The Panama Canal expansion

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The Panama Canal expansion opens the floodgates to a new economic development

Considered one of the most important works of the world, the Panama Canal expansion is much more than a pride of infrastructure. It is the main economic engine of Central America and a pillar of international trade, connecting the Atlantic and Pacific oceans, and with them, the trade between Asia and Europe via America. This explains the transcendent importance that this project has been initiated with a referendum in 2006 to decide whether the Panamanians wanted to carry out the work, and will end in 2014 , will open its gates when the new set of locks , amid the commemoration of the centenary of the Canal. But between one date and another , there is a sea of economic data and business projects that experts interviewed by Knowledge @ Wharton trot out as an example of the importance of this infrastructure.

Perhaps the fact that best summarizes the current and future significance of the Canal is the one quoted by the professor of the University of Panama Vielka Vásquez de Ávila , when he notes that , currently , for this infrastructure ” transits 4% of world trade” , thanks enlargement, ” we will be in good condition , from 2015 , to cope with what would be a possible increase to over 6% of world trade through the Isthmus of Panama .” This increase is due to several factors.

On the one hand , the mere fact of enlargement brings with it an increase in vessel capacity . But in this case , practically the number of tons that pass from Atlantic to Pacific , reaching 600 million a year, up from the current 340 million double. Always according to the information provided by the Panama Canal Authority (ACP ) , the government body that manages the Canal, this quantum leap will be thanks to the new set of locks has been designed so that they can cross them of mega- Panamax , whose enormous dimensions enable economies of scale and , at the same time, lower between 7% and 17% operating cost per container. Its 366 meters of length equivalent to more than seven Olympic swimming pools and allow you to save inside up to 12,000 containers.

In fact, one of the reasons that led authorities to the Central American country was given to extending the loss of competitiveness of existing infrastructure , unable to serve the Panamax . The growing demand for these mega lead them to represent 37 percent of the world’s containership fleet in 2011 , which explains the urgent need in the Isthmus of adapt. After hundreds of studies , the Panama Canal Authority contrasted that with this work its market share in the Asia – route north eastern United States would rise from 38% to 41 % compared to the fall would suffer if they continued with the existing infrastructure , and relegate their weight to 23 % of market share.

The Suez Canal and the U.S. intermodal system ( vessels arriving in port by land and cross the whole country) are the main rivals of the Panama Canal , which also could have faced new competitors interested in taking a piece of succulent pastel representing the growing maritime traffic between the Atlantic and the Pacific. As you remember Juan Carlos Martínez Lázaro , professor at IE Business School expert in macroeconomics, ” Mexico and Nicaragua also planned to connect the two oceans through their respective territories.” In the first case , the model would be similar to the current U.S. intermodal network , while the second analyzed the possibility of connecting the two coasts by river channels , with similar infrastructure to having Panama .

Although Professor of IE Business School believes that these projects lose interest with the Canal expansion , also remember that ” will ever be more important trade between the Pacific and Atlantic, due to a 7% annual growth that is taking the Asian trade ” . China plays a key role , with its spectacular economic development and insatiable energy appetite, the Central American Isthmus will also take to service over oil and avoid other supply alternatives . “China is very interested in Venezuelan oil, and there was even a time when he was interested in financing the construction of a pipeline , which go into the Pacific by Colombia , which ultimately was not possible because of bad relations between these countries,” adds Professor Martínez Lázaro .

History of a country linked to a Canal

The importance of the Canal to Panama is such that even its independence from Colombia was determined by this infrastructure. When , in 1889, Philippe -Jean Bunau -Varilla engineer took charge of this work, launched nine years earlier at Compagnie Universelle du Canal Interocéanique Panama , came to the U.S. government for funding , and this ended up buying all rights to build and operate the November 18, 1903 , after the independence of the Isthmus guaranteed .

The U.S. administration was extended for 74 years , until President Jimmy Carter and Panamanian president Omar Torrijos signed the Torrijos- Carter treaty , led the Central American country to grant full power over the infrastructure from December 31, 1999 . A single data , provided by the ACP , can understand the importance of this change was to Panama management : during the 85 years of U.S. presence , perceived only Panamanian coffers of 1,878,000 dollars ( 1,372 million euros or 1.915 million dollars) from the Canal, almost the same amount ( 1.821 million of dollars) collected during the first six years under the leadership of the ACP .

As Vásquez de Ávila teacher, ” the Canal has played an important role in the development of the country. Today, after the transfer of the Canal to Panama , it provides significant amounts for all projects of National Development. With the government of President Torrijos, a fixed amount of million dollars to be used for the development of communities and projects are submitted by the communities themselves heading was established. In addition , the Canal expansion will enable important vessels , so far could not, which will result in increased traffic and increased revenue generation for the country. As a political concept , I think the management of the canal has been exemplary , something essential to us , because transparency Canal is recognized not only by the Panamanians, but internationally , recognizing that Panama has demonstrated ability to manage and exceed the expectations that had Canal in the hands of the United States. ”

In fact, the ACP estimates that during the first 11 years of the expanded Canal will collect about 30,000 million dollars ( about 22,000 million euros or 30.588 million dollars). This figure is six times higher than the $ 5.200 million ( EUR 3.662 million and 5.282 million of dollars) that the Panamanian government has allocated the entire canal expansion project , in which a provision of $ 785 million is included ( 797 million of Dollars 552 million euros) for any errors or delays. In addition, for the pockets of the population not suffer from this work, the model designed by the country’s authorities involves financing the project with the same activity Canal , increasing the fees paid by users of this infrastructure.

Economic Impact

The Panamanian Marco Fernandez, Visiting Professor of Economics specializing in Incae , put into context all this investment . ” When you look at how big the project asks: What is your actual size relative to the Panamanian economy ? The answer is that in the next seven years will represent about 35 % of all public investments , therefore, is a manageable project is like adding one -third to a good year public investment. ” In return , this work will increase by 1.2 % in the country’s GDP . And most importantly , will attract foreign investment and industrial development around the maritime sector. “The benefits do not come Canal both in infrastructure represents per se, but the business side , such as shipbuilding , provisioning of large ships , container ports … In fact, many come from foreign investment and the positive perceptions that companies around the world with this work. All this activity complementary to Channel be your real big impact , and will start to feel within seven years, ” adds Professor Fernández .

The international competition organized by the Panamanian authorities to award the construction of the third set of locks , the most important game of the entire project , attracted the interest of major construction and infrastructure groups worldwide . In the end, only three consortia were invited to submit a final offer , one Spanish , one led by Bechtel and a Hispanic – American Italian third . The latter , baptized under the name Unidos por el Canal , finished earning the win . Led by the Spanish Sacyr, in partnership with Impregilo , Holland’s Jan de Nul and Panama’s Constructora Urbana , got the highest technical score ( 4,800 points) , while made ​​the lowest bid , with a budget of 3.118 million dollars ( 2.235 billion euros or 3.167 million of dollars) , $ 280 million less than initial budget marked by the ACP .

Transparency that has characterized this process starts with the referendum called by President Martin Torrijos in October 2006 , five months after officially starting the project and after 120 studies conducted over the past five years. The work was supported by the 78 % of voters , although abstention was the dominant trend , since just went to the polls 42% of the population. From that moment, and always with the utmost to meet deadlines to reach the centenary of the Canal, in 2014 , opened with the extension , the country’s authorities convened an international competition. Tenders were guarded by the Bank of Panama to ensure that there were no leaks . “It has really been a very transparent process , which has become a highlight leadership Spanish infrastructure companies , present in two of the three final bids , and rising one with the win,” notes Martínez Lázaro .

International showcase for the country has led the process , important economic data will bring together the new infrastructure . Only during the construction period , is forecast employment impact of 40,000 jobs , of which 7,000 will be directly related to the construction work , according to figures shuffles the ACP . When the third set of locks is operational , the number of jobs that will be attached to range between 150,000 and 250,000 jobs . ” The economic impact of the Canal expansion will benefit not only Panama , but throughout Latin America, because it will attract and feed industry trade in the region ,” says Fernández.

The thorniest point of this whole process has been the environmental impact could be new developments . Hurdle that has been overcome with numerous studies that have wound up endorsing its viability. As noted Vásquez de Avila ” Every project of this nature will generate environmental impacts because building a third set of locks will modify what is called the natural landscape. This modification of the natural landscape will mean that much of the land will be flooded , with the consequent impact of environmental considerations , but the bottom line is that impact, according to all reports made by domestic and foreign , say it is minimal compared to which may be the great benefits it can generate the Canal”.

Source: Universia-Knowledge@Wharton

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