Panama Leading Economic Growth Driver in Latin America
Panama is one of the greatest economic hopes of Latin America. The so-called “Panamanian miracle” is a combination of macroeconomic and microeconomic factors that come together in rock-solid development with long-term scope. As direct foreign investment has generally gone down in Latin America, Panama and Colombia have reported the highest growth rates in the region, since each of them had a 5.9 percent increase in 2016 if compared to the previous year. Brazil, Paraguay and Costa Rica also saw direct foreign investment go up, with 5.7 percent, 5.1 percent and 1.1 percent respectively, according to the UN Economic Commission for Latin Americas. Foreign investment in Latin America totaled 167,000 million dollars last years, a 7.9 percent decrease since 2015, and 17 percent less than the figure reached back in 2011.
Direct investment in Latin America is predicted to go another 5 percent down this year, mainly as a result of the unsatisfactory condition to face technological challenges, according to Alicia Barcena, executive secretary of the Commission. Panama’s strong performance is based on the logistic advantages offered by the country to foreign investors, including an international airport and a recently-enlarged canal, which is connected to the biggest free-trade zones in Latin America. On the other hand, Costa Rica’s strength is based on the perception of well-trained manpower, competent executive class and stable political system. According to Harvard professor Ricardo Hausmann, “Panama shows the rest of Latin America that significant growth entails importing talent.” Hausmann recalled that this is the way such countries as the United States have won competitive advantage”. The university professor points out that, unlike the rest of Latin America, Panama and Costa Rica are atypical cases in the region. “Panama’s economic boom has attracted a significant number of migrants, despite the fact that law almost forbids it, so they have been looking for their way around. The country has shown that growth takes importing talent.”
PANAMA’S GROWTH EXPECTATIONS GENERATED OPTIMISM
When assessing all growth and development rates, Panama occupies a privileged position and many analysts see the country as the greatest hope for Latin America in the near future, precisely in times when weakness signs of the most powerful economies, like Brazil, are obvious. Panama’s gross domestic product (GDP) can grow 20-30 percent through 2030 if the country achieves a return on its geographic position and becomes a world-class logistic hub, according to Felipe Manchon, a Spanish consultant hired by the Panamanian government to create a long-term national logistic plan. “Panama main challenge is to stop big international companies from going to other ports in a bid to save operational costs, so they focus on the country in a stable and sustainable way,” Manchon explains. The creation of this strategy, which has been partially financed with funds given by the Inter-American Development Bank (IDB), was one of the biggest demands issued by entrepreneurs in the sector, who have traditionally underlined that Panama needs to make the most of its privileged geographic position.
Manchon thinks that Panama has an “unrivaled logistic space in Latin America,” since it features the interoceanic canal, with big ports in both oceans, first-level airlift thanks to Tocumen International Airport and several free-trade zones, such as Colon Free-Trade Zone, which is described as the biggest in the continent.
Not all figures are positive. According to the latest Systemic Conditions Rate for the Creation of Dynamic Companies, Panama has gone several steps down in the region, along with Uruguay and Colombia. In the three cases, the fall began in 2015 after three years of growth,” the report explained. Colombia has 32.22 points, at the same level of Uruguay (32.66) or Costa Rica and Mexico with 32.81 and 32.95 respectively. Argentina was ranked third, right behind Chile and Brazil, in terms of the favorable environment to launch startups with an impact on the creation of value and jobs. This position represented an improvement if compared to 2016, when the country occupied the seventh position in the Latin American ranking. This seventh position is presently held by Colombia, which went two steps down in a year.
THE PANAMA CANAL AS A COMMERCIAL DEVELOPMENT KEY
Within this growth context, the Panama Canal authorities recently announced that over 400 million tons are expected to sail through its waters in 2018, a record figure that would give some 1,600 million dollars to the Panamanian State. According to the estimates, the Panama Canal Authority (PCA) is expected to generate 3,037 million dollars; 1,659 million dollars of which will be given to the National Treasury. The PCA has estimated that “a new record of 429.4 million tons will be carried through the Canal in 2018,” according to the communiqué. The Panama Canal, with the United States and China as its main users, was enlarged in 2016 so vessels carrying up to 14,000 containers –the triple of its previous capacity – can sail through its water.
With the enlargement, the Panamanian authorities are looking forward to tripling, within a decade, the annual billion received by the Canal, since 5 percent of world sea trade sails through it. Since it was inaugurated by the United States back in 1914, over a million ships have used this maritime route, which was recovered by Panama on December 31, 1999. Over 90 percent of world trade presently flows through maritime transportation, which allows meeting market needs and reducing charter prices, as detailed by economists. According to the International Maritime Organization (IMO), over 50 thousand merchant ships are currently registered in more than 150 nations and they carry all types of cargo around the world under strict security, legal and environmental protection measures.
RELATIONS WITH CHINA
The Panama – China approach has been confirmed over the past weeks in other economic spheres beyond the Canal. The Vice President of the republic, Isabel De Saint Malo, and Chinese Foreign Affairs Minister, Wang Yi, signed a bilateral agreement on political consultations. The agreement aims at strengthening friendship bonds between both countries and increasing mutual understanding. The bilateral agenda will include matters of common interest. This agreement has been complemented by other business agreements. China’s transfers to purchase Panamanian products will go as high as 38 million dollars, as a result of the signing of 22 agreements that benefit both nations. According to the charge d’affaires at China’s embassy in Panama, Wang Weihua, the Central American nation has everything it takes to provide the connectivity that favors the development of world economy. He underlined that the agreements comprise migratory, commercial, cultural and funding matters. Four have been already inked and the other 18 are being negotiated. Among the signings, it is important to highlight the memorandum of understanding on airlift, in a bid to define new routes and foster business and cultural development between both nations and the entire region.
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