Puerto Rico Economic Sector Profiles
Puerto Rico in the Global Economy
Not much has changed since early in 2012. The BRICs (Brazil, Russia, India, China) have continued to experience a slower rate of growth and this is having an impact on prospects for recovery in the US and Europe. Only China of the four BRICS has been able to recover a higher growth level. The European situation appears to have stabilized for the moment, although risks remain concerning, in particular, the situation in Spain. However, it is interesting that changes in labor legislation have made Spain more competitive in key industries such as automobile manufacturing and this will provide a stimulus for growth. The social situation brought about by a 25% unemployment rate has worsened and could pose a serious threat.
The recently elected Administration in Puerto Rico has made insertion in the global economy a priority. This has been expressed by the recently appointed head of the Puerto Rico Trade Company, Francisco Chévere. The Island’s linkages to the global economy and its sensitivity to its volatility are frequently underestimated, but the incoming economic team appears to be well informed on the issues related to the global economy and their implications for the Island. This was made abundantly clear in a Puerto Rico Manufacturers’ Association workshop in early December in which the Governor and others of his economic team participated.
The results of the U.S. election has implications for the debate on whether austerity or stimulus s the preferred route for dealing with the fiscal crisis. It is to be expected that Democrats will favor the latter and Republicans the former. The recent action by the Congress allowing tax cuts to remain in place for most Americans, postponing spending cuts and extending unemployment benefits for another year will almost certainly provide a needed respite for the economy. It is clear that President Obama is coming out the winner in the process. Should the House more conservative Republicans impose their views on spending and the debt limit, the Republican party will be portrayed as responsible for a new recession.
There is no longer any question that the global economic center of gravity has shifted to Asia, particularly China and increasingly, India. The former is already the world’s largest exporter and its second largest economy. Although both are undergoing internal adjustments and will experience lower growth rates, their preeminent role remains. In fact, a recently published report by the United States National Intelligence Council (Global Trends 2030, December, 2012) indicates that Chine will become the largest economy before 2030.
Spain, Mexico, Brazil and many others have established a major presence in China, and so have some of our neighbors in the Caribbean and Central America, notably Panama and the Dominican Republic. U.S. states have also taken steps to be in synch with the new global distribution of economic power. China has become the major trading and investment partner for a number of Latin American countries and has become increasingly active in the Caribbean. In fact, the biggest tourism project in the region, Baja Mar in the Bahamas, a 2,000 room facility is being financed, built and will be operated by chinese entities.
Manufacturing and the financial sector in Puerto Rico have been the key channels to other economies and, to a large extent, they remain as key links. However, there are some recent changes in this respect. The entry into Puerto Rico of large retail chains such as Wal-Mart, Walgreens, Costco, CVS and others is an increasingly important channel for integrating Puerto Rico with the global economy. The purchase by Oriental Bank of BBVA, completed in December, 2012, is a recent development that will mean the exit from the island of a global financial institution. A number of local emerging technologies firms have established an important presence abroad. Two examples related to the bio-pharmaceutical industry are are PACIV, with operations in Indiana, Ireland, Great Britain and Italy and PharmaBioServ with operations in the U.S. and Europe. Vernet, whose educational software is being used in the mainland, in Panama, the Dominican Republic and other countries is a third example of local firms penetrating international markets. There are others. Incentives area being provided to advanced services firms to promote exports, beyond what some are already doing.
Technology plays a key role in the globalization process. It has been argued that without the changes in information technologies and the connectivity they made possible, globalization would not have occurred at the pace it did. Puerto Rico lags in this respect but recent initiatives will improve connectivity at a lower cost than at present. Recent studies on Internet and Broadband access by Estudios Técnicos, Inc. for the Sales and Marketing Executives Association reflect a great deal of progress in both. Internet penetration now stands at 50% of the adult population and Broadband access is now at 90% of those using the Internet. The most recent information on Internet usage suggests that penetration should be 55% in the very near future.
Productive insertion in the global economy is essential for our economic future. Obviously, the United States economy of which we are a component will continue to be the major economic link. But just as other states such as Florida, to name one, have been very aggressive in their global pursuits, so must Puerto Rico. Recent initiatives by the Government, improving our connectivity and support for emerging technology local firms are welcome initiatives.