 A SECURE HARBOUR IN STORMY TIMES |
The DR has found its path towards development -liberalizing its economy and making sure there are good and far reaching investment opportunities- and is determined to stay on track. Aware of what potential free trade has to offer and of the Dominican Republic's booming national industry (which was allowed to prosper with past protectionist policies), this nation has been expanding its markets with regional agreements. Part of what has kept the Dominican Republic's growth engine running has been Foreign Direct Investment and, acutely aware of this, the government has made it its objective to make conditions as optimal as possible for this fuel to keep pumping in.
This investment has been wisely channeled so far, not landing all on a main export or on a single commercial partner. Tourism is a good example of this, where Spain accounts for 8% of the nation's tourists but for 60% of the total capital in that sector. The Dominican businessmen themselves are keeping track of business and making sure it runs smoothly. Through their different associations and sector meetings, they are quick to speak up when they think the government moves in the wrong direction. In fact, when it comes to making international trade agreements the government is more than keen to seek private sector expertise. On many occasions the private sector has served not only as advisors for foreign policy but also as representatives themselves. For example, at the World Trade Organization meetings in Doha, Qatar (November 2001) the Dominican agricultural guild went to battle against first world subsidies. In these stormy times, this is why the Dominican Republic continues to be a secure Caribbean harbor among other reasons.
| An open market, a grand opportunity |
The Dominican Republic is already one of the Caribbean giants if you measure the size of its industry and market but it is still doggedly determined to make itself bigger and stronger. Until the reforms towards free trade of the early 1990's, the import substitution policies (high tariffs, red tape and protectionist attitudes) shielded a local industry from the outside world, effectively kidnapping market prices. But such policies also provided the necessary space for strong industries to thrive (such as construction, paint, rum,...). Some of these companies are perfectly content to stay within their local market but others have been ambitious enough to become international exporters and have managed to consolidate themselves as the biggest exporters of the Caribbean (Cerveceria Nacional, Petroquímica Dominicana, etc.)
As part of the outward reorientation trade policy, the Dominican Republic has actively promoted closer formal trading relations in the region: Free Trade Treaty with Central America, already in effect with Honduras, Guatemala and El Salvador; Caribbean Common Market (Caricom), starting December 2001; Free Trade Area of the Americas, which comprehends almost the entire American continent, beginning in 2005. Membership to the World Trade Organisation (WTO) in 1995 also accelerated trade liberalization and promoted new legislation as incentives for foreign investment. The Dominican Republic also enjoys preferential access to U.S. markets through the Caribbean Basin Initiative and the European Union through the Lomé Convention and its successive agreements. Furthermore, in October 2000, the Dominican Republic was granted parity with Canada and Mexico for access to U.S. markets.
With this inevitable tendency towards free trade many analysts expect that many of the antiquated industries -i.e., those that don't export- will be washed out by more efficient firms. Nevertheless, many local companies are investing millions of dollars in renovation, believing firmly in the advantages of staying put in the Dominican Republic.
Proximity to the United States stands out among the key benefits of investing in the Dominican Republic, as this advantage is essential when it comes to high tech manufacturing since it reduces money and time when it comes down to delivering on schedule. But there are plenty of other advantages as well: cheap labor, as opposed to Puerto Rico or the United States; a handy geographic location on the busy intercontinental trade route for European sea traffic en route to Central America or the Panama Canal; political stability; controlled inflation; a solid banking industry; and finally a very decent size market of eight million consumers- about the size of the state of Massachusetts, New Hampshire, and Maine put together.
These advantages play a key role for Foreign Direct Investment (FDI) in the Dominican Republic. With free trade agreements becoming a reality this year, investing in this country not only provides the above mentioned advantages, but also the enticing capacity to export duty free to a 15 million consumer market in Central America and another 15 million consumer market of the Antilles Islands of Caricom, which happens to be a grand importer of almost everything, from water to construction blocks.
| Setting the stage for Foreign Direct Investment |
Foreign Direct Investment in Million US $
"The Dominican Republic has a clear economic outlook that defines the private investor as the main centerpiece that moves the national economy," says Mr. Rafael Calderon, the Presidential Technical Secretary. He isn't just talking as he has laws backing what he says. In 1995 the Foreign Investment Law was passed which clearly stated how all earnings and interest on earnings have the right to be repatriated into any currency of free exchange any time the investor wishes.
Tariff reforms were also applied, paving the way towards free trade agreements soon to be in effect, which reduced the number of tariff bands in 2000 from nine to five and the maximum tariff possible from 35% to 20%. Hence, the country is expecting anywhere around 1.2 billion dollars of Foreign Direct Investment by the end of 2001, of which 71 million dollars have been reinvested in utilities. FDI comes out to be approximately 6.6% of the Gross Domestic Product for 2001.
The government is not about to lose this precious source of income and has created a special bureau with the mandate to seek foreign investments - the Office for Foreign Investment Promotion - which is basically a fast track window to channel foreign interest. "In one year, September 2000-2001, we have received 1,100 prospective investments, of which 75 are still in a process of deliberation, 89 in an advanced state of investment, and 32 fully consolidated. This means we triple the efficiency standards set by the World Bank which states that a successful agency is one which can consolidate one out of every one hundred prospective investments," explains Mr. Danilo del Rosario, director of OPI. Del Rosario is keen on believing that there is an excellent climate for FDI in the country due to the Dominican Republic's political stability and social peace, low crime rate, improving standard of education that produces highly qualified Dominican workers, a good infrastructure that supports development, clear and precise laws that protect investments, a respected constitution and sustained economic growth.
In the private sector Spanish businessmen own 60% of the tourist industry, although they only account for 8% of the visitors. Americans have invested 300 million dollars on a railway project that will join the island's second biggest city to the sea; French and Americans have joined in a venture to build a mega-sea port (the Transdominicana de Desarrollo project) estimated at over 1.4 billion dollars; and one of Canada's most prestigious gold-mining firms has agreed to invest 300 million dollars in the Dominican Republic. There is enough space to make solid and reliable investments in the short, middle and long run.
| Tourism: offsetting dependence from the U.S. |
Usually, when the Dominican Republic is mentioned in casual conversation the first thoughts that happen to cross anybody's mind are white sandy beaches, pristine water and bending coconut trees. That is not surprising. When you look at the figures you see that the Dominican Republic is the favorite tourist destination in the Caribbean, with over 2.9 million visitors in 2000 and 52,000 hotel rooms, far surpassing its closest competitors, the Bahamas and Cuba.
More surprisingly and despite the world-wide tourism crisis that has tainted 2001 as "the worst year ever" for this industry (says the World Tourism Organization) -first there was a global economic cool down, then a U.S. recession followed by the September 11 events - the Dominican Republic expects to stay afloat. The amount of tourists coming to the island will barely diminish, maintaining a hotel occupancy rate around 70%. This, however, has caused an uproar of concern in the Dominican Republic -particularly when you consider that the Dominican hotel business has almost doubled in the last six years, and that between 1999 and 2000 the number of incoming visitors grew by 10%. The government has decided to take action to avoid letting the luster from the jewel of its economy fade away and has started to disburse 50 million dollars on promoting the Dominican Republic abroad with tour-operators, travel agencies and commercial airlines.
| Tourism in the Dominican Republic is not only one of the most dynamic sectors but it is also one of the most important. Hotels, bars and restaurants make up for 6.8% of GDP (about 1.3 billion dollars) and between 1999 and 2000 this percentage grew at an impressive 15.7% -the same rapid growth experienced by telecoms. Tourism also provided for 50,000 direct jobs and estimated 120,000 indirect ones. It is by far the biggest earner of foreign capital, 75% of which is earned in the winter season, from December to March.
But unlike its neighbors, and unlike its commercial relations, tourism in the Dominican Republic is not dependent on the U.S. business cycle because most visitors come from Europe (52% in 2000). The Dominican Republic has tapped a gold mine here, rivaled only by Cuba, as Europeans on holiday tend to stay 14 days as opposed to only six-day stays by North Americans. However, the Dominican Republic has recently begun incursions into the North American market as well, mostly in the eastern part of the island, and tourists are coming in droves. In 2000, U.S. and Canadian visitors accounted for 36% of all tourists and by the end of 2001, that figure is expected to be around 45%. With the war in Afghanistan hampering intercontinental traveling (as also happened during the Gulf War in 1991 and during the Kosovo conflict in 1999) the Dominican Republic has focused most of its promotional expenditures in trying to attract the winter "cabin fever" market from the north and mid-west of the United States and from snow weary Canada.
The model performance of the tourist industry is largely due to what the foreign press has labeled "the new Cancun of the Caribbean," located in the South Eastern part of the island. In less than a decade, abandoned tropical forests have been reshaped into one of the largest basins for luxury resorts in the Caribbean. The East holds the most pristine beaches and an international airport that has hardly anything to do with Santo Domingo. It also has 20,000 rooms (more than double than five years ago) and attracts more than half of all visitors to the island.
Initially, what allowed the tourist industry to thrive and experience this buoyant growth has been the all-inclusive hotel bargain system -where pre-paid room rates include everything from food, entertainment, fees and tips. However, foreseeing the limitation that this type of tourism entails (where incoming visitors are reluctant to spend outside their resorts) the private sector and government have focused on making the Dominican Republic a paragon for first class tourists. The main hotel chains have been able to anticipate the move towards higher class services and have acted accordingly: "We are going to build two more luxury five star hotels, with all the comfort and necessities that a demanding and discerning clientele from the United States or Europe would demand," says Felix Felipe, General Manager for Barcelo Hotels in the Caribbean basin. The new sites would complement the already impressive complex Barcelo owns in Bavaro, the eastern part of the island (which include, a congressional palace and various golf courses among other things). Grupo Punta Cana and Casa de Campo were among the first to initiate the Dominican-luxury-based tourism and have consolidated themselves among the leaders in this field in the Dominican Republic from the very beginning.
Nonetheless, it is the ambitious Cap Cana project, which has raised the highest expectations. As its promoters state, Cap Cana is being created with a vision of setting the new standard for luxury in the Caribbean elevating the already high status of the Dominican Republic to a first class international destination. Cap Cana is designed to be a year-round pedestrian destination resort with three world-class golf courses, a capacity for a thousand vessels inside its marina, beach clubs and all within unspoiled Caribbean scenery. Taste, elegance and luxury may define well this exclusive project, developed by the Dominican Grupo del Caribe and the French Altra Resorts. " With a total investment of 1.5 billion dollars, we want to develop Cap Cana as a destination with its own style, its own way of living" said Dr Ricardo Hazoury President of Cap Cana.
Luxury, but also diversity, are the basis of the future for the tourism sector. The Dominican Republic has also come to realize it can attract tourists not only for its beaches and sunshine but also for its biological richness, the most diverse of all the Antilles Islands. The Dominican Republic has the highest mountains in the region and is starting to take advantage of eco-tourism (trekking expeditions, bird watching tours, etc) and adventure tourism (rafting, waterfalls and rapids, climbing, etc). Although this tourism is still in its infancy in the Dominican Republic it is growing at a fast rate and 30% of its clientele are urban Dominicans, eager to discover the natural wonders of their own island. Also, the colonial heritage of Santo Domingo, the oldest city in the Americas, has drawn the attention of the many cultural travelers. Santo Domingo's vast colonial neighborhoods are well preserved thanks to European loans that specifically provide for their 24-hour lighting and cleaning. No one doubts that within a few years, Santo Domingo will be on a larger list of Caribbean cruise stops.
The Government's mission, according to private sector analysts, is to create and improve the necessary infrastructures, which will contribute to the development of the sector. Listening to this timely advise, Mr. Mejia's cabinet is trying to put to use some of the bond emission money into projects such as cleansing the river that runs through Santo Domingo and building a highway that will link the capital to affluent tourist resorts.
| Welcome, you've got partners |
("I never promised you a rose garden," Dolly Parton)
The Dominican Republic is not an immaculate rose garden and it would be false to say so. Not surprisingly, it has its thorns and shady areas like anyplace else. What is comforting though is that, over time, well-established business associations have arisen, ready to speak out for themselves and point out government inefficiencies, keeping the authorities on their toes. One of them is the National Association for Young Businessmen , a multi sector group that has as its members business executives from all provinces. The only pre-requisite to join is to be between 21 and 40 years old and have a management position within a company. ANJE's current president Jochi Vicente, is an outspoken (or frequent) critic of government policy: "We have been very critical of the government's insistence on charging an anticipated 1.5% tax on all business sales because not all businesses, and particularly small businesses, make profits over 6% a year. It is a very irresponsible way to try to tackle tax evasion that is not only unjust and discriminatory but also motivates an undeclared informal economy."
Another defender of private institutions, and advocate of economic liberalism, is the National Union of Entrepreneurs, founded in 1992 as a break away faction of the National Council for Private Companies (Conep) . It pretty much speaks for importers (which don't happen to be few in an island). "We are in favor of an open economy that will promote competition and efficiency. We watch out for both hampering and unacceptable oligopolies, price controls, prohibitions and import quotas," states Mr. Andres Dahuajre Senior, president of UNE. "We are fighting for a real tariff reform that will reduce the cost of living," he continues. "The second reform in 2000 was a disgrace, even though it reduced the ceiling of an applicable tariff from 35 to 20% but taxes were simultaneously raised (the Value Added Tax was raised from 8 to 12%, the impuesto selectivo al consumo (selective consumer tax) also grew, in addition to a forceful exchange commission, with charges that were raised from 1.75 to 4.75%). In a nutshell, the cost of living was raised by 10%."
A shared concern for both ANJE, UNE, and other institutions, is the concentration of wealth among a few powerful families, reminiscence from underdevelopment which they openly criticize. In the Dominican Republic "lays a traditional group of powerful business families that have practically held the monopoly of influencing political and economic decisions of the government, staining Dominican progress," states Mr. Dahuajre. However, although these groups continue to be important, development and the diversification of the economy have opened the stage for new actors that are developing their own protagonism, specially in telecoms and services sectors. "As the economy continues to grow the influence of these groups will fade away," explains Mr. Vicente, President of ANJE.
But ironically, perhaps the darkest spot in the Dominican Republic is its energy sector. Since the past government's endeavor to privatize the energy sector, the Dominican Republic has come to acquire one of the highest energy costs in the Americas and a very inconsistent supply of it at that, with blackouts being part of everyday life. The Dominican Chamber of Commerce, yet another institution standing up for private businesses, which counts on support from the Organization of American States (OAS) and the Economic Bureau for Latin America and the Caribbean (CEPAL), has been fighting this issue head on for months but still has to warn international investors about one of its longest battle efforts in favor of businesses: "The nation needs to solve this energy situation, since the country has been suffering it for a long time, especially those industries that rely heavily on electricity to obtain their output. Hopefully by the end of the year this issue will be solved", states Mr. Jose Manuel Armenteros, president of the Chamber.
It wouldn't be fair to say that the State is the big bad wolf. The government is also making substantial progress in aiding businesses, and particularly in helping foreign businesses to thrive. Thus, in order to keep foreign direct investment coming in and to maintain a favorable climate for its development, the Association of Foreign Investors was created . This institution is a marriage between the government and private industry holding six representatives from each side as its board members. "Our main role is to serve foreign companies, help them get established in the Dominican Republic and to make an appropriate climate for investments," says Asiex executive director Mr. Pablo Linares. |
