With the completion of the Panama Canal expansion project less than a year away, all eyes are trained on the impact the $5.25 billion engineering marvel will have on maritime traffic across international trade lanes that link the Pacific, Atlantic and Gulf of Mexico. These significant changes have overshadowed the likely impact of the expansion on the economic growth of Panama itself.
Given the canal’s role as a link between North and South America, and a critical pathway between the Pacific and Atlantic, Panama has traditionally been a country that “looks from the coast out,” said Henry Kardonski, general manager of Panama Pacifico, a master-planned community located on the former U.S. Howard Air Force Base near the canal. The development of Panama Pacifico exemplifies a growing awareness of Panama’s potential to change its mindset and “look inward,” Kardonski notes.
Launched in 2007 by Britain’s London & Regional Properties, Panama Pacifico is now one of the largest mixed-use developments in the world, with 3,450 acres of land assets. Its International Business Park and PanAmerica Corporate Center offer more than 516,000 square feet of expansions and new development projects, and the site has more than 365,000 square feet of available Class A office space, allowing for long-term growth opportunities, Kardonski said. In the four years since the park was launched, nine buildings have been constructed, including data centers for KIO Networks and Cable & Wireless Panama.
In the past, Kardonski said, the country’s wealth hinged on the performance of the canal, which charges for its services, “earning great revenue for the country if it does that efficiently.” Around the ports, where 80 percent of activity involves transshipment, “surely but slowly, you have had logistics activities which were (earlier) less sophisticated, such as at the Colon Free Trade Zone” that have recently been transformed into sophisticated logistics platforms.
Now there are providers of “first world, good quality, international warehousing and infrastructure,” and office parks that connect to the industries. For the first time, he said, “You now have a country that starts to look from the logistics infrastructure in” to see what else Panama can derive from its unique location, transportation infrastructure and industrial development.
“This is a work in progress,” Kardonski added. “The country and (other) governments are discovering it, starting to understand the potential that this has to boost our GDP in a different way — that is, to diversify our economy outside of ports and the canal, and the maritime industry into activities that are value-added manufacturing, distribution centers, packing, repackaging, redistribution. This requires infrastructure adjustments that the country is starting to understand that it needs to do.”
In much the same strategic spirit, Exclusive Brands Logistics, a Panamanian company that manages luxury brands such as Ralph Lauren, Calvin Klein, Michael Kors, Anne Klein and Izod, in 2012 launched a partnership with Damco, the logistics arm of Maersk Group, to promote imports and re-exports of apparel and fashion between Asia, the Colon Free Zone and Latin American destinations. EBL provides specialized services for the luxury fashion brands, while Damco provides supply chain, transportation and forwarding services from source to final destination.
In a growing range of sectors, an increasing number of companies “see the potential for Panama to become a center for distribution throughout Central America,” Kardonski said, and some are beginning to locate some of their manufacturing and distribution capabilities in Panama, where they can be closer to many of their customers. Thus, “they have the ability to reduce their presence in Peru, Colombia” and other Latin American locations that aren’t only farther from their end-customers, but also lack Panama’s capabilities for distribution and just-in-time manufacturing, he said.
“Widening of the canal makes us so much more relevant in international trade, and that has a cascade effect on everything else,” Kardonski said. Because Panama is a dollar-based economy, with no central bank of its own, inventories in its warehouses are denominated in dollars only, further simplifying the customs compliance process for companies when they export or re-export from Panama throughout the Western Hemisphere.
Depending on a company’s supply chain, a presence in Panama may offer an alternative means for manufacturing their products closer to destination. St. Paul, Minnesota-based 3M, for example, has relocated its production lines of after-market paint guns, polishing equipment and other automotive-sector equipment from Asia and Mexico to Panama. For companies such as medical equipment manufacturer Covidien, Panama offers a lower-cost alternative for repackaging some products made in the U.S. but destined for Latin America.
And computer maker Dell now operates a shared-services center at Panama Pacifico that provides higher-value services for its human resources and financial services departments, and technical support for its finance department.
Panama has been one of Latin America’s fastest-growing economies during the past decade, with real GDP expanding an average 8.4 percent a year between 2004 and 2013. Although GDP growth slowed to 6.2 percent last year, Ricardo Gonzalez, an economist at consulting firm Panama Economy Insight, projects the country’s economy will return to double-digit growth that will reach 11 percent by 2018.
Gonzalez said economic growth rates have been tied a great deal to fluctuations in public-sector investment, and that the sectors that will enjoy the strongest growth are construction, mining, transportation and real estate.
Strong growth will be accompanied by a significant expansion in electricity demand, he said. Panama already benefits from having the largest airport in Central America and the Caribbean, and access to the world’s longest highway, the Pan American Highway. Plans also are underway for a mass transit system, which will include building a fourth bridge over the Panama Canal and a third metro line.
“The Panama Canal expansion and a number of mega-projects have boosted the economy, which is expected to continue growing steadily,” the World Bank wrote in a recent report. “This represents an historic opportunity to make progress in reducing poverty and inequality.”