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20/22 ECOSYSTEM BILINGUAL & BICULTURAL
WORKFORCE
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U.S. LEGAL
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FRAMEWORK
INFRASTRUCTURE
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BUSINESS STAR
COMPETITIVE
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Puerto Rico is now positioned as a business center with an unprecedented global reach.
Changes in paradigm Puerto Rico, more competitive than Miami and closer than Singapore From Hands to Work to Minds to Work
From single Acts, to a program, to a movement Second grand economic transformation A post-industrial economic module; a transition to a service and knowledge economy, an inflexion point towards a Modern Puerto Rico
Rebirth of an entrepreneurial spirit The gateway to the United States is not Miami, its Puerto Rico
Bilingual and bicultural Puerto Rico has full potential to become the Hong Kong of the Caribbean, for those with an entrepreneur thirst, the Wall Street of the Caribbean for those with a keen business vision, and the Las Vegas of the Caribbean for the free spirited.
The time is now!
T
he 21st century demands novel responses to the challenges and opportunities of the global economy. As times change, what bore fruit in the past must be updated if we are to reach new goals that benefit everyone. This is what we have steadily begun to achieve in this administration, against all odds. By the end of the section 936 era, Puerto Rico ended a cycle of economic wellbeing and growth. A period of 16 years of uncertainty followed, as opportunities shrank and the economy showed clear signs of tumult. With that preamble we assumed the task of setting a new course for the economy. We began with the resolution that this was going to be a turning point for building a base that would once again open doors to development and economic growth. We had to build a new paradigm, a strong base that would sustain the ambitious building that we set out to erect. We tasked ourselves with expanding into four general directions, beginning with the diversification of the economy: promoting entrepreneurship, facilitating internationalization, promoting innovation, and expanding the tourist economy. To guide this process, we launched the promotion of laws intended to attract new sources of capital, human resources and knowledge. This task was done organically because all efforts needed to be articulated by a transversal axis. That axis is the combination of local talent and business talent that was beginning to show interest in doing business on the island. From that combination initiatives emerged in different areas that acquired new meaning when their managers decided to formally relocate to the island. Puerto Rico possesses immense wealth in its entrepreneurs. We must urgently expand the reach of that talent in order to open doors to new markets. For that reason we structured a strategic plan with such a competitive tool as Act 20, whose incentives facilitate the export of goods and services from the island. This was just the spearhead to generate an internal movement that grew as economic activity resized. Parallel to this we created the conditions to attract business talent from abroad to the island in order to produce spontaneous linkages. Entrepreneurs who formally moved to the island under Act 22 set in motion a whole chain of value-generating activities. They identify with the community, make it their own and promote its well-being. They sponsor trade and cultural activities and become ambassadors of Puerto Rico to other people considering the island in the future. In addition, with their business activity -- 30% establish their companies in Puerto Rico under Act 20 -- they generate jobs, new sources of capital, and knowledge transfer, among many other things. These people become the best promoters of the new Puerto Rico we’ve sought to create. Today we can say that new investment epicenters have emerged in Puerto Rico with expansive waves of opportunities that will acquire a larger dimension with the passage of time. Many diaspora Puerto Ricans today consider returning to join this historic wave. Their presence is already seen and felt. Tourism, aeronautics, modern agriculture, technology and the export of services are just some of the categories taking off. From these areas and many others, opportunities are arising to build the future. Like any newly planted garden, its well-being must be tended to ensure that it grows properly. But we must dream big. Only then will we complete the new stage that we began from a strong base. With boldness and courage, for the good of all citizens! Minds at work!
Alberto BacĂł BaguĂŠ Puerto Rico Secretary of Economic Development and Commerce President of the Government Development Bank for Puerto Rico
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Secretary Alberto Bacó Bagué Deputy Secretary Juan Carlos Suárez Executive Assistant & Project Coordinator Patricia De la Torre de Haro
Year 3 • Volume 2 • 2016 Official Publication of the Puerto Rico Department of Economic Development and Commerce Special International Edition
INVESTinG Puerto Rico is a production of BizNet Media, Inc. www.biznetmedia.net Director / Editor in Chief José Julio Balmaceda jojubal@gmail.com Project Manager / Senior Editor Ivonne Brown Ieromazzo ivonnebrown64@gmail.com Copy & Translation Department of Economic Development and Commerce Photography Getty Images Official Archive of the Government of Puerto Rico Graphic Design Gretel Haeussler Badillo ABA CREATIVE GROUP Printing House Graphic Printing
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BizNet Media, Inc. www.biznetmedia.net President José Julio Balmaceda jojubal@gmail.com (787) 607-1013 BizNet Media accepts voluntary professional collaborations without the promise of publication or circulation. All contributions submitted to the company, including graphic material, will not be returned. With the purpose of ensuring editorial quality, BizNet Media reserves the right to make stylistic changes to contributions and/or interviews submitted to the company. Neither the DEDC nor BizNet Media are responsible for the expressions or images of collaborators and/or advertisers. Please submit all correspondence, press releases, and collaborations to: jbalmaceda@biznetmedia.net Contacts: (787) 607-1013 • (787) 398-3711 Corporate Address: 472 Calle Cabo Alverio • San Juan, PR 00918-2619 Ext. Roosevelt, La Merced, Hato Rey All rights reserved. Partial reproduction of this work is allowed, provided there is express consent from INVESTinG Puerto Rico and all sources are properly cited.
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PUERTO RICO
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ACTS 20-22
TRADITIONAL ECONOMY
ENTREPRENEURSHIP
CREATIVE INDUSTRIES
OUR ASSETS
MODERN PUERTO RICO
ACTS 20/22
A NEW VISION for a modern Puerto Rico T
he challenges facing Puerto Rico's economy stem from the transformation in the global economy in recent decades. However, adaptation for survival and growth was always an imperative and a focus of the Department of Economic Development and Commerce efforts to internationalize, diversify and integrate the Puerto Rican economy. Acts 20 and 22 were two anchors, stimulating the export of services and attracting companies that made the island their base of operations, respectively. Both respond to fundamental changes in the model, adjusting to the needs and possibilities of the world economy. It is important to note that the effects of these two acts must be considered simultaneously. Act 22 attracts new capital and knowledge, and Act 20 facilitates the export of services from both new and existing businesses, while contributing to economic diversification. The paradigm shift began with a recognition of laws that were favorable, but lacking vision and strategy. Putting together a new promotion model for PR that evolved from "Hands at Work" to "Minds at Work" set in motion a process of strategies to market the laws as complementary and powerfully synergistic. This is a significant change because no one had looked at them this way before, and it’s one of the reasons why Act 20 had not taken off when it existed as a concept many years ago. Similarly, Act 20 became an axis so that people who moved to Puerto Rico under Act 22 had the opportunity to establish and develop businesses and not just be passive residents. All this has unleashed unprecedented new energy, vision for development, and economic activity. 4
The benefits provided by Acts 20 and 22 play a key role in advertising Puerto Rico as an investment destination. Promoting these benefits will continue to bear fruit to the extent that we can adequately capture their collateral value. These two acts have provided valuable knowledge and capital that have allowed local business to innovate and export their services. The interconnection of these business, along with the right public policy, has the potential to create a new business landscape with high-quality and high-paying jobs.
The combined effect of both laws goes beyond their mere application: these new residents create a unique synergy. By moving their companies and families to the island they integrate into the culture according to their interests and they strengthen long-term ties. This new capital results in a source of investment and capital for start-ups and SMEs. Along the way they meet residents with whom they discover affinities, which then become new alliances and businesses. Everyone becomes an ambassador for the island as the base for their lives and businesses. This in turn draws the attention of those Puerto Ricans in the diaspora who emigrated for employment reasons and who, through the incentives laws, began to see how they could find jobs in their respective trades by returning home, which didn’t happen in the past. Santurce is the best example of an urban center in the process of transformation thanks to the economic activity generated
by these incentives. It’s particularly apparent in the Ciudadela complex, where the Colaboratorio of the Foundation for Puerto Rico and Parallel18 are located -- both important "start-up” centers -- and also on Loíza street, where several restaurants and small shops have opened. Creative industries have found a niche for their theaters and galleries across Santurce. This is an unstoppable trend that has the potential to be replicated in other parts of the island. Acts 20 and 22 and their benefits play a determining role in marketing Puerto Rico as an investment destination. Its promotion will continue to bear significant results if the collateral value that the sector produces is captured effectively. The knowledge generated has served to innovate and train new local companies to export their services. Potential linkages coupled with corresponding public policy can drive new developments with high-quality jobs and gains.
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High impact INCENTIVES The Department of Economic Development and Trade (DDEC) commissioned a study by Technical Studies Inc., on the impact of Acts 20 and 22. The latter concluded that incentives laws could generate more than 56,000 jobs over a 10-year period. The study shows that Acts 20 and 22 attract companies and individuals that help generate high-paying jobs in a variety of industries. It is setting the stage for a diversified economy oriented towards services and exports, transcendent steps for the future of the island.
ACT 20
Most of the companies requesting Act 20 decrees are concentrated in advisory services in advertising, public relations, finance, management, law, taxes, accounting, computer programming, engineering and production of construction plans. 20% of applicants are local and 80% are from abroad. 65% of these are for the United States market, followed by the Dominican Republic and Mexico. Two of the main success indicators are job creation and investment generation, which are usually of high quality and high added value, respectively. The average job pays about $45,000 annually for a total annual payroll of $79M. This figure is double the current average salary in the public and private sectors, which is $28,000 per year. Initial investments are concentrated in real estate, which is characteristic of companies that start operations on the island. This confirms that these are primarily companies from abroad. Companies operating under Act 20 report revenues of $1.2B, which generate $20M in payment of corporate taxes. Net income levels demonstrate that these are highly profitable businesses. At present, some 2,351 Act 20 decrees are expected to be issued in the decade from 2015 to 2024, generating an average of 4,237 jobs per year for a total of 44,656 employees. The corporate tax collection for this period should reach $809M.
ACT 20
ECONOMIC IMPACT 2012-2015
7,033 3,349
Total jobs (direct, indirect, and induced)
$137.1M
Total direct jobs
Total payroll
$42,496
Average salary
$1,200 BN
Total revenue generated by Act 20 companies
$34.4M
Corporate tax revenue
ACTS 20/22
Act 20 lends dynamism to the economy given the flexibility of services offered. The companies that take advantage of its benefits specialize in services of high added value, with high-level specialized skills that allow them to enter competitive markets. Its effect on the Gross National Product (GNP) could be up to 1%.
ACT 22 ECONOMIC IMPACT 2012-2015
ACT 22
In the case of Act 22, the beneficiaries are consultants, financial brokers, entrepreneurs, and investors. 89% previously resided in the United States (Florida, Texas, California, New York and Illinois), while 11% were in other countries (Venezuela, United Kingdom and Spain). Investment in real estate has had the greatest impact, helping to alleviate the excess inventory of properties that existed before the implementation of the law. Total investment is estimated at $266M, while the average value of each property fluctuates between $1.1 and $1.8M. A prime example is Putnam Bridge, which has invested $300M, and Paulson & Co. with an estimated investment of $1B. The figures above do not include the indirect effects of these activities, such as the creation of new businesses aimed at providing services to the beneficiaries of Act 22. It is estimated that the beneficiaries spend about $73M per year. It is projected that that Act 22 sector will generate 1,195 jobs annually, for a total of 11,945 jobs in the decade spanning 2015-2024.
$228.4 M
Planned capital investment
$73 M
Total spending by Act 22 participants
52%
Percentage of Act 22 participants who have established a business in Puerto Rico
2,483
Jobs generated by Act 22 businesses (excluding Act 20 businesses and domestic work)
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Durante un foro celebrado por Bloomberg en New York, de izquierda a derecha: Keith Grossman, Head of Sales, Americas, Bloomberg Media; Gina Biondo, Tax Partner PwC, NY Office; Mark Graham, Presidente Blue Alternative Asset Management, LLC.; Walter Keenan, CEO Advantage Insurance Holdings Ltd.
ACT 399
Another innovative tool has been the creation of a Centro Internacional de Seguros (International Insurance Center) through Act 399, which will maximize opportunities in this sector. Its objective is to project Puerto Rico as an alternative for international insurers and reinsurers interested in the North, Central and South American markets. This is achieved by maximizing the utility of the tax regime, providing the local industry with a viable business alternative and attracting holding companies to do business on the island. This law established the legal basis for developing the International Insurance Center in Puerto Rico. Its versatility allows new operations plans at the company level, with segregated plan assets and risk valuation. In addition, it allows international insurers and reinsurers to export insurance and services, and provides tax exemptions for transactions and operations between the international insurer and the holding company.
ACT 273
In the same vein, Act 273, also known as the International Financial Center Regulatory Act, was conceived as a vehicle to convert Puerto Rico into a relevant international banking center. The law provides for the organization
ACTS 20/22
of international financial institutions under the regulations of the Office of the Commissioner of Financial Institutions, and seeks to expand the Center’s marketing potential by significantly increasing promotion and knowledge of the island through financial circles around the world. Puerto Rico offers many favorable conditions for international financial transactions, such as its political stability; the solidity of its banking system; the close economic relationship with the United States; the high degree of professionalism, bilingualism and technical capacity of its human resources; a unified market and monetary system; its privileged geographic position; and a duly developed communications network. In turn, the Center allows for expansion of the services sector, the direct and indirect creation of jobs and the growth of economic activity. The global economy requires economic actors who know how to insert themselves into opportunities by adding value and producing new modes of wealth generation. Puerto Rico is heading for this renewed modernization, taking advantage of its talents to set them free throughout the world’s most important cities.
MULTINATIONAL COMPANIES plant their flags in Puerto Rico PRICEWATERHOUSE COOPERS (PwC)
Dedicated to providing professional services in quality control, taxation and consulting, the company established a division to offer tax payment compliance services in its Puerto Rico office. From Puerto Rico they offer services to their portfolio of clients in the United States with a team of about 125 employees mostly contracted locally.
BOLD
This online job consulting company offers technology solutions for employers that it is testing in different markets. They moved their main office from New York to San Juan and are actively recruiting for their IT department, customer service and marketing. They have 20 employees in the main office and 85 in a call center that moved to Puerto Rico from the Philippines.
BCMG
Bespoke Capital Markets Group (BCMG) specializes in the structuring and trafficking of property tax liens. In addition to the advantages of acts 20 and 22, they take advantage of acts 185 for the promotion of private investment and 273 for the establishment of international financial centers. They have eight subsidiaries on the island.
NEOLPHARMA
With an investment of approximately $20M, this important Mexican pharmaceutical company has used Puerto Rico to enter the US market directly and has its eye on Europe as the next step.
SANTANDER CONSUMER USA HOLDINGS INC.
Santander selected San Juan, Puerto Rico, as one of the locations for expanding their service operations in 2016. Their goal is to transfer the management and operations services of some loan portfo lios to the new Service Center in San Juan. 500 jobs were created.
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OFFICES ABROAD Puerto Rico as a strategic business partner PERU
PANAMA
COLOMB
IA
N A C I N I M O D REPUBLIC
DDEC officials sharing with directors of Puerto Rico’s commercial offices from around the world: Laura Carreras (Special Assistant to DDEC Secretary and commercial office coordinator), Awilda Mercado (Panama), Juan Carlos Suárez (DDEC deputy secretary), Alberto Bacó (DDEC Secretary), Isaura Delgado (Peru), German Monroig (Dominican Republic), and Luis Alberto Álvarez (Colombia).
ACTS 20/22
The decision to support the establishment of various offices in Latin America resulted from the conviction that it was the most effective way to attract people to investments on the island. For the first time, a specific strategy was designed to promote Puerto Rico as a business destination beyond the borders of the United States. Generating curiosity and then confidence regarding existing business opportunities requires commitment and consistency. Through international efforts, bridges have been created both for local entrepreneurs to access new markets and for investors and businessmen in the respective countries to appreciate the benefits that the incentives laws as a whole offer to them. What Puerto Rico has to offer is unique in the world. There is no other country in the world, nor any other US jurisdiction, that offers the same incentives under the protection of the legal framework of the United States. The most cost-effective entryway to the United States economy is Puerto Rico. Puerto Rico becomes a multi-directional gateway that applies to capital from Europe and Latin America to the United States and vice versa. This internationalization and new ways of using Puerto Rico as a strategic element in business structure represent a radical change.
PERU
In 2014 the office organized a trade mission for 12 companies from the island. In addition, it assisted three local companies -- KPG, MC21 and Mountain Citrus Producers -- in doing business with three homologous companies in Peru.
PANAMA
The office was established in 1990 and also covers Mexico and Central America, and has among its achievements getting the Caribbean Project Management, Brenda Marrero & Associates and Toledo Locks to do business in Panama. They have also encouraged financial companies to establish themselves on the island, with the support of Banco Popular and law firms such as Fiddler, González y Rodríguez and McConnell Valdés. In addition, they promote Puerto Rican literary works and films with remarkable success.
COLOMBIA
DOMINICAN REPUBLIC It is the oldest of the government offices abroad. The Dominican Republic is Puerto Rico’s main trading partner after the US. Since 2014 it has managed to increase exports by 70%. The local company selling the most products in the neighboring country is Indulac.
In the 15 months since its opening the office began to take concrete steps, helping Inmar Trading to sign its first contract and writer Silverio Pérez to be signed with Editorial Planeta for the publication of his first novel. Pharmaceutical Biogen recently established a manufacturing plant to export to the US, acquiring Eli-Lilly assets located in the municipality of Guayama, with an investment of over $92M and creating 350 jobs over the next 5 years.
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LOCAL BUSINESSES GROW through Act 20 JLS VENTURES JLS is comprised of two companies covered by Act 20. One exports financial consulting services to emerging companies in various sectors. The other exports management, marketing, and customer service services to a company dedicated to the online sale of consumer products for the United States market. They have increased their profits and gained greater flexibility for investment in growth rather than paying taxes. The benefits are huge and offer them a major competitive advantage. "Thanks to Act 20 we have increased our profits and obtained greater flexibility to invest in growth rather than taxes. The benefits are incredible and it offers us a huge competitive advantage."Justin Shreiber President JLS Ventures
"The benefits of Act 20 have helped us be more competitive while pursuing business opportunities outside of Puerto Rico, which we would not have such good chances of attaining otherwise." Manuel CalderĂłn Director V2A
V2ACTION V2A International is a management consulting firm that provides consulting services in strategic management, operational efficiency, organization and transactional support for clients in Central America, the Caribbean and the United States from its offices in Puerto Rico. In the past two years they have worked in Florida, the Dominican Republic, Panama, Ecuador, Honduras and Costa Rica.
EVERTEC The company is preparing to acquire 65% of the shares of the Colombian company Processa, as part of a strategy to expand its presence in Latin America. With this acquisition Evertec becomes one of the leading electronic financial transaction management firms. Carlos J. RamĂrez VP Ejecutivo Soluciones de Negocios, Evertec
ACTS 20/22
“La "Act 20 gives us the benefit that every service exported from Puerto Rico pays only 4% in taxes. We share that benefit with our clients, since we can provide the services of a world-class firm at a more competitive price." Ricardo Alvarez-Díaz, architect and founding partner of Alvarez-Díaz Villalón
ALVAREZ-DIAZ & VILLALON Alvarez-Diaz & Villalón Architecture and Interior Design is an architectural, planning and interior design firm with offices in San Juan, Puerto Rico and Coral Gables in Miami, Fl. It provides services for pre-development, programming, master planning, conceptualization, architectural design, interior design and general consulting, including a specialty in sustainable design. Since receiving the decree, the firm has developed designs in Miami, New York, Venezuela, Panama, Dominican Republic and Haiti, and in such remote places as Dubai (United Arab Emirates) and Muskat (Oman).
BMA GROUP BMA Group is a human resources consulting firm with operations in 22 countries in the Americas, the Caribbean and Europe. It provides headhunting services, outsourcing, and development consulting. In addition to marketing their services, PR offices provide shared services to international sales, marketing, finance and management subsidiaries.
"The benefits of Act 20 have given us [financial] relief to be able to invest more in our growth and in the development of our employees in Puerto Rico. In addition, companies arriving in Puerto Rico as a result of Act 20 have generated a flow of clients and new opportunities for Puerto Rican professionals. " Brenda Marrero President BMA Group
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POPULICOM, INC. PopuliCom is an advertising agency that exports communications services to customers in the United States and Central America. Among the exported services they have done strategic consulting, market research, ‘creative ideation’ to launch communication campaigns aimed at the US Hispanic market, interactive web and mobile platform design and consulting in communications plans.
"What the incentives do in our case is accentuate the advantages of doing business in Puerto Rico. They lower our costs and improve the software and application development offering. That advantage puts us in a better position when it comes to tendering projects and being competitive." Christian G. González Founder and CEO of Wovenware Inc.
WOVENWARE, INC. Wovenware provides software development services for enterprising customers around the world. Its applications run the operation of international companies in diverse industries such as health insurance, telecommunications, transportation and medical equipment. By 2014 it was exporting 24% of its sales and in 2016 that increased to 35%, all from Santurce.
ACTS 20/22
"It has been a great opportunity for us to welcome this great benefit that Act 20 gives us, since the work is the same but with a better profit margin. This allows us to continue investing in growing the billing of exported services." Guillermo Paz President Populicom
INNOVATTEL The company has been focused on the development and management of mobile telecommunications infrastructure for 13 years with the concept best known as BTS (BUILT TO SUIT). Through strategic projects in Latin America it has achieved purchase and sale transactions at values of more than $200M. The services provided to foreign entities are directed at general services such as accounting, human resources, consulting, engineering, and architectural design, among others, for the development of telecommunications infrastructure. The benefits of Act 20 prompted an ambitious project of international infrastructure development, with the operations center in Puerto Rico.
"Act 20 created the appropriate business circumstances to establish a multinational business structure that will simultaneously impact infrastructure development in different Latin American countries, from a hub in Puerto Rico." Manuel Avilés Avilés CEO Innovattel, LLC
PROJECTION and internationalization A paradigm shift like the one that Puerto Rico is experiencing requires a concerted effort. Maintaining credibility means being consistent with actions; therefore in the area of communications the DDEC has sought to reach new audiences and back up the message with specific actions. With this in mind, three conferences were organized for US and Latin American audiences, called "Puerto Rico Investment Summits" with the presence of important speakers such as John Paulson, Mohnish Pabrai of Pabrai Investment Funds and Michael Tennembaum, among others. These events generally emphasized Puerto Rico’s competitive points, among them highlighting the internationally unique opportunities provided by the incentives laws. The first summit held in 2014 brought together over 200 people and its celebration was a paradigm shift in the promotion of the island as a business and investment center. After an initial presentation by the Secretary of Economic Development and Trade, Alberto Bacó Bagué, several panels of experts and early adopters presented, sharing with the public their experiences in doing business in and from Puerto Rico. These events were so successful that two years later the Puerto Rico Investment Summit 2016 managed to congregate about 600 people and garnered wide international media coverage including the US station CNBC highlighting a
group of journalists reporting live from the event. Another event was directed at Latin American and Spanish-speaking markets, bringing together a distinguished group of international entrepreneurs highlighting concrete examples of companies established in Puerto Rico such as MAPFRE, Gas Natural Fenosa, Avertis and Banco Santander, among others. In addition to these multitudinous events, the DDEC has conducted "mini-summits" aimed at audiences and specific clients in different states and countries, including one held at Bloomberg’s headquarters, and another at the Israeli consulate, both in New York. These efforts were supported by trade missions to Colombia, Peru, Mexico, Panama and Chile. The DDEC regional offices monitored each one to produce concrete results. Puerto Rico’s international projection received a strong boost with events organized by the Spanish newspaper El País and its parent company Grupo Prisa, the first in 2014 in Puerto Rico, followed by two events organized in Madrid in 2015 and 2016. The first, "Investing in Puerto Rico" was attended by the president of Iberia airlines Luis Gallego and the company's CEO, Juan Luis Cebrián, and the second by Darío Villanueva, director of the Spanish Royal Academy, among others, combining business and cultural aspects in an event titled "Puerto Rico: Destino Global”.
The event “Puerto Rico, Destino Global” (Puerto Rico, Global Destination) was held in Madrid, Spain, this past November and organized by the renowned Spanish newspaper El País. From left to right: Fernando Gualdoni, editor in chief of El Pais’ business section; José María Gil Aizpuru, director of the Latin America division at Gas Natural Fenosa; Alberto Bacó Bagué, Puerto Rico’s Secretary of Economic Development and Commerce; Jaime García Legaz, Spain’s former Secretary of State for Commerce; and Emilio Ontiveros, president of Analistas Financieros Internacionales (International Financial Analysts). 15
TRADITIONAL ECONOMY
Puerto Rico strengthens its roots and grows T
he financial crisis was far from being the only challenge Puerto Rico faced. In the past the lack of an integrated vision for economic development was one of its most significant shortcomings. Alberto Bacó Bagué, Secretary of the Department of Economic Development and Commerce (DDEC, for its acronym in Spanish) understood that from day one, which is why he concentrated all his efforts toward a singular goal: creating a platform on which to erect a new economic model. It was not a simple task: a fear of change and an attachment to what’s already been done can threaten any proposal for change. For some, it was difficult to transition from Operation Bootstrap (Operación Manos a la Obra), an emblematic initiative that focused primarily on manufacturing displacing almost to extinction other key industries such as agriculture. Merging it with a new development-oriented strategy, identified as “Minds to Work”, became an imperative task. Puerto Rico had to get in sync with globalization and the opportunities it had to offer. It became vital to create a new economic foundation where all industries and sectors were given the same importance and attention. As a consequence new industry clusters and sectors have developed, while traditional ones keep getting stronger. The desired change took into account the existing strengths in human capital and infrastructure, while diversifying supply by adding new legal tools for attracting private capital and technology. The DDEC would be the jumping off point of this comprehensive proposal, convening the best talent, educating about opportunities, and forging new pathways with transformative potential. Because of this, Secretary Bacó and the DDEC (along with its dependencies) began to identify the economic sectors in which the island had competitive advantage within the traditional economy in order to update them in different ways. Through aggressive promotional efforts Puerto Rico started to be viewed as the point of entry to international markets.
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MANUFACTURING at the forefront
Over the past six decades, several types of companies have made Puerto Rico their base of operations, taking advantage of the island’s geo-strategic location and its skilled and educated workforce. Along with the right incentives, the combination of the necessary governmental support and a well-established infrastructure under United States jurisdiction make Puerto Rico an attractive industrial bastion for investment. The Puerto Rico Industrial Development Company (PRIDCO) implemented an industrial development strategy aimed at positioning the island as a global leader in the knowledge economy based on its main competitive advantages, in order to generate sustainable economic development and job creation. This strategy was aimed at the country’s main industrial sectors dedicated to manufacturing activities and the exportation of services. Employment for the sector remains at about 72,000 jobs, according to the Bureau of Labor Statistics. This is the direct result of an industrial development strategy that has produced a commitment to over 26,000 jobs and about $1 billion in promised investments between 2013 and 2016 in industrial development and service export projects. Important business actors have joined our portfolio of projects including Abbvie, Silgan Containers, Romark Laboratories, Wovenware and Brystol Myers Squibb, and UTC Aerospace Systems, among others.
Emblematic CASES GENERAL ELECTRIC
GE will develop a new circuit breaker manufacturing plant in Puerto Rico with an investment of $20M. GE established operations in the island over 50 years ago and the fact that it keeps growing is proof that Puerto Rico is a highly competitive business spot and it represents a solid investment.
PROPPER INTERNATIONAL
Propper International will generate 2,200 jobs throughout the island to execute a federal contract with the US Department of Defense for manufacturing military accessories. Propper received a contract for a maximum of $137.8M in the first year to manufacture a military backpack for carrying accessions. The 3-year contract should yield an approximate total of $386M. The estimated payroll for the entire contract is $33M.
TRADITIONAL ECONOMY
“I’m convinced that we have the recipe for success. Puerto Rico is halfway its second major economic transformation…and the time to catch the wave is right now! ” Alberto Bacó Bagué, DDEC Secretary
2,6118
PLEDGED JOBS January 2013 - May 2016
7,382
5,893 2,562
SERVICE EXPORTS
MEDICAL DEVICES
1,687
1,148 ELECTRONICS
TEXTILES
BIOPHARMA
2,722 AEROSPACE & IT
4,724
OTHER
TOTAL
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Puerto Rico: an unparalleled PHARMA destination The island continues to be one of the world's leading biopharmaceutical centers, highlighted by stability and growth in the research and development sector. Twelve of the world's leading companies have operations on the island, and foreign companies see it as a gateway to the United States. Currently, 49 FDA-certified plants – including Astra Zeneca, Abbott-Abbvie, Bristol-Meyers Squibb, Merck, Pfizer, Eli Lilly and many others – have locations on the island. They manufacture diverse products such as antibiotics, tranquilizers, vasodilators and hypertension medications, among others. After having successfully fulfilled these objectives, we were able to stabilize the downward trend in manufacturing jobs. Diversifying commercial efforts in Latin America has proven to be another clever and fruitful paradigm shift. Latin America sees Puerto Rico as the gateway to the United States. Neolpharma, part of a conglomerate of businesses headquartered in Mexico, is a concrete example: the company has established operations in the old Pfizer plant in Caguas in order to strategically penetrate the United States market from Puerto Rico. Another example to highlight is Biogen S.A.S., a success achieved in large part by the commercial efforts made by the Economic Development and Commerce office in Colombia. The pharmaceutical company acquired assets in the municipality of Guayama from Eli-Lilly with an investment of over $92M and the creation of 350 jobs in the next 5 years. The main objectives were: to defend and organically grow the industrial base that makes up the sector; to stimulate expansions, attracting new products and new lines; and to attract new companies, both in the industrial base and by strengthening the supply chain.
TRADITIONAL ECONOMY
In parallel, during this reference period there have been advances with expansions in the pharmaceutical and biotechnology sector, including: Lilly - Expansion of its facilities in Carolina with an investment of $240M (2013). Abbvie – Expansion in Barceloneta with an investment of $30M (2015) and 100 new jobs (2014). Merial - Acquisition of pharmaceutical operation in Barceloneta and an investment of $6M for expansion (2015). BMS - Plant expansion in Manatí with an investment of $80M and 126 new jobs (2016). Medical devices has been one of the most active sectors during the period, contributing to the creation of new jobs and new investment. The most relevant projects include: Coopervision - Expansion of operations in Juana Díaz with an investment of $250M and the creation of 350 new jobs. Covidien - Expansion of operations in Arecibo with an investment of $3M and 200 new jobs. Medtronic - Combined growth of several projects in its four plants in Puerto Rico, with an investment of approximately $6M and 150 new jobs. Abbott Medical Optics (AMO) - Expansion in Añasco with 279 new jobs and a $40M investment. St. Jude - $4M investment in its Arecibo and Caguas plants, creating over 200 jobs. Pace Analytical - Expansion of operations on the island, with 60 new jobs and an investment of $2.5M. Stryker - investment of approximately $30M and 32 new jobs. Becton Dickinson - expansions at its Cayey and Humacao facilities, with an investment of $30M and creation of 100 jobs. Sartorius - expansion of operations in Yauco with an investment of $50M and the creation of 350 additional jobs.
“We came here because WE knew that by virtue of being in Puerto Rico we’d be part of the big leagues.” Lcdo. Efrén Ocampo President & CEO Neolpharma International
Emblematic CASES MEDTRONIC
ACTAVIS
Medtronic is expanding its operations in Puerto Rico, incorporating new technologies in its plants in Juncos and Humacao. In agreement with PRIDCO, the expansion represents a promise of 150 new jobs over the next 36 months. Medtronic has invested about $6M in machinery and equipment to transfer new technologies in the manufacturing of one of its products for glucose monitoring at its Juncos plant (Enlite Sensor) and for the expansion of its manufacturing operation for spinal cord therapies, in Humacao.
Following the acquisition of Warner Chilcott in 2013, Actavis is investing approximately $48M in various projects, including the development of a solid-dose manufacturing and packaging operation in Manatí, and the expansion of the hormone manufacturing and packaging center in Fajardo. With this investment, the manufacturing operations in Manatí will resume. The investment and expansion will create 300 new jobs over a period of 36 months, mostly in manufacturing operations, packaging, and other activities related to the operation.
NEOLPHARMA
COOPERVISION
The Center for Development and Innovation of Pharmaceutical Products (CEDIPROF) is a research and development company with both generic and innovative products. It aimed to develop between 12 to 15 generic products for FDA approval between 2013 and 2015. Once approved, the products will be transferred and manufactured at Neolpharma, Inc. in Caguas. Neolpharma made an estimated investment of $12M in machinery, construction equipment and working capital. For this project, 23 new high-level jobs will be created with a payroll estimated at $1.4M. These jobs are in addition to the 100 jobs retained by Neolpharma upon their arrival in Puerto Rico.
Expansion of operations. Creation of 350 direct jobs to manufacture contact lenses, with a capital investment of $250M.
BIOGEN S.A.S
American Industrial Acquisition Corporation (AIAC) acquired the Merck facilities in Arecibo that were in the process of closing. As part of the agreement, AIAC will retain approximately 200 Merck employees currently employed in those facilities. AIAC is an industrial group with 60 manufacturing facilities in 18 countries employing over 9,500 people. This group, which is privately owned in the United States, has about $1.5B in annual revenues.
The pharmaceutical company acquired assets from Eli-Lilly in Guayama, with an investment of over $92M and the creation of 350 jobs over the next five years. The facility will be a chemical plant dedicated to the manufacturing of active pharmaceutical ingredients and fine chemicals, which will create highly skilled jobs such as operators, supervisors, engineers, scientists, and administrators.
ROMARK LABORATORIES
Romark Laboratories, a new biopharmaceutical company, is making a $110M investment to develop its new facility where it will employ approximately 200 people in its operational phase. The company will produce components of its current Alinia® product and the NT-300 influenza product, launched in early 2016. They will also conduct research and development.
AIAC (Avara)
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“Lufthansa’s new facilities will serve as a point of reference for foreign investors and send a clear signal to other companies looking to establish their operations in Puerto Rico about the amazing economic opportunities the Island provides.” Peter Wittig German Ambassador to the U.S.
Investment in High-Impact Projects January 2013 – May 2016
German Ambassador to the U.S.
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 Alimentarias 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
TRADITIONAL ECONOMY
$35M 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
The local rum industry is recognized world-wide for the quality of its products. It is currently a very solid industry that provides Puerto Rico with more than 700 direct jobs, more than 1,000 indirect jobs, and over $300M in profits.
RUM: an industry of tradition Puerto Rico is the world’s rum capital, due to its experience, knowledge and local capacity. Rum is currently the third most consumed distilled spirit in the United States with a 13.3% market share. Thanks to its quality, the island supplies 77% of this market share. The Rones de Puerto Rico (Rums of Puerto Rico) program promotes quality and assists in the marketing of the product that, in addition to the tax incentives, benefits the entire sector. New development projects in the sugarcane industry foreshadow an expansion in the sector that will generate jobs and increase production.
Emblematic CASE DESTILERÍA SERRALLES
Projects such as sugarcane planting and processing and industrial molasses production – financed by the Serrallés distillery in Ponce – mark the return of the sugarcane industry to Puerto Rico. This initiative, which aims to supply raw materials to the rum companies on the island, will create more than 300 direct jobs in a 5-year period. The distillery estimates that production will allow them to replace about 60% of the molasses that is currently imported. The resurgence of the sugar industry ensures the reimbursement of the federal "Rum Excise Tax Cover-Over" from import taxes on rum. This source of income amounts to more than $300M annually that would be entering the coffers of the Puerto Rican government.
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ROOSEVELT ROADS: the city of the future
The redevelopment of the former Roosevelt Roads (RR) naval base in Ceiba has the potential to become the city of the future combining production and world class entertainment. At one time, it was the largest United States naval base in the world, encompassing wharfs, a dry dock and the longest landing strip in the Caribbean, with a unique infrastructure that is of great interest to the aerospace industry. In the future it will be one of the main anchors for economic development. Four long-term leases have been signed, including one with Mid-Atlantic Shipyards (MAS) for the development of a yard in the drydock area of RR. MAS will invest approximately $25M and create 300 permanent and 1,500 indirect jobs for the construction, repair and maintenance of boats, a new sector for our economy. A lease agreement was also signed with the MER Group on December 15, 2015 for ship recycling and material recovery. This operation would be carried out in several buildings in RR. For this, approximately 40 people will be recruited per month until there are 675 direct jobs and 2,100 indirect jobs over a period of 18 months after operations begin. "The projects of MAS and MER will be of great economic resonance, not only for the towns of Ceiba and Naguabo, but for the entire eastern region of the
“The MAS and MER projects will have a profound economic impact not only in the Ceiba and Naguabo municipalities, but in the Island’s entire eastern region. We have supported both initiatives as they provide real opportunities to create jobs and stimulate the economy. in that area.” Alberto Bacó Bagué Economic Development Secretary
TRADITIONAL ECONOMY
the country. We have supported both initiatives as they offer real opportunities for job creation and economic stimulation of the area," said Secretary Alberto Bacó Bagué." Puerto Ricans are entrepreneurial and tenacious, and have great skills that have been widely demonstrated for decades. We want to give new opportunities to the women and men these companies will be employing. This represents a new sector for our economy. “If it flies or navigates it will be repaired in Puerto Rico”, states Alberto Bacó Bagué. Google has also discovered the potential of Roosevelt Roads (RR). The globally recognized technology firm has adopted the airport facilitates at RR for the launching of their ambitious Project Loon, aimed at developing a worldwide ring of internet connectivity using balloons. Similarly, an agreement was signed with Para la Naturaleza for the 20-year lease of a Visitors Center in Roosevelt Roads for eco-tourism activities. The facilities are located in front of the port area in what was the printing operation in the old RR Naval Station. The building, which consists of 3.43 acres of land with a 6,240 square foot structure, will be used as a visitors center for giving tours, establishing alliances and setting up volunteer work opportunities with the community in Ceiba and neighboring municipalities, as well serving as an administrative office for the protection of approximately 3,408 acres of conservation land in RR. An Exclusive Negotiation Agreement (ENA) was also signed with Ariel Investments on February 16, 2016. With the signing of the ENA, both parties agreed to enter into negotiations leading to the signing of a Master Developer Agreement to ensure that redevelopment is carried out in an orderly and strategic manner. Other important projects in support of entrepreneurship and self-management as an effective means of community economic development included backing for seven microentrepreneurs who established their businesses in RR and created approximately 30 jobs. In addition, the new school for the people of Ceiba -- Residential Center for Educational Opportunities (CROEC) -- began operating on August 9, 2015. The total investment for the renovation of the old primary school facilities and the creation of the new academic program was approximately $6.6M. The campus-style school is run by the Department of Education and houses approximately 250 high school students who stay overnight Monday through Friday. The government was also able to achieve the designation of RR as a Historically Underused Business Zone (HUBZone) from the U.S. Small Business Administration through May 17, 2020. HUBZone’s contracting program stimulates small businesses to identify and hire employees from economically disadvantaged areas in the United States and Puerto Rico. Businesses that participate in the program can be at an advantage when obtaining federal contracts. This designation helps transform RR into a more attractive base for small businesses and help generate new jobs.
The PORT OF THE AMERICAS is reborn The company Portek International Private Limited was selected for the development of the Port of the Americas. It will be responsible for directing the operations of this important port center with the potential to benefit the southern region. The Strategic Marketing Plan defined three stages of development. The strategic objectives of each phase are: Short Term: Become the preferred option for exporters and importers with alternatives to improve distribution chains and increase services to non-containerized shipping companies (RORO, bulk, etc.). Medium Term: Establish the Port as the preferred portal in PR and as a distribution center to the United States. Long Term: Growth of the Port as the preferred transshipment center in the region.
The arrival of MEGA YACHTS at Port Caribe Marina San Juan already has a shipyard and mega-repair facility in the old Navy Yard. Port Caribe Marina will operate as a traditional mega yacht marina with 6000 linear feet of berth, and will also have its own dike for repairs. This market sector is in high demand in the Caribbean and complements activities at other ports on the island. This year’s mega yacht season has already seen 3 visits and is expected to be receive around 17 more mega yachts this season, all in the port of San Juan.
The estimated economic impact in 2015 was $14,310,400, surpassing the projection of $9,590,021. For 2016 we are already at $22,566,400 versus a projected $15,070,032. The average daily spending for mega yachts is $17,200 and the average length of stay in Puerto Rico is 16 days. Some mega yachts that make more sophisticated repairs remain in Puerto Rico for 40 days, creating a much greater impact.
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Emblematic CASES
The AEROSPACE sector takes off
LUFTHANSA TECHNIK
Lufthansa Technik operates at the Rafael Hernández International Airport in Aguadilla and specializes in providing maintenance and repair services to short- and medium-range aircraft of the Airbus A320 and Boeing 737 families. By 2017 it will have 5 operating lines with 400 employees. This is the first MRO facility for the company in America. Puerto Rico was chosen over other countries, including Mexico, because of its strategic geographic location, the caliber of it human capital and the accessibility to enter other US markets through Puerto Rico. More than ten locally based suppliers are providing direct service to the project that has had a $166M impact in its first two years. Over 30 years, the projection is $2.2B. Spirit Airlines and JetBlue Airways were the first the project’s first clients.
SEABORNE AIRLINES
moved its operations to Puerto Rico, which led to the creation of about 150 jobs in the first quarter of 2014 (plus 100 employees the company already had on the island). The agreement entailed moving all operations, including repairing aircraft. At present they have about 500 employees.
INFOSYS
The aerospace industry has enormous growth potential in Puerto Rico. Of all the emerging sectors, the aerospace sector has gained the most traction and momentum in recent years. From the establishment of an official cluster for the industry (known as the Puerto Rico Aerospace Technology Consortium) to specific efforts to develop a local ecosystem for the sector, many advances have been made. This includes the establishment of new operations and activities in Puerto Rico. The companies in the aerospace sector that the DDEC has promoted represent a total of 2,100 jobs from January 2013 to May 2016. Of these promised jobs, the creation of around 1,400 jobs has already been confirmed for projects in companies such as Lufthansa Technik, UTC Aerospace, Honeywell Aerospace and Infosys. The investment committed by projects from the aerospace sector exceeds $126.1M. With new projects under negotiation, 900 additional jobs are anticipated before the end of 2016. The current portfolio of companies in the sector includes: Lufthansa Technik, Honeywell Aerospace, Infotech, Infosys, Phoenix Cables, Essig Research, Florida Turbine, Lockheed Martin, UTC Aerospace, Opti Manufacturing, Seaborne Airlines, Axon Puerto Rico, Ecolift, Arlet Aviation, and Avenger Aerospace. These projects have been promoted under Law 73 of Economic Incentives for Puerto Rico, which covers manufacturing activities, maintenance and repair of vessels, as well as Act No. 20 of 2012, to promote service exports.
TRADITIONAL ECONOMY
The global consulting, technology and outsourcing services company was established in Aguadilla with a service export operation for customers in the aerospace sector, with a projected investment of $9.3M. This new Infosys business has already created close to 200 jobs and is projecting 100 additional jobs.
HONEYWELL AEROSPACE
Honeywell Aerospace has commenced operations at its new electromagnetic compatibility and environmental testing laboratory at the Parque Tecnológico Las Américas in Moca. This new laboratory supports the core capabilities of Honeywell's global aerospace and defense operations in the areas of application and software development, as well as aeronautical engineering design. Over 300 jobs were created and investment in construction, equipment and training exceeded $35M. Puerto Rico keeps diversifying its economy and through projects like this, aside from being a leading manufacturing hub, it will continue to grow and strengthen its global leadership in the research arena.
UTC AEROSPACE SYSTEMS
UTC Aerospace Systems has created 200 new jobs over the past two years to support its manufacturing capabilities in Santa Isabel. As part of this growth, UTC Aerospace Systems has invested about $24M in Puerto Rico.
INFOTECH
Infotech Aerospace Services, specializing in the manufacturing, design and evaluation of aerospace material, has moved from Isabela to Aguadilla its aerospace engineering services center on the island, with the purpose of expanding its operations. This entails an investment of $11M and the creation of 250 new jobs in the next two years. It is important to mention that the motors and pieces, designed and manufactured by local talented engineers, are sent to their partner Pratt & Whitney, a top international industry leader. Again, this type of manufacturing operation is viable due to the caliber of Puerto Rico’s human capital.
AEROSPACE SECTOR GROWTH
2016
5,000 Jobs
• The job base in the aerospace sector was approximately 3,000 jobs in January 2013. • The companies in the aerospace sector that the Industrial Development Company has promoted represent a total of 2,100 jobs committed to the segment from January 2013 to date (May 2016). • Of these promised jobs, around 1,400 jobs in projects of companies such as Lufthansa Technik, UTC Aerospace, Honeywell Aerospace and Infosys (May 2016) have already been created.
$126
Jobs
Economic Impact
Lufthansa Technik
400
$166M
Honeywelll Aerospace
300
$35M
UTC Aerospace
200
$24M
Infosys
300
$9.3M
Infotech
250
$11M
M I L L I O N total aerospace project investments as of May 2016
$2
B I L L I O N projected impact over 30 years 27
TOURISM and the visitor's economy Tourism has been at the forefront of economic growth for the past four years, with an investment of $450M in new hotel projects. This represents 3,640 hotel rooms in progress to increase the capacity of the sector. The island received 5.5 million cruise passengers in the past four years, and passengers at the airport Luis Muñoz Marín grew from 8.4 million in 2012 to 9.1 million in 2016, for an 8% increase. Thirteen new airlines fly to San Juan -Volaris, Avianca, Air Antilles, Iberia, Intercaribe, Allegiant Airlines, Norwegian Airlines, Air Europa, InselAir, Southwest, Pawa Dominicana, Sun Country and Seaborne -- which has mobilized the Luis Muñoz Marín airport’s base of operations. In addition, new cruise ships make Puerto Rico a regular stop: Viking Star, Harmony of the Seas, Oasis, Quantum of the Seas, Aida, Anthem of the Seas and Allure of the Seas, Windstar Cruises with stops at two ports (San Juan and Culebra) and the return of the Norwegian Cruise Line base of operations.
TRADITIONAL ECONOMY
“We’ve become part of Puerto Rico’s economic revitalization and relaunch. To those who wonder if it makes sense to invest in Puerto Rico, I can say there is plenty of certainty and transparency, so much so that we’ve invested over $700 million in the last two years and plan to invest another $200 million.” Agustín Arellano President Aerostar Airport Holdings
The Convention Center District is also experiencing new development with District Live, an ambitious entertainment complex that will entail an $89M investment and create 3,383 new jobs. It will have a theater with capacity for 6,000 people, a cinema with eight theaters, and a central plaza with the largest LED screen in the Caribbean, among many other attractions.
• In fiscal year 2015-16, traffic at the Luis Muñoz Marín Airport reached 9 million passengers, an increase of 5% or 460,500 passengers compared to fiscal year 2014-15 and of 23% compared to fiscal year 2011-12.
• The number of available hotel rooms increased from 4.8 million to 4.9 million, a 3.3% growth. • The percentage of occupancy increased from 67.9% to 70.4% for an increase of 2.5&.
Catering to the tastes of the international visitors, they have developed tourism alternatives that have penetrated new market sectors. For example, six Sustainable Tourism projects were created, incorporating various tourism and agricultural activities. Visitors learn about agricultural areas and occupations, local products, typical food (Hacienda Tres Ángeles in Adjuntas, Quesos Vaca Negra in Hatillo and Hacienda Don Carmelo in Vega Baja). In addition to these, six ecotourism or experiential projects that combine natural and cultural attractions were created, where the protection of resources is ensured and economic activity is generated. Examples are Black Beard Sports in Vieques and Ceiba, Batey Zipline Adventures in Utuado and Rent the Bicycle in Old San Juan. In addition, five innovative community-based projects such as the Punta Tuna Nature Reserve in Maunabo, Estampas Agro Ecoturísticas in Mayagüez, and the Río Abajo Forest in Utuado. This group also includes six green lodging options that comply with the principles of sustainability and are endorsed by the Puerto Rico Tourism Company -- three new options in addition to the three that existed in 2012: the Casa Sol in Old San Juan, HIX Island House in Vieques and Ritz Carlton Hotel in Isla Verde.
• Total Hotel Records increased from 2.3 million to 2.6 million, a 15% increase.
• Visitor Spending increased by 20% from $3.19B to $ 3.83B.
• Fiscal year 2015-16 will end with an estimated 1,309,553 cruise passengers, an increase of 17% compared to fiscal year 2011-12.
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• 2,812 new direct jobs were created out of efforts made by the Puerto Rico Tourism Company. • Tour guide certification was launched in 2014, and 451 tour guides have been certified up to the present.
MILLION Keith St. Claire
29
Strategic wager on MEDICAL TOURISM Medical tourism, which aims to take advantage of the existing medical and hospital supply on the island, has also shown vitality with a 20% increase in visits from foreign patients. To simplify procedures, a medical concierge service (CTMPR) was created that attends to the specific needs of patients interested in visiting a medical facility. CTMPR currently has a robust network of providers consisting of hospitals (13), outpatient clinics (15), dental clinics (6), hotels (10) and complementary service providers (20). This paves the way for the Comprehensive Cancer Center which, when completed, will be a cornerstone of diagnostic and treatment services. The Center is part of Ciudad de las Ciencias (“Science City”) located on the old grounds of the state penitentiary Oso Blanco, which will be an enclave of research and technology for the global knowledge economy.
5 POINTS OF PUERTO RICO’S COMPETITIVENESS AS A DESTINATION FOR MEDICAL TOURISM Regulated Environment: Puerto Rico has the same legal structure, and is regulated under the same federal standards that apply to the health industry in the United States. Hospitals and clinics in Puerto Rico are accredited under the Joint Commission on Accreditation of Healthcare Organizations (JCAHO), just as in the United States. Human Capital: Puerto Rico has Board Certified medical professionals. There are bilingual staff in Puerto Rico's medical and hospital facilities, as well as other areas of the industry (ie hotels, transportation services). Logistics: US citizens do not need a passport to enter Puerto Rico. Puerto Rico has direct air access to most major cities in the United States, including the east coast and the states with the highest concentration of Hispanics. Incentives: Puerto Rico has contributory incentives for the export of services. Costs: Medical costs in Puerto Rico are 40% to 60% cheaper than in the United States. Goals and projections of the medical tourism strategic plan:
Medical costs in Puerto Rico are somewhere between
• Reach goal of 30,000 foreign individuals/patients treated in Puerto Rico by the end of 2018.
40% and 60%
• Establish negotiations and alliances with insurers and self-insured groups for patient referral.
lower than in the United States
• Create 3,000 jobs in the sector over 3 years. • Generate an economic impact for the Island of around $300M in the first 3 years of operation.
TRADITIONAL ECONOMY
MAIN ACHIEVEMENTS World Medical Tourism Congress in 2015 and 2016 This is an event of major importance and relevance in the international medical tourism industry, which Puerto Rico has been actively involved in for the past two years. As a result of this initiative, local suppliers certified by the CTMPR have signed contracts with self-insured companies and international facilitators. Provider Training and Certification Puerto Rico is the destination outside the United States with the highest number of MTA-certified suppliers. This adds value to our attraction as a destination, as our suppliers meet the highest quality standards for international patient care. Dominican Republic This is a market in which the focus has been on assessing the possibility of signing contracts with insurance companies for patient referrals. In the next month an important strategic alliance will be forming with one company working directly with the affiliates of the different insurance companies who hire them to assist those patients who intend to use medical services outside the Dominican Republic. Promotional efforts in the US’ Hispanic markets We have stepped up our promotional efforts with Pandora Radio campaigns in Florida and the Tri-State Area (NY, NJ and CT) because of the concentration of Hispanics. Also, we have conducted surveys on cruise ships to understand firsthand the potential of the medical tourism initiative.
Caribe Health Summit 2015-2016 We held the first and second Caribbean Health Summits in Puerto Rico. The events were attended by international and local speakers, in addition to receiving more than 30 buyers of services. This gave us the opportunity to demonstrate the advantages of our destination to the buyers who attended. The event will take place annually and we have already managed to position it as the event of medical tourism par excellence throughout the Caribbean region. Concierge Center The company that will operate the Concierge Center to channel medical tourism services has been selected. This constitutes a pillar of the platform for patient services abroad. The Concierge Center is already operating and is in the training phase for providers to use the electronic patient monitoring platform (Global Patient Management System). The contract with Star Concierge Hub, Inc. was signed on October 7, 2016.
31
A new AGRICULTURE Agriculture is one of the fundamental activities of every country, and our young people are interested in the business opportunities therein. What we eat is intimately linked to our geography and in the last four years agrarian production in Puerto Rico has increased its presence on the tables of all Puerto Ricans. Rice cultivation is a good example. In 2012, rice was not produced for local consumption. For the first time in 30 years there is rice in supermarkets that was harvested and processed in Puerto Rico, thanks to an agricultural project that has generated more than 3 million pounds of this product. In addition, rice is produced for consumption in the Department of Education school cafeterias. As of December 2012, just 25.95% of the school lunch tray consisted of local produce. By August 2016, the school lunch tray contained 61.61% of fresh produce harvested on the island. Similarly, in 2012 no local agricultural products were supplied to the kitchens of the Medical Center; today fruits and vegetables are supplied through an annual contract of $100,000. All this is possible thanks to an integral vision to grow and harness the potential that sowing the earth produces.
TRADITIONAL ECONOMY
AGRARIAN BUSINESS DEVELOPMENT
Several businesspeople have taken an advanced role in the development of agricultural initiatives that result in a higher product quality. These combine agriculture with technology to add value to supply. Such is the case of initiatives like AgroInnova , which produces starches; Petite Greens, dedicated to the cultivation of microgreens; and the avocados of Bananera Fabre, among others. In the meat sector, we can highlight Ganaderos Alvarado and Ganadería Santiago, with state-of-the-art technology that guarantees a fresh and quality product. Some small merchants also stand out, such as Agronómicos Cosecha de Puerto Rico, E-Farm, VisitRico and the Departamento de la Comida.
SUGARCANE
Sugarcane has also reappeared on our agrarian landscape, with the announcement of a sugarcane processing plant and industrial production of molasses in order to supply raw materials to rum companies on the island. This initiative is part of several projects that have contributed to the country's Gross Agricultural Income increase of 24%. The Serrallés Distillery, a long-standing company, will be in charge of planting and harvesting sugarcane, for which they will expand the amount of land dedicated to the project from the current 900 cuerdas to 12,000. The land is divided between the west and the south of the country. "We started this project on January 22, 2014, knowing that this day would come. We started planting cane in the Coloso Valley, in Aguada. Today, more than two and a half years after this project began, there are already 900 cuerdas of sugarcane planted. Eight hundred are in the Valle del Coloso and 100 in Guánica. Twenty-one varieties of cane have been planted and the project, in this first stage, has enabled the creation of 35 direct jobs," said Governor Alejandro García Padilla.
COFFEE
Coffee is one of our country’s flagship products and its production is growing. If we consider the period from 2009 to 2012, 3,400 cuerdas (“Spanish acre”, or .971 acre) of coffee were sown. However, in order to support the local coffee grower from 2013 to present, 8,000 cuerdas have been encouraged, for a considerable 135% increase. In 2011-12, 41 licenses were granted for coffee roasters, while in the year 2015-16 68 licenses were granted (a 66% increase). In addition, the production of coffee trees that are resistant to royo, a fungus affecting coffee plantations and causing a reduction in production, was increased from 12% to 70% to ensure a long life for this precious product.
MEDICINAL CANNABIS
According to new world-wide developments in the therapeutic use of marijuana, Puerto Rico approved the Regulation for the Use, Possession, Cultivation, Manufacture, Production, Manufacture, Dispensation and Investigation of Medicinal Marijuana that entered into force on January 28, 2016. The new regulation allows a non-resident patient in Puerto Rico to obtain and consume medical cannabis if s/he meets certain conditions, such as a valid state consumption card in addition to a doctor’s letter certifying the patient's medical condition. If the patient is not from the United States, s/he must present evidence of medical history that shows that s/he suffers from a disease to be treated with cannabis and obtain the referral of a physician in Puerto Rico. Allowable forms of cannabis usage are: pills, oral drops, inhalers, topical products, ointments, creams and vaporizers. The list of diseases and conditions that can be treated with medical marijuana is extensive and includes cancer, Parkinson's, Alzheimer's, HIV, sclerosis, Crohn's disease, fibromyalgia, arthritis, anxiety, epilepsy, anorexia, migraines, spinal cord injuries, Hepatitis C and other conditions with symptoms such as cachexia, chronic pain, severe nausea and persistent muscle spasms. Handled rigorously, the medicinal marijuana market will offer an alternative treatment for patients and a new line of growth for the local economy.
"It is an important step to improve the health of the island’s citizens, and its prescription will be compatible for the thousands of patients who come to receive medical treatment in Puerto Rico, where we hope to replicate experiences in places such as the state of Colorado where the consumption of marijuana for medicinal purposes has had a crucial influence on quality of life and economic growth." Alberto Bacó Bagué Secretary of Economic Development and Commerce
• In 2012, local agricultural production represented 16.09% of consumption on the island; in 2013 this increased to 17.39%. • In 2012 there was no Food Security Plan in Puerto Rico, a basic instrument for ensuring the supply of basic food. We produced the first Food Security Plan for Puerto Rico that began with the rescue of 46,752 previously abandoned land cuerdas. • Over 10,000 cuerdas were reclaimed for beef cattle production. 100% of imported lettuce in school cafeterias was replaced with lettuce production from 60 Puerto Rican farmers. Pineapple production increased from 1,047 tons in 2012 to 3,840 tons in 2015. These achievements provide greater security to the population in the local food production sector and constitute a platform for the development of the sector. • In 2012 the Land Authority leased about 52,925 cuerdas of land representing 60% of the land suitable for agriculture. In 2016 it has under lease 72,683 cuerdas representing 98% of land suitable for agriculture. This represents an increase in income for the ATPR of $3,665,824 in lease fees. • The Programa de Fincas Familiares had been completely abandoned, without a real inventory of farms and with no follow-up to the usufructuaries. To remedy this, an inventory of farms was formed and updated. We were able to adjudicate 39 farms and put 39 farms under lease for a total of 1,061 cuerdas that had previously been abandoned. • 120 new title deeds were granted to family farms. There are currently 3,300 farms in this program, for a total of 53,250 cuerdas of productive land. • The AgroJuvenil Project, created to promote agriculture in future generations, impacted 23,592 students in grades 3-5 in public schools.
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EDUCATION: a pillar of economic development Institutions of higher education in Puerto Rico constitute a fundamental sector of the economy. On the island, 22,000 students graduate annually with specialties in science and technology, earning the island a ranking of third in the world in the availability of scientists and engineers. Sharing the supply of universities and the expertise of their academics is a significant goal in order to complement opportunities for economic growth.
CAMPUS PUERTO RICO
The Puerto Rico Campus Program, created with the State Department, promotes the Island as a destination for students, scientists and academics from foreign countries and other jurisdictions in the United States. It is a country-wide project that proposes linking the higher education system to economic development efforts; promoting an integrated higher education system that includes all public and private institutions and with active participation from the business sector; fostering agile and transparent university governance systems; promoting entrepreneurship, science, technology usage, critical thinking, multilingualism and an international vision among all university students; promoting the active, strategic and coordinated participation of local universities in the main university rankings in the world, as this is a fundamental element for the promotion and global positioning of the Island as an academic destination. The vast majority of educational institutions in Puerto Rico have offices or programs that provide different services to national and international students, in order to support them in their academic and personal development, thus facilitating their integration into student life. These services include: educational, vocational and personal orientation; tutoring programs; assistance in emergencies; support for people with disabilities or special needs; basic health care; development of integration activities; guidance on procedures and procedures; and the promotion of educational, cultural and sports activities. Building on solid foundations, using previously established platforms and expanding the range of various services was key to reviving the traditional economy. The global economy embraces both the traditional and the innovative. The key was to better highlight strengths and identify opportunities in such a way that this sector could be properly diversified. Laws 20 and 22 were fundamental for this. The results speak for themselves.
TRADITIONAL ECONOMY
The Puerto Rico Campus Program promotes the Island as a destination for students, scientists and academics from foreign countries and other jurisdictions in the United States.
Emblematic CASES THE INSTITUTE OF AERONAUTICS AND AEROSPACE OF PUERTO RICO, located at the Rafael Hernรกndez International Airport in Aguadilla, is a flagship for technical education. Facilities include a 27,000-square-foot building with classrooms, a library, computer labs and a business center. It also has a hangar, which houses specialized laboratories. The first cohort of 23 students completed the academic offering, "Base Aircraft Overhaul Program" (CAT-A), in partnership with Lufthansa Technik. This certification, unique in Puerto Rico, has a duration of six months and consists of more than 915 contact hours. The academic program provides participants with practical knowledge and basic skills in various areas related to aircraft inspection, maintenance and repair. The CAT-A course is offered in the Institute's modern facilities. The Institute also hosts the Associate Degree in Aeronautical and Aerospace Technology at UPR-Aguadilla, another academic offering that is unique in Puerto Rico. It is also home to the Aviation Mechanics Certification Program, Part 147 of the Federal Aviation Administration (FAA), offered by the Puerto Rico Department of Education. "The 23 students have already been interviewed by Lufthansa Technik to work with the company as aviation mechanic assistants," said Professor Wilmer Arroyo Alvarado, Executive Director of the IAAPR, a physicist. "It is gratifying to see that the dedication and commitment demonstrated by this excellent group of 23 pioneering students will soon bear fruit leading them to achieve their dream of working in the aerospace industry. We all wish them great success. They are the pride of our Institute, UPR and Puerto Rico, "concluded the Executive Director. CLUBS FOR YOUTH DEVELOPMENT (PDJ) are the main tool of the Department of Economic Development and Trade to promote business, entrepreneurship and economic development in middle and high schools. The Program works on initiatives aimed at young people interacting with the economic development sectors that represent an opportunity for growth such as the creative, communications and tourism industries. Collaborations are also being developed with the Cooperative League of Puerto Rico. In 2015-2016, 7,000 youths were projected to be impacted through talks and orientations aimed at promoting entrepreneurship organized by the clubs, but the target was exceeded, at 7,564 young people impacted. The Program has 30 clubs and a membership of 1,200 students. In the last 24 months, 12,774 students were impacted.
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ENTREPRENEURSHIP
C
A NEW BUSINESS ERA for Puerto Rico B
uilding with a focus on existing strengths while also introducing necessary innovations is a task that requires equal doses of patience and discipline. Being bold does not mean being risky; rather it means acting while considering an empirical base that offers indicators to confirm whether one is on the right path. In the past, OPERACION MANOS A LA OBRA (“OPERATION HANDS AT WORK”) transformed Puerto Rico's economic scenario. Today, MENTES A LA OBRA (“MINDS AT WORK”), a movement led by the Departamento de Desarrollo Económico y Comercio (Department of Economic Development and Trade, or DDEC for its Spanish acronym), will complement the former to generate new business opportunities. This transformation geared towards a new economic era is occurring despite the headlines focusing on fiscal issues. Keeping apace with that reality, our country has been positioning itself to the world as a preferred destination for business, an attractive destination for tourists and for patients seeking medical treatments, as a real option for investors, and as an opportunistic space in emerging economic sectors. This situation has created a pivotal moment for laying the foundation for the immediate future. It is important to understand that this change leaves behind past programs to focus qualitatively and quantitatively on new opportunities. From the agrarian to the industrial economies, we’ve always focused on foreign business; now we move to a stage privileging local business equally. At the same time, we are actively working to internationalize Puerto Rico, to support entrepreneurs, to innovate in new ways and to pay special attention to develop further opportunities in traditional economic activities such as tourism, agriculture and the creative industries, to name a few. With this in mind, the Economic Development team identified needs and opportunities, aligned an integrated strategy, took up virtually abandoned projects, agriculture for example, and mapped out a clear route towards diversification in order to stimulate economic activity and job creation in all industries and sectors. Staying on that route and working in a coordinated way have made the difference, and it’s what enabled important achievements.
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Puerto Rico has embarked on a new era of entrepreneurship marked by a new generation of young professionals highly qualified to conquer the world through knowledge and innovation.
ACTS 20/22 Some objectives were to promote Puerto Rico, to make projects viable, to encourage entrepreneurship, and to give momentum to emerging opportunities. The most emblematic example has been the promotion of the Acts as a powerful and unique package of highly competitive tax incentives that includes Acts 20 and 22, which encouraged export services and attracted individual investors to Puerto Rico, respectively. An analysis commissioned by the DDEC points out that export services promoted through Act 20 has already generated more than 7,000 direct and indirect jobs. One of the most important data points is that at the time of the study (December 2015) 20% of businesses were operating under Act 20, a figure that is projected to increase to 30% by the end of this year. The economic impact of the provisions of Act 20 could account for about 1% of Puerto Rico’s Gross Domestic Product. Within the next ten years, by 2024, it’s estimated that 3,500 decrees generating some 50,000 job opportunities will be added. Act 22 has proven itself a very effective tool for attracting new capital to Puerto Rico in order to promote the country's economic development. Now not only companies are moving to Puerto Rico -- their owners are also moving to the island. Through their experiences they become promoters of the country, while the economy continues to diversify. The study concluded that maintaining this incentive program combined with other efforts to ensure broader spin-off effects has enormous potential for promoting economic development within an economy oriented towards export services. This is Minds in Action working for Puerto Rico’s future. Investors under Act 22 contribute to the creation of new economic activity, knowledge transfer and jobs on the island, while establishing or manifesting interest in
A company without Act 20
establishing business operations here. This also allows them to take advantage of the benefits of Act 20 for export services. These new residents immerse themselves in the local economy and many identify new business opportunities once they are settled on the island. The case of MaterCare PR represents the scope of linkages stemming from the incentives acts. Through Act 22 this firm of healthcare providers, founded by two young Puerto Rican entrepreneurs, identified the perfect investment partner to grow their business outside of Puerto Rico. The opportunity was solidified during a trade mission to the Dominican Republic, and with the help of the Economic Development office in that country, they were able to close a business deal with the main insurer in the Dominican Republic, a service they render from Puerto Rico under Act 20. This example highlights several important paradigm shifts: • Act 20 for export services is an efficient and cost-effective business tool without precedent for local entrepreneurs. • Act 22 brings with it an injection of capital essential for continuing to grow our economy. • The establishment of offices for Economic Development abroad has undoubtedly been a successful move enabling local entrepreneurs to grow their businesses globally. • A new era of entrepreneurship has arrived in Puerto Rico marked by a generation of young professionals well prepared to conquer the world through innovation and knowledge.
Expansion of a company under Act 20
ACT 20 Net income in Puerto Rico: $1,000,000 Regular income tax (39%): -$390,000 After-tax income: $610,000 Dividend withholding tax (15%): $91,500 Net income distribution in Puerto Rico: $518,500
$1,000,000 : Net income from service exports -$40,000 : Reduced income tax (4%) $960,000
: After-tax income
-$0
: Dividend withholding tax
$960,000
: Net income distribution in Puerto Rico
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INCUBATORS Innovation at maximum power The accelerator Parallel18 -- created in conjunction with the Fideicomiso de Ciencia, Tecnología e Investigación (“Science, Technology and Research Trust) -- is an advanced economic development initiative seeking to attract and create high-potential startup companies that can grow and scale their operations from Puerto Rico to the world. In the short term, the program’s mission is to catapult Puerto Rico as a world-renowned center for entrepreneurship and to generate a culture of innovation in the island's population. In the medium and long term, they aspire to have an economic impact with a greater number of companies operating and generating local jobs through global clients. Parallel18 (P18) offers $40,000 in seed capital, coaching and skill-building with world-class mentors, and a workspace in Santurce for 5 months to achieve internationalization goals. Those who decide to remain in Puerto Rico once the program is completed will be eligible for follow-up funding of up to $75,000 to match funds raised from private sources. The Science, Technology and Research Trust is laying the groundwork for a new economic paradigm in Puerto Rico that maximizes the island's participation in the global knowledge economy. The Trust is a catalyst for socioeconomic growth. P18 launched its first call for proposals in December 2015, for which it received 415 applications; 36 startups from 9 countries started the acceleration curriculum on April 18, 2016. The second call closed with 507 applications from 44 countries (an increase of 22%). P18 is currently working with the second generation of companies, some 33 startups from 12 different countries, including six Puerto Rican companies. In addition to promoting innovation and entrepreneurship, this successful program contributes to economic diversification as companies enter industries such as e-commerce, health and biotechnology, renewable energy, software development, technology and social entrepreneurship, among others. Changing paradigms involves risks but also brings rewards. Transitioning Puerto Rico to a diversified economy requires action on all fronts, strengthening of local business, and opening doors and windows to the world. Taking responsibility for one's own destiny, applying empirical methods to measure results and thinking big are just three of the objectives. Time will show that we’ve set off on the right path.
EMPRESARISMO
PARALLEL18 ACHIEVEMENTS FIRST GENERATION 33 companies that generated $2.8M in revenue. 50% OF THESE COMPANIES had a 30% increase in income during the 5 months of the program. THEY RECRUITED 21 FULL-TIME AND 38 PART-TIME EMPLOYEES with hires generating $212,500 in payroll in 5 months. (This does not include other contracted professional services.) 51 UNIVERSITY STUDENTS worked with the companies, and 30 of them were hired at the end of the practicum. OF THE FOREIGN COMPANIES in the first generation, seven of them (25%) maintained operations in Puerto Rico after completing the program.
The age of ALLIANCES In what constitutes a powerful alliance among initiatives aimed at youth, 22 university participants from Juvempleo, a project of the Youth Development Program (DPJ), had their first work experience with Parallel18’s first generation of startups. "We insist that we must develop an entrepreneurial mentality in young people. This union of the Juvempleo program with the emerging companies selected in the first round of P18’s financing and acceleration program, has this objective. There is an entrepreneurial ecosystem that is gaining momentum and that is going to be imperative for Puerto Rico’s economic recovery, but it needs future generations," said Alberto Bacó Bagué, Secretary of the DDEC. One of them is Rafael Rosa Hernández, a student in the final quarter of his Bachelor's Degree in Business Administration at the University of Puerto Rico, Carolina Campus. As a participant in Juvempleo, he works at MailLift, a startup providing the service of creating and sending hand-prepared letters for professionals and companies that want to give a more personal or intimate touch to certain communications. Rafael explains that among his duties at MailLift is working with the budget and procedures related to the company’s management of invoices. He said that the experience has been doubly rewarding for "launching myself into the work world and allowing me to see how the work has been modernized and how to perform duties cybernetically, through different apps and programs." The 21-year-old stressed that the work environment he has seen "is not the traditional space. There is more freedom and flexibility. We all work at the same table, which allows for better communication among all of us and better follow-up and coaching. It’s the type of communication that helps you see different things, update your skills and familiarize yourself with the new work world. It makes you more competitive." Rafael is a candidate for hiring once he concludes his 6 months of work under the Juvempleo program. "Parallel18 promotes Puerto Rico as the ideal place for startups from all over the world to grow from the island. It is important to foster in young people the notion of an economy based on innovation and high-quality ventures. It shows that the startup community in Puerto Rico is rapidly evolving and growing internationally. Young people are at the helm of this movement," concluded Sebastián Vidal, Executive Director of Parallel18. It is expected that these efforts will be replicated with the 33 startups that make up the second generation of P18.
OPPORTUNITIES for youth Under Act 135, the Young Entrepreneurs Act, 531 new businesses were certified, with a commitment to 2,405 jobs. With the Programa Empleo Directo al Centro Urbano (“Urban Center Direct Employment Program”), incentives were granted to 32 companies with a commitment to create 108 new jobs with an investment of $570,240.
There is no doubt that Puerto Rico has entered a new era of entrepreneurship. There’s a vibrant energy in every corner of the Island impacting multiple industries and sectors. • Hydroponic crops, consumer products in general, software development, businesses in the gastronomy and entertainment industries, companies specializing in all kinds of services from security, to human resources, to maintenance, etc ... the boom is palpable and contagious. • Initiatives from the private sector and nonprofit organizations such as Grupo Guayacán contribute to the accelerated growth of this movement. With the same vision and mission as the public sector -"to lead the development of an entrepreneurial ecosystem that develops global companies and entrepreneurs to be engines of economic and social value creation in Puerto Rico" -- efforts are aligned and a common goal is attained more effectively. They recently announced the creation of a new endowment fund, the Guayacán Endowment Fund, with the goal of raising $5M over the next five years and the objective of supporting long-term business development programs. • INprende is another model worth highlighting. With an educational platform that includes tools, management and access to resources from the private sector, the entrepreneur’s pathway from turning an idea into a profitable business model is facilitated. • Traditional financial institutions, such as Banco Popular de Puerto Rico, have identified a business opportunity supporting small- and medium-sized businesses and have developed products specifically aimed at providing financial support to them, thereby promoting their growth.
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SOME OF THE PARTICIPATING COMPANIES:
HIT 3001 “Thinking outside the box” Resizing entrepreneurship on the island required both inventiveness and the strategic use of traditional means of communication. Using television in line with innovation in the reality show Hit3001.com was an important component of promoting entrepreneurship and strengthening the business sector in Puerto Rico. The show gave continuity to the efforts to promote and encourage the building of companies, so that they could develop their business proposals while also reaching a broad public. The Puerto Rico Public Broadcasting Corporation produced two seasons of the show, which was broadcast at prime time by two of the top TV stations in the island, and then by Puerto Rico TV, Channel 6, so that more viewers could enjoy it and get ideas for business development. In each episode four Puerto Rican entrepreneurs told their stories and pitched their business ideas to the panel. Projects were from diverse industries, such as services, food, fashion, agriculture, and technology, among others. The show also generated a lot of interest and support in social networks. Each week’s winning company received an economic incentive of $20,000 from DDEC agencies and $10,000 in advertising from GFR Media. They also had the opportunity to raise additional capital through the local crowd funding platform, Antrocket, and received guidance and professional support for their companies. A panel of recognized business leaders served as coaches to evaluate and make recommendations to participants, including Atilano Cordero Badillo, Melba Figueroa and Luis Augusto Vargas, Lisa Thon and chef Robert Treviño. "We want to encourage more and more people to consider the possibility of being entrepreneurs in Puerto Rico," said Secretary Alberto Bacó Bagué. "Hit3001.com exposes the experiences of other Puerto Ricans who have decided to start and create opportunities. We believe in the immense creativity and business innovation of Puerto Ricans and Hit3001.com is a tremendous platform to showcase the country’s capacity," he concluded.
ENTREPRENEURSHIP
• El Abuelo de las Piragüas • Make Up On the Go • Back to the Garden • Productos Montecristo • Peseteando Online • Elponchador.com • Pick My Stuff • Electronic Sports Puerto Rico • Hacienda Central • Semilla • Park In • BambooK Puerto Rico • Desde Mi Huerto • Biorinken Corp. • E-Farm • Touralo • BoriOutlet • Ambrosia Foods • Burea • Shoe Spa Wipes • Frankendiaper • Sistema Viva • Postales Bien Cool • Barkery Woof • Café La Vieja Rosa • Park In • Señor Paleta • Viande
SMEs Pillars of our economy The word entrepreneurship is often thought of as the creation of a sole business. Nonetheless not much gets accomplished with one single effort, which is why the Department of Economic Development and Commerce established from the start a different vision. Contrary to past activities based on disarticulated efforts, the DDEC proposed a more complex definition that approached entrepreneurship in an organic manner. The ecosystem was viewed for the first time as a group of interdependent parts that together create a culture that promotes economic activity resulting in economic development and growth. The DDEC takes on the role as a unifying force with a vision that promotes change, with clear goals and measurable results. It is a chain where everyone is equally vital for its strength, where SMEs are as important as any big scale business endeavor. Without them all a prosperous future is just not possible. SMEs contribute on average around 12.6% to Puerto Rico's domestic product (GDP), measured by the proportion represented by the companies' gross income. Gross income, as well as the contribution of SMEs to GDP, reflected an upward trend during this period. In 2015 they accounted for 95% (41,867) of the total private sector, accounting for 42.7% (286,665) of total private wage employment and generating 32.4% ($4,712.2M) of the total private sector payroll. Similarly, SME gross
retail sales reached $26,832.2M for a second year with the highest levels achieved over the previous 8 years, representing 70.9% of total sales in Puerto Rico in 2015. As far as micro-enterprises are concerned, the selfemployed are considered to constitute their own sector. According to the data, in 2015 the number of self-employed people reached 166,000, representing an increase of 11,000 micro-enterprises, or 7.1% compared to the previous year. In 2015, the number of microentrepreneurs accounted for 21.3% of total private wage earners (compared to 20.4% in 2014). Exports from small and medium-sized enterprises (SMEs) during the past year amounted to $3.543B, an increase of $192M and a growth rate of 5.7% compared to 2014. The economic development plan adopted a strategy of supporting local entrepreneurs’ export management in order to achieve greater openness in international markets and position the products and services of Puerto Rican companies. This has been done by promoting a culture of exporting goods and services to position Puerto Rico as the center of foreign trade in the Caribbean and Latin America, and within Hispanic niches in the United States. The management of the DDEC trade offices in Peru, Colombia, Panama, the Dominican Republic and Spain have played a crucial role.
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Increase in RETAIL SALES High-impact international investment, the integration of new residents on the island, the emergence of new economic development sectors, the strengthening of traditional industries and local business fervor have created a shock wave at all levels that has positively impacted retail sales in Puerto Rico. In July 2016, retail sales increased by $13.2M to $3,057M at current prices compared to July 2015. This 0.43% increase is mainly due to sales in department stores, furniture stores, cafes and restaurants, grocery stores and other retail locations. Seven of the nine regions of Puerto Rico experienced growth in sales in July 2016 compared to the same month the previous year. Aguadilla (6.58%), Arecibo (4.17%) and San Juan (3.31%) experienced the greatest growth. The regions of Fajardo (2.30%), Guayama (1.82%), Ponce (0.70%) and Mayaguez (0.57%) also registered growth. The retail sales values registered in July 2016 represent the fourth consecutive year with record sales levels in July, within the last ten years. These figures confirm that commercial activity, while facing structural challenges, shows signs of strength while taking advantage of incentives that the DDEC offers this sector. This is also apparent in export-oriented activity.
Paseo Caribe
ENTREPRENEURSHIP
Mall of San Juan
For fiscal year 2015, Puerto Rico reached merchandise exports valued at $69B, which represented an increase of 11.1%, compared to $62.5B in fiscal year 2014. Comparing export figures of $69B and imports of $42.5B, we conclude that during this fiscal year the trade balance shows a trade surplus in our favor. Among the main exports are chemicals, pharmaceuticals, medicines. The Promoexport Division continues to work on implementing strategies to promote the export of Puerto Rican products and services, identifying business opportunities in international markets. 180 entrepreneurs were impacted and participation was achieved in 6 local and international events that projected annual sales of up to $20,284,827M. Expo Puerto Rico 2015, held at the Puerto Rico Convention Center, offered the ideal setting to attract international buyers and encourage the sale of Puerto Rican services and products. With the collaboration of our trade offices abroad we managed to exceed expectations by recruiting 108 exhibiting companies and 80 international buyers, which resulted in estimated sales of almost $9M.
Emblematic CASES EL MESÓN After successfully expanding throughout the island, El Mesón Sandwiches opened its first restaurants in Central Florida. Their plan is to open five restaurants in two years, for which they will invest $5M. Centralizing administrative operations in Puerto Rico and managing all international activity from here is undoubtedly one of the most attractive business opportunities that incentives acts encourage.
SEÑOR PALETA Señor Paleta opened its second popsicle store, on the second level of the shopping center Plaza del Caribe in Ponce. Señor Paleta began in 2013 and specializes in the fabrication of handmade gelato and sorbet popsicles. The small business came to Plaza Del Caribe as the winner of the competition “Travesía al Exito Empresarial”, which promoted the commercial center along with Mastercard, the Compañía de Comercio y Exportación (Puerto Rico Trade and Export Company), the Banco de Desarrollo Económico (Economic Development Bank) and the Cámara de Comercio del Sur (Southern Chamber of Commerce). Señor Paleta was one of the companies that participated in the TV reality show, HIT3001.
LA OFICINA Shared office space currently rented mainly to companies and entrepreneurs who have arrived on the island through Acts 20 and 22. The space, created by two local businessmen and a new resident under Act 22, is designed in such a way as to promote collaborations across companies after identifying new business opportunities locally and internationally.
MIRAMAR PLAZA CENTER With the purchase and remodeling of the Miramar Plaza Center, among other properties in the metro area, Morgan Reed has arrived to stay. They have several Act 20 tenants, like the local company Aaron Stewart that is about to launch its e-commerce platform. The commercial spaces located on the ground floor, such as Cristóbal Salon and Pure & Natural, among others, give life to the area. PROHÍAS INFLIGHT CATERING New economic activity produces organic linkages at all levels and in all sectors. This company offers general catering services and has seen growth from new residents and investors who have come to the island following the creation of Acts 20 and 22. BMA GROUP In addition to providing human resources services and consulting to many Act 20 companies, BMA also operates internationally under the incentives act. BMA centralizes administrative operations in Puerto Rico and has offices in Spain, the Dominican Republic, Panama and Peru, among others.
Roberto Corretjer, Christie Dubón and Justin Schreiber; partners of La Oficina
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CREATIVE INDUSTRIES
The development of a Puerto Rican “Orange Economy”
C
reativity-based innovation is one of the most important global trends in recent decades. Globalization has made it possible for creations of all kinds to find markets in all four corners of the globe, and this trend will continue to grow as more and more people connect online. Puerto Rico is no exception. If anything abounds on our shores it is creative talent. From Ricky Martin to Lin-Manuel Miranda, from Wilo Benet to Stella Nolasco, from Arnaldo Roche to Benicio del Toro and many others, the element that each adds to their respective arena is value. And this is not insignificant. It’s important to create a platform from which we can project our creators and their works to the world. The creative industries are those that arise at the junction of economics, creativity, technology and culture, to generate intellectual capital to be circulated for monetary gains. This economic activity promotes wealth generation while increasing inclusive opportunities for social capital, diversity, and development. With this in mind, the Department of Economic Development and Trade (DDEC, for its Spanish acronym) set out to create the conditions to become an investment epicenter. The first step was to parse out five groups: Design, Arts, Media, Creative Services, and Creative Groups.
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The so-called “Orange Economy” -- a color associated with culture, creativity and identity -is defined as "the set of linked activities that allow ideas to be transformed into cultural goods and services, whose value is determined by their intellectual property content.
International Puerto Rican music star Ricky Martin, talks to DDEC Secretary Alberto Bacó during a production break while filming a tv ad on the Island.
Talent abounds in Puerto Rico, and is the main asset of the creative economy.
Ali Francis García
El compositor y guionista Lin Manuel Miranda, ganador de un premio Pulitzer y un Grammy por su popular musical "Hamilton", recientemente participó en el espectáculo "En Clave de Poesía" para apoyar el Festival de la Palabra, un evento literario internacional que se celebra anualmente en San Juan.
The ORANGE ECONOMY The so-called “Orange Economy” -- a color associated with culture, creativity and identity -- is defined as "the set of linked activities that allow ideas to be transformed into cultural goods and services, whose value is determined by their intellectual property content. John Howkins, author of the book "The Creative Economy: How People Make Money from Ideas" (2001), determined that it comprises sectors where the value of goods and services is based on intellectual property: architecture, visual and aesthetic arts, handicrafts, cinema, design, publishing, research and development, games and toys, fashion, music, advertising, software, television, radio, and video games. The Orange Economy annually produces 6.1% of the world’s gross domestic product (GDP). If the Orange Economy were a country, it would be the fourth largest employer behind China, the United States and India. Latin America and the Caribbean generate $175,000M of this total figure. In terms of job creation, in 2011, out of the 3,266 million workers in the world, the Orange Economy generated 144 million jobs, of which 10 million jobs corresponded to Latin America. The strongest country is Brazil with 66 million, followed by Mexico with 55 million, Argentina with 17 million, Colombia with 11 million, Peru with 4.7 million and Chile with 4 million. Of the world total produced by the Orange Economy, Latin America and the Caribbean generate only 0.4% and commercialize 0.3% of global trade with mostly negative payment balances. According to the United Nations Conference on Trade and Development (UNCTAD), only 1.77% of global creative goods exports originate in the region. Slightly less than a third of these are directed to other countries; more than 64% is oriented towards developed economies; and less than 3% reaches other developing economies. These data show that there is room for growth, which provides an opportunity for Puerto Rico.
The DDEC identified these five major segments: DESIGN graphics, industrial, fashion and interior design, and publications ARTS music, visual arts and performing arts MEDIA app development, video games, online media, digital content and multimedia CREATIVE SERVICES architecture, education, creative CREATIVE GROUPS networks and associations that are created across companies or creative industries to stimulate common activities, links between each other, or achieve economies of scale
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PUERTO RICO, a global approach Talent abounds in Puerto Rico, and is the main asset of the creative economy. From advertising agencies to architectural firms, from fashion design to industrial design, the professionals who bring these activities to life can benefit from the export opportunities afforded by Act 20. Deep knowledge of regional idiosyncrasy and the opportunity to produce in the Spanish language are two enormous strengths. In addition, companies that relocate to Puerto Rico to take advantage of the benefits of Act 20 require a number of services for their products, including but not limited to writing, translation, and graphic design. This is a tremendous opportunity for local talent. The impact of Act 22 on the arts is also evident. These new residents integrate culturally by encouraging and supporting the arts in all forms of expression. The visual arts compose another sector of projection and growth for Puerto Rican branding. The recognition of artists such as Enoc Pérez, Myrna Báez, Allora y Calzadilla, Rafi Trelles and Luis Torruella, among many others, together with the growing international profile of local galleries, opens doors for other creations to reach interested markets. Institutions such as the Museo de Arte de Puerto Rico (MAPR), the Museo de Arte de Ponce (MAP) and the Museo de Arte Contemporáneo complement the visibility that the visual arts bring to the marketing of the island.
Constructo - the Mesa W table
CREATIVE INDUSTRIES
The Calling (El Llamado) - David Zayas - The Art Path @ DDEC
Urban Universe 3 - Carlos Santiago - The Art Path @ FCTI
The Escuela de Artes Plásticas, the music conservatory (Conservatorio de Música) and the Universidad de Puerto Rico form a nucleus of arts in higher education of the highest quality. With their respective accreditations, this trio encapsulates an enormous amount of social and academic capital that is attractive for those who want to study at a U.S.-accredited university, but with courses taught in Spanish. Together with the agreements and academic exchanges that these institutions develop with their counterparts abroad, conditions for linkages in the arts sector are being created, generating enormous development potential. Collaborations between the public and private sectors are of great importance. Gallery owner Sylvia Villafañe and the DDEC recently joined in an initiative called La Ruta del Arte (The Art Path), wherein several artists from the Generación Reactiva group created works to be exhibited in spaces focused on innovation, such as the Fideicomiso para Ciencia, Tecnología e Investigación (Puerto Rico Science, Technology & Research Trust), Parallel18, the offices of the DDEC and the Centro Comprensivo de Cancer, among others. The project intends to continue the "path" outside of Puerto Rico and presents an excellent promotion tool for our country’s artistic talents. The project was complemented by talks and workshops about Act 20 so that groups of artists and people in other creative disciplines could learn the benefits of the incentives for export services act.
Chef Wilo Benet
In terms of events, Puerto Rico has begun to have an international projection with, for example, the San Sebastián street festivals that attract many visitors every year. The same could happen with other events with enormous development potential such as the Festival de la Palabra and the famous Festival Casals. One of the promising spaces for generating activity on a large scale is District Live at the Convention Center, which will have both indoor and outdoor spaces for artistic events and large-scale festivities. Likewise, the possibility of creating a version of Art Basel in Puerto Rico is being explored, to take advantage of the infrastructure and worldwide interest in the visual arts. Puerto Rico is also recognized for its culinary arts. Top chefs such as the recently deceased Alfredo Ayala and contemporary chefs Jose Santaella, Marisol Hernández and Mario Pagán have contributed to the development of this art form and thus to the creation of different gastronomic centers in the country. SOFO, or ‘South of Fortaleza’, in Old San Juan, Loiza Street with a variety of international offerings, Santurce with the rise of food trucks and food parks like Lote 23, the Paseo Caribe with the recently launched El Mercado and without a doubt the Placita de Santurce are just a sampling of our great potential in this area. To formally understand the impact of the arts on Puerto Rico's economy, the DDEC has commissioned a formal study that should be ready by the end of 2016, and which will certainly provide much to talk about.
Santaella restaurant in Santurce
Fried red snapper @ Santaella of renowned Chef José Santaella
With new educational trends in the STEAM (science/technology/engineering/arts/math) conceptual framework, the arts provide the creative component, producing real and meaningful intersections. Interdisciplinarity in education is what makes new productive paths possible. If Puerto Rico is already a leader in the training of professionals in STEM, we need only to effectively integrate the arts into the equation. The Universidad del Sagrado Corazón has joined this creative expansion effort with the creation of NEEUKO, a collaborative innovation center offering the space and skills for ideas to materialize. It promotes entrepreneurship through programs and educational activities such as conferences, conversations, interviews and book presentations. Those who take advantage of the tools that NEEUKO has to offer can take their ideas from concept to final product. Santurce has become an epicenter of change, gradually becoming a neighborhood of creation at all levels. Part of this change was organized around the Ciudadela complex, a real estate project by the company Putnam Bridge, which has been become a benchmark for urbanism. It houses the Colaboratorio del Foundation for Puerto Rico, where a group of entrepreneurs coexist and share knowledge. From these creative interactions, solutions to complex problems will emerge. In addition, this foundation has promoted important activities around the tourist economy, which promise to breathe new life into this sector.
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A STEADY pace A quick look reveals that there are 2,355 businesses on the island that qualify as creative companies. They employ 18,861 people with an average salary of $31,011 for a total payroll of $564M, and their contribution is 3.61% of GDP. On October 13, 2014, Governor Alejandro García Padilla signed Act 173, known as the “Puerto Rico Creative Industries Promotion Act”, to promote and incentivize the economic development of creative industries. This act led to the creation of the Consejo Asesor de Industrias Creativas (Puerto Rico Creative Industries Advisory Council). It is called upon to formulate public policy recommendations for the development of creative industries, to raise awareness of the creative industries’ contribution to economic development, to foster strategic alliances among the private sector, academia, and government in the development of initiatives for creative industries and to develop a strategic plan that generates wealth, jobs and exports. Its first tasks focused on promoting the creative industries as a mark of positive economic impact, sensitizing the public to the potential and future competitiveness of these industries. This required the evaluation of existing incentives vis-à-vis the need for specialization in order to attain active and continuous participation from the sectors in Puerto Rico’s economic development. What followed was the creation of the first independent capital investment fund for innovation and creativity with cross-sector integration (public/private/non-profit), including micro-loans, scholarships and different mechanisms to encourage participation and diversity among all involved. Consideration was also given to creating a fund to facilitate access to capital for self-employed entrepreneurs wishing to transition to becoming independent contractors under the definition of SMEs, so that they could take advantage of this sector’s benefits. The decision to create a sector-specialized cluster was another means of contributing to the strengthening of these companies. The establishment of an independent entity that channeled all activities to encourage the development of the creative industries through training, financing, matching, innovation and the development of alliances was fundamental to support the sustainability of the sector. But all this was only part of what was needed. It was also necessary to create a creative industry economic activity index published quarterly with an annual report, a measurable increase of "start-ups" among sectors covered by the Act, a change in the educational model that would also take into account the traditional labor market, as well as changes in the legal and regulatory framework focused solely on this sector. Collaboration with the Fundación Comunitaria de Puerto Rico was fundamental for the creation of the Corporation for creative industries in Santurce. It capitalized with $250,000 from the Puerto Rico Trade and
CREATIVE INDUSTRIES
The “Emprendimiento Creativo” creative entrepreneurship educational project features a book by Javier Hernández and a web-based platform adapted to entrepreneurial and cultural projects.
Export Company and a $250,000 matching gift from the Fundación Comunitaria, for an initial start of $500,000. This is the first public-community alliance in Puerto Rico wherein government and community entities contribute equally to the creation of a fund, with sights set on further development in the Santurce area. The aspiration is to create a permanent legacy that transcends changes in political administrations, and that this fund continues to grow with the investment of other foundations, banks and other local and international philanthropic and financial organizations. In order for entrepreneurs to access these benefits and incentives that become available, they must apply for inclusion in the Puerto Rico Trade and Export Company’s Registro de Industrias Creativas (Creative Industry Registry). Qualifying as a creative company or group will give the entrepreneur the opportunity to request multiple benefits under the Act, including participation in the Company’s competitions, as well as future initiatives to support the growth of creative industries. This is just the beginning of a project with great potential.
LEGAL TOOLS FOR CREATIVE INDUSTRIES ACT 20-2012, "Law to Promote the Exportation of Services" ACT 173-2014, "Puerto Rico Creative Industries Promotion Act" ACT 62-2014, "Micro, Small-, and Medium-sized Business Promotion Act" ACT 120-2014, "Incentives Act for the Generation and Retention of Jobs in SMEs"
T
H
The film program represents a budget of about $303M for productions in Puerto Rico in a 4-year period. In the next 4 years this industry could account for over $500M. An engine for job creation.
THE DO OVER with Adam Sandler
An average of 25,000 direct jobs will have been generated in the current quarter, with a projection of 40,000 additional jobs in the next 4 years.
Breaking records.
Domirriqueños, has become the highest grossing local production in the history of Puerto Rican cinema with $3.5M just in Puerto Rican box office sales. Antes que cante el gallo, a film partially financed by the Fondo Cintematográfico (Cinematographic Fund), was the highest grossing film at the Caribbean Cinema in Plaza las Americas during its first week.
Significant increase in local productions.
More than 30 local productions have been made so far this year -- an unprecedented figure -- of which 22 were financed by the Cinematographic Fund administered by the DDEC.
HOMELAND
CINEMA and television Film and television are two of the most important media showcases. And when one considers all the natural and technical qualities that Puerto Rico possesses, the possibilities for growth are enormous. The DDEC’s Programa de Desarrollo de la Industria Cinematográfica (Film Industry Development Program) manages the Cinematographic Fund, which serves the local filmmaker community by granting loans for film production, among other matters, and Act 27, 23 L.P.R.A. § 11001 et seq. (2011), also known as the Puerto Rico Film Industry Economic Incentives Act, offers benefits and tax exemptions for audiovisual projects on the island. Both foreign and local productions can benefit from Act 27. The efforts of the Film Program and other agencies have significantly increased local film production and activity. Never before has Puerto Rican cinema experienced such effervescence, not only in the production of local and foreign films, but in activities related to film culture.
Development of an ecosystem for the creative industry.
The development of the creative industry in Puerto Rico has unleashed an exponential linkage of professions, services, companies, skills and talents.
Increase in export projects.
Given Puerto Rico’s competitive advantages, the island has become a center for the export of services and content.
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REPLICAS 1 - Keanu Reeves and Alice Eve
PRODUCTION: An ever-evolving industry Along with local productions, it’s worth highlighting efforts made to diversify foreign producers' perceptions of the island as a filming destination to expand and enhance their chances for success. Investment in productions has been increasing and the island is now considered an ideal destination not only for the filming of feature films but also of commercials, pilots, TV series, live recording of events, and music videos. With the June 2016 Conference of Ibero-American Cinematographic Authorities/Ibermedia held in Puerto Rico, the island consolidated its cinematographic ties with Latin America and Spain. This will bring greater opportunities for local filmmakers to benefit from the advantages of belonging to Ibermedia. That is, Puerto Rican filmmakers will expand possibilities for coproduction, thus reaching wider audiences and broader distribution of their films in new places.
CREATIVE INDUSTRIES
In the field of feature-length films, since 2013 more than thirty films benefitted from the incentives offered by Act 27, and were either partially or fully filmed in Puerto Rico. Projects benefiting from the fiscal stimulus include feature films such as Favela, The Vessel, The Jump, The Suspect, The Preppie Connection, Our Brand Is Crisis, The Do-Over, A Summer in Florida, Atomik Shark, and Réplicas, among others. Television shows that shot episodes or the entire series in Puerto Rico include: Crossbones, Homeland, SOS Island, Incógnita, Cleaners, Royal Pains, Mad Dogs, Mozart in the Jungle, Feral Island, Wrecked, Celia, and Start-Up, among others. Projects that used the island as a filming destination for commercials are also noteworthy, such as Grupo Modelo (Cerveza Corona), Goya, Walgreens, Denny's, Coors Brewing Company, Pep Boys, Nestlé and the Chilean department store Falabella, among others.
Emblematic CASES REAKTOR POST PRODUCTION Receives the first decree of act 27 for infrastructure. A $3.5M investment makes Puerto Rico a state-of-the-art center for post-production (color correction, special effects, sound, editing, etc.) which means that production can be done in Puerto Rico from beginning to end. Post production is an important sector within the film industry and a tremendous business opportunity for Puerto Rico. SPACE RHINO Selected as part of the first generation in the Parallel18 startups program, they launched their first video game under the incentives of Act 27.
CO-PRODUCTIONS • El Hombre que Cuida Dominican Republic • Extraterrestres – Venezuela • Noli – Dominican Republic • Hugo, Paco y Luis - Argentina. • Fragmentos de Amor Furtivo – Colombia. This represents an important paradigm shift since it is the first time that an agreement is reached for Puerto Rico to earn a percentage of the box office revenue earned in a foreign country.
FILMES ZAPATERO Won two Latin Grammys for '' best music video '' in both short and long forms, for the production and direction of the music videos that Calle 13 and Juanes filmed in Puerto Rico. These achievements help us to project Puerto Rico at a global level. Filmes Zapatero received its first nomination for best long form music video in 2013 for "Hecho con Sabor A Puerto Rico", a Christmas special by the Banco Popular de Puerto Rico.
WRECKED 1
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OUR ASSETS
OUR ASSETS leap into action P
uerto Rico possesses important competitive advantages to respond to current challenges, and one of the most important advantages is the human capital currently residing outside the island, which includes a talent pool of immense possibilities. This so-called "diaspora" deserves to be recognized as a source of expertise and specialized knowledge that has potential within the business scenario that we are gradually forming with companies that come to the island to do business. Our professional talent pool is unique in the world. The fact that Puerto Ricans residing abroad maintain close ties with the island and travel back and forth frequently allows them to keep a vital bond alive. In everyday speech it is said that we "live" there, but not that we are “from� there. In that circular axis of coming and going lies the hope of someday returning to stay. And the time to do so is now. When an agreement was signed with the German company Lufthansa to establish a world-class aeronautical maintenance center in Aguadilla, it was done knowing that this initiative would set the standard for other industries. Not only will many aviation professionals want to be part of this ambitious and reputed company, but the universities bordering Aguadilla will continue to train new experts oriented to space technology and all other complementary services.
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The goal is to capitalize on global connections and maximize human capital, while using networks and globalization to promote Puerto Rico’s competitive advantages all around the world and attract businesses to the Island.
“It’s hard to beat all that Puerto Rico has to offer” Mohnish Pabrai
President, Pabrai Investment Funds
Mohnish Pabrai, financial guru, whose company Pabrai Investment Funds has over $500 million in capital.
The renowned entrepreneur Mohnish Pabrai, principal executive of Pabrai Investment Funds, an established capital investment company on the island, has highlighted in international forums that the University of Puerto Rico Mayagüez campus is "one of the best-kept secrets", in terms of the quality and training of its students. Its capacity and knowledge to reach objectives are already partially established. What remains is to organize them according to the objectives that have been identified together with strategic partners, with the first objective being to strengthen the island's competitiveness for the stimulation of economic growth. Distances are shortened and the potential impact of this initiative holds great promise. All of this fosters that important business effervescence that is the necessary element for value generation:
• Technology clusters are being strengthened to facilitate the entire permitting process and funding opportunities for innovation to permanently reside in our industries. The Science, Technology and Research • Trust works to ensure that international activity is strengthened. The construction of a ‘city of the future’ at • the old Roosevelt Roads base in Ceiba and Naguabo is already underway. Private initiatives such as Ciencia PR and • ComPRmetidos do their share from the private sector, along with new innovation centers created by local foundations.
The co-founders of ConPRmetidos. From left to right: Cristina Sumaza, Miguel Columna, Natalie Trigo, Ciara Nápoli, and Isabel Rullán.
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DDEC Secretary Alberto Bacó talks to Sol Partners' president Kristian Riefkohl during his visit to this IT consulting company.
Kristian Riefkohl
is a Puerto Rican businessman who was attracted by incentives to come back to the island. His company, Sol Partners, operates under Act 20 and was created in Puerto Rico by Mark Curry, who also benefits from the incentives of Act 22. According to Curry, he was impressed by the quality of human resources available to his company and by existing opportunities. For this reason the company has been actively recruiting locally, hiring not only Riefkohl but also other professionals such as Heriberto Torres and Carlos Davila, another example of our diasporic population returning. The company offers IT consulting services and occupies three floors in the Caribe de Puerta de Tierra building. In addition, they established the credit cooperative Sol with seven founding members. Curry was one of the first entrepreneurs to come to Puerto Rico with Act 22. "He has fallen in love with Puerto Rico, and he lives in Old San Juan. He’s one of the few [entrepreneurs] who live in the metropolitan area. He loves everything here, he’s fascinated by going to the island of Culebra and he told me that he does not plan to leave Puerto Rico," said a reporter from El Nuevo Día. Riefkohl pointed out that given his personal history, it was the right time to return. "Mark taught me that where there’s a crisis there’s always an opportunity. I left Puerto Rico to grow and I think I came back to help Puerto Rico grow again," he said. "I was in Boston for 13 years, working first with Ernst & Young and then with various investment funds, and I returned to Puerto Rico for the opportunities afforded by Act 22 and Act 20 and the business opportunities I saw in Puerto Rico". The rest is a success story in full swing.
OUR ASSETS
“Where there’s a crisis there’s always an opportunity. I left Puerto Rico to grow and I think I came back to help Puerto Rico grow again.” Kristian Riefkohl president, Sol Partners
From left to right: Aaron Stewart, Brenda Marrero of BMA Group, Economic Development Secretary Alberto Bacó Bagué, and Fernando Rodríguez, who along with Stewart returned to the Island to establish a the home decor business Aaron Stewart Home.
Ricardo Alexander Gómez
is another example to highlight. A Florida resident, he arrived with his family at age 10, and had not considered Puerto Rico as a business destination or place to live until now. Having developed a medical device for heart patients, which was later acquired for a substantial sum by Medtronics, he returned to the island with his family. "When this happened (the purchase of the medical device that he developed), Medtronics closed its Florida plant with 200 employees and began to produce the product in Puerto Rico at a plant in Ponce, hiring about 120 people," he explained during his participation in one of the Puerto Rico Investment Summits. It was then that he began to hear of the opportunities the island offered. Now he is actively investing and developing new businesses on the island.
Un momento durante la participación de Ricardo Alexander Gómez en el evento de Medical Tourism Summit, celebrado en el Hotel Caribe Hilton en el 2015. En la foto aparecen, de izquierda a derecha: Ricardo Alexander Gómez, Caroline López, Ingrid Rivera (Directora de Turismo), Alberto Bacó Bagué (Secretario DDEC) y Yalixa Rivera (reportera de la sección de negocios de END).
The story is repeated with Michael McCloskey, a successful farmer and founder of Fair Oaks Farms, who has returned to the island to establish important projects in agriculture, livestock and tourism.
Bianca Cabán is a prime example of the
amazing work carried out by Puerto Rico’s diaspora to promote economic development on the Island.
Bianca Cabán and Kamal Ravikant, managing partner of Evolve VC, at the 2016 Puerto Rico Investment Summit.
Though far away from home, she has become a faithful proponent of female entrepreneurship through projects such as Access Latina. She is a member of the World Economic Forum’s Global Shapers organization, as well as a member of the advising board at the Women of Color Loan Fund, a $30 million fund established by City National Bank. As the co-founder and CEO of Greenboard Solutions, she has launched a start-up for the commercialization of cannabis. Moreover, she was the first Qualified Promoter of DDEC’s Promoters Program, which means she actively promotes Puerto Rico as a key destination for investments and businesses. 55
PROMOTING Puerto Rico from the private sector Promoting Puerto Rico as a business destination requires audacity and creativity. That is why the position of the Qualified Promoter (“Promotor Cualificado”) was created, so that individuals and companies can proclaim the advantages of investing in the island, and be remunerated for doing so. This is a new expansion of institutional efforts to create ambassadors for Puerto Rico from the private sector. To recruit an army of individuals and companies dedicated to its promotion, a program was created taking three basic points into consideration. It was important that the program be sustainable in the long term, be based on measurable results, and that it be different because it projects unprecedented results. Candidates must have the following qualifications: possess a baccalaureate degree and at least 5 years of experience in their specialty; be able to articulate the details of doing business in Puerto Rico under the incentive acts 20, 273 and 399; pass an application and certification process before the Office of Tax Exemption; and not be a government employee or agent. Those who manage to broker the establishment of a services export company in Puerto Rico receive an annual remuneration of 7.5% of the taxes that the business pays to the Department of the Treasury for 15 years. If the company is established under Act 273 (International Financial Center Regulatory Act), the remuneration is 5.625% of total taxes for the same period. The basis of this incentive is part of the Fund for Act 20 which is funded by 10% of the taxes paid by companies that come to PR under said law.
OUR ASSETS
BASIC REQUIREMENTS:
Bachelor’s degree 5 YEARS EXPERIENCE in your field of expertise
Proven ability TO
UNDERSTAND & COMMUNICATE what it takes to start a business that exports services from Puerto Rico
TIME TO DEVOTE
to your Qualified Promoter endeavors
The program was formally presented at the Ecosistema 20/22 event, to inform local entrepreneurs in depth about the benefits of the incentives acts, foster connections with Act 22 investors and other Act 20 entrepreneurs, for mutual benefit. During the event, several Qualified Promoters, including Lic. Jeanelle Alemar Escabí, shared their experience. "At one point I saw the opportunity to promote Puerto Rico as a place of business and specifically focus on a service, which was to evaluate the investor’s current business structure, and to see how these laws could help improve the economic conditions of the business while at the same time bringing new business to Puerto Rico," explained the president of JAE Legal Services, LLC., in an interview for El Nuevo Día. "A regulation of certified promoters was developed, through which people who are interested in promoting Puerto Rico and who have the knowledge to do so can receive compensation from a fund that was created to promote these laws, based on the amount of taxes that those people pay," she added. "If those people or businesses do not pay taxes, the promoters do not charge. The intention is to bring in businesses that generate capital and profits, create jobs, and pay taxes," she concluded. The recently launched program has
BECO ME A
PUERTO
QUAL IFIED
RICO B U S I N E S S
PROMOT
ER!
generated a lot of interest and the DDEC team -- through one of its affiliated agencies, the Office of Industrial Tax Exemption -- is actively evaluating applications to join the group of Qualified Promoters certified thus far. Each of these cases demonstrates new ways of positioning Puerto Rico. Qualified promoters and diaspora entrepreneurs are creating a new business structure that facilitates knowledge transfer and provides new sources of capital, essential elements for sustained success. The present is now and in order to create opportunities, one must start by believing in them. Puerto Rico awaits.
PROMOTE
GET NEW
COLLECT REVENUES
PUERTO RICO
EXPORT BUSINESSES
7.5 /5.625%
AS THE BEST PLACE TO EXPORT SERVICES
TO ESTABLISH THEMSELVES ON THE ISLAND WITH ACTS 20, 273 &399
OF YEARLY INCOME TAX AMOUNT PAID BY EACH COMPANY YOU BRING IN, FOR 15 YEARS
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MODERN PUERTO RICO
25
Recommendations to continue building a modern Puerto Rico
By: Alberto Bacó Bagué Secretary of Economic Development and Commerce of Puerto Rico (DDEC)
P
aradigm shifts will be affirmed to the extent to which various strategic initiatives are implemented organically. Sustained attention to efforts of entrepreneurship, internationalization and innovation must be maintained with great boldness. These 25 points capture the essence of what we have set in motion.
Se trata de capitalizar las conexiones globales y maximizar el capital humano, usando el poder de las redes y la globalización para dar a conocer las ventajas competitivas de Puerto Rico en todo el mundo y atraer empresas a la isla.
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1
Create promotional machinery for investment in high-impact and emblematic projects
Specialized promotion teams should continue to attract investors (Act 22); promote the export of services (Act 20); increase the number of companies that establish International Insurance Centers (Act 399) and International Financial Centers (Act 273). The work of international offices should be strengthened and expanded to Asia, without neglecting the Caribbean and South America. For the first time the arrival of capital from China is a reality. It is of utmost importance to continue promoting these efforts to strengthen relationships.
2
Promote and formalize the community of entrepreneurs and high-capital investors who relocate to Puerto Rico (Acts 20 and 22) This effort must be made face-to-face among the people benefitting from these laws. Specialized promotion teams must insert private companies in their promotional efforts. In addition, promotional teams that include professionals (lawyers, CPAs, investment bankers, realtors) should be strengthened to reach suitable markets with attractive presentations. International media outlets such as The Economist, Forbes, Fortune and Financial Times, events such as the Puerto Rico Investment Summit and the efforts of commercial offices will be useful platforms to reach the coveted market of potential investors.
4
Develop the office of the Chief Information Officer (CIO) to mature, strengthen and achieve self-identity
3
This office must supervise and promote technology projects that have an impact on economic development in collaboration with the Industrial Development Company. The work of the CIO should be integrated with the strategies of entrepreneurship, and of science and technology as an entity of economic development. This should strengthen the island as a technology center in Latin America, with the office of the CIO as a central unit, along with the Science and Technology Trust.
Promotion in the hands of the private sector
Restructure economic development towards promotion encouraged by the private sector. The Qualified Promoter program is a good step in this direction.
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5
Reinvent, boost and expand the country brand
The country brand will be the tool that best defines Puerto Rico’s position as a multi-destination center, with its specific attributes. This includes medical tourism; ecotourism; nature and adventure tourism; residential tourism; and cultural tourism. The new routes to Central and South America (Avianca, Volaris) and to Europe (Air Europa, Iberia, Norwegian) will help increase the flow of international passengers. Industries form an integral part of the country brand. It is important to continue to promote Puerto Rico as the best filming destination in the world. Continue to exploit the diffusion of the Orange Economy and its primary local creators in music, literature, fashion, industrial design and visual arts.
6
Train cooperativism to be a driving force for economic development in and of itself
8
Reduce the cost of energy and dependence on oil, depending on Puerto Rico’s economic development
Promoting projects that make the energy distribution system more effective is the path to sustainability, but costs must be reduced with renewable technologies. We need to encourage and stimulate viable projects, and to help the Electric Energy Authority (AEE) make sound decisions about them. Material investments in the modernization and efficiency of the AEE and AAA will make them innovation centers within the Caribbean and the main renewable energy center.
The solidarity fund is another tool for investment and financing. The co-investment agreement of the Government Development Bank in the Cooperative Investment Fund (FIDECOOP) should be extended and the participation of cooperatives in the Fund should be strengthened.
7
Accelerate construction development projects with high government investment
The development of Roosevelt Roads to its maximum capacity is a must. In addition, increasing the flight traffic from the José Aponte de la Torre airport will bring multiple benefits. The signing of the contract for the management of the Puerto de las Amérocas (Port of the Americas) will increase economic activity in the south. In San Juan the Convention Center District boasts new hotels in operation and the next opening of "District Live" will expand existing activity. In the same way, the Ciudad de las Ciencias (City of Science) will feed a vital sector for innovation and research in the sciences.
MODERN PUERTO RICO
9
Become fully embedded in the knowledge economy
To make the Trust a world-class research facilitator, a Research Center and an Office of Technology Transfer should be developed to serve as tools for researchers to bring their ideas to market. Development of the City of Science must be completed, including laboratories, a specialized school, residences, and a connection with the Medical Center. In addition, the establishment of the Comprehensive Cancer Center should be solidified. On the other hand, it is important to develop medicinal cannabis not only as producers and dispensers, but more importantly as a center for research and development in the hemisphere.
10
Federal Strategic Initiative
Collaborate with the Federal Fiscal Control Board, keeping the channels of communication open. Incubate the creation of a specialized office by executive order. Champion federal legislation that promotes the approval of Section 933A of the Federal Internal Revenue Code to encourage new industrial investments in Puerto Rico; pursue exceptions for cabotage laws; and seek the total or partial exemption of Puerto Rico from federal arbitration applicable to foreign insurers.
11
Federal proposals that move the needle
Generate well-focused Federal Government proposals that truly move the needle, including priority topics such as Section 245A, and health initiatives such as parity in funding for Medicare and Medicaid services.
12
Capitalize on the success of companies
Any incentive such as a tax credit or grant must be structured so that the government benefits in the eventuality of success.
Act with courage
13
Create a structure that unifies all efforts to let us feel that we’re in the federal capital. Organize leadership and redirect the flow of the diaspora to places where we can feel that we have the presidential and congressional votes. Speak clearly and fearlessly for the well-being of Puerto Rico. Each of these recommendations includes the essence of the steps to be followed so that the footing we set for the new economy produces measurable results. We’re certain that the multiple investment epicenters, created from new paradigms, hold the potential to breathe new life into the Puerto Rican economy.
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14
Promote entrepreneurship and capital investment in companies operating from Puerto Rico
Entrepreneurship is called upon to be one of the central elements of Puerto Rico's economic development. To be far-reaching, entrepreneurship must be integrated into the public education system. Exercises such as setting up a small business should be a requirement for graduating from school. Business incubators will also create spaces for experimentation, with their respective sources of appropriate funding. Amplify the work of Parallel18 in conjunction with Piloto 151 and Neeuko, among others. Increase the number of funding sources including venture capital and angel investors. Attract new start-ups to the island through international campaigns.
15
Reinvention of traditional industries
Collaborate with the diaspora
17
Through them, contact networks expand. The new business opportunities that have opened in Puerto Rico recently and the benefits of the incentive laws have brought back some people. Convert the movement of Acts 20, 22, 273, and 399 into an engine that propitiates the return of skilled Puerto Ricans.
18
Implement a fair tax reform
It is imperative to make Puerto Rico a jurisdiction of minimum taxation on labor and productivity, primarily taxing consumption. To the extent that recessionary measures are eliminated, spending and investment will be encouraged. In addition, the island's finances will become more effective.
Ensure that initiatives in modern agriculture (coffee, cocoa, cane, medicinal marijuana) take on a new scale. Take advantage of the advantages of current (pharmaceutical) manufacturing to expand services. Increase annual production to ensure food security. Continue to aggressively promote business agriculture.
Renew the public administration structure
16 19
Change administrative centralization at the level of La Fortaleza, even considering physically moving it. Leverage technological advances for administrative processes and use technology for simple things such as meetings, routine transactions, etc.
MODERN PUERTO RICO
Find a strategic place in Cuba
Take advantage of the thawing relationship with Cuba to become a Spanish-speaking ally for business opportunities. Identify new business opportunities in strategic areas. Increase trade missions. Be a key player in the modernization of Cuba and in the creation of a world-class Caribbean.
20
Encourage alliances with the private sector for public works
Promote and structure public-private partnerships led by economic development area, not by fiscal area or by engineering techniques. Apply them to large-scale projects.
Use strategic language
22
All economic development thinking should be framed in theories of abundance and not scarcity. For instance, it is not just ‘reducing payroll’, rather it is being more effective in managing resources and encouraging/motivating the public sector employee.
24 25
Continue opening doors
21
Change the BGF and BDE
Propose a new structure for the Government Development Bank (BGF) and the Economic Development Bank (BDE), making them into mixed capital, private and governmental institutions. Promote more participation in their governing structures. Unify both organizations and establish a Board of Directors with a majority of sectors served -- creditors, cooperatives, municipalities, home builders. Make it a financial and promoter for the promotion of public-private partnerships.
From laws to a movement
23
Convert the movement of Acts 20, 22, 273 and 399 into an engine that encourages the return of the successful diaspora. The medium-term result is as follows: 5,000 new businesses with 100,000 incremental jobs and net taxable income based on 4% of a billion dollars.
Continue to aggressively expand air access with new lines and new destinations. Encourage the island to increase the number of ships with San Juan as their home port. Attract more private luxury boats to use the services and new facilities for that niche.
Adopt a great vision Think big, with the goal of a great walkable city. Seek the partial closure of Old San Juan for pedestrian use. Interconnect the Convention District with the Miramar residential community and the Condado tourism area.
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Puerto Rico is being transformed into a knowledge and service driven economy with unprecedented global reach.
DISCOVER WHY PUERTO RICO IS A VALUABLE BUSINESS DESTINATION visit
businessINPUERTORico.com
DOING BUSINESS IN THE USA THROUGH PUERTO RICO
4%
Puerto rico corporate tax rate VS
54% taxes in USA