The earthquake that hit Haiti> on Tuesday measured 7.3 on the Richter scale and has had an immediate and devastating effect on the 2.2 million people who live in the country s West Province. There s no doubt that the disaster will be met with a swift outpouring of support from around the globe, with aid coming from governments and individuals alike. But that good will won t dispel the quake s lasting economic impact.
The quake will be felt on some level for years. Local industries have been set back, and the pall on a country afflicted by natural disasters will remain overhead, discouraging risk-averse investors.
Before the disaster, Haiti s economy had seen positive growth since 2005, and the 2006 passage and 2008 extension of the Haitian Hemispheric Opportunity through Partnership Encouragement (HOPE) Act boosted the local apparel industry by allowing duty-free exports to the United States. Access to the U.S. market and Haiti s abundant supply of young workers created an opportunity for the country to achieve stable economic growth, according to a report prepared for the United Nations by Oxford economist Paul Collier in January 2009.
Tuesday's disaster is a severe setback in Haiti s climb toward stability, but economists say it won t be a fatal blow. Whatever growth trajectory they were on, it s more of a shift down in that path than it is a permanent decline in the rate of growth, says Sean Snaith, the director of the Institute for Economic Competitiveness at the University of Florida.
And the economic aftershocks likely won t spread much beyond Haiti s shores. As tragic as it is, it is a very small nation, and a very small economy, Snaith says. Haiti is the poorest country in the Western Hemisphere, with a GDP of only $11.53 billion in 2008, or $1,300 per person. Remittances from abroad make up a quarter of GDP and are worth more than twice as much as the country s total exports.
Haiti s tourism sector had appeared poised to take off. Two major hotel operators, Best Western and Choice Hotels (CHH),
Haiti is currently the 17th-largest supplier by volume of apparel products to the United States, with exports worth $424 million between January and October of 2009, up 22% from the same period a year ago, according to the American Apparel and Footwear Association. Interruption in this industry will have a clear, immediate impact on the local economy. The U.S. is Haiti s biggest trade partner, and more than 75% of the country s exports to the U.S. are apparel and textiles, says Richard Hastings, the consumer strategist for Global Hunter Securities, LLC, an investment banking firm. Given the extent of damage to basic infrastructure, manufacturing activities are likely to be severely curtailed in the short term, Hastings says.
The earthquake s aftershocks may also be felt in other parts of the global supply chain. Since the HOPE Act expanded possibilities for apparel manufacturing in Haiti, Nicaragua and other Central American countries have lost some business to Haiti, particularly in uniform manufacturing, says Mike Todaro, the managing director of the American Apparel Producers Network. In many cases, companies were just scaling up operations in the country, so this timing is unbelievable, Todaro says.