Interview with Panama’s Minister for Commerce and Industry, Augusto Arosemena

February 28, 2018

What has the ministry achieved under this government?

Minister Arosemena: We still have more than a year left of this administration so there is plenty more to come but this Ministry has already had some serious success. The Ministry of Commerce and Trade has improved the business environment of Panama, which was already very good by regional standards. Moreover, we have enacted two pieces of legislation that were very important for the government of Juan Carlos Varela.

The first was a package of incentives to encourage investment in Colon, in a scheme known as Colon Puerto Libre. Colon is the city on the Atlantic end of the canal that has long been abandoned, despite its strategic importance. This government is investing $1.2billion in improving the city and the legislation was designed to incentivise the private sector to invest with us. We also passed a piece of legislation to update the rules surrounding the Colon Free Trade Zone. The previous law was more than 50 years old so it needed to be made more flexible for the ever-changing needs of the zone.

More generally, the Ministry has been working with local industry and the international business community to make Panama more attractive to international investors and more competitive as a place to do business. On that front our record speaks for itself. In 2016 we attracted 25 new multinationals, which is a record since the special international company law was passed more than a decade ago.

The size and skills of Panama’s workforce is limited; what is this government’s solution?

MA: Panama has a talented workforce but the economy is growing so fast that the international companies coming to the country have already absorbed a lot of it. We have developed a flexible immigration process for companies that are using Panama to render services internationally. For example, a British firm that wants to use Panama as its hub for the region can bring expat staff to run the operation. That is part of the SEM law that has been so instrumental in attracting international companies. Generally speaking Panama is very open to international workers. Yes, there have been some restrictions placed on Venezuelan citizens, because of the big influx of immigrants but generally our immigration policy makes it easy for international firms to attract the best talent from around the world.

In 2016 we attracted 25 new multinationals, which is a record since the special international company law was passed more than a decade ago.  …

But we also understand that one of the big challenges Panama faces is improving the skills of our people. That’s why we’re establishing a technical institute in Tocumen. This institute is important because we’ve never had something like that in the country before. It’s an acceptance that international companies don’t just want the workforce to have a good academic base but also be strong in technical and vocational training. Another important landmark will come in March when we create the first fully bilingual public school. Across Latin America it’s accepted that one of the easiest ways for a child to learn English is by sending them to an English-speaking school, which is normally private and expensive. We are now expanding that access to the lower classes so that more Panamanians will speak English in the future. Indeed, we have launched the Panamá Bilingüe programme, which will send 10,000 Panamanian teachers to study English and language teaching in the US and the UK. By teaching the teachers we hope to have a big impact on a generation of students.

Panama is a successful transhipment hub but how is the government working to add value to the cargo passing through the country?

MA: The opportunity is that an immense amount of cargo passes through Panama. The challenge is how to get more of the value of those containers to stay in the country. So really, we’re looking to do more with the cargo as it passes through and then use our logistical advantage to export the new product. To that end this government recently passed a new manufacturing law that creates incentives for companies that come here and make things. We’re also working with the Panama Canal Authority to create a new logistics park. But perhaps the most important move has been the creation of the Logistics Cabinet. This body is made up of representatives from all of the key authorities that have a role to play with logistics. The Ministry of Economy and Finance, the Maritime Authority and the Ministry of Commerce and Trade are all involved. We meet once a month to identify areas that need to be improved and formulate the policies that can help Panama add value to the cargo going through the country.

We also realise that the reason our logistics platform is so successful is that it’s one of the most cost-effective ways to ship cargo for many global routes. So, if we want companies to add value we also need to make the country cost effective for manufacturing. I’ve already detailed our efforts to upgrade the skills of the workforce and another vital factor is energy. Manufacturing operations need a reliable, cheap source of energy and this government has been working to provide that. At the end of 2016 Panama inaugurated the third transmission line of its electricity grid. This will bring energy from the hydroelectric plants on the west coast of the country to Panama City. We’re also working on two new gas generation projects that should come online next year. At present our energy demand is approximately 1,500 MW, while installed capacity is 3,000 MW. We’re bringing on new, cheaper sources of electricity to help bring down prices.

Panama and Colombia are embroiled in a long-running trade dispute; will it be resolved soon?

MA: Colombia is not our largest trading partner – that’s the US – but it’s an important economic relationship, especially in the Colon Free Zone. Our dispute has been ongoing for seven years now, with Panama winning several decisions at the World Trade Organisation. However, I am confident that we can find an amicable resolution to the problem. We sent a technical team to Colombia to discuss the details and they responded by sending a delegation here. With this constant dialogue we are slowly nearing a solution. Moreover, it’s important to note that throughout the dispute Colombia and Panama have remained close partners on other issues. For example, we cooperate on security and many diplomatic themes. When you look at it like that the trade dispute is a mere hiccup within a strong, enduring relationship.

Where are the opportunities in Panama for British investors?

MA: One interesting theme is Brexit. Obviously, there is still a lot to be resolved but it could create opportunities for British businesses in Panama. At the moment the UK is a key trading partner and one of the most important international investors in Panama. Currently that relationship is based on the CAFTA–EU agreement but once Brexit has been completed it would be replaced by a bi-lateral agreement between Britain and Panama. We are confident that, over time, we could create a bespoke deal that would work well for both nations.

One of the most exciting aspects of the Panamanian economy is that it’s incredibly diversified. People think it’s just linked to the canal or finance but actually no single sector is worth more than 20% of GDP. Another interesting characteristic is that it’s an economy in transformation. For example, mining has never been a major part of the Panamanian economy but now we have a huge copper mine that is about to start exporting $2billion worth of commodities per year. Overnight that will bring mining to 4% of GDP and there is the potential for more projects. Tourism is another area with great growth prospects. Our national carrier, Copa, connects Panama to 90 other countries across the Americas and the world and it would be great if we could convince some British airlines, like BA, to start flying direct to Panama.