Caribbean & Central America - July 2013 (ISSN 1741-4458)

FDI: According to the most recent report by the United Nations Economic Commission for Latin America and the Caribbean (Eclac), released on 14 May, Panama remains the leading recipient of foreign direct investment (FDI) in the sub-region, accounting for US$3.0bn (34% of the total) in 2012. The report notes that while there is no official data on FDI-receiving sectors, data on mergers, acquisitions and investment projects announced in 2012 indicate that a large share of FDI went to services, especially logistics, energy and the construction industry. The report singles out as noteworthy announcements made in 2012: the investment by Brazil’s GMR Energia in the energy sector, and the investment by Denmark’s AP Moller-Maersk in maritime transport logistics. The report also highlights that the Swiss mining company, Glencore International, increased its equity interest in the Samref Overseas- the US$480m investment was the largest that Panama received in 2012. Substantial investments also went to the buoyant food industry (particularly the dairy sector): Colombia’s Grupo Nutresa acquired the Central American ice cream company, Panama’s American Franchising Corp. (AFC), for US$110m.

FTA with Colombia: Last month the government of President Ricardo Martinelli inked a Free Trade Agreement (FTA) with Colombia which immediately removal tariffs levied on 72% of Colombian exports to Panama. This followed the resumption of talks over the FTA in March [RC-13-04]. According to Colombia’s trade ministry, exports to Panama were valued at US$2.86bn in 2012, while imports from Panama came to US$71.6m. The FTA, which was signed on 1 June, is essential for the Martinelli government, which is seeking to join the Pacific Alliance trade bloc, which includes Colombia, Mexico, Peru and Chile. Having FTAs in place with all bloc members is a necessary membership requirement. Panama already has deals in place with Peru and Chile while in late May the Martinelli government formally announced the launch of FTA talks with Mexico, with the first round due to take place on 28 May. The new deal with Colombia nonetheless comes amid bilateral trade tensions after the Martinelli government notified the World Trade Organisation (WTO) on 18 June of a request for consultations with Colombia over tariffs on Panamanian apparel and footwear exports. The move represents the first formal step in resolving trade disputes at the WTO. If after 60 days the consultations fail, the complainant may request adjudication by a WTO panel. The dispute is over a decree signed by Colombia’s President Juan Manuel Santos, which took effect on 1 March and establishes a 12-month ad valorem tariff of 10% and a specific duty of US$5 per gross kilogramme on all imports of apparel and footwear from countries with which Colombia does not have an FTA. The move provoked strong complaints from companies operating in Panama’s Colón free trade zone (ZLC), which warned that it could jeopardise over 5,000 jobs. Martinelli had come under pressure from the ZLC business lobby not to sign the FTA - which awaits ratification by the legislatures of both countries – before securing the immediate removal of all tariffs affecting them. According to figures from Panama’s ministry of economy and finance (MEF), Colombia accounted for US$124m of the US$1.06bn in revenue generated by re-exports through the ZLC in 2012, third only to Venezuela (US$138m) and Puerto Rico (US$133m).

Growth: According to the latest report by Panama’s comptroller general’s office, released on 18 June, Panama’s GDP grew 7% in the first quarter of 2013 compared with the same period in 2012, with growth driven by exploitation of mining and quarries (27.8%); construction (26.6%) and banking (9.3%). The report, however, noted that trade dropped 2.2% due to a 14.1% drop in ZLC activity as a result of “the decline in re-exports to Panama’s main South American clients – Colombia and Venezuela”. Panama’s GDP increased by 10.7% in 2012, the highest growth rate in Latin America and the Caribbean on figures from the United Nations Economic Commission for Latin America and the Caribbean (Eclac). The Martinelli government is forecasting 8.5% growth for 2013.

• Sieca

On 29 June Panama formally signed up to the Central American economic integration system (Sieca) which already comprises Costa Rica, El Salvador, Honduras, Guatemala and Nicaragua. This was in line with the terms of the new 2012 association agreement between the European Union (EU) and Central America. Following El Salvador’s approval of the EU-Central America association agreement on 5 July, the deal has been now been ratified by all signatories and will take effect on 1 August.