Panama, business, money, entrepreneur, business index, economy, doing business, starting a business, economic indicators, ideal business environment, import, export, fintech, incubators, assistance

Panama’s money stories – the way forward

Ranking and Index: doing business in Panama

One of the difficulties that I see on the way forward, is that Panama is not the easiest country in which to set up a business (locally) and run it.

Panama scores a low #54 in “economic freedom” according to the Heritage.org, having a score of 67.0 – because of drops in property rights and government integrity (corruption).  On the other hand, the Fraser Institute and the Economic Freedom Network place Panama for 2017 at #30 in Economic Freedom.  Forbes lists Panama as #64 in “Best Countries for Business“.  Unfortunately, economic growth has depended on debt-financed infrastructure projects, while the economy has depended heavily on transportation and logistics services.

One of the biggest problems with all the infrastructure development and spending is the burden this creates on tax payers.  General government gross debt accounted for 39% of GDP in 2017, with a fiscal deficit of 3.1% (up substantially from 2% in 2016). That said, amazingly enough the IMF estimates Panama will have the highest per capita GDP in Latin America – USD 25.712 – in 2018.

That said, Panama continues to have the fastest growing economy in the region: our well-developed services sector accounts for over 75% of GDP.   Before the crash of 2008, Panama has the highest growth rate in Latin America (close to 11%) – with real estate prices and speculation leading the rush.  Since 2013, the GDP has slowed from previous levels of 6-8%, and following on from the #PanamaPapers scandal the banking and corporate services sectors have diminished considerably.  The services which continue to contribute to GDP include logistics, banking, the Colon Free Zone, insurance, container ports, tourism and offshore services to a lesser extent.

Unfortunately, Panama dropped (2016-2017) on the global entrepreneurship index from 32.2 to 26.1, and in the innovation index ranks also #63.  In human development, Panama also ranks similarly at #61.  Likewise, in the knowledge economy index, we come in at #64.

Having looked at these indexes, it is interesting to see how well Panama is moving with respect to FinTech, blockchain and the implementation of these technologies. As Panama seeks to leave behind the shroud of “shady deals” and “Panama Papers”, the Ministry of Economy & Finance has announced an initiative to regulate FinTech, blockchain, sandboxes, crypto-currencies, and crowd-funding enterprises.

Development of the Fintech industry in Panama

Bitcoin, blockchain, fintech, crypto, currency, FinTech, disruption, innovationUnbeknownst to most people, Panama is on the list of countries that are friendliest to Bitcoin and crypto worldwide!

Panafintech is the Panamanian Association of Fintech, who so far have organised five blockchain and fintech events.  Back in 2017 they organised an event for 300 people from banking and finance, to discuss blockchain – its scope and application.  It was at this event back in 2017 that Cryptobuyer announced that it was moving to the City of Knowledge and that it would be developing Blockchain Academy Latam.

Blockchain Academy offers training not only to developers and entrepreneurs, but also for financial institutions (such as banks), organizations, schools and the government.  It also offers a bootcamp in which it is possible to learn about cryptocurrencies, industry, mining, Blockchain, opening a digital wallet and other applications of the technology.

blockchain-3212312_1280Cryptobuyer is unique in Panama, offering the “Blockchain Academy Panama“, in which it offers training and certification in programming with blockchain, and has its offices in Ciudad del Saber.  Additionally, it has installed Bitcoin ATMS in parts of Panama, such as in Banistmo (since June 2017) and has installed Cryptobuyer Pay in various local businesses (so that they can accept payments in Bitcoin and other currencies).

Cryptobuyer also set up Blockchain Embassy Panama, which opened in 2017.  In addition to offering crypto clothing and merchandise, craft beers, hardware wallets and working space, the embassy also gives cryptocurrency workshops and presentations.

The first large-scale conference on fintech & blockchain was held May 5 & 6th, at Ciudad del Saber, and called “PanamChain“, with Andreas Antonopoulos  as the Keynote Speaker (author – Mastering Bitcoin (O’Reilly Media), speaker, educator) .  This event was organised by Cryptobuyer and Panafintech.

Coming up on May 24th, Panama will host its secondDigital Business Day“, offered by CAPAtec – the Panamanian Chamber of IT, Innovation & Telecommunications.  This is a “Microsoft Experience Day” – about AI, transforming customer experiences, using ChatBots, and “intelligent billing”.

Disruption & change of the market

Fintech additionally has a role to play in Panama’s “offshore industry”. At its simplest, financial technology – or fintech – applies technological innovations to financial processes, products and services. It could easily play a large role in the lucrative business of identity verification, eKYC and fraud detection. This could also directly impact in the banking industry, if Panamanian banks could work out how to incorporate this into their account opening process.

blockchain-3019120_1280Experts in blockchain have shown that banks could easily change their account opening process to a simple 5-step process relying on this system.  Some go so far as to claim blockchain technology could transform international financial transactions in much the way the Internet transformed communications. Of course, on some levels fintech competes with the traditional financial methods of delivering financial services.

Blockchain = distributed ledger technology  – provides decentralized networks that simply record transactions.  So, for example, IBM provides “Blockchain-as-a-service” for banks.  It is interesting to see how the blockchain industry could have helped Panama avoid the #PanamaPapers, as expressed by Otonomos BCC:

Our hope is that a decentralised database, which by its very nature is secure, tamperproof by third-parties and immutable even by its very authors, can be looked at by enlightened regulators around the world. This technological architecture could ultimately become a global, cross-jurisdictional database.
At Otonomos, which represents private company shares on blockchain and makes them programmable, we have engineered a decentralised solution that performs Know-Your-Customer checks at every stage of the ownership chain of company shares, and watermarks the shares with the UBO’s identity.
In addition, Otonomos has architectured our solution with the privacy of end-users in mind. We make public only such information regulators in a specific jurisdiction require to be publicly accessible, whilst masking non-publicly disclosed information.
Finally, we future-proofed our solution by letting third-party verification agents — typically organisations such as banks who by legal mandate from their Government can perform KYC checks -“stamp” people’s KYC at the blockchain level, resulting in a layered verification process in which every check fortifies a user’s KYC.

Nonetheless, it seems that tech giants are much further ahead in disrupting banks, as these lag behind in cloud computing, AI and big data.  Fintechs define the direction of innovation in financial services, but they face a challenge in their ability to scale (something that companies like Amazon or Facebook have already dealt with).  So, for example, Amazon Web Services provides cloud computing for Capital One and Nasdaq.  That’s because of the scope of the transactions that occur on a single day, which small start up fintech companies are not ready to handle.

If what we see internationally occurs in Panama, this means that large banks are acquiring fintech companies and digital banks, as strategic acquisitions – they are simply leveraging the competition to re-establish their leadership in the market.  So, for example, in Panama we have a small crypto-currency that was recently established:  Natan Edu – created by a group of young entrepreneurs, as a payment system in education, to allow payments of online courses.  This was created by Osmar Major and Marcos Pineda (22 and 24 years old respectively).  Will this be swallowed up by bigger players in the market?  Additionally, just this week, DigitalX (the first crypto-currency fund established in Australia) indicated that it is looking at Panama to establish the Latin American financial hub.

Response from the banking sector

Panama’s banking sector, however, has been very cautious in response to fintech, indicating that until it is fully regulated, they simply see the possibilities of further scandals for money laundering.  On this note, Panama’s banking Superintendence issued a notice to banks that the activity of exchange, investment, purchasing, and commercialization of “Bitcoin” or any other crypto-currency is unregulated in Panama.

As a result, some traders were threatened with having their bank accounts closed at local banks for receiving funds from their international crypto accounts!  This seems to be completely contrary to the way it is being dealt with, for example, in the US where Goldman Sachs and Morgan Stanley both announced that they were going to get involved in crypto-currencies.

Nonetheless, we find that Australia (leading with DigitalX), the UK and other jurisdictions have all introduced regulations in order to create the market conditions for development of fintech, blockchain and financial services.  For example, back in 2015-2016 the UK introduced their regulatory framework, working closely with the operators, so that fintech firms could set up.  This involved the Innovation hub (similar to what Panama wishes to do in the City of Knowledge), in which the businesses can understand the financial regulations and how these might apply to their business model.

As with the Innovation Hub in the UK, the City of Knowledge will simply provide guidelines, from which the startup would need to apply for the regulatory approval from the respective agency (possibly the Banking Superintendence or the Securities Commission).  Also copied from the UK is the idea of the “sand box” – where fintech startups can test their financial products and their business model in the market, and then work out the details of regulation as the market develops.

So, as Panama looks to regulate “Specialized Financial Entities”, as it is calling fintech companies, setting up crowd-funding enterprises, incubators and sand boxes, I hope that it doesn’t simply protect the interests of the existing players (like banks), but rather innovates to draw into the country investors, know-how, and entrepreneurs that are looking to build something special from Panama.

 

 

 

Education in Panama – hopes and dreams

Last week was the first week of school for public schools in Panama.  Universities typically finished their “summer holidays” at the end of January, but primary and secondary schools still have a three month summer vacation.

And after seeing headlines in Panama in late February, I’ve been asking myself: What has happened during these three months of school holidays? What efforts are made to ensure that when students return in the new year, the teachers will be better equipped as well as the schools in a better state?  And what can we do differently?

Panamá Bilingüe:

I was stunned by the news a few weeks ago that of 5,200 teachers sent abroad to study, only 1.5% (70) teachers were “certified”. Of course, it turns out that headlines sell newspapers, but don’t tell you the whole story!

During these summer months, about 1,000 Panamanian teachers and 500 students traveled from Panama to the US, England, Canada and Barbados for full immersion English classes through the program “Panamá Bilingüe”.  The Panamá Bilingüe program has a budget of over 100 million dollars for the five year period it is intended to run, and costs about $8,000 – $12,000 per teacher for training, airfares and accommodation costs.

When this program started in 2015, it was slated to be the beginning of a new era of education in Panama.  Unfortunately, if you look at the quality of the translation on the President’s website, you may be forgiven for thinking there’s not much hope for the future if this is the best that can be done for the President!

During the 5 year program (2015 to 2020), some 10,000 teachers are slated to receive instruction both in English and educational classes to improve the quality of the education received in Panama in public schools and at public universities.  A further 20,000 high school students and 30,000 primary school students are expected to also benefit from this program.

Teacher Training:

  1. national – before they are given any opportunity to study abroad, all expenses paid, the selected teachers are given training in Panama, in order to reach a certain level in English (Private & Public).  They are then given an exam (such as TOEFL or Cambridge) to see the level of their English before they go.
  2. international – 10,000 are being sent overseas. They will not only study English, some will also be studying in science and Education. Of these 10,000 teachers that are slated to go overseas before 2020, 5,200 have already completed the training internationally.  When they are sent overseas, they are expected to work (side-by-side) with teachers internationally (some 25-35 hours per week), as well as study at their designated University.

Unfortunately, the initial (and badly explained) results that came in February 2018 were not very promising. Of the 5,200 teachers who have traveled internationally so far in this program, only 70 (1.5%) have  obtained the Cambridge certification in English. However, what was important to note is that the certification in question was a certification to become examiners in Panama of students in English (i.e. it was not whether they had attained or not a proficiency in English, but whether they had a proficiency and the additional certification to be an examiner in Panama).  Five hundred teachers volunteered to participate in the courses for certification, of these 389 have a level of proficiency that are certified, and 70 have actually received the Cambridge certification as examiners.  So, while it sounds terrible that only 70 of 5,200 got certified, I had to read more to understand what they were getting certified in. Not half as bad as the headlines sounded!

In the explanations given by the Ministry of Education, they indicate that in terms of the English levels of the 5,000 teachers sent overseas to study, only 5% have completely failed to reach the levels of proficiency required (according to where they are at the time they start the course), and in these cases the teachers involved will be required to pay back the cost of the studies from their salaries.

What does concern me, however, is that the minimum level required is High Intermediate English. This means that the English teachers in our primary and secondary schools is possibly only Intermediate English.  These are not teachers who are speaking fluent English. So, if they are at intermediate level, how will our high school students reach anything higher than just intermediate?

Kids program:

In addition to the training for teachers, Panamá Bilingüe also offers classes for kids.  And this is for kids all around the country, not just in Panama City. Some of the kids will be from different regions, such as the Guna in San Blas, the Ngobe in the Ngöbe comarca between Chiriqui and Bocas del Toro. Of the 13,000 that started in the program, some 8000 children that have been participating in Panamá Bilingüe for the first three years were tested and 82% have reached Intermediate Level (as gauged by the TOEFL exams).

School buildings: Gazebo schools

Of the 1,080 gazebo schools (escuelas ranchos) found to exist in July 2014, the Ministry of Education has only been able to replace 504 so far with school buildings (some still under construction).  As expected, this project is taking longer and costing more than the current administration anticipated: they are half way there with only little more than a year left before elections (5 year term).

Although the numbers mention 1,080 “schools”, this really means buildings or class rooms, rather than the entire school.  So, for example, in 2018 they are undertaking 16 projects for 69 properties, which will eliminate 209 gazebo schools.  The new school properties will include dormitories for the teachers (as some are in remote areas), as well as play courts (with roofs) which can be used for assemblies as well as for exercise and gym class.

One of the biggest difficulties being faced is the remoteness and access of the regions where these gazebo schools exist.  Many contractors are not interested in bidding for the projects in these areas, because of the transportation issues (materials as well as workers).  So, the Ministry of Education puts out the details of the public bid, and no one responds.  And the Panamanian Ministry of Education does not seem to have its own maintenance and building division for these particular cases.

In these regions, the debate continues to be over school buildings, with no debate being entered into regarding the quality of the education that these children are receiving.

How do we combat poverty in these regions without any infrastructure to speak of?

Public Schools not ready

In addition to the issue of Gazebo schools, which is gradually being addressed and faced, every start of the school year, we hear of schools that simply are not opening for the first day of school because basic maintenance work has not been done.  So, for example, on March 5th we read that some 20 public schools were not ready and a further 32 schools were opening, but with either infrastructure issues or not having enough teachers.

Of these 20 schools, 10 are simply not opening and ready, and a further 10 are using alternative properties for the school year while their schools are being maintained. Once again, we’re talking about whether there WILL be any education, not what the quality of that education will be!

What makes for a first world education system?

When we look at the question of education, obviously these are very basic issues that Panama is facing.  Quite unlike the kinds of issues that you would face in say New Zealand or the Netherlands. Panama says that it aspires to be like Singapore, and yet Singapore often comes out as the best education worldwide!   If we look at the World Education Rankings, Panama doesn’t even make it onto the graph! Even the articles that criticize the US education system, providing graphs that include our neighbors Costa Rica and Colombia, completely ignore the existence of Panama.

How did (or does) Singapore make it to the top? For starters, education spending makes up about 20% of the annual national budget! Yes, you read that right: TWENTY percent.  Panama spends only 3.5% of its budget on education!  We get what we pay for!

English is the first language in the education system (since the 1960s), meaning that all children are fully bilingual, usually reaching fluency in primary school.  Admittedly, during the 1950s and 1960s, Singapore adapted their “survival driven” system into one which could provide a skilled workforce for their industrialization. They have also adopted the requirement that throughout primary and secondary school, all children must participate in one after school program (performing arts, clubs, sports, etc.).  Maybe these children aren’t perfectly well-rounded, but they are at least socialised and with some leadership skills.

Upon completion of secondary school, Singapore offers vocational education (since 1992), Polytechnics and Arts Institutions, Junior Colleges (2 years, pre-University), and Universities.  It also offers other alternatives, and encourages students to pursue further studies even after completing their Polytechnics or vocational training.

This strong focus on education in Singapore should be a shining example to Panama, as like Singapore, we lack natural resources (other than the Canal) and we need to develop our human resources and manpower to build a knowledge-based economy.  Obviously, there’s a lot more we could look at in Singapore’s system: meritocracy, investment and the priority that it has been given.