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ECONOMY
Mexican President Enrique Peña Nieto (L) and his Panamanian counterpart Ricardo Martinelli during a signing ceremony of a Free Trade Agreement in Playa Bonita, near Panama City, on April 3, 2014
business accelerator, as “a strategic focal point for regional operations of international organizations.”
The Multinational Enterprises Headquarters Act, better known as “Law 41,” is an adjunct to the free trade zones, but it operates without geographic restriction. Companies opening a regional headquarters and meeting other specified criteria can enjoy similar tax, immigration, labor, and regulatory advantages throughout the country. Remy Swaab, the executive director of WTC Panama, observes, “One of the impacts of the foreign influx of companies and professionals is that it has allowed for market equalization during Panama’s rapid economic surge as well as for the creation of additional supporting industry opportunities for the local work force.”
FTAs open the channels
Panama maintains or is seeking bilateral and multilateral free trade agreements (FTAs) with partners across the Americas, Europe, and Asia. Agreements already in force include pacts with the United States, most of Panama’s Caribbean and Central American neighbors, Taiwan, and Singapore. Signed but not yet ratified are agreements with Canada, the European Union, and Mexico.
The treaty with Mexico was signed in Panama City April 3, 2014, at the World Economic Forum on Latin America by then-Panamanian president Ricardo Martinelli and Mexican president Enrique Peña Nieto. The treaty sets the table for Panama to join the Pacific Alliance—which includes Colombia, Chile, and Peru, in addition to Mexico—as soon as it meets all membership requirements.
“We trade over a billion dollars with Panama. We sell them about $960 million worth of goods and they sell about $60 million worth of goods. But that has much more potential for the growth of trade,” says Ildefonso Guajardo Villareal, Mexico’s Secretary of Economy. He goes on to note, “For Panama, it is very important because signing the agreement with Mexico is the last requirement in order to apply for integration into the Pacific Alliance. And that is the main objective of completing this bilateral agreement.”
Panama’s free trade agreement with the United States went into effect October 31, 2012, dropping Panama’s import tariff on goods and products manufactured in the United States to 0 percent and giving a significant advantage to U.S. companies doing business in Panama. Finally, in 2011 Panama became a member of The Latin American Integration Association, an agreement that seeks to establish a Latin-American common market.
Stressing the importance of a diversity of trading partners, Domingo Latorraca, the former Vice Minister of the Economy for Panama’s Ministry of Economy and Finance and a current partner at Deloitte LATCO, noted, “The Panamanian economy must be kept well mixed. We should not have all eggs in one basket.”
10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
GDP Growth
Panama
Latin America
2013-32
Global
2006-12
Since 2006, Panama’s GDP growth has been the highest in Latin America, even though it is expected to slow over the next 20 years. The projected annual growth will average 4.7% over the next two decades, compared with 3.2% for Latin America and 3% for the world economy.
Source: Oxford Economics / IMF / Deloitte
environment. Free trade zones have long been a part of those plans. Panama has three principal free trade zones, designed to work synergistically, along with a patchwork of smaller regional or highly specialized variants, such as the Hydrocarbon Free Zones, which service both canal traffic and other vessels using Panamanian ports:
• The Colón Free Trade Zone, at the Atlantic terminus of the canal, is the largest free port in the Americas and serves as a market to Central and South America as well as the Caribbean.
• The Panama Pacifico Special Economic Area, on the west coast, is an international transportation and logistics hub that also houses high-tech and other specialized manufacturing facilities.
• The City of Knowledge focuses on science, academics, cultural activities, and human development. ProInvex, Panama’s National Agency for the Attraction of Investment and Promotion of Exports, describes the City of Knowledge, which includes the International Technopark and a
Infrastructure, construction
buttress economy
The Panama Canal expansion
The opening of the Panama Canal in 1914 transformed the
22 STRATEGY
CAGR,%