Appraising the Economic Potential of Panama: Policy Recommendations for Sustainable and Inclusive Growth

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Abstract

Panama has been among the fastest-growing economies in the world for more than a decade. A few years after gaining full sovereignty over the Canal, the country initiated a long spell of accelerated growth that doubled its income per capita, fueled by the development of a modern exportable service sector along the shores of the Canal. This growth has been accompanied by a significant reduction in poverty rates and a substantial expansion of the middle class. However, Panama’s growth model has relied heavily on a construction boom that cannot be sustained indefinitely, and the country remains among the most unequal in the world despite its recent economic achievements. This document, produced by the Center for International Development of Harvard University under the sponsorship of the Inter-American Development Bank, characterizes Panama’s growth trajectory, identifies the most binding constraints emerging from a Growth Diagnostic, and summarizes policy recommendations required to shift gears and continue growing at a sustainable and more equitable pace. The analysis identifies three main binding constraints: the deceleration of the construction sector, human capital shortages, and barriers to the attraction and diffusion of knowledge. Three cornerstone policy recommendations follow: easing restrictions preventing skilled migrants from coming to and settling in Panama; maximizing knowledge diffusion and technology spillovers from multinational companies and special economic zones to the broader economy; and creating an investment promotion agency to attract new business models to Panama’s provinces. The document also provides a roadmap of the most attractive opportunities for productive diversification at the national and sub-national level, with particular attention to the cases of Chiriquí and Darién.

Introduction

“Once we regain the sovereignty over the Canal, our exports will grow faster. If we cannot increase the toll rates, we will have to develop along the shores of the Canal.” Those were the words of Omar Torrijos to writer Graham Greene in 1978,¹ less than a year after the signature of the Torrijos-Carter Treaty that mandated the United States’ withdrawal from the Canal on the first day of the year 2000. The Panamanian General, who died in a controversial airplane accident in 1981, never imagined the prophetic power of his statements.

For more than a decade, Panama has been among the fastest-growing economies in the world. A few years after gaining full sovereignty over the Canal, Panama initiated a long spell of accelerated growth that doubled its income per capita. As foreseen by Torrijos, growth has been fueled by the development of a modern exportable service sector along the shores of the Canal. Ports, logistics and communication facilities, business services, wholesale and retail trade, and a vibrant air hub have blossomed. These activities, in turn, have stimulated demand for non-residential construction. Large public infrastructure investments such as the expansion of the Canal, the development of the Metro in Panama City, Tocumen Airport, road expansions and upgrades in the Panama-Colón axis have all boosted an extraordinary construction boom.

For more than a decade, non-residential construction has been growing at a compounded annual growth rate (CAGR) of more than 20%. That is roughly equivalent to doubling the stock of structures in the country every four years. Between 2005 and 2015, non-residential construction tripled its share within the Panamanian gross domestic product (from 6.6% to 17.0%). Compounded with the residential component (8.6%), construction today represents an astounding 25.6% of Panama’s gross domestic product (GDP).

The construction boom has been the main driver behind the drastic reduction registered in poverty rates and inequality. It created a vibrant labor market for non-skilled workers, squeezing labor out of low-productivity agriculture. As workers migrated from rural areas and plugged into urban construction sites, average productivity and salaries increased.

But non-residential construction cannot grow at a higher rate than the rest of the economy indefinitely. Eventually, the stock of structures required by the booming service sector will be in place, and the pace will slow down. Indeed, early indicators such as value and number of residential and non-residential construction permits, and quantity of cement or ready-mix concrete produced, are already signaling a significant deceleration. This will threaten some of the progress achieved in the reduction of poverty and inequality, an issue of concern for a country that remains among the most unequal in the world, despite its recent economic achievements.

Within that context, it is essential to identify some sectors that can carry the torch for a sustained demand for construction, albeit at a lower rhythm, and iteratively solve the most binding constraints to their development. Those sectors would also provide the foreign currency Panama needs to purchase the products it does not manufacture, while reducing the persistent current account deficit without further growth deceleration.

Efforts to promote export diversification should move along two different tracks. On the one hand, there is scope to continue developing the modern service sector. As much as Panama has grown and improved, there are still gaps in terms of infrastructure and logistic performance when compared to other countries based on similar service models such as the Netherlands, Singapore and Hong Kong. These activities are highly sophisticated and require skills that are not abundant in Panama. In recent years, school enrollment improved significantly, and completion rates at all levels have increased as well. In terms of quality, much remains to be done. Investing in improving the quality of education is a necessary condition to make growth more inclusive, but in the meantime Panama cannot afford to wait. Attracting and retaining the skilled labor required by the service sector to continue growing, and maximizing its spillovers to the rest of the economy, are the keystones to sustainable growth and competitiveness.

The second track of the strategy relates to the productive diversification of the Panamanian provinces. At present, most of the provinces are lagging behind Panama City and Colón, which concentrate 80% of economic activity and 59% of the population. It is essential to recognize that not all provinces are made equal, and therefore the role of the State in solving coordination problems and spurring diversification will differ in nature depending on the place. Likewise, not all economic activities are equally likely in all places. An effort needs to be made in order to detect productive capabilities in each of the provinces and, based on that stock of knowledge, identify more complex “adjacent” activities that could be developed by redeploying those skills. Once the potential industries are identified, an iterative process must follow, in order to pinpoint and solve the most binding constraints to their appearance and expansion. In this process, the role of public-private dialogue is essential.

These are not the only challenges Panama faces, but they are certainly the most significant. Some other constraints that are not evident at the national level, such as energy supply, might be binding at the province level. Institutional development is another area where Panama is lagging behind other countries with similar income. That manifests in phenomena like excessive and inefficient red tape and corruption. Policy efforts in these areas must be undertaken, but results will be slow in coming. In the meantime, Panama must think in terms of policies to be implemented by the institutions it already has in place – which have already taken Panama a long way – not the institutions it wishes it had.

This document summarizes the work the Center for International Development of Harvard University has been carrying out to help Panama rethink its development strategy, under the sponsorship of the Inter-American Development Bank. We start by characterizing the growth trajectory of Panama (Section 1), and the structural transformation that has taken place since Panama gained full sovereignty over the Canal (Section 2). Next, we identify the most binding constraints to economic growth that have resulted from our Growth Diagnostic (Section 3), and summarize policy recommendations required to start shifting gears and continue growing at a sustainable and more equitable pace (Section 4). In Section 5 we provide a roadmap of the most attractive opportunities for productive diversification at the national and sub-national level, and exemplify the particular cases of Chiriquí and Darién.

¹ Greene, G. (1984).

1. The Growth Trajectory of Panama

Panama has been displaying one of the fastest growth accelerations in the world. A few years after gaining full sovereignty over the Canal, the country began a rapid economic expansion (Figure 1), that is still ongoing today. Income per capita grew at a solid 6.2% compounded annual growth rate (CAGR) between 2005 and 2015, making Panama the leader among Latin American countries, at a significant distance from the other top performers, Uruguay (5.0%) and Peru (4.7%). Even in the aftermath of the commodity boom that slowed down economic activity in the region, Panama is expected to remain strong, having grown at 4.8% in 2016.² By 2015, the country had almost doubled (82.4%) its 2005 income per capita, reaching US $22,192 at purchasing-parity levels.³

Figure 1. GDP per capita levels and growth rates: Panama, 1960–2014

Fast economic growth has been accompanied by a significant reduction in poverty rates and a substantial expansion of the middle class (Figure 2). The reduction in poverty was driven by a combination of massive job creation for unskilled workers in urban areas, and a strong program of conditional cash transfers to households in rural areas. Most of these jobs have been created by the construction sector, which has absorbed labor released by low-productivity agriculture. Over the span of five years, the middle class went from being 22% of the population and earning 40% of income, to representing 37% of the population and earning 53% of income. Rich persons in Panama increased from 1 to 3 percent of the population, but their share of income decreased slightly (16.8% in 2010 vs. 16.2% in 2015).⁴

Figure 2. Panama: Population and income shares by social strata
Source: Encuesta de Mercados Laborales 2010–2015.

Fast economic growth has also been accompanied by significant current account deficits (Figure 3). The only exception was the year 2009, when the liquidity crunch caused by the world financial crisis brought capital inflows to a halt, forcing Panama to eliminate its external deficit of 10.8% (2008). One of the drivers of the current account balance achieved in 2009 (-0.6% of GDP) was a 12% import reduction, which in turn resulted in lower growth (4.1%, down from 9.7% in 2008). Since then, Panama has been struggling with large current account deficits averaging 10.1% of GDP (2010–2015). Attempts to curb these deficits have been accompanied by lower growth rates.

Figure 3. Current account deficits and GDP growth
Source: World Economic Outlook, International Monetary Fund.

Current account deficits have been financed via massive inflows of foreign direct investment (FDI) (Figure 4). Over the 2005–2015 decade, Panama received an average of US $3.0 billion per year in FDI, equivalent to 9% of GDP. For 2016, the World Bank estimates an FDI inflow totaling 11% of GDP, placing Panama well ahead of Chile (8.5%), Nicaragua (6.5%), Brazil and Colombia (both at 4.0%), as the top destination for FDI in the region.

Figure 4. Current account deficits and Foreign direct investment
Source: World Economic Outlook, International Monetary Fund.

FDI seems to have some elements of sustainability, as the rents earned by multinational corporations tend to be reinvested in Panama (Figure 5). Between 2013 and 2016, reinvestment ratios averaged 84%. The figure had remained consistently above 65% for every year of the previous decade, except for 2009 (20%) and 2012 (35%).

Figure 5. Rent payments to FDI and Reinvestment of Earnings (US$ million)
Source: INEC, authors’ own calculations.

² World Economic Outlook, International Monetary Fund, October 2016.
³ World Development Indicators database, World Bank.
⁴ Middle class workers are defined as earning a per capita daily income of US$ 10–50. Rich workers are defined as earning a daily income of over US$ 50 dollars a day.

2. Structural Transformation

Panama’s impressive growth can be attributed to three main engines: exportable services, construction and commercial activity at Colón Free Zone. The bulk of FDI entering Panama goes to the exportable service sector (83%), with only minor shares going to non-exportable services (12%) and tradable goods (5%). Spurred by foreign investment, Panama quadrupled its service exports over the span of eight years (2008–2016), providing a steady flow of foreign currency that mitigated its trade deficit. Panama has become the largest per capita exporter of services in Latin America, ahead of its closest runners-up, Uruguay and Dominican Republic, by a factor of three, and coming very close to OECD levels. This stands in sharp contrast to Panama’s ranking in per capita exports of goods, where it lies at the bottom of Latin America with a negligible figure.

Export services are dominated by transportation (including the Canal) and travel, each accounting for 39% of total export services. They are followed at a distance by business services (18%) and financial intermediation (4%).⁵

Figure 6. Panama: Export Services, net US dollars (2008–2016)
Source: INEC, authors’ own calculations.

These services, together with wholesale and retail trade, have provided much of the momentum for the economy, and have boosted demand for non-residential construction. Ports, logistics and communication centers, warehouses, office buildings, wholesale and retail facilities, the expansion of the Canal, the construction of the Metro in Panama City, and Tocumen Airport have all fueled a remarkable construction boom. Over the previous decade, non-residential construction grew at a compounded annual growth rate (CAGR) of more than 20%. That is equivalent to doubling the stock of structures every four years. Between 2005–2015, non-residential construction almost tripled its share within Panamanian GDP (from 6.6% to 17.0%), and accounted for more than a quarter (26%) of all growth registered during that decade, one-third of all growth registered between 2010–2015 (Figure 7). If we consider also the residential component, construction delivered 36% of all growth achieved between 2005–2015, and 44% of all growth registered between 2010–2015.

Figure 7: Panama: Contribution to growth by sector 2005–2015 (compounded annual growth rate multiplied by average weight in GDP)
Source: INEC, authors’ own calculations.

The third engine of growth has been commercial activity at the Colón Free Zone (CFZ), the most important import-export zone of the Americas and second largest worldwide.⁶ Total net value added (exports minus imports) at CFZ quadrupled between 2000 and 2012, going from US$3 to US$12 billion, mostly driven by channeling the traffic of goods coming from Asia (72% of total imports) to Central America and the Caribbean (82% of total exports). Since 2014, however, this engine has lost traction, mostly due to the deterioration of the Venezuelan economy (third main export destination), and new import-tax charges on clothes and shoes by Colombia (second largest export destination).⁷

Changes in GDP composition between 2005 and 2015 have been accompanied by large changes in the structure of employment (Figure 8). During this decade, three sectors experienced the largest increases in the share of employment: construction; logistics, transport and information; and retail and wholesale. Nowadays, the latter has become the top employer. Manufacturing and agriculture, on the other end, were the sectors releasing the highest number of workers. Since construction workers are five times more productive than agriculture workers, a migration from the former to the latter has increased the economy’s overall efficiency, boosting productivity and wages.⁸

Figure 8. Panama: Share of employment by sector (2005 and 2015)

Any strategy aimed at fostering sustainable and inclusive growth must focus on maintaining the momentum of the exportable service sector, identifying and finding the most binding constraints to its growth, while at the same time looking for opportunities for export diversification in the provinces.

⁵ Starting in 2012, INEC introduced a change in the way they account for re-exports of goods (and oil in particular). Before 2012, INEC used to report only the net margin left by these operations, in the balance of payments. From 2012 onwards, they started recording these as imports (negative) in the balance of goods (under the heading “Goods acquired in ports by means of transportation”); and simultaneously record an export (positive) in the balance of services (“Other business and entrepreneurial services”). In order to ease the 2008–2016 comparisons and avoid misrepresentations, in Figure 6 we netted these amounts, as it was done before 2012, and reported the net balance as a service export. Note that the net balance of US$1,292 million registered in 2015 and US$1,708 million forecasted for 2016, are already net of imports of “Goods acquired in ports by means of transportation”.
⁶ Sigler, T. J. (2014), pp. 1–15.
⁷ Colombia unilaterally imposed an additional 10% tariff on textiles and footwear coming from Colón Free Zone. On February 2016 Panama demanded arbitration of a World Trade Organization Expert Panel. The case remains unresolved.
⁸ Using data from the World Development Indicators we compute the relative productivity of a sector as the ratio between its contribution to GDP and its share of employment.

Warning Signs: Excessive Reliance on Construction

Given its astounding performance over the previous decade, the question for Panama does not revolve around the factors hindering growth, but rather, on this growth’s sustainability and inclusiveness. There are two warning signs worth noticing in this regard.

Figure 9 illustrates how the construction boom was propelled mostly from the non-residential sector, and to a lesser extent, from private capital formation. Non-residential construction cannot grow indefinitely at a higher pace than the rest of the economy. On the private side, the demand for non-residential construction is a consequence of the expansion of the service sector, in the form of office buildings, warehouses, and telecom infrastructure. Once the stock of required infrastructure is in place, the pace of construction is expected to decelerate and its growth rate surpassed by other sectors. Although it is hard to gauge when the construction boom will recede, the CAGR observed over the previous decade is hardly sustainable, as it is equivalent to duplicating the stock of non-residential infrastructure every four years. On the public side, maintaining this boom would imply an unlikely flow of large infrastructure projects.

Figure 9: Disaggregated investment 2007–2014

By 2015, residential (8.6%) and non-residential (17.0%) construction as a share of GDP accounted for a staggering 25.6% of Panama’s total GDP. The expansion of the Canal, and the building of roads, airports, large malls, and all the necessary infrastructure to support the services export sector, fueled a boom that allowed Panama to employ a large mass of unskilled workers, mainly in the Panama-Colón axis. Residential construction, on the other hand, grew at a similar pace as the rest of the economy, maintaining its share of GDP at 8.6% (Figure 10).

Figure 10. Share of GDP by sector: 2005 and 2015
Source: National accounts (INEC). Own calculations.

The large construction boom allowed low-skilled workers moving out of agriculture into urban areas to earn salaries five times higher. Construction jobs as a share of total employment went from 7.5% in 2005 to 10.0% in 2015. In numbers, this translates into the absorption of 80,178 new workers in ten years. By 2015, a total of 193,558 construction workers earned a median monthly salary of US$ 500, a wage five times higher than in agriculture, and 67% higher than in manufacturing.⁹

Overreliance on construction as a driver of growth exposes the economy to the high volatility that the sector displays worldwide. As depicted in the left (employment) and right (value added) panels of Figure 11, construction tends to be much more volatile than the rest of the economy. This global trend stands in sharp contrast to the steady upward tendency that the sector has displayed in Panama over the previous decade. In order for Panama’s economic expansion to remain sustainable, alternative engines of growth must be fostered.

Figure 11. Construction: Relative volatility in employment and value added worldwide

The construction sector has played a major role in driving two demographic patterns: rural-urban migration, and faster reduction of urban poverty. By 2015, the poverty rate in rural areas was three times that of urban areas (49.7% vs. 13.8%).¹⁰ This is in part due to the construction boom’s effect in reducing urban poverty twice as fast as rural poverty (16.8% vs. 8.2%). Migrants coming from rural areas and comarcas¹¹ have poured into construction sites on the Panama-Colón axis, where the bulk of the boom has taken place. Since 2005, rural population decreased by 1.1% yearly, fueling an increase in the share of people living in cities, which by 2015 accounted for 67% of total population. The construction boom has been the main channel allowing unskilled workers to take in a share of the value added created over the decade.¹² A potential deceleration of the sector threatens to reverse some of the upward social mobility achieved and stir social unrest. That in turn feeds into the second warning sign: income inequality.

Over the fifteen year-long growth spell, the Gini coefficient of income inequality reduced from 58 to 51.¹³ This makes Panama a unique case study in development: spectacular sustained growth accompanied by poverty reduction and a more equitable income distribution. And yet, throughout this period, Panama has remained among the five most unequal countries in the world (Figure 12).¹⁴ The country has a highly concentrated productive structure, with only 20% of GDP and less than one third of all jobs created between 2000–2010 coming out of the Panama-Colón axis.

Figure 12. Income inequality as measured by Gini coefficient (2010)

⁹ Source: Encuesta Nacional de Empleo, 2015.
¹⁰ These rural-urban disparities underscore the need for local development strategies to ultimately promote a more inclusive and equitable growth process across the country. We delve into these strategies in Section 4.
¹¹ Indigenous provinces.
¹² Similar findings have already been reported in World Bank (2015), pp. 31–32.
¹³ World Development Indicators, World Bank.
¹⁴ According to the World Development Indicators, the Gini coefficient of Panama was the 5th highest in the world in 2009 (among 76 countries), 5th in 2010 (78), 7th in 2011 (68), 5th in 2012 (69) and 4th in 2013 (23).

3. Potential Binding Constraints

3.1 Deceleration of the Construction Sector

Some early indicators suggest that the construction boom may have started to wane. All leading supply-side indicators (Figure 13) point to a significant deceleration. The value of construction permits (Panel A), both residential and non-residential (Panel B), is falling, as is the production of ready-mix concrete (Panel C) and cement (Panel D). In fact, the latter metric suggests that the construction industry has been growing recently by diminishing inventories.

Figure 13. Construction: Leading indicators
Source: INEC. Percentage in asterisks (*) indicates variations between Jan–Jun 2016 and Jan–Jun 2015.

There are also some signs of excess inventory of office and warehouse space in Panama City, resulting in a combination of higher vacancy rates and lower rents.¹⁵ Depending on quality, vacancy rates within Panama City were anywhere between 11.5% (Class B) to 32.2% (Class A+ office space) by the end of 2015.¹⁶ Accordingly, rent prices experienced a small downturn for the first time since 2010. For warehouses in the Panama province, vacancy rates are lower (7.2%) and prices were reported as stable over the first half of 2016.¹⁷

¹⁵ Unfortunately, Panama does not disclose public information on real estate rent and sales prices, vacancy rates, or publicly traded real estate investment trusts (REITs) that can aid in assessing the evolution of the non-residential construction market. This information gap also limits assessments of mortgage loans-to-value ratios.
¹⁶ CBRE Market View, Panama City Office, December 2015.
¹⁷ CBRE Market View, Panama City Industrial, June 2016.

3.2 Human Capital

The service sector that spurred demand in non-residential construction and accounts for most Panamanian exports is intensive in high-skilled labor. Banking, insurance, logistics, communications, information technology, and business and trade services are all dependent on sophisticated managerial and technical know-how. By 2015, the share of college-educated workers in these sectors surpassed 50%, more than doubling the national average (23.9%). Moreover, the service sectors that have gained in the share of employment during the decade (green colored in Figure 14) are intensive in high-skilled labor, whereas the sectors losing ground are all relatively low-skilled. We have already seen that construction absorbed most of the low-skilled labor released by those sectors, but where did the skills required by the service sector come from?

Figure 14: Share of college-educated workers, by industry

A first option would be the Panamanian education system. Panama has improved school enrollment in recent years, reaching OECD levels in both primary and secondary enrollment rates. By 2012, Panama led Latin America in secondary school completion rates, and came only second to Venezuela in tertiary education.¹⁸

Much remains to be done within the Panamanian school system, both in terms of quality and relevance of the curriculum. In 2009, the last time that Panama participated in the standardized PISA,¹⁹ it ranked last in mathematics, and among the worst in reading and science (63 out of 66 in both subjects). Within Latin America, Panama ranked second-to-last among the eight countries taking the tests in both science and reading, only outperforming Peru. These results were ratified in 2013 through TERCE, a test measuring proficiency in mathematics, reading, writing and natural sciences. Panama placed well below the mean of fifteen Latin American countries, scoring only better than Nicaragua, Paraguay and Dominican Republic.²⁰

If the Panamanian education system did not produce the human capital required by the thriving service sector, where did this knowledge come from? Looking at population censuses 2000 and 2010, we find compelling evidence indicating that most of the know-how was provided by immigrants.

According to the population census, the share of immigrants in the Panamanian labor force increased from 2% to 4% between 2000 and 2010. The latter figure roughly represents 140,000 immigrants, mostly originating from Colombia (32.8%) and China (15.6%), and to a smaller extent, Nicaragua (9.1%), Dominican Republic (5.8%), and Venezuela (4.2%).

Immigrants are overrepresented in high-skilled occupations (Figure 15). The share of foreign-born workers in managerial, professional and chief executive jobs is 2.6 times higher than the average share of immigrants in the economy. The proportion is similar in the case of service workers, mid-level technicians, professionals and scientists.

Figure 15. Immigrants in Panama: Overrepresentation and underrepresentation (2010)
Source: INEC. Population Census, 2000 and 2010.

Immigrants with college degrees are also over-represented in high economic complexity industries. This confirms, yet again, how immigrants are filling positions that demand high and complex skills, for which firms are willing to pay dearly (Figure 16).²¹

Figure 16. Economic Complexity and Skilled Immigration

Empirical evidence indicates that the most binding constraint to further growth is human capital. This issue is evident in the significant wage premiums that foreign workers earn over otherwise identical Panamanian workers. The left panel on Figure 17 plots wage premiums of foreign workers by industry, as compared to Panamanian workers with similar schooling, experience, gender, ethnicity and occupation.²² An average immigrant makes 50% more than a Panamanian counterpart, with the highest wage premiums registered in service sectors such as transportation, storage, and wholesale trade. All of the wage premiums by industry are positive and highly significant.

The right panel on Figure 17 ranks wage premiums of foreign workers according to occupation. Wage premiums for foreigners are above average for qualified agriculture workers, managers, professionals, and services and sales jobs. In the manager category, wage premiums for foreigners average a staggering 70%. This data suggests that foreign workers bring a set of skills that are not easy to find in the domestic economy.

In order to maintain the competitiveness of the service sector and to reduce wage premiums, Panama must increase the supply of high-skilled workers. Investing in improving the quality and relevance of education is a long-term strategy towards that goal, but Panama cannot afford to wait. In the short to medium term, an increase in the supply of human capital can only be achieved by increasing the number of qualified immigrants.

Figure 17: Wage premium for foreign workers

¹⁸ World Development Indicators, The World Bank.
¹⁹ Program for International Student Assessment, a triennial international survey implemented by the OECD.
²⁰ The TERCE test is taken by students in the third and sixth grades.
²¹ For a more detailed explanation of how Economic Complexity is calculated, and a list of Panamanian industries with the highest Product Complexity Indexes (PCI), see Hausmann, Morales, and Santos (2017).
²² See Hausmann, Espinoza and Santos (2017) for details on the estimation of wage premiums for foreign workers.

3.3 Barriers to the Attraction and Diffusion of Knowledge

The increase in the stock of immigrants reported in the previous section was the result of deliberate efforts on the part of Panamanian policymakers. In 2007, a bill was passed creating a special regime for all multinational company headquarters operating out of Panama (SEM Law, or Law No. 41).²³ That same year, an industrial park – Panama-Pacific (PP) – was created on the site of a former U.S. military air base (Howard). Features designed to attract companies to PP include tax exemptions; special incentives for immigrants; special labor and customs regimes, and a “one-stop shop” government facility to reduce bureaucracy. The PP industrial park is the third and most recent addition to a group of special zones in Panama. City of Knowledge (CK), a technology park aimed at fostering innovation, was founded in the year 2000 in the former military barracks (Clayton) surrounding the Panama Canal. The Colón Free Zone (CFZ) was created in 1948, and is the world’s second-largest import-export zone. CFZ has remained a spearhead of Panama’s accelerated growth by channeling the traffic of goods coming from Asia to Latin America and the Caribbean. Figure 18 summarizes the characteristics of these three special economic zones (SEZ), and the special provisions that have been granted to companies operating within their premises.²⁴

Figure 18. Panama: Special Economic Zones

Thanks to the SEM law passed in 2007, over 120 companies have relocated their regional headquarters to Panama. Some of these have settled within the grounds of PP, which today hosts over 250 national and multinational companies. Policy tools such as SEZs have been successful in attracting the know-how required to foster growth in Panama’s service sector. The increased availability of these skills has, in turn, been instrumental in attracting the foreign investment necessary to materialize these business opportunities.

Despite these successful efforts in bringing immigrants to Panama, several issues persist. The problems with skill immigration are twofold. First, there are not enough foreign workers to keep up with the accelerated growth registered in Panama, as evidenced by the high wage premiums to foreigners discussed in the previous section. Moreover, there are a number of restrictions embedded into the Panamanian immigration laws that limit the free flow of knowledge and inhibit technological diffusion, and therefore prevent the full economic potential of skilled immigration from being realized. These restrictions hinder the spillover of know-how, which remains locked within the gates of multinational companies and SEZs.

The special visas granted to foreign workers who move to Panama sponsored by multinational companies cease as soon as the contractual relationship between them comes to a halt. Under the provisions of the SEM Law and SEZs, years accumulated by foreign workers in Panama are not considered valid for residence purposes. Expatriates do not have a path to residence, let alone citizenship, and their dependents are not allowed to work. Moreover, working visas must be renewed yearly at a hefty fee (US$2,000–3,000), a relatively negligible sum for large multinational companies, but a harmful expense for the small and medium enterprises hosted at CK. Additionally, firms outside SEZs and those not subject to exemptions granted by the SEM Law can hire a maximum of 10% foreign labor.

All sixteen companies we interviewed at CK park complained that the annual cost of working visas for foreign employees consumes a significant portion of the budget they would otherwise devote to research and development. Companies hosted by CK must comply with a requirement of constant innovation as a condition for remaining in the park, as determined through a review carried out halfway through their lease contracts (every two or three years, depending on the contract). When companies decide to move past the innovation stage and on to the commercialization phase of their business, they risk being expelled from the technology park. Once this happens, foreign workers fall into a legal limbo, as their working visas are not valid outside of CK.

Some immigration provisions prevent foreigners from even considering Panama as a destination. Current legislation establishes a long list of occupations and professions reserved exclusively for Panamanians.²⁵ These include different types of engineering fields, chemists, architects, agricultural scientists, and the cluster around medical services: doctors, nurses, medical assistants, radiologists and even chiropractors. Job restrictions are applied universally, and they do not discern between the origin of a foreign worker’s education, affecting even those who studied in Panama. The son of a Nicaraguan immigrant couple who moved to Panama as an infant, was raised and schooled in the country, and graduated as an M.D. from a Panamanian university, is not allowed to practice medicine once he has become a doctor.²⁶

Foreign nationals are not allowed to teach at Panamanian universities. There are ways to circumvent this restriction, such as carrying out the actual teaching sessions within one of the SEZs (i.e. City of Knowledge), or labeling the course as “in-house” training for one of the multinational companies protected under the SEM Law. While these practices allow for the transmission of knowledge from foreigners to locals, they only occur on a small scale and cannot be implemented widely within the context of public universities.

Additional restrictions to entry – on the grounds of national security – further compound the series of obstacles that immigrants in Panama face. Panamanian authorities have established a list of “restricted citizenship status” for nationals belonging to 62 countries considered “threats to national security.” The list is mostly composed of African and Asian countries, including India, Indonesia, Pakistan, Bangladesh, Sri Lanka, Albania and China.²⁷ Citizens of these countries are subjected to a lengthy and bureaucratic process called “authorized visas,” which may take over a year to complete and carry hefty costs. Three private immigration law firms that were interviewed for this study confirmed that the processing of authorized visas has been reported as a source of corruption within the Panamanian foreign service system.

All in all, these numerous and stringent immigration restrictions are preventing Panama from attracting and retaining the people with the know-how and capabilities required to continue growing at a sustainable pace. Moreover, they limit the positive spillovers that immigrants already in Panama could have for the rest of the economy.

The most puzzling feature of these restrictive policies is that they do not benefit Panamanian workers. Based on the extensive literature devoted to measuring the economic impacts of immigrants on local workers, we studied the wages of Panamanian workers as a function of immigrant participation in their industry-province.²⁸ The evidence for Panama indicates that immigrant workers are not a substitute to local workers, but rather a complement. An increase of 10 percentage points in the share of immigrants at the industry-province level is associated with an average increase of 3.6% in the salaries of Panamanian workers (Figure 19). These results reinforce the notion that immigrants bring skills that complement the capacities of Panamanian workers, ultimately resulting in higher productivity and wages for the latter. Moreover, the effects are higher when it comes to Panamanian low-skilled workers.²⁹

Figure 19: Correlation of immigrant flows and changes in wages of local workers
Source: Own calculations based on Population Censuses 2000 and 2010.

Despite all the evidence documenting the benefits of immigration for the Panamanian economy and their domestic workers, the prevalent perception is that “there are already too many foreigners in Panama.” This attitude is quite evident throughout local TV and radio broadcasts, as well as on social media. However, this notion is not supported by facts. According to the World Bank, the share of immigrants in Panama reached 4.7% of total population in 2015. While this number lies above the Latin American average (Figure 20), it is well below countries with economies grounded in a thriving service sector, such as Singapore (45%), Hong Kong (39%), or the Netherlands (12%). Panamanian officials often cite Singapore as a model, but it is hard to be Singapore without fostering the know-how embedded in skilled migrants.

Figure 20. Immigrants in the labor force by 2015

In the past, Panama has demonstrated its capacity to assimilate the know-how brought in by foreigners and to leverage it towards promoting growth and better salaries for Panamanians. The most dazzling example is the Canal itself, managed with significant skill, efficiency and transparency by a team of Panamanian workers, gathered under the umbrella of an autonomous government agency (Autoridad del Canal de Panamá or ACP). The Panamanian-run ACP has successfully managed and even expanded the Canal, as well as promoted the development of a modern service sector that multiplied its impact on growth and employment in activities surrounding the Canal. The thriving banking system is an analogous case, as it has benefited from a large inflow of foreign executives brought by multinational banks, who in turn bolstered the growth of a competitive domestic banking sector. Copa Airlines, which at first relied almost exclusively on foreign pilots, who then went on to train their Panamanian counterparts to accommodate its steady growth, is another formidable example. Panama could not have provided skilled pilots, because it did not have a competitive airline; and the lack of pilots in itself was a significant constraint to the existence of an airline. Imported know-how used to train Panamanians was the device that allowed a solution to this chicken-and-egg dilemma.

Today, Panama is not maximizing the potential spillovers of foreign workers that have come to Panama under the special provisions of the SEM Law and the SEZs. Restrictions to the attraction, settlement and free-flow of immigrants will only harm the modern service sector and its exports. As reported above, skilled labor is one of the most binding constraints to further growth in the service sector. Lower growth would only translate into lower demand for construction and reduced jobs for domestic low-skilled workers. These effects threaten to put a halt on the social progresses Panama has achieved in the previous fifteen years in terms of upward social mobility (Figure 2) and lower inequality.

²³ Law 41, August 24th, 2007.
²⁴ For a more detailed analysis of these three Special Economic Zones see Hausmann, Santos and Obach (2017).
²⁵ Restricted professions, with the corresponding year of the Law or Decree in parenthesis are: education in the areas of history, geography and civism (1946), nursing (since 1954), barbering and cosmetology (1956), odontology (1956), architecture (1959), agricultural sciences (1961), pharmacy (1963), civil engineer (1965), chemical engineer (1965), chiropractic (1967), nutrition (1969), medicine (1970), psychology (1975), medical assistantship (1975), accountability (1978), journalism (1978), laboratory technicians (1978), public relations (1980), speech therapists (1980), medical radiology (1980), economists (1981), social work (1981), veterinary (1983), physiotherapy (1984), law (1984), dental assistant (1994), sociology (1996), chemistry (2001).
²⁶ The example comes from a true story we collected and verified in our round of interviews in Panama City.
²⁷ An exception from the authorized visa process was made via SEM Law, allowing Chinese workers coming into Panama with Chinese companies.
²⁸ Borjas (2003), Card (2009), Ottaviano and Peri (2012), Basso and Peri (2015); Card and Peri (2016).
²⁹ For more information on the model specification see Hausmann, Santos and Obach (2017).

4. Policy Recommendations

Three elements stand out as cornerstones of a policy aimed at promoting sustained and equitable growth: (i) the attraction and retention of human capital; (ii) the maximization of the diffusion of know-how and knowledge spillovers, and (iii) the tackling of coordination problems that are hindering economic activity outside the Panama-Colón axis.

In addition to these three binding constraints, our Growth Diagnostic for Panama (Hausmann, Espinoza, and Santos, 2017) identified a number of additional elements that other actors looking into Panama have also underscored.³⁰ The quality of education, and its curriculum’s lack of relevance for the Panamanian economy, stand out as factors driving income inequality and threatening growth prospects in the medium term. Another usual suspect is the quality of institutions, which manifests as a constraint in the form of red tape, corruption and lack of transparency. No matter how it is measured, the quality of institutions in Panama lies well below that of other countries with similar income per capita.

It is not a coincidence that the “one-stop shop” of 18 government agencies in PP was reported by surveyed tenants as its highest-rated component.³¹ That signals that agents are willing to pay higher rents in PP in order to overcome the constraint. Businesses importing to or exporting out of PP or CFZ often complain that administrative processes are inefficient and tardy. These elements suggest that for industries outside of SEZs, red tape might be significant. Panama lags behind the Latin American average in indicators such as government effectiveness and regulator quality,³² and senior executives reportedly spend a third of their time dealing with legal requirements and business regulations. Panama’s metric is twice the Latin American average (14%), and three times the level of OECD countries (9.7%).³³

Business surveys point to “inadequacies of the court system” and “corruption” among the most important constraints to private economic activity in Panama. This is another area where the performance of Panama is inconsistent with its level of income. Corruption seems to be somewhat related to red tape: according to enterprise surveys, instances of corruption show up in the amount and frequency of bribes and kickbacks paid to get things done.³⁴

Lack of transparency in public sector procurement was another institutional factor often cited during interviews we conducted with government officials and private sector groups. Public sector spending would highly benefit from introducing more accountability, monitoring and effectiveness evaluation mechanisms, freeing up resources that could in turn be used to strengthen public infrastructure and to expand the network of social services in the Panamanian provinces.

Improving the quality of education and building up institutional capacity are challenges that Panama must tackle in its quest to continue growing at a fast pace while reducing poverty and inequality. Unfortunately, these are also areas where progress will be slow in coming.³⁵ We understand that a long list of policy interventions will not be helpful, so we have prioritized our recommendations towards solving the most binding constraints we have found, so they may be implemented in a reasonable timeframe by the institutions that Panama already has in place.

³⁰ See, for instance World Bank (2015), and IMF (2015).
³¹ More than a one-stop shop, where all the permits and procedures required to do business are carried in a single window, the feature in Panama-Pacific is a one-stop building. Within that building, there are 18 government agencies that occupy different spaces.
³² World Governance Indicators, World Bank (2017).
³³ See Global Competitiveness Report (2015–2016), World Economic Forum; Enterprise Survey, World Bank (2010).
³⁴ Idem.
³⁵ Araujo et al (2014) find no evidence supporting the hypothesis that improvements in public institutions would have driven higher growth rates in Panama.

Policy Recommendation 1: Ease Restrictions Preventing Skilled Migrants from Coming to/Settling in Panama

As we have stressed, Panama has chosen a highly-specialized development path. For the country to continue its upward trend, it is essential that the government continue to open business opportunities in the service sector, so that FDI continues flowing. The service sector is also an important source of demand for non-residential construction, one of the transmission channels allowing unskilled workers to share in the benefits of growth.

As we have seen, the bulk of growth in Panama has been propelled by public infrastructure, private non-residential construction, and exportable services. In spite of all the progress achieved, when we contrast Panama with other places with service-driven growth models (such as Singapore, Hong Kong, South Korea) or OECD countries (Figure 21), some areas of improvement (infrastructure, competence and quality) become evident.³⁶

Figure 21. Logistics Performance
Source: World Bank and Turku School of Economics, Logistic Performance Index Surveys.

Sustaining the momentum in the service sector requires human talent and skills that are not abundant in Panama. Investing in improving school enrollment and the quality of education, making it more relevant to the needs of the Panamanian economy, is a necessary strategy whose results will be slow in coming. Making Panama more attractive to the highly-skilled migrants that the service sector requires in order to remain competitive is the most viable policy strategy.

Panama has burdensome immigration regulations. Legal frameworks that prove to be inconvenient for specific cases are solved via exceptions or special provisions. These provisions have turned immigration and work permit processes into a web of highly complex and discretionary administrative practices, for the benefit of a small number of private law firms. These features are highly prone to suffer from the maladies of corruption mentioned above.³⁷

Over the previous fifteen years Panama has pursued a puzzling immigration policy: restricting the inflows of skilled migrants while launching periodical drives for legalizing low-skilled ones (Crisol de razas). This strategy is a recipe for inequality, as it increases the supply of unskilled workers at the bottom of the wage distribution, while it restricts the supply of qualified workers at the top. Our policy recommendation is somewhat inverted: the implementation of policies to attract and retain highly-skilled immigrants – so that wage premiums at the top of the distributions are reduced – while they help Panamanians at the bottom to be more productive.

Our recommendations are focused on revising and eliminating the restrictions outlined in section 3.2 and summarized in the first panel of Table 1. Our analysis indicates that Panamanian firms are paying high premiums for skilled foreign workers (Figure 17). Those premiums are signaling that immigrants’ skills are not abundant and therefore firms are willing to pay dearly for them. We have also established that these immigrants do not compete with domestic workers, but rather complement them (Figure 19).

One of the most notorious restrictions is the 10% cap of foreign workers applied to all companies except MNC headquarters and SEZ firms. Our analysis based on the population census indicates that productivity within PP is significantly higher than elsewhere in its host province (Hausmann, Obach and Santos, 2017), which in turn leads to higher salaries. There are many reasons behind productivity differentials (Figure 18), but the fact that companies within PP have no limits to the percentage of foreign workers allowed in their payroll is surely one of them. Foreign workers bring new skills that can be combined with those of domestic workers, which allows for the production of more complex goods and services that can sustain better salaries, while providing domestic workers the opportunity to assimilate skills through learning by doing.

What happens when firms are not bound by the 10% cap? The answer is depicted in Figure 22. The 10% cap is indeed a binding constraint, as firms within PP (16%) and CK (13%) are all beyond the threshold. In the former, the number of highly-skilled workers triple that of the firms within the same province but outside the zone. But the percentage of foreign workers has not skyrocketed (given the level of wage premiums, it would have been surprising if it had). Raising the cap for highly-skilled foreign workers or eliminating it altogether will only benefit Panamanian firms and workers not protected by the SEM Law or SEZ exceptions.

Figure 22: Share of immigrants in places without the national limit of 10%

Extending work permits to highly-skilled dependents of expatriates in Panama is another low-hanging fruit. These are people who have already settled in Panama, and allowing them to engage in high-skill jobs would only reduce the shortage of human capital at zero cost, making Panama more attractive to foreign families who bring in skills and talent, which would in turn increase the chances of knowledge diffusion.³⁸

Two other policy instruments that we recommend revising or even possibly eliminating are the lists of “restricted citizenships” and “restricted occupations.” Companies within SEZs can normally find a way to circumvent these restrictions, but firms in the rest of the economy rarely do. These lists only heighten the wage and productivity disparities between MNCs and firms in SEZs, and the rest of the economy. The political economy of reforming immigration law might call for a strategic approach, a sort of prioritization criteria to begin easing these constraints. In this case, wage premiums (and therefore, the skills that are scarcer) will help in prioritizing sectors and occupations. This can only be considered an intermediate solution, because the fact remains that for Panama to diversify its productive structure, it will have to develop and intensify industries that are not yet present and therefore would not be covered under the wage-premium criteria. Another top priority would be to introduce provisions allowing foreign instructors to teach at Panamanian universities and technical schools.

³⁶ The comparison is relevant, because when it comes to export of services per capita, Panama is much closer to OECD levels than any of its Latin American peers (Hausmann, Espinoza and Santos, 2017).
³⁷ As stated by one of the Secretaries of State interviewed for this project: “Panama is a country with one of the strictest immigration regulations, which are in turn applied in one of the most lenient ways”.
³⁸ More on knowledge spillovers and technology diffusion in our second policy recommendation.

Recommendation 2: Maximize Knowledge Diffusion and Technology Spillovers

Previous administrations in Panama have realized the importance of immigration and promoted public policies accordingly, such as the SEM Law (2007) and SEZs (CK, 2000; PP, 2007). These have been instrumental to Panama’s accelerated expansion. Once inside Panama, however, the free-flow of foreign workers and expatriates within the economy is highly restricted. These restrictions – described in section 3.3 – prevent the knowledge and skills brought by foreign workers from radiating into the rest of the economy. Our second set of recommendations is related to policies aimed at promoting spillovers by unlocking knowledge from MNCs and SEZs.

These recommendations involve offering a path to residency for expatriates, so that they have the option of leaving MNCs and moving to another job or even establishing their own business. This is an important channel of knowledge spillovers, given that immigrants are six times more likely to become entrepreneurs than Panamanians.³⁹ Within this category, we also suggest extending the validity of working visas beyond a year and reducing associated costs, in order to ease the burden of hiring foreigners in small and medium enterprises (SMEs). These businesses are particularly prevalent in CK, a technology park focused on innovation that relies heavily on specialized foreign labor who must pay a heavy burden every year in legal fees to have their visas renewed.

A related recommendation for the City of Knowledge administrators would be to reformulate the key performance indicators (KPIs). At present, the management of the technology park focuses on occupation rates and total employment. Our advice would be to measure their success in terms of their ultimate contribution to the Panamanian economy, and start thinking in terms of patents, number of firms incubated at CK that have moved on to commercialize their innovations within the Panamanian economy, number of jobs created by these firms and average wages.

³⁹ See Hausmann, Obach and Santos (2017).

Policy Recommendation 3: Create an Investment Agency to Attract New Business Models to Provinces

One of the most daunting challenges that Panama faces is overcoming income inequality. Inequality manifests in two different aspects, which deserve differential policy treatments. The first is the large concentration of poverty in the indigenous provinces (comarcas). For starters, one of the most troubling signs is that the National Institute of Statistics and Census (INEC) does not compute GDP for comarcas. The omission is far from inconsequential: despite representing only 6.3% of the population, these provinces are home to 22.6% of Panama’s poor. Poverty and extreme poverty in comarcas exceed 90% and 80% respectively, surpassing levels of other indigenous communities in Latin America. Accordingly, internal migrations within Panama are reported to be higher than elsewhere in the region.⁴⁰ In the short-term, the challenge for the Panamanian government in the comarcas is expanding the coverage of basic public services while at the same time fostering opportunities for productive diversification without interfering with their own usos y costumbres.⁴¹

Our policy recommendations will focus on the second aspect of the inequality problem: large productivity differences between the Panama-Colón axis and the rest of the provinces. As mentioned in Section 2, only one-fifth of the GDP and one-third of all jobs created between 2000–2010 came out of Panama City-Colón. In order to promote more equitable growth, Panama needs to attract new business models to its provinces.

Unfortunately, the bulk of economic activity taking place outside Panama-Colón is centered around a few primary commodities that do not require complex capabilities (Hausmann, Morales and Santos, 2017). If we exclude services, the country’s net exports in 2014 totaled less than 0.5% of GDP (US $1,220 million), comprised mostly of vegetables (31%), minerals (25%), metals (9%), animal products (8%), wood (7%) and foodstuffs (7%). None of these require complex capabilities. In this regard, most provinces face a chicken-and-egg dilemma: they do not have the capabilities to diversify into more complex industries and products, which in turn do not exist because these places lack the capabilities required. Hidalgo and Hausmann (2009) have provided insights into how societies have solved this dilemma: countries and regions do not diversify at random; rather, they spread towards activities that demand knowledge and capabilities that are similar to those required by industries already in place.

This means that not all economic activities are equally likely in all places. It also implies that even the most likely opportunities for productive diversification will share capabilities with industries already in place, and that there are also some capabilities that are missing. Monitoring the most attractive and feasible opportunities for export diversification and facilitating the appearance of missing capabilities is a challenge that could be tackled by an innovative institutional mechanism that promotes effective public-private dialogue (Crespi et al., 2014).

An investment promotion agency responsible for assessing the productive potential of each province should not add another layer of bureaucracy to the public-sector infrastructure, and

⁴⁰ World Bank and Universidad Nacional de La Plata (2014).
⁴¹ Traditional ethnic customs.

en cambio, involucrar al sector privado en una nueva relación con el Estado. Esta agencia debe promover un diálogo privado-público, público-público y privado-privado, en el que las empresas y el gobierno aprendan sobre los costos y oportunidades subyacentes y se coordinen estratégicamente (Rodrik, 2004). Estos mecanismos podrían adoptar una variedad de formas jurídicas e institucionales, pero deben aprovechar las capacidades ya instaladas a nivel regional. Siguiendo varios casos exitosos en América Latina, una agencia de promoción de inversiones típica debería llevar a cabo las siguientes actividades:⁴²

• mapear y seleccionar industrias a apoyar en el territorio de interés
• identificar desafíos y necesidades de intervención de política con la participación de actores tanto del sector público como del privado
• implementar las acciones identificadas en la segunda etapa
• monitorear y evaluar de manera continua

El principal desafío para el establecimiento exitoso de esta agencia es de carácter institucional. El modelo adecuado para una política industrial de este tipo no debe centrarse en el resultado de la política (p. ej., elegir una industria ganadora), sino en que el proceso de política sea el correcto. La agencia debe navegar a través de la burocracia existente de múltiples organismos gubernamentales que tienen alguna responsabilidad en el desarrollo productivo, tanto a nivel nacional como regional. Además, deberá construir puentes duraderos con el sector privado, de modo que este último pueda revelar información apropiada y precisa sobre el proceso de autodescubrimiento de nuevos productos (Hausmann y Rodrik, 2003).

Dentro del conjunto de instituciones públicas existentes, Panamá cuenta con una agencia (Proinvex) bajo la tutela del Ministerio de Comercio e Industrias que potencialmente podría ser fortalecida y mejorada para cumplir este rol. Para que Proinvex tenga éxito en atraer nuevos modelos de negocio hacia la provincia, deben considerarse algunos elementos de diseño institucional:⁴³

• La agencia debe ser efectivamente autónoma, con una junta directiva rotativa compuesta por representantes de los sectores público y privado, y un conjunto de reglas de gobernanza que garantice la estabilidad de las políticas, aislando su funcionamiento de los ciclos electorales.
• La agencia debe contar con profesionales técnicamente competentes con experiencia en el sector privado (los expertos sectoriales deben comprender las tendencias de la industria, la estrategia empresarial y el análisis estratégico).⁴⁴ Estas características permitirán a la agencia ofrecer una evaluación exhaustiva de los sectores con mayor potencial, evaluar los bienes públicos requeridos e informar a la junta directiva sobre el proceso de selección de las formas más eficientes de facilitar su provisión.
• La agencia debe ser financiada conjuntamente por los sectores público y privado,⁴⁵ y contar con un mandato claro y autoridad para formular planes, coordinar acciones con las de otras entidades del sector público relacionadas, así como monitorear constantemente la implementación y evaluar los resultados.

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⁴² Véase Crespi et al. (2014); en particular el Capítulo 11: More than the sum of its parts.

⁴³ Algunas de estas características han sido tomadas de Campante y Solé (2015).

⁴⁴ Para romper el dilema del huevo y la gallina de no contar con candidatos experimentados en sectores que aún no existen, la agencia podría en un primer momento contar con personal proveniente de sectores existentes, incluidos aquellos con ventajas competitivas relativas y aquellos que están presentes pero no con la intensidad que cabría esperar dado su perfil de complejidad.

⁴⁵ Véase como ejemplo de agencia de inversión con financiación conjunta CODESIN (Consejo de Desarrollo de Sinaloa, http://codesin.mx).

La agencia debe tener acceso a recursos públicos que puedan contribuir a proveer los insumos públicos faltantes que requieren las industrias potenciales.

• El éxito de la agencia debe medirse mediante indicadores clave de desempeño (KPIs) tales como empleo, inversiones y, en última instancia, exportaciones.

La metodología de complejidad económica ofrece una hoja de ruta para la diversificación productiva que es a la vez analíticamente rigurosa y políticamente imparcial. Proporciona un proceso automatizado que aprovecha las capacidades requeridas por las industrias ya instaladas en cada región, e identifica industrias atractivas que comparten algunas de estas capacidades (lo posible adyacente) y que están ausentes o no presentes con la intensidad que cabría predecir. Sin embargo, las industrias identificadas mediante esta metodología no deben tomarse de manera acrítica ni como una lista de ganadores seleccionados que automáticamente pasan a recibir apoyo gubernamental. El énfasis aquí está en cambiar la naturaleza del diálogo entre los sectores público y privado, centrándose en las capacidades faltantes para que las industrias potenciales puedan materializarse, y en la manera más conveniente de facilitar su provisión. En ese proceso, algunos factores que no hemos identificado como restricciones vinculantes a nivel nacional podrían ser efectivamente vinculantes a nivel regional. Del mismo modo, las estrategias orientadas a resolver iterativamente estas restricciones podrían diferir entre regiones. Los tomadores de decisiones deben estar familiarizados con las particularidades de cada región, tanto desde el punto de vista industrial como desde el de la provisión de bienes públicos.

Tabla 1. Resumen de recomendaciones de política

5. La complejidad económica de las provincias panameñas: Identificación de oportunidades potenciales para la diversificación productiva

La metodología de complejidad económica ofrece el rigor analítico, la claridad y la imparcialidad necesarios para identificar sectores potenciales por región y dar inicio a un proceso que conducirá a un tipo enteramente nuevo de relación entre el sector privado y el Estado. Hausmann, Morales y Santos (2017) probaron tres formas distintas de medir la proximidad tecnológica entre industrias en Panamá y las clasificaron según su capacidad para predecir la aparición o desaparición de industrias. La mayor capacidad predictiva se obtuvo con las medidas de proximidad derivadas de las similitudes ocupacionales entre industrias.

En esta sección nos basamos en dicho documento e ilustramos los resultados para dos provincias muy distintas: Chiriquí y Darién. Hemos identificado sectores con potencial en estos lugares y profundizamos en el análisis de factibilidad de estas oportunidades de mercado introduciendo consideraciones del lado de la demanda. El objetivo principal de esta sección es ofrecer una hoja de ruta a los responsables de política para identificar y seleccionar sectores clave, una de las actividades centrales de la agencia de promoción de inversiones propuesta anteriormente. Vale mencionar que la lista de sectores recomendados presentada aquí no debe tomarse al pie de la letra, sino únicamente como una hoja de ruta para orientar la búsqueda de sectores estratégicos en cada provincia. Los sectores finalmente priorizados deben emerger en última instancia de un proceso iterativo y dinámico llevado a cabo conjuntamente por el sector privado y el público.

Con base en el empleo relativo, Hausmann, Morales y Santos (2017) identificaron industrias con ventajas comparativas relativas para nueve provincias panameñas.⁴⁶ Con base en proximidades ocupacionales, complejidad económica y criterios estratégicos, procedieron luego a identificar las oportunidades de diversificación hacia sectores cercanos o adyacentes.⁴⁷ El resultado de este proceso es una lista de las oportunidades de diversificación productiva más atractivas.⁴⁸ Estas oportunidades de diversificación derivadas del perfil de complejidad se basan en factores del lado de la oferta, concretamente la proporción de capacidades productivas que estas industrias comparten con las que ya están instaladas en cada lugar. Para evaluar el potencial de estas industrias, es necesario tener en cuenta otros factores, como su fortaleza relativa en el mercado —tanto local como global— y qué tan atractivas son las condiciones del mercado laboral para los trabajadores de estos sectores.

Siguiendo una metodología desarrollada en el marco de una alianza entre el equipo del CID y el gobierno de Sri Lanka (Andrews y Harrington, 2017), ofrecemos un ejemplo de cómo enriquecer el análisis de complejidad ponderando factores adicionales. Construimos un índice de producto/actividad que incluye distintas características del mercado nacional y global para cada producto potencial. Concretamente, analizamos tres dimensiones específicas: fortaleza en el mercado local de Panamá; oportunidades en el mercado global; y nivel de complejidad (Figura 23).

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⁴⁶ A efectos de este análisis de complejidad, dado que Hausmann, Morales y Santos (2017) basaron sus estimaciones en los censos de población de 2000 y 2010, Panamá se fusiona con Panamá Oeste (creada en 2014). Las provincias indígenas Ngäbe-Buglé, Guna Yala y Emberá-Wounaan no están incluidas.

⁴⁷ Para este estudio, definimos la proximidad de las industrias (CIIU Rev. 3 a 4 dígitos) con base en la similitud en los tipos de ocupaciones que emplean. Para más detalles, véase Hausmann, Santos, Morales, 2017. Excluimos las provincias indígenas (comarcas) de este análisis.

⁴⁸ En los Anexos, hemos incorporado en la Figura A-3 la lista de 30 sectores para las nueve provincias panameñas analizadas.

Figura 23: Puntaje de oportunidad de diversificación

Fuente: Equipo del CID con base en Andrews y Harrington, P. (2017).

La primera dimensión (fortaleza en Panamá hoy) considera el desempeño de la industria en el resto de Panamá. En particular, ponderamos el nivel y la tendencia de las exportaciones panameñas de la industria, así como el tamaño y la calidad del mercado laboral local. La segunda dimensión evalúa las oportunidades en el mercado global para la industria. Aquí ponderamos los niveles de importación de los principales y más naturales socios comerciales de Panamá: países de América del Norte y de América Latina y el Caribe. La tercera dimensión se relaciona con el análisis de complejidad mencionado al inicio de esta sección, que captura cuán complejas son estas industrias, cuán estratégicas resultan (en términos de acceso a otras industrias complejas) y sus distancias —en términos de capacidades— respecto a las industrias ya instaladas.

Un elemento clave de este análisis es la selección de ponderaciones para calcular el puntaje final por industria/producto. Las ponderaciones que aparecen en la Figura 23 son únicamente un ejemplo con fines ilustrativos. Establecer un consenso en torno a estas ponderaciones forma parte del proceso dinámico que se espera lleve a cabo una agencia de promoción. La calidad del resultado depende de un proceso iterativo con ciclos de retroalimentación estrechos, durante los cuales el equipo puede aprender de su propia experiencia (Andrews, Pritchett y Woolcock, 2013). Nuevamente, el trabajo del CID con los funcionarios del gobierno de Sri Lanka puede servir como un buen referente a estos efectos.

A modo de ejercicio didáctico, aplicamos este marco a dos provincias de referencia en Panamá: Chiriquí y Darién. Estas provincias pueden servir como buenos ejemplos ilustrativos por varias razones. En primer lugar, ambas se encuentran en los extremos geográficos del país, ubicadas lejos de la región interoceánica y, por tanto, beneficiándose mínimamente de todas las actividades que rodean al Canal. En segundo lugar, ambas provincias también difieren en cuanto al acervo de capacidades productivas ya instaladas. Mientras que Chiriquí cuenta con cierta base industrial que puede contribuir a identificar oportunidades de diversificación productiva cercanas y de riesgo relativamente bajo, Darién únicamente es capaz de producir algunos productos agrícolas de baja complejidad. En este último caso, el rol del Estado para ayudar a Darién a superar el dilema del huevo y la gallina debe ser más activo, y los riesgos asociados son significativamente mayores.

El caso de Chiriquí

Nuestros resultados preliminares sugieren que, entre los 30 productos que presentan oportunidades de diversificación para Chiriquí, los bienes relacionados con la acuicultura —como el procesamiento y la preparación de productos pesqueros— destacan como una industria altamente atractiva (Figura 24).⁴⁹ Los productos pesqueros procesados no solo presentan una complejidad superior al promedio para Chiriquí, sino que también son fuente de empleos bien remunerados para los trabajadores panameños. Para 2010, había más de 1.500 trabajadores en esta industria con un salario mediano de US$ 385, muy superior al salario mediano del sector agrícola (US$ 200). Además, las importaciones de pescado tanto de América del Norte como de América Latina han mostrado una tendencia al alza en los últimos años.

Chiriquí puede aprovechar su abundancia de recursos naturales como bosques y minerales para fomentar la creación de un hub de materiales de construcción. En particular, la provincia puede sacar partido de su abundante dotación de recursos naturales como plata, zinc y molibdeno (CAF, 2014) para desarrollar la producción de bienes manufacturados y de construcción derivados de estos minerales. Además, Chiriquí ya cuenta con actividades relacionadas con la silvicultura, el aserrado y el cepillado de maderas, que pueden servir como trampolines para la creación de un hub de materiales derivados de la madera capaz de satisfacer una demanda creciente de construcción e infraestructura pública tanto en la región como a nivel nacional.

Existe un prometedor solapamiento entre nuestras recomendaciones y los hallazgos de otros dos estudios relacionados con la estrategia de desarrollo de Chiriquí (CAF, 2014; CAF, 2016). En particular, dichos estudios también han destacado la acuicultura y la logística como los principales motores del crecimiento futuro de Chiriquí. Además de estos, nuestro análisis ha revelado importantes oportunidades de diversificación relacionadas con la construcción y los materiales de construcción (Figura A-1). Por otro lado, esos estudios enfatizan la agricultura y el turismo como sectores potenciales, los cuales no aparecen en nuestro análisis.

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⁴⁹ En términos de actividades no transables, la construcción, el comercio mayorista y la logística pueden actuar como actividades de apoyo.

Figura 24: Oportunidades de diversificación para Chiriquí

Nota: El tamaño de las burbujas representa las oportunidades en el mercado global del producto.
Fuente: Cálculos propios del CID.

[Figura: gráfico de burbujas con Complejidad en el eje vertical y Fortaleza en Panamá en el eje horizontal. Productos identificados: Procesamiento de pescado, Fabricación química básica, Carpintería, Fabricación de productos de hierro, Productos plásticos, Forraje preparado, Fabricación de vidrio, Reparación de equipos de transporte, Cerámica no refractaria, Cemento cal y yeso, Fabricación de papel y cartón, Bebidas no alcohólicas, Bebidas malteadas, Fabricación de cacao y chocolate, Extracción mineral.]

El caso de Darién

Ubicada en la parte suroriental del país, junto a la frontera con Colombia, Darién sigue siendo una de las provincias menos desarrolladas de Panamá. Albergando el 60% de las tierras del país aptas para actividades agrícolas, ganaderas y forestales, la economía de esta provincia gira en torno a actividades agrícolas de muy baja productividad. Además, su población se caracteriza por ser escasa, heterogénea y dispersa. Por ello, las capacidades productivas de los trabajadores de Darién son de baja complejidad. Dada su posición desfavorable en términos de capacidades productivas, para diversificar su economía, Darién tendrá que hacer apuestas estratégicas y dar el salto hacia nuevas actividades que se encuentran relativamente lejos de las actuales.

La Figura 25 muestra una lista de las nueve oportunidades más atractivas para la diversificación productiva en bienes transables.⁵⁰ El procesamiento de alimentos, los productos lácteos y los helados se destacan como productos con una combinación atractiva de complejidad, fortaleza en Panamá y oportunidades en el mercado global. Además, en comparación con las actividades no transables mencionadas anteriormente, estos productos manufacturados presentan vínculos más sólidos con las actividades agrícolas actuales de la provincia.

Figura 25: Oportunidades de diversificación para Darién – bienes

Nota: El tamaño de cada burbuja representa las oportunidades en el mercado global del producto. Cálculos propios del CID.

[Figura: gráfico de burbujas con Complejidad en el eje vertical y Fortaleza en Panamá en el eje horizontal. Productos identificados: Fabricación y mantenimiento de embarcaciones, Procesamiento de alimentos, Fabricación de papel y productos de papel, Productos lácteos y helados, Productos farmacéuticos y médicos, Planos arquitectónicos y dibujos, ingeniería y topografía, Fabricación de cemento cal y yeso, Bebidas malteadas, Fabricación de periódicos y revistas.]

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⁵⁰ La Figura A-2 en los Anexos muestra las oportunidades de diversificación para servicios/actividades.

Los análisis presentados en esta sección deben tomarse como ejemplos ilustrativos para iniciar una conversación estratégica entre el sector público y el privado, con miras a fomentar la diversificación productiva de las provincias del país. El establecimiento de agencias de inversión locales debe servir no solo como instrumento para alcanzar este objetivo, sino como condición necesaria para impulsar el crecimiento más allá del eje Panamá-Colón. Como mencionamos anteriormente, una política industrial exitosa no debe aspirar a seleccionar los sectores ganadores, sino a que el proceso de política sea el correcto.

Una vez que se hayan identificado las oportunidades de diversificación productiva más atractivas, debe seguir una evaluación estratégica, iterativa y dinámica de los factores que impiden a esos sectores alcanzar su potencial. Ese proceso puede llevar a identificar restricciones que no han sido señaladas a nivel nacional pero que son vinculantes a nivel provincial. La electricidad emerge como un ejemplo pertinente. Si Panamá lleva adelante estrategias de diversificación agresivas en Chiriquí y Darién, y estas involucran manufactura intensiva en energía, la generación eléctrica podría convertirse pronto en una restricción. Resolver esta restricción podría ser más sencillo en Chiriquí —donde se encuentra en marcha un proyecto orientado a ampliar la línea de interconexión a través de Costa Rica—. La interconexión de Darién con Colombia podría resultar más difícil, ya que este proyecto enfrentaría obstáculos medioambientales y requiere la aprobación de las comunidades indígenas ubicadas a lo largo del corredor. En esos casos, incrementar la generación eléctrica mediante energías renovables o incluso limpias podría ser más factible.

6. Referencias

Andrews, M., & Harrington, P. (2017). Learning to Target for Economic Diversification; PDIA in Sri Lanka (No. 332). Center for International Development at Harvard University.

Andrews, M., Pritchett, L., & Woolcock, M. (2013). Escaping capability traps through problem driven iterative adaptation (PDIA). World Development, 51, 234–244.

Araujo, J., Bruelner, M., Clavijo, M., Vostroknutova, E. y K. Wacker (2014). Benchmarking the determinants of economic growth in Latin America and the Caribbean. World Bank Report No. 91015-LAC.

CAF y Cámara de Comercio de Chiriquí (2014). Visión Chiriquí 2025. http://www.camchi.org.pa/descargasrdn/VisionChq2025.pdf

CAF y Ministerio de Seguridad Pública (2016). Plan Maestro Para El Desarrollo Integral Y Sostenible Del Distrito Del Barú 2040. http://www.zfb.gob.pa/documentos/plandesbaru/PMD_BAR%C3%9A_PlanyPresupuesto_julio2016.pdf

Campante, F. y Solé, A. (2015). Implementando Políticas de Desarrollo Productivo En Chiapas: Marco Institucional. Harvard CID Faculty Working Paper No. 305.

Green, G. (1984). Getting to Know the General: The Story of an Involvement. New York, Pocket Books.

Hausmann, R., Espinoza, L., y Santos, M.A. (2017). “Shifting gears: A growth diagnostic of Panama”. Harvard Kennedy School Faculty Research Working Paper No. RWP 16-045, diciembre de 2016 (revisado en enero de 2017).

Hausmann, R., Morales, J.R. y Santos, M.A. (2017). “Panama beyond the Canal: Using Technological Proximities to Identify Opportunities for Productive Diversification”. Harvard Kennedy School Faculty Research Working Paper No. RWP 16-046, octubre de 2016 (revisado en marzo de 2017).

Hausmann, R., Morales, Santos, M.A. y Obach, J. (2017). “Special Economic Zones in Panama: A labor market perspective”. Harvard Kennedy School Faculty Research Working Paper No. RWP 16-326, octubre de 2016 (revisado en mayo de 2017).

Hausmann, R., y Rodrik, D. (2003). Economic development as self-discovery. Journal of Development Economics, 72(2), 603–633.

Hausmann, R., Santos, M.A., Cheston, T., Pietrobelli, C. (2015). Towards a Prosperous and Productive Chiapas: Institutions, Policies, and Public-Private Dialog to Promote Inclusive Growth. Harvard CID Faculty Working Paper No. 317.

International Monetary Fund (2015). “Panama: 2015 Article IV Consultation”. IMF Country Report No. 15/237. Agosto.

Rodrik, D. (2004). Industrial policy for the twenty-first century.

Sigler, T. J. (2014). Panama’s special economic zones: balancing growth and development. Bulletin of Latin American Research, 33(1), pp. 1–15.

Stein, E., y Crespi, G. (Eds.). (2014). Rethinking Productive Development: Sound Policies and Institutions for Economic Transformation. Springer.

World Bank y Universidad Nacional de La Plata (2014). Informe de pueblos indígenas en América Latina.

World Bank (2015). “Panama: Locking Success. A Systematic Country Diagnostic”.

7. Anexos

Figura A-1: Oportunidades de diversificación para Chiriquí – Servicios

[Figura: gráfico de burbujas con Complejidad en el eje vertical y Fortaleza en Panamá en el eje horizontal. Actividades identificadas: Terminación de edificios, Restaurantes y bares, Acondicionamiento de edificios, Puntos de venta de alimentos y bebidas, Venta de productos en tiendas, Otras actividades de transporte, Apartamentos de autoservicio, Artículos del hogar a la venta, Combustible al por mayor, Venta al por mayor a cambio de retribución, Fabricación de prendas de vestir, Silvicultura, Productos intermedios al por mayor, Forja y prensado de metales, Metales y minerales metálicos al por mayor.]

Figura A-2: Oportunidades de diversificación para Darién – Servicios

[Figura: gráfico de burbujas con Complejidad en el eje vertical y Fortaleza en Panamá en el eje horizontal. Actividades identificadas: Telecomunicaciones, Agencias inmobiliarias, Actividades de agencias de viaje, Alquiler de equipos de construcción, Venta de maquinaria y equipo, Planes de seguros, Venta de alimentos bebidas y tabaco, A la venta, Publicidad, Venta a cambio de remuneración, Venta de materias primas agrícolas, Venta de vehículos, Gestión inmobiliaria, Combustible al por mayor, Mayoreo de otros productos.]

Figura A-3: Oportunidades de Diversificación – Recomendaciones por Provincia

1. Bocas del Toro

2. Coclé

3. Colón

4. Chiriquí

5. Darién

6. Herrera

7. Los Santos

8. Panamá (incluyendo Panamá Oeste)

9. Veraguas