Strategic Realignment


Along with the strategic vision of becoming a global trade hub, over the last decade Panama has invested heavily in infrastructure, including the massive Panama Canal expansion project, and favored […]

Along with the strategic vision of becoming a global trade hub, over the last decade Panama has invested heavily in infrastructure, including the massive Panama Canal expansion project, and favored a free-trade economy prioritizing the finance and logistics sectors, and allowing an uncontrolled inflow of imported goods.

The current dynamics of the economy are rooted in Panama’s history, as Michael A. Morales, President of Sindicato de Industriales de Panamá (SIP), told TBY in an interview: “As far as moving cargo, Panama is a logistics center and that has been the case not just in the last 30 years but for 500 years. We have the canal, we have about 6 million containers that go by, but we just watch them go by; the potential is so great but we are not capable of seeing it. Most of the raw materials that cross from one part of the world to the other in fact go through Panama, and we have spent the better part of 100 years watching containers go by. If we are to be a logistics point in the Americas or the world, we should think about adding value to some of that because moving things in the long term is not a sound business model. We will need to add value to the goods that are moved through our canal and that is where we need industry to play an important role.”

Thus, Panama’s meager manufacturing sector, based on processed and packaged foods, beer and spirits, tobacco products, construction materials, and clothing and leather goods, is shrinking further.

2016 data

According to data released by representatives of the industry sector, in 2016 the share of industrial production in total GDP declined by almost 3%, on the back of a 12% fall in sugar production and an 11% decline in beverage production. In the construction materials sector, cement production declined by 5.1%, ready-mix concrete by 13%, and chemicals by 11%. As a result, the contribution of the industrial sector to total GDP declined by USD80 million, which corresponded to a 2.8% fall in value. Sector representatives expect a similar outlook for 2017.

The decline in the construction materials sector can be attributed to the completion of major infrastructure projects, as explained by Jorge Azcarraga, General Manager of Cemento Interoceanico: “The canal expansion consumed most of that production and in fact there was a cement shortage. From 2H2014 and into 2015 some clinker had to be imported to meet the demand. In 2013 Cemento Interoceanico was in expansion mode because at that time the cement industry was around 2.3 million tons per year in Panama.” Azcarraga goes on to specify that the continuity of infrastructure projects is dependent on continuous government policies, and is optimistic that the bottom will be hit within 2017 followed by a pick-up.

But overall investment data reflects strong investor sentiment, as foreign investment into Panama increased by 17.8% 2016, exceeding USD4 billion and placing the country as the major recipient of foreign investment in Central America. This suggests that with the right policies, these funds can be directed to the manufacturing and industrial production sectors.

Some promising Sectors

In 2016, mining was one of the few basic industries to have shown encouraging growth rates, as expressed by 3M General Manager Alejandro Martinez: “The main sector 3M has been growing in is mining, where Minera Panamá is doing impressive work with its project. It will be the largest copper mine in Latin America and we have many solutions for its construction phase, which will probably continue for another two years.”
Martinez also revealed the growth potential of the energy sector, as a growing population, mainly boosted by the inflow of immigrants, is boosting the demand for electrical products and new energy resources.
Proinvex, the agency responsible for promoting investment into the country’s strategic sectors, also expects the energy sector to show strong results as the National Energy Plan for 2050 introduced the new strategy that will transform the energy matrix to one that is 70% based on renewable and alternative sources. Accordingly, sustainable energy projects, with an emphasis on wind and solar energy, will not only generate new investments and jobs, but will also indirectly contribute to new investments by strengthening the attractiveness of the business environment. Proinvex points to future LNG plant investments, which will supply domestic demand as well as create a hub for distribution thereof.


According to data revealed by Panama’s Exporters’ Association Apex, Panama’s exports declined from USD1.8 billion in 2008 to USD636 million in 2016, losing almost half its value in eight years. The association is now engaging in policies that will boost the performance of traditional agricultural sector products such as watermelon, cucumbers, pineapples, and other traditional products that can be easily exported to the region and the international market. According to Juan Bulnes, President of Apex, even a landmark product such as pineapple could not perform well in 2016, while the international pineapple market was growing substantially, suggesting a lack of domestic policy in this area. This strategy is to be followed by a growth in agro-food industry, a strategic sector that is expected to benefit from newly introduced industry sector incentives.

Expected Impact of free trade Zones

In 2016, Colón Free Trade Zone (CFTZ), Panama’s main export and re-export hub responsible for most of the cargo movement through the country, was reorganized with Law 8 of 2016. The previous governing law had been in place since the inception of the free zone 68 years ago. The new law expands the types of activities that qualify for the CFTZ and allows companies operating under a “multinational company headquarters regime” to do business there. It also brings new tax benefits, and simplifies immigration and work-related procedures to make processes more efficient. The new law is expected to attract yet more domestic and international business and impact growth of the industry sector, as the CFTZ’s state-of-the-art international warehousing and infrastructure reinforces industries connected to the free zone. Official data for the first two months of 2017 already show a 23.3% recovery in the value of cargo movements in the CFTZ in USD terms.
Alberto A. Alemán, Director of Proinvex, also revealed strategies regarding the Panama Pacifico Special Economic Area. “We hope to see further investments in advanced manufacturing and third-party logistics operations, as well as value-added multi-modal logistics activities. Investments in headquarters, shared service activities, and high added-value services are a growth area in Panama Pacifico that are bringing the most sophisticated business processes to our country, and a multicultural community that fosters creativity, growth, and value.”

The creation and operation of the new Panapark Free Zone by the COINLA consortium on the eastern periphery of the capital is also expected to boost international business and the production of construction material. A land development project of 520,000sqm, it is set to become the largest private free trade zone in Panama.

THe expansion of the Canal

The expansion of the Panama Canal was operational as of July 2016 and will obviously impact the economy through an increased volume of services. However, according to Juan Bulnes, President of Apex, the expansion of the canal will also affect the industrial sector. He told TBY, “It is fundamental for all players, including small industries, to capitalize on the expansion of the canal. Small companies are interested in developing business relationships with other countries and have seized the opportunities created by the expansion of the canal. Many of the vessels crossing the canal navigate to Europe, and this is a potential export route. It is a market that has an increasing demand for fishing products. That platform is already here and Panama is ready; our producers just have to increase output.”

Productivity is Key

With a dollarized economy and strong currency value compared to regional economies, Panama is at a slight disadvantage in terms of price competition. Coupled with a more expensive workforce, this disadvantage can only be addressed through improved productivity. Bulnes stated that, “The secret is to boost the productivity of the products we are strong in and then enter the international market. We need our entrepreneurs to start working on the concept of productivity. 66% of exports to the international market are represented by the agro-industrial and fishing industries. We also have a great share of dairy products, milk, and milk sub products, which represent 33%. We seek to boost the agro-industrial segment; that is our priority. We hand out awards to producers of bananas, honey, and all products related to this industry. It is also important to add value to our production.”

Representatives of the industry sector confirm this view by stressing the need to have a policy to boost productivity, competitiveness and the overall development of the industrial and agro-industrial sectors. Well reflected policies and measures in this regard would impact the economic efficiency of the production chain in the short, medium, and long term, ultimately allowing Panamanian exports to recover in the regional and global market.

A new industrial Law

In order to achieve greater diversification of the national economy and promote industrial production by supporting its competitiveness, in March 2017 the government and the private sector agreed on a new bill, which modifies Law 76 of 2009 by expanding tax incentives granted to companies in the sector through the Certificate of Industrial Promotion. The bill, which was approved by the cabinet, introduces an increase of 25 to 40% in tax credits for investment in manufacturing and agribusiness. The reform supports R&D, personnel training, investment and reinvestment, and environmental management. Also, the issuance of the certificate will be possible in 90 days instead of the current two years. With the new law, companies registered with the National Industry registry were granted an extension until December 31, 2017 for tax benefits, which were to expire on December 31, 2016. These incentives are expected to boost investments in the industry sector starting in 2017.

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