Understanding Panama´s Economy, Why is Panama Growing?

For the past decade Panama has been one of the fastest growing economies in Latin America. According to the reports from the IMF, in the last 10 years the country had an average growth of 6.5%, well over the average of the emerging markets and developing economies.

The economic vehicle of this growth in Panama is driven by a combined performance of different sectors and industries, all of them bringing a significant contribution to the country’s GDP, an most of them are based in services.

Panama as a logistics hub, the Panama Canal and its expansion

The Panama Canal has been an important source of income for the country as well as its related industries. Thousands of ships pass through the Panama Canal per year, and for United States is a key part for their international trade operations, since approximately 10% of all the American shipments are going through the Canal every year. Estimations from different sources states that almost half of the GDP of the country is tied to revenues generated by the canal, being also one of the biggest employers in the country.

The expansion project of the canal was finished in 2016, it was designed to accommodate larger containers and bulk ships that are too large for the original construction. The project has allowed the canal to practically double its capacities and so far, it had benefited both the maritime sector and the country’s economy.

Because of its geographical location and the canal’s economy, Panama had developed significant business in related industries such as transportation, logistics, storage, international trade, port operations and the development of free trade zones, including the Colon Free Trade Zone, which is the second largest free trade zone in the world.

A service-based economy

Panama’s economy is mainly based in a service-based sector which comprises the canal and tourism, however, the financial services are another important pillar in the economy. Over the years with the revenues of the canal, Panama has built a Regional Financial Center in Central America. The banking and insurance services are strong players in Panama’s economy, and they employ well over 30000 people, offering financial services to the local market and exporting its banking services abroad.

The good performance of the financial sector, the government stability, improved infrastructure and a dollar-based economy are some of the reasons that have over the years attracted a huge amount companies to invest and to be headquartered in Panama. An interesting fact is that over 500000 companies have their headquarters in Panama.

There are close to 150 multinational companies that are registered in Panama as Headquarters of Multinational Operations (SEM in Spanish), which is a special government program designed to simplify the process of establishing their regional operations.

Companies such as Nestlé, Nike, Dell, Heineken, ABB, Huawei, Sony and Samsung are already in the SEM program, and the government are doing efforts to bring more in the near future, since so far the program has brought over USD 1 billion in foreign direct investment and close to 6000 jobs to the country.