WHAT A YEAR

Panama 2018 | DIPLOMACY | YEAR IN REVIEW

Panama, synonymous with trade thanks to its eponymous canal, is looking at enhanced trade agreements abroad and eyeing greater economic diversification.

With plans for a rival canal crossing Nicaragua now seemingly dead in the water and a Chinese vessel being the first to enter the newly expanded Panama Canal in 2016—as well as having shortly thereafter cut ties with Taiwan—Panama maintained its status as one of the world's most significant trade hubs and gained a new window onto Asia at a time it hopes to expand its global trade ties.

With Neopanamax vessels of around 50m in width and bearing up to13,000 containers now gliding through the expanded Panama Canal, Panama is reaping the rewards. GDP growth expanded to 5.5% in 2017 following 4.9% in 2016, fed by the canal and financial services. The IMF predicts growth of 4.6% this year and 6.8% in 2019. The significance of the canal should also not be underestimated, with services, including the canal itself and related activities, as well as logistics, accounting for close to 80% of GDP.

Other economic catalysts include the Colon Free Trade Zone, a special economic zone that, in 2016, saw overall commercial activity worth USD19.7 billion comprising imports of USD9.2 billion and re-exports of USD10.4 billion. Construction is also a growth area, and one with significant Chinese participation—in June a consortium of Chinese companies bid USD1.42 billion for a fourth bridge over the canal. Last year Panama's exports to and imports from China respectively amounted to USD42.6 million and USD1.3 billion. Trade and Industry Minister Augusto Arosemena is confident that the recent free trade agreement (FTA) between Panama and China will fuel key local sectors such as logistics, energy, and agriculture, as well as tourism and e-commerce. Talks kicked off on June 12 and are expected to continue over the coming months. Seeking to develop ties with Asia across the board, the leaders of Panama and Vietnam met in June and an announcement to boost relations followed, including measures to reinforce ties in the areas of economy, trade, investment, and political cooperation.

Elsewhere, and 2017 was marked by growth in indsutrial output, up 2.2% over the year. This came as somewhat of a relief after contracting by 2.8% in 2016, and similar contractions in 2014 and 2015. To combat this, the government of Juan Carlos Varela implemented the Law on Industrial Growth in May 2017 to make industry more competitive, modern, and equipped with high value-added technology. Among other efforts, the law should largely be regarded as a success, also helping to boost employment over the year, from 129,000 to 131,000. At 15.7% of GDO, industy is a crucial sector. 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.

Another significant contributor to GDP is tourism. The WTTC forecast for 2018 puts the total contribution at just over PAB9 billion, or 14.6% of GDP. The country is on track for a 5.6% per annum rise through to 2028, when the sector's contribution to GDP will reach PAB15.5 billion, representing 14.8% of GDP. The sector began to receive the attention it deserves in the mid-1990s, and since then has welcomed billions in investment. According to the World Bank, tourist arrivals to Panama have more than doubled in the 10 years leading to 2016. The country saw more than 2 million visitors in 2016, compared to fewer than 850,000 visitors in 2006.

Moving forward, Panama has more partners in growth. Having embraced China and looking to expand trade ties substantially in general, the country is looking to take the most advantage from its main artery, the Panama Canal. The country is also riding on a general wave of optimism in the region, with a slight recovery in global trade—beneficial for Panama for obvious reasons—an uptick in commodities prices, and the general recovery of the world economy all combining to paint a positive picture for the years ahead.