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Private Sector Power

Puerto Rico’s private sector heeds the government’s call to action and moves forward with millions of dollars in new investment and expansion plans to herald a sooner-than-expected economic recovery in early 2002.


October 18, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

Moving fearlessly forward: Construction, manufacturing, retail…even tourism development projects are going forward as a vote of confidence in Puerto Rico’s economic future.

Emboldened by signals from Washington and San Juan that the U.S. and local economies will withstand the current downturn and mount a comeback as soon as the first quarter 2002, leaders in Puerto Rico’s construction, manufacturing, retail, and yes, even tourism sectors are moving ahead with a host of confidence-inspiring expansion plans.

Though none of the top private sector leaders polled by CARIBBEAN BUSINESS is in possession of a crystal ball to give them the ability to banish all uncertainty about the course of future events, the fact that so many are moving forward with expansion plans is nothing short of remarkable and, perhaps, even contagious.

These leaders have taken note of the decisive economic stimulus measures demonstrated over the last few weeks by the Bush administration and Congress to pump billions of dollars into shoring up the economy and winning the war on terrorism.

They’ve also seen the Calderon administration and the Legislature work together–for the first time since this administration came to power--in unison with the private sector to push through necessary economic relief for suffering sectors, accelerate spending on major public works projects, and provide attractive new incentives for future growth.


The local private sector construction industry has not allowed the current economic slowdown to frighten it. On the contrary, contracts and projects have continued, with very few isolated projects being postponed or delayed.

"None of our members are delaying or postponing projects," said Alejandro Garcia, executive director of the local chapter of the Associated General Contractors of America (AGC). "Contracts and projects continue and workers are being retained, not laid off."

The general perception in the industry is that things look more positive since Gov. Sila Calderon announced 215 projects worth $1.2 billion in August that would go for bids between September and December as part of several initiatives aimed at jumpstarting the economy through government-sponsored projects, as well as granting tax incentives to the private sector.

Earlier this month, Calderon announced $214 million in additional projects moved forward ahead of schedule, bringing the total of projects to $1.5 billion (see chart).

"Now that the projects have gone out to bids, the industry is showing a happier face," said Garcia. "Our members are participating in these bids, which means the industry will continue to provide jobs."

AGC’s 376 local members are responsible for approximately 80% of all construction projects on the island, contributing $6 billion to the island’s GNP and providing 78,000 direct jobs.

Other recent government initiatives expected to have a significant positive impact on the construction industry include the creation of an express processing center (CET by its Spanish acronym) and the elimination of 41 steps from the government’s construction permitting process.

At the CET, one form is used, instead of the previous nine filings and eight applications. A single inspection eliminates the individual inspections from nine different agencies.

For projects that do not require public hearings, start-up time is reduced from six months to three months. For projects that require a public hearing, start-up time is reduced from one year to six months.

According to developer Joel Katz, president of the government’s newly created Construction Advisory Council and past president of the Puerto Rico Homebuilders Association, the planned $1.5 billion investment by the government sector in the construction industry sends a convincing message to the private sector.

"The government has raised the capital for these projects through bond issues," Katz noted. "Developers, contractors, and construction companies have a commitment to follow through on that public investment as well as continue with private investment," he said. "It’s the banks’ responsibility to provide liquidity to the private sector. Without liquidity, there’s no economic activity," Katz added.

According to Katz, this is the best time to have a construction project, because interest rates are low, energy prices are stable, and with the anticipated economic recovery slated for first quarter 2002, there will be projects under construction to supply the current demand.

"Of the $1.5 billion to be invested by the public sector in infrastructure, $500 million are for 10,000 social interest homes, the first batch of a total of 50,000 social interest homes to be built during the next four years," said Puerto Rico Housing Authority (PRHA) President Federico Stubbe. "Demand for housing in Puerto Rico is still significantly strong," he observed.

A recent study by research firm Estudios Tecnicos corroborates Stubbe’s remarks. The report indicates that the island’s housing demand is 20,640 units a year, of which 10,000 (46.6%) correspond to social interest housing, and 11,000 (53.4%) to medium— and high-income housing, referred to as "market" housing.

The challenge of the private sector, Stubbe indicated, is to supply that demand. He also applauded the government’s initiative to pump more funding into the construction sector. "It’s a smart move, since it’s the sector than can bring the fastest stimulus to the economy," he declared.

"Project closings continue to be very strong, especially first homes," R-G Finance Corp. CEO Victor Galan told CARIBBEAN BUSINESS. "Sales of second and third homes are selling well too, but not as strong as first homes," said Galan. The historical tendency during an economic slowdown is that second and third home sales are the most affected.

Stubbe said he expected well positioned, attractively priced projects to continue to do well, adding "real estate is a better investment than the stock market, after all."

During fiscal year (FY) 1999 and FY 2000, the island’s total value of construction in the private sector surpassed that of the public sector for two consecutive years–a situation that had not happened since 1974.

The value of total construction permits for FY 2000 amounted to $2.42 billion, of which $1.7 billion or 70% was from the private sector and $726.7 million or 30% came from the public sector.

Meanwhile, total value of construction permits during FY2001 reached $3.04 billion, an increase of $614.2 million or 25.3% over FY 2000’s $2.42 billion. Of that total, 66.2% or $2.01 billion was from the private sector and 33.8% or $1.02 billion from the public sector.

Whether the private sector continues the trend in FY 2002 will depend on the number of public and private projects that come out during the remainder of the fiscal year.


A half dozen manufacturing industry leaders reached by CARIBBEAN BUSINESS agreed that their companies’ market expectations and niche products–along with the approval of the latest tax incentives for the manufacture of high-tech pioneering products–fuel their confidence in the future.

Aguada’s SMART Modular Technologies Inc., for example, was Hewlett-Packard's (HP) pioneer contract manufacturer five years ago. Jorge Rodriguez, Puerto Rico Country Manager for SMART and sister contract manufacturer Solectron in Aguadilla, revealed, "Two weeks ago, we had to hire 50 employees at SMART and are looking to hire 50 more immediately."

"These past two months have been very surprising for us, and it has mostly been due to additional requests from HP, our largest client, on top of the orders that were already budgeted," Rodriguez added.

"The new economic development measure that I am most interested in is the one that offers a 0% to 2% tax base to pioneer companies," Rodriguez continued. "I’ll be meeting about it with the Puerto Rico Industrial Development Co. (Pridco), because it could make a difference with our current clients wanting to develop new products."

William Riefkohl, executive director of Pridco, told CARIBBEAN BUSINESS that "we have had an immediate response from various manufacturing companies looking to take advantage of the new economic measures."

"The companies come from all sectors," Riefkohl indicated, "including the pharmaceutical area and several consumer products manufacturers."

Meanwhile, Villalba-based Medtronic Inc. General Manager German Torres said that the company’s plans to begin manufacturing at least nine new products during 2001 are on schedule.

In October, the U.S. Food & Drug Administration approved three new pacemaker electrodes that will begin production next month at the company’s Cardiac Rhythm Management and Neurological operations plants in Puerto Rico. Medtronic’s plan to add another 100 employees at the Villalba complex by the end of this year also remain unchanged.

"The impact of the new law that provides tax benefits to core, or pioneer, industries, is seen by Abbott positively," Abbott Puerto Rico Inc.’s General Manager Harry Rodriguez said. "It helps promote the future expansion of our pharmaceutical complex and gives us an edge to compete with Singapore and Malaysia."

Back in Aguadilla, Pedro Martinez, general manager of Manufacturers’ Services Ltd. Puerto Rico, last week inaugurated a new contract manufacturing plant in the municipality’s San Antonio Technology Park which will provide production services to Hewlett Packard’s Printing Products Division.

"We currently have 100 employees and have a commitment with Pridco to expand the workforce to 350 or 375 within two years and perhaps expand our facilities by 50,000 square feet," Martinez said. "We are also exploring business possibilities with other clients in Puerto Rico," he indicated.


While the economy may not be in great shape right now, major retailers called upon by CARIBBEAN BUSINESS are expressing their confidence that things will turn around by next year, and they’re going ahead with expansion plans.

"We have to be positive, everything in life is a cycle," said Mike Nolla, president & COO of shopping mall developer Manley Berenson P.R., describing the general sentiment in the retail industry.

Federico Gonzalez Denton, corporate affairs director for Wal-Mart’s local subsidiary, said that Wal-Mart expects to build a 120,000-square-foot distribution center in the near future and open a new Sam’s Club in Hatillo in 2002.

Jorge Torres, president of Plaza San Francisco Investment LLC, said his company’s expansion plans are still on track. Plaza Rio Grande Shopping Center, at 300,000 square feet, is slated to open next summer. He also said he has had no trouble finding tenants. "We are already in negotiations with different chain stores such as Me Salve, Radio Shack, GNC, Video Avenue, Burger King, and more."

Costco’s General Manager for the Southeast Region, Roger Campbell, said that the chains’ first two stores on the island, to be opened in Caguas and Bayamon, are still slated to open this November.

Atilano Cordero Badillo, president of Empresas Cordero Badillo, said he will open new Grande supermarkets in Salinas and Naranjito by November. He said merger negotiations with White Rose are also still in the works.

Among other businesses that are expanding locally is Tricon Restaurants International--the owner of Taco Bell, Pizza Hut and Kentucky Fried Chicken--which plans to open six new restaurants.

Wendy’s is also on track to open about 20 additional restaurants by the end of 2002. Cinema Video, owned by local product distributor Puerto Rico Supplies, has recently opened up the opportunity to franchise their stores.

Puerto Rico Supplies is going ahead with its expansion plans, negotiating to add new products to their roster and expanding their facilities, according to President and Managing Partner, Edwin Perez.

Keeping the faith in tourism

Perhaps the most surprising—and heartening–news came from the tourism industry leaders contacted by CARIBBEAN BUSINESS.

Displaying inspiring confidence in the allure of the Island of Enchantment and the future of its tourism industry, local hoteliers signaled their continued commitment to revive the industry by proceeding with their expansion and renovation projects, as planned.

"Life goes on, and now more than ever we must take an aggressive approach and positive attitude to promote and expand our business for the future, said Jose Campos, general manager at the Caribe Hilton.

At the Caribe Hilton, there will be two new restaurants opening in December; the Madrid-San Juan Tapas and Restaurant Bar located at the tower lobby level and Il Giardino Rotisserie located at the main building lobby level.

Groundbreaking for the $180 million Paseo Caribe project, located near the Caribe Hilton will take place on Oct. 24. The mega project consists of four elements including 88 Condado Lagoon Villas, giving the Caribe Hilton 264 additional hotel rooms. Completion of the villas is expected by mid-2003.

The Inter-Continental San Juan Resort & Casino in Isla Verde is currently investing $17 million in renovations that includes guestrooms, corridors, and pool and recreation areas, slated for completion by Dec. 15. It is also opening a new restaurant called Passiaggio specializing in coastal cuisine from Italy, France, and Spain in mid-November.

"We are investing millions of dollars in renovation because we believe in the future of Puerto Rico," said Inter-Continental’s General Manager Peter Sahora.

Over at the Wyndham El San Juan Hotel & Casino, a $1 million renovation project should be completed by Nov. 15.

The construction of Hyatt Dorado Beach Resort and Country Club’s three new guestroom buildings is also on schedule. The "Su Casa Cottages", comprised of 36 guestrooms, is slated for completion by year’s end.

Also, $10 million worth of renovations at The Water Club in Isla Verde, Puerto Rico’s first ultrachic boutique hotel, is almost finished. The new hotel is set to open its lobby bar and dinner restaurant on Oct. 18.

The Water Club’s owner, Chadwick Hospitality, will also invest $10 million to upgrade their latest acquisition--the Excelsior Hotel in Miramar. The new owners want to convert the current three-star hotel into a four-star property by enhancing its business center and meeting facilities.

The first phase of construction of Puerto Rico’s first major all-inclusive resort–Sol Melia’s Paradisus Coco Beach Resort & Casino in Rio Grande, is scheduled to open by mid 2002. The resort is expected to lure European tourists to the island, a market that is still relatively undeveloped by the Puerto Rico Tourism Co.

At present, the Tourism Co. has a total of 21 hotel projects identified or 1,805 rooms under different stages of construction.

CARIBBEAN BUSINESS reporters Ken Oliver-Mendez, Jose Carmona, Marialba Martinez, Taina Rosa, and Evelyn Guadalupe-Fajardo contributed to this story.

Public expenditures on construction projects from September to December 2001
(In millions)
Agency Number of Projects Total
Dept. of Housing 86 $ 584.9
Dept. of Transportation &Public Works 56 $ 178.9
Public Building Authority 13 $ 133.9
Ports Authority 7 $ 23.8
Infrastructure Financing Authority 14 $ 89.8
Puerto Rico Electric Power Authority 34 $ 81.2
Tourism Co. & Convention Center 3 $ 79.0
Natural Resources & Environmental Department 2 $ 7.5
TOTAL 215 $ 1,171.7*

*Does not include some $329 million in projects that have been moved forward ahead of schedule, bringing the total to $1.5 billion

Source: Economic Development & Commerce Department

This Caribbean Business article appears courtesy of Casiano Communications.
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