 THE BIG PARTNER: ECONOMIC TIES WITH THE U.S. |
| Remittances: guaranteed consumer power |
The DR has about a fifth of its population working abroad -almost two million people- half of which live in the New York City metropolitan area alone. These immigrants unselfishly send money back home to their families. By the end of the year 2000, Dominicans living abroad had sent 1.8 billion dollars to the Dominican Republic via remittance. This accounts for a staggering 10% of the Dominican Gross Domestic Product of 2000. The market of sending money home is still growing and has barely noticed the effects of the world economic slowdown. Known as "the caring economy", remittances are the second largest foreign capital earner -after tourism, but before foreign direct investment and exports.
In addition to being a very reliable source of constant income for Dominican consumers, remittances are spic and span trickle down economics, since they can't be taxed. They are a mere movement of wealth.
The constant influx of American dollars into the Dominican Republic has been one of the leading causes the Central Bank of the Dominican Republic has been able to cope well with inflation and fiscal challenges, due to the fact that when remittances are abundant, at Christmas or just before the school year starts, the Central Bank has been able to buy dollars to fill its international reserves at extremely advantageous prices. The Association of Dominican Remittance Businesses (Aderedi in Spanish), currently under pressure by American banks lobbying in Congress trying to get a piece of this pie, has sat down with the Dominican government many times to help control inflation. The DR ranks third in remittances by volume (after Mexico and Brazil) and second by value (after El Salvador).
The remittance market is one of the least understood but no less remarkable markets because it works without advertising or investments: it is powered no less than by sheer altruism -although it is fair to say that some of the construction boom is due to immigrants sending savings for their retirement home. As said before, many Dominicans rely on remittances as part of their monthly salary, and among the poor, money sent from abroad makes up half of their total income. This means that remittances are a pillar of the Dominican economy, and a highly reliable one at that. The remittance market keeps growing (about 3% annually) and the wealth goes directly and fairly equitably into consumers' hands.
 Reshaping the Postal service |
A traditional government run area that is modernizing fast to catch up with the remittance world is the Dominican Postal Service (Inposdom). This daunting task was assigned to Mr. Jose del Carmen Marcano, president of the Partido Revolucionario Dominicano, the victors of the last elections in 2000. This postal institution is also aware that it must reduce some of its costs, and for that they are implementing a business attitude as best as they can. "We have to deliver mail to isolated places that do not bring us profits, but it's a social obligation we must attend. Where we can compete is in delivering mail faster and cheaper than private carriers," comments Mr. Marcano. A carrier service to deliver remittances could very well prove to be the source of finance to renovate the postal service. "We are still discussing the remittance issue. Apart from the U.S., we have ever-larger population of Dominicans in Holland, Switzerland, Italy and Spain. Their remittances could be sent perfectly via postal service (instead of the current carrier system) at very competitive prices," explains Mr. Marcano. Inposdom is also entering negotiations with big American carriers to distribute to the lower Antilles Islands, a service that surely would be less costly for the DR, being a close neighbor, than for distant US companies.
After one year in office for Mr. Marcano, the Government appointed Mr. Miguel Tineo, as new director of Inposdom with exactly the same mentality: "We have to increase profitability and generate further incomes in order to reach self sufficiency, and this shall be achieved offering new products and services."
| | Free Zones: weaving giants |
Ever looked at the tag in your pants? Take a look. It's probably made in the Dominican Republic. This small Latin American Island has known how to take advantage of its geographic location and cheap labor to consolidate itself as the sixth largest textile exporter to the United States (the third biggest in all Latin America). When it comes to making cotton based pants, only Mexico competes with the DR.
This exemplary export achievement is due to the Free-Trade-Zones (FTZs), which happen to be industrial parks with attractive tax incentives (including exemptions from corporate income tax, value added tax (VAT), and standard import duties) and a transparent legal framework that allows fast exports. The country's proximity to the U.S. and Puerto Rico, coupled with its participation in several preferential regional trade arrangements and cheap manufacturing labor, has boosted growth.
In terms of export value, employment, and number of firms, growth in the FTZs has been particularly impressive. In 2000, there where 46 industrial parks, containing around 500 enterprises, employing almost 200,000 people (8% of total employment), and providing possibly twice as many jobs outside the FTZs. The FTZs have attracted over the years important amounts of foreign direct investment and have generated an estimated 5 billion dollars in gross exports in 2000, accounting for 83% of total national exports.
The main industry that has thrived in the FTZs has been the textile manufacturing business ("maquilas"), which account for more than 57% of all industries and over 75% of employment in the Free Zones, roughly over 140,000 employees. Dominican capital is the largest of all groups to invest in FTZs, amounting to about 45% of the total. It is now expanding by exporting its textile "know how" abroad to poorer nations (such as neighboring Haiti) as the Koreans have done worldwide.
The Dominican textile industry has experienced major changes and has evolved from producing very labor intensive goods to sophisticated designer garments, which rely on high-tech machinery, fast assembly and quick shipment. The Dominican Republic's textile industry was once ranked the third major exporter to the United States, but over the years, as the Dominican Republic started to prosper and minimum wages to escalate, the most labor intensive manufactures, the simplest of the assembly line (such as T-shirts), and hence the least value added product, fled the Dominican Republic to poorer markets, such as Nicaragua, Honduras, Bangladesh, etc.
But regardless of where the investment in cheap labor is moving to, Dominican FTZs have foreseen these changes and have remodeled themselves into a high-tech industry that makes good use of its competitive advantages. These include proximity to the U.S., essential when it comes to the quick delivery of timely stylish clothes that depend on the ever changing whims of fashion; qualified workers with years of experience yet still cheaper than workers in Puerto Rico or the U.S.; and a solid reliable infrastructure with good roads and mega ports. The big industries are now offering what is known as the "all inclusive package," for brand name designer clothes customers such as Tommy Hilfiger, Banana Republic, Gap, Liz Claiborne, and so forth, in which the Dominican based companies take care of everything except marketing: from designing the clothes from sketches, to mass production from scratch, to shipping the goods to the U.S. and delivering them to the closest outlet near your neighborhood.
A mayor challenge lies ahead, although some of the most sophisticated industries don't seem to be losing much sleep over it. The World Trade Organization has allowed the FTZs to continue in the Dominican Republic only till 2007 with two additional years to dismantle them, on the basis that tax exemptions equal subsidies and hamper fair competition. The Dominican Republic is appealing that sentence along with 17 other countries, and how successful they will be remains unclear, but in the long run it looks like major changes are heading the free zone way. |
