Country risk reference rating: Level 4 (4/9)
Country Risk Outlook: Stable
Economic and trade risks
Panama’s nominal GDP in 2012 was US$36.6 billion, with a real economic growth rate of 10.7% and a per capita GDP of US$9,660. The country’s industrial structure is agriculture accounting for 10%, industry accounting for 61%, and service industry accounting for 29%.
Panama benefits from the dollarized currency system and has four major economic pillars: the canal, tourism, the Colon Free Trade Zone, and the financial services industry. The economy maintains rapid growth, the inflation rate has always been at a low level, and the labor force is relatively well-educated. High, employment pressure is not great. Panama’s foreign debt as a proportion of GDP has been declining year by year, its financial situation is good, and its overall risks are low.
Bilateral economy and trade
Panama is China’s important trading partner in Latin America. Bilateral trade ranks sixth among China and Latin America. At the same time, Panama is China’s third largest commodity export market in Latin America after Brazil and Mexico. In 2012, bilateral trade between China and Pakistan (including the Cologne Free Trade Zone) reached US$15.36 billion, of which China exported US$15.31 billion and imported US$50 million.
Due to the relative backwardness of Panama’s manufacturing industry and the factor of re-export trade, China has always been in surplus in bilateral trade. Refined oil, ships, clothing, footwear products, and furniture are the main commodities exported by China to Panama. The main commodities imported by China from Panama include wood, steel, mechanical and electrical products, aquatic products, etc.
Business environment
The Panamanian government has a positive attitude towards foreign investment. The Panamanian government actively encourages investment by foreign companies and has passed legislation to provide protection for foreign-invested companies from economic and property losses caused by government actions. Once “state expropriation” occurs, the legal framework will provide compensation. The Constitution of Panama stipulates that private property and intellectual property rights are protected, enterprises are guaranteed to operate freely, foreign investors enjoy national treatment and the principle of non-discrimination, and foreigners are equal to national citizens. In principle, foreign investment does not require approval, but the establishment of a bank must have a business license issued by the General Directorate of Banks under the Ministry of Finance and Economy of Panama.
In order to create a superior investment environment for foreign multinational companies, the Panama government has established a regional investment center and formulated corresponding systems and regulations. According to regulations, a technical committee is responsible for issuing business licenses for multinational companies, processing visas for corporate staff, handling income tax collection and payment through the Internet, and issuing corporate tax certificates. Anyone who invests more than 2 million US dollars in the development of tourism, industry, export, telecommunications and other projects can enjoy the same rights and obligations as domestic investors and enterprises. Foreign-invested enterprises that sell all their products exports are exempt from income tax, export tax and import tax on imported raw materials and spare parts required for production. Enterprises that export some of their products can enjoy discounts based on the proportion of export sales. In addition, there is an investment promotion office in Panama’s banking district that provides advisory services to investors.
Overall evaluation
Panama’s economic environment and social order are good, the political situation is stable, and the social security situation is orderly. With the gradual completion of the Panama Canal expansion project, the Colon Free Trade Zone and various infrastructure constructions, the national economy has maintained a rapid development momentum. The reform measures implemented by the government in the fields of finance, social security, tourism, justice, anti-corruption and other fields have achieved varying degrees of progress. Although Panama has made some achievements in economic development, due to the government’s low governance capacity, it still faces many pressures and problems in reducing fiscal deficits and curbing inflation.
(Issuing agency: China Export and Credit Insurance Corporation)
