Panama's impressive growth performance

Panama, one of the earliest destinations for Jamaican migrant workers that was mired in internal conflicts under the military-run government of Manuel Noreiga up to the early 1990s, has made big strides in terms of its rates of economic growth and investment.

Not only did it not suffer a downturn in the economic recession of 2008, but it recorded GDP growth of 3.2 per cent in 2009 and 6.3 per cent last year.

This year, it is expected to have growth of 7.5 per cent, which would see it returning to the position of the fastest-growing economy in the Latin America and Caribbean region, which it held in 2007 and 2008 with growth of 12.1 per cent and 10.1 per cent, respectively.

The catalyst of Panama's impressive growth performance has been the rapid pace of inflows of foreign direct investment (FDI) that has put it at the top of the list of recipients of foreign capital.

Last year, Panama attracted an estimated US$2.4 billion in FDI, a higher rate per capita than any other country in the region and in absolute terms, placing it in seventh position among the 18 countries of Latin America.

This represented a 33 per cent increase over the 2009 figure, returning the country to pre-recession levels of investment inflows and just below the highest figure of US$2.57 billion attained in 2006.

While we in Jamaica have heard of the massive Panama Canal expansion, which is the major project in the current investment cycle, the fact is that the country is now attracting investment and a broad range of activities.

The most notable recent example of the diversification of its investment portfolio is the Panama Pacifico's 1,400-hectare residential and commercial development project that has pulled in over 80 enterprises, including technology companies like Dell, 3M, Sony, and BASF. Panama is also emerging as the Latin American management headquarters for giant global manufacturing companies like Procter and Gamble and Caterpillar.

A key factor in Panama's attractiveness to investors is how it has been converting former US military bases taken over by the government under the terms of the agreement with US that led to the Americans handing over control of the canal.

Under the country's investment programme, the expansive infrastructure and other facilities of these former bases have leveraged as a strategic platform for attracting investors in developing business centres and other commercial projects such as Panama Pacifico.

The canal expansion is expected to enhance Panama's strategic position as a trade centre and generate increased commercial activity.

Panama sped past Chile in 2010 as Latin America's top recipient of foreign direct investment in terms of the ratio of FDI to GDP.

Two other Central American countries, Nicaragua and Honduras, also climbed up the ladder into the second and fourth spots.

Brazil and Mexico were, however, still by far the major destinations for FDI in this region with inflows of US$48.5 billion and US$17.7 billion, respectively, last year. But these inflows represented only 2.3 per cent and 1.7 per cent, respectively, of the GDP of these countries, while the figure for Panama was 8.8 per cent.

Weaknesses in its workforce and issues to do with the rule of law and respect for contracts are two critical constraints that could affect Panama's ability to sustain the fast pace of economic expansion.

Dennis Morrison, Columnist

business@gleanerjm.com