For the 2019 fiscal year, the US Department of Commerce was allocated nearly $200 million to provide disaster assistance in the Eastern United States. The funds were to be used primarily to help Puerto Rico and the US Virgin Islands revive their economies after the devastation caused by Hurricanes’ Irma and Maria in the Fall of 2017. The islands were reeling from the hurricanes, which caused $90 billion in damage to the local economy and took the lives of nearly 3000 people. There is also an ongoing debt crisis which has really hamstrung Puerto Rico’s public finances this decade. Local mismanagement and political turmoil have only made a bad situation worse.
Unfortunately, two years after the hurricanes, the US Department of Commerce has precious little to show for its minimal effort. The money has been largely unspent, the leadership and vision, nonexistent, and the opportunity wasted. Other than making grants to a few training programs, rebuilding a few university buildings and offering subsidized manufacturing space to local companies, the US Department of Commerce has made almost no effort to invest in the types of ideas, programs or leaders that could revitalize and transform the economies of Puerto Rico of the US Virgin Islands.
The islands, while small, can be globally relevant in various economic verticals, such as the ocean economy, tourism and the development of tech-driven emergency services. But Commerce, and its Economic Development Administration, have only made marginal investment in programs that will bring cutting-edge innovation or leading entrepreneurs and startups to Puerto Rico. And it has invested very little in building the local entrepreneurial capacity of the islands.
Long before Hurricanes’ Irma or Maria – or its financial crisis, Puerto Rico and the US Virgin Islands (US VI) were challenging places to create innovation and startup ecosystems. By their very nature, the Caribbean islands are difficult to get to, have smaller populations and limited opportunities for physical growth, and thus have not become home to many technology startups. And to date, very few startups launched in Puerto Rico have grown significantly or raised much private capital. According to data from the National Venture Capital Association, Puerto Rico had less than five private venture capital deals in the last few years. The US Virgin Islands had none.
But for these specific sectors, such as tourism, the “blue” economy (oceans), and next-generation emergency services, Puerto Rico and the US Virgin Islands can become research centers that house R&D and innovation teams for startups from across the United States. There is also an impact sourcing opportunity for local entrepreneurs to launch technology outsourcing operations on the islands for American companies to complete back-office tasks or for companies targeting the markets of the Caribbean, Central and South America.
Instead, Commerce has spent only a fraction of its allocated funds in Puerto Rico, and hardly anything in the US Virgin Islands. Because the agency lacks any expertise in Puerto Rico’s economy, it has relied on local, unproven non-profits and state agencies to determine which projects get funding. Those organizations, while dedicated to their work, cannot execute at the scale required for transformative change. The University of Puerto Rico, for example, is a fine academic institution, but has only minimal innovation or research commercialization experience or entrepreneurship support services. To rely on the university to lead local innovation planning efforts is a short-sighted strategy. Other programs that have received funding, such as the Puerto Rico Science & Technology Trust, and Operation Hope, have only been funded to lead a small number of entrepreneurial workshops or connect a few local entrepreneurs through events and web-based platforms.
Instead, Commerce could have partnered with many different American research institutions with expertise related to the ocean economy, tourism or other sectors. It could have tapped globally-renowned marine biology programs at Stanford, Northeastern, MIT and other schools to conduct research off the coasts of Puerto Rico. In fact, the US Virgin Islands has requested university partnerships as part of its rebuilding plan. Commerce could have reached out to the global supply chain industry about the opportunity for Puerto Rico to build its maritime trade and shipping presence. Or it could have reached out to VCs and successful entrepreneurs in the travel and tourism sector and engaged them to make San Juan, and its modern tourism sector into a proof of concept center. Why not try that new scuba diving app in partnership with the Hilton’s, Marriott’s and Westin’s of San Juan?
It could have funded Tech Stars, MassChallenge or any number of accelerator programs to run a modern startup accelerator with connections to the mainland. These accelerator programs have successfully identified critical elements of the entrepreneurial journey that are relevant worldwide from Boston to sub-Saharan Africa. They have a global network of mentors and advisers that is far larger than anything Commerce or the Puerto Rican government could have built.
It could have tapped into the +1 million members of the Puerto Rican diaspora that live in the United States – many of whom still have family and/or business ties to the islands. Several prominent Puerto Rican Americans, including investor Orlando Bravo, have launched initiatives to support entrepreneurship on the islands.
It could have reached out to its sister agency, the US Department of State, to learn how the US Agency for International Development works across the region on similar issues. USAID regularly collaborates with the World Bank and other multi-lateral agencies to support economic development efforts in the Caribbean region. An obvious part of Puerto Rico’s rehabilitation will be greater regional economic integration with Caribbean nations- many of whom also rely on tourism and the ocean for their economic livelihood.
Puerto Rico and the US Virgin Islands are a part of the United States. Businesses benefit from the US legal system and easy access to mainland markets. A regional startup ecosystem can flourish there in the same way that cities like Miami and New Orleans have begun to build their own startup ecosystems. Indeed, there are many economic experiments worth trying to get Puerto Rico and the US Virgin Islands back on track – and the US Department of Commerce should be using its significant resources to do just that. Let’s hope 2020 brings some creativity on this front.