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Rafael Paz

DOMINICAN REPUBLIC - Economy

No Man is an Island

Executive Vice-President, CONEP

Bio

Rafael Paz, Executive Vice-President of CONEP, is a member of the National Council for Social Security Fund (CNSS), the Board of Directors of the Endowment Fund of the Reformed Enterprises (FONPER), the Technical Support Committee of the Pact for Education Sector Reform, Executive Committee of the Economic and Social Council (ECOSOC) National Commission for Employment, Ministry of Labour, and the Committee on Oversight of the Central Electoral Board.

“We have a labor force of 4.9 million people and a market of 10 million consumers.“

What is CONEP’s role in promoting the development of the private sector?

We are working hard on a lot of policies, and we need to transform our model. We have a lot of sectors that are operating in an old fashioned way, with policies that simply do not meet today’s new reality. The world is growing very fast. Every day countries become more connected through commerce and through new, permanent relationships between business communities. That being said, the Dominican Republic has a tradition of isolationism. Throughout most of the second half of the 20th century, the country was completely closed off. This is changing. We have a lot of challenges ahead, particularly with our industrial sector and transportation system. We are now creating a new vision for the Dominican Republic. Last year, CONEP had its national convention, which is the biggest and most important meeting for the private sector in the country. We organize that event every four years and at that congress developed 47 proposals to change the economic, social, and institutional model for the country’s development. We prioritized five of those proposals in particular. The first of these five issues involves modifying the labor code. The second touches on structural reform of what is a very complex and costly tax system. The third targets reform of the electricity and power network in the country. There are a lot of challenges there in particular, with constant outages that cost our economy precious time and resources. We need to drastically change the situation there with investment, security, and legal guarantees. The fourth issue that stands out is the transportation system. Right now, there is a virtual monopoly on cargo and passenger transport. The fifth main point is the need for an independent, sensible, and efficient justice system. The whole justice system needs to be made stronger and more independent of political forces. Those are the five most important points, but all 47 points have very specific action plans behind them.

Over the past 10 years the Dominican Republic has received USD21 billion in FDI and currently receives 39% of all FDI in the Caribbean. What competitive advantages does the country have in attracting this foreign investment?

We have a labor force of 4.9 million people and a market of 10 million consumers. Haiti next door has another 10 million people. We have access to the EU and the US through free trade agreements. We have very good sectoral legislation including free zones and legislation promoting tourism. Most importantly, we have a national private sector that invests in the country. That is a very good sign for foreign investors. When the people of the country trust in their own economy and invest in their own country, it acts as a capital magnet to the world. We also have very good infrastructure, with nine international airports and 15 seaports throughout the island, not to mention stunning beaches and abundant natural beauty. Our people are also very friendly and open to foreigners and foreign investment. After people’s very first visit, they want to come back again and again, if only for the people. On top of all that, we’ve been growing at a rate above 5% for more than 50 years. Also, Dominicans work very hard and have a great entrepreneurial spirit. They take the biggest and most developed countries in the Americas and Europe as their benchmark. That is who they compare themselves to and strive to compete with. That naturally puts a lot of pressure on our shoulders, but we try to achieve those standards. It makes us very ambitious and motivated as a result. To be sure, a large portion of our society remains poor, but poverty has also been gradually reduced over the last 20 years.

From CONEP’s perspective, what would be the ideal outcome of the Fiscal Pact?

We need a new system that is less expensive and less complex, while also being more user-friendly and easier to administrate. Over 95% of companies in the Dominican Republic are MSMEs. In a country with low levels of education, you cannot complicate things with archaic regulations and bureaucracy. We need to simplify things. There are a lot of taxes to keep track of and companies spend a lot of money to find the people, time, and expertise to deal with it all. This has to change.

How would ending the longstanding monopolistic practices of the transportation unions affect the operations of private businesses in the country?

When you compare the price of transporting cargo in the Dominican Republic, it is almost five times the average cost of Central America. That is all because of the monopolies. They control the ports. You cannot take your cargo from the ports unless you go through them. To give you an example, if you are a company in Santiago that wants to send cargo to the port in Santo Domingo, you have to give your cargo to the union truck in Santiago. But, once that truck gets to Santo Domingo, it cannot take new cargo to bring back to Santiago. You have to pay a second truck for that, which is basically the next truck in line. That makes no economic sense and it makes the process very expensive and inefficient. To give you a comparison, the average truck in Guatemala runs 10,000 miles a year, whereas the average truck in Dominican Republic runs just 2,000 miles. That in itself highlights the problems being faced because of monopolistic practices in the transportation sector and the dire need for reform to allow us to be more competitive and attract more foreign investment. Governments never like to deal with these situations and they fear the power of unions. The same thing happened in the 1950s in the US with Jimmy Hoffa. We are pushing the government to be brave and take the necessary measures to resolve these issues in cargo and public transport once and for all. We have taken the issue to the justice department and we are hoping for measures that will ensure that the sector runs in accordance with the national constitution.

Which sectors of the economy currently present the best potential for growth and the most opportunities for investors?

The most promising growth sectors of our economy are industrial production, agribusiness, tourism, mining, trade, construction, and telecommunications. Other sectors that have major potential for investors are energy, border development, the Dominican film industry, and technology. Those sectors stand out in the overall economy, and are the most promising in the country today, and will be for years to come.

How do you see Dominican exports evolving and diversifying in terms of products and destinations?

Export products and markets have been growing rapidly over the past ten years. We have extraordinary potential for more and faster growth. The problem is the lack of strategy, a strategy that merges public and private sector participation. We are now working on that with the government. In the next ten years, I think our situation will change radically. We are open to new countries. We have a commercial relationship with China, while still having a political relationship with Taiwan. I think that it will change soon, and that will bring a boost in bilateral commerce between the two countries. We have a very conscientious political sector that is now becoming more aware of the importance of the private sector and of exports. We have been borrowing a lot of money from the international financial system but are fast approaching our limit regarding that as far a strategy for growth.

What factors do you think will boost growth in the coming years?

The tourism sector is very important, but we also have a lot of potential to become a regional hub thanks to our ports and airports. If we achieve our goals of bringing a logistics center of international standards to the Dominican Republic and creating a strong international airline, it will give us a great competitive advantage. This year we signed an agreement with the US to have a preclearance system at the Punta Cana airport, a first for any country in Latin America. That will be a major boost to both our tourism sector and our logistics sector.

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