Ever Given Opportunities

The recent Suez Canal incident has Latam nations, Panama included, contemplating the prospect of grabbing a chunk of China’s exports to the US, while an established BPO sector continues to pay dividends in the services-driven economy.

• Focus: Nearshoring & Connectivity

THE COVID-19 pandemic has proven, as adversity frequently does, that out of crisis comes opportunity. Just think telcos and online services providers in the era of remote working and isolation. In a similar vein, the recent blockage in the Suez Canal resulting from cargo ship Ever Given saw costly trade delays that recommended more proximate commercial solutions.

To give some perspective, around 15% of global trade passes through the Suez Canal. In wider terms, United Nations Conference on Trade and Development (UNCTAD) research from 2020 indicates that global seaborne trade had grown by 3.5% per annum over the previous decade. And being around 14 times cheaper than air, seven times cheaper than road, and 3.5 times cheaper than rail transportation, in terms of global trade seaborne shipment claims 80% in volume and 70% in monetary terms. Essentially, the maritime sector remains the most strategic for global commerce.

THINKING LOCAL(ISH)…

Given the critical dependence of global commerce on established supply chains, the Suez Canal incident has unsurprisingly made many manufacturers more determined to relocate factories closer to home to avoid dependence on shipping components from manufacturing giant China. Indeed, the Suez blockage was caused by a ship bound for the Netherlands from China, delaying 300 other cargo vessels in the process.

Enter nearshoring, an economic model that promises to become a trend enabling Latam nations to better capitalize on the US market. Current data from Inter-American Development Bank suggests that LatAm stands to generate annual income of USD70 billion should it manage to capture a mere 10% of current shipments from China. Moreover, the LatAm economies, already producers of such products as brown goods, autos and textiles are experienced and in some cases tooled for the task in terms of infrastructure and manpower.

…THINKING PANAMA

The writing was on the wall when a Gartner Consulting survey in 2020 revealed that 33% of companies out of 260 polled had relocated factories out of China or were set to do so by 2023. Beijing-Washington tension and inadequate hygienic supplies from China during the pandemic only heightened concerns over excessive dependence on Chinese products. And among several nations keen to become nearshore suppliers including Colombia, Costa Rica, Uruguay, the Dominican Republic is the address of the world’s other major commercial waterway, Panama. There are perennial obstacles to overcome first however in many Central American nations, such as prohibitively expensive transportation costs and infrastructure insufficiency, as well as off-putting bureaucracy. Fortunately, this is not the case for Panama. As Nearshore Americas reveals Panama’s economy saw an annual growth rate of 5.6% over the five years to 2019, sprinting to the higher echelons of the global league, and as an English-speaking nation, it is a prime nearshore destination, and…

…NOT JUST FOR MANUFACTURING

Nearshoring is also a model very much applicable to the services sectors, notably taking the form of Business Process Outsourcing (BPO)—where call centers boast multi-lingual staff as capable as a more costly workforce on US soil. Indeed, Panama has excelled in the international services market, and services overall account for around 70% of GDP.

Panama has also made notable inroads higher up the services value chain, giving the more familiar global offshore addresses of India,

the Philippines and China a run for their money. The four economic sectors focused on by government in recent years have been finance and banking services, hotels and tourism, construction, and naturally enough, information technology workers to man those phones, but also to provide higher valued services, known as Knowledge Process Outsourcing (KPO). Moreover, the local workforce is relatively affluent and hence stable, unlike elsewhere in the region where economic migration is high. And meanwhile, Panama’s installed ICT and telco infrastructure is of the quality required for high volume international traffic. This has won over leading BPO providers including US Dell and international call and contact-center Sitel. Accountancy firms are relying on Panama’s nearshore credentials for back-office services, including the processing and recording of invoices and sales transactions, as well as accounts management, and information reporting. And meanwhile, IT, HR, customer service, procurement, payroll, real estate and marketing services are delivered by the highly educated workforce to financial services sector clients. Panama has clearly demonstrated its capacity to retain the technically and linguistically skilled workforce required of a nearshore hub. Furthermore, the swift acceptance of the post-Covid-19 ‘new normal’ can only have a catalytic effect on the decision to seek more proximate solutions to supply needs, be they delivered by ship or encoded in zeroes and ones.