In their recent article titled “Key Elements for Cultivating Confidence,” the Chamber of Commerce, Industry, and Agriculture of Panama (CCIYAP) emphasizes the importance of attracting more foreign direct investment (FDI) to the country. Their statement serves as both a message of hope and a cautionary note.
On one hand, the Panamanian Consumer Confidence Index (ICCP) for March 2023 indicates a notable improvement compared to the January data, reflecting increased optimism among the populace regarding their economic prospects in the coming years.
However, the Chamber expresses concerns about several issues, including a decline in private investment, the government’s debt to suppliers exceeding $1.4 billion, an education system that is disconnected from the country’s labor market, a significant drop in FDI levels, and inconsistencies in the messages conveyed to the international investment community.
Worries About FDI as a Measure of Confidence in the Country
The Chamber is apprehensive that FDI has not surpassed $2 billion over the past two years, whereas it was over $4 billion before the pandemic. To fully experience the benefits of this investment, Panama should strive for an annual FDI of $5 billion.
In contrast, other countries in the region have made substantial progress. In February 2023, Mexico announced a historic record of $3.447 billion in FDI in the tourism sector in 2022, tripling the 2019 levels ($1.0914 billion) and doubling the previous record set in 2017 ($1.6454 billion).
Additionally, FDI inflows in the Dominican Republic reached $3.802.2 billion in 2022, surpassing 2021 levels by 22.57%, 2019 levels by 25.85%, and even the highest recorded amount in 2017 ($3.5 billion) by 6.5%.
Lastly, the Costa Rican Coalition for Development Initiatives (CINDE) and the Ministry of Foreign Trade (COMEX) announced that in 2022, Costa Rica attracted 101 FDI projects, resulting in 22,000 net jobs, including 11 new investments from seven non-traditional countries such as Canada, Chile, and Germany.
Significant Improvement in Consumer Employment Prospects
While the Ministry of Labor (MITRADEL) statistics show that the monthly average of new job contracts processed in the first quarter of 2023 remains the same as the previous year (20,000 per month), in January 2023, only 27% of ICCP respondents were confident about securing employment in the next 12 months. This percentage increased to 42% in the March 2023 survey, marking a 15-point jump in just two months.
This substantial increase in confidence can largely be attributed to the announcement of a new agreement between the government and Minera Panama. The breakdown of negotiations in January 2023 had caused uncertainty among both workers and contractors of the mining company, leading to a suspension of purchases, hiring, and many loans and credit lines.
The announcement of the agreement had an immediate impact on both purchasing and hiring, as well as a clear psychological boost, especially in sectors that generate significant employment, such as commerce, industry, construction, and various service-related activities (including maintenance). These sectors have been grappling with high levels of job insecurity.
The labor crisis in Panama isn’t primarily an employment crisis but rather a crisis of trust. In 2017, MITRADEL processed 445,000 new job contracts compared to 240,000 in 2022, indicating a decline of 205,000 contracts in five years. Formal employment grew in areas with investment, such as mining, energy, and education. However, 90% of the job reductions occurred in four sectors: construction (50%), hotels & restaurants (19%), commerce (14%), and information & communications (7%)—all linked to reduced levels of private investment.
As a result of the pandemic, the private sector lost 407,000 formal jobs, including 364,000 in 2020 and an additional 43,000 suspended workers who did not return to work, accounting for 47% of all private formal jobs that existed before COVID-19.
Reviving these jobs will require substantial investment and instilling confidence that investing in Panama is a sound business proposition. Let’s roll up our sleeves and get to work! COBRE PANAMA, MINERIA COBRE; FIRST QUANTUM COBRE PANAMA, MINERIA COBRE; FIRST QUANTUM COBRE PANAMA, MINERIA COBRE; FIRST QUANTUM
