Luis Eduardo Ocando B., Country Managing Partner & Tax Leader, EY Panama & MeCAR Market Segment Leader EY Latam North Region

EY is proud to espouse the benefits of doing business in Panama, and sees a quick return to form in 2022 post COVID-19.

• Interview

How do you see COVID-19 impacting supply chains?

Many companies began to consider their future when the pandemic began. Many companies are based in Asia and most of them are major players in the supply chain of goods and products. For three months after the pandemic started these companies tried to adapt to the situation; to the new normal. With the pandemic, companies are changing their supply chains. They will continue producing in China, because it is costly to compete with China because of the low labor costs. However, something that is happening is that companies will have distribution chains all around the world. Right now, we are seeing that multinational companies have warehouses very close to the consumers. Panama plays a specific role in that sense since it is the hub for connectivity in this region. In Panama there is only around 80km between the Pacific and the Atlantic. The companies that want to be very close to the consumer choose Panama. The production will remain in China, but the companies that want to serve their consumers faster will consider being in a country like Panama in order to do that. Panama is the hub for the Americas.

What else sets Panama apart, especially in terms of nearshoring?

The products need to be very close to the consumers and Panama is playing a big role in that. The widened Panama Canal expansion is very important. A problem at the Suez Canal recently caused big problems in the global supply chain. In Panama we have two different sets of locks. Warehouses within the country and the different regimes that Panama has, like the Panama Pacifico and the new EMA law for manufacturing anywhere in the country, are all important to promote nearshoring. Also, it is not only about connectivity via the Panama Canal; Tocumen Airport also works 24/7 for the distribution of goods within the region.

What challenges does the country face to increase foreign investment?

Panama has to work very hard to reduce the cost of energy as it is a big issue that this country is facing. At the end of the day, the companies that want to establish a warehouse for distribution to the region will be evaluating the country, which offers many advantages thanks to its geographical location, although the cost to be here in Panama is higher than other countries. Our understanding if that Panama is working on reducing

costs and being more competitive, then multinational companies are evaluating Panama as place to establish their supply chain. Even though the cost of electricity and labor is higher than other countries in the region, Panama offers a more secure environment for companies. Considering the pros and cons, Panama shines thanks to its multinational warehouses and nearshoring strategy.

How attractive is Panama’s infrastructure, and what advice do you offer companies looking to set up shop here?

The infrastructure in Panama is very good. And it is not only maritime infrastructure; air connectivity is also strong. So, when you combine air and maritime cargo, the country is very well connected. Companies tell us that Panama is a great country to be in to be close to consumers. Another important factor that Panama has compared to the region is that Panama uses the US dollar as its currency. All transactions are happening in US dollars and that is very important because the companies that have facilities, maritime routes, or air routes do not need to worry about currency fluctuations like in other countries in the region. We always mention to our clients that Panama is great for connectivity. However, there can be different issues that arise. For example, for a US multinational, maybe being in Panama could generate additional tax costs in the US. However, with the proper structure and consulting a company could have the best of both worlds. In other words, a company could be a US multinational with operations in Panama and can consolidate everything for tax purposes in the US, meaning there is no incremental cost of operating in Panama. If a company has some issues with labor costs, it can have a production facility in another country in Central America where the cost is lower and a distribution center in Panama. When we have clients that want to reduce production costs, we advise them to use Panama as a center for distribution and the place where they can get their materials, and then to send that to other countries in region.

What is your outlook for the future?

Last year was a big transition and I think we are in a strong place now to begin opening up. However, the world has changed and we cannot ignore that. Our opinion is that people won’t be working in the same way they used to work in the past. For example, we did a survey and we found that people won’t be going back to the office seven days a week again. People might go in for three or four days a week. In the past we talked about needing to travel to meet a client on the other side of the world because the business is confidential. Now those types of trips will be reduced significantly. Now when we need to travel overseas it will be for something very important. Panama is doing very well with the vaccine. Right now, we see the country’s recovery clearly. We see rush hour again in Panama; people are starting to go out, albeit with reduced capacity, but what is important is that if things continue like this, by the end of the year we will be at the pre-pandemic level.