The Year that Was 2020

2020 has proven to be a very special year. Some will say that it was a year to forget, others will be able to say that it was a year when we learned a lot, others that the Panamanian does not learn anything and will always stumbles upon the same stone, in short everyone can have his own opinion on it, but it was definitely a different year. I will try to outline a small summary of what happened to us and talk about the GDP figures for the 3Q that came out last week, and how little has been said about unemployment according to a telephone survey that INEC (National Institute of Statistics and Census) did instead of the face-to-face survey they normally do in different pre-selected houses.

The year had started slower than in 2019, in fact when we look at the GDP figures for the first quarter, even though we had grown, it was less than 1% (0.3% to be more accurate in nominal GDP and 0.4% in real GDP), compared to the first quarter of 2019. And when compared to the fourth quarter of 2019, we decreased by 6.1% in Nominal GDP and 5.1% in real GDP, but these declines are normal year after year when we compare the first quarter of the new year, against the fourth quarter of the previous year (remember that in December it sells two to four times what is sold in a normal month).

The figures for the third quarter of 2020 lead to a decline in GDP by 23%, down from 38% we had in the second quarter, however I do not believe that the fourth quarter will change the trend, so the decline continued for the third consecutive quarter, which would mean that we are officially in recession, for the first time in the last 30 years of democratic life. With these figures, we will end the year with a decline in GDP in the order of 18%, inflation of less than 1%, and unemployment – as of September – of 18% (the highest in the last 30 years as well). All this for reasons outside our economy, but I think it could have been handled in a better way.

But we were already 5 years in a trend of lower GDP growth during the Varela five-year period and Cortizo's first year did not see a change in this trend, but we did have hope for the growth of between 4% and 5% by 2020. But COVID had other plans for the world, and obviously for Panama, a virus that became pandemic in the blink of an eye, completely new, that took several months to get to know it (even though it is still learned from it every day, and that we have not yet been able to control).

Regardless of the management of the pandemic in the country, its results, both economic and sanitary, the number of “witch” doctors who have come out medicating the population not to give the virus, our opposition to the government on duty, etc., and above all, the end of the year that the authorities are giving us, we will analyze how we really did this year 2020, which will be the basis for how we could go in 2021.

From the things we've learned since 2020, delivery became the star of the year, and as companies adapted or had to adapt quickly to this new way of doing business. May I remind everybody, delivery was not widely used in Panama, very few companies used it. In fact, there were very few companies with on-site service and an internet platform (much less with mobile phone apps).

And all this had to change in the blink of an eye. The first businesses to adapt to the pandemic were the restaurants, and in fact, it was very interesting to see prestigious restaurants as they set out on the delivery service adventure, in the grief of disappearing. Also, the same delivery services, for companies that did not have their own delivery service, grew in this pandemic and there we saw informals change from "business" to motorcycles which was the only service that could be offered in quarantine (this change of informal activity has not yet been measured but my best guess it’s a big jump in delivery persons).

2020 also brought us the corresponding technological development in the form of improving Websites (to turn them into sales weapons) and mobile phone apps, so that businesses could offer their services and products in an easy way – not only on how to deliver the product or service, but how to pay for it. We became a cashless society and saw credit and debit cards displace cash, and the rebirth of apps like Yappi and Nequi, both Fintech created by banks, that made life easy for people.

We also saw the development of the agro-businesses, a sector which was almost disappearing year after year, as the same producers who understood how to reach their final consumer, offering the products and the delivery thereof, as well as the renaissance of the brokers of these same products, especially to give the services to producers who were not interested in marketing their products in this way and to benefit buyers who were under quarantine. MERCA (Panama City’s farmers market) arrived directly at the gates of our houses.

Finally, when it was the turn of the retail stores, they tried to get things right, but they had a hard time receiving orders, picking products, coordinating delivery, and making sure delivery got to the customer correctly. They have improved quite a bit on this issue; however, I think they can do a better job in this regard by accepting that this new way of selling arrived to stay and as long as this does not understand it, they will continue to offer mediocre services and customers will continue to complain.

And for private enterprise, the Telework Act of late 2019 (and which was established in 2020) came as a balm against the pandemic. Some companies have used it correctly, while in other cases we see it as business owners and even managers are determined not to use this new way of doing business, under the pretext of not being able to supervise their employees well, nothing more lacking in the truth of telework, since there are ways to supervise without being behind the employee all day, without having to see them and check their work easily.

In the case of the government, it should be mentioned that some institutions have been able to improve their processes, converting them from face-to-face processes to online processes, including payments in different modalities, for the benefit of the state and taxpayers, and to the detriment of corruption. However, just as you can mention institutions like the DGI (Panamanian IRS), which have improved, there are still institutions where technology is a utopia, and prefer to stay "the old-fashioned, maintaining inefficiency, accepting people cutting corners, and corruption.

In addition to the regulation of the Telework Act, the government passed two interesting laws, the EMMA Act for multinational manufacturing companies, so that they can be established in Panama and the same way as the SEM (Multinational Companies) Law works. It has just been regulated, and it calls for an investment of $75 million, and it must also become a strong job generator. With the new Entrepreneurs Act, the government grants a series of incentives to companies that generate more than 50% of jobs in Panama, offering them new tax rates depending on the level of income they have.

We also saw how a Real Estate Leasing Act was decreed, which seeks to increase construction activity, through the supply of credits through real estate leasing which would not require an initial payment to access it.

The MEF (Minister of Economy and Finance) also made a number of adjustments, offering amnesties, discounts, and tax cuts, to help taxpayers, especially those who could have the necessary cash flow for the government.

The President presented in June about 12 actions to activate the economy, the most important being those that offered some kind of assistance to entrepreneurs, especially SME’s, however, and despite having an excellent idea through the Opportunity Bank, the implementation of it has left much to be desired since relief does not reach those in need.

Through MITRABS (Minister of Labor), a decree was introduced that allowed the suspension of employment contracts, which has been renewed until December 31, and that has allowed companies to suspend their employees' contracts, waiting for the economy to be reactivated, which has not yet happened, and that with COVID's current problems, we will hardly see a correct reactivation of contracts yet.

From the education sector, we had to learn how to teach and receive virtual classes, both synchronous and asynchronous to our students. This has been a problem for many families and teachers, for those who did not have the right equipment or connection in their homes, not to mention that not all teachers were willing to teach their classes in this way and sought any excuse not to do so. But there were also teachers who did what they had to do to keep the boys learning in 2020 under a "new normal." Many efforts have been made to make classes the closest thing to the face-to-face, however we have also seen bad practices among teachers, students, and directions.

We still handle negative inflation until June 2020, the last date that INEC has reported to us. Everything seems to indicate that Panama must end 2020 in deflation, but I very much doubt that this deflation will become stagflation, because of the characteristics of this crisis and how our economy behaves, that once we enter a correct period of revival, I augur a recovery by 2021 quite similar to the recovery from 1990 to 1992, after the U.S. invasion of December 1989.

And we also close with unemployment of 18%, of which we do not keep more detailed information, but we can infer an increase in informal ones due to mass layoffs in companies, but people who have reinvented themselves, to get ahead by taking advantage of technology and their desire to undertake (the rebirth of the entrepreneurs in Panama). I do not agree that informals are entirely bad for the economy, but the bad thing is that the government does nothing to turn these informals into formal entrepreneurs (the entrepreneurship law falls short in this regard).

2020 has been a very difficult, different year, but where we have learned many things. Many of us have been able to change according to the needs of the moment. It's cost others a little more, and others haven't changed at all. Since 2020, I am concerned about the little transparency in the debt acquired, even though I am confident that not every U.S. Dollar requested will be used in operating expenses, but that expensive old debt is paid and save a bit for investment in infrastructure to generate jobs in 2021. In next week's article, we'll see what 2021 looks like with our “The Year that will come 2021” edition... Merry Christmas and Happy New Year.