Economy of Dominica

The economy of Dominica is reliant upon agriculture, particularly bananas, with the financial services industry and passport sales becoming increasingly the island's largest source of income. Banana production employs, directly or indirectly, upwards of one-third of the workforce. This sector is highly vulnerable to weather conditions and to external events affecting commodity prices.<br>In view of the European Union's announced phase-out of preferred access of bananas to its markets, agricultural diversification is a priority. Dominica has made some progress, with the export of small quantities of citrus fruits and vegetables and the introduction of coffee, patchouli, aloe vera, cut flowers, and exotic fruits such as mangoes, guavas, and papayas. Dominica has also had some success in increasing its manufactured exports, with soap as the primary product. Dominica also recently entered the offshore financial services market.<br>Because Dominica is mostly volcanic and has few beaches, development of tourism has been slow compared with that on neighboring islands. Nevertheless, Dominica's high, rugged mountains, rainforests, freshwater lakes, hot springs, waterfalls, and diving spots make it an attractive destination.

Top Sectors in Dominica

Agriculture in Dominica

About 22.6% of the total land area is arable. Agricultural production was on the decline even before the 1979 hurricane disaster. Agriculture accounts for about 20% of GDP and employs about 40% of the labor force. Agricultural exports amounted to $19.1 million in 2001. Most crops are produced on small farms, the 9,000 owners of which are banded together in about 10 cooperatives; there are also several large farms that produce mostly bananas for export. Other major crops are coconuts and citrus fruits which are grown in commercial quantities. Production for 1999 included coconuts, 11,000 tons; grapefruit, 21,000 tons; lemons and limes, 1,000 tons; and oranges, 8,000 tons. Fruits and vegetables are produced mostly for local consumption.

Fishing in Dominica

Before Hurricane David, some 2,000 persons earned a living fishing in coastal waters, producing about 1,000 tons of fish a year and meeting only about one-third of the local demand. The hurricane destroyed almost all of the island's 470 fishing boats; afterward, only about a dozen vessels could be reconstructed for use. In 2000, the catch was 1,150 tons, up from 552 tons in 1991.<br>There is a relatively large fishing industry in Dominica, but it is not modernized and almost exclusively serves the domestic market. A successful experiment in fresh-water prawn farming, supported by Taiwanese aid, has produced substantial amounts of prawns for the domestic and local markets. Japan has provided support for a fish landing and processing plant in Roseau.

Mining in Dominica

Dominica's mining sector played a minor role in its economy. Pumice was the major commodity extracted from the island for export, and Dominica produced clay, limestone, volcanic ash, and sand and gravel, primarily for the construction industry. There is some mining potential in Dominica, especially in the island's northeast where there are believed to be deposits of copper.

Dominica - Key Economic Indicators

Exports and Imports

Dominica's export economy is heavily based on agriculture, particularly bananas, which historically accounted for a significant portion of export revenue. However, the value of banana exports has declined, making up less than 25% of merchandise trade earnings in 1998, down from 44% in 1994. The country has diversified its exports to include small quantities of citrus fruits, vegetables, coffee, patchouli, aloe vera, cut flowers, and exotic fruits. Manufactured goods, especially soap, also contribute to exports. Imports are dominated by foodstuffs, machinery, and transport equipment, resulting in a high dependency on imported goods.

Infrastructure

Dominica's infrastructure is developing, with a focus on improving transportation networks. The island has approximately 1,512 kilometers of roads, with about 50% paved. Recent projects have aimed at upgrading road conditions and building new bridges to enhance connectivity. The main port in Roseau handles most of the cargo, and the Melville Hall Airport (now Douglas-Charles Airport) accommodates international flights, although its facilities are relatively basic. Investments in infrastructure are crucial to support tourism and trade.

Balance of Trade

Dominica faces a trade deficit, with imports significantly outweighing exports. The trade deficit has been a persistent issue, reflecting the island’s reliance on imported goods and services. For instance, in recent years, the trade deficit has been around $200 million annually, illustrating the gap between the value of imports and exports. Efforts to diversify the economy and increase exports have been made, but the trade imbalance remains a challenge.

Fiscal Policy

Dominica’s fiscal policy focuses on maintaining economic stability and promoting growth. Government spending is directed towards infrastructure development, social services, and disaster resilience. Public expenditure accounts for about 35% of GDP. Tax revenue collection has improved, contributing around 28% to GDP. Fiscal policies also emphasize reducing the budget deficit, which has been targeted at around 2.5% of GDP, by increasing revenue generation and controlling public spending.

Monetary Policy

Monetary policy in Dominica is managed by the Eastern Caribbean Central Bank (ECCB), which aims to maintain the stability of the Eastern Caribbean dollar (pegged to the US dollar) and ensure low inflation. The ECCB's policies focus on controlling inflation, which has been maintained at an average of 2-3% annually. Tools such as reserve requirements and open market operations are used to regulate liquidity in the banking system, ensuring economic stability.

Trade Agreements

Dominica is a member of several trade agreements that facilitate its economic activities. It is part of the Caribbean Community (CARICOM), which promotes regional economic integration and trade among member states. Dominica also benefits from the Caribbean Basin Initiative (CBI) with the United States, providing preferential access to the US market for certain goods. Additionally, the Economic Partnership Agreement (EPA) with the European Union helps enhance trade opportunities and attract foreign investment.

Environmental Regulations

Dominica has implemented several environmental regulations to protect its natural resources and promote sustainable development. The government is committed to international environmental agreements, such as the Paris Agreement on climate change. Policies focus on conservation, renewable energy, and disaster resilience. For instance, around 30% of the island's energy comes from renewable sources like hydro and geothermal power. Environmental regulations also aim to protect biodiversity, manage waste, and reduce the impact of tourism on natural habitats.

Tax System in Dominica

Capital Gains Tax: Dominica does not impose a specific capital gains tax on profits from investments. Instead, gains from the sale of assets are typically considered as part of regular income and subject to income tax.
Corporate Tax Rate: The corporate tax rate in Dominica is 25% on business profits. This rate applies to both domestic and foreign companies operating within the country. There are no specific incentives for different sectors, but certain deductions may apply to reduce taxable income.
Sales Tax: Dominica applies a Value Added Tax (VAT) on goods and services. The standard VAT rate is 15%. Certain essential items may be exempted or subject to reduced rates to lessen the tax burden on basic necessities.
Property Tax: Property tax in Dominica is levied on real estate based on the assessed value of the property. Rates can vary depending on the location and type of property. The government periodically reassesses property values to ensure accuracy in taxation.
Payroll Tax: Payroll taxes in Dominica are used to fund social security programs and are levied on wages and salaries. Employers and employees both contribute to these taxes. The total payroll tax rate is approximately 8.75%, with employers contributing about 5.75% and employees contributing around 3%. These funds support pensions, healthcare, and other social security benefits.
Tax Deductions and Credits: Dominica offers various tax deductions and credits to reduce the tax liability of individuals and businesses. These incentives are designed to promote investment, job creation, and economic growth. Common deductions include expenses related to business operations, charitable donations, and certain types of investments. Tax credits may be available for activities such as renewable energy projects or contributions to education and healthcare initiatives.
Tax Compliance: Tax compliance in Dominica is generally efficient, with ongoing efforts to improve tax administration and enforcement. The government has implemented digital systems for filing and paying taxes, which have streamlined processes and reduced administrative burdens. However, challenges remain, particularly in addressing informal economic activities and ensuring full compliance across all sectors.
Tax Burden: The overall tax burden in Dominica, representing the total amount of taxes paid by individuals and businesses as a percentage of GDP, is relatively moderate. Tax revenue contributes approximately 25-30% to GDP annually. The government seeks to balance tax revenue generation with fostering a competitive business environment and encouraging sustainable economic growth through prudent fiscal policies and tax incentives.