Author:
Chloe Hayward
Euromoney
United Kingdom

Article:
Panama Canal expansion will attract investment flows
by Chloe Hayward

The expansion of the Panama Canal is set to draw in banks from far and wide because of the increased investment opportunities that the programme will have on all economic sectors in the country, according to bankers and analysts in the region.

“The plans for the Panama Canal expansion project will continue to underpin investment growth in the coming years,” says Theresa Paiz-Fredel, a senior director in Fitch’s Latin America sovereign group.

Panama is investing $5.25 billion to double the capacity of the water highway, making it possible for mega-freighters to use the route. The seven-year expansion plan will ease all water transport for the fast-rising flow of Asian products to US consumers on the Atlantic coast. The canal expects to roughly double the volume of cargo that can pass through by 2020.

When asked if the canal expansion would have an impact on Panama, Peter Shaw, the senior director for Latin American banks at Fitch Ratings, says: “That’s certainly what the Panamanians are hoping for. The knock on impact of the canal expansion is certainly a strong driver to international investors.”

Cate Ambrose, executive director of the Latin American Venture Capital Association, says: “With the expansion of the canal, Panama is one of the fastest growing economies in Latin America. Investor interest is enormous, and many strategic and corporate investors are targeting construction and associated industries. The liquidity of the banking and financial sectors make Panama a good market for getting deals done.” Lafise Investment Management, a central American focused fund manager, is one company that has already done several deals, including a $1 million equity investment in a financial software developer.

In addition to pulling in direct investors in the expansion project, the Panamanian government is focusing on the indirect opportunities that the project will offer. To increase tourism, for example, the government has passed the number eight law, which offers financial incentives to tourism-related companies.

All this activity is drawing in international investors. Several have recently announced plans to expand their presence in the country. Procter and Gamble plans to have its regional headquarters in Panama. Banks, including Citi and Scotiabank, say they are excited by the project and the likelihood of continued foreign direct investment flows. There are already signs that the local banking industry is benefiting from investments linked to the canal expansion. In the first five months of 2007 the profits of Panamanian banks reached $444.1 million, up 19.4% on the same period in 2006. According to statements released by the local banks, credit is growing by up to 15% a month.

Smaller regional banks, such as Bancolombia, are also looking at opportunities in Panama. In May, the leading Colombian bank brought El Salvadorian bank Banco Agricola, and now they have voiced plans to open operations in Panama.