panama - The Business Year

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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THEBUSINESSYEAR
3
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
4
THEBUSINESSYEAR
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
THEBUSINESSYEAR
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
$\ÞH+D]ÏU9DOHQWLQ
115 Something’s brewing ‡ FOCUS:
COFFEE
Editorial Director
Jason J. Nash
Commercial Director
Laila Bastati
117 HEALTH
Senior Editor
Mark A. Szawlowski
117 Healthy option ‡ REVIEW:
HEALTH
Web Editor
Peter Howson
Sub-‐Editors
Terry Whitlam, Aidan McMahon,
Michael Gibson, Lewis King,
Susan Barrett
Editorial Assistant
Asiye Duman
Contributors
Michael Kuser, Sam Hunt, Han Le
Transcribers
Nikolai Davis, Attila Pelit,
Pronto Publishing Services,
Deanne de Vries, Natalia Ehrenberg
Art Director
Berin Cansu Zafer
Jr Art Director
Bahar Kara
Designers
Didem Toprak, Ceren Bettemir,
Sérgio Caldeira
Cover Illustration
.UÞDWhQVDO
HR Executive
Ines Delgado
PR Executive
6HPLKD(ONÏUDQ
Operations Manager
6HUSLO<DOWDOÏHU
Operations Executive
g]QXU<ÏOGÏ]
Operations Assistant
Gamze Zorlu
Finance Executive
1DPÏN$NPDQ
Circulation Manager
Amy Burtin
Publisher
Peggy Rosiak
Printing: Apa Uniprint
The Business Year:
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[email protected]
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The Business Year is a registered trademark
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The Business Year International Inc. 2014. All
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The Business Year International Inc. makes
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assume any legal liability, direct or indirect, or
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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
5
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...
6
PANAMA 2014
THEBUSINESSYEAR
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
THEBUSINESSYEAR
7
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
8
THEBUSINESSYEAR
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
THEBUSINESSYEAR
12
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.
9
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
10
THEBUSINESSYEAR
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
THEBUSINESSYEAR
11
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. 12
THEBUSINESSYEAR
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
THEBUSINESSYEAR
13
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,*+/
14
THEBUSINESSYEAR
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
THEBUSINESSYEAR
15
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. 16
PANAMA 2014
THEBUSINESSYEAR
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
THEBUSINESSYEAR
17
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. 18
THEBUSINESSYEAR
PANAMA 2014
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.
Diplomacy
THEBUSINESSYEAR
19
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. 20
THEBUSINESSYEAR
PANAMA 2014
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.
THEBUSINESSYEAR
21
25
27
30
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
22
THEBUSINESSYEAR
PANAMA 2014
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_=ifh@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_=ifh@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"<iP, Current USD, Billions)
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
23
Commercial ties with
the hemisphere’s
principal economy
b[p_\__h\ifmn_l_^
by the signing of the
US-Panama Trade
Promotion Agreement.
24
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_]hifac]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^_=ifh`lig
the 1990s to 2004. He is
also a Lieutenant Colonel
chnb_=ifh×l_×abn_lm
and an industrial security
chmj_]nil(Ip_lnb_j[mn
four decades he has been
b_[^i`nb_=ifh=b[g\_l
of Commerce, and the
G[sil[h^Aip_lhili`
=ifh^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
26
THEBUSINESSYEAR
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
27
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.
30
THEBUSINESSYEAR
PANAMA 2014
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.
32
THEBUSINESSYEAR
PANAMA 2014
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=ifh@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. THEBUSINESSYEAR
33
36
40
46
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-
34
THEBUSINESSYEAR
PANAMA 2014
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.” IMAGINE UN BANCO
Imagine un banco que dé prioridad a los intereses de sus clientes.
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.
Ginebra · Amsterdam · Bermudas · Bruselas · Dubai · Frankfurt · Friburgo · Gibraltar · Hong Kong · Lausana · Londres
Lugano · Luxemburgo · Madrid · Milan · Montreal · Moscú · Nassau · Panama · Paris · Singapur · Tokio · Vevey · Zurich
Lombard Odier (Panama) Inc.
“Entidad Regulada y Supervisada por la Superintendencia del Mercado de Valores de Panamá”.
Licencia para operar como Asesor de Inversiones. Res. SMV No.-528-2013
35
36
THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
37
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. 38
THEBUSINESSYEAR
PANAMA 2014
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(0SiSchDoh_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
THEBUSINESSYEAR
39
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^[^
=[nfc][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. 40
THEBUSINESSYEAR
PANAMA 2014
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.”
Finance
THEBUSINESSYEAR
41
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. 42
THEBUSINESSYEAR
PANAMA 2014
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=ifh&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. Finance
THEBUSINESSYEAR
43
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. 44
THEBUSINESSYEAR
PANAMA 2014
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.
<f[^_r q[m `ioh^_^ ni ×h[h]_
international trade. Why was the
bank established in Panama?
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_
<i[l^[h^=bc_`?r_]oncp_
I`×]_lmch]_;oaomn,*+,(
Prior to his appointment as
nb_=bc_`?r_]oncp_I`×]_l&
;g[l[fq[m?r_]oncp_Pc]_'
President, Chief Commercial
I`×]_li`nb_<[he&[h^
the alternate to the Chief
?r_]oncp_I`×]_lmch]_;jlcf
,**.(B_jl_pciomfsm_lp_^
as General Manager and
Managing Director for North
America at Banco do Brazil,
New York Branch, and a
Director of the Board of
Bladex from 2000 to 2004.
;g[l[fm_lp_^chp[lciom
capacities within Banco do
Brazil since 1975, holding
the positions of Managing
Director of the International
>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. Finance
THEBUSINESSYEAR
45
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.
46
THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
47
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. 48
THEBUSINESSYEAR
PANAMA 2014
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%. THEBUSINESSYEAR
49
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_^(
50
THEBUSINESSYEAR
PANAMA 2014
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.
The Business Year is also available on tablet, giving you
an insider track into the country’s most dynamic
sectors—in the palm of your hand.
w w w. t hebu sin essy ea r. com
Finance
THEBUSINESSYEAR
53
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.
54
THEBUSINESSYEAR
PANAMA 2014
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.
THEBUSINESSYEAR
59
61
63
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.
55
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-
56
THEBUSINESSYEAR
PANAMA 2014
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
=bclcko‹jlipch]_(
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=ifh&[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=ifhchni[]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
"<FG#cgjlipchanb__`×]c_h]s
and reliability of that facility by
interconnecting BLM’s coal plant
to its gas turbine plant.
In what ways has GDF Suez
contributed to the development
of Panama in terms of investment and job creation?
A>@Mo_tchp_mn_^ip_l3**
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] 58
THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
59
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
Mcgh<if‹p[lOhcp_lmcns&
Venezuela.
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
60
THEBUSINESSYEAR
PANAMA 2014
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_]hifac]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
THEBUSINESSYEAR
61
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. 62
THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
63
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.
64
THEBUSINESSYEAR
PANAMA 2014
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.
THEBUSINESSYEAR
67
68
71
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.
65
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-
66
THEBUSINESSYEAR
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.
Industry
THEBUSINESSYEAR
67
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(;(
68
THEBUSINESSYEAR
PANAMA 2014
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.
Industry
THEBUSINESSYEAR
69
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. 70
THEBUSINESSYEAR
PANAMA 2014
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. Industry
THEBUSINESSYEAR
71
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
+3ch,*+-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.
72
THEBUSINESSYEAR
PANAMA 2014
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. THEBUSINESSYEAR
75
77
83
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.
73
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,
74
THEBUSINESSYEAR
PANAMA 2014
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.
Telecoms & IT
THEBUSINESSYEAR
75
INTERVIEW
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
<omch_mmM]biif;^p[h]_^
Management Program at
Hilnb_[mn_lhOhcp_lmcns
in Chicago. He began his
career in the Photographic
N_]bhifias>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. 76
THEBUSINESSYEAR
PANAMA 2014
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
<if‹p[lch=ifig\c[(B_b[m
been working with América
Gpcf`ilnb_j[mn+3s_[lm&
with six spent at the helm of
the Panamanian operation.
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. Telecoms & IT
THEBUSINESSYEAR
77
INTERVIEW
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^<onf_l\_a[hbcm
career with Digicel in 2005,
following a number of years
at Esat Telecom in Ireland.
He spent around three years
working in Barbados and
Aruba for Digicel Caribe, and
b[mm_lp_^[m=?Ii`>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. 78
THEBUSINESSYEAR
PANAMA 2014
INTERVIEW
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.
Telecoms & IT
THEBUSINESSYEAR
79
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. 80
THEBUSINESSYEAR
PANAMA 2014
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. Telecoms & IT
source
CODE
THEBUSINESSYEAR
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.
81
P
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.
82
THEBUSINESSYEAR
PANAMA 2014
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. 84
THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
85
INTERVIEW
BIO
?^o[l^i;hnihciKoclm<(
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. THEBUSINESSYEAR
91
93
98
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.
87
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
88
THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
89
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. 90
THEBUSINESSYEAR
PANAMA 2014
INTERVIEW
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
<omch_mm>_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
THEBUSINESSYEAR
91
INTERVIEW
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. 92
THEBUSINESSYEAR
PANAMA 2014
INTERVIEW
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. Transport
THEBUSINESSYEAR
93
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. 94
THEBUSINESSYEAR
PANAMA 2014
FORUM MARITIME SECTOR
moving
WEIGHT
LAWRENCE LEE
President Evergreen
Marine (Latin America)
W
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)
P
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.
P
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.
Transport
THEBUSINESSYEAR
95
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
O
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)
F
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
T
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.
96
THEBUSINESSYEAR
PANAMA 2014
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. Transport
COMING
out on top
THEBUSINESSYEAR
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
C
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.
O
97
S
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.
98
THEBUSINESSYEAR
PANAMA 2014
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
Transport
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. THEBUSINESSYEAR
99
100 THEBUSINESSYEAR
PANAMA 2014
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
20
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.
w ww. th ebu sinessy ea r. com
102 THEBUSINESSYEAR
PANAMA 2014
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.
THEBUSINESSYEAR
103
107
109
112
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
104 THEBUSINESSYEAR
PANAMA 2014
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.
Real Estate & Construction
THEBUSINESSYEAR
105
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:
106 THEBUSINESSYEAR
PANAMA 2014
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. Real Estate & Construction
THEBUSINESSYEAR
107
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_1aliqnbch^_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. 108 THEBUSINESSYEAR
PANAMA 2014
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. Real Estate & Construction
THEBUSINESSYEAR
109
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
110
THEBUSINESSYEAR
PANAMA 2014
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+1ip_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
THEBUSINESSYEAR
111
INTERVIEW
FIRM
IN NUMBERS
Inversiones
3000 S.A.
foundations
Investment in the
=_hnliFia‹mnc]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`,3chnb_
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. 112
THEBUSINESSYEAR
PANAMA 2014
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. THEBUSINESSYEAR
113
114
115
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.
113
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
114
PANAMA 2014
THEBUSINESSYEAR
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.
Agriculture
THEBUSINESSYEAR
115
COFFEE FOCUS
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=bclcko‹jlipch]_
are stimulating the taste buds of
[×]cih[^imqilf^qc^_
THEBUSINESSYEAR
120
125
127
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.
117
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’
118
THEBUSINESSYEAR
PANAMA 2014
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. 120 THEBUSINESSYEAR
PANAMA 2014
INTERVIEW
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. Health & Education
THEBUSINESSYEAR
121
INTERVIEW
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. 122 THEBUSINESSYEAR
PANAMA 2014
INTERVIEW
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. Health & Education
THEBUSINESSYEAR
123
INTERVIEW
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. 124 THEBUSINESSYEAR
PANAMA 2014
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.
Health & Education
THEBUSINESSYEAR
125
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-
126 THEBUSINESSYEAR
PANAMA 2014
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.
Health & Education
THEBUSINESSYEAR
127
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_=ifh@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. 128 THEBUSINESSYEAR
PANAMA 2014
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. THEBUSINESSYEAR
133
134
138
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.
129
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
130 THEBUSINESSYEAR
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
132 THEBUSINESSYEAR
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
THEBUSINESSYEAR
133
INTERVIEW
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\Ohch
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. 134 THEBUSINESSYEAR
PANAMA 2014
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.
136 THEBUSINESSYEAR
PANAMA 2014
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. 138 THEBUSINESSYEAR
PANAMA 2014
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
THEBUSINESSYEAR
139
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
140 THEBUSINESSYEAR
142
144
144
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
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encourages foreign
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with few exceptions,
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Panama makes no
distinction between
domestic and foreign
companies for
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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
THEBUSINESSYEAR
141
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. 142 THEBUSINESSYEAR
PANAMA 2014
Where to Stay
2
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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
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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
5
4
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
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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,
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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
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Guest Services Business Center,
Fitness Center overlooking the
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of Sensory Spa with Clarins
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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
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an integral part of the heritage and
tradition of Le Méridien.
7
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
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11
THEBUSINESSYEAR
143
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.
3
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
1
5
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.
144 THEBUSINESSYEAR
PANAMA 2014
Helpful Hints
Some survival tips that will help get you through
the first few days in the country
When in PANAMA
Useful Numbers
$
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
/
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
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businesses are closed during
these events.
st.
st.
st.
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.
st.
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
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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