Panama has a solid foundation of economic and political stability. Panama grew at 8.4% in 2013 – the second-fastest growth rate in Latin America and the Caribbean. Average growth over the past decade has been 8.7%, Latin America’s fastest, including 3.9% during the global slump in 2009. Thanks to good macroeconomic policy making, it has a history of low unemployment (currently 4.1%), and low inflation (4%). An upper-middle income country, it has free-flowing capital and attracts one of the highest rates of FDI in Latin America at 11.7% of GDP in 2013, compared to Mexico’s 1.3%. Between 2007 and 2013 Panama doubled its GDP.
With the Panama Canal expansion works going into full gear, the construction of a Metro system in Panama City and several large infrastructure projects such as roads, convention centres, hospitals, utilities and social housing, growth is expected to remain strong over the coming years, although lower than in the past five. Panama is a hot destination for foreign investment, with the UK being the second largest investor. Panama is a hub for air travel, maritime transportation, financial services, telecommunications, distribution of goods and regional headquarters.
Panama lies along the narrow land bridge dividing North and South America, traversed by the 50 mile long ship canal. A mountain range runs through the centre of the country, with coastal plains of varying width on either side. The eastern region of Darien next to Colombia is dominated by dense tropical rain forest. The main agricultural areas are in the west, in Chiriqui province bordering Costa Rica.
Panama's current population is estimated to be 3.86 million (2013 est.), with a growth rate of 1.35% (2014). It is mostly of mixed descent, but there are sizeable communities of indigenous Carib Indians, Afro-Caribbeans and Asians. The capital, Panama City, at the Pacific end of the canal, has a population of around one million. The other main cities are Colón, at the Caribbean end of the canal – the site of one of the world's largest duty free zones – and David, the capital of the western farming province of Chiriqui.
Panama's history has been conditioned by its use as a trade route between the Atlantic and the Pacific. It became independent from Spain in 1821 and joined Simon Bolivar’s “Gran Colombia”. Later other South American countries broke away from the “Gran Colombia” and Panama was left as the only remaining country. On several occasions during the 19th century Panama tried to break away until it succeeded in 1903 under US protection as part of the deal enabling the US to build the canal.
The original treaty giving the US jurisdiction in perpetuity over the area on either side of the canal – the Canal Zone – was eventually replaced by the Carter/Torrijos Treaties signed in 1977. These recognised Panamanian sovereignty over the Canal Zone, and provided for the progressive transfer to Panama of all the Zone land and installations, including the extensive US military base areas, culminating in the transfer of ownership and control of the canal itself at the end of 1999. The Treaties have been implemented in full and on schedule, making Panama for the first time one territory under one flag.
Panama is today a representative democracy with a directly elected President and Vice President allowed to serve one five-year term of office, and a legislative Assembly elected at the same time. 21 years of military rule were ended in December 1989 when US forces intervened to overthrow and arrest on various criminal charges the military leader General Noriega, who subsequently served a long prison sentence in the US. He was extradited to France (for money laundering charges) in April 2010 and granted a conditional release and returned to Panama at the end of 2011 to serve a further 20 years.
The subsequent successful restoration of democracy has included five clean elections, in 1994, 1999, 2004, 2009 and the last in May 2014. As the incumbent President, Mr Ricardo Martinelli, leader of the CD party, was ineligible to stand again, the Vice President Juan Carlos Varela of the Partido Panameñista took office in May 2014.
Strengths of the market
The US Dollar has been legal tender in Panama for over a hundred years. The Government of Panama has emphasised its intention to retain the US Dollar as a legal currency besides the local Balboa (the US Dollar is on a par with the Balboa, but no paper notes of the Balboa are ever printed – the Balboa remains mainly in fractional and commemorative coins). There is no independent monetary policy in Panama, eliminating any local exchange rate risk; and there are no foreign exchange controls. Inflation is low making attractive any foreign investments. There are no legal restrictions on capital outflows or transfer abroad of funds associated with profits derived from, or capital employed in investments.
100% foreign ownership is allowed.
Special tax and other incentives for investments in tourism and reforestation, and in export processing zones. Also tax advantages when setting up operations in the Colón Free Zone, the Panama Pacifico Special economic area and other special economic zones. Similar incentives are on offer for educational and research institutions establishing themselves within the capital’s City of Knowledge.
No restrictions on the transfer and repatriation of capital and profits.
Underlying economic stability, with a record over recent years of low inflation, steady and sustained economic growth, and sound financial management. Panama’s financial centre is well regulated and has not experienced major difficulties as a result of the global economic downturn. There have being no bailouts as there is no Central Bank or lender of last resort.
Legislation guaranteeing juridical security, fiscal and tax incentives for investors.
The country is strategically located on the major world shipping route provided by the Panama Canal, and it has a modern telecommunications service. Panama has one of the highest connectivites in the world, as five major (PAC, SAC, ARCOS MAYA and Panamericanos) international cable lines come ashore here in order to cross-over from one ocean to another.
Panama has excellent air connectivity. COPA Airlines is the only airline to fly to every Latin American country. There are frequent connections to several locations in the EU and US. Tocumen International Airport is being expanded to meet passenger growth, with passenger footfall now the highest in Latin America.
Panama's economy, unlike that of its Central American neighbours, is based on a well-developed services sector, including the Canal, shipping, banking, the Colón Free Zone and the Panama Pacifico Special Economic Area, and accounting altogether for some 80% of GDP. With a dollar-based currency (the US dollar is legal tender) the economy has also historically been one of the most stable in Latin America.
Over the last five years Panama's economy has enjoyed steady and sustained growth combined with low inflation with a peak in GDP annual growth of 10.7% in 2012. The GDP in Panama expanded 6.3% in the second quarter of 2014 and is the fastest-growing in Latin America. Unemployment was estimated at 4.2% in 2013 – effectively full employment, but Panama should be noticed not for its small internal market, but primarily for the opportunities it offers as a gateway into the wider Latin-America region.
Panama’s central location and geography is the foundation of its role in facilitating global trade. The Panama Canal also plays a major role. The US$5.25 billion investment to expand the Canal will enable 8% of world trade to pass through it on completion in 2015. Connecting 144 maritime routes, it has the greatest global maritime connectivity in the world (UNCTAD).
Panama has taken advantage of its geographical luck and the Canal to build unrivalled transport and communications connectivity in Latin America. Tocumen International Airport is the most connected airport in Latin America and the Caribbean with 69 routes to 31 countries, and flights available to every Latin American country.
At either end of the Canal, Panama boasts the first and second busiest ports in Latin America, connected by a freight railway as well as the waterway. The Colón Free Zone – the second largest free zone in the world after Hong Kong – provides a distribution platform for re-exports around the region, whilst Panama Pacifico is a UK investment in a mixed-use real estate that includes a logistics park on the Pacific side. The continent’s fibre-optic cables pass through the Canal, improving internet connections and speed.
Today over 100 companies have based regional headquarters in Panama, including DELL, BASF, Samsung and Adidas, and Diageo, GSK, Unilever, Aggreko, Cable and Wireless, Biwater and JCB from the UK. GSK moved its vaccines research hub to Panama from Brazil.
And it is emerging as a regional financial hub. It possesses a large international banking sector with over 90 banks. Its capital market is linked to Europe via Euroclear, giving international investors easier access to local bond markets. Free capital movement and use of the US dollar attracts deposits and investments from across Latin America.
Panama City attracts global business due to its strategic location and good business environment. A safe and thriving metropolitan area, excellent connectivity, and free trade agreements with the US, EU and many Latin American countries helps draw multinational companies that want to establish regional headquarters. Law 41 offers tax discounts for those that do, including no tax on extraterritorial services alongside other tax and migratory benefits.
Panama City also offers more than just a hub for business. It acts as a hub for humanitarian services, including the Red Cross and UN. The City of Knowledge wants to become a regional university hub. US campuses are already present. New conference facilities and a doubling of hotel rooms will make Panama a destination for convention tourism. Latin Americans flock to Panama’s “world-class” malls stocked with luxury goods, and tourism numbers are on the rise.
Further opportunities sit on Panama’s doorstep. Panama is looking to become a member of the Pacific Alliance and now has the necessary free trade agreements in place with members to allow accession. This could hold huge trade and investment opportunities for Panama, particularly as Panama is well-placed to benefit from intra-regional trade in financial and logistics services – which should boost economic growth.
Panama is competing successfully with Miami. Latin Americans need a visa to visit or transit Miami – but not so in Panama. Although Miami retains the title of “Capital of Latin America”, ever more Latinos are using Panama’s platform for work, travel and entertainment.
Panama will be watching closely plans in Nicaragua to develop a rival inter-oceanic canal and logistics facilities, however costly and time-consuming such plans may be.
Source - UKTI
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