PTPR-DOMINICAN-REPUBLIC-GB.pdf - OECD

Organisation for Economic Co-operation and Development

DEV(2019)4

For Official Use English - Or. English

14 June 2019

DEVELOPMENT CENTRE

PRODUCTION TRANSFORMATION POLICY REVIEW (PTPR) OF THE

DOMINICAN REPUBLIC

Key outcomes of the Peer Learning Group (PLG)

Peru, 1 April 2019

The Production Transformation Policy Review Peer Learning Group Meeting (PTPR-PLG) of

the Dominican Republic was held back to back with the 12th Plenary Meeting of OECD

Initiative for Policy Dialogue on Global Value Chains (GVCs), Production Transformation and

Development in Lima, Peru on 1 April 2019. The PTPR-PLG was hosted by the government of

Peru and the OECD in co-operation with the National Competitiveness Council and the Ministry

of Industry and Trade of the Dominican Republic. The PTPR of the Dominican Republic is

carried out in co-operation with UNCTAD, UNIDO and ECLAC. The following paragraphs

summarise the key outcomes of the meeting

Annalisa Primi, Head, Structural Policies and Innovation Unit, OECD Development

Centre

Email: [email protected]

Manuel Toselli, Junior Economist, Structural Policies and Innovation Unit, OECD

Development Centre

Email: [email protected]

JT03448898

This document, as well as any data and map included herein, are without prejudice to the status of or sovereignty over any territory, to the

delimitation of international frontiers and boundaries and to the name of any territory, city or area.

mailto:[email protected]

mailto:[email protected]

2 DEV(2019)4

PRODUCTION TRANSFORMATION POLICY REVIEW (PTPR) OF THE DOMINICAN REPUBLIC For Official Use

Table of contents

1. Background information................................................................................................................... 4

1.1. Country profile .............................................................................................................................. 5

2. What is the next economic chapter of the Dominican Republic? .................................................. 7

2.1. The fastest growing economy in Latin America and the Caribbean ............................................. 7 2.2. Towards a more productive and competitive economy .............................................................. 10

3. The Dominican Republic points at innovation as a new source of competitiveness and

sustainable growth ............................................................................................................................... 12

3.1. Innovation is becoming a central pillar in the development agenda, but more progress is

needed ................................................................................................................................................ 12 3.2. Several institutions are in charge of Science, Technology and Innovation. ............................... 13 3.3. Boosting innovation. What options to leap forward? ................................................................. 14

4. The agro-food value chain has the opportunity to move forward in the Dominican Republic 21

4.1. Agro-food is an important economic activity for the Dominican Republic ................................ 21 4.2. The Dominican Republic aims to leverage on its untapped potential in the agro-food industry 22 4.3. New technologies and a greater call for sustainability are reshaping the agro-food value

chains ................................................................................................................................................. 23 4.4. Reforms are needed to foster competitiveness and sophistication in agro-food ......................... 26

5. New trends in offshoring offer new opportunities in manufacturing and logistics for the

Dominican Republic ............................................................................................................................ 35

5.1. Location, technologies and consumer demand are shaping new global investments ................. 35 5.2. The Dominican Republic is looking to reap the benefits of global and regional value chains

in manufacturing and logistics ........................................................................................................... 38 5.3. The Dominican Republic counts with several institutions in charge of developing industrial

capabilities and attracting FDI ........................................................................................................... 40 5.4. Next steps in boosting investment in manufacturing and logistics ............................................. 41

6. Next steps in the PTPR of the Dominican Republic ..................................................................... 46

References ............................................................................................................................................ 48

Tables

Table 1. Main economic indicators of the Dominican Republic 1970-2017 ........................................... 6 Table 2. Close cooperation between PTB and BVL .............................................................................. 30 Table 3. Key milestones: PTPR of the Dominican Republic ................................................................ 46

Figures

Figure 1. Administrative provinces of Dominican Republic ................................................................... 5 Figure 2. GDP growth and GDP per capita, Dominican Republic, 1961-2018 ....................................... 7 Figure 3. Foreign Direct Investment flows by economic activities, Dominican Republic 2010-2018 ... 8 Figure 4. Composition of GDP by economic activities, Dominican Republic 2018 ............................... 9

DEV(2019)4 3


Figure 5. Dominican Republic’s merchandise exports, 2017 ................................................................ 10 Figure 6. Labour productivity and TFP index, Dominican Republic, 2000-2017 ................................. 11 Figure 7. Payments for royalties and licensing fees as share of GDP, 2017 ......................................... 13 Figure 8. Board member of the National Competitiveness Council (CNC) .......................................... 15 Figure 9. Institutional setting of Innosuisse .......................................................................................... 16 Figure 10. The SBIR “Open Innovation” Model ................................................................................... 19 Figure 11. Non-linear model of Innovation: technology development and commercialisation are

complex ......................................................................................................................................... 20 Figure 12. Agro-food exports, by products, 2015-2017 ........................................................................ 22 Figure 13. Trade in agro-food products by type, Dominican Republic and selected economies .......... 22 Figure 14. Priority actions for the development of the agro-food value chain in the Dominican

Republic, 2018-2020 ..................................................................................................................... 23 Figure 15. The future of global agro-food: new markets, innovation and standards ............................. 24 Figure 16. Upgrading in value chains is not necessarily linked to the availability of raw materials .... 26 Figure 17. Overview of a quality infrastructure system for a competitive agro-food value chain ........ 27 Figure 18. Dominican System for Quality (SIDOCAL) ........................................................................ 28 Figure 19. Recommendations to make the NQI fit for competitiveness and innovation....................... 29 Figure 20. Agricultural R&D intensity in the Dominican Republic is below other LAC economies ... 31 Figure 21. Ancestral origins for Marca Peru and Super Food branding ............................................... 34 Figure 22. World relocation activities in manufacturing, 2013-2018 ................................................... 37 Figure 23. Ports by container throughput, Latin America and the Caribbean, 2017 ............................. 39 Figure 24. Greenfield FDI by economic activities, Dominican Republic, 2015-18 .............................. 40 Figure 25. What opportunities in nearshoring for the Dominican Republic? ........................................ 45 Figure 26. The PTPR of Dominican Republic- preliminary structure of the report .............................. 47

Boxes

Box 1. The Swiss Innovation Promotion Agency (Innosuisse) ............................................................. 15 Box 2. Training Vocational Education (VET) made in Germany ......................................................... 17 Box 3. The U.S. Business Innovation Small Research (SBIR) programme .......................................... 18 Box 4. Increasing coordination between QI and Food Safety. Lessons learned from Germany ........... 29 Box 5. International Public and Private partnerships in farm management: the case of the Ethiopian

Coffee Value Chain ....................................................................................................................... 32 Box 6. Building country image in Peru: from Marca Peru to Superfood ............................................. 34 Box 7. There is more than one type of offshoring ................................................................................. 35 Box 8. Reconversion can lead to new business opportunities: the case of Winston-Salem ................. 43 Box 9. Clear objectives to foster public and private cooperation: the case Pittsburg PGH Lab ........... 43 Box 10. Key issues on offshoring in manufacturing and logistic: next steps in PTPR of the

Dominican Republic ...................................................................................................................... 45

4 DEV(2019)4


1. Background information

1. The Production Transformation Policy Review Peer Learning Group Meeting

(PTPR-PLG) of the Dominican Republic was held back to back with the 12th Plenary

Meeting of OECD Initiative for Policy Dialogue on Global Value Chains (GVCs),

Production Transformation and Development in Lima, Peru, on April 1st, 2019. The PTPR-

PLG was hosted by the government of Peru and the OECD in co-operation with the

National Competitiveness Council (CNC) and the Ministry of Industry, Commerce and

MSMEs of the Dominican Republic (MICM). The PTPR of the Dominican Republic is

carried out in co-operation with UNCTAD, UNIDO and ECLAC.

2. The PTPR-PLG is set up as part of the review process. It is open to member

countries of the Initiative and other countries and stakeholders that the reviewed country

wishes to invite. The PTPR-PLG meets at least once during the PTPR process back-to-back

with the Plenary Meeting of the Initiative. The objective of the PTPR-PLG is to discuss

three key policy issues emerging during the PTPR process that benefit from the experience

and views of other countries and stakeholders. At the same time, it enables learning and

peer exchange among a wider group of countries and stakeholders, benefitting from

insights of the reviewed country.

3. The PTPR-PLG of the Dominican Republic counted with the participation of 48

high level representatives, including high level delegations from twelve countries (Brazil,

Chile, Colombia, Costa Rica, Dominican Republic, Egypt, Germany, Panama, Paraguay,

Peru, Switzerland, United States) representatives of business associations and the private

sector from Italy (Illy) and leading scholars from Peru and the United States. It also counted

with the participation of two International Organisations (ECLAC and UNIDO) and of two

OECD Directorates including the OECD Development Centre, the Statistics and Data

Directorate. The Dominican Republic has been represented by the CNC, the MICM, the

Industrial Development and Competitiveness Centre - (PROINDUSTRIA) the Dominican

Republic Centre for Export and Investment (CEI-RD), the Industrial Property Right

National Office (ONAPI) and the National Free Zones Council (CNZFE).

4. The one-day PTPR-PLG featured an initial macroeconomic assessment of the

country and a snapshot of the current strategy for competitiveness, as well as three specific

sessions that addressed key issues put forward by the Dominican Republic. The topics

discussed during the meeting were how to foster innovation in the Dominican Republic;

what options exist to increase sophistication in the agro-food sector and the third session

addressed the issue of trends and opportunities for the country in nearshoring of

manufacturing and logistics.

5. The following paragraphs summarise the key outcomes of the meeting.

DEV(2019)4 5


1.1. Country profile

6. The Dominican Republic is a unitary country. It counts with 31 provinces and the

National District where the national capital, Santo Domingo, is located (Figure 1). The 31

provinces are divided into 158 municipalities. The president appoints the governors of the

provinces with the exception of the National District, in which the citizens elect the

governor. The country counts with a population of 10.8 million in 2018, 2.4 million more

with respect to 2000. The most populous city in the country is the capital, Santo Domingo,

with 1.4 million inhabitants (UN, 2019[1]).

Figure 1. Administrative provinces of Dominican Republic

Note: The map included herein is without prejudice to the status of or sovereignty over any territory, to the

delimitation of international frontiers and boundaries and to the name of any territory, city or area.

6 DEV(2019)4


Table 1. Main economic indicators of the Dominican Republic 1970-2017

1970 1980 1990 2000 2010 2018 Population

Population, total (millions) 4.5 5.8 7.2 8.6 9.9 10.9

Labour force, total (millions) .. ... 2.8 3.6 4.3 5.2

Unemployment, total (% of total labour force) (national estimate) .. ... .. 6.4 5.2 5.6

Employment-to-population ratio .. .. .. 54.8 53.8 60

Aggregate economy

GDP, million USD (constant prices and constant PPPs, 2010) ... … 39345.3 70216.8 110190 157207.5c

GDP, million USD current 1485.5 6761.3 7073.7 24305.1 53982.9 75931.6 c

GDP per capita, USD current 329.9 1163.9 984.7 2838.5 5453.9 7052.3 c

GDP per capita USD (constant prices & PPP 2010 … … 5477.1 8200.4 11132.6 14600.9 c

GDP growth (average previous 10 years) 6.2 7.2 2.5 6.0 4.7 5.6 c

Gross fixed capital formation (% of GDP) 16.6 23.4 23.1 25.1 25.2 21.9 c

Inflation, consumer prices (annual %) 3.8 16.8 50.5 7.7 6.2 3.3 c

External sector

Trade (% of GDP) 45.9 54.4 69.2 79.3 56 52.9

Exports of goods and services (million USD constant 2010 prices) 2606.2 5619.1 5495.9 11282.6 12241 18502.9 c

Imports of goods and services (million USD constant 2010 prices) 3663.6 6223.8 6345.5 14832.6 17989.4 21104.1 c

High-technology exports (% of total exports) .. .. .. … 2.3 7.7 c

(% of manufactured exports) 13.7 c

Economic activities

Agriculture, forestry, and fishing, value added, million USD constant 2010 prices ( % of Gross value added)

1019.2

(13.4)

1420.8

(9.07)

1481.2

(7.5)

1967.3

(6.0)

3269.9

(6.5)

4399.3c

(6.1)

Industry (including construction) value added, million USD constant 2010 prices ( % of Gross value added)

1805.1

(13.8)

4261.1

(27.2)

5456.8

(27.5)

10974.5

(33.6)

15073.9

(29.9)

23221.9

(32.4)

Of which manufacturing (% of Gross value added)

1459

(19.2)

2889.8

(18.5)

3555.9

(17.9)

6432.1

(19.7)

8242.7

(16.4)

10421.6

(14.5)

Services value added, constant 2010 USD (% of GDP)

4379.4

(39.8)

9058.2

(43.1)

12004

(47.7)

19908.5

(52.1)

32008

(59.3)

43962.6

(59.8)

Total natural resources rents (% of GDP) 0.7 3.2 2.0 0.7 0.2 …

Energy

Electricity production from renewable sources, excluding hydroelectric (% of total) … 2.3 0.7 0.2 0.2 …

Electricity production from hydroelectric sources (% of total renewable sources) … 17.1 9.4 8.9 11.8 …

Renewable energy consumption (% of total final energy consumption) … … 28.0 18.4 16.9 …

Renewable electricity output (% of total electricity output) … … 10.1 9.2 11.9 …

ICT indicators

Fixed broadband subscriptions (per 100 people) .. .. ..

…

3.9 7.3 c

Mobile cellular subscriptions (per 100 people) .. .. 0.1 8.2 89.9 81.5 c

Note: a Estimated value b from 2011 to 2017 c 2017, d1975, e2014, f2015, g1995,

Source: OECD National accounts, IE Statistics, International Telecommunication Union, World

Telecommunication/ICT Development Report and database, United Nations Comtrade database, ILOSTAT

database, International Monetary Fund, International Financial Statistics, United Nations Education, Scientific,

and Cultural Organization (UNESCO) Institute for Statistics and World Bank Statistics

DEV(2019)4 7


2. What is the next economic chapter of the Dominican Republic?

2.1. The fastest growing economy in Latin America and the Caribbean

7. The Dominican Republic is a fast growing economy. It has experienced a

remarkable period of high economic growth over the past 25 years with only two years of

negative growth: the domestic banking crisis in 2003 and the global financial crisis of 2009.

Since 2010, GDP grew at an annual average of 5.8%, the highest growth rate in the Latin

America and the Caribbean, which grew at 2% on average during the same period. This

translated into the creation of 800 000 jobs during the same period, reaching 4.4 million of

total employed people. In addition, GDP per capita in 2018 reached USD 16 800 (2011

constant PPP), 40% more with respect to 2010 (Figure 2).

8. Economic growth has been crucial for poverty reduction but inequality remains

high. Between 2004 and 2015, the poverty rate moved from 54.4% to 37.2%. Moreover,

the infant mortality rate (children less than five years of age) has been reduced by half and

life expectancy at birth has been extended by three and half years. School enrolment has

continued to increase and gross participation in secondary education has increased 20

percentage points in a decade (UNCTAD, 2012[2]). Despite these significant achievements,

the country’s middle class remains small and 40.8% of the population lives on USD 5.5-13

a day (2011 PPP). Similarly, while unemployment rate decreased from 7.7% in 2012 to 5.6

in 2016, vulnerable employment represents 40.9% of total employment. The Gini

coefficient decreased by from 51.5 in 2000 to 45.7 in 2016 (OECD/CAF/UN ECLAC,

2015[3]; ECLAC, 2017[4])

Figure 2. GDP growth and GDP per capita, Dominican Republic, 1961-2018

GDP growth (left axis) and GDP per capita (right axis)

Source: Authors' analysis based on the Conference Boarte Total Economy Database 2018,

https://www.conference-board.org/data/economydatabase/ and Word Bank data. 2019

https://databank.worldbank.org/ .

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

0

1

2

3

4

5

6

7

8

9

10

1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018

USD, constant 2017 (2011 PPPs)

y-o-y %

LAC GDP per capita - right axis Dom. Rep GDP per capita . - right axisLAC GDP growth - left axis Dom. Rep. GDP growth - left axis

https://databank.worldbank.org/

8 DEV(2019)4


9. Economic growth has been driven by capital accumulation. Between 1992 and

2018, capital investment growth reached an average annual growth of 8.8%. It was boosted

by migrants’ remittances and foreign direct investment (FDI). Remittances have grown

over time in tandem with out-migration flows, and in 2017 reached USD 6.2 billion or 8.1%

of GDP, almost double net FDI inflows. The Dominican Republic accounts for 23% of total

remittances in Central America, second only to Guatemala with 30%. Remittances have

played an important role in boosting final consumption, mainly private, that has been an

additional driver of growth with an average yearly growth of 5% during the last 25 years

(Dominican Republic Central Bank, 2019[5]; ECLAC, 2018[6]).

10. The opening up process of the economy in the 1990’s favoured the attraction of

FDI. Following the law No. 16-95 in 1995, which opened the possibility for foreign

investments in almost every economic sector, the country introduced a series of laws

providing tax incentives to foreign investment (World Bank, 2018[7]). The effects of such

reforms were amplified by favourable external conditions and an advantageous geographic

location, particularly to the United States. The country is the top eighth destination for FDI

in the Latin America and the Caribbean, after Panama. FDI inflows accounted for 4.8% of

GDP in 2017, higher than the average of 2.6% of Latin America and the Caribbean

(UNCTAD, 2019[8]). Between 2010 and 2018, services accounted for 2/3 of total FDI

investments, led by wholesale and retail, tourism and real estate (Figure 3). In addition,

mining activity contributed to 16% of total FDI inflows thanks to the revamping of the gold

mining in Pueblo Viejo, the second largest gold deposit in the world. Active since 1975

under the state-owned mining company Rosario Dominicana, operations halted in 1991

due to low gold and silver prices and a lack of appropriate technology to process ores. Gold

production restarted in 2012 and the mine is now jointly owned by Barrick and Goldcorp

(Precious Metal, 2019[9]).

Figure 3. Foreign Direct Investment flows by economic activities, Dominican Republic 2010-

2018

Source: Central bank of the Dominican Republic, 2019 https://www.bancentral.gov.do/.

11. Manufacturing activities have progressively reduced their contribution to growth

over time. Manufacturing (both local and special economic zones-SEZs) was the main

contributor to total value added growth during the 90’s with 25%, but has seen its

contribution decline significantly over the last two decades. More recently, between 2010

https://www.bancentral.gov.do/

DEV(2019)4 9


and 2018, construction, and low productivity activities in wholesale trade, hotels and

restaurants have been the main contributors to total value added growth with 16% each,

followed by business services (14%) and transport storage and communication (10%).

Manufacturing accounted for 12% whereas agriculture to only 5%. Consequently, between

1991 and 2018, the Dominican Republic transitioned from being mainly an agriculture and

manufacturing economy to services oriented one. In 2018, business services accounted for

47% of GDP, followed by manufacturing with 14.5%, government, community and social

services, with 14% and construction with 11% (Figure 4). In 2016, services was the main

economic activity in terms of employment with 38% of total employed active population,

followed by manufacturing (10%) and agriculture (9.3%). In 2008, their share were 37%,

13.2% and 14%, respectively.

Figure 4. Composition of GDP by economic activities, Dominican Republic 2018

Source: Central bank of the Dominican Republic. 2019 https://www.bancentral.gov.do/

12. The Dominican Republic is an open economy and exports are closely linked to the

development of Special Economic Zones (SEZs). Trade over GDP is 53%, above the Latin

America and the Caribbean average of 43%. Tourism is the most important activity in

services exports, accounting for 81% of total exports in services. Within merchandise

exports, gold, followed by tobacco are the main exports of the country (Figure 5). Most of

the Dominican Republic’s exports go to the United States (they accounted for 52% of

Dominican Republic exports in 2017), followed by Canada (10%) and India (6%). The

United States are also the main trading partner for imports, accounting for 46% of total

imports, followed by China (12%) and Mexico (4%). Special Economic Zones (SEZs) have

played an important role in the attraction of FDI. Although the contribution of SEZs in total

exports has declined from an average of 80% during 1995-2005 to 56% during 2010-2018

https://www.bancentral.gov.do/

10 DEV(2019)4


they still dominate manufacturing. In 2017, SEZs accounted for 82% of total manufacturing

exports, and 31% of primary commodity (Dominican Republic Central Bank, 2019[5]).

Figure 5. Dominican Republic’s merchandise exports, 2017

Note: The figure is based on the HS1992 classification system of commodities.

Source: the Observatory of Economic Complexity (2019), https://atlas.media.mit.edu/en .

2.2. Towards a more productive and competitive economy

13. The Dominican Republic is looking to shift towards a more productive pattern of

growth. Productivity is steady in the Dominican Republic. Labour productivity grew at

4.32% on average during 2000-2017, thanks to the increased educational level. In contrast,

total factor productivity (TFP) grew at 0.85% on average and remained steady since 2007,

stressing that economic growth has been mainly driven by factor accumulation such as

capital and labor (CNC and IDB, 2019[10]).

https://atlas.media.mit.edu/en

DEV(2019)4 11


Figure 6. Labour productivity and TFP index, Dominican Republic, 2000-2017

Source: CNC and IDB (2019), Indice Nacional de Productividad (INP),

http://competitividad.gob.do/phocadownload/INP-2019/INP-2019.pdf

14. The government is committed to transform the domestic economy by diversifying

the production and trade specialisation and increasing local value added to advance towards

shared prosperity. The country counts with an initiative supported by the Presidency of the

Republic and coordinated by the National Competitiveness Council (CNC): Dominicana

Competitiva. This initiative facilitates a participatory public-private partnership for

competiveness by focusing on four objectives: i) increasing trade facilitation; ii) facilitating

exports and productivity growth; iii) enabling innovation and iv) creating more quality jobs

in the private sector. The country also counts with a Strategic Plan for Industry and Trade

2018-2030 (Plan Estratégico Sectorial de Industria y Comercio - PESIC) led by the

Ministry of Industry, Commerce and MSMEs (MICM) which points to foster export

diversification and develop linkages within the domestic economy that relies on three main

pillars: productivity, inclusion and sustainability.

http://competitividad.gob.do/phocadownload/INP-2019/INP-2019.pdf

12 DEV(2019)4


3. The Dominican Republic points at innovation as a new source of

competitiveness and sustainable growth

3.1. Innovation is becoming a central pillar in the development agenda, but more

progress is needed

15. The Dominican Republic aims to transform its economy. Innovation is becoming

imperative for a country that aspires to strengthen the progress made and develop a more

sustainable, competitive and productive economy. While the country is currently engaged

in the definition of an innovation strategy and the 2019 has been designed as the year for

innovation and competitiveness, there is a broad-based consensus that greater effort is

needed to take advantage of the technological revolution and increase the cooperation

between private and public sector towards a modern and innovative economy.

16. Available metrics suggest that the country invests little in innovation, making the

new focus and shift towards innovation ever more crucial. The Ministry of Economy,

Planning and Development reports that the Dominican Republic invested around 0.01% of

its GDP in R&D in 2015. This figure is significantly below the already low average of

Latin America and the Caribbean (about 0.7%) and lower than other countries in the region

such as Costa Rica (0.46%), according to estimates from RICYT. The lag in research and

innovation with respect to other competitors in the region is evident in economic activities

that are highly relevant for the country, such as agriculture (see section 4. ). Additionally,

the country still falls short in terms of specialised human capital for R&D and innovation.

Moreover, bibliometric data and patenting activities reflect a limited breadth and depth of

both scientific research production and technological development, especially when

compared with other Latin American countries (UNCTAD, 2012[2]). This is also supported

by the analysis of royalties and licensing fees that indicate the use of proprietary rights

related to inventions. The data on payments for royalties and licensing fees (no data on

revenues are available for the country) suggests that the Dominican Republic relies less on

foreign innovation and technologies compared to regional peers. For example, the

payments for royalties and license amount to USD 113 million in 2017, which corresponds

to 0.14% of GDP. This is below the regional average at 0.19% and to a quarter of Costa

Rica that paid USD 538 million in 2017 (0.9% of GDP) (Figure 7).

DEV(2019)4 13


Figure 7. Payments for royalties and licensing fees as share of GDP, 2017

Dominican Republic and selected economies

Source: Authors’ elaboration based on World Bank Database, 2019 https://databank.worldbank.org

3.2. Several institutions are in charge of Science, Technology and Innovation.

17. The Ministry of Higher Education, Science and Technology (MESCyT) is

responsible for formulating and implementing the national policy for education, science

and technology. Similar to other countries in Latin America and the Caribbean, this

ministry, and its related coordination and implementation bodies, are mostly linked to the

scientific community and the support for education, training and scientific research. For

example, the main fund to foster innovation and research in the economy is the National

fund for Innovation and Scientific and Technological Development (FONDOCYT) and it

channels research grants mostly to university-affiliated researchers for training and

research in the forms of non-repayable contributions. The MESCyT chairs the National

System for Higher Education, Science and Technology (SNESCYT) and the National

System of Innovation and Technological Development (SNIDT). The SNESCYT has four

basic goals: (a) promotion, coordination and provision of higher education, (b) creation and

incorporation of knowledge, innovation and invention, (c) intermediation and coordination

of the institutions that form part of this system and (d) financing for higher education,

science and technology. The SNIDT, on the other hand, is in charge of developing

innovation and applied technological development by coordinating the public and private

institutions.

18. The Ministry of Industry, Commerce and Micro, Small and Medium Enterprises

(MICM) operates in policies related to innovation and competitiveness through several

regulatory and implementation agencies. The Dominican Institute for Quality (INDOCAL)

is in charge of industrial metrology, standardisation and conformity assessment. The

National Office for Industrial Property (ONAPI), created in 2000, is responsible for

administering intellectual property in the country. The Centre for Development and

Industrial Competitiveness (PROINDUSTRIA) was created in 2007 to promote industrial

development. The National Council for the Promotion and Support of Micro, Small and

Medium Enterprises (PROMIPYME) was created in 2008 to promote SMEs development

and competitiveness.

19. Cross-ministerial coordination on competiveness and innovation is also ensured by

the National Competitiveness Council (CNC). The CNC is a strategy setting and

0.0%

0.1%

0.2%

0.3%

0.4%

0.5%

0.6%

0.7%

0.8%

0.9%

1.0%

Costa Rica Argentina Guatemala Brazil Uruguay Latin America &Caribbean

DominicanRepublic

Colombia

https://databank.worldbank.org/

14 DEV(2019)4


coordination body created in 2001, and stablished by Law No. 01-06 in 2006 to define the

national competitiveness strategy in coordination between the private and the public sector.

It is chaired by the President of the Republic and is composed by 7 lines ministers and

representative of the private sectors. Additionally the CNC manages the competitiveness

fund (FONDEC), which is a shared fund for co-financing projects for increasing

competitiveness at the national and sectoral levels, as well as initiatives for the development

of clusters.

3.3. Boosting innovation. What options to leap forward?

20. Innovation does not flourish in isolation and requires increasing coordination

among all stakeholders involved. The capacity to innovate is determined not only by a

country’s R&D investments but also by the interplay of factors which enable knowledge to

be converted into new products, processes and organisational forms which in turn enhance

economic development and growth (OECD/UN, 2018[11]; OECD/UN/UNIDO, 2019[12]).

Fiscal and monetary policies as well as greater coordination among innovation, trade and

industrial policies are essential ingredients of a successful innovation strategy. Some of the

lessons learned from the implementation of effective innovation strategies include:

Understanding and clarifying what are the objectives of an innovation policy; how

to reach them, including through what instruments and resources.

Seeking out and adopting best practices from other countries, learning from others’

experience in enhancing innovation and in which contexts they succeeded or failed.

21. The Peer Learning Group of the PTPR highlighted the following challenges for the

implementation of an effective innovation policy the Dominican Republic

22. Streamlining and modernising institutions to promote innovation. The definition

and implementation of Science, Technology and Innovation (STI) strategies and policies

in the Dominican Republic is scattered among several institutions. The set of these

institutions and their relationships among them affect the overall performance of the

production and innovation system. While the exact shape and key features are unique to

each case, a coordinated and coherent institutionalism is needed to increase the economy’s

capacity to induce innovation over time and, ultimately, to advance to the technological

frontier (Box 1). Innovation policy demands better multi-level coordination that escapes

from a ‘silos’ approach. This includes for example an integrated governance that

encompasses the definition of the strategy, the policy design and the implementation. The

promotion of effective innovation policies also necessitates a reconsideration of not just

relevant policies and instruments but also of the articulation of policy governance, that

requires the highest possible political support. The CNC, endowed with a framework for

agile public-private dialogue, holds the potential to take up this important role and support

the country on its way (Figure 8). Additionally, setting in place institutions that provide

monetary and non-monetary incentives, direct funding and coordinate the partnership with

the private sector is particularly conducive to fostering innovation. In Switzerland, the

Swiss Innovation Promotion Agency (Innosuisse) facilitates coordination and partnership

between academia and the private sector in order to sustain the innovation and lower

asymmetries (Box 1).

DEV(2019)4 15


Figure 8. Board member of the National Competitiveness Council (CNC)

Source: National Competitiveness Council, Dominican Republic, 2019 http://competitividad.gob.do/

Box 1. The Swiss Innovation Promotion Agency (Innosuisse)

Switzerland is recognised as one of the most innovative countries the world. It invests 3%

of GDP in R&D activities and the private sector is responsible for 70% of it.

Innosuisse is the autonomous Swiss Innovation Promotion Agency. Its role is to promote

science-based innovation in the interests of industry and society in Switzerland. Innosuisse

promotes partnerships between academia and the private sector with innovation projects,

networking, training and coaching, laying the groundwork for successful Swiss start-ups,

products and services. Innosuisse has a budget of roughly USD 200 million per year.

Innosuisse provides support in accordance with the subsidiarity principle, i.e. it only

supports projects if the innovation could not be implemented and market potential would

not be tapped into without public funding.

Innosuisse is an entity under public law with a separate legal identity, which is composed

of three expert bodies and audited by the Swiss Federal Audit Office. The Board is the

strategic body of Innosuisse. It comprises seven members and manages Innosuisse in line

with the government’s strategic objectives. Members of the Board, including its President,

are elected for four years. The Innovation Council is the specialist body that takes decisions

on funding applications and supports the execution of the funded activities in an academic

and innovative sense. It also develops the funding strategy and instruments to be approved

by the Board. To carry out its work, the Innovation Council relies on the support of a pool

of experts. The Management team, composed by five members and led by its Director,

forms the Secretariat of Innosuisse (Figure 9).

http://competitividad.gob.do/

16 DEV(2019)4


Figure 9. Institutional setting of Innosuisse

Source: Martin Peter, Director for Economic Development in Peru, Swiss State Secretariat for Economic

Affairs (SECO), Swiss Innovation Strategy, presentation at the PTPR Peer Learning Group (PLG) of the

Dominican Republic, Lima, 1 April 2019 (Peter, 2019[13]).

23. Strengthening the role of universities in solving local societal and economic

challenges. Universities play a critical role in the development, adoption and diffusion of

new technologies, processes and economically useful knowledge. In doing so, universities

should find a balance among the several roles they are required to perform. One of the more

important roles for universities is the training of the next generation of researchers. This

requires adequate financial resources in order to provide up-to-date laboratories and other

infrastructures that enable basic and applied research on real market requirements.

Additionally, the focus of academic research needs to address current and future economic

challenges specific to each country or regional context. In the Dominican Republic

challenges like droughts, earthquakes, flooding and hurricanes pose risks to economic and

social advances (UNCTAD, 2012[2]). Fostering university research that responds to local

problems and needs can strengthen the resilience of the entire economy and boost inclusive

and sustainable growth.

24. Developing skills through vocational education training (VET). Having the right

sets of skills is one of the major drivers of successful innovation and production

transformation strategies. The Dominican Republic has steadily increased its educational

attainment rates over the past decades. In 2016, primary, secondary and tertiary total net

enrolment rates were 97.5%, 67.4% and 22.0% respectively. The share of youth not in

education, employment or training (NEET) in the country amounted to 24.3 % compared

to 21.3% in Latin America and the Caribbean in 2017 (World Bank, 2019[14]). The high

share of young people in the country’s total population suggests that more efforts are

needed to help young people enter the labour market and endow them with the right skills

to increase their employability. Targeted actions to promote skills development through

vocational education training (VET) have been key pillars of countries’ specialisation

DEV(2019)4 17


efforts in higher value added activities. In going forward, the Dominican Republic could

consider reinforcing the Youth Employment Program (Programa Juventud y Empleo),

launched in 2003 by the Ministry of Labour, by strengthening the coordination between

public authorities and businesses. In several successful cases, public-private partnerships

have been crucial determinants in getting the right skills for economic upgrading. The dual

system in Germany integrates work-based and school-based learning to prepare apprentices

for a transition to full-time employment adapted to the needs of the labour market (Box 2).

Box 2. Training Vocational Education (VET) made in Germany

Developed in Germany, vocational education and training (VET) is a strategy to bring

labour force training closer to the skills demanded by the market. It combines theoretical

education and practical training in a real-life work environment. By linking education to

production and continuously upgrading employee skills in response to the latest

innovations and technological developments, the VET can help improve companies’

innovation and competitiveness capabilities. The system addresses skills mismatches,

corrects the lack of coordination among different stakeholders in the national innovation

system and strengthens competition mechanisms.

While other countries such as Switzerland, Austria and Denmark developed their own

versions of VET, the German model is characterised by the equal partnership between the

public and private sector including through social partners. Based on a clear legal ground,

the state is setting the standards and rules including rights and duties of the apprentice,

suitability of the vocational training place and trainers. In addition to providing on-site

training, the private sector also influences the curricula through the involvement of industry

associations and unions in curriculum development processes, agreeing on curricula and

conditions for each respective category of vocational training.

Following the onset of the fourth industrial revolution, Germany upgraded its VET towards

industry 4.0. Based on the 2020 High-Tech Strategy on information and communication

technologies and the Initiative VET 4.0 programme (started in 2016), the country aims to

increase flexibility in production, increase productivity rates and lower the waste rate of

material. For this to happen, the Federal government set up institutional and organisational

structures, modernised its vocational training centres, provided additional funds, and

adopted digital learning methods, which encourages participation of companies in VET.

Source: Authors elaboration based on Federal Institute for Vocational education and

Trianinghttps://www.bibb.de/en/25228.php and Federal Ministry of Education and Research

https://www.bmbf.de/en/the-german-vocational-training-system-2129.html

25. Defining and implementing an effective policy mix. The design and management of

a modern innovation policy mix that attends the needs of each specific ecosystem and

maximises the synergies among different industrial needs requires a shift from a logic from

simply providing financing to tackling specific challenges that block the development and

commercialisation of innovations. These can include:

Strengthening the provision of public goods. An effective innovation policy mix

mobilises both direct financial instruments to support to innovation, such as R&D

https://www.bibb.de/en/25228.php

https://www.bmbf.de/en/the-german-vocational-training-system-2129.html

18 DEV(2019)4


tax incentives and grants, and public goods that offer horizontal support across all

industries and firms. For example, a national quality infrastructure that allows firms

to compete internationally and at the same time safeguards consumers is an

important pillar in this respect. The Dominican Republic is one of the few countries

in Latin America and the Caribbean to have a National Quality infrastructure policy

(see next section).

Financing new ideas through demand-driven instruments. Prizes at the

university level, national competitions, awards from NGOs and support by private

foundations and international financial institutions (IFIs) are just a few examples to

nurture new ideas. Additionally, the government can play an important role by

spurring demand for innovation and new technologies. Public procurement for

innovation can address public challenges and promote innovation with high social

benefits and accountability. It also provides suppliers with new market and business

opportunities and a space to experiment with scaling up technologies.

Supporting Micro and SMEs in technology and innovation. In the Dominican

Republic Micro and SMEs account for 99% of total firms and contribute to 67% of

employment. Sustaining innovation in these firms and fostering their dynamism

could enhance growth. However, small firms often lack access to funding and to

specific support instruments for innovation activities, similar to other countries in

the region (UNCTAD, 2012[2]). Different countries have put in place instruments

to increase innovation financing to SMEs. In the United States SMEs obtain support

for innovation activities through the Small Business Innovation Research (SBIR)

program (Box 3).

Box 3. The U.S. Business Innovation Small Research (SBIR) programme

In the United States, each year, government agencies with significant R&D budgets direct

a certain percentage of their resources to support small promising firms through the SBIR

programme. Currently, federal agencies endowed with an R&D budgets exceeding USD

100 million are required to allocate 3.2 % of their R&D budget to the SBIR program.

Federal agencies such as the Department of Defence, Department of Energy, Department

of Education or the National Science Foundation among others participate in the SBIR

program.

The SBIR programme is structured in three phases, which follow specific objectives and

funding arrangements, to quickly assess the success of provided funding (see below figure).

The objective of Phase I “Feasibility Research” is to establish the technical merit,

feasibility, and commercial potential of the proposed R&D efforts and to determine the

quality of performance of the small business awardee organisation. Funding in Phase I

normally does not exceed USD 150 000 of total costs for 6 months. The objective of Phase

II “Research towards Prototype” is to continue the R&D efforts, with funding based on the

results achieved in Phase I and the scientific and technical merit and commercial potential

of the project proposed in Phase II. SBIR Phase II awards normally do not exceed USD 1

million total costs for 2 years. The objective of Phase III “Product Development for

Government’s or Commercial Market”, where appropriate, is for the small business to

pursue commercialization objectives resulting from the Phase I/II /R&D activities. The

SBIR program Phase III is expected to be financed by the private sector. In some cases,

DEV(2019)4 19


Phase III may involve follow-on (non-SBIR) funded R&D or procurement contracts by the

U.S. Government.

Figure 10. The SBIR “Open Innovation” Model

Source: Charles Wessner, Ph.D, Global Innovation Policy, Georgetown University, Policy Review of the

Dominican Republic, presentation at the PTPR Peer Learning Group (PLG) of the Dominican Republic, Lima,

1 April 2019 (Wessner, 2019[15]).

26. Gathering better data for better polices. The effective design, implementation and

evaluation of innovation policies is greatly enhanced by the availability of up to date

information on STI activities, but these are currently unavailable in the Dominican

Republic. Primary information concerning investments in R&D, human capital and

granular data on both public and private engagements in innovation activities are

fundamental to identify gaps and to design effective policies. International and regional

organizations such as the OECD Working Party of National Experts on Science and

Technology Indicators (NESTI) and the Network for Science and Technology Indicators –

Ibero-American and Inter-American– (RICYT) could offer capacity building to the

Dominican Republic authorities in setting up the right measurement frameworks as well as

statistical capabilities. The National Statistical Office can also rely on collaboration with

local universities in designing innovation surveys. For example, the Community Innovation

Surveys (CIS) in Belgium and Germany are carried out in cooperation with the University

of KU Leuven in the Flanders region and the Leibniz Centre for European Economic

Research (ZEW) in the city of Mannheim. The two institutions provide expertise,

harmonised methodology and continuous monitoring and evaluation.

27. Transforming mind-sets and avoiding the stigma of failure. Innovation is not an

option, but an imperative for countries aiming at reaching and maintaining a competitive

position in the global economy. However, innovation is not a linear process, but a non-

linear one involving many risks and failures (Figure 11). This is even more challenging in

developing countries, where capital tends to be in short supply and focused on short-term

20 DEV(2019)4


gains. Accepting that not every investment in technology or promising firms, even if well

thought-through, leads to a new and commercially viable technology, product or service is

crucial. Embarking on a pathway of innovation requires a shift in mind-sets from a risk-

averse to a more risk-based one and establishing positive social norms that do not mystify

failures. Softer bankruptcy laws, for example, can be an important tool to help broaden

acceptance for failing firms in an economy.

Figure 11. Non-linear model of Innovation: technology development and commercialisation

are complex

Source: Charles Wessner, Ph.D, Global Innovation Policy, Georgetown University, Policy Review of the

Dominican Republic, presentation at the PTPR Peer Learning Group (PLG) of the Dominican Republic, Lima,

1 April 2019 (Wessner, 2019[15]).

28. The Dominican Republic is committed to foster competiveness through innovation.

The PTPR process, through the participation of international peers, will analyses the current

innovation police in the country propose options for future reforms in terms of institutional

setting, instruments and strategic vision.

DEV(2019)4 21


4. The agro-food value chain has the opportunity to move forward in the

Dominican Republic

4.1. Agro-food is an important economic activity for the Dominican Republic

29. Agro-food, comprising agriculture and food processing industries, is one of the

Dominican Republic’s mainstay industries. Since the mid-2000s, agro-food has accounted

for 10% of GDP, similar to other countries in Latin America and the Caribbean such as

Chile (9%) and Costa Rica (9.5%). Over the years, the country has increased its relative

specialisation in food processing. Today food processing accounts for 41% of overall agro-

food value added, (up from 36% in 2007), and agricultural activities account for 58% of

overall agro-food value added (down from 64% in 2007).

30. Total agro-food exports have doubled since 2000, accounting nowadays for

approximately 18% of total merchandise exports. Approximately 51% of agro-food exports

are primary agricultural products mainly for final consumption such as bananas, tropical

fruits or primary inputs for more complex industrial value chains such as cocoa. The

exports of agricultural products are highly concentrated. Ten products account for 90% of

total and two products account for more than 50% of domestic agricultural exports: bananas

(32%) and cocoa beans (21%) (Data refers to 2015-2017). Food processed products that

make up the remaining 49% of agro-food exports, are less concentrated. The top 10

products accounted for 70% of total food processed exports, led by cane sugar (15%) and

ethyl alcohol (13.5%) (Figure 12). The country’s share of processed products in its agro-

food export basket is higher with respect to other countries in the region such as Peru (35%)

and Costa Rica (40%) (Figure 13).

31. The United States represents the largest market for the Dominican Republic’s agro-

food exports, due to the strong economic ties that have developed between the two

countries over the years and thanks to the Dominican Republic-Central America Free Trade

Agreement (CAFTA-DR) that provides favourable market access to the country’s products.

Nevertheless the ability to comply with the United States and European Union Sanitary and

Phytosanitary (SPS) measures is low comparted to other countries in the region (Iwulska

et al., 2015[16]; UNIDO, 2012[17]).

22 DEV(2019)4


Figure 12. Agro-food exports, by products, 2015-2017

Product shares of agricultural and food processing exports

Note: n.e.c refers to no elsewhere classified. The distinction between agriculture and – food, beverage and

tobacco is obtained by combining the Harmonized System (HS92) classification with the Standard Industrial

Trade Classification (SITC Rev 3)

Source: Authors’ analysis based on UN Comtrade database, 2019 https://comtrade.un.org.

Figure 13. Trade in agro-food products by type, Dominican Republic and selected economies

Cumulative share 2015-2017.

Note: Trade in agro-food by type is obtained by combining the Harmonized System (HS) classification with

the Classification by Broad Economic Categories (BEC).

Source: Authors’ analysis based on UN Comtrade database, 2019 https://comtrade.un.org

4.2. The Dominican Republic aims to leverage on its untapped potential in the agro-

food industry

32. Strengthening and increasing the competitiveness of agro-food is a priority for the

Dominican Republic. The recent Public Sector Plurennial National Plan (PNPSP) 2017-

100% 80% 60% 40% 20% 0% 20% 40% 60% 80% 100%

Colombia

Peru

Argentina

Costa Rica

Dominican Republic

Chile

Netherlands

Belgium

France

New Zealand

Italy

Processed for consumption Processed for industry Primary for consumption Primary for industry

Imports Exports

https://comtrade.un.org/


DEV(2019)4 23


2020, developed by the Government, provides guidelines to improving the quality of local

production and its export penetration by fostering innovation. Increased financing and

technical cooperation for farmers and producers have been indicated as main objectives.

Improvements in quality infrastructure and standards, as well as new forms of partnership

with lead firms seem also to be important components of actionable reforms to boost the

competitiveness of the agro-food industry in the country.

33. In addition, the CNC through the Subcommittee of Agriculture from the Productive

Development and ExportsCommitte, composed of representatives from the private and

public sector and chaired by the Ministry of Agriculture, established in 2018 three main

objectives for the agro-food value chain for the period 2018-2020, with five high priority

actions on ten prioritized agricultural products. The total estimated budget associated is

USD 360 million (Figure 14). The prioritized products have been chosen based on their

production and export capacity coupled with their level of productivity and propensity to

create employment.

Figure 14. Priority actions for the development of the agro-food value chain in the

Dominican Republic, 2018-2020

Source: Authors’ elaboration based on CNC information, 2019.

4.3. New technologies and a greater call for sustainability are reshaping the agro-

food value chains

34. Agro-food value chains are facing major changes worldwide. Each activity in the

value chain is becoming increasingly sophisticated with a growing number of scientific and

technological areas revolutionising the sector. Innovations linked to new ingredients, smart

packaging, new forms of production and distribution, and new energy sources are

contributing to redefine the value chain and the competitiveness opportunities of lead firms

and suppliers (Figure 15). For example, Smart Farming, the Internet of Things and Big

24 DEV(2019)4


Data are enabling precision agriculture through advance monitoring systems, smart

analysis and planning, leading to increased yields, productivity, reduced environmental

impact and prevention of natural disasters (FAO, 2017[18]). The global market for

agricultural robotics is expected to grow from its current USD 1 billion to USD 28 billion

by 2025 (Business Wire, 2019[19]). Data science also benefits the sector through enhanced

traceability and greater food safety. Big data coupled with neurosciences, behavioural

sciences, and linguistics will also be increasingly relevant as they will contribute to develop

new marketing techniques and will increasingly be used to define “nudging schemes” for

inducing healthier consumer choices (OECD/UN, 2018[11]).

35. New trends in demand and market dynamics are shifting consumer preferences

towards more sustainable production. Food demand is increasing while patterns of food

consumption are changing towards more organic and sustainable products. For example,

the global organic foods and beverages market size reached USD 91 billion in 2017 and is

expected to reach USD 320.5 billion by 2025. Fruits and vegetables are leading, with over

37% of revenue, the global organic food market. Also functional foods (i.e. food products

that provides health benefits beyond basic nutrition), is growing. The global functional

foods market reached USD 161.5 billion in 2018 and is s projected to reach USD 276 billion

by 2025. Food and beverage manufacturers are deploying fortification of nutritional

additives such as omega-3 fatty acids, fibres, vitamins, minerals, and others in their product

offerings. The major motive of incorporating the aforementioned additives in food and

beverage industry is to increase the nutritional content in food items (Grand View Research,

2017[20]).

Figure 15. The future of global agro-food: new markets, innovation and standards

Source: OECD/UN (2018), Production Transformation Policy Review of Chile: Reaping the Benefits of New

Frontiers, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/9789264288379-

en

36. There is scope to increase the sophistication and profitability of agro-food

production by strengthening technical support to farmers and relying on sustainable and

quality production. Evidence shows that, in general, availability of raw material is not a

sufficient condition to determine upgrading and leadership in final markets. For example,

with 2.5 % of world share the Dominican Republic is the third exporter of cocoa beans in

https://doi.org/10.1787/9789264288379-en

https://doi.org/10.1787/9789264288379-en

DEV(2019)4 25


Latin America and the Caribbean. However, it is marginally involved in other segments of

the value chain, such as cocoa liquor, powder and chocolate, which are more sophisticated

and valuable. For instance, the market value for chocolate exports is three times higher than

the one for cocoa beans (Figure 16). The set of countries leading in the exports of cocoa

beans differs from the ones leading and competing in the chocolate market, which is highly

concentrated. If, on the one hand, there are about 6 million of cocoa farmers worldwide, on

the other hand, eight world grinders control three quarters of the global trade and the six

biggest manufacturing companies account for 40% of global sales of chocolate that

inevitably affects the level of production and prices of cocoa beans worldwide (Grand View

Research, 2017[20]). The development of farmers’ productivity and profitability can be

fostered through several complementary policies and actions. These include dedicated

technical assistance, stronger farmer associations, and access to finance, environmental

sustainability, and standard certification. Several companies, including Hershey’s, Mars

and Ferrero, have committed to 100% standards-compliant sourcing of cocoa by 2020.

Other multinationals, such as Mendelez and Nestlé, have also made significant

commitments. At the national level, some European countries have adopted sustainable

cocoa sourcing commitments: the Netherlands, for example, has pledged to achieve 100%

sustainable cocoa consumption by 2025, and Germany is committed to sourcing at least

50% of its cocoa from standards-compliant producers by 2020 (International Trade Centre

(ITC), 2018[21]).

37. The Dominican Republic has advanced in the quality of exports by pointing to

organic and fair trade production. For example, the Dominican Republic is the largest world

producer of organic cocoa with (153 000 hectares) and organic bananas (20350 hectares),

representing more than 30% of organic cocoa and 55% of organic banana production

(FAO, 2017[22]; International Trade Centre (ITC), 2018[21]). However as the country is

mostly engaged in exporting primary agricultural products, smart packaging is needed to

preserve the products’ freshness during transport, and to ensure a high-quality experience

for the final consumer. Advancing in identifying mechanisms to foster innovation and

adoption of technologies could result in higher sophistication and sustainability of the agro-

food sector in Dominican Republic.

26 DEV(2019)4


Figure 16. Upgrading in value chains is not necessarily linked to the availability of raw

materials

Market value and countries’ share of cocoa beans and chocolate world exports

Note: Colours represent different geographical regions.

Source: Authors’ analysis based on UN Comtrade database, 2019 https://comtrade.un.org

4.4. Reforms are needed to foster competitiveness and sophistication in agro-food

38. During the peer-dialogue exercise, three main areas of reform have been identified

as major game changers for the upgrading of the agro-food value chain in the Dominican

Republic.

A quality infrastructure system is necessary to meet new consumer demands

39. Standards and norms play an important role in the agro-food value chain. They

define how products, processes, and institutions interact with each other to enhance

competitiveness by offering proof that products and services adhere to national and

international requirements. Their effective use facilitate international trade, contribute to

technology upgrading and absorption, and protect consumers and the environment.

40. In the case of the agro-food value chain, the national quality infrastructure (NQI)

comprises metrology, standardization, testing and quality management with its

components, certification and accreditation. The NQI needs to ensure access for

stakeholders in the agro-food value chain to national and international standards and

technical regulations, guarantee reliable measurements, and enable the accreditation of

testing and certification facilities to international standards (Figure 17). There is no blue

print or ideal model for organising the NQI. In each country, the governance and related

institutions are set up and evolve according to the specificities of the productive system. In

countries that face weak technical capacities, governments can lead coordination efforts by

setting up technical committees, establishing testing facilities, and adopting standards to

ensure consumer or environmental safety. They can also help reduce transaction costs by

gathering and disseminating information on standards and raising awareness about the


DEV(2019)4 27


benefits of adopting them. Government support has also proven critical in training technical

personnel within NQI organizations (Sanetra and Marbán, 2007[23]).

Figure 17. Overview of a quality infrastructure system for a competitive agro-food value

chain

Note: The figure is meant to describe the general characteristics of a National Quality Infrastructure (NQI)

system for the agro-food value chain.

Source: Karl-Christian Göthner, German National Metrology Institute (PTB), Quality Infrastructure Services

for National and Global Value Chains, presentation at the PTPR Peer Learning Group (PLG) of the Dominican

Republic, Lima, 1 April 2019 (Göthner, 2019[24]).

41. The Dominican Republic counts with a renewed NQI system and is one of the few

countries in Latin America and the Caribbean with a National Quality Policy along with

Colombia (OECD/UN/UNIDO, 2019[12]). The Dominican System of Quality (SIDOCAL)

was established in 2012 (law 166-12), replacing the former General Direction for Norms

and Quality System (DIGENOR). The Dominican Council for Quality (CODOCA) is the

highest entity that coordinates the SIDOCAL. It is chaired by the Vice Minister for

Industrial Development of the Ministry of Industry, Commerce and MSMEs (MICM) and

is composed by representatives from other public institutions, the private sector, consumer

associations and academia and is supported by a technical commission of experts. The

CODOCA overseas the work, technical functions and competences of two institutions: the

Dominican Institute for Quality (INDOCAL) in charge of metrology, standardisation and

conformity assessment, and the Dominican Accreditation Body (ODAC) (Figure 18). The

ODAC is in charge of accreditation and has started several processes of international

recognition. As of 2017, there are three accredited testing laboratories related to agro-food

in the country: CODOCAFE, IIBI and Phoenix. Others laboratories, still not recognized,

are LAVECEN, IDIAF, JAD, and ISA universities. Traceability, when required, is

performed through other foreign metrology institutes such as the United States National

Institute of Standards and Technology (NIST).

28 DEV(2019)4


Figure 18. Dominican System for Quality (SIDOCAL)




42. Despite the progress achieved, the Dominican Republic has room to improve the

NQI (Figure 19). In future, building on its existing institutionality, the country needs to

work on streamlining procedures and implementation. More specifically the country could

aim at:

Strengthening the technical expertise of CODOCA. In going forward, it could be

important to establish an executive secretariat with the presence of technical experts

in charge of implementing the quality policy. In addition, ad-hoc working groups

for specific thematic areas could be established.

Ensuring greater institutional coordination. The relationship between the three

main ministries (Agriculture, Public Health and MICM) in charge of assuring a

proper quality assessment seems to be weak. Future development could focus on

securing greater synergies between quality infrastructure and food security. In this

context, greater coordination between SIDOCAL and the National System for Food

and Nutrition Independency and Safety (SINASSAN) is desirable. For example, in

Germany the National Metrology Institute (PTB)-Germany (PTB) and the Institute

for Consumer Protection and Food Security (BVL) defined mechanisms of mutual

cooperation (BOX 1).

Harmonizing technical regulations. Currently best practices are anchored to

national standards, and technical regulations often do not necessary correspond to

international standards and this may impede access to foreign markets. The creation

of a cross-ministerial commission coordinating the technical regulations could be

an option like in the case of the National Institute for Technical Standards and

Certification (ICONTEC) in Colombia (OECD/UN/UNIDO, 2019[12])

ChairViceminister for

IndustryMICM

CODOCA

INDOCAL

Metrology(NMI)

Standardization(NSB)

ConfomityAssessment

ODAC(NAB)

Conformity Assessment Bodies (CAB): Testing Laboratories, Certification Bodies, InspectionsRed de los Laboratorios de Metrología Química y de Ensayos (in process)

Technical RegulationsMinistries

(not harmonized)

7 Ministries: MEPyD; MICM,MISPAS;

Agriculture; Tourism; MARENA; MPOC 7 members from Private Sector

2 members from academicInstitution

1 member from Consumer Association

ProConsumidor(MICM)

CNC

CEDIRET

Technical commission of

experts

DEV(2019)4 29


Consolidating metrology and standardisation. The metrology pillar of the

INDOCAL counts with four laboratories on physical magnitudes that lack

sophisticated equipment. Additionally the testing laboratories related to INDOCAL

have basic facilities, and lack chemistry and biological metrology capacities.

Calibration testing exists only for basic measurement instruments and for legal

metrology. In future, improving environmental conditions, upgrading existing

laboratories and installing new up-to-date laboratories is needed. In the absence of

funds or critical demand, relying on regional partners (NIST, BAM, CENAM,

INMETRO), could be an option, especially for traceability. Regarding

standardisation, it is important to secure private sector commitment, provide access

to information and involve technical experts in the permanent upgrading process.

Overall, is important to ensure adequate financing for metrology that can guarantee

not only up-to-date equipment but also enough staff with competences in this area

that are well-remunerated.

Strengthening the accreditation process. The ODAC should be signatory to the

Mutual Recognition Arrangement ILAC MRA ISO 17011, ISO 17021 and 17025

and should accredited at HACCP/ISO 22000. This should be coupled with a

campaign of awareness of the importance of accreditation.

Figure 19. Recommendations to make the NQI fit for competitiveness and innovation




Box 4. Increasing coordination between QI and Food Safety. Lessons learned from Germany

The Institute for Consumer Protection and Food Security (BVL) is the institution in charge

of consumer protection and of food safety in Germany. The objective of the BVL is to

30 DEV(2019)4


replace reaction with prevention, a challenging task. As the body responsible for the rapid

alert system, the coordination of nationwide food monitoring and the approval of plant

protection products, veterinary drugs and genetically modified organisms, the BVL works

closely with other institutions at the national and European level. In the case of quality

infrastructure, a representative of the BVL is a member of the advisory board of the

National Metrology Institute (PTB)-Germany in order to secure coordination and

continued cooperation.

Table 2. Close cooperation between PTB and BVL

National Metrology Institute (PTB)-Germany

Kuratorium (Advisory Board)

26 members

President: Representative of the Ministry of Economy and Energy (BMWi)

Vice-President: Director of an Institute of the University of Hannover

Representatives of leading Research Institutes (University, Leibniz-and Helmholtz-Institutes)

Representatives of Industry (mostly researchers and developers)

Representative of the Institute for Consumer Protection and Food Security (BVL)

Representative of Siemens

3 Nobel Prize Winners

Observer : Ministry of Economic Cooperation and Development



Republic, Lima, 1 April 2019

Greater investment in research and innovation are essential to ensure

competiveness and sustainability

43. Strengthening investments in applied research and development in the agro-food

value chain could help to increase competitiveness. The Dominican Republic invests little

in agro-food research and development (R&D). Estimates from the International Food

Policy Research Institute (IFPRI) indicate that agricultural expenditures in R&D as share

of agricultural value added in the country are around 0.3%, well below top performing

agro-food exporters and other countries in the region such as Chile (2.41%), Brazil (1.82%)

and Costa Rica (1.1%) (Figure 20). A greater effort in R&D and innovation could boost

crop productivity as well as the quality of production.

DEV(2019)4 31


Figure 20. Agricultural R&D intensity in the Dominican Republic is below other LAC

economies

Agricultural R&D expenditure by government, non-profit and higher education agencies as share of

agricultural value added, 2017 or latest available year

Note: 2017 South Africa; 2016 Korea, Chile; 2015 Netherlands, Turkey, Morocco; 2014 Uruguay, Colombia,

Egypt; 2013: Australia, Brazil, Argentina, Costa Rica, Mexico, Peru and Dominican Republic.

Source: Authors' analysis based on OECD Science and Technology Statistics database, 2019

http://stats.oecd.org/ and ASTI Agricultural Science and Technology Indicators database, 2019

www.asti.cgiar.org/data.

44. According to recent data from IFPRI, in the Dominican Republic there are 11

agencies that conduct agricultural R&D (4 public research centres, 5 higher education

institution and 2 non-profit organisation). The Dominican Institute of Agricultural and

Forestry Research (IDIAF) is the country’s largest agency, accounting for roughly half of

all agricultural researchers (134 FTE researchers in 2012). IDIAF conducts research on

crops, biodiversity and natural resources management, food security, and rural

development. Other government research agencies the Institute of Innovation in

Biotechnology and Industry and the Centre for the Sustainable Management of the

Hydraulic Resources in the Caribbean Insular States of the Dominican Institute of

Hydraulic Resources. The largest higher education institute is the Higher Institute of

Agriculture University (24 FTEs) and the Faculty of Agronomy and Veterinary Science of

the Autonomous University of Santo Domingo (19 FTEs). Two non-profit agencies,

INTABACO and Dominican Apicultural Network, conduct limited agricultural research.

A number of private-for-profit companies also conduct agricultural research in the

Dominican Republic—such as at the Central Romana Corporation (18 FTEs), which

focuses on sugar research (IFPRI/ASTI, 2014[25]).

45. The majority of researchers in agriculture are qualified to the BSc (44%) or MSc

(49%) degrees. IDIAF has difficulty attracting staff, especially at the PhD level, because

agencies in the higher education sector and other fields offer higher salary levels. At the

same time, during the meeting, it emerged that researchers’ activities are detached from

business needs. Strategic actions in this respect could be providing researchers with ad-

hoc scholarships for training in firms as well as providing financing for training abroad.

IDIAF could also consider improving its salary packages, working conditions and other

incentives in order to retain and motivate valuable staff and obtaining long-term

commitment.

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32 DEV(2019)4


46. Increasing technical assistance to local producers could strengthen direct incentives

to innovation in food and agriculture. This could be achieved with the provision of rural

extension services by local institutions such as IDIAF and universities. The Brazilian

Ministry of Agriculture Research will assist the PTPR process as an international peer and

will provide concrete recommendations on the provision of technical assistance.

Additionally, technical assistance can be provided by business associations that can also

enhance co-operation between firms in research and raise awareness. For example in the

Emilia Romagna region, Italy, the agro-food value chain is characterized by a widespread

and deep-rooted presence of business and farmer associations and co-operatives in all

stages of production, processing and marketing. This integrated business model relies on

research cooperation projects with local universities and is co-ordinated by the regional

government and the Regional Agency for Research (ASTER) (OECD/UN, 2018[11]).

47. Strengthening agricultural research and the adoption of technological innovations

should be coupled with advanced farm management and environmental practices. Farm

management actions envisage the development of management strategies and skills among

farmers for improved decision-making in the use of resources and linking farmers to

markets. With the increasing market-orientation of farming and the complex innovation

environment, the decisions taken by farmers need to be more strategic and forward looking

oriented. Possible options in going forward could consider fostering international public

and private partnerships like in the case of Ethiopian coffee producers (Box 2).

Box 5. International Public and Private partnerships in farm management: the case of the

Ethiopian Coffee Value Chain

Ethiopia is the fifth top world producer of coffee and the product represents 32% of total

exports in the country. Now Ethiopia is focusing on increasing the quality of coffee

production.

In line with the country’s effort to promote upgrading, the Ethiopian Ministry of Industry

agreed in 2015 to host a three-year project to foster farm management practices among

small Ethiopian coffee growers, as part of the Ethiopia Programme for Country

Partnership. The project is supported by the Italian Agency for Development Cooperation,

comes with a budget of USD 2.5 million and implemented by UNIDO in cooperation with

Illy Caffè and the Ernesto Illy Foundation. Specific activities involved the introduction of

new technologies to improve quality and production capacity, the adoption of best

agronomical practices, the promotion of advanced sustainable production systems, as well

as processing and international marketing capacity building.

The project defined concrete working models of cooperation between governments,

stakeholders, donors, private sector actors and UNIDO. In addition, it also benefited from

the synergies with Ethiopian institutions, such as the Ethiopian Coffee and the Tea

Development and Marketing Authority.

Source: Luca Turello, Head, Agronomy Coffee Procurement Department, Illy, presentation at the PTPR Peer

Learning Group (PLG) of the Dominican Republic, Lima, 1 April 2019 (Turello, 2019[26]) and Italy and UNIDO

sign agreement to help increase incomes of Ethiopian coffee producers, https://www.unido.org/news/italy-and-

unido-sign-agreement-help-increase-incomes-ethiopian-coffee-producers

https://www.unido.org/news/italy-and-unido-sign-agreement-help-increase-incomes-ethiopian-coffee-producers

https://www.unido.org/news/italy-and-unido-sign-agreement-help-increase-incomes-ethiopian-coffee-producers

DEV(2019)4 33


Country branding can be a powerful vehicle to foster upgrading and export

48. Intangibles and brand values are increasingly important assets in competitiveness

strategies. Branding seeks to establish an emotional relationship between the buyer and

seller and to promote trust. Branding is part of signalling mechanisms that contribute to

increase domestic firms’ reputation, increase trust in doing business and facilitate the

creation of new companies, by providing an intangible common asset to the

competitiveness of actors operating in a given territory. The Dominican Republic could

leverage on its unique territorial, cultural and natural characteristics to promote local agro-

food production to foreign markets.

49. Finding a global positioning that is credible, relevant and unique is a major

challenge in branding and requires the conscious management of a country’s image and

reputation. Credibility builds on reputation and trust and this could be achieved by

strengthening standards compliance in B2B (Business-to-Business) and B2C (Busines-to-

Consumer) transactions. Relevance can be increased by aligning local agro-food

production with the requirements of regional and global demands such as sustainability,

health and environmental protection. The distinctive characteristics that reflect and identify

a country can add to its uniqueness.

50. Countries adopt different approaches to promote country branding. Some

implement branding strategies that recall their territorial uniqueness, as in the case of the

Spanish Marca Espagna; others rely on specific products like Ecuador with cocoa and

Colombia with coffee; others stick to specific characteristics of the production system such

as Italy that is identified with luxury and exclusivity. Additionally some countries adopt

integrated approaches that convey several attributes to define the country branding. This is

the case of Peru that relies on the territorial and climate specificities, cultural heritage and

the uniqueness of its agro-food production (Box 6).

51. Branding can be steered by both public and private initiatives. In Colombia, for

example, the National Federation of Coffee Producers (FNC) introduced in 1959 the Café

de Colombia, the certification of origin awarded to Colombian coffee producers matching

specific geographic requirements in terms of the latitude, extension and height of

plantations. However, setting up programmes for country image, certification schemes and

defining branding policies and licensing conditions is only the first step. Successful country

image management requires control and enforcement mechanisms to make sure the

products and services match the standards and values associated with the projected image

and country vision and that counterfeiting is dealt with. In doing so, acknowledgment and

support from top-level institutions, public and private co-ordination to favour synergies

between the national actions and companies’ strategies are needed.

52. Brands, certifications and overall country image management contributes to

strengthening domestic companies’ competitiveness, facilitating their participation in

global value chains, favouring linkages and investment attraction. Even when these

mechanisms target specific sectors and activities, branding, origin and traceability policies

generate a horizontal/cross-sectoral intangible asset, image and reputation, the benefits of

which spread well beyond the initial purpose. The signalling effect contributes, indirectly,

to the creation and expansion of new companies which can exploit on the specific country

asset. For example, the Dominican Republic can leverage on its tourism attractiveness as

major branding characteristic that can foster the promotion of its agro-food production. In

2017, the country generated USD 7 billion in international tourism receipts that measure

the expenditure of international inbound visitors, the second largest in the Latin America

and the Caribbean after Mexico (UNWTO, 2018[27]).

34 DEV(2019)4


Box 6. Building country image in Peru: from Marca Peru to Superfood

Peru is actively engaged in supporting its global competitiveness strategy through direct

actions to manage country image. In 2009, the Ministry of Foreign Trade and Tourism

(MINCETUR) and PromPeru introduced Marca Peru, to support exports, attract investment

and promote tourism. The initiative is associated with a logo that relates to the country

identity and its ancestral origins. Peruvian firms obtain the right to use the brand Marca

Peru through an easy online procedure after matching fiscal and social responsibility

requirements. The initiative aims at i) projecting an image of Peru as a rich and diverse

country; ii) communicating that Peru is endowed with special skills (such as traditional

embroidery); and iii) raising awareness on the richness of Peru in terms of cultural,

gastronomy and biodiversity assets. The experience of Marca Peru shows that awareness

and communication with citizens and national companies and consumers, in addition to

foreign promotion is key for success. In addition to traditional promotional activities

abroad, through fairs, trade missions and special events, a national campaign has been

carried out to encourage Peruvians to use the brand. The brand is used to signal an asset

that relates to quality, status, price and distinction. Peruvian authorities deliver information

and organise workshops to monitor the correct use of the brand.

The successful case of Marca Peru coupled with the emerging demand for functional and

healthy food worldwide led the Peruvian Government to the launch of the Superfood

branding strategy in 2017. The visual branding recalls the ancestral origin of Marca Peru.

The objective of the campaign is to take advantage of uniqueness of fresh and functional

food production such as grains, vegetables and fruits and match the increasing global

demand for such products, particularly in European and Asian countries.

Figure 21. Ancestral origins for Marca Peru and Super Food branding

.

Source: Isabella Falco, Director Department of Country Image of Promperu. Presentation at the PTPR Peer

Learning Group (PLG) of the Dominican Republic, Lima, 1 April 2019 (Falco, 2019[28])

Marca Peru, 2009 Super Food, 2017

DEV(2019)4 35


5. New trends in offshoring offer new opportunities in manufacturing and

logistics for the Dominican Republic

5.1. Location, technologies and consumer demand are shaping new global

investments

53. Relocation, backshoring and nearshoring are new buzzwords in the outsourcing

world (Box 7). The complexity of the global economy is redefining how global value chains

(GVC) are conceived. The emergence of industry 4.0 and new technological development

allow for flexible, faster and higher quality production. Producing locally or nearby to final

markets and using new digital tools to make shipments, inventory and retailing agile and

responsive to consumer demand can overcome the competitive advantage of low labour

cost that drove offshoring activities in the 20th century (UNIDO, 2017[29]). Moreover,

traditional drivers of investments are losing momentum in the face of growing production

costs in traditional outsourcing hubs, such as China. Ad-hoc economic policies related to

tax regimes and geopolitical tensions are also leading to the emergence of new hubs.

Finally, the increasing demand for environmental and labour sustainability as well as higher

quality products calls for greater proximity of production to final markets. For example,

according to a recent survey of sourcing executives in the apparel sector in 2018,

nearshoring is likely to grow in the near future; over 63% believed that fabric production

will be nearshored by 2025 to strengthen regional apparel supply chains (McKinsey,

2018[30]). However, great uncertainty persists about how the future geography of global

production and trade will evolve, with different drivers of transformation unfolding and

interacting with each other.

Box 7. There is more than one type of offshoring

The notion of offshoring is wide and generally describes the practice of firms to subcontract

business functions in foreign countries, either by outsourcing to an external supplier or by

establishing a new production plan. It emerged as one of the most widespread strategies

implemented by manufacturing companies during the 20th century in order to maintain or

to foster their competitive advantage. Although offshoring is far from phasing out, during

recent years a number of new trends emerged in the arena.

The concept of relocation, for example, refers to the phenomenon of moving previously

offshored activities from one country to another. From a geographical perspective, this

concept can be further broken down into backshoring when the relocation activity goes

back to the home country of the investing firm.

An additional type of offshoring activity is nearshoring that refers to the decision of

offshoring or relocating previously offshored activities to neighbouring countries. Physical

proximity, cultural closeness, (wage) cost, the size and growth of the local/regional market,

the presence of skilled labour, suppliers and adequate logistics infrastructure are seen as

the drivers of investments in close-by locations.

Source: (The Economist, 2013[31]; Di Mauro et al., 2018[32]; Hahn, Bunyaratavej and Doh, 2011[33])

36 DEV(2019)4


54. Relocations of Foreign Direct Investment (FDI) are rising. From 2013 to 2018

relocation projects constantly increased, moving from 22 in 2013 to 160 in 2018. In total,

548 projects concerned relocations during 2013-2018, accounting for USD 15 billion of

(re)investment and 80 000 relocated jobs. However, despite their sharp increase, relocations

only accounted for 1.3% of total FDI projects for the period. In terms of business activities

the relocation of headquarters account for 50% of total project (particularly in software,

ICT and financial services) followed by manufacturing activities with 27% and sales,

marketing supporting activities with 6% (Financial Times, 2019[34]).

55. Relocations in manufacturing are taking place between few countries and sectors.

Mexico is the main destination of relocation activities with 20% of projects, followed by

the United States with 14% and China with 7%. The majority of projects relocated from

the United States (26%), China (12%) and the United Kingdom (10%). However, the most

frequent relocation route took place within the United States (12%), followed by the route

between Unites States to Mexico (11%). Other major relocation routes were China to

Mexico (5%), Germany to Poland (3%). The breakdown of manufacturing activities shows

that automotive components, industrial equipment and food industries are the leading

sectors (Figure 22).

56. Logistics accounts for a small share of relocated FDI projects (3%) but they are

driven by proximity to potential markets and to the presence of specialized suppliers. For

example Manuli Hydraulics, an Italian manufacturer of hydraulic components, moved in

2018 the central warehouse from western Germany to Poland. The choice of the location

was driven by the presence of specialised cluster and road infrastructure that facilitates

access to both western and eastern European markets (Europa Property, 2018[35]). The

density and quality of physical infrastructure is an important factor that affect reallocation

in logistics. In 2016 A-Safe, a British manufacturer of advanced industrial safety barriers,

bollards, and facility protection, relocated the logistical hub from North Carolina to

Maryland. The new location is strategically located between Baltimore and Washington

DC, with quick access to all major infrastructures (Financial Times, 2019[34]).

DEV(2019)4 37


Figure 22. World relocation activities in manufacturing, 2013-2018

Share of total relocation projects in manufacturing

Note: The sector classification follows the North American Industry Classification System (NAICS) 2007.

Highlighted the three main origin and destination countries of relocation activities.

Source: Authors' analysis based on Financial Times fDi Market Database, 2019, https://www.fdimarkets.com.

COUNTRY OF ORIGIN MANUFACTURING SECTOR DESTINATION COUNTRY

https://www.fdimarkets.com/

38 DEV(2019)4


5.2. The Dominican Republic is looking to reap the benefits of global and regional

value chains in manufacturing and logistics

57. Although the contribution of manufacturing to employment and value added

growth is decreasing (see section 2.1) in the Dominican Republic, it remains an important

driver of export. Manufacturing accounts for 56% of domestic merchandise exports in

2017, in line with the averages for Latin American and the Caribbean at 50%. Most of the

Dominican Republic’s exports are directed to the United States, which in 2017 accounted

for 65% of total manufacturing exports, followed by Haiti (7%) and Canada (2.3%). High

tech manufacturing represents 13.7% of total manufacturing exports, below the average for

Central America and Greater Caribbean Islands (excluding Mexico and Puerto Rico)

(21.2%) (UNCTAD, 2019[8]).

58. Manufacturing activities and exports are linked to the development of the Special

Economic Zones (SEZs). In 2018, 30% of total Dominican manufacture value added is

accrued in SEZs. First established in the Dominican Republic in 1969, SEZs developed

manufacturing and services activities. In 2018 there were 672 companies operating in 69

parks. Approximately, 24% of the firms operate in services, 15% in garment and textiles,

12% in tobacco manufacturing, 8.5% in agroindustry, 7% in wholesale and 5% in medical

devices. Around 40% of the investments in the SEZs originates from the United States,

25% from domestic entrepreneurs, 7% from Canada and 5% from the United Kingdom. In

2017 SEZs accounted for 82% of total manufacturing exports, and 31% of primary

commodity ones (based on data by the National Statistical Office). SEZ exports are

concentrated in industries that are linked to the rise of Global Value Chains (GVCs). Five

product groups accounted for two thirds of total SEZ exports in 2017: professional and

scientific instruments (including medical devices) (16%), tobacco and tobacco

manufactures (15.6%), electrical machinery and apparatus (12.5%), apparel (11.8%) and

miscellaneous manufactures (10.7%) (Dominican National Statistical Office, 2019[36]).

59. The geographical position of the Dominican Republic coupled with the trade

openness and the relevance of SEZs for the country makes logistics a strategic enabling

activity that could boost competitiveness in several areas. Almost 75% of the trade

activities is exploited through maritime routes (IDB, 2014[37]). The country has the second

highest container throughput (a measure of the number of containers handled, measured as

Twenty Foot Equivalent units – TEU, which is the size of a standard container) in the

Caribbean after Jamaica, and the eighth highest in Latin America and the Caribbean. The

three main ports (Caucedo, Rio Haina and Santo Domingo) account for 96% of the shipped

containers’ volume. Caucedo is the eleventh busiest port in Latin America, behind San

Antonio in Chile and above Limón-Moin in Costa Rica (Figure 22).

60. The Dominican Republic needs, however, to increase efficiency and productivity

in logistics. For example, in the country it takes, on average 9.4 days to clear exports

through customs; this figure is above the Latin America and Caribbean average (7.8 days)

and the OECD average (5 days). The cost to export (border compliance) amounted to USD

488 in 2018, lower than the average of USD 522 in Latin America and the Caribbean, but

higher than other countries in Central America and the Caribbean, such as Costa Rica, in

which the costs amounts to USD 375 (World Bank, 2018[38]).

DEV(2019)4 39


Figure 23. Ports by container throughput, Latin America and the Caribbean, 2017

Source: ECLAC (2019) http://perfil.cepal.org/l/en/portmovements_classic.html

61. In the Dominican Republic foreign investment in manufacturing and logistics are

rising. They represent the second and fifth most relevant sectors in greenfield FDI

investments. Nowadays they account respectively for 13.5% and 10% of total greenfield

FDI, up from 4.5% and 6.5%, respectively in 2010-2014. Top FDI investors in

manufacturing are Turkey (35%), the Netherlands (20%) and the United States (13%),

while two main players dominate logistics: the UAE (55%) and the Unites States (40%).

Within manufacturing, top activities for FDI are agro-food (37%), paper and packaging

(20%) and medical devices (18%), while in logistics they are warehousing (56%),

transportation (25%), coal, oil and gas (7%).

http://perfil.cepal.org/l/en/portmovements_classic.html

40 DEV(2019)4


Figure 24. Greenfield FDI by economic activities, Dominican Republic, 2015-18

Share of total greenfield FDI capital investment.

Source: Authors' analysis based on Financial Times fDi Market Database, 2019, https://www.fdimarkets.com.

5.3. The Dominican Republic counts with several institutions in charge of

developing industrial capabilities and attracting FDI

62. The Ministry for Industry, Commerce and MSMEs (MICM) is the national

administrative authority in charge of developing policies to support the Dominican

Industry. It operates through different implementation agencies. The Centre for

Development and Industrial Competitiveness (PROINDUSTRIA), created in 2007

replaced the former Industrial Development Corporation (CFI). It is in charge of ensuring

the competitive development of the domestic manufacturing industry, proposing policies

and programmes for stimulating industrial upgrading and innovation, ensuring synergies

between local industry and SEZs. The National Council for the Promotion and Support of

Micro, Small and Medium Enterprises (PROMIPYME), established in 2008 is the agency

that provides financing and technical assistance for the SMEs in the country and it operates

through Banca Solidaria, created at in 2012, and specialized in microfinance. Also the

MICM supports the development of the MSMEs, through MSMEs Centers (Centros

Pymes) located all over the country, offering technical assistant, capacity building and

training to enhance the formalization, digitalization and development. The attraction of

foreign investments is the responsibility of the National Council of Special Economic

Zones (CNZFE) that was created in 1990. The council has a double mandate: it regulates

on the establishment and functioning of SEZs and designs an integrated policy for

promoting free zones, attracting new companies, and developing existing SEZs. The private

sector actively participates in the policy discussion and fosters a series of initiatives,

including the creation of an export promotion and investment fund through the association

https://www.fdimarkets.com/

DEV(2019)4 41


of SEZ entrepreneurs (ADOZONA).The Centre for Investment and Export (CEI-RD) is in

charge of attracting FDI and promoting Dominican Exports. Although it does not have a

ministerial rank, the National Competitiveness Council (CNC) has a pivotal role in policies

related to industrial development and attraction of investment. Through the Coordination

Committee for Production Development and Exports Policies, it secures inter-

governmental coordination and foster the interaction between public and private sector.

5.4. Next steps in boosting investment in manufacturing and logistics

63. The changing investment landscape could open up opportunities for the Dominican

Republic. This could be significant in nearshoring activities where geography is a key

factor. The location of the Dominican Republic in the middle of Caribbean, equally distant

from the United States and Latin America, offers new opportunities to attract nearshoring

activities. However, the country faces competition from other neighbouring countries.

Mexico, a market with 180 million inhabitants and a dense production system, shares a

physical boarder with the United States that plays a pivotal role in offshoring activities.

Likewise, other countries such as Panama and Costa Rica have direct access to both Pacific

and Atlantic routes and direct inland shipping lanes. In going forward, it is important to

bear in mind that location is not replicable and different countries have different

characterises.

64. The country has shown a certain degree of adaptability and resilience across the

years. The structural shift in SEZs from clothing manufacturing to medium tech

manufacturing has been driven by the end of the Multi-Fiber Arrangement (MFA) in 2005

and by the signature of the CAFTA-DR agreement. Traditionally, the export

competitiveness of the Dominican Republic has largely depended on the type of

preferential market access the country receives from the United States. In the 1990s, the

United States assigned a specific import quota of clothing and textiles to the Dominican

Republic under the MFA, which incentivised the growth of maquilas operating under the

special regime. After 2005, the CAFTA-DR provided transversal preferences that, coupled

with the country’s special tax regime, favoured a shift in the country’s FDI policy that

encouraged diversification and created the conditions for the emergence of new products

in the SEZs, such as electrical and medical equipment, and footwear (World Bank, 2016[39];

UNCTAD, 2012[2]; UNIDO, 2012[17]).

65. Reaping the benefits of new investments will require tapping into different drivers

of FDI attraction than in the past. For example, developing digital capabilities and being

able to reach final markets instantly will be key factors. According to the European

Manufacturing Survey (EMS 2015) high-tech and science based firms are more prone to

backshore (24%) with respect to low-technology firms (15%). Flexible production and

higher quality products was the main driver for backshoring in 70% and 55% of surveyed

firms respectively. The analysis also revealed a positive propensity to backshore for firms

engaged in industry 4.0 activities (Dachs and Seric, forthcoming [7]). Technologies such

as 3D printing, the Internet of Things (IoT), and artificial intelligence allow for greater

customisation and flexibility and can level out the cost advantages of faraway locations.

The propensity to backshore is also higher in firms with more than 1,000 employees.

66. In this context, the Dominican Republic is seeking to maximize the benefits of

nearshoring by attracting higher value added investments in manufacturing and logistics,

secure greater integration with the local economy as well as at fostering the competitiveness

of the SEZs. The peer-dialogue exercise highlighted the following lessons learned for

42 DEV(2019)4


policy reforms to increase the benefits from new trends in offshoring activities in

manufacturing and logistics:

Strengthening linkages between business, universities and technological centres is

essential to face new market demands. Universities can play a big role in creating

and nurturing ecosystems that can create an environment for investment to flourish.

In the Dominican Republic, the relationship between the private sector and

universities is weak. On the one hand, universities are focused on teaching and do

not carry out research and innovation activities that would allow them to strengthen

the productive linkages with business enterprises. On the other hand, foreign firms

operating in SEZs are rarely relying on local actors to develop new product and

process solutions. In going forward, the Institute for Innovation in Biotechnology

and Industry (IIBI) as well as the Dominican Institute for Agricultural and Forestry

Research (IDIAF) could work closely with SEZs in order to provide specific

technical and innovative solutions, especially for regional markets. Additionally the

country could strengthen the support towards vocational training by reinforcing the

role the National Institute for Vocational Training (INFOTEP) in providing a

continued supply of skilled labour that matches the increasing demand of high-level

technical expertise. Providing incentives for the return of national researchers

located abroad could also help transform the original brain drain into brain gain

with benefits for the entire production system. Facilitating the accreditation of

foreign qualifications and increased budget should be viable options for the

Dominican Republic.

Building resilient connections between local and foreign companies is needed to

spread the benefits to the entire economy. With few exceptions, domestic

companies in the Dominican Republic have not been very successful in providing

critical production inputs for foreign companies operating in the SEZs. The

Dominican Republic could look to the experience of Singapore in developing

linkages between local suppliers and MNEs (UNCTAD, 2011). In 1986,

Singapore’s Economic Development Board launched the Local Industry Upgrading

Programme (LIUP). Under the LIUP, MNEs “adopted” local SMEs in their value

chain and sought to improve them, first in terms of general organisational efficiency

(phase I), later by transferring product and processes to SMEs (Phase II), and at

the last stage, by jointly developing research (Phase III). This was achieved by

secondments of staff from the MNEs to local suppliers, whose salary cists was

covered by the EDB. By 1999, 11 large local organizations, 30 MNEs and over 670

local suppliers participated in the programme, some of which became world-class

first-tier suppliers, such as Advanced Systems Automation and Manufacturing

Integrated Technology.

Providing physical and digital infrastructures is a key factor for attracting new

high value added investments in manufacturing and logistics. This requires the

development of ports, airport and road infrastructures with the capacity to serve the

logistical requirement from both national and foreign firms. This needs to be

coupled with improvement of digital infrastructure to face the challenges of the

industry 4.0. In the Dominican Republic 64% of residents use the internet, above

the LAC average (57.4%), but below the OECD (78.7%) and the coverage of 3G in

the country is 99% (ITU, 2018). However, internet remains expensive. Fixed

broadband prices equalled 4.2% of gross national in 2017, 3.4 times as much as that

of Bahamas (1.2%), the top country in LAC, and Uruguay where every household

with a fixed line has a quota of 1GB at no cost (ITU, 2019). Moreover, the country’s

DEV(2019)4 43


average broadband speed was 4.54 Mpbs in 2018 (data from Akamai in WEF,

2019), half as slow as the top regional economy, Chile (9.2) in 2017

(OECD/UN/UNIDO, 2019).

Accumulate manufacturing capabilities in existing products can be revamped and

used as a springboard for developing new activities (Box 8). Triggering industrial

reconversion can be challenging, requiring the transformation of former industrial

areas into innovative, sustainable and smart areas. To achieve this, it is necessary

to build capabilities in anticipating and adapting to global industrial trends,

managing the risks of demographic and employment losses during the restructuring

process and fostering the upskilling of the local workforce.

Box 8. Reconversion can lead to new business opportunities: the case of Winston-Salem

In 2019, Cook Medical, a manufacturing company specialized in the production of

technologies that eliminate the need for open surgery, completed an agreement with to

acquire a long-standing facility Whitaker Park in Winston-Salem (North Carolina). The

production plan formerly hosted one of the largest cigarette plant in the world, offers 80

000-square-metre facility and will employ 650 workers.

The reconversion of the facility into a modern facility producing life-saving medical

devices has been sustain financially by the local authorities that spotted the possibility to

not only for the entire community. Moreover, the new production plant offer the possibility

to rely on long-standing local production capabilities and readapt them to new industry and

market requirement.

Source: Brian Daigle, United States International Trade Commission (USITC), Technology Onshoring in the

United States: Local Government Successes and Challenges, presentation at the PTPR Peer Learning Group

(PLG) of the Dominican Republic, Lima, 1 April 2019 (Daigle, 2019[40])

Attracting new generation manufacturing and logistics FDI calls for a closer

connection between investment, innovation and production development policies.

On the one hand, production development policies should be more sensitive to the

importance of foreign investment a source of jobs, capital and innovation and can

help local firms to leapfrog. On the other hand, investment promotion agencies

could get more involved in innovation and production policies and providing

tailored services to foreign investors in higher technology sectors.

Setting up clear objectives and involving all stakeholders is essential in defining

long term and resilient strategies. Government can be focal points for bringing

together different stakeholders, providing long-term support and spaces for

experimentation with new activities (Box 9). Improving government capacities in

understanding the need of different stakeholders and coordinating actions is

essential for effective implementation.

Box 9. Clear objectives to foster public and private cooperation: the case Pittsburg PGH Lab

44 DEV(2019)4


Pittsburgh used to be known as “the Steel City” with manufacturing activities that date

back to back 19th century. After the economic downturn of the 1970s and 1980s the city

was able to rely on new advanced industries like energy and health to spur a new

development model since the begging of the 21st century. While the economy has grown,

the municipal government has had to address challenges such as air pollution, lead

contamination of drinking water, climate change, and a struggling infrastructure.

The government tried to establish a system to rely on the local cluster of start-ups and

entrepreneurs to connect private sector innovation with the city’s challenges. The 2015

Roadmap for Inclusive Innovation was the starting point for creating the PGH lab a

platform that provides to local start-ups to develop and test technology that will make the

city of Pittsburgh more efficient, sustainable, and inclusive. The PGH Lab has run its

programme four times since August 2016 and connected 23 start-ups with local needs.

The Lab does not provide funding for start-ups. The idea is that small companies can

generate market insights through running a pilot, and can therefore attract investors at a

later stage. Participants gain access to the valuable city resources, equipment, infrastructure

and staff required for a successful pilot. They are also connected to a dedicated programme

liaison officer, with whom they have weekly check-ins. The PGH Lab programme starts,

helps to set clear expectations, project timelines, and overall communications between

local actors.

Source: Brian Daigle, United States International Trade Commission (USITC), Technology Onshoring in the

United States: Local Government Successes and Challenges, presentation at the PTPR Peer Learning Group

(PLG) of the Dominican Republic, Lima, 1 April 2019 (Daigle, 2019[40])

67. The Dominican Republic is committed to developing an integrated approach to

foster production development and innovation and relying on FDI as a key driver of

transformation. The PTPR process will seek the participation of Singapore as strategic peer

in talking down the key issue the Country is facing in attracting new high value added FDI

in manufacturing and logistic (Box 10).

DEV(2019)4 45


Box 10. Key issues on offshoring in manufacturing and logistic: next steps in PTPR of the

Dominican Republic

The Dominican Republic is seeking to maximize the benefits of new trends in offshoring

activities (i.e. backshoring and nearshoring) and attracting higher value added investments.

The country is advancing in defining a long-term strategy by involving all relevant actors

in the country.

In 2018, in the framework of the Plan for Improvement of Competiveness of the National

Competitiveness council, four priority actions have been defined to foster the attraction of

new Investment in both manufacturing and logistic.

The PTPR will revise the current strategies and will propose concrete action in going

forward. At the same time the requesting country expressed the interest in involving

Singapore as Peer in order to share experiences, challenges and visions

The key issues that the PTPR will analysis are:

• How the Dominican Republic could benefit from the new trends in offshoring

activities, and in particular nearshoring

• Which public and privates partnerships are needed to reap the benefit of new

nearshoring activities

• How to foster greater synergies between the local production system and SEZs and

provide long term and resilient linkages

• The policy mix that can foster the attraction of more sophisticated manufacturing

and logistic investment and the interaction between investment, innovation and production

development policies

The second field mission in December 2019 will dedicate a Business and Government

Roundtable on nearshoring activities with the support of Singapore.

Figure 25. What opportunities in nearshoring for the Dominican Republic?

Type the subtitle here. If you do not need a subtitle, please delete this line.

46 DEV(2019)4


6. Next steps in the PTPR of the Dominican Republic

68. The PTPR of the Dominican Republic was kick-started with the Peer Learning

Group Meeting. The following table summarises the main milestones of the process and

the preliminary structure of the report. The PTPR of the Dominican Republic is

implemented in co-operation with ECLAC, UNCTAD and UNIDO and benefits from

contributions of peers from Brazil and Singapore.

Table 3. Key milestones: PTPR of the Dominican Republic

1st April, 2019 Peer Learning Group (PLG) Meeting of the PTPR of Dominican Republic hosted by the Government of Peru in Lima, back to back with the 12th Plenary Meeting of the Initiative.

April-July, 2019 Analysis of available background material

Identification of the 2 peers

Preparation of the first filed mission

Drafting

First draft shared with DR prior to the first fact finding mission

1-5 July, 2019 First fact finding mission to DR (Peer from Brazil joins the mission)

First meeting of the Task Force on Economic Transformation

Semi-structured interviews with government, business, and experts.

One government-business Roundtable on the future of Agro-food in the Dominican Republic.

July-October, 2019 Drafting

Second draft shared with DR

19-21 November 2019

Progress report of the PTPR of DR during the 13th Plenary Meeting of the Initiative hosted by the Government of Egypt in Cairo.

2-6 December, 2019 Second fact finding and consensus building mission to DR (Peer from Singapore, UNCTAD, ECLAC, UNIDO join the mission)

Second meeting of the Task Force on Economic Transformation

Semi-structured interviews with government, business, and experts,

One government-business Roundtable on opportunities and challenges of nearshoring in logistics and manufacturing

Presentation of key outcomes of the PTPR at a high level consensus building event

December 2019-January 2020

Report finalisation

January-April 2020 Final comments and check on the report

Publication process

April 2020 Launch in Paris and presentation of results at the 14th Plenary Meeting hosted by ECA in Ethiopia.

Launch in DR between March-April 2020, TBC].

DEV(2019)4 47


Figure 26. The PTPR of Dominican Republic- preliminary structure of the report

48 DEV(2019)4


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