Can Private Sector Innovation Provide an Adequate Solution to Haiti’s Poor?

dlo Haiti delivering water to a small shop (Ovive is dlo’s brand)

Port Au Prince, Haiti, March 7-10, 2016 – Haiti is the poorest country in the continent, and an unresolved development riddle. Thanks to humanitarian aid and debt forgiveness the country has grown at an average rate of 3.8%[1] since the devastating 2010 earthquake. However, poverty continues to afflict over 58% of the population. Part of the challenge stems from the difficulty of effectively providing development assistance through models that are scalable and replicable throughout Haiti’s complex geography. Consider this: 45% of Haiti’s population lives in rural areas, yet only 10% have access to energy, 29% to water, 60% to health services and 73% to education. Few roads are paved. Although cellphone penetration is high, nationwide internet penetration is only 25%.

The energy and water coverage deficiencies generate dire consequences, such as food-borne illness (through lack of refrigeration/contaminated water/poor hygiene), health issues (more women die in Haiti from inhaling indoor charcoal smoke than from road accidents), and a devastating 96% deforestation of Haiti’s land mass from using wood for fuel (an ecological tragedy which taxes the growth possibilities of future generations). Lack of energy makes it difficult for people to access the most basic forms of information (radio/television), and it excludes them from the digital revolution. Nearly 40% of Haiti’s population is illiterate; wouldn’t that change if every household had access to a computer and broadband?

Without a doubt, vulnerability and the absence of a “service grid” in Haiti makes economic development challenging, as: 1) vulnerable populations are spatially fragmented, hard to reach, and therefore constitute very small markets; 2) rural groups face multiple daily subsistence challenges which severely diminish their productivity and ability to contribute to economic growth; and 3) government programs and development assistance find it hard to massively and efficiently increase the population’s productivity by extending the coverage of basic services, especially to the most vulnerable. While pilots are relatively easy in Haiti, scale-up is very hard.

In such a context, innovation or “new ways of doing things” is crucial. Moreover, in Haiti, as in other poor countries, it is believed that the private sector can play a role in bridging the service gap. Three Bottom of the Pyramid projects led by Compete Caribbean –a Program funded by the IDB, Canada and the UK to stimulate innovation and private sector development—provide an illustration of the possibilities and challenges of this aspiration. The projects: dloHaiti, Re-Volt solutions and D&E Enterprises respectively aim to provide potable water, rural electricity, and energetically efficient cookstoves to vulnerable groups. dloHaiti is providing clean drinking water to 46,000 households in rural areas through 10 kiosks and a distribution network of 500 entrepreneurs; Re-Volt has provided rural lighting to 2,100 families in La Gonave and Leogane and will expand to 2,500 more, and D&E manufactures cookstoves that halve the charcoal used and lasts four times longer than traditional cookstoves.

_{D&E’s Echo Recho cookstoves}

_{Re-Volt powered light bulb}

What lessons can we learn from these three projects in providing basic services to vulnerable groups?

• Vulnerability creates sensitivity to up-front cost: Re-Volt and D&E both provide more durable and therefore lower cost energy solutions over the short term than other market alternatives. However, in both cases, a higher upfront cost to existing alternatives has proved a challenge in gaining consumers. Re-Volt has solved this by leveraging the Digicel mobile money platform to provide consumers credit for 24 months in a “lease to own” option of its equipment. D&E does not have a recurrent payment system that can facilitate this; it is trying to bridge this obstacle by penetrating segments of salaried workers, where payment can be secured from their payrolls.
• Credit is difficult to extend to vulnerable groups: While the solution to higher upfront costs could be provided by micro-credit systems – e.g. Mon Cash’s mobile money platform – these have not gained traction in Haiti[2]. dloHaiti, who provides credit to the 500 rural entrepreneurs serviced by the water kiosks, explains that in Haiti, even entrepreneurs are credit resistant. A history of persistent vulnerability where tomorrow is uncertain seems to have excessively shortened horizons. More practically, a firm extending credit has to be able to collect upon default, and given the absence of a “service grid”, these logistics can be difficult and expensive to build in Haiti[3].
• The low margin/high volume conundrum requires subsidized financing: Margins in the provision of low-cost services to vulnerable consumers are small in Haiti[4]. When inputs are imported, currency devaluation narrows these margins further. Narrow/unstable margins put entrepreneurs in a chicken and egg situation where they require volume to drive profitability or even break-even, yet the logistics to achieve volume are costly to build and require margins to fund them. Margins in the business of providing services to the vulnerable are also typically lower than the 18% interest provided by commercial banks in Haiti. In this context, donor and/or government funding as well as equity investments are very important for initial financing.
• Possibilities for scale-up? Sustainable scale-up of privately provided, low-priced services in Haiti will depend on firms’ ability to grow their margins such that they can finance the logistics to acquire more consumers. In these three examples, firms are attempting to achieve this by adding services or products to the distribution channels they have created. dloHaiti has introduced credit and is distributing other firms’ products through their water kiosks. Re-Volt is developing a mid-size energy solution that can power a TV and wifi, and that would be upsold to their existing clients. D&E is working on an “institutional” cookstove model for the schools, factories and hospitals where they are already selling their individual stoves. The jury is still out, but if these three firms can solve the low margin-high volume conundrum, it could reveal viable business models for other low-cost, private sector-delivered social services in Haiti.

_{[1] The World Bank: 2011-2014}

_{[2] After 4 years, there are 250,000 mobile money users in a country of 11 million, despite 70% cellphone penetration.}

_{[3] Re-Volt can cut non-payers’ energy service through the Digicel cellphone system. dlo kiosks can stop selling water to entrepreneurs who default on their credit obligation.}

_{[4] dlo Haiti, for example, makes 50% gross margin on the sale of water, but needs another 20 sites to have net positive margins.}

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