The Logi(sti)cal Song

The Panama Papers notoriously claimed the world’s headlines a while back, but fortunately for the nation’s economy, the expanded canal also claims 5% of global trade, a full 90% of […]

The Panama Papers notoriously claimed the world’s headlines a while back, but fortunately for the nation’s economy, the expanded canal also claims 5% of global trade, a full 90% of which today is sea based.

Making Waves

The expanded canal accommodates Neopanamax vessels of around 50m in width bearing up to a staggering 13,000 containers. The epic project had a price tag of USD5.3 billion, accounting for 10-15% of GDP. In May 2017, Panama reported record tonnage of 1,231 vessels bearing 38.1 million tons of CP/ SUAB, the local tonnage measurement system for canal tolls.

China’s Building Presence…

Predictably then, Panama’s dollar-based economy is essentially built around its superlative services sector, accounting for close to 80% of GDP. The spectrum comprises the canal itself and related activities, as well as general logistics. Also contributing to economic growth is the Colón Free Trade Zone, a special economic zone that in 2016 saw overall commercial activity worth USD19.7 billion, with imports of USD9.2 billion and re-exports of USD10.4 billion.

The other giant in the mix is construction, given the vast infrastructure undertakings of recent times. These endeavors involve the clear presence of Beijing, and perhaps fittingly the first vessel to enter the expanded canal to great fanfare in 2016 was Chinese. In 2016, public debt notably exceeded USD37 billion on vast public works spending, with still more in the pipeline. Indeed, in June a consortium of Chinese companies bid USD1.42 billion for a fourth bridge over the canal; the closest bid to the reference price of USD1.60 billion. The 6.5-km project is expected to aid the economy by linking the western towns of Arraiján and Chorrera with Panama City. Subsequently, in a rather disputed issue, an appeal was lodged by a party disqualified on grounds of a low bid offer.

…Including Free Trade Deal

Last year, Panama’s exports to and imports from China amounted to USD42.6 million and USD1.3 billion, respectively. Trade and Industry Minister Augusto Arosemena is confident that the recent free trade agreement (FTA) between Panama and China will fuel key local sectors such as logistics, energy, agriculture, tourism, and e-commerce. FTA-related negotiations kicked off on June 12 at a ceremony in China timed for the first anniversary of diplomatic relations between the two nations. The second round of negotiations is scheduled for August 20.


While GDP has moderated of late, Panama’s was one of the most dramatic economic growth stories anywhere, averaging at 7.2% in 2001-2013, more than twice the regional average. The 4.9% print of 2016 rose to 5.5% last year, fed by the canal expansion and financial services sector, and the IMF forecast for this year and the next is 4.6% and roughly 6.8%, respectively. This makes the 4M2018 economic growth of 3.77% among the lowest of recent years, by National Institute of Statistics and Census data. The print was down from 4.08% in the same period of 2016. Keeping the performance in the black were the trade, transport, storage, and communications, as well as public administration, fishing, and utilities sectors.

… and Extraction

For this year, growth seems set to be challenged by recent industrial action and the completion of outstanding infrastructure projects. 2019 is set for an upswing based on new infrastructure schemes in the pipeline. Panama’s GDP contribution from the extractive sector rose to PAB192.43 million in 1Q2018 from PAB185.27 million in 4Q2017, and this sector boasts a significant new project. Back in May of this year, Canadian firm First Quantum launched its USD5.48-billion copper mine, having assumed control of the Cobre Panama project in 2013 and acquired a Canadian rival. Now around 50% complete, the open-pit venture will produce an estimated 320-k tons of copper in 2019 on a construction investment of USD1 billion in 2018. The ultimate capacity figure is put at 900-k tons per year, ranking the mine at that time among the world’s top-six copper producers. It will create around 10,000 jobs, with Panama reaping roughly USD2 billion in annual exports during the pit’s 34-year lifespan.

Not all Plain Sailing…

Panama remains a country of disparity, despite having curbed poverty from 21% to 17% from 2011 to 2015, while generating close to an additional 300-k new jobs. And with indigenous regions, the comarcas, facing poverty of over 70% and extreme poverty of over 40% (4% in urban areas), the enhancement of productivity and economic diversification are appropriately the two pillars of the economic program in force. Unemployment, too, is stuck at the 6% level, and is forecasted at 6.3% for 2020. What’s more, drought in Panama has led to losses of over USD72 million over the past two years, according to the United Nations Organization for Food and Agriculture (FAO) data. The government argues that poverty reduction has been floated on economic growth, citing Panama’s well-managed inflation, which emerged at 1.2% in June 2018 having averaged 3.4 % from 2008 to 2018.

…and No Resting on Laurels

Panama ranks as the world’s 50th most competitive out of 137 countries featured in the World Economic Forum’s 2017-2018 Global Competitiveness Report, having been at 60 in 2007 and 40 in 2013. And now a timely warning on future economic performance comes from its own Chamber of Commerce, Industry and Agriculture of Panama (CCIAP). It recommends tighter legal assurances on public tenders to sustain foreign investor interest. The comments came after official numbers revealed 1Q2018 FDI flows of USD1.1 billion to be down 17% YoY. Recalling Panama’s erstwhile annual GDP growth of around 10% from 2009 to 2014, CCIAP has urged observers not to expect a return to such a heady performance. Rather, it recommends further economic diversification, notably the development of the tourist offering to capitalize on the nation’s regional hub status.

An Upgrade to Bank On

The S&P Global Ratings outlook upgrade on July 2 from ‘stable’ to ‘positive’ with an unchanged credit rating of BBB was a welcome shot in the arm. Plaudits in particular went to prudent fiscal management and greater transparency in the financial component of the economy. The International Banking Center (CBI) of Panama printed a net profit of USD670 million at end-April, 10.6% up on the same month of the previous year according to the financial regulator. CBI, home to 90 local and international licensed banks, held total of assets of USD118.7 billion as of April. Meanwhile, the regular national banking universe, excluding international licensed banks, saw profit of USD512 million, up 13% YoY.

In short then, public spending on infrastructure schemes of economic significance will sustain Panama’s exemplary growth among Latin American peers. This is in addition to the greater revenues of the expanded canal. Meanwhile, sustained government efforts at easing foreign investor concerns should boost private investment, as suggested by the latest ratings outlook upgrade.

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