We know that the Dominican Republic is growing; in your opinion, what is the current path of the Dominican economy?
The path of the Dominican Republic has been met with much skepticism, given all the problems that exist in the international environment. Our economic model over the last decades has been based on imports and production. I think that the Dominican Republic has carved out a niche in global markets. We have experienced growth in tourism, and now the mining sector is also doing well.
However, growth has not come through manufacturing, which has been a major creator of employment. There was a change since the reforms that took place in China in the mid-90s, and perhaps the Dominican Republic never understood that Asia’s competitiveness against the Caribbean and other countries of the world was unfair. Since the UNITED WORLD: What kind of agreements or measures would be necessary to facilitate trade relations between the EU and the Dominican Republic?
Chinese government finances all factors of production, such as a cheap workforce with low salaries, it made it impossible to compete. But with the 2008-2009 global downturn China realized that it could no longer continue with an economic model based on exports. When all of the European countries of the EU reduced their consumption, China had no capacity to maintain this growth rate.
In the context of crisis, and with North America out of recession, which are the most attractive economic sectors for Americans interested in the Dominican Republic?
We can speak of two types. Firstly, one sector that attracts investment is infrastructure, and I would welcome an increase in investment in transport and energies beyond oil. I think the Dominican Republic needs to solve its issues with respect to energy, in order to be more competitive and thus, attract more investment from big enterprises.
Secondly, in terms of manufacturing, the Dominican Republic could be a co-partner with North America due to its proximity with the EU and Mexico. We are not competitors. The U.S. is currently taking its manufacturing plants to countries like China, instead of building them at home. We see this as a win-win situation in which we can participate in processes where the Americans lack the expertise or labor force. We are very close to the northeast of the American continent, which is the largest consumer market of the entire United States, along with California of course. We could be suppliers for that great center of consumption, from Florida to New Hampshire and Maine.
Now is when we have to make ourselves well-known since the Americans are starting to bring their industries back from Asia to the United States, because of the ease of doing business and the rise in oil prices.
What does the United States know about the Dominican Republic?
They know many things; they know about our tobacco, rum, baseball, textiles, and medical devices, which is an industry that is growing a lot here. They also know some electronics, which are part of the free trade zones (FTZs), and the business process outsourcing (BPO), which are call centers. I think we should explore other areas such as home furnishings and passenger vehicles.
A special case would be advanced electronics. For instance, Apple has their design centers in China, but I think part of that could be done here, though perhaps not as sophisticatedly. We could assemble the manufacturing of televisions, etc. I think we have a culture of confidentiality, commitment and quality that has been developed over the last four decades. Actually in 2012 we have achieved growth that could reach double digits.
What kind of agreements or measures would be necessary to facilitate trade relations between the EU and the Dominican Republic?
I have been asked by employers to establish a stable of deportations,which is an honest and continuous dialogue between the public and private sectors. Here is where we need a clear legal framework and to revise the trade regulations for entrepreneurship, so we can stimulate entrepreneurs and attract new investors from abroad.
A country reaches its peak employability rate when you have about 20%-23% of employment in the manufacturing sector. We still have an unemployment rate of 14.5% and manufacturing only reaches about the 12% of the active population. We have a population willing to work, and able to develop more than twice or even three times the capacity of the current manufacturing system. With these trade agreements and all of the reforms that emerged in the country after 1994, along with the lowering of duties and the massive entry of foreign goods, it is now time to focus on exports. I think we should approach the US and start building relationships not only with New York, but with other regional centers of manufacturing such as Chicago, Detroit, and North and South Carolina, which could manufacture products in the Dominican Republic.
In addition, we are working on new transport routes to better connect the United States and Dominican Republic, and huge strides have been made in this regard. We have Port Caucedo, where there are transfers and connections with many countries around the world. Furthermore with the opening of the Panama Canal, we hope to increase the presence of ships and reduce transportation costs.
Also in the Dominican Republic we have the largest production of raw materials in North and South America. The US has many commodities that can be manufactured or processed in the Dominican Republic for the European market or even the U.S. itself. We have to look towards developed markets, and for me, it is strategic to arrange free trade agreements (FTAs) with Canada and Japan.
Many entrepreneurs in the Dominican Republic fear the situation because the Dominican Republic- Central America Free Trade Agreement (DR-CAFTA) has not been fully developed. I saw it as a weapon to make long term investments, and now with what is happening in Asia, the DR-CAFTA has become a much more potent weapon so that foreign investors can invest for the long term and feel secure that we can make further agreements with the US.
Another important factor is the fluctuation of the Euro. There are a number of multinationals that sell many of their goods in the Asian and North American markets. They are buying in Euros but selling in Dollars, so they are afraid of the difference in the exchange rate. For this reason, I think this is another opportunity for all European companies doing business in the US and Asia to consider the Dominican Republic as a major regional center for manufacturing and business. I am not afraid of this; if things are done well, people will come and buy.
What is the current status and evolution of the FTZs?
We currently have about 576 companies located in different provinces of the country, the largest cluster of which can be found in the zones of Santiago and Santo Domingo. The Santiago FTZ was textiles and the 2005 crisis, which greatly affected the African market, also had an impact in this region. However, there has been an interesting change in this sector because the Dominican Republic has stopped solely producing garments, and has begun producing components, fabrics, and textiles. This industry has developed into a more vertically-integrated industry in this sub-sector of the FTZ.
In fact, apparel, textiles and services are the sectors in which the FTZs specialize more aren’t they?
Particularly in terms of the number of employees, the textile sector is very labor intensive. But the processing mills are more capital intensive and less labor intensive.
FTZs are also focusing on the production of specialized materials for doctors and hospitals. How is Adozona increasing its employee’s expertise in these fields?
We see it as very important, and have invested heavily to improve manufacturing processes, and in certification processes for quality standards and the environment. FTZs have always had an interest in their workers’ expertise and that has allowed us to increase our productivity. This demonstrates a culture of improvement and investment in training. In fact at the National Institute of Technical Professional Training (INFOTEP) Adozona spends 1% of its total payroll, so that later we are given 35% back. So for every peso we invest there, we are given 35 in direct training.
What are the main sectors of these FTZs and industrial parks that have received more investment?
We came in with an unemployment rate in the parks and no demand for new warehouses in the FTZs. However, now there are investments to build new warehouses. We are creating new spaces that are much more sophisticated, with clean technologies and the so-called "clean rooms". We have gone from pure and simple assembly, to more sophisticated processes which include design, product assembly, and manufacturing logistics. There are some parks in the country that specialize in medical issues such as the Park of the Americas.
The tax issue is important because the Dominican Republic has to follow the line of events to avoid what happened to other countries like Puerto Rico and Costa Rica. In that sense, the tax incentives of the FTZs in the Dominican Republic are a plus. I would not be afraid to remove tax incentives in the FTZs if the other countries do so. But if tax conditions changed in our country and not in the others, there would be an exodus of investments, and unemployment would rise. The FTZs make a great contribution to the Dominican economy, employing 135,000 people and their families, which equals half a million people out of a population of 10 million.
The FTZ companies spend more than 20 billion pesos annually on national products, which also leads to an income tax from local businesses. Also around 18 billion pesos go to social security, which is money that the government saves and deploys in education and other sectors.
What lessons have you learned in the private sector that you currently apply as president of an association such as Adozona?
I try to promote teamwork and communication between members. This has allowed us to establish a relationship with the government for some time now. The FTZ has overcome a lot of bad times and thanks to the exceptional work of Luisa Fernandez, Executive Director of the National Free Zones Council (CNZFE), a dynamic has been created between the two sectors that has led to growth. This is something that I think the current government has to understand. We are now at the right time to build that relationship between the government and Adozona.
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