Focus: Free Industrial Zones

The Power Houses

The Power Houses

Apr. 28, 2013

“Companies established in free zones are entitled to sell part of their production to the domestic market," José Del Castillo Saviñón, Minister of Industry and Commerce explained to TBY, adding that “recently adopted amendments in the act approved a 2.5% tax on these companies' activities in the local market, which represents income tax." Through the new policy, the government seeks to sustain the success the free zones have enjoyed for over 40 years.

Free zones have been established in the Dominican Republic since 1969, when the government realized their operation could contribute to the dynamism of a variety of sectors in the local economy. In the period between 1971 and 1990, 297 businesses launched operations in the country's free zones, a figure that reached 578 by the beginning of 2012. Currently, over 125,000 people are employed in local industrial parks, accounting for more than 46% of the total population in the manufacturing workforce.

In a report released in 2012, the Dominican Republic's 51 FIZs were producing nearly $4 billion of exports and accounting for 57.2% of the country's total output. The success of the Dominican Republic's products abroad can largely be attributed to their quality and the efficiency of each site, as the zones registered increasing rates of value-added of 3.4% and 14.1% in 2010 and 2011, respectively.

Operated by a combination of public and private management teams, the Dominican Republic's free zones offer reduced or zero import and export tariffs and duties, reduced or zero taxes on profits paid to the government, relaxed regulations and restrictions, and convenient access to transportation and shipping facilities.

However, the zones also directly benefit the local economy. For every Ps100 of investment, the industrial parks contribute approximately Ps620 back into the financial system. In addition, employees working in the zones receive benefits including salaries, accommodation, and retirement pensions that total up to Ps16 billion annually.

One of the most important zones is the Itabo Industrial Park (PIISA)—located five miles from the country's second most important maritime port, Haina—where companies have been involved in the development of high technology since 2008. The park consists of over 150,000 sqm and is home to multinational corporations developing medical and electronics components, such as Fenwal, Johnson & Johnson, Hospira, ConvaTec, and Eaton, a company that produces approximately 300,000 electrical breakers per day. The majority of plants in the park have won corporate quality awards and have obtained certifications in environmental excellence from both the ISO and the US Food and Drug Administration (FDA). Through the work of companies involved in R&D, PIISA is raising the bar for free zones throughout the country, long known for its work in lower-skilled industries such as agriculture and textile production. The progress toward higher-tech industry demonstrates the country's advancement in terms of human resources and capability.

Despite a drastic reduction of activity in the textiles sector, free zones still represent 2.7% of the Dominican Republic's GDP. Success continuing through financial turmoil and competition from China has been sustained by the industrial sector's ability to diversify into segments such as electronics, call centers, cigarette manufacturing, medical instruments, agro-industry, metals, and jewelry, among others. In light of these achievements, the parks are expected to become even more central to the government's economic diversification and industrial growth plans, meeting and exceeding their original targets.