The art of investing dangerously - DOUG STEINER

The security briefing in Toronto for our trip to Haiti was run by a burly ex-Mountie—big moustache and all—who now protects businesspeople from what he described succinctly as "bad situations."

"Do you plan on going out at night in Port-au-Prince?" he asked matter-of-factly. I can't imagine visiting any city without sampling its nightlife. "Sure," I said. He looked at me sternly. "That changes everything."

"What about Carnival?" I asked. Carnival is Haiti's massive, three-day Mardi Gras festival in February—hundreds of thousands of people dancing in the streets day and night. Of course I wanted to go.

"That will require twice the security," he said, looking at his notes. "I would suggest using locals," he added. "You'll stick out enough as it is."

ings—the manufacturer of official Major League baseballs—and a Club Med resort.

At first, Jean-Bertrand Aristide, a popular Catholic priest who had bravely spoken out against Baby Doc, appeared to offer some hope. Aristide was elected president in 1990, but was then ousted in a coup the following year. In 1994, he was reinstalled by the Clinton administration, which deployed thousands of U.S. troops to Haiti. Constitutionally barred from serving consecutive terms, Aristide was succeeded by René Préval, his prime minister, in 1996. But the two split, and, in 2000, Aristide won a presidential election that was boycotted by opposition candidates.

Which of the two is a hero and which is a villain is still the subject of violent political divisions in Haiti. Suffice it to say that by 2004, Aristide's critics were denouncing him as an autocrat who had to rely on thugs to maintain his authority. The U.S. and other developed countries wanted him out, and he was overthrown and eventually relocated to South Africa.

The United Nations moved in and set up its Stabilization Mission in Haiti (MINUSTAH—the French acronym). Basically, it's trying to rebuild the government and police force from scratch. The mission deployed a few thousand peacekeepers at first, including Canadians. Two years later, however, gangs still controlled the streets, so the UN boosted its troop contingent to more than 7,000, many from Brazil and other Latin American countries. They restored order in Port-au-Prince the way that armies do—they shot people. The fiercest fighting was in the city's poorest slum, the Cité Soleil, still loyal to Aristide.

In 2006, amid allegations of vote rigging, Préval was again elected president, with 51% of the vote in the first round, thereby avoiding a runoff. MINUSTAH, the World Bank and the International Monetary Fund (IMF) would like the next transition of power in 2011 to be a peaceful, democratic one—only the second time ever in Haiti. Their concern is strategic as well as humanitarian. The UN presence is widely regarded as a test case for what might happen in Cuba after the Castro regime falls.

All that said, during our week-long visit, Port-au-Prince was relatively calm. There were just 10 kidnappings for ransom, including the former minister of the interior and his wife. "It's not a serious crime here, like murder or rape," one businessman later assured me. "No one that I know of has ever paid more than $20,000 to be returned." A shootout at a grocery store was deadlier—one armed guard and one of nine assailants were killed. Offshore, near Great Exuma in the Bahamas, the U.S. Coast Guard plucked 131 Haitians off a leaky boat bound for Florida.

While the streets of Port-au-Prince didn't look all that dangerous, they were certainly surreal in many ways. Everyone looked about 15 years old to me—and half of Haiti's population is, indeed, under the age of 19. There also appears to be no middle class. Late-model cars clogged the streets, but the vast majority of people get around by walking, or by riding in the back of covered, colourfully painted small pickup trucks that function as taxis. They'd be a tight fit with eight passengers, yet many carry more than 20.

In Pétionville, the wealthy enclave of mansions in the hills where Haiti's remaining elite live, we passed the odd small stretch of stores as luxurious as ones you'll find on Bloor Street in Toronto or Robson in Vancouver. But prudent locals have an armed guard watch their Escalade or Porsche Cayenne if they shop during the day or dine at an elegant, yet well-hidden restaurant at night. Many also have guards posted 24/7 outside the gates to their homes. Centuries-old racial distinctions persist as well—between light-skinned French speakers at the top of the social scale and dark-skinned Creole speakers at the bottom.

All of this fit in with the grim economic assessments I'd read before I arrived. According to the IMF, Haiti's annual gross domestic product per person in 2007 was about $630 (all currency in U.S. dollars), or 151st out of 179 countries ranked. That's less than one-sixth the per capita GDP of neighbouring Dominican Republic, which many Canadian tourists find impoverished. Adjusting for inflation, per capita income in Haiti has actually declined steadily since the 1960s. The country no longer grows rice—a crop the locals were once proud of—in any quantity, nor does it have a commercial dairy of any size. One business that is booming, although it doesn't show up in official economic statistics, is the transshipment of cocaine and other illegal drugs to the U.S.

In early April, two months after we visited, riots erupted in the south, this time because of soaring international food prices, and spread quickly to Port-au-Prince. The cost of a small bowl of rice has more than doubled since last year to over 60 cents. When you earn less than $3 a day—as most working Haitians do—that hurts your stomach. Some locals have fallen back on terre, a biscuit of vegetable shortening, salt and mud, traditionally served to pregnant women and children to settle their stomachs.

Yet, against the steepest of odds, some Haitian and foreign businesses are still making money here—good, legal money.

You have to be very dogged and clever to maintain a business in Haiti, and our hotel in Pétionville was an excellent example. The first 12 rooms of the Hotel Montana were built in 1946 by Frank Cardozo and his wife, Edna. It has expanded to 120 rooms over the years, surrounded by wonderfully lush gardens. The hotel is still owned by Cardozo's daughters, Nadine Cardozo Riedl and Garthe Cardozo Stephanson, regarded as two of the hardest-working and toughest entrepreneurs in the country.

There aren't many tourists these days, but UN dignitaries, foreign leaders, the occasional celebrity, and rich Haitian expatriates visiting from Miami, Montreal or Paris want four-star accommodation. Photos of recent guests on display at the hotel include Kofi Annan, Paul Martin, and Brad and Angelina, who stayed in January, 2006. Cardozo Riedl maintains high standards, but it's an almost daily ordeal. When the city's electrical power is interrupted, the hotel's diesel-powered generators—with enough fuel to run for three weeks straight—kick in. All water is delivered from a private spring—20 truckloads a day.

Cardozo Riedl didn't discuss a more harrowing ordeal. In November, 2004, she was dragged from her car after an armed gang hijacked her motorcade. Security guards and police had apparently been paid to look the other way. She was held for eight days, and shackled and abused by her captors, until a large ransom was paid.

Her husband, Reinhard Riedl, a German dentist, is more chatty and upbeat. He's a bon vivant who could have walked out of the pages of Graham Greene or Somerset Maugham. The couple met at the 1972 Olympics in Munich. One afternoon at the Hotel Montana's cozy News Bar, he treated us to "the best rum sours in the Caribbean," mixed with Barbancourt Haitian rum by his favourite bartender.

His wife's kidnapping was "regrettable," Riedl acknowledged. And, yes, hundreds of Préval supporters stormed the hotel in January, 2006, and frolicked in the pool. South African Archbishop Desmond Tutu, who was visiting at the time, came out of his room and appealed for calm—in English, which the crowd didn't understand. But the country is now safer than it was two years ago, said Riedl. "Things are looking up for us here in Haiti."

Two Canadian companies that already have solid roots in Haiti are Montreal-based T-shirt manufacturer Gildan Activewear (more about it later) and Scotiabank. The bank has operated in Haiti since 1972, through all the upheavals.

Maxime Charles, 53, is the bank's country head. Dapper and polished, he's a proud and articulate spokesman for his employer and for Haiti. His father was ambassador to Washington in the 1940s. Charles earned business and law degrees in Haiti, and joined the bank in 1976. In 1981, he went to graduate school in France, earned a master's in international relations and law, then returned home.

As he and other Scotiabank executives repeatedly point out, the bank wouldn't have stayed unless it was earning a profit. The key has been to pick the right niches. Charles quickly reviewed the history: The bank started mainly as a corporate lender to manufacturers of baseballs, electronic switches and, more recently, clothing. But even poor individuals can benefit from banking services, and in recent years, Scotiabank has also expanded into retail deposit taking and lending.

Auto loans—$5,000 at about 20% interest being typical—have been a particularly encouraging success. "We had to convince car dealers that it would increase business," said Charles.

The bank now operates four branches in Port-au-Prince and two bank mach-ines. The branches were closed during Carnival, which is basically a week of national holidays, but just walking around the exterior of one of them was intriguing. It looked the same as suburban Scotiabank branches in Canada: red signs outside, grey countertops inside, and a drive-through.

But a small building out back housed diesel-powered emergency generators and dozens of batteries. Stuck to the window of the main door, in addition to a sign with hours of business, was another with an outline of a handgun with an X through it. Back in Toronto, Scotiabank CEO Rick Waugh later told me that checking guns at the door is indeed a service provided by the bank in many countries.

The branch was also by far the tidiest building in the neighbourhood, and we only had to drive down the street for a few minutes to see how impoverished the retail customer base can be in Port-au-Prince. We arrived at a dusty open-air market with dozens of stalls that were no more than bits of cloth or plastic held up with tall sticks. A dozen ragged-looking cows were tethered near a refuse pile. As traffic roared past, a dog drank out of an open sewer across the road.

Any talk of cash in Haiti also brings up the question of drugs, corruption and money laundering. Charles is firm and polite, but short on details. "There are a lot of clichés about this country," he said. He and other bank executives also note that the operations in Haiti have to conform to Scotiabank's corporate rules on cash transactions, as well as Canadian law and international standards. Charles is also chair of a Haitian commission on money laundering.

The more familiar and immediate risk for Charles is personal safety—his own and that of his 79 employees. Two of them have been kidnapped. Both were returned safely after their families paid ransoms, and they are still working for the bank. Charles has two armed guards around the clock at his family's own elegant three-storey house in the hills. However, the only robbery of a Scotiabank branch in Haiti that anyone recalls was 30 years ago. In Canada, on average, one Big Six bank is robbed every day.

Are the risks in Haiti worth it? And would the bank ever leave? These are questions for Waugh and Rob Pitfield, Scotiabank's executive vice-president of international banking back in Toronto. They point out that Scotiabank has been active in the Caribbean for more than 120 years, and now operates in 25 countries in Central and South America. "We're an international bank that happens to have its head office in Canada," said Waugh.

Sure, Haiti and other developing countries look daunting, said Pitfield, but "people manage these issues." A global bank needs a broad mindset. "Canadians are somewhat insular and not aware of the countries out there with wonderful people trying to get what we have," he added. "It's taught the bank to be open to ideas and to be tolerant."

The flip side of that, however, is that Waugh and Pitfield have to be very guarded about talking about political risk, especially any suggestion that the bank might leave a country. The only time that's happened was in Argentina in 2002, when the country was in a financial crisis. Waugh, then head of Scotiabank's international operations, told a reporter the bank was looking for a way to stay. Argentine newspapers turned the remark around, forcing the bank to sell a subsidiary. So Waugh now sticks to a script. "Each foreign country for Scotiabank has its own operational risk," he said.

By our third day in Port-au-Prince, I wished some people would let down their guard more. Fortunately, that evening, they did.

A stroke of luck: A handful of local business leaders agreed to sit down for a dinner in a French restaurant in Pétionville. Apart from a small sign outside, it would be easy to miss when driving past, but the traditional, richly-coloured Haitian interior was elegant. Though our conversations were off the record, I can tell you that our guests represented old-family money and a variety of businesses—manufacturing, shipping, publishing and several others.

Over steaks, seafood and much more, they gave us an earful. Right off the bat, just about all of them were vitriolic about a short article in a January issue of Forbes magazine that placed Haiti fourth on its list of the "World's Most Dangerous Destinations." Haiti? Only slightly behind Somalia, Iraq and Afghanistan? Worse than Pakistan (No. 5), Zimbabwe (No. 9), and nearby trouble spots like Jamaica and Mexico? Preposterous!

The magazine used data compiled by two international consulting firms, Annapolis, Maryland-based iJet Intelligent Risk Systems and London-based Control Risks. Forbes cited Haiti's poverty, civil unrest and police corruption. Haiti scored 5 out of 5 on a scale of danger, the only country in the western hemisphere to do so. In a telephone interview after we got home, Tobias Friedl, iJet's regional manager for Latin America, defended the rating, pointing out that kidnapping is a particularly serious threat to foreign businesspeople. Also, while there are stretches of calm in Haiti, the situation can change very quickly.

Indeed, when prodded, our guests at dinner, like just about everyone we spoke to in Haiti, agreed that the economy and government are "fragile" at best. To diversify their personal risk, pretty well all of them have a "place to go"—children abroad, a condo in Miami, a house in Montreal, an apartment in Paris and so on. Sure, they'd like Préval and the UN to succeed, but the government still can't provide basic infrastructure, social services or protection.

And their role? Like paying their workers just $2.50 a day? It's the market rate, they said, and no one is offering Haitians anything better. Corruption and drug smuggling? Business owners can control their own premises, but not what goes on beyond. As one of them put it, "there isn't even a fucking rowboat" to patrol Haiti's 1,800 kilometres of coastline.

Bracing stuff, but I also wanted to get a closer look at what a large operating Haitian business looked like. The next day, we wheedled our way into one of those, too.

There's a large industrial park just a few kilometres west of Port-au-Prince's airport. It consists of about 50 low-rise buildings that employ more than 20,000 workers, mostly sewing T-shirts and other garments. To call them factories is a bit of a misnomer. Erected in the 1970s, they would really be more suitable as warehouses. The ceilings are high, which reduces the heat, but air-conditioning them would be prohibitively expensive. They could also run 24 hours, but no one wants to risk being attacked when travelling home after dark—even workers paid $2.50 a day are targets.

In late 2006, the U.S. gave the manufacturers a huge break by lifting import duties. In the 1990s, a trade embargo nearly brought Haiti to its knees. Now, the country exports 54 million T-shirts a year, and is the fourth-largest supplier to the U.S. after Honduras, Mexico and El Salvador. It's also the cheapest, delivering shirts at an average cost of $14.66 per dozen.

All the Haitian T-shirt makers' operations are broadly similar, and the plant we toured was typical. We saw dozens of rows of workers at individual sewing machines. By and large, the factories only assemble the garments from cloth manufactured and cut out in the Dominican Republic by bigger and more sophisticated machines. Haiti provides the lowest-value-added step in the process, in part because the sewing machines would be easy to pack up and ship out of the country, if necessary.

Years ago, cocaine traffickers succeeded in concealing transshipments from Haiti in industrial containers filled with finished garments. So brand-name U.S. clothing companies now require their Haitian manufacturers to certify shipments as drug-free. The factories buy highly specialized sniffer dogs, some costing as much as $10,000. Workers are also searched as they enter and leave work. Many of them drift from factory to factory, but plant managers are used to the turnover, and don't see any need to increase wages. Ultimately, said one manager, the plants will keep operating "as long as the assembly work force remains cheap and docile."

Montreal-based Gildan also has a factory in Port-au-Prince, but it's not located in the industrial park. It bought a property of its own in 2006 and built a new factory, investing a total of $10 million in Haiti. We didn't tour the plant, but Geneviève Gosselin, Gildan's director of corporate communications, talked about it with me after I returned from Haiti.

Protecting the company's 1,100 workers and the building are major objectives. Gosselin said the plant is "highly secure." Workers are paid $50 for a 5 1/2-day work week—almost triple what some Haitian factories pay—and the company provides subsidized meals and transport. No employees have been kidnapped, and production has rarely been interrupted.

Gildan's resolve should help Haiti, said Gosselin. "Being in the country, plus staying, brings visibility to attract other companies." For the moment, however, Gildan has no plans to increase (or re-duce) its investment in Haiti.

Are subsistence-level wages alone the basis for an influx of new investment? Even the Haitian factory owners would say no. Just about everyone we talked to agreed that it's a chicken-and-egg problem: Investors and tourists will only flock to Haiti if the political and social turmoil subside, and that turmoil will only subside when there are real economic improvements.

The UN mission leaders aren't all that confident, either. MINUSTAH is headquartered in a 1970s highrise hotel that was basically stripped of furnishings and fixtures before the UN arrived, and that has been converted to offices. Mission head Hédi Annabi is Tunisian, but sitting in his office in a grey suit, he's almost a movie version of a taciturn French diplomat.

He said MINUSTAH has made huge progress. In August, 2006, then-secretary-general of the UN Kofi Annan had to ride into Cité Soleil in an armoured personnel carrier, wearing a flak vest, and could only peer at the locals through a periscope. Last August, Annan's successor, Ban Ki-moon, strolled through the slum in a suit and tie. "The trip was without incident," Annabi said proudly.

Drumming up business and investment is a much taller order, and that's part of the job of Joël Boutroue, the lively and argumentative deputy special representative for the secretary-seneral and coordinator of humanitarian aid. He rattled off some recent aid infusions—$100 million from Canada, $50 million from the World Bank, $30 million from Spain, and more. He's also trying to codify business laws that stretch back to the 1820s. "You need to know the laws before you can enforce them," he said.

Among Boutroue's biggest disappointments, however, are the Haitian expatriates in Miami, Montreal and beyond. They're known as the "diaspora," and he thinks they should be doing much more. "I'm doubtful they will ever return," he said with a sigh. "We have to find new investors—ones that don't run from danger."

Who is stepping up to the plate? We found signs of hope in some unexpected places. On a visit to the Fame Pereo Institute clinic in Port-au-Prince, which specializes in HIV/AIDS and leprosy, we watched Dr. Claude Péan deliver a compelling PowerPoint presentation to Maxime Charles, hoping that Scotiabank would increase its contributions. On an annual budget of just over $100,000—60% from corporate donors—the clinic sees thousands of patients a year and maintains a staff of 39, including five doctors.

With Péan was the clinic's administrator, Réal Charlebois, an 82-year-old Catholic priest who was sent to Haiti by Paul-Émile Cardinal Léger of Montreal in 1953 to found a leprosy clinic. In the 1980s, the clinic started to treat other skin diseases as well, and in 2004, HIV/AIDS. Charlebois was also Maxime Charles's high-school Latin teacher. When we asked Charlebois later how the situation in Haiti today compares with the early '50s, he said, wistfully, in French, "It was a paradise."

Given the checkered track record of Haiti's politicians, we weren't expecting much when we entered the century-old military barracks on the Place du Champ de Mars, near the presidential palace, to meet with Préval's Minister of Finance, Daniel Dorsainvil. But the tall, robust, U.S.-educated economist was a shot of adrenalin. He dismissed the Forbes article as "Georgian," and quipped that someone had "got their teaching assistant to do it."

Dorsainvil then ticked off a long and impressive series of statistics from memory: Trade balance and government budget balance both improving, inflation down to single digits, and so on. Still, he acknowledged weaknesses—the biggest being the diaspora. About three million Haitians live outside the country, from virtual slave labourers in the Dominican Republic to multimillionaires in Miami and Europe. They sent back $1.65 billion in foreign remittances to Haiti in 2006, about 35% of the country's GDP. A U.S. economic downturn could choke off much of that flow.

True, the government is having some small successes collecting income taxes at home. But most of its revenues still come from customs and excise—the easiest kind of taxes for even a shaky regime to collect.

For the moment, however, many Haitians complain that the government is actually hoarding cash. Dorsainvil says the country doesn't have enough experts to get many much-needed capital projects going. "There simply aren't enough educated people left in the country to do case studies of investment proposals forwarded to the government," he said.

On the last day of our visit, our escorts took me to a dark downtown indoor market—with only open louvres on the side of the building for lighting—so I could buy a couple of plastic voodoo dolls for $5. The dolls still sit on a trading desk at my company's offices in Toronto. No one has dared to touch them yet.

Our return flight to Miami from Port-au-Prince was cancelled, but we weren't surprised. Scotiabank's staff got us seats on a later plane. On the flight back to Toronto, I thought about the more than 30 UN personnel who've been killed in Haiti since 2004, trying to make the place better. In early April, I watched news footage of the food riots and UN forces using tear gas in Port-au-Prince—on a tree-lined street where we had stood just two months before, waiting to interview Dorsainvil.