Panama’s image and fortunes are bound to the canal that slices through it, a 80km feat of partly French, largely US engineering linking the Atlantic and Pacific, lucratively facilitating 5% of the world’s trade. For 75 years, the canal and a 15km buffer zone were administered by the US as recompense for their efforts. Since regaining control in 1999, this southernmost Central American republic, with a population of 3.3 million, has undergone an energetic transformation. Panama Canal, once at risk of being bypassed by the new generation of super-sized container ships, is undergoing a €4.6bn expansion, and the confidence inspired by the project has been a catalyst for development across all key sectors.
After announcing the expansion in 2006, GDP growth rose to 11.2%, outstripping China, and making Panama not only the fastest-growing Latin American economy, but, according to the IMF, one of the fastest-growing in the world. Now that growth has proven to be sustainable, Panama is firmly on the radar of European investors.
Expansion, allowing for double the current capacity, is expected to bring in an additional €10bn or so in direct revenue during the first 11 years following completion in 2014. “It’s estimated that even during construction the canal project is adding an additional 1% to GDP annually, benefitting a wide range of areas,” adds Judith Gold of IMF.
It’s also a boost to related industries – multimodal logistics, exports, free zones (the Colón Free Zone is already the second largest in the world) and ports (Hong Kong’s Hutchison Whampoa intends Balboa to be the largest in Latin America by 2010), and two new passenger terminals have been opened to accommodate a vast and growing luxury cruise and mega-yacht industry.
Panama City, home to the largest concentration of international banks in Latin America, continues to grow in importance as a financial hub. “The financial centre has quickly responded to new opportunities.” says Carl-Fredrik Nordström of the Autoridad de Turismo Panamá. “Currently the Panamanian banking sector has US$14bn [€11.2bn] in market liquidity and has attracted significant new investment.” This trend will continue if the planned integrated Central American Stock Exchange resolves regulatory issues and begins operating next year.
The stock exchange idea is modelled on the integrated Scandinavian model and has been funded by the Inter-American Development Bank. Designed to increase trading volume and lure foreign investors and companies, it will offer a single trading platform for Panama, Costa Rica and El Salvador, according to the chairman of Panama’s stock exchange Ricardo Arango.
Political and fiscal stability and the mood of confidence has triggered a construction frenzy, mainly luxury tower blocks in and along the coast around the capital catering to an upwardly mobile local market as well as an influx of North American buyers. Hotel development is rampant after steady growth of 12.5% a year in tourism shot up to 30% in 2007, the biggest spike in visitor numbers in the Western hemisphere. And it’s not over. The World Travel and Tourism Council predicts revenue from tourism will double by 2018, hence the need for a further 8,000 rooms, 1,800 of which will be added in 2009–10.
“Panama is emerging as one of the world’s hottest destinations for the jet-set crowd,” says Gary Sims of Nikki Beach Hotels, which has two projects underway. Marriott, Radisson, Hard Rock and Le Méridien have invested, as has Donald Trump, whose 65-storey Trump Ocean Club opens in 2010. Prices are high and competition fierce for investment opportunities in Casco Viejo, the Havana-like colonial quarter of Panama City recently featured in the latest Bond instalment, Quantum of Solace, and undergoing extensive restoration.
The appeal of easily-accessible Panama to the US market is obvious. But, say analysts, an influx of tourism and foreign investment from Europe, Spain, Russia, and Turkey has fuelled this year’s growth.
“Our global advertising and public relations campaign has helped spur on this growth” says Nordström. “This campaign, with increased effort towards the European market, was initiated last January, and looked to present Panama to Europeans really for the first time.”
European investors are now behind some of the top projects. The UK’s London & Regional Properties sealed one of the biggest development deals ever, acquiring the 1,112ha Howard Air Force Base with a plan to transform it into a €8bn business district the size of the City of London complete with retail and hotel facilities and 20,000 homes.
“The current economic crisis may slow down the pace of growth but long-term projections remain highly positive,” adds Nordström.
With controlled inflation, control of a vital shipping route and a service-based economy, Panama looks set to be largely immune to the vicissitudes of the global economy. Says IMF’s Gold: “It’s hard to forecast in the current climate, but the Economic Intelligence Unit predicts GDP growth of 9%–10% for Panama next year. So far, Panama hasn’t had the banking crises other countries have had; so far, so good."