Logistics: Value Networks

Saturday, February 27, 2016

Introduction

Panama is a regional leader in infrastructure, primarily due to its outstanding port and airport infrastructure. The country ranked 40th in Quality of Overall Infrastructure of the 140 countries surveyed in the Global Competitiveness Report 2015-2016, prepared by the World Economic Forum (WEF), above Chile (45), Mexico (59) and Brazil (74).

But the country seeks even more. Panama wants to take advantage of its excellent location, its canal, ports and airport, to become a global logistics center.

Although the quality of the country's overall infrastructure has worsened by some 10 points compared to two years prior, falling from 30th in the 2013-2014 survey, this factor mainly stems from broader infrastructure components including the country's telephone lines and electricity supply.

*Panama's President Juan Carlos Varela (SOURCE: AFP).*

The key ingredient to becoming a global logistics center is location. The country is strategically situated at the heart of the Americas, serving over one hundred years as the only passage between the Atlantic and the Pacific. This privileged geographical location and the canal have positioned Panama as a regional center for transportation in general, facilitating trade to and from Latin America and the Caribbean.

The government has taken important steps the past few years to further strengthen the country's logistics. During his tenure as president from 2009 to 2014, Ricardo Martinelli implemented a US$15 billion strategic spending plan in airport, port and road infrastructure with the aim of consolidating Panama as a major global trade hub. This was in addition to the US$5.5 billion spent on the Panama Canal expansion project: the main part of the country's economic growth agenda. And the government of current President Juan Carlos Varela announced in November 2015 a committee formed of entrepreneurs who plan to design a national logistics strategy, focusing on integral planning for ports, as well as redirecting the Colon Free Zone and the technological inter-oceanic corridor area.

Efforts at boosting the country's logistics sector and transport infrastructure appear to be paying off already. The country ranked 45th of 155 countries evaluated in the 2014 World Bank Logistics Performance Index (LPI), which measures efficiency in customs, quality, and ease of doing business, improving 14 places compared to 2012 with a score of 3.19 (where 1 = low and 5 = high). The country with the best logistics, Germany, scored 4.15.

Yet challenges lie ahead in the effort to become a global logistics center, such as the country's weaker integration between maritime infrastructure and ground transportation, less developed value-added logistics services, its lack of human resources as well as institutional shortcomings. Additionally, the development of the polemical Nicaragua Canal project could potentially jeopardize the country's efforts to solidify its position as a regional hub. This report explores these key issues which are crucial to the future success of the country's logistics sector - the main engine of its economic growth.