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TheBanker es The rise of the Dominican Republic Edward Russell-Walling | 1/03/2016 9:00 am The Dominican Republic has forged its international reputation around tourism, but its diverse economy is ringing in investment in sectors as varied as telecommmmnications and textiles, while the country's president is setting to work on educational standards. Key players from the Dominican Republic discuss the country’s promise in aroundtable discussion that was sponsored by BauReservas and independently written and edited by The Banker, Pre J svar comer ‘The Dominican Republic is unquestionably the current economic star of Latin America in terms of growth. It has a thriving tourism industry, which ‘Sen atcnping te ciety aad anetled ang nds. Ta economy is supported by a healthy banking sector and robust levels of foreign direct investment. That means it can afford to implement a social 2, policy aimed at dramatically raising levels of edncation and healtia coverage. Last year, the Dominican Republi recorded 2 7% increase in gross aa domestic product (GDP). according to projections by the UN Economic Silvia Pavoni Rewven Bigio ‘Commission for Latin America and the Caribbean. That was the highest rei Raa Cow economic growth in Latin America by some margin, ahead of nest-best Panama at 5.9% and Bolivia at 4.5%. Inflation remained subdued. at a little over 2%, while foreign reserves rose by 8° to $5.27bn. Public sector balances zemained aclatively healthy, with debt at a respectable 45% of \ GDP. , (On the back of this impressive performance, the Dominican Republic has been able to keep its budget deficits in check by making repeat visits to the international bond market. Here, investors have had the confidence to buy FemmandoCapetlan Gusto Ch longer dated issues than is usual from a developing economy. The sovereign #0.GroXt Ain raised §2.5bn 2015, including $1.5bn im 30-year paper. Ithad already sold $1.25bn in 30-year bonds during 2014, and retumed to the intemational 38CISNEROS markets in January 2016 to sell $1bn of bonds maturing in 2026. ‘Tourism strength The Dominican Republic has a diverse economy: While it is a long-standing, exporter of sugar, coffee and tobacco, agriculture has been overtaken by Na “y services as the most important economic contributor, Free-trade zones are expanding, with products as varied as testiles, shoes, jewellery, medical pa eee devices and cigars, and telecommunications is enjoying growth, But the rotten Gate suost vibrant det is tosiom, Eoneteca Neauly 6 snillion forcign holidaymakers visit the country each yeas, many of them from the nearby US. (The economy is highly dependent on the US swhich, as well as supplying two-thirds of tourism revenues, buys about half of Dominican exports. Remittances fiom. Dominicans working in the US are equivalent to roughly one-third of exports.) The current plan, being worked on by both the government and the private sector is to grow annual tourist numbers to 10 million by 2020, The Dominican Republic gets more visitors than any other Caribbean country and, in Latin America as a whole, has ranked second only to Brazil in tourist income. "This year we expect to lead Brazil in terms of ‘smcome,” says Enrique Ramirez, CEO of Banco de Reservas. Dontinican Republic president Danilo Medina has been keen to promote ecological touricm and to develop the Tusury end of the market, diversifying tourism in a way that helps to develop other small businesses. Leading the way js the development of a five-star Four Seasons hotel in the Tropicalia resort, which lies in the hitherto ‘underdeveloped Miches area in the north of the island. Both the hotel project and the Tropicalia development are heing undertaken by the Cisneros Group, an international media and property empire with Venezuelan roots. Until now; the Dominican tourism industry has been mostly four- star and all-inclusive, But Cisneros Groups chairman, Gustavo Cisneros, who is now a Dominican citizen, says that ‘the Four Seasons project sends out a message that the Dominican Republic will become a "highly lwsutious" destination, High-end target "Why is that important?” says Mr Cisneros. "Because five-star developments give much more money to the community - with the all-inclusive system, it stays very much with the operators.” Tropicalia can accommodate up to 10 hosury hotels, and Mr Cisneros hopes that other Spanish and American operators in the country wall now upgrade ‘their four-star hotels to five-star status. "We have a great opportunity now." adds Mr Cisneros. "We have a president who wants to do it, we have the banks, who want to finance it and we have the tourists that want to come. The Chinese market alone is gigantic and they have lots of money: so the time is now.” ‘Mr Cisneros is keenly avvare that the Cuban tourist trade is opening up and that Cuba will be opening lnsury hotels very quickly. "The Cabans want to change their tourism sector to high end," he says. "But we have the advantage right now, so we have to take care oft.” 38CISNEROS Dominican tourism is attracting intemational attention on a number of different levels. Vinci, a French airport operator recently acquired Aerodom, a Dominican company with a concession to rum six of the nine local ainports. The concession runs until 2030. ""Vined is very experienced in the airport business,” says Jose Miguel Gonzalez president of Dominican retail group Centro Cuesto Nacional. "And it is coming to the Dominican Republic because of the future it sees in tourism here. It will upgrade and invest in the airports and bring even mote tourists to the Dominican Republic.” Cruise control Carnival Cruise Lines recently opened its Amber Cove port in the north of the Dominican Republic, even as other cruise companies are making more calls at the country’s ports. "With Carnival coming into the Dominican Republic, we now know about other cruise ship companies that are interested in building two more ports in the north part of the country.” says ‘Mr Gonzalez. ‘Wirt Carnival coMING INTO Thiskind of tonsm isalco different tothe allncusvevavety because the THE DoMintcan REPUBLIC, WE visitors are more likely to travel around the island and interact with the NOW KNOW ABOUT OTH! community. "They tend to explore different attractions and visit the towns.” CRUISE SHIP COMPANT says Mr Gonzalez. D IN BUILDING ‘When it comes to cruise holidays, neighbouring Cuba could be an ally ‘TWO MORE PORTS IN THE rather than a competitor. [think that with Cuba opening up, thiscan help COUNTRY Jose Miguel Gonzales @@ usto attract even more cruise ships,” says Mr Gonzalez. "Because we are so close together, the ships can include both islands on their itineraries.” While tourism provides employment, it also generates domestic consumption, to the benefit of agriculture and manufacturing in the Dominican Republic. "We are not only producing for 10 million Dominicans, but we also ‘produce for almost 10 million Haitians and nearly 6 million tourists." says Mr Ramirez. "So we have the capacity to produce for 25 million people every year. That's a key to our economic success." Ripple effect The effects of a successfull tourism industry ripple out into other parts of the Dominican Republic economy, in the shape of infrastructure projects and commercial opportunities, A new 72-Iilometre highway connecting Punta Cana sixpoxt and the Michec region was recently opened. Punta Cana airport itcelf ("the best airport in the Caribbean’, according to Mr Cisneros) continues to expand, and has plans to open a US border preclearance facility. That would confer a competitive tourism advantage over Cuba, which is unlikely to benefit from such a facility for some time to come, according to Mr Cisneros. Hhiti-based GB Group is one of the Caribbean's largest privately owned industrial groups, operational in sectors including oil. telecoms and construction businesses. It has become the largest provider of aviation fuel in the region. “One of the reasons for that is Punta Cana airport, which is the second largest in the region,” says Reuven Bigio, GB Group's CEO. "That has enabled [us] to expand as an operator in other Caribbean islands, where we can then contribute expertise in the supply of fuel." 38CISNEROS ‘The local textiles industry isa shadow of its former self, however, since the final phasing out in 2005 of the Multi- Fibre Arrangement, which protected it from Asian competition. However, while there are signs that business lost to ‘Asia may be coming back, Dominican companies can take advantage of certain trade benefits enjoyed by neighbouring Haiti. Under US legislation, including the Hope and Help Acts, Haiti enjoys duty-free access to the US market for textiles and apparel. Grupo M, 2 Dominican Republic-based vertically integrated testile company, makes garments across ‘the border in Haiti, in the Codevi industrial park, which it also owns. "For every three jobs we create in Haiti, we reste 15 jobs in the Dominican Republic on the textile side, and on finishing, designing and merchandising” says Fernando Capellan, CEO of Grupo “Together with the duty-free beuefits ofthe Economic Partueship Agreement with the EU, last developed countiy preferences from Canada and the Cential America Free Trade Agreement. this sa winning combination forall light manufacturing, according to Mr Capellan."T think this s an inentive and an opportunity for companies around the ‘would looking for where to place their production " Mi Capellan said. "There's no better combination in this part of ‘the world than the Dominican Republic and Haiti for line manufacturing” ‘Miningis another important sector in the Dominican Republic, which adds to economic strength through diversity, mast notably at the Pueblo Viejo gold mine. Situated on one ofthe largest gold deposits in the world, this i a recent redevelopment of an existing mme and is 60:40 owned by Canada’s Barrick Gold and Goldcorp. Pueblo Viejo was ‘financed entirely by foreign banks, becanse it was feared that such a big project could not be handled locally. ‘Nonetheless, the Dominican Republic has one ofthe healthiest financial sectors in the Caribbean, with the eapacity ‘to support the country’s needs, according to Mr Ramirez. "We have strong regulators," he says. "We have been able to adapt to international requirements and can compete domestically with intemational banks in any field, And we are ready to support the different areas that have been identified as key growth factors for the Dominican Republic.” Financial strength, ‘BanReservas is a state-owned commercial bank and. when Mr Medina took office in 2012, its loan portfolio was split 70:30 between government and the private sector. "Today it's the opposite. with more than 70% goingtto the private sector." says Mr Ramirez. "We have been able to support construction. affordable housing, commercial loans and the ‘tourism industry." ‘The bankis strong on financial inclusion, aware ofits social responsibility and the fact that many of the country’s ‘people are not financially educated. "So we will invest money and effort into educating our clients and generating ‘more financial indusion,” says Mr Ramirez 'E HAVE ING REGULA’ 4 “Mr Capellan acknowledges that support fiom local banks WELAVESTRONE REGULATORS, is defitely there, compleueuted by the vising level of WE HAVE BEEN ABLE TO ADAPT confidence in the Dominican Republic bing TO INTERNATIONAL iSinpatarinan ty ebetamfatarehe REQUIREMENTS AND CAN move ever faster to react to market demands, he sys. COMPETE DOMESTICALLY WITH One of the Dominican Republic's more notable features, according to Mr Cisneros is that foreign banks are able to INTERNATIONAL BANKS IN ANY ‘operate in the country on an equal basis. And he believes, more specifically. that local banks should get more involved in the mining sector. Ifbanks such as BanReservas got to Imow the Dominican mining industry Ihe argues, they could take advantage of lending ‘opportunities im Haiti, which has the same geclogy. and parts of Latin America, such as Colombia, Venezuela and, Panama, where there is lot of mining activity. FIELD Enrique Ramirez @@ 38CISNEROS Alearning eve If children represent a county's future, then the Dominican Republic has the future firmly in its sights. Having historically had a reputation for one of the world’s worst education systems, it now plans to double the sumber of classrooms in the nest four years and is allocating 4% ofits GDP to education. Recent reforms have included ‘prolonging the sehool day and giving children free school meals, This has increased attendance levels and helped to ‘reduce youth erime. "Student meals and longer school hours have a positive impact on family economies, because very poor families axe ‘not spending money on brealdast and lunch,” says Mr Gonzalez. "And mothers have the opportunity to look for work ‘while the children are at school In tevtiany education, there isa need to keep sligning the universities with the needs of the productive sector, to Me Capellan. "We want more engyneers, we want more mathematicians, physicists and chemsts"he says, "We have started graduating the professionals we are going to need in the nest five years, which is very jmpostant.” Some bright students who went abroad to study are now returning to a more promising Dominican Republic and a ‘munber of them are now working at the BanReservas. The curtent education initiatives represent the fst time that. ‘the Dominican Republic has mvested for the long term, according to Mr Ramuez. "We will sce the impact of education in seven or eight years,” he says, "This is really thinking in the future and will mean a serious transformation of our society.” ‘Meanwhile, adds Mr Gonzalez, another social focus of Mr Medina is small businesses in poor rural areas, where ‘people have not had the assistance or financing to allow them to giow: Loan restrictions to stuall and medium-sized. ‘companies have been eased and banks are being encouraged to support applications for start-up and growth funds. “The president has been dedicating every Sunday to these small communities to try to help them make their small ‘businesses more productive." says Mr Gonzalez. "We have seen alot of success from these mterventions, and now presidents from other comntties are coming here to try to replicate this programme.” The Dominican Republic has also been snvesting move in health and hospitals in an effort to extend health coverage of the population. Reaping the rewards Higher educational standards are genevally rewarded, sll things being equal, by increased foreign direct mvestment ‘The Dominican Republic brought in $2bn in foreign direct investment during 2015 anda similar igure is forecast for the cunent year Tourism is the main attraction for foreign investors in the Dominican Republic at present. though there is al20 heightened interest in the telecommunications sector. As a foreign investor himself. Mr Bigio says that the financial sector has been extremely co-operative and very important to lus group's success in the country. "Banco de Reservas thas been a true partner to us, providing us with innovative prodnets that fit our inénstry and that allow us to ‘modemise and improve the service we provide.” he says. “It has been a very positive esperience and [ would think it ‘would be the same for many other foreign investors hese." “Mr Bigio goes on to say that, when he speaks to politcal and commmnity leaders, itis clear that there is areal cohesion in the masterplan for the country. "Everything for the benefit ofthe private sector and investors is geared towards growth and progress," he sars. ‘There are several reasons why the Dominican Republic has been doing so well. according to Mr Cisneros. "Firstly the stability of the country over the last 50 years has been unpaalleled" he says. "Though we have had a few hiccups, it thas mostly been stable. Second; whatever party’has been im power, the people nmning the finances have alwavs ‘been very able, whether in central banking, banking or the Treasmy. And thirdly: there is a respect for the rule of knw that keeps investors coming back again and again. Not many countries can claim thst.” “Mr Cieros also pays abute to Mr Medina, whom he describes as a more forward-thinking and private sector- oriented president than any of his predecessors, "Because President Medina's arguments are private sector. his solutions are private sector, and ie is always looking for a balance between the private sector and the social good." he ‘The Dominican Republic could become another Singapore, according to Mi Cisneros. "We have the quality of the people, we have the starts, we have the location "he says, "We have everything going for us, so why not? Like us, Singapore is ona small spree.” ‘This Leadership Series article was sponsored by BanReservas and independently waitten and edited by The Banker.

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