 ECONOMY |
| OVERVIEW |
From the beginning of the 20th century, the main economic activity of the Dominican Republic was the Sugar Industry. Most of the national income came from this sector. Sugar products, along with bauxite, gold, nickel, coffee, tobacco and cocoa conformed the so-called traditional export sector. During the 70's, the fall of prices in most of these products became unbearable. In the sugar industry, controlled almost completely by the Dominican State and its State Sugar Council (CEA), this process was especially notorious. Facing this situation, the Dominican State started the diversification of the economy and the promotion of non-traditional productive sectors, taking the following measures among others:
· Incentives for the non-traditional export products and develop those sectors that were considered a priority through the enacting of several incentive laws.
· Rent or sell real state properties, used before to grow sugar cane crops, in order to develop agro industrial, tourist and free trade zone projects.
· Promote foreign investment in these sectors. In 1982 the New Foreign Investment Promoting Commission was created. Its aim was to establish contacts with private foreign investors with the purpose of stimulating their interest to invest in the country in specific areas such as tourism, free zones, agro industry and mining.
As a result of this State-promoted process, and thanks to the dynamic participation of the private sector, the agro industry, the free zones and tourism became the main productive sectors of the Dominican economy.
Macroeconomic stability and sustained economic growth during the second half of the 90's enabled an outstanding performance of the economy. In 1999, the Dominican Republic reached the highest GDP growth of the world, defying European, Asian, and South American recessions. The existence of a healthy investment climate, with laws on foreign investment that allowed competition in almost every sector of the economy, providing for 100% capital repatriation and granting equal treatment for both national and foreign investors, attracted foreign investment as never before.
Preferential access to the biggest world markets -beneficiary of the Caribbean Basin Trade Agreement (U.S.A.), the participation in the Lome (now Cotonou) Convention, that opened the door to the European Union market, and the participation in free trade agreements with the Caribbean Islands (CARICOM) and Central America-, boosted the foreign trade.
Internally, the main factors contributing to economic growth were: higher availability of local and imported production inputs, expansion of internal and external demand, better overseas prices for some exports, and expansion of installed capacity, principally in those industries that were capitalized or leased out. In accordance with these factors, GDP grew by (7.8%) at the close of the year 2000, despite monetary restrictions that affected the performance of the economy, mainly in the second quarter of the year.
However, during the first half of 2001, the economic environment in the Dominican Republic was affected by a number of internal and external factors that influenced the performance of most of the components of GDP, which increased by only 0.1%. However, if each quarter is taken individually, a significant recovery could be seen in the second quarter, in which GDP grew by 1.8%. Among the internal factors affecting the economy, the most important were: the impact of tax reforms and the Hydrocarbons Law, with the objective of increasing tax revenues and correcting the deficit in public finance. Among external factors were the worldwide economic slowdown, higher prices for oil derivatives, and the devaluation of the Euro against the U.S. dollar. It is pertinent to point out that the current half-year performance is being compared with that of the highest growth of the last decade, which reached 10.9%, in a scenario characterized by an increase in public spending without a corresponding increase in tax revenues, which led to the deficit. This deficit was covered mainly by a net credit expansion on the part of the Central Bank and Banco de Reservas. This made the above-mentioned growth incompatible with the objective of maintaining macroeconomic equilibrium over the short term. Consequently, the economy began a progressive slowdown in the second quarter of 2000, until establishing a growth rate of only 2.7% in the fourth quarter. It reached its lowest level in the first quarter of 2001, with a drop of 1.5%, reversing that trend with the 1.8% increase of the second quarter.
In the third quarter, the Dominican economy gave clear signs of recovery with positive growth trends in most of the sectors contributing to the GDP. Dominican Republic has reached an unexpected growth of 5%. This result is due to the construction, one of the most important productive sectors, which reverted the negative trend registrated in the first semester and reached an 11.8% positive rate. Other sectors that contributed during the whole year thanks to their dynamism were Telecommunications (26.4%), energy and water supply (23.9%). To highlight also the results of the agro industry, reaching a spectacular growth of 12.7%.
see table
| MAIN SECTORS |
 Financial Sector |
The country's financial sector is integrated by 17 different types of institutions, including the Dominican Central Bank, the commercial banks with multiple services, with a 74% of market share, the loans and savings associations, mutual entities with a 16% and other financial institutions like developing and mortgage banks and financing companies that are disappearing because of the reform measures implemented by monetary authorities. The main goal is to reduce the number of entities, clean up the system and diversify its services in order to be more competitive. The consolidated financial system presents at the closing date of June 2001 total assets of RD$207,508.8 millions, for an annual growth that surpasses 20.0%, supported basically by the credit and investment portfolio.
Twenty-four commercial banks made up the core of the private financial system in 1989. Commercial banks controlled about 64 percent of the financial system's total assets, and over 40 percent of commercial bank funds were deposited in one bank, the Reserve Bank (Banco de Reservas de la República Dominicana). Although it served as the main government fiscal agent, the Reserve Bank also operated as a commercial bank. Banks were largely Dominican-owned, especially after several foreign banks sold most of their portfolios to local banks in 1984 and 1985 because of the unfavorable economic climate. Nonetheless, Chase Manhattan and Citibank, from the United States, and the Bank of Nova Scotia, from Canada, maintained local operations in the late 1980s. All of the banks provided a full range of services, and offered checking accounts. The Superintendence of Banks, under the Secretariat of State for Finance, regulates the banks in conjunction with the Central Bank.
| Tourism |
The tourism sector in the Dominican Republic is amongst the most dynamic of the local economy. Already there are over 51,000 rooms, and the sector continues to show solid, steady growth. In 1999 it had an impressive growth of 10.3%. The Dominican Republic is one of the closest countries to the United States that offers beaches and warm climate. Yet, it has also proven to be attractive to European visitors, constituting the largest market segment for the tourism industry in the country.
With the highest room occupancy rate in the Caribbean, the Dominican Republic is considered the best value in the area. The tourism sector uses close to 5% of the total work force and generates almost half of the country's foreign exchange. There are 7 international airports receiving over three million visitors per year. Legal minimum monthly wages range between US$140 and US$150.
| There are over 500 km of white, sandy beaches; 31 national parks; 4 scientific reserves; 2 historic parks and 2 designated ecosystem areas. Profits may be repatriated 100 per cent in freely convertible currency. Local talent in both design and construction services is plentiful and mainly local firms have built most hotel developments, although there are no restrictions on building, owning and operating hotels by foreign firms in the Dominican Republic.
| Industrial Free Zones |
Free zones are legally designated areas where companies operate tax free under customs and fiscal incentives. These incentives permit duty-free importation of equipment, raw materials and components for assembling products or providing services, and also grant the companies freedom to repatriate profits and the option to sell 20% of their production in the local market.
The Dominican Republic is well known for its Free Trade Zones and the benefits associated with them. The Free Zone's continuous growth has been steady and very dynamic over the last 15 years, making it the second source of hard currency (foreign exchange) and one of the greatest job sources in the country.
The first Free Zones were government sponsored, but today 34 are private and 17 are government owned. There are over 500 companies, employing over 200,000 workers in a nationwide network of free zones. The Dominican Republic ranks fourth in the world in the number of Free Zones. U.S. investors own almost half of the companies, followed by Dominican investors who own 30% of the free trade zone companies. Taiwan companies own an important share of the free-zone industry in the DR.
| Telecommunications |
The Dominican Republic has one of the most advanced telecommunications systems in Latin America, with a highly developed network that includes countrywide microwave relay network, one coaxial submarine cable and one Atlantic Ocean Interstate earth station.
International communication services are provided via state of the art digital switching, fiber optic cables and satellite capabilities. There are over 1.5 Million lines (60% are digital), which ensure delivery of a wide range of high quality reliable services. The wireless environment includes 300,000+ cellular lines with total geographic coverage.
There are four mayor telephone companies: Codetel (a Verizon subsidiary) and Tricom (a local joint venture with Motorola), Centennial (Puerto Rican-American company) and France Telecom / Orange (one of the largest in the world); the sector is regulated by the Telecommunications Law No 153-98 promulgated on May 27, 1998.
An excellent telecommunications infrastructure and ample labor supply with multilingual skills make the Dominican Republic and ideal location for successful Call Centers, telephone operator service, and data entry operation. All Call Centers operating in the Dominican Republic use sophisticated technology such as: ADCs, PBX, predictive dialers, fiber optic connectivity, toll-free features, monitoring systems, statistics and reports as well as work force management tolls.
| Agribusiness |
The Dominican Republic is an excellent location for agribusiness. The demand for juices and canned goods in the European and US markets makes the fertile soil of the Dominican Republic an ideal setting to grow fresh products. Traditional agricultural products, including coffee, sugar cane, tobacco and cocoa continue to show sustained growth. A growing local market and the increasing tourist population create an investment opportunity for domestic consumption. Close proximity to the US provides flexibility of operations and gives investors an advantage over other competitors in the industry. Workers in traditional agro industry are highly experienced, and their high level of trainability is a valuable asset in meeting the technological advances of the business.
Skilled and semi-skilled labor is readily available at competitive wages. Legal minimum weekly wage in the agro industry averages US$41.90. Boxes, cans and tropical foods are available within the country. Required industrial land is available for development. As mentioned above, companies operating in non-traditional agro industry are exempted from local income taxes and other taxes. The zero-tax incentive allows agricultural equipment to be imported duty-free. Technology transfer is recognized as an investment. Refrigeration is available in limited capacity. Sea/air transportation for fresh and frozen products is widely available. Finally, profits may be repatriated 100 per cent in freely convertible currency.
| A new Opportunity: Organic Culture |
Because of its naturally rich and abundant soil, the Dominican Republic has become one of the Caribbean's most important producers and exporters of organic fruits and vegetables.
The recent demand in production speaks highly of the quality products currently being grown in the country: 80% of bananas and 60% of organic cocoa currently being consumed in the international markets are grown in the Dominican Republic.
In the valley of Azua, situated some 100 kilometers west of Santo Domingo on the island's southern border as well as in the northwest region, there are a growing number of organic banana farms with annual sales reaching an impressive US$300 million.
Early this year figures indicated that there were some 18,000 organic producers in the country, dedicated primarily to the production of cocoa, mangoes, lemons, pineapples, coconut, coffee, garden vegetables, as well as bananas. All these products were grown free of all pesticides and other chemical products. |
