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Panama has historically served as the crossroads of trade for the Americas. Its strategic location as a bridge between two oceans and the meeting of two continents has made Panama not only a maritime and air transport hub, but also an international trading, banking, and services center. Panama’s global and regional prominence is being enhanced by trade liberalization and privatization and it is participating actively in the hemispheric movement toward free trade agreements. Panama's dollar-based economy offers low inflation in comparison with neighboring countries and zero foreign exchange risk. Its government is stable and democratic and actively seeks foreign investment in all sectors, especially services, tourism and retirement properties.
Due to the country's historic evolution, which focused resources overwhelmingly on services and transactions, the assembly and manufacturing sectors – largely comprised of production of items such as processed foods, chemical products, construction materials and a small and declining clothing sector - remain severely underdeveloped. Panama’s economy is characterized by great income disparities, with social and economic inequalities marked by a high percentage of the population living at or near the poverty level with significant underemployment and limited education and other social benefits.
In 2010 the three major credit rating agencies – Standard & Poor’s, Moody’s, and Fitch - all raised their credit ratings for Panama to investment grade, granting the Government of Panama international recognition for recent tax reforms and its record of steady GDP growth while keeping its deficits under control. The investment-grade rating both lowers the cost of borrowing for the Government of Panama and sends a positive signal to foreign investors.
Panama's economy is based primarily on a well-developed services sector, accounting for about 75% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, and flagship registry. The country is currently engaged in a $5.25 billion expansion of the Panama Canal that, when finished, would allow significantly larger vessels to transit and might alter shipping routes to and from multiple U.S. ports. This project, in conjunction with the expansion of the capacities of its ports on both the Atlantic and Pacific coasts and ongoing investment in regional fueling operations, will solidify Panama’s global logistical advantage in the Western Hemisphere.
This logistical platform has aided the success of the Colon Free Zone (CFZ), the second largest in the world after Hong Kong, which has become a vital trading and transshipment center serving the region and the world. CFZ imports – a broad array of luxury goods, electronic products, clothing, and other consumer products - arrive from all over the world to be resold, repackaged, and reshipped, primarily to regional markets. Because of this product mix, U.S. brand market share is significant, even if most of those products are made in Asia.
The U.S. is Panama's most important trading partner, with about 30% of the import market, and U.S. products enjoy a high degree of acceptance in Panama. In 2012, U.S. exports to Panama jumped 20% to $9.9 billion – in no small part due to the fact that Panama’s economy grew 10.6% in 2012. However, international competition for sales is strong across sectors including telecommunications equipment, automobiles, heavy construction equipment, consumer electronics, computers, apparel, gifts, and novelty products.
The Trade Promotion Agreement (TPA) between the U.S. and Panama that went into effect in October 2012 will continue to offer U.S.-made goods a competitive advantage. For 87% of U.S.-made goods, tariffs dropped to 0% immediately. However, Panama’s average tariff on goods is only 7% and in several key sectors – sales of consumables to the Government for the Canal expansion and other infrastructure projects, automobiles, and goods for use in hotels – duties are either 0% or are waived.
Panama also has full free trade agreements (FTAs) with El Salvador, Taiwan, Singapore, Chile, Costa Rica, Honduras, Guatemala, Peru, Nicaragua, and Canada, as well as partial trade agreements with Colombia, Mexico, Dominican Republic and Cuba. It is engaged in active negotiations for full FTAs with Colombia and the EFTA countries and has completed negotiations with the European Union. Panama has also expressed interest in negotiating a full FTA with Mexico and in joining the Pacific Alliance, whose members Chile, Colombia, Mexico, and Peru are seeking further economic integration.
Panama’s inflexible labor laws are a source of concern for prospective investors. Firing practices are excessively regulated, reducing labor mobility and inhibiting hiring. While inexpensive in global terms, Panama's minimum wage is relatively high in a Central American context. In addition, competent technical employees fluent in English may be hard to find. These labor issues, coupled with relatively high costs for electricity, result in higher than average unit production costs in Panama.
Instances of questionable government practices continue to affect U.S. investors in Panama. These include bidding procedures, contract obligations, and a slow and imperfect judicial system. The current administration has announced an ambitious agenda of fiscal reform, anticorruption and transparency improvements, and reform of the Social Security system. With the exception of fiscal reform, however, there has been little to no progress on these fronts. Continued improvements in the areas of educational and judicial reform will be critical for Panama to improve its business competitiveness standing in the region.
International indices generally rate Panama as one of the best countries in Latin America for business and investment. At the same time, however, U.S. investors have voiced concerns about corruption and inconsistent treatment. For these reasons we encourage U.S. companies interested in investing in Panama to read our report on Investing in Panama thoroughly and to contact us for more information. We also recommend that Americans interested in purchasing property in Panama review the U.S. Citizens Services note here.
Panama has no restrictions on the outflow of capital or outward direct investment. Its accession to the World Trade Organization in mid-1997 opened up trade and lowered tariffs across the board, giving Panama the lowest average tariff rate in Latin America. Panama’s recognition of the U.S. sanitary and phytosanitary system and the creation of a new Food Safety Authority have essentially eliminated the previous slow and arbitrary procedures for issuing permits for U.S. food products.
Consumer attitudes and many brand preferences are similar to the U.S. U.S. television, radio and magazines are all available and popular in Panama. Upper-income Panamanians frequently travel to the U.S. for vacation, medical treatment, study and business. Their buying patterns and tastes are similar to those of U.S. consumers.
U.S. goods and services enjoy a reputation for high quality and are highly competitive. Panama has in recent years established itself as a regional competitor to Miami for consumer retail, which may result in a larger market than its domestic population would indicate. The country boasts the highest per capita GDP in the region. However, income distribution is highly skewed toward a relatively small, consumer goods-oriented, economically powerful class. This class enjoys a very high level of disposable income. They prefer high quality trend-setting goods where price is a secondary determinant in the purchasing decision.
Market Entry Strategy
Due to its open economy, Panama has few market access problems. One of the more common market entry options is to appoint an agent or distributor. Another option is to find a local partner who can provide market knowledge and contacts. Other businesses have been successful via licenses or franchises.
The U.S. Commercial Service offers U.S. companies market entry assistance through a variety of services, any of which can be tailored to suit your needs. We also will work to defend your business interests in Panama if the need arises. We measure ourselves on our ability to help you do more business in Panama.
Given the ease of air travel between the U.S. and Panama, our Gold Key Service (GKS) is our most popular offering. This service connects you with qualified representatives, distributors, partners, or customers. The U.S. Embassy will conduct background checks, set up the meetings, and provide translation and driving services as part of the package.
To learn more about how we can assist you in doing more business in Panama, please visit our website at www.export.gov/panama. You can also call us at 011-507-317-5000 or email us at firstname.lastname@example.org.
For More Information
The U.S. Commercial Service in Panama can be contacted via e-mail at: email@example.com;
Phone: 011-507-317-5000; or visit our website: http://www.export.gov/panama.