By the Blouin News Business staff

FEATURE: Running a hostel in the Dominican Republic

by in Americas.

Jarabacoa Mountain Hostel, in Jarabacoa, Dominican Republic, May 22, 2015. MICHAEL LERNER

Jarabacoa Mountain Hostel, soon to be expanded, in Jarabacoa, Dominican Republic, May 22, 2015. Photo: MICHAEL LERNER

Protesters gathered in front of the Ministry of Labor on Wednesday in Santo Domingo, capital of the Dominican Republic, demanding a 25% increase in the minimum wage. Those earning the lowest wages do not even make enough to buy the most basic daily groceries– to say nothing of electricity, water, phone service, transportation, and rent. But it is not just the poorest that feel the pinch— many small stores and businesses face operating costs that are far higher than in the U.S., without correspondingly higher revenues. To get a personal sense of this, Blouin News Business Editor Michael Lerner, on the ground in the D.R., interviewed Molly-Ann and Rodolfo Pereira, owners of the Jarabacoa Mountain Hostel.

Molly first came from the U.S. to the D.R. 23 years ago, doing missionary volunteer work. Here she met and later married Rodolfo. In 1998, to earn some supplemental income, they began a bed & breakfast in the central mountain town of Jarabacoa. Four years later, they moved to their current location outside of town, where they converted the former house of Molly’s mother into a hostel. In these early years they had no marketing at all, just word of mouth, and guests arrived only sporadically. Most were missionaries and volunteers, including Peace Corps members.

Working in hospitality, the Pereiras are heavily influenced by larger macroeconomic developments, both in the D.R. and globally. The country suffered a grave financial and economic crisis in 2003, which caused the peso to collapse in value, from 17 per dollar to 55 — disastrous for an economy which depends so much on importing goods. Poverty soared from 32% of the population in 2000 to almost 50% in 2004 in the aftermath of the crisis. The domestic tourism sector basically vanished overnight, and international arrivals took an extended hit, given the newfound uncertainty and risks of traveling in the country.

The D.R. then experienced a few years of strong economic growth, averaging 9.5% annually from 2005-2007. But the global economic crisis of 2008 took a major toll on global tourism, amongst other things, and once again the number of travelers dried up in the D.R., whose GDP grew only 0.9% in 2009. In 2008 Molly, began working remotely for a U.S.-based firm, to supplement income from the hostel, and Rodolfo, a skilled carpenter, also did stints as a taxi driver.

In 2010, a year of renewed high growth for the D.R., the Pereiras launched a website for their hostel, which marked a turning point. More travelers started coming, an influx boosted by extremely favorable reviews on TripAdvisor. Meanwhile, the D.R.’s poverty level decreased to 41% by 2011, and the peso stabilized between 43 and 45 to the dollar. More broadly, the country’s GDP grew by 7.1% in 2014, far above Latin America’s average of 1.1%.

Now, the charming Jarabacoa Mountain Hostel is doing well enough that Molly and Rodolfo are embarking on a major expansion. They purchased the neighboring house, which is now being completely renovated to add another story. The current hostel is cozy, with four rooms and a total capacity of seven people, but the new building will add another nine rooms, with capacity for 40 people. “Once we put the work into it, and increase our marketing, we think the investment will pay off,” Molly said. Their goal is to have the hostel become their primary source of income, without taking all their time. “It’s a means to an end. We have no end goal of being hoteliers,” she emphasized. The Pereiras want to focus on their ongoing volunteer work at their congregation, and on raising their two young children. (Molly has also started working fewer hours for her remote job, to be able to spend more time homeschooling her kids.)

As for the construction, Rodolfo (who is directing and actively participating in it) said that they needed to get permission from “the government building,” i.e. Jarabacoa’s city hall, for the architectural plans, the electrical engineering, and the plumbing. But he said that “the process was not too bad because while waiting for approval we were still building.”

A separate issue was the taxes levied on the building by municipal officials, including an environmental tax, a tourism tax, and one for insurance coverage. “These were cash payments, and we don’t actually know where that money went. They can change the official ledgers to record whatever they want. It’s the kind of thing where the head construction worker is connected and gets a percentage,” Molly said. But that’s not the Pereiras’ concern, since they’re confident that as long as they’ve paid what they’re supposed to, there shouldn’t be any problems.

Of all the costs going into the construction, materials are the most expensive. Labor is fairly cheap, although finding reliable workers can sometimes be challenging. But basic items like concrete and iron rebars are very pricey. “Here they always sell everything for much more than in the U.S.,” Molly noted. “The only cheap thing here is rent. But gas was over $6 per gallon here not that long ago, and now it’s still over $4 per gallon”– despite the huge drop in global oil prices since the end of last year. In the D.R., “you are either stinking filthy rich, or work for the government (which is a good way to get rich), or you earn a tiny daily living. Most people have to work a whole day just to buy a gallon of gas,” Molly added.

According to the Pereiras, 90% of the businesses in the D.R. are small, unlicensed, and untaxed, and their owners barely eke out a living. Agriculture used to be a larger part of the culture, but not anymore, so fewer types of crops are being grown. Food is expensive here in general, but “the basic Dominican diet is what saves poor people here,” Molly said. Rice, beans, and plantains all pack a ton of nutrients and are widely available at affordable prices.

The D.R. also has the second-most expensive electricity of the 60 countries surveyed by the World Economic Forum in 2014. Its price of 21 cents/kwh surpassed poorer countries, like Nicaragua (16 cents/kwh), and richer countries, like the U.S. (7 cents/kwh), alike and only Italy ranked worse at 28 cents/kwh.

The Dominican population today still earns 29% less in real terms than in 2000. And the absurdly high costs of living here have made the minimum wage far too low for families to subsist, let alone save up anything. There are two types of minimum wage here —a lower level for small companies, and a higher one for larger companies. Even the larger wage (11,292 pesos, or $252 per month) is shockingly insufficient, as staple monthly groceries for a family of four would use up approximately 96% of it.  Workers are now clamoring for a 25% rise in both types of minimum wage, while the employers’ association has proposed a 8.92% increase, which was met with ridicule on Wednesday. Protests and negotiations are ongoing, and some increase is inevitable in the near future.

And Molly and Rodolfo’s favorite parts of running a hostel in the D.R.? The warmth of the Dominican people, talking with fascinating guests from all over the world, and the challenge of helping beginner-travelers get around. Despite the challenges, they’re happy to be here.