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Doing business in Panama.

The U.S. Dept. of Commerce has produced a 53-page Country Commercial Guide which offers helpful information on doing business in or with Panama. Excerpts follow: If you wish to read the complete report, Email me (kalwagenheim@cs.com). I'll Email it to you as a file attachment.

Market Overview

Panama, from the time of the conquistadors, has served as the crossroad of trade for the Americas. Today it is not only a maritime shipping and air transport hub, but also an international trading, banking, and services center. Trade liberalization and privatization over the last several years, along with the hemispheric movement toward Free Trade Agreements, while still in progress, will increase Panama's global, regional and sub-regional prominence. The dollar-based economy offers low inflation and foreign exchange risk. Its legal and regulatory regimes are business friendly. Its government is stable, democratic, and reform minded and seeks foreign investment in all sectors, especially services, tourism and retirement properties.

The productive and manufacturing sectors remain severely underdeveloped. This translates into socio-economic inequalities marked by a high percentage of the population living at or near the poverty level, with high unemployment, and limited education and other social benefits.

The services sector accounts for about 80% of GDP. Services include the Panama Canal, banking, the Colon Free Zone, insurance, container ports, and flagship registry. Manufacturing and mining account for 14% of GDP. It is expected that Panama will proceed with the megaproject of expanding the Canal, and with expansion of port capacities on both the Atlantic and Pacific coasts, thus solidifying its global logistical advantage. These projects will generate needs for technology, goods and services. Panama has potential for growth in the areas of electric power generation, health care services, port services, land development, road construction, water distribution and purification, telecom, and tourism.

The United States is Panama's most important trading partner, with about 30% of the import market, but competition in sectors such as : telecom equipment, automobiles, heavy construction equipment, consumer electronics, computers, apparel, gifts, and novelty products.

Merchandise imports rose in 2005 by 16% over 2004 to US$4.1 billion. Merchandise exports were US$964 million.

The Colon Free Zone, second largest in the world after Hong Kong, is a vital trading and transshipment center. It handled imports of US$5.7 billion in 2005, with exports of US$6.2 billion. Total net contribution of the CFZ to the trade balance (Exports-Imports) was US$500 million, down 16% from 2004. Zone imports are mostly luxury goods, electronic products, clothing, and other consumer products. Hong Kong is the CFZ's key supplier; Colombia and Ecuador are the two largest destinations for re-exports.

Manufacturing is largely geared to processed foods, chemical products, construction materials and a small and declining clothing sector. As Panama reduced its duties on manufactured items, manufacturers found it difficult to compete with imports in many sectors.

Agriculture, forestry and fisheries comprise about 7% of GDP. Some imports are subject to high duties while non-tariff barriers have proven to be a persistent obstacle to market opening and complicate trade agreement negotiations.

Market Challenges

Consumer attitudes and brand preferences are similar to the U.S. American TV, radio and magazines are popular. Panamanians frequently travel to the U.S. for vacation, medical treatment, study and business.

Panama boasts the highest per capita GDP in the region (US$4,300 in 2005). But income distribution is skewed to the a relatively small economically powerful class which prefers quality trend-setting goods. The bulk of the population has limited disposable income, with price and availability of credit critical to their buying patterns.

Market Opportunities

Panama does not restrict the outflow of capital or outward direct investment. Its accession to the World Trade Organization in mid-1997 opened up trade and gave it the lowest average tariff rate in Latin America. Some agricultural products have high tariffs. It also has applied slow, arbitrary procedures for issuing phytosanitary permits; a new Food Safety Authority aims to eliminate this problem.

Inflexible labor laws are a source of concern. Firing practices are excessively regulated, which reduces labor mobility and inhibits hiring. The monthly minimum wage was increased in Feb. 2006 to US$284, relatively high in a Central American context.

The privatization program started with the sale of a state-owned cement and fruit companies. The Government awarded concessions for a private toll road in 1994, cellular phone service, another private toll road in early 1996, and two ports in mid-1996. Intel, the phone company, was partially (49%) sold in mid-1997 and is now being managed by the Britain's Cable & Wireless. The C&W monopoly ended on Jan. 2003 for all fixed line, long distance and international services. State-owned casinos and race tracks were privatized in 1998. The power parastatal was converted into eight companies, which were partially sold to the private sector, in Aug. 1998. Two sugar mills were privatized in 1998 to local groups with some Colombian participation. The inefficient water parastatal remains government operated.

Foreign Direct Investment fell to US$98.6 million in 2002, after averaging US$600 million for the previous three years, due to the decline in foreign banks' reserves following the collapse of Argentina's financial market. Since then, FDI has resumed growth and passed US$1 billion in 2005, thanks largely to growth in banking and Colon Free Zone, and a US$366 million investment by Spain's Telefonica Moviles. In the past, questionable government practices have soured some firms from doing business here. These include bidding procedures, contract obligations, and a slow and imperfect judicial system. The new administration of Martin Torrijos has an agenda of financial reform, anticorruption and transparency, and reform of the Social Security system. The expansion of the Canal must be approved by national referendum; it is generally thought that the government must first make progress in other areas of social reform before the referendum is called.

Relatively high costs for electrical power and labor make production costs higher than average for the region. Lack of consistent access to imported agricultural inputs due to arbitrary import procedures has also led to foreign companies complaints.

An interesting area for foreign investment is in the former Canal Zone and associated military bases. Panama received 364,000 acres of such territories in late 1999, including two large military bases, one of which (Howard) could be used as an air cargo hub or an aircraft maintenance/ repair facility. The Government seeks investment in tourism, marine services, ports, and in-bond assembly and manufacturing. Due to governmental indecision, investment, in these transferred properties has not yet met expectations. But government efforts are leading to increased interest in these properties.

Panama favors free trade agreements, and is seeking to conclude a bilateral accord with the U.S., provided it can reach agreement on some sensitive areas. Its first free trade agreement (FTA) with El Salvador entered into force on April 11, 2002. An FTA with Taiwan went into effect on Jan. 1, 2004. It also signed an FTA with Singapore in March 2006, and concluded negotiations with Chile in 2006.

Market Entry Strategy

Due to its open economy, Panama has no market access problems. One of the most used entry options is to appoint an agent or distributor. Another is to find a local partner who can provide market knowledge and contacts. Other businesses have been successful via licenses or franchises.

The U.S. Commercial Service offers U.S. companies market entry assistance through the worldwide Gold Key Service (GKS) for those who wish to travel to Panama and the International Partner Search (IPS) for those companies who cannot immediately visit. Details: www.buyusa.gov/panama

Establishing an office in Panama is a straightforward process. There is plenty of office space available with many options related to location and cost.

Franchising

Panama is receptive to U.S. style franchising. It maintains no control on royalty payments or transfers. Recreation, entertainment services, fast food, automotive, and hotel and motel franchises are readily marketable. The U.S. Embassy recommends consulting a local attorney for details. Products targeting the middle to upper-middle income market are usually competitive. Most high-end U.S. and foreign brand names are represented. An aggressive marketing strategy is usually necessary to succeed in this trend-conscious market.

Direct Marketing

Local laws allow companies and individuals to import directly with no intervention from agents or distributors. This opens the door for a direct marketing approach especially in certain sectors such as industrial goods, industrial machinery, agricultural equipment and other high value equipment.

Joint Ventures/Licensing

Joint ventures, especially for large projects, are becoming common. Some are formed for limited periods, such as for a specific construction contract or technology transfer contract. The profits can be distributed annually to each partner, and are taxed in the same manner as any other income.

Panama is an interesting and potentially profitable site for licensing agreements and joint ventures as well as routine buy/sell operations. The Colon Free Zone offers the exporter looking for regional marketing arrangements a convenient one-stop distribution center. There have been instances of money laundering, intellectual property piracy and drug trafficking reported in the CFZ. All firms should perform due diligence before commencing operations in the Zone.

Selling to the Government

Panama does not have a Central Procurement Office. Purchases of goods and services of significant value are by law advertised for public bid. Each agency is responsible for its own procurement but subject to the supervision of the Ministry of Economy and Finance and the Comptroller General's Office. Regulations also establish a process of company pre-qualification for purchases above US$250,000. Tender documents for major bids are discussed with interested companies in order to assure agreement about of terms and condition of participation. Lack of transparency, excessive delays, and bureaucracy in the bid selection process have caused problems for U.S. and other bidders in the past. Again, stringent adherence to bid terms and due diligence is advised.

Excessive bureaucracy is also responsible for the government's slow payment record. Payment often takes three to six months, after goods or services have been invoiced.

The Panama Canal represents significant business opportunities for exporters; purchases range from US$100-$250 million for port and marine equipment, building materials, industrial equipment and transportation materials and equipment. The Canal is autonomous operation, and enjoys an excellent payment record. Details: http:// www. pancanal.com/ procsales/ buy-s.html

The Comptroller's General Office and the Ministry of Economy and Finance announced in 2004 the implementation of the e-compras (e-purchase) program. Its name was changed to "Panamacompras". It will cover the purchasing process from the original solicitation of a good or service until it is fully delivered. It will include all public sector purchases. Details: Ministerio de Economia y Finanzas, Direccion Nacional de Contrataciones Publicas. Contact: Edilberto Ruiz, Director, Phone: 507-207-7803Fax: 507-225-1620. E-mail: eruiz@mef.gob.pa. www. panamacompra.gob.pa

Distribution and Sales Channels

Panama City accounts for 65% of total sales of consumer goods. The remaining 35% is distributed among the principal cities of David, Colon, Santiago and Chitre. Direct importers often act as wholesalers and also as retailers. This is common in the case of apparel, automotive parts and hardware products. In the case of consumer goods, food and medicines, the retail operation is separate from the wholesale operation. For industrial goods, sales are normally handled by local exclusive agents or distributors. In other cases, local firms order directly from brokers or the manufacturer.

E-Commerce

The Panamanian Chamber of Commerce is leading a program to increase use of e-commerce, with financial assistance from the Inter-American Development Bank (IDB). A number of firms, especially supermarkets and consumer electronic stores, offer e-commerce facilities and more firms are working on providing these facilities. Details: www.mici. gob.pa/ comercio-lectronico/sobre_comercio. html and www.panamacom.com/que_es_ec.

Trade Promotion and Advertising

TV and newspaper advertising are the promotion tools of choice for the majority of distributors. E-mail marketing is becoming increasingly popular, especially for services. Panama has a competitive advertising market. Trade shows, specialized seminars and exhibitions are effective tools for trade. Special sale prices during events such as mother's and father's day, back to school and Easter are usually advertised in newspapers during weekends. Most foreign manufacturers of consumer products maintain a high profile presence in the country through newspaper ads, billboards, sponsored sports events, and TV advertising. Radio advertising is mainly utilized outside of metropolitan Panama City.

Business Web Sites: http://us-panama.org, http:// businesspanama.com, http://panamainfo.com, www. zonalibredecolon. com.pa, www.panamcham.com, www. panacamara.com, www.expocomer.com. http://gfce.org

Leading Sectors for Export and Investment

1. Travel and Tourism (TRA)

The US has a commanding market share of outbound travel. In 2004, 49% of all Panama outbound air travelers were headed for U.S. destinations. The closest competing destinations are Colombia with 11% market share, followed by Costa Rica with 9% and Mexico with 5%.

Airline connections from Panama to the U.S. have greatly improved in the last ten years. Alliances, such as One World and Sky Team, allow passengers to begin travel in Panama with major U.S. carriers and connect easily to other flights, sometimes with other airlines, in their U.S. port of entry cities.

Best Products/Services: Market niche or specialized travel to the U.S. is a growing area. More travelers are visiting the U.S. for medical care, with Houston as a preferred destination. Religious travel is an emerging market segment. These new segments are in addition to the traditional travel niche market segments of Cruise Vacations for 15-year old girls ("quinceaneras"), that continue to generate strong demand, as well as meetings and convention travel to the U.S. Panamanians also travel to the U.S. to visit family and friends.

Opportunities: It is suggested that businesses offer package travel deals that focus on their preferred travel destinations of Miami and Orlando, Florida; New York; Los Angeles; and Houston, Texas. The travel market is extremely price sensitive and any attractive packages with air fare, car and hotel included, among other services, will be well received, especially if they are timed with Panama's peak travel periods.

2. Telecommunications Equipment (TEL)

The telecom sector was privatized in 1998. INTEL was converted into a corporation; 49% of its shares were sold to Britain's Cable & Wireless and 2% to the phone workers union. C&W improved services, digitalized all switching stations and upgraded transmission lines. On Jan. 1, 2003, all fixed line telecom services were opened to competition and licenses were issued at a nominal fee. This provides new market opportunities for exporters of telecom equipment. There are over 500,000 fixed telephone lines, and more than 1.5 million cellular lines, giving Panama one of the highest teledensity rates in Latin America. Main competitors in the market are the United Kingdom, Japan, Sweden, France and Canada.

Best Prospects/Services: PABX systems, radio trunking systems, satellite-based telecommunications facilities, wireless systems and fiber optics cable.

Opportunities: BellSouth, one of the two wireless operators, sold its operation to the Spanish firm Telefonica. This company is operating both the CDMA and GSM systems which will create additional demand for these technologies.

3. Computers and Peripherals (CPT)

Factors contributing to the positive outlook for this sector include: (1) office automation is a growing trend in both the public and private sectors, (2) import duties for computers (average 7% over CIF value) are relatively low, (3) there are many accessible computer suppliers both locally and abroad, particularly in the Miami area and (4) a growing computer culture has resulted from increased use of computers in public schools, the high number of Panamanian graduates from U.S. schools, and the local availability of Internet services, computer magazines, journals, and other literature from the U.S. The U.S. has a market share over 60%. The most promising end-users are: banks, commercial establishments, universities, the Panama Canal, and government organizations.

Best Prospects/Services: personal computers, LAN equipment, laptops, and laser printers.

Opportunities: The government is a major computer user and has been committed to increasing use of computers and the Internet in public schools. The Panama Canal and the banking sector are also large buyers of computer equipment.

4. Cosmetics and Toiletries (COS)

Cosmetics and Toiletries has always been a dynamic sector. Even those in the low income brackets have access to these products. Many importers and distributors compete for shelf space. Competition is strong from Europe. The market has been favored by reduced import duties (maximum of 15%) and a simple registration process. Local production is limited.

Best Prospects/Services: hair products, body creams, and deodorants. Ethnic hair products are in great demand.

Opportunities: The Free Trade Agreements with Chile, Taiwan, Central America and possibly with the US will make the market even more dynamic and competitive.

5. Air Conditioning and Refrigeration Equipment (ACR)

Increased activity in the fisheries export sector and continued growth in the consumption of perishable goods, especially frozen items, should represent excellent opportunities for air conditioning and refrigeration equipment exporters. Panama has two major breweries, three large dairy plants, and three large soft drink bottlers. Demand for air conditioning equipment will also be stimulated by the growth of the construction sector, especially residential high-rise buildings and suburban housing. There are no restrictions for imported air conditioning and refrigeration equipment. Import duties are relatively low (10% over CIF value). Japan and Korea are major competitors. Energy efficiency has become a key element in product choice.

Best Prospects/Services: commercial air conditioning, domestic systems (split) and industrial refrigeration.

Opportunities: New high-end housing projects in Punta Pacifica and Costa del Este in Panama City and new middle class housing developments in Clayton and Albrook should generate a strong demand for air conditioning equipment.

6. Electric Power Systems (ELP)

Demand for electricity is growing by 50 MW per year. Price and quality are the main factors, followed by after sale service, which includes technical assistance. U.S. competitors come principally from Sweden, Italy, Brazil, Germany and England. Best Products/Services: hydroelectric generators, especially small and medium size plants.

Opportunities: Law No. 45 of Aug 4, 2004 provides incentives for the construction and development of new electric generation plants, especially hydroelectric plants (up to 20 MW) and other clean energy sources.

7. Health Services (HCS)

Panama's hospitals are modern and most leading doctors were trained in the U.S. Many wealthier Panamanian travel to the US (particularly Texas and Florida) for medical treatment, especially for cancer and heart disease. The U.S. is the prime supplier of health services, medical equipment, supplies.

Best sales prospects are hospital administration and design, health services management, medical treatment in the U.S., and consulting services in the public health area.

Opportunities: The public health sector has received financing from the Inter-American Development Bank (IDB) to implement programs. The government is considering additional programs to strengthen health services. All require expertise which is not locally available.

Resources: Trade Shows--Panama: http://panancham.com; http://expocomer.com; Ministry of Health: http://minsa. gob.pa; Social Security Office: http://css.org.pa; CS Trade Specialist: Enrique.Tellez@mail.doc.gov

8. Ports and Shipbuilding Equipment (PRT)

Panama is a key maritime center. The Panama Canal has historically been the symbol of maritime activities. In recent years, traditional main ports, Cristobal on the Atlantic and Balboa on the Pacific, have been privatized and can handle increased container traffic. Two new ports have been built on the Atlantic (Manzanillo, operated Stevedoring Services of America, and Coco Solo operated by Taiwanese-based Evergreen). Container capability has increased from 250,000 in 1997 to 2.5 million in 2005. A new transisthmian railroad, built by the Kansas City Southern and M.I. Jack began operating in July 2001. It allows for surface container transshipment between the two oceans. The U.S. has a 50% market share. Major competitors are Korea, Japan, Germany, and the People's Republic of China.

Best Products/Services: Quay cranes, container cranes, forklifts, top loaders, rubber tire gantry cranes, power packs, and flatbeds. The new ports also offer opportunities for small forklifts, small trucks, and similar handling equipment.

Opportunities: Balboa and Manzanillo ports have announced expansion plans. The Government announced plans to bid a major container port on the Pacific side, at Farfan-Palo Seco, 15 minutes from downtown Panama City. The preliminary design calls for an area of 113 hectares, a 1600 meter berth, with capacity to handle 2.4 million TEUs per year, 700 meters from the mainland. Unofficial estimate of US$600 million for the initial stage of this project.

9. Security and Safety Equipment (SEC)

The relatively low crime rate is on the rise and banking and commercial institutions have been targeted for armed assaults. There is also an increasing need for security equipment in residential areas and public places. Because of high labor costs, many businesses and households are automating security. The US has kept a strong presence in the security and safety equipment sector with more than 70% market share. Major competitors are from Japan, Korea and Germany. There are no restrictions on the entry of security and safety equipment. Import duties range between 10% and 15%. Main users are banks, retailers, ports, hotels, airports, hospitals, and large corporations;

Best sales prospects are fire and burglar alarms, smoke detectors, electronic surveillance equipment and safe/strong boxes. Also, car alarm systems are always in strong demand.

Opportunities: New gated communities in Panama City and condominiums are increasing the use of surveillance electronic equipment. The Panama Canal and the ports are major users of security and safety equipment.

10. Furniture (FUR)

The high-end furniture sector is becoming more competitive, with the presence of exclusive brand names from the US and Europe, and is expected to increase at a rate of 8% the next three years. The US has a market share of 50%. Asian countries (Korea, Malaysia) and Europe (Spain, France and Italy) are striving to increase their market shares.

U.S. furniture is in high demand, even though it is considered more expensive than Asian or European furniture. U.S. imports remain strong, especially for living, bedroom, dining-room sets as well as decorative pieces. There is an increasing availability of design magazines, both imported and locally produced, that have an influence demand. Rapid urban development, the lowering of import duties, and aggressive marketing practices by major retailers have created a dynamic and competitive market.

Best Products/Services: The demand is especially strong for high-end furniture, especially residential. Best selling items are living room and bedroom furniture, followed by dining room and decorative furniture. New high-end housing projects in Punta Pacific, Costa del Este, and in the former U.S. military areas in Panama City will continue to generate a strong demand.

Agricultural Sectors

1. Consumer Oriented Agricultural Products

Affected by competitors from neighboring countries, this sector continues in first position, with main products Snack Foods ($11 million), Processed Fruits and Vegetables ($10 million), Turkey Meat ($6 million), Fresh Fruit ($5 million), Fruit and Vegetable Juices ($4 million), Wine and Beer ($4 million), Dairy Products ($4 million), Breakfast Cereals and Pancake Mix ($3 million), Red Meats, Prepared, Preserved ($2 million), and Other ($20 million), for a total of US$69 million.

Best Prospects/Services: Dairy Products, Turkey Meat, Processed Fruit and Vegetables, Fruit and Vegetable Juices.

2--Bulk Agricultural Products

Continued expansion of local animal industries created higher demand for yellow corn, while problems with local harvest of rice increased imports of that product.

Best Prospects/Services : Yellow corn, rice, wheat.

3--Intermediate Agricultural Products

Competition from low priced markets caused a decrease in U.S. exports of soybean meal, a product in high demand by local animal feeds industry.

Best Products/Services: Soybean meal.

Import Tariffs

The current government, led by President Martin Torrijos, took office in Sept. 2004. When Panama joined the WTO in 1997, government lowered tariffs to a maximum of 15%, except for a few agricultural products, and to an overall average of 12%, the lowest in the region. The revised import duty structure was significantly lower than the one negotiated for WTO accession and represented a substantial commitment to trade liberalization.

Trade Barriers

The former Moscoso Government maintained this import tariff policy with regard to manufactured products but duties for most agricultural products were increased to the maximum limits permitted by the WTO. Government also erected substantial non-tariff barriers for certain agricultural products including poultry (permanent barriers), beef, pork, produce, and rice (seasonal barriers). The mechanism utilized alleged phytosanitary concerns over non-quarantine diseases.

Import Licenses

Any company holding a commercial license can freely import goods. Phytosanitary permits are required to import agricultural products. These were routinely issued in the past but, as previously stated, are now frequently refused or delayed as a means to limit agricultural imports. Special import permits are required for all types of firearms, ammunition, fertilizers, and certain foods. Import permits can be obtained from the Ministry of Government and Justice.

Import Documentation

Processing of customs documents in Panama for imports is fast, efficient and reliable. Merchandise must be cleared through customs by a licensed customs broker. The following goods are imported under duty free status: consigned to national or municipal governments, imported by foreign diplomats, consigned to the Panama Canal, sold to vessels transiting the Canal, or intended for re-export.

Customs Regulations

Panama assesses import duties on an ad valorem basis, which uses the declared CIF value as the basis for import duty calculations and in some cases utilizes historical price information as a reference. Imports are also subject to a 5% transfer or value added tax (ITBM) levied on the CIF value, plus import duty and other handling charges. Pharmaceuticals, foods and school supplies are exempt from the ITBM tax. In general, customs does not represent a significant obstacle for exporters. Details: Direccion General de Aduanas, Daniel Delgado. E-mail: Jkennion@mef.gob.pa. www.aduanas.gob.pa

Trade Agreements

Panama has bilateral free trade agreements (FTA) with El Salvador (since April 11, 2002), and Taiwan (since Jan. 1, 2004). It signed an FTA with Singapore in March, 2006. After former President Moscoso's visit to the U.S. in June 2003, the U.S. and Panama began negotiations for an FTA in April 2004. To date, there have been eight negotiating rounds. Panama has limited preferential trade agreements with Costa Rica, Honduras, Guatemala, Nicaragua and the Dominican Republic, Mexico and Colombia. On Nov. 5, 2004, Panama said it would join the G-4 (Group of Four), consisting of Colombia, Venezuela, and Mexico. However, negotiations have not begun.

Panama is a beneficiary of the Caribbean Basin Economic Recovery Act, better known as the Caribbean Basin Initiative (CBI), which provides for one-way free trade access for specific Panamanian exports to the U.S. In 2000, the U.S. enacted legislation which permits more liberal treatment of textile imports from CBI countries. Since Panama is not an important textile exporter, this has limited value here.

Openness to Foreign Investment

The government and the business community actively encourage foreign direct investment (FDI). The Investment Stability Law, enacted in 1998, guarantees foreigners who invest at least US$2 million equal treatment to that of local competitors.

The Vice Ministry of Foreign Trade (VICOMEX) is the principal entity responsible for promoting foreign investment. Several governmental entities may have a passive or active interest in the investment in terms of setting its parameters of operation, particularly within relevant regulations, land use, employment, special incentives, business licensing, etc.

The Government does impose some limitations on foreign ownership, such as in the retail and media sectors where ownership must be Panamanian. Foreign retailers, however, have been able to work within the law, primarily through franchise arrangements. Some professions, such as medical practitioners, lawyers, and custom brokers, are reserved for Panamanian citizens. Foreigners in various sectors must obtain government permission to work, but to the U.S. Embassy's knowledge these restrictions have not hindered firms operating here.

Panama experienced a boom in foreign investment between 1996 and 1998 as a result of former President Balladares' privatization/modernization program. Foreigners, including U.S. firms, participated in the privatizations of ports, electrical generators, and telecom firms. The conduct of bids and tenders for some public sector projects raised concerns about the openness and transparency of the process.

The government has "corporatized" Tocumen International Airport as a private entity with all shares owned by the GOP. The airport is undergoing a US$70 million expansion of the passenger and cargo terminals. The government has pledged not to privatize its inefficient water and sewage utility, its electric transmission company, or the Caja de Seguro Social (Social Security System).

There are announced projects in the energy sector, golf courses, residential and commercial construction (including the planned 102-story "Ice Tower," which would be the tallest building in Latin America), and a new megaport near the Pacific entrance of the Panama Canal. A major challenge is scheduling a referendum for the Canal expansion and achieving a positive outcome.

The government developed some of the properties transferred to Panama by the US from 1979 through Dec. 1999. The commuter airport at the former Albrook Airfield, now known as Marcos A. Gelabert Airport, has been one of the most successful ventures. Other projects now underway include tourist projects at the former Fort Amador and at Farfan on the Pacific, as well as a museum of ecology designed by world-renowned architect Frank Ghery. On the former Howard Air Base, Dell Corp. opened a customer service call center in Aug. 2003 that employs about 2,000. Progress in the academic and research community (City of Knowledge) has been slow but steady. Several U.S. universities and other organizations have located campuses in various former military installations.

Conversion and Transfer Policies

Panama does not restrict the transfer abroad of funds associated with or capital employed in an investment. There are no restrictions on capital outflows or convertibility. Panama uses the U.S. dollar as legal tender. According to the IMF, "dollarized Panama has had significantly lower inflation (and inflation volatility) at a cost of more volatile GDP growth." Although inflation topped 3.5% during 2005, annual inflation averaged less than 3.2% over the previous 30 years.

Expropriation and Compensation

The U.S. Embassy is unaware of any outright expropriation of property in recent years. Very few U.S. investors have alleged that irregular or illegal actions of some government entities, past and current, have resulted in "de facto" expropriation of their property. In Oct. 2005, some 150 U.S. citizen residents of the Bocas del Toro area feared that a proposed new land titling law (Law 2) would strip them of the rights of possession they had acquired for lands where they built homes, hotels, and other improvements. Under previous law, rights of possession were transferable in this and other regions where formal land titles were either non-existent or problematic. Following concerns raised by various residents of the area and by the U.S. Embassy, the GOP subsequently enacted a revised Law 2 stipulating that none of the law's provisions shall affect rights of possession granted under previous law. It remains to be seen whether implementation of Law 2 ultimately avoids any "de facto" expropriation of lands held by U.S. citizens with rights of possession.

Dispute Settlement

The business community lacks confidence in the judicial system as an objective, independent arbiter in legal or commercial disputes, especially when the case involves powerful local figures with political influence. When disputes with foreign investors arise, as they do from time to time, the investors often choose not to pursue remedies available to them via the court system. In a few cases the appearance of corruption has been so widely accepted as to constitute conventional wisdom. The decision by investors to avoid the court system is understandable, given massive case backlogs and the specter of corruption.

An increasingly popular and viable alternative for settling disputes is the Center for Mediation and Arbitration established by the Panamanian Chamber of Commerce. There are other dispute resolution centers, such as the Pananamian Construction Chamber, and the Supreme Court. Rulings by arbitrators are generally fair and reasonable. In 1998, these rulings were given status as judicial rulings.

Efficient Capital Markets, Portfolio Investment

The 1998 Banking Law, which concentrates regulatory authority in the hands of a powerful and well-financed Superintendent, transforms the previously inadequate regime into one that is able to meet international standards.

Traditional lending from the well-developed banking sector is relatively efficient. Interest rates closely follow international rates (i.e., the London Interbank Offered Rate--LIBOR), plus a country-risk premium. The rate on a domestic commercial loan averaged 8.2% in 2004 and increased slightly for 2005 (through September) to 8.5%. The six-month domestic deposit rate was 2.2% in 2004 and 2.7% in 2005 (through September). Total assets in Panama's banking system topped US$29 billion in December 2004 and grew to US$30.1 billion as of Sept. 2005.

Political Violence

Panama's Constitution provides for the right of peaceful assembly, and the Government generally respects this right. No authorization is needed for outdoor assembly, although prior notification for administrative purposes is required. Throughout much of the year, police showed restraint and professionalism while monitoring large protests by students, political activists, and workers.

Political violence since the end of the Noriega era in 1989 is not common, but there are exceptions. Between April and June 2005, police peacefully subdued large, potentially violent nation-wide protests against Social Security reforms with few complaints of use of force. A local protest against utility rate hikes in Bocas del Toro in Oct. 2004 left 24 PNP officers wounded and ended with charges of police brutality by the protests. Sept. 2003 protests spurred by the ouster of Social Security Director Juan Jovane turned violent when construction workers led by SUNTRACS labor union attacked police. In 2002, there were several public demonstrations, including a major public protest against corruption in Panama City. Several times during the year, rural groups protested against the presence of Panama Canal authorities in the watershed and potential expansion of the Canal. In Aug. 2002, rioting broke out in Colon for two days, ostensibly to protest persistently high unemployment, halting commerce and causing minor property damage.

The lack of economic opportunities, a high unemployment rate (officially at 9.6% as of late 2005, but much higher in certain areas), and a growing use of illicit drugs have been cited as the chief causes of crime.

Corruption

The suspicion that anti-corruption laws are not applied rigorously feeds the concern that government enforcement bodies have been ineffective in pursuing and prosecuting those accused of corruption, particularly in high-profile cases. The Torrijos Administration has taken steps to permit investigation of corruption cases involving public officials and the public release of information regarding government activities and expenditures. Reforms that permit the Supreme Court to decide whether to investigate or indict legislators while in office were implemented on Nov. 15, 2004.

The government has not acted to dismantle dictatorship-era libel and contempt laws, which often are used to punish whistleblowers, while those accused of acts of corruption are seldom prosecuted and almost never jailed. The lack of a strong professionalized career work force in Panama's public offices also hinders systemic change.

Complaints by foreign firms about allegedly corrupt judicial and governmental decisions prejudicial to their interests remain problematic. In 2005, the Torrijos Administration successfully reversed a deal struck between the Moscoso Administration and Panama Ports Co. (PPC) that would have enabled PPC to walk away from US$1.4 billion in payments as part of a 40-year port concession agreement. Amid allegations of corruption, the Torrijos Administration successfully renegotiated new terms with PPC that effectively erased the Moscoso-PPC deal.

Since taking office in Sept. 2004, the Torrijos Administration has taken several steps toward following through on its "zero tolerance" anti-corruption campaign, including the launch of investigations into the finances of prominent figures in the Moscoso Administration. It rescinded Moscoso's June 2002 decree that impeded enforcement of the Jan. 2002 Transparency Law. President Torrijos also established a "National Council for Transparency Against Corruption" that makes recommendations to the President, but the Council's influence on the administration is not strong. Several high-profile cases remain unresolved by the courts. The Torrijos Administration also passed a package of fiscal and social security reforms through the National Assembly that included increased transparency measures.

Corruption in the Supreme Court remains a source of public concern. In March 2005, four magistrates hurled accusations of corruption against each other, provoking wide-spread public demands for the dismissal of all nine justices. In response, President Torrijos created a State Justice Commission to recommend improvements, mainly in the areas of transparency, efficiency and public accessibility. The Commission released its report in Oct. 2005, but thus far no long term substantial changes have been made.

Although efforts to combat corruption have been lackluster, President Torrijos has appointed a number of technocrats and business people to several key cabinet-level positions. Both the Attorney General and Comptroller General have made great efforts to improve the transparency of their organizations and pursue public corruption. For example, the Comptroller General launched a website in 2005, "Panama Compra" ("Panama Buys"), through which all GOP agencies must post solicitations for procurement of goods and services.

Bilateral Investment Agreements

The Torrijos Administration also seeks to deepen Panama's trade integration with Andean and Mercosur countries. Panama has bilateral investment agreements with the US, the United Kingdom, France, Switzerland, Germany, Taiwan, Canada, Argentina, Spain, Chile, Uruguay, the Czech Republic, Netherlands, Cuba, and Korea. It also signed bilateral investment accords with the Dominican Republic, Mexico and Ukraine but these have not yet entered into force.

OPIC & Other Investment Insurance Programs

The Overseas Private Investment Corp. (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 US $200 million per project for U.S. investors, contractors, exporters, and financial institutions. Financing is available for investments that are owned by U.S. companies or that are joint ventures in which the U.S. firm is a participant. Panama is a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

Labor law requires the Labor Ministry's permission to dismiss employees for "economic reasons" and may act as a barrier to a firm wishing to reduce its workforce or repatriate its capital. If a firm is insolvent, the law also gives workers priority over all other non-secured creditors. Panama's non-indigenous labor force in 2005 was about 1.19 million. Non-indigenous unemployment in 2005 officially declined from 12.4% to 10.2%, but is as high as 12% in urban areas and as low as 5.1% in rural areas. In Feb. 2006, the GOP hiked the monthly minimum wage by 8% to US$284.

Several sectors, including the Panama Canal Authority, the Colon Free Zone, public sector employees, and export processing zones/call centers are covered by their own labor regimes and all or portions of the Labor Code may not apply. Employers outside of these areas such as Tourism have called for greater flexibility, easier termination of workers, and the elimination of many constraints on productivity-based pay.

Foreign-Trade Zones/Free Ports

Law 25 of 1996 provides for the development of "export processing zones" (EPZ's) as part of an effort to broaden the manufacturing sector while promoting investment in former U.S. military bases transferred to Panama. It includes provisions that are more favorable than the current labor code. The government also provides numerous tax incentives to companies that operate in EPZ's. They may import inputs duty-free if products assembled in the zones are to be exported. Of the 13 registered EPZ's, most remain small and underdeveloped with only a few tenants. They are said to be facing difficulties combating high relative wages, low industrial base, and weak infrastructure particularly outside the Panama-Colon Corridor. Law 25 also provides for the development of call centers. There are 19 call center licensed to date; but only one third (most of them U.S.) are operating. Law 41 of 2004 provides for a "Panama Pacific Special Economic Area" in the former Howard Air Base to encourage investment, specifically regarding logistics, in the area.

Banking

Panama is a major interernational banking center. Details on banks operating here can be located in the Polk Register or by contacting the Asociacion Bancaria de Panama, P.O. Box 4554, Panama 5, Republic of Panama; Tel: (507) 263-7044, Fax: (507) 223-7630 or 263-7783.

Telecommunications

Panama has excellent telecom infrastructure and services which includes broad band internet services, calling card availability, public phone services, and many public places around Panama City and other major cities to access the Internet services and international phone calls. Direct dialing is available to more than 150 countries worldwide. There are 170 radio stations and five television stations in Panama. There is cable TV service as well as satellite based services.

Transportation

Buses and taxis are readily available in urban areas. Taxi fares range from US$1 to US$5 depending on the trip's length. Transportation from Tocumen International Airport into Panama City can be made by a special taxi service, with prices between US$15-US$25.00 depending on the size of the taxis. Taxis may be shared with other passengers. Car rentals are available. There is no bus service at the airport.

U.S. EMBASSY CONTACTS

U.S. Commercial Service, U.S. Department of Commerce. U.S. Embassy Panama. Tel:(507) 207-7000. Fax: (507) 317-1658. Robert O. Jones, Commercial Counselor. Tel. (507) 207-7388. E-mail: Robert.O.Jones@mail.doc.gov. J. Enrique Tellez, Senior Trade Specialist; Tel. (507) 207-7080. E-mail: Enrique.Tellez@mail.doc.gov. Jeane A. de Zuniga, Commercial Assistant. Tel. (507) 207-7392. E-mail: Jeane.Zuniga@mail.doc.gov. Diana Lozano, Administrative/ ommercial Assistant; Tel. (507) 207-7242 E-mail: Diana.Lozano@mail.doc.gov. Economic Section, U.S. Department of State. Timothy Lattimer, Economic Section Chief. Tel. (507) 207-7293. Fax. (507) 207-7418. Political Section, U.S. Department of State. Richard Sacks, Chief Political Officer. Tel: (507) 207-7122. Fax:(507) 207-7418. Foreign Agricultural Service, U.S. Department of Agriculture. Hugo Salazar, Agricultural Specialist. Tel:(507) 207-7064. Fax: (507) 225-4209. E-mail: Hugo.Salazar@ usda.gov. U.S. Consular Section: Tel. (507) 207-7332E-mail: Panama-CG@state.gov. Federal Benefits Tel. (507) 207-7488. E-mail: Panama-USCONSUL@ state.gov. U.S. Embassy Mailing Address: Unit 0945 APO AA 34002. Tel: (507) 207-7000 Fax: (507) 227-1964

WASHINGTON-BASED USG COUNTRY CONTACTS

U.S. Department of Commerce, International Economic Policy. Matt Gaisford, Panama Desk Officer. 14th & Constitution Ave. Washington, D.C. 20230. Tel: (202) 482-4464. Fax:(202) 482-4157.

U.S. Department of State. Thomas Pierce, Panama Desk Officer. Dept. WHA/CEN-HST Room 5906. 2201 C Street NW. Washington, D.C. 20520. Tel: (202) 482-647-4161. Fax: (202) 482-647-2597

Overseas Private Investment Corp. Carl Reinhardt, Finance Officer. 1100 New York Avenue, N.W. Washington, DC 20527. Tel: (202) 336-8472. Fax: (202) 408-9866

Export-Import Bank of the U.S. 811 Vermont Avenue, NW Washington, DC 20571. Tel: (202) 565-3921 X3916. Fax:(202) 565-3931. http:// www.exim.gov

U.S. Trade and Development Agency. 1621 N. Kent St., Suite 300. Arlington, VA 2209-2131. Tel:(703) 875-4357. Fax: (703) 875-4009. E-mail: info@tda.gov

U.S.--BASED MULTIPLIER ORGANIZATIONS

Embassy of Panama. Ambassador Federico Humbert Jr. 2862 McGill Terrace NW. Washington, DC 20008. Tel:(202) 483-1407. Fax:(202) 483-8413.

U.S. Panama Business Council. Juan B. Sosa, President. 1300 Pensylvannia Avenue, NW Ste. 270. Washington, D.C. 20004-3021. Tel. 202-312-1645. Fax. 202-312-1646. E-mail: panamerica@msn.com

MINISTRIES, AGENCIES IN PANAMA

Ministerio de Comercio e Industrias, (Ministry of Commerce and Industry) Alejandro Ferrer, Minister. P.O. Box 9658. Panama 4, Republic of Panama Tel: (507) 360-0661. Fax:(507) 360- 0663. Web Site: www.mici.gob.pa

Vice Ministerio de Comercio Exterior. Carmen Gisela. Vergara, Vice Minister. P.O. Box 6-1897. Panama 6, Republic of Panama. Tel:(507) 360-0655. Fax:(507) 360-0653. Web Site: www.vicomex.gob.pa

Ministerio de Desarrollo Agropecuario, (Ministry of Agricultural Development) Guillermo Salazar, Minister P.O. Box 5390 Panama 5, Republic of Panama Tel: (507) 232-5043 Fax: (507) 232-5044 Web Site: www.mida.gob.pa

Ministerio de Economia y Finanzas (Ministry of Economics and Finance) Ricaurte Vasquez, Minister P.O. Box 7304 Panama 5, Republic of Panama Tel: (507) 225-3234 Fax: (507) 227-6148 Web Site: www.mef.gob.pa

Ministerio de Salud, (Ministry of Health) Dr. Camilo Alleyne, Minister P.O. Box 2048 Panama 1, Republic of Panama Tel: (507) 262-3507 Fax: (507) 262-5597 Web Site: www.minsa.gob.pa

Ministerio de Obras Publicas, (Ministry of Public Works) Julio Vallarino, Minister P.O. Box 1632 Panama 1, Republic of Panama Tel:(507) 207-9400 Fax: (507) 207-9419 Web Site: www.mop.gob.pa/

Autoridad Maritima Nacional, (National Maritime Authority) Ruben Arosemena, Administrator P.O. Box 8062Panama 7, Rep. of Panama Tel: (507) 232-5553/5528 Fax: (507) 232-5527 Web Site: ww.autoridadmaritima.gob.pa

Administracion de la Zona Libre de Colon, (Colon Free Zone Administration) Nilda Quijano, General Manager P.O. Box 1118 Colon, Republic of Panama Tel: (507) 445-5794 Fax: (507) 445-2165 Web Site:www.zonalibre.com

Autoridad Aeronautica Civil (AAC), (National Aeronautics Authority) Ing. Tomas Paredes, Director P.O. Box 7615 Panama 5, Republic of Panama Tel: (507) 315-0210/0212 Fax: (507) 315-0214 Web Site:www.aeronautica.gob.pa

Instituto Panameno de Turismo (IPAT), (Tourism Institute of Panama) Ruben Blades, Director P.O. Box 4421 Panama 5, Republic of Panama Tel: (507) 226-7414 or 226-3751 Fax: (507) 226-3483 Web Site: www.ipat.gob.pa

Instituto de Acueductos y Alcantarillados Nacionales (IDAAN), (National Water Works Co) Juan Jose Amado, Executive Director P.O. Box 5234 Panama 5, Republic of Panama Tel: (507) 223-8640 Fax: (507) 264-0034

Inter-American Development Bank, (In-country office) Jeremy Guld, Representative Apartado Postal 7297 Panama 5, Rep. of Panama Tel: (507) 263-6944 Fax: (507) 263-6183 Web Site:www.iadr.org
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Title Annotation:PANAMA
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Date:Jul 1, 2006
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