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Stellar performance of Puerto Ricos Top 300 better than the overall economy
Key to good performance at the top: investments, construction boom, consumer confidence
by JEFFRY VALENTIN-MARI
November 2, 2000
Total revenues generated by Puerto Ricos Top 300 locally owned companies edged up 5.3% to $20.01 billion in 1999, compared to $18.99 billion in 1998. The growth was helped by the strength of the islands overall economy that year.
According to data released by the Puerto Rico Planning Board (PRPB), P.R.s economy grew 4.2% in fiscal year (FY) 1999, the highest growth rate in the 1990s. The extraordinary injection of fundsapproximately $4.0 billionthat followed Hurricane Georges rampage in 1998 helped fuel extraordinary economic activity through 1999.
Puerto Ricos FY 1999 economic performance helped raise average real growth of the last five years to 3.2%. Last year, the stellar performance of Puerto Ricos Top 300 locally owned business, not only surpassed those growth rates, but may have actually helped drive the positive performance of the islands overall economy.
Consider the scale: the combined total assets of P.R.s Top 300 companies topped $50 billion in 1999. That year, the islands nominal gross domestic product (GDP) totaled $59.9 billion. GDP refers to the total value of goods and services produced within the geographic limits of a region or area.
Several factors had a positive effect on the economic activity on the island in the last five years: the sustained growth of the overall United States economy, the dynamic vitality of the local construction industry, and consumer confidence.
There are no signs of a recession or even contraction on either the local or the national economic horizon, despite six interest rate increases since June 1999, and oil prices hitting a 10-year high,
According to PRPB projections, Puerto Ricos economy is expected to grow at a maximum rate of 3.0% in FY 2000, and is projected at more moderate 2.6% growth in 2001.
The performance of P.R.s Top 300 companies undoubtedly benefited from sustained consumer confidence. In fiscal 99, personal consumption expenses registered a 6.0% growth in real terms, a much higher rate than the 3.3% reached in fiscal 1998. According to the PRPB, consumer confidence in the economy stayed strong through the 1994 to 1999 period, with real expenditures increasing an average of 5.2% per year. An increment of 10.4% in consumption of durable goods, 3.4% in non-durable goods and 6.4% in services induced this increase.
According to the PRPB, retail sales rose by 5.4% to $13.53 billion in 1999, in comparison to $12.84 billion over last year.
Besides personal consumption expenditures, a key variable to gauging economic activity is total investment. It enhances productivity and, therefore, revenues. And last year, total investment on the island went through the roof.
The internal gross fixed capital investment, comprising investment in private and public construction works, as well as the purchase of machinery and equipment, increased by a whopping 26.1% in real terms in 1999compared to a mere 5.4% in 1998. The previous highest mark of the decade was in 1997, when a real increase of 12.1% was registered.
Between fiscal years 1990-1999, investments increased at an average annual rate of 8.1%. As a result of this expansion, the ratio of gross fixed domestic investment to real gross product increased to 30.2%. A healthy gross product investment ratio is crucial for future growth of economic activity. In addition to the significant impact of investment on economic activity in the short-term, the investment ratio indicates which portion of the real gross product is dedicated to increase the economys long-term production capacity.
The investment that different economic sectors make, mainly private enterprises, in machinery and equipment includes productive capital goods such as computers, air conditioning equipment, industrial production machinery, motor vehicles, construction machinery, etc.
Perhaps, the construction boom is the single most important factor positively affecting performance of local businesses. For the fourth consecutive year, construction investment, private as well as public, continues to boost economic activity registering real growth rates of 12.1%, 12.6% and 19.9% in 1997, 1998 and 1999, respectively, and an accrued growth of 87% from 1995 to 1999.
At current prices, the investment in construction during FY 1999 reached $6.6 billion for a 23.9% increase over the previous year. In 1999, for the first time in 25 years, the total value of private construction projects surpassed that of public projects. Investment in private construction rose by 41.0% to $3.5 billion fueled by a 49.2% increase in the construction of dwellings.
Total public investment, mostly geared to development of certain strategic infrastructure projects, reached $3.1 billion during FY 1999, for a 9.1% growth at current prices. During FY1999, the value of infrastructure projects alone reached $2.3 billion, including the north coast Super Aqueduct, the dredging of Lake Carraizo, the Urban Train, roads (PR-53, PR-10), the Coliseum of Puerto Rico, and others.
In assessing the relative importance of the factors listed above, it is important to note that the industry composition of the Top 300 is more diverse than the picture one gets from measuring contribution to GDP by industry.
In the economy as a whole, the manufacturing sector represented 44% of the islands GDP in FY 1999, followed by finance, insurance, real estate with 13.7%, trade 13.1%, services 10.0%, and contract construction and mining 2.5%.
By comparison, of the top 300 locally owned companies, 22% were grouped as wholesale businesses, followed by retail (16%), service (14%), construction (13%), manufacturing (10%), and automobile (9%), among others business.
This Caribbean Business article appears courtesy of Casiano Communications.