 WORLS CLASS SERVICES |
Although the Dominican Republic is not a fully developed country (yet), there are certainly some first world-class services available. Development comes at different speeds for different economies. The Dominican Republic's industry forefront is in no way behind Europe's or America's. Telecoms surely have a more than a foot in the door when it comes to up-to-date state of the art services. Cell phones can be found even in the remotest parts of the island, where running water and electricity have yet to arrive. Furthermore, the Dominican Republic is getting ready to go completely digital in 2006. Likewise, international law and advertising are up to Western standards. This can be explained due to the simple fact that American and European firms are competing alongside Dominican companies precisely in these two fields. The banking sector, that has grown as fast as the DR economy, is another field where one may find first world services.
| Banking: going from corporate to retail and vice-versa |
Now that the Dominican Central Bank is all geared into lowering interest rates and the Government is about to pass the new Monetary and Finance Law (Codigo Monetario Financiero), the banking sector offers a whole array of new possibilities. Also, both the corporate industry and the middle class are growing and demanding more services. Hence, the banking sector in the Dominican Republic has been undergoing changes in recent years to try to fill the gap created by a fast growing economy.
"The Dominican Republic, for its economic and political stability, as well as for the growth it has experienced in past years, has come to be a very cherished destination for foreign banks", says Mr. Guerrero Prats, Governor of the Central Bank. "The country frequently receives petitions from foreign banks wishing to operate here". Prats believes this has to do with the Foreign Investment Law that allows for 100% of profits to be repatriated free of any forceful exchange.
Dominican banks have consolidated themselves into large multi-sector industries, owning insurance companies, retirement funds, textile industries and multimedia companies that include newspapers, TV channels and radio stations. Nevertheless, the government stays clear from favoring them. "This new legislation will allow international banks to have a larger presence in the country, motivating greater competition, and aiding domestic banks to operate with more efficiency and, therefore, with lower margins of intervention," Mr. Prats affirms.
Since the Dominican economy has been growing so rapidly and new niches for the banking industry have flourished in abundance, one might be able to observe how traditional corporate banks have approached the consumer (retail) market and vice versa. One of the Dominican banks that has a long held vocation to serve corporate clients is Banco del Progreso, which in 1985 bought out all of First Boston's bank offices in Latin America. At that time 95% of Banco del Progreso's business was corporate clientele but today that percentage is down to 65%. What has driven this change has been two interesting market profits: insurance and credit cards demanded by the rapidly rising middle class. (The industrial portfolio of Banco del Progreso consists mainly of insurance companies and duty-free storage houses for importers).
This change in strategy goes hand in hand with an aggressive policy for concentration and expansion say banking analysts. After the acquisition of Banco Metropolitano in January 2000, Banco del Progreso does not rule out other possible alliances with other banks. "As to expanding physically we have investments in a private bank in the United States and we are looking into doing business in Costa Rica", admits Pedro Castillo Lefeld, President of the Banco del Progreso.
The banks are nowhere near saturating the market and hence, no concern has arisen about new foreign banks operating in the market. Banco del Progreso is one among many that believes there is enough clientele for everyone here. In fact, its president asserts, "Foreign banks can establish themselves on Dominican soil with the same rights to which national banks are entitled. The new legislation (Codigo Monetario Financiero) will only ratify this."
Another bank that has moved towards the "retail" market has been the foreign-based Scotiabank, which has been operating in the Dominican Republic for 81 years now. "Initially our activities were mainly in the corporate sector. But we have started an expansion process which will require us to duplicate our branches, develop consumer banking and other lines for business in insurances, pensions, etc.," says Mr. Alberto Tarabotto, vice president of Scotiabank in the DR. Scotiabank is making a 15 million dollar investment into its remodeling goals. Its portfolio lies mainly in the tourist industry.
Consumer banks are also searching out corporate opportunities. One of these is Bancredito, the fifth largest consumer bank and largest credit card issuer in the Dominican Republic. Bancredito is not only trying to attract Dominican corporate business but foreign ones as well, taking advantage of the FDI that pours into the country. "We have created a special division within the corporate finance sector seeking to aid foreign companies develop their investment projects. It's something similar to a consulting agency that can service the investment", explains Mr. Felipe Mendoza, CEO of Bancredito. This bank is also exploring new niches in the finance industry, such as the possibility of offering a remittance service that would work via cheap wire transfers directly to debit cards.
| | Telecommunications, almost digital |
The Dominican Republic has long boasted of having the best phone system in the Caribbean and all of Central America though part of this credit deserves to go to the two million Dominicans working abroad (about a fifth of the population). Nevertheless, telecommunications currently represents about 5% of the GDP but not surprisingly; it is by far the most dynamic sector, growing at 21% in the first semester of 2001. "This is due to the fact that four companies have invested over 500 million dollars for 2001. We are expecting the same amount or more for 2002," predicts Mr. Orlando Jorge Mera, president of Indotel, the regulatory body of the government in charge of assuring fair competition in this area. Mera explains, "Cable phones have grown 10%, mobile phones 8%, and internet access 70%."
The nation's phone system was developed by Codetel, a wholly owned subsidiary of the former ITT (now known as GTE), which had been operating in the Dominican Republic since 1933, and it is now owned by Verizon. Tricom, which expanded the telecom market in 1992, was formed by the Dominican Grupo Financiero Nacional and later joined by Motorola (which currently holds 26% of the company). The two newcomers are France Telecom / Orange and Centennial, which have gone into the cellular phone business. Tricom is currently the only Dominican company to issue ADR's (American Depository Receipts) on the New York Stock Exchange which it has been doing since it went public in 1998. It is also one of the two companies in the entire Caribbean basin to do so. Since 1998 Tricom branched out to Central America, Puerto Rico and the United States.
"Our case is rather awkward," confesses Mr. Carl Carlson, vice-president of Tricom. "Instead of having a U.S. multinational come to invest here, it was a small Dominican company that went over to the U.S. Now 35% of our profits come from that market."
The growth of telecoms in the Dominican Republic has also been driven by an increase in related services. These include information services based on data processing and imaging; transaction processing; call-centers such as toll-free answering services, marketing and reservations; and import, export, transshipment and other trade related activities.
Among the challenges ahead in the telecom sector lays digital television to be running at full speed in 2006. Indotel is striving to have the media owned by Dominican capital, although it is making alliances with foreign investors, due to the potential profits that lie ahead. Hence, in 2006 the country must get ready to go digital and put telephones, radio, television, cable, internet and more, all on one support frame.
| Advertising and law consulting: developing high class services |
Along with an expanding middle class and quickly growing services, advertising companies in the Dominican Republic have also prospered, giving a pretty clear indication of how consumer preferences are developing. McCann-Erickson World Group Republica Dominicana, one of the world's leading advertising and public relation companies, with 199 agencies world wide, is eager to describe how the advertising business has grown in the Dominican Republic. "When it comes down to advertising, Argentina, Brazil and Chile are still in the creative forefront of Latin America. But the Dominican Republic is making progress in giant steps. All the influx of foreigners has helped Dominicans improve their style and nowadays you can really see some sophisticated and interesting creations," says Oscar Sanoja, vice-president of McCann-Erickson in the Dominican Republic.
So many foreign companies are investing in the DR that not only the local, like Pellerano y Herrera, but also international firms want to take advantage of it. Steel, Hector & Davis, an experienced law firm, has decided to open up a branch in Santo Domingo of its U.S. based Florida offices, mainly to help foreign investors with the legal idiosyncrasies of the land. "Most of the largest U.S. multinationals doing business in the country are our clients. We show them what the rules of the game are in the DR," explains Alejandro Peña Prieto, the law firm's representative. "For example, they want to know how reliable are their property rights and how they will be respected. We clarify how reliable their land registration is, how secure their credit is, or help them with questions such as: will their guarantee will be able to enforce their mortgages, how reliable and impartial is the telecommunications regulator, etc..." The advice Mr. Prieto gives is that not only is it convenient to get legal expertise in advance of any investment but that in a country like the Dominican Republic what is important is to "run with the political structure." |
