On January 12, 2010, Haiti was hit by a massive earthquake. The toll was huge: hundreds of thousands died, more than a million were left homeless, billions in infrastructure were lost, the government’s capacity to respond was buried with the rubble. Three months later, the international community has pledged $5.3 billion for the next 18 months. This will amount to almost three quarters of Haiti's annual Gross NationaI Income ($7 billion). The pledged aid per person (approximately $570) is over four times what Haitians send home in remittances and almost seven times what the largest recipient of foreign direct investment in the world receives for each Chinese citizen.
Despite being not all that Haiti needs, an amount of this magnitude runs the risk of turning into an aid tsunami. The aid effort is clearly a great challenge and a unique opportunity. For this effort to be effective in getting Haiti upright, all actors agree that there is a pressing need for transparency and accountability and for deeper Haitian involvement, both locally and from the diaspora. The great majority of these pledges will contribute to build the public infrastructure needed for the economy to function and bolster the government capacity to deliver basic public services. It should get Haiti back on its feet.
Once on its feet, how can Haiti get moving and out of the water and away from the tsunami? How can the private sector help turn the aid tsunami into a platform that bolsters Haiti’s long term social landscape?
In any country, and Haiti is no exception, the private sector is the engine of growth. Much of the near future effort will then be in jumpstarting private investment in order to generate employment and growth. But this is not enough.
The immense needs in - for instance - water, health, education, housing, affordable basic goods, or financial services require solutions that are financially sustainable in the long run. The private sector, both international and domestic, can seize the opportunity to leapfrog into market based solutions that address these needs, are profitable and engage the entrepreneurial spirit of the local business community.
Today, funding these projects with standard international financial terms is close to impossible and unfair to the Haitian population. Very few lenders will take the plunge and bare or hedge the various risks – client, country, foreign exchange, macroeconomic etc. -- and for those that do, spreads could be prohibitive. And with the aid tsunami approaching, the opportunity cost of market based pricing could be infinite. But Haiti desperately needs market based solutions that outlast international generosity and address the poverty penalty Haitians currently pay for basic needs.
The solution is to leverage a small portion of the international aid package with private donations – primarily from the diaspora - and earmark it to finance these entrepreneurial solutions. All of the projects to be financed should be market based, financially sound, environmentally sustainable, and innovative. Projects can range from inclusive businesses that engage small producers in their supply logistics, to local water systems that are commercially based, to small enterprises that introduce a better and cheaper product for the poor or a large company that innovates in its business models and processes to reach the poor with a better and cheaper product. The common element is that they address a clear poverty challenge. Although a grant, it would employ the same systems and due diligence rigor and monitoring as if it were a market based transaction.
Potential clients could be a small social entrepreneur that developed an innovative lighting solution, a local NGO that wants to provide a new health service or a large multinational that produces cement and sees the opportunity in serving the base of the pyramid by providing cement floors but does not have the logistics and systems to be successful. Each client would take a grant from the Fund and treat it as notional debt, with the financial and managerial discipline that real debt management requires. Repayments would then re-invested in new projects. This fund should have professional management and international accounting standards. It should be able to provide both debt and equity, or issue partial credit guarantees.
A solution such as this is innovative for Haiti, but it is an internationally successful business model. There are many similar vehicles that address poverty challenges with private solutions. Think of this as the “Acumen Fund for Haiti”.
