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Return of reverted areas boosts investment in Panama
Impact International / May 1, 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 shipping, tourism, duty-free 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."

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 has the good fortune of sitting across the Colón 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.

In addition, United Enterprise Commercial Group. UECG, a U.S.-Korean consortium, will build a $300 million resort complex at Fort Amador. A 16-floor hotel and casino will sit on an island linked to the mainland by a palm-lined causeway. The company also plans a monorail system, shopping mall, convention center and 250 timeshare condo units.

Other projects approved by ARI in Amador include a $110 million cruise-ship port of call and shopping plaza to be built by Desarrollo Puerto Amador.

Ardito-Barletta says a new cruise port will help accelerate tourism growth in the country. Some 250 cruise ships pass through the Panama Canal each year, but until now, these ships haven't stopped in Panama for lack of a suitable port. The Amador facilities, plus another new cruise port at Colón on the Atlantic side, will provide an opportunity for some of these ships to visit Panama City and other areas while their ships are docked.

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 operators with interests in Asia, Europe and the Americas -- 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 at ARI's headquarters in Balboa Heights, just outside Panama City. "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."

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

The free zone, founded 50 years ago, 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 Alemán, the zone's newly appointed general manager, chuckles at sugges-tions 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."

Besides the above projects, the Panamanian government has plans for the Panama Canal itself once it assumes control of the waterway. The most important is the widening of Gaillard Cut at a cost of $300 million, as well as the allocation of $600 million to maintain the canal over the next five years. In addition, Panama is considering the construction of a third set of locks to accommodate post-Panamax ships -- vessels that are too wide to pass through the current canal. A third set of locks would cost between $5 billion and $7 billion.

Tourism is also a key part of ARI's strategy, as the agency hopes to take advantage of Panama's favorable climate and geography, cultural traditions and use of the U.S. dollar as its national currency.

"Over 250 cruise ships go through the canal," said Ardito-Barletta. "The canal is our No. 1 attraction, but they don't stop in Panama because we don't have the facilities. By 2002, maybe 200 ships a year with 400,000 passengers will stop in Panama. Some will come on the Pacific side and take the train as their ship waits for them on the other side."

Backing ARI's efforts is a pro-business stance on the part of Panama's govern-ment, led by President Ernesto Pérez Balladares. The Balladares government supports laws and decrees that provide deregulation, tax and investment incentives, more open trade policies, more flexible labor conditions and privatizations (the most recent of which was last year's sale of state telephone monopoly Intel to Cable & Wireless for $652 million).

According to ARI, all projects that arise from the transfer of U.S. military properties also must make a contribution to the Panamanian economy by contributing to exports, generating local employment and making use of local materials and input whenever possible.

Remarks Alberto Navarro, a senior adviser at ARI: "We have only two things going for us: our location and our brains. If we don't develop both, we'll be out of the race."

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