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DE RUEHZP #0320/01 1111745
ZNR UUUUU ZZH
R 211745Z APR 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC 3284
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
RHMFISS/CDR USSOUTHCOM MIAMI FL
RUEKJCS/OSD WASHDC
RHEHAAA/WHITE HOUSE WASHDC
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RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS PANAMA 000320 
 
SIPDIS 
 
WHSR PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON PM EFIN ELAB ECON
SUBJECT: PANAMA: A DAY IN THE LIFE OF SMALL AND MEDIUM 
ENTERPRISES (SMES) 
 
¶1.  (U) Summary: Small and Medium Enterprises (SMEs) 
represent over 92% of Panamanian businesses. This cable 
surveys an unrepresentative sample of small businesses and 
attempts to get a glimpse into their experiences. The six 
entrepreneurs interviewed appeared confident about their 
businesses. They all earn above the minimum wage of $310 
dollars a month, and compare favorably with 81% of the 
country,s employees whom earn $7,200 a year or less. 
However, these businesses find it difficult to grow because 
of little access to financing, labor rigidity, and a scarcity 
of programs to assist their development. End Summary 
 
¶2.  (U) Panamanian categorization of business size is solely 
revenue based, unlike U.S. classifications based on revenues 
or the number of employees depending on the industry. Panama 
defines micro- enterprises as businesses with revenues up to 
$150,000, while small and medium enterprises have revenues 
from $150,000 to $1 million and $1 million to $2.5 million 
respectively. These businesses, generically called small and 
medium enterprises (SMEs), represent 92% of all businesses in 
Panama, according to Rosemary Piper Executive Director of the 
National Center of Competitiveness, a private organization 
that works to enhance Panamanian businesses.  A March 2009 
newspaper article estimated that 866,200 people, or 
approximately 61% of the economically active population, are 
employed by small businesses. These figures are likely 
underestimated, Piper added, because Panama has a significant 
informal sector as well. Small businesses that rely on 
personal assets, work out of their homes, and employ family 
members tend to remain informal, Piper continued. Piper noted 
that the Authority of Micro, Small, and Medium Sized 
Businesses (AMPYME) estimates that more than half a million 
people work in the informal sector. 
 
¶3.  (U) After the military government of Noriega fell, many 
electricians, plumbers, and other workers found themselves 
unemployed, Piper explained. They began selling their 
services independently and informally. The same thing 
happened when the American military bases left Panama. 
&These entrepreneurs had a trade but did not have managerial 
skills; they did not know how to grow their business. This is 
part of the history of small businesses in Panama.8 
 
--------------------- 
Business Descriptions 
--------------------- 
 
¶4.  (U) Six SMEs were interviewed; an artisanal vendor, 
beauty salon, auto-repair shop, pharmacy, construction firm, 
and a bakery. 
 
-  LeiArt Artisanal Crafts: Founded by Leilani Gonzalez, 
LeiArt produces personally hand crafted artisanal jewelry, 
bags, and clothing. Gonzalez decided to leave her job at a 
Dell Call Center and began selling artisanal products in 
¶2007. Her customers, a mix of Panamanians and foreigners, can 
buy her products from her home show room in Panama City, her 
internet site, various artisanal fairs in which she 
participates, and also from two local retailers. Gonzalez 
earns an annual profit of about $12,000 (revenue figures 
unavailable). 
 
-  Racheli Beauty Salon: The three year old salon is a 
partnership owned by Elizabeth Ortega and Raquel Valdes that 
offers hair and beauty care services in Panama City. Previous 
to establishing their own business, the two partners -and 
only employees, worked for 10 years at a salon where they 
met. Gross revenues in recent years have averaged $24,000 
annually with annual profits of $12,000. Each partner takes 
home about $500 per month. 
 
-  Taller Enrique Auto-Repair: The auto repair shop offers 
services in car maintenance and body work in Penonome, a town 
about three hours outside Panama City. It was started by 
Vidal Enrique Jaen in 1972 on a small plot of land that he 
bought from a friend at a discount. Taller Enrique has now 
grown to a business that has 10 fulltime employees and 5 
part-time employees. The auto repair shop is predominantly 
managed by Jaen,s son, Eric. In 2008, Taller Enrique 
collected $150,000 in gross revenue and about $30,000 in 
annual profits. 
 
-  Farmacia Jacinto: Farmacia Jacinto sells over the counter 
medications, prescription drugs, and some school supplies. It 
 
was founded by Juan Jacinto Chang in 1992 with loans from 
friends and family, and has grown to include three locations 
in Penonome. Most of Chang,s customers are from Penonome and 
neighboring towns. Chang has 13 employees and earned a profit 
of $36,000 from the pharmacy in 2008 (revenue figures 
unavailable). 
 
-  Construciones Y Proyectos: This construction firm, owned 
by Radames Batista and located four hours outside of Panama 
City in Santiago, specializes in building aqueducts to 
harness potable water, schools, sidewalks, and gutters in the 
interior of Panama. It lends its service primarily to 
government agencies or private enterprises with capital. 
Radames Batista has one business partner and 48 employees. 
Construciones Y Proyectos has average annual gross revenues 
and profits of $500,000 and $80,000 respectively. 
 
-  Pan Y Canela Bakery: Pan Y Canela is a bakery and 
cafeteria in Panama City, founded by Colombian citizen Jose 
Mauricio Borrero and his wife, both engineers. It was first 
established in 2000 but found success and grew significantly 
only after moving to its current location in the Ciudad del 
Saber (City of Knowledge) in 2006. Pan Y Canela has 20 
employees, up from 2 in 2006. In 2008, gross revenue 
increased from $450,000 to $650,000, a jump of more that 40%. 
Throughout their growth profits have averaged 22% of revenue, 
totaling about $143,000 in 2008. In addition to the drop in 
bakery/cafeteria, Pan Y Canela offers catering services which 
comprise about 15% - 20% of their business. 
 
------------------- 
Business Conditions 
------------------- 
 
¶5.  (U) The businesses reported varying impacts from 
Panama,s macro-economic cycles. When asked whether Panama,s 
economic boom from 2004 - 2008 influenced their business, 
only Taller Enrique said his SME was directly impacted by the 
economic boom. Taller Enrique described a lag effect on his 
business from the increased car purchases that accompanied 
Panama,s economic boom. Following a slow year in 2006, 
business has increased from 2007 to the present. Eric Jaen 
pointed out that the first three months of 2009 have already 
brought in more earnings than the first six months of 2008. 
According to Eric Jaen, 2008 was a record year for car 
registrations in Panama. Eric Jaen is not very concerned 
about an economic slow down because the increased number of 
cars on the road will continue to need repairs. The 
Association of Auto Distributors of Panama (ADAP) stated this 
March 2009 that annual sales of new autos are expected to 
fall by 20% to about 36,000 cars, from a height of 43,239 
cars in 2008. However, ADAP pointed out that these figures 
are still above Panama,s natural market of around 25 - 30 
thousand auto sales per year. Eric Jaen commented that he has 
seen an increase in the number of cars on the street in 
Penonome. &Five years ago Penonome did not have a traffic 
light now it does8, Jaen continued, referring to three new 
traffic lights that were installed this year. 
 
¶6.  (U) For Construciones Y Proyectos the economic boom has 
brought increased competition to Santiago, Veraguas. His 
business now has to work harder to remain competitive. 
 
¶7.  (U) A number of the SMEs were concerned about a possible 
economic downturn in 2009. Racheli Beauty Salon noted that 
they have seen a drop in customers in the first three months 
of 2009 and are worried about a continued slow down. Farmacia 
Jacinto did not feel influenced by the global economic 
downturn until this March when sales flat lined after growing 
consistently during the last few years. Pan Y Canela noted 
that although they are wary of the financial crisis, their 
growth has piggy-backed on the development of Ciudad del 
Saber, Panama,s growing international NGO and technological 
center. Meanwhile, LeiArt, one of the youngest and smallest 
businesses, noted that she was more affected by seasonal 
trends including pay periods, and the tourist season. 
 
-------------------- 
Challenges: Finance 
-------------------- 
 
¶8.  (U) Access to finance is one of the key challenges that 
Piper noted she consistently hears from small businesses. 
AMPYME estimates that only 9% of SMEs demand for credit is 
 
being satisfied and there is a need of an additional $246 
million dollars in financing. Fernando Marquez, President of 
the private National Union for Small, Medium, and Micro 
Enterprises, commented that the lack of bank financing 
endangers the thousands of jobs generated by small 
businesses. All of the entrepreneurs interviewed financed the 
launch of their business without formal banks loans. Personal 
resources, credit cards, and loans from friends and family 
were commonly used as seed capital until revenue was enough 
to support the business. In order to avoid collection 
problems, transactions with clients were predominantly cash 
based. One to three months of store credit from wholesalers 
were often the only credit used. Only Farmacia Jacinto and 
Taller Enrique reported using bank loans to support their 
businesses. 
 
------------------ 
Challenges: Labor 
------------------ 
 
¶9.  (U) Labor also featured as one of the key challenges 
among the entrepreneurs. The SMEs commented that the labor 
code was restrictive and that they had difficulty finding 
good help. They stated the labor code was always on the side 
of the employees and -outside of grave offenses- it was 
difficult to fire employees without having to pay a 
significant sum based on salary, vacation, seniority, and 
severance. &You can fire someone in one day; but you have to 
pay.8 commented Jacinto Chang. Also it was common for former 
employees to attempt to sue employers for additional 
compensation. To avoid subsequent lawsuits from disgruntled 
employees Farmacia Jacinto, Pan Y Canela, and Taller Enrique 
have all seemed to arrive at the same solution. They all pay 
more than the obligated amount when discharging an employee 
to prevent follow up suits. Pan Y Canela, which has paid 
additional sums for three such suits, stated, with his new 
practice judges now dismiss the lawsuit noting that the 
former employee has already been compensated beyond the 
legally required amount. 
 
¶10.  (U) Only Taller Enrique commented that they did not have 
any trouble finding good labor. Farmacia Jacinto commented 
that finding employees with the required Assistant Pharmacist 
Certification or the higher Bachelor Degree in Pharmacy was 
difficult. Particularly, employees with the Bachelor 
preferred to work in the Panama City. Continually improving 
customer service was also a common challenge among the 
businesses. Pan Y Canela noted that his employees often 
needed to be closely supervised and did not work 
independently. As Pan Y Canela put it, good customer service 
can improve the tasteof a glass of water. 
 
¶11.  (U) Racheli Beauty Salon had a unique problem of having 
a majority of clients that preferred personal attention and 
would feel offended if they were being handled by another 
hair stylist. LeiArt wanted to keep her business small and 
create all the artisanal pieces herself, although she is 
considering hiring someone to help buy raw materials, make 
packaging, and assist with administrative tasks. 
 
------------------------------- 
Challenge: Government Services 
------------------------------- 
 
¶12.  (U) The government appears engaged but not intrusive in 
terms of regulation. All the businesses were regulated to 
some extent. Ministry of Commerce (MICI) regulates the formal 
establishment of all the businesses. The Ministry of Health 
(MINSA) calls for employees of Racheli and Pan V Canela to 
receive a certificate of health. Pan V Canela, Taller 
Enrique, and Farmacia Jacinto are all subject to site 
inspections from MINSA as well. All six businesses reported 
that the Ministry of Labor (MITRADEL) verifies that employees 
are being fairly treated and are registered under the 
government,s social security program. 
 
¶13.  (U) However, the government appeared less active and 
coordinated in providing supportive services. Upon visiting 
the web site of AMPYME, one finds that the most recent press 
release is from October 2008. One of AMPYMEs key initiatives, 
the Garantia, encourages lending to SMEs by providing 
collateral for bank loans. However, Piper commented, that the 
program is undermined because banks often require the SMEs to 
put down personal collateral anyway before approving the 
 
loan. Therefore making intended beneficiaries, those without 
personal collateral, unlikely to get the loan. Furthermore 
while MICI and other government agencies offer programs to 
assist business development, these agencies do not 
cross-reference each other and therefore fail to facilitate 
entrepreneurs, access to the full pool of available 
resources.  AMPYME,s website does not offer links to 
programs available at MICI or elsewhere that may be relevant 
to entrepreneurs.  All of the SMEs interviewed started 
without business plans. Although the SMEs appear to be 
fairing well, the lack of widely publicized financial and 
managerial supports make growth difficult even when the 
business is succeeding. Only Farmacia Jacinto had more than 
one location, and they were all within five minutes of each 
other. Good management is essential for growth because the 
entrepreneur cannot be in multiple locations at once. Pan Y 
Canela is considering franchising their business, and for the 
first time developing a business plan, but they are concerned 
that difficulty in finding good managers can cause the 
endeavor to fail. 
 
 
¶14.  (U)  The only business interviewed that participated in 
a government program was LeiArt. LeiArt engaged MICI to 
establish her trademark and register for her optional 
artisanal license. The license exempts her from taxes and 
increases access to government artesian programs but is not 
well publicized, according to Leilani Gonzalez. In September 
2008, Leilani Gonzalez participated in a government sponsored 
program in which she represented Panama at a fair in Madrid, 
Spain. Her business has also been deemed eligible to 
participate in Impulso Panama, a program funded by the 
Inter-American Development Bank, the GOP, and the private 
sector to assist Panamanian businesses )large and small. 
Impulso Panama awards funding of 30% to 100% for capacity 
building projects related to technical assistance, quality 
and management, networking, and innovation. With this 
eligibility, LeiArt can now submit a project proposal to 
solicit funding from Impulso Panama. However, while Gonzalez 
has been able to participate in some government programs she 
feels they are not well publicized and often come to her 
attention on short notice and through personal connections. 
&Without constantly searching the internet, I would not be 
able the find out about most of these programs,8 commented 
Gonzalez. Gonzalez added that a useful government initiative 
would be to create business associations for various groups 
such as youth, artisans, etc. &The government can then 
tailor workshops for the various business groups. Some 
training programs exist for indigenous groups but not for 
others,8 Gonzalez added. 
 
STEPHENSON