The Dominican Republic operates one of the Caribbean region’s most liberal and attractive legal frameworks for foreign investment. The country’s foreign investment law underwent a major overhaul 10 years ago to ensure equal treatment to foreign investors. The law establishes and defines three categories of foreign investment, as well as the concepts of foreign investor and national investment. These categories are direct foreign investment, foreign re-investment (investment made in whole or part from operating profits) and new foreign investment.
For purposes of legal identification, a foreign investor is the owner of a duly registered foreign enterprise, while national investment refers to that made by the state, municipalities and national enterprises domiciled or registered in the national territory. The law places no restriction on repatriation of capital and dividends. Investors have free access to foreign currency through the Central Bank of the Dominican Republic and local banks.
Technology transfer is considered an investment for legal purposes. The legal framework also provides guarantees against political and expropriation risks through the Overseas Private Investment Corporation and other agencies.
The Dominican Republic is also a participant in the Multilateral Investment Guarantee Agency, which provides protection from losses arising from currency inconvertibility and expropriation, as well as the risk of non-compliance of government contracts and wars and civil disturbances.
The government, through its CEI-RD agency headed by Eddy Martínez, works with government ministries, the banking sector and key representatives of the private sector to ensure a coherent approach to investment. The agency’s teams work on a one-to-one basis with potential investors and can provide a fast-track immigration programme to help investors expedite their resident-status applications.
Investors should be aware of specific requirements laid down for foreign companies wishing to bid for or participate in state projects. On the one hand, interested parties must be affiliated with a Dominican company or be a mixed-capital company held by Dominican and foreign shareholders. Foreign participation in government contracts cannot exceed 50%. On the other hand, 70% foreign participation is acceptable in cases where national participation cannot exceed 30%. Public tender is required for most construction projects.
In the mining sector, permits are granted for 75 years and a number of foreign companies, including Falconbridge, Placer Dome, Unigold, Mobil, Cemex and Cementos Andinos have come in under this regulation. Permits of 40 years are granted to investors in the electricity sector, while those in the telecoms industry are granted permits for renewable periods of five or 20 years. Public bids are required for ports permits for renewable periods of 10 years in services of tow, dockage and moorage of ships, unloading, crane and gantry services, the use of terminals, storage facilities and port improvement works, among others.
President Leonel Fernández says the most promising areas of foreign investment in the Dominican Republic are to be found in high-tech industries, tourism and infrastructure development, and energy. “A growing need for better information management world-wide is constantly fuelling demand for high-tech products and services,” he says. “The development of these industries is imperative for the Dominican Republic.” Mr Fernández says the government is seeking to formalise an alliance with the Florida High-Tech Corridor that goes from Tampa to Orlando and Daytona, as well as with other high-tech associations and companies to promote business linkages, joint-ventures and greenfield investments in areas like medical equipment, information technology and micro-electronics. “The mega-port developments, oil refinery, several new marinas and major highway construction are a few of our key plans in the area of infrastructure,” the president says. “Another area of interest lies in the housing sector, for low-income earners as well as the more affluent.”
The energy sector represents the country’s biggest challenge, he says. To this end, the government is seeking private sector and public-private partnership agreements to resolve the issue. It is particularly looking into alternative ways to efficiently generate, transmit and distribute electricity to the entire country.
Technology and telecoms offer promising opportunities to foreign investors in the Dominican Republic. Companies operating in these areas are reporting record results and express a bullish view of the country’s potential.
Last year the Dominican Republic overtook Costa Rica as Microsoft’s second-largest customer in the Central American and Caribbean region, surpassed only by Puerto Rico with its natural outlet to the US market.
Local general manager Arturo Pérez says Microsoft is investing an average of $2.5m a year in the Dominican Republic, making a total of $17.5m since it first set up in the country. “We have witnessed steady growth since starting our local operations in 1998,” he says. “We now have some 400 corporate customers acting as distributors, assembly plants and service providers.
“We had planned for 4% growth in fiscal 2005, but according to the results achieved in the first quarter and our forecast for the rest of the year, we are looking at a figure closer to 15%.”
Jorge Iván Ramírez, chairman of Verizon’s local operations, says that foreign investors look upon the Dominican Republic as an ideal investment location, and more so in light of the new free trade agreement signed with the US. The telecoms group plans to spend $151m this year on upgrading and expanding its local facilities. “Investors are quite optimistic about the country’s perspectives,” says Mr Ramírez, who adds that the only concerns are bureaucratic red tape and corruption. “However, we all know that this country offers a high degree of security in comparison with other parts of Latin America, and that is a great advantage. Proximity to the US is another plus when considering transport costs.”
Verizon International has been holding its annual international company meeting in the Dominican Republic for three consecutive years and Mr Ramírez says the plans are to continue to use the country as the venue for the event.
The US internet protocol telephony giant Avaya recently co-ordinated a visit to the Dominican Republic for a group of call centre executives with a view to examining the country’s potential to host English-language call centres. “The purpose of this visit was to find ways of expanding their business operations outside the US,” says Edwin Figueroa, Avaya’s director for the Caribbean and Central America. “If we can offer them the reduced costs and quality of service they are seeking, it would mean thousands of jobs for the Dominican Republic.” Melanio Paredes, director general of professional training institute Infotep, says call centres in the Dominican Republic are a logical area of investment for foreign companies. “India was popular with many companies but that country’s potential has virtually reached saturation,” he says. “We have one million emigrants in the US who speak a neutral version of English that can be understood by everyone. They could easily fill these jobs.”
The metal-working industry is one of the more overlooked and neglected sectors in the country’s economy, yet it provides employment for 200,000 workers in some 2500 companies. The industry is badly in need of modernisation to compete more efficiently with products imported from other markets, notably Japan and China. “Other countries have built their industrial success on the back of this sector,” says Antonio Estrella, chairman of the National Association of Metal-Working Industries. He says investment is needed in plant equipment and machinery to produce exportable items such as auto parts.
The Dominican Republic’s impending new free trade agreement with the US, as well as the 2001 accord with the Caribbean region, has stimulated investor interest in the country. Joseph Goddard, general manager of Barbados-based conglomerate Goddard Enterprises Ltd recently expressed interest in setting up operations for several of the company’s affiliates, specifically in food processing, baked goods, automobile sales, shipping agencies and financial services. The $250m-a-year group currently operates in 20 Caribbean jurisdictions.
More for tourists
Despite fierce competition from other Caribbean destinations, as well as Florida, the Dominican Republic’s tourism industry continues to thrive. President Fernández has outlined the government’s initiatives in this area, based primarily on a strategy of diversification. “We’re expanding our product of white sand and sun to include ecotourism, theme parks, golf holidays, adventure travel and other market niches,” he says. “Our resort industry is the largest in the Caribbean and there is a gateway to cater to all tastes. Also, residential development is booming, as more people are drawn to the opportunity to pursue their goals in a Caribbean paradise.”
The tourism law of 2001 set up an official fund for tourism promotion with the objective of accelerating development in rural areas and other areas of potential high growth. Companies domiciled in the Dominican Republic wishing to avail themselves of the benefits provided by this law can enjoy a 10-year tax holiday from the date of completion of a project.
Tourism registered 6.6% growth in the first quarter of 2005, with 907,683 arrivals, led by visitors from the US, Germany and Britain. This compares with 3.78 million foreign visitors for all of 2004, hence there is every indication that 2005 will be a record year for the industry in terms of the number of tourist arrivals. However, the sector faces some serious problems, such as high operating costs that cannot be passed on to tour operator prices, as well as an overvalued peso. As a result, while numbers were up, hotel occupancy rates showed a 1.2% decline compared with the same period last year, from 81% to 80% capacity.
High property taxes are one problem facing the industry while, on the other hand, plans to increase taxes on international airline tickets threatens to erode the country’s competitive advantages in the region, according to Enrique de Marchena Kaluche, chairman of ASONAHORES, the National Association of Hotels and Restaurants. “The tourist industry has been hard hit by the fact that our air travel tax regime is higher than that of most Caribbean countries,” he says. “We stand firmly against any new increases.” An $800 return air ticket now carries a tax of $266.58, while one costing $400 is taxed at approximately 32%, according to Mr Marchena.