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Dominican Republic 2013 | REAL ESTATE & CONSTRUCTION | REVIEW: CONSTRUCTION

Infrastructure development, tourism, and a more targeted housing program could pave the way to renewed growth in the construction sector.

With 2013 shaping up to be a year of infrastructure and housing development, both public and private players are actively engaged in the local construction sector. Although private funding and FDI are major sources of capital, the government has dedicated approximately Ps50 billion of investments toward the construction sector on average per year, with projects such as bridges, seafront infrastructure, and highways lined up for 2013.

The added value of activity in the construction sector presented growth of approximately 1.4% in 2011, sparked by private investments in the industry that increased 2.9% year-on-year. However, public investment from the central government decreased approximately 7.1% in 2011, as a result of the finalization of a number of projects. The production of building materials including paint, rebar, and cement is also expected to continue steadily in 2013. The volume of cement and paint sales demonstrated various positive growth trends at 0.4% and 10.9%, respectively, in 2011, while the sale of rebar fell 3.5% in 2011.

Although a booming industry until global instability began to penetrate the Dominican Republic, cement has suffered stagnant or negative growth since 2006, with the exception of 4% growth in 2010. At its peak, activity in the sector amounted to $3.5 million, with current figures hovering closer to $2.3 million.

The Dominican Association of Cement Producers (ADOCEM) was founded 32 years ago to regulate the sector, disseminate good practices, conduct research and training programs, and promote improved equipment. “Although, construction is a sector that largely determines the rate of the national economy, it in turn is directly influenced by it," Julissa A. Báez, Executive Director of ADOCEM, explained to TBY. “A factor that will affect the sector improvement is the government reactivating public works in order to stimulate the economy."

Growing demand for housing and infrastructure in the short and medium term is likely to jumpstart dormant construction activity, as local producers prepare for waves of private and government investment and concessions for larger national projects. To this end, ADOCEM has encouraged the modernization and expansion of many cement plants, which now have a combined installed capacity of 6.2 million tons and are capable of meeting local demand growth for the next 15 to 20 years.

INFRASTRUCTURE & HOUSING

Although much of the infrastructure work being carried out in the Dominican Republic is geared toward increasing tourism numbers, local communities and businesses can expect indirect benefits as a result of government efforts to better connect the country. In addition, the demand for housing has become a prime focus of cement and rebar producers, which seek to launch new projects and increase their activity. FDI has been a main source of funding in the hospitality, infrastructure, and housing construction market, with $158 million invested between January and September 2012.

When President Medina mandated tourism as a strategic sector for the country, companies such as Autopistas del Nordeste set out to renovate and build roads that would allow faster transportation and boost the attractiveness of hard-to-reach destinations. “Our highways have served as a means to increase tourism, and that is where we have seen the increase in user numbers," Ana Maria Rosario, Executive President, Autopistas del Nordeste S.A, told TBY. One such road is the Boulevard Turístico del Atlántico, designed specifically to cut travel times between main cities. However, Rosario stressed that local people and businesses were also using the roads, which means that their maintenance and operation is of special significance. “These projects are different from others because operation and maintenance are held to international standards, which has not been seen before in this country," she added.

The Ministry of Public Works and Communications has promoted the Dominican Republic as a prime place to invest, especially in terms of infrastructure. Minister of Public Works and Communications, Gonzalo Castillo T., explained to TBY that “any foreign investor interested in developing projects in the Dominican Republic will always be more than welcome, and from the Ministry, we will make sure that they will compete at the same level as any local company."

With a housing deficit of 1.1 million units, huge opportunities in construction have yet to blossom. Cement companies have responded to the challenge, and Carlos Gonzaláz, President of CEMEX, said that his company “recently opened two divisions: one for housing and one for construction, with the aim of trying to help grow the market." The company has also begun working with the US government to rebuild homes in Haiti. To support the local community and the expansion of the business during uncertain economic times, CEMEX acquired a contract to build 150 houses in the neighboring country as well as participate in a number of mutually beneficial infrastructure projects.

CEMENT

With prices increasing 8.1% year-on-year in 2011, cement production remains a driver of the construction sector overall. However, decreasing demand since 2006 has sparked concern among local producers, who foresee the continuation of a declining trend in 2013. Due to the completion of many government projects and the ongoing effects of international financial turbulence, ADOCEM's Executive Director Báez predicts a 5% fall in demand for cement in the coming year.

Nevertheless, cement producers have invested over $1 billion in the sector over the past few decades. The six main contributors to the growth and development of the cement industry are Cementos Colón, Cementos Cibao, CEMEX, DOMICEM, Cementos Andino, and Santo Domingo. The work and dedication of these companies has led the Dominican Republic to becoming a net exporter of cement, with output for sale abroad amounting to approximately 1 million tons annually. When local demand falls short of expectations, Dominican cement producers are prepared to export to a variety of countries in the Caribbean, and with prime logistics links and shipping possibilities, a variety of international cement companies have also shown interest in launching operations in the country, despite the fact that costs are higher than in comparable locations, especially for energy.

Established in the Dominican Republic in 1996, DOMICEM received $150 million in financing from the International Finance Corporation (IFC) to build its local facilities. The plant has been operating at full capacity since 2005, producing 800,000 tons of clinker and 1 million tons of cement annually. “Our turnover is around $100 million now, and we employ around 300 employees directly," Marco Focardi, President of DOMICEM, told TBY. At over 500 hectares, the facility is one of the most modern in the Caribbean. In total, 50% of the company's production is sold on the local market, and the rest is sold to a clinker grinder. At the same time, 300,000 tons is exported to Haiti, Jamaica, and other Caribbean islands on an annual basis.