DIPLOMACY | ECONOMY | FINANCE | ENERGY & MINING | INDUSTRY | TELECOMS & IT | TRANSPORT | REAL ESTATE & CONSTRUCTION | AGRICULTURE | HEALTH & EDUCATION | TOURISM
PANAMA
2014
In This Issue DIPLOMACY INSIDE PERSPECTIVE CAN-DO ATTITUDE President Varela on boosting Panama’s transport infrastructure to fortify national institutions 12 ECONOMY FOCUS CANAL EXPANSION LOCK ‘N’ LOAD Investment of over $5 billion is enhancing the legendary channel 27 FINANCE REVIEW BANKING HIGHLY LIQUID Panama’s financial sector underpins the economy, while regulatory improvements guarantee its longevity 33 TOURISM PHOTO ESSAY DESTINATION BOCAS DEL TORO THE CARIBBEAN PEARL Bocas del Toro is an idyllic retreat for nature lovers 134
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Contents PANAMA 2014 48 Lena A. Bonilla R., General Director of AXA Assistance COLUMN 50 Mauricio de la Guardia, CEO of Compañía Internacional de Seguros INTERVIEW
33 FINANCE
53 All the way in FORUM: INSURANCE INDUSTRY
33 Highly liquid REVIEW: BANKING
55 ENERGY &
34 Carlos E. Troetsch Saval, Chairman of the Board of Directors of the Panama Banking Association (PBA) COLUMN 36 HE Dulcidio De La Guardia, Minister of Economy & Finance INTERVIEW
6 A man, a plan, a canal YEAR IN REVIEW
21 ECONOMY 21 Tailored solutions REVIEW
9 DIPLOMACY 9 Isthmus be love REVIEW 12 HE Juan Carlos Varela, President of Republic of Panama INSIDE PERSPECTIVE 14 Francisco Álvarez de Soto, Former Minister of Foreign Affairs of the Republic of Panama INTERVIEW 15 Hon. Mr. Otto Pérez Molina, President of the Republic of Guatemala GUEST SPEAKER
22 Luis Germán Gómez, President, Asociación de Usuarios de la Zona Libre de Colón COLUMN 24 Leopoldo Benedetti, Former General Manager of Colón Free Trade Zone (FTZ) INTERVIEW 25 Zoned for growth FOCUS: SPECIAL ZONES 26 Pitch your place B2B: ZONE MANAGEMENT 27 Lock ‘n’ load FOCUS: CANAL EXPANSION
16 Think regional act local FOCUS: REGION
30 The place to be FORUM: WHY PANAMA?
17 HE Kamla Persad-Bissessar, Prime Minister of the Republic of Trinidad & Tobago GUEST SPEAKER
32 Abdul Mohamed Waked Fares, President of Grupo Wisa INTERVIEW
18 HE Alejandro J. García Padilla, Governor of the Commonwealth of Puerto Rico GUEST SPEAKER 19 Stuck in the middle FOCUS: WEF IN PANAMA 20 Rt. Hon. Minister of State for Latin America at the Foreign & Commonwealth Office of the UK GUEST SPEAKER
37 Rolando J. de León de Alba, General Manager of Banco Nacional de Panamá INTERVIEW 38 Alberto Diamond R., Superintendent of the Superintendency of Banks of Panama INTERVIEW 39 Aimeé Sentmat de Grimaldo, President of Banistmo INTERVIEW 40 Away from the shade FOCUS: INTERNATIONAL REGULATIONS 40 William Morris CEO, Latin America Cobiscorp COLUMN 41 Think bank B2B: FOREIGN BANKING SCENE 42 Javier Gallardo, General Manager of UniBank INTERVIEW 43 Jean-Pierre Wegener, Local Managing Director of Lombard Odier (Panama) INTERVIEW 44 Rubens V. Amaral Jr., Director of the Board & CEO of Banco Latinoamericano de Comercio Exterior (Bladex) INTERVIEW 45 Resident professionals VOX POPULI: LOCAL BANKS 46 On the bourse REVIEW: CAPITAL MARKETS 48 Under cover REVIEW: INSURANCE
MINING
55 Every which way REVIEW: ENERGY 56 Fernando Tovar CEO, GDF Suez Energía Centroamérica COLUMN 59 Blas Gonzalez Robaina, CEO of Central America and the Caribbean, ABB INTERVIEW 60 Rodolfo Barniol Zerega, Director General of LNG Group Panama INTERVIEW 61 Power ball FOCUS: RENEWABLES 62 The power of green B2B: RENEWABLES 63 Raring to go REVIEW: MINING 64 Zorel Jaime Morales, Executive Director of the Panamanian Chamber of Mining (CAMIPA) INTERVIEW
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PANAMA 2014
87 TRANSPORT 87 Plain sailing REVIEW 88 Luis Vidal, Commercial Director, Wakefield Marine Energy COLUMN
65 INDUSTRY 65 Taking part REVIEW 67 Luis J. Varela Jr., Executive Vice-President of Varela Hermanos INTERVIEW 68 For good measure FOCUS: ALCOHOLIC BEVERAGES 69 Bottoms up B2B: BREW & DISTRIBUTE 70 I can’t drive 65 FOCUS: AUTO SECTOR 71 Nikolas Gremler S., General Manager of AutoStar INTERVIEW 72 In the driving seat B2B: CAR MARKET
73 TELECOMS
& IT
73 Through the wire REVIEW 74 Jorge Saa, Head of Partnership & Portfolio Management, Ericsson COLUMN 75 Irvin A. Halman, General Administrator of the National Authority for Governmental Innovation (AIG) INTERVIEW 76 Oscar Augusto Borda Mayorga, General Director of Claro Panama INTERVIEW 77 David Butler, CEO of Digicel INTERVIEW 78 Elsa de Sucre, President of Canon Panama INTERVIEW 79 It’s a hook up FOCUS: INTERNET CONNECTIVITY
90 Michel Mittelmeyer, CEO of Meyer’s Group INTERVIEW 91 Aitor Ibarreche, CEO of Hutchison Ports Holding Panama (Panama Ports Company) INTERVIEW 92 Carlos M. Urriola Tam, Executive Vice-President of Manzanillo International Terminal (MIT) INTERVIEW 93 Pacific view FOCUS: PORT OF BALBOA 94 Moving weight FORUM: MARITIME SECTOR 95 Ship shape VOX POPULI: SHIP REPAIRS 96 Rubén Gómez A., Director of the Directorate General of Posts and Telegraphs Panamá (COTEL) INTERVIEW 97 Coming out on top FORUM: LOGISTICS 98 Terminal velocity FOCUS: TOCUMEN INTERNATIONAL AIRPORT EXPANSION 100 Pedro O. Heilbron, CEO of Copa Airlines INTERVIEW 102 Miles in the sky B2B: LOCAL AIR SECTOR
103 REAL ESTATE
& CONSTRUCTION 103 We built this city REVIEW: REAL ESTATE 106 José Manuel Bern, VicePresident of Empresas Bern INTERVIEW
80 Laying down the law B2B: ICT REGULATIONS
107 Juan Carlos Sotillo Escala, Director General of Sotillo & Company INTERVIEW
81 Source code FORUM: OUTSOURCING
108 Blowing bubbles B2B: LOCAL DEVELOPERS
82 Landscaping FOCUS: THE MEDIA
109 Build on REVIEW: CONSTRUCTION
84 Hitler Cigarruista, Director of Capital Financiero INTERVIEW
111 Alfredo B. Angelici, Administrative Director of Inversiones 3000 S.A. INTERVIEW
85 Eduardo Antonio Quirós B., President of Grupo Editorial El Siglo y La Estrella de Panamá INTERVIEW
112 Hit refresh FOCUS: WATER TREATMENT
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Managing Editor Leland Rice Regional Director Carla Albertí de la Rosa
113 AGRICULTURE
Country Manager Selene Miramontes, Constance Simon
113 Field studies REVIEW
Country Editor Maite Ventura
114 Dr. Luiz Nasser, President, Born Animal Biotechnology COLUMN
Project Assistant Maggen Martínez Managing Director $\ÞH+D]ÏU9DOHQWLQ
115 Something’s brewing FOCUS: COFFEE
Editorial Director Jason J. Nash Commercial Director Laila Bastati
117 HEALTH
Senior Editor Mark A. Szawlowski
117 Healthy option REVIEW: HEALTH
Web Editor Peter Howson Sub-‐Editors Terry Whitlam, Aidan McMahon, Michael Gibson, Lewis King, Susan Barrett Editorial Assistant Asiye Duman Contributors Michael Kuser, Sam Hunt, Han Le Transcribers Nikolai Davis, Attila Pelit, Pronto Publishing Services, Deanne de Vries, Natalia Ehrenberg Art Director Berin Cansu Zafer Jr Art Director Bahar Kara Designers Didem Toprak, Ceren Bettemir, Sérgio Caldeira Cover Illustration .UÞDWhQVDO HR Executive Ines Delgado PR Executive 6HPLKD(ONÏUDQ Operations Manager 6HUSLO
[email protected] www.thebusinessyear.com The Business Year is a registered trademark of The Business Year International. Copyright The Business Year International Inc. 2014. All rights reserved. No part of this publication may be reproduced, stored in a retrievable system, or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded, or otherwise without prior permission of The Business Year International Inc. The Business Year International Inc. has made every effort to ensure that the content of this publication is accurate at the time of printing. The Business Year International Inc. makes no warranty, representation, or undertaking, whether expressed or implied, nor does it assume any legal liability, direct or indirect, or responsibility for the accuracy, completeness, or usefulness of any information contained in this publication.
ISBN 978-1-908180-37-7
& EDUCATION 118 Dr. Frederick Medrano, Executive Medical Director, Hospital Nacional COLUMN 120 HE Dr. Javier Terrientes, Minister of Health for the Republic of Panama INTERVIEW
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121 Elisa de Lewis, General Director of Clínica Hospital San Fernando INTERVIEW 122 Javier Contreras, CEO-General Manager of Hospital Punta Pacifica INTERVIEW 123 Jordi Fernández Capo, General Manager of Central America and the Caribbean at Roche Diagnostics INTERVIEW 124 Center of care FORUM: MULTINATIONALS IN HEALTH 125 Knowledge is the future REVIEW: EDUCATION 127 Gustavo García de Paredes, Rector of the University of Panama INTERVIEW 128 Smartest guys in the room B2B: UNIVERSITY SECTOR
129 TOURISM 129 Where do you want to go? REVIEW 133 José G. Arias Chiari, President of Club Unión INTERVIEW 134 Bocas del Toro PHOTO ESSAY: DESTINATION 138 The bridge of life FOCUS: MUSEO DE LA DIVERSIDAD
140 EXECUTIVE
GUIDE
140 The thick of it REVIEW: LEGAL 142 When in Panama...
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PANAMA 2014
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YEAR IN REVIEW
A MAN, A PLAN, A CANAL
While the widening of the Panama Canal, set for completion in 2015, will be a significant boon for the country, Panama is far from a onetrick pony.
CARIBBEAN SEA
Almirante C
PANAMA CANAL ATLANTIC ENTRANCE
C Manzanillo Colón C Cristóbal C
I Bocas del Toro MOSQUITO GULF
C Chiriquí
I David Pedregal C
I Tocumen Balboa C Albrook I Panama City PANAMA CANAL PACIFIC ENTRANCE
PANAMA GULF OF PANAMA
Isla de Coiba
PACIFIC OCEAN
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Length of Land Borders 555 kilometers Area 77,082 km2 Total Population (2013) 3,721 million Life Expectancy (2012) 77.37 GDP growth (2013) 8.4 % Unemployment Rate (2013) 4.2 % ChØ[ncih";p_l[a_]ihmog_ljlc]_m percentage change - 2013) 4.70 % =oll_hn;]]iohn>_×]cn",*+-# $4.659 billion F_acmf[ncp_Jiq_l The National Assembly Political Status Presidential Representative Democratic Republic
La Palma C LaCPalma
HEAD OF STATE President Juan Carlos Varela HEAD OF GOVERNMENT President Juan Carlos Varela
COLOMBIA COLOMBIA
C Commercial C Commercial Port Port I International I International Airport Airport
PANAMA has long relied on the Canal that runs through its interior, connecting the Pacific and Atlantic oceans, as its economic lifeblood. But a significant financial services sector also drives growth, while the tourism sector has upped its game in recent years as an investment destination. That said, the impact of the Canal is unmissable and an ambitious project to widen the waterway is currently underway at a price tag of $5.2 billion. When finished, the enlarged Canal will be able to accept New Panamax ships, effectively doubling its capacity. The overall services sector, including the operation of the Canal, other transport and logistics, banking and insurance services, the Colón Free Zone, and tourism represent over three-quarters of GDP and 60% of employment. Industry represents just under 18% of GDP, while agriculture represents under 4%. Overall GDP grew by 8.4% in 2013, with the country posting a current account deficit (CAD) of $4.66 billion for the year, a legacy of the Martinelli administration, which initiated a number of megaprojects across the country. Juan Carlos Varela succeeded Former President Ricardo Martinelli, ineligible to run in the 2014 presidential elections due to a term limit, in July. A number of significant achievements have been made in recent years, such as a 10 percentage point drop in poverty between 2006 and 2012, while unemployment fell from over 10% in 2006 to 4.3% at end1Q2014, helped along by the 30,000 jobs created by the Canal expansion project. Elsewhere, the US-Panama Trade Promotion Agreement has
been in force since late 2012, while the country was also removed from the OECD’s gray list of tax havens after it pushed through a number of double taxation treaties with various countries. There are downsides, however, to straddling such a significant waterway. Panama has a relatively insignificant manufacturing industry, a result of having such easy access to international markets for imports—another reason for the high CAD. And while efforts to add value to exports have yielded some results, manufacturing still represents just 5% of the country’s total gross added value (GAV), compared to the service sector’s 80%. A variety of goods are produced in Panama, including clothing, shoes, leather goods, alcoholic beverages, papers, chemicals, cement, and tobacco products. Industry is focused around the capital, Panama City, and generates 20% of employment when bundled together with mining and quarrying, electricity and water, and construction. The latter is a sector that has had it all in recent years under the Martinelli administration, which invested significantly in new roads, hospitals, and dredging the Panama Bay, helping to boost the construction industry’s growth by 30% in 2013. With all eyes now on President Varela, it seems he is determined to keep the ball rolling, committing himself to significant investment in public transport, of which the $1.8 billion Panama City subway system extension is a key part. Given Panama’s exotic location, tourism is naturally a big earner, with the government keen to solidify the country’s position on the travel map. A
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PANAMA 2014
YEAR IN REVIEW
further extension of Tocumen International Airport, the primary gateway to the country, in the form of a new terminal, will double capacity to 18 million passengers per year and greatly increase the prospects of Copa Airlines, the country’s flag carrier, which is also set to have grown its fleet by 10% come end-2014. In terms of incoming guests, 2.2 million were registered in 2013, up from just 1 million in 2004 and a 5.6% rise on 2012. Of that 2.2 million, 1.53 million entered the country through Tocumen International Airport. To deal with the increased interest, there has been a 74.16% increase in available rooms between 2010 and 2013. But foreigners don’t always just come for a holiday, with an increasing number of retirees choosing to relocate to the country. In January 2014, International Living magazine ranked Panama number one as the retirement destination, the country edging out Costa Rica. And that has had a clear impact on the real estate sector, helping to push up property prices by 10% in 2013. Although, it is not just individuals interested in pitching up in Panama for good, with
An expansion of the Canal is likely to cement its position as one of the world’s most important trade hubs, despite talk in Nicaragua of building a competing canal.
investors also becoming more acutely aware of the benefits. In 2013, FDI reached $4.65 billion, up 61% on the previous year. Increased interest from Colombian companies helped to boost the figure, joining the usual suspects of the US, Spain, and other European countries. At a pivotal location in Central America, Panama’s relative prosperity certainly seems fated. Not resting on its laurels, however, an expansion of the Canal is likely to cement its position as one of the world’s most important trade hubs, despite talk in Nicaragua of building a competing canal. A new administration will also bring new prospects as work on the Canal draws to a close in 2015.
GDP Current Prices (in USD Billion) Source: INEC
2013e 42.6 2012
38
2011
33.3
2010
28.8
2009
25.9
2008
24.9
2007
21.1
Population Pyramid - 2014 Source: US Census Bureau PANAMA 2014 MALE
FEMALE 100+ 95-99 90-94 85-89 80-84 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4
175 140
105
70
35
0
0
POPULATION (IN THOUSANDS)
35
70
105
140 175
POPULATION (IN THOUSANDS) AGE GROUP
THE ECONOMY HAS BEEN OFFICIALLY DOLLARIZED SINCE 1904
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15
16
HE Juan Carlos Varela, President of the Republic of Panama, on the country’s economic efforts and infrastructure expansion.
Hon. Mr. Otto Pérez Molina, President of the Republic of Guatemala, on the development of ties in Central America.
Lying at the heart of the Western Hemisphere, Panama is looking to leverage its centrality with its regional neighbors.
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Diplomacy REVIEW
Following the legislative and executive elections of 2014, Panama’s leadership has changed, though the country is set to maintain a business-friendly policy model for years to come.
T
he Bridge of the Americas, an iconic steel and concrete construction, links either shore of the Panama Canal at Balboa in Panama City. Since its inauguration in 1962, the bridge has represented the country’s disproportionate influence on the world given its size. The structure links North and South America, crossing a waterway which itself links the Atlantic and Pacific Oceans, and represents an important segment of the Pan-American Highway. Independent for just over 100 years, Panama’s history as a sovereign nation is inextricably linked to the building of the Canal in the early 20th century. Centenary celebrations for the world-famous waterway in 2014 also marked the 14th anniversary of Panamanian ownership and control of the Canal. As the narrowest point in Central America, the isthmus of Panama has long been an attractive location for human settlement. The now ruined city of Portobelo on the Carib-
ISTHMUS be love
Panama's political stability and links to the US have led to solid economic growth. The government is now aiming to join regional trade and political groups to keep the country on the growth path.
bean coast was one of Spain’s first permanent colonies on the continent, and its heavily fortified perimeter stands as a testament to a long history of violent competition for the strategic territory. Similarly, the disintegration and abandonment of Panama Viejo, the first European settlement on the Pacific Ocean, demonstrates the determined efforts of Spanish pioneers to make a mark on the land, despite tropical disease and hostile indigenous groups. Panama was one of the first countries in Central or South America to be explored by Europeans, after Columbus landed in Costa Rica. Rodrigo de Bastidas and his First Mate Vasco Núñez de Balboa opened up the area for full-scale colonization. As the map of Latin America became better understood, the importance of Panama became more apparent, both in terms of commercial and military logistics. Rivalry with other powers and the constant attrition of privateers and pirates presaged the loss of the bulk of Spain’s
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PANAMA 2014
colonial possessions and the establishment of Gran Colombia, an independent federation of formerly-colonized countries that corresponds with modern day Colombia, Venezuela, Peru, Ecuador, parts of Brazil and Guyana, and Panama. The latter remained a province of Colombia, and in the mid-19th century the authorities sold the rights for a transnational railway to the US. This railway became crucial for prospectors during the California Gold Rush, and reinforced the belief that a canal through the territory would transform regional transportation. Following a failed attempt by French engineers to construct a canal in the late 1800s, the US acquired the concession and assisted Panama in seceding from Colombia to become the modern, independent nation it is today. Panama is a presidential representative democratic republic, with a leader whose role is both that of head of government and head of state. As a multi-party democracy, divergent political attitudes can be represented in parliament or the executive, decided by free elections held every five years. The 1972 constitution was reformed in 1978 and again in 1983 through parliamentary acts, and it divides branches of government according to function.
EXECUTIVE DECISIONS The executive division comprises the president, the vice-president, and the government. The five-year term of the former is non-renewable and is elected by a simple majority in a first-past-the-post model of voting. The incumbent head of state is Juan Carlos Varela of the Panameñista Party, sworn in on the July 1, 2014 after receiving 39.07% of the votes in the May presidential elections. Prior to his appointment as President, Varela had served as Vice-President under Ricardo Martinelli, his predecessor, and from 2009 to 2011 had served as Minister of Foreign Affairs. Though previously working in concert with Martinelli, Varela ran a campaign of opposition to the former leader, promising to make a concerted effort to fortify state institutions and foster a more conciliatory political environment in the country. In addition, a freeze on food prices and promises to counter corruption won popularity among Panamanian citizens. Varela had been a member of the previous administration as his party formed part of Martinelli’s Alliance for Change coalition, but this collapsed in 2011. Martinelli’s Democratic Change Party (Cambio Democrático
– CD) supports center-right, free market policies with a social component, providing school children with grants for attendance. In the first few months of Varela’s term, the policies adopted suggest the continuation of a similar model, with a fair state pension for citizens over 65 and financial assistance for new home buyers being offered by the government. The May presidential elections showed a 31.40% minority for Martinelli’s would-be successor José Domingo Arias, and 28.16% for Juan Carlos Navarro, the candidate of the Democratic Revolutionary Party (Partido Revolucionario Democrático – PRD), a party founded by former President Omar Torrijos that has traditionally held power in Panama, along with rivals the Panameñista Party. There was a voter turnout of around 75%, with 1,886,208 votes cast, 1,854,083 of those being valid.
LEGISLATE THIS Elections also took place for the Panamanian legislature, the National Assembly (Asamblea Nacional), a unicameral parliament comprising 71 statutory members. The organization of this body is outlined in the 1983 Electoral Law, which was amended in 1997, and accession to the council is decided in a slightly more complex manner than that of the presidential selection process. Any administrative district with over 40,000 citizens is considered to be a constituency, and can elect a representative to the parliament. Out of the 71 members, 45 are elected through proportional representation from so-called multi-member constituencies, while the remaining 26 are elected by a simple vote in single-member constituencies. As with the presidential term, representatives serve for five years.
JUDGE NOT LEST The Supreme Court is appointed by the president with the approval of the Assembly, and judges serve for a decade. These magistrates assign judges in higher courts, who in turn select people for lower regional courts. Panama’s judicial network comprises four superior courts, 18 circuit courts, and municipal courts throughout the country. The Comptroller General of the Republic controls public funds, while the Electoral Tribunal has the duty of maintaining and ensuring transparency and integrity in the voting process. Similarly, the Ministry of the Public watches over affairs of the state and of individual municipalities and local governments.
Diplomacy
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President Varela meets with Spanish Prime Minister Mariano Rajoy
Image: La Moncloa Gobierno de España
A FOREIGN AFFAIR Panama has taken an active, dynamic role in regional politics over the past 15 to 20 years, exercising a high level of policy independence afforded by its burgeoning economy. Panama is a member of dozens of international organizations, including the Latin America Integration Association, the Union Latina, and the Pacific Alliance and UNASUR as an observer nation. Panama has aimed for a conciliatory and progressive foreign policy designed to deal preemptively with crises in neighboring countries. In March 2014, instability in Venezuela prompted Panama to call a spontaneous Organization of American States (OAS) meeting to discuss the emergency. In response, Venezuela’s leader, Nicolas Maduro, severed all ties with Martinelli’s administration, freezing commerce and defaulting on Venezuelan debts owed to Colón Free Zone authorities. Relations were rehabilitated some months later following the accession of President Varela, and Panama currently maintains strong links with countries in its immediate hinterland. Its recent activity in international diplomacy will be showcased in 2015 at the VII Summit of the Americas, which will be hosted in the capital. Not content to simply run the event, Panama has called on attendees to accept Cuba at the event, and has called on leaders in Havana to consider attending, claiming that the meeting will be incomplete without their represen-
Varela had been a member of the jl_pciom[^gchcmnl[ncih[mbcmj[lns formed part of Martinelli’s Alliance for Change coalition, but this collapsed in 2011.
tation. If this were to come to pass, it would represent an historic diplomatic accomplishment, given the decades of animosity between the OAS and the Caribbean’s infamous pariah. Panama’s robust political system has proven its worth time and again, with the most recent elections setting the stage for a stable five years of development. As the country tentatively flexes its diplomatic muscles, comfortable in the knowledge that it controls a world-famous waterway, the government can take calculated risks to help shape Latin America from within, bridging the northern and southern hemispheres and creating a unified America.
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PANAMA 2014
INSIDE PERSPECTIVE
CAN-DO attitude
HE Juan Carlos Varela, President of Republic of Panama, on the country’s economic efforts, infrastructure expansion, and strengthening the institution.
BIO Juan Carlos Varela graduated in Industrial Engineering from Georgia Tech in the US. In the jlcp[n_m_]nil&b_f_^nb_ growth of a Panamanian company with a long history, which generated thousands of jobs in Panama called Varela Hermanos. With a al_[nmi]c[fpcmcih`lig nb_jlcp[n_m_]nil&P[l_f[ supported the promotion of jlid_]nmch`[pili`]ofnol_& sports, education, folklore, [h^nb__hpclihg_hn(B_ was elected Vice-President of the Republic of Panama in July 2009, and in just nqis_[lmi`aip_lhg_hn he kept the social promises made during his campaign, including: the Program 100 to 70, which aimed at raising the minimum wage. On March 17, 2013, Juan Carlos Varela became the Presidential Candidate for the Panameñista Party and on August 25 of the same year, he was proclaimed the candidate for the Alliance of "The People First" (Alianza "El Pueblo Primero”), made up by the Panameñista and Popular Party, and the support of independent sectors of the country. On May 4, 2014, Varela was elected President of the Republic of Panama for the 2014-2019 Constitutional period.
WE BEGIN a new era of our Republic and our democracy. An era of peace, tolerance, consensus, unity, and social justice with a government that will put people first in all of its decisions. I accept the historic responsibility of leading this country, aware of the great challenges that lie ahead: maintaining economic growth with equity, dealing with debt, increasing investment, and fighting for transparency and the implementation of a process of justice and equity recovery, with respect for the rule of law. I pledge in my management to set up an honest, transparent, and efficient government, whose only objective will be to serve society, improve public services, and equitably distribute the wealth and heritage that God has bequeathed to this beautiful country. I wish to make clear that the foreign policy of our government will be based on dialogue, convergence, tolerance, and mediation, in search of the well being of all peoples. As President, I will work tirelessly to ensure that all Panamanians are responsible world citizens and our isthmus is a point of convergence and unity, serving our people and the international community with our extensive transport and logistics infrastructure and Canal, port, airport, and the Colón Free Trade Zone. I seal my commitment to delivering and to assuming this position for the sole purpose of serving our people, the region, and the world. Over the coming years, we will undertake major works, but the greatest legacy to future generations will be a functional democracy where state resources are used only to serve the people. Corruption will not be tolerated in our government.
Based on this commitment, from this moment we start the most important aspect: the transformation from politics based on business and patronage to politics based on service and a clear vision for the state. We will encourage foreign investment and tourism development, in search of creating more jobs with higher wages. We will strengthen legal security and respect the commercial diplomacy of countries that promote their businesses, all this based on the highest possible standards of transparency and honesty, in defense of the interests of our country. I will sign a historic decree that will establish the return of price controls to the basic food basket in order to avoid speculation. I am respectful of the free market, but I am opposed to speculation when this affects the food of the people. In Colón, we will start a restoration project for this beautiful city so it can again become the jewel of the Caribbean, as it was in the past. In San Miguelito, we will implement a joint task force that will impact more than 300,000 households, giving them basic health and a roof of hope to all those families. Focusing on improving the quality of life, we will give our city an accessible and efficient metropolitan public transport system, building lines two and three of the subway and incorporating the Metro Bus. Hope will return to the neighborhoods. With our “Safe Neighborhoods” Plan, we will transform the city of Colón and begin the transformation of other forgotten neighborhoods with “More Opportunities and Firm Hand.” We will build new centers and community facilities to make sport and culture available to our young people, so they can grow healthy and coexist healthy. We will invite the over 200 operating gangs in the country to take advantage of an amnesty to surrender their weapons, cut their ties with organized crime, and enter formal life. Over the coming months, more than a thousand Panamanian teachers will depart for training in the English language, so we can commence our bilingual education project. At the same time, we will undertake the nationwide construction of vocational colleges. The Universal Fellowship will be strengthened and the benefits for people over 65 will be increased from 70 to 120, and we will promote an agreement with the Social Security Fund to provide
Diplomacy
health coverage to these senior citizens. We have been blessed by the Panama Canal, a work in the service of our country and global trade. As President, I will ensure that the expansion of the Canal is culminated successfully, protecting the interests of the Panamanian State. I wish to send a message to all producers in Chiriqui and to our farmers: farm your land and resume production. As President of the country, there is a man in whose veins runs peasant blood who will give them all the support they require, and price and market stability to increase our food production and ensure food security. I invite the health and education sectors for immediate dialogue. The unification of medical services can wait no longer. The savings will be split into two, with one half to improve services and the other to increase the salaries of our health workers. With regard to the education sector, dialogue in search of improving education and working conditions is a permanent process. The doors of the presidency will be open to all Panamanians who struggle and work daily for our country. Respect and tolerance will be the basis of our ties with all trade unions and associations in the country. Today, a new stage of maturity, respect, and institutional strengthening starts for our country. We aim to protect the lives of all citizens. This is our only mission and from this moment, partisan politics will be once and for all removed from our security agencies. I have appointed qualified officers to direct all our security sectors. With them, and the 15,000 men and women who are part of the public security force, we will work
Image: Jose Jiménez
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From this moment we start the most important aspect: the transformation from politics based on business and patronage to jifcnc]m\[m_^ihm_lpc]_[h^[]f_[lpcmcih`ilnb_mn[n_(Q_qcff _h]iol[a_`il_cahchp_mng_hn[h^niolcmg^_p_fijg_hn&chm_[l]b of creating more jobs with higher wages.
to remove organized crime, drug traffickers, and money launderers from our neighborhoods, our country, and our region in order to protect our citizens and the integrity of our financial and logistic system. I make a call to lay aside any differences and to seek the progress and welfare of our people, the social peace necessary to move forward together as a nation and make way for a new era of peace, and prosperity and equity for all Panamanians and for those who have made this land their new home. With great humility, I take the responsibility and commitment to set up an honest and transparent government that will respect the balance by which the Panamanian people voted in the elections, and that will invest the wealth of our country so as to positively impact the quality of life of all Panamanians, without distinction of any kind. For Panama to be a role model of democracy we will always seek the unity of our people and our region, supporting a non-confrontational world where our enemies will be hunger, inequality, and the other problems that affect us.
The main project in Panama is the expansion of the Canal, slated to \_×hcmb_^ch,*+/
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PANAMA 2014
INTERVIEW
IN NUMBERS Foreign Affairs of the Republic of Panama
at the HELM TBY meets with Francisco Álvarez de Soto, Former Minister of Foreign Affairs of the Republic of Panama, on relations with the EU, joining the Pacific Alliance, and developing trade ties.
Number of Panama FTAs
18
Imports per year from Dominican Republic to Panama
25
Million USD
Percentage of the US investment in the Panamanian FDI
46.1% How have ties with the EU evolved since the signing of the free trade agreement (FTA) in August 2013?
Following the signing of this FTA, relations between Panama and the EU definitely changed and ensured stronger regional ties between Central America and Europe. This, along with the fact that Panama is the main investment partner of the EU in the region, also means more responsibility for our country when looking at ties between Panama and the EU. The trade pillar is, of course, accompanied by both a political and cooperative agreement. It will lead our country to put more emphasis on global matters that have importance also for the EU. We have shown this by being more outspoken on the Syrian and Iranian situation, both of which are pressing issues for Brussels.
BIO @l[h]cm]iàfp[l_t>_Mini was born in Panama City, \onb[mfcp_^chMj[ch&nb_ UK, Switzerland, and the US. He studied Economic Policy and Politics at Nof[h_Ohcp_lmcnsch New Orleans. He has also completed courses at the John F. Kennedy M]biifi`Aip_lhg_hn[n B[lp[l^Ohcp_lmcns[h^ nb_Ohcp_lmc^[^F[nch[ de Panamá. He practiced jlcp[n_fschnb_×_f^mi` international and business f[q\_`il_gipchaninb_ Council of Foreign Trade as a lawyer and negotiator with the European Union in 1998. He established ALVES & Co. ch,**+&[h^f[n_lgip_^ih to become Director of Law and Regulations in Cable & Wireless Panamá, the largest telecommunications ×lgch=_hnl[f;g_lc][( Prior to returning to jlcp[n_jl[]nc]_ch,*+-&b_ m_lp_^[mPc]_'Gchcmn_li` International Commercial Negotiations and ViceChancellor of the Republic, ip_lm__cha[hog\_li` mcahc×][hn\cf[n_l[ff_a[f agreements. In February 2014 he was appointed Minister of Foreign Affairs for Panama, a position he no longer holds.
Since Panama has shown inter_mn ch \_cha j[ln i` nb_ J[]c×] Alliance, what is the relevance of such a partnership for the country?
Joining the Pacific Alliance is a normal and natural move for Panama, a country that has been moving forward in terms of regional trade integration. In this context, we are already partners with the founding members of the Alliance, and closed an FTA with Mexico, a country with which we have also had long historical ties. Therefore, taking this context into consideration, it is only normal that Panama advances to a new stage, which is joining the Pacific Alliance. If we have not done it before, it has been due to technical issues regarding the conclusion of trade agreements with some of the members of the Alliance. Ultimately, we see the Pacific Alliance as a key element for advancing our strategy to become closer with Asia. In fact, Martinelli’s administration had always stated its aim of signing trade agreements with South Korea and, hopefully, Japan. We also have an important flow of trade with China. The Pacific Alliance is to become a key element in the process of the transformation and development of Panama’s foreign affairs policies and strategies.
Biq]iof^J[h[g[\_h_×n`lig closer ties with the Dominican Republic in the Caribbean region?
I think both countries can benefit from closer ties; the Dominican Republic considers itself as a gateway to the Caribbean region, something Panama also believes of itself, in terms of transport, capacity and trade. It is normal and natural for Panama to have such a belief, as we are both situated in the middle of the American continent. I think Panama is another platform for Caribbean countries, and, therefore, we can complement each other in a balanced way. For us, bilateral ties with the Dominican Republic are key and they have helped us to better address issues in the Caribbean region and to better understand its realities. Which sectors have the most potential to further develop trade ties with the Dominican Republic?
Panama is a services-oriented economy, meaning we believe that we can provide the Dominican Republic with excellent services to support its foreign trade. At the same time, I think we can benefit from light-manufacturing works from the Dominican Republic. For example, the light-manufacturing sector could benefit significantly from closer ties between both countries, as well as the agriculture industry. In this context, the agriculture industry would also include equipment, fertilizers, and related products.
Diplomacy
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GUEST SPEAKER
going CENTRAL How have bilateral ties between Panama and Guatemala developed in recent years?
BIO Otto Pérez Molina began his military career in 1966, distinguishing himself through discipline and leadership skills before going on to complete his studies in defense and international relations in the US and Costa Rica. In his capacity as a senior military leader, he was instrumental in the reestablishment of democracy in Guatemala in the mid-1980s, and in 1993 was declared one of the top 10 personalities of the year by the Chamber of Free Enterprise of Guatemala. In the late 1990s, he became head of the Guatemalan delegation to the InterAmerican Defense Board, and was awarded with the Guatemalan Army Cross, before retiring with the highest honors. Following the foundation of the Patriotic Party in 2001, he has held a number of important public roles, ×h[ffs\_]igchaJl_mc^_hn of the Republic in 2012.
The ties between both countries are deep, strong, and dynamic, and over the past few years, they have only improved—the level of interaction has positively increased. However, I would also like to highlight ties between both countries within the Central American Integration Systema (SICA). Panama has grown at a rapid pace over the past few years, and it would be exceptional if we could spread such a trend to Central America through the SICA. Since both countries recently signed a Memorandum of Understanding (MoU) to boost trade, what are the sectors with the greatest potential to deepen relations?
Tourism is one of the sectors that sees a kind of monopolized trade relationship between both countries; however, I see an interesting potential in infrastructure projects and energy (including renewable energies), as well as many others. These will be the first steps to build even deeper and stronger trade ties between Panama and Guatemala. Let me add that there are already ongoing projects in these fields that have the participation of companies from Panama.
TBY talks to Hon. Mr. Otto Pérez Molina, President of the Republic of Guatemala, on the development of ties between Panama and Guatemala. To what extent has the marked decline in violence in Guatemala City impacted cooperation between both countries?
Over the past two years, Guatemala City has seen a 37% decline in homicide rates, coinciding with my tenure as President. We have already held fruitful meetings with Panama to boost the transfer of technology, intelligence, and communications that will ensure agility in tackling issues such as transnational crime. Over the past two years, we have strengthened ties between both countries in this field to make sure that current information is immediately at hand to tackle these problems. How do you see bilateral ties evolving over the next few years of your term?
Bilateral ties between Panama and Guatemala were already excellent before I took over the presidential office, and I truly expect them to remain positive over the years to come. We have grown closer over the years, and our common ties have reached people and communities from both countries.
What conclusions did you draw from the World Economic Forum on Latin America hosted in Panama City?
First of all, I would like to congratulate the President of Panama and its people for the milestone achievement of bringing such an internationally high-profile forum to our region. The event has set a precedent for future regional development, having placed Central America in the spotlight of international attention. Guatemala hopes to organize an equally high-profile event within the coming years. The World Economic Forum provided us and certain other nations with the opportunity to showcase regional developments and invite foreign investors to consider our countries.
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FOCUS REGION
think regional
ACT LOCAL Lying at the heart of the Western Hemisphere, Panama is looking to leverage its centrality with its regional neighbors.
By developing increasingly closer ties with its neighbors Panama is gradually emerging as an influential regional player. Traditionally, the vast majority of foreign policy matters were based around Panama’s concern with the Canal issue. Emphasis was also given to commercial interests in dealings with other nations, but this came after concern for managing the politics of the Canal. Economic sectors associated with international trade, such as the Colón Free Trade Zone, banking, and shipping were the defining interests in Panama’s foreign economic relations. Panama maintains regional Free Trade Agreements (FTAs) with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Chile—as well as Canada, Singapore, Taiwan, the EU, and the US. This focus on commerce and trade is crucial to understanding Panama’s relations with both the region and the wider world; it has some of the lowest import tariffs in Latin America and is known for its liberal trade and investment regimes. The country has an export-oriented economy and is already a dynamic international hub for such activities as shipping and banking. For a great deal of recent history, much of Panamanian diplomatic engagement with its neighbors was related to the effort to gain regional support in negotiations with the US over renewing the Canal treaty, when Panama needed to negotiate a strong hand, which the US sought to undermine. There were,
Nb_J[]c×];ffc[h]_ Source: TBY Research
MEXICO
COSTA RICA PANAMA COLOMBIA
PERU
Countries in the Alliance Countries in the process of joining the Alliance
CHILE
of course, incidents that further strained US-Panamanian relations. It is not forgotten in Panama City that the US invaded Panama in 1989 to overthrow its former ally, military ruler Manuel Noriega, over his use of the country as a link in the drug trafficking chain. Panama looks more actively outward now. As an example of regional cooperation, the government of President Juan Carlos Varela has made significant policy improvements in terms of improving cooperation with international organizations, tracking flows of money, and strengthening the local police. Under the auspices of its role in the Organization of American States (OAS), Panama will also host the Seventh Summit of the Americas in April 2015. Sharing responsibility in confronting the threat of organized crime and drug trafficking will feature high on the agenda, and efforts to implement the Central American Security Strategy, which will mainly take place through regional mechanisms, will surely be seen as a regional effort. Panama also engages its neighbors through its membership in The Association of Caribbean States (ACS). Founded in 1994 in Colombia, the ACS is tasked with the objective of promoting consultation, cooperation, and concerted action between all the economies of the Caribbean. With the growth of the Panamanian and neighboring middle classes, tourism between Latin American nations is becoming high priority. Otto Pérez Molina, President of the Republic of Guatemala, describes the issue this way: “Tourism is one of the sectors that sees a kind of monopolized trade relationship between Panama and Guatemala; however, I see an interesting potential in infrastructure projects and energy (including renewable energies), as well as many others.” Slightly further afield, Panama is also joining the club of nations known as the Pacific Alliance. Francisco Álvarez de Soto, Minister of Foreign Affairs, told TBY that, “Joining the Pacific Alliance is a normal and natural move for Panama, a country that has been moving forward in terms of regional trade integration. In this context, we are already partners with the founding members of the Alliance and we aim at closing a future agreement with Mexico, a country with which we have also had long historical ties.” One example of the Pacific Alliance at work is the increasing coordination amongst trade representatives and export promotion agencies. While competitors in specific market segments, their collective economic growth benefits from a degree of coordination and collaboration. There are also visa waivers issued for skilled labor, jointly managed education programs, and zero level tariffs for 90% of the bloc’s trade. There are tangible benefits to adopting a regional—and global—rather than inward looking approach. And Panama is well placed to reap the rewards.
Diplomacy
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GUEST SPEAKER
ISLANDS in the sun
Population 1.3 million Capital Port of Spain Area 5,128 square kilometer Major language English
Trinidad & Tobago and Panama signed two agreements in 2012 to boost cooperation in the areas of energy and trade. What is your assessment on the relations between both countries?
For us, it is energy, and for Panama, which is developing quickly, energy is vital. Recently, a Trinidadian stateowned company called National Petroleum (NP) signed an agreement with a Panamanian company for the distribution of lubricant products. There is also the Energy Partial Scope Agreement that we had before this came as a result of our first agreement for the NP Energy Corporation. There are several other projects from companies that were in need of LPG, because at the time it was advised that there is a third party that was purchasing the LPG and then selling it, which implied very
TBY talks to HE Kamla Persad-‐Bissessar, Prime Minister of the Republic of Trinidad & Tobago, on developing trade, travel, and bilateral relations.
BIO Kamla Persad-Bissessar mno^c_^[nnb_Ohcp_lmcnsi` the West Indies, Norwood Technical College (England), and the Hugh Wooding Law School. Consequently, she was awarded a BA (Hons.), a Diploma in Education, a BA of Laws (Hons.), and a F_a[f?^o][ncih=_lnc×][n_( In 2006 she obtained an ?r_]oncp_G[mn_l!m^_al__ in Business Administration (EMBA) from the Arthur Lok Jack Graduate School of Business, Trinidad. On completion of her studies, Persad-Bissessar entered the teaching profession. In 1987, she entered the jifcnc][f[l_h[[h^m_lp_^ as an alderman for St. Patrick County Council. Since 1995 she has been the Member of Parliament for Mcj[lc[&m_lpcha[m;nnilh_s General, Minister of Legal Affairs, and Minister of Education between 1995 and 2001. On May 26, 2010, nqi^[sm[`n_l[pc]nils[n the polls, Persad-Bissessar created history becoming nb_×lmnqig[hnibif^nb_ i`×]_i`Jlcg_Gchcmn_li` the Republic of Trinidad and Tobago.
high costs. We looked for ways in which Panama could buy directly from our national gas company, allowing it to buy directly from our producers instead of from a third party, which would help lower costs We were not able to implement that fully because we had contracts with other buyers, some of which will expire in June 2014. What are the main areas of importance for Trinidad & Tobago in Panama, and what is your outlook over the medium term for these relations?
For us, the Partial Scope Agreement picked up a lot of agricultural production. Importing food from an area closer to Trinidad and Tobago would be beneficial financially because the costs would be lower for an already elevated food import rate. Another area of keen interest is tourism. We have two kinds of tourism: Trinidad is more business-oriented, while Tobago is still the idyllic island that it was many years ago. Therefore, you can experience the sand, sea, and sun when you come to our nation, while on business. Trinidad is
the center for business while Tobago is the place to relax by the sea under the sun. We are also looking for investments in the ICT, maritime, and creative industries sectors, which includes film making, fashion, and music. Our music is some of the most diverse, because our people come from all over the world. It is such a diverse society and music has been influenced by the Spanish, Colombians, Indians, and Africans, with influences from all continents. I think our country has the most public holidays, which is due to the melting pot of religions, creeds and races represented all in one place. Trinidad and Tobago does not have a permanent mission or diplomatic representation in Panama. It is something that we are considering. President Martinelli was vocal in advocating that we establish an office here. Currently, our embassy in Costa Rica is accredited for Panama; however, it is far away. We have an excellent ambassador and she has been promoting Trinidad-Panama trade because of our position in the Caribbean Community (CARICOM). I was the Chair of CARICOM until December 2013, and I think that there is tremendous benefit for Panama in liaising with this group of 14 nations, which are still part of the Association of Caribbean States (ACS), which includes many Central, Latin, and South American countries. I think Trinidad & Tobago has not had much interaction with Latin and South America. Since Martinelli became President and I took office, I have been working more closely with this part of the world. I do believe in South-South cooperation given the proximity.
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GUEST SPEAKER
WE HAVE connections
How would you assess bilateral ties with Panama?
We have enjoyed excellent bilateral ties with Panama since 1929. Today, 97% of our trade exchange concerns chemical and pharmaceutical products. This is in itself a great opportunity, as over the years this trend has opened the door to new trade and business opportunities for both countries. Our collaboration has gone also beyond these fields, and we have exported Puerto Rican services such as engineering training and infrastructure development. This experience has proven highly positive, and we currently also extending these activities to Colombia and Peru. How has the Free Trade Agreement (FTA) signed between Panama and the US impacted the Puerto Rican economy?
Recent studies show that as regional economies expand, so too does Puerto Rico’s presence in their trade balance. Therefore, at a time of economic flourishing in Latin America, Puerto Rico is faced with numerous opportunities to expand its economic ties with these countries, while also diversifying its industrial output. Puerto Rico is a natural bridge to the US for many Latin American countries. Over the past couple of years, we have strengthened trade and logistics ties with Europe and Latin America, and have seen several European companies establishing operations in Puerto Rico to reach the US and Latin America. Apart from the pharmaceutical industry, what other strategic sectors does your government aim to develop?
We are in the process of diversifying our economy. Agriculture and textile manufacturing have been two traditionally strong sectors in Puerto Rico that we need to revive. Meanwhile, chemical products and medical devices are two segments with the potential to boost our economic diversification. Currently,
TBY talks to HE Alejandro J. García Padilla, Governor of the Commonwealth of Puerto Rico, on bilateral agreements, FTAs, and strategic sectors.
IN NUMBERS Governor of the Commonwealth of Puerto Rico
Puerto Rico to j[mm×lmn\[f[h]_^ budget in
22 Years
48% of the economy dependent on manufacturing
48% of our economy depends on manufacturing activities, and we are well aware of the need to diversify to foster a more dynamic economy. In this context, we have taken positive steps within the aerospace industry, as exemplified by Lufthansa. These efforts have also enabled us to attract software production activity related to this industry. The main multinationals in this sphere are present in Puerto Rico, which is significant. They create many job opportunities for our people, and as a country we have been fortunate enough to witness a shift toward R&D activities
and broader innovation in our economic activity. Meanwhile, the role tourism plays in the economy is increasing considerably, amid ever-greater arrivals. We attract many cruise companies into the country, while over 1,000 additional beds are imminently scheduled for addition to Puerto Rico’s touristic offering. On a related and positive note, we have reduced crime rates by over 20% since I began my tenure as governor. What have been your main landmark achievements since you assumed the position of Governor of Puerto Rico?
Puerto Rico is set to pass its first balanced budget in 22 years. This will enable us to allocate more resources toward generating greater employment opportunities. We are also in the process of achieving a diversified industrial base for our economy. Chemical and pharmaceutical products, the aerospace industry, and the software production sector are three fields set to play a key role in our economy in the near future. Meanwhile, we need to transform our agricultural sector into a more efficient endeavor, and also renovate our tourism offering. These elements will enable us to become a more competitive economy in the region and the wider world.
BIO After going through college and law school in Puerto Rico, Alejandro J. García Padilla clerked on the ;jj_ff[n_=cl]ocn&m_lp_^[m [f_acmf[ncp_[c^_&^cl_]n_^ the Association of General Contractors, and practiced f[q[n[q_ff'l_jon_^×lg& focusing on contracts and real estate. He went ihnim_lp_[mM_]l_n[ls of the Department of Consumer Affairs, where he championed the rights of ordinary Puerto Ricans. In 2008, Alejandro was elected to the Commonwealth Legislature with the most pin_mi`[hsm_h[nil`lig either party. In 2011, after announcing his intention to loh`ilAip_lhili`Jo_lni Rico, he was unanimously elected President of the Popular Democratic Party.
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WEF IN PANAMA FOCUS
STUCK in the MIDDLE As Host of the 2014 World Economic Forum (WEF) on Latin America, Panama was able to advertise its socio-economic growth on an international stage. IN APRIL 2014, the ninth edition of the World Economic Forum (WEF) on Latin America took place in Panama under the theme of “Opening Pathways for Shared Progress,” hosting regional and global leaders to discuss related challenges and prospects. Among the over 600 attendees, representing over 50 countries were notables such as the President of Mexico, Enrique Peña Nieto, Otto Pérez Molina, the President of Guatemala, Former President of Costa Rica Laura Chinchilla, President of the Republic of Kosovo, Atifete Jahjaga, and the Prime Minister of Trinidad and Tobago, Kamla Persad-Bissessar. The central themes of the 2014 WEF on Latin America were the region’s efforts to diversify its economies, increasing competitiveness and productivity, developing infrastructure, improving educational standards, and utilizing the regions young population to drive growth and development. In his opening remarks, former President of Panama Ricardo Martinelli highlighted how Panama, on double-digit GDP growth, had emerged as the country with the highest economic growth in the region, as well as the most competitive economy in Latin America after Chile. Former President Martinelli made these comments to emphasize the importance of the private sector as a driver of the economy, and as a component in the fight against poverty. With foreign direct investment tripling to $4.6 trillion since 2009, Panama has achieved a real global trade status, having emerged as a major banking and financial services center. Infrastructure was also a focus of attention throughout the forum. According to Enrique García, the President of the Development Bank of Latin America (CAF), the investment in social infrastructure (education, services, and health) in Latin America is 3% of GDP, but should be at least double that amount. García argued that the emerging middle class is creating new kinds of demands, and he pointed out the impor-
tance of the private sector in meeting these new requirements. This discourse was underlined by Martinelli, who added that strong investment in infrastructure for health, public transport, and education in Panama has resulted in thousands of million dollars for new hospitals, a new transport system, schools, and other social services. In this sense, the first metro system in Central America is in Panama and the expansion of the International Airport of Tocumen will make it one of the most important travel hubs in Latin America. During the forum, the Pacific Alliance was another the key subjects. World leaders discussed how the Pacific Alliance (Colombia, Chile, Mexico, and Peru) is a powerful integration mechanism and the most promising national group in Latin America. This alliance has already approved the inclusion of Costa Rica, and Panama will soon be incorporated as well. According to the former President of Costa Rica, Laura Chinchilla, this alliance is one of the best things to have happened in Latin America, because it is a group of nations advocating solid economic integration, with a clear notion of global economic and political trends. Laura Chinchilla added that the agreement between Europe and the US was set to be one of the main challenges facing the Latin American economy. Panama took a significant step toward entry into the Pacific Alliance during the forum, after signing a Free Trade Agreement (FTA) with Mexico, with the objective of consolidating as a platform to produce and distribute goods and services to the north and south of the continent, geared at increasing trade and investment in both nations. According to the former Panamanian head of state Ricardo Martinelli, the FTA paves the way for the country’s entrance into the Alliance. He also proposed that the physical headquarters of the block be established in Panama, given its geographic location in between Mexico and Chile.
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GUEST SPEAKER
OLD friends TBY talks to Rt. Hon. Minister of State for Latin America at the Foreign & Commonwealth Office of the UK, on boosting trade, bilateral relations, and double taxation treaties.
IN NUMBERS Foreign & Commonwealth Office of the United Kingdom In what ways has the Memorandum of Understanding (MoU) signed in November 2012 by Panama and UK boosted the commercial relations between both countries?
I was delighted to sign the MoU during my visit to Panama in November 2012. It sets out a shared commitment to strengthening our relationship. But it is not an end in itself; we need to continue to work hard to turn that commitment into results. I visited again in mid-2014 to follow up Panama’s new government following the May elections. I was reminded of the country’s great potential, and of the reasons why so many British companies are already doing business there. The World Economic Forum ranks Panama’s economy as the second most competitive in Latin America, boasting the top-10 global rankings in its airport and port networks, the soundness of its banks, and its access to financial services. That is why the stock of UK FDI in Panama now stands at £1.95 billion, second only to the US.
Stock of UK FDI in Panama at
1.95 Billion Pounds
In 2012, for example, we saw the Travelex Group win a concession to operate a foreign exchange bureau at Panama City’s international airport, which was a great boost to trade. This airport is now also being further developed with the help of British firm Foster and Partners. Elsewhere, London & Regional continues to lead Panama’s urban regeneration through its impressive Panama Pacifico project, while Cable & Wireless has launched transformative new products, such as a mobile banking application. Panama is also increasingly positioning itself as a regional logistics and connectivity hub, which is why companies like Diageo use it to get their products closer to the final market. The Scotch Whisky Association re-
ported £58 million of whiskey sales to Panama in 2013, the third largest market in the region and a 15% YoY increase. These examples demonstrate Panama’s growing importance as a commercial partner for the UK in Latin America, and show how the UK has consolidated its position as one of the leading foreign investors in Panama. However, I am convinced that we can do more. The new government has set out its commitment to tackling corruption, and I welcome this. We have found in the UK that foreign investors tend to respond well to certainty and transparency. We are already doing work with Panama to promote a rulesbased economic system, and I hope we can cooperate ever more closely in this area. Following the Double Taxation Agreement signed by Panama and UK in July 2013, you expressed your enthusiasm for the strengthening of the bilateral relations. Which are the economic sectors with a bigger potential for development between Panama and UK?
The Double Taxation Convention was a really important step. It established a new channel of information sharing between the UK and Panama, which we believe could lead to the recovery of up to £1 billion in tax revenues in the UK alone. And as well as improving transparency, it also has the potential to encourage more UK investment in Panama by reducing the tax barriers to cross-border investment and putting UK business on an equal footing with competitors from those countries that already have a similar agreement in place, such as France, Italy, the Netherlands, and Spain. It is a business-friendly treaty that safeguards against tax avoid-
ance and against other issues that can damage trade. This is one example of the work we are doing to boost UK commerce the world over. I think there is particular potential in our partnership with Panama, not least because of the similarities between us. Just as the UK is the gateway to Europe, Panama is the gateway to Latin America. We are both trading nations at heart, with a strong maritime history. I saw for myself the construction of the astonishing new lock at the Panama Canal, which I am sure will cement its position as the world’s busiest trade route. I was able to recall Britain’s own connection to the canal, by unveiling a plaque to commemorate the Herculean efforts of the British West Indian community in its construction 100 years ago.
BIO Hugo Swire was appointed Minister of State at the Foreign & =iggihq_[fnbI`×]_ on 4 September 2012. Besides his geographical responsibilities he also ip_lm__mjo\fc]^cjfig[]s and the GREAT campaign, and prosperity work, including the FCO’s relations with British business. Landmarks of his political career include his _f_]ncih[m=ihm_lp[ncp_ Member of Parliament for ?[mn>_pihchDoh_,**+( B_mo\m_ko_hnfsm_lp_^ ch>[pc^=[g_lihÎm×lmn Shadow Cabinet as the Shadow Secretary of State for Culture, Media and Sport between 2005 and 2007. He then became Minister of State for Northern Ireland in the ]i[fcncihAip_lhg_hnch May 2010. In 2011, Mr Swire was sworn in as [g_g\_li`nb_Jlcps Council.
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Panama’s Special Economic Zones are being expanded with a view to boosting commercial activity across several sectors.
The expansion of the Panama Canal, due for completion in 2015, is creating jobs as well as economic prospects.
With numerous free zones and new legislation more appealing to multinational companies, foreign firms are choosing Panama.
Economy REVIEW
Panama’s economy is on the crest of a wave that started building in 2007, when work began on a transformative expansion of the Canal’s capacity.
TAILORED SOLUTIONS
L
atin America’s fastest growing economy has much to offer potential investors, as incumbent President Varela and his administration are keenly aware. Using the US dollar and a domestic variation, the Balboa, combined with a robust services sector focused largely around the unrivaled logistics capacity of the Panama Canal and the multi-purpose port facilities that serve it, Panama’s economy is showing promising growth potential for the coming years. Economic growth for the past five years has been strong, with the country capitalizing on the canal expansion mega-project, an endeavor that has inspired confidence in the market, despite some recent minor setbacks in the implementation phase. A range of other major projects was started under Former President Martinelli’s regime, within the rubric of the government’s Strategic Plan for 2010-2014.
UNDER DEVELOPMENT This document clearly outlined a policy that has been
Even though Panama is only a small country, it punches well above its weight when it comes to economic power, and with the establishment of free trade zones and the expansion of the Panama Canal it is likely to continue on its current path.
followed over the period in question, and which prioritized the promotion of opportunities for the fragments of society and parts of the country, which have been marginalized historically. In the six years leading up to 2012, poverty in Panama declined by 10 percentage points. In parallel, unemployment in 2006 stood at over 10%, and had dropped to approximately 4.3% of the labor force by March 2014. In addition, a determined drive to reinforce government institutions and reduce corruption, while developing stronger, more transparent links with the private sector has been pursued enthusiastically. The challenges inherent in striving for a more equitable distribution of national fortunes, while maintaining competitiveness, have been deftly managed by the incumbent and previous governments, a fact borne out by international assessments of the economy. A Moody’s Baa2 rating with a stable outlook, received in December 2013, indicated the consistently business-friendly policies
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that have been guaranteed by the authorities. The country’s economic strength was rated as high, as was its fiscal strength, while institutional strength and susceptibility to events were measured as moderate. Similarly, Fitch and Standard & Poor’s evaluations offered positive results, with Panama attaining BBB ratings from both.
COMMERCIAL CHALLENGES The confidence being displayed by international investors and analysts is reflected in high levels of growth in FDI, and demonstrates just how well policymakers overcame a potentially alarming appraisal by the Organization for Economic Development (OECD) in 2009. In that year, the OECD briefly included Panama on its gray-list of tax havens, more precisely of countries which had not signed ‘tax information exchange agreements” with other nations. These agreements are a stipulation of the OECD’s Article 26, which calls on nations to disregard domestic banking secrecy laws to share tax information. Panama complied, and was promptly removed from the list, bringing it into line with international standards and guaranteeing a positive reputation. Commercial ties with the hemisphere’s principal economy have been bolstered by the signing of the US-Panama Trade Promotion Agreement, which was promulgated in 2011 and implemented in October 2012. This arrangement eliminated taxes for almost 90% of goods exported to Panama from the US, and facilitated the process of doing business with the Panamanian government. This has further opened up an already free economy, and improved macroeconomic prospects for the Central American nation.
MACRO CONSIDERATIONS Upbeat predictions for Panama’s growing economy are based on its solid macro-economic indicators. The country ended 2013 with a GDP of $42.648 billion, showing growth of 8.4% over the year, according to government sources. Inflation dropped to 4% from 5.7% in 2012, considerably lower than the 8.8% high of 2008. Approximately 78% of GDP is represented by the services sector, which encompasses the Canal, the considerable maritime base of the ports of Balboa, Cristóbal, Manzanillo, and Colón, among others, and the Colón Free Zone, as well as extensive logistics infrastructure. In addition to these primary contributors, the financial and insurance sectors, along with tourism, play a significant role in the economy. Industry accounts for around 17.9%, while agriculture rounds out the figures with 3.7% of the total. FDI, as noted, continues to increase, having risen by 21% in 1H2014, compared with the same period in 2013. Specific sectors to have received substantial investment included $175 million in banks, $187 million in the banking license sector, and $158 million in free zone enterprises; figures that bode well for the rest of the year. However, the current account deficit (CAD), while acknowledged to be within reasonable limits by observers such as Moody’s, is widening, reaching $4.66 billion for 2013. In the first half of 2014, this grew to 3.2% of GDP. In an effort to curb this fiscal slip, President Varela announced the sale of $1.25 billion in ten-year bonds in the summer of 2014, following his accession. It is hoped that this move, in combination with the halting of over $600 million in infrastructure projects that had been taken on by the preceding government, will go some way to reaching a healthier financial state.
LUIS GERMÁN GÓMEZ President, Asociación de Usuarios de la Zona Libre de Colón What makes Colón different from other free zones around the world? People think that Hong Kong is the biggest free zone in the world, but actually it is only a port. In terms of free zones, we are the biggest in the world. In general terms, free zones in Latin America are industrial areas, such as the Uruguay Free Tih_(Biq_p_l&nb_=ifh@l__Tih_q[mchcnc[ffs created for trade. The difference here compared qcnbinb_l[l_[mcmnb[nsiob[p_nb_g_l]b[h^cm_ [p[cf[\f_chsiol]iohnlschf_mmnb[h[q__e&^o_ ninb_al_[n]ihh_]ncpcnsi`nb_]iohnls(;hinb_l [^p[hn[a_cmnb_]l_^cn`[]cfcnsnb[nnb_]igj[hc_m [nnb_=ifh@l__Tih_b[p_`ilnb_cl]fc_hnm5cncm the best in Latin America. What is the importance of the Colón Free Zone for Panama in terms of trade and job creation? Q_b[p_-*&***^cl_]n_gjfis__m&[h^`il[fiha time we were the sector with the largest contribu-
tion to Panamanian GDP. This was the case up until 2000 when the Panama Canal was handed back to the Panamanian people, and the tourism sector started to grow in strength. After 2000, we became the third biggest sector in importance in terms of GDP, and as I said, this is not because our growth decreased, but because other sectors grew. If we take this fact into account, we represent perhaps ,* i`J[h[g[Îmip_l[ffA>J( What will be the impact of the inclusion of J[h[g[chnb_J[]c×];ffc[h]_`ilnb_]igj[hc_m established at the free zone? Q_b[p_al_[n_rj_]n[ncihm\_][om_nb_J[]c×] ;ffc[h]_]iohnlc_mb[p_mnliha_]ihigc_m(Ih]_q_ b[p_\__hnblioabnb_l[nc×][ncihjli]_^ol_qcnb the Colombian Senate, we will be ready to join the Alliance. As a logistics country, and transit point for nb_m_`iol\ca_]ihigc_m&q_b[p_[al_[n]b[h]_ni \_]ig_nb_ËMcha[jil_Ìi`nb_J[]c×];ffc[h]_(
Economy
FDI&H_nChØiqm"
EL PRESUPUESTO
Source: World Bank
The budget for 2015 anticipates spending of over $4 billion on public social projects, out of a total of $19.5 billion, 7% more than the amount designated for 2014. Around $10 billion is intended for spending on public debt, with overall calculations based on predictions of economic growth of around 6.5% with an inflation rate of 4.3%. Costs left over from the previous administration include up to $2.7 billion for line one of the Panama City Metro, a key urban infrastructure improvement unveiled in April 2014. Of this outstanding debt, $250 million will be covered in 2015. In spite of these involuntary responsibilities, the status of infrastructural development in the country is favorable, with the obvious example of the Panama Canal expansion project on course for completion in 4Q2015. Since being handed over to Panamanian sovereignty at the end of 1999, the waterway has seen a steady stream of traffic pass through its famous locks. This volume of cargo has precipitated high levels of investment in the maritime sector, at over $1 billion in value, prompting the 2006 referendum on expanding the canal to accommodate larger ships in higher quantities. Progress on this project has been consistent, and in spite of slight interruptions resulting from labor activism and issues related to construction materials, hopes are high for the renowned trade route.
6 5 4 3 2 1
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
GDP (Current USD, Millions) Source: World Bank
45
40
35
30
25
HOW IT’S DONE
20
15
10
5
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
ChØ[ncih&=ihmog_lJlc]_m";hho[f # Source: World Bank
10 8 6 4 2
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
Though manufacturing represents a minor share of Panama’s economy, other opportunities exist in sectors such as IT. However, human resources challenges are notable. Efforts to improve education and skills among citizens in the labor pool are ongoing, as the relatively small population of the country struggles to keep up with the uninterrupted growth of the economy. Attracting skilled foreign labor will remain a key concern of the government moving into 2015, as will the quelling of dissent from Panamanians who feel that immigrant employees from Colombia, Costa Rica, and other nearby countries are monopolizing the job market. Companies are continuing to invest in the sector, however, with major global corporations such as Dell, AT&T, Sprint, and LG each running subsidiaries on the ground. The country’s sizable outsourcing segment also provides a certain impetus to the sector. Panama, now well into its second century as a nation, and having just celebrated its canal’s centenary, is in an enviable position. With canny guidance from the newly-elected Varela and a continuation of liberal economic policies, the sky is the limit for what can be achieved. Once the deficit is kept in check, and provided foreign firms remain confident in the advantageous financial and legal system, the cargo should keep rolling through, funding Panamanian dreams of regional economic preeminence.
THEBUSINESSYEAR
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Commercial ties with the hemisphere’s principal economy b[p_\__h\ifmn_l_^ by the signing of the US-Panama Trade Promotion Agreement.
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THEBUSINESSYEAR
PANAMA 2014
INTERVIEW
free for ALL TBY talks to Leopoldo Benedetti, Former General Manager of Colón Free Trade Zone (FTZ), on employment, growth in the zone, and foreign entities. How was the free zone established, and with which initial objectives?
Colón was initially called the “Golden Cup,” because the US army was stationed in the city, resulting in a range of employment opportunities. However, the withdrawal of troops from the region left it with a chronic unemployment problem. The initial idea behind a free zone in Panama, therefore, was employment creation, and a feasibility study was carried out to establish its optimum location. And with its port, rail links, airport, and access to the Panama Canal, the choice was made to establish it in Colón. The Canal now generates over 10,000 jobs, while the free zone generates work for 32,000 people.
BIO Leopoldo Benedetti studied chemical engineering at nb_ChmncnoniN_]hifac]i y Estudios Superiores de Monterrey in Mexico. From 1968 to 1971 he worked as a process engineer at L_×h_l[J[h[g&[h^ then as General Manager at Bienes Raíces del J[]×]iohncf+310(Inb_l professional experience includes the position of General Manager at Constructora R.H. Leon ohncf+32/&[nChp_lmcih_m Benedetti until 2009, and at Constructora 2000, and L_]c]f[d_m^_=ifh`lig the 1990s to 2004. He is also a Lieutenant Colonel chnb_=ifh×l_×abn_lm and an industrial security chmj_]nil(Ip_lnb_j[mn four decades he has been b_[^i`nb_=ifh=b[g\_l of Commerce, and the G[sil[h^Aip_lhili` =ifh^cmnlc]n[h^jlipch]_& l_mj_]ncp_fs(
How did the zone grow from 10 original companies to around 3,000 today?
The Colón Free Trade Zone (FTZ), as a purely commercial zone, is the largest FTZ in the world. We have gone from a free zone of 30 hectares and 10 companies to one housing 3,200 companies on 1,000 hectares of land, and the Colón FTZ has, therefore, seen impressive growth. In 2009, re-exports and imports were in the range of $19 billion, while 2012 closed on $30.6 billion. In 2013, we saw a decline to $27 billion, due to the problems of Colombia and Venezuela. This year is seeing further decline due to the woes of the global markets, and again, especially due to problems between Venezuela and Colombia. How does the Colón FTZ contribute to national development, particularly in terms of job creation?
The contribution is substantial, as it represents 7.6% of GDP, which amounts to around
$1.8 billion annually. Aside from the 32,000 direct jobs at the FTZ, indirect jobs number around 60,000. Most of the properties in Paitilla, Marbella, and Costa del Este are users of Colón FTZ, and each has had great success here. The Colón FTZ has contributed greatly to the growth of Panama, not only in terms of GDP, but also for the banking sector. The owners of most banks in Panama are from abroad. What are the requirements for a ]igj[hsniij_h[hi`×]_[nnb_ Colón FTZ?
It is a simple process that begins with the company meeting with our legal department. We also do a background check on the company’s directors through Interpol, to be sure of their credentials, and to curb any potential money laundering. Once approved, a key-number is assigned to the company, which allows it to import and export. If the company does anything extraordinary, the key number is suspended and no longer provides access to the free zone. The operations of every company must also create at least five jobs. What impact will the expansion of the Panama Canal have on the Colón FTZ?
Actually, the FTZ will not be particularly impacted by the expansion of the Panama Canal, as we will continue to receive our shipments in large or short vessels. The benefit will be for those who manage the shipping due to the significant savings to be made by working with larger ships and ports, and thus due to the handling of a greater volume of containers. There is also the potential for increased tourism as a result of the expansion, which would of course positively impact Colón.
IN NUMBERS Colón Free Trade Zone (FTZ)
Companies located in Colón FTZ
3,200 Colón FTZ contribution to Panamanian GDP
7.6% Direct jobs created by the companies at the FTZ
32,000 Do US and European companies have a strong presence at the Colón FTZ?
Our US operations represent around 7%, and Europe represents around 4%. Our commercial activity is mainly with South America, the Caribbean, and Central America. However, 70% of the merchandise that is re-exported and imported to the Colón FTZ comes from Asia. All appliances and electronics arrive from Malaysia, Taiwan, and Japan. We receive extensive merchandise from mainland China and Vietnam, which are also expanding.
Economy
THEBUSINESSYEAR
25
SPECIAL ZONES FOCUS
ZONED FOR GROWTH ONE OF THE MOST successful strategies to increase local investment and attract new business interests to Panama is the adoption of laws that facilitate the establishment of Special Economic Zones (SEZs). SEZs are located in different strategic points in the country and provide tax, immigration, and labor benefits in order to promote the development of specific economic activities. The most important and well-known SEZ is the Colón Free Zone (CFZ), which has arguably been the main commercial hub for Latin America and the Caribbean for the past 63 years. Located at the Atlantic entrance of the Panama Canal, it was created to promote international trade under a regulatory framework of tax benefits with the aim of developing economic activities related to wholesale, logistics, and banking, all sectors in which Panama has a noteworthy competitive advantage. The free zone occupies 1,064 hectares and contains exhibition areas, warehouses, and storage facilities. Partly due to the debt that Venezuelan companies have accrued, as well as the Colombian tax on certain textile products, the CFZ has not experienced some of its best moments this year. According to the Superintendency of Banks of Panama, the credits granted to companies located in the free zone has fallen by 7.4% in 2014. However, the CFZ continues to represent a full 7.6% of Panamanian GDP. “The contribution is substantial, as it represents around $1.8 billion of GDP per year, and aside from the 32,000 direct jobs at the FTZ, indirect jobs number around 60,000,” the Former General Manager of the Colón Free Trade Zone reported to TBY. This special economic area offers its users tax exemptions on imports, re-exports, and national income tax. Similar advantages are also offered by the Agencia Panamá Pacífico for the development of an international business center, attracting large multinational companies, logistics services, as well as many businesses and industries. The main objective of this economic area is to attract FDI and to increase job creation in Panama. The Agencia Panamá Pacífico has a total of 120 companies. Of these, 90 companies are currently operating at full capacity. These companies account for about 11,000 jobs, of which about 90% are Panamanian employees. Some examples of major international companies located at this area are Atlas Copco, Dell, Caterpillar, and Citibank. “The companies ask us why they should set up in Panama. It’s simple; we choose technology and transformation because we can move between the Atlantic
With the expansion of Panama’s Special Economic Zones, business leaders and government officials alike seek to marshal the nation’s resources and encourage the best possible mix of efficiency and growth.
and the Pacific easily through the Canal. We have the five most important fiber optic cables coming through Panama, and there will be two more installed in the next couple of years,” explained Olmedo Alfaro, Former General Manager of Panama Pacifico. Many other international companies and organizations, such as UNICEF, HP, Copa Airlines, and the Red Cross are established in Ciudad del Saber. This scientific, technological, and business park occupies the area and facilities of the former American military base of Clayton, constituting an excellent example of how to transform military infrastructure into a center for science, technology, and education. This space, with 120 acres and over 200 buildings, also offers tax advantages to its users. “Every year we accept only 10% of the companies that apply to join the technology park at the City of Knowledge because we are strict about our admission process,” said President of the City of Knowledge Foundation Jorge R. Arosemena. However, as Panama deepens its economic reforms and expands its regional influence, the trend is set to continue. If the model isn’t broken, why shift away from it?
Free zones are becoming an integral part of Panama's economy
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PANAMA 2014
B2B ZONE MANAGEMENT
OLMEDO ALFARO PRECIADO
JORGE R. AROSEMENA
Former CEO, Agencia Panamá Pacífico
President, City of Knowledge Foundation
Qb[n [l_ nb_ g[ch \_h_×nm i` your zone?
JORGE R. AROSEMENA Every year we only accept 10% of the companies that apply to join the technology park at the City of Knowledge because we are strict about our admission process. The benefits are tax exemptions; they can conduct international business from here, and they also have migratory status, guaranteed by City of Knowledge visas issued by the government of Panama. Once a company is affiliated to the City of Knowledge technology park, work permits are issued as another benefit. These are also offered by other projects in Panama, like Panamá Pacífico, among others.
OLMEDO ALFARO PRECIADO My first task was to find a true direction for a state-of-the-art, modern business. I felt that having a logistics center was not good enough; we had to go deeper and design something to serve the modern world. The ports will also expand. If they expand, then developing facilities for logistics is simply logical. We need to keep improving on our transformation. In the Area, foreign companies pay zero taxes on profits. Shareholders pay no taxes on the dividends. In exchange, I want the companies to pay the employees a good salary because they are well trained. The higher the salary the more taxes for the government. Things are simple and business is growing. The labor law in Panama says that you can only have 10% foreign labor. But if a global company can only find 80% Panamanian employees, we are flexible and find a way to approve that excess. The law can be flexible in dealing with short-term exigencies, but you have to have a plan that shows how you will achieve those legal requirements over the long term. What I don’t want is to have a company leave because of a legal technicality.
What are your main objectives? OAP If we take GDP as an indicator of job creation, we are far above that index. We have around 11,000 employees at the moment, while we create about 3,000 jobs per year. Those employees are not government employees. The companies ask us why they should set up in Panama. It is simple; we choose technology and transformation because we can move between the Atlantic and the Pacific easily through the Panama Canal. We have the five most important fiber-optic cables coming through Panama, and there will be two more installed in
pitch YOUR PLACE Housing one of the most important shipping lanes in the World, Panama has realized that free zones and specialized cities are an effective way to benefit from this passing trade.
the next couple of years. That gives the companies communications security. If one cable fails, there are more. You can send a huge amount of information, which gives Panama the opportunity to open up different businesses. We want to digitalize the cost of music production, for example, and with Warner Bros. we would like to run post-production facilities in the country. JRA The main objectives were the launching of a platform conformed by prestigious universities and research centers, along with high-tech businesses and eventually international organizations. The presence of these actors, with the participation of local counterparts, should create added value in the pursuit of knowledge and its application to answer the key questions brought about by the 21st century. With that
in mind, the first crucial decision led to the creation of a non-profit private foundation to facilitate continuity for this ambitious project. The model was organized around a board of trustees representing different sectors, including the academic-scientific community, the business community, the government, and labor unions. The presidents of the three main universities, the president of the Council of the Presidents of Universities, the National Secretary of Science, Technology, and Innovation, and a number of businessmen are part of the board of trustees of the foundation. We also have the ministers of Foreign Relations, Education, the Presidency, and of Finance and Economics, a representative of the National Assembly, our legislative body branch, as well as two representatives from organized labor unions.
Economy
THEBUSINESSYEAR
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CANAL EXPANSION FOCUS
LOCK ‘N’ LOAD On the 100th anniversary of the Panama Canal, it is once again expected to transform the nation, this time through a thorough overhaul.
AS AN ICONIC interoceanic global trade route, the Panama Canal has been facilitating the transport of goods and materials around the world for a century. Vital for international commerce, the approximately 77-kilometer long waterway allows 13,000 to 14,000 ships to pass from the Atlantic to the Pacific, and vice-versa, each year. The Canal was opened in August 1914, following the signing of the Hay-Bunau-Varilla Treaty in 1903, which granted the US complete control over the Canal and the territory flanking it in perpetuity. This right was relinquished in treaties signed by President Carter and President Omar Torrijos in 1977, which designated December 31, 1999 as the handover date of all control to the Panamanian state. Now representing one-fifth of GDP, the Panamanian maritime sector is of enormous importance, and is by far the fastest-growing sector in the economy. Massive investment in the renovation of the country’s shipping infrastructure over recent years has exceeded $1 billion, improving the ports of Balboa and Cristobal on the Pacific and Caribbean coasts respectively. These developments foreshadow the completion of a comprehensive expansion of the Panama Canal, ensuring that docks will be prepared for the unprecedented increase in traffic and cargo that will result. Most recently, President Varela has identified late 2015 as the expected date of completion for the $5.25 billion project, which has been continuously worked on since 2007. At present, vessels arriving from the Pacific enter Miraflores Docks, where they ascend through two locks to a water level that is 16 meters higher. After transiting the Miraflores Lake, they are again raised to 26 meters above sea level at the Pedro Miguel Locks. On the other side, the Gatún
Comparison Between Panamax and Post-Panamax Container Vessels Source: Hydro-International
Post Panamax Draft 15m Length of Post-Panamax Vessel: 366m
Panamax Draft 12m Length of Panamax Vessel: 294m
Post Panamax Beam 49m Length of Post-Panamax Vessel: 366m
Panamax Beam 32m Length of Panamax Vessel: 294m
locks take the ships down the full three steps. Up to 63 pyramids the size of those of Egypt could have been created with the excess material dug up for the canal. The primary routes served by ships transiting the passage are from the US east coast to Asia and the west coast of South America, from Europe to South America, and from Canada and the US west coast to Europe. The beginning of the expansion project launched an economic boom that has turned Panama City into a booming metropolis of over 1 million people, including its immediate hinterland. The 30,000 jobs created by this endeavor contributed to a slashing of unemployment to just over 4% in 2014, contrasting with a figure almost three times higher a decade prior. An organization, Grupos Unidos por el Canal (GUPC), was formed to undertake the massive project. Led by Spanish firm Sacyr, Belgian Jan de Nul, and Italian Constructora Urbana Panama (CUSA) and Impregilo, these companies and many thousands of laborers have been involved in widening the canal and building two new sets of locks to accommodate so-called “New Panamax” vessels. The new locks consist of three chambers each, with sliding gates, water basins, and filling and emptying systems. Panamax ships are capable of transporting up to 5,000 TEUs. In contrast, New Panamax container ships can move up to 15,000 TEUs and are longer, too. Existing lock chambers are 304.8 meters in length and 32.3 meters in width, but the new docks will be 427 meters in length and 49 meters across. New Panamax ships will transport higher volumes of containerized and bulk cargo, and will easily double the capacity of the canal when fully operational. The increase in traffic in the canal will augment the already well-established route, on which all major shipping firms have a weekly service at least. However, it has also inspired Panama’s Central American neighbor to consider its possibilities. Nicaragua’s parliament has voted to offer the Hong Kong Nicaragua Canal Development Investment Co. a 50-year concession to assess the potential of building a second canal across the hemisphere’s narrowest point. However, estimates set any potential canal at a length of 278 kilometers, and though it could potentially be at sea level over its full course, seismic and volcanic activity in the country have led some to doubt the project’s feasibility. Panama’s waterway has proven its worth, in contrast. After approximately 9 billion long tons of cargo, over 1 million ships, and one swimmer (intrepid traveler Richard Halliburton), the channel is still defining global logistics. Its enlargement will positively impact economies around the world, reducing shipping times and allowing the more efficient transport of goods around the planet. But the economy which will benefit most is Panama’s own, thanks to the fortuitous convergence of modern technology and the country’s unique location on the narrowest isthmus in the hemisphere.
A complex system of locks raises ships up 26 meters to the height of the Canal.
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FORUM WHY PANAMA?
With numerous free zones and new legislation more appealing to multinational companies, foreign firms are choosing Panama as a regional base of operations.
MIROSLAVA E. VILAR National Director of Investment Promotion, Proinvex
W
e have 106 companies operating under Law No.41, which is for multinationals. The law is beneficial in terms of labor issues, as their employees do not need a work permit to work in Panama and they are provided with a visa for five years. It also guarantees certain tax exemptions. As the money came from outside the country, they do not have to pay tax on it. In addition, they are not charged any labor or migration taxes. It is difficult for most companies to employ expatriates in many countries, but we do not have this problem, and that is why many multinationals choose to establish their headquarters here because it is simply more workable. One of the most promising sectors for companies to get involved in is construction. Financial services are also growing, but I will have to say that, in relation to this, Bancolombia bought HSBC in a huge transaction, and right now it is one of the main banks present in Panama. Financial services have always been one of the more attractive sectors.
the place TO BE
JOSÉ LUIS FORD
DAVID CARIUS
Chamber of Commerce, Industries, and Agriculture of Panama
President, American Chamber of Commerce and Industry of Panama (PanAmcham)
W
e developed a committee run by one of our presidents that created a joint venture to assess business necessities and how the Chamber could help satisfy those needs. For example, in Panamá Pacífico, one of the main bases for multinational companies, around 9,000 or 10,000 jobs have been created to date. The presence of these enterprises in Panama has helped to increase employment opportunities in terms of wages and salaries. One of the factors attracting companies is the legal framework. Then, of course, there is the connectivity offered by the national airline, the low cost of living in Panama, and the stability and security of the country. I expect GDP growth of close to 7% in 2014. Direct investments should approach $3 billion, and the most dynamic sectors currently are logistics, construction, retail, and wholesale, as well as finance and insurance. Industry and agriculture will remain limited contributors to the economy. Unemployment will be stable at 4%, and the inflation rate will be close to 3% or 4%.
W
e always talk about Panama as the business gateway of the Americas. There is the canal, railway, ports, duty free zone, and the banking sector. Beyond that, there is a growing service and agro industry. It just makes sense. We always talk about the Panama Canal, but one should also consider the fiber-optic infrastructure here as well. It is a very solid location. Many US companies enjoy benefits from taxes to insurance, but beyond that exists the Panamá Pacífico, the City of Knowledge, and business incubators. To date, under the Multinational Headquarters Law (SEM) initiative alone, there are 26 American companies operating in Panama, not to mention many others under different investment schemes. Over the last year, the Trade Centre created by the PanAmcham, has attended the visits of several trade missions, made up of US businessmen interested in what Panama has to offer as a market and/or business gateway to the Americas because of its connectivity and logistics infrastructure.
JOSÉ ANTONIO MARANTE General Manager, Microsoft
M
icrosoft’s presence in Panama spans over 15 years. We are one of the oldest IT companies working here directly from its own office. While other IT providers tend to work exclusively through their partners, we work directly with over 1,000 small companies that resell our products and services. I also have responsibility for liaising with the government. We work with the Ministry of Education and the Ministry of Commerce and Industries in assisting around 3,000 small companies to develop and grow faster, driven by technology. Three years ago, Steve Ballmer, our former CEO, signed a Memorandum of Understanding (MoU) with President Ricardo Martinelli, outlining different areas for us to work on, including education, SMEs, and intellectual property rights. We also requested President Martinelli’s contribution.
Economy
GUSTAVO RIPOLL
BRAD XUAN
General Manager, Dell Panama
General Manager, Huawei Technologies Panama
F
irst, this is a country that provides a complete business environment; we act as a hub and as a service center. We are excellently located in the middle of the continent, and, thus, in almost the same time zone for all the Americas. Transport from Panama is convenient to any country in Latin America, and to any part of the US or Canada. The nation also boasts a highly educated population. Of our 2,500 employees, 95% are Panamanian. To date we have already invested $98 million annually, since 2003. We are in the process of privatizing the company, and are analyzing all investments in the region accordingly. The idea we have in Panama is to sustain our growth because it is an excellent location and well placed to serve the rest of the Americas from here. We are making plans for an IT hub with a staff headcount of around 100 people for this calendar year and the beginning of the next. This is a time consuming venture where people require training, and where regional activities need to be aligned.
H
uawei settled down in Panama in 2007, having paid an exploratory visit back in 2003. In 2008, we were the first telecoms solutions provider to introduce a 4G LTE network to the country. We consider this the greatest achievement of Huawei in Panama. We have been working with the government and the largest enterprises and banks to explore diverse opportunities, and not only confined to the mobile network and infrastructure. In 2011, the government at the time realized that bringing information technology and internet to the people was an essential component in raising living standards, and as one of the major providers and players in this industry, we signed an MoU to undertake knowledge transfer with the country. We have established certain mechanisms to provide professional training to government staff and state authorities, for example. We have been providing an industry insight into developments and innovations so that proper planning and identification of weaknesses in state infrastructure can be performed and adjusted.
THEBUSINESSYEAR
RICAURTE “CATÍN” VÁSQUEZ
HUGO ARCE SÁNCHEZ
CEO for Central America and the Caribbean, General Electric (GE)
General Manager Central America & Caribbean, Atlas Copco
G
E has been in Panama since the construction of the Panama Canal, providing the equipment needed to function. It was a major milestone for GE to create new technologies for transportation, hydraulics, power systems, and power control, even more because some of the original GE equipment from 1910 is still operational. More recently, GE has been providing products, technology, and financial solutions to Panama and other countries in Central America and the Caribbean. GE has a very important oil and gas operation in Trinidad and Tobago, while continuing our presence in the power generation, medical equipment, and jet engines markets to multiple customers in the region. Since the establishment of Law No. 41, it has allowed a more flexible regulatory framework, because under this legislation GE has been able to bring technology and train both locals and international customers in the latest technology. One point in case is the ninth worldwide GE Healthcare Global Services Training Center, opened in Panama City.
P
31
anama is our hub, from which we support six countries in Central America, as well as Cuba and the Dominican Republic. Panama is the ideal base for us because of its financial system, ports, and transport facilities. We decided to open the customer center in Panama, to be close to all of our customers. We are active in the industrial sector and it was not easy to support our customers while located remotely. Some of the machinery is worth over $1 million, and so it is critical that we are present to provide support, ensuring that all systems are in peak condition. Currently we sell all consumables required for drilling. The Pacific area requires drilling and the blasting of rock. We supply all the material for drilling, such as machines, assorted hammers, jackhammers, and other kinds of machines for the first phase of drilling and blasting, and machines for concrete for the second phase. The Panama Canal project was another important reason for our coming to Panama, though not the main one. Ours is a regional perspective.
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INTERVIEW
WHAT DO you need?
What was the reason behind the rebranding of the company in 2005?
In 2005, we changed our name from Waked Internacional to Grupo Wisa in order to give uniformity to the business activities of the company, and to project a solid and reputable brand name. Waked is a common surname in Lebanon and there are many companies under that name; hence, people tended to think that all Waked companies had something to do with us. What is the main activity Grupo Wisa engages in at the moment?
We have a diverse business portfolio, and our main activity is perfumes and fragrances. Newspapers are another one of our main activities; we own the newspapers El Siglo and also La Estrella, the oldest paper in the country, and among the oldest ones in Latin America. They are two of the main newspapers in Panama, and we have high expectations for the future of these titles. What is the importance of the Soho project for Grupo Wisa?
This is a project that was started some six years ago by a Spanish entrepreneur, who subsequently faced some economic difficulties in making the project a reality. I ended up acquiring firstly 50% of the shares and later on a greater percentage of them. Today, the Soho project is the main commercial investment project in the country after the Canal. The project has been able to move forward thanks to the support of local banks, especially Bancolombia and Banistmo. We are talking about two office towers and one Ritz Carlton Hotel tower. In addition, 120 stores will be constructed featuring famous brands such as Louis Vuitton, Chanel, Dior, Prada, Valentino, Burberry, Fendi, Rolex, Mercurio, Carolina Herrera, YSL, Bvlgari, Bottega Veneta,
TBY talks to Abdul Mohamed Waked Fares, President of Grupo Wisa, on the rebranding of the company, expanding the group, and the Soho Project.
Jimmy Choo, Ralph Lauren, and many others. We already have all these contracts signed, and I believe we will open the doors by the end of 2014. To date, we are talking about an investment of some $360 million, including constructing underground parking for over 3,000 vehicles. This project has had international expertise in its design and construction. One of the towers will be named after Banistmo bank.
BIO Abdul Mohamed Waked Fares graduated from the Ohcp_lmcnsi`F_\[hih after studying Business Administration. In 1984, he established Waked Internacional, which today is known as Grupo Wisa, ch=ifh@l__Nl[^_Tih_( In 1992, he opened up the >ons@l__>cpcmcih&qbc]b currently has operations in 10 countries with 59 stores in 12 international airports in Mexico and Central and South America. In 1994, Grupo Wisa established local market subsidiaries in a number of Central and South American countries, and in 1996 the group started to open up local retail stores, which now total 66 in numerous countries.
How has the company expand_^cnmchn_lh[ncih[fjli×f_chnb_ last decade?
We have operations in almost all Central American and some South American markets. Our main future focus will be on the Southern Cone. For example, we opened the first Burberry store in Chile. I also want to enter Brazil, despite the legal and tax difficulties this represents. What role does the Colón Free Trade Zone in Panama play in the group’s activities?
Initially, the zone was one of the reasons why we moved to Panama; today, it is a logistics center for us from where we bring European products and redistribute them among our subsidiaries. It is not a business center, rather it is a logistics hub. This is due to the fact that over the years we have ended up assuming the entire distribution chain for our business activities, prior to that we used to work more with intermediaries. Despite the increase in operating costs, we knew this was the way to succeed, and time has proved this right. Qb[ncmnb_mcahc×][h]_i`@ohdacion La Riviera for Panamanian society?
The foundation is a personal project based on the idea that I have always believed as a businessperson that you have to give back as much as you can from what you achieve. I am extremely thankful for the work done by the management board of the foundation.
IN NUMBERS Grupo Wisa
Investment in the Soho project
360 Million USD
My daughters have also been an essential part in the development of the foundation. The main goals of Fundacion La Riviera are education, healthcare, child welfare, and the alleviation of poverty. My future plan foresees the professionalization of the foundation in terms of having its own headquarters, better facilities, and more resources. For example, we want a space where we can set up a community center to provide training, food and care for low-income families.
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HE Dulcidio De La Guardia, Minister of Economy & Finance, on nurturing a healthy economy and encouraging FDI.
Panama is making consistent progress as a global financial center, ensuring compliance with international standards.
The Panamanian Stock Market (BVP) has in mind becoming a greater regional force with reputable operational credentials.
Finance REVIEW BANKING
A financial hub of international stature, the Panamanian banking sector is making good use of a tough regulatory regime and stable political environment.
HIGHLY LIQUID
A
fter Switzerland, Panama City is host to the world’s second largest international banking community, and the most vibrant in Latin America, with over 150 banks from 35 countries vying for business. The total assets of the Panamanian banks exceed $150 billion. According to Business Panama, the republic has three banks ranked among the Top 1,000 World Banks in 2014. These, with their positions, are Banco General (612), Banco Latinoamericano de Comercio Exterior (686), and Banco Nacional de Panama (861). The latter institution, dating back to 1904, is tasked with importing US dollars from the US Federal Reserve Bank. Incidentally, there is no limitation on other banks’ dollar imports. Today the bank provides personal and business services to SMEs and corporate clients. It also caters to the agricultural sector. The country’s largest public bank by customers and assets ($5,010.58 million), in 2014 it deployed the
Gemalto’s Ezio Multi-channel Authentication Solution to bolster rising eBanking and mBanking operations. Financial stability is the byword of local banking legislation, where proven capitalization in excess of $15 million is stipulated merely to apply for a full banking license. The figure drops to $3 million for an international license, with payments deposited at stateowned Banco Nacional de Panama. In contrast, according to Sovereign, “Other tax haven countries today issue banking licenses with as little as $500,000 in capitalization.”
LEGISLATION
Central to the Panamanian economy for decades, the banking sector is undergoing significant regulatory and policy reforms while working hard to enhance its international image.
Panama has yet to shake the mantle of “high risk” country, and international gray list status is an overhang on sector competitiveness. The Superintendency of Banks has identified exiting this list as a national priority. Tough bank auditing guidelines are in place, with players required to submit monthly auditing reports to the Banking Superintendence, itself supervised by the Banco Nacional de Pana-
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ma (BNP). The BNP is the state’s key depository, overseeing Panama’s international reserves, and is the banking universe’s clearing house. A comprehensive banking law (Decree No. 9) reflects the standards shared by key financial centers worldwide in terms of transparency and regulation. And as Jorge E. Morgan, Executive President of MMG Bank, puts it, “The country’s legal infrastructure is attractive for people in the region, especially those coming from less stable countries.” The bank expects total assets under management of $2 billion for 2014.
LIQUIDITY The Superintendency of Banks of Panama rated as “excellent” the monthly average liquidity of the National Banking System as of the start of 2014 in the light of a welcome bank liquidity index, of around 60%. The national bank ruled the roost at 77.9%, after which came foreign banks on 59.7%, and Panamanian banks at 47.5%. Banking law stipulates a 30% liquidity ratio.
INTERNATIONAL BANKING CENTER Rooted in international best practices, the International Banking Center of Panama (IBC) is one of the most modern and successful in Latin America, offering investors over 100 banks from more than 30 countries, mostly from Asia, Europe, and the Americas. Moreover, it leverages the intrinsic appeal of Panama’s dollarized economy. The IBC closed 2013 on assets of $97.9 billion, up 9.1% on 2012, according to the Superintendence. Meanwhile, the National Banking System, combining general license banks and local business, saw assets of $80.2 billion on 10.1% growth. For the year, domestic credit rose 10.4%, driven by mortgage loans (up 13.5%), consumer (up 13.5%) and interim construction financing (up 23.9 %). A landmark was reached when total assets surpassed $100 billion as of May 2014, at $101.67 billion, up 7.5% on the same period of 2013. Meanwhile, according to official data, the national banking system for the period saw growth of 216.5%, equivalent to $522 million. It also disbursed 9.1% of domestic loans to the private sector, accounting, too, for 14.8% of residential mortgages, and 12.2% of consumer loans. Panama’s Superintendency and Banking Association are keen to welcome both investors and members to the IBC. Alberto Diamond R., Superintendent of Banks of Panama, evaluating the 40-yearold IBC, observed that, “There are 91 licensed banks within the IBC. Of those 91 banks, 13 are representative offices that allow banks and financial institutions to promote and conduct business from an office in Panama, although prohibited from providing banking services in Panama.” Meanwhile, international banking license holders—28 in total—can offer services to clients beyond Panama, take deposits from abroad, and extend loans to other countries. Internal credit to the private sector grew 8.7% compared to the same period in 2013. “Banking is the most regulated and supervised sector in Panama, and this environment needs to be ex-
panded to other sectors as well. Panama has an important task in terms of improving the transparency of the sector, and we are advancing in that direction,” he added.
SELECTED PLAYERS As of January 2014 the total profit of Panamanian private sector banks had risen 6.33%. The accumulated profit of 18 locally-owned private banks in the first 11 months of 2013 was at $333.35 million, up 6.3% on the same period of 2012. And as of end-2013, four banks stumped up 55% of personal credit, where personal loans led the total consumer credit portfolio of the local banking system on 69.7%. According to Banking Superintendency data, the portfolio had reached $6.82 billion by the month of September. Among those aforementioned banks accounting for 55% of personal loans are Banco General with $776.9 million, Banco Nacional de Panamá with $705.1 million, and Banistmo with $695.2 million; and Banco Bilbao Vizcaya Argentaria (Panama) with $433 million.
BANCO GENERAL Banco General, holds a BBB + rating from Fitch Ratings, and an 18.5% market share in local bank lending to the private sector as of May 2014. It closed 1H2014 on a net profit of $152.9 million, up 18.8% from $128.7 million a year earlier. The 2Q2014 profit print alone was at $78.5 million, marking a 37% YoY climb. Increased net interest income totaled $225.8 million, 12.7% up on 1H2013; the gain in net financial instruments was $4.5 million, soaring 433% YoY. The bank said in a statement that, “the results of 2013 were negatively impacted by a loss in $6.5 million, due to increases in interest rates of bonds in the international market, while in 2014 a gain in values was generated by a $4.2 million decrease in interest rates in the market.” June 2014 ended with $12.41 billion in assets, up 10.7% YoY due to the loan portfolio, the bank’s core asset, which stood at $8.15 billion, up 11.4% on the previous year. For 2Q2014, $1.3 billion in loans were issued with business loans at $963.2 million, residential mortgages of $130 million, and consumer loans of $92.2 million. Asset growth for the period exceeded that of the IBC, which rose 7.64% in asset terms to $690.10 million. Total bank assets for 1H2014 reached $1.521 billion, on a 12.1% YoY climb.
GLOBAL BANK It’s global portfolio split into two-thirds corporate and one-third personal banking, Global Bank, founded in 1994, ranks as the second largest private bank in Panama by assets (total assets as of June-end 2014: $3.81 billion). The bank is a wholly-owned subsidiary of G.B. Group Corporation, and with its nine 100% owned subsidiaries is a financial platform providing services from corporate finance to factoring, and overseas operations. 1H2014 net income was at $71.54 million. For 1H2014 net loans stood at $3.5 billion up YoY from $2.96 billion, of which $3.2 billion were domestic.
CARLOS E. TROETSCH SAVAL Chairman of the Board of Directors of the Panama Banking Association (PBA) Why is Panama such an attractive destination for foreign companies and investors? Panama has many factors that g[e_cn[nnl[]ncp_`il`il_cah_lm( It has a dollarized economy, a high technological infrastructure, a city that has high-quality m_lpc]_m&]ihh_]ncpcns&[hij_h Øiqi`][jcn[f&[h^f[qmnb[n promote all this. In addition to nbcm&q_^ihÎnb[p_[]_hnl[f bank, which has been a major [^p[hn[a_`ilom&\_][om_sio b[p_[`l__Øiqi`][jcn[f[h^ funds as a result. Panamanians are always open to new ideas, [h^nb_]iohnlscmØ_rc\f_&[^[jncp_&[h^^sh[gc]( What do you expect from the next OECD review on Panama? Q_mbiof^j[mmnb_l_pc_q\_cause we did what was expected of us. In my opinion, we were wrongly included on the list, so we need to show the world how serious we are regarding the issue of transparency and money laundering. The OECD ]ihmc^_lmJ[h[g[[n[rb[p_h& but it is not. The IMF also says Panama has certain issues to l_mifp_&[h^cncmnlo_nb[nnb_l_ are some issues with small _hncnc_m5biq_p_l&nb_\[hecha sector and the country does not support or endorse Panama as [n[rb[p_h5cncmp_ls^c`×]ofnni open a bank account in Panama, for example.
Finance
BANISTMO Banistmo—with a market share of 14% in personal and corporate banking—gained its new moniker upon Grupo Bancolombia’s purchase of HSBC’s Panamanian operations in 2013. The bank’s President, Aimeé Sentmat de Grimaldo, told TBY that, “In Panama we are setting a growth goal at the same level as the banking and finance sectors. The country has a growth expectation of around 6% to 7%, whereas the industry will be around the 10% mark. We expect to be in line with this growth.” During 1H2014 the bank, “…we consolidated our presence in key segments with key products. For example, we have seen a positive and promising rise in the demand for mortgages, a clear representation of the growth of the construction sector and an increase in Panamanians’ purchasing power.“ The bank anticipates growth of 7%-10% for 2014.
Rooted in international best practices, the International Banking Center of Panama (IBC) is one of the most modern and successful in Latin America, offering chp_mnilmip_l+** banks from more than 30 countries, mostly from Asia, Europe, and the Americas.
BANCO LATINOAMERICANO DE COMERCIO EXTERIOR (BLADEX) Panama-based Bladex is a supranational institution formed by the central banks of Latin-American and Caribbean states to promote regional integration and foreign trade finance. 1H2014 net income stood at $44.2 million, up 16% YoY, while the 2Q2014 was at $20.7 million down 12% QoQ, as incremental revenues were impacted by a volume-driven rise in provisions for credit losses. 1H2014 net interest income
THEBUSINESSYEAR
(NII) was at $66.0 million up 19% YoY, on a rise in average commercial portfolios and greater net interest spreads. Fees and commissions were at $8.5 million, up a firm 62% YoY, on syndication business growth. Meanwhile, the net interest margin (NIM) rose 14 bps YoY to 1.81% in 1H2014.
MICROFINANCE Wealthy investor base aside, many ordinary citizens remain beyond the reach of regular banks. According to Superintendency of Banks data, in August, 2014 Panama’s microfinance portfolio had risen 20.65% year-to-date with three banks holding microfinance licenses issuing loans of $154.17 million. Banco Delta ranked first on 72.24% of the total, followed by MiBanco on 17.12% and Banco G & T Continental on 10.64%. For the period, the three banks had respective assets of $189.87 million, $30.35 million, and $72.41 million. Though a newcomer, established in 2006, Banco Delta is today the foremost microfinance entity in Panama. In conversation with TBY, bank President Arturo Müller N. revealed that, “The average micro-loan on our books is about $1,400. We also provide automobile loans of around $13,500 each, which brings the average up. A commercial loan to a small business, however, is around $25,000-$50,000 on average.”
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Imagine un banco cuyo balance esté exento de deuda soberana peligrosa y activos tóxicos. Imagine un banco que haya salido reforzado de más de 40 crisis financieras. Imagine un banco que lleve siete generaciones anticipando el futuro. Imagine un banco que gestione y preserve su patrimonio familiar. Bienvenido a Lombard Odier.
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INTERVIEW
TBY talks to HE Dulcidio De La Guardia, Minister of Economy & Finance, on achieving sustainable, medium-term growth, attracting FDI, and challenges facing the financial sector.
a new HOPE IN NUMBERS Panama
Estimated GDP growth rate for 2014
6.5% BIO A graduate of Florida State Ohcp_lmcnsqcnb[^_al__ch Business Administration, Dulcidio De La Guardia holds an MBA from Loyola Ohcp_lmcns&H_qIlf_[hm& [h^l_]_cp_^bcm=b[ln_l Financial Analyst (CFA) from the CFA Institute =b[lfinn_mpcff_Pclachc[ch 2000. In 1990, he joined the Panama Stock Exchange [m>_p_fijg_hnG[h[a_l( In July 2002, he joined Primer Banco del Istmo (Banistmo), as ViceJl_mc^_hni`Chp_mng_hn Banking responsible for ]iljil[n_×h[h]_&G ;& ×^o]c[lsm_lpc]_m[h^ brokerage operations. In 2005, he was promoted to ?r_]oncp_Pc]_'Jl_mc^_hn and Head of the regional banking unit. In 2006, b_ip_lm[qnb_g_la_l of HSBC (Panama) and Banistmo banks, and was appointed Director of Corporate Banking and Markets. In September 2007, he was appointed >cl_]nili`nb_Jlcp[n_<[he( On July 1, 2009, he was appointed Deputy Minister of Finance of Panama.
Qb[n cm nb_ a_h_l[f ×h[h]c[f strategy planned by the Ministry `il nb_ h_rn ×p_ s_[lm ni g[chtain the sustainable and solid growth of Panama’s economy?
A document known as the Medium-Term Fiscal Framework provides estimates on economic performance. The government is aware that, in a market economy, state intervention aims best to ensure the stability of public finance, debt sustainability, and the implementation of policies that support private-sector decisions in accordance with national growth objectives, social inclusion, and a strong society. To achieve these objectives, we are hiring a high-level consulting firm to set the road-map for the government over the next five years. This work is called the Government Strategic Plan (PEG), where we will bring together structural and longterm analyses to develop best practices and policies. What are the advantages of investing in the Panamanian banking sector, and what is the role of the Ministry of Economy and Finance in attracting foreign investment to the International Banking Center?
Given the economic structure of the country, the Banking Center is an essential pillar in national policy. The strong momentum in the expansion of aggregate demand is largely due to the Banking Center funding provided to economic agents in the country. Investing in Panama presents the financial sector with important advantages, among which are the absence of exchange rate concerns, and the
integration of banking with other segments of the financial services segment, which are currently expanding, and to which we are devoting our attention in order to support their sustained development. These financial services include business insurance, reinsurance, and bonds, among others such as a reasonable tax structure, inter-industry links developed with other international sectors within the service industry, and the governmental commitment to ensure conditions of social harmony. If we analyze the composition of FDI, we can see that 28% of the $4.65 billion that came in 2013 was reinvestments and the investment earnings of the banks located in Panama. What are the main challenges `[]cha nb_ ×h[h]c[f m_]nil [n present, and what kind of regulatory improvements are being made?
The financial sector here faces the impact of problems in developed financial markets that have yet to be resolved. In addition, we do not have the same regulatory pressures that developed countries put on their financial systems. The concerns related to these regulations on the flow of activities, in terms of additional, explicit, and implicit costs, and their impact on the rest of the world are widely known. Panama has been included on certain gray lists for presenting some weaknesses in our economic systems as compared to the standards that the OECD and FATF promote. In this regard, Panama is aware that its leading role in regional business,
its international financial community membership, and its integration into the global trade and finance markets are highly sensitive issues when it comes to these perceptions. As long as the country does its best to improve perceptions of our systems, which is something we are already doing, we are confident that the economic ratings our systems have received should not have an impact in the medium to long term. What is your general outlook `il nb_ ×h[h]_ m_]nil ch nb_ medium term, and for economic growth over the coming 12 months?
The IMF expects Panama to grow by 7.2% in 2014, and 6.9% for 2015 according to the World Economic Forum, although those forecasts are likely to be revised downward given global uncertainty, especially resulting from the recalibration of the Chinese economy and its impact on the commodity-exporting countries of the region and international geopolitical tensions in the Middle East and Russia. In this regard, our growth expectations are in the order of 6.5%, based on our budget estimates. Locally, the financial sector will continue its upward trend in view of the expectations of the Latin American region in the country. In fact, in March 2014 the local national banking system’s loan portfolio increased by 9.4%. However, there are complications in the industrial portfolio and the FTA, and this has reduced the commercial and industrial loan portfolio.
Finance
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INTERVIEW
FINANCING the farm
IN NUMBERS Banco Nacional de Panamá
Established
1904 TBY talks to Rolando J. de León de Alba, General Manager of Banco Nacional de Panamá, on stimulating agricultural development and home ownership through low interest loans, and attracting foreign investment. Qb[n[l_nb_mj_]c×]g_[mol_m that you intend to take to increase production and to boost the agricultural sector?
BIO What are your main priorities for nb_h_rn×p_s_[lm`ilnb_<[h]i Nacional de Panamá?
Our strategy has been focused mainly on the agricultural sector. Banco Nacional is the financial arm that the main producers can use to promote their products, especially those that belong to the basic food basket. Besides that, Banco Nacional wants to be the main financer for rural housing because Panama needs to provide 140,000 homes for medium- and low-income families. Our third goal is that we want to make Banco Nacional an institution that has a strong position in terms of technology, especially in payment systems. Banco Nacional is working right now to develop modern technologies, including biotechnology, to allow the government to reach the people directly. We are in the best position to do that since we changed our core system back in 2012.
Lif[h^iD(^_F_h^_ Alba studied international relations with a focus on economics at Florida Mn[n_Ohcp_lmcns&[h^[fmi has an MA in business administration from the Ohcp_lmc^[^Chn_l[g_lc][h[ de Panamá. His work experience began in 1980 at the Bank of America NT & SA, where he b_f^^cp_lm_jimcncihm in the area of treasury [h^×h[h]c[f[h[fsmcmch Panama City, Miami, and San Francisco. In 1992 he \_][g_?r_]oncp_>cl_]nil of Finance at the Banco Nacional de Panamá, and following a four-year position at Chase Manhattan Bank from 1994, has been working there since. He b[m[fmim_lp_^[mnb_ J[h[g[hc[hl_jl_m_hn[ncp_ on the Central American Monetary Council and the American Chamber of Commerce, among many other key roles.
We need to send a message that the main producers in Panama can use their land to get new sources of production. What this means is if someone wants to take production to the next level, Banco Nacional, in agreement with the government, is able to provide finance at 0% if it is a new project. This scheme is not for refinancing or buying new land; it is only for new projects. We are offering this financing from 2013 until 2016 and calling for all the major producers in the countryside to take advantage of this 0% interest rate, which is most favorable for them. However, we have to bear in mind that Banco Nacional is not a development bank and we have to follow the relevant policies and rules because we are supervised by the same Superintendency as the rest of the banks. The main goal is to increase production because currently Panama relies on imports. For example, we are dairy producers, but we need 35,000 more cows to satisfy the demand for milk in the country. Previously, we were able to meet the demand;
however, the agricultural sector has been decreasing over the years because we have focused more on the service sector. We need to catch up with the agricultural sector. We need to produce in agreement with GDP. Currently, agriculture only represents around 3% of GDP, whereas it used to be 9% only 15 years ago. We need to reverse that trend. What is the role of the international banking sector in attracting foreign investment to the country?
When we achieved the $100 billion mark, I got a call from a journalist about it and I told him that in 1983 the banking sector achieved $52 billion in assets, which at the time was a big thing. At that point there were more than 100 banks from around the world in Panama. Then there was a financial crisis, banks started leaving Panama, and the total assets started decreasing. We had to wait until after the invasion in 1989 to get the system back on track. Now we are facing a trend that whilst Panama has all the resources needed to attract international banks, those banks are leaving the country. Panama has been put on a gray list by the IMF, and that is something we need to address. In the future, we will not be able to attract any other international banks to come here and do business. Our main goal is to get off that gray list and get back on track. We need to tell the international banks that this is a great place to do business, not only locally but also regionally.
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INTERVIEW
quite A LOCATION TBY talks to Alberto Diamond R., Superintendent of the Superintendency of Banks of Panama, on the ins and outs of the Panamanian banking sector and its regulatory framework.
Panama is the main banking center in Latin America. What [l_ nb_ \_h_×nm i` chp_mncha ch the Panamanian banking sector?
Panama offers various benefits for investors in the financial and banking sector. It is an open, globalized economy, and also a dollarized one. Strategically located geographically, it is hub that connects 68 destinations worldwide, and also has excellent fiber optic connectivity for data exchange. The International Banking Center (IBC) has a 40-year history, having been established in 1970. It boasts a skilled and trained banking and finance workforce. From here it is a simple matter to serve clients and financial institutions throughout Central America, the Caribbean, and the northern part of South America. Both the Superintendency and the Banking Association are trying to attract new investors and members to the IBC. How many banks are members?
There are 91 licensed banks within the IBC. Of those 91 banks, 13 are representative offices that allow banks and financial institutions to promote and conduct business from an office in Panama, although they are not allowed to provide banking services in Panama. We also hold an international banking license, which allows banks to take their services to clients beyond Panama, to take deposits from abroad, and to extend loans to other countries. Just 28 of our members are so licensed. The remaining 50 hold a general license, which allows banks to operate in the local market and abroad, so they can perform local and international business at all times. We try to attract new
members by promoting the advantages of using Panama as a base from which to perform banking and financial operations throughout Latin America, as well as the local market. Ideally, we would like to attract at least three important financial institutions to Panama by the end of 2014. The assets of the IBC grew by 1(0 SiSchDoh_i`,*+.(Biq would you evaluate the performance of the IBC in 2013, and of the overall economy?
The growth of the IBC has been impressive, and remains so in 2014, with a rising growth trend in evidence. Assets saw an increase of 7.6% in June 2014, and we evaluate the international and general licensed banks together. Internal credit to the private sector grew 8.7% compared to the same period in 2013. All indicators point to continued solid growth and efficiency, and the banks have strong rates of capital adequacy, making for a healthy environment. Meanwhile, the broader economy is also continuing to grow in 2014, albeit at a slower pace than in recent years. What challenges do the 91 IBC members face this year?
Regulation poses a challenge. Capital adequacy and liquidity requirements mean that banks have to invest more capital, which stiffens competition. Furthermore, transparency, anti-money laundering initiatives, and anti-terrorism
IN NUMBERS Banks of Panama
Licensed banks with IBC
financing laws require improvements and changes to the legal framework, which will also place a burden on financial institutions. Banking is the most regulated and supervised sector in Panama, and this environment needs to be expanded to other sectors as well. Panama has an important task in terms of improving the transparency of the sector, and we are advancing in that direction. The country has signed 19 double taxation agreements. What are your predictions for the next OECD review of the country?
We still have to get past phase II of that review, and have to consider changes to our legal framework accordingly. Last year we passed a law for the immobilization of better shares, but the timing was not right for the law to come into effect. This is one issue that the country needs to address, and the plan is to modify the law some time in the second half of this year. We have to move forward and keep making improvements to meet OECD requirements as well as Financial Action Task Force requirements for money laundering and terrorism financing.
91 Established
1970
BIO Alberto Diamond R. has a degree in Accounting [h^cm[=_lnc×_^Jo\fc] Accountant. He has been in his current position since 2009. He also chairs the Financial Coordination Council of the Republic of J[h[g[(Jl_pciomjimcncihm b[p_ch]fo^_^Jl_mc^_hni` KPMG Central America and Senior Partner at KPMG Panama. He worked in nb_[o^cncha[h^[^pcmils ×_f^m`ilip_l.,s_[lm& coordinating important projects, principally in ×h[h]c[fm_lpc]_m(
Finance
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INTERVIEW
IN NUMBERS
TBY talks to Aimeé Sentmat de Grimaldo, President of Banistmo, on the first year of her time at the bank, Bancolombia’s decision to use the Banistmo brand, and being listed on the Dow Jones sustainability index.
Banistmo
Position of Banistmo in the banks ranking in Panama
2nd (out of 92)
Expected growth in 2014
7%-‐10% With over 20 years of expelc_h]_ ch nb_ ×h[h]c[f m_]nil& what have been your landmark achievements since becoming President of Banistmo in October 2013?
I would say that our main achievements have been the way customers welcomed us—both brand and bank, from the very first day—and the extremely warm and pleasant welcome our 1,500 partners gave me personally. These two elements combined have enabled us to achieve impressive growth and expansion during this year. After Grupo Bancolombia acquired HSBC’s operations in Panama, it decided to rename the bank Banistmo. What were the core reasons behind the decision?
Bancolombia’s business vision promotes a more human banking model, i.e. banks that admire people and prioritize quality, inclusiveness, and respect. There was no better way to prove, on our arrival to Panama, before the eyes of customers, our respect toward the brand we represent in this country. Banistmo is an old and well-recognized brand in this country, and that is why the company decided to bring it back.
a familiar FACE Which segments will capitalize on your future growth?
Our current strategy has two main pillars; transforming the organizational culture, meaning to make all our partners inclusive in the bank’s activity and its development, and achieving a closer level of communication with our clients. Banistmo is a universal bank; we cover all types of clients with comprehensive products and services. Our growth strategy is to strengthen our presence in all segments of the market. Today, Panama offers some interesting opportunities, one being increased banking penetration among people with lower purchasing power, a segment we will grow in, among others.
BIO Aimeé Sentmat de Grimaldo b[mip_l,,s_[lmi` _rj_lc_h]_chnb_×h[h]c[f sector. She has a degree in @ch[h]_`ligOhcp_lmc^[^ =[nfc][M[hn[G[l[F[ Antigua and holds an MBA `ligHip[Mionb_[mn_lh Ohcp_lmcns(<_`il_[mmogcha her current position, she worked with HSBC as Chief of Commercial Banking.
After the purchase, Banistmo became one of the leading institutions in the sector with a g[le_nmb[l_i`+. chj_lmihal and corporate banking. What are your expectations for 2014?
When taking over in Panama, we are setting a growth goal at the same level of the banking and finance sectors. The country has a growth expectation of around 6% to 7%, whereas the industry will be around the 10% mark. We expect to be in line with this growth. During the first half of 2014, we have achieved great results, consolidating our presence in key segments with key products. For example, we have seen a positive and promising rise in the demand for mortgages, a clear representation of the growth of the construction sector and the increase in Panamanians’ purchasing power. We have also experienced positive growth in other segments such as corporate banking, and expect the same for the end of 2014.
How would you assess the development of the banking and ×h[h]_m_]nilchJ[h[g[9
This sector has experienced positive and dynamic growth, positioning Panama as a regional finance and banking hub. There is a strong presence of multinationals in the sector. There is also a strong presence of Colombian banks, reinforcing the idea of a regional hub. Panama is a logistics and banking hub, and this regional leadership opens many opportunities for Panamanian banks to expand operations to other neighboring and traditional markets. The positive and dynamic trends we have experienced in the past few years will only become more relevant in the near future. What are your expectations for the upcoming OECD review of Panama?
Panama has achieved much from a financial perspective. For example, it has signed around 19 double taxation agreements, increasing efforts to bring international standards into the finance and banking sector. One of the main challenges now is to continue adapting our industry to global standards in regulatory terms. The upcoming review will contribute to better identifying our challenges and necessary tasks. This will only help us to become stronger and will strengthen our regional leadership.
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FOCUS INTERNATIONAL REGULATIONS
away from THE SHADE Panama’s FATF gray list status shows that more reforms are in order, however, the sector is rapidly improving and shedding its former reputation as a tax haven. WHEN PANAMA was removed from the OECD gray list in 2011, it seemed that the country had finally shed the reputation it acquired during the days of Noriega, when Panamanian banks were places where colorful business entities deposited their cash far from the prying eyes of law enforcement officials. By June of 2014 however, Panama was added to the Financial Action Task Force (FATF) gray list, following an IMF report that found the Panamanian banking system to be, “vulnerable to money laundering (ML) from a number of sources including drug trafficking and other predicate crimes committed abroad such as fraud, financial and tax crimes.” Meanwhile, the latest assessment carried out by the FATF found that of the organizations 49 recommendations, only one was fulfilled, three largely fulfilled, and 26 more partially fulfilled. And while this designation poses a serious threat to Panama’s financial standing, the Superintendency of Banks cautioned that removing the country from the gray list would be harder than expected, since not all sectors regard the designation as a priority issue for the economy. The IMF report also found other weaknesses that the sector will need to address to improve its standing. Panama’s strategic geographic location, its dollarized economy, status as a regional financial, trade, and logistics center, and its lenient regulatory system make the country an attractive destination for potential money launderers. The report found that while Panama has criminalized money laundering and terrorism financing, its efforts to combat money laundering and the financing of terrorism are still not in line with FATF regulations. Even though instruments were put in place to combat the financing of terrorism, these mechanisms were inconsistent with the legal principles of the constitution, and therefore ineffective. Regarding the anti-money laundering measures in place in Panama, the laws covered most of the core financial sectors, but failed to fully apply to the insurance sector, as well as a number of other financial activities that must be addressed under FATF standards. These allegations, and a number of other findings regarding money laundering, tax evasion,
and the financing of terrorism prompted the FATF to designate Panama to the gray list. Critics allege that the issue of bearer shares is the biggest obstacle for removal from the gray list. Bearer shares are not registered to any authority, and therefore, transferring ownership of the stock is as simple as delivering the physical share. These shares lack the regulation and control of common shares because ownership is never recorded. Panama’s bankers are quick to counter that Panama’s Law 47 (2013) provides for a system of custody for bearer shares. The law stipulates that shareholders must deposit their certificates with legally approved custodians, such as attorneys, banks, and vetted and licensed broker-dealers. Those custodians are then required to notify the authorities of the identities of the shareowners. Panama’s bankers counter that they are subjected to a biased application of FATF regulations. Speaking with TBY, Arturo Müller of Banco Delta pointed out these discrepancies, “one of the biggest tax havens in the world is probably Delaware in the US… the Panamanian banking sector is running ahead to comply with the Foreign Account Tax Compliance Act (FATCA), which is a US imposition.” Müller’s allegations are partially supported by the IMF’s own findings, which showed that number of suspicious transaction reports (STR) received by the Unidad de Análisis Financiero (UAF) shows a decline from 1,315 STRs in 2008 to 652 in 2011, and 405 in 1H2012. This decline was mostly consistent across all sectors, with banks showing the greatest decline from 1,024 STRs in 2008 down to 481 in 2011. In other words, evidence points to an increasingly effective regulatory regime. In June 2014, Panama made a high-level political commitment to work with the FATF and GAFISUD to address its anti-money laundering and combating terrorism weaknesses. As part of its commitment, Panama agreed to work toward implementing its action plan to address these deficiencies by: adequately criminalizing money laundering and terrorist financing; establishing and implementing an adequate legal framework for freezing terrorist assets; establishing effective measures for due diligence in order to enhance transparency; establishing a fully operational financial intelligence unit with a sufficient mandate; establishing suspicious financial transaction reporting contingencies for all financial institutions; and finally, by ensuring effective mechanisms for international co-operation. This announcement was met with enthusiasm by the FATF, as it demonstrated an awareness of Panama’s responsibilities to shake its status, and regardless of whether or not Panama is being singled out, increased transparency and anti-corruption measures will benefit the sector.
WILLIAM MORRIS CEO, Latin America Cobiscorp What kind of challenges have you experienced in entering the US market? We are growing in Latin Amerc][&[h^b[p_iol_s_ihnb_ US market. Our priority was to gip_niqb_l_q_]iof^b[p_ []]_mmni][jcn[f(Q_b[p_\__h executing a strategy with a longn_lgpcmcih&[h^gipchamig_ strategic pieces of our organization to be localized where chp_mnilmh__^nim__nb_g(;m a software company, if you want to be funded in Silicon Valley, nb_×lmnnbchap_hnol_][jcn[f iljlcp[n__kocnschp_mnilmqcff say is that they want the senior leadership of the company to be based there, too. As a result, we b[p_\__hjli'[]ncp_ch_mn[\lishing our operations in the US. Now that Cobiscorp is present in the US, the strategy has worked \_][om_ch,*+-q_l_]_cp_^ g[dil×h[h]cha`lig[hchn_lh[ncih[ffsl_hiqh_^jlcp[n_'_kocns company, which is part of the Templeton Group. Our next step cmnif_p_l[a_iol_rj_lncm_ch qb[nq_][ffo\ckocniom×h[h]_( This means the ability to make the technology that enables ×h[h]c[fm_lpc]_mqile[hsncg_& anywhere, for anyone. This is \lchachachch]fomcp_\[hecha capabilities that are frictionless and borderless. We want to become a recognized player in nb_[\cfcnsi`o\ckocniom×h[h]_ to satisfy that need, also we are focused on our “digital banking product portfolio.”
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FOREIGN BANKING SCENE B2B
RAUL ARDITO BARLETTA General Manager and CEO, BCT Bank International
What was the decision behind the establishment of your bank in Panama? RAUL ARDITO BARLETTA The BCT Group is 35 years old, originally founded in Costa Rica. BCT Bank International was formed in 1986 in the Cayman Islands responsible for handling the offshore business of our Costa Rican clientele. In 2002, the operation was moved to Panama initially with an international license to continue providing offshore banking services for our Costa Rican customers. Then in 2008, we switched to a general license, allowing the BCT Group to also extend its services within the Panamanian market. So in reality, we have only been doing business in Panama for six years.
DAVID VICO Regional Representative Office Manager, Bank Hapoalim International (BHI)
DAVID VICO Bank Hapoalim is the largest bank in Israel and opened its representative office in Panama over 30 years ago, predominantly to bank the large Jewish community resident here. The purpose of the representative office is to introduce the bank and its different branches throughout the world, to current and potential clients in Panama. Our business involves private banking, whereby our main focus lies in Zürich, Geneva, Luxembourg, and Miami. We have representative offices in Latin America, and our representative office in Panama is a regional office, from where we oversee clients from Ecuador, Colombia, Venezuela, and small countries in Central America and the border south of Mexico, in Cancún. We have a team and introduce them to the various countries; according to the prevailing local legal framework we promote the bank in Latin America mainly, but not exclusively, in the Jewish community. Around 80% of our customers are Jewish; we do not choose any client by religion, but normally it is more likely that a Jewish client will want to work with a Jewish bank.
think BANK
Panama is a well-known financial hub of Central and South America and a number of foreign entities are establishing themselves in the country.
What is the focus of your banking operations here in Panama? RAB Our primary focus is on corporate or business banking, and private banking. We also provide investment banking as a complement to our core business, mostly at the request of our current clientele. This means that we are not involved in the mass consumer or retail banking market, for example, or the credit card, mortgage, and personal banking business. We would rather think of ourselves as an exclusive bank that really understands our corporate and wealthy customers, and focuses on long-term relationships. Our focus is on high-quality, personalized, and efficient services by developing our brand, rather than simply focused on growth for its own sake. Our bank management objectives are conservative, as reflected by our high capitalization and provisioning ratios, and high-quality portfolio of loans. Client deposits in our bank are secure because of our high liquidity rates, and the conservative investment and high-quality profile of our financial assets and depositor’s funds.
The assets of the International Banking Center in Panama reached $100 billion. What is siol _p[fo[ncih i` nbcm ×aol_ and your assessment of the banking sector in Panama? DV When I hear this number I like to remind people that the assets of Bank Hapoalim exceed those of all Panamanian banks combined. Panama has substantial banking activity, but we expect margins to constrict, because the Panamanian banking system will need to comply with Basel III stipulations, and those changes cost money. Meanwhile, this also means that the system is improving to the level of the broader regional banking system. We have seen that in Panama it changed from international banking to regional banking; we saw the biggest bank in the world leave, not because of Panama itself, but because it exited smaller markets to concentrate its capital in larger ones.
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INTERVIEW TBY talks to Javier Gallardo, General Manager of UniBank, on the bank's rapid rise in the local financial market and its potential acquisition of a brokerage house.
GROW
IN NUMBERS UniBank
me more
Growth rate in 2013
30%
Expected assets at the end of 2014
500 Million USD
BIO D[pc_lA[ff[l^imno^c_^ economic science and \omch_mm[nnb_Ohcp_lmc^[^ de Barcelona, and later completed an MA in asset management at the Colegio de Economista de Catalunya and Master PDG at the IESE Business School at nb_Ohcp_lmc^[^^_H[p[ll[( Jl_pciomlif_mb[p_ch]fo^_^ management positions at Editorial Oceano-Exito and Banco Atlántico. He later became director of the management board of Banco Atlántico in Panama and the Bahamas, and Latin America Director at the same, before returning niMj[chnim_lp_[m Barcelona head of Banco Sabadell prior to his current appointment in 2012.
What have UniBank’s major milestones been since its creation three years ago?
In our three years of operation, UniBank has exceeded $400 million in assets, achieved an excellent position in the Panamanian market, and become well-known in corporate, consumer, and private banking. We have increased our share of the sector thanks to healthy, sustainable growth. We are one of Panama’s boutique banks, and our aim is to become the most important player in this segment. Moreover, UniBank has managed to achieve sound levels of liquidity, delinquency, and capital adequacy, which are significantly higher than the average levels in the sector. What is the philosophy behind the creation of the bank?
Our strategy is not based on extensively growing our branches. Instead, we use a customer-targeted strategy, where we work to find out which products our customers need, and make those products available in a quick and competitive way. We intend to keep being particularly active in the business of corporate and private banking. Our philosophy is to support our customers in adding value to, and growing their businesses, and thereby obtain and keep their trust. As part of Panama’s financial system, UniBank has to make
equity flows generate value for our customers, and continue to offer financial solutions that contribute to that growth. Since our inception, we have taken a responsible role regarding the poorest communities in our country and we have promoted social development as part of our strategy and management style. Acp_h nb[n 20 i` Ohc<[heÎm business is located in Panama =cns&[h^+. ch=ifh&biq[l_ you promoting your bank’s international dimensions?
We live in a globalized world, and to develop a fully integrated business, it is necessary for UniBank to diversify its markets and risks, and take up business opportunities where a competitive advantage exists for the company. The bank has executives with extensive experience in international business. Further, as part of our strategic plan, we are looking into opening representation offices in order to have a presence in some emerging countries. We are currently evaluating different options in terms of countries based on their economic performance, growth opportunities, political and monetary stability, and banking regulations. How would you describe your ×h[h]c[f j_l`ilg[h]_ ch ,*+- and your expectations for 2014?
In 2013, we became the Pan-
amanian bank with the largest percentage growth in terms of assets, deposits, and results, and we were ranked second in terms of loans. As at yearend 2013, UniBank had $393.5 million in assets, which compared to 2012 represents an increase of 30%, and a net income of $1.08 million. We are particularly pleased with our regulatory liquidity levels of 61%, and our capital adequacy ratio (CAR) of 20.82%. In fact, 2013 was an exceptional year in terms of percentage growth in income and turnover, way above the average for other financial entities. Within our 2014 strategic plan, important highlights include the acquisition of 50% of a brokerage business, the issuance of commercial marketable securities for $50 million, which have been successfully placed at six months and one year, and also the future opening of a representative office. What is your evaluation of the conclusions of the latest OECD review on Panama?
We still have to improve some aspects of our sector, mainly related to the rapid implementation of the detention or removal of bearer shares. Apart from that, the Panamanian banking sector has some challenges to face in the future. The main one is to maintain its competitiveness, and it needs to constantly innovate, as well. Panama’s banking sector also has to develop a more approachable and culturally integrated approach to its customers, as there is a marked difference here compared to our international banking counterparts. Of course, we have to adapt and prepare for the new Basel III regulations, as well as the Foreign Account Tax Compliance Act (FATCA) ones, and maintain high standards in our compliance policies and customer knowledge, generally.
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INTERVIEW
sweet PRESERVE Business Network, which our firm is a member of and which meets once a year with all the national chapters. The organization is all about families exchanging experiences, and providing a platform for them to interact. We have extensive experience in this field, having funded the IMD-Lombard Odier Global Family Business Award since 1996 as well.
TBY talks to Jean-‐Pierre Wegener, Local Managing Director of Lombard Odier (Panama), on setting up in Panama and the company’s commitment to helping people preserve wealth.
IN NUMBERS
Qbs^c^sio_mn[\fcmb[hi`×]_ in Panama, and what are the main services you offer clients here?
We set up an office in Panama one year ago to be closer to the local client base. Panama is, and has historically been, a regional hub for financial services in the region. It has strong regulations and legislation for the financial services industry. In addition, there are many qualified people here that we get to work with. All these factors make Panama attractive for us. We have two licenses: a representative office license and an advisory office license. These enable us to provide advisory services to clients regarding investments. What makes you different from other international banks operating in Panama?
What sets us apart from other wealth managers in Panama is that our owners are also our managers. In any publicly listed bank, the owners are the shareholders while the managers are just managers. The CEOs do not own the bank they manage. Our owners are heavily involved in all the strategic decisions the bank makes. This allows us to take a wider perspective and a longer-term view, which means we are always looking ahead to the next generation. Our clients value this independence. We have been around for more than 200 years, and
Lombard Odier (Panama)
Total client assets at end-December 2013
233 Billion USD
we want to be in business for another 200 years. This view impacts every level of our organization, in terms of what we want to offer our clients. Everything we do is with a long-term view in mind. People like what we provide and appreciate the stability. That’s an important difference for both our clients and our staff. Besides that, our business just focuses on wealth management for private and institutional clients. We don’t do commercial banking or investment banking, so we minimize the potential of conflicts of interest that result from being involved in such businesses. Qb[ncmnb_mcahc×][h]_i``[gily businesses in Latin America, and what are you doing to attract them as clients?
Lombard Odier is a family business, so we strongly relate to family businesses in Panama and Latin America. Among many important organizations is the Family
BIO Jean-Pierre Wegener has \__h[^pcmchajligch_hn families in Mexico and Central America on asset management for the last 20 years. He has worked with Bain & Company as a Management Consultant in both Costa Rica and G_rc]i[h^[fmi[m[Jlcp[n_ <[he_l\[m_^chA_h_p[ and Panama. Before that, he worked for Swiss Bank Corporation in Corporate Finance in New York and A_h_p[(B_b[m[^_al__ch F[q`ligA_h_p[Ohcp_lmcns and an MBA from INSEAD, Fontainebleau.
What strategies are you providing clients in order to help them preserve their wealth?
We manage portfolios based first and foremost on our clients’ appetite for risk. They have the whole world in which to invest, so we offer them recommendations on cash, bonds, equities, structured products, and commodities so that they can invest in a whole range of products, depending on the macroeconomic environment. We then manage their portfolios with the fundamental conviction that we must first conserve wealth. The families we work with are concerned about passing their wealth to future generations. The safety of our clients’ wealth is our primary concern. What are the challenges facing the banking sector in Panama?
Real estate could be an issue here, as in many markets. There was 29% growth in construction over 2013. Much of the growth was not achieved by Panamanians, but by money invested by foreigners. A lot of the growth depended on factors that Panamanians did not directly control. Depending on, for example, the political situation in Venezuela, those living in Panama might move back there. We hear that the construction sector will slow down in 2015, as well. If there is a slowdown, traditional banks may be exposed to the risks involved.
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INTERVIEW
in the VAULT
corporate governance standards, and a focus on efficiency and increasing results. Another important strength of Bladex is its credit rating. Bladex was the first Latin American bank to receive an investment grade rating, in 1992. Currently, we are rated “BBB” by S&P and Moody’s, and “BBB+” by Fitch. Another key feature of our organization is the “preferred creditor status” recognized by the central banks in Latin America. It means that, if there is a debt crisis in any given country in the region our exposure to that particular country will not be subject to foreign exchange controls. Thus, if the borrower has the funds to service the debt, the payment can be made without having to get approval from the respective central bank. Therefore, Bladex is a unique bank with a clear mandate to focus on the region, rather than individual countries, identifying ways to support the regional expansion of the companies and to foster intraregional trade within Latin America.
TBY talks to Rubens V. Amaral Jr., Director of the Board & CEO of Banco Latinoamericano de Comercio Exterior (Bladex), on transitioning to being the largest corporate bank in Latin America, and leveraging the bank’s reputation.
What have been the major milestones for Bladex since you joined the institution?
I joined Bladex in 2004 as the Chief Commercial Officer. At that time Bladex was a bank to other banks with no corporate clients. The major milestone was the transformation of Bladex into a leading corporate bank in Latin America. This transformation was not achieved overnight as we needed to develop new products and services, besides increasing our client base. I feel very pleased that today we have a portfolio that is primarily comprised of companies from big corporations to SMEs. The total exposure to the segment has increased from zero in 2004 to 62% in 2014, and the number of clients from 160 to 500 clients.
The reason for establishing the bank in Panama was really quite simple: first, the idea came from an illustrious Panamanian, Nicolas Ardito Barletta, former President of the country, and an important supporter of making Panama a regional finance center; second, Panama’s privileged geography and its vocation for foreign trade because of the Panama Canal and the Free Zone of Colón, and third, because Panama was a successful dollarized economy, and the new bank needed to have the US dollar as its functional currency.
IN NUMBERS Banco Latinoamericano de Comercio Exterior (Bladex)
Countries in which Bladex has a presence
19
BIO
Percentage of Central America and Panama assets within Bladex´s portfolio
25% What are strengths?
Bladex’s
main
Bladex’s strengths are undoubtedly its knowledge of Latin America, and its strong and unique capital base, which combines shareholders, the central banks of the region, and the investors on the New York Stock Exchange. This powerful combination brings discipline and strong
Rubens V. Amaral Jr. has m_lp_^[m[>cl_]nili`nb_
cpcmcih[h^g_g\_lmbcj on the board of directors, among other positions.
Which country is the most important to Bladex’s activities, and what are your plans for future growth?
In terms of the composition of our portfolio, the largest exposure is to Brazil, which makes sense as the country is the largest economy in the region. When I joined the bank in 2004 our exposure to Brazil was 45%. Today, that exposure has dropped to 28% because of the diversification we implemented in our lending activity to other countries throughout Latin America. The second largest exposure is to Central America and Panama, which reached 25% of the total portfolio. We are forecasting a growth of 10% to 13%, in 2014. This projection is based on the underlying growth of the economies in Latin America, which on average are expected to post a GDP growth of 3% in 2014. Normally, the trade flows grow a multiple of 3x to 4x the GDP growth, hence our projections for 2014.
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LOCAL BANKS VOX POPULI
RESIDENT PROFESSIONALS A number of local banks have benefited from Panama’s booming economy in recent years, riding a wave of finance-sector growth.
OTTO O. WOLFSCHOON, JR. Executive Vice-‐ President, Global Bank
W
e began with mostly corporate business, which remained our core activity for the first five years of operations. Following an acquisition, we expanded more into personal and retail banking. Since then, we have basically implemented what we call a universal banking strategy. In other words, we participate in many different markets in Panama, as long as they are viable in terms of a risk/return profile. The reason we have grown is because we started with a clear strategy in a growing economy; that and the fact that we have maintained a high level of service and are able to respond
to our clients’ needs efficiently compared to other local and foreign banks that operate in Panama. The investment banking industry in Panama has progressed significantly, and it is now a fundamental part or Panama’s financial landscape. The increase in the size of transactions and deals partially explains this trend. In the past, these transactions were not sufficiently large enough to demand the participation of an investment banking team, as they do now. Today we have much larger transactions that need to be structured specifically to meet the demands of the issuers and the potential clients or investors.
T
oday, the majority of our assets are in corporate and private banking, but we are targeting small entrepreneurs. We educate our customers about how best to manage their companies and family businesses, as well as their marketing. This also helps us because successful businesses repay loans. We experienced a $1.1 billion growth in assets in 2013. What we did in six years, other banks do in 16 years. Even though the financial crisis shook the banking sector in 2008, people knew that we were a new bank, and that we were not weighed down with junk bonds. People trusted us more than the older banks. We began with 25 staff, and today we have 350. There are now five branches offering many products and services, so we decided that 2014 would be a consolidation year, and in 2015 we will open more branches. I think that the Panamanian banking sector is very stable. As a country, we have existed for over 100 years, since 1903. Citibank was established at that time, and today we have 92 banks, 20 of which are Panamanian, while the other 72 are foreign.
MOISÉS D. COHEN M. President, Capital Bank
JORGE E. MORGAN Executive President, MMG Bank
T
he partners of Morgan & Morgan founded MMG Bank & Trust in 1996 in the Bahamas. Then, in 1992, we established our presence in Panama with a full general banking license, whereupon we began to experience notable growth. Our corporate finance area structures mostly publicly listed bond issues for highly visible and reputable companies in Panama and the region. These are companies who want to move away from bank loans, so that the market, and not necessarily a financial institution, dictates what they should be paying in terms of their interest rates for their debt. In terms of asset man-
agement, in 2013, we did remarkably well, and in 2014 we expect to grow our total assets under management to $2 billion. The country’s legal infrastructure is attractive for people in the region, especially those coming from less stable countries. One of the most important strengths as a bank is the affiliation with the Morgan & Morgan Group as it is a consistent source of clients, not only from Panama, but from other regions where the group has a presence. Clients’ recommendations vary according to their particular risk profile, but our focus is always diversification and protection of the assets.
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Panama’s robust economy, capital market framework, and political environment have proven conducive to development.
Review
C A P I TA L M A R K E T S
ON THE BOURSE Established in 1990, at a time when Panama was mired in epic political and economic turmoil, the Panamanian Stock Market (BVP) is a self-regulated entity overseen by the National Stock Market Commission. The project came to fruition when state and private enterprise linked arms in pursuit of urgently needed capital flows that only a more comprehensive capital market could consistently provide. As the bourse itself explains, state-owned National Bank of Panama was a key player in realizing the project, given that it harbors certain features of a central bank. In the process of maximizing its offering, in 1997 the BVP launched a securities liquidation and custody body, namely the Central Latinoamericana de Valores, providing electronic clearing and liquidation services for all bourse operations minimizing operational risk. On June 26, 1990, the BVP held its first trading session. Trading takes place today from Monday to Friday between 10.00 am and 3.00 pm, where settlement is T+2. There are no investment limitations for foreigner investors, as well as no repatriation, or minimum listing requirements. To cement the independence of the bourse, its by-laws prohibit any one shareholder from holding more than 5% of total capital. In 2H1999, the bourse adopted an electronic trading system, which to date operates in the secondary market, having a positive effect on trading volume, and attracting liquidity. International best practices and standards are enshrined at the bourse by Decree Law No. 1 of 1999, which stipulates a benchmark for confidentiality on the part of the issuer to bolster investor confidence. Today, 36 brokerage houses licensed on the BVP trade more than 150 stocks. Growth of the BVP has been spurred by Panama’s positive business environment, and underpinned by the prospects of lasting political stability. Moreover, the adoption of a uniform taxation for all financial instruments removed
With its geographical advantages, liberal economic policies, ICT connectivity, and improved regulatory environment, Panama is well-placed to serve as a regional finance hub.
the tax bias that held back the development of the securities market. Panama’s economy has been a stranger to inflation, boasting stable interest rates. And being dollarized, and thus able to issue in US dollars, has attracted further resources from the international markets than may have been possible in a local currency environment. Moreover, in the country’s fiscal environment foreign transactions are exempt from taxation. In this light, the BVP has aspirations of becoming a regional financial hub. At first sight the global credit crunch appeared to have spared Panama’s capital markets, while the rest of the world, including the Americas, reeled. For 1H2008 the BVP rang up a total of $1.205 billion in transaction volumes, marking a 27.9% YoY increase on the same period of 2007. The benchmark index closed the period at 263 points, up 8.2% over the same period of the previous year. Yet reality bit hard mere months later in the form of a vertiginous 72.9% decline in transactions during the first two months of 2009 from the same period of 2008. And despite being the largest dollar-based equity market in Central America, Panama’s capital markets also saw some contraction in recent times due to the de-listing of companies bought by international entities. A broad platform, if bond-trading heavy in practice, the BVP offers the investor, among others, trading in stocks, short-term corporate debt, corporate bonds and mortgages, as well as government paper, and closed end mutual funds. As AboutMoney reveals, as of 2011, the BVP had only 22 registered publicly trading companies, although their the combined value was roughly $2.64 billion, up 61.35% over 2009 levels. Of note, there are no exchange-traded funds (ETFs) entitling the investor to more than 2% exposure to Panamanian companies, and the Industrials/Producer Durables AlphaDEX Fund (FXR) has just a 1.72% weighting.
Finance
PERFORMANCE Fast-forwarding to 2011, World Bank data reveals that the benchmark BVPSI index ranked as the 53rd largest stock exchange worldwide in terms of market capitalization as a percentage of GDP, on a figure of 33.11%, sandwiched by Germany in 52nd place (32.65%) and Kenya in 54th place (29.73%). And among the Americas for that year for which data is available, Chile ranked eighth (107.62%), Mexico 50th (34.93%), and Brazil 39th (49.62%). The market capitalization of listed companies in Panama as a percentage of GDP at 33.05% by 2012, in stark contrast to a nadir of 3.40% in 1992. With a print of 50% identifying a mature economy, by way of comparison, for 2012 the UK figure was 122.65%. According to BVP figures, the primary, secondary, and repurchase markets as of June 2014 had ratcheted up to $469.7 million, from $230.7 million in 2013 on a 53% rise. In the
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first six months the primary market rose 60% to $254.9 million, while the secondary market soared 193% to $195.3 million; and the volume of shares registered at the BVP, saw growth of 565%, bringing 687,327 additional shares over the same period of 2013. Panama’s benchmark BVPSI index slid to 412.97 index points in September of 2014 from 416.76 in August. The benchmark index averaged at 161.01 index points from 1992 until 2014, peaking at 478.75 points in May of 2013, and troughing at 13.70 points in January of 1992. Meanwhile, as of September 2014 24 the benchmark was down 4.0% year-to-date, and down by 5.95% on a one-year basis, trading within a 52-week range of 411.91 to 444.64. For the first eight months of 2014 the primary market saw a volume of $2.4 billion, and the secondary market $1.3 billion; this compared to respectively lower figures of $3.5 billion and $1.6 billion a year earlier.
THIS FROM THE TREASURY In May 13 2014, the government placed treasury notes valued at $33.94 million at the BVP, of which $2.4 million traded in the secondary market, marking notable growth in volume of $57.85 million, according to BVP data. By the end of 2013 the transaction volume of local sovereign notes in Panama had climbed to $763 million. This achievement was in large part due to the Ministry of Economy and Finance’s Market Maker Program. In the words of the ministry, “The Market Maker Program aims to develop the domestic market for government debt securities in which the entities approved by the government will permanently and simultaneously quote buy and sell prices in order to increase liquidity and market depth.” And as of August 31, 2014, public debt stood at $1.36 billion.
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Panama’s insurers swim in a rather crowded pond, yet lateral approaches to the customer adopted today promise bigger premiums written tomorrow.
Review
INSURANCE
UNDER COVER According to Ernest & Young (EY), the global middle class—the great white hope of all emerging markets—is set for swift growth over the coming two decades, and is estimated to account for a full half of the world’s population by 2030. Naturally enough, financial inclusion is a key element in the equation. In Panama, then, as elsewhere, the growth of this class among its 3.8 million population is the insurance sector’s premium source of tomorrow. Over 2013 the global insurance business saw a modest rise of 1.4% to $4,641 billion in terms of direct premiums written. Data reveals that while developed market growth deteriorated to just 0.3%, emerging markets rose 7.4% for the year. And while working from a low base, the EMs have seen a positive trend on the back of industry reform and relative economic stability. In terms of Panama specifically, Gabriel R. de Obarrio III, Executive Vice-President and General Manager of Generali summed up the local environment thus, “The sector has grown to the point where today’s 32 companies are to be joined by a further two that have recently been approved. Clearly then, margins have become squeezed, with technical margins virtually at zero. A glance at the figures reveals an industry witnessing growth with a healthy balance between diverse business lines.” Industry regulator, the Superintendency of Insurance and Reinsurance, indicates that between January and September of 2013 insurance sales rose 8.5% YoY to $892 million, nudging nicely toward that magic $1 billion mark. Policies sold were predominantly from the auto and health segments, where auto insurance saw sales of $153.7 million and health $146.5 million. Group life insurance sales stood at $110 million. ASSA led the market with a 16.9% stake, followed by Internacional de Seguros on 16.3%, and MAPFRE Panama in third place on 13.8% for the period. A Superintendency report indicated a pronounced rise in claims to $375.8 million for the period, up from $311.7 million in September 2012. To boost its tourism offering, not least by targeting those arriving for health, back in 2011, Panama enacted free health insurance for tourists. With the exception of extreme sports
and drug-related accidents, visitors found themselves covered for accidental death up to $20,000, hospitalization and medical expenses for accidental injury or disease contracted in Panama up to $7,000, dental emergency up to $ 2,000, and administrative legal assistance up to $3,500.
A GOOD POLICY According to Central American Data, in 1H2014 total premiums written registered at $657 million on a 12% YoY rise. Among these, health insurance, auto, and group life policies claimed roughly 45%. On a rising trajectory in recent years, auto insurance accounted for $112.4 million, up 9.8% YoY for the period. Second was the health segment on $108.3 million, on 14.46% YoY growth, and group life, up 3.93% YoY to $75.1 million in policy signings. Symptomatic of Panama’s persistent struggle against irregularity, the highest percentage sales rise was for policies against theft at the corporate level, namely fidelity cover against employee theft, and dishonesty, disappearance, and destruction (DDD) coverage, which rose a whopping 477% in June 2014 to $5.3 million from $924,750 a year earlier. In fact, on October 19, 2014, Panama City hosts a Superintendency of Insurance and Reinsurance forum on the impact on the sector of irregularity, principally money laundering.
REGULATION Luis Della Togna, Superintendent of the Superintendence of Insurance and Reinsurance of Panama, told TBY that, “The 2012 Insurance Law is a major achievement for the insurance sector, and is the result of the collaboration of the Superintendence, the insurance companies, brokers, and the government. We introduced alternative channels of distribution. Previously, Panama was only a market for brokers. With this law, the companies can now offer services through alternative means of marketing, such as supermarkets and gas stations, for example.” Geared at bringing the sector toward international best practices in terms of supervision, the new insurance law stipulated the creation of a special administrative unit within insurance
LENA A. BONILLA R. General Director of AXA Assistance What are AXA Assistance’s activities and objectives in Panama? AXA Assistance Panama ij_h_^cnmi`×]_ch,**0&qcnb a US Federal Plan, namely the J[h[g[=[h[f<_h_×nJf[h`il all retirees of the Canal Zone. Q_^_^c][n_^[lioh^×p_s_[lm to this operation, after which we \_][g_chpifp_^ch[hcgjilnant project with the Ministry of Niolcmgch,*+*&qb_hnb_aipernment launched an insurance jf[hni]ip_l[ffniolcmnmpcmcncha the country. We participated in the tender for all operational m_lpc]_m&[h^ni^[sniolcmnm ]igchaniJ[h[g[[l_]ip_l_^ for medical assistance and accidental death. In the wake of that project, we introduced our products to the local market. Today, we pursue four lines of busih_mm(Ihnb_ih_b[h^&q_b[p_ aip_lhg_hn]ihnl[]nmchniolcmg and with the Ministry for Health, and on the other we do busih_mmqcnbjlcp[n_]igj[hc_m& _mj_]c[ffschmol[h]_×lgm(Ch the latter case, one of the most ^_p_fij_^fch_mi`\omch_mmb_l_ is roadside assistance. Another line of business we pursue with select clients is health, which is not only the federal plan but [fmi[nn_h^mninb_ch^cpc^o[f needs of other clients.
Finance
firms to oversee claims and disputes with consumers. It also heralded the obligatory registry of reinsurers in Panama and shored up basic consumer rights.
MICROINSURANCE… Microinsurance has become a potentially lucrative branch for insurers that also bears a lower risk profile. And while still limited in scope, bancassurance and retail outlets entering the fray as distribution points have registered on insurers balance sheets. Central America Data cites Nacional de Seguros as having doubled its customer base by 50% to 80,000 clients following the 2012 Insurance Law provisions on microinsurance. Indeed, according to Munich Re data, microinsurance in Latin America and the Caribbean (LAC) is on a positive trajectory, with 45.5 million beneficiaries in the region as of 2011, 70% of which held life insurance policies. Eleven countries within the region saw a 125% appreciation in microinsurance between 2005 and 2011. Close to 90% of this growth is in Colombia, Ecuador, and Peru. Yet the same research reveals the absence of Panama among the high fliers, as regulatory constraints curbed growth for the period to just 3%.
…AND BIG THINKING As Carlos A. Samudio Calvo, General Manager of La Regional de Seguros explained to TBY; “insurance is a face-to-face business, [adding as a caveat that] …we also offer new and innovative products.” Indeed, the insurance world to varying degrees is trending toward alternative distribution channels to the familiar branch or broker visit. In its report Digital Distribution in Insurance: A Quiet Revolution, Sigma research concludes that, “Successful insurers will be those who develop a client-centric and digital mindset capable of responding to changes in the market environment and delivering insurance solutions closely related to customer needs.”
CHANNELING RISK According to BN Americas, the current expansion of the Panama Canal, in addition to increasing trade, is set to impact insurers. On the one hand, as cargo is unloaded faster during times of peak volume, spoilage rates drop, with insurers facing lower claims. Yet on the flip side, larger vessels involved in accidents will incur far greater one-time losses due to the sheer volume being carried, when the capacity of ships plying the canal’s waters rises up to some 13,000 TEUs from around 5,000 TEUs.
SOME PLAYERS AND NUMBERS According to the Insurance Information Institute, for 2013 overall direct premiums written stood at $1.2 billion (0.03% of the global total) where the non-life print was $965 million, while life premiums amounted to $280 million. For the year, Panama’s leading non-life insurer was ASSA on gross written premiums of $130 million. The firm is controlled by ASSA, a Panama-based financial services group, via subsidiary ASSA Compañía Tenedora. In second place was health insurance provider Internacional de Seguros, established in 1910, on $120.7 million. Third came MAPFRE Panamá, the local arm of the Spanish insurance giant on $87.3 million. Working across life, health and P&C segments, MAPFRE opened its doors in 1967 as Aseguradora Mundial, until 2009, when MAPFRE purchased a 65% stake. Meanwhile, leading the field among life insurance companies in 2013 were Pan American Life Insurance de Panama on gross written premiums of $83.6 million, Internacional de Seguros on $82.5 million, and MAPFRE on $77.8 million. And in the first five months of 2014 the volume of premiums was at $545 million, nearly $50 million more than in the same period in 2013. Automobiles, with premiums of $94 million, and health, on $91.8 million, saw the greatest rises YoY, respectively up 9.83% and 17%.
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To boost its tourism offering, not least by targeting those [llcpcha`ilb_[fnb& back in 2011, Panama enacted free health insurance for tourists. With the exception of extreme sports and drug-related accidents, pcmcnilm`ioh^ nb_gm_fp_m]ip_l_^(
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INTERVIEW
EXPANDING options The company provides a wide range of services in both its personal and business lines. What are your most in-demand products and how has your portfolio evolved over the last decade?
We cover property, casualty, bonding, auto, life, and health. We are active in every line of business, and that’s why we rank among the top four in every line of business in Panama among 33 companies. We view each line as a profit center, and believe that each plays its own role in the economy. We therefore make sure that every line of business has what it takes to be aggressive in the market, while at the same time being profitable. The largest line of business in Panama has traditionally been auto, which is the case for us, too. However, our health portfolio has, over the past eight years, gone from being our fourth line of business to the second biggest as of last year, just behind auto. We also decided to join forces with Blue Cross and Blue Shield, which is an umbrella association of independent insurance companies, and created what is called the Blue Cross and Blue Shield of Panama. All our health products are now marketed under the name of Blue Cross and Blue Shield of Panama. This has given us great public acceptance, not only because Internacional de Seguros is behind it, but also because Internacional de Seguros Blue Cross and Blue Shield cardholders can enter any of the million health service providers in the US and
IN NUMBERS Internacional de Seguros
Capital base
140 Million USD
TBY talks to Mauricio de la Guardia L., CEO of Compañía Internacional de Seguros, on growth in the health insurance market, diverse products, and corporate accomplishments.
Market share
19.33% be treated as a local patient, be it in a hospital, clinic, or at a doctor’s surgery. So wherever you are in the US, the local Blue Cross and Blue Shield take care of everything, after which we reimburse the local Blue Cross and Blue Shield. Panama is a country with a very close relationship with the US, and many Panamanians travel there regularly. How important are reinsurance services for your business activities?
This is a vital part of our business. We’re continuously taking risk from all our insurers. So in order for us to survive in the long term, especially where natural disasters are concerned, we cannot retain all the risk. In the event of a massive earthquake or flood, for example, the cost would be prohibitive. Therefore, prop-
BIO Mauricio de la Guardia L. graduated from Business Administration at the Ohcp_lmcnsi`Nofm[chnb_ US, and in 2005 started qilecha[m?r_]oncp_ Vice-President and General Manager at Compañía Internacional de Seguros, M(;(B_b[mb_f^m_p_l[f cgjiln[hnjimcncihmip_l the course of his 29-year career in the insurance sector, in groups such as Internacional de Seguros [h^p[lciomfi][f×lgm( In addition, he has been [g_g\_l[h^m_lp_^[m president of the Board of Directors of the Panamanian Association of Insurers ";J;>?;#[nchn_lp[fmmch]_ 2006, and is a member of the Board of Directors of the Panamanian Chamber of Commerce, Industry, and Agriculture (C.C.I.A.P.).
erty insurance companies opt for reinsurance when it comes to catastrophic losses. Our company is big enough to retain our normal day-to-day coverage without the need for reinsurance. We have a $140 million capital base that provides us with enough financial strength to cover our losses. Yet large losses as a result of natural disasters require reinsurance. That’s what gives us the stability to be able to survive as a business and take on massive claims, as we had to in Colón in 2013. How would you describe your ×h[h]c[f j_l`ilg[h]_ ch ,*+-& and what are your expectations for next year?
Our performance in 2013 was extraordinary, as we broke records not only in sales, but also in profits. We were the first and only company in Central America to write over $200 million worth of direct premiums, and we’ve been the number one in the Panamanian insurance sector for the past five years, excepting 2013. You have been at the helm of the company since 2005. What have been your most memorable achievements over the past decade?
We went from being the third largest insurance company in the market to becoming the market leaders. That is the main accomplishment and speaks for itself. That being said, we owe much of that to our excellent team of brokers. Over 95% of sales in Panama are done through brokers. We provide them with all the tools they need, investing much time, effort, and technology, and providing them with the greatest accessibility of any company, with 24/7 web, and increasingly, smartphone access.
Bumper years, growth years, record-breaking years, challenging years. The key players and their stories are all in The Business Year.
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Finance
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INSURANCE INDUSTRY FORUM
all the WAY IN
As the insurance sector in Panama matures, companies are looking for ways to consolidate and expand.
GABRIEL R. DE OBARRIO III
ROBERTO ALFARO ESTRIPEAUT
CARLOS A. SAMUDIO CALVO
Executive Vice-‐ President and General Manager, Generali
Director, Nacional de Seguros
General Manager, La Regional de Seguros
T
he sector has grown to the point where today’s 32 companies are to be joined by a further two that have recently been approved. Not surprisingly then, margins have become squeezed, with technical margins virtually at zero. A glance at the figures reveals an industry in growth with a healthy balance between diverse business lines. Yet the bottom gives a less than glowing account of sector performance. I would recommend potential entrants take a good look at the publicly available financials. I expect this to change to a degree because of the cyclicality factor. And yet I foresee sector consolidation over the next five to 10 years through mergers and acquisitions as the market becomes too small. We intend to play a role in these developments as the national leader. There is quite clearly an opportunity to make a serious advance in Panama within the next few years. In 2014, we will experience a general economic slowdown, but nonetheless register important growth when compared to other regional nations. And in terms of the insurance sector Panama will face a major challenge, as coverage of large-scale projects is not renewed. Bonds and construction policies are not renewable, with policies being written at the start of a project.
W
e wanted to target a niche where there was not much competition, such as the micro insurance services sector. We started our company serving low-income people with accessible premiums. Now, we are the ninth largest local firm and have had solid growth. In the last three years we grew from premiums of $500,000 to $42 million. We think this year we will go above $50 million in premiums, the Panamanian market is growing and we are taking advantage of that. We are also thinking of expanding to two other countries in the region one in the south and the other in Central America. One market that is very attractive for us is Colombia, so about a year ago we started to find a way to buy an insurance company there. We found a company that we could buy called “Eco Seguros.” We are opening offices there in the coming months and will change the entity’s name to our brand name “Nacional de Seguros.” We have more than 100 agencies in the country and offer insurance through these agents. We are also venturing into something that is just starting in Panama, involving selling via massive agents like supermarkets.
C
ompetition is high in Panama because brokers have fully penetrated the entire industry. One of the most important strengths our company has is our qualified staff. All of our employees have had previous experience at other companies. Insurance is a face-to-face business, but we also offer new and innovative products. If you pretend to sell the same as everyone else, you simply do not have any added value to incorporate into your product offering. We therefore developed a portfolio of tailor-made products. When we started out, we had seven products, and by the end of 2014 we expect to be selling more than 15. I think automotive and car insurance are the most demanded forms of coverage, but to that we might also add sureties, health, and individual life insurance. The board of directors of the company are conservative. They have a mix of banking experience abroad, and technical expertise in the sale of insurance products. They are also pursuing conservative goals for the coming years. They do not expect to see major increases, believing, rather, that by the end of the year, we need to demonstrate not only that we have increased, but also that we are contributing positively to the sector.
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TONY ELETA
LUIS DELLA TOGNA
DINO MON
Country Manager, Pan-‐American Life Insurance de Panamá
Superintendent, Superintendence of Insurance and Reinsurance of Panama
CEO, Mapfre Panama
P
an-American Life is an insurance company focused on the local sales of life, accident, and health insurance. With more than a century of experience, we are the insurance company with the largest presence of personal insurance in Panama, and throughout the region. Our strategy has been to cater to individuals and corporations, leading both life and health sectors of the insurance industry. Our clients are individuals as well as local companies, banks and multinational companies across the Central American region. As a consequence of Law No. 41,we are also focusing on multinational companies that are arriving in Panama, as well as those from Colombia and Ecuador. Our main focus is the Americas, Central America, the Andean and Caribbean regions, the US, and Mexico. The expansion of the Pan-American Life Insurance Group into Mexico is a natural step that supports the company’s strategic plan for Latin America and is focused on the international major medical and personal accidents lines. As a result of the Alico (previously part of MetLife) acquisition, 37% of our revenues come from the US and 63% are from our international businesses, with Panama itself representing 13%.
T
he growth of the economy is related to the growth of the insurance sector. For example, in 2006, we had premiums of $596 million, in 2011 we achieved premiums of $1.03 billion, and in 2013 we achieved premiums worth $1.24 billion, recording growth of more than 9%. The 2012 Insurance Law is also a major factor. This law is a major achievement for the insurance sector, and it is the result of the collaboration of the Superintendence, the insurance companies, brokers, and the government. For six to eight months, we were trying to come to an agreement to get every player of the sector involved. We introduced alternative channels of distribution. Previously, Panama was only a market for brokers. With this law, the companies can now offer services through alternative means of marketing, such as supermarkets and gas stations, for example. They need to have a contract between the insurance company and distribution channel, and these contracts must be supervised and approved by the Superintendence.
M
APFRE offers all types of insurance in their portfolio. We are the market leaders in Auto and in Life Insurances. We are a strong competitor in health (individual and group) insurance as well. We are working on being a part of every home in the Country, with products that offer the protection needed, including life, health, automotive, homeowner and more. We are developing a clientele at every level of the pyramid, not only at the top. A large part of these operations take place throughout the region. In 2009, MAPFRE had presence in many countries around the world including Mexico, the US, Brazil, Colombia, and every country in South America, except in most countries of Central America. At that time, it was difficult to consolidate a multinational and global strategy if you didn't have a presence in this part of the continent. With Grupo Mundial, MAPFRE saw the opportunity to complete their distribution network and to be present in every country in Central America. This gave MAPFRE the opportunity to offer to companies that operate in many countries, as an example, a health insurance with the same conditions in Guatemala, Honduras, El Salvador, and in Panama. We are working on modifying the products so that they have the right cross-border characteristics that will allow us to speak the same language for the client and have the local characteristics that they need.
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Blas Gonzales Robaina, CEO of Central America and the Caribbean, ABB, on trends in the sector and R&D priorities.
Renewable energy is part of Panama's strategy to diversify its energy matrix, and avoid power shortages.
Panama's massive gold and copper reserves are largely untapped, but an increase in mining activity is imminent.
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Energy & Mining REVIEW ENERGY
Overdependence on hydro-power is being tempered by LNG, wind, and solar projects.
EVERY WHICH WAY
P
anama produces no gas, oil, or coal but is an important energy transit point through the Canal and the Trans-Panama Pipeline. Panama generates just over half of its energy through fossil fuels and refined petroleum products, creating the remainder with hydropower and biomass fuels. The country’s energy situation is precarious, however, as Panama has had to rely more heavily on oil and coal in the past couple of years when the rainy season failed to deliver the usual amount of rain to drive the hydro plants. Moves into wind and solar energy in recent years have shown promise in helping balance the supply scales. There has been talk in recent years of an oil refinery to be built by Occidental Petroleum in the western region of Chiriquí, but nothing has come of it—the biggest development, aside from the Canal’s expansion, is the growth in the liquefied natural gas trade arising from the shale revolution in the US.
Indeed, the huge project to expand the Canal’s capacity was partly driven by the need to accommodate larger tankers, including gas tankers, though the shale gas boom in the US was not even a blip on the radar of Canal engineers and planners. The Panama Canal Authority (PCA) now says the new locks will be able to handle nearly 90% of the global fleet of LNG carriers, including Very Large Gas Carriers (VLGCs).
THE LURE OF GAS
Panama is now looking to redefine its energy matrix after recent droughts have caused issues with the country's main source of power, hydro. Solar and wind are now expected to play a larger role.
The previous administration under President Martinelli created incentives for the use of natural gas in the energy matrix—authorizing the construction of LNG-fired power plants and signing an energy agreement with Trinidad & Tobago to buy a slice of that Caribbean country’s reliable LNG supply. Ricaurte “Catin” Vásquez, General Electric, CEO of Central America and the Caribbean, told TBY that the gas agreement with Trinidad & Tobago “is clearly a new opportunity to change the en-
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Panama’s Authority of Public M_lpc]_m";M?J#ch,*+.jlipc^_^ jlipcmcih[ffc]_hm_m`ilnqimif[l power plants, totaling 29.9 MW, both ni\_fi][n_^ihnb_J[]c×]]i[mnch =bclckojlipch]_(
ergy matrix in Panama. For the very first time, LNG has been considered as a possible fuel for electric power generation. Other countries in the region are also looking at the possibility to move into this cleaner fuel. LNG brings its own complexities as far as scale, volumes and infrastructure requirements to receive and handle a completely new fuel.” Approximately 1 million barrels per day (bpd) equivalent of oil and gas pass through the Canal, while the pipeline was built to pump up to 600,000 bpd of Alaska North Slope crude to Gulf coast and Caribbean refineries. The crude demand situation changed meanwhile, and BP now sends 100,000 bpd the other way, west, to the port of Charco Azul on the Pacific coast. According to the latest statistics from the PCA, so-called southbound transshipments, Atlantic to Pacific, of petroleum and petroleum products exceeded the northbound by 15 to 1. Fossil fuel cargoes of all types represented about 14% of all shipments passing through the Canal in 2013. Fuel shipments of all kinds have declined sharply in the past couple of years during the Canal’s expansion work, but overall transit volumes have held steady.
LOST IN TRANSMISSION Not only is Panama overly dependent on hydropower, but state-owned electric power distributor, La Empresa de Transmisión Eléctrica S.A., known as ETESA, estimates that up to 17% of energy produced is lost due to faulty transmission lines. Blas González R., CEO of Central America and the Caribbean for ABB, told TBY that, “In 2013, we faced our first problem with regard to electricity generation in the city due to rainfall patterns. In 2014, we have faced the same again. There is a risk of companies leaving to surrounding countries if the problem persist, or increase, in the coming years. Besides, if a company is planning to invest in a production plant they would think twice about selecting Panama.” Meanwhile, shared transmission lines with neighboring countries such as Colombia and Costa Rica contribute to regional electricity delivery. A new electricity grid connection being built with Colombia will integrate the Andean market with the Central American
market via a $415 million transmission line between a substation in northeastern Colombia and the Pedregal Substation in Panama, providing Panama with access to cheaper and more reliable power. The project is slated for completion in June 2016.GDF Suez Energía Centroamérica in 2012 completed construction of its Dos Mares hydro power plant, and in 2013 upgraded its facilities at Bahía Las Minas (BLM) improving the efficiency and reliability of that facility by interconnecting BLM’s coal plant to its gas turbine plant. Fernando Tovar, CEO of GDF Suez Energía Centroamérica, told TBY that, “One of the biggest challenges in terms of infrastructure in Panama is transmission. There is the problem of the transmission from Chiriquí to the load center here in Panama City; however, that is not the only issue. The transmission lines from Colón to Panama are also reaching their saturation point. There is very little additional power installation that can be done in the Colón area, which is where most of the thermal power is located, without expanding the transmission lines between Colón and Panama as well. That is a central part of the infrastructure that needs to be constructed.” Development has a price tag, and energy-related projects represent an estimated $1.5 billion out of a total of $14 billion slated to be spent on infrastructure and economic development through 2018. Bloomberg reported in September 2014 that Panama’s President Juan Carlos Varela will seek Congressional approval to raise the budget deficit limit.
POWER FEEDS INDUSTRY Mining is another industry with great economic potential, but which is also energy-intensive. Denis Oscar Pombo A., General Manager, Drilling & Blasting, Inc., told TBY that, “Gold and copper will experience amazing growth in the upcoming years. Panama is a very attractive country for investment due to its relative stability.” While the development of gas is key for the future of the power sector in Panama, infrastructure planners must also include mining company needs in their development plans. Zorel Jaime Morales, Executive Director of the Panamanian Chamber of Mining, told TBY that, the “Cobre Panama Project is slated to produce around 300,000 to 350,000 tons of copper per year, which means that Panama will be placed around 9th to 10th copper producer countries of the world. The value of metal exports, will then represent around $2 billion per year, an income similar to that produced by the Panama Canal, on a country with a population of 3.5 million people.”
FERNANDO TOVAR CEO, GDF Suez Energía Centroamérica GDF Suez entered the Panamanian market in 2007, after nb_[]kocmcncihi`/+ i`<[b[ Las Minas Corp. What was the reason behind that strategy? Initially, we entered Panama with the acquisition of Bahía Las Minas Corp., and we grew from there. In 2009, we completed two different projects. One of nb_gq[m=[ncp&[^c_m_f_hach_mjf[hnch=ifh&[h^[qch^ power plant in Guanacaste, Cosn[Lc][(Ch,*++&q_cgjlip_^ one of our existing assets, ]ihp_lnchaiolnb_h'_rcmncha ^c_m_f\icf_lch=ifhchni[]i[f boiler, which brought down the price of power generation at our Bahía Las Minas facility, which now contributes the cheapest thermal energy in Panamá. In 2012, we completed construction of our hydro-electrical plant, Dos Mares. In 2013, we g[^_`olnb_lcgjlip_g_hnmni our facilities at Bahía Las Minas "@Mo_tchp_mn_^ip_l 3** million in different projects. In terms of jobs, during the construction phase the number is in the thousands, depending on the project. Currently, there are about 300 people working in plants and administration.
Increasing energy efficiency, reducing the loss ABB is a global leader in power and automation technologies that enable utility and industry customers to improve performance while lowering environmental impact. With about 145,000 employees we are close to customers in around 100 countries. With our technology leadership, global presence, application knowledge and local expertise, we offer products, systems, solutions and services that allow our customers to improve their operations – whether they need to increase the reliability of a power grid or raise productivity in a factory. www.abb.com
Contact us ABB Guatemala Ave. Las Américas, 18-81, Zona 14, Edificio Columbus Center Of. 1001 Guatemala, Guatemala Ph.+507 209 5400 Fax +507 209 5401
ABB Honduras Edif. Yude Canahuati, 3er Nivel 12 Calle, Ave. Circunvalación, S.O. San Pedro Sula, Honduras Ph.+507 209 5400 Fax +507 209 5401
ABB Republica Dominicana Autopista Duarte Km.10.5, Calle 2da Santo Domingo, Rep. Dominicana Ph.+1 809 331 6942 Fax.+1 809 331 6922
ABB El Salvador World Trade Center, San Salvador, Local 306 Ph.+503 2264 5471 Fax.+503 2264 5473 ** Opening soon in Trinidad & Tobago
ABB Costa Rica Edif. Trilogía, Torre 2, Oficina 221 Plaza Colonial Escazú, Apartado 468-1260 San José, Costa Rica Ph.+506 2288 5484 Fax-+506 2288 5482
ABB Panamá Via Porras y Miguel Ángel Paredes, Plaza Fidanque, 2 Nivel, PO Box 0816-01349 Panamá, Panamá Ph.+507 209 5400 Fax +507 209 5401
ABB S.A. E-mail: [email protected]
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SOLAR & WIND Panama’s Authority of Public Services (ASEP) in 2014 provided provisional licenses for two solar power plants, totalling 29.9 MW, both to be located on the Pacific coast in Chiriquí province. The larger of the two projects, 20.9 MW, is run by Bajo Frío, a local hydropow-
er plant operator. The other project, Planta Fotovoltaica Chiriquí, is a 9 MW plant in San Juan being built by Enel Fortuna, a subsidiary of Enel Green Power, a hydropower operator with a 300 MW plant on the Chiriqui River. In September 2014, two renewable energy companies, UGE and OTEPI, announced a contract to supply one of Panama’s first net-metered rooftop solar systems—and hinted at other projects to deliver multiple megawatts of solar energy by 2015. Wind Power Monthly reported in April 2014 that Chinese-owned Goldwind will supply magnetic direct-drive turbines for the second 215 MW Penonome wind farm in Panama, the project in Coclé province being developed by InterEnergy Holdings. The $450 million wind farm is the largest such project in Central America and will meet an estimated 10% of Panama's electricity demand. The first stage of the wind project, 55 MW, was developed by Spanish-owned Union Eolica Panameña and was also supplied turbines by the Chinese firm. The last word on Panama’s energy situation comes from Rodolfo Barniol Zerega, Director General of LNG Group Panama, who told TBY that, “What matters is not that energy is cheap for Panama; rather that it is competitive with the rest of the world, so that the processing industry can grow as an alternative source of wealth and development.”
Energy & Mining
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INTERVIEW
INNOVATE to prosper What has your growth strategy been since the company’s establishment in Panama in 1996?
In fact, ABB had established relations with Panama even prior to 1996 through our parent companies, Brown Boveri and Asea. In Panama, ABB was founded in 1996, because at that time we identified it as the most dynamic economy in the region. We had a couple of important projects, the first of which was the Panama Canal Transmission Line crossing, one of the largest projects of the day. After that, with this being a famous hub of the Americas thanks to Copa, and fueled by impressive growth, ABB decided to put its regional headquarters in Panama, and we started opening different branches across the region. Today, we have offices all over Central America, in all countries except for Nicaragua and Belize. Regarding the Caribbean, we have offices in the Dominican Republic and, shortly, in Trinidad & Tobago. Both of these offices will be overseen from Panama.
BIO Blas Gonzalez Robaina is the CEO for Central America and the Caribbean at ABB. He has worked of ABB since 1997, and has held a number of senior roles including Vice-President and Regional Manager. Jl_pciomfs&b_m_lp_^[m [h[^pcmilninb_B_[fnb Ministry of Venezuela. He holds degrees in Electrical Engineering and Business Administration from the Mcgh
What is the importance of Panama for ABB’s global activities?
Panama is a stepping stone to developing regional business, and as such has strategic interest for us. Although Panama does not have too much heavy process industry as such, e.g. aluminum smelters or steelmakers or even oil producers, the impressive growth that we have seen over the past few years in the infrastructure of the country and as consequence the increasing demand of energy represents for us, providers of both equipment and solutions for power and automation, a tremendous opportunity. But, beyond that fact, through Panama we can reach the rest of the region easily; communications are above the average for Central America and the Caribbean, and Panama also boasts a simple entry procedure for foreign nationals. Panama is a strategic place to be present if we want to be a main actor in the region. With all the expansions the country is undergoing, Panama represents 25% of our operations in Central America and the Caribbean, which is substantial. In this sub-region, we are a company of around $150 million, whereby Panama accounts for around $30 million. And despite being a small South American country, we have registered the greatest growth of the past two or three years, and are keen to sustain this performance. In Panama, we are set to invest in a sub-regional service station selling not just products and solutions, but also services. This mechanism should be in place before the year end.
TBY talks to Blas Gonzalez Robaina, CEO of Central America and the Caribbean, ABB, on the importance of Panama as a market, trends in the energy sector, and the company’s R&D priorities.
What is the importance of innovation for ABB, and how would you assess the level of innovation in Panama?
We have a new strategy from our CEO called the “PIE” approach: Penetration, Innovation, and Expansion. Penetration means doing more with what we already have. Expansion means going to countries or areas that we have not entered before, such as some countries in the Caribbean. But, innovation for us is essential. Every year we invest more than $1.5 billion in R&D, and have over 70 agreements with universities around the world. For us, innovation in countries like Panama means innovation in renewables, such as solar and wind. There has been a recent boost in renewables and solar energy in Central America, and specifically in Panama. Just a year ago, no one was really talking about this, as Chile, but not Central America nor the Caribbean. The cost of energy generation in the region is always high, mainly based on fossil fuels. Hydro is a good resource, but it is wholly contingent upon the right meteorology as we have seen in Panama. Therefore, energy matrix diversification like solar or wind are good options.
IN NUMBERS Central America and the Caribbean, ABB
Annual investment in R&D
1.5 Billion USD
Research agreements with over
70
Universities around the world
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INTERVIEW
What is the importance of this cryogenic LNG storage and rea[mc×][ncihjlid_]n`ilJ[h[g[9
The project allows for the introduction of natural gas as a fuel in Panama, improving the energy matrix of the country. Thus today, it is not just a case of coal, bunker oil, and diesel; there is also gas. The most important impact will be on energy prices. The cost of energy in Panama will go down, as a result of the projected prices for natural gas in the future. We tendered natural gas energy at a price (capacity plus energy) of 13 cents kW/hour, linked to the Henry Hub index. We believe that a supply linked to this index will be highly competitive in the future. This project will have a favorable impact on energy prices, and will change the configuration of the energy market. It was predicted by industry players that this project would not be necessary until after 2023; now, all the actors involved admit that they were wrong in their estimations by several years, given the way demand is behaving in Panama. This estimation error is so huge that the country needs this plant today. What is the potential of this energy for residential and automobile use?
All regasification projects are tied to thermal generation projects, so as to guarantee natural gas consumption and make them financially viable. As we have seen in other parts of the world, the evolution of these facilities leads to the development of projects for the supply of natural gas to industries. This goes hand in hand with the construction of small cryogenic storage and regasification plants at ambient temperature, tailor-made to meet specific industrial demands. There is also the potential to supply gas to small towns, housing developments, or buildings, and also to create an entire system to introduce gas-powered mass transit and private vehicles,
BUILD UP the gas IN NUMBERS LNG Group Panama
TBY talks to Rodolfo Barniol Zerega, Director General of LNG Group Panama, on regasification, gas reserves, and bilateral agreements.
BIO Rodolfo Barniol Zerega studied Biochemical Engineering at the Instituto N_]hifac]i^_Gihn_ll_s( In 1981, he became a founding member and President of ACUATECNOS C. Ltda, and later was a founding member and General Director of AQUALAB S.A. In 2005, he became President of the ]ihmnlo]ncih×lgI\l[m^_ Infraestructura S.A., and in 2009, Director of LNG Group Panama S.A. and Panama NG Power S.A. Inb_ljl_pciomjimcncihm he has held include presidency of the electricity company EMELGUR in Ecuador, as well as Minister i`Aip_lhg_hn&Jifc]_& Municipalities, and Worship in the same country.
by building small storage and regasification plants at ambient temperature, all the way up to complex gas pipeline systems. The US, Europe, and also several countries in Latin America are already familiar with and use this source of energy. I am sure that Panama will follow suit. Furthermore, Panama has the political stability needed to make investments of this magnitude, with a dollarized economy and the enormous influence of the country’s geographic location, which is a huge advantage for possibly exporting energy to its region of influence. Panama has an Energy Partial Scope Agreement with Trinidad & Tobago to buy natural gas. What is your assessment of these kinds of agreements?
Bilateral agreements are generally great. They create the framework for a working relationship between both parties, but projects like ours must be tied to long-term and versatile supply contracts. For that reason, LNG Group Panama negotiated and signed a supply contract with Gunvor Group. Likewise, we think that a plant of this kind and of this size needs companies with enough experience to develop a project of this scope. Accordingly, we selected the Spanish firm Duro Felguera to carry out the EPC side, and we signed a turnkey contract. On the other hand, as the core of energy consumption is elec-
Investment in the project
1.2 Billion USD
Expected year for plant to start working
2017 tric generation, we chose the company Alstom to design the configuration for this combination of turbines, heat exchangers, and boilers. We also signed an O&M contract with it, and Alstom is now responsible for all operations and maintenance aspects of the plant for the 20 years of validity of the PPA. What is the true potential of the natural gas resources of the country?
In the future, many thermal generation companies will consider gas as an alternative source of energy. Our storage and regasification facilities have a capacity that could easily meet the demand for natural gas from a similar project. We also have room to grow, and are convinced that any firm developed from now on will consider the environmental and price advantages of gas generation and choose this fuel as its main source.
Energy & Mining
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RENEWABLES FOCUS
POWER ball The government of Panama is looking to alternative and renewable energy to help diversify its energy matrix to avoid blackouts and power shortages. While Panama doesn’t suffer from the electricity generation problems some of its neighbor do, it is still looking forward to the future to develop a sustainable and cost-effective grid to avoid the pitfalls other nations in the region have fallen into. According to GDF SUEZ, Panama has an installed capacity of roughly 2.3 GW, with GDF supplying 25% of that capacity. The commercial sector is the largest consumer. Demand for electricity has risen by 6.3% over the past five years, and to this may be added rising oil and gas prices and droughts hampering hydro production, whereby the government is now seeking alternative routes to diversify its energy matrix.
SOLAR In March 2014, a joint venture between Greenwood Energy and Biosar completed the first utility-scale solar photovoltaic (PV) power plant in Panama. The plant, located some 14 kilometers away from Chitre, will generate 2.4 MW of solar energy and will be able to meet the electricity needs of 30% of the demand for the surrounding area. The plant is hooked up to the La Empresa de Generacion Electricita (EGESA) grid network and supplies the equivalent electrical need for 2,600 homes. The engineering, procurement, and construction (EPC) contract was up for tender in September 2013 and won by Greenwood Biosar. The venture provided all the required services and equipment needed for the project, which included engineering, civil works, PV module installation, and monitoring and control systems. This is not the first time that Greenwood Energy and Biosar have worked together, with the two companies working on numerous projects together in the US and Latin America before taking on this project.
HYDRO The National Dispatch Center (CND) released a report in July 2014 stating that Panama must install an additional 300 MW in generating capacity to help reinforce the system over the short term. While solar energy is some of the cleanest around, to meet this new demand would require the development of one of the largest solar power projects in the world. At present, California plays host to the largest such project, with 392 MW in installed capacity. Hence, the likely way to bridge this gap will be through hydro, which in terms of space and cost is more efficient at generating electricity. Hydro currently produces 60% of Panama’s electricity; however, the government is reluctant to keep all its eggs in one basket, but is still pushing ahead with some hydro projects. In 2013, GDF SUEZ began the commercial operation of its 118 MW hydro plant in Panama, the Dos Mares Hydro Plant. The plant consists of three power plants in total, Gualaca, Lorena, and Prudencia. The plants are situated in Chirique Province and required an investment of $460 million. In 2008, GDF auctioned off 100 MW of power to distribution companies for the period from 2013 to 2022 and is expected to provide 6,000 GWh over that contract period. The project will reduce the country’s carbon emissions by 350,000 tons per year. In June 2014, the state-owned utility company, EGESA, awarded a 215 MW hydroelectricity power plant to a branch of the Brazilian conglomerate Odebrecht. While the Brazilian company will hold a 77% stake in the $1.05 billion project, the Panamanian government will be the other main stakeholder. Odebrecht won a 50-year concession to operate the plant to be built in the western province of Bocas del Toro; however, during the construction of the plant the government will be able to boost its stake in the operation, which is due to be complete in 2019 or 2020.
WIND While hydro can produce large amounts of electricity, it is susceptible to fluctuations in energy output due to droughts, which the country is currently experiencing. To avoid potential brown outs, the government is keen to diversify its energy matrix. A number of wind farms are currently under construction, the largest being the Penonome Wind Farm. It will be the largest in Central America when complete, supplying 10% of Panama’s electricity by 2015. The $450 million project is run by Spanish-owned Union Eolica Panameña and will produce 220 MW by mid-2014 and 337 MW when fully operational in 2015. The project comprises 135 towers spread over 19,000 hectares and will eventually smeet the electricity needs of 850,000 people.
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B2B RENEWABLES
ANTONIO QUINTERO CEO, Green Energy de Panamá
HIROKI KAJI President, Panasonic Latin America
Renewable energies are becoming more popular in emerging markets due to the high prices for more traditional fuels.
What opportunities would you say the renewable energy sector offers for foreign investment? ANTONIO QUINTERO Panama has seen a swift turnaround. Firstly, to underpin the sector numerous tax policies were implemented in previous periods to stimulate its emergence. For example, tariffs were eliminated for commercialization and importing, and many laws and regulations have been created that have benefited sector players immensely. Today, Panama has a much more solid base for investment. There are good perspectives; we observe larger growth rates in some sectors than Panama itself has seen in recent years of 7% to 10%. The information, technology, and suppliers are there; now is the moment for Panama to embrace renewable energy systems. HIROKI KAJI The solar panel business began in Europe underpinned by government incentives. However, with the financial crisis, it shifted significantly to Japan. Following the tsunami and question marks over nuclear power generation, the government incentivized solar power, which today has become a hot proposition in Japan. Meanwhile,
the power of GREEN What are the priorities and investment plans of Green Energy Panama in 2014 and 2015?
in Central America there are great advantages for solar power, namely strong solar radiation, which translates into lower cost. Also, Latin America is growing and consuming electricity more quickly because of social development and rising income levels. Many countries in Latin America lack the resources to cover this rapid growth in energy consumption. For example, hydroelectric energy in Panama is dependent on rain that occasionally does not come, which negatively impacts energy production. Such factors, and declining prices for related technology, are contributing to the rapid growth of the solar panel business in Latin America. So we see real potential not only in Panama, but also in Central America. While Panama is getting prepared in terms of public infrastructure, there are encouraging developments, as the government recently approved 500-kW private sector solar generation projects, whereby an individual or private company can obtain approval to generate this amount for personal consumption.
AQ We have offices in Panama, but are also set to develop a technical and commercial office in the country. That is our main goal for 2014, as it will allow us to provide adequate logistics for national projects. Despite the fact that the country is small, we have to maintain an adequate logistics infrastructure for such systems, as installations are often carried out in areas that are difficult to access. The new office will ultimately create links with our neighbors in Central America, specifically Nicaragua and Costa Rica, toward the beginning of 2015. Panasonic has developed air-conditioning technology that allows an energy saving i` [lioh^ /* ( Qb[n mcgcf[l applications has such technology enabled? HK This technology also applies to the automobile and avionics industries. Our company is dedicated to sustainability and addressing crucial issues impacting the natural environment, such as global warming and inefficient consumption. Panasonic, which
also manages Sanyo, has leading-edge energy storage devices using lithium ion batteries and solar panel technology. Panasonic formerly had a separate operation in the housing business, but we unified both operations to pursue the market leadership. To what extent can renewables address Panama’s national energy crisis? AQ Renewable energy has been considered as a potential solution for our energy issues for some time now. In recent years during the summer months, we have been experiencing droughts, and hydroelectric power stations have been experiencing problems. A goal has been set to arrive at a working solution by 2018. Renewable energy could certainly provide much of the energy requirements of Panama’s residential areas.
Energy & Mining
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Panama holds some of the largest deposits of gold and copper reserves in the world; however, they are mostly undeveloped, leaving many opportunities to be tapped.
Review
MINING
RARING TO GO Mining has a long history in Panama, dating back to colonial times. The main minerals found in the country are copper, gold, silver, zinc, lead, manganese, and iron. Mining is currently one of the fastest growing sectors in the country, and has experienced constant growth since 2008. In 2013, the sector contributed $427.7 million to GDP and grew by 31.4% compared to 2012, when it grew by 28.8% on the year before that according to Business Panama. This growth has largely been attributed to fiscal benefits from the government and the country’s vast amount of recently discovered resources. Industry estimates puts the value of Panama’s total mineral reserves at $200 billion. The Mining Chamber of Panama (CAMIPA) has stated that 53% of these reserves will stay in the country, either in the form of taxes on income or dividends.
COPPER Panama hosts two of the largest undeveloped copper deposits in world, with an estimated 50 billion pounds according to CAMIPA. The Cobra Panama Mine is thought to be the largest copper reserve in the world, and is currently owned by First Quantum Minerals. The project is still under development, but once complete production should equate to around 300,000 tons per annum, which would equal $1.1 billion, but it expects to increase this to 1.3 million tons by 2018. Once it begins operation, it will be the largest mining operation ever in Central America. The mine was suppose to come online before the end of 2013; however, due to First Quantum Minerals' $5.1 billion takeover of fellow Canadian company Imnet, some of its projects were delayed. First Quantum currently has operations in Africa and Australia, while Inmet adds Turkey, Spain, and Finland to its portfolio.
GOLD Despite Panama’s vast mineral resources, currently it only has one working mine, which is the Molejon Gold Mine operated by Petaquilla Minerals in the province of Colón. Panama has a reserve of 12 million ounces of gold and 25,000 ounces of silver. According to Petaquilla Minerals’ website, Molejon produced 69,181 ounces of gold in FY2013, which produced a total revenue of $110.7 million. The cost per ounce of gold equivalent sold came in at $569, which meant operating profit for the mine of $36 million with EBITDA of $23.1 million. Production for the Molejon mine began in April 2009 and commercial production began in 2010. In 2012, Petaquilla Minerals expanded the mine with the completion of a fourth ball mill in addition to other processing equipment increasing the mines production capacity to 3,500 tons per day. Further expansions are currently underway with the construction of a heap leach pads facility that should be completed during FY 2015. There are a number of mines under construction at the moment, which should boost exports and the sectors growth over the coming years. In 2013, $5.1 billion was invested in the Panamanian mining sector with the aim of constructing and expanding mines. Exports in 2014 are not expected to increase drastically, due to the country’s flagship mines still being under construction. A fall in gold prices affected gold exports with a 35% drop, but this is unlikely to cause long-term problems given the large reserves the country holds. Mining activities currently account for 2.1% of GDP according to Business Panama, which in the next two to three years will increase as a number of mines come online and expansions are completed.
DENIS OSCAR POMBO A. General Manager, Drilling & Blasting, Inc. Gold and copper will experience amazing aliqnbip_lnb_]igcha years. Panama is an [nnl[]ncp_]iohnls`il chp_mng_hn^o_nicnm l_f[ncp_mn[\cfcns(Q_[l_ drawing attention from chn_lh[ncih[fchp_mnilm who are attracted by mining opportunities, and nb_m_chp_mnilmbij_ni emulate the success of Peru. In terms of drilling and blasting, the biggest challenge will be to stay at the technological forefront, so that we can compete in new markets.
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INTERVIEW
REASONS
How has the evolution of the mining sector been in Panama, especially regarding foreign investment?
Foreign investment in the mining sector has grown considerably over the last four years. Firstly, we have the start of operations of Petaquilla Gold, a small- to medium-sized gold mine that became the main exporter of the country in only its second year of operations, with gold appearing as the main good being exported from Panama over 2011 and 2012. Right now, First Quantum Minerals is investing $6.4 billion building the Cobre Panama copper project, a world-class mining project that is expected to enter production in late 2017. For certain geological reasons, it has been found that Panama is a small place where worldclass mine deposits have developed on its sub-surface, Cobre Panama and Cerro Colorado copper deposits being the ones to have evaluated known reserves. These two have been already discovered, but no systematic efforts have been conducted all around the country, leaving the majority of its territorial extension unexplored. The Cobre Panama Project is slated to produce around 300,000-350,000 tons of copper per year, which means that Panama will become around the ninth largest copper producer in the world. The value of metal exports will then represent around $2 billion per year, an income similar to that produced by the Panama Canal, for a country with a population of 3.5 million people. How many jobs will Minera Panamá create with this project?
During the peak of construction, it will employ between 6,000 and 8,000 persons, and during operation it will employ about 2,500 people and create many more indirect jobs. When the Panama Canal widening project
of geography TBY talks to Zorel Jaime Morales, Executive Director of the Panamanian Chamber of Mining (CAMIPA), on the new mines opening up in Panama, the issue of government regulation, and the need for community outreach programs.
What other challenges will the mining sector face in the coming years?
IN NUMBERS Panamanian Chamber of Mining (CAMIPA)
Current contribution of the mining sector to GDP
2%
Investment in the Cobre Panama mine
6.4 Billion USD
institutional hierarchy. Today’s laws and governmental institutions have severe technical, environmental, and social weakness, lacking the modern approach of responsible mining. It means the actual Mining Code does not include aspects such as mine closures, community involvement, environmental management, and several other aspects. It is a matter of urgency to start building all these capacities so the government can adequately rule the sector, given it will be as important as the producer of about 10% of country’s GDP. How is the mining sector perceived by Panamanians?
will approach its conclusion, most of those employed on its construction will become skilled candidates for work on the Cobre Panama mine. It will help the economy to keep growing at the pace it has shown over the past seven years. This means that mining will be an important part of the Panamanian economy over the next few years; however, in order to do that the best way possible, some deep changes will need to be performed regarding the national mining legal framework and
We have many NGOs spreading a lot of misinformation around the country, showing people the way mining was done 50 years ago or even facts that have no bearing on reality. However, after having an operating mine with another being constructed, people have started to realize that mining activity is not a synonymous with apocalyptic disasters, but an opportunity for the country to get not only economic benefits, but also important environmental and social opportunities that will not come any other way for many rural areas.
A big participative effort is needed that includes government, the mining sector, and all stake holders, giving their best efforts to produce a modern legal framework and to build institutional capacities that will allow the economic, social, and environmental benefits to become a real fact to the communities involved and for the whole country.
BIO Zorel Jamie Morales [nn_h^_^Ohcp_lmc^[^ Nacional de Colombia to study Engineering, Mining, and Metallurgy in 1977, before attending nb_Ohcp_lmcnsi`;o]ef[h^ to acquire his PhD in Geothermal Energy Technology. He began his career at Carbones Del Caribe as a Coal Mine Ij_l[ncihmMoj_lpcmilch 1984 before heading to IRHE Geological Research Section as an Engineer in 1986 until 1990. After this, he worked on numerous projects with different companies, including Minera Phelps Dodge and Cyprus Minera De Panama, before joining the Chamber of Mining (CAMIPA) in 1996 to take up his current position.
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Luis J. Varela Jr., Executive Vice-‐ President of Varela Hermanos, on the spirits market and developing an upscale brand.
Local drinks producers are finding the running increasingly good on international export markets.
Nikolas Gremler S., General Manager of AutoStar, on the luxury car market and the benefits of Mercedes-‐Benz.
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Industry REVIEW
Despite being known for its robust services sector, manufacturing is also somewhat of a key source of exports. That said, the sector will continue to play second fiddle to transport and logistics in the coming years as Panama Canal expansion drives growth.
U
nderstandably, Panama’s pride of place astraddle the main passageway between the Atlantic and Pacific Oceans has lessened the need for an expansive domestic industrial base due to the easy access to imports the Canal offers up. That reality becomes clear when we look at the sector’s gross added value (GAV), representing just 5% of the country’s total, far behind the service sector’s 80%. Compared to some of Panama’s peers, such as Colombia (13%) and Mexico (16%), the picture looks even bleaker. However, a variety of goods are produced in Panama, including clothing, shoes, leather goods, alcoholic beverages, papers, chemicals, cement, and tobacco products. Industry is focused around the capital, Panama City. In employment terms, manufacturing, bundled in with mining and quarrying, electricity and water, and construction, represent 20% of employment, behind trade and services at over 60%. The manufacturing sector has also remained
TAKING PART
somewhat attractive to investors, pulling in around one-quarter of total yearly FDI. For 1Q2014, industrial production (IP) grew by 0.5% YoY, a figure that averaged at 2.52% from 2003 to the beginning of 2014. According to Index Mundi, IP grew by 9.2% total in 2013, with industry representing 17.9% of GDP, compared to services on 78.4%, and agriculture on 3.7%.
COLÓN FREE ZONE
Panama's manufacturing sector remains small, a result of the ease with which the country can import thanks to its iconic Canal.
Panama’s main export and re-export hub is the Colón Free Zone, placed strategically at the entrance to the Panama Canal. Operating since 1948, it exports mainly to Latin America and the Caribbean. It is also a major receiver of imports and posted an import/ export surplus of just over $2 billion in 2013, with exports worth close to $15 billion. The top sources of imported goods are China, Singapore, the US, Hong Kong, Mexico, Vietnam, France and Monaco, Belgium, the UK, and Germany. On the export side, the top destinations are Puerto Rico, Colom-
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Nb_l_[l_×p_ industrial/logistics parks in Panama City [h^m_p_h`l__nl[^_ zones (FTZs).
PANAMA 2014
bia, Venezuela, other destinations in Panama, Costa Rica, Ecuador, the Dominican Republic, Guatemala, the US, and Honduras. In terms of what was imported and exported in 2013, chemicals and allied industries dominated both categories, with just over $6 billion in exports and approximately $5 billion in imports. Next up was machinery and electrical goods, with exports of just over $2 billion and imports of $2 billion. Textiles followed a similar pattern, and was followed by footwear and headgear, with imports and exports both around the $1 billion mark. Another significant category was foodstuff, with minor categories including plastics and rubbers, metals, stone and glass, leather and raw hides, transportation goods, wood and wood products, vegetable products, animal and animal products, and mineral products.
OTHER ZONES There are five industrial/logistics parks in Panama City and seven free trade zones (FTZs). By 2016, another three industrial/logistics parks are also expected to enter service, bringing with them another 80,000 sqm of space, according to Jones Lang LaSalle. All this is in preparation for the completion of the Panama Canal expansion, which will triple the size of ships that can pass along the waterway. Aside from the Colón Free Zone, there is the Panama Pacifico Special Economic Area (PPSEA), established in 2004. In industry terms, its PanAmerican Corporate Center is the most significant aspect, being an industrial park with over 440,000 sqm of leased area. Current residents include light manufacturing firms, and a plethora of logistics, assembly, distribution, and freight companies.
JUAN J. NUCCIO Executive President, Pinturas AYA Chhip[ncihg_[hm_p_lsnbchaniom( Technology changes, and there are ^c``_l_hn_hpclihg_hn[fl_aof[ncihm that we need to stay ahead of. People don’t want to waste energy or time on ]f_[hcha[mol`[]_5nb_l_`il_&q_h__^ nii``_l_[ms[h^_`×]c_hnmifoncihm `iliol]fc_hnm(Q_b[p_\ocfn[mifc^ relationship with local manufacturers in order to open a new branch and ^_p_fijjli^o]nm(Nb_sb_fjomchiol labs to create new products.
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INTERVIEW
THE RUM diaries IN NUMBERS Varela Hermanos
Varela Hermanos’ share of the domestic spirits market
90%
Countries to which Ron Abuelo is exported
36
What has your growth strategy \__hip_lnb_j[mn×p_s_[lm9
About 10 years ago we started to explore the international market more seriously, and most of our growth during the last few years has actually come from exports. We control approximately 90% of the domestic spirits market, so the only real option is to look beyond Panama to continue growing. We now export our leading product, Ron Abuelo, to 36 countries. Fortunately for us, the aged rum market is growing internationally, and there is an increasing interest in premium aged rums all over the world. What are your expectations in terms of production for 2015?
In the international market, we expect double-digit growth over the next five years. For the local market, it will mainly be organic growth due to the important market share we already have, but with some interesting growth in a few specific niches.
TBY talks to Luis J. Varela Jr., Executive Vice-President of Varela Hermanos, on the country’s spirits market, export markets, and developing a top-shelf brand of rum.
What is the importance of Ron Abuelo for Panamanians?
For many years, Panama was a market mainly of “seco” the national drink produced from sugar cane juice. Seco is for Panamanians what tequila is for Mexicans, or pisco for Peruvians. Rum always had some market share, but the impressive growth of Abuelo transformed the industry. For us it is vital to have a strong brand here, as Panama is today a great showcase to the entire world. Those visitors who try Abuelo and love it become ambassadors of Panama, and of Ron Abuelo, once they return home. Panamanians are particularly proud of our products. What makes Ron Abuelo so successful?
The quality of our rum has a lot to do with our success. We have spent a good amount of our advertising and promotional budget just inviting people to try Abuelo, and discover everything that the brand offers. With “Añejo”, the first product we introduced, we were able to produce a relatively light rum, but with much character. You can drink it neat, on the rocks, with water, or you can also make cocktails with it. It is a truly versatile product.
What are the main challenges that Panama’s exports are currently facing?
Panama is mainly an exporter of services, with less emphasis on consumer goods. But the country has the potential to export much more than it does today. The country’s geographical location is ideal, allowing for the shipping of goods from both oceans; our airport has also become an important hub for the Americas. There are generally competitive freight rates available from here. One of our main export markets for Ron Abuelo is Chile, whose main export market is the US. We ship our rum to Chile in containers that usually arrive empty from the US. For exports to become a more important part of our economy, the country in general needs to work on developing an export culture, which will take time, resources, and serious dedication. Hopefully the recently elected government will promote this effort.
BIO Luis J. Varela Jr. obtained his undergraduate degree in Industrial and Systems Engineering from Georgia Tech, and went on to earn his MBA from Babson College. During his educational tenure, Varela also gained experience in the manufacturing and `ii^m_lpc]_ch^omnls(F[n_l he went on to work for Destiladora Nacional, S.A. as a Production Manager, and later General Manager. Varela subsequently held the position of General Manager at Destiladora Nacional S.A., and Bodegas De America S.A. before assuming his current role [m?r_]oncp_Pc]_Jl_mc^_hn at Varela Hermanos. In [^^cncih&P[f_l[[fmim_lp_m as Director for Grupo Eleta and Grupo Centenario De Chp_lmcih_mJ[h[g[M(;(
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FOCUS ALCOHOLIC BEVERAGES
FOR GOOD MEASURE Local drinks producers are finding the running increasingly good on international export markets, as the desire for higher quality rums begins to make its presence felt.
Varela Hermanos SA Controls
90% of the domestic spirits market
Scotch Whisky Imports to Central America
2* pc[J[h[g[
Annual Beer Consumption
72 liters per capita
Rum has been distilled in Panama since early in the 20th century. One of the country’s most well known producers is Varela Hermanos SA, which distills for both the local Panamanian market and for export. In 2009 the UK drinks trade magazine imbibe.com highlighted the growth in popularity of Central and South American rums in the UK market, including the Ron Abuelo and Ron Cortez labeled rums produced by Varela Hermanos SA. At the time, Panamanian rum production was rapidly increasing with a YoY growth of 32.1% between August 2009 and August 2010, according to Cen-‐ tralAmericanData.com. At the same time Varela Hermanos SA signed a distribution agreement to enter the US spirits market, further increasing its international presence. Luis J. Varela Jr., Varela Hermanos’ Executive Vice-President, told TBY in his 2014 interview that, “We control approximately 90% of the domestic spirits market, so the only real option is to look beyond Panama. We now export our leading product, Ron Abuelo, to 36 countries. Fortunately for us, the aged rum market is growing and premium rums are becoming popular.” In fact, in 2011 Panama was ranked 13th in the world in terms of rum and tafia export value (at $26.16 million) behind such countries as Germany, Spain, the US, and its closer neighbors Mexico, Jamaica, and Barbados. And Panama had a world market share of 2.4% that same year.
strategy is adding to our growth.” As a result of this change in consumer tastes in-country, the local production of alcoholic beverages in Panama has actually declined 2.2% in the period August 2012 to August 2013 from 180.2 million liters down to 176.8 million liters. Rum production in particular dropped from 5.3 million liters to 4.7 million in this same period, according to the Comptroller General of the Republic of Panama.
INTERNATIONAL TWIST AT HOME
The re-exportation of liquor from Panama to the wider Latin American market is also a key area for the alcoholic beverages sector in Panama. According to figures published in The Spirits Business magazine in 2012, almost 80% of Scotch whisky exports to Central America, worth some £66 million, went to Panama. Much of this is then re-exported by Panama to other countries in the region. A new EU-Central America fair trade deal, which came into effect on August 1, 2013, removed a 15% tariff on whisky entering Panama, freeing up this trade opportunity further.
The growth of export markets would appear to be positive news for Panama’s liquor producers; however, domestic consumption patterns in the alcoholic beverages market have gone in the opposite direction as the economy develops. The demand for local rum in the domestic market has declined, with middle class consumers preferring to spend their disposable income on imported wines and overseas produced alcoholic offerings. H.Tzanetatos, Inc., one of the largest distributors of consumer products in Panama, supplies Drappier Champagne from France, Pascual Toso wines from Argentina, and White Birch vodka from Russia to the domestic market, amongst other products. When speaking to TBY for this publication, Alberto Paz-Rodriguez Jr. General Manager of H.Tzanetatos, Inc., commented, “We continually add new items to our portfolio. Part of our new strategy has also been to add liquor, in terms of wines and spirits, and this
THE BEER FACTS Panama’s current annual consumption of beer is 72 liters per capita. However, the local market in Panama is naturally enough experiencing this same change in consumption patterns, with a growth in demand for craft beers, and premium or international brands. Chris Ritchie, President of Cerveceria Nacional, which produces two iconic Panamanian beers, Balboa and Atlas, along with international beers such as Miller Light, explained to TBY that, “What typically happens, and it is happening in Panama, is that while GDP continues to grow … per capita consumption of beer starts to tail off.” The challenge for companies such as Cerveceria Nacional in Panama is to maintain revenue growth despite the decelerating sales volumes by tapping into new or niche consumer preferences in the beer market.
EX-EXPORTATION – WHISKY GALORE
LET’S RAISE A GLASS The mix of alcoholic beverages consumed in-country and being exported from Panama might be changing; however, the overall message remains that the sector is a vibrant and important part of Panama’s trading economy and looks set to remain so. That’s worth celebrating.
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BREW & DISTRIBUTE B2B
CHRIS RITCHIE President, Cervecería Nacional
ALBERTO PAZ-RODRIGUEZ JR. General Manager, Tzanetatos
bottoms UP Panama is looking to increase its domestic production of alcoholic beverages to help reduce costs and increase product coverage.
What has the growth strategy been for your company? CHRIS RITCHIE Our growth strategy has focused on our core businesses. There are many parts of the beverage industry that Cervecería Nacional was involved in, and at SABMiller we have closely focused on our core strength, which is beer and malt-based beverages. Secondly, in regard to carbonated soft drinks (CSDs), which is a second support for us contributing scale, we are the strong number two player in the market. Essentially, our task is to leverage the beer category and build up the malt category. Typically, when we acquire operations we look at them historically in a simple manner. As an African operating company, we have strengths in root-to-market and production, and very high quality standards for our products. What you have seen generally across the global beer industry applies also to us and our major competitors. The acquisition model was highly successful until around five to eight years ago. What you are starting to see is the industry shifting far more toward its more traditional FMCG roots. It is no longer about operating efficiencies, but about the consumer and customer. Therefore, efforts toward improving the quality of our communications and marketing, the degree of insight, and the investment
behind related activities are far greater today than five years ago. What typically happens, and it is happening in Panama, is that while GDP continues to grow slowly, the per capita consumption of beer starts to tail off. For example, in many Latin American markets the per capita consumption is below 30 liters per capita. In Panama, it is 72 liters per capita. Rather than simply riding the GDP wave, as volume growth starts to decelerate we change to a revenue-based model. ALBERTO PAZ-‐RODRIGUEZ JR. We worked hard to develop our own brands by expanding both our market coverage, and the assortment of products that we offer under each brand. Because of changes to the economic environment, we have had to create new strategies. We have entered into export operations, and we are opening our own retail operations that sell our alcoholic beverages. We have brought in international consultants to assist us in this transition. Our basic strategy in Panama has remained unchanged; namely to increase market penetration, and strengthen our product portfolio. National distribution remains our primary focus.
Which are the products that have the greatest demand in Panama and what are the key trends in beer consumption? CR Balboa and Atlas have become national icons that we absolutely protect. SABMiller is unique among the global brewers in terms of its belief in local brands. Beer is a local business, differing greatly from most FMCG businesses as people develop deep associations with their local brand. Miller Light has been a home run for us. In fact, it is the greatest success story worldwide on a premium introduction brand in any country in which we are present. Our three key dynamos, therefore, are Atlas, Balboa, and Miller Light. Panama is about 10 years behind the US, but moving at twice the pace. That is a phenomenon that we are seeing often today with local craft producers and also with what I call crafts, but which are actually just imports. Significant fragmentation is happening in the premium segment that we have to address in order to stay ahead.
How would you evaluate the retail and distribution sectors in the country at this time, and what are the main challenges that these sectors will face in the future? APRJ The recently instituted price law is a threat to the retail sector, because although it exists to control rising costs and assist the underprivileged, it will have negative financial consequences for retailers and manufacturers. Our country worked fine under a free market system, and it was not necessary to make these legal changes. Another challenge for retailers is acquisition by, and competition from, multi-national retailers, like Wal-Mart and Carrefour. While the companies have yet to make significant entries into the Panamanian market, their business model remains a threat. Unless Panama faces an economic downturn, however, the threat of internal competition should be manageable. The economy has been growing steadily with consistent demand, while consumer demand has promoted the introduction of new products.
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FOCUS AUTO SECTOR
I CAN’T DRIVE 65 Although Panama relies on imports for all of its automotive needs; rising car sales and the subsequent congestion and infrastructure requirements keep the automotive industry at the forefront of planners' minds.
Due to its small population and low cost of transportation, Panama lacks an indigenous car-manufacturing sector. This fact has not stopped the country’s auto sector from developing some interesting nuances that set it apart from its neighbors. At the end of November 2013, the total number of vehicles in Panama was 998,500, according to reports published by the Land Transport and Transit Authority (ATTT). By the end of 2013, this number had surpassed the one million mark. While car sales were unusually strong last year, sales in 2014 are slower. New car sales growth during 1H2014 was at 5.6%, which was well below last year’s rate of 14.8% during the same time period. The strong performers during 1H2014 were buses, with 1,027 units sold, representing a 70% YoY increase, followed by minivans, at 443 units and a 23.7% YoY growth, and 1,369 luxury cars representing a 11.4% YoY increase in sales. That said, the two highest selling vehicle types by volume were 12,646 sedan style cars, and 7,413 SUVs, with sales rising by 5.3% and 1.3% respectively in 2014. The last few years have also seen Asian car manufacturers establish their dominance in the Panama car market. Of the 10 most popular car brands in terms of sales during the first eight months of 2014, Asian brands accounted for 92.4% of sales, with Toyota coming out on top with 9,046 units. Ford Motors, the only American brand on the list, moved a much smaller 1,131 units during the same time period. And while Toyota dominated overall sales in Panama, Hyundai delivered the most successful model, its Accent, which sold 324 units. Total sales during the period reached 36,190 units according to the Association of Automobile Dealers Panama (ADAP).
STUCK IN THE MIDDLE As more and more cares roll off dealership lots in Panama, the situation is causing serious congestion, especially in heavily trafficked urban areas such as Panama City and Colón. In spite of new road construction projects like the coastal beltway, completed at a cost of $189 million in 2009, road traffic is vastly outpacing infrastructure growth. In 2012, Panama’s Chamber of Commerce, Industry, and Agriculture reported that congestion was costing businesses around a million dollars per day. The boom in car sales during the subsequent years has only exacerbated these costs and frustrations. In a poll conducted by La Prensa, a local newspaper, 54.4% of passengers said that they lost two to three hours traveling in Panama City every day, with others complaining of even longer commutes. While the introduction of the new metro line is expected to alleviate some of the congestion, continued investment in alternative forms of public transport will be necessary as car ownership ramps up.
RUNNING WITH THE DEVIL In decades past, one of the most visually striking symbols of life in Panama was it’s elaborately painted, privately owned and operated public buses, which locals referred to as the “Red Devils.” The buses—many of which were purchased used from school districts in Florida—careened throughout Panama, delivering passengers and inciting the opprobrium of concerned politicians such as former President Martinelli, who railed that, “they will race from one end of the city to the other, killing people, killing themselves.” Now these buses are being phased out in favor of new uniform metro buses. And while the new bus system has attracted some criticism over pricing and timeliness, the numbers are in its favor. The much-lauded new metro line, which opened in 2014, should help ease congestion. But a report by the CATO institute showed that buses were far more effective, especially considering the specifics of Panama City. While the Metro Line 1 can move a maximum of 6,400 passengers per hour, transit buses can move over 10,000 passengers per hour on city streets. When the overall costs of the two systems are compared, the comparative advantage of Panama’s bus network becomes even more pronounced. Ultimately, the city will integrate a combination of the two systems. But planners would do well to not ignore the less glamorous but highly practical bus network.
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INTERVIEW How have you looked to adjust your operations in the Panamanian market?
AutoStar has been in Panama since July 2012. In 2010, we started with due diligence and market research in Panama, flying in on a weekly basis to get an idea of the operations here. Our growth in Panama has been extremely good because the brand is in very high demand. In terms of the Mercedes-Benz brand, we are working hard every day to improve our service, which is the most important part of our business. The most important aspects include taking care of the client, making sure you have the right parts in stock, and maintaining a training program for our technicians. In this business, you need to have a lot of capital. You have infrastructure that you need to pay for, and then you need to have a lot of stock because clients do not like to wait for their cars. The finances also need to be in order as factories are paid up front. When a car arrives in Panama, it is already paid for, and we then sell it two or more months later. What models are particularly exciting for you in this market?
Mercedes-Benz has changed a lot, and you can now see many new products, including the new generation compact cars (NGCC), namely the A Class, CLA Class, and GLA Class. These models are helping us to attack a segment of clients that we couldn’t before. In 2013, Mercedes-Benz was number one in the US after BMW and Audi, and that is because of the new-generation cars. We expect that 20% of our sales are going to be in this area. The Panamanian market, however, prefers SUVs, and 70% of our sales are SUVs. Sio b[p_ [ jl_m_h]_ ch ×p_ countries. What are your future plans for expansion?
We started expanding 23 years ago when we came to Peru. And in 10 years we want to be in Ecuador, Colombia, and Guatemala.
main INDICATORS TBY talks to Nikolas Gremler S., General Manager of AutoStar, on the luxury car market in Panama and the benefits of the MercedesBenz brand.
IN NUMBERS AutoStar
Expected sales for 2014
65
Million USD
Sales growth of Mercedes-Benz in Panama in 2013
215% Qb[n q[m siol ×h[h]c[f j_lformance here in Panama for 2013? And what are your expectations for 2014?
Last year we sold about $45 million worth of products, and we are expecting to sell $65 million this year. We need to have sales of 900 units across the whole range, which includes Mercedes-Benz, the Chrysler brands, including Jeep, Dodge, Ram, and Freightliner trucks from Daimler. What other investments will you make this year?
We are investing around $2 million to give our head office a facelift. We will then be investing $5 million in new showrooms and our principal workshop for Mercedes-Benz
and Chrysler in the Santa Maria business district. This will afford us the largest workshop in the luxury car segment in Panama. With this kind of investment, we send a strong message to our clients that they can trust us as partners. The luxury car sector grew by +3 ch,*+-chJ[h[g[(Qb[nÎm behind that?
I think Panama offers what no other countries in the region do; political stability, logistics facilities, attractive financial options, and a government and private sector that invest heavily. Many international companies are arriving and bringing in managers from other markets. Those managers need cars, so they are responsible for a lot of this growth. But another reason is that the upper-middle class is also growing in Panama. That kind of growth leads to an expansion of the luxury segment. Panama has low taxes compared to the region, making it an attractive place. Also, financing from banks is very aggressive, and people like cars. It is now cheaper to get a car here. Indeed, cars in Panama are cheaper than in the other markets we operate in. The tax rate on cars in Costa Rica is 65%, whereas it is just 25% in Panama.
BIO Nikolas Gremler S. holds Chilean and German citizenship, and studied in the faculty of administration and business at the Chn_lh[ncih[fOhcp_lmcns of Catalonia. Before his current position, he worked as branch manager of Gipc]_hn_lE[o`g[hh=bcf_& and then from 2010 to 2012 as Regional Director of Vehículos Comerciales Autostar in Costa Rica, Panama, and Nicaragua. He has a broad range of skills related to the management and design of sales strategies and clients, as well as responsibilities for budgeting and analyzing markets and new products.
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B2B CAR MARKET
in the DRIVING SEAT IVÁN A. JURADO A. Executive Vice-‐ President and General Manager, Petroautos
EVERST FIGUEROA Country Manager, Excel Automotriz
How would you describe your ×h[h]c[fj_l`ilg[h]_ch,*+-9 IVÁN A. JURADO A. We are happy with the growth that we obtained; however, other competitors grew more than we did in 2013. In the last five years, we have had years with 70% growth, and some years with 45%-50% growth. That is not the ideal situation because it puts a lot of pressure on the after-sales operation. By 2011, we were paying for the consequences of rapid growth since the quality of service suffered a little. Now, we have it under control and we are increasing our customer satisfaction index. We are up to industry standards now. Looking to the future, 10%-15% growth per year is desirable for us and attainable. EVERST FIGUEROA It was a solid year of noteworthy growth. In 2013, Nissan was in a transition period and lacked new models. The products of 2013 had not changed for a decade, thus making it challenging to reach top sales levels. Nissan has worked to prepare its production base for Nissan’s new era that commenced in 2014. The strategy was focused on the second half of 2014 and 2015, with the new X-TRAIL and Qashqai products truly refreshing the brand’s image. That is why in 2014 we will be reaping the benefits of our ef-
The auto sector in Panama is showing strong signs of rapid growth. Now, many of the major international brands are looking to take advantage of this growth.
forts in 2012 and 2013. The Sentra B13 has been on sale for 20 years now; it is our best-selling vehicle, but the Nissan brand we want to project in 2014 is different. The message we are seeking to transmit is one of innovation. What are the main trends that you can identify in the demand for cars? IAJA Small cars. With a very deficient transportation service in Panama, low-income people aspire to have a car, and they make an extra effort. They usually go for small, affordable, entry-level vehicles. EF Panama is a unique market, focused on small-sized sedans, because, even though Panama has metro and metro bus systems, public transport does not cover enough of the country. That is why a family with a monthly income of around $1,000 prefers to pay more for a small-sized car than face the inconvenience of public transportation. We expect the growth of the national economy and of the lower-middle class to propel sales in this segment.
What are Petroautos’ main priorities, and what are your future investment plans? IAJA Our main priority right now is after sales. We are competitive in service quality, but we always aspire to increase our levels of service. We also want to improve our dealer network. We are building a new, state-of-theart facility with one of the biggest showrooms in Panama. We will have our auto parts distribution center there and a big service shop also. It is what we call a 3S facility; service, sales, and parts. We are also in the process of rebuilding our Chitre facility and are close to starting the remodeling of our headquarters in Transistmica, as well as the David facility. Which Nissan products will you launch in 2014? EF In June and July 2014, we welcomed the all new Nissan Qashqai and Nissan X-TRAIL, two different SUVs proven to be a huge success with complete new designs and technology. These two models have given us pole position in the SUV segment. For 2015, we look forward to the launch of the new Frontier pickup. With these models, we aspire to rank among the top three players. We have the right product range for the Panamanian consumer.
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Irvin A. Halman, General Administrator of the National Authority of AIG on investments in ICT and the sector’s role.
David Butler, CEO of Digicel, on the company's growth strategy, mobile number portability, and 4G service penetration.
Panama’s media sector has a rich history and bright future, standing as somewhat of an exception in Central America.
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Telecoms & IT REVIEW
While the mainstays of Panama’s IT industry are benefiting from the country’s economic growth, start-ups and new entrants are set to shake up the industry.
THROUGH THE WIRE
I
n January 2003, the government ended the monopoly enjoyed by Cable & Wireless Panama (CWP), and opened the telecoms industry to full competition. With a decade of impressive GDP growth rates under its belt (barring the 2009 financial crisis), the future looks equally promising, especially for the ICT sector. After more than a decade of infrastructure development, a liberalized market, and extensive fiber optic connectivity, Panama has become an attractive country for further telecoms development. According to the Public Services Authority of Panama (ASEP), the number of fixed lines in operation in 2013 rose to over half a million, up 2.9% over 2012. Residential and commercial phone lines also increased in 2013, by 0.69%. Subscribers to mobile networks rose in 2013 from 6.2 million to 6.3 million, representing a 1.3% increase over 2012, with 90% of Panamanians now using cell phones. These numbers mean that there are about 1.6 cell phones per person in Pan-
ama, of which 5.6 million were pre-paid users in 2013. In spite of heavy per-capita cell phone use, only 37.7% of national territory currently receives coverage, and further expansion is crucial.
NEW KIDS ON THE BLOCK
Companies and the government are looking to increase mobile and broadband penetration, while also looking at new products and services to continue growth.
Although the tech-sector is still under the radar of most causal observers of the Panamanian economy, the sector’s remarkable growth warrants closer inspection. Specifically, a tech start-up scene is emerging that may soon launch regional or global brands. Thanks to a series of initiatives that foster innovation, such as the Panama Business Accelerator (AEP) and the Venture Club, investors and start-ups are able to launch their ideas in Panama. The AEP is located in Panama’s City of Knowledge tech and research hub, where the company provides resources for start-ups, such as advice from their successful predecessors, access to capital, space, and visibility. In addition, the AEP is connected to a network of angel investors,
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and organizes events to connect start-ups with capital. The Venture Club bills itself as the first group of investors focused on developing innovative entrepreneurship culture in Panama. The group provides direct funding to start-ups in exchange for a percentage of the company, thus combining the incubator and investor roles. This environment has launched a number of exiting new start-ups that are worth mentioning. For those of a culinary bent, Degusta is an online and mobile supported restaurant guide for Latin America. Another company, Aquasense International Corporation, is undertaking computerized fish farming. The farm has a remote command center that is kitted out with the latest technologies, including remote and satellite communications, which enable technicians to monitor the environment, the sea, and the fish, from a laptop 3,000 miles away. Jigle is a Panama mobile messaging app that separates contacts based on the frequency of online interaction, and was also developed in Panama. Another mobile-based app that is garnering attention is Deciderr, which aggregates user input to create answers to other questions posed. There are many more companies coming online such as Ubiqua, Gogetit, Elconix, YoCotizo, TuChofer, SAVES, MercadoMovil, 2GoStore,
Tubeisbol, Regalatón, Costea.me, Todosdicen, and Tuvivi. In short, these developments are exciting not only on a technical level but even more so because they represent an entirely new entry into Panama’s economy.
WAITING FOR THE CITY When Panama assumed control of the canal from the US Army, they inherited empty military bases as well. One of these bases has been converted into an IT development and research hub. Dubbed the City of Knowledge, the old US Army Southern Command is now home to educational institutions and NGOs. McGill University has a semester program at the city, as does the School for International Training. Other universities like UC Davis, Cornell University, Texas A&M, and Iowa State also run programs at the City of Knowledge. IT companies have also taken up residence in the facility, and the private sector is well established there. In addition to start-up incubators like AEP, professional services and IT solutions companies like Infosgroup are using the proximity of the education sector to hold seminars and focus groups dedicated to advancing the sector in Panama. By bringing industry professionals from Panama and around the world into the City of Knowledge, events organizers can maximize the exposure of new ideas.
THE CABLE MAN
VÍCTOR RAMÍREZ BETANCOURT Global HR Vice President, Smartmatic About 85% of our business is related nipinchan_]bhifias[h^m_lpc]_m(Q_ b[p_j[lnc]cj[n_^ch_f_]ncihmchg[hs countries since Smartmatic started in the year 2000. In 2004, we undertook iol×lmn[onig[n_^_f_]ncih[h^nb_ ×lmnchnb_qilf^ni`_[nol_[j[j_l nl[cf(Q_b[p_[hL >=_hn_lb_l_ch Panama rather than a HQ. R&D is one of our core competencies, as Smartg[nc]b[mmj_hngil_ihpincha'l_f[n_^L >chnb_f[mn×p_s_[lmnb[hnb_ rest of the industry combined.
According to market research firm Research and Markets, the value of the telecoms market in Panama will be worth $1.71 billion by 2018. With a valuation of $1.38 billion in 2013, most of this growth is expected to come from mobile data, pay TV, and fixed broadband. CWP is also expected to maintain its market dominance in the next four years. Regarding broadband, in late 2013, Panama’s National Authority for Governmental Innovation (AIG) launched a plan to expand broadband coverage nationwide. The plan, called the Plan Estrategico de Banda Ancha Panama-2022, aims to increase fixed and mobile broadband services adoption and use throughout the country. The project includes expanding broadband services to under-served, and rural parts of the country. The AIG reports that currently, only 42% of the country has internet access, and of those connections, 98% are broadband. In provinces such as Panama and Colón, access is widespread, whereas the rural province of Darien has almost no access. According to the AIG, around 138,547 homes in the province of Panama have internet access, which represents around 29% of the total internet access points in the country. Statistics reveal that internet customers in 2013 increased to 304,068, and of these users 264,539 were residential customers and 39,529 were commercial. This means that in 2013, there were eight internet users for every 100 Panamanians. Despite room for improvement regarding internet access, Panama was one of the first countries in the region to launch 4G technology, in 2011-12, and was also a leader in Android and iPhone services.
JORGE SAA Head of Partnership & Portfolio Management, Ericsson Which of your lines represents the most income for Ericsson in Panama? Currently, around 50% of our ch]ig_cm`ligm_lpc]_m&qcnb the remaining 50% coming from equipment and software for networks, TV solutions, and business support solutions. How does Ericsson contribute to the social development of the country? By using broadband, cloud and gi\cfcnsni[^^l_mmjip_lns& education, health, human rights, climate change and other challenges, we work to ensure that our technology is a force for good and lasting change. We do this through a wide range of jlid_]nm&l_m_[l]b&[^pi][]s[h^ chcnc[ncp_m&jo\fc]'jlcp[n_j[lnnerships, social media outreach, and other forms of engagement. Q_][hhin`ila_nnb[n`il_p_ls 10% increase in broadband penetration, GDP increases by one j_l]_hn[a_jichn&[h^`il_p_ls 1,000 connections, 80 new jobs are created. What is your evaluation of the telecommunication sector in Panama? There has been important jlial_mmip_lnb_f[mn`_qs_[lm in terms of penetration and increasing the smartphone base in nb_]iohnls(Hiq&C\_fc_p_nb_l_ will be a change in that progress, and companies will focus more on customer experience and the quality and performance of the network.
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PANAMA 4.0 TBY talks to Irvin A. Halman, General Administrator of the National Authority for Governmental Innovation (AIG), on Panamanian investments in ICT and the sector’s role in the economy.
The previous government invested more than $500 million in technology modernization projects for the country. What are your main priorities for the h_rn×p_s_[lm9
BIO Clpch;(B[fg[hi\n[ch_^[ BS in Chemical Engineering from the Worcester Polytechnic Institute, US, [hG<;[nnb_Ohcp_lmcns of Rochester, US, and participated in the Kellogg cpcmcih[n Eastman Kodak Co. in Rochester, NY, followed by jli^o]n^_p_fijg_hn[h^ marketing at the Motion Jc]nol_[h^;o^cipcmo[f G[le_nm>cpcmcih&[h^f[n_l m_lp_^chg[h[a_g_hn positions in Industria Nacional de Artefactos, S.A., Leasing Panama, Kodak Panama, Kodak Export, Ltd. and was Managing Director i`nb_>cpcmcihi`=fchc][f Diagnosis of Eastman Kodak Co. and Johnson & Johnson Latin America. He was also Managing Director at DIASA and Commercial Director at ELGA.
Our priority is to advance the efforts that Panama has been making to become more competitive by further modernizing government, measuring ourselves against key indices and adopting the best international practices. The main objective of this modernization is to provide an open government, serve our Panamanian citizens and tourists, and to connect society as a whole. The informal and marginalized population needs to be incorporated into our growing economy. The more people and key sectors we have participating in the economy, the faster we can achieve higher levels of economic sophistication, and increase the GDP. We will be supporting the key export sectors like logistics, tourism, and services, while strengthening agriculture, among others. We view ICT as being a pillar to provide better quality education, healthcare, and government services. There is a nationwide commitment in terms of increasing government transparency, and eliminating bureaucratic impediments. That is where technology and the reengineering of our institutions in line with better governance standards
IN NUMBERS (AIG)
Government investment in ICT infrastructure
500 Million USD
comes in, recognizing that this is an ongoing process. During the next five years, we will be building upon our pre-existing experience with new initiatives. The concept of the National Authority for Government Innovation started three administrations ago, and we are in the process of deciding exactly what deliverables will this new version of “Panama 4.0” will bring before 2019. What is the current share of the ICT sector within Panama’s GDP?
The current share is probably less than 8% if you measure by the participation of companies in the ICT sector. This statistic spurred the government to invest more than $500 million in ICT. The ICT sector drives growth, and props up development and higher levels of sophistication in finance, education, the environment, and healthcare,
and social services. AIG works across the board to support all of the e-government and modernizing initiatives. We will make better use of government mailing and cloud computing, as well as increase electronic transactions and payments. AIG will also expand its geographic resources. With e-commerce, we are taking special precautions to deal with new issues regarding cybercrime and identity theft. The new government has a commitment toward more efficient and agile services for citizens. We will be assuring procedures for government entities to follow criteria oriented toward creating the conditions for a level playing field in purchasing ICT products and services, so that investors are certain of their long-term prospects here. Panama has instituted a legal framework that, by putting it into action, will make online government documents and processes just as valid as those done on paper. That will be one of our key thrusts for this administration. All of the major components are in place for execution in the near term. AIG’s mandate allows it to execute projects that transcend multiple entities, and thus take advantage of economies of scale and effective citizen services. We can also support individual entities in their specific digital agenda, and have the capacity to influence better nationwide e-government initiatives. Another facet of this transformation is the creation of a Technology Observatory, in order to assess the government’s level of ICT readiness. This will help us develop a technological roadmap for our desired future.
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INTERVIEW TBY talks to Oscar Augusto Borda Mayorga, General Director of Claro Panama, on government initiatives in ICT, and the challenges facing the sector.
DIGITAL nation Claro entered the Panamanian market in 2009. What were your strategic objectives?
Claro is a part of the Mexican telecommunications company the América Móvil Group, one of the most significant operators in the world, and the primary provider on this continent. We perceived an opportunity in Panama due to the robust development that the country has undergone in recent years. It was, indeed, a straightforward strategic move, and we have been running operations here since 2009 as the fourth mobile company to set up in the country. We have a different vision of the telecommunications sector at both regional and international levels. When we arrived, there were two other operators that had been working in the country for 10 years, while the third player launched operations in the same year we did. This was the result of a new government policy of liberalization, which had the objective of creating a more balanced market and ensuring comprehensive sector modernization. We set out with the challenge of being more modern in a highly competitive market, resulting from the already extremely high mobile penetration rate in Panama. This was a risk-lad-
en proposition, but relishing such challenges, our goal has always been to become the market leader, leveraging our innovation and market share. Over the past five years we have been growing steadily, and we have avoided entering the traditional market, perceiving rather, the opportunity of creating a different network in Panama geared towards data. We started with the GSM network, and then switched to UMTS to become the first operator in Central America to provide 4G services, a vital innovation for the country.
BIO Oscar Augusto Borda Mayorga studied public accountancy at the Ohcp_lmcnsM[hniNig[m^_ Colombia, later specializing in administration and ×h[h]_[nnb_Ohcp_lmc^[^ Piloto de Colombia. Jl_pciomfsb_qile_^`il a decade at Citibank and for two years at Seguros
In 2011, the government introduced mobile number portability (MNP). What was the impact of this measure for Claro in terms of new clients?
Portability was the next step taken by the government to allow consumers to choose their operator, basing their decisions on quality of service. From that moment on, we set two targets, first, to gain new clients given the fact that Panama is such a young market, and second, to attract those unsatisfied clients who were not receiving the service they deserved from other operators, but who nonetheless had been tied to a contract for years. The result was that Claro emerged the winner in MNP, which was a true source of pride. Since then, 135,000 mobile users have switched away from their old operator to Claro. What is your evaluation of the substantial efforts being made by the Martinelli government to make Panama more technologc][ffs_`×]c_hn9
Recognition should be given to the efforts that the government made not only to make Panama a logistics or construction hub, but also to modernize the country. The National Authority for Governmental Innovation played an important role in developing important projects that should be continued by future governments, such as universal internet access. They have given computers to students, which provided many with access to education and information. It was also thanks to the government that MNP was introduced, which has helped operators to continue growing.
IN NUMBERS Claro Panama
MNP customers since 2011
135k Lines of Claro in the country
170k Which challenges is the sector facing today?
More and more multinationals are coming to Panama to establish their hub here, and are demanding a qualified workforce; we need to continue ensuring this can be done. Greater economic development and the several FTAs signed with Colombia or the US make this much more necessary, because if we do not improve availability, companies will have to hire foreign workers, which is not desirable. A more prepared local workforce requires Panama to improve not only higher, but also primary and secondary education. As companies, we also have an important role to play in supporting universities and providing internship programs so that students benefit from hands on experience in the industry. This is one of the most important challenges that the country must meet.
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FROM
dot TO dot What was the importance of opening in Panama for Digicel and what has the growth strategy been in the country?
The importance for Digicel was in terms of our Central American strategy. We are currently in El Salvador and Panama, we are in 32 countries around the world, with a heavy presence in the Caribbean. We also have a strong Pan-Caribbean-Pacific-Central American presence at the moment. We are actually coming up on our sixth birthday in October 2014. When we came into the market, as the third player, we did it with aggressive pricing strategies and acquisition strategies, which is not unusual for Digicel; we typically come in and go heavily after winning market share. We were successful in that, and in a short time we gained well over a 20% market share in Panama. In a market with four players, that was an excellent result for such a short period of time. The initial strategy was to win a solid piece of market share, bring customers onboard, and continue to work on that formula. If you step back and look at the six years we have been here, over the last two years in particular, there has been significant growth in data and ICT, and we have built and developed an ICT team in Panama to take advantage of this new trend. The most significant growth for Digicel Panama over the past few years has been data growth, data subscribers on our network, smartphone users, and data revenue. It has been absolutely critical in terms of growing revenues.
What was the importance of the mobile number portability (MNP) measure implemented by the government in 2011 for Digicel?
MNP has been a benefit to mobile users more than anything, since they are able to retain their telephone number and they can implement the plans that best meet their needs. For operators, the reality is that MNP has not had much impact if we compare the amount of ported numbers that are made monthly, in the case of Digicel are more than 300 lines per month (between pre-paid and post-paid corporate), versus the amount of new lines that are activated monthly that are approximately 80,000.
IN NUMBERS Digicel
Initial investment in 4G infrastructure
40 Million USD
Digicel’s market share
20%
TBY talks to David Butler, CEO of Digicel, on the company's growth strategy, mobile number portability, and 4G service penetration.
BIO Recent research indicated that Digicel has the fastest data speed in Panama. How do you evaluate the penetration of 4G services in Panama?
If you look at our capital investment into Panama, a large part of it has been improving our 4G network. The actual coverage is important, but equally, too, is the speed. We have spent tens of millions of dollars on improving our 4G network, and Digicel was offering customers the most consistent coverage and speed. The way that survey was conducted was by taking a number of locations across Panama and different times during the day<, our peak hour is late in the evening. This was an interesting study and for us, it told us what we already knew. For example, year on year, our 4G subscribers have grown by 78%, which is massive growth. Our smartphone users in Panama have grown by over 40%. People are becoming very app-savvy, they have a huge demand for data now. It is not just the number of people using our 4G services; it is the amount of data
>[pc^cac]_f in Vanuatu, Tonga, and Fiji. He has an MA in business and a degree in commerce.
they are using, that has really risen as well. At Digicel, across our 32 markets, our Panamanian consumers are among the highest data users and are tech savvy and keen to have the latest services and apps. We initially launched 4G in 2012-2013 following an investment of over $40 million. It is very important to understand that from a telecoms point of view, there is a capital requirement in terms of upgrading the towers. Here in Panama, we have over 900 sites across the country, it is a large landmass you have to cover from the regions to the cities.
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What was the strategy behind the decision to enter the Panamanian market?
Panama is not only a hub for logistics, transportation, and communications, but it also could be considered a global leading hub for knowledge and technology sharing. Because of this, Canon has increased the number of activities in Panama to better support business partners in Latin America and Caribbean countries. Our international operation is responsible for the translation of several kinds of documents and interactive media, and for technical support, system support, and service infrastructures. In addition, it carries the development of new businesses to open new markets in solutions related to software, multi-functional printing/ scanning devices, large format products, and digital printing technology. It also provides complete regional customer support, ranging from a contact center help desk that uses a variety of communication channels, to a camera and video regional repair facility with the highest factory standards. Our geographical position has contributed to the diversity of activities that operate from our country. Canon Panama this year celebrates 47 years of presence in Panama, and we are the oldest affiliated company in Canon Group globally. We have contributed to the development of our country providing employment to more than 226 Panamanian families, and through the sale of our products we have benefited different sectors that use the technology such as in education, health, tourism, architecture, corporate, and others. And, with the solutions that we are offering, we contribute to reduce costs, and increase efficiency and productivity in the business world.
sharper IMAGE TBY talks to Elsa de Sucre, President of Canon Panama, on the ICT sector, the Panamanian market, and Canon’s role in the country.
What has been the key for Canon’s success in Panama?
I believe that success lies in our excellent products. However, I believe that the key reason why we hold the number-one slot for some of them, such as copiers and printers, is because of the quality of the service that we provide our customers. Everything that we do is concentrated in customer care. This supports our philosophy; always oriented to customer satisfaction. For example, in the copier business, we are trying to customize service and product alike to specific customer needs.
110% growth in l_p_ho_mchj[mn/ years 47 years of presence in Panama
emental technology that gives our products their competitive edge, and the platform technology shared by Canon’s various products.
Business Week named Canon one of the best brands in the world? What has this meant in commercial terms?
What challenges will the ICT sector face over the coming years?
I believe that the recognition is not simply of the quality of the product, but also for our large number of licenses and patents. The company’s focus is to understand customers and markets needs. Delivering excellent service, improving efficiency, and increasing productivity; this is something Canon is trying to do with all its products, and it is very important to maintain customer loyalty. Canon continues to take on new challenges, turning today’s efforts into tomorrow’s growth. Our concentration continually pursues R&D related to the basic technology that will sustain the company’s future, the el-
Our economy is based on services. There are many aspects that contribute to be strong as they are our geographical position, the stability of the banking system, the use of the US dollar, and the laws created to attract investors. All of these require us to be on top of all of them. We still need to invest in upgrading all public institutions to increase our competitiveness. We should not only think about improving on the technology side. Together, in the government and in private enterprise, we have to promote major changes in the education sector to meet the demand for talent going into companies.
BIO ?fm[^_Mo]l_b[mip_l-2 years of experience working for Canon Panama, S. A. Prior to becoming President and General Manager of Canon Panama in 2007, during her career in the company she has assumed different challenges in the international operations of Canon Latin America, Inc. including International Collections, and Imports and Exports for Latin American countries and the Caribbean. Today, in addition to working as the General Manager, she is the Director of Human Resources, General Affairs, and Legal. Mb_×lgfs\_fc_p_mchnb_ corporate philosophy of the ]igj[hsËEsim_cÌÊfcpcha and working together for the common good.
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INTERNET CONNECTIVITY FOCUS
IT’S A HOOK UP The government’s desire to ensure internet access for all represents a strong indicator of Panama’s will to become a more knowledge-based economy.
IN TERMS OF ICT, Latin America is quickly becoming one of the places to watch. Panama has become one of the most well-known advocates of e-government and connectivity in the region, with successive administrations putting information technology and connectivity at the top of the national agenda. Panama is working to push ahead, with some obvious successes. Mobile cellular technology is showing high levels of penetration, increasing from 16% in 2002 to 204% by the beginning of 2012, according to a report by the World Economic Forum. The former president, Ricardo Martinelli, had made connectivity for all Panamanians a central plank of his government policy. He specifically stated that by 2014, all citizens should be connected, and be able access any services offered by the state: it is a national aspiration that all Panamanians have access to ICT and are able to access everything the sector has to offer. The benefits of this aspiration are clear. Elsa de Sucre, President of Canon in the region, told TBY that ICT is crucial for the development of the country, “Our economy is based on services. There are many aspects that contribute to be strong as they are our geographical position, the stability of the banking system, the use of the US dollar, and the laws created to attract investors,” de Sucre said. “All of these require us to be on top of all of them. We still need to invest in upgrading all public
institutions to increase our competitiveness.” Investment in this sense means a deeper commitment to ICT and getting Panamanians online and plugged in. The government has invested $500 million in ICT. From its point of view, the ICT sector can be an engine for growth, and lead to national development and improvements across a number of sectors; including finance, education, the environment, transport, and healthcare. Irvin Halman, the General Administrator of the National Authority for Governmental Innovation (AIG), the body tasked with accomplishing these priorities, has said that all government departments must work “across the board to support all of the e-government and modernizing initiatives.” Work still needs to be done in many areas, and it is a specific national priority to get the university sector and new graduates trained up on all the latest ICT so that Panama can both compete and prosper in the region, and globally. The priorities, drive, and necessary investment are there, but some serious problems do remain: for example, many Panamanians still cannot afford internet access. The regulatory environment still needs more development, and the existence of large segments of the population with a low skills base serves as another hurdle to overcome.
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B2B ICT REGULATIONS
EDWIN CASTILLO
ROBERTO MELO
Director of Telecommunications, National Authority of Public Services
President, Panamanian Chamber of Information Technology, Innovation and Telecommunications (CAPATEC)
The telecommunications industry in Panama generated revenues of almost $1 billion in 2013. How would you evaluate nbcm ×aol_& [h^ qb[n [l_ siol expectations for the next few years?
centers and hosted technology, because of connectivity. I have had meetings with international providers, such as Google, which are considering placing cloud services in Panama that are capable of serving other areas around Panama. There is great potential for growth, and because of the connectivity of the country, there is great potential to locate those services here. CAPATEC is working with the government to create and improve the legal framework to attract this type of investment, and we are having great success in this regard.
EDWIN CASTILLO Figures will keep growing, despite the fact that 2014 has been difficult for operators. Still, they have worked in an excellent manner with the regulatory authority. We have involved them in all of our policies and have taken into consideration their needs so as not to negatively impact their business activities. They have invested large sums of money over the past year to keep improving. One operator actually invested $50 million to improve its own systems. Total industry income is set to exceed $1 billion, although the number of cell phones is not going to increase. However, we are going to improve and grow in terms of speed and services. We expect a growth rate of around 1.5% or 2% in 2014. ROBERTO MELO Many technology companies are providing new international services like cloud services, with investments doubling in size in data
What have been the most important advances in the telecommunications sector over recent years? EC Basically, one of the key advances has been the improvement of digital broadband, which has experienced huge growth. We have also been working with the four telephone operators to ensure their services are more flexible and that they improve the offering quality, particularly in terms of speed. We have introduced the digital dividend band, which allows us to develop LTE systems.
laying down THE LAW Panama is emerging as an IT hub in Latin America, and the regulatory frameworks that guide the sector are evolving to keep up.
This brings us a higher speed in terms of mobile data. The country has experienced significant growth in terms of cellular networks. We have had a problem over the past years in terms of cellular towers; however, we have now introduced legislation whereby operators share the same towers. This means the country is not crowded with towers, whereby we can avoid the visual impact they provoke. RM Panama has excellent internet connectivity, and that is thanks to its geographic location. As a result, Panama stands out as an excellent location for data centers that can provide cloud services. Also, the “Internet for All” initiative has provided internet access to 1.6 million Panamanians, and more than half are registered. Furthermore, internet access is free in most parts of the country, including schools. As for mobile connectivity, we have heavy competition with four carriers, and that wealth
of choice means we have some of the cheapest internet rates, and also the highest penetration of smartphone devices in Latin America. In fact, we probably have even greater penetration per capita than the US. This also means that Panama is a great environment to test and launch new ideas and initiatives in, making it a cheap place to experiment with, and introduce innovative technologies. According to the World Economic Forum Network Readiness Index, which measures the impact of technology in businesses, government, and society overall, Panama ranks 46th in the world. This is an improvement from the previous index where the country was ranked 59th, an improvement of 13 places from 2013, and another 13 steps up from 2012. Clearly, our country is rapidly improving in terms of ICT. Panama has a lot of the dynamics that a country, such as Singapore, has in terms of attracting investment to make the country a regional hub for ICT.
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OUTSOURCING FORUM Outsourcing in Panama is big business, and its main players all work hard to assure it is conducted to the highest international standards of quality and service.
JOSÉ AMADOR
MIRO BATISTA
NICOLE W. DELPIT
Site Director, Sitel
President of Operations Latin America, Expert Global Solutions (EGS)
Vice President and General Manager (Panama), Integrity Solutions Services
O
ur strategy and focus has been to provide best-in-class outsourcing solutions and high quality of service and support to retain and attract our client customer base. Specifically, we strive to provide an outsourcing solution that enhances our customer service, sales experience, and other activities, such as social media, collections, retention, and even back-office work. Our strategy as a company is to have a robust presence and share our experience. The Panama customer experience centers are a priority for Sitel, due to their strategic location in the LATAM region, the Panama Canal, value versus the US dollar, and our close proximity to the US. As an experienced organization, we have a very particular standard called our “Global Operating System.” This is a business model used across the board at Sitel. It is frequently revised and improved with input from our leadership, customers, and key personnel to make ourselves better and to understand that the call center industry is evolving and changing. For example, social media is more in demand. The faster we can adapt to the market’s needs, the more successful we will become. It is about understanding the needs of our clients because they know what they want. It’s about sharing what we know and becoming their partners.
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anama is a safe country, and when clients from countries like the US come to Panama, the environment is similar to Florida or other southern states. It is a safe starting point for a company that is new to outsourcing. Often, outsourcing involves currency exchange and cultural shock. For better or worse, Panama is very Americanized. You see all of the popular brand names here, and our shopping centers are indistinguishable from those in the US. Panama has the same currency and the same credit card system as the US. The country is very stable with a working middle-class, which puts Panama in a strong position. Certainly it is not the cheapest country in the region, but it compensates with its economic stability. We service Fortune 500 companies from the US, although not exclusively from our Panama locations. In Panama specifically, we service major telecom, logistics, and retail companies, as well as financial institutions. We also provide service to regional clients from Panama. We run a call center for the electrical company in Panama, ENSA, and for KFC and Pizza Hut.
O
ur Panamanian office primarily focuses on first-party customer service, accounts receivables management, and business process outsourcing. We have strategically diversified the type of clients that we have, to not just ARM clients, but also the early stage debts, such as those calling customers who overlooked paying a bill and just need a gentle reminder. We offer a soft and friendly approach, which suits Panamanians, as the society is strongly service oriented, and a full 92% of our GDP comes from the service industry. We provide support for different industries, including the telecommunications, mortgage, and auto segments. Approximately 14% of Panamanian citizens are English speakers, so the talent pool is small, and when you take out people in the professional arena that speak English the percentage is even smaller, so there is a lot of competition within the call center industry to recruit and retain the best employees. Companies have to offer something that sets their organization apart. In our case, the things that define us are the skills that we impart to our entry-level employees up to our upper level management.
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FOCUS THE MEDIA
The private sector dominates Panama's varied media landscape
LANDSCAPING Panama’s media sector has a rich history and bright future, standing as somewhat of an exception in Central America in terms of its freedom.
DUE TO ITS PRIME location in Central America, Panama has long been influenced by US broadcasting, and today enjoys its status as a media hub and bastion of press independence. Radio broadcasting began in 1922, followed by television in 1956. And in the early 1980s, the media scene became politicized with the founding of La Prensa in 1981, a newspaper that opposed the rule of dictators, which ended in 1989 with the overthrow of Manuel Noriega. Today, the media in Panama is described by Reporters Without Borders as “[standing] out as an exception in Central America, which is notoriously dangerous,” while, “cases of assaults against journalists are extremely rare." Asked for his opinion on the issue, Eduardo Antonio Quirós B., who heads up the La Estrella and El Siglo newspapers, commented that, “Today, Panama has strong and free institutions. Panama was a dictatorship from 1969 to 1989, and during that fight for freedom and democracy, the Panamanian people demonstrated their commitment to all forms of freedom, especially freedom of the press.” And the scene today is certainly dynamic, with over 100 radio stations and several TV networks that are mostly dominated by the private sector. The global move online has also not skipped Panama, with the younger generation driving the charge. Growth of internet penetration has been impressive, with over 1.5 million users currently, meaning almost 50% penetration, compared to just 45,000 users in 2000.
“Part of our readership use social media,” said Hitler Cigarruista, Director of Capital Financiero, Panama’s largest financial newspaper. “This is a new game; these people want to know what is happening as soon as possible,” he continued. But in an exclamation that has been made around the world, print is far from dead, as Eduardo Antonio Quirós B. testified; “I think people still like to pay money to sit down and hold a newspaper in their hands and finger through those pages while drinking their coffee.” But he continued, “That being said, we want to incorporate all the new media and news delivering technologies that are available.” La Estrella and El Siglo, which target the middle to upper class and middle class downward, respectively, are joined in the market by a range of other papers, including La Critica Libre, a daily tabloid, the El Panama Ameri-‐ ca daily, and also a brace of English-language sources, namely Newsroom Panama, an exclusively online offering, and The Panama News. The main television networks include Telemetro, RPC, Televisora Nacional (TVN), and FETV. Whatever your political persuasion, media preference, or field of interest, Panama has proven it can deliver a wide variety of local content, and even some in English, to a country ever hungrier for up-to-date content, especially the variety found online. With a rich history, the media is likely to continue shaping developments in Panama for years to come.
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INTERVIEW
TBY talks to Hitler Cigarruista, Director of Capital Financiero, on the Panamanian media, press freedom, and FTAs.
editorial APPROVAL What has been the relevance of Capital Financiero, in terms i` _]ihigc] [h^ jifcnc][f chØoence, in the development of the country?
BIO Hitler Cigarruista has completed studies in negotiation, treaties, and international commerce [nnb_Ohcp_lmc^[^ Latinoamericana de Comercio Exterior (ULACEX) [h^nb_Ohcp_lmc^[^^_ Santiago de Chile, among other courses in business journalism and sociology at nb_Ohcp_lmc^[^^_J[h[g[( His work experience has included positions as head of publications for the Center for Latinamerican Studies (CELA), and as reporter for Radio Cadena Exitosa, TVN Canal 2, Radio ;h]h&>c[lci?fOhcp_lm[f& and Diario El Siglo. He has been working with Capital Financiero since 2003 as reporter, senior journalist, editor, and currently, director. In addition, he is a member of the Panama Journalists Union and the Panamanian Association of Nl[p_fDiolh[fcmg(
We are a business journal in a country in which business plays a vital role. People who come to Panama like to talk about what happens in the economy and opportunities for investment. Capital Financiero gives the complete summary of the country in business and finance. We are the go-to source to find out what is happening in the country. We publish information regarding the most important issues in development, what the government is doing to help business grow, and how we can continue on the path of development that we have been on during the past decade. How have you seen the readership evolve since you entered the company in 2003?
Readers are changing as we now have more young people interested in reading our paper. They want to know what they can do to improve their position in this new economy. Part of our readership use social media. This is a new game; these people want to know what is happening as soon as possible. We are the only paper in the country that gives more than just facts. We offer a combination of news and analysis. This is not easy to find in other papers, which is why we are the first choice for young people who are entering the business world.
IN NUMBERS Capital Financiero
Year of foundation
2000 Employees
30 Circulation (Copies)
4,500 How do you assess the freedom of press in Panama, especially compared to other countries in the region?
I think that Capital Financiero is not in the same position as other newspapers in the country. We work with data and facts, and this is different from newspapers that are more focused on opinions. I have worked with other newspapers and have never encountered any problems. We work with data from official institutions such as the Contraloría General de la República and the Ministry of Finance, or business organizations like the Chamber of Commerce, think tanks, and
international organizations, so we do not have any problems as our sources are publicly available. What is your evaluation of the free trade agreements (FTAs) that have been signed with Europe and the US?
Panama’s economy is based around the sea, the original canal, and agriculture. We signed an FTA with the US because it is Panama’s main trading partner. We export around 45% to 50% of our products to the US. The other 40% goes to Europe, and the rest goes to the other countries of Latin America and Asia. The truth is that we have a special relationship with the US, as the Canal is a route that accounts for 5% of global trade. With the expansion of the Canal, we will increase this traffic to 8% or 10%. This shows how a small country can make a difference if it invests its money in a global product like this. The most important thing for Panama is to open markets. We must not forget that of the 3.4 million people in this country, some 1.2 million are farmers, and they need to grow at the same time as the cities and free trade zones. They do not have the same opportunities, so we need to change this. There should be more investment in the research and development of new products to add more value to our products. We export with no value-added, and this is a significant problem because we export at the same price as other countries. In this country the focus is always on logistics, finance, and how to acquire more external investment. This is why FTAs are so important for us. They give us the opportunity for these other sectors of the country to access larger markets for their products. At the moment, the future of Panama is the Canal. However, tourism, mining, energy, international insurance, and real estate are also important.
Telecoms & IT
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INTERVIEW
BIO ?^o[l^i;hnihciKoclm<( studied law and political science, and has completed graduate studies in [^gchcmnl[ncih[h^×h[h]_( In 1999, he was selected as a substitute legislator of the Republic of Panama, [h^b[mmch]_m_lp_^[m Vice-Minister of Finance at the Ministry of Economy and Finance, Member of the National Economic Council, [h^Aip_lhili`nb_Chn_l' ;g_lc][h>_p_fijg_hn Bank (IDB), as well as spending a year at the Ministry of Public Works. In addition, he was a member of the board of the Panama Canal Authority for almost a decade until 2013, is a professor of constitutional f[q[nnb_Ohcp_lmc^[^ Latina de Panamá, and is Vice-President of the board of the National Journalism Council (CNP) and the Inter-American Press Association (SIP).
What has been the main focus of your growth strategy in order to keep La Estrella and El Siglo relevant in the modern marketplace?
We’re not just the oldest newspaper in Panama, but are one of the three oldest newspapers in Latin America. At the same time, we’re the most read newspaper in Panama and the “youngest” newspaper as well, be it in print form or in new alternative forms, such as online. Today, we’re among the three biggest newspapers in the country, and we have about 300 people working with us. We’ve always tried to understand and address the way Panamanians want to read news, especially these days when time has become a rare commodity. So in short, our strength has been our constant effort to help understand what the readers want and to provide that.
TACTILE pleasures TBY talks to Eduardo Antonio Quirós B., President of Grupo Editorial El Siglo y La Estrella de Panamá, on the role his papers have played in Panamanian cultural life, and technology in the news media.
IN NUMBERS How has the newspaper contributed to the social, cultural, political, and economic development of Panama?
We’ve been around since 1849. Since that time, Panamanians have followed what’s happening in their country and in the world through our newspaper. In the past, the Panama Star was also available as far afield as California. So the newspaper also had an international presence. That shows how important this small country has been for the international community since the 19th century. Throughout our 165 years of existence, La Estrella has always been committed first and foremost to promoting and raising awareness of the fact that Panama is an independent country. We have also always been committed to Panamanian sovereignty over the Panama Canal. Looking at other examples, in sports everyone remembered the front page when Roberto “Hands of Stone” Duran beat Sugar Ray Leonard in the US, and it read “Roberto Cumplio!” (Roberto Did It!). So a whole nation shared in a special moment of unity through our front page, and that’s just one example. We have been a driver in the political, economic and social development of the country.
What are the main differences between El Siglo and La Estrella in terms of editorial content, readership, and formats?
La Estrella targets a middle to upper class readership, whereas El Siglo targets the middle class to the base of the pyramid. We have the same commitment in both newspapers. The approach is different, but the news content is the same. What role will the growing use of technology play in news media?
Newspapers are definitely changing; there’s more of a shift online, and this is the case the world over. Newspapers are also becoming more like magazines. However, I think people still like to pay money to sit down and hold a newspaper in their hands and finger through those pages while drinking their coffee. There’s a tactile pleasure in that. That being said, we want to incorporate all the new media and news delivering technologies that are available, and we deliver the news through multiple platforms. But we also have a very strong commitment to who we are, who we have been, and the basic concept of the newspaper.
Grupo Editorial El Siglo y La Estrella de Panamá
La Estrella de Panamá ×lmnjo\fcmb_^
1849 ?fMcafi×lmnjo\fcmb_^
1985 In which platforms will you be investing more in the coming years?
Right now we’re working on redesigning the newspaper and webpage, working on new apps for both La Estrella de Panamá and El Siglo, and utilizing more social media. I don’t think other local newspapers are doing this and in these staggering dimensions. Also, we have projects for new strategic alliances, and we aim to develop this multiplatform, multimedia network.
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Aitor Ibarreche, CEO of Hutchison Ports Holding Panama (Panama Ports Company), on maritime access and the famous Canal.
Panama City's primary port lies on the Canal's eastern shore, and handles millions of TEUs of cargo each year.
Situated just outside the capital city, Tocumen International Airport is a key regional portal undergoing a major expansion.
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Transport REVIEW
World-famous for its inter-ocean channel, Panama is a key global transport hub, but its connections are not limited to the high seas.
PLAIN SAILING P
anama has long been a point of transit for the wider region, as well as for maritime vessels crossing from the Atlantic to the Pacific oceans. Despite difficult terrain on its eastern border with Colombia, and with dense jungle covering much of its surface, Panama has made the most of its location to establish an integrated road, rail, sea, and air transport nexus.
FLYING COLORS Panama’s aviation sector plays a significant role in the economy, employing around 40,000 people and contributing over 4% to GDP. The country has a large number of airports and airfields, the majority of which began life as US Air Force bases established to protect the strategic canal. However, less than half of those that remain are paved. Some have been converted into commercial and passenger airports, with Bocas del Toro, David, Rio Hato, and Albrook international airports among some of the more prominent after the capital’s principal gateway.
The Bridge of the Americas links the Northern and Southern hemispheres across the Panama Canal. It was completed in 1962, and is a defining feature of the Pan-American Highway.
Inaugurated in 1947, Tocumen International is currently the busiest airport in Central America. In 2013, over 7 million passengers passed through the facility, located just 15 miles from Panama City. This figure represented an increase of approximately 750,000 travelers, and the traffic continues to grow. In the first seven months of 2014, Tocumen registered 4,881,985 passengers, an increase of 9.6% over the 4,454,529 of the same period in 2013. With 76 destinations connecting Panama with over 30 countries in America and Europe, the airport is a key international transit point and portal for the region. Its importance in this regard has not gone unrecognized internationally, with the World Travel Award for Mexico and Central America’s Leading Airport being proudly received by Tocumen International in August 2014. Approximately 23,000 daily passengers utilize the most popular routes to Bogotá, Miami, San José, Caracas, and Cancún, as well as the many other cities
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served by the commercial airlines which operate from Panama City. Copa Airlines is the airport’s primary operator, awarded Best Airline in South America by Flightstats in 2013, and Best Airline in Central America in 2012 and 2013 by the World Airport Awards. Its impressive route system, which connects Panama with most countries in North, South, and Central America, as well as the Caribbean, has allowed it to gain prominence in the hemisphere since it began expanding internationally in 1980. A steady growth in routes and passengers, along with the establishment of a strategic alliance with Continental Airlines in 1998, preceded its listing on the New York Stock Exchange in 2005. The total number of destinations stands at 69 in 2014, with Copa moving around 11 million passengers during the previous year. The rise of this airline is inextricably linked with the growth in importance of Tocumen and its reputation as the Hub of the Americas. “Panama is the most connected country in Latin America relative to its GDP,” explained CEO Perdo O. Heilbron, in conversation with TBY. “This unique connectivity is one of the main reasons why Panama has become a major business hub, tourism destination, and home for many multinational companies that have established their regional offices here.” A series of significant projects to renovate and expand the airport’s facilities began in 2006, establishing dedicated cargo terminals, improving baggage handling systems, increasing the number of gates to 40, and designating thousands of square feet to duty-free commercial zones. A new phase of construction at the airport, begun in February 2013, represents an investment of almost $700 million. The new South Terminal is expected to increase the airport’s capacity to 18 million by 2016, and will add hotels and additional commercial space, bringing the total area to 141,000 sqm with 54 operating gates. Total passenger figures for the country were 8,625,957 in 2013, according to World Bank data, which hints at the importance of other regional airports to the country’s infrastructure.
David International Airport and Rio Hato International Airport are two other key points of entry, with the former serving domestic flights and also neighboring Costa Rica, and the latter having reopened in 2013 to serve the touristic Pacific beach region of Coclé.
HOT ASPHALT A number of major road infrastructure projects have been underway in recent years, linking key regions and port and airport facilities to urban, industrial, and agricultural areas. Panama’s highways represent a comparatively robust road network for Central America. One of the most interesting sections of the international Pan-American Highway runs from Panama’s western border with Costa Rica right across the country to the Darién Gap, the Colombian border region. Its widening has increased safety and reduced accidents and congestion. The extension of the Panamá-Colón Highway has been a key undertaking, focusing on relieving crowding on Colón’s road network to ease access to cargo vehicles on the trans-isthmian highway. The resulting reduction in transit time between the Colón Free Zone and Panama City’s Pacific Port of Balboa and Tocumen International Airport will greatly improve the logistics potential of the country. Other projects of note include the North Corridor highway to Tocumen International, which again simplifies access for cargo moving south from Colón, but also opens up a more efficient route for agricultural produce from the west of the country, going some way to dealing with traffic problems on Panama City’s South Corridor. These investments also open up labor pools in areas outside the capital, as economic opportunities increase in the city. Additional connections between parts of the capital and stronger links to bridges across the canal, such as the Centennial Bridge, will reduce congestion on the iconic Bridge of the Americas. An extension and widening of the South Corridor is estimated to cost over $500 million, and was contracted to the Mexican firm Ingenieros Civiles Asociados (ICA) in 4Q2013.
INNER CITY TRANSPORT Nb_]l_[ncihi`nb_J[h[g[G_nlimsmn_goh^_lfch_mfiha'n_lgaip_lhg_hn`i]omih ch`l[mnlo]nol_&[h^cm]ih^o]cp_ni_]ihigc]jlial_mm(Ch;jlcf,*+.&Fch_+&mnl_n]bchaip_l +-ecfig_n_lm[h^lohhcha`lig*/(**ni,,(**&q[mi`×]c[ffsij_h_^chJ[h[g[=cns&ni^[s nl[hmjilncha[^[cfs[p_l[a_i`\_nq__h+.*&***[h^+1*&***j[mm_ha_lm(Nb_]ihnl[]n`il Line 2 was signed in June 2014. The opening of Lottery Station in August 2014 has facilin[n_^nl[hmjilnnijo\fc]i`×]_mmo]b[mnb_?g\[mmc_mi`=o\[[h^Mj[ch&[h^nb_H[ncih[f ;l]bcp_m&[mq_ff[m_h[\fcha[]]_mmnijf[]_mi`chn_l_mnnipcmcnilm(Nb_ij_hchai`M[h Isidro station in 2015 will lengthen the line to 15.8 kilometers. The metro also affordably connects to the airport, located close to Los Andes Station. Meanwhile, the recent signing of nb_]ihnl[]n`ilFch_,jligcm_m_p_hal_[n_l]ihh_]ncpcnsqcnbchnb_]cns(N[la_ncha+(,gcffcih residents in the Metropolitan area, Line 2 will link the city through an interchange with Line 1. The punctual completion of Line 1 in 2014 has promised a great deal for the future of inner city transport, and together with the Metrobus system, has created a greater opportunities within Panama City.
LUIS VIDAL Commercial Director, Wakefield Marine Energy What was the strategy behind starting operations in Panama ch,*+,[mnb_i`×]c[f^cmnlc\otor of Castrol Marine products? Our strategy was to expand into those local markets that Castrol Marine had not yet explored. The company operates by region, and though it is a hundred-yearif^\l[h^&b[^i`n_hip_lfiie_^ certain Caribbean and Central American markets. Our strategy was to promote Castrol Marine in locations where most people do not realize that there is a range of products dedicated to their businesses. Biq^i_mQ[e_×_f^g[le_n its products in Panama and throughout the region? We market our products abroad, in international magazines and [n_p_hnm(Q_[cgni]ihpch]_ owners and managers from other countries that we can jlipc^_m_lpc]_mchJ[h[g[ [n]igj_ncncp_jlc]_m&[h^ni consider changing their supply ]b[chm(Jlipc^chafi][ffiacmnc]m [h^m_lpc]_m][h\_gil_]imnfs in Panama. What could be a solution to the higher costs in Panama? Panama needs to expand its port, technical, and maintenance m_lpc]_mch`l[mnlo]nol_&[h^ ch]l_[m_nb_[p[cf[\cfcnsi`mj[l_ parts for the marine industry. Up ni+/&***p_mm_fmj[mmnblioab the Panama Canal each year, and these ships require serpc]_mmo]b[m`ii^&fo\lc][hnm& maintenance, and spare parts. They frequently do not take full [^p[hn[a_i`J[h[g[hc[hi``_lings, which hurts local business.
Transport
IMPORT/EXPORT The Panamanian maritime system is well developed thanks to the canal, but the country fell to second place in Latin America in terms of containers moved in 2013, with an overall
Air Transport, Passengers Carried (In Millions) Source: World Bank
10
8
6
4
2
2013
2012
2011
2010
2009
2007
2008
2006
0 2005
Unlike in neighboring countries, Panama does not have a large railway network, though the one line that runs from the Caribbean to the Pacific has an interesting past. The Panama Canal Railway runs alongside the famous waterway, and was begun over 150 years ago. Its existence was crucial to the construction of the canal, and it served as an efficient method of crossing the isthmus before the channel was dug in the early 20th century. The railway is still in operation, and was privatized and sold to a joint venture between Kansas City Southern and Mi-Jack Products in 1998. Now operated by their Panama Canal Railway Company for a 50-year period, $80 million of investment by the firm guarantees a strong inter-modal cargo link between the ports of Colón and those of Panama City, while a popular tourist service allows visitors to pass from ocean to ocean through the jungle. An important development in recent years was the construction of Central America’s first metro system in the capital, at a cost of approximately $1.8 billion. The first line of the project, completed in 2Q2014, has a capacity of up to 170,000 commuters per day.
2004
TRACKING PROGRESS
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figure of over 6.5 million TEUs. In total, the Port of Balboa, on the Pacific end of the canal, moved over 3 million TEUs, while the ports of Cristobal, Manzanillo International Terminal (MIT), and Colón Container Terminal (CCT), all on the Caribbean coast, recorded combined movements of approximately 3.5 million TEUs. These latter ports serve the Colón Free Trade Zone, the second largest such facility in the world. On the whole, these numbers reflected a significant drop in relation to the 6.9 million TEUs handled in 2012, ostensibly the result of strikes and unpaid debts, which could be more than $1 billion, from Venezuelan businesses following the devaluation of the Bolivar as a result of political unrest. Though this continues to represent a bilateral issue, container movements in the first half of 2014 grew by 1.4% in relation to the same period in 2013, showing renewed promise for the sector. The highly anticipated expansion of the Panama Canal will once again breathe life into Panamanian shipping when it is completed. Since 2008, the ports of Balboa and Cristobal have received heavy investment worth around $1 billion, while MIT aims to invest a further $200 million to prepare for the new traffic. A car ferry service to Colombia, which would pass around the Darién Gap (impassable for vehicles), has been in the works for several years. However, progress on the route continues to be stalled by bureaucratic hurdles and permit issues.
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IN NUMBERS Meyer’s Group
SHORE leave TBY talks to Michel Mittelmeyer, CEO of Meyer’s Group, on the company’s contribution to the economy, the Canal, and the maritime sector.
Meyer’s Group’s investment in 2013
50
Million USD
Employees
400 has many advantages, and is better than the older tugs being used in Panama. In terms of job creation, more than the 95% of our employees are Panamanian, and we have more than 300-400 employees in the country.
In which countries do you have a large presence?
We have operations in Venezuela, Nicaragua, and El Salvador, and we are going to start in Guatemala in 2014. The business is mainly focused on Central and South America and Venezuela. We also have a business partner in Colombia, and we are trying to develop our business in the Dominican Republic. We also manage one of the main marine lubricant and oil companies, Castrol, and are its representative for all of Central America. How does Meyer’s Group contribute to the development of the country?
Actually, we started with two tugs and now we have five or six. We did this because there is new technology coming in from Damen, a major shipbuilding company, which offers the ASD range of tug ships. In this way, a new tug can make money more easily than the previous tugs. Usually in the market you see some old tugs and old technology, but with this new technology you can make more money in a shorter period of time. It
How will the completion of the Panama Canal expansion impact your operations?
BIO Michel Mittelmeyer has studied mechanical engineering and nautical science, in addition to completing studies at PH International Marine _p_fijg_hn[h^ Lloyd’s Register. His work experience includes six years at the Bernard Shutter Group and as Manager of the Hanseatic Shipping Company. He has been with Meyer’s Group since 2005.
Our experts are expecting about 7%-10% in growth in our operations and business. The only difference in the import and export sector in Panama will be the size of the vessels. That is the only difference; however, marine operations will increase. It is conservative to say 7% growth is expected, but on the whole, some are predicting about 10%. We are expecting about 7% growth in Meyer’s Group. We are rolling out two new tugs in August, and they will arrive by the beginning of October 2014. For the beginning of 2015, we have three more coming for the business plan that we are developing in the new ports—one on the Pacific side and one on the Atlantic. They are making space on the dock, and we are also bringing in one more tug for this.
How would you describe Panama’s port infrastructure?
I can say that the infrastructure is still developing. However, the development has been more important on the Colón side than on the Pacific side. On the Pacific side, we still have the same terminals, and there is another project similar to a service terminal. However, in Colón, the infrastructure is amazing. All the terminals are expanding right now. I think Colón is more developed because it is more developed in the Caribbean than it is in the Pacific. We started with the terminal of Patsa in January 2014, and now there is Hapag-Lloyd and Maersk coming to this terminal also. But there is only one terminal, though expansion plans exist for a second one. There is a great difference between the two ends of the Canal in terms of facilities. How would you assess the competition in the maritime sector?
I think that our competition in Panama consists mostly of larger companies. We are a small company, a family company, but we compete with big companies, like Virtual Logistics. To be honest, the market in Panama is healthy enough for everybody. If you take all the concessions that Panama is giving, there are things that started 20 years ago that have still not finished yet. And Virtual Logistics has most of these concessions. If you remove those concessions from the equation, then Meyer’s is the top company in Panama for concessions. However, we started from zero in Panama, and it is difficult to fight with big companies. Small fish don’t try to eat big ones, but we are still trying to fight this massive competition.
Transport
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no containing GROWTH TBY talks to Aitor Ibarreche, CEO of Hutchison Ports Holding Panama (Panama Ports Company), the largest port operators in Panama, on the role of the Canal in trade, and the country as a hub for the Americas.
What was Hutchison’s impetus for entering the Panamanian market?
The Panama Canal is a prime tool that the shipping industry has to its advantage. The connectivity that it provides for the trans-Pacific and trans-Atlantic trades, connecting the east and west coast of the US, as well as the east and west coast of South and Central America, is a tremendous asset. Most of the world was experiencing port privatization 17 years ago. Hutchison Ports Holding (HPH), the largest container operator in the world, saw the opportunity to invest in Panama since the government was undergoing the privatization process of a port concession, which represented an opportunity to develop container terminals at both ends of the canal. Today, HPH Panama is considered the most important port operator in the country. With operations on both ends of the canal, a major initiative for the company is to further assist in this connectivity in order to develop a more efficient manner for crossing the canal. This, in turn, will reinforce the process to logistically make Panama the best network in the world. Panama Ports Company has operations on both sides of the canal, in the ports of Balboa and Cristóbal. Which is the most important factor for the company’s activities?
Our operations in Panama, at the Port of Balboa and the Port of Cristóbal, are both equally important for us. We envision a system that utilizes diverse modes of transportation, such as barges, trucks, and rail to provide a high-value service structure to fulfill our client’s needs. The Hutchison portfo-
lio is solid with an extensive history in Asia, where some of the largest ports are located. The company operates 52 ports in over 26 countries and strategic cities such as Rotterdam, Felixstowe, and Barcelona; nonetheless, Panama has two of the most important ports for the group. What is your future plan for expansion?
BIO Aitor Ibarreche is a Mechanical and Electrical Engineer graduated `ligOhcp_lmc^[^ Iberoamericana, México. Additionally, he holds an MBA and MSPM from the Ohcp_lmcnsi`Gc[gc(B_b[m ip_l+2s_[lmi`_rj_lc_h]_ in the port industry, 13 of qbc]bb[p_\__hqcnbBJB Group, where he began his career in 2001 with HPH México. Since then, he has b_f^m_p_l[fe_sjimcncihm ch]fo^cha?r_]oncp_ Director and Commercial Director, where he created, ^_p_fij_^&[h^mo]]_mm`offs implemented a great number of commercial projects that are now running with remarkable [h^_``_]ncp_l_mofnm(;mc^_ from his successful career, he supports teamwork and enhances the talent and p[fo_mi`bcm_gjfis__m[h^ co-workers.
We are currently re-engineering our container operations, which represent a solid business with room for further development. We will therefore have greater capacities and new licensing ideas, similar to what we have implemented in other countries, such as automation; between the two ports we handle about 3.5 million TEUs per year, but have the capacity to reach a total of 6.5 million TEUs per year. We are also focusing greater efforts in areas such as automobiles, general cargo, agricultural grain, and minerals. We have considerable capacity available in the Atlantic, an area that has not been fully developed, and are currently working on a master plan to do so.
Panama is now signing numerous free trade agreements (FTAs) like the one signed with Mexico in April, which will make it possible for Panama to particij[n_chnb_J[]c×];ffc[h]_(Qb[n impact would this union have on your business activities?
For Panama, it will undoubtedly be beneficial, although for us it will have a limited benefit. This alliance is designed to increase and foster international trade. For our ports, the majority of business involves transshipments, with only 5% of local cargo going through Panama. Global trade is much more important for our business, where China plays an important role.
What are the key routes for your operations?
What will be the impact of the Panama Canal expansion at your company?
The trans-Pacific route is the most important, connecting Asia to the west and east coast of South America. On the other side, there is the trans-Atlantic route from Europe to the east coast of North and South America. A smaller portion is destined for the Caribbean and the west coast of South America.
It will have a major impact because of the increased container (trade) volume. Although our ports already have the capacity to handle vessels of up to 15,000 TEUs, it is probable that a good amount of these vessels, which nowadays aren’t able to pass through the canal, will eventually be able to do so.
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the hub CONCEPT TBY talks to Carlos M. Urriola Tam, Executive Vice-President of Manzanillo International Terminal (MIT), on the development of maritime and logistics operations in Colón.
What has your growth strategy been since commencing operations in 1995?
BIO Carlos M. Urriola Tam is ?r_]oncp_Pc]_'Jl_mc^_hni` Manzanillo International Terminal (MIT) and Senior Vice-President of Carrix Inc. He joined MIT in 1995 as its Assistant Vice-President of Marketing, and worked his way up to his current position, which he assumed in 2012. He took on his role at Carrix Inc. in 2011. He b[mm_lp_^ihhog_liom national and international trade and shipping organizations. He was President of the Maritime Chamber of Commerce of Panama in 2001-2002 and was reelected for a second term. He was President of the American Chamber of Commerce of Panama in 2006-2007 and also President of Dohcil;]bc_p_g_hn in 2006-2007. From 2006-2009, he was VicePresident of the Caribbean Shipping Association, and subsequently President in 2009-2012.
We began in 1995, shortly after the Noriega era, hence at a time of skepticism toward Panama in terms of investment. We decided to build a terminal on a former US base with an investment of $150 million, and to date have invested $650 million with plans to invest a further $250 million. When we arrived in Panama there was a total shipping volume of 100,000 TEUs, while in 2013 the level was at almost 7 million TEUs. As pioneers, we ourselves moved 2 million TEUs, and we became the first company to establish the hub concept in Panama. How does Manzanillo International Terminal (MIT) contribute to national development?
When we set up in Panama, the unemployment rate in Colón was very high. Moreover, many did not believe that local labor could manage an efficient port. Therefore, we not only trained our people well, but actually created careers for them. Some of them have been with us for 18 years. MIT has created 1,200 direct jobs, and 90% of the workforce is from the Colón area. We also contribute by generating the economy surrounding the terminal. Apart from these 1,200 direct employees we also employee around 300 security guards and 500 individuals from other unions in Colón.
GCN cm [`×fc[n_^ qcnb =[llcr Inc., whose main division, SSA Marine, is based in Colón. What is the importance of Panama for Carrix Inc. and what are its expansion plans?
Our company is based in Seattle, Washington, but our international branch was established in Panama. We did so before anyone else started to look into Panama because of its regulatory advantages. And from here we supervise our operations in Vietnam, Mexico, Colombia, Chile, Panama, and Costa Rica. We have been able to grow from here and today have three operations in Colombia. Qb[n q[m nb_ ×h[h]c[f j_l`ilmance of MIT in 2013 and what are your expectations for 2014?
In 2013 there was a slight decrease in volume based on prices in neighboring countries like Venezuela, and some restrictions in Colombia. We are looking to other markets in order to resolve this issue. However, after growing by rates of 15%-20% every year, such a reduction is not significant in a business like ours. What Panama has to do is not only look at the traditional markets like Venezuela and Colombia, but also other growth markets such as Mexico, Ecuador, or Chile. According to the Panama Canal Authority, the expansion is going to create around 30,000 jobs related to the logistics industry. What is your assessment of this estimate?
Ports are not a job-generating industry, though auxiliary industry and services involve a
IN NUMBERS Manzanillo International Terminal (MIT)
MIT’s investment in Panama
650 Million USD
substantial need for logistics. The problem is that Panama today does not need to create jobs, as the available jobs outnumber the people available. We foresee more jobs being generated in the logistics supply chain, for which we need to train our people. Everyone needs to be clear about the fact that no economy can sustain this current pace of growth. We would prefer to see growth of 4%-5% over the coming years in order to avoid an inflationary environment, which Panama normally does not experience. How would you assess Panama’s port infrastructure and the government’s efforts to improve its capabilities?
We probably have some of the best maritime infrastructure in the world. That is not our problem. Our problem, rather, is how to best connect that infrastructure. We need to be more dynamic in terms of the utilization of e-commerce, and we need to improve customs procedures through the use of electronic document transfers. The next step for us in Panama is to be able to move cargo between air, rail, ports, and trucks, electronically.
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PORT OF BALBOA FOCUS
PACIFIC VIEW Balboa lies at the heart of Panama’s trade network, connecting Asia, the Americas, and Europe in a seamless manner.
LOCATED ON THE PACIFIC SIDE of the Panama Canal, the Port of Balboa, operated by the company Hutchison Port Holdings, has shown its importance in regional and international trade. Since 2010, the port has increased its handling capacity to become the leading port in container movements in Latin America. According to the ranking elaborated by America Economia Intelligence, Balboa witnessed a minor increase in container movements in Latin America during the first seven months of 2014, with a growth of 1.6% in respect to same period of 2013. It should be noted, however, that in 2013 total TEUs fell to 3.06 million, down on the 2012 figure of 3.25 million TEUs, according to the Panama Maritime Authority. In fact, the Port of Balboa handles around one-half of all cargo moving through Panama’s ports. The slowdown recorded over 2013 was largely related to industrial action in the port. Balboa is ideally positioned to grow as a hub connecting major freight line services from Asia and North America to the west coast of South and Central America, as well as the Caribbean region. The port has continued to expand its capacity since it was privatized, and in 2013, transshipment represented 91% of the total. In terms of infrastructure, according to the World Economic Forum’s Global Competitiveness Report 2013-2014, Balboa is also ranked first place. “The port infrastructure in Panama is excellent. We are prepared to receive vessels of 15,000 TEUs and our ports are equipped with the newest Super Post-Panamax Cranes on both sides of the Canal,” said Aitor Ibarreche, CEO of Hutchison Port Holdings Panama, to TBY.
Over 182 hectares, the Port of Balboa features a 2.27-kilometer quay at a depth of 17 meters alongside the quay, according to the Panama Ports Company. Through its networked infrastructure of four Super Post-Panamax, 10 Post-Panamax, and eight Panamax cranes, the port can handle up to two Post-Panamax, two Panamax, and one feeder container vessel at the same time. In order to move containers and other freight around, the port utilizes 64 rubber-tired gantry cranes, five reach stackers, 20 empty container handlers, and three top loaders. According to the Georgia Tech Logistics Innovation and Research Center, transshipment operations of container cargo accounted for 92.8% of total container throughput, while the remaining is directed to the local market. A shortcut to the railway allows for the transshipment of containers to the ports of Colón by crossing the country from the Pacific to the Atlantic in about one hour. Balboa is also capable of receiving and dispensing dry and liquid bulk and specialized cargo, having a total of 2,184 connections for refrigerated containers. Both Hutchison Port Holdings and the Panamanian government have made great efforts to have the most modern port facilities in Latin America in their attempt to become a global logistics hub. Additionally, with the expansion of the Panama Canal, the country’s importance is growing and the country is becoming a backbone of international trade as well as a strategic foreign trade partner for those countries for which the route is highly relevant owing to the benefits of reducing time and cost of transportation. “It is an excellent time for Panama to assume the role of the logistics hub for the Americas, if not the world. The high demand and traffic of vessels and planes gives Panama an incredible opportunity to literally connect your business with any part of the world,” explained Aitor Ibarreche, CEO of Hutchison Port Holdings Panama.
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FORUM MARITIME SECTOR
moving WEIGHT
LAWRENCE LEE President Evergreen Marine (Latin America)
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e have a presence in many regions for different purposes, like tax registration, and observation and research of taxation (ORTAX) issues. That is why we made the split into separate countries. Much of our financing has traditionally been done in Europe, but following the financial crisis, this supply notably diminished. We factor in the respective countries’ economic size. At the moment, both South American east coast and west coast countries are the most important for us. Our key route is Brazil, Argentina, and Paraguay, and the second Chile, Peru, Ecuador, and Colombia. On the Pacific Coast is the port of Buenaventura. And we also use Panama as a hub to reach Caribbean markets. Right after them, we have the Central American countries: Mexico, Guatemala, Honduras, and Costa Rica. East coast countries are also very close in terms of size and business value to the west coast countries. For example, to the South American east coast, our weekly capacity is 4,000 TEUs, and the west coast 3,000 TEUs. All together we are talking about 9,000-10,000 TEUs per week for Asia and Latin America alone. Once we factor in further regional surveys, the figure naturally rises.
As rising trade with Asia and the Americas raises the demand for maritime transport, global firms are using Panama as a hub for their Western Hemisphere operations.
JUAN CAMILO VASQUEZ
JULIO DE LA LASTRA
Panama Country Sales Manager, Maersk Line
President, COO & RVP Caribbean and Central America Region, Mitsui O.S.K. Lines (MOL)
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anama is our fifth hub globally. As a hub, we have strong relationships with different ports both on the Pacific and the Atlantic oceans. We have also made fruitful use of the Panama Canal, the railroad network, and the logistics providers. The competitive advantage that we have is our intensive use of diverse logistics operators and stakeholders in Panama, among which there is considerable cooperation. What we have in Panama is not only critical for this market, but also for the way in which we cover Latin America and the Caribbean, as 14% of our global volume goes through Panama. Our most important routes right now, in terms of volume, are Asian imports. Two Post-Panamax vessels arrive every week from China, Korea, Taiwan, and Southeast Asia, covered from Panama, and serving the Caribbean and the west coast of South America. In terms of growth, the inter-American routes are key. The region is booming, and we have many opportunities here, which is the reason we are launching a new inter-Americas specialized carrier called SeaLand, and which will be operational in 2015.
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anama is an important part of our operations because it is the ideal place to carry out shipping operations. It is a primary port of passage for ships coming from Asia to the East Coast of the US, which is exactly how Panama came to be seen as a container transshipment hub as far back as 1995. In 1995, MOL signed a contract with Manzanillo International Terminal, which was our first hub in Panama. We then decided that we already had a hub on the Atlantic side so ships would transit and offload cargo there and we could connect with feeder vessels into South America and the Caribbean region. We decided we could also tap into places like Ecuador, Colombia, Peru, and Chile. We then opened a hub at Balboa Terminal, which despite minor setbacks has worked well for us. With the stabilization of services on both sides, the Atlantic and Pacific, we were able to establish a complete transshipment operation. It certainly makes sense to opt for Panama as a hub for the Americas in the same way that Asia has a hub in Singapore and Europe in Rotterdam. However, in Latin America, there is no doubt that Brazil is also critical, followed by Colombia, Venezuela, and Puerto Rico, and we have had success in Costa Rica and the Dominican Republic. We plan to start operations in Guatemala in 2014.
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SHIP REPAIRS VOX POPULI
ANTONY RAKAH PIZARRO
SHIP SHAPE
General Manager, Grupo Diesel Engine Services (DES)
Important repairs are being carried out by expert Panamanian entrepreneurs that are helping owners, charterers, and cargo interests alike avoid unnecessary and costly delays in the region’s maritime industry.
ALEXANDER MORENO President, Rastro Marino
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ur company is a provider of new ship parts and manufactured second-hand parts. We detected there was a lack of this type of service within the sector. Normally, when a ship needs a repair done, you have to send it to the shipyard in Europe where it was built. However, some ships are obsolete; they are taken apart, and they have intact replacement parts. Anchors, transmissions, bearings, and an endless number of replacement parts are still useful, and that can save the operation of a ship in a short amount of time and at a lower cost. I go on board the ships that are being taken apart, I point out the things I consider useful, and they take them out, bring them to our warehouse; they are revised, tested, and put on sale.
FERNANDO DE GRACIA Commercial Manager, Professional Ship Repairs (PROSHIP)
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or us the Canal Expansion Project means we will mean greater transit volumes and, as a result, the opportunity to expand. Because of that project we had to supplement our services and now have four companies. The main company remains PROSHIP, for steel contractors and other repairs. Then we have a diving company, for underwater inspections, another for professional manpower supply, and one that supplies consumables. In terms of the clients we are most
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he main ship services we provide are related to repairing the different components in an engine room. The equipment is divided into three important parts: the main engine, the auxiliary engines, and their components. The components to which we provide services are: the cylinder head, the cylinder liner, the fuel pump, the injector, the turbo charger, the governors, and the purifiers. These services are divided into two stages, the first stage takes place at the vessel and the second stage takes place at our workshop. On occasions, the customer only requests the service on board or in the workshop. Innovation is very important for DES; we must be up to date with what is out there in order to provide what the market demands.
interested in reaching, the managers of ships are crucial in that they are the individuals that place the orders on behalf of the owners themselves. These managers are generally based in Greece, Singapore, Hong Kong, and Germany. We have been keen to familiarize this group with our service offering of quality and time-effectiveness, and have sought to establish lasting relationships. Minor differences in price may not be an issue, but timing always is, and if a vessel goes over time charters can be lost.
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INTERVIEW
pushing out the
ENVELOPE
TBY talks to Rubén Gómez A., Director of the Directorate General of Posts and Telegraphs Panamá (COTEL) on leading a historic institution.
What have been your key objectives since your appointment?
IN NUMBERS Directorate General of Posts and Telegraphs Panamá (COTEL)
Jimni`×]_m
123 Employees
1,000 Annual budget
9
Million USD
I assumed my position on June 1, 2014, by appointment of President Varela. My first impression was that there was a series of obstacles to advancing the operations of the institution. We have therefore been engaged in a process of restructuring, and I have already requested that the Ministry allocate the necessary resources to complete this task. We are an institution with a long history in the country following our incorporation in 1904, and this year we celebrate our 110th anniversary. One of my challenges is to bring back the faith and love of Panamanians for our institution. We need to work together and unite our efforts with those of the public administration in order to achieve these goals. What measures are you implementing to address the economic and human resources problems the institution currently faces?
In terms of financing we are looking to the Ministry of Governance, which has approved our plans, for in-
creased investment in the institution. We currently have 123 post offices, but need to invest in infrastructure so as to provide better and more reliable services to Panamanian citizens. With regard to human resources, we recognize that our staff has been underpaid for many years, and have expressed our concerns about this topic to the President. We have already agreed to revise all contracts for equitable wage adjustments. These two elements are crucial for improving our institutional efficiency. What is the potential for the privatization of Cotel?
The current government of Panama is not contemplating such a scenario for the present. It was an initiative entertained by former President Martinelli, who privatized several other public bodies. Given its strategic importance, our goal instead is to modernize the institution within its current domain.
What are the institution’s key investment plans?
The previous administration had an annual budget of $9 million, but the previous management team had already spent around 80% of that budget by May, leaving the new management team with the remainder. We have been notified that the budget will be considerably increased for 2015, so we can push forward our strategies to increase promotion campaigns and invest in infrastructure. In terms of the latter, integration efforts to make sure all of our post offices work within an integrated system are vital. We must also take advantage of the fact that we cover the entire Panamanian territory. We have around 1,000 staff and, as I said before, we also plan to review their contracts and salaries to make sure they feel as valued as they deserve.
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COMING out on top
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LOGISTICS FORUM Although high trade volume and geographic location make Panama an attractive market for logistics companies, navigating regional markets and bureaucratic hurdles necessitates due diligence and local expertise.
EDGAR URRUTIA
RÉGULO LÓPEZ
JOSÉ CHAVARRÍA
Country Manager, CEVA Logistics
CEO, FrigoService Inc
Country Manager, DHL Express
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oming from the other global freight forwarders I used to work for, Central America is always a confusing market for global players. They feel that they should have a presence, yet they are not sure what they should be doing. There are many financial, customs, logistics, and political issues to face here. If you look around, you will not find many operations like this one for a global logistics or freight forwarding company. We invested a considerable sum of money to establish this operation because we believe in Panama and we believe in Central America. Our company has operations in Costa Rica, Guatemala, and El Salvador, and we have agents in Nicaragua and Honduras. We have improved significantly since the Colón Free Zone was established, but I think that we need to put in more effort than we have been doing. Panama had a competitive advantage at that time, and customs were not as regulated as they are today. Now, countries like the Dominican Republic, Jamaica, and even Colombia that are looking to do something like we are doing here.
DAVID ÁLVAREZ General Manager, Multimodal Logistics Corp.
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ustained growth has helped us to swiftly increase the capacity of our facility. When we started out, we developed the local market with limited interest in the international dimension. We are now beginning to look beyond Panama’s borders, while remaining based in the country. Moreover, Panama’s status as a logistics hub has the promise to expand our business tenfold. Currently, we have 3,000 PAL capacity, but our five-year plan anticipates growth to 54,000 PAL. We currently work with customers including Nestle and Supermercados Rey, one of the largest supermarket chains in Panama. We also work with Burger King and dairy product producer Estrella Azul. We are located right at the heart of Panama, which plugs us into the world. The Suez Canal only accesses the Mediterranean Sea and parts of Africa and Asia, whereas the Panama Canal is strategically located for access to both the East and West coasts of the US and Central and South America, while also boasting easy access to Europe, Western Africa, and Asia.
ur advantage is that we provide every possible service, even including warehouse management. This allows us to work with every type of client; some of them just need one service and others need the full package. The client always has an import/export profile. Warehouse management is a key service for us since we manage our clients’ inventories. They store their inventories in Colón to take advantage of the benefits of the Free Zone, such
D
HL has two different divisions in Panama; DHL Express and DHL Global Forwarding, which complement each other. Global forwarding is more about ocean freight, airfreight, containers, warehouses, and also the road network within Central America. In the case of Express, it is a courier service that is very fast for the market. We connect overnight to Ecuador, Venezuela, Colombia, Central America, and the US. Meaning, particularly in the case of Panama being a hub for cargo, our customers can hire us to move all the goods from the Colón Free Zone right across Central America overnight. Also, the entire inventory is in Colón, meaning there are no taxes paid at the moment. This allows for an increased amount of flexibility in terms of inventory. With the expansion of the Panama Canal, we are expecting larger volumes coming in and out, and definitely a lower cost for sending goods by ocean freight. Panama will also be more attractive to use as a distribution center. It has many advantages, but I still think the canal is very relevant and the center of everything we do.
as a 0% tax rate. From there they can distribute to Latin America, the Caribbean, or Europe. We decided that we had to establish our operations in Colón because it is part of our export strategy. We have not only warehouses, but also download services. That is why we also offer to our network the possibility of using the Colón Free Zone as a hub. The Free Zone is essential for transshipment, and there we operate in an area of 16,000 sqm.
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FOCUS TOCUMEN INTERNATIONAL AIRPORT EXPANSION
Tocumen International Airport Expansion Project Source: TBY Research
Original Terminal North Terminal (Phase I - completed) South Terminal (Phase II - complete in 2016) Long-term Master Expansion Plan (TBA)
terminal
VELOCITY Panama’s primary air node is getting bigger, doubling its capacity by 2016. Already the largest airport in Central America, the new plans are set to cement the facility’s role as a true aviation hub.
KNOWN AS THE HUB of the Americas, Tocumen International Airport, just 24 kilometers east of Panama City, is currently adding a new terminal to double capacity and up its game as host to Copa Airlines, Panama’s flag carrier. Tocumen International Airport, renamed after Omar Torrijos until it reverted back to its original name following the US invasion, is currently in its third phase of expansion, the first having finished in 2006 and the second in 2012, when a new terminal, or North Terminal, was opened. That development involved two levels of infrastructure over 21,000 sqm, including 12 new gates and docking stations, a taxiing area, waiting rooms, service access, and storage, among other services. The phase boosted the airport’s capacity by 50%. Now, a new expansion, in the form of another terminal, South Terminal, is now underway and set for completion in 2016. While the second expansion cost $60 million, the new expansion, being developed by Odebrecht, has a price tag of $679 million and includes a third runway, a diversion of the Tocumen River, and new road access to the facility. Work on the third phase kicked off in 2013 and will include 50,000 sqm of development and new areas for immigration and customs, passenger check-in, parking lots, commercial areas, and 30 bridge approaches.
When complete, in 2016, capacity at Tocumen International Airport will double to 18 million passengers per year. On top of that, the number of gates will have risen to 54, while the airport will cover 141,000 sqm. As of May 2014, construction was reported as being half-way done. The number of passengers serviced in 2013 was 7.8 million, with the airport also posting profits of $133 million. The continued expansion of the airport is occurring in lock step with the growth of Copa Airlines, Panama’s flag carrier. Carlos Pashales, National Director of Airports, commented that, “the expansion plan is going to have a very positive impact on Panama’s economy. We are going to have more gates for a higher number of aircraft, and Copa’s hub will keep growing over the years.” Copa Airlines itself is also happy to see its nest growing, with CEO Pedro O. Heilbron telling TBY that, “it is very important that the airport is being expanded. Once this expansion phase is completed, we will have an additional 20 gates, which will allow Copa to continue growing.” Indeed, in early 2014, Copa Airlines unveiled its plans for growth in 2014, including the launch of three new destinations and a 10% expansion of capacity in the shape of eight new aircraft. That makes it the ninth year on the trot that
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Copa Airlines has posted double-digit available seat kilometer (ASK) growth. New destinations included Fort Lauderdale in Florida, Georgetown in Guyana, and Montreal. Pashales views the growth favorably, asserting that, “by the end of 2014, Copa Airlines will have 96 aircraft and 120 destinations, so the growth we expect is tremendously positive.” CEO Heilbron, in a conversation with TBY, also underlined the significance of the carrier to the economy; “we have over 6,800 employees in Panama and around 8,700 worldwide,” adding that, “in regards to Panama, we are a major contributor to the country’s GDP, second only to the Panama Canal. Our direct and indirect contribution to Panama’s GDP is 4%.” Heilbron also spoke at length on what makes Panama such a unique place to be based, suggesting that the country has become a major business hub, tourism destination, and “home for many multinational companies that have established their regional offices here.” Tocumen International Airport has also attracted the attention of several European airlines, such as Air France, Iberia, TAP Portugal, and KLM, which all fly from terminals at the facility. As Heilbron of Copa Airlines sees it, “[these] airlines benefit from Panama’s unique position as the best located and most connected hub in Latin America. As Latin America con-
tinues to grow and more airlines look to our region as an interesting market to serve, we expect Panama to continue growing as the premier gateway to our region.” But Tocumen International Airport isn’t alone in servicing Panama City, with Marcos A. Gelabert International Airport, just 1.5 kilometers outside the city, the second largest airport in the country in terms of passenger count, servicing 212,000 in 2012 with an average of 71,000 flights annually. The airport has also spent $15.5 million over the last six years, as “the tourism sector has driven the airport’s growth,” said David A. Vos, Administrator at the airport. And Marcos A. Gelabert is to Air Panama as Tocumen is to Copa Airlines. The second largest carrier in Panama, Air Panama flies mainly on domestic lines to approximately 25 destinations. The airport is also extending its runway, by 100 meters on each end, with room for 15 more private aircraft also planned. While the Panama Canal often steals the limelight when it comes to the transport sector, Tocumen International Airport, and its expansion, shouldn’t be overlooked as a key hub for bringing people, and cargo, into and out of the country. When completed, the airport will pull even further ahead of its competition in the Central America region and become synonymous with air travel in the region.
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INTERVIEW
the main REASONS What has been Copa Airlines’ strategy over the last decade?
We have followed the same strategy for over 20 years, which involves building a hub in Panama for intra-American connectivity. Our business model is very straightforward in a simple and effective manner. Over the last five years we have accelerated the airline’s capacity growth, transitioning from four to six connecting banks at Tocumen Airport, the “Hub of the Americas,” in Panama. We have also added close to 20 destinations in that same five-year period. Copa offers service to 67 destinations in 30 countries. Which routes are the most important for your business activity?
By July 2014, we will be flying to 67 destinations in 30 countries, certainly the most complete and convenient connecting hub in Latin America. We have a very well balanced network; therefore, I could not say that one market is more important than another. South America is, of course, the largest region that we serve through our hub in Panama. We connect most major cities in South America with Central and North America as well as the Caribbean.
IN NUMBERS Copa Airlines TBY talks to Pedro O. Heilbron, CEO of Copa Airlines, on growing in Panama and being a hub for travel across the Americas.
We had a very strong year in 2013; we grew our capacity by 14%. Our revenues also grew by 16%. We met or exceeded the market and analysts’ expectations. For 2014, we expect to have another strong year, with capacity growth of 10%.
How does Copa contribute to the economic development of Panama?
How important is the concept of social responsibility for Copa, and what are the most success`of[]bc_p_g_hnmchnbcm×_f^9
We have over 6,800 employees in Panama and around 8,700 worldwide. We really believe that we contribute in a significant way to every country we serve, since today’s world is driven by connectivity and, especially, air connectivity. In regards to Panama, we are a major contributor to the country’s GDP, second only to the Panama Canal. Our direct and indirect contribution to Panama’s GDP is around 4%. Besides that, due to our hub, Panama is the most connected country in Latin America relative to its GDP. This unique connectivity is
Social responsibility is an integral part of Copa’s yearly corporate objectives. It starts with our own employees; therefore, we dedicate a significant amount of time and effort to make Copa Airlines the best place to work. We have a number of programs to help in the training and advancement of our employees. We also offer scholarships for their children. Maybe the most successful program to align our workforce with the strategy and growth of the company is our profit sharing program, which we have consistently paid for over a
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Annual growth of Copa in the last three years
one of the main reasons why Panama has become a major business hub, tourism destination, and home for many multinational companies that have established their regional offices here. How would you describe Coj[Îm×h[h]c[fj_l`ilg[h]_ip_l 2013, and what are your expectations for 2014?
New destinations in nb_f[mn×p_s_[lm
20% decade. Our social responsibility programs also work with the communities we serve and look to protect the environment. One example is our 3Rs program: recycle, reduce, and reuse. As well, we are founding members of United Way in Panama. Copa Airlines included, in its CSR strategy, actions to mitigate climate change with the aim of reducing the carbon footprint. Therefore, during 2012 and 2013, Copa accomplished a reduction of over 12,200 tons of CO2. By 2014, the goal is to achieve a further reduction of over 4,800 tons of CO2. What is the potential for Panama to become a world hub for aviation?
The country has been attracting a number of European airlines that have either started new services or increased their frequencies to Panama. Those airlines benefit from Panama’s unique position as the best located and most connected hub in Latin America. We expect Panama to continue growing as the premier gateway to our region and this should eventually mean more services from Europe and other parts of the world.
BIO Pedro O. Heilbron studied economics at the College of the Holy Cross in Worcester, Massachusetts, and l_]_cp_^bcmG;ch\omch_mm administration from George Q[mbchanihOhcp_lmcnsch Washington DC. He joined Copa Airlines in 1988, and under his leadership the company established the “Hub of the Americas” and negotiated the alliance of Copa and Continental Airlines—(now United Airlines) in 1998. In 2005 b_ip_lm[qnb_[]kocmcncih of Aero República (Copa Colombia), and Copa Holding’s IPO on the NY Stock Exchange. He is a l_]cjc_hni`p[lciom[q[l^m& including Latin Trade’s CEO of the Year in 2006, ?r_]oncp_i`nb_S_[l\s APEDE in 2008, and the Airline Business Lifetime ;]bc_p_g_hn;q[l^ch 2009. He also currently m_lp_m[mJl_mc^_hni`nb_ Smithsonian Foundation in Panama.
Did you know? Six of the top 10 users by cargo origin and destination of the Panama Canal are from Latin America, though their combined long tonnage is still lower than that of the US, the number one user by far.
Find out more in The Business Year Panama 2014.
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B2B LOCAL AIR SECTOR
The government and the country’s airports are looking to expand their connectivity as well as the services that they offer.
MILES
in the sky CARLOS PASHALES National Director of Airports, Republic of Panama
How important is internationalization for the country? CARLOS PASHALES The perfect strategy would be to keep growing with different routes to Europe, because we perfectly cover Canada, the US, and North America, and all the countries in Central America and South America. Our range of destinations is so wide that we are not speaking about an Americas hub, but a world hub. Iberia was the first airline to start operations in Panama, then it was KLM, and now TAP Portugal has just arrived in the market. This allows us to fly from Panama to any destination in Europe. Miami used to be the connection point for transoceanic flights some years ago, but this started to change with the development of our country as the hub for the Americas. Today we can say without doubt that Panama is the connection point for the Americas. We could also speak about a world hub, because we maintain direct flights to Europe, so many passengers in Latin America come to Panama to fly directly to Madrid, Amsterdam, or Lisbon, where we have daily flights. This is also very positive for the country since we are the gateway for many cities in other continents.
CAPITÁN DAVID A. VOS Administrator, Marcos A. Gelabert International Airport
DAVID A. VOS Air Panama was the first international Panamanian carrier. There are also many private jets traveling within Central America, South America, and North America. We serve more of these aircraft than Tocumen. Such travel has a direct impact on Panama’s economy, meaning it is vital that we accommodate these national and international carriers. It is especially important that we cater to businessmen working in the Colón Free Trade Zone and from the Panama Canal who use this airport as a hub. The routes with the highest demand are Panama-David, Panama-Bocas del Toro, and Panama-Changuinola. We operate three daily flights between Panama and Changuinola with Fokker 100 aircraft, which have a capacity of 100 passengers. We carry up to 300 people a day on this route alone, and fly other passengers to David in just 45 minutes. We also offer the Panama Canal Air Route, which is especially for tourists who want to view the Canal from the air. In 2012, 212,000 passengers used this airport; which is an impressive number for a relatively small facility.
Low-cost carriers have an important presence in many other countries of Latin America, such as Colombia. What is the potential for this type of business in Panama? CP In Panama, we have always believed in open skies, and we would like to promote tourism and attract foreign investment into the country. Panama is developing a large number of real estate projects, with housing and hotels, both on the Pacific and the Atlantic side of the country, where many companies are developing huge resorts at the moment. Therefore, lowcost airlines are showing interest in coming to Panama due to our tourist market. I would not be surprised if European companies soon enter the Panamanian market. TAP Portugal started up operations in Panama in April 2014 with VivaColombia, which is a Colombian low-cost carrier, and is about to enter this market. It makes sense that these types of companies will become much more popular because it is has been a successful model in Europe.
Nbcmq[mnb_×lmn[cljilnchnb_ ]iohnlsi``_lchaØcabnm`lignb_ Panama Canal Zone. What is the importance of this airport for the country? DAV In 1949, Captain Marco Gelabert was the first Panamanian to serve as Civil Aviation Director of Panama. Initially, this airport was located in Paitilla, and in 1999 when it was relocated to Albrook, the government decided to name it after him, because of his distinction as the first Panamanian to obtain an aviation license. Gelabert’s legacy was cemented by his unfortunate death in an accident while an official mission to investigate a potential site for new airports. When the Canal was occupied by the US army, it was the first international airport to maintain connections with other US airports. Even some of Pan-American’s aircraft landed there.
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Juan Carlos Sotillo Escala, General Director of Sotillo & Company on real estate investment in Panama.
Panama’s construction sector now has a healthy decade under its belt; although rising labor costs pose threats of a bubble.
After decades of sewage pollution, a massive wastewater treatment facility is making the Panama Bay habitable again.
Real Estate & Construction R E V I E W R E A L E S TAT E
Strong economic fundamentals, the entrance of international firms, and heavy government spending are driving the real estate speculation. But if incentives to attract foreign companies pay off, investors will earn a hefty payout.
WE BUILT THIS CITY
I
n January 2014, Panama squeezed Costa Rica out of the number one spot on International Living magazine’s best retirement destinations list. This choice underlined just how popular the country has become for foreign retirees. The magazine defended their decision by highlighting Panama’s modern, well-kept urban infrastructure and impressive urban architecture, the country’s dollarized economy, sophisticated financial industry, and a laundry list of other assets. The magazine also cautioned that Panama’s price advantage would not last, and data published months later confirmed that the tourism and retirement boom had driven property values in the country up by 10% in 2013, with gains expected to continue well into 2014. The most noticeable price gains took place in waterfront districts like Balboa Avenue, Punta Pacifica and Costa del Este. Panama’s real GDP growth in 2013 was 7.6%, and growth is expected to remain strong
Image: Javier Castañón
Thanks to its prime location in Central America, not to mention its proximity to many large economies, Panama has become a popular spot for foreign homeowners and retirees.
into the foreseeable future. Meanwhile, tax incentives and speculation triggered new construction that added 175,000 sqm last year alone. These numbers raised spirits in real estate offices across the country, where an oversupply in 2008 drove priced down from 30% to 50% from 2008 to 2012 according to industry estimates. Foreign investment in 2013 rose by 24%, including $650 million invested in new hotels. Most of the properties entering the market for 2013, and early 2014 were residential, with a 120 sqm beachfront apartment averaging $240,120, or $1,500 to US$2,200 per sqm, and its inland counterpart going for $218,880, however commercial spaces grew as well. Gross rental yields for the same time period ranged from 6.82% to 9.52%, with smaller apartments yielding higher. During the economic collapse of 2008, international buyers dried up and real estate prices fell considerably. More than 50% of the buyers in Trump Ocean Club—the tallest building in Central
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Panama City has a unique skyline, making it just as impressive a feat as the Canal
America—forfeited their deposits rather than complete the purchase of units due to the size of price decreases. At the time, many observers predicted that the market would collapse in the same way that the US real estate market did. However, the Panamanian market managed the downturn far better, and construction slowed just long enough for the market to reach equilibrium. Now, with the Panama Canal expansion slated for completion in 2015, and plans for a $6 billion copper mine to the west, optimism has returned to the market. Meanwhile, the 2008-2009 slowdown in construction is raising demand for larger real estate projects in down town Panama City, because they take longer to complete, and thus buck short-term property cycles. According to Panama Equity, because developers were not building new high rises between 2009 and 2012, during 2014-2015 the supply of new apartments will be limited to a handful of projects, as opposed to the roughly 4,000 new apartments that hit the market over the last three years.
COLÓN While Panama City rushes towards economic development, and new high-rises take over the city’s skyline, Panama’s second largest city 40 miles to the north has fallen into such disrepair that protestors have taken to the streets. When President Varela chose Colón as the site of his inauguration, it sent a strong message about his commitment to improv-
I`ip_l/**&*** mkgi`i`×]_mj[]_ constructed between 2011 and 2013, less than half has been rented out.
ing the city. A major part of this plan revolves around a massive state funded real estate development that will benefit 25,000 residents of the city and hopefully spur private sector development as well. The centerpiece of the plan is the construction of 5,000 housing units, which will be supplemented with other infrastructure projects, such as paved streets, street lamps, the restoration of historical buildings, and new wastewater treatment plants. Other projects such as municipal plumbing and beach restoration are also set to improve the city’s overall real estate outlook. Another major project set to revitalize Colón is the $8 billion overhaul of the city’s port, which is slated for completion in 2016. This project is expected to drive housing construction due to the influx of tourists that will use the port, which should boost demand for hotels and other hospitality industry related construction.
BIG PROJECTS Another sign that the real estate sector will remain dynamic are new construction projects announced in 2014. In September 2014, the real estate firm Haus announced plans to construct 10 towers with 2,000 apartments in Panama City. The apartments being built should appeal to Panama’s burgeoning middle class, and units will be priced from $100,000 to $140,000 each. The investment by Haus is reported to be $200 million and construction is set to take place over the next five years.
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Rental Rates In Panama City (USD/M2/Month) Source: JLL
30 25
OFFICE SPACE The last two years have seen a dramatic improvement in the fortunes of commercial space realtors. In 1H2013, the vacancy rate for office space reached 29.8%, the highest rate in Latin America for the same time period. According to the real estate firm Jones Lang LaSalle (JLL), Panama City’s total stock was 697,000 sqm, with 10,000 sqm added during the first six months in 2013. The firm also estimated that 171,000 sqm were absorbed during that year. In spite of this oversupply, JLL estimated that another 582,000 sqm would be added between 2013 and 2015, causing tenant-favorable conditions and leading to a stagnant or decreasing rents. However, by 2014, buoyed by favorable economic conditions, office space construction remained in full swing. Experts attributed the strong office space market to a number of factors. Foremost, in spite of a cooling of Panama’s GDP growth, it remains above 5% and is expected to stay strong due to high public infrastructure spending. Consumer inflation also fell to 3.7% from 4.9% in 2013, thanks to downward inflationary pressure, and S&P raised its long-term sovereign foreign currency credit rating for Panama from BBB- to BBB in 2013. These conditions saw Panama’s construction boom continue almost unabated. Around 175,000 sqm of office space were delivered in 2013, with over 500,000 sqm planned for 2014 and 2015. The supply of class A and AB properties in the next three years will signify market growth of 70%. In Panama City, about 40% of the prime office stock is situated in the Banking District, while most of the remainder is divided between the San Francisco and Corridor Sur submarkets (around 20% each).
20 15 10 5 0 2008
2009
2010
2011
2012
2013e
2014e
Class A Average Rent * Class AB Average Rent *
THE VISIBLE HAND Supply has far outpaced demand in Panama City over the last years. Of over 500,000 sqm of office space constructed between 2011 and 2013, less than half has been rented out according to a report by JLL in 2014. In order to understand developer enthusiasm, it is necessary to examine Law No. 41 (2007), which was enacted to encourage multinationals to enter the Panamanian market. And while the primary effects are manifested in the commercial real estate sector, the law also promotes speculation in the residential sector, especially in the high-end market. Law No. 41 allows companies to set up pilot operations under favorable taxation conditions. Many investors are counting on the success of this program, on account of Panama’s favorable business climate and strong growth. In the event that these operations are successful and companies expand operations in Panama, demand for real estate will rise and investors will earn a hefty payout.
EN PANAMA, LIDERES EN BIENES RAICES COMERCIAL Inventario de oportunidades vigentes Alto grado de confidencialidad Asesoramiento claro, veraz y confiable
Tenemos pasión por los negocios Panama, Centro Comercial Paitilla Mall, Oficina 46, T. + 507 393 9910 - www.sotillocompany.com
Miembros de:
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INTERVIEW
ARCHITECTURE
OF HAPPINESS TBY talks to José Manuel Bern, Vice-President of Empresas Bern, on growth in the construction sector, recent major projects, and trends in Panamanian real estate.
IN NUMBERS Empresas Bern What have been the most important projects for the company in recent years?
Miramar has always been one of our favorite projects. It is a very emblematic location in the center of the bay on Balboa Avenue. The marina and hotel, being part of the condominium complex, has always been a unique scheme. It was ahead of its time 15 years ago, and still today it is one of the prime residential areas in Panama. President Varela himself lives there. For the future, I envisage the Westin and the Intercontinental in Playa Bonita also becoming important projects for us. Gamboa is also a unique project that we always like to refer to at the center of the Panama Canal. It is not our largest project, but certainly one of the more special ones. What is the situation of the Town Center project?
The Town Center in Costa del Este is currently at the foundation stage. We are expecting to open by July 2017, and that includes not only the retail area (which is crucial), but also the clinics and hospital as well as the multi-use offices. It is going to be radically different from anything else on offer in Panama and,
Year of foundation
1978 Starting price of Empresas Bern’s properties
200k Thousands USD
Projects built over
130
in fact, in Latin America. We are in that project with the architectural firm RTKL, which is well known worldwide for such multi-use facility projects. For us it is going to be a highly emblematic project— very complete. It is part of our commitment to the area of Costa del Este, where most of our projects are located.
How would you describe the state of the real estate sector in Panama and its key trends?
There is a great flexibility in Panama in terms of offering solutions for hotels, apartments, and office space. There are plenty of options in office space and hotels and apartments to house employees, and a great capacity in Panama’s private sector to produce solutions. What’s more there is a clear trend towards green certification. Most of the office buildings today feature environmental elements such as special air-conditioning systems, double-glaze windows, and so on. International companies are going to demand certain features in terms of energy savings and light safety. Those international standards cannot be ignored if one is to build a successful project. We like to differentiate our projects from the competition in terms of their location, quality, and available amenities. Qb[n ^lip_ nb_ ,3 aliqnb of the construction sector last year?
Certainly, a lot of it had to do with the culmination of public projects running up to the
elections. I think that is going to free up some of the human capital that we require to bring projects forward. It’s something to embrace when you need to increase wages to obtain better quality personnel. Panama is a relatively small economy, and we have certain restrictions regarding the importation of labor. You can basically only use local labor for construction. This raises the general economic level of our workers, which is positive. People used to wonder whether Panama would become the Dubai of Latin America, but we didn’t think so. What you see in fact is the individual economic decisions of many people. Dubai brings labor in from India and Pakistan and the cost of values compared to the value of properties tends to be in the 5% to 8% range. In Panama, our cost of labor is about 30% of the value of the property, which gives us a good social foundation. The benefits are being distributed to the members of Panamanian society. Construction is one of the activities that has the highest economic contribution. Everything is basically done domestically, which will prove to be crucial going forward.
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INTERVIEW
IN NUMBERS Sotillo & Company
TBY talks to Juan Carlos Sotillo Escala, Director General of Sotillo & Company, on the future of the market.
BRICKS & mortar
Properties
9,000+ Foreign clients
20% and commercial development, in addition to studying the growth plans of businesses to identify and propose new and potential sectors. What have the landmark achievements of the company been since it was incorporated in 2009?
The company was established five years ago when my partner and I, following years of working in one of the largest real estate companies in the country, decided to enter the Panamanian real estate market with our own company and focus on the business and commercial segments of the sector. We have over 14 years of experience in the real estate market as advisors, and have developed a team of expert advisors to offer the best opportunities for business. In this context, today 70% of the Panamanian commerce and business that want to expand their activities comes to us for real estate advice. The way we work is as follows; we meet our clients, we listen to their needs and requirements, and we search for what they need in terms of real estate properties. We also provide intermediation services to land owners who want to sell their land. In terms of future plans, we aim to enter the appraisals and administration of commercial properties segment to further complement our business and do it comprehensively.
What are the competitive advantages of your company?
We provide technical and expert advice to all the companies looking for real estate properties. This is based on our years of experience in this sector. For example, we also carry profitability studies to assess the potential return on investment. The personalized services we offer clients are among the core strengths of our company. How many properties does the company currently manage, and which are the main ones you engage with?
At the moment, we have over 9,000 properties in our portfolio, including new constructions and second-hand properties. We have access to all the new construction projects being developed in Panama, due to long-standing ties with the main developers. We also have access to the inventories of foreclosed properties of the major banks and also represent several investment groups focused on real estate development, which maintain a current portfolio of commercial properties for lease only. Our main activities are to search and identify properties with potential for housing
What opportunities, in your opinion, does Panama offer to real estate investors?
Panama sits in a strategic location and can serve as a logistics base, so we should be developing our logistics and transport infrastructure. The country has a lot to offer in terms of entertainment infrastructure. The real estate sector also offers opportunities aplenty in the housing segment, especially for the middle and lower income social segments.
BIO Juan Carlos Sotillo Escala is Director General of Sotillo & Company. He has worked chl_[f_mn[n_`ilip_l,* years, and has particular experience in sales, client relations, and construction industry strategy. He is a graduate of the Faculty of Architecture of Panama H[ncih[fOhcp_lmcns and holds a real estate \lie_l[a_ko[fc×][ncih through the Ministry of Commerce and Industry.
How would you assess the economic performance of the company over the past year, and what are your near-term expectations?
We have experienced positive growth trends since the first day of operations; the annual average of the past four years is above 10%. This year we will not reach double-digit growth, but will be close to it. Which key factors contributed ninb_1 aliqnbch^_g[h^`il ]igg_l]c[f i`×]_m ch J[h[g[ over the past year?
One of the main factors has been the expansion of the Panama Canal. Demand for such properties has been far above 7%; however, we reached a point where we should be wary of the number of commercial offices already available in the market, as we may be seeing the beginnings of unwelcome oversupply. What are the main challenges facing the Panamanian real _mn[n_ m_]nil ip_l nb_ h_rn ×p_ years?
The expansion of the Panama Canal has attracted many foreign investors, and I believe the main challenge the country faces involves sustaining FDI levels, as this could ultimately compensate for a potential decline of local investment in the near future.
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B2B LOCAL DEVELOPERS
blowing BUBBLES Property and construction are in a period of transition in Panama. TBY talks to key players in the local development scene to make sense of current conditions.
ISAAC BENHAMU G. Director, Inversiones Inmobiliarias BAIT
LUIS FERNANDO AYALA S. General Manager, Casas Grandes
How would you assess the current state of development of the construction and real estate sectors in Panama? And where ^isio×nch9 ISAAC BENHAMU In the past, the risk of a real estate bubble was palpable in the industry; however, this is already in the past, because at the moment we have a stable and consolidated market. Now, the sector, especially in the commercial offices segment, is slowing in terms of readjusting prices and balancing offer and demand. Therefore, I am not expecting impressive growth for the sector over 2014. In fact for the commercial office segment, I foresee two to three years of readjustment. However, this is nothing dramatic, because it is part of the industry’s cycles. In addition, we have to keep in mind that this has been a presidential election year, and investors tend to put their projects on hold to better evaluate political developments. I expect other segments of the industry picking up once the electoral effect is over. In this particular sense, I have high expectations for the near future developments in the luxury-housing segment in Panama.
What are some of the key elements of your ongoing projects? LUIS FERNANDO AYALA Panama suffers from a housing deficit, where there are not enough real estate companies to satisfy demand. This remains the case despite Panama’s large volume of FDI. Meanwhile, our other project Villas del Golf targets a wholly different high-income clientele. There is still a great opportunity for FDI in the Panamanian market since profitability remains relative high. This year we have undertaken projects with a projected value of over $138 million, such as Praderas de San Lorenzo, in which we have already sold 33% of the houses. We call our projects Praderas as a part of our brand strategy. The Praderas are subsidized by the government. It does not directly subsidize the real-estate companies, but rather, assists our clients with bank loans. This measure renders the real estate sector robust as would-be buyers have more opportunities to make a purchase.
IB The main projects we are currently working on are Mystic Hills, Mystic Village, Atrium Tower, and Belle View Tower. Both Mystic Hills and Mystic Village have had previous development stages. For example, Mystic Hills sold 172 units in its previous development stage, whereas Mystic Village is currently in Phase III. These two projects have benefited from the inertia and momentum of the sector over the last few years. As per Atrium Tower, this is a building with offices, and we see that sales trends have slowed down. It also affects the current excessive offering in the office segment of the real estate market. Finally, Belle View Tower has only a few available units left. It has almost sold out, and we finished it some time ago. This last project enjoyed great participation from foreign investment. In fact, the Panamanian real estate sector benefited from a large arrival of foreign investment in the last few years.
LFA We are determined to increase our operations in Chorrera and also in the east and north of Panama City. Growing in three areas simultaneously is not easy. We have changed the company’s structure whereby the previous 200 homes we sold annually have today risen four fold to almost 800. We are currently dealing with projects of 2,500 houses. Another challenge for us is the difficulty of finding human resources, which remain limited, and which also includes the developers themselves; this is significant as we hire them for specific projects and do not build ourselves.
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Panama’s construction sector now has a healthy decade under its belt; although, political change, rising labor costs, and the threat of a bubble are reason for caution.
Review
CONSTRUCTION
BUILD ON RESIDENTIAL PROPERTY prices rose by almost 10% in 2013, driven up by major government infrastructure projects and an ongoing investment and tourism boom. When overall economic growth slowed in late 2013, it was in large part due to the drawing down of large-scale construction projects like the $5.25 billion expansion of the Panama Canal. As President Juan Carlos Varela assumes leadership, he will fill the shoes of his Keynesian predecessor who poured money into new roads, hospitals, and dredging the Panama Bay, which helped to boost the construction industry’s growth by 30% in 2013. Now, all eyes are on President Varela, who has his own development policies that should boost new construction projects, while wrapping up those of his predecessor. Beyond presidential policies, Panama is also home to a slew of ambitious private sector construction projects that will ensure the position of construction in the country’s economy. According to Capital Financiero, infrastructure building permits issued during 1Q2014 by major municipalities in Panama totaled $479.8 million, representing an increase of over 17% compared to the same period last year. Meanwhile the Comptroller General of the Republic announced that projects approved in major districts during 1Q2014 were primarily non-residential, adding up to $271.9 million and representing a 62.5% increase over the same period last year. Residential projects during the same time period totaled $207.8 million, reflecting a decrease of 13.6% compared to the same period last year. Of these projects, most were concentrated in the district of Panama, representing an increase of 5.5% compared to the same period of 2013. The district of Panama was followed by San Miguelito, which registered $50 million in projects approved during 1Q2014, which translated into growth of over 124% over 1Q2013.
Overall, the real estate and construction sector was off to a good start for 2014, especially regarding office and retail space. However, an emerging downward pricing of office space may signal market capacity is approaching its limit. Moreover, the slowdown of the economy to 5.8% in 1Q2014 may also signal future declines in demand for retail space. Another feature of Panama’s construction boom has been ready lending from banks. One major housing construction manager, talking to TBY, explained that banks will often finance up to 98% of the purchase of new homes. Between June 2012 and June 2013, for example, credit for construction rose by 13.5% in Panama. Other projects, such as the Praderas de
Government spending has formed the backbone of constructon sector growth
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Infrastructure building permits issued during 1Q2014 by major gohc]cj[fcnc_mchJ[h[g[nin[f_^ .13(2gcffcih&l_jl_m_hncha[h ch]l_[m_i`ip_l+1 ip_lnb_m[g_j_lci^i`f[mns_[l(
San Lorenzo, a low-income housing project, are subsidized by the government. The combined forces of public and private sector have played a large part in driving demand. On the campaign trail, President Varela pledged increased investment in public transportation, and having assumed office, he is well on his way to honoring those promises. In July 2014, President Varela signed a $32 million contract with management firm Louis Berger to oversee the construction of the Panama Metro Line 2. Concorcio PML2—comprised of Louis Berger and Spanish consultant partners Ayesa and Metropolitan Transports of Barcelona—was chosen for the project after receiving the highest proposal score. The line will extend over 21 kilometers, and is the second stage of a four-part plan to improve the conditions of Panama City’s transport system that currently supports over 1.2 million residents. With line 1 completed, and line 2 to be completed by 2017, two more lines are in the planning stages. Line 3 will be 21 kilometers long, and run from Albrook to La Chorrera. The line will also pass over a new bridge constructed on the Pacific side of the Panama Canal. Line 4, which is still under feasibility study, will run from Albrook to Rana de Oro. Cement manufacturers in Panama are also benefitting from the booming construction sector. In 2013, CEMEX Panama delivered nearly 130,000 cubic meters of its added-resistance concrete for maritime use for the construction of transversal and longitudinal beams, jetties, and foundations of the new phase of the Panama Coastal Beltway. CEMEX is the market leader in Panama, with one cement plant, 14 ready-mix plants, four aggregate quarries, and three distribution centers. A trade fair hosted by the Panamanian Chamber of Construction Companies also surpassed expectations. Transactions at the Capac Expo Habitat 2014 exceeded $145 million. This figure includes the commercial and mortgage activities of more than 400 housing
projects, both in the capital city and the suburbs. At the same event, the president of the Panamanian Chamber of Construction (CAPAC) said that sector investment for 2014 will amount to a total of $5.65 billion. These projections break down into $3.25 billion in public sector outlays for 2014 $2.4 billion for the private sector. In 2014, Panama’s construction workers gained international attention when they launched a strike that brought construction on the Canal to a halt for two weeks in April and May. The walk-off had wide-reaching consequences for the sector, such as increased labor costs and a dip in productivity. However, workers argued that despite their role in creating massive wealth, they were undercompensated. After two weeks, the union representing Panamanian construction workers reached an agreement with the CAPAC employers association. All told, however, workers in Panama’s construction sector demonstrated a remarkable ability to collectively organize. Another dynamic of Panama’s economy that puts construction companies at a disadvantage are the country’s low unemployment rates, which fell to 3.1% in March 2013. During the same time period, labor force participation rose by 2.5%, from 61.8% to 64.3% of the population. Put another way, of the total population over the age of 15, 95.7% are employed. Under these circumstances, workers are able to demand higher wages and actually get them. Panama’s high-end consumers are also in a position to be demanding, thanks to construction of luxury business-residential projects. The Santa Maria Golf and Country Club brings the global golf firm Nicklaus Design to Panama. The 18-hole course is being developed on a 700-acre site located on the outskirts of Panama City. The Ocean Reef Islands, two predominantly man made islands in Panama Bay, are a massive engineering and construction project involving a basalt seawall with over 3 million cubic meters of sand used to build firm land in the middle of the ocean. With a price tag of around $300 million, the first island, consisting of 72 lots and measuring 10.3 hectares in size is almost sold out already. Construction of the second island, with 66 lots on 8.7 hectares, started construction in the beginning of 2014, and work on the marina began late in 2013 and should wrap up some time in mid-2015. At the end of the day, the sector has a wide diversity of projects and clients, and as long as the economy continues to grow, construction will play a large role going forward.
Real Estate & Construction
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INTERVIEW
FIRM
IN NUMBERS Inversiones 3000 S.A.
foundations
Investment in the =_hnliFiamnc]i>im Caminos
TBY talks to Alfredo B. Angelici, Administrative Director of Inversiones 3000 S.A., on logistics and the possibility of a construction bubble.
25 Million USD
Distance of Dos Caminos from main cargo airport
2
Kilometers
Inversiones 3000 is developing the logistics center of Dos Caminos in Panama. What is the current status of this project?
At the moment, we are over 50% of the first construction phase, which will be completed by the end of 2014. We are located at a strategic point near Tocumen International Airport, the main airport in Panama City, which has both touristic and cargo facilities. This area is already undergoing significant development, like the airport expansion, new highways, and expansion of the city to the east side. Dos Caminos means “Two Ways.” We chose this name because we are in the middle of the crossroads between the Corredor Norte and Corredor Sur, the two main highways in Panama, and this is a perfect location for any type of business, not only for the local
market, but also for the connection to international markets. The extension of Corredor Norte will be finished by the end of 2014, meaning that we will be at the central point for all logistics. From here, you can go to Colón Free Trade Zone and Balboa Port, and we are only 2 kilometers away from the main cargo airport. Besides the location, we are providing our customers with other features in this new logistics center, such as wider streets so they can move and work more comfortably, and galvanized polyurethane panels in all warehouses, which improves the temperature inside the working area. Tocumen International Airport is going to increase its ability to handle passengers from 5 million to 20 million. What is going to be the impact of this expansion on your project?
The passengers airport expansion will indirectly benefit, because it will bring more tourists to see this great country, and the smart ones will see all the opportunities that it has to offer and probably invest here, causing the country to keep growing its economy and industries. This means that more people will require warehouse spaces to house their operations. The expansion is also focused on the cargo section of the
Nb_l_q[m[aliqnbi`,3 chnb_ construction sector over 2013. Is Panama likely to see a construction bubble in the medium term?
BIO Alfredo B. Angelici is ;^gchcmnl[ncp_>cl_]nil [nChp_lmcih_m-***M(;( He has held a number of leadership positions in real estate and hospitality management. He holds a degree in Economics from nb_Ohcp_lmcnsi`Lig_(
airport, so it will generate growth in all the businesses in this area, mainly for export or for processing. This will be the same case for the Panama Canal expansion. If you have a business from both air cargo and maritime cargo, you will be able to handle it perfectly from here. We are just in the middle of everything, because we are close to the airport and we are able to reach Balboa Port in 20 minutes.
This growth is due to the Panama Canal expansion, and the huge infrastructure projects that the government is developing around it. There is a growing middle class that generates local demand. Also, there are a lot of people coming to Panama. Not only are they investing, but, also they coming live and setting up companies in the country, which obviously creates more demand. Typically, people who come to Panama have a good economic standing. They have money to invest, rent a good apartment, start a business, and recirculate their money into the economy. What is your outlook for the challenges that this sector is going to face in the coming years?
There are some laws that protect local workers from foreign labor, which is not good for Panama, because it leaves limited room for acquiring new knowledge and competing with others for improvement, especially in the construction sector. Local workers know that if they get fired, they can easily find work elsewhere, because there is a lot of demand for them. You need some competition in a country to evolve.
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FOCUS WATER TREATMENT
HIT REFRESH After decades of sewage pollution, a massive wastewater treatment facility is making the Panama Bay habitable again.
Among the myriad of offensive activities that the Spanish undertook upon their arrival in what is now Panama in the 1500s, depositing their sewage directly into the bay was perhaps one of the more damaging in environmental terms. Some 500 years later, Panama has undertaken an ambitious $241 million engineering and construction project to reverse this polluting practice and make the Panama Bay safe for humans and wildlife again. The construction of the biological nutrient removal (BNR) wastewater treatment plant was funded by the Corporación Andina de Fomento (CAF), Japan International Cooperation Agency (JICA), and the government of Panama. Completed in May 2013, the 2.2-cu-meter-per-day wastewater treatment plant is the largest BNR plant in Central America.
Over the years the Panama Bay earned a reputation for being one of the most polluted bodies of water in Central America. The water became a breeding ground for water-borne illnesses and eventually took on an unpleasant odor. Beaches that were once popular were abandoned, and swimming was eventually forbidden. An environmental study released in 2000 warned that Panama Bay was receiving 40 million metric tons of raw sewage per year and, by 2005, 330,000 cubic meters of sewage were entering the bay each day, in addition to other industrial pollutants. The report also cautioned that the bay was rapidly becoming a “fecal mud swamp.” As water conditions deteriorated, the health threat to Panama City’s residents posed by the bay grew, providing the impetus for $692 million in sanitization spending, of which the new water treatment plant was a major component. One major obstacle that engineers overcame in the construction of the facility was the location of the plant, which was built on swampy land that cannot support traditional structures. In addition to adding fill from above, wick drains were used to promote the accelerated settlement of the land. The project includes an 8-kilometer interceptor tunnel, built by Odebrecht, which connects to a wastewater treatment plant built through a joint venture of Degrémont S.A. and Odebrecht. The plant was also designed to incorporate sustainable solutions, such as the use of methane gas that is generated during the sludge digestion process. This energy will be used to produce 18% of the electricity required to operate the plant, as well as 100% of the energy required for heating and maintaining the digestion process. The interceptor tunnel is another key part of the new sanitation system. The tunnel was burrowed 25 meters underground, using a TBM tunneling machine, which simultaneously excavates and builds the structure of the tunnel using precast concrete that is coated with PVC. The PVC coating ensures that the tunnel will last over 30 years, by protecting the structure from acids and other caustic substances in the wastewater. A deodorizing system was also installed to limit the olfactory irritation of workers, and nearby residents. The process of BNR starts with the sieving process, which removes solid material such as sand and gravel from the liquid. Next, bacteria are cultivated in the sewage, which dissolves organic matter and converts the solution into a form that can be processed by the sediment separator. Next, the sludge is aerated and moved to clarifier tanks, where the suspended particles settle out of the fluid. The final product undergoes a chlorine treatment for disinfection, and is then discharged through 1.6 kilometers of mangrove swamps along 2.5 kilometers of coast.
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Despite some significant export categories, Panama is a net importer of agricultural goods.
Dr. Luiz Nasser, President, Born Animal Biotechnology, on promoting research and new technology.
Panama’s coffee is making a name for itself on the international stage.
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Agriculture REVIEW
Panama’s coffee growers are keen to establish a robust international brand for their bean, while livestock producers have been certifying their animals with an eye on exports to the EU.
FIELD STUDIES
A
ccording to the latest statistics from the United Nation’s Food and Agriculture Organization, Panama’s agriculture sector is comprised of roughly 2.27 million hectares of land. In terms of land use, over 2.5% of the country’s total area is used for permanent crops, 20.7% for permanent meadows and pastures, and an additional 7.3% is classified as arable land. Of the country’s 3.8 million people, 250,000 are directly employed in the agriculture sector. Although the annual growth rate of the general labor force is around 1.9%, the agricultural labor force is actually shrinking at a rate of 0.78%. In 2012, crop production per hectare yielded an average of $561. Panama is also reliant on food imports to meet local demand, particularly for cereals, which annually total over 540 thousand tons. The top three countries exporting agricultural products to Panama are the US, Costa Rica, and Argentina. Panama’s main attractions for foreign investment in the sector include its dollar-based
economy, liberal policies on foreign ownership and exchange controls, favorable climate for agriculture, as well as its being one of the fastest growing economies in Latin America. On the negative side, land prices tend to be higher than in competitors such as Brazil or Colombia. The primary crops for Panama’s agriculture sector include bananas, which are the country’s most exported commodity, as well as cocoa beans, coffee, coconuts, corn, potatoes, rice, soybeans, and sugar cane. In terms of production tonnage, the top three commodities are sugar cane (2.26 million tons), bananas (335 thousand tons) and rice (221 thousand tons), for 2013. In terms of value, the top three commodities produced are cattle ($237 million), chicken ($193 million), and bananas ($90 million).
The banana business accounts for some of the largest private land holding in the country, as well as some of the country's most recognizable export brands such as Chiquita.
BANANAS Thanks to free trade agreements with the EU, Panama’s already robust banana sector made significant gains according to the latest numbers
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Panama Top Ten Commodities Production Quantity 2012 (In Thousand Tons)
The Ministry’s proposal provides for the incorporation of producers, traders and other stakeholders in the coffee sector, to promote development of the activity in the country. However, optimism surrounding the coffee industry is partially negated by the reemergence of the fungus colloquially known as Coffee Rust. The spread of the fungus encompasses the south of Mexico and has continued all the way to Peru, but the coffee industries in Honduras, Costa Rica and Nicaragua bore the brunt of the damage. The Panamanian government has enacted an emergency plan in 2014 to renovate 410 hectares of coffee plantations, but experts are forecasting that the epidemic could take up to two to three years to be fully overcome.
Source: FAOSTAT
ORANGES VEGETABLES, FRESH PLANTAINS PINEAPPLES MEAT INDIGENOUS, CATTLE MEAT INDIGENOUS, CHICKEN MILK, WHOLE FRESH COW RICE, PADDY BANANAS
2500
2000
1500
1000
500
0
SUGAR CANE
from 2013. By the end of that year, total banana exports were 14.3 million boxes with a YoY increase of 8.63%. Most of this growth was seen specifically in banana exports to the European market, which was responsible for 14.1 million of those boxes. At 45.4% of Panama’s global banana exports, Germany was the primary destination in Europe, with Belgium coming in second place with a share of roughly 15%. Currently, the banana industry is dominated by major international companies. The USbased Chiriquí Land Company (Chiquita) is one of Panama’s largest landowners, as well as its largest banana exporter.
COFFEE The Free Trade Agreements (FTA) that have benefited Panama’s banana exports were also a boon for its growing coffee industry. What it does not have in quantity is made up for in its quality, as evidenced by the rise in the global demand for Panamanian beans. From July 2013 to June 2014, Panama exported 4.4 million pounds of green coffee beans. In terms of output it still lags behind considerably when compared to some of its neighboring coffee powerhouses, but locally grown varieties such as the Geisha coffee bean have been established as international Panamanian brands on par with the world’s finest. The country’s coffee beans are primarily grown in the mountainous Chiriquí province, roughly seven hours to the west of Panama City. Blessed by volcanically enriched soil and ideal climate conditions, a variety of coffee bean plants are grown in the area, such as the aforementioned Geisha, as well as the Caturra and Catuai varieties. Hoping to utilize the country’s natural advantages for coffee production, the Ministry of Agricultural Development recently started an initiative to form an Agrifood Coffee Chain that would include the sector’s producers, traders, and stakeholders. Through technical assistance and cooperation programs, the goal of the initiative would be to further strengthen the promotion of Panamanian coffee domestically and abroad.
LIVESTOCK Panama’s primary livestock products are chickens—with the highest per capita chicken consumption in Latin America—along with beef, pork, and veal. According to the latest World Bank livestock production index (which includes livestock products and dairy products), Panama had a rating of 133.4, good for 34th globally. In 2013, Panama exported 4,013 head of cattle at an average of 465 dollars per unit, with Costa Rica being the main destination. However, after an overall solid year, climate factors affecting the sector forced Panama to import around 1,700 head of cattle in the first half of 2014. In late 2013 and early 2014, the National Livestock Traceability Program was introduced. Under the program, farmers were required to register their animals via a radio device planted in the ear. Previously, the lack of certification or registration barred Panamanian livestock from reaching any EU export markets. In 2013, Panama had an estimated total of 1.8 million animals, with 25% being slaughtered yearly and 6% exported. In early 2014, the National Cattlemen’s Association (Anagan) began negotiations with Agrobanco in Peru for a deal to annually export 1,500 head of cattle. If successful, this deal alone would raise total cattle exports by roughly 40% from the country’s 2013 total.
AGRITOURISM Whether at the picturesque coffee plantations in the northern highlands of Chiriqui, or on the Azuero Peninsula to the south, agritourism has just begun to boom in recent years throughout the country. In 2014, 65 farms designated for agritourists were running, or under construction. Realizing the potential of the sub-sector, the Ministry of Agricultural Development (MIDA) has begun promoting agritourism, while also trying to ensure that it remains sustainable and beneficial for the local community. The small scale farms can handle up to 20 people at a time, allowing tourists to witness first hand the farming life and culture of Panama’s diverse rural communities. Thus far, it is estimated that 10% of such tourists are foreign.
DR. LUIZ NASSER President, Born Animal Biotechnology Born Animal Biotechnology started operations in Panama in 2010 to promote biotechnology research. What are the reasons for establishing a research center in Panama? Panama has an excellent sanitary status. Export products made in the country are considered to be of zero-risk. The other thing is that being based in Panama allows us to reach other countries easily. For example we can go to the US and bring back \cifiac][fg[n_lc[f"\ipch_iicytes from donors in the US) in order to produce the embryos in our laboratory, and then export them to any country in the world because of Panama’s sanitary status. Indeed, Panama is the ihfs]iohnlsmi`[lnib[p_[ sanitary protocol with Brazil. We are essentially drawing on the best genetics from the US and Brazil to make an animal that can resist and reproduce under the harsh conditions that we b[p_b_l_&ilch;`lc][il;mc[( How do you commercialize the embryos that you produce in your laboratory? Q_b[p_[hchpcnli`_lncfct[ncih laboratory. At this stage, we are fcgcn_^nichpcnli\ipch__g\lsi jli^o]ncih(Biq_p_l&q_^i b[p_nb__rj_lncm_nioh^_ln[e_ cloning and transgenic animals. Nb_ofncg[n_ai[fcmni^_p_fij transgenic animals that can produce human protein at low cost, which can be used to manufacture low-cost medicine.
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SOMETHING’S BREWING ALTHOUGH PANAMA HAS the lowest coffee production rate in Central America, the country has become internationally well known for the production of the Geisha variety, the second most expensive type of coffee worldwide after Indonesian, known as Kopi Luwak. This Panamanian gourmet coffee, with low production volumes and high quality, set a record price in 2014, reaching $350.25 per pound and doubling its 2010 price of $170.20 ,at the auctions held annually by the Specialty Coffee Association of Panama (SCAP). The Geisha coffee variety, which comes from Ethiopia, has been produced in Panama since 1961, and despite the fact that it is also present in other Latin American countries such as Colombia, Panama's Geisha is so far the most valued coffee in the international arena. This is especially so in countries such as Japan, Taiwan and Australia, which are the highest bidders at the premium coffee auctions held annually by SCAP. The reason why the Geisha coffee has those skyrocketing prices is, according to coffee specialists, its wonderful taste, marked by a perfect acidity and a long citrus sweetness. This coffee is produced in farms of 150 acres, located at an altitude of over 1,600 meters in the highlands of Chiriquí, in the western part of central Panama, bringing together all the necessary elements for its cultivation: good soil conditions, a temperate microclimate, and the influence of the winds from both the Atlantic and Pacific Oceans. Although the total value of Panamanian coffee exports in 2013 decreased 27%, according to official figures, Geisha coffee remains one of the goods that the country successfully ships beyond its borders. However, in 2013, the sector faced pressing challenges such as diseases—especially one colloquially known as rust—that impacted coffee plantations, as well as higher workforce costs, and low global prices resulting from the international world crisis. According to the International Coffee Organization, the rust epidemic in the country caused losses of $4 million and cost 30,000 jobs in a sector supporting 30,000 families. According to the latest report of the Contraloria General, the coffee harvest in 2013 was 141,300 quintals, representing a decrease of 31.5% compared to the figures for 2012, which totaled 206,400.
Despite setbacks both natural and economic, Panama’s coffee is making a name for itself on the international stage.
After a consequent significant decrease in the number of sown acres in recent years, it is expected that the cultivation of special varieties like Geisha will become the new engine of production in the coffee sector. Also, the government is undertaking initiatives to financially support local producers as well as strengthening bilateral relations with countries such as Taiwan, which has already shown its interest in increasing imports of specialty coffee from Panama within the framework of the Free Trade Agreement (FTA) signed by both countries in 2003. One of the most well known producers of Geisha is Finca La Esmeralda, also its largest producer in Panama, which exports 100% of production from its 220 acres. The famous coffee Kotowa, from the Finca Río de Cristal, is also valued internationally, but mainly distributed nationally. Some others, like Finca Lerida, which also features a boutique hotel, are more modest, but also export coffee to Japan and Taiwan. The international recognition of these special coffees reinforces the idea of drawing Panama into The Coffee Route, which would be a great way to stimulate Panamanian tourism that would bring benefits to the tourism sector itself, and allow visitors to learn about the production of grain and the beautiful landscape of the highlands of Chiriquí, the birthplace of Panamanian coffee.
<_[hm`lig=bclckojlipch]_ are stimulating the taste buds of [×]cih[^imqilf^qc^_
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HE Dr. Javier Terrientes on improving health services in rural areas and changing the country’s health habits.
Universities will be especially important in the government’s strategy to diversity its economy with ICT investments.
Gustavo García de Paredes, Rector of the University of Panama, on the role of the university in society.
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Health & Education R E V I E W H E A LT H
The private sector is gearing up for an increased role in Panama's healthcare sector.
HEALTHY OPTION
H
ealthcare in Panama is provided publically through the Ministry of Health and a social security system, as well as through the private sector. According to the latest figures from the WHO, Panama’s total expenditure on health was 7.6% of GDP, or $1,260 per capita. Life expectancy at birth in 2012 was at 74 for males and 80 for females. Per 1,000 births, the infant mortality rate was 19. In terms of workforce in the health sector, Panama had 16 doctors and 24 nurses and midwives per 10,000 people, which falls below the regional averages of 21 and 46, respectively. According to the Ministry of Health, the three leading causes of death in Panama are cardiovascular disease (17.1% in 2011), malignant tumors (16.1%) and diabetes (5.7%). The threat of cardiovascular problems is related to the country’s rising rates of obesity. According to a 2014 study from the Ministry of Health, 60% of the adult population in Panama is medically obese, with obesity-related medical
A new bill has passed that eases restrictions on the hiring of foreign healthcare workers. The government says it will help remote locations gain better access to services.
issues costing the state over $100 million per year. The country’s strong growth over recent years is also translating into important investments in the health sector, although major problems still in terms of access to health care, especially in rural Panama, as well as deficits in a qualified healthcare workforce. With an estimated healthcare personnel deficit of 6,000, a bill was approved late in 2013 to ease restrictions on foreign recruitment. The official government line stated that Law 611 was approved to fill the deficit and provide more services to the far-flung reaches of Panama, yet healthcare professionals argued that it would open the doors to health sector privatization. Immediately following the law’s approval by the National Assembly, strikes from Panamanian healthcare groups resulted.
SOCIAL SECURITY Caja de Seguros Social (CSS), the social security system, provides social security for old age, disability and veterans’
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pension by using both social insurance and an individual account system. 9.25% of gross salary is reserved for the fund, with salaries exceeding 500 Balboas contributing an additional 8.16% to individual accounts. Employers are required to another 4.25% of their employees’ salary, while self-employed people have a rate of 13.5%. Sickness and Maternity benefits are covered through a separate funding pool, derived from a 5% deduction from employees’ earnings, rising to 8.5% for the self-employed, and 8% of the gross payroll from employers. CSS is also the operator of its own hospitals and medical cities throughout Panama, predominantly in urban centers.
One of the major challenges facing Panama’s health sector is the quality of and access to health care in rural areas.
ACCESS TO HEALTH CARE One of the major challenges facing Panama’s health sector is the quality of, and access to, healthcare in rural areas. In some rural and indigenous communities, the mortality rate for children under five years old is up to 2.4 times higher than that of the national average. Projects designed to combat this issue include the Health Equity and Performance Improvement (HEPI) project conducted in collaboration between the Ministry of Health and the World Bank. HEPI combines mobile health teams with results-based financing. According to the mid-2013 progress report on the project, over 200,000 Panamanians from 47 rural communities were able to receive access to basic health care. Beginning at the end of 2008, the projects five-year lifecycle expires on the last day of 2014, with the beneficiary groups being transferred to the Inter-American Development Bank sponsored Health Reform Project.
CIUDAD HOSPITALARIA North of Panama City in Clayton, work continues for Panama’s Hospital City. With an estimated project cost of over $500 million, the upcoming CSS healthcare facility will significantly add to the country’s healthcare capacity. The 2.5 million square feet project will feature over 1,600 beds, 49 operating rooms, separate hospitals for adults and children, medical offices, a four star hotel, and other medical facilities. The original plan for when the project was developed in 2010 called for a mid-2014 completion date, although heavy rains in late 2012 significantly delayed the project, pushing the full opening to 2015. Ciudad Hospitalaria is the largest CSS infrastructure project to date, and is designed to treat up to 1.5 million people with the region’s most advanced and modern facilities. A new National Cancer Institute is also planned for construction in Clayton. Earlier this year, Spain’s ACCIONA was awarded the contract for the design, construction and financing of the project by the Ministry of Health. The new cancer center project has a timeline of 27 months at a cost of $172.7 million. The 33,350 sqm of the National Cancer Institute will be utilized by four radiation therapy rooms, chemotherapy facilities, a nuclear medicine unit, a gastroenterology unit, physical therapy and rehabilitation rooms, and outpatient consultation rooms, with a total of 280 beds. The center will also act as a teaching hospital for oncology.
DR. FREDERICK MEDRANO Executive Medical Director, Hospital Nacional What are the main challenges facing the Panamanian health sector in the future? Since 2006, our main focus has been to establish what Hospital Nacional’s future needs are based on nb_^_p_fijg_hn[h^aliqnbq_[l_m__cha[lioh^ us in the country. Panama has been changing rapidly in terms of population, complexities, and [fminb_h__^mi`g_^c][fm_lpc]_m(;`_qs_[lm [ai&q_[fl_[^sb[^[jf[hni_rj[h^iolm_lpc]_m and capacities. The scarcity of human talent is a mcahc×][hn]b[ff_ha_`il[hsih_chnb_jo\fc]&il jlcp[n_&b_[fnb][l_m_lpc]_chJ[h[g[(Nb_aip_lhment wants to build hospitals, and the budget is [p[cf[\f_5biq_p_l&nb_hsioh__^j_ijf_niqilech them. There are large sections in the hospitals that mcgjfs^ihÎnqile(Oh`ilnoh[n_fs&C\_fc_p_nb[n _p_ls]iohnlsb[m[f[]ei`ko[fc×_^_gjfis__m( Panama has a law stipulating that to be a nurse or a doctor here, you need to be predominantly Panamanian. That is a real problem as it reduces the
jin_hnc[fqile`il]_&[h^nb_][j[]cnsi`m_lpc]_m( Ohcp_lmcnc_m[l_hinjl_j[lcha_hioabj_ijf_qcnb nb_^_al__mq_h__^ni^[s[m[]iohnls(Q_b[p_ [ffnb_m_j_ijf_fiiechanichp_mnchJ[h[g[&[h^ s_nchg_^c]ch_q_][hÎnb[p_j_ijf_`ligip_lm_[m ohncfq_b[p_[f[q]b[ha_( How would you assess the level of technology in the health sector in the country? For many years, the public sector was always lagging. There were many factors contributing to that, such as people, money, and infrastructure, but _p_lss_[lnb_jli\f_gdomnainf[la_l(Jimmc\fs&nb_ m_]nilb[mhÎnn[e_h[hip_l[ffpc_qchnb_j[mn(?[]b fcheh__^mni\_fiie_^[n5nb_b_[fnbm_]nilh__^m to make it work together. If they don’t do this, they qihÎng[e_[jli×n(Chnb_jlcp[n_m_]nil&q_fiie at the needs of our physicians. Patients’ needs still ^ihÎn^_n_lgch_qb[ncmjol]b[m_^5cncmg[chfsnb_ ^i]nilm^lcpchanbcm^_]cmcih(
PRIVATE HEALTHCARE Private healthcare is growing in Panama, with many full-service privatized hospitals being built over the past decade. Focused mainly in and around Panama City, these new hospitals often feature state-of-the-art equipment and links to American hospitals, such as Hospital Punta Pacfica’s connection to Johns Hopkins. However, while private healthcare is becoming more popular, private health insurance is still relatively underutilized. Instead, the majority of private healthcare expenses are paid either out of pocket or through memberships with specific private hospitals.
PHARMACEUTICALS AND MEDICAL DEVICES Due to the country’s central geographic position, logistical infrastructure and tax incentives, Panama has become the recognized place to be for the world’s major pharmaceutical companies’ distribution centers and regional headquarters. A fast-growing economy itself, Panama offers easy access to the other similar markets in the rest of Central America, the Caribbean, and parts of South America.
;hinb_lafi\[fm_]nilac[hn&<[s_l&gip_^cnml_acih[fb_[fnb][l_ Supply Chain Management to Panama in 2012.
The diagnostics wing of global giant Roche relocated its regional headquarters to Panama City in 2008. Regarding this decision, Jordi Fernandez Cápo, general manager for the region, explained that Panama, “has proven to be a hub in terms of communication and logistics, which facilitates [their] access to markets.” He also cited Panama’s safety, the diversity and quality of the available human resources and stable political environment as additional factors contributing to Panama’s overall positive business environment. Another global sector giant, Bayer, moved its regional healthcare Supply Chain Management to Panama in 2012. From its new location, Bayer manages the export and import of its pharma and consumer care products of over 38 countries. The Panamanian market itself has 7% of regional sales. Spurred on by early successes, Bayer has heavily invested to increase its presence in the country.
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THE DR. is in
TBY talks to HE Dr. Javier Terrientes, Minister of Health for the Republic of Panama, on improving health services in rural areas, changing the country’s health habits, and medical tourism.
What measures does the Ministry plan to implement to improve the quality of health services in Panama?
The core objective of our Ministry is to provide universal access to healthcare. Public authorities have increasingly invested in health infrastructure; however, we still face inequity of access, and uneven service quality. In the capital, Panamanians enjoy high-quality treatment and advanced technological services, whereas in remote areas of the country the situation is wholly different. We want to institute the same quality of services throughout the country. This will involve changing the mentality of both doctors and patients. It is important that everyone feels that they are an active part of the healthcare system. Geographic issues are another challenge that we face. In the past, infrastructure investment was unequal, meaning that we must address this situation by investing in marginalized areas. What are some of the challenges facing the Ministry of Health ip_lnb_h_rn×p_s_[lm9
Previous public health authorities have prioritized investment in curative medicine. In contrast, our current focus will be preventive medicine. Long-term investment in the latter is more efficient than the former. This represents a fundamental shift in the healthcare culture of Panama, because we must change the mindset of patients to help them understand that they need to pay more attention to their environment, their diet, and their physical condition. Doing so will reduce their chances of contracting diseases, or suffering from other health conditions. It is also important to properly train our doctors as well, because they will play a key role in educating and informing their patients of these developments.
What are your investment plans for the near future?
A significant part of our budget will be dedicated to operating hospitals that the previous administrations had built. We also want to develop additional oncology centers to provide Panamanians with high-quality cancer treatment. Plans are also in place to build a new children’s hospital, as our current facilities do not meet the growing needs of our population. At the moment, we are in talks with a number of international consortiums keen to invest in Panama, which could potentially become partners in the new children’s hospital project.
BIO D[pc_lN_llc_hn_m graduated from the Ohcp_lmcnsi`J[h[g[ with a specialization in l[^cifias(B_b[mip_l,* years experience in the g_^c][f×_f^&[h^b[mg[^_ notable contributions to the Panamanian Council of Osteoporosis and other professional organizations. Prior to his appointment as Minister of Health in 2014, Terrientes worked at the Clinica Hospital San Fernando.
The government’s focus today cmihjl_p_hncp_& rather than ]ol[ncp_g_^c]ch_
What is the potential of Panama to become a regional health hub?
Panama is already a commercial, geographic, and logistics hub, and we stand to benefit from becoming a health hub as well. There are already considerable investors interested in developing Panama into a destination for health tourism. International healthcare investment would boost the development of health infrastructure, increase the transfer of know-how, and solidify our position as a leading regional health services provider. Foreign hospitals have shown considerable interest in Panama, and their entry into the market would enable us to increase the geographic coverage of our healthcare system.
How would you assess the level of medical education in Panama?
The Faculty of Medicine of the University of Panama has been the primary provider of talented and skilled healthcare professionals. We also have doctors working in Panama who have gained experience by working and studying abroad. Over the past few years, private universities have also invested heavily in their own medical training departments. We are proud to announce that recent international tests administered by US health bodies, found that healthcare professionals in Panama were both highly trained and educated. The Ministry co-finances these international tests to ensure that our healthcare professionals have attained a high level of education and qualification in their respective fields. What is your outlook for the Panamanian health sector for nb_h_rn×p_s_[lm9
We must work toward ensuring that Panamanian citizens can always enjoy high-quality health services, and this goal is attainable within the next five years. It is also important to continue investing in our human resources, which will attract local and foreign patients to our facilities. Panama is set to become a regional health hub, and health tourism will play an increasing role in our economy.
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routine
CHECK-UP What have the hospital’s major milestones been over the last few years?
TBY talks to Elisa de Lewis, General Director of Clínica Hospital San Fernando, on meeting international standards, health education, and medical tourism.
BIO Elisa de Lewis completed b_lohcp_lmcns_^o][ncihch Marymount College, Florida, [h^Fisif[Ohcp_lmcns& Louisiana, before beginning a career in healthcare. She has worked at the Clínica Hospital San Fernando mch]_+310&m_lpcha[m l_jl_m_hn[ncp_[nnb_ Inter-American Academy of Panama, in the Darien Pro Children Foundation, and on the boards of the Institute of Respiratory Diseases and Allergies, the Institute of Laser and Ocular Surgery, Roscam, Pausilipo, Camilo A. Porras, and Lazard Holdings, in addition to a number of other roles.
Clínica Hospital San Fernando was founded in 1949 by my grandfather Dr. Jaime de la Guardia. He was a surgeon who graduated in the US and he wanted to establish a hospital to treat private patients, and physicians to have the right to do so without restrictions. At that time, there was just one hospital in Panama and it was a closed one, meaning not all physicians could hospitalize patients. Dr. de la Guardia united businessmen, physicians, and family together that believed in him and the project, and they started construction in 1947. He started out with around 30 physicians with a few specialties. The hospital opened with just 30 beds and at a cost of $5 per room. I started my career in the hospital in 1976 as an Assistant to the General Director, and throughout the years I have seen an improvement in medical technology, human resources, and IT, but especially the quality of care. We have more than 600 physicians in three office buildings around the hospital. Since 2011, we have been accredited by Joint Commission International (JCI), and our physicians have to fulfil all of JCI’s requirements. Hospital San Fernando is one of the two Panamanian hospitals that have joined the JCI accreditation system. What is the importance of this recognition?
The JCI requires us to comply with certain security and quality control standards, which it measures using a system of indicators. The most important factors are quality and the security of the patient. For example, you have to identify
IN NUMBERS Clínica Hospital San Fernando
Investment in expansion plan
10 Million USD
Physicians at the hospital
600 Beds
111 the patient and match them up with their proposed surgical procedure. It is basically an ISO system for hospitals. We have our reaccreditation due in 2014; it takes place every three years. We decided to get accredited five years ago, and it took us two years to ensure that we were able to comply with all the requirements. You have to fulfil all the requirements to a level of 90%-100%. There are 144 standards that you have to comply with in total, which is not an easy task. Everyone from our Board of Directors, to all of the hospital’s collaborators and employees has to be on board. In 2014, the hospital has to
comply with the Fifth Edition, meaning there are more challenges to meet. We were the first ones to gain this recognition locally. Panama has started working on its own accreditation system; however, it is still just on paper. Nothing has been done about it yet. What role does Hospital San Fernando play in health education?
That is part of our accreditation; we have to comply with patient education requirements. Our values lie with our collaborators, families, and patients. One of the actions we take for the prevention of disease and illness is the vaccination of our employees and their families. We recently completed a campaign with patients’ families promoting the importance of good hand-washing practices. Part of our corporate social responsibility work has a green theme, especially regarding recycling and eliminating levels of mercury. There is also a new Panamanian law regarding security risks for employees, and in terms of compliance, hospitals and clinics are inspected more than any other work place. What is the importance of medical tourism for the hospital?
For private hospitals, it hasn’t been substantially important, basically because of the lack of personnel and the demand from Panamanians and foreign residents. However, we have been looking into medical tourism, since it can be beneficial, despite being a risky business. Generally, people that go abroad for treatment are those without insurance, and are looking for a cheaper health option. Medical tourism is predominantly in the areas of plastic surgery and odontology, with perhaps also a few orthopedic procedures. Panama has all the qualifications for becoming a potential destination for medical tourism; however, this has to be combined with the right laws.
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HOSPITAL general TBY talks to Javier Contreras, CEO-General Manager of Hospital Punta Pacifica, on current investments, medical tourism, and the future of the healthcare sector.
IN NUMBERS Hospital Punta Pacifica
Growth of the hospital in 2013
21%
in the local insurance segment
Expected growth for 2014
9%-‐15% What have the most important achievements been in the development of the hospital?
The hospital opened in 2006. In 2002, we negotiated a prosperous affiliation with Johns Hopkins Medicine International, which was important as it allowed us to improve our standards, and obtain Joint Commission International (JCI) certification in 2011. However, the most important achievement for Hospital Punta Pacifica was that our opening had a direct impact on improving the quality of the healthcare providers in the Republic of Panama. Although the hospital is only in its eighth year, we became one of the 35 best hospitals in Latin America and number two hospital in Central America according to the “2013 Best Hospital Ranking” of América Economía magazine.
In terms of specialties, what are the strengths and weaknesses of the hospital?
Hospital Punta Pacifica is a level IV general hospital; we have all types of medical specialties here. The hospital performs complex procedures such as kidney transplants, oncological, neuro, and cardiovascular surgeries, among others. We are also accredited by the Cardiovascular Surgery Program at the Caja del Seguro Social of Panama, to perform open heart surgery. We help the Social Security Hospital with a long list of beneficiaries who need this type of surgery.
ternational standards. This is valid for those procedures uncovered by the insurance companies. Thus, plastic surgery, odontology, and some orthopedics fit into this. There is also international volume for stem cell treatments, given that they are banned or not approved yet in countries such as the US. Hospital Punta Pacifica is not participating in stem cell treatments, as there is not enough strong scientific evidence of its effectiveness.
We are currently building four levels of parking, which will give us 110 additional parking spaces. We are also expanding the fifth floor to increase the hospital service area, laying the foundations for enhancements. Two new floors for doctors’ offices are being added to increase the number of specialties and physicians. This project will be completed by 2016. How do you see the local market maturing over 2014 in the healthcare sector?
How important is medical tourcmg`ilBimjcn[fJohn[J[]c×][9
Medical tourism is not very important for our hospital right now. Less than 1% of revenues come from international patients. In my opinion, further legal changes in the healthcare sector in the US, Canada, and some other developed countries are still needed, in order that countries such as Panama can truly take advantage on this market. Hospital Punta Pacifica’s volume is mostly related to Panamanian and local residents. Volume comes from gynecology, pediatrics, obstetrics, general surgery, and orthopedics. Medical tourism does exist for developing countries, and the rationale is relatively simple: patients from developed countries looking for less expensive medical services, in hospitals with quality and in-
You have an investment plan of $16 million to expand the hospital’s facilities. What is the current status of this project?
BIO D[pc_l=ihnl_l[mcm[ m_hcil\omch_mm_r_]oncp_ qcnbip_l,-s_[lmi` international experience in numerous Latin American countries. Before becoming CEO-General Manager at Bimjcn[fJohn[J[]c×][& he was CEO at Hospital Metropolitano (Quito– Ecuador). Prior to that, he worked for many years in senior positions at Kraft Foods in Latin America. He is an experienced business negotiator and specializes ch]iljil[n_×h[h]_[h^ general management.
If we want to measure the healthcare delivery market in Panama, we can use as an indicator the insurance companies’ claims issued by the Superintendencia de Seguros de Panamá. During 2013, paid claims grew 8.4%. In this same period, Hospital Punta Pacifica grew 21% in this segment. In 2014, insurance claims are expected to increase between 7% and 10%. Expectations for Hospital Punta Pacifica are quite positive, around 9%-15%. Panama's growth needs to be fueled by the population’s access to education and healthcare. Over the past decade, Panama has faced accelerated growth in public sector infrastructure. The government has built at least 20 outpatient centers plus five general hospitals. All these bring dynamism to the country and the whole segment.
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DELIVERING healthcare innovation TBY talks to Jordi Fernández Capo, General Manager of Central America and the Caribbean at Roche Diagnostics, on Roche’s aims in Panama and its contributions to development. Why did Roche decide to enter the Panamanian market, and what is the regional importance of the country?
Roche affiliates were created in our Central American and Caribbean area, in Havana (1955), Nicaragua (1965), and Guatemala (1969). Today, Roche has two main divisions: pharmaceuticals and Diagnostics, the latter being the division we run from Panama. The Central America and Caribbean regional offices for the Pharmaceutical division are in Costa Rica. Roche, as a multinational, is constantly seeking new opportunities, and emerging markets are fundamental for the future growth of the Roche Group. As to why we entered this market, it was due to the potential of the region, and of Panama specifically. We relocated the operations for Central America and the Caribbean Diagnostics division here from Guatemala in 2008. Panama has proven to be a hub in terms of communication and logistics, which facilitates our access to our markets. Another aspect is safety. Panama is a secure place to live in compared to other countries in the region. Additionally, you can hire good talent, with different background and nationalities, which also helps to make a sustainable business. Finally, Panama has a stable political environment under the Sede de Empresas Multinacionales law, which has fostered a favorable business environment. We have grown constantly since we commenced opera-
IN NUMBERS Roche Diagnostics Central America and the Caribbean
Employees
130 Roche’s revenues worldwide in 2013
46.7 Billion CHF
BIO Jordi Fernández Capo is the General Manager of Central America and the Caribbean at Roche Diagnostics, prior to which he was Marketing Director based out of Barcelona, Spain. He has [hG<;`lignb_Ohcp_lmcns i`H[p[ll[[h^ilcach[ffs graduated in Business Administration from Ohcp_lmcn[nJigj_o@[\l[(
tions here. Overall, the main achievements have been the consolidation of strong growth, extending the use of our products and services in this territory to contribute to the improvement of overall healthcare practices. We have over 130 people working for this affiliate, of which 70 are based in Panama. Altogether, we can be more effective by managing the business from here. In terms of diagnostics in Panama, what are the most important products and services you provide?
We work mainly in the in-vitro diagnostics (IVD) business, providing routine and specialized testing for any type of IVD diagnosis that may be required to perform in a blood or urine sample, in a tissue biopsy, or in other types of specimens. We provide fully-automated technology and equipment for laboratories with the highest quality of diagnostic tests, covering the different parameters a patient needs in order to decide on the best treatment alternative. Our product portfolio addresses unmet medical needs in a wide variety of clinical areas such as oncology, cardiology, infectious diseases, women’s health and pregnancy care, diabetes, and other metabolic disorders. Biqqiof^sio^_m]lc\_nb_×nancial performance of the region in 2013, and what are your expectations for 2014?
We have been highly successful in the region, having
grown at a double-digit rate in the diagnostics business. We are proud of this achievement in a region where budgets, although increasing, remain tight. That really shows that we are doing a good job in partnering with different countries in improving their access to a better healthcare system. Resources are being allocated adequately to improve the healthcare policies in many countries, and the outlook for 2014 is that we will be able to maintain solid and positive growth. That means we will keep investing here, hiring more people, and developing the business. We view positively the partnerships we have established with both public and private customers in many countries, from which we are providing best-in-class solutions to many hospitals and healthcare services. What differentiates Roche from its competitors in the region?
At Roche, we are committed to providing the best quality products and services to our customers addressed at assisting the diagnosis and treatment of unmet medical needs. We always partner with our customers seeking improvements and innovation that can be beneficial for patients. Our key focus in the region is still on providing the best solutions available for all patients, regardless of whether the customer is a public or private institution. Finally, at Roche we are highly committed to conducting ethical business, based on high standards of integrity and respect. Any business we enter absolutely needs to be aligned with the corporate values we live up to. This belief underpins our overall strategy.
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FORUM MULTINATIONALS IN HEALTH
CENTER of care
CARLOS POLO, General Manager for Latin America, Johnson & Johnson
I
believe Panama is becoming an exemplar for other countries in the region. The level of progress in different sectors of the economy that you see and the improvement in infrastructure are renowned. Panama is world class in transportation and logistics and financial services, but is also progressing at a fast pace in other sectors such as tourism, health, and construction. Internally, we are working to capitalize on all the strengths that Panama boast. We are taking advantage of the logistics capabilities the country has to offer to be able to operate more efficiently with other countries in the region. One other example may be a new digital application for our Lubriderm product line (SunStop by Lubriderm), which helps people understand the risks of sun exposure. We were impressed by the level of support we received from different health institutions (Funda Cancer, Hospital Oncologico, and Asociacion de Dermatologos), as well as many other stakeholders. We continue to experience consistent and strong growth in Panama. We foresee that this trend will continue in 2014 and in the years to come. When we analyze internally how to allocate our resources, Panama always comes out as a top choice.
Due to its many comparative advantages, such as geography and well-developed infrastructure, Panama is emerging as a key hub for health multinationals in Latin America.
EDITH ARAUZ Corporate Country Head, Bayer
B
ayer is a global enterprise with core competencies in the fields of health care, agriculture, and hightech polymer materials. In July 2012, our department of Supply Chain Management for the distribution of products from Health Care for Central America and the Caribbean, as well as some countries in South America, was established in Panama. Currently, we ship products to 38 countries. Panama is our logistics hub managing all operations of import and export of Pharma and Consumer Care. As an innovation company, it sets trends in research-intensive areas. Bayer’s products and services are designed to benefit people and improve their quality of life. A product that I can mention is Eylea, which is indicated for the treatment of patients with Macular Edema following Central Retinal Vein Occlusion (CRVO). Another product that we are launching is STIVARGA, a prescription medicine used to treat patients colon or rectal cancer that has spread to other parts of the body, and for which they have received previous treatment with certain chemotherapy medicines.
GERARDO DE EGUILUZ General Manager Central America and Caribbean, Sanofi
W
e entered the Panamanian market many years ago with a strategy of developing Sanofi in Latin America, where we are number one. The opportunities also went beyond Panama because we decided to locate our Central America and Caribbean hub here 10 years ago, while most of the pharmaceutical companies have their Central American business managed from Guatemala or Costa Rica. Of late, few companies have followed us in moving to Panama. We anticipate numerous opportunities here because Panama has been one of the fastest growing economies in past years, and the pharmaceutical market has a clear linkage with GDP growth. With a country that is developing so rapidly, we are seeing a number of new policies in healthcare. We are an important player in providing services for the government; we sell products to institutions, and are probably among the top-five government providers. In the private sector, we see an extremely dynamic and growing market, probably one of the fastest growing within Central America. Accordingly, we have adapted our portfolio to ensure that we can service the community.
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Panama is expanding its university system and investing in science and technology in order to drive economic growth in the national interest.
Review
E D U C AT I O N
KNOWLEDGE IS THE FUTURE Universities will be especially important in the government’s strategy to diversity its economy with ICT investments. Among the goals of Panama’s “technological revolution,” is to train 15,000 new computer engineers by 2018.
Panama's economy is traditionally based on transportation, logistics, financials, and the exportation of goods and services, which comprise a significant proportion of its productive output. Panama has recently enjoyed a period of substantial economic stability and is using this opportunity to diversify and develop itself as a regional business hub. With 70% of the population under 25 years of age, university education will play a crucial role in the continued development of the Panamanian state. In an effort to build a diversified economy, a national strategy has been formulated to encourage science, technology, and innovation at the highest levels. To this end, the government of Panama has prioritized science, ICT, and innovation for its long-term growth plan. The presence of quality infrastructure including transportation, electrical power generation, clean water, and internet connectivity within Panama City, and its central geographic location between North and South America, make it an attractive location for foreign investment. However, weaknesses have been acknowledged in the areas of innovation, research, and higher education training—and the government is moving to address these problems head on. The country wants to shift from its trade-based roots to a more knowledge-based economy, and this highlights the importance of the education sector.
A SOUND BASE Historically, education related investments have accounted for a large portion of the country’s overall budget. In 2011, 12.9% of government expenditure was allocated to the country’s Ministry of Education. Currently, primary net enrollment rates stand at 97.6% for males and 97.4% for females. Panama also has a high literacy rate of 97% for both boys and girls between the ages of 15-25 years old.
Primary schooling is mandatory and the country boosts a high primary net enrollment rate of 91.2% in 2012. Secondary school net enrollment for boys and girls was 65% and 71%, respectively. Emphasis in Panama has been placed on increasing the enrollment of students in university level education. From 1970 to 2000, university level education among scientific and technologically active employees grew from 12% to 20%. Traditionally, academic interests in science, technology, and engineering have not been strong, but these are improving. For Panama, keeping retention rates up is critical to facilitating the growth of the economy. High demand for labor has challenged the country’s educational system. In response, the government has taken a series of initiatives to ensure a skilled and intellectual work force. The City of Knowledge foundation has transformed the Clayton Military base, located near the Panama Canal, into a business, scientific, recreational, and academic hub. More than 5,000 visitors use its facilities daily and the UN is expected to locate its regional offices within the premises. Furthermore, the government, in conjunction with the Universidad Latina de Panama, has pioneered the English for Life program to improve ESL competency among high school and university students. Higher education is now a key national priority in Panama. Currently, there are 88 tertiary establishments available to Panamanian students. The University of Panama (UP), founded in 1935, has a student population of approximately 74,000. UP being the largest university system in the country, has developed a number of science related centers, which serve as areas of study concentration. In 2010, Panama launched its first nationwide accreditation initiative, which led to the closure of 10 institutions that failed to meet minimum standards. That year, enrollment at five of these accredited universities alone, the Universidad de Panamá, the Universidad Tecnológica de Panamá, the Universidad Autónoma de Chiriquí, the Universidad Especializada de las Américas and the Universidad Católica Santa María La Antigua, reached over 100,000. Universities will be especially important in the government’s strategy to diversity its econ-
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omy with ICT investments. Among the goals of Panama’s “technologic revolution,” is to train 15,000 new computer engineers by 2018. In accordance with a 2010 agreement between Panama and Microsoft, Microsoft will train 40,000 teachers and providing online tools and operating systems for the country.
INNOVATION CENTERS The University of Panama is also creating a “network of innovation centers” to boost technological creativity and entrepreneurship. Gustavo García de Paredes, Rector of the University of Panama, tells TBY that “An important project is the network of Innovation Centers we are creating in different regions. These are technological centers of innovation and entrepreneurship, and our objective is to provide every local community with the necessary technical resources to launch the projects they need. We are pursuing comprehensive interaction between university and community. We are keen to promote entrepreneurship, reduce social inequality, and gather regional talent together within the same organization.” It is important to consider the progress toward the development of innovation incubators within Panama. It is crucial, too, to consider the extent to which Panama, as a developing country with a small market size, has recognized the importance of technology and innovation in its efforts to build a sustainable economy. Such efforts are providing the foundation for the future.
The government has emphasized Panamanian economic development and refers to the current moment in the country’s economic development as a synergistic "Triple Helix" model. This model tries to capture the policy-driven initiatives that promote the interaction between government, academia, and industry. The government of Panama plays a significant role in making available the regulatory guidance, infrastructure, and public financing for innovative projects. The greatest benefactors, thus far, have been academic and non-profit research institutes, but private companies with innovative programs are benefiting as well. While Panamanian universities, naturally, place emphasis on teaching, they are constrained with regard to pushing innovative research agendas forward. Dr. Carlos Arellano Lennox, the Rector of Columbus University makes the point: “Most of the universities are today adjusting themselves to the needs of society. However, one of the serious problems we face is the preparation that one receives in high school, which is deficient in Panama. The government drafts its own programs without consulting the educational sector.” The importance of educating students to become productive members of the knowledge-based labor force is central when trying to encourage educational development and encourage prosperity. Panama is on the right path, and with the necessary drive and continued investment, the future looks bright.
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INTERVIEW
seat of
IN NUMBERS University of Panama
LEARNING TBY talks to Gustavo García de Paredes, Rector of the University of Panama, on the role of the university in society, international exchanges, and the future of higher education.
40 MW of power. Our current consumption averages at 35 MW, and the surplus 5 MW will be sold to the market, with half of the revenue going to the university. We will be paying 15 cents per kW instead of the 20 cents we are paying today. This will result in an annual saving of $2.7 million, which represents 25% of our current consumption. Another important project is the network of Innovation Centers we are creating in different regions. These are technological centers of innovation and entrepreneurship, and our objective is to provide every local community with the necessary technical resources to launch the projects they need. We are pursuing comprehensive interaction between the university and the community.
How does the University of Panama contribute to Panamanian society?
Our institution is the most prestigious university in the country. Apart from our central campus, we have nine regional centers, three extensions, and 25 annexes, giving us a national presence. We are widely present in areas where there is a high incidence of extreme poverty, as well as in areas of home to indigenous populations, which also tend to be more disadvantaged. Our objective is to help these people become part of the economy. In terms of curricular strengths, our leading degrees are Medicine, Dentistry, Veterinary Medicine, Agronomy, Law, and Engineering, which is an area we are particularly focused on today. How is the university contributing to national development?
We continue to make diverse contributions. We develop drugs, cosmetics, and food quality controls. We also have several systems to control air quality, atomic emissions, and seismology through our Institute of Geoscience. We operate the largest dentistry center in the country with the latest advanced technologies, in addition to a veterinary hospital. Additionally, we are implementing a photovoltaic project with a Spanish company that will enable us to generate
BIO Aomn[piA[l][^_J[l_^_m bif^m[\[]b_fil!m[h^[ Doctorate in world history `lignb_Ohcp_lmc^[^ ^_G[^lc^&b[pcha[fmi completed studies in Brasília and Panama City. B_b[ml_]_cp_^[qc^_ range of distinctions and awards in Spain, Venezuela, Brazil, Nicaragua, and J[h[g[(Bcmjl_pciom lif_mb[p_ch]fo^_^ l_]nili`nb_Ohcp_lmc^[^ de Panamá, Minister of Education, General Director i`nb_=ifh@l__Tih_& Ambassador Extraordinary and Plenipotentiary of Panama in Brazil, President of the Union of Latin ;g_lc][hOhcp_lmcnc_m& and President of the High Council of Central American Ohcp_lmcnc_m"=MO=;#& among many others.
How many foreign students does the University of Panama have and how are your exchange programs evolving?
The figures for 2014 have shown a strong increase on the previous academic year. We have a total of 250 agreements, which have allowed scientists mobility, academic exchange initiatives, and the development of an international network. In addition, we have our international degrees. This large number of agreements has been remarkably beneficial for us. For example, we have become licensed, in alliance with the University of Granada, for vaccination against the tórsalo, a type of fly, which causes terrible damage to animals. We have also instituted an expanded system of collaboration between the private sector and the university. These agreements allow students to develop internships in Panamanian firms, with students being evaluated and graded by these companies.
Number of students
55k International agreements
250 What is your outlook for the higher education system in Panama?
In my opinion, the government has not paid sufficient attention to education in Panama in recent years as the economy is essentially based on services, and politicians give more importance to industry, the banking system, or the flagship registry industry. The academic component of the national economy therefore appears to be a less attractive item on the political agenda. People complain about the level of higher education, but this is not the fault of the institutions themselves. Educational programs are not correctly implemented because governments unfortunately devote less attention to them. This is why we always hear about improvements and progress in education yet never appear to be free of financial woes. Private companies complain that as institutions we fail to prepare students to the level required by a competitive economy. And yet, despite the limitations we have to face, we remain well positioned in comparison to other countries in the region. And at the local level our academic offering is considerable when compared with other Panamanian universities, as we develop degrees such as physics or philosophy, where we have more teachers than students.
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B2B UNIVERSITY SECTOR
DR. CARLOS ARELLANO LENNOX Rector, Columbus University
MODALDO TUÑÓN Rector, Latin University of Panama (ULAT)
How would you assess the level of technology in the higher education sector in Panama? MODALDO TUÑÓN It is clearly improving. We assessed the state of science and technology during the previous administration, which helped set business and engineering goals for Panama. Engineering standards were found to already be above average, and so we have been working to reverse our weaknesses indicated in the report as being project management, and statistical, analytical, and critical thinking. We have been working on these issues since 2005, as they are important right now for the development of engineering and business schools. In 2013, we concluded a survey that measured the impact of accreditation in our academic programs, and we determined that we have been improving in certain areas. We are the only university on Panama that is both nationally and internationally accredited. National accreditation is based on 187 indicators, and the international equivalent features 270. At ULAT, we have developed our own computer information systems to help with accreditation. These actions had a huge impact on our peers when they came to Panama and discovered that we had developed such computer systems to manage our institutional and academic pro-
gram accreditations. The market is highly demanding, with a presence of 100 international organizations today, obliging all participants to aim at particularly high quality thresholds. Nevertheless, Panama is a small country, and the one least subject to migration in the Americas, as well as being the smallest Spanish speaking country. This means that it has certain characteristics that oblige us to bring in people from abroad. CARLOS ARELLANO LENNOX We are making a great effort to channel the latest innovations and technologies, as that is part of our educational process. The process should never be a static one, as the broader economy is not static. We have to supply professionals who can adapt themselves to changes in society. We adapt our programs to be able to provide these workers. The reason behind the proliferation of private universities was the national need for more adaptive and modern educational institutions. For example, in a maritime country such as Panama, it is absurd that there is just one state university providing maritime education, namely Universidad Marítima de Panamá.
SMARTEST GUYS in the room TBY talks to two leaders in higher education about the growing need for technology in universities, and on their institutional priorities.
What are your key priorities in the higher education sector? MT At the Latin University of Panama (ULAT), we have been highly committed to changes in the higher education sector in light of the accreditation process. In 2006, a law was passed obliging all public and private universities in Panama to be accredited in order to continue operations. We have already completed the first phase of this process in which 18 universities were accredited, which was compulsory. We are currently working with the government and public and private universities to adjust to the process in upcoming years.
CAL The Columbus University was born with the objective of maintaining the quality of education, a goal that we have achieved so far. We wanted to do this with a scientific responsibility, and by reinforcing values and humanistic principles. Our objective is to achieve excellence in teaching and to foster innovation. Most of the private universities are today adjusting themselves to the needs of society. However, one of the serious problems we face is the preparation that one receives in high school, which is deficient in Panama. Most of the private universities are today adjusting themselves to the needs of society. The government drafts its own programs without consulting the educational sector. I can devise an educational program for the next decade, which by then will have become obsolete, and it is essential to change and be dynamic.
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José G. Arias Chiari, President of Club Unión, on the high-‐end manifestations of Panama's growth.
Bocas del Toro is a Caribbean Paradise off of the northwest coast of Panama that boasts pristine beaches and sea life.
The BioMuseo merges exciting architecture with a passion for exploring the country's rich biodiversity and history.
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Tourism REVIEW
The government of Panama has launched a number of initiatives in an effort to promote the country as an international destination for travelers.
WHERE DO YOU WANT TO GO?
P
olitical stability and economic growth have helped to create a new atmosphere of investment in the country, with the tourism sector seeking to benefit from this new interest. A number of major new hotels have opened in the country, with Trump, Starwood, Waldorf-Astoria, Westin, and Hard Rock among some of the biggest names to open in the past two years.
the government. The second objective is to ensure that the economic benefits generated from tourism reach everyone in the community, and not just a select few. The final objective is to strengthen and solidify the sector by generating a substantial increase in revenues as well as by increasing employment numbers in all segments of society from the national assembly to local communities.
MASTER PLAN
INFRASTRUCTURE
The new investment flowing into the sector is also down to the Tourism Authority of Panama (ATP). In 2007, it launched the Master Plan for Sustainable Tourism Development 2007-2020. The ATP set out three main objectives that it would like to achieve before the end of 2020. The first objective is to promote sustainable tourism through the improvement of institutional capacity at both the national and regional level. It hopes do this through human resource development, research, and with planning and strategies for the industry and
As part of the master plan, Panama is spending huge amounts of money in an effort to develop its infrastructure, including $5.2 billion on expanding the Panama Canal and $1.8 billion on a subway system in Panama City. In addition to these, a number of airports have been earmarked for expansion to create the "Hub for the Americas." Copa Airlines, which has played a key role in the growth of Panama’s economy, has been focusing on international flights and attempting to create a hub in Panama for the American continent. Copa now offers
Image: Gilberto Alemancia
Panama's government has been trying hard over the past few years to establish a solid tourism strategy. As visitor numbers start to rise, it is now building on this success to create a hub for travelers.
PANAMA 2014
Arrivals by Point of Entry into Panama (in Thousands)
Source: ATP
280 daily scheduled flights to 63 destinations in 29 countries through is Panamanian hub. In 2013, it managed to transport 10.3 million passengers. Another boost to the sector came when the former US air base in Rio Hato reopened as an international airport in late 2013. It is capable of handling flights from Canada and the US. The airport is expected to help boost development in the area, especially with retirees from the US looking to buy property. It is not just the airports that are being expanded in Panama, its highways are also undergoing a number of expansions. Connectivity between cities is not only important to tourists, but the citizens of Panama as well. New highways connecting Colón to Panama City as well as David with Boquete are on the books. A new metro system, inaugurated on April 5, 2014, will boost the capital city’s connectivity and make it easier for both tourists and citizens to travel around the city. While it currently only has one line, a further line is under development and Line 1 is expected to be expanded in the coming years.
2500
TRAVEL BOOM
Source: ATP
1600 1400 1200 1000 800 600 400 200
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
0
Tocumen Airport* Land * Maritime Ports* Other Ports*
Number of Visitors to Panama (in Thousands)
2000
1500
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
1000
Hotel Occupancy Rates for Panama City (As a Percentage) Source: ATP
80 60 40 20
2013
2012
2011
2010
2009
2008
2007
2006
2005
0 2004
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The master plan appears to be paying off for Panama as visitor numbers continue to rise. In less than 10 years, the number of visitors has more than doubled from a little over 1 million in 2004 to 2.2 million in 2013, which was also a 5.6% increase on 2012 when 2.08 million visitors came to Panama. The most popular point of entry in 2013 was by air and through Tocumen Airport, where 1.53 million entered the country; this was followed by sea with 373,505, and a further 172,782 visitors coming over land. In Panama City, over 2013 it welcomed 1.42 million visitors, a 14.5% increase on 2012 when 1.24 million people came to see the city. To accommodate these increasing numbers, between 2010 and 2013 there was a 74.16% increase in available rooms per annum in Panama City going from 2.09 million to 3.64 million. With this massive increase in room nights, average occupation rates have fallen from 66.96% in 2010 to 56.7% in 2013. In 2010, 1.4 million hotel room nights were occupied while in 2013 this rose to 2.06 million.
“Quality service at your disposal” 4*95 tSFTFSWBDJPOFT!TJYUDPNQB XXXTJYUDPNQB
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The master plan appears to be paying off for Panama as pcmcnilhog\_lm continue to rise.
PANAMA 2014
While these numbers may seem small compared to other regional neighbors or competing countries, the money generated from these tourists is nothing to be ignored. In 2012, the Tourist Development Council (TDC) conducted a year-long study to examine the financial impact visitors were having on the country’s beach tourism industry. The study outlined an in-depth look at visitor profiles based on information from surveys, bed tax revenue, occupancy, and economic impact and visitation estimates. From this study, it found that Panama City Beach experienced 10.8 million visitor nights and yielded over $1 billion in revenue; however, this figure didn’t include non-overnight visitors or year-long visitors. According to the ATP, it estimated that in 2013 the total national contribution from the tourism sector was $3.5 billion, which represents around 10% of the economy. To help promote Panama internationally, the ATP has been running the “Panama-The Way” campaign in an effort to brand the country. The slogan is intended to associate Panama with traveling, whether it is a person transiting through the "Hub of the Americas," a tourist looking for an exotic location for a vacation on the beach or in the mountains, a retiree looking for a new home, or an investor seeking new opportunities. The government is hoping with the iconic Panama Canal, its new infrastructure projects, and its geographical location that the travel brand will stick in the popular imagination of global travelers.
OLGA DE JANÓN DE JIMENEZ President, Grand Tours The ambitious project that has been announced will expand Tocumen’s Airport capacity from 5 million to 30 million passengers per year, and also the expansion of the Panama =[h[fqcffjimcncp_fscgj[]nihiol \omch_mm[]ncpcns&\iimncha[llcp[fm i``il_cahpcmcnilm`lignb_l_acih(C think we should follow the path of the air transport industry, which has positioned Panama as a regional hub. Cnlofs\_fc_p_nb[nnb_]locm_ch^omnls also has the potential to make Panama a regional hub.
Tourism
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SEE & BE SEEN
Club Unión is one of the foremost social centers in Panama. What are the criteria for entry to the establishment?
The club is a meeting point for the leading figures of Panamanian business society. We have a rigid membership procedure that requires screening by the Admission Board. Every year we vote people onto our Admissions Committee of 32 members, which identifies potential new members. A candidate member requires a group of referees to submit their application to the Admissions Committee, and should six out of those 32 oppose the application, it is rejected. Successful candidates then pay a $100,000 membership fee, and purchase an ownership share, currently of around $3,200. Members’ children over the age of 18 are also presented to the committee as potential members in their own right, and from the ages of 21 to 30 they may incrementally pay their membership until becoming a full member on their 30th birthday. Are foreign citizens allowed to become members?
There is no restriction that says you have to be a Panamanian to be a member. The only requirement is that the group that presents you as a candidate is well-known and respected by members. Usually, members of the committee like to spend around a month and a half with a potential member to get to know them. Every year we have between two and five new members in general. For example, a number of ambassadors have partial membership, although being a temporary member entitles them to use all the club's facilities.
TBY talks to José G. Arias Chiari, President of Club Unión on membership, the club’s extensive facilities, and the positive outlook for the Panamanian economy in general.
What are the main services that the club offers?
Our “Second Home” as we call the Club Unión contains extensive sports facilities for members and their families, including a full gymnasium, plus tennis, volleyball, basketball courts, and a swimming pool. In terms of entertainment, there is a discotheque, three different restaurants, and a poolside snack bar providing informal dining. We have a sports bar that is a casual family venue, and there is also a formal dining room. The club has its’ own unisex beauty salon. Six dedicated halls are available for special events such as wedding, birthday, cultural, and corpo-
BIO José G. Arias Chiari began his professional career at the Panama Canal in 1989. He is an industrial engineer who has obtained two G[mn_l!m^_al__mch\omch_mm administration, with focuses ihg[le_ncha[h^×h[h]_& `lignb_Ohcp_lmc^[^ Latinoamericana de Ciencias y Tecnología. He has been a Member of the Board of >cl_]nilmi`=fo\Ohch mch]_,*++&[h^m_lp_^nb_l_ as Treasurer and VicePresident before his current role as President.
rate functions. We have a bar and three terraces for casual get-togethers, happy hours, and dances with live music. Can a non-member spend a day at the club?
Yes, once a month they can attend if they are friends of a member and they can have access to most of our facilities. If you are a member of a club in another country, and they have a reciprocity agreement with us, then you are entitled to up to 30 days use of our facilities in Panama. What are Club Unión’s priorities for future investment?
We have invested in a new building out of the need for a larger parking facility. Currently, our location in the center of a residential neighborhood makes for parking problems when we stage a major party or celebration. The new building has seven floors, with five given over to parking. The front of the building has two terraces, a gym, a discotheque, unisex beauty salon, a future spa, a lounge, and a sports bar, while the top floor has three tennis courts. What is your outlook for the Panamanian economy over 2014 and 2015?
The local economy appears to be robust, and the Canal expansion should be providing full service in 2016, and will boost revenues generated from abroad. The new gov-
IN NUMBERS Club Unión
Membership fee
100k
USD
Members
3,900 ernment is also proceeding with the development of two new metro lines, the second and the third, which will ease congestion and facilitate commuting. The government is also set to invest heavily in water-related infrastructure to the benefit of the community. Panama is now basically a port on two oceans. In my opinion, if we can consolidate goods from South and Central America and repack and ship them down the Canal, we could generate considerable business. The Canal serves 144 different routes and reaches about 1,700 ports and 160 countries worldwide. If we take advantage of this potential we can develop the nation into a dynamic logistics hub.
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P H O T O ES SAY D E S T I N A T I O N
BOCAS DEL TORO
THE CARIBBEAN PEARL Verdant rainforests surrounded by white, sandy beaches, colorful coral reefs, and laid back locals are what characterize Bocas del Toro, an archipelago with seven main islands that today maintains its untouched splendor.
Bocos del Toro is a popular destination with tourists
SITUATED ON the northwestern coast of Panama, the Bocas del Toro archipelago divides the Chiriqui Lagoon and Almirante Bay from the open Caribbean Sea. Its main city, Bocas Town, on Isla Colón, can be accessed by plane, and water taxis and private boats connect the other islands. Isla Colón (Columbus Island) takes its name from Christopher Columbus’ visit to Bocas del Toro in 1502, in his fourth and final voyage to the New World. The archipelago then became a pirate haven during the 17th century, attracted by the Spanish gold. Blessed by nature with its lush vegetation, biodiversity, and endless white, sandy beaches, Bocas is the perfect destination for adventure lovers who can enjoy snorkeling, sailing, hiking, swimming with dolphins, or scuba diving. But this Caribbean paradise is not only an exotic destination with tropical vegetation and lush beaches, it’s also a region that shows multicultural respect and integrates the indigenous. It is a region known for its rich gastronomy where seafood, yucca, coconuts and bananas are the order of the day, and it can be a truly enriching experience for those that are looking for a genuine experience.
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Jungles are never far away in Panama, and neither is a pristine beach
All kinds of wildlife can be found in Panama's cities and varied rural landscape
Situated South of Isla Colón, Parque Isla Bastimentos is home to Panama’s first national marine park, not only renown as a nesting site for turtles, but also for hosting a diversity of species including crocodiles, monkeys, and red poison dart frogs, which can only be found here. With 50 cays, around 200 small islets and untouched beaches, Panama’s hidden Caribbean gem has also become heaven for surfers from all around the world. Surf breaks are the best in the country and the season runs from November all the way through to April. Black Rock, Carenero, and Long Beach are among the numerous idyllic beaches that are becoming a top destination for surf lovers, making the archipelago a major surfing destination.
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FOCUS MUSEO DE LA DIVERSIDAD
SITUATED AT THE ENTRANCE TO the Panama Canal in the Pacific Ocean, on the Amador Causeway, the new Museo de la Diversidad, known as BioMuseo, is the first building in Latin America designed by world-renowned architect Frank Gehry, famous for sights such as the Walt Disney Concert Hall in Los Angeles, and the Guggenheim Museum in Bilbao, Spain. Overlooking the skyline of modern Panama, the Old Town, and the Bridge of the Americas, the colorful design reflects Panama's tropical environment. Its bright red, green, blue, orange, and yellow perspectives are signature to this iconic structure that can easily be noticed from the Bridge of the Americas, or even from the numerous cruise ships arriving in the city. Over its 4,000 sqm expanse, BioMuseo explores the isthmus and the wide range of species in the region. There are eight galleries featuring different aspects of Panama’s history and geography. Outdoor exhibits will be hosted in the 2.4 hectare botanical park surrounding the building, and the complex also features a shop, a public atrium, and a café.
THE BRIDGE OF LIFE Art and science merge to showcase Panama’s biodiversity, and to host the country’s major cultural events.
This $60 million project opened its doors in October 2014, almost 10 years after construction works began, with the purpose of changing the perception of the environment, and to explore Panama’s history presented as a “Bridge of Life” between North and South America. This bridge refers to the fact that until a shifting of tectonic plates created the isthmus, there was nothing but water between the two continents.
The BioMuseo is an example of contemporary architecture in Panama
Tourism
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Over 400,000 visitors attended the museum in cnm×lmns_[l
In an interview with TBY, Victor Cucalón Imbert, BioMuseo's Executive Director, explained the importance of the isthmus in terms of biodiversity on the American continents; creating a divergence of animals between the two Americas. And this is the theme at BioMuseo, an important project both in terms of education and culture for the country. Panama’s excellent flight connections, and attractions like the canal, the Old Town, and other exotic paradisiacal areas such as Bocas del Toro and San Blas, combined with the safety the country offers, among others, are the drivers of growth in the number of visitors. According to Cucalón, the museum will complement the existing offering, “On one hand, there is significant information available on the country, and on the other we can show and tell the history of the isthmus and how it has changed the world,” he added. BioMuseo is the only museum beyond the US that is affiliated to the Smithsonian Institution, responsible for a vast percentage of scientific discoveries, and it is expected to host between 400,000 and 450,000 visitors during its first year.
The BioMuseo has many examples of the wildlife found in the country
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A list of local hotels in Panama for both business and leisure tourists.
For people visiting Panama for the first time, these helpful hints will prepare you for when you get off the plane.
If you are wondering how to contact certain services, this list of websites will get you on your way.
Executive Guide REVIEW LEGAL
the THICK of it P Angel Cohen Richa y Asociados takes us through some of the ins and outs of Panama’s business scene, including arbitration and company structures.
anama’s economy is experiencing a period of unprecedented growth, fueled largely by a spike in FDI entering the country. Investors and foreign businesses have continued to seek out Panama as an FDI destination, driving the investment rate to around 30%, significantly higher than the region’s 22.7% average. One of the major factors allowing Panama to maintain its growth levels is the prevalence of M&A activity. Many major multinational corporations have established regional offices or headquarters in Panama, taking advantage of the tax, immigration, and employment incentives granted to potential investors. The insurance, industrial services, telecoms and media, and dairy sectors were also major FDI destinations. In view of the aforementioned, Panama has unified efforts to promote international investment by implementing different mechanisms to attract foreign investors. It has more than 40 laws and decrees that offer advantages to the investors in terms of tax and operations. Some of the areas that are beneficiated from those regulations are tourism, mining, insurance, agro-industries, petroleum, free zone, infrastructure, and construction. Besides, Panama offers to foreign investors the possibility to apply for any of the following trade alternatives: 1. Colón Free Zone 2. Special Economic Area Panama-Pacific 3. Multinational Company Seat 4. Processing Zone
Coupled with the laws and decrees that offer advantages to the investors in terms of tax and operations, there exist relevant Panamanian laws and regulations governing business combinations. Business combinations in Panama are usually structured as stock or asset purchases, tender offers, or mergers, but other techniques can also be used. One example is the capitalization of stock of two operating companies to a holding company incorporated for that purpose with joint participation in the holding company. In the case of publicly traded companies, combinations usually involve a two-step process that begins with a tender offer (either for stock, cash, or a combination of both) followed by an actual merger. Several recent bank mergers have followed this format.
ARBITRATION Panama has a long tradition in arbitration beginning in 1917. The practice of arbitration was limited to a reduced number of lawyers and businessmen. The impulse for arbitration The first step the Panamanian Chamber of Commerce and Industry took to give an impulse to arbitration in Panama was to lobby before the Executive and the Legislative Branches of the Government of Panama to adopt the new arbitration law (Decree Law No. 5 of 1999) and the second was establishing a Center for Dis-
Executive Guide
J[h[g[[]ncp_fs encourages foreign chp_mng_hn&[h^ with few exceptions, nb_aip_lhg_hni` Panama makes no distinction between domestic and foreign companies for chp_mng_hnjoljim_m(
pute Resolution; this center adopted a set of regulations to govern the procedures it administers. In parallel, the Panamanian Construction Chamber (CAPAC) followed the same path; thus, there are presently in Panama at least two reputable institutions vigorously promoting arbitration in Panama with tremendous success amongst lawyers and businessmen. Both dispute resolution centers have been approved by the Panamanian government and are authorized to administer arbitration procedures. Their list of arbitrators includes the most prestigious lawyers of Panama. Types of arbitration procedures Depending on whether arbitration procedures are administered or not by any one of the Centers for Arbitration they are called institutional or ad-hoc, the latter being those where arbitrators are appointed by the arbitration agreement with the exclusion or involvement of any third party or Court of Justice. The arbitrators may be specifically instructed to render the award in accordance with the law, but if they have no specific instructions by the parties then as per the provisions of the law they decide based on equity.
COMPANY STRUCTURES A company's structure and vehicles in Panama must fulfill the same basic requirements in order to organize and operate businesses. Individuals may engage in permitted business activities in their own names or through legal entities. The following are the different types of legal entities that exist in Panama. The most common corporate vehicles used by foreign companies in Panama are as follows.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. TBY would like to thank Ancori for compiling this analysis.
Corporations Panamanian corporations (SAs) limited by shares are the most commonly adopted form of legal entity in Panama, engaging in all types of legal business enterprises all over the world including financial, banking, insurance, agro-business, tourism, trading, transport, consumer goods, and warehousing. Partnerships The responsibility of the partners is unlimited, unless the partnership instrument provides that the partners will be liable only for a sum that cannot be lower than their contribution to the partnership. There are different forms of partnerships: a) Simple limited partnerships, which are limited partnerships with both general and limited partners. General partners share in the management and are jointly and severally liable for the partnership’s debts. Limited partners are liable only up to the amount of capital that they
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have invested; b) Joint-stock partnerships, which are limited partnerships, similar to simple limited partnerships, but with the partners’ capital represented by shares; and c) Limited liability companies (LLCs), where the liability of the partners is limited to their individual capital participation. Branches Foreign investors commonly organize subsidiaries as corporations or limited liability companies, or register the foreign company itself in Panama as a branch. Both methods result in taxation in Panama only for local operations. Non-‐corporate While corporate vehicles, specifically SAs and LLCs are the most common vehicles used by foreign companies in Panama. The following non-corporate vehicles are also available: Trusts Trusts are regulated in Panama by Law No. 1 of January 5, 1984. Parties to a trust can include all types of clauses, provided they do not violate the law, morals, or public interest. They can be created by means of a private document, except for real property trusts located in Panama. Offshore trusts, which are those in which the beneficiaries (which can include the settlor under Panamanian law) do not derive income from a Panamanian source as defined by the Fiscal Code of Panama, are tax-exempt. Private foundations Private foundations provide a flexible vehicle for use in asset protection and estate planning. They may be formed by one or more natural or juridical persons either personally or through third parties. The foundation becomes a legal entity once the foundation charter has been recorded at the Public Registry. Private foundations are prohibited by law from having a profit-oriented goal. Nevertheless, they may engage in commercial transactions on a non-regular basis provided all proceeds derived therefrom are used exclusively for the purposes of the foundation. Panama actively encourages foreign investment, and with few exceptions, the government of Panama makes no distinction between domestic and foreign companies for investment purposes. Panama continues to enjoy the strongest economic growth in Latin America. It benefits from stable and consistent economic policies and a government that consistently supports trade and open markets. International indexes generally rate Panama as one of the best countries in Latin America for business and investment.
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Where to Stay 2
ûUVW3DQDPDQLDQDQGLQWHUQDWLRQDO tapas restaurant. Each dish is a creation that combines the essence of Spanish tapas with local ingredients. 03 Las Clementinas Las Clementinas Chambers, Av B, T +507 228-7613 www.lasclementinas.com
01 The Westin Playa Bonita Playa Bonita, Km 6 Camino a Veracruz, Panama City T +507 304 6600 www.starwoodhotels.com/ westin
Rooms 611 guest rooms with YLYLG3DFLûF2FHDQRUWURSLFDO rainforest views. Guest Services Business Center, Westin Executive Club Lounge, Fitness Studio, Kids Club, four beachfront swimming pools, sensory Spa by Clarins and Kayak rentals. Dining Six restaurants and three bars offering a wide variety of cuisines, from exotic Asian fusion to fresh VHDIRRGIURPWKH3DFLûF5LPWR international crowd pleasers. Tántalo Calle 8 Este con Avenida B, Casco Viejo T +507 262 4030 www.tantalohotel.com 02
Rooms 12 personalized rooms designed by different artists, with a “boho-chic” décor. Guest Services Exclusive Encima Roof bar & Lounge, Special Menus, Complementary breakfast, free bike rental, complementary Yoga Classes, laundry, and dry cleaning. Dining Tantalo Kitchen’s Chef, Pierre de Janon opened the
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Rooms Six rooms that have retained the original apartments’ 1930s layout. Guest Services Fully equipped kitchen in each room, central air, queen bed, convertible sofa bed, iPod docking station, access to the roof-terrace, and 24 hour service and parking. Dining Each dish, from risotto con coco to ropa vieja has been researched and UHûQHGXVLQJORFDOLQJUHGLHQWV many of which come right from the Clementinas garden. 04 The Bristol Aquilino de la Guardia Ave T +507 264 0000 www.thebristol.com
Rooms 125 rooms and suites, inspired by the vibrant art, architecture and history of Panama. Guest Services Spa, YDOHWSDUNLQJûWQHVVFHQWHU business center, state-of-the-art pool, and sky bar. Dining The Salsipuedes Restaurant offers the essence of authentic Panamanian cuisine with the Executive Chef Cuquita Arias de Calvo preparing a rich showcase of gourmet Panamanian cuisine. 05 InterContinental Playa Bonita Camino a Veracruz Km 7, Panamá T +507 2118600 www.ihg.com
Rooms 303 rooms with balconies DQGYLHZVRIWKH3DFLûF2FHDQ Guest Services Business Center, Fitness Center overlooking the 3DFLûF2FHDQVTIRRW of Sensory Spa with Clarins WUHDWPHQWVûYHIUHHIRUPSRROV a private beach, and kid’s club Dining The hotel offers a variety of restaurants, including the Plantation Café, with tropical style dining, the Pelican Grill with
Executive Guide
08 Hotel RIU Plaza Panamá Calle 50 con 53 este. Urb. Marbella - Ciudad de Panamá T +507 378 9000 www.riu.com
buffet and a-la-carte choices, the Lighthouse Bistro with a long list RIûQHZLQHVDQGDQLJKWO\FKHI¶V choice, and the Cascade Lobby Bar and Caracol Pool Bar, with swim-up seating. 06 Le Méridien Panama Calle Uruguay & Balboa Avenue, Panama City T +507 97 3200 www.starwoodhotels.com/ lemeridien
Rooms 11 stylish rooms with marble bathrooms. Guest Services Sensory Spa by Clarins, pool on the 6thüRRURYHUORRNLQJ 3DQDPD%D\KRXUûWQHVV facility, and business center. Dining 'HOLFLRXVFXLVLQHDQGûQHZLQHDUH an integral part of the heritage and tradition of Le Méridien.
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07 Hotel El Panamá Via Espana, Eusebio A. Morales 111 T +507 215-9000 www.elpanama.com
Rooms 664 rooms. Guest Services Gym, Spa, Hairdresser and Beauty Salon, Relaxation Zone, and 23 conference rooms with capacities for up to 2,260 people. Dining The hotel offers fusion dishes in Tastes Restaurant, as well as the Sushi Lounge, Arts Restaurant, Studio 50, and Ibiza Lounge.
Rooms 350 elegantly decorated rooms offering views of Panama City or the gardens and pool. Guest Services Largest swimming pool in Panama, massage parlor, convention FHQWHUKRXUûWQHVVFHQWHU shuttle service to the airport, and a casino. Dining Choices range from creative Caribbean fare DW*DWXQWRXSVFDOHûQHGLQLQJ overlooking the Panama Canal at 0LUDüRUHV5HVWDXUDQW
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09 Gamboa Rainforest Resort Corregimiento de Cristobal,IA 5, Panama 7338 T +507 232 4855 www.gamboaresort.com
Rooms 66 rooms and suites located in the middle of the scenic Soberania National Forest. Guest Services Sensory Spa by Clarins, private balconies with hammock and a wide range of tours and outdoor activities. Dining The resort features The Corotu and Chagres River View restaurants, located in the main building, and Los Lagartos, by the Marina with a terrace that overlooks the Chagres River. Hard Rock Hotel Panama Megapolis Ave. José de la Cruz Herrera T +507 294 4000 www.hardrockhotels.com 10
Rooms 1,500 rooms and suites in a 66-story tower overlooking Panama’s oceanfront. Guest Services Spa, outdoor pool, nightclub and a rooftop lounge. Dining Four restaurants and 6 bars.
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Courtyard Panama at MetroMall Shopping Complex Avenida Domingo Diaz via Tocumen, Centro Comercial MetroMall Shopping Complex Panama City, Panama T +507 -3049595 www.marriott.com/hotels/ travel/ptymm-courtyardpanama-at-metromall-mall 11
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Rooms The hotel boasts 120 URRPVRQIRXUüRRUV Guest Services Located four miles from Tocumen International airport and within MetroMall shopping complex, its spacious rooms are a short step from over 260 stores adjacent to the hotel. Dining Have lunch or dinner, either buffet or a la Carte at Centro Restaurant, while Centro Lounge offers informal VQDFNVDQGGULQNV2QVLWHûWQHVV center, a pool and business center are available.
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Helpful Hints Some survival tips that will help get you through the first few days in the country
When in PANAMA
Useful Numbers
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EMERGENCY SERVICES NATIONAL POLICE 104 FIRE 103 AMBULANCE 911 TOURIST POLICE 511 9260 CIVIL DEFENSE 512 6190/316 3200 CRIME VICTIM ASSISTANCE PROGRAM 262 1973/2222 NATIONAL TOURISM AUTHORITY HOTLINE 178 DIRECTORY ENQUIRIES 102
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PAB Dengue Fever is a concern, especially in rural areas. Do not forget to include mosquito repellent when traveling to wet regions.
Dollars, and Balboas, are used as currency.
Carnivals are commonly celebrated in regions outside RIWKHFDSLWDO2IûFHVDQG businesses are closed during these events.
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Expect a lot of rainfall in the country during the wet season. It rains for several hours almost every day from April to December.
Do not be afraid to take a taxi if there is someone else already in the car. Sharing taxis is totally safe and common in the country.
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You will always need a JHRJUDSKLFDOUHIHUHQFHWRûQG your way to somewhere, as few SHRSOHXVHRIûFLDOQDPHVIRU streets.
MINISTRIES MINISTRY OF AGRICULTURE www.mida.gob.pa MINISTRY OF COMMERCE & INDUSTRIES www.mici.gob.pa MINISTRY OF ECONOMY & FINANCE www.mef.gob.pa MINISTRY OF EDUCATION www.meduc.gob.pa MINISTRY OF FOREIGN RELATIONS www.mire.gob.pa MINISTRY OF GOVERNMENT & JUSTICE www.registro-publico.gob.pa MINISTRY OF HEALTH www.minsa.gob.pa MINISTRY OF LABOR www.mitradel.gob.pa MINISTRY OF THE PRESIDENCY www.presidencia.gob.pa MINISTRY OF PUBLIC WORKS www.mop.gob.pa
AGENCIES
7KH3DQDPD0HWURWKHûUVWVXFK transportation in Central America, has been operating since April 2014 in Panama City.
US-style two-pronged plugs are used in the country. Adaptors are widely available.
Taximeters do not exist in Panama VRDUUDQJHDSULFHûUVW$Q\ distance in the center of Panama City should not be more than $3.
CIVIL AVIATION AUTHORITY www.aeronautica.gob.pa NATIONAL AUTHORITY OF THE ENVIRONMENT www.anam.gob.pa PANAMA CANAL AUTHORITY www.pancanal.com PANAMA MARITIME AUTHORITY www.segumar.com PANAMA TOURISM INSTITUTE www.ipat.gob.pa REGULATORY ENTITY OF PUBLIC UTILITIES www.ersp.gob.pa SUPERINTENDENCY OF BANKS OF PANAMA www.superbancos.gob.pa
