Ramón Martínez de la Guardia Minister of Commerce and Industries

Ramón Martínez De La Guardia, Minister of Commerce and Industries, discusses Panama’s potential to be a hub for nearshoring and logistics.

• Interview

THE TERM “NEARSHORING” has become a trendy name for a practice of outsourcing or moving business processes to a nearby country. It is important to understand that COVID-19 disrupted the way the supply chain was designed, whereby most companies had all their “eggs in one basket” and manufactured in one single place. Reality struck when a limited capability to produce goods in other parts of the world (nearer) to the end consumer had not been foreseen, hence making nearshoring a new solution to possible future crises.

In this sense, finding alternatives to make global commerce flow is not new to Panama. By nature, we are a service-driven economy and from historic times we have been facilitators in doing business. We are also not new to logistics; on the contrary, we have a history and key role from the Spanish colonization of the Americas, where goods converged for transfers to Europe; to the railroad construction that provided a secure and alternate path from the west coast to the east coast of the US for both gold and mail; and afterwards, Panama Canal construction, a megaproject that has enabled Panama to offer continuous global services moving all sorts of products quickly and efficiently to boost trade.

Furthermore, we have matured to become a multimodal logistics center. We are currently the leading maritime hub of all of Latin America with five major shipping ports, three on the Atlantic and two on the Pacific. The geographical location of Panama together with the continuous development of large infrastructures motivates both nationals and foreigners to look at Panama as a great potential distribution center for the markets of the US, Canada, and Latin America through cargo transshipment and as a great consolidation center. Panama's high level of connectivity attracts investors and multinational companies to the country.

Panama achieved an 8.8% increase in transshipment cargo in 2020 vs. 2019, despite the pandemic. The global health crisis accelerated in Panama the implementation of the automation of logistics processes such as the release of cargo online, which cuts delivery times and allows greater efficiency.

An automated liaison system was created between the Ministry of Health and the ports, allowing an expedited line of attention to the ship crew in order to control and manage COVID-19 and mitigate possible cases of contagion. This service and the high rates of biosafety management gave confidence to the crew members of top shipping companies that have a presence in Panama, keeping the maritime routes served by the canal operational and guaranteeing the continuity of all supplies and especially food and medicines.

Panama is also considered the air hub of the Americas due to an extensive network of airlines providing global air transport capabilities as well as a hub for telecommunications, with seven major sub oceanic fiber optic cables all converging here, with over 90% of all digital communication throughout the region passing through Panama. We are also considered the financial hub of the region with over 60 international banks operating out of Panama City. It is important to point out that Panama has been a dollarized economy since its independence

from Colombia in 1903 and does not have a central bank like other countries in Latin America. So, not having a central bank and being tied to the US dollar has enabled us to have little-tono inflation throughout the years.

For these and other reasons, Panama has once again positioned itself as an ideal location for companies to move part or all their supply chain or nearshoring operations here.

We have also developed laws that are geared toward attracting FDI, such as Law 54, which automatically provides judicial security in the sense that it guarantees that the conditions under which a multinational enterprise invests in Panama cannot be changed for a period of 10 years.

Or laws such as our multinational headquarters law, otherwise known as (SEM) in Spanish, which provides excellent benefits for multinational companies to set up their back office operations here. Since the implementation of the SEM Law in 2007, more than 171 multinational companies have established operations here. This in turn has created over 7,000 jobs and provided for more than USD1.1 billion in FDI. Some of those multinationals that have brought their regional operations to Panama and have experienced the benefits of our country include P&G, Dell , 3M, Samsung, Phillips, Maersk, Nestlé, and LG among many others.

We also recently passed a new law EMMA that provides tremendous incentives for multinational manufacturing companies. The new EMMA Law, which was developed specifically to attract manufacturing companies to Panama, was adopted and reformed from our experience with our pre-existing SEM Law. With the foresight on how more and more multinational companies are transitioning their supply chain services to nearshore markets, we are certain that our new EMMA Law, in conjunction with all our other special investment regimes, will make Panama the ideal location for any multinational enterprise to establish operations here.

Among the manufacturing services permitted by EMMA are assembling, manufacturing, re-manufacturing, conditioning, maintenance, repair, and logistics services including distribution centers and warehousing. The permitted activities also include research, product development, and innovation to the same economic group.

One of the top objectives of this regime is to capitalize on technology transfer aiming to attract investments from technology and innovation companies around the world to encourage entrepreneurship and education and enhance Panamanian talent.

Among the greatest advantages and incentives of the EMMA regime are special visas for foreign employees and their dependents, as well as automatically guarantees established by Law 54 of 1998 on the Legal Stability of Investments. Nonetheless, the law also contemplates fiscal and labor incentives.

The diversity of attractions that we have created for FDI must be accompanied by a robust industrial sector. That is why, next to the National Industrial Competitiveness Program (PNCI), we promote and articulate the strategic and regulations processes from the different relevant actors in the country, which seek the enhance the competitive development of our industries and the national industrial ecosystem, making it more efficient.

The theme of nearshoring is real, and we have noticed that many American/Canadian companies that were originally manufacturing their goods in Asia have started to look at bringing those activities to other countries a little closer to home. In this regard, we offer an ideal ecosystem between geography, services, unparalleled connectivity, special regimes, and a business-friendly government; Panama is a top player in this role, and we welcome those companies seeking to relocate and nearshore to a great option.