Industry

Springboard

Industry

The sustained focus on SMEs, coupled with the traditional bedrock of free industrial zones (FIZs), bodes well for 2015—and beyond.

Hand-in-hand with FIZs are the SMEs, for whom the zones often give a new lease on life, by exposing them to larger overseas customers. In 2013 President Medina described SMEs as “the strategic axis of the commercial and industrial sectors.” In 2014-15, these areas are being targeted for renewed growth. Loan restrictions to SMEs have been eased and banks are encouraged to support applications for start-up and growth funds in 2015. In addition, the micro-firms and SMEs are often integral to the operations of large corporations, many of whom work alongside the SMEs in successful partnerships that work to mutual benefit.

The development of SMEs, together with the expansion of the free zones strategy is also having a positive effect on the country’s workforce. Gradually the number of Dominicans who are employed informally is falling as more employees obtain papers and official status.

Industry in 2014 registered strong growth in two particular areas, the first being automotive. A large automobile and machinery manufacturing sector has found a new lease of life, as a burgeoning middle-class, middle-income population finds itself with more disposable income. The overall automobile market, including parts and services, is estimated to total $183 million in 2014, up from $178 million in 2013, and a considerable rise on 2012’s $174 million. This healthy level of growth is also aided by the FIZs and particularly strong trade with the US, largely as a result of the 2004 Dominican Republic-Central America Free Trade Agreement (CAFTA-DR).

Growing overseas trade, notably with Asia (and China in particular) is buoying the Dominican Republic’s traditional and most renowned industries. Cigars, rum, and sugar exports are all markedly up year-on-year. Cigar manufacturing dates back to the 17th Century, and sugar was the very backbone of the country’s industry from the first mill opening in 1516 well into the 20th Century. In recent years sugar production has decreased, due to a decrease in global demand. But processing is now picking up again and the decline is likely to have been a blip in the longer-term trajectory. The level of production, currently at around 687,000 tons, is expected to continue rising steadily for the foreseeable future. Moreover, the global price of sugar has remained consistently high for several years, which should in turn bring fresh investment.

Sales of cigars are, dependably, in fine fettle. The commodity accounts for some 9% of government revenue from merchandise taxation, and makes up around 6% of total exports. The Dominican Republic’s cigars occupy a high-end niche in the market, and while sales can be difficult to sustain, the recent upturn in the global economy overall should help. The luxury and upmarket sector is thriving, with demand particularly strong in China and, to some extent, America, the Dominican Republic’s principle trade partner.

Rum—perhaps the second most famous Dominican product—is appreciated even more at home. Exports generate only around $140 million worth of sales each year, while the domestic rum industry is estimated to be worth almost $1 billion. That being said, exports to certain markets are growing strongly, with demand in China comfortably up YoY, in addition to strong demand from Russia.

Coffee is another robust commodity, and one for which the world’s thirst shows no sign of abating. More than 2.5 million hectares of inland hillside are dedicated to growing coffee plants, which together yielded more than 31,000 tons of beans in 2012-13. In 1H2014, a $677,000 fund was set up to regenerate aged or neglected plantations, and some additional 5,000 hectares have already been restored. Cocoa, too, is an important crop. In 2013, the country produced more than 55,000 tons—the largest harvest in the Caribbean.

If there is one single factor, though, that has single-handedly diversified, developed, and strengthened Dominican industry it is the free industrial zones (FIZs), first established in the country in 1969 and run as public-private partnerships (PPPs). In good times these zones are the engine room of the economy—and in bad times they offer shelter from the storm. The original FDI idea was expanded and amended in 2013, streamlining the administration and cutting the prevalence of unfair advantage that blighted some trade, thereby helping SMEs.

In the year to June 2014, FZIs were exporting around $4.12 billion worth of goods, or 54% of the country’s exports. Overall the zones account for fully 2.9% of GDP and 8.1% of FDI. In a relatively short space of time, FZIs have proven a sound means of generating trade from industry. There is every sign that the idea has a long way to run yet.

The second key industry also notable for its successes over the past few years is mining. Dominican Republic is rich in minerals, in particular gold. Global demand for gold has helped the sector grow almost 10 fold over the past two years. Other notable minerals mined extensively in the country are nickel, bauxite, and silver. Non-metals that are quarried also include gemstones, gypsum, and various limestones.

For gold mining, the Barrick Pueblo Viejo mine is the most extensive, and is estimated to contain 23.7 million ounces of gold—enough to sustain the mine for a further 20 years. With the price of gold currently lower, yet stable, at around $1,180 per ounce, the government is forecast to earn around $8.9 billion over the same period.

A consequence of the mining sector’s health is a strong demand for machinery, with mining currently accounting for around 35% of the machinery sector. This sector has also benefitted from growing household income in recent years, giving people money to spend on such high-end items as new cars (sales of these are up 20% again) and so-called white and electrical goods.

Indeed, household spending may well prove to be the real underlying driver of industrial growth in the long term. The increased spending power of the middle classes will fuel demand at home and this, coupled with good trading links abroad and the long-established FIZs, should ensure industrial growth is assured a gleaming future.

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