At the ‘Invest in the DR 2014’ investment summit in the capital city of the Dominican Republic in September, a standing room-only crowd flocked to hear president Danilo Medina and other dignitaries extol the virtues of investing in the Caribbean country. FDI statistics and growth figures were celebrated.
Indeed, there is reason for cheer when considering the economic prospects of the country, which shares the island of Hispaniola with Haiti and is located 1300 kilometres from the US. The International Monetary Fund’s latest World Economic Outlook report, released in early October, forecast growth of between 4% and 5% for the Dominican Republic for 2015, against 2.2% for the Latin America and Caribbean region and 3.5% globally.
The elegantly designed JW Marriott hotel, where the conference took place and which opened only days beforehand, and the high-end shops attached to it, are indicative of the doubling in GDP in the Dominican Republic over the past decade. Jean Alain Rodríguez, executive director of the Export and Investment Centre of the Dominican Republic (CEI-RD), addressing the forum, stressed how the Dominican Republic’s logistics position, low duties and low port costs, among other factors, were behind the country’s status as the biggest exporter in the Caribbean. FDI, according to figures he presented from the country's central bank and CEI-RD, had tripled since 2000.
But, apart from the temporary power outage that occurred at the hotel just as international guests began to arrive for the event – which suggested the country’s long-running problems with electricity supply were still not fully resolved – the main dark spot in the Dominican Republic’s bright FDI picture appears to be its education and skills levels. These have not kept pace with the economic growth.
Poor education is not only making it harder to tackle the country’s persistent poverty rate, it is also holding the country back in terms of investment competitiveness. In fDi’s biennial Caribbean & Central American Countries of the Future rankings published in August 2013, the Dominican Republic placed third overall in the region, after Costa Rica and Panama, but first among Caribbean countries. In the rankings, which are based on hundreds of data points and are aimed at identifying the locations with the most potential for future inward investment, the Dominican Republic’s highest scores came in the Infrastructure and FDI Strategy categories; its weakest area was in Labour Environment. In particular, the country scored poorly on education data points – such as secondary and tertiary education enrolment rates, education expenditure and number of International Baccalaureate schools.
The Dominican Republic’s education system is regularly rated as one of the worst in the Central American and Caribbean region, with public expenditure on education among the lowest in the Western hemisphere.
According to a law passed in 1997, 4% of the Dominican Republic's GDP is to be allocated to education. But living up to that lofty goal has proved difficult. The percentage was only 2.2% in 2012, according to the World Bank, compared with 6.1% in Jamaica, 5.6% in Barbados and 4.1% in St Lucia. In recent years there have been mass public protests and even lawsuits to pressure the government to comply with its educational spending commitments. All presidential candidates signed a pledge in September 2011 that, if elected, they would comply with the General Law of Education. Mr Medina, elected in 2012, committed to honour the pledge and there is optimism that words are being matched with deeds at last.
The initial focus has been on improving school conditions and building new ones to meet demand. The government has announced plans to build 28,000 new classrooms by 2016. Teachers are still demanding better pay but the government insists that tackling this problem is next on the list.
Improvements in the country's labour environment – primarily in education and skill levels – would further boost the Dominican Republic’s score in fDi’s benchmarks as well as other competitiveness indices and increase its attractiveness to investors. The character of the workforce receives praise from many investors, and the size and youth of the workforce offer a good starting base. Costs are also competitive.
Potential to be realised
“We have the second largest population in Central America and the Caribbean, and 47% of the population is under 20 years old. We offer some of the most competitive salaries in Latin America, with average monthly salaries at $177,” minister of industry and commerce Jose Del Castillo Savinon told attendees at the Invest in the DR 2014 investment summit. “And average salaries have been stable with only 3.5% annual growth. This is significant compared with other developing countries such as China, which is helping attract manufacturing projects.”
There is a feeling that, given the country’s various locational advantages and its size relative to other markets in the Caribbean region, if the education piece of the puzzle can be solved, the Dominican Republic could more fully live up to its FDI potential. Indeed, the country has many other promising assets.
“The Dominican Republic is the best base in the region for many reasons. With a population of 20 million, the consumer market has scale,” says Carlos González, president of Cemex Dominicana, the local arm of Mexican building materials giant Cemex, and president of the foreign investors’ association in the Dominican Republic, which has 70 members. "The geographical location cannot be equalled in the Caribbean so the costs of logistics are lower. But the most important element is the quality of the Dominican people – they have an honest will to work and to move forward in life. The Dominican Republic is the centre of the Caribbean operations for Cemex and we are exporting Dominican talent to other places in the Caribbean.”