By Richard Lapper and Adam Thomson in Panama City, Http://www.FT.com
Published: Jul 11, 2007

President Martín Torrijos of Panama yesterday unveiled what could become one of the biggest investment projects in the country's history, with a value of up to $10bn (€7.3bn, £4.9bn).

The creation of an urban centre the size of central London on the outskirts of Panama City is the latest sign of an economic boom that has invited comparisons between Panama and bigger international business centers, such as Dubai.

A specially created government agency will provide residents with streamlined regulation and there will be tax incentives for selected industries.

London & Regional, the UK-based company that will develop the site, said the project, on the former Howard US air force base, would reinforce Panama's attractions as a centre of international business.

Ian Livingstone, of London & Regional, said it would combine industrial, retail and residential properties and its value, including all finished infrastructure and buildings, could be worth up to $10bn.

Mr Torrijos's administration, which took office in 2004, is poised to award the first contract for breaking ground in an ambitious $5.25bn plan to expand the canal, which connects the Atlantic and Pacific oceans and is one of the world's most important waterways.

Panama took full control of the canal in 1999 and the investment in three new locks and physical widening will facilitate the passage of huge cargo ships, known as post-Panamax vessels.

International and local companies are pouring billions of dollars into Panamanian residential property developments, in large part to capitalize on the peak of interest shown by US and Canadian retired people and second-home buyers.

In addition, deals worth $14.5bn have been agreed recently to build two oil refineries and the US Congress is expected to approve a trade agreement soon between the two countries.

Mr Torrijos said recently that the refineries, canal expansion and trade pact are the three motors that could propel Panama towards developed country status. Panama's economy, which is fully dollarised, grew 8.1 per cent in 2006, and economists believe it could grow more than 10 per cent this year. Inflation, meanwhile, is subdued and lending rates are among the most competitive in the western hemisphere.

However, some analysts suggest that the government must do more to reduce poverty, especially in rural areas, if development goals are to be achieved.

"Wealth is being concentrated more and more. This is very bad news, " said Guillermo Chapman, an analyst at the Indesa consultancy in Panama City.

The London & Regional project hopes to attract businesses from neighboring countries that do not enjoy the sort of stability that Panama offers.

Panama has begun to attract significantly higher numbers of investors from Colombia and Venezuela than in previous years, and analysts expect that trend to continue.

Although London & Reg­ional has yet to present the government with a master plan of the 1,800-hectare site - WS Atkins, the UK professional services company, must do so within 90 days - the plans are known to include a golf course, apartments, schools and hospital.

"It will have an urban feel, with town-centre-type shops, public open spaces, condominiums. . . We are going to build a sustainable community, " said Mr Livingstone.

The site's proximity to the Panama Canal, the Pan-American highway and to Howard's 3.5km runway gave it unprecedented access for individuals and companies, he said. "In terms of logistics, it's a no-brainer. "

In addition to an initial $405m minimum investment over the next eight years by London & Regional and local partners, Mr Livingstone has committed another $300m over the remainder of the 40-year concession.

London & Regional, a private company run by Mr Livingstone and his brother Richard, is known as a highly leveraged buyer of property assets. In recent years it has branched out into development projects and started investing overseas, with offices in South Africa, Russia and Ukraine.

Additional reporting by
Jim Pickard