Diversification, innovation key to greater economic resilience in the Dominican Republic

29 July 2020
News

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While it is the fastest growing economy in Latin America, the Dominican Republic’s economy is still not diversified enough, a joint report shows, highlighting what needs to be done.

The Dominican Republic has been the fastest growing economy in Latin America and the Caribbean since 2010, with its gross domestic product (GDP) growing by 5.8% annually on average, yet trade and investment remain insufficiently diversified.

Although the country’s trading partners increased from 98 in 2000 to 147 in 2017, the United States still buys over 50% of Dominican exports, and the economy continues to specialize in commodities rather than more sophisticated products and services.

Once the COVID-19 crisis eases, the Dominican Republic should craft new economic policies to optimize its productive potential and increase the resilience of its economy, according to the country’s first Production Transformation Policy Review (PTPR).

The review was launched today under the auspices of the National Competitiveness Council and the Ministry of Industry, Commerce and Small and Medium-sized Enterprises of the Dominican Republic.

The report was produced by the Development Centre of the Organisation for Economic Co-operation and Development (OECD) in collaboration with the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and the United Nations Conference on Trade and Development (UNCTAD).

The report stresses the important progress made in the agro-food sector: the Dominican Republic devotes 8.7% of its agricultural land to organic production, second only to Uruguay in the region, and is the world’s largest producer of organic cocoa (30% of global production) and organic bananas (55%).

Overexposed to external shocks

The country’s economic structure overexposes it to external shocks, as the COVID-19 pandemic has revealed. Although it acted fast to limit the contagion, the economic effects may be particularly severe on tourism, a mainstay of the economy.

Besides, remittances, which account for 7% of the GDP and mostly come from the United States, are expected to fall.

While limited insertion in global value chains and the importance of the domestic market and the public sector in the economy may help cushion the blow, the large proportion of micro-firms and informal workers may amplify the impact of the economic slowdown.

Commendable reforms

The report commends several reforms undertaken as part of the national development vision for 2030, as they are relevant steps towards addressing those issues and building a new growth model.

These include the deployment of digital technology in schools; the digitalization of administrative procedures required to start a business; and the approval of a national quality infrastructure system.

However, the country’s development strategy still leans too heavily on special fiscal regimes to extend indirect financial support to firms.

While instrumental in spurring new activities, such as medical devices and creative industries, this approach has not been enough to unleash local entrepreneurial potential and foster innovation.

Against this diagnosis, experts and policymakers from the OECD and emerging economies who contributed to the report identified three priorities for the Dominican Republic to revitalize its development model:

  • Strengthen the country’s capacity to anticipate and adapt to change, by reinforcing prospective and foresight functions in the government, and adopting a place-based and territorial development approach to policymaking.

  • Diversify trade and investment and increase regional economic ties. In particular, the country needs to align its efforts to attract foreign direct investment (FDI) with its national strategy for local industrial development, and improve the capacity and autonomy of the agency currently in charge of promoting FDI.

  • Boost innovation by setting up a small, agile, dedicated agency with its own budget to extend fast and transparent multi-year funding. A properly functioning development bank would be another desirable step towards providing long-term financing for production development.

The report was peer-reviewed by the US Reshoring Institute and the Ministry of Agriculture of Brazil.