Even though Panama is a relatively small country in Central America it is one which has consistently punched above its weight over recent times. This is a country which fades into the background with regards to land mass compared to the likes of Mexico, Brazil and Argentina but it is has one of the strongest economies in Central America and many believe that Panama is entering a new period of growth. However, like so many of the other South American and Central American countries we have covered of late, Panama is unlikely to be one of the first expat destinations to roll off your tongue.
So what does Panama have to offer and what can you expect with regards the cost of living and the standard of living in the country?
Where is Panama
Before we delve into detail with regards to Panama, the economy and the cost of living, it is worth reminding ourselves exactly where Panama is located and the size and scope of the country. Panama is the southernmost country in Central America and plays a prime role in connecting North America and South America with particular emphasis on trade and tourism. It is bordered by Costa Rica, Colombia, the Caribbean Sea and the Pacific Ocean. The total land mass of Panama is only around 75,000 km², with a population of just over 3.3 million, so why is this country more prominent than you would expect?
It will come as no surprise, like so many other Central American and South American countries, to learn that the history of Panama is heavily intertwined with that of Spain. However, the country is now totally independent of any other third-party and has created a very interesting and potentially lucrative environment for economic growth. Politically Panama has been one of the more volatile countries in Central America and did require the assistance of the US government to end a 21 year military dictatorship. However, since then there have been a number of peaceful transfers of power within Panama and the political and economic scene has never been better.
While there is no doubt that the Panama economy has benefited from a move to “free market” ideals, there is also no doubt that the Panamanian Canal is the major driving force behind the economic revival of the country. However, while the Panama Canal will always grab the headlines and indeed will always produce the vast majority of income within Panama, it is worth taking a look at the wider economy and the unemployment market in particular.
Unemployment in Panama is a very respectable 7% which compared to other Central Americans and South American countries is relatively low. There was also a food surplus in 2008 which is something of a rarity even in developed countries around the world. Gross domestic product increased by an average of 10.4% between 2006 and 2008 and without doubt Panama was at the time one of the best managed and strongest economies in the region. Even though the country, like so many others, has been effected by the worldwide economic downturn and the credit crunch, there is also no doubt that it will most likely bounce back quicker than the vast majority of economies around the world.
The major economic sectors in Panama include banking, commerce, tourism, trading, as well as private business although the shadow of the Panama Canal is never far away. It is also worth remembering that tourism is playing a larger and larger role within Panama and the influx of foreign investors and foreign visitors to the region is likely to continue for some time to come. Despite historic problems with regards to crime and corruption, Panama, like so many other Central American and Southern American countries, has moved away from this particularly fraught period in its history. More and more expats are now seeing Panama has a potential place to lay their head in their later years and indeed many are now moving to Panama for new employment opportunities. There is no doubt that foreign investment and foreign companies are playing a greater role today within the Panama economy than they ever have done but there is also no doubt that the economy is fundamentally stronger than it ever has been.
The historically strong relationship with the United States of America was diluted somewhat in 1977 when an agreement was signed which effectively handed over the US monopoly on the Panama Canal which the country had enjoyed for 85 years. In 1999 the Panamanian government took total control of the Panama Canal although it has to be said that US investors are still playing a major role in the development of the unit. There are already plans to introduce a third set of locks on the Panama Canal which will cost in the region of USD5.25 billion.
While there is no doubt in than the Panama economy is well positioned for future growth and indeed we are seeing more and more overseas investment in the region, there are some experts who are concerned about the short-term property market in Panama which has risen significantly. On the surface there are new developments cropping up on a regular basis, deals being closed on undeveloped properties, but also we are seeing signs that perhaps there is a short-term oversupply in the marketplace. The vast majority of property investors in Panama are from the US, an area which has been hit dramatically by the worldwide economic downturn and the credit crunch.
As a consequence, a number of properties which were acquired in the boom times are now up for sale and many new properties have been delayed or cancelled. There has been a marked fall in some property prices in Panama, most notably the coastal region, although many believe this is simply a case of supply overtaking demand in the short term. Whether or not now is the time to acquire property in Panama as a short-term investment is open to debate, but many believe the long-term potential for significant capital growth in the Panama property sector is still as strong as ever.
If you are looking towards Panama to acquire property then the only real indicative market is the property market in and around Panama City which is the capital of the country. This is the area which attracts the most inward investment and overseas investment and indeed is home to the vast majority of expats in the region. However, as the economy continues to grow, as many experts predict, it is likely we will see a gradual increase in levels of wealth throughout the country. However, at this moment in time the difference between the “haves and the have-nots” is enormous and poverty is still a major problem in the country.
Whether or not it may be sensible to rent a property in short-term, if looking to move to Panama, is another question to ask but ultimately the long-term prospects for this Central American country have never been better.
Living costs in Panama
While you would assume that the living costs in Panama are relatively low compared to the rest of the world we have seen an increase in the cost of living in some of the more populated areas of the country. Compared to the likes of New York, the rental index in Panama is around one fifth, the groceries index is around half and the restaurant index is around 65% less than that of New York. So as a consequence you may be forgiven for assuming that life in Panama is relatively cheap although maybe not to the highest standards you’ve ever seen. However, under the surface life in Panama has improved dramatically over the last decade although the difference between poverty-stricken Panamanians in rural areas and those in the larger cities is now greater than ever. As a consequence, it is difficult to give an overall view of the living costs in Panama but we will attempt to do so below.
A meal for one at a relatively inexpensive restaurant in Panama will set you back around £3.20 and a meal for 2 at a midrange establishment will cost around £20. A local beer will cost in the region of 90p a bottle, imported beer around £1.50 a bottle and a bottle of Pepsi around 60p a bottle. A litre of milk is around 40p, a fresh loaf of bread £1.50 and a bottle of midrange wine around £2. The cost of basic utilities in Panama is a little more expensive than the likes of Mexico and Colombia at upwards of £200 a month but it has to be said that the infrastructure within Panama is by far and away the most developed and the most efficient in Central America and South America. Internet and mobile phone facilities are readily available throughout the country at a fairly reasonable cost.
A one-bedroom flat in Panama City centre will cost you around £350 a month with a similar flat outside of the city centre costing no more than £160 a month. The figures are roughly double if you’re looking towards a three bedroom department in the city centre and away from the city centre. If you’re looking to purchase a property you will pay around £1,100 a square foot within the city centre and £800 on the outskirts of Panama City for example. The average disposable income, after taxes, in Panama is around £700 a month meaning that many ex-pats from overseas will be able to afford a relatively comfortable lifestyle in the country.
Due to the heavy influence of US investors and US expats in the region, the entertainment industry in Panama is fairly well developed and as we have shown above is not the most expensive in the world. However, we are now seeing more and more European expats looking towards Panama as their choice of homeland for the future which will eventually see an increase in European influences in the region.
While many people have moved to Panama for employment reasons, there are even more people moving to Panama for retirement. As a consequence, there is sure to be a widespread of age groups in the Panamanian expat community thereby offering entertainment facilities, restaurants and other services for everybody.
The income tax system for Panama is slightly higher than other countries within the Central America and South America region but does compare favourably to places such as the UK. Income up to US$ 9500 a year will not attract any tax, between US$ 9500 and US$ 12,000 the rate is 20.5%, from US$ 12,000 to US$ 15,000 rate is 21.5%, from US$ 15,000 to US$ 20,000 there is a charge of 23%, from US$ 20,000 to US$ 30,000 you will pay 24% and anything above would be charged a 27%. There are alternative rates which include a flat rate of 6% on all income for those earning in excess of US$ 60,000 a year.
The flat rate of corporation tax in Panama is 30% and this is applicable to profits and revenue earned within Panama or which arises from assets based in Panama even if the income may well flow from overseas markets. There is taxation relief applicable to small companies although this will need to be investigated further if you’re looking to operate a new business in the region.
As we touched on above, the expat community in Panama is predominantly made up of US citizens who have moved to the country for either work or retirement. However, we are seeing a greater number of European expats looking towards Panama, and indeed other South American and Central American countries, which will obviously increase their influence in the short, medium and longer term. The influx of overseas investment continues to this day and despite the worldwide economic downturn the Panamanian economy is well-positioned for the future and many expats and overseas business operators are only too aware of this.
As you might expect from a country the size of Panama, the vast majority of businesses, entertainment establishments and expat communities are located in and around the Panamanian capital of Panama City.
While the vast majority of South American and Central American countries which we have covered over the last few weeks have shown a significant improvement in their economic stability, many people believe that Panama is by far and away the most efficient and well-developed economy in the region. When you also consider the size of the country and compare this to its standing on the international stage, there is no doubt that Panama continues to punch above its weight. So what is the key to prosperity in Panama?
There is no doubt that the Panama Canal continues to dominate both the economy and the landscape of the country. Without the Panama Canal there is no doubt that the country would be nowhere near as influential and as buoyant as it has been of late and indeed with further plans to expand the Panama Canal the future looks very rosy for the country. Historically countries such as Panama have had a rather low reputation on the worldwide stage although over the last decade there have been monumental changes within the economy, the political scene and the country as a whole. However, there are still problems with poverty in the region, something which the Panama government will need to address in the short to medium term.