Panama Hub of the Americas
Cristina E Thayer, Julieta Rodríguez and Edgar Herrera of Galindo Arias & López explain why Panama may make the ideal location for foreign investment
O
ver the past few years, Panama has become one of Latin America’s most popular and desirable destination for foreign direct investment (FDI). Much of this recent surge in interest and investment stems from the continued local development of favourable foreign investment
conditions, such as an excellent telecommunication platform, top of the line maritime hub and port facilities, and a fiscal structure based on local source income. Panama’s attractiveness is further augment- ed by the existence of an international air transportation hub servicing roughly 70 destinations through- out the Americas, the easy import and export of goods within the Colon Free Zone, one of the lowest inflation rates in the region, and a banking system overseen by a reliable supervisory authority. Moreover, Panama has no legal restrictions affecting the international transfer of capital employed for investment purposes, nor does it have its own monetary policy instruments due to the adoption of the US dollar as its legal tender. While the Balboa (the national currency) remains in circulation for small denominations, it is directly tied to and interchangeable with the dollar. Accordingly, currency conversion issues never enter into the equation for potential investors in Panama. Geographically, Panama covers an area of 78,200 km2, with a tropical climate typically in the range
of 80 degrees Fahrenheit by day, and dropping slightly at night. The isthmus is inhabited by nearly 3.5 million people, who enjoy a per capita income approximately $4,000 higher than that of any other Central American country. The local economy is composed primarily of a highly competitive service industry (amounting to over 75% of the GDP) developed around the financial sector, as well as trans- portation activities and general commerce generated by traffic from both the Panama Canal and the Colon Free Zone. In contrast to the dominant service industry, the industrial sector is a comparatively less productive component of the economy, accounting for 12% of the GDP. The third-largest sector is agriculture, whose activities only amount to 7% of the GDP, although agriculture remains responsible for around 20% of total employment. The clear dichotomy between the service sector on the one hand, and the industrial and agricultural sectors on the other, reveal a vastly different scenario from that which presently confronts the rest of the Central America, where industry and agriculture remain the centre- pieces and driving forces behind the respective economies of Panama’s regional neighbours. An increas- ingly dynamic economy, Panama’s GDP has grown consistently since 2004, and continues to do so at an impressive rate. This sustained growth is in large part the result of an increase in investment and service exports. Panama maintains a relatively liberal trade and investment regime. For instance, applied most
favoured nation tariff rates average roughly 8.5%, with tariff peaks for some agricultural goods. Key economic sectors such as construction, tourism, health, education, banking, real estate and energy have been focus areas for foreign investment efforts, and unlike other Latin American countries, Panama’s services-oriented economy remains strong in the face of the financial uncertainty generated by the US and EU financial meltdowns. While no country has been entirely unscathed by these recent crises, Panama continues to be one of the best, and most profitable, places to do business in the Western Hemisphere. As it has since it first opened almost one century ago, the Panama Canal continues to play a vital role
in the country’s economy, and by 2014 the presently ongoing Canal expansion project is expected to be completed. Domestically, the finished expansion will benefit Panamanians by creating a large number of both direct and indirect jobs. The vastly expanded capacity of the Canal, one of the world’s critical trade arteries, will also greatly contribute to an overall increase in world trade, help improve the flow of inter- national commerce and facilitate the movement of goods through several important markets, allow the vital ‘All-Water Route’ to continue to grow, and will create more efficient service at the Canal itself. Collectively, these improvements will serve to tighten the global supply chain and, most importantly,
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“
The Panama Canal
plays a vital role in the country’s economy
” IFLR|FOREIGN DIRECT INVESTMENT 025
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