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Panama Canal shift unlocks opportunities
The Miami Herald / July 27, 1998

By Larry Luxner

PANAMA CITY -- With less than two years remaining before the United States hands control of the Panama Canal to the Panamanian government, key officials here are portraying the momentous event as a once-in-a-lifetime chance to invest in a dizzying array of manufacturing, railroad, maritime, tourism and other infrastructure projects.

Under terms of the 1976-77 Torrijos-Carter Panama Canal Treaties, the canal itself won't revert to Panamanian sovereignty until Dec. 31, 1999. But multinationals eager to get a head start aren't sitting around waiting. In the last five years, more than $900 million has already been poured in the former U.S. Canal Zone as Panama gradually assumes control of thousands of former U.S. military buildings, installations and other facilities, as well as 233,000 acres of prime real-estate.

"This is a unique opportunity not only for Panama but for investors in a wide range of industries around the world," says Nicolas Ardito-Barletta, executive director of the Autoridad Regional Interoceanica (ARI), the government agency created to supervise the incorporation of the so-called "reverted areas" into Panama's service-based economy.

"As the Panama Canal areas revert to Panamanian control, we have the chance to transform this country and its economy," he said. "We cannot do it without the strong support of the international business and finance communities who, I strongly believe, will immediately recognize the remarkable possibilities involved."

Attracting investment through tax incentives are crucial, especially for tourism projects planned for the Fort Amador area where the canal empties into the Pacific Ocean.

Ardito-Barletta, a former president of Panama, noted that so far, over $400 million has been invested in the maritime industry alone. The biggest single project is the Manzanillo International Terminal, a huge container port on the Atlantic side handling over 30,000 container moves a month.

Manzanillo (known as MIT) has the good fortune of sitting across the Colon Free Zone, right at the Atlantic entrance to the Panama Canal. Inaugurated in April 1995, the project is a 50-50 partnership between Panama-based Motores Internacionales S.A. and the local affiliate of Seattle-based Stevedoring Services of America. The port's marketing manager, Carlos Urriola, says the joint venture has poured $210 million into what was originally envisioned as a $10 million project.

"Our commitment with the government was to create 300 jobs in three years. We've created three times that amount," says Urriola.

Likewise, in August 1996, Hong Kong-based Hutchison Port Holdings Group (HPH) won the concession to run Panama's two largest ports, Balboa and Cristobal. HPH -- the world's largest independent port operator with interests in Asia, Europe and the Americas -- is paying Panama $22.2 million a year for the concessions and has pledged $170 million for operations and port improvements

"Both of our governments are very keen on making this an exemplary transition," Ardito-Barletta said in a recent interview. "President Clinton is very conscious of the message the United States is sending to the whole world, so that when the canal is turned over to Panama on Dec. 31, 1999, it'll be a smooth, seamless transition."

Other large projects either completed or in the works include:

* Evergreen's Colon Container Terminal. On Oct. 30, 1997, Taiwan's Evergreen Shipping opened its new port at the Atlantic entrance to the canal. The company has invested $100 million to date, and is planning to complete the project by 2002, when CCT will have a handling capacity of one million TEUs (20-foot equivalents), up from the current 400,000 TEUs. Total investment is estimated at $250 million.

* Alireza-Mobil Terminals S.A., a $25 million, three-year joint venture fuel storage facility between Mobil Sales & Supply Corp. and Saudi-based Haji Abdulla Alireza & Co. Ltd.

* United Enterprise Commercial Group, a $300 million resort complex at Fort Amador, with U.S.-Korean investment. The venture includes a 16-floor hotel and casino, a convention center, restaurants and 250 time-share condo units. Construction will begin this year on the development, called Fantasy Island, though it probably won't be completed until the end of 1999.

* Panama Canal Railway Co., a $60 million venture between Kansas City Southern Industries Inc. and Mi-Jack Products Inc. of Chicago that'll move freight between Panama City and Colon. The project is now under construction, and will be completed over the next 18 months.

Panama is already home to the Colon Free Zone, the largest merchandise distribution center of its kind in Latin America.

The free zone, founded 50 years ago this year, imported $5.3 billion and re-exported $6.2 billion worth of goods in 1997. The 1,070-acre entity, known as "an island of wealth surrounded by a sea of poverty," is home to 1,600 businesses and attracts 300,000 visitors a year. Government figures show that in 1997, electronic appliances made up 20.9% of the zone's total trade, followed by clothing (17.3%); textiles (6%); watches (5%); shoes (5%); gold jewelry (4.3%); perfumes and cosmetics (4%); pharmaceuticals (3.4%); liquor and tobacco (2.3%) and bedding (1.3%). Other products accounted for the remaining 30%.

Ricardo Aleman, the zone's newly appointed general manager, chuckles at suggestions that business will dry up as Mercosur, the Andean Community and other regional trade blocs make tax-free shopping a thing of the past.

"Five or six years ago, people were saying that the Colón Free Zone would disappear with open markets. But that has not happened," he says. "The only time we went down was in 1996, when the government raised our tax from 7.5% to 15%. They quickly realized their mistake and now the tax is zero."

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