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Postcard from the Dominican Republic

The Dominican Republic’s sun and beaches are popular with UK tourists, but it has even more to offer investors. Already the fastest-growing economy in the Americas, the country is undergoing an economic transformation that is creating global investment opportunities. James McKeigue, Managing Editor of Dolfin’s partner LatAm Investor, reports.

4 June 2019 / Macro & Markets

Since 2012, the Dominican economy has grown at an average of 6 per cent per year. One can often get lost in abstract economic statistics, but in the Dominican Republic, growth is visible throughout the country. To the south, the new mega-port, Puerto Caucedo, seems to be in a constant state of expansion. In the north, its industrial free-trade zones are attracting a wider range of industries. And in the interior, a non-traditional agro-export boom is prompting small rural towns to build houses, roads and shopping centres.

That economic growth is being supported by a rising population. The Dominican Republic has a young population – with a median age of 28, compared to 40 in the UK. The demographic sweet spot is expanding the labour force and changing attitudes in a formerly conservative country. The final element of the Dominican Republic’s expansion is outwards. Its major business groups, which were mostly content to spend the 20th century in the Dominican Republic, are now spreading abroad. While the economy, so long a difficult place for international businesses, now attracts record levels of foreign direct investment.

“The economy now attracts record levels of foreign direct investment.”

But if the Dominican Republic’s rapid expansion feels tangible, so do its flaws. A minimum wage that hasn’t increased in inflation-adjusted terms for 27 years means growth hasn’t spread to the poorest in society. A large informal economy results in a low tax take that prevents the state from efficiently delivering basic services. Finally, widespread graft adds extra costs for businesses.

Changing mindset

Overall, the mood in the Dominican Republic is positive, with its young population optimistic that it will overcome these challenges. One driver for change is the ever-increasing proportion of young people in the workforce. The new generation is less accepting of some of the bad business practices that have become the status quo. In the Dominican Republic, one of the biggest complaints is corruption. It scores 129th out of 180 countries in the Transparency International Corruption Perceptions Index, making the topic a natural cause for concern for any incoming foreign firm.

“The country has seen a boom in the manufacture of electronics and medical instruments.”

Yet surveys show that millennials in the Dominican Republic are more likely than older generations to challenge corrupt processes in the workplace. These young workers are also quick to learn new skills, making ideal human talent for the new industries emerging in the Dominican Republic. The country has seen a boom in the manufacture of electronics and medical instruments, which are now its second and third most important exports respectively.

As the Dominican Republic undergoes this economic transformation, it should create plenty of opportunities for British firms. That’s because there are several strategic synergies between the two countries. The Dominican Republic’s location, connectivity and logistics infrastructure make it a handy gateway for UK companies looking for a platform to expand to the rest of Latin America. Meanwhile, as more Dominican firms try to evolve from traditional commodity businesses to services, they will have increasing need for British technology, capital and expertise.

Set for growth

Sounds far-fetched? Well, one recent example is Pinewood Dominican Republic Studios, a joint venture between the iconic London studio and one of the Dominican Republic’s largest sugar producers. Another is the nascent but growing local capital market. Just 15 years ago, only the Central Bank and the Treasury issued bonds, which were paper documents that had to be traded physically and couldn’t be split for partial sales. Now, a modern, digital trading system has encouraged almost 20 local corporations to issue billions of dollars-worth of bonds in recent years. As the Dominican Republic’s capital markets expand, it’s natural that they will strengthen links with London, one of the world’s top financial centres.

Whatever happens with Brexit, the process has already encouraged UK firms to look for new international markets. The fastest-growing economy in the Americas probably isn’t a bad place for them to start.

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Shipping doesn’t receive the same hype and attention as electric cars and space travel, but this essential industry is upping its game, with investments in carbon neutral ships and even autonomous freight carriers.

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