Why Panama's looking to jump on the nearshoring bandwagon

Panama’s investment and export promotion agency PROPANAMA hopes to turn the country into a destination for nearshoring.

BNamericas spoke with PROPANAMA head Carmen Gisela Vergara about this phenomenon, the country's strategy to attract foreign investment, the crisis affecting the Panama Canal, and the most important infrastructure projects in the Central American nation.

BNamericas: What are the most important infrastructure projects for the agency?

Vergara: These projects are a very important source of investment for us. We have developed a PPP law and thanks to it we have developed a portfolio of investment projects that can be developed through this mechanism. Obviously, they are all infrastructure projects ranging from new roads to bridges, the extension of the subway, and a host of other projects. 

In addition, in infrastructure we have a series of private projects that are being developed in Panama that may also be of interest for foreign investors. These include several ports, including the port of Barú in Chiriquí, which is the northernmost province on the border with Costa Rica, a region that is highly productive. Our famous Geisha coffee comes from there and vegetables, flowers, fruits and other products also. This is a port that will handle containers, cruise ships, bulk cargo, and will also be used for short sea shipping in Central America. 

Then we have a port at the Atlantic entrance of the Panama Canal that is being developed by the MSC shipping company – one of the largest in the world. This port will also have tax free zones and warehouses for the transfer of cargo through Panama. 

We also have the largest wind farm in the Central American region that is expanding and is also an investment opportunity for those who want to participate. We have developed a new special economic area in the center of the country in an area called Agua Dulce. As it is a special economic area, it is governed by a law that supports the setting up of new industries or projects. There is a port project for handling cargo and passengers, projects for tax free zones and warehouses. It is quite large. 

We also have the expansion of the subway. Panama City is one of the only cities in Central America that has a metro that goes from the airport to the center of the city and now we’re extending the metro across the canal so that it connects to the other side of the country, improving the quality of life of the people who live on that side. This also helps us with the issue of sustainability, reducing emissions and the use of vehicles. 

Regarding energy, the energy transition strategy has a portfolio of projects for more than US$4bn that are already specified. One of the topics it contains is green hydrogen, and another is waste management, for example the whole topic of waste to energy, to manage garbage and transform it into energy. The issues of urban public and private transport are also included, and its conversion towards sustainable transport with clean energy, as well as a series of other projects that are specifically designed within the energy transition strategy.

BNamericas: There are some projects that the PPP law does not include, for example water and sanitation. Do you have any plans to open these sectors?

Vergara: No. The pandemic meant that the law could not be developed as we would have wanted, so we’re working on the law as it is, with the content it currently has. Then we will go progressively in other directions. This is a pre-election year, next year the government changes on July 1, so we are sure that the next administration will continue to expand on what is being developed now.

BNamericas: Right now there is a drought that has affected the Panama Canal. What solution does the country see for this problem?

Vergara: The issue of climate change affects all countries. Panama is one of the carbon negative countries in the world and we take the issue of sustainability very seriously. The canal is our main asset and it’s important for us to maintain the reserves of green areas, to protect our oceans, and we do it in an organized way as a country. The canal is already analyzing the alternatives that the United States Army Corps of Engineers could have, which is supporting them to design a strategy to guarantee not only the water required for the normal operations or expansion of canal activities, but also for Panama City, so that its inhabitants and the companies that work there also have the water that is required. We are working on this, it’s a very serious priority for the country and of course for the government.

BNamericas: How does Panama view the plans of other countries to build dry canals?

Vergara: All the countries are competing to attract this foreign investment and of course we welcome the fact that other countries want to promote their investment sectors. That is an internal decision of the countries in which Panama has nothing to comment on. Each country is free to attract investment towards the economic sectors that it determines. Meanwhile, we will continue working with the infrastructure that we already have in our country, with our canal that is over 100 years old and our logistics sector that speaks for itself. Ships on 180 maritime routes leave the canal to 170 countries, plus there are 154 that use the ports directly, so all options are obviously welcome at a global level that can improve the economic environment of all Latin American countries. Panama will never disagree with the economic and social development of the region.

BNamericas: Do you have an estimate of how much the nearshoring phenomenon could bring to Panama?

Vergara: No, this is a topic that is constantly evolving. The conditions that existed during the pandemic and in 2021 are no longer what we have now. The world is evolving rapidly due to technology so we adapt to these global processes and offer the country as a platform. We have a strategy to attract companies that want to see Panama as a platform through nearshoring to enter the Latin American and Caribbean markets. It is difficult to put a number on this type of development because we have nothing to compare it to before, but we have seen how the number of multinationals that have settled in our country has grown.

BNamericas: In the case of Panama, would nearshoring bring companies closer to the South American market?

Vergara: To Latin America and the Caribbean, but it could also be to North America. Now, for example, the United States included Panama as one of the seven countries for the development of the semiconductor industry, which obviously calls for investment not only from the United States but from other countries that want to develop these types of inputs for the US. We cannot and do not want to be irresponsible by promoting Panama as something for which we do not have the skills or competencies, but this industry is very broad, with a very broad value chain. There is a very specific niche that can be taken advantage of by different countries; not all of us have to do the same or more of the same. For example, we can do the tests on semiconductors that are developed elsewhere, the packaging and re-export of semiconductors, so we can do these things from now on in Panama while we’re building the capacities to move towards the development of these types of products.

BNamericas: What have been the challenges in attracting private investment to Panama?

Vergara: The country is competing with the rest of the world. After the pandemic, even the largest countries have thrown themselves back into the ring to attract investment that boosts their economy, obviously that is the biggest challenge. The fact that we are a small country in terms of population and territory is also a challenge, but those are the problems we want to have: that the population in Panama have jobs and that it is necessary to open up so that other people can come to work. 

All these problems are going to be solved along the way. What we have done very well is focus, because we know very well what our advantages are and what our weaknesses are. We do not want to compete in areas in which we do not yet have the skills or competencies. These things are being developed, but in the meantime, doing a value chain analysis, there are different areas in which we want to compete: logistics, digital, energy, tourism or agriculture. We have managed to determine where we can make an impact with the installed capacity we have today, with the human resources we have, to start there and then grow as we develop the other areas of those value chains.