Small Panama is considered one of the most developed countries in Latin America. It leads the region in many ways, including quality of life and GDP per capita. What allowed a small country to occupy such a significant position? What is the Panamanian economic miracle phenomenon?
According to reports from most international organizations (World Bank, IMF, Cepal), Panama’s economy achieved excellent performance in 2022 – GDP growth is expected from 6.2% to 7.5%. The Panamanian government is confident in even higher results – over 9%. This high performance was achieved through the Panama Canal reopening, tourism resumption, and increased investment in infrastructure and transport. The Panamanian economy is expected to continue to recover further. Panama’s GDP growth forecast for 2023-2024 from the IMF and the World Bank is 4.2% – 5%.
The inflation rate in the country as of December 2022 was 2.1%, one of the lowest in the world.
It should also be noted that according to the IMF, Panama ranks 8th in terms of GDP per capita in Latin America – about $14,640.
The Panama Canal is one of the most significant infrastructural structures of humanity. It connects two oceans – the Pacific and the Atlantic. Thanks to its construction, transportation takes significantly less time since ships do not need to go around South America to deliver the goods to their destination. The Panama Canal serves more than 140 global trade routes, and most of its traffic is on the all-water route from Asia (namely China) to the eastern United States and the Gulf of Mexico coast.
Thanks to the reconstruction, which lasted six years, it was possible to expand the Panama Canal’s capacity. Nowadays, 96.8% of the world’s merchant fleet can pass through it. On average, this figure is 7.6 ships per day.
In 2021, the Panama Canal brought the state $3.98 billion in revenue. In 2022, the government expected to receive $4.2 billion from its operation. At the same time, experts predict that by 2030 the revenue of the Panama Canal will exceed $5 billion. In general, its exploitation brings the country about 3-4% of GDP.
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One of the most attractive Panama’s aspects is its economic freedom. This point is of most interest to investors and businesspersons planning to do business on its territory. Investors and entrepreneurs are not limited in the scope of their foreign capital if they want to bring them into the country. There is also no reason to worry about possible restrictions on withdrawing financial flows from Panama since the government does not imply a regulatory monetary policy.
Panama attracts business people with its economic success – one of the most significant among the countries of Latin America. The state demonstrates sustainable stability, as it uses the most solid and reliable currency in its economy – the US dollar. The next main reason for the arrival of foreign capital in Panama is the possibility of equal business competition with a minimum number of rules necessary for doing business.
In the 2023 Economic Freedom Index, Panama ranked 55th out of 166 jurisdictions. At the same time, among North and South American countries, it has the 9th position, and the overall score is above the global and regional average.
Analysts of this rating noted the country’s tax system effectiveness, the regulatory framework, and the openness of Panama’s markets. But at the same time, the overall rule of law in this state is at a relatively low level.
Taxation in Panama
The tax service controls the income received as a result of business activities in the Panama domestic market. All income received by individuals or legal entities outside the territory is not taxed. The constitution and civil code guarantee foreign investors equal rights with local citizens. This fact significantly distinguishes Panama from other Latin American states, which are not ready to give maximum opportunities to foreign capital in trade, property acquisition, and investment.
The financial sector plays a vital role in Panama’s economy. According to the local banking authority report for 2021, its contribution to GDP was 7.3%.
Panama’s financial sector includes:
- securities companies
- pension funds
- insurance companies
- financial companies
- development banks
- leasing companies
- housing and savings associations.
The total assets of all players in this sector amount to $148,218 million.
The banking system is leading in the financial sector. As of December 2021, it accounts for almost 90% of all assets.
The banking system of Panama, as of November 1, 2022, consisted of 77 institutions, 574 branches, and more than 2,300 ATMs.
Top 5 Panama banks by assets:
- Banco General S.A.
- Banco Nacional de Panama.
- Banistmo S.A.
- BAC International Bank, Inc.
- Global Bank Corporation.
Moody’s Local rating agency noted the high level of the Panamanian banking system’s liquidity but acknowledged the presence of reputational risks in its report published in February 2023. The latter is because the country is included in the FATF gray list and the EU blacklist. But even despite such restrictions, Panama is still good for offshore banking.
As of February 10, 2023, the Panama Banking Authority reported that the banking system liquidity ratio is at 56.90%. This indicator significantly exceeds its minimum value of 30%.
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Panama also receives significant income from the tourism business. The country hosted about 1.8 million travelers in 2022, more than double the figure for last year, according to the Tourism Authority. Tourism Authority forecasts for 2023 are even more optimistic (expected up to 2.4 million tourists).
Main visitors to Panama:
- Costa Ricans
According to the Tourism Authority report for the 11 months of 2022, Panama’s foreign tourism revenue was $4.3 billion, up 111.2% from the same period in 2021.
A large number of awards and nominations in this area is evidence Panama has significant tourism potential. Only in 2022, the country became the owner of such titles:
- Most Desirable Emerging Destination – from the British magazine Wanderlust Travel Awards 2022
- Best Destination in Latin America – from the world-famous travel magazine Global Traveler
- Perfect Destination for Foreign Retirees Seeking Contact with Nature – from the international travel, lifestyle, and culture magazine La Condé Nast Traveler. Panama has received this award for the 11th time.
The most attractive tourist attractions in Panama were selected by Lonely Planet magazine. It recommends travelers visit the following places:
- Panama City
- Panama Canal
- Bocas del Toro
- Guna Yala
- Santa Catalina
- Azuero Peninsula.
It should also be noted that the country is implementing the Sustainable Tourism Master Plan 2020-2025, which aims to strengthen tourism as a strategic sector of the Panama economy.
Colon Free Trade Zone
The Colon Free Trade Zone is the largest free zone in Panama. It was established back in 1948 and has since served as the main trading center for Latin America and the Caribbean. The Colon Free Trade Zone is located at the Atlantic entrance to the Panama Canal in the city of the same name. Its area is 1,064 hectares, which are divided into nine sectors. There are four container seaports, two cruise terminals, an international airport, and a railway terminal. More than 2,600 companies are registered in the Colon Free Trade Zone. 1,800 of them are active companies, employing over 17,000 people.
The great interest of investors in this zone is due to the huge benefits for business. Companies registered there are exempt from almost all taxes:
- on import, re-export, and production of goods
- on income from re-export
- on revenue
- other national or provincial taxes.
In addition, this free zone has a very well-developed infrastructure, excellent location, as well as loyal regulation of activities.
The contribution of the Colon Free Trade Zone to Panama’s GDP is 3.7% (as of December 2022).
Work and business in Panama
More than 100 multinational companies with a worldwide reputation have moved to Panama and set up their main offices or branches here:
- Heineken Beer and other companies.
Panama also recently housed a UN regional center.
National legislation reliably protects the private property of not only citizens but also foreigners who open companies, buy real estate, or organize any business in the country. The legislation allows forming of various types of commercial structures that are able to ensure the security of entrepreneurs’ or investors’ assets.
Opening a company in Panama is not difficult and does not take much time. The benefits also lie in the absence of huge costs for company registration and, subsequently, for its maintenance. The main types of business structures that allow you to conduct commercial activities in the state:
- stock company or corporation (Sociedad Anónima)
- limited liability company (Sociedad de Responsabilidad Limitada)
- partnership (Sociedad en Nombre Colectivo)
- limited partnership (Sociedad en Comandita Simple)
- joint stock company (Sociedad en Comandita por Acciones).
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After increasing the number of foreign companies and the opening of the improved Panama Canal, the country began to experience a shortage of skilled workers. The education system of Panama does not have time to provide business with trained professionals who can meet modern requirements. In this regard, the Panamanian government has created a visa program to attract foreigners. Thus, the opportunity for work arises not only for small, medium, and large businesses but also for foreign individuals of professional interest to Panama.
To obtain a work permit, a foreigner needs to have the appropriate qualifications and, most importantly, a specialty necessary for Panamanian society. So, individuals can take advantage of several programs, depending on the applicant’s profession and job plans:
- The program for personnel recruitment by companies that can provide employment to foreign nationals within 10% of the total number of employees.
- Panama Friendly Nations Visa Program to attract foreign specialists.
- City of Knowledge invitation program. City of Knowledge, or Ciudad del Saber, is a business district where the free economic zone is located and many different research organizations and companies related to scientific developments and high technologies are concentrated.
- Migration program, which involves marriage with a citizen of Panama.
Most of all, specialists in the following industries are in demand in Panama:
- Internet technologies
- computer design
Panama, unlike other countries, can offer multiple types of visas for foreigners designed for different groups of people with different incomes.
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Panama’s weather conditions, climate, rich flora, and fauna are also among the country’s main advantages. Panama is a small state that was lucky enough to be in one of the best places on Earth.
Panama is located between the two American continents, which has simplified access from the countries of North and South America to its best beaches. Nature rewarded it with two coasts: the Pacific and the Caribbean. There are mountain ranges and plains in Panama, and up to 40% of its entire territory is covered with forests. The average annual tropical temperature is in the range of 26-27°C. It is never very hot in Panama (max. 32°C). The only thing that may not suit everyone is high humidity, which averages 80%.
The vast diversity of Panama’s flora and the richness of the animal world are of particular interest to tourists and foreign visitors to the country. It is summer here all year round, and the weather is warm. Panama’s first half a year is drier, and the second half a year is more humid. There are no destructive natural disasters such as hurricanes, tornadoes, tsunamis, or strong earthquakes in Panama. The country is fortunate with natural conditions, so the number of people wishing to settle here increases yearly.
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Pensioners from the United States, Canada, Great Britain, and other European countries fell in love with Panama. They often choose to visit mountainous cities and regions of the country, as there are cooler temperatures, unlike areas on the coast. They are attracted not only by the opportunity to bask on beautiful beaches but also by the low cost of living on retirement income, which is much higher in their countries.
Panama offers incredible opportunities for foreign pensioners. The Visa Pensionado government program, which provides privileges from 10 to 50% in various areas of life and recreation, is proof of this. Thanks to this, the country has been ranked first for several years in a row in international rankings as the best place to live in retirement.
The main requirement for obtaining the Panama Pensionado Visa is that the applicant must have a monthly lifetime pension income of at least $1,000.
It is impossible not to mention the medical care in Panama, which is considered the best in Central America. This is because most of the medical staff in Panamanian hospitals were trained in the United States and Canada. There are also clinics that maintain relationships with American medical centers.
The population of Panama is not rich, but the prices for medical care and services in the country are pretty reasonable. As a result, medical tourism to Panama began to develop actively, thanks to which foreigners can receive qualified medical services at a lower cost. The prices for medical care in Panama are several times lower than in Europe, the USA, or Canada.
Panama can become a dream country for many people because it offers a lot of opportunities for life, work, business, and leisure. If you have any questions regarding starting a business, permanent residence or opening a bank account in Panama, please contact us at email@example.com.