With a strategic geographical location, the Central American nation has the potential to develop different sectors that improve the Panamanian economy. This blog post describes what they could mean for the country’s growth.
The Panamanian economy needs diversification
In the last 15 years, 62% of Panama’s export basket has been concentrated in two sectors, a testament to the strength and potential of our transportation and travel sectors. These sectors, which accounted for 40% and 23% respectively in 2022, are the backbone of our economy, with the Panama Canal, the ports, and everything derived from it, and Copa Airlines’ ‘Hub of the Americas’ leading the way.
In 2022, Panama had 14% of copper exports; for 2024-2025, the estimates are different due to the closure of the copper mine managed by Minera Panamá, whose contract was declared unconstitutional in 2023. “We automatically had a kind of Brexit without any transition, turning off the switch and without acquiring the merits of having a mine in Panama,” highlighted Tomás Bermúdez, representative of the Inter-American Development Bank (IDB) during his speech at the Annual Conference of APEDE Executives in Panama.
“The Panamanian economy already has a series of advantages where we can move quickly. A sector that is promising but requires a lot of work is the connectivity sector. Panama has a privileged location and a critical logistics infrastructure,” added Bermúdez.
Panama has a strong infrastructure
The IDB executive highlighted that Panama’s infrastructure is a beacon of hope for our economic future. We have the Tocumen International Airport, which in 2023 transported more than 17.8 million passengers, the Panama Canal, seaports in the Atlantic and the Pacific, the Trans-Isthmus Railway that crosses the Isthmus, and the Pan-American Highway, which unites the entire country. This infrastructure, as he put it, is ‘the envy of the neighborhood,’ and it’s a clear sign of the opportunities that lie ahead for our logistics sector.
Having all this infrastructure gives the Isthmus and the Panamanian economy the possibility of taking advantage of the logistics sector as one of the pillars of the national economy.
Achieving this objective requires strategic investments from being a country that only transports ships and containers to taking advantage of all the infrastructure it already has. This financing would be focused on improving part of what already exists and taking advantage of creating new options that add value, such as the possibility of developing a dry canal.
The governance of the logistics sector must be included, which must be improved in all aspects, and a plan should be proposed so that it lasts for more than 15 years on the infrastructure and competitive base that it already has, as analyzed.
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Better water resource management is required
Another relevant aspect regarding the logistics development of the Panamanian economy is the care of water resources. For Bermudez, it has become a systemic risk for the country and requires better management. Today, different institutions manage water use, whether for the Canal or human consumption, “there must be efficient planning for the management of the 52 water basins that applies in the much longer term,” he added.
Improving and diversifying the energy matrix are other vital pillars for logistics development in the Panamanian economy. Energy consumption by source for 2021 was divided as follows: oil 50%, renewable energy 20%, coal 14%, natural gas 12%, and firewood 4%. Panama is one of Central America’s main countries, consuming a high percentage of fossil fuels.
A relevant fact is that this country can become an energy ‘ hub. ‘ Currently, ships transporting different energy alternatives pass through the Panama Canal but must take advantage of them. This is in addition to gas plants installed recently, which should be a storage opportunity. This is related to energy issues, as green hydrogen must also be used.
Tourism has significant potential
Another engine of growth is tourism; in 2022, this sector had participation of 15.8% in the Panamanian economy’s GDP and 17% in employment at the national level. Panama received two million international tourists for the same year, a figure higher than that registered in the pre-pandemic period, which was 1.7 million.
On the other hand, it is necessary to diversify the tourism offer, said the IDB executive. 58.5% of hotel rooms and 49.4% of accommodation investments are concentrated in the capital. However, 80% of the tourist attractions are inside the country. Due to this last figure, there is a need to push the strength of this sector towards the other provinces and train collaborators to sell the offer and obtain essential investments.
Another sector with immense potential for the Panamanian economy is agriculture, which represented 2.6% of the national GDP between 2010 and 2022; however, in the provinces, it is essential. For Darién, for example, it represents one-third of its GDP; in Bocas del Toro, it is one-fourth, and in Los Santos, it is one-fifth. Agriculture contributes 16% of GDP to employment at the national level of the Panamanian economy.
The investment must be made in the unique assets needed to capitalize on access to the international market, such as health, irrigation, and innovation for agriculture. This pending task becomes essential for the country to develop this growth engine.
In conclusion, the Panamanian economy stands at a crossroads where strategic investments and focused development can significantly enhance its growth trajectory. With its strategic geographical location and robust logistical infrastructure, Panama has the potential to transform its connectivity and logistics sectors into central economic pillars. However, this requires careful governance, sustainable water resource management, and energy matrix diversification. Additionally, bolstering tourism beyond the capital and investing in agriculture can further diversify the Panamanian economy, creating more inclusive and sustainable growth. The Panamanian economy can achieve a more resilient and prosperous future by capitalizing on these opportunities.
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