The state of the free zone industries and recommendations for new strategies were raised at the annual meeting of Infotep-Adozona held in April at Punta Cana. Infotep is a major training institution and Adozona is the Association of Dominican Industrial Free Zones. The principal conclusion was that Dominican industrial free zones should be prepared to compete without preferential treatment in the U.S. or other markets, and should base their strategy on the development of a more skilled labor force. The competitive strengths based on a development strategy are: a skilled labor force, preferences of the U.S. market for Dominican produce, geographical position and the unusual adaptability and disposition of the Dominican to learn and do whatever is required.
“The strategies of our free zones have to be based on competing without preferences in the U.S. and other markets, and on the strength of skilled manpower,” said Eddy Martínez, executive director of Adozona, when he talked about the changes in the world market place.
As a result of the changes in the world marketplace, including the effects of NAFTA on Dominican industry, he said that the number of companies in the industrial free zones dropped from 476 in 1994 to 469 in 1995. Companies that required more skilled labor, such as those engaged in electronics, increased their presence in the Dominican Republic, going from 13 in 1994 to 22 in 1995. Likewise, the metallurgical industry saw an increase in number of businesses from 23 in 1994 to 25 in 1995.
Those engaged in textiles declined from 301 in 1994 to 469 in 1995. Jewelry companies and manufacturers of metal items went down from 19 in 1994 to 18 in 1995. Services industries were also down, from 18 to 15. There was one less pharmaceutical company in 1995 from the eight operating in 1994. Sporting goods producers dropped from seven to six. Can making and packaging companies went from five to three.
The number of people employed in the zones dropped from 176,311 in 1994 to 165,571 in 1995, an overall decline of 10,740. The lost jobs break down to 7,678 workers, 3,284 technical managerial personnel, and 222 in general management.
Free zones exports were up 4.5% in 1995 over 1994, but prospects are more grim for 1996. Eddy Martinez said that a reversal in the favorable trend of past years is affecting the zones. He said that in 1996, the industries will only be able to reverse the adverse trend if short range measures are quickly implemented to modify cost structures and if there is an improvement in international conditions, namely in the achievement of parity with Mexico, the country’s principal competitor for free zone businesses.
Free zone exports were down 7.5% by volume for the first quarter of the year when compared to 1995. He said that electricity costs were five times more than in the industrialized countries and twice as much than that in the competing nations for free zone companies. He also said that the Central Bank reported a decline of 6.4% for the first quarter of 1996 in the aggregate value of the free zones.
The loss of contracts is attributed to the decline in the international competitiveness of Dominican firms due to the increase in local production costs and to the fact that the parity bill did not pass through the U.S. Congress.
Dominican free zones must also diversify their production with more competitive items and target their marketing to new segments of the U.S. market, as well as trying to penetrate markets vastly different to the United States, such as Europe.
In 1980 there were three industrial free zones. In 1995 there were 33 in operation. In 1980 there were 76 companies in the zones, and in 1995, the number of companies had surged to 469.
Workers in 1980 numbered 16,000, increasing tenfold 15 years later to 165,571. Foreign exchange receipts were up from US$44 million in 1980 to US$550 million in 1995.