The economy of the Caribbean country is diversifying and coming of age
The Dominican Republic defied the odds as it came out of the Covid-19 pandemic with the wind in its sails, despite its reliance on tourism and airborne connections. Gross domestic product growth rebounded by 12.3% in 2021 and 4.9% in 2022; tourism not only bounced back, but exceeded pre-Covid levels in 2022. Meanwhile, foreign direct investment (FDI) and exports grew to record levels.
Economic momentum in the largest Caribbean economy has built up across the board. While tourism remains the main engine of the national economy, it is not the only one. Major investment is going into energy, transport and logistics infrastructure, as well as into manufacturing. Fledgling creative and innovative sectors are stirring up the interest of foreign investors too.
But new strategies to develop local talent and lure anchor investors in new sectors will now be needed to add more momentum to the country’s growth trajectory.
Record and diversification
The Dominican Republic hit the ground running as the world emerged from Covid-19 restrictions. Tourists started to return in 2021, and in 2022 the country reported more than seven million international arrivals, according to UNWTO figures, thus featuring among a handful of outliers that managed to exceed pre-Covid levels last year.
Investors came back too. They announced $3.5bn in greenfield FDI projects in 2022, according to figures from foreign investment monitor fDi Markets — the second-highest annual performance on record after 2011. Since the turn of the decade, no Central American or Caribbean country other than Mexico has attracted as much FDI as the Dominican Republic.
“This is likely the best moment to invest in the Dominican Republic,” says Biviana Riveiro, the director of national investment and exports promotion agency ProDominicana. “We have achieved social stability, political stability, and economic stability. These are all important signals for investment.”
Notably, the investment matrix has shown elements of diversity. The tourism sector, which has traditionally attracted the lion’s share of investment, accounted for half of total greenfield FDI since 2020. The renewable energy sector was the second-largest recipient of FDI in the period, accounting for about 30% of the total as the government aims for a quarter of the total power supply to come from green energy in 2025; investment into logistics (8.4%) and manufacturing (5.2%) followed.
The expanding production capacity of the Dominican economy is reflected in exports figures. Exports of Dominican industrial goods, mostly produced in its 84 free zones scattered across the country, reached $10.8bn in 2022, according to figures from the central bank. That is 29% higher than pre-Covid figures in 2019 and 40% higher than 10 years earlier.
Improving governance
The country’s strong recovery in the wake of the pandemic has highlighted the resilience of an economy that is diversifying beyond tourism, as well as improving its public governance.
“Overall government effectiveness has improved in recent years contributing to the country’s strong recovery from the pandemic,” credit rating agency Moody’s wrote in a note in August. The credit rating agency confirmed its sovereign rating at Ba3, three notches below investment grade, and upgraded its outlook to ‘positive’.
“The reason why we’re here is because there’s both political and legal stability. That gives us confidence that the country can sustain the current levels of external investment and keep growing,” Jorge Galiber, the CEO of the Dominican subsidiary of French energy group TotalEnergies tells fDi.
Besides, the crackdown on corruption by president Luis Abinader has borne some fruit since he came into office in August 2020. According to the 2023 Capacity to Combat Corruption Index by risk advisory firm Control Risks, the Dominican Republic has seen the biggest boost in its ability to fight corruption since 2020.
“I could attract an investor like Bain Capital thanks to the recent improvements in the field of corruption,” says Victor Pacheco, the CEO of local low cost airline Arajet. “There is a perception that the Dominican Republic protects foreign investment, and that generates security.”
Challenges ahead
The road ahead remains uphill as the country faces the challenge of attracting new investors in high added value manufacturing and services to continue along its path towards diversification.
“We have to design and articulate an investment promotion strategy that has a clear direction in terms of steps we need to take to differentiate our offer,” says Ms Riveiro. “We won’t take a quantum leap by exporting the same products; we need to look at strategic sectors like electric vehicles, technologies and biotechnologies, also to increase investment in research and development.”
Ms Riveiro believes that air and sea connectivity, as well as its relatively low labour costs and telecommunications infrastructure are among the elements that will allow the country to differentiate its offer from other investment destinations in the region and carve out its niches in high-impact sectors. Meanwhile, the government is setting in motion a series of initiatives to upskill the local workforce, which include a national artificial intelligence strategy.
The Dominican Republic has come a long way since it used to rely on the ‘dessert economy’ — sugar, coffee, cocoa and tobacco. Tourism has become the modern sweetener of its economy, but the country has now developed a palate for coveted, high-added-value FDI in other sectors. As a plan it may feel less exotic — which is why, perhaps, it has better chances to succeed.
fDi
