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The semiconductor industry in Panama is an opportunity to ensure industry stability

by | Oct 28, 2023

As the stakes in the 21st-century chip wars intensify, American companies need reliable, stable, capable, and close partners in the semiconductor industry. A semiconductor industry in Panama can be the answer.

The growing vulnerability of global supply chains and the volatile state of geopolitics are leading U.S. semiconductor chipmakers to look for alternatives to fill critical functions in their manufacturing process. Today, they have a new opportunity in a stable and reliable partner close to home: Panama.

Chips are the oil of the 21st century, and the U.S. has prioritized their importance to national security through the CHIPS Act. American chipmakers are looking to expand domestic capacity to help ensure supplies of these strategic goods.

Panama as a center for Assembly, Testing, and Packaging (ATP)

However, the industry often relies on companies thousands of miles away to complete the final stages of its chip manufacturing, known as Assembly, Testing, and Packaging (ATP). Many of these ATP facilities and warehouses are concentrated in East and Southeast Asia.

Recently, the United States and Panama made an important announcement of a strategic alliance to strengthen the semiconductor industry in Panama and its value chain. Panama was chosen as one of just a handful of countries that will benefit from State Department funding to explore ways to expand ATP capacity. The recent visit of the Secretary of Commerce of the United States, Gina Raimondo, to Panama reinforced this intention of strategic collaboration.

To diversify risk in the supply chain while improving U.S. national security, Panama may be the preferred solution for U.S. chipmakers, a hemispheric hub for ATP and a global distribution node for the industry.

A developed semiconductor industry in Panama would help move the supply chain closer to home

The semiconductor industry in Panama offers the perfect opportunity for companies to create custom ATP facilities and warehouses less than 900 miles from some of the world’s largest semiconductor plants in the United States. Since Panama is directly south of the U.S., it has a time zone advantage, essential for business coordination, that Asian options cannot match.

In addition to proximity,  a semiconductor industry in Panama offers U.S. chipmakers several other advantages, chief among them stability. Panama is a proven strategic partner of the U.S. and, more importantly, is in a region that is not experiencing high-risk tensions. Investing in Panama as an ATP hub is also a win-win proposition for U.S. states seeking to expand technology exports to the region.

Any ATP distribution center must have world-class logistics capabilities, and Panama excels in this.

The Panama Canal is the world’s most essential logistics node, providing valuable access to global supplies. The international community depends on Panama to provide political and economic stability to ensure the uninterrupted operation of the maritime passage. This, in turn, drives the country’s political decisions, ensuring predictability and stability, making it an attractive destination for long-term investments in the semiconductor industry in Panama. The 185 multinational companies maintaining their regional headquarters in Panama attest to this.

Panama also has the best air infrastructure in Latin America, according to the World Economic Forum, with direct commercial and passenger flights to major American cities and a regional hub for global cargo carrier DHL.

Panama’s regulatory environment is conducive to doing business

In addition to Panama’s pleasant climate, the country has a favorable regulatory climate.

Panama offers a Special Regime for Manufacturing Services for Multinationals (EMMA), which provides a wide range of incentives to foreign investors. This regime aligns well with U.S. goals of creating economic prosperity at home while supporting partners abroad. For example, it allows U.S. companies to establish manufacturing in Panama while maintaining the ability to bill consumers from their U.S. headquarters. Greater stability for investors is ensured by Panama’s laws, which protect foreign investments from regulatory and fiscal changes over ten years.

Panama has a free trade agreement with the United States and trade agreements involving more than 60 countries, including the E.U., Singapore, Israel, and South Korea.

The most crucial component in all of this, of course, is the people. The Panamanian Government has established a network of institutions to support the training of the workforce and the development of human capital to work in the semiconductor industry in Panama.

For example, the Higher Specialized Technical Institute is a state-of-the-art campus that promotes public-private partnerships to develop the technology sector workforce. The Technological University of Panama, which produces 4,000 high-level graduates annually, has six research facilities, including the Experimental Engineering Center, the Electrical, Mechanical, and Industrial Research Center, and a Center for Innovation and Technology Transfer. Similarly, the National Secretariat of Science, Technology and Innovation promotes expanding workforce productivity in partnership with the private and public sectors. Additionally, Panama continues actively partnering with U.S. academia to expand its capabilities.

As the stakes in the 21st-century chip wars intensify, American companies need reliable, stable, capable, and close partners in the semiconductor industry. Panama is an answer.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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