Panama’s Plan to Bounce Back from the Pandemic As a Model Business Location in Latin America
The 'LatAm Investor' magazine picks the five sectors with the most investment opportunities in Panama: real estate, infrastructure, logistics, finance and manufacturing
Panama’s economy is projected to grow more than 8% in 2022, which is almost three times the Latin American average growth projection for this year. Keep in mind that the economy contracted by 18% in 2020 because of the Covid-19 pandemic, after a few years of slower growth. Until November 2021, it had an annual growth of almost 15%, reflecting that the economic recovery started soon after the last lockdown of early 2021. Economic activity levels of 2019 are expected to be recovered this year.
“Its economy will outperform in 2022,” assures the LatAm Investor magazine in an edition almost entirely dedicated to the Central American country that “bounces back with new business” two years after the emergence of Covid-19. “As the leading public and private sector figures interviewed in this report make clear – Panama is not perfect,” the UK publication says. “However, as it regains its spot as one of Latin America’s fastest-growing economies it will offer plenty of investment opportunities.”
In a letter to the readers of the magazine, President Laurentino Cortizo explains that “there are many reasons that make Panama a model investment location in Latin America,” including its incentives for the establishment of multinational headquarters (which have broken registration records in the midst of the pandemic), and a new regime aimed at promoting and facilitating the development of “nearshoring,” a kind of outsourcing of some business processes in a country close to where the products are sold.
“As I complete 36 months of my constitutional mandate as President of the Republic (2019-2024), Panama reaffirms its vocation as a country open to investors who trust in the possibilities of our development, under the guarantees we offer through political and social stability, a solid democratic system, a bilingual business culture, dollarization of our economy and countless advantages for establishing highly productive businesses,” President Cortizo added in his letter.
Investment opportunities in Panama
LatAm Investor says that in Panama right now there are investment opportunities in real estate, infrastructure, logistics, finance and manufacturing. The real estate sector was one of the hardest hit by the pandemic, but is now seeing a resurgence in some areas in the country, especially in the Casco Viejo part of the capital Panama City. The country also has relevant real estate incentives for international investors, so most interviewees agreed that this sector still has a lot to offer for foreign investment.
In terms of infrastructure opportunities, the country is trying to turn the page of its corruption scandals around this fundamental part of its growth of the past 20 years. President Cortizo came to power vowing to erase corruption from the infrastructure ambitions of the country, and passed a law in 2019 for public private partnerships to procure infrastructure. “Over the last decade LatAm Investor has covered PPP programmes across Latin America. We’ve seen they take a long time to get right. However, if the new PPP mechanism helps Panama clean up its infrastructure then that will benefit the country while creating exciting opportunities for UK investors.”
As for logistics, the government has admitted that it is too small to undertake all the needed projects around the Panama Canal, its airports and its incipient mining industry, and, according to the magazine, “has recognized the need for international investment.” “Logistics is Panama’s strongest industry, but even that needs infrastructure projects, whether it’s the fourth bridge over the Canal to improve the link with Panama Pacifico or simply better roads for cargo to travel to the interior, to maintain its competitive advantage over regional rivals. The government will have to deliver new projects, either through the new PPP Law or by traditional means, before its tenure ends.”
As is the logistics sector, the finance sector is also responsible for Panama’s economic boom that began in the year 2000. Before this new government, the country fell back to the Financial Action Task Force “grey list,” a warning given to countries that are in a doubtful position about their involvement in such things as money laundering. “Getting off the list is our main priority,” the government says, but it still has to complete half of the 15 steps needed to do so. “If Panama does get off the list, then its fast-growing banking centre offers opportunities in green finance and fintech,” LatAm Investor says.
Manufacturing also has opportunities, especially after the regime that facilitates “nearshoring” in Panama. The legislation is a bet from President Cortizo to smooth the establishment of manufacturing, production processes, construction of collection and distribution centers, “favoring the economies of scale for industrial groups or product marketers.” “We want to attract manufacturing companies to produce in Panama and export to the near markets. We offer an array of attractive fiscal regimes for companies that want to manufacture in Panama”, ProPanama executive director Carmen Vergara said to the magazine.
One of the terrible effects the pandemic has had on the economy of Panama is the growth of its debt-to-GDP ratio, which is something rare for the country. But the minister of Economy and Finance Héctor Alexander thinks that this become more of a thing of the past as the economy bounces back from the Covid-19 crisis. “There has been a lot of talk about our debt-to-GDP ratio, but people need to understand how basic mathematics work,” he said in an interview with LatAm Investor.
“If the GDP falls a lot, which it did, then the debt will automatically grow as a proportion of the economy. Our economy contracted 18% in 2020, which is why the debt-to-GDP ratio reached 70%. But in 2021 we estimate a rate of growth of not less than 15% in real terms, and we will have an important growth rate in 2022. So, in 2021 we are experiencing a V-shaped economic trend that automatically is lowering the debt-to-GDP ratio, to 65%,” the minister said. “We think that our recovery and our financial strategy will help us maintain our investment grade.”