Puerto Rico’s Business Climate and Disaster Recovery

Puerto Rico is a US territory, which makes Puerto Ricans US citizens who can live anywhere in the US, but don’t have full rights in Congress and Presidential elections.

Pre Hurricane Maria, you probably knew Puerto Rico from Despacito, the fastest growing video in the history of YouTube, its beautiful beaches and by its crippling debt that has stunted its growth. Entrepreneurs were working against the economic crisis’ backdrop to rebuild the economy even before Maria, but now are also helping in the rebuilding effort.

Home to 3.4 million residents and surprisingly some of the largest and highest grossing retail shops in the world, Puerto Ricans do not let the island’s debt or hurricane recovery define them.  The average monthly wage in San Juan is ~US$2500. However, while Puerto Rico was just getting back on its feet, it was hit with Hurricane Maria, which will take years to fully recover from. Many entrepreneurs hope that Puerto Rico takes these disasters as an opportunity to rethink issues and start from scratch using policies which will hopefully lead to policy changes to help stimulate the economy. One of these projects that Puerto Rico is exploring is leveraging Tesla’s Powerwall and solar energy technology to redo the electricity grid.

Sebastian Vidal, one of Start-Up Chile’s Executive Directors, saw potential to help Puerto Rico become a bridge for Latin American entrepreneurs to come to the US and for the US to access Latin America, so he created accelerator program Parallel 18, to encourage growth within Puerto Rico and internationally. The accelerator supports entrepreneurs within PR and startups from over 48 countries have applied just to take part in the initiative. As Sebastian wrote in an article titled Why we need to continue to help Puerto Rican entrepreneurs:

“Young entrepreneurs like MIT grads Eric Crespo and Brian Collazo, co-founders of delivery service Lunchera; and Alana Matos co-founder of Ed-Tech company Caila, who just finished her Master’s at Harvard were returning. Innovation was also sprouting from teams living on the island, solving local business challenges with global reach, and showing strong initial results.

Companies like Abartys Health, disrupting the insurance industry by a streamline communications platform; GasolinaMovil, a pay at the pump mobile app that is taking over the Puerto Rican market; BrandsOf, an e-commerce that creates a channel for local brands throughout Latin America to reach the rest of the world; Burea, a loyalty platform that substitutes paper coupons with a mobile app; TextualMind, an artificial intelligence company for pharmaceutical and regulated industries; Sunne, a developer of a smaller and slicker version of a solar water heater; and BienCool a lifestyle brand with funny, sometimes risqué, and culturally relevant greeting cards and lifestyle accessories. All were growing exponentially.”

Alana Matos, P18 alumna continued:

“When you really analyze the ecosystem in Puerto Rico, the market is so small and dense that you end up moving things faster than in the United States.” 

Starting a business in Puerto Rico only takes 5.5 days compared to the Latin America average of 31.6. Another major benefit to opening a business in Puerto Rico are low business taxes. With Act 20, business owners are only required to pay 4% taxes on the profit made from exporting goods out of Puerto Rico, which can include software. With incentives like this, some U.S.-based companies are operating out of Puerto Rico.  One well-known Puerto Rican startup, Textual Mind, works with manufacturers and uses AI to provide medical products to patients.  

Coworking spaces are starting up in Puerto Rico to foster new ideas, however, due to the hurricane, many of them have closed temporarily. One of the more popular spaces, Piloto 151, offers a virtual office in addition to its two brick and mortar locations. The idea is to provide a communal space to network as well as an online community to connect with outside of the office.  

Despite the introduction of accelerators and coworking spaces, Puerto Rico has policies in place that are systemically crippling its growth. The “Jones Act”  forces all deliveries to Puerto Rico to first go to Miami and then be on a US flagged ship, rather than receiving shipments directly from neighboring countries. These higher costs are passed directly to consumers through increased prices.

Puerto Rico also has other tax breaks for US citizens to move their businesses to the island. Many Wall Street hedge fund managers, best typified by Peter Schiff, have moved operations to Wall Street as a tax avoidance scheme. It remains to be seen whether moving these types of businesses will actually help local Puerto Ricans and contribute to the economy, or will exacerbate the difference between the rich and the poor. I tend to think it will be the later and would explore policies that give big rewards for actually contributing to the economy, rather than hoping it trickles down. If you would like to understand these tax incentives, Sebastian Vidal wrote an in depth article breaking them down.

With back to back hurricanes and many without water or power for an extended period of time, Puerto Rico is operating in crisis mode. Manuel A. Laboy Rivera is targeting small to medium-sized businesses and providing loans up to USD$150,000.  Governor Rosselló Nevares is providing incentives for affected companies to help rebuild business. For businesses that have been affected, the Department Economic Development and Commerce has provided Emergency Lines. As Puerto Rico works through these difficult times, changes in policies may be in the future to help restart growth and get the Caribbean island back on its feet and Parallel 18 will continue to help create an entrepreneurial ecosystem on the island.