Panama Canal Expansion—Key to Global Trade


© Panama Canal Authority

Since it opened in 1914, the Panama Canal has been a marvel of engineering and one of the world’s most important trade assets. Roughly $270 billion worth of cargo crosses the canal each year. It serves more than 140 maritime routes to over 80 countries.

As the first supersize container ships navigate the recently inaugurated canal expansion to cross the narrowest point in the Americas, IFC shares the pride of Panama's people and the rest of the continent.

The $5.5 billion expansion, which used enough steel to build 22 Eiffel Towers, added a new lane and bigger locks that will shake up shipping routes and make seaborne trade less costly and more efficient. Now, Neo-Panamax ships carrying up to 14,000 containers—nearly three times as many as the previous ships—will be able to transit, taking advantage of economies of scale. 

In 2009, in the midst of the global financial crisis, IFC joined four other development banks in committing $2.3 billion in financing for the canal’s expansion, signaling our confidence in its mega makeover. IFC’s due diligence and environmental and social standards supported the Panama Canal Authority’s commitment to ensuring this complex project was carried out responsibly and that impacts to the area’s natural resources were mitigated.

 

Closing the Infrastructure Gap

Infrastructure is vital to economic development. But across the globe, including in Latin America, the pace of infrastructure investment is slow and the gap is growing. Aging infrastructure hasn’t kept up with bustling cities. Latin America—the most urbanized region in the world, with about eight out of every 10 people living in cities—invests roughly 3 percent of its gross domestic product in infrastructure, or about $150 billion a year. The region needs to at least double that to embark on a path to sustainable growth and meet its needs.

The private sector is essential in closing this gap, especially as some governments tighten their belts to make up for lost commodity revenues. Tapping into new funding sources—such as insurance companies, pension funds, and sovereign wealth funds—is critical. By some accounts, pension funds, an essential source of domestic savings in Latin America, are investing only 1 percent of their portfolio in infrastructure around the world. Similarly, only 2 percent of global insurers’ assets are allocated toward infrastructure.

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FAST FACTS: PANAMA CANAL
  • Length of Panama Canal: 77 kilometers (48 miles)
  • Height ships are raised: 26 meters (85 feet)
  • Number of ships passed through the canal in 2015: 12,000
  • Number of ships that have passed through the canal to date: More than one million
  • FY15 revenues: $2.6 billion
  • FY15 direct contributions to Panama’s Treasury: $1 billion
  • Trade routes passing through the canal: 144

 

Cutting Trade Costs

Moving goods across borders quickly and cheaply is important for firms to be competitive and for countries to boost trade. High trade costs can destroy the competitive edge of a company that might otherwise have all the resources and skills it needs to export a great product.

In Central America, for example, logistic costs can account for more than 50 percent of the final price of goods. IFC has worked with governments in the region to help them streamline import and export processes. This includes “single window” systems that enable traders to submit documents at one location, thereby reducing red tape.

IFC’s support for the canal follows a history of financing trade infrastructure in Panama that began in the early 1990s. It included our financing to build the Manzanillo International Terminal on the Atlantic coast to establish a modern transshipment option for shipping lines, as well as the Panama Canal Railroad Company and the Corredor Sur toll road connecting Panama City and the airport.

Infrastructure is an essential investment that allows people to get to work quickly, children to study at any time with reliable electricity, and families to stay healthy with affordable water and sanitation. At IFC, we help infrastructure projects like the Panama Canal become a route to greater growth and productivity.

Published in June 2016