In economics, trust is measured in numbers. Example? Loans from international organizations or injections of money made by certain countries in a developing nation. In that sense, the figures for foreign direct investment in the Dominican Republic show how attractive the average Caribbean island seems to be.
Data from the Export and Investment Center of the Dominican Republic (ProDominicana) indicate that in the last 10 years the sum of direct foreign investment in the Dominican Republic is around US$27,000 million, even almost reaching US$30,000 million, according to data compiled by the money.
To date, the year with the highest investment was 2017, which with amounts amounting to US$3,570.7 million, exceeds the previous and subsequent periods by more than US$1,000 million.
The analysis of all the previous figures also indicates that the country, in an average of 10 years, the investment was of US$2,600 million.
Are you stuck?
Depends. During the “Recognition of Foreign Direct Investment in the Dominican Republic”, the Vice President, Raquel Peña, highlighted that there are investors from more than 57 countries in the country. She attributed the achievement to the various opportunities that are generated in the national and international business environment, based on the strategic advantages of the Dominican Republic.
“What we see reflected in our economic performance is the result of all the effort made for transparency, the fight against corruption, the strengthening of the justice system, legal security, political and social stability,” he said.
However, when looking at what this investment represents as a percentage of the gross domestic product (GDP), in more than 10 years, the indicator is barely 3.5%.
The highest number was exactly a decade ago. In 2012, it reached 5.2% of GDP. The next highest indicator was presented in 2017 when it reached 4.5%.
The executive vice president of the Regional Center for Sustainable Economic Strategies (CreesRD), Miguel Collado Di Franco, understands that, when looking at FDI as a percentage of GDP, it is possible to notice “the stagnation in which the Dominican economy finds itself to attract more investment” .
When asked “why don’t we exceed US$3 billion in FDI?”, he explains that the capacity of the Dominican economy to attract investors who are willing to risk their capital and make more investments “is limited”.
In this sense, he states that the limitations are “high tax rates and a complex tax system.” In addition to that, there are the high costs of transportation, electricity, non-salary labor (imposed by legislation such as the Tax Code), bureaucratic, among others.
For this reason, he assures that it is necessary to carry out structural reforms, “starting with the most urgent: the tax reform”.
sectors
Indeed, as ProDominicana promotes, the Dominican Republic has been a key factor in foreign direct investment in the Caribbean. In 2021, there was an increase of 39% to US$3.8 billion in the region. It was driven mainly by the growth of investment flows to the country, the largest recipient of foreign investment in the subregion.
According to figures from the Central Bank of the Dominican Republic (BCRD), 73% of FDI in 2021 was concentrated in four sectors: tourism, real estate, mining and commerce, the first being the one with the largest share with 31%, and an absolute amount of US$961.8 million in said period.
A report by the Economic Commission for Latin America and the Caribbean (ECLAC) provides more precise data. They indicate that the country saw its foreign direct investment increase by 21%, to US$3.1 billion. These figures were presented after in 2020, in the Caribbean, foreign direct investment inflows experienced a lower drop than the regional average (-25.5% as a whole).
However, the country remained the main receiving country, despite a 15.4% reduction in inflows. Even so, the investment reached US$2,554 million. The result was due to the drop in mining and telecommunications (-91% and -139%, respectively).
According to the report, in the case of telecommunications, the sector presents highly variable investments and has registered a particularly high injection in 2019 (more than three times the average of 2010-2018).
Data from the Central Bank yields more precise data. The figures show that in 2015 it increased to US$335.9 million. A year later it presented negative amounts (-US$263.9 million). In 2017, it was US$67.1 million, while in 2018 it was negative again (-US$240.1 million). The rhythm continued for the next two years.
In this sense, Collado Di Franco explains that the dynamic is due to the fact that, at some point, sectors such as telecommunications, energy or others, “may have more investment for specific projects… because they need capital investment at a certain time or for expansion. networks, plants, etc.
In the 2020 pandemic alone, foreign direct investment inflows in industry increased by 23% and the electricity sector by 47%. These indices represented, respectively, 16% and 17% of foreign investment inflows that year.
However, Collado Di Franco understands that the important thing to highlight are the figures presented by the tourism sector, for example. “They maintain a higher or constant rate of investment because they have other conditions that favor them,” he said. It presents constant indicators of increase.
Projects
To cite specific cases and figures: In 2020, ANEX Tourism Group, based in Turkey, announced that it will invest US$1.8 billion to open a new hotel in Punta Cana. It is estimated that this hotel project will generate 10,000 jobs. Another tourism project includes an investment of some US$41 million by US-based Playa Hotels & Resorts in a new Hilton chain hotel complex in La Romana.
The same panorama presents energies, and more specifically renewables, which are being developed in the subregion and particularly in the Dominican Republic, indicates ECLAC. For example, Streamline Integrated Energy Corp., a renewable energy developer and subsidiary of US-based SI-Energy Holdings, announced plans to develop a 50-megawatt waste-to-energy plant in San Pedro province. of Macoris (Renewables Now, 2020b).
Electronic JRC, a subsidiary of Neo Solar Power, a solar energy company based in the Chinese province of Taiwan, has obtained permission to double the capacity of its solar photovoltaic park in Monte Plata Solar from 30 MW to 60 MW.
In the manufacturing sector, Oscor, a company in the medical device sector based in the United States, announced that it will expand its manufacturing plant in the Las Americas Industrial Free Zone in Santo Domingo. In addition, DP World, a specialized logistics company based in the United Arab Emirates, invested US$114 million to increase its operational capacity, with the expansion of the main berth of DP World Caucedo and turning it into a logistics center for the Americas.
According to ECLAC, Latin America and the Caribbean have achieved a good export position in medical devices. They represented 7.8% of world exports between 2014 and 2018. Only the Dominican Republic had a share of 0.5%, which made it the third largest exporter in the region. Trade in these items is concentrated in Mexico and Costa Rica in first and second place, respectively. Brazil ranks fourth.
“It is evident that in sectors that are not penalized by the taxes that fall on the rest of the economy, such as the free zone and tourism, they show a higher investment rate. With better conditions for everyone, from the small producer to the largest company, the conditions would change”, commented Collado Di Franco.
In 2019 alone, exports from free zones represented 56% of the country’s exports and, within these, medical and pharmaceutical products represented 26.5% of exports (approximately US$1,660 million).
According to ECLAC, the growth of the industry in the country was due to a national strategy of attracting investment in strategic areas, and companies have settled in free zones. At least 9 of the top 30 global companies in the industry have direct manufacturing operations in the Dominican Republic, and proximity to the United States is an advantage.
Regardless of all of the above, as expressed by the executive director of ProDominicana, Biviana Riveiro, the contribution of foreign direct investment was “decisive for economic recovery”, after the health and economic crisis. To conclude with numbers: only between January and June, the contribution of direct foreign investment amounted to US$1,870.9 million.
Recovery
Foreign direct investment in Latin America and the Caribbean has recovered from the pandemic-induced slump, growing 56% to $134 billion in 2021, up from $88 billion in 2020. Only a few few economies suffered further declines in the wake of the covid-19 pandemic. Foreign direct investment flows into the region had plunged 45% in 2020, the largest decline recorded in developing regions that year.
The rebound in 2021 was fueled by a record number of 317 new information and communications technology projects announced across the region, an increase of 61% compared to 2020.
“Growth was also strong in traditional industries such as auto manufacturing, electricity, insurance and financial services, as well as extractive industries,” said James Zhan, director of the Conference’s Investment and Venture Division. of the United Nations on Trade and Development (Unctad).
Although foreign direct investment flows increased in all three subregions of Latin America and the Caribbean (excluding financial centers), some national economies suffered further declines due to the ongoing economic effects of the pandemic and, in some cases, political instability. .