Why is the Domincan Republic (DR), with a GDP of US$ 121.44 billion in 2023 and bilateral trade with India valued at US$ 769 million, highly critical for the latter’s future trade growth?
Well, the country is a growing hub for foreign investment due to its favorable climate, political stability, and robust Free Trade Zones (FTZs). With over 80% of its population urbanized, the DR has emerged a key player in sectors like construction, agriculture, and manufacturing.
But the real clincher is the DR-CAFTA agreement (between DR and other Central American countries including Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, as well as the US). Therefore, DR offers an interesting opportunity for Indian businesses for investments that provide them direct access to the US market.
The Dominican Republic (DR), with a population of 11.4 million consumers and a GDP of US$ 121.44 billion in 2023, is the ninth-largest economy in Latin America. The country has become increasingly urbanized in the last 15 years, with over 80% of their population now living in cities.
Foreign companies are increasingly discovering investment opportunities in the DR in crucial economic sectors such as construction, agriculture, financial services, healthcare, hospitality, transportation, and manufacturing. This trend is driven by the country’s favorable investment climate, extensive foreign trade agreements, politically stable environment, and vast incentives offered through its renowned Free Trade Zones.
The investment attractiveness of the DR is reinforced by its close geographic proximity and deep cultural and trade connections with the US, further supported by the DR-CAFTA agreement. In light of this, President Abinader’s administration has been actively working to enhance the investment climate in the Dominican Republic to attract more foreign investors.
India’s export trend to the Dominican Republic
Source: ITC, Trade Map, Values in US$ million
In the context of India, the DR reported a notable bilateral trade volume of US$ 769 million in 2023. India’s exports to DR grew at a 4-year CAGR of around 8% to reach US$ 328.1 million, while imports grew at a slightly negative 4-year CAGR of 1% to reach US$ 441 million.
Pharmaceutical products represent India’s highest export to the Dominican Republic, underscoring the strong demand and established market presence in this sector. Following pharmaceuticals, two- and three-wheeler vehicles are also significant exports, reflecting India’s competitive edge in the automotive sector. Notably, ceramic products have exhibited remarkable growth, with a CAGR of 84.9% over the past five years. This impressive surge highlights the increasing demand and potential for further expansion in the sector.
The DR-CAFTA (Dominican Republic-Central America Free Trade Agreement), initiated in the early 2000s, aimed to gradually reduce tariffs and trade barriers between the US and participating Central American and Caribbean nations. Signed in 2004, the agreement saw El Salvador, Guatemala, Honduras, and Nicaragua officially join in 2006, with the Dominican Republic following in 2007 and Costa Rica completing the group in 2009. Spanning over 20 years, DR-CAFTA’s goal is to achieve a tariff-free trade environment by 2026.
This is being accomplished through a phased reduction of tariffs, which started with the immediate removal of duties on more than half of US agricultural exports and progressively expanding to other goods. The agreement sought to enhance market access and stimulate economic growth by creating new opportunities for U.S. businesses while promoting transparency in trade practices and upholding labor and environmental standards. By eliminating trade barriers, DR-CAFTA aimed to foster greater economic integration in the region and provide a fairer and more sustainable trade environment for all participating countries.
Source: ITC, Trade Map, Values in US$ billion
The DR-CAFTA offers significant trade advantages, particularly for companies looking to tap into the extensive markets of the member countries. Collectively, these nations import goods worth approximately US$ 3.2 trillion, with the US accounting for US$ 3.1 trillion of these imports. This substantial market presence underscores the importance of DR-CAFTA in facilitating trade between the region and the US, providing a strategic advantage for businesses looking to penetrate these markets through the agreement’s favorable terms.
Fastest growing imports in the DR-CAFTA region
Source: ITC, Trade Map, % values of 5Y CAGR
A significant aspect of the Dominican Republic’s economic strategy is its network of over 87 free zone industrial parks, which are globally recognized for enhancing business productivity and competitiveness. These free zones offer numerous advantages, including substantial cost reductions for companies and streamlined trade processes. Indian companies have a notable opportunity for investments through this regime. The Dominican Republic provides a comprehensive suite of tax exemptions for businesses operating within these zones. This includes 100% exemptions from various taxes as well as comprehensive soft incentives.
Soft Incentives: In Free Trade Zones (FTZs), soft incentives play a crucial role in enhancing operational efficiency and supporting employee satisfaction. These incentives encompass a range of services designed to streamline business operations and improve the work environment. FTZs facilitate efficient staff recruiting and screening, ensuring that businesses can quickly find and hire qualified personnel. On-site medical services provide employees with immediate access to healthcare, while customized training programs help them acquire necessary skills.
Essential utilities, including water, power, and fiber optics, are readily available to support uninterrupted operations. Additionally, FTZs assist with business setup by aiding in company registration and obtaining operating licenses. On-site experts are available for facility design and construction, and customs processing is expedited by having customs officers within the zone. Businesses benefit from third-party logistics services for global goods movement and payroll and third-party payments managed by expert accounting teams. On-site food services ensure employees have access to nutritious meals, while organized transport systems facilitate timely arrivals. Comprehensive support services, including security, fire brigade, landscaping, and waste management, further contribute to a well-maintained and efficient working environment. Collectively, these soft incentives make FTZs an attractive and functional choice for businesses.
Tax Incentives – In Free Trade Zones (FTZs), tax incentives are a major draw for investors, offering a highly advantageous fiscal environment designed to boost business operations and profitability. The tax incentive regime provides 100% exemptions for a wide range of national and local taxes. This includes complete exemptions from income taxes, ITBIS (a value-added tax), import duties on machinery and raw materials, and export taxes. Companies operating under the free zone regime benefit from additional exemptions on local taxes, construction duties, and various other levies, including those related to loan contracts, real estate registrations and transfers, capital increases, and patent, asset, and patrimony taxes. This comprehensive tax structure not only ensures significant cost savings but also offers long-term financial benefits, making FTZs a highly attractive option for investors looking to maximize their economic advantages.
The Dominican Republic (DR) stands out as a prime investment destination, particularly given its robust tourism sector, which is the nation’s leading source of income.
According to Socrates Benjamin Alvarez, Director of Agro Exports CaribeWorld, SRL, “With over 10 million tourists visiting annually and growing, including around 50,000 Indians, there is substantial potential for investment in the hospitality industry. Opportunities abound in developing high-end hotels, resorts, casinos, travel companies and even ayurvedic spas and high-end Indian restaurants to cater to the diverse needs of international visitors.”
He added that the DR’s manufacturing industry has expanded its initial focus on textiles, clothing, and shoes to becoming a hub for medical equipment and other pharmaceutical components. This sector has attracted investment from Indian and other international companies, reflecting its growing importance.
Further, DR stands out as an attractive investment destination, particularly in the renewable energy sector, given its strategic positioning and favorable conditions for growth. The country offers substantial potential for investments in wind and solar energy, as well as manufacturing solar panels and other green technology components.
Additionally, Agriculture was identified as another area with significant investment potential. The DR’s high-quality fruits and vegetables, including renowned cocoa and various fruits, are considered among the best globally. There is a particular need for investment in organic farming to further enhance agricultural productivity and quality.
In June 2024, the Indian Mission in Santo Domingo actively engaged in a series of strategic meetings and events aimed at strengthening economic ties and expanding business opportunities between India and the Dominican Republic. The mission’s efforts to address trade barriers, explore investment opportunities, and promote joint ventures reflect a proactive approach to bridging business communities and driving economic growth in the Dominican Republic. These engagements not only highlight the potential for increased bilateral trade but also set the stage for deeper cooperation and investment between the two nations in the coming years.
As recommended by the Indian Mission in Santo Domingo, exploring collaboration opportunities with industries in the Dominican Republic could be highly advantageous for Indian companies, by focusing on the US, which is a primary export destination for the Dominican Republic, and other CAFTA member countries. Collaborating with Dominican industries, particularly within the free zone network,in the areas of hardware, construction, ceramics, textiles, and automotive parts in particular can provide Indian firms with strategic advantages such as access to lower operating costs and simplified trade processes. Suhayi Abidi, Consultant, Centre for VUCA Studies, re-emphasized the potential of these key sectors while he added, “The Dominican Republic is one of the fastest-growing economies in Central America. India should explore sectors with significant potential, with jewellery being another industry of high potential, given the country’s strong base in diamond exports. Additionally, India can leverage its expertise in off-site solar energy installations. Other promising areas include pharmaceuticals for export to the 15 CARIFORUM countries, which have a combined population of 30 million, and medical consumables.”
The establishment of the Joint Economic and Trade Committee (JETCO) between India and the Dominican Republic represents a significant advancement in bilateral relations. Signed on March 12, 2024, at the Ministry of Foreign Affairs (MIREX) in Santo Domingo by H.E. Mr. Roberto Álvarez and Mr. Ramu Abbagani, the protocol was endorsed by the Union Cabinet on January 24, 2024, marking a notable milestone in the 25-year history of diplomatic ties between our two nations.
The JETCO aims to strengthen cooperation across diverse sectors including trade, services, and industrial technologies. It envisions leveraging technical assistance, training programs, and capacity building to address trade and industry challenges while facilitating knowledge exchange. As India imports gold from the Dominican Republic and exports several key commodities, the protocol opens promising avenues for expanded trade and investment.
With the first JETCO meeting anticipated in the near future, there is a growing sense of optimism about the potential for deeper economic engagement. This upcoming meeting holds the promise of driving increased trade and investment, further enhancing the robust partnership between India and the Dominican Republic.
Are you keen on investment opportunities in the Dominican Republic. Contact Nisha Parveen, Executive Officer, Research & Publication, TPCI at researchdesk@tpci.in, and contact number +91-9870949329
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