As local economists paint a grim outlook for Puerto Rico’s financial prosperity due to the business restrictions enacted over the coronavirus pandemic, as well as alleged government corruption and deficient infrastructural services that affect the island’s business environment, American investors shared their praise and concerns for the economic future of Puerto Rico and its potential to attract—and retain—investment.
THE WEEKLY JOURNAL interviewed separately three investors who decided to bet on Puerto Rico after the creation of Acts 20 and 22 of 2012 (Acts 20/22), which have since been amended and encompassed in Act 60 of 2019, also known as the Incentives Code. These entrepreneurs discussed the island’s investment climate now, the retroactive changes made to the laws that drew them to Puerto Rico, the economic impact of the governor’s executive orders, and how to restore investors’ trust on the island.
Robb Rill moved to Puerto Rico in 2013 and was one of the first 10 investors to come to the island after the approval of Acts 20/22, founding The Strategic Group PR, a private equity firm, and The Act 20/22 Society, which he presides, to group together the scores of entrepreneurs who settle locally under the premises established in these laws.
“For me, [settling] was maybe a little easier than most, but I was still navigating a very foreign space, and I don’t mean this in a negative term, but I was an isolated gringo [and] no one understood why I was here if I wasn’t working for a pharmaceutical company… The people who did understand wanted to be very cooperative and helped me become successful,” Rill said, commenting on the original process of moving to Puerto Rico and starting a new business endeavor.
Since Rill made the island his permanent residence, the atmosphere has changed dramatically. In 2015, then-Gov. Alejandro García Padilla declared that Puerto Rico’s multibillion-dollar debt was “unpayable”; in 2016, the U.S. Congress passed the Promesa law and created the Financial Oversight and Management Board; in 2017, Hurricanes Irma and Maria devastated the island and the Zika virus affected the tourism sector; in 2019, consecutive protests ensued over government mishandling of Hurricane Maria relief, resulting in the resignation of then-Gov. Ricardo Rosselló and high-profile members of his Cabinet, as well as other FBI arrests on corruption allegations.
And now in 2020, Puerto Rico has been under strict government measures due to COVID-19 that have severely impacted the local economy, the southwestern region was impacted by earthquakes, and the island recently experienced botched primaries and more FBI-ordered arrests of legislators.
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“All of that affects from an optics point of view the concern of stability and the concern of ‘do we have people running the show that we can have confidence in?’ And the answer is, unfortunately, there is still a big question mark there because Puerto Rico has not one black eye, but multiple black eyes as a result of historical incompetence, corruption, and I would say to some extent, malfeasance. Whenever investors are looking for new areas, these are all critical things to consider, and I think that is in part why there hasn’t been more investment on the island,” Rill explained.
By contrast, Sam Blake, founder & CEO of SB Marketing LLC, came to Puerto Rico in 2017, just a few months after Hurricane Maria, after hearing about the tax exemptions included in Acts 20/22 on a U.S. podcast. Despite being witness to multiple historic events that local economists argue have shattered the island’s business environment, Blake remains optimistic.
Business-wise, he said his revenues have doubled, or even quadrupled, from his annual growth projections. In terms of rescuing the island’s attractiveness as an investment destination, he agreed with Rill that the chain of political upheavals and natural disasters have certainly made an impact, but believes that if people vote out what he deemed “corrupt” politicians, confidence will return.
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“I think that the chaos in Puerto Rico, whether it is in government or the weather, is causing people to not have faith in Puerto Rico as an investment opportunity and that is why I think that within the next five or 10 years we are going to see an increase—because the government is improving and I think that the weather will as well. I think that we’ve just had a bad couple of years, too,” Blake said.
Meanwhile, Franklyn Weichselbaum—president of Global Management LLC and member of The Act 20/22 Society—settled in Puerto Rico in 2015, although he used to travel extensively to the island with his family. “The incentive [for which] I came here, was simply the tax incentive; it made a lot of sense to me,” he said.
Changes to Act 20/22
More so than political cataclysms, Weichselbaum argued that the biggest hindrance to Puerto Rico’s investment potential is the changes made to Act 20/22. For example, the administrative fee was $300 and now it’s $5,000, under the premise that the additional $4,700 will be destined to the Puerto Rico General Fund. Likewise, Rill noted that the $5,000 annual fee doubles for those with spouses.
“I think it’s one of the dumbest moves someone could have done. I know people that wanted to come to Puerto Rico and they decided not to because they thought ‘how do I know what I’m signing up for,’” Weichselbaum stated.
Because of this, The Act 20/22 Society filed a lawsuit against the government. Rill noted that while he is “not a fan of making constant change even if it’s going forward, retroactive is a thing that cannot be accepted.”
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Blake, on the other hand, who is distanced from the membership-based nonprofit, denounced the lawsuit as “the most ridiculous thing in the world.”
“For any of us, an extra $5,000 shouldn’t make a difference with the taxes we’re saving, but another thing is, if someone doesn’t feel like they can invest another $5,000 in Puerto Rico, then they shouldn’t be here,” he asserted, adding that he feels “incredibly grateful” to the island he now calls his home.
However, Rill affirmed that Act 20/22 investors have impacted the local economy with more than $650 million in real estate, roughly 40,000 jobs and extensive charitable work. Moreover, the lawsuit claims that these individuals have also contributed $169 million for the local Treasury and municipalities, $678 million of capital investment and $141 million in the consumption of goods and services in Puerto Rico.
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“If they made the retroactive to $5,000… what stops them from making it $100,000 next year, and what stops it the year after to, ‘let’s make it half whatever their income is?’ Not having certainty about what the program is, is complete craziness,” Weichselbaum added.
House Bill 2576 was created and sponsored to address this issue, but it couldn’t make its way to the Senate before the Legislature ended the session. Gov. Wanda Vázquez did call for an Extraordinary Session, but the bill was not included for senators’ consideration. “That was an unresolved issue that we need to take care of before we can truly have more investment on the island,” Rill said.
Regarding the months-long restrictions for businesses, residents and visitors to curtail the spread of the coronavirus, Blake opined that the island is handling the situation better than the U.S. mainland, whereas Weichselbaum observes that, despite the greater level of freedom he would have stateside, he’d much rather stay in Puerto Rico.
Rill, meanwhile, is a member of the economic task force organized to assist the governor, along with the medical task force, on how to handle the pandemic, and he expressed dissatisfaction over the closures that have affected entire economic sectors.
“A significant portion, or the majority of the economic task force is very frustrated because there’s a health task force and it seems that we are at significant odds and the governor is, not exclusively, but heavily leaning towards what the health task force says and ignores many of our recommendations,” Rill denounced, adding that a task force member even resigned “in disgust.”
Rather than more restrictions, he calls for Puerto Rico to apply the “Sweden Model,” which “states that anybody who is at risk needs to remain in place, but they didn’t force anybody to shut down.” As an example, he noted that Georgia has had about 4,000 virus-related deaths out of over 10 million people, which is less than one-tenth of the entire population.
“I’m all for protecting people, but you have to balance it and you have to give people freedom of choice, that if I can run my business, I need to try because you are certainly going to kill me financially and ruin my entire life unnecessarily because you are not allowing me to try to support myself and my family,” he stated.
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The governor has justified the renewed business restrictions and the continuing curfew on the continuing rise of COVID-19 cases on the island, saying that safeguarding public health remains the top priority.
As of press time, the P.R. Health Department had reported nearly 14,000 confirmed COVID-19 cases, 395 deaths and probable cases of almost 17,000, accumulated since March, out of an estimated population of roughly 3.1 million people, or approximately 0.45 percent of the population.