In its most recent column titled “Key Factors for Building Trust,” the Chamber of Commerce, Industry, and Agriculture of Panama (CCIYAP) emphasizes the importance of attracting more foreign direct investment (FDI) to the country. In its statement, the Chamber highlights both positive aspects and concerns.
On the one hand, the Panamanian Consumer Confidence Index (ICCP) for March 2023 shows a significant improvement compared to the January measurement, reflecting increased optimism among the population regarding the future economic prospects of their households.
However, the Chamber also warns about the decline in private investment, the government’s debt to its suppliers exceeding $1.4 billion, the misalignment of the education system with the country’s job market reality, and the inconsistencies in the messages that Panama sends to the international investor community.
The main concern lies in the fact that over the last two years, FDI has not exceeded $2 billion, contrasting with the figures exceeding $4 billion before the pandemic. The Chamber emphasizes that for the country to experience the positive effects of investment, it is estimated that it should reach $5 billion annually.
In contrast, other countries in the region have made significant progress in terms of FDI. Mexico announced a historical record in its FDI in the tourism sector, with $3.447 billion in 2022, tripling the levels of 2019 and doubling its previous record reached in 2017. The Dominican Republic recorded FDI flows of $3.8022 billion during 2022, surpassing previous years’ levels and establishing its historical maximum in 2017. Costa Rica has also succeeded in attracting FDI projects, generating net jobs and receiving investments from diverse geographies.
As for job prospects, although the average monthly number of new labor contracts in the first quarter of 2023 is similar to the previous year, there is an increase in confidence among ICCP respondents. This is attributed to the announcement of a new agreement between the Government and Minera Panama, which has had a positive effect on purchases, hiring, and psychological confidence in employment-generating sectors.
The labor crisis in Panama is more related to trust than to the lack of employment. Although employment has been generated in sectors with investment, the reduction in formal employment has been significant in areas such as construction, hotels and restaurants, trade, and information and communications, which are directly linked to the decrease in private investment.
In summary, greater investment and instilling confidence are required to overcome the labor crisis in Panama and attract the necessary FDI for the country’s economic development.
There have been significant improvements in consumer job prospects.
Although MITRADEL’s figures indicate that the average monthly number of new labor contracts in the first quarter of 2023 is the same as the previous year (20,000 per month), in January 2023, only 27% of ICCP respondents expressed confidence in finding employment in the next 12 months. However, this percentage increased to 42% in the March 2023 measurement (+15 percentage points in 2 months).
This significant increase in confidence is largely due to the announcement of a new agreement between the Government and Minera Panama. The breakdown of negotiations in January 2023 generated uncertainty for both workers and contractors of the mining company. Many of them halted their purchases and hiring until they had a clearer picture, while loans and bank credit lines were also put on hold.
The announcement of the agreement had an immediate effect on both purchases and hiring and also had an evident psychological impact, especially in sectors that generate a large amount of employment, such as trade, industry, construction, and other service activities (like maintenance). These sectors have experienced high levels of labor precariousness.
It is important to note that the labor crisis in Panama is not about a lack of employment but about trust. In 2017, MITRADEL processed 445,000 new labor contracts, while in 2022, this figure was 240,000 (a reduction of 205,000 contracts over 5 years). Formal employment has been generated in areas with investment, such as mining, energy, and education, but 90% of the labor reduction occurred in four sectors: construction (50%), hotels and restaurants (19%), trade (14%), and information and communications (7%), which is directly related to lower levels of private investment.
As a result of the pandemic, the private sector lost 407,000 formal jobs, including 364,000 in 2020, and 43,000 suspended workers who were unable to regain their jobs. This represents 47% of all private formal jobs that existed before COVID-19.
Recovering these jobs will require significant investment and instilling confidence that investing in Panama is a good opportunity. It’s time to act!
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