From Global Trader
Gabriela Castro, of Latin American specialists Sunny Sky Solutions
The country can definitely punch above its weight, but what makes it so special, and how can British exporters make the most of the opportunities? Panama returned to democracy in 1989 and now enjoys the political and macroeconomic stability many countries in Central and South America crave.
Unemployment is around 4%. Foreign Direct Investment (FDI) was over $2bn in 2010. And to top it all, credit rating agencies S&Ps and Fitch have given Panama the BBB rating.
The publicly-managed Panama Canal attracts directly and indirectly most of the investment, employment and trade for the country, particularly during its current expansion.
The country has therefore strong associated maritime, logistics, shipping and port sectors. Trade not only passes through the canal, it also stays in the country, sometimes temporarily, to be re-exported to Central America, the Caribbean and the north of South America.
This is largely due to the existence of impressive free trade zones, mainly the Colon Free Zone (CFZ), offering important tax and other incentives for companies worldwide. The CFZ market is much larger than the Panama market itself and ideal for consumer goods. In 2011, there were 2,223 businesses present at the CFZ, with an additional 842 having representations in the zone.
British food and drink exporters, for example, have greatly benefited from trading with the CFZ. Because of the number of expats and foreign workers, and the increasing purchasing power of the Panamanian middle class, there is now a rising demand for luxury and good quality items for the national market, although the CFZ also handles lower quality goods for re-export.
In addition to the opportunities resulting from the Canal and the free trade zones, Panama boasts a large and increasing tourism sector, including luxury hotels and ecotourism.
Its service sector is also impressive, from telecoms to call centres, from banking to real estate. Because of its strategic position bridging South and Central America, Panama is often selected as regional HQs for multinationals such as Caterpillar, SABMiller, 3M and Procter & Gamble. Panama is also a regional centre for trade shows and conventions.
Construction is booming in Panama, from roads, hotels and public buildings to the first underground metro in Central America and a brand new airport. Opportunities are also strong in energy, particularly electricity.
Panama’s Foreign Direct Investment is the largest in Central America and the Caribbean, greatly linked to the canal expansion, but also as a result of a system that encourages FDI.
For example, there are no foreign exchange controls, there are strong tax incentives repatriation of profits is allowed and is foreign ownership.
Franchising is a growing sector in Panama, with the majority of franchises being foreign-owned.
However, Panama doesn't come without its problems. Business is slow and highly personal, it is a tough market to break into, which requires time and contacts.
Bureaucracy is still a problem, and so is corruption, at many levels.
Intellectual property legislation is advancing but foreign companies should seek professional advice on this matter.
Labour shortages are common, and inflation is creeping up. Education and training can let the economy down (the country’s education system was ranked 62nd out of 65 countries by the OECD), which can be a threat for a foreign company looking to hire local labour, but also an opportunity for those working in those sectors to sell services and expertise. Recently, there have also been revolts, as the prosperity is not evenly shared across the Panamanian population, and there are periods of political and social unrest.
Although very much dominated by the US (even its currency is the US dollar), Panama is closer to Britain than many think. UKTI shows that in 2008, for example, Panama imported a per capita average of £49 of British goods, much lower than the £7 and £6 for Mexico and Brazil that year.
The UK is also a key player in terms of investment, alongside the US and Spain. Panama can be a great small test market, or an open door much more.