• TABLE OF CONTENTS
HIDE
 Front Cover
 Title Page
 Preface
 Table of Contents
 List of Tables
 Foreword
 Acknowledgement
 Introduction
 Survey methodology
 Descriptive profile
 Potential constraints facing Haitian...
 Summary
 Reference














Group Title: MSU rural development series working paper
Title: Small manufacturing and repair enterprises in Haiti
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00087127/00001
 Material Information
Title: Small manufacturing and repair enterprises in Haiti survey results
Series Title: MSU rural development series working paper
Physical Description: ix, 108 p. : ; 28 cm.
Language: English
Creator: Haggblade, Steve
Defay, Jacques ( joint author )
Pitman, Bob ( joint author )
Publisher: Michigan State University, Dept. of Agricultural Economics
Place of Publication: East Lansing
Publication Date: 1979
 Subjects
Subject: Small business -- Haiti   ( lcsh )
Economic conditions -- Haiti   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
Spatial Coverage: Haiti
 Notes
Bibliography: Includes bibliographical references (p. 107-108).
Statement of Responsibility: by Steve Haggblade, Jacques Defay, and Bob Pitman.
 Record Information
Bibliographic ID: UF00087127
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: oclc - 05734356

Table of Contents
    Front Cover
        Front Cover 1
        Front Cover 2
    Title Page
        Title Page
    Preface
        Preface
    Table of Contents
        Page i
        Page ii
        Page iii
    List of Tables
        Page iv
        Page v
    Foreword
        Page vi
        Page vii
    Acknowledgement
        Page viii
        Page ix
    Introduction
        Page 1
        Page 2
        Page 3
    Survey methodology
        Page 4
        Page 5
        Page 6
        Page 7
        Page 8
        Page 9
    Descriptive profile
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
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        Page 19
        Page 20
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        Page 37
        Page 38
        Page 39
        Page 40
        Page 41
        Page 42
        Page 43
    Potential constraints facing Haitian small enterprises
        Page 44
        Page 45
        Page 46
        Page 47
        Page 48
        Page 49
        Page 50
        Page 51
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        Page 100
        Page 100a
    Summary
        Page 101
        Page 102
        Page 103
        Page 104
        Page 105
        Page 106
    Reference
        Page 107
        Page 108
Full Text





MSU RURAL DEVELOPMENT SERIES







WORKING PAPER


Department of Agricultural Economics
Michigan State University
East Lansing, Michigan 48824


SMALL MANUFACTURING AND REPAIR ENTERPRISES
IN HAITI: SURVEY RESULTS
By
Steve Haggblade, Jacques Defay, and Bob Pitman

Working Paper No. 4
1979



























SMALL MANUFACTURING AND REPAIR ENTERPRISES
IN HAITI: SURVEY RESULTS

By

Steve Haggblade, Jacques Defay, and Bob Pitman


Working Paper No. 4

1979














SMALL MANUFACTURING AND REPAIR ENTERPRISES
IN HAITI: SURVEY RESULTS*










By

Steve Haggblade**
Jacques Defay***
and
Bob Pitman***


*This paper has been published as part of Michigan State University's
Off-Farm Employment Project, which is financed by the Office of Rural
Development and Development Administration, Development Support Bureau,
U.S. Agency for International Development (AID/ta-CA-2). Funding for
the survey and analyses were provided by this project as well as
contract # AID-521-C-48 with the Pragma Corporation.

**Michigan State University

***Pragma Corporation


1979











MSU RURAL DEVELOPMENT WORKING PAPERS

Carl K. Eicher and Carl Liedholm, Co-editors


The MSU Rural Development Working Papers series is designed to

report the preliminary results of comparative studies of rural development

in Africa, Latin America, Asia, and the Near East. The papers will report

research findings on community development and rural development in histor-

ical perspective as well as studies of contemporary rural development

programs. The series will include papers on a wide range of topics such

as alternative rural development strategies; off-farm employment and small-

scale industry; alternative farming systems; marketing problems of small

farmers; agricultural extension; inter-relationships between technology,

employment, and income distribution; and evaluation of rural development

projects.

The papers are aimed at teachers, researchers, policy-makers, donor

agencies, and rural development practitioners. Libraries, individuals, and

institutions may obtain single copies of the MSU papers free of charge and

may request their names be placed on a mailing list for periodic

notifications of published papers by writing to

MSU Rural Development Working Papers
Department of Agricultural Economics
206 International Center
Michigan State University
East Lansing, Michigan 48824
U.S.A.











Table of Contents


List of Tables . . . . .

Forward . . . . . .

Acknowledgments . . . .


I. Introduction . . . .


II. Survey Methodology .. ...

2.1. General Strategy . .

2.2. Sample Selection . .
2.2.1. Localities .
2.2.2. Enterprises

2.3. Fieldwork . . .


III. Descriptive Profile . .

3.1. Magnitude of the Small

3.2. Composition . . .

3.3. Seasonality . . .

3.4. Labor Profile . .

3.5. Capital Composition .


Page

. . . . . . . . iv

. . . . . . . . vi

. . . . . viii


. . . . . . . . . 1


. . . . . . . . . 4

. . . . . . . . . 4

. . . . . . . . . 6
. . . . . . . . . 6
. . . . . . . . . 8

. . . . . . . . . 8


Enterprise Sector


3.6. Growth Trends in Small Enterprises


Aggregate SSE Growth
Machine Repair . .
Cement Block Making
Car Repair . . .
Wood Sculpture . .
Tailoring . . .
Metal Working . .
Carpentry . . .


3.6.1.
3.6.2.
3.6.3.
3.6.4.
3.6.5.
3.6.6.
3.6.7.
3.6.8.


......









Page


3.6.9. Shoe Repair . . . . . . . .
3.6.10. Leather Work . . . . . . . .


IV. Potential Constraints Facing Haitian Small Enterprises .

4.1. Demand as a Potential Constraint . . . . .
4.1.1. Consumer Demand in Haiti . . . . .
4.1.1.1. Local Consumer Demand . . .
4.1.1.2. Consumer Demand in Other
Localities . . . . .
4.1.2. Subcontracting . . . . . . .
4.1.3. Export Demand . . . . . . .
4.1.4. Conclusion . . . . . . . .


4.2.


Capital Constraints . . . . . . .
4.2.1. Demand for Capital . . . . . .
4.2.1.1. Initial Capital . . . .
4.2.1.2. Subsequent Investment . .
4.2.1.3. Current Capital Stock . .
4.2.1.4. Methods of Decreasing the
Demand for Capital . . .
4.2.2. Sources of Capital . . . . . .
4.2.2.1. Personal Savings . . . .
4.2.2.2. Family and Friends . . .
4.2.2.3. Moneylenders . . . . .
4.2.2.4. Formal Credit . . . .
4.2.2.5. Terms of Credit . . . .
4.2.3. Evaluation of Capital Constraints . .
4.2.3.1. Barriers to the Formal Credit
Market . . . . . .
4.2.3.2. Interest Rate and the Demand
for Credit . . . . .
4.2.3.3. Fixed Capital Constraints .
4.2.3.4. Working Capital Shortages .
4.2.4. Conclusion . . . . . . . .


4.3. Raw Materials . . . . . . . . .
4.3.1. Bottlenecks in the Supply of Raw Materials
4.3.2. Working Capital Shortages . . . .
4.3.3. Conclusion . . . . . . . .








Page


4.4. Managerial Personnel . . . . .
4.4.1. Formal Education . . . .
4.4.2. Record Keeping . . . .
4.4.3. Selling Goods on Credit . .
4.4.4. Banks . . . . .
4.4.5. Conclusion . . . . .

4.5. Skilled Labor . . . . . .
4.5.1. The Apprenticeship System .
4.5.2. Teaching by Family Members .
4.5.3. Vocational Schools . . .
4.5.4. Self-Teaching . . . .
4.5.5. Conclusion . . . . .


V. Summary . . . . . . . . .

5.1. Profile of the Small Enterprise Sector

5.2. Preliminary Identification of Constrai
5.2.1. Demand . . . . . .
5.2.2. Working Capital . . . .
5.2.3. Fixed Capital . . . .
5.2.4. Credit . . . . . .
5.2.5. Raw Materials . . . .
5.2.6. Management Skills . . .
5.2.7. Supply of Skilled Labor .

5.3. Recommendations . . . . . .


86
87
87
89
90
90

90
92
97
97
99
100


. . . . 101

. . . . 101

nts . . .. 102
. . . . 102
. . . . 102
. . . . 103
. . . . 104
. . . . 104
. . . . 104
. . . . 105

. . . . 105


VI. References . . . . . . . . ..


. . .. .107











List of Tables

Page

Table 1. Distribution of Localities Surveyed in Phase I . . 7

Table 2. Estimates of Employment and Number of Enterprises
in Localities Over 1,000 in Population . . . .. 11

Table 3. "Direct Employment" in Haitian SSE,
by Localitiy Size . . . . . . . ... 13

Table 4. Estimated Employment by Enterprise Type . . ... 14

Table 5. Distribution of Enterprises, by Locality Size .... .16

Table 6. Seasonality . . . . . . . .. . .17

Table 7. Percent of Small Business Entrepreneurs
with Outside Occupations . . . . . ... 20

Table 8. Lack of Seasonality . . . . . . . ... 21

Table 9. Labor Profile of Haitian Small Enterprises . . .. 22

Table 10. The Employment of Women in Haitian Small Enterprises 25

Table 11. Current Capital Structure . . . . . ... 27

Table 12. Buildings, Permanent Versus Temporary . . . ... 31

Table 13. Value of Equipment Per Worker . . . . .... 32

Table 14. Growth Indicators . . . . . . . .... 35

Table 15. Owner/Manager Perceptions of Principle
Problems Facing Haitian SSE . . . . ... 45

Table 16. Current Market Outlets for Haitian SSE Goods . . .47

Table 17. Subcontracting Done for Larger Businesses ...... 49

Table 18. The Importance of Subcontracting, by Industry .... .50

Table 19. Current Markets for Selected Small Industries .... .53

Table 20. Haitian Exports (In Gourdes) . . . . .... 54









Entrepreneurs' Perceptions of Capital Constraints


Table 21.

Table 22.

Table 23.

Table 24.

Table 25.

Table 26.

Table 27.


Table 28.


Table 29.


Table 30.


Table 31.


Table 32.


Table 33.


Table 34.

Table 35.

Table 36.


Table 37.


Initial Capital by Enterprise Type . . .

Gross Annual Investment in Machinery and Tools

Current Capital Investment Per Firm . . .

Sources and Uses of Capital . . . . .

Source of Loans Obtained in 1978, by Locality Si

Processing Time for Loans from Banks
and Caisse Populaire . . . . . .

Estimates of Potential Demand for Credit
in all Localities Over 1,000 in Population .

Proportion of Entrepreneurs Reporting
Raw Materials as a Problem, by Locality . .

Proportion of Entrepreneurs Reporting
Raw Material Supply as a Problem . . . .

Level of Schooling Completed by Owners
of Small Enterprises . . . . . . .

Proportion of Entrepreneurs with
Bank Accounts, by Locality . . . . .

Percent of Entrepreneurs Indicating
Lack of Skilled Labor as a Problem . . .

Source of Entrepreneurs' Training . . . .

Duration of Training . . . . . . .

Frequency of Different Compensation
Practices for Apprentices . . . . .


Compensation Practices for Tailoring Apprentices


. . 61

. . 63

. 67

ze . 69


. 72


. . 74


. . 82


. . 83


. 88


. . 91


. . 93

. . 94

. . 95


. . 96











Forward


This paper is one of a series of reports produced by Michigan State

University's Off-Farm Employment Project. The project, which is funded by

the Office of Rural Development and Development Administration, Development

Support Bureau, U.S. Agency for International Development, has the basic

purpose of enhancing the ability of AID missions and host country institu-

tions to identify and implement programs and policies that generate off-farm

employment and income opportunities benefiting the rural poor. One of the

major components of the project is the generation of new knowledge relating

to off-farm activities. In collaboration with host country institutions

and AID missions, detailed field surveys of small-scale enterprises are

currently being conducted in Bangladesh, Jamaica, Honduras, and Thailand;

the results of these studies will be published in this series. A second

component of the project involves the marshalling and dissemination of

existing knowledge of off-farm activities. A state-of-knowledge paper and

special studies relating to off-farm activities will also appear in this

series. Previously completed studies in this area currently available

through the Off-Farm Employment Project include:

1. Carl Liedholm, "Research on Employment in the Rural Nonfarm

Sector in Africa," African Rural Employment Paper No. 5, 1973.

2. Carl Liedholm and Enyinna Chuta, "The Economics of Rural and Urban

Small-Scale Industries in Sierra Leone," African Rural Employment Paper

No. 14, 1974.









3. Enyinna Chuta, "The Economics of the Gara (Tie-Dye) Cloth Industry

in Sierra Leone," February, African Rural Economy Working Paper No. 25,

1978.

4. Adewale Mabawonku, "An Economic Evaluation of Apprenticeship

Training in Western Nigerian Small-Scale Industry," African Rural Employment

Paper No. 17, 1979.

Copies of these papers as well as additional information on the Off-Farm

Employment Project can be obtained by writing

Carl Liedholm
Off-Farm Employment Project
Department of Agricultural Economics
Michigan State University
East Lansing, Michigan 48824













Acknowledgments


Numerous individuals and organizations cooperated in carrying out

the small enterprise survey in Haiti. The organizations which parti-

cipated in this effort are: USAID/Haiti, the Office of Rural

Development and Development Administration Development Support Bureau,

AID/Washington, the Pragma Corporation, and the Off-Farm Employment

Project of the Department of Agricultural Economics at Michigan State

University. Funding was provided by USAID/Haiti and by the Office of

Rural Development and Development Administration, Development Support

Bureau, AID/Washington. USAID/Haiti provided technical assistance

throughout the project and also provided transportation and logistic

support for the survey work. Pragma took primary responsibility for

the fieldwork and data coding. Michigan State University (MSU) took

leadership in the data analysis and in writing up the survey report.

The general methodological framework for the survey came from MSU, but

all three cooperating parties shared in designing the questionnaire for

specific use in Haiti.

A study of this sort requires cooperation in many quarters and a

number of specific individuals need to be thanked for their generous

assistance during various phases of this study. In preparations for

the survey work, Gary Smith, USAID/Guatemala offered many valuable

insights and suggestions. Enyinna Chuta offered valuable advice

throughout and guided the sample selection for the second phase of the


viii








survey. Bob Pitman and Jacques Defay of the Pragma Corporation handled

the fieldwork over difficult terrain and in the face of the Haitian

rainy season. Pere Roger Desir applied his considerable linguistic

skills in translating the Phase II questionnaire. Herb Kriesel,

Enyinna Chuta, Steve Jacobson, Peter Kilby, and Carl Liedholm were

very generous in offering their insights on various drafts of this

report. Jim Boomgard offered timely assistance with the analysis of

the survey data. Jim Pease and Micki Terwillegar provided timely typing

and technical assistance at various stages of the report preparation.

Finally, the Haitian Ministry of the Interior is to be thanked for the

cooperation they showed throughout the study.













I. INTRODUCTION


Small manufacturing and repair businesses are of widespread

importance in Haiti. Despite their importance, remarkably little was

previously known about these small firms. So little was known that a

recent ILO report on Haitian small enterprises felt obliged to begin

with a complaint about "the cruel lack of information" concerning small

enterprises (Stimbre, 1978, p. 3). The report goes on to insist that

such information would be invaluable to policy makers interested in

assisting the small enterprises. Given their great potential for employ-

ment creation and broadly-based income generation, a survey of small

enterprises in Haiti was undertaken to fill this important information

gap. The goals of the survey were twofold: (1) to determine the magni-

tude, composition, and basic characteristics of the small-scale

enterprises in Haiti, and (2) to make a preliminary identification of

major constraints facing these small firms.

For purposes of this study small enterprises are defined as those

with less than fifty workers. Among the different kinds of small firms

in Haiti, this survey concentrated specifically on small manufacturing

and repair enterprises. Retailers, traders, and services were not

enumerated, and it is important to bear this in mind while reading this

report.

Before proceeding with the results of the small enterprise survey,

it will be useful to give some general background information on Haiti









and, in particular, a brief outline of the overall industrial sector

within which the small enterprises operate. One of the most distinguish-

ing features of Haiti is its high population density. An estimated five

million people live on Haiti's third of the Caribbean island of Hispanola.

Haiti covers 27,750 km square kilometers of extremely mountainous terri-

tory. Total Gross Domestic Product (GDP) was approximately one billion

dollars in 1976, which makes GDP per capital approximately $220. Agricul-

ture accounts for 45 percent of GDP, and an estimated 75 percent of the

population works in agriculture. The principal crops grown are corn,

sorghum, sugar cane, and coffee.

The industrial sector accounts for 12 to 18 percent of Haiti's GDP.

Within the industrial sector, by far the most dynamic segment is the

assembly-goods industries, which have been established in the 1970s. These

assembly industries are export-oriented. They manufacture primarily

electronic components, baseballs, and undergarments all of which

utilize almost exclusively imported raw materials. These export-oriented

assembly industries account for 40 percent of the value added in Haitian

manufacturing and two-thirds of the formal sector industrial employment.

Agro-industries are the second major component of Haiti's industrial

sector. Older agro-industries, which process primarily local raw

materials, include the manufacturers of sugar, rum, essential oils,

twine, and leather products. More recent agro-industries, such as tex-

tiles, flour, cigarettes, and beer, utilize mainly imported inputs.

Heavy industry in Haiti is extremely small. It consists of one cement

plant and a small steel mill which produces mainly reinforcing rods used

in construction. It should be noted in conclusion that the vast majority

of Haiti's formal industry is concentrated in the Port-au-Prince area.









With this general background we turn to our report of the basic

characteristics of the small enterprise sector in Haiti. The paper is

divided into four major sections. In the first, the survey methodology,

geographic coverage, and data collection procedures are outlined. The

second section of the paper provides a broad overview of the small

enterprise sector, describing its extent, composition, and basic char-

acteristics. The third portion of the report examines in detail the

potential constraints faced by Haitian small enterprises. Specifically

discussed in this section are issues concerning the demand for small

enterprise output, capital constraints, raw materials, and management

and skilled labor problems. The final chapter of the report provides a

summary of the main findings. We turn now to our discussion of the

survey methodology as this will lay the groundwork for the subsequent

analysis of the survey results.












II. SURVEY METHODOLOGY


2.1. General Strategy

As with other small enterprise surveys in which Michigan State

University has participated, this survey was divided into two phases.

During Phase I, a census of small industries was conducted in all major

urban areas of Haiti as well as in many of the smaller rural localities.

The objective of the census was to provide a sampling frame from which a

representative sample of enterprises could be drawn for more intensive

study in Phase II. The principle difference between the Haiti survey

and other MSU studies lies in the Phase II portions. In Haiti, time

constraints necessitated a single-interview Phase II survey whereas,

in Sierra Leone, Jamaica, Bangladesh, (and soon Thailand and Honduras),

the Phase II surveys are multiple-visit, year-long data collection efforts.

In the Phase I census in Haiti enumerators traveled street by

street in each of 36 chosen localities listing all small enterprises

and their locations.2 Enumerators obtained basic descriptive information

on each enterprise information such as the number of employees, number

of machines, and a brief description of the workshop.



1The United Nations defines rural localities as those with less
than 20,000 inhabitants, and that convention is adopted in this paper.
For reasons which are explained on the following page, this survey
thoroughly covered only those localities of over 1,000 in population.
Therefore, when the term "small, rural localities" is used in this
paper, it refers to the localities between 1,000 and 2,000 in population.

2Addresses were listed where possible, but formal addresses often
did not exist. In those cases where formal addresses were not available,
a serial number was marked on the wall of the enterprise and its
location was carefully noted.








From the Phase I listing a sample of firms was drawn for study in

Phase II. At each Phase II enterprise a single one to two hour

questionnaire was administered to the owner or manager of the firm.

The information obtained in the Phase II survey was more detailed than

that obtained in Phase I. In particular, the Phase II questionnaire

covered the following topics: socioeconomic characteristics of the

owners, education and training of the owners and workers, initial capital

and its sources, a detailed inventory of current capital goods, season-

ality of the business, linkages with other sectors, perceptions of growth

patterns of the industries, detailed credit histories, management

practices, and entrepreneurs' perceptions of principal constraints faced

by the small businesses.1

The survey methodology outlined above was designed for operation

within the six month time horizon required by USAID/Haiti. The USAID

mission determined that information adequate for their project identi-

fication could be gathered within that period. The six month time

horizon did, however, necessitate two compromises of which the reader

should be aware:

1. The focus of the study was limited to the more densely settled

areas of Haiti. The sample of localities surveyed included only six from

among those with population under 1,000. Because of the time limitation,

these six were largely selected for purposes of convenience; often they

were located along main roads. In addition, these six areas account for

only .5 percent of the population living in communities of less than


1Copies of both the Phase I and Phase II questionnaires are
available upon request from the author.









1,000 inhabitants (table 1). Because of lack of representativeness it

is not feasible to extrapolate the data from these six localities to

the rest of the very small Haitian localities. In three cases we have

made extrapolations in this report, in tables 2, 4, and 28. These

extrapolations concern the number of small enterprises, magnitude of

employment, and demand for credit. It is important to realize that

these extrapolations are made only for areas of Haiti over 1,000 in

population.

2. Time required that this survey consist of a single Phase II

interview rather than a very intensive, multiple-visit investigation.

Because the Phase II was limited to a single interview, the prospects

for obtaining reliable information on flow variables such as annual out-

put, purchased inputs, and profits were exceedingly low. The difficulty

of obtaining reliable flow information from a single interview arises

since, in the absence of systematic, uniform records, one must rely on

the respondent's memory for obtaining the required information.

Generally, data relating to flow variables are subject to high measure-

ment and reporting errors since there exist large fluctuations in

seasonal activity levels and long periods of memory recall are involved.

For these reasons information on magnitude of annual output and on

profitability were not obtained from this survey.


2.2. Sample Selection

2.2.1. Localities. Thirty-six localities were enumerated in the

Phase I survey. These 36 localities were chosen in an effort to assure

geographic representation, the representation of different locality

sizes, and areas of special interest to the USAID mission. The localities









TABLE 1

DISTRIBUTION OF LOCALITIES SURVEYED IN PHASE I


Percent of
Localities Population-
Group
Locality Percent Covered In
Population of Phase I
Size Number Names Total Survey


Under 1,000 6 Recourt, Pont Sonde, -- 0.5
Estere, Les Poteaux,
La Chapelle, Ennery

1,000 2,000 7 Duvalier-Ville, Bainet, 16 21.0
Marigot, Caracol,
Plaisance, Anse Rouge,
Camp Perrin

2,000 5,000 9 Leogane, Mirebalais, 28 29.0
Lascahobas, Belladere,
Acul-du-Nord, Gros
Morne, Dessalines,
Aquin, Verette

5,000 20,000 9 Petit-Goave, Jacmel, 69 81.0
Trou-du-Nord, Limbe,
St. Marc, Hinche,
Petite-Riviere-de-
1'Artibonite, Jeremie,
Port-de-Paix

20,000 100,000 4 Cap-Haitien, Gonaives, 100 73.0
Les Cayes, Carrefour

Over 100,000 1 Port-au-Prince 100 80.0



SOURCE: Population figures are taken from the Institut Haitien de
Statistique, Resultats preliminaires du recensement general de la
population du logement et de l'agriculture, September 1971.









surveyed were: Port-au-Prince, Carrefour, Cayes, Gonaives, Cap-Haitien,

Port-de-Paix, Jeremie, Petite-Riviere-de-l'Artibonite, Hinche, St. Marc,

Limbe, Trou-du-Nord, Jacmel, Petit-Goave, Verette, Aquin, Dessalines,

Gros Morne, Acul-du-Nord, Belladere, Lascahobas, Mirebalais, Leogane,

Camp Perrin, Anse Rouge, Plaisance, Caracol, Marigot, Bainet, Duvalier

Ville, Ennery, La Chappelle, Les Poteaux, Estere, Pont Sonde, and Roucourt.

In the Phase II sample, 28 of these localities were represented.

The areas excluded from the Phase II survey were: La Chapelle, Ennery,

Duvalier Ville, Bainet, Marigot, Caracol, Dessalines, and Petit-Goave.

The size distribution of these localities is outlined in table 1.

2.2.2. Enterprises. The survey was limited to manufacturing and

repair industries with less than 50 employees. The Phase I census of

small firms yielded a sample frame consisting of 4,950 small enterprises.

That sample frame was stratified by enterprise type and size, and by

locality size. From the stratified sample frame 1,100 firms were randomly

selected for study in Phase II. In addition to the 1,100 random choices

for the Phase II sample, 200 firms were chosen in a purposeful manner in

order to ensure that the smaller industry classifications would be ade-

quately represented in the sample. Thus the firms ultimately chosen for

study in Phase II represented a cross-section of enterprise types,

enterprise sizes, and locality sizes.


2.3. Fieldwork

Including the basic survey organization, questionnaire protesting,

enumerator training and coding, the fieldwork for the entire survey

lasted from 1 October 1978 to 15 March 1979. The Phase I data was





9


gathered between 24 October and 17 November 1978. Phase II interviewing

took place between 18 January and 17 February 1979, and during that

period 1,256 questionnaires were satisfactorily completed. All

interviews were conducted in Creole.












III. DESCRIPTIVE PROFILE


3.1. Magnitude of the Small Enterprise Sector

Small-scale enterprises (SSE) are of widespread importance in

Haiti. The Phase I survey found SSE in large numbers all across the

country and at all locality size levels. In total, 4,950 enterprises

were surveyed during Phase I and these enterprises employed a total of

20,404 individuals. Since inadequate representation of localities

below 1,000 in population will not permit extrapolation to other similar-

size areas in Haiti, extrapolations of the enterprise and employment

figures are offered in table 2 for all localities of over 1,000 in popu-

lation. From these extrapolations we estimate that approximately 8,500

small-scale enterprises operate in Haitian localities with population

over 1,000 and these enterprises employ roughly 34,000 people.

In assessing the absolute magnitude of the SSE in Haiti it is

important to note that these projections undoubtedly underestimate both

the number of firms and the employment generated in Haitian small enter-

prises. This underestimation occurs because the smallest localities

(those below 1,000 in population) were not surveyed, and these areas

account for 80 percent of the population in Haiti. Furthermore, the

importance of small enterprises appears to increase in the smaller locali-

ties. The percentage of population "directly employed" by the SSE rises


ISee p.5 -for elaboration.









TABLE 2

ESTIMATES* OF EMPLOYMENT AND NUMBER OF ENTERPRISES IN
LOCALITIES OVER 1,000 IN POPULATION


Enterprises Employment


Number Estimated Number Number Estimated Number
Localities Surveyed By Locality Surveyed By Locality

Number Percent Number Percent

Under 1,000 136 --- -- 414 --

1,000 2,000 288 1,632 19 820 4,659 14

2,000 5,000 525 1,805 21 2,100 7,219 21

5,000 20,000 1,288 1,585 19 4,592 5,648 17

20,000 100,000 948 1,291 15 4,577 6,223 19

Over 100,000 1,765 2,199 26 7,901 9,876 29

Total 4,950 8,517 100 20,404 33,625 100


SOURCE: Phase I survey.

*Estimates are made by multiplying actual numbers surveyed by the
inverse of the sampling fractions for each locality size.









from 2.2 percent in Port-au-Prince to 8.4 percent in the localities with

population between 1,000 and 2,000 (table 3). Since our figures do not

include estimates for four-fifths of the population living in the

extremely small localities, and since the importance of the SSE seems to

increase in small localities, the 34,000 employment figure presents only

a partial estimate as to the aggregate importance of the SSE. The actual

importance of the SSE contribution to total Haitian employment would loom

much larger if the extremely small localities could be considered.2


3.2. Composition

The small enterprises in Haiti are involved in a wide variety of

activities from cement block making and printing shops to candy

making, tailoring, and leatherwork. Most numerous among small enterprises

are the tailors. Tailors also offer the bulk of the employment in the

SSE sector with 45 percent of those employed (table 4). Carpenters are

the second most important with 11 percent of SSE employment, followed by


1The reader is urged to consult the note in table 3 for a discussion
of potential biases in these figures.
2It would be desirable to compare SSE employment with that generated
by the large-scale industries in Haiti, however, the data do not currently
exist that would permit a satisfactory comparison. Our survey covered
enterprises employing under fifty persons. A study in the Institut
Haitien de Statistique (IHS) has studied firms that employ over 100
workers. The IHS survey found that the large firms generate a total of
24,819 jobs, mainly in the Port-au-Prince area (Institut Haitien de
Statistique, 1978). A comparison of this figure with the 34,000 we pro-
ject is not particularly meaningful. When data can be gathered on
firms employing between fifty and one hundred workers, and also gathered
for the extremely small localities in Haiti, one will be able to make
meaningful assessments of the relative importance of the large versus
the SSE sector. We signal this lacuna in the hope that some future
researchers will be able to supply the final missing data.








TABLE 3

"DIRECT EMPLOYMENT"* IN HAITIAN SSE, BY LOCALITY SIZE


Locality SSE Employment (1978)
Population Total Population (1971)


1,000 2,000 8.4

2,000 5,000 7.5

5,000 20,000 4.7

20,000 100,000 4.7

Over 100,000 2.2


SOURCE: Phase I survey and Resultats preliminaires du recensement
general de la population, du logement et de l'agriculture. Institute
Haitien de Statistique, September 1973.

*These "direct employment" percentages are biased upwards because
1978 employment figures are used in the numerator while 1971 population
figures are all that is available for the denominator. This bias should
not pose a problem given that the purpose of these figures is only to
rank the importance of small enterprises by locality size. Biases in
the locality rankings may occur because of the time lag between the
gathering of the population and employment data and because population
may be growing at different rates in the various locality size groups.
For example, it is most probable that the population of Port-au-Prince
has been growing more rapidly than the population in other areas, and
it is likely that the number of small enterprises is also increasing
more rapidly than in the other localities. Therefore our 1978 employ-
ment figures for Port-au-Prince are biased upwards compared to other
areas. Using inflated 1978 employment figures we tend to overstate the
importance of small enterprises in Port-au-Prince relative to their
importance in other localities. Therefore, if we could correct for
this bias, the trend would be accentuated.









TABLE 4

ESTIMATED EMPLOYMENT BY ENTERPRISE TYPE
(For Localities with Population Over 1,000)


Enterprises Employment

Enterprise
Type Number Percent Number Percent

Tailoring 3,956 46.4 15,210 45.2
Carpentry 990 11.6 3,664 10.9
Car repair 219 2.6 2,538 7.5
Bakery 297 3.5 2,007 6.0
Metal working 528 6.2 1,887 5.6
Shoe repair 723 8.5 1,432 4.3
Wood products 213 2.5 1,012 3.0
Machine repair 264 3.1 942 2.8
Beverage manufacture 175 2.1 893 2.7
Cement block making 145 1.7 600 1.8
Grain milling 113 1.3 431 1.3
Goldsmithing 142 1.7 406 1.2
Cloth making, nets 64 .8 376 1.1
Straw, sisal, bamboo 130 1.5 359 1.1
products
Candy making 165 1.9 316 .9
Production of soap, oils, 22 .3 276 .8
and essential oils
Tire repair 95 1.1 267 .8
Pastry shop 71 .8 190 .6
Printing 24 .3 181 .5
Leather work 49 .6 102 .3
Mattress making 24 .3 93 .3
Watch repair 53 .6 88 .3
Other 55 .6 356 1.1

Total 8,517 100.0 33,625 100.0


SOURCE: Phase I survey.









car repair with 9 percent, metal work with 6 percent, bakeries with

6 percent, shoe repair with 5 percent, and wood products and machine

repair with 3 percent.

Within each enterprise group it is interesting to note how

relative importance, in terms of employment, varies by locality size.

As table 5 shows, tailoring, carpentry, and bakeries become less impor-

tant in larger towns. On the other hand, car repair, metal work, and

machine repair are more prevalent in the large urban areas where demand

for their output is greater. Wood products (largely wood sculpture) are

also more important in large urban areas than in the rural areas; as we

shall see later, this is because of the availability of the export and

tourist markets which are centered in the large cities.


3.3. Seasonality

The vast majority of small enterprises visited experienced seasonal

fluctuations in their levels of activity.1 Of the firms surveyed,

94 percent have either a high or a low season. The high season seems to

coincide for a large number of enterprises; 63 percent of the firms indi-

cated their peak season to be in December (table 6). On the other hand,

the periods of low activity appear to be spread more uniformly throughout

the year. Even so, there does seem to be a large slump in January and




1In a single-interview survey it is difficult to obtain accurate
estimates of the magnitude of seasonal variations. To get any feel for
the size of the seasonal fluctuations requires a whole series of
questions which attempt to compare activity levels in different months.
Such a series of questions was not asked, both because of the difficulty
of obtaining reliable estimates and because it was felt the interview
time could more profitably be spent exploring other areas of interest
concerning the functioning of the small enterprises.








TABLE 5

DISTRIBUTION OF ENTERPRISES, BY LOCALITY SIZE


Locality Size

Enterprise 1,000- 2,000- 5,000- 20,000- Over
Type 2,000 5,000 20,000 100,000 100,000

Percent of Total SSE Employment -

Tailoring 46 58 49 47 32
Carpentry 14 11 12 11 9
Car repair 3 5 12 14
Metal working 5 3 5 6 8
Shoe repair 4 1 5 5 6
Bakeries 8 8 9 4 3
Wood products 3 1 1 7
Machine repair 2 1 1 2 6
Beverage manufacture 0 9 1 1 T
Cement block making 0 1 2 1 3
Milling 0 4 2 0 0
Goldsmithing 0 1 1 1 2
Cloth and net making 4 0 0 2 1
Straw, sisal, and 2 1 1 0 1
bamboo products
Candy making 2 0 2 0 1
Essential oils 3 0 1 1 0
Tire repair 1 0 1 0 2
Pastry shop 1 1 1 0 1
Printing 0 0 0 0 2
Leather work 0 0 0 1 0
Mattress making 0 0 0 0 1
Watch repair 0 0 0 0 1


SOURCE: Phase I survey.









TABLE 6

SEASONALITY


Entrepreneurs Indicating Their:

High Season Low Season


Percent Percent

January 3 23
February 2 21
March 3 7
April 1 4
May 1 7
June 2 8
July 2 14
August 1 3
September 5 2
October 10 3
November 3 1
December 63 2

Total 100 100


SOURCE: Phase II survey.









February. Forty-four percent of the entrepreneurs indicated these two

months to be their period of lowest activity.

The seasonality in small businesses is caused by several factors.

In some cases the supply of inputs used by the small enterprises varies

substantially over the course of the year. This is the case, for example,

in agricultural processing activities such as grain milling. At harvest

time the supply of inputs (grain) rises sharply and activity levels among

the small mill operators increase substantially. In other industries the

supply of inputs remains stable throughout the year, but demand for the

small industry output varies greatly over the course of the year. This

is true, for example, among tailors. Seventy-seven percent of the tailors

interviewed pointed to a high season in December, and 88 percent of them

attributed this increase in activity to the demand generated by the

festivals which occur during Christmas and New Year. Thus variations in

the supply of inputs as well as variations in demand patterns play

important roles in determining the seasonal patterns of small businesses.

In addition to fluctuations in input supply and output demand, there

exists a third possible cause of variations in small enterprise activity -

seasonal work requirements in other activities, primarily agriculture.

Alternative employment is important among the small enterprises surveyed.

Twenty-eight percent of the entrepreneurs visited were currently working

at another job. This is not surprising given that we interviewed them

in Janaury and February, months which 44 percent of them considered to be

their period of lowest activity. Of the 28 percent who were working at

another job, the single largest source of outside employment was









agriculture, which employed 31 percent.1 Given the importance of

agriculture as an outside source of employment, it is not surprising

to find that additional occupations are much more important in rural

areas than in the larger localities. Forty-five percent of the entre-

preneurs in the smaller localities work at other jobs in addition to

their small-scale enterprise, while only seventeen percent of those in

Port-au-Prince have another job (table 7). Given the importance of out-

side employment in agriculture, which is itself very seasonal, it is

easily seen how fluctuations in agricultural labor demands can be impor-

tant causes of seasonality in the small enterprise activity.

While seasonality is important for the majority of businesses,

there are several enterprises which are less susceptible to seasonal

fluctuations. It is primarily the machine repair, car repair, and print-

ing businesses which indicated no seasonality in their levels of activity

(table 8). For these industries the lack of seasonality is probably due

to consistent, year around demand for their products.


3.4. Labor Profile

The average size of the enterprises studied was quite small,

4.1 employees per firm. Firms in the large towns, though, do tend to be

larger than those in rural areas. In the smallest localities, enter-

prises employ 3 workers per firm on average while in the largest cities

the average size is 4.5 workers (table 9).

The workers in Haiti's SSE include entrepreneurs, family workers,

apprentices, hired workers, and "jobbers." Virtually all firms are owned


1The second largest source of alternative employment was retailing,
which employed 22 percent.









TABLE 7

PERCENT OF SMALL BUSINESS ENTREPRENEURS WITH OUTSIDE OCCUPATIONS
(January, February 1979)


Locality
Size


Percent


1,000 2,000

2,000 5,000

5,000 20,000

20,000 100,000

Over 100,000


SOURCE: Phase II survey.









TABLE 8

LACK OF SEASONALITY


Percent of Entrepreneurs
Enterprise Indicating:
Type
No Low Season No High Season


Percent Percent

Machine repair 21 18
Car repair 20 16
Printing 18 10
Candy making 16 7
Straw products 15 12
Wood products 14 16
Cement block making 14 12
Cloth, net making 13 19
Tire repair 12 11
Goldsmithing 9 6
Pastry shops 8 14
Bakery 7 6
Beverage manufacture 6 6
Mattress making 6 13
Metal working 6 7
Leather working 4 4
Carpentry 2 3
Tailoring 1 1
Shoe repair 1 1
Average for all firms surveyed 6 5


SOURCE: Phase II survey.










LABOR PROFILE


TABLE 9

OF HAITIAN SMALL ENTERPRISES


Total Entre- Ap-
Locality Employ- pre- Family pren- Hired
Size ment neurs Workers tices Workers Jobbers


Under 1,000 3.0 1.0 .05 .5 1.1 .06

1,000 2,000 2.9 1.0 .10 1.0 .7 .06

2,000 5,000 4.0 1.0 .20 1.8 .9 .07

5,000 20,000 3.6 1.1 .20 1.4 .9 .08

20,000 100,000 4.8 1.1 .40 2.0 1.4 .06

Over 100,000 4.5 1.1 .30 1.3 1.7 .14

Average for all 4.1 1.0 .25 1.5 1.3 .10
firms surveyed


SOURCE: Phase I survey.









by a single entrepreneur. The average entrepreneur interviewed has eight

dependents. Roughly 80 percent of the entrepreneurs are men and 20 per-

cent are women. Over half of the owners/managers have completed six

years or more of education. The majority (60 percent) received their

training as apprentices in other small enterprises, while 11 percent were

trained in vocational schools and 14 percent are working the same

line of business as their father or mother. In looking further at the

family background of the entrepreneurs, one finds that farming was by

far the most common occupation of the entrepreneurs' fathers. Many of

the mothers were also farmers (34 percent) but large numbers of them were

involved in business activity. Thirty percent of the mothers were

retailers and twenty-two percent were tailors. Slightly under half

(40 percent) of the current small business entrepreneurs were involved in

another line of work prior to opening their small business. Of these,

the most common previous occupations were farming (20 percent) and

retailing (15 percent).

Family workers are of minor importance in Haitian small enterprises.

They constitute 6 percent of SSE employment.

It is hired workers and apprentices which form the bulk of the

employment in Haitian small enterprises. Together these two groups

account for 66 percent of total SSE employment, with hired workers

accounting for 31 percent and apprentices 35 percent. The importance of

apprentices does not vary across locality sizes. Hired workers, however,

are used more commonly in large urban areas than they are in the rural

areas. In the rural areas, firms average one hired worker each, whereas

firms in Port-au-Prince employ an average of 1.7 hired workers each.








The "jobbers" constitute the smallest, but still a very interesting,

segment of the SSE work force. A jobber is a worker who possesses a

skill but no workshop or equipment. He receives orders for work and

then arranges to use the facilities of an established shop in order to

perform the requested job. Jobbers constitute only 2 percent of overall

employment in the enterprises surveyed, but that figure rises to 7.3 per-

cent in machine repair shops, 7.1 percent in wood products, and 4.5

percent for car repair businesses.

Women account for 16 percent of the employment in Haitian small

enterprises. The importance of women employees varies markedly by

industry. Of total pastry shop employment, women account for 50 percent

(table 10). Tailors are next with 30 percent, followed by manufacturers

of straw products at 27 percent. At the other extreme, carpenters employ

only 1.2 percent women, metal workers .8 percent, while the tire repair

and leather workshops surveyed employ no women. Across locality sizes,

though, the employment of women is fairly uniform.

Women are owners or managers of 18 percent of the firms surveyed.

In many respects, male and female entrepreneurs have very similar char-

acteristics. Their educational background, age, training, and the number

of employees they supervise are virtually the same. One major difference,

however, is that women entrepreneurs tend to employ many more female

workers than do their male counterparts. Among establishments run by

male entrepreneurs, only 6 percent of the workers are female, whereas

under women entrepreneurs two-thirds of the employees are female. This is

closely associated with the fact that women are concentrated in certain

industries such as pastry shops, tailoring, straw products, and candy








TABLE 10

THE EMPLOYMENT OF WOMEN IN HAITIAN SMALL ENTERPRISES


Women As A Percent Of
Enterprise Percent of Total Women
Type Employment Entrepreneurs


Pastry 50 86
Tailoring 30 43
Straw products 27 23
Cloth making, nets 25 6
Wood sculpture 24 7
Milling 22 6
Printing 16 0
Baking 16 20
Candy making 15 86
Goldsmithing 10 0
Beverage manufacture 7 6
Cement block making 3 3
Oils and essential oils 3 0
Machine repair 3 0
Carpentry 1 0
Shoe repair 1 0
Car repair 1 0
Metal working 1 0
Leather working 0 0
Watch repair 0 0
Mattress making 0 0
Tire repair 0 0


SOURCE: Phase II survey.








making. In these industries women entrepreneurs account for 86, 43, 23,

and 86 percent respectively of all entrepreneurs in those lines of

activities. It is clear from table 10 that large amounts of female

employment is concentrated .in those particular industries.


3.5. Capital Composition

In describing the capital composition of small enterprises in

Haiti, we will examine three measures of capital usage: equipment per

worker, total capital per worker, and total capital per firm.1 The value

of equipment per worker is the most accurate capital figure obtained from

the survey because enumerators made an item-by-item inventory of machin-

ery and tools in each firm visited. Estimates of total capital were also

obtained but they are less reliable than the equipment figures because

entrepreneurs gave lump sum estimates for three of the total capital

components raw materials, building, and inventory of finished goods.

By any of the three capital measures, the sums of capital required

by small enterprises in Haiti are modest. The average value of equipment

per worker currently lies between $130 and $3002 among tailors, carpenters,

metal workers, and car repair shops, four of the largest employers among

the small enterprises (table 11). This equipment per worker figure varies
more dramatically when all types of small enterprises are considered.

Equipment per worker ranges roughly from $2,200 among ice makers to $20

for manufacturers of straw products.

1Equipment is machinery plus tools. Total capital is equipment plus
building, raw materials, and inventory of finished goods.
2All capital values in this report are given in 1978 dollars. To
arrive at this current dollar valuation we used the capital price
deflators given by Zuvekas (1978, p. 6). Using these deflaters along
with original purchase price and year of purchase, one is able to reflate
the original purchase price to 1978 dollars.








TABLE 11


CURRENT CAPITAL STRUCTURE
(1978 Dollars)


Capital/Labor Ratios
Total
Enterprise t Equipment Plus Capital Per
Type Equipment/Worker Building/Worker Capital/Worker Firm

Ice making $2,161 $3,714 $3,814 $21,615
Printing 1,969 4,816 5,482 28,892
Grain milling 1,763 3,171 3,364 14,019
Heavy wood products 1,285 1,285 1,554 4,819
(boats and truck bodies)
Essential oils 919 2,321 4,428 73,803
Cement block making 429 804 1,624 10,162
Shoe repair 404 1,039 1,209 2,437
Goldsmithing 344 1,013 1,367 2,412
Car repair 294 464 654 5,248
Pastry shops 280 3,931 3,985 12,524
Metal work 272 1,094 1,230 2,633


SOURCE: Phase II questionnaire.

*Total capital is equipment plus building, raw materials, and inventory of finished goods.


tEquipment is machinery plus tools.








Table 11 continued


Capital/Labor Ratios
Total
Enterprise Equipment Plus Total Capital Per
Type Equipment/Worker Building/Worker Capital/Worker* Firm

Machine repair $257 $2,427 $2,524 $8,858
Cloth, net making 251 333 364 1,797
Beverage manufacture 243 829 1,760 17,987
Tailoring 176 1,512 1,665 7,484
Tire repair 155 156 232 866
Carpentry 126 639 816 3,302
Wood sculpture 93 135 929 7,939
Mattress making 75 829 1,033 2,296
Candy making 42 343 373 635
Straw products 18 104 385 1,540


SOURCE: Phase II questionnaire.

*Total capital is equipment plus building, raw materials, and inventory of finished goods.


tEquipment is machinery plus tools.









Total capital per worker ranges between $650 and $1,700 among

the tailors, metal workers, shoe repair shops, and carpenters. Outside

of these major 4 employers the total capital per worker varies

between a high of $5,500 in printing shops and a low of $230 among tire

repair businesses. Total capital per firm varies from $74,000 in

essential oil plants to $870 in tire repair shops.1

Part of the reason that capital costs are kept as low as they are

among small businesses is that many entrepreneurs do not own buildings.

In fact, 30 percent of the firms surveyed do not operate inside buildings.

They work outside on sidewalks or on verandas. There are certain


lIt is somewhat difficult to compare these capital figures with
those for large-scale industries in Haiti (large-scale industries are
those employing over fifty workers). In heavy industry investments
per worker are much larger than those in small enterprises. Schwartz
(1978, p. 5) maintains that investment per worker in large agro-
industries and in import substituting industries (presumably steel and
cement) ranges between $20,000 and $35,000 per worker. These figures
are an order of magnitude larger than most of the capital/labor ratios
for the small enterprises cited in table 11.

At the other end of the large-scale spectrum are the export-oriented
assembly industries which manufacture baseballs, textiles, and electronic
goods. For these large assembly industries it is not clear whether
large firms require more or less capital per worker than do the small
enterprises surveyed. Schwartz (1978, p. 5) states that in the export-
assembly industries, "capital investment per worker" ranges between
$750 and $3,500. This corresponds to the World Bank estimate that,
"average investment per employee" in enterprises created under the
industrial incentive laws is between $200 and $3,200 (World Bank, p. 21).
A mimeographed publication put out by the U.S. Commercial Library
indicates that, "average investment per assembly job is less than
$2,000" (U.S. Commercial Library, 1978, p. 1). It is difficult to com-
pare these figures with the capital/labor ratios given for Haiti's small
enterprises. The comparison is difficult because the investment figures
given for the large firms, figures such as "capital investment per
worker," are not defined. It is not clear whether they refer to equipment
per worker, fixed capital per worker, or.total capital per worker.
Furthermore, the range of values given for investments per worker is
very large. Any comparison between small firms and assembly industries
will have to be made for specific industries and this will require
additional information concerning the large assembly firms.








industries in which working from outside of a permanent building is less

common than in others. For example, in milling operations, printing

shops, bakeries, and tailoring the vast majority of the enterprises sur-

veyed operate from permanent buildings (table 12). However, in other

types of enterprises such as metal working, mattress making, cloth

making, car repair, tire repair, and cement block making over half of

the businesses interviewed are located either on sidewalks, verandas, or

outside. It should not be inferred that industries such as these, in

which large numbers of firms operate outside of a permanent structure,

are of a less stable nature than those industries which are more securely

housed. Firms operating on verandas or outside will often open for

business in the same location week after week and year after year. In

fact, 58 percent of the tire repair shops, 40 percent of the car repair

businesses, 47 percent of the metal workers, and 44 percent of the mat-

tress makers surveyed have been in business for over 10 years. These

industries operate largely outside and that clearly has not precluded

their ability to remain in business for long periods of time.

Capital usage varies not only among industries; it also fluctuates

widely within given industries. For example, tailors in the 2,000 to

5,000 person localities use only $47 worth of equipment per worker,

whereas in Port-au-Prince tailors use an average of $310 worth of equip-

ment per worker (table 13). Among metal workers, capital equipment per

worker increases from $40 in the smallest localities to $330 in

Port-au-Prince.

In both of these cases, for metal workers and tailors, the trend is

for enterprises to be more capital-intensive in the larger urban areas









TABLE 12

BUILDINGS, PERMANENT VERSUS TEMPORARY


Proportion Operating:
Outside On
Enterprise In Permanent Sidewalks Or
Type Structures Verandas

Percent Percent

Milling (sugar and grain) 95 5
Printing 95 5
Bakery 93 7
Tailoring 85 15
Pastry shops 85 15
Oils and essential oils 73 27
Machine repair 71 29
Leather products 68 32
Goldsmithing 67 33
Wood products 64 36
Candy making 63 37
Carpentry 58 42
Shoe repair 58 42
Straw products 57 43
Watch repair 57 43
Mattress making 50 50
Metal working 49 51
Cloth and net making 44 56
Car repair 47 63
Cement block making 28 72
Tire repair 22 78
Average for all firms surveyed 71 29


SOURCE: Phase I survey.









TABLE 13

VALUE OF EQUIPMENT1


PER WORKER


Locality Size

Enterprise 1,000- 2,000- 5,000- 20,000- Over
Type 2,000 5,000 20,000 100,000 100,000

1978 Dollars

Tailoring 83 47 98 124 310
Metal working 39 127 130 383 328
Carpentry 42 51 114 189 137
Shoe repair 93 200 551 331 418
Leather work -- -- 91 123 168
Car repair -- 387 279 276
Machine repair -- 455 945 149 153
Bakery 95 162 715 173 779
Candy making 17 -- 56 43 20
Straw products 22 31 14 33 19
Cement block making -- 419 389 155 478


SOURCE: Phase II survey.

NOTE: The enterprises included in this table are the only ones for
which the data base was large enough to display differing capital costs
over several locality sizes. Missing entries in the table indicate an
inadequate number of observations.

1Equipment is machinery plus tools.









than in the rural localities. This same trend prevails among many other

small enterprises. For example, carpentry, shoe repair, and leather

working shops tend to use more capital per worker in urban areas than do

their counterparts in rural localities. This trend probably results

because of the greater availability of electricity and power machines in

the major urban areas and because capital costs may well be lower in the

larger towns than in the rural areas. The lower capital costs in large

towns can result from the greater availability of low-cost credit and

lower equipment prices because fewer transport and handling costs are

incorporated into the final price. In addition, higher wages in the

cities may make capital cheaper relative to labor, creating an incentive

for the use of more capital-intensive methods of production in the large

towns.

The trend of increasing capital per worker in larger towns does

not appear to hold for all industries. For example, in machine repair

more capital per worker is used in the rural than in urban areas. This

reversal is probably due to the nature of the repair work taking place.

The repair work in the rural areas may be repair of agricultural equipment,

whereas the machine repair in the urban areas includes many light house-

hold appliances among the machines that are worked on. In other

industries such as candy making, cement block making, and the manufacture

of straw products, capital per worker is roughly constant across locality

sizes. These three industries, though, seem to be exceptions. In general,

there exist substantial variations in the amounts of capital per worker

in the small firms.









3.6. Growth Trends in Small1 Enterprises

The preceding discussion has addressed static issues: the current

structure of Haitian small enterprises and the current importance of

each of the different types of SSE. This concluding section of the

Descriptive Profile will consider the dynamics of the small enterprise

sector. In particular, an attempt is made to give some indication of how

the relative importance of different small industries may be changing

over time.

The basis for discussing growth trends in Haitian small enterprises

is table 14. Table 14 provides several sets of information which offer

indications on different aspects of small enterprise growth. The data

deal with entrepreneurs' estimates of: increases in the number of firms

per industry (column B), and indications of how their individual output

per firm has been changing (column C). Also included is information on

the age distribution of firms in each industry (column A) and on rates of

net investment in capital equipment (column D). It is important to note

that an inevitable inconvenience arises with these data because of the

fact that, of all the firms in the growth process, we are only able to

interview the survivors. Had it been possible to obtain information from

those firms which have dropped out of business, the picture presented

below might have been less rosy. This potential upward bias is particu-

larly likely with respect to the rates of net investment given in

column D. In addition to the survivor firm bias, it should be noted that,

in giving their estimates of growth trends, entrepreneurs were asked to give


lIt is important to remember that the ensuing discussion pertains
only to trends within the small enterprise segment of each industry. Firms
with more than fifty employees are not included in the analysis.









TABLE 14

GROWTH INDICATORS


A

Age
Composition



Percentage of Firms
In Business For:

1-4 5-9 10-19 Over 20
Years Years Years Years


B

Number
of Firms

Net Percentage Of
Entrepreneurs
Indicating
Increased


C

Output
Per Firm

Net Percentage Of
Entrepreneurs
Indicating
Increased


Past 5 Past Past 5 Past
Years Year Years Year


D

Rite of Net Investment
In Equipment, 1974-19783


Industry
As A
Whole


Average of
Individual
Firms'
Rates of
Investment


Percent


All enterprises (1256)
Watch repair (15)
Machine repair (55)
Essential oils (8)
Cement block making (35)
Candy making (28)
Car repair (45)
Pastry (13)
Bakery (49)
Beverage manufacture (18)
Mattress making (9)
Wood sculpture (34)
Goldsmlthing (34)
Metal working (74)


2.4
- 5.6
- 1.3


4.1
-21.0
1.0
-17.0
- 2.0
5.9
- 4.5
1.0
3.7
2.3


6.3
-19.0
8.9


1.0
12.9
1.2
-22.0
- 5.8
- 6.6
.0
- 4.5
46.8
- 5.6









Table 14 continued


Straw products (44)
Tailoring (378)
Printing (11)
Cloth, net making (17)
Heavy wood products (9)
Milling (36)
Shoe repair (128)
Carpentry (74)
Leather working (24)
Tire repair (19)


28 28 17 28
27 25 26 20
27 18 36 18
24 29 29 18
22 11 22 44
20 26 26 29
17 16 27 38
14 21 29 36
13 29 17 42
0 42 26 31


0 -2
28 33
9 18
35 35
45 22
16 30
2 -9
30 10
-25 8
5 26


6 -15
13 -15
18 0
18 6
45 0
19 -19
12 -45
19 -23


- 6.3 11.0
7.1 7.7
--- ---
13.8 -38.9


.5 2.6
.5 2.1
2.8 2.0


- 4 -21 -11.3 7.5


11 -16


- 4.3


SOURCE: Phase II survey.

1Column B is defined as the percent of entrepreneurs indicating an increase in number of firms
entrepreneurs indicating a decrease. Each entrepreneur gave estimates only for his/her industry and
or neighborhood. Note that this column says nothing about the magnitude of the increase or decrease
positive number only indicates that more entrepreneurs lived in localities with an increasing number
localities with a decreasing number of firms.


minus the percent of
for his/her own locality
in number of firms. A
of firms than lived in


2Column C is defined as the percent of entrepreneurs indicating that their own output had increased minus those indicating
their output had decreased. A sample calculation is performed in paragraph 2, page 37.

3Column D is defined as the rate at which new equipment is purchased =9 4 k- /5 minus the rate of depreciation

(annual depreciation/K) of the total stock of equipment. Straight-line depreciation is used. The first figure, for the industry
as a whole, computes the net investment rate when the entire industry is considered as a single unit. The second figure, the
average of individual firms' rates of investment, computes net investment rates for each firm and then averages those rates. See
page 39, paragraph 1 for a description of how to interpret the two figures.








only directions, not magnitudes. Thus for estimates of changes in the

number of firms and output per firm the figures in table 14 (columns B

and C) give only rough indications of the direction of change. With

these two caveats in mind, we turn to an evaluation of the figures in

table 14. When used judiciously the four sets of data information pro-

vided can offer important insights into growth trends in Haitian small

enterprises. The information is particularly useful for constrasting

trends among different industries.

3.6.1. Aggregate SSE Growth. The small enterprise sector in

Haiti appears to be growing over the medium run, that is, over the past

five years. Looking at the aggregate of all small enterprises, entre-

preneurs indicate that both output per firm and the number of firms have

increased over the past five years. There has been a positive net rate

of investment in capital equipment over the past five years; the rate

of increase in equipment has been 6.3 percent per year for the average

firm. Apparently increases in output per firm are due at least in part

to increased capitalization of the small firms.

Looking at the short-run, it appears that 1978 was perceived to be a

difficult year for the small enterprises in Haiti. While 28 percent of the

firms interviewed indicated that their output had increased last year, 41 per-

cent indicated declines in output.1 Adopting the convention used in table 14

we can say that a net of 13 percent of the firms indicated their output had

decreased.

The age distribution of small firms indicates that there are large

numbers of experienced firms currently operating in Haiti. Three-fourths of


1The remaining 31 percent indicated their output was stable or that
they were too new to respond.








the small enterprises surveyed have been in business for over five years,

half have been in business over ten years, and one-fourth of the small firms

have been producing for more than twenty years. In the aggregate, the small

enterprises appear to be growing on all fronts in terms of number of

firms, capital stock, and in terms of output per firm.

As always, the average figures mask considerable variations among

trends in different industries. We turn, therefore, to look at certain spe-

cific industries. The enterprises discussed below were selected for two

reasons: either clear judgements could be made about their growth records,

or they account for such a large proportion of SSE employment that they can-

not be ignored. Of the industries selected for comment, the growth industries

appear to be machine repair, cement block making, car repair, wood sculpture,

and tailoring. The moderate gainers appear to be metal working, shoe repair,

and carpentry. The declining small industries seem to be leather working

and bakeries.

3.6.2. Machine Repair. The machine repair industry offers clear

indications of growth. Large numbers of entrepreneurs have been moving into

the machine repair business in recent years. So many have been entering the

industry that fully 44 percent of the firms interviewed were less than five

years old and 70 percent have been in business for 9 years or less.1


lit is recognized that large numbers of new firms do not necessarily
imply that an industry is growing. It is possible that failure rates are
even higher than the entry rates, and that the industry is in fact de-
clining. What large numbers of young firms does indicate is interest on
the part of entrepreneurs, and ease of entry and movement into an indus-
try. Where this movement into an industry occurs along with an increase
in the number of firms and in output per firm (as in machine repair) we
consider this to be a sign of growth within an industry. On the other
hand, in the bakery industry there are also large numbers of new firms
being established, but the total number of firms in the industry appears
to be declining. Drop-out rates apparently exceed the rate of new firms.
In this case large numbers of new firms are not a sign of growth in the
industry.









Entrepreneurs indicate that the total number of machine repair firms has

increased over the past five years. Even with the increasing number of firms

it appears that the older firms (those in business for over five years) have

still been able to increase their individual output over that period.

At 8.9 percent the average rate of investment in equipment is among

the largest of all small industries. Only industries such as straw pro-

ducts, goldsmithing, and candy making, which start from very low bases,

have invested faster than the machine repair shops. To arrive at the

8.9 percent figure, rates of investment are computed for each firm and

then the rates are averaged together. This procedure gives small firms

and large firms equal weight, and the figures computed in this fashion

are the second figures listed in column D of table 14. However, invest-

ment rates can be computed in a different manner. The first figure in

column D is computed in this different fashion where the capital for all

machine repair shops is lumped together and a net investment rate is com-

puted for the industry as a unit. When the capital is aggregated in this

manner, changes in capital in the larger firms carry more weight than

those among the small firms. Under this aggregate, industry-wide

calculation there appears to be a slight, 1.3 percent, rate of disinvest-

ment in capital stock. Since aggregate industry investment (where larger

firms have a greater weight) is slightly negative and the average of

individual firms' rates of investment (where small and large firms have

equal weight) are large and positive, it is clear that the large firms

are net disinvestors while the small firms are increasing their stock of

equipment quite rapidly.

Indications are that the machine repair industry is growing both in

terms of number of firms and in output per firm. In terms of stock of








equipment, the larger small-scale firms are net disinvestors while the

smaller firms are investing at a rapid rate.

3.6.3. Cement Block Making. The cement block making industry also

appears to be growing over the short- and medium-run. Large numbers of

entrepreneurs have been investing in the cement block making industry in

recent years. Forty-three percent of the firms have begun operations in

the past five years and seventy-five percent have been in business for

nine years or less. These large numbers of newly established firms make

the cement block industry the youngest of all the small industries.

As with machine repair, the total number of cement block making

firms appears to have increased over the past five years. Output per firm,

though, appears to have remained roughly constant over that period. Rates

of investment in equipment have been moderate but positive.

An indicator of short-run strength in the cement block making

industry is the fact that the majority of cement block makers did not

complain of a downturn in their activity levels last year. This is in

marked contrast to the large majority of industries which felt 1978 to

be a poor year. While bakers, metal workers, carpenters, shoe repair

shops, and even tailors and car repair shops fell prey to the short-run

downturn, the cement block makers continued to increase their output.

One suspects that it is the existence of a local cement plant in Port-au-

Prince as well as a strong demand for construction materials which have

allowed the cement block makers to grow in recent years.

3.6.4. Car Repair. The growth indicators in the car repair industry

are very similar to those in the machine repair and cement block making

businesses. The more established firms have been increasing their output

over the past five years and still there has been room for substantial

numbers of new firms to enter the trade; 39 percent of the firms visited







have been established in the past five years. The total number of firms

appears to have increased over that time span. Rates of investment in the

car repair businesses have been positive but small, indicating that

increases in output per firm may be resulting from the additional

utilization of labor.

3.6.5. Wood Sculpture. Wood sculptors also appear to have been

doing well. There are large numbers of young firms in the business indi-

cating that it is attracting new entrepreneurs. In addition, both the

number of firms and individual firm output have been growing over the past

five years. The small wood sculpture firms have been net disinvestors in

capital while the large firms have increased their stock of equipment

slightly. Given the low net rate of investment in equipment it would

appear that, as in the car repair business, increases in output per firm

may be the result of increasing labor utilization.

3.6.6. Tailoring. Tailoring is the largest of Haiti's small

industries and business in this line appears to be increasing over time.

There are clear indications that both the number of firms and the output

per firm have increased over the past five years. In addition, investment

rates appear to be high among tailors, higher than in most other industries.

The main cause for concern in reviewing the tailoring industry lies in the

fact that many firms felt their output had declined over the past year.

This implies that the tailoring industry may be susceptible to short-run

fluctuations in general economic conditions. Despite this sensitivity to

short-run downturns, the tailoring industry appears to be strong over the

medium- to long-run. Over the past five years small tailoring firms have

been growing in numbers in terms of output per firm and in terms of total

capital stock.







3.6.7. Metal Working. Both the number of firms and output per

firm have increased over the past five years among metal working firms.

Reinvestment figures indicate that small firms have been net disinveStors

in equipment while the larger metal working firms have increased their

stock of equipment moderately over the past five years.

3.6.8. Carpentry. The carpentry firms constitute a rather old

industry; 36 percent of the firms have been in business for over 20 years

and there are very few new firms. Only 14 percent of the carpenters have

been established in the past 5 years. This small number of new firms, com-

bined with entrepreneurs' estimates that the total number of carpentry

firms has been increasing, implies very low drop-out rates among carpen-

ters. Output per firm appears to have increased over the past five years,

and rates of capital investment have been positive but small. Many

enterprises felt their output had declined last year indicating perhaps

a sensitivity to short-run economic downturns.

3.6.9. Shoe Repair. Trends in the shoe repair industry are very

similar to those in carpentry. There exist large numbers of very old

shoe repair shops. Thirty-eight percent of the shops have been in busi-

ness for over twenty years, and the number of new firms entering in the

past five years has been small. Only 14 percent of the current firms have

begun business within the past 5 years. Output per firm has increased

over the past five years and the net rate of investment in equipment has

been small but positive. As with carpenters, shoe repair shops appear to

be sensitive to short-run downturns in activity.

3.6.10. Leather Work. Even more clearly than the bakers, small

leather workers in Haiti appear to be on the decline. The number of firms

seems to have dropped noticeably in the past five years; even output per





43

firm has declined. Very few entrepreneurs are getting into the leather

working business and a huge proportion, 42 percent, have been in business

for over 20 years. Rates of investment in capital equipment, strongly

negative, are among the lowest of any industry.

This concludes the descriptive overview of small enterprises in

Haiti. Having discussed the current structure of small enterprises as

well as past growth trends, we turn to examine factors which can constrain

the future growth of small-scale firms.












IV. POTENTIAL CONSTRAINTS FACING HAITIAN SMALL ENTERPRISES


A major goal of this study is to make a preliminary identification

of constraints faced by small-scale industries in Haiti. A useful way to

launch such a discussion is to look briefly at what entrepreneurs them-

selves perceive to be their principal problems; table 15 summarizes their

concerns. Lack of machines and tools, and cash limitations are clearly

perceived to be the most important problems facing the small entrepreneurs.

Insufficient demand, shortage of raw materials, lack of credit, and lack of

working space are also of concern. The variation in these problems across

regions, locality sizes, and across industries will be examined in the

following sections where each type of problem is examined individually.

As a framework for analyzing the constraints faced by small

entrepreneurs we will look first at demand constraints faced by the small

firms and then turn to supply problems. On the demand side current and

potential markets for SSE products are examined and an attempt is made to

evaluate their potential for growth. On the supply side a look is taken

at the inputs used by small enterprises inputs such as capital, credit,

management skills, trained labor, and raw materials. Attention to the

supply side is important as bottlenecks associated with any of these.

inputs can hamper the growth of the small enterprise sector. Each of the

potential supply and demand constraints will be examined in turn, and

the first constraint to be discussed is that of demand for the small

enterprise output.









TABLE 15

OWNER/MANAGER PERCEPTIONS OF PRINCIPLE PROBLEMS FACING HAITIAN SSE


Owners/Managers
Owners/Managers Listing This As
Listing This Most Important
Problem Problem Problem

Percent

Lack of machines and tools 62.8 20.2
Cash 41.4 38.1
Insufficient demand 35.1 8.7
Shortage of raw materials 31.9 5.6
Lack of credit 27.7 7.7
Lack of working space 25.0 5.2
Lack of electricity 16.7 .9
Lack of storage space 13.4 1.0
Lack of skilled labor 10.3 1.6
Transportation problems 5.8 .3
Maintenance and spare parts 5.7 .9


SOURCE: Phase II survey.









4.1. Demand as a Potential Constraint

Demand is the first constraint considered because it is so

fundamental. Industries can function with poor quality machines and

credit shortages, but they cannot survive without a market for their pro-

ducts. Limitations of the market tend to prescribe limits for the scope

of small enterprise activity.

Thirty-five percent of the entrepreneurs surveyed listed demand as

one of their major problems. The demand problem was prevalent across all

industries and was deemed particularly acute in the leather goods industry

where 63 percent of the entrepreneurs mentioned it, and among bakers

where 41 percent complained of demand inadequacies. Demand appears to be

least important in the car repair and machine repair business where 22 to

24 percent of the firms expressed concern.

In reviewing the role of demand our first task is to determine where

the current demand lies. Table 16 indicates, by locality size, the nature

of current market for Haitian SSE products. With table 16 as a starting

point we will explore the demand issue in detail considering three major

sources of demand: (1) consumer demand in Haiti, (2) subcontracting

demand by larger businesses, and (3) export demand.

4.1.1. Consumer Demand in Haiti

4.1.1.1. Local Consumer Demand. Local consumers provide

the major market outlet for products of Haitian small enterprises. Eighty-

four percent of the businesses interviewed sell to local consumers, and

this dependence on local incomes is stronger in the smaller, rural areas

where export and tourist markets are less readily available. Local

traders are also an important source of demand in the smaller localities.








TABLE 16


CURRENT MARKET OUTLETS FOR HAITIAN SSE GOODS


Locality Local Local Outside
Size Consumers Traders Traders Exporters Tourists Other Total*

Percent of Enterprises which Sell to Each Source
All Haiti 84 13 17 4 2 56 175
Under 1,000 93 25 29 36 189
1,000 2,000 76 18 22 51 169
2,000 5,000 87 21 18 58 183
5,000 20,000 88 6 17 3 1 59 174
20,000 100,000 89 15 9 1 2 59 175
Over 100,000 78 12 19 6 4 54 174


SOURCE: Phase II survey.

*Entrepreneurs were allowed up to three answers which is why the total percent can exceed
one hundred.









To the extent that these local traders circulate the SSE goods within a

single locality, their importance in the rural areas reinforces the con-

clusion that small enterprises in the rural areas are highly dependent

on local incomes as a source of demand for their goods.

4.1.1.2. Consumer Demand in Other Localities. There is
considerable mobility of small-scale industry goods across Haiti. Thirty

percent of the enterprises sell to traders, seventeen percent of whom are

outside traders, indicating that trade with other localities is not uncom-

mon in Haitian SSE. Bakeries (47 percent), leather work (38 percent), and

grain mills (33 percent) are the enterprises most heavily involved in

trade with other localities.1 With the exception of the service industries

such as car, tire, and machine repair, considerable mobility exists in all

the other types of enterprises as well.

Consumer demand within Haiti both local consumers and the demand

from other localities is of crucial importance for the small enter-

prise. Given the dependence on consumer demand and assuming a positive

income elasticity of demand,2 the growth of incomes in Haiti becomes a

crucial determinant of the growth prospects in Haitian small enterprises.

The limited data available indicate that, from 1960 to 1967, real per

capital annual GDP fell slightly; since 1967 it has grown at a rate of

about 1.3 percent per year (Zuvekas, 1978, p. 2). The data on which these


1Straw products (38 percent) and wood sculpture (26 percent) are
also heavily involved in outside trading, but as we will see shortly, this
is primarily due to export demand rather than to the demand generated by
consumers in other localities.

2Indeed evidence from other countries reveals that these coefficients
'e positive. See, for example, King and Byerlee, 1977.









income projections were made is admittedly weak, but in the absence of

any other information, these figures are sobering. The growth of local

incomes is of critical importance to the future growth prospects for

small industries in Haiti.

4.1.2. Subcontracting. Another component of the local market

demand for SSE goods is that afforded by larger businesses. A major

reason for interest in this question of the demand relationship between

small and large industries is the fact that in other countries, notably

Japan, subcontracting arrangements between smaller and larger firms have

been very important in the growth of small industries. Subcontracting can

be an important potential source of demand for SSE products.

On average, 7 percent of the small firms interviewed do subcontracting

work for larger businesses. However, as table 17 shows, the demand

generated by the larger businesses is clearly much greater in the




TABLE 17

SUBCONTRACTING DONE FOR LARGER BUSINESSES


Percent of Total Enterprises Surveyed
Which do Subcontracting for
Locality Size Larger Enterprises

Under 1,000 0.0
1,000 2,000 4.1
2,000 5,000 4.0
5,000 20,000 4.3
20,000 100,000 8.7
Over 100,000 9.8


SOURCE: Phase II survey.









larger towns than in the rural areas. None of the enterprises surveyed in

the smallest localities were involved in subcontracting work whereas almost

one-tenth of the firms in Port-au-Prince were so engaged. The bulk of the

larger industries are located in the larger towns, particularly in Port-au-

Prince, and so it is not surprising that the demand generated by larger

industries is more prominent in the larger cities.

The importance of subcontracting varies not only by locality size;

it also varies considerably by industry type (table 18). Tailors and shoe



TABLE 18

THE IMPORTANCE OF SUBCONTRACTING, BY INDUSTRY


Percent of Enterprises Surveyed
Which do Work Under Contract
Enterprise Type For Larger Enterprises

Wood products 20.9
Machine repair 20.0
Cement block making 20.0
Straw products 13.0
Car repair 13.0
Metal work 10.8
Carpentry 6.2
Shoe repair 3.9
Tailoring 2.4
All other
Average 7.0


SOURCE: Phase II survey.








repair shops do essentially no subcontracting work for larger firms.

However, for wood products, machine repair, and cement block making

roughly 20 percent of the small firms do contract work for bigger enter-

prises. For straw products, car repair, metal working shops, and

carpenters there is also a high frequency of subcontracting work done for

larger firms.

Of the five industries in which subcontracting is most important,

four were tagged as growth industries in our evaluation at the end of the

Descriptive Profile. It is very possible that the subcontracting demand has

played a role in the expansion of those four enterprises wood products,

machine repair, cement block making, and car repair. If so, further

exploration of these subcontracting arrangements would be of crucial
importance in industrial policy making because where complementarities

exist between large and small enterprises the two sectors can grow in

tandem. In the cement block industry one suspects that large construction

firms buy the small firms' blocks to use in their building projects. How-

ever, the relationship between larger enterprises and machine repair shops,

car repair shops, and metal working firms is less clear. Exploration of

these relationships could well lead to identification of the areas in

which large and small industries are complementary, and the identification

of these complementarities would be extremely useful in planning any

industrial programs.

4.1.3. Export Demand. The export market represents another

important outlet for Haitian SSE goods. From table 16 we saw that sales

to tourists and exporters are made directly by only 6 percent of the firms


1See, for example, Watanabe 1974 and 1979.








interviewed. However, this modest aggregate figure masks the fact that

the export market is very important for certain of the small enterprises.

For example, wood sculpture and straw products depend heavily on the

export market. Sixty-five percent of the wood sculptors and twenty-three

percent of the producers of straw products sell directly to exporters and

tourists (table 19). In addition, 38 percent of the straw weavers and

26 percent of the wood sculptors sell to long distance traders and a large

percentage of these wood and straw items probably flow into the export

market. Considering the traders, exporters, and tourists it is clear that

the export market is of prime importance to the straw and wood sculpture

enterprises.

Export growth has the important advantage that it is not limited by

the rate of growth of the local market; in fact, growth in Haiti's indus-

trial sector in the past ten years has been paced largely by the growth of

export industries. The recent World Bank Mission to Haiti has stated,

"They (the export industries) played a dominating part in changing the

face of Haiti's manufacturing sector" (World Bank, 1978, p. 21). The

export of light manufactures (petite industries) has skyrocketed in recent

years as can be seen in table 20, and these light manufactures are made up

of two distinct groups: (1) small-scale industry exports, and (2) large-

scale,l primarily assembly type industries.



1That the assembly industries are large-scale is verified by the
observation that one-half of all firms in Haiti employing over 100 persons
are involved in assembly-type export industries. This calculation is
based on a report by the Institut Haitien de Statistique (IHS, 1978). In
addition, the recent World Bank Mission to Haiti indicates that the
average size of the assembly industries established between 1973 and 1977
is 89 workers (World Bank, 1978, p. 177).









TABLE 19

CURRENT MARKETS FOR SELECTED SMALL INDUSTRIES


Enterprise Local Local Sub- Outside
Type Consumers Traders contracting Traders Exporters Tourists Total*

Percent

Wood sculpture 46 21 21 26 44 21 179
Straw, sisal, and 72 21 13 38 17 6 167
bamboo products
Metal working 84 16 11 20 3 0 134
Tailoring 88 6 2 10 2 2 110
Carpentry 87 3 6 12 1 0 109
Car repair 89 4 13 4 0 0 110
Machine repair 91 6 20 6 0 0 123


SOURCE: Phase II survey.

*Entrepreneurs were allowed up to three answers which is why the total can exceed one
hundred.









TABLE 20

HAITIAN EXPORTS (IN GOURDES)1


Exports of Light Manufactures2

Major Assembly Industries (Large-Scale) SSE3

Total
Total Light Leather Electrical Straw & Sisal Wood Total % of Light
Exports Manufactures Baseballs Goods Assembly Underwear Baskets Handbags Articles SSE Hfg Exports

1975/76 587,668,875 155,460,631 68,221,098 11,732,440 11,330,379 6,222,850 4,038,709 1,768,790 4.113,986 19,689,849 12
1974/75 405.894,093 129,008,365 45.132,418 10.872,110 11,914,028 4,411,624 1,283,752 620,556 2,801,504 11,166.221 9
1973/74 356,665,755 92.245,102 26,193,000 11,112,000 5,347,000 981.000 214,000 40,000 3,524,000 11,200,000 12
1972/73 256,544,378 103,071.505 --- 4.895,000 2,842,000 249,000 10,000 10,000 2,282.000 9.159,000 9
1971/72 211,534,983 78,567,869 --- 3,668,000 2,954,000 515,000 --- 29,000 2,176,000 9,057,000 12
1970/71 241,144,820 NA 10,025,000 2,550.000 1,136,000 1,954,000 23,000 130,000 1,401,000 10,160.000
1969/70 202,583,382 NA 4,441,000 7,697,000 --- 3,435,000 9,000 2,000 1,535.000 8,120,000
1968/69 186,280,755 NA 2,008,000 4,961,000 --- --- 4,000 4,000 751,000 9,924,000



SOURCE: Le Commerce Exterieure d'Haiti. Department de Finances et des Affaires Economlques. Various issues.
1Five gourdes equal one U.S. dollar.
2Light manufactures Is a translation of "petite industries "
3SSE products included all straw articles, sisal (except for string and fishing nets), wood articles, decorative items, items of shell, necklaces,
and paintings.








We will examine first the exports from small-scale enterprises

using official export data published by the Haitian government. According

to these official trade statistics SSE exports have doubled since 1968

(table 20) and this large growth rate is primarily due to the rapid

increase in exports of straw and wood articles. These data, therefore,

corroborate the Phase II results which point to wood and straw articles

as the most important of the SSE exports.

Turning to the large-scale, assembly goods exports we see

spectacular increases over the past eight years. Baseball exports alone

rose from virtually nothing in 1968/69 to over 11 percent of total

Haitian exports in 1975/76. Electrical assembly, undergarments, and

leather goods have increased rapidly as well. Roughly 200 of these

large-scale export industries have been established since 1971 (World

Bank, 1978, p. 21). Their importance in Haiti is undeniable.

It is important to realize, though, that the assembly goods exports

have benefited from substantial amounts of assistance which was not avail-

able to the SSE sector. For example, the assembly goods industries enjoy

considerable financial support from U.S. investors. Over 40 percent of

the large-scale export firms are either partially or wholly owned by U.S.

investors (Commercial Office, U.S. Embassy, 1978, p. 1). Furthermore, the

large-scale exporters enjoy enormous tax and tariff exemptions which the

SSE do not. As an illustration, the price a small entrepreneur pays for

a sewing machine includes a 30 percent tariff duty (10.6 percent under

GATT). The prices for saws, files, and other hand tools used by wood

sculptors include a 1.1 gourde per kilo import duty (.9 GATT). In


1Republique d'Haiti.








contrast to the small enterprises, many of the large-scale assembly

industries receive complete exemption from import duties on their equip-

ment and raw materials. Thus the small enterprises are at a considerable

cost disadvantage in many areas.

The substantial increases in SSE exports have been achieved without

the benefit of any public intervention or outside support. Not only have

they received no outside support, the SSE have operated under price handi-

caps due to input prices which are inflated by tariff duties. Given the

fact that small industry exports have doubled in the past ten years

despite these unfavorable conditions, there may well exist room for a major

boost to SSEs through tariff adjustment and export promotion.

4.1.4. Conclusion. There are three principal sources of demand for

the products of Haitian small enterprises consumer demand in Haiti

(local demand and consumer demand in other localities), subcontracting

demand by larger firms, and export demand. Most small enterprises depend

heavily on consumer demand within Haiti. However, firms with additional

market outlets either subcontracting or export markets tend to fare

better than those enterprises whose markets are limited solely to local

consumers. Of the five industries in which subcontracting and export

demand were the most readily available, four were classified as growth

industries. Clearly, demand plays a crucial role in fostering the

growth of small enterprises.

Having reviewed the demand for SSE products we turn to take an

in-depth look at the supply side and the various inputs which can constrain

the development of small enterprises. We look first at capital and credit

and then move on to raw materials, and managerial and skilled labor inputs.








4.2. Capital Constraints

In discussing the issue of capital constraints we will examine

several related topics: fixed capital, working capital, and credit.

Entrepreneurs perceive all three to be major problems. When asked to list

their most important problem, 40 percent of the entrepreneurs listed cash

(working capital) as their most pressing concern, while 20 percent men-

tioned machinery and tools (fixed capital), and 8 percent considered

credit to be their major concern (table 21). All three potential problems,

fixed capital, working capital, and credit, are of major concern in

Haitian small enterprises.



TABLE 21
ENTREPRENEURS' PERCEPTIONS OF CAPITAL CONSTRAINTS


Percent of Entrepreneurs Listing:
Most Important
Problem Problem

Cash 48 56
Machinery and tools 20 63
Credit 8 28


SOURCE: Phase II survey.



The distinction made between working capital and fixed capital is

very important. Entrepreneurs indicate cash (working capital) to be their

most important problem, and their actions underline that concern. Of the

entrepreneurs who borrowed money last year, 87 percent used the borrowed









funds to purchase raw materials, a short-term expenditure of working

capital. Only 13 percent of those who borrowed spent the funds on fixed

capital goods such as machinery and equipment. Working capital is clearly

an important problem; when the entrepreneurs had to go outside of their

business for financial support, the support they received was in the form

of short-term working capital.

The working capital problem is of prime importance in small

enterprises; it is very difficult, however, to identify the ultimate

cause of working capital shortages. Working capital shortages are often

symptoms of more basic underlying problems. For example, a raw material

supply problem can easily manifest itself as a working capital shortage.

Consider a small town where raw material delivery occurs only once every

three months. The small entrepreneur is required to tie up large amounts

of cash in procuring his three-month supply of raw materials. He is short

of cash for other short-term expenses, and thus, what is really a problem

of raw material supply, surfaces as a working capital problem. Similarly,

unsteady demand can cause working capital shortages. During a period of

slack demand an entrepreneur must still pay fixed costs, and maintain some

stock of raw materials and perhaps a stock of finished goods without the

inflow of revenue from the sale of his product. In such cases insufficient

demand can manifest itself as a working capital problem. In similar

fashion management problems, credit shortages, and a host of other problems

can cause working capital shortages.

Before attempting to sort out these commingled effects and before

evaluating the severity of each type of capital constraint it will be

necessary to look briefly at the current capital structure of Haiti's small









enterprises. In reviewing the capital composition of the small enterprises

we will look first at the current demand for capital among small enter-

prises. We then turn to sources available for supplying those capital

needs. We conclude the capital section by attempting to assess the

severity of the three types of capital constraints.

4.2.1. Demand for Capital

4.2.1.1. Initial Capital. The first demand faced by new

firms is initial capital. The initial capital requirements for equipment

and raw materials range between $6,243 for milling operations and $109 for

candy makers (table 22). The major small industries such as tailoring and

carpentry require $480 each on average.

4.2.1.2. Subsequent Investment. Once in business additional

demands for capital arise for purposes of replacement and expansion.

Table 23 displays data concerning these ongoing expenditures in machinery

and tools. From these data for the years 1974 to 1978 it is evident that

fixed capital expenditures vary considerably from year to year and from

enterprise to enterprise. Table 23 is useful for giving an idea of the

order of magnitude of annual equipment expenditures in small enterprises.

The carpenters interviewed spend an average of $56 per year on machinery

and tools. For tailors, that same figure is $103; for car repair shops

an average of $248 is spent annually on tools and machinery.

4.2.1.3. Current Capital Stock. The initial capital and

subsequent investments determine the current size of the capital stock

of small enterprises. Currently those capital stocks range between

$24,0001 per firm among essential oil producers, and $900 per firm for


1These figures are obtained by reflecting original purchase prices
to 1978 dollars.









TABLE 22

INITIAL CAPITAL BY ENTERPRISE TYPE
(In 1978 Dollars)



Average Initial Expenditure Per
Enterprise Enterprise for Equipment
Type and Raw Materials

Milling (sugar and grain) $6,243
Printing 4,865
Ice making 4,169
Oils and essential oils 3,606
Beverage manufacture 2,076
Bakery 2,076
Heavy wood products 1,747
(boats and truck bodies)
Car repair 1,525
Cement block making 1,513
Wood sculpture 1,235
Cloth making, nets 1,119
Machine repair 815
Metal working 734
Shoe repair 492
Tailoring 480
Carpentry 479
Goldsmithing 474
Pastry shops 431
Tire repair 305
Mattress making 299
Straw products 291
Leather working 235
Candy making 109


SOURCE: Phase II survey.









TABLE 23

GROSS ANNUAL INVESTMENT IN MACHINERY AND TOOLS
(In 1978 Dollars)


Average Expenditure Per Firm
Enterprise 1974-
Type 1974 1975 1976 1977 1978 1978


Tailoring $ 52 $121 $184 $ 59 $101 $103
Carpentry 54 15 118 25 68 56
Metal working 179 98 37 63 273 130
Goldsmithing 5 38 220 15 25 61
Shoe repair 129 27 145 14 32 69
Leatherwork 2 6 20 5 9 8
Straw products 3 0 19 16 20 12
Wood sculpture 84 33 38 168 110 87
Cement block making 127 233 4 817 261 288
Bakery 512 17 226 33 224 202
Beverage manufacture 0 0 620 576 263 292
Candy making 3 1 6 2 31 9
Grain milling 299 1071 373 3 101 369
Car repair 408 183 258 50 340 248
Machine repair 66 35 62 46 121 66
Tire repair 43 0 16 10 11 16


SOURCE: Phase II survey.









tire repair shops (table 24). Carpenters and tailors surveyed had capital

stocks of $3,300 and $2,500 respectively.

Current capital stock can be broken down into its constituent parts

in order to give a rough feel for the magnitude of fixed versus working

capital requirements in small enterprises. The required breakdown of the

capital stock is displayed in table 24.1 It must be emphasized that these

stock figures represent only a snapshot of the capital stock that was pre-

sent the day each firm was interviewed. These figures may not be truly

representative since raw materials and the inventory of finished goods in

particular fluctuate dramatically throughout the year. As a second quali-

fication it should be noted that we do not have data on cash on hand which

is another important component of working capital. Keeping these qualifi-

cations in mind, table 24 can provide a crude indication of the magnitude

of working capital versus fixed capital requirements in small firms. For

example, it appears that essential oil plants require relatively large

amounts of working capital they average over $35,000 per firm in raw

materials and inventory of finished goods. This amounts to 47 percent of

their total capital. On the other hand, candy makers average only $51

worth of raw materials and finished goods which means that these components

of their working capital come to 8 percent of the total capital stock.

Tailors possess about $700 worth of raw materials and finished good

inventories and these come to 9 percent of their total capital stock.



1As was mentioned previously, in this breakdown machinery figures
are much more accurate than those for buildings, raw materials, and in-
ventory of finished goods. This is because we took a complete inventory
of machinery and tools while the entrepreneurs gave only lump-sum
estimates for values of their buildings, raw materials, and finished
good inventories.








TABLE 24

CURRENT CAPITAL INVESTMENT PER FIRM
(Original Cost Reflated to 1978 Dollars)


Inventory Of
Enterprise Raw Finished
Type Machinery Building Materials Goods Total

Printing $10,383 $15,000 $ 3,340 $ 169 $28,892
Grain milling 7,346 5,868 312 492 14,019
Heavy wood products 3,998 0 681 140 4,819
Ice making 12,245 8,800 430 140 21,615
Machine repair 903 7,614 245 96 8,858
Car repair 2,362 1,362 1,315 209 5,248
Cement block making 2,687 2,348 1,213 3,914 10,162
Goldsmithing 607 1,180 438 187 2,412
Essential oils 15,312 23,667 23,909 11,215 73,803
Beverage manufacture 2,489 5,987 6,051 3,459 17,987
Shoe repair 815 1,280 98 2,453 2,437
Bakery 3,570 3,918 1,755 1,257 10,500
Carpentry 511 2,076 346 369 3,302
Tailoring 791 6,006 274 412 7,484
Metal working 1,018 3,077 293 218 4,606
Cloth, net making 1,247 400 79 71 1,797
Leather working 164 781 55 83 1,083
Pastry shops 881 11,474 148 21 12,524
Tire repair 583 0 70 214 866
Wood sculpture 807 258 2,937 3,937 7,939
Mattress making 166 1,789 261 81 2,296
Candy making 72 512 26 25 635
Straw products 72 343 619 506 1,540


SOURCE: Phase II survey.









4.2.1.4. Methods of Decreasing the Demand for Capital.

The demands for capital, particularly current fixed capital requirements,

can be altered in a number of ways. First of all an entrepreneur can

reduce his capital requirements by not investing in a building. This is

an important option; 30 percent of the enterprises interviewed work with-

out purchasing or even renting permanent building quarters. They operate

their businesses outside on sidewalks and on verandas. It should be

remembered, though, that this option is utilized more in some industries

than in others (table 12). Printers, for example, would have a hard

time operating out of doors whereas in tire repair, where noxious gases

are emitted from melting rubber, working outside of a building may even be

preferable to working inside. Therefore the feasibility of lowering

initial capital costs through no investment in a building should be

examined on an industry-by-industry basis.

A second way of minimizing capital requirements is through the use

of rented buildings and equipment. Fifty-two percent of the firms inter-

viewed, in fact, availed themselves of this option and rented their

building quarters. Machinery rental appears to be much less common; only

6 percent of the enterprises in our study rented their equipment. It is

not evident from this survey whether the small amount of machine rental is

due to lack of demand or lack of a supply of rentable machines. Additional

study1 in this area would be of considerable value because, if supply of

the rental machines is posing the constraint, a policy intervention might

be of assistance in breaking that particular bottleneck. In any case it is


1See, for example, Vancil, 1963 and Terborgh, 1967.









clear that renting, particularly the rental of buildings, is an important

means of lowering the capital costs of entry into business.

Another form of rental is the rental of workshop space and equipment

which is carried out through the jobber arrangement. A jobber, it will be

recalled, is a worker with skills but no shop or equipment. He receives

contracts to repair or produce a certain good and when he receives the

contract arranges with someone who is currently in business to rent the

use of his shop and tools for the time it takes to complete his work.

Of the workforce surveyed 2.2 percent consisted of jobbers. This figure

rose slightly in Port-au-Prince where 3.1 percent of the small enterprise

employment consisted of jobbers. The jobbers comprise, therefore, a

modest segment of the SSE sector. This particular arrangement, though,

does offer the lowest capital barriers to entry in small business.

A final option which allows an entrepreneur to decrease capital

needs is that of choosing among different methods of production and

selecting the one which requires the least amount of capital. We have

seen previously (table 13) that there exists a wide variety of possible

capital/labor combinations within many industries. Taking account of the

price of equipment and labor, the productivity difference among different

techniques, and the profit range which is acceptable to the entrepreneur,

the businessperson may be allowed some latitude in the method of production

he/she chooses. Where the latitude exists, a potential entrepreneur may






lFor an analysis of choice of technique which covers various
industries in Sierra Leone see Byerlee, et. al., 1979.









select the technique with the lowest capital requirement and thus

minimize that barrier to entry.1

4.2.2. Sources of Capital. Given the various determinants of the

demand for capital it is important to identify the sources which are

available for supplying the needed capital. Table 25 provides a convenient

summary of sources of capital for both initial capital and ongoing

investment expenditures.

4.2.2.1. Personal Savings. Personal savings provided the

start-up capital for most small enterprises surveyed. In fact, 72 percent

of the initial capital was provided from the personal savings of the

entrepreneurs (table 25). Those savings were primarily generated in agri-

culture in the rural areas while in the large urban areas the majority of

the entrepreneurs saved money from earnings in other businesses.



1The preceding discussion has addressed macro-level techniques for
decreasing capital requirements. There also exists an important micro-
level method of affecting the value of capital utilized in small
businesses tariff adjustment. Import tariffs are imposed on most
capital equipment used by Haitian small enterprises, and these tariffs
automatically increase the barriers to entry and expansion by artificially
raising the local purchase price of equipment. Examining the case of the
tailors we find that hand and motorized sewing machines coming into Haiti
face a 30 percent tariff (10.6 percent under GATT). On scissors, needles
for the sewing machines, and replacement parts import duties of 30 percent
are levied. For carpenters, handsaws, files, pliers, hammers, and punches
all face a 1.1 gourde per kilo import duty (.9 gde in GATT) (Republique
d'Haiti, p. 157).

While small firm enterprises in Haiti face artificially high barriers
to entry due to the imposition of tariffs, many large firms are exempted
from the tariff duties on their capital goods. The exemption status of
firms is a complex issue. Schwartz (1977, p. 15) cites the example of the
export industries in which the granting of tariff exemptions is not de-
cided in a uniform matter but rather on a case-by-case basis. Because of
this complication it is difficult to pinpoint the magnitude of the dis-
crimination between small and large enterprises. Research into this
question would shed important light on the degree to which the present
tariff structure discriminates against small firms.









TABLE 25

SOURCES AND USES OF CAPITAL


Initial Purchase Of Subsequent Investment
Equipment and in Equipment and
Raw Materials and Tools, 1978
Percent Of Percent Of Percent of Percent Of
Source Enterprises Capital Enterprises Capital

Personal savings 62.0 72.0
95.0 81.0
Gifts (family and 23.0 12.0
friends)

Borrowed funds 8.0 12.0 5.0 19.0
(Family) (2.4) (2.7) (0.4) (0.4)
(Friends) (3.7) (4.0) (2.0) (8.7)
(Moneylender) (0.8) (2.4) (1.7) (1.3)
(Bank) (0.8) (2.8) (0.9) (8.1)
(Caisse Populaire) (0.3) (0.1) (0.0) (0.0)
Other 7.0 4.0 0.0 0.0
Total 100.0 100.0 100.0 100.0


SOURCE: Phase II survey.









4.2.2.2. Family and Friends. The second most important

source of start-up capital was family and friends. Gifts from these two

sources accounted for 12 percent of the initial investment capital in the

firms visited. Family members and friends also granted loans to

prospective entrepreneurs.

In addition to being an important source of start-up capital these

two sources family and friends, and personal savings are of crucial

importance in providing money for ongoing investments. Last year 90 per-

cent of the equipment purchased by the small entrepreneurs interviewed

was purchased with funds supplied by personal savings, and family and

friends. Of that 90 percent, 9 percent came in the form of loans from

family members and friends. Thus for both recurring expenditures and for

start-up capital, personal savings, and family members and friends offer

a large share of financing required by small businesses.

4.2.2.3. Moneylenders. Although substantially behind

personal sources and family and friends, moneylenders offer a third source

of capital for new firms. The moneylenders provided 2.4 percent of the

start-up capital in the firms surveyed. However, the moneylenders are

slightly more important in financing ongoing expenditures for existing

firms; they provided 8 percent of the funds for equipment purchases in

1978. Moneylenders are important in all locality sizes although they are

marginally more important in the smallest rural areas (table 26).

4.2.2.4. Formal Credit. Moneylenders, personal savings,

and support from family and friends represent the informal sources of

financing available to small firms. The banks and caisses populaire

represent formal sources of credit. Together the banks and caisses








TABLE 26

SOURCE OF LOANS OBTAINED IN 1978, BY LOCALITY SIZE1
(Percent of Loans)


Commer-
Locality cial Caisse Money
Size Family Friends Bank Populaire Lender Landlord Other Total

Percent

Under 1,000 25 75 0 .0 25 0 0 100
1,000 2,000 14 57 7 7.0 14 0 0 100
2,000 5,000 25 50 5 5.0 5 10 0 100
5,000 20,000 14 59 4 0.0 14 6 6 100
20,000 100,000 17 52 19 0.0 15 3 1 100
Average for all 17 55 12 1.4 14 4 2 100
enterprises surveyed


SOURCE: Phase II survey.

1Data pertain to firms established in earlier years; loans were for capital expansion or
working purposes, not initial establishment.









populaire provided 3 percent of the initial capital to the firms surveyed.

In terms of ongoing investment they provided 8.1 percent of the equipment

investment in 1978. The caisses populaire appear to be more important in

the rural areas whereas the banks tend to finance a larger percentage of

businesses in the larger towns (table 26).

4.2.2.5. Terms of Credit. Credit is an important source

of financing capital expenditures in small firms and in completing our

look at sources of capital in small firms it is important to be aware of

the terms under which small entrepreneurs can borrow these funds. The

terms of credit granted to small entrepreneurs vary considerably depending

on the source. The loans from family members and friends are generally

very flexible in duration and often carry no interest.

Moneylenders are also extremely flexible in their timing so

flexible that in several cases it was impossible to compute an interest

rate on moneylender loans; the repayment period could not be clearly

specified. Among those loans for which it was possible to calculate the

interest rate, the rate varied between 40 percent and 240 percent per

year. These loans were generally of short duration ranging between one

month and a year, and the loans rarely required collateral. The size of

the loans granted by the moneylenders was most commonly in the $50 to

$300 range although some were granted for as little as $25. At the other

extreme one moneylender loan was offered for $6,000 over 5 years. The

moneylenders do charge much higher interest rates than the banks, but

they offer greater flexibility to their customers both in timing and

magnitude of their loans.

The banks and caisses populaire charge much lower interest rates

than do the moneylenders. The banks charge between 12 and 15 percent on









their loans, but they have high collateral requirements. The small

entrepreneur who had borrowed from banks typically left a title to land,

house, or some other building as collateral for the bank loan. The

bank loans are generally larger in magnitude and of longer duration than

those offered by the moneylenders. Bank loans were typically in the

$2,000 to $10,000 range with their repayment term between 5 months and

several years. The smallest bank loan encountered was a $200 loan over

6 months; the largest was $50,000 over 2.5 years. Banks do offer the

lowest credit rates outside of family gifts and loans, but the collateral

and other requirements imposed by the banks make it difficult for most of

the small enterprises to qualify.

4.2.3. Evaluation of Capital Constraints

4.2.3.1. Barriers to the Formal Credit Market. A major

barrier to using formal financial markets is the inaccessability of

formal institutions in many of the rural areas in which the SSE operate.

Ninety-four percent of the entrepreneurs interviewed had never applied for

a loan from a formal credit institution. The large majority of them had

never applied because there existed no local office or credit bureau and

they had no contact with or knowledge of any formal credit institution.

Another problem with formal credit markets is that the processing

time required by formal credit institutions is often too long for small

entrepreneurs to wait. Lengthy processing time is particularly trouble-

some for small enterprises as short-term working capital loans represent

the major portion of their credit needs. Of the firms which have applied

for formal loans but have not received them, half have failed to obtain

the loans because they have not yet received word back from the lending









institution. Several of the entrepreneurs indicated they had given up

on the loan applications because they had gone so long without hearing

from the banks. The length of processing time for the entrepreneurs who

did receive formal loans is listed in table 27. From that table ie can

see that half of the loans were processed within two months of the date

of application, but the other half took three months or more. A three

delay may be acceptable to an entrepreneur looking to purchase a new

piece of equipment but, as we saw, the bulk of the small enterprise credit

goes for short-term purchases of raw materials. For these entrepreneurs

a three-month delay may well be too long.



TABLE 27

PROCESSING TIME FOR LOANS FROM BANKS AND CAISSE POPULAIRE



Processing Time Number of
In Months Loans


1 18
2 4
3 11
6 5
8 2
12 1
15 1
22 1


SOURCE: Phase II survey.









Collateral requirements represent a third barrier to many small

entrepreneurs. Thirty percent of the small businesses surveyed are not

housed in any permanent building and without a building or piece of land

to offer as collateral many of the small entrepreneurs have no hope of

obtaining credit from the formal sector. Roughly half of the entrepre-

neurs who were denied credit from the banks did not receive the loans

because they failed to meet the banks' collateral requirements.

4.2.3.2. Interest Rate and the Demand for Credit. While

lack of institutions, lengthy processing time, and high collateral

requirements pose serious obstacles to small entrepreneurs, the interest

rates do not. It was noted earlier that the 12 to 15 percent interest

rates of the banks are substantially below those charged by the money-

lenders. In attempting any sort of loan program for small industries

determination of the interest rate to be charged is a crucial issue.

Table 28 attempts to give some feel for the demand for credit at various

interest rates. Two simple rates were selected; 10 percent was chosen

as a round number very close to the official bank rate and 50 percent was

taken as a rough estimate of interest rates in the informal sector. Given

these two interest rates, entrepreneurs were asked how much they would be

interested in borrowing at each rate. At 10 percent the average loan

requested was $2,410 while the 50 percent rate yielded an average response

of $250. The number of loans requested also dropped at the higher interest

rate but it dropped only half as much as the loan amounts. The figures for

credit demand have been extrapolated to all of Haiti living in localities

over 1,000 in population and the results are listed in table 28. From

these extrapolations it is estimated that the total amount of credit









TABLE 28

ESTIMATES OF POTENTIAL DEMAND FOR CREDIT IN ALL
LOCALITIES OVER 1,000 IN POPULATION


10 Percent 50 Percent
Interest Rate Interest Rate
Amt. Credit Amt Credit
Number of Requested Number of Requested.
Size of Loan Borrowers ($) Borrowers ($)

Under $200 855 $ 85,000 353 $ 35,000
$200 $999 2,732 1,616,000 551 328,000
$1,000 $1,999 1,121 1,681,000 209 313,000
$2,000 $2,999 716 1,790,000 47 117,000
$3,000 $3,999 248 868,000 33 115,000
$4,000 $4,999 179 805,000 14 63,000
$5,000 $9,999 424 3,180,000 44 330,000
Over $10,000 463 4,630,000 52 520,000

Total 6,738 14,665,000 1,303 1,821,000


SOURCE: Phase II survey.









requested at a 10 percent rate of interest is $14 million and at 50 percent

the total was for $1.8 million. It must be immediately noted that these

figures are only very crude indicators of credit demand and the 10 percent

figure surely represents an upper limit on the total credit demand in

localities over 1,000 in population. The answers given to this question

are not expected to be very accurate and even if they were, demand for

credit and ability to qualify for loans are two very different matters.

These figures on the demand for credit must be treated with extreme caution.

Rather than estimating the aggregate demand for credit, table 28 is

probably most useful in giving some feel for the numbers and the size

distribution of loans that might be potentially requested by small enter-

prises. Table 28 indicates that large numbers of loans in the $200 to

$3,000 range might be expected. This corresponds closely to the size of

loans actually contracted in 1978. The vast majority of the loans granted

in 1978 were in the $100 to $3,000 range. In the granting of large

numbers of rather small loans a potential credit program would want to

carefully consider the overhead costs involved in processing the loans.

In concluding this evaluation of credit constraints we emphasize

that several barriers combine to prevent the small firms from having access

to formal credit markets. Formal institutions are physically inaccessable

to many small enterprises, particularly those in rural areas. Where the

formal institutions exist, collateral requirements, processing time, and

loan sizes particularly considering the small size requirements for

working capital loans are not well suited to the needs of the small

enterprises. Flexible credit is available in the informal market but the

interest rates are extremely high. The fragmentation of the credit









market disadvantages the small firms vis-a-vis the large firms. These

larger firms do have access to formal credit channels where interest

rates are extremely low. The small enterprises continue to experience

credit problems even though they are willing to pay higher rates of

interest to borrow funds in formal credit markets.

4.2.3.3. Fixed Capital Constraints. Large numbers of

entrepreneurs in all localities and industries complained of shortages of

machinery and tools. This is not surprising as it is very normal for

small entrepreneurs to complain of equipment shortages even when they have

no need for additional fixed capital.l It is essential, therefore, to

carefully evaluate requests for fixed capital.

Several kinds of information are required before an informed

judgment can be made as to whether or not fixed capital is in short supply.

That information includes: (1) the capacity utilization of current equip-

ment, (2) measures of technical and economic efficiency or current and

alternative techniques of production, and (3) information on whether or

not new kinds of machines offer potential for the production of more

saleable goods.

Measurement of excess capacity is particularly useful in assessing

the need for additional machinery,2 and in seasonal businesses such as

those surveyed, flow data are needed to make reliable estimates of annual

rates of capacity utilization. We did, however, make crude calculations



1See Harper, 1977.
21t should be noted that there is an economic rationale for a
certain amount of excess capacity. See Winston, 1974 for a discussion
of this issue.








based on our single interview. These rough calculations pointed to

substantial amounts of excess capacity at the time of the interview; how-

ever, it must be remembered that our interview took place in January and

February, periods which 44 percent of the entrepreneurs considered to be

their lowest season. It is not surprising to find excess capacity in the

low season. More detailed flow information will be required to determine

capacity utilization during other seasons of the year.

In addition to capacity estimates, information concerning the

technical and economic efficiency1 of various types of equipment would be

useful in evaluating the desirability of additional machinery. A techni-

cally efficient technique of production is one which produces a maximum
amount of output with a given set of inputs. Economic efficiency refers

to techniques which maximize output with respect to the scarce factor of

production which in developing countries usually is capital. Measures

of both kinds of efficiency are particularly useful2 in evaluating the

kinds of machinery that it would be desirable to encourage in machine

rental or credit programs.

A third kind of information which is useful for diagnosing fixed

capital shortages would be a determination of whether or not new kinds of

machines will increase the saleability of the output. For example, it is

possible that an embroidery attachment would enhance the marketability of

a tailor's products. Newer vintages of machines may also produce items


1For a good discussion of technical efficiency see: C. Peter Timmer,
1970.
2For a good, practical example of the use of such information see:
C. Peter Timmer, 1973.










which are more highly sought by consumers than are those items produced

with the current equipment.

Some of the information required for assessing fixed capital

shortages can be studied on an industry-wide basis. For example, exami-

nation of demand conditions and the efficiency of different techniques of

production falls in this category. On the other hand, information on

capacity utilization is specific to individual firms and these estimates

will have to be made on a case-by-case basis.

To obtain the above kinds of information capacity estimates,

demand appraisals, and information on technical and economic efficiency -

additional study will be required, but the information gathered would be

of great value in policy design and implementation. Information on capa-

city utilization of capital stock is, of course, useful in credit programs

as part of an assessment of a firm's need for new equipment. Consideration

of possible demand increases due to the acquisition of new equipment can

also play a role in deciding whether or not to make a loan or rent a new

kind of machine. Data on the technical and economic efficiency of various

techniques of production allows those involved in credit or machine rental

programs to evaluate the potential profitability and likely employment

generation effects of different machinery packages they might provide.

Efficiency considerations will also be important in allowing policy makers

to compare actual techniques of production with those not currently in use

and to determine whether or not they can make an important contribution to

the economy by playing an information disseminating role. Similarly,

policies aimed at encouraging shifts in production techniques by tariff or









other price manipulations will want indication of the magnitude of the

price change necessary to effect a desired shift. They would also find

useful an ex ante indication of the likely effects in terms of employment

and output of their policy intervention. Finally, a knowledge of average

productivity and profit rates in an industry is extremely valuable in

evaluating the need for management assistance and in indicating the

direction in which possible operating improvements can be made. Thus in

numerous areas demand, capacity, and efficiency considerations can provide

invaluable information for policy makers.

4.2.3.4. Working Capital Shortages. As was mentioned

previously, working capital shortages can be the manifestation of numerous

underlying problems demand, raw material supplies, credit shortages,

mismanagement, and so forth. Statistical tests1 were performed in an

attempt to correlate working capital shortages with each of those possible

underlying causes. The results of these tests indicate that those entre-

preneurs keeping records are less likely to experience working capital

problems than are those who do not. Lack of managerial skills may, there-

fore, be contributing to working capital shortages. Credit availability,

demand, and raw materials also appear to be correlated with working capital

problems. The exact nature of working capital shortages, however, is very

subtle. It varies substantially from locality to locality and from firm

to firm, and it is at the individual firm level that working capital

shortages are best diagnosed. Many programs of assistance will be dealing

with individual firms either granting credit, loaning machinery, or



A chi-squared test and linear discriminant function were used.









offering management assistance and a determination of sources of

working capital is best made for individual firms at that time.

4.2.4. Conclusion. Shortages of working capital, fixed capital,

and credit are of major concern to small entrepreneurs. Credit shortages

appear to be related to the fragmentation of the credit market. A diagno-

sis of fixed capital shortages requires additional information on capacity

utilization in individual firms, the efficiency of various techniques of

production, and the demand for output produced by those different techni-

ques. Working capital shortages appear to be related to management, credit,

demand, and raw material problems. Specific problems of this nature, how-

ever, need to be evaluated at the firm level. Since many programs will be

dealing with individual firms the determination of specific working capital

requirements is best made on an individual basis at that time.


4.3. Raw Materials

The supply of raw materials is of moderate concern for small firms

in Haiti. Thirty-five percent of the entrepreneurs listed raw material

supply as a problem; six percent indicated it to be their most important

problem. When entrepreneurs were asked what types of nonfinancial assist-

ance they needed most their single most frequent response was "make raw

materials available." Fifty-eight percent of the entrepreneurs surveyed

made this request.

Shortages of raw materials can arise for several reasons. Raw

materials can be in short supply due to bad transportation and marketing

networks. Shortages may also occur when imported raw materials are not

available in sufficient quantities or when the supply of imported raw

materials is sporadic. Both of these explanations for raw material









shortages result from bottlenecks in the raw material supply network.

It is possible, though, for raw materials to be a problem for small enter-

prises even in the absence of supply bottlenecks. Shortages of working

capital can impede raw material procurement. Thus if working capital is

in short supply due to mismanagement, lack of steady demand, or for any

number of reasons, raw material procurement can still be a problem even

where the necessary raw materials are available locally. Thus raw material

problems can be related to supply bottlenecks or they can be related to

working capital shortages. Each of these sources of raw material problems

seems to exist in Haitian small enterprises.

4.3.1. Bottlenecks in the Supply of Raw Materials. Transportation

difficulties appear to be an important factor influencing the severity of

the raw material problem. Most of the enterprises experiencing larger

than average raw material problems are those which are the least accessible

by road Hinche, Belladere, Mirebalais, Port-de-Paix, Anse Rouge, and

Gros Morne (table 29). In these areas it would appear that the raw

material deficiency is related to transport difficulties.

Another consideration which is of major importance in examining raw

material problems is whether or not an industry uses large amounts of

imported raw materials. In fact, industries in which the majority of the

firms use at least some imported raw materials are those industries which

complain the most about raw material shortages. Goldsmiths, watch repair

shops, metal working shops, car repair shops, and carpenters are examples

of such industries in which imported raw materials and raw material com-

plaints appear to be correlated (table 30). For goldsmiths the import of

their basic raw material poses an obvious constraint to their operations.









TABLE 29

PROPORTION OF ENTREPRENEURS REPORTING RAW
MATERIALS AS A PROBLEM, BY LOCALITY



Locality Percent


Hinche 62
Belladere 57
Mirebalais 50
Port-de-Paix 44
Acul-du-Nord 44
Anse Rouge 43
Cap-Hatien 38
Leogane 37
Gros Morne 33
Lascahobas 33
Petite-Riviere-de-l'Artibonite 32
Gonaives 31
Saint-Marc 31
Jeremie 31
Port-au-Prince 30
Limbe 30
Cayes 29
Verettes 28
Jacmel 27
Trou-du-Nord 26
Plaisance 25
Carrefour 22
Les Poteaux 17
Estere 8
Camp Perrin 8


SOURCE: Phase II survey.









TABLE 30

PROPORTION OF ENTREPRENEURS REPORTING RAW MATERIAL SUPPLY AS A PROBLEM


Raw Over 50 Percent Of Raw
Materials Firms Use Some Materials the
Enterprise A Imported Raw Most Important
Type Problem Materials Problem


Goldsmithing 74 + 21
Watch repair 60 + 7
Cloth, net making 47 24
Pastry shops 14 + 0
Metal working 42 + 10
Straw products 39 7
Tire repair 39 + 0
Leather working 38 8
Machine repair 36 + 6
Printing shops 36 0
Cement block making 35 12
Car repair 35 2
Mattress making 33 0
Shoe repair 33 6
Carpentry 31 + 6
Wood products 30 7
Tailoring 29 + 4
Candy making 14 0
Bakery 10 0
Grain milling 3 0
Average for all 32 6
enterprises surveyed


SOURCE: Phase II survey.









In the repair industries watch, car, and machine repair which

require the import of many replacement parts, the relationship between

raw material constraints and imports is clear. Tailors use substantial

amounts of imported cloth and the carpenters require imported nails, bolts,

hinges, and so forth. On the other hand, agricultural processing indus-

tries, which do not require large amounts of imported raw materials, appear

relatively unconcerned about raw material problems. Grain millers and

candy makers express very little concern over raw material shortages.

Thus it would appear that the import composition of raw materials is a

major determinant of raw material problems.

In reviewing the relationship between imports and raw material

problems it is of interest to examine more closely certain import sub-

stituting industries because several large-scale industries have been

established in Haiti specifically to produce local raw materials and

thereby reduce import dependence. Bakeries, cement block making, and

metal working are three industries which find some of their inputs pro-

duced locally in these import-substituting industries. The bakers'

demand for flour appears to be well satisfied by the local flour mill.

Only 10 percent of the bakers surveyed listed raw materials as a problem,

and none considered raw materials to be their most important problem.

Cement block makers, on the other hand, seem to be less well

supplied by the local cement plant. Thirty-five percent of the cement

block makers complained of raw material shortages and 12 percent considered

raw materials to be their most important problem. This is difficult to

explain given the large amounts of excess capacity in the local cement

plant (World Bank, 1978, p. 21), and given the fact that substantial









amounts of cement are exported. It is possible that the large cement

plant has produced adequate quantities of cement but that working capi-

tal or transport problems have impeded the distribution of the cement to

small block makers. Further study will be required to resolve this issue.

The third import-substituting industry of interest is the steel

industry. Despite the construction of the steel plant in Port-au-Prince

the small metal working sector in Haiti still complains of substantial raw

material shortages, and they also remain heavily dependent on imported

inputs (table 30). The single steel plant in Haiti currently supplies only

half of the structural steel used in Haiti and other basic inputs to the

metal working sector remain in short supply (World Bank, 1978, p. 21).

According to the head instructor of the metal working school in Camp

Perrin, basic requirements of U-bars, I-bars, T-bars, plough shears, and

bolts are extremely difficult to procure, even in Port-au-Prince. The

metal industry suffers due to the fact that there currently exists no

foundry in Haiti. The one steel mill possesses an arc furnace, but it has

never been used because of the inadequate supply of electrical power. Thus

the import substituting industries in Haiti appear to have solved the raw

material problems of the local bakers, but for the cement block makers and

metal workers raw material supply problems continue.

4.3.2. Working Capital Shortages. Supply bottlenecks are important

in explaining raw material shortages but working capital shortages also

contribute to raw material problems of small enterprises. Of the small

businesses who borrowed money in 1978, fully 87 percent used the borrowed

funds to purchase raw materials. This means that 16 percent of all the

firms interviewed had to borrow money to purchase raw materials in 1978.

Had that working capital credit not been available raw material problems









would certainly have been aggravated. It is clear that shortages of

working capital and credit can contribute to problems of raw material pro-

curement. Thus working capital shortages as well as supply bottlenecks

currently contribute to raw material problems among Haitian small

enterprises.

4.3.3. Conclusion. When policy decisions have been made identifying

regions and specific industries on which to focus it will be useful to

trace individual products and determine which factors supply bottlenecks

or working capital shortages are relevant in explaining raw material

shortages in those regions and industries. In some cases the potential

for useful interventions may be easily diagnosed. For example, the cement

block industry is an industry in which there appears to be a raw material

problem despite the existence of excess capacity in the local cement

plant. In this instance the cause of the raw material problem might be

determined without much difficulty. The industry and regional rankings of

raw material problems (tables 29 and 30) are useful in providing direction

for any groups interested in further study of raw material shortages in

Haitian small enterprises.

Having reviewed raw material problems in small enterprises we turn

to look at management constraints in the operation of small businesses.


4.4. Managerial Personnel

Very few entrepreneurs considered management practices to be a

problem in the operation of their businesses. When asked what type of

nonfinancial assistance they would like most, only 4 percent requested

help in developing management skills.









The following brief exposition is designed to offer an

impressionistic view of certain aspects of current management practices in

Haitian small enterprises. The exposition is brief because it is diffi-

cult to obtain penetrating insights on management practices in a single

interview which covers as wide a range of topics as did ours. In the

following discussion four aspects of management training and practices are

discussed: education, record keeping, selling goods on credit, and use

of banks.

4.4.1. Formal Education. Eighty-seven percent of the entrepreneurs

interviewed have received some formal education and 56 percent of them

have completed their education through the sixth year, through middle 2

(table 31). If these figures are correctI it would imply a high level of
literacy as the average literacy rate for Haitian adults is only 20 percent

(World Bank, 1978, p. 110). High levels of literacy'are important as

they indicate that many small business managers may possess the basic

educational skills necessary for implementing new management and record

keeping practices.

4.4.2. Record Keeping. Half of the entrepreneurs interviewed keep

records of some sort. This figure is uniform throughout the country;

businesses located in the larger towns are not more apt to keep records

than entrepreneurs in the rural areas. The 50 percent of the firms who do

not keep records of any sort were asked why they do not. The majority of

them, 52 percent, responded that their business was not large enough to

justify keeping records. In those enterprises which do keep records, cash



1There may be a tendency to give inflated estimates of educational
background in order not to appear uneducated in front of the enumerators.




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