Panama's GDP is projected to grow by 6.3% in 2016 according to the World Bank, making it the most dynamic economy in the region. What is driving this growth?
Global economics are challenging now due to factors like the price of oil, the financial crisis, fluctuations in currency exchange rates, and the declining acquisition power of many countries that do not use the dollar. We are concentrated on the local region of Central American, the Caribbean, and parts of South America, which for many years have been the primary market for Panama's exports. Most countries in the region are still emerging economies. Latin America has been the emerging market of primary interest over last few years. Consumption has decreased dramatically in the submerging markets of Brazil, Venezuela, and Colombia. In the context of trends in some regional economies, our roughly 6% growth in 2015 gives us great confidence.
The CCIAP highlighted the 60% cumulative increase in the minimum wage in Panama between 2007 and 2015. What impact has this had?
Our law stipulates that the minimum wage be revised every two years. The past administration took populist measures to gain popularity among voters. The law states that the private sector must meet with labor unions to collectively negotiate changes in the minimum wage. If they cannot agree on a revision, the elected government is to arbitrate a decision. Purchasing power has decreased as a result of a rise in consumer prices. The government increased the minimum salary by 15% in 2009, 2011, and again in 2013. These measures exacerbated the problem by driving up the cost of labor and production. The combined external and internal inflation reached a level of 4.5-5% across a period of two to three years. That created a lot of instability in the market, but inflation is now down to low levels, at a less than 1%.
What contribution does the construction sector make to growth?
Growth in the construction sector will be high in the next few years. The sector grew impressively during the past three or four years due to the expansion of the Panama Canal, but now construction investments are moving toward other infrastructure initiatives. From 2014 to 2015, construction growth overextended to 14%, but it is now plateauing and returned to around 7% this year. Contributions from the sector totaled $2.5 billion in 1H2015, so it still growing. We are building a second line of the metro, a $2 billion project that will span nearly 44 years, as well as renovating Colón City, a $600 million project. We are also bidding on a third metro line, which could reach a total value as high as $2.4 billion. We are bidding on another major infrastructure project to build a fourth bridge across the canal. Two or three projects can have a lasting impact on economic growth and job creation. There is another investment opportunity to develop a project in water, wastewater, and human sanitation
Several FTAs have been signed in the past year. Which industries will benefit most from an increase in trade with partner nations, and how will potential negatives be mitigated?
The most complex FTA is the agreement with the US, under which import tariffs decrease gradually over the next 20 years. This will increase the global competitiveness of local sectors by allowing them to modernize. One of the benefits of FTAs is the access to global markets they provide to local companies across sectors. We can use these FTAs to take advantage of opportunities in industry, technology, and agriculture. Panama has a sizable trade deficit. We spend about $980 million on Mexican imports, while we export only $20 million to Mexico. Our imports from Peru exceed our exports by about $600 million. We really have to make an effort in certain sectors to be able to export products to different countries around the region, and FTAs help facilitate this.