Nascent apparel industry throws Haiti a lifeline

Haiti rarely makes the headlines for its foreign investment potential. However, the country’s privileged terms of trade with the US, combined with the special status of its free-trade zones (FTZs), have become the elements of a niche investment case for a growing number of apparel companies and FTZ developers that are creating employment and shoring up the beleaguered domestic economy.  

“We have a special textile agreement with the US that allows Haitian products bound for the US to have a flexible local content rule. Imported raw material can then be processed in Haiti and enter the US facing very low tariffs. This specific trade advantage makes Haiti very competitive for textiles,” says Gregory Mevs, co-chair of the West Indies Group (Win Group), a local conglomerate that owns the Varreux port terminal and the adjacent industrial park and free zone in capital Port-au-Prince. 

Raising hope

In 2006, the US passed the United States Haitian Hemispheric Opportunity through Partnership Encouragement Act (known by the acronym 'Hope') to give Haiti enhanced trade preferences. Following the 2010 earthquake that devastated much of Haiti, these preferences were expanded under the Haiti Economic Lift Program Act (shortened to 'Help') and the programme was then extended until 2025.

The main privilege granted under this law that is not afforded by the Central America-Dominican Republic Free Trade Agreement (Cafta-DR) with the US has to do with local content rules. Plants located in Haiti can make up clothing out of fabric imported from China, rather than having to use cloth produced in the US or another Cafta-DR member country.

“Now only Haiti continues to have the privilege of using Asian fabric in wearing apparel made for export, thanks to a unilateral measure taken by the US as part of its aid policy for that country. This helped the country to develop this industry by helping to compensate for its disadvantages in terms of infrastructure, local capacity and the business environment,” the UN Economic Commission for Latin America and the Caribbean said in 2018.

Lured by the preferential access to the US market of made-in-Haiti apparel, investors have established about 20 textile factories across the country, including 13 set up by Asian investors, local media outlet HaitiLibre.com reported in December 2018. South Korean investors have led the way, with a total of 10 production facilities. Korean S&H Global, which was established in the country in 2012, has now become its largest employer with more than 13,000 workers and it supplies clients such as Walmart in the US. Taiwanese investors own three garment facilities in the country.

“The clothing sector continues to expand on the back of investments made by Asian companies,” added the UN Economic Commission.

Competing with Asia

Overall, exports to the US of apparel processed in Haiti using imported raw material doubled to $872.9m in 2018, from $486.6m in 2009, making up 99.3% of the total of such exports coming out of the country, according to figures from the Haiti central bank. Apparel exports manufactured in Haiti using local raw materials amounted to $5.3m in 2018, from $2.9m in 2009. The sector employs about 55,000 people in the country, according to figures from the Association of Industries of Haiti (ADIH).

FTZs run by both local and foreign developers have thus increased their offer for apparel producers interested in setting up business in Haiti. “Manufacturing is an area that is becoming sexy again,”  says Win Group's Mr Mevs. “We are no longer competing with cheap production in China. Also, south-east Asia is becoming more and more expensive; we are seeing a shift of production to this part of the world. There will be more and more manufacturing in Central America and the Caribbean in the next few years as the level of income improves in Asia and proximity becomes important in the regionalisation of trading.”

The Win Group is developing an integrated offer, combining an FTZ and a new container terminal at its Varreux port to serve manufacturing activities, as well as trade, services and logistics operations. Other zone operators are also in expansion mode.

Fernando Capellàn, the Dominican republic-based entrepreneur behind the Industrial Development Company, which owns a free zone in Ouanaminthe in the north-east of Haiti, already employs about 11,000 people in the textile sectors and plans to double this number by 2020. The Palm Apparel Group, which was founded by a group of local businessmen, launched an FTZ in Digneron in 2018, creating some 8000 jobs with the expectation of creating another 15,000 as the zone reaches capacity. The ADIH expects the apparel sector to employ a total 60,000 people in Haiti and pass the threshold of $1bn in exports in 2019.

Political woes

However, these projects are having to contend with the country’s chronic governance troubles. “The Digneron free zone has lost the opportunity to sign two important contracts because of the current [political] situation and non-existent road infrastructure,” the ADIH wrote in its annual bulletin at the end of 2018, adding that the inefficiencies of several state agencies are also hindering other major investments by Asian companies.

A scandal originating in the alleged embezzlement of billions of dollars from the PetroCaribe programme – through which Venezuela used to supply Caribbean countries with oil at preferential rates – combined with a hike in oil prices following the closure of the PetroCaribe programme, triggered protests in Haiti that have grown in the past 18 months, eventually sinking the government of prime minister Jean Henry Céant in March 2019. At the time of writing, no new government had been appointed.

Economic growth in Haiti was 1.5% in 2018, way below some of the country's regional neighbours (the Dominican Republic posted a 7% growth for the year), while inflation stood at 13.5%. Haiti remains one of Central and South America's poorest countries, with ongoing political and social crises casting shadows over its future.

The development of free zones that host the growing apparel industry represents a glimmer of good news for Haiti – but there is still a lot to do to solve the country's economic puzzle.