22 June 2018
Panama: Market Profile
- Situated in the centre of the American Continent, Panama has all the advantages required to be a regional logistic hub. Ever since 15 August 1914, when the first ship began to negotiate its way through, the Panama Canal – an 80-kilometre (50-mile) waterway running through the heart of Panama – has been a key trade link between the Atlantic and Pacific oceans. In order to remain competitive and to be able to accommodate today’s largest container ships, work on a US$5.25-billion expansion of the manmade waterway began on 3 September 2007. Just under nine years later, the expanded canal went into commercial operation on 26 June 2016, with the new locks in place at both its Atlantic and Pacific access points facilitating the passage of vessels carrying up to 13,000 containers for the first time.
- The principal users of the canal are the cargo ships travelling between Asia and the East Coast of the US, which collectively account for nearly one-third of the total tonnage handled in FY2016. An additional 25% came courtesy of the traffic between the US East Coast and the west coasts of Central and South America, much of which had originated in West Asia before passing through the Suez Canal. The expanded Panama Canal is expected to have a significant impact on the freight flow between Asia, the US and Central and South America, becoming an increasingly attractive alternative to the ports on either of the US coasts for any Asian traders looking to distribute across Latin America, especially if they are targetting the Colombian or Venezuelan markets.
- In addition to the expansion of the canal, the Panamanian government is also looking to enlarge the 70-year-old Colón Free Zone (CFZ). Home to more than 2,300 companies and with an annual level of trade in excess of US$30 billion, the CFZ is arguably the most important free zone in the Western Hemisphere. At the same time, the government is also looking to further develop the Panama Pacifico Special Economic Area (PPSEA), keen to establish it as a primary hub for high-tech manufacturing and high added value services. Taken together, these moves will reinforce Panama’s standing as one of the most efficient logistic platforms in the Western Hemisphere in terms of regional cargo storage and distribution.
- In addition to enhancing its logistics facilities, Panama has consolidated its standing as an international banking centre, confirming its leading regional role in the financial services sector. Typically, the country’s banks offer a wide variety of first-world style financial products, together with competitive rates and advantageous terms. Given the country’s success in both the consumer and corporate banking sectors, it clearly has considerable scope to further develop its financial services sector, particularly with regard to savings instruments, targetted SME products, transactional banking, corporate loans and trade financing. On top of this, the country has rapidly developing private banking and insurance industries, two sectors that value both the confidentiality afforded by the country and its monetary stability, a consequence of its currency peg with the US dollar at a 1:1 exchange rate.
- In a move designed to facilitate foreign investment, the Panamanian government has set up Proinvex, a new agency operating under the auspices of the Ministry of Commerce and Industries (MICI). Its remit will see it promoting investment in a number of strategic sectors, including agriculture (particularly such fresh fruits as pineapples, cantaloupes and watermelons), logistics, tourism and financial services. It will also oversee the operation of a one-stop-shop integrated information system, which will allow would-be investors to identify all of the investment instruments and incentives on offer across Panama, while also assisting with due diligence procedures.
- Over recent years, many overseas corporations have set up their regional headquarters in Panama, largely an account of the tax benefits on offer, which include a service income tax exemption for any such entity. In addition, a number of legislative changes, such as 2012’s amendment to Law 45, have created a more conducive environment for the development of new businesses. This has resulted in the introduction of specific tax incentives relating to all such regional headquarters, as well as advantageous tax and immigration terms for all overseas executives operating within such establishments.
- For 2016, Panama received foreign direct investment (FDI) totalling US$3.6 billion, with China contributing some $37 million. As of the end of 2016, China’s total FDI commitments to Panama exceeded US$268 million, a considerable rise from 2007’s total of US$55 million. In the case of Hong Kong, it had a total FDI commitment to Panama of US$33 million in 2016, making it the country’s sixth largest Asian investor, after Taiwan, South Korea, Singapore, Japan and mainland China.
Hong Kong’s Trade with Panama
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.