New government in Panama opens opportunities for Finnish companies

In august 2024 a new government started in Panama led by Mr. José Raul Mulino. The new administration has started ambitious infrastructure projects during their upcoming 5 years such as the Panama-David Railway, the new reservoir for the Panama Canal and other initiatives aiming to enhance national infrastructure and Foreign Direct Investment attraction.

Overview

Panama has the second-largest economy in Central America. It is a critical trade and logistics hub in Central America, leveraging its geographic position with ports on both the Atlantic and Pacific Oceans and benefiting from the Panama Canal, which facilitates 10% of global maritime traffic. The nation’s economy is rooted in service sectors, such as banking, finance, and logistics, supported by 55 banks, robust telecommunications infrastructure, and numerous free trade zones. However, Panama faces major challenges, including income inequality, migration, an economic dependency on the canal, reliance on imports for manufactured and agricultural goods and internal political issues that affect economic stability. The new government is taking steps to attract more foreign direct investment (FDI) and diversify the economic base through infrastructure, energy, and technology initiatives.

Current economic situation

In 2023, Panama's GDP was $83 billion (World Bank). While Panama saw high growth rates in the past, economic expansion is expected to slow to around 2.5% in 2024 (IMF), with projections of growth of 3% in 2025 and 4% in 2026 (World Bank). The new government aims to return to a higher growth trajectory, targeting 7% GDP growth through development projects and expansions in public services.

Panama’s inflation rates have been moderate compared to regional averages. In 2023, inflation was recorded at 3.5%, driven mainly by increases in food and energy prices. Inflation is expected to stabilize at 3.0% for 2024.

The Panama Digital Gateway data center, along with initiatives like the Tech Valley Free Zone, aims to attract international tech companies, with over 620 firms expected to join Panama’s growing tech industry. Dollarization brings stability and mitigates the exchange risks present in most of Latinamerican countries, it also makes Panama’s offshore financial centre attractive.

Climate change impacts, including droughts, have reduced the Panama Canal’s daily ship passage capacity. Investment in water conservation and infrastructure resilience is crucial to prevent future disruptions, authorities are planning to build a new reservoir to increase water supply to offset these risks.

Significant developments include also the Panama-David rail project, a 391-kilometer initiative aimed at improving connectivity and fostering economic integration. Additionally, the government has incentivized investment in energy and infrastructure by offering tax exemptions for businesses outside Panama City and specific licenses for the energy sector.

 

Demographics and employment

Panama’s population is approximately 4.5 million, with a median age of 29.6 years. About 28% of the population is under the age of 15, and 63% are within the working age group (15-64 years). This youthful demographic provides potential for economic growth but also underscores the need for effective employment programs.

The national unemployment rate is around 9%, with youth unemployment being concerning. Approximately 40-45% of Panama’s workforce operates in the informal sector, which is especially prevalent in rural areas and small urban businesses. Panama’s labor laws that limit foreign workers to 10-15% of the workforce, aims to decrease local unemployment and enhance capacity building.

Trade and investment climate

Panama’s strategic position between the Americas makes it a central trade hub, enhanced by the Panama Canal. As a member of the Council of Ministers of Economic Integration of Central America (COMIECO), Panama benefits from trade agreements with major partners like the United States, the European Union, and China.

Panama offers extensive incentives, such as special tax rates for exporters, technology firms, and hospitality businesses outside the capital. The Multinational Company Headquarters (SEM) program offers tax benefits and streamlined registration processes, making Panama an attractive base for multinational companies. To date, the SEM program has attracted over 199 multinational companies, creating significant employment.

Trade with Finland totaled €18 million in 2023, primarily in pharmaceuticals, machinery, and chemicals, while imports from Panama to Finland were €9 million, largely in fruits, vegetables, beverages, and oils. Finnish companies, such as Nokia and Wärtsilä, operate in Panama, primarily in infrastructure and technology.

Panama’s energy sector and opportunities

Panama is pursuing an ambitious energy transition plan aimed at diversifying energy sources, reducing fossil fuel dependency, and enhancing climate resilience. The National Energy Policy 2024-2029 sets clear goals to improve infrastructure, increase renewable energy use, and integrate sustainable practices. Panama has already achieved approximately 40% of its energy transition targets.

Hydropower remains a key component of Panama’s energy production, while solar and wind energy contributions are rapidly increasing, though they face challenges due to intermittency.

The government is prioritizing the development of green hydrogen and biofuels as part of its energy strategy, including the construction of infrastructure for hydrogen production and pilot projects. Green hydrogen is seen as a promising future export due to high global demand.

Electric mobility is also a priority, with plans to expand EV charging stations, integrate EVs into public transportation, and promote electric vehicle use to reduce urban emissions.

Panama is investing in technology to improve grid efficiency and resilience, including smart grid projects and energy storage solutions.

Opportunities for Finnish companies

There is strong potential to enhance trade relations between Panama and Finland. A wide network of trade agreements, including a free trade agreement with the EU since 2013, supports Panama’s open-market economy and commitment to international trade freedom.

Finnish companies such as Nokia (which has contributed to connectivity infrastructure for the Canal Authority) and Wärtsilä (with regional headquarters in Panama) are active in Panama. There is significant demand for Finnish expertise in sustainable energy solutions, including waste-to-energy (W2E) and renewable energy, as well as circular economy solutions.

Panama’s financial sector could be a customer for Finnish telecommunications and fintech solutions. The Panama Canal’s role as a logistics hub creates demand for smart transport and logistics technologies.

For more information contact: Sanomat.bog@gov.fi