Panama’s big dig: Central America opens for business

A $5.3 billion expansion of the Panama Canal is re-energizing the country’s economy, and Canadian companies are getting in on the action. The country is luring Canadian companies seeking opportunities in infrastructure and services related to the massive canal expansion, under way since 2007. The seven-year project will add a new set of locks, while widening and deepening parts of the channel to double capacity.

The Panama Canal
Photo: Alberto Lowe, REUTERS

Companies such as New Brunswick’s CARIS are taking a role in the expansion of the so-called crossroads of the world–a stretch where 13,000 ships pass annually, representing 5 per cent of global trade.

Some 2,300 nautical miles away, in Fredericton, CARIS has won a contract to supply geospatial software to the canal authority to help the drivers, or “pilots,” find their way safely. Navigating the canal in a 70,000-ton freight ship through three locks and 80 narrow kilometres that connect the Atlantic Ocean with the Pacific requires the precision of a surgeon in good weather.

Imagine that during rainy season. Torrential downfalls from May to November can obliterate sight beyond 10m. The challenge is exacerbated these days because the canal is under expansion through to 2014.

“This is a major milestone for us,” said Alejandro Gerones, the company’s account manager for Latin America, who expects the partnership with the Panama Canal Authority will bolster business with existing clients in Mexico, Cuba, Barbados and the Dominican Republic, as well as help attract new clients.

Companies increasingly view Panama as a base for expansion across the Central American and Caribbean region–34 markets known as CAC. Last week, Export Development Canada opened an office in Panama City, a presence it hopes will strengthen trade between Canada and the whole region.

Another draw is Panama’s banking and services hub, where English is widely spoken. It also uses the U.S. dollar and hence isn’t subject to wild swings in inflation. Canadian exports to the region grew 10 per cent a year, on average, between 2001 and 2008, hitting $2.3 billion in 2008. The region will need to spend more than $40-billion on infrastructure in the next five years, EDC estimates.

The region “is a good growth story. It’s politically stable and a lot of progress has been made,” said Benoit Daignault, the EDC’s senior vice-president of business development. “The time is right to push into these markets.”

Top business opportunities relate to infrastructure such as water treatment, airport expansions and power, as well as mining, telecommunications and technology, he said. Tourism, consulting, processed foods and environmental projects are also expected to grow. Vancouver Airport Services now helps operate and manage the Lynden Pindling International Airport in Bahamas – now in expansion—along with six airports in the Dominican Republic and the one in Montego Bay, Jamaica.

Canadian companies with a presence in Panama include Bank of Nova Scotia, Ritchie Bros. Auctioneers Inc., Hatch Ltd. and Inmet Mining Corp. Top exports include car parts, pharmaceuticals, lentils and machinery – along with frozen French fries.

Grain growers, too, see it as a strategic spot. “Panama, while not a large country, is still a key market as it gives Canada a toehold in Central America,” said Doug Robertson, president of the Grain Growers of Canada.

The country itself, despite its small size, is also attracting interest because of its high growth rates. Its economy has been the fastest growing in Latin America in recent years, expanding by a blistering 9.2% in 2008, and activity tied to the canal’s expansion will further boost growth.

It’s increasingly a crowded field though. Canadians aren’t the only ones waking up to the region’s potential, and competition from other countries such as Italy, Spain, China and Brazil is heating up.

That’s also partly why the federal government is pushing ahead with plans for a free-trade agreement with Panama. Trade Minister Peter Van Loan tabled legislation last week to implement the agreement in the House of Commons.

It may seem a puzzling priority, given that trade is still so tiny with the country. But it’s part of a broader strategy to boost Canada’s presence in the region, he says. It comes as the government is in free-trade talks with the Dominican Republic and the “Central American Four” – El Salvador, Guatemala, Honduras and Nicaragua. It is also updating trade agreements with Chile and Costa Rica.

“Australia has worked very effectively in using its positioning in that part of the world to become free-trade leaders within Asia, creating a circle of influence. I think Canada has the potential to do the same in Latin America,” he said.

Panama’s pluses and minuses

THE OPPORTUNITIES

• Panama is Latin America’s fastest-growing economy.
• Canal expansion and spinoff projects will continue in the years ahead.
• Stable government, tame inflation, strong banking system.
• Popular base for companies wanting to expand in the region.
• Infrastructure spending in Panama and the region is expected to grow.

BUT BE AWARE

• On corruption, Panama compares unfavorably with other countries in the region.
• Global competition to enters these markets is heating up.
• Poverty rates are improving, but wealth distribution is one of the worst in the region.
• Ranks 77 of 183 countries in ease of doing business list this year.
• Judicial system is viewed by many business people as biased.

Sources: World Bank, Transparency International.

THE TRADE NUMBERS

• $82.3-million
  Value of Canadian exports to Panama from January to July of this year.
• $53.6-million
  Value of Canadian exports from January to July of last year.
• $47-million
  Value of imports from Panama from January to July of this year.
• $17.6-million
  Value of imports from Panama from January to July of last year.
• 1 million
  Number of ships that have transited the Panama Canal since it opened in 1914 (achieved earlier this month).

Source: Statistics Canada, Panama Canal Authority.