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Wednesday, March 23, 2011

How to make the most of $40 million: The Clinton-Bush fund should re-direct its energies towards attracting FDI in Haiti

LaSean Brown, MPA

Thousands of NGOs and other notable entities in the international community are still trying to figure out how to effectively deliver aid and promote economic development in Haiti, now 14 months after the catastrophic earthquake that struck in January 2010. Given that Haiti is one of the Western Hemisphere’s poorest and most fragile states, it stands to reason that help from the international community is not only necessary, but has the potential to be highly effective given the resources available to international donors. Unfortunately, outside of providing immediate humanitarian assistance, aid agencies have done precious little over the last 14 months to address the systemic economic challenges in Haiti that prevent a business-friendly environment to take root.

Enter the Clinton Bush Haiti Fund (CBHF), an organization that raised a meager $40 million, but earned the immediate international attention and respect given its presidential namesakes. The Fund’s literature asserts that it wants to make tangible long-term differences in Haiti, but how can this be done effectively given the limited funds available to the organization? To date, CBHF has provided small grants of no more than $500,000 to projects with specific service delivery goals. Some of the grants do indeed promote some business activity, but the impact of these programs will be moderate at best.

The CBHF is thus wasting a prime opportunity to use the support of two American presidents to do something for Haiti that isn’t already being done by the plethora of NGOs on the ground; namely, encouraging foreign direct investment (FDI). What is missing in Haiti is not aid, but FDI. Clearly, “aid” is not working.

Case studies suggest that FDI leads to better economic performance in developing countries. Rwanda is an excellent example of the power of foreign direct investment as an instrument of stable economic development. President Kagame has been adamant about encouraging FDI while simultaneously refusing most forms of aid that is typically provided to developing countries by the international community. This combination has led Rwanda to experience many years of high economic growth.

CBHF can also take note of the way Kagame courts investors. The president commissioned a team of international “experts” to fly around the world and meet with potential investors to pitch them on the idea that Rwanda is no longer a high-risk investment market and that returns-to-investment in developing contexts are generally very high. (This has even been demonstrated in Haiti, as Digicel, a large telecommunications firm, operates in Port-au-Prince with a significant profit margin. This suggests that despite its infrastructural issues, Haiti is capable of successfully hosting multi-national corporations.)

Therefore, CBHF should spend its remaining funds devising and implementing a strategy to court FDI on behalf of Haiti. President Clinton has already demonstrated his fund-raising prowess through his foundation’s annual Clinton Global Initiative summits. Successfully attracting foreign direct investment could not only provide Haiti with a much more sustainable economic development strategy, but could encourage even more investment in the country, producing a cycle of ever-growing influxes of investment capital.

The question remains whether such a strategy will be successful in Haiti. Sure, CBHF could play it safe and continue to fund small projects that will have a moderate effect at best. Or, it could choose to gamble, re-purpose itself and commit its resources to encourage FDI, knowing that such a strategy could prove a monumental triumph (or colossal failure).

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