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Pridco Director Hiram Ramirez Confident Of Increased Job Creation In 2004

Preference law and marketing fund running; waiting for amendment to Exports Law


February 26, 2004
Copyright © 2004 CARIBBEAN BUSINESS. All Rights Reserved.

During 2004, Puerto Rico Industrial Development Co. (Pridco) Executive Director Designate Hiram Ramirez will prioritize the agency’s resources to promote projects that the island is competing in, concentrating on the agency’s current pipeline, and making sure that Pridco runs as efficiently as possible.

Ramirez points to an increase in manufacturing company openings during 2003 compared with 2002—from 146 companies in 2002 to 174 companies last year—but fewer jobs created at 6,905 jobs in 2003 compared with 7,398 jobs in 2002.

"In the months of January 2001, 2002, and 2003, Pridco promoted nine, 11, and eight companies, respectively," said Ramirez. "But this year we have already promoted 21 companies, which brings us an encouraging outlook for the manufacturing sector in 2004."

Appointed by Gov. Sila Calderon to take Pridco’s helm in January, Ramirez is concentrating on moving forward programs or laws established during the first three years of the Calderon administration. One example is the new Puerto Rican Industry Investment Board (PRIIB) law of January 8, 2004. The PRIIB replaces the Government Purchases Preference Policy Board operating under the Puerto Rico General Services Administration and provides more benefits for small and midsize companies (Pymes by its Spanish acronym) in the manufacturing industry.

The new Investment Board allows 2% to 15% cost preference to products manufactured by qualified companies looking to sell to the government in competitive procurement processes so that they can compete with larger companies that offer their products at lower costs. A study commissioned by the House of Representatives and a group of business organizations in 2002 revealed that of $5.2 billion in annual government purchases, only 25%, or $450 million, is supplied by local manufacturers and distributors.

"There are three important changes to this law," said Ramirez. "First, companies won’t have to pay a fee to apply for preferences. The new board will also allow manufacturing companies to transfer to their distributor the preference to which they are entitled to bid for a government contract. Since distributors can’t apply for the preference and small manufacturing companies depend on their distribution channels to sell their products, the new law will allow them more access to government purchases. Lastly, the board, under the new law, can investigate complaints concerning government bidding processes."

While local agricultural products automatically receive a 15% preference, most manufacturing companies’ products are granted preferences between 2% and 10% based on the products’ degree of transformation. The Preference Board reserves the right to award up to an additional 5% preference points depending on value-added activities the company may offer, such as job creation.

So far, 291 local or multinational manufacturing companies doing business in Puerto Rico benefit from the law and supply 37,000 products to government agencies. Ramirez is looking to increase the number of companies enrolled during the first year to 378 companies, 567 companies during the second year, and 624 companies during the third year.

"The number of companies with preferences is very small," said Ramirez. "For some reason the law hasn’t had the desired impact. But I feel there are many opportunities. Pridco has qualified more than 1,000 companies under its Puerto Rican Industries program whose products apply. Also, there are few agricultural products on the list. So far, there are approximately 30 companies waiting for their products to be approved."

Incentives and advertising

Another program that Ramirez has tackled in his first days at Pridco’s helm is the $1 million promotional fund that matches dollar for dollar local businesses’ advertising and marketing programs. Just recently, two companies (Carla’s Sweets and Fancy Kids Corp.) were finally granted $61,103 for their marketing programs.

"Four proposals have been formally submitted," said Ramirez. "Rovira Biscuit Corp.’s proposal is in the final stages of approval and Chocolate Cortes has also submitted a proposal. In addition, there is another company that needs to enter Pridco’s promotional program in order to qualify for the program."

Ramirez wasn’t able to say how much of these funds were destined for Puerto Rico Products Association members, who have waited since 2002 for a $1 million assignment of non-appropriated funds (Law 157 of Aug. 10, 2002) that the Treasury Department hasn’t so far been able to allocate. While the funds are to be used to match an institutional marketing campaign for the association’s members, the group hasn’t submitted a proposal yet.

Economic development laws

Another marketing tool that Ramirez aims to use this year is the 13 economic development laws approved by the Calderon administration since 2001. Since most are tax incentives, Ramirez claims he has no record of whether they have been successful or not because that information goes directly to the Treasury Department.

"Five companies have taken advantage of the pioneer business Law 145 of Oct. 4, 2001," said Ramirez. "Abbott, Amgen, Cordis, Eli Lilly, and Medtronic have received a 0% to 2% tax rate [to establish innovative technology operations generating jobs in scientific, technology, and management areas]. Their total investment amounts to $1.4 billion in equipment & machinery, and they will generate about 1,850 new jobs.

"Law 109 of Aug. 17, 2001, provides a tax credit equivalent to 50% of the cost of acquisition of a business that is closing its local operations," said Ramirez. "Twenty-six companies with a total investment of $187.3 million and 1,730 jobs saved have benefited so far."

As to Law 169 of Dec. 3, 2001 (known as the Exports Law), Ramirez is waiting for Gov. Calderon to approve several amendments that could make it easier for companies buying locally manufactured products for export to qualify for a tax credit.

"Thanks to Pridco’s efforts to expand the market for local products, companies such as Pan American Grain, Lanco Manufacturing, and Vassallo Industries are exporting their products to the U.S. mainland through multinational companies such as Wal-Mart and Home Depot," said Ramirez. "We are in negotiations with these and other retail chain stores to encourage sales agreements for products manufactured by Puerto Rican manufacturing companies."

The Exports Law grants a 10% tax credit to businesses buying products manufactured in Puerto Rico and exporting them to the U.S. mainland or to foreign countries. The tax credit is based on a comparison between the average value of the products purchased by the company over the previous three years and the higher value of the products purchased in the tax year in which the credit is claimed.

Nonetheless, Pridco Tax & Legislative Office Director Oscar Perez Sosa told CARIBBEAN BUSINESS that further changes to the law are needed. "Studies done by the Treasury Department show the law isn’t yielding the results the government had expected," he said. "These amendments to Law 169 are supported by the Treasury Department and we anticipate presenting the new legislation by Feb. 25, when the governor presents her State of the Commonwealth address."

The proposed legislation will also allow companies to choose whether to apply the tax credit (which starts at 10% of the value of the products purchased up to a maximum of $14 million) against income tax or against excise tax liabilities. A table prepared by Pridco indicates that product purchases of up to $50 million would be eligible for a 10% tax credit. Purchases in excess of $50 million and up to $100 million would receive a $5 million-plus-8% tax credit on the excess of $50 million.

Purchases between $100 million and $150 million would be eligible for a $9 million-plus-6% tax credit on the excess of $100 million. Purchases between $150 million and $200 million would receive a $12 million-plus-4% tax credit on the excess of $150 million. And purchases in excess of $200 million would receive a $14 million tax credit.

This Caribbean Business article appears courtesy of Casiano Communications.
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