Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic Financially supported by 2 © 2022, International Bank for Reconstruction and Development / World Bank 1818 H Street N.W. Washington D.C. 20433, United States of America Telephone: (202) 473-1000; Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions, financed by the European Union, within the framework of the Caribbean Regional Resilience Building Facility, managed by the Global Facility for Disaster Reduction and Recovery (GFDRR). The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, the governments they represent, or the European Union. 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Cover design: Isabel de Lara Design and edition: Sociopúblico Paving the way for prosperous cities and territories 3 Urbanization and Territorial Review of the Dominican Republic Acknowledgements The Urbanization and Territorial Development Review of the Dominican Republic “Paving the way for prosperous cities and territories” was prepared by a team led by Paula Restrepo Cadavid (Senior Economist, SLCUR) and Diana Cristina Tello Medina (Urban Specialist, SLCUR), and financed by the European Union, within the framework of the Caribbean Regional Resilience Building Facility, managed by the Global Facility for Disaster Reduction and Recovery (GFDRR). The team consisted of Edouard Ereño Blanchet (Senior Disaster Risk Management Specialist, SLCUR), Tania Evelyn Sanchez Hernandez (Urban and Regional Development Consultant), Joaquín Ignacio Muñoz Díaz (Disaster Risk Management Consultant), Oscar Anil Ishizawa Escudero (Senior Disaster Risk Management Specialist, SAWU1), Juana Mariño (Territorial Planning Consultant), Alex Pio (Senior Private Sector Specialist, ETIMT), William Dillinger (Municipal Finance Consultant), Catherine Lynch (Senior Urban Development Specialist, SAWU1), Giuliana de Mendiola (Urban Development Specialist, SLCUR) y Jenny Torres (Housing Consultant). Flavia Días Braga (Program Assistant, SLCUR) and Claudia P. Pacheco Florez (Program Assistant, SLCUR) provided overall administrative assistance. The report was prepared under the overall guidance of Ming Zhang (Practice Manager, SEAU1) and David Sislen (Practice Manager, SLCUR). The team is grateful for peer review inputs from Zoe Elena Trohanis (Lead Disaster Risk Management Specialist, GFDRR), Thomas Farole (Lead Economist, SCADR), Dean A. Cira (Lead Urban Specialist, SURDR), Hanna R. Messerli (Senior Private Sector Specialist, ETIMT), and Augustin Maria (Senior Urban Specialist, SMNUR). The tea mis thankful for the review and inputs from Andres Rodriguez Pose, international expert on territorial development and member of Department of Geography and Environment, London School of Economics and Political Science (LSE); Nancy Lozano Garcia (Lead Ecoomist, SLCDR); Julie Rozenberg (Senior Economist, SLCDR); Alvina Elisabeth Erman (Economist, GFDRR); Luis Triveno (Senior Urban Development Specialist, SLCUR); Ivan Kerr (Housing Consultant); Julio Miguel Silva (Housing Consultant); and Carlos Ariel Cortes (Housing Consultant), and the GPURL Disaster Resilience Analytics and Solutions (D-RAS) team. The team also benefited greatly from contributions of colleagues working in the Dominican Republic across sectors: Johannes Herderschee (Senior Economist, ELCMU), James Robert Ezequiel Sampi Bravo (Economist, ELCMU), Alejandro de la Fuente (Senior Economist, ELCPV), Christian Camilo Gomez Canon (Economist, ELCPV), Gisselle Rohmer (Operations Officer, CLADH), Jade Salhab (Senior Private Sector Specialist, ELCFN), Thomas Haven (Senior Private Sector Specialist, ELCFN), Alfredo Gonzalez Briseno (Consultant, ETIDR), Fausto Andres Patino Pena (Young Professional, ELCFN), Craig P. Kullmann (Senior Water and Sanitation Specialist, SLCWA) and Pedro L. Rodríguez (Program Lead, ELCDR). The team also recognizes the support of the Country Director for Central America, Michel Kerf (EACNF); the Program Leader for Central America, Eric R. Lancelot (ILCDR); the former Country Director for the Dominican Republic, Tahseen Sayed (LCC3C); the former Program Leader for the Dominican Republic, Vickram Cuttaree (ILCDR); the Country Manager for the Dominican Republic, Alexandria Valerio (LCCDO); the Operations Officer for the Dominican Republic, Carmen Amaro (LCCD); and the Communications team in the Dominican Republic, led by Alejandra de la Paz (ECRLC). The cover’s designed is credited to Isabel De Lara and the report’s design and edition to Sociopúblico. The policy discussion in this report has benefited from discussions during 2019-2021, with central, regional, provincial and local government officials and key actors, including representatives from the Ministry of Economy, Planning and Development (MEPyD); Ministry of Public Works and Communications (MOPC); Ministry of Environment; Ministry of the Presidency (MinPRE); Ministry of Tourism; Ministry of Industry, Commerce, and SMEs (MICM); Ministry of Public Administration; Treasury; National Institute for Professional Technical Education (INFOTEP); National Housing Institute (INVI); Association of Municipalities in the Dominican Republic; National Council of Free Zones (CNZFE); Dominican Association of Free Zones (ADOZONA); National Association of Hotels and Restaurants in the Dominican Republic (ASONAHORES); National Association of Housing Developers and Builders (ACOPROVI); and the local governments and tourism clusters of the National District, Santo Domingo Este, Santiago, Puerto Plata, Municipal District of Verón-Punta Cana, and La Romana. 4 Simplified table of contents Introduction 7 Executive Summary 8 1. Laying down the facts of urbanization 31 Detailed table of contents 32 Introduction 35 1. Laying down the facts of DR’s urbanization 35 2. The economic performance of Dominican Republic’s urbanization 45 3. Emerging challenges of urbanization 57 4. Conclusions 77 References 79 Annex 82 2. Addressing territorial disparities at different scales 85 Detailed table of contents 86 Introduction 88 1. Territorial Disparities – Why do they matter? 88 2. What do regional disparities look like in the Dominican Republic? 90 3. How does economic productivity relate to other indicators? 93 4. How do border areas compare to the rest of the country? 106 5. Conclusions 113 References 115 Annex 117 3. Adopting a new territorial planning framework 121 Detailed table of contents 122 Introduction 124 Paving the way for prosperous cities and territories 5 Urbanization and Territorial Review of the Dominican Republic 1. A long-standing political and regulatory tradition shaping territorial planning policies 125 2. A complex institutional territorial planning system plagued by significant gaps 129 3. Status and balance of territorial planning in the Dominican Republic 131 4. Towards New Territorial Planning 139 5. Recommendations 149 References 159 Annexes 163 4. Empowering local governments to meet today’s and future challenges 169 Detailed table of contents 170 Introduction 172 1. Structure, functions, and revenues of local governments 173 2. Performance 184 3. Directions for Reform 191 4. Summary and Recommendations 203 References 204 5. Enabling an inclusive housing sector 207 Detailed table of contents 208 Introduction 211 1. The Dominican housing sector is characterized by a large housing deficit, particularly in 212 urban areas 2. The current regulatory and institutional framework of the housing sector is weakly 218 interconnected and lacks coordination 3.Obstacles to the development of an efficient, resilient, and sustainable housing market 229 are found all along the value chain 4. New government programs addressing the housing deficit 242 5. The way forward: strategic priorities 246 References 251 Annex 254 6 6. Enhancing the integration of tourism with territorial development 257 Detailed table of contents 258 Introduction 261 1. Tourism policies have been used as territorial development tools in the Dominican 261 Republic since the late 1960s 2. Tourism has been and continues to be a key driving sector for the country’s economy 268 3. The Dominican Republic has recognized the need to move towards a new tourism 271 agenda in order to tackle current challenges 4. Main challenges: Institutions, Infrastructure & Interventions 276 5. The next stage: strategic priorities for aligning tourism and territorial development 297 References 309 Annexes 314 Spotlight. Tailoring territorial development instruments: Zonas Francas 323 Detailed table of contents 324 Introduction 326 1. Zonas Francas in the world - What do we know? 326 2. Zonas Francas in the Dominican Republic 329 3. Conclusion 339 References 341 Annexes 343 Paving the way for prosperous cities and territories 7 Urbanization and Territorial Review of the Dominican Republic Introduction Over the past four decades and prior to the pandemic, the Dominican Republic (DR) experienced high eco- nomic growth rates, which were accompanied by an expansion of the middle class and a significant reduc- tion of poverty rate. During the same period, the country became predominantly urban, and its territories evolved from rural and agricultural spaces to large metropolitan areas, consolidating tourism poles in coas- tal areas and suburban spaces where manufacturing emerged, fueled by the creation of Special Economic Zones (SEZ). In 2020, it is estimated that 82.5 percent of the Dominican Republic’s population lives in urban areas; and by 2050 this number will go up to 92 percent. While the economic and territorial transformation of the country has generated opportunities for its population, it has also created a number of challenges which require to be tackled. Such as providing quality basic services, assuring safe and affordable housing solutions to the fast-growing population, assuring firms count with the right enabling environment in the places whe- re they locate and, more recently, supporting the COVID-19 recovery efforts to build a better future for the country. The Government of the Dominican Republic has recognized the opportunities that come with better leveraging its territory and tackling current development challenges; and is pushing to advance an ambitious territorial development reform. The DR’s Urbanization and Territorial Development Review aims to inform and contribute to the Gover- nment’s effort by (i) providing evidence of the main territorial challenges currently being faced by the coun- try with a specific focus on urban areas and lagging regions; (ii) review the current (and proposed reforms to the) regulatory framework for territorial planning and local government finance; and (iii) inform policy decisions at the national, regional, and local levels for ways ahead to address the territories challenges and embrace its opportunities, and to implement the proposed reforms. The Review is organized around six notes and one spotlight: Note 1 - Laying down the facts of urbanization Note 2 - Addressing territorial disparities at different scales Note 3 - Adopting a new territorial planning framework Note 4 - Empowering local governments to meet today’s and future challenges Note 5 - Enabling an inclusive housing sector Note 6 - Enhancing the integration of tourism with territorial development Spotlight - Tailoring territorial development instruments: Zonas Francas Paving the way for prosperous cities and territories 8 Urbanization and Territorial Review of the Dominican Republic Overview By many metrics, the Dominican Republic’s development is a success story Prior to the pandemic, the country was growing rapidly and poverty was steadily declining. From 2005 to 2019 the country experienced average growth rates of 4.5 percent per year, compared to less than 1.4 percent in Latin America and the Caribbean (LAC). Poverty was down to 19.9 percent (in 2016) from 34.4 percent in 2008, and the proportion of the middle class grew to 37 percent during the same period, outnumbering the poor for the first time in 2014. The Gini coefficient decreased by 2.5 points from 49.6 in 2008 to 47.1 in 2016 and remained below LAC’s inequality levels throughout the period. The impressive economic growth of the Dominican Republic result- ed from decades of structural transformation. The country has ex- perienced noticeable changes in the sectorial composition of its GDP since the early 1990s, with services increasing its weight in the economy over time (from 55 percent of GVA in 1994 to over 65 percent in 2018) and manufacturing and agriculture declining by 10 and 5 percentage points respectively, between 1994 and 2018.1,2 For the last 25 years, ser- vices has been the leading sector in the Dominican Republic (DR), con- sistently adding 2.5-3 percentage points of growth per year.3 Among services, the tourism sector has played a critical role in the Dominican economy with a total contribution in 2017 of 11.6 percent of GDP.4 Over the past decades, the DR has grown to become the Caribbean’s lead- 1 Banco Central de la Republica Dominicana [Central Bank of the Dominican Republic] (BCRD). “Serie ho- mogénea del PIB por sectores de origen 1991-2019. Valores corrientes e índices de volumen encadenados refer- enciados al año 2007, trimestral.” Departamento de Cuentas Nacionales y Estadísticas Económicas [Department of National Accounts and Economic Statistics]. 2 Manufacturing is divided in local manufacturing (decrease of 9 percentage points) and manufacturing of Special Economic Zones (decrease of 1 percentage point). 3 Services include: Energy and Water; Commerce; Hotels, Bars, and Restaurants; Transport and Logistics; Com- munications; Financial Intermediaries; Real Estate; Education; Health; Other Market Services; Public Adminis- tration; and Defense. Between 1994 and 2018, the broad services sector grew at an annual average of 5.1 percent, exceeding the average annual growth of total value added of 4.9 percent, and contributing between 50 and 65 percent of the growth. 4 Ministry of Tourism, Dominican Republic. (October 18, 2018). Retrieved from: http://mitur.gob.do/banco-cen- tral-turismo-le-genero-al-pais-us7177-5-millones-en-2017/ (November 29, 2019). Paving the way for prosperous cities and territories 9 Urbanization and Territorial Review of the Dominican Republic ing tourism destination, welcoming 6.4 million visitors in 2019.5 Tourism is also the largest contributor to exports (40 percent) and foreign ex- change earner (31 percent), bringing in US$ 7.56bn in 2018. This growth was coupled with a rapid urbanization process and a de- cline of spatial/territorial disparities at the regional level. From 1994 to 2018, the share of the population living in urban areas went from 56.7 to 81.7 percent, reaching the average in LAC (Figure 1). Furthermore, while economic activities and population are increasingly concentrat- ed in a small number of urban centers in the DR; spatial disparities when measured at the regional and provincial level have been declin- ing since the 2000s. The decline in spatial disparities also appears to be much faster than the one observed in other countries in the region, and when compared to countries with the same level of development (Figure 2). This is likely resulting from both the productivity gains when people move from rural to urban areas and the emergence of tourism growth poles and economic corridors across the country. Figure 1. The Dominican Republic economic growth was coupled with a rapid urbanization process Urbanization rate vs GDP per capita, 1990–2018 Urban 100% population 90% (% of total population) 80% 70% 60% 50% 40% 30% 20% 10% 0% 500 5,000 50,000 GDP per capita (PPP, constant 2011 international $) Dominican Republic Costa Rica Sri Lanka Latin America & the Caribbean Guatemala Papua New Guinea Ireland Honduras Source: Authors with data from the World Development Indicators. 5 Which accounts for 20 percent of the visitors in the Caribbean in 2019 (stayover arrivals to the Caribbean totaled 31.5 million, according to the Barbados-based Caribbean Tourism Organization). 10 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic Figure 2. A much faster decline in spatial disparities than the one observed in other countries in the region or with the same level of development Regional inequalities at the first administrative level from 2000 to 2018 Between-regions 0.2 inequality (%) 0.15 0.1 0.05 0 -0.05 0 10000 20000 30000 40000 50000 60000 70000 PIB per cápita (PPP US$) Rest of the World LAC Dominican Republic Linear Linear (LAC) Linear (Rest of the world) (Dominican Republic) Source: data from D’Aoust and All (2021) using Global Monitoring Database. Note: Theil T index is used to capture spatial inequality as the share of inequality can be attributed to between-regions disparities. But a closer look reveals challenges that need to be addressed to build forward better Urban areas are growing in an unplanned and unorganized manner, with weak intraurban connectivity which will limit the country’s ca- pacity to reach higher levels of productivity. Most Dominican cities are growing in a sprawled, unorganized manner, and suffer from poor to moderate levels of internal road connectivity which can hinder their economic performance. In fact, DR’s urban centers appear to be per- forming (in terms of economic productivity) below similar cities around the world and in Latin America, and remain far from the productivity frontier. Better management of urban growth is warranted to reduce congestion and maximize agglomeration benefits. Paving the way for prosperous cities and territories 11 Urbanization and Territorial Review of the Dominican Republic 25% 36% of the built- of the population lives up surface in housing structures constructed that are considered between 1995 and structurally vulnerable 2015 was built less to adverse natural than 3 km away events. from the coast. A significant degree of urbanization is also taking place in the coast- line and in flood-prone areas, increasing the country’s vulnerability to disasters. More than a quarter of the built-up surface constructed between 1995 and 2015 was built less than 3km away from the coast. Although coastal floods have not been widely experienced in recent years, climate change and coastal erosion will increase the likelihood and impact of these events. Building assets in the DR are also concen- trated in a handful of areas, most of which are urban. The concentra- tion of building assets as well as their high vulnerability compound- ed with the significant exposure to earthquake, hurricane, and flood hazard could lead to potentially large losses and reverse some of the development gains achieved over the past decades (Figures 3 and 4). Figures 3 & 4. Hurricanes cause large losses more frequently than earthquakes, with greater risk towards the south of the country. Spatial distribution of hurricanes (left) and earthquakes (right) annual average losses. Source: Disaster Risk Profile of the Dominican Republic (World Bank, 2018a). 12 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic 49% 70% 83% 12% of households of households of household of households in the Santo in the Santo in the Santo in the Santo Domingo Metri Domingo Metro Domingo Metro Domingo Metro area receive area receive area are not area are not electricity less water less than connected to covered by than 20 hours 3 day per week the public sewer municipal solid per day system waste collection services Dominican cities and tourism poles do not have the required infra- structure and basic services to ensure good standards of living and continued competitiveness. Access and quality of basic service provi- sion (electricity, water supply and sanitation, and safe waste collection and disposal) continues to lag in large urban areas and tourism poles. In addition, a large share of Dominicans does not have access to ade- quate housing, and more than a third of the population lives in houses considered structurally vulnerable to natural events. Poor service pro- vision and infrastructure quality also hinders the efficiency and pro- ductivity of the overall business environment across economic sectors. The inadequacy of basic services is impacting tourisms businesses, re- ducing their competitiveness, and leading to environmental degrada- tion which is threatening the sector’s core assets. Sewage runoff and solid waste are contaminating natural areas and water bodies, leading to algae blooms and damaged coral. Coastal erosion and mangrove depletion have also increased.6 Key economic sectors have been unable to fully leverage territorial assets in a sustainable manner and maximize local economic spill- overs. The lack of diversification and high seasonality of the tourism sector prevent it from fully utilizing existing capital stock (hotel bed occupation) and reduce its capacity to produce quality jobs. Further- more, all-inclusive, large-scale resorts dominate the sector, creating enclaves of economic activity resulting in a “monoculture” of tour- ism products, with potential implications for the sector’s resilience to 6 “Wave After Wave of Garbage Hits the Dominican Republic.” The New York Times. July 23, 2018. https://www. nytimes.com/2018/07/23/world/americas/dominican-republic-garbage.html Paving the way for prosperous cities and territories 13 Urbanization and Territorial Review of the Dominican Republic shocks and long-term competitiveness. Special Economic Zones (or Zonas Francas, ZFs)––which have been used across the country as an instrument for territorial development––continue to exhibit weak links with local firms, which is limiting potential local spillovers. This appears to be the result of a mismatch between the needs of firms located in ZFs and the quality of local products, in addition to current incentives and institutional barriers which limit the tightening of links between ZFs and their territories. 95% 81% of the quality beds of ZF’s inputs in Puerto Plata are are provided by foreign owned. firms outside the DR. While spatial disparities have decreased, important gaps in living standards persist, both in urban areas and in certain provinces. Even in the most dynamic urban area of the country, Santo Domingo Metro Area, disparities are present, with around 43 percent of the population living in informal settlements in 2010 (latest census).7 Access to elec- tricity is far from even across the Metro Area, and across the coun- try high-income groups have better access to water than low-income groups. Moreover, households in lagging provinces have much lower access to potable water connections, sanitation, waste collection, and the internet. Scarce road networks, poor connectivity to leading ar- eas, and the low quality of roads hinder the development potential of lagging provinces. The qualitative housing deficit is higher in lagging provinces, where a much larger percentage of houses require renova- tion to reach an acceptable level of quality living standards, while the quantitative housing deficit is higher in leading areas, reflecting the increasing population pressure. 7 “Metodología para la identificación de tugurios en el Distrito Nacional.” 14 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic LAGGING LEADING REGIONS REGIONS roads that are paved 16% 29% households with access to Internet 17% 34% households with water connections inside the house 37% 55% households with toilet inside the household 60% 90% households with access to clean cooking 73% 90% households with waste collection service 74% 90% Some of these challenges have been exacerbated by the COVID-19 pandemic . Preliminary estimates indicate that the ongoing economic crisis will result in high levels of unemployment. Even if the depth of the negative impact has been alleviated by the government’s responses, poverty is expected to increase to 23.1 percent (from 21 percent in 2019) in the Dominican Republic, likely affecting informal urban work- ers the most––which will further increase intra-urban inequalities. At the sector-level, tourism has been strongly hit, with visitors’ numbers significantly reduced in 2020 by close to 63 percent when compared Paving the way for prosperous cities and territories 15 Urbanization and Territorial Review of the Dominican Republic to 2019, which translates to an estimated income loss of US$ 26.8bn (10 percent of GDP) counting direct, indirect, and induced impacts.8 Furthermore, the crisis is likely to also reduce public revenues––data on central government revenues show a 5.5 percent decline in the first eleven months of 2020, compared to the same period a year ear- lier––making even more pressing the need to efficiently target the scarcer resources. There is also a mismatch between the existing territorial challenges and the tools and capacity to respond to them The country remains very centralized, and local governments––while having few responsibilities––do not have the financial capacity to deliver on their limited functions. In fact, the DR is one of the most centralized countries in the LAC region, with local governments ac- counting only for 2.4 percent of total government spending (Figure 5). This is partly due to the fact that local governments in the DR play no role in the provision of public education, and other major infra- structure/service provision functions such as urban water supply and sewage. Furthermore, unlike virtually all other major countries in the region, local governments are not allowed to impose a broad-based local tax, such as property taxes. For instance, with the exception of fees for construction and civil registration, none of the local taxes and fees in the National District generated more than the equivalent of US$ 0.33 per capita. The average level of local government revenues is RD$ 1,800 (US$ 35) per capita. Their resulting precarious financial positions hampers their ability to finance capital investments out of their own revenues, or access external sources of capital funding. Instead, they remain largely dependent on the construction of capital works by the central government. 8 BID, ¨Nota Sectorial de Turismo para la República Dominicana,¨ November 2020. 16 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic FIGURE 5. The Dominican Republic is among the most centralized countries in Latin America and the Caribbean. Local Governments account for 2.4% of total government spending Colombia 23% Brazil 18% Chile 16% Peru 10% El Salvador 8% Mexico 6% Costa Rica 4% DR 2% Panama 2% Sources: DR figures are from the Ministerio de Hacienda (Agregación Institucional para la Consolidación de la Ejecución del Sector Público No Financiero) and refer to 2018. Figures for other countries are from the IMF Government Finance Statistics website and refer to 2018, except in the case of Mexico (2017). Note: In all cases, figures for general public expenditure include spending by the central government, decentralized institutions, and the social security system. With the exception of Costa Rica, Panama, and El Salvador, data for Central American and Caribbean countries is not available. The current regulatory and institutional framework makes it hard to have coordinated actions at the local level. With the emergence of very large cities in the DR as well as expected rapid growth in periph- eral cities and smaller towns, the current institutional model––which remains very centralized––no longer works. While the central gov- ernment has attempted to coordinate and prioritize its own capital spending, the fact remains that local governments have little control over the allocation of capital spending within their jurisdictions. As a result, the DR is failing to take advantage of one of the key compar- ative advantages of local government: their ability to prioritize and coordinate development within their own jurisdictions. This is partic- ularly important to manage urban growth and pursue transformative Paving the way for prosperous cities and territories 17 Urbanization and Territorial Review of the Dominican Republic investments in city centers and poor peripheries, where many actors would need to intervene in tandem, aligning their strategic planning priorities and budgeting cycles. It also has important gaps to deal with emerging territorial trends. To start, many of the pressing needs for land for both manufacturing and tourism services are occurring in sub-urban or peri-urban areas, while the current regulatory framework is centered around urban areas. This is leading to fractioned territorial planning (urban vs. rural) which does not correspond to reality, nor does it allow for proper management of urban growth and peri-urban areas. There is also a lack of clarity be- tween the competences of the different institutions responsible for ter- ritorial planning and instances for inter-institutional coordination. For example, the hierarchy of planning instruments developed by key insti- tutions such as the Ministry of Tourism vs. municipal development plans is unclear. As such, even when strategic territorial planning documents are developed, they face major hurdles in order to be implemented in a coherent way across the different territorial layers (National, Region- al, and Local). Lastly, there is little in the existing regulatory framework that would allow the country to better deal with the growing metropo- lises, such as Santo Domingo, which maintain fragmented administra- tions and few instances to properly address metropolitan governance. Furthermore, a sector-based perspective has been prioritized for making territorial development decisions, which is lacking a wid- er-view and consensus. Responding to the need of planning touris- tic poles and the weakness of other government entities and levels, land use planning in the DR has been led by tourism development (land-use) plans called PSOTTs, developed by the Ministry of Tour- ism––eight of which have been completed so far.9 However, these are sectoral plans that do not provide an integrated view of the territory, and the current regulatory framework is unclear with regard to their 9 PSOTTs available (but need to be updated) for Sousa, San Felipe Puerto Plata, Las Terrenas (Samaná Norte), Cabarete, Miches-Seibo-Hato Mayor, Punta Cana-Bávaro-Macao, Unidad Ambiental 2 Macao, and Pedernales. 18 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic hierarchy (e.g., versus POTs) or whether they are mandatory for the municipalities included in them. Furthermore, in many of the PSOTTs analyzed, the tourism sector is prioritized over the needs of urban areas, placing urban areas as a liability of the sector rather than a very needed complement for the sector´s productivity and growth. In addition, disaster risk management has not been fully internalized in territorial planning, potentially due in part to the lack of availability of disaster risk information. Most municipalities do not have proper territorial planning instru- ments to guide development. In fact, only 5 percent of municipalities have land use plans (Figure 6), and 6 percent have constituted and Figure 6. Only 5 percent of municipalities have land use plans. Dominican Republic Municipalities with Municipal Territorial Plans, by plan status 1 Hondo Valle 2 Sabana Yegua 3 Guayabal 4 Jarabacoa 5 Santiago 5 6 Santo Domingo 7 de Guzmán 7 Las Terrenas 4 8 San Pedro de Macorís 9 9 Miches 1 3 6 8 2 Finished 60% progress Source: General Directorate of Territorial Development and Planning (DGODT) Paving the way for prosperous cities and territories 19 Urbanization and Territorial Review of the Dominican Republic operational planning units. As such the majority of development in the DR continues to be done without following a well-conceived vision of the territory, which has generated room for the subjective arbitra- tion of what can be built where and discretionary decision-making for land-use. The future also holds a different set of challenges Given that the country already has advanced levels of structural transformation and urbanization, future growth patterns will depend less on moving human capital from less to more productive sectors and more on making existing sectors more productive. This will like- ly involve applying a different set of tools and increasing capacity at various levels to manage multi-sectoral decision-making and coordi- nated private-public actions across the territory (as outlined below). Projected urbanization patterns point to the consolidation of periph- eral areas of Santo Domingo and Santiago, and the growth of sec- ondary cities. Between 2010 and 2050, the population of metropolitan Santo Domingo is projected to reach a total population of 4.2 to 5.3 million (up from 3 million in 2010). In addition, all projected growth is going to happen in peripheral municipalities (Santo Domingo Norte, Este, and Oeste) while the Distrito National will face a slight decline in its population. In parallel, there will be a shift in the urban population towards small and medium cities (Figure 7). By 2050, 92 percent of the DR’s population will reside in urban areas, and by 2035, 56 percent of the urban population will be living in small/medium sized cities. Properly managing urban growth, dealing with existing infrastruc- ture gaps, and growing infrastructure needs will be essential to move Dominican cities towards the productivity frontier. The current ur- ban expansion patterns, if maintained, will continue to reduce internal connectivity and lock-in Dominican cities into energy inefficient forms, thereby reducing their economic potential. They will also increase cit- ies’ exposure to natural hazards and the housing sector’s vulnerability, thus reducing their resilience to existing and future climate events. To- gether this will limit Dominican cities‘ ability to reach higher levels of 20 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic Figure 7. Projections show a shift in the urban population towards small and medium cities. Urban population by size of cities in Dominican Republic from 2005-2035 Urban 12 population (by millions of people) 10 8 6 4 2 Santo Domingo Santiago 0 Other cities 2005 2020 2035 Source: World Urbanization Prospects: The 2018 Revision. Note: Santo Domingo refers to the urban population of the Municipalities of Santo Domingo de Guzmán, Santo Domingo Este, Santo Domingo Oeste, and Santo Domingo Norte. productivity, which are essential for maintaining the country’s growth patterns in the future. Properly managing conflicting or complemen- tary land uses, and financing coordinated investments and initiatives (i.e., renewal of city centers, putting in place public and non-motorized transport alternatives, and moving towards transit-oriented develop- ment) while upgrading cities’ peripheries (i.e., integrated neighbor- hood upgrading) will be key to making Dominican cities prosperous for business development and livable environments for their residents. Rising productivity across sectors will also require leveraging exist- ing territorial endowments and enhancing sectoral spillovers. Beyond tackling urban development challenges there is a need to: (i) better Paving the way for prosperous cities and territories 21 Urbanization and Territorial Review of the Dominican Republic anchor sectoral investments with territorial endowments to maximize local spillovers, (ii) coordinate cross-sectoral investments to enhance local competitiveness, and (iii) implement a national strategy that can guide subnational instruments and actors. An important share of the country’s economic activities is located in peri-urban and sub-urban environments, where tourism poles and most Zonas Francas are an- chored. As such, it is important to properly integrate these sector´s economic activity into existing planning and regulatory instruments. This will enable strengthening of the linkages to local communities, businesses, and institutions. In addition, there is a need to properly plan and coordinate actions in existing and future economic poles in order to assure that they are anchored in the territory’s context and that they have the required enabling conditions to flourish (i.e., adequate pro- vision of water, sanitation, electricity, solid waste collection/disposal, local planning instruments, and connecting infrastructure). The inade- quacy of basic service provision and environmental degradation is al- ready impacting tourism businesses competitiveness and threatening the sector’s core assets.10 Two, a national vision is needed in both the tourism sector and the Zonas Francas to guide prioritization of invest- ments and planning instruments at the local level. The Dominican Government has recognized the need to put the territory and its people at the center of public policy The Dominican Government has recognized the need to put the ter- ritory and its people at the center of public policy. Territorial devel- opment is one of the pillars of the Government´s Program, embodied in the newly created Vice-Ministry for Territorial Planning and Regional Development (under MEPyD). The Program highlights the importance of having effective territorial policies and emphasizes the need to ap- 10 Sewage runoff and solid waste are contaminating natural areas and water bodies, leading to algae blooms and damaging coral. Coastal erosion and mangrove depletion have increased. Although recent data is scarce, a 2010 report estimated that the disappearance of live corals could increase beach erosion by more than 100 percent on eastern beaches by 2020, and Puerto Plata stagnation (Add references). 22 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic prove and implement a territorial planning legislative package to sup- port the integral development of the territory and population. In this context, the Dominican Republic intends to embark on ambitious legis- lative reforms for enhanced territorial planning and disaster risk man- agement. One major law in those fields has already been approved: (i) the “Ley de la Vivienda, Asentamientos Humanos Dignos y Edificacio- nes”11, while three others are currently in the pipeline for approval: (ii) the draft “Ley Orgánica de Ordenamiento Territorial y Uso de Suelo“; (iii) the draft “Ley de Gestión Integral de Riesgos de Desastres;”12 and (iv) the proposal of the “Ley Orgánica de Regiones Únicas de Planificación;”13 How can the Dominican Republic pave the way for prosperous cities and territories? To prepare for the challenges and opportunities emerging in the Do- minican Republic, this report advocates for a stronger focus on (i) Con- structing an enabling environment for prosperous cities and territories to emerge, (ii) Coordinating action to tackle complex territorial chal- lenges, and (iii) Connecting people, firms, and places to maximize eco- nomic spillovers, reduce spatial disparities, and create a more efficient system of cities. These are organized around three Cs: 11 Which would, among others, establish an institutional framework for housing policy, including the consolidation of entities at the national level into a new ministry (MIVIVIENDA). 12 Aims at improved risk understanding through better risk information, promotes decentralization, and even compels local authorities to plan and manage disaster risk. 13 Has the main objective of enabling development at the regional level by coordinating policies, plans, programs, and projects, as well as financial incentives, for territorial cohesion between regions. Paving the way for prosperous cities and territories 23 Urbanization and Territorial Review of the Dominican Republic Constructing an enabling environment for prosperous cities and territories to emerge. Coordinating action to tackle complex territorial challenges that require multiple actors to engage in parallel. Connecting people, firms, and places to maximize economic spillovers, reduce spatial disparities, and create a more efficient system of cities. Constructing an enabling environment for prosperous cities and ter- ritories to emerge. This refers to revising the institutional and regula- tory framework of the DR to meet today’s and the future’s territorial challenges. To start, there is a need to update the territorial planning regulatory framework through the approval of the currently proposed reforms, Further details in Note 3. such as the Ley Orgánica de Ordenamiento Territorial y Uso del Sue- Adopting a new territorial lo and linked regulations. Given the lack of territorial planning in the planning framework and country, this report advocates for a sequenced roll-out of the reform Note 6. Enhancing the throughout the territory, starting with the development of urban plan- integration of tourism with territorial development ning instruments in areas of the country which are facing strong de- velopment pressure: large urban areas, such as the Santo Domingo 24 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic Metropolitan area, and tourism poles across the country. Realigning land use planning for tourism development to the relevant planning agencies (national and local) is also recommended. In parallel, the country needs to put in place a program to strengthen the institutional capacity for territorial planning at the central and local level and bet- ter integrate DRM into territorial planning instruments. This report also argues for the need to empower local governments to access more robust and stable sources of revenue. The existing pleth- ora of minor taxes should be replaced by a broad-based tax, such as Further details in Note 4. a property tax and/or a business tax. In addition, intergovernmental Empowering local govern- transfers should be stabilized at a realistic level to avoid the currently ments to meet today’s and future challenges observed year-to-year fluctuation. Phasing out inefficient private sec- tor investment incentives––such as those in law 158-01––and redirect- ing revenue gains to improve basic services and infrastructure might also be warranted to tackle the large infrastructure gap in the country. The DR also needs to strengthen the institutional framework for hous- ing development and land management. This report recommends: (i) the consolidation of housing agencies and existing programs under the recently created Ministry of Housing and Buildings (Ministerio de Further details in Note 5. En- la Vivienda y Edificaciones, MIVED), (ii) strengthening cadastral and abling an inclusive housing land registry systems and standardizing construction permitting pro- sector cesses to enable the housing market to function better and to stim- ulate private sector participation, and (iii) bringing housing finance down-market by integrating approaches to include informal income households into housing programs. Coordinating action to tackle complex territorial challenges that re- quire multiple actors to engage in parallel. This refers to putting in place targeted programs or strategies to rally private and public sec- tor stakeholders at the national and subnational levels and mobilize financial resources at scale to tackle complex territorial challenges. The improvement of the territorial planning regulatory framework and the progressive roll-out of its mandate across the territory should en- able coordinated actions at different spatial scales for basic service Paving the way for prosperous cities and territories 25 Urbanization and Territorial Review of the Dominican Republic provision to integrate housing programs into local territorial plans or to better guide private and tourism investments (i.e., construction per- mits) while taking into consideration local carrying capacities. How- ever, some of the more complex territorial challenges identified in this report require a targeted approach to be able to be tackled in a time- ly and efficient manner. This is particularly relevant given the highly centralized nature of the Dominican Republic and the few resources that local governments have at hand to finance territorial develop- ment (e.g., services and infrastructure) at the local level. Based on the findings of this report, particular attention is warranted to tackle the following territorial challenges. Finding the most efficient technical solutions, along with financial and institutional arrangements for service provision and strategic urban investments in metropolitan areas and regions. For instance, there is a need to create coordination mechanisms to assure consistency of urban planning instruments and urban mobility investments (i.e., mas- Further details in Note 1. Laying down the facts of sive transit) in urban areas spread across multiple administrative units. urbanization Tackling current solid waste disposal challenges in the country will also require coordination and guidance from the central government to ensure that the most efficient technical solutions (i.e., regional sanitary landfills) are supported. Tackling entrenched spatial disparities in housing quality and ba- sic service provision in large urban areas through integrated slum or neighborhood upgrading programs. As part of the rationalization and Further details in Note 2. consolidation of housing institutions and programs, it is recommended Addressing territorial to expand into slum or neighborhood upgrading programs, as well as disparities at different scales to target home improvements as a means of enhancing resilience to and Note 5. Enabling an natural disasters. Integrated slum or neighborhood upgrading inter- inclusive housing sector ventions appear particularly relevant for certain areas in the Distrito Nacional, such as the 3rd Circumscription. 26 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic Figure 8. Lagging provinces are mostly located near the border of Haiti and in the northeast corridor from Espaillat to El Seibo. Classification of regions based on a composed economic productivity measure 17 22 Provinces Percentile: 1. Azua 32 9 20 (Lagging) 2. Baoruco 4 16 30 11 20-40 (Lagging) 3. Barahona 29 6 23 40-60 (Transition) 4. Dajabón 5. Distrito Nacional 7 60-80 (Transition) 15 24 6. Duarte 80-100 (Leading) 26 19 18 7. Elías Piña 8. El Seibo 10 8 9. Espaillat 27 12 2 1 25 31 28 14 13 10. Hato Mayor 21 5 11. Hermanas Mirabal 12. Independencia 3 13. La Altagracia 20 14. La Romana 15. La Vega 16. María Trinidad Sánchez 17. Monte Cristi 18. Monte Plata 22. Puerto Plata 26. San Juan 30. Santiago Rodriguez 19. Monseñor Nouel 23. Samaná 27. San José de Ocoa 31. Santo Domingo 20. Pedernales 24. Sanchez Ramírez 28. San Pedro de Marcoris 32. Valverde 21. Peravia 25. San Cristóbal 29. Santiago Sources: GDP spatial series elaborated by the World Bank; Income per capita from the UNDP, Human Development Index, 2016; and Nightlights using NOAA, VIIRS Addressing lagging regional infrastructure and service gaps, and properly tailoring territorial policies to address market failures re- quires coordinated action across a multiplicity of actors (Figure 8). This requires a better understanding of territorial endowments in Further details in Note 2. lagging areas, tailoring, and sequencing public policy interventions. Addressing territorial dispar- A good understanding of existing market failures––such as potential ities at different scales coordination failures in place––is also key to boosting private sector development. The in-depth development gaps diagnostic and territo- rial strategy currently being developed by MEPyD’s Directorate for the Planning and Development of the Border Area is an example of this approach. Paving the way for prosperous cities and territories 27 Urbanization and Territorial Review of the Dominican Republic Connecting people, firms, and places to maximize economic spill- overs, reduce spatial disparities, and create a more efficient system of cities. This refers to making sure that (i) sectoral strategies and in- terventions take into consideration territorial endowments to maximize economic spillovers, and (ii) territorial planning instruments at the var- ious levels incorporate measures/interventions to better connect lag- ging and leading areas and create a more efficient system of cities. This is particularly relevant to: Maximize territorial spillovers through spatially targeted actions in Further details in the Note 6. order to better connect a tourism destination with a diverse set of Enhancing the integration of tourism with territorial tourism assets and surrounding communities. Achieving this requires development FIGURE 9. The absorptive capacity of the territory is key when deciding what type of firms/ZFs to attract if impact wants to be maximized. The different absorptive capacity of Dominican Republic Municipalities High absorptive capacity Low absorptive capacity Source: Authors with data from World Development Indicators. Note: The variables used are % of the population with tertiary education (Census, 2010); % of the labor force employed in agriculture (ENFT, 2015); % of working age population (ONE Estimation, 2015 28 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic enabling the public sector to work together with the private sector in order to support tourism diversification through coordinated territorial action along tourism circuits. For instance, by enabling the develop- ment of destination management offices, and by supporting the de- velopment of diversified tourism products. Properly assess and maximize the impact that Special Economic Zones can have in their surrounding territories. Beyond their foreign direct Further details in the investment objectives, Special Economic Zones (SEZs) can play a role Spotlight. Tailoring in boosting local economic development by building on local absorp- territorial development instruments: Zonas Francas tive capacity and endowments. To achieve this, this report argues that there is a need for a more strategic approach to properly locate new Special Economic Zones and enable linkages between current SEZs Figure 10. Most Dominican cities are sprawled and have moderate to low levels of connectivity. Level of internal connectivity by city 100% 75% 50% 25% 0% PRY COL HND BOL ECU NIC PER BRA MEX CHL GTM ARG DOM CUB VEN Low internal connectivity, sprawl and organic street network Moderate internal connectivity, highly sprawled and compact High internal connectivity, low sprawl and organic perimeter High internal connectivity, low sprawl and compact Source: Author’s based on data from Duque et al. (2019). Paving the way for prosperous cities and territories 29 Urbanization and Territorial Review of the Dominican Republic and local firms. In addition, there is a need to recognize the limited spatial impact of SEZs in surrounding communities when located in ar- eas with poor absorptive capacity and spatial endowments. Improve internal connectivity within and across cities. This report finds that most Dominican cities are suffering from poor internal con- nectivity, which is associated with lower levels of urban productivity. Improving internal connectivity within cities, combined with urban transport policy, is thus needed to reduce congestion and to foster agglomeration economies at the cores of urban productivity growth. This is particularly important in large urban areas such as Santiago and the Santo Domingo Metropolitan Area. On a national scale, there Further details in Note 1. is also a need to enhance road connectivity between cities. While the Laying down the facts of country has observed a decline in spatial disparities at the regional urbanization and Note level, there are still regions of the country – such as the Border Area 2. Addressing territorial disparities at different scales with Haiti - which are lagging across several social, basic service pro- vision, and economic indicators. While it is unlikely that these areas will become the country’s growth poles, the analysis presented in this report suggests that there is untapped economic potential in selected locations of the Border Area (i.e., Pedernales, around Dajabon, and Monte Cristi). Realizing the potential of selected locations will require improving their connectivity with the rest of the country and interna- tional markets. 30 Paving the way for prosperous cities and territories Urbanization and Territorial Review of the Dominican Republic The report findings and recommendations are further detailed and covered in six territorial notes and one spotlight which are organized as follows: Constructing Coordinating Connecting an enabling action to tackle complex people, firms, and places environment for territorial challenges that to maximize economic prosperous cities and require multiple actors to spillovers, reduce spatial territories to emerge engage in parallel. disparities, and create a more efficient system of cities. NOTE 1 -Laying down the facts of urbanization NOTE 2 - Addressing territorial disparities at different scales NOTE 3 - Adopting a new territorial planning framework NOTE 4 - Empowering local governments to meet today’s and future challenges NOTE 5 - Enabling an inclusive housing sector NOTE 6 - Enhancing NOTE 6 - Enhancing the integration of the integration of tourism with territorial tourism with territorial development development SPOTLIGHT - Tailoring territorial development instruments: Zonas Francas Urbanization and Territorial Development in the Dominican Republic 31 1. Laying down the facts of urbanization 1. Laying down the facts of urbanization Oscar Ishizawa Escudero, Joaquín Muñoz Díaz, Paula Restrepo Cadavid and Evelyn Sánchez Hernández 32 Table of Contents Introduction 35 Laying down the facts of DR’s urbanization 35 1.1 While highly urbanized; the Dominican Republic continues to urbanize at a fast pace 35 1.2 Urbanization has led to the concentration of the population and economic activities in a 38 few cities 1.3 Building assets are also heavily concentrated in the two largest metropolises 39 1.4 New economic poles and corridors across the country are also urbanizing rapidly 41 1.5 Projections suggest that the Dominican Republic is moving towards a more balanced 42 urban system with new urban growth poles emerging and consolidating 2. The economic performance of Dominican Republic’s urbanization 45 2.1 At a macro-level the Dominican Republic urbanization process has been coupled with an 45 impressive growth in the GDP per capita 2.2 At the city level, economic performance appears mixed 47 2.3 In the years prior to the pandemic, Santo Domingo appeared to be catching up in terms of 48 economic growth 2.4 Economic growth in Santo Domingo appears to be driven by increased labor productivity 51 and not by job creation 2.5 Evidence suggests that urban workers in the Dominican Republic are not fully benefiting 55 from the effects of urbanization 3. Emerging challenges of urbanization 57 3.1 A significant degree of urbanization has taken place in the coastline and in flood-prone 57 areas 3.2 Urban expansion is occurring in a disorganized and likely unplanned manner, particularly 60 around tourism poles 3.3 Although poverty has decreased across the country, a large share of the population does 64 not have access to adequate housing 3.4 Despite substantial investments in improving basic service provision, disparities in access to 66 electricity and water persist across urban and rural areas, and income groups 3.5 The Dominican Republic faces significant sanitation and waste management challenges 70 3.6 Tourism and industrial development hinge on the provision of basic services as cities 73 expand 3.7 Power outages, regulatory mechanism and lack of skilled labor are standing in the way to 75 a productive business environment Urbanization and Territorial Development in the Dominican Republic 33 1. Laying down the facts of urbanization 4. Conclusions 77 References 79 Annex. Additional graphs on economic indicators 82 Figures Figure 1. Urban share in the Dominican Republic and LAC by different urbanization measures 36 Figure 2. Urban growth in the Dominican Republic vs the LAC region and international 37 comparators Figure 3. Urban population and economic activity are more concentrated in the Dominican 38 Republic than the average for LAC and Central American countries Figure 4. Distribution of building exposure of the Dominican Republic as a percentage of total 39 national exposure Figure B1.1 Spatial distribution of annual average losses (AAL) due to hurricane (left) and 41 earthquake (right) Figure 5. Built-Up surface increase by province between 1985 and 2015 42 Figure 6. Population growth in Santo Domingo under different demographic projections 43 Figure 7. Estimated population in Santo Domingo 44 Figure 8. Urban population by size of cities in the Dominican Republic (2005–2035) 44 Figure 9. Urbanization rate vs GDP per capita (1990–2018) 45 Figure 10. Employment composition in the Dominican Republic by sector 46 Figure 11. GDP composition in the Dominican Republic by sector 47 Figure 12. Santo Domingo and Santiago were performing economically lower than expected in 48 comparison with the global trend and with other LAC cities Figure 13. GDP per capita growth rate in selected LAC capital cities 49 Figure 14. GDP per capita in Central American countries and regional averages 50 Figure 15. GDP per capita growth rate: Santo Domingo and the Dominican Republic 50 Figure 16. Average growth decomposition South American capitals and the Dominican Republic 51 (2005–2015) Figure 17. Average growth decomposition in Central American capitals and the Dominican 52 Republic (2005–2015) Figure B2.1. Growth decomposition in the Dominican Republic (2000–2017) 53 Figure 18. Annual employment growth (2010–2015) 54 Figure 19. Disconnection between wages and productivity in the Dominican Republic 54 Figure 20. Worker and urban premium in LAC 56 34 Figure 21. Rapid built-up surface growth in Higüey 58 lood-prone areas in Santo Domingo Figure 22. Evolution of built-up surface in f 59 Figure 23. Evolution of built-up surface in flood-prone areas by province 59 Figure 24. Evolution of the classification of newly grown patches 60 Figure 25. Urban expansion in Gran Santo Domingo 61 Figure 26. Most dominican cities are sprawling and have moderate-to-low levels of connectivity 62 Figure 27. Total housing deficit and poverty rate by province 64 Figure 28. Total housing deficit in Santo Domingo, Distrito Nacional, and Santiago in 2010 65 Figure 29. Number of hours that households receive electricity by location (amongst those 66 connected to the power grid) Figure 30. Number of hours that households receive electricity (amongst those connected to the 67 power grid) by socioeconomic group Figure 31. Number of days that households have access to water by location (amongst those 68 having access to piped water) Figure 32. Source of water for domestic use by income group 69 Figure 33. Number of days that households have access to water (amongst those having access 69 to piped water) by socioeconomic group Figure 34. Sewage connection type by location 70 Figure 35. Waste management disposal by socioeconomic group (income level) 71 Figure 36. Waste management disposal by location 71 Figure 37. Average hours of electricity and water service in Puerto Plata, Santiago, Samaná, and 74 La Altagracia. Figure 38. Percentage of households with garbage service, connection to sewerage, and piped 74 water inside the house in Puerto Plata, Santiago, Samaná, and La Altagracia. Figure 39. Top ten business environment constraints in 2016 75 Figure A1. Marginal contribution of labor productivity, job creation, and population structure to 82 total GVA growth (2005–2015) Tables Table A1. Top obstacles for firms’ performance by location, 2016 83 Boxes Box 1. The cost of disaster risk in the Dominican Republic 40 Box 2. Decomposition of growth at the national level 52 Box 3. Waste management in the Dominican Republic: Santo Domingo and Santiago 72 Urbanization and Territorial Development in the Dominican Republic 35 1. Laying down the facts of urbanization Introduction At the macro-level, the Dominican Republic’s accelerated urbanization process is impressive; the country has maintained a remarkably high and sustained GDP per capita in recent decades while successfully completing its structural transformation. Nevertheless, a closer look into its urban centers shows emerging challenges that can prevent recent economic gains from being sustained over time. Urban expansion has occurred in an unplanned manner, decreasing cities’ productivity, and has taken place in disaster-prone areas. There is a lack of adequate housing supply, and even in large urban areas, the quality of basic services is poor. Frequent disruption of water and electricity service poses a heavy burden on households and firms. Moreover, workers in urban centers have not fully benefited from the urbanization process, and a mismatch between productiv- ity growth, quality job creation, and wages remains. Even when the Dominican Republic is highly urbanized, the urbanization process will continue. It is projected that the metro area of Santo Domingo, which currently accounts for 59 percent of the economic activity and 36 percent of the population, will keep growing until 2060. Simultaneously, emerging touristic economic poles are expected to attract more population. Meeting the challenges highlighted in this note is important in order to preserve and leverage productivity gains and increase the quality of life for current and future urban dwellers.1 This note is divided into four sections. The first section will address the facts of the Dominican Repub- lic urbanization process. The second section will address the current performance—in economic terms—of the country’s urbanization; using a set of comparator countries and cities worldwide. The third section will address specific drivers that might prevent Dominican cities and the country as a whole from reaping the benefits of the urbanization process. The last section will provide conclusions. 1. Laying down the facts of the DR’s urbanization 1.1 While already highly urbanized, the Dominican Republic continues to urbanize at a fast pace The vast majority of the population in the Dominican Republic lives in urban areas. According to official estimates, in 2020, 82 percent of the Dominican population resided in municipal seats or municipal districts, defined as urban areas.2 Since urban measures vary from country to country, we take a slightly different ap- proach to understand where the Dominican Republic stands with regard to urbanization compared to the rest of the world. We estimate that in the Dominican Republic around 73 percent of the population lives in 1 This study assesses urban development challenges with regard to urbanization trends, population growth, economic growth, and estimated natural hazard risks due to earthquakes, hurricanes, and floods. Other climate change effects related to these factors are not covered in this study due to scope and data limitations. 2 Oficina Nacional de Estadística. “Estimaciones y proyecciones de la población urbana por año calendario, según sexo y grupos quinquenales de edad, 2000-2030.” Urban population is defined by the Dominican government as the people who live in municipal seats or municipal districts; the population that does not reside in these areas is considered rural population. 36 contiguous, densely populated urban areas— “urban clusters”3—and 81 percent lives either in urban cores or within 60 minutes of urban cores (agglomeration index). These levels of urbanization are very similar to the average of the LAC region, which is estimated to be between 73.5 percent (cluster algorithm) and 71.6 per- cent (agglomeration index); and are above the average for Central America and Caribbean countries, which range between 60 and 67 percent according to different urbanization measures (see Figure 1). Figure 1. Urban share in the Dominican Republic and LAC by different urbanization measures Share of 100 Urban Population 81.1 81.8 80.9 83.4 (%) 75 73 71.6 73.5 72.6 75 67.4 65.4 67.3 80.9 61.6 60.8 60 25 0 Dominican Latin America Central America Caribbean South America Republic and the Caribbean Agglomeration Index Cluster Algorithm World Urbanization Prospects Source: Data on agglomeration index and cluster algorithm comes from Roberts et al. (2017) which uses 2012 LandScan data. Data for 2019 comes from the World Development Indicators, based on World Urbanization Prospects: The 2018 Revision. Note: Mexico is classified as part of South America. Values in the graph represent the weighted mean. The rate at which the DR is urbanizing (1.9 percent) is well above the average for the LAC region and the Caribbean, converging with Central American countries and international comparators. Using data from World Urbanization Prospects to analyze the country’s urban trend, we can observe that for most of the 2000s, the Dominican Republic has had a higher urbanization rate than the average of any other region in Latin America (see Figure 2). The country followed a similar urbanization trend as other Central American countries, in which urban growth started decelerating around 2000 and reached an average of 2 percent in 2019; in the Dominican Republic, urban growth began to decline steadily in 2004, from 3.5 to 1.9 in 2019. During the same year, Panama, Honduras, Guatemala, and Belize in Central America had a higher urban- 3 In a proposal to analyze urbanization trends in Latin America and the Caribbean and their relationship with the development and structural transformation of the countries, Roberts et al. (2017) use two methods to characterize urbanization. The first, the cluster algorithm, adopts a spatial-demographic approach to identifying urban areas, classifying cells in a population grid according to their density, and then grouping them into “urban clusters” — spatially contiguous groups of cells with a population density of at least 300 people per square kilometer and with an aggregated population of the cells exceeding 5,000 inhabitants. The second method, the agglomeration index, defines urban areas from a labor market perspective. It first identifies urban cores as “sizable” settlements based on a population threshold. Later, it defines the commuter shed as the areas located within a travel time of 60 minutes. People living in the urban core and in the commuter shed are considered urban population. Urbanization and Territorial Development in the Dominican Republic 37 1. Laying down the facts of urbanization ization rate than the Dominican Republic. Nevertheless, these countries have a lower percentage of urban population, ranging from 45 to 67 percent. Costa Rica is the only Central American country with a similar urbanization trend to the Dominican Republic, with slightly lower levels of urban growth at 1.8 percent and 79 percent of the urban population. In the Caribbean, only Haiti surpasses the Dominican Republic’s urban growth rates, with 2.8 percent in 2019. In fact, when compared with countries with similar population density and geographical characteristics across the world, the Dominican Republic stands out for having higher urban growth from 1970 until recently, when it started to converge with their urban growth rate.4 Figure 2. Urban growth in the Dominican Republic vs the LAC region and international comparators Urban population 8 growth rate (%) 6 4 2 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Caribbean Dominican Republic Latin America & the Caribbean Central America International Comparators South America Source: Authors, with data from the World Development Indicators based on World Urbanization Prospects: The 2018 Revision. 4 For an international benchmark of the urbanization process, three countries with similar geography (islands with similar total area) and population, from different income groups, are used as international comparators for the Dominican Republic. Sri Lanka is the comparator from the same income group (upper-middle-income), while Ireland is a comparator from the high-income group, as an aspirational comparator. Finally, Papua New Guinea is selected as a comparator for the lower-middle-income group. For this set of comparators, in 2015, the Dominican Republic also had a higher urban growth rate, closely followed by Papua New Guinea at 2.14 percent. For more detail on the selection of international comparators, see Ferreyra and Roberts (2018). 38 1.2 Urbanization has led to the concentration of population and economic activities in a few cities Urban population is highly concentrated in the metropolitan areas of Santo Domingo and Santiago. By 2020, it is estimated that around 43 percent of the urban population will live in these metropolitan areas.5 As of 2015, the Santo Domingo metro area accounted for around 59 percent of the national GDP; one of the highest shares in LAC.6 Comparing the distribution of the urban population and economic activities across cities, the Dominican Republic has a higher concentration of urban population and economic activity than the average of LAC countries. This phenomenon is not unique to the Dominican Republic; as countries develop, population concentration increases in cities, making it generally beneficial for economic growth. Nevertheless, if popu- lation is too concentrated, especially in large cities, congestion costs rise, hindering the country’s economic growth and productivity (World Bank, 2009). In Figure 3 we use spatial Gini coefficients to measure the disper- sion of economic activity and population, which have a value of 0 when these factors are equally distributed across cities in the country and a value of 1 when they are concentrated in a single city. For economic activity, the Gini coefficient in the Dominican Republic is 0.86, compared to 0.82 in LAC and 0.85 for international Figure 3. Urban population and economic activity are more concentrated in the Dominican Republic than the average for LAC and Central American countries Spatial Gini 1,00 Coefficient 0,75 0,50 0,25 0,00 Dominican Costa Guatemala El Salvador Panama Honduras Nicaragua Republic Rica Economic Activity (NTL Gini) Urban Population (Pop. Gini) Source: Authors, based on data from Restrepo et al. (2017). Note: Dotted lines represent average values for Central America, solid lines represent the average for LAC. 5 Estimation using data from World Urbanization Prospects: The 2018 Revision. 6 Only Nassau (Jamaica), San Juan (Puerto Rico), and Paramaribo (Suriname) reported a higher GDP concentration than Santo Domingo. In a set of 24 LAC countries, the average GDP share of capital cities in 2015 was estimated at 34 percent. Calculations based on data from Oxford Economics (2016). Urbanization and Territorial Development in the Dominican Republic 39 1. Laying down the facts of urbanization comparators. Similarly, urban population concentration has an average of 0.78 in Latin America and 0.82 in the Dominican Republic (see Figure 3). Population concentration is much lower in international comparators, which report an average value of 0.70.7 1.3 Building assets are also heavily concentrated in the two largest metropolises As with other Small Island Developing States, building assets in the Dominican Republic are concentrated in a handful of areas, most of which are urban. The total building exposure for 2016 was estimated at US$ 153.1 billion, or two times the GDP at the time, of which two-thirds corresponds to residential buildings and one-third to non-residential buildings.8 85.5 percent of the economic value of the building stock is located in urban areas. Furthermore, more than half is concentrated in the country’s two main urban centers (Figure 4), with 34.2 percent located in Santo Domingo, 14.4 percent in the Distrito Nacional, and 9.7 percent in Santia- Figure 4. Distribution of building exposure of the Dominican Republic as a percentage of total national exposure Exposure (%) 0.25% - 0.80% 0.80% - 2.0% 2.0% - 5.0% 5.0% - 14.0% 14.0% - 35.0% Source: Country Disaster Risk Profile for the Dominican Republic (World Bank, 2018a). 7 The spatial Gini coefficients estimate the degree of dispersion of population and economic activity; the latter is proxied by nighttime light concentration in an urban system, ranging from 0 (equal distribution across all cities) to 1 (concentration in a single city). Data from Restrepo et al. (2017), updated and expanded. 8 A residential and non-residential building exposure model was developed to assess the characteristics of the building stock of the country as part of the Country Disaster Risk Profile for the Dominican Republic (World Bank, 2018). The analysis was based on data from the 2010 census, as well as information from national accounts and satellite imagery to check and calibrate the results. The main outcome of the exposure model is the estimation of the replacement value for 2016 of the residential and non-resi- dential building assets of the Dominican Republic, disaggregated at a 1x1 km2 resolution by type of construction in urban and rural areas. 40 go. The significant degree of hazard compounded by the high concentration of exposed assets could result in potentially large losses from catastrophic events. Box 1. The cost of disaster risk in the Dominican Republic Earthquake and hurricane risk in urban areas of the Dominican Republic is significant. Potential losses from these events can damage private and public infrastructure and disrupt businesses and the provision of basic services. The World Bank’s Country Disaster Risk Profile for the Dominican Re- public estimates the Annual Average Losses (AAL) to the country’s building stock at US$ 642 million (0.89 percent of the 2016 GDP)—of which, US$ 552 million (0.77 percent of GDP) corresponds to losses in urban areas, with US$ 318 million (0.44 percent of GDP) concentrated in the Distrito Nacio- nal and Santo Domingo alone (Figure B1.1). AAL from hurricanes were estimated at US$ 345 million (0.48 percent of GDP), while AAL from earthquakes were estimated at US$ 297 million (0.41 percent of GDP).a Hurricanes cause large losses more frequently than earthquakes. In any given year, there is a 10 percent probability of having building stock losses that exceed US$ 1.837 billion (2.55 percent of GDP) due to a hurricane, and an equal probability of having losses exceeding US$ 295 million (0.41 percent of GDP) due to an earthquake. The risk profile of the country implies that the Dominican Republic suffers from relatively frequent and severe hurricanes, with greater risk towards the south of the country. Besides the direct damages to buildings and infrastructure, hurricanes can cause large indirect economic losses due to cascading effects and the disruption of businesses and services. For instance, Hurricane Jeanne in 2004 caused indirect losses of about twice the amount of losses due to physical damage. Although less frequent than hurricanes, large earthquakes could occur in the Dominican Republic. In any given year, there is a 0.1 percent chance that an earthquake will cause more than US$ 21 billion in damages (29.4 percent of GDP). An event of this magnitude would have catastroph- ic effects at the household level, create significant fiscal shocks, and exacerbate macroeconomic imbalances. The most vulnerable housing units are those constructions that do not appropriately withstand seismic actions—those made of unreinforced concrete block masonry, steel light frame, and other light materials—which correspond to 596,487 housing units (18.5 percent of the total number of housing units in the Dominican Republic). 64 percent of these housing units are located in urban areas.b Urbanization and Territorial Development in the Dominican Republic 41 1. Laying down the facts of urbanization Figure B1.1 Spatial distribution of annual average losses (AAL) due to hurricane (left) and earthquake (right) AAL 53-133 AAL 37-96 25-52 16-36 7-24 5-15 0.83-6 0.36-4 Province Exposure - + Source: Disaster Risk Profile of the Dominican Republic (World Bank, 2018a). a Values correspond to damages to residential and non-residential buildings only. They do not account for damages to building content, nor for the costs of the “Build Back Better” approach. b Building material information based on data from the 2010 census. Urban areas broadly correspond to municipality administrative centers and municipal districts, classified following the methodology of Gunasekera et al. (2015). 1.4 New economic poles and corridors across the country are also urbanizing rapidly Tourism poles and key economic corridors are also a driving force behind urbanization. Between 1987 and 1996, the growth rate of built-up surface in the Dominican Republic averaged 2 percent annually, which in- creased to 3.2 percent between 1997 and 2008 before slowing down in the aftermath of the 2008 financial crisis to an annual average of 1.2 percent between 2009 and 2015. An analysis of satellite-derived built-up surface data from the World Settlement Footprint Evolution (WSF-Evo)9 from 1985 to 2015 (see Figure 5) sug- gests that urban expansion has predominantly taken place in three locations in this period: (i) in the province of Santo Domingo; (ii) in the metro area of Santiago, and (iii) the eastern province of La Altagracia and the northern province of Puerto Plata. Additionally, the north-south economic corridor connecting Santiago and Santo Domingo, and the neighboring provinces to these metro areas (La Vega and San Cristobal) have experienced a relevant increase in built-up surface, benefitting from the activity of both urban agglomerations.10 9 The World Settlement Footprint Evolution (WSF-Evo) is a database created by the German Aerospace Center that tracks the evolution of human settlements. 10 Based on the WSF-Evo report, which provides a yearly classification of earth surface as being built or not at a 30m spatial resolution between 1985 and 2015. The measu- rements for built-up surface are derived from satellite imagery and don’t account for the floor area of multi-story buildings. 42 Figure 5. Built-up surface increase by province between 1985 and 2015 Built-up 250 (km2) 200 150 100 50 Built-Up Increase (km2) 1.8 - 5.0 0 5.0 - 10.0 1985 1990 1995 2000 2005 2010 2015 10.0 - 20.0 20.0 - 50.0 Santo Domingo La Altagracia Puerto Plata 50.0 - 100.0 Santiago La Vega 121.2 Distrito Nacional San Cristóbal Source: Authors, based on the WSF-Evo report from the German Aerospace Center. 1.5 Projections suggest that the Dominican Republic is moving towards a more balanced urban system with new urban growth poles emerging and consolidating By 2050, 92 percent of the population of the Dominican Republic will be living in urban areas, mainly in small and medium-sized cities across the country. This means that the urban population will increase from 9.1 million people in 2020 to 12.2 million people in 2050. While the large metropolitan areas of the country, Santo Domingo and Santiago, will continue to see a growth rate similar to the national one (between 1.7 and 1.2 percent respectively); cities with less than 300,000 inhabitants are going to absorb a large portion of the population increase. By 2035, 56 percent of the urban population (6.2 million people) will be residing in small and medium-sized cities.11 In the large metropolitan areas, population growth will be concentrated in the peripheral munici- palities—while population will remain stagnant in the city-centers. Population in the metropolitan area of Santo Domingo is projected to grow between 37 to 73 percent from 2010 to 2050, reaching a total popula- tion of 4.2 million to 5.3 million people, depending on fertility rate and migration (see Figure 6).12 While the 11 World Urbanization Prospects: The 2018 Revision. Online Edition. Estimated growth rates are calculated from the 2020 to 2035 projections. 12 Gonzalez 2016, using the IX Censo Nacional de Población y Vivienda, 2010. Urbanization and Territorial Development in the Dominican Republic 43 1. Laying down the facts of urbanization projection variations vary greatly, all the scenarios forecast that population growth will continue until 2060, in contrast to other cities in the LAC region that are more advanced in their demographic transformation, such as Havana and San Juan, which are projected to reach their maximum population by 2030. The population of the peripheral municipalities of the Distrito Nacional will grow at an accelerated rate. While, in 2010, 31 percent of the metropolitan population was concentrated in the Distrito Nacional, with 69 percent in the pe- ripheral municipalities, by 2050, it is expected that the Distrito Nacional share will decrease to 18 percent of the metropolitan population (see Figure 8). Santiago, the other major city in the Dominican Republic, would experience a moderate increase in population growth of around 19.6 percent, moving from 664,000 in 2020 to 794,000 by 2035 (see Figure 7). Figure 6. Population growth in Santo Domingo under different demographic projections Population 6 (in millions) 5 4 3 2 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Scenario 1 (Medium) Scenario 2 (High) Scenario 3 (Low) Source: Reproduced from Gonzalez 2016, using the IX Censo Nacional de Población y Vivienda, 2010. 44 Figure 7. Estimated population in Santo Domingo Population 5 (in millions) 4 3 2 1 0 2010 2020 2030 2040 2050 Distrito Nacional Rest Source: Reproduced from Gonzalez 2016, using the IX Censo Nacional de Población y Vivienda, 2010. Figure 8. Urban population by size of cities in the Dominican Republic (2005–2035) Population 12 (in millions) Santo Domingo 10 Santo Domingo 8 Santiago 6 Santo Other cities Santiago Domingo Other cities 4 Santiago Other cities 2 0 2005 2020 2035 Below 300,000 500,000 to 1 million 1 to 3 million 3 to 5 million Source: World Urbanization Prospects: The 2018 Revision. Note: Santo Domingo refers to the urban population of the Municipalities of Santo Domingo de Guzmán, Santo Domingo Este, Santo Domingo Oeste, and Santo Domingo Norte. Urbanization and Territorial Development in the Dominican Republic 45 1. Laying down the facts of urbanization 2. The economic performance of the Dominican Republic’s urbanization 2.1 At a macro-level, the Dominican Republic urbanization process has been coupled with impressive growth in GDP per capita Global evidence shows that urbanization accompanies economic growth. The relationship between GDP growth and urbanization has been broadly documented, and international evidence shows that most countries reach middle-income status only after a significant population resides in cities (for examples, see Quigley 2008; Fujita, Krugman and Venables 1999, Henderson and Wang 2005). As cities develop, growing agglomeration leads to economies of scale in production and provision of basic services, raising produc- tivity in non-agricultural sectors and contributing to economic growth, which in turn makes cities more attractive.13 As shown in Figure 9, compared to other countries in Central America, such as Honduras and Guatemala, as well as to its international peers, the Dominican Republic has experienced a consistent and steeper urbanization pattern accompanied with sustained GDP per capita growth, converging towards the regional LAC average. Figure 9. Urbanization rate vs GDP per capita (1990–2018) Urban 100 population 90 (% of total population) 80 70 60 50 40 30 20 10 0 500 5,000 50,000 GDP per capita (PPP, constant 2011 international $) Dominican Republic Costa Rica Sri Lanka Latin America & the Caribbean Guatemala Papua New Guinea Ireland Honduras Source: Authors, with data from World Development Indicators. 13 For a comprehensive review of scale economies and urbanization, the reader is referred to World Development Report 2009: Reshaping Economic Geography. World Bank, 2009. 46 The Dominican Republic is well advanced in its structural transformation, with service as the leading economic sector. In the last two decades, service has increased its relevance, accounting for more than 60 percent of the economy since 2005. Conversely, GDP contributions from the industry and agricultural sectors declined by 6 to 8 percentage points between 1991 and 2018, respectively (Figure 11). The importance of the service sector is also true in the job market. Employment growth in the service sector has been the largest contributor to total employment in the last 20 years, and the service sector has gained in participation rel- ative to the industry and agricultural sectors. The share of total employment by the service sector increased by 11 percentage points between 2000 and 2020, from 60 to 71 percent (Figure 10). The tourism sector plays a critical role in the Dominican economy, in 2019, it contributed 16.3 percent of the GDP and 17.3 percent of total employment (of which 5.6 percent correspond to direct jobs).14 Figure 10. GDP composition in the Dominican Republic by sector % 70 64 64 60 60 58 54 50 50 40 36 35 35 32 30 30 30 20 13 11 10 7 8 6 5 0 1991 1995 2000 2005 2010 2015 Agriculture Industry Services Source: World Development Indicators. 14 These estimations include GDP and number of jobs created directly, as well as indirect and induced jobs created by travel and tourism, according the World Travel Tourism Council (2019). Urbanization and Territorial Development in the Dominican Republic 47 1. Laying down the facts of urbanization Figure 11. Employment composition in the Dominican Republic by sector % 80 69 71 71 70 64 60 60 53 54 50 40 30 27 26 25 23 21 20 19 20 18 18 16 14 12 10 10 8 0 1991 1995 2000 2005 2010 2015 2020 Agriculture Industry Services Source: World Development Indicators. 2.2 At the city level, economic performance appears mixed Santo Domingo and Santiago perform economically below the expected level for other cities of the same size in the world and in LAC. Agglomeration economies are expected to enable a bigger city to be more productive than a smaller one (when holding all other factors constant). To measure the economic perfor- mance of Dominican cities and compare them to other urban centers around the world, we use nightlight intensity data15 which is an accurate predictor of economic performance (Henderson et. al. 2012). To test the relationship between population agglomeration and economic productivity, nighttime light intensity was compared to the city population in 2012. In Figure 12, the positive relationship between urbanization and productivity is observed for all Dominican cities (in purple), but the two largest and economically important cities in the country, Santo Domingo and Santiago appear to be performing below what is expected for cities with the same size in the world (fitted black line representing the global trend) and in LAC cities (fitted green line representing the LAC trend). Santo Domingo GDP per capita in 2015 was US$ 12,068, which is higher than the average for capital cities in Central America during the same year, US$ 8,950, but still lagging behind the levels of leading cities, such as Panama City and San Jose, as well as the average for capital cities in South America (Figure 14). 15 The nightlight intensity data comes from the Visible Infrared Imaging Radiometer Suite (VIIRS) from the National Oceanic and Atmospheric Administration. 48 Figure 12. Santo Domingo and Santiago were performing economically lower than expected in comparison with the global trend and with other LAC cities Log NLS 15 (2015) 1 10 2 5 1 Santo Domingo 0 2 Santiago de los Caballeros 10 12 14 16 Log Population (2012) Dominican Republic International Comparators Latin America and the Caribbean Other cities Source: Authors, based on Oxford Economics, 2016 data from Roberts et al. (2017). Note: Black line represents the fitted line for all cities and green line represents the fitted line for LAC cities. International comparators are Ireland, Sri Lanka, and Papua New Guinea. In contrast, secondary cities seem to be performing above the global trend given their city size; but most remain below the LAC trend. Represented in purple, secondary cities in the Dominican Republic have a mean urban area productivity that is slightly higher than expected, given their size, compared with cities around the world. Once this comparison is narrowed to only Latin American cities, we can observe that they perform economically below other cities in the region with a similar population.16 2.3 In the years prior to the pandemic, Santo Domingo appeared to be catching up in terms of economic growth After the downturn experienced between 2005 and 2010 related to the global economic crisis, Santo Domin- go became one of the fastest growing capitals in the LAC region. From 2005 to 2010, Santo Domingo expe- rienced a dramatic reduction of the growth rates in GDP per capita, with growth declining from 7.9 percent in 2006 to 1.1 percent in 2009. Nevertheless, in the years that followed, up until 2015—the last year for which data is available—Santo Domingo’s economy grew at high rates, as shown in Figure 13 (Santo Domingo 16 When we assess the city economic performance of Ireland, the aspirational comparator for the Dominican Republic from the high-income group, the capital city, Dublin, and secondary cities all perform above the global productivity average, which highlights the benefits of population agglomeration on economic performance across all urban areas in a country. Urbanization and Territorial Development in the Dominican Republic 49 1. Laying down the facts of urbanization in green). Between 2010 and 2015, its GDP per capita grew an average of 4.4 percent from 2010 to 2015, positioning it as the third-largest growth rate among LAC capitals, only behind Panama City at 7.1 percent and Lima at 4.6 percent GDP per capita growth for the same period. Unlike these two capital cities, which exhibited erratic growth in recent years, Santo Domingo maintained continuous growth. Furthermore, in real terms, the GDP per capita of the Dominican capital is above the average for the capitals of Central America. However, San José and Panama City have a higher GDP per capita (see Figure 14) Figure 13. GDP per capita growth rate in selected LAC capital cities GPD per capita 0.10 growth rate (%) 0.08 0.06 0.04 0.02 0.00 -0.02 -0.04 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Santo Domingo Panama Lima Quito Guatemala City La Paz Managua San Jose Source: Authors, based on Oxford Economics, 2016. Economic growth in Santo Domingo and at the national level have followed a similar growth trend in the last decade. By 2015, Santo Domingo reported GDP per capita growth of 5.7 percent, slightly higher than the 5.6 percent growth at the national level (see Figure 15). Nevertheless, as Santo Domingo functions as the epicenter of economic activity, its GDP per capita of US$ 12,068 in 2015 was double the national level, which is reported at US$ 6,83417. 17 Oxford Economics, 2016. 50 Figure 14. GDP per capita in Central American countries and regional averages GPD per capita 20 (USD, thousands) 15 10 5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Santo Domingo Managua San Jose Tegucigalpa Central America avg Guatemala City Panama City San Salvador Caribbean avg South America avg Source: Authors, based on Oxford Economics, 2016. Figure 15. GDP per capita growth rate: Santo Domingo and the Dominican Republic GPD per capita growth rate 7,5 5,0 2,5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Santo Domingo Dominican Republic Source: Authors, based on Oxford Economics, 2016. Urbanization and Territorial Development in the Dominican Republic 51 1. Laying down the facts of urbanization 2.4 Economic growth in Santo Domingo appears to be driven by increased labor productivity and not by job creation Economic growth in Santo Domingo has been driven by labor productivity, while employment growth has been minimal. Dynamic economic growth calls for both sustained productivity growth and consistent job creation. Based on an exercise linking aggregate growth per capita to job creation, output per worker, and population structure (share of working-age population), it appears that in Santo Domingo growth from 2005 to 2015 has been unbalanced and has been mainly driven by labor productivity without corresponding job creation. From an average growth of 4.48 percent in annual gross value-added (GVA) per capita from 2005 to 2015, the yearly contribution of labor productivity to growth has been 3.47 percent (77 percent of the total) while new jobs con- tributed only 0.55 percent (12 percent of the total). The remaining 0.46 percent (10 percent of the total) was related to a change in the working-age population. Figure A1 (annex) shows the marginal contribution of labor productivity, job creation, and population structure to total GVA growth for the mentioned period. When comparing growth distribution with other Latin American capitals, Santo Domingo follows a pattern similar to Mexico City and other cities in South America, such as La Paz, Lima, and Quito (Figure 16). The average pattern of growth distribution in capitals in Central America seems to be similar to Santo Domingo’s development, as shown in Figure 17. However, a closer look shows that growth drivers in Central American capitals are widely heterogeneous. Workers’ productivity was a significant contributor only in Pan- ama City, with a higher effect than employment creation. In South American capitals, growth distribution is more homogeneous and akin to Santo Domingo’s, with workers’ productivity as the primary contributor to growth followed by job creation. Figure 16. Average growth decomposition South American capitals and the Dominican Republic (2005–2015) Gross value 6.5 added per 6.0 capita annual 5.5 growth, Constant 5.0 2012 US$ 4.5 (Yearly 4.0 contribution 3.5 to growth) 3.0 2.5 2.0 1.5 1.0 0.5 0 -0.5 -1.0 -1.5 Asuncion Bogota Brasilia Buenos Caracas La Paz Lima Mexico Montevideo Quito Santiago South Santo Aires City America avg Domigo Average annual gross Growth linked to Growth linked to Growth linked to changes value added growth changes in labor changes in employment in share of working age per capita (2010-15) productivity rate (2010-15) population Source: Authors, based on Oxford Economics, 2016. 52 Figure 17. Average growth decomposition in Central American capitals and the Dominican Republic (2005–2015) 6.5 % Gross value 6.0 added per capita annual 5.5 growth, Constant 5.0 2012 US$ 4.5 (Yearly 4.0 contribution to 3.5 growth) 3.0 2.5 2.0 1.5 1.0 0.5 0 -0.5 -1.0 Guatemala Managua Panama City San Jose San Salvador Tegucigalpa Central America Santo Domingo City (Avg) Average annual gross Growth linked to changes Growth linked to changes Growth linked to changes value added growth in labor productivity in employment rate in share of working age per capita (2005-15) (2005-15) population Source: Authors, based on Oxford Economics, 2016. From 2010 to 2015, the lack of job creation has negatively impacted the economic growth of Santo Domin- go. To assess the components of growth for the most recent years, the same exercise was repeated for 2010 to 2015. During this period, labor productivity increased its relevance, accounting for 3.8 percent (93 percent) of the total average growth of 4.1 percent of annual GVA per capita, while the lack of job creation nega- tively impacted growth, reporting -0.08 percent (-2 percent of the total) of the total percentage of annual GVA. The impact of changes in population structure to growth experienced a decrease in its contribution to growth, accounting for 0.35 percent (8.6 percent of the total) of the total percentage of annual GVA. Box 2 Decomposition of growth at the national level The core driver of growth in the Dominican Republic from 2000 to 2017 has been the steady increase of labor productivity. A similar exercise linking per-capita value-added growth to employment and demographic factors, including changes in labor participation, in the Dominican Republic illustrates that a continuous increase in labor productivity has been the main driver of the country’s econom- ic growth, as well as that of Santo Domingo. For the complete period of 2000 to 2017, per-capita value-added growth increased at an annual rate of 3.45 percent, of which 2.71 percent (79 percent of the total) was contributed by labor productivity growth (Figure B2.1). Of the other factors, work- Urbanization and Territorial Development in the Dominican Republic 53 1. Laying down the facts of urbanization ing age population was the second largest contributor (11 percent of total growth), whereas job creation only added 3 percent of the total growth during this period. Focusing on the most recent period of analysis at the national level, from 2010 to 2017, we can observe that, consistent with the analysis in Santo Domingo from 2010 to 2015, the lack of job creation has also hindered economic growth at the national level. Figure B2.1. Growth decomposition in the Dominican Republic (2000–2017) % 4,5 4,0 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0 -0,5 2000 - 2005 2005 - 2010 2010 - 2017 2000 - 2017 Annual growth per Chancge in labour Change in Change in share Change in capita value added productivity employment rate of working age participation rate population Source: Graph based on calculation from Dominican Republic Jobs Diagnostic (World Bank, 2020). Job creation in the Dominican Republic and Santo Domingo fluctuated in the last decade, and has declined since 2012. Employment growth in Santo Domingo follows the national trend; from 2010 to 2015, employ- ment has increased at an average rate of 2 percent at both levels (Figure 18). Nevertheless, since 2012, employment growth declined from 5.5 percent to 0.9 percent in 2015 at the national level, and from 5.9 to 0.8 percent in Santo Domingo. From a regional perspective, employment growth from 2010 to 2015 in Santo Domingo has been similar to other Latin American capital cities, with an average of 2 percent. Nonetheless, Santo Domingo should aspire to more balanced growth, as exemplified by Panama City, where employment generation contributed 58 percent of the increase of annual gross value-added growth (GVA) from 2010 to 2015, while employment productivity contributed 39 percent. During this period, Panama City reached an average employment growth of 4 percent, double that of Santo Domingo. Job creation should be directed to produce quality jobs and raise wages. Whereas employment growth seems to be in line with the rates observed in other countries, the Dominican Republic is lagging in terms of the quality of jobs and job remuneration. Despite the sustained increase in productivity shown at the national level and in the country’s capital during the last the 15 years, real wages in the Dominican Re- public have remained stagnant and economic and labor productivity growth have drifted apart from wage 54 Figure 18. Annual employment growth (2010–2015) Average annual employment 3,5 growth rate (%) 2,5 1,5 0,5 -0,5 -1,5 n na on u ce ty ty sé or a go on ta a s s z a ua ty o to go re ca Pa w sa ic ili m de Ci Ci Ci go Jo ui ad in st ba ci ag in ia to Ai as er Li ra as Q vi La Pr ng un a á o om nt Bo lv ge n m Br Ha an os Ca te ic al m N u- Sa Sa Sa As Ki lA ex id en on na m D M -A ra n Br te M o Bu Pa M Sa rt nt nt ua Po Sa Ce G Capital city Country Source: Authors, based on Oxford Economics, 2016. Figure 19. Disconnection between wages and productivity in the Dominican Republic 200 Index (2000=100) 180 160 140 120 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2000 2010 2011 2012 2013 2014 2015 2016 2017 Mean wage index Median wage GDP per capita Labour productivity Source: Dominican Republic Jobs Diagnostic (World Bank, 2020). Urbanization and Territorial Development in the Dominican Republic 55 1. Laying down the facts of urbanization increases since 2000s (see Figure 19).18 Signs of the current poor and deteriorating job quality are the high degree of job informality, estimated at 58 percent in 2018, and employment concentration in less productive, unskilled labor-intensive sectors. In this sense, employment creation policies should be centered on increas- ing the quality of the new jobs, particularly regarding wage, job type, insurance protection, and skills match (World Bank, 2020).19 2.5 Evidence suggests that urban workers in the Dominican Republic are not fully benefiting from the effects of urbanization Cities can produce unique advantages for firms and workers, increasing overall productivity and eco- nomic gains for firms and workers. According to urbanization theories, cities can generate higher produc- tivity than rural areas because of positive externalities. One of the positive externalities is called agglom- eration economies, which assumes that since the work market is larger in cities, each person is more likely to find her or his “perfect” job, thereby increasing productivity. The second positive externality is that urban workers tend to have higher skills which generate positive spillovers on productivity. Moreover, cities can also provide better conditions for firms’ growth with a wide and diversified range of providers of goods and services, which helps drive the growth of the local economy. Following this line of thought, it is expected that, due to all the benefits of urban areas, firms in cities could generally afford to pay higher wages than rural firms given that the characteristics of their employees and the urban context favor their productivity (Ferreyra and Roberts, 2018). Nevertheless, urban workers in the Dominican Republic do not seem to be fully benefiting from the effects of agglomeration. In the LAC Flagship report, Ferreyra and Roberts (2018) study the effects of the positive externalities of urbanization on workers by comparing the difference in wages between urban and rural workers in 15 LAC countries. In the Dominican Republic, as across LAC countries, urban workers tend to have more years of schooling than their rural counterparts, which can partially explain wage differences. In this sense, the authors find that in these countries, the rural nominal wage would be 38 percent higher if the characteristics of rural workers were the same as those of urban workers. This percentage, associated with the value of the characteristics of the workers, which is defined as workers premium, is only 20 percent in the Dominican Republic, the lowest in all the sampled countries (see Figure 20). Moreover, once the workers’ ob- served characteristics, including education, are controlled, the nominal wage increase for workers associated with the benefit of residing in cities—known as urban premium—is, on average, 36 percent in LAC countries, while in the Dominican Republic the wage increase is only 17 percent (see Figure 20). In sum, urban workers in the Dominican Republic receive fewer benefits associated with their characteristics (such as education) and with the benefits of living in cities, than urban workers in other countries of the region. 18 19 Informal employment is defined by the lack of social security coverage, employment contract, and other benefits. 56 Figure 20. Worker and urban premium in LAC 100 91 90 80 70 64 60 57 55 53 50 49 49 50 47 46 38 41 41 40 35 36 37 30 32 30 27 29 23 24 24 19 20 20 16 17 13 12 10 0 0 ia ru il a r ile y as a o a or bl n ua ca do az ua p u i ca ic bi al m liv Pe ad ur Ch Ri ag ex ic na m m Br ua ug Bo in nd a lv lo ta ar M Pa st om Ec Ur Sa Ho Co ua ic Co N Re D El G South America Central America and Caribbean Worker premium Urban premium Source: Ferreyra and Roberts, 2018. High concentration of skills in the cities of the Dominican Republic seem to provide slight benefits to work- ers. Similar to the theory of agglomeration economies, the human capital externalities theory states that cit- ies generate higher productivity due to the accumulation of individuals with higher human capital and skills, which leads to workers exchanging ideas and learning from each other. Ferreyra and Roberts (2018) also test this theory by looking at the effects of aggregating human capital and productivity, as measured by wage increase. In all LAC countries studied, the relation between these two factors is positive, nevertheless, in the case of the Dominican Republic, while positive, this relationship is weak. The country has the lowest returns in wage increases from the concentration of human capital, either when measured by the average years of schooling or by share of college graduates in cities. Urbanization and Territorial Development in the Dominican Republic 57 1. Laying down the facts of urbanization 3. Emerging challenges of urbanization Along with the urbanization processes, a series of challenges have emerged that must be addressed. Among them, (i) a large part of the urbanization is taking place in areas prone to natural events with little urban planning, and (ii) a good part of the population lacks adequate access to services and housing. These points are described below. 3.1 A significant degree of urbanization has taken place along the coastline and in flood-prone areas Rapid urbanization has taken place in coastal areas, accompanying tourism development. Between 1996 and 2015, a quarter of the built-up surface constructed in the Dominican Republic was built in close proximity to the ocean—less than three kilometers away. Coastline urbanization has been most pronounced in the easternmost municipality of Higüey, where 40 percent of the built-up surface constructed in the same period took place along the coastline—in response to increased demand from the tourism sector. The municipality of Santo Domingo Este—part of the metro area of Santo Domingo—has also experienced significant coast- line urbanization, with 46 percent of the built-up surface constructed within three kilometers of the coastline over the same period. Other touristic coastal areas that have experienced a relevant increase in built-up surface in recent years, include Puerto Plata, Boca Chica, La Romana, and Sosúa. Although coastal floods have not been widely experienced in the Dominican Republic in recent years, climate change and coastal erosion could increase the likelihood and impact of these events. Multiple sources of coastal flooding risk threaten the Dominican Republic’s large coastline, specifically, sea level rise and the occurrence of tropical storms, hurricanes, or tsunamigenic earthquakes. Rapid urbanization is com- pounded by the reduction of natural protections, such as mangroves and coral reefs, resulting in increased exposure and vulnerability of coastal areas to adverse natural events. Due to deforestation, mangrove area was halved between 1980 and 2005 (FAO, 2007), and coral reef loss could lead to beach erosion20.A regional study for Central America shows, for instance, that the impact of hurricanes in storm surge prone areas de- creases significantly as the width of mangrove belts increases (Del Valle et al., 2019). In the Dominican Repub- lic, coastal flooding risk is predominantly localized in the eastern touristic pole of Higüey, bringing challenges and opportunities for the urbanization process of the region.21 20 It is estimated that if live corals disappeared as a consequence of disease, pollution, sedimentation, overfishing, or warming ocean temperatures, beach erosion rates in the Dominican Republic could increase by more than 100 percent on eastern beaches and by more than 65 percent in the south in ten years (Wielgus et al, 2010). 21 Coastal Risk Screening Tool (Climate Central), and the World Bank’s Climate Change Knowledge Portal. 58 Figure 21. Rapid built-up surface growth in Higüey Source: Google Earth, based on Landsat and Copernicus images. Note: Left picture corresponds to 2006, the right picture to 2020. Built-up surface located in flood-prone areas has increased, accompanying urban expansion in recent de- cades—with a steep increase since 1996.22 The metro area of Santo Domingo and the provinces of Santiago and La Vega have the largest built-up surface located in flood-prone areas, with 14.3, 12.6, and 12.5 km2, respectively (see Figure 21 and Figure 22) A significant increase was also experienced in the province of San Cristóbal and the touristic provinces of Puerto Plata and La Altagracia (see Figure 23). 22 WSF-Evo built-up surface data was superimposed with data on expected water depth from a 1-in-100-year flood from the Fathom Global Flood Hazard model (at a 90m resolution). Flood-prone areas are defined as areas where expected water depth is at least 15cm under a 1-in-100-year flood. This model does not consider coastal floo- ding, and is valid for current climatic conditions only (it does not account for projected sea level rise). The model also does not consider existing flood defenses. Urbanization and Territorial Development in the Dominican Republic 59 1. Laying down the facts of urbanization Figure 22. Evolution of built-up surface in flood-prone areas in Santo Domingo Pluvial flood-prone area Monte Plata Fluvial flood-prone area Pedro Brand Santo Domingo Norte Built-up evolution San Antonio de Guerra 1985 2001 1987 2002 1988 2003 1989 2004 Los Alcarrizos 1990 2005 Santo Domingo Este 1991 2006 1992 2007 1993 2008 Santo Domingo de Guzmán 1994 2009 1995 2010 Santo Domingo Oeste 1996 2011 San Cristóbal 1997 2012 1998 2013 Bajos de Haina 1999 2014 2000 2015 San Gregorio de Nigua Source: Authors, based on the WSF-Evo report of the German Aerospace Center and Fathom’s Global Flood Hazard Data. Figure 23. Evolution of built-up surface in flood-prone areas by province Santo Domingo’s Metropolitan Area Built-up 14 (Km2) Santiago La Vega 12 10 Azua San Cristobal 8 San Juan Monseñor Nouel 6 Puerto Plata Peravia Barahona La Altagracia 4 2 0 1985 1990 1995 2000 2005 2010 2015 Source: Authors, based on the WSF-Evo report of the German Aerospace Center and Fathom’s Global Flood Hazard Data. 60 3.2 Urban expansion is occurring in a disorganized and likely unplanned manner, particularly around tourism poles In Santo Domingo and Santiago, urban expansion has mainly taken place through the progressive exten- sion of cities. Annual urban expansion between 1985 and 2015 in Gran Santo Domingo, Santiago, and Higüey was classified in three categories based on its connectedness to previously constructed urban areas, using the WSF-Evo dataset following Liu et al. (2010). Newly grown urban patches were classified as either (i) an in- fill patch, if the new urban patch was mostly surrounded by the old landscape at the time; (ii) an extension or edge-expansion patch, if the new urban patch was mainly surrounded by vacant land; or (iii) as an outlying or leapfrog patch, if the new urban patch was surrounded exclusively by vacant land. The surface occupied by newly grown patches by category of urban expansion is summarized in Figure 24, which highlights how all three urban expansion modes have coexisted over the last thirty years in the three areas studied. Figure 24. Evolution of the classification of newly grown patches Gran Santo Domingo Santiago Higuey 100 100 100 80 80 80 60 60 60 40 40 40 20 20 20 0 0 0 91 94 97 00 03 06 09 12 15 91 94 97 00 03 06 09 12 15 91 94 97 00 03 06 09 12 15 Extension Infilling Leapfrog Source: Authors, based on the WSF-Evo report from the German Aerospace Center. The distribution of urban expansion modes has been broadly similar in Gran Santo Domingo and Santia- go, which has remained relatively constant over time. In both areas, about 50 to 60 percent of the newly grown built-up surface patches are classified as extension patches, 30 to 40 percent correspond to infilling patches, and only a minor share is classified as outlying patches. This pattern, shown in Figure 25 (for Gran Santo Domingo), reflects an urbanization process where connectedness to main urban areas is critical and the development of new urban poles remains limited. It is noteworthy that infill and extension modes have exhibited opposite trends over time, showcasing the complementarity of the connected extension of cities (edge-expansion) and compactness (infilling) processes in these two consolidated cities. Urbanization and Territorial Development in the Dominican Republic 61 1. Laying down the facts of urbanization In smaller, developing cities, such as Higüey, edge-expansion has been more prominent, with a lower trend towards compactness, accompanied by leapfrog development. A peak of 20 percent of built-up sur- face classified as leapfrogging development can be identified between 1997 and 2003, which coincides with the accelerated urban expansion experienced in Higüey at the time. These trends suggest a diffusion phase of urban expansion, with leapfrogging urbanization taking place predominantly in fast developing areas, such as Punta Cana. Figure 25. Urban expansion in Gran Santo Domingo Chirino (D. M.) La Cuaba (D. M.) La Victoria (D. M.) Pedro Brand La Guáyiga (D. M.) Santo Domingo Norte San Luis (D. M.) Palmarejo-Villa Linda (D. M.) San Antonio de Guerra Los Alcarrizos Pantoja (D. M.) Hato Damas (D. M.) Santo Domingo Este Santo Domingo de Guzmán Santo Domingo Oeste 1985 Patch Infill Expansion Leapfrog Source: Authors, based on the WSF-Evo report from the German Aerospace Center. Most Dominican cities are sprawling and have moderate-to-low levels of connectivity, which can hinder their economic performance and potential. As described, denser cities can improve labor productivity as they facilitate matching between firms and workers. Nevertheless, other spatial characteristics of the cities, known as urban form, matter for productivity. Duque et al. (2019) analyze three spatial dimensions of cities in Latin America: 1) geometric shape, as circular cities with smooth borders can reduce trip lengths and increase accessibility and have lower costs per capita in providing basic infrastructure (Litman 2015); 2) internal in- frastructure of the city, determinate by its road network, and 3) land use patterns, which reflected the spatial distribution of population and buildings within a city.23 The study identifies that smooth, rounded, compact, and internally well-connected cities tend to have higher productivity levels than rugged or elongated cities, or cities with poorly connected streets. Assessing Dominican cities, most of them are sprawling and have 23 In the study of Duque et al. (2019), urban form is defined according to the following variables; geometric shape of the urban extend is measured by the roundness and the smoothness of the perimeter to measure a city. For internal infrastructure, the layout of the road network in the city and the degree to which all segments in the network are interconnected are considered. Finally, for land pattern use, sprawl is defined as the population distribution across the city and fullness by the presence of build-up areas as a fraction of the total area of the city. 62 moderate-to-low levels of connectivity, which might be hindering their economic performance and poten- tial.24 Compared to other cities in Latin America, in 2010, most cities in Paraguay (77 percent), Colombia (67 percent), Bolivia (63 percent), and Honduras (66 percent) had spatial characteristics that favor productivity (Figure 26). For the Dominican Republic, 46 percent of cities had a joint set of characteristics associated with more productivity, a percentage only above Venezuelan and Cuban cities. Figure 26. Most Dominican cities are sprawling and have moderate-to-low levels of connectivity 100 100% Urban growth and connectivity (%) 75 75% 50 50% 25% 25 0% 0 PRY COL HND BOL ECU NIC PER BRA MEX CHL GTM ARG DOM CUB VEN ay a as ia r ua ru il o ile a a ic ba la do az ic bi al in bl liv ue Pe ur Ch gu ag Cu ex nt m m Br ua pu Bo nd ez ra lo te ge ar M Ec Re n Ho Co ua Pa ic Ar Ve N an G ic in om D Low internal conectivity, highly sprawled and organic street network High internal conectivity, low sprawl and organic perimeter Moderate internal conectivity, highly sprawled and compact High internal conectivity, low sprawl and compact Source: Authors, based on data from Duque et al. (2019) Santo Domingo, Higüey, and La Romana have become less connected as they grow. From 1996 to 2010, San- to Domingo has become more circular—but with a significantly less regular perimeter—and less connected, as its street and road intersection density has been reduced by 8 and 7 percent, respectively. In the case of Santiago, its perimeter has become more unregular, but its internal connectivity has remained constant during the same period. Romana and Higüey present different trends with regard to the shape of the city. Higüey evolved into a less round shape with a less smooth perimeter, while La Romana become more round- ed with a more organic perimeter. Nevertheless, internal connectivity has been reduced significantly in both cities, with a decrease in street and intersection density of 18 percent in Higüey and of around 14 percent in La Romana. The loss of connectivity, as shown in the trend from 1996 to 2010 for these cities, can undermine pro- ductivity, since connectivity can compensate for other factors of city shape. Even in elongated cities, building denser street networks could lift city productivity toward that of rounded, smoother, and more compact cities 24 Duque et al. (2019), analyze all Latin American cities with more than 50,000 people in 2010, a total of 919. For the Dominican Republic, the following cities were selected: Mao, Azua, San Juan, Barahona, Higüey, Bonao, Boca Chica, Bani, Cotui, San Francisco de Macoris, Puerto Plata, San Pedro Macoris, La Romana, Santiago, and Santo Domingo de Guzmán. Urbanization and Territorial Development in the Dominican Republic 63 1. Laying down the facts of urbanization (Duque et al. 2019). This highlights the importance of effective urban planning in the Dominican Republic, as policies on infrastructure investments, land use, and zoning regulations influence cities’ productivity. In addition to the loss of connectivity, the inefficient state of the transportation system, especially in the Santo Domingo metropolitan area, is a detriment to the country’s quality of life and productivity. It is estimated that the Distrito Nacional receives a “floating population” of one million people during work- ing hours, of which 53 percent come from the municipalities of Santo Domingo Oeste and Los Alcarrizos, 32 percent from Santo Domingo del Este, and the remaining 15 percent from Santo Domingo Norte Nacional (ADN, 2019). This population travel primarily for work reasons to the central area of the Distrito Nacional. Around 70 percent of these transfers are made via public transport, which utilizes vehicles with an average age of 23 years and with low capacity (private cars, called “conchos”) which are not appropriate for trans- portation. Buses represent less than 1 percent of total public transport vehicles (INTRANT, 2017). In general, the transportation system of the Santo Domingo metropolitan area is slow, with travel times exceeding an hour and a wait time of half an hour, and inefficient, with a lack of interconnectivity between urban and interurban routes and the metro system. Likewise, there is a high rate of overlap between urban and in- terurban routes, with low productivity rates (with values lower than 0.5 passengers / vehicle-km), and low road security (with more than 2,000 accidents per year in public transport vehicles). The inefficiency in the transportation system also affects the business sector, making it difficult to distribute merchandise within the metropolitan area of Santo Domingo. There are no specific regulations for the distribution of cargo in the urban area or for loading-unloading operations on public roads. Regarding the quality of roads, just over 30 percent of the total road network in the metropolitan area of Santo Domingo is paved, and more than 60 percent of these roads are made up of local roads with poor quality pavements. (INTRANT, 2017). Although no uniform data was identified for the rest of the national territory, it is estimated that, in 2015, less than 20 percent of the country’s roads were paved, and of those not paved, only 16 percent were roads that can be traveled all year. 25 In this context, it is essential to prioritize the implementation of actions to improve urban connectiv- ity. Within the greatest efforts to transform mobility in the country, the Dominican government enacted Law 63-1726 in February 2017. Among its main contributions, the law foresees the design of an integrated public transport system, strengthening private and public operators of ground transportation, the adoption of tech- nological alternatives for greater sustainability, an electronic rate collection system, and the creation of trust funds that allow investment in public and private infrastructure and transportation equipment. However, four years after the approval of Law 63-17, the scope of the law has been limited. Although some progress regard- ing improving vehicular traffic is in operation, various internal regulations are still pending approval, thereby fragmenting the law’s implementation. 25 . Calculation made from the database on road quality, shared by the MEPyD. 26 Law 63-17 on Mobility, Ground Transport, Traffic, and Road Security of the Dominican Republic, enacted on February 21, 2017. 64 3.3 Although poverty has decreased across the country, a large share of the population does not have access to adequate housing From 2016 to 2019, monetary poverty declined at the national level by 7 percent, and at the same rate in ur- ban and rural areas.27 Monetary poverty decreased from 28.6 to 21 percent from 2016 to 2019 in the Domini- can Republic. In urban areas, poverty was reduced from 27.7 to 20 percent, while in rural areas it went from 32 to 25.4 percent during the same period.28 In the Metropolitan Region, which groups the Distrito Nacional and the Santo Domingo province, monetary poverty was also reduced from 28.6 to 21 percent from 2016 to 2019. Despite the similar reduction in poverty in urban and rural areas, remarkable differences in the provision and quality of basic services persist by location and income groups. As a result of the COVID-19 pandemic, the poverty rate in 2020 is expected to increase to 23.1 percent in the Dominican Republic, due to government responses to counteract the economic effects of the crisis. Due to the COVID-19 pandemic, the national poverty rate was projected to reach 29.6 percent, increasing ur- ban poverty to 29 percent and rural poverty to 32.4 percent, if no mitigation policies had been implemented.29 Nevertheless, the Dominican government implemented two large programs—the Fondo de Asistencia Solidaria Figure 27. Total housing deficit and poverty rate by province 90 Housing deficit (%) R 2 = 0,830 80 70 60 50 40 30 20 10 0 25 35 45 55 65 75 85 Poor households (%) Source: Reproduced from Morillo (2019). Note: Poverty measured as a percentage of poor households by province, using a multidimensional poverty index based on Morillo (2014). Both variables are for 2010. 27 According to national poverty measures, the monetary poverty (moderate) line represents the monthly per capita amount of resources that households must have to guarantee their members access to a basket of food and non-food goods and services, which are considered essential for life, including clothing, footwear, cost of housing, home maintenance, health, education, and transportation, among others (Comité Técnico Interinstitucional de Pobreza, 2020). 28 Extreme poverty has also followed a declining trend between 2016 and 2019; at the national level, the reduction was from 4.5 to 2.7 percent, and in urban and rural areas it was from 3.9 to 2.4 and from 6.9 to 3.9, respectively (Comité Técnico Interinstitucional de Pobreza, 2020). 29 Data based on calculations from the World Bank’s Poverty Team and the Dominican Government. Urbanization and Territorial Development in the Dominican Republic 65 1. Laying down the facts of urbanization al Empleado (FASE) [Employee Solidarity Assistance Fund] and Quédate en Casa30 [Stay at Home]—to support formal and informal workers through direct monetary transfers. As a result of these policies, poverty is expected to reach only 23.1 percent at the national level, and 22.8 and 24.1 percent in urban and rural areas, respectively. A large number of Dominicans do not have access to adequate housing. In the Dominican Repub- lic, the housing deficit—the number of housing units that need to be built or renovated to meet minimum acceptable living standards—was estimated at 1.4 million units in 2010 (51.4 percent of the total housing units at the time).31 Urban areas account for 69 percent of the total housing deficit, although housing deficit prevalence is higher in rural areas than in urban areas (62 vs 48 percent respectively). The rural poor are dis- proportionally affected, with housing deficit correlating with poverty (Figure 27) which is higher in rural areas. Figure 28 presents the spatial distribution of the housing deficit at the neighborhood level in the main urban poles of Santo Domingo, the Distrito Nacional, and Santiago, identifying that most of the housing deficit in these areas is located in the area north of the Distrito Nacional, and along the periphery of Santiago.32 Figure 28. Total housing deficit in Santo Domingo, Distrito Nacional, and Santiago in 2010 0-250 0-250 250-500 250-500 500-1000 500-750 1.000-2.500 750-1.000 2.500-5.000 1.000-1.500 5.000-20.609 1.500-5.535 No Data No Data Source: Authors, with data from Morillo (2019). 30 The program Quédate en Casa was designed to protect informal workers by increasing monetary support to fulfill nutrition needs. FASE focused on supporting formal workers in the private sector with a monetary transfer. 31 The total housing deficit can be divided into qualitative housing deficit, which comprises housing units without the minimum acceptable living standards but that could be brought up to standards with appropriate renovations, and quantitative housing deficit, which represents new housing units that need to be built. In 2010, the qualitative housing deficit was 1,041,215 housing units, far greater than the quantitative housing deficit, which was estimated at 327,996 housing units. 32 In the last decade, housing deficit measurements have been controversial due to the existence of multiple measurements with significant discrepancies. While MEPyD esti- mated the total housing deficit to be 0.9 million units for 2010, the ONE estimated a deficit of 2.2 million housing units for the same year. To settle the discrepancies, Morillo (2019), in collaboration with MEPyD and ONE, produced a new official methodology, which was applied to the 2002–2010 period. As a result, a total deficit of 1.4 million housing units was estimated for 2010 using census data. 66 More than a third of the population lives in houses that could be considered structurally vulnerable to adverse natural events. 17.9 percent of Dominicans reside in unreinforced masonry buildings, which are par- ticularly susceptible to collapse in case of an earthquake. Another estimated 18.5 percent of Dominicans live in old, reinforced masonry or concrete buildings built before 1979—the year in which the first version of the seismic analysis and design of structures regulation was put into place to ensure buildings and infrastructure follow seismic-resistant standards (World Bank, 2017). Other factors that compound structural vulnerability to increase the concentration of disaster and climate-related risks include unplanned urban growth, land degradation, and weak enforcement of zoning regulations and building codes. 3.4 Despite substantial investments in improving basic service provision, disparities in access to electricity and water persist across urban and rural areas, and across income groups In recent decades, the Dominican Republic has made significant advancement in expanding electricity access. However, the supply of electricity is unreliable and insufficient, outages are frequent, and many households only have electricity for a couple of hours a day. Practically all of the population is connected to the national grid and receives electricity every day of the week. Nevertheless, half of the population receives electricity on average less than 20 hours a day. The metro area of Santo Domingo stands out as having significant electricity access issues, with 35 percent of the population receiving electricity on aver- age less than 14 hours a day (Figure 29). Figure 29. Number of hours that households receive electricity by location (amongst those connected to the power grid) 100 90 80 70 60 50 40 30 20 10 0 Santo Domingo Large cities Other urban areas Rural metro area 1-9 hours 10-14 hours 15-19 hours 20-24 hours Source: Authors, based on data from ENHOGAR 2018. Note: The metro area of Santo Domingo includes the Distrito Nacional and neighboring urban municipalities, except Boca Chica and San Antonio de Guerra. Large cities have more than 100,000 inhabitants. Urbanization and Territorial Development in the Dominican Republic 67 1. Laying down the facts of urbanization Access to electricity service and clean cooking fuels illustrates the differences in the provision of ser- vices between urban and rural areas and across income distribution. Over 50 percent of rural regions have electricity service for only half of the day (Figure 29). Moreover, while 91 percent of urban households use gas for cooking, this percentage decreases to 72 in rural areas, where 18 percent of households use wood for cooking, and 3.5 percent still use coal (ENHOGAR, 2018). Electricity supply is also more erratic in lower-in- come households, with a clear relationship between socioeconomic status and electricity hours: 76 percent of high-income households have minimal disruptions to electricity, with 20 to 24 hours of service. This pro- portion reduces as income declines, reaching 34 percent in very low income and 37 percent in low-income households (Figure 30).33 Figure 30. Number of hours that households receive electricity (amongst those connected to the power grid) by socioeconomic group 100 90 80 70 60 50 40 30 20 10 0 Very low Low Middle-low Middle and High middle-high 1-9 hours 10-14 hours 15-19 hours 20-24 hours Source: Authors, based on data from ENHOGAR 2018. Note: The metro area of Santo Domingo includes the Distrito Nacional and neighboring urban municipalities, except Boca Chica and San Antonio de Guerra. Large cities have more than 100,000 inhabitants. On the other hand, while an important share of the Dominican population in urban areas (79 percent) is connected to the water distribution network (ENHOGAR, 2018), this coverage has not translated into high service quality. Discontinuity of water supply and rationing are common, and the drinking water is of substandard quality. The metro area of Santo Domingo again stands out with service hours below the na- tional average. 70 percent of the households connected to the water distribution network in the metro area of Santo Domingo receive water 3 or less days a week, and only 21 percent has water service 6 or 7 days a week—significantly less than the 46.5 percent of the population living in large cities (Figure 31). Even when water is provided, it is only served for a couple of hours a day. 33 The socioeconomic groups in ENHOGAR are quintile groups built on the valuation of available goods in the household, weighted by current market prices minus a standard depreciation percentage (ONE, 2011). 68 Figure 31. Number of days that households have access to water by location (amongst those having access to piped water) 100 90 80 70 60 50 40 30 20 10 0 Santo Domingo Large cities Other urban areas Rural areas metro area 1 day 2-3 days 4-5 days 6-7 days Source: Authors, based on data from ENHOGAR 2018. Note: Santo Domingo metro area includes the Distrito Nacional and neighboring urban municipalities, except Boca Chica and San Antonio de Guerra. Large cities have more than 100,000 inhabitants. Lower income households also suffer from a poorer water quality supply, but amongst households connected to piped water, disruptions in water service affect all income groups in a similar proportion. More than 80 per- cent of high, middle, and middle-high income households receive water directly inside the house, with around 10 percent of the high-income households using a waterhole and less than 4 percent of these households using water from an aqueduct outside the house. In contrast, in very low and low-income households, only 10 and 25 percent receive water inside the house, and usually piped water comes from aqueducts in the patio of the house. Moreover, due to the lack of piped water, the proportion of households using a waterhole, tank trunk, or water from natural sources (spring, river, or canal) increases in low-income households (Figure 32). Interestingly, households with access to piped water have similar days of water service across income groups (Figure 33); around 50 percent of the households from low to middle and middle-high income groups receive potable wa- ter less than four days per week. This proportion decreases slightly to 45 percent for high-income households. This highlights the need to improve water services for low-income houses not connected to piped water. Like- wise, it indicates that inefficiency in the provision of piped water represents a generalized issue across income groups and urban and rural population. Urbanization and Territorial Development in the Dominican Republic 69 1. Laying down the facts of urbanization Figure 32. Source of water for domestic use by income group 100 90 80 70 60 50 40 30 20 10 0 Very low Low Middle-low Middle and High middle-high Aqueduc inside house Aqueduc from public source Waterhole Aqueduc in the patio From a spring, river, stream or canal Tank truck Aqueduc in other house Source: Authors, based on data from ENHOGAR 2018. Figure 33. Number of days that households have access to water (amongst those having access to piped water) by socioeconomic group 100 90 80 70 60 50 40 30 20 10 0 Very low Low Middle-low Middle and High middle-high 1 day 2-3 days 4-5 days 6-7 days Source: Authors, based on data from ENHOGAR 2018. 70 3.5 The Dominican Republic faces significant sanitation and waste management challenges Access to improved sanitation is higher in urban centers than the rest of the country. However, access to the sewerage system remains low. Only 20 percent of households are connected to the sewerage system in the Dominican Republic, and this proportion is even lower in the metro area of Santo Domingo, where only 12.8 percent of the households are connected to the sewerage system—barely above the 5.4 percent of rural areas (Figure 34). Furthermore, about 10 percent of urban households and 21.2 percent of rural households do not have access to safely managed sanitation34, and 6.1 percent of rural households do not have any sanitation service at all. Most households with a toilet in the country and in Santo Domingo are connected to a septic tank which—if in irregular conditions or without treatment—can become a threat of groundwater contamination (ONE, 2020). Figure 34. Sewage connection type by location 100 90 80 70 60 50 40 30 20 10 0 Santo Domingo Large cities Other urban areas Rural metro area Connected to septic tank Connected to public server Open Doesn’t know Source: Authors, based on data from ENHOGAR 2018. Note: The metro area of Santo Domingo includes the Distrito Nacional and neighboring urban municipalities, except Boca Chica and San Antonio de Guerra. Large cities have more than 100,000 inhabitants. 34 Safely manage sanitation corresponds to improved facilities which are not shared with other households and where excreta are safely disposed in situ or transported and treated off-site (WHO-UNICEF, Joint Monitoring Programme for Water Supply and Sanitation). Urbanization and Territorial Development in the Dominican Republic 71 1. Laying down the facts of urbanization Figure 35. Waste management disposal by socioeconomic group (income level) 100 90 80 70 60 50 40 30 20 10 0 Very low Low Middle-low Middle and High middle-high Municipal collection service Burning Dumping on land Other Source: Authors, based on data from ENHOGAR 2018. Note: The metro area of Santo Domingo includes the Distrito Nacional and neighboring urban municipalities, except Boca Chica and San Antonio de Guerra. Large cities have more than 100,000 inhabitants. Figure 36. Waste management disposal by location 100 90 80 70 60 50 40 30 20 10 0 Santo Domingo Large cities Other urban areas Rural metro area Municipal collection service Burning Dumping on land Other Source: Authors, based on data from ENHOGAR 2018. Note: The metro area of Santo Domingo includes the Distrito Nacional and neighboring urban municipalities, except Boca Chica and San Antonio de Guerra. Large cities have more than 100,000 inhabitants. 72 Poor population faces a clear underprovision of waste management services. Households in lower socioeconomic levels have less access to waste collection services, compared to middle to high income households, in which almost 90 percent of the households have access to municipal waste collection services (Figure 35). Geographically, in urban areas, between 88 to 96 percent of households have access to munic- ipal collection services (Figure 36), but this proportion is lower in households in the metro area of Santo Do- mingo, where 6 percent of the households reported dumping their waste on land. Although this percentage seems small, considering the large concentration of population in the metro area of Santo Domingo, the lack of correct waste disposal has created significant environmental problems (see Box 3). Conversely, in rural areas, less than 60 percent of households reported having municipal collection services, and over 30 percent of households burn their waste as their main means of disposal. Box 3 Waste management in the Dominican Republic: Santo Domingo and Santiago High rates of waste production, flowed waste disposal, and lack of recycling are pressing problems in the country. The Dominican Republic produces more than 4 million tons of solid waste annually, accounting for 11,000 tons per day, which is equivalent to 1.11 kilograms of garbage per person per day, above the average for Latin American countries (Castillo, R. and Castillo, O., 2016). While most solid waste material is made of organic material, the country also produces the highest pro- portion of plastic waste in Latin America and the Caribbean (Observatorio de Políticas Sociales y de Desarrollo, 2017). Moreover, recycling is minimal, and only 6 percent of the waste is recycled in the country (German Development Cooperation, 2018), losing opportunities to prevent environ- mental degradation as well as economic opportunities as it is estimated that 50 percent of the waste that ends up in landfills could generate jobs if recycled.a While municipal governments have the primary role concerning solid waste management,b many of them lack the required resources to provide adequate garbage collection and disposal in landfills ( Japanese Agency for Interna- tional Cooperation, 2014). As of 2010, the Ministry of Environment and Natural Resources found more than 358 open-air landfills, a considerable number given the country’s size. Out of the land- fills identified, 66 percent were located on land suitable for agriculture, and 60 percent occupied high hydrological importance areas (Disla, Natanael and Pamela de la Rosa, 2017). La Duquesa, the largest landfill in the country serving the metro area of Santo Domingo, has reached 70 percent of its capacity, and it is estimated that it could only provide service to Santo Domingo until 2022.c Improper environmental regulation in La Duquesa has resulted in chemical leaks and garbage flow directly into the Ozama and Isabela Rivers. In 2018, the Beryl storm, which caused an overflow of tons of garbage from the Ozama River into the streets, brought attention to the pressing problem of waste management in the country (Karasz, 2019). In July 2020, the Dominican Republic Congress voted on the General Law on Comprehensive Management and Urbanization and Territorial Development in the Dominican Republic 73 1. Laying down the facts of urbanization Co-processing of Waste, which establishes an institutional and regulatory framework to move the Dominican Republic from a linear economy of use and discard to a circular economy of use-re- cycle-reuse.d Setting a functional waste management policy will be fundamental to reducing environmental degradation and protecting livelihoods in the face of the expected population increase in the metro area of Santo Domingo in the upcoming decades. Additionally, the city of Santiago has taken important steps to improve solid waste dis- posal and collection. The Rafey landfill, the largest in the city of Santiago, had caused consid- erable environmental effects as the garbage from the landfill eventually landed in the Yaque del Norte River (the longest in the Dominican Republic, with its center in Santiago), which is used to irrigate crops, such as tobacco, fruits, and vegetables, among others, across the Northwest Line (Ferreras, 2015). The municipal government took several steps to mitigate this challenge, first by creating a holistic approach to trash collection, including more systematic and coordi- nated garbage collection and improvement of Santa Lucía, the area where the Rafey landfill is located (Deno, 2020). Moreover, through a public-private partnership, a Waste-to-Energy plan (WTE) was established as part of a project to enhance the sorting and management of solid waste in the Rafey landfill. a Nevertheless, current manual recycling process does not follow any safety procedures for the recyclers (Edelman, D. J., 2019). b Law 176-07 regarding the Distrito Nacional and Municipalities, which dictates that municipal governments are responsible for the management of municipal solid waste. c A very low tax per solid waste generation is applied per ton, dissuading residents and businesses from responsible waste production and recycling. The avera- ge tax per ton in other countries, such as the US, is about $16 per ton while in Santo Domingo the average cost per ton is $1.95, which is the lowest in the country. The total cost to process each individual ton of waste in the Dominican Republic is between $17 and $24 (Edelman, D. J. 2019). d The Law stipulates the creation of a National System for Waste Management, which will coordinate between institutions and municipalities and make recom- mendations to develop a comprehensive solid waste management system. It also instituted the General Directorate for Comprehensive Waste Manage- ment, a unit responsible for implementing legal provisions. Furthermore, all programs and projects should follow the guidelines and priorities outlined in the National Plan for Comprehensive Waste Management, whose long-term goals (10 years) would serve as the basis for decision-making at the national and local levels. e Plan Estratégico de Santiago, 2030. 3.6 Tourism and industrial development hinge on the provision of basic services as cities expand Water provision and sanitation services are lacking in Samaná and La Altagracia, highlighting the need for continuous investments in touristic poles. With regard to electricity, unlike other areas of the country, households in these provinces have longer hours of electricity connection, with about 19 hours a day on average. In contrast, water service hours are less than the national average (11 hours) in Altagracia, where water runs for around 4 hours a day, and in Samaná the average is 8 hours (Figure 37). La Altagracia province also lags on water service quality, with only 25 percent of the households with piped water inside the house. Moreover, while the connection to sewerage is minimal at the national level (20 percent), Samaná and Altagracia report lower proportions of households connected to public sewerage. In the case of waste collection, Puerto Plata is just at the national average with 86 percent of the households with waste collection services, while Samaná reports only 70 percent (Figure 38). Improving waste collection is fundamental to prevent pollution of the natu- 74 ral endowments of these touristic provinces. Meanwhile, households in Santiago province report to have better water, electricity, waste, and sanitation services than the country’s average. In this case, efforts to expand access and increase efficiency in the operation of public services should be put in place to guarantee that the quality of services remains promising as the urban popu- lation increases. Figure 37. Average hours of electricity and water service in Puerto Plata, Santiago, Samaná, and La Altagracia 22 21 20 19 19 15 15 10 10 8 5 4 0 Puerto Plata Santiago Samaná Altagracia Electricity hours (avg) Water hours (avg) Source: Authors, based on data from ENHOGAR 2018. Figure 38. Households with waste collection services, connection to sewage and piped water (in percentage) in Puerto Plata, Santiago, Samaná and La Altagracia, 2018 100 80 60 40 20 0 Puerto Plata Santiago Samaná La Altagracia Piped water inside the house Waste collection services Connection to sewage (municipal) Fuente: Elaboración propia con base en datos de ONE (2018) Urbanization and Territorial Development in the Dominican Republic 75 1. Laying down the facts of urbanization 3.7 Power outages, regulatory mechanisms, and a lack of skilled labor are standing in the way of a productive business environment At the national level, firms in the Dominican Republic list corruption and electricity as their pri- mary business environment obstacles, challenges that are unique compared to other Latin American countries. Access to finance, inadequate practices of the informal sector, tax rates, and an inadequately educated workforce are the main challenges named in other countries of Latin America (see Figure 39). Nevertheless, according to the Dominican Republic Enterprise Survey in 2010 and 2016, firms consistently selected corruption and electricity as their main ob- stacle. Concern regarding corruption has increased in recent years as the proportion of firms that mentioned corruption as the main obstacle went from 14.6 percent in 2010 to 18.6 percent in 2016 period. Compared to other LAC countries, only Guatemala, Panama, and Paraguay had a similar or higher share of firms which selected corruption as a primary obstacle.35 Figure 39. Top ten business environment constraints in 2016 % of Firms 20 18 16 14 12 10 18 6 4 2 0 Corruption Electricity Tax rates Practice of Crime, theft Inadecuately Political Access Customs Tax the informal and disorder educated inestability to finance and trade administration sector work force regulations Dominican Republic (2016) Latin America and Caribbean Source: World Bank Enterprise Survey, Dominican Republic 2016, Country Profile. Note: Percentage of firms that consider a specific business environment obstacle as the most important one. Firms in the Dominican Republic must deal with expensive and unreliable electricity service. In 2016, 14.6 per- cent of firms ranked electricity as their main obstacle for business. The Dominican Republic reports having the fourth-highest frequency and third-highest duration of power interruptions among LAC countries and income peers. On average, firms lose 5 percent of their sales because of power outages. Moreover, most firms invest in private generators to mitigate the cost of electricity disruption; approximately 95 percent of large industry firms have electric generators, as do 78 percent of small industry firms. Aside from erratic service, the electric 35 In the World Bank Enterprise Survey, corruption is measure by bribery incidence (gifts or informal payments), which reflects a firm’s experience regarding bribe payment requests across different transactions, including paying taxes, obtaining permits or licenses, and obtaining utility connections. 76 system in the Dominican Republic has the third-highest industrial electricity prices in the region (World Bank, 2018). This situation hinders the efficiency and productivity of the overall business environment, creating more harmful effects for small firms (World Bank, 2016), which, as of 2018, represented 63 percent of the total firms registered in the country (“Directorio de empresas y establecimientos”, or Directory of Businesses and Estab- lishments, 2018, ONE). With regard to location, firms outside of the large economic centers seem to struggle more due to power outages (see Table A1). At the subnational level, informality along with institutional sectors emerge as bottlenecks for busi- ness operation. By disaggregating the obstacles by firm location, we see that informality, tax rate and tax regulations, crime, and an inadequately educated workforce are shared challenges for firms across different regions of the country. Nonetheless, firms located in Santo Domingo report more serious difficulties with corruption and tax administration than firms in other locations. Moreover, even when business licensing is not identified as a major constraint for a firm, obtaining construction-related permits in the country capital usually takes 54 days, above the national average of 40 days, which adds an extra burden to businesses. In- terestingly, firms in the secondary economic areas of Santiago, Puerto Plata, and Espaillat seem to have fewer institutional and infrastructure obstacles compared to firms in Santo Domingo and the rest of the country. Crime and an inadequately educated workforce are highly related to productivity loss. Studying the city’s business environment factors and its relationship with productivity, Reyes, Roberts, and Xu (2017) identify the lack of basic protection from crime in cities and the absence of skilled labor among the most damaging factors on firm productivity in Latin America and around the world. In the case of crime, average spending by firms on security across LAC cities is higher than in any other region in the world (Ferreyra and Roberts, 2018). Moreover, efforts to correct the lack of skilled labor are highly needed in the country. Santo Domingo province, which has the highest education level across provinces, reports only 8.9 years of schooling on aver- age (IX Censo de Población y Vivienda, 2010). The mismatch between firms’ demands and population skills is aggravated by the fact that only 23 percent of the firms in the Dominican Republic reported offering formal training to workers, which is way below the average in LAC countries (43 percent) (World Bank, 2016). Urbanization and Territorial Development in the Dominican Republic 77 1. Laying down the facts of urbanization 4. Conclusions The impressive economic growth that has followed the Dominican Republic’s urbanization process needs to be matched with more inclusive and better opportunities for urban workers. In recent decades, the country has embarked on a remarkable urban development process, that, even with the deceleration of the urban growth rate in the most recent years, is expected to continue until 2060 in Santo Domingo, the major urban center. Assessing the relationship between economic productivity and urban growth, in 2012, Santo Domingo and Santiago performed below the global and LAC average productivity levels, but by 2015 Santo Domingo seemed to catch up, increasing economic productivity, as reflected by its GDP per capita level. Nevertheless, as shown by growth decomposition analysis, this growth has been sustained throughout a remarkable dis- parity between labor productivity and job creation in the capital and across the country, which has impacted economic growth negatively in recent years. Moreover, the Ferreyra and Roberts (2018) analysis showed that urban workers in the Dominican Republic have seen only meager benefits from the urbanization process compared to other LAC countries. The metro area of Santo Domingo is endowed with a large population and concentrated economic activity, elements that, when efficiently combined, highlight its remarkable potential to rapidly leverage agglomeration benefits to increase the country’s economic potential. Now that the great process of urbanization in the Dominican Republic is slowing down and the economic benefits associated with the urbanization process and the structural transformation of the country (from an agricultural economy to a service economy) are reducing, the country faces new challenges to continue increasing its productivity and economic growth. These new challenges consist of the use of its endowments, such as its human capital. The country will lose a unique opportunity if it fails to create better economic opportunities, such as more and quality jobs for urban dwellers in the capital and in emerging urban areas. Moreover, the unique charac- teristics of its cities and territories, like its economic and population agglomeration, connectivity, and natural resources, also need to be considered in order to guide policies aimed at increasing territorial development.36 Investing in effective urban planning in the Dominican Republic, especially for leveraging internal connectivity, is essential to creating more productive cities as the urbanization process evolves. In recent decades, about 50 to 60 percent of the growth in built-up surface in Santo Domingo and Santiago has been classified as expansion outside the city borders. Edge expansion and leapfrog development have become more prominent in smaller cities, indicating a trend of cities becoming less compact and more sprawled. As these characteristics negatively affect productivity, investing in internal city connectivity, such as building denser street networks and public transportation policies, is critical to preserve and lift the cities’ productivity. Moreover, enhancing coordination on infrastructure investment policies, land use, and zoning regulations, particularly across municipalities in large metropolitan areas and touristic poles, would make it possible to effectively regulate the upcoming urban expansion. In the case of the Santo Domingo metro area, coordi- nation between the authorities of the Distrito Nacional and the surrounding municipalities is crucial, not only to regulate urban traffic, but also to increase access to public services (e.g., health institutions, as well as educational and recreational centers) and economic opportunities in an equitable way across the territories that comprise the metropolis. 36 For more on this topic, see note 2, “Regional Disparities in the Dominican Republic”. 78 As cities grow close to the ocean, it becomes more important to develop integrated disaster risk management plans. Urban plans should focus on protecting private and public infrastructure, as well as preserving natural assets from adverse natural and climate-related events. The development of the tourism sector has brought significant challenges to reaping the benefits of becoming more urbanized, ranging from ensuring adequate environmental and territorial management to implementing appropriate climate change adaptation and mitigation policies. Municipalities such as Higüey and Santo Domingo Este, as well as Puerto Plata, Boca Chica, La Romana, and Sosúa, have experienced a significant increase in built-up surface from 1996 to 2015, mainly associated with tourism development. The improvement of quality of life must be prioritized, and the foundations for an equitable and sus- tainable growth of the territory should be laid. Investments in public services to ensure the reliable provision of water and electricity, sustainable waste management, and sewer connections in urban areas are crucial. Currently, the metro area of Santo Domingo lags on water and electricity services, with service hours below the national average and that of other urban centers. Increasing service reliability across all income groups in Santo Domingo would allow for a more inclusive urban development. Additionally, to pave the path to more sustainable growth, it will be necessary to implement a functional waste management policy to serve the metro area of Santo Domingo aligned with the new legal framework (the General Law on Comprehen- sive Management and Co-processing of Waste), increase the connection to sewerage, to reduce the risk of groundwater and land contamination, and strengthen wastewater management.Furthermore, generating an adequate business environment through more transparent and efficient management of public services, both federal and municipal, while ensuring the reliable supply of electricity in urban areas, would positively impact the capacity of firms—especially small ones—to operate and take advantage of the large and grow- ing urban market. 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World Bank. 2009. “World Development Report 2009: Reshaping Economic Geography.” World - Bank. https://openknowledge.worldbank.org/han� dle/10986/5991 82 Annex Additional graphs on economic indicators Figure A1. Marginal contribution of labor productivity, job creation, and population structure to total GVA growth (2005–2015) Total growth 10 GVA per capita 8 2010-2015 6 4 2 0 -2 -4 -6 -8 go ty ua ty se or pa na on u ce on ta a s s z a ty o to go re ca Pa sa ili m de Ci Ci Ci go Jo ui ad in st ba ci ag in al ia Ai as Li ra as Q vi La Pr ng un a a o om nt ig Bo lv n Br an Ha os Ca te ic al m N u- Sa Sa uc Sa As Ki ex en on na m D M -A g n te M o Bu Pa M Te Sa rt nt ua Po Sa G Growth linked to changes Growth linked to Growth linked to labour in share of working employment rate (Y/E) productivity (Y/W) population (Y/A) Source: Authors, based on Oxford Economics, 2016. Urbanization and Territorial Development in the Dominican Republic 83 1. Laying down the facts of urbanization Table A1. Top obstacles for firms’ performance by location, 2016 Santiago, Puerto Rest of the Santo Domingo Plata, Espaillat country Regulations Customs & Trade Regulation 20% 6% 4% Practice of Competitors in Informal Sectors 50% 47% 45% Labor Regulations 19% 12% 11% Market Factors Access to Land 6% 1% 2% Access to Finance 13% 17% 14% Inadequately Educated Workforce 33% 31% 29% Institutions Courts 29% 14% 24% Crime 34% 26% 33% Tax Rates 41% 36% 38% Tax Administration 30% 33% 34% Business Licensing and Permits 6% 5% 8% Political Instability 23% 21% 14% Corruption 35% 29% 25% Infrastructure Electricity 35% 27% 50% Telecommunications 20% 6% 10% Transport 16% 8% 12% Note: Percentage of firms answering that the variable is a major or a very severe obstacle. Sampling weights were used. The colors are scaled according to all values in the table from smallest percentage to largest (green to red). Source: World Bank Enterprise Survey Dominican Republic, 2016. 2. Addressing territorial disparities at different scales Paula Restrepo Cadavid and Evelyn Sánchez Hernández 86 Table of Contents Introduction 88 1. Territorial Disparities – Why do they matter? 88 2. What do regional disparities look like in the Dominican Republic? 90 3. How does economic productivity relate to other indicators? 93 3.1 Service quality and housing conditions gradually decrease with the level of economic 93 productivity 3.2 Leading provinces report higher levels of human capital and a more educated labor force 95 3.3 Employment structures diverge depending on economic development level, with leading 97 provinces focusing more on high-productivity sectors 3.4 Assessing the spatial and population endowments and connectivity of a region is 98 fundamental in order to define accurate development policies 3.5 Lagging areas need to build on their endowments to enhance their economic performance 101 4. How do border areas compare to the rest of the country? 106 4.1 Border provinces in the south have a stronger agricultural profile, while provinces in the 106 north have a more diversified economic profile 4.2 Most border areas present low levels of human development and all of them face 107 remarkable challenges in basic service provision 4.3 Border provinces need specific policy approaches to achieve their economic potential 111 5. Conclusions 113 References 115 Annex. Additional graphs on economic indicators 117 Figures Figure 1. Regional inequalities from 2000 to 2018 (first administrative level) 91 Figure 2. Inequalities between provinces (second administrative level) 2000 to 2017 91 Figure 3. Regional disparities can be observed through the composed economic productivity 92 measure Figure 4. Services in households (percentile) 94 Figure 5. Housing deficit (percentage) 94 Figure 6. Share of working-age population with tertiary education 96 Urbanization and Territorial Development Review in the Dominican Republic 87 2. Addressing territorial disparities at different scales Figure 7. Employment density (number of employees per 1,000 working-age population) 96 Figure 8. Employment structure by region type, 2010 97 Figure 9. Spatial endowments: density and proximity 99 Figure 10. Road network in the Dominican Republic 99 Figure 11. Road characteristics by type of province, 2015 100 B1.1. Informal settlements, tugurios, poor households, green spaces and rise of water levels in 105 river channels in the Distrito Nacional B1.2 Areas at risk of potential flooding in the Distrito Nacional 105 Figure 12. Human development index (no income) 108 Figure 13. Waste collection services in border provinces 108 Figure 14. Cooking fuel in border province 109 Figure 15. Sanitation services in border provinces 110 Figure 16. Water services in border provinces 116 Figure A1.1 Economic productivity measures 117 Figure A1.2 Employment structure in border areas 119 Figure A1.3 Market access map 119 Figure A1.4 Built-up surface evolution in border province municipalities 120 Tables Table 1. Policy recommendation for lagging provinces based on spatial endowments 102 Table 2. Characteristics & policy approaches for border provinces 112 Table A1.1 Combined economic productivity 118 Boxes Box 1. Spatial differences within the country: why scale matters? 103 Box 2. Recent investments in border areas 107 88 Introduction An even distribution of economic development across territories is unrealistic and goes against market forces, but this does not necessarily have to result in territorial inequalities with regard to access to opportunities and diverging living standards. Over the past 50-60 years the Dominican Republic has adopted sectoral po- licies with territorial impact such as the development of Special Economic Zones, or Zonas Francas, and the development of tourism poles1. More recently, there is a revived interest in strengthening territorial planning and targeting funds for territorial development, with a particular focus on less developed areas such as the provinces bordering Haiti. This spotlight aims to contribute to the ongoing discussion by carrying out an as- sessment of regional disparities in the Dominican Republic. To do so, it proposes a classification of provinces into leading, transition, or lagging areas based on a set of measures of economic performance. This spotlight also conducts an assessment of how economic performance correlates with other indicators or territorial endowments, such as human capital, infrastructure, natural capital, market access, and existing service pro- vision. Lastly, given the government’s interest in the border region, this spotlight focuses on provinces in the border area between the DR and Haiti and offers a set of policy implications to take into consideration for the development of the region’s strategic plan. This spotlight reveals that lagging provinces are mainly located near the border of Haiti and in the northeast corridor from Espaillat to El Seibo. Aside from inter-provincial disparities, differences are also evi- dent at a lower spatial scale: between Santo Domingo Province and the Distrito Nacional and internally within the Distrito Nacional. This assessment highlights the need to take into consideration specific territorial endowments for the design of public policies and the application of ongoing territorial initiatives and reforms. 1. Territorial Disparities – Why do they matter? Territorial differences in economic performance are inevitable but do not need to result in disparities with regard to opportunities and living standards. As countries develop, there is a concentration of population (urbanization) and economic activities in certain areas. The agglomeration of population and firms benefit the creation of economies of scale, which increases economic productivity and income generation. Never- theless, this concentration does not necessarily have to result in divergences with regard to opportunities and living standards across regions. The benefits of agglomeration can be distributed across regions when places are well connected and those well-connected regions specialize in areas and markets in which they are more productive. Nonetheless, this equilibrium has been challenging for many countries to reach, leading to the consolidation of leading areas and entrenched lagging regions. These divergences can be the result of different causes, such as the inability of lagging areas to realize full returns on their endowments, restricted business environment, lack of complementary infrastructure to reach national or external markets, coor- dination failures, or lack of adequate human capital. The persistence of territorial inequalities has multiple short- and long-term consequences. It impacts the well-being and opportunities of people living in lagging 1 For an extensive description of these policies, please refer to Spotlight : Zonas Francas and Territories in the Dominican Republic and Note 3: Tourism and Territorial Development in the Dominican Republic. Urbanization and Territorial Development Review in the Dominican Republic 89 2. Addressing territorial disparities at different scales areas, resulting in higher levels of migration and poverty. It can also lead to the underutilization of territorial endowments and the emergence of “low-growth traps,” potentially dragging national growth. Moreover, entrenched and high levels of territorial disparities at different scales (such as between provinces and within cities) have the potential to generate social unrest and pose a threat to the overall economic development and territorial cohesion of a country. Territorial development uses a spatial lens to identify regional growth drivers and assess economic potential and existing bottlenecks to unleash it in both leading and lagging areas. The increasing dispari- ties in economic development, and the emergence of low-growth regions across countries, illustrate the need for a better understanding of regional growth drivers and what policymakers can do to unlock growth at di- fferent subnational levels. Territorial development is development using a spatial lens to align investments to local challenges while considering the region’s economic specialization, natural endowments, jobs, and living standards in relation to the rest of the country. Territorial development recognizes that while lagging regions might have underexploited economic potential, all regions do not have the same growth potential due to differences in endowments and structural conditions (Farole et al., 2018). Several governments have used territorial development initiatives to tackle regional inequali- ties. The concern over large and growing regional disparities has motivated governments to shift from the traditional national-wide view to approaches tailored to different territories. For instance, the European Union’s Cohesion Policy has focused on reducing disparities between member countries and regions throu- gh structural and investment funds to help regions become more competitive. Additionally, through the Catching-up Regions Initiative, the EU has offered tailored technical support to identify regions’ bottlenec- ks (e.g., urban development, connectivity, or administrative capacities) and has helped local stakeholders to maximize the impact of regional investments in Poland and Romania (Kriss et al., 2019). Likewise, Brazil’s government has been active in the adoption of a territorial development approach, first focusing on pro- viding funds for territorial development initiatives for less developed areas, while also strengthening local capacities. More recently, it has implemented a policy directed at decentralizing and internalizing develo- pment by benefiting regions with low socioeconomic indicators, population decline, and the consolidation of a polycentric network of cities2. In recent years, the Dominican Republic has revived its interest in moving away from spatially blind policies in favor of spatially sensitive approaches. In 2018, the Ministry of Economy, Planning and Develop- ment (MEPyD) created the Observatorio de la Zona Fronteriza (Observatory for the Border Area) to facilitate the evaluation and analysis of policies for provinces along the border with Haiti, which have been part of a special development area since 2001. Moreover, after the 2020 election, the Government Program establi- shed “Territories and Spaces” as one of its seven transversal pillars, recognizing the relevance of creating ca- pacities and opportunities where the people reside and establishing the intention to evaluate policies accor- ding to levels of spatial convergence for reducing inequalities in quality of life and opportunities. In alignment with these factors, this document has two objectives, first, to explore and describe spatial disparities patterns at the provincial level in the Dominican Republic, and second, to focus on border areas in order to inform the government’s strategic plan for this area of the country. 2 The National Policy for Regional Development (PNDR) was presented in 2007 and restructured in 2019. 90 2. What do regional disparities look like in the Dominican Republic? Regional disparities in the Dominican Republic are in the middle of the distribution when compared to La- tin America, and they have decreased faster than in most countries in the region and in the World. As men- tioned, spatial inequalities are not unique to the Dominican Republic. We use welfare levels from harmonized household surveys on a global scale (Global Monitoring Database) from 2000 to 2018 to capture the degree and change of the subnational difference in the Dominican Republic at the first administrative level—Regio- nes de desarollo.3 Data shows (Figure 1) that, globally, as countries get richer, inequalities between places de- crease. This pattern is consistent in Latin American countries (orange line), and remarkably, the trend seems to be more pronounced in the Dominican Republic (green line), implying that regional differences decreased faster in the country compared to the regional and global trend. Within Latin America, the Dominican Re- public is positioned in the middle of the distribution in terms of the magnitude of regional inequalities, with greater subnational differences than in Ecuador, Chile, Argentina, Mexico, Bolivia, and Costa Rica. Conversely, Peru, Guatemala, and Haiti report the largest regional inequalities in the region.4 At the provincial level, inequalities also seem to be decreasing in recent years. The survey informa- tion used for the international comparison shows that even at a lower administrative level—the province— inequality decreased from 2014 to 2017 when we compare the welfare levels (in orange in Figure 2) between provinces. An alternative way to measure inequality at the province level is by comparing the maximum (top 1%) relative to the minimum (bottom 1%) welfare ratio (in gray in Figure 2). The difference in the welfare ratio (max/min) seems to be lower than the average measures of welfare and seems to have a more pronounced decrease over the years. Interestingly, it also shows that in 2017, the welfare ratio (max/min) had a similarly low level as in 2009, after suffering a drastic increase in 2010. Designing policies to address regional disparities first requires identifying which regions are falling behind. The methods to identify lagging regions vary in practice (Farole et al., 2018), but are commonly ba- sed on economic productivity measures, such as GDP per capita or income levels. Due to the lack of official GDP statistics at the Dominican Republic’s subnational level, this note uses a composed economic produc- tivity measure, integrated by three weighted indicators.5 The first indicator—intensity of nightlights per ca- pita—has been identified as an accurate predictor of economic development (Henderson et. al. 2012). The second indicator is derived from an estimation of subnational GDP per capita, which combines economic development from nightlight radiance and agricultural productivity using spatial data (Ishizawa & Blanchard, 2020). Finally, the third indicator is income per capita, adjusted by purchasing power parity, as computed 3 The welfare aggregates employed are used to compute poverty rates at international US$ PPP levels and are spatially deflated to account for price differences between subnational regions. 4 One caveat of the global comparison is that it takes into consideration the number of first administrative regions, which varies across countries, as these are defined unilaterally by each country. In the Dominican Republic the first administrative level, Regiones de desarollo, comprises a total of 11 regions, but in the United Kingdom, the first administrative level comprises 37 regions. With a larger the number of regions, there is a higher probability of finding greater welfare differences, as they might reflect the heterogeneity of territories more clearly. In this sense, the inability to construct a unique definition of administrative regions for all countries can affect the global comparison. Nevertheless, the difference in the number of first administrative regions in Latin American countries is not that large, between 3 (Ecuador and Guatemala) and 16 (Chile), and in different exercises controlling for the number of regions, the Dominican Republic remains in the middle of the distribution regarding the magnitude of regional inequalities. 5 The three economic productivity measures, nightlights per capita radiance, spatial GDP per capita, and income per capita, were normalized on a scale from 0 to 1 and later combined, giving each of them an equal weight. Urbanization and Territorial Development Review in the Dominican Republic 91 2. Addressing territorial disparities at different scales Figure 1. Regional inequalities from 2000 to 2018 (first administrative level) Regional 0.2 inequalities (%) 0.15 0.1 0.05 0 -0.05 0 10000 20000 30000 40000 50000 60000 70000 GDP per capita Rest of the world Latin America & The Caribbean Dominican Republic Linear (rest of the world) Linear (Latin America and Caribbean) Linear (Dominican Republic) Source: Data from D’Aoust and Lall (2021) using Global Monitoring Database. Note: Theil T index is used to capture spatial inequality as the share of inequality that can be attributed to between-regions disparities. Figure 2. Inequalities between provinces (second administrative level) 2000 to 2017 Normalized 1.1 measures 0.9 0.7 0.5 0.3 0.1 -0.1 2000 2002 2004 2006 2008 2010 2012 2014 2016 Between provinces inequalities Welfare ratio (max./min.) Source: Data from D’Aoust and Lall (2021) using Global Monitoring Database. Note: Theil T index is used to capture spatial inequality as the share of inequality that can be attributed to between-regions disparities. Between-province differences and welfare ratio values were normalized for the comparison 92 Figure 3. Regional disparities can be observed through the composed economic productivity measure Provinces Percentile 17 22 < 20 Lagging 1. Azua 2. Baoruco 9 20-40 Lagging 32 3. Barahona 40-60 Transition 4 30 11 16 4. Dajabón 60-80 Transition 5. Distrito Nacional 29 6 23 80-100 Leading 6. Duarte 7 15 7. Elías Piña 24 8. El Seibo 19 26 18 9. Espaillat 10 8 10. Hato Mayor 27 11. Hermanas Mirabal 12 2 1 25 31 28 14 13 12. Independencia 5 13. La Altagracia 21 14. La Romana 3 15. La Vega 20 16. María Trinidad Sánchez 17. Monte Cristi 18. Monte Plata 19. Monseñor Nouel 20. Pedernales 21. Peravia 25. San Cristóbal 29. Santiago 22. Puerto Plata 26. San Juan 30. Santiago Rodriguez 23. Samaná 27. San José de Ocoa 31. Santo Domingo 24. Sanchez Ramírez 28. San Pedro de Marcoris 32. Valverde Sources: GDP spatial series elaborated by the World Bank; Income per capita from the UNDP, Human Development Index, 2016; and Nightlights using NOAA, VIIRS. by the UNDP (2016). When these three measures are mapped separately, slightly different patterns emerge regarding how each province performs (see Annex; Figure A1.2). Nevertheless, similar results are shown in the three measures, such as low productivity levels in Dajabón and Elías Piña, along the border with Haiti, and in Monte Plata, and in contrast, high levels of economic productivity in the southeast corridor from San Pedro Macoris to La Altagracia, as well as in Puerto Plata and Santiago. The compounded economic productivity measure reveals that lagging provinces are mostly loca- ted near the border of Haiti and in the northeast corridor from Espaillat to El Seibo. Using the combined economic productivity measure, provinces6 were classified as Leading, if their score was above the 80th per- centile, Transition, if the score was between the 80th and 60th percentiles, and Lagging, if it belongs to the bottom 40th percentile. As shown in Figure 3, leading provinces align across the corridor from Santiago to Santo Domingo, excluding Monte Plata, and continue in the southeast coastal area to La Altagracia. On the other hand, lagging provinces are located along the border with Haiti and in the northeast coast corridor from Espaillat to El Seibo. 6 With regard to the scale selected to measure territorial inequalities, the provincial level was identified as the lowest administrative level with more static and perdurable borders and administration than municipalities, which are more susceptible to restructuring their territorial limits. Urbanization and Territorial Development Review in the Dominican Republic 93 2. Addressing territorial disparities at different scales 3. How does economic productivity relate to other indicators? Far from only considering economic productivity as the primary determinant of development, it is fun- damental to assess the interaction of economic outcomes with other relevant variables. Social and spa- tial infrastructure and human endowments in the regions are key to understanding the underlying charac- teristics or patterns that promote or deter growth and to constructing policy strategies around these axes. For instance, a mining province might show very solid economic performance in terms of GDP or income per capita but present an overall lagging region profile with high unemployment, high inequalities, poor access to services, and low accumulation of human capital. With this in mind, in this section, different indicators are compared across three development categories: (1) Housing and Services, (2) Human Capital, and (3) Employment Structure. 3.1 Service quality and housing conditions gradually decrease with the level of economic productivity Households in lagging regions have lower quality of services. The level of economic productivity of a pro- vince is closely related to the quality of the household services, as shown in Figure 4. On average, 55 percent of households in leading areas have water connections directly inside the house, and 90 percent of them have a toilet inside the house, access to clean cooking, and municipal waste collection. The level of access and quality of service gradually decrease with the level of economic productivity. For instance, in lagging areas, only 37 percent of households report having water connections directly inside the house, 60 percent have a toilet inside the household, and around 70 percent have access to clean cooking and waste collection services. While at the national level, 31 percent of households have access to internet access, this proportion drops to 17 percent in lagging areas. Only hours of water and electricity service in households do not seem to follow this pattern. The unreliability of electricity provision affects households throughout the territory, with leading and lagging provinces having around 18 hours of electricity service. The average hours of services declines a little in transition provinces to 16, mainly due to the limited service in San Juan province, where households report having just 6 hours of electricity. In contrast, regarding the number of hours of water ser- vice, transition areas have slightly better access to water, with an average of 11 hours of service, while house- holds in leading and lagging areas have around 9 hours of service. Lagging areas suffer from a higher housing deficit, with a higher demand for quality housing units, while leading areas have a higher quantitative deficit. The housing deficit—the number of houses that have to build or renovate to reach an acceptable level of quality living standards—is 66 percent in lagging provin- ces and decreases to 51 percent in leading areas. Taking a detailed look into the needs of housing, as shown in Figure 5, lagging areas have a higher need for repairs and improvements in the current qualitative housing deficit—estimated at 54 percent—compared to leading or transition areas, where the qualitative deficit falls to 33 percent and 48 percent, respectively. In the case of the quantitative deficit—the number of houses that need to be built (or arranged) so that people that require accommodation have a decent space—the deficit is higher for leading areas, at 17 percent, followed by lagging areas at 12 percent, and finally, transition areas, with only a 10 percent deficit. 94 Figure 4. Services in households (percentile) Average hours of water service 0.9 0.8 0.7 Average 0.6 Innternet hours of 0.5 electricity access 0.4 service Leading 0.3 0.2 0.1 Transition 0.0 Waste Clean Lagging collected by cooking municipality Toilet inside Water source the HH inside the HH Source: ENHOGAR, 2018. Figure 5. Housing deficit (percentage) Total deficit 70 60 50 40 30 Leading 20 Transitiion 10 0 Lagging Quantitative deficit Qualitative deficit Source: Authors, using data from Morillo, 2019. Urbanization and Territorial Development Review in the Dominican Republic 95 2. Addressing territorial disparities at different scales Lagging provinces have the highest proportion of poverty, yet some leading and transition areas have a larger number of poor people. According to international poverty measures7, in lagging provinces, around 31 percent of the population live in poverty, which is a higher proportion than in transition and leading provinces—which report poverty levels of 27 percent and 21 percent, respectively. Nevertheless, looking at the numbers of poor people rather than the proportion of the population, Santo Domingo province and the Distrito Nacional alone have around 26 percent of the poor population in 2015. Santiago, another leading province, as well as San Cristobal and San Juan, which are in the transition province category, have between 7 to 5 percent of the poor population within each of their territories. 3.2 Leading provinces report higher levels of human capital and a more educated labor force Leading provinces have higher levels of human development, which is related to better access to edu- cation. Considering three different dimensions of human development: health, income, and education, it is possible to observe that human development is positively related to economic productivity, with leading provinces having higher scores in the human development index (UNDP, 2016). Even when the dimension of income is removed from the index, a positive relationship between human development and economic pro- ductivity remains at the provincial level. Interestingly, when analyzing the health dimension, which includes infant mortality, health coverage, and human and physical health resources, the difference across the three types of provinces is minimal, with transition areas having a slightly better score in the health dimension. Regarding the education dimension, which covers literacy and basic and medium education coverage and completion, there are striking differences, as the score in leading areas is double that of lagging areas, which highlights disparities in education access.  The difference in education level between leading and lagging provinces remains when evaluating labor forces. As the human development analysis shows, education access differs depending on economic productivity level, and this is also reflected in the education level of the population in the labor market. As Figure 6 shows, in general, a larger share of the working-age population has a higher education in leading areas (21 percent), compared to transition (17 percent) and lagging areas (13 percent). Nevertheless, worker education level in leading areas is quite heterogeneous, with the Distrito Nacional having the highest share of workers with tertiary education (39 percent), while in other leading provinces such as La Altagracia, San Pedro de Macorís, and La Romana, less than 16 percent of the working-age population have a higher edu- cation, which is a lower proportion than the average for transition provinces. In contrast, the share of tertiary education levels seems to be more homogeneous across lagging provinces. 7 Poverty headcount ratio at $1.90 a day (2011 PPP) (% of population), coming from HDD data at subnational estimation. 96 Figure 6. Share of working-age population with tertiary education Working- age 30 population with tertiary education 25 (%) 20 National average 15 10 5 0 Leading Transition Lagging Source: IX Censo de Población y Vivienda 2010 – Dominican Republic. Figure 7. Employment density (number of employees per 1,000 working-age population) Employment 600 density (number of employees 500 per 1,000 working-age population) 400 300 200 100 0 Leading Transition Lagging Source: IX Censo de Población y Vivienda 2010 – Dominican Republic. Urbanization and Territorial Development Review in the Dominican Republic 97 2. Addressing territorial disparities at different scales 3.3 Employment structures diverge depending on economic development level, with leading provinces focusing more on high-productivity sectors The labor market seems to be more prolific in leading areas than in transition and lagging provinces. When looking at the density of employment in Figure 7, as expected, economic productivity is positively associated with jobs availability. In general, employment density is higher in leading areas than in lagging provinces, but there is a large variability in employment for the latter. Some lagging provinces with a large share of agricul- tural employment have similar employment density to leading ones. In contrast, only Monseñor Nouel, clas- sified as a leading province, has an employment density below the national average (448 employees/1,000 working-age people). A prolific labor market is relevant as jobs and earnings translate into economic and social benefits for households and individuals. Moreover, jobs also have significant positive economic and social externalities, as workers become more efficient in the presence of other workers and tend to invest more in building the human capital of the next generation (Farole, 2018). While employment density does not account for the quality of the jobs, the Dominican Republic job market has been characterized by low- job creation, which is accompanied by a proliferation of low-quality jobs and wage mismatch (World Bank, 2020). In this sense, strategies to lead quality job creation are critical for economic development, especially in lagging areas. Figure 8. Employment structure by region type, 2010 Ocupation 100 % 17% 18% 19% 16% 10% 8% 75 3% 4% 6% 50 50% 46% 40% 25 5% 18% 25% 0 Leading Transition Lagging Public and social sector Industry Advanced services Basic services Agriculture Source: IX Censo de Población y Vivienda, 2010 – Dominican Republic. Note: Basic services includes construction, wholesale and retail trade, transportation, accommodation, and food service activities; advanced services includes information and communication, finance and insurance, real estate, professional, and scientific and technical activities. 98 Employment structures differ for leading and lagging regions. As shown in Figure 8, basic services, including wholesale and retail trade, transportation, and accommodation activities, dominates the employ- ment market in the three types of regions. Still, important differences in the rest of the employment structure are relevant to define the productive potential of each province. Lagging and Transition provinces have hi- gher agricultural employment shares, at 25 percent and 18 percent, respectively, compared to leading areas (5 percent). They also have a much lower share of high productivity and tradable activities, with a notably low proportion of industry employment. It is expected that in Transition regions, the shift of workers from low- to higher-productivity employment—mainly through shifting out of agriculture and into industry and servi- ces—could contributing substantially to their future growth. Nevertheless, to successfully achieve this change, strategies are required to strengthen the capacities of workers, competitiveness, and the innovation capacity of local firms, as well as to remove distortions in the business environment. In the case of lagging areas, in provinces such as San Jose de Oca, Pedernales, and Elías Piña, where agriculture still represents more than 35 percent of employment, targeted sectoral approaches in agriculture to raise productivity and increase value-added agricultural outputs are fundamental, while complementary policies to increase capacities to support investments in value-added services or manufacturing are advised. 3.4 Assessing the spatial and population endowments and connectivity of a region is fundamental in order to define accurate development policies Spatial endowments as geography and their interaction with population are essential factors for the de- velopment of a region. Population density is associated with accelerated productivity gains, as the concen- tration of people and firms creates larger and more dynamic commercial and labor markets. Market access, which is defined as proximity in Figure 9, is fundamental for firms as it determines their market potential. Major market accessibility allows firms to reach markets at lower transportation costs for inputs and outputs. Most of the lagging areas have poor spatial endowments that limit their economic potential. Fi- gure 9 shows the distribution of population density (agglomeration) and market access (accessibility) for all the provinces in the country. Most lagging regions are positioned in the upper-left area of the graph, representing low population density and low market accessibility (Sparse and Peripheral). The fact that lag- ging regions lack market scale and density results in firms being less likely to settle in these areas due to the limited potential to exploit the productivity associated with agglomeration and connectivity. This situation can generate an overall weak competitive environment for firms since fewer firms are interested in investing and building capabilities in these areas. In provinces with very low spatial endowments, policies to enhance equality of opportunity, specifically by developing institutions to support social services and focusing on hu- man capital accumulation, should be prioritized to increase economic productivity. For lagging areas with higher-than-average accessibility but slim density (Sparse & Central), such as Dajabón and Monte Plata, im- proved connectivity to the nearby agglomeration, such as Santo Domingo and Santiago, can increase their economic performance. When looking at the good connectivity and population endowments of Espaillat (Dense & Central), its low economic productivity is unexpected. In this case, interventions to address govern- mental and institutional failures or weaknesses are essential in order to identify and tackle potential factors that deter its ability to take advantage of its population and location endowments. A summary of recom- mendations based on the spatial and population endowments of the provinces is shown in Table 1 Urbanization and Territorial Development Review in the Dominican Republic 99 2. Addressing territorial disparities at different scales Figure 9. Spatial endowments: density and proximity Proximity 200 No-border (access to Pedernales Border markets) Scattered Dense and and peripheral peripheral Leading Transition 150 Lagging Elías Piña San Juan Santiago Santiago Rodriguez Samaná San José de Ocoa 100 Hato Mayor Independencia María Trinidad Sánchez Azua La Vega Barahona Monseñor Nouel El Seibo Sanchez Ramírez Dajabón San Cristóbal Monte Plata La Altagracia Peravia 50 Duarte Monte Cristi Puerto Plata San Pedro de Espaillat Scattered Marcoris Hermanas Mirabal Dense and and central La Romana Valdeverde central Santo Domingo Province Distrito Nacional 0 0.0 0.4 0.8 Density (population) Note: Density is the proportion of the population living in areas of high density (more than 300 ppl/km2) (GHS-POP, 2015). Proximity is the average travel time to the nearest city, in minutes), Malaria Atlas project (2015). Lines represent the mean value. Figure 10. Road network in the Dominican Republic Residential Tertiary road Secondary road Primary road Source: Open Street Maps, 2021. 100 Figure 11. Road characteristics by type of province, 2015 Road 60 54 network 47 % 40 29 29 24 20 16 0 Passable Paved Leading Transition Lagging Source: MEPyD, 2015. Low market access and poor road density/quality can significantly limit a territory’s capacity to deve- lop. There is a close relationship between market access and quality road infrastructure, as the latter lowers the costs of labor and intermediate goods for firms, facilitating access to different markets across territories. Moreover, increased road quality is associated with positive social outcomes for households. Some eviden- ce shows that road paving increased household-level acquisition of durable goods (vehicles, appliances, and home improvements) through its positive effect on property values and credit access (Gonzalez-Navarro & Quintana-Domeque, 2016). Road infrastructure is also relevant to reducing territorial disparities. Evidence from Brazil (Bird and Straub, 2014) shows that access to roads reduced inequality in spatial distribution of economic activities among regions. Similarly, transport improvement is associated with the decentralization of production and population from core cities to peripheral areas (Baum-Snow 2007; Baum- Snow et al. 2012). Scarce road networks and low-quality roads hinder the development potential of lagging provin- ces. Market access levels are similar across leading and transition areas, Figure A1.3 shows (see Annex). Most lagging provinces suffer from low levels of accessibility which seems to be related to the low density and low quality of roads. As shown in Figure 10, large road networks are concentrated in the corridor of Santiago to Santo Domingo and throughout the coastal area from San Cristobal to La Altagracia. There is a remarkably low density of roads in lagging areas, which are mostly in the bottom 30th percentile of the distribution. The quality of roads also limits accessibility for the population living in lagging areas. The percentage of paved roads in leading areas (29 percent) is almost double that of lagging areas (16 percent) (see Figure 11). Even when considering passable roads, which groups paved and unpaved roads where cars can transit all year, a significant difference between lagging and non-lagging areas remains. As road infrastructure is fundamental to enable economic and social development and to facilitate the distribution of economic outcomes across regions, assessing the needs of internal and inter-regional road improvements and setting strategies to ad- dress those needs is critical. Urbanization and Territorial Development Review in the Dominican Republic 101 2. Addressing territorial disparities at different scales 3.5 Lagging areas need to build on their endowments to enhance their economic performance In general, lagging provinces face common social and infrastructure deficiencies that constrain long-term growth prospects. As observed before, lagging areas have a less educated labor force and a less prolific labor market. Moreover, they suffer from lower living standards, which is reflected by lower levels of waste collection, sanitation, and water services, and a higher deficit in housing quality and quantity. In general, their spatial and population characteristics—being far from markets and with lower density than the average— work against their potential to create agglomeration economies. Nevertheless, these characteristics do not mean that their economic and social outcomes cannot be improved, and only highlight the need for tailored approaches that take into consideration existing endowments and economic potential. Development policies in the Dominican Republic should be directed to build upon regional endow- ments. Following the approach in Farole et al. (2019), promoting regional development aims to maximize regional potential—in terms of income and quality job creation, and by ensuring equality of opportunity for individuals to achieve their potential. In this sense, the scope of interventions needs to be assessed de- pending on the regional contexts (see Table 1). Considering the characteristics of the lagging areas in the Dominican Republic, which are poorly densely populated and far from large markets, the main priority should be strengthening endowments—human capital and institutions to support quality social services—as well as internally connective infrastructure, which are areas where these regions clearly fall behind, while at the same time implementing adequate sectoral policies to remove distortions from growth and build endowments. Pla- ce-based interventions in these areas, such as large industrial projects, are riskier due to the relatively small market available in terms of labor and consumers, and the high transportation cost that firms would face to become established in these areas and bring their products to larger markets. For lagging areas with better market accessibility but still low population density, such as Dajabón and Monte Plata, the priority is to improve connectivity to large markets, such as Santiago. Sectoral in- vestments, such as specialization policies, can be particularly important in these regions. These specialization policies, though, should be directed in order to identify and focus resources on sectors that are in line with existing or latent regional comparative advantages and where there is potential to leverage strong cluster effects.8In the case of Espaillat, with good connectivity and population density, identifying and understanding the governmental or institutional failures that prevent investment and economic growth in the province is the first step to addressing them. Finally, across all lagging areas, approaches focusing on removing distortions and on making sectoral targeted investments should be supported by an ongoing strengthening of endow- ments at both the individual and institution level. 8 In case regional comparative advantage is not identified, establishing an environment that incentivizes experimentation and facilitates market entry and exit by improving the business regulatory environment, setting equal conditions for competition, and transparent governance may allow the specialization potential to emerge over time. 102 Table 1. Policy recommendations for lagging regions based on spatial endowments Sparse & Periphereal: Dense y periphereal: low connectivity & low connectivity & population density high population density Making new sectoral strategies in these regions is Market and government failures may be creating risky due to their thin market. A heavy emphasis on distortions that result in underperformance. Typical endowment-building (skills and institutions)should place-based sectoral and spatial investments can be prioritized in these regions: enhance equality of be effective in overcoming coordination failures to opportunity by developing institutions to support unlock agglomeration. Still, the emphasis shoul be social services provision and focus on human capi- on identifying and addressing these market and tal accumulation. government failures. Provinces: Pedernales, Elías Piña, Santiago Rodrí- Province: María Trinidad Sánchez. guez, Independencia, Baoruco, San Juan, San José de Ocoa, Hato Mayor, Samaná, Azua y El Seibo. Sparse and central: Dense y central: good connectivity but high connectivity & low population density high population density For these relatively well-connected provinces, These regions are unlikely to be lagging due to the priority is to improve internal connectivity to their location premium and population endow- the nearby agglomerations in order to increase ment. If they are lagging, enact interventions economic performance. to identify and address governmental or/and institutional failures or/and major institutional weaknesses. Provinces: Dajabón and Monte Plata. Province: Espaillat. Source: Authors based on the typologie developed by Farole, T., S. Goga and M. Ionescu-Heroiu (2018) Sectoral policies need to strengthen the potential of the productive areas of the region.  With regard to their productive profile, lagging areas in the Dominican Republic, especially along the border with Haiti, are highly dependent on agriculture, and a shift to more productive sectors might be unrealistic or undesi- rable. These provinces should aim to upgrade their agricultural capacities in order to make better use of their comparative agricultural advantages. In this context, raising productivity in the agricultural sector should be a central approach for developing these regions. For other lagging provinces, such as Samaná and Espaillat, where the agricultural sector is less prominent, the focus should be on facilitating the ex- Urbanization and Territorial Development Review in the Dominican Republic 103 2. Addressing territorial disparities at different scales pansion of manufacturing and more specialized services, with an emphasis on removing distortions in the business environment in order to attract investment, on designing and implementing strategies to develop key sectors where a regional comparative advantage exists, and on strengthening competitiveness and the innovation capacity of local firms and workers. Finally, it is important that regional policies also consider lower scales inequalities by assessing the internal disparities that can be present within provinces, metro- politan areas, or cities (See Box 1). Box 1 Spatial differences within the country: why scale matters? Policy makers should not be blind to lower scale inequalities, as similar types of spatial differences for the dimensions mentioned above (e.g., living standards, infrastructure, and development) can also occur at different scales, such as regional, provincial, or within city borders. Santo Domingo Province vs. the Distrito Nacional. When we pay attention to Santo Do- mingo’s area, large inequalities between the Distrito Nacional and the province of Santo Domin- go, which surrounds it, emerge. Looking at the indicators presented earlier, the Distrito Nacional stands as a leading area due to its high economic productivity, while Santo Domingo province falls into the transition category. Moreover, the Distrito Nacional reports the highest level of human de- velopment in the country, with or without considering the income dimension. In contrast, in Santo Domingo province, human development level is classified as “medium-low,” and as “low” when the income dimension is removed. Santo Domingo province has a less educated labor force, with 25 percent with tertiary education, compared to 39.5 percent in the Distrito Nacional and emplo- yment density is lower than the Distrito Nacional. Regarding services, fewer households in Santo Domingo province have a water source inside the house (55 percent vs. 68 percent in the Distrito Nacional), hours of electricity are lower (16 hrs. vs. 19hrs. in the Distrito Nacional), and internet ac- cess is lower (34 percent vs. 48 percent in the Distrito Nacional). Moreover, the qualitative housing deficit is higher in Santo Domingo province (31 percent) than in the Distrito Nacional (25 percent), while the demand for more housing units is the same in both areas (12 percent). Finally, the Distrito Nacional has the highest proportion of paved roads in the country (56 percent), and 96 percent of the roads are passable. These proportions fall in Santo Domingo province, with paved roads at 35 percent and passable roads at 67 percent.  Distrito Nacional inequalities. Going into a lower territorial scale, it is also possible to ob- serve acute disparities within the Distrito Nacional’s borders. An analysis of different living standard indicators shows how Circumscription 3 (C3), one of the three circumscriptions that comprises the Distrito Nacional (which is located in the eastern part of the Distrito Nacional), as well as the nor- theast part of Circumscription 2 (C2), which is adjacent to C3, present remarkable deficiencies in living standards. C3 is the most agglomerated area of the Distrito Nacional, with 8 out of the 14 neighborhoods reporting a population density above 30,000 inhabitants per squared kilometer, 104 almost three times the Distrito Nacional average (11,000 inhabitants/km2) (ADN, 2019). This high population density is accompanied by poverty and housing challenges. The neighborhoods in C3 reported the highest number of houses classified as poor or extremely poor, according to a mul- tidimensional poverty measure, which evaluates the housing conditions and the socioeconomic characteristics of the inhabitants (Med, 2016). Moreover, while in 2010, a large percentage of the population in the Distrito Nacional (41 percent) lived in “tugurios”—defined as a type of housing lacking basic infrastructure or access services—the density of this type of housing extended pri- marily across C3 and in the northwest area of C2 (Figure B1.1, in yellow). A similar pattern was present for informal settlements (Figure B1.1, in red), which is housing that does not meet legal re- quirements for construction (e.g., land property). The density of informal settlements is the highest in C3. In addition to these deficiencies, while green spaces in the Distrito Nacional are below the recommended thresholda, it is interesting to note that poor households, which are predominantly concentrated in C3, lack access to green spaces, which represent less than 1 percent of the C3 territory. Finally, natural risks pose an additional risk for this area of the Distrito Nacional (ADN, 2019). In a 25-year scenario with regard to the rise of water levels in the Isabela and Ozama rivers, water incursion would exclusively affect the neighborhoods in C3 (ADN, 2019). Moreover, as Figure B1.2 shows, the rivers’ channels, which extend largely across C3 and C2, highlight that potential flooding would mainly affect areas with a large portion of informal housing (tugurios) and poor households, especially in C3. Integrated policies to address the two types of disparities need to be set in place. Ad- dressing the economic and social differences between the Distrito Nacional and Santo Domingo province is key to maintaining the productivity of the largest metro area in the country in the upcoming years, as it is expected that 70 percent of the metropolitan population will reside in the Santo Domingo province by 2050. Bringing services such as education and hospital facilities closer to citizens residing in the Santo Domingo province could eliminate unnecessary congestion from people traveling every day to the Distrito Nacional to attend school or university or for basic health or administrative services. Moreover, coordination policies between local governments to develop more effective transportation links between the Distrito Nacional and peri-urban areas would help to increase the spillover from the Distrito Nacional to the surrounding areas of the San- to Domingo province, as people could travel more easily to their jobs and firms, thereby reducing congestion. In terms of basic service provision, a forthcoming law proposal suggests the possibility that the municipalities that currently comprise the metro areas of Santo Domingo and Santiago could create metropolitan governments that would be responsible for water supply and sewe- rage within their territories, with the possibility that these functions could expand in the futureb. Either through the creation of a unique metropolitan entity, as this law proposes, or through the establishment of other formal coordination mechanisms between municipalities, an integrated approach to enhance basic service quality, service facilities, and efficient transportation across the metro area of Santo Domingo need to be set in place to ensure efficient and inclusive urban expansion. Urbanization and Territorial Development Review in the Dominican Republic 105 2. Addressing territorial disparities at different scales Figure B1.1. Strategic plan of the National District 2023 Slums reported by the National Statistics Office (Oficina Nacional de Estadística, ONE), 2016 Poor households reported by MEPyD, 2014 Informal settlements reported by the National District (Ayuntamiento del Distrito Nacional, ADN), 2019 Public green areas reported by the National District (Ayuntamiento del Distrito Nacional, ADN), 2019 Roads, streams, and rivers reported by the National District (Ayuntamiento del Distrito Nacional, ADN), 2019 Source: Images from ADN, 2019 Figure B1.2. Topographical map of the National District combined with neighborhood boundaries and areas vulnerable to flooding Depression between land elevation Neighborhoods with areas vulnerable to flooding Source: Images from ADN, 2019 106 Lastly, for the Distrito Nacional where divisions between informal and formal housing are accompanied by a lack of services, it calls for an urban planning approach with a resilient focus that includes land reform policies to allow land use regularization and zoning, as well as esta- blishing building codes that take natural threats into consideration. This urban strategy should include actions to strengthen local institutions and build capacity in order to allow equal delivery of public services across the Distrito Nacional. a With only 5 meters of green spaces per inhabitant, green spaces in the Distrito Nacional are below the recommended UN-Habitat threshold of 15 meters per inhabitant (ADN, 2019). b Anteproyecto de Ley Organica (currently under a review process) Source: Images from ADN, 2019. 4. How border areas compare to the rest of the country? 4.1 Border provinces in the south have a stronger agricultural profile, while provinces in the north have a more diversified economic profile The border provinces9 have a unique productive profile, with agriculture and public service accounting for 40 to 60 percent of employment. In Pedernales, Elías Piña, Monte Cristo, and Bahoruco, agriculture is an important job source, employing between 30 to 40 percent of the labor force, and except for Santiago Rodríguez, employment in the industry sector and advance services in these provinces is below the national average at 12 and 6 percent, respectively (see Annex; Figure A1.2). Santiago Rodríguez province is closer to the national employment distribution, with basic services (e.g., commerce and transport) and industry em- ploying 50 percent of its labor force. Finally, the share of public sector jobs is higher than the national average (19 percent), with employment in this sector representing up to 27 percent and 30 percent in Elías Piña and Independencia. Recently, the government has developed plans for large projects to increase the economic growth of these provinces, as shown in Box 2. 9 Border provinces are Pedernales, Elías Piñas, Santiago Rodriguez, Monte Cristi, Baorucco, Dajabón and Independencia Urbanization and Territorial Development Review in the Dominican Republic 107 2. Addressing territorial disparities at different scales Box 2 Recent investments in border areas From 2012 to 2019, governmental investment in border provinces has been directed to infrastruc- ture projects, mainly in transport (30 percent), with almost 40 percent focused on infrastructure, such as school, sewerage, and sanitation network improvement. At the provincial level, 45 percent of the budget has been concentrated on projects in Monte Cristi, improving its sewerage infras- tructure and the rehabilitation of the highway from Valverde province. In the southern provinces, investment in the construction of the Monte Grande Dam is notable (MEPyD, 2020). For 2021, pu- blic investment supporting this effort is expected to represent 12.2 percent of the national budget and will be mainly directed to finalize the projects mentioned above (MEPyD, 2021). Moreover, two large projects to take advantage of the area’s potential have been propo- sed by the government. The first one, in the south, focuses on establishing a tourist development in Pedernales province and its surrounding areas through the “Pro-Pedernales Trust,” which in- cludes the construction of an airport and more than 10,000 rooms in hotel complexes.a In the north, the second project, Manzanillo Maritime Hub, involves promoting the development of an international free trade and services area in the Monte Cristi area, which would allow intercon- tinental cargo freight. a http://mitur.gob.do/listo-el-fideicomiso-para-construir-10-mil-habitaciones-en-pedernales/ Source: Authors, using data from MEPyD (2020 and 2021) 4.2 Most border areas present low levels of human development and all of them face remarkable challenges in basic service provision Human development is low in five of the seven border provinces. Looking at the human development index without the income component, which focuses on health and education coverage and access, Pedernales, Elías Piña, Bahoruco, and Independencia are at the bottom of the distribution, with the lowest levels in the country (see Figure 12). Similarly, Monte Cristi, which, although it jumps to the medium-low category for hu- man development, is still the worst performer in that category. In contrast, Santiago Rodríguez and Dajabón present a higher score for human development. There is a difference in access to markets between the border provinces to the south, which have less access, and Monte Cristi and Dajabón in the northwest, which have greater access. Pedernales and Independencia have the lowest levels of market access at the national level. This low accessibility extends to Independencia and Santiago Rodríguez, which are below the bottom 40th percentile in market access (see Annex; Figure A1.3). In contrast, Dajabón and Monte Cristi present better market access levels, with the latter above the 70th percentile at the national level. 108 Figure 12. Human development index (No Income) High 0.7 Middle-high 0.6 Middle-low Low 0.5 0.4 0.3 0.2 0.1 0 M al u l Jo dr e d e u ez s e La a N a de ntia l M go he Ma s Pu m r z D l a ta in Sa bon Sá an E s h ez S a te a t is t a al Ro n a a Va ua S a rd e P ná n t te a de m i nd go La a o i a t a co ía ia El ñ a de ibo es gr Sa gue I n D o r is t ba z R yo ri e r í re n Ro a r t t Sa on vi co or eg an c E l ra c as ion Ba ob n Pla al on ill S á H a r co Al r u Az e ad n Ju La a h o a pe in M e ra en Pe S e i ra e nc sé íg C M pa sP O V P a m m rn o lv an ac g aj a a D to r Cr nc o B rm N t H e t r i to o ñ Sa o id g o ia on is nt D Tr Pe M Sa ía n ar Sa M Rest of the country Border area provinces Source: Authors, using data from UNDP, Human Development Index (2016). Figure 13. Waste collection services in border provinces Waste 100 collection services % 75 50 25 0 Pedernales Elías Santiago Monte Baoruco Dajabón Independencia Nacional Peña Rodriguez Cristi Municipal service Burning Dumping on land/river Other Source: Authors, using data from ENHOGAR, 2018 Urbanization and Territorial Development Review in the Dominican Republic 109 2. Addressing territorial disparities at different scales Figure 14. Cooking fuel in border provinces Cooking 100 fuel used % 75 50 25 0 Elías Pedernales Baoruco Independencia Dajabón Monte Santiago Nacional Peña Cristi Rodriguez Gas Coal Wood No cooking Source: Authors, using data from ENHOGAR, 2018 Low accessibility in the southwest border provinces is related to their low road density and quality. Peder- nales has the country’s lowest road density, while Independencia, Elías Piña, Bahoruco, and Santiago Rodrí- guez, are below the bottom 40th percentile at the national level. Only Monte Cristi reports road density abo- ve the national median. Moreover, road infrastructure is deficient. Except for Monte Cristi, around 40 percent of the roads are not paved in the provincial capitals. Because of the lag in road infrastructure, the southern border provinces (Bahoruco, Elías Piña, Independencia, and Pedernales) have limited access to ports, with an estimated travel time to the closest port of 1 to 5 hours, which contrasts with the estimated time range of 30 min to 2 hours for the northern border provinces (MEPyD, 2020). The urbanization process has fallen behind in the border areas in comparison to the rest of the country. Monte Cristi, with 7 percent of built-up area, which is above the interprovincial median (5 percent of built-up area), has double the urban areas of any other border province, followed by Bahoruco and Santiago Rodríguez, with 3.8 and 3.1 percent of built-up area, respectively (see Annex; Figure A1.4). At the municipal level, the built-up area proportion also falls below the inter-municipal average of 7 percent. Only the munici- pality of Guyubín, in Monte Cristi, is above the national average with 10 percent of built-up area, followed by the municipalities of Monte Cristi, Neiba (Bahoruco), Tamayo (Bahoruco), and Dajabón. Basic services are remarkably deficient in the border area, with deficient waste collection services affecting all these provinces. The percentage of households with municipal waste collection services in border provinces is below the national average of 85 percent. Pedernales, Elías Piña, and Santiago Rodríguez are signifi- cantly affected by this lack of service (see Figure 13). Notably, in five of the seven provinces, including Monte Cristi, the population that burns waste as their primary means of disposal is twice the national average (7 percent). Lower access to clean cooking fuels affects border provinces in the southwest. Elías Piña, Pederna- les, and Dajabón are the provinces with the highest percentage of households using wood for cooking in the country, ranging from 20 percent up to 33 percent (Figure 14). Likewise, in Independencia, Bahoruco, and 110 Figure 15. Sanitation services in border province Sanitation 100 service % 75 50 25 0 Monte Elías Baoruco Independencia Pedernales Dajabón Santiago Nacional Cristi Peña Rodriguez Toilet Letrine Letrine - no cover No service Source: Authors, using data from ONE, 2018. Monte Cristi, more than 10 percent of the households use coal for cooking, which are the highest percentages in the country. These levels contrast with the national average, in which 88 percent of households have access to gas for cooking, and only 7 percent use either coal or wood. The lag in quality of sanitation services affects Monte Cristi, which has the highest levels of produc- tivity in the border area, to the same degree as Elías Piña, the province that lags the most at the national level. Despite the differences in their economic development levels, around 60 percent of households use latrines in both Monte Cristi and Elías Piña (Figure 16). Once again, the southwestern provinces are the ones most affected by the low quality of service provision. Bahoruco, Independencia, Pedernales, and Elías Piña are the only provinces at the national level in which more than 10 percent of households do not have access to any sanitation services. These poor levels are surprisingly deficient in Bahoruco, where one-fifth of the po- pulation lacks sanitation services. The disparities between border provinces in the southwest and northwest are present in water servi- ce provision. Santiago Rodríguez and Dajabón report a higher proportion of households with access to wa- ter inside the house, than the national average (54 percent) (see Figure 15). In contrast, the rest of the hou- seholds in border provinces primarily access water from a source outside the households. Remarkably, in Elías Piña, 19 percent of the households use water coming from natural sources, such as rivers, springs, or streams. Border regions have natural resources that can be leveraged to enhance their economic perfor- mance. According to spatial estimations, 21 percent of the country’s crop area is located in the border pro- vinces, especially in Elías Piña, Bahoruco, and Monte Cristi. Moreover, Santiago Rodríguez has large forest resources, covering 34 percent of its territory, and likewise, forests cover around 10 percent of the area in Pedernales. These regions are also rich in biodiversity, as almost the entire territory of Pedernales, Bahoruco, and Independencia has a higher concentration of biodiversity than the national average. Pedernales has notable natural endowments, such as the Sierra de Bahoruco National Park, along with pristine beaches and Urbanization and Territorial Development Review in the Dominican Republic 111 2. Addressing territorial disparities at different scales Figure 16. Water services in border provinces Water 100 services % 75 50 25 0 Dajabón Monte Santiago Baoruco Independencia Pedernales Elías Nacional Cristi Rodriguez Peña Aqueduct inside house Aqueduct in patio Aqueduct in Spring, river, other house stream Waterhole Tank trunk Other Source: Authors, using data from ONE, 2018. marine fauna (e.g., Bahía de las Águilas, Cabo Rojo, and Laguna de Oviedo) which highlight its potential to develop tourist activities. 4.3 Border provinces need specific policy approaches to achieve their economic potential The border area is not homogeneous, and strategies to foster its development should be tailored. Monte Cristi and Dajabón differ from the rest of the border provinces due to their unique spatial attributes and hi- gher connectivity. Along with Santiago Rodríguez, their productive structure seems to be migrating from agri- culture to more industry- and services-related activities, which produce higher revenues and can contribute to tackling the economic lag present in those provinces. In the case of Monte Cristi, which already performs as a leading area in terms of economic productivity, a primary focus on strengthening education and health services to favor human capital development is key to continuing this trend. Moreover, economic develop- ment should be inclusive and focus on improvement in the quality of basic services, which are currently stri- kingly lower than expected for the province’s economic performance. In the case of Dajabón, which already has good connectivity, increasing road infrastructure and quality, mainly in the capital and in connection to Santiago and the port area of Monte Cristi, would allow it to exploit the benefits of its location (see Table 2). Santiago Rodríguez should also focus on increasing its connectivity to nearby areas, which could accelerate its transformation to a home for more productive sectors by taking advantage of its already high human ca- pital. In Santiago Rodríguez and Dajabón, strategies to increase sanitation services and clean cooking need to be complementary to any other sectoral policy. 112 Table 2. Characteristics and policy approaches for border provinces Stronger agricultural Elías Piña, Independencia, Baoruco y Pedernales profile, scarcely In these provinces, upgrading current capacities should be prioritzed over encoura- populated and low ging new sectoral investments. Due to their strong agricultural profile, policies shoud market access focus on raising productivity and increasing value-added agricultural outputs or de- veloping the agri-food sector. Implementing strategies for tourism in Pedernales can contribute to diversifying hou- sehold income in the region. Nevertheless, this policy should have realistic and mo- dest goals, with a strong focus on creating share growth in communities focused on turism developments. Complementary interventions to enhance essential services, such as clean cooking, waste disposal, and sanitation, as well as skill development and internal connectivity, are very much needed. More sectoral Dajabón y Santiago Rodríguez diversity, but In these provinces with more balanced economic profiles, supporting the sectoral with low quality transformation from agricultural to high-value sectors can be done by strengthe- or low human ning the capacities of workers, competitveness, and the innovation capacity of local and connectivity firms, and by identifying and removing distortions in the business environment. resources to develop For Dajalbón, increasing road infraestructure and connection to Santiago and the a successful sectoral port area of Monte Cristi would allow it to exploit the benefits of its location. Moreo- transformation ver, strategies to increase sanitation services and clean cooking must be set in place. Good economic Monte Cristi performance and As this province already shows good economic performance, policies need to su- connectivity but pport planned sectoral strategies. Increasing skill development for workers, road low quality of basic quality, urban planning, and business enviroment would help this province to esta- services blish itself as a logistic hub. Moreover, extending access to basic sanitation services and clean cooking is required to improve living standards. The southwestern provinces, Elías Piña, Pedernales, Bahoruco, and Independencia, should prioritize in- vestments on people-focused approaches. Policies to improve living standards, specifically through the strengthening of institutions that provide basic services (clean fuel for cooking, improving the quality of water service, garbage collection, and sanitation), and to improve the accumulation of human capital, starting with basic education services, must be a priority in the southwestern border provinces (see Table 2). Moreover, due to their high reliance on agriculture, sectoral policies should focus on increasing productivity, promoting value-added products, and facilitating access to credits and connection to value chains for small produ- cers—which are predominant in the southern region. Moreover, increasing the sector’s resilience through investment in technology to mitigate drought needs to complement these activities. Urbanization and Territorial Development Review in the Dominican Republic 113 2. Addressing territorial disparities at different scales Promoting investments to increase service-related activities, such as the tourism projects plan- ned to be implemented in Pedernales (see Box 2), will also be helpful for diversifying household inco- me sources and taking advantage of the natural endowments in the region. Nevertheless, this strategy should have realistic goals and be modest and measured, with gradual implementation according to the development of the tourism capacities and demand in the area—which are currently low.10 It is crucial that these investments have a strong focus on creating share growth, with complementary policies to increa- se internal connectivity for local people to commute to the tourist developments for work, and to tackle deficiencies in basic sanitation and water services, garbage collection services, and clean cooking in the communities surrounding the project. 5. Conclusions Compared to other Latin American countries, regional disparities in terms of economic performance in the Dominican Republic seem to be decreasing and put it in the middle of the distribution with regard to magnitude. Nevertheless, these inequalities still represent a challenge to reach inclusive growth that matches the great economic performance that the Dominican Republic has had in recent years. Except for Monte Plata, lagging provinces are far from the Santiago-Santo Domingo-La Altagracia economic corridor. Beyond economic output, lagging provinces suffer from low quality sanitation and water services, a lack of waste collection services, and low housing quality. Moreover, human capital is very low due to disparities in access to and quality of education, which affect their current and future development. Finally, their connectivity in- frastructure is scarce and deficient. Territorial disparities are also present at a lower scale, between the Distrito Nacional and Santo Do- mingo province and within the boundaries of the Distrito Nacional itself. While the Distrito Nacional leads in economic performance, human capital development, and connectivity infrastructure, Santo Domingo pro- vince falls into the transition category, with low human capital and low-quality road infrastructure, which is a clear indication that this province is not properly benefiting from proximity to and beneficial spillovers from the Distrito Nacional. Within the Distrito Nacional Circumscription 3 presents a confluence of challenges that threatens urban resilience—high poverty rates, large informal settlement presence, and high risk of flooding. These differences, both between Santo Domingo and the Distrito Nacional and within the Distrito Nacional, can lock or limit the future productive potential of the main economic center of the country. Moreover, border area development and endowments are not homogeneous, with northern pro- vinces, such as Monte Cristi, Dajabón, and Santiago Rodríguez having greater development in productive sectors, while southern provinces remain more focused on agriculture. Nevertheless, the deficiencies in ba- sic service provision in border provinces are striking compared with the rest of the country. Even in Monte Cris- ti province, the best performer in the border region, the proportion of the population without access to clean cooking and lacking quality sanitation and water services does not match its level of economic development and falls far below the national average. In this sense, significant efforts on “people-focused” approaches to increase basic service quality and human capital development need to be made. 10 As of 2018, Pedernales province is reported to have five hotels with only 58 beds available. 114 As mentioned, the characteristics of the lagging areas do not mean that their economic and social outcomes cannot be improved. Rather, it highlights the need for tailored policies. Policies aimed to increa- se the economic performance of territories, either a city, metro area, or region, need to be tailored to the specific characteristics persistent in the territory. Understanding and using the existing endowments in the territory, such as its degree of connectivity, population density, the level of education of its labor force, and the industrial focus of the area, must be the centerpiece to create territorial policies. Applying the principle of using existing endowments would lead to creating realistic policies, and possibly lead to more efficient and effective use of public resources. Finally, in addition to these principles, the implementation of territo- rial strategies should be accompanied by complementary policies. In areas with strong sectoral focus and agglomeration potential, these policies should support sectoral development, such as policies to increased interprovincial and internal connectivity, or to improve the business environment. In less densely populated areas, complementary policies to enhance basic services and skill development, such as improving education services, would facilitate sectoral revitalization and bring overall benefits to the population, preventing the difference in economic levels from translating into a difference in living standards. Urbanization and Territorial Development Review in the Dominican Republic 115 2. 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PNUD (Programa de las Naciones Unidas para el Desarrollo) (2016), “Desarrollo Humano Provincial IDHp de República Dominicana”, https://mapa. do.undp.org/map. Urbanization and Territorial Development Review in the Dominican Republic 117 2. Addressing territorial disparities at different scales Annex Additional graphs on economic indicators Figure A1.1. Economic productivity measures 17 22 GDP per capita Provinces 32 9 1. Azua 4 30 11 16 2. Baoruco 29 6 23 3. Barahona 7 4. Dajabón 15 24 26 19 5. Distrito Nacional 18 10 8 6. Duarte 27 7. Elías Piña 12 2 1 25 31 28 14 13 5 8. El Seibo 21 9. Espaillat 3 10. Hato Mayor 20 11. Hermanas Mirabal Night lighting 12. Independencia 17 22 per capita 13. La Altagracia 32 9 14. La Romana 4 30 11 16 15. La Vega Percentile 29 6 23 16. María Trinidad < 20 7 15 24 Sánchez 20 - 40 26 19 18 17. Monte Cristi 40 - 60 10 8 18. Monte Plata 60 - 80 27 12 2 1 25 31 28 14 13 19. Monseñor Nouel 80 - 100 5 21 20. Pedernales 3 21. Peravia 20 22. Puerto Plata 23. Samaná 24. Sanchez Ramírez 25. San Cristóbal 17 22 26. San Juan 32 9 Income per capita 27. San José de Ocoa 4 30 11 16 28. San Pedro 29 6 23 de Marcoris 7 15 29. Santiago 24 26 19 18 30. Santiago Rodriguez 10 8 31. Santo Domingo 27 12 2 1 25 31 28 14 13 32. Valverde 5 21 3 20 Sources: GDP spatial series elaborated by the World Bank; Income per capita from the UNDP, Human Development Index, 2016; and Nightlights using NOAA, VIIRS. 118 Table A1.1. Combined economic productivity Combined Province economic Category productivity San Pedro De Macorís 0.96 La Romana 0.94 Santiago 0.88 Leading La Altagracia 0.86 Monseñor Nouel 0.85 Distrito Nacional 0.84 Sánchez Ramírez 0.76 Puerto Plata 0.75 Duarte 0.66 La Vega 0.65 Valverde 0.65 Santo Domingo 0.59 Transition Peravia 0.56 San Juan 0.54 Monte Cristi 0.53 San Cristóbal 0.48 Hermanas Mirabal 0.46 Barahona 0.41 Espaillat 0.38 María Trinidad Sánchez 0.35 San José De Ocoa 0.35 Santiago Rodríguez 0.34 Azua 0.33 Samaná 0.29 Baoruco 0.27 Pedernales 0.27 Lagging El Seibo 0.27 Hato Mayor 0.25 Independencia 0.23 Dajabón 0.18 Monte Plata 0.06 Elías Piña 0.04 Source: Authors, using data from Ishizawa & Blanchard (2020), World Bank (2016), PNUD (2016) and NASA & NOAA Note: On a scale from 0 to 1, 1 being the highest productivity and 0 the lowest. Urbanization and Territorial Development Review in the Dominican Republic 119 2. Addressing territorial disparities at different scales Figure A1.2. Employment structure in border areas Employment 100 structure % 20% 22% 26% 33% 23% 17% 29% 15% 9% 13% 75 7% 6% 2% 13% 2% 3% 3% 8% 2% 6% 3% 5% 3% 2% 50 51% 40% 41% 35% 36% 43% 28% 32% 25 10% 22% 22% 24% 31% 31% 38% 42% 0 Nacional Santiago Dajabón Independencia Baoruco Monte Elías Pedernales Rodriguez Cristi Peña Agriculture Basic services Advances services Industry Public and social service Source: IX Censo de Población y Vivienda, 2010 – Dominican Republic. Figure A1.3. Market access map in Dominican Republic, 2015 Greater Lower access access Source: Malaria Atlas project (2015)-1 km resolution. 120 Figure A1.4. Built-up surface evolution in border province municipalities Guayubín Built-up 10.00 (Monte Cristi) surface (Km2) 8.00 National average Monte Cristi 6.00 Neiba (Baoruco) Tamayo (Baoruco) 4.00 Dajabón (Barouco) 2.00 0.00 1985 1990 1995 2000 2005 2010 2015 Source: World Settlement Footprint Evolution (WSF-Evo) Built-up surface classification of satellite imagery). Urbanization and Territorial Development in the Dominican Republic 121 3. Adopting a new territorial planning framework 3. Adopting a new territorial planning framework Juana Mariño 122 Table of Contents Introduction 124 1. A long-standing political and regulatory tradition shaping territorial planning policies 125 2. A complex institutional territorial planning system plagued by significant gaps 129 3. Status and balance of territorial planning in the Dominican Republic 131 3.1 The current institutional and regulatory framework is weakly interlinked and has major gaps 132 3.2 Planning instruments are poorly advanced and implemented across the board (at the na- 132 tional, regional, and local levels) 3.3 Strong prevalence of tourism-oriented sectoral territorial planning 135 3.4 The capacity required to develop planning instruments (and their implementation) is still 135 poor, particularly at the local level 3.5 Basic and thematic information required to develop territorial planning instruments is missing 136 3.6 Poor territorial planning is causing a number of consequences throughout the Dominican 138 Republic 4. Towards New Territorial Planning 139 4.1 Proposed Law on Unified Planning Regions 140 4.2 Proposed Law on Territorial Planning, Land Use, and Settlement 143 4.3 The Proposed National Land-Use Plan (PNOT) 147 Recommendations 149 References 159 Annex 1. Status of territorialized planning in the DR 163 Annex 2. Status of tourism territorial planning processes 166 Figures Figure 1. Regulatory framework timeline 126 Figure 2. Municipalities with municipal territorial planning, by plan status 134 Figure 3. Unified planning regions vs. current regions 141 Figure 4. Territorial planning regions – human development index 142 Figure 5. Integral territorial planning system general components 149 Urbanization and Territorial Development in the Dominican Republic 123 3. Adopting a new territorial planning framework Figure 6. Building blocks – comprehensive territorial planning system 150 Figure A1.1 Formation of municipal development councils 163 Figure A1.2 Formulation and adoption of municipal development plans 164 Figure A1.3 Formulation and adoption of municipal territorial plans and POTTs 165 Tables Table 1. Main ministries and agencies of the central and subnational government with 129 responsibilities related to territorial planning in the Dominican Republic Table 2. Municipality territorial planning competencies pursuant to law 176-07 131 Table 3. Status of municipal territorial plans - Territorial plans 133 Table 4. Greater Santo Domingo institutional structure 134 Table 5. Disaster risk information. Summary of scores per sub-building block, per country 137 Table 6. Summary: building block score: 3.00 137 Table 7. Territorial planning process timelines by proposed laws 147 Table 8. New territorial planning implementation strategy and timetable 156 Table A2.1 Tourism territorial planning and management instruments 1 167 Table A2.2 Tourism territorial planning and management instruments 2 168 Boxes Box 1. Territorial planning issues to be addressed 139 124 Introduction The Dominican Republic has a long-standing political, regulatory, and institutional tradition of defining policies that guide territory-wide public and private interventions. This includes constitutional and legal provisions stemming from an array of approaches that pursue different specific goals. The fundamentals for urban territorial planning date back to the 1940s - 1960s. Since then, a number of provisions have been adopted that are focused on the administrative organization of the territory, the definition of institutional entities, land-use planning functions and competencies across different layers of government, and the inclu- sion of environmental sustainability and environmental risk management criteria, as well as tourism-related territorial planning. The Dominican Republic has a long-standing political, regulatory, and institutional tradition of de- fining policies that guide territory-wide public and private interventions. This includes constitutional and legal provisions stemming from an array of approaches that pursue different specific goals. The fundamen- tals for urban territorial planning date back to the 1940s - 1960s. Since then, a number of provisions have been adopted that are focused on the administrative organization of the territory, the definition of institu- tional entities, land-use planning functions and competencies across different layers of government, and the inclusion of environmental sustainability and environmental risk management criteria, as well as tourism-re- lated territorial planning. However, the regulatory framework has a feebly interlinked structure, has limited spatial and the- matic coverage, and has been poorly implemented. The current regulatory framework encompasses a se- ries of constitutional provisions, laws, regulations, and instruments with a feebly interlinked structure and restrained spatial and thematic coverage that fails to cover the entire territory or address the current issues required for adequate territorial planning nationwide. This situation, coupled with the inadequate human, technical, and financial capacities of municipalities has resulted in the following: (i) only 9 municipalities have established operational Urban Planning Offices;1 (ii) only 10 municipalities have developed their Territorial Planning and Land-Use Plans;2 and (iii) even in those cases, their implementation has been negligible.3 On the other hand, 10 municipalities do have Sectoral Territorial Planning and Land-Use Plans.4 In this context, land-use planning processes have been led by the central government following a poorly-linked sectoral approach. Key territorial planning processes are being advanced: (i) following a centralized or tourism-oriented approach, with very narrow participation and impact on municipal territorial planning; (ii) territorial planning in intermediate levels—regions and provinces—is not structured5; (iii) mu- nicipal territorial planning is incipient; and (iv) municipal land management responds to circumstances and contingencies rather than to a strategic territorial planning. Furthermore, territorial planning is not yet an integrated and decisive part of government mana- gement. Most development is being carried out without considering any land-use planning guidelines, thus 1 Information requested from the General Directorate of Territorial Planning and Development (DGODT) is pending. 2 According to the information requested by DGODT - see Annex 1.3. 3 Municipalities with performance ranging between 80% and 95% in this area, according to the ranking under the SISMAP Municipal Performance Report. 4 Confirmation from DPP – MinTur is pending. 5 However, on March 9, 2021, the first Southwest Regional Planning and Territorial Development Plan (PRODT-RSO) was presented, which is an important step in this direction. Urbanization and Territorial Development in the Dominican Republic 125 3. Adopting a new territorial planning framework spawning urban disorder, informality and inefficiency around towns and cities, urban-rural dysfunctionality, territorial inequity, and, in many cases, increased exposure to natural disasters. The lack of effective and bin- ding municipal territorial planning instruments also fosters various forms of soil management discretionary powers, ranging from failing licensing strictness to spontaneous informality. By acknowledging shortcomings in the existing framework, the DR is shifting towards a new terri- torial planning approach. The Dominican Republic’s Strategic Development Plan 2030 (END) Act Nº 1 of 2012, as well as the Dominican Republic’s Constitution of 2015, include the first policy guidelines to integrate territorial planning in development planning and define a new regulatory framework for this purpose.6 While developing these provisions, the government is advancing reforms on territorial planning instruments (the Proposed Law on Territorial Planning, Land Use, and Human Settlements and the Proposed Law on National Territorial Planning and Land-Use Plan - PNOT) and political-administrative organization (the Proposed Law on Unified Planning Regions). However, implementing the proposed reforms and policies will require well-coordinated strategies and actions by different governmental stakeholders, thereby establishing prerequisites for authorities and citizens to own and implement this new territorial planning system. Doing so will require: (i) defining and adopting national and regional guidelines through PNOT and prioritizing Regional Territorial Development and Land-Use Plans; (ii) having a strategy in place for the development of planning instruments, beginning with prioritized areas (strategic regions and municipalities, lagging areas, and greater areas), as well as a horizon to cover the entire country; and (iii) strengthening the technical and budgetary capacity of territorial planning institutions and ensuring that said instruments adapt to prevailing local conditions. This note is divided into five sections. The first and second sections summarize the Dominican Republic’s regulatory and institutional territorial planning framework. The third section outlines the status and balance of territorial planning so far. The fourth section sums up the efforts and initiatives deployed by the current administration towards new territorial planning in the Dominican Republic, as well as a number of considera- tions regarding opportunities/challenges to implementing these reforms. The fifth and final section suggests a series of recommendations for implementing the proposed reforms and enabling sustained progress towards new territorial planning in the Dominican Republic. 1. A long-standing political and regulatory tradition shaping territorial planning policies Over a period that spans almost 80 years (from 1944 to 2020), the Dominican government has adopted a number of territorial organization and planning provisions. As seen in Figure Nº 1 below, these numerous provisions have been adopted fragmentarily, with dissimilar timing and divergent approaches. While the first national provisions regarding territorial planning focused exclusively on the urban areas of the most popu- lated municipalities, subsequent government-led territorial planning provisions stemmed from two comple- mentary perspectives: on the one hand, the political and administrative organization of the national territory aimed at decentralizing government institutions and functions; and, on the other hand, national territorial 6 Currently, laws 64-00, 496-06, and 6232 set some guidelines for territorial planning. 126 Figure 1. Regulatory framework timeline 2012 2013 Law 1 of 2012 Decree 275 of 2013 Political, Administrative, and Institutional National Development National Disaster Risk Organization Strategy (END), implementing Management Plan in Urban Land-Use Planning a “Land-Use Plan (…) not later the DR Tourism than three (3) years”. Environment Risk Management 2004 Proposed Law on Integrated Economic and Social Development Law 202 of 2004 Territorial Planning, defines Protected Land Use, and Areas in the DR Settlement 2003 Proposed Law Law 147 of 2003 on Unified Integrated Disaster Risk Planning 1944 1963 Management in the DR Regions Law 675/44 Urban Planning Act Urbanization, Public Nº 6232 of 1963– TP Beautification, offices established in and Construction municipalities with 2001 Proposed Law (Municipality of Santo populations over Natural Resources and on National Domingo) 50,000 Environment Act Nº 64 of Land-Use 2000: “The (…) National Land- Planning Use Plan (…) is declared of national interest” 1950 1960 1970 1980 1990 2000 2010 2020 2001 2015 Laws 158/01 and Constitution 184/02 of 2015, article Support of touristic 194, “priority of development in poles the State the (…) with the greatest elaboration potential (PSOTT) and execution through a Law for 1979 a Territorial and Law 84 2006 Law 498 creates Land Use Plan” creates the Secretary of Tourism (today the National System Ministry of Tourism) of Planning and Public Investment and puts forward 1969 the need for Dominican Tourism Act territorial planning Nº 541 of 1969 at all administrative levels 2007 Distrito Nacional 1959 and Municipalities Law 5220/1959 Act Nº 176 of 2007 Territorial Division of (COMPETENCIES) the DR Source: Developed by Author Urbanization and Territorial Development in the Dominican Republic 127 3. Adopting a new territorial planning framework planning following a socioeconomic planning approach, including specific sectoral territorial planning (ur- ban development, environment, tourism, and risk management). The following is a summary of the main contents and scope of the provisions comprising the regulatory and institutional territorial planning framework for the DR preceding the END and the Dominican Republic’s Constitution, the latter of which are analyzed in the “Advancing Towards a New Territorial Planning” section. The fundamentals of the current regulatory territorial planning framework date back to the 1940s - 1960s, and embrace an urban planning perspective. Act Nº 675 of 1944 on Urbanization, Public Beautifi- cation, and Construction, the first relevant law, contains basic definitions for zoning, urban layout, works, and public beautification for the city of Santo Domingo. It is followed by Act Nº 6232 of 1963 on Urban Planning, which provides for the establishment of “Urban Planning Offices” in cities with over than 50,000 inhabitants to act as technical, consultative and advisory bodies. At the central government level, the law provides for the establishment of the National Planning and Coordination Board, an advisory body to the Executive Branch.7 These two laws are still in force. In the 2000s, the existing regulations were complemented by new laws seeking to foster tourism development, improve risk management, and protect natural resources in the territory. Act Nº 158 of 2001 on Tourism Incentives established the Tourism Promotion Fund8 for underdeveloped areas and new economic development hubs in provinces and localities endowed with great potential, and provided for the develop- ment of Sectoral Tourism Territorial Planning and Land-Use Plans (PSOTT) adopted by the Ministry of Tourism. Act Nº 64 of 2000 on Natural Resources and the Environment states that territorial planning is an environmen- tal planning instrument, and it requires the design, formulation, and implementation of a National Territorial Planning and Land-Use Plan that incorporates environmental variables”.9 Act Nº 147 on Risk Management and the regulations thereunder (Decree Nº 932) established national risk management policy instruments,10 as well as the National Disaster Prevention, Mitigation, and Response System (SN-PMR).11 These instruments do not consider Territorial Plans (POTs); however, one of the functions tasked to the SN-PMR is to “incorporate risk management criteria in planning and, particularly, preventive safety measures in territorial planning and eco- nomic and social development plans”.12 Decree Nº 874 of 200913 on the Regulations of Law Nº 147-02 has two provisions on territorial planning14 and stipulates the creation of the National Integrated Information System, 7 No references to this Board were found. 8 Amended by Law Nº 195-13, which was enacted on Dec 13, 2013. 9 Article 31 adopts environmental criteria for land use planning at national, provincial, or municipal levels, taking into consideration the characteristics and ecosystem po- tential in each region. As a complement, Act Nº 202 of 2004 on Protected Areas defines and delimits the PAs in the DR, which shall be excluded from any form of occupancy or economic development other than nature tourism and research. 10 Article 3 of Law Nº 147 of 2002: The National Disaster Prevention, Mitigation, and Response System (The National Risk Management Plan; The National Emergency Plan; The National Integrated Information System; and The National Fund for Disaster Prevention, Mitigation, and Response). 11 Article 5 of Act Nº 147 of 2002 on Risk Management. 12 Section 7, Article 7, SN-PMR Roles and Responsibilities. 13 Decree Nº 874 of 2009 approves the implementation of the regulations of Act Nº147-02 on Risk Management and repeals Chapters 1, 2, 3, 4, and 5 of Decree Nº 932-03. 14 It stipulates that (i) the Ministry of Environment and Natural Resources is responsible for “requiring the analysis and reduction of risk in territorial planning (...)” (Art. 16), that (ii) “for the formulation and implementation of risk management and emergency plans, the territorial demarcation under the new Territorial Planning and Urban Development Law shall be adopted,” and that (iii) “concerning the definition of territorial demarcation (...), with respect to territorial plans, allocations, and appropriations of funds, the De- velopment Regions established under Article 46 of Decree Nº 685-00 shall apply ”. (No “territorial planning and urban development law” was found, and Article 46 of Decree Nº 685-00 was amended). 128 run by the National Emergency Commission to systematize knowledge of hazards, vulnerabilities, and risks. 15 One of the priorities for actions as defined by the regulations includes the “preparation and dissemination of risk maps by province and municipality”.16 In parallel, public investment planning systems were strengthened along with the role played by planning governing bodies. In 2006, the National Planning and Public Investment System (SNPIP) was crea- ted (Law 498 of 2006), which includes Development Councils across different levels of government (national, regional, provincial, and municipal), whose functions include, inter alia: “promoting the formulation of terri- torial planning and management plans, projects, and programs, as appropriate.”17 The law also establishes that the Ministry of Economy, Planning, and Development is the planning governing body. However, despite mentioning territorial planning, the law specifically targets economic planning for development and public investment.18 The law does not contain explicit provisions linking public investment plans with Territorial Plans. Locally, Act Nº 176 of 2007 on the Distrito Nacional and Municipalities, in addition to creating territorial units, establishes territorial planning as one of key competencies of municipalities. 19 On a policy level, the importance of reinforcing territorial planning processes clearly stands out in the National Development Strategy (END) and, more recently, in the Dominican Republic’s Constitution of 2015. The END (Law Nº 1 of 2012) includes territorial cohesion as an overarching objective of Crosscutting Theme II (2.4). Specific objectives and lines of action within it include “incorporating the dimension of territo- rial cohesion in public policy design and management” (2.4.1) and “bridging the urban-rural and interregional gap with regard to access to services and economic opportunities by promoting organized and inclusive terri- torial development” (2.4.2). On the other hand, Art. 32 of the END mandates the public sector to implement: “A Territorial Plan to manage territory-wide public policies, regulate land use, encourage the sustainable use of resources, and facilitate comprehensive risk management at both national and local levelswhich shall be designed, approved, and implemented within three (3) years” (a term that expired in 2015). More recently, Article 194 of the Constitution establishes that “the State shall, by operation of law, prioritize the formulation and implementation of territorial planning to ensure the efficient and sustainable use of the nation’s natural re- sources in line with the need for climate change adaptation.”To this end, the State will promote the transfer of competencies and resources to local governments, which entails institutional capacity building, HR training, and professionalization policies, with a view to ensuring balanced development towards the fulfillment of its future vision and goal statements.20 15 Article 19 of Decree Nº 874 of 2009. 16 Article 20 of Decree Nº 874 of 2009: National Fund for Disaster Prevention, Mitigation, and Response. 17 Subsection (e), Article 15, Law 498-06. 18 “The Distrito Nacional and Municipalities are required to prepare medium- and short-term municipal public investment plans detailing the investment projects under their responsibility” (Article 45), and they are to “record all budgeted investments in each fiscal year in the National Public Investment System” (Article 46). 19 Subsection (g), Article 19, Act Nº 176 of 2007 on Distrito Nacional and Municipalities. 20 Article 204 of the Dominican Republic’s Constitution of 2015. Urbanization and Territorial Development in the Dominican Republic 129 3. Adopting a new territorial planning framework 2. A complex institutional territorial planning system plagued by significant gaps Land use planning responsibility is scattered among various government institutions and agencies at both the central and regional levels (as summarized in Tables 1 and 2). The leading authority is the Ministry of Economy, Planning, and Development (MEPyD), which is the governing body for territorial planning and leads sustainable territorial planning and development policy making at the national level. In addition to the MEPyD, three Ministries/Technical Agencies must, inter alia, advise and guide the use of natural resources (Ministry of Environment and Natural Resources), incorporate risk prevention measures into Territorial Plans (TP), and guide territorial planning in tourism development zones and hubs. At the regional level, the Regional Development Councils21 are required to promote the formulation of Territorial Plans and participate in the preparation of Strategic Territorial Development Plans, which are instruments that have not been historically driven. However, no reference was found regarding the composition, functions, and competencies of regional and provincial authorities, nor the territorial management instruments that should be developed and adop- ted for territorial entities. 22 Table 1. Main ministries and agencies of the central and subnational government with responsibilities related to territorial planning in the Dominican Republic Ministry of Economy, TP Governing Body of the National Territorial Planning and Management System, Planning, and in coordination with the Ministry of Environment and Natural Resourcesa. Development (MEPyD) General Directorate Responsible for territorial planning, management, and sustainable public policy of Territorial Planning making. and Development Preparation of Territorial Planning and Development Plans at the national level (DGODT)b under and their respective implementation strategies, in coordination with the different MEPyD, sectors and institutions (...)c. Ministry of Advise local governments on the preparation of Territorial Plans (Municipal Office Environment and of Environmental Management)e. Natural Resourcesd Responsible for “requiring risk analysis and reduction in territorial planning (…)”f. “Guarantee land use planning in watersheds” (Department of Water Resources and Watersheds). Actions through Provincial, Municipal, and Regional Directorates. 21 Article 29 of Decree 685 of 2000: Regulations of the National Planning and Decentralization System. 22 The DGODT confirmed that “PROVINCE is not a scale defined for national planning.” 130 National Civil Coordinate the National Risk Management System. Defense “Incorporate risk management criteria in planning, and, particularly, preventive safety measures in territorial planning and economic and social development plans”g. Ministry of Tourism Sectoral public policy making i. (MITUR)h Determine and supervise tourism development hubs in the country (Planning & Project Department – DPP)j Territorial planning in tourism zones (regulatory, strategic, and infrastructure plans and tourism development land-use plans). Manage private tourism projects. Regional Coordinate and channel citizens’ demands to central and municipal governments. Development Participate in preparing Strategic Territorial Development Plans, as appropriatek. Council Promote the formulation of territorial planning and management plans, projects, and programs, as appropriatel. Source: Developed by author. a Act Nº 498 of 2006 on the National Public Planning and Investment System. b General Directorate of Territorial Planning and Development http://mepyd.gob.do/dgodt/. c Article 13, Law 496 of 2006. d Ministry of Environment and Natural Resources http://ambiente.gob.do/. e Municipal Office of Environmental Management https://ambiente.gob.do/viceministerio-gestion-ambiental/. f Article 16, Law 874 of 2009 Implementing Regulations of Planning Law. g Section 7, Article 7, SN-PMR Roles and Responsibilities. h Planning & Project Department https://www.dpp-mitur.gob.do/index.php?page=acerca. i Planning & Project Department https://www.dpp-mitur.gob.do/. j https://www.dpp-mitur.gob.do/index.php?page=acerca-del-planeamiento-de-zonas-turisticas. k Article 14, Law 498-06. l Article 15, Law 498-06. At the central government level, the DR has different agencies and systems responsible for creating and managing planning information: the National Statistics Office - ONE; the Public Administration Monitoring System - SISMAP within the Ministry of Economy, Development and Planning; the Environmental Information System - SIA within the Ministry of Environment; the National Integrated Information System - SINI within the National Civil Defense; and the José Joaquín Hungría Morell National Geographic Institute is in charge of managing basic geographic mapping information. Most of the information is on a national or regional scale, and is not suitable for municipal territorial planning. The municipalities also play an important role in territorial planning (see Table 2). Their responsibili- ties (Law 498-06, Articles 14 and 15) include enforcing territorial planning and urban planning, and land ma- nagement and urban planning disciplines. In accordance with Act Nº 6232 of 1963 on Urban Planning, cities with over 50,000 populations are required to establish an urban planning office. Current regulations contain no specific reference to Territorial Plans or other instruments through which territorial planning competencies Urbanization and Territorial Development in the Dominican Republic 131 3. Adopting a new territorial planning framework would be implemented and adopted. Within the municipalities, the Municipal Development Councils (CMD)23 must collaborate in the preparation of certain planning instruments, such as the Municipal Development Plan (PMD), whereby sectoral investment lines are defined, and which contain no land management provisions. Note that the functions of the Municipal Planning Council do not include any collaboration in preparing the Municipal Territorial Plans. Table 2. Municipality territorial planning Competencies Pursuant to Law 176-07 Municipality i) Establish an Urban Planning Office (for cities with over 50,000 inhabitants)a. ii) Territorial planning, urban planning, land use management, and implementation of urban planning disciplines b. Municipal i) Collaborate on the preparation of the Strategic Development Plan, the Municipal Development Development Plan (PMD), and the Annual Plan of Operations (POA) (...). Councilc ii) Contribute to the institutional capacity building of the Municipal Office of Planning and Programming (OMPP). Source: Developed by author. a Act Nº 6232 of 1963 on Urban Planning. b Subsection (d), Article 19 – Act Nº 176 of 2007 regarding the Distrito Nacional and Municipalities. c https://www.sismap.gob.do/Municipal/Uploads/Guia/24.%20Guia%20CDM-DGODT.pdf Act Nº 176 of 2007 regarding the Distrito Nacional and Municipalities establishes territorial planning as a competence held by the municipality, but does not define the instrument(s) whereby it is exercised. So far, while rolling out this competence, the municipalities issue levies on land use and buildings which are driven by demand rather than by responding to an overall plan. 3. Status and balance of territorial planning in the Dominican Republic A detailed analysis on the current state of territorial planning in the DR reveals that it is not yet an integral part of any comprehensive planning and development. Despite governmental initiatives to reinforce the institu- tional and regulatory framework dating back to the middle of the last century, the following key challenges remain: (i) the current institutional and regulatory framework is weakly interlinked and has major gaps; (ii) planning instruments are poorly advanced and implemented across the board (national, regional, and local levels); (iii) strong prevalence of tourism-oriented sectoral territorial planning; (iv) the capacity required to develop planning instruments (and their implementation) is still poor, particularly at the local level; and (v) basic and thematic information required to develop territorial planning instruments is missing. Each of these points is discussed in detail below. 23 Article 41, Decree 685 of 2000, Regulations of the National Planning and Decentralization System. 132 3.1 The current institutional and regulatory framework is weakly interlinked and has major gaps There is a lack of clarity in the definition of competencies and institutions responsible for territorial plan- ning and inter-institutional coordination. For example, there is weak definition and coordination between the functions/roles and dependencies of the institutions that currently implement or support territorial plan- ning processes: The DGODT within the Ministry of Economy and Planning, the Ministry of Environment, and the Ministry of Tourism; and among the main TP instruments: National Plan for Territorial and Land-Use Mana- gement, Regional Plan for Territorial Development and Land-Use Management, Municipal Plan for Territorial Planning, Strategic Tourism Plans, and PSOTTs. Additionally, the relationship between TP and risk manage- ment is weak in the regulatory and institutional framework, which does not include other sectors that are critical in terms of linkage between territorial planning and sectoral planning (such as agriculture and infras- tructure). Finally, territorial planning-oriented cross-institutional coordination structures are missing, despite being referred to in different regulatory provisions. There are also significant gaps in the current legislation for the formulation and adoption of TP instruments. Municipal TP competence is not linked with compulsory and binding instruments for the entire municipal territory. Current instruments and guidelines are predominantly urban, which leads to fragmented urban-rural territorial management and vision, as well as a lack of planning in predominantly rural regions and municipalities located outside the main urban circuits. As a consequence of poor institutional linkage, there are no precise guidelines aimed at linking territorial planning and risk management (such as safe loca- tion, mitigation of hazard vulnerability, resettlement, and lifeline creation). Finally, there are no national and supra-municipal guidelines and directions that ensure coherence between sectoral planning and territorial planning, as well as between the different territorial scales. As a result, the regional territorial planning exer- cises advanced by the Central Government, e.g., the Suroeste Region Plan, fail to have an actual impact on the territorial planning exercised by municipalities within the region. 3.2 Planning instruments are poorly advanced and implemented across the board (at the national, regional, and local levels) The current status of territorial planning in the DR is simultaneously a cause and effect of the conditions outlined above. At the national level, there is neither a National Land-Use Plan stipulated in the END and the Constitution nor a National System that generates binding guidelines governing the subnational TP. At the regional level, the Plan for Regional Planning and Territorial Development of the Southwest Region has been formulated by the MEPyD, and several Tourism Plans for Territorial Planning have been developed without a clear and consistent relationship with the municipal TP plans or processes, as explained below. At the municipal level, there is evidence of stronger socioeconomic planning in comparison to TP. According to the DGODT policy paper “Políticas Públicas Territoriales y Municipales para el Cambio,” by 2020, 93 municipalities (60%) had formed their Municipal Development Councils (not all of them are active) and Urbanization and Territorial Development in the Dominican Republic 133 3. Adopting a new territorial planning framework 73 municipalities (43.20%) had a Municipal Development Plan,24 while only 9 municipalities had territorial plans (amounting to 5.70% nationwide – see Figures 4 and 5).25 The status of territorial planning in numerous municipalities of the DR is shown in the DGODT maps. 26 Table 3. Status of municipal territorial plans - Territorial plans Municipios TP status Number Percent With no PMOT 145 93.5 35% progress 1 0.75 65% progress 1 0.75 Finished 8 5 Total 155 100 Source: Developed by Author, based on DGODT Map. The most important urban cluster in the Dominican Republic is Greater Santo Domingo, made up of 8 muni- cipalities, four of which have populations over 50,000 inhabitants.27 According to the municipalities’ official websites, all of them have a Municipal Development Plan, although none of them have either an Urban Plan- ning Office or Municipal Territorial Plans, as seen below: 24 The Annex includes the maps of Municipalities with CDM and PDM. 25 37 municipalities have no TP process at all, 7 municipalities have PMD despite not having CMD, 7 municipalities have CDM only, while the rest (90) have CMD and PMD, and only 6 municipalities have CDM, PDM, and POT. 26 The four maps and their analyses are included in Annex 1 27 http://www.dominicana.gob.do/index.php/e-municipios/e-localidades/158-municipios 134 Figure 2. Municipalities with municipal territorial plan, by plan status Santiago LU PERÓN MONTE CRISTI VILLA VÁSQUEZ VILLA ISABELA DR-POTT IMBERT PUERTO PLATA CASTAÑUELAS LOS HIDALGOS PEPILLO SALCEDO GUAYUBÍN LAGUNA SALADA GUANANICO VILLA MONTELLANO SOSÚA DR-POTT CC ALTAMIRA JAMAO AL Las Terrenas ESPERANZA NORTE DAJABÓN LAS MATAS DE SANTA CRUZ BISONÓ VILLA GONZÁLEZ GASPAR HERNÁNDEZ CABRERA 35% progress RÍO SAN JUAN PARTIDO MAO TENARES Samaná SAN 60% progress TAMBORIL VICTOR EL LOMA DE PINO LICEY CABRERA MONCIÓN SALCEDO AL MEDIO SAN IGNACIO MOCA DE SABANETA PUÑAL NAGUA Finished SAN FRANCISC O SABANA CAYETANO DE MACORÍS VILLA LOS IGLESIA GERMOSÉN ALMÁCIGOS RESTAURACIÓN BAITOA VILLA TAPIA EL FACTOR SAN JOSÉ DE LAS MATAS JÁNICO LA VEGA CASTILLO LAS GUÁRANAS Miches PIMENTEL ARENOSO EUGENIO PEDRO SANTANA MARÍA DE VILLA RIVA HOSTOS Jarabacoa JIMA ABAJO FANTINO SÁNCHEZ LA MATA SAN JUAN BÁNICA SABANA CEVICOS DE LA MAR SABANA GRANDE COTUÍ DE BOYÁ LAS MATAS COMENDADOR BOHECHÍO DE FARFÁN BONAO EL VALLE CONSTANZA JUAN DE MAIMÓN HERRERA PERALVILLO BAYAGUANA PADRE LAS Juan Santiago CASAS EL LLANO PIEDRA BLANCA MONTE PLATA Guayabal EL SEIBO Hondo Valle EL CERCADO YAMASÁ HATO MAYOR RANCHO ARRIBA HIGÜEY VALLEJUELO SABANA LARGA POSTRER RÍO VILLA ALTAGRACIA LA LOS RÍOS LOS LLANOS LAS YAYAS LOS SANTO DESCUBIERTA DE VIAJAMA PERALTA PEDRO BRAND CACAOS DOMINGO JIMANÍ VILLA NORTE JARAGUA CONSUELO NEIBA SAN ANTONIO DE GUERRA GUAYMATE GALVÁN LOS QUISQUEYA ESTEBANÍA SANTO RAMÓN SANTANA SAN JOSÉ ALCARRIZOS DOMINGO TAMAYO DE OCOA ESTE SANTO TÁBARA ARRIBA SAN DOMINGO LA ROMANA AZUA CAMBITA CRISTÓBAL VILLA GARABITOS OESTE HERMOSA BOCA CHICA GUAYAC ANES BAJOS DE LAS CHARCAS BANÍ HAINA PUEBLO VIEJO SAN VICENTE NOBLE RAFAEL DEL SAN GR EGORIO YUMA DE NIGUA CRISTÓBAL YAGUATE DUVERGÉ MELLA JAQUIMEYES O EL PEÑÓN FUNDACIÓN NIZAO MATANZAS LAS SABANA GRANDE SALINAS DE PALENQUE CABRAL POLO LA CIÉN AGA Sabana Yegua Santo Domingo San PARAÍSO de Guzmán Pedro de Marcoris ENRIQUILLO Pedernales Barahona OVIEDO Source: General Directorate of Territorial Development and Planning ( DGODT). Table 4. Greater Santo Domingo institutional structure Municipality UP office Development plan Territorial planning Distrito Nacional (DN) X X Xª Santo Domingo Norte X X Santo Domingo Este X X Santo Domingo Oeste X Source: Developed by Author. a Municipal Ordinance 09 of 2019: https://www.adn.gob.do/joomlatools-files/docman-files/ordenanzas_2019/ORD.%20NO.9-2019.pdf. Urbanization and Territorial Development in the Dominican Republic 135 3. Adopting a new territorial planning framework 3.3 Strong prevalence of tourism-oriented sectoral territorial planning Addressing the need for territorial planning instruments in tourism development hubs, the DR has champio- ned the creation of a large number of Strategic Plans and PSOTTs covering a significant percentage of the national territory. 28 With regard to these plans, there seems to be a discrepancy between the information provided by the DGODT and the one given by the Secretariat of Planning and Projects within MinTur. While the DGODT reported 4 POTTs, the SPP mentioned 8 PSOTTs29 approved, with updates pending, which in some cases includes more than one municipality. The Department of Planning and Projects of the MINTUR also re- ports 17 Strategic Plans to be upgraded to PSOTTs. 30 However, the PSOTTs and the territorial strategies for advancing tourism development hubs are not binding and lack a holistic territorial approach. No specific law or regulation that defines their geographic coverage, the specific scopes of Strategic Plans or the PSOTTs, or their binding nature for the municipalities included in the target area was found. The PSOTT target areas reviewed feature different sizes and are indistinctively in one or more municipalities. Municipal boundaries are not clearly evident. In the PSOTTs re- viewed, it was found that the urban areas are considered to be and managed as a tourism function, while they are perceived more as a threat to the surrounding tourist attractions rather than as a complement to and support for tourism, as is typically seen in suburban or rural enclaves with highly autonomous services and minimal interaction with urban areas and local settlements.31 The formulation and revision of the PSOTT considers the inclusion of national infrastructure works to ensure the preservation of “key tourist attractions, which critically must adapt to the geographic, climatological, and demographic conditions of the area.”32 In addition to the PSOTTs adopted by the Ministry of Tourism, there are a considerable number of decrees and resolutions adopting provisions on land use, densities, building volume, and infrastructure works in different municipalities. 3.4 The capacity required to develop planning instruments (and their implementation) is still poor, particularly at the local level Incipient political-administrative decentralization restricts the capacity of municipalities to plan and im- plement plans. The responsibilities given to municipalities are limited. However, some have argued that the municipalities lack adequate resources to carry out the few functions assigned to them. Inadequately funded by their own resources and by governmental transfers, municipalities are unable to meet their autonomous competencies, including the formulation, adoption, and implementation of binding Municipal Territorial 28 Annex 2 describes the OTT Plans provided by the Secretariat of Planning and Projects within the Ministry of Tourism. 29 4 in the Northern Region (Sosúa, San Felipe de Puerto Plata, Las Terrenas (Samaná Norte), and Cabarete); 3 in the Eastern Region (Miches-Seibo-Hato Mayor, Punta Cana-Bávaro-Macao, and Environmental Unit No. 2 Macao); and 1 in the Southern Region (Pedernales). 30 10 in the Northern Region (Puerto Plata, Samaná Peninsula, Santiago, María Trinidad Sánchez, Dajabón, La Vega, Valverde, Monte Cristi, San José de Las Matas, and Jarab- acoa); 6 in the Eastern Region (Miches, Punta Cana-Bávaro-Macao, Bayahibe, Boca Chica, Higüey, and San Pedro de Macorís); and 1 in the Southern Region (Barahona). 31 The case of the PSOTT in Cabarete was mentioned: “As a consequence of the disorganized urban growth in the city of Cabarete, part of the swamp and the Cabarete and Go- leta lagoons have been gradually encroached upon and occupied, threatening the environmental balance of this important ecosystem and becoming a flood risk for humans, thereby making it a priority to protect this Natural Monument through adequate planning and clear proposals for physical and regulatory intervention.” 32 PSOTT 136 Plans. Additionally, they are unable to undertake major works and adequately address key municipal cha- llenges (such as uncontrolled urban sprawl and informality and dysfunctionality of the main urban centers and emerging cities, thereby affecting their economic performance and the quality of life of their inhabi- tants). Incipient administrative decentralization also straitjackets autonomy in terms of municipal planning and management, whereby territorial planning continues to be a highly centralized process detached from local competencies and possibilities. Municipalities have little technical capacity for engaging in participatory formulation of planning instruments. Given the negligible territorial planning processes that the country, and in particular the munici- palities, have advanced, there is little understanding and capacity to advance territorial planning processes for both municipalities and citizens. Most of the municipalities do not have Urban Planning Offices, and only 85 municipalities report some level of progress in SISMAP Indicator 2.03, “Regulation and Territorial Planning.” Out of these, only 10 report “significant progress.”33 Furthermore, in those locations where Urban Planning Offices exist, their roles mainly focus on addressing urban functionality issues34 and on issuing land use permits and other urban permits in accordance with general laws. There is no evidence of any activity relating to territorial planning for rural areas. The implementation of instruments existing at the municipal level is in very early stages – given the technical, financial, and political challenges experienced at the local level. Based on consultations held with a number of municipalities, despite the fact that they have their TPs, the absence of local financial resources and (in some instances) their poor territorial management capacity prevent their actual implementation. Recently, DGODT acknowledged this in a report, stating that even though municipalities have their TPs, their implementation is embryonic,35 while the following situation prevails: “The non-observance of urban laws and poor land use practices calls for policy interventions and institutional strengthening to ensure the implementa- tion of a sustainable development agenda, particularly in terms of habitat”. 3.5 Basic and thematic information required to develop territorial planning instruments is missing The information required to realize planning instruments at different scales is insufficient. In particular, there is no hazard and risk information – at the municipal scale. The study “Urban Planning and Resilience Building in the Caribbean” ranked Caribbean countries in terms of different “Building Blocks,” including availability of disaster risk information. As seen in the tables below (Tables Nº5 and 6), the DR scored low in this category, which assesses the existence of good quality risk maps and their use in planning processes. 33 According to the Municipal SISMAP performance ranking, 85 of the 158 municipalities in the DR report some level of territorial planning performance. Only Santiago scored 95%; 8 municipalities scored 85%; DN: 80% (significant or good progress); 5 municipalities: 65%; 22 municipalities: 60% (some progress); 5 municipalities: 50%; 9 munici- palities: 40%; and 24 municipalities: 30% (little progress). 34 Horizontal and vertical road signs, street signage, municipal taxes for regularization of works pursuant to urban laws, organization of informal vendors on streets, citizenship culture for appropriate parking on public roads, and transportation improvement projects. 35 No information found on POT implementation status. Urbanization and Territorial Development in the Dominican Republic 137 3. Adopting a new territorial planning framework Table 5. Disaster risk information. Summary of scores per sub-building block, per country Building block Disaster risk information Number 8.1 8.2 Sub-building block Risk maps Disaster risk information publicly available Belice 3,0 2,0 Dominica 4,0 3,0 Dominican Republic 3,0 3,0 Guyana 3,0 3,0 Haiti 4,0 3,0 Jamaica 4,0 3,0 St. Lucia 3,0 2,0 St. Maarten 4,0 2,0 SVG 3,0 2,0 Sub-B. B. average 3,44 2,56 B. B. average 3,15 Source: Urban Planning and Resilience Building in the Caribbean, Policy Research Working Paper. While its rating on the existence of risk maps is relatively high, the overall country score is 3.0, as summarized in the following table (Table Nº 6). Table 6. Summary: building block score: 3. 00 Sub-building block Indicative measurement scale Weight Score 8.1 Risk map Risk maps are in development, or there is some 2 3 information available 8.2 Disaster risk information Limited information is publicly available 1 3 publicly available Source: Urban Planning and Resilience Building in the Caribbean, Policy Research Working Paper 138 Moreover, a unified information management strategy that ensures comprehensiveness and availabi- lity at the scales required for each territorial planning level, as well as the capacity and conditions for use by local governments, is missing. 3.6 Poor territorial planning is causing a number of consequences throughout the Dominican Republic Economic development zones (cities and tourism development hubs) are growing with significant informality, including settlements in at-risk areas. As noted in Note 1, one of the emerging urbanization challenges in the DR is the significant degree of urbanization along the coastal and flood-prone areas, with flood events occurring in recent years. Although coastal flooding has not been widely seen in the Dominican Republic for the past few years, climate change and coastal erosion could increase their likelihood and wor- sen their impacts. The Note also points out the inadequate intra- and inter-urban connectivity,36 as well as the absence of legitimate and binding TP instruments, which leads to high levels of urban disorder, dysfunc- tionality, and informality (often interpreted exclusively as traffic congestion rather than inadequate planning) along with high levels of irregular land tenure, and also to discretionary urban management that answers to political conjunctures (affinities and feuds) as well as to particular interests and pressures from power groups. The lack of territorial development guidelines contributes to the discretionary allocation of govern- mental resources and curtails the impacts of territory-wide public investments. Today, there is no strategic territorial planning approach contributing to the construction of new systems of population-territory rela- tionships, even though the effectiveness of sectoral policies and the sustainability of the development model depend on such an approach. Given the shortage of resources in municipalities, most of the strategic invest- ments are still financed by the central government. The allocation of public investment resources to munici- palities and the central government’s collaboration have a strong political bias. A close relationship with the central government was mentioned as necessary to receive support for specific projects, which poses a major straitjacket for the decentralization and autonomy of the municipalities. Finally, territorial planning decisions are fragmented, circumstantial, and remedial, thereby undermi- ning the government’s credibility in the eyes of citizens. When confronted with the absence of clear territorial development guidelines, most municipalities are forced to make remedial and reactive land-use planning decisions. In some cases, they are driven more by particular possibilities and interests rather than by me- dium- and long-term goals that address structural challenges such as uncontrolled urban sprawl, informal development, and public space deficits, among others. The absence of clear territorial planning guideli- nes undermines credibility and trust in public institutions, as it is a breeding ground for corruption, frequent non-compliance with laws, or discretionary compliance. 36 Urbanization and Territorial Development in the Dominican Republic, Note 1: “Laying down the facts of urbanization“ Urbanization and Territorial Development in the Dominican Republic 139 3. Adopting a new territorial planning framework 4. Towards new territorial planning The central and local governments in the DR recognize the urgent need to improve the regulatory fra- mework, capacities, and quality of territorial planning instruments. In the Housing and Urban Development Report, the national government, through the DGODT, summarizes the key issues that need to be addressed in order to strengthen territorial planning and management, as shown in Box No. 1 below. This report iden- tifies three key challenges for incorporating land-use planning as an integral part of territorial planning: (i) formulate territorial management regulations, including a Law on Territorial Planning and Land Use Manage- ment; (ii) develop more and better development planning at regional-municipal levels with a comprehensive approach to the specificities of territory-wide sustainable development, including population dynamics; and (iii) transfer technical and financial capacities to municipal governments so that they can exercise govern- mental powers and respond more effectively and efficiently to the demands and needs of the population living in their territories. Box 1 Territorial planning issues to be addressed i) Strengthen municipal development planning that, particularly in urban cases, is focused on the problems inherent to urban-rural dynamics; ii) Establish regulations and action plans that foster adequate land use, in both urban and rural areas; iii) Reinforce urban planning offices to implement territorial planning schemes aimed at promo- ting adequate land use, according to land capability; iv) In view of the high political and administrative territorial fragmentation, promote planning schemes from intermediate units (commonwealths, greater areas, and regions); v) Strengthen the cadastral and territorial information system; vi) Enhance decentralization, municipalization, and local development processes; vii) Strengthen technical and administrative capacities of urban planning offices in municipalities— their role should go beyond the simple legalization of works in the city; viii) Realize urban and territorial planning for tourism development hubs or zones to alleviate and avert slum formation processes; ix) Disseminate Territorial and Tourism Development Plans (POTT) parameters more widely. Source: DGODT- MEP 140 The current administration has significant strengths to face these and other challenges: • Acknowledgement of key TP weaknesses and challenges faced by the country, particularly subnational governmental weaknesses in territory-wide management. • Consensus built on the importance and urgency of incorporating territorial planning into developmen- tal planning and subnational decentralization of governmental functions for climate change adaptation and resilience, integrated risk management, ecological sustainability, social equity, and citizen wellbeing. • Political will to achieve this, in line with the National Development Strategy and President Abenader’s Government Agenda. • Well-defined and committed institutional leadership at the national level, led by the Directorate of Terri- torial Planning within the Vice-Ministry of Planning in the Ministry of Economy, Planning, and Development. • Existence of a regulatory tradition that is embodied in various policies and laws, reflecting the experien- ce of the Executive and Legislative branches with regard to legislative understanding and management of this subject matter. • Recent regional and municipal planning processes that have become a benchmark to advancing the strengthening of territorial planning across different government levels (the Sureste Regional Plan and Distrito Nacional and Santiago TPs, among others). • Reinforce spatial data infrastructure through TA “Leveraging resilient territorial development in the Do- minican Republic.” With this objective in mind, and pursuant to the provisions of the Dominican Republic’s Constitution of 2015, three legislative initiatives are in the pipeline of the National Congress. One is a Proposed Draft Law on Unified Planning Regions, another is a Proposed Law on Territorial Planning, Land Use, and Human Settle- ments,37and a bill is also being drafted to introduce the National Territorial Planning and Land-Use Manage- ment Plan38. The following are non-exhaustive comments on these three legislative proposals. Their overar- ching purpose is to help further understand and strengthen territorial planning. The initiatives are described as follows: 4.1 Proposed Law on Unified Planning Regions This proposal’s primary objective is to regulate the organization, competencies, composition, functions, and delimitation of 5 Unified Planning Regions. In furtherance of Article 195 “Territorial Delimitation” of the Dominican Constitution,39 the purpose of the organic law is “the organization, composition, and delimitation of planning regions* in the national territory, and is intended to promote enhanced development at national, regional, and local levels by guiding policies, plans, programs, and public investment projects to ensure sustai- nable local development and greater territorial cohesion.”40 The Law seeks to foster integrated, sustainable, 37 The revised version of this document is the November 2020 “Drafting Proposal.” 38 The revised draft is the consensual version of the National Plan for Territorial Organization, by the Ministry of the Economy, Planning, and Development and the Ministry of Environment and Natural Resources, based on the working documents for the formulation of the PNOT. Version Date: 11.19.2015. 39 Article 195 – Territorial Delimitation. The name and boundaries of the regions, provinces, and municipalities in which they are divided shall be determined by means of an organic law. 40 Article 1 – Purpose of Law. Urbanization and Territorial Development in the Dominican Republic 141 3. Adopting a new territorial planning framework equitable, and coherent regional development. The proposed macro-regions are: 1. Northwest Cibao Re- gion, 2. Northeast Cibao Region, 3. South-Central Region, 4. Eastern Region and 5. Southwestern Region. 41 The proposed regionalization merges the four northern regions into two new regions, and creates a new region around the Distrito Nacional, called the South-Central Region. This South-Central Region would encompass the regions that previously comprised the eastern and western macro-regions and the Distrito Nacional, while the other provinces would remain the same. The Law does not contain specific consi- derations concerning the implementation of criteria for this new delimitation or its relationship with previous regionalization classification, so it is not possible to weigh their advantages and shortcomings.42 The same can be said of the relationship between the proposed regionalization and the development indicators, 43 as seen in the following Figure. Although the law seeks to rationally organize the territory for more effective use of resources, 44 except for Article 12, Transitional Provision, no other article of this Bill refers to socioeconomic and environmental territorial planning. This suggests that the “territorial planning” concept refers to the political-administrative organization of the national territory as defined in the Dominican Constitution. This assumption seems to be confirmed by the fact that four of the five criteria that the law adopts for purposes of regional delimitation45 Figure 3. Unified planning regions vs current regions 1 2 5 Unified Planning Regions proposal 1 Northwest Cibao 2 Northeast Cibao 3 South-central 4 Eastern 5 Southwestern Current regions Northeast Cibao North Cibao South Cibao Northwest Cibao El Valle Enrriquillo Valdesia 4 3 Ozama Higuamo Yuma Source: Developed by Author, based on source map https://es.wikipedia.org/wiki/Provincias_de_la_Rep%C3%BAblica_Dominicana. 41 Article 7 – Delimitation of the national territory into planning regions. 42 Technical paper supporting the proposed RUP (DGODT ) is pending. 43 Department of Monitoring and Evaluation based on the UNDP Regional Human Development Index (RHDI). 44 Article 5 – Purpose and Scope of Regionalization for Planning Purposes. 45 Article 6 – Regional Delimitation Criteria. 142 have an administrative and budgetary character. The fifth criterion, “Ownership”, refers to the historical and cultural relationship of the population with its territory, but does not explicitly refer to environmental or so- cio-ecological criteria for regional delimitation and management. Figure 4. Territorial planning regions – Human development index 1 2 5 Unified Planning Regions proposal 1 Northwest Cibao 2 Northeast Cibao 3 South-central 4 Eastern 5 Southwestern 4 3 ,401000 ,561000 Source: Developed by Author, based on source map and UNDP Human Development Index Regional (IDHr). The Ministry of Economy, Planning, and Development, along with decentralized units in each region, would be the authorities responsible for implementing regionalization of statistical information, financing, and so- cioeconomic development processes and instruments. To that effect, the Law provides that each region shall establish a Deconcentrated Unit, which is attached to the Vice Ministry of Planning of the Ministry of Eco- nomy, Planning, and Development, 46 main function of which shall consist of coordinating the formulation of regional and provincial development plans on a territorial level, as well as advising the Development Councils referred to in Art. 14 of Law 498-06. 47 The creation of Decentralized Units of the central government confirms that the regions are not decentralized political-administrative entities, and that their role is to support and coordinate the socioeconomic and administrative planning to be embodied in Development Plans. The Law mentions no territorial planning functions or instruments (plans). Therefore, it would seem necessary to specify the manner under which the proposed regionalization will enable the achievement of 46 Article 9: Deconcentrated units at the regional level. 47 Article 14: Development Councils shall be established at municipal, provincial, and regional levels. They are the participatory body of territory-wide economic and social agents. Their function is to coordinate and channel citizens’ demands to the central government and the municipal governments. They will take part in the formulation of Strategic Territorial Development Plans as appropriate. Urbanization and Territorial Development in the Dominican Republic 143 3. Adopting a new territorial planning framework Objective (d) under Article 1 (rationally organize the territory for more effective use of resources) since the only explicit reference to territorial planning is contained in a transitional provision (Article 12), whereby it is established that “neither new administrative political demarcations shall be created nor existing ones may not be amended until the Law referred to in Article 194 of the Dominican Constitution, which defines the criteria and procedures for such purposes, is enacted.” The Law also suggests that the amendment or creation of new political-administrative demarcations is subject to the adoption of the Territorial Planning Law. However, the proposed Territorial Planning and Land-Use Plan (described below) does not include provisions pertaining to the political-administrative or- ganization of the territory. These provisions were part of an earlier version of the Proposed Law on Territorial Planning, Land Use, and Settlement, 48 but were removed in the latest version available. In summary, the law will mainly help to arrange sectoral budget planning on a territorial basis, but without explicit and strategic linkage to the National Territorial Planning and Land-Use Management Plan, it will not have a direct effect on territorial planning. 4.2 Proposed Law on Territorial Planning, Land Use, and Settlement 49 The purpose of the Proposed Law50 is to establish the regulatory framework for territorial planning and land use planning and for the formulation and implementation of planning instruments—Territorial Plans— across different political-administrative levels. Accordingly, the law adopts the general institutional and le- gislative framework for the inclusion of territorial planning as an integral part of the development planning process, taking into account environmental, cultural, economic, social, risk management, and sustainable development guidelines.51 The proposed law is currently in the process of being passed by Congress. The following is a brief description of key aspects of the law and some elements that may be worth reviewing in the Bill, or being included in decrees/guidelines following its approval. Chapters II and III adopt territorial planning principles and criteria, define public and private property regimes, and establish the binding nature of the approved plans on both private individuals and government agencies and bodies, 52 while safeguarding the right to property in all cases.53 This provision is clear and rele- vant to the extent that administrative authorizations54 are issued based on the applicant’s property. However, provisions concerning irregular forms of ownership and land tenure, to which, in principle, TP provisions would not be applicable, seem to be missing. 48 This deleted section probably included the Article that, as stated by municipal officials, introduced in the POT that “municipal districts that demonstrate the adequate solvency to do so may have their own TP office. It is also indispensable to organize the political-administrative TP, as there are provinces with fewer inhabitants than many municipal districts.” This provision was not found in any of the proposed laws reviewed. 49 Proposed Draft: Proposed (Organic) Law on Territorial Planning, Land Use, and Settlement / Ministry of Economy, Planning, and Development, November 2020. 50 Article 1 - Purpose of Law. 51 The project formulation process is led by the DGODT of the Ministry of Economy, Planning, and Development (MEPyD) jointly with the Ministry of the Environment and the Municipal Affairs Committee of the House of Representatives. The Law has had three moments where different specialists have intervened in the formulation of the Bill. 52 Paragraph Art. 7, Proposed Law. 53 Article 9. General Regime of Property Rights. 54 Article 12 Administrative Authorizations. 144 The Law also provides important clarifications regarding the TP institutional framework. Title II stipu- lates the overall establishment of the National Territorial Planning System, without defining membership, and ratifies the Ministry of Economy, Planning, and Development’s role as its coordinator, as well as the creation of Consultative Committees for technical and legal advisory purposes.55 The MEPyD is also responsible for ma- naging national and regional land use planning,56 and for providing advice and assistance to municipalities,57 which are responsible for promoting the formulation, execution, and evaluation of the Municipal Territorial Plans (PMOT)58 in coordination with the government’s municipal district and sectoral boards in their territo- ries.59 To comply with this provision, all municipalities should establish an Urban Planning Office. All Regional and Municipal Plans must be “technically reviewed” by the Ministry of Economy, Planning, and Development. In addition to curtailing municipal autonomy, the technical review of 10 Regional Plans and 158 Municipal Plans by the DGODT required by this provision may prove to be an unattainable task. The Law also stipulates that the resources needed to formulate, manage, and implement territorial plans across national, regional, and municipal levels will be sourced from: (i) central government appropria- tions; (ii) counterpart funds from municipalities and municipal districts; (iii) municipal revenues from penalties imposed on violations of this law; and (iv) international funds.60 These resources will be used for: (i) training and technical assistance; (ii) provision of technology and equipment; (iii) technical assistance for the prepa- ration, implementation, implementation, and revision of territorial plans at national, regional, and municipal levels; (iv) preparation or implementation of municipal and regional plans and projects; (v) strategic environ- mental assessment; and (vi) TP reporting.61 In terms of basic planning instruments, the Law defines three tiers: The National Territorial Plan, Re- gional Territorial Land-Use and Development Plans, and Municipal Territorial Plans. 62 No Provincial TP is foreseen. The provisions governing the inter-tier linkage of these plans shall be adopted by means of regu- 63 lations required by the law. In addition to these basic plans, it provides for the formulation of Special Plans of Supra-Municipal Impact (PEIS), and exceptional plans envisaged for the implementation of territory-wide structuring projects prepared by the relevant Ministry (...).64 Nevertheless, the formulation and adoption of Municipal Territorial Plans shall be subject to the adoption of the National Land-Use Plan and the Territorial Land-Use and Development Plan, 65 while the law makes no reference to the Unified Planning Regions with respect to regional plans or to provincial plans. Special Plans of Supra-Municipal Impact will be formulated by the relevant Ministry, approved by the Council of Ministers, and “shall not require any administrative authorizations from the municipalities through 55 Articles 13 through 15. 56 Paragraph 1, Article 25 - Proposed Law on Territorial Planning, Land Use, and Settlement. 57 Paragraph, Article 17 - Municipal Territorial Planning Management. 58 Paragraph 1, Article 26 - Proposed Law on Territorial Planning, Land Use, and Settlement. 59 Article 17 - Municipal Territorial Planning Management. 60 Article 19 - Financing. 61 Article 20 - Developing Plans and Programs. 62 Article 22 - Planning Instruments. 63 Paragraph II, Article 22. 64 Paragraph I, Article 22. 65 Paragraph III, Article 23. Urbanization and Territorial Development in the Dominican Republic 145 3. Adopting a new territorial planning framework which the infrastructure or the action is to be carried out.”66 This provision seems opposed to municipal decen- tralization, not only in relation to “the Greater Area” included in the list of interventions requiring PEIM, but also to virtually any municipality, given the number and diversity of “structuring projects” (including waters- heds) subject to PEIS.67It is noteworthy that the list of situations requiring PEIS fails to include PSOTT, which is the closest to this type of plan at the present time. The Law seems to have some inconsistencies in terms of who may lead the TP formulation initiative, as well as loopholes on how the different governmental entities interact towards the formulation of TPs. The Law stipulates that the TP formulation may be “a national, regional, or municipal initiative, or led by the civil society supported by a national, regional,68 or municipal authority, as appropriate.”69 The law defines neither the case(s) nor the conditions for the private initiative, which seems to be in contradiction with the provisions of Articles 24, 25, and 26 of the proposed Municipalities Law. It also seems to contribute to TP-related dis- cretionary power. The requirement “to include the Ministries of Economy, Planning, and Development and En- vironment and Natural Resources (...)”70 in the formulation, decision making, implementation, follow-up, and evaluation processes raises the following concerns: (i) it fails to mention explicitly the adoption of the res- pective Plan between TP steps; (ii) it requires the two Ministries to be included in each TP stage and process across all levels, which seems contradictory to the “support” concept and assumes that these two Ministries are endowed with a great implementation capacity; and (iii) it excludes the Ministry of Tourism. The terms defined in the law build discretions towards the review of the plans. The Law defines the effective periods of the National, Regional, and Municipal Territorial Plans to be 30, 20, and 12 years, res- pectively, requiring their revision either every 10 years (PNOT and PRODT), every 6 years (PMOT), “or when appropriate.”71 This vagueness with regard to timing, rationale, and requirements for TP revisions undermines the soundness and continuity of territorial planning and could affect inter-tier linkages, erode citizen parti- cipation, and foster a new form of “ discretionary power,” especially if the initiative is either public or private. Title IV, Soil Classification and Identification for Assigning Soil Types and Use Intensity covers a wide range of classes and types of soils. In addition to potential adjustments to some of them, the Law itself or the National Land-Use Plan could contain provisions more directly oriented towards specific development stra- tegies regarding environmental and socioeconomic considerations (such as productive chains, urban-rural relationship, and strategic systems of relationship between types of uses). Such is the case of Free Zones and tourism developments, which fail to respond to the simple land-use allocation for industrial or tourism uses. Title V adopts provisions pertaining to the “Regime of Transition Towards Territorial Planning Instru- ments” for those municipalities lacking a Territorial Plan. The law fails to specify the type of municipalities, the reasons behind the absence of such a Plan, transition transiency, or the legal nature of the so-called “Urban Soil Delimitation Instrument,” along with its relationship to the PMOT or its validity. These aspects should be specified in the proposed law, notwithstanding the fact that the formulation process and the specific con- 66 Article 28 - Developing the Special Plan and Art. 29 - Impacts of the Special Plan. 67 Article 27 - Special Plans of Supra-Municipal Impact. 68 The term “regional authority” seems inaccurate, as the regions fail to have such authorities. 69 Section 1, Article 23 - Necessary Requirements. 70 Section 3, Article 23 - Necessary Requirements. 71 Articles 24, 25, and 26. 146 tents of the instrument will be regulated thereafter. The foregoing will provide greater clarity with respect to Regional Planning Subsidiary Rules.72 Title VI contains provisions on Human Settlements. The lack of provisions linking settlements to diffe- rent land types and uses prevents understanding. It also prevents the managing of settlements as an integral part of the demographic and socioeconomic dynamics that encourage their emergence and functionally link them to the diverse territories. Title VII: Penalties73 and Title VIII: Final Provisions. They stipulate a two-year deadline as of the law’s enactment to prepare the National, Regional, and Municipal TPs. 74 Considering that to date only 10 mu- nicipalities have completed their Territorial Plans, the formulation of the remaining 148 PMOTs within the mandatory time frame would imply a financial, technical, and political effort deployed at all levels of the government, which seems unfeasible. Additionally, the simultaneous development of national, regional, and municipal plans will not generate vertical or horizontal harmonization guidelines between TPs, as foreseen in Art. 23, which is discussed above. Nor would it enable any supra-regional guidelines, since the RUP delimita- tion will occur simultaneously (within 2 years as of the enactment of the Law). 75 These time frames also fail to stipulate deadlines for formulating the regulations of different laws. Finally, the Plans would be deprived of any basic information because the Law tasks the José Joaquín Hungría Morell National Geographic Institute to submit the national cartography establishing the territorial boundaries of the Distrito Nacional, provinces, municipalities, and municipal districts (in order to settle existing delimitation conflicts) to the Ministry of Eco- nomy, Planning, and Development within a three-year deadline.76 Note that the only explicit reference to the PSOTT lies in the final provisions,77 stating that: “The tou- rism-oriented sectoral territorial planning must ensure consistency with the territorial planning instruments re- ferred to in Article 22 hereto; and said plans shall be approved by resolutions of the Ministry of Tourism and shall be part of the Municipal Territorial Plans or Special Plans of Supra-Municipal Impact, as the case may be. Amendments to these plans shall be governed by this law. This provision does not clarify: (i) the specific scope of ‘consistency’; (ii) the prevalence between the two instruments and their order of adoption; (iii) the binding nature of PSOTTs; or (vi) the participation of municipalities in formulating the PSOTTs.”78 This reference to the PSOTTs seems inadequate. Insofar as, according to the sectoral tourism regulations in force, the whole coun- try is declared to be of “tourist interest,” the entire territory could be the subject of PSOTTs developed and adopted by the Ministry of Tourism. 72 Section II, Article 60. 73 Comments on this Title are excluded here due to the absence of referential context. 74 Title VII. 75 Article 8 -Regionalization Implementing Authority -Proposed Law on Unified Planning Regions. 76 Article 93 of the Proposed Law 77 Paragraph, Article 90 - Registering Municipal Territorial Plans. 78 The DPP Director within the Ministry of Tourism has stated that over the next three years, it is planned that the 8 PSOTTs which have already been adopted will be updated, and that 15 new PSOTTs will be formulated and adopted, which poses challenges with regard to simultaneous planning processes. Urbanization and Territorial Development in the Dominican Republic 147 3. Adopting a new territorial planning framework Table 7. Territorial planning process timelines by proposed laws Revisión Plan Formulation Validity (years) (years) 2 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 16 17 18 19 20 National Land-Use Plan ( DGODT) - Law on TP, LU, and S 10 years or when PNOT Technical Paper required 10 years Regional Land-Use Plans or when (MPD/ DGODT) required 6 years PMOT (Municipalities and DGODT) or when required National level Regional level Municipal level Source: Developed by Author 4.3 The Proposed National Land-Use Plan (PNOT) The National Land-Use Plan is being formulated under the leadership of the DGODT - Ministry of Economy, Planning, and Development. This Note was prepared based on “Documento de Consulta: Plan Nacional de Ordenamiento Territorial – Dominican Republic.” This is a technical consultation document, which is neither finished nor binding. So far, it has advanced its conceptualization, stakeholder awareness, and territorial diagnosis, while the chapters on “Territorial Prospects” and specific land-use planning arrangements are at a very embryonic level. The National Land-Use Plan (PNOT) has been conceived as a policy paper that informs national land-use decision-making by harmonizing the different sectoral policies. It aims to manage and leverage their resources in order to achieve sustainable development, promote territorial cohesion, and improve the living conditions of the Dominican Republic’s inhabitants. The proposed PNOTs are land-use and territorial planning guidelines at subnational levels and represent the territory-wide spatial expression of strategic cross cutting themes stipulated in social, economic, and environmental terms. The Plan addresses three priority themes: (1) Human settlements, which refers to the quality of habitat and the human settlement-territory relationship; (2) Environmental protection and management, by consi- dering the different types of behavior experienced in the society-nature relationship; and (3) Competitiveness 148 and territorial cohesion, which refers to the achievement of a basic productive structure linked to the local market and the global economy. It also addresses four cross cutting themes: (a) Climate Change Adaptation and Risk Management; (b) Gender Approach; (c) Human Rights Approach; and (d) Social Participation. The last chapter, Territorial Planning and Land Use Policy, seeks to “guide the physical, socio-spatial, and political-administrative organization of the Dominican national territory (...).”It is unclear whether the “National Land-Use Plan,” the purpose of which is “to inform national land-use decision-making by harmo- nizing the different sectoral policies and aiming to manage and leverage their resources in order to achieve sustainable development (...),” adopts in its operative part a “Territorial Planning and Land Use Policy” with a purpose and scope that are closer to those of a law aimed at the political-administrative organization of the territory, as related provisions were included in earlier versions of the Proposed Territorial Planning and Land Use Law, but were dropped in the latest available version. The RUP Bill also contains no provisions relating to overall political-administrative organization. The Consultation Paper consists of 6 sections: I. Introduction, II. Conceptual Framework, III. Methodo- logical Framework, IV. Territorial Diagnosis, V. Territorial Prospects, and VI. Territorial Planning and Land Use Policy. According to the defined methodological framework, the PNOT formulation consists of five (5) stages: Stage One: Stakeholders’ awareness and conceptual agreement; Stage Two: Territorial diagnosis: knowing the territory, potentials, and restraints; Stage Three: Scenario construction; Stage Four: Constructed/selected scenario-based programming; and Stage Five: Implementation, defining PNOT implementation arrange- ments and instruments. The paper stipulates that arrangements must address the creation of national institutions to monitor and implement the actions proposed under the PNOT, as well as to oversee compliance with territorial plan- ning regulations and ordinances. To achieve the objectives and goals set out in the National Development Strategy, the National Land-Use Plan (PNOT) will be effective for 20 years. The last chapter, Territorial Planning and Land Use Policy, seeks to “guide the physical, socio-spatial, and political-administrative organization of the Dominican national territory (...).”It is unclear whether the “Na- tional Land-Use Plan,” the purpose of which is “to inform national land-use decision-making by harmonizing the different sectoral policies and aiming to manage and leverage their resources in order to achieve sustaina- ble development (...),” adopts in its operative part a “Territorial Planning and Land Use Policy” with a purpose and scope that are closer to those of a law aimed at the political-administrative organization of the territory, as related provisions were included in earlier versions of the Proposed Territorial Planning and Land Use Law, but were dropped in the latest available version. The RUP Bill also contains no provisions relating to overall political-administrative organization. In short, the consultation paper does not include specific territorial planning guidelines or provisions with regard to the instruments for its adoption. To that end, it states that “although during the work process developed jointly by the MEPyD and the Ministry of Environment, the territory-wide management instruments used across different levels of government have not been discussed in depth, this refers to Critical Topic Nº 4, regarding the weak coordination and linkage of policies at different levels of government.” Additionally, it does not contain explicit references concerning the relationship between the proposed National Land-Use Plan and the Propo- sed Law on Unified Planning Regions and proposed Law on Territorial Planning, Land Use, and Settlement. The PNOT must adjust to the new vision of the SNOT and the instruments in the PDL of Territorial Planning. With regard to the relationship among the ongoing regulatory processes, it was found that the de- finition, delimitation, modification, competencies, and resources of the basic political-administrative units Urbanization and Territorial Development in the Dominican Republic 149 3. Adopting a new territorial planning framework (regions, provinces, municipalities, and municipal districts) are not addressed by any of the projects. The government decentralization scheme in force to date is maintained, which would seem inadequate for assu- ming and developing the proposed new decentralized territorial organization system. The complementarity or subsidiarity relationship (contents, scope, institutional framework, timetables, etc.) between the three re- gulatory processes is not evident either. 5. Recommendations A non-exhaustive series of recommendations as a contribution to the ongoing processes is displayed below, based on the status and balance of the process components summarized in Figure Nº 5. Figure 5. Integral territorial planning system general components ND and Dominican END Municipalities Constitution 2012-2030 Act Nº 176 2015 RUP TPU, LU and S SNI SNOT MEPD + Consulting commettee PNOT DGOT + 10 Regional POTs DGOT + Regional Dec. Units Relevant X PEI Ministries 148 Municipal POTs Planning Municipalities offices Source: Developed by Author. The Dominican Republic’s Constitution of 2015, the National Development Strategy 2012-2030, and the Distrito Nacional and Municipalities Act form the political and regulatory foundation upon which the com- prehensive territorial planning process must be built. Other provisions reviewed contain complementary pro- visions. Three bills under the formulation and adoption process deploy the main provisions adopted in the CP and END—the RUP Law, TP, LU & S Law, and PNOT Law—and are aimed at consolidating a structured territorial planning system in the DR. Overall, this entails developing, adopting, and implementing the pending components, indicated in white background in Figure Nº 13, and adequately and explicitly defining the rela- tionships of subsidiarity, complementarity, and functionality among all the components, as well as identifying loopholes and designing the implementation of the system. 150 The following is a non-exhaustive list of general recommendations, relating on the one hand to potential adjustments to the three proposed laws underway and, on the other hand, to a strategy for their regulation and implementation. The recommendations are formulated in relation to the “building blocks” of an inte- grated territorial planning system, consisting of three structural columns and three levels of development, as summarized in Figure Nº 6. Figure 6. Building blocks – comprehensive territorial planning system Building blocks Efectiveness / Communication y Participation Governance Civil society “Regularization” Public institutions Real political will agrees on need conditions in land and authorities to incorporate of TP, informed tenure. legitimate and TP in government and organized reliable. planning and to participate management. and decide TP. Feacibility / TP plans adopted in place, handling subsidiarity. Capacity (PNOT , Reg POT and Municipal POT ) Technical and National National, regional Aveilability of National financial capacity and regional (provincial) adequate and at training built in national strategic and municipal scale information strategy and subnational priorities and dependencies required for local designed, authorities to alignment established and decision-making, adopted and perform TP duties. defined and operational. monitoring and operational. adopted. evaluation. Legitimacy / Relevance Regulatory Institutional Information Framework Structure & Capacities TP instruments defined TP systems established National information (legal nature, contents, and operational. systems established and scopes, terms and operational. procedures). TP functions and competencies defined Information and TP objetives, criteria for all territorial levels. training functions and and priorities competencies defined defined and adopted by central government. nationwide. Source: Developed by Author Although all three proposed laws include territorial planning provisions, including contents, scope, resour- ces, instruments, institutional competencies, and information required for national and subnational territorial planning, the Proposed Law on Territorial Planning, Land Use, and Settlement is currently the bill with the broadest regulatory scope and the most advanced level of development. Therefore, the following comments refer mainly to this bill and complement those made in the respective Section. Urbanization and Territorial Development in the Dominican Republic 151 3. Adopting a new territorial planning framework Enhance the regulatory framework to ensure adequate conceptualization and development of TP ins- truments Although the current proposed laws provide key elements for advancing towards new territorial planning in the DR, it will be necessary to review and regulate the reforms. The following are some of the key points to clarify the proposed regulations and facilitate the implementation of reforms: Overall territorial planning I. Regulate the conceptual, legal, and operational relationship between planning instruments: Na- tional Land-Use Plan, Regional TP Plans, Special Plans of Supra-Municipal Impact, and Municipal TP, including PSOTTs. Regulations should define the legal nature of each of these instruments (binding, indicative, mandatory, or optional), their prevalence and subsidiarity, content, and scope, and the res- ponsible parties, stakeholders, and formulation processes. Based on these definitions, review and regu- late the “Subsidiary Regional Regulations,” and define territorial planning processes and/or instruments for provinces and Municipal Districts. II. Review and regulate the provisions relating to Special Plans of Supra-Municipal Impact by specif- ying: (i) instances and areas of application, in particular those pertaining to “large areas such as wa- tersheds, greater areas, industrial parks, or other areas of national interest, or similar initiatives defined by their supra-municipal impact”; (ii) their formulation and adoption by “the relevant ministries,” which do not necessarily have either expertise or tradition in TP, and with no involvement of the DGODT; and (iii) the participation of municipalities included in the Plan, so that the territorial planning of strategic territories is not a centralized process. III. Clarify/regulate the processes for initiating, formulating, consulting, and implementing national, re- gional, and municipal POTs. The provision that stipulates that the TP formulation may be “a national, regional, or municipal initiative or led by the civil society supported by a national, regional, or municipal authority, as appropriate” should be revised or regulated. Since the TPs, especially the municipal ones, are binding instruments, the local government must formulate and adopt them, rather than “support” them. Furthermore, clarify the “regional authority” concept, which does not seem to apply in the case of planning units, e.g., the regions. Concerning the private initiative, define who may run this initiative, their legitimacy/representativeness and competencies for this purpose, the commitments of the initiative lea- der(s), and the recipient municipality. IV. Revise deadlines for formulating the TPs and their periods of effectiveness, ensuring that: (i) the laws are regulated prior to their enforcement; (ii) the subsidiarity provisions are observed (1. PNOT, 2. Regio- nal TPs, and 3. Municipal TPs); and (iii) they are legally and technically feasible in order to advance the formulation, adoption, and implementation process, which apparently will not fit the expected timefra- mes. V. Revise and regulate the “Regime of Transition Towards Territorial Planning Instruments” for those municipalities that lack a Territorial Plan, defining to which of them the legal nature of the so-called “Urban Land Delimitation Instrument” applies, including its binding nature, content, scope, and validity, the parties responsible for their formulation and adoption, and their outstanding nature, or transition to a TP, conditions, terms, and purposes as appropriate. 152 VI. Review and regulate the revision of TPs across all levels. In particular, the provision that states that “they shall be revised whenever required by the conditions (...),”79 opening the possibility of constant re- visions, according to initiatives, interests, and circumstances. In addition to undermining the TP’s credi- bility and effectiveness, it may encourage discretionary powers in the TP and give rise to problems with inter-tier coordination and with the rights acquired by individuals at the municipal level. To counteract these risks, it is suggested to establish differentiated periods of validity for minor adjustments and struc- tural modifications, as well as exceptional situations or conditions for extraordinary revisions.80 Additio- nally, define the process to be followed for any review, either ordinary or extraordinary, including citizen participation and consultation or review with the central government. VII. Clarify/regulate soil classification and land capability classes, and regulate differentiated forms of land use. First, it seems necessary to make a clearer differentiation between land capability classes and soil classification, especially concerning rural lands comprising a wide array of land use forms/catego- ries which, like urban lands, are subject to conditions of compatibility, complementarity, connectivity, etc., for their delimitation and characterization. From this perspective, agricultural land is not a land capability class but a rural land category. VIII. In terms of land use classification, it is recommended that Protected Land be added as a primary land-capability class, which should be delimited not only for existing protected areas or protected lands, but also for future protected lands under different categories and levels and different purposes (biodiversity preservation), such as protection of ecosystem functionality, conservation of special food production, or protection from threats, among others). It would also be important to consider the inclu- sion of transition categories, both spatially and temporally, between land-capability classes, whereby the potentially conflictive relationship between lower land-compatibility classes is managed and con- trolled. This category would include buffer zones of protected areas, urban sprawl lands, and suburban lands (as part of rural lands with non-agricultural activities and the like). Finally, it would be important to strengthen the relationship between land uses and infrastructure systems in all land-capability classes in order to leverage opportunities and manage potential negative impacts between the polygon of land uses and its structuring systems. IX. Consider the inclusion of complementary territorial planning instruments for specific interventions co- vering a large number of properties to be managed jointly and simultaneously, in both urban and rural areas (Renovation Plans, Urban Improvement Plans, Partial Urban Incorporation Plans and the like, In- formal Settlement Regularization Plans, Integrated Rural Development Plans, Environmental Restoration Plans, Suburban Development Plans, etc.). 79 Paragraph III, Article 26. 80 The development of high-impact projects such as those referred to in the article on Supra-Municipal Impact Plans is precisely grounds for deferred review of PMOTs. Territo- rial planning tends to privilege the definition and delimitation of lands for land-use allocation, based on criteria such as potential and tendencies; however, large infrastruc- ture projects affect the entire system of population-territory relationships, beyond their immediate surroundings and, consequently, the forms and intensities of land use. Incorporating these new relationship systems requires, in many cases, structural adjustments to the Municipalities’ PMOTs in their area of influence. Therefore, positive and negative impacts must be foreseen and managed not only through the Special Plan, but also, primarily, through PMOTs, thereby guaranteeing the best enabling conditions for the projects themselves. Thus, it is advisable to regulate the inclusion process of large infrastructure projects so that their positive impacts are leveraged and potential negative impacts are mitigated through PMOTs. Urbanization and Territorial Development in the Dominican Republic 153 3. Adopting a new territorial planning framework Urban territorial planning X. Draft provisions and guidelines on territorial planning of city systems and urban centers. Among others, it is important to adopt criteria and provisions on the relationship among urban centers (city systems) as well as with their direct (urban edges, suburban areas, and neighboring towns) and indirect (regions supplying food, water, etc.) areas of influence as a basis for the classification, delimitation, and alloca- tion of land uses for urban expansion, suburban, and rural areas, as well as for placing strategic facilities and services in urban areas (not exclusively those required to meet basic needs). 81 XI. In urban, urbanizable, urban expansion, and suburban lands, these provisions are associated with the construction of public spaces (road system, green and recreational space system, utility infrastructure, and equipment) in rural lands. On the one hand, they are related with protected area systems, equip- ment, and road infrastructure for intra- and inter-municipal, regional, and national connectivity, and, on the other hand, with the spatial and functional inclusion of dispersed human settlements in territorial consolidation. This turns out to be particularly important with regard to tourist enclaves and free trade zones, the two “sectors” prioritized by the END, as well as to Special Supra-Municipal Plans. In both ca- ses, these sectors are located in suburban developments in the area of influence of urban centers with which they do not yet maintain balanced relations based on complementarity and interdependence. In tourism, this could be the basis for redefining the relationship between PSOTTs and PMOTs.82 XII. Identify and regulate differentiated forms of land management so that in addition to assigning land uses, “treatments” are assigned to the various sectors of the territory in order to achieve desirable deve- lopment conditions based on the present situation at the time of adopting the Municipal Land-Use Plan (“Development,” “Consolidation,” “Conservation,” “Rehabilitation,” “Renovation,” and “Redevelopment”). XIII. Adopt provisions pertaining to the creation of public systems for different uses, treatments, and plans in such a way as to ensure the availability of land (direct purchase, administrative appropriations and expropriation, and assignments) and full compliance with its social and ecological functions (rules on location, dimensions, characteristics, intensity of uses, furniture, landscaping, etc.). XIV. Consider complementary provisions to regularize land tenure which are required for issuing permits and licenses in the development of TPs. XV. Strengthen the interaction between integrated disaster risk management and territorial planning, in- cluding provisions designed to address climatic variations. In Integrated Disaster Risk Management (IRDM), “exposure” should be explicitly stated as a factor that, jointly with hazard and vulnerability, cons- titutes the “risk itself.” “Exposure” is the direct expression of the spatial dimension of risk. It has to do with the existence of settlements, infrastructure, or other activities in portions of hazard-prone terrain. Failing to understand exposure makes it impossible to assess vulnerability. Acknowledging and managing these exposure situations is the basis for risk prevention and, hence, the key factor in territorial planning. It is also vital to strengthen the incorporation of climate variation-related provisions. These are mainly related to watershed territorial planning, use restrictions and temporary or permanent occupation of 81 Understanding the urbanization history and dynamics of the process as well as the current situation (model) and trends (scenarios) in the Dominican Republic is a good starting point for defining a relevant strategy that strengthens territorial and urban planning and responds to situations and perspectives differentiated by type of region. 82 In this regard, it would be interesting to weigh more specifically the impact that the relationship with its immediate context has on “performance,” “spillover,” and “lagging factors.” 154 flood-prone zones, increased declaration and preservation of urban, rural, and marine protected areas, preservation or promotion of forest cover on slopes, increased permeable green areas, and urban tree planting (for aquifer recharge, runoff management, CO2 abatement, microclimate control, environ- mental quality, and social distancing possibilities). XVI. Review and, if necessary, make adjustments as required to the municipal regime of own and shared competences (Act Nº 176 of 2007 regarding the Distrito Nacional and Municipalities) to ensure har- monization and consistency between the new provisions on territorial planning and the competences of the municipalities.83 Strengthen TP institutional and financial capacities Moreover, adequate implementation of the proposed reforms requires strengthening the existing institutions’ capacities throughout all governmental levels (Ministries and local governments), reinforcing inter-institutio- nal coordination bodies, and regulating/defining competencies and relationships not covered by the propo- sed laws. Among others, this would mean: I. Complement and regulate the creation of the National Planning System by defining the participating institutions, competencies, and forms and instances of participation in order to have an effective com- prehensive sectoral-territorial approach to development planning (in particular, the engagement of the governmental agencies responsible for housing, infrastructure, agricultural development, and risk management, which to date do not seem to have played a role in TP). II. Redefine and regulate institutional competencies and relationships between ministries across all levels of planning, including those between MEPyD ( DGODT) and MinTur (DPP), as a basis for harmonization between TP and PSOTT across the board. It is also necessary to regulate the structure, competencies, and performance of regional instances, including provinces, as well as Municipal Districts (which are not mentioned in the proposed laws). III. Improve the DGODT’s capacity to absorb the additional burdens envisaged in the Law concerning the formulation of the PNOT and regional plans, and support the formulation of municipal TPs and their technical review. To adequately manage the participation of the DGODT and the SNP, it is suggested to regulate the support and review functions as part of a step-by-step territorial planning enhancement strategy by focusing the greatest initial efforts on the development of guidelines and regulations and designing a subnational implementation strategy. IV. Enhance the territorial planning capacity of municipalities. To do so, it is necessary to regulate and ope- rationalize the provision of Territorial Planning Offices, or their equivalent, in all municipalities, not only in those cities with over 50,000 inhabitants. This effort should be part of a prioritized and staggered strategy to create enabling conditions for compliance with the Law. This regulation may be directed to adjust the minimum number of inhabitants per municipality and municipal districts, to promote the formation of associations of municipalities if the less populated municipalities are adjacent, and to define Supra-Mu- nicipal instances (provincial or regional), providing TP support to those municipalities without an OPM. V. Free up resources to implement the reform (fund planning processes and strengthen institutional ca- 83 The territorial planning competencies or provisions that may complement the current socioeconomic planning functions under the Distrito Nacional and Municipalities Act were identified. Urbanization and Territorial Development in the Dominican Republic 155 3. Adopting a new territorial planning framework pacity). Implementing the reform appropriately will also require releasing financial resources to bridge the wide gaps in the development of planning instruments that have been built up over the previous de- cades. Supporting territorial management entails the estimation of probable new resources projected in the proposed PT law (Art. 19) and their comparison with the estimated costs of the activities to be co- vered (Art. 20) so as to establish the adequacy of the former and the need to raise them (amendment, adjustment, or complementation of current public financing laws in the context of decentralization; additional municipal tax revenue from new fees; and services or taxes). Additionally, schedule revenues and expenditures, while bearing in mind activity sequencing. VI. Consider additional lines of financing for risk mitigation processes and projects (generation of infor- mation and preparation of hazard and risk maps, stabilization works, structural retrofitting of buildings, acquisition of lands to prevent occupancy, resettlement of communities or infrastructure from areas of unmitigable risk, among others). Conditioning access to these resources with the formulation and adop- tion of the respective PMOT can be an incentive for municipalities and communities. Develop a strategy for implementing territorial planning based on clear prioritization of territory-wide processes and instruments. The refinement, adjustment, and linkage of the regulatory framework and the institutional structure is critical though insufficient to launch and consolidate a reliable, effective, and sustainable territorial planning process in the Dominican Republic. Experience shows that laws, even the best ones, do not automatically create per se the proper conditions for their enforcement. It is, therefore, imperative to devise a clear strategy for prio- ritizing instruments and actions with short, medium, and long term horizons that include both the completion and regularization of the regulatory and institutional framework as well as compliance capacity building. Overall, the most important activities to be developed and their potential time frames are considered as follows. This should be adjusted in accordance with the effective availability of resources. In the short term, that is, within the next two years, it is important to engage on five fronts (Activities 1 to 7, Table Nº 8): I. Review, adjust, and arrange the proposed laws being discussed, which constitute the regulatory fra- mework for the new territorial planning, until their congressional approval and enactment. Given that the proposed National Territorial Planning and Land-Use Management Planning Law is the most behind schedule to date, the process may require longer for it than for the other two bills. (Activity 2) II. Establish both the National Planning System (3) and the National Information System (4) upon adoption of the regulatory framework (definition of members, functions and roles, processes, bodies, regulations, budgets, etc.) so that they become the core bodies to advance the subsequent phases of the process. III. Regulate the three framework laws, in particular, the Territorial Planning, Land Use, and Settlement Law. (Activity 5) IV. Create Deconcentrated Units in each of the five Unified Planning Regions so that they guide and su- pport the formulation of the Regional and Municipal Territorial Plans. (Activity 6) V. Design the inter-institutional strategy for launching the staggered formulation of the subnational (re- gional and municipal) TPs to address territorial planning priorities as well as the capacities of the res- ponsible bodies across different levels of government (Activity 7). 156 Table 8. New territorial planning implementation strategy and timetable Activity Period Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 1 Adjustment and approval of the proposed laws on Unified Planning Regions and Territorial Planning, Land Use, and Settlement. 2 Completion and passing of the National Land-Use Plan Law. 3 Creation and implementation of the National Territorial Planning System. 4 Establishment and start-up of the National Information System. 5 Regulation of adopted laws 6 Creation of the Unified Territorial Planning Regions (RUPs). 7 Design strategy for implementing subnational TP process. 8 Formulation of Regional TPs - Priority 1 9 Phase One: Technical and budgetary strengthening of municipalities with Priority 1 10 Formulation of Municipal TPs of Municipalities with Priority 1 (50 Municipal TPs) 11 Formulation of Regional TPs - Priority 2 12 Phase One: Technical and budgetary strengthening of municipalities with Priority 2 (50) 13 Formulation of Municipal TPs of Municipalities with Priority 2 (50) 14 Formulation of Regional TPs - Priority 3 15 Phase One: Technical and budgetary strengthening of municipalities with Priority 3 (50) 16 Formulation of Municipal TPs of Municipalities with Priority 3 (50) 17 Follow up implementation of Municipal TPs of Municipalities with Priority 3 18 Review and adjust Municipal TPs of Municipalities with Priority 1 - Strategy review and adjustment. Regional POT Municipal POT Institutional strengh process Plan monitoring and Information adjustment strategy Source: Developed by Author. Urbanization and Territorial Development in the Dominican Republic 157 3. Adopting a new territorial planning framework Territorial prioritization will contribute to concentrating human and financial efforts and resources in key territories nationwide. Prioritization may respond to urgency criteria, i.e., give priority to the development of territorial planning instruments in areas highly exposed to natural disasters and/or with socioeconomic dynamics in need of particular attention (such as high population growth or lagging areas). Urgency-based prioritization would be justified under Act Nº 176 of 2007 regarding the Distrito Nacional and Municipalities. 84 Another prioritization criterion would focus on areas or regions of strategic relevance—with the potential to take on new socioeconomic and/or environmental functions through innovative territorial planning. Prio- ritization may also consider urban expansion patterns and socioeconomic characterization factors (systems of urban-rural relationships, regional functionality in the national context, population attractiveness or ex- pulsion factors, informality, social vulnerability, institutional framework, etc.) and socio-ecological factors (ecological functionality and ecosystem services supply, natural resource base, and natural hazards, e.g., geological, geomorphological, hydrometeorological, productive potential, etc.). The above would also ena- ble the identification of typologies of regions as a benchmark for more tailored territorial planning fitting each typology. In this context, Haitian border zone calls for special analysis, and, probably, equally particular responses in terms of territorial planning and management.85 The training strategy could be designed and developed under the “learning by doing” approach, whereby the TP formulation builds or strengthens understanding and capacity for analysis and decision-ma- king among the participants in the process, especially among staff members of the Planning Offices and municipalities overall. In seeking to make the time and resources available more efficient (such as consultan- cies, support from universities, etc.), it is recommended to design and develop support/training by clustering municipalities. Doing so will also help strengthen criteria standardization as well as territorial interrelation. It is advisable to actively involve universities so that academic-political interaction will help build a critical mass of professionals in land use and territorial planning. Next, in the next 2.5 – 4 years, it is important to support the formulation of top priority regional and mu- nicipal POTs (Activities 8 to 10 of Table Nº 8): I. Formulation of Regional TPs - Priority 1, in line with the priorities defined in Phase One. Ideally consis- tent with RUP and with the participation of territorial and sectoral units from the central government (Activity 8). II. Phase One: Technical and budgetary strengthening of municipalities with Priority 1, located in prioriti- zed region(s). Municipal training and strengthening should be advanced in parallel with the formulation of regional TPs, fostering synergy between the two activities as much as possible so that municipalities engage in the formulation of regional TPs and thus build ownership and knowledge for the formulation of their municipal TPs. This synergy will also contribute to the adjustment and synchronization of mul- ti-scale institutional participation (Activity 9). 84 Article 100 of Act Nº 176 of 2007 regarding the Distrito Nacional and Municipalities establishes the following municipality prioritization criteria for government assistance: (a) they are located in extreme poverty areas according to [sic] sources and studies by the Ministry of Economy, Planning, and Development; (b) due to their geographic location or population settlement, their essential services are more expensive; (c) they have suffered the consequences of catastrophic events that, due to the magnitude of damages, affected population and, in the absence of local resources, require special temporary assistance; and (d) they enjoy a recognized environmental value or a greater tourist interest. 85 o be discussed with the government in workshops. 158 III. Formulation of Municipal TPs of Municipalities with Priority 1 (50 Municipal TPs) (Activity 10). Following this same logic and the critical evaluation of results during the first phase, successive phases involving approximately 50 municipalities will be carried out over the next 5 to 8 years to develop POTs with Priority 2 and 3. (Activities 11 to 17). In the long term; i.e., beyond the next 8-10 years, the consolidation of the territorial planning system in the DR and the TP revision phase will be launched. Upon completion of the second phase (medium term), the DR is expected to have adequate institutio- nal capacity and territorial planning instruments throughout all planning and government levels, including an effective monitoring system for tracking their territory-wide development, which might kick off the revision and adjustment phase of municipal TPs adopted 6-8 years earlier (Activity 18 from Table 8). Urbanization and Territorial Development in the Dominican Republic 159 3. Adopting a new territorial planning framework References Regulations of the Government of Act Nº 147 of 2002 on Risk Management https:// the Dominican Republic: www.oas.org/dsd/EnvironmentLaw/CaribbeanLe- gislationProject/Disaster%26StateEmergency/Do- Act Nº 675 of 1944 on Urbanization, Public Beautifi- mRepublic/Ley%20147%2002.pdf cation, and Construction http://lexgeo.com/leyes/ Ley675.pdf Act Nº 202 of 2004 on Protected Areas http://www. oas.org/dsd/EnvironmentLaw/Serviciosambien- Act Nº 5220 of 1959 on Territorial Division of the Do- tales/DominicanRepublic/Microsoft%20Word%20 minican Republic http://www.opd.org.do/descar- -%20LeysectorialdeareasprotegidasLey202de2004. gas/Gobierno%20Local/Leyes-de-los-municipios/ pdf Fundacion.pdf Decree 710 of 2004 regarding the Creation of Act Nº 6232 of 1963 on Urban Planning Macro Regions https://es.scribd.com/docu- http://lexgeo.com/leyes/Ley6232.pdf ment/273352535/Decree-710-04-Que-Am- pla-La-Regionalizacin Act Nº 257 of 1966 on Civil Defense http://www.defensacivil.gob.do/documentos/item/ Law 496 of 2006 regarding the Creation of the ley-257-66 Ministry of Economy, Planning, and Development (SEEPYD). https://www.creditopublico.gob.do/Con- Act Nº 541 of 1969 on Dominican Tourism tent/marco_legal/2006/ley_496_06_sobre_SEEPYD. https://www.dpp-mitur.gob.do/uploads/BASE_LE- pdf GAL/LEYES/LEY_1969_541.pdf Act Nº 498 of 2006 on the National Public Planning Law Nº 84 of 1979 amending Law Nº 541-69, which and Investment System https://observatorioplanifi- creates the Secretary of State for Tourism, today cacion.cepal.org/sites/default/files/instrument/files/ the Ministry of Tourism. https://www.dpp-mitur.gob. Ley-Nº-498-06-de-Planificacion-e-Inversion-P–bli- do/uploads/BASE_LEGAL/LEYES/LEY_1979_084.pdf ca.pdf Law 14 of 1991 on Civil Service and Public Adminis- Act Nº 176 of 2007 on the Distrito Nacional and tration http://www.oas.org/juridico/spanish/mesi- Municipalities https://www.sismap.gob.do/Muni- cic2_repdom_sc_anexo_1_sp.pdf cipal/uploads/Marco%20Legal/Otras/0-Ley%20 176-07%20del%20Distrito%20Nacional%20y%20 Act Nº 64 of 2000 on Natural Resources and the los%20Municipios.pdf Environment https://ambiente.gob.do/wp-content/ uploads/2016/09/Ley-No-64-00.pdf Act Nº 41 of 2008 on Public Service. https://obser- vatorioserviciospublicos.gob.do/baselegal/Ley-41- Decree 685 of 2000 regarding the Creation of the 08-Funcion-publica.pdf National Planning and Decentralization System. https://docs.republica-dominicana.justia.com/na- cionales/leyes/ley-496-06.pdf 160 Decree Nº 874 of 2009 approving the Regulations of PROPOSED LAW ON UNIFIED PLANNING REGIONS Law Nº 147-02 http://defensacivil.gob.do/transpa- IN THE DOMINICAN REPUBLIC https://topodata. rencia/base-legal/item/Decree-874-09-de-aplica- com/wp-content/uploads/2019/10/anteproyec- ción-ley-147-02 to-de-ley-regiones-unicas-de-planificacion.pdf Act Nº 1 of 2012 on the Dominican Republic’s Stra- NATIONAL CONSULTATION PAPER ON TERRITORIAL tegic Development Plan 2030 (END) https://mepyd. PLANNING 2030 Consensus-based draft of the gob.do/mepyd/wp-content/uploads/archivos/end/ National Territorial Planning and Land-Use Plan. marco-legal/ley-estrategia-nacional-de-desarro- Ministry of Economy, Planning, and Development. llo.pdf Ministry of Environment and Natural Resources. Ver- sion Date: 11.19.2015 / Dominican Republic https:// Decree 275 of 2013 on the National Integrated Di- observatorioplanificacion.cepal.org/sites/default/ saster Risk Management Plan in DR http://www.cac. files/plan/files/CONSULTA%20PLAN%20DE%20OT. int/sites/default/files/Rep%C3%Bablica_Dominica- pdf na._Plan_Nacional_Gesti%C3%B3n_Riesgos.pdf Senate of the Republic, Legislative Secretariat-Ge- Decree 134 of 2014 on Regulations of the National neral – Proposed Law on Territorial Planning, Land Development Strategy 2030. https://mepyd.gob. Use, and Settlement, February 4, 2019 do/mepyd/wp-content/uploads/archivos/end/mar- co-legal/Decree_134-14.pdf https://topodata.com/wp-content/ uploads/2019/10/anteproyecto-de-ley-de-ordena- The Dominican Republic’s Constitution of 2015 miento-territorial-y-uso-de-suelo.pdf http://extwprlegs1.fao.org/docs/pdf/dom187716. pdf MEPyD-DGODT-Ministry of Environment-House of Representatives-Municipal Affairs Committee Municipal Ordinance 09 of 2019 Santo Domingo Proposed Law on Territorial Planning, Land Use, https://www.sismap.gob.do/Municipal/uploads/ and Settlement) (no date) http://economia.gob. evidencias/636960371890752726-12-junio-2019-Or- do/mepyd/wp-content/uploads/archivos/despa- denanza-9-2019-aprueba-TP-DN-Ayuntamiento- cho/ordenamiento-territorial/seminario-taller/ DN.pdf anteproyecto-de-ley-de-ordenamiento-territo- rial-y-uso-de-suelo.pdf Dominican Government Technical Papers: MINISTRY OF ECONOMY, PLANNING, AND DEVELOP- MENT – DRAFT OF PROPOSED LAW ON TERRITORIAL Presidency of the Republic, Ministry of Public Ad- PLANNING, LAND USE, AND SETTLEMENT, November ministration, Municipal SISMAP Guide, 2019 Version 2020 – General Guidelines of Government Agenda Públicahttps://www.sismap.gob.do/Municipal/ for the Change by the Modern Revolutionary Party uploads/Guia/05.%20Gu%C3%Ada%20SISMAP%20 2020-2024 (Version dated December 2019) DISCUS- Municipal%20Final.pdf SION PAPER version 9.5 https://www.cambiord2020. com/wp-content/uploads/2019/11/Lineamientos_ Programa_Gobierno_Luis_Abinader.pdf Urbanization and Territorial Development in the Dominican Republic 161 3. Adopting a new territorial planning framework DGODT, Ministry of Economy, Planning, and Develo- http://ayuntamientosde.gob.do/transparencia/ pment, Policy Paper “Políticas Públicas Territoriales y wp-content/uploads/2019/02/An%C3%A1li- Municipales para el Cambio” 2020. sis-de-riesgos-de-dsastres-y-vulnerabilida- des-en-Rep.-Dom..pdf DGODT, Ministry of Economy, Planning, and Develo- pment, DOMINICAN REPUBLC NATIONAL REPORT for General Directorate of Territorial Planning and De- the Third United Nations Conference on Hou- velopment, Institutional Report 2015 .https://memo- sing and Sustainable Urban Development; SANTO rias.minpre.gob.do/api/documents/292/download DOMINGO, DOMINICAN REPUBLIC SEPTEMBER 2016. MINISTRY OF ECONOMY, PLANNING, AND DEVELO- MEPyD, Vice Minister of Planning Juan T. Monegro, PMENT, DGODT – DRAFT OF PROPOSED LAW ON Technical Coordinator – DOMINICAN REPUBLIC TERRITORIAL PLANNING, LAND USE, AND SETTLE- NATIONAL REPORT for the Third United Nations MENT – November 2020. Conference on Housing and Sustainable Urban Development; SANTO DOMINGO, DOMINICAN MINISTRY OF TOURISM / Cristobal Valdez y Asocia- REPUBLIC SEPTEMBER 2016 (Technical Coordination dos, Arquitectos Urbanistas. PROJECT: Territorial of the Report). Planning and Land-Use Plan for Juanillo-Punta Cana-Macao Area (Final Version) / ASOCIACION https://mepyd.gob.do/wpcontent/uploads/drive/ NACIONAL DE HOTELES Y PROYECTOS TURISTICOS VIMICI/Publicaciones%20e%20Informes/Publica- DE LA ZONA ESTE / Santo Domingo, MARCH 2008. ciones/informe-habitat-3.pdf Policy Paper “Políticas Públicas Territoriales y Muni- Ministry of Economy, Planning, and Development. cipales para el Cambio.”(DGODT? Date?) Vice-Ministry of Planning, General Directorate of Territorial Planning “STATUS OF TERRITORIAL PLAN- Dominican Political Observatory, Local Government NING IN THE DOMINICAN REPUBLIC - EXECUTIVE Unit Karina Taveras Coordinator Yanelkis Fernán- SUMMARY V.3”. October 2014. dez, “Territorial Planning and Land Use Law in the Dominican Republic, Contributor, July 2015. http:// Ministry of Economy, Planning, and Development www.opd.org.do/index.php/analisis-gobiernolo- (MEPyD) Institutional Report 2019, Santo Domingo, cal/2016-sobre-la-ley-de-ordenamiento-territo- DN December 2019. rial-y-uso-de-suelo-en-republica-dominicana https://mepyd.gob.do/wp-content/uploads/ European Commission for Humanitarian Aid. Con- drive/Transparencia/Plan%20estrategico%20 sultancy developed by: Natalia Gómez de Trave- de%20la%20Institucion/Memoria%20Rendicio%C- sedo, Paola Saenz Ramírez: “Análisis de riesgos de C%81n%20de%20Cuentas%20MEPyD%202019.pdf desastres y vulnerabilidades en la República Do- minicana.” Documento de contribución al Sistema DGODT/UNDP Methodological guide for formula- Nacional de Prevención, Mitigación y Respuesta a ting the Municipal Land-Use Plan, January 2016. Desastres, March 2009. http://economia.gob.do/mepyd/wp-content/ uploads/archivos/libros/guia-pmot.pdf 162 General Directorate of Territorial Planning/UNDP https://es.wikipedia.org/wiki/Provincias_de_la_Re- Methodological guide for formulating the Municipal p%C3%Bablica_Dominicana Land-Use Plan. http://economia.gob.do/mepyd/wp-content/ uploads/archivos/libros/guia-pmd.pdf Cassidy Johnson, Armando Caroca Fernandez, and Paula Restrepo Cadavid. “Urban Planning and Re- silience Building in the Caribbean.” Policy Research Working Paper. Institutional Websites: https://mepyd.gob.do/mepyd/wp-content/ uploads/archivos/end/marco-legal/ley-estrate- gia-nacional-de-desarrollo.pdf http://ambiente.gob.do/   https://ambiente.gob.do/viceministerio-ges- tion-ambiental/ http://mepyd.gob.do/dgodt/ http://mitur.gob.do/dependencias/ https://www.dpp-mitur.gob.do/index.php?page=a- cerca https://www.dpp-mitur.gob.do/ https://www.dpp-mitur.gob.do/index.php?page=a- cerca-del-planeamiento-de-zonas-turisticas http://dgodt.gob.do/index.php/servicios/ item/245-servicio-03 http://www.dominicana.gob.do/index.php/e-muni- cipios/e-localidades/158-municipios Urbanization and Territorial Development in the Dominican Republic 163 3. Adopting a new territorial planning framework Annex 1. Status of territorialized planning in the DR Four maps provided by the DGODT display the geographic distribution of the three indicators of the status of territorial planning in the DR (Map 1: Formation of Municipal Development Councils - CMD; Map 2: Formu- lation and Adoption of Municipal Development Plans - PMD; Map 3: Formulation and Adoption of Municipal Territorial Plans and POTTs); and Map 4: Aggregate Planning Processes. Figure A1.1. Formation of municipal development councils LU PERÓN 1 2 5 Unified Planning Regions proposal VILLA ISABELA MONTE CRISTI VILLA VÁSQUEZ IMBERT PUERTO PLATA CASTAÑUELAS LOS HIDALGOS Regional border VILLA GUANANICO MONTELLANO SOSÚA PEPILLO GUAYUBÍN LAGUNA SALADA SALCEDO ALTAMIRA JAMAO AL ESPERANZA NORTE LAS MATAS GASPAR 1 Northwest Cibao DE SANTA HERNÁNDEZ DAJABÓN CRUZ VILLA CABRERA BISONÓ GONZÁLEZ RÍO SAN JUAN PARTIDO MAO SAN TENARES TAMBORIL VICTOR LOMA DE CABRERA EL PINO MONCIÓN SANTIAGO LICEY SALCEDO 2 Northeast Cibao AL MEDIO SAN IGNACIO MOCA DE SABANETA PUÑAL NAGUA SAN RESTAURACIÓN VILLA LOS ALMÁCIGOS SABANA IGLESIA BAITOA CAYETANO GERMOSÉN FRANCISC O DE MACORÍS 3 South-central VILLA TAPIA EL FACTOR SAN JOSÉ DE LAS TERR ENAS Eastern LAS MATAS JÁNICO LA VEGA LAS GUÁRANAS CASTILLO SAMANÁ 4 PIMENTEL ARENOSO EUGENIO PEDRO SANTANA MARÍA DE VILLA RIVA JIMA ABAJO FANTINO LA MATA HOSTOS SÁNCHEZ 5 Southwestern JARABACOA SAN JUAN BÁNICA SABANA CEVICOS DE LA MAR SABANA GRANDE COTUÍ DE BOYÁ LAS MATAS COMENDADOR BOHECHÍO DE FARFÁN BONAO MICH ES EL VALLE CONSTANZA JUAN DE MAIMÓN HERRERA PERALVILLO BAYAGUANA PADRE LAS CASAS EL LLANO PIEDRA BLANCA JUAN MONTE PLATA SANT IAGO EL SEIBO EL CERCADO YAMASÁ HATO MAYOR HONDO VALLE GUAYABAL RANCHO ARRIBA HIGÜEY VALLEJUELO SABANA LARGA POSTRER RÍO VILLA ALTAGRACIA LA LOS RÍOS LOS LLANOS LAS YAYAS LOS SANTO DESCUBIERTA DE VIAJAMA PERALTA PEDRO BRAND CACAOS DOMINGO JIMANÍ VILLA NORTE JARAGUA CONSUELO NEIBA SAN ANTONIO DE GUERRA GUAYMATE GALVÁN LOS QUISQUEYA ESTEBANÍA SANTO RAMÓN SANTANA SAN JOSÉ ALCARRIZOS DOMINGO TAMAYO DE OCOA ESTE SANTO TÁBARA ARRIBA SAN DOMINGO LA ROMANA AZUA CAMBITA CRISTÓBAL VILLA GARABITOS OESTE BOCA CHICA HERMOSA BAJOS DE GUAYAC ANES LAS CHARCAS BANÍ HAINA SAB ANA YEGUA PUEBLO VIEJO SAN VICENTE NOBLE RAFAEL DEL SAN GR EGORIO YUMA DE NIGUA CRISTÓBAL YAGUATE DUVERGÉ MELLA JAQUIMEYES EL PEÑÓN NIZAO MDC status FUNDACIÓN MATANZAS LAS SABANA GRANDE SALINAS DE PALENQUE CABRAL BARAHONA PEDERNALES POLO LA CIÉN AGA Formed ENRIQUILLO PARAÍSO 4 3 Active Inactive OVIEDO Source: DGODT / MEPyD 164 Figure A1.2. Formulation and adoption of municipal development plans LU PERÓN 1 2 5 Unified Planning MONTE CRISTI VILLA VÁSQUEZ VILLA ISABELA IMBERT Regions proposal PUERTO PLATA CASTAÑUELAS LOS HIDALGOS Regional border VILLA GUANANICO MONTELLANO SOSÚA PEPILLO GUAYUBÍN LAGUNA SALADA SALCEDO ALTAMIRA JAMAO AL ESPERANZA NORTE Northwest Cibao LAS MATAS 1 GASPAR DE SANTA HERNÁNDEZ DAJABÓN CRUZ VILLA CABRERA BISONÓ GONZÁLEZ RÍO SAN JUAN PARTIDO MAO SAN TENARES TAMBORIL 2 Northeast Cibao VICTOR SANTIAGO EL LOMA DE PINO MONCIÓN LICEY CABRERA SALCEDO AL MEDIO SAN IGNACIO MOCA DE SABANETA PUÑAL NAGUA 3 South-central SAN FRANCISC O SABANA CAYETANO DE MACORÍS VILLA LOS IGLESIA GERMOSÉN ALMÁCIGOS RESTAURACIÓN BAITOA VILLA TAPIA EL FACTOR SAN JOSÉ DE Eastern LAS TERR ENAS 4 LAS MATAS JÁNICO LA VEGA CASTILLO SAMANÁ LAS GUÁRANAS PIMENTEL ARENOSO EUGENIO Southwestern PEDRO SANTANA 5 MARÍA DE VILLA RIVA JIMA ABAJO HOSTOS FANTINO SÁNCHEZ LA MATA JARABACOA SAN JUAN BÁNICA SABANA CEVICOS DE LA MAR SABANA GRANDE COTUÍ DE BOYÁ LAS MATAS COMENDADOR BOHECHÍO DE FARFÁN BONAO MICH ES EL VALLE CONSTANZA JUAN DE MAIMÓN HERRERA PERALVILLO BAYAGUANA PADRE LAS CASAS EL LLANO PIEDRA BLANCA JUAN MONTE PLATA SAN T IAGO EL SEIBO EL CERCADO YAMASÁ HATO MAYOR HONDO VALLE GUAYABAL RANCHO ARRIBA HIGÜEY SABANA VALLEJUELO LARGA POSTRER RÍO VILLA ALTAGRACIA LA LOS RÍOS LOS LLANOS LAS YAYAS LOS SANTO DESCUBIERTA PERALTA PEDRO BRAND DE VIAJAMA CACAOS DOMINGO JIMANÍ VILLA NORTE CONSUELO JARAGUA SAN ANTONIO NEIBA DE GUERRA GUAYMATE GALVÁN LOS QUISQUEYA SANTO RAMÓN SANTANA ESTEBANÍA SAN JOSÉ ALCARRIZOS TAMAYO DOMINGO DE OCOA ESTE SANTO TÁBARA ARRIBA SAN DOMINGO LA ROMANA AZUA CAMBITA CRISTÓBAL VILLA GARABITOS OESTE BOCA CHICA HERMOSA BAJOS DE GUAYAC ANES LAS CHARCAS BANÍ HAINA SAB ANA YEGUA PUEBLO VIEJO SAN VICENTE NOBLE RAFAEL DEL SAN GR EGORIO YUMA DE NIGUA CRISTÓBAL YAGUATE DUVERGÉ MELLA JAQUIMEYES EL PEÑÓN MDP status FUNDACIÓN NIZAO MATANZAS LAS SABANA GRANDE SALINAS DE PALENQUE CABRAL BARAHONA PEDERNALES POLO LA CIÉN AGA Formulated ENRIQUILLO PARAÍSO 4 3 In process Not submitted OVIEDO Submitted Source: DGODT / MEPyD. Speaking of CDM and PMD, the Suroeste Unified Planning Region (RUP) seems to be the most advanced, while the other four RUPs report similar status, as seen in the following table regarding PMDs. 86 86 DGODT was asked if it was required to have a Regional Land-Use Plan. Its response is pending. Urbanization and Territorial Development in the Dominican Republic 165 3. Adopting a new territorial planning framework Figure A1.3. Formulation and adoption of municipal territorial plans and POTTs Santiago MONTE CRISTI VILLA ISABELA LU PERÓN 1 2 5 Unified Planning VILLA VÁSQUEZ Regions proposal IMBERT PUERTO PLATA CASTAÑUELAS LOS HIDALGOS VILLA GUANANICO MONTELLANO SOSÚA PEPILLO GUAYUBÍN LAGUNA SALADA Regional border SALCEDO ALTAMIRA JAMAO AL Las Terrenas ESPERANZA NORTE LAS MATAS GASPAR DE SANTA HERNÁNDEZ DAJABÓN CRUZ VILLA CABRERA BISONÓ GONZÁLEZ PARTIDO MAO TENARES RÍO SAN JUAN 1 Northwest Cibao Samaná TAMBORIL SAN VICTOR EL LOMA DE PINO Northeast Cibao CABRERA MONCIÓN LICEY 2 SALCEDO AL MEDIO SAN IGNACIO MOCA DE SABANETA PUÑAL NAGUA SAN FRANCISC O SABANA CAYETANO DE MACORÍS VILLA LOS IGLESIA GERMOSÉN ALMÁCIGOS South-central RESTAURACIÓN 3 BAITOA VILLA TAPIA EL FACTOR SAN JOSÉ DE LAS MATAS JÁNICO LA VEGA CASTILLO LAS GUÁRANAS Miches 4 Eastern PIMENTEL ARENOSO EUGENIO PEDRO SANTANA MARÍA DE VILLA RIVA JIMA ABAJO HOSTOS Jarabacoa FANTINO SÁNCHEZ LA MATA BÁNICA SAN JUAN CEVICOS SABANA DE LA 5 Southwestern MAR SABANA GRANDE COTUÍ DE BOYÁ LAS MATAS COMENDADOR BOHECHÍO DE FARFÁN BONAO EL VALLE CONSTANZA JUAN DE MAIMÓN HERRERA PERALVILLO BAYAGUANA PADRE LAS Juan Santiago CASAS EL LLANO PIEDRA BLANCA MONTE PLATA Guayabal EL SEIBO Hondo Valle EL CERCADO YAMASÁ HATO MAYOR RANCHO ARRIBA HIGÜEY VALLEJUELO SABANA LARGA POSTRER RÍO VILLA ALTAGRACIA LA LOS RÍOS LOS LLANOS LAS YAYAS LOS SANTO DESCUBIERTA DE VIAJAMA PERALTA PEDRO BRAND CACAOS DOMINGO JIMANÍ VILLA NORTE JARAGUA CONSUELO NEIBA SAN ANTONIO DE GUERRA GUAYMATE GALVÁN LOS QUISQUEYA ESTEBANÍA SANTO RAMÓN SANTANA SAN JOSÉ ALCARRIZOS DOMINGO TAMAYO DE OCOA ESTE SANTO TÁBARA ARRIBA SAN DOMINGO LA ROMANA AZUA CAMBITA CRISTÓBAL VILLA GARABITOS OESTE HERMOSA BOCA CHICA GUAYAC ANES BAJOS DE LAS CHARCAS BANÍ HAINA PUEBLO VIEJO SAN VICENTE NOBLE RAFAEL DEL SAN GR EGORIO YUMA DE NIGUA CRISTÓBAL YAGUATE DUVERGÉ MELLA JAQUIMEYES O EL PEÑÓN FUNDACIÓN NIZAO MATANZAS LAS SABANA GRANDE SALINAS DE PALENQUE CABRAL POLO LA CIÉN AGA Sabana Yegua Santo Domingo San PARAÍSO de Guzmán Pedro de DR-POT Marcoris ENRIQUILLO Pedernales 4 Barahona 3 DR-POT CC OVIEDO 35% progress 60% progress Finished Source: DGODT / MEPyD 166 Annex 2. Status of tourism territorial planning processes: Information provided by the Secretariat of Planning and Projects of the Ministry of Tourism on the status of the tourism territorial planning processes being carried out by the agency is included below. Table A2.1. Tourism territorial planning and management instruments 1 EXISTING STRATEGIC PLANS NORTH Puerto Plata EAST Miches SOUTH Barahona Península de Samaná Punta Cana-Bávaro-Macao Santiago María Trinidad Sánchez Bayahibe Dajabón Boca Chica La Vega Higüey Valverde San Pedro de Macorís Monte Cristi San José de Las Matas Jarabacoa PSOTT NORTH Sosúa EAST Miches - Seibo - Hato Mayor SOUTH Pedernales San Felipe Puerto Plata Punta Cana-Bávaaro-Macao Las Terrenas (Samaná Norte) Unidad Ambiental 2 Macao Cabarete Source: Secretariat of Planning and Projects - MinTur Urbanization and Territorial Development in the Dominican Republic 167 3. Adopting a new territorial planning framework Table A2.2. Tourism territorial planning and management instruments 2 PSOTT - MISSING PSOTT - APPROVAL/UPDATE PENDING NORTH Samaná (Zona Sur) NORTH Cabarete Monte Cristi Espaillat María Trinidad Sánchez Playa Dorada Bávaro - Macao - Punta Cana EAST Montellano - Punta Bergantín Miches Boca Chica EAST Bayahibe - Isla Saona Boca Chica Circunvalación Verón SPECIAL PLANS Hato Mayo * Regulations for housing in tourist destinations La Romana (priority, collective and second residence) La Vacama hasta Miches - Special Plan Punta Bergantín San Pedro Boca de Yuma - Special Plan Circunvalación de Verón SOUTH Baní Azua Barahona Municipio Pedernales Source: Secretariat of Planning and Projects - MinTur 4. Local Governments William Dillinger 170 Table of Contents Introduction 172 1. Structure, functions, and revenues of local governments 173 1.1 Local governments have limited functions 174 1.2 Local expenditures reflect local government‘s limited responsibilities 176 1.3 Local revenues are largely derived from transfers 179 1.4 Local governments have very little taxing authority 181 2. Performance 184 2.1 There are important gaps in the collection of solid waste and its disposal is inadequate 184 2.2 Most municipalities do not plan their territory and cannot coordinate major infrastructure 187 investments within them 2.3 There are deficiencies in municipal internal management 187 3. Directions for Reform 191 3.1 Defining the problem 191 3.2 Local governments need more funding 191 3.3 Local governments should have more taxing authority 193 3.4 The formula for distributing transfers should remain as it is 196 3.5 The level of transfers should be stabilized 199 3.6 While local governments should have more revenues, they need not have more service 199 responsibilities 3.7 Local governments should not be consolidated 200 3.8 Local government management should be improved 203 4. Summary and Recommendations 203 References 204 Figures Figure 1. Local spending (in general government spending percentage) in Dominican Republic 172 and other Latin American countries Figure 2. Local government own functions 175 Figure 3. Municipal spending by function, 2019 176 Urbanization and Territorial Development Review in the Dominican Republic 171 4. Local Governments Figure 4. Local governments expenditures by function as a percent of total spending, major cities 178 and others, 2019 Figure 5. Local governments expenditures by function as a percent of total spending, metro 180 Santo Domingo, 2019 Figure 6. Sources of municipal revenue, 2015-2019 180 Figure 7. Transfers as percentage of central government revenues 2015-2019 181 Figure 8. Average municipal receipts per capita, by province, 2019 183 Figure 9. Metro Santo Domingo: per capita revenues by municipality 183 Figure 10. Average SISMAP scores: municipios and distritos, 2020 188 Figure 11. Revenues from recurrent property taxes, regional comparators (percent of GDP) 194 Figure B6.1 Average population of local governments, regional Comparisons 202 Tables Table 1. Sources of revenues: Distrito Nacional and Santiago, 2019 182 Images Image 1. Collection of solid waste in informal settlements is poor 185 A. Solid waste clogs drainage channels in Santo Domingo 185 B. Solid waste from the Ozama River pollutes the beaches 185 Image 2. Solid waste disposal does not meet minimum environmental standards 186 Boxes Box 1. Central controls on the allocation of municipal expenditures are not enforced… 179 and shouldn’t be Box 2. Participatory budgeting 191 Box 3. How much more Is needed: the Holguin report estimates 193 Box 4. The COPREM proposal 197 Box 5. Diseconomies of scale in solid waste management in the Dominican Republic 201 Box 6. Are Dominican local governments too small? Regional comparisons 202 172 Introduction The Dominican Republic is one of the most centralized major countries in Latin America. At present, local governments account for only 2.4 percent of total government spending. As shown in Figure 1, this is far be- low the proportion in other countries in the region, and is on par with last-place Panama. In part, this reflects their relatively limited role in the provision of public services. Unlike in Brazil or Colombia, for example, local governments in the DR play no role in the provision of public education. But unlike in other countries, major infrastructure functions—urban water supply and sewerage and major transport infrastructure—all fall, in effect, under the purview of the central government. The small role of local government also reflects constraints on their funding. Unlike virtually all other major countries in the region, local governments in the DR are not permitted to impose a broad-based lo- cal tax—such as the property tax. They are instead dependent on central government transfers—which are perpetually underfunded—and a wide array of obscure taxes and nuisance fees, none of which generate significant levels of revenue on their own. Their resulting precarious financial positions hampers their ability to finance capital investments out of their own revenues, or to access external sources of capital funding. Instead, they are largely dependent on the construction of capital works by the central government. Figure 1. Local spending (in general government spending percentage) in Dominican Republic and other Latin American countries 25 20 15 10 5 0 Colombia Brazil Chile Peru El Salvador Mexico Costa Rica Dominican Panama Republic Sources: DR figures are from the Ministerio de Hacienda Agregación Institucional para la Consolidación de la Ejecución del Sector Público No Financiero) and refer to 2018. Figures for other countries are from the IMF Government Finance Statistics website and refer to 2018, except in the case of Mexico (2017). In all cases, figures for general public expenditure include spending by the central government, decentralized institutions, and the social security system. With the exception of Costa Rica, Panama, and El Salvador, data for Central American and Caribbean countries is not available. Urbanization and Territorial Development Review in the Dominican Republic 173 4. Local Governments With the emergence of very large cities in the DR as well as expected rapid growth in peripheral cities and smaller towns (see Note 1) this model no longer works. It is true that the central government has attempted to coordinate and prioritize its own capital spending. But the fact remains that local governments have little control over the allocation of capital spending within their jurisdictions. As a result, the DR is failing to take advantage of one of the key comparative advantages of local government: their ability to prioritize and coordinate development within their own jurisdictions. This problem appears to be compounded by management problems within local governments themselves. Credible data on the quality of local management is hard to come by—particularly given the constraints on field visits posed by the Covid crisis. However, local governments lack the tools for planning and controlling urban development (see Note 3). They also face difficulties performing the few functions that are exclusively assigned to them—such as solid waste management. This note is divided into four sections. Section 2 provides key institutional and fiscal background: the structure, functions, and revenues assigned to local governments. It focuses in particular on the system of re- venue assignment, and the difficulties local governments have had in securing an adequate and stable level of funding. Section 3 focuses on the internal management of local government. (Due to the data constraints described above, this discussion is curtailed.) Section 4 then discusses directions for reform, focusing first on revenue issues: whether local governments currently have the resources required to perform their existing responsibilities and whether the structure of those revenue sources should be changed. This section also dis- cusses the structure of local governments, including proposals to consolidate small local governments into larger jurisdictions. It concludes with a list of recommendations. Section 5 provides a summary. 1. Structure, functions, and revenues of local governments The Constitution of the Dominican Republic defines the country as a unitary state, divided for administra- tive and political purposes into a national district, regions, provinces, and municipalities. Regions and pro- vinces are essentially administrative arms of the central government—the chief executives of the provinces are appointed by the president. The municipalities constitute the basic unit of local elected government. They are legal entities, with budgetary autonomy and administrative powers and are entitled to own property. The mayor (síndico) and council members (regidores) are directly elected. The national district has the status of a municipality as well as a province. Municipalities in many cases contain one or more subordinate units of government, termed districts (distritos). These govern distinct parts of the municipal territory. The Municipio of San Jose de Ocoa, for example, contains four distritos, in addition to the territory governed directly by the municipio itself. Except in the municipios surrounding the Distrito Nacional and Santiago, districts tend to have small populations (un- der 20,000). The municipal law defines districts as deconcentrated units of their respective municipal gover- nments.1 Nevertheless, district council executives and council members (directores and vocales, respectively) are directly elected. As of 2017, there were 158 municipios and 234 distritos municipales. In this chapter, the term “local governments” (LGs) refers to municipios and distritos municipales together. 1 Under the municipal law, deconcentration is defined as the delegation of authority and functions to a lower level of administration. 174 The legal framework for local government is largely set out in a single law. The 135-page Ley del Distrito Nacional y los Municipios (Law 176/07) sets out the powers and functions of local government, the process for electing mayors and council members, and the budget formulation and financial reporting pro- cesses that are to be observed. It also sets out the revenues assigned to the local level, but only in broad terms. A separate law (Law 166/03) sets out the terms of central government transfers to local governments. 1.1 Local governments have limited functions While the municipal law permits local governments to perform a wide range of functions, in fact their responsibilities are very limited. According to Article 18 of the municipal law, a municipal government “shall exercise the management of its own functions, within the framework of the Constitution and the relevant laws” (Dominican Republic, 2007a). “Own functions” are defined as those that are exclusively assigned to local governments in accordance with the Constitution, sectoral laws, and the municipal law itself. Article 19 of the municipal law lists 15 such functions. They include the construction and maintenance of urban streets and rural roads, traffic management, management of solid waste, street cleaning, street lighting, firefighting, the maintenance of parks, and the operation of markets and cemeteries (see Figure 2). Article 20 goes on to define most of these as obligatory functions. (The only major exceptions are traffic regulation and land use control.) Article 79 separately defines the functions of municipal districts. These largely reiterate the functions assigned to the municipal level with the exceptions of fire-fighting, park maintenance, operation of markets and slaughterhouses, and land use planning and control. The law also authorizes local governments to engage in “shared or coordinated functions” such as water supply and sewerage and prevention of disasters.2 These include water supply and sewerage, social protection, public security, public health, public education, and civil defense, and the prevention of disasters. In practice, the role of local governments in provision of these services is minimal. Local governments have no direct role in the provision of urban water supply or sewerage. These services are instead provided by re- gional companies in metropolitan Santo Domingo3 (CAASD) and Santiago (CORAASAN), as well as in Puerto Plata (CORAAPLATA), Moca (CORAMOCA), and La Romana (CORAAROM). All these companies are directly subordinate to the Office of the President rather than to the local governments they serve. The national water and sewerage authority (INAPA) provides these services in other cities and towns. Community-based water boards do so in rural areas. The local role in disaster-related infrastructure is also very limited. The law on disaster risk mana- gement (Law 147-02) requires the various levels of government (central, regional, provincial, and municipal) to collaborate in preventing and responding to disasters, noting specifically that each level will “freely and autonomously exercise its activities in this regard, in strict accordance with the attributions that each of them has been specifically assigned in the Constitution.” But the vast majority of spending on DRM occurs at the central level. According to BOOST data, municipalities spent only RD$ 1.2 million (US$ 24,000) in total on “civil 2 The law defines these as “shared or coordinated powers (are) all those that correspond to the function of the public administration, except those that the Constitution assigns exclusively to the Central Government, guaranteeing as minimum powers the right to be duly informed, the right to be taken into account, the right to participate in coordination, and financial sufficiency for their proper participation.” 3 Including the Distrito Nacional and the province of Santo Domingo. Urbanization and Territorial Development Review in the Dominican Republic 175 4. Local Governments Figure 2. Local government own functions Land use Urban / Rural Street lighting planning Roads and cleaning Maintenance Solid Waste Traffic of parks Management Management Firefighting Markets Cemeteries Source: authors, based on Dominican Republic (2007a). defense and disaster risk management” in 2018. The central government, in contrast, spent RD$ 11.6 billion (US$ 46 million) or ten thousand times the amount spent by the local governments.4 Local governments also play a relatively minor role in providing tourism infrastructure. Note 3 of this report describes the dominant role played by central government ministries and agencies in the develop- ment of tourism. Tourism elements fall within sector plans for the Ministry of Public Works & Communications; Environment & Natural Resources; and Economy, Planning & Development. CEIZTUR, a central government agency, is responsible for implementing infrastructure plans in tourism areas. The main touchpoint between local government and the tourism sector occurs at the issuance of land-use permits. The local role in social services and security is also minimal. Local governments as a group devote only about four percent of their budgets to social assistance and about two percent of their budgets to public security. Spending on education is negligible.5 In addition to these specific services, the Local Government law also assigns local governments responsibility for certain planning and regulatory functions. According to the Local Government Law, local governments are responsible for land use planning and management: “land-use planning, urban planning, land management, execution, and urban discipline.” But they are not alone in this. As described in Note 2, these responsibilities are shared with various central government entities. Territorial planning is a responsibi- lity of the Ministry of Economy, Planning, and Development (MEPyD) in coordination with the Ministry of the Environment and Natural Resources. Within the Ministry, the General Directorate of Territorial Planning and 4 Detailed data on central government spending on disaster management is available only for 2017 and covers three institutions (Ministerio de Agricultura, Ministerio de Obras Públicas y Comunicaciones, and Ministerio de Medio Ambiente y Recursos Naturales). Of total central government spending on disaster management, 86 percent was spent by the Ministerio de Obras, largely on the reconstruction of roads and bridges. The largest single contract (RD$ 431 million) was nevertheless for the reconstruc- tion of flood control works (reconstruction of hydraulic works, adapting waterways, clearing canals and drainages, and constructing retaining walls) in the province of Monte Cristi in response to floods in 2016. Smaller amounts were spent on the reconstruction of housing. A detailed breakdown of central government spending, by project, is available on the Government website. 5 According to BOOST data for 2018, local governments spent 0.9 percent of their budgets on education. Virtually all of this was devoted to “teaching not attributable to any level .” 176 Development (DGODT) is responsible for formulating public policies for territorial development within the framework of the National System for Land Management and Planning. This legislation has been supple- mented by a vast array of additional laws and regulations mandating, inter alia, the creation of municipal development councils and the production of municipal development plans (PMDs) and various kinds of land use plans (planos de ordenamiento territorial—POTs). It should be noted that this legislation has not been wi- dely implemented. Only ten of the 151 municipalities recently surveyed by the DGOT have active CDMs. Only eight have completed POTs. And only six have both a development council and the entire suite of planning documents required by law. 1.2 Local expenditures reflect local government‘s limited responsibilities The largest single category of municipal expenditure is “administration.” According to data from the Ge- neral Budget Directorate (DIGEPRES) spending on “administration” accounted for roughly 30 percent of total local government expenditures in 2019. (BOOST data for 2018 provides further detail. Of total local spending on administration in that year, two-thirds was spent on the offices of the mayor and council, and the remain- der on “administrative, financial, fiscal and economic management and planning.”) Solid waste management was the largest category of sectoral expenditures in 2019. It accounted for 22 percent of the total (see Figure 3). Transportation (i.e., road construction and maintenance) accounted for eight percent. Spending on sports, social protection, and other specific sectors accounted for a total of 27 percent. A large proportion of local government expenditures—14 percent—were not classified at all. This pattern of functional expenditures is consistent among local governments of different sizes and locations. Figure 4 illustrates the functional distribution of LG expenditures in metropolitan Santo Domingo and Santiago, and the average for all other LGs. As shown, “administration” is consistently the largest cate- gory of functional expenditures among all three groups, although the proportions are considerably smaller in metropolitan Santo Domingo (22 percent) than in Santiago (32 percent) or the smaller jurisdictions (33 percent). By the same token, solid waste management is consistently the largest category of sectoral expen- Figure 3. Municipal spending by function, 2019 0% 100% 29% 22% 8% 6% 5% 4% 12% 14% Administration Solid waste Transport Construction management Sports Social protection Other classified Not classified Source: Ministerio de Hacienda (2020c). Urbanization and Territorial Development Review in the Dominican Republic 177 4. Local Governments ditures, accounting for 27 percent of local government expenditures in metropolitan Santo Domingo and 24 percent in Santiago, but only 14 percent in the smaller jurisdictions. Road transport makes a larger claim on local budgets in the smaller jurisdictions—an average of eight percent of the total, as opposed to four per- cent in metropolitan Santo Domingo and only two percent in Santiago.6 However, there are variations in spending among the municipalities and districts that comprise me- tropolitan Santo Domingo. Figure 5 illustrates the level of spending in each of the four municipalities that constitute the core of metropolitan Santo Domingo.7 As shown, “administration” is the largest category of expenditure in only two of them: Santo Domingo Este and Santo Domingo Norte.8 In the Distrito Nacional and Santo Domingo Oeste, solid waste management is the largest category of expenditure. (It should be noted that because the level of revenues varies among the local governments that comprise metropolitan Santo Domingo, the level of spending on these functions varies considerably. In per capita terms, the Distrito Nacional spends fifty percent more on solid waste management than Santo Domingo Oeste.) The central government accounts for the overwhelming majority of urban infrastructure investment in the DR. According to the most recent MEPyD report on public investment, capital spending (including spending by public enterprises, decentralized entities, and social security institutions) totaled RD$ 64.4 billion in 2019 (MEPyD, 2020a). Municipalities spent only RD$ 32 million, or 0.05 percent of the total amount. The lar- gest sector of total government capital spending was transport, which accounted for 21 percent of the total in 2019. Major investments in the sector included the widening of the Santo Domingo beltway (undertaken by the Ministry of Public Works and Communications) and extensions of the Santo Domingo metro (undertaken by the Oficina para el Reordenamiento del Transporte). The housing and community services sector accoun- ted for about five percent of total government capital spending. Major investments in this sector including a slum upgrading project in the La Barquita neighborhood of Santo Domingo del Este (undertaken by the Office of the Presidency) and the expansion of the bulk water supply system in Santo Domingo del Norte (undertaken by the central government’s regional water supply company, CAASD). Government attempts to force local governments to increase their own capital spending have been unsuccessful. As described in Box 1, the municipal law requires local governments to spend at least 40 per- cent of their total revenues on capital works. This requirement, though, is not enforced. According to the Ministry of Finance’s most recent report on municipal spending, capital works constituted only 26 percent of total municipal spending in 2019 (Ministerio de Hacienda, 2020c). 6 Metropolitan Santo Domingo is defined here as the Distrito Nacional, the municipios of Santo Domingo Este, Norte, and Oeste and their respective distritos. The figure for Metro Santo Domingo represents the combined expenditures of all four jurisdictions. Metropolitan Santiago is defined as the municipio of Santiago and its distritos. Togeth- er, metropolitan Santo Domingo and Santiago account for 30 percent of the Dominican Republic’s total population. 7 The figures for Santo Domingo Este and Oeste also include their respective distritos municipales. 8 Excluding “not classified” which accounts for 27 percent of total expenditures in Santo Domingo Este. 178 Figure 4. Local governments expenditures by function as a percent of total spending, major cities and others, 2019 100 80 60 40 20 0 Metro Santo Domingo Santiago All others Not classified Administration Construction Road transport supervision Solid Waste Environmental Social Security Others Protection Source: Ministerio de Hacienda (2020a). Figure 5. Local governments expenditures by function as a percent of total spending, metro Santo Domingo, 2019 100 80 60 40 20 0 Distrito Nacional Santo Domingo Santo Domingo Santo Domingo Este Norte Oeste Not classified Administration Construction Road transport supervision Solid Waste Environmental Social Security Others Protection Source: Ministerio de Hacienda (2020a). Urbanization and Territorial Development Review in the Dominican Republic 179 4. Local Governments Box 1 Central controls on the allocation of municipal expenditures are not enforced …and shouldn’t be In principle, local autonomy over budgetary decisions is constrained by rules governing the alloca- tion of revenues. Under Article 21 of the municipal law, personnel spending cannot exceed 25 per- cent of revenues; spending on “ordinary municipal services” cannot exceed 31 percent of revenues; and at least 40 percent of revenues must be spent on capital works. Four percent must be spent on social programs. These provisions may be waived in the case of emergencies. Otherwise, violations are subject to two to five years of imprisonment and a penalty of five to twenty minimum salaries. These restrictions are apparently intended to limit local spending on personnel and “ordi- nary municipal services” in order to free up resources for capital investment. But the case for favo- ring capital investment over other economic categories of expenditure is not particularly compe- lling. The primary service that local governments provide is solid waste management, which even in the best run local governments should be largely a recurrent cost: salaries, fuel, vehicle main- tenance, and the operation of landfills. Even expenditures on roads should be primarily recurrent: as a general rule, expenditures on maintaining the existing road network should take precedence over new works (this might differ on the initial condition and if there is important urban growth/ expansion). The distinction between expenditures on personnel and expenditures on “ordinary muni- cipal services” is also questionable. The largest input to “ordinary municipal services” is normally personnel.* If the government’s aim is to restrict spending on administrative personnel, then this would have to be specified. But the government’s budget instructions for local governments only specify a definition of capital investments: the creation of physical assets that increase the pro- ductive capacity of a municipality: e.g., the construction of roads, hospitals, vocational schools, parks, and cemeteries. The instructions do not define personnel. In practice, these provisions are consistently ignored. As described in a recent report on the costs of municipal services (Holguín and De León, 2015), both the Distrito Nacional and Santiago spend far more on ordinary public services than the ceiling. And it is a good thing that they do. * Except in cases (such as Santo Domingo) where services such as solid waste management are contracted out to private firms. 1.3 Local revenues are largely derived from transfers Transfers from the central government are by far the largest source of municipal revenues. The first chapter of Section 16 of the municipal law sets out the basic principles of revenue assignment. Under the rubric of “financial sufficiency,” Article 254 states that ayuntamientos have the “right to sufficient resources to perform the functions assigned to them.” The law does not, however, assign specific revenues sources 180 Figure 6. Sources of municipal revenue, 2015-2019 In thousand 25000 Dominican Pesos 20000 15000 10000 5000 0 2015 2016 2017 2018 2019 Total transfers Local fees and charges Local taxes, other Source: Dirección General De Presupuesto (DIGEPRES). to the local level. In practice, as shown in Figure 6, transfers accounted for nearly seventy percent of the total in 2019.9 The overall level of central transfers to local government is specified in law—but not observed in practice. The legal framework for transfers is set out in Articles 296 and 297 of the municipal law. Article 296 states that ayuntamientos and distritos municipales shall share in the revenues of the state in the amounts and in accordance with the criteria established in law. Law 166 fixes the subnational share of central revenues at ten percent10. But this provision has been consistently honored in the breach (Martínez-Vázquez, Radics y Pérez Rincón, 2017). In 2015, such transfers were equal to only 2.9 percent of government revenues (Ministerio de Hacienda, 2014). Since then, the proportion has declined still further. As shown in Figure 6, by 2019, trans- fers were equal to only two percent of central government revenues. The distribution of transfers is based solely on population, as determined by the most recent census. (Article 4 of Law 166). The law specifies that a minimum of RD$ 500,000 (roughly US$ 10,000) will be distri- buted to each municipio and RD$ 250,000 (US$ 5,000) to each distrito municipal, regardless of population. Article 10 restricts the use of these funds (reiterating the municipal law). Not more that 25 percent of the transferred amount is to be spent on personnel, not more than 35 percent on ordinary municipal functions, and at least 40 percent on capital works. As noted in Box 1, this stipulation is not enforced. 9 Under Hacienda’s financial reporting system, transfers covered by this legislation are divided into “current” and “capital”. This distinction is reportedly meaningless, as the two are, in effect, fungible. See Box 1. The two are treated as a single transfer for purposes of determining the total amount of the transfers and its distribution among individual municipalities. 10 Excluding certain revenues as specified in the Ley de Presupuesto de Ingresos y Gastos Públicos de la Nación, as well as external grants and loans. Urbanization and Territorial Development Review in the Dominican Republic 181 4. Local Governments Figure 7. Transfers as percentage of central government revenues, 2015-2019 % 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2015 2016 2017 2018 2019 Source: Dirección General de Presupuesto (DIGEPRES). Ejecución del Presupuesto de los Gobiernos Locales (2015-2019). 1.4 Local governments have very little taxing authority Local governments have very little power to increase revenues on their own. Although they are permitted to impose a wide range of minor fees and charges, they are not assigned a broad-based local tax. Under Article 255 of the municipal law, municipalities have the authority to establish taxes (impuestos) and fees (ar- bitrios) “in accordance with the Constitution and the laws.” Article 279 authorizes ayuntamientos to establish charges (tasas) for municipal services and the use of municipal property, forbidding only charges for water from public fountains, public lighting, public security, and street cleaning. But local governments are not per- mitted to impose a recurrent tax on property—a common source of local revenues elsewhere in the region. This tax is instead imposed and retained by the central government. The few taxes and fees that local governments are permitted to impose generate very little re- venues. Typical local taxes and fees include taxes on commercial establishments such as hotels and pool halls, fees for permits to close streets, cut trees, and remodel houses and buildings, and fees for the collec- tion and disposal of solid waste. Detailed data on the yield of specific taxes and fees in the Republic as a whole is not published by the Ministry. 11 Table 1 shows the major sources of such revenues in the country’s two largest jurisdictions: the Distrito Nacional and Santiago. As shown, the largest single source of local tax revenue in the Distrito Nacional is a three percent surcharge on electric energy bills that power dis- tribution companies are required to pay to the municipalities in which their customers are located.12 The second largest is a fee for solid waste collection. Taxes on signs and billboards come in at a distant third. 11 The Ministry’s budget classification system provides a detailed list of the items to be included under each of these two headings. The Ministry’s website, however, does not reveal amounts yielded by each source. See: https://www.digepres.gob.do/wp-content/uploads/2020/05/Clasificador-de-Ingreso2.pdf 12 According to the law, the tax applies throughout the country. See: https://www.cne.gob.do/wp-content/uploads/2015/05/Reglamento.Ley_.No_.125-01.pdf. 182 Table 1. Sources of revenues: Distrito Nacional and Santiago, 2019. Distrito Nacional Santiago RD$ mns. % of Total RD$ mns. % of Total Transfers 1,557.7 40% 982.6 65% Electricity Tax 790.0 20% 0.0 0% SWM Fee 747.2 19% 272.7 18% Sign Tax 160.0 4% 13.3 1% Building Permit Fee 88.8 2% 24.2 2% Credit Purchases* 85.9 2% 24.7 2% Construction Permits 35.6 1% 12.3 1% Civil Registrations 38.2 1% 15.4 1% Other Taxes and Fees 404.6 10% 173.8 11% Total 3,908.0 100% 1,519.0 100% *Tax on Purchases of Furniture on Credit Source: Budget Execution Reports, 2019. Charges for building permits are fourth. A wide range of minor taxes and fees accounts for the remainder. The most important of these is a tax on the purchase of furniture on credit. With the exception of fees for construction and civil registration, none of them generated more than the equivalent of US$ 0.33 per ca- pita. Although the Distrito imposes a ten percent tax on hotels and motels, the revenues from this source are inconsequential. Santiago’s local taxes and fees are even more diverse. Santiago generates no revenues from the electricity tax due to an ongoing dispute with the national electricity company. Its largest single source of re- venue was instead the fee for solid waste collection. Its second largest was a fee imposed on awnings exten- ding over public sidewalks, followed by the tax on the purchase of furniture on credit. With these exceptions, and the exception of the other taxes and fees shown in Table 1, no single tax or fee amounted to more than US$ 0.55 per capita. Variations in per capita receipts among municipalities are surprisingly small —at least based on aggregates by province--despite variations in levels of poverty and economic development in different parts of the country. Figure 8 shows the average per capita municipal receipts in each province.13 As shown, with the exception of the Distrito Nacional and a few provinces on the Haitian border, average per capita mu- 13 Receipts include current and capital receipts, including proceeds, if any, from borrowing. No detailed breakdown by source is available. Urbanization and Territorial Development Review in the Dominican Republic 183 4. Local Governments Figure 8. Average municipal receipts per capita, by province, 2019 Thousand 3000 Dominican Pesos 2500 200 1500 1000 500 0 nd al D cia sP n Pu ao a La r to o ta ta ra i a La n a Es ga nt t El g o o Sa ua an e O á M oa se n J l rN n lv l P de ia a M í rez S a o M r is r l te e s S a n id Ro m s t i go án a nt dr z o m ez D o e Va ue on Sa ba de ba Sa illa Cr yo S a Ro ch e rt El b ó ño ua e ruc gr z R la t B eñ ib rm é d an an g B a ra c S a S á o n ra v pe ion Al Pla on nal o i o ígu er Az ho as c Ve ia in Tr La Cr ua o en a Se i ra P e s to de am H a rc pa a m Pe c h e e P de ac M e g r aj a i ía t S N D t nt ad n o M H e os rit o J is t n ia In n M i D Sa ía n ar M Source: Ministerio de Hacienda (2020b). Figure 9. Metro Santo Domingo: per capita revenues by municipality Thousand 3000 Dominican Pesos 2500 2000 1500 1000 500 0 Santo Domingo Santo Domingo Santo Domingo Distrito Norte Oeste Este Nacional Source: Ministerio de Hacienda (2020b). nicipal revenues generally fall within a range of RD$ 1,300 to RD$ 1,800. This relative uniformity is due to the dominance of transfers in municipal revenues and their distribution solely on the basis of population. Such variations as exist are due to (1) the statutory minimum amount, which results in high levels of per capita transfers in jurisdictions with small populations, and (2) the contribution of own source revenues in big cities with robust economies. As noted above, for example, the Distrito Nacional’s revenues were boosted by its tax on the electric energy bills of its residents. 184 There are, nevertheless, several notable variations. Within metropolitan Santo Domingo, there are fairly wide variations in the per capita revenues of municipalities. As shown in Figure 9, the per capita receipts of the national district and the two municipalities to the east and west of it are substantially higher than those of Santo Domingo Norte. These variations carry over into the more distant suburbs of the metropolitan area. While the per capita revenues of Los Alcarrazas are roughly comparable to those of Santo Domingo Oeste (RD$ 1,227), the per capita revenues of Boca Chica and Pedro Brand are comparable to those of Santo Do- mingo Norte. Despite the decline in municipalities’ share of central revenues, the level of total municipal revenues has increased in recent years. As shown earlier in Figure 5, over the period 2015-2019, total local revenues increased by 21 percent in nominal terms. While revenues from transfers increased by only five percent, re- venues from fees and charges more than doubled (albeit from a very low base). Revenues from local taxes increased by about 40 percent. The COVID-19 pandemic is likely to have reduced local revenues in 2020. Due to their dependence on central government transfers, municipal revenues are strongly affected by changes in central govern- ment revenues. Data on central government revenues show a 5.5 percent decline in the first eleven months of 2020, compared to the same period a year earlier. This could have resulted in a corresponding reduction in local revenues from this source. But, as noted earlier, the Government routinely alters the percentage of government revenues that it transfers to the local level. If the Government responded to the COVID crisis by increasing the proportion of its revenues that it transfers to the local level, this could have offset the decline in revenues from this source. The impact of COVID on other sources of local revenues is likely to have been mixed. Some sour- ces, such as SWM fees, are imposed at a flat rate and may not have been affected by the economic down- turn. But other sources, such as building permit fees, are likely to have declined in response to a slowdown in construction. 2. Performance The level and structure of local government revenues is, of course, only one aspect of local performance. Below we conduct a brief review of local government’s performance by looking at three functional areas: (1) Solid waste management, (2) urban planning, and (3) internal management. 2.1 There are important gaps in the collection of solid waste and its disposal is inadequate While solid waste collection is adequate in middle- and higher-income areas, it is deficient in low-income neighborhoods. And solid waste disposal fails to meet minimum environmental standards. The principal functional responsibility of local government in the DR is the collection and disposal of solid waste. The avai- lable data suggest that local governments are generally successful in the collection of solid waste in formal (middle- and upper-class) neighborhoods. According to the most recent (2015) housing survey, 89 percent of the country’s urban households had their garbage collected by their municipal governments. Another three percent of household cases were served by garbage carts (carretilleros). The remaining eight percent burned their garbage or threw it in the street or in a gulch or river (ONE, 2016). This pattern is consistent among the Urbanization and Territorial Development Review in the Dominican Republic 185 4. Local Governments Image 1. Collection of solid waste in informal settlements is poor A. Solid waste clogs drainage channels in Santo Domingo B. Solid waste from the Ozama River pollutes the beaches Source: University of Texas at Austin Strauss Center Source: https://woimacorporation.com/drowning-in-waste-case-santo-domingo- dominican-republic/ country’s largest cities, including metropolitan Santo Domingo and Santiago, as well as in smaller towns. In rural areas, less than 60 percent of households reported to have municipal collection services, and over 30 percent of households burn their waste as their main way of disposal. But collection in informal settlements is poor—particularly in Santo Domingo. As Santo Domingo’s population has increased, poorer inhabitants have created housing in hazardous areas, often near rivers and tributaries, sometimes residing directly within a floodplain. In these informal settlements, steep slopes, defi- cient transportation infrastructure, irregular land use patterns, and citizen indifference all combine to inhibit conventional solid waste management techniques, such as the use of large compactor trucks for collection (Edelman, 2019). Without adequate solid waste management services, residents in informal settlements often resort to disposing of solid waste in empty lots and waterways, blocking drainage channels and serving as breeding grounds for disease-carrying vectors (see Image 1.a). In Santo Domingo, this practice leads to the disposal of garbage in the Ozama River, which flows into the ocean, polluting beaches (see Image 1.b). Solid waste disposal is also inadequate. The nation has no sanitary landfills—i.e., landfills that are engineered with methane, leachate, and vector controls. As described in Note 1, local governments instead rely on open-air landfills. Greater Santo Domingo itself is serviced primarily by the notorious Duquesa landfill, which is the endpoint for 80 percent of the waste generated in the metropolitan area. (Unlike other landfills, Duquesa is owned and operated by the central government.) At Duquesa, informal waste pickers (known as buzos) search dumped waste for recyclable materials, methane gas is released into the atmosphere, and contaminated leachate enters water systems (see Image 2). The landfill is also subject to frequent fires, which pollute the air of the entire metropolitan region. 186 Image 2. Solid waste disposal does not meet minimum environmental standards Source: https://woimacorporation.com/drowning-in-waste-case-santo-domingo-dominican-republic/ Problems in the solid waste management sector are extensively described in a 2014 report issued by the Ministry of Environment (JICA and MIMARENA, 2014). That report found that most municipalities “do not have the resour- ces required to (adequately manage solid waste) due to multiple weaknesses of an institutional, legal, financial, technical-operational nature.” An accompanying policy paper nevertheless argues that “the proper manage- ment of municipal solid waste is ‘technically feasible, economically viable and environmentally sustainable’” and proposes a lengthy set of reforms (MIMARENA, 2014). These include measures to reduce the volume of solid waste generation,14 encourage recycling, toughen regulation (e.g. setting minimum standards for frequency of service, the operation of transfer stations, and the design of garbage cans), and encourage the construction of sanitary landfills. The policy paper also proposes increases in fees for solid waste management and advocates tariff levels that reflect the full costs of solid waste collection and disposal.15 A detailed analysis of the quality of individual municipal services is beyond the scope of this report. Nevertheless, the available evidence from Santo Domingo’s performance in solid waste management suggests that there is room for improvement. 14 Note that waste generation in the Dominican Republic is not particularly high by regional standards: 1.08 kg per capita per day, as opposed to the regional average of 0.99 kg/capita/day. (Source: Kaza, Silpa, et al. 2018.) For additional information on solid waste management in Santo Domingo, see: https://repositories.lib.utexas.edu/ bitstream/handle/2152/61756/PERDUE-THESIS-2017.pdf?sequence=1&isAllowed=y and https://bainesreport.org/2016/07/moving-towards-efficient-waste/ 15 The existing level of fees seems to fall short of this standard, at least in Santo Domingo. According to the Distrito Nacional’s budget execution report for 2018, the munici- pality generated RD$ 525 million from solid waste charges in 2018 but spent nearly three times as much (RD$ 1,468 million) on that service. Urbanization and Territorial Development Review in the Dominican Republic 187 4. Local Governments 2.2 Most municipalities do not plan their territory and cannot coordinate major infrastructure investments within them Municipios also fall short in performing their land use management functions. As described in Note 2, only eight of the 155 municipios have completed land use plans (planes de ordenamiento territorial) (MEPyD, 2020b). Most of the municipalities do not have Urban Planning Offices, and only ten report “significant pro- gress” in Indicator 2.03 of the SISMAP, “Regulation and Territorial Ordering” (see below). In the cases where there are Urban Planning Offices, their functions are mainly focused on street signage, parking, minor road improvements, the administration of municipal fees, and the regulation of informal vendors. As described in Note 2, a draft law (currently under consideration in Congress) would require all muni- cipios to prepare land use plans within the next two years. Considering that, to date, only ten municipalities have such plans, this would be a tall order—and an expensive one, even if a more realistic timeframe were adopted. Central government (or donor) funding for the one-time costs of preparing the initial land use plans would presumably be required. The ongoing costs of administering the plans—monitoring compliance, enforcing penalties against violations, and periodically updating the plans to take into account future grow- th—are likely to be more modest and might be financed out of municipalities’ normal recurrent revenues. Nevertheless, such plans will be difficult to implement. As described above, local governments ac- count for only a miniscule proportion of urban infrastructure investment in the DR. The majority of such invest- ments are undertaken by ministries and agencies of the central government—each with its own priorities and investment plans. At the same time, the low level of local government resources prevents local governments from undertaking such investments on their own. Under these circumstances, local governments will have difficulty ensuring that infrastructure investments conform to local land use plans. 2.3 There are deficiencies in municipal internal management Information on other aspects of municipal management is limited. The most comprehensive source is the Ministry of Public Administration’s (MAP) municipal administration monitoring system (Sistema de Monitoreo de la Administración Pública Municipal, or SISMAP Municipal). It consists of eight “basic operational and ma- nagement indicators” (IBOGs), each broken down into sub-indicators (SIVs), yielding a total of 23 indicators. These cover a wide range of subjects, including human resource management, development planning, bud- get formulation (including public participation in that process), budget execution, procurement, and public access to information. SISMAP includes a scoring system, which allows all participating local governments to be measured against specific targets for each indicator.16 According to SISMAP’s March 2020 report, the ave- rage scores of municipalities as a group varied from 32 percent (access to public information) to 52 percent (budget formulation). The scores of the distritos were slightly lower. See Figure 10.17 16 According to MAP’s March 2020 Informe SISMAP, 158 municipalities and 47 districts are currently participating in the program, yielding nearly 5,000 separate measurements of individual performance. As of June 2020, the reporting system was suspended in response to the Covid crisis. 17 According to the March 2020 report, Bánica, a small municipality on the Haitian border, is the best-managed municipio in the country, scoring 96 percent of the maximum 2,300 points. Santiago ranks third. The Distrito Nacional ranks 26th. Pedro Brand, a suburb of Santo Domingo, ranks last. Of the 47 distritos municipales participating in the system, Chirino, a small, largely rural district in Monte Plata province northeast of Santo Domingo ranked highest; Palo Verde, a small district near the resort city of Monte Cristi, ranked lowest--with a score of zero. 188 Figure 10. Average SISMAP Scores: Municipios and Distritos, 2020 % 100 90 80 70 60 53 51 47 50 50 45 44 43 40 34 33 30 20 10 0 ur an ng g t at bli s i tu of dg r y se f e as it s o en rm u es ag in b u a to nd lity s io c re et ts ni so um f o t o p cc et em ce er an v n dg A ip pe a Re H Av da ur ex Q u Pl ic Bu oc Affi rt Pa Pr in Source: SISMAP Municipal (2020). Note: Average of 158 local governments, by function - March 15, 2020. SISMAP stands for Sistema de Monitoreo de la Administración Pública. The significance of the SISMAP data is debatable, however. In general, the SISMAP indicators monitor a narrowly-defined action or document, rather than their ultimate results. Under IBOG1, Sabana Grande, for example, had evaluated 95 percent of its personnel. But the indicators do not reveal whether the personnel evaluation system was objective and relevant to the particular position that the employee was occupying. More importantly, the indicators do not reveal what action was taken as a result of the evaluations. Were performance bonuses granted? Were under-performing staff dismissed? Detailed analysis of a subset of municipalities suggests severe management deficiencies. Further de- tail on the performance of local governments against the SISMAP criteria is provided in an in-depth review of certain jurisdictions that participated in the recently-closed World Bank municipal development project, PRODEM (Chévez, n.d.). It examined 16 participating local governments: six municipalities and ten distritos. Their scores on individual IBOGs varied widely. In order to score the maximum number of points on the human resources IBOG (IBOG1), a local go- vernment had to have in place: (1) a municipal improvement plan,18 (2) a municipal organization chart, (3) a formal system of personnel evaluation, and (4) an annual personnel training plan. It also had to have: (5) transmitted its personnel data to the central government’s Public Servant Administration System (SASP), and (6) constituted a municipal employees association. 18 According to the Ministry of Public Administration’s 30-page Guidelines for the elaboration and implementation of municipal improvement plans, this is to consist of a set of actions that the municipality plans to take to address “anything that does not function in accordance within the parameters of excellence.” See: https://www.sismap.gob.do/Municipal/uploads/Guia/09.%20Gu%C3%ADa%20Plan%20de%20Mejora%20Institucional.pdf Urbanization and Territorial Development Review in the Dominican Republic 189 4. Local Governments Performance, as measured by the first indicator, was generally poor. • Only one of the 16 local governments—Sabana Grande—had an improvement plan under execution. (One other was in the process of preparing one.) • Three had officially adopted organization charts in compliance with Ministry of Public Administration ins- tructions. Five others had adopted organization charts that were not in compliance with MAP instructions. • One had completed a formal system of personnel evaluation and applied it to the majority of its staff. One other had applied an evaluation system to 50 percent of its staff. The others had either had “chats” with staff, or had undertaken no personnel evaluations at all. • One had reportedly trained 100 percent of its staff in conjunction with the relevant central government agency (National Institute of Public Administration [INAPO], National Institute for Technical-Professional Training [INFOTEP]); one other had trained at least 50 percent of its staff on this basis. The majority had not contacted INAPO, INFOTEP, or similar organizations at all. • None had provided personnel data to SASP in the required format, although two had set up parallel per- sonnel management databases. The others had merely signed agreements with SASP and attended SASP seminars. • One had registered its association of public servants (ASP) with MAP, but had not transmitted information on the association’s activities with the ministry. Another had taken steps in this direction. The other fourteen had done nothing at all. Performance on the other IBOGs was mixed • IBOG 2 (municipal development) requires a local government to have established a municipal development council and drafted a municipal development plan. According to the GIRSA report, all sixteen of the local government had complied with both requirements. • IBOG 3 (budgeting) requires a local government to prepare its budget in accordance with the standards for budgeting issued by DIGEPRES and to post a list of proposed investment projects on the DIGEPRES website. Fifteen of the local governments had complied with the first of these requirements and all sixteen with the second.19 • IBOG4 (procurement) requires a local government to have completed an annual procurement plan linked to its budget, and to have adopted and implemented it. All sixteen local government had prepared an an- nual procurement plan (although only three had “formalized” it). Only five, however, were in the process of implementing it, and only one was reported to have carried out procurement in compliance with Ministry of Industries guidelines and the procurement law. The others were reported to have made “significant advan- ces” in this direction. • IBOG 5 (public information) sets out a list of information that is to be posted on the web. None of the 16 local governments had posted all six of the required sets of data. Two had posted five; the remainder had posted three or fewer.20 • IBOG 6 is intended to measure the quality of local expenditure. To this end, it measures: (1) whether the local 19 Guidelines are issued by the Dirección General de Presupuesto (DIGEPRES), a unit of the Ministry of Finance 20 The indicators are: payroll data, list of purchases made and approved, monthly budget execution, approved budget for the year, and the name of the person in charge of access to information. 190 budget was executed as planned, (2) whether it was executed in accordance with the rules governing the allocation of expenditure by economic category,21 and (3) whether the local government’s quarterly budget execution data had been provided to the Contraloría General de la Republic within the required period of time (15 days). Seven of the local governments managed to comply with the first of these requirements, ten with the second, but only three with the third. Five of the 16 local governments were at least three months behind in delivering their budget reports, and another two had not delivered them at all. • IBOG 7 is intended to measure whether a local government has successfully implemented the guidelines for participatory budgeting (PPM—see Box 2). To this end, it measures: (1) whether the list of projects identi- fied through the participatory process has been approved by the municipal council and submitted to the Dominican federation of local governments (FEDOMU), (2) whether the funding for these projects was ac- tually spent by the end of the budget year (specifically, whether a report documenting the funding of these projects was submitted to the municipal council), and (3) whether the participatory process was followed. In ten of the local governments, a budget for PPM had been approved by the council, along with a list of projects, although only four had submitted the list to FEDOMU. Eight had submitted a report documenting the funding of these projects to their municipal councils (formally in some cases, informally in others); four were in the process of preparing such accounts; and the remaining four had “made no effort” to do so. Only four had complied with the full set of consultations required by the law. • The eighth IBOG measures whether high-level local government officials have complied with the asset de- claration law (Law 311/14). The officials covered by the legislation consist of the mayor, council members, the treasurer, the finance director, and the official responsible for procurement. The first sub-indicator me- asures whether the mayor, vice-mayor, and the members of the executive branch have complied; the se- cond measures whether members of the municipal council have done so. Only one local government fully complied with both of these measures. The majority has failed to submit a declaration for more than twenty percent of the positions. As a whole, the report suggests that most of the 16 local governments did have plans—annual budget plans, development plans, and procurement plans—but did not implement them. Whether the- se results are representative of all municipalities and distritos in the country is, of course, not clear. But, if anything, one might expect that the performance of the 16 jurisdictions is better than most. Those 16 were the beneficiaries of the PRODEM project. One might expect that their performance would be better than in local governments that did not participate. 21 As noted in an earlier footnote, personnel spending cannot exceed 25 percent of revenues; spending on ordinary municipal services cannot exceed 31 percent of revenues; and at least 40 percent of revenues must be spent on capital works. Four percent must be spent on social programs. Urbanization and Territorial Development Review in the Dominican Republic 191 4. Local Governments Box 2 Participatory budgeting Law 170-07 requires all local governments to establish a system of participatory budgeting, fo- cused particularly on the allocation of capital spending. Under the law, each municipality and district is to determine, each year, the total amount of investment spending to be made in each part of its jurisdiction (secciones or bloques del municipio). Priorities for the allocation of funding are to be identified through a sequence of assemblies, beginning at the place level (paraje), then proceeding to neighborhood assemblies, and, ultimately, to the municipal council. According to the Ministry of Finance, a total of RD$ 977.46 million was spent on projects identified through the participatory process in 2019. The projects tend to be small. The average amount spent on such projects was RD$ 345,000 or about US$ 6,800. Source: Ministerio de Hacienda (2020). 3. Directions for reform 3.1 Defining the problem In looking at directions for reform, it is important to begin by defining the problem. The structure, functions, and financing of local government in the Dominican Republic have been subject to a variety of critiques. These critiques are reflected in a number of reports, including a 2015 report on the costs of municipal services (Holguín, 2015), a 2017 report by a central government commission on local government reform (COPREM, 2017), a 2017 IDB report on the subject (Martínez-Vázquez et alli, 2017), and a Ministry Report on Municipal Policies (MEPyD, 2020b). These reports focus, in particular, on financing issues, including: (1) the underfunding of local government, (2) the low level of local revenue autonomy, and (3) the poor targeting of the transfer distribution formula. Several of them also question the limited functions of local governments and their frag- mented structure. Some of these concerns are more valid than others. We consider them here. 3.2 Local governments may need more funding It is certainly true that local government revenues are small. The average level of local government re- venues is RD$ 1,800 (US $35) per capita. Even so, the small proportion of local spending is not necessarily a problem, as long as it is consistent with the functions assigned to the local level. In a country where major spending responsibilities—such as paying teachers’ salaries—are assigned to the local level, one would ex- pect local governments to account for a relatively large proportion of total government spending. Such is the case in Colombia, and—to a lesser extent—in Brazil. The same is true of public utilities. In countries where the costs of providing water supply and sewerage are reflected in municipal budgets, one would expect the local share of total spending to be relatively large. But neither is the case in the Dominican Republic. Although the responsibilities of municipalities are limited, it has been argued that they lack suffi- cient resources to perform even the few functions that have been assigned to them. This argument is exa- mined in some detail in a recent study sponsored by the European Union (Holguín and De León, 2015) (see 192 Box 3). The study analyzes the level of spending on seven municipal services in 15 municipalities. In addition to solid waste management, the services include street cleaning/park maintenance, street lighting, fire-fighting, funeral and cemetery services, markets, and slaughterhouses. The study covered the Distrito Nacional and Santiago, three other large jurisdictions (Puerto Plata, San Francisco de Macorís, and San Pedro de Macorís), four medium sized municipalities (Moca, Baní, San Juan de La Maguana, and Boca Chica) and six smaller, rural municipalities: Monción, Comendador, Duvergé, Verón, Sabana de la Mar, and Boyá. The study ack- nowledges at the outset that it is unable calculate a “right” level of local government funding on the basis of service costs; i.e., on the basis of what it would cost to achieve a given standard of service in each muni- cipality. The determinants of service costs vary, and data is insufficient to make such calculations. Instead, it measures revenue sufficiency by calculating what each municipality actually does spend on each service, and then determining whether that amount exceeds the 31 percent ceiling on ordinary services dictated by the municipal law (see Box 1). All 15 municipalities spend more than the required 31 percent of their revenues on municipal services, presumably failing to meet the minimum threshold for capital spending. On this basis, the study concludes that the level of municipal revenues is insufficient. This “shortfall” is greater in some juris- dictions than in others. The Distrito Nacional spent 67 percent of its revenues on municipal services. Santiago spent 48 percent. In the smaller jurisdictions the proportion of spending on municipal services ranged from 24 percent (Comendador) to 45 percent (Moca). This would imply that large cities are more underfunded than smaller, more rural, jurisdictions. The reasoning behind the EU study’s conclusion is questionable. As the level of revenues varies among local governments, 31 percent of revenues represents a greater amount, in absolute peso terms, in some local governments than in others. It is unlikely that the costs of municipal services varies accordingly: 31 percent of revenues might be more than sufficient in some places and grossly insufficient in others. (As noted earlier in Box 1, the notion that spending on “ordinary municipal services” should be capped at 31 percent is questionable.) There are other ways to explore this question. One such way is to use international comparisons—to compare the level of local resources in the Dominican Republic with levels in other countries. Figure 1, and the beginning of this note, demonstrates that the Dominican Republic is highly centralized: local government spending accounts for only two percent of total government spending in the country. Moreover, the public sector as a whole is relatively small in the Dominican Republic, compared to other Latin American countries. As a result, local revenues, as a percent of GDP, are extremely low by regional standards. In 2019, they repre- sented only 0.44 percent of GDP. This is far less than in other countries in the region with similar functional responsibilities. In Costa Rica, for example, the proportion is 1.3 percent. Of course, more funding for local governments implies either less funding for the central government (if the increase is financed through trans- fers) or less money in the pockets of Dominican taxpayers (if the increase is funded through local taxes and fees). The central government is facing its own fiscal constraints—as are Dominican taxpayers. Nevertheless, this comparison with similar countries suggests that local governments in the Dominican Republic have less to work with than their counterparts on the mainland. This suggests that local governments should have more money. The next question is: where should it come from? Urbanization and Territorial Development Review in the Dominican Republic 193 4. Local Governments Box 3 How much more is needed: the Holguin report estimates The Holguin report found that municipalities only manage to provide the seven services by pa- ying extremely low salaries and failing to replace vehicles whose useful life is exhausted. (At the time the report was written, the average salary of municipal workers was only US$ 86 per month and the average garbage truck was over five years old.) On this basis, the study predicted that these services will eventually collapse. The study goes on to calculate the increase in revenues that would be required to: (1) increase salaries to the official minimum wage for public servants, and (2) replace all vehicles over the next four years. According to the study’s calculations, rural municipalities would require a 15 percent increase in total revenues to achieve these goals; those classified as “small urban” would require an eleven percent increase. At the opposite end of the scale, Santiago would require an increase of only five percent, and the Distrito Nacional only four percent. These arguments have to be taken with a grain of salt. While there may be a case for repla- cing vehicles before they collapse entirely, there is not necessarily a case for increasing the wages of municipal workers—as long as wages are high enough to attract and retain the caliber of staff needed. And while there may be a case for increasing revenues, there may also be a case for more efficient spending. The Holguin study reports that municipalities routinely distribute jobs— particularly for street cleaning and parks—as an instrument of political patronage rather than in response to actual needs. Source: authors, based on Holguín (2015). 3.3 Local governments should have more taxing authority It is certainly true that local governments in the Dominican Republic have very little taxing authority. Un- like most countries in the region, they are not permitted to impose a property tax. Nor are they permitted to impose broad based business taxes (such as a retail sales tax) or surcharges on the central government’s per- sonal income tax that would allow them to tax their constituents in other ways. As a result, local governments lack a ready means to respond to constituents’ demands for service improvements, at least not in a way that would confront their constituents with the costs of doing so. Instead, local governments have only two choi- ces: they can either appeal to the central government for ad hoc assistance—a practice that appears to be common in the case of capital works projects—or they can increase the rates on the narrow range of taxes and fees that they are allowed to impose; e.g., solid waste management fees, sign taxes, and taxes on the purchase of furniture on credit. To exaggerate only slightly, this means that the cost of extending street lights into poorer neighborhoods would be borne by the people who pay the minor taxes and fees that municipa- lities are allowed to impose—for example, the people who choose to buy furniture on the installment plan. There is a second drawback to the current absence of a broad-based local tax. It leaves local go- vernments vulnerable to the whims of Congress. It is Congress that decides on the level of local government transfers—presently the principal source of local revenues. As noted earlier, Congress has consistently failed 194 Figure 11. Revenues from recurrent property taxes, regional comparators (percent of GDP) 1,00 0,90 0,80 0,70 0,60 0,50 0,40 0,30 0,20 0,10 0,00 Dominican El Salvador Mexico Peru Costa Rica Chile Brazil Colombia Republic Source: authors, based on IMF data, Government Finance Statistics, https://data.imf.org/?sk=a0867067-d23c-4ebc-ad23-d3b015045405. to provide the level of funding specified by law, and instead changes the level of funding every year on an ad hoc basis. There are several options for introducing a broad-based local tax.22 The most obvious is a proper- ty tax. As noted earlier, a property tax is already imposed—and retained—by the central government. The level of the tax is based on the cadastral value of the property as determined by the government. (This is reportedly much less than the actual market value.) Properties with cadastral values under RD$ 7.7 million (US$ 154,000) are exempt, as are properties owned by persons over 65, and rural/agricultural land (Dirección General de Impuestos Internos, n.d.). The tax rate is one percent of the value over RD$ 7.7 million. As a result of these rather extensive exemptions, the yield of the property tax is fairly low. In 2018, the central government raised only RD$ 2.527 million (US$ 5.00 per capita) from this source, equivalent to 0.4 percent of its total re- current revenues. Expressed as a percentage of GDP, this is the lowest yield of recurrent property taxes of any of the Latin American countries reported in the IMF Government Statistics website. See Figure 11. If local governments were able to raise the amount that the central government is currently ge- nerating from a property tax, their aggregate revenues would increase by 13 percent. A reduction in the exemption level could increase the yield still further. In the absence of data on individual tax assessments, it is not possible to calculate the potential yield of the tax at the rates proposed by COPREM. If local governments were able to increase the yield of a property tax to the proportions achieved in Costa Rica, their revenues would increase by 80 percent.23 22 For a comprehensive review of options for local taxation, see Cibils, Vicente and Ter-Minassian, Teresa. 2015. Decentralizing Revenue in Latin America: Why and How. In- ter-American Development Bank. 23 In Costa Rica, only owners of a single property with an assessed value of less than ¢20,259,000 (US$ 34,900) are exempt (as of 2020). Agricultural property is taxed, but at a reduced rate. Urbanization and Territorial Development Review in the Dominican Republic 195 4. Local Governments A decentralization of the property tax does not necessarily imply that the administration of the tax would have to be immediately transferred to local authorities. In the short term, the Dirección General de Impuestos Internos could continue to administer the tax while transferring the revenues to the local jurisdic- tions where it was collected. But experience elsewhere has shown that central tax authorities tend not to prioritize taxes they collect on behalf of lower levels of government. Over the longer term, if the revenues of the property tax are decentralized, the administration of the tax should be decentralized as well. Expanding the yield of the property tax in the Dominican Republic may require major investments in mapping, valuation, and collection. Since the tax is now limited to high value properties, the central tax authorities may not have information on lower-value properties. Such properties may not be on the tax rolls at all. But expanding the base to lower value properties may arouse political opposition. Before investing heavily in data gathering, the tax authorities should be sure that they are willing to adopt tax rates that are high enou- gh—and enforcement policies that are tough enough—to generate sufficient revenues to justify the expense. Many Latin American countries also allow their local governments to impose taxes on business activities. In Argentina, most municipalities levy a tax on gross sales. Each municipality may decide on the base to use for the tax. Many use the same base as the provincial turnover tax, thus imposing it not only at the retail level but also at the wholesale and production levels. Other municipalities opt to base the tax on the number of employees or the size of the shop where the activity takes place (Cibils and Ter-Minassian, 2015). In Colombia, similarly, municipalities impose an industry and commerce tax (ICA). The Colombian municipal law (Law 14/1983) requires the tax to be levied on the gross revenue of all commercial, industrial, and service activities in municipal jurisdictions. Municipalities are permitted to fix the rate of the tax, within a range of 0.2 to 0.7 percent on industrial sales, and 0.2 to 1.0 percent on commercial and service activities. (Although the ICA accounts for nearly 40 percent of municipal own-source revenues, the ICA base is said to be under-reported, and evasion and avoidance are said to be high). In Brazil, municipalities are permitted to impose a tax on services (O Imposto Sobre Serviços de Qualquer Natureza, or ISS). The list of services subject to the tax is defined in federal legislation. Municipalities are permitted to choose the rate of the tax, subject to a minimum rate of two percent and a maximum of five (República Federativa do Brasil, 2003). In 2020, the ISS accounted for nearly 30 percent of municipal own source revenues, far more than the property tax (Tesouro Nacional, 2020). It is not obvious that local governments in the Dominican Republic require both a property tax and a business tax, given their limited functional responsibilities. The principal attraction of a business tax is its relatively low profile: property taxes—particularly on residential property—tend to generate political oppo- sition from homeowners and landlords, whereas taxes on sales (which can be largely passed on to consumers in the form of higher prices) are less incendiary. But business taxes on small informal enterprises can be di- fficult to administer: the costs of collecting a sales tax from a small informal trader can exceed the revenues thus produced.24 As a result, a property tax is the more promising candidate. If the property tax is decentralized or a local business tax is introduced, then there is a strong case for abolishing many of the small taxes and fees that local governments currently impose. According to its 24 In principle, the Dominican Republic could get around this problem by allowing local governments to piggy-back onto the central government’s existing VAT (Impuesto sobre Transferencias de Bienes Industrializados y Servicios), along the lines of Argentina. But there are drawbacks to this too, as much of the base of the VAT is presumably concentrated in Santo Domingo. Piggy-backing onto the VAT would do little for outlying jurisdictions. 196 2019 budget execution report, the Distrito Nacional has 36 small taxes and fees (not counting those that are subsumed in the category “other”). Taken individually, these generate very little money and may cost more to administer than they generate in revenues. The Distrito’s tax on poolhalls, for instance, generated only RD$ 44,000 (US$ 880) in 2019. 3.4 The formula for distributing transfers should remain as it is The current formula for distributing central transfers is very simple: it is based entirely on population. This has many advantages. Among them, the fact that the criterion is objective and readily verifiable. It has been argued that it fails to take into account local variations in the unit costs of providing services, or in the ability of local governments to raise revenues from local sources. But there are good reasons not to do so. First, it can be very difficult to accurately measure variations in the unit costs of providing specific services—particu- larly the functions that local governments provide in the Dominican Republic. If local governments were pro- viding primary education, it might make sense to distribute transfers on the basis of school enrollment, using a standard amount per pupil. But measuring variations in the unit costs of solid waste management would be complicated. Should the formula take into account the high unit costs of collecting garbage in remote villa- ges and transporting it to a central landfill? Or the higher wages of garbage collectors in big cities? By the same token, it can be difficult to measure variations in local governments’ ability to raise revenue from local sources. Using actual revenues, of course, runs the risk of discouraging local tax effort. If local governments know that their transfer revenues will fall if their own-source revenues increase, they will be reluctant to do so. In theory, this problem can be avoided by allocating transfers on the basis of potential tax revenues; i.e., on the basis of the relative strength of the local tax base rather than the actual yield of the tax. But this too can be difficult to measure. How does one measure the potential yield of the tax on the purchase of furniture on credit? The report of the Presidential Commission (COPREM) recommended adding a different set of fac- tors to the distribution formula, in order to favor: (1) areas with large numbers of disadvantaged people, (2) frontier areas (i.e., along the Haitian border), and (3) tourist areas, (see Box 4). The merits of introducing the first two of these factors are questionable. If local governments in the poorest parts of the country were providing social services, there would be a case for increasing their share of central government transfers. But they are not. They are largely providing administrative services and solid waste management. There is no case for providing additional central government funding for these functions. The case for providing additio- nal funding for tourist areas is slightly stronger. The census population figures necessarily fail to capture the number of tourists visiting a given municipality. The costs these tourists impose on the local government are therefore not reflected in their share of the central government transfers. But these costs could just as well be captured through the hotel tax and channeled to these areas. Although local governments are permitted to tax hotels, motels, and similar accommodations, the revenues from this source are surprisingly small. Puerto Plata managed to generate only RD$ 1 million (US$ 20,000) from this source in 2019 (Ayuntamiento Municipal Puerto Plata, n.d.). Urbanization and Territorial Development Review in the Dominican Republic 197 4. Local Governments Box 4 The COPREM proposal In 2015, a presidential commission for municipal reform (COPREM) was established, chaired by the Ministerio de la Presidencia with the participation of the Ministerio de Administración Pública (MAP), the Ministerio de Hacienda, the Ministerio de Economía, Planificación y Desarrollo (MEPyD), the Contraloría General, and the Liga Municipal Dominicana. The Federación Dominicana de Municipios (FEDOMU) and the Federación Dominicana de Distritos Municipales (FEDODIM) also participated. Its proposal (as of 2017) is set out in a draft law: Borrador Nº 1: Propuesta de ley orgánica de la administración local y el régimen territorial. The proposed law would make minor changes in the structure and functions of local governments. It would, however, radically increase their taxing authority. (i) Changes in structure. The proposed law calls for classification of all 392 local jurisdic- tions (municipios and distritos) into at least six categories, with additional special regimes for the capital and 20 frontier jurisdictions. (Details are to be worked out by the Ministry of Economy, the Ministry of Public Administration, and a newly created municipal development institute, the IDM.) The classification would be primarily based on population, adjusted for population density. The law does not reveal the purpose of the classification system; i.e., how one category of municipali- ties would be treated differently than the others. (ii) Changes in functions. The draft law also defines the functional responsibilities of the municipalities, organizing them into five groups: (1) Planning, including land use planning, en- vironmental management, economic development, and risk management; (2) Management of public spaces, including roads and public transport; (3) Services to be coordinated with the cen- tral government: management of water supply and sewerage, public health, and education; (4) Obligatory municipal functions: solid waste management, street cleaning, parks, fire protection, and cemeteries and parks; and (5) Social services, including social assistance and social housing. These do not represent an expansion of the existing list of municipal functions, however. The list of obligatory municipal functions remains essentially unchanged. (According to the draft law, the precise role of municipalities in the performance of these functions (subcompetencias) is to be determined by the IDM and the Ministry of Public Administration.) For the time being, there is no indication that municipalities would take on a larger role, for instance, in the provision of water and sewer services or the construction of roads. (iii) Changes in financing. The draft law does, however, make substantial changes in the revenues assigned to the municipal level. Most importantly, it assigns two new broad-based taxes to the municipalities. The first is the property tax (impuesto predial). This tax would be imposed on all private property, including houses, businesses, industries, farms, and non-productive land. In the case of houses, it would be imposed at rates ranging from 0.35 percent of market value (for properties valued at RD$ 1 million-RD$ 3 million) to one percent (for housing valued at over RD$ 198 5 million). It would replace the existing central property tax on same base, which would be abo- lished. The central government department that is now responsible for administering the tax at present would provide assistance to individual municipalities in taking over this role. The second is a tax on business (impuesto o patente por permiso de operación a las actividades productivas). This would be paid annually by commercial business, industries, and any other for-profit entities as a condition of operating within the municipality. In the case of businesses that keep organized fi- nancial records, it would be imposed at a rate of one percent of profits as reported in the financial statements they present to Hacienda. In the case of firms that do not keep such records, it would be imposed according to methods and rates to be determined by the municipality. (iv) The proposed law would also make two significant changes to the existing system of transfers. First, it would add new variables to the distribution formula. In addition to population, the formula could make provisions for: (1) areas with large numbers of disadvantaged people (poblaciónes menos favorecidos), (2) frontier areas, and (3) areas with high population fluctua- tion (i.e., tourist areas). Factors could also be included to reward efficient tax collection and bu- dget execution. The proposed law does not specify how these factors would be measured, or the weight that would be assigned to each of them. Second, the proposed law would reduce the level of earmarking, eliminating the minimum level of spending on capital works and “ordinary muni- cipal functions” while retaining the existing ceiling on personnel spending and the minimum level of spending on social services. The law does not, however, address the persistent underfunding of the transfer system, making no reference to the percent of central government revenues that are to be transferred to the municipalities. While the proposal indicates the Government’s thinking as of 2017, it has not been acted upon. Source: COPREM (2017). The recent Ministry of Economy diagnostic report (MEPyD, 2020b) proposes more fundamental changes in the transfer formula. The report notes that: (1) the current population-based distribution means that most of the transfer goes to densely-populated urban areas, while (2) poverty and service deficiencies tend to be concentrated in rural areas. To address this discrepancy, the report recommends a new formula, which would allocate funds on the basis of service deficiencies.25 There are two drawbacks to this proposal. The first is technical. Measuring deficiencies in the services stipulated in Article 20 of Law 176-07—construction and maintenance of urban streets and rural roads, traffic management, management of solid waste, street cleaning, street lighting, firefighting, the maintenance of parks, and the operation of markets and cemete- ries—is likely to be difficult. The second is conceptual. It is unlikely that increasing funding for these functions in rural areas would do much to alleviate poverty. As noted above, local governments are essentially in the 25 The specific wording is: “a system that links the cadastre and the municipal services stipulated in Article 20, Section A of Law 176-07, wherein the minimum mandatory municipal services are established and identified so that the levels of local tax collections are strengthened.” The term “cadastre” is not explained. Nor is the causal link between allocating transfers on the basis of service deficiencies and increasing local tax effort (recaudaciones propias). One would expect the opposite: i.e., that increasing transfers would discourage local tax effort. Urbanization and Territorial Development Review in the Dominican Republic 199 4. Local Governments business of providing administrative services and solid waste management. Increasing funding for solid waste management in rural areas is unlikely to increase rural incomes. For the moment, it would be best to leave the transfer distribution formula as it is, while ensuring that the data on which it is based—population—is updated as often as possible. 26 3.5 The level of transfers should be stabilized There is one aspect of the transfer system that should clearly be reformed, however—its vulnerability to the whims of Congress. Rather than repeatedly failing to observe the funding formula provided by law, Congress should reduce the percentage of central revenues that are to be shared with local government to a level that is consistent with local functional responsibilities (for example, four percent instead of ten percent), and then observe it in the course of annual budget preparation. To stabilize the level of transfers, some countries enshrine such percentages in their constitutions. In Brazil, for example, the shares of the income tax and the industrial products tax that are to be transferred to the states and municipios are set out explicitly in the constitution. But this is an extreme case: constitutions are intentionally designed to be difficult to amend. Enshrining the percentage there could limit the Government’s ability to respond to changing macroeconomic conditions. Most Central American countries merely establish the percentage in ordinary law (Porto, Eguino and Rosales, 2017). The Dominican Republic should continue to do so. Congress should merely be more dili- gent in observing its own legislation. 3.6 While local governments should have more revenues, they need not have more service responsibilities The highly centralized structure of government raises the question of whether the DR should be more decentralized. This involves two separate questions. The first is whether local government should have more revenues to perform the functions they already have. (This is addressed above.) The second is whether they should have more functions; i.e., whether functions that are now performed by the central government and its agencies and enterprises should be devolved to the local level. The IDB report and the COPREM report both consider fundamental changes in the functions of local governments. The IDB report argues that the principle of subsidiarity requires local governments to provide (in addition to their existing responsibilities) water, sewerage, and public transport. (The COPREM report takes up the issue of functional assignments but recommends no change.) But it is not immediately obvious that local gover- nments should expand the range of services they provide. At present, urban water supply and sewerage are provided by regional companies, rather than by local governments. Judging from the data at hand, it is not clear that breaking up the regional companies and transferring their functions to the local level would be an improvement. By the same token, there is no obvious case for decentralizing responsibility for public education or health care. In the short term, there is a case for expanding local governments’ ability to deliver on the services they already perform—in particular, to finance the urban infrastructure investments that the central go- 26 Because the population figure is taken from the census, it does not capture recent growth in the population in specific municipalities. The most recent census was conducted in 2010. 200 vernment is unlikely to finance. This would include investments in urban roads in the periphery of Santo Domingo and other major cities and in the secondary cities that are expected to grow rapidly in the near future(see Note 1). But there is not a strong case for devolving further functions onto the local level. What is critical is not an expansion of local functions but improving local governments’ ability to coordinate services provided within their jurisdictions. 3.7 Local governments should not be consolidated It has been argued that local governments in the DR are too small. The IDB report argues that there is no need for so many local governments in the country, and that they should be consolidated. (The COPREM report proposes a classification of local governments by size but does not say how that classification system would be used (see Box 4).) There is a considerable amount of literature on the optimal size of local government (Lago-Peñas and Martínez-Vázquez, 2013). Most of the literature is based around the argument that there are economies of scale in the production of services that local government provide. On this basis it is argued that consolida- ting two or more small local governments into a single entity will reduce the unit costs of municipal services, i.e., the costs per mile of road maintenance and the costs per ton of solid waste collection and disposal. Some of this literature does find an inverse correlation between local government size and the unit costs of municipal services. But such studies tend to conflate population density with population size. Econo- mies of scale arise when people live close to each other and can be served by common facilities. Thus, they are more likely to arise in larger cities than in rural areas. But consolidating local government does not cause people to move closer together. It merely expands the territory served by an individual jurisdiction. In the Dominican case, the most relevant sector is solid waste management. In this sector, it is impor- tant to distinguish between the economies of scale that might exist in the collection of solid waste and those that might arise in its disposal. On the collection side, there is no evidence that consolidating two or more small jurisdictions will reduce unit costs. It is true that population density can reduce the unit costs of solid waste collection—it is cheaper to collect a ton of solid waste from a row of adjacent apartment buildings than it is to collect the same tonnage from several hundred isolated houses. But these costs are not affected by the size of the municipality responsible for collection. The same trucks have to serve the same customers regardless of whether the trucks are owned by a small municipality or a large one. It is conceivable that a very small municipality, say El Peñón (population 5000), could not make full use of a single truck, leaving it idle part of the time. In that case, there would be cost savings in sharing that truck with a neighboring mu- nicipality--say, Fundación (population 12,000). But those savings could just as well be captured by entering into an agreement—a mancomunidad—with Fundación, rather than merging with it. In fact, this is already the practice in the Dominican Republic’s largest cities, where solid waste collection is largely contracted out to private firms which serve the entire metropolitan area(see Box 5). There is some evidence for economies of scale in the disposal of solid waste. Empirical evidence from other countries shows that a few big disposal centers are cheaper to run, on a per ton basis, than many small ones. However, concentrating disposal at a few sites increases the need to transport waste from the from the point of collection to the disposal site. The optimal concentration of solid waste disposal sites, therefore, has to balance economies of scale in the operation of landfills with the costs of transporting solid waste from more remote locations (Callan and Thomas, 2001). Again, there is no reason to think that small municipalities must be merged in order to take advantage of such economies of scale. They could instead rely on manco- Urbanization and Territorial Development Review in the Dominican Republic 201 4. Local Governments munidades. The notorious Duquesa landfill itself serves the several municipalities that constitute metropolitan Santo Domingo. Smaller municipalities could (and may already) do the same. Box 5 Diseconomies of scale in solid waste management in the Dominican Republic Contrary to international experience, there appear to be diseconomies of scale in solid waste management in the Dominican Republic. According to the Holguin report, the unit costs of SWM are much higher in the Distrito Nacional and Santiago than they are in the smaller municipalities surveyed by the study. The cost per ton of solid waste collection and disposal (in 2014) was RD$ 1,700 in the Distrito Nacional and RD$ 1,270 in Santiago, but ranged from RD$ 417 in San Pedro de Macorís to RD$ 490 in Comendador. It is not clear why this is. It may be that the service is more frequent in the big cities than it is in smaller jurisdictions. Or that labor costs are higher. Or that the distance to the landfill is longer. Source: authors, based on Holguín (2015). There are other arguments for consolidation. Larger local governments may be able to offer higher salaries or better opportunities for career advancement than smaller ones, allowing them to attract and retain more qua- lified staff (Suzuki, 2016). Consolidation might also allow for more efficient use of staff. A small municipality may need the services of a skilled engineer on a part time basis, but not have enough work to justify hiring one full time. But again, there are solutions to these problems, short of consolidation. Small municipalities can hire staff on a part-time basis. And central governments can improve the prospects for career advancement by setting up local government civil service cadres that facilitate the transfer of local staff from one jurisdiction to another. In principle, consolidation could also lower administrative overheads. This is certainly true in the case of the mayor and his immediate entourage. Consolidating two local governments means one fewer mayor. But this benefit has a political cost, as people in remote areas would find themselves further distan- ced from their local representatives. It is not so clear that consolidation would reduce the need for other personnel in administrative functions: the lawyers, personnel managers, and procurement officers—whose workload would presumably be larger in a consolidated local government. The findings of a recent EU-fi- nanced study imply that local administrative staffing levels in the Dominican Republic are excessive.27 This study assesses the staffing implications of national legislation governing local government administration; specifically, whether the legislation requires local governments to hire more administrative personnel than 27 See Holguín (2015). The study reviewed the staffing implications implied by the Constitution, Municipal Law 176-07 and the Law on Youth (49-00). It also flags the impor- tance of the La Ley Orgánica de la Administración Pública (Law 247-12), which sets out the guidelines and principles of public employment, and the Ley de Función Pública (Law 41-08) which establishes the Secretariat (now the Ministry of Public Administration) and sets out the job classification system for civil servants at both the central and local level. 202 Box 6 Are Dominican local governments too small? regional comparisons Local governments in the Dominican Republic are not particularly small by regional standards. The figure below compares the average population size of local governments in the Dominican Republic with those of other countries in the region. With respect to the Dominican Republic, the column labeled “muns only” shows the average population of the upper tier of local government, i.e., the municipalities. The column labeled “muns and distts” shows the average population of all local governments in the country, including both municipal governments and their subordinate distritos municipales. As shown, if the municipality is considered the sole unit of local government, then local governments in the DR are quite large by regional standards. Even if districts are con- sidered local governments in their own right, local governments as a group are larger on average than those in El Salvador or Peru. Figure B6.1 Average population of local governments, regional Comparisons Average 70 population size of local 60 governments (in thousands) 50 40 30 20 10 0 y) ca o a a ua il as ) or ru ts az ic al bi nl Pe ad ur Ri st ag ex m m Br so nd di a lv lo te ar M st Sa un s+ Ho Co ua ic Co (m N El un G (m R D R D Source: national statistical summaries of the countries included in the figure. they need. While it does not come to any conclusions, it finds that a combination of laws requires each municipality to staff 29 different positions (regardless of the size of the municipality) and calls into question the number of councilors (regidores) that municipalities have on their payrolls. Overall, there does not appear to be a strong case for consolidation. Any economies of scale in solid waste management that would result from consolidation could just as well be achieved through mancomu- Urbanization and Territorial Development Review in the Dominican Republic 203 4. Local Governments nidades. And while consolidation might enable small municipalities to attract more qualified staff, or reduce administrative overheads, there are other means to achieve these ends. In the case of solid waste collection, it might make sense for individual municipalities to evaluate staffing levels (given reported levels of oversta- ffing), as well regulatory arrangements, along the lines recommended by COPREM. In the case of solid waste disposal, it would make sense to evaluate the benefits of mancomunidades for the joint use of landfills. (It is also worth noting that Dominican municipios are not particularly small by regional standards. See Box 6.) 3.8 Local government management should be improved The available evidence suggests that there is considerable room for management improvement at the lo- cal level. As described earlier in this note, solid waste disposal is a perennial problem. Local governments lack the ability to prepare or enforce land use plans. Judging from 16 PRODEM municipalities, there are severe problems in personnel management, procurement, and budget execution. Low scores on the asset declara- tion indicator suggest that corruption may also be a problem. These problems could not be investigated or addressed in this note. But they suggested that further investigation, followed by further reforms, would be warranted. Summary and recommendations The Dominican Republic is one of the most centralized major countries in Latin America. The functional responsibilities of local government are largely confined to solid waste management. Responsibility for major urban transport infrastructure rests with the central government. Responsibility for water supply and sewera- ge rests with regional water companies, which report to the central government. Social services—education, health, and social assistance—are entirely central government responsibilities. In the short term, the division of functional responsibilities between the central and local govern- ment should remain as it is. There is no strong case, for example, for breaking up the regional water compa- nies or decentralizing responsibility for public education. Local governments need more robust and stable sources of revenue to finance their existing res- ponsibilities. To this end: (1) the existing plethora of minor taxes should be replaced by a broad-based tax, such as a property tax, and (2) the level of intergovernmental transfers should be stabilized at a realistic level. Coordinating urban infrastructure investment is a key challenge. As described in Note 1, the quality and coverage of urban infrastructure in the DR is deficient. Streets are congested. Water supply is erratic. Sanitary solid waste disposal is non-existent. On top of this, rapid population growth is expected in the peri- phery of large cities and in smaller cities and towns in the near future. Taken together, this implies a need for major investment in urban infrastructure. Responsibility for extending urban infrastructure is currently frag- mented among a wide range of central ministries and agencies, with local governments playing only a minor role. Under these circumstances, coordinating urban infrastructure investment is a key challenge. In principle, the physical location of such investments could be coordinated through local land use and development plans. The timing of such investments would have to be coordinated in the annual budge- ting process at the central and local levels. While local governments are charged with preparing such plans, few have done so. The central government should assist them in this effort. Specific recommendations on this issue are contained in other notes in this series. 204 References Ayuntamiento del Distrito Nacional. 2020. 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Reporte de ingre- Marzo%202020.pdf. sos y egresos provinciales y municipales mensuales correspondientes al 2019. Suzuki, K. 2016. “Politics of Municipal Consolida- tion”, Global encyclopedia of public administration, Ministerio de Hacienda. 2020c. Ejecución del public policy, and governance, Farazmand A. (ed.), presupuesto de los gobiernos locales. Año 2019, Springer, https://doi.org/10.1007/978-3-319-31816- Santo Domingo, Ministerio de Hacienda, Dirección 5_2454-1. General de Presupuesto (DIGEPRES), https://www. digepres.gob.do/wp-content/uploads/2020/08/Li- Tesouro Nacional. 2020. Boletim de finanças dos bro-de-Ejecucion-Municipal-A%C3%B1o-2019.pdf. entes subnacionais. Ano base 2019 [Boletín de finanzas de los entes subnacionales. Año base Ministerio de Hacienda. n. d. “Clasificador de 2019], octubre, https://sisweb.tesouro.gov.br/apex/ ingresos”, Santo Domingo, Ministerio de Hacien- f?p=2501:9::::9:P9_ID_PUBLICACAO:34026. da, Dirección General de Presupuesto (DIGE- PRES), https://www.digepres.gob.do/wp-content/ uploads/2020/05/Clasificador-de-Ingreso2.pdf. ONE (Oficina Nacional de Estadística). 2016. En- cuesta Nacional de Hogares de Propósitos Múltiples ENHOGAR 2015. Informe general, Santo Domingo, https://archivo.one.gob.do/enhogar. Porto, A., H. Eguino and W. Rosales. 2017. Panorama de las finanzas municipales en América Central, documento para discusión núm. DB-DP-552, Banco Interamericano de Desarrollo (BID), noviembre, https://publications.iadb.org/publications/spanish/ document/Panorama-de-las-finanzas-municipa- les-en-Am%C3%A9rica-Central.pdf. 5. Enabling an inclusive housing sector Catherine Lynch and Giuliana de Mendiola 208 Table of Contents Introduction 211 1. The Dominican housing sector is characterized by a large housing deficit, particularly in 212 urban areas 1.1 In recent years, the total housing deficit appears to be decreasing marginally, but the trend 213 suggests that the quantitative deficit is increasing 1.2 The majority of the quantitative housing deficit consists of houses that need to be replaced 214 due to their poor quality 1.3 The qualitative housing deficit is characterized by poor access to basic services 215 1.4 The housing deficit affects households residing in owned and rented housing in the same way 216 1.5 Informal settlements in Greater Santo Domingo are characterized by their high vulnerability 217 to natural disasters 2. The current regulatory and institutional framework of the housing sector is weakly 218 interconnected and lacks coordination 2.1 There is no integrated housing policy within the current regulatory framework 218 2.2 The institutional framework is characterized by considerable institutional dispersion 223 2.3 Public investment in housing is far below what is needed, although the last year has seen a 226 significant increase 2.4 Recently approved Law 160-21 aims to strengthen housing policy and bring in sector-wide 228 coordination 3. Obstacles to the development of an efficient, resilient, and sustainable housing market 229 are found all along the value chain 3.1 Land tenure is highly informal 229 3.2 The building permit process is cumbersome and inconsistent 230 3.3 A low-cost housing market is growing, but construction costs have escalated significantly 233 3.4 Although the mortgage market has been growing over the past few years, it is still small 234 3.5 Remittances are a source of housing finance for many Dominicans 236 3.6 Formal housing is not affordable for a substantial percentage of the population 239 4. New government programs addressing the housing deficit 242 4.1 Dominicana se Reconstruye 242 4.2 Plan Nacional de Vivienda Familia Feliz 243 4.3 Plan Mi Vivienda 244 Urbanization and Territorial Development Review in the Dominican Republic 209 5. Enabling an inclusive housing sector 5. The way forward: strategic priorities 246 5.1 Rationalize sector-wide stakeholders, agencies, and resources 246 5.2 Create solutions to tackle the qualitative deficit 247 5.3 Harmonize new housing programs to maximize their scope and optimize public resources 247 5.4 Overcome obstacles in property registration and building permits 249 5.5 Bring housing finance down-market 250 References 251 Annex – Structure of income for measurement of the monetary poverty line 254 Figures Figure 1. Estimates of the housing deficit using the different methodologies for 2010 213 Figure 2. Number of units with some deficit, by type of deficit 214 Figure 3. Achievement of PNPSP targets, 2017-2019 220 Figure 4. ITBIS grants, 2013-2021 222 Figure 5. Public investment in social housing as a share of GDP (RD$ Million) 227 Figure 6. Budget formulation and execution in social housing (RD$ million) 227 Figure 7. Housing market value chain 229 Figure 8. Building licenses issued for private sector construction 231 Figure 9. Housing units built by type and year 234 Figure 10. Trend in mortgage portfolio for home purchase and renovation 2007 - 2020 235 (RD$ million) Figure 11. Estimate of the distribution of effective supply and demand of housing and capacity to 242 pay of Dominican households Tables Table 1: Quantitative housing deficit by socioeconomic status (by percentage) 214 Table 2. Trend in qualitative housing deficit by socio-economic status (by percentage) 216 Table 3. PNSP housing goals 2017-2020 220 Table 4. Water supply and sanitation coverage targets 221 Table 5. Mortgage market development 2016-2021 236 Table 6. Characteristics of households by quintile, based on labor income and dividends 237 210 Table 7. Characteristics of households by quintile, based on total household income 2020, based 238 on labor income and dividends Table 8. Distribution of housing for sale by sales price in 2019 (Santo Domingo Metropolitan 239 Region) Table 9. Analysis of affordability by sale price 240 Table 10. Effective demand for houses by price (RD$) 241 Table 11. PNVFF summary table 243 Table 12. Mi vivienda summary table 245 Table 13. Comparing new housing programs 248 Boxes Box 1: La Nueva Barquita project 217 Box 2. Ciudad Juan Bosch project 223 Box 3. Major Ggovernment actors in affordable housing 224 Box 4. Building permitting and licensing process 232 Urbanization and Territorial Development Review in the Dominican Republic 211 5. Enabling an inclusive housing sector Introduction Housing is an essential element of household well-being and a key input to promoting more prosperous and inclusive urban and territorial development. Access to quality, well-located, and affordable housing allows the individual–and their family–to satisfy personal, biological, and social needs, as well as to improve health and educational outcomes. Additionally, access to housing that is well-connected to urban agglome- rations provides positive externalities, which includes higher economic productivity by bringing people and jobs together. However, with rapid urbanization comes an increase in demand for land and housing, which, in most cases, the market is unable to meet. The problem is further intensified when there is poor territorial planning and regulation, lack of regulation enforcement, and insufficient public finance for infrastructure. As a result, new low-income households are pushed to the periphery of urban areas, contributing to sprawl and informality, and often occupying areas of high vulnerability to adverse natural events. The Dominican Republic (DR) recognizes the importance of housing and has addressed it in a com- prehensive way in Article 59 of the Constitution promulgated on January 26, 2010. However, several exter- nal and internal factors, including the rapid urbanization process described in Note 1 on urbanization in the Dominican Republic1 have prevented the population as a whole from realizing the right to adequate housing. The DR has a housing deficit of 1.4 million, representing 51 percent of the total housing stock according to the 2010 National Population and Housing Census (CNPV, Censo Nacional de Población y Vivienda) (MEPyD and ONE, 2018). 74 percent of this housing deficit is qualitative, mainly consisting of housing without access to basic services, while 26 percent of the housing deficit is quantitative, mainly consisting of houses requiring replacement due to their poor condition. Most of the housing needs are found in urban areas; however, proportionally rural areas suffer more from housing deficiencies. Furthermore, the sector is highly vulnerable to natural disasters. 18.5 percent of the total housing stock is considered structurally vulnerable to adverse natural events,2 most of which are located in urban areas. For several administrations, the Government of the Dominican Republic (GoDR) has strived to im- plement a number of housing policies and programs to address the population’s housing needs. However, the magnitude of the deficit, coupled with an institutional dispersion that features disconnected, fragmented, and underfinanced policies and actions has resulted in limited impact. One of the major constraints is the absence of a comprehensive sectoral housing policy with budget allocation commensurate to the scale of the challenge, which, through a central body responsible for its implementation, could ensure standardized and collective interventions that are housing and habitat oriented. Recognizing these shortcomings and the importance of housing as a vehicle for the social and eco- nomic development of the country, the government has prioritized the sector. The current administration has taken several steps to improve housing outcomes, including the approval of Law 160-21, which creates a Ministry of Housing, Habitat, and Buildings (Ministerio de Vivienda, Habitat y Edificaciones, or MIVHED) and the launch of new programs to address the housing deficit. Nevertheless, ensuring the effectiveness of these initiatives and improving access to housing in the DR will depend on the following: (i) coordinating the stake- 1 World Bank, “Laying down the facts of urbanization”, Urbanization and Territorial Development in the Dominican Republic, note 1. 2 Unreinforced masonry construction, or reinforced masonry or concrete construction prior to 1979 (the year that the regulations concerning seismic analysis and structural design were put into effect), is considered structurally vulnerable. 212 holders, institutions, and resources of the sector; (ii) harmonizing the various programs offering new housing to guarantee the effective use of public funds; (iii) focusing more on qualitative deficits in order to address the needs of the most vulnerable; (iv) addressing constraints on the supply side of housing, including property registration and permitting; and (v) implementing measures to expand the mortgage market. This Note provides an analysis of the status of the housing sector and its key challenges. Specifically, it aims to: (i) examine the housing situation in the DR; (ii) evaluate the sector’s main bottlenecks along the value chain; and (iii) propose recommendations to develop a system that successfully meets the housing needs of Dominicans. This Note is based on a desk review, interviews with different sectoral stakeholders, an analysis of the housing deficit prepared by the authors, and technical assistance to the GoDR to develop the Happy Family National Housing Plan PNVFF, Plan Nacional de Vivienda Familia Feliz). 1. The Dominican housing sector is characterized by a large housing deficit ,particularly in urban areas While there are several estimates of the housing deficit, the official methodology estimates a housing deficit of 1.4 million units in 2010.3 According to Torres et al. (2017), the measurement of housing deficits in the DR has been a subject of controversy due to the multiplicity of methodologies used by the public sector in making its calculations. This problem is not unique to the DR, as it is common in many countries due to long periods between censuses and the inability of sample surveys to accurately characterize housing conditions, especially in the most remote and in peri-urban areas. Figure 1 shows different housing deficit estimates em- ploying the different methodologies with data from the 2010 CPNV.4 Housing needs vary depending on geography, with urban areas having higher quantitative needs and rural areas having higher qualitative needs. Specifically, 13 percent of urban households present a quantitative deficit compared to 10 percent of rural households. On the other hand, 35 percent of urban households present a qualitative deficit compared to 51 percent of rural households. The provinces with the highest concentration of quantitative deficit are the big urban agglomerations and tourism poles—Santo Domingo, Distrito Nacional, Santiago, and La Altagracia. These provinces are considered leading or transi- tional regions according to the classification presented in Note 2 of this report5, and are expected to continue to urbanize, which will in turn increase demand for housing. The provinces with the highest concentration of qualitative deficit are Elías Piña, Bahoruco, Monte Plata, and Samaná, all of which are considered lagging regions. These areas, which are rural and have high poverty levels, suffer mostly from lack of access to basic services—including water, sanitation, and electricity. Given the DR’s risk profile, the housing sector is highly vulnerable to adverse natural events. As des- cribed in Note 1 on urbanization in the Dominican Republic, a significant proportion of the new build-up sur- 3 Estimates of the housing deficit in the DR range from 744,000 to 2.1 million units, depending on the methodology and data employed, which accounts for between 27 per- cent and 72 percent of the housing stock. The official methodology, which was developed and published by the Ministry of Economy, Planning, and Development (MEPyD, or Ministerio de Economía, Planificación y Desarrollo) and the National Statistics Office (ONE, or Oficina Nacional de Estadísticas) in 2018, estimated the housing deficit at approximately 1.4 million units (equivalent to 51 percent of the housing stock) (MEPyD and ONE, 2018). 4 In 2010, the National Statistics Office (ONE) in collaboration with the Latin American and Caribbean Demographic Center (CELADE) published the Methodology for Calcu- lating the Housing Deficit in the Dominican Republic. Additionally, in 2007, the United Nations Development Program (PNUD) in collaboration with the Ministry of Economy, Planning, and Development (MEPyD) developed its own methodology. 5 World Bank, “Addressing territorial disparities at different scales”, Urbanization and Territorial Development in the Dominican Republic, note 2. Urbanization and Territorial Development Review in the Dominican Republic 213 5. Enabling an inclusive housing sector Figure 1. Estimates of the housing deficit using the different methodologies for 2010 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 ONE/CELADE MEPyD/PNUD MEPyD/ONE methodology methodology methodology (oficial) Qualitative deficit Quantitative deficit Source: Developed by the authors, based on 2010 National Population and Housing Census. face in large urban centers like Santo Domingo, the Distrito Nacional, and Santiago is in flood-prone areas. For example, it is estimated that 1,833,730 units were affected by some hydrological events between 2004 and 2009, of which 860,133 were located in hazardous locations (CNPV, 2010). Additionally, based on data from the 2010 CNPV, most of the units that need to be replaced either due to their poor condition or due to being structurally vulnerable are in coastal provinces. This represents a risk as multiple sources of coastal flooding risk threaten the DR’s large coastline, including tropical storms, hurricanes, or tsunamigenic earthquakes. 1.1 In recent years, the total housing deficit appears to be decreasing marginally, but the trend suggests that the quantitative deficit is increasing Based on the Continuous National Survey of Income and Expenditure (ENCFT), the housing deficit is pro- jected at 776,488 dwellings for 2020, with a very similar distribution between the quantitative and qua- litative deficit.6 This does not indicate any reduction in the housing deficit in comparison to the 2010 CNPV figure. However, a series for the 2016-2020 period was constructed with the ENCFT to better understand the evolution of the housing deficit with the most recent information available (see Figure 2). During this period, a significant variation was observed in the qualitative housing deficit due principally to investments made by the GoDR to improve the provision of basic services, which resulted in a reduction of over 100,000 units. 6 Although census data is the most suitable for calculating housing deficits, the government’s official methodology is able to make use of the CNPV and the Continuous National Survey of Income and Expenditure (ENCFT), which permits a more continuous evaluation of public policy. However, one should not directly compare fluctuation in housing deficits derived from the census data with that derived from the surveys because the nature of the information is different and the results are not comparable. The two data sets must be analyzed separately. 214 Figure 2. Number of units with some deficit, by type of deficit 600,000 521,346 500,000 444,419 429,223 398,776 407,436 399,589 400,000 388,227 382,519 383,969 349,238 300,000 200,000 100,000 0 2016 2017 2018 2019 2020 Qualitative housing deficit Quantitative housing deficit Source: Developed by the authors, based on ENCFT 2016-2020. On the other hand, the quantitative deficit rose by almost 35,000 units due to a lack of supply relative to the demand for housing. 1.2 The majority of the quantitative housing deficit consists of houses that need to be replaced due to their poor quality Based on the official methodology, the quantitative deficit is estimated at 327,996 units, representing 26 percent of the total deficit. The quantitative deficit is constructed using three components: unrecovera- ble units resulting from estimating the qualitative deficit; cohabitation, that is, households sharing the same home; and overcrowding, resulting from the existence of family nuclei that should be living in independent spaces. The lack of housing to satisfy the demand of the population is mainly an urban problem since 78 per- cent of the quantitative deficit is in urban areas, mostly in the big urban agglomerations and tourism poles. Additionally, most of the quantitative deficit is represented by homes that must be replaced due to their poor condition—81 percent of the quantitative deficit corresponds to unrecoverable dwelling units, while of the remaining 19 percent, 3 percent corresponds to overcrowding and 16 percent to cohabitation.7 The provinces with the highest percentage of unrecoverable units are La Altagracia, La Romana, and Pedernales, with the first two being important tourism poles. The province with the highest percentage of overcrowding and co- 7 With regard to the ONE/CELADE methodology (which implements the best practices developed by CELADE for measuring housing deficits), it is important to note that the official methodology introduced elements that reduced the size of the deficit above all in the quantitative aspect, and specifically, in those cases involving cohabitation of households. The only cases counted toward the housing deficit were those where the existence of an internal family nucleus was accompanied by overcrowding and economic independence. This decision is understood to be wrong because it leaves approximately 400,000 houses with cohabiting households out of the equation, with the result that the quantitative deficit is possibly larger than what the official methodology measures. Urbanization and Territorial Development Review in the Dominican Republic 215 5. Enabling an inclusive housing sector Table 1. Quantitative housing deficit by socioeconomic status (by percentage) Higher Quantitative housing deficit Very low Low Lower middle Middle Total middle Overcrowding 2% 4% 5% 4% 1% 16% Cohabitation 1% 1% 1% 0% 0% 3% Unrepairable Houses 16% 29% 21% 13% 2% 81% Total 19% 34% 26% 17% 3% 100% Source: Developed by the authors, based on 2010 CNPV, through ECLAC/CELADE Redatam7. Note: Socioeconomic status is a multivariate indicator calculated by the National Statistics Office (ONE) based on the following factors: housing, education, basic services, and level of employment. habitation is Santo Domingo. This situation highlights the need for more housing in and around the country’s key urban agglomerations, that is, areas that are well-connected to city centers, as well as in the country’s tourism poles. Focusing new housing in these areas is critical as they are expected to continue to urbanize in the coming years. Unrepairable homes are more prevalent among households in the very low- and low-income seg- ments, while overcrowding is more prevalent in the lower-middle income segment. In terms of the distri- bution of the quantitative deficit in socioeconomic terms, 54 percent is concentrated in the very low- and low-income segments, 44 percent in the lower-middle- and middle-income segments, and only 3 percent in the upper-middle segment (see Table 1). As such, different types of housing solutions should be designed for households within diverse income levels. 1.3 The qualitative housing deficit is characterized by poor access to basic services The qualitative deficit is estimated to consist of 1,041,215 units, representing 74 percent of the total defi- cit. Estimating the qualitative housing deficit includes the quality of construction materials (floors, walls, and roof cover) and access to basic services (water, sanitation, and electricity). The qualitative deficit is mainly due to the lack of access to basic services, which makes up 81 percent of the qualitative deficit. Of the remai- ning 19 percent, 12 percent corresponds to deficiencies in both construction materials and access to basic services, and 7 percent corresponds to deficiencies in construction materials. Elías Piña and Bahoruco are the provinces with the highest gaps in terms of access to basic services and quality of construction materials, and both lagging regions are close to the border with Haiti. Proportionally, rural areas have a higher prevalence of qualitative housing deficit. However, both urban and rural areas suffer from gaps in access to services. 51 percent of all rural households suffer from a 216 qualitative housing deficit, compared to 35 percent of urban households. In both areas, though, the weight of deficiencies in basic services prevails. As described in Note 1 on urbanization in the Dominican Republic, while urban areas have higher access to services, coverage is not often translated into high quality. Furthermore, 80 percent of the qualitative housing deficit is clustered in the very low-, low-, and lower-middle-income seg- ments (see Table 2). As a result, in order to promote more equitable territorial development, improvements in access to basic services are needed in both urban and rural areas, especially to improve the living conditions of the most vulnerable. Table 2. Trend in qualitative housing deficit by socio-economic status (by percentage) Qualitative deficit Very low Low Lower middle Middle Higher middle Total Recoverable deficiencies 8% 29% 28% 12% 4% 81% in basic services Recoverable deficiencies in 0% 1% 2% 3% 1% 7% structure and basic services Recoverable deficiencies in 4% 5% 2% 1% 0% 12% structure Total 12% 35% 32% 16% 5% 100% Source: Developed by the authors, based on 2010 CNPV, through ECLAC/CELADE Redatam7. Note: Socioeconomic status is a multivariate indicator calculated by the National Statistics Office based on the following factors: housing, education, basic services, and level of employment. 1.4 The housing deficit affects households residing in owned and rented housing in the same way In the DR, 54.6 percent of households own their house, 36.6 percent rent, and 8.8 percent have some other form of tenure. Other tenure refers to houses either assigned or borrowed, or with another type of arrange- ment, and represents households with the greatest vulnerabilities due to the lack of a status that provides them with some legal security. The housing deficit equally impacts households residing in their own house (53 percent) or households that rent (52 percent). In the case of assigned or borrowed houses, 69 percent have some degree of housing deficit. Urbanization and Territorial Development Review in the Dominican Republic 217 5. Enabling an inclusive housing sector 1.5 Informal settlements in Greater Santo Domingo are characterized by their high vulnerability to natural disasters The last 50 years have seen an expansion of informal settlements, or slums,8 fueled by migration flows from rural to urban areas, as well as by population growth in cities. Although there is no national hea- dcount of people currently residing in these areas, it is estimated that 41 percent of the population in the Distrito Nacional is living in informal settlements. As described in Spotlight 1: Territorial Development, the greatest concentrations of informal settlements in the Distrito Nacional are found in the west and nor- thwest areas. Some of the major issues in informal settlements in the DR include informal land tenure, lack of access to basic services, and high vulnerability to natural disasters. Studies conducted by TECHO, an inter- national nongovernmental organization (NGO), in different informal settlements show that approximately 70 percent of households have no land title. For example, in El Progreso, 80 percent of houses do not have title deeds, while in Villa Hortensia 76 percent do not (TECHO, 2016). Moreover, many of these houses are located in high-risk areas, such as hillsides and riverbanks, and have been built informally so they fail to observe seis- mic-resistant codes (National Emergency Commission, 2014). Nationally, 32.48 percent of houses are located on the banks of a watercourse or canal, while in the Distrito Nacional and the Province of Santo Domingo, houses in similar areas account for 26 percent and 36 percent, respectively (ONE, 2016). To address the issue of informal settlements in the Distrito Nacional, in 2014 the Executing Unit for the Rehabilitation of the Barquita Neighborhood and Surroundings (URBE, Unidad Ejecutora para la Readecuación de la Barquita y Entornos)9 was created as an entity under the Ministry of the Presidency (MINPRE). When it was created, URBE’s purpose was to implement comprehensive urban projects tailored to the socio-economic and environmental reality of the high-risk, precarious, informal settlements in the Distrito Nacional. It has worked on specific projects such as La Nueva Barquita (see Box 1), Nuevo Domingo Savio, and the Teleférico de Santo Domingo (aerial cable car). Nevertheless, URBE’s mission was modified in 2021 to have a national reach. Box 1 La Nueva Barquita Project La Barquita is a neighborhood on the banks of the Ozama River in Santo Domingo Este. Historically, it has been one of the most vulnerable and socially disadvantaged informal settlements in the nation. The non-existence of land use regulations and the absence of cadastral and territorial regulations have resulted in informality and vulnerability, overcrowding conditions, and lack of access to basic 8 Informal settlements or slums are defined as housing that lacks basic infrastructure or access to basic services. 9 The name and the scope of changed in 2021. The new name is Unidad Ejecutora para la Readecuación de la Barrios y Entornos (Executing Unit for the Rehabilitation of Neighborhoods and Surroundings). 218 services and infrastructure. Uncontrolled construction on the river’s edge has also led to a process of environmental degradation and a high-risk profile for the communities located there. For decades ,different administrations have undertaken initiatives to address the social ,en- vironmental ,and economic issues of the neighborhood. However, it was not until 2013, by means of Decree 16-13, that the GoDR declared that upgrading the La Barquita settlement to be a high priority. Subsequently, URBE was established to implement these interventions. La Nueva Barquita, the project launched by URBE to address the issues of the La Barquita neighborhood, has the following objectives: (i) resettle 5,500 people living in the La Barquita neighborhood; (ii) improve the quality of life of these people through new housing with access to basic services and infrastructure; and (iii) integrate more than 30 hectares of undevelopable land under the project into Santo Domingo’s Green Belt .The overall goal is to provide this pop- ulation with decent housing in La Nueva Barquita ,a new housing development located in Santo Domingo Norte .As of December 1,741 ,2020 apartments have been handed over ,achieving98 percent of the goal. Source: URBE, 2020. 2. The current regulatory and institutional framework of the housing sector is weakly interconnected and lacks coordination The DR does not have a comprehensive housing policy, which historically has resulted in disjointed inter- ventions that have had little impact on the sector. Recognizing this challenge, the GoDR has recently taken important actions to harmonize the sector. 2.1 There is no integrated housing policy within the current regulatory framework The first actions in the housing sector in the DR started in the mid-20th century (Torres et. al, 2017). In 1945, Decree 1047 was approved, which established the construction of 25,000 housing units by the Exe- cutive Branch. In the next decades, a series of institutions were created, including the National Housing Institute (INVI, or Instituto Nacional de la Vivienda), which, until recently, had the mandate to implement housing policies and programs. Appendix 1 summarizes the most important housing laws and decrees. However, one of the major constraints faced by the sector is the lack of an integrated housing policy that establishes the sector’s priorities and strategies, coordinates the different stakeholders, and considers land-use and urban planning policies for well-planned development of the territory and the sector in a multidimensional way. In addition to recently approved Law 160-21, three important laws and decrees have shaped the evolution of the housing sector over the last decades: (i) the Organic Law on the National Development Urbanization and Territorial Development Review in the Dominican Republic 219 5. Enabling an inclusive housing sector Strategy (Law 1-12); (ii) the Implementation Decree on the National Multi-Year Public Sector Plan (PNPSP, or Plan Nacional Plurianual del Sector Público) (Decree 493-07); and (iii) the Development of Mortgage and Fiduciary Market Act (Law 189-11). Organic Law on the National Development Strategy (2012) – Access to decent housing is one of the primary subjects of the National Development Strategy (END, or Estrategia Nacional de Desarrollo).10 Or- ganic Law 1-12 approves the END, which is a long-term planning framework effective until 2030. Access to decent housing is one of the central themes under Strategic Area 2 of the END, which is oriented towards a society with equal rights and opportunities. One of the general objectives under this Area is “to create decent housing in healthy environments. “Within this overarching objective, two specific objectives are set out: (i) to facilitate the population’s access to affordable, safe, and decent housing with legal security and in sustaina- ble, socially-integrated human settlements that meet the criteria of adequate risk management and universal accessibility for people with physical-motor disabilities (specific objective 12); and (ii) to guarantee universal access to safe drinking water and sanitation services provided with quality and efficiency (specific objective 13).11 Although the END has guided the sector’s actions over the last decade, one of the major shortcomings is a lack of indicators linked to the objective of decent housing and sustainable human settlements. Indicators were only defined for access to safe drinking water (Torres et. al, 2017). As a result, the government lacks clear baselines to measure the sector’s progress over the long term. National Multi-Year Public Sector Plan (2007) – For the years 2017-2020, the goals of the PNPSP with respect to housing were focused on replacing dirt floors with cement. The PNPSP seeks to set priorities, tar- gets, goals, and resource requirements in the medium and short term for the key plans, programs, and pro- jects for each government administration. It is formulated every four years and is updated annually. The most recently available PNSPS is from the previous government’s administration from 2017-2020. With regard to Specific Objective 12 of the END, safe and decent human settlements, the 2017-2020 PNPSP establishes new policy measures focused mainly on increasing access to the mortgage and fiduciary market by encouraging subsidies, investments, and financing instruments. The various actions include the creation of a national hou- sing financing facility and the enactment of a bill for the promotion of decent housing and human settlements (MEPyD, 2020). The housing goals outlined in the PNPSP for this period are summarized in Table 3. Notably, INVI is the only entity responsible for meeting the goals, although at least seven other agencies also received public funds for developing housing projects during this period (Torres et. al, 2017). During this period, the targets reached by INVI are well below those set out in the PNPSP, even thou- gh the targets were scaled down in the PNPSP’s annual progress reviews. As Figure 3 shows, none of the targets were fully met. In terms of new housing, 1,410 housing units were built between 2017-2019, while the target for the same period was 5,106 units. In terms of home improvement, 8,129 houses were improved out of the 39,472 planned. Finally, regarding upgrading dirt floors, only 9,795 dirt floors were upgraded out of the 10 The END is made up of 4 strategic axes, 19 general objectives, 58 specific objectives, 460 courses of action, 7 intersecting policies, and a series of development goals and measurement indicators. 11 For each specific objective, courses of action are defined which have guided the policies of the housing sector in recent years. Among these are: (i) the creation and de- velopment of the legal and institutional framework for the definition of a public housing policy; (ii) raising environmental standards and access to basic services and com- munity infrastructure; (iii) the relocation of settlements at risk of natural disaster; (iv) the promotion of mechanisms consistent with the regulatory framework that facilitate and promote household savings; (v) the promotion of new financing options for builders and developers who offer low-cost housing with adequate standards; and (vi) the promotion of reforms and regulations designed to ensure the security of the legal framework and the investment climate in the housing sector, among other courses of action. 220 Table 3. PNSP housing goals 2017-2020 Intervention Entity 2017 2018 2019 2020 Housing construction INVI 1,450 2,148 1,508 3,570 Home Improvement and/or INVI 9,472 15,000 15,000 15,000 construction Dirt floor upgraded to INVI 2,500 25,000 25,000 16,000 concrete floor Source: MEPyD, 2020. Figure 3. Achievement of PNPSP targets, 2017-2019 100 87 75 50 44 43 28 25 20 8 2 1 0 0 2017 2018 2019 Housing Home improvment and/or Dirt floor upgraded construction construction to concrete floor Source: INVI Institutional Report 2017, 2018, and 2019. 52,500 called for in the plan. The only program that INVI fully achieved, even exceeding the targets, was the replacement of charcoal and firewood for cooking. However, this program was not within the ambit of the PNPSP and fails to address the housing deficit (INVI, 2020). The PNPSP also set goals for water and sanitation, both of which are vital for the reduction of the housing deficit . With regard to Specific Objective 13, universal access to water supply and sanitation, the 2017-2020 PNPSP sets out strategic lines focused on: (i) developing a legal and institutional framework for the water and sanitation sectoral agencies; (ii) transforming the water and sanitation service management model; and (iii) developing new network infrastructure to scale up drinking water, sanitation, and storm Urbanization and Territorial Development Review in the Dominican Republic 221 5. Enabling an inclusive housing sector Table 4. Water supply and sanitation coverage targets Indicator 2015 Baseline 2020 Target Percentage of population with household connections to piped water 80.1% 83% Percentage of wastewater being collected in the sewerage system 25.1% 30% Diagnostic estimate of sewage treated 10% 20% Source: MEPyD, 2020. water sewerage, sewage treatment, and subsoil protection service coverage. The 2017-2020 PNPSP targets under Specific Objective 13 are described in Table 4. However, their level of compliance is not available in the PNPSP updates. The current 2021-2024 PNPSP is being prepared. The strategic guidelines of the 2021-2024 PNPSP, which were published in September 2020, identify decent and adequate housing as one of the key policy areas of the current administration. Housing interventions are divided into four pillars: (i) reduce housing de- ficit; (ii) promote land-use planning; (iii) implement housing plans; and (iv) implement a land titling program. Development of Mortgage and Fiduciary Market Act (2011) – The Development of Mortgage and Fidu- ciary Market Act (Law 189-11) has been an influential milestone for the development of low-cost housing over the last decade. The law intends to foster the private sector-led production of low-cost housing through a fiduciary legal structure and incentive-based mortgage market development scheme. Moreover, it provides the legal framework for setting up Public-Private Partnerships (PPPs) for housing construction. The Law states that “low-cost housing projects may benefit from the development and implementation of legal, financial, and fiscal instruments [...] in order to leverage resources available to finance them and their infrastructure, as well as to lower housing costs.” The GoDR provides incentives to both the developers and the buyers of low-cost housing. The Law defines low-cost housing projects as housing solutions involving the public and/or private sector that, in ad- dition to having specific characteristics such as location, size, and quality of materials, among others, have a current selling price equal to or less than RD$ 4.5 million12 (annual inflation-adjusted figure). To apply for the benefits provided by the Law, the housing project must be certified by INVI as a Low-Cost Housing Project (VBC, or Vivienda de Bajo Costo). The government grants incentives to both developers and homebuyers (or beneficiaries) to encourage VBC development. Some of the key incentives for developers or builders include 12 Decree 359-12 defined the characteristics of low-cost housing and set the maximum price of a low-cost home at RD$ 2 million. This amount is adjusted annually for infla- tion. As of July 2021, the ceiling is set at RD$ 4.5 million (equivalent to approximately US$ 79,000). In the current mortgage market, a household would need an income of almost 11 minimum wages in order to afford a home costing RD$ 4.5 million. 222 a “one-stop window” to process construction permits more expeditiously, receive property tax exemptions, and benefit from flexibility in complying with certain construction laws and regulations. On the other hand, homebuyers, through the Dominican Internal Revenue Service (DGII, or Dirección General de Impuestos Inter- nos), also receive a first-time homebuyer grant equivalent to the tax on the transfer of industrialized goods and services (ITBIS, or Impuesto a la Transferencia de Bienes y Servicios Industrializados), which is known as Bono ITBIS. This grant accounts for approximately 7 percent to 9 percent of the total home value and can be used to complete the down payment or be applied against the loan principal if the homebuyer has already paid the down payment. 13​​ The Law fosters a Savings-Subsidy–Mortgage model (ABC, or Ahorro-Bono-Crédito), whereby the beneficiaries are subject to comply with scheduled savings that, jointly with the ITBIS grant, cover the loan down payment. Furthermore, the beneficiaries apply for a loan from a lender to finance the house purchase,14 with a mortgage as loan collateral. Under this law, important housing projects have been developed, such as Ciudad Juan Bosch, which is described in Box 2 below. Between 2013 and 2021, 21,445 ITBIS grants have been awarded—an important investment by the government that amounts to RD$ 3,148 million.15 Specifically, in the last few years, a significant jump in ITBIS grants has been observed, which means the development of low-cost housing is on the rise (see Figure 4). However, although the fiduciary structure has played a critical role in facilitating the increased supply of low-cost housing, it has not been used on a scale sufficient to sig- nificantly reduce the housing deficit. Figure 4. ITBIS grants, 2013-2021 6,000 5,000 4,000 3,000 2,000 1,000 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 Source: DGII Report, through the Ministry of the Presidency. 13 https://dgii.gov.do/contribuyentesRegistrados/personasJuridicas/fiduciaria/Paginas/bonoVivienda.aspx. 14 Approval of mortgage credit depends on a risk assessment of the applicant and the applicant’s income. 15 Data provided by the Ministry of the Presidency, June 2021. Urbanization and Territorial Development Review in the Dominican Republic 223 5. Enabling an inclusive housing sector Box 2 Ciudad Juan Bosch project Ciudad Juan Bosch Project emerged as an initiative to alleviate the country’s quantitative hous- ing deficit ,especially among low -and lower-middle-income families .The GoDR built partner- ships with private sector companies and banks to develop integrated housing projects, with the local government of Santo Domingo Este participating in the pilot fiduciary model project. This initiative was coordinated by MINPRE and implemented through the Fideicomiso Público Matriz para la Construcción de Viviendas de Bajo Costo - Fideicomiso (VBC). The project’s goal was to build 25,000 units. The public sector contributed the land and developed the infrastructure such as roads, drinking water, sanitation, and electricity, and also provided social and institutional facilities such as schools, health centers, police and fire stations, parks, among others. The private sector pro- vided housing construction and sales, including commercial areas. Home prices ranged between RD$ 1 million and RD$ 4.5 million (approximately US$ 17,500 to US$ 78,000). The GoDR provided homebuyers with benefits including two grants towards the down payment (Bono ITBIS and Bono Tierra) which represented between 7 percent and 11 percent of the home’s value. Ciudad Juan Bosch has had an important role in the development of low-cost housing and in attracting private sector financing to these types of projects. Additionally, many of the units (25 percent) have been sold to the diaspora. However, the project has run into a number of setbacks, including delays in house construction along with the basic services and infrastructure that were considered to be part of the development. Part of the problem is that only a small percentage of the Dominican population earns enough to be able to afford a home in Ciudad Juan Bosch (and so the diaspora has bought a significant percentage of the units). Additionally, the development is located on the outskirts of the city ,which makes it inaccessible for some prospective homebuyers .To address this issue ,the GoDR has built a highway( Avenida Ecológica )to connect the housing project with the city .A mass transit system is also contemplated as part of the infrastructure. Source: MEPyD, 2017 and Ciudad Alternativa, 2017. 2.2 The institutional framework is characterized by considerable institutional dispersion The institutional framework of the housing sector has been characterized by a multiplicity of stakehol- ders, which is expected to change with the creation of the MIVHED. Until recently, there was no governing body leading the coordination of sector-wide policies. As a result, there has been an overlap of functions. By mandate, INVI was tasked with the formulation and implementation of housing programs and projects. In the PNPSP, it was considered the sole entity accountable for the achievement of the proposed targets. However, historically, several entities have developed and implemented housing plans and projects. In particular, the 224 Executive Branch has played a significant role in the sector through MINPRE—promoting important housing projects under the fiduciary model, as well as housing upgrading projects and land titling programs. In 2021, the PNVFF was launched. It is an ambitious plan to slash the quantitative housing deficit nationally under the leadership of the MINPRE. Box 3 lists the key government stakeholders in housing. Box 3 Major government actors in affordable housing • Ministry of Economy, Planning, and Development (MEPyD): MEPyD has among its main duties the formulation, management, monitoring, and evaluation of macroeconomic and sustainable development policies, as well as the formulation of the END and the PNSP. As such, it is responsi- ble for developing housing strategies and policies. • National Housing Institute (INVI): The National Housing Institute, established by Law 5892-62, as amended from time to time, is an autonomous institution with its own legal status, its own assets, and indefinite duration. Its mission is to improve the living conditions of low-income Do- minican families through the construction, improvement, reconstruction, or expansion of their dwellings. It is also responsible for formulating housing plans and projects in coordination with the private sector and other social sector groups. • Ministry of the Presidency (MINPRE): The Ministry of the Presidency, although it lacks a speci- fic function in the housing sector, is the entity entrusted with the implementation of prioritized public policies. As such, it has played a fundamental role in the sector over the past decade. A number of key sectoral entities operate within the Ministry, including: • Executing Unit for the Rehabilitation of Neighborhoods and Environments (URBE): Established in 2014 with administrative and financial autonomy and with the objective of designing and implementing projects to improve conditions in informal settlement and substandard housing sectors with high environmental and human vulnerability. Decree 192-21 changes the name of the entity and gives it a national scope. • Commission for Mortgage Market Development: created in 2015, its objective is to manage housing projects under the trust fund regime as established in Law 189-11. • State Land Titling Commission (CPT TE): Created in 2012, it aims to formulate, coordinate, su- pport, and advocate policies and strategies to promote and materialize a definitive solution to the absence of land titling or an updated real estate registry. • National Housing Fund (FONVIVENDA): Established by Decree 191-21, FONVIENDA is an entity wi- thin MINPRE that executes and manages resources aimed at providing subsidies for social housing solutions, which are defined by the decree as houses with a ceiling selling price of RD$ 2,250,000. • Ministry of Public Works and Communications (MOPC, or Ministerio de Obras Públicas y Co- municaciones): MOPC, through two of its departments, the General Directorate of Buildings and the General Directorate of Supervision and Inspection of Works, is responsible for regulating the Urbanization and Territorial Development Review in the Dominican Republic 225 5. Enabling an inclusive housing sector domestic civil and road construction sector. Its duties include: (i) processing reviews building plans in general and issuing the corresponding construction licenses or permits; (ii) directing, controlling and centralizing the construction design, supervision, and calculation of volumes or materials and structural calculations pertaining to public works; (iii) reviewing and approving urban development projects and plans, including landscaping elements; and (iv) overseeing compliance with all building laws, provisions, regulations, and ordinances, carrying out inspec- tions and supervisions of public works, and investigating complaints for violations of building construction standards. In specific cases, MOPC also implements housing construction and im- provement projects for vulnerable households. • Inter-Institutional Coordination Council for Housing (CIVIVIENDA, or Consejo Interinstitucional para Coordinación Viviendas): Committee established in the aftermath of Hurricanes David and Frederick in 1979. • Social Policy Cabinet (GPS, or Gabinete de Política Social): GPS formulates, executes, monitors, and evaluates the programs in the Social Protection System. It has implemented a program to replace dirt floors with concrete floors for vulnerable families.a • Real Estate Jurisdiction (JI, or Jurisdicción Inmobiliaria): JI has exclusive jurisdiction to hear ownership rights and their registration in the DR, from the authorization of survey request throu- ghout the life cycle of the property, with the exceptions provided for in the legal framework. It is formed by the Superior Court of Lands, the Courts of Original Jurisdiction, the National Directo- rate of Title Registry, and the National Directorate of Cadastral Surveys. • National Bureau of Seismic Evaluation and Vulnerability of Infrastructure and Buildings (ONESVIE, or Oficina Nacional de Evaluación Sísmica y Vulnerabilidad de Infraestructura y Edifi- caciones): ONESVIE was created by Decree 715-01 in response to the International Conference on Seismic Risk Reduction in the Caribbean Region. It seeks to diagnose and assess the seismic resistance capacity and vulnerability of the country’s public buildings, and to establish remedial actions in those cases where needed. As such, one of its duties is to identify dwellings in risk areas and support post-disaster reconstruction processes. • Institute of Aid and Housing (INAVI, or Instituto de Auxilios y Vivienda): INAVI is an autonomous agency, created by Law 5574-61 to perform social improvement works and services around the country. Its mission is to contribute to raising the standard of living of public servants and low-in- come individuals through social services and welfare programs. With respect to housing, it has provided assistance to vulnerable people in very specific cases, either by granting property titles or by assisting in home rebuilding. a The program to replace dirt floors with concrete floors was supported by the World Bank. Source: Developed by the authors. 226 In the DR, local governments have historically played a minimal role in housing supply, but they in- fluence the sector through the urban planning framework. Local governments influence the development of housing markets, as they are responsible for urban planning and zoning, land-use planning, and land management. Also, local governments issue permits for the use of land and buildings. However, as indicated in Note 4 of this report,16 with the exception of those that are part of Greater Santo Domingo and Santiago, local governments in the DR have limited financial resources and technical capacities to formulate and im- plement territorial planning and land-use plans and instruments. As a result, urban expansion is occurring in a disorganized and unplanned manner. Various public institutions receive public funds for social housing, resulting in poor use of limited resources. Institutional fragmentation is evident in the allocation of public funds for housing. During the 2017- 2020 period, more than 5 institutions received government funding to implement housing sector projects, including MINPRE, MOPC INVI, ONESVIE, and INAVI (DIGEPRES, 2020). Furthermore, there is little accountability and transparency on how the resources are used, which strongly influences the poor sector-wide performance. 2.3 Public investment in housing is far below what is needed, although the last year has seen a significant increase Historically, public investment in housing has been extremely poor, especially when considering housing needs nationwide. In terms of investment in social housing as a share of GDP, social housing investment be- tween 2014 and 2020 stood at 0.065 percent of GDP (DIGEPRES, 2021).17 This figure is far below the regional average (0.67 percent).18 Bearing in mind the magnitude of the housing deficit in the DR, it is estimated that the GoDR should invest at least 1 percent of GDP for at least 10 years in order to build enough dwelling units to absorb the formation of new households and lower the housing deficit (Ciudad Alternativa, 2017). As seen in Figure 5, public investment in housing has been characterized by significant fluctuations, which hinders medium- and long-term project planning. Additionally, government spending on housing has been disconnected from the country’s economic growth. For example, in 2018 and 2019, the DR saw econo- mic growth rates close to 7 percent and 5 percent, respectively, which makes it one of the fastest growing economies in the region. However, during those years, public investment in housing declined considerably (Ciudad Alternativa, 2020). In 2020, when the new administration took office, public investment in housing grew considerably, almost doubling the 2015 figures (which had been the highest ones in recent years). This action reflects the current administration’s commitment to the housing sector. In addition, the sector’s budget performance is highly inefficient. As seen in Figure 6, during the 2017- 2021 period there is a constant disparity between the amount initially approved, the reformulation, and the actual implementation for social housing. In particular, there is a large disparity between reformulated and implemented amounts, making it very difficult to project the consistent investment required by housing policy. Over the last de- cade, only 49.8 percent of the funding allocated for social housing was implemented (Ciudad Alternativa, 2020). 16 World Bank, “Empowering local governments”, Urbanization and Territorial Development in the Dominican Republic, note 4. 17 This figure does not take into account the GoDR expense on the Bono ITBIS, which amounted to RD$ 3.147 billion between 2013 and April 2021. 18 https://observatoriaocial.cepal.org/inversion/es/grafico/america-latina-17-paises-gasto-vivienda-servicios-comunitarios-gobierno-central-2000-2018a. This figure is for 2018 and takes the following 17 countries into account: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, the Dominican Republic, and Uruguay. Urbanization and Territorial Development Review in the Dominican Republic 227 5. Enabling an inclusive housing sector Figure 5. Public investment in social housing as a share of GDP (RD$ Million) 6,000 0.14 0.12 5,000 0.10 4,000 0.08 3,000 0.06 2,000 0.04 1,000 0.02 0 0.00 2014 2015 2016 2017 2018 2019 2020 Investment amount % Percent of PBI Source: Developed by the authors. Figure 6. Budget formulation and execution in social housing (RD$ million) 5.9 600 5.6 5.4 400 3.2 2.5 2.1 2.2 200 1.2 1.2 0.9 0.9 0.8 0.9 0 2017 2018 2019 2020 2021 Approved Reformulated Implemented Source: Developed by the authors. 228 Finally, there is no accountability system in place, nor are there any clear objectives, to evaluate the efficiency of public spending in housing. As a result, the incentive to improve budget implementation and to determine whether implemented programs have been successful or not is reduced. According to an analysis by the Housing and Habitat Commission of the Foro Ciudadano, only 16 percent of the spending allocated for housing by 2020 is aligned with the goals of the END 2030.19 2.4 Recently approved Law 160-21 aims to strengthen housing policy and bring in sector-wide coordination The creation of the MIVHED is expected to improve housing sector performance. Several public and pri- vate organizations including the Dominican Association of Home Builders and Developers (ACOPROVIA, or Asociación Dominicana de Constructores y Promotores de la Vivienda)20 and Popular Urban Network (RUP, or Red Urbano Popular) have attempted to advance the establishment of a Ministry of Housing for over 15 years (through several bills).21 In August 2021, Law 160-21, which created the MIVHED, was approved. Its mandate is to develop and implement government policies on housing. Appendix 2 contains a summary of the key aspects of the Law. INVI, which has historically been the housing policy making and implementation agency (mainly focused on home improvement and reconstruction programs), will become part of the MIVHED. Among other things, the bill states that reducing the housing deficit is a national priority. It defines the crite- ria for decent housing in alignment with UN-HABITAT (2019), creates the Institute for Housing Development, Access, and Guarantee (INFAMICASA, or Instituto para el Fomento, Acceso y Garantía de Mi Casa),22 creates the National Land Survey Registry, and establishes several land surveys held by beneficiaries, organizations, and professionals linked to the housing sector. 19 As reported in the press on October 16, 2020. 20 ACOPROVI is a consortium made up of approximately 250 construction and housing companies. The association has a national scope, but most of the companies are based in Santo Domingo. 21 In 2006, ACOPROVI introduced its bill called “Law of Housing, Human Settlements, and Buildings” and in 2008, RUP introduced its bill called “Law of Housing, Habitat, and Human Settlements.”In 2021, the Executive Branch submitted the Bill to create the Ministry of Housing, which is currently being reviewed by the Senate. 22 An autonomous and decentralized public agency of the State that is vested with legal personality, its own assets, and jurisdictional, financial, and technical autonomy attached to the Ministry. Urbanization and Territorial Development Review in the Dominican Republic 229 5. Enabling an inclusive housing sector 3. Obstacles to the development of an efficient, resilient, and sustainable housing market are found all along the value chain The new housing market value chain refers to the process whereby a plot of land is identified, titled, li- censed, connected to infrastructure, built, and sold (see Figure 7). On the supply side, there must be access to developable land, planning and building standards, basic services and infrastructure, affordable building materials, and a market of developers who have the technical skills and resources to handle the demand. On the demand side, there must exist homebuyer purchasing power, a developed, accessible, and robust mort- gage market, and a secure and transparent rental housing market. Ensuring smooth coordination between the public and private sectors dealing with land, infrastructure, design, and construction processes (on the supply side) and a set of demand-side inputs relating to housing financing and macroeconomic conditions that guarantee long-term funding at affordable rates is key to achieving this balance. Figure 7. Housing market value chain Access Planning, Development Infrastructure Developer Home buyer to land regulations, and construction Subsidies and services financing housing finance permits materials Source: Adapted from the World Bank, 2020. This section focuses on five obstacles, both on the supply and demand sides, that are key to improving the performance of the housing sector: (i) land tenure; (ii) permitting and licensing processes; (iii) construction costs; (iv) the mortgage market; and (v) buyer housing financing. Note that better access to basic services and infrastructure, as well as better urban and land-use planning, are key themes for improved provision of housing in the DR. However, these subjects are addressed in Note 1 on urbanization in the Dominican Republic and Note 2 on a new territorial order in the Dominican Republic, respectively. 3.1 Land tenure is highly informal A high degree of informality and irregularity in property registration are major obstacles to the develop- ment of an effective housing market in the DR. This informality hampers access to land, the implementation of building regulations, and access to the mortgage market. In the DR, there is no accurate information available on land tenure informality. However, a study prepared by the Institute for Liberty and Democracy in 2006 estimated that around 1.8 million urban properties can be considered as extralegal, which accounts for 85 percent of the total number of urban properties in the country. Furthermore, it was estimated that 1.1 mi- llion hectares of rural properties did not have a property title, which represents 56 percent of the total area of the DR. Also, a 2019 study by the Ministry of Finance, with support from the Inter-American Development Bank (IDB) and the Global Land Alliance estimated that only one out of every four properties is registered with the 230 DGII (Jacquet and Zaltsman, 2020). In terms of informality in social units built by the GoDR, it is believed that 95 percent of them have been handed over to their beneficiaries over time without a title deed.23 In the DR, two parallel real estate registration systems coexist: The Title Register, also known as the Dominican Torrens Title System, and the Mortgage Conservatorship, also known as the Ministerial System. The Title Register offers greater security of tenure, but covers only 13 percent of the total number of properties nationwide. The Mortgage Conservatorship has far wider coverage, but offers a much lower degree of legal security than the Title Register. Land administration is institutionally and procedurally complex. The General Directorate of the Na- tional Cadaster (DGCN, or Dirección General de Catastro Nacional), under the Ministry of Finance, is the entity responsible for the inventory of all real estate in the country, including all physical, economic, and legal aspects. Informational deficiencies in the land registry constrain local governments’ ability to exert land-use authority. Most local governments do not have municipal registers in place. Additionally, institutio- nal fragmentation of geographic, legal, and fiscal information management, as well as inherent procedural complexities, hinders inter-agency collaboration and information sharing. As such, it is necessary to simplify and de-bureaucratize access to land titling, and also to develop digital channels or interoperability arrange- ments between the information systems held by different entities relating to legal, fiscal, and geographic land administration. Additionally, it is necessary to integrate land management systems with land-use planning processes in order to promote more adequate territorial development. The DR has embarked upon a process for reforming the land administration system. This process began in 2005 with the enactment of the Real Estate Registration Act (Law 108-05), which endeavors to clear property titles and to digitalize and decentralize the system. Major strides have been made towards the transformation and modernization of the Real Estate Authority (JI),24 a unit attached to the Judiciary that has exclusive jurisdiction to recognize property rights and their registration in the DR. Additionally, in 2012, the State Land Titling Commission (CPTTE, or Comisión Permanente de Titulación de Terrenos del Estado) was formed under MINPRE to facilitate the public land and social housing titling process. However, the system still is plagued by a number of issues that have prevented more comprehensive reduction of land tenure informality. For example, many laws and regulations lead to interpretation and enforcement problems. Also, there is an overlap of agencies involved in land registration, resulting in poor consistency and coordination. Finally, many of the services are neither digitalized nor automated, and in most cases the local offices have insufficient capacities. As a result, obtaining a property title is a time-consuming and costly process, affecting mainly the poorest and most vulnerable groups, as well as creating major dis- parities in property rights between men and women. 3.2 The building permit process is cumbersome and inconsistent Building licensing and permitting processes are bureaucratic, lengthy, and inconsistent, which adds signi- ficant cost to housing development. There is a large discrepancy between the theoretical timeline estima- ted for obtaining permits and licenses and the actual turnaround time. According to the World Bank’s latest 23 Interview with the State Land Titling Commission, May 2021. 24 JI consists of the Superior Court of Lands, the Courts of Original Jurisdiction, the National Directorate of Title Registry, and the National Directorate of Cadastral Surveys. Urbanization and Territorial Development Review in the Dominican Republic 231 5. Enabling an inclusive housing sector Figure 8. Building licenses issued for private sector construction 1,500 1,000 500 0 7 8 9 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 9 9 9 20 20 20 20 20 20 20 20 20 20 20 20 19 20 20 19 20 19 20 20 20 20 20 Single-family house Apartment or building Source: National Statistics Office. Doing Business 2020 report, obtaining the necessary building permits for a standard warehouse in the DR requires 15 procedures and takes about 214 days (the regional average is 191.2 days). Turnaround times are even longer when it comes to housing, as permitting a single-family housing development takes approxima- tely a year and a half.25 These indirect costs reduce the likelihood that developers will generate supply for the most vulnerable sectors, since the bureaucracy to obtain work permits is transferred to the final unit cost. Between 1997 and 2019, approximately 500 building licenses were issued each year for apartments or buildings and 450 for houses (see Figure 8). During the 2010-2017 period, the average number of licenses granted decreased significantly, reaching its lowest point in 2017. However, by 2018, the number of licenses issued almost doubled, totaling 1,087 in 2019. Various entities are involved in the permitting process. The bodies responsible for issuing permits and licenses are: (i) local governments, which verify and approve matters pertaining to boundaries, land use, residential density, heights, property title, and cadastral surveying; (ii) the Ministry of Public Works and Com- munications (MOPC, or Ministerio de Obras Públicas y Comunicaciones), which approves technical aspects of the works such as architecture, plumbing and electrical, and structural systems; and (iii) the Ministry of Environment and Natural Resources (MMARIN, or Ministerio de Medio Ambiente y Recursos Naturales), which issues the environmental authorization. In some cases, these entities do not have the resources to perform their functions efficiently and appropriately. For example, as detailed in Note 3 on this report,26 in many cases, local governments are granting permits without any guidance, as they do not have land-use plans (POTs) or even a detailed definition of land use that could guide the private and public sectors in housing development. Box 4 details the building permitting and licensing process. 25 Interview with residential developers and the Ministry of Public Works and Communications, June 2021. 26 World Bank, “Adopting a new territorial planning framework”, Urbanization and Territorial Development in the Dominican Republic, note 3. 232 Box 4 Building permitting and licensing process The process for obtaining residential construction permits and licenses is characteristically lengthy and unpredictable. The first step is to request the land-use certification (location of the proper- ty). This permit is issued by the local government. Once the housing designer has the floor plans, it goes back to the local government for project-level approval. Many of the local governments have limited resources to perform this duty. Very few local governments have polygon maps and detailed information to adequately inform this permit (only Santo Domingo and Santiago have this type of information). The rest of the local governments only use general regulations. When the local government takes on projects associated with environmentally protected areas, for exam- ple, MMARN is consulted to approve the project’s location. The local governments are also res- ponsible for determining which areas are not developable due to risk of natural disaster. If the proposed project is to be located in a cultural/preserved area, then the Ministry of Culture (MC) is consulted, and if it is a tourist area, the Ministry of Tourism (MiTur) is asked. If the relevant local go- vernment does not have the necessary capacity to evaluate the appropriateness of the location, only MMARN and MC are consulted, and if no objection is raised, approval is given. As part of the land-use certification, the following documentation is submitted to MMARN: (i) land-use and land-cover map, and (ii) wastewater management plan (estimations and techni- cal report). With these two documents, the environmental license is approved. MMARN grants the environmental license on a national level. A compendium of environmental permitting regulations governs the process and steps for granting environmental licenses. To issue the environmental license, MMARN reviews the documents, conducts a field visit, assesses matters such as proximity to bodies of water, and then drafts a report. The turnaround time for an environmental license (for projects outside of Law 189-11) ranges from 30 to 45 working days. Once approval is obtained from the local government and MMARN, MOPC reviews all te- chnical aspects of the project (mainly technical and non-urban criteria) and issues the building permit. Depending on the type of project, the One-Stop Shop for Building Permits (VU) may be used, as is the case for projects under Law 189-11, or else the ordinary process is followed. When MOPC accepts the project, it is forwarded to the relevant technical areas for approval (water and sanitation, electrical, architectural, and structural). If all the plans are in order, then the license is issued. If there are any details to be addressed, corrections are issued. Once it enters MOPC, pro- ject approval should take 90 working days (for ordinary projects) or 45 days via the one-stop shop (VU). However, in practice, these processes usually take more time. Upon approval of the relevant licenses and permits and the commencement of works, the project is transferred to the Inspection of Private Works Department (within MOPC), which carries out an inspection of the elements and verifies the progress of the construction. Source: Interviews with MOPC and Ministry of Environment and Natural Resources. Urbanization and Territorial Development Review in the Dominican Republic 233 5. Enabling an inclusive housing sector In 2018, a one-stop window (VU, or Ventanilla Unica) was created in order to streamline these processes, especially for low-cost housing. Delays in the permitting and licensing process are attributable to the lack of capacity and resources in some local governments, changes of government locally or nationally, inconsistent evaluation criteria among different entities, and duplicity of processes. In response to these issues, in 2018 the VU was created within MOPC to centralize procedures and coordinate processes. However, the VU has not been able to streamline processes or significantly reduce lead times. 3.3 A low-cost housing market is growing ,but construction costs have escalated significantly The DR has a robust domestic construction industry. Most of the basic construction materials such as ce- ment, concrete, tiles, mosaics, paint, and reinforcing steel bars are manufactured locally. As a result, compa- red to other Caribbean countries, construction costs are lower. In fact, cement retail prices have remained 18 percent lower compared to the average price in other countries, which means that the Dominican cement industry is one of the most competitive in Latin America (Dominican Today, n.d.). Moreover, the construction sector is one of the major drivers of the country’s economy and, due to its role as a generator of employment, has been key to the post-COVID-19 economic recovery. In 2021, it has been one of the fastest growing sec- tors, contributing 15 percent of GDP (Central Bank). Since 2018, there has been a significant increase in housing construction, mainly in Santo Domingo. Most of the new housing units are multi-family. As of 2019, ONE has been disaggregating the number of units that are considered CBV (18 percent of the total) (see Figure 9). The increasing issuance of Bono ITBIS shows that the supply of low-cost housing has substantially increased over the last decade. It is estimated that since 2012, the supply of houses has grown tenfold and the number of developers working in this market nationwide rose from 5 to over 200. In Ciudad Juan Bosch alone, over 20 developers are working in affordable housing.27 Based on Bono ITBIS information, in 2020 the lowest-priced unit offered at market value went for RD$ 1,236,900 (US$ 21,800).28 According to ACOPROVI, access to financing is affordable for housing developers. Generally, in a hou- sing project, capital inflow is broken down as follows: 30 percent developer’s equity, 20 percent pre-sale, and 50 percent construction loan, the latter of which is widely available in the market. However, a hurdle that developers must deal with is the growing price of construction materials. It is estimated that, in the last year, a square meter of residential construction rose around 30 percent (ACOPROVI, 2021). These increases affect the selling prices of houses. However, low-cost housing is the most affected by these increases, as demand is not very elastic. From the developers’ point of view, there are several challenges affecting the supply of low-cost housing. First, the increase in the price of building materials during the construction process. This price surge is absorbed by the developer since the selling price has been fixed before the works are completed. Second, obtaining building permits can take more than a year, resulting in delays and extra costs. The investment 27 Interview ACOPROVI, June 2021. 28 Summary of Low-Cost Housing Grant Beneficiaries, January-December 2020 (DIIG). The smallest grant issued was RD$ 86,583. Assuming that it is 7 percent of the pur- chase price, the total purchase price is RD$ 1,236,900. However, it is unclear if this price includes the cost of public land or other development inputs including infrastruc- ture. 234 Figure 9. Housing units built by type and year 12,500 10,000 7,500 5,000 2,500 0 2015 2016 2017 2018 2019 Apartments Single family Low cost housing Source: National Statistics Office. cost for electricity connection is also a challenge. Under current law,29 the residential electricity connection investment lies in the hands of the Dominican Corporation of State-Owned Electric Companies (CDEEE, or Corporación Dominicana de Empresas Eléctricas Estatales). However, in practice, urban developers are the ones who make this investment, but they do not receive any reimbursement from the CDEEE for their electrici- ty investments. Finally, the invasion of private lands, mainly in Santo Domingo, restricts the number of parcels available for residential construction. 3.4 Although the mortgage market has been growing over the past few years, it is still small The DR mortgage debt-to-GDP ratio is behind that of developed countries and the regional average. The country’s mortgage portfolio has increased consistently over the last 15 years. The debt-to-GDP ratio went from 2.9 percent in 2006 to 5 percent in December 2020 (from 51,000 mortgages registered in 2006 to 108,000 in 2021). In fact, the mortgage portfolio between 2007 and 2020 multiplied by 4.2 and exhibited an average annual growth rate of 11.7 percent (see Figure 10). Despite this important growth, mortgage debt as a percentage of GDP continues to be below the regional average (8.2 percent) and below other countries, such as Chile (17.5 percent) and Colombia (8.8 percent).30 29 Law 125-01, Article 103 specifies that Electric Companies should provide reimbursement to clients for residential electricity connection. However, in practice, this does not happen often. 30 Calculations by Economía Urbana SAS using data from the Central Bank and statistical agencies in each country. Urbanization and Territorial Development Review in the Dominican Republic 235 5. Enabling an inclusive housing sector Figure 10. Trend in mortgage portfolio for home purchase and renovation 2007 - 2020 (RD$ million) June 84 July 47 September 10 October 73 November 36 Dicember 99 Dic. 07 Dic. 08 Dic. 09 Dic. 10 Dic. 11 Dic. 12 Dic. 13 Dic. 14 Dic. 15 Dic. 16 Dic. 17 Dic. 18 Dic. 19 Dic. 2020 Source: Superintendency of Banks Specifically, between 2016 and 2020, around 15,500 loans were granted each year—with an avera- ge loan amount of RD$ 2.6 million (see Table 5).31 Over the last five years, the 20-year average mortgage in- terest rate hovered around 10 percent (although most mortgages have an average term of 8 years). Between 2006 and 2021, interest rates fell by about 7 percentage points. Interest rates in the housing sector have always been below those in the rest of the country’s financial sector. During the same period, the average inflation rate was 4.4 percent per year. Since 2014, the annual average has been below 3 percent. According to these financing parameters, the average portfolio mortgage loan requires a monthly household income close to 7.8 minimum wages.32 Banks and savings and credit associations are the key players in the Dominican mortgage market. 63 percent of mortgages are held by banking institutions. BanReservas and Banco Popular hold 63 percent of banking mortgages, while 36 percent are in the hands of savings and credit associations, specifically La Asociación Cibao, La Asociación Popular, and La Asociación La Nacional. The remaining 1 percent are spread among other institutions. The market distribution has changed significantly in recent years: in 2006 half of all mortgage loans were with savings and credit associations. A sustainable expansion of the mort- gage market in the DR will depend on the financial institutions’ ability to enhance credit access for low-in- come households with informal or irregular income by using innovative credit risk assessment approaches or flexible financial schemes. 31 Interview with the Central Bank, June 2021. 32 The estimate assumes an average loan size of RD$ 2.6 million, 80 percent LTV, 10 percent interest rate, 20-year term, and 30 percent of household income allocated to installments. Resulting monthly installment is RD$ 25,090 and monthly income is RD$ 83,635. 236 Table 5. Mortgage market development 2016-2021 Amount disbursed Average loan amounts Year Number of Loans (in RD$ million) (in RD$ million) 2016 13,545 33,751.3 2.5 2017 15,537 38,865.1 2.5 2018 16,376 41,105.5 2.5 2019 19.446 49,921.4 2.6 2020 13,876 38,204.6 2.8 2021a 7,301 22,857.9 3.1 Source: Superintendency of Banks. a Up to March 2021. 3.5 Remittances are a source of housing finance for many Dominicans Dominican workers’ wages are low while informality is high. As a result, many households depend on fami- ly remittances and social welfare to meet their housing needs. Table 6 shows household income by quintile associated with labor market paid work, rental income, or dividends from domestic and international finan- cial products.33 The first three quintiles have very low household income, with a maximum of 1.9 minimum wa- ges. The maximum income seen in quintile 3 is RD$ 25,800, an amount which is below the average household food basket.34 In terms of housing costs, quintiles 1 and 2 spend over 30 percent of their income on housing rental. Specifically, quintile 1 spends 123 percent of its income on housing rental, which means that without so- cial assistance or remittances these households would not have access to housing. An interesting fact is that across all quintiles there is a high percentage of renting households (between 34 percent and 43 percent). Remittances have an important impact on the income of Dominican households. Table 7 considers all types of household income, including remittances, social assistance payments, and private assistance payments. One of the major variations is the expenditure weight on rental with respect to income in Quin- tile 1. When considering remittances, social assistance payments, and private assistance payments, this percentage goes down from 123 percent to 62 percent. However, Quintiles 1 and 2 continue allocating over 33 Excluding household income from social programs, remittances, or private assistance payments. 34 The Central Bank estimates the cost of household food basket for Household Income Quintile 3 at RD$ 36,936.17 on December 2020 (while for Quintile 1 it is RD$ 21,791.97). Urbanization and Territorial Development Review in the Dominican Republic 237 5. Enabling an inclusive housing sector Table 6. Characteristics of households by quintile, based on labor income and dividends Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Population 2,108,014 2,067,188 2,090,168 2,084,415 2,086,993 Households 895,926 741,440 651,015 587,930 551,544 Percentage of renting 34.27% 35.93% 42.87% 40.69% 34.11% households Percentage of rental income ** 123.09% 34.56% 23.17% 16.76% 12.33% Percentage of imputed rental as a share of total household 26.40% 7.77% 4.08% 2.83% 2.16% income ** Average monthly income* DOP 2,829.78 DOP 12,624.90 DOP 21,013.76 DOP 33,207.67 DOP 79,703.09 Median monthly income - DOP 12,779.62 DOP 20,916.67 DOP 32,500.96 DOP 62,500 Minimum monthly income - DOP 8,666.92 DOP 16,643.97 DOP 25,801.74 DOP 42,619.81 Maximum monthly income DOP 8,666.67 DOP 16,636.67 DOP 25,800 DOP 42,613.71 DOP 559,293.87 Minimum wages (range)*** < 0.81 0.81-1.55 1.55-2.40 2.40-3.97 3.97 Source: Developed by the authors, based on ENCT 2020 (Quarters 1, 2 & 3). Notes: *Income used to calculate the segments has been constructed based on the amounts perceived by both primary and secondary labor occupation in cash and in kind in addition to income associated with rental income or dividends. Income from remittances, public or private assistance payments, and imputed rent are excluded. The quintiles have been constructed on the basis of family income. ** The percentage of rental income in Quintile 1 shows values over 100 percent given that income from assistance or remittances is not considered in this table. *** The minimum contributable salary is RD$ 10,730. The Annex shows the methodology for creating the variables presented in Tables 6 and 7. 238 Table 7. Characteristics of households by quintile, based on total household income 2020, based on labor income and dividends Quintile 1 Quintile 2 Quintile 3 Quintile 4 Quintile 5 Population 2,087,952 2,087,068 2,087,341 2,087,649 2,086,767 Households 897,840 728,669 651,930 600,082 549,336 Percentage of 49.85% 39.22% 36.28% 34.71% 27.79% renting households Percentage of 61.71% 34.64% 23.53% 18.99% 13.61% rental income Percentage of imputed rental as a share of total 11.43% 9.50% 6.70% 4.50% 3.16% household income Average monthly income DOP 12,013.10 DOP 20,995.59 DOP 29,419.42 DOP 42,167.68 DOP 90,485.95 Median monthly income DOP 12,761.93 21,015.78 DOP 29,167.12 DOP 41,665.94 DOP 72,008.83 Minimum monthly income - DOP 17,134.36 DOP 24,864.62 DOP 34,595.13 DOP 52,560 Maximum monthly income DOP 17,132.60 DOP 24,864.04 DOP 34,590.83 DOP 52,547.05 DOP 579,268.65 Remittance as percentage 21.37% 12.25% 10.26% 7.73% 3.86% of household income Social assistance as percentage of household 11.09% 10.45% 8.70% 6.21% 2.65% income Minimum wages (range) <1.60 1.60 a 2.32 2.32 a –3.22 3.22 a –4.90 >4.90 Source: Developed by the authors, based on ENCT 2020 (Quarters 1, 2 & 3). Notes: Income used to calculate household income quintiles in this table includes all income components as shown in Box 1. Quintiles have been constructed based on household income. Urbanization and Territorial Development Review in the Dominican Republic 239 5. Enabling an inclusive housing sector 30 percent of their income to housing rental. Moreover, remittances and social program assistance have an important impact on income across all quintiles. For Quintile 1, remittances account for over 20 percent of household income. Remittances also play an important role in the economy of the DR. By the end of 2020, remittances accounted for 10.4 percent of GDP, and despite the COVID-19 economic crisis, during that year remittances had the highest growth over the last decade (Banco Central de la República Dominicana, 2020). Given the importance of remittances in household income, in May 2021, BanReservas launched the Remittance Mort- gage Loan, enabling remittance-receiving households to apply for a mortgage loan to purchase a low-cost home (Diario Libre, 2021). 3.6 Formal housing is not affordable for a substantial percentage of the population Formal housing is unaffordable for households earning less than three minimum wages. To better unders- tand housing affordability in the DR, this section presents data on supply, demand, and household income. Based on this analysis, it is concluded that there is a significant gap between supply and affordability, espe- cially for households that earn less than three minimum wages. Historically, the housing market has focused on supplying housing for the upper-middle- and upper-income segments, but this trend is changing. The Mortgage and Trust Market Development Law has increased the supply of low-cost housing. However, a significant percentage of the population still must turn to the informal housing sector or to rental housing to fulfil their housing needs. According to a study by ACOPROVI (2013), in 2012, 58 percent of the national housing supply was priced above RD$ Table 8. Distribution of housing for sale by sales price in 2019 (Santo Domingo Metropolitan Region) Purchase Price (RD$) Units % of Total Total M2 M2/Unit Less than 1 million 944 9% 52,412 m2 55.5 1 - 2 million 3.614 36% 253,992 m2 70.3 2 - 4 millions 2.347 23% 208, 962 m2 89.0 More than 4 million 3.258 32% 494,326 m2 151.7 Total 10.163 100% 1,009,692 m2 Source: ONE, 2020. 240 8,600,000—well beyond the purchasing power of most households.35 However, according to a survey con- ducted by ONE, the landscape has changed significantly in recent years (ONE, 2020). Table 8 shows the distribution of units for sale in 2019 by sales price in Greater Santo Domingo. Table 9 presents an analysis of affordability by sale price. Table 9. Analysis of affordability by sale price Sale Price (RD$) 1,000,000 2,000,000 4,000,000 LTV (Percentage) 80% 80% 80% Loan 800,000 1,600,000 3,200,000 Interest rate (percentage) 10% 10% 10% Term (years) 20 20 20 Monthly payment DOP 7,720 DOP 15,440 DOP 30,881 Payment as % of income 30% 30% 30% Required monthly income DOP 25,734 DOP 51,468 DOP 102,936 Income in minimum wages 2.4 4.8 9.6 Quintile of income* Quintile 3 Quintile 4 Quintile 5 Source: Developed by the authors. * See Table 7. Effective demand for new housing is concentrated on the lowest priced units. The most recent study by ACOPROVI (2017)36 shows that there is an effective demand for 351,000 units. It defines effective demand as those households willing and able to purchase a home. Out of this effective demand, about 70 percent is for units with a sales price less than RD$ 2 million and 90 percent falls within the low-cost housing segment, the cost of which is up to RD$ 4.5 million (see Table 10). Most Dominicans cannot afford the cheapest formal housing on the market. Based on the issuance of the Bono ITBIS, the cost of the cheapest unit sold on the private market in 2020 was approximately RD$ 1,236,900 (see Section 4.3). With the mortgage terms of the Dominican market, a household income of at 35 Housing Market Supply and Demand in Urban Areas of the Dominican Republic. 36 The study covers the local governments of Greater Santo Domingo, Santiago, La Vega, Puerto Plata, Higüey, Punta Cana-Bávaro, and San Francisco de Macorís. Urbanization and Territorial Development Review in the Dominican Republic 241 5. Enabling an inclusive housing sector Table 10. Effective demand for houses by price (RD$) Price (RD$) Effective demand Percentage Less than 1 million 124,683 35.5% 1 - 2 million 120,515 34.3% 2 - 4 million 70,211 20% 4 - 6 million 26,703 7.8% More than 6 million 8,984 2.4% Total 351,096 100% Source: ACOPROVI, 2017. least RD$ 31,830 (3 times the minimum wage) would be needed to purchase this home. This is out of reach for 62 percent of Dominican households.37 When considering the housing deficit, the barriers along the value chain, and the concentration of effective housing demand on low-cost units, the gap between supply and house affordability becomes evident. A rough estimate of real supply, effective demand, and the population’s ability to pay highlights the gap between the lowest and highest end of the housing market (see Figure 11). Housing affordability is highly dependent on access to long-term financing, and the mortgage market in the DR primarily serves the needs of the highest quintile of the income distribution. The average amount of a loan in the mortgage portfolio in 2020 was RD$ 2.8 million. With an LTV of 80 percent, the ave- rage price of a home is RD$ 3.5 million. Using market terms of credit, a family group would need an income of RD$ 90,069 (8.4 times the minimum wage) in order to buy this home.38 37 The estimate assumes an LTV of 80 percent, an interest rate of 10 percent, a term of 20 years, and a housing payment of 30 percent of the family’s monthly income. 38 The estimate assumes an LTV of 80 percent, an interest rate of 10 percent, a term of 20 years, and a housing payment of 30 percent of the family’s monthly income. 242 Figure 11. Estimate of the distribution of effective supply and demand of housing and capacity to pay of dominican households 80 70 60 50 Under supply 40 30 20 10 0 <1 millon 1-2 millons 2-4 millons >4 millons Supply Effective demand % of the population for wich this price is the maximum affordable Source: Developed by the authors. 4. New government programs addressing the housing deficit Housing is one of the priorities of the current administration. In recent months, programs have been laun- ched to address the qualitative and quantitative housing deficit, leveraging public funds amounting to some RD$ 29.1 billion over 4 years.39 4.1 Dominicana se Reconstruye In September 2020, the GoDR launched Dominicana se Reconstruye. This plan aims to build and renovate over 30,000 housing units nationwide for low-income households who live in vulnerable areas (INVI, 2021). The plan also envisages improving and building water pipelines. The implementing agency is INVI and the program’s budget is RD$ 1.95 billion. The project is expected to directly create approximately 6,800 jobs. The beneficiary targeting and housing distribution process is being carried out jointly with social organizations and local communities. However, eligibility requirements are not publicly available.40 INVI is developing an application form (Formularios de Mejoramiento) for potential beneficiaries. So far, works have commenced in all provinces nation-wide, with over 9,000 units already completed. 39 This is comprised of RD$ 1.95 billion allocated to Dominicana se Reconstruye, RD$ 11.35 billion to the PNVFF, and RD$ 15.8 billion to Plan Mi Vivienda. Assuming equal spend- ing each year and a constant GDP for 2020, this investment would represent 0.2 percent of GDP. 40 These organizations include: Arquitectura Sin Frontera, Asociación Promoción Mujer del Sur, Bayaguana Vivienda Digna, Caritas Diocesana – La Vega, Caritas Dominica- nas, Ciudad Alternativa, Federación Junta de Vecinos Puerto Plata, Hábitat para la Humanidad, Instituto Dominicano de Desarrollo Integral, and Santiago Solidario. Urbanization and Territorial Development Review in the Dominican Republic 243 5. Enabling an inclusive housing sector 4.2 Plan Nacional de Vivienda Familia Feliz In January 2021, the GoDR launched the PNVFF to support the 4-year development of 62,000 housing units. MINPRE is the implementing agency and its program budget amounts to approximately RD$ 11.35 billion. In the first year, 11,000 low-cost houses are expected to be delivered, with a public contribution of RD$ 1.8 billion. The PNVFF uses the ABC model advocated by the Development of Mortgage and Fiduciary Market Act. To buy his/her new home, the beneficiary covers the mortgage down payment using his/her own savings (between 2.5-10 percent of the home price), receives an initial government subsidy (between 18-33 percent of the purchase price), and takes out a 20-year mortgage loan from a participating financial institution to cover the difference in the purchase price. The initial government subsidy is made up of Bono ITBIS, Bono Inicial Familiar, and Bono Mujer. Additionally, beneficiaries also receive a 7-year subsidized interest rate. Pro- gram beneficiaries may purchase a home in selected urban developments under public-private partnerships built on state or private lands. The PNVFF offers four types of housing depending on household income. Table 11 summarizes the different types of houses offered by the PNVFF. PNVFF eligibility requirements are: (i) Dominican citizenship; (ii) Table 11. PNVFF summary table Subsidized housing Priority interest hou- Social interest housing Low-cost houses (VBC) (VS) sing (VIP) (VIS) Nº of dwelling units 7,000 14,000 23,000 18,000 House size Starting from 25 m2 Starting from 35 m2 Starting from 40 m2 N/A Less than Up to Less than Purchase price RD$ 850,000 RD$ 1,400,000 RD$ 2,250,000 RD$ 4,500,000 Initial subsidy (percentage)* 37% 27% 20% 7%b Down payment (percentage) 2,5% 7% 10% 12%-13% LTV (percentage) 60,5% 66% 70% 70% 5 percent subsidy 5 percent subsidy at 4 percent subsidy at Subsidy rate at market interest market interest rate for market interest rate N/A rate for 7 years 7 years for 7 years Loan term 20 years 20 years 20 years 20 years Minimum wages Up to 1.5 Up to 2.5 Up to 4.5 Up to 8.5 Fuente: ONE (2020). 244 18 years of age; (iii) possession of a national ID and electoral ID card; (iv) DGII- and National Directorate of Cadastral Surveys-certified first-time buyer status; and (v) income commensurate with the cost of the selec- ted housing, which is segmented according to consolidated family salary levels. Dominicans residing abroad may apply. For housing development purposes, the PNVFF utilizes the trust legal structure, whereby the public and private sectors establish specific trusts for developing low-cost housing projects.41 Under this model, the public and private sectors share the risks, making low-cost housing investments more profitable. MINPRE is the program’s implementing body. The following are under MINPRE jurisdiction: (i) FONVIVIENDA, which manages, administers, and regulates the PNVFF, and also pays the various subsidies to the beneficiaries of the program (FONVIVIENDA is responsible for defining and executing the contracts with the selected housing developers and the specific trust funds for each project—the contract defines the number of housing units to be financed in each project and the characteristics of the housing projects); (ii) URBE, which evaluates the housing projects submitted by the developers to verify compliance with the PNVFF’s urban feasibility requi- rements, as well as technical, legal, and financial feasibility; and (iii) the Mortgage Development and Trust Commission, which is in charge of the technical supervision and progress of projects and submits progress and implementation reports on each housing project to FONVIVIENDA on a regular basis upon which partial disbursements of the initial subsidy will be authorized. Progressing with Solidarity (PROSOSLI, or Progresando con Solidaridad), an entity under the Office of the President of the Republic, receives and reviews the benefi- ciaries’ applications to confirm their eligibility, in addition to overseeing beneficiary selection. The PNVFF’s design reflects a number of international best practices for scaling up access to affor- dable housing for low-income families. These include: the ABC model, market segmentation by income level, progressive subsidies, utilization of vacant public land, private sector engagement, and expansion of private financial markets. It is important to note that to the extent that the PNVFF might consider the ABC model, it excludes lower-income households that have neither savings nor access to a mortgage loan from commercial banks. 4.3 Plan Mi Vivienda In April 2021, the GoDR launched the Mi Vivienda program with the goal of building more than 7,500 hou- ses that will benefit approximately 25,000 people. INVI is the implementing agency and the program bud- get is estimated at RD$ 15.8 billion.42 INVI-run Mi Vivienda also utilizes the trust legal structure—BanReservas will finance housing project developers and beneficiaries. Similarly to the PNVFF, Mi Vivienda is based on the ABC model. To access a house, the beneficiary co- vers the down payment using his/her own savings (5-7.5 percent of the purchase price), is granted a package of subsidies (totaling 50-60 percent of the purchase price), and takes a 20-year mortgage loan from BanRe- servas (35-42.5 percent of the purchase price). The bundle of subsidies is comprised of a Mi Vivienda “grant,” the Bono ITBIS, and a reduction in the sales prices through the subsidies infrastructure. Table 12 summarizes the characteristics of the program. A beneficiary’s eligibility requirements include: (i) Dominican citizenship, 41 This is similar to the development model used in Ciudad Juan Bosch. 42 Speech by President Abinader at the start of the first Mi Vivienda construction project on April 27, 2021. Urbanization and Territorial Development Review in the Dominican Republic 245 5. Enabling an inclusive housing sector (ii) being of legal age, (iii) not being a homeowner, and (iv) a fixed income in excess of three minimum wages per household. Applications are received through the Mi Vivienda website and eligibility is confirmed through the Unique System for Beneficiaries (SIUBEN, or Sistema Único de Beneficiarios). Table 12. Mi Vivienda summary table 2 bedrooms 3 bedrooms House size 52.30 m2 72.60 m2 Purchase price 1,500,000.00 2,000,000.00 Total subsidy package 60 percent (900,000.00) 50 percent (1,000,000.00) Down payment* 5 percent (75,000.00) 7.5 percent (150,000.00) Loan mortgage 35 percent (525,000.00) 42.5 percent (850,000.00) Installment payment 5,947.00 9,173.00 8 percent fixed rate for the first 8 percent fixed rate for the first Annual interest rate 6 years 6 years Loan term 20 years 20 years From RD$ 40,447.00 through Monthly income No more than RD$ 40,446.00 RD$ 67,410.00 Minimum wages Up to 3 Up to 5 Source: https://www.mivivienda.gob.do/. * To be paid off in 10 months. There are 5 residential developments under construction. These are located in Hato Nuevo, Ciudad Modelo, San Luis, Los Salados, and La Barranquita, totaling some 7,544 units with 2 and 3 bedrooms ranging from 52 to 72 square meters. Sales prices are projected at RD$ 1.5 million and RD$ 2 million, respectively. In contrast to the PNVFF, which uses a PPP Model, the development of these residential complexes is being ca- 246 rried out via public procurement. 43 The residential developer is responsible, among other tasks, for all design and construction works relating to the project, including internal and external infrastructure.44 In addition to other tasks,45 the Mi Vivienda Trust Fund is responsible for awarding Mi Vivienda subsidies to homebuyers. 5. The Way Forward: Strategic Priorities The Dominican housing sector is evolving, and the government is making great strides in improving its performance and reducing the housing deficit. The Bono ITBIS has sparked a new, albeit small, low-cost housing market developed by the private sector, and it has increased the scale of solutions needed to meet the growing demand for housing. However, it is not a model of housing supply that can reach the poorest segment of the population. The new law establishing MIVHED has the potential to enact institutional coordi- nation and define the country’s housing policy in a comprehensive way. In addition, sector-wide public invest- ment has grown significantly with the introduction of new housing programs—which can be very valuable if it can be maintained over time. Recommendations are outlined below to make sure the current momentum to improve the housing sector’s performance is successful. 5.1 Rationalize sector-wide stakeholders, agencies, and resources Despite the progress made, it is necessary to continue working towards a simplified institutional framework which maintains channels of communication between the private and public sectors. The bill to establish MIVHED may be a significant stride in streamlining and organizing the housing sector. However, there is a risk that the new ministry may further exacerbate institutional complexity if the existing stakeholders are not fully integrated in its structure. On one hand, INVI, the institution intended to become part of MIVHED, is propo- sing the Mi Vivienda program, and on the other, MINPRE is proposing the PNVFF. It is expected that MIVHED’s financial arm will be INFAMICASA, with a director appointed by the President, while MINPRE’s financial arm for housing matters is FONVIVIENDA. As a result, it appears that there are overlapping mandates, different hierarchies in policy-making, and competition over resource allocation between two large institutions. For MIVHED to perform its duties effectively, including “directing and coordinating the formulation, monitoring, and evaluation process of decent housing, human settlements, and building policies,” it is recom- mended that an institutional framework be developed that leads to future consolidation of agencies and programs. That said, any alternative option should involve the harmonization of programs and mandates in which one entity focuses on housing production through the ABC model and another focuses on programs that serve the base of the pyramid. 43 Fideicomiso Mi Vivienda, Pliego De Condiciones, Procedimiento de Selección para la Contratación de Desarrolladores de Proyectos Inmobiliarios para la Construcción de Soluciones Habitacionales de Bajo Costo del Programa “Mi Vivienda.” Reference Number FMV-PS-2021-001. April 26, 2021. 44 Additionally, the developer is responsible for (i) ensuring correct titling of the houses; (ii) processing all permits and licenses as needed; (iii) obtaining the low-cost housing project status from INVI; (iv) registering the project with DGII and carrying out all the necessary steps to enable homebuyers to apply for the Bono ITBIS they may be eligi- ble to receive; (v) assisting in processing the Bono ITBIS for each homebuyer; (vi) formalizing the promise to sell and home purchase agreements with homebuyers (to be selected exclusively by INVI); (vii) conducting mortgage payment procedures (homebuyers are required to make monthly payments into dedicated bank accounts); and (viii) delivering houses to new homebuyers. 45 (i) Entering the land sales agreement with the developer; (ii) screening and selecting potential homebuyers; (iii) determining home purchase prices; (iv) making advance payments and providing measurements to the developer; and (v) collaborating with agencies to help obtain licenses, permits, authorizations, and subsidies. Urbanization and Territorial Development Review in the Dominican Republic 247 5. Enabling an inclusive housing sector Additionally, as part of the ecosystem of institutions involved in the housing sector, it is recommended that a formal channel be established for the private sector and the public to be involved in the develop- ment of policy. This is something that the GoDR has done in the case of the PNVFF, as local NGOs including Ciudad Alternativa and Habitat for Humanity, as well as the financial sector, have been part of the pro- gram’s development. 5.2 Create solutions to tackle the qualitative deficit Although there is debate about how to estimate the housing deficit, some overall characteristics are clear. For example: most of the housing deficit is qualitative (deficiencies in basic services and substandard quality of building materials), the stock of low-cost housing produced by the market fails to meet demand, and the challenge of reducing the housing deficit is largely an urban problem. The new government-driven housing programs primarily address the quantitative deficit. However, it will be vital to pay more attention to the qualitative deficit. The programs focusing on new housing cons- truction are important since the DR suffers from a significant quantitative housing deficit and new housing construction has an important impact on the economy and job creation. However, the government should also pay more attention to the qualitative housing deficit and push for a stronger agenda for slum upgra- ding and home improvement. These types of programs are key to improving the housing sector’s resilience to natural disasters and improving the quality of life of the most vulnerable households. The same fiduciary structures created for the PNVFF could also be used to finance investment in the social infrastructure that these neighborhoods need in order to become urbanized. Also, given that the qualitative deficit is characte- rized by remediable deficiencies in basic services, there is a window of opportunity to strengthen water and sanitation services. As part of the rationalization and consolidation of housing institutions and programs, it is recommended that programs to expand basic services for informal neighborhoods be considered. As a result, the construction of housing would be a response to the urbanization and urban integration of these neighborhoods. 5.3 Harmonize new housing programs to maximize their scope and optimize public resources The government’s new housing programs are ambitious, but a major harmonization is required in order to address the significant housing deficit. These programs range from the traditional government-funded pro- vision of dwellings and home improvements to public-private partnerships expanding access to new affor- dable houses for lower-income households. Nevertheless, are these programs addressing the needs of hou- seholds with housing deficits? Are scarce public resources being allocated in the most efficient and effective manner to bridge the housing gap? To answer these questions, an assessment of existing and new housing programs is encouraged to identify gaps and overlapping areas. Table 13 provides a brief comparison of new housing programs announced in the last year. As part of the housing program evaluation, it is also advisable to analyze the overall government subsidy for each program. It is important to keep track of “hidden” subsidies, such as free or low-cost public lands, the provision of infrastructure and services to new communities, and reduced interest rates offered through public banks. Once the total subsidy per program is determined, it is possible to ascertain the actual 248 Table 13. Comparing new housing programs Dominicana se PNVFF Mi Vivienda Reconstruye Legal Entity N/A Trust Fund Trust Fund Management INVI MINPRE INVI Budget RD$ 1.95 billion RS$ 11.35 billion RD$ 15.8 billion Number of Beneficiary 30,000 62,000 7,500 Households Home Improvements Type of Housing Solution New Houses New Houses & New Houses Beneficiary Income Level Undisclosed 1.5-4.5 Min. Wages 3-5 Min. Wages Purchase Price Per Unit RD$ 0 RD$ 850,000 – 2,250,000 RD$ 1,500,000 – 2,000,000 Bono ITBIS, Bono Inicial Bono Mi Vivienda, Bono ITBIS, Plot Type of Subsidy Grant Familiar, Bono Mujer, Bono of Land, Infrastructure, (+ reduced Tasa interest rate through BanReservas) Subsidy to Beneficiary - RD$ 296,000 – 450,000 Unpublished (Demand Side)* Subsidy to Supply of Unit** RD$ 65,000 - Unpublished Total Subsidy RD$ 65,000 RD$ 296,000 – 450,000 RD$ 900,000 – 1,000,000*** Subsidy as Percent of Purchase 100 percent 18-33 percent 50-60 percent Price LTV 0 percent 60-70 percent 35-42.5 percent 4-5 percent subsidy at market Loan Interest Rate N/A 8 percent fixed for the first 6 years interest rate for 7 years Participating Financial Buyer Financing Source N/A BanReservas Institutions Provision of Lands Public Public and Private Public Urban Development Approach Contractors Public–Private Partnerships Contractors Source: Developed by the authors. * Demand-side subsidies are those provided to buyers to enable the purchase of a housing unit at market price. ** Supply-side subsidies reduce the price at which housing is delivered (below market price). *** This does not include a quantification of the below-market rate loan provided by BanReservas. Urbanization and Territorial Development Review in the Dominican Republic 249 5. Enabling an inclusive housing sector subsidy per beneficiary and then lay out a more efficient segmentation of these beneficiaries by the different income levels found across the housing deficit. For example, based on data in Table 12, the public subsidy per housing solution runs between RD$ 65,000 and RD$ 1,000,000.46 While both the PNVFF and Mi Vivienda employ the ABC model, there appears to be a 2-3 times difference in public subsidy per unit between these two programs. 5.4 Overcome obstacles in property registration and building permits Land tenure security is critical to develop an effective housing market and to ensure decent housing. The benefits associated with legal security in land tenure include easier access to credit, greater household wi- llingness to invest in home improvements, and greater capacity to demand basic services. It also contributes to the social stability and economic growth of the country (De Soto, 2000; Habitat for Humanity, 2006). Thus, the success of the PNVFF and Mi Vivienda depends largely on the Government’s ability to grant property titles for these new houses and to improve the property registrwation and construction permit systems. Specifically, for the PNVFF, MINPRE has made a collaboration agreement with the JI to expeditiously work on the titling of public land and the titling of PNVFF projects. The DR has made great strides to improve and modernize its cadastral and land registry system. However, the challenges concerning land tenure insecurity are still daunting. Therefore, it is necessary to continue strengthening the system so that it works in a coordinated manner, with clear roles for the agencies involved. It is vital to continue the work of digitalizing, automating, and simplifying the processes for access to land titling. Additionally, the modernization of cadastral and land registry systems should be carried out in close coordination with the modernization of spatial and land-use planning tools discussed in Note 2 on a new territorial order in the Dominican Republic. On the other hand, in terms of construction permitting, it is necessary to standardize the developed processes and standards, as well as to build local governments’ capacities with respect to urban planning and the generation of land-use documentation that can guide the construction of housing. Immediate actions to ensure the success of the PNVFF and Mi Vivienda include: • Ensure that new housing units have valid title deeds at the time of delivery to beneficiaries—which is re- quired to obtain a mortgage loan( this is already a requirement for the PNVFF .)A policy of prehorizontali- dad could help reach that goal. • Enhance VU capacity for more efficient processing of licenses and permits. • Establish agreements between the national government and local governments ,especially those with lower capacity ,to guarantee more expeditious processes and ensure local approvals are technically support- ed—especially in PNVFF projects that are executed with contributions from the GoDR. • Standardize and strengthen the environmental assessments required to obtain an environmental license, including uniform construction standards that provide greater thermal efficiency for the houses to be built. 46 Note that there is a mismatch between the budget per beneficiary (as publicly announced) and the program-defined subsidy per beneficiary. For example, the Mi Vivien- da budget of RD$ 15.8 billion divided by the planned 7,500 beneficiaries implies a per beneficiary benefit of RD$ 2,100,000 rather than the RD$ 900,000–1,000,000 subsidy defined by the program. 250 • Create incentives to adopt energy optimization and water efficiency technologies in housing projects in such a way that sustainability provides savings for future maintenance costs. 5.5 Bring housing finance down-market Based on the affordability analysis discussed in Section 5, an ABC subsidy program has the potential to further expand access to housing in the DR. The PNVFF and Mi Vivienda present the opportunity to efficiently use public funds by leveraging private sector capital. It is a model that has had positive results regionally (e.g., Chile, Mexico, and Colombia) as well as globally (e.g., Indonesia and Egypt). These types of programs have succeeded in expanding the long-term housing finance market down to lower income segments beyond those traditionally served by private banks. Given the degree of informality seen in the Dominican labor market, it is recommended that approaches to bringing informal income households into ABC programs be evaluated. Assessing informal employees poses challenges for financial institutions as income may be irregular and unpredictable, poten- tial clients may lack documented credit history, and the loan size requested may be lower than the portfolio average—which is costly for the bank. However, a variety of financial technologies can offer solutions for collecting data on income, expenses, and savings needed to build the client’s credit history. Additionally, they can be accompanied by insurance and/or state guarantees that allow a better credit rating to banking entities. A notable experience in using technology to facilitate the assessment of informal income households has occurred in India (for example, India Shelter). Remittances are a significant inflow of resources for the DR economy and for low-income families. However, based on the available literature, the impact of remittances on housing investment is unclear. On one hand, a 2008 World Bank analysis concluded that remittances to the DR have no significant impact on the household expenses of the home (Fajnzylber and Lopez, 2008). On the other, according to meetings with various financial entities in the DR, the diaspora plays a very important role in the sale of houses, and financial entities have developed programs specifically to support them. An updated evaluation of the use of remittances in the DR and the opportunity they can offer to the goal of eradicating the housing deficit is re- commended—and could better calibrate the destination of the remittances in accordance with the different income levels of the population. That said, in concept, remittance-based loans usually come in two forms: (i) the loan is given to a remittance recipient and included as part of their bank’s income assessment, or (ii) the loan is given to a person working abroad, i.e., the diaspora. There are interesting experiences in Mexico (Tu Vivienda en México; Sociedad Hipotecaria Federal), Peru (Fondo Mi Vivienda), Ecuador (Banco Solidario), and India (programs for non-resident Indians, i.e., the diaspora). Urbanization and Territorial Development Review in the Dominican Republic 251 5. 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ONE (National Statistics Office). 2021. “Informe Anual 2020: Índice de Costos Directos de la Cons- trucción de Viviendas (ICDV).” ONE (National Statistics Office). “Cantidad de Uni- dades Construidas en el sector privado por provin- cia.” https://web.one.gob.do/datos-y-estadisticas/ temas/estadisticas-economicas/estadisticas-secto- riales/construccion-y-actividades-inmobiliarias/. TECHO. 2016. “Desde el Territorio.” Santiago De - Chile. https://issuu.com/techo_org/docs/des� de-el-territorio-techo-pdf. Torres, Jenny. 2015. Damnificados en República Dominicana: duraderamente provisional. Santo Do- mingo: Ciudad Alternativa. 254 Annex Structure of Income for Measurement of the Monetary Poverty Line 1. Monetary Income From Labor a. Monetary income from primary occupations, both for salaried persons and the self-employed. This information is obtained from section 4 of the survey. It consists of three components: • Monthly monetary income from primary salaried occupations (B.4.2) This is declared income, or, if it hasn’t been reported, imputed income. Here, the salary reported by the respondent is used. If the information hasn’t been provided, it is imputed. If the salary is paid in a currency other than the local one, it is converted using variables created with the exchange rate for each currency against historically recorded currencies (at the time of this publication, income was recorded in US Dollars, Canadian Dollars, Swiss Francs, Euros, and Argentine Pesos). Because the reported pay-periods vary, the amounts are standardized as monthly. The ques- tionnaire recognizes four pay-periods: daily, weekly, biweekly, and monthly. In order to standar- dize the responses for a monthly period, the number of days (question B.3.1) and hours (question B.3.2) are taken into account. • Declared or imputed (in the case of missing information) monthly income from primary occupa- tions (B.5.2) of independent agricultural/livestock workers and contractors Independent agricultural/livestock workers are asked about their total income for the last six months. The monthly amount is computed by dividing by six. If the figures have been given in a foreign currency, they are first standardized as monthly and then converted into Dominican Pesos at the exchange rate for each of the six months preceding the survey. • Monthly monetary income from the primary occupations of the employed and self-employed (B.5.3) For the self-employed, monthly income is requested. If the information is given in a foreign curren- cy, it is converted to the local currency. The survey requests that income from commissions, tips, overtime pay, and other sources be given in monthly amounts. b. Monthly monetary income from commissions in primary occupations (B.4.3) c. Monthly monetary income from tips in primary occupations (B.4.3) d. Monthly monetary income from overtime in primary occupations (B.4.3) Income from vacations, allowances, year-end bonuses, dividends, fringe benefits, and profits are standar- dized to a monthly period by dividing by 12. e. Monthly monetary income from paid vacations in primary occupations (B.4.4) f. Monthly monetary income from allowances in primary occupations (B.4.4) g. Monthly monetary income from year-end bonuses in primary occupations (B.4.4) h. Monthly monetary income from dividends in primary occupations (B.4.4) i. Monthly monetary income from fringe benefits in primary occupations (B.4.4) j. Monthly monetary income from business profits in primary occupations (B.4.4) Urbanization and Territorial Development Review in the Dominican Republic 255 5. Enabling an inclusive housing sector 2. In-Kind Income From All Labor Occupations For in-kind income, respondents are asked to provide the cash equivalent per month. a. In-kind income of additional monthly food from primary occupations (B.4.5) b. In-kind income of additional monthly housing payments from primary occupations (B.4.5) c. In-kind income of transportation costs and additional monthly fuel from primary occupations (B.4.5) d. In-kind income of additional monthly cell phone payments from primary occupations (B.4.5) e. In-kind income of other additional monthly payments from primary occupations (B.4.5) f. Monthly monetary income from monthly in-kind income from salaried secondary occupations (B.7.4) g. In-kind labor income for primary self-employed occupations (B.5.5) h. In-kind income for workers by SECONDARY self-employed occupations (B.8.5) i. Monthly income for independent farmers’ and contractors’ own consumption and supply (B.8.4) 3. Income From Secondary Employment The procedure used in this section is similar to the one used for income earned in primary occupations. a. Monthly monetary income from secondary employment that is salaried (B.7.1) b. Monthly monetary income consisting of other monthly monetary income from salaried secondary employment (B.7.2) c. Monthly monetary income from annual fringe benefits in salaried secondary employment (B.7.3) These revenues are all deflated in the middle of the quarter (the base year for the algorithm used in this publication was 2010). In other words, for the period 2016-01, the base CPI for February 2010 / 2016-02 is used, since it is the first quarter. In the second quarter it is deflated to May, the third to August and the fourth to November. 4. Non-Labor Income (Section 4-D, Part 4-D.1 National Incomes Part D.1.1) a. Non-labor monetary income from pension or retirement b. Non-labor monetary income from interest or dividends c. Non-working monetary income from rentals or rental properties d. Non-labor monetary income from national remittances e. Non-labor monetary income from government aid, without PAE The amounts received are calculated as follows: food is primary, followed by school attendance, electri- city vouchers, gas vouchers for drivers, household gas vouchers, old-age protection, bonuses for student progress, incentives for higher education, incentives for preventive policing, and programs for the enlisted. 256 5. Additional Income (Section 4-D, Part 4-D.1 National Incomes Part D.1.1) The following represent additional income from any of the preceding categories and are collected in an annualized format. In order to standardize them on a monthly basis, these amounts are divided by 12. a. Pension payments b. National interest c. National rent d. National remittances e. Additional government f. Non-labor in-kind income for the help of relatives, non-relatives, and institutions Non-labor income and additional income, once standardized to a monthly amount, is deflated to the month that corresponds to the half of the applicable quarter. 6. Income From Abroad (4-D.2. Income From Abroad) To calculate income from abroad, the relevant currencies must be determined and then the given amounts converted to in Dominican Pesos. As above, these are deflated to the middle of the quarter from which the data was obtained. a. Monthly pension income from abroad b. Monthly income from interest, dividends, and property rental from abroad c. Gift income from abroad Data for remittances is collected for the six months prior to the survey, on a monthly rather than a total basis. We then convert these monthly amounts to Dominican Pesos from the applicable currency. These monthly amounts are then totaled and divided by 6 to derive a standard monthly amount. This must be done for each month in the quarter. d. Monthly monetary income / remittances from abroad 7. Imputed Rent a. Probable amount of rental housing that is not rented. (Section 2: Characteristics of the Home, Question 6). The amount given by the person surveyed is imputed, unless it is a rented home. The amount is deflated as in the previous cases. 6. Enhancing the integration of tourism with territorial development Diana Tello Medina and Alex Pio 258 Table of Contents Introduction 261 1. Tourism policies have been used as territorial development tools in the Dominican 261 Republic since the late 1960s 2. Tourism has been and continues to be a key driving sector for the country’s economy 268 3. The Dominican Republic has recognized the need to move towards a new tourism agenda 271 in order to tackle current challenges 4. Main challenges: Institutions, Infrastructure & Interventions 276 4.1 Institutions are not well equipped to maximize the benefits of the tourism sector 277 4.2 Infrastructure is not responding to local needs in tourism regions 283 4.3 Interventions are not supporting the tourism diversification strategy or stronger linkages 288 with the local private sector 4.4 Challenges vary across different contexts and tourism development stages 291 5. The next stage: strategic priorities for aligning tourism and territorial development 297 5.1 Better situate tourism’s role in the Dominican Republic’s territorial development 298 5.2 Clarify and decentralize tourism governance 300 5.3 Align tourism policies and interventions to support product diversification and inclusion 303 5.4 Strategic priorities by destination 307 References 309 Annex 1. List of interviewees 314 Annex 2. Key tourism development milestones 315 Annex 3. PSOTT planned zones 316 Annex 4. Focus destination SWOT analyses 317 Annex 5. Summary of destination-specific actions by time frame and urgency 321 The Dominican Republic Urbanization and Territorial Development Review 259 6. Enhancing the integration of tourism and the territory Figures Figure 1. As of 2020, the Dominican Republic has tourism poles in nine of the ten administrative 262 regions Figure 2. Multi-destination tourism routes 267 Figure 3a. Tourism has grown at a higher rate than the Dominican Republic’s GDP since at least 269 1994 Figure 3b. Tourism has been successful in creating jobs and revenues (tourism receipts and jobs, 269 1980-2018) Figure 4. The tourism sector has enabled local value chain linkages 270 Figure 5. Puerto Plata and La Altagracia have doubled their room availability since 2004 271 Figure 6. What is the most important action for the growth of tourism in your city/province? 272 Figure 7. The tourism sector in the DR is highly undiversified (reason for choosing to travel to DR 273 by region, %) Figure 8: Seasonality swings for coastal destinations 273 Figure 9. How do you rate the risk of natural hazard affecting the premises of your firm? 275 Figure 10. How would you describe the opportunity for growth of your business in the current 275 environment? Figure 11. What is the most important action for the growth of tourism in the Dominican 281 Republic? Figure 12. Household access to basic services (2002-2017) 284 Figure 13. Average hours of electricity and water services in Puerto Plata, Santiago, Samaná, and 284 La Altagracia. Figure 14. Percentage of HHs with garbage service, connection to sewerage and piped water 285 inside the house in Puerto Plata, Santiago, Samaná, and La Altagracia. Figure 15. What is your firm’s main source of water for general use? (%) 285 Figure 16. Net changes in new hotel rooms (1981-2011) 289 Figure 17. Tourism investment projects by region (2019) 289 Figure 18 Which is the most problematic labor factor for the operation and growth of your 291 business? Figure B8.1 Most problematic factors for tourism firms (closer to center = more problematic) 294 Figure B8.2 TTCI performance overview (2019) 294 Figure 19. Butler’s tourism area life cycle model 295 Figure 20. National-level reforms to support effective territorial and tourism development 298 Figure A2.1. Dominican Republic key tourism milestones and visitor arrivals, by month (1978-2019) 315 260 Tables Table 1. Samaná, La Altagracia, Puerto Plata, and the Distrito Nacional play a key role in the 270 tourism sector in the DR Table 2. Summary table: tourism development tools applied by destination 292 Table B8.1 Top 3 problematic factors ranked “significant to severe” 293 Table 3. Recommendations by destination recommendations based on tourism development 301 stage Table 4. Summary of investments and activities by focus destination 308 Table A1.1 List of people interviewed for this note 314 Table A3.1. Planes Sectoriales de Ordenamiento Territorial Turístico status (2020) 316 Table A4.1. Samaná SWOT analysis 317 Table A4.2. Santo Domingo SWOT analysis 318 Table A4.3. La Altagracia SWOT analysis 319 Table A4.4. Puerto Plata SWOT analysis 320 Table A5.1 Summary of destination-specific actions by time frame and urgency 321 Boxes Box 1. A deep dive into the public-sector-led tourism pole of Puerto Plata 263 Box 2. A deep dive into the private-sector-led tourism pole of La Altagracia 264 (Bávaro-Punta Cana) Box 3. Planning of Pedernales as a sustainable destination based on resource limits 266 Box 4. Key tourism institutions in the Dominican Republic 277 Box 5. Samaná 279 Box 6. Santo Domingo 282 Box 7. Investing in resilient, multipurpose green infrastructure 286 Box 8. Tourism business survey: subnational priorities and bottlenecks by destination 293 Box 9. Product diversification strategies 303 Box 10. How can governments boost the local economic impacts of tourism? 304 Box 11. Using marketing and big data to encourage product diversification 306 The Dominican Republic Urbanization and Territorial Development Review 261 6. Enhancing the integration of tourism and the territory Introduction Tourism has been the driving de-facto territorial development tool for the Dominican Republic (DR) since the late 1960s, starting with a state-led, enclave resort model in Puerto Plata. This model was rapidly embraced by the private sector, who then took the lead on developing the all-inclusive enclave of Bávaro-Punta Cana. As a result of these policy priorities, its coastal assets, market forces, and private sector dynamism, the DR has since grown into the Caribbean’s leading tourism destination. However, basic services and infrastructure, particularly in communities surrounding tourism destina- tions, have not kept up with the sector’s growth, threatening the quality of life of the local population, envi- ronmental sustainability, and sector competitiveness. Tourism in the DR is largely undiversified, concentrated in a few product types (all-inclusive resorts), source markets (USA), and destinations, with growth continuing to cluster around the same areas. The Government of the DR (GoDR) has recognized the above sustainability and inclusivity challenges since the early 2000s, and in 2008 developed a sustainable and inclusive tourism policy approach aimed at dispersing the benefits of tourism and diversifying its core products. However, despite a shift in policy priorities and improved planning, the implementation of initiatives has lagged. In the interest of both territorial development and the tourism sector’s competitiveness, these structural and implementation challenges should be addressed in a strategic manner to ensure sustainable, resilient, and inclusive development. This type of development can democratize decision-making and support the tourism sector while addressing local needs and promoting a sustainable ecosystem. To do so will require a context-specific approach, utilizing different tools in different areas of the Dominican Republic. Tourism development approaches should be customized based on a destination’s unique context and development stage, and supported by more effective local and national institutions. This note analyzes the tourism sector from a territorial development standpoint in the Dominican Re- public, assessing its development trajectory and approaches to support local economic development, while informing the next generation of territorial and tourism development policies and tools. It reviews natio- nal-level frameworks for place-based tourism development, with a focus on the four provinces of Samaná, Santo Domingo, La Altagracia, and Puerto Plata as examples of destinations at the emerging/involvement, development, consolidation, and rejuvenation stages. 1. Tourism policies have been used as territorial development tools in the Dominican Republic since the late 1960s Tourism policies have been dependably used as a territorial development tool in the Dominican Republic (DR) since the late 1960s. Tourism in the Dominican Republic began in the 1940s with the construction of state-owned hotels, mainly around Santo Domingo. An unstable political and social context led to stagna- tion in the emerging sector for two decades. In 1966, tourism regained prominence and was catalyzed by an ambitious infrastructure program predicated on a polycentric territorial development approach, effectively focusing sectoral development outside of the capital region, which, by then, was the main driver of national economic growth. In 1971, a law establishing tourism poles was passed, and five tourism growth poles were 262 Figure 1. As of 2020, the DR has tourism poles in nine of the ten administrative regions Tourism Poles 2 5 1. Santo Domingo-Bayahibe 2. Puerto Plata-Atlántico 3. Macao-Punta Cana 9 4. Badahona- Independencia-Pedernales 10 6 5. Monte Cristi 6. Samaná-Las Terrenas 7 7. Jarabacoa-Constanza 8. Azua-Bani 9. Nagua-Cabrera 10. Santiago 1 3 Other provinces that don’t 8 constitute tourist poles 4 Source: MEPyD Diagnóstico Política Turismo 2020. targeted for development—with Puerto Plata being the first in 1972. As of 2020, there are 10 tourism poles in the DR, according to Law 158-01 (see Figure 1). They are located in nine of the ten administrative regions in the country.1 During the subsequent decades, the DR has followed different approaches to promoting tourism (see Annex 2 summarizing key tourism milestones in the DR since 1978). The first in a series of evolving tourism development approaches occurred in Puerto Plata. It was state-driven —a tourist enclave approach with heavy public sector intervention. Its development was fa- cilitated through planning and public investment in access infrastructure, namely the national roads network and the establishment of international airports. First was a new road and airport in Puerto Plata to encourage tourism development in the Playa Dorada area, which was anchored by the 290-room Jack Tar Village Hotel. Box 1 explains the case of Puerto Plata in greater detail. 1 There is no tourism pole in the El Valle region, which hosts the provinces of Elías Piña and San Juan. The Dominican Republic Urbanization and Territorial Development Review 263 6. Enhancing the integration of tourism and the territory Box 1 A deep dive into the public-sector-led tourism pole of Puerto Plata In 1972, Puerto Plata was designated as the first tourism pole in the country. Decree No. 2126 allowed the government to purchase land parcels in the Playa Dorada area through eminent domain for public utility (tourism development) and build the destination’s infrastructure, which included the airport that opened in 1979, the Jack Tar Village Hotel (1980), the Puerto Pla- ta-Santiago highway, the Malecón, and street, aqueduct, port jetty, cable car, and public hou- sing developments. Puerto Plata quickly became the DR’s preeminent tourism destination. It kept this title until Punta Cana’s development eclipsed it in the early 1990s. Private sector interest, government prio- ritization, human resources, and capital turned to this new destination, and Puerto Plata’s tourism and economic activity decline began, which included the closure of a number of mills, a slowdown in its free zone, and a reduction in port activity. During this period, investment in tourism facilities and infrastructure lagged in Puerto Plata, further reducing the destination’s competitiveness. The 2010s brought a second wind to the destination, driven by public sector investments. These investments were led by a desire to promote a different tourism activity, cruise tourism. The government invested in new cruise facilities, an improved Navarrete-Puerto Plata highway, urban core upgrades, and a new marketing strategy (Ballester, 2019). Public sector investments were coupled by reinvestment from the private sector to rehabilitate hotels. Puerto Plata has fueled the nation’s cruise arrival growth in the past 5 years, increasing from 58,912 arrivals in 2015 to 518,121 in 2018, after years of decline prior to its cruise port being rehabilitated by the Ministry of Tourism (MiTur)—specifically by the Infrastructure Implementing Committee in Tourism Zones (CEIZTUR, the Comité Ejecutor de Infraestructuras de Zonas Turísticas in Spanish). (APORDOM, 2020). Puerto Plata still suffers from aging infrastructure and facilities, as well as pollution pro- blems and subpar gastronomy, entertainment, and beachesa. However, its wholesale decline has been reversed, or at least slowed for the time being, thanks to the recent focus on cruises. Puerto Plata remains a budget destination, sustained by package discounting and spillovers from neighboring destinations, with a more price-sensitive clientele than other areas (Padilla & McElroy, 2005), and lower than average occupancy rates (56.4 percent compared to a national average of 68.3 percent in 2019) (Dominican Republic Ministry of Tourism, 2019). 63.5% of visitors rate tourist services in Puerto Plata as either excellent or very good, compared to the national average of 73.6%. The biggest issues are a in food, entertainment, lodging, and beaches. Source: Ministry of Tourism International Visitor Survey, 2018. Source: Authors 264 The development of Punta Cana marked a diverging development approach led and financed by private investors. The PuntaCana Group, the initial developer of the destination and its leading tourism com- pany, introduced the still-prevailing all-inclusive resort model to the country. The Group financed and owns the Punta Cana International Airport, which opened in 1987, and operates much of the infrastructure and services in the area. Box 2 provides more details on the case of La Altagracia. Box 2 A deep dive into the private-sector-led tourism pole of La Altagracia (Bávaro-Punta Cana) The Bávaro-Punta Cana area developed differently from other destinations, as it was a private sector-led initiative. A group of American investors bought 30 square miles of undeveloped land in the late 1960s. They partnered with a Dominican entrepreneur to build its first hotel (consisting of 10 cabins) and a privately-owned airstrip in 1971. Club Med, a French travel and all-inclusive tou- rism operator headquartered in Paris, built a 350-room resort in 1978. Road connections to other regions came in the late 1970s, and were privately funded by Colgate. The airstrip was upgraded to an international airport by 1984 and soon began welcoming even larger and longer-haul flights (Roessingh and Duijnhoven, 2005). Within decades, Punta Cana went from being a sparsely popu- lated rural area to one of the largest tourism destinations in the Caribbean, its coastline filled with over 60 all-inclusive resorts. It accounted for 57 percent of all hotels in the country and 55 percent of all visitor arrivals in 2019. The PuntaCana Group and its subsidiaries still develop and manage access roads, water provision, electricity, garbage disposal, wastewater, and schools in the area. This rapid, largely unplanned, private-led development led to inefficient and uncontro- lled urban expansion, which has resulted in social and environmental degradation. Between 1996 and 2003, Punta Cana experienced the largest amount of urban leapfrogging nationally. Unplanned urban expansion has resulted in increasing rising coastal flood risks (see Note 1 of the Urbanization and Territorial Development Review on Urbanization), putting at risk not only the sustainability of the sector in the region, but also the livelihood of citizens. To address the above, in 2008, MiTur carried out the region’s first land-use plan (PSOTT, Planes Sectoriales de Ordenamiento Territorial Turístico in Spanish). The PSOTT encompassed 40km of coastline from Macao to Cap Cana. The plan’s objectives were “to utilize natural resour- ces and environmental sustainability as the basis of future development,” particularly in relation to water scarcity, soil stability, carrying capacity of beaches, mangrove re-growth, and road connec- tivity (IPC. Revista de Inversiones Punta Cana, 2008). Specifically, it identified a list of investments needed in the region, such as: (i) new road connectivity and traffic management; (ii) an aqueduct; (iii) better management of well-water drilling and operations permits; (iv) the building of a landfill; (v) a transfer station (proposed by the Regional Association of Local Administrations of the Eas- The Dominican Republic Urbanization and Territorial Development Review 265 6. Enhancing the integration of tourism and the territory tern Region); (vi) a recycling plant; (vii) the relocation and improvement of public housing; (viii) the regulation of billboards and advertising signs; (ix) the upgrading of crafts plazas; and (x) the protection of coral reefs, mangroves, and coastal and marine ecosystems. However, despite an ambitious and exhaustive plan, the implementation of the identified infrastructure has lagged. For example, the much-needed aqueduct has yet to be built, despite years of planning and commitments. Landfills and sewage plants in other regions have similar sto- ries, with the organization of national utility and service agencies leading to mis-aligned incentives and a disconnect between central plans and local actions. Despite this situation, the region remains the country’s (and the Caribbean’s) leading tourism destination, with the highest number of visitors (3.5m), hotels (57 percent), and rooms (49 percent, or 40,383 units) nationwide in 2019, and the second-highest occupancy levels (71.3 percent) in 2018 (MiTur 2019, 2020). Large-scale tourism investments continue given the favorable (pre-pandemic) returns, the strong Punta Cana brand, and continued enclave-supporting private investment in tourism infrastructure, thereby widening the gap between tourism zones and su- rrounding communities due to a lack of territorial planning and effective public investment. Source: Authors As tourism in the DR evolved, so did the GoDR’s destination development approaches. In the late 1970s, tourism began to take off and the number of hotel rooms grew by 529 percent, from 8,500 in the 1980s to 45,000 in the 90s. By 1992, tourism became the country’s largest export earner, and the next two decades saw the introduction of a wider toolkit to develop tourism destinations. This tool kit was largely a mix of tax incentives, land-use planning, infrastructure investments, and marketing (see page 11). The GoDR has been aware of the limitations of the all-inclusive model, and for more than a decade has planned to diversify from its core of sand & sun tourism. The all-inclusive tourism model brings some li- mitations to the territory, such as resource strains, low in-destination expenditure, as well as seasonality, which has led to social, economic, and environmental challenges. Since 2008, MiTur has tried to adopt a sustainable tourism development approach based on the four principles of (Ministry of Tourism Strategic Plan n.d.): (i) sustainable growth—prioritizing responsible growth through strategic planning of the sector and territorial planning of tourism zones while respecting the carrying capacity of the tourism poles and prioritizing quality over quantity; (ii) integrated tourism planning—ensuring the sector is planned in a holistic manner that takes into account broader economic and social plans; (iii) maximizing linkages with the broader economy; and (iv) improving community well-being. However, these four principles have not been fully implemented (see the sections on limitations and challenges). Box 3 shows the current effort by the GoDR to develop a new tourism pole. 266 Box 3 Planning of Pedernales as a sustainable destination based on resource limits In the 2010s, the government’s master planning of Pedernales, a virgin destination in the sou- thwest, signifies a further evolution in the GoDR’s tourism development approach by including prior land-use planning while still focusing on the greenfield enclave resort model (albeit in a way that is better linked with surrounding assets). Pedernales is planned as an upscale, sustainable destination. Pedernales is a rural desti- nation spanning four provinces, including two national parks, and anchored by the homonymous fishing town of 28,000 residents. The plan includes a focus on ecotourism experiences, as well the promotion of green energy, rainwater harvesting, sustainable certifications, inclusionary princi- ples, and community infrastructure improvement. Wellness Center Hoyo de Pelempto Zoom in Accommodation and services area Pedernales Eco-village Cabo Rojo Biodiversity - Research and Cabo Falso and Interpretation Center Las Agilas Bay Laguna de Oviedo Discovery Center Source: Authors, using data from Pedernales Tourism Master Plan. The Dominican Republic Urbanization and Territorial Development Review 267 6. Enhancing the integration of tourism and the territory With water availability as a key limiting factor, the plan allows for the initial development of 5,000 rooms (with no more than 20,000 total rooms) to ensure water availability for the des- tination. The main resort area is set to be in Cabo Rojo, an area with an industrial heritage from bauxite mining and an airstrip that will require upgrading. This master-planned destination is still in the early stages of development. The new administration is championing it as a key flagship project for the current term. Source: Authors, using data from Pedernales Tourism Master Plan In 2016, the GoDR proposed moving towards a whole-of-country approach. The country was categorized into three regions (plus the capital), each with a thematic route under which their destinations are encou- raged to develop related products in order to better operationalize the DR’s goals of product diversification and geographic dispersal of tourism and its benefits. The regions are the North and Northwest for community Figure 2. Multi-destination tourism routes 2/5/22, 16:24 Nota de foto Source: MiTur, 2020 268 tourism circuits, the East for sun and sand tourism, the Southwest for nature tourism, and the capital region for Meetings, Incentives, Conventions & Events (MICE) and cultural tourism (see Figure 2). Following the 2020 elections, the new administration’s policy platform continues to prioritize the need to diversify tourism and improve local economic linkages. Under the platform’s second pillar, it “prio- ritizes the sectors that generate jobs and foreign exchange and are dispersed throughout its territories.” It re- cognizes tourism as one of the most effective means to accomplish these goals. It calls for diversification from all-inclusive beach tourism to cultural, ecological, health, education, and business tourism, as well as other types of tourism, and to strengthen economic linkages with communities and other industries, while priori- tizing sustainability and improvements in urban infrastructure and basic services surrounding destinations. The new administration is also making strides in improving tourism’s enabling and operating envi- ronment. They have acknowledged the need for a “whole of government” approach to developing the sector and its territories, including building local-level capacities for planning and destination management, refo- cusing CEIZTUR on tourism-specific projects, and using real-time market intelligence platforms for monitoring as well as marketing. A high priority is being placed on sustainable coastal zone management to ensure the DR’s beaches are safeguarded from climate change, adverse use, and pollution. 2. Tourism has been and continues to be a key driving sector for the country’s economy Tourism has grown at a higher rate than the DR’s GDP since at least 1994 (see Figure 3a), representing 11.6 per- cent of GDP by 2019. Tourism is the largest contributor to exports in the DR, with 40 percent of total exports, and the DR’s highest foreign exchange earner at 31 percent, bringing in US$ 7.56bn in 2018 (Atlas of Economic Com- plexity; Dominican Republic Central Bank). Since 2015, tourism has received around one-third of the DR’s total Foreign Direct Investment (FDI). The sector has been successful in creating jobs and revenues (see Figure 3b). Tourism directly employs 7.5 percent of the workforce, with around one in four net new jobs nationally having been created by the travel & tourism sector since 1995 (WTTC, 2020). This includes 180,000 direct employees in hotels and 350,000 direct employees in restaurants2. Visitor arrivals have mirrored this trend, growing steadily and peaking at 6.5 million in 2018. They are generally highly satisfied with their experience, with 98.5 percent of visitors saying they would return to the DR (MiTur Visitor Survey, 2018). Average daily expenditures for nonresi- dent foreign visitors have been steadily increasing from $88.15 in 1993 to $136 in 2019 (MiTur, 2020). Tourism has also fostered other sectors’ economic activities by building value chain linkages, with most hotels’ food and beverage supplies produced within the DR (Ashley, Goodwin and McNab, 2005). Combining direct and indirect impacts, the tourism sector contributes to 16.3 percent of the total economy (WTTC, 2020). A recent survey of mostly micro and small tourism enterprises in the DR found that 85 percent of firms’ main food supplier is located within 50km of their establishment (see Figure 4), and 80.7 percent of firms get all or almost all (over 75 percent) of their supplies nationally (with 71.6 percent getting 100 percent of their supplies nationally).3 Tourism’s multiplier effect means that for every dollar spent directly on the sector, around two additional dollars are generated indirectly in the economy (WTTC 2020; Dominican Republic Central Bank). 2 Asociación de Hoteles y Turismo de la República Dominicana (AONAHORES) interview. July 2020. 3 Dominican Republic Tourism Firm Survey. World Bank. 2020. The Dominican Republic Urbanization and Territorial Development Review 269 6. Enhancing the integration of tourism and the territory Figure 3. Tourism is key in the DR´s economic dynamism A. Tourism has grown at a higher rate than the DR’s GDP since at least 1994 GDP 3,100 growth % 2,350 1,600 850 100 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 GDP growth Tourism contribution to the indexed GDP (1994 = 100) B. Tourism has been successful in creating jobs and revenues (Tourism receipts and jobs, 1980-2018) Receipts 8.000 400.000 Total (U$$ M) jobs 6.000 300.000 4.000 200.000 2.000 100.000 0 0 1980 1986 1992 1998 2004 2010 2016 Tourism receipts (U$S M) Total hospitality jobs Source: DR Central Bank n.d. 270 Figure 4. Tourism sector has enabled local value chain linkages How far from your firm’s premises is your main food supplier located? (% of firms; km) Firms 100 % 5,8% 1,1% 20,6% 7,5% 80 21,7% 60 22,8% 40 20,1% 20 0 Less than 5 6 to 10 11 to 25 26 to 50 51 to 100 101 to 300 More than 300 Distance from firm (Km) Source: Dominican Republic Tourism Firm Survey. World Bank. 2020. Table 1. Samaná, La Altagracia, Puerto Plata, and the Distrito Nacional play a key role in the tourism sector in the Dominican Republic Province Establishments Hotels Rooms (2018) Visitor Arrivals (2019) Distrito Nacional 21% 10% 10% (8169) 24% (1.521.174) Puerto Plata 20% 17% 12% (9610) 6% (413.884) La Altagracia 15% 57% 49% (40.383) 55% (3.524.435) Samaná 9% 4% 4% (3349) 1% (82.550) Total 64% 88% 75% (61.511) 86% (5.542.043) Source: MiTur, 2019; 2020 The sector’s dynamism and growth are spatially concentrated in a few destinations. The Bávaro-Punta Cana destination alone accounts for 55 percent of all visitor arrivals, welcoming 3.5 million arrivals in 2019 (Dominican Republic Central Bank, 2020) (see Table 1). The region also has 49 percent of all hotel rooms in the country, with 40,383 units in 2018, which is four times more than the next largest destination (Puerto Plata). Four provinces make up 65 percent of all tourism establishments, 88 percent of all hotels, and 86 The Dominican Republic Urbanization and Territorial Development Review 271 6. Enhancing the integration of tourism and the territory percent of all visitor arrivals (Dominican Republic Central Bank, 2020). The proportion of hotel rooms within the four provinces of Samaná, Santo Domingo, La Altagracia, and Puerto Plata have remained relatively constant in the last 20 years. However, Puerto Plata and La Altagracia, the two traditional mass tourism destinations, have seen the greatest absolute growth, doubling their room availability since 2004 (Domini- can Republic Ministry of Tourism, 2020) (see Figure 5). Figure 5. Puerto Plata and La Altagracia have doubled their room availability since 2004 Number of 80.000 rooms by province 40.000 20.000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Altagracia Puerto Plata Distrito Nacional Samaná Source: Ministry of Tourism, 2020 3. The DR has recognized the need to move towards a new tourism agenda in order to tackle current challenges MiTur and the private sector are keenly aware of the economic and sustainability advantages of diver- sifying products and markets. MiTur has taken diversification as a key approach in its 2018-2021 strategic plan. Its focus is on growing emerging markets (such as Brazil, India, and China) and building diversified offers (such as MICE, golf, cultural, health, and adventure tourism). Product and diversification strategies vary by destination and are based on the destination’s specific attributes. For example, Santo Domingo is focusing on MICE tourism, while Samaná targets adventure and ecotourism. The private sector shares these priorities, with close to 30 percent of tourism firms in the DR (and a higher share in Punta Cana and Puerto Plata) believing that diversifying their products is the most im- portant action for tourism sector growth in their territories (see Figure 6). Product diversification has been developed in a grassroots manner by local entrepreneurs and tourism clusters throughout the nation, as well as by subnational governments. Ecotourism laws have been passed in a number of provinces, as well as laws supporting private protected areas. Thematic routes have been developed, as well as sustainable and rural tourism associations (frequently with donor support), with almost 200 participating ecotourism projects. However, the DR’s approach to diversifying the tourism sector has had limited impact, with tourism remaining highly undiversified, from both supply and demand perspectives. Grassroots initiatives have not been formalized or institutionalized into MiTur’s tourism development toolkit. Most new developments con- 272 Figure 6. What is the most important action for the growth of tourism in your city/province? Percentage of 100 respondents 90 80 70 60 50 40 30 20 10 0 Todos Santo Samaná Punta Puerto Domingo Cana Plata Diversify the local Improve Market the local Don’t Other tourism ofer local brand tourism offer know Source: Dominican Republic Tourism Firm Survey. World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms. tinue to be large-scale, all-inclusive resort types of establishments, while sea, sand & sun tourism remains almost exclusively the key reason for tourism visits. MiTur carried out a visitor survey in 2018 which showed that most international visitors chose the DR due primarily to the quality of its beaches, followed by its hospitality and climate (MiTur Visitor Survey, 2018). History, nature, nightlife, ecotourism, casinos, and golf rank at or near zero percent interest (see Figure 7). With the exception of Santo Domingo, which has corporate and business travelers, the findings remain relatively constant throughout the DR’s territories. These findings signify a highly undiversified product despite decades of diversification planning. The impact within tourism destinations, in terms of seasonality, local economic development, sustainability, and resilience is manifold. Strong variances in seasonality put pressure on jobs, local economic development, and the pro- ductive use of assets. Seasonality swings for coastal destinations such as La Altagracia, Puerto Plata, and Samaná are similar, with visitation peaking between December and April and falling for the subsequent 6 months (see Figure 8). In La Altagracia, one of the least diversified destinations, visitation drops by two-thirds between peak season and off season. This can lead to oversubscribed infrastructure and facility use followed by severe underuse, the requirement for many temporary seasonal jobs, and difficulty for SMEs without large cash reserves for year-round operation. Santo Domingo’s seasonality differs, with less variance and an in- crease rather than a decrease in the May-July period—most likely due to its more diversified, non-leisure-re- lated visitors. The DR’s reliance on its core product of all-inclusive resorts has created enclaves of economic opportunities, which has excluded certain territories and groups of people from the benefits of tourism. As a result, it is more difficult for smaller players and communities to be directly integrated into the tourism value chain (Cole and Morgan, 2010). A reliance on lower-spend, high-visitor volumes necessitates more The Dominican Republic Urbanization and Territorial Development Review 273 6. Enhancing the integration of tourism and the territory Figure 7. The tourism sector in the DR is highly undiversified (reason for choosing to travel to Dominican Republic by region, %) Percentage 60 50 40 30 20 10 0 he f e y ic le y k tiv & y e e er ac ty o lit lit or or at ur lif pr ab la ds th s es es i ta ui ht W at st im O re i e n be ali on nq Hi ig N sp Cl u N as Fr a Ho Q Tr Re Santo Domingo Puerto Plata La Altagracia Samaná Source: MiTur Visitor Survey, 2018. Figure 8. Seasonality swings for coastal destinations Visitor 500.000 arrivals by month, 2019 400.000 300.000 200.000 100.000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dic Punta Cana (La Altagracia) Santo Domingo Puerto Plata Samaná Source: DR Central Bank, 2020. infrastructure and public services investments per visitor-dollar spent and can strain a region’s resources, particularly water and power, while producing solid and liquid waste at levels that cause environmental da- mage if not adequately planned for. Research results remain mixed on the impacts of the DR’s resort tourism in terms of poverty reduction and inclusive development. Some studies, such as Sasidharan and Hall (2013), found that the resort tourism model of Punta Cana was satisfactory in improving three of the four Millennium 274 Development Goals (MDGs) it studied: extreme poverty, environmental sustainability, and partnerships for development, while León (2007) found a positive correlation between tourism and poverty reduction, with younger, more-educated workers catering to domestic and day-trip tourism showing the greatest impact.4 Others have shown the opposite, that tourism income has not alleviated poverty or reduced inequality in the Dominican Republic. In fact, Oviedo-García et al. (2019) found that in all-inclusive resort areas, a 1 percent increase in tourism income saw a 0.72 percent increase in poverty and a 0.40 percent increase in the poverty gap, effectively increasing the incidence and intensity of poverty and increasing income inequality by 0.10 percent on the Gini Index. The tourism sector in the DR is highly vulnerable to global and local shocks. This vulnerability can depend on numerous elements: internally, the strength of its institutions, public-private coordination mecha- nisms, health and safety apparatus, sector prioritization, and crisis planning, mitigation, and preparedness approaches are key. The rapid urbanization of coastal areas has increased flood risk, which is already the most common disaster type in the DR. Between 1996 and 2015, 25 percent of built-up surface construction in the DR was within 3km of coastlines—reaching as much as 40 percent in Higüey (where Punta Cana is loca- ted), which is also the region with the greatest coastal flooding risk.5 When surveyed, micro and small tourism firms in Punta Cana perceived more risk than other regions, with fewer firms than the average rating the risk at no or low risk (22.1 percent compared to 34.5 percent nationally). They are also more prepared, with 59.6 percent rating their preparedness to cope with such hazards as “a lot or very much” compared to 45.3 percent nationally.6 Overall, though, firms in the focus regions ranked their risk to natural hazards similarly, with a national average of 35 percent rating natural hazard risks as high or very high, which is less than the Caribbean regional average of 41.8 percent (see Figure 9). Diversification is a critical component of the sector’s resilience. By diversifying its markets, pro- ducts, and destinations, the DR can be less susceptible to shocks in a specific source market, product ca- tegory, or destination. This has been particularly relevant during the COVID-19 crisis, which has hit the DR hard, with 96.7 percent of tourism firms reporting decreased demand,7 and 80 percent of firms reporting a decrease of over 75 percent. The DR is the 33rd-most tourism-dependent country in the world, and though it is still too early to know the full impact of COVID-19 on the sector and the Dominican economy, the IDB has estimated that tourism income losses could reach US$ 26.8bn (10 percent of GDP) counting direct, indirect, and induced impacts (IDB, 2020). In 2020, visitor numbers are estimated to have been reduced by 62.7% compared to 2019 (UNWTO, 2019) and are not expected to return to pre-2020 numbers until between 2022 and 2024 (CEPAL, 2020). The UNDP estimates between 59,000 and 112,000 job losses in 2020, an 18.4 to 35 percent con- traction (UNDP, 2020). Close to 80 percent of the tourism firms in the country believe their opportunity for growth is limited or, at best, moderate (this share holds for Santo Domingo and Puerto Plata, with Punta Cana being more optimistic) (see Figure 10 below). COVID-19 may be the tourism sector’s most acute crisis, but it 4 MDG 1 (Eradicate extreme poverty & hunger); MDG 7 (Ensure environmental sustainability); MDG 7 (Develop a global partnership for development). MDG 3 (Promote gender equality and empower women) was not found to be satisfactory. (Sasidharan and Hall, 2013). 5 Note 1 of the Urbanization and Territorial Development Review. World Bank. 2021. 6 Dominican Republic Tourism Firm Survey. World Bank. 2020. 7 Dominican Republic Tourism Firm Survey. World Bank. 2020. The Dominican Republic Urbanization and Territorial Development Review 275 6. Enhancing the integration of tourism and the territory Figure 9. How do you rate the risk of natural hazard affecting the premises of your firm? Percentage of 100 respondents 75 50 25 0 Whole country Santo Samaná Punta Puerto Domingo Cana Plata No risk Low risk Moderate risk High risk Very high risk Source: Dominican Republic Tourism Firm Survey. The World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms. Figure 10. How would you describe the opportunity for growth of your business in the current environment? Percentage of 100 respondents 2% 21% 21% 28% 21% 75 47% 50% 45% 47% 54% 50 25 32% 48% 34% 25% 24% 0 Todal país Samaná Santo Punta Puerto Domingo Cana Plata Limited Moderete Abundant Source: Dominican Republic Tourism Firm Survey. The World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms. 276 is certainly not its first crisis. In 2019 visitation dropped by 1.9 percent (the first reduction in decades) due to a handful of unexplained deaths of tourists from the United States in 2018. Hotel occupancies in La Roma- na-Bayahíbe and Bávaro-Punta Cana, relatively undiversified beach destinations, dropped by 15.2 percent and 13.5 percent, respectively, between 2018 and 2019, while visitation to Samaná, a more diversified desti- nation, only dropped by 4.3 percent.8 Nevertheless, the DR has built up some resilience to crises due to its strong coordination and ad- vocacy bodies. In 2005, the committee on health and tourism (COSATUR) was formed in partnership with the Ministry of Public Health to monitor and respond to infectious diseases in tourism zones. CESTUR, the Dominican Republic’s specialized tourism police, guarantees security in tourism zones. After the 2018 deaths, MiTur responded by improving security and undertaking a public-relations campaign touting the safety of its destinations. Hotel hygiene and safety certifications have been developed in response to COVID-19. At the national and provincial levels, tourism security round tables are regularly held with key sector stakeholders, and protocols and plans are reviewed. 4. Main challenges: institutions, infrastructure & interventions When choosing the best tools to promote tourism while supporting sustainable territorial development, the first step is to understand key structural bottlenecks. This section utilizes the 3-I policy framework of the World Development Report 2009: Reshaping Economic Geography (World Bank, 2009) to organize both challenges and recommendations. Institutions, Infrastructure, and Interventions. The way in which policies and programs based on the 3-I framework of Institutions, Infrastructure, and Interventions roll out within a country depends on different factors: (i) the level of fiscal and administrative decentralization within a country; (ii) the stage of tourism development of the country and destination; (iii) the level of homogeneity of the country’s tourism assets, products, and markets (within a destination and in comparison to other destinations); (iv) the capacity levels of the subnational government; and (v) the scope and scale of a destination and its relation to administrative boundaries. The 3-I framework refers to: i. Institutions and Regulatory Frameworks: including laws, regulations, plans, strategies, and agencies, as well as licenses and standards that apply to the entirety of the country’s territory. ii. Infrastructure: including connectivity (roads and airports), basic services (water, electricity, energy, and sewage), and tourist infrastructure (streetscapes, attractions, trails, and museums). iii. Interventions: location-specific initiatives targeted for destinations and segments, marketing for desti- nations, training & capacity building, site and destination management, monitoring & evaluation, fiscal investment incentives, and investment promotion. The following subsections will bring forward the main bottlenecks in the DR for enabling a sustaina- ble tourism sector in the country. The challenges are classified as per the 3-I framework. 8 Average rate of hotel occupancies by areas (ASONAHORES, 2020) The Dominican Republic Urbanization and Territorial Development Review 277 6. Enhancing the integration of tourism and the territory 4.1 Institutions are not well equipped to maximize the benefits of the tourism sector 4.1.1 Unclear institutional setup for addressing the main challenges and new strategies of the tourism sector Given tourism’s cross-sectoral nature, numerous sectors and levels of government are involved in planning and development. MiTur is in charge of coordinating the planning, marketing, and infrastructure financing and regulation of national and subnational destinations in consultation with destination stakeholders (see Box 4 below for key tourism institutions in the Dominican Republic). In principle, the sector’s orientations should be set in national 10-year tourism development plans led by MiTur and based on alignment with the National Development Strategy. Given tourism’s cross-sectoral nature, numerous levels of government and sectors can be involved in planning and development. Tourism elements also fall within sector plans for the Ministries of Public Works & Communications, Environment & Natural Resources, and Economy, Planning & Development. On paper, subnational destinations could be covered by local and destination-level plans that can come from the provinces or municipalities that include tourism development, urbanization, transport, or other related sectors (Ministry of Tourism Strategic Plan n.d.). There is lack of clear, institutionalized coordination for planning and investments. Although 10-year national tourism plans have been drafted, none have been validated within the past decade, and there is no overarching guidance on the strategic or systematic development of different plans—how they interface with one another, or which takes precedence at the destination—except for an acknowledgement that destina- tions should be developed based on the existence of these different strategies and plans. MiTur is currently beginning a new planning exercise to produce a National Tourism Plan. Box 4 Key tourism institutions in the Dominican Republic The key public institutions in the Dominican Republic are: • The Ministry of Tourism (MiTur) is the lead entity for planning, regulation, marketing, and develo- pment of tourism in the DR. The Ministry of Tourism (MiTur), first created in 1969 as the National Tourism Directorate and elevated to a Ministry in 2010, is the institution tasked with the regula- tion and development of the sector. • The Infrastructure Implementing Committee in Tourism Zones (CEIZTUR) is the implementing arm of MiTur for infrastructure and destination development actions. • The Tourism Development Council (CONFOTUR), chaired by MiTur and made up of 7 Ministries and Agencies, is the council charged with implementing the tourism incentives law in tourism zones. 278 • The Specialized Corps for Tourism Security (CESTUR) is a tourism police force specifically for tourism zones. • The Committee on Health and Tourism (COSATUR) is an inter-ministerial committee formed to respond to health crises in the tourism sector. • The National Institute of Professional Technical Training (INFOTEP) provides technical and voca- tional training to MSMEs and entrepreneurs in a variety of sectors, including tourism. • The Ministries of the Environment, Public Works, Health, Culture, and INAPA (National Institute of Potable Water) are closely involved in matters regarding their domains. For example, they are represented on the CEIZTUR committee and the CONFOTUR council. • Local government units have narrow roles in the tourism sector. They are responsible for solid waste collection, electricity, and approving land-use permits for tourism businesses within their jurisdictions. The few municipalities with the capacity and funding to do so invest in improving tourism infrastructure and products. Source: Authors 4.1.2 Sectoral, enclave-based planning has led to inefficient and unsustainable tourism growth The lack of broader municipal or territorial land-use plans, coupled with land-use planning focused me- rely on tourism needs in enclave areas has led to inefficient, problematic growth. At the destination level, MiTur works with local stakeholders to develop tourism development (land-use) plans called PSOTTs, eight of which have been developed so far for Sousa, San Felipe de Puerto Plata, Las Terrenas (Samaná Norte), Cabarete, Miches-El Seibo-Hato Mayor, Punta Cana-Bávaro-Macao, Environmental Unit 2 Macao, and Pe- dernales, and which cover “Development of infrastructure, development of economic and complementary projects, conformation of a park system, reordering of land use and its density of occupation, scheme of orde- ring of urban centers, and plan management ” (Ministry of Tourism Strategic Plan n.d.). All 8 PSOTTs that have been completed are in need of updating, and the Ministry of Tourism’s Projects and Planning Division (DPP) are looking to complete a further 15 in the next three years. Seventeen destinations have Strategic Tourism Plans, with a goal of converting them into PSOTTs (see Annex for full listing). PSOTTs have many deficiencies, which if left unaddressed, can further exacerbate structural pro- blems. PSOTTs don’t necessarily relate to municipal jurisdictions. They often have their own boundaries as they mainly intend to regulate tourism enclaves— which in many cases also include parts of municipalities9. Further, their legal enforcement is disputed and they leave excessive room for discretion. Despite their narrow function, they have become the leading land-use planning instrument on the national level due to the lack of implementation of other spatial plans (see Note 2 of the Urbanization and Territorial Development Review 9 The… can be seen on the Dominican Republic Ministry of Tourism website http://www.dpp-mitur.gob.do/ci/index.php/pages/mapas The Dominican Republic Urbanization and Territorial Development Review 279 6. Enhancing the integration of tourism and the territory on territorial regulation and planning). As such, communities surrounding tourism zones, which are not inclu- ded in PSOTTs, often remain inadequately planned and funded, which results in negative impacts for tourism zones (see Box 2 on Punta Cana). Additionally, PSOTTs are carried out with the objective of developing an area for the benefit of visitors and tourism businesses, and do not necessarily take into account the needs or priorities of residents and municipalities. In these plans, urban developments are evaluated in relation to their possible impact on strategic natural elements for tourist activity. As such, they are perceived more as a threat to tourism and the environment than as a complement and support. Most PSOTTs are often developed reactively in an effort to regulate unplanned growth already occurring in a destination. Much tourism development has been overly rapid and unplanned, particular- ly with regard to support services, facilities, and urban growth that service the larger resorts (Padilla and McElroy, 2005). Two advances have been made to this process. First, Samaná, positioned as an ecotourism destination, was not planned as an enclave model, despite it being designated a tourism zone (see Box 5 on Samaná). Second, Pedernales, a new, undeveloped destination in the DR’s Southwest, is being planned based on strict sustainability and carrying capacity principles prior to its development (Ministry of Tourism Strategic Plan n.d.) (see Box 3 on Pedernales). Box 5 Samaná Samaná is the least visited region served by an international airport, with 82,550 visitor arrivals in 2019 (1 percent of total arrivals to the country). It is a lush, verdant peninsula known for its nature and adventure tourism, while also boasting idyllic beaches. The region, historically remote and difficult to reach, has been welcoming small-scale tourism since the early 1990s. In 1994, the province was designated a tourism pole, but its rugged terrain and poor road and air connectivity inhibited its initial growth as a destination. Connecting Samaná was key to kick-off the region as a tourism destination. The opening of its international airport (Aeropuerto Internacional Presidente Juan Bosch) in 2006, and impro- ved road connectivity through the Autopista del Noreste, spurred an increase in tourism develo- pment by connecting the destination to the rest of the country and the world. The pole’s early unplanned development has, at times, led to the displacement of local communities, removal of public access to beaches and fishing areas, and unfulfilled expectations of tourism employment (Sambrook, Kermath and Thomas, 1994). Given its late development and diverse natural assets, Samaná has been championed by the GoDR as an opportunity to eschew the country’s traditional focus on all-inclusive resorts and support a smaller-scale and more integrated approach. Development along Samaná’s nor- th coast has been regulated since 2007 by MiTur’s Planning and Projects Department (DPP) with regard to building heights, setbacks, and densities (Diario Libre, 2012). In 2018, a special plan to grow Samaná as a green destination was developed by MiTur and the office of the president 280 (Ballester, 2018). Infrastructure investments were subsequently made in the form of two modern aqueducts, a promenade, and a road circuit that connects ecotourism sites. Current investments remain in-line with product diversification objectives, including an amphitheater, sports and re- creation zones, and a marine center. In 2018, Samaná had 468 tourism-related businesses, inclu- ding 125 tourism services and recreation and catering establishments, and 116 real estate com- panies. Tourism currently employs 32 percent of the region’s workforce, or 9,525 out of 29,766 jobs (Guillén, 2019). This strategy has worked, for the most part, with the all-inclusive model not yet picking up widespread traction in the region. The area boasts a diversified product offering, including whale watching, horse trekking, mangrove kayaking, 4x4 safaris, waterfall hikes, coffee, cave tours, museums, and festivals. Whale watching in the Bay of Samaná receives more than 40,000 visitors, generating US$ 2.3m in park fees, boat transport, and hospitality services (Raschke, 2018) . Sa- maná has the highest visitor satisfaction of DR’s destinations, with 79.5 percent of visitors rating services as excellent (MiTur International Visitor Survey, 2018). Concurrently, large-scale develo- pments have continued, aided by the DR’s investment incentives. For example, the Rincon Bay development, which was launched in 2019, includes 7 hotel complexes, 4,572 rooms, a golf course, and residential real estate developments. (Rey, 2019) Source: Authors 4.1.3 Earlier efforts to decentralize were reversed due to poor results, leaving structural gaps The sector’s governance, planning, and development remains relatively centralized, with poorly imple- mented and partially reversed decentralization from 2008-2013 creating resistance for new efforts. MiTur proactively supported decentralization in tourism planning for the 2008-13 period, in-line with the nationwi- de push. It established several Vice Ministers based in the regions and charged them with developing those destinations. It also created Tourism Promotion Offices (OPTs), both overseas and in each tourism region, as well as three regional DPP offices in Bávaro, Samaná, and Puerto Plata, along with regional directorates with offices in all provinces (which were mainly charged with issuing tourism business licenses). Decentralizing planning activities to subnational organisms was not successful, mainly due to negative experiences with low capacities at the destinations and the lack of a phased approach for capacity transfers in addition to the fiscal decentralization required to fund these responsibilities. The 2016 designation of the entire country as a tourism development zone in order to focus on multi-destination route development requires a more com- plex, integrated, and multi-jurisdictional approach not well suited to devolution by traditional administrative boundaries. In a 2016 restructuring, MiTur changed the Vice Minister roles from geographic to functional, while still basing them in the regions. However, in practice, these roles remain ill-defined, and Vice Ministers remain key, albeit informal, focal points for their region’s day-to-day priorities. Destination marketing is also centralized within MiTur, which has blunted efforts to produce diffe- rentiated place-based initiatives. MiTur develops and implements the DR’s national branding and promo- tion initiatives, which are supported by a network of 50 regional and international OPTs. The international The Dominican Republic Urbanization and Territorial Development Review 281 6. Enhancing the integration of tourism and the territory Figure 11. What is the most important action for the growth of tourism in the Dominican Republic? Percentage of 100 respondents 90 80 70 60 50 40 30 20 10 0 All Santo Domingo Samaná Punta Cana Puerto Plata Diversify the local Improve Market the local Don’t Other tourism ofer local brand tourism offer know Source: Dominican Republic Tourism Firm Survey. World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms. OPTs implement promotional campaigns targeted at key source markets and serve as travel trade liaisons. Each destination has its own state-run tourism promotion website, as well as an OPT. In practice, subnatio- nal destination marketing is inefficient. Half of the tourism firms believe that marketing better local offers would promote growth of the sector in the DR, with the share increasing in places like Punta Cana and Puerto Plata to 55 percent and 64 percent, respectively (see Figure 11). The operationalization of subnatio- nal OPTs is inconsistent and incomplete, without enough input from local-level stakeholders on positioning and promotional campaigns. Promotional budgets, particularly for emerging and pivoting destinations, such as Santo Domingo, are insufficient, and destination stakeholders want to provide more input to loca- lized campaigns. Granular, subnational-level tourism data is scarce, complicating the market intelligence process of crafting and measuring impacts of marketing campaigns, as well as limiting potential investors from making data-based decisions. 4.1.4 Municipalities have weak capacities and financing in order to actively participate in addressing local challenges Municipalities tend to have limited resources, short-term planning horizons, limited technical capacities, and a lack of strategic tourism vision. Currently, the main touchpoint between local government and the tourism private sector occurs at the issuance of land-use permits—a cumbersome multi-institutional process whereby entities must apply to local government, but if it is within a tourism pole (regardless of whether the applicant is a tourism business), permitting decisions must be guided by PSOTTs and not objected by MiTur (and in the case of construction projects, by the Ministry of Public Works, which issues the construction per- 282 mit). Generally, local governments lack enough resources or capacities to carry out their already narrow roles of basic service provision, given the centralized fiscal resource allocation system (see Note 4 of the Urbani- zation and Territorial Development Review on Local Governments). Often, tourism initiatives and plans are divorced from infrastructure planning and service delivery for residents and non-tourism areas surrounding or abutting tourism zones. Local governments tend to prioritize resident needs in their investments. However, where capacity and financing exists, they have invested in improving tourism infrastructure. One example is in Santo Domingo, where the mayor has been active in implementing infrastructure upgrades and tourism-re- lated projects, including the 2019 rehabilitation of the capital’s waterfront (Malecón), and improving public electricity and waste management (see Box 6 on Santo Domingo). Box 6 Santo Domingo Despite being the economic and political heart of the country, Santo Domingo (SD) has tra- ditionally not been a destination for leisure tourism. In fact, international tourism in the DR only took off once gateways circumventing Santo Domingo were opened. In the past decade, the central government, the Santo Domingo Municipality, and the private sector have been investing heavily in improving tourism infrastructure and facilities. The colonial zone was designated a tourism pole, and since 2012 a US$ 90m multi-phase Inter-Ame- rican Development Bank (IDB)-financed project has been implemented to transform SD’s historic core with public space and tourism upgrades. Separately, the Municipality has recently completed a multimillion-dollar investment in upgrading the SD Malecón. Plans to improve MICE offerings are underway through the establishment of the Santo Domingo Conventions Bureau, as well as grea- ter promotion of SD’s vibrant cultural and culinary scene. Recent highway improvements have also cut travel time to and from key destinations such as Punta Cana, enabling the capital to be packaged as a cultural add-on to traditional tourist itineraries. A bypass road is under construction, with the aim of reducing congestion in the city and better linking tourism regions to each other (East-West). This strategy is finding success, as 2019 saw the highest visitation ever achieved by Santo Domingo, with a strong pipeline of hotel investment (over $150m invested in the past 3 years to build or renovate properties) and a high-quality, diverse rooms offering. Source: Authors As destinations develop and become more sophisticated and differentiated, a gap is emerging in terms of a subnational destination’s management function once plans are developed and infrastructure is built. Many destinations, including Santo Domingo, Puerto Plata, and Samaná have Tourism Clusters as public-pri- vate coordinating and consultative mechanisms, albeit without resources or mandates for implementation. Their effectiveness varies by destination, and their mandate stops at coordination. The lack of a local-level The Dominican Republic Urbanization and Territorial Development Review 283 6. Enhancing the integration of tourism and the territory implementing entity has led to issues with beach management, unregulated “ambulantes,” trash, and a lack of destination dynamism. These issues have only been addressed partially by MiTur, CEIZTUR, municipalities, and Tourism Clusters—none of which have the purview, incentives, or resources to serve as an effective Des- tination Management Organization (DMO). Informality in the sector has increased. Most “comedores” and artisans are informal, and small-scale transport providers and beach sellers (ambulantes) are growing. Additionally, there has been an influx of migration to tourism destinations (both internally and from neighboring Haiti) which has also resulted in a growth of informal settlements and coastal encroachment of communities, particularly on sensitive mangro- ve ecosystems. 4.2 Infrastructure is not responding to local needs in tourism regions 4.2.1 Basic infrastructure has not kept up with tourism growth, which is impacting citizens, firms, and the environment Despite significant progress, access to services remains a critical challenge across all destinations and extends to other sectors and territories. Inadequate access to water, electricity, and sanitation has impro- ved dramatically in the past twenty years, however access remains unreliable and insufficient, with frequent disruptions (see Figure 12). Disparities in access to services persist between urban and rural areas, as well as across income groups. Nationally, only 28.8 percent of rural households report having 20-24 hours access to electricity versus 67.7 percent in large cities (ONE, 2018). Electricity supply is also more erratic in lower-inco- me households, with 76 percent of high-income households reporting minimal disruptions compared to 37 percent of low-income households.10 Sanitation services face a similar situation, where only 20 percent of households nationally are connected to sewerage systems.11 Public service and basic infrastructure provision have not kept up with the growth in tourism des- tinations and the surrounding communities. The tourism destinations of Samaná and La Altagracia report lower proportions of households than average connected to public sewerage at 15 percent and 9 percent respectively (see Figures 13 and 14). For more details, see Note 1 of the Urbanization and Territorial Develop- ment Review on urbanization. This disparity suggests a failure within national-level frameworks and approa- ches throughout the basic services provision process, from prioritization to planning, implementation, and management. In solid waste management, for example, there are 350 landfills either facing closures or with precariously poor conditions,12 many in coastal municipalities or near sensitive waterways, while the DR’s Solid Waste Management Law and National Sanitation Strategy have been awaiting approval for years (World Bank Group, 2021). The inadequacy of utilities and basic services is impacting tourism businesses, reducing their com- petitiveness. For tourism businesses, the most critical deficiencies are in telecommunications, water provision, 10 The socioeconomic groups in ENHOGAR are quintile groups built on the valuation of available goods in the household, weighted by current market prices minus a standard depreciation percentage (ONE, 2012). 11 WHO-UNICEF, Joint Monitoring Programme for Water Supply and Sanitation. 12 Many municipalities continue to utilize open municipal landfills without impervious materials or the tools to manage lixiviate or dry organic material or to monitor leachates. 284 Figure 12. Household access to basic services (2002-2017) Percentage of 40 households 30 20 10 0 No access to Inadequate access Inadequate access drinking water to sanitation to electricity 2002 2010 2016 2017 ource: Note 1 of the Urbanization and Territorial Development Review, with data from Morillo (2019). Original data sources include the 2002 Census, 2010 Census, and 2016 and 2017 ENCFT surveys. Figure 13. Average hours of electricity and water services in Puerto Plata, Santiago, Samaná and La Altagracia 22 21 19 19 Average 20 (hours) 15 15 10 10 8 5 4 0 Puerto Plata Santiago Samaná La Altagracia Electricity hours (avg) Water hours (avg) Source: Note 1 of the Urbanization and Territorial Development Review on Urbanization, with data from ENHOGAR 2018. The Dominican Republic Urbanization and Territorial Development Review 285 6. Enhancing the integration of tourism and the territory Figure 14. Percentage of households with garbage service, connection to sewerage and piped water inside the house in Puerto Plata, Santiago, Samaná, and La Altagracia. Services 100 % 80 60 40 20 0 Puerto Plata Santiago Samaná La Altagracia Connected to Piped water inside Garbage collection sewerage the house service (municipal) Source: Note 1 of the Urbanization and Territorial Development Review on Urbanization, with data from ENHOGAR 2018 Figure 15. What is your firm’s main source of water for general use? (%) Percentage 100 75 50 25 0 Central distribution Water vendor Do not use general Local well water to maintain business activities Puerto Plata Punta Cana Santo Domingo Samaná Source: Dominican Republic Tourism Firm Survey. World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms 286 and sewage and solid waste management. In water provision, for example, only 56.5 percent of surveyed tourism businesses nationally use central distribution as their main source of water, with 19.3 percent relying on water vendors. The rate is particularly high in Punta Cana, with 29.8 percent of firms using water vendors (see Figure 15), as La Altagracia province receives water for 4 hours a day on average, which is far below the 11 hours averaged in other regions (ONE, 2018). Nationally, 42.2 percent of surveyed tourism firms say they would lose 50 percent or more of their daily revenue if water services were shut down for a day, with Puerto Plata being more vulnerable to water disruptions than the other focus regions (46.6 percent).13 This issue ties into institutional shortcomings, as the DR has experienced a substantial decline in funding for potable water as a percentage of GDP. The territorial water provision system is highly centralized, with over 90 percent of national water and sanitation resources going to INAPA and the Santo Domingo Water and Drainage Cor- poration, leaving only 8 percent for all other local semi-autonomous water corporations, many of which operate in tourism poles. The DR’s draft General Water Law, which is expected to improve water governance and stewardship, also continues its years-long wait for approval (World Bank Group, 2021). Environmental degradation is threatening the sector’s core assets. Sewage runoff and solid waste are contaminating natural areas and water bodies, leading to algae blooms and damaging coral (Karasz, 2018). Coastal erosion and mangrove depletion have also increased. Although recent data is scarce, a 2010 report estimated that the disappearance of live corals could increase beach erosion by more than 100 per- cent on eastern beaches by 2020,14 and that mangrove areas halved between 1980 and 2005.15 National-le- vel efforts are being made to integrate sustainability and climate resilience. However, they have not made their way into local-level implementation, and a lack of enforcement of environmental norms have blunted these instruments (see the case study from China’s Meishe River Greenway in Box 7). Box 7 Investing in resilient, multipurpose green infrastructure Resilient, multipurpose green infrastructure needs to be prioritized. It is key for disaster risk reduction (particularly flooding), as well as recreation and tourism purposes. Regenerating wetlands and engineering bioswales and stormwater wetlands as opposed to grey infrastructure such as sea walls can increase resilience and create tourism and leisure opportunities for wildlife viewing, walking, and biking trails. This is particularly important given that flooding is the main natural disaster risk in the DR, and much of tourism is carried out around water features (coastal areas, rivers, and lakes). See the case study from China’s Meishe River Greenway that could be relevant for transforming Santo Domingo’s Ozama River. 13 Dominican Republic Tourism Firm Survey. World Bank. 2020. 14 Wielgus et al, 2010 in Note 1 of the Urbanization and Territorial Development Review. World Bank. 2021. 15 FAO, 2007 in Note 1 of the Urbanization and Territorial Development Review. World Bank. 2021. The Dominican Republic Urbanization and Territorial Development Review 287 6. Enhancing the integration of tourism and the territory Source: Holmes (2020) Source: Authors 4.2.2 The tourism sector’s infrastructure provision setup is not designed for a strategic realignment from an enclave- and poles-based approach to a whole-of-country approach Tourism infrastructure provision remains highly centralized, and thus less responsive to local needs. The DR is one of the most centralized major countries in Central America. Unlike many comparators, the provi- sion of key infrastructure (major transport infrastructure and urban water supply and sewerage) is directly or indirectly under the central government’s purview. With rapid urbanization and a growing infrastructure backlog, this model is no longer effective. Tourism follows the same pattern. CEIZTUR is the specialized agency under MiTur that funds and executes tourism and infrastructure projects. On paper, infrastructure needs are fed in from MiTur’s strategic plans, the National Development Strategy, Agenda 2030, and local government priorities, as well as CEIZTUR’s own plans, and are prioritized based on impact and the poten- tial to facilitate private investment (for example, an access road to a resort). CEIZTUR’s board comprises five institutions: MiTur, the Ministry of Public Works, INAPA (National Institute of Potable Water), one repre- sentative from the President’s office, and ASONAHORES. The board meets annually to prioritize and valida- te the projects for CEIZTUR’s directorate to implement. In practice, this highly centralized, sector-specific model means that destinations and their municipalities are not able to effectively coordinate and prioritize developments in an integrated manner between tourism and urban growth. Furthermore, stakeholders have discussed a lack of transparency and consistency in the way projects are evaluated, prioritized, and selected. Regional investments are linked to their budgetary source, meaning that the most developed destinations, such as La Altagracia, are prioritized since they provide the largest proportion of CEIZTUR’s budget. This provides incentives to prioritize interventions that increase visitor volume over other policy priorities, such as diversification or expenditure. As the sector has developed, the type of infrastructure that CEIZTUR provides has evolved from large-scale engineering solutions to a mix of hard and soft smaller-scale interventions that are less well suited to this top-down approach. CEIZTUR implements an average of 50 projects a year. It has traditionally implemented access infrastructure investments, such as roads, airports, and cruise terminals, which still make up around 60 percent of its projects. Currently, environmental initiatives such as sewage treatment plants, beach management initiatives, and coastal zone (erosion) management projects make up around 15 per- cent of its investments. CEIZTUR has broadened its role from mostly connectivity infrastructure to reducing 288 negative externalities of tourism development, and more recently, product diversification and destination management through an increasingly complex suite of works and technical assistance. For example, in a project to improve beach management in Punta Cana, CEIZTUR is building market stalls and paths along the beach in addition to organizing sellers and their associations and setting up community mangrove cleaning campaigns. Once set up, it is difficult to ensure management of such initiatives given the centralized, imple- menting-entity nature of CEIZTUR and the low capacities of subnational governments. The institution remains over-stretched with a diffused mandate. Its core competencies have grown to fill a need which should be filled by other dedicated institutions, such as transport, public works, water agencies, and others. With increasing infrastructure needs in tourism sites, CEIZTUR’s role has broadened, but capacities and financing have not matched those new responsibilities. The CEIZTUR model is effective in rapidly deve- loping greenfield tourist resort enclaves in rural areas. However, as global best practices have shifted away from resort enclaves, and as the Dominican Republic’s tourism sector is becoming more integrated with its communities (and the urban agglomerations that have grown to support it), this centralized model is beco- ming increasingly inefficient. Furthermore, its funding remains limited. It is funded by the centralized pooling of aviation taxes ($10 per entry, $3 of which funds CEIZTUR),16 and given the drop in visitors during the CO- VID-19 crisis, the GoDR has had to lend money to CEIZTUR to complete ongoing projects. 4.3 Interventions are not supporting the tourism diversification strategy or stronger linkages with the local private sector 4.3.1 Incentives are not aligned with diversification strategy and are not promoting local economic development Evidence suggests that the investment incentives law has not had a sufficiently causal influence on private sector investment. This is consistent with international experiences, which show that investment incentives have a checkered track record, without clear positive links to investment generation (Ahmad et al., 2019). The Dominican Republic’s experience with incentives can be divided into three distinct periods. The first incentives law was introduced in 1971, along with the tourism poles law, with a dual goal of economic growth and impro- ved living standards for the poor. Once an area is designated a tourism pole, the private sector can access a number of incentives and benefits (tax holidays and import tax exoneration) to encourage investment. Incentives differ based on type of business, but they generally include exoneration of national and municipal taxes, including revenues, sale and transfer of real estate, construction, and import (machinery, equipment, materials, and personal property for constructing and opening a tourism establishment) taxes for a period of 10 years. These measures apply equally throughout all designated tourism poles (which now extends to the entirety of the country), and beneficiaries of incentives are required to undergo environmental impact assessments and cost-benefit analyses to ensure net-positive impacts. In this period, tourism investment ex- perienced exponential growth, peaking at 4,000 new units in 1988 (see Figure 16). The second period began in 1992, when incentives were repealed as part of a national tax overhaul. Nonetheless, investment increased, 16 A tourism promotion fund was established in 2011 which set aside 50% of aviation arrival and departure taxes for tourism development and promotion efforts. In 2019, this brought in US$ 191m. The Dominican Republic Urbanization and Territorial Development Review 289 6. Enhancing the integration of tourism and the territory Figure 16. Net changes in new hotel rooms (1981-2011) Net changes 5,.000 in new hotel rooms 4,000 3,000 2,000 1,000 0 -1,000 1981 1983 1985 1987 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Incentives (31.001 total new units) No incentives (29.624 total new units) Source: Daude et al., 2014 Figure 17. Tourism investment projects by region (2019) La Altagracia Puerto Plata El Seibo Samaná Santo Domingo 3,1% Santiago San Pedro de Marcoris 4,5% Barahona San Cristobal 5,5% 73,6% La Romana 5,7% 6,2% Source: MiTur, Tourism Barometer 2019 with almost as many units being built in the short non-incentive period as both incentive periods combined (up to 2011). Incentives were re-introduced in 2002 under Law 158-01. They continue to be in place, and have been expanded to qualify tourism investments in the entirety of the national territory. The incentives law has resulted in the prioritization of large-scale FDI and beach resort projects over the GoDR’s policy priorities of diversified products and local economic development. In 2019, CON- FOTUR —the body charged with applying the incentives law—approved 85 private sector tourism develop- 290 ments with an investment value of US$ 5bn, bringing 28,285 new rooms within the next 5 years (MiTur, Tourism Barometer 2019). These projects are spread throughout 10 regions, with the vast majority in La Altagracia (74 percent) (see Figure 17). Three quarters of investors are foreign, and 42.5 percent of new projects are hotel complexes. Of the 23 projects approved in the first trimester of 2020, 52 percent are all-inclusive hotels (Info- Tur Dominicano, 2020). As such, despite years of policies to diversify the product/market mix, the majority of private investment and future stock remains geared towards this market. However, SMEs have not directly benefited from the incentives law, nor has it met its goal of “im- proved living standards for the poor.” (Ministry of Tourism Strategic Plan n.d.). A 2018 World Bank study on corporate income tax exemptions in the industrial sector in the Dominican Republic found uneven tax treatment across firms, which distorted competition and negatively affected wider economic productivity (Amendola et al, 2018). A 2014 OECD study found the benefits granted to be overly generous, accounting for 84 percent of the value of the firm in tourism, compared to 50 percent and 65 percent for the Free Zone and Border schemes, respectively (Daude, Gutierrez and Melguizo, 2014). Additionally, the incentives law has resulted in a substantial loss in potential tax revenues. These revenues could have been reinvested in basic service provision, which is a priority of the large-scale developers that have benefitted from those incentives. 4.3.2 The greatest labor-related bottlenecks for micro and small tourism firms are labor regulations and taxes, but their intensity varies at the subnational level The Dominican Republic Government has invested heavily in technical and entrepreneurial skills deve- lopment in the tourism sector. Initiatives have been led by the National Institute of Professional Technical Training (INFOTEP) and steered by the National Consultative Committee with the goal of strengthening the links between continuing education and tourism in order to ensure qualified labor for the sector. INFOTEP implements both training programs for individuals as well as tailored technical support for entrepreneurs and SMEs. It provides training and support nationwide which is scaled-up and derived from pilots undertaken in the Eastern Directorate, where, give tourism’s prominence in the region, they have ongoing tourism training programs in Bávaro, Punta Cana, Uvero Alto, Macao, Higüey, Bayahíbe, La Romana, San Pedro de Macorís, Miches, and Juan Dolio. In the North, tourism programs are administered in Puerto Plata, Imbert, Maimón, Constanza, Jarabacoa, Samaná, Las Terrenas, and Montecristi (INFOTEP, 2020). INFOTEP is funded by a na- tionwide payroll levy of 1 percent. Nationwide, regulatory and tax-related issues are rated as the most problematic labor factors in operating and growing a business, with 23 percent of (mostly micro and small) tourism firms surveyed listing employment protection legislation/labor code laws as the most problematic, followed by payroll taxes and social security contributions (13 percent), TVET for workers and finding experienced workers were tied third (12 percent), and “general education” was fifth (10 percent)17 (see Figure 18). Skills deficiencies are expectedly greater in more rural and emerging tourism areas with micro and small entrepreneurs, and, specifically, in the informal sector. Capacity is strongest in Bávaro-Punta Cana, 17 Dominican Republic Tourism Firm Survey. World Bank. 2020. The Dominican Republic Urbanization and Territorial Development Review 291 6. Enhancing the integration of tourism and the territory where many workers migrate, given its competitive compensation and booming sector.18 In smaller destina- tions and rural areas, the supply of qualified workers has not been able to keep up with the sector’s growth, and access to courses can be a challenge for underserved populations, particularly due to lengthy and costly transport to training centers and the digital literacy required for some online modules. Figure 18. Which is the most problematic labor factor for the operation and growth of your business? Percentage of 100 respondents 90 80 70 60 50 40 30 20 10 0 Samaná* Santo Puerto Punta All Domingo Plata Cana Technical and vocational Payroll taxes and social Overall wage level education and training for workers security contributions Other (specify) Not applicable Labor availability General education (no emploees) of workers Finding workers with Employment protection Don’t know previous experience legislation / labor code laws Source: Dominican Republic Tourism Firm Survey. The World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms. 4.4 Challenges vary across different contexts and tourism development stages Many of the sector’s structural challenges are similar across destinations. However, when it comes to im- plementation, important differences exist in each region due to their unique contexts and development stages. As such, it is important to employ a place-based approach to understanding key issues for a custo- mized application of development tools and approaches (see Box 8). Table 2 displays a summary of the key destination development tools utilized in each focus destination. 18 Dominican Republic Tourism Firm Survey. World Bank. 2020. 292 Table 2. Summary table: tourism development tools applied by destination Destination Development Samaná Santo Domingo La Altagracia Puerto Plata Tools Institutions Tourism Poles PSOTTs Territorial-Level Samaná Norte Bávaro-Macao - Tourism Plans Punta Cana Province- City Center Specific Building Regulations Regional Tourism Cluster, Tourism Tourism Tourism Cluster, Institutions Regional Cluster, Regional Cluster, Regional Regional Associations Associations, Associations, Associations Strong Strong Local Community Government Advocacy Infrastructure Infrastructure Connectivity, Historic Core, Led by Private Cruise Ship Port, Tourism Highways, Malecón Sector Historic Core Infrastructure Special Projects Colonial City UNAM & IADB JICA & DPP Upgrading (IADB) Coastal Zone Sustainable CBT Management Project in the Projects Northern Region Uniform Uniform Across Uniform Across Uniform Across Incentives Across Region Region Region Region + Tourism Skills Skills Interventions - - Focus on Eastern - Development Region - CVB To Be Marketing - - Established Source: Compilation by Author Note: Signs and symbols used in this table have the following meaning: -✓ = some presence ✓= presence +✓= biggest presence. IDB stands for Inter-American Development Bank; UNAM stands for Universidad Nacional Autónoma de México; JICA stands for Japan’s International Cooperation Agency; and DPP stands for Dirección de Planificación de Proyectos del Ministerio de Turismo. The Dominican Republic Urbanization and Territorial Development Review 293 6. Enhancing the integration of tourism and the territory Box 8 Tourism business survey: subnational priorities and bottlenecks by destination A recent survey was carried out by the World Bank on tourism businesses in the Dominican Republic that were mainly micro and small enterprises. Nationwide, the top three problematic factors that were rated as “significant to severe problems” were (1) price competitiveness, (2) telecommunications, and (3) business environment. Table B8.1. Summary table: tourism development tools applied by destination Top 3 Problematic factors ranked First factor Second factor Third factor “significant to severe” Puerto Plata Telecommunications Electricity Quality Price Competitiveness Punta Cana Price Competitiveness Telecommunications Business Environment Cost of Financing / Access Santo Domingo Price Competitiveness Crime, Theft, and Disorder to Credit Samaná Price Competitiveness Corruption Informal Practices Dominican Republic Price Competitiveness Telecommunications Business Environment Comparing most problematic factors between destinations reveals regional differences: • Puerto Plata’s infrastructure and services are more problematic than in other regions, ranking hi- gher enabling environment factors, with electricity quality, telecommunications, water quality, and transport infrastructure receiving particularly low scores. Enabling environmental factors (crime, corruption, informal practices, and access to finance) perform better than national averages. • Santo Domingo is almost the inverse of Puerto Plata: ranking higher in infrastructure (with the exception of solid waste and wastewater collection) and lower in enabling environmental fac- tors, particularly in crime, theft, and disorder, as well as corruption, labor factors, informal prac- tices, and access to finance. • Punta Cana’s problematic factors adhere closely to national averages, with slightly better per- formance in electricity, telecommunications, and solid waste & wastewater collection, and sli- ghtly worse in environmental sustainability. 294 Figure B8.1. Most problematic factors for tourism firms (closer to centre = more problematic) Electricity quality 100 Crime, theft and disorder 90 Telecommunications 80 70 60 Corrupction Solid waste and 50 wastewater collection 40 30 20 Labor factors 10 Water quality 0 Informal Transport practices infrastructure Cost of financing / Enviroment Puerto Plata access to credit sustainability Punta Cana Samaná Business Price Santo Domingo enviroment competitiveness República Dominicana Source: Dominican Republic Tourism Firm Survey. World Bank. 2020. Note: The results from Samaná do not constitute a representative sample of tourism firms. Figure B8.2. TTCI performance overview (2019) International opening Price competitiveness 3,3 100º 5,0 69º Travel and Tourism prioritization Environmental sustainability 6,0 4,1 7º 91º Air transport TIC preparation Infrastructure 4.0 3,0 100º 66º Human resources Port and ground infrastructure 4,4 and labor market 3,6 87º 54º Turist service Health and hygiene infrastructure 5,0 4,8 87º 43º Security Natural resources 4,7 and protection 3,0 114º 68º 4,1 Business ambient 3,8 Cultural resources and business travel 1,5 104º Overall score 86º 7 6 5 4 3 2 1 Score 1-7 (best) 1 2 3 4 5 6 7 Score Source: WEF TTCI, 2019. The Dominican Republic Urbanization and Territorial Development Review 295 6. Enhancing the integration of tourism and the territory These findings are somewhat in line with the World Economic Forum’s Travel & Tourism Com- petitiveness Rankings, where the Dominican Republic ranked 73rd out of 140 economies on tourism competitiveness in 2019. The Dominican Republic’s lowest score, and greatest drop since 2017, is in cultural resources & business travel, while the factors where it ranked lowest related to competitors are safety & security, business environment, ICT readiness, and price competitiveness, in order of severity (see the figure below). The three last items mirror the top problems identified in the survey. TTCI Performance Overview (2019) Source: WEF TTCI, 2019 4.4.1 Subnational destinations This section outlines the key challenges and opportunities faced by four types of destinations at the involve- ment, development, consolidation, and stagnation/rejuvenation stages, as categorized by the Butler Tourism Area Life Cycle Model (see Figure 19). Annex 4 includes SWOT analysis of each destination. Figure 19. Butler’s tourism area life cycle model Number of 6 Rejuvenation tourists Puerto Plata 5 Stagnation La Altagracia 4 Consolidation 6 Decline Santo Domingo 3 Development Samaná 2 Involvement Pedernales 1 Exploratoón Rejuvenation or decline Source: Own elaboration based on the life cycle of tourist destinations (Butler, 1989). 296 Samaná: involvement stage Samaná is moving up to the involvement stage, having received structuring investments in connectivity and tourism infrastructure. Its product types are varied, and tourism is dispersed throughout the peninsula. However, its local economic development impacts, in absolute terms, remain below the GoDR’s objectives, and the capacity of its basic services is strained, which is leading to environmental damage. Anecdotal evi- dence suggests that its value chain is less integrated and developed than the other focus destinations, with a much higher proportion of tourism establishments’ food coming from over 100km away, and a higher overall number of supplies being imported from abroad.19 Samaná’s key short-term challenges are a lack of water treatment and solid waste management fa- cilities, particularly for urban settlements surrounding tourism areas. Related to this issue is coastal encroa- chment resulting from unplanned development and weak, as well as fragmented, local government. In the medium-term, its challenges will be to scale-up inclusive growth in jobs and revenues without sacrificing its ecotourism positioning. Santo Domingo: development stage Santo Domingo has highly developed infrastructure and support services to facilitate tourism given its status as the country’s political and economic hub. This has enabled the growth of the tourism sector wi- thout the growing pains of underdeveloped suppliers, healthcare, training establishments, and urban and connectivity infrastructure associated with other less-developed areas. It does, however, come with its own set of challenges. Most of them are short-term, including the perception of Santo Domingo as a city without tourism potential, hence the need to rebrand the capital as a tourism destination, as well as the lack of a sha- red, strategic vision and plan for development of the destination. Medium-term challenges include environ- mental, climate change, suburbanization, and congestion issues tied to the growth of the Distrito Nacional region, including water provision and solid and liquid waste management. La Altagracia: consolidation stage La Altagracia is the largest tourism draw in the country, with continued strong growth that has progressed faster than its ability to provide basic infrastructure and services to the area. Its most critical short-term need is water provision, which has been a key bottleneck in the province for decades and has yet to be re- solved. Most water provision is done through individual wells, many of which are becoming brackish. Over five years ago, the private sector was willing to fund water provision, but approval was never granted by the Dominican Republic Government. Subsequently, the government committed to financing a system, but it has been lagging without a clear completion date. Its long-term challenges will be its ability to maintain the competitiveness of its undiversified tourism offer and its high reliance on a limited number of source markets, such as the United States. 19 Dominican Republic Tourism Firm Survey. World Bank. 2020. The Dominican Republic Urbanization and Territorial Development Review 297 6. Enhancing the integration of tourism and the territory Puerto Plata: mature stagnation/rejuvenation stage Puerto Plata is the Dominican Republic’s legacy destination. It has gone through the maturity and decline stages, which have been partially reversed through new investments in cruise facilities and tourism in- frastructure. Its key short-term challenges are basic services-related, including the need for a landfill, water supply, and a water treatment plant, as well as inadequate and costly electricity. A recent survey of mostly micro and small tourism businesses found that tourism businesses in Puerto Plata found electricity quality almost twice as problematic as the rest of the country, with 45.6 percent of respondents rating it as a “signifi- cant to severe” problem, compared to 22.9 percent nationally.20 Long-term challenges to its competitiveness include aging infrastructure and facilities, as well as its positioning as a budget resort destination, which is a comparative advantage that can be difficult to sustain as the destination can be easily substituted by other, newer beachside destinations. 5. The next stage: strategic priorities for aligning tourism and territorial development In the Dominican Republic, tourism has been a key driver in developing the country’s regions. However, the current sector-driven, piecemeal, and centralized approach has led to unsustainable environmental, so- cial, resilience, and economic consequences which impact both living standards of citizens and the com- petitiveness of the sector. It is in the interest of both territorial development and the tourism sector’s compe- titiveness that these structural and implementation challenges be addressed in a strategic manner. Improving the sector’s governance arrangements can democratize decision-making, more efficiently develop tourism in its destinations, and effectively address local needs; the diversification of the sector can increase its resilience to shocks and spread the economic benefits of tourism to lagging areas and local communities. Together, these initiatives can lead to more and better local jobs, better safeguarded assets, and more effectively de- veloped territories for improved quality of life. First, national-level reforms are needed to (i) situate tourism within the country’s broader territorial development, (ii) ensure tourism frameworks and institutions can effectively develop and manage the sector and its destinations, and (iii) align systems to support product diversification and inclusion (see Figure 22). Secondly, a number of specific investments have been identified in the focus destinations within the 3-I fra- mework (institutions, infrastructure, and initiatives) that would render them more sustainable, resilient, inclu- sive, and competitive (see Figure 20). 20 Dominican Republic Tourism Firm Survey. World Bank. 2020. 298 Figure 20. National-level reforms to support effective territorial and tourism development 1 Better situate tourism´s role in Reassign land-use planning outside of sectoral remits. territorial development Shift the responsability of infrastructure and basic service provision from tourism to the appropriate entities. 2 Clarify and descentralize Develop and adopt a National Tourism Strategy. tourism governance Decentralize tourism sector governance and develop a subnational tourism toolkit. Improve subnational tourism statistics. 3 Align tourism policies and Further align marketing campaigns with product diversification policies through digital tools. interventions to support product Phase out the investment incentives law. diversification & inclusion Priorize Micro, Small y Medium Enterprises. Broaden skills development activities. Source: Author 5.1 Better situate tourism’s role in the Dominican Republic’s territorial development The DR’s tourism sector has historically been developed based on greenfield tourist resort enclaves in rural areas where the planning, institutions, and infrastructure did not exist to support development. At the time, it made sense for MiTur to take on those functions to ensure the development of these zones. Two aspects have since changed. First, these tourism enclaves have spurred spatial growth around them to su- pport the workers and suppliers of the sector, and this agglomeration is increasingly becoming more inter- twined and integrated with the enclaves. Second, best practices have moved away from the development of single-zoned resort enclaves to acknowledging that tourism that is better integrated with local communities and diverse land-uses is both more inclusive and competitive. This evolution in tourism development models requires a realignment of institutions and responsibilities along two lines, land-use planning and infrastructu- re/basic services provision. 5.1.1. Reassign land-use planning outside of sectoral remits. Instead of tourism leading the land-use planning of tourism zones (which can encompass parts or the entirety of municipalities), it should be led by local plans, such as the Municipal Land-Use Plans (PMOTs), for which tourism should be an important element but not the overarching factor. The planning of new destinations such as Pedernales and the growth of existing ones should be integrated with that of their surrounding com- munities. These territories should have land-use and development plans that ensure adequate infrastructure, public space, and housing provision that is in line with the projected growth of employment, supply chains, The Dominican Republic Urbanization and Territorial Development Review 299 6. Enhancing the integration of tourism and the territory and related agglomeration, rather than just for enclave resort areas. These principles should be reflected in the Ley de Ordenamiento Territorial, Uso de Suelo y Asentamientos Humanos (Law on Territorial Planning, Land-Use, and Settlements), which clarifies planning responsibilities and formalizes needs, and this long-pen- ding law should be passed (for more information on planning reforms, see Note 3 of the Urbanization and Territorial Development Review on territorial regulation and planning). Additionally, land-use guidelines need to be clarified, aligned with sustainability and climate-resilient best practices, and actively enforced. 5.1.2 Shift the responsibility for infrastructure and basic service provision from tourism to the appropriate entities. The private sector has made it clear that it wants to locate in regions that are well planned, regulated, and supplied with adequate infrastructure and public services. Water provision, sewage treatment plants, solid waste management (especially regional landfills), and road access present particularly critical deficiencies across destinations. Within this area, the sector’s current greatest limitations are in implementation and ma- nagement of these basic services. This shift requires two elements: First, the appropriate entities need to have a clear mandate, capacity, and funding to take on this provision, and second, CEIZTUR’s role in infrastructure and basic services provision needs to be phased out. 5.1.2.1 Reinforce the legal frameworks for basic service provision. The passing of a series of laws and strategies with drafts already in existence is key to ensuring effective institutions that are able to provide water, sanitation, and solid waste management to both tourism and non-tourism areas. They are: (i) the General Water Law, which provides institutional mechanisms, regulations, and policies to consolidate water and sanitation services and monitor water quality, and which will impro- ve governance and stewardship and institutionalize water use and recharge incentives; (ii) the Solid Waste Management Law, which updates the legal framework on solid waste management and promotes a circular economy; and (iii) the updated National Sanitation Strategy, which ensures the integration and manage- ment of solid waste, sanitation, and potable water. 5.1.2.2 Phase out infrastructure and basic service provision from CEIZTUR’s role. CEIZTUR is essentially still structured as an entity to develop enclave resort destinations. The responsibilities for public service provision should be transferred from CEIZTUR to other sector-appropriate agencies (for exam- ple, regional water and sewer companies). CEIZTUR can then be restructured, so that the roles of product development, regional destination development, and marketing can be transferred from MiTur to CEIZTUR, transforming CEIZTUR into a more responsive and diversified tourism development agency while keeping MiTur as the nation’s tourism policy, planning, and regulatory entity. Examples include FonTur in Colombia, a specialized public agency (with a majority private board representation) in charge of receiving applications and implementing projects from the central government, the Ministry in charge of tourism, municipalities, destinations, tourism corporations, and associations. FonTur accepts applications for tourism infrastructure, competitiveness (training and product development), and marketing initiatives, the themes of which are gui- ded by the 4-year National Tourism Strategy. It is financed by a mix of general treasury funds and parafiscal tourism taxes paid by 21 subsectors. It provides extensive technical support to local applicants in formulating project proposals and assisting in the planning of maintenance and management once a project is imple- 300 mented. Another similar model is Atout-France, France’s public-private tourism agency in charge of marke- ting, products, and destination development. Regardless of the restructuring options selected, CEIZTUR should improve its investment prioriti- zation and selection process and increase its board representation. The prioritization and selection of in- vestments should be better codified and formalized so as to be aligned with sustainability, local econo- mic development, and product diversification priorities. Lastly, transparency in decision-making and formal stakeholder inputs should be broadened. This includes widening board representation to include a tourism SME association and a representative for local governments. 5.2 Clarify and decentralize tourism governance 5.2.1 Develop and adopt a long-range (10-15 year) National Tourism Strategy. This strategy should outline sector objectives and implementation mechanisms, while also clarifying its insti- tutional frameworks, planning hierarchies, and coordinative mechanisms between sectors and government levels. Policy priorities consistent with MiTur’s 2008 Sustainable Tourism Development approach of diversifica- tion, sustainability, and local economic development (LED) should be maintained. Continuity in laws, plans, and policy priorities has been flagged as one of the top priorities for the Dominican Republic’s private sector, which is consistent with global findings. With continuity in place, the private sector can plan and carry out investments accordingly, which reduces risk. 5.2.2. Decentralize tourism sector governance and develop a subnational tourism toolkit. Each destination has a unique mix of assets, stakeholders, products, and shortcomings, which should be dealt with differently based on their development stage and trajectories. As such, tourism development tools should be customizable for different destinations, which will enable increased local empowerment. Table 3 below recommends the priority type of institutions, infrastructure, and initiatives that should be present at each development stage of a destination (Involvement, Developing, Consolidating, and Mature/Rejuvena- ted). Subnational governments should have more autonomy in developing certain aspects of their destina- tions, which will allow for increased participation of the local population on the planning and development of tourism in their communities, and be subject to robust technical and regulatory oversight from MiTur. MiTur should decentralize sector governance and formalize subnational tourism planning frameworks (see examples from England and Australia). It should outline how the National Tourism Strategy is used to inform subnational destination plans focused on the development of tourism ecosystems (products and destination management) rather than land-use planning. These plans should in turn inform local level land-use, infras- tructure, and urbanization plans outside of MiTur’s remit. The Dominican Republic Urbanization and Territorial Development Review 301 6. Enhancing the integration of tourism and the territory Table 3. Recommendations based on tourism development stage Pre-Emerging Developing Consolidating Mature/Rejuvenated (Pedernales) & Destinations Destinations Destinations Emerging Destinations (Santo Domingo) (La Altagracia) (Puerto Plata) (Samaná) Strategic Focus Development planning, Core market growth Management of Repositioning and lodging provision, and and product visitors and ensuring upgrading aging stimulating demand development. sustainable, inclusive infrastructure and (promotion & access). growth. facilities. Institutions Strategic tourism and Land-use planning Detailed urban DMO for destination master planning. DMO for growing core development & management, DMO for positioning markets and products. expansion planning. repositioning & and marketing. Promote trade & DMO for destination diversification. community associations. management initiatives. Increased local government capacity. Infrastructure Connectivity and access Basic services: solid Congestion Upgrading urban infrastructure. and liquid waste management, urban infrastructure and visitor Programs to support management. upgrading, public facilities. anchor accommodation spaces & secondary providers and quality destinations. rooms. Initiatives Entrepreneurship Technical workforce Visitor management. Up-skilling and re- training. skills. MSME support services. skilling. Programs supporting and linkages. Programs supporting activities, excursions & Tourism dispersal. renovation of lodging, food & beverage offer. leisure & entertainment venues. Product diversification. Source: Authors. Note: DMO stands for destinations’ marketing organization. Apart from the decentralization of tourism planning, destination management and product development roles should be devolved to the subnational level. Subnational OPTs should be restructured into Public-Priva- te DMOs with coordinative and functional roles. They should have dedicated funding tied to a percentage of local tourism tax and levy earnings, with a portion allocated from MiTur’s central funds. Responsibilities should include promoting the subnational destination, coordinating its events and festivals (and where appropriate, MICE), and developing small-scale tourism products (see Handbook and Example of Subnational DMOs from 302 Romania). DMOs can also be created to organize stakeholders and to develop and market thematic routes, such as the Franciacorta Wine Route in Italy, which is a membership-funded DMO comprising 90 stakeholders from the wine tourism value chain and its related municipalities tasked with creating a branded wine route, setting quality standards, and packaging experiences. A supportive legal enabling environment, technical assistance, and grant funding should be provided from the central level to foster this ecosystem. A planned, multi-phased approach to ensure legal, jurisdictional, fiscal, and capacity transfers are adequate should be implemented. Tourism zones can consider more widespread use of the Tourism Improvement District (TID) concept to supplement destination management. Similarly to the way resort areas in Playa Dorada and Punta Cana are being managed by a private association, other tourism zones can use TIDs to enhance trash collection, landscaping, vendor management, and upkeep of Malecones, promenades, plazas, and beaches. Local go- vernments, DMOs, and TIDs each have a role to play and can coexist in a well-developed destination in order to ensure that infrastructure, community needs, marketing and product development, and tourism facilities are developed and upgraded. Increase private sector involvement in planning for new destinations and products through advi- sory councils. The development of new products and destinations needs to be in line with demand potential and private sector appetite. Not all territories have assets suited for tourism, nor are they all prepared to be developed. Prioritizing a destination or product-type without clear demand potential can waste valuable resources. A demand-driven approach must be taken for tourism development, balancing territorial deve- lopment needs with demand potential, private sector appetite, and sector-focused strategies. As such, fea- sibility studies and demand assessments should be mandated and systematically undertaken as part of the strategic planning process when developing new products or circuits, particularly in new tourism poles and megaprojects. 5.2.3 Improve subnational statistics to provide data and market intelligence for tourism planning and development decisions. Systems to analyze and distribute regional-level impact data, including data on jobs, economic multipliers, and linkages, are crucial in understanding trends and designing appropriate place-based policies and pro- grams. The use of big data, open data portals, and market intelligence platforms should be integrated into MiTur’s planning, monitoring, and evaluation tools. It is particularly important to gather market intelligence in order to understand how visitors diversify their beach vacations to secondary destinations and other pro- ducts. By compiling user-generated content (see the World Bank’s leveraging user-generated content for tourism development), surveys, and focus groups, product developers can understand (i) the type of visitor most likely to diversify their experience, and (ii) the blockers to diversification for these visitors. Then, marke- ting campaigns can be retargeted towards the types of visitors most likely to opt for diversified experiences, and product developers can reduce blockers—for example, a lack of information, car rental options, multi- lingual signage, observation towers, inclusion in packages, perceived safety, etc. The Dominican Republic Urbanization and Territorial Development Review 303 6. Enhancing the integration of tourism and the territory 5.3 Align tourism policies and interventions to support product diversification and inclusion The GoDR needs to systematically prioritize and act upon product diversification and improve the natio- nal framework to provide customizable solutions to destinations. Diversification should focus on product types (cultural tourism, events, adventure, MICE, agritourism, and community-based tourism), geographic locations (satellite sites and routes), and source markets (South America and East Asia) in order to reduce reliance on the current narrow set of products and markets, thereby reducing vulnerability to internal and external shocks. Diversifying products with local input, and taking into account a destination’s unique assets can help integrate local communities and SMEs into the value chain. Box 9 below gives some examples on product diversification strategies. Box 9 Product diversification strategies The types of product diversification strategies undertaken depend heavily on the structure of the tourism sector and its visitor characteristics. The development of thematic routes and trails has been a successful approach in Europe and the United States due to the importance of inde- pendent, car-centric domestic tourism. In a destination with predominantly packaged all-inclusive tourism, one can work to increase independent travelers (parallel diversification) and also inte- grate ancillary destinations into existing packages (integrative diversification). The latter has found success in the Mediterranean, where cultural tourism has enhanced the coastal resort tourism experience by offering the possibility of added excursions and cul- tural performances. Malta, a Mediterranean island traditionally dependent on sea & resort tou- rism, has prioritized rural and ecotourism in its current tourism policy. The MaltaGoesRural project operationalized this policy by using an integrated approach of (i) market research to understand their target market’s ancillary product needs; (ii) investing in rural heritage by setting up walking trails to connect existing tourism zones with natural areas, village cores, and heritage sites (which led to historic and public spaces being upgraded, along with the signage along the trails—bene- fitting residents and users alike); and (iii) launching a marketing campaign and an App that allows users to follow their progress on the geolocated trails, learn additional information from points of interest, and rate the walks. A similar example from the Caribbean is the development of the Waitukubuli National Trail (WNT) in Dominica, the first long-distance hiking trail in the Caribbean, which runs 114km along the length of the island. The Great Ocean Road is a good example of a road-based thematic route that disperses tourism from the hub of Melbourne to rural coastal areas. See additional resources on developing gastronomy tourism and the UNWTO’s Handbook on Tourism Product Development Source: Authors 304 5.3.1 Prioritize micro, small, and medium enterprises. To better link local firms to the tourism sector’s dynamism, the GoDR needs to prioritize skills development and entrepreneurship for tourism MSME’s. INFOTEP’s MSME support program should be scaled up and further de- centralized in order to provide improved localized access to MSME upgrading services. These services should focus on demand-driven product development, digital distribution, and marketing, as often the greatest challenges for MSMEs are linking with international visitors and ensuring products meet their needs. Detailed value-chain analyses of tourism sub-sectors should guide MSME program targeting. See The Gambia Value Chain Analysis, and guidance on Linking the Crafts Sector to Tourism Markets. See Box 10 for more details on how governments can boost the local economic impacts of the tourism sector. Box 10 How can governments boost the local economic impacts of tourism? Successful inclusive tourism development programs combine supply-side (training and finan- cing) with demand actions (marketing and distribution linkages). Increasing the share of tourist expenditures that enter the local economy is, to a certain extent, a function of increasing visitor volumes and expenditures (through longer stays and more, better goods and services). It also is highly dependent on the type of tourist, the product offered, and the operating conditions of large and small businesses. Programs engage and incentivize large players to become involved, and provide support on non-financial (social and cultural) aspects. Strategies can include: (i) increasing local inputs into the hotel supply chain; (ii) stimulating micro and small tourism enter- prises; (iii) boosting local craft and tourist shopping; (iv) enhancing the employment opportunities of local communities; (v) facilitating destination-level partnerships; (vi) diversifying the destina- tion, including by offering local products; (vii) using government roles to influence private sector behavior; (viii) facilitating joint venture partnerships with the private sector and community; (ix) channeling financial flows to communities; and (x) addressing cultural, social, and physical im- pacts. See practical approaches to each strategy in the report Making Tourism Count for the Lo- cal Economy in Dominican Republic (Pro-Poor Tourism Partnership & ASONAHORES). The report’s recommendations remain relevant and underutilized. In addition to increasing local supply chain linkages, increasing out of pocket visitor ex- penditures is a key strategy to stimulate local economic development. This strategy requires technical assistance to improve the quality and consistency of products and services, as well as the creation of welcoming physical spaces and environments. A range of quality unique goods and services that are well promoted, easy to reach with minimal barriers (shade, an organized market, security, currency exchange, information, etc.), and complimentary activities (music, entertain- ment, dining, etc.), within a compact and preferably walkable area, will stimulate more frequent and longer excursions, greater spending, and increased satisfaction. The Dominican Republic Urbanization and Territorial Development Review 305 6. Enhancing the integration of tourism and the territory The design of these shared public spaces depends on local assets and is best developed with communities. Their design should be based on historical, cultural, social, and natural factors that make them unique and interesting, while prioritizing a specific sense of place and a variety of activities and uses. Such vibrant public spaces can include Malecones, beachfronts, public plazas, historic cores, and heritage corridors, as well as smaller venues such as entrance areas to tourist attractions and the immediate surroundings of resorts. Creating shared public spaces, developing their services, and ensuring their management and maintenance is an important function of des- tination-level product development and management. Source: Ashley (2005) The above support to MSMEs needs to integrate the local small-scale and informal sectors in tourism areas, which includes credit facilities or investment capital for small scale ventures, education (particularly in foreign languages), product development for community entrepreneurs, networking opportunities, and capacity building through skills training (Oviedo-Garcia, González-Rodríguez y Vega-Vázquez, 2019). Many of these initiatives are reflected in GoDR planning and policy priorities. The GoDR’s 20-year national plan includes actions to integrate communities into tourism activities through tourism education and MSME de- velopment, as well as road networks to integrate tourism centers with surrounding areas. INFOTEP also has a robust free-to-access SME support program that supports both formal and informal tourism enterprises. Implementation, however, should be improved. 5.3.2 Phase out the investment incentives law. In the medium-term, the GoDR can increase fiscal space to improve infrastructure and basic services in destinations by phasing out the investment incentives law, which would free up tax revenues. Data on past performance of incentives and private sector interviews suggests that the DR’s tourism sector is sufficiently competitive and attractive as to not require additional incentives to promote large-scale resort investments. Furthermore, these incentives are not aligned with the GoDR’s policy priorities, as they favor large-scale FDI over local economic development (Ministry of Tourism Strategic Plan n.d.). In fact, they have served against these policy priorities by enabling the growth and spread of all-inclusive tourism. Instead, tax gains can be reinvested in basic services and infrastructure—which is a priority for both the private sector and local go- vernment. 5.3.3 Further align marketing campaigns with product diversification policies—with a stronger focus on digital marketing and next generation, big data market intelligence tools. Marketing campaigns should prioritize the diversification of markets, destinations, and products in order to both improve sector resilience and reflect MiTur’s strategic priorities. This includes decentralizing subnational destination marketing activities, as well as further showcasing alternative products and destinations. One example is to adapt the European Capitals of Culture program, which is a program that selects different destinations each year as European Capitals of Culture in order to boost the prominence of secondary des- tinations with a marketing spotlight and by organizing diverse arts and culture programming throughout 306 the year. A rotating focus on different Dominican destinations could help increase the prominence of les- ser-known destinations and products. See Box 11 below for more ideas. Box 11 Using marketing and big data to encourage product diversification Amsterdam has used a mix of marketing and big data to “push” and “pull” visitors to less visited destinations. Amsterdam receives 7.8 visitors per resident per day. It has been trying to diversity its tourism and disperse visitation from low-value, short city-breaks to more upscale and responsible tourism. The city’s DMO has started packaging outlying districts as stand-alone destinations by: (i) extending the range of free public transport provided with its packaged attractions City Card, (ii) re- moving and redirecting all promotional funding and campaigns for Amsterdam to nearby destina- tions, (iii) developing an App that highlights alternative day trips, and (iv) placing webcams in crow- ded attractions and alternative sites to allow users to preview and self-select less crowded areas. Research shows that 50 percent of tourists chose a less crowded time to visit, and 20 percent visited a different site altogether. The city also developed an AI-powered chatbot on Facebook Messenger that, with consent, scrapes a user’s profile and suggests customized off-the-beaten-path activities. Similarly, it mined the City Card’s RFID chip for data on visitor flows and began recommending (from their website, App, and Facebook chatbot) taking canal cruises at less crowded times of day, for example. See additional examples from the UNWTO E-Marketing Handbook. The private sector, which wishes to be more involved in destination marketing, can supplement MiTur’s tourism marketing budget through a private sector-managed promotion fund. One example of this is in South Africa, where the budget of South Africa Tourism (SAT), the agency charged with national tourism mar- keting, is supplemented by a private sector initiative governed by the Tourism Business Council of South Africa (TBCSA). The TBCSA, a nonprofit private sector association, administers a voluntary additional tourism levy on bed nights that generates US$ 600,000 per year. These funds are then used to supplement SAT’s marketing budget, and the TBCSA has considerable influence over the use of these funds. This practice ensures increa- sed resources, private sector input, and demand-driven targeting of marketing initiatives. The Dominican Republic Urbanization and Territorial Development Review 307 6. Enhancing the integration of tourism and the territory 5.3.4 Broaden skills development activities to focus on the entry-level and upper management skills while increasing the volume of technical hospitality skills generated. The DR has effective technical skills programs. However, the demand for labor outnumbers skilled graduates. Thus, the technical skills program requires scaling-up. Similarly, more local talent is required at the upper management level of the sector, as many senior managers continue to come from abroad. Programs to in- tegrate local communities, the poor, and the disadvantaged into the tourism sector should be scaled-up to provide the basic skills required to access sector jobs.21 5.4 Strategic priorities by destination The above recommendations would enable initiatives to be customized to a destination’s unique context and needs. Table 4 below includes a summary of specific interventions (purple), infrastructure investments (green), and initiatives (blue) by focus destination, as identified by reports and consultants with national and local sector stakeholders from MiTur, municipalities, tourism clusters, associations, and private sector opera- tors. See Annex 5 for a summary of destination-level actions by time frame and urgency. 21 See additional resources on Policy Approaches to Skills Development in Tourism (OECD). 308 Table 4. Summary of investments and activities by focus destination Samaná Santo Domingo Altagracia Puerto Plata • Build capacity of • Produce a tourism Master • Build local public sector • Restructure water provision local authorities in Plan for the SD region, capacities systems the organization and including a detailed • Develop water supply system • Completion of the management of public destination marketing plan Cabarete sewage and solid spaces and beachfronts • Promote multi-destination waste treatment plant • Restrict heavy freight • Waterfront upgrading in packages vehicles from the tourism • Relocate and upgrade Las Terrenas, including zone and the Malecon • Support upgrading and Sousa’s landfill pedestrianization formalization of micro and • Develop the Parque Mirador small enterprises • Improve the planning, • Improve access to Rincon Sur & Norte for tourism and infrastructure and beach (Highway crossing), leisure use • Initiatives to reduce management of public and provide beach facilities, seasonality (targeting MICE, beaches toilets; organize informal • Construct landfill festivals, diversification) beach sellers • Implement a wastewater • Complete the Gregorio • Improve mangrove Luperon tourist highway • Halt the contamination of treatment plant and system protection and enforcement (Gran Parada-Santiago the Las Terrenas river from for Greater SD section) commercial runoff and • Improve the quantity and residential sewage quality of public spaces • Improve urban infrastructure and public • Improve maintenance of the • Revitalize the Ozama river spaces in downtown INAPA water plant on the into a recreation and leisure Cabarete, including the way to Las Galeras corridor burying of electrical cables • Improve solid waste transfer and centralized parking • Implement phase 2 of the system from Cavo Levantado Malecon’s upgrading by • Rehabilitation of Historic island to Santa Barbara de creating cycle lanes and Isabela Samaná landfill traffic calming infrastructure • Construction of a hospital • Manage and enforce • Facilitate the rehabilitation for Sousa beachfront encroachment of of heritage buildings along settlements and construction the Malecon • Improved protection and management of the • Regulation of motor vehicles • Facilitate the development Cabarete lagoon on beaches of a Santo Domingo • Improved parking and traffic Conventions Center management • Develop a program to recover the Santo Domingo beach for leisure use Source: Tourism sector cluster, associations, and local government interviews (2020) and documents. 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Enhancing the integration of tourism and the territory Visit Engand (s. d), Principles for Developing Desti- nation Management Plans, https://www.visitbritain. org/sites/default/files/vb-corporate/Documents-Li- brary/documents/England-documents/dm_plans_ guiding_principles.pdf. WTTC (Consejo Mundial de Viajes y Turismo) (2020), “Economic Impact. Dominican Republic”, https:// wttc.org/Research/Economic-Impact/modu- leId/704/itemId/103/controller/DownloadRequest/ action/QuickDownload. WTTC (Consejo Mundial de Viajes y Turismo) (s. d.), “Investigación anual 2020. República Dominicana”. 314 Annex 1 List of Interviewees Table A1.1 List of people interviewed for this note Name Position Shaney Peña Gómez Director, DPP, MiTur Maribel Villalona DPP, MiTur Arq. Kirsis de los Santos Director, CEIZTUR Yarín Casquero Director, Empresas y Servicios (Business & Services), Ministry of Tourism Carmen Paula Assistant Director, Empresas y Servicios, Ministry of Tourism Paula Rainieri President, ASONAHORES Andrés Marranzini Vice President, ASONAHORES Amín Serulle Coordinator, Component 3, Santo Domingo Historic Core Rehabilitation Project Mónica Infante Santo Domingo Tourism Cluster Carla Mejía Santo Domingo Tourism Cluster Tamara Mera Santo Domingo Tourism Cluster / Santo Domingo Historic Core Rehabilitation Project Coordinator Silvanh Rivel Santo Domingo Tourism Cluster Rafael Blanco Samaná Tourism Cluster Director, Escuela de Hotelería, Gastronomía y Pastelería (School of Hospitality, Gastronomy, and Elisa Acosta Confectionery), INFOTEP Fabeth Martínez Director, ASONAHORES Santo Domingo Chapter Yudit García Vice President, ASONAHORES Santo Domingo Chapter Aura Domínguez ASONAHORES Santo Domingo Chapter Arq. Williana Núñez Director of Urban Planning, Puerto Plata Lic. Ramón Antonio Ramírez Mayor, Distrito Municipal of Verón-Punta Cana Lic. Juan Antonio Adames Mayor, La Romana Jakaira Cid Director, Puerto Plata Region (OPT, MiTur) Romeo Ramlakhan Advisor to the Mayor, City of Santo Domingo Jesús Suazo Paradis Director, Urban Planning, City of Santo Domingo Jesus D’Alessandro Director, Strategic Plan, City of Santo Domingo Jenny Vásquez Finance Department, City of Santo Domingo Sources: Authors. The Dominican Republic Urbanization and Territorial Development Review 315 6. Enhancing the integration of tourism and the territory Annex 2 Key Tourism Development Milestones Figure A2.1. Dominican Republic key tourism milestones and visitor arrivals, by month (1978-2019) 800,000 600,000 400,000 200,000 0 1984 1992 2000 2008 2016 Punta Cana Punta Cana Punta. Cana Tourism CEIZTUR Global Financial Global Financial Whole-of- Club Club Med. Med Tourism is CEIZTUR crisis. Whole-of-c PuntaInternational Cana is leading Formed. crisis. Sustainable Sustainable country tourism International leading export Formed ountry Airport. export earner. Tourism Policy Tourism Policy pole approach. Airport earner. tourism Investment Investment Investment Approach Approach & pole incentives incentives Incentives Investment sector & sector approach repealed. repealed reintroduced. Incentives decentralization decentralization. reintroduced PuertoPuerto Plata Samaná Samaná Samaná SD Historic SD Historic core Plata Airport opening. designated designated International designated core Airport Tourism Tourism Pole. Samaná Tourism Pole designated Airport Opening Pole International Tourism Pole. Airport. Source: Dominican Republic Central Bank; TradingEconomics.com; Compilation by Author. 316 Annex 3 Planed areas for Planes Sectoriales de Ordenamiento Territorial Turístico Table A3.1: Planes Sectoriales de Ordenamiento Territorial Turístico status (2020) Existing Strategic Plans Existing Approved PSOTTSs Lacking PSOTTS (To Be Converted Into PSOTTS) Puerto Plata Sosúa Samaná (Zona Sur) Península de Samaná San Felipe Puerto Plata Monte Cristi Santiago Las Terrenas (Samaná Norte) Espaillat María Trinidad Sánchez Cabarete María Trinidad Sánchez Dajabón Miches-Seibo-Hato Mayor Playa Dorada La Vega Punta Cana-Bávaro-Macao Montellano-Punta Bergantín Valverde Unidad Ambiental 2 Macao Bayahibe-Isla Saona Monte Cristi Pedernales Boca Chica San José de las Matas Circunvalación Verón Jarabacoa Hato Mayor Miches La Romana Punta Cana - Bávaro - Macao La Vacama hasta Miches Bayahibe San Pedro Boca Chica Boca de Yuma Higüey Baní San Pedro de Macorís Azua Barahona Barahona Municipio Pedernales Source: Dominican Republic Ministry of Tourism (2020). The Dominican Republic Urbanization and Territorial Development Review 317 6. Enhancing the integration of tourism and the territory Annex 4 Focus Destination SWOT analyses Table A4.1. Samaná SWOT analysis Strengths Weaknesses Road networks and connectivity infrastructure. Poor beach management. Airport access. Unplanned urban development. Active cluster with good relationships to MiTur, CEIZTUR. Coastal encroachment (mangrove destruction from informal settlements. Empowered community with strong advocacy role. Inadequate and costly electricity. Ecotourism positioning. Low capacity of subnational government. Lack of adequate water treatment plants (black water). No landfills. Tourism skills gap. Visual pollution from unregulated signage and lack of uniformity in regulations Opportunities Threats Varied cultural and natural assets, including rainforest, wind Coastal erosion. and water conditions for watersports, hilly landscape, and Fragmented governance: the peninsula consists of 6 secluded beaches. different local governments. High seasonality. Marine pollution (sewage runoff), specifically the contamination of the Las Terrenas River from landfills, slaughterhouses, heavy machinery shops, and residential blackwater. Illegal construction and operation without environmental permits. Illegal fishing around Cayo Levantado Island and non- compliance with lobster and conch regulations. Source: Authors 318 Table A4.2. Santo Domingo SWOT analysis Strengths Weaknesses Excellent human capital given all main universities and Lack of promotion of SD’s diversified tourism offer. tourism schools are headquartered in SD. Lack of a convention center. Strong pipeline of qualified personnel. Solid waste management deficiencies. High capacity of SD local government, which is proactive on Lack of strategic tourism development plan. tourism. Poor coordination between local government and MiTur. Single government jurisdiction facilitates planning, coordination, and implementation. Unsuited for beach tourism. Wide global flight route connections. Unreliable electricity. Main port of entry. Favorable business operating environment. Prominent medical tourism destination for Caribbean markets. Well-developed health services. Strong gastronomic offer (over 500 restaurants listed in the official restaurant guide). Diverse shopping offer. Heavy presence of international brands. Strong hotel investment—updated, modern room inventory, and variety. Extensive road network connecting SD to the rest of the country within 2 hours, on average. Competitive salaries attract top talent. Increased prioritization for investment given the location as seat of government. Opportunities Threats The dispersal of tourism to lagging neighborhoods with Visitor perception that SD is not a tourist destination. tourism assets. Traffic congestion. Historic heritage core. Safety and security in certain parts of SD. . Pollution and contamination from trash burning at Duquesa landfill. Waterbody and city beach contamination from trash and sewage runoff, including the Ozama River. Aging water supply system unable to cater for demographic growth. Source: Authors. The Dominican Republic Urbanization and Territorial Development Review 319 6. Enhancing the integration of tourism and the territory Table A4.3. La Altagracia SWOT analysis Strengths Weaknesses Quality lodging establishments. Plastic waste on beaches. Air connectivity. Lack of centralized water supply. Global brand recognition. Undiversified offer. Dynamic private sector. Implementation capacity of basic service investments.. Opportunities Threats Private sector prioritization of sustainability. Water scarcity. Continued high-growth trajectory. Growing informal settlements. Increasing informality. Lack of endogenous tourism assets other than sea, sand, and sun. Carrying capacity of beaches. Sensitive mangrove encroachment. Source: Authors 320 Table A4.4. Puerto Plata SWOT analysis Strengths Weaknesses Strong brand recognition. Inadequate water supply. Major cruise destination. Unregulated development. Good air and road connectivity. Informal settlements and mangrove encroachment. Extensive lodging capacity. Solid waste pollution. High government prioritization. Sewage runoff. Long history of tourism.. Growing amount of informal sellers and businesses. Tourist harassment. Prostitution. Inadequate and costly electricity. Low satisfaction for beaches and gastronomy. Opportunities Threats Potentially attractive historical center. Aging tourism infrastructure and facilities. Improved connectivity as base and gateway to the Positioning and perception as a budget destination. underdeveloped Northwest. Undiversified tourism product. Source: Authors. The Dominican Republic Urbanization and Territorial Development Review 321 6. Enhancing the integration of tourism and the territory Annex 5 Table A5.1 Summary of destination-specific actions by time frame and urgency Urgency Timeline (Low / Activity (Immediate / Moderate Short / Medium-term) / High) Destination-Specific Samaná Improve maintenance of the INAPAINAPA water plant on the way to Las Galeras Immediate High Build capacity of local authorities to organize and manage public spaces and Immediate Moderate beachfronts Improve solid waste transfer system from Cayo Levantado island to Santa Bárbara de Short-Term High Samaná landfill Waterfront upgrading in Las Terrenas, including pedestrianization Short-Term Moderate Improve access to Playa Rincón (highway crossing) and provide beach facilities & toilets; Short-Term Moderate organize informal beach sellers Regulate motor vehicles on beaches Short-Term Moderate Halt the contamination of the Las Terrenas rRiver from commercial runoff and residential Medium-Term High sewage Manage and enforce beachfront encroachment of settlements and construction Medium-Term High Improve parking and traffic management Medium-Term Moderate Santo Domingo Produce a tourism Master Plan for the Distrito Nacional region, including a detailed Immediate High destination marketing plan Implement phase 2 of the Malecón upgrading by creating bicycle lanes and adding traffic Immediate Moderate calming infrastructure Construct landfill Short-Term High Implement a wastewater treatment plant and system for Greater SD Short-Term High Restrict heavy freight vehicles from the tourism zone and the Malecón Short-Term Moderate Develop the Parque Mirador Sur & Norte for tourism and leisure use Short-Term Moderate Improve the quantity and quality of public spaces Medium-Term Moderate Facilitate the rehabilitation of heritage buildings along the Malecón Medium-Term Moderate Facilitate the development of a Santo Domingo Convention Center Medium-Term Moderate Develop a program to recover the Santo Domingo beach for leisure use Medium-Term Moderate Revitalize the Ozama River into a recreation and leisure corridor Medium-Term Low 322 La Altagracia Develop water supply system Immediate High Support the rescue, upgrading, and formalization of micro and small enterprises Immediate High Build local public sector capacities Immediate Moderate Promote multi-destination packages Short-Term Moderate Implement initiatives to reduce seasonality (targeting MICE, festivals & diversification) Medium-Term High Improve mangrove protection and enforcement Medium-Term High Puerto Plata Complete the Cabarete sewage and solid waste treatment plant Short-Term High Improve urban infrastructure and public spaces in downtown Cabarete, including burying Short-Term Moderate electrical cables and creating centralized parking Rehabilitate Historic Isabela Short-Term Moderate Restructure water provision systems Medium-Term High Relocate and upgrade Sousa’s landfill Medium-Term High Build a hospital for Sousa Medium-Term High Improve protection and management of the Cabarete lagoon Medium-Term High Improve the planning, infrastructure, and management of public beaches Medium-Term Moderate Complete the Gregorio Luperón tourist highway (Gran Parada-Santiago section) Medium-Term Moderate Urbanization and Territorial Development Review in the Dominican Republic 323 Spotlight. Tailoring territorial development instruments: Zonas Francas Spotlight: Tailoring territorial development instruments: Zonas Francas Diana Tello Medina 324 Table of Contents Introducción 326 1. Zonas Francas in the world - What do we know? 326 2. Zonas Francas in the Dominican Republic 329 2.1 Where are the Zonas Francas Located in the DR? 329 2.2 ZFs in the DR play an important role in exports and formal employment in certain areas but 330 their territoiral spillovers appear to be limited 2.3 How are the different transmission channels working in the Dominican Republic? 331 2.3.1 Absorptive capacity and local endowments are stronger in Santo Domingo and 332 Santiago 2.3.2 Interaction between ZF-based firms and non ZF-based-firms is weak 336 2.3.3 Are ZF-based firms interested in connecting with local firms? 338 3. Conclusion 339 References 341 Annex 1. Survey of firms located in Zonas Francas: descriptive statistics 343 Annex 2. Business categorization tool for MSMEs to enable production linkages with the 344 Medical Devices subsector Annex 3. Qualitative assessment of ZFs in the DR - Electricity subpower and proximity to 345 Santo Domingo or Santiago seem relevant Figures Figure 1. Location of Zonas Francas in the Dominican Republic 330 Figure 2. Formal private employment in Zonas Francas (%) 331 Figure 3. Absorptive capacity in the Dominican Republic, by province 332 Figure 4. Absorptive capacity and location of Zonas Francas, by province 333 Figure 5. Main reasons to locate in this Zona Franca 334 Figure 6. Do you believe the firm manages to find the labor required to carry out its activities? 335 Figure 7. Zonas Francas in the Dominican Republic interact with these institutions 336 Figure 8. Zonas Francas help overcome these challenges 337 Figure 9. Main bottlenecks for the private sector in the Dominican Republic 337 Urbanization and Territorial Development Review in the Dominican Republic 325 Spotlight. Tailoring territorial development instruments: Zonas Francas Figure A1.1 Number of firms interviewed and their sectors 343 Figure A1.2 Size and origin of interviewed firms 343 Tables Table A3.1 Qualitative evaluation of Zonas Francas in the Dominican Republic 345 326 Introduction Zonas Francas (ZFs) is an instrument that has been used in the Dominican Republic (DR) and across the world to support territorial development. However, it has had mixed results. The effectiveness of ZFs when it comes to supporting the territories where they are located depends on the spillovers they generate. Spill- overs to local economies can be defined and measured by static and dynamic economic outcomes, as well as socioeconomic outcomes (Farole, 2011). In other words, ZFs are expected to benefit their territories by attracting new businesses, creating linkages with local firms, generating jobs, upgrading local productive fabric, etc. These spillovers are transmitted to local economies through different channels and are depen- dent on different factors––from the characteristics of the firms locating in the ZF to the interaction between ZF-based firms and non-ZF-based firms to the labe based on a combination of desk review, survey of firms in ZFs, and meetings with experts and government stakeholders. The survey of firms was conducted between August – October 2020,1 with the goal of better understanding (i) their main drivers to locate in the DR and in that Zona Franca (or specific territory), and (ii) their linkages with the territory in terms of local value chains, partnerships with local stakeholders, human capital, and the provision of other services2 (see Annex 1 for descriptive statistics). 1. Zonas Francas in the world – What do we know? Zonas Francas, which are also called Special Economic Zones, are a policy tool used across the world with the aim of creating better-serviced productive “enclaves” as well as promoting opportunities inside and outside the Zones to support broader development objectives. They are often seen as a solution to broader issues, such as dysfunctional land or labor markets, poor public services, etc., which can be bottlenecks for attracting workers and firms to a given location despite local advantages. When tackling these challenges on a regional/national scale is difficult, ZFs can provide a more limited physical area to address such issues and incentivize firms to cluster together. Some of the challenges can be overcome without independence from national regulations (typically, customs regulations, but sometimes other regulations like land registra- tion, labor laws, or other taxes). This may include, for example, providing advanced factory units to firms to overcome sunk costs; overcoming frictions resulting from gaps in information regarding opportunities in a locality (such as online job postings or branding the location); and making registration and all types of bu- reaucratic processes easier through “one stop shops.” Others require regulatory independence or high-level coordination and backing from the national government or provincial authorities, which may include, for ex- ample, amending land acquisition and construction permitting regulations, labor and migration regulations, or business registration procedures. When the objectives of ZFs include regional development, ZFs can support local economic devel- opment when they generate economic and socioeconomic spillovers in the territory that surrounds them. Existing evidence suggests that their impact is limited (Frick, S.A. and Rodríguez-Pose, A., 2019). Spillovers to local territories can include economic and socioeconomic outcomes, either in a specific period of time (e.g. 1 We interviewed 68 firms. Results are indicative and not representative. 2 Services refer to transport to/from ZFs from/to urban or rural areas, as well as welfare programs (e.g., health, housing, etc.). Urbanization and Territorial Development Review in the Dominican Republic 327 Spotlight. Tailoring territorial development instruments: Zonas Francas exports, foreign direct investment (FDI), or regional employment) or through long-term structural impact in the territory (e.g. upgrading local technologies, economic diversification, or improving employment quality) (Farole, 2011). A recent quantitative study of ZFs in emerging economies shows that ZFs do contribute to the development of their surrounding territories, confirming the existence of spillovers. However, it also revealed that spillovers are usually experienced in a limited radius (within a 50 km radius) around the ZF (Frick, S.A. and Rodríguez-Pose, A., 2019). While the immediate surroundings of ZFs do benefit from spillovers, the impact becomes weaker further away from ZFs. How can ZFs spillovers be promoted? As it is known, one of the main goals of ZFs is to attract FDI (through the location of multinational firms). FDI is an important factor to diffuse knowledge and technology across borders (Bajo-Rubio and López-Pueyo, 2002; Ernst and Kim, 2002). Multinational firms in ZFs repre- sent new sources of technology to the host economy (Ernst and Kim, 2002), which can boost productivity, create new domestic employment (Ernst and Kim, 2002), and promote economic growth and development (Crescenzi, 2005) in the host economy. However, spillovers are transmitted to local economies through dif- ferent channels, and are dependent on three main factors: (i) the absorptive capacity of the territory and its endowments; (ii) the interaction between ZF-based firms and non-ZF-based firms to upgrade local produc- tion standards and labor skills; and (iii) the characteristics of firms located in ZFs to learn how well they would connect with local firms (Frick, S.A. and Rodríguez-Pose, A., 2019). When a ZF experiences limited spillovers, it is usually linked to poor location choices, inadequate complementary policies (e.g. connective infrastructure), and/or poor institutional quality (Frick, S.A. and Rodríguez-Pose, A., 2019). First, the territory’s absorptive capacity and local endowments need to be considered when deciding where to locate a ZF in order to maximize spillovers. When ZFs are created in isolation, without taking into considerations firms’ needs within the territory, or with the application of complementary policies, they usually fail to create spillovers. ZFs can better connect with their surroundings when there is an appropriate institu- tional and policy framework coupled with the right mix of incentives (not necessarily fiscal) (Akinci and Crittle, 2008). The effective transfer of knowledge requires local skills (or absorptive capacity) to identify, interpret, and incorporate acquired knowledge into local production processes (Agrawal, 2002 and Feldman, 2004; Boschma, 2005). Moreover, access and quality in infrastructure and services (e.g. water, electricity, business environment, security, and cleaning), access to a large market through efficient connectivity or proximity, and access to a labor market in the territory are all needed to enhance local spillovers. For example, an analysis of ZFs spillovers in emerging economies performed by Frick and Rodríguez-Pose (2019)––which included 10 ZFs from the Dominican Republic (DR)––revealed that spillovers were more likely to occur when the ZF is located close to a large city (300,000 inhabitants), thereby enabling access to a larger pool of human capital and connections to a broader number of local firms.3 When local territorial endowments are scarce, a common temporal solution used worldwide is to attract firms by offering tax incentives. However, this solution is costly and usually ineffective since public resources could be invested in supporting spillovers instead. For example, twelve ZFs were built in Eastern Indonesia to attract high-tech firms to revive a lagging area. However, only three of the ZFs received any investment at all, 80 percent of which was in a single ZF in the more developed West. In total, just 17 percent 3 The research relied on a data set sourced from Frick et al. (2019) covering data on SEZ characteristics and performance across 346 zones in 22 emerging countries, inclu- ding the Dominican Republic. 328 of the planned investment was actually mobilized (Temenggung, D. 2013). While tax incentives were the main instrument used to attract firms, high-tech firms actually needed different complements to be productive (such as strong external agglomeration economies for business services, a diverse skilled labor pool, energy, and institutions), all of which were lacking in the isolated East. Thus, the plan was not aligned with either pre-existing locational advantages or advantages that could be developed on a medium-run time horizon. Complements that were planned were poorly designed and executed4 and with so many ZFs in relatively “greenfield” locations limited firms’ coordination with citizens and firms in the territory. Ultimately, the effort was costly for the country and for the local governments involved. Budgets were scarce and needed to ad- dress the underlying bottlenecks of the territory, such as low human capital, weak connectivity to the national economy, and uncoordinated urban management (World Bank, 2020). Second, the stronger the linkages between ZF-based firms and non-ZF-based firms, the greater the spillovers. Both the quality and quantity of these linkages matter when promoting local employment, up- grading local economic activities, and ultimately, promoting growth and development (Farole, 2011; Zeng, 2016). Goods produced in ZFs, as well as their processes, can pull local practices and quality of products to higher standards. This will also incentivize local firms (and sometimes governments) to train their labor force to meet the needed expectations (Duarte et al., 2014; Farole and Winkler, 2014). Third, the characteristics of the firms locating in ZFs matter for generating knowledge spillovers. Be- yond the absorptive capacity and local characteristics of the host economy, the characteristics of the firms locating in ZFs (such as the country of origin of these firms, their sectors, etc.), influence the location decision of the firms and, consequently, their connecting interests with the host economy (Marin and Giuliani,2011; Crescenzi et al.,2016; Iammarino et al., 2008). Their technological level, global production chains, and growth strategies guide their motivation (and the possibility) to create linkages with the local economy and promote spillovers (Farole and Winkler, 2014). There is extensive literature analyzing different aspects of ZFs in the DR. Some studies focus on mea- suring and tracking the internal success of the zones in terms of exports, jobs, and investment (including the annual reports from the CNZFE). Others, such as a study conducted by the World Bank in 2017 (World Bank, 2017), are aimed at assessing the implications of regulatory reforms on export performance and ZFs’ linkages with domestic suppliers. The 2017 World Bank study finds that the gains associated with the generation of higher added value in the DR do not correlate with the development of greater linkages with domestic com- panies outside the ZFs. The paper recommends thinking about policies that could strengthen these linkages. Also, another study published by the World Bank in 2017 (World Bank, 2017) analyzed both the factors driving ZFs’ performance in emerging market economies, including the 10 biggest ZFs in the DR, and the extent to which ZFs’ performance drives economic growth in surrounding areas. In the following sections, this spotlight will delve deeper into the mechanisms for transmitting spill- overs in the DR and will consider whether DR territories are providing fertile ground for ZFs. 4 Some “complementary” investments were implemented, such as up-skilling for workers and MSMEs, infrastructure, and institutions such as “one stop shops” for registra- tion, but they did not reflect a sophisticated diagnosis of firm needs. Urbanization and Territorial Development Review in the Dominican Republic 329 Spotlight. Tailoring territorial development instruments: Zonas Francas 2. Zonas Francas in the Dominican Republic The Dominican Republic started to implement Zonas Francas in the 1960s to promote economic growth and with the aim of supporting the development of lagging territories. The first Zona Franca in the DR was estab- lished in 1969. La Romana was created and developed by the Gulf and Western América Corporation.5 Law 8-90 indicated that the objectives of ZFs were to attract local and foreign investment, provide training, and promote the transfer of technology and know-how for the purpose of creating jobs––particularly in econom- ically disadvantaged areas, such as the border area with Haiti. To achieve these objectives, the law granted a generous set of tax incentives for companies located in Zonas Francas. Currently, ZFs are also integrating into their objectives the impact they have in the surrounding territories/provinces. 6 Many ZFs have been established in the country since then. At the beginning of 2020, the DR had 75 Parques de Zonas Francas (or Special Economic Zone Parks) hosting 551 firms.7 The Dominican Republic also hosts Zonas Francas Especiales (ZFEs) or Zonas Francas de Servicios (ZFSs). These comprise 158 individual firms across the country, located outside the designated Parques, which receive the same benefits as those firms located inside the parks. For instance, firms inside the Parques may choose to establish a subsidiary in a different territory in the DR that benefits their production. This subsidiary will be called ZFE/ZFS and will have the same benefits as the firm located inside the park. When we talk about ZFs in the DR, we are referring to the Parques de Zonas Francas. The National Council of Free Export Zones (CNZFE8 in Spanish) is the entity that regulates and supervises the operations of free zones in the DR, while the Dominican Association of Zonas Francas (Adozona) is the association representing the private parks and firms. 9 2.1 Where are Zonas Francas located in the DR? As of 2020, most Parques de Zonas Franca in the DR are located in the provinces of Santiago and Santo Do- mingo, which favors connectivity and agglomeration benefits. Santiago hosts 27 out of the 75 parks, while the province of Santo Domingo hosts 18 (see Figure 1). If we consider the neighboring provinces to these two provinces, 63 out of the 75 ZFs are located in or around Santiago and Santo Domingo, with 7 ZFs in the prov- inces surrounding Santiago (1 in Valverde, 3 in Puerto Plata, 1 in Espaillat, and 2 in La Vega), and 11 ZFs in the provinces surrounding Santo Domingo (8 in San Cristobal and 3 in San Pedro de Macorís). 5 In 1969, the Law 299 was issued on April 23 which authorized the location of ZFs in DR. 6 Interview with José Manuel Torres, Executive Vice-President of Adozona. 7 Updated data from CNZFE as of July 16, 2020: Departamento Estadístico de Zonas Francas. 8 The CNZFE was created by Law 8-90 in 1990, representing both public and private sectors. 9 Adozona was formed on Aug 8, 1988, and recognized by Decree 579-88 of Dec 18, 1988. Retrieved from: https://adozona.org/sobre-adozona/ . 330 Figure 1. Location of Zonas Francas in the Dominican Republic Source: Author’s elaboration using data from CNZFE. Note: ZFs are in blue. ZFEs and ZFSs are in red. 2.2 ZFs in the DR play an important role in exports and formal employment in certain areas but their territorial spillovers appear to be limited ZFs represent more than half of the DR’s exports for primary and secondary sectors. In 2019, Zonas Francas exported US$ 6.264 billion, and represented 56 percent of the exports of mineral, agricultural, and industrial products. That same year, Zonas Francas contributed to 3.2 percent of the GDP in the Dominican Republic. ZFs make up the 5th largest sector in the economy with regard to receiving Foreign Direct Investment, as mea- sured by accumulated FDI between 2010-2017 (after Commerce/Industry, Mining, Tourism, and Real Estate). Also, in some provinces, Zonas Francas are responsible for a high share of private formal employment. Zonas Francas provided 176,555 direct jobs in 2019, which was an increase of 2.8 percent from 2018 (CNZFE, 2019). The importance of ZFs across provinces varies, though. They play a key role in private formal employ- ment in the provinces of San Cristobal, Barahona, Santiago, and San Pedro de Macorís. For instance, 42 per- cent of private formal Employment in San Cristóbal is in Zonas Francas, followed by 28 percent in Barahona, and 26 percent in Santiago and San Pedro de Macoris (see Figure 2). Urbanization and Territorial Development Review in the Dominican Republic 331 Spotlight. Tailoring territorial development instruments: Zonas Francas Figure 2. Formal private employment in Zonas Francas (%) 0.00 - 1.15 1.16 - 3.94 3.95 - 7.23 7.24 - 20.99 21.00 - 42.36 0 30 60 120 kilometers Source: Presentation from Adozona, April 2019. “Impacto de las Zonas Francas a la Economía Dominicana: Analytica – Inteligencia Económica y Estrategia,” using data from ENCFT 2018 and CNZFE 2017 Report. Note: Provinces without a zona (and Pedernales, which was excluded due to lack of data representation even though it does have one ZF) are in grey. However, there is evidence that ZFs’ spillovers in the surrounding territory is extremely localized in the Do- minican Republic. Although ZFs contribute to economic growth and job creation in the areas where they locate, territorial spillovers in neighboring areas appear to decline steeply with distance and also appear to be influenced by other territorial endowments.10 Evidence from a study of 346 ZFs in 22 emerging econ- omies, including the 10 largest ZFs in the Dominican Republic, suggests that the further away from Santo Domingo and Santiago a ZF is located, the lower the territorial spillovers from that ZF. In fact, when con- sidering regional characteristics, there is no evidence that ZFs have an influence on the economic growth of areas located more than 50 km away from the zone (World Bank, 2017; Frick, S.A. and Rodríguez-Pose, A., 2019). One would expect a wider range of impacts to extend beyond 50 km due to supply chain links, spending multipliers, etc. 2.3 How are the different transmission channels working in the Dominican Republic? As mentioned, spillovers are transmitted to local economies through different channels, and are dependent on three main factors: (i) the absorptive capacity of the territory and its endowments; (ii) the interaction between ZF-based firms and non-ZF-based firms to upgrade local production standards and labor skills; and 10 The analysis uses night light data as a proxy for ZF performance as well as the economic performance of the surrounding area in order to overcome the lack of reliable economic indicators when measuring ZF performance. 332 (iii) the characteristics of firms located in ZFs to learn how well would they connect with local firms. How are these channels working in the DR? 2.3.1 Absorptive capacity and local endowments are stronger in Santo Domingo and Santiago The impact of ZFs is constrained by local conditions, giving way to greater territorial inequalities if active plans to upgrade lagging territories are not in place. The impact decay with distance may be related to the size and characteristics of the zones. However, it is more likely to be related to the absorptive capacity of many of the areas in which the zones are located. The combination of successful low-tech zones based in low-cost regions with poor skills, infrastructure, and institutions outside the zones is likely to limit the capacity of ZFs to maximize their impacts in the surrounding areas (Frick, S. A., & Rodríguez-Pose, A. 2019). Overall, firms locating in ZFs in emerging countries still (i) seek low-cost locations in less developed areas of the countries, (ii) are in close proximity to the main city, and (iii) have easy access to North American and European markets (World Bank, 2017). In the DR, we see that most ZFs are locating in or close to provinces with higher absorptive ca- pacity (see Figures 3 and 4), as proxied by their social filter index––which considers the educational achieve- ment, the productive employment of human resources, and the demographic structure and dynamism of provinces.11 ZFs locating in these provinces, hence, is expected, and, sometimes, desirable when trying to build linkages with the territory. Figure 3. Absorptive capacity in the Dominican Republic, by province High absorptive capacity Low absorptive capacity Note: The variables used are % of the population with tertiary education (Census, 2010); % of the labor force employed in agriculture (ENFT, 2015); % of working age population (ONE Estimation, 2015) 11 Social Filter Index focuses on three main aspects of social structure: educational achievement (Lundvall 1992; Malecki 1997); the productive employment of human resour- ces (Gordon 2001); and demographic structure and dynamism (Rodríguez-Pose 1999). Principal Component Analysis is used to transform the correlated variables into a set of uncorrelated variables (principal components) that explain the total variance. Urbanization and Territorial Development Review in the Dominican Republic 333 Spotlight. Tailoring territorial development instruments: Zonas Francas Figure 4. Absorptive capacity and location of Zonas Francas, by province Santo Domingo Santiago Espaillat Puerto Plata La Altagracia Sánchez Ramírez La Romana Samaná Duarte Monseñor Nouel Hermanas Mirabal San Pedro de Macorís La Vega San Cristóbal San José de Ocoa María Trinidad Sánchez Hato Mayor Valverde Peravia Azua Santiago Rodríguez Barahona El Seibo Monte Plata Monte Cristi Dajabón Pedernales Baoruco Independencia San Juan Elías Piña -10.00 -5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 Social filter index ZFs Fuente: Elaboración propia. Nota: Las provincias están ordenadas según su índice de capacidad de absorción, de mayor (Santo Domingo) a menor (Elías Peña). Los rectángulos verdes identifican las provincias aledañas a Santo Domingo y Santiago que albergan zonas francas. Current location of ZFs mostly around Santo Domingo and Santiago belies one of its objectives, which was to promote economic development in the less developed parts of the country (e.g., the border with Haiti). As of 2020, there is only 1 Parque de Zona Franca (out of 75) and 3 ZFEs (out of 158) located in provinces bor- dering Haiti (1 ZF in Pedernales, 2 ZFEs in Monte Cristi, and 1 ZFE in Independencia). 334 Figure 5. Main reasons to locate in this Zona Franca Distance to ports, airports, highways Availability of labor force Firms of the same sector located in the ZF Electric infrastructure and services Location of client firms inside the ZF Water and sanitation infrastructure and services Digital connectivity infrastructure and services Special services available in this ZF Distance to local markets Infrastructure and services surrounding the ZF Physical space Low rents Location of client firms around the ZF Location of firms of the same conglomerate Incentives for ZFs Business Environment Source: World Bank Survey (2020) conducted among firms located in Zonas Francas in the DR. This is likely a reflection of firms’ preference for locating in places with better territorial endowments. Ac- cording to the survey conducted, firms prefer to have better accessibility to northern ports and the American market (near Santiago), as well as the human capital offered by the main economic agglomeration of the country (Santo Domingo). Connectivity, human capital, and the previous location of firms of the same sector are the main reasons for firms to locate in ZFs in the DR.12 Among territorial endowments, access to markets/connectivity is the most important factor attracting firms into ZFs in the DR. Fiscal incentives are not even in the top five. The DR has put in place different tax incen- tives to attract firms into ZFS, such as 100 percent tax exemptions linked to importing raw materials, rent, patents, importing cargo vehicles, and importing vehicles to transport workers to firms. 13 However, as mentioned, these are not necessarily the main attractors. The 2020 World Bank survey indicated that the most important factor for firms to locate in ZFs in the DR is good connectivity, both, internationally and between key hubs in the country (see Figure 5). Infrastructure and services for electricity, water and sanitation, and digital connectivity are among the top ten. These territorial endowments are concentrated in and around Santiago and Santo Domingo. Human capital availability is the second most important factor for firms to consider when locating in a ZF (see Figure 5). Thirty-seven percent of the firms interviewed mentioned that they do find the quality of human capital they need. However, it is only for low-skilled labor (24 percent) or only for high-skilled labor (13 percent). Fifteen percent of the firms interviewed mentioned that it is indeed difficult to find the adequate 12 The World Bank team conducted a survey of 68 firms located in ZFs in the DR from Aug. 2020 to Nov. 2020. 13 Consejo Nacional de Zonas Francas de Exportación. July 2020. Retrieved from: http://www.cnzfe.gob.do/index.php/es/ Urbanization and Territorial Development Review in the Dominican Republic 335 Spotlight. Tailoring territorial development instruments: Zonas Francas labor market for the jobs they offer (see Figure 6). Projects to strengthen the local context should therefore be included in the planning of ZFs. When deciding on the strategic focus of ZFs and identifying what business sectors will be targeted, it is important to work with the private sector to identify the skills that will be needed in companies inside and outside the zones. In some cases, private investors in ZFs can be involved in either the financing of such a project or in training. In turn, mechanisms will be able to be identified that ensure a qualified labor force. Additionally, key linkages with local research centers, universities, and vocational train- ing bodies, as well as with other local partners, will also be able to be identified. For instance, Santo Domingo hosts better universities and skilled labor, meaning that higher-technological sectors are attracted by the en- dowments and positive externalities of the capital city, while other parts of the country could attract sectors better linked to the local fabric. Labor market/local economy needs to absorb innovation. Figure 6. Do you believe the firm manages to find the labor required to carry out its activities? Yes, only for high-skilled labor 15 13 Yes, only for low-skilled labor Yes, in both cases, for high-skilled and low-skilled labor No, it is diffult to find the required labor 24 49 Source: World Bank Survey (2020) conducted among firms located in Zonas Francas in the DR. Finding skilled human capital is a bigger challenge in lagging regions. Current training programs can help alleviate this constraint, but they could be better utilized. There are indeed programs linking professional education with the needs of ZFs. Adozona, for instance, identifies needs and then the Instituto Nacional de Formación Técnico Profesional (INFOTEP in Spanish),14 tailors education programs to suit those needs. Since 1992, 35 percent of the funds collected by INFOTEP is dedicated to employees in ZFs. Adozona also coor- dinates with the Ministry of Superior Education for these types of programs. However, only half of the firms interviewed in the 2020 World Bank survey mentioned that they coordinate with INFOTEP for training, thereby leaving space for further engagement (see Figure 7). 14 INFOTEP is funded by 1 percent of all salaries in DR. 336 Figure 7. Zonas Francas in the Dominican Republic interact with these institutions Percentage 70% of firms that interact 60% with these institutions 50% 40% 30% 20% 10% 0% CNZFE ADOZONA INFOTEP Universities Vocational Local or Research / technical national centers training government Source: World Bank Survey (2020) conducted among firms located in Zonas Francas in the DR. The stronger absorptive capacity and local endowments in the provinces of Santo Domingo and Santiago reinforces the desire of firms to locate in these two provinces. Since greater spillovers occur in these already stronger territories, greater territorial inequalities develop, which leaves other regions with few benefits. 2.3.2 Interaction between ZF-based firms and non-ZF-based firms is weak Linkages between ZFs and the rest of the economy appear to be weak in the DR due to the quality of products (World Bank, 2017). Backward linkages are weak, as 81 percent of ZF’s inputs are provided by firms outside the DR, which suggests a disconnect between ZFs and local firms.15 Furthermore, although recent reforms allow companies operating in ZFs to sell products in the domestic market, very few do and most linkages happen within ZFs. For the most part, firms engage in exports, and only sell in the domestic market on very rare occasions––usually to satisfy small orders or to sell surplus export orders that do not meet inter- national standards. Moreover, firms in ZFs mostly buy professional services or office equipment from the local market instead of production inputs due to the poor quality of products and services. The resulting business environment when accessing the local market is cumbersome, which is compounded by the lack of matching mechanisms to find firms in the local market to fulfill their needs.16 15 Dominican Republic Central Bank – Census 2014 (World Bank. 2017. Zonas Francas en República Dominicana: Consideraciones de política para un sector más competitivo e incluyente. World Bank: Dominican Republic, using information from Laws 8-90, 56-07 & 139-11.). 16 World Bank survey, 2020. Urbanization and Territorial Development Review in the Dominican Republic 337 Spotlight. Tailoring territorial development instruments: Zonas Francas Figure 8. Zonas Francas help overcome these challenges 35% Percentaje of firms 30% 25% 20% 15% 10% 5% 0% Business Human ZFs Electricity Access to Backward/ Infrastructure Connectivity environment capital incentives international forward (virtual) markets linkages Source: World Bank Survey (2020) conducted among firms located in Zonas Francas in the DR. Figure 9. Main bottlenecks for the private sector in the Dominican Republic Business environment 39% Human capital 19% Electricity 13% Local linkages 9% None 6% 4% Transport 3% Access to finance 3% Backward/forward linkages 3% Connectivity Source: World Bank Survey (2020) conducted among firms located in Zonas Francas in the DR. 338 After quality of products, current tax regulation (high taxes) and business environment (bureaucra- cy/customs) are the main aspects firms in ZFs would like to improve in order to buy products from non-ZF based firms.17 The DR has put in place a quick process for firms locating in Zonas Francas. The process to establish a firm within Zonas Francas lasts approximately 30 days from the date the required documents are received. This process can take up to one year in the United States (Administración de Comercio Interna- cional. n.d.).The operating permit is granted by CNZFE.18 Through the Dominican Association of Free Zones (Adozona), the private sector actively participates in policy discussion and encourages a number of initia- tives. To that end, it has aided the creation of a fund for the promotion of exports and investment. But even if the business environment is alleviated by Zona Francas (Figure 8), it is still the main barrier for firms when locating in the DR (Figure 9). Many firms mention that the bureaucratic processes with customs was the main challenge to operating in the DR. There is lack of information on how to connect to firms in ZFs, and vice versa. Despite current efforts, lack of information on what is needed to connect to firms in ZFs is one of the key bottlenecks in the DR. Local firms don’t know what steps to take to connect to firms in ZFs. For instance, the level of production quality by firms located outside ZFs needs to comply with exporting standards, which is not currently the case. There are no guidelines for export production. As of now, local firms are focused on supplying only the local market, which has lower requirements than other economies. Responding to this challenge, the government and public and private organizations are implement- ing new initiatives to promote production linkages between ZFs and the local economy. More needs to be done, though. The government began to facilitate roundtables between local companies and free zone companies. Also, public and private associates are coordinating among themselves with the objective of sup- porting productive chains. Their main objectives are to promote business meetings, develop an information center where free zone companies can easily identify local suppliers, and execute joint initiatives to increase the chains (World Bank, 2017). An example is explained in Annex 2. Even in places with higher absorptive capacity and local endowments (such as the provinces of Santo Domingo and Santiago), ZF-based firms have poor linkages with non-ZF-based firms, which limits long-term structural and developmental impact in the provinces. 2.3.3 Are ZF-based firms interested in connecting with local firms? The Dominican Republic lacks an official, well-developed national strategy to attract FDI into ZFs that can target firms motivated to integrate with the local economies. There are some resources allocated to attract global potential investors: CNZFE, Adozona, the Ministry of Foreign Affairs, and the Centro de Exportación e Inversión de la República Dominicana (CEI-RD, or Investment and Export Center of the Dominican Republic) usually work together on marketing efforts. However, there is no unified strategy or measurement of results. As of now, the most effective way to attract investments is by targeting “flagship firms,” i.e., firms that would bring with them either suppliers or competitors. For instance, 8 out of the 30 most important firms in the international medical sector are in the DR’s ZFs. Investment attraction usually occurs at the national level, 17 World Bank survey, 2020. 18 Consejo Nacional de Zonas Francas de Exportación. July 2020. Retrieved from: http://www.cnzfe.gob.do/index.php/es/ Urbanization and Territorial Development Review in the Dominican Republic 339 Spotlight. Tailoring territorial development instruments: Zonas Francas through CNZFE and Adozona. Each Parque has also some capacities to do so, but these are limited. However, there are no coordinated efforts to link the absorptive capacity of local territories with the firms and sectors attracted to ZFs. Ideally, ZF-based firms would build on existing comparative advantages and increase diversity and complexity in sectors that are related to those already in place. ZFs should not aim for big technology jumps, as these often turn out to be high-tech fantasies19. Nor should they get stuck on low-tech manufacturing based on low wages, which creates a low development trap for these regions. ZFs first need to understand lo- cal contextual factors. The sector to be pursued should be related to the type of firms and sectors already in place, with a goal of increasing the technological capacity of existing firms and sectors while avoiding exces- sive technological mismatches––which often end up with high-tech firms in the ZFs completely disconnected from the local production fabric. Such a gradual approach will lead to greater diversity based on related variety and technological progress, and will contribute to improving the competitiveness of local firms (e.g., people, technology, quality, information, etc.) if the mechanisms to connect local firms with the firms in ZFs are set up. ZFs that have failed in emerging countries have often been too ambitious in their technological goals in areas that are frequently far away from the technological frontier. Therefore, more incremental changes aimed at diversifying from existing sectors and increasing complexity provide far more viable paths for the development of a ZF and the establishment of links with the local and national economies. This may mean attracting different types of sectors to different territories based on local character- istics. Public intervention should neither apply “one-size-fits-all” approaches nor adopt “picking-the-winner” strategies. It should aim at connecting complementary sectors and inducing knowledge transfer between them to enable diversification and upgrading of local production value chains (Boschma, R., 2009). Interna- tional agreements have shaped the economic activities of the DR’s Zonas Francas, pushing them to transition from textiles to higher-tech activities. There is a diversified basket of products in the DR’s ZFs (see Figure 3). However, it is still in the lower-technological complexity spectrum. Out of the 709 firms in ZFs, 23 percent focus on Services (such as call centers and logistics), 15 percent on textiles, 13 percent on tobacco and its deriva- tives, and the rest on different products.20 Beyond the absorptive capacity and the local endowments attracting firms to a territory, it is key to understand and influence the type of firms the DR is attracting in order to incentivize long-term economic and socioeconomic spillovers. 3. Conclusion Zonas Francas have been implemented across the world as an instrument to promote local economic devel- opment, supporting the transmission of spillovers to create jobs, promote exports, and upgrade local skills and technologies. However, the results have been mixed. How successful ZFs have been frequently depends on the absorptive capacity of the territories where they are located, in addition to their local endowments (such as local institutions and policies, public infrastructure, and skills), the level of interaction between ZF- based firms and non-ZF-based firms, and the characteristics of the firms locating in the host economies. 19 Castells and Hall, 1994. 20 Updated data from CNZFE as of July 16, 2020: Departamento Estadístico de Zonas Francas. 340 Zonas Francas in the DR could improve their economic impact if they can promote better spillovers in the surrounding territory by strengthening the mechanisms through which these spillovers are transmitted. In the DR, most ZFs are located close to the two main urban agglomerations in the country (Santo Domin- go and Santiago), thereby favoring access to markets/connectivity (local absorptive capacity and endow- ments) over fiscal incentives. Fiscal costs have not been minimal (though they still need to be calculated), while benefits are usually localized and not extended to the greater parts of the surrounding territory. Only a few Zonas Francas have ended up in lagging and/or border regions of the country. This is potentially due to the lack of local endowments needed by firms in ZFs. Fiscal incentives alone are not enough to overcome location deficits. Moreover, even in the areas of the DR where ZFs concentrate, interaction between firms in ZFs and local firms is weak. The relatively low quality of local products together with institutional barriers limits network creation and knowledge spillover generation even in zones close to Santo Domingo and Santiago. Furthermore, the DR does not have a strategy targeting specific types of firms that could better connect to local characteristics, thereby losing potential spillovers. If the DR wants to use ZFs as an instrument for territorial development, as has been done in many other countries in the world, a clear strategy that considers complementary policies needs to be in place. This strategy needs to integrate what firms need with an understanding of the territory, its assets, human capital, and local firms, and how can these be linked to ZFs in order to benefit and upgrade the local economic fabric. When deciding to use ZFs as a development instrument, complementary policies need to accompany the tool. The complementary policies must target the main bottlenecks related to absorptive capacity and local endowments, interaction between ZF-based firms and local firms, and the appropri- ate targeting of FDI. Lastly, Zonas Francas can be considered as one of the many policy tools available to promote territorial development (see some examples here). To choose the right tool, a tool that brings the most spillovers to the territory, a clear understanding of the main local bottlenecks is needed first (see an example of a spatial diagnostic here). Urbanization and Territorial Development Review in the Dominican Republic 341 Spotlight. Tailoring territorial development instruments: Zonas Francas References Administración de Comercio Internacional. n.d. The Crescenzi, R., Pietrobelli, P., and Rabellotti, R. 2016. US Foreign-Trade Zones Program: Information for “Regional Strategic Assets and the Location Strat- CBP. Retrieved from: https://enforcement.trade.gov/ egies of Emerging Countries’ Multinationals in ftzpage/info/FTZ_Info_for_CBP.pdf Europe.” European Planning Studies 24(4): 645-667. 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Tailoring territorial development instruments: Zonas Francas Annex 1 Survey of firms located in Zonas Francas: descriptive statistics Figure A1.1. Number of firms interviewed, and their sectors Number Sectors 0% 100% 0% 100% 85% 15% 60% 34% 6% Zonas Francas Special Economic Zones (ZFE)/ Manufacture Services Agriculture (ZFs) Services Zonas Francas (ZFS) Note: Manufacturing and construction include: Food production industries; Preparation of beverages and tobacco products; Preparation of textiles, clothing, leather goods, and shoes; Manufacture of rubber products and plastics; Other manufacturing industries; and Construction. Services include: Business; Telecommunications; Health; and Other Services. Figure A1.2. Size and origin of interviewed firms Firms interviewed are of different sizes (number Most firms interviewed are foreign of employees) 0% 100% 0% 100% 15% 31% 21% 34% 3% 28% 53% 12% 4% Micro Small Government National private International sector (100%) private sector (100%) Medium Big Mixed private N/A sector Source: Authors using data from World Bank Survey (2020). 344 Annex 2 Business categorization tool for MSMEs to enable production linkages with the Medical Devices subsector. In recent years, the Medical Devices and Pharmaceuticals Subsector (SDMF) in the Dominican Republic has been characterized by growth and the incorporation of increasingly sophisticated processes that add value to production. This subsector in ZFs has become one of the engines of the country’s economic development, po- sitioning itself as the main manufacturing export item (25% of exports), one of the largest job generators (4th in line after Textiles, Tobacco and its derivatives, and Services), and the subsector with the highest accumulated in- vestment to date (it received 27.3% of 2018 investments in ZFs, and was followed by Tobacco and its derivatives and Textiles, in that order). The development and consolidation of effective local and global supply chains is es- sential for this subsector in order to improve operational efficiencies and promote higher levels of growth in DR. In 2015, the Free Zones Medical and Pharmaceutical Devices Cluster (Clúster de Dispositivos Médicos y Farmacéuticos de Zonas Francas in Spanish) was established. It operates in the Dominican Free Zones Asso- ciation (Adozona) with the support of CNZFE. Adozona and CNZFE have consistently worked in conjunction with the sector’s firms to identify and promote initiatives that improve the competitiveness of this important productive activity. Currently, firms in ZFs make local purchases that exceed 60 billion Dominican Pesos annually. There are significant opportunities to increase this amount if collaborative efforts continue to be joined with the various private entities and government institutions that, until now, have served as promoters of activities in support of productive chains. In order to promote and make these chains more efficient, the Cluster has designed the development of a digital tool to enable linkages between firms in ZFs and the local economy. In 2018, Adozona presented the Herramienta de Categorización de Empresas para Encadenamiento Productivo con el Subsector de Dis- positivos Médicos (or Business Categorization Tools for Productive Chains with the Medical Devices Subsector) project, which was evaluated and approved by the Evaluation Committee. This project was the result of an initiative for the execution of the Digital Productive Chain Program (PEPD) launched by the Vice Ministry of Promotion for MSMEs of the Ministry of Industry, Commerce, and MSMEs (MICM) and coordinated by the As- sociation of Industries of the Dominican Republic (AIRD).21 It has the objective of evaluating and categorizing each potential supplier based on the requirements established by the SDMF (which is highly regulated). With this assessment, each potential supplier identifies the category in which it is located based on the requirements of the companies in that SDMF. The firms identify their strengths and weaknesses, which allows them to increase the quality of their products or ser- vices, thereby empowering themselves to become a supplier in the industry, both locally and internationally. This tool enables potential suppliers to access information such as: (i) sector requirements for each product category, (ii) an online self-assessment tool, (iii) a clear diagnosis to potential suppliers, (iv) a list of current suppliers by category, and (v) information on the improvement opportunities for companies that wish to be suppliers. Firms that need improvements would receive technical assistance from the Cluster. Source: Project document shared by Adozona. 21 Represents local industry. Urbanization and Territorial Development Review in the Dominican Republic 345 Spotlight. Tailoring territorial development instruments: Zonas Francas Annex 3 Qualitative assessment of ZFs in the DR – Electricity subpower and proximity to Santo Domingo or Santiago seem relevant Table A3.1. Qualitative evaluation of Zonas Francas in the Dominican Republic Distance Dynamism based Number of green Zone to Santo Zona franca Basic zone characteristics on nightlights grades to the right Infrastructure Domingo or Santiago One-stop shop onsite Closest city 300k pop Electricity subpower Absolute growth national growth Years operating Santo Domingo (Largest City) Compared to 2007-2012 High-tech Operator Size (Ha) Location station Name 4: Few years operating, Santo large, electricity Bella Vista Growing Faster 3 227 Private No 1 0 44 44 Domingo subpower station, 44 km away from SD De Santiago 1: 4 km away from Stable Equal 33 125 PPP No 0 0 162 4 Santiago (Norte) Santiago 3: Electricity subpower De Las Santo Growing Equal station, One-stop shop 18 117 Private No 1 1 23 23 Américas Domingo 23 km away from SD, La De La Romana Stable Equal 1: One-stop shop 38 114 Private No 0 1 122 122 Romana I (Este) San San Pedro de Pedro De Stable Equal 0 / No information 34 110 Public* No 0 74 74 Macoris Macorís (Este) Peravia De Baní Growing Equal 0 / No information 21 100 Private No 0 72 72 (Sur) La De La Romana Growing Equal 1: One-stop shop 20 100 Private No 0 1 118 118 Romana II (Este) 2: Electricity subpower De San Santo Growing Equal station, 13 km away 18 86 Private No 1 0 13 13 Isidro Domingo from SD 2: Electricity subpower Santiago Pisano Growing Faster station, 10 km away from 14 60 Private No 1 0 181 10 (Norte) Santiago De Villa Santo Stable Slower 1: 8 km away from SD 19 57 Private No 0 8 8 Mella Domingo Source: Author´s elaboration, based on World Bank, 2017.