NATIONAL PLAN FOR SYSTEMIC COMPETITIVENESS EXECUTIVE SUMMARY

March 2007

“In the Dominican Republic’s search for progress and modernity, systemic competitiveness constitutes a strategic focal point from which to successfully confront the challenges of globalization and the market openings under the free-trade agreements with the United States, Central America and the European Union.”
Leonel Fernández
President of the Dominican Republic

The National Plan for Systemic Competitiveness (PNCS), coordinated by the National Competitiveness Council (CNC), offers a strategic development vision for the Dominican Republic based on competitiveness and innovation. It is aimed at consolidating sustainable economic growth, together with integral human development, in the context of the establishment of free-trade links with the United States, Central America and Europe.

In search of a broad national consensus for the plan, the CNC facilitated over a period of two years the carrying out of extensive and thorough field and office work. Hundreds of meetings were held with producers, business leaders, manufacturers, members of the scientific and academic community and officials from the government and international organizations, and surveys and research especially aimed at the strategic productive sectors were conducted.

The plan consists of eight parts: Vision of the Future; Industry as an Engine for Growth; Business Competitiveness; Competitiveness of the Productive Sectors and Clusters; Innovation and Mindfacturing Development; Governmental Competitiveness; Infrastructure and Logistics Competitiveness; and Implementation. Within these eight parts are 15 chapters containing diagnoses, strategies, specific actions and concrete policies.
 
PART I
Vision of the Dominican Republic’s future given its opening up to globalization.

  Chapter 1
Vision of the Dominican Republic’s future. The strategy of systemic competitiveness in confronting the challenge of adapting to globalization.

The Dominican economy has shown a significant capacity for growth over the past 35 years, a time in which per-capita income has increased by an average of 5% annually and GDP by roughly 7% per year. The challenge is to sustain these growth figures while facing global hyper-competition and at the same time promoting integral human development that offers people greater hope and quality of life, better education and higher per-capita incomes.

The vision for the country’s future is that by 2020 the Dominican Republic will be a country fully integrated into the world economy with a platform for competitive, sustainable and equitable development. Achieving this vision entails adopting a defensive strategy to face the challenge of opening up to hyper-competition, both locally and internationally, by avoiding unfair competition; and an offensive strategy based on increased competitiveness – both export-driven and domestic-market-driven. This strategy has a tri-dimensional basis: the exporting sector, for the generation of foreign currency; competitive import substitution via promotion of productive chains; and endogenous development of infrastructure, construction and housing as internal engines of growth.

PART II
Industry as an engine for growth in the Dominican Republic.

  Chapter 2
The industrial strategy and policy aspect of systemic competitiveness.

Three important changes in the international arena have had a particularly significant impact on the competitive capacity of the industrial sector: 1. the entering into force of DR-CAFTA; 2. the WTO ruling ending exemption from compensatory measures; and 3. more intense Asian and Central American competition in the main markets for Dominican exports. The competitiveness strategy proposed by the PNCS for the local industry is based on two objectives:

• Defensive: includes antidumping legislation and laws against unfair trade practices; efforts to battle contraband and other means of tax evasion; and maintenance of a competitive real exchange rate.

• Offensive: promote industrial modernization; encourage sectorial elements (development of clusters); improve external factors that affect companies’ competitiveness (electricity, customs procedures, among others); design and implement macroeconomic policies that spur competitiveness; and develop institutional aspects such as a new legal framework and regulatory institutions.

Additionally, an industrial competitiveness bill has been submitted to Congress – with the administration’s approval – that would create a new institutional framework, coordinate instruments for the implementation of an industrial competitiveness policy and promote mechanisms to stimulate integration of the productive chain and innovation.

  Chapter 3
The strategy and policy for re-launching the competitiveness of industry in duty-free zones.

With the goal of maintaining and increasing international competitiveness, the PNCS is studying a three-pronged strategy: 1. Escalation of value, which includes a comprehensive, long-term labor training program aimed at developing skilled workers with technical and technological know-how and command of English; the promotion of innovation projects; and the implementation of a model for certifying and improving customs processes. 2. Productive articulation among local industry with the goal of developing both productive supply chains linking duty-free-zone companies with local suppliers and a Dominican business portal for business leaders of the duty-free zones, foreigners and local industry. 3. Adaptation of the legal framework with a view to establishing regulations that introduce the concept of extraterritoriality, the modernization of customs systems, the incorporation of new users and sectorial incentives.

Chapter 4
Strategy and policy for increasing competitiveness of exports.

The Dominican Republic is immersed in the complex process of inserting itself in international markets, which requires close cooperation between the public and private sectors to increase exports and investment. The government is facilitating achievement of this goal through the Dominican Republic’s Center for Exports and Investment. The competitive export-promotion policy involves four aspects designed to spur productivity and improve the quality of the processes that boost companies’ competitiveness and allow them to adequately integrate themselves into the global marketplace: 1. Trade Promotion; 2. Technical Assistance; 3. Financial Support; and 4. Infrastructure in Customs Procedures

PART III
Business competitiveness.

  Chapter 5
Competitiveness program for micro, small and medium enterprises.

The competitiveness program for micro, small and medium enterprises (MSMEs) seeks to promote national economic growth by boosting and strengthening this sector and consolidating it as one of the pillars of the national productive sector. The principal goals are to: increase competitiveness; promote productive articulation among the MSMEs, as well as the large companies; stimulate national economic growth and create productive, well-paid jobs. The focus of the strategy is cooperative competition that makes use of economies of agglomeration and joint work, as well as the creation of support institutions and programs necessary to promote the development of the MSMEs and create a favorable business environment. The PNCS envisages establishment of a Fund for Dominican MSMEs so that the resources needed to implement this program are available. 

PART IV
The competitiveness of the productive sectors and strategic clusters in the global value chain.

  Chapter 6
Tourism as engine of competitive growth and sustainable development.

The strategy proposed by PNCS to strengthen and develop sustainable tourism competitiveness focuses on the following sectors: Tourism Infrastructure and Territorial Organization; Human Resources Development; Market Promotion and Intelligence; Sanitation; Public Safety and Community Integration. The tourism sector is important because it creates jobs, pays higher salaries than the national average, encourages regional development, accelerates infrastructure projects, diffuses information about the nation’s cultural and natural attractions, supports gender equality and promotes the development of intellectual capital. The plan also takes into account the strategic tourism clusters and presents specific proposals for strengthening the global value chains of the Santo Domingo, Puerto Plata and Altagracia clusters.

  Chapter 7
The agro-business cluster and competitiveness in the global value chain.

The Dominican Republic has competitive advantages in this sector due to climatological conditions and favorable soils for the production of tropical fruit, tobacco and vegetables, as well as a geographical location that facilitates access to the U.S. and European markets. The challenge is to turn these natural advantages into competitive advantages that position the country as a reliable, fast and effective supplier. To that end, the plan offers a strategy for transforming the current agro-business sector model and which consists of the following policies and programs: 1. Investment incentives through a financing program and regulation of land ownership; 2. Information to aid decision making by encouraging creation of statistical databases for the agricultural sector; 3. Productive integration program; 4. Tax-incentive program for the supply of inputs; 5. Program to encourage crop conversion and provide business-skills training; 6. National rural supply system; 7. Program to support exports and the country’s brand development; and 8. Program to encourage organic production. Additionally, the plan addresses the specific cases of the conventional and organic banana, avocado, pineapple, mango and tobacco clusters.

  Chapter 8
The manufacturing cluster and escalation of value.

The PNCS identifies two priority sectors affected by the great transformations in the evolution of production and in worldwide commercial trends arising from the globalization process – the textile and clothing sector and the footwear sector. To redefine the competitive strategy for these sectors, the plan proposes a comprehensive model that emphasizes flexible manufacturing, distribution logistics and customer-tailored marketing. The tools designed to increase competitiveness include the Productive Articulation Program; the Technological Innovation and Development Program and the Supplier Development Program.

  Chapter 9
Construction and housing as an endogenous engine for growth.

The construction sector has been identified as a broad market niche that not only involves production of buildings but also improves people’s wellbeing by creating more jobs and more incentives for complementary industries that supply inputs or market, sell and rent properties, as well as generating greater opportunities for the financial sector as a whole. The proposed strategy has two aspects: 1. The strengthening of public policy through the channeling of remittances for the construction of homes, providing financing for the acquisition of social housing, creating a program to review taxation within the construction and housing sector and the strengthening of the National Housing Institute; and 2. Programs to develop the construction and housing cluster, including the Housing Certification Program; Supplier Development Program and the creation of the Innovation Center for the Construction and Housing sector.

PART V
Innovation and mindfacturing development.

  Chapter 10
Orientation of the national system of technological innovation and development toward mindfacturing and the knowledge economy.

The Dominican Republic has a comprehensive strategy for transitioning toward a knowledge economy, which includes the National System of Higher Education, Science and Technology; the Technological Research and Innovation Plan; and the National System of Technological Innovation and Development (SNIDT-RD).

The PNCS recognizes that under the new rules of the game productive activities are not only governed by capital and labor factors, but also by human and technological capital, which are crucial for closing the value-added gap. Therefore, the plan includes the creation of SNIDT-RD, whose strategy focuses on two elements: 1. Consolidating the development of the technological clusters through the integration of the global value chain in their innovation, input supply, manufacturing, logistics, distribution and marketing segments. 2. Promoting the transition to new potential sectors of greater value-added, meaning toward mindfacturing, knowledge-based industries and technological development. Among the sectors to be promoted are: biotechnology, software, call centers, mecatronics and nanotechnology.
 
The SNIDT-RD is made up of three pillars: the Institute for Technological Innovation and Development, the Network or National System of Company Incubators and the Cybernetic Park.

PART VI
Governmental competitiveness and the new institutional market economy.

  Chapter 11
A competitive and innovative government. Toward a new model of public administration known as IFAT: intelligent, flexible, agile and transparent.

The government has an essential role as economic agent and should have a modern, functional structure that allows it to develop new procedures, programs and projects capable of meeting social demand in three principal aspects: as planner and promoter of public policy, as regulating entity and as public administrator. The PNCS calls for the implementation of strategies that ensure a competitive and innovative government and provides for actions such as the creation of a National Planning System, an Inter-secretarial Spending-Financing Commission and a Center for Strategic Thought of the Dominican State.

 Chapter 12
The new institutional market economy and the rule of law: the economic competition commission.
 
The PNCS recommends that the Dominican Republic adjust its legal and institutional framework to ensure national and international actors that they are protected from anti-competitive practices in the local market and that they can count on legal mechanisms that guarantee competition. Authorities’ actions will be focused on preventing, sanctioning and correcting anti-competitive practices by companies. To this end, the plan proposes that an Economic Competition Law be enacted and a National Competition Commission be formed to provide a legal framework for fair competition, enforce anti-dumping legislation, reform the customs system and address the issues of unfair competition and consumer protection.

PART VII
The Dominican Republic’s competitive environment.

  Chapter 13
Infrastructure and logistical competitiveness.

Logistical competitiveness is composed of four fundamental elements: the energy axis (which encompasses the electrical axis), including the proposal for the creation of the Center for Energy Coordination and Control and reform of the General Electricity Law; the information and communication technologies (ICT – fiber optics, telephony, cellular, satellite) axis that implies the expansion of infrastructure and access in marginalized rural and urban areas, as well as the promotion and use of these technologies by citizens and institutions; the multimodal transport axis (ports, airports and roads), involving the design of a National Transport Policy that defines responsibilities and reforms related to technological and equipment decentralization and modernization, as well as the reordering of land transport; and the hydraulic axis (rehabilitation of basins and use of reservoirs). The proposed programs are intended to regularize sector regulations to ensure better use of infrastructure in terms of distribution, supply and utilization.

   Chapter 14
Macroeconomic competitiveness: stability and a competitive real exchange rate.

To generate growth and increase the country’s competitiveness, the PNCS proposes developing exchange rate, monetary and tax policies that generate an attractive economic environment for productive investment and promote exports. The goal is to maintain the real exchange rate at competitive levels to thereby boost the competitiveness of Dominican exports on world markets. With regard to monetary policy, the plan recommends the development of policies that encourage interbank competition within the financial system so that banks can offer more accessible rates for small and medium sized enterprises. Additionally, it calls for modernizing the tax system to reduce administrative costs and increase collection.

PART VIII
Coordination and participation mechanism for the plan’s implementation: developing social capital.

  Chapter 15
Implementation of the competitiveness plan: policies and action programs, coordination and financing mechanisms.

To ensure that the Dominican Republic’s National Plan for Systemic Competitiveness contributes to competitive economic development, together with integral human development, it is recommended that the plan’s operating programs, strategic projects and lines of action be implemented through the National Competitiveness Council (CNC), which will be responsible for coordinating this implementation and creating the conditions that promote the active and committed participation of all the actors.

To implement the different aspects of the plan, it has been proposed that a fund – with contributions from the government, the business sector and organizations like the IDB and the World Bank – be created to provide financing and risk capital.