Panama

Bureau of Economic and Business Affairs
Report
July 5, 2016

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Executive SummaryShare    

As the home of the Panama Canal, the world’s second largest free trade zone, and sophisticated logistics and finance operations, Panama attracts relatively high levels of foreign direct investment from the region and around the world. Panama boasts one of the Western Hemisphere’s fastest growing economies, good credit, a strategic location, and a stable, democratically elected government.

Panama’s Ministry of Economy and Finance predicts the economy will grow by 6.2 percent in 2016, following expansion of 5.8 percent in 2015 and 6.1 percent in 2014. Panama’s sovereign debt rating is investment grade, with ratings of Baa2 (Moody’s), and BBB (Fitch and Standard and Poor’s). The Panama Canal Authority will inaugurate the $5.25 billion expansion project of the Panama Canal in June of 2016, which in turn is expected to increase investment in port systems operations, storage facilities and logistics. Panama’s President, Juan Carlos Varela, has sought to improve Panama’s image and investment climate profile. Overall foreign investment was up 17 percent in 2015, and Panama retains one of the highest “FDI to GDP” ratios in Latin America. The Varela administration has also presided over a series of anti-money laundering reforms that resulted in Panama’s removal from the Financial Action Task Force “Grey List” in 2016.

Panama has implemented free trade agreements with Canada, Chile, Costa Rica, the European Union, Guatemala, Honduras, Nicaragua, Peru the European Free Trade Association, Mexico, and the United States, as well as one partial scope agreement with Cuba. Panama is exploring entry into the Pacific Alliance, negotiating a trade agreement with South Korea, and arranging the entry into force of trade agreements with Colombia and Trinidad and Tobago. This pro-trade posture has further increased Panama’s openness to foreign investment and has provided new protections and privileges for foreign investors.

Panama has challenges, including a poor educational system, high labor costs, a lack of skilled workers, and reports of corruption, fraud, and a perceived lack of judicial transparency. Foreign investors in Panama have also complained about a lack of transparency in government procurements. Some U.S. Firms have reported inconsistent, unfair, and biased treatment from Panamanian courts.

Table 1

Measure

Year

Index or Rank

Website Address

TI Corruption Perceptions index

2015

72 of 168

transparency.org/cpi2014/results

World Bank’s Doing Business Report “Ease of Doing Business”

2015

69 of 189

doingbusiness.org/rankings

Global Innovation Index

2015

56 of 131

globalinnovationindex.org/content/page/data-analysis

U.S. FDI in partner country ($M USD, stock positions)

2015

$4687

BEA data available 4/14/16 at bea.gov/international/factsheet/factsheet.cfm

World Bank GNI per capita

2014

11,130

data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign InvestmentShare    

Attitude toward Foreign Direct Investment

Panama is heavily dependent on foreign investment and has worked to make the investment process attractive and simple for investors. With few exceptions, the Government of Panama makes no distinction between domestic and foreign companies for investment purposes. Panama benefits from stable and consistent economic policies, a dollarized economy and a government that consistently supports trade and open markets.

The United States and Panama have signed a Trade Promotion Agreement that entered into force in October of 2012. The U.S.-Panama TPA has significantly liberalized trade in goods and services, including financial services. The TPA also includes sections on customs administration and trade facilitation, sanitary and phyto-sanitary measures, technical barriers to trade, government procurement, investment, telecommunications, electronic commerce, intellectual property rights, and labor and environmental protection.

Panama has one of the few Latin American economies that is predominantly services-based. Services represent nearly 90 percent of Panama’s Gross Domestic Product. The TPA has improved U.S. firms’ access to Panama’s services sector and gives U.S. investors better access than other WTO Members under the General Agreement on Trade in Services. All services sectors are covered under the TPA, except where Panama has made specific exceptions. Under the agreement, Panama has provided improved access in sectors like express delivery, and granted new access in certain areas that had previously been reserved for Panamanian nationals. In addition, Panama agreed to become a full participant in the WTO Information Technology Agreement.

The office of Panama’s Vice Minister of International Trade within the Ministry of Commerce and Industry is the principal entity responsible for promoting and facilitating foreign investment and exports. Through its Proinvex service (http://proinvex.mici.gob.pa) the government provides investors with information, expedites specific projects, leads investment-seeking missions abroad, and supports foreign investment missions to Panama. In some cases, other government offices may work with investors to ensure that regulations and requirements for land use, employment, special investment incentives, business licensing, and other requirements are met. While there is no formal investment screening by the GOP, the government does monitor large foreign investments.

Other Investment Policy Reviews

In 2014 the World Trade Organization completed a Trade Policy Review of Panama. The results of the review can be found here:

https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=127724,127725,125292,125291&CurrentCatalogueIdIndex=0&FullTextSearch=

Laws/Regulations on Foreign Direct Investment

There are different incentive laws, depending on the activity. Multinational Headquarters, Investment stability Law, Incentives for the Film Industry, Call Centers, Industrial Promotion (CFI) and Promotion of Agriculture exports. You may access www.proinvex.mici.gob.pa for more details on tax and other benefits.

Business Registration

Procedures regarding how to register a business for domestic and foreign businesses can be found here: http://panama.eregulations.org/menu/116?l=es. Applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Trade and Industry and the Social Security Institute. According to the government of Panama, applications for foreign businesses take between one and six days.

Industrial Promotion

Panama provides Industrial Promotion Certificates (IPCs) to incentivize industrial development in high value-added sectors, and specifically targets R&D, management and quality assurance systems, environmental management, utilities and human resources. Approved IPC’s provide up to 35 percent in tax reimbursements, and preferential import tariffs of 3 percent.

Limits on Foreign Control and Right to Private Ownership and Establishment

The GOP imposes some limitations on foreign ownership in the retail and media sectors where, in most cases, ownership must be Panamanian. However, foreign investors can continue to use franchise arrangements to own retail within the confines of Panamanian law (under the TPA, direct U.S. ownership of consumer retail is allowed in limited circumstances).

In addition to limitations on ownership, the exercise of approximately 55 professions is reserved for Panamanian nationals. Specifically, medical practitioners, lawyers, accountants, and customs brokers must be Panamanian citizens. The GOP also requires foreigners in some sectors to obtain explicit permission to work. However, there are no reports of such restrictions hindering U.S. firms operating in Panama.

With the exceptions of retail trade, the media and several professions, foreign and domestic entities have the right to establish, own, and dispose of business interests in virtually all forms of remunerative activity. Foreigners need not be legally resident or physically present in Panama to establish corporations or to obtain local operating licenses for a foreign corporation. Business visas (and even citizenship) are readily obtainable for significant investors.

Privatization Program

Panama's privatization framework law does not distinguish between foreign and domestic investor participation in prospective privatizations. The law calls for pre-screening of potential investors or bidders in certain cases to establish technical viability, but nationality and Panamanian participation are not criteria. The Government of Panama undertook a series of privatizations the mid-1990s including most of the electricity generation, distribution, ports and telecommunications sectors.

Screening of FDI

While there is no formal investment screening by the GOP, the government does monitor large foreign investments.

Competition Law

Panama’s Consumer Protection and Anti-Trust Agency, established by Law 45, October 31, 2007, reviews transactions for competition related concerns and serves as a consumer protection agency.

2. Conversion and Transfer PoliciesShare    

Foreign Exchange

Panama’s official currency is the U.S. Dollar.

Remittance Policies

Panama’s strategic geographic location, dollarized economy, status as a regional financial, trade, and logistics center, and lax regulatory system make it an attractive target for money launderers. Money laundered in Panama is believed to come in large part from the proceeds of drug trafficking. Tax evasion, bank fraud, and corruption are also believed to be major sources of illicit funds. Money is often laundered via bulk cash and trade by exploiting vulnerabilities at the airport, utilizing free trade zones (FTZs), and exploiting the lack of regulatory monitoring in many sectors of the economy.

Panama’s history of client secrecy and its developed offshore banking and corporate services sector was exposed in April 2016 when one of its top law firms was the target of a massive hack and data dump. This occurred just after Panama was removed from FATF’s Grey List in recognition of a number of steps it had taken to strengthen its anti-money laundering regime, to include eliminating the use of bearer shares, passing strong AML legislation in 2015 and constituting an empowered and capable Financial Intelligence Unit (Unidad de Analysis Financiero).

Panama strengthened its legal framework, amended its criminal code, harmonized legislation with international standards, and passed a new AML/CFT law and other legislation enhancing the framework for international cooperation and expanding the number of entities and transactions affected by suspicious activity reporting Panama is developing a framework for freezing terrorist assets and customer due diligence regulations. Panama’s financial intelligence unit has also significantly improved its analytic capacity. Panama enacted law 18 2015 to eliminate bearer shares in an effort to comply with OECD requirements.

The judicial branch’s capacity to successfully prosecute and convict money launderers remains weak, and judges remain susceptible to corruption. The transition to a U.S.-style accusatory judicial system, which began in September 2010, is expected to be implemented in all the provinces by 2016. To date, all known money-laundering convictions are tied to bulk cash cases with an obvious connection to a predicate crime.

3. Expropriation and CompensationShare    

Panamanian law recognizes the concept of eminent domain but it is rarely exercised. In one recent case, a US company voiced concern about being reimbursed at fair market value in a case where the government’s revocation of a concession adversely impacted access or use of the investors’ property.

There are no current international arbitration cases alleging direct expropriation of property by the Panamanian government.

4. Dispute SettlementShare    

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

Panama is transitioning from the civil to the accusatory system with the goal of simplifying and expediting criminal judicial cases. The system has been implemented in six provinces, though it has yet to be implemented in the commercial centers of Panama City and Colon. Fundamental procedural rights in civil cases are broadly similar to those available in U.S. civil courts, although some notice and discovery rights, particularly in administrative matters, may be less extensive than in the U.S. Judicial pleadings are not always a matter of public record, nor are the processes always transparent.

Bankruptcy

Commercial law is comprehensive and well-established. The World Bank 2016 Doing Business currently ranks Panama 132/189 for resolving insolvency because of the antiquated law, slow court systems, and complexity of the process. A new bankruptcy law was approved in 2015 and is expected to improve some of these deficiencies.

Investment Disputes

Resolving commercial and investment disputes in Panama can be a lengthy and complex process. Despite protections built into the U.S.-Panamanian trade agreements, investors have repeatedly struggled to resolve investment issues in courts. There are frequent claims of bias and favoritism in the court system and complaints about the lack of adequate titling, inconsistent regulations, and a lack of trained officials outside of the capital. The World Economic Forum – Global Competitiveness Index 2015-2016 report ranks the independence of Panama’s judicial system 119 out of 140 countries. Politically connected businesses have benefited from court decisions, and there have been allegations that judges have “slow-rolled” dockets for years without taking action. Many Panamanian legal firms suggest writing binding arbitration clauses into all commercial contracts.

International Arbitration

The GOP accepts binding international arbitration of disputes with foreign investors. Panama is a party to the 1958 New York Convention as well as to the 1975 Panama Convention. Panama became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1996. Panama adopted the UNCITRAL model arbitration law as amended in 2006. Law 131 regulates national and international commercial arbitrations in Panama.

ICSID Convention and New York Convention

Panama is a Party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention and the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.

Duration of Dispute Resolution – Local Courts

Resolving disputes through the Panamanian court system can take years, depending on the issue, the location, the court calendar or the judge. There are often reports of corruption, bribery, inconsistent treatment and a lack of transparency. The lack of judicial transparency in Panama is consistently cited by investors as a deterrent to doing business in the country. Most foreign investors rely on binding international arbitration clauses to resolve disputes.

5. Performance Requirements and Investment IncentivesShare    

Investment Incentives

There are Special Economic Areas as the City of Knowledge, the Panama Pacifico Special Economic Area, Free Zones and the Colon Free Zone – which have special tax and other incentives for manufacturers, back office operations and call centers.

Official support for investment and business activity is especially strong for the Colon Free Zone (CFZ), the banking sector, the tourism sector, and the free zones. Companies in the CFZ pay basic user fees and a 5 percent dividend tax (or 2 percent of net profits if there are no dividends). Banks and individuals in Panama pay no tax on interest or other income earned outside Panama. No taxes are withheld on savings or fixed time deposits in Panama. Individual depositors do not pay taxes on time deposits. Free zones offer tax-free status, special immigration privileges, and license and customs exemptions to manufacturers who locate there. Investment incentives offered by the GOP are available equally to Panamanian and foreign investors. The incentives do not discriminate or distinguish between Panamanians and foreign investors.

Research and Development

The Instituto de Investigaciones Cientificas y Servicios de Alta Tecnologia (INDICASAT) is a publically and privately funded research institution that funds research in biodiversity, drug development, neuroscience, molecular and cellular biology, and clinical research.

Performance Requirements

There are no legal performance requirements such as minimum export percentages, significant local requirements of local equity interest, or mandatory technology transfer. There are no established general requirements that foreign investors invest in local companies, purchase goods or services from local vendors or invest in R&D or other facilities. Companies are required to have 90 percent Panamanian employees. Exceptions to this policy are available, but must be approved by the government on a case by case basis. Fields dominated by strong unions, such as construction, have opposed issuing work permits to foreign laborers and some investors have struggled to fully staff large projects. Foreign workers are common in Panama. Visas are available and the procedures to obtain work permits are generally not considered onerous.

Data Storage

As part of its effort to be recognized as a hub for finances, logistics, and communications in the region, Panama has committed to establishing itself as a center for data storage. According to the Panamanian Authority for Government Innovation (AIG), the majority of these firms offer services to banking and telephone companies in Central America and the Caribbean.

Panama boasts exceptional international connectivity, with five sets of undersea fiber optic cables and two more under development.

General laws addressing protection of personally identifiable information can be found in the Constitution, the Criminal Code and the Electronic Commerce legislation. The concept of the personal privacy of communications and documents is provided for in the Panamanian Constitution as a fundamental right (Political Constitution, article 29). The Constitution also provides for a right to keep personal data confidential (article 44). The Criminal Code imposes an obligation on businesses to maintain the confidentiality of information stored in databases or elsewhere, and establishes several crimes for the misuse of such information (Criminal Code, articles 164, 283, 284, 285, 286). Panama’s electronic commerce legislation also states that providers of electronic document storage must guarantee the protection, reliability and proper use of information and data stored on behalf of their customers (Law 51, July 22, 2008, article 55).

6. Protection of Property RightsShare    

Real Property

The majority of land in Panama, and almost all land outside of Panama City, is not titled; a system of rights of possession exists, but there are multiple instances where such rights have been successfully challenged. The World Bank’s Doing Business 2016 report notes that Panama has risen to 84 out of 189 countries on the Registering Property indicator, though it still ranks 148 on Enforcing Contracts.

The judicial system’s capacity to resolve contractual and property disputes is weak and open to corruption, as illustrated by the most recent World Economic Forum’s Global Competitiveness Report, which rates Panama’s judicial independence as 119 out of 140 countries. Americans should exercise greater due diligence in purchasing Panamanian real estate than they would in purchasing real estate in the United States. Engaging a reputable attorney and licensed real estate broker is strongly recommended.

Panama enacted Law 80 (2009) to address the lack of titled land in certain parts of the country; however, it does not cure deficiencies in government administration or the judicial system. In 2010, the National Assembly approved the creation of the National Authority of Land Management (ANATI) to administer land titling; however, some investors have complained about ANATI’s capabilities.

Intellectual Property Rights

Panama has an adequate and effective domestic legal framework to protect and enforce intellectual property rights (IPR). The government of Panama is making efforts to strengthen the enforcement of IPR. Since 1997, two district courts and one superior tribunal have been exclusively adjudicating antitrust, patent, trademark, and copyright cases. Since January 2003, a specific prosecutor with national authority over IPR cases has consolidated and simplified the prosecution of those cases. Law 1 of 2004 added crimes against intellectual property as a predicate offense for money laundering, and Law 14 establishes a 5 year to 12 year prison term, plus possible fines. Law 10 of 2011 moved the Copyright Office from the Ministry of Education to the Ministry of Commerce and Industry. A Committee for Intellectual Property (CIPI), comprising representatives from five government agencies (Colon Free Zone, Offices of Intellectual Property Registry and Copyright under the Ministry of Commerce and Industry, Customs, and the Attorney General), under the leadership of the Ministry of Commerce and Industry, is responsible for development of intellectual property policy in Panama.

In order to implement the requirements of the TPA, Panama passed Law 62 of 2012 (industrial property) and Law 64 of 2012 (copyrights). These laws introduced important updates to Panama’s IPR enforcement legislation. These updates offer improved standards for the protection and enforcement of a broad range of IPR, including protections for patents, trademarks, undisclosed test and other data submitted to obtain marketing approval for pharmaceuticals and agricultural chemicals, and digital copyrighted products such as software, music, text, and videos, as well as further deterrence of piracy and counterfeiting.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

Embassy point of contact:

Colombia Primola
Economic Specialist
PrimolaCE@state.gov

Local lawyers list: http://panama.usembassy.gov/emergencycontact/list-of-attorneys.html

7. Transparency of the Regulatory SystemShare    

In the banking and finance sector, investors generally give good marks to the Panamanian entities that regulate them, notably the Superintendent of Banks. However, U.S. businesses have expressed concern about the responsiveness and transparency of some regulating agencies and the authorities’ failure to consult with businesses before enacting policies or implementing new legislation.

In 2012, Panama passed a securities law to regulate brokers, fund managers, and matters related to the securities industry. The Commission structure was modified to follow the successful Banking Law model and now consists of a superintendent and a board of directors. The Securities Commission is generally considered to be a competent and effective regulator. Panama has committed to seeking the legal authority necessary to allow them to become a fully signatory to the International Organization of Securities Commissions MOU.

Panama is a member of UNCTAD’s international network of transparent investment procedures (http://panama.eregulations.org). Foreign and national investors can find detailed information on administrative procedures applicable to investment and income generating operations including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time and legal bases justifying the procedures.

8. Efficient Capital Markets and Portfolio InvestmentShare    

Panamanian and foreign investors are treated equally by government policy and law with respect to access to credit. Panamanian interest rates closely follow international rates (i.e., the London Interbank Offered Rate - LIBOR), plus a country-risk premium.

Some private companies, including multinational corporations, have issued bonds in the local securities market. Companies rarely issue stock on the local market and, when they do, often issue shares without voting rights. Investor demand is generally limited because of the small pool of qualified investors. Interest from time deposits and certain bonds are tax-exempt. There is a 10 percent withholding tax on dividends, although capital gains from the sale of equities listed on the Panamanian exchange is tax exempt. While wealthy Panamanians may hold overlapping interests in various businesses, there is not an established practice of having cross-shareholding or stable shareholder arrangements, designed to restrict foreign investment through mergers and acquisitions.

Money and Banking System, Hostile Takeovers

Panama's 1998 Banking Law (as amended in 2008) regulates the country's financial sector. The law concentrates regulatory authority in the hands of a powerful and well-financed Banking Superintendent (http://www.superbancos.gob.pa).

Traditional bank lending from the well-developed banking sector is relatively efficient and is the most common source of financing for both domestic and foreign investors, offering the private sector a variety of credit instruments. The free flow of capital is actively supported by the GOP and is viewed as essential to Panama’s 75 banks and 16 representational offices.

There are no restrictions on, nor practical measures to prevent hostile foreign investor takeovers, nor are there regulatory provisions authorizing limitations on foreign participation or control or other practices to restrict foreign participation. There are no government or private sector rules to prevent foreign participation in industry standards setting consortia.

Financing for consumers is also relatively open, as mortgages, credit cards and personal loans, even to those earning modest incomes, are widely available on terms similar to those in the U.S.

9. Competition from State-Owned EnterprisesShare    

Sovereign Wealth Funds

Panama started a sovereign wealth fund in 2012 with an initial capitalization of $300 million. From 2015 onwards, the law mandates contributions to the National Treasury from the Panama Canal Authority in excess of 3.5 percent of GDP be deposited in the Fund.

10. Responsible Business ConductShare    

N/A

11. Political ViolenceShare    

Panama is a peaceful and stable democracy. On rare occasions, large-scale protests can turn violent and disrupt commercial activity in affected areas. Mining and energy projects have been sensitive, especially those that involve development in the designated indigenous areas (comarcas).

In May 2014, Panama held national elections that international observers agreed were free and fair. The transition to the new government was smooth and uneventful. Panama's Constitution provides for the right of peaceful assembly, and the government respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Unions, student groups, employee associations, elected officials, and unaffiliated groups frequently attempt to impede traffic and commerce in order to force the government or business to agree to demands.

12. CorruptionShare    

President Varela campaigned on a pledge to eliminate corruption in the government, increase transparency, and prosecute corrupt officials. His government has filed charges against several high ranking officials of the previous government, including the former head of the Supreme Court who was sentenced to five years in prison for corruption.

The former President, Ricardo Martinelli campaigned on a similar promise in 2009 but he and his administration are adjudged by Panamanians to have been the most corrupt administration since the return to democracy in 1990. There are a number of Martinelli administration figures in jail or under investigation for alleged acts of official corruption.

In the most recent edition (2015) of the Transparency International Corruption Perceptions Index, Panama ranked 94 out of 175 countries measured. The Panamanian judicial system continues to pose a problem for investors due to poorly trained personnel, case backlogs, and a lack of independence from political influence. Supreme Court judges are typically nominated to 10-year terms on the basis of political considerations.

Under Panamanian law, only the National Assembly may initiate corruption investigations against Supreme Court judges and only the Supreme Court may initiate investigations against members of the National Assembly, thereby encouraging, in effect, a “non-aggression pact” between these two branches of government.

The fight against corruption is also hampered by the GOP’s refusal to dismantle Panama's dictatorship-era libel and contempt laws, which can be used to punish whistleblowers, while those accused of acts of corruption are seldom prosecuted and almost never jailed.

Anti-corruption mechanisms exist, such as asset forfeiture, whistleblower and witness protection, and conflict-of-interest rules. However, the general perception is that anti-corruption laws are not applied rigorously, and that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption, particularly in high profile cases.

Panama’s government lacks strong systemic checks and balances that incentivize accountability. The lack of a strong professionalized career civil service in Panama's public sector also hinders systemic change.

Panama ratified the United Nations’ Anti-Corruption Convention in 2005 and the Organization of American States’ Inter-American Convention Against Corruption in 1998. However, there is a perception that Panama could more effectively implement the conventions.

Complaints by American investors about allegedly corrupt judicial and governmental decisions prejudicial to their interests remain common and problematic.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Panama has signed and ratified the UN Anticorruption Convention.

Resources to Report Corruption

NAME: Angelica Maytin
TITLE: Directora Nacional de Transparencia y Asseso a la Informacion (ANTAI)
ORGANIZATION Autoridad Nacional de Transparepncia y Acceso a la Informacion
ADDRESS: Ave. del Prado, Edificio 713, Balboa, Ancón, Panamá, República de Panamá
TELEPHONE NUMBER: (507) 527-9270 / 71/72/73/74
WEBSITE: www.antai.gob.pa

13. Bilateral Investment AgreementsShare    

Bilateral Taxation Treaties

The United States – Panama Bilateral Investment Treaty (BIT) entered into force in 1991 and was amended in 2001. The BIT ensures that, with some exceptions, U.S. investors receive fair, equitable, and nondiscriminatory treatment, and that both Parties abide by international law standards, such as for expropriation and compensation and free transfers. With the October 31, 2012 implementation of the TPA, the investor protection provisions in the TPA have supplanted those in the BIT. However, until October 30, 2022, investors may choose to invoke dispute settlement under the BIT for disputes that arose prior to entry into force of the TPA, or for disputes relating to investment agreements that were completed before the TPA entered into force.

Panama also has bilateral investment agreements with the United Kingdom, France, Switzerland, Germany, Taiwan Canada, Argentina, Spain, Chile, Uruguay, the Czech Republic, Netherlands, Cuba, Mexico, the Dominican Republic, Korea, Ukraine, Sweden, Qatar, Finland, Mexico and Italy. Commerce Ministry officials note that there have been some exploratory talks toward investment agreements with Belgium and Luxemburg, but they acknowledge that these discussions have a lower priority than ongoing free trade negotiations. Ministers from the Member States of the European Free Trade Association (EFTA) – Iceland, Liechtenstein, Norway and Switzerland – and from Costa Rica and Panama have signed a Free Trade Agreement (FTA) on June 2013.

14. OPIC and Other Investment Insurance ProgramsShare    

The United States and Panama signed a comprehensive Overseas Private Investment Corporation (OPIC) agreement in April 2000. OPIC offers both financing and insurance coverage against expropriation, war, revolution, insurrection, and inconvertibility for eligible U.S. investors in Panama. OPIC can insure up to $200 million per project for U.S. investors, contractors, exporters, and financial institutions. Financing is available for overseas investments that are wholly owned by U.S. companies or that are joint ventures in which the U.S. firm is a participant. Panama has been a member of the Multilateral Investment Guarantee Agency (MIGA) since 1996.

15. LaborShare    

Panama’s official unemployment rate is 4.5 percent, close to what most economists consider full employment. Economists in Panama estimate that the unemployment rate for skilled workers is negative, indicating a shortage of workers for skilled jobs including accounting, IT, customer service, and specialized construction skills. Employers frequently cite the lack of skilled labor and English language speakers as a limiting factor on growth.

Panama's non-agriculture labor force is approximately 1.5 million persons. Forty-one percent of workers are employed in the informal sector, with a lower rate of informal employment in Panama capital area (37 percent) compared to the indigenous areas (80 percent).

While the government has periodically revised its labor code, including a modest revision in 1995, it remains highly restrictive. Several sectors, including the Panama Canal Authority, the Colon Free Zone, and export processing zones/call centers are covered by their own labor regimes. Employers outside of these areas, such as the tourism sector, have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay. The GOP has issued waivers to the regulations on an ad hoc basis in order to address employers’ needs, but there is no consistent standard for obtaining such a waiver.

Despite spending of approximately 12.6 percent of the central government budget and 2.5 percent of GDP on education, approximately half of students fail their university entrance exam. The 2015-2016 World Economic Forum Global Competitiveness Report ranked Panama 94 out of 140 countries for quality of education and pointed to an inadequately educated workforce as the most problematic factor for doing business. This poor showing underscored the 2010 OECD Program for International Student Achievement (PISA) analysis, which ranked Panama second worst among participating Latin American countries.

The law provides for the right of private-sector workers to form and join unions of their choice subject to the union’s registration with the government.

The law provides for the right of private sector workers to strike except in areas deemed vital to public welfare and security, including police and health workers. All private sector and public sector workers have the right to bargain collectively, and the law prohibits employer antiunion discrimination, and protects workers engaged in union activities from loss of employment or discriminatory transfers. Strikes must be supported by a majority of employees and related to improvement of working conditions, a collective bargaining agreement, or in support of another strike of workers on the same project (solidarity strike).

The law prohibits all forms of forced labor of adults or children. The law establishes penalties of 15 to 20 years’ imprisonment for forced labor involving movement (either cross-border or within the country) and six to 10 years’ imprisonment for forced labor not involving movement.

The law prohibits the employment of children under age 14, although children who have not completed primary school may not begin work until age 15. Exceptions to the minimum age requirements can be made for children 12 and older to perform light farm work if it does not interfere with their school hours. The law does not set a limit on the total number of hours that these children may work in agriculture or define what kinds of light work children may perform. The law prohibits 14 to 18-year-old children from engaging in potentially hazardous work and identifies such hazardous work to include work with electrical energy, explosives, or flammable, toxic, and radioactive substances; work underground and on railroads, airplanes, and boats; and work in nightclubs, bars, and casinos.

16. Foreign Trade Zones/Free Ports/Trade FacilitationShare    

Law 18 of 1948 established the Colon Free Zone (CFZ), which is now the second largest free trade zone in the world, after Hong Kong. Most merchandise (clothing, footwear, electronics, pharmaceuticals, medicines, perfumes, cosmetics, liquor, cigarettes, textiles, bedding, linens and fine jewelry) is transshipped from the Far East (particularly China, Hong Kong, and Taiwan) through the CFZ to other parts of the Western Hemisphere (particularly Venezuela and Colombia). Through 2015, the CFZ imported/exported $21 billion, down from 24 billion 2014, $27 billion in 2013 and $30 billion 2012. The 20 percent decrease over the last three years is due to the changing logistics capabilities of Chinese manufacturers, political and economic troubles in Venezuela and an ongoing trade dispute with Colombia.

Law 41 of 2004 provides for the development of “Panama Pacifico Special Economic Area” in the former Howard Air Force Base to encourage investment in the area, particularly in the logistics sector. Establishing a company in the SEA can be done in as little as six months. Many large American firms including Dell, WR Grace, 3M, SAMTEC, VF sourcing Latin America, Grainger, Singapore Technologies Aerospace, and Caterpillar are among the 246 multinational companies located there.

Law 32 of 2011 provides updated regulations for the development of free trade zones (not including the Colon Free Zone) in an effort to broaden the Panamanian economic development while promoting investment in former U.S. military bases transferred to Panama. The law also includes specific labor and immigration provisions that are more favorable than the current Panamanian labor code. The government also provides numerous tax incentives to companies that operate in free trade zones. Companies, whether Panamanian or foreign, operating in these zones may import inputs duty-free if products assembled in the zones are to be exported. There are currently 18 free zones with 155 companies registered. They face difficulties due to Panama's higher-than-regional-average wages, limited existing industrial base, and weak infrastructure, particularly outside the Panama-Colon Corridor. Law 25 of 2006 also provides for the development of call centers; 80 companies are currently licensed by ASEP to operate call centers.

17. Foreign Direct Investment and Foreign Portfolio Investment StatisticsShare    

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

 

Host Country Statistical source

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data

Year

Amount

Year

Amount

 

Host Country Gross Domestic Product (GDP) ($M USD)

2013

$42650

2014

$46212

www.worldbank.org/en/country

Foreign Direct Investment

Host Country Statistical source

USG or international statistical source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M USD, stock positions)

2013

NA

2014

$4687

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Host country’s FDI in the United States ($M USD, stock positions)

2013

N/A

214

$1185

http://bea.gov/international/direct_investment_
multinational_companies_comprehensive_data.htm

Total inbound stock of FDI as % host GDP

2013

N/A

2014

$2.6

N/A


Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment

Outward Direct Investment

Total Inward

$35293

100%

Total Outward

N/A

100%

United States

$5870

17%

N/A

N/A

N/A

Colombia

$4325

12%

N/A

N/A

N/A

United Kingdom

$3818

11%

N/A

N/A

N/A

South Africa

$2642

7%

N/A

N/A

N/A

Switzerland

$2548

7%

N/A

N/A

N/A

"0" reflects amounts rounded to +/- USD 500,000.


Table 4: Sources of Portfolio Investment

Portfolio Investment Assets

Top Five Partners (Millions, US Dollars)

Total

Equity Securities

Total Debt Securities

All Countries

$11715

100%

All Countries

$728

100%

All Countries

$10988

100%

United States

$6944

59%

United States

$360

49%

United States

$6584

60%

Colombia

$992

8%

Luxembourg

$59

8%

Colombia

$987

9%

Peru

$326

3%

Ireland

$54

7%

Brazil

$468

4%

Costa Rica

$318

3%

United Kingdom

$43

6%

Peru

$324

3%

Cayman Islands

$253

2%

Canada

$38

5%

Costa Rica

$317

3%

 

18. Contact for More InformationShare    

Commercial Section
panamaweb@state.gov
Building 783, Basilio Lakas Street, Clayton
http://www.export.gov/panama/