Friday, December 3

Confidence to attract investment and create jobs

The economy is trust. Trust in consumers to create demand for products and services, and trust in investors to meet that demand in a profitable and safe way, thus generating jobs.

Recently, the National Institute of Statistics and Census (Inec), from the Office of the Comptroller General of the Republic, announced a reduction in the Unemployment Rate, from 18.5% on September 30, 2020 to 14.5% on June 30, 2020, due to the fact that there are fewer Panamanians looking for work and the state payroll increase.

The number of unemployed decreased by 89,933 people, of which 66,502 (74%) was the result of the reduction in the Economically Active Population (EAP). 23,431 jobs were created, but there are 40,621 more employees, that is, the private sector lost 17,260 jobs.

The pattern has been the same throughout the coronavirus pandemic (COVID-19). Between August 2019 and June 2021, 265,320 jobs were lost and 71,730 civil servants were added, that is, the private sector lost 336,890 formal jobs. As a result of the pandemic, private formal employment fell 39%, the state payroll increased 24%, 129,997 Panamanians stopped looking for work and there are 579,568 receiving the Digital Voucher of the Panama Solidarity Plan (November 2021).

In addition to the collapse of formal private employment, the generation of new formal jobs is slow. Between January and September 2021, the Ministry of Labor and Labor Development (Mitradel) processed 162,498 new labor contracts (75% temporary), 55% of the 296,050 processed in the same period of 2019, year in which 52,040 jobs were generated, all informal.

The slow pace of new employment contracts in Mitradel it is a symptom of uncertainty among investors. The deterioration in the investment climate in the country has also been manifested through the systematic increase in the levels of informality in employment.

Before the pandemic (2009-2019), 52% of all jobs created in the country were informal. COVID-19 exacerbated that trend. Between 2010 and 2020, 92% of the new jobs were informal and the remaining 8% was the result of increases in the state payroll. In 2020 there were more than 777,000 informal workers, a number that increased in 2021.

Today, 68% of the country’s workforce are informal and civil servants.

There is also job uncertainty. According to the Panamanian Consumer Confidence Index (Iccp) of September 2021, presented by the Chamber of Commerce, Industry and Agriculture of Panama (Cciap), 43% of Panamanians feel that they will lose their job in the next six months, 7% say they do not have a job and 28% do not know what will happen. That is, 4 out of 5 Panamanians are pessimistic about their job prospects.

The job uncertainty is a sign of caution on the part of consumers when spending and assuming new commitments, resulting in inhibition of consumption that fell by $ 600 million per month. If there is no consumption there are no sales, without sales there is no income, and without income there will be no employment.

The government has been intervening in the labor market actively (increase in the state payroll, 71,730) and passively, which includes the 129,997 Panamanians who stopped looking for work and depend on the Digital Vale, which becomes a potential “disincentive” to the job search, particularly in those workers who had low wages, especially considering that 94% of those who lost their jobs due to the pandemic earned less than $ 750 per month (20% earned less than $ 450 / month)

Economic decisions by the Government have been subject to health criteria. The priority is vaccination, not job creation.

Creating formal employment will be a challenge, since two out of every three jobs created in the last 15 years came from 7 sectors with increasing levels of informality. These include commerce (47.2%), construction (58.9%), industry (60.4%), logistics (59.5%), tourism (52.1%), administrative services (52.4%), and agriculture (74.5% ).

The National government advances efforts to attract Foreign Direct Investment (FDI), diversify the economic structure and generate formal jobs, exploring new economic activities, including mining, which is the economic activity that generates the least informal employment (7.2%, according to Inec 2019).

The “virus” of uncertainty is fought by building trust. First, confidence in investors, projecting Panama as a safe country to invest, with legal security and clear rules. And second, confidence in consumers regarding their future employment and the stability of the Panamanian economy. The labor crisis has not bottomed out. The “enemy” is not COVID-19, it is hunger.

René Quevedo
Business advisor

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