PANAMA TAKES FIRM STEP TO THE REINVENTION OF ITS ECONOMY WITH THE EMMA LAW

During the last two decades, the Republic of Panama has lived and enjoyed unprecedented economic growth. There will be those who proudly defend this growth and others who loudly point out its less positive aspects and consequences; Well, definitely its pros and cons can be listed and discussed in depth, but what no one can deny is that, during that period, Panama has led the levels of economic growth in Latin America with rates well above the countries of the region. For those of us who have lived in Panama during all or part of this period, the growth has been evident, palpable; today (despite the fact that those same levels of economic growth are showing a downward trend), we can still state that,

The basis of the wave of growth that Panama has experienced has been its characteristic service economy (among which financial, legal, maritime services and all those direct and indirect that are derived from the existence and operation of the Grand Panama Canal stand out) and in recent years a strong investment in public infrastructure (works such as the metro, the expansion of the canal and others). Notwithstanding the above, and due to various external and internal factors (for example, the world economic situation, PanamaPapers, corruption and deficient administration, among others), which have produced in recent years that these levels begin to show a tendency to decline. low, it becomes clear that if fundamental changes are not introduced to this Panamanian service economy, it will not be able to maintain sustained economic growth. Consequently, the voice of the different unions and national economic leaders who, anticipating this situation, have been asking for, targeting and betting on a reinvention of the Panamanian economy is getting louder. This intention of economic turn seeks to develop other industries, currently dormant, whose potential has been underestimated as an engine of sustained economic development. A key industry, which we will talk about today, is the manufacturing industry (which goes hand in hand with the logistics industry). whose potential has been underestimated as an engine of sustained economic development. A key industry, which we will talk about today, is the manufacturing industry (which goes hand in hand with the logistics industry). whose potential has been underestimated as an engine of sustained economic development. A key industry, which we will talk about today, is the manufacturing industry (which goes hand in hand with the logistics industry).

I am of the opinion that at this time, in the midst of an unprecedented international health crisis, with the recent approval by the National Assembly of Law 159 of August 31, 2020, which creates the Special Regime for the Establishment and Operation of Multinational Companies for the Provision of Services Related to Manufacturing (the “EMMA Law”), the National Government of Panama has put on the table a positive option in response to national needs in the medium and long term; and that it has definitely taken a firm step towards reinventing the economy that Panama so badly needs.

This new EMMA Law seeks to attract and promote foreign direct investment from multinational companies. This law intends for these companies to set up operations related to the provision of manufacturing services and production processes and to be engines that generate jobs and transfer technology and knowledge (for local workers), making us more competitive in the economy. global.

Why do  I see development and growth opportunities for Panama with the new EMMA Law?

Well, there are many edges and positive factors to analyze, discuss and argue (which we will definitely do in future articles), but today I want to share and convey to the reader a story of economic transformation and development that I witnessed during a period of approximately fifteen years; economic transformation and development that, today, is still valid and dynamic. As a proud naturalized Panamanian with a Panamanian family, I want the best for this nation. Now, I tell you that I am originally from the State of Baja California, Mexico, where I lived the formative years of my life. The State of Baja California is a geographical area with a strategic location (for many enviable), located northwest of Mexico and adjacent to the great State of California, United States, to the north. I share that Mexico has a robust manufacturing industry (maquiladora industry as it is known in that region) which today is one of the most important engines that move the Mexican economy. This Mexican manufacturing industry is anchored on a manufacturing legislation (maquila) that has characteristics very similar to the now new Panamanian EMMA Law.

I remember the situation of economic and infrastructure underdevelopment that the State of Baja California, Mexico was experiencing at the end of the 80’s. I also remember even more clearly how at the beginning of the 90’s the North American Free Trade Agreement between the United States, Canada and Mexico (NAFTA for its acronym in English) was signed (with great fanfare). This free trade agreement (which opened the doors for the free transit of products, services and merchandise in North America), combined with Mexican manufacturing laws and the already existing free trade zone of northern Mexico (a geographic area that extended along the entire northern border of the country and up to 26 km to the south), catapulted the development of the State of Baja California in an impressive way.

With these events, almost immediately, this region of Mexico became the recipient of large flows of direct foreign investment. Multinationals in the electronics industry such as PANASONIC, SAMSUNG, SONY, LG, DAEWOO, SANYO, CASIO, PIONEER, HITACHI, GOLDSTAR, SHARP started operations with plants to manufacture and assemble a variety of products. Over time, foreign investment also began to flow from the medical industry with operations of multinational plants such as JOHNSON & JOHNSON, 3M, KIMBERLY CLARK, BOSTON SCIENTIFIC, TYCO, among others. Baja California also established itself as a benchmark in manufacturing for the aerospace industry with multinationals such as HONEYWELL, LOCKHEED MARTIN, GNK AEROSPACE, GULFSTREAM, SAFRAN, among other important ones.

The menu of multinationals that arrived, passed and remains in said region is extensive and their commercial operations produced a number of direct economic benefits for the region, such as the creation of many sources of employment and the generation and payment of taxes. They also created indirect economic benefits for other companies and professionals in various industries such as construction (warehouses, industrial galleys and even housing), professional services (logistics, customs, legal, accounting), among others.

These benefits were not only economic in nature, but the development of the manufacturing industry in that region also brought with it the intellectual, professional and academic development of a large part of its population. The reason was simple, as the years progressed, and with time, the sophistication of the manufacturing and manufacturing processes of the companies, it became necessary for the local workforce to be increasingly better prepared. At first, the transfer of knowledge and technology was facilitated by the same multinational companies that not only exposed their workers to new work experiences, but also provided preparation and updating courses according to the requirements of the processes of each multinational. The regional education sector did not sit idly by, During the second half of the 90’s and later from the year 2000 onwards, various private universities emerged in the market that, together with the existing public universities, began to develop courses, curricula, careers and master’s degrees related to the Needs that, directly and indirectly, this manufacturing industry produced. Today, the region’s universities graduate high-quality professionals in different areas of expertise, with special recognition for their graduates from various technical and engineering disciplines. Speaking of English as a second language has also become a basic need for anyone who wants to advance as a professional in the region, and today, a considerable part of the population masters the English language at an adequate level.

In my adolescence during the 90’s I was able to experience how the public infrastructure of the region was improving; improvement in basic public services (increasingly accessible to a greater part of the population), better infrastructure of roads and highways, better service from government institutions to their governed. I am not saying that the region made a brutal leap from the third to the first world, but I do want to make it clear that I experienced an improvement in the quality of life in many aspects.

Later in the decade of the year 2000, in my beginnings as a professional after having finished my law degree, I had the opportunity to work for one of the law firms with the greatest presence in the entire northern region of Mexico (Bryan, González Vargas and González Baz, SC), whose main market niche was to provide legal and corporate services to multinationals in the manufacturing industry. It was there where, with a little more professional vision, I was able to experience first-line the benefits that the manufacturing industry brought to the region. And it is that, the manufacturing industry not only produces direct jobs and now, but its economic spillover permeates many other areas of the economy. As corporate lawyers we advised multinationals with diverse needs that produced great business opportunities for the region on many fronts of its economy, creation of job sources, new opportunities for commercial entrepreneurship and social development. In short, we advised on various activities of their daily operations that showed us how their interaction with the rest of society and the different economic sectors left a very significant economic spill that at the same time had an impact on the growth of many other sectors and fronts. I even dare to say that during those times the region experienced one of its moments of greatest and best political stability (I repeat, not with a leap to the first world, but with a fairly significant positive change).

Having told you this brief story, you may be wondering at this point in your reading… What does the Baja California region, Mexico have to do with our Panama? You may be thinking, is the writer comparing apples to apples? The following thought could even come to mind: “But the current times in Panama are different from the beginnings that they tell us about that region, and the economic and geopolitical characteristics of one place and another are not the same.” economic impact as a result of the EMMA Law for Panama, would it be similar or even better to the one that the writer mentions that he witnessed in Baja California as a result of similar regulations? ”

And I answer you in the following way, the comparisons can sometimes be heavy or unfair and many do not like them, but let’s analyze: What are the current characteristics of Panama that can be capitalized to stand out with the development of the manufacturing and logistics industry of the new EMMA Law?

1. Definitely today Panama is not in a situation of economic underdevelopment. We have experienced better times, but even today, our economy continues to be the best positioned in the region. The industries that work and produce in Panama today we must continue to cultivate them, but faced with a new real opportunity with the EMMA Law to put a new and powerful gear into the economy, we must attend to the moment with care.

2. What Panama is not located immediately on the border of a great consumer country like the United States or even one of the great ones in Latin America? Let’s see, Panama is located geographically in the center of Latin America and we could also say that geographically in the center of world trade. A border does not divide us with one of the great ones, but one of the most important commercial routes in the world passes through the center of our country. Let us remember that through the Panama Canal you pass a considerable part of world trade and merchandise, through 140 maritime routes that include our channel and connect 1700 ports located in 160 countries. The key phrase here is “goods pass”. With this new EMMA Law, this phrase can be converted from “goods pass through the Panama Canal” to “a large quantity of goods are collected / exported through the Panama Canal”. Our Canal and neighboring ports have the potential to transform us from a facilitator of commercial transit to a key player as an exporter of merchandise to the different ports of the world. Yes, this is a logistics challenge, but today with the EMMA Law it is more achievable.

3. What will not be easy to attract foreign investment? Of course, the good and positive is not easy to achieve, but Panama today is no stranger to foreign investment. Today there are already many multinationals that have opted to locate in Panama in our already existing special trade zones; here is DELL, PROCTER & GAMBLE, ESTÉE LAUDER, NESTLÉ, CATERPILLAR, LG and others. Yes, the current business operations of these multinationals are not manufacturing, correct; But why couldn’t they also become operations covered by the EMMA Law? Why wouldn’t other multinationals come because of the competitive attractions that this law offers, because of our key geographic location and because of the innumerable other reasons why other multinationals have already chosen us as an investment destination?

4. What Panama does not have the population to potentiate its manufacturing industry? As a curious fact, according to INEGI statistical data, in relation to the last census carried out in Mexico in 2015, the State of Baja California has a number of 3,315,766 inhabitants; a population very similar in size to that of Panama today. We are enough and we are capable! As a country with a small population, it should be easier to agree and organize the best way to steer this new branch of our economy.

I can continue with a long list of benefits, opportunities and benefits that I see in Panama as a potential manufacturing country. More I ask you reader, what opportunities do you see? I do not pretend to be able to give all the answers in a short opinion article, but with it I intend to start a conversation with and with the various sectors that will be part of this new industry. A conversation that must resolve questions such as: What do we as a country intend to do with this opportunity? What directional intentions do our authorities have and are they consistent with those of the businessmen who are the ones who create and move the economy? How can we bring about a real technology transfer that raises the level of knowledge and skills of our people? What type or class of manufacturing will we do in Panama? When did we start to have a conversation with the logistics sector?

The new EMMA Law has given us a blank canvas and our authorities have delimited the initial edges of the painting. It’s up to us to paint a masterpiece. The invitation is made… Let’s start the conversation.

Lic. Alejandro Rivera de la Torre
arivera@riveradelatorre.com
The writer is a suitable lawyer, practices the profession in Panama and Mexico, has professional experience and legal and financial academic training in Panama, Mexico and the United States.
www.riveradelatorre.com
He is also part of the education sector as Secretary General of the Hosanna University ( www.uh.ac.pa ).