Wednesday, February 17, 2010

Jean Poincy on Disscussion on Assembly industry

This article posted on the list prompts me to resend a series of discussions held on this list in march of last year. I am very concerned by how proponents of the "assembly industry" like to intentionnaly confuse the "assembly sector" within the "textile industry" with the "textile industry" itself and predict that thousands of jobs will be created soon. It is not wrong to think that the country's economy has a new opportunity to take off as a result of 01/12, but when they make the "assembly sector" the level to pull, I get worried..

Instead of saying the same things in different words, I take the liberty (if Bob allows it of course) to resend my replies to some comments made in favor of the the textile assembly. For the sake of not making the post too too long, I confine it just to my comments and the number assign to the posts with their respective dates.

However, I find it necessary to give the bacground of the discussion which was about the visit of Bankimoun and Clinton in Ayiti in that period. The former engaged an economist, Paul Collier, to determine what should Ayiti do to get itself out of this mess. His proposition was the assembly industry (textile industry) which was well received by Ayitian authorities, the textile assembly, and by some members on the list.

Re : 34135: Durban (comment): re. 34131 Arthur (UN Chief Promotes Sweatshops) (fwd)
Durban asked :
" The big question is why has Haiti never joined this band wagon? "
34140: Poincy (comment) Re : 34135: Durban (comment) (Monday 03/23/2009)

1st. Comment

Ayiti has already joined the band wagon in the 70s. One can recall when it was called the "Taiwan of the Caribbean". Success was not in the rendez-vous, because the focus was solely on the assembly sector and not on the development of the "transformation industries".

1) The assembly sector is the last link in the chain of the textile industry.
2) The final product is for the international market.
3) There are no textile products made for local consumption.
4) Second hand clothing (Pepe) is what the majority of Ayitian people consume.

For these reasons, this sector has never been and can never be a way to alleviate poverty in Ayiti.

I am for a full textile industry whose chain contains at least four main links and other derivative ones :

1) cotton plantation (agriculture)
2) making the thread with cotton (manufacture)
3) making fabric/cloth with the thread (manufacture)
4) making clothes and everything that one can use to wipe, cover etc.(manufacture)
5) making the dye to color the thread.(pharmaceutical industry)
6) making the cooking oil with the cotton's grain.(oil industry)
7) making animal food with the residue of the cotton's grain..(cattle breeding from which can develop the following industries:

1) shoe/tannery
2) milk (can contribute better to health than starchy food like rice, corn and others)
3) meat (can contribute better to health than starchy food like rice, corn and others)

Most of the products are to be renewed constantly to keep alive different links of the chain. All the links are labor intensive where many people would be employed and earn an income as small as it might be.

Being made by the Ayitian people and consumed by the Ayitian people, the textile products are sufficient to propel the economy.

Let's take the first four links and assume that 100 people are employed in each, the country would have 400 hundred people working.

If the focus is only on the assembly sector, the country will lose the opportunity to employ 300 people. The country will still be in the bottom pit with only 100 people making products they will have a chance to use after they are used by the first world.

The solution proposed for export via such an industry is poisoned.

If they were other sectors that have as many linkages as that of the textile industry and the shoe industry, I would have no problem with the promotion of the clothing assembly sector as a supplementary source of employment.

As far as the minimum salary goes, the increase will have no consequences at all. It would be so only if the country were producing for the local economy, and not sufficiently enough. The debate not to increase it is a false economic one.

34147: Poincy (comment) Re : 34142: Lucien (comment) re : 34141: Knowles (reply) Re: 34140: Poincy (comment) Re : 34135: Durban (comment): re. 34131 (Wednesday 03/25/2009)

2nd. Comment : my response to replies to my first comment

I’ll try to kill two birds with one stone :

On Knowles’ comment :

On the contrary, I advocate free trade. However, how to engage in free trade is a different ball game. A fare trade is when a country produces its own good for local consumption first. Once the point of satisfaction is reached, the surplus can be exported to import what is not produced.

I don’t have food crops in mind, because they are worthless on the international market for the country that produces them, unless it produces massively quality products at low costs. Since there are so much of them on the international market, their price tend to drop at the expense of the local producers.

For the assembly sector, Ayiti does not create the goods. It only assembles parts received to make final goods to be exported afterwards. This type of activity does not have any impact on the engine of the economy. Not only, it does not leave room for linkages between different sectors where many jobs would be created, but also local consumption which is the main nerve of an economy is totally absent. The final products are not sold on the Ayitian market.

> From that perspective, Ayiti does not export what it creates. The economic transaction is just subcontracting and nothing else. Ayiti sends back what it receives as an order. It’s erroneous to speak of export in the assembly sector case.

Ayiti must rethink the whole business of the textile industry if it ought to gain from it. It must determine what it does best with the least cost of production as possible to specialize itself in, then import what it could produce at a very high cost. If food production (mainly cash crops like mangoes, coffee etc.) for trade should not be an economic priority, the government should have an economic plan that would take into account both foreign and local investors.

On (Lucien) Patrick’s comment:

We have to bear in mind that the assembly sector is not direct investments. Ayitian investors are only subcontractors. Foreign investors don’t have any stake in those activities besides getting their products back. This is why it is easy for them to switch subcontractors from one country to another when the security of their products is in jeopardy.

Nonetheless, I agree that we have to start somewhere, but in a well conceived economic plan where on the time line Ayiti can go backward to produce the inputs that are necessary to establish the preceding links in the industry.

A scenario showing the backward motion would be:

Period 1 : assembly sector

(All inputs would come from somewhere else as HOPE allows it now)
The first period would last 2 to 5 years just enough time to learn how to make the fabrics from imported threads.

Period 2: assembly sector + production of fabrics (weaving mill)

(This input made locally would be used in the final product. Then the country would have a great opportunity to employ more people.) The second period would last 2 to 5 years just enough time to learn how to make the threads from imported cotton and the dyes.

Period 3: assembly sector + weaving mill + (production of thread (spinning mill) + pharmaceutical industry)

(This input made locally would be used to make the fabrics. This would propel the pharmaceutical industry to produce the dyes. Then the country would have a great opportunity to employ more people.) The third period would last 2 to 5 years just enough time to prepare the land to cultivate cotton.

Period 4: assembly sector + weaving mill + (spinning mill + pharmaceutical industry) + agriculture (cotton plantation).

The country would have 8 to 20 years to set up its industrial base and revamp the economy. For that matter, proper economic organization is required where investors would be encouraged to enter the project to make big profits while creating many jobs. That’s the only way for them to be interested in investing in the country provided that security is there.

One must note however that things don’t have to be done in that exact time frame. For instance the activity during Period 4 can be started earlier.

The benefits:

Those employed have the hope of getting a regular income as small as it might be. They could live with it as they would carefully budget their spending. The government on its part would enlarge its fiscal base as it would be able to take at least a very small percentage on everyone’s income. Then, it would cease to be the main employer and free up its public revenue to provide the services as it ought to.

I only take one activity to show the possibility of making Ayiti economically independent. The same exercise can be made with the shoe industry as I pointed it out before. Then, Ayiti would cease to be on the assistantship list of all kind of organizations to become a real economic partner that has a say in things and engage in the export business with no fear of being crushed.

34164 Poincy (comment) : Re : 34157: Lucien (comment); Re: 34155:(Durban); Re: 34154 (Durandis) (fwd) (Friday 03/27/2009)

3rd. comment : my response to reply to my second comment

My proposition is about Ayiti’s structural economic development and not opportunities to earn hard (foreign) currencies on the international market. By structural development one must understand the development of the domestic market where production is made for domestic consumption first. Satisfaction must be reached before engaging in competitive trade on the international market.

Such a development will place a call on many different sectors through forward and backward linkages. The significance of it is many jobs creation which in turn will create purchasing power to make consumption effective and improve living conditions.

One must bare in mind that real economic development takes time and a 20 years span would be a great success story. At any rate, my time line is between 8 to 20 years. All will depend on the investment rate the private and public sectors will agree to assume.

Economic development is not about making big profit from private investments. It’s about responding to the population needs. A country that is capable of producing to satisfy the main basic needs of its population is on the development track. How long it will take will depend on the kind of economic policies that will accompany the economic development plan?

To begin with any kind of industry, one must know that all infant industries need to be protected and avoid competition at any cost. At this period production cost can be very high and quality might not be there. Hence, there is a learning process before venturing itself on the international market and it takes a long time, half a century maybe. That does not mean trade would be banished.

There must be some kind of control (trade policies) on what to import or export.
1- Big YES for importing inputs for goods to be made locally
2- Big NO for importing products of the same kind that the infant industry produces.
3- Big YES for exporting final goods made locally (in due time after quality is in check)
4- Big NO for exporting inputs produced locally to make the final goods.
5- The first and main market is the domestic one for both production and consumption.

If it were the case to enable private investors to just make profit for themselves, I would rest my case. For all the counter arguments put forth are correct. These arguments are for stiff competition on the international market. I regret that is not the case. Otherwise, I would advocate transforming Ayiti into mangoes’ plantation, coffee and alternative agriculture. Then, Ayiti would simply produce for the first world while its people would still be begging for second hand clothes and shoes.

The perspective has to be global and choose something that Ayiti is quite capable of doing. That may not be done easily and successfully. All the climatic conditions for growing cotton in Ayiti are met, Ayiti has people just waiting to engage in mass production, again for peanuts. A meaningless income is OK at the start, because the benefits will be greater later in terms of better living conditions and future greater income. That’s a sacrifice to be made. The interesting point is any reluctant private investor would also make greater profit than before.

Isn’t it true that Ayiti used to produce one of the best cotton in the world?

Isn’t it true that Ayiti used to raise cattle?

Why can’t Ayiti do it now?

Fast big money is not economic development. For structural economic development one must look in the inner Ayiti.

34180: Poincy (reply) Re : 34169: Kriegsman (reply) Re: 34164 Poincy (comment) : Re : 34157: Lucien (comment); Re: 34155:(Durban); Re: 34154 (Durandis) (fwd) (Tuesday 03/31/2009)

4th. Comment : my response to reply to my 3rd. comment

I need to dissect Kriegman’s post.

K: ‘A very ambitious plan but it would have worked 100 years ago…’

P: Yes! it would. However, it can today and always will centuries to come. That will be so until mankind finds an equivalent substitute. This fiber is one product of nature that has no substitute. Man has tried the synthetic fabrics, but is disappointed. We are talking of a product that millions of people will use and renew again and again, and time after time, generation after generation until they cease to be human.

K: ‘… Haiti ’s soil is no longer healthy enough to support a cotton industry…’

P: Yes! I agree but will not be so forever. Nature can never be destroyed forever. Leave it alone for a number of years it will reconstitute itself, even after a cataclysm. If we have a government that will take matter in hands, all we need is careful planning to rework the land. Maybe, it’s one of the project during the first three periods of the motion backward that I suggested earlier.

K: ‘…Cotton is globally traded commodity like oil, sugar, and coffee…’

P: Yes! However, if Ayiti is taking the punches in the coffee business why can it does so in the cotton business which offers a greater opportunity to create jobs via those linkages mentioned previously. Again, it’s a matter of careful planning.

K : ‘…The idea is to bring the world to Haiti ’s door,…’

P: Yes! We will bring the world to Haiti ’s door by producing goods for ourselves first which the rest of world might find useful. Japan makes its cars first for its people. It makes them so good that the rest of the world wants them. The only sure way to bring the world to your door is by making something for yourself that it wants also, and not by making something that you don’t want or can’t afford to acquire that it asks you to assemble for its pleasure.

K: ‘…not isolate Haiti from the world.’

P: In no way Ayiti will isolate itself. It might take time to build all this and become competitive, but it must go through all the difficulties. Only patience is required. This plan is for Ayitian’s future generation and not for the actual one that is in a rush for gain.

K: ‘Haiti has already proven it can do finishing work and ship goods…Perhaps even set up another base in the Cap.’

P: I am sorry! Ayiti has not proven anything in terms of ‘finishing work and ship goods’. It has proven itself in sewing already designed parts to be assembled. For that matter and at any level in any kind of work Ayiti presents deficiencies in ‘finishing work’. This is to say the ability to finished goods is not there yet and must be acquired with experience in doing things.

Don’t even mention anything about shipping goods. To respect the time frame for shipment, the factories have to be by the airport. To set up another assembly in the Cap, Ayiti must build another international airport. Don’t forget that was the original plan in the 70s when Ayiti was called the Taiwan of the Caribbean . The idea was to have a plant in different region of the country. When the problem of transport and distribution was identified, they confined all the assembly projects nearby the international airport in Port-o-Prince to make sure that orders are delivered on time.

The ‘Made in Haiti ’ should be instead : ‘Assembled in Ayiti.” It will be ‘Made in Ayiti’ when it’s about a product that is conceived/made in Ayiti, for Ayiti first, and sold afterwards on the international market.

Don’t get me wrong. I am not against the assembly industry. It is a supplementary source of employment only. It can not be the main source of employment. My proposition is to create such a main source and I believe going through industries that produce goods every body will use and renew all the time is the way to go. The level of difficulties does not matter. All good things take time, energy and resources. After all, it’s all about creating jobs for sustainable development.

Ayiti has lived, lives and will live

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