Panama s Logistic sector. Investment Opportunities in Hub of the Americas 2015

Transcription

1 Panama s Logistic sector Report by Netherlands Embassy in Panama Report by Netherlands Embassy in Panama Report by Netherlands Investment Opportunities in Hub of the Americas 2015

2 Panama s logistic sector In 2016 the extended Panama Canal will have made way for larger and more vessels, promoting economies of scale. That s great. But how to attract them when maritime activity drops with 2% a year, shipping companies seek lower costs and competition from Suez Canal and US is high? There is only one way and Panama is already taking action. To be the most competitive transport route the country is transforming itself into a maritime and logistics hub of the Americas. And Panama is not doing it alone. The Inter-American Development Bank (IDB) released a dense blueprint on how to organize a national logistic system with value added services. Their recommendations are taking form in everyday life. Panama created a Logistics Cabinet directly under the Presidency and maritime organizations like the Panama Canal Authority are issuing tenders for logistic megaprojects. The port of Corozal is in full stream development, as is a Roll-on Roll-off port on the Pacific entrance of the canal. In this report, you ll find an overview of Panama s logistics developments and ambitions. These are supported by IDB s recommendations. We ll take a closer look at three logistic subsystems in which the IDB sees great potential. Very concrete projects have been pinpointed. As you ll get a clear insight into Panama s logistics sector, we ll reflect upon current developments and investment possibilities open for proposals. Panama has a GDP of $40.3 billion and a GDP per capita of $10,838. In 2014 Panama was ranked 48 th in the Global Competitive Index. The credit rating agency Moody's qualified Panama with a Baa2 rate and a stable outlook based on its continued economic growth of 6.5%. Panama City ranks 1st in Doing Business in Central America and the Dominican Republic 2015, an annual study by the World Bank. Their ranking is based on the average of 3 indicators: - starting a business (1st); - dealing with construction permits (6th); - registering property (3rd). In the Logistics Performance Index Panama scores an overall 3.2 on a scale from 1-5 (lowest score to highest score). That said, factors such as corruption and inefficient government bureaucracy should be taken into account when doing business in Panama. Figure 1: Panama in facts 1

3 1. Recent logistic developments In 2012 the Ministry of Commerce and Industries (MICI) initiated a Logistics Cabinet to integrate different programs of governmental agencies into a logistics master program. Their aim was to elaborate and execute this master program to transform Panama into a logistics and commercial hub. To coordinate this, the Logistic Cabinet set up a National Logistics Council (NLC) 1. In 2013 Panama reached out to the IDB for technical assistance. Coordination was needed to formulate the logistics program. As the IDB had conducted a study in concerning logistical and commercial improvement in Mesoamerica, action priorities had already been identified. Following from this analysis, the IDB was able to provide technical cooperation to strengthen - and structure - the institutional capacity of the logistics sector in Panama. Through workshops public and private stakeholders came together to integrate plans and reached consensus on strategic priorities. The IDB provided a special consultant to support this organizational process and financed these initial activities. The result was the formulation of a National Logistics Plan; an in-depth blueprint to guide government action on how Panama can best develop its logistics sector. They focused on the efficacy and efficiency of the existing legal framework, the logistical processes and overall infrastructure. The aim of the National Logistics Plan is to improve the performance and integration of the National Logistics System. Of equal importance was the need for (1) a body with a leadership role, (2) inter-institutional cooperation and (3) policy formulated on a national level that stemmed from these public/private workshops. In the same year of 2013, the private sector initiated a Logistics Business Council (COEL); a body that institutionalizes the participation of the private sector in the development and implementation of government strategies regarding logistics. 2. Panama s National Logistics System Panama s economy is mainly based on its service sector which accounts for 83% of its GDP. 24,3% of this sector consists of maritime and logistic services. Panama s main export products (banana, shrimps, pineapple and fish) are exported by sea. The most important cargo route is interoceanic; the Panama Canal. 1 For more information on the NLC please go to 2

4 Figure 2: Overview Panama s logistics sector The core policy of the National Logistics System is based on the former Panama s National Maritime Strategy (2009), which main objective was to develop and strengthen maritime, logistic and economic activities in a sustainable manner as to consolidate Panama as the maritime and logistics platform of the Americas. Despite the existence of the Colon Free Trade Zone and the Economic Area of Panamá Pacífico, the logistic infrastructure is still relatively unstructured and slightly segregated from the urban area. Panama mostly provides assistant services and thus has a lot to gain in the development of value adding services, which will become evident throughout this rapport. Several organizations have already showed initiatives to enter this market, generating a risk of oversupply. While Panama is focusing on modernization, it still has a long way to go. The main challenge is to not merely correct persisting inefficiencies - delay due to lack of capacity and personnel 2 -, but to transform the entire system towards an international platform in which all junctions of international commerce are connected via protected fiscal passages. In other words; move from a short term to a long term vision. 2 For more information on the NLS inefficiencies, see the IDB report Plan National de Logisitica de Cargas NPLog Panama , Marelia Martínez Rivas, March 2014, p

5 The IDB identified the main factors that challenge the development of the National Logistics System: - lack of strong leadership from the government - a scattered legal framework over various institutions, making it difficult to implement a comprehensive plan for medium and long term - a severe deficit in adequate work force - part of the investment has to come from the private sector The main short term risk is congestion of the system, as short and long distance transport flows are not enough separated. 3. Identified: three logistic subsystems To improve the development of the National Logistics System the IDB focuses on three logistic subsystems in the National Logistics Plan to turn Panama into a global logistics hub: Subsystem 1. Value-Added Logistics Services (VALS) Hub of Canal conglomerate Vision Panama is an adding value logistics hub, a leader in innovation and global connectivity 2. Logistic support for agricultural sector Panama s efficient logistics create economies of scale making Panamanian agricultural products more competitive in domestic and international market 3. Logistics support for regional trade Panama is the most competitive and efficient logistics hub in air, sea and land distribution of the region. Within each subsystem the National Logistics Plan strategy is to improve Panama s (1) infrastructure, (2) services, (3) processes, (4) human recourses and (5) legal framework and regulation. Though high aspirations resound, the amount of recommendations for feasibility studies are significant and signal the transformation still needed. The following paragraphs will introduce more in-depth possibilities in the areas of the three subsystems Subsystem: Value-Added Logistics Services Hub of the Canal conglomerate The National Logistics Plan identifies 8 forms of Value Added Logistics Services that have potential for Panama, and which actions are crucial for the development of these services. 4

6 Value-Added Logistics Services: Segment Potential To do 1. Regional distribution and consumer product postponement 2. Postponement of consumer goods Significant Significant - improve cold chain - simplify customs procedures - improve land connectivity between nodes - improve quality of HR - improve cold chain - simplify customs procedures - improve land connectivity between nodes 3. Maritime services High comparative advantage - develop right infrastructure - promote service quality - promote custom 24/7 - improve local supply chain 4. Distribution of fuels High potential - increase volume and connectivity 5. Regional Pharmaceutical distribution 6. Distribution of perishable goods Significant potential Limited potential - improve cold chain - simplify customs procedures - improve land connectivity between nodes - improve quality of HR - improve connectivity 7. Bulk distribution High potential - develop specialized port infrastructure - improve land access 8. Postponement and distribution of vehicles and heavy equipment. Great potential - improve specialized infrastructure - improve port connectivity - improve security - improve HR For the development of these 8 VALS segments it is important to understand Panama s current strengths and weaknesses regarding its logistics sector. Panama s strengths: expansion of Panama Canal, which will increase traffic and potential demand for VALS existing world level infrastructure; ports and airport, with elevated connectivity low country risk and economies of agglomeration, which attract investment existing qualitative transport services commercial activity in the Colon Free Zone and its value adding services established network between Latin American and North American companies 5

7 Panama s weaknesses: fragmented supply of second and third level logistics, limited supply of first level logistics limited existence of world class logistic zones with good port connections saturation of the internal road network and road congestions problems congestion of ports logistic service highly concentrated in supportive services port development is organized under a concession system that makes for complex regulation and leads to little reaction of interested companies tools to stimulate foreign direct investment are scattered, which generates confusion on side of investors inefficiencies and fragmentation in foreign trade processes that are not equipped to provide systematic monitoring shortage of human resources on technical level What stands out from this analysis is that the groundwork of big infrastructure in Panama is developed. Priority now is to integrate the Panama Canal, its multiple ports and its airport to improve efficiency and extend VALS capacity. For this to happen the National Logistics Plan identified the following actions: work towards an intermodal infrastructure system to optimize cargo flows improve human resources to provide high-level services optimize technical processes streamline regulation provide legal security for investors to attract FDI enhance public-private collaboration 3.2. Subsystem: Logistic support to agricultural sector The second subsystem in which the IDB sees great potential focusses on the development of the infrastructure needed to support Panama s agricultural sector. This will provide opportunities for economies of scale which will make Panamanian agricultural products more competitive in the domestic and international market. Below you will find a dense list of the current strengths and weaknesses as analyzed by the IDB. Panama s strengths: concentration of production zones proximity of specialized ports overall good quality of road infrastructure adaptation of Panama s legal system regarding goods in transit national experience with large-scale buyers renewed focus on exports by Ministry of Commerce and Industry 6

8 Panama s weaknesses: existing cold chain secretariat that doesn t function inefficiencies in transport of national agricultural production lack of continuity of cold chain in transport and storage limited and fragmented logistic infrastructure in Panama City for national distribution congestion of roads oversupply of intermediaries and brokers make it impractical for exporters to export low maturity of export chain small producers are scattered and without central storage facilities lack of cold chain personnel to operate specialized equipment high costs for certification of good export practices lack of training in international market position lack of traceability systems lack of customs training in transfer of goods quotas limit Latin American ships to Panama, making Latin American agricultural exporters less competitive low volumes and seasonal fluctuations significant differences in shipping prices resulting from demand fluctuations lack of external investors and little investment from private sector high costs for transport over land high cost to cross over the Panama Canal (East-West) vertical integration of shipping and transport companies is increasing freight cost Room for improvement is plentiful. Overall we see a lack in basic infrastructure and limited connection between the production chain which causes inefficiencies, high costs and loss in competitiveness. Panama s direct priorities in logistical support for agriculture are the following: increase large-scale production through partnership and proper logistics connectivity to production centers increase regular market data to optimize product marketing simplification of external commerce processes reduce costs of supplies Complementary to these priorities, the IDB identified two more focus points, namely: necessity for incentive, financing and legal framework elaborating plans for further agricultural developments to improve potential of export products 7

9 3.3. Subsystem: Logistics support to regional trade The third subsystem envisions Panama as the most competitive regional logistic hub in air, sea and land distribution. Whereas the first subsystem concentrates on the zone around the Panama Canal, this subsystem focusses on integrating all nationwide logistics into a multimodal system to facilitate commerce regionally. Panama wants to be the entry and exit point of the Americas, adding value to products and services as a world class distribution hub. These are confident aspirations. For a country located at the heart of the Americas that has served for over a hundred years as the only passage between the Atlantic and the Pacific, it might not be such a wild idea to build on these advantages and to step up its game. Let s have a look at the strengths and weaknesses in positioning Panama as logistic hub. Strengths: Colon Free Zone it is a regional air and port hub transport services and high quality VALS consolidated supply of high quality international transportation services that provide opportunities for this subsystem in Panama overall good quality of road infrastructure security of goods Weaknesses: many empty returns in road transport limited infrastructure at Panama- Costa Rica border security problems outside of Panama weak logistic structure to support commercial exchange in Central America, especially in urban distribution areas and for VALS To achieve a competitive multimodal system the following priorities have arisen: development of specific services efficient customs, prioritizing movement of goods traceability of goods private - public cooperation infrastructure at the borders modernization of technology and equipment for logistics services, standardization of fleets business promotion multimodal connectivity, door to door adequate workforce customs union logistics observatory high quality information systems 8

10 4. Concrete investment possibilities The study conducted by the IDB has been so thorough that it allows for the concretization of investment projects. As the institutional capacity of the logistic sector is accumulating which we will discuss in the next chapter - the prospect of those plans to be initiated by the public and private sector is (already) becoming reality. Below you will find a large overview of these investment possibilities. 4.1 Infrastructure I. Investments in ports, interoceanic (logistics) route, road and rail investments, Logistics Activity Zone along the Canal to support the value added services. Investments are specified in the Interoceanic Zone master plan of the Logistics Cabinet II. Road investments on the west bank of the Canal and a 4 th canal bridge III. Greenfield development of a 3 million container terminal in Corozal IV. Project to modernize Tocumen Cargo Centre V. Logistic Activity Zone in Paso Canoas (Panama- Costa Rica), Logistic Activity Zone distribution in urban Panama VI. Logistic Activity Zones supporting production in the west of Panama, in the areas of David, Chiriquí, Torti, Metitis VII. Consolidation of the Pacific Logistic Corridor (CPL), most likely a railroad, and the border crossing of Paso Canoas (Panama-Costa Rica) VIII. Consolidation of logistic corridor (highway) between David-Guabito, and the border crossing of Guabito with Costa Rica IX. Cargo Traffic Management plans in Panama and Colon X. Road network to improve large scale agricultural production and transport in the areas of Darien, David, Azuero, Chepo and Santa Fe XI. Actions derived from the Airport Development Strategy of Panama XII. Road maintenance system 4.2 Logistic Services XIII. Incentives to develop value added services to support all subsystems XIV. Freight exchange and systems to support the logistics of agriculture export XV. Other ICT to support the business sector XVI. Strategic plan to promote the value added services 4.3 Processes XVII. System modernization of customs and computerization of Ventanilla Única de Comercio Exterior (VUCE) ; an online platform to speed up export transactions 4 3 For more information on the Airport Development Strategy of Panama , please go to 4 VUCE is a platform that allows its users to process the certificates required to export or import quickly and safely, and make payments online and track transactions in real time. For more information, please go to 9

11 XVIII. XIX. XX. Process modernization of COMEX and integration of national systems Traceability systems for goods in Pacific Logistic Corridor (CPL) Training of operating staff of COMEX 4.4 Additional XXI. Legal Framework Cargo Logistics XXII. Formulation of HR Plan XXIII. Regulation Act Port and Customs XXIV. Establishment of Logistics Secretariat and Monitoring Body of Cargo Logistics XXV. Legal Framework on Public/Private financing XXVI. Urban Plans, agricultural plans, city plans/port of Colon. 5. Developments of today and tomorrow To come to a deep understanding of Panama s current logistics progress we will reflect upon how the IDB s recommendations are being implemented. As IDB s action recommendations were institutional and project based and they re highly interdepend- we will present you the latest developments regarding both. 5.1 institutional developments When President Juan Carlos Varela took office in July 2014, it was the Panama Maritime Authority that took initiative and placed the Logistics Cabinet under its wings. Two months later, the Ministry of Industry and Commerce requested for the Cabinet to be placed under their supervision. It was decided that the Logistics Cabinet was to be placed directly under the Presidency to shorten the linkage to the decision makers and financiers as much as possible. The Logistics Cabinet consists mainly of ministers. They have decision making power but lack coordination capabilities. Therefor the need for a Logistic Secretariat is substantial. Such Secretariat would have the organizational and coordination capabilities to take on a management role to oversee and steer the development and integration of all logistic players, of course with strong back up leadership - from the president/government. Most importantly, the Secretariat would implement and delegate the blueprint of recommendations supplied by the IDB as much as possible. In April 2015 the Logistics Cabinet has to present its foreseen budget. It is expected that within this timeframe the Logistic Secretariat will be established. The pressure from the public and private sector to create the Secretariat is very high. 10

12 In President Juan Carlos Varela s Five Year Plan 2015 the logistics sector is marked as key sector for Panama s development. As the National Logistics Plan forms the basis for the Logistics Cabinet and as the plan urges the need for a logistics Secretariat, we expect it to be realized this year. 5.2 Project developments IDB s project recommendations cover a time period from Over the last couple of months we ve seen many tenders announced and released for medium-large logistic projects that were recommended by the IDB. Various institutions and companies are taking advantage of the many opportunities that suddenly became tangible. Opportunities they came to understand as necessities to increase the return on profit of the expansion of the Canal and the development Panama as whole. Below you will find an overview of the most important current and expected projects starting with an outlook on the most recent port developments. Port of Corozal One of the biggest and latest developments is the new port of Corozal by the Panama Canal Authority (ACP). Though they are still working on a bill to start its development, soon the ACP will initiate the process of prequalification and tender negotiations. The Corozal project will be developed in two stages; first they ll construct a 1350 meter dock and a container park, then they will construct a second dock of 731 meters. Companies such as Manzanillo International Terminal (MIT) have already shown interest. The port will be located in the entrance of the pacific side of the Canal. This makes for technical challenges such as the coordination between ships passing through the canal and ships entering and leaving the docks - for which Dutch expertise can provide solutions. RoRo port and Logistics Park The Panama Canal Authority (ACP) has plans to release two tenders in 2015 for the construction of a Logistics Park and RoRo port on the Pacific side. The ACP themselves will invest in the dredging necessary for the construction of the RoRo port. Both the Logistics Park and the RoRo port will be located on an area of 900ha prepared for development by the ACP near the new Pacific Locks, west of the Panama Canal. Port of Armuelles The Maritime Authority of Panama (AMP) and the Latin American Development Bank CAF announced they want to develop the Port of Armuelles, known as a deep sea port and for its former banana transport, and explore the development of an intermodal dry canal. This should connect the port of Armuelles on the Pacific side to the Atlantic. The Development Bank of Latin America CAF and the Ministry of Finance will also invest to initiate a new type of maritime industry for the Port of Vacamonte. 11

13 LNG The ACP signed a cooperation agreement with the Port of Lake Charles in Louisiana, the United States. This is part of a strategy to attract players of the Natural Liquefied Gas (LNG) market as the expansion of the Canal route allows for more and bigger LNG vessels. New toll structure for canal The ACP announced a proposal for a new toll structure to benefit economies of scale and larger vessels. Accordingly, the ACP argues that this structure reduces the current toll rate as each segment will be priced based upon different units of measurement. For instance, containers will be measured and priced on TEUs, dry bulkers will be based on deadweight tonnage capacity and metric tons of cargo, and LNG will be based on cubic meters. The adjustments for all market segments, except for the new Intra Maritime Cluster Segment, are scheduled to begin in April Tocumen Airport The international airport of Tocumen is analyzing the feasibility to create a free trade zone located at the cargo terminal. The plan to develop a new cargo terminal with value added logistic services is foreseen to be crystalized in the next 6 months. Tocumen Airport will release tenders to increase the number of shops at the airport as they ve planned to increase their capacity from 8.5 million to 10 million passengers. Public investments Regarding the state budget of 2015 president Juan Carlos Varela announced: 1. construction of a fourth bridge over the Canal on the Pacific side 2. wastewater treatment plant 3. expansion of the Inter-American highway between Arraiján and the Bridge of the Americas 4. modernization of the public transport system Furthermore the government has shown interest in developing a cruise terminal in the area of Amador, Panama City, a project left by the former government. New studies showed that the area with most potential to construct a cruise terminal is the beginning of the Causeway Amador. The necessary investment is recommended to come from both the private and public sector. Currently an agreement is negotiated amongst the Cruise Association of Florida and the Caribbean (FCCA) to include Panama in their routes. The Ministry of Public Works announced the construction of 19 road infrastructure projects foreseen in They ll have a budget of $899,6 million starting Overall we see many initiatives and tenders regarding potable water and irrigation systems. Restoration of Colon and the construction of sanitary units is also high on the public agenda. 12