Puerto Rico is a Commonwealth of the United States, a territory with a self-governing status that determines its development. The foreign sector has always been one of the most active in its economy and foreign investment is a fundamental basis for its growth.
Located in the northeastern Caribbean, its population was 3.16 million in 2020, according to federal census data, a figure that the World Bank raises to 3.22 million in 2022. Mostly concentrated in the cities (94% of the total population), its citizens have a high standard of living compared to the economies of Central America and the other Caribbean countries.
Key economic policy objectives
Puerto Rico is at a crucial moment for its future. The main objective of its economic policy is to achieve budgetary stability and fiscal consolidation, which will allow it to significantly reduce public spending and deficits, and balance its accounts. The fiscal and economic stabilization plan is committed to creating public/private partnerships aimed at developing strategic projects to resolve financing problems.
Another of the country’s priorities is energy reform. Given the island’s geographic characteristics, Puerto Rico suffers from an excessive dependence on oil. However, this is changing. The government is looking for 100% of the energy generated on the island by 2050 to come from renewable sources. In fact, this sector is a priority in the establishment of public/private partnerships to promote the development of alternative energy projects.
Keys to its economic development
Fiscal year 2019 ended with GDP growth of 1.5%, according to ICEX data, departing from the declines in economic activity experienced in previous fiscal years. Thanks to the arrival of federal funds, economic projections were positive, but the outbreak of the coronavirus cut short expectations.
According to the latest estimates from the US Department of Commerce’s Bureau of Economic Analysis (BEA), its economy grew by 4% in 2021, a progression that followed a 6.2% drop in 2020, and this is mainly due to the 11.2% growth in personal consumption spending. The latest indicators published by the World Bank put Puerto Rico’s GDP growth in 2022 at 3.4%.
The region has an advanced and highly industrialized economy. The weight of the primary sector is small and 85% of the food consumed on the island comes from abroad.
• Primary sector: strong impact of disasters
According to ICEX data, gross agricultural production in 2021 reached US$711 million, with a growth of 4.4% over the previous year, but without a clear upward trend due to the impact of natural disasters, common in the area, such as hurricanes and storms.
• Secondary sector: rise of the pharmaceutical industry
This is of great value to the region, and is mostly made up of multinational companies attracted by tax incentives. SMEs, on the other hand, play a small role within the industry. During 2020, industrial production reached the value of US$51,269 million. The importance of industry is reflected in its weight in GDP, which was 48.13% in 2021. In this section, the rise of the pharmaceutical industry is worth highlighting: the country is home to 12 of the 20 largest multinationals in the sector and 13 of the top 20 companies manufacturing medical devices.
• Tertiary sector: tourism potential
Its contribution to GDP was 51.1% in 2021, worth US$54,512 million. Within the tertiary sector, tourism has a very significant weight in the Puerto Rican economy and has great potential as an engine of growth in the coming years. In 2020, the number of total visitors was 3.88 million, according to the International Monetary Fund (IMF).
Major international allies
The foreign sector has always been one of the most active within the Puerto Rican economy. Using data from ICEX once again, in 2019 registered exports amounted to US$63,684 million, which represented an increase of 5.1% over the previous year, but US$7,406 million less than in 2017. Registered imports reached US$49,421 million, growing by 6.4% compared to 2018.
By sector, 99% of Puerto Rico’s exports in 2019 corresponded to manufactured products, with chemicals and pharmaceuticals at the forefront, accounting for 77.5% of the total. On the one hand, 6.5% of total imports were hydrocarbons and coal and 6.6% were foodstuffs, whereas chemical and pharmaceutical products accounted for 48.4% of total imports that year.
By far its main trading partner is the United States, from which 51.05% of imported goods originate and to which 75.86% of exported goods were exported in 2020. However, these are not really exports but rather commercial exchanges, as Puerto Rico is part of the US customs territory. On the other hand, the rest of the world was the source of 48.66% of imported goods, with European and Asian countries leading the way. In the case of exports, 23.76% went to third countries, mainly European countries.
Foreign investment is one of the main focuses of interest as a development strategy. In May 2019, the new law on Economic Incentives for the Development of Puerto Rico, Law No. 60 of July 1, 2019, was approved in order to launch an attractive tax proposal to encourage foreign direct investment.
According to ICEX data, all sectors are open to foreign investment, with the exception of the exploitation of oilfields, mining, and other extractive industries, which are reserved for the Government of Puerto Rico. Moreover, investments in sectors such as aeronautics, telecommunications, and energy must be supervised by the US Foreign Investment Commission for national security reasons.
Major opportunities are concentrated in companies in well-established sectors such as pharmaceuticals, biotechnology, and medical devices. Also of interest are investments in infrastructure, energy and water supply projects, as well as the aeronautical sector, as Puerto Rico is intended to become a regional cluster.
Another very attractive sector is tourism, with steady growth in recent years, and opportunities are also detected in the ICT sector (as it is a good platform for exporting these types of services to the mainland) and in education (languages, universities).
Moreover, 95% of Puerto Rico’s territory has been designated as an Opportunity Zone by the US Federal Government, which offers tax privileges to economic development projects to attract investment with the ultimate goal of growth and job creation to help boost the local economy.