HAITI
Rank: 135 Regional Rank: 27 of 29
aiti’s economy is 52.2 percent free, according to our 2007 assessment, which makes it the world’s 135th freest economy. Its overall score is 2.4 percentage points higher than last year, partially reflecting new methodological detail. Haiti is ranked 27th out of 29 countries in the Americas, and its overall score is lower than the regional average.
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The economy is 52.2% free
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Haiti has high levels of freedom from government, labor freedom, and trade freedom. The top income and corporate tax rates are somewhat high, but overall tax revenue is low as a percentage of GDP. Government expenditures are also low. Overall labor flexibility is impressively high. Major weaknesses are found in business freedom, investment freedom, property rights, and freedom from corruption. Starting a business takes four times longer than the world average, and regulation is intrusive. There are significant restrictions on foreign capital, and investment decisions are often subject to the arbitrary will of the bureaucracy. Rule of law is weak as a result of prolonged political instability. Haiti’s judicial system is affected by the crippling corruption in most areas of the public sector. BACKGROUND: Haiti is the Western Hemisphere’s poorest country. Government policies sustain a dominant tradition of subsistence farming that contributes to the depletion of forests and vegetation. Since gaining its independence from France, Haiti has been ruled by a series of despotic governments, although a model democratic constitution was adopted in 1987. President Jean-Bertrand Aristide resigned in February 2004 when his regime collapsed, and presidential and parliamentary elections were conducted (with outside help) in 2006. Current President René Préval has named a diverse cabinet.
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Americas Average = 62.3 World Average = 60.6
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1995
2007
QUICK FACTS
Population: 8.4 million GDP (PPP): $14.15 billion (2005 estimate) –3.8% growth in 2004 –0.8% 5-yr. comp. ann. growth $1,700 per capita (2005 estimate) Unemployment: n/a Inflation (CPI): 22.8% FDI (net inflow): $6.5 million (gross) Official Development Assistance: Multilateral: $93 million Bilateral: $210 million (44% from the U.S.) External Debt: $1.2 billion Exports: $469.2 million Primarily manufactures, coffee, oils, cocoa, mangoes
How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.
Imports: $1.4 billion Primarily food, manufactured goods, machinery and transport equipment, fuels, raw materials
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HAITI’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 37.6 74.2 85.3 95.2 62 30 40 10 18 70.2
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more than 40 percent, and prices of petroleum products are strictly controlled. Consequently, an additional 10 percent is deducted from Haiti’s monetary freedom score to adjust for measures that distort domestic prices.
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INVESTMENT FREEDOM — 30%
Special government authorization is required for some foreign investments, particularly in electricity, water, public health, and telecommunications. There are restrictions on foreign ownership of land. Unofficial barriers to investment include judicial inadequacies, lack of transparency, corruption, bureaucratic inefficiency, and political instability. Residents may hold foreign exchange accounts only for specified purposes, and non-residents may hold them without restriction. There are no restrictions on payments, transfers, or capital transactions.
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100 = most free,
= world average
BUSINESS FREEDOM — 37.6%
Starting a business takes an average of 203 days, compared to the world average of 48 days, stifling entrepreneurship and job creation. Obtaining a business license is difficult, and closing a business is very difficult. The application of commercial laws is characterized by inconsistency and lack of transparency. The overall freedom to start, operate, and close a business is seriously restricted by the national regulatory environment.
FINANCIAL FREEDOM — 40%
Haiti’s financial sector is very small and prone to crisis. Supervision and regulation of the financial system is poor, and domestic standards do not comply with internationally recognized accounting standards. The banking sector, consisting of 11 banks overall, remains undeveloped. There are two state-owned banks, which accounted for about 10 percent of banking assets in 2004. Two foreign-owned banks accounted for a similar level of bank assets. The sector also includes a development finance institution and two mortgage banks. Credit is available on market terms, foreigners have access to domestic credit, and banks may offer a full range of banking services. There is no stock market.
TRADE FREEDOM — 74.2%
Haiti’s simple average tariff rate was 2.9 percent in 2003. Non-tariff barriers include the high cost of shipping goods through inefficient state-owned international seaports, customs corruption, import controls, import quotas on some food products, and import licensing requirements for agricultural products, chemicals, and pharmaceuticals. Consequently, an additional 20 percent is deducted from Haiti’s trade freedom score to account for these non-tariff barriers.
PROPERTY RIGHTS — 10%
The protection and guarantees that Haitian law extends to investors are severely compromised by weak enforcement mechanisms, a lack of updated laws to handle modern commercial practices, and a dysfunctional, resource-poor legal system. Business litigants are often frustrated with the legal process, and most commercial disputes are settled out of court. Widespread corruption has allowed disputing parties to purchase favorable outcomes.
FISCAL FREEDOM — 85.3%
Haiti has a moderate income tax rate and a high corporate tax rate. The top income tax rate is 30 percent, and the top corporate tax rate is 35 percent. Other taxes include a value-added tax (VAT) and a capital gains tax. In the most recent year, overall tax revenue as a percentage of GDP was 8.9 percent.
FREEDOM FROM CORRUPTION — 18% FREEDOM FROM GOVERNMENT — 95.2%
Total government expenditures in Haiti, including consumption and transfer payments, are low. In the most recent year, government spending equaled 12.7 percent of GDP, and the government received 3.2 percent of its total revenues from state-owned enterprises and government ownership of property. Restructuring of the inefficient state enterprises to reduce their burden on government finances is an important objective, but the process has been slow. Corruption is perceived as widespread. Haiti ranks 155th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.
LABOR FREEDOM — 70.2%
The labor market operates under relatively flexible employment regulations that could be improved to enhance employment and productivity growth. The non-salary cost of employing a worker is moderate, but dismissing a redundant employee is relatively costly. There are restrictions on increasing or contracting the number of working hours.
MONETARY FREEDOM — 62%
Inflation in Haiti is high, averaging 19.6 percent between 2003 and 2005. Unstable prices explain most of the monetary freedom score. Prices are generally determined by the market, but the government imposes restrictions on the mark-up of some products. For example, retailers are prohibited from marking up pharmaceutical products by
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2007 Index of Economic Freedom