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Colon Free Trade Zone Outlook

September 6, 2011

By Juan R. Cortes Dean*

jcortes@panamaeconomyinsight.com.pa

According to a report of Statistics and Census Institute (INEC), Colon Free Trade Zone (CFTZ) grew 31% in first half of 2011 over the same period of last year. The expansion occurred as a result of increased orders from almost every Latin America countries. Total re-exports reached US$6.715 million in the frist half of this year, which represented an increase of US$ 1.602 billion over the same period of last year.

The top five buyers were Venezuela, Colombia, Panama itself, Costa Rica, Dominican Republic.

The largest increase of re-exports was to Venezuela. Re-exports to that country exceeded one billion dollars, representing an increase of US$347 million in the first half of 2011, compared to the same period of last year.

The consensus is that Venezuela's economy will expand by 2.3% in 2011. In the first half of 2011 the Venezuelan economy grew 3.6% over the same period of last year, after grew only 0.3% in fourth quarter of 2010 and contracted 1.7% in 2010.

Venezuela is the fifth largest Latin America economy and the third largest importer. At the same time that country is the largest purchaser of CFTZ.

However, Venezuela is highly dependent on oil revenues, which represent about 90% of its export earnings and 50% of the government budget. The contribution of oil in Venezuela's GDP is 30%. This makes Venezuela shopping from CFTZ fluctuate in the same direction of oil prices cycle.

Oil prices were at US$80 per barrel earlier 2011 and came to exceed US$110, but have fallen in the second half, remaining slightly above the level that began earlier this year. The re-exports from CFTZ to Venezuela grew 49% in the first half of 2011, but with lower oil prices in the second half, we expect this growth rate will be moderate. Re-exports from CFTZ to Venezuela could end the year at around USUS$2.000 million.

Colombia is the fifth largest importer of Latin America and second largest buyer of CFTZ. According to the consensus, Colombia economy will grow 4.8% in 2011. In the first quarter of 2011 Colombia economy grew 5%. Meanwhile, re-exports from CFTZ to Colombia increased 16% in the first half of 2011, representing an increase of US$110 million.

Most re-exports from CFTZ are clothing, footwear, electronics, pharmaceuticals, medicines, perfumes, cosmetics, liquor, cigarettes, textiles, bedding, linens and fine jewelry. These products are imported from mainland China, Hong Kong, Taiwan, Japan and United States. The business is to import goods from Asia, United States, Europe and re-exported to Latin American countries. For example, Milano International is a company located in CFTZ and your business is to import the brand Chanel perfumes from France and  re-export to Colombia.

Until the first quarter of 2011 were operating this type of business import and re-export in CFTZ 2.997 companies, of which 2.181 are users and 816 are represented. The number of companies increased by 138 in that first quarter over the same quarter of last year.

According to reports summited by Leopoldo Benedetti, General Manager of  CFTZ government agency, visited this special economic area 122.543 people in 2010. The visitors were tourists, investors and buyers. The reporst summited by Benedetti, the number of visitors was 33.511 people in the first quarter of 2011, wich represented an increase of 4.449 visitors on the same period of last year.

According these government agency reports, 75% of CFTZ visitors arrived in Panama by air.  The Air hub COPA connection with 58 cities in 28 countries of Latin America is the main driver of CFTZ visitors.

CFTZ employment is 30,000 people. This special economic area has a contribution to GDP of 7%. CFTZ value added increased 7.3% in the first quarter of 2011, as a result of strong economic expansion of Latin America.

We forecast that CFTZ re-exports will grow 8.3% from 2011 to 2014 (average growth rate per year).   

FIGURE. COLON FREE TRADE ZONE RE-EXPORTS AND FORECAST (In millions of US$)

  


 

 

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