Now that the widened Canal has reopened, the economic benefits will be seen as falling well short of what had been expected. There are several adverse trends to be considered. Nonetheless, Panama will continue to be one of the fastest growing countries in the Americas.
Late last month the Cosco Shipping Panama, 300 meters long and 48.2 meters wide, became the first big ship to officially traverse Panama via a widened and reopened Canal. Panama spent a cool USD 5.3 billion to build bigger locks and access channels in order to accommodate some of the biggest vessels built these days. The undertaking took nine years to complete and now the Canal can accommodate ships large enough to carry 14,000 containers, compared with around 5,000 previously. This more than doubled the capacity of a facility that has been handling about one-third of the Asia-to-Americas trade and the idea, of course, was to make the 102-year old waterway more competitive with other trade routes and earn Panama more money.
Things may not quite work out that way. For one thing, global trade has generally slowed and there is no telling yet when it will pick up again. Growth for container shipping lines has almost ground to a halt after years of breakneck expansion and many lines are struggling with a surfeit of ships. When vessels are easily available and thus less expensive, there is less pressure to take the shortest and fastest route, especially when the ships’ fuel is also relatively cheap. So, the question arises to what extent strapped ship-owners will be prepared to fork over the USD 600,000-USD 800,000 typically charged for the transit of a big, modern vessel. The Suez Canal has just cut tolls by up to 65% for some transits, including routes from Asia to the US East Coast, clearly to compete more aggressively with the “new” Panama Canal.
Furthermore, the bigger vessels are supposed to capitalize on a surge in US natural gas output and the interest in new markets, including China, Japan, South Korea and India. Considering the extent to which world market prices of gas have fallen, though, this is not, for now, apt to be a source of growth. Then, too, one has to consider that only some US East Coast ports are ready to accommodate much bigger ships, among them Miami, Norfolk and Baltimore. Many lack the necessary infrastructure such as docking space and cranes and others are not even accessible. At the port of New York and New Jersey, for instance, the three largest terminals are currently blocked by the Bayonne Bridge, which is in the process of being raised at a cost of more than USD 1.3 billion.
All told, upwards of USD 155 billion is to be invested by 2020 to enlarge US ports so that they can handle bigger ships, but these are projects that will take time to complete. Railroads picking up goods in Western ports and then transporting them Eastward are likely to cut prices to maintain their market share and quite a few analysts have been warning that the Panama Canal will find it difficult to match or exceed the best year for container traffic it enjoyed to date, the year through September 2007, when 3,600 ships carrying the equivalent of 12.6 million 20-foot containers passed through. Reasonably certain is now only that the planned rival waterway in Nicaragua, for which Managua in June 2013 granted Chinese billionaire Wang Jing rights, will not be built or, if constructed against all expectations, could never be profitable.
As for Panama, it may not like its reputation as a financial center for tax evasion and money laundering, but it will have a difficult time getting rid of this reputation, especially after the document leak earlier this year, known as “The Panama Papers,” which revealed much on the secret financial dealings of the globe’s rich and powerful, from British members of parliament to Putin. Laws passed last year, to be implemented in the next two years, impose much tougher reporting requirements on financial institutions as well as law firms and free-trade zones and this may help, but the country’s use of the US dollar as its currency, its offshore banking center, its status as a hub for international shipping and its geographic location straddling key drug trafficking routes all mean that the OECD nations will keep up their pressure on Panama.
Just the same, Panama will continue to be one of the fastest growing countries in the Americas and the service sector with its insurance, finance and legal arms as well as its flagship registry will continue to account for some four-fifths of the entire economy. The real GDP expansion in the first quarter of 2016 was 4.6%, year-on-year, still impressive by regional standards although down from an annual average that, partly thanks to the work on the Canal, reached 8.07% between 2010 and 2016 and hit a high point of 12.2% in the second quarter of 2011. Unemployment is at a low 2.5% -- if anything, there is a shortage of skilled workers. And inflation is virtually nonexistent, clocked at just 0.3% in May. (7/11/16)