Dominican Republic's Free Zones are Popular, but so are Rival Sectors
Foreign-investment laws seen boosting enthusiasm

by Joe Harkins

    Depending on who is talking, the free-zone system in the Dominican Republic is doing very well and has a great future -- or it's stagnant and facing serious trouble. There's some validity to both opinions.

    Conflicting statistics from sources with differing agendas and perspectives are largely responsible for the confusion.

    However, the government is clearly committed to the zones, which host operations from such well-known U.S. companies as Abbott Laboratories, Baxter Travenol, GTE, Hanes and Liz Claiborne.

    In fact, the Fine Air cargo jet that crashed in Miami in August was carrying textiles to be sewn into finished garments at free zones in this Caribbean nation of 8 million people.

    U.S. apparel imports from the Dominican Republic totaled 600 million square meters last year, a 350 percent increase over 1987, according to U.S. Department of Commerce figures cited last month by The San Juan Star, Puerto Rico's leading newspaper.

LOW-WAGE RIVALS BLAMED

    The growth reflects increased U.S. investment in the Dominican textile sector, whose exports to the United States totaled $560 million in the first quarter of this year.

    The San Juan Star blamed a 27 percent drop in Puerto Rican textile-industry employment last year on low-wage competition from the Dominican Republic and other Caribbean and Central American manufacturers.

    Changes in the Dominican Republic's foreign-investment laws and a recently launched privatization of major portions of its infrastructure are expected to increase interest in free-zone manufacturing.

    At present, about 450 companies employ almost 180,000 people in 60 industrial categories in the nation's 35 free zones.

    A spokesman for the nation's new investment-promotion agency, Oficina para la Promocion de la Inversiona Extrangerja (OPI), said the zones create a similar number of new jobs in such other sectors of the economy as transportation and construction.

    Leonel Fernandez, the 44-year-old U.S.-educated president, created OPI last February, one of several initiatives aimed at expanding industrial development and easing dependence on agriculture, tourism and expatriate remissions, the nation's traditional sources of foreign exchange.

VIOLENCE FOLLOWS BLACKOUTS

    Privatization of some 30 government-owned properties, particularly the troubled electric-power industry, is expected to reduce debt and improve the economic climate. The summer of 1997 saw several violent clashes between police and protesters aroused by frequent blackouts of the creaking power grid.

    OPI's executive director, Eddy Martinez, held a similar title for a private organization serving Dominican Free Zone operators. As a result, while the OPI charter covers all foreign investment promotion, the future of the free zones continues to hold his interest.

    "OPI is part of a global plan . . . for the development of a transnational presence in the Dominican Republic," Mr. Martinez said in an interview, citing expanded technical training for workers as an example.

    Between 1991 and 1995, the most recent five years for which OPI provided official statistics, the value of goods brought into the free-zone system increased from $998 million to $1.87 billion.

    Sewing, including apparel as well as shoes, accounts for about 70 percent of all free-zone earnings. Electronic assembly and high-volume data entry are two other important sectors. Workers in free zones allegedly receive higher wages than do those in the mainstream economy.

AVERAGE RATE DOUBLE MINIMUM

    A recently enacted law raised the minimum wage to about $140 a month, but in the zones, it's usually only recent hires with little or no experience who get paid that rate, said Ricardo Valdez, executive director of the Dominican Association of Free Trade Zones, a private group that represents investors and managers of the country's 35 free-zone operations.

    Mr. Valdez said the average monthly take-home for all free-zone employees, taking productivity incentives into account, is $280, double the legally required minimum.

    Further, Dominican law mandates a benefits package that adds another 25 percent to 35 percent, including an annual bonus of one month's pay due shortly before Christmas.

    Commenting on the decline in free-zone operators last year, from 469 to 434, Mr. Valdez said: "Growth in production overall is moderate, but we foresee some measures which are expected to improve that."

    A November 1995 revision of the Dominican Foreign Investment Law leveled the playing field between domestic and foreign investors, with both parties now permitted unlimited ownership percentages and unrestricted repatriation of profit, he said.

    But, he added, "The free zones, while important to the economy, are lagging behind telecommunications and construction, to cite just two examples of industries currently attracting greater foreign capital investments."

THEY DID NOT RESPOND

    He cited only a few numbers to support his response. Comparing start-ups and expansions in the most recent 12 months to the previous year, he said the group "grew by 1.3 percent" but deferred questions regarding sales and production to Consejo de las Zonas Francas (Council on Free Zones), the Dominican governmental agency with oversight responsibility.

    However, that agency declined to respond to a telephone request for that data and did not answer the faxed inquiry that their representative required.

    When compared, on a decade-to-decade basis, with competing countries in the region, the Dominican Republic's record is more impressive.

    Further, contrary to Mr. Valdez's generally reserved outlook, a report published in September by The Economist Intelligence Unit said that a flood of new investment in the first half of 1997, promising $43 million in new facilities and equipment, should add 31 new free-zone operators and 9,000 new direct jobs.

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The Journal of Commerce - December 03, 1997

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