Panama secured what looked like a win for future investment on October 27 when it was announced in Paris that the Financial Action Task Force (FATF) had removed the country from its greylist. Yet, more than 5000 miles back home, things did not look so rosy. 

The country was facing a double crisis of droughts threatening the Panama Canal and growing nationwide protests over a mining contract granted to Canadian company First Quantum Minerals. Now, less than a month later, Panama’s business-friendly image has taken a hit due to the prolonged protests, which have caused food and fuel shortages and paralysed the country.  

“What is more important is that the problems stemming from the mine and the [reduced water in the] canal are linked to the energy transition,” says Luis Losada, head of the Latin America and Iberia practice at Aperio Intelligence. 

“Copper is essential for batteries, solar panels, among other minerals,” he explains. “Panama is a good example of a mineral-rich country where locals oppose new mines such as this one which [contribute to] Western governments’ demand for copper. The situation in Panama is telling us that the energy transition cannot be at the expense of other countries.”

Mine protests 

On October 20, the Panamanian government approved a 20-year mining rights contract for First Quantum Minerals to allow the company to continue operating its Cobre Panama mine, which began production in 2019 and contributes 5% to Panama’s gross domestic product, according to First Quantum Minerals. The approval triggered a wave of protests across the country, with demonstrators claiming that its approval did not involve citizen participation and stressing that the open-pit copper mine is in an area of biodiversity. 

“The protests have pushed the government to consider a contract renegotiation, which is likely to increase uncertainty and undermine investor confidence,” says Arantza Alonso, senior Americas analyst at risk intelligence company Verisk Maplecroft. “This will likely damage Panama’s reputation as a reliable business partner and negatively affect its ability to attract private investment in the future.” 

On November 7, US credit rating agency S&P Global Ratings revised the outlook on its long-term sovereign credit ratings on Panama to negative from stable, citing “the risk of potential damage to investor confidence and to future private investment stemming from the ongoing controversy” over the mining contract.

The canal is thirsty

Meanwhile, extremely dry weather has taken a toll on the country’s biggest source of wealth, the Panama Canal, whose sets of locks need great volumes of freshwater to properly function. 

Panama Canal Authority said in an advisory note on October 30 that due to the lowest recorded precipitation levels for October since 1950 and its second driest year to date, it will reduce booking slots from 31 vessels per day to 25 starting on November 3. This number is set to trickle down to 18 per day from February 1 until further notice. 

The restrictions caused logjams at both ends of the canal, stretching waiting times for any vessel, and which may cost the country as much as $200m in lost revenues, local media reported. 

For now, many are waiting on the decision of Panama’s Supreme Court to judge whether the approval of the 20-year mining contract was unconstitutional. But with elections in May next year, the months ahead appear no less difficult.

“If the Supreme Court doesn’t rule it was unconstitutional, then it will mobilise people again,” Mr Losada says. “There were protests in 2022 so there may well be protests next year in connection with the elections. The future doesn’t look so bright for Panama.”

After years fighting for its reputation after the Panama Papers scandal, the FATF’s decision to remove the country from its greylist comes as a Pyrrhic victory. Its global reputation may be restored, but its internal stability has never been more on the line.