Panama’s economy leads the region in sustainable growth

Este contenido está disponible también en: Español Español

Three factors make Panama a magnet for local and foreign investors: it is the country with most sustainable growth in the region; it has excellent indicators with regards to connectivity, competitiveness, logistics performance and transparency and great opportunities will open once the widened Canal starts operations at the end of the first quarter of 2016.

Economists and investors have pointed out that the initiatives taken by Juan Carlos Varela’s Government to strengthen institutions, raise education levels to first world countries’ standards, promote tourism and develop Panama’s potential as a regional logistic hub, should guarantee that sustainable economic growth is possible.

Panama Canal Expansion project

Human capital is one of the most important resources of a country and the government has taken the necessary actions to modernize the education system for it to meet the needs of the country, while at the same time executing projects to improve the social environment, “within the framework of a sustainable and inclusive development model”, as established in the 2015-2019 strategic plan.

The country registered a growth of 6.2% in 2014

Economic growth

Panama registered a growth of 6.2% GDP in 2014, the highest in Latin America and the Caribbean, according to the Latin America Economic Commission (Comis-ión Económica para la América Latina (CEPAL)) and it

is one of the highest in the world. This year the economy in the region only reached a rate of 1.1%, the lowest since 2009, while the world economy registered a growth of 3.3%, according to figures of the International Monetary Fund (IMF) and the World Bank.

CEPAL pointed out that in 2014 there were “important differences in the growing rhythm of countries in the region. Panama and the Dominican Republic were highlighted as the nations that headed growth with 6%. With regards to gross fixed capital formation, it contracted nearly 3% that year. “The investment rate in Bolivia, Colombia, Ecuador, Panama and other Central American countries grew over 5.0%”.

Panama’s growth was due to the good performance of the fishing sector (19.6%), construction (14.9%), mining and quarrying which has tied with construction (12.5%), real estate and rentals (9.7%), and transport, warehousing and communications (6.0%). In this sector the activities that generated most income were: air transport, ports and the Panama Canal.

The Economic and Social Report 2014 of the Ministry of Economy and Finance (MEF for its initials in Spanish) highlighted the recovery of the fishing sector, after the recession it experienced during the last five year. The increase in exports was of paramount importance generating $166.2 million (an increase of 16.7%), as was the increase in tonnage (42,959.4 tons, an increase of 28.0%).

Investment of $1.93 billion in the construction sector

It is important to point out that Panama has commercial agreements with Cuba, Colombia and Mexico (partial), Central America, the European Union and Israel, also free trade agreements with Canada, Chile, China (Taiwan), Peru, Singapore, Mexico, the Dominican Republic and the United States, this last one having been in force since October 3, 2012.

The construction sector maintained a solid growth, due to investment in the region of $1.93 billion. The Panama Canal expansion is one the most important projects at a cost of a little over $5.23 billion.

The wholesale and retail sector grew 4.5% ($266.3 million), boosted by internal consumers, while there was a slowdown in the Colón Free Zone movement (-12% in worth). This decrease was due to a lesser demand in its main markets: Puerto Rico, Venezuela and Colombia. In the case of the first two countries the decrease was due to a reduction in their economic activity, while in the case of Colombia, it was a consequence of protective legislation benefitting its own textile and shoe industry.

Tourism activity slowed down in 2014, in comparison with the two previous years, with regard to visitor expenditure, although the number of tourists increased by 5.2%. This sector generated $3.5 billion in 2013, a modest rise of 4.6%.

The transport, warehousing and communications sector contributed $6.6 billion to the GDP driven by passenger air transport dynamism, ports revenues and the Panama Canal services. Around 13,506 vessels used the waterway, 93 less than the previous year, with a total cargo of 326.8 million tons, representing an increase of 1.9% generating an income of $1.9 billion, 3.1% more than the previous year.

The port system moved 82.5 million tons of metric cargo, an increase of 5.5% in comparison with 2013. The two main segments were bulk and containerized cargo. The 6.7 million 20 feet containers (TEUS) which were handled represented an increment of 3.2% in comparison with the 6.5 million managed in 2013. In terms of weight, bulk cargo was 42.8% of the tonnage moved by the national ports, while containerized cargo represented 56%.

With regards to foreign commerce, Panama registered a deficit of $5.2 billion in its current account. This chronic deficit of the Panamanian economy was compensated by a high increase of 10.7% in export services, a segment of the economy in which Panama stands out for its competitiveness.   Direct foreign investment generated $4.7 billion in currency, 16.4% of the GDP.

Risk Qualification Ratings

International Indicators

Thanks to its privileged position and the Canal operation, Panama is a country where world main trade routes converge. These factors have stimulated the development of a maritime cluster and a first class financial, insurance and reinsurance center, which in turn has boosted Panama’s development as a logistics hub. All these factors are well complemented by a business and civil culture focused on international services.

Located between North and South America and with its advantageous route to and from Asia and North America, Panama has developed an excellent connectivity, placing it as the Latin America maritime connectivity leader, according to the 10th edition of the Maritime Connectivity Index of the United Nations Conference on Trade and Development (UNCTAD).

In 2014, Panama moved 16 places in the World Bank logistics performance from the 61st position to 45th among 160 countries.

Regarding competitiveness, in the 2013-2014 index, Panama’s economy was the most competitive in Central America and the second of Latin America, after Chile. Among the sectors examined by the World Economic Forum are infrastructure, ports and airports, which put the country in the enviable position of being the biggest transport hub of the region,

In the World Bank 2015 ranking regarding easiness to do business, Panama was evaluated as very good in border trade, credit management, procedures to start a business and electricity; but performed below average in tax payments, solving problems of creditworthiness and processing construction permits.

The Financial Action Task Force (FATF) put Panama among the jurisdictions with deficiencies in combating money laundering and the financing of terrorism. However, the current government has approved a series of legislations and regulations to conform to an action plan recommended by the FATF. Taking this into account, this organization has placed Panama on the list of countries which have improved their performance in the fight against those international crimes and it is expected that by the end of 2015 Panama will move from the grey to the white list.

Panama GDP

Optimistic outlook

The government of President Juan Carlos Varela, who took power on July 1, 2014, has strengthened the Economic and Competitive Affairs Secretariat of the Ministry of the Presidency to boost the development of Panama as a regional logistics platform. The Executive

Decree No. 881of November 2014 created the Logistics Cabinet to coordinate the necessary action with government agencies and private sector organizations to reach the objective.

Following this plan, the ACP has identified eight projects with great potential linked to the expanded Canal. Meanwhile the government-run company, Tocumen S.A., is executing phase II and III of the Tocumen International Airport expansion at a cost of $780 million. Once phase III finishes in 2016, the airport will have increased its capacity from five million to 10 million passengers a year. All these projects will open private investment opportunities and strengthen Panama’s consolidation as the logistics hub of the Americas.

Important addresses