Dominican Republic guide 2016: Foreign direct investment
Drawing in the region’s FDI flows.
Foreign direct investment is on the rise in the Dominican Republic, while ambitious cross-border partnerships with Haiti provide further cause for optimism.
Attracting inward investment to the Dominican Republic is crucial if president Danilo Medina is to fulfil his objectives for economic growth, job creation and the expansion of the country’s middle class.
Jean Alain Rodriguez is executive director of the Centre for Export and Investment of the Dominican Republic (CEI-RD). The organisation has a broad remit and it is one that Rodriguez has made even wider. He argues that the key to attracting foreign capital to the country is to cut through red tape and bureaucratic challenges.
“We offer a one-stop-shop for foreign companies,” he says. “We work with foreign companies to help them in all aspects of establishing operations in the Dominican Republic, from locating land to identifying potential partners and suppliers for their business. We help with permits and regulators. We act as their day-to-day contact and liaise internally within government, between departments, so that instead of companies having to deal with 12 to 15 different ministries they simply work with us.”
Rodriguez says the approach is paying off. FDI has increased by 8.3% since 2012 – during a time of volatility in emerging markets in general and the region specifically. The country now attracts 37% of all FDI in the Caribbean and that has driven recent GDP growth rates of around 7%.
“We have improved the business climate of the country by focusing on achieving a simpler, more efficient and secure process and at the same time guaranteeing high levels of transparency and confidence for investors,” says Rodriguez.
As well as logistical support in establishing operations, the government also provides a range of tax incentives to attract inward investment. Manufacturing is tax-free in designated National Free Zones and this policy has attracted world-class brands to the country. There are also tax incentives for targeted industries (including textiles, tourism, film and renewable energy), as well as incentives for foreign nationals accompanying their businesses and residing in the country.
Jean Alain Rodriguez,
However, Rodriguez says one of the biggest draws is the geographical location of the country. It is perfectly located for near-shoring operations to the US. Internet retail has made the speed of shipment of goods more important and the Dominican Republic is two days from the US east coast for freight and eight days to Europe. The development of the soon-to-be-enlarged Panama Canal is also a positive. The growth in FDI has been distributed throughout the economy – 63% of the 614 companies registered in the free zones are foreign companies. There have also been some high-profile, large investments. In ports, DP World has invested in a cargo terminal in Punta Caucedo, while Carnival invested $85 million in a passenger terminal that opened last year. The leisure industry has seen the Hard Rock Hotel open its first Caribbean resort in Punta Cana – the success of which has led the parent company RCD to plan another hotel in Santo Domingo. In 2014, JW Marriott also opened its first Caribbean hotel. Barrick Gold Corporation opened a mine that now generates significant government revenues. Investments by Altice and America Movil in the telecommunications sector show that the economy can also attract the world’s leading technology companies.
The Dominican Republic is also creating a call centre industry. Teleperformance established operations on the island in 2012 and today employs 1,200 people in Santo Domingo and has plans to create 750 jobs in La Romana.
Not all the investment facilitated by the CEI-RD is foreign. The organization has worked with AES Dominicana to develop a natural gas energy plant. The island relies on oil imports for energy generation and the cost of energy has worked against the country in terms of competitive advantage. However, with a natural gas and two coal-powered power stations due to come online producing a combined 720 megawatts, as well as initiatives to improve transmission, energy costs are set to fall. Rodriguez says the shift into heavier manufacturing is already taking place: “We are starting to be competitive in energy costs,” he says. “Walmart recently located a large plastic fusion plant in the Las Americas Free Zone because energy prices are falling. If they keep going down we expect to see automotive industries, not just parts, but the whole process. We want to produce and assemble.”
Labour costs are lower than China. They are above Mexico but Rodriguez says the government is working to make sure employers have the quality of human capital they need. Illiteracy has been reduced to marginal levels. 800,000 people have achieved literacy since 2012 as a result of the government’s investment in education. Also, the country is ranked second in the region by the English Proficiency Index – above both Mexico and China. Meanwhile, crime rates have fallen by 33.3% in the past four years and the political and economic stability offered by the country is unmatched in the region and much of Latin America.
Rodriguez’s other mandate is exports. Employment in the island’s export businesses has increased by 19,116 since 2012 and job creation directly linked to FDI is 71,536. The CEI-RD helps both foreign and domestic companies that produce goods and services on the island find export markets. The organization works with the country’s consulates to identify buyers and produces events to showcase the island’s potential exports. In June this year the organisation is hosting the largest trade show ever to be organised in the Caribbean. DR Exports 2016 will attract over 1,000 buyers and Rodriguez says that he is working to build product awareness and meetings before the event so that the 5,000-plus individual meetings will focus on negotiating contracts rather than building awareness.
Building along the Haitian border
The desperate economic and political situation in Haiti, the Dominican Republic’s neighbour, led it to be granted duty-free status for textile exports into the US. In response, Grupo M created a complex of textile factories, called CODEVI, in the north of the country, near the town of Ouanaminthe. Now the company has four plants that make jeans, T-shirts and synthetic garments for a wide variety of international brands, including Levi’s, Under Armour and Gap.
Grupo M’s director, Fernando Capellan, President & CEO of Grupo M and CODEVI, says that the 7,000 jobs provided to the local Haitian community (as well as 4,000 for Dominicans), has generated a hugely positive response among a local population that has few other sources of employment. Every day hundreds of Haitians turn up looking for work at the small bridge that connects the complex to Haiti – with the numbers swelling above 1000 on Mondays and Fridays.
The success of Grupo M’s venture has begun to attract more companies. The potential for expansion is huge. Capellan expects that the duty free export regime into the US, which underpins the economics of the project, will be extended to 2030. Grupo M says that the poverty in Haiti and the lack of education means that such schemes need not only provide jobs and training, but also basic health services, childcare and sporting facilities. The project has even created its own TV station to promote awareness and education.
The success of CODEVI has led to ambitious plans for expanding such bi-national developments along the corridor of the two countries’ border. Further expansion of manufacturing is planned for the north – with the reconstruction of the port of Manzanillo offering the potential for faster shipment to the US and elsewhere. There are also three other projects awaiting governmental approval: in power generation, agriculture and the leisure sector. The Inter-American Development Bank is in discussions to help the projects by supplying political risk guarantees that will allow sponsors to go to tap US institutional investors for funding. Hopes are high that the border between the Dominican Republic and Haiti will provide an important source of wealth for both countries.