Panama to Transform its Role with Canal Expansion
Knowledge@Wharton, the Wharton School of the University of Pennsylvania journal, says that the transformation Panama Canal expansion project will bring to Panama’s domestic economy and society have been largely overshadowed by the historic expansion.
With the opening of the long-awaited Panama project this June, all eyes are on the impact the $5.25 billion engineering marvel will have on maritime traffic across the vital international lanes that link the Pacific, the Atlantic and the Gulf of Mexico.
The expansion has already bolstered Panama’s efforts to become the Singapore – or perhaps Dubai – of Central America. It also promises to help to transform the role that Panama is playing for many U.S. and other foreign firms that are doing business in Central and South America.
There are several factors that make Panama’s prospects promising for many multinationals. Blessed with a unique geographical position, Panama is one of the fastest-growing economies worldwide.
According to the World Bank, between 2001 and 2013, its average annual growth rate was 7.2%, more than double the average in Central and South America. In 2014, growth slowed to 6.2%. It was 5.8% in 2015, a year in which virtually all the region’s economies either slowed down or contracted.
“When there is a $25 million investment in New York, Buenos Aires or Mexico City, nobody sees it. In Panama, an investment of this amount, the restaurants, the stores and even the taxi drivers [feel] the impact,” says C.E. Maurice Belanger, executive director of the American Chamber of Commerce & Industry of Panama.
The expansion of the Canal will enable longer, wider and heavier ships to transit; it is expected to open for commercial traffic on June 26. Although that’s far behind the original target date of August 2014, the delay has given U.S. East Coast ports and businesses more time to get ready.
The expansion includes two larger sets of locks on both the Atlantic and Pacific sides, new access channels, dredging and improved water supply along the length of the 50-mile waterway.
Observes Philip Nichols, professor of legal studies and business ethics at Wharton: “The Canal is the advantage that Panama has over everyone…. It’s like oil, but it’s even better than oil.”
Beyond using Panama’s convenient location for managing regional distribution, an increasing volume of manufacturing takes place here. At Panama Pacifico, 3M produces lines for its automotive division, including paint guns and plastic bottles.
Tourism is another sector growing at a rapid rate. According to Panama’s comptroller general directorate, income from tourism is now nearly double what the country earns from the iconic Panama Canal itself.
