Integrated Economic Development Plan

Hon. Manuel A. Laboy Rivera

Secretary, Department of Economic Development and Commerce

Frequently Asked Question

Where is Puerto Rico’s Economic Development Plan?1

How do we get more money to the treasury?2

What are the specific measures to boost Economic Development?3

2

Who is responsible for Economic Development?4

What are we doing for SMEs?5

Puerto Rico Economic Background

3

Evolution of the Economy of Puerto Rico in the Past 50 Years

AGRARIAN ECONOMY INDUSTRIAL ECONOMY

1960’s 2000’s

ADVANCED MANUFACTURING, SERVICES AND KNOWLEDGE

ECONOMICS

Sugar cane,

tobacco, etc.Petro-chemical, electronics,

needle, textiles, etc.

Pharmaceuticals, medical devices,

biotechnology, food, export

services, etc.

4

Comparative Analysis of the Economic Models of Puerto Rico

1940 - 1996 1996 - Present

First the textile industries, then the petro-chemical, and then

the pharmaceutical industries - all depended on importing

almost 100% of the raw material

High dependence of manufacturing activity from foreign

companies - little diversified economy; Local business class far

below its potential; Tourism and agriculture with little impact

on the economy

Federal incentives, cheap labor, preferential access tocontinental US markets, and low utility costs as major tools toattract foreign investment

Most tax incentives and subsidies are granted to large

foreign companies

Import and export depend mainly on foreign companies

Our greatest competitive advantage = Tax Incentives

Second competitive advantage = skilled, educated and bilingual labor

force; Third = geographical location; Fourth = American legal system

High dependence on manufacturing activity by foreign companies

with a slightly more diversified economy (ex. finance, banking,

professional services and insurance) - agriculture and tourism with little

impact on the economy; Innovation and entrepreneurship far below their

potential

Tax Incentives (+ zero federal income taxes - Section 933 FederalInternal Revenue Code) as the main and only tool to attract foreigninvestment. This is due to the loss of the 936 incentives. US FreeTrade Agreements with other countries affected PR preferentialaccess to the North American market.

Most of the contributory incentives and subsidies are granted to

large foreign companies

Import and export depend mainly on foreign companies

5

Current Conditions and Economic Background

Change

2006 to 2016

Gross National Product (GNP) -15.2%

-32.7%

-16.7%

-3.0%

-20.2%

Government Consumption Expenditure

Gross Domestic Investment

Personal Consumption Expense

Net Income to the General Fund

Economic Activity Index

+7.4%

Source: Planning Board, Financial Advisory Authority and Fiscal Agency of Puerto Rico, Department of Treasury and Visitor Profile Report of the Institute of Statistics 6

Machinery and Equipment

Construction

-12.6% -61.3%

INVETMENT IN:

-14.9%

Participation Rate

Non-Agricultural Wage Employment

-17.3%

(at real prices)

Economic Impact of Change in Population Levels

6760

6862 60

76 75 74

8489

31 2934 32 32

23 2025

2025

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Out In

-444k people who do not return

Migratory Balance with the United States – 2006 to 2015

Economy may experience economic growth even as its population declines

Economic approach must be changed

A more favorable environment for local companies should be created and PR must shift from being an importer to being an exporter

(in thousands)

Source: Community Survey, U.S. Census Bureau; Air Carrier Statistics, U.S. Bureau of Transportations; Cargo and Air and Sea Passengers, Ports Authority 7

Socioeconomic Welfare Conditions

Source: KIDS COUNT Data Book of 2017, Annie E. Casey Foundation 8

Puerto Rico Unites States

CHILDREN LIVING IN POVERTY

Number of children

428,000 15,000,00056% 58%2010 2015

22% 21%2010 2015

CHILDREN WITH PARENTS WITHOUT JOB SECURITY

Number of children

422,000 21,363,00054% 57%2010 2015

33% 29%2010 2015

CHILDREN LIVING IN HOUSES WITH HIGH COST OF HOUSING

Number of children

232,000 24,646,00032% 31%2010 2015

41% 33%2010 2015

ADOLESCENTS WHO DO NOT ATTEND SCHOOL OR WORK

Number of adolescents

21,000 1,191,00018% 11%2010 2015

9% 7%2010 2015

How does Puerto Rico compare with other jurisdictions?

Source: The World Bank Group, Economy Rankings 2016 9

EconomyEase of Doing

BusinessStarting a Business

Dealing with Construction

Permits

Getting Electricity

Getting Credit Paying TaxesTrading across

Borders

New Zealand 1 1 1 34 1 11 55Singapore 2 6 10 10 20 8 41United Kingdom 7 16 17 17 20 10 28United States 8 51 39 36 2 36 35Germany 17 114 12 5 32 48 38Ireland 18 10 38 33 32 5 47Portugal 25 32 35 50 101 38 1Spain 32 85 113 78 62 37 1Mexico 47 93 83 98 5 114 61Colombia 53 61 34 74 2 139 121Peru 54 103 51 62 16 105 86Puerto Rico 55 51 131 65 7 135 62Chile 57 59 26 64 82 120 65Costa Rica 62 125 53 27 7 62 71Panama 70 43 73 23 20 170 53Uruguay 90 60 163 43 62 113 146Indonesia 91 151 116 49 62 104 108Dominica 101 64 90 61 139 111 80Argentina 116 157 173 91 82 178 111

Economic Approach for the Future of Puerto Rico

10

How can more money enter the economy?

For an economy that does not control its monetary policy, there are 4 main mechanisms to raise funds

FEDERAL FUNDS CREDITINVESTMENTEXPORTS

Fostering the flow of funds and maximizing their multiplier effect through capital reinvestment and the consumption of local products and services are the necessary mechanisms to revive the economy and create new jobs.

11

Socioeconomic Development - Vision

Fiscal responsibility and transparency are fundamental to a healthy, effective, efficient and participative government.

Science, technology and innovation are critical for the modernization of our economy and our institutions.

The model is based on the development and protection of the human resource, including security, education, health and social services.

Stability and representativeness on an equal basis with the other States -necessary to reach our potential as a people.

Productivity is necessary to compete in the global economy and value added is the activity that differentiates our products and services.

12

ToolsPublic Policy Setup

Statistics ResultsPlanning & Budget

Main Components of Economic Development

We have to transform Puerto Rico's education to foster a maximum level of innovation & technology that enables us to be globally competitiveand thus reach the desired level of local, national and foreign investmentthat allows the export of goods and services.

13

Main Components of Economic Development

Attract private investment capital where our

creative minds, our ecosystem of innovation

and our human talent are our true main

incentives.

Encourage innovation, technology and the

export of products and services with high

creative content and added value where

universities - public and private - are the main

axes of sustainable economic development of

the Island.

Promote the creation of local companies

that are based on values of productivity

and competitiveness.

Establish the best climate for doing business in

Puerto Rico, both to create local businesses and

to attract foreign investment.

EDUCACIONINVESTMENT

EDUCACIONCOMPETITIVENESS

EDUCACIONEDUCATION

EDUCACIONINNOVATION &

TECHNOLOGY

14

Transformation of the educational system, K-12,

university level, and professional level (certifications and

continuing education) to be one of excellence and

embrace innovation and creativity.

Education: System Transformation and Skills Promotion

We believe that the education system is an essential component and is key for economic development, sowe need to continually calibrate and align curricula and teaching methodologies to ensure that theyaddress the needs of local and international industries, and that we help professionals in the work force toreinvent themselves, as they need.

K e y I n i t i a t i v e s i n E d u c a t i o n

1 Puerto Rico Online Campus

2 Bilingualism: Key to Success

3 STREAM: Science, Technology, Reading, Engineering, Arts, and Mathematics

4 Re-focus of the University of Puerto Rico (UPR)

5 Internationalization of University education

15

Innovation: Solid Ecosystem for Entrepreneurship

Market Needs

Applied Research

Incubators Startups

Accelerator Startups

Substitution of Imports of Goods and

Services

T e c h n i c a l A s s i s t a n c e

In order to establish a healthy and sustainable ecosystem of innovation it is fundamental that the projects of entrepreneurship respond to the needs of the market.

F i n a n c i a l A s s i s t a n c e

16

Commercialization

Innovation: Economic Impulse Initiatives - Pilot Projects

17

Innovation: Natural Energy Laboratory of Hawaii Authority (NELHA)

18

OTEC Efforts & Activities Hawaii Puerto Rico

University program(s) – University of HI Si No

Research centersHI Natural Energy Institute

HI National Marine Renewable Energy CenterNatural Energy Laboratory of HI Authority

Si No

Science & Technology Park Si No

Pilot Plant (100 kW connected to the grid) Si No

Federal & State Permitting Roadmap/Guide Si No

Site-Specific Environmental Impact Assessment Si No

PPA Negotiations with State Power Utility Si

First true closed-cycle OTEC plant connected to aU.S. electrical grid. Inaugurated in 2015

Represents a major achievement for Hawaii, theU.S., and marine renewable energy.

Generates clean, renewable electricity that isavailable 24 hours a day, 365 days a year. TheNELHA-sited plant generates 100 kilowatts ofsustainable continuous electricity – enough topower 120 Hawaii homes annually.

Competitiveness: Structural Reforms

Public access to financial and operational information of the PR Government in a transparent manner to promote economic development.

Elimination of the federal requirement for export, achieving an equal treatment in order for transactions to and from the Island be more agile at a lower cost.

19

• Consolidates and rationalizes all economic incentives in a single code.

• Establishes a uniform process for granting incentives.• Focus the resources on the incentives with Return of

Investment

Structural Reforms

Culture of Transparency andPrevention of Corruption (FOIA)

Eliminate Requirement forElectronic Export Information (EEI)

Incentives Code

1

2

3

4

Labor Permits Tax Energy

Investment: Strategic Approach

Destination Marketing Organization (DMO)

Entity will manage the marketing and promotion of

Puerto Rico as a destination of the visitor's economy.

Invest Puerto Rico (IPR)Entity will promote Puerto Rico as an investment destination, organizes the efforts of private sector promoters and focuses on attracting new businesses to Puerto Rico

Link between external capital and local businesses

New DDEC

IPR DMO

INCENTIVES CODE

INCENTIVES CODE

20

Science, Tech, and Research Trust

Link between external investment and local companies with innovation and technology

Investment: Tools and Opportunities

Federal

ProgramsState

Initiatives

Investment

Opportunities

New Market Tax Credits

EB-5 Program

Foreign Trade Zones

Invest Puerto Rico

Destination Marketing Org. (DMO)

Incentives Code

Asset Map

Public Private Partnerships

Science City

Roosevelt Roads Redevelopment

Port of Las Americas

21

Infrastructure Plan

Insert PR in US treaties to

avoid double taxation

Concessions and Contracts of Operations / Maintenance

Regional Airports

Pilot Projects of Hydrogen Generation for Fuel Cells

Vehicles

Compressed Natural Gas

New Natural Gas Plant in Costa Sur

Pilot Projects of Hydrogen Generation for Fuel Cells Vehicles

PR-52 Extension to Aguadilla

Natural Gas Project in Palo Seco

Liquefied Petroleum Gas

Waste Decomposition Plant

Compressed Natural Gas

Natural Gas Project in Aguirre Plant

Liquefied Petroleum Gas

Receiving Terminal (CGL)

• Concessions and Contracts of Operations / Maintenance Regional Airports

• Natural Gas Project San Juan

• Comprehensive Cancer Center Infrastructure Asoc.

• Pilot Projects of Hydrogen Generation for Fuel Cells Vehicles

Investment: Potential Projects with Public Private Partnerships

22Over 50 renewable energy projects under the Puerto Rico Electric Power Authority (PREPA) evaluation

Investment: Asset Map

23

Investment: Asset Map

24

EDUCACION

Bio Economy

Visitors EconomyExport of Goods and Services

Emerging Industries

Aerospace Technology

Advanced Manufacture

1

2

3

45

6

7

25

Strategic Areas for Economic Development

Programmatic Commitments of Economic Development by

Strategic Area

ADVANCED

MANUFACTURE

EMERGING

INDUSTRIES

TECHNOLOGY EXPORT OF GOODS

AND SERVICES

VISITORS

ECONOMY

AEROSPACE BIO ECONOMY

National Network of Manufacturing Innovation

Manufacturing USA

Select USA

Permanency of Section 199 of the Federal Internal Revenue Code

Industrial Hemp

Medicinal Cannabis

Impulse to Puerto Rican Cinema

Sharing Economy

Creative Economy

Thermal Ocean Energy and Deep Water Industries

Innovation and Technology Economic Impulse

Center for Software Development & Info Technology

Maximize Export Services

Federal Contracting Center

Hub Zones

Cultural Entrepreneurship

Medical tourism

Ecotourism Development

Sports Tourism

Districts of Tourist Interest

Cruise Industry

Aeronautics and Aerospace Institute of PR

Recycling of Used Oils and Community Businesses

Development of Raw Materials

Applied Research Center

Bio-Fuel Energy

Microalgae Energy Production

1 2 3 4 5 6 7

26

SMEs

27

SMEs: Areas of Opportunity and Roadmap

Bio Economy

Visitors EconomyExport of Goods and Services

Emerging Industries

Aerospace Technology

Advanced Manufacture

1

2

3

45

6

7

Innovative SMEs

Maletín

Empresarial de

la Mujer

Master Entrepreneurship

Business Intelligence and

Entrepreneurship System

Entrepreneurship in Functional

Diversity population

From School to Business

SME Food Sector

A d d i t i o n a l I n i t i a t i v e s

SMEs: Programmatic Commitments for Economic Development

Designation of 10% of the Special Fund for Economic Development (FEDE) to provide contributory incentives to SMEs that foster innovation in economic sectors.

Program focused on supporting those Puerto Rican women who wish to develop in the business world mainly in the areas of technology and innovation.

28

Does this answer the initial questions?

29

Where is Puerto Rico’s Economic Development Plan?1

How do we get more money to the treasury?2

What are the specific measures to boost Economic Development?3

Who is responsible for Economic Development?4

What are we doing for SMEs?5

CONTACT US

PHONE: 787-765-2900

P.O. Box 362350

San Juan, PR 00936-2350

30

355 Ave. Roosevelt – Hato Rey, PR 00918

www.businessinpuertorico.com