Investing Puerto Rico ING (October 2016)

www.businessinpuertorico.com

The Star of the Caribbean radiates redefined prosperity

Puerto Rico’s diversified economic development shines brighter today than ever before. Without a doubt, the Island is approaching a historic turning point where traditional industry meets innovation, pushing the boundaries of technological progress and strengthening the Island’s knowledge economy.

GREETINGS!

Come along for the ride!

I

n spite of monumental fiscal challenges, Puerto Rico continues to push forward, drawing nearer to the goal of revamping the business environment that makes our Island so attractive to potential investors.

We strongly believe that critical moments bring out the best in us, serving as a catalyst that precipitates an explosion of local innovation and creativity. In the past few years, we have been working tirelessly to create opportunities for businesses of all molds – local and international, corporations and start-ups – many of which have already begun to bear fruit.

We have shown our commitment to innovation and the entrepreneurial spirit through our support for the Puerto Rico Science, Technology & Research Trust, which is currently financing start-ups, planning a new Science City for research, and fostering the development of a Comprehensive Cancer Center that will begin operations by October 2016.

In manufacturing, we have made Puerto Rico a stronghold for the aerospace industry, attracting powerhouses like Lufthansa Technik, UTC Aerospace, Honeywell Aerospace, Infosys, and Arlet Aviation. Meanwhile, our tourism industry continues to flourish with the emergence of new initiatives and hospitality facilities, including a blooming medical tourism niche and a growing stream of cruise ships docking in our ports. Agriculture, which was abandoned for many decades, is now experiencing a complete revival, largely due to groundbreaking technological advancements.

As strong supporters of small business, we have launched countless incentive programs to help entrepreneurs gain access to funding and resources, expand their operations, and promote their service exports abroad, thus diversifying our economy.

In short, we want the whole world to know that Puerto Rico is still one of the best places on earth to do business. We guarantee that our Island possesses a stable platform for business and investment endeavors, as well as one of the most business-friendly tax structures in any US jurisdiction.

I’m fully convinced Puerto Rico will overcome this crisis and there will be a true recovery. And when all is said and done, I have no doubt that we will emerge stronger and wiser than before.

Join us for the ride!

Alejandro J. García Padilla Governor of Puerto Rico

Shaping a new era of prosperity for Puerto Rico

I

t is often said that a great hockey player is aware not only of where the puck is, but also where it will be. Our business environment continues to move forward, bringing us closer to the conclusion of Puerto Rico’s second grand economic transformation – an inflection point that will define the Island’s history forever. While details on the Fiscal Oversight Board keep evolving, one thing is for sure: this event will make Puerto Rico a more stable place and help propel economic development further and faster.

In just a short time, we have witnessed great feats. Multinational companies such as Roche Operations and Sartorius Stedim Biotech —key players in the pharma and biopharma industries— have invested millions to expand their operations in Puerto Rico to continue supplying international demand from the Island.

Other corporate giants, among them Lufthansa Technik and Marine Environmental Remediation Group, have also established themselves in Puerto Rico, further strengthening innovative economic currents within the aerospace and maritime industries. Moreover, an unprecedented growth spurt has made tourism and agriculture two of the most important pillars of the Puerto Rican economy. And the arrival of fresh capital, coupled with the birth of multi-sectorial business hubs has led to a 4% growth of small and medium-sized enterprises.

Needless to say, these are all good examples of bigger and better things to come.

But big is not the only operative word here. Thanks to one-of-a-kind incentives provided through Act 22, Puerto Rico has attracted 849 new residents, some of them from our very own diaspora, as well as 475 companies (20% local) that have chosen the Island to expand their businesses or take advantage of new economic development opportunities. What’s more, these newcomers have become some of Puerto Rico’s most vocal promoters and reliable partners, advertising their success stories and attesting to the fact that moving to the Commonwealth was the right decision.

If we wish to protect and nurture these strategic efforts, we must strive to fully understand them and value their importance. We have some of the best competitive advantages in the world and solid economic development programs that are already bearing fruit. Moreover, we have a wide range of powerful tools at our disposal, most notably the Government Development Bank for Puerto Rico, an institution that historically has linked the public and private sector to advance great projects. With a healthy dose of vision and innovation, the time has come to rethink this institution in order to foster growth in the New Puerto Rico and protect the Island from future economic contractions.

The moment to further insert Puerto Rico into the global economy is upon us. Now, more than ever, we have to make the right decisions to bring about a new era of wealth and prosperity. A modern Puerto Rico is just steps away. We can see where the puck will be… and that is exactly where we should be. Puerto Rico, let’s move forward. Not a step back!

Alberto Bacó Bagué

Puerto Rico Secretary of Economic Development and Commerce President of the Government Development Bank for Puerto Rico

Secretary Alberto Bacó Bagué Deputy Secretary Juan Carlos Suárez Executive Assistant & Project Coordinator Patricia De la Torre de Haro

Year 3 • Volume 1 • 2016 Official Publication of the Puerto Rico Department of Economic Development and Commerce International Edition

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www.businessinpuertorico.com

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PUERTO RICO

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TABLE OF CONTENTS PUERTO RICO

28-33 ENTREPRENEURSHIP The perfect landscape for innovative start-ups

6-15 COVER STORY Puerto Rico in the world, the world in Puerto Rico

34-39 HIGH IMPACT PROJECT A Navy base is back afloat as a mecca for investors

16-19 INCENTIVES Acts 20/22: harbingers of an economic awakening

20-27 SCIENCE & TECHNOLOGY Mind over matter: all bets on a knowledge-based economy

40-51 VISITOR ECONOMY A convention center teeming with new business opportunities

59 FILM Puerto Rico: a paradise found

Much more than just tourism: come… see… invest…

Short stories nothing short of amazing

52-58 AGRIBUSINESS Sowing creativity and technology, reaping the fields of tomorrow

60-63 INVESTMENTS There is no better formula than local capital for local businesses

64-65 INSURANCE Puerto Rico emerging as an insurance powerhouse

66 AEROSPACE The All Star Island takes aim at the stars

COVER STORY

A new star is born

The

Hyperstar

of the Caribbean “Today, we see the same grand transition and the time has come to create full awareness around this fact and move forward with boldness and consensus. What we need are companies and entrepreneurs to continue to come and call Puerto Rico home and our local companies and entrepreneurs to use the model and call the world home.”

Alberto Bacó Bagué DDEC Secretary

Driving Bacó’s unfazed confidence is the magnitude of the diversification achieved. The economy of Puerto Rico may still be reeling in an extended recession but beneath those stormy waters has arisen an intricate web of intertwined and mutually reinforcing industry segments that “cannot be stopped except by the same private players leading the charge,” he adds.

When the diversified-economy vision began nearly four years ago, the DDEC program featured a five-pointed star, a symbol drawn from the Island’s flag that alludes to the long-standing label of Puerto Rico as the Star of the Caribbean.

Each point highlights a unique competitive strength of Puerto Rico:

I

f there is one phrase that captures the mood and conviction of Puerto Rico’s economic development team, it is this: There is no turning back; we’re on our way.

“The new economic development model we implemented four years ago continues to mature and has produced solid results, proving that it works,” assured Alberto Bacó Bagué, Secretary of the Department of Economic Development and Commerce (DDEC by its Spanish acronym). “The model is now consolidated, and since it is firmly rooted in the private sector instead of the government as the previous model was, continuity is guaranteed. Whichever government comes in after us will certainly tweak it, but it will be the work of building on and enhancing an existing job-creating and economic development machine, and hasn’t that been everyone’s dream in Puerto Rico for more than 20 years?”

According to Bacó, the last time this happened was when Teodoro Moscoso created Operation Bootstrap, or Manos a la Obra, to transition from agriculture to a manufacturing-based, government-led model back in the 1950s, and “every government that followed simply built on that base and adapted it to the times.”

“Today, we see the same grand transition,” he continues, “and the time has come to create full awareness around this fact and move forward with boldness and consensus. What we need are companies and entrepreneurs to continue to come and call Puerto Rico home and our local companies and entrepreneurs to use the model and call the world home.”

He is the first to acknowledge that it will take some time for much of that to happen but insists that “the pieces are all in place, and the results have been promising. They’re fundamentally the same pieces others point to when looking for a new model; now it’s a matter of maturity and fine-tuning, which will come with time. Puerto Rico will turn around and emerge as one of the world’s strongest economies.”

U.S. LEGAL FRAMEWORK

To be sure, Puerto Rico’s government administrations have been touting those five advantages for decades, initially to draw manufacturing and more recently to attract service companies to the Island.

What is different this time are the five arrows Bacó draws blasting out of the center of the star between the existing points, with each arrow representing a growing cluster or set of clusters corresponding to the economy’s diversified segments.

ONE-OF-A-KIND INCENTIVES

Traditional Segments

Service Exports

TALENTED PEOPLE

PUERTO RICO’S COMPETITIVE ADVANTAGES

PRIVILEGED LOCATION

Creative Industries

Puerto Rico Promoters

ADVANCED INFRASTRUCTURE

PUERTO RICO

1. Talented people, including the world’s largest engineering pool per capita 2. Privileged location right smack in the middle of the hemisphere 3. Advanced infrastructure — airports, ports, broadband, highways, power, and water.

4. A U.S. territory with the same legal, financial, and federal regulatory system as the 50 states.

5. Incentives unmatched anywhere else on the planet — Puerto Rico is foreign for taxation and domestic for everything else, allowing for one of the lowest tax rates in the world.

Small Business and Entrepreneurial Ecosystem

ECONOMIC PILLARS

7

“I think my business (through Acts 20/22) is going to grow quite a bit, and all that growth will take place here. The $90 million that is in a (local) bank was not raised to sit in the bank. It’s going to get invested… and will lead to more opportunities, earnings, cash flows, and employment. Puerto Rico has some very core strengths… like the Mayagüez campus of the University of Puerto Rico, which is an incredible asset.”

Mohnish Pabrai Principal managing partner of Pabrai Investment Funds and head of Dhandho Holdings

Traditional Segments

Leading the way is the renewed expansion of manufacturing, tourism, and agriculture. The latter is perhaps the biggest eye-opener of the three, given its reputation as a sector previously considered abandoned in an ocean of import dependence for roughly 85% of all food consumed on the Island.

Since 2013, agriculture has become a $1.5 billion industry, with nearly 6,000 jobs created and serious talk of local production supplying 50% of consumption in as little as 10 years. Large retailers – led by Walmart – are purchasing local produce in unprecedented volumes, farmers markets have sprouted in every corner of Puerto Rico, and bank financing has passed an inflection point of growth. And to top it off, farmers have adopted cutting-edge technology that is taking per-acre yields to new heights and bringing agriculture to indoor facilities — soon to urban rooftops, as well — to compensate for the Island’s land-space limitations and usher in a new era of healthier eating and climate-conscious food security.

Agriculture Secretary Myrna Comas has led the way, but true to Bacó’s continuity vision, the momentum is now squarely in the hands of private farmers themselves.

“There is now a high level of local production,” he explains, “enough to propel the industry forward from now on and accelerate growth — with the government’s support, of course. But again, there is no way anyone can stop this from progressing. It’s in private hands now, and everyone in the industry sees the possibilities and is excited about taking us there with a great sense of urgency. It’s one of the most exciting things going on in this new Puerto Rico.”

So is manufacturing, says Antonio Medina, Executive Director of the Puerto Rico Industrial Development Company (PRIDCO).

PRIDCO is approaching the end of this term with a spate of some 20 announcements of corporate expansions

PUERTO RICO

and new market entries with millions of dollars in new investment across the Island.

Best known is the dramatic emergence of Puerto Rico as an important hub in the global aerospace industry, particularly the upcoming conversion of the former Roosevelt Roads naval base into a busy spaceport for low-orbital satellite launches and suborbital passenger flights. Medina expects the aerospace sector to reach 50,000 jobs by 2030 and become the Island’s principal industrial engine from that point forward. (See related story on Page 34) But other segments are making news, as well. Medina points to renewed strength in pharmaceuticals and life sciences, an industry hit hard by global megamergers and patent expirations. “We stopped the hemorrhage,” Medina tells INVESTinG, pointing to such achievements as the $30 million expansion of AbbVie in Barceloneta and American Industrial’s acquisition of an Arecibo plant shut down by Merck.

Tourism’s raving success in recent years and the strong prospects going forward are also widely recognized. On the hotel front, indicators such as occupancy and revenue per available room (RevPAR) are going gangbusters, with the industry collaborating with the Puerto Rico Tourism Company on everything from ad campaigns to security patrols and transportation alternatives.

The high RevPAR has spurred a new round of hotel construction, with approximately 4,000 new rooms in the works, which will bring the total to just under 18,000 in the next two years.

Cruise ship results are equally encouraging. Passenger visits set a new record last fiscal year, surpassing the 1.5 million mark — two thirds transit, one third homeport — and the numbers for the current fiscal year are expected to come in even better.

Creative Industries This is such a significant part of the Island’s diversification that Bacó singles it out as a separate arrow, though it consists mainly of companies taking advantage of Act 27, Act 20, and Act 173 incentives to export their creativity-related businesses, as well as attract film productions to Puerto Rico.

Companies in this category include architecture firms, marketing agencies, product design firms, software and app developers, film producers, the Island’s thriving music industry, and other segments.

Together, they have grown to give Santurce its unique branding and flavor as a vibrant urban hub, since so many have settled in this hipster district of San Juan.

They feature firms such as Álvarez Díaz & Villalón, the local husband-and-wife architecture and design team in Ciudadela that has grown to export its services to

places like Dubai and Mexico and recently opened an office in Miami, Florida.

They’re joined in the export boom by such standouts as organizational design firm Seriously Creative, advertising agency Populi.com, digital and web design agency Estudio 1414, artists Allora & Calzadilla, Book Publishing Group, and others.

“When Act 27 was first enacted, the focus became film production, and sure enough, Puerto Rico became a favored location for Hollywood to do its films and shows,” explains Bacó. “But for many reasons having to do with far more than just incentives, Puerto Rico blossomed as a hub of culture and creative industries with a fantastic diversity of players, and so it must be considered one of the central, private-sector-driven engines of growth in the years and decades ahead.”

Investment in High-Impact Projects January 2013 – May 2016

St. Jude Medical General Electric Avara SNC Technical Services

Actavis BMS AbbVie

Infosys Lufthansa Technik

AON Hewitt Seaborne Dreyfous & Associates Wovenware Ecolift Lilly

Truenorth Corporation Rock Solid Insight Managing Solutions

Venton

Industrias Alimenticias, Alto de SJ

Lifestyle Footwear Honeywell Aerospace MER Arlet Aviation Aspen Surgical

Destilería Coquí

Propper International Medtronic

Sartorius Pace Analytical

Covidien Destilería Serrallés Roche CooperVision

$50M

$35M

$24M

Stryker

SNC Technical Services UTC Aerospace Systems

$11M

Olein Recovery Corp.

General Electric

Medtronic Neolpharma Atento Mentor Elcom

$9.3M

$2M

$6.5M 9

Service Exports

Small Business and Entrepreneurial Ecosystem

Topping the agenda is the establishment of sizeable service companies for export from Puerto Rico to the surrounding region. The model mirrors the strategy used to attract manufacturing enterprises, but in this area the focus is service multinationals, with local notables such as Evertec and Abarca Health.

At the heart of this success is Act 20, which provides generous incentives – including a 4% corporate tax – to service companies that export from Puerto Rico. Act 20 works in conjunction with Act 22 to also attract the companies’ owners and senior executives.

The Island’s vast and lower-cost pool of service employees and management professionals — available at 30%-50% lower wages and salaries than the States— is also a major draw, as is the fact that service companies work in office buildings increasingly featuring eco-friendly building practices that bring down electricity rates and other operating expenses.

Recent arrivals include Puma Energy, PricewaterhouseCoopers, SunWest Mortgage, Santander Consumer Banking, and Atento, among others. Hundreds of smaller companies have also set up shop on the Island, which are owned by the 800-or-so Act 22 residents who have relocated to Puerto Rico.

One of them is famed investor Michael Tennenbaum, formerly of Tennenbaum Capital Markets. “I’m a big believer,” he proclaims.

“Puerto Rico has to compete using its strengths, including tourism, attractive technology, and the continued relocation of people like me.

The Island has great potential as a business hub.”

According to a recent study conducted by renowned economist José Joaquín Villamil and his firm Estudios Técnicos, service exports are expected to create more than 50,000 jobs within the next 10 years through incentives provided by Acts 20 and 22. Moreover, the latest DDEC figures show that more than 1,300 decrees have been issued under both acts since their inception in 2012.

“It’s just like what happened with manufacturing in the early days. As soon as we prove ourselves with the first few companies that come in, the world will take notice and we will become a popular investment destination from that point forward,” notes Bacó.

“Most small to medium-sized law firms practice and perform the majority of their functions in the state in which they have their main office,” says Marc Grossman, senior partner at New York-based Sanders Law Firm, which recently opened an office in Guaynabo.

“Technology and efficiencies have led firms to expand their practices geographically, [and] Puerto Rico's tax incentives and highly educated labor force create an ideal platform for law firms servicing clients all over the nation to consolidate offices and provide services in a business-friendly climate. Not a week goes by that I don't get a call from a lawyer in the U.S. inquiring about moving or expanding their firms to Puerto Rico. I would expect dozens to be heading our way in the near future,” Grossman adds.

This is easily the largest segment of all, since it features the countless small and medium-sized businesses and individual entrepreneurs, overwhelmingly local, that have become one of the principal drivers of new economic activity in Puerto Rico.

They run the gamut: technology, food service, retail, real estate, healthcare, household services, human resources solutions, transportation, domestic work, education, entertainment, legal, financial, and many others.

And just as promoters have sprung up to attract companies to the Island, a new support ecosystem has emerged to take local companies to the next level, whether their focus is purely the local market, serving as suppliers or vendors of the new companies setting up shop in Puerto Rico, creating tourism experiences for the visitor economy, or exporting in their own right.

Guayacán, for example, offers a range of services from enterprises like Springboard, REAP, I-Corps, and EnterPRize, plus the annual Venture Forum event and an ongoing Venture Accelerator.

Piloto 151, aside from offering a shared office in Old San Juan designed for entrepreneurs, delivers a Guayacán-like menu of ecosystem services under its Piloto Labs umbrella: the Founder Institute, Piloto Exchange, Codetrotters, One Million Cups, Start-ups of Puerto Rico, Women TechOver, Start-up Investment Forum, and more.

The Foundation for Puerto Rico’s Colaboratorio in Santurce also serves as a shared office center focused on tourism and the visitor economy.

Academia also plays a role in supporting small business growth. The Ana G. Méndez University System, Polytechnic University, Catholic University, the University of Puerto Rico, Interamerican University, and Sagrado Corazón University — which recently launched a state-of-the-art collaboration and innovation center in

“With operations in 22 countries, BMA has been exporting services since 2009.

The benefits of Act 20 have given us greater capacity to invest in our development and attract a new market to Puerto Rico. The world has become so small; the farther we go, the more we realize how close we actually are. Going global from Puerto Rico is not just an option – it’s a necessity for any company that wants to become a leader in its field.”

Brenda Marrero BMA Group president and CEO

“We’re exporting legal services to the Latino market in Chicago, Illinois.

Without question, the benefits of Act 20 have exponentially diversified our base of clients and referrals and have opened doors to a whole new jurisdiction.

Reaching the global market from Puerto Rico gives us the opportunity to offer legal services at a much more competitive price – and in a place that never gets cold! Doing business here really gives you the best of both worlds.”

Lcdo. Pedro F. Soler Muñiz Founder and partner of Solerlaw P. S. C.

PUERTO RICO

its Santurce campus — all host support services for local companies and entrepreneurs.

Those are all private sector-based, immune to changes in government and public policy. The government, though, has long been a major part of the ecosystem and remains highly active. The federal Small Business Administration is in with its Small Business Development Center (SBDC). Municipalities are clustered in several regional consortia.

And the local central government features several mechanisms of its own for business development and growth. One is the Puerto Rico Science, Technology, and Research Trust (the “Trust” for short), a DDEC member agency that recently underwent significant reorganization and is now focused on offering various programs to fund and support researchers and entrepreneurs — including attracting them from outside the Island — and turn Puerto Rico, as its website says, “into a globally recognized innovation hub.”

Then there’s the Puerto Rico Trade & Export Company, another DDEC agency, which is entirely focused on the Island’s 208,000 small businesses by offering its own long list of programs and incentives.

“Supporting self-employment and entrepreneurship has been one of the priorities of this government,” said Francisco Chévere, Executive Director of the agency.

A June 2016 report by Trade & Export showed an unexpectedly robust 7.1% hike in the number of self-employed individuals on the Island to a record high of 166,000 people, as well as modest growth in small business sales overall, even in the midst of the ongoing recession.

“These results validate the importance of placing microenterprises, small business, and entrepreneurship at the heart of the Puerto Rico’s new economy,” he points out.

Puerto Rico Promoters

“Puerto Rico has an ideal environment.

It’s a gateway to both the U.S. and LatAm markets. It’s home to a supportive business environment. Affordable.

The weather is fantastic.

These were all smart business people with choices. They chose Puerto Rico.”

Neil Cohen

Silicon Valley venture advisor

Marimar Lidín, director of Puerto Rico’s commercial office in Europe; Alberto Bacó Bagué, DDEC Secretary; Miguel Ángel Boix, first certified promoter in Spain; and Adolfo Rodríguez Calzada, liaison officer for Puerto Rico’s commercial office in Europe.

The new private sector infrastructure that has emerged exists to promote the Island overseas and attract business and investment.

Although the focus thus far has been on services, this segment of Puerto Rico’s economic expansion seeks to capture business from a diverse range of sectors.

There’s Puerto Rico Is The Answer (PRANS), a coalition of 200 local executives divided among 20 industries and dedicated to showcasing the Island, engaging decision makers, and providing concierge services to executives when they come to tour and site check.

The group recently partnered with the Puerto Rico Chamber of Commerce to boost its efforts. Last year, PRANS members conducted 431 promotional efforts, which in turn yielded 47 decrees approved by the DDEC and another 65 pending decrees.

Parallel 18, for its part, has become the Island’s premier start-up accelerator. Led by the team that pioneered Chile’s successful venture hub, the firm’s first full round yielded 36 companies from nine countries, and it is currently working on the next one.

Silicon Valley venture advisor Neil Cohen – invited by Parallel 18 to review and mentor their work – recently published a LinkedIn column offering some insights that highlight Parallel 18’s role in Puerto Rico’s economic growth: “The first thing that blew me away – the large number of entrepreneurs from around the world who chose to locate their new companies there. France. Spain. Chile. Colombia. Mexico. Taiwan. Even San Francisco. And yes, Puerto Ricans, too, many of them ex-pats coming home. My question to all of them: why? All had a similar answer: Puerto Rico was the ideal environment. A gateway to both the U.S. and LatAm markets. A supportive business environment. Affordable. The weather. These were all smart business people with choices. They chose Puerto Rico.”

That wasn’t Cohen’s only surprise. “For many of the entrepreneurs, it wasn’t their first rodeo. A few already had successful exits with other companies. Some had worked at larger successful companies in significant roles. This was no rookie class.” He also praised the quality of the business ideas as “world-class concepts superior to dozens of well-funded start-ups back in San Francisco. I will not be surprised if half of the companies in the first cohort quickly expand beyond the shores of this tropical paradise. Heck, one company was already profitable and working to scale to the next level.”

Yet another promotion arm is ConPRmetidos — a play on words with comprometidos, which means “committed” in English, but written to mean “engaged” (metidos) “with” (con) Puerto Rico (PR). It is an innovative diaspora web platform that connects local businesses and organizations to Puerto Ricans abroad willing to fund, do business with, or otherwise help locals grow.

Many Act 22 residents have also become significant Puerto Rico promoters, including the Act 20/22 Society based in Dorado and individual executives like Nicholas Prouty in Santurce who dedicate considerable hours and staff time pitching the Island to companies considering the move.

Ad campaign for the Puerto Rico Business Promoters program

A large part of Puerto Rico’s promotional success stems from a one-of-a-kind incentives program that rewards individuals or firms for convincing companies to export services from the Island. Certified Puerto Rico Business Promoters earn 7.5% of annual income tax paid by all Act 20 and Act 399 businesses they bring in, and 5.625% for Act 273 companies. As long as those businesses generate income tax to Puerto Rico, promoters can claim their benefits for the first 15 years after the business was established on the Island.

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Interlink Construction

“Instead of thinking about moving our business out of the country, Act 20 has helped us refocus our energy in a positive and substantial manner.

The ability to offer services outside of Puerto Rico not only contributed to our company’s survival but also its expansion; to date, we’ve developed designs for places in the United States, Latin America, Central America, the Caribbean, and even locations as remote as the Middle East.

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President of JLS Ventures

Five arrows that point towards progress With five gears working together to advance Puerto Rico’s economy, the stage is set for a powerful industrial revolution akin to the manufacturing boom the Island experienced some sixty years ago, and which allowed Puerto Rico to develop the sophisticated market it hosts today. This time around, however, the forces that will elevate the Island’s economy to the next level won’t consist of long assembly lines or giant worker-filled factories.

The new transformation will be subtler, yet just as robust.

It will be driven by technology but geared towards services.

And perhaps most importantly, it promises to create jobs by the thousands by taking advantage of Puerto Rico’s highly trained and educated human capital.

“The foundations are still here. Our educated people, our beautiful Island, our culture, and our ability to legislate key incentives have always been present. What we’ve done is reorganize these amazing assets to make us competitive again. We’ve made those five arrows point to each other to create a symbiotic economy that will take us to the forefront of the 21st century and beyond,” exclaimed Bacó.

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Justin Schreiber

Investment in Hotel Development t sor Re

demands of the global market. For anyone looking to expand their business, increase profits, gain a competitive edge, and enjoy a superior quality of life, Puerto Rico is the place to be.”

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“We’re shareholders in two companies covered

by Act 20. One of these companies exports financial consultancy services to emerging businesses, and the other exports services in administration, marketing, and customer service for a company catering to online consumers. I was able to move my entire enterprise to Puerto Rico in order to reap the benefits of Act 20 and find the qualified employees I needed to complete the transaction. As a result, we’ve increased our revenue and have gained greater flexibility to invest in our growth instead of putting those funds toward taxes. The benefits are incredible and give us an enormous competitive advantage.

Puerto Rico offers a remarkably productive environment, where we work with an excellent source of talent that understands the value and

MILLION Keith St. Claire

By launching our business into the international market, we have the opportunity to stay in Puerto Rico, which boasts a higher quality of life, lower costs, a cost-efficient labor force, and excellent education. On the Island, we can offer world class services at highly competitive prices.”

Ricardo Álvarez Díaz President of Álvarez Díaz & Villalón

15

INCENTIVES

ACTS

20/22: The Future is Now

W

ithout a doubt, one of the greatest turning points in Puerto Rico's new diversified and globalized economy was the passage of the "20/22 combo," a pairing of strategic laws with multiple opportunities for international and local businesses that has been unfurling the red carpet for service exportation, local investment, and business creation for the past five years.

Act 20 offers eligible businesses a wealth of incentives, including a fixed tax rate of 4%; a 100% tax exemption on dividends derived from export services; a 20-year guarantee of these rates; and a significant reduction in municipal and property taxes. At the same time, Act 22 provides new residents in Puerto Rico with a 100% tax exemption on eligible income from dividends and interests, as well as a 100% exemption on all long-term capital gains accrued after relocation.

7,033 3,349

Promise of dramatic development Propelled by the private beneficiaries themselves (beyond official efforts), these laws are indisputably meeting their objectives — driving development and strengthening government revenue in Puerto Rico, with projections in the billions by 2024.

These advances are truly a testimony of progress, represented by the more than 1,300 decrees to date that have demonstrated the country's socioeconomic potential and could multiply exponentially in the next few years.

Additionally, if the numbers truly speak for themselves, the employment predictions related to these laws are proof enough: the creation of 56,000 jobs — mainly specialized and well-paid positions — in just a decade.

These numbers are not speculative. They come from a recent, in-depth study that the Puerto Rico Department of Economic Development & Commerce (DDEC) assigned to Estudios Técnicos, Inc. (ET), one of the most prestigious economic research firms on the Island, headed by José Joaquín Villamil as president of the board of directors.

According to ET, an analysis of the 2014 annual reports (including both companies and individuals with decrees) along with other information provided in the decree applications substantiates the huge impact that both laws have had on job creation. This study allowed for an estimate of jobs created, tax revenue, investment, and consumer expenditures.

By November 2015 — the study’s data collection deadline — the government had approved 328 decrees under Act 20 (incentives for the exportation of services) and 574 decrees under Act 22 (incentives for individual investors who relocate to the Island).

2012

33

2013

53

2014

126 316

2015 2016

Total jobs (direct, indirect, and induced)

600 *

470

ACT 22

Total direct jobs

$137.1M Total payroll

$42,496

2012 2013

Average salary

ACT 20

$1.2 BN

Economic Impact

Total revenue generated by Act 20 companies

2012-2015

$34.4M

Corporate tax revenue

PUERTO RICO

A growing number of approved decrees ACT 20

18 129 263

2014

353

2015 2016

849

*

1,000

* Projected estimate for December 2016 Data provided by the DDEC

17

Act 22 Economic Impact

Advantages for export services Villamil stresses that “the exportation of services generates high value-added investments and top-quality job opportunities, as the average annual salary is roughly $45,000 per job, totaling approximately $137 million in payroll from 7,033 direct, indirect, and induced jobs at the time of the study. Employment in the technical services industry increased 6.4% from 2012 to 2014. This may be attributed to Acts 20 and 22, since many of the investors benefitting from these laws are engaged in such activities.”

ET's research explains that “the principal activities of the companies benefitting from Act 20 are related to consulting in financial services, advertising and public relations, centralized management, professional services (legal, tax, and accounting), software and engineering development, and construction design. Approximately 80% of the companies with decrees are from overseas, while 20% are local.”

In addition, the ET study shows that companies enjoying the benefits of Act 20 have already reported nearly $1.2 billion in revenue since the law was enacted, with a net income of $563 million, an amount equivalent to approximately $34 million in corporate tax revenue. Over 50% of exports are directed to the U.S. market, followed by Dominican Republic and Mexico.

Given these favorable trends, Villamil estimates that “by 2024, there will be an additional 3,500 decrees issued under Act 20, resulting in 44,656 employment opportunities. Payroll is estimated at $3.1 billion and corporate taxes at $800 million. Export activities promoted by Act 20 spell great potential for the local economy, given the high level of mobility in the service economy. The economic impact of revenues generated through Act 20 could represent approximately 1% of Puerto Rico's GNP.”

2012-2015

Multisector impact of nonstop investment

ET’s data also reveal that the majority of decrees issued under Act 22 are for consultants, business owners, entrepreneurs, and investors, particularly in the financial sector. Of these, 89% reported having previous residence in the U.S., with the remaining 11% formerly living in Venezuela, the United Kingdom, and Spain, among other countries. The greatest economic impact of Act 22 manifests itself in local real estate investment (especially residential), amounting to approximately $266 million, predominantly in the muni- cipalities of Dorado, Humacao, Río Grande, and San Juan.

“Activities by companies benefitting from Law 22 have generated some 2,483 jobs on the Island. But we estimate that by 2024 there will be approximately 4,000 decrees approved that could create 11,945 jobs. The value in real estate acquired by then is estimated to be $1.7 billion and the potential expenditures of investors currently around $73 million - could be over $830 million,” Villamil foresees.

The ET study also confirms a promising “caveat”: maintaining the incentive programs provided by Acts 20 and 22 could benefit the local economy even more if the effects derived from these decrees are leveraged. “These policies, in conjunction with other efforts to promote

even more extensive results, have enormous economic development potential within an export-oriented economy,” says Villamil.

Does ET have recommendations for generating greater economic growth with the support of these laws? Absolutely. Their advice includes reviewing job creation and investment requirements; encouraging more local companies to obtain decrees; integrating Act 20 into a wider framework for developing local start-ups; and using Act 22 to promote the influx of foreign entrepreneurs engaged in activities that are eligible for Act 20 decrees.

Foundations for a diversified economy DDEC chief Alberto Bacó Bagué added, “The study shows that Acts 20 and 22 attract companies and individuals who help produce well-paying jobs in various sectors. The foundations for a diversified service- and export-oriented economy are being put in place.

“We are confident that the incremental impact of these laws will contribute to the revitalization and globalization of Puerto Rico's economy. There is a long road ahead, and implementing the measures to address fiscal issues is essential. But, at the same time, we need to prioritize initiatives that will attract capital, promote the exportation of services, and present Puerto Rico as a business and investment destination,” concludes Bacó Bagué.

MOVING ON UP: UPWARD TRENDS WITH ACT 22 $228.4 M

Planned capital investment

$73 M

Total spending by Act 22 participants

$7.2

MILLION

52%

Percentage of Act 22 participants who have established a business in Puerto Rico

2,483

Jobs generated by Act 22 businesses

1-year value of rent

$1.8

$266.3

$50+

Average property value

Total value of purchased properties

Residential mortgages that used local banking services

MILLION

MILLION

MILLION

(excluding Act 20 businesses and domestic work)

PUERTO RICO

19

TECHNOLOGY

Puerto Rico: The

KNOWLEDGE

CAPITAL

of the Caribbean

I

f there’s a bet to be made on the next “hot spot” of innovation in Puerto Rico, chances are the money has already been put down on Science City. Think of it as a kind of “Promised Land” for a vast number of investors in constant search of groundbreaking ventures – an innovation hub unlike any other in the Caribbean. Backed by the financial and institutional support of the Puerto Rico Science, Technology & Research Trust (FCTI by its Spanish acronym or the Trust), this mega-project is well underway and growing at a remarkably fast pace.

So fast, in fact, that the organizational structure of the Trust has already evolved from a single unit to a complex and diverse network of interconnected entities all aiming for a common goal: to advance Puerto Rico’s economy and wellbeing through innovation-driven enterprise. INVESTinG Puerto Rico sat down with Lucy Crespo, chief executive officer of the Trust, and Iván Ríos, chief operating officer, to get the inside details on this promising endeavor.

“Based on our experience and the talent of our human resources, there is ample investment opportunity in the development process for both biotechnology and medical devices,” notes Crespo. “Science City not only capitalizes on all the legal benefits that Puerto Rico currently offers; it also operates within Law 214, which created the Trust in 2004 and extends important tax exemptions to high-level researchers and scientists. It goes without saying that these exclusive benefits greatly facilitate the process of transferring and establishing companies on the Island.”

Conceptual design of Science City

Irresistible Menu for Investment Capital Crespo describes the FCTI as a giant jigsaw puzzle that continues to take shape as it incorporates new pieces, almost all of which represent significant investment areas.

“We’re currently in the process of developing two million square feet of land in Río Piedras (a part of San Juan), which includes Science City,” explains Crespo. “In terms of infrastructure, it’s an amazing opportunity for master developers, who have already been well-received in the RFP process. After thorough consulting, we’ve secured a privileged location primed and approved for new mixed-use development, including: biotech centers, facilities for medical devices, laboratories, medical schools, entities associated with the health industry in general, around 5,000 residential units, businesses, and more.”

And who will be the developer of Science City? “We’ve received responses from three interested firms – all from the United States – and our goal is to decide who will take on this responsibility by the end of July. Although we’re looking for a long-term commitment, right now the focus is on determining the project phases that are already on the table. We’re talking about what would be a city symbolizing all of our ecosystems of innovation, technology, and

science,” clarifies Crespo. And, as a sneak preview of what’s to come, she reveals that “the first ‘anchor tenant’ will be a biopharmaceutical center for excellence.”

Crespo goes on to say that “Science City also offers exceptional possibilities for other investment initiatives. If you stand in the center and look around, there are more than 10 hospitals within a five-mile radius, including the headquarters of Molecular Sciences – a nucleus of advanced scientific research, particularly in the life sciences – and the new Comprehensive Cancer Center, which is in its final phases of construction.”

One after another, new infrastructure projects are constantly emerging as a result of the Trust. Great progress has already been made on the so-called Laboratory Way, including a highway route and the infrastructure for water, electricity, and fiber optic. Authorization is imminent for the eco-friendly Environmental Sciences Laboratory, an iconic site for the Puerto Rico Environmental Quality Board to undertake new research (with 20% of its capacity/operations allocated for validations, certifications, and private studies), and they’re putting the final touches on the design for impending projects from the Sciences Boulevard.

100+

RESEARCHERS have benefitted from the research funding program since 2014

15,000+

MILLION for investments in infrastructure and research

PEOPLE have participated in entrepreneurial initiatives and networks led or supported by the FCTI 21

100

%

Percentage of financing provided by the FCTI for research scholarships

Investment Options Beyond the Building According to both Crespo and Ríos, the FCTI’s ambitious grants program presents another wide range of opportunities to researchers “to ensure that they have a solid forum to work with. As of now, 100% of the funding stems from the Trust, but we’re in the process of creating an online platform so that investors financing scientific research – pharmaceutical endeavors, for example – can present and develop their programs with our logistical support.”

The FCTI’s recently established initiative, parallel 18 (see page 28 for more information), offers yet another platform with great investment potential as a business accelerator for emerging companies. Currently, there are 36 of these emerging enterprises – including 12 from Puerto Rico – which primarily focus on products and services in the IT and technology sectors.

“In these cases,” explains Crespo, “it’s important to highlight the active role that consultants have played both in their advisory capacity and, simultaneously, as investors or facilitators who create an ecosystem of opportunity sharing among investors.”

“Additionally, we’re taking full advantage of the Small Business Administration (SBA) programs as well as other U.S. federal options, predominantly via small business innovation grants that, depending on the respective business phase, can

PUERTO RICO

provide up to $150,000 in funding. Many people aren’t aware that any company in Puerto Rico that has less than 500 employees and is involved in some kind of development can apply for these funds. Historically, the country hasn’t taken advantage of these financial resources, and we have to change that. To this end, the Trust has a network of consultants to refine new proposals,” clarifies Crespo.

For his part, Ríos highlights the Technology Transfer Program, which “continues to forge alliances with universities, students, researchers, industrial sectors, and investors in order to capitalize on academic research and intellectual property in universities. This is a key program that also allows us to determine whether a patent is needed to move forward with an idea – a process that is generally quite costly and time consuming.”

In light of these opportunities, the new Tech Transfer Office (OTT by its Spanish acronym), led by David Gulley, recently entered into a new collaborative agreement with the Ponce School of Medicine, among other institutions of higher education in Puerto Rico, that will facilitate the development and commercialization of the most promising research in the country.

All Minds on Deck “The Trust envisions a modern Puerto Rico aimed at harnessing the power of the best and brightest minds. As such, our objective is to ensure access to the training and understanding necessary to assess and capitalize on intellectual property. To do so with a high probability of success, we’ve developed a rigorous vetting process involving 100 interviews on average,” Crespo says.

That’s right – 100 interviews. It’s just part of the thorough system that the FCTI has in place to pinpoint commercially viable products and services through the I-Corps program – an intensive 13-week course designed by the U.S. National Science Foundation and carried out locally together with business incubator Guayacán Group and Georgia Tech. In general, the I-Corps teams comprise three main members: a primary researcher, a business leader, and an advisor.

With 15 participating groups, Puerto Rico has just finished the third of these strategic training sessions. “It’s just one of many initiatives – like the ‘start-up weekends’ that bring in and collaborate with multiple universities – that we’ve created in an attempt to reach out and train those who have innovative ideas ready for development and commercialization,” maintains Crespo.

To illustrate, Crespo points out that the University of Turabo has just inaugurated ACT Global, a public/private multi-sector business accelerator that focuses on the development of avant-garde installations.

Participants in this initiative can expect a great deal: business plan consulting, areas designated for the physical development of products, and laboratories for scientific research.

There was also a part for the Puerto Rico Center for Tropical Biodiversity and Bioprospecting, an organization consisting of “a group of experienced researchers that, to a large extent, draw from the enormous collections of compounds from our own marine environment, as well as our tropical flora and fauna, to carry out their studies. Since many of these specimens have medicinal properties, they are ideal potential sources for marketable products,” says Crespo. “Consequently, the Trust has taken up the task of structuring, cataloguing, and digitizing the information derived from the Center’s work in this area. We’ve been in conversation with companies that specialize in such undertakings (such as the Spanish company Farmamar, in the oncological field) to establish collaborative agreements and explore new business opportunities.”

“We’ve managed to integrate a wide range of projects that vary in magnitude and reach…

It’s a sort of conglomerate that continues to create synergy among companies of all sizes – large, medium, small, even start-ups.”

Lucy Crespo CEO of the Puerto Rico Science, Technology & Research Trust

23

A Lasting Footprint on Research In conceptual and operational terms, the FCTI leader confirms that “the new Puerto Rico Consortium of Clinical Investigation (PRCCI) ranks among the most important Trust endeavors yet. This monumental cooperative force is primed to deliver the most significant impact of all the FCTI initiatives, particularly in research development and economic impact. It would offer Puerto Ricans access to novel medical treatments, especially for health conditions originating from the region or that have a higher incidence rate at the local level versus other areas. We’re creating contagious enthusiasm for this kind of research, and the next step will be training and recruiting doctors.”

Given the growing tendency toward bioinformatics, PRCCI is using an arrangement common in the pharmaceutical and biotech industries known as the Clinical Trial Management System (CTMS), an integrated platform for the super efficient management of data. “The future of medicine,” notes Crespo, “is intimately connected to bioinformatics.”

She goes on: “With a project of this size and scale, we’re launching Puerto Rico onto the scene as a regional and international base of clinical research in the life sciences. We’ve even obtained the support of the main entities defending patients’ rights in the U.S. It’s a unique opportunity for Puerto Rico to integrate itself into the value-added chain, and it presents an extraordinary area for continuous investment, especially for people connected to clinical research organizations (CROs) and clinical management organizations (CMOs). As the saying goes, we either ‘innovate or die.’ And we’re putting it all on the line for the former.

“We started these activities with 12 well-established companies. Thus far, we’ve received 65 opportunities for clinical trials and of these, five are in progress. Additionally, four patients – our heroes – have decided to share their success stories in these extremely regulated processes, which has given our efforts a uniquely personal touch. Our goal is to move toward patient-centered care that revolves around anticipating and preventing diseases, rather than merely diagnosing and treating them,” affirms Crespo.

According to the FCTI leader, “in the coming years, new medical advances will allow us to classify diagnostics and treatments on a molecular level, which could then be personalized to treat our specific illnesses. This personalized and predictive medicine is one of the primary initiatives promoted by President Obama. With an emphasis on patients, their safety, and high-quality medical research, PRCCI aims to increase access to innovative medicine and therapy with the goal of ensuring that the Hispanic population is adequately represented in this progress.”

Consortium of Clinical Investigation Board of Directors

From left to right: Dr. José Rodríguez Orengo, senior consultant of the Puerto Rico Consortium of Clinical Investigation (PRCCI); Lucy Crespo, CEO of the Puerto Rico Science, Technology & Research Trust; and Dr. Kosmas Kretsos, executive director of PRCCI. (Photo by José Madera).

Through the Consortium, the FCTI will also help scientists negotiate contracts, manage their proposals, and find approaches to expedite research procedures. To champion the advancement of this powerful initiative, the FCTI has delegated responsibilities to two experienced associates: PharmaSeek (based in Texas) on the operational side and TCRG (based in Wisconsin) to handle marketing and quality management.

As part of the Consortium, the FCTI will create a far-reaching network of data with potential groups of patients for specific types of studies, which will facilitate the process of recruiting volunteers for the trial procedures.

After all, the FCTI developed the Consortium as a collective tool and forum through which research groups can maintain an open line of direct communication and share not only results but also experiences within the clinical field. And their overarching goal? To collectively determine the best techniques in order to achieve optimal health outcomes. At the moment, PRCCI’s areas of interest include oncology, infectious disesases, neurology, endocrinology, cardiology, and dermatology, among others.

During the first phase, the Consortium established formal partnerships with various professionals and clinical research centers, including: Inspira, Renal Health, GCM, Grupo Dermatológico, Fundación de Investigación, Dr. Alma Cruz, and the Hima Hospital Group.

“This Consortium,” Crespo concludes, “marks another notable accomplishment for us as we strive to invest in, facilitate, and increase the Island’s capacity to drive the local economy forward.”

Dr. Kosmas Kretsos Executive Director Kretsos has been a strategic consultant for PricewaterhouseCoopers in London, with renowned clients ranging from global pharmaceutical and medical device companies to venture capital firms to public policy organizations.

Dr. José F. Rodríguez Orengo Senior Consultant Professor of the Department of Biochemistry at the University of Puerto Rico’s School of Medicine and expert on clinical research since 1993, specializing in –among other topics– the pharmacological aspects of medicine for pediatric patients with HIV.

Dr. Kenneth S. Ramos Professor of Medicine at the University of Arizona and member of the National Academy of Medicine Dr. Lester Ramírez López Retired general of the U.S. Army and U.S. Army Medical Research and Material Command Gil Medina Vice president of CBRE and trustee of the FCTI Dra. M. Larissa Avilés Santa Official from the National Heart, Lung and Blood Institute

25

A Singular Experience

“The most innovative proposals will have the opportunity to launch their ideas onto the startup scene with Singularity Labs facilitating the business acceleration, in order to receive venture capital funds from the community of Silicon Valley investors.”

Simara Laboy Winner of Singularity University’s Global Impact Competition

How can we identify the proposals for the most innovative technological solutions, ones that can increase the quality of life for billions of people across the globe during the next five to ten years? This is the question that Singularity University (SU) of Silicon Valley seeks to answer. The institution is already building a name for itself in Puerto Rico with its Global Impact Competition, which debuted on the Island this year in an effort to pursue the best innovations.

The competition arrived after huge successes in other countries, such as Peru, Mexico, Chile, Norway, Argentina, Italy, and South Africa, among others.

SU managed to reach Puerto Rico’s brightest entrepreneurs, scientists, architects, and students through an open call for proposals publicized by the Puerto Rico Science, Technology & Research Trust (FCTI by its Spanish acronym or the Trust). The challenge? To generate the most innovative solutions to problems in the world’s most vital areas: education, energy, environment, food, health, economic wellbeing, security, water, space, natural disaster preparedness, and governance.

After rigorously vetting and evaluating the 20 participants who responded to the first open call, three contenders were selected for the final round: Simara Laboy López, a doctoral student of analytical chemistry at the University of Puerto Rico; Wilfredo Méndez, a professor of architecture at the Catholic University of Ponce; and Jocelyn Javernick, a businesswoman who works in drone and sensor engineering.

In the end, victory belonged to Laboy, who – at only age 22 – put forth a project to create technology to purify water contaminated with nitrates, providing clean water to millions of people who currently lack access. The need for such a technique could not be more urgent: it’s estimated that 57% of the world’s population lacks access to potable water or consumes polluted water out of necessity, often resulting in illness and/or death.

Consequently, Laboy has been invited to participate in an intensive session orchestrated by the Global Solutions Program (GSP) in the Silicon Valley, with all the costs of enrollment, travel, housing, and basic necessities for 10 weeks covered by a grant from the FCTI. The most innovative proposals will have the opportunity to launch their ideas onto the startup scene with Singularity Labs facilitating the business acceleration, in order to receive venture capital funds from the community of Silicon Valley investors.

For his part, Méndez submitted a proposal to design and build structures with materials that instinctively respond to their surroundings, especially those that imitate nature. More specifically, he aspired to construct buildings with malleable properties and shapes that could adapt to earthquake conditions to improve safety for thousands of people that live in highly active seismic zones. The final contestant, Javernick, proposed to develop affordable and sustainable drones that could trace maps and monitor rivers across the globe, with the goal of identifying those bodies of water that require decontamination.

Overall, the outcome of the competition exceeded expectations: the final proposals showcased cutting-edge tech based on artificial intelligence, robotics, and bioanalytical chemistry to address global issues facing the environment, access to water, and natural disaster resilience.

“Right now, many innovators in Puerto Rico are developing fantastic ideas in anonymity and without adequate resources. The Global Impact Competition allows us to identify these people and provide them with a powerful platform to broadcast their projects to the rest of the world. The competition also seeks to inspire entrepreneurs and encourage them to continue researching, innovating, and developing novel technologies,” explains Iván Ríos Mena, chief operating officer of the Trust and the main organizer of the event in Puerto Rico.

“Through this initiative, we are positioning Puerto Rico as a global player in innovation for the very first time. The creativity of the participants, their vision, their enthusiasm, and the quality of their projects serve as ample evidence of the Island’s enormous potential and trajectory in research and technology,” adds Lucy Crespo, chief executive officer of the Trust.

Founded by Peter Diamandis, creator of XPrize, and Ray Kurzweil of MIT, who currently serves as Google’s director of engineering, Singularity University is an academic institution located in NASA’s Research Center in the Silicon Valley. Each year, it selects 80 brilliant minds from around the world to participate in its Global Solutions Program.

Brain Trust:

TAKING SCIENCE TO A WHOLE NEW LEVEL The Puerto Rico Brain Trust for Tropical Disease Research and Prevention, an initiative of the Puerto Rico Science, Technology & Research Trust (FCTI by its Spanish acronym), recently coordinated another intense workshop to analyze the feasibility of controlling or eliminating the Aedes Aegypti mosquito through a strategy known as integrated vector managment (IVM).

For decades, Puerto Rico has been relentlessly afflicted by mosquito-borne illnesses, with thousands of cases of dengue and chikungunya reported every year. And on top of that, the Island now has to cope with the arrival of the notorious zika virus, which has precipitated an urgent need to identify an efficient way to either control or eradicate this mosquito as soon as possible.

For the most part, the spread of the above diseases can be traced back to the bite of this particular mosquito, which constitutes only 1% of Puerto Rico’s total mosquito population, but is practically the only culprit responsible for the transmission of these tropical illneses. For chikungunya and zika, outbreaks not only threaten public health but also result in notable economic losses by discouraging tourism, attendance at sporting events, and international conferences, among other activities.

The FCTI-supported workshop convened a diverse group of international scientists (epidemiologists, entomologists, ecologists, etc.), experts on mosquito control, and public health professionals. During the event, over 30 participants carefully evaluated the efficacy of various physical, chemical, and biological methods to rein in this disease-carrying species. Of particular interest were techniques generating more immediate effects, such as the reduction of reproductive opportunities, the integrated use of pesticides, traps and larvicides, and other sterile insect techniques.

This informative workshop was created to bring experts together with the goal of devising a management manual that could be implemented to control or eliminate problematic mosquitoes in Puerto Rico. The aim is to develop a powerful, multi-intervention strategy that would increase the Island’s capacity to sustainably contain the Aedes Aegypti population, with swift results that can be maintained in the long run.

27

ENTREPRENEURSHIP

Parallel18:

Innovation from the heart of Santurce

B

ehind the scenes of Puerto Rico’s well-known investment landscape, another set of initiatives is brewing, ready to transform the Island into a hub for innovative start-ups from all over the world. The value proposition is simple: Puerto Rico offers a Latino culture with U.S. legal infrastructure; a geographic location with easy access to the hemisphere’s main business centers; and enticing tax codes to facilitate expansion into international markets.

This is the message that Parallel18 (P18) —a program of the Puerto Rico Science, Technology & Research Trust (“the Trust” or FCTI by its Spanish acronym) in conjunction with the Department of Economic Development and Commerce and the Puerto Rico Industrial Development Company (PRIDCO)— has been spreading since December 2015.

With two open calls already completed, this start-up accelerator has gotten hundreds of entrepreneurs from over 40 countries to consider Puerto Rico as a place to operate and expand their businesses.

Located in the Santurce district of San Juan, the P18 office hosts a modern workspace adorned with colorful murals created by the same artists who spurred the comeback of visual arts in this neighborhood through the event, Santurce es Ley (which literally translates to “Santurce is Law”).

Across from the murals, businesspeople from Puerto Rico and another nine countries are working at their computers or chatting in groups about their companies. While artists have breathed new life into the area, these are the individuals whose creative efforts have put Santurce on the map through entrepreneurship.

From April to August, the 36 companies that accepted P18’s first open call for start-ups churned out very promising results. It’s worth noting that these start-ups—as well as the 507 companies from more than 44 countries that have already applied for the second—must have been established less than three years ago. P18’s criteria also stipulates that these enterprises must aim to create a global impact and possess at least one innovative component.

“We don’t discriminate based on the type of technology that the business uses. We welcome all kinds of companies, from those focused on biotechnology, clean energy, and applications to those Sebastián Vidal, Director P18 geared toward fashion, beauty, and food. They’re not necessarily traditional start-ups; the spectrum is much wider now,” clarifies Sebastián Vidal, director of P18.

And in reality, the whole concept of start-ups has changed drastically in recent years, with the term now covering projects that are potentially capable of being scaled-up to a global level in a very short time frame, with costs that are generally constant. “To produce company growth, the belief used to be that you had to buy a factory, hire 20 people, and then launch the business, which required more capital, more time, etc.,” explains Vidal, who directed the very successful Start-up Chile program in his home country before coming to the Island.

Vidal points out that the original idea behind start-ups usually evokes the image of a group of engineers jointly working on a solution that does not require a great deal of infrastructure. From there, it can be disseminated throughout the world while reducing costs, exponentially increasing revenue, and growing user activity.

However, the start-up concept is fluid and constantly evolving.

Currently, the main accelerators continue to advance the traditional notion of a start-up but also add a research and development component to help scientific projects access the global market more quickly.

“Scientific projects have the potential for global reach and thus must move quickly. We’re also working toward making that happen at Parallel18. The goal isn’t just to boost tech companies; we’re constantly developing strategies to assist multiple segments,” adds Vidal.

The selected businesses receive a $40,000 grant, but money is not the primary incentive that attracts them to P18, given that 70% of them are already making a profit and the majority has received some type of investment capital. For these companies, the greatest draw is the opportunity to be professionally mentored —both individually and in groups— by veteran businesses, as well as the capacity to enter a market that operates the same way as the U.S.

The value proposition is simple: Puerto Rico offers a Latino culture with U.S. legal infrastructure; a geographic location with easy access to the hemisphere’s main business centers; and enticing tax codes to facilitate expansion into international markets.

29

Crisis? What crisis?

Despite the bad press around Puerto Rico’s fiscal crisis that has circulated throughout the world, P18 has generated quite a bit of interest within the global innovation and entrepreneurship community.

“There’s a circle of entrepreneurs and innovators who aim to do things differently — and who don’t get caught up in the traditional news headlines. They’re interested in what’s real and concrete, and in that sense, Puerto Rico has a lot to offer them,” Vidal contends. To back this claim, he points out that at least 10% of companies from the first open call have already confirmed their plans to maintain some presence on the Island.

“Among the many valuable benefits that these participants have gained as a result of their experience in Puerto Rico, the opportunity to collaborate with their peers stands apart. The ease with which they’ve been able to amass business contacts is impressive, and it’s all accomplished in a concentrated market that’s connected to the U.S. and Latin America. The Island is an excellent place to scale-up their respective businesses,” explains Vidal.

As an example, take the young couple Stefan Maganto and Vivian Vargas, creators of an app called Burea, which enables users to redeem discounts. They have taken full advantage of their participation in P18, voicing that it has been a great opportunity to share and network with businesspeople from Argentina, Colombia, Portugal, Ireland, Mexico, and the United States, among others.

5

“The people here have such a positive energy about them, and many see a market for their products in Puerto Rico. Even though the impact of Parallel18 is still relatively small, having this group of crazy, passionate people from all over the world really enriches Santurce.

They bring fresh ideas that could help improve the Island.”

Stefan Maganto

Co-founder of Burea

7 s 0 n o i 5 icat 2 l App Round

44 +22% Increase in applications

Round 1 vs. Round 2

PARTICIPATING COUNTRIES Top 6 • Puerto Rico • United States • Chile • Argentina • Spain • Ghana (the biggest

surprise with six applications)

29%

Percentage of female applicants

MAIN INDUSTRIES

• E-commerce • IT and Enterprise Software • Education • Health and Biotechnology • Media and Publicity

415

Applications Round 1 PUERTO RICO

31

A positive impact on the university scene Another important benefit of P18 stems from the collaborative framework that it maintains with diverse universities on the Island, with some 30 students now serving as interns for the participating businesses.

“Having access to such a quality pool of young talent has been a giant differentiator for the companies at Parallel18. At the same time, these students get to see the employment opportunities available in entrepreneurship and in collaboration with smaller businesses that boast a more fun and efficient culture,” Vidal emphasizes.

Looking ahead, the challenge for Parallel18 will be to continue producing entrepreneurs in Puerto Rico. “We have to foster and maintain a steady stream of local entrepreneurs, and it’s not just the responsibility of Parallel18; everyone in Puerto Rico is responsible as well. Universities in particular have to be on board in order to instill the idea in their students that starting their own business is an option just as valid as going to work for large corporations. And as a bonus, you’re helping out your country,” contends Vidal.

In line with these aspirations, the good news continues to roll in: the majority of the applicants for the second open call are local. It’s a solid indicator that, in spite of fiscal woes, a new generation is ready and willing to put in the effort to move their businesses —and Puerto Rico— forward.

“We have to foster and maintain a steady stream of local entrepreneurs, and it’s not just the responsibility of Parallel18; everyone in Puerto Rico is responsible as well. Universities in particular have to be on board in order to instill the idea in their students that starting their own business is an option just as valid as going to work for large corporations. And as a bonus, you’re helping out your country.”

Sebastián Vidal P18 Director

Agricultural start-ups in full bloom As the world’s population grows, global agriculture is increasingly turning to technology to meet the challenge of feeding Earth’s seven billion inhabitants in a sustainable manner. Two of the companies in the business accelerator Parallel18 substantiate the notion that the agricultural sector could benefit from technological innovations to improve operational efficiency and performance.

One of these companies, E-Farm, LLC, is breaking free of convention in other ways as well; its founder, José Nolla of Puerto Rico, is just 15 years old. Nolla’s mission is to connect consumers of healthy food to farmers that produce organic products in a sustainable, eco-friendly way.

The idea emerged when Nolla noticed how difficult it was to get fresh, organic food on the Island and discovered all the restrictions that agroecological farmers face to sell their goods. To address these issues, E-Farm is currently in the process of developing its technological platform and has already garnered the support of over 70 farmers and around 300 consumers interested in utilizing the app as soon as it’s available.

Following suit is UAV-IQ Precision Agriculture, a company created in California and first launched in Chile. The enterprise seeks to offer a complete centralized service for the collection, analysis, and administration of agricultural data using remote sensors and drones.

Produced with vineyards in mind (but apt for any field), this technology allows business owners to enhance the decision-making process with respect to their products, as it offers the capacity to constantly monitor their crops via mobile platforms. This innovation not only helps owners identify issues in the field as soon as they arise but it also could spur the creation of specific management techniques for each crop.

A unique gateway for startups to scale from Puerto Rico

Equity-Free Funding

Acceleration Program

A Place To Call Home

USD $40K to help your company grow and get to the next level.

5-month mentorship, training, and access to advisors that will help you boost your company.

Co-working space in a vibrant and urban environment, with super-fast internet and a few blocks from the beach in sunny Puerto Rico.

Pack your glasses and join us in this new dimension at www.parallel18.com

HIGH IMPACT PROJECT

ROOSEVELT ROADS REBORN

Major development projects on the horizon for the former naval base

F

or investors around the world, Roosevelt Roads (RR) offers a one-of-a-kind opportunity. Not only does the area encompass vast amounts of land with world-class facilities (including superior docks); it also provides an exceptional space in which investors can fully take advantage of Puerto Rico’s fiscal incentives. Acts 20 and 22 in particular have been instrumental in promoting exports and attracting capital via income tax benefits for individuals who move to the Island to establish or expand their businesses.

The development activities at RR —a former U.S. Navy base located in the town of Ceiba— have instilled a renewed sense of enthusiasm in the government and the community, as various projects begin to take shape and demonstrate the region’s potential for a major economic revival.

Two of the larger projects indicate big plans for the area’s maritime industry. Late last year, Mid-Atlantic Shipyards signed a contract for the development of a multi-tenant shipyard facility in the base’s dry dock area to build, repair, and provide maintenance to ships. This $25 million project is expected to create more than 250 jobs.

Meanwhile, Marine Environmental Remediation Group (MER) has already hired more than 200 people to build a ship dismantling and steel recovery enterprise that could see investments totaling over $4 million during its first stages of operation.

Additionally, the Puerto Rico Conservation Trust —through its Para La Naturaleza unit— will develop a welcome center for visitors that will also serve as a site for eco-tours and its “Scientific Citizen” program (“Ciudadano Científico” in Spanish), which allows individuals without formal scientific training to participate in field research and explore Puerto Rico’s rich biodiversity.

Smaller businesses offering ecotourism activities —such as diving, boat tours, kayaking, bird watching, and local gastronomic experiences— have also set up shop on the base. All this economic activity bodes well for the ambitious master plan established for RR; the next step is securing the right master developer to oversee the project.

Although the search has not been easy, it has not stopped the incredible momentum of development at RR. When negotiations with Clark Realty and Ariel Investments did not result in a master developer contract, the Local Redevelopment Authority (LRA) for Roosevelt Roads went ahead

and took charge of implementing the project, which has enormous potential to establish prosperous commercial activity, real estate, tourism, and light industrial operations on its expansive 3,400 acres of land (nearly 14 million square meters).

“The master plan is already in place, and the infrastructure has been evaluated; we estimate that the initial investment to improve the area’s electric, water, and road systems will be about $250 million, while the total investment during the next 20 to 30 years is expected to exceed the $3 billion mark,” noted Malu Blázquez Arsuaga, executive director of the Roosevelt Roads LRA. Due to Puerto Rico’s fiscal challenges, the government has not been able to invest as much as it would have wanted in the project’s infrastructure, which is why the LRA has been searching for a master developer.

“We want to design a vibrant space where people can live, work, and play. Our plan envisions the creation of an area characterized by mixed-use development concepts and close proximity to beautiful coasts, El Yunque rainforest, and other areas of high ecological value. Right now, our focus is on finding the most qualified developer to evaluate the master plan so they can prioritize our projects according to market demand, with residential options for all income levels,” Blázquez explained.

There are more than 1,000 vacant residential and commercial buildings on the old base, many of which can be renovated and others that will be demolished to make room for new construction.

The experience has been a test of patience for Ceiba residents and those close to the RR project, as the original development plans had set high expectations, which were subsequently dashed by drawn-out delays and a lack of control over the project. It took a decade for the Navy to finally transfer the land to the local government, a major postponement that took its toll on the project.

“From the outside, all people knew was that almost 12 years had passed since the base closed and nothing had happened. But the reality is that the Navy did not transfer the land to the Puerto Rican government until January 2012 and May 2013. I think one of the biggest mistakes was giving the impression that the RR development was going to take place rapidly and announcing the plans while the land still belonged to the Navy,” said Blázquez.

Changing the tide with community involvement Ceiba residents once again have high hopes in the redevelopment process thanks to the opening of CROEC high school, which specializes in math, science, and technology.

Moreover, the transfer of the Navy’s communication building to a non-profit organization managed by Ceiba residents has been an important step in getting the community involved and enthusiastic about the RR development.

Samuel Caraballo López, spokesperson for the Alliance for the Development of Ceiba (APRODEC by its Spanish acronym), said they have established a 30-year, $15 million project that will cover ecotourism companies, an archeological museum, and other cultural activities designed to improve the economic situation for residents in Ceiba and neighboring municipalities.

“Our Ecoturism Center of the East project is an alliance of microbusinesses. We have divided the project into six phases to be implemented over the next three decades.

The first one —the cleaning and restoration of vandalized facilities— is already underway and should take about two years to complete. We are submitting federal proposals and reaching out to private entities to raise the money required to fix this dilapidated five-story building,” Caraballo López explained.

The former base also encompasses an area of historic and cultural heritage that has never been fully maximized, with more than 37 Taíno Indian archeological sites yet to be excavated. While the Navy occupied the site, it collected more than 5,000 artifacts that were sent to Gainesville, Florida; APRODEC hopes to recover these pieces and display them in a museum that will be housed in the restored building.

“There is an agreement in place with the Navy that stipulates the return of these historical artifacts as soon as we have an adequate facility ready. Our goal is to build a museum on the first floor of our building that will also serve as a research center and storage facility for other archeological sites around the Island, since our archeologists currently have no place to store or exhibit their findings,” Caraballo López added

A natural treasure

The former base is not only full of historical treasures; it also boasts a myriad of valuable natural resources with enormous potential.

“Although it was under Navy control for over 60 years, Roosevelt Roads was protected and remained largely untouched, keeping its wetlands, beaches, salt mines, and other areas of ecological value intact. The possibilities to develop activities around this breathtaking environment are endless,” exclaimed Fernando Lloveras, president of the Para La Naturaleza Unit of the Puerto Rico Conservation Trust, which is working on the development of the 3,000 square-foot welcome center at RR. “Our conceptual plan for the area incorporates projects such as our Scientific Citizen program, which revolves around a new kind of tourism that invites people to learn and immerse themselves in nature as volunteers. We see a lot of potential for the development of eco-hotels and other amenities that appeal to that market,” Lloveras explained.

“Everyone who visits Roosevelt Roads is amazed by its beauty as well as the development potential it has to offer.

Our Authority is ready to assist investors who want to take part in this wonderful project, which will help stimulate economic activity and create the jobs Puerto Rico needs,” Blázquez concluded.

In 2014, facilities in India, China, Pakistan, and Bangladesh represented 91% of all vessel demolition, with India holding the largest market share.

Considerably stricter environmental regulations in the United States and Europe require vessel demolition to be carried out at facilities conforming to considerably higher operational standards that have been recently established, creating a new market for advanced vessel recycling technologies and procedures.

Conventional ship breakers disassemble ships with little regard for the engineering involved in the original construction, and workers are provided little or no instruction and are rarely provided adequate protective equipment. Sadly, due to a lack of organization, training, and protection, the incidence of fires, explosions, serious injuries, and deaths is common at conventional shipbreaking yards. MER’s operations, by contrast, are carefully managed and the disassembly of each ship is carefully planned before operations begin.

MER: MER will supply the steel produced at Roosevelt Roads to consumers around the world, which will result in increased global trade with Puerto Rico.

PUERTO RICO

“We are currently in the process of acquiring additional ships for processing at our new facility in Puerto Rico and are very excited about the tremendous opportunity to make the Island the new home of world-leading technology and environmentally-friendly vessel recycling operations.”

A leader in maritime innovation

With the continued development of Roosevelt Roads (RR) in Ceiba, Puerto Rico’s maritime industry can expect substantial advancements in the not-so-distant future. In fact, one of the first industrial operations established on RR is an eco-friendly enterprise to recycle old ships.

Marine Environmental Remediation Group (MER) —a corporation based in the U.S.— has already secured the first two ships it will recycle.

The company uses a patented technology designed to reduce negative environmental impacts and guaranteed to be safe for the personnel who strip these vessels of steel to be resold in the market.

“Steel is a uniquely recyclable metal because the recycling process does not significantly diminish the strength of the material. Recycling steel benefits the environment because it provides an economic alternative to mining and smelting ore,” explains Martin Vulaj, chief executive officer of MER. “Since ships are made almost entirely of steel,” he continues, “they provide an efficient way to produce large quantities of high-quality steel for recycling, and processed plate and structural steel from ships is in great demand worldwide.” MER will supply the steel produced at Roosevelt Roads to consumers around the world, which will result in increased global trade with Puerto Rico.

Worldwide, ship recycling provides more than 600 million tons of steel and other recovered materials, representing approximately 40% of global demand for raw materials and generating a combined revenue exceeding $200 billion. MER plans to recycle at least 50,000 LDTs (Light Displacement Tonnage) annually at its Ceiba facility.

Martin Vulaj CEO of MER In June 2015, MER signed an agreement with the Puerto Rico Industrial Development Company (PRIDCO) to set up its operations in the old StarKist facilities in Mayagüez. However, the municipality of the western town had other plans for that location, and MER ended up in RR, which is the area it had originally envisioned for the operation.

The new facility already employs approximately 250 people and will provide jobs to approximately 650 people within its first two years of operation. It has an estimated initial capital investment of $4 million, which could grow to $19 million if MER can negotiate the leasing of dry dock areas at RR. MER is currently leasing three buildings for its operation and will be able to accommodate multiple vessels simultaneously. It is currently looking into the possibility of moving its global headquarters from New Jersey to Ceiba to benefit from the lower operating costs and tax benefits that Puerto Rico offers.

37

GOOGLE’S

Project Loon takes off in RR

Google selected Ceiba for its location and nearness to the Equator.

They have already signed a five-year lease contract and have over 30 employees working at the site, including company personnel relocated to our Island and subcontracted local service professionals, such as engineers, researchers, and air traffic controllers.

PUERTO RICO

The renowned global technology firm Google has also discovered the potential of Roosevelt Roads (RR). Using the former base’s airport facilities as a launch site for its ambitious Project Loon, Google aims to build a ring of Internet connectivity around the world using balloons.

Two-thirds of the world’s population does not yet have Internet access, and Google wants to solve that situation with a network of balloons traveling on the edge of space that are designed to increase access to people in rural and remote areas, help fill coverage gaps, and bring people back online after disasters.

“We need to be able to smoothly and reliably set up new launch locations in far flung places,” says Project Loon’s website in regard to the reason for using RR as a testing site.

Google first sent one of its balloon autolaunchers, known as Chicken Little, to the former U.S. Navy base for a three-month trial.

After a successful test, the company decided to establish a permanent site at the José Aponte de la Torre Airport, located on Roosevelt Roads and operated by the Puerto Rico Ports Authority (PA).

“Google selected Ceiba for its location and nearness to the Equator. They have already signed a five-year lease contract and have over 30 employees working here, including company personnel relocated to our Island and subcontracted local service professionals, such as engineers, researchers, and air traffic controllers,” said Ports Director Ingrid Colberg.

As part of the contract, the PA will be receiving an annual income of $300,000 ($1.5 million total during the 5-year period), in addition to a $1.8 million investment for property improvement works on the hangar where Google is operating.

Big hopes for Chicken Little

Another Google Test

Chicken Little is one of a number of custom-built, 55-foot tall autolaunch cranes designed to fill, lift, and launch Google’s tennis-court-sized balloons in under 30 minutes.

Portable autolaunchers allow Project Loon to move its operation to places such as Ceiba, which gives them access to favorable wind patterns that can help provide Internet connectivity.

The one located in Roosevelt Roads was built by Google in Wisconsin, then transported to the Island in parts and assembled on site.

Google is partnering with telecommunications companies around the world to share cellular frequencies and enable people to connect to the balloon network directly from their phones and other LTE-enabled devices.

The company is awaiting approval from the Federal Communications Commission (FCC) for the permits to operate high frequencies on U.S. soil in order to be able to team up with local telecom providers.

Last year, Google also chose Puerto Rico as a test market for its first modular smartphone pilot project, as well as the first site for its commercialization.

In making its selection, the company took into consideration the Island’s extensive smartphone usage and large presence of telecommunication companies providing services to other countries in Latin America.

The fact that Puerto Rico is regulated by the FCC was yet another advantage.

According to Francisco Forero, Government Relations Director for Google Colombia, his company decided to bet on Puerto Rico because it has an “exceptional” infrastructure. The communications business on the Island is already fertile soil, and the educational level among Puerto Ricans is optimal for business competitiveness.

Government officials hope that the trust Google has extended to Puerto Rico will entice other technology and telecom companies to consider the Island for their future projects and as a manufacturing site for their products.

“Google blooms in countries where creativity and talent for innovation are present, as is the case in Puerto Rico. There, we have the possibility to test almost all our products and services, because the Island is like a ‘mini planet’: bio-diverse and multicultural.”

HOW THE BALLOONS WORK 1 The balloons are sent up 20km (12 miles) into the stratosphere 2 Software moves them up or down to find the right winds to direct them into position

1

3 Each balloon beams an internet connection down to antennas on the ground

Francisco Forero Google

2

3

20km

39

VISITOR ECONOMY

Hotel rooms to be doubled

Multi-million dollar developments add life to the

SAN JUAN CONVENTION DISTRICT O

n the heels of a $150 million-plus investment for the development of strategic touristic, commercial, and maritime projects, the San Juan Convention Center District is set to get a vital boost over the next two years, enhancing the zone's enormous potential for expansion and diversification.

Prominent among those plans is District Live!, a world-class entertainment center —in the style of Navy Pier in Chicago or L.A. Live in Los Angeles, but with an authentic local flavor — that will include a theater for live performances, a modern movie theater, diverse stores, and restaurants, among other attractions.

Already under construction in an area adjacent to the recently inaugurated Hyatt Place-San Juan are two restaurants: Olive Garden and Longhorn Steakhouse. Both are scheduled to open by the end of the year.

By that time, an ambitious medical complex — currently in the final permitting stage and spearheaded by a group of local investors — is also expected to get off the ground. What’s more, on the drawing board is a construction at Pier Eight, current home to Bahía Urbana, of a maritime-industrial complex featuring a marina for mega-yachts and the transformation of a dry dock into a shipyard for the repair and maintenance of boats.

"All these new installations will complement the Puerto Rico Convention Center, the heart of the District, turning it into one of the Island's main destinations for entertainment, business, and events," says Rolando Torres, who in July 2013 took over as assistant executive director of the Convention Center District Authority (ADCC, by its Spanish acronym), the government entity in charge of the area formerly known as Isla Grande and now reborn as "The District," or DCC.

PUERTO RICO

"When we came to the District in 2012, the only thing there besides the Convention Center was the Sheraton Hotel," Torres explains. "Since then, two hotels have been built, important projects that are now in their final stages of financing have been negotiated, and, by the end of 2018, we will have double the number of rooms and commercial spaces we had four years ago." Currently, the District houses three hotels with 778 rooms in total. The first to open was the Sheraton Puerto Rico Hotel & Casino, with 503 rooms. Hyatt House opened last year, adding another 126 rooms under the ‘extended stay’ concept. And early in February of this year, another hotel, under the same franchise and with 149 rooms, was inaugurated: Hyatt Place San Juan-City Center, built at a cost of $29.7 million.

Next door to District Live! a fourth hotel with 170 rooms will go up. Torres anticipates that "the new accommodations will most likely be a part of the Marriott chain and the project, an investment of some $40 million, will be in hands of the Costa Rica Hotel Investment Group, which has been interested in the District since the beginning.

"With this new hotel, the commercial space available in the zone will increase from 111,632 square feet to 225,969 within a four-year period, and there is space in the District for one more hotel - but so far there are no definitive plans."

According to Torres, these new developments emerged as a result of viability studies designed to reevaluate the land-use edicts designated in the initial assessment, when everything was focused on the residential market. "But all that has changed. Now we’re concentrating on the tourism-commercial market, altering the size of the projects to enable Puerto Rican banks to finance them and make them more feasible."

PUERTO RICO CONVENTION CENTER Considered the largest of its kind in the Caribbean and the most advanced in the Americas, the Puerto Rico Convention Center covers an area of 600,000 square feet (55,742 sq. mt.) and offers a variety of meeting and exhibition spaces that can accommodate 25,000 people simultaneously while handling events of up to 10,000 participants. This jewel of modern urban architecture has an ideal location, just minutes away from old San Juan and metropolitan area beaches.

ACTIVITY AREAS

• Exhibition Hall - 152,700 sq. ft. (14,186 sq. m.)

• Ballroom - 39,500 sq. ft. (3,670 sq. m.)

• Meeting Rooms - 36,400 sq. ft. (3,363 sq. m.)

• Al Fresco Terrace - 12,800 sq. ft. (1,180 sq. m.)

SERVICES

• Loading Dock - 22 tractor trailers • Broadband & Wireless connectivity (T-1) • Video Conferencing • Business Center • Food & Beverage Dept.

• Parking Lot (2,215 cars)

Meeting thresholds for entertainment and lodging

PUERTO RICO

DISTRICT LIVE!

World-class entertainment… with local flavor!

One example of these commercial mega-projects is District Live!, an entertainment center featuring multiple venues with original concepts that PRISA GROUP plans to develop on a 4.5 acre plot facing the Convention Center.

Federico Stubbe, Jr., president of this important local company, emphasizes that "although there will be restaurants, District Live! won’t be just a dining destination but rather an entertainment destination, a place where you can have a good time, where you can dine and then enjoy a wealth of attractions and activities."

The estimated cost of the project is around $100 million, including $50 million that PRISA GROUP will contribute as the main developer, another $15 million from local operators, and the remaining $35 million from the attached hotel project.

In explaining the concept behind the project, Stubbe highlights that "tourism encompasses all the experiences that you have away from home, with accommodations constituting just one component of tourist activity. When we analyzed what tourists do in San Juan, and in the Convention District in particular, we saw great opportunity in expanding the city's entertainment options and creating new infrastructure that is well planned, safe, and accessible."

To this end, Stubbe hired one of the most recognized entertainment consultants in the United States — Hunden Strategic Partners — and together they defined the main components that District Live! needs to be successful.

Based on this analysis, the center will include: THEATER - A performance hall seating 6,000 people to hold concerts for local and international artists and all kinds of live performances.

MOVIE THEATER - Eight innovative movie-screening rooms that will include advanced technological effects to interact with the viewer.

FOOD & DRINK CONCESSIONS - A wide variety of meal options with a creative touch.

During the long research and design process, Stubbe visited some of the largest entertainment districts in the U.S.: Power Plant Live (Baltimore Harbor, MD), Kansas City Power & Light District and St. Louis Ballpark Village (both in Missouri), L.A. Live (Los Angeles, CA), Irvine Music Factory (Dallas, TX), and North Carolina Music Factory (Charlotte, NC).

"We also visited various places in Orlando — including Universal City Walk, Downtown Disney, and the new Disney Springs — but I want to make clear that District Live! will not be a recreational theme park. Rather, it will be an entertainment center that will offer an authentic Puerto Rican experience and will appeal as much to local residents as to the international public."

"To achieve this 'authenticity' we are seeking original concepts that will showcase local talent, including resident musicians and even comedians," Stubbe says.

"We are going to have a highly innovative technological component to create a high-energy space. It will be a mini-version of Times Square with sensory stimulation using scents, sounds, and colors."

With such a wide variety of options, District Live! promises to deliver a singular local experience to visitors, boost their interest in visiting the District, and extend their length of stay in Puerto Rico (which currently averages three days).

Several economists and tourism industry entrepreneurs have pointed out that the Convention Center District has not been developed to its full potential because it lacks a number of entertainment options and enough lodging to become a really attractive alternative to conventioneers.

Stubbe responds to these comments by alluding to the popular adage, “What came first: the chicken or the egg? First, conventions and groups claimed that there weren't enough hotels near the Convention Center and secondly, they said the area was dull and desolate.

People want to stay in an area teeming with activity, one that offers a wide range of options for entertainment and leisure.

On the other hand, entrepreneurs felt that there wasn't enough demand to build more hotels and entertainment venues."

Which leads the developer to ask himself another question: "What are we going to do at this crossroads where nothing happens? Are we going to keep staring at the ceiling, waiting for things to happen?"

To which he has an immediate self-reply: "Of course not. We can’t just stand here with our arms crossed; we are going to do what has been successfully done in other U.S. cities that were under-developed or abandoned. With government backing, we will create a catalyst that facilitates the development of new surrounding infrastructure, fostering an entire ecosystem to revitalize tourism and commercial activity.

"With the government’s support, we will finally give life to the District. That's why it’s called District Live!"

Stubbe is convinced that District Live! will bring more conventions and, eventually, more hotels. "Now there will be no excuses not to come. With this new entertainment complex, our Convention Center will be very attractive."

Why now?

"This is the good news that Puerto Rico needs," remarks Stubbe, pointing to information that shows new restaurants are opening and people are spending on food, drink, and entertainment. In fact, sales of premium alcoholic drinks are breaking records in Puerto Rico. "Although there is a certain level of restraint, this is an absolutely critical long-term project for Puerto Rico, and Governor Alejandro García Padilla as well as Víctor Suárez, executive director of ADCC, have been instrumental in making this possible. So we're moving forward!" said the developer.

One of the instruments that makes this project attainable is ACT 157, known as the Tax Increment Financing Act. This statute allows sales-and-use tax (SUT) revenue generated —since Sept. 13, 2014— by the District’s economic activity from new construction to subsidize the District Improvement Fund, whose role is to finance, guarantee, and carry out improvement projects in the District.

Stubbe affirms that almost all entertainment districts in the U.S. have a similar legal structure to enable the government to make these projects viable.

“We are in the process of finalizing the legal details with the different groups that have agreed to participate in District Live! We hope to close the financing at the end of the year and begin construction right away. We should be ready to open in autumn of 2018.”

Once it begins operations, District Live! will have an estimated economic impact of $1.2 billion in its first 10 years, with some 2,400 jobs to be created during that period.

Soon: two new restaurants!

Besides developing District Live!, PRISA GROUP is in charge of building the Olive Garden and Longhorn Steakhouse restaurants that will open later this year in October and December, respectively.

Both are the property of Restaurant Operators Inc. (ROI), a Puerto Rican firm that invested $7 million in these new locales of the well-known franchises, located next to Hyatt House and Hyatt Place, another PRISA development.

"We rent the land from ADCC, and ROI rents the space where we are building their restaurants from us. Moreover, we are responsible for creating communal areas that will connect both hotels with the restaurants," Stubbe says.

In addition to creating hundreds of jobs, the restaurants, once operating, will create a very positive energy for development and the future, according to the developer. "We are sending a strong and clear message that something exciting is happening in the District. And it is just the beginning of many great things to come."

43

MARINA AND SERVICE CENTER FOR

MEGA-YACHTS

In June of this year, Puerto Rico’s government confirmed plans for the development of a specialized marina for mega-yachts in the Port of San Juan, as well as the conversion of a dry dock into a complete service center for this type of luxury vessels.

The mega project, involving a private investment of $73 million, will be built on Ports Authority land within the Convention District. According to estimates, it will create about 1,300 jobs and have an annual economic impact of some $40 million.

Maritime-industrial center unique in its class

The center will be unique not Among the most luxurious yachts in the world that recently chose the port of only to Puerto Rico but the San Juan for maintenance are the A (Alexandria) and Alfa Nero. entire Caribbean, adding a new Edgewater Resources to be the destination to the routes of developer mega-yachts in the area.

"After a competitive RFP process, the company selected “We are talking about the creation of a new industry in Puerto Rico that has the potential to impact the whole region," indicates Puerto Rico Governor Alejandro García Padilla.

The repair and maintenance service center will be based at Pier 15 in Isla Grande, and it is estimated that it will be able to service 20 to 40 boats on land and 125 to 175 boats in the water. According to the governor, partial operations will begin in October of this year and, six months later, in April 2017, the center will be completely operational.

The first phase of the marina – located in an area close to Bahía Urbana, between piers six and nine – will be completed in 2019 to provide a variety of services for owners of boats and their crews. The second phase of the project may include the construction of a new hotel in the marina that would be ready by 2020.

Puerto Rico Governor Alejandro García Padilla and Ports Authority Executive Director Ingrid Colberg Rodríguez talk with Paul Madden and John Spencer —executives at Edgewater Resources— about investing $73 million to develop a specialized marina and service center for mega-yachts at the Port of San Juan.

to develop this project was Edgewater Resources, a business founded with the objective of improving communities and waterfronts, focusing on long-term social, environmental, and economic sustainability," says García Padilla.

Edgewater has a team with ample experience in the workings of mega-yachts, shipyards, and ports but also subcontracts certain services to local boat repair and maintenance operators. Furthermore, it will utilize a great part of the local infrastructure and services so as to work in a strategic alliance with these providers.

According to its website, Edgewater Resources, LLC has offices in St. Joseph, Michigan (its home base), and West Palm Beach, Florida. Noteworthy among its projects is 31st Street Harbor, a $103 million development on the south side of downtown Chicago that includes a marina with 1,015 slips for individual boats and a recreational park in front of Lake Michigan. Another is ONE15 Brooklyn Bridge Park Marina in New York, which is still under construction.

Ports Authority Executive Director Ingrid C. Colberg Rodríguez said the mega-yacht industry is unique in its class since it is based primarily on large luxury boats (over 100 feet in length) custom designed to fit the needs of their clients.

"Because of their size and high-tech design, these boats require very specialized services, and there isn't a maritime-industrial center anywhere in the Caribbean to cater to their needs. In Puerto Rico, we have the resources and the specialized human capital to satisfy demand for the work and care these luxury super-yachts require," she affirms.

"Puerto Rico is going to fill that gap,” adds the governor. “We have the infrastructure, the air routes, the capacity to provide quality services, and the needed manpower to successfully develop this industry. We have a strategic location in the Caribbean, ideal for accommodating several mega-yachts, especially during the winter season.”

García Padilla maintains that the arrival of this specialized maritime industry will jumpstart the creation of an economic development ecosystem: while boats are being reconditioned, their owners are investing in makeovers and buying supplies and fuel, which means the benefits are extended to various sectors of the economy.

This announcement represents the rise of a new industry with enormous potential for economic growth and totally in sync with the industrial needs of the 21st century.

“This is our legacy to Puerto Rico, to lay down the foundation of a new economy that will sustain the island throughout this century," beams García Padilla.

For his part, Economic Development and Commerce Secretary Alberto Bacó Bagué explains, "our goal is to ensure that everything that flies or navigates can be serviced in Puerto Rico. The airplane repair industry will have an important center in Aguadilla with Lufthansa Technik. And Puerto Rico's boat maintenance sector is also taking off; we have enormous room for growth, and that is what we want to achieve through these efforts: to continue diversifying the economy and promoting its growth."

Given its modern socioeconomic infrastructure and strategic location in the Caribbean, Puerto Rico is the ideal place to board mega-yachts, especially during the winter season.

AMBITIOUS MEDICAL TOURISM COMPEX In other news for the Convention Center District Authority (ADCC, by its Spanish acronym), Assistant Executive Director Rolando Torres told INVESTinG that an expansive medical tourism complex is now in its final permitting stage.

This project will include 10 ambulatory surgery rooms, a wellness center, a clinical lab, and an imaging center, among other services, and will be located near the Hyatt House, an extended stay hotel, ideal for patients who wish to stay in the district.

The development is an initiative of a group of Puerto Rican doctors, who have teamed up to offer treatments and medical specialties that are in high demand among foreign patients and are cost-efficient on the Island.

Without disclosing the investment amount, Torres confirmed that the contract will be signed in the next two months with construction expected to commence before the end of the year.

Commenting on some vacant buildings in the Puerta de Tierra area, Torres explains, "we are in the relocation process and hope to complete an asbestos and lead analysis in order to begin the demolition of these structures."

"Despite all the ongoing construction projects, commercial spaces are still available right now in the Convention District for rent as well as for new development opportunities," says Torres.

Revisiting tourism:

Immediate and intermediate steps

a thriving current of economic development emerges

B

y just doubling the average length of time that tourists stay in Puerto Rico, the Island would inject another $7.4 billion into its economy, putting its economic growth back on track. It’s not only a feasible goal – it’s a necessary one.

For Jon Borschow, president of the Foundation for Puerto Rico board of directors and a crusader for the so-called “visitor economy,” this goal can be achieved in a relatively short amount of time and only requires focus and collaboration among stakeholders.

Borschow remains so convinced by the positive impact that a strong visitor economy can have on the country that the entity he spearheads has reallocated its resources to unconditionally support such efforts. “At the Foundation, we’re working to sustain existing efforts and to help develop the tourism sector by facilitating, in this case, the creation of a conceptual framework outlining where we are and where we need to go in order to cultivate growth in the sector,” he highlights.

Panelists for the Visitor Economy forum organized by the Foundation for Puerto Rico (from left to right): Federico Stubbe Jr., vice president of the Tourism Council of the Puerto Rico Home Builder’s Association; Clarisa Jiménez, president of the Puerto Rico Hotel and Tourism Association; Ingrid Rivera Rocafort, executive director of the Puerto Rico Tourism Company; and Raúl Bustamante, managing director of the Condado Plaza Hilton Hotel.

PUERTO RICO

“Tourism represents Puerto Rico’s greatest opportunity for economic growth in both the short and medium terms. It’s an important part of the local economy and the only one that is currently growing. If we make developing this sector our first priority as an economic strategy, it could instigate a rapid growth spurt that would change the Island’s economic trajectory.”

Jon Borschow

Foundation for Puerto Rico

As its first contribution to the cause, the organization published the report, “The Visitor Economy: From Knowledge to Action.” Using available data, the study provides a conceptual framework around tourism in Puerto Rico, the broadest concept of the visitor economy, and the benefits it has to offer the Island in terms of economic development.

“Tourism represents Puerto Rico’s greatest opportunity for economic growth in both the short and medium terms. It’s an important part of the local economy and the only one that is currently growing. If we make developing this sector our first priority as an economic strategy, it could instigate a rapid growth spurt that would change the Island’s economic trajectory,” contends Borschow.

The Foundation president argues that the traditional economic model does not take all the impacts of tourism into consideration. Based on this reasoning, he explains that “the concept of the visitor economy not only accounts for tourism’s direct impact through visitor spending but also measures the indirect impact on the supply chain and the services that surround the tourism industry, as well as the induced effect on the general economy through spending by those who are directly or indirectly employed in the sector.”

Tourism, according to the study mentioned above, is one of the fastest growing industries in the world; so much so, that the economic activity linked to travelers now surpasses a whopping $7 trillion annually. In 2015, the number of travelers increased by 4% on a global level, continuing a similar pattern of growth compared to recent years. Likewise, Puerto Rico’s visitor count has been growing since 2009, but the Island only captures about 14% of the Caribbean’s share of visitors at the present moment.

“However, the robust and growing regional demand underscores that there is plenty of room to further grow and develop this sector in Puerto Rico. That’s why we are calling for collaboration, the elaboration of an effective and coherent strategy, and public policies that facilitate development of the tourism industry in an integrated fashion. All of this will help connect many more actors with effective development strategies and will highlight how all-encompassing and important the visitor economy is for the country,” affirms Borschow.

In this sense, Ingrid Rivera Rocafort, executive director of the Puerto Rico Tourism Company (CTPR, by its acronym in Spanish), has publicly expressed her support of the visitor economy initiative and its potential to stimulate the local economy: “Clearly, this is an industry that can generate change in Puerto Rico. And it’s wonderful that a non-profit entity is the one blazing the trail! There are many opportunities to showcase what this industry can do for Puerto Rico… and together, we can do it.”

Rivera Rocafort emphasizes that, under her leadership, the CTPR has started to design a plan with the goal of not only expanding the number of visitors to the Island but also boosting traveler spending. “To give you a sense of the magnitude, the number of travelers in 2012 was 4.197 million and now that figure stands at 5.045 million – a 20% increase,” she explains to INVESTinG. “While it’s true that the Commonwealth has always been known as a place with an average stay of three days, we have already managed to increase that number,” she confirms. This has been accomplished through extensive marketing to showcase all the diverse activities and accommodations the Island has to offer and through attracting airlines that serve Latin America and Europe, whose passengers traditionally spend more time in their travel destinations.

For his part, Milton Segarra, executive director of Meet Puerto Rico (MPR) and ex-secretary of the Puerto Rico Department of Economic Development and Commerce (DDEC, by its Spanish acronym), indicates that “even erring on the conservative side, with a 3-4% increase in net visitors our economy would experience a significant change.”

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$7 trillion

An “experience destination” “To double the length of stay or the number of visitors,” Borschow continues, “we have to be different. We can’t keep replicating the tourism model that sells sun and beach to coastal residents in the U.S. Travelers have changed; now the focus is on experiences and discovering the culture of the country they’re visiting. And in this sense, Puerto Rico has so much to offer. In order to project itself as an ‘experience destination,’ the Island must put the spotlight on its authentic gastronomy, cultural events like the Casals Festival, institutions such as the Conservatory of Music of Puerto Rico, activities like adventure tourism, and sporting events and concerts, among other points of interest.

“Our visitors typically stay in hotels for around three nights, whereas the average stay in the Dominican Republic is eight nights. While we can’t compete in price, informal interviews with travelers indicate that they don’t consider the diverse range of visitor-worthy attractions that Puerto Rico has to offer when planning their trips. That’s where our greatest opportunity lies,” affirms the Foundation leader.

From Borschow’s point of view, the Island has to be more effective in marketing its strengths and gaining international recognition for its experience-based touristic options, while continuing to promote itself as a safe and accessible destination. Achieving this visibility is one of the main areas that the Foundation is analyzing.

Rocafort, on the other hand, rejects the comparison between Puerto Rico and the Dominican Republic, arguing that the two destinations offer very different experiences to their travelers with the latter focused on all-inclusive resorts. “What Puerto Rico has to offer is a much more diversified selection of activities and attractions that appeals just as much to the local public as it does to the international market. Visitor spending in the Dominican Republic amounts to $4 billion with 70,000 rooms, while our average visitor spending is $3.5 billion with just 15,000 rooms – evidence that shows we’re on the right track,” she highlights.

20%

increase in the number of travelers 2012 4.2 million 2015 5.1 million

1.2 billion

annual trips worldwide

22.4 million

visitors to the Caribbean last year

Doors wide open to foreign investment A robust visitor economy is built upon a foundation with solid infrastructure, which offers various opportunities for foreign investment and local participation. Among other areas of opportunity, Borschow lists the hotel industry, technological services, financial services, transportation, and modernized agriculture, as areas that would sustain the gastronomic boom that the Island is currently experiencing.

Uber’s recent interest in entering the Puerto Rican market constitutes just one of many examples validating the analysis. In fact, the Puerto Rico Foundation has defended its entrance, asserting that “these networks (Uber, Lyft, and other similar companies) would greatly improve access to transportation services for visitors and residents alike. Not only would this increase the number of visitors but it would also extend their stays by providing them with the ability to travel to more destinations and activities on the Island.”

Borschow emphasizes that the visitor economy has a powerful multi-sector impact. It promotes job creation; spurs community entrepreneurship based on solidarity and self-sustainability; reduces poverty; boosts foreign investment and exports; improves infrastructure; and preserves natural zones and sites of cultural patrimony, among other benefits.

What is a visitor?

Not every traveler is considered a visitor. As defined by the World Tourism Organization in its 2010 Guidelines, “a visitor is someone who is making a visit to a main destination outside his/her usual environment for less than a year for any main purpose [including] holidays, leisure and recreation, business, health, education or other purposes… This scope is much wider than the traditional perception of tourists, which included only those travelling for leisure.”

Visitors can be considered tourists or excursionists. A tourist is defined as a visitor who spends at least one night in the travel locale. Excursionists, on the other hand, are visitors who don’t stay overnight in the travel destination, including cruise passengers.

PUERTO RICO

STAR CONCIERGE HUB

annual economic activity

Jon Borschow, president of the Foundation for Puerto Rico board of directors

Measurement and collaboration The Foundation recommends two main actions in order to ensure that the initiative is successful: measurement and collaboration.

Borschow points out that one of the first steps to developing the visitor economy should be the creation of a National System of Tourism Statistics, “because we can’t move forward with our objectives if we don’t have measurable results.” In Puerto Rico, measuring tourist activity is especially challenging, as the vast majority of its visitors arrive in domestic flights from the U.S. and don’t pass through immigration and customs (from which most tourism data is usually collected).

Many stakeholders in the sector share the interest of developing a reliable system that measures tourist activity. In addition to Segarra (MPR), others are actively participating in this endeavor, such as Clarisa Jiménez, president of the Puerto Rico Hotel and Tourism Association, and Federico Stubbe Jr., vice president of the Tourism Council of the Puerto Rico Home Builder’s Association.

In a recent forum on the visitor economy organized by the Foundation, these executives not only endorsed the model but also stressed the importance of acquiring statistics to help guide and align supply strategies and generate new demand.

This common sense objective, collaboration among sectors, and making the visitor economy a top priority in the country are – in Borschow’s eyes – absolutely essential to the Island’s economic success. “This can’t be a strictly governmental project or one that only encompasses sectors traditionally associated with tourism. To transform Puerto Rico, we have to get everyone involved.”

As part of its dynamic strategy to promote medical tourism, Puerto Rico has just inaugurated a concierge center for overseas patients.

“The Star Concierge Hub, as it will be known, will allow us to ensure consistently high-quality hospital medical services offered by certified providers and will result in a positive experience for our non-resident patients,” explains Alberto Bacó Bagué, secretary of the Department of Economic Development and Commerce. The state official considers the center a huge step toward the advancement of the work plan aiming to transform medical tourism into an attractive and reliable service sector, as well as an important economic engine for the country. The hub will allow patients from abroad to connect with certified providers and coordinate flights, accommodations, and services.

Francisco G. Bonet, executive director of the Medical Tourism Corporation (CTM, by its Spanish acronym), indicates that “in its initial phase, the concierge hub will be concentrated on capturing a portion of the North American market, consisting of 1.2 to 1.4 million potential customers who leave the United States to undergo some type of medical treatment or surgery. Likewise, 800,000 people travel to American territory for medical reasons.”

The hub would allow the local healthcare industry to reach diverse markets through a unique platform – designed especially for the local market – and to boost the number of patients from abroad looking for exceptional services, top-of-the-line facilities, and extremely competitive prices.

Another important component of the strategic medical tourism plan is to train the sector, raising its standards of quality and services through a Certification Plan for Healthcare Providers and ancillary services. As of this writing, the Medical Tourism Association (MTA) has certified 54 healthcare providers including hospitals, dentists, laboratories and hotels, among others.

CTM emphasizes that these initiatives are backed by a promotional strategy that presents Puerto Rico as an ideal spot for overseas patients though the webpage www.starhealthcarepuertorico.com.

The site provides information on providers and medical specialties and is already garnering inquiries from potential patients who want to learn more about the services Puerto Rico has to offer as a medical destination.

Bonet contends that Puerto Rico is quickly positioning itself as one of the main medical tourism destinations in the Caribbean and Latin America, and “with the establishment of the Star Concierge Hub, its position is bound to become even more competitive.”

News of the concierge hub’s opening was announced at the Caribbean Health Summit, which convened high-ranking representatives from the healthcare service sector, local government officials, and over 40 potential international buyers and business leaders from Latin America, the United States, and Canada (companies catering to the individual health insurance market, groups of service buyers, investors, and healthcare providers interested in the Island’s potential as a medical tourism destination).

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Tourism industry continues to expand

I

t’s full steam ahead for Puerto Rico’s hotel industry.

With an inauguration expected to take place in the first quarter of 2017, construction is now underway for the AC Hotel by Marriott, located in a privileged spot in Condado previously occupied by the Radisson Ambassador Plaza & Casino. This new building –planned and approved with an estimated investment of $45 million– will create approximately 400 jobs during the construction phase and 120 jobs once the hotel officially opens. Voices from both the private and public sectors agree that Puerto Rico’s tourism industry –which greatly impacts the country’s overall economic performance– has recovered from the recession and is now charging forward. The AC Hotel by Marriott will have 233 rooms with balconies (including 40 luxury suites), as well as a pool, rooftop lounge, gym, restaurant, and conference and event rooms. The project will be managed by Interlink Construction, a leading company in the development of hotels, resorts, and residential spaces in Puerto Rico and the Caribbean. Andrew Houghton, area vice president (Caribbean and Latin America) for Marriott International, Inc., remarks that they “are

San Juan in motion: Panoramic bus tours cruise into the city

excited to establish the first AC Hotel in Puerto Rico, with its growing population of travelers from generations X and Y who care about style, design, and value when choosing a hotel.”

From left to right: Andrew Houghton, area vice president (Caribbean and Latin America) for Marriott International, Inc.; Grace M. Santana Balado, the governor’s chief of staff; Ingrid I. Rivera Rocafort, executive director of the Puerto Rico Tourism Company; Federico Sánchez-Ortiz, president and CEO of Interlink Construction; and Hermand E. Méndez, vice president of Interlink Construction.

With an investment of $2.7 million, the multinational company City Sightseeing is set to launch operations in Puerto Rico, offering city tours through various parts of Old San Juan, Condado, and Isla Verde on deluxe double-decker buses with panoramic views.

The “hop-on hop-off” bus service will let passengers discover San Juan at their leisure, allowing them to disembark and explore at 30 strategically placed stops throughout the city. Tickets will remain valid for 24 hours after purchase, and each tour will last approximately 75 minutes.

The firm’s expansion plan came to light during an official announcement made by Enrique Ybarra Valdenebro, president and CEO of City Sightseeing Worldwide (CSW). Founded in Seville in 1997, CSW operates in over 100 cities worldwide, with some 13 million passengers using its services in 2015.

CSW’s entrance into the Puerto Rican market is expected to create about 45 direct jobs at the local level and strengthen the company’s regional presence, as it already operates in eight U.S. destinations and others in Panama, Colombia, and the Caribbean.

Connections in high places

I

t’s a groundbreaking milestone in Puerto Rican-Israeli relations: the Puerto Rico Department of Economic Development & Commerce (DDEC by its Spanish acronym) and the Consulate General of Israel in New York have formed a unique partnership, joining forces to sponsor the Business in Puerto Rico investment forum. The event, which took place at the headquarters of Stroock & Stroock & Lavan LLP (New York), attracted around 100 attendees, including Israelis and Americans from the most prominent investment companies in New York. After highlighting the positive feedback he’s received from high-ranking executives whose companies currently benefit from Acts 20 and 22, Alberto Bacó Bagué – secretary of the DDEC – went on to recount the Island’s recent stream of investments from powerhouse corporations like Pricewaterhouse, Lufthansa Technik, Santander Consumer, Morgan Reed Group, Keith St. Claire, and Paulson & Co. “The new Puerto Rico is diverse, globalized, and modern – a first-class hub of services in an ecosystem where innovation, creativity, and the entrepreneurial spirit can flourish. All we need now is capital. With plans in motion to redress the fiscal situation and signs of strong economic development, Puerto Rico is primed to become the Hong Kong of the Caribbean for innovative entrepreneurs, the region’s Wall Street for businesspeople with a thirst for success, and a Las Vegas for free spirits,” explained Bacó. One of the forum’s most notable presentations featured the CEO of Cantor Fitzgerald, Howard Lutnick, who lost hundreds of employees in the tragic September 11th attacks: “Even when the waters get rough, you can take the bull by the horns and change the outcome. There are millions of people who love Puerto Rico, who reserve a special place for the Island in their hearts. When I asked why I was asked to speak today, I was told I was an example of resilience in the face of seemingly insurmountable challenges. And I’m here to tell you that if you have the right motivation and a sincere concern for Puerto Rico’s future, the world will undoubtedly rally behind you.” Act 20 (covering the exportation of services) and Act 22 (geared toward resident investors) offer a 100% tax exemption on dividends, interest, and capital earnings. As a commonwealth of the U.S., Puerto Rico also provides the same operational security found in any other federal jurisdiction. And its reputation as a great place to do business goes beyond political stability and fiscal incentives. The Island boasts a highly qualified and bicultural source of human capital, extensive infrastructure developments, and a geostrategic location that facilitates expansion into the global market – all characteristics that add up to unparalleled opportunities for success.

Calling all passengers!

T

he Visitor Economy continues to open new doors of development in Puerto Rico, strengthening the Island’s role as key point of access to the Caribbean for airlines around the world. On December 17th of this year, Air Canada will open a new route from Montreal to San Juan with direct flights offered on Saturdays, as well as a second weekly flight from Toronto starting on November 19th. Alex Pittman, Air Canada’s director of sales for Latin America and the Caribbean, says that the company “is delighted to expand its services in Puerto Rico this coming winter. In addition to establishing a brand new weekly flight between Montreal and Luis Muñoz Marín International Airport, we’re doubling the number of flights from Toronto to two per week, which in turn increases our capacity by 165% compared to last year. The move is a reflection of Puerto Rico’s popularity as a tourist destination among Canadian travelers and, on the flip side, provides Puerto Rican clients with the opportunity to travel to Canada or make connecting flights through Toronto and Montreal.”

In the foreground, Secretary of Economic Development and Commerce Alberto Bacó Bagué (second from left), former Consul General of Israel in New York Ido Aharoni, and Cantor Fitzgerald CEO Howard Cantor.

51

AGRIBUSINESS

The table is set

Sowing the seeds of agricultural development

T

he story of Puerto Rico’s agricultural sector reads more like a movie script than the history of the farming industry: a booming success, a woeful downfall, a period of soul-searching… and now, a brilliant comeback that is driving economic development on the Island.

Today, the Island’s agricultural activity represents a tremendous step forward that evokes its glory days, a homage to a past built on powerful monocultures as well as to a future geared toward diversified agro-industrial production. Under ideal growing conditions, experts project that the country could amass around $7 billion in earnings each year from this sector alone.

Beyond the crops traditionally cultivated in the Caribbean —such as coffee or sugar— Puerto Rico’s privileged location, fertile soil, and fabulous climate all point to the Island’s immense potential to produce a much wider range of agricultural goods and livestock. Add that to recent technological advances in the sector and you get an inevitable turning point in the sector’s trajectory, a complete revival for an industry that constituted 71% of the country’s GDP at the start of the twentieth century. Decades of up-and-down economic cycles in Puerto Rico’s agricultural sector changed that figure dramatically: the Island now imports about $4 billion in food per year. It’s an issue that has sparked demand for local production, and Puerto Rico’s Department of Agriculture (DA) has responded in kind by providing investors with lucrative opportunities to meet this demand.

DA Secretary Dr. Myrna Comas, an expert in food security and food chains, tells INVESTinG Puerto Rico that their plan aims to revitalize agricultural activity with such intensity that it reverses the rates of importation and exportation — with support from investors, of course.

The DA’s standard formula —guided primarily by the Innovation Fund for Agricultural Development— includes exportation strategies, environmental technology, the inventory and allocation of some 582,600 acres of land, labor force incentives, protected designation of origin policies, greater consumption of local fare in Puerto Rico and the U.S., and entrance into new markets.

Puerto Rico has an ideal geographic location for the cultivation of crops year-round. The Island also boasts other advantageous agricultural assets, including: over 350 distinct types of registered soils, a wide span of humidity and aridity levels, and varying degrees of pH, all of which —along with wind patterns and the Island’s topography— induce a broad spectrum of average rainfall (70” in the north and 45” in the south).

The real black gold

Cattle industry at the top of the food chain The possibilities are endless in this new agro-industrial vision, which comprises a wide variety of vegetables, gourmet tropical fruits, and top-quality dairy and meat products. The cattle industry in particular has promising opportunities on the horizon: “right now, there are over 10,000 acres designated for raising livestock. At the beginning of this administration, 93% of all beef consumed in Puerto Rico was imported. We saw the potential for local production, and this industry has been moving forward ever since,” highlights Comas.

To facilitate this development, the DA secretary states that the agency has devised incentives for businesses dealing with pastures for grazing, the purchase of replacement heifers, artificial insemination, and embryo transfers.

Comas explains: “we’ve already successfully planted the seed for this industry. At this rate, we’ll produce over 10% of our own local beef, which leaves 90% of the industry open to future opportunities. Development is in full swing on the coastal plains, but the center of the Island and its mountainous region are the two places where the sector has the most opportunity for growth and investment.”

Prosperity from the pasture One company ready to tackle the challenges of Puerto Rico’s agro-industrial transformation is Ganaderos Alvarado (GA), a company founded by three brothers —Juan, Ángel, and José Alvarado— in 1983. Once a business that simply raised cattle, the operation has expanded to process its own meat as well. The company purchases hundreds of cattle, operates its own automated slaughterhouse (the only one in the Caribbean) in the municipality of Arecibo, and then commercially processes and packages a diverse range of products to the consumer — a procedure that takes 48 hours from pasture to supermarket.

The beef produced by GA comes from grass-fed, pasture-raised cattle that are not subjected to overcrowding, routine antibiotics, or fortified foods. Given its health benefits and sustainable practices, it’s no wonder that global demand for grass-fed beef is reaching record heights. Juan Alvarado, president of GA, reveals that “this meat is less than 3% fat, is low in cholesterol, and contains many recommended nutrients and polyunsaturated fats that can help improve cardiovascular health.”

It landed on the Island in the 18th century and had become a first-class product recognized around the world (and preferred by popes and kings) by the 19th century.

At one point, it even constituted 77% of the Island’s total exports.

Today, Puerto Rican coffee is produced in 21 municipalities —the majority of which are located in the country’s mountainous interior— where some 40,000 workers participate in the cultivation and processing of this valuable fruit. “However,” Comas warns, “we’re still lacking more developed projects.”

Consequently, Puerto Rico is working to establish new operations to sow and harvest coffee. Comas specifies that they “have recently accumulated nearly 6,800 acres linked to government incentives for coffee cultivation, along with over 7,700 acres already developed in the last three years, plus another 1,000 acres belonging to a private company. The seedlings we have in nurseries equate to another 3,900 additional acres, which should be distributed in the days ahead.”

The final piece to complete this policy, INVESTinG Puerto Rico learned, would be pursued through Act 232, which was passed in 2015 and opened the door for the “Made in Puerto Rico” label. The implementation of the protected designation of origin status for 100% Puerto Rican coffee stands ready to provide producers with a very powerful marketing tool, especially in the global market. As coffee shops continue to proliferate across the Island, investors have options with significant potential laid out before them: the growing demand for first-rate coffee, gourmet coffee, or specialty coffee, in sync with a boom in agritourism and a bountiful “harvest” of coffee growers, coffee roasters, and baristas.

It’s a view adopted by many new companies such as Offeecay, Hacienda Tres Ángeles, and Café Don Ruiz, owned and operated by Alfred Rodríguez, Juan Meléndez, and Abimael Ruiz, respectively. These three companies —along with so many other entrepreneurial endeavors of this most recent generation— have become ambassadors for Puerto Rico’s exquisite coffee. Not only have they achieved recognition in events like expositions put on by the Specialty Coffee Association of America; these companies have also already signed deals with roasters in the U.S. to spread Puerto Rican coffee to markets in North America, Europe, and Asia.

Investors have options with significant potential laid out before them: the growing demand for first-rate coffee, gourmet coffee, or specialty coffee, in sync with a boom in agritourism and a bountiful “harvest” of coffee growers, coffee roasters, and baristas.

You say “tomato,” I say “tomorrow””: the future of agrotech

Comas points out that vegetables produced on the Island (e.g. cabbage) derive increasing benefits from greenhouse technologies such as hydroponics, which allow for extended production cycles, reductions in the use of pesticides, and the optimal use of sunlight and water. “The DA has provided incentives for eight projects in this innovative realm. Seven of those are already producing Cuban peppers, different-colored peppers, and tomatoes. Imports still supply 70% of the local demand for tomatoes, a product that has become very popular in the gourmet segment.”

Among those who have joined the agricultural ranks in Puerto Rico are Lidiana Rodríguez and her husband George Economou (a marriage of finance and real estate expertise), who chose to establish their company, Florence Hidroponia, LLC (FI), in the Barahona neighborhood, located in the municipality of Morovis.

And their business plan? It’s simple: to grow and distribute different varieties of beefsteak, grape, and Roma tomatoes. While the first is a common find in Puerto Rico, the sale of the latter two represents a slight but concrete shift in the local market, forming part of the promising agricultural diversification movement that has been taking hold in the country.

With a vested interest in resolving issues of food security and sustainability, these new entrepreneurs initially explored projects that had been shelved due to insufficient financing, but finally decided to carve out their work on nearly five acres of government-owned farmland, where they employ 17 people. For this venture, they opted for hydroponic technology, a system in which plants are grown in a solution of minerals and water rather than in soil.

“We knew nothing about tomatoes when we started,” confesses Rodríguez. “What we had instead was a desire to create something novel. Due to our prior professional experience, risk was —and continues to be— very important to us. The economic crisis in Puerto Rico instilled certain doubts in the population, but we quickly learned how important it was to let go of that fear.” And so they have: FI has not only managed to introduce its products to the local supply chain, but it has also exported nearly all of its grape and Roma tomatoes. And all of this productivity has taken place within a sustainable framework that would have required at least eight times the space to achieve the same level of output on a conventional field.

“With time,” signals Comas, “the DA is expected to salvage and reestablish nearly 40 previously abandoned hydroponic projects —currently in the hands of private entities— by incentivizing these agricultural landowners to start producing new yields and covering new markets, such as the farm-to-school niche. These projects are ripe for investment, as they are already assembled and in need of a few minor improvements to get the gears moving.”

PUERTO RICO

INNOVATION AT ITS FINEST

Puerto Rico’s cocoa: resilient and unique

A sweet deal

Sugar cane, one of Puerto Rico’s greatest agricultural protagonists of the 20th century, is also on the brink of a major revitalization process. This project aims to restore sugar cane fields on over 19,000 acres in the valleys of Coloso, Añasco, Guanajibo, and Lajas —all located on the western side of the Island— with the goal of producing top-notch molasses for the rum industry, which remains one of the country’s most widely-recognized and legendary lines of business. The production is expected to create about 4,000 direct and indirect jobs.

This initiative —set to initially produce some 20 million gallons of molasses— is in the midst of a swift evolution, led by three groups of local and international investors. “We’re seeing some incredible business options emerge from this undertaking. We could start cultivating nearly 4,000 acres, surpass 14,500 acres, or find ourselves somewhere in the middle; the final production will all depend on the amount of land we decide to take on,” explains Comas.

To a global audience, Puerto Rico can be found on the map under the title “Rum Capital of the World,” such that well-established brands (read: those that connote rum royalty) find themselves in constant production of exclusive and experimental varieties of the finest quality (see INVESTinG Puerto Rico #1, 2015).

Cocoa is another one of Puerto Rico’s prized fruits that has received international acclaim throughout history. The type of cocoa produced on the Island is one of the few surviving varieties from the region’s original exports, and studies undertaken by the Tropical Agriculture Research Station in Mayagüez have shown that Puerto Rico’s local cocoa possesses a genetic profile that has practically disappeared from the face of the Earth.

With so many doors of opportunity wide open (especially those leading to exportation) to transform the Island into a major producer of gourmet chocolate products, Comas acknowledges that Puerto Rico is primed to begin taking advantage of its ideal conditions for cocoa cultivation and to enjoy the added value that comes with it.

“Many countries that are important producers, such as Guatemala, are dealing with a fungus (cocoa moniliasis) that has negatively affected their plantations, something that doesn’t happen here on the Island,” the Secretary points out.

“Up to now,” Comas continues, “we have collaborated on several projects with Chocolate Cortés (a longstanding Puerto Rican company, see INVESTinG Puerto Rico #1, 2014) and have incentivized the planting of cocoa seedlings for smaller harvests. There is so much potential; we’re more than willing to sit down with any investor who would like to cash in on this endeavor and see how we can boost new cultivations.”

Parallel18 (P18), an incubator for emerging businesses, has already attracted two companies focused on new agricultural innovations and methods. P18 aims to strengthen the business potential of this industry and its multi-sectorial impact on the supply chain.

UAV-IQ

Precision Agriculture (California) utilizes remote sensors and drones to offer comprehensive services in data collection, analysis, and agricultural data management.

E-Farm, LLC

This new app connects “foodies” that want to purchase organic produce to the farmers that cultivate their crops with sustainable and organic practices.

Rice: the tiny giant A small grain with enormous business opportunities, rice is also a serious contender for investment and local development. Aside from massive local consumption, Comas points out that “brown rice also has great potential. We’ve harvested over two million pounds and have sown 300 acres of it.”

The DA leader continues: “The goal is to introduce locally-grown brown rice into the conventional market (as opposed to a niche or specialty market), and the numbers show that it’s a viable endeavor. It’s pretty clear that there is indeed a potential market for brown rice of both the long-grain and medium-grain varieties. This product, which is currently imported, is generally sold at a price of $1.50 per pound but can exceed $10 per pound depending on the type. And it’s selling because brown rice consumption is undeniably on the rise. Puerto Rico maintains lands in the northern region that were once planned for rice cultivation; now it’s just a matter of restoring the fields. Interested investors, take note!” emphasizes Comas.

55

Commercial Opportunity 74% of Puerto Rico’s fields are available Fruit en route: exporting Puerto for agricultural Rico’s tropical fare development. Fertile When talking about delicious tropical fruits, Puerto Rico —to a great extent— tastes like mango, “a product of excellence” in Europe. Export and virgin, these lands companies like Martex Farms understand the business advantages of this inside and out (see INVESTinG #1, 2014). Creating 700 jobs, mango offer an amazing crop is planted on about 5,000 acres of land located among the municipalities of Isabel, Juana Díaz, Ponce and Guayanilla; its consumption overseas opportunity to Santa extends all the way to Israel.

But Puerto Rico also tastes like pineapple, another delicacy that strives cultivate organic to recover its supremacy in local agriculture. Comas believes the moment has arrived: “we have significant potential to produce pineapple not only for products. the Puerto Rican market, but also for the U.S. institutional market, where they give preference to domestic products. The only suppliers are Hawaii and Puerto Rico, and pineapple production in Hawaii has significantly decreased. Therefore, there is an immense opportunity to export to the U.S., as we would have no competition. We have very good pineapple growers in Puerto Rico, but we need to develop greater capacities for processing and canning.”

A similar issue faces the production of plantains, which have great potential for federal institutional markets (like prisons). Comas states that “we could be selling ‘maduritos’ or ‘tostones’ to these markets, where we don’t have competitors; however, we are not doing it on a large-scale.

Nevertheless, I recognize the potential, particularly in the establishment of packaging plants like Núcleo de Farináceos del Este, which has been integrating new machinery; Vía Andarina in Salinas, where they also do processing; or Judén, an enterprise that has grown exponentially in the San Sebastián-Moca area to process both plantain and breadfruit. And there’s a lot of room left in the market for more processing plants.”

Agricultural Professionals Puerto Rico’s highly qualified labor force not only offers potential investors a pool of professionals with impressive business experience and/or academic credentials; it also coincides with an industrial panorama that puts emphasis on activities requiring specialized labor over labor-intensive activities.

Pablo Jiménez, director of the Agriculture Education Program within Puerto Rico’s Department of Education, highlights that individuals pursuing this discipline “are receiving workforce training for a broad spectrum of business skills and, in entrepreneurial terms, are thinking about establishing small-scale projects, ready to enter the supply chain for large-scale agricultural enterprises.” On a basic level, agricultural education is offered in Puerto Rico’s public school system at 126 schools serving 16,000 students with 157 teachers. Specialized tracks with high demand include operating machinery, welding for agricultural equipment, hydroponics, agro-ecology, landscaping design, and grafting.

Local fare for local livestock The Island’s new agro-industrial agenda also draws attention to the production potential of feed for dairy cattle. In fact, Comas reveals that various projects have already been launched to produce sorghum and corn.

“For the dairy industry,” she explains, “65% of the production costs go toward fortified feed, and 100% of fortified feed used in the country is imported. But things are quickly changing; these projects have demonstrated Puerto Rico’s ability to produce sorghum and corn, substituting a portion of imports with local products.”

However, the growth of such projects will largely depend on the land available on the coastal plains, much of which is under private ownership.

Comas goes on to clarify that “the Land Authority of Puerto Rico has nearly 2,000 acres of land in the region available for agricultural development.

However, the plots are fragmented and lack the continuity needed for the large-scale cultivation of these crops. We’re working with an agricultural land bank that will determine the private areas where we can promote this crop.”

Moo-ving on up: A new market for the dairy industry

Another great prospect linked to the country’s dairy industry is the development of gourmet products, like butter and cheese. “In Puerto Rico, we have a huge market for these kinds of specialty products. Enterprises like Vaca Negra have been steadily growing, but they don’t have the capacity to meet demand and gourmet cheese is still being imported,” Comas emphasizes.

Of course, these local production gaps pave the way for investors interested in setting up their dairy plants. And something like that is happening with a group of stockbreeders in San Sebastián.

The Secretary confirms that these entrepreneurs “have a wonderful proposal with excellent market research. They have already procured some of the equipment and now need investors to back the rest of the project.

What’s more, they’re being advised by someone with a doctorate in cheese manufacturing. We are talking about a total investment of around $4 million; about $1 million has already been invested in equipment and facilities, so entrepreneurs are on a quest to secure the last $3 million in order to see their operation through.”

57

FILM

Chickens don’t fly, but the industry does

gathering

And, finally, another important goal for the DA is to bring the poultry industry back to the strength it once had, when enterprises like To-Ricos and Picú supplied 54% of the chicken consumed on the Island. “Local poultry production barely makes up 18% of our consumption,” the Secretary said.

“We have two closed poultry processing plants that must be renovated to meet certain standards before they can become operational. For investors interested in the project, it’s worth mentioning that we have about 70 experienced poultry farmers waiting for those plants to reopen. With the right investments, we could witness the reestablishment of a prestigious industry in Puerto Rico — one that is capable of meeting the high demand for local poultry,” the official concluded.

Feeding our future The Food and Agriculture Association of Great Britain estimates that the world population will approach nine billion people by 2050, a 47% increase from the current population estimate.

According to Jim Carroll —the famous trends and innovations analyst who advises entities like NASA and The Wall Street Journal— this projected population growth presents an urgent need to creatively increase agricultural production, which in turn presents enormous business opportunities.

The constant flow of new technologies and innovations around farming, processing, packaging, and distribution is stirring up a real revolution in the global market. This is a market where the consumer and the farmer —immersed in novel “branding”

PUERTO RICO

A movie-like I

processes— strengthen direct cost-efficient ties while they grow profitable businesses.

Carroll recognizes that science acquires knowledge in leaps and bounds, offering solutions to countless problems and quickly turning them into profitable businesses, such as the innovations used to transform subsistence farming communities, for example.

Beyond biotechnology and avant-garde energy production progress (which obviously reduce costs and increase productivity), Carroll highlights that there are about 19 million known chemical substances, a figure that doubles every 13 years.

This implies that the start of the 22nd century is likely to bring that total to around five billion, with potentially huge effects on agro-industrial technology.

Bananas from the Chiquita brand, just to mention a specific case, are coated with a membrane that doubles their capacity to stay fresh once they reach the shelves. Likewise, the tendency toward intelligent packaging allows consumers to see the “history” of the product, confirm its origin, track transportation routes, and reveal its nutritional value.

In all these cases, the limits are defined only by the investor’s passion for risk and endless innovative spirit.

Secretary of Economic Development and Commerce Alberto Bacó Bagué (front row, right) and Film Industry Development Program Director Demetrio Fernández Manzano (middle row, far right), share a moment with a group of participants at the 30th General Meeting of the Conference of Ibero-American Cinematographic Authorities and the 12th General Meeting of the Ibermedia Intergovernmental Committee held in San Juan, Puerto Rico.

“Puerto Rico’s investment in CACI yields returns in the form of economic aid for film projects developed by Puerto Rican filmmakers.

In the past six years, the Island has invested $1.12 million and received $1.55 million, which represents a net gain of roughly 40%.”

Demetrio Fernández Manzano

n a historic first, Puerto Rico was host to the 30th General Meeting of the Conference of Ibero-American Cinematographic Authorities (CACI by its Spanish acronym) and the 12th General Meeting of the Ibermedia Intergovernmental Committee.

The gathering — organized by the Department of Economic Development and Commerce (DEDC) via its Film Industry Development Program (FIDP) — featured a special talk on international co-production and included the representation of multiple countries, among them Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, Guatemala, Mexico, Nicaragua, Panama, Paraguay, Peru, Portugal, Spain, Uruguay, Venezuela, and Puerto Rico.

As stated by Puerto Rico Film Commissioner and FIDP Director Demetrio Fernández Manzano, CACI’s main goals are to support film-related initiatives for the cultural development of towns and cities; harmonize national policies on film and audiovisual production; solve regional production, distribution, and screening conflicts; preserve cinematographic heritage; and enhance the market for cinematographic products through the adoption of national and international norms that foster a common Ibero-American film market.

Puerto Rico joined CACI in 2002 and since then has actively participated in the organization’s top programs: Ibermedia, Ibermedia TV, DocTV Latinoamérica, and the Audiovisual Ibero-American Observatory.

Through its Film Fund, Puerto Rico provides local filmmakers with essential funding for a number of purposes, including the ideation, development, and coproduction of audiovisual projects; production of documentaries for Latin America’s public-access television; screening of Puerto Rican movies on Ibermedia TV; and access to educational and archival material via a cultural platform known as Pantalla CACI. “Puerto Rico’s investment in CACI yields returns in the form of economic aid for film projects developed by Puerto Rican filmmakers. In the past six years, the Island has invested $1,123,284 and received $1,549,162 (a net gain of roughly 40%) to coproduce nine feature films, develop 15 cinematographic projects, produce four TV documentaries, and hold one specialized training event. Moreover, every year Puerto Rican filmmakers have the opportunity to participate in several workshops carried out by Ibero-American film experts,” highlighted Fernández Manzano.

“Art and creativity are two essential components of all peoples, as they reflect part of their mind and spirit. Incentivizing these types of activities helps boost economic growth in our countries and enhances our image in the rest of the world,” added the FIDP director.

Puerto Rico Film Commissioner

59

INVESTMENT

ACT 185

sparks a revolution:

Equity for all!

A powerful legal framework to promote equity funds in Puerto Rico

A

t the close of 2014, on November 12th to be precise, Puerto Rico enacted a measure that would mark a turning point for the Island’s financial landscape. At long last, Puerto Rico had created a legal instrument that would stimulate internal investment and provide local companies, especially small to medium-sized enterprises, with much needed capital to expand their operations.

Act 185, known as the Private Equity Funds Act, is arguably one of Puerto Rico’s best legal tools to boost economic development and capital investment. The name says it all – it is a measure that was designed to spur an equity-fund market on the Island, and at least seven companies have heeded the call.

In a nutshell, Act 185 allows both domestic and foreign limited liability companies, as well as partnerships, to elect to be treated as a fund under the Act, and thereby obtain substantial tax benefits under the Puerto Rico Internal Revenue Code.

Inspired by similar measures enacted in the United States following the 2008-2009 financial crisis, Act 185 is Puerto Rico’s key to access an investment sector that is currently valued at more than $100 billion worldwide.

Top executives at Parliament High Yield Fund (PHYF). From left to right: PHYF’s managing partners, Luis Cabrera Marín, Rodolfo Sánchez-Colberg, and José R. Otero Freiría, alongside analyst Malén Goyco and office manager Michael Beauchamp

Pioneering steps Parliament High Yield Fund (PHYF) was the first equity fund to operate under Act 185. “You could say we were the Act 185 guinea pigs.

While the whole process leading up to the measure’s enactment was a bit complicated, the wait was well worth it, as Puerto Rico now has a solid legal framework to support the development of equity funds. We’re talking about a law that contributes a wealth of economic development opportunities, especially for those companies that have no access to public capital markets, without negatively impacting other areas,” said Rodolfo Sánchez-Colberg, managing partner at PHYF. “Act 185 is not just about tax incentives,” he continued, “it is also the first legal mechanism in Puerto Rico’s recent history that truly incentivizes companies to develop local capital and reinvest it on the Island, as opposed to taking that capital abroad. Here at PHYF we follow a rigorous process to select companies with sound business models, repayment sources, and collateral. Our fund does not deal with companies that have a high exposure to public assets (such as bonds), nor does it finance start-ups, though sometimes we’ll look at young businesses.

“We are different from other investment funds in that we provide financing options (on the mortgage side rather than equity) to real estate companies and owners, which comprise a large portion of commercial financing. The capital for these ventures comes from investors who trust our track record as equity managers, as well as our investment strategies.”

Sánchez-Colberg also highlighted that “investor confidence is the reason why we’re planning to continue investing and raising capital until the end of 2016. Our goal is to raise $50 million by the end of the year via local investors, corporations, pension funds, and endowment funds. We view PHYF as a profitable conduit to expose local investors to local risk. And the incentive to do so comes in the form of yields that currently stand above 8% and might even go as high as 10%.”

The executives of another Act 185 fund have similar thoughts on the matter. Semillero Ventures LLC (SV) describes itself as a growth-stage private equity investment fund specializing in agriculture, food, agribusiness, and agricultural technology. The first of its kind in Puerto Rico, Semillero Ventures is especially important when taking into account that the Island’s agribusiness sector has become one of its top economic drivers.

SV’s general partners —Alexander Borschow, Gualberto Rodríguez III, and Jonathan Lassers— recently explained during an interview with INVESTinG Puerto Rico that their equity fund “invests capital, knowledge, and market intelligence in growth-stage companies to help them meet local demand and potentially move on to export their goods and services. We are currently raising capital for the first fund with the hope of making our first set of investments before the close of 2016.”

“SV owes a debt of gratitude to Act 185,” said Borschow. “The measure provides unparalleled incentives for investment funds that are seeking to inject capital into local businesses. This was a crucial aspect that was lacking in Puerto Rico’s financial ecosystem until Act 185 came along.”

“Act 185 provides unparalleled incentives for investment funds that are seeking to inject capital into local businesses. This was a crucial aspect that was lacking in Puerto Rico’s financial ecosystem until Act 185 came along.”

Alexander Borschow General partner at Semillero Ventures

61

A nod of approval from regulatory authorities Rafael Blanco, head of the Office of the Commissioner of Financial Institutions (OCIF by its Spanish acronym) —the government agency that accredits investment advisors in Puerto Rico— describes Act 185 as a measure that gives small and medium-sized businesses the opportunity to access growth capital.

“Because Act 185 targets certified private equity funds, these don’t need to register with OCIF, which means our agency has little power over these types of investment firms. All that is required of these funds is just a few periodic examinations and audits,” stated Blanco during a joint interview with OCIF Assistant Commissioner Damaris Mendoza.

A unique opportunity for investors Another vocal supporter of Act 185 is Myrna Rivera, president of Consultiva Internacional (CI), a Puerto Rican financial advisory firm managing more than $3.2 billion in assets that focuses on the design and implementation of investment strategies.

Rivera (WealthManagement.com’s top pick for their 2015 list of women-owned Registered Investment Advisors) pointed out that “during the 90’s, the U.S. passed two pieces of legislation that severely affected Puerto Rico’s economy. One was NAFTA, signed in 1994, and the other was a bill ratified in 1996 that effectively eliminated Section 936 of the U.S. Internal Revenue Code.

“Puerto Rico wasn’t the only U.S. jurisdiction that suffered the consequences of NAFTA. The international treaty also hurt industrial cities such as Pittsburgh, Baltimore, Buffalo, and Detroit, which lost a large number of companies and jobs. When we look at the strategies employed by these cities to reconstruct their economic models, there is one distinct and fundamental element that consistently sticks out: venture capital. Soon after NAFTA was enacted, all of these places started to develop and/or strengthen their private equity investment networks.

“In Pittsburgh, for instance,” explained Rivera, “higher-education institutions like Carnegie Mellon University and the University of Pittsburgh immediately began to research and replicate —to the extent possible— the same economic models that were used in Silicon Valley.

Part of this approach entailed capitalizing on patents and research conducted by universities.”

Rivera estimates that Puerto Rico would have to create 50,000 jobs with an average annual salary of $30,000 to $35,000 in order to generate an additional $300 million in tax revenue. “To achieve these figures, we have to develop a private equity investment sector that is large enough to provide investors with competitive yields. And by large, I mean $1 billion or more.

“Act 185 offers local investors a unique opportunity to reinvest capital in Puerto Rico, and that is precisely the type of investment we need. I’ll be the first to admit that we’re about 20 years behind… Nevertheless, we have more than enough capital to become our own first investors. All we need to do is find the right opportunities and advertise our success stories; the arrival of fresh capital will surely follow,” Rivera concluded.

PUERTO RICO

“Puerto Rico has more than enough capital to become its own first investor.”

“Given private equity funds are not federally regulated, they are more flexible when providing credit lines – something that was especially helpful in the aftermath of the 2008-2009 crisis, when the banking sector was severely constrained in terms of risk and was subsequently imposing stringent controls that very few companies could comply with.”

Rafael Blanco Puerto Rico Commissioner of Financial Institutions

“Much like high-risk funds in the U.S., the funds that Act 185 seeks to promote are those that have deep pockets and are well-acquainted with risk. These types of investment firms can be very beneficial to a growing economy thanks to their ability to both circulate large amounts of capital and offer financing sources and margins that are not available at traditional banks. Given these funds are not federally regulated, they are more flexible when providing credit lines – something that was especially helpful in the aftermath of the 2008-2009 crisis, when the banking sector was severely constrained in terms of risk and was subsequently imposing stringent controls that very few companies could comply with,” recalled Blanco.

“While Act 185’s tax structure is a bit complex, it provides investors with several tax exemptions, regulatory flexibility, and highly-competitive corporate income tax rates,” noted Mendoza. “What’s more, these funds can opt to register with the Securities and Exchange Commission (SEC), which allows them to sell stock in any part of the U.S. All they have to do is notify each state, pay a fee, and submit the corresponding documents.”

“Private equity funds don’t have to register with OCIF, so we don’t have a running list of all the funds that are operating in Puerto Rico, nor do we know how much money they’re transacting. The reason for this is that Act 185 is specifically designed to attract accredited equity funds to Puerto Rico. These funds have the option to file a special SEC form known as Reg D. If they do, they must then file a Reg D notification with OCIF, as well as provide OCIF with their consent to be summoned and pay all corresponding fees. Alternatively, they can file an exemption application under Article 402(b)(14) of the Puerto Rico Securities Act, which only regulates local transactions. We have yet to receive any exemptions for this Act from private equity funds,” disclosed Mendoza.

Myrna Rivera President of Consultiva Internacional

According to information provided by OCIF, the regulatory agency has filed administrative determinations (or rulings) for the following private equity funds: • Parliament High Yield Fund, LLC – 01/21/2015 • McLarty Bluhaus Capital Partners – 06/11/2015 • Latin Media Fund – 06/19/2015 • Larx Fund I, LP – 07/22/2015 • Popular Mezzanine Fund, LLC – 07/23/2015 (BPPR) and 08/3/2015 (Popular Securities) • Encanto Opportunities Fund I, LLC – 12/22/2015 • Acrecent Income Fund, LLC – 04/20/2016

63

INSURANCE

Profound synergy between Acts 273 and 399

Puerto Rico: P Ensured success for the insurance industry PUERTO RICO’S INSURANCE INDUSTRY

$10 billion

Average total premiums

Third Latin American market with most premiums per capita after Brazil and Mexico

uerto Rico continues to advance rapidly within a market that is as complex and specialized as it is global and profitable: the combination of insurance, reinsurance, and captives. This industry is characterized by a corporate structure that currently consists of 7,000 international companies with a total value of over $500 billion. So say the company heads who have chosen the Island for these activities, taking advantage of the synergy between Acts 273 and 399 to establish their operations at the International Insurance Center of Puerto Rico (CISPR by its Spanish acronym).

Four high-level executives of companies that have made CISPR their new home recently contended that the Island's legal framework, tax advantages, excellent technical personnel, and expedite procedures make it an attractive and efficient setting for their alternative financing operations in the global market. Their comments – recently voiced at the 2016 Puerto Rico Investment Summit (PRIS) in San Juan – underline the importance of CISPR as the only jurisdiction certified by the National Association of Insurance Commissioners (NAIC) and the Latin American Association of Insurance Supervisors (Asociación de Supervisores de Seguros de América Latina, ASSAL).

CISPR has not only won the respect of the global market; it has also become an economic force on the Island, where the premiums earned by these insurers reached $220 million in 2014 — a 48% increase from the previous year. This line of products contributes to the total premiums of the insurance industry in Puerto Rico, which already averages $10 billion, making the country the third Latin American market with most premiums per capita after Brazil and Mexico.

Even in light of Puerto Rico's critical fiscal landscape, the executives stressed that the opportunity to attract capital and investment to the Island through CISPR is real and extensive.

The panel of experts analyzed the Island's financial services and the synergies between new local laws that maximize banking and insurance business opportunities, as well as its tax advantages for new risk financing structures. The group included Walter Keenan, CEO of Advantage Insurance Holdings, Ltd (AIH); Mark Jacobs, president and CEO of Captive Alternatives, LLC (CA); Tom McOsker, CEO and founder of Bespoke Capital Markets Group (BCMG); and Cesar Gueikian, co-founder of Melody Capital Partners (MCP).

From left to right: Walter Keenan, CEO of Advantage Insurance Holdings, Ltd., Cesar Gueikian, cofounder of Melody Capital Partners, Mark Jacobs, president and CEO of Captive Alternatives, LLC, and Tom McOsker, founder and CEO of Bespoke Capital Markets Group, participate at a panel — “Financial Focus: Synergies between Acts 273 and 399” — moderated by Jeanelle Alemar-Escabí of JAE Legal (seen right) and held during the most recent iteration of the Puerto Rico Investment Summit.

PUERTO RICO

Four convincing testimonies Keenan's company, AIH, deals in specialized insurance and manages capital in excess of $2 billion in captive company assets, including all branches of insurance and reinsurance. The executive informed INVESTinG that the firm has established three affiliates in Puerto Rico and hired 12 specialized employees. With headquarters in New York, AIH also operates in the Cayman Islands (a British Overseas Territory located northwest of Jamaica), from where it moved part of its business to San Juan with the goal of broadening its Puerto Rican operation.

Keenan considers that CISPR "surpasses Bermuda in many aspects, largely due to Puerto Rico’s advanced legal framework, specialized labor force, market accessibility, and vibrant lifestyle. That's a lot to say. Bermuda is home to the greatest concentration of alternative and captive financing in the world, with 25% of the global market, about 1,000 captive operations, and assets estimated at over $50 billion.

"I am genuinely surprised. I didn’t expect CISPR to be so agile and efficient, which allowed the company to set up operations in Puerto Rico in under six weeks," said Keenan.

“What's more,” he praised, “CISPR has been riding the wave of state-of-the-art investment products.”

Similarly, CA president Jacobs stated his firm plans to use Puerto Rico to grow its global legal and financial protection business, in risk management as well as in all stages of services for captives. "All the legal and business conditions are there for our operation in San Juan to continue expanding," confirmed Jacobs, whose local activities have already generated 17 professional jobs.

CA has registered around 100 units of Protected Cells with CISPR and is adding at least another 30 from the British Virgin Islands. In 2015, CISPR managed to certify CA's units – each one considered an insurance company with regulatory rigor in the short span of six months.

McOsker, whose firm BCMG has its corporate headquarters in San Juan, indicated he is in charge of providing investors and governments with the capital market instruments that allow them to gain revenue and liquidity in the property tax lien business. In 2014, BCMG acquired the largest BLOXTrade secondary tax market; this line of business is highly technical and sophisticated, typical of large financial companies and institutions as well as specialized investors.

Praising the talent and technical quality of the Island's work force, McOsker said he is benefitting from Acts 20 and 22, which, among other things, provide for the relocation of wealthy investors to Puerto Rico and the establishment of service companies aiming to export their services globally. This panelist described the current legal system as a door to quality human resources and endless possibilities offered by the Island, highlighting the fact that, since it first settled in San Juan, BCMG has created eight subsidiaries, mainly with local personnel.

Cesar Gueikian, co-director of MCP, expressed similar views. MCP is a business that meets the financing needs for risks with volumes that challenge the traditional capital market. “With clients in the United States and Europe, our business requires agility and efficiency,” said Gueikian.

MCP had already explored the Bahamas and Bermuda but found that he could respond even more rapidly and efficiently to client needs from Puerto Rico. So much so, that Gueikian plans to expand his activities to related businesses, such as telecommunications.

The four entrepreneurs contended that CISPR is a source of excellent opportunities. "If we weren’t doing well here,” they agreed, “everyone would know about it.

This is an unforgiving market that doesn’t make exceptions for anyone, but CISPR has given us the tools to succeed."

Tom McOsker, founder and CEO of Bespoke Capital Markets Group (far right) talks to the audience during the 2016 Puerto Rico Investment Summit.

Regulators speak Nicknamed "our Iron Lady" by the executives, Insurance Commissioner Angela Weyne-Roig explained to INVESTinG that "CISPR is very attractive for insurers and reinsurers in the business of assuming risks for a wide array of industries. In addition, there is a strong legal framework offering tax advantages to local entities and professionals who provide services to overseas markets."

"CISPR requires actuaries, brokers, reinsurance intermediaries, lawyers, accountants, telemarketing companies, and other professionals from the Island," Weyne-Roig highlights.

Rubén Gely, assistant insurance commissioner in charge of the CISPR, explains that the entity successfully manages the needs of businesses specialized in insurance and coinsurance in several international destinations, such as Greece, the United Kingdom, the United States, the Bahamas, and other islands in the Caribbean, as well as offering services to Lloyd's of London syndicates. In total, it is estimated that CISPR is home to over 150 insurance and reinsurance companies. Furthermore, the Island serves as a connection for transatlantic operations by insurers in Latin America.

The regulatory framework in Puerto Rico requires that companies certified by CISPR comply with income deposits, capital and surplus levels, and other actuarial and accounting requirements. The Puerto Rico Office of the Commissioner of Insurance (OCS by its Spanish acronym) regulates and oversees CISPR, and the Center's regulatory basis is contained in Chapter 61 of the Puerto Rico Insurance Code.

65

AEROSPACE

Ready for takeoff The world’s spaceport leaders stand ready to boost Puerto Rico into a new era of regional dominance

F

or the Puerto Rico Industrial Development Co. (PRIDCO), aerospace is no longer one industry among many, but part of the broader strategy to diversify the economy and find new sources of investment and jobs.

Today, with the Island’s early foray into the field yielding results deemed by most observers as beyond expectations, Antonio Medina’s latest prediction as PRIDCO’s executive director, calls for aerospace to par pharma as the Island’s primary manufacturing and industrial growth pillar, with the creation of some 50,000 direct jobs between now and 2030.

“In ten to fifteen years, aerospace should be as large as life sciences is today,” he told the audience, later repeating the bold statement when interviewed in his office by INVESTinG. Aerospace companies have already committed to the creation of some 3,000 jobs, as industry leaders Honeywell, Lufthansa Technik, Pratt & Whitney, UTC, Infosys, Ecolift, Arlet, and others establish or expand their local presence.

Coming before year-end are several companies that have pledged as many as 1,000 jobs each to the bulging industry. “I can’t say who they are at this point. An announcement will be made soon. But we are so excited to welcome them as well, and to consolidate what is now Puerto Rico’s firm position as one of the world’s premier aerospace hubs,” celebrated Medina.

Their work ranges from Lufthansa’s maintenance and repair operation (MRO) to Honeywell’s engine systems to Infosys’ and Infotech’s software development, and more. And sure enough, PRIDCO’s aerospace team is bent on keeping their foot on the accelerator.

But to frame this in the storytelling terms of a movie trilogy, we are now seeing Phase One: Aerospace Begins. Because when the PRIDCO chief issued the 50,000 foresight as part of a revealing panel at the National Space Society (NSS) annual conference held at the Convention Center Sheraton Hotel in mid-May, he was looking ahead to the first sequel, or Phase Two: Orbital Puerto Rico.

Beyond the Karman Starring is the coming production of one of the world’s primary spaceports at the former Roosevelt Roads naval base in the eastern municipality of Ceiba.

“We’re in the final stages of evaluating the acquisition of the required certification from the Federal Aviation Administration,” said Ricardo Ramos, director of PRIDCO’s Aerospace Business Unit.

Judging from public and hallway statements by leaders who visited Puerto Rico from around the world to attend the NSS event, the industry can hardly wait.

None was as emphatic as Chuck Lauer, head of business development for Oklahoma-based Rocketplane Global, a leading developer of commercial space vehicles, and an early pioneer and leading voice in the field.

“Roosevelt Roads is as uniquely positioned as any site to become one of the leading spaceports on the planet,” he affirmed during an extended and detailed presentation.

The breakthrough development, Lauer told the audience, is the dramatic recent drop in the cost of manufacturing Low Earth Orbit (LEO) satellites and high-speed suborbital passenger spaceplanes, creating vast new demand for both services and the spaceports that enable them.

To grasp Lauer’s and the industry’s excitement over Puerto Rico, a bit of Space 101 is in order. LEO, where

satellites are placed to orbit, is the zero-gravity band between 125 miles (200 km) and 1,240 miles (2,000 km) above the surface of the Earth. Suborbital, as the name implies, is the band below that, starting at 60 miles (100 km) above the Earth’s surface -- known as the Karman Line.

Normal airline travel happens at 30,000 feet, or roughly 5.7 miles.

Since the dawn of satellites in the 1950s and manned space exploration in the 1960s, launches have been made vertically, mainly by capsules and space shuttles attached to booster rockets and launched far from populations because of the noise and propulsion fire and debris.

Today, several companies are developing a new generation of LEO and suborbital spacecrafts that launch horizontally, like regular airplanes, with far less or no disruption to nearby communities. In 2012, SpaceX rejected Puerto Rico as a spaceport site because the company only launches vertically, and the Island does not have a sufficiently remote location. With the new class of spaceplanes being developed by several aerospace makers, that is no longer a concern.

“The combination of plummeting costs and the new space planes has created an enormous business opportunity, and that’s where Puerto Rico can step in and become a leader,” added Lauer.

“Roosevelt Roads is as uniquely positioned as any site to become one of the leading spaceports on the planet.”

Chuck Lauer

Rocketplane Global

PUERTO RICO

67

$126 M I L L I O N

total aerospace project investments as of May 2016

Jobs

AEROSPACE SECTOR GROWTH

Economic Impact

Lufthansa Technik 400 $166M

2013

Honeywelll Aerospace 300 $35M Seaborne 400

3,000 Jobs

UTC Aerospace 200 $24M Infosys

2016

5,000 Jobs

PUERTO RICO

300 $9.3M

Ecolift

20

Alert Aviation

30

Infotech

Satellite heaven

Supersonic growth

Satellites, already a $50 billion global industry, are expected to ramp up from about 150 annual launches today to more than one per day as early as 2020. There are 1,300 active satellites in orbit, providing services related to communications, weather, tech research, geological observation, navigation, and more.

“The new satellites are much lighter and no bigger than this podium, so they can be easily transported in smaller spacecraft and launched horizontally,” he explained, adding that Roosevelt Roads already has the basic infrastructure in place to become a leading spaceport on day one.

The former base boasts a mammoth 11,000-foot runway and its own water treatment and sewage facilities, as well as 110 miles of road and a large green buffer that separates it from the nearest populated communities.

Space technology development company SpaceInnova, based at Roosevelt Roads, has taken the lead in turning the facility into Spaceport Puerto Rico and was featured heavily at the NSS event in May. The company already serves Google Loon, the experimental Internet service being developed by the web giant using the launch of balloons from Roosevelt Roads.

The other, much talked about advantage of launching from Puerto Rico is the Island’s proximity to the Equator, which creates a faster boost and reduces the fuel and time costs associated with space launches.

“That is a huge advantage, to be the jurisdiction within the U.S. that is closest to the Equator in this part of the world,” added Lauer. “Puerto Rico allows the industry to reduce launch costs while offering all the protections and stability that come from still being in the United States. In the existing network of point-to-point spaceports around the world, and as new ones emerge, Roosevelt Roads can become the dominant hub in the mid-Atlantic location.”

The U.S. has several spaceports across the south, including facilities in Virginia, Florida, Texas, Oklahoma, New Mexico and California. Other countries manage spaceports near the Equator, most notably French Guiana and Brazil. “But they’re not in the U.S.,” emphasized Lauer.

Flashing a large image of the Atlantic, Lauer highlighted yet another advantage: “We can fly from Puerto Rico and go east, north or south and be over water, not over land, which is another thing we look for in a top-tier spaceport site.”

As important as that is for satellite launches, it is an even bigger deal for passenger space travel, an industry segment only now beginning to take shape.

Flamboyant British billionaire Richard Branson and his Virgin Galactic venture has been the most visible in this space, but other companies are head first in the development of the industry, including Rocketplane, Xcor, Mastern, Airbus, Armadillo, Japan Aerospace and Blue Origin -- the latter famously boosted by a large investment from Amazon’s Jeff Bezos.

Passenger spaceplanes will be suborbital, not LEO, the goal being to reach supersonic speeds once there to slash the travel time of long-haul flights. At the NSS event in San Juan, Xcor and Japan Aerospace executives spoke of reaching Asia in less than two hours from Spaceport Puerto Rico. Others look forward to similar speeds to and from Europe and other regions.

The world’s first foray into supersonic travel was made possible by Concorde airplanes —jointly operated by Air France and British Airways— which flew from 1976 to 2003 and averaged an altitude of 60,000 feet. Today’s variety is suborbital, making for faster times and therefore lower travel costs.

“With the population of high-net-worth individuals expected to mushroom in the coming years, mainly in emerging markets as they continue to grow and produce millionaires and billionaires, the business-jet industry will see an exponential increase and will become a fantastic opportunity to pursue,” surmised Lauer.

250 $11M

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The final sequel

“Puerto Rico is, bar none, the best tax jurisdiction in the U.S., and certain changes are in the works in other countries that will make us one of the top three or four in the world.”

Gabriel Hernández BDO Puerto Rico y Puerto Rico Is The Answer

Only in Puerto Rico Which brings us back to Medina’s 50,000 job expectation. “As important as the spaceport will be for the jobs created to service these launches and flights, we think the far bigger potential is having the spaceport serve as a magnet for companies to set up in Puerto Rico for all kinds of related manufacturing and economic activity,” he told INVESTinG. “One of the things we see at other spaceports,” added PRIDCO’s Ramos, “is that companies that use the facilities for launches also manufacture the satellites, launch vehicles and components, plus the technology and software, near the spaceport, and that’s what we intend to trigger here in Puerto Rico to get to that job figure.”

At the NSS event, government and industry participants from Puerto Rico walked the hallways and made presentations pitching the Island’s market-leading incentives to draw those players in, the same incentives that have led to such a rapid growth of the aerospace industry since 2013, namely Acts 73 for manufacturing, 20 for service exports, and 22 for executives who relocate to the Island.

“Puerto Rico is, bar none, the best tax jurisdiction in the U.S., and certain changes are in the works in other countries that will make us one of the top three or four in the world,” assured Gabriel Hernández, tax partner at the local office of global firm BDO and director of Puerto Rico Is The Answer, an independent business group that promotes investment on the Island.

PUERTO RICO

Hernández explained that Puerto Rico is the only place in the U.S. that is considered foreign for tax treatment and domestic for every other aspect of doing business, given the Island’s status as an unincorporated American territory.

“That means a company receives a favorable tax structure as if this were a foreign country, but with the exact same rules and conditions that apply in every one of the 50 states,” added Wilson Nazario, a local construction executive and part of the Puerto Rico team that facilitated the NSS conference.

While the May event highlighted Puerto Rico’s advantages and aerospace growth, much of the attention centered around issues of broader concern to the space industry as a whole, starting with the framing of the entire endeavor as, indeed, the space, not just the aerospace, industry and economy.

To be sure, aerospace accounts for roughly 65% of the $370 billion in global revenues generated by industry players. Of the rest, $50 billion is satellites, as mentioned above, and of the remainder, a growing chunk is coming from what NASA has dubbed the Journey to Mars.

In 2010, the federal agency and leading driver behind the industry launched a multi-billion dollar crusade to reach and settle the Red Planet starting in the 2030s. Development is well underway of the Orion spacecraft and rocket launchers to cross the daunting 140 million miles between here and there. Did we say something about movies? Well, last year’s blockbuster The Martian was not too far off!

While stranded in Mars, astronaut Mark Watney, played by Matt Damon, gives us a glimpse into what initial life might very well look like, fast forwarding to the day when early explorers and settlers will establish the pathways for the relocation of large populations from Earth.

What to eat, the medicines we will use, how we will live in Mars’ low-oxygen, lower-gravity, much colder, much drier conditions, the transport vehicles we will use, how we’ll communicate with Earth -these are some of the challenges being addressed by laboratories, universities and companies across the U.S. and around the world, as NASA and a slew of partners hurry to have living systems in place for our arrival.

The biggest private cohort is SpaceX, the American company led by climate-change entrepreneur Elon Musk, who also owns the world’s leading rooftop solar company and electric vehicle manufacturer.

SpaceX has become a leading NASA outsourced launch company, hauling cargo to the International Space Station in its private rockets and spacecraft. But Musk’s bigger mission is to settle Mars in case climate change renders this planet uninhabitable.

If it weren’t happening and real, it would indeed sound like pure science fiction, which brings us to the final leg of our trilogy, Phase Three: Red Planet.

“We are very much aware of all that Puerto Rico can contribute to the settlement of Mars,” said Medina when INVESTinG asked about the potential of directing the Island’s prowess in such fields as life sciences, food, IT and general engineering to the accelerating investments in Mars.

“That’s a next phase, though. For now, we must remain focused on growing the industry and developing the spaceport and everything that will come with it.”

In other words, stay tuned. The countdown has begun. And, that’s a wrap!

$370 B I L L I O N

GLOBAL EARNINGS OF THE SPACE INDUSTRY

65%

$240.5 BN

aerospace sector

21.5% $79.5 BN

NASA’s Journey to Mars (for the most part)

13.5% $50 BN

satellite segment

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