Dominican Republic guide 2016: Introduction

By:
Rob Dwyer
Published on:

Business-friendly medina aims to deliver.

Danilo Medina is riding a wave of popularity as he bids for a second term as Dominican president. Delivering on election promises will stand him in good stead for re-election, say his ministers.

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When Danilo Medina assumed the presidency of the Dominican Republic in 2012 he had

an overarching objective, to expand the country’s middle class. However, despite this focus, Medina recognized there needed to be multiple policy initiatives to deliver the economic growth that would reduce poverty and boost prosperity.

As Medina prepares his bid for re-election in May there has been tangible progress on his ultimate objective (8.1% of population have entered the middle class), as well as clear economic, social and political development in the Dominican Republic. The economy is the fastest growing in the region and, at a GDP growth rate of 7% last year, was the second fastest globally. 

One of the main planks of economic development has been attracting tourism and free trade zones investment. FDI is up and the government has succeeded in deepening and broadening the economy. Free-trade zones have attracted hundreds of international companies to the Dominican Republic. These companies have been enticed not just by the tax incentives but also the government’s entrepreneurial approach in aiding new entrants by cutting bureaucracy. 

Medina’s business-friendly stance has enabled the country to promote its natural advantages. It is only two days from the east coast of the US by container ship, making it a logical candidate for establishing ‘near-shoring’ operations. Europe is accessible too, being only eight days away by freight. And the Dominican Republic’s geographical location is enhanced by its free-trade agreements with both the US and Europe. The country is one of only 13 in the world with free-trade access to both these continental markets and, combined with other agreements, boasts unfettered economic export rights to a market of 900 million people.

Medina has pursued simple but dramatic social policies to improve education. The president’s bold election pledge in 2012 to spend 4% of GDP on education has been fulfilled (accounting for roughly 23.5% of total government expenditure) despite the higher-than-expected economic growth. This spending has radically altered education provision and generated benefits across the economy. Longer daily attendance and greater take-up has enabled parents to enter the workforce. The construction of new schools has given a boost to the construction industry. The higher education standards are also set to improve the country’s human capital – labour costs are competitive with Mexico – further enhancing its attractiveness to international companies.

The Dominican Republic has long been a leading tourist destination in the Caribbean and the Medina government continues to play to this strength. The country is unusual in the region in having a relatively undeveloped coastline and the government has been facilitating foreign investors’ access to new hotel and leisure projects. 

Infrastructure projects have made new developments accessible and travel times across the country have been reduced by more than half, connecting the island’s attractions and broadening the tourist appeal. New development is focused on low-density, high-quality resorts, increasing competitiveness. It has led existing resorts to respond with redevelopment and refurbishment projects that also generate economic growth. There has also been a successful strategy to make the capital Santo Domingo in the south, and Puerto Plata in the north as destinations for Caribbean cruise liners, which has helped boost both cities hotels and leisure industries.

President Danilo Medina
President Danilo Medina
However, the current administration’s main achievement has been the development of other industries as a way to diversify and increase revenue streams. The government is fostering new export drives from local agricultural producers. A goldmine at Pueblo Viejo has created a large and stable source of revenues. The government’s original target of 400,000 new jobs by 2016 looks likely to be exceeded by 50,000 – created across an increasingly diversified economy. More than 65,000 affordable homes have been built, doubling the country’s entire stock.

The government is also developing institutional strength and discipline. The improved financing position built on the recent economic growth, has been boosted by two external factors. First lower oil prices (the Dominican Republic is an importer of oil for electricity generation) and second price and foreign exchange stability, which has boosted the value of remittances.

The ministry of finance and the central bank have responded by growing central bank reserves and lowering the fiscal deficit. Traditionally, these have both been points of financial weakness for the economy but the big improvement in both measures has drawn praise from the IMF and the rating agencies. Perhaps most importantly, international investors have signalled their approval by placing billions of dollars of orders for the sovereign’s recent international bond transactions. The credit risk of the country, once one of the highest in the Caribbean, is below the average in Latin America and the outlook for further improvement is positive.

There is more to do: Medina’s key targets run up to 2020 and finance minister Simon Lizardo is targeting an investment grade rating. Further economic and financial progress will be needed to reach this objective, most notably in the area of energy policy reform, but the progress under the first administration certainly augurs well for the next.