A new report presented by the World Bank suggests a series of policies designed to strengthen free-trade zones in the Dominican Republic as a path toward sustainable and inclusive economic growth, and its effective use in order to attract foreign direct investment and generate better-qualified and better-paid jobs.
“The Dominican Republic is one of the global pioneers in the use of free-trade zones. This diagnosis identifies the three main challenges on the path to a more competitive and inclusive sector: the impact of the productive transformation of free-trade-zone in job creation; the level of attraction for competitive international providers; and the level of linkages with domestic companies,” said Cecile Fruman, Director of the World Bank’s Global Trade and Competitiveness Practice.
The report “Free-Trade Zones in the Dominican Republic: Policy Considerations for a More Competitive and Inclusive Sector” underscores that, currently, free-trade zones generate 140 thousand direct jobs, most of them low-skilled ones. Because of this, and in view of the growth of more sophisticated industries requiring a more skilled workforce, priority should be placed on the development of support programs for labor adjustment, as well as improving workers’ capacity, women in particular.
“Free-Trade Zones in the Dominican Republic have been and continue to act as growth engines for the country. To support inclusive growth the consolidation of this modeldepends essentially on facilitating the transfer of knowledge and technology between free-trade zones companies and the rest of the economy,” said Alessandro Legrottaglie, World Bank Representative in the country. “This report complements the Policy Notes published by the World Bank Group in supporting Government efforts to achieve a sustainable and more inclusive growth by expanding economic and social opportunities for all Dominicans.”
The report highlights that starting in 2009, a certain recovery in activities has been observed in these zones. However, in the last decade a growing dependency on imported inputs can be seen. Simultaneously, the resurgence of more sophisticated manufacturing processes has resulted in more complex value chains, increasing the amount of production stages present in the country. Currently, the creation and optimization of backward linkages among local companies present in free-trade zones is one of the priority issues.
“Competitiveness is a priority for the country. The IFC believes that SMEs are key for development, as they are the main generator of jobs and a great potential for growth. It is important to improve their capacity in order to incorporate them into Free-Trade Zone production chains, therefore boosting competitiveness and the development of the local economy,” said Guillermo Villanueva, IFC chief in the country.
The country has moved forward through the implementation of pilot programs aimed at increasing productive linkages since 2015. At the same time, an agreement has been established with six public and private institutions that will work on designing policies to connect local companies with the ones located in free-trade zones. These efforts are on the right track and must be continued and strengthened. In the medium term, a rigorous impact evaluation of backward linkages programs should be implemented.
The report suggests interventions in three areas: Promoting domestic linkages by eliminating barriers restricting the capacity of domestic companies to import and the capacity of free-trade zones to supply to the national territory; providing greater connectivity between domestic suppliers and attracting competitive international providers.
Development of labor adjustment support programs, including training in news skills sought after by free-trade zone companies and job search assistance. Improve the general framework for trade and Foreign Direct Investment competitiveness with a focus on a national export and an export and investment strategy coordinated and approved by the various public and private agents involved, along with an empowered export promotion agency (CEI-RD).