to grow. Although most expansion in hotel capacity is expected to occur in the metropolitan area of Panama City, in relative terms accommodations are likely to more than double in Bocas del Toro and significantly rise in Cocle and other areas of coastal tourism (Appendix Table 2).

Tourism is a major source of foreign exchange for the economy, and a potentially powerful means of reducing poverty. It can also help improve the economic profitability of some measures aimed at preserving biodiversity and natural habitats, such as through well-managed ecotourism services. But uncontrolled tourism development poses significant social and environmental risks, particularly acute in Panama because of the already high inequality and environmental sensitivity of the growing tourist destinations in the proximity of the Mesoamerican Biological Corridor (MBC).

# **3. Tourism Sector Could Be the Key for Poverty Reduction and Growth in Rural Areas**

Panama has traditionally been characterized by a ―dual‖ economy with high inequality and includes: (a) the rapidly growing urban sector based on exports and services from the Canal and the ZLC; (b) poor urban areas and the rural areas, where agriculture is the main source of livelihood and poverty is high, especially in the indigenous areas.<sup>6</sup> The urgency of the poverty concerns is evident from the deep divide between the urban and rural areas, and—within rural communities—between the indigenous and nonindigenous. Almost 85 percent of the poor in Panama live in indigenous and in nonindigenous rural areas, and—despite the slight narrowing of the gap by 2008—poverty rates in rural and especially in indigenous areas of Panama are still more than twice as high as in urban areas (Table 2).<sup>7</sup>

**Table 2. Poverty Has Slightly Declined Nationally and in the Indigenous Areas.**

||**Po**<br>(perce|**verty**<br>nt of popul|ation)|**Extrem**<br>(percen|**e Pover**<br>t of popu|**ty**<br>lation)|**Ineq**<br>(Gini co|**uality**<br>efficient)|
|---|---|---|---|---|---|---|---|---|
||1997|2003|2008|1997|2003|2008|1997|2003|
|National|37.3|36.8|32.7|18.8|16.6|14.4|48.5|46.9|
|Urban|15.3|20.0|17.7|3.1|4.4|3.2|41.4|42.1|
|Rural (non-<br>indigenous)|58.7|54.0|50.7|27.4|22.0|22.2|41.3|39.0|
|Indigenous|95.4|98.4|96.3|86.3|90.0|84.8|40.2|34.9|

_Source:_ 1997 and 2003 ENV data, reported by World Bank (2007). The 2008 ENV estimates are cited from Panama’s _Instituto Nacional de Estadística y Censo_ data (2008) and from World Bank (2010).

6 The Ngobe-Bugle are the largest group (175,000 people), living mainly in the Bocas del Toro (bordering Costa Rica) and Chiriqui provinces; the Kuna on the Caribbean coast are the second largest (92,000 people); and the Embera-Woonan (33,000) live mainly in the rainforest of the Darien (bordering Colombia) and Panama provinces. The Ngobe-Bugle have the least political leverage, and this group’s culture and livelihoods are under threat. The Embera-Woonan and some smaller indigenous groups also have a weak political voice, and this group’s livelihoods are under threat because of lawlessness and safety problems, resulting in strong out-migration. The Kuna have a strong political and administrative structure, thanks to strong local leadership.

> 7 Based on the detailed analysis in ―Panama Poverty Assessment: Toward Effective Poverty Reduction,‖ World Bank, 2007.

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