The World Bank has released a report in February 2017 on free zones in the Dominican Republic, entitled “Free-Trade Zones in the Dominican Republic: Policy Considerations for a More Competitive and Inclusive Sector”, which highlights the economic successes which the zones have had since their earliest introduction nearly six decades ago and boom in the 1990’s, and identifies strategies for Dominican zones to diversify their production bases and create more skilled, higher paid labour positions. The report comes at a time when the Caribbean nation is trying to add 100,000 jobs annually and decrease the large poverty gap that still exists despite recent sustained economic growth.
Alessandro Legrottaglie, World Bank Representative to the Dominican Republic, was quoted in World Bank’s online publication on the report, highlighting the importance of the zones for the country’s economic prospects: “Free-Trade Zones in the Dominican Republic have been and continue to act as growth engines for the country. To support inclusive growth the consolidation of this model depends essentially on facilitating the transfer of knowledge and technology between free-trade zones companies and the rest of the economy.”
The Dominican Republic’s free zones presently account for 140,000 direct jobs, of which a sizable majority are low-skilled positions, according to World Bank. (The Dominican Association of Free Zones, ADOZONA, counts 165,257 total jobs as of 2015, generated by 630 companies in the country’s 64 industrial parks). Textiles, clothing and footwear, agro-industry and food processing are among the sectors which account for the country’s free zones more than USD $5 billion annual exports ($5.24 billion in 2014 and $5.5 billion in 2015, according to official figures), and the free zones are aiming toward growth in higher end industries like communications and logistics in the coming years.
Building to last: The country has in recent years aimed to build backward linkages between free zones and local industry and create local value chains, yet structural changes will be required to develop a skilled labour force in high value-added industries, an ultimate goal of the free zones. Still, the Dominican Republic is widely considered a success story and global leader of the free zone model among emerging economies. Its 140,000 direct free zone jobs account for roughly 2.8% of its labour force, which compares favorably to regional leaders like Colombia, which has 253,000 free zone jobs, or 1.2% of its (much larger) labour force.
The recommendations in the World Bank report include strengthening government commitment to free zone fiscal policy, which the report endorses, fostering connections between free zones and the broader economy in terms of knowledge and technology transfer, and providing skills training to current and future employees, focusing in particular on advancing women’s status in the labour force.
Fiscal focus: Speaking on the fiscal elements of the report, José Tomás Contreras, President of ADOZONA, said that “The recommendations of this important document highlight a key aspect which ADZONA has placed emphasis upon in recent years, which is the necessity of preserving the legal certainty [around the free zone regime] that is indispensable in attracting, broadening, and consolidating the local and foreign investment that sustains this economic activity.”
Local news outlet El Nacional reported on 21 February 2017 that José Ramón Peralta, Administrative Minister to the Presidency of the Dominican Republic, had guaranteed in a work session with free zone officials and local manufacturers that the government would not be changing the legal framework which governs free zones, affirming a long-term commitment to creating ideal conditions to attract investment.
The growing presence of small and medium enterprises (SMEs) are another key indicator for the success of the country’s free zones in the coming years. Guillermo Villanueva, the IFC chief for the Dominican Republic, was quoted by World Bank as saying that “SMEs are key for development, as they are the main generator of jobs and a great potential for growth. It is important to improve their capacity in order to incorporate them into Free-Trade Zone production chains, therefore boosting competitiveness and the development of the local economy.”
Opened or closed: The Dominican Republic has free trade deals in place with the European Community and with Central America, as well as a preferential deal with Panama, which are attractive incentives to foreign firms wishing to access a broad American market. The government is in the negotiation phase of deals with Canada and Mexico, which could be affected by the fallout of United States President Donald J. Trump’s pledge to renegotiate multilateral trade deals. The Observatorio Dominicano de Comercio Internacional reported 21 Feburary 2017 that the president of the American Chamber of Commerce of the Dominican Republic, Gustavo Tavares had urged the government to reaffirm its existing trade deals, rather than reassess them in the face of growing regional protectionism and the protestations of local agricultural producers.
“We should see how the negotiations with Mexico and Canada develop,” he added. “Of course, we can internally revise the [Central America-Dominican Republic free trade] agreement from the perspective of how better to take advantage of it, as it is. And, in the case of an eventual modification, we can be prepared to determine how to improve it.”
Commitments to remain open to trading partners neighbouring and distant, and to stability in the free zones’ fiscal regime, portend sustainable growth in investment and employment in the Dominican Republic’s free zones. The question now becomes whether acting upon the recommendations in the World Bank report and the internal economic goals of the Dominican government will drive the creation of more dynamic industries and a more highly-trained workforce.