When Hurricane Maria hit the island of Puerto Rico in September 2017 it left behind devastation. The power and infrastructure network collapsed, potable water became scarce, rural areas were cut off for weeks and about 3000 people died either directly or indirectly, according to an independent study by George Washington University.
However, a year on from the disaster, people across the country have come together and reinvented their jobs and businesses to provide solutions to the difficulties thrown up by the disaster.
“When Maria hit, I thought I would lose my job because people would just leave,” says Denisse Rodríguez, director of Colmena 66, a platform that provides entrepreneurship support for communities. “But when we were finally able to get back to the office, our phones wouldn’t stop ringing. Elsewhere people start a business because of opportunity – here, people start a business but of necessity, and necessity is the mother of invention.”
If the hurricane unleashed a residual entrepreneurial spirit among Puerto Ricans, it also stirred up the interest of businesses and investors outside the island. “Beyond its tragedy, Hurricane Maria put Puerto Rico on the world map,” says Manuel Laboy, secretary of the country's Department of Economic Development and Commerce. “It created global awareness about Puerto Rico and its position as an unincorporated US territory subject to US law.”
Against the odds, applications for local incentives have been growing quickly in 2018, according to Mr Laboy, with the country also hitting global headlines for its mounting population of crypto-millionaires and blockchain enthusiasts.
Money to spend
If local and foreign entrepreneurial forces promise to revitalise Puerto Rico’s economic fabric, an unprecedented amount of federal and insurance money is about to come ashore as the government is asking US Congress for as much as $140bn to rebuild the island. The timing of these funds could not be more opportune, as local governments’ hands are tied by a government debt crisis that erupted in 2014.
“So many resources will be used in the next few years,” says Ricardo Álvarez-Díaz, a board member of Invest Puerto Rico, the new investment promotion agency set up by the local government and slated to be operational from January 2019. “When you have billions earmarked by the US federal government, that gives the island a new dimension [and] creates the space to revamp its infrastructure.”
Though governor Ricardo Rosselló is asking Washington for $140bn, local observers more realistically expect the island to eventually receive about $100bn in combined federal and private funds – which still amounts to more than three consolidated budgets combined.
Yet the governance of these resources has been questioned, due to the fact that emergency relief intervention following the hurricane highlighted many weaknesses, such as a clear lack of coordination between local authorities and the Federal Emergency Management Authority. With public agencies under scrutiny, there may be space for greater private sector involvement in the revamp of the island’s infrastructure.
“The government is incentivising public-private partnerships [PPPs],” says Kennet Rivera, president of the Puerto Rico chamber of commerce. “There are services that have been discontinued; it creates a space for the private sector to step up.”
Mr Rosselló urged the private sector to come up with proposals for large power projects in June, and national agency P3 prioritised four PPPs for 2018.
Out with the old...
Beyond infrastructure, Puerto Rico is having to adjust its business proposition now that it has lost many of its fiscal incentives. For decades the country was a fiscal haven for US manufacturers thanks to the so-called 'Section 936'. Finally phased out in 2005, Section 936 was replaced by a programme aimed at turning the island into a hub for services thanks to two specific measures, Act 20 and Act 22, which offered enticing conditions for providers of services such as BPO, investment funds or, more recently, IT-related activities to move to the island. However, US president Donald Trump’s 2017 Tax Cuts and Jobs Act all but eliminates most of these fiscal advantages.
This reform does make Puerto Rico an ‘opportunity zone’ that offers US taxpayers extremely favourable conditions to invest their earnings into assets needing a substantial upgrade, such as existing real estate.
“Waiting for the Treasury to issue final rules on it, the real estate market is already moving. In the perspective of a new wave of urban regeneration, buildings that had not changed hands in years have been traded very rapidly in the past few months in [anticipation] of the introduction of opportunity zones,” says Giovanni Mendez, a corporate and tax attorney in San Juan.
Besides this regeneration, the island still offers major incentives to any US individual willing to move to the island, making their capital gains, interest and dividend incomes tax free. This led many individuals involved in blockchain and cryptocurrencies to move to Puerto Rico, feeding speculation about an unfolding crypto utopia.
“As a British entrepreneur, for me it really comes down to a law and tax question,” says James Greaves, CEO of Glyph, an identity verification company working with blockchain solutions. “Puerto Rico is a very tax-effective way to stay under US legislation. There is a tech community here already, and it’s less expensive than more established tech hubs such as Silicon Valley, or newcomers such as Salt Lake City and Denver.”
Beyond the often divisive hype created by blockchain entrepreneurs that moved to the island in recent months – about 150 individuals out of a total of 2500 that applied for Act 22 incentives – the real opportunity regarding Puerto Rico's blockchain hub status has yet to be gauged.
“Blockchain is a regenerative opportunity for Puerto Rico. It’s more about the way the technology is used than about the people building the technology. It won’t give everybody a job, but it can help, for example, solve property issues here or providing transparency,” says Mr Greaves.
Despite some tragic outcomes, Hurricane Maria has given Puerto Rico a chance to start anew. But to turn reconstruction funds, incentives and foreign investment into a real foundation for the long-term prosperity of the island, there is an acknowledgement that the mistakes of the past must be avoided, particularly in the new sectors.
“I feel that blockchain is a knowledge that has to be shared with our youth; these entrepreneurs have to leave a legacy to our youngsters,” says Colmena 66’s Ms Rodríguez. “They should not come and go following the cycle of incentives, as happened with other foreign investors in the past.”