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This blog explores insights for multinational corporations, NGOs, academics, social entrepreneurs and others working at the Base of the Pyramid.

Monday, May 17, 2010

Moving from Survival to Entrepreneurship in Haiti

By Andrew Eder

Mathias Pierre, GaMa Consulting S.A.

How do you encourage entrepreneurship in the Western Hemisphere's poorest country, where capital is scarce, young people are discouraged and one of the worst natural disasters of the century has wiped out much of the infrastructure? That was the central question posed at an April 28 hearing of a subcommittee of the House Committee on Financial Services.

The topic, of course, was Haiti, and how to promote small and micro enterprise. The witnesses were a diverse group of experts and included two Haitian entrepreneurs, Mathias Pierre and Olivier Barrau.

Rep. Gregory Meeks, a New York Democrat who chairs the Subcommittee on International Monetary Policy and Trade, convened the hearing as his office explores legislation that could help give Haiti's private sector a boost. The challenges are numerous. Most Haitian enterprises operate in the informal sector, with only an estimated 10 percent contributing to the tax base. The country relies heavily on foreign aid and remittances. Haiti ranks No. 151 out of 183 countries in the World Bank's Ease of Doing Business Index.

"Haiti has been in a circle of survival," said Pierre, who has drawn recognition for being the rarest of Haitian success stories -- a bootstrap entrepreneur.

Pierre did not come from a wealthy family, but he launched a successful information technology business, GaMa Consulting S.A. in Port-au-Prince. He said that entrepreneurship in Haiti is typically a means for survival; most small Haitian enterprises lack a long-term focus and vision for growth. At the center of this is a challenge common to most developing economies -- finding adequate financing.

"Access to capital is a real challenge for all young Haitians who have started a business," said Pierre, who noted that it took him close to eight years to obtain credit, after which he doubled the size of his business.

One common theme throughout the hearing was the limitations of microfinance. Pierre said that Haitian entrepreneurs need more low-interest loans, not microcredit loans, which can carry interest rates in the range of 48 percent to 60 percent. David Roodman, a research fellow at the Center for Global Development who maintains a blog on the impacts of microfinance, talked about the difficulty of determining causality with microloans -- in other words, are people better off because they're borrowing, or are they borrowing because they're better off?

"I'm convinced that we have no solid research [demonstrating] that microcredit reduces poverty," Roodman said.

Barrau, the managing director of Alternative Insurance Co., talked about the near invisibility of risk management in Haiti. Even most of the government buildings in Haiti were not insured prior to the earthquake. Along with finding new sources of credit, Barrau said officials should focus on the need for new types of insurance products that are useful to the informal private sector in rural areas of Haiti.

"We need to facilitate the role insurance has to play in this economy," Barrau said.

During a question-and-answer session, Rep. Maxine Waters, a California Democrat, addressed the way the U.S. Agency for International Development operates in Haiti. During a visit to Haiti, Waters said she was concerned that agency officials wanted three years of receipts from companies and conducted business in English in the French- and Creole-speaking country. USAID, Waters said, "needs a new way of doing business in Haiti."

John Sanbrailo, executive director of the Pan American Development Foundation and a former USAID director in several Latin American countries, disagreed that it was an issue with USAID rules. Instead, he said USAID is simply inadequately staffed to deal with Haiti's problems.

In spite of these challenges, there are USAID-led efforts under way that attempt to address the issue of access to financing. Simon Winter, senior vice president for development for TechnoServe, talked about the organization's participation in Haiti Integrated Financing for Value Chain and Entrepreneurship (HIFIVE), an effort to improve the availability of financial products and services, with a focus on rural areas and agricultural sectors. HIFIVE, which aims to connect businesses to financial institutions, launched in July 2009.

TechnoServe is also implementing the Haiti Hope Project, an effort to build a sustainable and competitive Haitian mango industry. Winter said Haiti can benefit from the type of entrepreneur-development and value chain-building approaches that TechnoServe has used successfully in other countries with similar characteristics.

"We believe these can lead to the growth of small businesses and key economic sectors in Haiti that will create jobs and open up new marketing opportunities for local producers, leading to increasing incomes and opportunities for Haitians, especially the poor," Winter said.

Winter suggested that U.S. efforts in Haiti could include a fund dedicated to either loans or loan guarantees for Haitian businesses. Near the end of the hearing, Waters recommended to Meeks that he include such a provision in any legislation he drafts.

"This access to capital is at the root of everything," Waters said.

Ultimately, Haiti's recovery and ascent from poverty may rest on a question that Meeks asked Pierre: "How can we make more people like you?" Pierre responded that the U.S. and other donors need to invest in young Haitians who have the vision to create thriving businesses. And they need to help those Haitians avoid the obstacles that hindered Pierre in establishing his company.

"It took me 12 years," Pierre said. "We need them to do it in five. Because Haiti cannot wait that long."

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