Why Are International Businesses Choosing to Expand In Panama?

By Frank Coutinho | Aug 28, 2018
Photo by: Max Pixel

Panama is fast becoming the business destination of choice in Latin America; strategically located, accommodating business laws and a great business environment couple to make it a perfect launch pad for new businesses entering the region. A result of today's globalized economy is that corporations are no longer competing with just domestic competitors but also with international ones too, meaning that there is a constant search for new markets and opportunities. With famous brands such as Coca-Cola, Sony, HSBC and Nestlé calling Panama home, the country has truly become the business destination of choice in Latin America.

 

According to the US Trade Administration Export Guide, 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”.

 

In recent years, Panama has grown in popularity among foreign investors due to its 'foreigner friendly' business environment, excellent return on investment, strategic location and attractive fiscal benefits. These factors have turned Panama into one of Latin America's great commercial jurisdictions. Additionally, there are no restrictions on foreign companies registering a business in Panama.

 

While there has been much talk in recent times regarding unlawful corporate behavior in Panama, specifically relating to the Panama Papers, the formation of both onshore and offshore companies are 100% legal and are great investments option, offering smart investors an array of commercial opportunities.

 

Panama´s Economic History

 

Over the past decade, Panama has been one of the fastest growing economies in Latin America with its GDP growing an average of 8.4% between 2004 and 2013. Panama was also one of the few countries that performed relatively well and didn´t suffer a contraction during the global financial crisis, with a 4.0% growth in 2009 and later reaching double-digit growth rates in 2010 and 2011. These statistics give great confidence to investors looking towards Panama as a potential investment location.

 

Panama has slowly shifted toward a powerful service-based economy, distinguishing itself from other Central American economies such as Guatemala and Honduras. However, before achieving the status the country today, it had to go through various reorganization processes and reforms. During the 1990s, Panama underwent structural reforms and implemented trade and market liberalization, privatization of state-owned companies and fiscal reforms. These measures helped secure new sources of financing from abroad, and international investment exploded.

 

Why Invest in Panama?

 

Panama´s economy is centered on a well-developed service sector and with other advantageous factors that contribute to its strong economy; including the Panama Canal, strong banking and finance sectors, and special economic free zones. These factors combined, represent more than 75% of the country´s GDP.

 

The Panamanian government has promoted economic growth through open market policies, by supporting free trade and has actively encouraged foreign direct investment through attractive fiscal policies and by guaranteeing ease of business for those individuals and companies operating in the region. Additionally, Panama has been working on developing new legislation to meet international standards for its service sector.

 

Attractive Business Sectors in Panama

 

According to the WorldBank, Panama has the strongest economy in Latin America. See below some interesting information regarding the Panamanian economy in comparison to other regions in Central America:

 

  • Receives the most FDI
  • Both imports and exports the most goods and services
  • Has the highest economic growth rate
  • Has the highest GDP per capita

See below (3) Panamanian sectors which our team believes provide the most commercial opportunities for foreigners looking to invest in the region.

 

International Trade – The Panama Canal

 

Since the opening of the Canal in 1914, it has been an engineering prodigy and one of the world´s most important trade assets. The Panama Canal connects the Atlantic Ocean and the Pacific Ocean via the Caribbean Ocean, serves more than 140 maritime routes to over 80 countries. The expanded Panama Canal opened in June 2016, adding a third lane that doubled the canal´s capacity. Thanks to this expansion, shipping routes and maritime trade is less costly and more efficient. Now ships carrying up to 14,000 containers (approximately three times as many as the previous ships) will be able to take advantage of the canal.

This expansion of the Panama Canal will have many positive impacts on international trade and commerce, including:

 

Panama Canal Business Opportunities

 

This expansion of the Panama Canal will have many positive impacts on international trade.

 

Job Creation - Cheaper transport costs will lead to an increase in the distribution industries in the region. The expanded Panama Canal will allow for a higher quantity of goods to pass through the canal and this will spur further economic growth in shipping, warehousing, logistics and other supply chain management. As these develop, doors for international trade open for foreign companies

 

Infrastructure Development: With the expansion of the Canal, the trading industry will strengthen. Many companies will use this growth as the motivation to begin trading companies; taking advantage of an increase in merchandise transportation as well as the fiscal benefits in the region.

 

Increase Business Between the Atlantic and Pacific Nations: The expansion of the Panama Canal will significantly increase the amount of trade between disparate geographical regions (i.e between countries that don´t share an ocean), creating business opportunities that couldn´t have been possible without the expansion.

 

SERVICE INDUSTRY PANAMA

 

The service industry is the biggest industry in Panama, making up approximately 64.4% of the country´s GDP. Transport is the most important aspect of the service industry since it´s closely related to the Panama Canal. Panama also is heavily dependent on logistic services along with debt-financed public works and infrastructure projects. Panama services include activities in the Colón Free Trade Zone (CFZ) which has become vital for trading and transshipment.

 

Finance and Banking Industry Panama

 

Panama opened its banking sector to foreign competition in 1970 under legislation changes; placing priority on banker-depositor confidentiality. Additionally, Panama has one of the most favorable banking environments in the region, with banks being regulated by the Banking Supervisory Authority (Superintendencia de Bancos). Today, the country´s banks are ranked among the safest and best-run financial institutions in the world.

 

The banking sector changed significantly, changing from a controlled publicly owned sector into one of liberalization and foreign ownership; now, close to 100 banking institutions have a presence in the country. Panama has some unique advantages for banking, financial and commercial due to the absence of a central bank and a monetary authority. Panama also offers many opportunities for credit institutions looking for compliant, but also flexible domicile. When looking at all of these factors, combined with the country´s corporate framework and a well-regulated legal system, Panama is, and will remain one of the great Latin America commercial jurisdictions.

Pamana - The Business Expansion Opportunity?

 

Panama accords international business a favorable jurisdiction for doing business and for expanding throughout the Latin American region; notwithstanding this, it is important that companies understand and can effectively navigate the local complexities of doing business. By partnering with an experienced market entry and back office services company in Panama new market entrants will be able to ensure that they are established quickly and ready to undertake business. Many local advisory and service providers, such as Biz Latin Hub are experienced and are able to ensure the most efficient and fastest route to market.

 

Panama, a fast-growing economy, strategically located and with welcoming business laws present the country at the forefront of business expansion opportunities within Latin America

 

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