Ever since the country wrested control of the Panama Canal in 1999, economic development has taken on several new dimensions including the rapid growth of the logistics sector. The country’s location at the epicentre of trade in the region, growing presence as a hub for logistics and trade, relatively small size and influential financial sector have in fact paved the way for some to associate economic progress with that of Singapore during the 1980s and 1990s, though Panama has some way to go before such comparisons are warranted. Capitalising on the constant flow of trade through the canal has become one of the key sources of Panama’s economic growth in the past decade, a reality that could be even further exaggerated upon the completion of the canal’s expansion. As well as the canal, the sector boasts a combination of advantages to outrival regional competitors including a stable and peaceful democracy, a friendly investment climate, some of the region’s best infrastructure and a strategic location. However, it also faces several challenges in its bid to sustain strong growth in the long term.
Progress & Rankings
In 2012 the logistics sector accounted for 24.1% of GDP, according to a study conducted by Panama’s Association of Executives with data from the National Comptroller. This represents nearly double the sector’s 13.3% contribution to the wider economy in 2000.
As a result of its strong performance in recent years and its likelihood of impacting future economic growth, logistics was singled out as one of four pillars of economic growth in the administration’s Strategic Economic Plan 2010-14. Despite improving its status as a logistics hub over the past decade, Panama’s ranking in the World Bank’s 2012 Logistics Performance Index fell from 51st globally in 2010 to 61st in 2012. In the survey, Panama’s scores for Customs, tracking and timeliness decreased, however, the score given to the country in terms of overall infrastructure increased for the 2012 report. The country was ranked seventh within Latin America, behind Chile (39), Brazil (45), Argentina (49), Mexico (47), Uruguay (56) and Peru (60).
The importance of the sector to economic development has seen the creation of several public, public-private and private entities that all maintain the same goal of ensuring the continued development of the sector and increased collaboration between the public and private sectors. In 2010 the National Logistics Council (Consejo Nacional de Logística, CNL) was created specifically as a platform for collaboration between the public, private and academic institutions involved in the sector. The CNL falls under the umbrella of the Ministry of Commerce and Industry (Ministerio de Comercio e Industrias, MICI) and the Georgia Tech Logistics Innovation and Research Centre, an independent research initiative which was established by the Panamanian government for the sole purpose of improving the logistics performance and developing Panama into “the trade hub for the Americas”.
In February 2012 the MICI took another step forward in structuring its supervisory and planning capabilities when it established the National Logistics Cabinet. Though it includes private sector input, the cabinet primarily provides the executive branch a stage for inter-agency dialogue in order to ensure collaboration throughout government in the establishment of a Master Plan for National Logistics Development Strategy. The cabinet exists on three levels: the executive level features an executive committee of ministers, the operative level consists of MICI appointees to follow up on implementation and strategic planning, and the consulting level whereby public and private institutions are appointed by the executive committee to offer insights.
Within the private sector, the Panama Business Logistics Council (Consejo Empresarial de Logística, COEL) was also launched in 2013. Though also established to act as a mediator between the public and private sectors, COEL provides the private sector a platform for inter-company dialogue as well.
The basic rationale for creating a logistics hub in Panama obviously stems from the presence of the Panama Canal. However, its magnetism for attracting investment goes far beyond that. The country’s location has often been described literally as the bridge between the Americas due to the fact that it connects South America to Central and North America. This fact alone has made Panama a natural trans-shipment point for centuries – in fact it played an important role in moving precious metals such as gold and silver from Spanish colonies in South America to Europe.
In an increasingly globalised climate the country’s location in the heart of the Americas is supported by business-friendly legislation designed to incentivise companies to establish not only logistics and distribution operations in Panama for the Latin American region, but also management and back-office operations through Law 41 which provides incentives for multinational regional headquarters based in Panama. Additional legislation is provided through the existence of free trade zones and special economic areas which allow for the duty-free re-exportation of goods and services (see Economy chapter). On top of this the country compares favourably in terms of safety, security and infrastructure when compared with potential regional competitors such as Costa Rica, Jamaica or Colombia.
One of the most identifiable obstacles to the continued development of the sector is the fact that it is increasingly difficult to source a sufficient supply of qualified labour to manage the sector’s growing needs, particularly in warehouse management. “If Panama want to be the logistics hub of the Americas some improvements in human capital are needed, along with new regulations applied to the policy of ‘know your customer’,” David Hanono, CEO of CIF Express, told OBG.
According to Daniel Isaza, the president of the Logistics Business Council, the country needs 5000 additional warehouse management systems-certified managers in the short term to fill the gap, which is something COEL is working to resolve. Isaza went on to explain that the shortage has created an atmosphere of poaching within the logistics industry as companies continually to battle for human resources, leading to dramatic and unwarranted increases in salaries. The challenge extends all the way to the education sector where few Panamanians elect to pursue a career in logistics. “It is really rather disappointing that a country with so many maritime and logistical resources has such difficulties in recruiting students to pursue a career in these fields,” Isaza said. On top of increasing the quantity of university level graduates it is also necessary to improve the quality by reforming university-level curricula, which are currently too heavily weighted in theoretical learning, according to Isaza.
However, other challenges also exist. Despite the recent additions of the CNL and a National Logistics Cabinet, many within the private sector still lament a lack of longer-term strategic planning on behalf of the government. Many are perplexed as to how a sector responsible for nearly one-quarter of economic production still lacks a dedicated ministry or secretary. Though the National Logistics Cabinet will theoretically ensure collaboration between governmental agencies in driving long-term strategy, the fact that it meets just once every two months likely means its role in sorting more detailed, immediate issues will be minimal.
Another issue stems from an outdated Customs regime which decreases the attractiveness of the country as logistics centre. Indeed, high marks in international metrics on infrastructure are often counteracted by low marks in Customs.
For example, the World Economic Forum’s “Global Competitiveness Report 2013-14” ranked Panama’s maritime port (6th) and airport infrastructure (5th) among the best in the world, while its Customs procedures placed 39th. Isaza pointed out that the country indeed possesses a “relatively” good system, though given the aspirations of the sector to become a logistics centre it is a system that needs updating every two to three years, not every five or 10 as is the current custom.
“If Panama wants to attract airlines, the country must remove current hurdles for airlines that want to use Panama as a hub and that are not Panamanian owned,” Jose Antonio de Obaldia, managing director of Central America of FedEx, told OBG.
Despite the seemingly numerous and complicated issues facing Panama’s logistics sector, its future is certainly looking bright. The significant advantages the country boasts – from the canal to an open investment climate to the country’s safe democratic environment and geostrategic location in the heart of Central America – clearly outweigh the obstacles currently facing the sector’s development.
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