Foreign Direct Investment in Latin America and the Caribbean 2015

Foreign Direct Investment in Latin America and the Caribbean • 2015
The 77.1-kilometre Panama Canal, which celebrated its centenary in
2014, has had an immense impact on international trade. By virtue
of its vital role in international trade, the size of the locks on the
Canal imposed a practical maximum size limit on the ships used
in transport, known as Panamax. The Canal’s role in enabling trade
between the Pacific and Atlantic cannot be overstated. Today, around
5% of global maritime trade passes through the Panama Canal.
For Panama, the impact has been even larger. As shown in the
figure below, the Panamanian economy relies much more heavily on
transport, storage and communication than the rest of the region.
This is attributable to the large harbour, warehousing and transport
industry related to the Panama Canal, which is responsible, directly
and indirectly, for some 100,000 to 120,000 jobs. The Canal is the
Box I.4
The impact of the Atlantic-Pacific canal(s?)
driving force behind much investment in Panama. It continues to
be the largest recipient of FDI relative to the size of the economy
in Latin America and only a small number of Caribbean economies
outperform it by this measure.
According to fDi Markets, Hutchison Whampoa (Hong
Kong Special Administrative Region of China), Deutsche Post
(Germany), PSA International (Singapore) and the CEVA Group
(United Kingdom) announced investments in warehousing and
storage projects in 2014 for a combined total of more than
US$ 700 million. This success has been an important driver for
the robust economic growth recorded in Panama in recent years,
leading some analysts to refer to Panama City as “the Singapore
of Central America” (The Economist, 2011).
Latin America and the Caribbean: share of the transport, storage and communications sector in total GDP, 2012
(Percentages)
18
16
14
12
10
8
6
4
2
0
Panama The Caribbean Latin America
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of the CEPALSTAT database.
However, the limitations of the Panama Canal have grown
increasingly clear. The Panamax standard has become a severe
constraint as many modern ships are too large to fit through the
Canal. In 2006, the Panama Canal Authority (PCA) estimated that
by 2011, 37% of cargo ships would be too large (PCA, 2006). In
order to remain fit for purpose, a plan was proposed to add a third
set of larger locks to allow larger ships to pass through the canal.
The US$ 5.25 billion project was originally due for completion in
2014, but is still under construction. Completion is now scheduled
for the end of 2015. The project is financed primarily through
loans from international partners, including the Japan Bank for
International Cooperation, the European Investment Bank and
the International Finance Corporation. Although this is not an
FDI project as such, many foreign companies are involved as
contractors in the construction process.
Meanwhile, the Government of Nicaragua has plans to
construct a competing canal,a which, with a length of 259 kilometres,
will be more than three times as long as the Panama Canal. If
completed, it will be able to handle ships that are significantly
larger than those that can fit through the expanded Panama
Canal. Discussions about a possible Nicaragua Canal date back
to 1825, but the Hong Kong Nicaragua Canal Development Group
(HKND), based in the Hong Kong Special Administrative Region
of China, was only recently founded in 2012 for the purpose of
building the Nicaragua Canal. Officially, work started in December
2014 and is scheduled for completion by 2020 at an estimated
cost of US$ 50 billion. Several major Chinese companies will
participate in the project, which is not, as yet, fully funded. The
project remains uncertain, but its completion would have a huge
impact on the shipping industry.
In view of the expansion of the Panama Canal and the
possible construction of the Nicaragua Canal, shipping in the
Caribbean has a bright future. These prospects have led to a
large number of new projects throughout the Caribbean, with
several economies seeking to set themselves up as logistics
hubs in competition with Panama. In 2014, Cuba opened the
Port of Mariel, which was largely funded by Brazil, at a cost of
nearly US$ 1 billion. The port’s proximity to the canal(s) and to the
United States could create opportunities, as long as the United
States lifts its sanctions on Cuba. The China Harbour Engineering
Company (CHEC) is involved in the preliminary studies regarding
the possible construction of large new port terminals in Jamaica
(Goat Islands at an estimated cost of US$ 1.350 billion) and broke
ground on a transhipment port in the Bahamas in 2014 at a cost
of US$ 39 million. Finally, in Trinidad and Tobago, a consortium
of companies from China committed in 2014 to the construction
of both a new port (costing around US$ 500 million) and several
new industrial parks (US$ 250 million).
Owing to their key role in international transport, the Panama
Canal and, if it is completed, the future Nicaragua Canal have
transformative potential, not just for the individual countries
involved, but for the entire region.
Source: Economic Commission for Latin America and the Caribbean (ECLAC), on the basis of Panama Canal Authority (2006), “Third set of locks project fact sheet”
[online] http://www.pancanal.com/esp/plan/documentos/propuesta/acp-proposla-relevant-information.pdf; Financial Times, fDi Markets and The Economist,
“A Singapore for Central America?”, 14 July 2011 [online] http://www.economist.com/node/18959000.
a
The potential construction of the Nicaragua Canal has drawn much criticism with respect to the decision-making process, the environmental impact and the
overall desirability of the new canal. An overview of the sceptics’ point of view can be found in Confidencial (2015).
Chapter I
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