The Dominican Republic’s Economy

country’s economy is the engine that fuels its daily life and determines the well-being of its citizens. Whether it’s providing transportation systems or jobs and consumer products or public services, a country’s economy has a significant influence on the daily activities of citizens and is the lifeblood of a country. Thus, the health of the country’s economy is vital to the Dominican Republic and its citizens.

The economy of the Dominican Republic is the second largest among Caribbean countries, trailing only Cuba. The country once was known primarily for sugar production, but today, mining, manufacturing, services, and tourism are some of the most important industries. Agriculture still makes up about 11 percent of the economy, industry another 24 percent, and services generate nearly two-thirds (65 percent) of the country’s gross domestic product-purchasing power parity (GDP-PPP). (GDP represents the total value of a country’s total economic activity during a one-year period; purchasing power parity represents the amount of goods and services that a country could purchase in U.S. dollars.) In 2008, the country’s GDP was estimated to have been about US$77 billion. On a per capita, or per person, basis, this works out to about $8,100 per person.

The economy has a number of challenges, including a high unemployment rate of 15.5 percent as of 2009. Inflation is another problem, as the rate grew to 12 percent per year in 2008. Hurricanes and tropical storms regularly cause severe damage to the country’s economy. Other problems include a wide gap between rich and poor; a lack of energy resources such as coal, oil, and natural gas; price fluctuations for minerals and agricultural products; and illegal immigration and criminal activity, such as drug-money laundering from neighboring Haiti. In 2003, the country experienced a banking crisis when one of its largest banks collapsed, resulting in the 100 percent depreciation (loss in value) of the Dominican peso.The effects of the recent global economic recession also have severely affected the Dominican Republic.

AGRICULTURE, FISHING, AND FORESTRY

Agriculture has been an important part of the Dominican economy for centuries, because it is the part of the economy that is most consumed by the country itself. Sugar has been the traditional powerhouse in the agricultural sector, but other crops have expanded the range of farm products. These include commodities such as coffee, tobacco, cocoa, bananas, fruits, and berries. Local consumers feast on Dominican-grown plantains, potatoes, rice, beans, and cassava (a banana-like plant that serves as an important source of carbohydrates). Farm animal production includes poultry, cattle, and hogs, all of which are raised mostly for domestic use.

Seawater fish caught for local consumption include tuna, mackerel, snapper, and bonito. The Atlantic blue marlin, sailfish, wahoo, and white marlin attract tourists who come for a deep-sea-fishing adventure. Still, the fishing industry has not been a leading source of revenue since deep-sea resources are too inadequate to support a highly specialized fishing industry.

The country once experienced deforestation and depletion of its forest reserves at a rapid rate. In 1990, conservation efforts were initiated. These efforts included the widespread replanting of trees and the preservation of many areas under government protection as national parks, wildlife sanctuaries, and nature reserves. Since conservation measures were introduced, the size of the country’s forests has stayed about the same. Today, studies suggest that about one-third of the land is now forested with mahogany, cedar, and pine trees. Some challenges remain, however, as the earlier deforestation has caused serious soil erosion problems in portions of the country.

MINING

Since the arrival of the Spaniards five centuries ago, mining has been a traditional industry in the Dominican Republic. Gold has played a key role in the country’s economy, from Spanish gold mining dating back to the 1520s to the end of the twentieth century, when the Dominican Republic possessed the Western Hemisphere’s largest open-pit gold mine. Today the Dominican Republic also produces ferronickel (an alloy of iron and nickel used in the making of steel), copper, amber, gypsum, and silver.

The Western Hemisphere’s largest open-pit mine, located at Pueblo Viejo and opened in 1979, was closed in 1999 due to technical, environmental, and financial difficulties. The mine, which had been operated by the government, had caused a substantial negative impact on the environment. Acid from the operations polluted streams and groundwater. Erosion problems also arose with the immense pit mine. With gold prices soaring in 2008, however, Canada’s Barrick Gold Corporation announced that it would reopen the mining area in the central part of the country and agreed to assist in the cleanup of the area. Gold is expected to be mined in the fourth quarter of 2011 and is expected to result in the creation of thousands of jobs. This business effort represents the largest single foreign investment in the Dominican Republic. In addition to gold, the mine will also produce copper and silver. It is estimated that the life of the Pueblo Viejo mine will be about 25 years.

MANUFACTURING

Most of the goods manufactured in the Dominican Republic are intended for markets in North America. With the United States receiving two-thirds of the country’s exports, most of the manufacturing is geared toward U.S. markets. Many of the companies making these products are owned by U.S. interests that seek to manufacture in the Dominican Republic because of cheaper labor costs and the close proximity to the United States. This second factor means that transportation costs from the Dominican Republic to the United States are less expensive than between the United States and many other cheap international producers.

Manufactured goods include clothing, footwear, electronic components, glassware, and leather goods. Much of the assembly work in these industries is done by women. Other important industries include sugar refining and the production of cement, steel, rum, and cigarettes. More than 200,000 Dominicans are employed in the country’s various manufacturing industries.

TOURISM AND THE SERVICE INDUSTRY

The Dominican Republic has become the Caribbean’s largest tourist destination. Visitors to the island come by air or cruise ships to visit the country’s beautiful beaches and historic sites, to see winter baseball games, and to tour Santo Domingo—the first city built in the New World by European settlers—and its many cultural sites, including dozens of museums, botanical gardens and parks, the Columbus Lighthouse, the National Zoo, and the National Aquarium. Tourist activities include surfing, golfing, whale watching, scuba diving, bird-watching, biking, kiteboarding, and hiking. All of these diverse activities are supported by people working in the service industry. As the first place in the Americas visited by Christopher Columbus, the Dominican Republic is rich with historic sites and events. Santo Domingo is one of the places that claims to have the remains of Columbus—a man who traveled almost as much after he died as he did when he was living, because his body was moved many times. His history is a part of the history that intrigues many visitors.

In recent years, glamorous tropical resorts have been developed to attract more visitors. With the country’s diverse environments ranging from desert to mountains to tropical rainforests, ecotourism—travel to areas of natural or ecological interest—is also increasing. The country has 16 national parks, and ecotourists enjoy all sorts of adventure, including scaling Pico Duarte, perhaps the most famous ecotourism destination in the Dominican Republic.

The economic impact of tourism is very important to the Dominican Republic. Tourism is a large and booming industry in this island country, employing everything from travel guides to baggage handlers, travel agents to hotel employees, and restaurant workers to fishing guides. It is estimated that the tourism industry is responsible for one out of every seven jobs in the country. Thus, the financial crisis and global recession of 2008 to 2009 had an immediate impact on the Dominican economy. The impact was less, however, than in many other tourist-dependent countries because the Dominican Republic is easy to reach from the United States and is relatively inexpensive. Airfare from Miami to Santo Domingo, depending upon season and schedule, is a quite reasonable $300 to $400. Additionally, prices for food, lodging, and other tourist-related activities are generally lower than in many other travel destinations.

TRANSPORTATION

Two major transportation systems operate in the Dominican Republic. One is run by the government, and the other is operated by private businesses. The government-operated system is primarily operated in Santo Domingo and Santiago, with costs being partially offset by public funds. Thus, the transportation costs are low for the consumer. However, much of this system is worn out and in need of repair and new vehicles. The private systems operate throughout the country, but with higher costs to passengers.

The country has more than 6,000 miles (9,656 km) of paved roads that serve as the dominant transportation network. Five major highways connect most of the country’s towns, cities, and regions. Trains are rare, privately owned, and mostly serve the sugar plantations. Airports are located in Santo Domingo, Barahona, Santiago, La Romana, Puerto Plata, and Samana. The facility at Santo Domingo serves as the country’s chief international air gateway. Seaports also are important to the country’s economy. Major ports are located in Boca Chica, Caucedo, Puerto Plata, Rio Haina, and Santo Domingo. The port of Santo Domingo is undergoing a major redevelopment that will integrate the port area and Santo Domingo’s Colonial City to create an attractive destination for cruise ships and other high-end tourism.

COMMUNICATIONS

Communications come in many forms and most are readily available in the Dominican Republic. The country has nearly 1 million land phone lines and more than 5.5 million cellphones. In 2008, six communications companies offered service throughout the country. The postal service is reliable, although often slow. Internet use has also advanced in the country, with nearly 2 million active users. The Internet country code for the Dominican Republic is .do.

Mass media is also important. The Dominicans can choose from 180 radio stations, 25 television stations, and more than 10 daily newspapers. The nation’s cable company, Telecable National, provides many more television stations, as do satellite transmissions that provide many channels from Latin America and other locations around the world. Government regulation of the media has been abused in the past; however, even with rather strict oversight, today the government rarely interferes with television, radio, and newspapers.

ENERGY

The Dominican Republic has continually had problems related to its energy production and availability. Unfortunately, the country has very little domestic petroleum or coal. Thus, it has had two choices: depend upon importing these fuels from other countries or develop alternative energy sources such as hydroelectric power (power produced from the gravitational force of falling or flowing water, usually from a dam). Key dams that produce hydroelectric power are the Tavera Dam, completed in 1972, and the Sabana Yegua Complex, which opened in 1980.

Venezuela and Mexico have provided the Dominican Republic with oil at discounted prices because of the San Jose Pact. This agreement was put into effect in 1980 and guaranteed that Mexico and Venezuela would provide oil at discounted prices to Central American and Caribbean countries.

Other energy-related problems include frequent blackouts that can last for long periods. This problem is less frequent in tourist areas, as they have more reliable energy sources. Other problems that have plagued the energy industry include mismanagement, theft, low collection rates, and corruption. Some efforts are being made to correct these problems, but progress is slow. A law enacted in February 2009 made power theft against the law and promises to sentence violators with fines and prison. The lack of long-range planning to meet energy needs also plagues the country. This problem, however, may be addressed by the newly created Office of Energy Efficiency and Renewable Energy, which is under the National Energy Commission. This body is charged with creating new energy alternatives and planning for the future.

INTERNATIONAL TRADE

In the global age, the Dominican Republic is connected to the world by its trade of goods. As previously mentioned, the United States is the primary international partner for both exports and imports. Forty-six percent of the country’s imports come from the United States, and two-thirds of its exports go to the United States. After the United States, the next leading trading partners for exports are Belgium and Finland. Export goods from the Dominican Republic include ferronickel, sugar, gold, silver, coffee, cocoa, tobacco, meats, and consumer goods. Imported products include food, petroleum, cotton and fabrics, iron, steel, machinery, chemicals, and pharmaceuticals. Besides the United States, import partners include Venezuela and Mexico, which provide oil.

The Dominican Republic is also a partner in various regional and global trade agreements and organizations. These include the Association of American States, which is a free-trade organization, and the Central America-Dominican Republic Free Trade Agreement (CAFTA-DR), which came into force in 2007. The CAFTA-DR is designed to boost investment and exports in the clothing industry. The country also is a member of the World Trade Organization, which supervises and works to open international trade. The Dominican Republic also belongs to the United Nations World Tourism Organization, which works to increase sustainable tourism for developing countries like the Dominican Republic, and the Organization of American States (OAS), which, in part, works to foster free trade.

ECONOMIC IMPACT ON THE LAND AND PEOPLE

As the country’s lifeblood, the economy affects the people and land at all times. Citizens need jobs, transportation to their jobs, and basic necessities such as food, clothing, and shelter. Life in the Dominican Republic is significantly better than in Haiti but not as good as in the United States because of the depreciation of the Dominican peso against the U.S. dollar. Yet there is a silver lining. Many Dominicans who have immigrated to the United States send money to their families back home. Since many Dominicans use U.S. currency as much as their own, this amounts to millions of dollars each year and is a major source of revenue.

A major problem for people in the Dominican Republic is the wide gap in incomes and economic well-being. If you are wealthy, life is wonderful and your needs and wants are easily met. But if you are poor, as one-third of the population is, you struggle to have your family’s daily needs met. As an example, the poorest half of the Dominican population receives 20 percent of the country’s GDP, while the richest 10 percent receives a whopping 40 percent of the country’s income. This gap leaves many living in poverty.

Economic activity also affects the land and environment. Many advocate for sustainable economic activity—that is, economic development that can be carried forward into the distant future without harming the environment. However, past patterns have left many countries, including the Dominican Republic, with an environment that has been scarred, poisoned, or otherwise degraded. Related problems faced by the Dominican Republic have included widespread soil erosion, damage to coral reefs, pollution of drinking water, acid rain, and deforestation. Some of these environmental problems, like deforestation, have been addressed in recent years (as mentioned, by replanting and setting aside land for national parks). Other problems, such as those related to mining, are still being solved.