Dec. 10, 2015


Carlos G. Fernández

Panama

Carlos G. Fernández

President, the Chamber of Commerce, Industry, & Agriculture of Panama

"Our economic growth has been driven primarily by the service sector."

BIO

Carlos G. Fernandez is a Civil Engineer and graduated from the Worcester Polytechnic Institute with a Master’s in Construction Project Management (CPM). He was elected as President of the Panamanian Chamber of Commerce, Industry, and Agriculture in March 2015. As the current President of Constructores y Administradores de Obras, S.A. (CAO), he is also involved with the construction and development of new projects, inspections, and general administration.

Panama's GDP is projected to grow by 6.3% in 2016 according to the World Bank, making it the most dynamic economy in the region. What is driving this growth?

Global economics are challenging now due to factors like the price of oil, the financial crisis, fluctuations in currency exchange rates, and the declining acquisition power of many countries that do not use the dollar. We are concentrated on the local region of Central American, the Caribbean, and parts of South America, which for many years have been the primary market for Panama's exports. Most countries in the region are still emerging economies. Latin America has been the emerging market of primary interest over the last few years. Consumption has decreased dramatically in the submerging markets of Brazil, Venezuela, and Colombia. In the context of trends in some regional economies, our roughly 6% growth in 2015 gives us great confidence.

How has the industrial sector performed during 2015?

The industrial sector is struggling in Panama. Our economic growth has been driven primarily by the service sector rather than industry. Our main asset leveraged for economic growth is the Canal, which creates opportunities for services like insurance, banking, and maritime services. We cannot change from a non-industrial country into an industrial country over the course of one year. The industrial sector is driven by our available natural resources. We do not have reserves in oil and gas, but we have copper and gold and we must work with what we have. Our main resource is our geographical value, which no other country can match. The global economy has to go through Panama. We are a logistics hub of historical importance with the Canal as well as one of the most modern airports in the western hemisphere.

The CCIAP highlighted the 60% cumulative increase in the minimum wage in Panama between 2007 and 2015. Does such as large increase correspond to an increase in worker productivity?

Our law stipulates that the minimum wage be revised every two years. The past administration took populist measures to gain popularity among voters. The law states that the private sector must meet with labor unions to collectively negotiate changes in the minimum wage. If they cannot agree on a revision, the elected government is to arbitrate a decision. Purchasing power has decreased as a result of a rise in consumer prices. The government increased the minimum salary by 15% in 2009, 2011, and again in 2013. These measures exacerbated the problem by driving up the cost of labor and production. The combined external and internal inflation reached a level of 4.5-5% across a period of two to three years. That created a lot of instability in the market, but inflation is now down to low levels, at a less than 1%.

Why was Panama chosen as the regional hub for the Food and Agriculture Organization of the United Nations (FAO)?

This decision was a result of our geographical position. A lot of agricultural production comes from the rainforest, due to the conducive climate. Agriculture accounted for 25% of the country's GDP in 1950, while it currently contributes just 1.8%. The question becomes how to transform agriculture into a higher value added sector by utilizing new technology and incentives to drive down production costs. We have to establish a vision for the future of Panama's economy. Our main strength lies is in the services of port, cargo ship transport, and banking and insurance, which we have developed over the last century; agriculture will never be our primary driver. Another industry in which we need to invest resources is tourism. We have to advertise Panama abroad. We want to reach 3 million annual visitors by 2019. We received 1.7 million visitors in 2014 and that figure will reach nearly 2 million by the end of 2015. We will invest $100 million over the next three and a half years for tourism marketing across the world. We have the necessary hotel capacity. The Ritz-Carlton will join in 2016 the already broad list of renowned chains here, including Hilton and the W. Tourism has a lot of growth potential that will be unlocked in due time.

What contribution does the construction sector make to growth?

Growth in the construction sector will be high in the next few years. The sector grew impressively during the past three or four years due to the expansion of the Canal, but now construction investments are moving toward other infrastructure initiatives. From 2014 to 2015, construction growth overextended to 14%, but it is now plateauing and returned to around 7% this year. Contributions from the sector totaled $2.5 billion in 1H2015, so it still growing. We are building a second line of the metro, a $2 billion project that will span nearly 44 years, as well as renovating Colón City, a $600 thousand project. We are also bidding on a third metro line, which could reach a total value as high as $2.4 billion. We are bidding on another major infrastructure project to build a fourth bridge across the Canal. Two or three projects can have a lasting impact on economic growth and job creation. There is another investment opportunity to develop a project in water, wastewater, and sanitation.

A number of important FTAs have been signed in the past year. Which industries will benefit most from an increase in trade with partner nations, and how will potential negatives be mitigated?

The most complex FTA is the agreement with the US, under which import tariffs decrease gradually over the next 20 years. This will increase the global competitiveness of local sectors by allowing them to modernize. One of the benefits of FTAs is the access to global markets they provide to local companies across sectors. We can probably use these FTAs to take advantage of opportunities in industry, technology, and agriculture. Panama has a sizeable trade deficit. We spend about $980 million on Mexican imports, while we export only $20 million to the same country. Our imports from Peru exceed our exports by about $600 million. We really have to make an effort in certain sectors to be able to export products to different countries around the region, and FTAs help facilitate this.

What are your expectations for 2016?

Expansion of the Canal will remain the primary focus in 2016. We expect to again be highest growing economy in Latin America, owing largely to the initiatives in developing infrastructure. We are still going to attract a lot of FDI. Compared to the tumultuous economies of most of our neighbors, Panama is a shining star among emerging markets, particularly in Latin America. We will continue leveraging the precious asset that is our strategic position.

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