As the decade comes to a close, the Department of Economic Development and Commerce (DDEC by its Spanish acronym) identifies the emerging industries expected to grow and looks back at some of the most impactful economic development programs and reforms implemented in Puerto Rico within the last two years amid fiscal and sociopolitical challenges.
DDEC Secretary Manuel Laboy foresees positive developments in the local economy, particularly on the medical cannabis industry if the federal government legalizes its use.
Last week it was revealed that the U.S. House Judiciary Committee approved a bill to remove marijuana from Schedule 1 from the Controlled Substances Act, which has a high chance of being approved in the Democrat-controlled House, but less so in the U.S. Senate, controlled by the Republican party.
Although this federal legislation would effectively decriminalize marijuana for both medical and recreational use, the DDEC secretary focused on the bill’s potential to impact the island’s medical cannabis and medical tourism markets.
“After medical cannabis is legalized federally, it will open the market because right now its limited to Puerto Rico, and that in itself brings banking, financial and employment problems. But now that it is being discussed at a federal level, Puerto Rico is well-positioned to generate a greater boom,” Laboy said.
Moreover, the local government is also betting on hemp—one of the varieties of the cannabis plant with a lower THC level than marijuana—to bolster the island’s farming sector. According to Laboy, the local Department of Agriculture will introduce a plan before the U.S. Department of Agriculture (USDA) to incentivize that underdeveloped market.
“I hope that by 2020 hemp will have a tremendous boost in Puerto Rico in conjunction with medical cannabis, especially if medical cannabis is legalized federally,” he added.
Tropical climate makes the island an ideal home for this industry, since it allows up to three crops a year
In addition to these sectors, Laboy highlighted the administration’s emphasis on creative industries, such as sharing economy, sports betting, eSports and fantasy leagues.
He also observed that the Public Energy Policy Act approved earlier this year establishes the mechanisms for Puerto Rico to generate 40 percent of its energy from renewable resources by 2025, give up coal energy generation by 2028, and to be powered completely by renewable energy by 2050. Laboy said that because of this law, Puerto Rico has a profitable renewable energy industry to explore.
2020 Business Environment Outlook
THE WEEKLY JOURNAL asked Laboy to discuss how his administration intends to carry out its economic development plans in light of the multiple fiscal and political challenges that have impacted the island’s image of reliability to entrepreneurs and investors.
Apart from an economic recession, in the past years, political and financial segments have been toppled by the declaration of the island’s multibillion-dollar public debt, the federal government’s appointment of a Financial Oversight and Management Board by means of Promesa, the Zika virus epidemic, two devastating back-to-back hurricanes in 2017, mass migration and the summer protests which culminated with the resignation of Gov. Ricardo Rosselló and other high-profile officials.
“All of those events do have an impact on Puerto Rico’s image from the perspective of doing business and attracting investment, but the key is how we manage it,” the DDEC secretary responded.
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“The first thing is that we have established are communication channels and very close relations with the private sector. We have had frequent meetings—not only with companies but also with investors and entrepreneurs… Particularly in the summer, when the political crisis was happening, we gathered them here; we held several meetings with them to try and give them a little certainty and direction as to what was happening. The relationship with the private sector is very important, as is communication,” he added.
Laboy noted that despite these hardships, some sectors have experienced speedy recovery or even growth, such as construction, tourism and manufacturing.
He also highlighted several companies, local and foreign, that have recently announced expansions, such as Honeywell Insurance, Switzerland Dairy, Boston Scientific, Lufthansa, Aluminios de Puerto Rico, Sartorius, Pan Pepín, Collins Aerospace, Stryker Corporation, Romark Pharmaceuticals, LinkActiv and Boehringer Ingelheim.
The official also acknowledged that there is “a lot of work to do” ahead of the following year. He stated that to offer the “best optimal business climate,” the government needs to reduce its bureaucracy, lower the cost of doing business to improve the island’s competitiveness, prioritize local entrepreneurship and small- and midsize businesses and reinforce the island’s decaying physical and intangible infrastructure.
New projects include $25M investment, 800 direct jobs
Regarding bureaucracy, Laboy informed that the DDEC is in the process of establishing structural reforms to ease the process of making business in Puerto Rico. He asserted that the most pressing concern is the permitting process.
Back in July 2019, the DDEC announced a project to revitalize the former Roosevelt Roads Naval Station in Ceiba, which included the installment of a privately-operated micro-grid to provide energy to that area and a housing assistance program available to the region’s elderly population. These initiatives, which Laboy highlighted during the interview, entail a combined investment of $25 million and were estimated to create roughly 800 direct jobs.
“If you improve infrastructure and you improve the business climate, combined with the incentives that Puerto Rico has to offer, and with our location—our relationship with the United States—as well as the Puerto Rican talent, we will lure in more businesses. If we improve the visitor’s experience, our infrastructure and our image, the [Destination Marketing Organization] will do its job of marketing Puerto Rico [as a tourist destination]. But without a doubt, entrepreneurship is key for Puerto Rico to keep moving forward,” he stated.
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Laboy also recalled that in 2017 his agency established the Integrated Economic Development Plan. The agency’s strategic plan divides the island’s economic market into nine strategic sectors: agriculture and agribusinesses, manufacturing, aerospace, technology and innovation, creative industries, blue economy, green economy, the exportation of services and the visitor economy.
This plan saw its origins in the Plan for Puerto Rico but evolved after the impact of Hurricanes Irma and Maria in order to include funds provided by the U.S. government through the Federal Emergency Management Agency (FEMA) and the Community Development Block Grant Disaster Relief Recovery Program (CDBG-DR), as well as the tax incentives offered through the Opportunity Zones program that was incorporated to the Puerto Rico Incentives Code last summer.
“After the hurricanes came, the CDBG-DR component played an important role because we are working on eight economic development programs there. From small-business financing to incubators and accelerators, energy and agriculture—there are several programs,” he said.
Laboy also deemed Acts 20 and 22 to be pivotal to Puerto Rico’s growing business environment. The Export Services Act and the Individual Investors Act, 20 and 22, respectively, were created in 2012 but have garnered more discussion in the media after the hurricanes due to the government’s “Build Back Better” recovery plan.
A study commissioned by the Economic Development and Commerce Department (DDEC by its Spanis…
Laboy had previously cited a study conducted by Estudios Técnicos Inc., which found that these acts have led to 36,222 jobs from its conception until mid-2019. Regarding Act 20, the DDEC secretary noted that 35 percent of its beneficiaries are local companies, while 35 percent of Act 22 beneficiaries have already begun businesses in Puerto Rico.
“The previous study, presented in 2016, revealed that, at that time, 7,400 jobs had been generated and the projection in 10 years was to create 56,601 jobs. On the other hand, by 2015, the investment totaled around $500 million. This new report showed that this line increased to $1.2 billion. These results are very positive because they show that this law is fulfilling its task of promoting the economic development of Puerto Rico, exporting the services and/or products that we generate on the island,” Laboy stated when he revealed the study’s findings.
Now that these and other initiatives are incorporated in the Puerto Rico Incentives Code, Laboy affirmed that his agency will continue boosting the island’s economic sectors in a more “cohesive way” and with “greater transparency” and “fiscal responsibility.”
The official also praised the decision to create a destination marketing organization (DMO), Discover Puerto Rico, to advertise the island as an attractive tourist destination to foreign markets. Both the DMO and the Puerto Rico Tourism Co. (PRTC) have reported an upsurge in Puerto Rico’s visitor economy due to higher air passenger traffic, more big-scale cruise ships arriving at Puerto Rico’s shores and a boost in meetings and conventions.
Editor's note: This story was published on the November 27 print edition of The Weekly Journal.