Economic Outlook: The Dominican Republic

BY DOREEN HEMLOCK PHOTOGRAPHY BY RODOLFO BENITEZ

First came agriculture, then manufacturing and next, tourism. Now, the fast-growing Dominican Republic, the Caribbean nation known for quality cigars, medical device exports, and all-inclusive resorts, is embarking on a new economic frontier: logistics.

Building on strong international air and sea links, the well-connected country has set a goal of becoming a regional logistics hub – to produce, store, and trans-ship goods for the United States, the Caribbean, Latin America, and even Europe. Key to the effort: A $200 million-plus investment at its busiest airport in Punta Cana, aimed to send more cargo in the belly of passenger planes.

This new frontier may sound ambitious, but the Dominican Republic has a remarkable track record. It’s the country with the strongest economic performance in Latin America and the Caribbean over the past 50 years, according to the World Bank. Growth has been averaging about 5 percent yearly for decades, as the nation has become a manufacturing center and the No. 1 tourist destination in the Caribbean. Foreign investment keeps flowing in, thanks to stability, tax incentives, and a capable workforce.

The timing is ideal for a logistics hub now, says Dominican warehouse and transport expert Alexander Schad. As tensions mount between the U.S. and China, more companies selling to U.S. consumers have been shifting production out of Asia and into the Americas in a trend called “nearshoring.” Manufacturing has grown so much in the Dominican Republic in recent years that many producers now keep their supplies and finished goods in local warehouses instead of U.S. facilities. Some even ship direct from Dominican factories to U.S. customers these days, using a “just-intime” program, says Schad.

“The response time to the U.S. is shorter here, so you can make those shoes you need in size 8, in red, and get them within days, instead of the weeks it would take to ship from Asia,” says Schad, CEO of Frederic Schad, the largest Dominican logistics firm, employing 1,300 full and part-time staff – up about 40 percent in the past decade. “With quicker response times, you don’t lose sales.”

What’s more, tourism to the Dominican Republic keeps rising – hitting yet another record so far this year. That means more passenger planes are available to carry out exports like tropical fruits and electronics and to bring imports needed for new hotels, homes, offices, and industrial parks.

“The COVID-19 pandemic proved that you need logistics. The world is integrated and globalized, and people want things now, no matter what,” says Francesca Rainieri, chief financial officer at private Grupo Puntacana, which owns Punta Cana International Airport and is teaming up with Dubai’s DP World on the $200 million-plus investment. “And connectivity that’s close and direct reduces costs and time.”

The government and business community are united in the logistics push. President Luis Abinader, a data-driven economist and millionaire businessman who’s developed hotels and other ventures, is focused on modernization and efficiency to spur investment and grow the economy. His administration already has shifted customs documents online for 24/7 access, signed a new customs law to replace a decades-old one, and streamlined paperwork for investors, among other measures to help trade.

Customs Director Eduardo Sanz Lovaton, a business lawyer who left a top private law firm to join the administration in 2020, is working with ports to get cargo dispatched within 24 hours. He’s confident that as nearshoring and air freight grow, “we’ll be talking about logistics in the Dominican Republic next decade in the same way we talked about tourism 20 or 30 years back, as an important

United

The Bahamas

Dominican Republic at a Glance

AREA: 18,704 square miles, about the size of Vermont and New Hampshire combined.

POPULATION: 11 million, similar to the population of Cuba.

Dominican Republic

ECONOMY: Total output (GDP) about $100 billion in 2022. Growth has averaged 5 percent yearly since 2000, the fastest in Latin America.

TOURISM: Top destination in the Caribbean, with 7.2 million air arrivals and 1.3 million cruise arrivals in 2022, a record. US is the top source of visitors. More than 86,000 hotel rooms.

FOREIGN INVESTMENT: $4 billion in 2022, a record, with the U.S. the biggest investor.

TRADE: The U.S. is the No. 1 trade partner and Florida the top partner within the U.S. The U.S. has had a free trade agreement with the Dominican Republic and Central America (DR-CAFTA) since 2007.

economic driver.”

Here’s a look at how this nation of 11 million people in the heart of the Caribbean became Latin America’s top economic performer, and at the economic pillars that support its plans to become a regional logistics hub, including connectivity, free-zone manufacturing, tourism, agriculture, and energy.

HOW THE DR FAST-TRACKED ITS ECONOMY

Ask executives how the Dominican Republic managed to outpace regional peers in economic growth over the past half-century, and most start with two words: democracy and stability. The country boasts uninterrupted democracy since the 1960s, with continuity in policy to attract foreign investment and increase exports. Protections for investors have been rising, says Bill Malamud, long-time executive vice president of the American Chamber of Commerce of the Dominican Republic, known as AmCham DR, one of the country’s largest and most respected business associations.

“There’s no political party radically left or right,” so government works consistently with business to build the economy long-term, says Boston-raised Malamud, who’s married to a Dominican. “And with the U.S. as the top trade partner and more than two million Dominicans in the U.S., it’s probably the most pro-U.S. country in Latin America.”

Government embraces business, partly because the Dominican state doesn’t control oil or mining resources that could give it outsized weight in the economy, says Maximo Vidal, the Dominican banker who has lead Citibank for the Dominican Republic and Haiti since 2005. The country imports its fuel, and even its large gold mine is being developed not by the state but by a private company, Canada’s Barrick Gold. “Here in the Dominican Republic, 80

Some Investments from Miami companies in the Dominican Republic

CARNIVAL CORP.

$70 MILLION-PLUS

Cruise port Amber Cove near Puerto Plata

Opened: 2015

MIAMI MARLINS

$15 MILLION-PLUS

Baseball academy in Boca Chica

Opened: 2022

CISNEROS GROUP

$250 MILLION-PLUS

Tropicalia resort, luxury real-estate in Miches

Opened: In Progress

KARISMA HOTELS

$130 MILLION-PLUS

Nickelodeon Hotels & Resorts

Punta Cana

Opened: 2016/20

Cabo Rojo (Cruise Port)

Puerto Plata (Cruise & Cargo Port)

Top Cargo Ports in the Dominican Republic *

Dominican Republic

*HIT Rio Haina Port

Capacity: 800,000 TEUs

Volume 2022: 500,000 TEUs

Loose Cargo: 8 million tons

Punta Cana International Airport

DP World Caucedo

Capacity: 2.5 million TEUs

Volume 2022: 1.6 million TEUs

Transits: 860,000 TEUs to 85 percent of wealth is held by the private sector. We don’t have a PDVSA, Petrobras or Pemex,” says Vidal, referring to the state oil companies in Venezuela, Brazil, and Mexico that influence politics there. The Central Bank also acts independently, adding stability.

“I believe the Dominican Republic has the opportunity to double the size of our economy again in the next decade or so,” based on the strengths and new opportunities in logistics, tech, and other emerging sectors, says the veteran banker. “If we really want to do it, we can.”

CONNECTIVITY: THE KEY TO A REGIONAL LOGISTICS HUB

The Dominican Republic is well-located for trade. It’s a two-hour flight to Miami and many cities in Central America and northern South America, three or four days by ship to Miami and regional Latin American cities, and near the Panama Canal, allowing goods shipped from Asia to be unloaded and sent on to other ports.

But location is not enough to build a logistics hub. What’s needed are frequent flights and sailings, so shippers have options to get cargo in and out regularly and travelers have lots of transport options as well, according to Erik Alma, CEO and chairman of Haina International Terminals, known as HIT or Rio Haina Port. HIT is the country’s busiest multi-purpose seaport for cargo, from electronics and grains to heavy equipment and containerized freight.

Alma says the Dominican Republic has built up the necessary frequency in recent years, both at seaports and airports. “We have at least 30 shipping lines that call at HIT. Sixteen sailing options leave the port every week for the U.S., so you have this tremendous level of frequency and connectivity,” he says Alma, whose port next to Santo Domingo handles much of the freight for the nation’s industrial free-zones.

Punta Cana International Airport has so many flights – more than 500 per week – that it now ranks as the second busiest tourist airport in the greater Caribbean, trailing only Mexico’s Cancun. Last year, Punta Cana handled eight million-plus passengers in and out, with direct flights to 90 destinations across the Americas, Europe, and beyond.

In all, the Dominican Republic has eight international airports and 12 cargo seaports that together handle $30 billion-plus in trade annually. The two busiest seaports, Rio Haina Port and DP World Caucedo, have invested more than $400 million in recent years to expand and modernize, adding new cranes and inspection machines, for instance. While HIT focuses more on shorter routes, Caucedo mostly handles containers for longer-hauls, often trans-shipping freight arriving from Asia onto Europe.

MANUFACTURING FOR EXPORT: A CATALYST FOR SEAPORT EXPANSION

Seaports developed their strong connectivity partly because of the boom in manufacturing for export in free zones, which offer exporters exemptions from import duties and taxes. The zones took off in the 1980s when their job count reached 100,000. Back then, most parks sewed clothes for U.S. sale, from Dockers to T-shirts.

Today, nearly 200,000 people work in 80-plus free zones nationwide, sending more than $7 billion in goods overseas yearly and providing such export services as modern call centers. Medical devices are the top export product, and even apparel makers in freezones have become more sophisticated.

HanesBrands, which started sewing operations in free zones in the 1980s, for example, built the largest textile mill in the Domini-