It’s not a secret that Panama is one of the most successful cases in Latin America. In a region where dictatorships, inequality, and inflation are the norm, Panama has consolidated a vigorous democracy that has led to sustained economic growth.

Let's analyze the numbers. Panama attracts foreign capital due to its fiscal and economic policies regarding the opening of companies and ventures, giving the country a greater financial solidity. This has resulted in annual GDP growth of 5.9% on average. Furthermore, between 1989 and 2020, the GDP didn’t fall, not even in the 2008-2009 financial crash, when its economy grew 4,0%.

In addition to all this, Panama has also been growing in industries such as tourism. They are among the best destinations for vacationing in the region safely, not to mention the tremendous commercial advantage of having the Panama Canal, which is the main entrance of trade to the continent.

Speed and bureaucracy are something that most investors also consider before investing in any country, and the truth is that in Panama, opening a business takes on average about six days. It is clear that this country’s main objective is to promote entrepreneurship and free enterprise.

The philosophy behind Panama's government policies is quite simple: to promote the development of a solid market so that the economy can grow sustainably thus benefiting its citizens. In addition, a very influential factor in economic stability is political stability, and since the late 1980s, Panama has consolidated a robust democracy.

However, the main Panamanian secret is even simpler than that: Freedom. This tiny country ranks 8.12 out of 10 in the Human Freedom Index and is one of the 4 Latin American nations that makes it to the top 50 of the list.

In this article, we will tell you some of the reasons why Panama is such an exceptional country for investors and expats.

Political and financial stability

While the Latin American region does not have the highest rates of political stability, Panama is one of the countries that challenge the status quo in the area. After the fall of the Noriega’s dictatorship in 1989, the Panamanian political system has enjoyed a consolidation around a democratic regime that has protected and encouraged foreign capital investment under a free market scheme.

The ability to maintain a consolidated democracy after recovering from foreign military intervention is not the only miracle Panama has managed to achieve.

A central point of international trade is found in this small country, the Panama Canal. It is a fundamental part of Panama's economic functioning. Although its administration is in the hands of the State, the laws that govern and regulate its operation have been respected by each government and have been consolidated to guarantee the most significant economic benefit for the country.

The Panamanian government representatives' commitment to protecting the country's political and financial stability has been passed from generation to generation. Hence, it is almost impossible for an investment in this country to be affected by the typical problems of the region such as hyperinflation or abrupt political changes. 

A clear example of this is that Panama has remained in recent years in the top 10 places of the region in the democracy index conducted by The Economist, ranking 48th worldwide and 7th in the region in its most recent edition of 2021.

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U.S. dollar as the official currency

Since the beginning of the 20th century, the US dollar has been the main Panamanian currency, coexisting with the “balboa.”

This aspect provides investors a higher confidence level since it does not depend on the exchange risks involved in investing in Latin American countries with unstable currencies, susceptible to large inflationary fluctuations.

But since the dollar is the world's strongest currency par excellence, investment security in Panama is different in comparison to other neighboring countries, since, in this sense, it would only compete with Ecuador, Puerto Rico, and El Salvador, countries with which it has considerable advantages in the financial sphere.

A fairly common phenomenon in the region is inflation, or in some cases, hyperinflation (look at Argentina, Ecuador, and more recently, Venezuela). This phenomenon is primarily due to governments manipulating their central banks to expand the money supply and devalue the national currency; however, a dollarized country does not have these risks since the currency is controlled by the U.S. Federal Reserve.

Panama is the financial center of Latin America. This is due to the confidence and legitimacy provided by the fact that the dollar, as mentioned above, is their official currency and its privileged location for foreign trade. 

Thanks to its political stability and sound business climate, dozens of financial firms and multinational banks have established their HQ for the region in Panama City and its glass skyscrapers.

Geographic Location

This has been an essential factor for Panama, mainly because they have been able to exploit its geographical advantages compared to nearby countries such as Colombia or Venezuela. As we have said before, the Panama Canal represents a large international trade gateway.

The country’s other coastal areas cause an increase in imports and exports, in addition to a tremendous boom in tourism in this maritime sector, not to mention the number of international flights that enter the country weekly, either to make a stopover or to go to the country as the final destination.

This aerial opening causes foreign companies to be favored when managing some branches inside the country, which is why direct foreign investment has been in constant growth for many years.

Another advantage of this geographical location is that they are generally not involved in massive natural disasters and have a considerably attractive climate to lure companies and foster a new life as an expat. 

Panama is a Caribbean paradise that throughout the year maintains a perfect tropical climate to enjoy its beautiful coasts and beaches. In this beautiful country, there are no seasons, so if you want the sun and the tropical heat in addition to intelligent investments, this is the perfect place for you. 

Advantages for foreign companies

Multinational companies are usually a great indicator of a country's economic growth. Since it decided to adopt a free-market approach, Panama has dedicated the last three decades to attracting foreign capital through its tax policies, immigration programs, and financial measures.

One of those advantages is that income tax will be levied only on those companies operating locally, unlike the universal tax in countries such as Colombia. This allows foreign companies to enjoy tax deductions if they have headquarters anywhere else in the world.

At the same time, legal frameworks are frequently updated by the legislative bodies to adapt to current circumstances. They are kept updated and at the forefront to comply with the economic interests of both national and international investors.

A clear example of this is the law creating the Authority for the Attraction of Investments and the Promotion of Exports of Panama, which was enacted in April 2021. The goal was to improve the strategies and collaborations between the public and private sectors in order to develop the country economically and socially.

More than a hundred multinational companies such as Nestle, 3M, Caterpillar, Western Union, LG, and many more are located across Panama. In the coming decades, it is expected that this number will grow considerably to make Panama one of the continent's most reliable, attractive, and diverse economies.

Panama is the pioneer in the region by creating the first free trade zone in the Americas. Currently, there are 11 free trade zones in operation and nine more under development, which has boosted foreign and national commerce. The most famous free trade zones are the Colon Free Zone and the Baru Free Zone.

Investing in Panama is a wise decision considering that projections promise further economic growth in one of the countries with a privileged geographic location. 

MUNDO

Panama is the place where a group of financial consultants founded MUNDO half a decade ago. We love it because it has beautiful beaches, sunny weather, and one of the freest economic climates in the Americas.

Mundo is composed of a multidisciplinary team specialized in various niches such as taxes, legal frameworks, and foreign investments. They can advise you on investing in Panama in the most effective way possible for you according to your interests.

Our panel of experts guarantees our clients and interested parties the best experience in advice and support. In Panama we can offer you the following services:

- Company formation

- Creation of bank account

- Residency by investment programs

- Tax residency

- Free Zone Company formation

- Real estate investments

If you are interested in investing in this financial paradise, do not hesitate to contact us and put your business to work in the best way.

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