Opportunities in the fastest-growing economy in the Caribbean: the Dominican Republic

The Dominican Republic (DO) has sustained strong economic growth despite recent global and local challenges. In 2023, the country's GDP growth was 2.4%, an expected adjustment after 4.9% in 2022 and 12.3% in 2021. The economy is projected to expand again 5.1% in 2024 (IMF). Inflation has been reducing from high rates during pandemic (8.8% in 2022 and 4.8% in 2023), but started to rise again in 2024 (3.3% in September 2024). Unemployment keeps reducing, currently at 5.3%. The DO’s fast and sustained growth, political stability, strategic location and openness for foreign trade make it an appealing destination for foreign investment. Identified opportunities for Finnish companies are mainly on the energy, mining, sustainability, port industry and waste management sectors.

Overview

The Dominican Republic has the biggest economy in the Caribbean and 7th largest in LAC region with a €110 billion GDP in 2023 (Finland €300bn) [1]. The population of approx. 11 million inhabitants is the 2nd largest in the Caribbean region (after Haiti), GDP per capita is approx. €10.270 (FI €54.000). DO has been one of the fastest-growing Latin American economies since 2010 and a stable democracy.

DO has moved from agricultural economy to a service-driven one, contributing to a more balanced mix of economic activities. Still, its main exports focus on commodities; the most significant exports include medical instruments, gold, tobacco, and low-voltage protection equipment. In 2024, the country has reached record numbers in its exports (jan – aug 6.1% growth compared to 2023) mainly caused by a beneficial free trade zone regime, nearshoring efforts by companies looking to sell to the U.S. market and efforts to diversify the export base with higher added-value products.

President Abinader was re-elected for a second term, and on his second inauguration on august 2024 he presented plans for constitutional, fiscal, pension, labour, healthcare and education reforms. Interested parties should follow how reforms develop, as they will possible be easily approved given the pro-government majority in Congress. Nevertheless, given Mr. Abinader’s often market-friendly policies it is not expected that reforms will affect negatively the Dominican economy.

 

Current Economic Situation

The economy expanded 2.4% in 2023 with expectations to grow by 5.1% in 2024[2] due to delayed effects of monetary policies easing public investment. Poverty and inequality have both been reducing despite a small leap during the pandemic: poverty rate estimated at 23% in 2023, and Gini index at 0.37 in 2023[3]. DO has made a remarkable progress after being one of the poorest countries in the region 60 years ago, current risks include climate change effects and global economic risks.

Eased monetary policy has been one of the main reasons of the expansion of economy, but lately the Central Bank of the Dominican Republic (CBRD for its acronym in Spanish) has tightened the policy rates, with 6.5% in october. Nevertheless, inflation has been reducing throughout 2024 (3.3% sept 2024) after high rates during the pandemic.

The service sector, including hotels, bars, restaurants and tourism, contributes almost 60% of GDP. Following sectors are construction, commerce and transport. DO has an appealing free-trade zones regime that has boosted production mainly in medical devices and has plans for semi-conductors to supply mainly the US market.

After the COVID pandemic, President Luis Abinader’s government has presented a variety of infrastructure and development programs that boosted economic growth and his popularity both nationally and regionally, which in turn resulted in a re-election for a second term in May 2024. For the coming term, Abinader has promised continuation of the economic success and is expected to expand his first term priorities on development, anti-corruption and modernization of the economy.

According to the IMF[4], DO could reach the status of advanced economy by the year 2060 if the growth sustains successfully. To ensure it, adequate policies, including structural reforms and addressing global risks, play a key role. There is high uncertainty with the increasing effects of climate change, to which the DO is vulnerable due to its location in the middle of the Caribbean.

Demographics and employment

The Dominican Republic is an interesting upper-middle-income market of almost 11 million people (2024). The population is rather young as 44% is younger than 25 and the median age is 29.2 years. Even though the country expects a population growth of 7.7 % by 2030, the population is aging due to declines in fertility and mortality, and increase in life expectancy.

After the pandemic, unemployment has decreased significantly, currently at 5.3% and is projected to continue decreasing. Micro and small businesses represent 98% of the national productive sector and 54% of the total employment (Presidency of the DO).

Trade and Investment Climate

Dominican Republic is one of the Caribbean countries most open to trade with more than 150 trading partners around the world, even though 15 of them sum up to 90% of the country’s total exports. The DO is signatory of DR-CAFTA, a Free Trade Agreement with the United States and four Central American countries. The US remains DO's largest trading partner, followed by China and the EU, with whom it has Economic Partnership Agreement (EPA). The country has a trade deficit in the balance of imports and exports due to its rather simple scale of production as five products represent over 60% of the total exports.

Strong economic growth and nearshoring trends have increased DO’s appeal as a destination for foreign investment. The country offers a highly favorable climate for private investment as foreign investors and companies are guaranteed the same conditions as national ones. Business legislation in taxation, labor and banking supervision has advanced a lot but its application has appeared rigid, which might make the DO seem a challenging environment for first-time foreign investors.

Trade with Finland accounts for over €70 million yearly, with potential to grow. Finland's exports to the DO in 2023 were €23 million and imports from the DO were €55 million. Exports to the DO are mainly power machines, motors, paper, cardboard, industrial machines and equipment. From the DO to Finland: iron and steel, soft drinks, medicinal products, instruments, meters, fruits, vegetables and seeds. There are over 5 Finnish companies present in the DO, many of them represented by local partners.

Opportunities for Finnish Companies

Finnish companies have significant opportunities in the Dominican Republic especially in sectors like energy, mining, digitalization, waste management, circular economy and port industry.  DO is committed to energy transition and has increased its electricity production with renewable sources by 103% during the last three years. There is an abundance of solar and wind power in the country, which provides many possibilities for Finnish firms specializing in clean energies. In addition, interconnections and energy storage offer a lot of potential.

The mining sector holds two main commodities, gold and ferronickel, and is driven mainly by two large mining operations, Pueblo Viejo and Falcondo. Pueblo Viejo is one of the world’s largest gold mines, and globally also an important supplier of ferronickel. Local operators are interested in improving their operational efficiency and sustainability, both socially and environmentally, which offers various opportunities for the Finnish expertise on sustainable mining.

A transition towards circular economy is needed in the DO. Solutions on waste management are highly needed as the local municipalities lack proper disposal and recycling systems. The largest open-air landfill in LAC region, “La Duquesa”, locates in the northern parts of Santo Domingo. Due to its highly contaminating impacts, the government started in 2023 a 5-year-project to turn the landfill into a large park. The planned steps include reforestation, drainage channels and systems for leachate and gas extraction, to which the government is actively searching for sustainable solutions. In addition, there are plans to close other landfills in the country as well.

Over 90% of the country’s foreign trade goes through ports, so smart port solutions are also a significant opportunity for Finnish providers.

The DO shows great competitive advantages as it has the status as one of fastest growing economies in the region combined with a great strategic location in the middle of the Caribbean and rather modern infrastructure. During the recent years, the country has made efforts to promote foreign trade implementing open policies for international partnerships and investment. Tax incentive regimes and free trade zone have attracted foreign capital companies to establish product export platforms and services, aiming mostly at the US market.

The Team Finland network in Colombia supports Finnish companies interested or active in the market of the DO, and operates through the Finnish Embassy in Bogotá, Colombia and the Business Finland office in Lima, Peru.

For more information contact: [email protected]