As World Trade Slows, Canal Offers a New Strategic Approach
Business headlines over the past two weeks have focused on the pros and cons of the Corozal container terminal on the southeast shore of the Panama Canal, a project promoted by the Panama Canal Authority (ACP). Corozal is already in the pre-contracting phase (four international firms have shown interest). Its estimated cost is about $1.35 billion over three years. ACP has hinted that, once the expansion of the Canal was complete, new investments should be undertaken to improve the Canal cluster’s competitiveness. A roll-on roll-off terminal, a logistics center and a liquefied natural gas plant, all in the preliminary stages, are in the pipeline for the next two to four years.
The current controversy centers around the possible legal and constitutional constraints of ACP’s undertaking projects unrelated to the waterway (a skepticism we do not share). Some adversaries of the Corozal project agree with the arguments set forth by existing port operators in the Pacific, that there is no market for new capacity on that side of the Canal (although the evidence contradicts this). Nonetheless, the analysis of the economic and social benefits and costs of Corozal, as well as details of its financing structure, are not known yet, in contrast with the transparency of the Canal expansion referendum. There is no need for a referendum about Corozal or the other projects.
The economy showing no signs of acceleration. Recent adjustments by international agencies and the MEF suggest that projections for 6% growth for 2016 will not be achieved. We consider even the reduced 5.2% to 5.4% growth target range optimistic. The first full year of operations of the expanded Canal, mining and a larger public investment program could all lead to stronger growth performance in 2017.
The government on October 28th signed the OECD Convention on Multilateral Administrative Assistance in Tax Matters, a step toward complying with transparency standards. Although the international community has praised this step, we don’t expect the signing to change the likely negative outcome of the Global Forum’s peer review on November 2nd through 4th in Tbilisi, Georgia. Some local lawyers engaged in international corporate registration argue that this initiative for more transparency will hurt the competitiveness of Panama’s financial system. We disagree.
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