For nearly 100 years, Panama has been synonymous with the canal
that bears its name.
Approximately 5% of world trade today moves through the Panama
Canal, and a $5.25 billion expansion project, which will be
completed in the first quarter of 2015 after eight years, will
not only boost trade but have a massive impact on the
The canal expansion and the $2 billion construction of a subway
system in the capital, Panama City, are the primary drivers of
the red-hot economy. The economy grew by 10.7% last year,
nearly matching the 10.8% growth the previous year. Growth is
expected to dip to 8.5% in 2013, but authorities are not
The canal project has opened the doors to an enormous
amount of investment. Our potential for growth is unparalleled
right now, and I think that you will see more projects and more
investment when the expansion is finished, says Luis
Ferreira, an engineer and spokesperson for the expansion
The canal expansion and other infrastructure projects, however,
are only components of a larger vision to transform the country
into a logistic hub, taking advantage of its geographical
location at the centre of the Americas.
Other countries, including Jamaica and Trinidad & Tobago,
are also keen to become regional hubs, but Panama has a clear
advantage. The goal is to emulate Singapore, a small country
that is among the worlds top financial centres and home
to one of the top five ports.
Singapore is our model, but we recognize that we still
have many years to go before we get to where they are today. We
are definitely on the right track, says
Port traffic in the country is already increasing, even though
inauguration of the canals third system of locks, now
scheduled for the second quarter of 2015, is still more than
two years away. Port services increased by 5.4% in 2012, and
the government forecasts a major jump by the end of this
ON THE RISE
Panama is already home to the top two container-handling ports
in Latin America and the Caribbean, moving more than 6.6
million 20ft equivalent (TEU) containers at two ports in 2011,
according to Eclac (UN Economic Commission for Latin America
and the Caribbean).
Preliminary statistics from 2012 have the Colon (Atlantic) and
Balboa (Pacific) ports maintaining the first and second spots.
Traffic at the Colon port increased 20% in 2011, while it grew
17.2% at Balboa. They both overtook Brazils Santos port
in 2010. Santos is ranked third, with growth of 10% in 2011.
The canal alone is expected to move 8.6 million TEUs in 2016,
the first full year the new locks are operational. The country
is currently investing close to $500 million in upgrading
existing ports to meet forecast demand, and the Panama Canal
Authority has commissioned a feasibility study to build its own
port. The study for the port, which would be located in
Corozal, will be completed this year.
Initial investment would be $500 million, and the future
installation would be capable of receiving the massive
Post-Panamax ships that will navigate through the new locks.
Ships currently passing through the canal have a capacity for
4,400 TEUs, with vessels using the new locks capable of
carrying three times this amount.
The countrys airport, which has also undergone a major
expansion, continues to see double-digit increases in traffic.
Air travel through the country was up 21.4% last year.
Investment in construction projects expanded by nearly 30% in
2012, according to the Finance Ministry.
STRONGER TRADE TIES
The government also expects more investment to flow into the
special development zone, the Panama Pacifico Special Economic
Area on the former US Howard Air Force Base. Legislation from
the last decades creates special investment, labour and tax
conditions for companies located in the zone.
President Ricardo Martinellis government has also
focused attention on trade agreements, implementing FTAs (free
trade agreements) with several countries in the region,
including Canada and the United States.
It is also pressing for incorporation into the Pacific
Alliance, a trading block inaugurated by Chile, Colombia,
Mexico and Peru last June. It is currently an observer, but has
the best shot of joining given its completion of bilateral FTAs
with member countries, a prerequisite for full
Alejandro Arreaza, an analyst with Barclays, agrees that
Panama has the potential for becoming a hub and is bullish on
the rising level of FDI (foreign direct investment) more
than $5 billion in the past two years, according to Eclac
but like other analysts, he cautions that the country
also needs to get a handle on its fiscal deficit if growth is
to continue strong.
The deficit last year was equivalent to 2.1% of GDP, which
Arreaza says is the main issue that should be concerning
authorities and investors.
Arreaza says the Panamanian government is not only spending
heavily on infrastructure projects, but is constantly on the
hunt for new projects that will keep driving growth without
apparent interest in the deficit.
Fears that the government might spend even faster in the
coming months as the 2014 elections approach have dissipated
somewhat now that it appears President Martinelli will not
attempt to change the constitution to run for re-election, but
analysts still expect the purse strings to loosen a bit
- Like every year, Emerging Markets daily newspaper covers
the Inter-American Development Banks annual meeting, held
in Panama in mid-March. Pick up your copy at the meeting, read
the news on our website and follow us on twitter @emrgingmarkets
- You can watch the IDB's live broadcast of events by