In Part 1 of Panama’s money stories, I highlighted some of the sordid details that Panama has been known for and the ways that Panama has been presented and vilified in the press internationally. In this Part 2, I want to have a good look at what Panama has to offer, the strengths and weaknesses of Panama’s location, workforce, and infrastructure. In Part 3, I am simply going to dream of “what could be” – well, because this is PanUtopia.
Location, location, location
Like any good real estate investment, Panama has a great location.
It is the Bridge of the Americas and the Crossroads of the World: with the InterAmerican (or Pan-American) highway travelling East-West along the entire length of the Isthmus (well, except for the Darien Gap which Panama refuses to open – but that’s fodder for another post). Running North-South through the Istmus is the Panama Canal, recently expanded to allow post-Panamax ships to pass through.
The Pan-American highway has many stories to tell, haivng 14,000 miles of road (or roads) that traverse from Tierra del Fuego all the way to the Arctic Ocean. I remember at 8 years old a French couple that had started riding their motorbikes in Argentina and were heading up through Mexico, intending to get all the way to Alaska!
They were something like this – but much more worn and dirty! And fitted out to carry their bags on the back, and side-bags. At 8 years old, I could only imagine the adventures they were having! Roll forward to 2018 and we still get those bikers through Panama – perhaps riding better bikes, but with the same adventuresome spirits!
As the land bridge between the two continents, Panama boasts an incredible variety of species, both plant and animal life. From North America, it has jaguars, tapirs and deer, from South America sloths, anteathers and armadillos, and from the oceans the giant sea turtles which lay their eggs in Bocas del Toro and even on the Casco Viejo beach in Panama City!
Panama is blessed in its location: we are protected from the hurricane belt, getting pelted only by tropical storms and heavy rain. While Panama rests on the Pedro Miguel fault line, it does not have a history of seismic activity. You might read about the 1621 earthquake, or the 1991 Bocas del Toro earthquake (which actually happened in Costa Rica, but caused considerable damage in the neighbouring Bocas area). This is one the strongest recorded earthquakes in Costa Rican history, registered at 7.7! But, as noted, it was actually in Costa Rica…
Since the 1500s (you might remember the pirate stories) Panama has played an important role in international trade routes: from Peru through to Spain, with the French and the United States heavily interested in participation in the possibilities of this location. Even today, Taiwan and China dispute investment and participation in the Panamanian economy (the ports), and a US presence is continually felt under the terms of the 1979 treaty in spite of the removal of a military presence.
Hub of the Americas
From this location, Panama has become known as “the hub of the Americas” – one of the most significant transportation and logistics countries in the world.
As a travel hub, Panama has developed Tocumen International Airport to attract flights from Europe (KLM, Lufthansa, AirFrance, Iberia, Turkish Airlines, & Condor), China, and North, Central and South America. The recent investment in the expansion of Tocumen is about 84% completed, with an expected completion in the third quarter of 2018. This investment project was above US$900M, taking it up to 54 gates and extending the runway for larger aircraft. By 2025, the two terminals are expected to handle some 25 million passengers per year.
Panama has also become an important hub for telecommunications, with the Submarine Cables passing through Fort Amador and Colon (such as the Arcos Cable that connects Central America, Florida and the Caribbean and the South American Crossing cable). In 2010, Panama became one of the first countries in the world to offer free wireless broadband access nationwide through the National Internet Network project, which provides free wifi at libraries, some busstops and other government sites. In Panama City, connectivity is pretty easy to get, but there are generally fluctuations in the areas where there are not fibre-optic connections. For businesses that rely on fibre-optic level connectivity, there are a limited number of neighbourhoods that can guarantee this service.
As a logistics hub, Panama intends to make the most of its geographical location, creating the largest logistics conglomerate in Latin America. Shipping, logistics and trade contribute close to 35% to the national economy, making the concept of “hub” vital to Panama’s growth. It uses the Canal, the ports on the Caribbean and Pacific Oceans (MIT, CCT, Cristobal, Balboa & PSA), the train line between the ports, and Tocumen International Airport (Copa, DHL, FEDEX & UPS), to provide multi-modal solutions. This is all interconnected with the Colon Free zone and Panama Pacific zone. The logistics industry is expected to create 10,000 or more jobs per year for the next 10 years or so – over 100,000 jobs in a growing industry!
Obviously, in order to fully develop this hub, Panama needs to continue investing in additional infrastructure for distribution and storage essential to the international business community. Georgia Tech maintains a Logistics Innovation and Research Center in Panama, aimed at aiding the country to become the trade hub of the Americas.
Open for Business
Panamanians are complaining that the economy has really slowed, and yet it continues to be the 2nd fastest growing economy in Latin America. While the growth rate dropped from 11% in 2013 and 5.3% in 2016, it is still over 4.6% in the first quarter of 2018! Infrastructure investments are underway in a number of areas, including the building of the second metro line in Panama City and the studies underway for another bridge across the Canal, which will include a metro rail bridge for the third line.
Depending on who you believe, and how the scoring is done, Panama ranks #3 in being “open for business”. The World Bank rates Panama as 79th, taking into account a number of factors, and 39th for the ease of starting a new business. Apparently registering for and paying taxes in Panama is one of the most difficult aspects of doing business in Panama! But, hopefully that ranking will change, with the adoption of the online tax payment system implemented recently. Panama is also ranked 54th in Economic Freedoms, which looks at rule of law, government size, regulatory efficiency and open market criteria.
That said, Panama continues to consolidate its position as a business hub, as the headquarters for more than 130 multinational companies! The principal business and investment attractions for Panama are:
- corporate headquarters & regional services
- multimodal logistics
- infrastructure development
- maritime services
- light manufacturing (free zones)
- renewable energy investments
This translates into the following prime locations/special laws and incentives:
- Panama Pacific
- Ciudad del Saber
- Colon Free Zone
- Special Free Trade Zones (dotted around the country)
- Multinational Headquarters
In terms of quality of life, Panama is ranked #1 in Central America and #4 in Latin America (UNDP).
Workforce & other challenges
As I pointed out in my previous blog post about Panama’s money stories, corruption is probably the biggest obstacle that Panama faces – and it certainly is as far as perception goes. While Panama’s economy is stable and Panama has a well-developed services sector (most employment in the areas of banking, commerce, tourism and logistics), Panama continues to under-prepare its workforce for modern challenges. The poorly educated workforce ranks as the third obstacle in business for firms!
Education standards are considered to be poor by the World Economic Forum. The quality of public school education in Panama is still under fire, with a World Bank study indicating that upon completion of secondary school, the quality of the education is equivalent to 8 years of education, rather than 12. Panama has taken important steps in improving the level of English in the public school education system, but still needs to modify the focus at Univeristy level. Nonetheless, tertiary education is not in line with the needs of the marketplace – as social sciences, administration and law continue to be the predominant choices for students, rather than technology and sciences!
Back in 2016, news sources were reporting the problems employers faced at job fairs: while 72,000 jobs were on offer, only 25,000 people joined the labour market through these fairs, because they were under-qualified or lacked experience. Call-centers in Panama provide about 14,000 jobs to the Panamanian workforce – the principal ones in Panama are Dell and HP. But there continues to be a need for better qualified English-speakers for Call-Centers. Even in 2018, Panama faces these same challenges in logistics, tourism and even the construction industry. Among the listed skills required are “soft skills”, such as discipline, punctuality and others.
At the same time, it appears that Panamanian firms do not do well in offering formal training to their employees, which does not assist employees in getting the industry specific training that they need. Training for tourism or customer services is virtually non-existent and foreigners are constantly complaining of the bad service in restaurants.
Retraining, especially in technical schools, is very low. There is a “stigma” attached to working in “manual labour”, and yet a dearth of properly qualified electricians, plumbers and specialist construction workers. Improvement is especially necessary in the vocational and technical areas. Everyone is a “handyman” and “knows how to do it”, but the reality is that you wouldn’t be able to pass inspections! And as Panamanians have sought to move out of “menial labour”, Nicaraguan, Colombian & other immigrants have taken the posts of maids and housekeepers.
There are laws protecting many professions, such as law, medicine, dentistry and engineering. This means that foreigners cannot practice in these professions in Panama. Yet, one of the fallacies is that chemical engineering is reserved solely for Panamanians – but Chemical Engineering isn’t actually taught in Panamanian Universities! Guess how many chemical engineers we have…
Inflexible labour laws are another cause for complaint among prospective investors into Panama: firing is heaving regulated, labour mobility is limited and labor typically costs 41% more than the paid salary (including social security, holiday pay, liquidation costs, etc.). Panama’s minimum wage is the highest in Central America, and it is often difficult to find fluent English speaking employees. Panamanians typically have an intermediate to advanced level of English, but are seldom proficient in business writing and customer service level English.
All of that said, Panama continues to be one of the most attractive places in Latin America for investment. And yet, with respect to innovation, Panama still has so much to learn.