Economic Development: Why does it matter, and what is our goal?

In order to fund many of our proposals long term, it is crucial that Puerto Rico’s economy grows. Currently, the territory would struggle to sustain many of the proposals; since Section 936 of Possession Tax Credit, which gave enormous tax breaks to manufacturing companies, and its subsequent phased out, Puerto Rico’s “political and economic institutions are increasingly oriented towards and co-opted by wealthy international elites to the detriment of its people.” [1] 

“Section 936 made foreign investment in Puerto Rico artificially attractive… [which] left the island vulnerable to a crash if the tax provisions were ever to be repealed.” [2] Section 936 was fully repealed in 2006.

Figure 1: “Puerto Rico economic growth for 2018 was $101.13B, a 2.99% decline from 2017.” [3]

The Puerto Rican government is already burdened by debt and hurricane recovery costs in addition to an overall economic state weakened by a continuing decrease in the working population and dependence on imports. Additionally, the US government has neglected to enact effective economic policies toward the island, further complicating economic recovery. 

Figure 2: Puerto Rico’s trade balance changes in past years.

Our proposal for economic development aims to reduce reliance on imports and draw people and jobs back onto the island. Though we do not address specific policy changes in this proposal, we acknowledge that even implementing these measures can only provide so much benefit if growth is not supported by a change in policy. This kind of change takes a lot of time and effort especially considering Puerto Rico’s unique political state.

Puerto Rico Trade Balance (2000-2018)

“External balance on goods and services equals exports of goods and services minus imports of goods and services. Data are in current U.S. dollars. Puerto Rico trade balance for 2018 was $14.11B, a 43.9% decline from 2017.” [4]

Combating Brain Drain and Supporting Local Businesses

From 2017 to 2018, Puerto Rico saw a net population decrease of about 123,000 people [15] Many of those leaving Puerto Rico are young people seeking an education and a living off the island, which stifles development within Puerto Rico. The Puerto Rican government has already implemented some strategies to motivate change, such as Act 20, which attracts businesses to the island in order to increase exports through tax exemptions; Act 22, which attracts investors similarly with other tax incentives; and Act 135, which benefits Puerto Rican entrepreneurs between the ages of 16 and 35.

We chose to focus on drawing Puerto Rican people back to the island, and thus further investigated efforts already being made to stimulate entrepreneurship, such as Act 135 below.

ACT 135: Benefits (Puerto Rico Business Link, 2018)

1) Income tax exemption on the first $40,000 gross income generated (from ages 16-24).

2) Tax exemptions on the first $500,000 gross income generated during the first 3 years of operation of a new business

3) Expedited process to obtain permits

4) Access to low cost real estate

5) Access to financing, Venture Capital Investment, and financial advice through the Economic Development Bank of Puerto Rico.

It is crucial to let young entrepreneurs know about these opportunities. Similar to the rebranding within the visitor economy, we propose a campaign to make success stories and resources for entrepreneurs more visible.

There are already similar programs in place, such as Parallel18, based out of San Juan, which acts as an accelerator for startups that are starting to scale up. [16] Parallel18 has succeeded in attracting high growth businesses, which have generated $14 million in sales––however, as the director of the School of Business Administration at Universidad del Sagrado Corazón in Puerto Rico pointed out, there is still not much support for entrepreneurs in the initial stages of entrepreneurship. [17]

Thus, we would propose that this new campaign focus on entrepreneurs that are just beginning the journey. This program would have the following focuses:

  • highlighting success stories
  • spreading information about government startup incentives such as Act 135
  • providing a framework that connects businesses to each other and to their resources

The overall goal is to ensure that entrepreneurs believe that they can build their dreams in Puerto Rico. As they stay and start new businesses, the people of Puerto Rico can generate more jobs, more opportunity, and help bolster economic growth overall.

Boosting the Visitor Economy

One of Puerto Rico’s largest markets is the visitor economy, which relies heavily on the island’s image as a desirable destination to visitors. Thus, in 2018 the Puerto Rican government created an independent Destination Marketing Organization (DMO) in order to hone a persistent, persuasive marketing message for tourism. So far, Discover Puerto Rico (™) has reported that tourism has generated the highest revenue this year to date in the Island’s history, “with $445M reported through May.” [5]

Figure 3: Advertisement for a Discover Puerto Rico project.

Many of the DMO’s objectives have centered around changing the visitor narrative about Puerto Rico, pursuing advertisement through digital media, and increasing efficiency within the tourism industry. [6] We propose that this DMO can additionally help promote agritourism in Puerto Rico by integrating agritourism into its branding.

Figure 4: © 2017 Puerto Rico Tourism Company

Agritourism brings visitors to farms and cafes to experience and learn about native agriculture and culinary processes. It makes agriculture profitable and attaches cultural meanings to local products. [7] It has the potential to stimulate the agricultural industry and create more jobs in relevant sectors, especially in central mountainous areas traditionally less visited by tourists.

Some key benefits of implementing agritourism in these more rural areas would include:

1. Stimulating the agricultural industry by increasing demand for locally grown food and generating additional income for farm owners. 

Figure 5: Photograph of Hacienda Muñoz Coffee Plantation in Puerto Rico, which offers tours (Puerto Rico Day Trips, 2017) [8].

According to Javier Rivera, Puerto Rico’s former Secretary of Agriculture, the main reason why Puerto Rico imports 85% of its food is that home-grown food cannot be produced at competitive rates. [9] Therefore, it is crucial to find ways to convince customers of the advantages of choosing locally grown food, which local food movement in mainland US has accomplished. By educating the public about the local history of agriculture and the importance of agriculture to the quality of life, agritourism can give home-grown food new meanings, creating a compelling narrative. On a more practical ground, visitors of agritourist facilities and adjacent areas will expect every meal to be prepared from locally sourced food, so even if the agritourist facility focuses on one type of farming product, demand for all kinds of locally grown food will increase. With the additional income brought by agritourism, larger demand of food, and a greater sense of worth and social appreciation in the work, agriculture will grow steadily in Puerto Rico. 

2. Creating jobs and increasing economic activities in relevant sectors. 

Expenditure TypesExpenditure in Carlsbad ($)Jobs Created(no.)
Food & Drinks984,93133
Overnight Lodging683,07117
Recreation Activities284,97911
Gasoline & auto related230,4245
Groceries, toiletries, etc.145,7324
Total Expenditures2,329,13769

Figure 6: Economic impacts of expenditures by all visitors to The Flower Fields at Carlsbad, 1998 [10] * Adjusted for inflation to 1998

Tourism and hospitality industry are extremely labor intensive, and agritourism will bring many employment opportunities to not only the farms and ranches as the attraction sites but also other areas like accommodations and transportation. In addition, youth with low level education are able to work in many of those jobs and receive on-the-job training, leading to reduced unemployment rate and sustainable economic growth. [11]  More jobs will be created within these regions: a study based off The Flower Fields in Carlsbad showed that the farm’s visitors generated an estimated 69 direct jobs and a value-added economic impact of $2,357,741, $3,698,616 if adjusted for inflation to 2019. [12][13] The projected increase in economic importance of rural regions may also lead to more timely arrival of comprehensive aid after hurricanes hit.

3. Rural development and better resiliency to hurricanes. 

Figure 7: Condition of rural regions of Puerto Rico

According to the Carlsbad study, 200,000 yearly visitors to one working-farm-turned-attraction spent an estimated $3,698,616 after adjusting for inflation to 2019. Although rural regions may currently lack sufficient infrastructure to support an influx of visitors, agritourism provides economic incentive to upgrade these infrastructures. Better infrastructure can additionally foster more economic development and better storm preparation and response.

Additionally, agritourism can create a more active community through youth retention and stronger community cohesiveness: as mentioned in the previous section, more youth would be able to find employment in their local community, which can alleviate the emigration problem. A grassroot approach to agritourism could further enhance community cohesiveness. [14] Overall, the community will be stronger and more self-sufficient, able to actively engage in voluntary recovery and self-help efforts post-disasters.

There are already some successful agritourism businesses in Puerto Rico, but the number is small compared to the mainland US. In addition, they are generally family-owned small scale businesses that lack marketing and easy booking through major travel websites (a search with the keyword “agritourism stay” only generates one result on Expedia). We propose that Puerto Rico’s new DMO support this industry’s growth. The DMO is in a unique position to do so, as the head of marketing and the interface through which many visitors interact with Puerto Rico. By continuing to change Puerto Rico’s visitor narrative to include agritourism, Discover Puerto Rico can help boost the economy.

To facilitate the development of agritourism, it is vital to develop leadership to encourage cooperation between parties of interest, education programs to teach local communities necessary skills to start successful agritourism businesses, and branding and marketing strategies. Puerto Rico’s Destination Marketing Organization can leverage its brand to better market agritourism, as well as ease communication between businesses and communities, helping to grow agritourism businesses without burdening the community. Additionally, our next proposal provides an option to help communities get the skills and support they need to start businesses in this industry.

Useful educational material on how to start a successful agritourism enterprise:

Figure 8: Puerto Rico’s population consistently decreasing for years.