenty years cycle. 2! From "Haiti - Problemes de main d'oeuvre et d'emploi, OIT, Geneve, 1976". growing at 5.8 percent per annum, compared with the 1.1 percent per annum growth of the rural population. The professional composition of the active population shifted somewhat during this period. The size of the middle class increased modestly. If liberal professions, technicians and office employees are considered as representatives of the middle class, their share in total employment increased from 1.1 percent in 1950 to 1.8 percent in 1971. At the same time, however, the relative share of population aspiring to enter the middle-class--traders, middle-men and persons employed in non- productive and often informal sector-type services--has more than doubled, from 7 percent in 1950 to 16.4 percent of total employment in 1971. 22. There are a few principal reasons for the deterioration of Haitian agriculture and for the related backward position of the peasantry. Among these are, in the first place, the fragmentation of land. The original land distribution took place with independence when plantations were given or sold in small plots of land to former slaves and soldiers. The continued fractioning of land was influenced by inheritance laws based on the Napoleonic Code, and by laws passed by successive presidents of Haiti. President Louis- Felicite Salomon (1879-88) decreed that squatters could receive title to the land if they cultivated certain crops, and President Stenio Vincent (1930-41) decreed the rural family welfare law which provided for government grants of state lands not exceeding 4.9 hectares to farmers who worked the land effec- tively for at least five years. These developments led to a situation where 95 percent of the agricultural area is now in holdings below 13 hectares, and one-third of it is in holdings below 1.3 hectares each. In these conditions, irrigation and water management are unwieldly. Illiteracy is predominant and agricultural extension services are woefully inadequate, with one extension worker servicinr 8,000 farmers, as compared to about 150 farmers, which is considered effective. It is thus almost inevitable that farm management and technology are both antiquated and that the resulting productivity, depending on the crop, could be doubled and often tripled if more progressive methods of cultivation were spread and adopted. Social Trends 23. An equally important root of deficient economic progress resides in the cleavage between the cities and the rural areas, which goes far back in Haitian history. While Haiti was the first Latin American country to gain independence and the first state in the world to be established by a revolt of slaves, it has also been, for over the century and a half following the 1804 revolution, a country with a rather rigid social structure. Approximately 10 percent of its population were a French speaking, literate elite. The other 90 percent were the illiterate, Creole-speaking masses. The former live in cities, the latter predominantly in rural areas. The education curriculum was, and still is, geared to the needs and preferences of the former. The cleavage between the cities and the rural areas in Haiti has, therefore, not only an economic but also, perhaps above all, a social significance. It is, moreover, aggravated by the physical situation whereby most of the infrastructure of the city-village integrated type (communication, electrical - 8 - energy or other) has hardly branched outside Port-au-Prince. The road network, usually the principal part of such an integrating infrastructure, slipped into a state of disrepair. 24. The differences between the urban and rural areas can be assessed best by analyzing the 1970 income distribution pattern (See Table 1.4). Those who were earning less than US$240 per annum (US$120 per gainfully em- ployed person on the average) represented 87 percent of the total labor force of the country. They represented, however, as much as 92 percent of the professionally active population in rural areas and 54 percent of that of Port-au-Prince. Their incomes accounted for as much as 72 percent of total income of rural areas, but in Port-au-Prince incomes of those earning less than US$240 annually represented only 15 percent of total incomes. The average (for all classes of income) annual income per person employed was equivalent to US$153 in rural areas compared to US$437 in Port-au-Price. This difference is somewhat attenuated by the fact that one out of three persons in rural areas has some sort of income, compared with the much lower ratio of one employed in a family of five in Port-au-Prince. In the final account, there- fore, the average labor income per head of population, including those who were not employed, was US$55 in rural areas compared with US$118 in Port-au-Prince. These incomes exclude income from profit on capital or on intermediation,but include incomes from professional services or the like. 25. The dire inadequacy of these incomes becomes obvious when compared with consumption expenditures in the same year (see Table 1.5). The average annual per capita expenditure on food amounted to Us$43 in rural areas and to US$48 in Port-au-Prince in 1970. While in Port-au-Prince this still leaves a substantial margin for expenditures other than food, in rural areas such a margin was negligible--US$12per annum, of which US$9 was absorbed by rent and fuel. The situation was worse for those income groups in rural areas where the employed family member was earning, on the average, US$120, which yields only US$40 per person, below the average comsumption level for food alone. When it is recalled that the average expenditure on food allows for a purchase of only 1,700 daily calories, which is equal to 77 percent of normal require- ments in this part of the world, it becomes obvious that 87 percent of the total population--thosewhere one family member out of three earned, on the average, US$120 per annum--were at, or below the absolute poverty level in 1970. 26. While the extent of poverty in Haiti is overwhelming,much more so than in any other country of the Western Hemisphere, inequality in the distribution of incomes, while it exists, is much less glaring than in most countries. Thus, the population in the higher incomes brackets (1970) while in a clearly better position than the group analyzed above, was not numerous. The medium-income class, where income per family member attained US$200 annually, represented only 13 percent of total population and received 39 percent of total income in the country. However, this income class repre- sented only 8 percent and 27 percent, respectively,of total population and income in rural areas. The number of those in higher income groups, whose family members benefitted from annual incomes of US$1,200 per capita, included in 1970 only 4,000 persons in the entire country--or 13,000 persons if their families are included. Two-thirds of this group reside in Port-au-Prince. While their income per family member does not appear exorbitant, it is 28 times higher than such income earned by the lowest paid and major part of the population. Incomes of the highest paid population strata represent barely five percent of total labor income. 1/ 27. The above shows that, because of the small number of relatively well to do people and the comparatively low share of total income held by them, the impact of redistribution of income through income taxation is likely to remain limited and an increase of agricultural production may be the only avenue open for the improvement of the lot of the poor. This, in turn, could only be achieved if a larger part of public revenues is channelled into agricultural investment and agricultural credit. These additional revenues could be obtained through increased taxation of luxury consumption and, therefore, should turn the tide of the deteriorating income pattern. 28. Some possibility exists for setting up domestic production of a few basic consumer goods, provided that the technology involved is of a simple, largely labor intensive type for such items as clothing, soap and detergents that are largely consumed in rural areas. Thus, out of US$30 million worth of clothing, toiletries and cleaners purchased by the Haitian population in 1970, US$19 million was purchased in rural areas. This implies again that the only way toward expansion of industrial production supplying the domestic market is through the increase of agricultural production and the resulting expansion of the rural market for these industrial goods. Other possibilities of import substitution are, at present rather scant. 29. The urgency of finding solutions to rural poverty does not imply that the problem of urban poverty could be neglected. This latter exists and in a very acute form. It reflects itself largely in the inadequacy of food, although of a somewhat lesser acuteness than the one observed in rural regions. If the level of absolute poverty in urban regions is set at US$45 per person per year (at 1970 incomes and prices), at least 58 percent of in- habitan