General Overview on ’s Economy and Investment Climate General Information About Panama

• Capital: • Total Area: 75k Sq km • Population: 3.9MM (2014 estimate) • Political Division: 10 Provinces and 5 Indigenous Regions • Government: Constitutional Democracy • : US , since 1904 • Language: Spanish (Official), English (Commercial) Panama: The Path of Growth

Source: Index Mundial, , Panama Authority, and CIA World Fact Book 1999 2013

•The standard of living in Panama has increased over the past 14 years GDP Per Cápita

•The development of the logistics sector and FDI growth over the past years has Total GDP improved key economic sectors in Panamá.

•A friendly legal framework for investors including attractive tax incentives MHQ have led Panama to became a center for MHQ in LAC

Annual Industrial •Panama is undergoing robust construction initiatives and manufacture industries Prod. Growth with an average growth between 4 to 10% over the last 10 years

• Panama’s exports have grown 3 fold since 1999 demonstrating Exports the growth of industry and service

•A high demand of foreign proucts and consumer spending, luxury goods, Imports construction materials, automobiles and more.

•Currently 90% of the world’s ships can pass through the Canal, providing high revenues from ship transit Revenues

•Several social programs are running with a common purpose to reduce Poverty Rate general poverty in Panama. Results are shown over the last decade.

Tourism • In 2012 Panama was voted No1 tourist destination for 2012 in several global publications including New York Times ANNUAL TOURISTS Macroeconomic Environment

Net Debt vs. Net Debt/GDP Ratio Debt Composition (In MM, USD)

17,112 External Debt (78.3%) 40% 14,721 14,441 2.9% 38% 37% 13,022 18.8% Local Financing (18.8%) 11,602 36% 10,404 36% 34% 35% 9,615 Other Internal 78.3% Financing (2.9%)

2009 2010 211 2012 2013 Oct-13 Oct-14 Favorable Macroeconomic Environment

Estimated growth 2014% of GDP in Latin Evolution of GDP per capita of America and the ECLAC Panama. 1999-2013

Panama 6.7 2013 11,037 2012 2011 R. Dominicana 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 0 2 4 6 8 0 2,000 4,000 6,000 8,000 10,000 12,000 % GDP Growth Estimate Figures in USD A Country Open for Business

Ranking Doing Business*2009-2014 Variation in the number of positions

Panama 26 Peru 20 Costa Rica 15 Country Global Global Ranking Ranking Colombia 10 2013 2014 34 34 9 Peru 39 42 Chile 6 Colombia 42 43 3 Mexico 51 53 Ecuador 1 Panama 61 55 -7 93 79 85 88 -13 Costa Rica 109 102 Belice 104 106 Investment Grade

Rating Term Rating Date Perspective  The stable outlook Agency suggests that no changes Long Term; Foreign BBB 2, 2012 Currency are expected in the next Short-Term Foreign A-2 July 2, 2012 2 years. Currency Stable Long-Term Local BBB July 2, 2012 Currency  Rating agencies expect Short Term Local A-2 July 2, 2012 average growth rates of Currency 6% without significant Long Term; Foreign BBB March 7, 2014 changes in fiscal policy. Currency

Stable Long-Term Local BBB March 7, 2014

Currency Short Term Local F3 March 7, 2014 Currency Long Term; Foreign Baa2 Oct 31, 2012 Currency

Stable Long-Term Local Baa3 Jun 9, 2010 Currency

A Growing Economy with Stable Perspectives

GDP % Growth per Year Annual FDI Flows into Panama 2004-2013 4,653.5 14.0% 5000 4500 +56.2% 12.0% 4000

10.0% 3500

8.0% 3000 6.2% 2500 6.0% 2000 4.0% 1500

US$Millones 1000 2.0% 500 0.0% 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 I Half Rate 10.0% By mid 2014, FDI figures reached US$ 2,575.4 9.0% million, which means 26% more in comparison to 8.0% 7.0% last year inflows over the same period. 6.0% 5.0% 4.3% 4.0% 3.0% 2.0% 1.0% 0.0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 Panama’s GDP Structure per Sectors 2010-2013

6,000.0

5,000.0 2011 2012 2013

Million 4,000.0

$ $ US 3,000.0

2,000.0

GDP figures in in figures GDP 1,000.0

-

Fishing

Construction

PrivateEducation

Wholsale and

Miningand quarries

health

ManufactureIndustry

Othersocial activities

Hotelsand Restaurants

FinancialIntermediation

Electricity, gas water and supply

Agriculture, stock live and forestry

Socialservice activities and private

Transport,storage and comunications RealEstate activities, business and Logistics Sector in Panama

% increase of logistic sector in Panama’s GDP . The transportation and communications sector 14.0% represents about 25% of GDP. 12.0% 13.2% 12.3% . Panama maritime move more than 6 million 10.0% 11.3% 8.0% 9.0% TEUs per year. 6.0% 6.1% 4.0% . In 2013 transit through International 2.0% reached 7.7 million passengers. This figure is 0.0% 2009 2010 2011 2012 2013 expected to double once operations on the south terminal begin. . The Free Zone law, The Panama Pacifico Zone, The Colon Free Zone and the Multinational Headquarters laws are the axes of the framework towards the promotion and attraction of FDI in this sector.

Dimensions of Locks and Vessels Existing Locks Max Vessel size: 4,400 TEU’s

33.5 m (110’)

32.3 m (106’)

12.4 m (39.5’) 55 m (180’)

12.8 m (42’) 49 m (160’)

18.3 m (60’) 15.2 m (50’)

New Locks Max Vessel size: 12,600 TEU’s POPULATION 2014 (In MM) Main Sea Trade Routes Caribbean 36.8 43.1 407.1 471.6 Total 958.6

East-West Route North-South Route Both

This is a major advantage for developing relay traffic as it provides the possibility of linkages between multiple services on both east-west, and north-south routes.

Global Maritime Trade Volume Through The Panama Canal in %

Merchandise Share % of Global Maritime Trade Containerized Cargo 4.7% Grains 10.6% Petroleum and Sub Products 1.3% Coal 1.3% Mineral and Metals 1.8% Chemical 5.8% Panama Canal Share on 6% Worldwide Trade

Source: based on IHC data, October 2013 Air Connectivity

TORONTO BOSTON

NUEVA YORK - CHICAGO WASHINGTON D.C JFK LAS VEGAS LOS ANGELES

ORLANDO

MIAMI NASSAU MONTERREY HABANA CANCUN MEXICO PUNTA KINGSTO SANTIA CANA SAN MONTEGON GO JUAN ST SAN PEDROBAY AU SANTO GUATEMALA ARU MAARTEN SULA PRINCE DOMINGO BACURAÇAO SAN MARACAIB SAN BARRANQUILLA PORT OF SALVADOR O ANDRES CARTAGENA CARACAS SAN CUCUTAVALENCIA • 69 destinations in 30 countries BUCARAMA JOSE MEDELLIN PEREIRANGA BOGOTA • Transit of over 7.7 MM passengers CALI

GUAYAQUIL MANAUS in 2013 IQUITOS

RECI FE • Construction of 2 new international LIMA

airports plus improvements in 3 BRASILIA SANTA CRUZ BELO existing airports HORIZONTE SAO RIO DE PAULO JANEIRO ASUNCION • $779 MM expansion of Tocumen, adding 20 new gates CORDOBA BUENOS AIRES MONTEVIDEO Telecommunications Connectivity

Network Readiness Index 2014

Panama is ranked 43rd worldwide and 2nd in by the "Network Readiness Index" of the 2014 Construction

Construction on GDP and Credit Loans by NBS. Data in US$ Million. . In 2013 construction generated more than $4.1 Years 2007-2013 billion, accumulating 12% of GDP. This figure was 4500 4500 4000 4000 30% higher than 2012. 3500 3500 3000 3000 . A joint venture business model is very common in 2500 2500 the construction sector. 2000 2000 1500 1500 . There is no restriction on the entry of foreign 1000 1000 companies on this sector. 500 500 0 0 . Construction of lines 2 and 3 of the 2007 2008 2009 2010 2011 2012 2013 raises new opportunities for urban development in Construction Loans Construction GDP eastern and western areas of Panama City.

. The arrival of expats represents good option for real estate companies to rent or sell apartments and houses at high income areas such as Costa del Este, Panama Pacifico, among others. Financial Sector in Panama

Growth rate of Financial Intermediation. Years 2009-2013 . 76% of the Banking Center is comprised by foreign 12.0% . 9.6% 10.0% 8.2% 8.0% 7.6% . Under the National Banking System, 52% of total 6.0% assets belong to international private banks, 35% 4.0% to Panamanian private banks and 13% to Official 2.1% 2.0% Banks. -0.9% 0.0% The average lending rates (on loans), have -2.0% 2009 2010 2011 2012 2013 . remained, on average, at about 10% in the period 1990-2012, falling below that level in recent years as a result of a global trend of lower rates. . Deposits and loans keep showing a growing trend. Financial Sector in Panama

• No Central Bank • Dollarized economy since 1904 • 90 banks (national and international) • US$ 101.5 billion in total assets in 2014

• By 2013, total premiums reached US$ 1,315.9 million (13.5% more than 2012). Car and Health insurance are the major premiums in local market, gathering 1/3 of total premiums by 2013. There are 31 companies in this sector. IBC, Internal vs. External Assets

120,000

100,000

Crisis

80,000 Crisis

European

om om

Suprime Crisis Suprime

C

Asian AsianCrisis

Dot Crisis in Argentina in Crisis 60,000

40,000

20,000

0

2003 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total Assets Domestic Foreign IBC, Internal Vs. External Deposits

80,000

70,000

Crisis Crisis

60,000

European

Crisis

50,000 Suprime Crisis

Crisis Argentina in

Com

Dot

40,000 CrisisAsian

30,000

20,000

10,000

0

1992 1999 1990 1991 1993 1994 1995 1996 1997 1998 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total Deposits Foreign Domestic TPA Benefits

Immediate and Progressive Tariff Rate Elimination

Telecommunications Market opening

Investor Protection

Greater Protection of Copyright and IP

Labor and Environmental Rights

Equal conditions for Foreign Investors Panama Export Figures and Trade Partners

Evolution of Panama’s FOB Values for Exports in US$ millions. Years 2003- 2013 Major Trade Export Partners by 2013 1,400.0 18.1% 1,200.0 37.4% China 1,000.0 7.8% 843.9 Costa Rica 800.0 Germany 600.0 Netherlands 400.0 Taiwan 200.0 6.1% Italy

0.0 5.9%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2.7% United Kindom 3.4% 3.4% 5.8% Rest of the World 4.7% 4.7%  United States has been historically Panama’s main trading partner.  Major national exports come from agricultural and agro industrial sector, which accounts for 45% of total exports in 2013  Panama has signed FTA’s with the following countries: United States of America, Canada, México, Colombia, Chile, Peru, Singapore, Taiwan, and the Central American countries.  Special agreements are included with the EU and EFTA. Panama Import Figures and Trade Partners

CIF Value on Imports by Panama. Panama’s major trade partners on Years 2003-2013 Imports 2013 14,000.0 48.9% 12,000.0 24.3% United States China 10,000.0 México 8,000.0 Costa Rica 6,000.0 Colombia 4,000.0 Spain 2,000.0 South Korea

0.0 Japan

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2003 2.1% 7.9% Rest of the World 2.8% 4.1% 2.9% 3.0% 4.0%  The Colon Free Zone and Petroleum Free Zone represented 26% of total imports from the rest of the world in 2013.

 Imports have shown a growing trend over the past 3 years, mainly due to capital goods impact, public projects by the government and higher demand from logistics and communication companies. Panama’s Services Figures

Service Trade Trend 2006-2013 Service US$ Million % Share % Growth (In MM USD) Exports vs 2012 12000 Transport 4,802.4 49.1% 1.7% 10000 Travels 3,316.2 33.9% 8.1% 8000 Financial 566.7 5.8% -16.2% 6000 Serv. 4000 Comm. Serv. 327.1 3.3% 0.4%

2000 Insurance 275.5 2.8% 103.0% Serv 0 2006 2007 2008 2009 2010 2011 2012 2013 Others (6) 478.9 4.9% 13.8%

Exports Imports Total 9,766.8 100% 4.5%

80% of the Panamanian economy is related to services Service exports represent 92% of total exports, excluding The Colon Free Zone Energy Sector

Installed Capacity vs Energy top demand in MW. Years 2009-2013 . Energy demand in Panama is estimated to have an 3000 annual growth rate of 7.5% per year until 2016 2500 and 5.6% in the next 10 years 2000 1500 . New concessions are aimed at addressing future 1000 energy needs as well as the diversification of the 500 energy matrix 0 2009 2010 2011 2012 2013 . The current goal is to diversify the energy matrix, Installed Capacity Top Demand where 80% will be produced from renewables while the remaining 20% would be generated from fossil fuels. . 17% of the energy produced is lost through the gaps in transmission lines and network absorption capacity. This puts a limit on the system’s efficiency and productivity. Electricity Demand in Panama

2500

GROWTH RATE 2012-2016: 6% 2000 (2012)

1500 2012-2013 Growth 4.16% MW ForecastPronostico Max.Demanda Demand Máxima 1000

500

0

Years Multinational Headquarters Law

 Currently there are 106 companies established under the MHQ law in different sectors of the economy

 MHQ Companies must have at least 200 million in assets worldwide to apply as MHQ Company and get all the benefits.

 28 MHQ companies come from the US.

 MHQ office at Ministry of Commerce and Industries is certified with ISO 9001.

 The MHQ office has its own one-stop-shop that offers migration services where companies can obtain their MHQ visa’s.

MHQ Main Benefits

• Total Exemption on Income Taxes based in offshore operations. • Tax scheme negotiation is possible between company and Fiscal Panamanian State. Incentives • Exemptions from sales tax for services rendered to related corporations abroad. • Panamanian labor code restrictions to hire expats does not apply under this law. • MHQ labor force are not compeled to pay social security or Labor . Incentives • MHQ permanent workers are exempt from import tax on household when they are moving for the first time. • Permanent and temporary visa availability, with several benefits. • Family members are also included with visa Benefits Migration (couple, sons, fathers, and child under legal custody) Incentives Allowded Activities Under MHQ Law

• Financial Management and Treasury Services • Operations Management • Logistics and/or Storage Components • Technical Assistance • Operations Support and R&D • Business Group Accounting • Planning, Design and Support of Products • Consulting, Marketing and Advertising Activities • E-Processes and Operation Consolidation

Panama’s Free Zone Regime Law 32 April 5th, 2011

Categories Incentives •Manufacturing • Exemption from export taxes and duties on •Assembly all goods or services required for its •Processing enterprises of finished or semi elaborated goods operations. •Service Export enterprise •Environmental Services • Exemption from income tax on lease and •High Education Centers subleases for Free Trade Zones promoters. •Scientific research centers • Tax Exemption for capital goods and •Logistic Services properties. •Health Services • Exemption from income tax to storage •Companies related to Aviation Services and Airports services whose impact is measurable abroad.

Conclusions

 Beyond market size, Panama’s geostrategic location has historically provided an influence on a regional and global level.

 Over the last 10 years growth has been remarkable compared to other countries in Latin America. Currently, policies must be geared towards improvement on productivity and on the labor force on key growing sectors. This must be accompanied by a responsible fiscal policy.

 Along the way, there are key issues that need to be addressed, such as developing Value Added Logistic Services towards the logistic cluster and improvements on infrastructure. Thank You!

Commercial Inquiries: [email protected]