Panama typically has pro-business governments; how is the new administration different?
Minister Rojas: We don’t have big ideological swings in policy because the vast majority of Panamanians welcome foreign investment. That stability is valuable for businesses looking at Panama, especially when many other countries in the region have been hit by political turmoil.
In fact, investors see us as a safe haven. We have a dollarized economy, the best connectivity in Latin America and since the return of democracy more than 30 years ago, we’ve had market-friendly governments that have supported the logistics sector. Indeed, it’s impressive to see how Panama has been able to transform the Canal from a military asset in the 20th century to an economic force in the 21st.
However, there are some crucial differences with president Cortizo. Like his predecessors he wants a prosperous Panama but he’s also going to make it fairer. This administration is focused on surmounting what the president calls the 6th frontier. The 5th frontier was the taking back control of the Canal, while the 6th is defeating poverty and inequality. That fight will be focused on three key areas: improving the education system, making the justice system capable of defending the rule of law and creating a long-term vision for policies. All developed and rich countries have those three elements – those that don’t are poor and unequal.
What are Panama’s competitive advantages?
MR: Clearly Panama’s economic model has long been based on the hub concept and we’ve established ourselves as the best platform to do business in the Americas. But this government wants to focus on several hubs. The first is logistics. With the Panama Canal and railroad, the second-largest free zone on the entire Atlantic Coast of the Americas, a top-ten Pacific Coast free zone, air cargo connectivity and a dry canal that can get containers from one ocean to the other in 35 minutes – we have the most comprehensive logistics hub in the region. Then you have our air passenger hub, which can move people through 30 airlines with more than 1,300 direct and indirect destinations. Our third hub is business and services. Dollarization and political stability allow investors to make long-term plans while our multinational headquarters law provides strong incentives for firms setting up in Panama. More than 150 have already taken advantage of it, including 16 from the UK. People need to realise that when you set up in Panama you are not serving a local market of 4 million people but have great access to all of Latin America and its 700 million consumers.
“People need to realise that when you set up in Panama you are not serving a local market of 4 million people but have great access to all of Latin America and its 700 million consumers…”
The fourth hub is for value-added manufacturing. Here there is a big opportunity for medicines and technology, which is well-suited to the strengths of the British economy. We have 23 trade agreements in place with the biggest economies in the world. The fifth hub is digital. Along the strip of land that borders the Canal, pass seven of the most important fibre optic cables in the continent. Moreover, the guaranteed neutrality of the Canal protects that data from war or dictatorship, while Panama’s natural advantages make it safe from hurricanes or earthquakes. We’ve given that data further legal security with a data privacy law that is ranked among the top ten in the world. That’s why Google is now connecting to our digital hub. It has a fibre optic cable that runs from Los Angeles to Santiago and it will now add a branch line that connects it with Panama.
A key challenge in developing these hubs is Panama’s small and poorly-trained workforce; how will you fix that?
MR: Education is one of the main focal points of this government because the president knows that is the most effective way to lift people from poverty. Changing the whole education system will take 20 years but you need to start somewhere, so we are focusing on the low-hanging fruit. We are improving the country’s technical education so that creates workers for three of our hubs in particular: business services, value added and digital. We are creating programmes that will act as finishing schools to give high-school graduates the technical skills to fill some of these roles. If you study a traditional computing degree, then most of the material you learn is out of date by the time you get a job. So, we need tailored courses that give students the most up-to-date skills needed. For that, we also need to work hand-in-hand with the private sector. One reason the UK has been so successful with fintech is that it has created clusters that help to form employees and generate more jobs. We will also be looking at clusters. Finally, we will tweak the visa requirements to allow companies in certain sectors to have up to 100% foreign workers. We realise that for technology transfer to happen we need to attract the best international talent.
The country’s biggest international investment, Minera Panama, is in dispute with the government; will it be resolved?
MR: We are in constant dialogue with the mine owner, First Quantum, to make sure the project works successfully for the benefit of the investors and the country. The mine has had some deficiencies in labour and environmental law, so we’ve established a joint committee to work through the issues. This is a pro-business government but we also need to make sure that international investors comply with local regulations.
Panama’s economy is slowing down; how will your government fix the problem?
MR: It’s partly because during the last three years of the previous administration the economy wasn’t doing that well. There were some confidence issues in the economy because of political drama that was happening. We believe that our job has to be to restore confidence. For example, president Cortizo recently picked three new Supreme Court Justices. His choices helped to restore confidence because people recognised that they were not political appointees. That signalled to the market that Panama’s economy would not face undue political interference during this government.
“In his first 100 days the president achieved the 15 targets that he had set himself…”
Indeed, international capital markets have already shown their approval of the new government. On July the 21st, Panama placed a bond for $2billion and it was more than five times over-subscribed. On the ten-year bond we got rates of 3.16%, while the 40-year-bond went for 3.86%. These were historic numbers, not just for Panama but for all of Latin America. That was followed by another bond issue for $1.3billion that went for 2.83% – another record low for Latin America. So, it’s clear that international investors like the approach that this government is taking and feel optimistic about the Panamanian economy.
In his first 100 days the president achieved the 15 targets that he had set himself. Everyone thought it would take a year to pass the Constitutional Reform but he presented it in 15 days because we drafted it during the transition. A working group that listened to all sectors of society came up with a consensus proposal that was sent to Congress after only a few weeks of government.
We’ve also passed a new PPP law that will change the way we build infrastructure and attract more international investment. For ten years Panamanian governments had tried and failed to pass a PPP law but we got it drawn up in 60 days and passed by Congress after 100. So far, we have beaten all expectations. We will have the first draft of the new PPP regulations by January and in the meantime, we are analysing projects that can be built under the model. Before 2020 is over you will see construction starting on PPP projects, which will give a further boost to the economy.