Bochinche, the free zoners did not create this mess. This unstable financial climate is NOT good for business. Short term profits and a lower payroll because of the devaluation of the peso is at best short term. If any business depends on the current fluctuations to 'look more profitable', they are in for a shock. The best option I think for an employee is to enter into discussions with their management and build a strategy together to weather the storm.
- Thread starter Golo100
- Start date
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Has Hippo fooled the IMF or Are They Fooling Us
It's not a free ride for Zona Franca
As a Zonas Francas employee since 1999, I have the following to say:
1. Zonas Francas can be called Zonas Francas precisely because it imposes no tax on importation of raw material or on exportation of finished products. This the raison d'etre for foreign investors to come and invest in Zona Francas.
2. The tax-free incentives have nothing to do with exchange rate.
Be US$1= RD$1 (in the late 1970's) or US$1=RD35.
3. All foregin companies pay local employees in local currency while paying top executes in either home currency or US$. Ths is a standard compensation practice worldwide and not unique to any sector or country. For example, Microsoft will send an American to head its Asian regional headquarter and pay him in US dollars while paying his local managers and submanagers in local currency.
4. Companies do not increase/decrease local wages simply due to exchange rate fluctuations. Microsoft will neither increase its Dominican employees' wages to reflect falling pesos nor will it decrease those of its French employees due to rising Euros.
5. Regardless of the exchange rate, the fact remains that there have been far more Zona Franca factory closings than openings in the past few years due to a variety of reasons. Why ? Mostly because DR is losing its competitive edge on world stage and the simple guarantee of import-export tax exemption no longer promises profitability. In San Pedro de Macoris' Nueva Zona Franca, where it has enough land to house dozens of factories, the total number of tenants never exceeded 20 even at its height. And guess how many are still actively producing ? 3 !! Yes, three, tres, trois !
A few have already sent all its manual workers home while keeping a handful of administrative staff to man phone/fax. Why ? Because many in US and Europe are not buying due to economy slumps. Even if US$1=RD$1,000 thus making labor cost practically zero, if no orders come in, companies have to close.
6. Most ex-Zona Franca factory owners who left in recent years have moved to lower-cost countries such as China and other Central American countries, if they did not decide already to exit the business together. And mind you, there is no "Zona Franca" in China ! They are not coming back to DR even if peso falls further.
7. Factories have to import raw material and pay for them either in US$ or Euro. Many petrochemical and general plastics raw material have skyrocketed in pricing due to shortage of natural gas, acetone..etc. Factor in higher costs in marine shipment and insurance, it is no breeze running a company in Zona Franca despite the tax advantages.
8. Companies initially came to Zona Franca in DR because of tax advantages and political/economic stability. The latter is gone down the drain, as we all know. If the former also goes, there is no reason for current foreigner owners to stay. Even less reason for new ones to come.
9. The falling peso might give current Zona Franca factories a temporary cost respite, but trouble lies ahead. If DR economy deteriorate further and crime rises as a result and kidnapping becomes a cottage industry as in Mexico and Colombia, you can be sure more foreign companies will flee. There is already a rising tide of Dominican crimials being sent back from the US. Earning more US$ is not going to be more appealing to foreigners in DR if personal security is at stake.
As much "lios" as His Baldness has got into, his decision not to temper with existing Zona Franca parameter is a sensible and sane one. After all, DR needs more US$ income, not less. The three primary bringers of foreign income are "remesas" from Dominicans abroad, tourism and Zona Franca. Nobody in his sane mind would implement policies alienating any of the three.
Just my two (and depreciating) centavos !
golo said:Get this....Hippo already started making exemptions to specific groups. For instance, he says that The Free Trade Zones will not have to pay the 2% import tax for the raw materials they use.
What a dandy!!! Here is a group that is the #1 "beneficiary" of the peso fall, making great profits at our expense and on top of that Hippo now gives them a 2% gift. Just think. The Free Traders are saving more than 50% in empoyee salaries with the dollars they get from income abroad for their goods. If they were paying and employee the equivalent of $200 dollars a month before, they can do it now with $100 dollars, because their employees get paid in pesos with miserable salaries. They were also selling their dollars without restrictions and buying them again at the next Hippo-induced dollar fall.
TW
As a Zonas Francas employee since 1999, I have the following to say:
1. Zonas Francas can be called Zonas Francas precisely because it imposes no tax on importation of raw material or on exportation of finished products. This the raison d'etre for foreign investors to come and invest in Zona Francas.
2. The tax-free incentives have nothing to do with exchange rate.
Be US$1= RD$1 (in the late 1970's) or US$1=RD35.
3. All foregin companies pay local employees in local currency while paying top executes in either home currency or US$. Ths is a standard compensation practice worldwide and not unique to any sector or country. For example, Microsoft will send an American to head its Asian regional headquarter and pay him in US dollars while paying his local managers and submanagers in local currency.
4. Companies do not increase/decrease local wages simply due to exchange rate fluctuations. Microsoft will neither increase its Dominican employees' wages to reflect falling pesos nor will it decrease those of its French employees due to rising Euros.
5. Regardless of the exchange rate, the fact remains that there have been far more Zona Franca factory closings than openings in the past few years due to a variety of reasons. Why ? Mostly because DR is losing its competitive edge on world stage and the simple guarantee of import-export tax exemption no longer promises profitability. In San Pedro de Macoris' Nueva Zona Franca, where it has enough land to house dozens of factories, the total number of tenants never exceeded 20 even at its height. And guess how many are still actively producing ? 3 !! Yes, three, tres, trois !
A few have already sent all its manual workers home while keeping a handful of administrative staff to man phone/fax. Why ? Because many in US and Europe are not buying due to economy slumps. Even if US$1=RD$1,000 thus making labor cost practically zero, if no orders come in, companies have to close.
6. Most ex-Zona Franca factory owners who left in recent years have moved to lower-cost countries such as China and other Central American countries, if they did not decide already to exit the business together. And mind you, there is no "Zona Franca" in China ! They are not coming back to DR even if peso falls further.
7. Factories have to import raw material and pay for them either in US$ or Euro. Many petrochemical and general plastics raw material have skyrocketed in pricing due to shortage of natural gas, acetone..etc. Factor in higher costs in marine shipment and insurance, it is no breeze running a company in Zona Franca despite the tax advantages.
8. Companies initially came to Zona Franca in DR because of tax advantages and political/economic stability. The latter is gone down the drain, as we all know. If the former also goes, there is no reason for current foreigner owners to stay. Even less reason for new ones to come.
9. The falling peso might give current Zona Franca factories a temporary cost respite, but trouble lies ahead. If DR economy deteriorate further and crime rises as a result and kidnapping becomes a cottage industry as in Mexico and Colombia, you can be sure more foreign companies will flee. There is already a rising tide of Dominican crimials being sent back from the US. Earning more US$ is not going to be more appealing to foreigners in DR if personal security is at stake.
As much "lios" as His Baldness has got into, his decision not to temper with existing Zona Franca parameter is a sensible and sane one. After all, DR needs more US$ income, not less. The three primary bringers of foreign income are "remesas" from Dominicans abroad, tourism and Zona Franca. Nobody in his sane mind would implement policies alienating any of the three.
Just my two (and depreciating) centavos !
Do we really need Industrial Free Zones??
As the globalization advances Dominican Republic has become member of the OMC since 1994. Since then the country underwent a series of drastic economic changes, besides making a extremely harsh effort to adjust to the globalization.
As one of the purpose of regional economic agreements is to eliminate trade barriers between member countries. And one of the barriers is precisely the import and export taxes, it is said that we need to have an open market without tax restrictions.
In Dominican Republic by the year 2009 (latest) all the import - export taxes should be 0, in concordance with other member countries (supposedly). So what does our Industrial Free Zone has to offer the investors?? What are the attractions to the investors?? Since the wages in a very close future will be adjusted because of the inflation. The government must start thinking about a new economic structure, before the final wave of "Free Zone Disapearance Tendency" arrives.
Once again, I suggest the best resolution is to strengthen our agriculture. A country depending on service and tourism is like a child who can not support himself working!! Once the father stops covering his expenses the kid goes into hunger. It is not negative that the country develops it's service and tourism sectors, but depending on them... I don't think so!! Best solution, start agricultrural project, or better, make functional the ones that already exists and focuse on this sector for the next I would say 10 to 15 years. The country needs it's sugar platains reactivated, and implement new management and modern systems to make it work.
To avoid a major dissaster of unemployment which will cause social and economic colapse of the country. This and the coming government must have a STRONG project of prevention!!
Again... agriculture is the solution!!
As the globalization advances Dominican Republic has become member of the OMC since 1994. Since then the country underwent a series of drastic economic changes, besides making a extremely harsh effort to adjust to the globalization.
As one of the purpose of regional economic agreements is to eliminate trade barriers between member countries. And one of the barriers is precisely the import and export taxes, it is said that we need to have an open market without tax restrictions.
In Dominican Republic by the year 2009 (latest) all the import - export taxes should be 0, in concordance with other member countries (supposedly). So what does our Industrial Free Zone has to offer the investors?? What are the attractions to the investors?? Since the wages in a very close future will be adjusted because of the inflation. The government must start thinking about a new economic structure, before the final wave of "Free Zone Disapearance Tendency" arrives.
Once again, I suggest the best resolution is to strengthen our agriculture. A country depending on service and tourism is like a child who can not support himself working!! Once the father stops covering his expenses the kid goes into hunger. It is not negative that the country develops it's service and tourism sectors, but depending on them... I don't think so!! Best solution, start agricultrural project, or better, make functional the ones that already exists and focuse on this sector for the next I would say 10 to 15 years. The country needs it's sugar platains reactivated, and implement new management and modern systems to make it work.
To avoid a major dissaster of unemployment which will cause social and economic colapse of the country. This and the coming government must have a STRONG project of prevention!!
Again... agriculture is the solution!!
An Agricultural based economy? Sugar Plantations? Are you serious?
A Sugar Based economy is one fo the main causes of the economic disaster that is the DR economy. Have you even looked at the price of sugar the last 15 years?
The DR is over planted as it is. Increasing agriculture production will just cause a glut on products and dig an even bigger hole for the economy.
BTW What country is sucessful with an agricutural economy?
A Sugar Based economy is one fo the main causes of the economic disaster that is the DR economy. Have you even looked at the price of sugar the last 15 years?
The DR is over planted as it is. Increasing agriculture production will just cause a glut on products and dig an even bigger hole for the economy.
BTW What country is sucessful with an agricutural economy?
Tony C said:The DR is over planted as it is. Increasing agriculture production will just cause a glut on products and dig an even bigger hole for the economy.
BTW What country is sucessful with an agricutural economy?
I think there may be some merit in a strong agriculture. Not only agriculture, but strong agriculture. While I cannot off the top of my head say which countries are successful with solely an agricultural economy, I can say a number of African countries fell flat on their behinds, when they started focussing on other types of industry, and had their main crops fail. This usually happens during a time where "IMF" and "World Bank" types convinces the ruling despot that with a couple of "judicious" loans, the little country can be put firmly on the road to "development". The result usually is widespread hunger and disease and illness - and forgiveness of loan repayments for more loans.
Obviously sugar or coffee are not the crops of the day - but, here in the DR is one of the most successful fruit exporters to Europe. A large and top class farming operation. And Europe cannot get enough of the product.
So, with tax-free zones for manufacturing and distribution, smaller industries spawning off off this manufacturing, a good agricultural base, a tourist industry, a fishing industry - this all looks like a fair diversified 'portfolio' to me.
I've always though that a great business opportunity exists from DR to export fruit and veg and even meat (and sugar too) to other Caribbean Islands. There are many islands that simply don't have the landmass or quality of growing soil to support crops or livestock. All of these islands import usually from the USA. To my mind, the right boat and the right attention to detail and enough working capital and there is a market waiting to happen.
Formosano2000
Well written and thought out post. You are and would be an asset for any company that employs you.
I would vote for you in the Next DOMINICAN ELection. You have a good grasp on economic issues.
Well written and thought out post. You are and would be an asset for any company that employs you.
I would vote for you in the Next DOMINICAN ELection. You have a good grasp on economic issues.
Tourism and Agriculture have one big problem!
All it takes is one good size hurricane and its over for awhile.
Industry can be up and running in Days. Tourism months, Agriculture.....See ya next year! Not to mention frequent droughts.
I am not advocating that the DR give up on agriculture. I am advocating that they accept more industry.
Awhile back I believe posted how the DR is digging itself a hole by dedicating to much of its efforst towards tourism. particularly Low-cost tourism.
All it takes is one good size hurricane and its over for awhile.
Industry can be up and running in Days. Tourism months, Agriculture.....See ya next year! Not to mention frequent droughts.
I am not advocating that the DR give up on agriculture. I am advocating that they accept more industry.
Awhile back I believe posted how the DR is digging itself a hole by dedicating to much of its efforst towards tourism. particularly Low-cost tourism.