New Times, New Opportunities
As the country with the strongest economy and second-largest population in the Caribbean, the Dominican Republic has become increasingly important to the U.S.
Not only have U.S. exports doubled to the D.R. in the past ten years, but, under the guidance of President Leonel Fernández,, the country has also become an attractive investment destination and has established valuable trading links with its Latin American and Caribbean neighbors.
Washington hopes to benefit from these links and believes the D.R. can play a leadership role in broadening investment, trade and commerce in the region.
Fernández has responded positively to the request by Secretary of State Hillary Clinton in April that he should act as a bridge between the U.S. and other regional leaders, some of whom are less sympathetically inclined to the U.S. It was an honor, he said, to be considered a mediator between the U.S. and the region.
Fernández has good credentials for the task. From 1996 to 2000, in the first of his two nonconsecutive terms as president, he initiated trade talks with Costa Rica, Guatemala and Panama and participated – through contacts with the U.S. – in the creation of the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA).
Since his reelection in 2004, when the Dominican economy was in a critical condition, he has presided over a recovery that has stabilized inflation, brought unemployment under control, created strong exports and, as a consequence of the free trade agreement, attracted a record amount of direct foreign investment.
“What is fundamental in terms of the government’s strategy for attracting foreign investment is to show economic credibility,” says Juan Temístocles Montás, the secretary of Economy, Planning and Development.
The nation has achieved this, he explains, by being consistent in its fiscal, monetary and exchange policies. It has enabled the government to guarantee economic stability, which has been its main objective.
“The D.R. is the country that has made the highest number of structural reforms in Latin America,” he says. “I believe we are the first destination in the Caribbean in terms of foreign investment. This is because we have created trust and a legal market that reassures people.”
In sharp contrast to impoverished Haiti, with which it shares the island of Hispaniola, the D.R. has survived the global economic slump relatively well. It is expected to have positive economic growth this year and return next year to the high growth it experienced from 2005 to 2008, which averaged 8.5%.
President Fernández points out that the D.R.’s inflation rate of 4.5% last year was the lowest it had been in seven years and lower than that of any other Latin American nation.
Sailing Over The Credit Crunch
Following the collapse of several banks in 2002, the Dominican banking sector fortified itself against the worst effects of the current global economic crisis by adopting control measures.
Guarocuya Félix Paniagua, the superintendent of securities at the supervisory board of the Dominican Stock Exchange, says the deep reforms undertaken have reinforced economic and financial management. This has enabled the country to “maintain the stability of the principal macroeconomic indicators and, consequently, of the investment climate.”
The August edition of the World Bank’s report Doing Business listed the Dominican Republic as one of the ten best-reformed countries in terms of the regulation of its commercial activities.
In the first three months of this year, the D.R.’s stock market grew in value by 140% compared to the same period last year. Félix says it will continue to be an interesting place in which to invest – an attractive, professional destination that is continually expanding and remains very solid.
“We represent an excellent business opportunity for investors, as well as for businessmen who want to create their company and finance themselves through the local market.”
The supervisory board for the stock exchange was established in 2004. Since then, the exchange has authorized 34 public offerings with a total value of $1 billion.
According to Félix, “One very positive aspect is that the issues have been done by companies in various sectors of the economy, contributing to the diversification of the stock market and a reduction of the risk.”
Over the past four to five years, the exchange has seen constant growth, not only in the number of companies but in the volume of the market. The total capital that has moved through the stock market has reached $2.35 billion.
Public institutions such as the Central Bank and the Finance Secretariat have registered their issues with the Superintendence of Securities. “Between the public and the private sectors, the Superintendence of Securities has registered some 590,000 million pesos [$16.5 million],” says Félix.
The medium-term objective is to converge with the most-developed markets in terms of the regulation and instruments on offer.
“We are now working to introduce a variable-yield funds market,” says Félix. “Our main goal is for people to view the stock market as an alternative to the traditional methods of financing and as an investment opportunity.”
Investors discover the Dominican Republic and the keys to growth.
Foreign direct investment has continued to pour into the Dominican Republic despite the global economic slump.
The world’s leading gold-mining company, the Barrick Gold Corporation, announced in February that it was investing more than $3 billion in several mining projects in the country.
And when the global private equity firm Advent International acquired Aerodom – the leading airport group in the D.R., and one of the largest airport operators in Central America and the Caribbean – for $400 million in 2008, Advent proclaimed it to be “the deal of the year.”
“This is Advent’s first investment in the Caribbean, and it is also the biggest transaction in the company’s history,” says Rodolfo Salgado Leyva, Aerodom’s former general director.
These two heavyweights have helped raise the D.R.’s foreign direct investments to record levels. Ikea, the Swedish franchise, has also planted its flag in the D.R. and is developing a $65 million commercial center in the capital, Santo Domingo, which will create 400 jobs.
International risk management consultancy Barreto Vélez established itself in the D.R. five years ago to provide risk evaluation and other accountancy services to the country’s expanding business community.
The D.R. has considerable advantages in attracting investment. It is situated in the heart of the Caribbean at the crossroads between the North, Central and South American markets, with superb maritime and air transportation facilities. It also offers 57 industrial free-zone parks where 600 companies operate tax free and enjoy special customs provisions.
Foreign companies that invest in the D.R. are attracted by the country’s economic and political stability, infrastructure, high standards and strategic location.
“One of the main strategies and priorities of both the government and the private sector is to promote an economy that emphasizes knowledge-based development as well as focusing on innovation and high-quality products and services,” says Eddy Martínez Manzueta, the secretary of state and the executive director of the D.R.’s Export and Investment Center.
“We have an excellent combination of projects that offer opportunities for large, medium and small investors to achieve great returns.”
New opportunities are emerging in numerous sectors, he explains, ranging from manufacturing, infrastructure development and renewable energy to transportation, telecommunications and information technology. “We are thriving in a wide spectrum of professional services that add value to our economy,” he says. This includes a telecommunications infrastructure that is the strongest in Latin America.
As its name indicates, La Colonial exemplifies the traditional values of the international insurance business.
After more than 35 years of activity, it is one of the leading companies in the Dominican Republic private insurance market and the only one distinguished by a rating from the globally recognized insurance rating agency, A.M. Best Company.
“Our Very Good (B++) qualification was acquired for the first time in December 2001, and it has always been renewed,” says Dr. Luis E. Guerrero Roman, La Colonial’s executive vice-president.
“We are the company with the highest liquidity rate in the country, and being internationally qualified means that we are measured according to international parameters.”
La Colonial, he points out, operates voluntarily in accordance with international insurance regulations beyond those required within the republic. It expects its business to increase, “because we are focusing on the core of our business, the proper management of our business and making sure that our assets are in place.”
La Colonial reaches a target population, a niche of clients who demand more information, says Guerrero.
“We are probably one of the most transparent companies in the Dominican Republic.”
La Colonial has its eye on the American market and sees opportunities in the areas of the country where the 1.5 million Dominicans in the U.S. are living, particularly in health insurance. The company is the official representative in the republic of the American diversified
health care benefits company Aetna.
The social impact of development projects is a major consideration for businesses operating in the Dominican Republic.
The companies helping to substantially improve the quality of life for Dominicans include Dgtec, an international telecommunications provider that is introducing a telephone service to isolated communities; finance and project management group Sun Land, which is planning to build a cancer treatment hospital; and fuel-distributing group Propa-gas, which has created a foundation devoted to combating deforestation.
Although the D.R. has the largest and one of the most vibrant economies in the Caribbean, nearly half of the country’s 10 million people still live below the poverty line. Much remains to be done to raise living standards.
Manuel Lora, the president of Dgtec, says that when he returned to the D.R. after being away for 22 years, he found a developed country, but with about 50,000 people living in 1,500 communities without access to phone communications.
“We have just finished a pilot project in which we taught people how to use a phone,” he says. “The fact that a person has never seen a telephone in his life is sad. But it is a joy to introduce people to a phone and gratifying to be able to serve the D.R. in this way after so many years away. I now have families as new clients who can finally communicate with their relatives abroad.”
Lora says that Dgtec is about to reach an agreement to develop rural telephony through a five-year program that will cost $20 million, to be financed by foreign and direct investment.
Dgtec entered the country to take advantage of a gap in the market: to provide communications for Dominican families and more than 1 million of their relatives and friends living in the U.S. and elsewhere overseas.
The company has also introduced several innovative products. One such product has reduced the cost of communication to make it more accessible to Dominicans, while another enables customers to call directly from any phone without having to dial a security pin number. Dgtec is about to introduce a third service that will enable customers to receive faxes in e-mail format on their BlackBerry phones.
“I always find niches, and we are always innovating because there are so many things to do,” says Lora.
Meanwhile, the Florida-based Sun Land Group is planning to build a clinic in the D.R. that will offer proton therapy, which uses a beam of protons to irradiate diseased tissue in cancer treatment.
“There are currently 11 proton therapy clinics in operation within the U.S., Europe and Asia, with another 20 under construction and an additional 50 being developed,” says Chairman Daniel Mejia. By building a proton therapy clinic in the D.R., he says, “We will be able to attract international patients who could take advantage of the tourist facilities while being treated.”
Each clinic requires an average investment of $200 million. “These clinics represent an enormous opportunity to provide superior treatment to patients,” says Mejia.
Sun Land has had a presence in the republic since 1993, when it initially traded commodities such as corn, wheat and rice. In 2001, the group obtained the first approval for export-import bank financing for a D.R. public-sector project, thereby opening the doors for the provision of credit facilities to both public and private sectors.
Sun Land also developed a project through which the U.S. State Department trained members of the Dominican Armed Forces in search-and-rescue practices. “Right at the end of the training period we experienced a terrible hurricane, which affected many areas,” says Mejia. “Our trained staff made a huge difference by quickly responding and providing aid to those in need.”
Sun Land is studying a third project that would call for an investment of $120 million to develop almost 72,000 acres of cotton and construct a cotton-processing plant in Pedernales, the country’s southernmost province.
The area is economically depressed, with high unemployment, little tourism and slow economic growth. The project would provide local farms with equipment, seeds, transportation and export facilities.
“These are all long-term projects that are in the financing or pre-investment phase,” explains Mejia.
A business that began over 40 years ago with its president, Arturo Santana Reyes, personally filling and distributing gas tanks door to door has grown to become Propa-gas Group, one of the country’s leading business groups.
Today, Propa-gas imports 50% of the LPG used in the country and plans to move into the distribution of natural gas and the production of ethanol.
In addition to the hard work and dedication he has committed to seeing his company grow, Santana has established the Propa-gas Foundation, a philanthropic body dedicated to combating the deforestation of his country’s natural habitat.
“Our country is still blessed with lush vegetation,” he says, “and we believe it is important for us to preserve this.”
The foundation is developing programs designed to educate and involve the local community in the conservation of their forests. “We believe the best strategy we have is to educate our children so that they can value and be more conscious of how to preserve the environment,” says Santana’s wife, Pirigua Bonetti de Santana, president of the Propa-gas Foundation. They have created an interactive DVD to help spark an appreciation in Dominican children for their environment. The foundation is also giving small gas stoves to low-income communities, providing an important alternative to using firewood. Her dedication has earned her the position of “godmother” of the Valle Nuevo Park, a tropical paradise of mountains, rivers and hiking paths. The Santana family – true pioneers – are once again paving the way for a greener Dominican Republic.
The Dominican Republic has become the primary aviation hub of the Caribbean for business travelers and tourists alike.
More than 150 airlines offer 70 daily flights to the U.S. and Europe, and hundreds of private planes now fly into the country’s 13 airports.
The U.S. Federal Aviation Administration raised its rating of the republic’s compliance with international safety standards to the highest level of Category 1 two years ago, enhancing the D.R.’s hub status. This has allowed the republic to become a model for other countries in the region.
The government is now working to attract more private planes to visit the country. It has introduced a new pilot-friendly, no-fee policy, and two “fly-ins”– a gathering of pilots for recreational purposes – have taken place for aviators from the U.S. and Puerto Rico, says José Tomás Pérez, the secretary of state for aviation and the director-general of the Dominican Institute of Civil Aviation.
He estimates that tourism from private jets to the Caribbean accounts for nearly 65,000 visitors a year.
“In the next five years, our goal is to attract 15,000 to 20,000 pilots of private jets to visit our tourist attractions,” he says. “We have initiated a plan that promotes the aviation industry by exonerating all sorts of fares and government fees.”
Promotion to Category 1 was the result of a lot of effort, says Tomás. A new control center has been installed in Santo Domingo, human resources and aviation infrastructure have been upgraded, and an academy has been opened for the instruction of the country’s air traffic controllers and other aviation technicians.
A new strategy called RAVE is being adopted by Aerodom, the leading airport group in the Dominican Republic, to induce airlines to bring new routes to the country.
This is an acronym for Radical Airport Value Enhancement, which the company believes will appeal to airline passengers and help transform the country into what Captain Rodolfo Salgado Leyva, the general manager of Aerodom, calls “the next-generation hub in the Caribbean.”
Explaining what he means by this term, Salgado says, “It is a very important concept. We are putting all our efforts into providing an amicable and efficient aviation experience for our passengers.
“My vision is that when someone visits any Aerodom airport, they will receive a service that makes them enjoy flying.”
The D.R. is already connected to most of the major capitals of America and Europe, but Advent International, a leading private equity firm in Latin America, purchased Aerodom at a cost of $400 million in 2008 with the intention of investing more than $300 million in infrastructure to bring this new hub concept to reality.
Aerodom has a 30-year concession to develop, operate and manage six airports in the republic. “This is Advent’s first investment in the Caribbean and also the biggest transaction in the company’s history,” says Salgado. “We see the D.R. as a country with a lot of potential.
“As a pilot I can say we have a very innovative infrastructure, and we have just inaugurated a runway long enough to receive an Airbus 380, the biggest commercial airplane in the world,” says Salgado.