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Dominican Republic: Strong Nearshore Potential
The Dominican Republic offers world class logistics, connectivity and free trade zones.
BY WILLIAM M. MALAMUD
Without a doubt, the relationship with the United States is the single most important bilateral relationship for the Dominican Republic, especially when considered in the context of the evolving geopolitical and geo-economic rivalry between the United States and China.
The Dominican Republic wants to exploit its geographic proximity to the U.S. market, and to integrate further into U.S. value chains, and by so doing generate jobs and wealth, whereas the U.S. seeks to create and maintain a safe, secure and prosperous nearshore. Both countries are converging on the common strategy of nearshore production: enhancing the competitiveness and resiliency of U.S. manufacturing through the integration of regional value chains that leverage relative comparative advantages. This is the best strategy for mitigating the conditions that contribute to illegal immigration, illicit trade, and susceptibility to undue Chinese influence in an area of critical geopolitical importance to the United States.
As President Abinader stated in his inaugural on August 16, which was attended by Secretary of State Michael Pompeo, the relationship with the United States is of critical importance to the country’s economic growth, prosperity, and security. “The time has arrived to take full advantage of our geographic proximity to the United States to attract foreign direct investment and more fully integrate into North American value chains”.
His Foreign Minister, Roberto Alvarez, in a speech before the American Chamber of Commerce of the Dominican Republic in March 2019 (in his capacity as advisor on foreign relations to the Abinader campaign at the time) stated that “with over two million Dominican-Americans in the United States, a country from which we receive over $5 billion in remittances (78.5%); from where we receive over 40% of our tourists; from which we received over $4.4 billion in foreign direct investment from 2010 to 2018; and the market to which we export over $5.3 billion (50% of total exports), there is not the slightest doubt, in my opinion, than that the United States is, and will continue to be for decades to come, our principle strategic partner. This is a reality that we must recognize.
“Being situated in the region of North America, our industrial production and supply chains have become closely integrated into the industrial organization of the United States, as well its geopolitical strategy, which establishes limits on the Dominican Republic’s radius of action with respect to the Peoples Republic of China”.
The advantages of nearshore production are elucidated in a January 2019 report by the McKinsey Global Institute on the evolution of value chains and trade patterns. In it, they postulated that globalization reached a turning point in the mid-2000s. Among the report’s conclusions:
• Less than 20 percent of global goods trade is based on labor-cost arbitrage, and in many value chains, that share has been declining over the last decade.
• Goods-producing value chains (particularly automotive as well as computers and electronics) are becoming more regionally concentrated as companies are increasingly establishing production in proximity to demand.
• Developing countries with geographic proximity to large consumer markets and well-developed logistics infrastructure may benefit as production moves closer to consumers.
• Regional integration offers one possible solution, and digital technologies also hold possibilities for new development paths.
• Speed to market is increasingly important.
In addition to these geo-economic trends, the emergence of China as a geopolitical rival to the United States and the devastating impact of COVID-19 on global supply chains has led many companies with Asia-centric supply chains to re-think their production and supply chain strategies for the U.S. market.
In the heyday of globalization, supply chains were managed to maximize efficiencies by accessing lower cost factor inputs around the globe. The COVID-19 pandemic, however, has shown the value of risk reduction through the diversification of supply chains for critical parts and products.
Taken together, these economic, technological, and geopolitical trends combine to make a compelling case for more regional integration of value chains. Within that context the Dominican Republic is well-positioned to attract more foreign direct investment.
The Dominican Republic has world class logistics, connectivity, and free trade zones:
· Caucedo Multimodal Port and Haina International Terminals are situated 2.5 days shipping time from Miami, 4 days from Savannah, Charleston and Mobile, and 4.5 days from New Orleans;
· There are eight international airports distributed around the country receiving over 7.2 million tourists in 2018;
· World class telecommunications infrastructure providing connectivity;
· Free Trade Zones that provide the most generous financial incentives in the region to export manufacturing firms;
· Free trade agreements with the United States, the European Union, Central America and the United Kingdom providing preferential market access;
· And according to the World Bank’s Ease of Doing Business Report, the DR ranks #3 in all of Latin America in Ease of Trading Across Borders.
The Dominican Republic has experienced over 50 years of macroeconomic and political stability which have resulted in the fastest growing economy in the hemisphere over the past 50 years.
There is a window of opportunity for the DR to attract companies that are restructuring their supply chains for the U.S. market. To take full advantage of these opportunities, the DR needs to:
• Invest in a more targeted and proactive promotion campaign;
• Have “shovel-ready” deal teams that will work with companies to expedite permitting processes and cut through red tape;
• Continue to reduce transaction costs and streamlining of processes associated with cross-border trade;
• Pass the new Customs law that is in the Congress;
• Invest more in vocational training in order to assure a quality work force.
William M. Malamud is the Executive Vice President of the American Chamber of Commerce of the Dominican Republic. He wrote this article for Latinvex.
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