beyondbrics

Somebody forgot to tell Panama about the eurozone crisis. While the rest of the world is slowing, its economy is set to expand by 10 per cent this year and 7.5 per cent next. And those are real figures, as Finance Minister Frank de Lima told beyondbrics. In the nominal terms most people use, those numbers hit the teens. Few countries, perhaps none, can match that.

The canal is responsible for most of this growth. Indeed, since the country took it over in 1999, Panama’s economy has tripled in size. That remarkable performance is because Panama runs the canal more efficiently and more commercially than the US ever did. Partly it is because of the canal’s $5bn expansion plan, which began last year with heavy investment kicking in this year. And partly it is because Panama, which handles some 40 per cent of the traffic between East Asia and the America’s eastern coasts, has benefited tremendously from the rise of Chinese trade.

Over the past decade, tiny Panama, with its $30bn economy, has indeed provided an equity style option on the rise in south-south trade – and looks as though it is continuing to do so. Indeed, de Lima reckons that canal shipping volumes have risen 2 per cent this year, despite the eurozone crisis. That may be because trade with Europe figures so little in the ships that pass through the canal. “We pay more attention to what is going on in Asia than in Europe,” as he says.

If this bonanza continues, a country once best known for its shabby dictators and offshore banks may suffer an embarrassment of riches. The government reckons its take from the canal will rise to $5bn a year by 2025, from $1bn now. It is even creating a sovereign wealth fund to squirrel away surplus revenues, in the same way that Singapore – a similar high-rise logistic hubs in the tropics – has done. That doesn’t mean the country, with a per capita GDP of $8,000, will hit rich-world status soon. Still, a country whose banks meant it was once called the poor man’s Switzerland looks well-placed to become a poor man’s Singapore instead.

Related reading:
A Singapore for Central America?, Economist