Cocaine & The Dominican Economy

I was recently looking at the new Drugs Report from the United Nations and have reached a very interesting conclusion on the amount of wealth that the Dominican economy receives from drug trafficking. First, a few facts:

In 2008 (the most recent year for which data is available) the international Cocaine market was estimated at US$88 billion (roughly the size of the Dominican economy on PPP). The market has been on a steady decline since the 1980s when it was worth over US$130 billion.

The US Cocaine market is valued at US$35 billion and is on a steady and steep decline. Of that figure, gross profits are distributed in the following ways:

85% (US$29.8 billion) stays in the US.
1.5% (US$500 million) goes to Coca farmers in the Andean countries (Colombia, Ecuador, Peru & Bolivia.)
1% (US$400 million) goes to narcotraffickers in the Andean countries.

The most important figure for the DR is the 13% (US$4.6 billion) that goes to narcotraffickers that ship the product from Colombia/Venezuela to the US.

My estimate of the amount of money the Dominican economy directly receives from this activity is deducted from the following facts:

The US consumes 165 metric tons of Cocaine. However, 71% of all the Cocaine that reaches North America is trafficked via Central America/Mexico while only 29% is trafficked via the Caribbean islands. In monetary terms this translates to US$3.3 billion is injected into the economies of Mexico, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica & Panama. The Caribbean islands collectively receive US$1.3 billion.

The Dominican Republic, assuming that the proportion relative to the Caribbean total of Cocaine confiscated (34%) is indicative of the Dominican participation in the Cocaine trade; then the DR receives as a minimum US$455 million (0.8% of Dominican GDP.) Maximum probably is closer to US$800 million (1.5% of GDP), but this last figure is only a guess.

Source: www.unodc.org/en/data-and-analysis/WDR-2010.html

@Cobraboy: I initially excluded the European figures because according to the UNODC report, the Caribbean plays a very small part in that trade. Most of the Cocaine is shipped directly from Venezuela and via western Africa. However, I managed to calculate US$133 million for the whole Caribbean. The DR accounts for 5% of that (based on source of cocaine seized in Europe: http://www.unodc.org/documents/data-and-analysis/Studies/Transatlantic_cocaine_market.pdf). The total would amount to US$462 million entering the DR from both the US and Europe markets; a mere 0.8% of nominal GDP or 0.5% on the basis of PPP.

@Robert: I know what the rumors are, but I've been investigating this for quite some time and it appears that the rumors are based on not much substance. Judging from the way the construction sector reacts vis-a-vis market forces (ie. fluctuation of the interest rates, price of construction per square meter and location of type of projects, sales fluctuations depending on market conditions, etc); it very much gives the impression that profit maximizing is still the driving force. That is contrary to what would happen in a sector dominated or even significantly influenced by illicit funding. Even the profit margins have remain quite stable through the years.

Even when we look at total private investment in the sector, it simply doesn't match with the rumors.

In 2009, the latest year for which data is available, total private investment in apartments and towers was almost US$254 million nationwide. That accounts for 79% of all investment in construction. (Oficina Nacional de Estad?stica (ONE) :: Las estad?sticas del sector de la construcci?n tienen como prop?sito generar informaciones oportunas y confiables requeridas por los usuarios, facilit?ndoles el acceso a las mismas, as? como el an?lisis y la e)

@Hillbilly: According to the findings by the UNODC report, the % of the population between 15 and 64 years that consumes the drug is as follows:

Spain 3.0
USA 2.6
Canada 1.9
Panama 1.2
Puerto Rico 0.8
DR 0.3

The Dominican figure amounts to roughly 17,000 people. Taking the US data of 5.4 million users and a market of US$35 billion, that would average about US$6,500 per person. Since the DR's per capita GDP in purchasing power parity is 18% of the US, we can assume that average Dominican consumption could be US$1,170 per person, giving the DR a potential market of US$20 million.

That's quite negligible compared to the estimates for other nearby markets: Puerto Rico US$49 million, Panama US$47 million, etc.

Conclusion, the data doesn't lives up to the hype.

Correction: In the response to Cobraboy, the figure I meant to post was the following:

The DR accounts for 71% of the Caribbean 'connection' to Europe (US$94 million). The total would amount to US$549 million entering the DR from both the US and Europe markets; a mere 1.0% of nominal GDP or 0.6% on the basis of PPP.