Haiti - Economic memorandum

Report No. 307%HA FILE COPY Haiti: Economic Memorandum Recent Economic, Industrial and Sector Developments February 17, 1981 Latin America and the Caribbean Regional Office FOR OFFICIAL USE ONLY U Doctment of the World Bank Thds document has a restrted ddb ad may be used by reapents only in the performane of their offic . d ts contents may not otherwise be disdosed wthout World Ban authoizaoton.  CURRENCY EQUIVALENTS Currency Unit: Gourde (G) $1: G5 Gl: $0.20 (The Gourde has, since 1919, been pegged to the U.S. dollar at the rate of G5=$1) WEIGHTS AND MEASURES Metric British/U.S. Equivalent 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 2 0.62 mile (mi) or 1,093 yards (yd) 1 square kilometer (km ) 0.386 square mile (sq. mi) 1 metric ton (mt) 2,200 pounds (lb) 1 kilogram (kg) 2.200 pounds (lb) I hectare (ha) 2.47 acres = 0.78 carreaux 1 liter (1) 0.908 quarts (qt) ACRONYMS BIGSATEX Biggio S.A. Textile BNC Banque Nationale de Credit BNRH Banque Nationale de la Republique d'Haiti BRH Banque de la Republique d'Haiti CIDA Canadian International Development Agency CIEISA Compania Internacional de Exportacion e Importacion S.A. CFDT Compagnie Francaise pour le IDeveloppement des Textiles CPI Consumer Price Index CIF Cost Insurance Freight DUC Dollfus, Urieg, Colmar EEC European Economic Community FAC French Aid Programs FITICOSA Filature et Tissages S.A. GDY Gross Domestic Income GDP Gross Domestic Product GDI Gross Domestic Investment HASCO Haitian American Sugar Company IDAI Institut de Developpement Agricole et Industriel IDB Inter-American Development Bank IMF International Monetary Fund ILO International Labor Organization IRR Internal Rate of Return ISI Import Substituting Industries LINSA Les Investissements Industriels S.A. ODN Organisme de Developpement du Nord ONAPI Office Nationale de Promotions Industrielles OPIC Overseas Private Investment Corporation SACE Haitian Export-Import Bank SDR Special Drawing Rights SPIDHA Societe des Peches Industrielles d'Haiti SODEXOL Societe d' Exploitation d' Oleagineuses UNIDO United Nations Industrial Development Organization USDA United States Department of Agriculture USOP Universal Seeds and Oil Products FISCAL YEAR October 1 - SeDtember 30  FOR OFFICIAL USE ONLY This report is based on the findings of a mission that visited Haiti in March 1980 at the request of the Haitian authorities. The responsibility was to analyze five signif- icant projects already launched or at different stages of preparation; all of them with Government support. This analysis represents accordingly the essence of the report. Nevertheless the understanding of the implications of the projects could not be complete without an overview of the characteristics of the industrial sector on the one hand and of the macroeconomic situation on the other. Both are presented succinctly 1/. An earlier draft of this report was discussed with the Haitian authorities in September 1980. 1/ The mission consisted of Messrs. Dominique Hachette (mission leader), Bernard Decaux (consultant, industrial sector), Alfonso Fors (consultant, sugar industry). The mission acknowledges the assistance received from the Industrial Development and Finance Division, Latin American and the Caribbean Projects Department, World Bank and from Homi Kharas (Young Professional) who helped in the revision of the report. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   HAITI: ECONOMIC MEMORANDUM RECENT INDUSTRIAL DEVELOPMENTS Table of Contents Page No. COUNTRY DATA MAP .... 6. ....*........ IBRD-13769 SUMMARY AND CONCLUSIONS ... .............................. i-iv I. RECENT ECONOMIC PERFORMANCE .............. ...... 1 A. Aggregate Production and Demand ......... .. I B. Sectoral Developments ....... . -........... 5 Agriculture .... ....................... . 6 Construction and Manufacturing .......... 9 C. Public Finance .. ...... ............ ......... . 7 General Aspects ................ . ....... 7 Fiscal Reforms ...... ....... . ... 8 Revenues ............... .. *....... . 10 Expenditures ....................... .*... 12 D. Financial Intermediation .................. 13 Private ................................ 13 Credit Operations ..................... *. 14 E. Prices .............................. 16 F. The External Sector ....................... 17 Trade Balance ........................... 18 Services and Transfers ............... 20 Capital Account .............. . 21 II. THE INDUSTRIAL SECTOR IN HAITI .......... ........ 21 A. Record of Growth .. ........................ 21 Agroindustries . ......... ............. . . 22 Import Substituting Industries .. ........ 22 Assembly Export Industries .. .......... 23 B. Structure of Output and Distribution of Industrial Income .. ...................... 24 C. Industrial Imports .... . ...... 25 D. Market for Manufactured Products ......... 25 E. Incentives and Protection ................ 29 The Investment Code ............... 29 Tariff Protection ..... .................. 31 Issues Related to the Incentive Systems 33  Table of Contents (Continued) Page No. F. Obstacles to Industrial Development .... 35 Lack of Industrial Skills ............ . 35 Insufficient Infrastructure ............. 36 Financing Problemss . .................... 37 Weak Institutional Framework ....... 37 Role of the Government ............ . 38 III. PROJECTS ................... ..................... 40 A. Sugar Mill ................................. 43 Existing Sugar Production ................ 44 Cane Production ........ ................ 44 Sugar Production ..... ................. 45 Proposed Sugar Mill .................. 49 Conclusion ............................... 57 B. Vegetable Oil Project (SODEXOL) ............ 58 Financial Viability ................... ... 59 Economic Viability ....................... 61 Integration with Domestic Oil Seed Program 63 Balance of Payment Impact ................ 65 Employment ....... ........................ 65 Conclusion ........... .................... 66 C. Fishing Fleet Project (SPIDHA) .............. 66 D. Cement Project ................. ....... ...*. 69 E. Textile Project ................... ........... 74 Existing Textile Industry and M4arkets .... 75 Project Concept .......................... 76 Capital Cost .. ........ 77 Working Capital ............ .. .. 78 Operating Costs .. ........................ 78 Sales Price .. ............................ 78 Estimated Internal Rate of Return ........ 79 Other Economic Impact of the Project ..... 79 Recommendations .......................... 80 STATISTICAL APPENDIX 1.1 Gross Domestic Product by Sector, 1965-79 1.2 Gross Domestic Product by Type of Expenditure, 1965-79 1.3 Gross Domestic Product by Type of Expenditure, 1965-79 1.4 Consolidated Public Sector Accounts, 1975-79 1.5 Central Government Revenues and Expenditures, 1975-79 1.6 Government Current Revenues, 1975-79 1.7 Summary Accounts of Main Public Sector Enterprises, 1975-79  Table of Contents (Continued) STATISTICAL APPENDIX (Continued) 1.8 Public Sector Development Expenditures, 1976-80 1.9 Accounts of the Banking System, 1975-79 1.10 Origin, Destination, and Financing of Bank Credit, 1975-79 1.11 Balance of Payments, 1965-79 1.12 Exports by Major Commodity Groups, 1970-79 1.13 Exports of Light Manufactures to the United States, FOB, 1974-78 1.14 Imports CIF by SITC Categories, 1975-78 1.15 Foreign Exchange Reserves, 1975-79 1.16 Selected Price Indices, 1975-79 2.1 Industrial Value Added and Gross Domestic Product, 1955-79 2.2 Industrial Production Index, 1950-51/1977-78 2.3 Volume of Output of Manufactured Products, 1970-78 2.4 Manufactured Exports, 1970-77 2.5 Minimum Daily Wage by Industrial Branch, 1975-76 2.6 Value Added in Industrial Sector, 1975-76 2.7 Components of Industrial Value Added, 1975-76 2.8 Profitability by Industrial Subsector, 1975-76 2.9 Industrial Imports, 1970-76 2.10 Gross Value of Industrial Output, 1975-76 2.11 List of lmported Items in 1976-77 Which Could be Substituted by Local Production 2.12 Share of Imported Raw Materials in Total Raw Materials Used 2.13 Average Tariff Protection by Products 2.14 Main Problems of Industrial Firms Visited by the Mission 2.15 Number of Enterprises, Employment and Wages in Industry 2.16 Industrial Enterprises at Port-au-Prince 3.0.1 Effect of Approved Projects on the Balance of Payments 3.0.2 Debt Service Payments of the Sugar Mill, Edible Oil and Fishing Fleet Projects 3.0.3 Debt Service Payment with Government Guarantee of the Sugar Mill, Edible Oil and Fishing Fleet Projects 3.0.4 Debt Service Payment of Government Responsibility for the Sugar Mill, Edible Oil and Fishing Fleet Projects  Table of Contents (Continued) STATISTICAL APPENDIX (Continued) 3.1.1 Sugar Production, Exports, Imports, and Consumption, 1960-79 3.1.2 SUGAR MILL--Amortization and Interest Payment 3.1.3 SUGAR MILL--Net Benefit 3.2.1 SODEXOL - Production 3.2.2 SODEXOL - Project Costs and Financing 3.2.3 SODEXOL - Soybeans: Price and Value of Products, 1955-74 3.2.4 SODEXOL - Price Assumptions 3.2.5 SODEXOL - Cash-Flow Projections and Financial Evaluation 3.2.6 SODEXOL - Economic Evaluation 3.2.7 SODEXOL - Balance of Payments Impact 3.2.8 SODEXOL - Consolidated Repayment Schedule 3.2.9 SODEXOL - Repayments Schedule of Austrian Supplier Loan 3.2.10 SODEXOL - Repayment Schedule of Israeli Supplier Loan 3.2.11 SODEXOL - Repayment Schedule of Swiss Supplier Loan 3.2.12 SODEXOL - Repayment Schedule of Credit Suisse Loan 3.2.13 SODEXOL - Repayment Schedule of Other Banks 3.3.1 SPIDHA - Vessel Specifications 3.3.2 SPIDHA - Amortization and Interest Payments to Credito Banco Exterior (Spain) 3.3.3 SPIDHA - Amortization and Interest Payments to Credito Banco Exterior (Spain) 3.3.4 SPIDHA - Projected Fish Sales in 1980-81 3.3.5 SPIDHA - Operating Profit of the Fishing Fleet, 1980-81 3.3.6 SPIDHA- Operating Costs of the Fishing Fleet 3.3.7 SPIDHA - Annual Depreciation of Fishing Boats 3.3.8 SPIDHA - Sales, Operating Costs, and Depreciation for Individual Vessels  Table of Contents (Continued) STATISTICAL APPENDIX (Continued) 3.5.1 TEXTILE PROJECT - Production of Grey Cloth and Yarn Requirements 3.5.2 TEXTILE PROJECT - Cost of Fixed Assets 3.5.3 TEXTILE PROJECT - Annual Investment Expenditures 3.5.4 TEXTILE PROJECT - Sales of Textile Products 3.5.5 TEXTILE PROJECT - Employment and Wages in the Textile Project 3.5.6 TEXTILE PROJECT - Production of Cotton, 1960-61/1972-73 3.5.7 TEXTILE PROJECT - Cotton Cloth Production 3.5.8 TEXTILE PROJECT - Production Capacity of the Textile Industry 3.5.9 TEXTILE PROJECT - Imports and Exports of Textile Products 3.5.10 TEXTILE PROJECT - Projected Apparent Consumption of Textile Products 3.5.11 TEXTILE PROJECT - Spinning and Weaving Capacity Required to Meet Domestic Demand 3.5.12 TEXTILE PROJECT - Working Capital Requirements 3.5.13 TEXTILE PROJECT - Revised Estimates of Working Capital Requirements 3.5.14 TEXTILE PROJECT - Operating Costs 3.5.15 TEXTILE PROJECT - Revised Estimate of Operating Costs 3.5.16 TEXTILE PROJECT - Cost and Benefits Streams 3.5.17 TEXTILE PROJECT - Revised Estimate of Operating Costs 3.5.18 TEXTILE PROJECT - Cost and Benefits Streams (Case II) 3.5.19 TEXTILE PROJECT - Balance of Payments Impact  Table of Contents (Continued) List of Tables of Main Text Page No. 1 Gross Domestic Production and Growth by Sector, 1970-79 ............................................. 1 2 Gross Domestic Product and Expenditures Growth by Sector, 1970-79............... 2 3 Investment and Saving, 1975-79 ............. 3 4 Coffee, Exports and Prices, 1975-79 ........ 5 5 Consolidated Public Sector, 1976-79 8 6 Selected Public Sector Revenues, 1976-79 ........... 11 7 Public Sector Expenditures, 1976-79 ............... 12 8 Monetary Liabilities to the Private Sector, 1976-79 ................. **... 13 9 Annual Changes in Monetary Accounts, 1976-79 15 10 Selected Price Indicators, 1975-79 16 11 Summary Balance of Payments, 1975-79 18 12 Volume Indexes for Main Exports, 1975-79 .... 19 13 Market for Industrial Goods, 1976 .....25 14 Industrial Imports, 1977 .... 26 15 Main Characteristics of Projects 41 16 Net Effect of Approved Projects on the Balance of Payments, 1980-84 ..... . ... ................ ..*. 42 17 Sugar Production, 1974-79 45 18 Expected Production and Consumption 50 19 Sugar Mill - Internal Rate of Return. 54 20 Transfers in the Market of Edible Oil .. 61 21 Alternative Raw Materials.. 64 22 Cement Sales Suon, .70 23 Profit/Loss Situation, 1975-80 ...........71  HAITI . COURNTR DATA AREA POPULATION DENSITY 27,800 sq k 4.2 million (edd.1977) 173 per sq km Rate of Growth: 1.72 (from 1974 to 1977) 345 per sq km of agriculturol 14nd POPULATION CHARACTERISTICS (1977) HEALTH (1976) Crude Birth Rate (Par 1,000) 43.0 Population per Physici n 5,936 Crude Death Rate (Per 1,000) 17.0 Population per Hospital Bed 1,219 INCOME DISTRIMUTIONI DISTRIBUTION OF LAND OWNERSHIIP 7 of National Income . highest quintile n.e. % owned by top 57 of owners 50. lowest quintile n.&. 7 owned by smallest 10% of owners 3% ACCESS TO SAFE WATER (1976) ACCESS TO ELECTRICITY (1973-76) 7. of population total 14.0 % of dwellings total 2.9 urbmn 38.0 rural 7.0 EDUCATION t1976) NUTRITION (1979) Adult Literacy Rats (%) 23.0 Primary School Enrollment (%) 71.0 Per capLtal Supply of Calorie# as % requiremanta 93.0 Psr-capita'protein intake (Srass per day) 51.0 GROSS NATIONAL PRODtlCT IN 1979 iANNUAL RATE OF GROWTH (7. constant prices) US$ Million 7% 1965-70 1970-75 1975-79 GNP at market prices 1,259.8 100.0 -0.1 3.7 4.1 Gross Domestic Investment 180.8 14.4 11.6 13.8 2.5 Gross National Savings 2/ 32.5 2.6 42.3 15.9 .41.7 Current Account Science -63.3 5.0 - Export of Goods, HFS 190.0 15.1 4.4 -3.7 2.2 Import of Goods, NrS 324.0 25.7 4.4 0.9 9.6 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1979 Value Added Labor Force V.A. per Worker US$ Million 7. US$ Million 7. US$ Million Agriculture 507.1 39.8 . Industry 3/ 282.9 22.2 .. Services 484.2 38.0 .. Total/AY-rsg 1,741 .. n.. 100.0 GOVERNMEST FINANCE General Gov*rnmrnt 4' Central Government (G Mlltion) 7. oif DP (C Million) 7 of GOP 1979 1975 T7 1979 - 1975 --S Current Receipts 877.1 13.8 13.1 588.0 9.2 9.3 Current Expenditures 803.8 12.6 11.7 567.7 8.9 8.2 Current Surplus/Deficit 73.3 1.2 1.4 20.3 0.3 1.1 Capital Expendit.ures 574.6 9a0 7.5 436.4 6.9 5.5 External Assistance (net) 5/ 426.5 6.7 5.2 388.5 6.1 4.5 MONEY. CREDIT AND PRICES 1970 1975 1976 1977 1978 1979 (Million C Outstanding dn Period) Money and Quasi Money 198.2 583.4 779.9 930.6 1.159.7 1,353.5 Renk Credit to Public Sector 189.2 318.0 346.3 288.9 332.0 393.2 Bank Credit to Private Sector 65.3 451.3 519.7 657.9 791.5 921.8 (Percentages or Index Numbers) Money and Quasi Money as % of GDP 10.0 14.7 15.9 16.8 19.9 21.2 Oonsumer Price Index (1965 . 100) 114.6 199.9 218.7 234.9 228.8 250.3 Annual Percentage Changes in: Conmumer Price Index 3.3 1I.0 9.4 7.4 -2.6 9.4 Rank Credit to Public Sector -2.1 10.4 8.9 16.6 14.9 18.4 Bank Credit to Private Sector 9.9 45.3 15.2 26.6 20.3 16.5 Note: All conversions to dollars in this table are at the average exchange rate prevailing during the period covsred. 1/ Data refers to nY ending September 30. 2I Dots not include current transfer.. 31 Mining, manufacturing, public utilities and construction. 3/ Consolid-ted accounts of Central Government rnd Public Enterprises. *