Panama's economy is the third largest economy in Central America, after Guatemala and Costa Rica, with a gross domestic product of around $50 billion in 2011. With a free market economy that grew 10.6% in 2011 and low inflation due to dollarization, the country has thrived due to its unique geography that has made it a haven for international trade.
Benefits & Risks of Investing in Panama
Panama has become one of the most stable countries in Central America following its somewhat tumultuous history. The country is now home to one of the world's most significant waterways - the Panama Canal - as well as a rather solid service-based economy. As a result, the country has been a pillar of economic success in the region.
Benefits of investing in Panama include:
- Sound Legal System. Panama's legal system has been developed to support foreign investment. For instance, Article 44 of its constitution guarantees the protection of private ownership of real property and private investments.
- Strong Economy. Panama's economy has averaged 8% annual GDP growth over the past five years, according to an April 2012 HSBC report, making it one of the region's fastest growing economies, despite a global economic slowdown.
Risks of investing in Panama include:
- Dependence on Global Trade. Global slowdowns may hamper the country's economy, given its reliance on the Panama Canal, although infrastructure projects and its domestic economy have largely shielded it from the 2008-current slowdown.
- Political Issues. While Panama's economy is relatively stable, relative to others in Central America, the country still struggles with political corruption and other issues that may cause reduced confidence on the part of investors.
Investing in Panama's Real Estate Market
Panama is best known by investors for its thriving real estate market. The country's real estate boom has been largely driven by the Panama Canal, along with construction in the Panama Pacifico Free Zone. Moreover, the construction of a new $1.5 billion subway system is expected to further prime the market over the coming years by making transportation easier.
The market has also benefited from tourism, which accounts for a significant portion of its service economy. According to the Ministry of Tourism, the number of tourists that visited Panama rose by 43% during the four years between 2006 and 2010. Moreover, the country expects to see more than 2.1 million tourists in 2012, compared to around 1.7 million in 2010.
Investors interested in capitalizing on this market can find many Panama-based real estate companies, as well as law firms specializing in real estate transactions. Given the differences in real estate laws, compared to the United States, investors are encouraged to seek the help of a professional before completing any transactions.
Investing in Panama's Stock Market
Panama's stock market - Bolsa de Valores de Panama - has also been rather successful over the past years. As of 2011, the stock exchange has only 22 registered companies that trade their shares publicly, but the combined value of these companies was approximately $2.64 billion, which was up 61.35% over the exchange's 2009 levels.
Unfortunately, there are not exchange-traded funds (ETFs) that offer more than 2% exposure to Panamanian companies. The closest ETF is the Industrials/Producer Durables AlphaDEX Fund (FXR), which has a 1.72% weighting in Panama. As a result, investors may be forced to invest directly in the Panamanian stock exchange.
Resources for Investing in Panama
Investors looking to invest in Panama's real estate or stock market should consult licensed professionals before proceeding. Meanwhile, official channels offer practical advice and guidance for any investors looking to learn more.
Here are some resources to get started: