ZONED FOR GROWTH

Panama 2014 | ECONOMY | FOCUS: SPECIAL ZONES

With the expansion of Panama's Special Economic Zones, business leaders and government officials alike seek to marshal the nation's resources and encourage the best possible mix of efficiency and growth.

One of the most successful strategies to increase local investment and attract new business interests to Panama is the adoption of laws that facilitate the establishment of Special Economic Zones (SEZs). SEZs are located in different strategic points in the country and provide tax, immigration, and labor benefits in order to promote the development of specific economic activities.

The most important and well-known SEZ is the Colón Free Zone (CFZ), which has arguably been the main commercial hub for Latin America and the Caribbean for the past 63 years. Located at the Atlantic entrance of the Panama Canal, it was created to promote international trade under a regulatory framework of tax benefits with the aim of developing economic activities related to wholesale, logistics, and banking, all sectors in which Panama has a noteworthy competitive advantage. The free zone occupies 1,064 hectares and contains exhibition areas, warehouses, and storage facilities. Partly due to the debt that Venezuelan companies have accrued, as well as the Colombian tax on certain textile products, the CFZ has not experienced some of its best moments this year. According to the Superintendency of Banks of Panama, the credits granted to companies located in the free zone has fallen by 7.4% in 2014. However, the CFZ continues to represent a full 7.6% of Panamanian GDP. “The contribution is substantial, as it represents around $1.8 billion of GDP per year, and aside from the 32,000 direct jobs at the FTZ, indirect jobs number around 60,000," the Former General Manager of the Colón Free Trade Zone reported to TBY. This special economic area offers its users tax exemptions on imports, re-exports, and national income tax.

Similar advantages are also offered by the Agencia Panamá Pacífico for the development of an international business center, attracting large multinational companies, logistics services, as well as many businesses and industries. The main objective of this economic area is to attract FDI and to increase job creation in Panama. The Agencia Panamá Pacífico has a total of 120 companies. Of these, 90 companies are currently operating at full capacity. These companies account for about 11,000 jobs, of which about 90% are Panamanian employees. Some examples of major international companies located at this area are Atlas Copco, Dell, Caterpillar, and Citibank. “The companies ask us why they should set up in Panama. It's simple; we choose technology and transformation because we can move between the Atlantic and the Pacific easily through the Canal. We have the five most important fiber optic cables coming through Panama, and there will be two more installed in the next couple of years," explained Olmedo Alfaro, Former General Manager of Panama Pacifico.

Many other international companies and organizations, such as UNICEF, HP, Copa Airlines, and the Red Cross are established in Ciudad del Saber. This scientific, technological, and business park occupies the area and facilities of the former American military base of Clayton, constituting an excellent example of how to transform military infrastructure into a center for science, technology, and education. This space, with 120 acres and over 200 buildings, also offers tax advantages to its users. “Every year we accept only 10% of the companies that apply to join the technology park at the City of Knowledge because we are strict about our admission process," said President of the City of Knowledge Foundation Jorge R. Arosemena. However, as Panama deepens its economic reforms and expands its regional influence, the trend is set to continue. If the model isn't broken, why shift away from it?