Dominican Republic Mining: Strong Potential

New president expected to be more friendly to mining sector than predecessor.

BY LATIN AMERICA ADVISOR
Inter-American Dialogue

Luis Abinader, who took office as president of the Dominican Republic on Aug. 16, has indicated that he plans to encourage more investment in the country’s mining sector. How important will mining be for the Dominican Republic’s economy in the years ahead and in its recovery following the pandemic? What are the most important policy decisions facing Abinader’s government with regard to the sector? To what extent do existing laws and policies in the Dominican Republic hinder investment in the mining sector, and does Abinader’s Modern Revolutionary Party have enough clout to overcome them?

Graham A. Davis, professor emeritus of mineral economics at the Colorado School of Mines: Mining has the potential to play a significant role in the Dominican Republic’s economy. This is because of both a generous geological endowment and an established and profitable mining sector. The expansion of the sector has to date been limited by a lack of stability in fiscal terms and an adversarial relationship between mining companies and the state. The most glaring example of the former was the Dominican Republic’s demand for a renegotiated investment agreement at the Pueblo Viejo mine shortly after production started. The discord between the government and producers continues: EnviroGold, an Australian mining company, has recently brought international arbitration proceedings against the Dominican Republic for its alleged failure to provide a site to store processed tailings. Fiscal stability and certainty over permitting standards are two important attributes mining companies consider when looking at international investment. The Dominican Republic has a relatively poor record on both. President Abinader appears to be well aware of these past problems. (…). While there is always the desire that the government obtain its fair share of profits from mineral extraction, most mining companies would gladly pay higher taxes in return for a stable fiscal regime that allows them to confidently plan on recovering their initial investment. To the extent that the Abinader administration can credibly guarantee such stability, its goal of increasing mining’s contribution to the economy may well be achieved.

Mary Fernandez Rodriguez, founding partner at Headrick Rizik Alvarez & Fernandez in Santo Domingo: The mining sector in the Dominican Republic remains an area of investment and growth that is poised to continue its development in the coming years. While mining has been traditionally limited to gold, and the Barrick Pueblo Viejo mine is the single largest source of FDI in the country, other materials are abundant in the Dominican geography and are of significant value to the economy at large. One of the principal areas of concern around mining has been its tendency to be viewed as ‘extractive’ and adding little value to an economy. The positive developments around the Barrick project during the past several years have served to mitigate many of these concerns, as that project has shown that mining can be a win-win industry. In addition, the mining laws and permitting processes in the Dominican Republic have been quite antiquated and bureaucratic. The recently installed government has signaled that it will consolidate and streamline all mining and energy regulation in the Ministry of Energy and Mines, which had been previously sidelined in its role due to the existence of other entrenched bureaucracies. This change, along with a renewed Ministry of Environment—which has a new, very capable minister in charge—promises to align legitimate regulatory and supervisory roles with the need for development. Expansion of opportunities in the mining sector can play a key role in the creation of jobs and economic recovery for the Dominican Republic, and the new administration should make the industry a priority.

Kelli Bissett-Tom, director for Americas Sovereign Ratings at Fitch Ratings: The economy of the Dominican Republic (which Fitch rates ‘BB-/Negative’) faces steep challenges from lost tourism flows and domestic lockdowns resulting from the coronavirus, which will undermine both tourism foreign-exchange receipts (8 percent of GDP in 2019) and tourism-related FDI (29 percent of total FDI and 1 percent of GDP in 2019) into the strategic industry during 2021-2022. Economic activity contracted 8.5 percent year-on-year between January and June. While mining is a multi-year investment proposition and faces growing environmental scrutiny from ESG-minded investors, minerals investment could be a timely, partial boon to the economy, providing near-term foreign direct investment, foreign exchange and jobs plus longer-term (tax) incentives for multiple projects when the mining code is internationally competitive (for example, serial project investments in Peru). Mining FDI into the Dominican Republic remains low since one gold mine became fully operational in 2013 (it was just 0.3 percent of GDP or 9 percent of total FDI inflows in 2019). President Abinader was elected on a business-friendly ticket, and the Dominican Republic has sustained a nearly 15-year record of macro stability through multiple external shocks—both supporting factors for FDI.

Republished with permission from the Inter-American Dialogue's daily Latin America Advisor

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