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PRIMARY GROWTH
SECTORS
Panama's economy
is based primarily on a well-developed services sector that accounts
for 70 percent of GDP. Services include the Panama Canal, banking, insurance,
government, the Colon Free Zone, and the transisthmian oil pipeline.
Manufacturing, mining, utilities, and construction together account
for 19.5 percent of GDP. Manufacturing is principally geared to production
of items such as processed foods, clothing, chemical products, and construction
materials for the domestic market. Agriculture, forestry and fisheries
account for the remaining 10.5 percent of GDP. Principal primary products
include bananas, shrimp, sugar, coffee, meat, dairy products, tropical
fruits, rice, corn, and beans. The sectors of the Panamanian economy
with the greatest potential for substantial growth are mining, tourism
and maritime services.
Agriculture
livestock, forestry, fisheries and mining grew 3.9 percent in 1994.
Agricultural production declined 1.1 percent; value added in banana
production increased 6.0 percent. A fall in Honduran banana production
favored Panamanian bananas. Despite this increase, prospects for growth
remain bleak as import restriction enacted by the European Union have
diminished exports to that traditional Panamanian market and flooded
other markets with cheap produce. Bananas remain Panama's primary agricultural
product and merchandise export, accounting for 45 percent of agricultural
value-added. Exports of non-traditional products, especially melons,
have increased substantially in percentage terms, and continue to show
significant potential for growth. Production is, however, on a small
scale and suffers from lack of significant capital investment.
Mining
This sector has the potential for substantial growth, too. Panama has
large copper reserves and boasts two of the largest undeveloped copper
deposits in the world. Other minerals with commercial potential are
gold, silver, and manganese. During 1995 an abandoned gold mine in the
Veraguas province was returned to service using new leaching technology.
Mining investments in Panama are aided by a favorable mining law, drafted
in 1988, which encourages participation by foreign investors.
Manufacturing
and Construction
Geared largely for domestic consumption, manufacturing activity is concentrated
in the production of food products, beverages, construction materials,
clothing, consumer products, and intermediate goods. Panamaūs manufacturing
industry, which has been protected by decades of high tariffs and fiscal
incentives, is not competitive in the international marketplace. Production
of food products and beverages accounted for 70 percent of 1994 value
added in manufacturing. Overall manufacturing output increased by 4.5
percent in 1994, paced by continuing demand for construction materials.
Construction activity grew 6.5 percent in 1994, down from 32 percent
in 1993 and 56 percent growth in 1992. The rate of growth of new construction
permits issued in the Panama City area in the first quarter of 1995
was substantially down from 1994, but continues to show some growth.
Continuing demand for construction materials will stimulate manufacturing
output, especially of cement, steel rebar, concrete block, and related
products.
Banking and
Finance
Panama's international banking center consists of 108 banks, of which
62 are general license banks, 30 are international license (offshore)
banks, and 16 are representative offices. Two of the general license
banks -- the National Bank of Panama and the National Savings Bank --
are government-owned. U.S. banks with a presence in Panama include Citibank,
Chase Manhattan, and First National Bank of Boston. Total banking center
deposits increased by US$ 4.8 billion (22.4 percent) to US$ 26 billion
in December 1994 from December 1993; external deposits increased by
US$ 3.5 billion, internal deposits by US$ 1.2 billion. Total assets
expanded by US$ 6.7 billion (25.8 percent) to US$ 32.8 billion; external
loans increased by US$ 2.4 billion (24 percent) and domestic lending
expanded by US$ 616 million (10 percent). Lending to the private sector
increased by US$ 697 million. The largest increases in private sector
lending went to finance commerce (US$ 308 million), consumer spending
(US$ 108 million) and housing (US$ 151 million). Total assets of Panama's
offshore banks increased by US$ 1.57 billion (33 percent) as both deposits
and loan portfolios increased. In the first three months of 1995, total
assets of the banking center increased by an additional US$ 208 million.
Panama Canal Panama Canal business rose in calendar year 1994 compared
to 1993. Oceangoing transits increased 2.6 percent to 12,671 or 34.7
vessels daily, and Panama Canal net tonnage, on which tolls are assessed,
jumped 7.9 percent. Toll revenue rose 3.1 percent to US$ 425. During
the first five months of 1995, oceangoing transits increased 11 percent
and toll revenue was up by 12.1 percent relative to the same period
of 1994, reflecting economic recovery in Japan and Europe and strong
demand for U.S. grain in Asia. The outlook for 1995 is for continued
strong growth with more moderate growth (1-3 percent) in both tonnage
and toll revenue projected for 1996. Work on expanding the canalūs capacity
by widening the Gaillard cut to two lanes continues.
Oil Pipeline
Panama's transisthmian oil pipeline (PTP-Petroterminales de Panama,
S.A.) is a joint U.S. - Panama venture. Forty percent is owned by the
Government of Panama while 60% is owned by two U.S. companies (Chicago
Bridge and Northville Terminals). Pipeline revenues declined 8.7 percent
in 1994 after declining 46 percent in 1993; its contribution to real
GDP fell to 0.7 percent in 1994 from 3.0 percent in 1990. Declining
revenues from declining usage of the pipeline reflect a decrease in
Alaskan oil production, an increase in consumption of Alaskan oil in
California and some competition from U.S. pipelines. The outlook for
1995 and beyond is for further decline as the U.S. Congress recently
rescinded the ban on the export of Alaskan crude, allowing exports to
Japan and the far east. At present PTP is operating at only 10 percent
of capacity. PTP is devising a survival strategy based on diversification
into other activities. In June 1995, PTP signed a contract with the
Government of Panama allowing it to expand the pipeline's terminal ports
at Chiriqui Grande on the Caribbean and Puerto Armuelles on the Pacific
into general cargo ports. PTP has had some success in obtaining spot
contracts to pump Ecuadoran crude across the isthmus for export to the
U.S. Gulf coast. PTP also uses its installed generating capacity to
sell electricity to IRHE, the Panamanian electricity utility.
Colon Free Trade
Zone
Established in 1948, at the Atlantic entrance to the Panama Canal, the
Colon Free Zone (CFZ) is the largest of its kind in Latin America and
rivals Hong Kong in overall activity. Laundering of cocaine profits,
drug trafficking and piracy of intellectual property are major problems
in the CFZ. Total imports to the CFZ reached US$ 5.0 billion in 1994,
an increase of 11.5 percent over 1993; total re-exports climbed 11.8
percent to US$ 5.7 billion, up from US$ 5.11 billion in 1993. CFZ trade
continued to grow during the first three months of 1995, though political
wrangling over a tax increase brought a downturn in re-exports during
April. Despite this one month downturn, CFZ trade will likely continue
to show solid growth during 1995 as it has already made many of the
adjustments necessary to deal with market liberalization in Latin America.
U.S. exports to the Colon Free Zone totaled approximately US$ 370 million
in 1994. CFZ data for the first four months of 1995 show imports of
US$ 1.65 billion and re-exports of US$ 1.83 billion, an increase of
15.9 percent over imports during the same period of 1994 and no increase
in exports over the same period of 1994. Net CFZ contributions to the
Panamanian economy (re-exports less imports) increased to US$ 686.5
million in 1994 from US$ 611 million in 1993 (net CFZ shipments reflect
movements in exchange rates and inventories as well as market conditions).
The CFZ's contribution to real GDP increased to 9.2 percent in 1994
from 8.6 percent in 1993. Itūs contribution to GDP is expected to remain
stable in 1995.
Commerce and
Tourism
Commerce and tourism, which include restaurants, hotels, and wholesale
and retail activities, grew 3.4 percent in 1994. Increases in personal
consumption were reflected in brisk sales by retail businesses, which
were up 5.2 percent. Income from tourist expenditures rose 6.8 percent
to US$ 240 million, although the number of tourists dropped slightly
to 325,000. The tourism industry in Panama has substantial growth potential;
however, a lack of investment in infrastructure and poor marketing have
hampered its development. In 1994, the National Assembly passed a law
granting incentives (primarily tax exemptions and long leaseholds) to
new investment in tourism.
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