Recently you must have heard lot of news and seems like the entire world has suddenly started talking about Panama. Most of you already know why such a surprising popularity – Panama is now notorious for “the Panama Papers”, if you have never heard of it, check this link. The results led to loud resignations, screaming tabloids and headlines, charges and scandals. On the other hand, over this short period Panama has also become a symbol of freedom and democracy. You’d be surprised, but Panama has a lot more to show than “the Papers”.
Besides, “the Panama Papers” scandals a few other things surprised the publicity. The world suddenly discovered that Panama is not just some “Banana Republic”. It is a rapidly developing country with hundreds of skyscrapers, ultra-modern shopping malls, luxury car dealerships, famous chains of hotels and restaurants, low crime levels and high quality infrastructure.
Moveover, the Latin American Republic is characterized with rapidly growing economy. Last year (2015) the GDP grew by 6%, which puts Panama in the 30 mostly rapidly developing countries (27th) among 225 around the world. It also has comparatively low levels of national debt (only 39% of its GDP) and its government works hard to stimulate growth, attract investments and create favorable business environment.
Incidentally, it is for these reasons “the Panama Papers” have created such turmoil in the media and business circles. There are a lot of people in Panama who do their business continuously and work hard. It took years for them to build the reputation. The National Bar Association, for example, expressed the intention to file a complaint with the General Prosecutor of Panama. One of the major laws in Panama guarantees professional privacy for lawyers. Lawyers ask for the legal explanation of the seizure of hundreds of hard drives from the servers of Mossack Fonseca.
During one of the press conferences the President Varela mentioned that despite the accusations, the government has never stopped to fight actively against the shadow economy and corruption. Panama has done a lot of work to comply with the international standards of transparency. So it has been and it will remain completely safe for legitimate business.
Unfortunately, the world’s media is discrediting Panama in every possible way for concealing the taxes through offshore companies. It is worth mentioning that the registration of an offshore company has never been illegal. Every entrepreneur is free to choose a more favorable working conditions and standards. International law does not limit companies in their choice of the country for conducting legitimate activities. Furthermore, according to the same law, such company must be recognized on the worldwide basis.
Majority of the offshore companies owners don’t evade taxes and by registering their own company, they pursue different goals. Most of the countries rather than providing favorable environment for business make it harder for it to exist: inflated prices, ridiculous interest rates, legal discrimination, lack of state support. That is why many of the entrepreneurs prefer to operate in the states, where they feel safer and more comfortable.
The Government of Panama has made huge efforts to make the country attractive for doing business. As a result, both businesses and state benefit from this. And we can see positive results – stable economic growth, new social programs, improvement in infrastructure, positive immigrant inflow.
Panamanian success is not a result of money laundering, as one might think after reading recent reports. Instead, it is a combination of geographical and also various macro and microeconomic factors.
First of all, Panama is lucky to be the largest transportation and transit hub between South and North America, and the Caribbean. Ever since in year 2000 the right to control of the Panama Canal was transferred to local government, thing have picked up. Each year the canal processes close to 14,000 vessels carrying total more than 280 million tons of products. Canal is overloaded, so the waiting positions are sold at the auction. The total fee for just one ship can be sold as high as $400,000 for the single crossing. In addition, the Canal motivates the trade.
Secondly, in august of 2007 Panama adopted the so-called “Act 41”, which has provided the special conditions for all international companies, which agree to establish local headquarters. As the result, Panama now has more than 100 regional headquarters of the multinationals, including giant such as Maersk, Nestlé, Adidas, Ericsson, Procter & Gamble, Western Union, LG, Hyundai etc.
Increased interest on the part of large corporations and banks worked as great stimulus for the real estate sector and infrastructure development. Today, Panama City has the third largest number of skyscrapers in the Western Hemisphere, following New York and Chicago. More than 26 airlines provide regular flights to Panama.
Panama is also a growing tourist destination. Every year more than 1.5 million people around the world visit Panama. Hundreds of thousands more come for the business to take part in international conferences, exhibition and forums. In addition, Panama develops medical tourism. The country is home for world known hospitals with qualified service and affordable prices.
All these factors make the country very attractive for the investment. Real estate prices are almost always on the rise, both sale and rent. New condos in luxurious high-rises, offices not only guarantee a high ROI, but also offer bonuses such as residence permit and later Panamanian passport. Plus, majority of new houses and condos are exempt from taxation for the period of more than 10 years.
Panama has chosen a different path than the majority of countries. Rather than constraining the population with heavy taxes and high interest rates, the government is trying to attract more and more international investments and doing so, to increase national income and push forward the economy. It is time we all take a minute and see what Panama is really about
