Underdog Rising

Panama’s industrial and manufacturing base is small and vastly overshadowed by imports through the Panama Canal and similarly internationally minded financial sector. The services sector accounts for more than 80% of GDP. Building the industrial base to take a larger piece of this pie is a government priority. And the industry that does exist in Panama is almost all foreign owned, with very few entirely Panamanian companies. The manufacturing sector is made up of processed and packaged foods, beer and spirits, tobacco products, construction materials, and clothing and leather goods.

The narrow scope of the industrial sector is also in part attributed to the absence of a comprehensive industrial sector policy. Fully 63% of subsectors in industry decreased production in 2015 from their 2014 levels. A relatively uncontrolled flow of imports has also contributed to the decline in the manufacturing sector, with all but no concrete strategy in place for domestic and foreign production companies.

Exports

The Panama Canal expansion opens in June 2016. The long-awaited event is expected to increase Panama’s manufacturing export capacity, and more importantly significantly increase demand. As a signatory to numerous free trade agreements, and a dollarized economy with hardly any restrictions on trade, Panama’s free economy sets its apart from many of its South and Central American neighbors and counterbalances its relative lack of manufacturing capacity.

In 2015, Panama exported $17.5 billion worth of goods, the bulk of these goods being medicines, petroleum products, agricultural products, and clothing. Given the outward-looking nature of Panama’s trade, it follows that most of the country’s industry is also geared to the external market. And much of this is linked directly or indirectly to the Panama Canal or the Colón Free Trade Zone (CFTZ), Panama’s main export and re-export hub, with its state-of-the-art international warehousing and infrastructure, which moved $17.2 billion of cargo in 2015.

While the CFTZ provides the base for a booming logistics and transshipment sector, state-of-the-art international warehousing and infrastructure is developing the industries connected to the free zone. The government is increasingly focused on diversifying the economy outside of transport and logistics centered around the canal into value-added manufacturing, distribution centers, packing, repackaging, and redistribution, not only for local companies, but also for multinationals that can take advantage of low-cost production and its strategic location. Companies such as American 3M have already relocated some of their production lines to Panama.

Food processing & Packaging

The food processing industry in Panama is relatively small, estimated at $170 million of business in 2014, with American products leading the sector, accounting for 65% of activity—a proportion that is growing by 15% YoY. Yet the nascent sector is already diversified, with a wide range of food processing capabilities across its output, from low-value and mass market to high-end niche products. There is a high and growing demand for specialized high-value products and also processed and convenience foods. These range from supplies for catering companies of major cruise liners that dock on Panama’s coasts, to the increasingly international tastes of people in Panama, reflecting the multicultural make up of Panama’s population today. Panama has 140 food processing companies. These include dairy processors, meat and poultry products processors, fishery products processors, fruits processors, beverages and spirits, bakery products, and snacks, among others.

To cope with rising demand—and remain competitive—the industry is making short- and long-term investments in new plants, equipment, and technology. This is also a way of ensuring compliance with sanitary, safety, and environmental regulations and international industry-wide standards. Many large international corporations have bought out or entered into alliances with well-established local companies as part of their strategic globalization program. Grupo Alimenticio Pascual, the country’s leading cookie and cracker manufacturer, was acquired for $25 million by Colombian group Casa Luker in 2014. Cerveceria Nacional, which has a share of the beer market worth 81%, was purchased by SAB Miller; and Grupo Melo made a joint investment of $15 million with Tyson Foods in 2014 in a large poultry farm in Panama. These international players in the food industry will help Panamanian produced products to reach a wider overseas market.

Brewing & distilling

Beer is popular in Panama, and the brewing industry strong and long established. The main brands include Panama, Soberana, Atlas, and Balboa. Overall alcohol production in 2015 was 278,045,152 liters, up 0.13% from 278,045,152 in 2014. Beer makes up by far the majority of alcoholic beverages production, accounting for 94%, or 262,191,552 liters in 2015. Rum is the most produced spirit, with a production of 7,232,145 liters in 2015. Seco, which comes second only to rum, is a triple-distilled liquor made from sugar cane, and is Panama’s national drink, traditionally served straight or mixed as a replacement for rum or vodka. Seco Herrarano is the most widely available and popular seco brand, produced by the Varela family, who founded the company in 1908. Varela Hermanos produces more than 1 million cases of seco a year, and the brand finds a market in 69 countries. Panamanian vodka production reached 255,000 liters in 2015, cognac 57,550 liters, whiskey 31,810 liters, wine production 85,248 liters, and anis 2,320 liters.

Tobacco

The tobacco industry has suffered a dramatic collapse in just 10 years. According to the Empresas Productoras en la República, tobacco production in Panama has fallen from 157,000 units in 2009 to under 5,000 in 2014. As well as being part of a global downwards trend, in Panama this is largely self-inflicted. In 2008, Panama became the first in the Americas to implement a blanket ban on adverting, promotion, and sponsorship of tobacco products.