The Dominican Republic is a Caribbean country that takes up around half of the island Hispaniola, sharing a border with Haiti. This tourism haven has a population of more than ten million, but its geographical positioning and other soft factors show that there is more to the country than sun-soaked beaches.
The Dominican Republic has become an important trade link between Europe and the Americas, and in 2023 it can provide access to more than one billion consumers through various trade agreements, which include the DR-Cafta (which links the country with central America) and the Economic Partnership Agreements, which is a deal with the UK.
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When it comes to foreign direct investment (FDI), the Dominican Republic is, like many countries, looking to diversify its economy as it continues its recovery from the Covid lockdowns. While the country’s lucrative tourism industry will continue to form a key part of its industrial profile, the Dominican Republic is also actively looking to build its FDI appeal around areas such as renewable energy, manufacturing, real estate and technology.
In an effort to make its post-Covid FDI landscape more attractive, the Dominican Republic brought in the Public-Private Partnerships (PPP) law No. 42, “which can offer strategic opportunities for investors in key projects in the country”. As noted in the regulations of applications of the PPP law, the Dominican Republic is seeking to provide strategic possibilities for investors in significant national projects, which can assist the economy to become more diversified. The PPP law also identifies FDI as a means to boost the development of local supply chains and the country’s infrastructure.
The impact of Covid-19 on the Dominican Republic
The Covid-19 pandemic halted a lengthy period of economic expansion during which the Dominican Republic’s economy became one of the most active in the Caribbean due to its substantial development and macroeconomic stability throughout the 21st century.
According to a report by GlobalData on tourism in the Dominican Republic, total domestic tourism expenditure stood at $2.16bn (118.6bn pesos) in 2015, but plummeted to $1.3bn in the Covid-hit 2020. With Covid restrictions now over, however, domestic tourism expenditure is forecast to grow back to $2.8bn in 2025.
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By GlobalDataAccording to the International Monetary Fund (IMF) the Dominican Republic’s economy contracted 6.7% in 2020, also as a result of the Covid-19 pandemic, which was particularly brutal on the tourism industry. Indeed, the IMF approved the Dominican Republic’s request for emergency funds for the equivalent of $650m to meet the balance of urgent standing payments resulting from the pandemic.
An economic overview of the Dominican Republic
In spite of its Covid-19 woes – issues shared by most countries in the region – the Dominican Republic has been one of the fastest-growing economies in the Caribbean over the past decade.
Although the Dominican Republic’s gross domestic product contracted by 6.7% in 2020 as a result of the pandemic, the IMF estimates that the country’s economy grew by 5% in 2022. “The Dominican Republic has had an outstanding performance during the pandemic. Despite the economic contraction of 2020, FDI in the tourism sector reached $942m.
“Thirty-eight percent of said recovery was the product of the tourism sector, recovering more than 300,000 jobs.”
According to the Central Bank of the Dominican Republic, foreign exchange income derived from FDI in the country between 2010 and 2020 generated an average of $2.5bn per year, and foreign investment into the tourism sector accounted for 21.35% of the period’s accumulated FDI flows.
FDI projects in the Dominican Republic for 2022 were distributed across an array of sectors, with business and professional services in the lead with nine, followed by seven in tourism, four in software and IT services, two in construction and real estate, and two in logistics.
What FDI successes has the Dominican Republic enjoyed?
According to the 2021 Investment Climate Statements produced by the US Department of State, the Dominican Republic is consistently one of the leading recipients of FDI in the Caribbean, with a large chunk of this investment typically coming from the US.
The Dominican Republic has also bounced back strongly from the Covid-19 pandemic when it comes to the number of FDI projects it is attracting. In 2019, there were 26 FDI projects in the country, which decreased to 18 in 2020 but grew to 34 in 2021 and an estimated 32 in 2022.
According to a report by the Law Reviews, “the country's membership of Cafta-DR is one of the main advantages for foreign investors” in the Dominican Republic. “This agreement has led to increased competition, strengthening of the rule of law and expansion of access to quality products in the country,” it adds.
The Pueblo Viejo mine, the largest working gold mine in the Latin America region, came about as the result of an FDI project between the Dominican Republic and Canada. A report by Canadian mining company Barrick Gold highlights the economic success of the project, saying: “Since Barrick began operations at Pueblo Viejo, mining output has increased by more than 20% in the Dominican Republic.
“Barrick Gold has had a central role in these figures, accounting for approximately 2% of the country’s overall economic output, directly and indirectly.”
What challenges does the Dominican Republic face?
While the Dominican Republic's FDI offering is widely praised, some foreign investors have reported "numerous systemic problems" in the country, according to the report from the US Department of State, highlighting a “lack of clear, standardised rules by which to compete and a lack of enforcement of existing rules”.
In the latest Corruption Perceptions Index, the Dominican Republic score was a disappointing 32 out of 100, although its score has increased by two since 2021. This leaves it ranked 123rd out of 180 countries, the same position it held in 2012, perhaps highlighting a lack of progress.
Despite the effects of Covid-19, the Dominican Republic has continued to be one of the Caribbean region's fastest-growing economies in recent years. The pandemic showed just how frail the tourism sector, upon which the country is so dependent, can be, so its moves to diversify the economy are both sensible and welcome. The Dominican Republic has a strong reputation across many foreign investment drivers within the Caribbean, so its position as a regional FDI star should remain undiminished for some time to come.
