Dominican Republic - Traditional Manufacturing

Traditional manufacturing

During the Trujillo era, manufacturing grew more slowly than it did in other Latin American and Caribbean countries because of the dictatorship's disproportionate emphasis on sugar production. In 1968 the Balaguer government introduced the Industrial Incentive Law (Law 299). For the first time, domestic manufacturers received substantial tariff protection from foreign competition. In the same year, the government signalled the beginning of industrial diversification in the post-Trujillo era by establishing the Industrial Development Board to oversee industrial policy. Although these incentives stimulated an array of domestic industries, created jobs, and helped to diversify the country's industrial base, Dominican industries failed to develop a capacity to compete internationally. Although envisioned largely in terms of import substitution, most Dominican industries depended heavily on foreign inputs. In addition, because they were generally capital-intensive, these industries failed to provide adequate employment for a burgeoning population.

Local manufacturing was both inefficient and inequitable. The application of tariff and income tax exemptions became a politicized process whereby benefits accrued to individual firms rather than to specific industries. The Jorge government, which itself manipulated incentives regulations to its political advantage, introduced in 1983 the Democratizing Law 299, purportedly to standardize industrial incentives for all producers.

In the late 1980s, more than 5,000 traditional manufacturing firms existed in the republic. Food-processing activities were dominant, representing over 50 percent of manufacturing activity; followed by chemicals, 12 percent; textiles, 9 percent; and nonmetallic minerals, 6 percent. Some 3 percent of all firms accounted for nearly 50 percent of all industrial output; these firms, however, employed only 23 percent of the manufacturing labor force, indicating the capital-intensive nature of larger companies. By contrast, 85 percent of the smallest firms registered only 30 percent of industrial production, while employing 50 percent of Dominican workers.

The Dominican government generally abstained from involvement in new manufacturing operations, but twenty-five industrial enterprises, part of the Trujillo "legacy," remained in the government's portfolio in the late 1980s. Most of these parastatals were under the control of a state holding company, the Dominican State Enterprises Corporation (Corporaci�n Dominicana de Empresas Estatales--Corde). Initially converted into state-owned enterprises as the "inheritance of the people," Dominican parastatals endured in the late 1980s because of their role in the political patronage system. Corde's holdings were diverse, ranging from a five-man auto parts firm to a 1,600-employee cigarette factory. Although the Balaguer administration considered privatizing some state-owned enterprises to improve its fiscal position, that prospect remained unlikely because of the political value of such firms.

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