MAIN INVESTMENT SECTORS

The Dominican Republic offers investment opportunities in a wide range of sectors where there is still great development potential. Free zones and tourism are currently two of the most promising sectors for foreign investors, but traditional areas like agriculture and mining are also developing.

Other sectors like construction, electricity and telecommunications have turned into expanding economic areas, while financial and insurance services are also becoming interesting as the local market diversifies. 

The economically active population of the Dominican Republic for the year 2002 was estimated at 3,314,993 people. It also shows that from this figure around 59.15 % are dedicated to services, 16.92% to the industry and only 16.41% to agriculture. 7.52% had no branch of economic activity and were looking for a job for the first time.

In the same year the unemployment rate was 16.11% of the economically active population. The country has a wide and diverse workforce, ranging from university graduates both at a professional and technical level, workers with basic knowledge and skills and workers in general.

Next we give you an overview of some of these important investment sectors:

1) FREE ZONES

A “Free Zone” is a compound which is generally physically isolated and offers special incentives primarily in the areas of import and export duties. The National Free Zone Council (NFZC), a government organization, regulates Free Zones.

The main activities in the free zones are the manufacturing and assembly of apparel, which represent approximately 63% of all operations, as well as shoe making, electronic components, hospital supplies, furs, and data processing.

The major advantages of investing in the Free Zones is that Dominican Laws offer a complete package of benefits to manufacturing firms established in these parks, including tax holidays for 15-20 years (depending on the location of the park within the country), duty-free entry of all raw materials, parts and equipment, and on-site customs inspections that greatly facilitate the entry and exit of material and finished goods.

All the above, coupled with political stability and policy continuity, subsidized rents or leases of buildings in the publicly owned free zones, law cost workers, and a proximity to the United States market and commercial preferences to access it, contribute to make of this the most important investment sector.

The preferred commerce status that the Dominican Republic enjoys with U.S. has been given thru various non-reciprocal agreements of financial and technical cooperation, which reduce or exempt the country’s products from custom duties and guarantee the access to their markets.

It’s important to note that companies in garment assembly and other light manufacturing operations have been impressed by the dedication and productivity of their Dominican employees. In technical, production and managerial positions Dominicans frequently meet or surpass the performance standards of their U.S. counterparts. Absenteeism rates are low and education is high.

A number of major U.S. apparel manufacturers, including Maidenform and Sara Lee with its divisions SLKP, Bali and Playtex, have established their own assembly facilities in the country.

The great business possibilities between Dominican Republic and Pakistan remain largely unexplored. In one hand, Pakistan has ample raw material and expertise in the manufacturing sector, while in the other hand the Dominican Republic offers the ideal conditions and location, as well as U.S market access.

Free zones are an option that the Dominican Republic supports and promotes with three main purposes:

• Creation of jobs
• Generation of foreign currency
• Transfer of technology

The free zone system of the Dominican Republic is one of the most advanced worldwide. The country has been developing its free zone network since 1969, when less than a dozen industrial zones existed throughout the world. It ranks currently as fourth in terms of quantity of free zones, having 52 free zones with approximately 539 companies.

The first free zones were government sponsored, but at the end of 2003, 27 were private, 22 were State owned and three were mixed.  During the year 2003, 11 new free zone companies were established, representing a 2.2% growth, thus reversing the negative trend of the previous year. This growth was the result of the installation of many new companies that were attracted by the benefits resulting from the Textile Parity Law passed by the United States, which allows a greater variety of textile products to be exported duty-free to the US.

Free zone exports reached in the year 2003 the amount of US$4,398.7 million, for an increase of 1.89% in relation to the previous year.  The textile sector had a participation of 49.9% in exports, thus being the most important free zone sector.  Electronics followed with 13.1% participation, that is, US$577 million, and jewelry, with 10.2%, that is, US$446 million. In 2003, a new industrial park was created, while 11 new free zone companies were installed and the free zone space area grew 0.6%.

In order to increase the competitiveness of the sector against the adverse international environment of that year, several measures were adopted by presidential decree on behalf of free zone companies, such as the granting of more flexibility to working schedules, elimination of certain technical hindrances to customs clearance of imports, and the construction of new industrial parks in less economically developed regions, and the establishment of additional incentives to companies that set their operations in those areas.

In the year 2003, workforce occupation grew at a rate of 1.48%, going from 170,883 jobs in 2002 to 173,367 in 2003.  These results revert the trend of the last two years. The jobs correspond to 84.7% workers, 10% technicians and 5.3% management personnel.  52.6% women and 47.4% men occupy free zone employment.

Industries generating the higher number of direct jobs are: Apparels and Textiles (119,101), which amounts to 69.1%, Tobacco and derivatives (6.4%), Electronics and Pharmaceutical Products, with 5.3% each.

Free zone activities have been gradually diversifying, although textile activities still predominate.

As to the origin of investments, 47.08% of the free zone companies are owned by US investors, followed by Dominican investors who own 33.90%, and by European and Asian investors.

In relation to destination markets, 93% of free zone products are exported to the United States and Puerto Rico, followed by European countries like France, Belgium, United Kingdom, Holland and Germany.

During the year 2004 free zone activity grew 6.4%, that is, it almost doubled the 3.5% growth of the year 2003. This increase results from the fact that there were about 10,000 new free zone workers, due mainly to the installation of 49 new companies. Local expenditure also raised 3.7%.

The growth of the free zone sector reflects also in the increase of exports, as it may be appreciated in the following table for the year 2004:

YEAR 2004

Total Exports (In US$) :  4,416,450,600 100%

Textiles 2,076,155,200 47.0%
Electronic products 587,740,300 13.3%
Jewelry 556,279,600 12.6%
Pharmaceutical products 347,462,900 7.9%
Tobacco manufacture 324,223,900 7.3%
Shoe manufacture 195,589,200 4.4%
Others 328,999,400 7.4%

Advantages of the Dominican Free Zone Network

The advantages offered by the Dominican free zone network which have contributed to its fast development are the following:
• Attractive legal framework which exempts free zone companies from the payment of import duties, income tax and most other tax obligations.
• Preferential access rights that allow Dominican exports to enter the markets of United States and Europe without having to pay custom duties.
• Possibility of obtaining financing from local or foreign institutions.
• Facilities to freely repatriate abroad the profits in foreign currency.
• Workforce available at low cost.
• Background of political stability.

Incentives

Free zone companies are exempt from the following taxes and duties:
• Income tax
• Taxes on constructions, registration or transfer of real property rights
• Taxes for incorporation of companies and increase of capital
• Municipal charges
• ITBIS (VAT)
• Consular fees
• Export or re-export taxes.

Furthermore, they are exempt from the payment of all custom duties, import taxes and related charges on:

• Raw materials, equipment, construction materials, office equipment and any other goods necessary for the construction, preparation and operation of the company.

• Materials and equipment needed for the construction of housing facilities, cafeterias, health services or others established for the benefit of workers.

• Transportation vehicles, including cargo trucks, garbage collectors, buses for workers, etc., upon approval of the CNZF.

These benefits are granted for a period of fifteen years. Companies located in border free zones benefit from a longer period of twenty years, enjoying also other additional benefits such as rent subsidies, priority treatment for the export of goods limited by foreign quotas and for the assignment of development funds, etc.

2)  The Apparel Assembly Industry:

Apparel assembly is a well-established activity in the Dominican Republic. By virtue of its productive labor force, experienced middle management, pleasant working and living conditions and geographic location, the Dominican Republic offers an attractive investment climate for apparel manufacturers, especially items with a high labor-to-weight ratio.

Furthermore, the size and mature state of the apparel industry in the Dominican Republic has led to the establishment of most of the infrastructure and support services that are required by apparel manufacturers., including training institutions, repair services and manufacturers of packaging, thread and accessories.

The stitching plants range in size from 150 to 1500 machines. Articles currently produced for export include men’s and boy’s underwear, shorts, polo shirts, dress shirts, jeans, denim jackets, blazers, swimsuits, casual slacks, and sleep and lounge wear, ladies’ undergarments (brass, girdles, underwear), blouses, skirts, jumpsuits, children’s clothes, school uniforms, fur and leather coats, etc.

Labor cost although approximately thrice as much as labor costs in Pakistan are still very competitive in the international market.

3)  Cybernetic Park of Santo Domingo

The Cybernetic Park of Santo Domingo also represents another great opportunity for investment.  It is a joint project of the Government and the private sector conceived to function as an industrial park for high technology companies, with all the facilities offered by the leading technological parks worldwide. The incentives offered by this park will be larger than those granted to companies installed in industrial parks.

Education is an integral part of the Cybernetic Park, which includes the Technology Institute of the Americas (ITLA), a computer-training center with its own labs for technological research. The institute also participates at joint training initiatives in the education field with other public entities, such as the Ministry of Education and the Ministry of Higher Education, Science and Technology.

4)  Tourism Sector

The Dominican Republic is currently the major tourist attraction in the Caribbean. This is due to the fact that the country, apart from having rich natural resources, a consistent tropical climate and places of historical and cultural interest, offers also highly competitive hotel prices, and all this within a background of security and political stability.

Furthermore, the Dominican Republic has important forest and scientific reserves, as well as national parks, where the authorities seek to protect the great variety of endemic flora and fauna of the island. For such reasons, ecological tourism has also been starting to develop during the last years, and the public and private sector promote visits to places of ecological interest such as Lake Enriquillo, and the Shrine of the Humpback Whales in Samana Bay.

Today tourism is one of the backbones of the Dominican economy, contributing significantly to the creation of jobs and foreign currency. In the year 2000, tourism earnings amounted to 69% of exports of goods and services, excluding free zones.

Tourism infrastructure in the Dominican Republic belongs in a 54.7% to national capital and in a 45.3% to foreign capital.

The country has the largest tourist accommodation capacity in the region, having 59,990 hotel rooms for the year 2004. Currently the main sources of tourism for the country are Europe and North America. 

In the year 2004, the Dominican Republic received 3,783,628 tourists, 5.6% (199,781) more than the previous year. The hotel occupation rate, which was 70.3% in 2000, was 74.20% in the year 2004, 1.50% higher than in 2003.  North American visitors accounted for 48.6% of all tourists coming to the Dominican Republic, of which US tourists amount to 32.5%.

They were followed by European visitors with a significant 44.9%, showing an important increase of Spanish and English tourists and a good presence of Dutch visitors. Visitors from Central America, South America, the Caribbean and other countries accounted for 6.5%.

This increase in the number of visitors was due to several reasons, such as the variety of the tourist offer and the quality of services. To this we may add logistic aspects such as the start of operations of new airlines, thus increasing the availability of seats.

It should be noted that at the end of the year 2004 there was a lot of dynamism in the country in relation to the construction of tourist facilities in the mountain regions. Furthermore, other private sector initiatives for tourism development are being started or continued, such as the Cap Cana and La Isabela projects.

The Government keeps on promoting the development of the country's tourist zones, and is interested to encourage private participation in the sector. For these reasons the State has been traditionally concerned with the following activities:

(i) The construction of adequate infrastructure for the tourist industry, such as roads, ports, airports and public services.
(ii) The development of human resources through co-operation with universities and technical institutions.
(iii) The realization of promotional campaigns in foreign markets.
(iv) The granting of credits and incentives to private investors.

The Dominican Ministry of Tourism has offices for tourist promotion in the United States, Spain, France, Germany, England, Belgium, Italy, Canada, Puerto Rico, Venezuela, Argentina, Chile and Colombia. These offices carry out activities such as information services, advertisement through the media, organization of traditional festivities and participation in international fairs.

5)  Power Generation

An acute power shortage is the single biggest challenge facing the Dominican Republic in its bid to achieve sustainable economic development.

The 1999 privatization of the state electric company has clearly failed to resolve the problem of inadequate infrastructure. Foreign private producers have continued to add new capacity, but soaring demand, poor maintenance of transmission facilities and the lack of energy conservation have kept capacity at well below peak levels of demand.

 Load shedding is a common practice and virtually all industrial enterprises have their own back-up power. Some large firms maintain completely independent electricity supplies.

The Corporación Dominicana de Empresas Eléctricas Estatales (CDEEE) operated the electricity system as a state monopoly until six years ago, when six distribution and generation companies were set up, with the CDEEE retaining 50% ownership of the electricity generation, as well as the hydropower sector and the grid company. The rate structure was modified, with prices being set on a monthly index basis according to the variation in the consumer price index, exchange rate and other factors. The previous government moved to subsidize fuel supplies to generators and the resulting arrears in payment started a supply crisis.

For the year 2007 the approximate electricity demand will reach the 14,000 GWH while at the present time the supply from the various generation plants is less than 8,000 GW/h.  Consumer Cost:  US$3.29 per KW/h of energy in 2006.