HAITI'S TEXTILES: COMPETITIVE PROSPECTS FOR A

UNCLAS PORT AU PRINCE 001858

SIPDIS

SIPDIS

STATE FOR WHA/CAR
EB/TPP/ABT FOR THOMAS LERSTEN
S/CRS
STATE PASS TO USAID FOR LAC/CAR
INR/IAA (BEN-YEHUDA)
COMMERCE/ITA/OTEXA FOR MARIA D'ANDREA
USTR FOR ABIOLA HEYLIGER
WHA/EX PLEASE PASS USOAS

E.O. 12958: N/A
TAGS: ECON ETRD KTEX
SUBJECT: HAITI'S TEXTILES: COMPETITIVE PROSPECTS FOR A
STRUGGLING SECTOR

REF: SECSTATE 138090


1. Summary: Haiti's textile sector has made a remarkable
recovery following the steep decline after the political
upheaval in February 2004. However, production figures
through the first half of 2006 show a slight decrease in
production. Industry association representatives told
econoff that this is a result of persistent insecurity, which
affects the factories and their employees directly and also
reduces the likelihood of foreign investment. Also, banks
charge a 30 percent interest rate for loans, which hampers
efforts to re-build and re-habilitate factories, many of
which are operating under-capacity. Despite local
challenges, Haiti offers low wages and a close proximity to
the U.S., both of which make Haiti competitive in the face of
increased international textile production. End Summary

Textiles are 85 Percent of Haiti's Exports
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2. In response to reftel, post provides the following
figures, based on information from the industrial
association, the Haitian chamber of commerce and industry,
the finance ministry, the United Nations Development Program
and the central bank (figures are stated in U.S. millions of
dollars; post estimated 2006 figures based on available data
through June 2006):

-- Total industrial production: n/a
-- Total textile and apparel production: 441.6 (2005),419.4
(2006, est.)
-- Textile/apparel share of host country imports: 10.5
percent (2005),n/a (2006)
-- Textile/apparel share of host country exports: 86.0
percent (2005),n/a (2006)
-- Export in textiles and apparel to the U.S.: 371.5 (2005),
366.3 (2006, est.)
-- Total manufacturing employment: 80,000 (2005),75,000
(2006)


3. The Haitian textile sector made a notable recovery since
2004, with 2005 exports up by 15 percent to USD 371.5 million
as compared to USD 316 million in 2004. In the first six
months of 2006, textile exports are valued at USD 183 million
and are expected to fall just short (by 1.5 percent) of 2005
export figures by the end of the year, due to four factory
closings over the past year. Despite improvements in the
overall security climate, many of the factories are located
in industrial parks surrounded by slums, including Cite
Soleil, which were originally built to house factory
employees.

Haiti Offers Low Wages and Close Proximity
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4. Textile factory owners and industry association
representatives provided the following responses to questions
outlined in reftel:

-- Haiti received almost the same number of contracts in 2006
as in 2005, although prices have dropped over the past decade
due to international competition. Foreign investors have not
pulled out of local production, where low wages and close
proximity to the U.S. help Haiti remain competitive with
Asia. However, some textile factory owners claim they will
close or move if the security situation does not improve.

-- U.S. and European Union restrictions on certain exports of
textile and apparel from China have not affected Haitian
textile export prospects. The GOH is not considering
implementation of any measures to reduce the growth of
Chinese imports in the textile sector. (Note: On the
contrary, Haitian textile factory owners await U.S. Haitian
Hemispheric Opportunity Partnership through Encouragement Act
(HOPE) legislation which would allow preferential treatment
of Haitian exports made of third-country (primarily Asian)
fabrics. Currently, they rely heavily on textiles from the
U.S. and the Dominican Republic, where prices are
comparatively very high. End note.)

-- With the exception of efforts to push HOPE legislation
through the U.S. Congress, the Haitian government has not
taken any steps to improve the country's competitiveness.
Infrastructure, namely poorly-maintained roads and lack of
electricity, a disabling security situation, and corrupt and
inefficient customs, procedures raise the cost/time of doing
business in Haiti significantly and lower its competitiveness
even in comparison to other countries in Latin America and
the Caribbean where wages are significantly higher. One
factory owner told econoff that electricity costs make up 23
percent of his total costs because he cannot rely on
generation from the state. (Note: There is one potential
improvement: the GOH recently inaugurated its "one-stop"
investment promotional office to facilitate the investment
process and to act as an intermediary between investors and
the Haitian government. End note.)

One area where the GOH could intervene is the banking sector.
Many of the textile factories have been forced to close or
downsize several times due to re-occurring political upheaval
over the past two decades. In order to reach capacity,
industry representatives claim they need access to cheaper
loans -- current interest rates on long-term loans are above
30 percent -- in order to rebuild.

-- Haiti currently benefits from three preferential trade
programs: the Caribbean Basin Initiative, the Caribbean Basin
Trade Partnership Act, and the Lome Convention Trade
Advantages. However, advocates in the industry sector claim
that the passage of HOPE legislation would be the greatest
benefit to Haiti's textile sector, because it would open up a
greater part of textile exports to preferential trade
agreements. The industry association also said that any sign
from the USG to encourage investment in Haiti would be
welcome.

-- Increased global competition has not affected the local
labor conditions. Haiti has the lowest wages in the western
hemisphere: minimum wage is 70 Haitian gourdes (about USD
1.75 per day) but most textile workers make between 100 and
175 Haitian gourdes (USD 2.50 - 4.00) per day based on
production.

Haiti's Textile Sector: A History
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5. Before the 1991 embargo, the textile sector employed more
than 150,000 workers in 118 factories. After the embargo
ended in 1994, the sector grew again until 1999, when it
employed around 80,000 workers. Since 2000, Haiti has not
only suffered from increased global competition, but also the
sector has faced the deterioration of the security climate.
Without government incentives, the number of companies has
decreased from 46 in 2000 to 17 in 2006, which includes the
most recent closure of four companies.

Haiti Could be Competitive Again
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6. Given its low wages and the proximity to the U.S., Haiti
can be competitive despite heightened global competition.
According to some members of the Haitian industry
association, the perception of instability and the lack of
security in Haiti will not change; however, a large-scale
government response to boost the private sector and encourage
investments could overshadow the insecurity and instability.
Furthermore, the industry experts pointed out that the
passage of HOPE legislation would give confidence to U.S.
investors, thereby increasing the factories, access to
capital.
TIGHE