Ebell de Castro
General Manager
Punta Cana Free Trade Zone
Punta Cana, Dominican Republic
edecastro@puntacanafreezone.com

LATAM FDI: We have Abel de Castro with us today. Abel, how are you?

Ebel de Castro: Hello, Steven, I’m very fine, thank you. Very pleased and very happy to be here with you today.

LATAM FDI: Well, I’m glad you are with me as well. I always like to ask the people that I interview to start by telling us a little bit about their background and about their organization.

Ebell de Castro: Thank you, Steven. First of all, I am passionate about free zones and foreign investment. I have been working in the free zones of the Dominican Republic for over 20 years, since I was 18. So, my career started at the National Free Zones Council, which, as you may know, is the main government body in the Dominican Republic responsible for promoting and regulating free zones. There, I had the opportunity to work with several multinational corporations on interesting investment projects, including a greenfield investment in the DR. From there, I worked as a general manager at Nigua Free Zone, a private free zone park in the Dominican Republic. There, I had the chance to be involved in an expansion project aimed at increasing the park’s size by 3. And after spending 6 years, 5 years, almost 6 years as general manager of the Nigua Free Zone, I received an offer to serve as general manager of the Punta Cana Free Trade Zone, a new and unique free trade zone in the Dominican Republic.

It is an initiative of Grupo Punta Cana, which, as you may have heard, is one of the main economic groups in the Dominican Republic, a corporation with more than 22 companies that were initially well known worldwide for developing Punta Cana as a global tourist destination. So now, you know, taking into account all these experiences, all this development, and all these externalities that have emerged in Punta Cana, the group established the Punta Cana Free Trade Zone, which is the park where I am pleased to work now as general manager.

LATAM FDI: Well, thank you for that background information. I’ve got a few questions to ask you today. And the first one is: what makes the Dominican Republic an attractive destination for international companies looking to expand?

Ebel de Castro: Well, I think that the Dominican Republic has developed remarkable competitive advantages over the years. But I think that the main, uh, the main— I would say the main incentive, the main positioning that the Dominican Republic has to show to the world for free zones development and for attracting foreign investments into the free zones. It is the economic incentive packages that I believe are the most competitive in the region, you know. First, this incentive scheme exempts companies from 100% of all national and local taxes for 15 years, and the exemption can be renewed as long as the companies contribute to job creation, foreign currency generation, and technology transfer. These incentives would remain in place. And together with this, I think that it is important to mention the economic and political stability that the Dominican Republic has, you know, enjoyed. For the last 50 or 60 years, we have been living in a democracy. We have had elections for 60 years, with new presidents every 4 years. We have a government that is an ally of the private sector. It is a pro-business government.

So, I think this has been key, Steven, for positioning the country as a solid option, a solid alternative for foreign investors.

LATAM FDI: You touched upon this a little bit, but maybe we could go into a bit more detail. For a company that is considering investing in the DR, what are the key factors you think they should evaluate before making a decision whether or not to start operations there?

Ebel de Castro: Well, I think one of the main things that is very appealing to investors, manufacturers, and logistics operators who will work in the global marketplace is logistics and connectivity. The DR has a network of 9 international airports and 11 ports. You know, in different years, according to the Global Competitiveness Report, the Dominican Republic has been ranked as the Latin American country with the best-quality transport infrastructure. So, in addition to this, we should take into account that we have great connectivity. For example, just to mention one case: at Punta Cana International Airport, we handle approximately 900 flights per week and serve 85 destinations directly from there. So, you can fly from Punta Cana, or you can send cargo from Punta Cana, from any other place through Punta Cana, and you will have the cargo in the final destination in less than one day. We offer direct flights across Europe, including Poland and Finland, and we fly to 17 Canadian cities daily.

So, you know, these are advantages that not a lot of countries have. Other very important elements are the strong network of industrial parks we have in the DR. We have almost 100 industrial free zone parks, located all over the country, especially in areas with high-quality labor and airports and international ports, as I mentioned earlier. And most of all, we have a very cost-competitive economy. We have very attractive labor costs, which are currently, on average, competitive with those of Asian countries like China. So, you know, the idea that we are more expensive than Asian countries is not necessarily true. I think that it is another advantage that a new investor should take into account.

Well, I think that currently we’re seeing something very, very interesting. For example, you know that in the past, maybe 90% of the workers in the free zones were basic operators. Now let’s say 60% of all the workers that we have are operators and 40% are technicians. This means we are increasing the value of the products we manufacture and export. So that is, I think, great news because, you remember, Steven, in the past most of the products that we used to manufacture were apparel and very basic assemblies, right? Right now, we are competing in the manufacturing of medical devices and high-value electronic components, and, you know, this definitely says a lot about how we have learned, how we have gained expertise, and especially that we are competing in these segments with advanced countries. But now we are seeing the beginning of new industries like aviation, like aerospace, which is what we are trying to develop at the Punta Cana Free Trade Zone.

LATAM FDI: For those who may not be familiar with it, your free zone, the Punta Cana Free Trade Zone, how does it fit in with the country’s economy? How does it fit in with the logistics system? Can you fill me in on that?

Ebell de Castro: Yes, well, first of all, Steven, the Punta Cana Free Trade Zone is the first industrial and logistics park located within an international airport in this region. You have other business parks within airports and around nearby airports, but this is located inside the Punta Cana International Airport. This means a lot for logistics. Just, just think that manufacturers that establish themselves in the Punta Cana Free Trade Zone, logistic operators that establish operations in the Punta Cana Free Trade Zone, can move their goods from their warehouses to the cargo terminal in less than 5 minutes. The air cargo terminal, which we call the Air Cargo Hub, is located within the free zone park. All products that the Dominican Republic exports through the Punta Cana International Airport, or that are important to the Punta Cana International Airport, or cargo that goes in transit through the Punta Cana Airport, you know, has to go to the free zone first. But remember, the free zone is inside the airport. We think this aligns well with the Dominican Republic’s goal of becoming a regional logistics hub.

But also, companies that move their goods by air, as I mentioned earlier, have the great advantage of an airport in their backyard.

Ebell de Castro: Well, you mentioned just now the aviation component. You talked about MRO maintenance of aircraft. Why is this relevant to the Dominican Republic region in general?

Ebel de Castro: Well, you know, the MRO, the maintenance of aircraft, is a new industry in the Dominican Republic. It is important to mention that there are several different subzones within the Punta Cana Free Trade Zone. One of them is the Logistics Zone, the Logistics Center Zone. Another zone is the Manufacturing Center, where we will manufacture products that will be transported primarily by air, such as medicines, pharmaceuticals, jewelry, and high-value electronics. There is another, which is the MRO, the maintenance, repair, and overhaul. So the idea is to have, you know, in an area of the park with access to the airport, a hangar currently operated by FL Technics, one of the world’s largest providers of maintenance services. This company will create approximately 1,000 specialized jobs, Steven. But think about the demand that this company will have for aerospace components and engineering services. This creates a new labor market in the Dominican Republic for people who are prepared and capable of working in the aviation industry. In both manufacturing and services, because this MRO has, you know, also some areas where they also manufacture a few of the components that they use for their services.

LATAM FDI: What’s the long-term vision for your Punta Cana Free Zone, and what types of companies are you looking to attract to it? You touched on this question a bit, but could you be more detailed?

Ebell de Castro: Of course. Well, first, our target— what are we attracting? First, companies related to the aerospace and aviation industries, and the manufacturing industries in general. This is maintenance, repair, and overhaul (MRO). All aviation activities related to maintenance and manufacturing. Services are also part of the target that we are attracting. The second one, the second very important target is value-added logistics services. As I mentioned earlier, we have a logistics center within the park, and there we are promoting the establishment of distribution centers. And you can think about, for example, companies that work in the fast fashion industry. We are, for example, promoting the establishment of companies that will import garments and luxury goods into these warehouses. Here, they will provide added-value logistics services such as packaging, labeling, and similar activities. And from there, they will distribute these products to all their stores and distribution centers throughout the whole region. And the third target that we have is the manufacturers of goods that are mainly transported by air. This includes aviation components, jewelry, pharmaceutical goods, and many others.

So, what is our vision right now? While we are training workers in the aviation industry who are gaining skills for, if you know, for, for, for their— and in the airspace industry in general, we believe that in the long term, let’s say in 15 years to 20 years, we could be manufacturing aircraft in the Dominican Republic in the Punta Cana Free Trade Zone. That is the vision, Steven: assembling an aerospace cluster within the Punta Cana Free Trade Zone that would be the first of its kind in the Caribbean.

LATAM FDI: That sounds very interesting. One thing that’s consistent about these podcasts is that listeners often want to ask further questions to the people who participate in them. So, I’m wondering: if someone who hears this wants to get in touch with you, how would they go about it?

Ebell de Castro: Well, I would be more than happy, you know, to explain, to present our value proposition to any of our— any of the people that are part of the audience. Anyone can email me at the personal email listed at the top of the transcript page. Additionally, they can visit our website and fill out the contact form. And our website is www.puntacanafreezone.com.

LATAM FDI: What I’ll do as well is, at the top of the transcript of our discussion, I’ll put your LinkedIn profile, if that’s okay, your email, of course, your email, and the links that you just mentioned.

Ebell de Castro: Perfect.

LATAM FDI: Well, I want to thank you for being with me today. It’s very interesting what’s going on in the Dominican Republic, and I wish you a lot of success.

Ebell de Castro: Thank you very much, Steven. I really appreciate the opportunity of talking with you and your audience.

LATAM FDI: Have a great day.

Ebell de Castro: You too, Steven. Goodbye.

 Customs benefits:

Companies located in free zones in Colombia “are exempt from paying customs taxes (tariff and VAT) for the importation of goods that they introduce into the free zones. However, when a good produced in a Colombian free zone is sold in the national territory,  such a transaction is considered an import. Therefore, at that moment, companies must pay these taxes and comply with the requirements of all imports.

Furthermore, although merchandise sold from Colombia to a free trade zone must carry out the export process, it is possible to enter national goods into a free trade zone so that they can be processed or transformed and returned to Colombia. In these cases, customs procedures are not required, only authorization of the user, operator, or administrator of the Free Zone.

In turn, damaged or poorly maintained merchandise that is within a free zone in Colombia does not have to be nationalized. Such items can be removed or destroyed within the free zone without paying taxes.

Foreign trade benefits:

In this realm, companies in free zones in Colombia have access to seven specific benefits. These are:

1. Goods from abroad brought into the free zone do not require an import declaration. The goods are only required to appear on the transport document as consigned to a free zone user where the items brought from abroad will arrive.

1. Raw materials, capital goods, inputs, and any merchandise entering a free zone are not considered imports. Therefore, companies in free zones in Colombia do not have to pay duties or VAT while they are inside the designated area. However, if they leave Colombian national territory, they must be imported. Once this is done, an import declaration must be presented, the tariff and VAT must be paid, and the other requirements demanded by customs and foreign trade legislation must be met.

1. Exiting merchandise to another country from a free zone in Colombia does not require submitting an export declaration because the merchandise transit form acts as this document. Departures to another country only need authorization from the free zone operator.

1. Companies located in free trade zones, domestic and foreign investors, can temporarily enter raw materials and intermediate goods into Colombia for partial processing without this implying import costs or prior customs authorizations.

1. Merchandise entering a Free Zone may remain within the Free Zone indefinitely. This is a benefit since companies can carry out the nationalization or import when they have a specific need for the goods.

1. There are no restrictions on selling goods or services produced in a free zone in Colombia, in third countries, or in the national territory.

1. The companies installed in a Free Zone can have offices and staff outside the Free Zone in the national territory.

John Bozek
Chief Strategy Officer
Invest Puerto Rico
jbozek@investpr.org

LATAM FDI: Hello, welcome to another episode of LATAM FDI’s podcast. In these recordings, uh, we talk to people in Latin America about topics related to foreign direct investment, or FDI. Today, we have John Bosek with us. John is with an organization called Invest Puerto Rico. John, can you tell us a little bit about yourself and your organization?

John Bozek: Sure. Thank you, Steven. So, as you mentioned, my name is John Bosak. I’m the Chief Strategy and Research Officer at Invest Puerto Rico. I’m an economist with a background in economic development, both here on the island and in New York. Invest Puerto Rico is the island’s investment promotion agency. So, we are not a government agency, but we work closely with the government to promote Puerto Rico and to attract foreign direct investment, you know, job growth, companies that are interested in coming to the island. And I’ve been working with Invest Puerto Rico for about 7 years now.

LATAM FDI: Okay, John. Well, I have a series of questions about your activities with Invest Puerto Rico that I hope the listeners will find interesting. First, let me start off with the first one. Puerto Rico has undergone some significant economic shifts in recent years, especially following the debt crisis and Hurricane Maria. How would you describe the island’s economic recovery today, and what sectors are currently driving the most growth?

John Bozek: Sure. So, as you mentioned, you know, we have had a public debt crisis. It’s been, it’s been going on for a while now. A lot of that was tied to the government maintaining spending in the early 2000s. When tax revenues weren’t keeping up with spending. They were borrowing to fund OPEX rather than capital improvements, which is not acceptable. But over the last few years, we’ve been coming out of that crisis and getting the government’s financial house in order. Meanwhile, as you mentioned, you know, we did have a hurricane, a major hurricane, a 100-year storm back in 2017, so almost 10 years ago now. You know, the island is, you know, recovered from the storm. We have been for probably 7 or 8 years now, but there are still some lingering effects. There was a population decline as a result of the storm, and our Power infrastructure, which was already not in the greatest shape, also suffered. Power infrastructure on the island has been slow to rebuild. That said, there are bright spots in the economy. Puerto Rico is the number one manufacturer of pharmaceutical products in the United States.

Puerto Rico is a U.S. territory, and we’re also a leading producer of medical devices. We’re the world’s leading pacemaker manufacturer. The majority of disposable contact lenses in the US are produced in Puerto Rico. You know, we have, you know, again, one of the largest pharmaceutical manufacturing bases in the US. Our unemployment rate is currently at one of the lowest levels in the island’s history, since we started recording it. It’s still a little bit above the U.S. unemployment rate. It’s around 5-5.5% here on the islands. But that’s compared to the rest of the Caribbean, you know, where there’s a lot of informal economic activity. Our unemployment rate is currently at a historic low. And tourism numbers have been at record levels, really, since the pandemic. And that’s due to several factors. One, we’ve— back in around 2020, the tourism marketing was outsourced from the government to a destination marketing organization, and they were really aggressive in attracting additional tourism dollars to the island. Also, the boom in Airbnb and, you know, shared— how do they call that— short-term rental housing.

You know, it kind of took the lid off the hotel room limits we’ve had, which limited our tourism levels and increased the number of rooms available. So, that really helped our tourism sector. And then, because of the pandemic, people couldn’t travel internationally, but Puerto Rico is—again, you don’t need a passport if you’re a US citizen. So, many people chose to come to the island during that time. And also, we’ve had, you know, one of the largest musical acts in the world in the last few years. Bad Bunny has also attracted significant musical tourism to the island. So that’s a bright spot. We’ve determined at Invest Puerto Rico that manufacturing remains the strongest driver of our economy. It represents about 45% of our GDP, which is very high, you know, compared to the rest of the world and compared to the rest of LATAM. And a lot of times people think, you know, a Caribbean island, beautiful beaches, you know, that tourism would be either the main driver or one of the main drivers, but it only really represents about 7-8% of Puerto Rico’s GDP.

LATAM FDI: Well, you mentioned manufacturing. In light of that, how is Puerto Rico positioning itself today to compete globally? This is especially relevant in light of nearshoring trends and supply chain realignment that’s affecting the United States.

John Bozek: Sure. Since the pandemic and the tariff situation over the past year and a half, Puerto Rico has been seen as a lower-cost U.S. jurisdiction for high-value-added products. And, you know, the main ones, as I mentioned earlier, are pharmaceuticals and medical devices. You know, another sector is the aerospace industry. Aerospace design and engineering, and aerospace manufacturing. And, you know, we’ve really seen ever since the supply chain crisis around the pandemic, and again, the tariff situations, you know, we are U.S. territory. So, there are no tariffs. You know, obviously, there are tariffs on importing raw materials from other nations that we need to use to manufacture and add value to. But when we, you know, ship back to the US, there are no tariffs. So a lot of multinational companies that already had operations on the island, such as Amgen, Eli Lilly, Raytheon, and others, you know, when they were looking at their global supply chains in light of what’s been happening in the last few years, You know, instead of expanding in, you know, maybe European production or production in Asia, they’ve decided to do production in Puerto Rico.

And you know, Invest Puerto Rico promotes the numerous advantages of that. One, as I said before, we’re in a US jurisdiction, so you know, US federal law, FDA regulation, and inspections govern activities. So that’s important for pharmaceuticals. Anything that has to do with the Department of Defense or the Department of War spending, you know, we’re US citizens, US federal law again. So, you know, that gives us an advantage over foreign jurisdictions. Also, our cost structure is advantageous. Salaries on the island in some of these key sectors are generally, you know, it depends on what you’re talking about, but generally 20 to 30% lower than mainland salaries. Mainland US salaries. So, in our manufacturing sector, we have highly skilled engineers and technical workers. And the cost that, you know, the cost on the labor side is going to be lower than some of our competition, say, in Connecticut or California or Colorado or some of these other states that also have large aerospace sectors or pharmaceutical sectors. And then lastly, you know, we’ve had— since we’re a US territory, we’re not subject to federal taxation. So, we can offer some of the most attractive tax incentives, you know.

So basically, for manufacturing, it’s 0% corporate income tax on the federal side and 4% on the local side. So that’s very attractive for these large manufacturing facilities. And then for export of services, and that could be any type of service, software development, design, and engineering, as I mentioned, in aerospace, for example, any export of service from Puerto Rico, so an economic activity done from the island but serving somewhere else, either in the mainland US or another country, that economic activity is only taxed at 4%. We, at Invest Puerto Rico, explain that these are attractive tax incentives where, when you add everything else: the labor costs, US jurisdiction, you know, strategically located in the Caribbean, you know, it’s a pretty attractive package that we’ve been able to offer. And we’ve seen some of the results of Eli Lilly’s recent reshoring efforts: at the end of last year, it announced a $1.2 billion investment in a drug manufacturing facility. For example, Collins Aerospace recently announced a major expansion of one of its facilities on the island. We recently had a solar plant and panel manufacturer announce a large project in Aguadilla, Puerto Rico.

We’ve seen a lot of manufacturing activity being reshored to the island over the last year or so. So, it’s positive information. This is positive news in that sense.

LATAM FDI: You mentioned the availability of engineers for some industries in Puerto Rico. But in terms of workforce in general, what steps does Puerto Rico take to attract, retain, and upscale talent, particularly in the high-value industries that you just alluded to?

John Bozek: Sure. And that’s actually one of our main challenges: retaining the workforce. You know, Puerto Rico is a fairly small island. We’re about 100 miles wide by about 35 miles north-south, and we have about 3— a little more than 3 million people, 3.1, 3.2 million people. But because we’re US citizens, a lot of times young people go to university in the US and then they stay, or they, they get a job, their first job in the US, and they stay in the US, um, or they move to the US, you know, looking for— especially outside of the metro area of San Juan, Maybe there’s not as many well-paid job opportunities in the rest of the island. So, you know, they might move to the US, and a lot of times, they move to the US thinking that they’re going to come back to the island, but they may end up getting married or buying a house or pursuing their careers in Florida or in New York or Connecticut, and maybe not coming back to the island. So, it is a challenge.

And, you know, what we’ve been doing in terms of workforce development the last few years is— and I think this is a strategy that other economic development organizations, such as Invest Puerto Rico and, you know, related universities, academia, etc., and other places in the U.S. and in the world are also doing. But we’ve been focusing on maybe not 4-year degrees, but stackable skills development. So, these are things that could be in the tech sector. It could be software development skills or AI skills, things that you don’t need a full 4-year degree for. Maybe you can attend a 3- or 6-month program at the university. You know, in the pharmaceutical sector, for example, you know, maybe we don’t need full engineers for every single role. Maybe it’s just a technician, technical skills. And that could be, you know, maybe a 6-month program or an 8-month program, you know, working with some of the local colleges. We’ve been really trying to shift to match the jobs that are available and, you know, the talent that the island has to offer to make sure that those things are kind of lining up.

But it remains a challenge. You know, our construction sector, for example, faces workforce shortages. And a lot of that has to do with, you know, our construction and our construction work is very concentrated post the hurricane on rebuilding efforts. So, when some of the large construction contractors are fully dedicated to those federally funded rebuilding projects. So, for other types of projects, such as a new housing or manufacturing facility, it might be difficult to find construction workers. We have seen some issues that are not very different from those of other island economies in terms of, you know, retaining the talent we need for economic development.

LATAM FDI: You talked a little bit about the fact that you don’t have to pay federal tax. In Puerto Rico, other incentives have been put in place to attract investors and entrepreneurs. Could you tell us a little bit about Act 60, how it has been implemented, and what kind of long-term impact you think it will have?

John Bozek: Sure. Act 60 consolidated all the tax incentives created over the years in Puerto Rico, whether for manufacturing, research and development, the export of services, or tourism, and put them under one code. It really kind of, you know, there were tax incentives on the books that dated back to the 1950s and ’60s. So, Act 60, enacted in 2017, was an effort by the legislature and the Department of Economic Development here on the island to organize and consolidate all of those things under one umbrella. Act 60 is divided into different incentives we offer and by sector. As I mentioned earlier, there are tax incentives for manufacturing. There are tax incentives for exporting services. There are tax incentives for tourism-type activities. There are also tax incentives for research and development. There are tax credits available for research and development, which is very important for our pharmaceutical, aerospace, and medical device sectors. And then there’s also an incentive for individual investors, which is kind of one of the most controversial parts of Act 60.

And, you know, there are people who are kind of maybe opposed to it, but there are also people who support it. And that is really aimed at bringing investors and high-net-worth individuals to the island. And again, because we’re not subject to U.S. federal tax, you know, and that’s also on the personal income side, we’re able to offer, for example, 0% tax on capital gains, 0% tax on dividends. So that’s very attractive for, for, you know, people who, who maybe live off of their, their investments. So, you know, since that law was put on the books back in 2012, we have seen an influx of, you know, high-net-worth individuals, mostly from high-tax jurisdictions in the U.S., who come to Puerto Rico. You know, a lot of them live in luxury developments on the beach. And, you know, there have been some positive effects of that tax incentive. Especially in the real estate sector. And then also a lot of those individuals are also pretty entrepreneurial. They’ve started businesses here on the island and hired locally, including in the tech sector. So that’s one of the more controversial parts of Act 60.

But you know, in net terms, I think the particular chapter on individual investors has been positive as well.

LATAM FDI: Looking ahead, what in your opinion are the most promising opportunities for economic development, let’s say, in the next 5 to 10 years?

John Bozek: So, one, you know, I think we— Puerto Rico is already recognized, especially in the life sciences sector, as a leader. You know, we have the talent, we have the facilities, we have the history. Of being able to, you know, 60 years, 70 years of history in terms of, you know, life science manufacturing. At Invest Puerto Rico, we believe we will continue to be a leader there moving forward. And, you know, the government locally here is dedicated to putting, you know, policies in place to keep that moving because it is such a large part of our economy. I do think that there are opportunities in the future, especially around our growing aerospace sector. You know, we have some big names already operating on the island: Pratt & Whitney, Lufthansa, Lockheed Martin, Raytheon, RTX. That sector, you know, 10, 15 years ago didn’t really exist, but it’s grown kind of exponentially, and I continue to see that sector growing here on the island. And then, you know, as our tourism sector matures, you know, because we’ve been so focused on manufacturing for the last, you know, few decades, you know, we haven’t focused as much on tourism as some other Caribbean islands, you know, maybe like the Dominican Republic or Jamaica.

I think there’s a lot of opportunity to kind of take advantage of the positive headwinds in terms of tourism growth to make that sector more mature going forward. So those are some positive things and opportunities that I think we’ll continue to capitalize on moving forward. The last thing I’ll say, you know, as a center for logistics, you know, we are one of the largest— we have one of the largest cargo and passenger airports in the Caribbean here in San Juan. And we also have one of the most active maritime ports. We are experts at shipping, importing, and exporting highly sensitive materials for our pharmaceutical and medical device sectors, so our logistics sector is, you know, highly skilled and fairly advanced. I see that being a regional logistics player and a logistics hub as another positive development over the last few years, and I expect it to continue over the next 5 to 10 years as well.

LATAM FDI: Well, those are the opportunities. I’m sure there are some challenges that you at Invest Puerto Rico see as well. And what are those? John Bozek: So, you know, as I already mentioned, demographics is a challenge here on the island. You know, we have about 3.2 million people. You know, in the early 2000s, we had about 3.6 million. We’ve lost population. A lot of that had to do with the hurricane in 2017. But we’ve also had, you know, low birth rates, not unlike those in some other jurisdictions in Europe and the US. But you know, on top of that, because you know, anybody, any citizen of Puerto Rico can move to the US freely back and forth, you know, it’s harder to keep a brain drain from happening. So that’s always an issue here on the island. The second big issue that most people talk about here on the island is the cost and reliability of energy. With any island economy, that’s an issue. You know, Hawaii has similar issues. You know, other Caribbean nations have similar issues, but our power, you know, our power grid is, and continues to be a liability. We have to find innovative solutions to address some power grid issues.

For me, those are the two big, big challenges Puerto Rico faces.to remain competitive in terms of economic development, according to Invest Puerto Rico.

LATAM  FDI: John, we’ve covered quite a bit of material in the last 20 minutes or so. I make the people I interview available to answer any questions listeners might have. If somebody has a question for you. How would they go about communicating with you to answer those questions?

John Bozek: Sure, um, I’d invite any of your listeners to look me up on LinkedIn, John Bozek, B-O-Z-E-K, at Invest Puerto Rico, or they could always send me an email, which is jbozek@investpr.org. My first initial and then my last name at investpr.org. And I welcome any questions from your audience.

LATAM FDI: Okay, we’ll put your LinkedIn profile on the transcript page of this particular interview, and we’ll make sure that your email address is there prominently as well. And I want to thank you for speaking with me today about Puerto Rico. You know, I, I, it’s funny, a lot of people, including myself, when you think of Latin America, you don’t necessarily include Puerto Rico in it because it’s part of the United States. But, you know, it’s, it is a Latin American entity.

John Bozek: Yeah, that is an issue. There is an awareness issue in Puerto Rico as well. For that very reason. You know, a lot of times we don’t show up in economic analyses of the US because we’re not a state, and we don’t show up in economic analyses of LATAM or the Caribbean because we’re not a country. We kind of fall into a kind of middle area. But yes, we are very much a Latin American country. You know, Spanish is the first language, but we’re also very much part of the US. Anybody who visits the island can kind of feel both cultures, you know, the positives of both cultures. So that’s one of the ways we like to position ourselves.

LATAM FDI: Well, thanks again for joining me today, and good luck as you invest with your organization and find investors to set up shop in Puerto Rico.

John Bozek: Thank you. It’s been a pleasure.

FDI inflows in Mexico and Central America rebounded 30% to 42 billion dollars

The largest economy in the region, Mexico, recorded an increase in FDI of only 13%, to 32 billion dollars.  This made the country the second largest recipient in the subregion, behind Brazil.

However, the number of FDI greenfield projects announced in the country, an indicator of future investment plans, increased by 43% compared to 2020.

The greatest leap occurred in information and communication technologies. The Chinese giant Huawei, for example, announced that it would open a $4.5 billion cloud data center in Mexico.

With new investments in special economic zones, foreign direct investment to Costa Rica returned to pre-pandemic levels, nearly doubling to $3.2 billion.

In Guatemala, FDI reached a record level of 3.5 billion dollars.

FDI in the Caribbean increased by 39% to 3.8 billion dollars

The growth of external investment drove the rebound in FDI in the Caribbean economies. The Dominican Republic was the largest recipient of foreign direct investment to the region.

The island country saw its FDI increase by 21% to 3.1 billion dollars. Flows increased in mining, financial services, and special economic zones that contain manufacturing plants.

Main FDI trends by sector in the region

The Latin American and Caribbean region saw a general increase in cross-border mergers and acquisitions. Although the number increased by 49% to 244 operations, the total value of net sales (8 billion dollars) was practically unchanged from the previous year.

The services sector posted the largest increase in net sales, up 12%, to $6.4 billion, mainly in the financial and energy supply industries.

Announced regional investments increased by 16%, with most commitments going to the automotive, information and communication, and extractive industries.

The value of international project financing deals announced in the region doubled, exceeding pre-pandemic levels. Large transport infrastructure projects, especially in Brazil, and mining and renewable energy activities throughout the region were the biggest contributors to this rebound in levels of foreign direct investment.

Juan Carlos Zapata
Executive Director
FUNDESA
jczapata@fundesa.org.gt

LATAM FDI: Hello, today we have with us, Juan Carlos Zapata. Juan Carlos is the executive director of FUNDESA, a Guatemalan organization. Juan Carlos, nice to see you. How are you?

Juan Carlos Zapata: Thank you, Steven. Very nice to be here, and thank you for the opportunity.

LATAM FDI: Could you tell us a little bit about yourself and your organization?

Juan Carlos Zapata: Well, I’m the executive director of FUNDESA. FUNDESA is the Foundation for the Development of Guatemala. We’re a private nonprofit think tank. We are comprised of businesspeople in their personal capacity, and we work on competitiveness issues to increase productivity in Guatemala, enhance the country’s ability to attract more foreign direct investment, and generate more jobs and employment opportunities. And to do so, we work with various groups from both the public and private sectors to advocate for increased investment in infrastructure, human capital, and the rule of law.

LATAM FDI: Well, now that you’ve explained what role the FUNDESA plays in Guatemala’s economic development, tell us a little bit about the macroeconomic situation in Guatemala today.

Juan Carlos Zapata: Well, Guatemala is one of the most stable countries when you talk about the macroeconomic stability of countries in Latin America. When you look at the exchange rate of the quetzal, our currency, it’s been around 780 quetzales per dollar.  When you see the different credit rating agencies, Fitch, Moody’s, and Standard & Poor’s, we are one notch below investment grade. It has improved over the past 20 years. Macroeconomic stability in Guatemala grew by 4.3% last year. There has been an effort from both the public and private sectors to attract more foreign direct investment and generate more investment opportunities in Guatemala. So, we think that our macroeconomic stability is one of the key assets of the country in order just to— when you talk about how to attract more foreign direct investment in Guatemala.

LATAM FDI: You’ve mentioned before that FUNDESA is involved with an effort called Guatemala Moving Forward. Could you tell us what that is?

Juan Carlos Zapata: Yes, after the COVID pandemic, we began to understand the shifts in different purchases and how Guatemala could apply them to increase nearshoring and take advantage of the nearshoring opportunities we saw worldwide. So, we subcontracted with the international consulting firm McKinsey to help us understand where we could improve across our various challenges and how to better approach foreign direct investment. Even though foreign direct investment has been growing, it’s still below 2% of GDP. When you look at other countries in Latin America, you see that Costa Rica, for example, they attract almost 5% of its GDP in foreign direct investment. The Dominican Republic is close to 6%. We understood that we still have some bottlenecks in order to attract more foreign direct investment. Through the initiative Guatemala Moving Forward, we began forming working groups. We have a working group on foreign direct investment. We established a national organization, Invest  Guatemala, funded by the private sector, to develop a greater understanding of how to increase foreign direct investment in the country, follow up on leads for new foreign direct investment, and work with companies interested in Guatemala.

We’re also looking at infrastructure projects, so Fundesa has started developing a strategy to approve an infrastructure road bill. We also modernized the PPP law, working with Congress, so that all projects no longer had to go to Congress for approval. We’re also working on a port system law that is still pending in Congress, but we think it could be approved this year. These working groups for infrastructure, human capital, and rule of law all have businesspeople working together with both public and private organizations, trying to understand where the bottlenecks are, which are the key aspects that we have to move in order for Guatemala to keep on growing its economy and increasing its foreign direct investment.

LATAM FDI: One of the things, as you well know, today, is that, in terms of competitiveness, digitalization plays a significant role.

Juan Carlos Zapata: Yes.

Latam FDI: What’s happening in that regard in Guatemala?

Juan Carlos Zapata: So, in the aspect of rule of law, one of the key drivers of how to increase rule of law is through digitalization, specifically to have a 100% digitalized state, which, of course, is going to be a very important challenge for a country like Guatemala. We still have very weak institutions. Our institutional capacity is very low compared to others, even compared to other Latin American countries. So, one key aspect of the agreement to reduce taxes on exports to the US was that Guatemala had to be 100% digitized. That is, of course, a medium and long-term objective. We think it could be achieved in the next 5 to 10 years, depending on how quickly it moves. But Fundesa is working very closely, looking at what has happened in other Latin American countries like Chile, Uruguay, and Colombia, which also have a digitalization agenda within the public sector. Because when you look at the private sector, most companies are very digital and very competitive. But in the public sector, there’s still a lot of effort required to shift people’s mindset from paper to digital.

Right now, Fundesa is working very closely with the Ministry of Economy. They have a working group collaborating with the Ministry of Environment, the Agriculture Ministry, and the Health Ministry to digitize all processes to enable businesses to open and operate in the country.

LATAM FDI: Well, you mentioned earlier, too, that some things are happening with regard to public-private organizations, PPP reform, and change. Yes, you mentioned that. Could you tell us how that relates to your investment landscape?

Juan Carlos Zapata: Well, Guatemala only has one project, a PPP infrastructure project. It’s a road that connects Escuintla with Puerto Quetzal. That was the first project approved by the PPP law. But since projects had to go to Congress for approval, it took too long to get them approved. This road had been pending approval in Congress for almost 3 and a half years before it was even approved. So that, of course, delays and increased costs for different operations within the infrastructure sector. So, one of the reforms we have been very successful in changing is opening businesses and creating opportunities in Guatemala by reforming the PPP law so projects don’t go to Congress. That was approved last year, and it’s being implemented this year. We are supporting the Infrastructure Associate, the National Associate Agency, which is the ANI, the National Infrastructure Agency. They are the organizations responsible for public-private partnerships here in the country. Fundesa is working with them to comply with all regulations and the rulebook for this law to secure more projects in the coming years.

We have to bear in mind that elections in Guatemala will be next year, so that will also be a key aspect for all the political parties presenting their candidates starting in January. We understand that that’s going to be one of the most important challenges, because when you look at infrastructure in Guatemala, both the quantity and quality of roads have to improve. Just to have a number, Guatemala has 1 meter of roads per person. If you go to El Salvador, the roads are up to 2 meters wide. Go to Costa Rica, it’s almost 8. Mexico is 6. The US has 20 meters of road per person. So, we do need more investment in roads across the country to connect ports and cities, and to increase the number of airports. And ports we have in the country to increase our competitiveness.

LATAM FDI: Well, you’ve had some success recently. I, I read about, I believe, Yazaki. Is that correct?

Juan Carlos Zapata: Yes, they— yes, Yazaki is a Japanese auto parts company. They are a Japanese company based in North America. They’re the primary offices of that investment are in the U.S., and they have operations in Mexico and other Central American countries. But they opened their first factory here around 2020-2021, and they’re opening another factory starting next year. We think that the vehicle and auto parts harnesses are a very good sector for Guatemala to attract foreign direct investment, as they easily connect to the supply chain in Mexico and then export to the US.

LATAM FDI: Are there any other sectors that you see some possibilities in?

Juan Carlos Zapata: Yes, everything that has to do with agro-industry and manufacturing within the agro-industry sector. Of course, Guatemala is very important, and its textile industry is also a key sector that attracts significant foreign direct investment. But the other sector that has been growing, it’s very interesting, is the banking and financial system. When you look at foreign direct investment, more than 43% of the total that came into Guatemala last year came from the financial and banking sector. And that’s because we not only have more international banks now, but also more fintechs coming into the country, because there’s an opportunity here. And within the manufacturing sector, you also see more opportunities in pharmaceuticals and in transformation across the food industry.

LATAM FDI: Given all that, that you’ve just mentioned, what message would you give to international investors considering Guatemala as a possible location for a facility?

Juan Carlos Zapata: Well, the first thing is that I, I think when you look at Guatemala, it’s not your obvious choice. So I always tell people to look at macroeconomic stability, to look at, uh, how close it is to the US, how interconnected the country is, the country’s diversity, and, of course, the capabilities of our, um, average age. Because our population is very young, our average age is 27. We have a very active population working to create more opportunities and better working conditions within the country. I think there’s an opportunity just to begin with, given the quality and capabilities of our labor market, and, of course, the logistics Guatemala can generate if you want, not just to export from Guatemala to the US and other countries. Also, Guatemala is a very important hub for operations across Central America or for serving the southern part of Mexico. In short, I would say, because we have been meeting people from Germany, people from Spain, people from Colombia, and Mexico, they, they more— when you talk about people within Europe, most of the time they don’t know about Guatemala and when once they start to understand how the country is so connected to the US, they see opportunities for exporting to, to different parts of North America.

LATAM FDI: Well, in a short period of time, we’ve covered a lot of information here. One thing I’ve noticed after doing podcasts like this for a while now is that I always receive questions from listeners, and I like to direct them to the people I speak with in these podcasts. So, if someone has a question and wants to get in touch with you to ask it, how can they do that?

Juan Carlos Zapata: Yes, please. You can contact me via the FUNDESA website at www.fundesa.org.gt or through our social networks. We’re in all the different networks, and you can also coordinate any effort or follow-up with Invest Guatemala. We work very closely with them to ensure the best red carpet treatment for foreign direct investment in the country.

LATAM FDI: Well, one thing that I do all the time, it seems to be helpful and works, is if it’d be all right with you, include in the transcript of this podcast a link to your LinkedIn page.

Juan Carlos Zapata: Perfect, thank you.

LATAM FDI: And your email address.

Juan Carlos Zapata: Perfect, thank you very much.

LATAM FDI: I want to thank you for being with me today. It’s been very interesting learning about FUNDESA, Guatemala, and the progress being made there. Thank you again.

LATAM FDI: Oh, thank you, Steven. It was very nice to see you.