The small isthmus of Panama has a fascinating history, with the forging of the Panama canal being one of the world’s greatest engineering feats. The canal has resulted in Panama becoming a vital cog in the global supply chain, with approximately 5% of world trade passing through its locks. Growth in revenues from the canal have provided support for Panama’s economy, enabling it to be the fastest growing in the whole of the Americas last year. This should continue as a $5.25bn canal expansion project is underway that will allow larger modern container ships to fit through the canal.
But there is more to Panama than a stretch of water that links the Pacific and Atlantic oceans. The economy is becoming more diversified with growth from projects related to mining and construction, as well as services industries such as tourism and banking. Panama claims to have the fourth largest undeveloped copper reserve in the world. Panama City already houses numerous regional banking headquarters and has ambitions to become the financial hub of the Central American region. The government is spending on various infrastructure projects, the need for which are obvious from a visit to the city – tall skyscrapers are interspersed with areas of extreme poverty, as well as terrible traffic and broken pavements.
The local stock market lacks liquidity so there are few ways for investors to get direct exposure to the country other than buying an apartment in Donald Trump’s new 70-storey tower. Copa Airlines and Banco Latinoamericano are based in Panama and are listed in New York. As regional players they demonstrate Panama’s ability to extend its influence beyond its borders. Panama is a fine example of how small countries can often punch above their weight.
Nicholas Cowley, Investment Manager, Global Emerging Market Equities, Henderson Global Investors