Panama was already beginning to integrate into a semiconductor production network alongside seven other countries. However, sudden shifts in U.S. trade policy under Donald Trump’s new presidency have raised doubts about this program’s implementation speed.
This blog post examines Panama’s present and industrial future amid uncertain investments, growing opportunities, and nearshoring as the global economy adapts to a new framework organized into trade blocs.
Value
Panama’s industrial sector is a vital component of the national economy, accounting for nearly one-third of the gross domestic product (GDP) when including construction.
A significant part of the national industry is agro-industrial production, which integrates manufacturing with agriculture. One of Panama’s main agro-industrial products is sugar. It is estimated that Panama produces more than 150,000 metric tons of sugar per year—equivalent to the weight of over 13,000 “diablos rojos” buses in sugar annually.
On the other hand, the manufacturing subsector has experienced a significant decline relative to the overall economy, contributing 5% of GDP in recent years compared to nearly 20% in 1970. Today, this subsector includes cement, beverages, and processed foods.
The industrial sector also includes electricity generation. Panama has an installed capacity of over 4,200 MW, which covers local demand and generates a small surplus that can be traded within the region.
However, despite this internal diversification, the industrial future of Panama depends on imports, and the sourcing of equipment and software from abroad. It is estimated that more than two-thirds of the goods consumed by the Panamanian industry for operation are imported.
Employment
Last year, approximately one-sixth of the country’s workforce, around 300,000 people, was employed in the industrial sector. The average compensation for skilled industrial workers ranges between $10,000 and $11,000 annually, but the exact figure depends on the subsector. In construction, an experienced worker can earn more than $15,000 annually.
As a stable source of middle-income jobs, the future expansion of industrial employment could be key to halting the severe loss of formal jobs in the country, where the informal employment rate hovers around 50%. Strengthening the industrial future of Panama will be essential in addressing these employment challenges.
Strengths
A solid industrial base enhances economic stability by reducing dependence on imports. This is particularly advantageous in times of global instability.
Moreover, developing a robust manufacturing sector promotes skill acquisition among the population, leading to higher productivity and overall wage growth.
Government assessments have identified the regions around David and Las Tablas as potential industrial hubs, particularly in agro-industry, but promises have outpaced actual investments.
Given the country’s size and population, establishing just three significant industrial investments in strategic locations could significantly increase employment and GDP, addressing several economic challenges, such as the high cost of living and declining competitiveness.
Nearshoring
Nearshoring, in simple terms, refers to the relocation of supplier companies to the Americas from China, Asia in general, India, and, in some cases, Europe. The goal is to simplify international supply chains and reduce risks caused by global uncertainty.
Panama was already beginning to integrate into a semiconductor production network alongside seven other countries. However, sudden shifts in U.S. trade policy under Donald Trump’s new presidency have raised doubts about this program’s implementation speed.
Due to this uncertainty, the country must proactively identify and attract international industrial investments from Europe and Southeast Asia to compensate for any delays in the U.S. plans to restructure its supply chain.
Nevertheless, Panama already possesses an undeniable advantage: the U.S. dollar.
Using this currency eliminates exchange rate risk, making it easier for industrial subsidiaries to relocate to Panama and integrate their financial operations with their U.S. headquarters.
However, the same investment barriers persist. According to the three leading credit rating agencies—Moody’s, S&P Global, and Fitch—these barriers include governance issues, fiscal instability, and a lack of long-term financial planning.
International investors seek to strengthen the rule of law in the country through improvements to the judicial system. This, along with a demonstration of regulatory stability, would facilitate the attraction of foreign direct investment, strengthening the industrial future of Panama.
Export
For decades, the National Government has implemented policies to encourage the development of local export-oriented industries, but the results have been mixed.
The coffee agro-industrial sector, however, took a proactive approach and sought new markets globally, achieving historic sales and elevating Panama’s reputation and prestige. Subsequently, the National Government offered additional incentives that facilitated this development.
Based on this experience, an effective strategy to drive industrial growth for export purposes would be offering economic incentives to private sector players outside government agencies who successfully open new markets for existing or developing Panamanian industries.
Such a strategy could promote commercial expansion under private sector leadership rather than keeping it tied to the bureaucratic processes of official trade missions and lengthy customs authorizations.
Steps Forward
According to studies by the International Monetary Fund, Panama will need to strengthen its legal and fiscal stability, maintain its investment pace in its logistics network to support manufacturing exports, and invest in new energy sources to sustain additional productivity to expand its industrial sector beyond construction.
The domestic development of new industries, the expansion of existing ones, or the establishment of operations in Panama by foreign companies would have the dual advantage of increasing formal employment and developing workforce capabilities for future activities.
For all these reasons, the industrial future of Panama holds significant potential that the country could leverage, alongside its geographic location, to build a resilient and competitive productive base for the 21st century.
If a well-planned industrial policy is implemented, an additional 1% increase in the industrial GDP in the medium term could eventually contribute between $600 million and $800 million annually, improving wages, formal employment, and export competitiveness.