TBY talks to José del Castillo Saviñón, Minister of Industry and Commerce, on core strategic plans, developing deeper trade ties, and the energy sector.
THE BUSINESS YEAR What are the core strategic plans the Ministry is implementing to strengthen national strategic sectors?
JOSÉ DEL CASTILLO SAVIÑÓN President Medina clearly stated in his inaugural speech that the development of both micro firms and SMEs in the country is the strategic axis of the industrial and commercial sectors. Today, this type of enterprise composes 90% of the Dominican industrial park, while almost 56% of employment is produced in the informal sector. We have to keep in mind that that people working in this shadow market earn between 30% and 45% less than people employed in the formal market. The development of these sectors will come with fairer and more stable job opportunities for our population, and I would like to remind you of President Medina’s plan to create as many as 400,000 jobs for our population. One of the main problems micro firms and SMEs face is difficulties when trying to access a loan, and for that reason we are in the process of identifying potential new financial resources for these enterprises. In this regard, we have established a fund of Ps4 billion and created the Solidarity Bank, which aims to attend to the needs of micro firms. We expect to contribute to the development of a wide range of companies from different industrial and commercial segments. I would like to add that this strategy will also boost activity among large and corporate companies, because many of them are directly related to the activity of micro firms and SMEs. In addition, we plan to introduce some tax amendments at the industrial level and institutionally reform the Ministry in order to create sector-specific vice-ministers to better implement strategic policies. In fact, we plan to establish a new Energy and Mining Ministry, areas that are currently under our influence, due to the importance of these sectors for national development.
What initiatives does the Ministry aim to develop in order to boost exports and strengthen trade policies?
The Dominican Republic has four free trade agreements (FTAs) in force. As a result, most of our trade is liberalized through these agreements. Also, we aim to reach a similar agreement with Haiti, our second most important export market at the moment, with an average trade balance of $1.3 billion a year both in the formal and informal markets. We’d also like to develop closer ties and perhaps commercial agreements with countries like Canada and Chile, or accede to regional entities like Mercosur. At the moment, we are also trying to boost mining exports, a sector labeled as strategic by the government. For example, the implementation of the “Pueblo Viejo” mining project will add more than $2 billion to our overall export figures in 2013, which represents a 20% increase in our exports. The government also aims to provide continuity to the Export Processing Zone (EPZ) scheme to further attract FDI into the Dominican Republic, especially in the manufacturing sphere.
What have been the main advantages of the Dominican Republic–Central America Free Trade Agreement (DR-CAFTA)?
It has consolidated some favorable import-export tariffs that the country individually had with some of the region’s states. If we had not taken part in such a scheme, we would have lost this favorable treatment, and the Dominican Republic would be at a competitive disadvantage with its regional counterparts. Also, it encouraged an exporting culture in the country and increased the presence of Dominican products in the US, a country that today receives 80% of our exports.
What is the potential behind developing closer ties with China?
Over the last few years, we have intensified diplomatic and trade relations with China, and we already have a representative office in that country. In this regard, we are promoting official visits between both countries at the diplomatic and business level. In the future, I believe trade relations will increase and we aim to start exporting both goods and services to China. There are plenty of opportunities for both countries to develop commercial and industrial initiatives within the mining and energy sectors.
Since the extracting industry is to play a key role in the development of the national economy, what is the significance of the Loma Miranda mining project?
Mining is a very aggressive activity at the environmental level, and it sometimes generates controversy among social spheres. In this regard, the government currently plans to develop a proper environmental management and remediation plan for the Loma Miranda project. Once the plan is fully drafted, we will be able to start exploiting the resource, because we believe it is a very important mining project for the country. However, it is essential to implement responsible mining practices and we know that Xstrata Nickel Falcondo, the company that plans to develop the area, complies with the highest international standards in the nickel sector.
Are there any plans to explore other potential mining areas in the country?
At the moment, we are revising all the mining concession contracts, because many of the country’s mines are either out of use or they do not receive the appropriate investment. We will re-issue exploration and exploitation licenses, favoring all those companies able to better implement exploitation and operation activities. The Dominican Republic is a very rich country in terms of metals, and we believe there’s a bright future ahead of us in the extracting industry.
What are the Ministry’s strategies for the development of the hydrocarbon sector?
Hydrocarbons means the regulation of a fuels market on the one hand, and on the other hand, the exploration and exploitation of natural reserves, an area in which the future Energy and Mining Ministry will take over. Through the new ministry we hope to improve exploration activities in the country in order to find reserves that enable us to exploit them at the commercial level, while also cutting down our dependence on the import of petroleum products. Right now, and thanks to an agreement with Venezuela’s Petrocaribe, we are financing around 40% of the country’s oil bill, which represents some 30,000 barrels a day out of the 146,000 that the country consumes daily. The country is very much affected by the fluctuations in oil prices, which has had a negative impact on us in the last couple of years. The electricity sector is among the most affected. The country’s general subsidies for 2012 in the electricity sector will amount to $1.3 billion. This sector has had a structural deficiency for the past 50 years, and its development is one of the country’s main challenges. We need to reduce generation costs, which would at the same time reduce distribution and purchasing costs as well.
Is the Ministry considering any action to target losses in the electricity sector?
Reducing generation costs, as well as investment plans from sector players and potential foreign investors, are vital measures to address the situation. However, it may take several years before we see any positive trend in this area. The government plans to build generation capacity to deal with inefficient generation in a sector burdened by the Madrid Agreement. Additionally, investment in the electricity distribution network is also very much needed.
What are the country’s future prospects for natural gas?
The government of the Dominican Republic is promoting the construction of a new gas terminal in the country, something that requires high levels of investment from both the public and private spheres in order to encourage the participation of a second distributor in the country. Despite high prices at the international level, we will continue promoting gas as an alternative energy resource, while trying to strengthen the distribution network across the country.
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© The Business Year - October 2012