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Manufacturers Association CEO Summit highlights P.R.’s strengths and weaknesses

More than 200 participants discuss global issues to keep island competitive


March 24, 2005
Copyright © 2005 CARIBBEAN BUSINESS. All Rights Reserved.

More than 200 participants patiently sat through 11 presentations in the first Puerto Rico Manufacturers Association (PRMA) CEO Summit-Scorecard for Puerto Rico from the Private Sector Perspective, taking down information provided by dozens of panelists in areas in which local manufacturing and service-related industries are competitive globally.

Invariably, discussions between participants turned to why companies already established on the island couldn’t convince their parent companies or suppliers to come to Puerto Rico. Energy costs, water quality, poor infrastructure, and quality of life were among the reasons mentioned. Solutions to these and other problems were also discussed in hopes that suggestions from the group would be heard and implemented.

To assuage the manufacturing industry’s not being included in the state of the union message or the government’s fiscal 2006 budget assignment, Gov. Aníbal Acevedo Vilá took advantage of his presentation to commit $10 million to the Puerto Rico Industrial Development Co.’s (Pridco) $30 million promotion budget, news well-received by industry members. What some people don’t know is that the money was a repayment for the $10 million withdrawn in 2004 by the Calderón administration from Pridco’s promotion fund to finance the Science & Technology Trust and the University of Puerto Rico’s Centennial Fund, among others.

Company representatives participating in the CEO Summit were cautious yet optimistic about the new government measures to balance the budget and pull Puerto Rico out of its current fiscal crisis. "If Gov. Acevedo Vilá does half of what he has committed to doing in these next four years, Puerto Rico has a chance to succeed in the competitive industrial marketplace and retain its leadership in the [pharmaceutical] manufacturing industry or any other industry it chooses to develop," said one manufacturing industry leader who attended the summit.

Below are rundowns from two of the panel discussions:

Transportation & communications

Describing Puerto Rico as a reliable source for domestic and international transportation due to its solid air [transportation] capabilities, Juan Severino, UPS Business Development manager for Caribbean Transportation Services & Operations, mentioned Puerto Rico’s links to the U.S., the Caribbean, and Latin America as profitable assets. Another plus is the dedicated freighter service to key lanes with late cut-off times, which accommodate production schedules.

The obvious challenge brought up by most importing and exporting companies was the potential replacement of the present 6.6% excise tax by a sales tax or value-added tax (VAT), a general consumption tax assessed on the value added to goods and services applied to all commercial activities involving the production and distribution of goods, and services. In addition, Gov. Acevedo Vilá has been promoting the elimination of 35 remaining tax exemptions, which he states will add $639 million to the government’s operational budget.

Ponce’s Rafael "Churumba" Cordero Port continues to have the backing of state and local government administrations. Luis Ayala Colón Scrs. Operations Vice President Hernán Ayala pointed out that given the lack of land in the San Juan metro area to expand the Port of Puerto Nuevo, Ponce is the best alternative as a second port with full capabilities to reduce congestion in San Juan.

The U.S. Army Corps. of Engineers has yet to grant the Port of Ponce final approval to dredge the bay, a key requirement to allow post-Panamax ships to dock. Ponce’s Port Authority expects to have an experienced workforce and all available harbor services for immediate startup of vessel operations. The port’s size is still considered a challenge when compared to transshipment ports in the Caribbean already operating, where labor costs are lower. The ease of inland trucking for islandwide distribution of imported products will also determine the port’s success.

Science & Technology

The recent downsizing news at Hewlett-Packard Corp. and Nypro Puerto Rico Inc. (the latter a contract manufacturer affected by HP’s product line transfer to Malaysia) dominated talk about the future of electronics manufacturing in Puerto Rico. The former being the largest high-technology, labor-intensive electronics company on the island, industry members anticipated it would mean the end of the local electronics manufacturing sector if HP transferred all of its manufacturing operations off the island.

HP Caribe Vice President & General Manager for ISI, Iris "Chiqui" Santos presented an overview of the electronics industry’s development between 1999 and 2001, pointing out that at least 26 contract electronics manufacturers (CEM) had shut down in the U.S. and Europe while 19 had expanded in Asia. "Cost, although not the sole criterion, has been a key manufacturing strategy driver, sweeping the U.S., and Puerto Rico, with most electronics manufacturing migrating to the Far East," Santos said.

According to Santos, CEM are projected to grow 8% to 12% during the rest of the decade. Companies such as Flextronics, Solectron, SCI, and Celestica must maintain lean manufacturing operations to compete with counterparts in low-wage, low-cost regions. "Puerto Rico has in its favor its developed industrial infrastructure, particularly its educated workforce, telecommunications services, and stable social and political climate, which is critical for a healthy business scenario," Santos said.

This Caribbean Business article appears courtesy of Casiano Communications.
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