Journal of Commerce / March 13, 1999
By Larry Luxner
RIO HAINA, Dominican Republic -- At this busy port eight miles west of Santo Domingo, truckers wait in line for hours to transfer their loads full of apparel, textiles and electronic components to containerships in the harbor. Importers waiting to discharge cargoes of canned foods, stereo systems, tires and electrical appliances face similar delays.
Observers say the congestion at Rio Haina is only getting worse -- a situation due in large part to the Dominican Republic's success as a low-wage manufacturing site for U.S. multinationals.
Jaak E. Rannik, president of Agencias Navieras B&R, a leading Santo Domingo shipping agency, says the nation's economy has been growing at over 6% a year for the last three years. Its remarkable 7.3% jump in GDP last year -- which came despite the massive damage caused by Hurricane Georges -- was the best performance in Latin America, and one of the best in the world.
"Every point of GDP growth translates into three points of foreign commerce growth," he says. "As a result, the country has seen 18% to 21% annual growth in shipping activity since 1995. The impact of all this is that cargo volumes have overwhelmed the existing ports. It's a horrendous, congested mess. There's a need for further investment of at least $100 million to $150 million, perhaps more."
At present, Rio Haina accounts for 70% of the Dominican Republic's commercial shipping activity. The downtown port of Santo Domingo, located near the city's colonial zone, handles another 15% while Puerto Plata on the north coast handles 10%. The remaining 15% is divided among 10 smaller Dominican ports, though their share is declining since, as Mr. Rannik says, "a good highway system has done away with the need for regional ports."
The long-time shipping industry veteran, a past-president of the Association of American Chambers of Commerce of Latin America, says most of the recent jump in volume is a result of increased investments in the country's industrial parks.
Close to 480 companies employ 188,000 workers in free zones, which account for over $1 billion in annual foreign-exchange earnings. About 70% of that revenue comes from sewing (including apparel as well as shoes), with electronic assembly accounting for much of the remainder. Garments, electronics and other items produced at the Dominican Republic's low-wage free zones account for 35-40% of the country's northbound shipping trade, and 20% of southbound trade.
Ironically, the disastrous hurricane that struck the Dominican Republic late last year, killing at least 200 Dominicans and damaging free zones at San Pedro de Macoris and La Romana, was a shot in the arm for the country's ports.
"Hurricane Georges actually helped, because it brought a real boom in imports such as building materials, roofing and hardware of all sorts," said Mr. Raanik. "Every time you have a natural disaster, and an industry that was well-insured, you have a boom. The hurricane did not seriously affect the port infrastructure, though it accelerated the need for dredging."
Broken down by company, he says, Antillean Marine Line has 18% of the current cargo business, followed by Crowley, with 10%. Other leading contenders for the business include Sea-Land, Maersk Line, Evergreen Line and Seaboard Marine.
"There are so many lines calling here," says Mr. Raanik. "It's great for the trade, but terrible for the carriers. Transportation costs to and from the Dominican Republic are probably 45% to 50% lower than they were last year."
The problem, of course, is congestion at the port itself. To remedy the situation, President Leonel Fernandez has begun a process of privatizing the nation's infrastructure through operating concessions that are renewable for 10-year periods. That would put the building of new port infrastructure, maintenance of existing infrastructure and cargo warehousing in private hands for the first time.
Unlike the case with most other Latin American countries, privatization isn't exactly a new concept in the Dominican Republic. The dominant local and long-distance phone company here, Codetel, has long been 100% owned by GTE Corp. State-owned flour mill Molinos Dominicanos was recently sold to a local investor partnered with Archer Daniels Midland. Companies currently up for privatization include the state sugar monopoly, the inefficient power monopoly, Compania Dominicana de Electricidad, and gold-mining giant Rosario Dominicana.
"Stevedoring and terminal operations here have always been private," said Mr. Raanik. "The problem is that the Ports Authority employs 1,800 people. If privatized, this would be cut in half. Even though there would be an immediate injection of capital for port improvement and expansion, and you'd presumably have better security and reduced pilferage. But this flies in the face of 500 years of tradition."
For this reason and others, William Malamud, executive director of the American Chamber of Commerce of the Dominican Republic, says he's skeptical about any short-term improvement in the port situation.
"The current impasse [between the Fernandez administration and political opponents] is retarding reforms that both sides agree need to move forward, including reforms to the general electricity law," he said, adding that a selloff of the Dominican port system won't happen anytime soon. "We have to privatize the airports first. That experience will serve as an example of how the government will privatize the ports."
Luis Ernesto Simo, the country's deputy minister of tourism, says five international consortia are in the running for a 25-year concession to operate Santo Domingo's Las Americas International Airport, as well as smaller airports in Barahona, Semana, Puerto Plata, Santiago and other cities. Some of those bidders, he said, "are proposing to invest as much as $400 million in the expansions that are needed to meet expected demand."