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Pharmaceutical Industry Concerned About Permits, R&D, Clusters, And Labor Laws

Remains lifeline to Puerto Rico with FY 2001 exports of $25.1 billion


November 29, 2001
Copyright © 2001 CARIBBEAN BUSINESS. All Rights Reserved.

More than a dozen representatives from Puerto Rico’s pharmaceutical industry concurred that the acceleration of the government’s permit process, role of academia in research & development (R&D), development of clusters, and labor law reform are its key industry concerns.

Representatives of more than 20 pharmaceutical industry companies, which last year exported $25.1 billion in products made on the island, shared these and other points during a workshop held at the Puerto Rico Pharmaceutical Industry Association’s (PIA) annual conference earlier this month.

Government executives surprised and impressed participants as they facilitated PIA’s manufacturing workshop. After being divided into several workgroups, pharmaceutical executives discussed the difficulties involved in how to remain competitive in the increasingly global environment.

Representing the government were Economic Development & Commerce Department (EDCD) Secretary Ramon Cantero Frau; Puerto Rico Industrial Development Co. (Pridco) Executive Director William Riefkohl; Planning Board President Hermenegildo Ortiz; and EDCD Economic Analysis & Strategic Planning Deputy Executive Director John Stewart.

"We have been using Puerto Rico’s fiscal autonomy to the maximum, particularly in passing 16 laws that will impact economic development on the island," said Cantero Frau. "While our permit process is being expedited, we do recognize that other countries’ processes are much faster."

"But we have moved quickly in other areas. For instance, up to 25% of the Puerto Rico Energy Power Authority’s fuel oil consumption’s cost has been hedged, or ensured, so far. And our efforts on behalf of the U.S. Congress’ approval of Internal Revenue Code Section 956 continue," said Cantero.

For fiscal years (FY) 2000 and 2001, the value of Puerto Rico’s pharmaceutical drugs exports increased 35.7%, from $18.5 billion to $25.1 billion, according to the latest revised figures of the Puerto Rico Planning Board. Industry analysts estimate that the pharmaceutical industry contributes 25% of the island’s $63.8 billion gross domestic product (GDP)---according to Estudios Tecnicos’ 1.1% growth estimate over FY 2000’s $63.1 billion GDP.

A U.S. Bureau of Labor Statistics’ (BLS) Survey of Establishments recognizes the economic impact of Puerto Rico’s pharmaceutical manufacturing industry on the island as greater than that for similarly developed states in the U.S. mainland. Puerto Rico was assigned a location quotient (LQ) of 9.19 during 2000, higher than New Jersey (5.08), Delaware (3.39), Connecticut (2.72), and Indiana (2.32). The island’s strong LQ is a measure of the importance of this economic activity as compared to the economy as a whole.

The island’s LQ for drug manufacturing (apart from other chemicals and allied products) was even higher, at 10.1, while manufacturing of electronic distribution equipment was 6.0, and medical instruments and supplies ranked 4.7.

Despite a drop in overall manufacturing employment, the pharmaceutical industry continues to expand. In the first six months of this year, Puerto Rico lost close to 8,000 jobs in the manufacturing sector (CB July 14). Most jobs lost were in the textile, apparel, leather, and food preparation (canned tuna) industries. Labor intensive electronic manufacturers such as Intel also found they could not compete with foreign low-wage markets.

"The decline in manufacturing, as a share of the island’s economic activity, is a result of increased outsourcing, such as contract manufacturers and personnel supply firms; plant migration to low wage regions, particularly in the apparel and labor-intensive assembly industries; and a higher manufacturing productivity growth, which causes relatively lower prices for manufactured products to reduce their share of the island’s GDP," said Stewart.

But in the pharmaceutical manufacturing industry, more than 3,000 jobs have been created between Oct. 1996 and Sept. 2001, along with 2,800 jobs in other manufacturing industries. According to Stewart, "Future job growth will depend on the productivity growth caused by service-related companies. The objective is to add high valued added export markets in manufacturing and services."

Pridco has set out to match manufacturing companies with local suppliers, thus forming competitive clusters that will reduce costs, establish cross-company interaction, and provide stable job environments. The cluster concept was initially developed during the Rossello administration, with the government’s support of the western region’s Technology Corridor.

Multinational companies have now adopted the concept. The Puerto Rico TechnoEconomic Corridor (PRTEC) in the west and the Central Eastern Technology Initiative in Caguas (known by its Spanish acronym Inteco) recently presented their own cluster plan.

Each cluster is stimulated by the private sector, with the inclusion of academia and economic development government agencies. So far, more than $1 million in private and public funds have been pledged to both initiatives.

Pridco has already identified more than 30 U.S. and foreign companies operating in Puerto Rico that are supporting or have the potential to provide supplier services to the pharmaceutical sector. The initial supplier list includes materials suppliers, manufacturing support services, technical & special services, general services, engineering & construction, non-profit support centers, academia, and professional associations.

Riefkohl’s goal is to match companies with suppliers and vice versa. "Many [pharmaceutical industry members] have received a questionnaire to identify the needs for supplier services. Their responses will help us define which companies can render services in their (manufacturer’s) sector or area of expertise."

But PIA Executive Director Agustin Marquez may have described the role of the pharmaceutical industry in Puerto Rico best.

"In addition to its substantial direct impact on Puerto Rico’s economy, the pharmaceutical industry impacts the quality of life of many residents of the island," he said. "At all levels, it has produced world-class professionals, second to none in the entire world.

"And our economic contribution to all our stakeholders is significant to the employment market, to the arts, education, health services, to our patients and their physicians. And in financial terms, to our stockholders, since our stakes in Puerto Rico are very high and we must ensure they know, understand, maintain, protect, and enhance this legacy."

PIA’s membership is made up of 24 corporations, organized in 41 manufacturing operations with 19 commercial entities. Capital investment in Puerto Rico by the pharmaceutical industry is estimated at more than $10 billion, generating more than 27,000 direct jobs and 90,000 indirect jobs. The island’s pharmaceutical drug market is close to $1.5 billion.

This Caribbean Business article appears courtesy of Casiano Communications.
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