One of the country’s most representative sectors, construction has been a major driver of GDP growth over the past decade. While crucial public infrastructure works are leading this surge, the private sector is also playing a significant role through residential and commercial developments, all contributing to exceptionally low unemployment figures. Following the general trend of the economy, construction is expected to continue growing strongly in the short term, albeit at more moderate levels that reflect a mature and stable investment climate.

In 2013 the construction sector generated more than $2.5bn, accounting for around 9% of GDP, according to the Panamanian Chamber of Construction (Cámara Panameña de la Construcción, CAPAC). This performance represents a 30% increase from 2012, when construction output came to $1.9bn. Year-on-year (y-o-y) growth in 2011 also displayed quite impressive figures with an 18.9% increase, coming out of a slight slump provoked by the global financial downturn in 2008-09. Within Central America, only Nicaragua’s construction sector is growing at similar rates as other countries in the region lag far behind. Despite such positive growth trends, 2014 may not be an exceptional year for the construction sector. With presidential elections set to take place, many sector specialists forecast a temporary decrease in activities until the newly elected government specifies new public investment plans.

Public Spending

Increased spending on public infrastructure projects has become a major trademark of President Ricardo Martinelli’s government. Works such as the $5.25bn Panama Canal expansion project – initiated by the previous administration – and Line 1 of the capital city’s new metro system, valued at $1.88bn, are emblematic of the projects under way in terms of both financing and magnitude. However, the Ministry of Public Works (Ministerio de Obras Públicas de Panama, MOP) has drafted an agenda with a series of other major projects, such as road improvements and airport and port development, provoking significant budget hikes.

The 2013 total government budget rose by nearly 13% y-o-y to reach $16.27bn, of which $730m has been granted to the MOP, with $697m destined for investment. Other ministries to receive major funds included the Ministry of Health and the Ministry of Education, with $1.5bn and $1bn, respectively, decisions that directly impact the construction sector as major hospital and school developments are in the pipeline throughout the country (see Health and Education chapters). By the end of Martinelli’s five-year term, the government will have invested some $5bn in public infrastructure.

Balancing Funds

Such allocations of funds have prompted a wide range of opinions among sector specialists that range from staunch criticism to loyal defenders. Supporters laud the rate at which development has taken place, arguing that Martinelli’s administration is taking on projects the country has needed for years. However, critics point to the accumulation of a large public debt that reached $16.2bn by January 2014. According to figures from the Ministry of Economics and Financing ( Ministerio de Economía y Finanzas, MEF), the debt-to-GDP ratio has diminished significantly over the past decade, falling from 70.4% in 2004 to 39.6% in 2012.

In nominal terms, MEF predicts public debt will rise to $20.4bn by 2018.

Even so, many sector specialists interviewed by OBG did not voice concerns over growing debt. Such is the case for Michael B Fernández, economic director of CAPAC, who considers the works accomplished to outweigh fiscal costs. “There is always going to be an element of risk when it comes to taking on such large projects,” he told OBG. “But the country is finally building the infrastructure we needed 20 years ago.” Likewise, authorities have not gone on an impulsive shopping spree without planning ahead.

In mid-2012 a law to create the Panama Savings Fund (Fondo de Ahorro de Panamá, FAP) was approved and is already in full operational force. According to MEF, the FAP will provide a means to keep the growing public debt in check and counteract any economic or social crises. Regardless of government partisanship, it is indisputable that such wide-scale development has set a high bar for any future administration.

Foreign Participation

The myriad of infrastructure projects, combined with a stable political and social outlook, have attracted heavyweight international players to Panama’s shores as they set their sights on participating in the development frenzy. In fact, encouraged by tax incentive laws for multinational corporations, several major names have even established regional headquarters in the country. Such is the case of Brazilian developer Odebrecht, operating permanently in Panama since 2004, and Spanish construction firm FCC, which has operated permanently in the country for even longer, since 1989. Odebrecht has already completed around 10 projects and is currently involved in several more, such as Line 1 of Panama City’s metro (along with FCC), slated to begin running in the first half of 2014.

Foreign direct investment (FDI) in construction has significantly increased in the past few years. While in 2010 the sector received $34.78m in FDI, that figure shot up to $138.8m in the following year, according to the data from CAPAC. In 2006-12 both public and private investment in the sector – measured by construction permits – surpassed $21bn. One incentive many multinationals have taken advantage of is that foreign firms with more than $2m invested in the country are offered equal protection under the law. According to CAPAC, total FDI in all sectors for 2013 is expected to have totalled around $3.35bn and to reach $3.8bn in 2014. The Ministry of Commerce and Industry is more optimistic and expects around $4bn for both years.


Though public-private partnerships have yet to become a popular trend in Panama, the government’s hefty development agenda has given rise to a prolific public tendering system in which both local and foreign companies compete. The General Office of Public Contracts administers an online platform called Panamá Compra, which is updated on a daily basis with projects solicited by all public institutions, including MOP, which normally administers infrastructure. The site claims to offer more than 1000 opportunities per day.

Although bidding procedures do not discriminate between local and foreign contractors, companies coming from abroad often have advantages in terms of capital, technology and experience. These qualities not only help to win bids but also to obtain financing from local banks, according to Carlos Fá brega, vice-president of Grupo Constructora Urbana (Grupo CUSA), the only Panamanian company currently working on expansion of the Panama Canal.

However, Fábrega considers the influx of foreign firms two-fold. “Medium-sized local constructors used to be the exclusive make-up of public concessions and are now finding it difficult to compete with big international players,” he told OBG. “But local companies could never have absorbed all the work currently on our plate.” In some cases, such as joint ventures, foreign contractors have even opened doors for locals to participate in projects that otherwise would have been out of their league. For Grupo CUSA, this has been true with the construction of a third bridge over the canal, taken on in association with France’s Vinci Construction Grands Projets. Such benefits seem to override the downfalls of unbalanced competition. Fábrega, for example, does not foresee the government applying any sort of protectionist measures in favour of local companies in the near future.


With a rapidly growing economy and population, the country’s insufficient levels of energy generation have many sector specialists on the edge of their seats. “Energy is reaching a critical point,” Fábrega told OBG, adding that Panama City should expand its supply by around 100 MW per year. Many of the infrastructure projects currently under way, such as the metro and airport expansions, will also require high levels of energy consumption. One viable solution that has appeared through an emerging industry is hydroelectricity. “Panama has lots of potential to develop a major hydroelectric power industry and help solve energy problems that inevitably come with growth,” Fábrega told OBG. According to the National Authority of Public Services, around $1bn is currently being invested in the construction of hydroelectric dams, distributed between 18 power plants in the regions of Chiriquí, Bocas del Toro, Veraguas, Colón and Coclé. From 2013 to the end of 2014, eight new plants should come on-line and add more than 200 MW to the national interconnected grid. Other plants include 19 concessions that are currently in their final stages of design, as well as 34 additional projects lined up for the future. A total of more than 70 hydroelectric concessions are currently operating in Panama. “The country is considering alternative ways to generate energy, whether hydroelectric, hydrocarbons, thermoelectric or other methods,” Fábrega said. “All these projects will require infrastructure that provide positive forecasts for the construction sector in the short to medium term.”


Though non-residential construction has been leading sector activities lately, 2013 kicked off as a dynamic year for the housing segment. Up to June 2013 residential construction permits in the nine principle regions of the country totalled $438.26m, representing a 38.7% y-o-y increase, according to CAPAC. Non-residential permits during this same period fell by 26.8%, accounting for projects worth $234.31m. CAPAC forecasts this trend to have remained constant through to the end of the year, closing 2013 with some $1.4bn of private investment in the construction of residential and non-residential buildings, as compared to $1.36bn in 2012.

The total number of constructions, additions and repairs carried out in 2012 in the residential segment came to 9313, covering an area of 1.44m sq metres, according to CAPAC. Up to April 2013, the number of residential projects under way reached 3009, over an area of 594,334 sq metres. As expected, most residential building activity is taking place in Panama City and major urban centres within the region of Panama, especially concentrated in cities like La Chorrera, Pacora, Arraiján and San Miguelito. Solely based on construction permits, Arraiján and San Miguelito saw increases of 106.54% and 66.67%, respectively, according to the National Board of Housing Developers (Consejo Nacional de Promotores de Vivienda, Convivienda), a major construction and real estate association in Panama.

Of the residential projects under way, middle to upper-middle class segments are the most popular areas for developers, with target properties ranging from $40,000-120,000. For Raúl A Hernández Sosa, business manager of leading developer Provivienda, the development in this segment reflects overall economic success. “Even if growth does begin to slow down to around 5% in the next couple of years, the middle class market is still going to be strong,” Hernández told OBG. “Although many investors have entered and many will start pulling out, the market is nowhere near saturated. On the other hand, few developers who enter stay for the long term.”

One factor adding dynamic elements to the middle class segment includes a series of government incentives for Panamanians to become property owners (see Real Estate section). Though incentives for developers are virtually non-existent, these specific programmes have helped create a market and propel construction activities. As a foreign company originally from Colombia, Provivienda has operated in Panama for the past 20 years. Other major residential developers coming from abroad include Amarilo, also from Colombia, and El Salvador’s Grupo Roble. Both of these companies have a strong presence throughout Central America in general.

Social Housing

As in many countries in the region, Panama harbours a relatively large housing deficit. According to the last census conducted by the National Institute of Statistics and Census in 2010, the quantitative housing deficit was more than 136,000 units while the qualitative figure was around 76,500. The region of Panama, home to the capital city, is in most need of housing solutions, with a deficit of more than 44,000, followed by the indigenous reservation Comarca Ngöbe Buglé, with 25,412 units, and the regions of Colón, Chiriquí, Bocas del Toro and the other indigenous reservation of Comarca Kuna Yala, all home to a deficiency of between 8000 and 11,000 units.

According to the Ministry of Housing and Territorial Organisation (Ministerio de Vivienda y Ordenamiento Territorial, MIVIOT), between 12,000 and 15,000 new families require housing per year. Elisa Suárez de Gómez, the executive director of Convivienda, told OBG that the private sector builds some 11,000 homes per year, meaning the deficit growth is nearly contained but not reduced. While the deficit lingers as a major concern for the country, few government initiatives have sought to address issues such as exceedingly strict regulations, onerous bureaucratic procedures and the increasing costs of materials and land. This has largely contributed to stifling private sector participation in housing projects for the low-income segment, leaving a large unsatisfied market (see analysis).


Suárez de Gómez describes housing development as one of the most regulated industries in Panama. Aside from MIVIOT, public institutions such as the Ministry of Health, the MOP, the National Environmental Authority, local municipalities and the Fire Department all have their own standards for construction. Many of these institutions require firms to go through several procedures, which greatly slows down business. “On average a developer has to spend two to two-and-a-half years in bureaucratic paperwork before being able to move a millimetre of soil,” Suárez de Gómez told OBG.

Municipalities pose an especially large obstacle for social housing initiatives due to high levels of corruption and excessive taxes, which, according to Suárez de Gómez, can often be arbitrary. “Taxes are necessary, but municipalities are going overboard, charging not only for permits but for occupation, urbanisation, publicity and anything else they can think of in order to profit from construction activities,” she told OBG. The impact of these regulations is affecting every segment of the industry but particularly low-income housing, since the margins are not sufficient for developers to make a profitable business. Furthermore, for developers to obtain financing through bank credit, permits need to be in order, meaning that projects tend to operate solely on investor capital during the first couple of years.

Regardless of such problems, developer credit has increased substantially over the past years. Indeed, up to November 2013 the local banking system had already loaned $3.59bn to construction companies, significantly higher than the total amount of developer credit from 2012, which amounted to $2.9bn, according to CAPAC.


Other complex issues affecting the residential segment are the increasing prices and scarcity of land. According to Hernández, much of the rising prices can be attributed to speculation, but the fact that many available lands are not urbanised also raises the costs for any project.

“The cost of urbanising plots is so high it has become a priority over the value of the actual land,” Hernández told OBG. “There is a shortage, not necessarily of physical land, but rather the availability of usable and affordable land.” Contributing to this state of affairs, Hernández said that much land is owned by a few families who are not willing to sell at market prices. “These families do not need the money so they place extremely high prices on plots that no one ends up buying,” he also said.

New Trends

As land scarcity is not likely to let up any time soon within the capital city, residential trends point towards densification. Though many parts of downtown Panama City are lined with skyscrapers, new densification plans look to construct more moderate high rises of around 20 floors, according to Suárez de Gómez. As the metro continues to add more lines to the city, construction is also expected to take off around stations. Suárez de Gómez said in many cases this will involve demolishing older houses or small apartment buildings in order to construct large buildings in their place. Convivienda has made a name for itself within the business community as a major mediator between the private and public sectors, pushing for legislative measures that seek to find solutions to problems with the ultimate goal of improving residential construction. According to Suárez de Gómez, government reception of private sector needs has significantly improved with the current administration, but much work has yet to be done. “State policies need to effectively coordinate all parties involved in the business to generate incentives for developers, for example, a law that would allow tax exemptions for constructing social housing within a certain range of property value,” she told OBG. As the capital city grows, she said incentives would also need to exist for green buildings.


With so much work on the country’s agenda, the hands that draft designs, haul cement and lay bricks are multiplying. In 2012 the total number of employed construction workers ranged from 166,269 to 180,277, according to CAPAC’s estimates. This figure is an increase from the 156,787 workers employed in 2011 and 141,316 in 2010. A large part of this workforce has helped keep the country’s unemployment rate at one of the lowest in the region, closing 2013 around 4%. Salaries are also rising, with the sector’s minimum wage set at $748 per month in 2012, up from $717 per month in 2011. As in most countries, construction pays considerably more than the national minimum wage, which in Panama is established according to region and renewed every two years. The country is home to Latin America’s highest minimum wages, at around $450 per month, and will begin negotiations to raise pay in late 2014.

While this workforce is healthy and growing, the lack of qualified labour is a huge obstacle affecting the sector, as well as many other industries in the country. “It is not easy to find a qualified machine operator,” Fábrega told OBG. “Bricklayers, carpenters and metalworkers do not abound and they charge expensive rates.” According to Fábrega, a machine operator who should be paid from $4. .50-$4.80 per hour currently charges around $6. “Salaries 50-are determined by supply and demand, not necessarily by collective standards,” he added.

However, the most severe lack of workers exists in professional areas, such as engineers, lawyers and accountants. Many projects have resorted to importing these workers from abroad, adding even more to the community of foreigners living in Panama, which estimates place at around 1m people, or slightly less than one-third of the population.

This intense lack of skilled professionals has led to such extremes that industry specialists often talk of “talent hunting” or “employee robbery”, in which companies lure employees with highly competitive salaries. According to Fernández, the turnaround of skilled workers is skyrocketing because of this common practice, especially among technicians, which are in high demand. Several government initiatives have sought to pinpoint areas where turnaround is most frequent. Still, Fernández believes the solution ultimately falls on the responsibility of institutes and universities, which will look to offer new programmes and majors directly responding to areas in high demand (see Education chapter).


Local production of materials is restricted almost entirely to cement and concrete, run by an oligopoly of two international producers. Colombia’s Cementos Argos fully acquired Cemento Panamá in 2009, while Mexico’s CEMEX acquired the former Cemento Bayano in the 1990s. With market domination and heightened demand, cement prices in Panama have inflated significantly in the past couple of years, and no indicators suggest this trend will slow down any time soon.

The average price of a 94-lb bag of grey cement is currently set at $9.42, up from $5 a decade ago, according to the Consumer Protection and Competition Defence Authority. From January to July 2013 prices already rose another 7%, and both Cemento Panamá and CEMEX implemented new price hikes of 11% and 12%, respectively, in January 2014. For developers, increasing prices are becoming a huge concern, and in major projects, some companies have even opted to import. According to Fábrega, high cement prices were a central issue of debate for the companies working on the expansion of the Panama Canal. “After consulting local prices, companies were initially going to import cement,” he told OBG. “This was a means to pressure local producers to lower prices, which in the case of the canal came down to around half the market value.” Introducing a third cement producer and competition to lower prices would be very welcome by the business community, Fábrega added.

Aside from cement and aggregates, such as sand and stone, practically all other materials are imported, their prices relying heavily on the global market. As Panama expands its range of free trade agreements, negotiations will concentrate heavily on the import of materials such as steel and plastics, which are in high demand. Much of the current steel production comes from neighbouring Costa Rica.


Impressive double-digit sector growth figures are largely the result of major public works, many of which will soon come on-line and begin serving the population and national industries. As this occurs, infrastructure needs will begin to shift to emerging sectors such as energy and mining. Logistics will also continue as a major trademark of Panama, pushing construction needs for ports and systems of connectivity. On the residential end, demand appears healthy across all social segments. Although the middle range has generated the most competitive prospects, both industry specialists and the government will no doubt look to improve conditions for developing low-income housing. Increased purchasing power and inflation will also modify social categories and the properties built.

Although presidential elections in 2014 should momentarily slow down investment, positive midterm prognoses for the economy provide a stable outlook for any new player eager to enter the sector. Construction activities have already proven a substantial generator of wealth and opportunities.