Economy of Puerto Rico facts for kids
|Currency||United States Dollar (USD$)|
|1 July – 30 June|
|CARICOM (observant), Interpol (sub-bureau), IOC, ITUC, UNWTO (associate), UPU|
|GDP||US$101.5 billion (2012)|
|GDP rank||60th (nominal)|
GDP per capita
|34,938 (PPP) (2013)|
GDP by sector
Finance, insurance and real estate: 19.6%,
Transportation and other public utilities: 2.9%,
Construction and Mining: 1.7%,
|2.47% (FY 2010)|
Population below poverty line
|1.286 million (Mar 2012)|
Labor force by occupation
Transportation and other public utilities: 5.2%,
Construction and mining: 4.9%,
Finance, insurance and real estate: 3.7%,
|Unemployment||▼ 13.7% (December 2014)|
Average gross salary
|$27,190 annual (May 2011)|
|Pharmaceuticals, electronics, apparel, food products, tourism. (2010)|
|Exports||$64.88 billion FOB (2011 est.)|
|Chemicals, electronics, rum, beverage concentrates, medical equipment, canned tuna, apparel.|
Main export partners
| United States 90.3%,
United Kingdom 1.6%,
Dominican Republic 1.4%,
among others. (2010)
|Imports||$44.67 billion CIF (2011 est.)|
|chemicals, machinery and equipment, food, petroleum products, clothing, fish|
Main import partners
| United States 55%,
among others. (2010)
|▲ $67.7 billion (66% of GDP)
|▼ $1.1 billion|
|Revenues||$31.3 billion (FY2010)|
|Expenses||▼ $29.1 billion (FY2010)|
|Standard & Poor's
All values, unless otherwise stated, are in US dollars.
The economy of Puerto Rico is classified as a high income economy by the World Bank and as the most competitive economy in Latin America by the World Economic Forum. The main drivers of its economy are manufacturing, primarily pharmaceuticals, textiles, petrochemicals, and electronics; followed by the service industry, notably finance, insurance, real estate, and tourism. The geography of Puerto Rico and its political status are both determining factors on its economic prosperity, primarily due to its relatively small size as an island; its lack of natural resources used to produce raw materials, and, consequently, its dependence on imports; as well as its suzerainty to the United States which controls its foreign policies while exerting trading restrictions, particularly in its shipping industry.
At the macroeconomic level Puerto Rico has been experiencing an economic depression for 15 consecutive years, starting in 2006 after a series of negative cash flows and the expiration of the section 936 that applied to Puerto Rico of the U.S. Internal Revenue Code. This section was critical for the economy of the island as it established tax exemptions for U.S. corporations that settled in Puerto Rico and allowed its subsidiaries operating in the island to send their earnings to the parent corporation at any time, without paying federal tax on corporate income. Puerto Rico has, however, surprisingly been able to maintain a relatively low inflation in the past decade. Academically, most of Puerto Rico's economic woes stem from federal regulations that expired, have been repealed, or no longer apply to Puerto Rico; from its inability to become self-sufficient and self-sustainable throughout history; from its highly politicized public policy which tends to change whenever a political party gains power; as well as from its highly inefficient local government which has accrued a public debt equal to 66% of its gross domestic product throughout time.
In comparison to the different states of the United States, Puerto Rico is poorer than the poorest state of the United States, with 45% of its population living below the poverty line. However, when compared to Latin America, Puerto Rico has the highest GDP per capita in the region, as well as being the most competitive economy among Ibero-American states, surpassing Chile and Spain. The Commonwealth has a massive bond debt that it is unable to service, $70 billion in early 2017 or $12,000 per capita at a time with and double digit (12.4%, Dec. 2016) unemployment that is more than twice the mainland U.S. average. The debt had been increasing during a decade long recession. It is essential for Puerto Rico to reach restructuring deals with creditors to avoid a bankruptcy-like process under PROMESA.
The commonwealth has a modern infrastructure, a large public sector, and an institutional framework guided by the regulations of U.S. federal agencies, most of which have an active and continued presence in the island. Its main trading partners are the United States itself, Ireland, and Japan, with most products coming from East Asia, mainly from China, Hong Kong, and Taiwan. At a global scale, Puerto Rico's dependency on oil for transportation and electricity generation, as well as its dependency on food imports and raw materials, makes Puerto Rico volatile and highly reactive to changes in the world economy and climate.
- Comparative advantages
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Puerto Rico, like many other countries, has transitioned from an agricultural economy to an industrial one. Its economy is currently experiencing a transformation caused by the Information Age, albeit slowly.
Not much is known about the economic history of Puerto Rico prior to the arrival of Spaniards. The little that is known about its inhabitants, the Taíno, is that their economy was a mixture of hunting and gathering with agriculture.
The Taíno captured and ate small animals, such as mammals, earthworms, lizards, turtles, and birds. Manatees were speared and fish were caught in nets, speared, poisoned, trapped in weirs, or caught with hook and line. Wild parrots were decoyed with domesticated birds, and iguanas were taken from trees and other vegetation. Livestock was not practiced as there were no large animals native to Puerto Rico that could be raised in an agricultural setting in order to produce commodities such as food, fiber, or labor.
Fields for important root crops, such as the staple yuca, were prepared by heaping up mounds of soil, called conucos. This improved soil drainage and fertility as well as delaying erosion, and it allowing for longer storage of crops in the ground. Less important crops such as corn were raised in simple clearings created by slash and burn technique. Typically, conucos were three feet high and nine feet in circumference and were arranged in rows. The primary root crop was yuca/cassava, a woody shrub cultivated for its edible and starchy tuberous root. It was planted using a coa, a kind of hoe made completely from wood. Women processed the poisonous variety of cassava by squeezing it to extract the toxic juices. Then they would grind the roots into flour for baking bread. Batata (sweet potato) was the next most important root crop.
Contrary to mainland practices, corn was not ground into flour and baked into bread. It was cooked and eaten off the cob. Corn bread becomes moldy faster than cassava bread in the high humidity of the West Indies. The Taíno grew squash, beans, peppers, peanuts, and pineapples. Tobacco, calabashes (West Indian pumpkins) and cotton were grown around the houses. Other fruits and vegetables, such as palm nuts, guavas, and Zamia roots, were collected from the wild.
The economy of Puerto Rico was transformed drastically upon the arrivals of Spaniards in 1493 until their departure in 1898. The economy during that period was driven by slavery of the native population, the Taíno, and by slaves brought from Africa. Slaves were minimally remunerated for or forced to work in farms, mines, households, and other aspects. Agriculture was the primary mean of production, as well as livestock which was originally imported from Europe. Sugar cane, tobacco, coffee, and minor fruits were the primary cultivations which were exported to Europe and, by so, constituted the main economy for the island. Mining of gold, silver, and copper occurred as well, although not as much as in other territories during the Spanish colonization of the Americas.
United States rule
In the early 20th century the greatest contributor to Puerto Rico's economy was agriculture and its main crop was sugar, displacing other cash crops such as tobacco and coffee. In 1935, United States President Franklin D. Roosevelt launched the Puerto Rican Reconstruction Administration, which provided agricultural development, public works, and electrification of the island.
Economic conditions have improved dramatically since the Great Depression because of external investment in capital-intensive industries such as petrochemicals, pharmaceuticals and technology. Starting in the late 1940s a series of projects called Operation Bootstrap encouraged, using tax exemptions, the establishment of factories. Thus manufacturing replaced agriculture as the main industry of the island. Operation Bootstrap was based on an "industrialization-first" campaign and modernization, focusing the Puerto Rican economy on exports, especially to the United States. As a result, Puerto Rico is now classified as a "high income country" by the World Bank. Though initially there were large gains in employment and per capita income, recessions in the United States were magnified in the country and have repeatedly hampered Puerto Rican development.
With the signing of the North American Free Trade Agreement and the Dominican Republic–Central America Free Trade Agreement, Puerto Rico lost a trade advantage over some Latin American countries as the right to duty-free imports to the U.S. market were expanded. Puerto Rico is also subject to the minimum wage laws of the United States, which gives lower-wage countries such as Mexico and the Dominican Republic an economic advantage in the Caribbean. Once the beneficiary of special tax treatment from the U.S. government, today local industries must compete with those in more economically depressed parts of the world where wages are not subject to U.S. minimum wage legislation. In recent years, some U.S. and foreign owned factories have moved to lower wage countries in Latin America and Asia. Puerto Rico is subject to U.S. trade laws and restrictions.
Also, starting around 1950, there was heavy migration from Puerto Rico to the Continental United States, particularly New York City, in search of better economic conditions. Puerto Rican migration to New York displayed an average yearly migration of 1,800 for the years 1930–1940, 31,000 for 1946–1950, 45,000 for 1951–1960, and a peak of 75,000 in 1953. As of 2003, the U.S. Census Bureau estimates that more people of Puerto Rican birth or ancestry live in the U.S. than in Puerto Rico.
Developments, 2008 to 2017
On May 1, 2006, the Puerto Rican government faced significant shortages in cash flows, which forced the closure of the local Department of Education and 42 other government agencies. All 1,536 public schools closed, and 95,762 people were furloughed in the first-ever partial shutdown of the government in the island's history. On May 10, 2006, the budget crisis was resolved with a new tax reform agreement so that all government employees could return to work. On November 15, 2006, a 5.5% sales tax was implemented. Municipalities are required by law to apply a municipal sales tax of 1.5% bringing the total sales tax to 7%.
The public debt of Puerto Rico has grown at a faster pace than the growth of its economy, reaching $46.7 billion in 2008. In January 2009, Luis Fortuño enacted several measures aimed at eliminating the government's $3.3 billion deficit, including laying off 12,505 government employees. Puerto Rico's unemployment rate was 15.9 percent in January 2010. Some analysts said they expect the government's layoffs to propel that rate to 17 percent.
In November 2010, Gov. Fortuño proposed a tax reform plan that would be implemented in a six-year period, retroactive to January 1, 2010. The first phase, applicable to year 2010, reduces taxes to all individual taxpayers by 7–15%. By year 2016, average relief for individual taxpayers will represent a 50% tax cut and a 30% cut for corporate taxpayers, whose tax rate will be lowered from 41 to 30%.
At the same time, the latest report by the President Task Force on Puerto Rico Status recognizes that the status question and the economy are intimately linked. Many participants in the forums conducted by the Task Force argued that uncertainty about status is holding Puerto Rico back in economic areas. And although there are a number of economic actions that should be taken immediately or in the short term, regardless of the ultimate outcome of the status question, identifying the most effective means of assisting the Puerto Rican economy depends on resolving the ultimate question of status. In short, the long-term economic well-being of Puerto Rico would be dramatically improved by an early decision on the status question.
During fiscal year (FY-2012), the Consolidated Budget for the archipelago, including both direct transfers from federal programs (Social Security and Medicare benefits for workers, Veteran's benefits, Pell Grants and student loan's interest subsidies and miscellaneous temporary appropriations -e.g. American Recovery and Reinvestment Act of 2009 grants totalling $2.6 billion-) represented more than $28.7 billion, or approximately 30% of its GDP, while revenues surpassed $31 billion. In 2010, federal transfers amounted $16.710 billion, while the Commonwealth's government managed funds of $10.12 billion.
As result of the recent reduction of Spain's credit rating, Puerto Rico holds the second highest credit rating awarded by the agency to a Spanish speaking territory in the long term (BBB+, Stable ).
In June 2013, a $300 million US Medicaid payment to Puerto Rico was delayed because the Puerto Rican Government had changed their nationally sponsored insurance carrier without obtaining approval from the US Health and Human Services Department. This one of several troubling economic developments, including high debt to population ratios, that have, per Forbes Magazine, caused consternation in the US municipal bond market.
Puerto Rico has been experiencing an economic depression for 15 consecutive years, starting in 2006 after a series of negative cash flows and the expiration of the section 936 that applied to Puerto Rico of the U.S. Internal Revenue Code. This section was critical for the economy as it established tax exemptions for U.S. corporations that settled in Puerto Rico and allowed its subsidiaries operating in the island to send their earnings to the parent corporation at any time, without paying federal tax on corporate income. The government has also experienced 21 consecutive negative cash flows since 2000, exacerbating its fragile economic situation as the government is forced to incur into new debt in order to pay the old one.
Puerto Rico has, however, surprisingly been able to maintain a relatively low inflation in the past decade. Academically, most of Puerto Rico's economic woes stem from federal regulations that expired, have been repealed, or no longer apply to Puerto Rico; its inability to become self-sufficient and self-sustainable throughout history; its highly politicized public policy which tends to change whenever a political party gains power; as well as its highly inefficient local government which has accrued a public debt equal to 66% of its gross domestic product throughout time.
By mid January 2017, the debt had reached $70 billion or $12,000 per capita in a territory with a 45 percent poverty rate and double digit unemployment that is more than twice the mainland U.S. average. It is essential for Puerto Rico to reach restructuring deals with creditors to avoid a bankruptcy-like process under PROMESA. In late January, the federal control board gave the Government of Puerto Rico until February 28 to present a fiscal plan (including negotiations with creditors) to solve the problems. A moratorium on lawsuits by debtors was extended to May 31.
Governor Ricardo Rosselló is strongly in favor of statehood for Puerto Rico, particularly because of financial benefits that would offer. These include an additional $10 billion per year in federal funds, the right to vote in presidential elections, higher Social Security and Medicare benefits, and a right for its government agencies and municipalities to file for bankruptcy. The latter is currently prohibited. A fifth plebiscite is due to be held on June 11, 2017. The two options at that time will be "Statehood" and "Independence/Free Association". It will be the first referendum not to offer the choice of "Commonwealth". Regardless of the outcome, Congress will be the body to make the final decision on the status of Puerto Rico.
The economy of Puerto Rico is mainly driven by manufacturing, primarily pharmaceuticals, textiles, petrochemicals, and electronics; followed by the service industry, primarily finance, insurance, real estate, and tourism.
Agriculture constitutes about $808 million US$ or about 0.8% of the island's gross domestic product (GDP). However, Puerto Rico imports 85% of its food even though most of the land is fertile. Only a mere 6% is arable; a fact that poses a direct threat to Puerto Rico's food security. This perplexing situation has been caused due to a shift in priorities towards industrialization, bureaucratization, mismanagement of terrains, lack of alternative methods, and a deficient agricultural workforce. Puerto Rico's geographical location within the Caribbean exacerbates these issues, making the scarce existing crops vulnerable to the devastating effects of Atlantic hurricanes.
The following fruits are industrially cultivated and widely consumed:
- acerola (acerola)
- avocado (aguacate)
- banana (guineo)
- coconut (coco)
- grapefruit (toronja)
- guava (guayaba)
- guinep (quenepa)
- lemon (limón)
- mango (mangó)
- olives (aceitunas)
- papaya (papaya)
- pineapple (piña)
- plantain (plátano)
- pumpkin (calabaza)
- red banana (guineo manzano)
- soursop (guanábana)
- tamarind (tamarindo)
Grains cultivated industrially and widely consumed include barley (cebada), maize (maíz), rice (arroz), rye (centeno), and wheat (trigo). Legumes include black beans (habichuelas negras), chickpea (garbanzo), kidney beans (habichuelas rojas), pea (pitipuá), pigeon peas (gandules), and pink beans (habichuelas rosadas). Tubers include cassava (yuca), eddoe (malanga), potatoes (papas), sweet potatoes (batata), taro (yautía), and yams (ñame).
Vegetables include asparagus (espárragos), cabbage (repollo), cauliflower (coliflor), carrots (zanahorias), chayote (chayote), cucumber (pepinillo), eggplant (berenjena), lettuce (lechuga), onions (cebolla), and peppers (ají).
Herbs include basil (orégano), bay leaves (hojas de laurel), cilantro (cilantrillo), culantro (culantro), and parsley (perejil). Spices include achiote (achiote), cinnamon (canela), cloves (clavos), garlic (ajo), ginger (jengibre), and paprika (sazón).
Recent studies have suggested there is a lack of young farmers and that 65% of the island's agriculture force is over 55 years of age. The decrease in new farmers will have significant negative effects on the island.
Energy, water, and public utilities
Puerto Rico does not have any coal, natural gas, nor oil reserves so it must import all its fuel in order to produce energy. The Puerto Rico Electric Power Authority (PREPA), a government-owned corporation, produces 70% of all energy in Puerto Rico through several power plants dependent on fossil fuels. 58% of PREPA's budget goes directly to these costs. Additional indirect costs of imported fossil fuels are paid through power purchase agreements for the 30% of the country's energy produced through private companies dependent on fossil fuels. To meet energy demands, Puerto Rico must import oil at a rate of 8.0 billion kWh and about 1,499,196 km3 of natural gas per year as well as a very large amount of coal.
Perplexingly, less than 3% of all energy is produced through renewable energy even though Puerto Rico enjoys more than 65% sunny hours per day in average and 19-knot (22 mph; 35 km/h) winds year round. The island could also generate all its energy through hydroelectric dams thanks to its local geography which features many rivers but it has opted to leave that industry behind. Public policy has also opted not to pursue nuclear power either. Biofuel, biomass, geothermal energy, wave power and tidal power are still in its infant stages although there are some microbusinesses providing energy from those sources or performing research on the subject. The Puerto Rican government has made plans to reduce dependency on costly imported fossil fuels, but lacks funds to make more than modest progress.
As a result, Puerto Ricans pay 26¢ per kilowatt per hour of electricity, compared to an average of 11 to 12 cents or less in the United States. This places Puerto Rico at an enormous disadvantage when compared to other states that produce electric power at less than half of Puerto Rico's price. Electric utility costs ultimately create a ripple effect on the economy as it adds to the cost of living and the cost of doing business. For example, 20% of Bacardi's expenses on the island come from electricity, while the company that owns all Wendy's, Applebee's, and LongHorn Steakhouse on the island has simply opted to keep the lights and air conditioning off in certain areas when employees arrive.
The water industry is administered in whole by the Puerto Rico Aqueducts and Sewers Authority (PRASA), another government-owned corporation and government monopoly which owns and manages all the water supply network in Puerto Rico. All potable water comes either from raw water (primarily rainwater, lakes, and rivers) or sewage treatment subject to regulations by the Department of Natural and Environmental Resources of Puerto Rico (DRNA), the Environmental Protection Agency (EPA), the Puerto Rico Environmental Quality Board (JCA in Spanish), and the Safe Drinking Water Act. The water bottling industry is diverse with several plants on the island.
Fishery and seafood
Fishery is common in all coastal towns but Puerto Rico does not have enough wild fisheries to supply the demand required to sustain a profitable fishing industry. There are no industrial fish farms on the island either. Common fish consumed by residents include cod (bacalao), mahi-mahi (pez dorado), marlin (marlín), salmon (salmón), snapper (chillo), trunkfish (chapín), and tuna (atún). Other seafood includes clams (almejas), crabs (cangrejos), lobsters (langostas), mussels (mejillones), octopi (pulpo), oysters (ostras), and squids (calamares). It is quite common for restaurants on the coast to serve fresh seafood.
Almost all wood used on the island is imported even though a study conducted more than two decades ago by the U.S. Forest Service concluded that local soil could sustain a lumber industry if the proper species were used. Regardless of this, several small sawmills do exist on the island.
Livestock and pets
Livestock used for food includes cattle, goats, pigs, and rabbits. Donkeys, horses, and mules are strictly used for labor or recreation as consumption is frowned upon culturally by locals. Cattle is used for both meat and dairy with a strong and self-sufficient local milk industry through processors such as Suiza Dairy and Tres Monjitas. Poultry includes chickens, ducks, geese, turkeys, and quail. The pet industry is one of the only two industries experiencing consistent significant growth on the island with dogs, cats, fishkeeping, canaries, parakeets, and parrots being quintessential in homes. Consumption of animals commonly used as pets is frowned upon culturally save for rabbits.
There are some metal deposits of copper, gold, silver, zinc, and molybdenum on the island but they are not large enough to sustain a profitable mining industry. Mismanagement of terrains and poor urban planning has made it difficult for the mining industry to thrive as well, as many deposits are directly below or nearby residential complexes. Puerto Rico also possesses industries of lime, marble, salt, cement, clay, crushed stone, dimension stone, industrial sand, gravel, and stone. The cement industry is tracked meticulously as it has shown to be highly correlated to the GDP of the island.
Manufacturing is the largest economic sector of the island; composing almost half (about 46%) of its gross domestic product (GDP) through more than 2,000 manufacturing plants scattered throughout the island. All
In terms of specialization, more than half of all manufacturing done in Puerto Rico is attributed to the pharmaceutical industry which generates more than 18,000 jobs, pays more than $3 billion USD in taxes, comprise about half of total exports, and has generated more than 25% of the island's GDP for the past four decades. Comparatively, Puerto Rico is the fifth largest area in the world for pharmaceutical manufacturing with more than 80 plants, including:
Puerto Rico is also the third-largest biotechnology manufacturer with more than two million square feet and the seventh-largest medical-device exporter with more than 50 plants. Pharmaceutical companies originally came to Puerto Rico in the late 1960s and 1970s to take advantage of the now-expired federal tax incentive known as Section 936. This incentive allowed U.S.-based manufacturers to send all profits from local plants to stateside parent plants without having to pay any federal taxes. However, expired patents, cheaper manufacturers (such as those in Brazil, China, India, and South Korea), the rise of generic drugs, and high production costs pose a challenge to the industry. As of 2014, Puerto Rico produces 16 of the top 20-selling drugs in the mainland United States.
The aeronautical industry is relatively young on the island and concentrates mostly on the northwestern corridor composed by Aguadilla and Isabela. These municipalities serve as local headquarters for Honeywell Aerospace, Lufthansa, and Pratt & Whitney. GE Aviation, Lockheed Martin, and Raytheon also have presence on the island although their local operations do not focus on aeronautics but rather focus on business support.
Education in aeronautics is provided by the Caribbean Aviation Training Institute and the Interamerican University of Puerto Rico. The University of Puerto Rico, Mayaguez Campus (UPRM), the Polytechnic University of Puerto Rico (PUPR), and the Turabo University graduate most of the engineers on the island.
The financial sector is of great prominence, accounting for 5.75% of Puerto Rico's Gross National Product (GNP) in 2010. Similar to any other state of the union, Puerto Rico's financial sector is also fully integrated into the U.S. financial system. Federal regulations govern the sector, being a constituent part of the jurisdiction of the Federal Reserve Bank of New York, responsible for implementing monetary policy enacted by members of the Federal Reserve Board in Washington, D.C. throughout the United States.
The real estate industry constitutes about 14.8% of the GDP, about 1% of all of the employee compensation on the island and, together with finance and insurance (FIRE), about 3.7% of all the employment on the jurisdiction.
Tourism is an important component of the Puerto Rican economy supplying an approximate $1.8 billion USD per year. In 1999, an estimated five million tourists visited the island, most from the United States. Nearly a third of these were cruise ship passengers. An increase in hotel registrations, which has been observed since 1998, and the construction of new hotels and the Puerto Rico Convention Center are indicators of the current strength of the tourism industry. In 2009, tourism accounted for nearly 7% of the islands' gross national product.
The following includes some public and private projects aimed at increasing the tourism industry in Puerto Rico:
- Camuy River Cave Park
- Condado Vanderbilt Hotel
- El Yunque National Forest
- Flamenco Beach
- Fort San Felipe del Morro
- Isla Verde
- José Miguel Agrelot Coliseum
- La Concha Resort
- Luis Muñoz Marín International Airport
- Old San Juan
- Plaza Las Américas
- Ponce Art Museum
- Puerto Rico Convention Center
- The Mall of San Juan
As an unincorporated territory of the United States, travel and trade between Puerto Rico and the U.S. mainland or other U.S. territory are not subject to international border controls. However, all goods moving from Puerto Rico to the U.S. mainland are subject to agriculture inspection controls by the U.S. Department of Agriculture (USDA). Travelers and goods move without restriction between Puerto Rico and other U.S. territories such as U.S. Virgin Islands. Travel and trade between Puerto Rico and territory outside U.S. jurisdiction are subject to international border controls.
Mail bound for the mainland from Puerto Rico and Hawaii is subject to USDA inspection for quarantined plant matter.
Puerto Rico may collect import duties only to the same degree it taxes the same goods produced domestically.
Puerto Rico receives cross-over subsidies, which generated approximately $371 million in 2008.
Similar to other states of the union, Puerto Rico is subject to trade agreements signed by the United States. As an unincorporated territory, the commonwealth is restricted from joining international organizations without the consent of the United States due to its current political status. However, due to its geographical and cultural nature, the U.S. Department of State allows Puerto Rico to be an observer in most international organizations to which it would potentially belong to if Puerto Rico were a sovereign state.
|Caribbean Tourism Organization||CTO||tourism||observer|
|Organization of American States||OAS||continental||observer|
|United Nations Economic Commission for Latin America and the Caribbean||ECLAC||regional||associate member|
|Country||Region||Agreement||Established trade promotion office in foreign country|
|Costa Rica||Central America||CAFTA||No|
|El Salvador||Central America||CAFTA||No|
|South Korea||East Asia||KFTA||No|
|United States||North America||NAFTA||Yes|
Entrepreneurship and research & development (R&D) is relatively young on the island but has become increasingly important for its economy due to its downturn. Companies like Neolpharma and Rock Solid Technologies possess significant R&D operations on the island. Regarding entrepreneurship, several organizations have presence on the island as well, such as the Founder Institute, the Small Business Administration, SCORE, and Startup Weekend. Most entrepreneurial activities are driven by regional organizations that join academia, local government, and private businesses such as DISUR, INTECO, INTENE, and INTENOR. Other initiatives such as the Puerto Rico Technoeconomic Corridor, the Puerto Rico Science, Technology and Research Trust, and the Puerto Rico Small Business Technology and Development Center provide significant support to entrepreneurship and R&D on the island.
Major management consulting firms have presence in the island including Accenture, the Boston Consulting Group, Booz Allen Hamilton, Deloitte, McKinsey & Company, and PricewaterhouseCoopers.
Puerto Rico does not have any comparative advantages in international markets but has a few at the U.S. national level. Its high costs of doing business are the primary factor, amongst many, that hinder the island from competing against foreign markets. These costs are typically offset by a combination of incentives or subsidies where the government either does not collect taxes against the foreign firm, assumes capital expenditures, subsidizes workers salaries and trainings, or, more often than not, offers a combination thereof. This is the case for Lufthansa's operations in Aguadilla where the local government invested $46 million USD against $20 million invested by the company, aiming at recouping the investment in the long run.
Domestically, however, several comparative advantages emerge when comparing Puerto Rico to other U.S. jurisdictions. These advantages base themselves on lower wages and beneficial legal loopholes that exist as a result of Puerto Rico's political status. For example, a company like Microsoft may create a subsidiary based in Puerto Rico in order to transfer its intellectual property to it, so that it can benefit from transfer pricing loopholes thereafter. Since the subsidiary is based in Puerto Rico, the company lawfully uses a loophole that allows it to undervalue the transferred intellectual property through the use of cost-sharing agreements, and by taking advantage of the revenue exceptions within the U.S. legal framework that apply exclusively to Puerto Rico.
This lack of advantages pervades the economy of the island extensively. As the territory is unable to compete against foreign markets, multinational corporations choose to close operations on the island and open them elsewhere. All while domestic businesses struggle to export their products and services when competing against external firms that offer lower prices. The same scenario occurs against other U.S. jurisdictions capable of producing goods and services at lesser costs.
More than 99% of all businesses in Puerto Rico are considered small businesses (less than 250 employees) with more than 74% being micro-enterprises (less than 10 employees). However, in terms of payroll, small businesses constitute about 61% of all payroll on the island with about 13% of all payroll coming from medium businesses (between 250–499 employees) and about 25% coming from large enterprises (more than 500 employees).
|Number of employees||Number of businesses||Annual payroll
Only 7.5% of the corporations registered in the Department of State of Puerto Rico—or about 6,000 out of 80,000—exceed $3M in revenue. Of these 6,000, a mere six compose more than 30% of all of Puerto Rico's corporate income tax collections; all six being multinationals.
Cost of living
The cost of living in Puerto Rico, specifically San Juan, is quite high compared to most major cities in the United States. One factor is housing prices which are comparable to Miami and Los Angeles, although property taxes are considerably lower than most places in the United States. Statistics used for cost of living sometimes do not take into account certain costs, such as increased travel costs for longer flights, additional shipping fees, and the loss of promotional participation opportunities for customers "outside the continental United States". While some online stores do offer free shipping on orders to Puerto Rico, many merchants exclude Hawaii, Alaska, Puerto Rico and other United States territories.
The median home value in Puerto Rico ranges from $100,000 USD to $214,000 USD, while the national median home value sits at $119,600.
Ease of doing business
Puerto Rico is considered the 40th economy out of 189 in rank of ease of doing business by the World Bank; surpassed only by Chile in Latin America. It ranks very poorly in construction permits but very well in getting credit and protecting investors.
Puerto Ricans had median household income of $18,314 for 2009, which makes Puerto Rico's economy comparable to the independent nations of Latvia or Poland. By comparison, the poorest state of the Union, Mississippi, had median household income of $36,646 in 2009. Nevertheless, Puerto Rico's GDP per capita compares favorably to other independent Caribbean nations, and is one of the highest in North America. See List of North American countries by GDP per capita
Puerto Rico has a GDP per capita of $16,300 (2010 est.). Compared to the rest of the world they are ranked 73rd. Puerto Rico's GDP per capita has been declining in recent years ($18,100 (2008 est.), and $17,400 (2009 est.)). According to statistics from the Central Intelligence Agency (CIA), its GDP per capita is the 10th highest in the Caribbean, behind the Bahamas ($30,400), Aruba ($25,300) Barbados ($25,000), Trinidad and Tobago ($20,000), Antigua & Barbuda ($17,800) and British dependencies Cayman Islands ($43,800), British Virgin Islands ($42,300) and Turks & Caicos ($29,100).
In terms of personal income, federal transfer payments to Puerto Rico make up more than 20% of the island's personal income. By comparison, the poorest state, Mississippi, had a median level of $21,587, according to the U.S. Census Bureau's Current Population Survey, 2002 to 2004 Annual Social and Economic Supplements. Since 1952, the gap between Puerto Rico's per capita income and the national level has changed substantially – from one third the U.S. national average and roughly half that of the poorest state in 1952, to 10% less than the poorest state in 2007.
In 2010 the median income in Puerto Rico was $19,370, which is just over half that of the poorest state (Mississippi, $37,838) and 37% of the nationwide average ($51,144). According to the Bureau of Labor Statistics of the Department of Labor of the United States, the mean annual salary of residents of Puerto Rico is $27,190, the lowest among U.S. territories continuously surveyed periodically by this institution. Guam has the second lowest mean salary to $31,840, closely followed Mississippi, a state, with $34,770. This spread in mean wages could be explained by a minimum wage law for certain industries that are capped to 70% of the federal minimum wage of $7.25 per hour.
Puerto Rico's most competitive advantage lies on its labor force: a highly competitive, educated, and skilled labor force that enjoys American citizenship. This allows U.S.-based companies to relocate some of its operations to the island for cheaper labor costs while still maintaining a labor force subject to the rights and benefits given by American citizenship and federal regulations. Educated workers tend to be bilingual as well while costing 30–35% less than a worker in the mainland.
|Sector||Number of persons
|Trade, Transportation, and Utilities||178.6||19%|
|Education & Health Services||123.3||13%|
|Professional & Business Services||118.0||13%|
|Leisure & Hospitability||80.0||9%|
|Mining, Logging, and Construction||29.5||3%|
Facts & figures
- Debt - External: $70 billion (January 23, 2017 2010 est.)
- Purchasing Power Parity: $64.84 billion (2010 est.)
- Official Exchange Rate: $93.52 billion (2010 est.)
- Real Growth Rate: -5.8% (2010 est.)
- Per Capita: $16,300 (2010 est.)
- Inflation Rate (consumer prices): 2.9% (2011 est.)
- Industrial production growth rate: NA%
- Median household income (2016 est.):
- Persons living in poverty (2016 est.):
- revenues: $8.1 billion Central Government, $25 Billion with Public Corporations
- expenditures: $9.6 billion Central Government
- production: 23,720 GWh
- consumption: 22,600 GWh
- exports: 0 kWh
- imports: 0 kWh (2007 est.)
- Electricity – production by source:
- fossil fuel: 98.06%
- hydro: 1.96%
- nuclear: 0%
- other: 0% (1998)
- Agriculture – products: sugarcane, coffee, pineapples, plantains, bananas; livestock products, chickens
- Exports – commodities: chemicals, electronics, apparel, canned tuna, rum, beverage concentrates, medical equipment
- Exports: $64.88 billion (2011 est.)
- Imports – commodities: chemicals, machinery and equipment, clothing, food, fish, petroleum products
- Imports: $44.67 billion (2011 est.)
- Tax: 9.0%
- Labor Force: 1.286 million (March 2012)
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