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Why invest in Panama? A home for foreign capital in the heart of the Americas

by | Dec 10, 2023

Panama enjoys an advantageous geographic location, a contained inflation rate, and steady economic growth. These attributes make it a strategic country in which to invest foreign capital. Those companies that invest in Panama will also benefit from solid international connection ports and an emerging digital hub from which to conduct their business.

International trade is going through an era of maximum global interaction without geographical limitations and with hyperconnected channels for communication and business.

In this sense, Panama is emerging as a country with a wide range of opportunities for nationals and foreigners. This is thanks to healthy indices such as the economy’s growth by 10.8% in terms of its gross domestic product (GDP) in 2022 and its low inflation of 2.9%. According to the latest report on growth projections for Latin America in 2023 from the Economic Commission for Latin America and the Caribbean (ECLAC), Panama (5.1%) will lead the region’s economic growth this year. Companies that invest in Panama will benefit from a healthy economy.

In a geopolitical and financial X-ray, the Central American country registered an export index of 3.9 billion US dollars and a foreign investment of over 2.7 billion US dollars at the end of 2022. These figures are according to the Institute of Statistics and Census of Panama.

Information shared by the Authority for the Attraction of Investments and the Promotion of Exports, PROPANAMA, places the Central American country with the best connection between North America and Latin America, thanks to a privileged geographical position that links the Atlantic and Pacific oceans by enabling the Panama Canal, for maritime commercial transportation.

Panama has an accessible immigration policy to strengthen its business ecosystem. It has developed some mechanisms for migration by investment with a law that welcomes qualified individuals who seek to invest in Panama. It allows them to have Panamanian residency in a relatively rapid process. Today, there are nearly 300 people in the program since it was launched a few months ago.

“This shows an appetite to invest internationally and confidence in Panama as a legally secure country. Panama enjoys social peace and a first-world business climate, with the US dollar as legal tender since we have been a republic and a series of strong qualities such as our banking and financial center and our Digital Hub with six fiber optic cables that cross the country,” expresses the general administrator of PROPANAMA, ambassador Carmen Gisela Vergara.

The Panama Canal

Panama’s financial stability is supported by a solid and healthy banking and financial center and a geographical element that works in its favor. It is an area that is practically free of natural disasters, which allows it to maintain an open, stable trade and build confidence in the markets.

This panorama, adds General Administrator Vergara, is reflected in figures: 3% of cross-border trade by sea passes through Panama’s waters.

“The geographical position of our country is very relevant, but it is an accident of nature. Panama already existed in the center of the Americas, and we have taken advantage of our location to build everything else.”

The idea of building a canal had already been studied since Charles V, then came the ‘gold rush’ during the 19th century in California, United States. Then Panama became the first region with an interoceanic railroad built by the Americans to take gold from coast to coast in the United States since it was challenging to cross the country by land then. Later came the Panama Canal, inaugurated in 1914 by the Americans, and since 2000, it has been managed and operated entirely by Panamanian professionals.

With this connectivity, we have built a vital logistics route for the movement of goods. The Canal generated the Colón Free Zone, the largest free zone in this hemisphere, with an average of 2,000 companies that have decided to invest in Panama do repackaging, relabeling, and re-export business,” says the general administrator.

The Panama Canal is enabled by 180 maritime routes for 170 user countries, with 1,920 connected ports and a total of 14,239 transits in 2022, according to PROPANAMA figures.

Ambassador Carmen Gisela Vergara points out that long before concepts such as globalization existed, Panama was already a connection point for trade, which has allowed it to create organizations such as the Banking and Financial Center, which brings together 65 banks from 22 countries, with a sustainable BBB investment grade during pandemic. These financial institutions that have decided to invest in Panama conduct business transactions in any currency.

A Digital Hub in the Heart of the Americas

Panama as a digital hub is a strategy that emanated from the private sector that is based on four pillars:

  1. Digital Government: Digitize the greatest number of utility and public administration processes.

“By digitalizing the Government, transparency improves, and the quality of life of the population and the work of public servants improves,” explains the diplomat.

  1. Education: Promotion of innovation and growth of startups.

“We have created organizations that train and develop reskilling processes for people who already have a profession, but perhaps not the skills and competencies that the labor market currently demands.”

  1. Infrastructure: Solidify network connectivity to be reliable and have world-class data centers with established cloud providers, incentivizing them to invest in Panama.

“We work on providing access to connectivity, especially in post-pandemic times, through digital financial access so that people can have the necessary tools “to” bring their ideas to fruition.”

  1. Legal Framework: For all this to work and to encourage people to invest in Panama, there is favorable regulation that seeks to attract digital investments. This integrates Law 81, which has been in force since 2019, to protect personal data. Below are some of the key points related to Law 81:
  • It applies to the processing of personal data of natural persons, both within Panama and outside of Panama, if the data is processed about activities aimed at the Panamanian market.
  • It covers personal data, defined as any information concerning a natural person that directly or indirectly identifies or makes them identifiable.
  • It includes specific protections for “sensitive data,” such as racial or ethnic origin, religious beliefs, health data, and sexual orientation.

Nearshoring: Panama is a Strategic Location

Ambassador Carmen Gisela Vergara points to nearshoring as the post-pandemic trend pursued by the Panama Logistics Hub. The country’s geographical location again plays a crucial role in cross-border marketing due to its proximity to one of the most important markets in the world, the United States.

In addition, the country has benefited from nearshoring in areas such as faster face-to-face speed, similar time zones, cargo movement in ports, more efficient access, reduction in inventories due to production from Panama, and cultural and linguistic affinity for Latin American markets.

The Energy Sector: Sustainable Panama

According to the Second Biennial Update Report (BUR2), Panama is one of the first three carbon-negative countries in the world.

“We are one of the first three countries in the world to be carbon negative. For us, sustainability in everything we do is essential.”

Data shared by PROPANAMA reveal that the country has tripled its electricity generation capacity in the last two decades, becoming the headquarters of the largest wind farm in Central America and the Caribbean. In addition, it has an electric vehicle strategy to promote zero-emission transportation and a natural gas hub with a delivery capacity of up to 175,000 m3.

Panama is working on an Energy Transition Agenda for 2030, with projects identified for more than 4 billion dollars, including green hydrogen, which aims to ensure that decarbonization can be affordable, sustainable, reliable, safe, and accessible.

Investing in Panama offers numerous advantages owing to its robust economic conditions and strategic position. The country has sustained a healthy economic growth rate and maintained a low inflation rate, creating a stable and favorable investment climate. The operation of the Panama Canal, a critical international trade route, enhances the nation’s economic significance, facilitating global commerce. Furthermore, Panama has emerged as Central America’s leading digital hub, attracting technology and innovation-driven investments. Its strategic location is a critical factor for nearshoring, making it an attractive destination for businesses seeking proximity to North and South American markets. These factors collectively position Panama as an enticing investment destination, offering stability, connectivity, and a conducive environment for economic growth.

Contact LATAM FDI to discuss your foreign direct investment plans in Latin America.

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