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2011/05/18
Panama: Latin America's FDI Leader

Panama has replaced Chile as Latin America s leading recipient of foreign direct invest ...

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2010/09/07
Latest sales update on the Trump Ocean Club

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Panama: Latin America s FDI Leader

Panama has Latin America s highest percent of FDI, while Venezuela has the lowest.

 

BY SEAN MATTSON 

Published May 5, 2011


PANAMA CITY - Panama has replaced Chile as Latin America s leading recipient of foreign direct investment as a percent of its GDP, according to a Latin Business Chronicle analysis of new data from the UN the United Nations Economic Commission for Latin America and the Caribbean ECLAC and GDP data from the International Monetary Fund IMF . 

 

Business is finding that tiny Panama has become much easier to locate on a world map. With breakneck economic growth, a $5.25-billion expansion of its famous canal and a capital city skyline unlike any in Central America, Panama has made a quick transformation from a military-run backwater to an outstanding economic performer that is the envy of its regional peers.

 

Panama attracted $2.36 billion in FDI in 2010, continuing a trend that has had the seen the country of 3.4 million people average above $2 billion per year in FDI since 2006. Last year s FDI figure was the equivalent of 8.8 percent of Panama s $26.8 billion economy. That was a higher rate than any other country in the region, including Chile, according to the Latin Business Chronicle analysis.

 

"The foreign investor finds everything here," says Nicolas Ardito Barletta, the president of the PanAm Development Corporation, a regional business-services firm based in Panama City. Barletta points to carrier Copa Airlines, Panama s expanding international airport, the canal, ports, telecom infrastructure and Panama s geographic location as the key components to the country s recent success. "The advantage is the connectivity," says Barletta, a former president of Panama who also heads Panama s private sector-led National Competitiveness Center, or CNC, which guides the government meeting competition-boosting priorities.

 

From giants like Caterpillar and Procter and Gamble - which set up its Latin American management headquarters in Panama in 2007 - to specialized maritime services companies, the foreign investment coming to Panama is diverse. Perhaps the single investment project most emblematic of Panama s newfound role as an FDI magnet is developer London & Regional s $705-million transformation of a former U.S. Air Force base into a one-size-fits-all destination for companies investing in Panama.

 

The 1,400-hectare Panama Pacifico project boasts investment by tech companies Dell, 3M, Sony and BASF, on the ever-growing list of 80-plus firms investing in the residential and commercial development. Foreign investment there is boosted by laws that include tax exemption and flexibility on foreign employee quotas. Nestled against the Pacific side of the Panama Canal, the development also serves an example of smart government stewardship - under guidance, in this case, of the World Bank - of the land and waterway it regained from the U.S. government in 1999.

 

"As long as Panama understands that it s not a 3 million person country but an economic engine that serves 400 million people in the region ... then this economy will keep on growing," says Henry Kardonski, the managing director for London & Regional Panama, which aims to have $160 million invested in Panama Pacifico by July 2011. Once the 40-year project is completed, the goal is to have created 40,000 permanent new jobs in the 20,000-residence development.

 

Kardonski says Panama s authorities "have had a consistent policy" toward business and that the investment climate continues to improve. "I think things are much clearer today than they were three or four years ago in terms of what a company can expect," he said. "The rules and the way things are explained are clearer. The government is clearer on how to attract investment and that attracts the private sector as well."

 

THE FDI WINNERS AND LOSERS

Chile s FDI grew last year, but as a percent of its GDP it was not enough to lose its previous top rank. FDI in Chile last year accounted for 7.4 percent, which ranked it third in Latin America. In second place? Nicaragua, which could boast a 7.8 percent FDI/GDP ratio. However, the FDI numbers are hardly astronomical: $508 million. The high ratio is due to the fact that its economy only stands at $6.6 billion, the smallest in Latin America.

 

A similar pattern is seen by Honduras, ranked fourth. Meanwhile, Peru jumped up to fifth place on the ranking, with its FDI now accounting for 4.8 percent of its GDP. Peru s FDI last year increased 31 percent to $7.3 billion, according to ECLAC.

 

Brazil, which saw FDI jump 87 percent last year to $22.5 billion, is the top recipient in Latin America. But its FDI as a percent of its $2.1 trillion economy is only 2.32. Mexico ranks behind, with 1.72 percent. Meanwhile, Venezuela is the undisputed laggard, with FDI accounting for a negative 0.48 percent of its GDP. Ecuador follows with a FDI/GDP ratio of 0.28 percent.

 

MUCH TO DO 

But Panama still has plenty to do to improve. The World Economic Forum ranks Panama 53rdon its 2010-2011 Global Competitiveness Index. While the ranking is an improvement on a year earlier and places Panama among Latin America s leaders - well behind Chile but a few spots ahead of ahead of Costa Rica, Brazil, Mexico and Colombia - the ranking is dragged down by Panama s dismal judicial and education systems.

 

"The biggest problem we have right now is lack of trained labor at all levels from the worker up to the CEO of a company," says Frank Kardonski, the managing director at the Panama office of commercial real estate NAI Global and a cousin of L&R s Kardonski. "Basically, we re at full employment. The people who are not working right now are people that have no education."

 

"Most companies I speak with, are having very big difficulties in finding people in order to keep up with the growth that they have," says NAI s Kardonski. In a separate interview, L&R s Kardonski agreed that skilled labor was probably the top concern for businesses. He added that companies are finding the skilled labor they need through training and even by repatriating skilled Panamanians living abroad.

 

Barletta, who has a PhD in economics from the University of Chicago, says lack of skilled labor put the brakes on Panama s now-waning luxury condominium boom, which helped push Panama s GDP expansion to double digits in 2007 and 2008. He says Panama could grow at an average rate of between 5 and 8 percent of GDP for the next 15 years but that numerous bottlenecks need to be addressed.

 

Of the six major issues Barletta s CNC sees as potential problems he says only one - infrastructure - is being tackled with urgency. Education and training, institutional strength including rule of law and respect for contracts, efficiency of public services, poverty, and governability are the other concerns.

 

"In not one [area] they are advancing at the necessary pace," says Barletta, pointing to a likely specialized labor shortage as thousands of new hotel rooms come online in Panama in the coming years. He also foresees shortages of English-speakers for call centers, maritime and logistics specialists, craftsmen, middle managers and engineers. "Precisely in the most dynamic activities," he says, estimating that the crunch could adversely affect the economy in three years.

 

Some of the needed changes are generational and progress is slow. Panama s newspapers regularly churn out tales of unpunished corruption allegations, an education reform President Ricardo Martinelli has trumpeted has not been unveiled, and there appears to be little government interest in acknowledging problems with the judicial system.

 

Martinelli, a multimillionaire supermarket chain owner, has struggled with his agenda in spite of enjoying the support of a majority of legislators. Due to protests, he quickly and surprisingly repealed a mining law reform he originally backed to promote foreign investment in mines. But Martinelli s pro-business reputation so far trumps concerns that his unpredictable decision-making style could hamper the investment climate. "It could, but for now I don t see it," says Barletta of the mine law debacle possibly affecting sentiment among investors. -With additional reporting by LBC staff.

 

© Copyright Latin Trade Group

 

LATIN AMERICA S FDI-GDP RANKING   

2010 figures in millions of US dollars.  © Copyright Latin Business Chronicle


Rk

Ch.

Country

FDI

GDP

%

 

 

 

 

 

 

1

+1

Panama

$2,363

$26,778

8.82%

2

+1

Nicaragua

$508

$6,551

7.75%

3

-2

Chile

$15,095

$203,323

7.42%

4

+4

Honduras

$798

$15,347

5.20%

5

+1

Peru

$7,328

$152,830

4.79%

6

+1

Uruguay

$1,627

$40,272

4.04%

7

-2

Costa Rica

$1,412

$35,780

3.95%

8

+2

Bolivia

$651

$19,373

3.36%

9

-5

Dom. Rep.

$1,626

$51,626

3.15%

10

-1

Colombia

$6,760

$285,511

2.37%

11

+2

Brazil

$48,462

$2,090,314

2.32%

12

same

Mexico

$17,726

$1,039,121

1.71%

13

+2

Argentina

$6,193

$370,269

1.67%

14

same

Guatemala

$678

$41,471

1.64%

15

+1

Paraguay

$268

$18,475

1.45%

16

-5

El Salvador

$89

$21,700

0.41%

17

same

Ecuador

$164

$58,910

0.28%

18

same

Venezuela

-$1,404

$290,678

-0.48%

 

 

LatAm/Caribb.

$112,634

$4,832,272

2.33%


Sources:
 ECLAC  FDI , IMF  GDP , Latin Business Chronicle.
 
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