Panama: Rise in regional trade brings new opportunities
With work to expand the Panama Canal’s capacity taking shape, the economy, especially its growing retail sector, is already benefiting from an increase in the flow of goods. The purchasing power of Panama’s 3.57m consumers continues to increase, mirroring the recent dramatic rise in GDP. However, international retailers’ primary interest is the potential that Panama offers as a logistics and distribution centre for the wider Latin American market.
The construction of the canal gave Panama, which had long served as a bridge between North and South America, the opportunity to carve a niche as a regional trade hub across the globe. The country is also exploring ways of using its strategic position to build growth in new segments, such as the value-added logistics services industry.
Panama’s Colon Free Zone has proved to be a key attraction for retail manufacturers and distributors looking to make the country a regional hub for their operations. The area, which is second in size only to Hong Kong’s international free zone, already acts as an important trans-shipment point for consumer products.
The dollarised economy, stable political environment, and tax and fiscal incentives have all helped Panama attract new international players to its shores. Retail companies make up many of the 100-plus foreign firms that have established regional headquarters in Panama. Consumer electronics, textiles and machinery feature strongly, with the list including global names such as Adidas, Hewlett-Packard, Caterpillar and L’Oréal.
US-based retailers, in particular, have shown a keen interest in establishing or expanding operations in Panama. A recent poll taken by the Retailer Industry Leaders Association (RILA) in America found that 58% of US-based retailers were considering either expanding or establishing operations in Latin America over the next five years. The data also showed that 59% of its retailers had supply chains that included distribution to and from Latin America.
While many international retailers are attracted to Panama because of its strategic location, the US Commercial Service has also pointed to the opportunities that the domestic market offers, despite its diminutive size. In its Doing Business in Panama 2012 report, the service highlighted the consumer attitudes and brand preferences that the two countries shared, together with the positive reputation US manufacturers enjoyed across the region.
Nelson Cabrera, director of Miami-based logistics firm Lilly Associates, recently told the local press that while Panama’s role in shipping goods from the US was pivotal, the country offered several additional attractions for US retailers, such as cheaper freight rates, an open and efficient Customs department and significantly lower wages.
Experts also suggest Panama is well positioned to expand its yet-to-be-developed manufacturing industry to include value-added assembly, packaging and labelling of retail products. A value-added logistics services industry could add between $600m and $1bn, according to estimates from Panama’s Agency for Investment and Export Promotion (Proinvex).
Last August, the first such value-added project within the fashion industry was launched after Panamanian firm Exclusive Brands Logistics Corporation (EBL Corp) signed a partnership with Damco Panama, the logistics arm of the AP Moller-Maersk Group. The collaboration will see a fashion hub created to handle 35,000 cubic metres of goods per year that will also carry out value-added services such as packaging and labelling.
Under the partnership, Damco will focus on transportation and international supply chain management, while EBL Corp will handle value-added logistics. EBL’s managing director, Alfredo Maduro, told the local press that logistical and value-added manufacturing set-ups had the added benefit of enabling managers and clients to concentrate on purchasing and sales.
Panama’s bid to expand its role as a regional hub is opportune in that it coincides with an increase in trade to and from Latin America. International firms headquartered in North America, Europe and Asia will also be aware that a move to establish a logistics and final-assembly base in Panama means shifting the decision-making process closer to their operations, facilitating quicker reactions to changes in the marketplace.