Located in the Central American isthmus, the Republic of Panama has always been known as the transit point for travelers and merchandise crossing the continent from one ocean to another.

With a population of about 3,039,150 people (2005 est.) and a total area of 78,200 sq. km, the Republic of Panama offers several opportunities and incentives for foreign investors.  Over the last few years there has been a substantial growth in the immigration of U.S and European citizens wishing to settle in the country temporarily for long term sabbaticals or vacations, or to retire, all of which is evidence of the overall good quality of life and low cost of living.

Tourism and real estate investments have become an important part of the Country’s GDP, which has long been known to be supported by a service economy.

International Financial Centre

The concept of an international banking center in Panama arose during the 1960s, when there were hundreds of banks registered in Panama, but very few actually operating. Legislation promulgated during the early 1970s reformed the banking law, eliminating ‘paper banks’ and required that all banks authorized to do business in or from Panama to have a physical presence.

The current law retained Panama’s principal features, such as absence of a central bank, no printing of national paper currency, and preservation of the U.S. dollar as legal tender. As a result of the current law and its amendments, the banking system registered an extraordinary development, becoming the most important banking and financial service centre in Latin America.

The Republic of Panama presents comparative advantages for international business. These are reflected in a freely convertible currency, fiscal and tax exemption advantages, accessible and fast national and international communications, freedom of capital movements, the Panama Canal, the Colon Free Zone, the geographical position of the country and flight connections to key destinations and major cities of the hemisphere.

Panama’s economy is characterized by low inflation and zero foreign exchange risk. Panama’s commitment with international banking regulations is evidenced by the Country’s adoption of international regulations aimed to prevent, detect and deter money laundering. The country is taking steps to improve its infrastructure with private and international financial institution financing. The growth in Panama’s offshore banking has contributed to the country’s relative prosperity and accentuated the importance of the service sector in the economy.

The State Bank, the National Bank of Panama, exercises some central bank functions but, in reality, there is no central bank. The Monetary Agreement of 1904, signed between the Republic of Panama and the United States of America, allows circulation of the U. S. dollar in Panama’s economic system together with the national currency, the Balboa at a par value of 1:1. Local banks also offer exchange of Euros to U.S. Dollars and vice versa. Some stores and restaurants even accept payment in Euros. Major credit cards are offered by banks operating in Panama, and are accepted by local merchants. ATMs operating through the whole country allow the withdrawal of funds from foreign accounts using major international networks.

The Panamanian monetary system seems unique. The system is remarkable in that neither the nation nor any other national institution has control over the money supply, with this process occurring automatically through external factors, and which has proven to work smoothly for over 100 years. As a matter of fact, economists worldwide were amazed by the Country’s rate of recovery after the economic crisis at the end of 1980’s and following the U.S. invasion which ended the Country’s governing military regime.

The Republic of Panama has returned to the democratic system adopted since 1904, and Presidential elections held over the past years have been admired by international observers from all over the world. National Elections Committee representatives have been invited to implement and oversee elections in other countries due to the transparency and organization of elections in Panama.

The Colon Free Zone

The range of services offered by the Republic of Panama to the international commercial community comprises several incentives among which there is the Colon Free Zone and other special manufacturing and industrial zones promoted in the Country.

The laws which regulates operations in the Colon Free Zone and other special manufacturing zones defines, among other things, the following permissible activities:

To introduce, import, store, exhibit, package, manufacture, mount, assemble, refine, purify, mix, convert; and in general, operate and manipulate all types of goods, products, raw materials, containerized cargo, etc.

Investments in the Colon Free Zone receive special tax treatment.  The Colon Free Zone (CFZ), in existence since 1953, has grown rapidly to become the second largest free zone in the world, after Hong Kong. Goods from foreign countries are introduced and stored or repackaged and shipped onward without being subject to Panama’s customs duties. Among the services offered are commercial intermediation, break bulk, warehousing, assembly, and transshipment. In addition to its excellent location, foreign companies are attracted to the good transport, communications, and banking services. A state-owned corporation operates the free zone, providing the necessary infrastructure and services.

International companies trading large amounts of products between different regions use the Colon Free Zone to store and keep and inventory of products to be shipped to Latin or North America, all of which is facilitated by nearby state-of-the-art container terminals, the trans-isthmian railroad linking container terminals in the Caribbean with the Pacific, and specially, the Panama Canal.

These companies are not subject to usual national or municipal tax. Foreign trade operations (Re-export) are to a large extent tax exempt.

Other special areas have been created by recent legislation for special purposes such as light and medium manufacturing and assembly of foreign components, call centre services for local and foreign customers, etc.

The Country has recently achiever free trade agreements with El Salvador, The Republic of China (Taiwan) and Singapore.  Negotiations are currently taking place with the United States of America and several other countries.

The Panama Canal

Renown as one of the world’s greatest achievements in engineering, a canal connecting both oceans had long been a project conceived initially by King Charles V of Spain during colony times.  Due to technological limitations, the construction of the canal was not possible until 1906. The first three years were spent in the development of construction facilities, surveys, and disease control, which affected the French during their previous attempt. The canal was informally opened on August 15th, 1914.  Formal dedication took place on July 12, 1920. The total cost was $336,650,000, and c.240 million cu. Yd. (184 million cu. mt) of ground and rock were evacuated.  Madden Dam, which stores additional water for the locks, was completed in 1935.

The Canal was initially operated by the United States of America.  Over the years there was increasing agitation in Panama to achieve greater Panamanian control over the canal.  On January 9th, 1964 a massive civil protest initially triggered by student’s attempt to fly the Panamanian flag over U.S. controlled Balboa High School resulted in the negotiation of a new treaty in 1967 which failed to gain ratification by the Panamanian government. In 1977 negotiations were successful, and a new treaty was signed. It returned the Panama Canal Zone to Panama while setting up joint U.S.-Panamanian control of the canal until the end of 1999, when Panama gained full control. A separate treaty (1979) guarantees the permanent neutrality of the canal.

The Panama Canal connects the Gulf of Panama, in the Pacific ocean, with the Caribbean Sea and the Atlantic. Due to the S-shape of the Isthmus of Panama, the canal actually runs from south-east at the Pacific end to north-west at the Atlantic. To avoid confusion, the canal authorities classify transits of the canal as northbound, meaning from Pacific to Atlantic, or southbound meaning Atlantic to Pacific. A passage through the canal by ship takes around nine hours. Canal traffic in 2004 consisted of 14,035 vessels carrying 203 million tonnes of cargo, an average of almost 40 vessels per day.

The most visually impressive feature of the canal is its locks. The lock chambers are 33.53 meters (110 ft) wide by 320.0 meters (1050 ft) long, with a usable length of 304.8 metres (1000 ft). These dimensions determine the maximum size of ships which can use the canal; this size is known as Panamax. All of the locks on the canal are paired; that is, there are two parallel flights of locks at each of the three lock sites. This, in principle, allows ships to pass in opposite directions simultaneously; however, large ships cannot cross safely at speed in the Gaillard Cut, so in practice ships pass in one direction for a time, then in the other, using both "lanes" of the locks in one direction at a time.

Each lock chamber requires 101,000 cubic meters of water (26.7 million U.S. gallons) to fill. Water enters the chamber through a system of culverts, the largest of which are 6.7 metres (22 feet) in diameter (almost double the diameter of the London Underground's deep lines); from these main culverts, smaller lateral culverts extend under the lock chamber to 100 openings in the chamber floor. Water enters the chamber by gravity when the upper valves are opened, filling a lock chamber in approximately eight minutes; there is significant turbulence in the lock chamber during this process.

The massive steel gates of the triple locks at Gatun are 21 metres (70 feet) high and weigh 745 tonnes each, but are so well counterbalanced that a 30-kilowatt (40 hp) engine suffices to open and close them. The largest gates are at the Pacific end of the canal, to cope with the extreme tidal range there. The end gates on each set of locks are doubled for safety in case of a gate failure (such as a ship running into a gate), which could otherwise release a devastating flood of water downstream. Each chamber also contains a pair of auxiliary gates which can be used to divide the chamber in two; this is designed to allow for the transit of smaller vessels — such as canal tugs — without using the full quantity of water. In practice, though, these gates are rarely used; instead, small boats such as tour boats, tugs, and yachts are passed in groups.

Ships are hauled through the locks with small railway engines called mulas (mules), running on tracks on the lock walls. These have powerful winches which are used to keep the ship centered in the lock while moving it from chamber to chamber; with as little as 60 cm (2 feet) of space on each side of a ship, considerable skill is required on the part of the operators

Since the Republic of Panama took control over the waterway, the number of accidents involving vessels transiting the same has reduces substantially, evidence of the commitment of the Republic of Panama in improving the quality of services offered to the international maritime community. There were widespread fears that efficiency and maintenance would suffer following the U.S. withdrawal. However, this does not appear to be the case, and the canal's efficiency appears to be improving under Panamanian control. Canal Waters Time (CWT), the average time it takes a vessel to navigate the canal including waiting time for passage, is a key statistic relating to efficiency; according to the PCA (Panama Canal Authority), CWT is decreasing while the number of transits handled is increasing. All of this while the same time the rate of accidents is at a record low.

In fact, increasing volumes of imports from Asia which previously landed in the U.S. west coast ports are now traveling through the canal to the east coast. Canal traffic increased between 2002 and 2004 from 191 million tonnes to 203 million tonnes, while the number of transits increased from 13,183 to 14,035. The canal set a traffic record on March 16th 2004 with 1,005,551 tons of cargo transited in a single day.

The canal administration has invested nearly $1 billion in widening and modernizing the canal, with the aim of increasing capacity by 20 percent.  This improvement has brought the canal up-to-date; however, PCA’s plans include further widening of the canal and the construction of a third set of locks to accommodate post-panamax vessels, which according to the PCA will increase the amount of cargo transiting the canal, while decreasing costs for users of the same and final consumers of the products.

There are live cameras which allow partial views of the Canal while vessels are transiting the same.  If you wish to see the operation of the Panama Canal, click the link below:

Tourism and Real Estate

Recent legislation, beautiful landscapes, low cost of living, low inflation, relatively low costs of real estate and other attractions have increased the investment of local and foreign capital in tourism and real estate.

Panama currently offers beach resorts in both oceans (Pacific and the Caribbean), immigration incentives for foreign investors and retirees, excellent and well-known fishing areas, template climate in the highlands, and a modern and vibrant city with all sorts of shopping malls, cinemas, restaurants and brand stores available in other countries.

For those interested in ecotourism, the tropical rainforest offers an unrivalled amount of plants, birds and landscapes which would please the most demanding tourist, including spectacular fishing areas.

In addition, there are tourism facilities for interacting with the Panama Canal operation and areas, including several tropical research labs operated by the Smithsonian Tropical Research Institute and a Resort located at the Gatun Lake, which is one of the artificial lakes created during the Panama Canal construction.

It is no secret that the Republic of Panama is a prosperous and modern country often visited by Latin and North American tourist.  Thanks to direct flights to/from Europe, Panama is visited every year by a growing number of Europeans.  The population, composed of a multi-racial and multi-religion mixture, is extremely friendly towards tourists, some of which have returned to the country afterwards to retire or to reside in the same.