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Open for business
Pridco Chief Will Make Jobs Happen
BY MARIALBA MARTINEZ
June 14, 2001
"Pridcos mission is to create jobs. Whether in manufacturing, commerce or services, we will endorse every project that creates more jobs and improves Puerto Ricos economy."
Ramon Cantero Frau
"It is very easy to sell Puerto Rico the second half of the year is sure to be wonderful!"
Ramon Cantero Frau
Secretary of Economic Development & Commerce and Executive Director of the Puerto Rico Industrial Development Co. (Pridco) Ramon Cantero Frau has a plan to make good on Gov. Sila Maria Calderons promise to create 100,000 jobs in four years.
It includes a broader vision of Pridcos mission beyond manufacturing, effective coordination of other economic development agencies, and new federal tax incentives to attract investment to the island.
This will not be the first time Cantero has tackled the challenges of Puerto Ricos economic development. But this time around, the former Government Development Bank president exudes the confidence and wisdom that only come with experience.
Above all, he knows that grand economic development plans dont mean a thing unless there is personal and direct involvement at the highest level in order to make things happen.
"Im an investment banker by profession and I always go for the kill. There will not be a deal that is under my control that will not be made."
And he will need many.
"My first week at the department was horrible. First came the announcements of plant closingsIntel, Sara Lee, Coach, Pan Am Shoe, and Starkist. But little by little it has become more pleasantrecently there have been fewer closings and more expansions," said Cantero.
Hinting at political motivations, he is suspicious about the early timing of the announcements under the new administration. "What I dont understand is why these closings were announced so closely one after the other. Our records show that last year [before the November election] the department had been notified in writing of at least 75% of the intentions of closings."
Cantero cant hide some veiled criticism of his predecessors. "The former administrations priorities seem to have been a little out of focus. But I believe things are falling into place."
Indeed, they seem to be.
According to Cantero, between Jan. 1 and May 31 Pridcos board has approved incentives for Puerto Ricos manufacturing sector in the amount of $55 million. The companies that have received the incentives committed to create 7,855 new jobs. This figure includes both new projects and expansions of existing operations.
And while there have been nearly 25 business closings so far this year, with the corresponding loss of 8,700 jobs, Pridco is working on $3 billion worth of total investment in future projects.
"Pridco exists to create jobs. And we will endorse every project that creates more jobs in Puerto Rico and improves the economy. In these past few months, we assigned almost a million dollars in incentives for Solectrons SMART Modular Technologies; and $2.7 million for Strykers research & development division in Arroyo.
"Funding for all these projects comes from all of Pridcos available sources. These are the Science & Technology Initiative (Fund 237), the incentives fund, and the Puerto Rico Industry Fund."
Whats in the pipeline
"So far, we have identified up to $3 billion in future projects, including new companies and expansions in the manufacturing and service sectors. This includes projects for high technology plants such as AstraZeneca, Pharmacia/Upjohn, Abbott Pharmaceuticals, and the recent Elli Lilly commitment.
"In the medical instruments industry, we are working with St. Jude Medical, Cardinal Health, and Jostra Bentley. In the information technology industry, Hewlett-Packard will soon finish its two new buildings in Aguadilla and we are still working with Solectron, Storage Technology, Corning Cable Systems, and Thomas & Betts.
"As part of the cluster-supports initiative, or companies that provide support services to large manufacturing plants, we are working with Digital Printing, Alpla Caribe, and Flexible Packaging. Export service companies such as Atento and Worldwide Solutions are also in our pipeline as well as technology development representatives AMI Microsensors, Biovail Laboratories, Avant Technologies, MOVA Pharmaceutical, and CIBA Vision.
"I hope to be able to bring all these projects, and many more, to fruition. And I want deals with large companies such as Stryker, Hewlett-Packard, and Johnson & Johnson."
For years, Pridco has limited its promotional efforts to developing the islands manufacturing industry. Cantero wants to expand the agencys focus.
"Pridco has always specialized in the manufacturing sector, particularly companies that qualify for tax exemptions. I intend Pridco to become a promotional entity that will provide incentives to other service sectors in the tourism, commerce, and foreign trade industries.
"Take for example a negotiation we are involved in right now with two different telecommunications companies. The outcome could be a possible 1,000 jobs in their customer service divisions. They want to come to Puerto Rico because our workforce is bilingual and for our proximity to the U.S. We are working hard to provide incentives to the service industry as well."
As he bears the primary responsibility for selling Puerto Ricos competitive advantages to potential investors, Cantero is unambiguous about the importance of bilingual education in Puerto Rico.
"During my stint as president of the Government Development Bank under the Rafael Hernandez Colon administration (1988-91), I was the only cabinet member who did not support the signing of Spanish-only legislation. I was opposed to it then, I have problems with that concept, and I do not feel less of a Puerto Rican because of it. Whoever wants to legislate to go back to that status is on the wrong path."
"Today, the language of business is English. Everywhere we market Puerto Rico we are told that one of our most attractive assets is our bilingual workforce. We find there is a phenomenon taking place where our people are being promoted to run not only local but international operations of multinational companies in Puerto Rico, when previously expatriates used to be sent here to do so. I think this is wonderful."
For Cantero, there are two key elements to attract, keep, and expand manufacturing and service companies in Puerto Rico. The first is to obtain new federal tax incentives to attract manufacturing investment to the island. The second involves the elusive goal of simplifying the complicated permit process, which bogs down the development of so many projects in every industry in Puerto Rico.
"We have to boost the economic development of Puerto Rico. If Section 956 is amended and we can simplify the governments bureaucratic processes, I believe there will be many economic development opportunities for the island. The economy is still resilient, there is economic activity, and people are willing to invest."
Cantero and the Calderon administrations campaign promise to jumpstart the engines of manufacturing in Puerto Rico is now centered on lobbying the U.S. Congress to amend Internal Revenue Code Section 956 to allow controlled foreign companies (CFCs) in Puerto Rico to repatriate 90% of their profits to U.S. parent companies free of tax.
With Section 936 scheduled to be totally phased out by 2005, Cantero is banking on the new Section 956 incentive to help lure companies to establish new facilities or expand their actual operations in Puerto Rico. He believes the chances of success are high because the measure would create an additional influx of capital into the U.S. mainland.
"President Bush is creating a political situation that is positive for Puerto Rico and we have found many friends [sympathetic to our cause] in the U.S. House of Representatives as well as in the Senate. The recent changes in Congress [with Senate leadership now in the hands of Democrats] are also very helpful to the island. We hope to see legislation to amend Section 956 submitted in Congress as soon as this summer."
But Cantero knows he cannot rely exclusively in another federal tax break. He is hopeful he can effectively tackle a problem that beset Puerto Ricos economic development in the last quarter century.
"The best contribution for Puerto Ricos economic development is to simplify the permit process. If we do not have this, we will not be able jumpstart the economy. Our plan is to apply pressure through the task force created by Gov. Calderon to deal with this problem. In the meantime, it is a matter of personal involvement.
"I sometimes call the agencies when problems arise for our investors and ask for quick results. I am not asking them to do anything improper but it is important that investors have someone interceding for them. If no results are forthcoming, you can be sure that Gov. Calderon will intercede as well."
Cantero feels very confident about Puerto Ricos ability to compete in the global market as long as we concentrate on high technology and manufacturing companies. According to the departments statistics, 7.5% of the total U.S. pharmaceutical workforce and 3.5% of the U.S. medical instruments workforce works in Puerto Rico.
"Puerto Rico has become very competitive in the high end manufacturing sector. In terms of local corporate tax rates, the island is second to Singapore with a 5.4% average effective tax rate versus 4.7%, respectively. Puerto Rico also has the lowest industrial rental rates at $2.81 per square foot versus the U.S. average of $4.70 per square foot.
"We are almost even with Japan in terms of almost no working days lost due to labor disputes. And comparing hourly wages, Puerto Ricos average $12.28 hourly wage is second to Mexicos $12.12 but lower than Irelands $13.57."
The DDEC umbrella model stays
Following a careful evaluation requested by Gov. Calderon from every umbrella department Secretary, Canteros recommendation with respect to his department was to keep the model adopted by the Rossello administration.
"The DEDC model is staying for now," he said. Besides Pridco, the DEDC oversees the Puerto Rico Tourism Co., the Commerce Development Administration, the Land Administration, the Cooperatives Development Administration, the Film Commission and the Horseracing Sport & Industry Development Administration. Others may be added.
"I am also inclined to integrate the Department of Agriculture to our Economic Development Council. We have been working with Secretary Fernando Toledo and his Department to identify land that is not suitable for agricultural purposes and can be used for manufacturing," said Cantero.
Functionally, he has expanded beyond the DEDC the number of agencies that meet regularly in an Economic Development Council (EDC).
"Our EDC meetings are very dynamic. Along with the Economic Development Bank and Government Development Bank we can identify problems and resolve bottlenecks more efficiently."
Tourism development encouraged
The Puerto Rico Tourism Co. is part of Canteros business opportunity plan for the service sector that he wishes to develop further.
Industry leaders have been critical of the recent announcement by the Government Development Bank that it would scale back tourism development incentives under the Tourism Development Fund which were used successfully by the past administration to attract tourism-related investment to the island.
"So far, we have about $600 million of new tourism projects in the pipeline. The new Puerto Rico Convention Center has already been given the go-ahead to begin construction. We will be moving forward with a plan that has a lower cost structure but is of the same dimension and modern appeal. But to do this, we had to scale down the project, eliminating some unnecessary features.
"Part of the reason for the redesign was that the past administration had only identified funding for $150 million. We will need to levy an additional hotel room tax to pay the balance. But this room tax is still lower than what other U.S. cities charge hotel guests. What we have done so far has the support of hotel owners.
"Regarding the Tourism Development Funds (TDF) development incentives, when we examined the fund we found that it had been tapped out with last years emissions. So, we have been forced to think of new financing methods. We are studying what kind and how many projects are in the pipeline before making the decision to add non-recurrent income from the Government Development Bank to the fund. Another alternative is to sell letters of credit or guarantees to private banks so we can activate the fund.
"Another issue we are dealing with is why should the government finance 60% of a project. Why cant private banks finance 60%, the TDF issue 20% in subordinated debt and the developers invest 20%? I find 40% financing from the private sector very limiting. But we are still looking for creative ways to do this so all the projects can be financed and developed."
Commerce Development Administration
Cantero also wants to break away from the limited role the Commerce Development Administration (CDA) has played in promoting primarily small retail businesses.
"The CDA has the responsibility to revive Puerto Ricos 78 town centers by bringing economic development projects to these areas. We have been discussing this initiative with retail chains like Walgreens and Wal-Mart to persuade them to establish themselves in these town centers instead of the towns outskirts, which tends to attract heavier consumer traffic. In addition to the physical plant area, what these companies require are parking facilities and a good business environment. If we can find space to develop in the town centers, the companies are receptive to the idea.
"The two telecommunications projects I mentioned before are a perfect example of initiatives that can be developed here. As part of Gov. Calderons initiative, we are about to construct four new warehouses in Cataño."
One of Canteros first acts as DDEC Secretary was to transfer Promoexport under the CDA in order to integrate its promotional efforts and promote foreign trade among small and medium-size businesses.
The Puerto Rico Chamber of Commerce is fielding the idea of a private sector-led foreign trade promotional efforts model, familiar in many states and foreign countries. The chamber has suggested taking over Promoexport. Cantero is not so sure.
"I believe that Promoexport should continue as a public corporation even though we want to increase private sector participation and incorporate it to the agencys agenda. We can entertain such an idea [integrating Promoexport to the Chamber of Commerce] but should be very careful since we are talking about managing public funds. It is very complicated to surrender the fiscalization of public funds to a private entity.
"I also opposed recent Senate legislation to create mini-embassies of Puerto Rico in foreign countries. Each <I>embassy<I> would have a commercial attaché and a tourism representative to coordinate projects with the corresponding agencies in Puerto Rico. This means creating another bureaucratic entity, which I dont believe could operate efficiently.
"Pridco has commercial offices in Chile, Panama, and the Dominican Republic. There is an office in Spain to handle the European market, which Puerto Rico has neglected in the past. There are many projects that would attract European companies to the island.
"For example, the United Kingdom and Ireland have a tax treaty similar to Internal Revenue Code Section 956. This could be useful for companies in Puerto Rico such as AstraZeneca (IPR Pharmaceuticals) and GlaxoSmithKline. We really need to redouble our marketing efforts in Europe."
Port of the Americas value-added
Another issue taking up Canteros time is the development of the transshipment Port of the Americas in the southern region of the island. While the municipality of Ponce is going ahead with its plan to develop a larger port to start off transshipment, it is Pridcos responsibility to develop the value-added industry from Guayanilla to Ponce that will surround the port.
"Pridco has met twice with a representative industry group to study various value-added models. The consulting group is composed of distributors, maritime companies, economists, manufacturing and business organizations, among others.
"Value-added will be a constantly moving target. We have to see what kind of transactions will be done in this area and structure our plan around it. Last month, transshipment port consultant Ernst Frankel met with the group to explain the concept of the study he did for our port. We hope to come up with a final implementation plan and break ground by the first quarter next year."
Cantero echoes the administrations public policy in favor of excluding Puerto Rico from the applicability of U.S. Cabotage laws under the Jones Act but admits he will not be wasting a lot of time pursuing a lobbying initiative with scant chances of success.
"I believe the Jones Act costs Puerto Rico about $200 million to $600 million annually. Eliminating this law is a very complex and uphill battle due to the many stateside interests groups involved. But the present administration favors its elimination.
"The DDEC prepared a study and it was presented to the Federal & International Affairs Senate committee. After we negotiate the Section 956 amendment we may be able to dedicate more efforts to lobbying for this effort before the U.S. Congress."
Canteros future vision of the DDEC and all its arms is to help create an entrepreneurial class in Puerto Rico.
Historically, Pridco has been more focused on attracting foreign investment than helping local companies. Cantero means to change this by initiating a more aggressive outreach to local companies, including inventor-entrepreneurs with sound, commercially viable ideas.
"Local companies are still not making use of our facilities. So far, we have had success with some companies such as Manufacturing Technology Services (MTS), MOVA Pharmaceutical, Productos La Aguadillana, and Flexible Packaging. The idea is to encourage Puerto Rican investment in Puerto Rico. This is the reason why the capital gains tax was lowered from 20% to 10% and they can now qualify for industrial tax incentives.
"We are also backing young entrepreneurs like elchavo.com and Biometrics Imagineering; people with great ideas who will not leave Puerto Rico and take their business elsewhere. We hope these entrepreneurs will serve as promoters for Puerto Rico when they do business worldwide. Imagine 50 successful entrepreneurs promoting the island globally!"
Cantero belongs to some 40 different boards of directors within the DDEC umbrella and in different government entities, including the Tourism Co., Pridco, the Foreign Trade Board, and the Government Development Bank. He shrugs off criticism that six months into the new administration, some of these boards have not yet been fully constituted and operating.
"Unfortunately there were people who didnt want to realize there was a change in administration and were hindering the transition and the work ahead. But in general terms, government work has continued and everyone is now on the same wavelength, which is creating jobs. Time and time again I have said at the DDEC umbrella meetings that whoever is not on the wavelength should not be here. And I will not have any problems getting rid of anybody that is not. The governor has given me a very clear mandate.
"In Puerto Rico we look at everything through a political prism, instead of realizing that as an island we have so much to offer. It is very easy to sell Puerto Rico, and the fruits of this labor will start to be seen in the next six months. When I arrived at the DDEC I had nothing, no pipeline, no structure. Now it is running. The second half of the year is sure to be wonderful!
This Caribbean Business article appears courtesy of Casiano Communications.