An investment in the growing economy of Panama can be a good place to start, if one is looking to grow an asset portfolio in Latin America.
The Gross Domestic Product (GDP) rose 5.57% in 2013 and is predicted to exceed at least 5% possibly 6% or more in 2014.
The most amazing prediction is what is to come in 2015 and 2016 with the completion of the 6 year expansion of the Panama Canal. The economy is projected to grow by over 9% annually. This is practically a sprint rate of growth, and one that will bring enormous profits, to those who have the foresight to make an investment in this economic dynamo.
What is driving the Panamanian economy to expand at such a accelerated rate? It is the enormous amount of foreign investment. Private consumption is speeding up as well, with unemployment dropping to an all time low. In 2012 it was 4.4%. It dipped below 3% in 2013 and is projected to remain below this milestone for 2014. It is the lowest rate in the region.
In addition, to the enormous potential of the new traffic that will be generated by the upgraded Panama Canal, investment has also been moving into the mining and energy sectors. Recent discoveries of oil which may contain reserves in excess of 800 million barrels, will give the country the opportunity to move away from expensive imported oil.
Inflation in Panama stood at 3.45% in 2013 and is projected to increase to 3.6% in 2014. This is the lowest rate in the region. More importantly, many analysts see declining rates in 2015 and 2016 to below 2%. It is important to note that other analysts see a higher rate of inflation in the years ahead, as wages continue to move higher. Regardless, the present low rate of inflation is remarkable considering how rapidly the economy is expanding.
Where investment represents a quarter of the GDP with neighboring countries to the north and south, in Panama it is closer to one third. This gives the country an enormous advantage in the race for upgrading infrastructure. It will also help in the modernization efforts of plant and equipment.
The goal of the Panamanians is to become the anchor of a transoceanic logistics network. Public investment in the economy has exceeded $19 billion USD (United States Dollar) since 2008. This includes over $5 billion USD on the Canal alone. Copa, the main airline of Panama, connects with most of the important economic areas of Latin America.
Panama City which is the capital of the country, has received a new metro system, a giant causeway, and numerous high rise buildings in the last few years.
The banking sector is taking in tremendous amounts of money from around the region. It is true that some of it can be tracked to illegal sources, but the exponential growth rate cannot be denied. As the United States continues to tighten regulations in commercial banking, more money is moving away from Miami and finding its way to Panama.
There are some that fear that the economy may overheat and inflation will get out of hand. The continued investment in infrastructure will keep unemployment lower, but it gives upward momentum for higher wages across the economy. An example of this was a general strike that took place in April of this year with workers on the Panama Canal. This kind of activity will of course, have economic repercussions.
It is also true that municipality planning in Panama is not keeping pace with the spectacular growth that is occurring in the urban areas of the country. Electricity and water is rationed at times, even in the new buildings in the capital city. When it rains, which it often does in this part of the world, street flooding is commonplace and the drainage system is totally inadequate.
There will also be a transfer of power on July 01, 2014. The popular outgoing President Mr.Martinelli will be replaced by Juan Carlos Varela, a political opponent. The hand picked successor of the President Martinelli, unexpectedly failed to win the election this month. It is perhaps a good thing to see a peaceful transfer of power, especially since the new President Elect has promised to deal with corruption, and strengthening the country’s institutions of governance.
The economy of Panama (80%) is based on the service industry. The main sectors are banking, commerce and with increasing importance, tourism. Along with the Panama Canal and the Colon Free Trade Zone, the country is heavily involved with industries that involve shipping and trade like insurance, registry, transport containers, and the like.
The industries that can be found in Panama include textiles, construction, cements and other construction materials,drinks and brewing, sugar milling, adhesives, and more recently aircraft spare parts.
Panama uses the balboa and the USD as legal currency. It has traditionally maintained a low rate of inflation and liberal banking regulations.
The Ease of Doing Business Rank stands at 61 next to Thailand.
The GDP of Panama stood at over $57 billion USD in PPP (Purchasing Power Parity) in 2012. The economy had estimated growth of 10.6% that year. This is $15,300 USD per capita but over 25% of the population still lives below the poverty line. There is a shortage of skilled labor but an over supply of unskilled labor.
Major exports for Panama consist of sugar, pineapples, watermelon, bananas, shrimp, gold, iron and steel waste. As of 2012 the total value of exports was worth $18 billion USD. Major trading partners consist of the United States with 20.3% of the total, Canada (14.6%), Costa Rica (6.6%), Netherlands (5.9%), Sweden (4.8%) and China at 4.1%.
Major imports which exceed a total $24 billion USD, consist of fuel products, medicines, cellular phones, vehicles, iron and steel plates. The major import trading partners are the United States at 23.6% of the total. Next is China at 6.4% and Costa Rica with 4.6%. Mexico comes in at 4.4%.
The gross external debt at the beginning of 2013 was $13.13 billion USD. The public debt stands at 37% of GDP, a reasonable figure considering some of the other countries in Latin America. Government revenues for 2012 were estimated to be over $9 billion USD. Government expenses estimated for the same year were in excess of $10 billion USD.
The credit rating of Panama is in the BBB range and foreign reserves in 2013 were estimated at $3.314 billion USD.
Investors interested in Panama should concentrate on the major growth industries and it would make sense to look for local partners if possible. It just makes doing business in this country so much easier.