Marcial Smester
Investment Director
ProDominicana
marcialsmester@prodominicana.gob.do
LATAM FDI: Welcome to the LATAM FDI podcast. These recordings speak to individuals with expertise in foreign direct investment in Latin America. Today, Marcial Smester is with us. He’s the investment director at ProDominicana, located in Santo Domingo, Dominican Republic. How are you today, Marcial?
Marcial Smester: Hello, Steve. Good afternoon. How are you, my friend? I’m good. Everything is good down here. It’s very sunny, a little bit warm, but good.
LATAM FDI: That sounds very appealing to many people in the United States and other regions listening to this podcast. Today, though, we want to learn a little bit about what’s going on in the Dominican Republic. And we would like you to tell us a bit about yourself and your organization.
Marcial Smester: Of course, sure. Well, my name, as you mentioned, is Marshall Smester. I am the Director of Investment for the Export and Investment Center of the Dominican Republic, known as ProDominicana. This is the Investment Promotion Agency of the Dominican Republic Government. We are responsible for promoting the Dominican Republic in international markets to attract foreign direct investment and position all products in these markets, whether goods or services. I oversee the investment aspect of our operations here in ProDominicana.
LATAM FDI: Can you outline some of the key economic advantages the Dominican Republic offers to make it an attractive destination for foreign direct investment?
Marcial Smester: Of course. First and foremost, we have been, if not the most, at least one of the most stable economies in our region. When I refer to our region, it extends beyond our specific area in Central America and the Caribbean, encompassing all of Latin America and the Caribbean. The Dominican Republic, for example, became the seventh-largest economy in Latin America and the Caribbean last year, alongside Mexico, Brazil, Argentina, and other more prominent countries. And we just became the seventh one. Looking ahead to the next 5-10 years, as we aim to become the fifth largest economy, we’re working towards that goal.
Additionally, we’ve enjoyed a remarkably stable economic outlook characterized by nearly 60 years of uninterrupted macroeconomic stability, with average annual growth exceeding 5% of our GDP over the entire period. For example, in 2025, we are expected to grow at a rate of 5%, similar to the growth rate in 2024. That would be more than double the Latin American average expected. And the world is expected to grow by 3% so that we will increase by 5%. So, it’s higher than the world average as well.
We also have a very stable political climate, political stability that we enjoyed for almost the same period, no matter what type of government comes into and takes over government. No more of the ideology; it doesn’t matter. Economically, it’s always seen from any idea to maintain it. We also have judicial stability, which is very important for investors to look into the Dominican Republic, which brings social stability. And from how I started, we’re one of the most stable countries in our region, if not the most stable one in every sense.
LATAM FDI: Well, how do the country’s strategic location in the Caribbean and the trade agreements that it has enacted, such as the DR-CAFTA, facilitate access to major markets and foreign investors?
Marcial Smester: Our strategic location is critical because that’s one of our advantages in the Dominican Republic. We are located in the heart of the Americas. We’re an hour and a half by air from Miami, two days to days, and a bit more than half by sea. And that’s from the ports in Santo Domingo, the South. If we take the northern ports, like in Manzanillo, it’s a day and a half to the Port of Miami, more or less. So, we are strategically located. We are not a big country but we are around 40,000 square kilometers. We have a little bit of everything here. It’s not just for tourism; we’re also an industrialized and agricultural nation. And of course, with the trade agreements that we have, first and foremost with the United States, which is our leading trade partner in Central America, the DR CAFTA, things producing the Dominican Republic can enter tariff-free for a majority of products, goods, and services, going into the United States and vice versa. However, we also have the economic protection agreement with the European Union, which is a free trade agreement with Europe, and it’s in the overall sense.
They are also part of the CARICOM for trade within the Caribbean and the CARU Forum, which by extension includes the United Kingdom on its own, where we also have access to free trade with them. We also have a generalized system of preferences for specific products in different countries. We can go as far as Australia and New Zealand from the Dominican Republic, depending on the product or the goods and services that it would be. We also have a separate partial free trade agreement with Panama. We are still working with other free trade agreements or bilateral agreements with other countries, including Middle Eastern countries, which are, as we speak, being reviewed and under development. Within the next few years or decades, we will have amplified trade agreements to reach the world more. For example, out of those free trade agreements that we have ongoing, we have access to over 1.2 billion consumers. So that’s an incredible market for companies to establish themselves in the Dominican Republic and produce, whether they’re goods or services, and take them out to the world.
LATAM FDI: You discussed how the Dominican Republic makes a suitable environment for foreign direct investors. But what specific incentives, such as tax benefits or a special economic zone, does the Dominican Republic provide to encourage foreign investors to come and set up shop in your country?
Marcial Smester: Of course. Before I go into that question, there was something that I left out in the previous question that was important, for example, that we enjoy a robust infrastructure, logistically speaking. We have the Dominican Republic, operate eight international airports, and have twelve commercial ports actively operating in the Dominican Republic. So, in any part of the Dominican Republic where a company wants to establish itself, it will be within reach of an airport or a port within 2-3 hours max. Investors need to know that a ninth airport is being built in the Southwesternmost part of the Dominican Republic, a tourism development zone in Manzanillo. We have six cruise terminals in operation, with a seventh underway in Samana. That contributes to the strategic advantage and logistic superiority that we believe that we have. We have access to 28 or 33 Caribbean islands from the Dominican Republic currently operating and underway. We provide foreign investors by answering your question about our incentives and benefits or special economic zones. The Dominican Republic has a robust legal framework for investors to come into the Dominican Republic.
It depends on the sector. Not all sectors have special incentives, but the top sectors do have them. And I’m going to start, first of all, with one law that will amplify and impact any foreign investor: Law 1695 for foreign investment. That law, first and foremost, guarantees equal treatment to an international investor or a foreign investor as if it were a national or local investor, meaning there’s no discrimination whatsoever. You can form a company here and have it 100% wholly owned by an international company, with headquarters elsewhere in the world, not in the Dominican Republic. You will enjoy those benefits. Plus, it provides liberalization of dividends and repatriation of capital without any retentions whatsoever, plus free currency convertibility. You’re producing pesos because that’s the official currency in the Dominican Republic, the Dominican peso. Nonetheless, when sending it back home, you can change it to US dollars, Canadian dollars, British pounds, the Euro, Japanese Yen, or any currency you seek to change. And there’s no inconvenience on that. It’s free. Also, as an investor, if you establish yourself in the Dominican Republic, the law provides you with residency for investment for your stakeholders.
In that sense, once you establish yourself in the Dominican Republic. When we go into the sectorial laws, we have several key sectors with interesting incentives. We can go, for instance, to the special economic zones or free zones, as we call them in the Dominican Republic; there’s a particular law, law 890, which provides a lot of incentives. It’s a tax-free regime. Within the free zone or special economic zone regime, you can house many activities as long as you manufacture or export the service because it’s focused on exports. So, any company that can come to the Dominican Republic and establish itself here in the Dominican Republic, produce, and then re-export it out. You have a tax-free system with no corporate income tax, no capital gains tax, no tax on the machinery that you import to produce whatever you’re going to produce and operate, no taxes on the raw materials that you use, whether you buy them in the local market or import them as well, no municipal taxes, no federal taxes whatsoever. So, it’s a tax-free-based system because the key idea of that sector or regime is to improve employment and employ Dominicans.
The key here is that the labor laws require 80 % of the labor force to be Dominican. Then you go into tourism, and tourism has its laws, the CONFOTUR law and law 5803, which provide different incentives for hotel or real estate projects oriented towards tourism. It could also be a hospital but always oriented towards tourism, where you also receive incentives. Tourism, for example, is more restricted during this period because, in economic-free zones, there is a 10-year exemption, but it’s renewable. So, the first company was established here for the free economic zones in 1969, when the original started developing free zones, and companies are still enjoying those incentives today. In tourism, it’s a 15-year period where a project can enjoy, for example, exemption on income tax on local municipalities and royalties taxes, and also all taxes regarding the furniture and anything that has to do with the putting in operation of the hotel or the resort of the project or the real estate development area. So, it has interesting incentives there. Also, you have, for example, La 5707, which is for renewable energy projects. Right now, the Dominican Republic is the number one recipient, not only in the Caribbean and all of Central America, in overall FDI but also the number one recipient in our region’s renewable energy projects and tourism projects.
We continue to be leaders in that. There are some interesting incentives as well. Other laws for other activities have incentives that will make an investment more interesting and an interesting opportunity for investors to come to the Dominican Republic.
LATAM FDI: You spoke much about the country’s political continuity and stability over the last several decades. Regarding the macroeconomic environment, what measures has the Dominican Republic implemented to ensure investors do not experience economic volatility when doing business there?
Marcial Smester: One of the things that we take into heart, and the government takes into heart most, is our central Bank, which establishes the monetary policies to abide by. Within the Dominican Republic, we have the same governor of the Central Bank, who used to be like the chief of the Fed for the United States, Alan Greenspan, which have decades in it. Our chief of Central Bank, the governor, has been running it for decades, which has helped create a very stable environment with the monetary policies issued. We follow a lot of how the United States manages itself, so we are very keen on that, and we follow it. But also, every time the government changes, it doesn’t matter who enters it. One thing that everybody in the government thinks of is that we have to maintain macroeconomic policies and continue the economy. We continue to grow the economy in that sense. So, we must always respect the laws and grant judicial stability for businesses in a business-friendly environment with much government backing and support. That’s how we’ve operated through time. It doesn’t mean we’re perfect and have no flaws because situations arise.
But in general, the Dominican Republic has an incredible business-friendly environment. Its policies, laws, and follow-up on those laws make it a friendly place to invest.
LATAM FDI: You mentioned that many people around the globe appreciate the Dominican Republic for what it offers in terms of tourism, but there are other opportunities for investment in different sectors in terms of FDI. Please tell us a little about those other sectors and give us an example of a success story.
Marcial Smester: Sure. Well, we have a lot of FDI in multiple sectors. I can tell you, for example, as I mentioned in the energy sector, where we have one of the largest corporations in the world, AES Corporation from the United States, which is the largest natural gas operation in the Dominican Republic, currently speaking. We have a lot of renewable energy projects, projects from renowned companies such as Acciona from Spain, STOA from France, Eco Ener from Spain, and many others. AES is also developing some renewable energy projects in the Dominican Republic. Those are very examples of other sectors. For instance, we have critical international entities in the financial industry, such as Scotia Bank from Canada, City Bank from the United States, and many others. In the mining sector, it’s imperative. We have significant projects in mining, such as Barrick Corporation from Canada and the United States, which operates the fourth largest gold mining operation in the world, right here in the Dominican Republic, among others. For example, we have many international companies in the manufacturing sector, especially in the last few years, and they abide by the free zone regime, but in the manufacturing aspect, for example, medical devices.
The Dominican Republic has become a hub for medical devices in our region, medical device companies. We currently host eight of the world’s largest medical device output companies, including Medtronic from the United States. We have an issue cabin from Germany. We have Rockwell Automation, which does electrical parts. We have Color Hammer, which is also named Eaton, and it is also for electrical parts. We are the third largest exporter worldwide of circuit breakers, for example. You might not have known that we are the largest exporter of circuits to the United States in that fashion. We have many important companies established here in the Dominican Republic in different sectors and areas, taking advantage of the incentives and amenities the Dominican Republic offers.
LATAM FDI: You mentioned at the beginning of this discussion that the country is doing a lot to fortify its position in terms of a logistics hub. You talked about airports; you spoke of ports. But I’d like to ask you about the human infrastructure now. What advantages does the Dominican Republic offer to potential investors regarding human resources?
Marcial Smester: Well, compared to the countries in our region, we have a very good-sized population. Right now, as a non-English-speaking country, because our official language is Spanish, we are the second country with the highest English proficiency in our region of Central America and the Caribbean. So, we have a lot of people. For example, during the past four years, the government has backed up an English Immersion program, which yielded over 80,000 potential candidates with English-speaking skills. Aside from that, we have also hosted a lot of VPOs in centers in the Dominican Republic with excellent English speaking skills and pronunciation that is understandable and Americanized in that sense. For example, we have a vast labor force from universities every year. For instance, we have, during the past four years, over 9900 ICT graduates. We have almost 54,000 business and economic sciences professionals who have graduated in the past four years. We have nearly 16,000 engineering professionals and over 35,000 health professionals, including doctors, nurses, etc. We have more than fifty higher education centers, plus our top universities right now have links and associations with the top colleges and universities worldwide, such as Harvard, MIT, Stanford, Oxford, Cambridge, the UK, and so on.
Plus, the more Before we continue to go on in time, for example, for the regular workforce, every time it’s more highly skilled. For example, when I mentioned medical devices, let me go back. Initially, our free zones or special economic zones were textiles. From 1969 to almost 2002, over 80 % of production was textile, which is very basic, right? However, a plan structured public and private sectors together to develop higher-scale activities within the special economic free zones and highly-skilled manufacturing. We started operating the medical device and electrical parts sectors, which are very developed today. We are one of the top two countries in our region, bringing in companies to establish medical devices. That requires a more highly skilled, capable labor force because it’s more technologically advanced, plus the health and hygiene that you need to apply to this type of company because of the products and items they produce and manufacture. So, our workforce is very highly skilled. In the Americas, for example, the United States deemed us one of the top countries to be looked at, and we have, for example, four semiconductor manufacturers in the future.
After that, we will be one of the countries that can provide semiconductor manufacturing. We will start because we are ready for the ATP aspect, assembly, and packaging. But of course, we want to develop and acquire the knowledge of the technology required to do other parts of the processing and manufacturing in time, of course, because that will take time. It will likely take a decade or so to reach where we need to be. However, we also focus on automotive manufacturing, starting with assembly, because we have the capability. That will also provide a more highly skilled labor force in the future. We are attracting companies to come here and establish themselves because of the logistical and location advantages that we have right now. However, we are coordinating as a country and the public and private sectors to open up new industries and activities. For example, there’s a plan from the government for the next 12 years, by 2036, to duplicate our GDP in the overall sense.
And that means it’s not only small agricultural products; we must bring more advanced and highly skilled industries into the Dominican Republic. And that means, at the same time, that we have to transform our labor force and continue to develop a more highly skilled labor force in the overall sense to provide this for investors to come in. If there’s a new industry, of course, the investors that come in will be ground-breakers, and they will have to help with the know-how and teach that, and then we replicate it overall. There’s a particular institution from the government called Infotec, which is a technical formation for professional institutes. And that institute, everybody in the Dominican Republic, that’s a fee that every company pays for all employees. And that is to subsidize that institution so they can train the entire labor force for all companies in the Dominican Republic.
LATAM FDI: One thing that struck me was the speed with which the Dominican Republic entered higher levels and higher requirements for manufacturing. You mentioned that everything was textiles up to about two thousand, and then you diversified into several other industries. If I, as a manufacturer, would like to look at working in the Dominican Republic, I have two questions that generally get asked. Number one, for direct labor, what is the fully loaded cost, generally speaking, in the industry for direct labor?
Marcial Smester: Well, it depends on the activity in the sector. But even in a free zone, the cost is not that high. The minimum salary would go around $400 a month overall. It could be less, depending on the skillset. It’s around… I don’t have the exact figure, but it’s around $400 a month. Companies pay slightly more depending on their employee scale, but there’s a scale. However, we are one of the most competitive countries in terms of the labor force, even with our skill set. What was the other question?
LATAM FDI: Well, the other question that always comes up is within the first five minutes of discussions that I have with potential investors. In addition to the labor cost, they’ll typically ask, what’s the cost, either per square meter or per square foot of grade A industrial space?
Marcial Smester: Okay. Depending on the industrial park, for example, in our special economic zones or free zones, there are different tiers of parks. The majority of the parks right now, for example, the closing of 2024, have ninety-one industrial parks in operation, whereas seventy-one are privately owned. Now, depending on the tier, for example, the top tier parks that we have in the Dominican Republic that have everything and provide every type of service to a company, especially those that were most medical device manufacturers, are established because they have the best facilities, let’s say. The square meter lease would go for around $7.50 and $8 a square meter, more or less. It all depends on where you’re located. If you go to, let’s say, a tier three park still privately owned, the price drops down to $450, more or less, per square meter. But you have fewer facilities or services that the park will provide for you. It’s not as beautiful or as pretty as a tier one, but it has more ambiance and is different. But you always have the essential services and a customs office there to help with the merchandise going out.
But yes, it depends on the tier of the park, but you can go as high as, let’s say, $8 a square meter, a little bit less than $8 a square meter. From the last time, I saw the numbers, you could go as low as if you go to a tier five park, which is more of the public sector park available, handled by an institution in the government called Austria, and it will go as low as 250 per square meter, for example, the least, and maybe even negotiable. So, it all depends. But the lower the tier of the park, the more expensive it is. Tier one is the most expensive park; with every type of service you might think of. Some come included in the arrangement, and others are marginal, which you might decide to select. Parks, for example, help you. The private parks mainly help you with the hiring or the least profiling of the personnel you need. And they already have a database for personnel they’ve interviewed, even though you can have your own human resources department. Nonetheless, if you want the park to do everything for you, then you arrange it with the park, and they can handle all your administrative and human resources departments as a company.
However, they help out nonetheless as a minimum service they agree with.
LATAM FDI: This conversation has been very educational over the last 20 minutes. In addition to the questions I ask, after individuals listen to these podcasts, they have questions that come to me. But what I like to do is to make those questions go to the speaker directly. So, if somebody has a question after listening to this information, what communication can they get into with you? Do you have an email address they could use to contact you?
Marcial Smester: Sure. I’ll provide you with my email address; they can contact me directly. Whenever they have a question, they access it, and I’ll connect them with my team to further those conversations. But we’re open to it. We work here 24/7. We’re available. We might not get back to you quickly, but we will reply as soon as possible. You also have my WhatsApp number. In any case, they can contact me that way as well. And we can answer and reply and start a conversation. But we welcome anybody and everybody who wants to take a look at the Dominican Republic to explore. We cordially invite all your listeners to hear what we’re saying and explore and feel it independently because it’s different. I can say many marvelous things about the Dominican Republic. I can show you in a presentation, but to feel and grasp it in real-time is a different story, and it’s even better.
LATAM FDI: Instead of going to see you physically, I’m sure that you have a website. Do you have one? And what would that address be?
Marcial Smester: Yes, our website is www.prodominicana.gob.do
LATAM FDI: Okay, we’ll include that in the transcript section of this podcast. If it’s okay with you, I’ll include a link to your LinkedIn profile. Would that be okay?
Marcial Smester: That’d be okay. Perfect.
LATAM FDI: Thank you very much for joining us this morning. The Dominican Republic has been on my list of places to visit, and hopefully, I’ll get a chance to visit you there.
Marcial Smester: I look forward to welcoming you, hosting you, and showing you around. Please do.
LATAM FDI: Thank you very much.
