Latin America Reports

Colombia, Panama FTAs To Boost Investment

By Charles Thurston | July 12, 2011

The U.S. is upping its investments in Colombia and Panama.

Pending free trade agreements between the United States and both Colombia and Panama bode well for increased U.S. investments in those countries, as well as for lower import tariffs on U.S. goods shipped there, including paint and coatings. Although these two FTAs have been percolating since 2007, some U.S. officials, like Secretary of State Hillary Clinton, are full of praise for rapid ratifications.

Both Colombia and Panama are particularly well suited to capture regional trade, and have long served as trade and transportation hubs. Panama, with canal traffic in the realm of 15,000 vessels per year or about four percent of global trade, already possesses the largest trade zone in the Western Hemisphere, at Colon. Similarly, Colombia has long been a trade gauntlet for the Andean countries along the U.S.-built Highway of the Americas, leading south to Ecuador and Chile, and east to Bolivia.

President Obama is still negotiating with Colombia for progress in lifting trade union repression and diminishing corruption. Panama, which is a more open trading society than Colombia, also has raised U.S. concerns about corruption and banking secrecy. Still, both FTA pacts are expected to be ratified once Obama can pass legislation that will help U.S. workers who may loose jobs as a result of the agreements.

Paint and coatings consumption in these two countries traditionally grows as the gross domestic product (GDP) expands. In Panama, economic growth over the first quarter of 2011 was a red-hot 9.7 percent. GDP growth in Colombia registered in the four percent range first quarter; the International Monetary Fund (IMF) has predicted that Colombia will present the third-fastest growth rate in Latin America this year, near five percent.

Retail spending also is a strong indicator for future growth in paint and coatings sales, both for the automotive and architectural segments. In Colombia, retail sales rose over 23 percent in April, according to the government statistics agency DANE. And in Panama, where 80 percent of the GDP is based on services, retail spending is expected to parallel near-double-digit GDP growth.

Panama's $26.8 billion economy has produced a per capita income level of nearly $7,600, spread over the population of 4.3 million. It is the smallest country in Latin America in terms of population. Colombia's GDP of about $283 billion results in a per capita income level of about $8,000, according to the IMF.

Investments in the two countries will rise on FTAs. Panama already is involved in a $5.25 billion expansion of the Panama Canal. Recent raises in risk ratings for the two countries also will help U.S. investments rise. Fitch Ratings agency recently raised the sovereign rating of Panama to BBB, at the edge of investment-grade rating. Moody's rating agency also raised its rating for Colombia to an investment grade this year.

While the U.S. government debates the FTAs with Colombia and Panama, the two Latin countries are heatedly pursuing trade agreements with other countries, including Australia, Canada and China. A Canada-Panama FTA is expected to be ratified this fall. Panama, in the mean time, has signed an FTA with Peru, and is close to one with Costa Rica.

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