Panama second most productive country in the region

The results of the Economy and Development Report (EDR) 2018 “Institutions for Productivity: Towards a better business environment” by CAF—development bank of Latin America—were presented with the support of the Secretariat of Competitiveness and Logistics of the Republic of Panama. The report shows that the GDP per worker in Panama is 39% that of the United States, the third highest among the countries of the region (year 2014).

The study also revealed that Panama’s total factor productivity compared to the U.S. is the second highest in the region (58%), behind Argentina (61%), with a regional average of 37%. (Year 2014).

In an overview of Latin America, the report concludes that the region lags behind mainly due to very low productivity in all sectors of their economies, rather than the fact that the region has, compared with developed countries, a large concentration of resources in sectors of particularly low productivity.

In this connection, Latin America has a per capita income of around 26% compared to the United States, which shows that the behavior of the region in the last 50 or 60 years has shown some progress, but still insufficient to have a positive impact on development, considering that in the 1960s the region’s per capita GDP was, on average, 19% vs. the United States.

Mauricio Salazar, acting CAF director in Panama commented: “The information collected in the 2018 EDR provides a comprehensive diagnostics of country realities, showing significant challenges in terms of productivity in the region. Panama has made headway in different areas, but we need to strengthen public policies with a cross-cutting approach to maximize performance of productive sectors.”  

During the presentation of the study, Manuel Toledo, chief economist of the Macroeconomic Studies department at CAF pointed out that “in 2014, Panama’s per capita income vs. the United States was 38%, while in the 1960s it was about 16%. Like the rest of the region, Panama showed insignificant progress in the past 50 years. We must highlight, however, the major breakthrough Panama has shown in recent years in rising from a per capita income of 22% against that of the United States, in the first five years of this century, to 38% in 2014.”

In addition, the report shows that Panama has a non-agricultural informal employment rate of 42% (2016), which is high, but still below the average of 15 countries in Latin America (54%, for several years), which is relevant because informality is associated with low productivity levels

In terms of promotion of competition, 34% of businesses in the service sector in Panama believe permits and licenses are a major obstacle to operating in the market. In contrast, the figure for the manufacturing sector is only 23%. In the regional context, the Latin American average is 45% and 42%, respectively. In this vein, Panama (3.9) shows an antitrust policy effectiveness indicator above regional average (3,4) and below that of the United States (5,6).

The 2018 EDR focuses on institutional factors with an impact across companies, such as the degree of competition, access to inputs and cooperation between companies, labor relations, and financing. The evidence shows that Latin American economies have, in general, markets with lower competition compared to more developed regions, which is reflected in high price margins, especially in the services sector. In order to make headway in this area, it is vital to increase the capabilities of antitrust agencies, reduce barriers for the entry of companies, encourage innovation, expand access to financing, and boost international trade and integration, which are still limited by para-tariff and logistics barriers.

The presentation of the EDR in Panama featured H.E. Gustavo Valderrama, Deputy Minister of Economy of the Ministry of Economy and Finance of Panama; Mauricio Salazar, acting CAF director in Panama, and Manuel Toledo, chief economist of the Macroeconomic Studies Department at CAF, responsible for the dissemination of the results of the report.

Subsequently, a panel of experts analyzed how the report applies to Panama, in a forum moderated by Rebeca Vidal, director of the Private Sector Technical Evaluation and Analysis department at CAF, which featured Eddie Tapiero, senior advisor for competitive intelligence of the Panama-China FTA negotiating team, representing Panama’s Ministry of Trade and Industry, Dr. Víctor Sánchez, director of Business Innovation of the National Secretariat of Science, Technology and Innovation (SENACYT) and Felipe A. Rodriguez, President of the Competitiveness Center for the Western Region - CECOMRO.