About Panama: Growth of Key Sectors

Economic Growth

The evolution of the Panamanian economy in the last years has been very dynamic; there has been a high growth in comparison with the low rates in 2000, 2001 and 2002. The Gross Domestic Product has reached rates of 4.2%, 7.5%, 6.9% and 8.1% during 2003, 2004, 2005 and 2006, respectively.

The engines of this dynamic economic growth have been construction, wholesale and retail trade, the Colon Free Trade Zone, restaurants and hotels, transportation (including the Panama Canal, the container transshipment ports, railroads, air transport and domestic passengers and cargo transportation), communications, financial intermediation and real estate activities.

In 2006, the construction sector grew by 17.4%, above the general economic growth average increasing, thus, mining and quarrying activities, which rose to 16.2%. The domestic production of Portland cement and concrete grew up to similar rates of 11.4% and 19.1%, respectively. Real estate activities, which include the added value in the purchase and sale of just built properties and already built properties, rose by 5.3%.

Trade in the Colon Free Zone reached 11.6%, due to the fast increase in the demand from Venezuela, Ecuador, Colombia and Chile, among other countries.

Domestic wholesale and retail trade increased by 11.0% due to the fast growth of domestic demand, resulting from the economic boom.

Projections on tourim growth worldwide estimate that tourism will reach an annual average rate of 7%, however, the growth of said sector in Panama indicates that in the next years it will be above that figure. In this respect, in 2006 hotels and restaurants activities increased by 12.4%.

Transportation and Colon Free Trade Zone

After the Torrijos-Carter Treaties completion, on December 31, 1999, the transportation sector and the Colon Free Trade Zone have undergone a fast growth due to their consolidation as a main part of the cluster of multi-modal transportation services that serves the world maritime trade. This cluster is basically made up by the Panama Canal, containers transshipment ports, interoceanic railway, bunker supply, the supply of goods to ships in transit through the Canal, legal services, financial intermediation services and the Colon Free Zone.

The Panama Canal will be widened so that Post-Panamax ships can cross it. More than 5 billion dollars will be spent in this widening. With such investment, the cluster will be strengthened even more with also important investments.

After undergoing an important fall in 2001 and 2002, as a consequence of the world trade decrease, the Panama Canal has increased its cargo volume as well as its incomes.

Since it began operating, the Panama railroad’s excessive capacity has been used at a fast pase, both for cargo and passengers transportation.

It is observed that the container transshipment ports movement has been trippled in less than a decade. Containers movement rose from about 1 million of TEU’s in 1998 to about 3 million of TEU’s in 2006.

The Colon Free Zone underwent an important unprecedent increase due to the greater dynamism of South American countries’ economy, mainly Colombia, Venezuela and Ecuador.

Telecommunications

As regards the telecommunication sector, the use of celular phones has increased considerably. It is still a developing market, which performance is still similar to that of the traditional business life cycle curve for new products. It is a product highly dependant on the changes in the consumers’ income, that is why it underwent an important standstill in 2001 and 2002, when the economic growth was slow, and a fast growth in the ecomomic boom period in 2003-2006.

On the contrary, the segment of fix phone users is a standstill market or an ungrowing market. The market of Internet services suppliers has increased throughout the last years, however, it is still a relatively small market when compared to the cellular phone telecommunications. A greater competency of the celular phones market will take place from 2007 with the entry into the market of the personal communication service (PCS), a substitute product for the cellular phone.

Construction and real estate

In general, the construction sector tends to grow in the medium and long term, nevertheless, it grows at a fluctuating or cyclical rate. Still, due to the greater economic dynamics, the construction sector has also risen to relatively high rates, 30.4%, 16.0%, -0.9% and 17.5% during 2003, 2004, 2005 and 2006, respectively. As a result of this boom, the demand of concrete and Portland cement is also increasing rapidly. Due to the demand’s fast growing and to the possible widening of the Canal, concrete manufacturers have already announced that they will widen the capacity of their clinker and concrete manufacturing plants.

These high growth rates are the result of the unprecedent real estate activities boom in the heart of Panama City (Punta Paitilla, Punta Pacífica, Costa del Este and San Francisco). Mostly, it is a prominent offer of residencial condos, mainly demanded by foreign citizens coming from the United States, Canada and Europe, as a consequence of the so called baby boomer phenomenon. Currently, there are more than 300 residential condos projects in Panama City. The value of such offer is estimated in more than 4 billion dollars.

This offer is estimated to be finished between 2007 and 2010; however, it is probable to be finished after that period. With such boom of condos demand, it is expected that the Panama City foreign population be significantly numerous, reaching, probably, one-third of the city’s total population.

Also, due to the so called baby boomer phenomenon, a series of projects of communities for foreigners are being built in differents parts of the country; among which there stand out the Valle Escondido and Cielo Paraíso projects in Boquete, Red Frog in Bocas del Toro, and Tucán Country Club. These projects will have houses within a “closed” community, a hotel, a 18-hole golf camp, a tennis court, a club house, a spa and a gymnasium, among other facilities. According to the plans announced by these projects’ developers, more than 4 billion dollars will be have been invested in the period 2005-2018. Foreign residents of these projects will have spent 3 billion dollars in local consumption. Tourism expenditures in these projects’ hotels would be approximately 2 billion dollars. These investments and expenditures together would mean an injection to the economy of about 10 billion dollars in that period.

Tourism

From 1998 until 2004, the tourism activity, measured by the daily average of rooms occupied, grew very little. However, the take off of this variable for 2005 and 2006 has been unprecedent, rising from about 2,000 rooms occupied per day to approximately 3,000. The expenditure of tourists have followed the same pattern, from about 600 million dollars in 2003 to about 900 million dollars in 2006.

Financial and insurance

Both deposits and bank loans have increased as a consequence of the economic boom. Insurance activities have also increased, closely linked to the banking sector.

Export of Agricultural and manufactured goods

Exports of agricultural and manufactured goods have also suffered an important fall in 2002, as a result of the generalized fall of the world trade during that year. After that, it highly increased from 759.6 million dollars in 2002 to 1,021.9 million dollars in 2006.

In 2006, more than one-fourth of the agricultural and manufactured goods exports were fish products. Almost one-third of the exports were fruits, such as banana, melon, watermelon and pineapple.

Employment

The economic growth of the last two years have significantly contributed to the reduction of the unemployment rate. It has fallen from 13.1% in 2002 to 7.3% in 2007. Since a greater construction boom is expected for the next years due to the boom of the real estate activities, together with foreign immigration, and also due to the Canal enlargement, the unemployment rate is expected to continue falling significantly in the next years.

Inflation Rate

Panama's inflation rate almost always fluctuates in the same direction as the United States’ rate, though always below it. In the past two years, the inflation rate has increased due to the petroleum prices’ continuous rise, the recovery of the international economy and the expansion of the domestic economy. If compared to the United Status and Latin America inflation rates, the inflation rate in Panama is still relatively low.

Government

The government’s fiscal situation has improved a lot. In 2006, fiscal superavit was of 0.5% as a PIB percentage, after recurrent deficits in the previous years. Fiscal adjustments have been necessary to avoid the explosive growing of the public debt and macroeconomic instability.