What’s Really Behind Panama’s Booming Economy?

Boomtown Panama

Boomtown Panama

Before I start writing about Panama’s economy, I really must insist upon a few things: no yawning, no snoring, and no escaping! Panama’s economy is an absolutely fascinating subject, and you are going to enjoy this essay.

No, seriously, the economy is important. Economy is money, and money, whether we like it or not, is an important part of life, and not just for governments but for individuals on a day-to-day level.

Economy is especially important if you’re thinking about relocating to a new country… a healthy economy means money is flowing through the place. It also means a safe and stable climate, generally.

Panama has the most robust, stable economy in Latin America.

It is a country of 4 million people, 2 million of whom live in the capital city… That gives you an idea of how this economy works. It clearly isn’t agricultural!

Does this mean Panama’s economy is industrial? No, not really. This is a country of imports. Panama imports food from the United States, for example… even rice.

If you buy an Audi in Panama, the parts were likely made in Morocco and shipped to Mexico, where they were assembled and then shipped to Panama. Toyota vehicles are assembled in Japan and then, again, shipped to Panama. The same goes for the country’s most popular car brand—Kia. Their cars are made in Korea and then imported.

Among the few things made in Panama are airplane parts and cement. They’re big on cement here but—don’t worry—it isn’t the Italian mafia making concrete boots for you to go swimming in…

There are also several national breweries and a Coca-Cola plant.

So half the population is in the capital city… but they’re not making things… and the other half of the population lives in “the interior,” as Panamanians refer to the entire rest of the country beyond Panama City… but they’re not growing things in any real volume…

So, What Is This Economy All About?

Panama is a service provider. In fact, it is an excellent service provider—one of the best in the world!

It is also one of the best shipping points in the world and a top finance hub.

And, it uses the Balboa, which is essentially the U.S. dollar. And that is a reliable currency that attracts foreign investment.

GDP Growth Is Healthy

Panama’s GDP has grown an average of 4.9% per year for the past decade. To help put this into perspective and context, the GDP of Colombia has grown an average of 2% per year over the past decade… while the GDP of the United States has grown an average of 3.3% per year.

Under the previous government of Martinelli, the GDP was rocking and rolling at highs of 6% and 7%. The current 4.9% growth under Varela is still healthy, and there is no reason why it should slow down any time soon.

Bottom line, you could say that this country has been cooking with gas for a nice long time. Today growth continues strong, stable, and solid.

Again, most of this growth—80%—comes from the services sector each year… shipping, banking, and the financial industry.

The Canal—The Heart Of Everything

Panama Canal ShipAt the heart of everything is the Panama Canal, the most important shipping route in the Americas. It provides a short cut from the Atlantic to the Pacific so ships don’t have to circumnavigate the entirety of South America.

The Canal has the best port structure in Latin America and the fifth best in the world. It has five world-class container terminals—three on the Atlantic and two on the Pacific. In 2016 the Canal was widened for to cater to super ships.

To sail a 20-foot container down the Canal costs US$75, so a ship full of containers pays around US$325,000. No less than 99% of the world’s container ships pass through the expanded Canal these days. This puts the Canal’s profit at around a whopping US$1 billion per year.

That’s a lot of cash flowing through a country of just 4 million people…

Banking In Panama

Meantime, Panama’s banking industry is also the most modern and successful in Latin America, second only to Switzerland in the world.

Panama is not only a foreign exchange center (partly because there are no valuation or conversion concerns thanks to the Balboa/U.S. dollar), but it’s also a top jurisdiction for incorporation.

It is easier and quicker to open and to dissolve a corporation in this country than anywhere else in the region. Furthermore, it uses a territorial tax system, meaning you only pay tax on income made in Panama. It’s also relatively easy for a corporate identity to get financing from a Panamanian bank.

Now, it isn’t like it used to be… Panama Papers, the EU gray listing, corruption scandals, and the Foreign Account Tax Compliance Act in the United States have all put a spanner in the works for Panama, but it is still a better place to incorporate than other Latin American countries, most of Europe and North America.

What Else Is There To Know About Panama’s Economy?

Inflation is low at 0.7%… adding to the overall stability of the economy and allowing for reliable predictions and projections… another reason the country is attracting foreign investment in ever-increasing volumes.

Low inflation makes a country very competitive because they can afford to lower their export prices, which means more people want to buy from them—and export isn’t just industrial goods. You can export services too. And that is what Panama does. It has call centers for major U.S. companies, for example.

Another factor contributing to the overall stability of this country’s economic scene is the unemployment rate… which is 5.5%. International businesses from Nike and Dell to Estée Lauder and Procter & Gamble can’t find all the staff they need, and the country therefore makes it easy to import labor.

Panama’s Middle Class

Panama’s middle class is strong compared to that of any other country in this part of the world. It’s the middle class that moves an economy… and it’s definitely the middle class that is moving this economy.

It’s the middle class that eats gourmet burgers, has the latest phones and televisions, and buys all those imported cars that are being shipped into the country through the Panama Canal… at an average rate of US$325,000 per shipload. Basically, the economy is a web, and the middle class is weaving it.

Then that US$325,000 is being plowed back into the continuing development of the country’s infrastructure and amenities… making it easier and more interesting all the time for the middle class to spend their paychecks… further fueling the demand for all those imported products.

And so the cycle continues and expands.

Panama’s middle class is also buying homes… in exploding volumes. Certain areas on the fringes of Panama City are given over entirely to the construction of homes specifically for the local middle-class market. This is one of the best possible investments you could make in this country today.

Samantha Russell

French Course Online