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ECONOMY
around 3 percent in 2004 to approximately 6 percent in 2014. As a percentage of GDP, tourism and travel constituted 13.9 percent, a number that is expected to continue to rise. The Panamanian government has targeted tourism as a growth sector; Law 481 offers incentives to investors who contribute at least $250,000 to the construction and operation of hotels and other lodging built outside the capital city.
Balanced growth ahead
IMF Managing Director Luca Antonio Ricci, during his mission to Panama in February 2014, praised the country’s economic performance, while stressing the need for further streamlining of financial governance; better data collection from all financial institutions; and more intensive macro-prudential policies—that is, attention to “whole system risk,” in addition to monitoring individual institutions.
The country continues to maintain a low deficit, mandated at 3.1 percent by the Fiscal Responsibility Act. External debt in the non- financial public sector exceeds $16 billion, but that number has dropped significantly over the last decade. Inflation will be moderate as well. IMF projections forecast a slight slowdown in growth that will keep consumer prices rising at an annual rate of about 3.8 percent.
The expansion of the Panama Canal is certainly a boon to the country, as more ships and tonnage will be able to make the passage. However, even as the expansion prepares to go online, leading global shippers are beginning to use larger cargo vessels that will not fit through the expanded canal. On the other hand, American shipbuilders are constructing larger vessels specifically to make the transit.
Panama’s poverty rate and wealth imbalance remain problematic, although according to the World Bank, between 2002 and 2011, the poverty rate fell from 48.5 percent to 27 percent, with extreme poverty decreasing from 21 percent to 11 percent. Ongoing government support efforts have targeted the poor, the elderly, and children, with the goal of boosting access to such basics as nutrition and medical care. Grants to help families keep children in school seek to build a better educated workforce, and employment programs are focused on developing sustainable means of support across all sectors and regions of the country.
With a 10-year track record of growth behind it and riding a wave of infrastructure building, the Americas’ fastest-growing economy is expected to remain strong. Unemployment is low, at just over 4 percent in 2013. President Juan Carlos Varela has vowed to continue the country’s infrastructure program and has promised increased transparency in government spending. While the canal will continue to be the backbone of the economy, upgrades in other parts of the logistics and finance sectors—the free trade zones, the airport, the energy grid, the innovation centers—provide important synergies and support. The communications, mining, and tourism sectors represent areas of potentially substantial future growth. The fundamentals are already in place; with economic development diversifying into new sectors, expanding global partnerships, and a government committed to conservative, measured, but ongoing investment, Panama continues to bring together the pieces that will make the country a global leader.
Ricardo E.
Galindo
CEO Empresas Galindo
Outside
the Box
When Ricardo Galindo, President of Panama-based Empresas Galindo, thinks outside the box, he literally goes beyond his industrial carton and container fabrication business to address the broader implications of the country’s current economic and institutional conditions.
Galindo recognizes the importance of a stable government. He points out, “We haven’t had the same government since dictatorship
twice in a row. It’s been healthy for the country.” As a businessman, he certainly appreciates the pro-business stance of the previous and current five-year governments of Panama and sees steady growth ahead.
The logistics industry will see
a business increase once the third set of locks is in operation. Tourism will be bolstered
by the expansion of Tocumen International Airport. Construction will continue to be a powerful force within
the economy, driven mainly by public spending in infrastructure.
What sectors does Galindo see as successful? He points to the logistics industry, mainly the ports, which will see a business increase once the third set of locks of the Panama Canal is in operation. Another important sector is tourism, which will be bolstered by the expansion of Tocumen International Airport, resulting in greater capacity of hotel rooms not only in the city, but also in the interior of the country. Construction will continue to be a powerful force within the economy, driven mainly by public spending in infrastructure.
As current head of a family business that has operated in Panama since the 1950s, Galindo observes: “I believe that this government will be a successful one, mainly by protecting the separation of institutional powers, which should help us maintain a healthy economy.”
26 STRATEGY