Policies Towards Foreign Direct Investment

Panama depends heavily on foreign investment and it has worked to make the investment process attractive and simple. 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 runs a considerable trade surplus with Panama. Both countries signed a Trade Promotion Agreement (TPA) that entered into force in October 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 Latin America’s few predominantly services-based economies, with services representing roughly three-quarters of Panama’s GDP. 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. The TPA covers all services sectors, 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 previously 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, 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 government, they do monitor large foreign investments.

Limits on Foreign Control and Right to Private Ownership and Establishment

The Panamanian government does impose 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. Medical practitioners, lawyers, accountants, and customs brokers must be Panamanian citizens. The Panamanian government 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.

Other Investment Policy Reviews

In 2014, the World Trade Organization (WTO) completed a Trade Policy Review of Panama. The results of the review can be found here: https://www.wto.org/english/tratop_e/tpr_e/tp401_e.htm 

Business Facilitation

Procedures regarding how to register foreign and domestic businesses, as well as how to obtain a notice of operation, can be found at the Ministry of Trade and Industry’s website , where you may register a foreign company, create a branch of a registered business, or register as an individual trader. Applicants must submit notarized documents to the Mercantile Division of the Public Registry, the Ministry of Trade and Industry and the Social Security Institute. Panamanian government statistics state that applications for foreign businesses take between one to six days to process.

Panama ranked 87th out of 176 countries in the 2016 Transparency International Corruption Perceptions Index. Complaints by U.S. investors about allegedly corrupt judicial and governmental decisions prejudicial to their interests remain common. 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, often based on political considerations.

Panama’s government lacks strong systemic checks and balances that would serve to incentivize accountability. 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, which in turn has led to charges of a de facto “non-aggression pact” between the branches.

While Panama’s current President campaigned on a pledge to eliminate corruption in the government, increase transparency, and prosecute corrupt officials, several high-profile corruption scandals have created considerable pressure on the government to do more. In late 2016, Odebrecht, a Brazilian firm, admitted to paying USD 59 million in bribes to win Panamanian contracts of at least USD 175 million between 2010 and 2014. Odebrecht’s admission was confined to bribes paid during the previous administration. The scandal’s reach has yet to be fully determined.

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, that government enforcement bodies and the courts are not effective in pursuing and prosecuting those accused of corruption, and the lack of a strong professionalized career civil service in Panama’s public sector has hindered systemic change. The fight against corruption is also hampered by the government’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.

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 should more effectively implement the conventions.

Resources to Report Corruption

Angelica Maytin
Directora Nacional de Transparencia y Acceso a la Informacion (ANTAI)
Autoridad Nacional de Transparencia y Acceso a la Información
Ave. del Prado, Edificio 713, Balboa, Ancón, Panama, Republica de Panama
(507) 527-9270 / 71/72/73/74
www.antai.gob.pa 

Panama’s official unemployment rate is 5.5 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’s capital region (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 Colón 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 Panamanian government 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.

Panama spends approximately 14 percent of the central government’s budget, or four percent of GDP, on education. The 2015-2016 World Economic Forum Global Competitiveness Report ranked Panama 97th out of 140 countries for its quality of higher education and 87th for its quality of higher education. The report points to an inadequately educated workforce as the most problematic factor for doing business. This poor showing underscored the 2010 Organization for Economic Co-operation and Development (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 anti-union 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 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 flammables, toxic and radioactive substances; work underground and on railroads, airplanes, and boats; and work in nightclubs, bars, and casinos.

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

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment