In 2013 Panamanian banks will start providing reports to the US authorities about US citizens who hold accounts there. Once this procedure goes into effect, it is estimated that Panama stands to lose around $2 billion in GDP. Some see innovation as the only way to overcome such a loss. Panama has ambitious plans to grow its tech sector by 2018 – but serious deficiencies in human capital and an inconsistent focus on BPO investment are major hurdles.
The Ministry of Science, Technology and Innovation, led by Dr. Ruben Berrocal, was created to oversee the technological revolution, which includes the fulfillment of Panama sin papel, or Paperless Panama, the generation of 15,000 new computer engineers by 2018 and the development of server farms. Can a country that was built and sustained on trade transform itself into a technological hub? If it hopes to grow in the 21st Century it just might have to.
Where is the Talent?
One obstacle that stands in the way of growth is the lack of human capital. According to Jaime Figueroa, Managing Director of investment advisory Panama All In One, the country lacks the people to for executive level positions, so the talent has to be recruited from elsewhere. Although it is compulsory to attend primary grades one through twelve, dropout rates are increasing and the quality of education is of concern. The World Economic Forum’s 2011-2012 “Global Competitiveness Report” ranked Panama’s primary education at 34 out of 142 nations, and its higher education is ranked at 99. With 70% of the population under 25 years old, it is clear that education reform needs to be a high priority.
“I am pushing the government to create a Start-up Panama program that would be modeled after Start-up Chile. We would start with Israeli entrepreneurs.”
Connections and Disconnects
Efforts are being made to increase Panama’s connectivity and in 2010, the fifth annual Latin Technology Index from Latin Business Chronicle determined that Panama had Latin America’s second-highest technology use rate out of 20 countries. While this is a positive indicator, it is important to remember that Panama has a relatively small population of just over 3,000,000 people.
Panama also suffers from one of the world’s most disparate distributions of wealth: “We have billionaires, and people living in prehistoric conditions,” said Figueroa. This brings into question the soundness of providing internet service to someone who doesn’t have access to life’s basic necessities. While on paper it looks good, the reality is very different. And in practice, it could hardly be expected that a deep-rooted system of poverty would encourage a spirit of innovation or technological development. Although computers are free because they are viewed as development tools, Panamanians lack an innovative drive and the concept of start-up ventures is still very new there.
Money But No Deals
“Panama is a very rich country, but there is a lack of investing in IT,” pointed out Ilan Shatz, President of Grupo aura, a provider of paperless solutions and self-help kiosks, he is also President of the Panama-Israeli Chamber of Commerce. “I am pushing the government to create a Start-up Panama program that would be modeled after Start-up Chile. We would start with Israeli entrepreneurs.” The program would be funded through a joint venture with an Angel fund and the Panamanian government, however, “One problem with the Angel club,” said Shatz, “is they have money but no deals.” He attributes this to the lack of an innovative spirit in Panama, a country that has traditionally provided services for the free zone and the Panama Canal. Shatz is optimistic that this is changing, especially with the commitment of universities and the government. But, will there be enough interest from the students? Grupo aura could be used as a model of how a startup company can succeed. When Shatz moved to Panama from Israel to start a digital signage company, he found it very difficult, so he went to Colombia and started the business there. Even though he found success in the larger market, the business lost money from 2006 – 2009. In 2009, his focus switched and the company started developing software in-house. “Through a joint venture between Israel and Panama, I brought Israeli and Panamanian engineers together to develop software,” explained Shatz. Out of that effort, Grupo aura created a management system to monitor and improve client attention in banks and government institutions.
Currently the company’s clients include Banco Santander, Grupo Helm, The Panamanian government, the Colombian government, HSBC Colombia, the Panamanian international airport, Tower Bank Panama, Nissan Panama and the Colombian stock exchange. In Panama, this achievement is unheard of by a company with only 15 employees, ten of whom are engineers/designers and five are administration/sales. But it is this “can-do” attitude that Shatz hopes to infuse into the Panamanian culture, “There is talent here; I can find very smart, very clever and very loyal people. But everyone knows that the best people in the region are in Colombia. There is no comparison. I think that if you focus on young Panamanians who are not coming from rich families, the lower – middle class and you will get great people.”
Grupo aura’s staff of Panamanians all graduated from university with the required skills, eliminating the need for Shatz to implement a training program. “Universities are doing a great job and the students are open minded and flexible to adopting to the job,” he observed. However, his employees are constricted by the historical dearth of innovation. “If you graduate as a software engineer you would go to work for bank, a cell phone company or the canal. You did not have the opportunity to work for a smaller company,” said Shatz.
In a move toward encouraging an incubator type environment, Ciudad del Saber (The City of Knowledge) was established in the former Fort Clayton military base on the banks of the Panama Canal. The complex is mainly home to R&D companies, and was built to provide the “support essential to foundation of programs of excellence in education, research, technological development and innovation, while encouraging and promoting integration of institutions, businesses, and programs.” While this is encouraging, Panama has a lot of fundamental things to accomplish, and foundations to build, if it hopes to be a viable player in the technologically sophisticated 21st Century.