By: Sylvia Dohnert, Executive Director – Compete Caribbean
Port Au Prince, Haiti, March 7-10, 2016 – Haiti is the poorest country in the continent, and an unresolved development puzzle. Existing data illustrates the dimension of the challenge: Despite the fact that the country has grown at an average rate of 3.8% since the devastating earthquake in 2010, poverty continues to afflict over half of the population. In rural areas, where half of the population lives, only 10% of households have access to energy, 29% to water, 60% to health services and 73% to education. Few roads are paved. Cellphone penetration is high, but internet practically non-existent – the Haitian rural population is de facto excluded from the productivity gains of the digital revolution.
Part of the challenge stems from the difficulty of effectively providing even the most basic services through models that are scalable and replicable throughout Haiti’s mountainous geography. In view of long-standing fiscal and governance issues, it is not expected that the public sector alone will be able to improve basic service coverage in the near future.
In such a complicated context, innovative products and business plans that can provide low-cost basic services and can quickly expand coverage, are the key to improving the quality of life and increase the productivity of the people, especially of the most vulnerable. In Haiti, it is believed that the private sector can play a role in delivering such innovative solutions. Three projects supported by Compete Caribbean –a Program funded by the IDB, Canada and the UK to stimulate innovation and private sector development—provide an illustration of the possibilities and challenges that the private sector confronts when providing innovative solutions to basic services in Haiti. The projects: dLO Haiti, Re-Volt solutions and D&E Enterprises respectively aim to provide potable water, rural electricity, and energetically efficient cookstoves to vulnerable groups. dLO Haiti is providing clean drinking water to 46,000 households in rural areas through 10 kiosks and a distribution network of 500 entrepreneurs; Re-Volt is providing rural lighting to 2100 families in La Gounave and Leogane and will expand to 2500 more, and D&E manufactures cookstoves that halve the charcoal used and last four times longer than traditional cookstoves.
Although innovative in delivering new or improved products through new business models, these projects face common challenges in extending coverage to bridge the service gap. What lessons can we learn from these three projects about the private provision of basic services to vulnerable groups?
- Up-front costs affect the capacity to attract new clients: Re-Volt and D&E both provide more durable and therefore lower cost energy solutions over the medium term than other market alternatives. However, in both cases, a higher upfront cost to existing alternatives has made it challenging to gain new customers. Re-Volt has solved this by leveraging the Digicel mobile money platform Mon Cash to provide consumers credit for 24 months in a “lease to own” option of its equipment. D&E does not have a recurrent payment system that can facilitate credit; it is therefore trying to penetrate segments of salaried workers, where payment can be secured from their payrolls.
- Credit seems difficult to extend to vulnerable groups in Haiti: While higher upfront costs could be softened through credit/ partial payment systems – e.g. through the Mon Cash mobile money platform – these systems have gained less traction in Haiti than expected adderall. dLO Haiti, who has added credit to the services provided to the 500 rural entrepreneurs already serviced by the water kiosks, explains that in Haiti, even entrepreneurs are resistant to credit. Apparently, a history of persistent vulnerability where tomorrow is uncertain has excessively shortened horizons. Moreover, a firm extending credit has to be able to collect upon default, yet this logistic can be difficult and expensive to build in Haiti.
- A low margin/high volume conundrum requires subsidized financing: Margins in the provision of low-cost services to vulnerable consumers are very small in Haiti. Narrow margins put entrepreneurs in a chicken and egg situation where they require volume to even break-even, yet the logistics to achieve volume are costly to build and require margins to fund them. Margins in the business of providing services to the vulnerable are also typically lower than the 18% interest provided by commercial banks in Haiti. In this context, donor and/or government funding as well as equity investments are very important to achieve a break-even scale.
- Possibilities for scale-up? Sustainable scale-up of privately provided, low-priced services in Haiti will depend on firms’ ability to grow their margins such that they can finance the logistics to acquire more consumers. In these three examples, firms are attempting to achieve this by adding services or products to the distribution channels they have created. dLO Haiti has introduced credit and Unilever products to their distribution channels. Re-Volt is developing a mid-size energy solution that can power a TV and wifi, and that would be upsold to their existing clients. D&E is working on an “institutional” cookstove model for the schools, factories and hospitals where they are already selling their individual stoves.
The jury is still out, but if these three firms’ innovative solutions can surmount the low margin/high volume conundrum, they will provide valuable lessons about viable models to bridge the service gap in Haiti that others can follow.
Sylvia Dohnert is a Private Sector Lead Specialist at the Competitiveness, Technology and Innovation Division of the Inter-American Development Bank, and Compete Caribbean Executive Director. Sylvia has a Ph.D. in Economic Development and Regional Planning from MIT, and ample experience on economic development issues throughout Latin America and the Caribbean.