INDUSTRY

Panama 2018 | INDUSTRY | REVIEW

Despite a difficult past few years for the industrial sector and several recurring structural challenges, 2017 and 2018 have seen positive steps forward for Panamanian industry.

Panama's industrial output grew by 2.2% in 2017, according to the Sindicato de Industriales de Panamá (SIP), a relief after contracting 2.8% in 2016 and by somewhat smaller margins in 2014 and 2015. According to Michael Morales, president of SIP, by early 2017 industry had been facing its worst crisis in three decades, representing merely 5% of total economic output, down from 25% merely 25 years ago, and with total employment in decline. To combat this, the government of Juan Carlos Varela implemented the Law on Industrial Growth (Ley de Fomento Industrial) in May 2017 to make industry more competitive, modern, and equipped with high value-added technology.

To promote Panamanian exporters and collect better data on production figures, the law also launched the National Industrial Production Program and National Industrial Register. Certain fiscal credits, such as the Certificado de Fomento Industrial (CFI), were furthermore increased to drive investment in research and development and improvements to productive capacity. Taken together, these measures helped spur the aforementioned 2.2% growth in output along with a slight uptick in industrial employment, from 129,000 employed in the sector in 2016 to 131,000 in 2017.

Contrary to SIP's estimates, the CIA puts Panama's industrial output at 15.7% of total GDP. While expansion in alcoholic beverages, premixed concrete, animal feed, and mill products saw the most notable increases in 2017, the country's top exports remained medicines, petroleum products, and passenger and cargo ships.

Though the country's trade deficit is around USD49 billion, due to huge imports from China (USD6.34 billion), the US (USD6.12 billion), Japan (USD5.66 billion), and Singapore (USD4.91 billion), exports still more than doubled between 2011 and 2016, from USD12.6 billion to USD25.4 billion. Packaged medicines, which led with 12% of Panama's exports and were valued at USD1.53 billion, went mostly to other Central American and Caribbean countries, while of total exports, 23% went to the US (USD2.31 billion), 11% went to Colombia (USD1.06 billion), and 7.6% went to Costa Rica (USD725 million).

Much of the rise in industrial imports from China can be explained by Panama's warming ties with the People's Republic. Industrial cooperation between the two countries is on the march. In July, a trade delegation from Shanghai including Zhang Xiaosong, the General Director of the Office of Foreign Affairs of the Shanghai Municipality, visited the Colón Free Zone to present a series of projects to help Chinese firms get established in the western hemisphere's largest emporium. They could not have come sooner. In 1Q2018 alone, USD831 million in Chinese merchandise passed through the Colón Free Zone, helping boost its traffic by 25% YoY in 1Q2018 on the year before, from USD1.53 billion to USD1.92 billion.

To further boost the free zone's viability, the government recently made the city's historic core duty free. An area of 16 square blocks, the Colón Free Port project, as the wider effort to revitalize historic Colón is known, receives some 600,000 cruise tourists a year, yet has still seen its revenues fall by 7.6% in 2015, 12.3% in 2014, and 10.9% in 2013, due mainly to economic collapse in Venezuela, a slowdown in China, and new Colombian tariffs on re-exports.

To be sure, Panama's foreign investment promotion body PROINVEX is also heavily encouraging the country's deepening relationship with China, and China is not alone; in May, Panama signed a free trade agreement with Israel, which is thought to widely boost its exports to the Middle East, and sent a team of Panamanian exporters to Chile the same month to participate in trade negotiations with Chilean import representatives and the Inter-American Development Bank's Independent Consultation and Investigation Mechanism (MICI) team. Brighter days lie in store.