The news in Panama these days is largely focused on two main topics: the 2019 Panamanian presidential election, and China. It’s not a coincidence, either. The two topics have a lot to do with each other, and for good reason. This past year, Panama made a bold move by agreeing to a series of economic and diplomatic partnerships with China, effectively ending their long-standing relationship with Taiwan (China’s historic enemy). While the move has caused a lot of controversy and debate, it is a clear step towards economic strength for the future of Panama. Here are four reasons why this is the case.

1. Increased Trade:

Trade between Panama and China isn’t new, but it has always been tempered by Panama’s trade relationships with other countries, and diplomatic restraints due to the Taiwan connection. With a new diplomatic relationship comes new trade deals, and that means lots of business for the logistics, import, and export markets in Panama. Panama can now import with better prices from China, and increase exports to the Chinese market, which will give them better leverage for future export deals with other nations.

2. Tourism:

The Chinese market for exterior tourism is the fastest growing in the world. Chinese tourists have lots of liquid capital to invest in travel, and many are choosing western countries as their prime destination. Panama intends on capitalizing on this by marketing tourism campaigns directly at the Chinese, and facilitating travel with new airline routes, Chinese guides, Chinese language tour options, and many types of tourism options for them while in Panama. This will bring in major revenues for the Panamanian tourism companies and ancillary businesses all over the country, who have suffered in recent years from a slump in visitors and visitor spending.

3. Infrastructure Investment:

Aside from trade, the largest economic impact of the Chinese increasing their presence in Panama will be their investment in the country’s infrastructure. Chinese companies are vying for major proposals to modernize Panama’s bridges, highways, and city infrastructure, which will help modernize Panama for the future, and facilitate more efficient business and quality of life options for Panama’s residents. This will also provide many jobs for Panamanians, as the majority of project labor must be done be locals, by law.

4. Betting on the Future:

No matter how you feel about it, it’s impossible to ignore the presence of China as an economic power of the future. China’s growth has been staggering, and done so fast, that for many not following closely, may even come as a shock. China is set to take the #1 global spot as an economic world power; a place they may not lose for a long time. This is why countries around the world are scrambling to see how they fit into this new economic picture (and model). There’s risk involved, however, which Panama is aware of. By betting on China, Panama may hurt diplomatic relations with the US, which could echo itself in trade as well. Panama is confident that it can weather through this, and that ultimately it can have a positive relationship with both countries. For now, though, Panama is betting big on China, and they seem to be pleased with it.

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The word “Panama” typically brings to mind many things for those who live, work, and travel here. But to most of the world unfamiliar with the Central American nation, the first thing that comes to mind is almost always the Panama Canal. Heralded as one of the wonders of the world, and one of the greatest engineering feats in modern history, the Panama Canal has brought fame, fortune, and future prosperity to a country that’s small, yet incredibly powerful. Just a few years ago, the Panama Canal celebrated its 100-year anniversary, an event that marked many different eras, governments, and both economic and social cycles. Now, a few years after the 100th anniversary and inauguration of the new upgrades, we take a look at why the Panama Canal is more important than ever, and what it will bring to Panama in the future.

Panama’s economy relies heavily on the Canal and its ancillary businesses

The Panama Canal accounts for roughly 40% of Panama’s total GDP, and is the single largest economic driver when it comes to new job creation and new business creation. There are literally thousands of global businesses that rely on the Canal, and each pays a price to use it. There are also a significant number of domestic industries in Panama that rely on the Canal for business, in many different sectors. Ships are charged fees to cross the Canal, scaled based on size and cargo. Around 15,000 ships pass through the Canal each year, making the waterway busy around the clock, all year ‘round.

Aside from the revenues made from crossing charges, the Canal allows Panama to become a hub for import/export trade, making it a key global market for trade in the western hemisphere. Panama has a vibrant trade economy with countries like the United States, Canada, and recently (2018) China. According to the World Bank “The United States is Panama’s most important export destination, with about 24.7% of the country’s exports being destined for the US. Canada and the EU are also major export markets for Panama, accounting for 16.2% and 15.1% of the country’s exports respectively.”

The Panama Canal’s role in the country’s diverse history

Although there are many varying opinions about the positive/negative impact of foreign sovereignty over Panamanian land, the Canal’s history would be incomplete without mentioning it. Initially a French undertaking, the Panama Canal was completed by the United States, with sovereignty granted over the waterway and its immediate surroundings. This introduced an interesting dynamic to Panama, which put tens of thousands of foreign immigrants from all over the world right here in Panama, to help build the Canal, work on it, and work for those who controlled it. Panama’s ethnic diversity was created by this project migration, bringing in many Americans, Chinese, West Indians, and Europeans, who stayed after its completion, and who’s families became part of the fabric of the country’s history.

The future of the Panama Canal

Since the 2014 Panama Canal expansion, business has been growing steadily. Panama can now handle some of the world’s largest ships, allowing them to handle new vessels that facilitate larger, faster, global trade shipping schedules. Panama has also made a strategic partnership with China in 2018, which will bring not only more ships through the Canal, but also drive import/export trade, which will have many benefits long-term for Panama’s economy.

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Panama has been planning, and executing major national highway upgrades for quite some time now, in an attempt to modernize the interior’s infrastructure. Currently, there are eleven of these projects underway on a national level, with the largest being the “Corredor Atalaya” which is the principal road transportation source for the province of Veraguas. Veraguas is a province that covers a huge swath of land, going from the Caribbean all the way down through the Azuero Peninsula, with Panama’s 4th largest city (Santiago) in the middle. The total planned construction is to span just over 100 total km of highway, which is relatively large by Panama standards, especially in that area.

Where they are at this point

Right now, the MOP says that construction on the Corredor Atalaya is around 50% completion, and scheduled to be complete by 2019. As this project is part of a larger nation-wide set of projects to modernize and modify Panama’s highways, it will run in conjunction with 352 kilometers of highway repair in the Veraguas province, and more than 2,000km in total for the country. Organizing and executing all of these projects to run in conjunction, and finish on time, is a massive undertaking, too. Panama has increasingly congested highways that currently can’t handle the demand for both commercial and individual traffic. As construction moves forward, it causes more congestion and delays by nature, which is why timing is really of the essence here. What may create a short-term discomfort will end with a long-term solution for efficient vehicle movement countrywide.

Fixing Panama’s road infrastructure is critical to the country’s growth

For many years, Panama’s infrastructural growth has been mainly focused on the capital city and its surroundings. Rapid population and business growth in this area has lead to a lot more movement in and out of Panama City. As this movement expands, the need for bigger and better roads on a national level has grown with it. Panama’s unique geography means that most of the country is rural, and hard to pass by road. Roads and highways throughout the country’s interior tend to be small, outside of the Panamerican, which is the main east/west route. For years, these smaller roads and highways haven’t been updated, and as a result, are in disrepair, and can’t handle the volume of traffic.

When the new highway upgrades are finished, it will allow a much greater volume of cars, buses, and trucks to travel through. This will not only reduce stress and travel time, but will also help facilitate interior businesses to become more efficient. In short, this will be a big move for Panama’s economic sector, especially when it comes to domestic agriculture and other production areas. Panama also has an election coming up in 2019, which makes the deadline even that much more important to the current administration. It is very common in Panama to see these types of projects rushed to finish before an election cycle, and one can certainly make that connection here.

The province of Veraguas, much like others in the interior, is trying to build their economy as a hub for industrial transportation and services for other parts of the country. This is why this project has so much potential. It could, in theory, level the playing field a bit when it comes to taking a share of the economic movement from Panama City. Only time will tell.

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Panama’s Caribbean coast has a unique history. It’s the first coast the Spanish settled upon, a place rich in resources and pristine beaches, and hosts the northern mouth of the Panama Canal. For the past century or so, however, Panama’s Caribbean coast has largely been overshadowed by the economic and tourism powerhouse of the capital city and developed beach areas of the Pacific. Despite all this, there is a certain kind of magic contained within Panama’s Caribbean coastline. One that locals in the rest of the country know, and value, even if they don’t visit that often. Panama’s northern Caribbean coast has some of the country’s best beaches, hikes, fishing, boating, maritime commerce, and yes, party scene. Here’s more.

What’s the main draw of the Caribbean coast of Panama?

For starters, the Caribbean. Much like every other country that shares a coastline on this sea, Panama’s portion has well over 1,000 miles of pristine turqoise-blue beaches that hug its shores. From the San Blas islands to Isla Grande, Isla Escudo de Veraguas to Bocas del Toro, it would take weeks to see and enjoy all of the fabulous beaches there. This makes tourism the biggest draw to the majority of the coast, however, it’s not quite the same tourism that the Pacific coast relies on. The “Caribbean side” of Panama, as it’s commonly referred to, draws more of an adventure tourism crowd, as well es ecotourism. And there are a few solid reasons for this.

Panama’s Caribbean coast is largely undeveloped outside of Colon, and has limited transportation available outside of a few main roads. This has kept the area very nature-friendly, and perfect for off-the-grid travel, or those who want to see the “wilder” side of Panama. Of course, Bocas del Toro is a bit more crowded in parts, but it pales in comparison to the all inclusive resorts and retirement communities on the southern coast. San Blas, for example, is protected indigenous land, where many of the 400 islands don’t have electricity, and lodging is done in traditional style, giving visitors a truly unique experience that’s hard to find anywhere else in the region.

Panama’s principle port for trade, cruises, and shipping

Aside from the tourism aspect, two of the most attractive parts of Panama’s Pacific coast are the port of Colon and the Panama Canal. The city of Colon is Panama’s 2nd largest, and sits as the northern mouth of the Panama Canal. Colon’s port is a giant money-maker for Panama and private companies that trade in it. It’s home to the Colon Free Zone, which is a tax-free market that draws thousands of international buyers and sellers, and brings in millions each year to the national economy. Colon also has the country’s only cruise ship terminal, and is the docking/landing place for many sizes and types of boats of pleasure, as well as shipping vessels.

Sadly, despite the economic impact from shipping and the Free Zone, the city of Colon has struggled to keep crime under control, and has major infrastructural and social issues confronting it. This is something that’s not lost on your average Panamanian or the government. Efforts are being made to help renovate the infrastructure of the city, bring in new urban renewal investment, and bring more local jobs there, away from just the shipping port. This sentiment will hopefully spread out throughout the Caribbean coast of Panama, making it more sustainable, and open for business/tourism for years to come.

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After a long and arduous bidding process, a consortium formed from Belgium’s “Jan de Nula” and China’s “China Harbour Engineering Co.” won a $165 million contract to design and build a new cruise terminal in Panama. The terminal, which will be built at the Pacific entrance of the canal, will house international cruise ships adjacent to Panama City, something that has been in planning for quite some time now. The consortium, called Cruceros del Pacifico, is expected to complete the entire process within two years, hoping to make it fully functional by the end of 2019. The Panama Maritime Authority will be in charge of the overseeing of the project, and the terminal’s operation once complete.

Bringing cruise ships to the Pacific side of Panama

While Panama does have a number of cruises that end in Colon on the Caribbean side of the country, it doesn’t have the capacity to hold large-scale cruise ships on the Panama City side. Building a viable terminal will attract dozens of new ships to come via the Pacific, which will be a huge economic advantage for Panama City and its oceanside suburbs. The port/terminal will be public, and include parking for over 300 vehicles, buses, and trucks. According to the Panama Maritime Authority (AMP), it will serve up to 10,000 passengers at peak volume, and will have more than two hectares of green area and natural paths. The terminal’s structure will also be built with “green” building certification, limiting any negative environmental impact on the area.

According to sources…

“The AMP and the country will have a project that will be the jewel of the Pacific and will come to drive our national tourism,’ said Panama’s minister of maritime affairs and administrator of the Panama Maritime Authority. The work will be carried out within 24 months. The terminal will have capacity to accommodate two ships of 360 metres in length, with a capacity of 5,000 passengers per vessel, in an area whose draught must reach 10.5 metres and be able to receive cruise ships at any time of day, regardless of the condition of the tide.”

No stranger to Panama

The consortium that received the contract is already known in Panama, largely from the work that Jan de Nul did on the Panama Canal Expansion. Chinese firm China Harbour Engineering Co. is also known, as their partner China Communications Construction Co., has worked on a number of projects in Panama for decades. Panamanian authorities and members of the consortium party are optimistic that this project will be complete and operational on schedule. The hopes, at least in theory, are that it will open up the tourism industry to a wide new audience, and one that can be competitive for cruise companies around the world. In order to ensure this, the AMP plans on signing a cooperation agreement with the Port of Hamburg (Germany), to make a strategic partnership that would send European vessels to the isthmus, and vice versa. Exciting times are on the way!

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In a move that was shocking to some, and expected by many, Panama officially opened diplomatic relations with China this week, effectively ending more than a half century of partnership with Taiwan. The move comes as Panama’s President Juan Carlos Varela looks to boost the country’s economy through stronger trade and manufacturing partnerships, with China as the golden goose. Varela and his government made it a point to stress that they are fully on board with China’s political policy regarding Taiwan, a move that shocked and angered both Panama’s Taiwanese community as well as many in Taiwan itself. In a statement made during a press conference involving both China and Panama, Varela stated:

“The Government of the Republic of Panama recognizes that there is only one China in the world, the Government of the People’s Republic of China is the only legitimate government representing all of China, and Taiwan is an inalienable part of the Chinese territory,”

What’s the benefit of building new relations with mainland China?

First and foremost, like everything in Panama, the glaringly obvious reason why Panama needs China has to do with the Canal. Since the Suez Canal’s expansion in 2015, with Panama’s following shortly after, business for the world’s largest ships from Asia hasn’t been as high as expected. By opening better trade deals with China, Panama could incentivize more Panama Canal crossings by lowering costs to Chinese shipping vessels and in turn, increase overall volume. Another big benefit for both countries is China’s thirst for infrastructure investment; something that Panama seems to always be actively seeking. China is already planning on investing $1 billion into Panama’s ports, and this diplomatic synergy will only help get that off the ground quickly, and efficiently.

What’s to lose by building new relationships with China, and cutting ties with Taiwan loose?

From a purely objective and economic standpoint, there really isn’t much of a disadvantage to side with China over Taiwan. Taiwan has far less economic power than China does, and despite years of diplomatic partnership, can’t provide Panama with the same opportunities going forward. The biggest thing Panama loses in this equation is its historic political ties with a country that has been struggling to be recognized for decades. Taiwan has had a symbolically friendly relationship with Panama, which is now all but shattered with their new China partnership. Only 20 countries now recognize Taiwan as an independent nation, and losing Panama will really be a big hit to them.

Panama’s Taiwanese community is also greatly affected, not only from a standpoint of pride, but also from a business perspective. Taiwanese businesses operating within Panama will now most likely pull out in protest, which will have short-term ripple effects amongst Panama’s large Taiwanese/Chinese community. Nevertheless, the deal is done, and Panama will move forward with mainland China relations as planned. It’s hard to tell exactly what the future will hold with this partnership. But one thing’s for sure: it will have major economic impacts on the country for years to come. The real question is, will it be worth it in the end for the Panamanian people?

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Panama has long been known as the “hub of the Americas”, and one of the most significant transportation and logistics countries in the world. Panama has some of the most international flights leaving and arriving (connections or otherwise) in the world, and certainly the region, with more being added every year. Panama also facilitates the world’s biggest ships, and plays a part in practically every facet of global, sea-based trade in the western hemisphere, especially cross-oceanic trade. This distiction, as the “hub of the Americas”, is more than just a marketing ploy, too. Panama’s role as a travel, trade, and logistics hub has both built its economy, and continues to help sustain it now and into the future.

Panama and Trade

Obviously, if you’re planning on moving to Panama, investing in Panama, or retiring to Panama, you’ve heard of the Panama Canal. But did you know just how important trade is to the small isthmus nation? Panama exports about $700 million worth of goods and services each year, while importing a staggering $12 billion. A quarter of all trade is done with the United States, with exports focusing mostly on food items, coffee, timber, and some metals. Most imports into Panama are on the industrial end, with oil and mineral fuels leading the way, followed by industrial machinery, cars, car parts, and pharmaceuticals. It’s estimated that the Canal, and subsidiary business that service the Canal, make up nearly a third of Panama’s entire economy. Buy any stretch of the imagination, that’s huge, and trade is the lynchpin holding this sector together.

Panama as a Travel Hub

Not only is Panama considered a hub because of trade, it’s also a huge commercial transportation hub. There are over 100 flights on around a half-dozen carriers that fly in and out of Panama’s Tocumen International Airport. There are more connections between North, Central, and South America in Panama than anywhere else on earth. This has built a strong national airline industry in Copa, and made Panama a popular tourist destination as well. Due to ease of travel with available flights, Panama has been promoting itself as a go-to destination for tourism in the cities and areas it once serviced by air as simply a layover destination. Now, rather than just using Panama as a hop to another tropical vacation destination, tourists are choosing Panama as their final stop.

It’s also not just about flights. Panama is growing its maritime tourism at a faster rate than ever, with cruise lines offering both Canal cruises, and using Panama as a destination stop during larger Caribbean cruises. On top of that, many smaller companies have made yacht and catemeran chartering a big growth industry in Panama, which is helping to diversify the market greatly. Panama is now one of the biggest eco tourism destination in the Americas, touting jungle tours, chartered boats, hiking, rainforest excursions, and educational trips for schools to learn about Panama’s immense biodiversity.

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Panama is almost ready for the first ships to cross the soon-to-be inaugurated expanded Canal. In fact, they’re all set for the first ship to arrive on June 26^th, and the normal service to come through around the first week of July. Ships have already set off from Asia to make the journey, and make history. This date can’t come soon enough for the Panama Canal Authority, who has had major setbacks throughout the project, including more than two years of delays for the first passage. But now, that’s all water under the bridge, as a new era approaches for international trade; and more importantly to Panama, an economic boost.

Which ships are crossing the Panama Canal first?

According to the Canal Authority, the first official Post Panamax ship to cross the Canal will be China’s “Cosco Shipping Panama.” The ship was formerly called “Andronikos”, and was renamed specifically in honor of this inaugural passage. This ship nearly maxes out the new size requirements, which are approximately double the size that they were for the past 100+ years. There are currently five megaships at sea that are scheduled to follow Cosco, which will usher in a new era for the famed Canal. These ships will carry everything under the sun, and give companies a major added bonus to cut from Asia to the Atlantic, and everywhere in between.

What the inauguration of the Panama Canal Expansion really means to Panama

Aside from the collective sigh of relief from officials now that the project’s finally done, the Panama Canal Expansion inauguration is significant economically. Ports all over the world will be affected by the opening, and none will see a greater economic boost than Panama. Panama charges close to half a million dollars for each megaship that crosses the Canal, and with a larger, wider area, more than twice the amount of ships will be able to cross daily. The Canal alone represents around a third of Panama’s total GDP, and you can expect this percentage to rise steadily over the next few years, thanks to the expansion.

This is critical to Panama’s current economy, which had stalled in 2014, and has been crawling back substantially ever since. The Panama Canal also isn’t just a short-term economic boost; it’s a long-term economic solution. High demand for shipping should only get higher, and with the new width/depth of the Canal, there is more than enough room to accommodate demand. This will also help in overall investment in Panama, which should help increase confidence after the latest Mossack Fonseca scandal.

How other ports will benefit

Another important trend that will factor into this month’s inauguration, is the increased economic benefit potential of US and European ports. Many ports, especially on the US east coast, will see an immediate increase in traffic. This is huge news for ports that have struggled through economic recession, and not enough traffic to be economically prosperous. The expanded Panama Canal will be a historical, and uplifting event for the people of Panama, its government, and its businesses. And after all of the pomp and circumstance fades, one thing’s for sure: the country is excited to see what happens next. 

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This week, Panama moved one step closer to joining the ever-growing Pacific Alliance by officially beginning the bilateral Free Trade Agreement with Mexico, signed in 2014. The two countries already do significant trade with each other, and this is a big move that will help grow both economies, and give Panama a strategic place in regional trade and commerce. Mexico is one of the strongest economies in Latin America, and has major export potential for Panama and the entire region. Mexico currently trades over $1 billion annually with Panama, with most of that number coming form exports to the isthmus.

How does Panama benefit?

Panama will see small benefits from this Free Trade Agreement immediately, and even bigger ones in the next few months and years. With another Free Trade Agreement under its belt, Panama is positioning itself to increase exports as well as the flow of much-needed imports from a production economy such as Mexico’s. Eliminating import tariffs will help lower the market price of Mexico’s exported goods, keeping them in line with imports from other FTA countries such as China, and the United States. Some of Mexico’s biggest exports to Panama include copper, aluminum, steel, automobiles, auto parts, paints, cosmetics, and perfumes.

One of the biggest benefits to this newly enacted Free Trade Agreement, is the one that Panama’s the most excited about: They may now be able to join the Pacific Alliance trade group, something the country has been eager to do for quite some time now.

The importance of membership in the Pacific Alliance

The Pacific Alliance is a major Latin American trade bloc that was formed in 2011, and currently consists of four countries: Mexico, Chile, Peru, and Colombia. The group has been extremely proactive in building trade relationships in the short time of their existence creating a common market, and driving regional growth through mutual goals and diplomatic cooperation. The strength of this common market is continuing to grow, and will seek new members to increase trade, and reduce ancillary costs to member nations. Here’s the market explained, according to Wikipedia

The Mercado Integrado Latinoamericano (MILA) originally integrated the stock markets of Colombia (Colombia Stock Exchange), Chile (Santiago Stock Exchange), and Peru (Lima Stock Exchange), and is seen as a foundation for the Alliance’s economic integration. These three stock markets began their integration in November 2010; this made it Latin America’s largest market according to number of issuers, the second by market capitalization, and the third by turnover. 

Panama’s role in the Pacific Alliance

As you know, Panama has had unprecedented economic growth over the past five years, and great trade relationships with regional partners. By joining the Pacific Alliance, they will be able to act as a power economy in the world, not only Latin America, by using the common shared trade market to promote global exports and drive business back into the country. The Pacific Alliance can also benefit from Panama as a member, as major global financial institutions already run through the country, and it has the world’s most important see trade route, the Panama Canal. While it’s not a guarantee that Panama will be ushered into the Pacific Alliance, all signs do point that way. The country now has FTAs with each of the member countries, and could be a member by the end of the year.

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