Guidance

Overseas business risk: Panama

Updated 20 June 2017

Information on key security and political risks which UK businesses may face when operating in Panama

1. General Overview

Panama lies along the narrow land bridge dividing North and South America. To the North it borders the Caribbean Sea, to the South the Pacific Ocean, to the East is the Republic of Colombia and to the West is the Republic of Costa Rica. Panama possesses a territorial extension of 75,517 Kms2 and its total population is estimated to be 3.86 million. Panama City, located at the Pacific end of the Panama Canal, is its largest city with a population of around one million. The other main cities are Colon, at the Caribbean end of the Canal, site of the second largest free zone in world and David, the capital of the western farming province of Chiriquí

2. Politics

Panama is a presidential democracy with a National Assembly and an independent judiciary. It has a very strong and empowered Electoral Tribunal that has successfully delivered five consecutive general elections, since the country’s return to democracy in 1989.

Juan Carlos Varela, Panama’s current president, was elected in 2014 by a coalition of the incumbent Partido Panamenista (centre-right) and Partido Popular (centre-left). Varela’s government lacks a majority in the National Assembly, but has managed to work in the Assembly in alliance with Partido Revolucionario Democratico (centre-left). The main opposition party is Cambio Democratico (centre-right) led by former president Ricardo Martinelli who has been indicted for multiple corruption charges since his departure from power in 2014.

Panama’s constitution dates back to 1972. According to political commentators it is insufficient to deal with the country’s current realities. Among concerns is an excessive concentration of power in the president, which has weakened other organs of the state, creating fragile institutions. This has been particularly evident in the case of the judiciary which has been, reportedly, inefficient at dealing with high profile corruption scandals.

3. Economic Overview

Over the past decade, Panama has been the fastest growing economy in Latin America. Between 2001 and 2013, the country experienced an average annual growth of 7.2%, more than double the regional average. Growth came down slightly to 5.8% and 5.4% in 2015 and 2016 respectively. By 2017 the forecast remains positive at 5.4%, rising to 5.5 percent in 2018, according to the World Bank.

The GDP of Panama in 2015 was U$51 million, having doubled in size over the previous 10 years. Panama’s economy is based on a well developed service sector including the Panama Canal, shipping, banking, and special economic areas/free zones, altogether accounting for 80% of GDP. Panama’s high recent growth has been driven by public investment and sound macroeconomic policies. An ambitious infrastructure strategy that included the expansion of the Canal, a metro system, transport and social infrastructures, has seen the government invest about U$40 billion over the past seven years.

Panama’s foreign direct investment (FDI) reached US$5,209.3 million in 2016, up 15.9% from the previous year. According to ECLAC, this represents 43% of the total FDI in Central America. British interest in the market accounts for 12.4% of the total FDI in Panama, making the UK the third largest investor. The regulatory environment has created the right business context for multinational companies to set up regional headquarters and distribution centres in Panama. Over 100 multinationals have taken advantage of this scheme, including British giants such as Diageo, GSK, Aggreko, Unilever, and others.

In its latest review, the IMF praised Panama’s sound fiscal policies and highlighted them as a key factor in the country’s strong economic performance. Inflation has remained low, at 0.7% in 2015. The overall fiscal deficit fell to 2.8% of GDP in 2015 and it is expected to decline to 1.2% of GDP over the medium-term. Debt of the Non-Financial Public Sector is projected to fall below 35% of GDP over the medium-term.

Panama has been granted investment-grade status by all three rating agencies, thanks to sustained improvements in public finances, tax reforms and the economy’s resilience to the global financial crisis. The World Economic Forum’s Global Competitiveness Index lists Panama as the second most competitive economy in Latin America, sitting closely behind Chile.

Panama’s impressive economic performance has not translated into proportional increases in purchasing power for the majority of the population. Although inequality seems to be a key challenge for Panama, unemployment and extreme poverty have been reduced significantly. There is also a marked disparity between the rapid development of Panama City and the Canal Belt, compared to the countryside, where the other half the population lives. Panama has traditionally neglected its agricultural and industrial sector.

4. Business and Human Rights

The principal human rights problems in Panama are lengthy pre-trial detention, harsh prison conditions marked by overcrowding, and widespread, low-level corruption, often practiced with impunity. Other human rights problems include delayed court proceedings, including a judiciary susceptible to corruption and outside influence, and domestic violence against women. Panama has recently implemented a new adversarial criminal procedure which aims to significantly reduce pre-trial detention and speed up court proceedings. According to judiciary statistics, judicial response time has decreased from 278 days to 86 days in the Second Judicial District (Cocle, Veraguas), from 422 days to 18 days in the Third Judicial District (Chiriqui, Bocas del Toro and Comarca Ngabe Bugle), and from 170 days to 60 days in the Fourth Judicial District (Herrera, Los Santos).

4.1 Freedom of Speech and Press

The constitution provides for freedom of speech and press. Some journalists have complained of harassment, intimidation, and threats when covering stories involving government officials. According to the Journalists’ Union of Panama, as of September 2016 the National College of Journalists received 20 complaints of government pressure against media critics.

4.2 Indigenous People

Panama’s constitution guarantees the respect for ethnic identity and undertakes responsibility over delivering ‘special attention’ to indigenous peoples with the aim of promoting their economic, social and political participation in national life. To meet the expectation of providing necessary land to achieve their economic and social well-being, nine new indigenous ‘comarcas’ were created in the 1990s.

Education has continued to be deficient in the comarcas, especially beyond primary school. Employment discrimination against indigenous persons is widespread. Employers frequently do not afford indigenous workers basic rights in agricultural plantations. In recent years there have been multiple conflicts between the government and indigenous groups regarding decisions affecting indigenous land and autonomy. The Ngabe Bugle and the Naso clashed in 2016 with the government over the issue of hydroelectric plants on territorial lands, including over the Barro Blanco dam project, which would flood approximately 14 acres of “annexed lands”. The Ngabe Bugle people in the area of Bocas del Toro have also protested against the Chan 2 thermoelectric projects and demanded their cancellation. While there has been confrontation, none of these issues has produced acts of violence or repression during Varela’s government, which has tackled the conflict through negotiation and dialogue.

4.3 Worker Rights

The law recognises the right of private sector workers to form and join unions. However, some concerns have been raised about the lack of right to form unions in strategic sectors of the economy such as banking and the Canal. Panamanian law also prohibits public servants from forming unions, though it does permit public servants to form associations that may bargain collectively on behalf of their members. The law also provides private-sector workers the right to strike and grants public-sector employees a limited right to strike, except for those in areas deemed vital to public welfare and security, including police and health workers. Panamanian Labour Law is considered to be over-protective of workers and has very demanding requirements for the termination of the labour relationship as well as substantial penalties in favour of the worker.

5. Bribery and Corruption

According to the UK Bribery Act (2010) it is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or as Scottish partnership to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere. The UK has successfully prosecuted companies involved in corrupt practices overseas, and places the responsibility upon firms to ensure they have taken relevant anti-corruption measures.

Panama is signatory of the United Nation Convention against Corruption of 2006. Article 343 of Panama’s Criminal Code punishes with imprisonment of three to six years anyone who in any way offers, promises or gives to a public servant donation, promise, money or any benefit or advantage to perform, delay or omit any act of their office or employment or in violation of their obligations.

Despite this legislation, there are clear indications that bribery and other forms of corruption have been common in Panama, particularly during President Martinelli’s tenure in power (2009-2014). Official reports from the Attorney General’s Office provide account of a vast number of ongoing investigations involving high level officials, including former Ministers and Magistrates of the Supreme Court. Among these scandals, corruption by Brazilian contractor Odebrecht has achieved the greatest prominence. International investigations conducted in Brazil, Switzerland and the US have provided evidence of an extensive bribery scheme organised by Odebrecht in Panama and many other countries of the region. Locally, Odebrecht won substantial public infrastructure contracts since 2006 for a total value of US$9 billion. Many commentators are concerned about the ability of Panama’s judiciary to advance these investigations, due to a shortage of technical expertise, budget constraints and vested interests.

President Varela’s government has stated its intention to stamp out poor practices of the past and to strengthen the regulatory regime for procurement and transparency. The government has made it a political priority to tackle this and has pledged to make Panama a more attractive place to invest and ensure that there is a level playing field for businesses. The British Embassy in Panama City has undertaken a number of activities to support Panama’s anticorruption platform. The Embassy is helping Panama’s government build a whistle blower mechanism, and the UK Ministry of Justice has supported the development of more robust draft anti-bribery legislation in Panama. A separate Embassy project recently delivered a freedom of information portal that encourages citizenship participation, and two projects focus on improving standards of competition law and capacity to enforce fair competition.

Transparency International’s Corruption Perception Index ranked Panama as 87th out of 176 countries in the 2016 survey. Visit the Business Anti-Corruption portal page providing advice and guidance about corruption.

5.1 Financial Transparency

Panama has been working in developing new legislation to meet international standards for its financial services sector. A law tackling money laundering and immobilising bearer shares was adopted in 2015. As a result, Panama was removed from FATF’s grey list in February 2016.

The so-called ‘Panama Papers’ scandal in 2016 prompted Panama’s government to set up an Independent Financial Services Committee, which highlighted the need of profound reform of the financial sector in order to preserve its competitiveness. Immediate actions were to enact legislation that creates sanctions for companies that do not keep up-to-date shares and minutes books, and a separate bill that reinforces the due diligence measures for resident agents, making mandatory the identification of the beneficial owners of the legal entities for which they provide their services.

Panama has also been working to strengthen capacity to facilitate a more efficient tax exchange of information process under the umbrella of multiple agreements subscribed during the last decade. Panama also announced its commitment to move into an automatic exchange of information framework on bilateral basis. The government has also started consultations to criminalise tax evasion.

6. Terrorism

Please refer the Terrorism section in Panama’ FCO Travel Advice .

7. Protective Security/Organised Crime

Protective security is not usually recommended in Panama. Panama City is generally safe, though certain areas should be avoided, especially at night. The Embassy can provide further guidance. Read the information provided on our Protective security advice page.

Drug trafficking through Panama has a direct effect on the UK. A third of global cocaine production transits Panamanian waters, much of which is targeted towards European markets, of which 30% is estimated to be UK bound.

Panama is also a hub for illicit finance where proceeds of crime are laundered to conceal their illegitimate origins. The reduction of the supply of cocaine and the prosecution upstream of traffickers and money launderers will reduce threats to UK and UK interests.

Some crime statistics show increased levels of robberies, murders and assault compared to a decade ago. The majority of these crimes are driven by violence amongst members of rival drug gangs.

Burglaries have been committed by organised criminal gangs. It is reported that the perpetrators use ruses to gain the trust of the victims and gain access to their homes. In some instances, the criminals are suspected of using various symbols or drawings marked on perimeter walls or fences to communicate with other gang members. An organised robbery with several other gang members is then committed.

Despite all this, Panama remains very safe in comparison to other Latin American countries, such as Honduras, El Salvador, and Guatemala, which according to the Program for Global Advocacy fight for the title of the “Most Dangerous Country” in the region.

Read the information on our Organised Crime page.

8. Commercial Disputes

Resolving commercial and investment disputes in Panama can be a lengthy and complex process. Despite protections built into trade and investment agreements, investors have repeatedly struggled to resolve investment issues in courts. The World Economic Forum’s Global Competitiveness Index 2015-2016 ranks the independence of Panama’s judicial system 119th out of 140 countries.

There are frequent claims of bias and favouritism in the court system and complaints about the lack of adequate titling, inconsistent regulations, and a lack of trained officials. Politically connected businesses have benefited from court decisions, and there have been allegations that judges have delayed cases for years without taking action.

Many Panamanian legal firms suggest writing binding arbitration clauses into all commercial contracts. The Government of Panama accepts binding international arbitration of disputes with foreign investors. Panama is a party to the 1958 New York Convention as well as to the 1975 Panama Convention. Panama became a member of the International Center for the Settlement of Investment Disputes (ICSID) in 1996. Panama adopted the UNCITRAL model arbitration law as amended in 2006. Law 131 regulates national and international commercial arbitrations in Panama.

9. Intellectual Property

Panama is a signatory to the World Intellectual Property Organisation (WIPO), the Geneva Phonograms Convention, the Brussels Satellite Convention, the Universal Copyright Convention, the Bern Convention for the protection of Literary and Artistic Works, and the Paris Convention for the Protection of Industrial Property.

Read the information provided on our Intellectual Property page.

9.1 Patents

Panama’s Industrial Property law provides 20 years of patent protection from the date of filing. Pharmaceutical patents are granted for 10 years, and can be renewed for a further 10 years if the patent owner licences a national company (with a minimum of 30% Panamanian ownership) to use the patent.

9.2 Trademarks

The Industrial Property law provides for protection of trade marks for periods of 10 years (renewable).

9.3 Copyright

Panama is a party to the Berne Convention for the Protection of Literary and Artistic Rights, the International Convention for the Protection of Performers and Broadcasting Organisations (Rome Convention) and the Convention for the Protection of Producers of Phonograms against Unauthorised Duplication of their Phonograms (Geneva Convention). It is also a member of the World Trade Organisation (WTO).

Since both the UK and Panama are parties to the Berne Convention, works of UK nationals, residents, or works first published in the UK are entitled to the same protection as Panama grants to its own nationals.

Panama’s Copyright and Neighbouring Rights Law 1994 protects original literary works including computer programmes, artistic works including photographs, cinematographic works including videos, musical works including sound recordings, and broadcasts.

However, there are serious flaws in protection for copyright works. These lack of full protection for pre-existing works, sound recordings and performances, no rental right for sound recordings, lack of effective enforcement and border measures. Copyright piracy, particularly of sound recording and movies is endemic.

10. Contact:

For more information about doing business in Panama, please contact the Department for Business and Trade (DBT) team in the British Embassy in Panama City.

DBT helps companies in Britain increase their competitiveness through overseas trade in Panama. We also offer professional, authoritative and personalised assistance to help companies in Panama locate and expand in the UK.