Two ships go through the Miraflores locks on the Pacific side of the Panama Canal, which raise or lower vessels 16.5 metres and take 40 minutes to pass through. Credit: Iralís Fragiel/IPS

By Iralís Fragiel
PANAMA CITY, Mar 4 2016 (IPS)

When the new locks of the expanded Panama Canal begin operations, they will do so amidst numerous challenges, because of the storm clouds hanging over the global economy, especially China. But local authorities and experts are not worried about the possible impact on the expanded canal.

The slowdown in the Chinese economy, the second largest client of the Panama Canal, transporting 48.42 million tons in 2015, is one of the factors causing concern regarding this motor of the Panamanian economy, which last grew six percent, the highest rate in Latin America.

But the start of operations of the expanded canal, due in May or June, does not worry Luis Ferreira, spokesman for the Panama Canal Authority (ACP), an autonomous government agency.“When there were economic problems in the past, we would lose basically two to three percent of the cargo; the same thing might happen this time, but we don’t expect a substantial decrease, unless there is an all-out recession in China.” – Luis Ferreira

“When there were economic problems in the past, we would lose basically two to three percent of the cargo; the same thing might happen this time, but we don’t expect a substantial decrease, unless there is an all-out recession in China,” he said in an interview with IPS.

In 2015, China’s GDP grew 6.9 percent, compared to 7.3 percent in 2014, confirming the slowdown after years of double-digit growth.

The expansion of the 80-km canal, which turned 100 years old in 2014 and which handles approximately five percent of global trade, involved an investment of 5.25 billion dollars. Work began on Sep. 3, 2007.

With this megaproject, carried out by Grupo Unidos por el Canal (GUPC), the consortium led by Spanish construction firm Sacyr, Panama hopes to increase daily ship traffic from 35- 40 to 48-51.

The canal will also be able to accommodate larger vessels. Currently, it can only handle ships with a cargo capacity of up to 5,000 tons, but once the expansion is complete New Panamax vessels with a capacity of up to 13,000 tons will be able to go through the canal.

For Panama’s productive sectors, the expansion of the canal holds out the promise of economic growth.

The ACP’s team of experts in foreign trade told IPS that the weakening of the global economy in 2015 did not affect the canal, and that no impact is expected this year either.

“The volumes of raw materials heading for China for industrial use, such as coal and iron ore, are not significant (for the canal), since there are closer sources in Australia and Brazil, which do not use the waterway,” the ACP experts stated in their collective response to IPS.

Meanwhile, the volumes of grains, especially soy, grew at a strong pace in the last few years, due to the rising demand for food in China.

The experts also said the expansion “will open up new opportunities for trade flows of non-traditional products, such as liquefied natural gas, and will offer economies of scale that will make the Panama Canal route more attractive for segments such as container vessels and dry bulk cargo ships.”

The new locks in Cocolí, on the Pacific Ocean, have 16 rolling gates. Each chamber is 427 metres long by 55 metres wide and 18.3 metres deep. The expanded Panama Canal will be able to handle New Panamax vessels with a capacity of up to 13,000 tons, up from the current 5,000 ton limit. Credit: Iralís Fragiel/IPS

Cargo tonnage by origin and destination has remained steady over the last three years, according to the ACP. The United States remains the largest client of the canal, with a total cargo of 160.78 million tons in 2015.

The cargo traded between the two leading clients reflects this stability. From China to the United States, 10.37 million tons were shipped through the canal in 2013, 10.96 million in 2014 and 10.91 million in 2015. And from the United States to China, 24.95 million tons were shipped in 2013, 30.77 million in 2014 and 30.20 million in 2015.

Given the economic outlook in China and changes in the energy sources used, the ACP is also getting ready for traffic of liquefied natural gas carriers.

“An incursion into new areas of business that reinforce the transportation and logistics industries is being evaluated, such as the case of the Corozal port and the creation of a logistics park that would complement the operations of the expanded canal,” the ACP experts said.

Canal revenue totaled 2.6 billion dollars in 2015, up from 2.5 billion in 2014, and equivalent to 5.61 percent of the country’s GDP.

Jordi Prat at the Interamerican Development Bank (IDB) told IPS that Panama has “a positive economic outlook but not without risks.” And in the case of the canal, the United States, which it depends on most, “is growing at a relatively strong pace,” although the vulnerability could increase if the situation in China continues to go downhill.

Prat, the IDB’s principal regional economist for Central America, said the challenge faced by this country is keeping the growth rate between six and eight percent a year, and preventing a decline in maritime trade flows, fuelled by other sources of growth.

Prat pointed out that between 2000 and 2014, the sectors that grew the most in Panama were construction (37 percent), transportation and logistics (22 percent), finance (15 percent) and public services (12 percent).

Besides the economic variables, inclusion is key to development in this Central American nation of four million people, he said.

Panama managed to reduce the poverty level from 38.3 to 25.8 percent, between 2006 and 2014, said Prat. However, inequality is reflected by the fact that 86.9 percent of the population in autonomously governed indigenous “comarcas” or counties is poor.

The IDB economist said Panama should move towards “inclusive growth, by fomenting human capital, education, and access to health and basic services, in order to boost productivity, which has not increased significantly in recent times.”

Analyst Rodrigo Noriega concurs with Prat that Panama has to seriously focus on education, training and scientific research, to bolster development.

“That is where we are limping, in education, and in corruption – these are issues that in the long term definitely hurt the Panamanian economy,” said Noriega.

He said the economy may see growth slow down in 2016 and 2017, due to external factors and the impact of the drought caused by the El El Niño-Southern Oscillation (ENSO), a cyclical climate phenomenon that affects weather patterns around the world.

“These external factors could be reducing Panama’s GDP by 2.0 to 2.5 percent a year. What I’m saying is GDP could be growing between 7.5 and 8.0 percent, instead of the current 5.0 to 5.5 percent,” he said.

But he stressed that a project such as the expansion of the canal is not something that is undertaken with a short-term view, but to address the needs of the country over the next 30 to 50 years.

“There will be two slow years, but that is actually a good thing for us because right now we have a water shortage problem. It’s best if the ship traffic isn’t so heavy, because we need to recover in terms of water supply and take baby steps to learn to handle the larger vessels,” said Noriega.

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes

The United Arab Emirates foreign minister, Sheikh Abdullah bin Zayed Al Nahyan, and the vice president and foreign minister of Panama, Isabel de Saint Malo, smile as they sign an agreement for the creation of a Joint Cooperation Committee, at the end of their meeting in the Panamanian capital on Thursday Feb. 11. Credit: Guillermo Machado/IPS

By Iralís Fragiel
PANAMA CITY, Feb 11 2016 (IPS)

The visit by the United Arab Emirates foreign minister, Sheikh Abdullah bin Zayed Al Nahyan, to Panama ended Thursday Feb. 11 with the creation of a novel Joint Cooperation Committee on trade and investment.

The committee will serve as “the legal base for launching joint investment projects, including the participation of Emirati companies in the public tenders of this government’s five-year investment plan, especially in the areas of energy and shipping cooperation,” said the vice president and foreign minister of Panama, Isabel de Saint Malo.

Al Nahyan said the UAE is interested in getting involved in areas of common interest, such as banking, logistics, energy, airports and infrastructure.

In a joint press conference, the Emirati minister added that his country is not only interested in studying initiatives to carry out in Panama, but in pushing ahead with projects that would reach out to other markets from this Central American country.

As stated during the meeting, the new committee “will promote and coordinate programmes on the political, economic, trade, cultural, judicial, security, social, environment, tourism, technology and humanitarian aid fronts and in other areas of interest” to the two countries.

On Thursday Feb. 11, the Emirati minister visited Panama as part of a Latin America tour that took him to Argentina and Colombia and ends Friday Feb. 12 in Costa Rica.

Prior to the signing of the accord creating the committee, the two ministers held a private meeting in Panama’s foreign ministry, before presiding over a meeting with their delegations.

The UAE’s decision to open an embassy in Panama in 2017 was confirmed in the meetings, while this country will upgrade its consulate in the Gulf nation to embassy.

Al Nahyan’s visit was preceded, in November 2014, by a trip by Saint Malolto the UAE capital, Abu Dhabi, where she was received by Sheikh Mohamed bin Zayed Al Nahyan, crown prince of Abu Dhabi and commander of the UAE armed forces, and where ties between the two countries were strengthened.

That same year, negotiations began on three bilateral agreements: the elimination of the visa requirement, investment protection and aviation.

In this last area, an agreement was reached to create a direct flight between the Panamanian capital and the Emirati city of Dubai.

The Emirates airline route will begin to operate on Mar. 31 and is the longest in the world – nearly 18 hours, the company reported. Panama will be the first Central American country with a flight to Dubai, where the Emirates is the largest airline hub in the Middle East, with connections to Africa, Asia and Europe.

According to a statement by Panama’s foreign ministry, the air link between the two countries is important because “it opens the doors to innumerable economic, trade and cultural opportunities…and lays the foundation for the possible establishment of the headquarters of multinational companies.”

Win-win alliance

Vice President Saint Malo said there are important similarities between Panama and the UAE, especially in logistics and the shipping business, in foreign direct investment, and as countries that promote peace and stability.

“With the opening of the two embassies, not only will these projects quickly take shape, but it makes us gateways to Latin America and the Middle East, respectively,” she said.

Lawyer and international consultant Rodrigo Noriega also welcomed the boosting of relations between this Central American country and the rich Gulf nation, although he noted that the benefits will not be seen in the short term.

“This visit is very productive and strengthens Panama’s reputation as an open country that is not xenophobic and is not anti-Muslim,” he told IPS.

The expert described it as a “win-win” relationship, but one that will begin to give fruit in five, 10 or 20 years.

“We are taking the first steps towards interregional diplomacy with a bloc of countries with which we have not normally had ties,” he said.

In his view, the fact that the UAE is looking to Panama “indicates that there are questions of common interest, such as the expansion of the canal and of the Tocumen international airport, the logistics hub, the dollarised economy and the Colon free zone.”

“They see possibilities for investment and see us as a platform for their products and services, as a strategic ally in the region,” Noriega said.

Saint Malo took advantage of the meeting to present to her guest the Regional Logistics Centre for Humanitarian Assistance in Panama, an initiative “that benefits all of Latin America and the Caribbean and is aimed at addressing the effects of climate change.”

As her office stated, the logistics centre brings together the emergency operations of different agencies in one single location, at the Panama Pacific International Airport, some 20 minutes from the capital.

Al Nahyan, meanwhile, stressed that the UAE’s hub offers aid to Southeast Asia and Africa, among other regions, and that its experience could support Panama’s hub. “Our experts will be exchanging ideas and will provide support for the third phase of this Panamanian initiative,” he said.

Noriega said Panama could take into account successful aspects of the UAE, such as its great experience as a logistics, financial and energy hub, as well as its heavy spending on education.

“They have sent their people to study at the best universities in the world. Universities like Massachusetts, Harvard and Cambridge have campuses in the Emirates, because they want to stop being a country that only produces raw materials, like oil, to become a producer of knowledge,” the analyst said.

Noriega said Panama must stop thinking only as an “exporter of water through the canal” and start thinking as “a country that produces knowledge,” a lesson in which it has a lot to learn from the UAE, which the world has stopped seeing as a mere oil exporter.

New energy mix

Another important issue discussed in the bilateral dialogue was energy.

In response to a question from IPS in the press conference, the vice president said that with respect to energy, the delegations discussed the shared aim of diversifying the energy mix and boosting the production of clean energy, to explore areas of cooperation in the future.

Al Nahyan, for his part, said there are international initiatives in which Panama and the UAE could participate, that move away from the traditional development of oil and gas.

Edited by Estrella Gutiérrez/Translated by Stephanie Wildes