Friday, July 27, 2007

PANAMA CANAL AUTHORITY: Rapid pace of development

By Tuesday Jul 24 2007 07:10

With its mown lawns, neat red tiled houses and pristine avenues, the suburbs surrounding the Panama Canal look like a piece of Middle America from the 1940s or 1950s. But the calm image hides a transformation. Many – if not most – of the Americans who lived in the "Zone" have gone back to the US.

The government's Panama Canal Authority now runs the canal and the military-run commissaries (grocery stores), schools and hospitals of the Panama Canal Company have long since been disbanded or transferred to local hands. The canal is slowly becoming integrated with the economy, its growth providing ever larger quantities of public revenues, with income from transit tolls and dividends up by more than five times since 1999, rising to $569.7m last year.

A group of privatised ports and dozens of other maritime industries have begun to grow up around the canal. The pace of that development will accelerate next year as expansion plans get under way, with a new road linking Panama City to Colón, three new ports planned and at least one refinery also set to spring up nearby.

Carmen Gisela Vergara, deputy minister for trade and industry, estimates that there are 140 separate maritime businesses, ranging from shipyards to companies offering provisions. "Business is doing things that wouldn't have been possible before 2000," she says.

Underpinning the process though is the success of the Panama Canal Authority itself. Since it took full control at the beginning of 2000, the authority has defied right-wing critics and predictions of disaster, becoming a model of well-run public sector enterprise in a country and a region where bad examples are more frequent.

"They are doing a better job of it than the Americans did," says one US businessman and former navy officer who used to live in the zone. Under the Americans the company was completely self-sufficient, more or less entirely devoid of any entrepreneurial direction and insulated from new ideas. As late as 1995 the company was still using old fashioned punch card computers and, under US management, staff members were never given lap tops. "The whole thing was isolated from reality," he adds.

As part of the transition, the canal company's cargo ships, railway and what the businessman describes as "beautifully maintained antique equipment" were sold off. Kansas City SouthernMiraflores Lock – a potential magnet for tourists – is operating way under its potential. "Imagine this if it were in the States," says one long-time Panamanian-American resident. But a no-nonsense commercial approach typifies the authority's attitude to its core business of moving traffic through the canal quickly and efficiently. Productivity has risen sharply. Railroad – a private company – took over the railway, installing new track designed to move freight rather than passengers. The authority's reach is still wide, too wide in the view of critics who might argue, for example, that its shipyard should be sold off or that the restaurant and visitor centre at

Although traffic and revenues have risen, the number of staff – 9,278 –, is 7 per cent lower than it was 10 years ago. And as traffic grows, the canal has worked harder to manage the flows.

"We are focused on the customer. We try to operate a government business with the practices of the private sector," says Jorge Quijano, the executive in charge of the canal's expansion plan. "The company in the 1970s was self-contained. We could do anything. We didn't need to get anything from outside. Under the Americans and during the transition period [the canal was jointly run during the 1980s and 1990s] there was a break-even approach. Now it is a business that is for Panama," says Mr Quijano.

The growth in container traffic has offered new opportunities for port operators and, at both ends of the canal, facilities have been expanded. Both state-owned ports at Balboa on the Pacific and Cristobal on the Caribbean were sold in the mid-1990s to the Panama Ports Company, a subsidiary of Hong Kong-based Hutchinson Port Holdings.

If everything goes to plan, by 2009-2010, according to Ms Vergara, Panamanian ports will be able to handle 8m containers a year, more than double current capacity and 20 times the level of 1995.

Meanwhile, easy logistics, a strong telecoms network, as well as the government's generous tax regime, are widening the range of businesses setting up in the zone.

For example, a company from Singapore recently set up near the zone to repair and rebuild aircraft and is employing 1,000 Panamanian engineers. "We have never had this before. We are developing entirely new sectors," says Ms Vergara.

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