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Local Manufacturing Industry Counting Few Blessings

Net income grew 0.1% in FY 2003; calendar 2003 growth estimated at 1.3%


December 25, 2003
Copyright © 2003 CARIBBEAN BUSINESS. All Rights Reserved.

Gov. Sila Calderon’s recent announcement that Puerto Rico’s economy has partially recovered from the past two years’ economic recession came as no surprise to the leaders of the island’s manufacturing industry.

"Manufacturing growth during fiscal year [FY] 2003 [ended June 30] wasn’t noticeable, with net income growth of only 0.1%," said Jose Joaquin Villamil, president of consulting firm Estudios Tecnicos. "The areas with the most growth...were medical instruments, pharmaceutical, and biotechnology. For FY 2004, we expect net income growth of 2.6%, which, if you average it out, will show a rough estimated growth for 2003 of 1.3%."


Puerto Rico Industrial Development Co. (Pridco) statistics show that 71 new manufacturing-company openings produced 1,997 jobs in FY 2003, compared with 73 companies and 1,188 jobs in FY 2002. Most of the new jobs were in the medical devices sector (769 jobs), electric/electronics sector (369 jobs), rubber/plastics sector (140 jobs), and apparel/textiles sector (115 jobs).

Pridco statistics for the first quarter (1Q) of FY 2004 (July to September) reveal that 62 new companies began operations and created 2,774 new jobs, compared with 27 new companies and 1,046 jobs in 1Q 2003. About 32%, or 900 new jobs, in 1Q 2004 were created in the food sector, 19% in medical devices (537 jobs), 10% in apparel / textiles (273 jobs), 8% in chemicals (216 jobs), and 7% in electric/electronics (203 jobs).

Some 20 companies benefited from Law 109 of Aug. 17, 2001, receiving $173.1 million in tax credits for purchasing local operations that were closing and, in the process, saving 1,170 jobs. The law provides up to a 50% tax credit on the purchase of the majority of a corporation’s stocks, construction or other improvements to a facility, or the purchase of equipment & machinery. Among the purchasing corporations were Sunoco, Pan American Grain, CF Foods, Cooperativa Mar-Coop Molding, Packaging Solutions, Y-nuina Inc., Acerias de Colombia S.A., SPC Molding, Caribbean Co-op, and PCB Horizon Technology Inc.


The pharmaceutical sector remained the top contributor to the manufacturing industry. Some $545 million was invested in expanding pharmaceutical manufacturing plants, in part to accommodate new products. Eli Lilly, for example, invested $125 million in its Mayaguez plant and $175 million in its fill-and-finish facility in Carolina.

Other pharmaceutical investments in 2003 included $7.5 million by Bristol-Myers Squibb (Mayaguez), $90 million by Baxter Healthcare (San German), $20 million by Schering-Plough (Las Piedras), $33 million by Becton-Dickinson (Las Piedras), $35.2 million by Medtronic P.R. Operations Co. (Ceiba), $45 million by Johnson & Johnson Ortho Pharmaceuticals (Manati), $12 million by Ivax Pharmaceuticals (Cidra), and $1 million by Medisearch Puerto Rico (Guayama) to increase its work force of 133 by 22 jobs.

Companies also expanded their educational and training efforts in their communities. Hewlett-Packard awarded $50,000 to build a Community Technology Library in Barrio San Anton, next to its Aguadilla complex. In addition, the company invested $180,000 in technology programs at the University of Puerto Rico-Mayaguez and is working on a leadership development center for Arroyo’s special communities.

Schering-Plough (Las Piedras) and Stryker (Arroyo) announced the end of expansions started before 2003, in which they invested a combined $49.8 million. Stryker’s expansion created 127 new jobs.

Construction of Abbott Laboratories’, Amgen’s, and Eli Lilly’s biotechnology plants (announced between 2001 and 2002) continued in 2003. In March, Amgen Chairman & CEO Kevin Sherer visited Puerto Rico to announce the company would invest another $400 million in its in-progress expansion in Juncos, bringing the total investment to $800 million, adding 500,000 square feet to the complex, and generating 200 new direct jobs.

On Dec. 17, Abbott announced a $20 million expansion to its contract manufacturing plant in Humacao. Abbott Puerto Rico General Manager Harry Rodriguez said the project involves adding a fill-and-finish operation to complement the $350 million biotechnology plant’s start-up of its first product, Humira. The Barceloneta plant is scheduled to open on time and on budget in October 2004.


There were 38 company closings and 2,988 jobs lost in FY 2003, compared with 77 closings and 5,542 jobs lost in FY 2002. Six company closings were reported in 1Q 2004, which will translate into 727 jobs lost by June 30, 2004. The closing of one medical device company was responsible for the loss of 290 jobs; 165 jobs were lost in the furniture sector and another 149 in apparel / textiles.

In February, Sara Lee’s Playtex closed its operations in Vega Baja, Humacao, and Dorado, leaving 1,200 jobless. Since 2001, Sara Lee plant closings in Camuy, Guanica, San Sebastian, Barceloneta, Comerio, and Rio Piedras have left 3,900 jobless.

Other apparel companies have left Puerto Rico in favor of countries with lower labor costs, such as the Dominican Republic and Mexico. In May, Caribe General Electrical International Relay in Añasco laid off 40 employees, retaining 250. Ponce’s Molex will close in January 2004, leaving 200 jobless by June.

Pridco has compensated for some of the closings by incentivizing and creating cooperatives. Sweet Fashions in Morovis received $61,300 in Pridco incentives to subsidize its move to a Pridco building, where it employs 48; the company has committed to creating 22 additional jobs.

Caribbean Co-op in Hatillo inaugurated a new shoe-manufacturing plant after receiving a $750,000 loan from the Economic Development Bank and $81,240 in tax incentives from Pridco. The cooperative had 33 employees and was committed to creating 50 new jobs with a projected payroll of some $808,000; another 29 jobs were added in November.

Pridco had promoted 84 new projects through September 2003, which could create 6,720 new jobs with a possible investment of $1.3 billion in equipment & machinery. Most of the jobs are targeted for the chemical, medical devices, equipment / machinery, apparel/textile, and electrical / electronic sectors.

Promoting exports

Most of the growth in Puerto Rico’s manufacturing industry for FY 2003 came from the transfer of new pharmaceutical drugs to the island, higher production resulting from new drug applications, and the increased manufacture of medical devices. In addition, consumer demand for related sectors such as electric / electronics and rubber / plastics benefited the manufacturing industry.

However, attracting new manufacturing companies to establish local operations or encouraging U.S. and foreign companies to take advantage of tax exemptions to export local goods hasn’t borne the expected fruit. In fact, Gov. Calderon asked business leaders to spread the word about the tax incentive laws created over the past three years.

"I hope that the government will allow the manufacturing industry to take a more active and aggressive role in promoting Puerto Rico," said Puerto Rico Manufacturers Association (PRMA) President Manuel Cidre. "States such as North Carolina have begun to create laws geared to the pharmaceutical companies they want to attract and have been successful. We are no longer competing against Singapore, Ireland, or the Dominican Republic. Our competition is the mainland states looking to expand their manufacturing industry.

"In terms of the manufacturing industry, I think the worst of the economic recession and its effect on Puerto Rico is over," added Cidre. "The more traditional sectors–textiles, plastics, and electric–had a lot of problems this year and lost jobs. But the electronics and pharmaceutical sectors, along with information technology, did well."

According to the PRMA’s retail members, 2003 sales were below 2002, despite the government’s claim that consumer spending had been a major factor in the growth of Puerto Rico’s economy.

Private-sector initiatives with major retail companies on the U.S. mainland such as Wal-Mart and Costco yielded negotiations with local companies. So far, export contracts have been signed with Pan American Grain, Vassallo Industries, and Campofresco, and Carla’s Sweets. Companies expected to begin exporting their products soon are Barma Food’s Empanadillas Oscar, Jugos del Centro, Royal Borinquen Biscuits, La Aguadillana, and Dr. Mecanico.

This Caribbean Business article appears courtesy of Casiano Communications.
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