Industry

SME-asy Does It

Industry

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SME-asy Does It

Manufacturing and industry play central roles in the nation’s economy, employing approximately 22% of the labor force, and are leading efforts to dismantle the informal sector. The International Labor Organization […]

Manufacturing and industry play central roles in the nation’s economy, employing approximately 22% of the labor force, and are leading efforts to dismantle the informal sector. The International Labor Organization estimates that almost 1.5 million Dominicans were employed informally in 2009. However, as the tourism segment expands, FTZs grow, and ICT development encourages the establishment of SMEs, more and more Dominicans will be brought into the formal industry and services segments.

TRADING PLACES

Comprehensive legislation outlines the benefits of setting up in any of the more than 50 FTZs located throughout the country. Attractions include 15-year exemptions from income tax payment (20 years for FTZs located on the Haitian border), major reductions on export and re-export tariffs, as well as reduced equipment and property costs. Port, airport, and transit fees are halved for FTZ investors, too. Oversight is provided by the Free Trade Zone National Council (CNFZE), which determines the length of the concessions that the FTZs afford international firms and can extend them beyond the initial 15- or 20-year stages.

This key element of the nation’s industrial sector continues to grow, with investment expanding by 7.6% YoY in 2012, half of which came from the US. The FTZs are located throughout the country, with a higher number around the Santo Domingo and Valverde provinces, and produce a wide variety of products for primary export markets. Almost 20% of investment in 2012 was in the medical and pharmaceutical segment, while a quarter came from the manufacturing of garments and clothing. Tobacco, and cigars, represented over 16% of investment. The success of FTZs has attracted sustained FDI to the Dominican Republic, making it the 38th largest export market for US goods. Direct investment from the US grew from $1.5 billion in 2011 to $1.7 billion in 2012. The country supports more than 500 FTZ enterprises, including major international brands such as GlaxoSmithKline.

NECESSARY BACKUP

In addition to a broad complement of attractive investment incentives, multinational corporations require SMEs to provide essential services to back up their production. To this end, the Ministry of Industry and Commerce has taken the progressive step of establishing a dedicated Vice-Ministry for the Promotion of SMEs. Its goal is to execute tangible programs that benefit enterprises across the various productive sectors of the country. Through the facilitation of networking, access to financing, and access to markets, the organization is actively working toward an improved SME segment, a key objective of the current administration. “By promoting microcredits, advice, financial support, and the provision of insurance to SMEs, we are helping to create thousands of jobs, and fostering a mentality among the population favorable to entrepreneurship and business opportunities,” explained Danilo Medina, President of the Dominican Republic, in conversation with TBY. SMEs represent the vast majority of the Dominican industrial base. The service sector employs over 30,000 people and, thanks to a strong physical infrastructure with submarine cables and telecommunications lines, is set to grow rapidly over the coming years.

SMOKE UP

Tobacco, sugar, cocoa, and coffee have traditionally been the Dominican Republic’s steadfast industries. The former remains a major export, comprising 43% of agriculture exports. Starting with the immigration of Cuban experts avoiding that country’s trade embargo, Dominican cigars have attained a high status among aficionados throughout the world. As the primary exporter of cigars to the US, over 100,000 people work to produce the more than 20 trademark brands for which the country is famous. The value of rolled tobacco exports in 2011 was $396 million, or 4.43% of total exports, while processed tobacco at $41.6 million and raw tobacco at $20.6 million rounded out the segment.

Over 2 million hectares of land across rural areas is used for the cultivation of coffee. In 2013, fresh coffee exports grew faster than instant, while Banilejas continued to maintain control of the bulk of the fresh market. Nescafe remains a major player in the overall market. Despite a general downturn in the economy over the past year due to government reforms, efforts are being made to boost these established industries. In 2Q2014, a Ps30 million fund was established for the renewal of coffee plantations, restoring up to 5,000 hectares of land.

The Dominican Republic is the largest producer of cocoa in the Caribbean with 60,000 tons. Approximately 5,000 tons were ground between 2011 and 2012.

Cervecerí­a Nacional Dominicana, the leading beer manufacturer in the nation, was bought by Anheuser-Busch InBev NV in 2012, and the conglomerate now leads the market. Rum production is as high as ever. Leading brands such as Oliver & Oliver, Ron Barceló, and Brugal rely on strong local demand and an increasingly affluent middle class, as well as the refined tastes of the EU and North American markets for export. In 2012, the country produced over 30 million liters of pure alcohol in its rum segment.

ASSEMBLING THE FUTURE

The latest figures from the World Bank (2009) suggest that there are 132 cars per 1,000 citizens. As purchasing power continues to grow, and thanks to strong links with North America, car production in the Dominican Republic is beginning to parallel the increased demand of nationals. It is a sector with high potential for Dominican industrialists, not only because of local interest, but because of the growing opportunities to join in the global supply chain. Improvements in electronic and auto machinery are encouraging demand worldwide, giving countries such as the Dominican Republic the chance to manufacture specific parts.

Its proximity to North America is again working out in its favor, as Asian and European firms keen to grab a slice of the US market set up small-scale operations in FTZs across the nation. The assembly of automobile parts, packaging of electronics, and light manufacturing functions will emerge as important areas of growth in Dominican industry. The assembly of low-voltage protection equipment was worth $391 million in 2011, or 4.38% of exports, with high-voltage protection equipment trailing slightly behind at $220 million.

APPARENT OPPORTUNITIES

Textiles and apparel firms have been strongly represented in Dominican FTZs from the outset. The CAFTA-DR region produces the bulk of US apparel imports, and employment in the segment in the Dominican Republic exceeds 50,000 persons at over 200 firms. In 2000, garments and clothing accounted for around half of FTZ exports and up to 70% of employment, after rapid growth of the industry in the 1980s and 1990s. Products such as light mixed woven cotton garments made up $276 million of overall exports in 2011, and knit t-shirts were valued at $255 million. Suits and other cloth articles collectively comprised another 2% of exports in that year.

EXPORT PROGNOSIS

In 2011, packaged medicines worth $53.9 million were exported, primarily to Guatemala, Venezuela, Honduras, Ecuador, Panama, and Peru, along with over $77 million worth of special pharmaceuticals to such key destinations as Belgium, Luxembourg, Spain, Poland, Turkey, and Germany. Similarly, the production of medical devices continues to play an essential role in the manufacturing matrix of the republic thanks to its network of advanced facilities. Exports in this area were worth $894 million in 2011, over 10% of that year’s total exports. Over 65% of these products were sent to the US, while the Netherlands, Canada, and Japan received much of the remainder with around 5% each.

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