Op-Ed: What we can do for ourselves to boost economy?

Written by  //  September 20, 2016  //  Biz Views  //  No comments

Author Abelardo Ruiz is a seasoned private-sector executive whose management expertise has been recognized extensively.

Author Abelardo Ruiz is a seasoned private-sector executive whose management expertise has been recognized extensively.

Everybody is “waiting” for the Fiscal Control Board in hopes that it will “give” us something. It remains to be seen which programs they would implement, etc. But why can’t we do something for ourselves?

In addition to the economic dependence that many Puerto Ricans experience under U.S. government programs, we have added, in the face of the Control Board, the economic dependence of “Thought, Initiative, and Creativity” (TIC). We’re also proposing an economic development plan for the island.

There is discussion as to if there is in fact an economic development plan for Puerto Rico, and certainly there must be a number of documents that prove that definitely there is a plan, but it has been and still is ineffective, and has failed in providing economic growth of the local economy.

One of the key elements that must be taken into consideration, and perhaps the most important one, is to acknowledge that each industry is different from one another, each having its own characteristics, special needs, and uniqueness that must be addressed separately, and not like “cattle,” as the saying goes: “one size doesn’t fit all.”

Acknowledging the above, then, the Economic and Growth Plan for Puerto Rico should be as follows:

  • Create a “working team” which would be made of top business representatives from each industry, no politicians or academia or technicians, that will make the decisions about which incentives and business parameters will apply to each industry, including market size, competition, quantity of resources and their academic qualifications are available, etc.
  • Change actual paradigms where economic incentives are provided the same to all industries, especially directed to the seller or manufacturer, when in many occasions the incentive should be directed to the purchaser/buyer, especially in those industries where the local companies face foreign/outside competition, providing the incentive to the buyer.

For example, should Wal-Mart get a tax credit on its purchases to local companies, this would have a double effect: the companies receiving the purchases would increase their business volume, thus paying a higher tax dollar to the Treasury Department, would make the local company a stronger viable business, and would increase the local market for that particular industry, allowing the economic growth of those companies.

Wal-Mart would not object this initiative, as it opposed the special tax that Treasury wanted to imposed upon them, to the contrary, it would welcome the new incentive, as its business is a low margin profit relying on volume, and this would allow an additional way of improving that margin.

This credit would be by industry, as applicable, and will be available to foreign companies, as well as local companies, for example, transfer the incentive credit from the local chicken and egg producers (sellers), to the Supermarket/Groceries chains/stores (buyers), again producing profit for the final entity responsible for the pricing to the consumer.

Currently, the company that solicits the incentives ties economic benefits to the creation and commitment of additional employment. The commitment is made by the business without really knowing if it can accomplish it, while the government uses the commitment for propaganda and political objectives (“We have obtained from X company a commitment of six additional employees in the next five years.”)

In addition to the uncertainty, it is highly expensive, and inefficient, to supervise the process in a serious and adequate manner. It is hereby proposed to change the paradigm instead with a vision of increasing/growing the business, resulting obviously in additional employment required to service the additional business volume. This provides the businessman, and the government, to take away “that ax that hovers over their head”, that commitment that is made in “darkness” and that responsibly weighs in their conscience.

The main industry for exportation is that of services, and among those, the ones provided by the technological companies. Presently, and most certainly in the future, the majority of the technological services are provided remotely via technological tools that allow for a more effective and efficient service to its customers.

In this industry, Puerto Rico’s human resources are at a par with any country in the world, as our technicians are educated with American technology, and is appropriate to export that knowledge, especially, with the objective of becoming the “technological hub” of our region, the Caribbean, and once we achieve that level and recognition, then we can go outside of our Region for technological exportation to other countries.

Actually, Panama, Venezuela, and Colombia are ahead of Puerto Rico, to the point that principally Venezuela, has been acquiring local companies, and/or establishing their own operations on the island clearly competing against the locals, and employing Venezuelan expatriates in their operations.

Incentives for exportation of products and/or services are similar, if not exactly the same, for all industries, when in fact each presents opportunities and challenges unique to their businesses. For example, how is it that the same incentives would apply to the exportation of technological services with the exportation of furniture? The exportation of insurance services with the exportation of textiles?

Expected plan results
For one, it would create a local market in which the native companies are allowed the opportunity to achieve real success, and can compete in its growth. That it becomes a vehicle to achieve economic growth to create “big local companies,” and avoid trying to continue “depending and surviving” with the “PYMES” (Small and Medium Enterprises), and the “peanuts” that are thrown their way so they will always remain PYMES.

Promote and facilitate local investment
The local investor is by nature very conservative, and lacks real capital for investment, or is timid in “risking” what they have; this will provide a more secure business environment in which their investment should allow for a more sure return on that investment.

It opens up the market for “outside investment” either through local companies, or by establishing their own companies to take advantage of the market. It also establishes the basis for a stronger Exportation activity for its own goods and services.

It also provides a good and solid business reason for the consumption of products and services “made” in Puerto Rico, and not only, as the government and some specific organizations plead for support of “made here,” as is often published in the following manner: “Buy Puerto Rican products and services, because they are produced here.” But I would add to that: “Even if they are more expensive than the imports and in some cases not the same quality?”

The financial objective of this “plan” is that it be neutral cost-wise to the governments by “altering/changing” the business incentive paradigms, while increasing local market economic activity, thus augmenting local government revenues.

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