Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
Panama is the home of the Panama Canal. With ports on both oceans and known as the “Hub of the Americas,” it is one of the world’s most connected countries. Panama has a dollar-based economy, low inflation, and zero foreign exchange risk. Its government is stable, democratic and actively seeks foreign investment. On July 1, 2019, President Laurentino Cortizo, of the Democratic Revolutionary Party (PRD), was sworn into office for five years. His administration was elected on a platform of fighting corruption, tackling inequality, and strengthening Panama’s ability to combat money-laundering, but these remain prevalent problems. Panama was placed on the Financial Action Task Force (FATF) grey list in June 2019 due to years of deficiencies in fighting money laundering and terrorist finance, one month before Cortizo’s inauguration.
For the five years before the COVID-19 crisis, Panama’s economy averaged an annual growth rate of 4.6 percent – one of the highest rates in Central America. After an economic contraction of 17.9 percent in 2020, Panama’s previous “high-income” classification was adjusted to “upper-middle-income” by the World Bank in July 2021, with a per capita income is $15,643. Nevertheless, with more than four million people, the country’s inequalities remain high, with sharp regional disparities. The World Bank maintains that poverty prevails in rural areas, particularly among the indigenous population.
Panamanian officials declared a national State of Emergency on March 13, 2020 to address the COVID-19 health crisis and instituted one of the world’s strictest lockdowns to prevent a collapse of the health system. To address the needs of thousands of Panamanians who were unemployed or furloughed, the government executed the Panama Solidarity Plan that provided almost two million eligible individuals with periodic food bags and a digital vouchers worth $50-$80. The IMF forecasted that GDP would reduce up to 10 percent and Panama’s Ministry of Labor forecasted the unemployment rate could reach 25 percent by the end of 2021.
The previous administration announced several large infrastructure projects such as a 3rd Metro Line and a 4th Electrical Transmission Line, although some of these projects have stalled or are being redesigned. The government is also set to announce several public-private partnership (PPP) projects by the end of the year.Cobre Panama is in full operation and First Quantum Minerals’ $6.3 billion copper mine should add to copper exports once in full operation. Reports claim that by 2023, copper exports will be around $2 billion, and that mining activity will contribute to about 10 percent of GDP.
Panama’s economy is primarily based on a well-developed services sector that accounts for about 80 percent of GDP with the Panama Canal as the largest economic contributor. The services sector includes the Canal, banking, tourism, logistics, activities in the Colón Free Trade Zone (CFZ), insurance, container ports, and flagship registry. In June 2016, the country completed a $5.25 billion expansion of the Panama Canal that allows for larger ships (Neo-Panamax ships) carrying 12,000 containers (compared to the 5,000-container limit under the old infrastructure). The expanded locks are crucial for maritime trade. The Panama Canal has 46% of the total market share of containers moving from Northeast Asia to the East Coast of the United States. Revenue from canal tolls amounted to $2.6 billion in 2019. The Panama Canal serves more than 144 maritime routes connecting 160 countries and reaching some 1,700 ports globally.
This logistical platform has aided the Colón Free Trade Zone’s (CFZ) success. It is the second largest in the world and accounts for about 8.5 percent of Panama’s GDP. The CFZ has approximately 3,000 companies and employs around 18,000 people. It has become a vital trading and transshipment center serving the region and the world. CFZ imports – a broad array of luxury goods, electronic products, clothing, and other consumer products - arrive from all over the globe to be resold, repackaged, and reshipped, primarily to regional markets. Because of this product mix, the U.S. brand market share is significant even if most of those products are made in Asia. The CFZ’s activity has waned in recent years due to more small suppliers procuring directly with China, competition from other regional transshipment hubs, decreasing demand from Venezuela, and a trade dispute with Colombia.
The U.S.-Panama Trade Promotion Agreement (TPA) went into effect in October 2012 and will continue to offer U.S. goods a competitive advantage. For 87 percent of U.S.-made goods, tariffs dropped to zero percent immediately, with remaining non-agricultural tariffs phasing out by 2022. In general, the Agreement has been successful for all parties. The U.S. goods trade surplus with Panama was $4.9 billion in 2020, a 48 percent decrease over 2019, and U.S. exports to Panama were $5.76 billion, a decrease of 34 percentfrom the previous year. Correspondingly, U.S. imports from Panama were $593 million, up 31 percent. Panama was the United States’ 36th largest export market in 2020. As for services, U.S. exports of services to Panama were an estimated $2.1 billionin 2020, and U.S. imports were $2.7 billion. Panama has 19 full free trade agreements throughout the Americas, Asia, Europe, and the Middle East. The Cortizo administration paused negotiation for a free trade agreement with China.