The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
These statements highlight persistent barriers to further U.S. investment. Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.
Executive Summary
Foreign direct investment (FDI) plays an important role for the economy of the Dominican Republic, one of the main recipients of FDI in the Caribbean and Central America. The government actively courts FDI with generous tax exemptions and other incentives to attract businesses to the country. Historically, the tourism, real estate, telecommunications, free trade zones, mining, and financing sectors are the largest FDI recipients. Film production is also attracting high-dollar investments in recent years.
Besides financial incentives, the country’s membership in the Central America Free Trade Agreement-Dominican Republic (CAFTA-DR) is one of the greatest advantages for foreign investors. Observers credit the agreement with increasing competition, strengthening rule of law, and expanding access to quality products in the Dominican Republic. The United States remains the single largest investor in the Dominican Republic. CAFTA-DR includes protections for member state foreign investors, including mechanisms for dispute resolution.
Foreign investors report numerous systemic problems in the Dominican Republic and cite a lack of clear, standardized rules by which to compete and a lack of enforcement of existing rules. Complaints include perceptions of widespread corruption at both national and local levels of government; a lack of technical competency within the government; excessively centralized and top-down decision-making structures, even for routine matters; delays in government payments; weak intellectual property rights enforcement; bureaucratic hurdles; slow and sometimes locally biased judicial and administrative processes; inconsistent application of judicial decisions in favor of foreign investors; and non-standard procedures in customs valuation and classification of imports. Weak land tenure laws and interference with private property rights continue to be a problem. The public perceives administrative and judicial decision-making to be inconsistent, opaque, and overly time-consuming. A lack of transparency and poor implementation of existing laws are widely discussed as key investor grievances.
U.S. businesses operating in the Dominican Republic often need to take extensive measures to ensure compliance with the Foreign Corrupt Practices Act. Many U.S. firms and investors have expressed concerns that despite improvements over the last three years, corruption in the government, including in the judiciary, continues to constrain successful investment in the Dominican Republic.
The current government, led by President Luis Abinader, has made a concerted effort to address issues of corruption and transparency that are a core issue for social, economic, and political prosperity, including promoting prosecutorial independence, actions to curb administrative corruption, the appointment of technically competent professionals in leadership positions, and the enactment of a civil asset forfeiture law. These and other efforts by the current administration have led to the Dominican Republic standing out as one of the few countries in the region where democratic ideals and institutions are on the rise. At the same time, however, the administration has not accomplished all of its stated goals. There also has been a tendency to scale back or withdraw important reform measures when they attract even modest levels of public criticism, including long-awaited electricity sector reform as well as a fiscal reform that most experts assess the country badly needs. More work has repeatedly been promised, including approval of public procurement legislation, but advancement on the President’s regulatory and legislative agenda will likely prove even more challenging as the country turns towards elections to be held in early 2024.
The Dominican Republic, an upper middle-income country, has been one of the fastest growing economies in Latin America over the past 50 years, according to World Bank data. Real GDP grew by 4.9 percent in 2022. Tax revenues were 9.9 percent higher than what was stipulated in the Initial Budget for 2022; coupled with budgetary discipline, the government maintained a deficit of 3.5 percent of GDP, lower than its target for 2022. However, inflation at the end of 2022 was 7.83 percent, above the target of 4.0 percent ±1.0. Despite government efforts to reduce public spending and increase revenues, absent meaningful fiscal reform, public debt continued to grow in 2022, reaching $51.8 billion (if debt to the Central Bank is added, the public debt reached $68.9 billion), and a total service of debt of $7.1 billion – resulting in decrease in the debt to GDP ratio, but an increase in the total value of government debt. The government continues to apply large subsidies to different sectors of the economy such as the electricity sector and hydrocarbons. In 2022, the government allocated $1.5 billion to the subsidy for Electricity Distribution Companies (EDE’s) and $663 million directly to fuel. The government’s effort, largely via the use of subsidies, to combat the effects of inflation caused by pandemic-driven monetary policies and exacerbated by the Russian invasion of Ukraine have largely kept the economy on track for growth with projections for GDP growth for 2023 in the 4.4 percent range.
According to the 2022 Climate Change Performance Index, the Dominican Republic is one of the most vulnerable countries in the world to the effects of climate change, though it represents only 0.06 percent of global greenhouse gas emissions. As a small island developing state, the Dominican Republic is particularly vulnerable to the effects of extreme climate events, such as storms, floods, droughts, and rising sea levels. Combined with rapid economic growth (over 5 percent until 2020) and urbanization (more than 50 percent of population in cities, 30 percent in Santo Domingo), climate change could strain key socio-economic sectors such as water, agriculture and food security, human health, biodiversity, forests, marine coastal resources, infrastructure, and energy. The National Constitution calls for the efficient and sustainable use of the nation’s natural resources in accordance with the need to adapt to climate change. The government is acting, both domestically and in coordination with the international community, to mitigate the effects of climate change.
To access the ICS, visit the U.S. Department of State Investment Climate Statements website.