Panamá Embraces Guatemala-Style Protests

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We welcome you to the eleventh week of our Greater Caribbean Monitor (GCaM) pilot. We would like to remind you that as a token of our appreciation, we will be extending you an early-bird offer at the pilot’s conclusion.

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In this issue, you will find:

•Coverage of recent protests in Panama

•An overview of Costa Rica’s drive to attract FDI and acquire new trade partners

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The GCaM Team

•Panamá Embraces Guatemala-Style Protests
571 words | 2 minutes reading time

Panama is mired in protests and blockades in response to the government’s hastily approved contract renegotiation with First Quantum Minerals, the Canadian operator of the Cobre Panama mine. The protesters – an assortment of indigenous, student and environmental groups – argue the agreement threatens Panama’s sovereignty.

• The new contract achieved legislative approval two weeks ago and was enacted as Law 406. It guarantees the state a minimum royalty payment of $375 million per year, compared to the $61 million it received in 2022. The mine also provides 9,387 direct jobs.

• Outgoing President Laurentino Cortizo (PRD, center) has called a nationwide referendum, something that the Electoral Court considers impossible. He also declared a mining moratorium, prohibiting new concessions.

• Protesters resent the speed with which the contract was approved. Several appeals have been lodged before the Supreme Court, which has vowed to respond within 10 days.

Between the Lines. The contract renegotiation was tense. In December 2022, the government ordered the suspension of activities until an agreement was reached. This meant daily losses of $8 million for the Canadian consortium, which sought to maintain the right to extract precious metals and request airspace restrictions.

• The new contract is undoubtedly advantageous for the country. However, beyond their immediate desire to repeal Law 406, many protesters are now calling for a complete ban on mining, arguing the industry threatens Panama’s critical water resources.

• The demonstrations are a function of the populace’s generalized disenchantment with the government, which is accused of being corrupt and overseeing an increase in the cost of living.

• Cortizo’s actions should be understood as an attempt to calm the waters and gradually reduce the anti-mining movement’s momentum. His strategy is unlikely to succeed, and his party can expect a battering at the next elections, which are scheduled for May.

Data. A drought is currently wreaking havoc on the freshwater-reliant Panama Canal. Restrictions have been placed on vessel traffic in the canal, inflicting losses of $200 million on the treasury. The mine is the only way to make up for this budgetary shortfall; Panama has not made alternative arrangements.

• The concession is good for 20 years and can be extended for 20 more. Under the current contract, First Quantum would be the country’s largest taxpayer. Optimistic forecasts for Panama’s GDP growth will now have to be revisited.

• At maximum capacity, the mine produces 300,000 tons of copper per year, that is, 1.5% of world production. It also represents 4.8% of the Panamanian GDP and 75% of the country’s physical exports.

• First Quantum is listed on the Toronto Stock Exchange, where its shares have plummeted 43.88% this week. It is evident that Panama, a refuge within the region, will lose credibility with investors.

The Balance. The Cobre Panama mine serves as a cash cow for the Panamanian state, but it also represents almost half of First Quantum’s income. If the contract is revoked, the Canadians will bring the matter to international arbitration, likely resulting in a judgment against Panama.

• The contract, after all, was approved by the National Assembly, signed by the president, and enacted as law. Panama has little chance of success in court and would find itself with a considerable bill of damages.

• Panama’s best option is for Law 406, and consequently, the contract to be declared unconstitutional by the Supreme Court. Otherwise, the country will have to settle its accounts with First Quantum and face the loss of royalties.

• U.S. and Canadian interests will be irritated by the loss of the mine, especially in light of copper’s status as a metal of strategic importance. Countries like Chile have addressed mining with more pragmatism and stand to benefit.

•Costa Rica Seeks New Markets
541 words | 2 minutes reading time

Last week, Costa Rica and the United Arab Emirates closed their third round of trade talks. Another round will be held before the end of the year, after which a free trade agreement (FTA) is expected to be announced.

• This diplomatic proximity between the two countries is recent: they first exchanged embassies in 2017. Since then, they have maintained vigorous diplomatic activity, signing more than 25 memoranda of understanding.

• Bilateral trade is valued at $58.8 million. Although the value remains measly, trade exchanges between both parties show a clear upward trend, growing by 21.3% in 2022.

• Costa Rica maintains a substantial surplus with the UAE. Its exports to the UAE, primarily medical devices and bananas, are valued at $43.8 million, while the UAE’s exports to Costa Rica are worth a mere $15 million.

Between the Lines. Costa Rica is attempting to make its way into new markets and reduce its dependence on the United States and its Central American neighbors. In Asia, it has signed agreements with Singapore and China; at Indonesia’s behest, it is expected to sign ASEAN’s Treaty of Amity and Cooperation.

• Costa Rica also plans to sign an FTA with Israel, although the war has delayed negotiations. In any case, the country is moving quickly: its agreement with the UAE has taken about six months to negotiate.

• The United States absorbs 37.75% of Costa Rica’s exports and is the source of 43.71% of its imports. Costa Rica is perhaps the closest U.S. ally in the region, but this does not impair San José’s wish to enter new markets.

• Costa Rica seeks to avoid the mistakes made with China, which exports $2.8 billion to Costa Rica, but only imports $436 million. On several occasions, Costa Rican big business has questioned the value of the FTA with Beijing.

Panorama. Costa Rican trade benefits from its industry, which is more sophisticated than that of its neighboring countries. Medical and orthopedic devices are among the country’s main exports, allowing it to attract investment, foreign factories, and U.S. aids.

• A little over a month ago, Johnson & Johnson MedTech announced that it will build a 200,000-square-foot factory in Alajuela, 20 km from the capital. It is the company’s largest investment outside the United States.

• In August, Intel announced a $1.2 billion investment to expand its plant in Costa Rica. This was doubtlessly encouraged by Washington, which has a vested interest in increasing semiconductor production among its allies.

• The United States’ desire to disengage from China benefits Costa Rica. The country will take advantage of the Chips and Science Act, which establishes a $500M fund for foreign technological investments.

The Balance. Per KPMG, Costa Rica is the third most attractive country to invest in Latin America, only surpassed by Mexico and Brazil. Even a financial center like Panama, whose attractiveness is now in doubt, barely occupies ninth position.

• Another point in favor for Costa Rica is its recent exclusion from the European Union’s "gray list" of tax havens. This will allow it to access more European investment, as well as cooperation funds.

• The Costa Rican economy’s relative sophistication can benefit the rest of Central America. While the rest of the region lacks, for example, a semiconductor industry, it can serve as a supplier of inputs and intermediate products to Costa Rica.