Country risk analysis for Canadian investment in Haiti

Briefing Note for Haiti

Briefing Note

The current situation that characterizes Haiti, combined with the country's turbulent financial, social, and political environment determine the importance of developing and implementing a peace building strategy.

The decision to make significant investments in a foreign region is always a risky choice, especially when it concerns a country like Haiti, one of the poorest regions in the currently, a country deeply troubled by economic and social turbulences. The Canadian government must decide upon this opportunity based on the results of a thorough country risk analysis model, which the most complex risk assessment tool that could help the institution to make the right decision.

The analysis of the country risk does not only take into consideration the economic situation, but it also combines financial, political, historical, and sociological analyses. Based on the most agreed upon definition, country risk is considered to be "the probability of default in any given country due to macroeconomic, political or social circumstances, or to natural disasters" (Iranzo, 2008).

The most important indicators that are taken into consideration in analyzing a country's risk include external debt, foreign direct investments risk, natural disaster risks, political risks.

Regarding Haiti, the country presents increased risks. Haiti is the poorest country in the Western Hemisphere. The social situation is an alarming one: 80% of the country's population is living under the poverty line, while 54% is living in abject poverty (CIA, 2009). Economic development is very scarce in Haiti, given the fact that most of the country's population depends on an almost primitive agricultural sector.

In order to provide an overview regarding Haiti's economic risks, it is necessary to take into consideration the following indicators: GDP - $6.943 billion, GDP real growth rate -- 1.3%, GDP per capita - $1,300, labor force -- 3.643 million, labor force by occupation -- agriculture: 66%, industry: 9%, services: 25%, investment -- 28.9% of GDP, budget -- revenues: $967.5 million, expenditures: $1.162 billion, inflation rate -- 15.5% (CIA, 2009).

The country's external debt reached $1.817 billion in 2008 compared to $1.475 billion in 2007. The unemployment and underemployment are widespread in Haiti, given the fact that the majority of the workforce does not benefit from formal jobs.

The natural disaster risk is a very high one in Haiti. The country's slight economic growth that started in 2005 was significantly affected by the four tropical storms that took place in 2008. The storms are responsible for producing numerous and important damage to the transportation infrastructure. The agricultural sector was also significantly affected.

The earthquake that recently affected Haiti has produced tremendous damages in all areas. Thousands of buildings were completely destroyed, some of them were considered to be important landmarks, the infrastructure was significantly affected (Cordoba & Luchnow, 2010).

Recommendations

Although the country presents high economic, social, and political risks, the current situation in Haiti can be considered an opportunity for the Canadian government. The damages produced by the earthquake can represent an opportunity for rebuilding the entire infrastructure that was already damaged and for helping the country exploit its economic potential. The U.S. economic involvement in Haiti was very successful, helping the country boosts its apparel sector. The country's exports have significantly increased as a consequence.

Conclusions

The current situation in Haiti can be considered an opportunity that the Canadian government can exploit. The U.S. economic implication in the region has proven to be successful. However, the risks are very high, the natural disaster risks being the most important, because of the significant damages that may produce.

In case the Canadian government manages to build something here, there is no guarantee that a tropical storm will not affect the investment, situation that has previously occurred. Also, the violence and the political instability in the region are important obstacles that must be taken into consideration.

Reference list:

1. Iranzo, S. (2008). Delving into Country Risk. The Bank of Spain. Retrieved January 22, 2010 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1120723.

2. Haiti (2009). Central Intelligence Agency. The World Factbook. Retrieved January 22, 2010 from https://www.cia.gov/library/publications/the-world-factbook/geos/ha.html.

3. Cordoba, J. & Luchnow, D. (2010). Fierce Earthquake Rocks Haiti. Wall Street Journal. Retrieved January 22, 2010 from http://online.wsj.com/article/SB126333470907826737.html.

4. Country Risk Assessment (2009). COFACE. Retrieved January 22, 2010 from http://www.coface-usa.com/CofacePortal/US_en_EN/pages/home/wwd/inform/Country_risk/Country%20Risk%20Assessment.

5. Country Profile: Haiti (2010). BBC News. Retrieved January 2010 from http://news.bbc.co.uk/2/hi/americas/country_profiles/1202772.stm.