The stable economic and political progress that followed the country’s return to democracy in 1989 has had a lasting impact on the development of the tourism sector. After planting the seeds of growth throughout the 1990s, the tourism sector has experienced rapid development in the first decade of the new millennium alongside broader economic growth. Panama City and the Panama Canal remain the country’s primary attractions, with the capital city seeing a surge of international hotel chains enter the market in recent years, to such an extent that occupancy rates are extremely low. Panama City has not only benefitted from economic growth by attracting business tourism, but the city’s geocentric location in Central America and recent mall developments have begun to attract tourists looking to book annual shopping trips, particularly given the restrictive security and visa procedures established in the US. However, there are also plans to invest heavily in high-end beach and luxury tourism in a bid to siphon market share from Caribbean competitors, while Panama’s strong biodiversity lends itself to the nascent ecotourism sector. The rapid growth of the tourism industry and its strong contribution to Panama’s GDP has provided the basis for the recent prioritisation of the sector.
A Pillar Of Growth
Indeed, the tourism sector was designated as one of the four key pillars of economic growth identified in the country’s Strategic Economic Plan 2010-14, alongside the logistics, finance and agriculture sectors. The government’s strategy highlights the intention to support the growth of the high-end tourism segment by focusing investment on locations with the potential to become “world-class luxury destinations” including Farallon, the Las Perlas Archipelago, the Azuero Peninsula and Panama City. The recent development of the tourism sector has not gone unnoticed by the international community. The World Economic Forum’s “Travel and Tourism Competitiveness Report 2013” – which grades 140 nations on a variety of industry metrics – ranked Panama 37th globally, a significant improvement on its 2011 ranking of 56th. This was mainly thanks to high marks in categories such as natural resources (11th), international air connectivity (11th), policy rules and regulations (18th) and price competitiveness (26th). Indeed, the significant improvement on its 2011 ranking has seen Panama leapfrog above its top regional competitors Mexico (44th), Costa Rica (47th) and Brazil (51st).
The rationale behind the government’s eagerness to develop the sector is varied, though the principal factor stems from tourism’s growing contribution to wider economic development. Furthermore, it is also capable of driving economic progress in areas of the country that are generally not impacted by other growing sectors such as logistics or finance.
Statistics from the Panama Tourism Authority ( Autoridad de Turismo de Panama, ATP) reveal tourism spending almost quintupled from 2001 to 2013, growing from just $662.7m in 2001 to $3.1bn in the first 11 months of 2013. As a result, revenues from the sector have become increasingly important to the wider economy, increasing from 5.6% of GDP in 2001 to 9.5% in 2011, the most recent year for which data is available from the ATP, with the World Travel and Tourism Council (WTTC) reporting that this contribution reached 13.1% in 2012. Moreover, for 2011, tourism revenues exceeded revenues generated by both the Panama Canal ($1.78bn) and the Colón Free Zone ($1.07bn).
Employment statistics show the sector is also a major contributor to national employment as well, with the sector directly employing 80,500 people in 2012, according to the WTTC. However, when taking into account jobs indirectly created by the travel and tourism sector, which includes the wider effects of the sector’s investment and supply chain, it was responsible for an estimated 197,500 jobs, or 12.4% of the country’s total employment. This number is expected to rise slightly to 13.1% over the next 10 years.
Visitor numbers have also been steadily increasing and have expanded every year from 2002 to 2013 bar a slight 0.8% contraction in 2009, according to the ATP. International arrivals grew at double-digit rates for six of the 10 years from 2002 to 2011, and averaged an annual growth rate of 10.7%, with total visitor numbers surpassing the 2m-visitor milestone for the first time in 2011. Average daily spending by visitors has also increased significantly, more than doubling from $74 per day in 2002 to $168 per day as of November 2013.
The Master Plan
The ATP is charged with the tourism sector’s planning, development and regulation, as well as investing public sector funds. Its long-term strategy is laid out in the Master Plan for Sustainable Tourism Development 2007-20, whose implementation calls for a $575.3m budget. The strategy, which was developed by Spanish consulting firm Europraxis (now known as Indra), was funded in part by the Inter-American Development Bank and calls for several new pieces of legislation to create a more structured development frame.
The master plan calls for the creation of a permanent department within the ATP to be responsible for plan implementation, as well as the creation of a national registry for tourism activities, increased regulations with regards to certifying and classifying tourist services such as hotels, and the creation of a national tourism fund for the development of the sector.
Growing international connectivity has placed Panama within reach of over 70 international destinations, more than double the number in 2004. Indeed, as a growing regional and global hub, Tocumen International Airport will continue to play a vital role in the sector’s development. Between January and November 2013 the airport received 1.39m passengers, up 2.7% year-on-year ( yo-y), accounting for 71% of all international arrivals to the country over the period.
Overall passenger traffic through Tocumen – including incoming, outgoing and transferring passengers – increased to 7.78m thanks to the airport’s increasing status as a regional transit hub. According to a study published by the CAPA Centre for Aviation, despite ranking 11th in Latin America in terms of total seat capacity, Tocumen was the second-largest airport in terms of international capacity. Moreover, the airport is currently undergoing an $850m multi-phase expansion to help keep up with rapidly rising passenger transits and arrivals (see Transport Chapter). The upgrade project is scheduled for completion in 2025.
The international market far outweighs domestic contributions to industry revenues. In 2012 the domestic tourism market was responsible for 24.8% of tourism spending, according to figures from the WTTC. However, spending by the domestic market is forecast to grow at a faster rate than that of the international market as, over the course of the next 10 years, domestic travel spending is anticipated to expand at an average annual rate of 5.8% from $1.16bn in 2013 to $2.05bn in 2023. Foreign visitor spending is expected to expand at 4.6%, with revenues increasing from $3.22bn to $5.05bn over the same time frame.
According to figures published by the ATP, on a regional basis South American visitors to Panama represent the largest major bloc, followed by North America and Europe. Between January and November 2013, the most recent period for which data is available, 689,689 South Americans entered the country via the main airport of Tocumen, an increase of 7.3% over the same period the previous year. A total of 335,683 North Americans were recorded during the January-November period in 2013, down 12.1% from the previous year, while 153,093 European visitors arrived in Panama in 2013, up 15.4% over the January-November period in 2012. African visitors showed the greatest increase between 2012 and 2013, growing by an impressive 55.2%; however, this was from a low base of just 1841 visitors in the 11-month period in 2012.
On a per country basis Colombia (17.1%), the US (17.0%) and Venezuela (12.7%) remained the principal tourist markets between January and November 2013, as they are responsible for a combined 46.8% of passenger arrivals at Tocumen. Argentina (4.9%), Ecuador (4.7%), Brazil (4.5%), Mexico (4.0%), Spain (3.6%) and Costa Rica (3.2%) round out the remaining major source markets for tourist visitors in 2013.
Like Costa Rica to the north, Panama boasts rich biodiversity, with the World Economic Forum ranking the country 18th globally in terms of total known species and 30th for biome protection. Al Petrone, CEO of the Bristol Hospitality Group in Panama City, explained that the country’s biodiversity is beginning to impact the sector. “The industry is trying to diversify itself and what the country has to offer, and one area we are beginning to capitalise upon is the ecotourism segment,” he told OGB (see analysis).
In addition to the growing ecotourism market, the country possesses many of the raw ingredients necessary to attract meeting, incentive, conference and exhibition (MICE) tourism. A good location in the heart of the Americas, a growing aviation hub, the presence of one of the region’s largest international financial centres and Panama’s status as an international focus of commerce all bode well for the further development of business and corporate tourism segment.
Despite the strong influx of businessmen and women to Panama City, as a percentage of overall tourism, business spending is dwarfed by leisure spending, with the WTTC reporting that business visitors were responsible for just 22.5% of the sector’s revenues. However, Petrone was quick to point out that the country was still waiting for the final piece of the puzzle and a key ingredient to attracting MICE tourism – a top tier convention centre. Plans for the construction of a centre were put into action in 2012.
At the end of 2012, the ATP announced that the construction of the Amador Convention Centre would be carried out by an international consortium of Panamanian, Spanish and Puerto Rican companies at a total cost of $194m. The facility is expected to be completed by the end of 2014 and will feature more than 50,000 sq metres of total space. The Amador is expected to triple the capacity of Panama City’s existing convention centres, according to national investment promotion agency Proinvex. Furthermore, to facilitate access to the new centre, the government is planning to double the capacity of the Amador causeway, from two lanes to four. In January 2014, the ATP announced that it would be seeking an international company to manage the facility under a profit-sharing arrangement.
Indeed, leisure spending on travel and tourism far outstripped that of business spending in 2012, accounting for 77.5% of the sector’s overall revenues, according to the WTTC. Growth in spending on leisure is expected to slightly outpace growth in the business segment by expanding at an average rate of 5% over the next decade, reaching $5.46bn by 2023.
Panama’s rich multicultural heritage lends itself to the growing tourism industry. The chief cultural attraction of the country is most certainly the Casco Viejo – the historic downtown area located in the capital Panama City. Designated a World Heritage Site by UNESCO in 1997, the area is currently in the middle of a major renovation. The preservation and rehabilitation of the historic district began in 2011 and was originally scheduled for completion in May of 2013, though this was rescheduled to early 2014 due to the inclusion of additional improvements in water supply and sewage. At a total cost of $175.6m, the project is expected to breathe new life into an area that had become dilapidated over time. Numerous investments in boutique hotels, cafes and restaurants have already begun bringing the area back to life. It is hoped that over time the rehabilitation of the Casco Viejo will attract tourists from far and wide, much as the historic districts of other Latin American cities such as Cartagena and Havana have over the years.
However, one aspect of the project, the extension of the coastal beltway, known as the Cinta Costera, has drawn heavy criticism. The extension will see the Casco Viejo wrapped by a major highway, with many concerned such an eyesore will decrease the cultural and historic value of the area, perhaps leading to its removal from the list of World Heritage Sites. Despite public outcries, the highway extension project has gone ahead and UNESCO has so far been convinced not to remove Casco Viejo from its heritage sites list. The new extension is set to be inaugurated in early 2014.
Close to the Casco Viejo is the capital’s newest cultural attraction, a $100m, Frank Gehry-designed museum celebrating Panama’s biodiversity and strategic location at the crossroads between the Americas. The museum, commonly referred to as the “BioMuseo” and officially known as the “Biodiversity Museum: Panama Bridge of Life”, tells the story of how the emergence of the Isthmus of Panama has shaped our world, all while being conveniently located next to the Pacific entrance of the Panama Canal. After its May 2014 inauguration, the museum is expected to lure significant numbers of additional tourists to the city and hopes are that it will have a similar effect on the city as Gehry’s Guggenheim Museum has had on the Spanish city of Bilbao.
On the Caribbean coast lies the country’s other major cultural site, though this was placed on UNESCO’s list of World Heritage Sites in Danger in 2012. The Portobelo-San Lorenzo fortifications date back to the 17thcentury Spanish colonisation of the area and were used by the Spanish crown as a defence system to protect its transatlantic shipments of precious metals. They were inscribed as a World Heritage Site in 1980, though a combination of environmental factors, lack of maintenance and urban sprawl were cited as the principal reasons for the site’s deterioration and subsequent designation as a site in danger.
Although recent investment has been heavily focused on Panama City, future investments will likely be increasingly diverted to underdeveloped areas such as Las Perlas Archipelago, Bocas del Toro and the Azuero Peninsula. According to the WTTC, in 2012, the travel and tourism industry attracted a total of $823.7m in capital investments, a figure forecast to expand by 8.5% in 2013. Moreover, investment is expected to average annual growth of 6.5% over the next 10 years, bringing the total annual capital investment to $1.6bn by 2023 (see analysis).
In four of the past five years, hotel occupancy rates have declined, most recently falling from 65.2% in 2011 to 58.8% in 2012 and 57% between January and November of 2013. The number of rooms on the market has increased steadily in recent years, increasing 14.7% over the first 11 months of 2013, reaching 10,299 units. “Over the past five years growth in the number of hotel rooms has been outstripping growth in visitor numbers and, as a result, we are beginning to see the signs of oversaturation, particularly in the high-end market,” Peder Jacobson, general manager of the Executive Hotel in Panama City, told OBG. Jacobson went on to explain that now, with luxury names including Trump, Westin and Intercontinental entering the five-star market, occupancy rates and prices for room nights are extremely low.
Although the hotel sector in Panama City may be facing short-term pressure in the form of lower occupancy rates and reduced prices, this situation is expected to be only temporary. Major projects, such as the Amador Convention Centre, the BioMuseo and the restoration of the Casco Viejo area promise to greatly boost visitor numbers to the capital.
Panama’s strategic geographic location and expanding transport infrastructure promise to ensure that visitor numbers continue to grow over the longer term, especially as incomes rise throughout South and Central America. In addition to the new attractions in the capital, Panama’s rich, underdeveloped natural environment provides a wealth of opportunities for firms willing to explore off the beaten path. The sector’s strong fundamentals are set to continue supporting growth.
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