Panama’s economy, because of its key geographic location, is mainly based on a well developed service sector heavily weighted towards banking, commerce, tourism, trading. The handover of the Canal and military installations by the United States has given rise to large construction projects.

A referendum regarding the building of a third set of locks for the Panama Canal was approved overwhelmingly (with low voter turnout, however) on 22 October 2006.

The official estimated cost of the building of the third set of locks is US$5.25 billion. The canal is of major economic importance since it pumps millions of dollars from toll revenue to the national economy and provides massive employment.

The United States had a monopoly over the Panama Canal for 85 years but the Torrijos-Carter Treaties signed in 1977 began the process of returning the canal to the Panamanian government by 1999.

Copper and gold deposits are being developed by foreign investors.

Agriculture

For centuries, agriculture was the dominant economic activity for most of Panama’s population. After construction of the Panama Canal, agriculture declined; its share of GDP fell from 29 percent in 1950 to just over 9 percent in 1985.

Currently, agriculture and fisheries comprise 7.4% of the country’s GDP. Agriculture employs such a large number of Panamanians (in relation to its percentage of the country’s GDP) because many farmers are engaged in subsistence farming and only produce enough for their family to consume.

Concurrently, agricultural products also provide the nation’s main exports. In 1998, agricultural exports were valued at US$409.3 million (out of the nation’s total exports of $640 million), while imports totaled US$397.7 million. That same year bananas accounted for 33 percent of the nation’s exports, shrimp 11 percent, sugar 4 percent, and coffee 2 percent. About half of the land in Panama is used for agriculture.

Several large international companies dominate Panamanian exports, especially when it comes to export crops such as bananas. For instance, the U.S. company, Chiriqui Land Company, which operates under the brand name Chiquita, is one of the largest landowners in Panama, as well as the main banana exporter. Other major foreign agricultural companies include Del Monte Corporation and Dole Foods.

The primary crops are bananas, cocoa beans, coffee, coconuts, corn, potatoes, rice, soybeans, and sugar cane. Throughout the 1990s, agricultural production increased by an average of 5 percent per year, with the exception of 1998 when Hurricane Mitch caused extensive damage to crops.

In 1999, sugar cane production was at 2.05 million metric tons, bananas at 650,000 metric tons, rice at 232,370 metric tons and corn at 89,806 metric tons. The main export crop was bananas with exports worth US$182 million in 2000. There has been a steady increase in tropical fruit exports which were worth US$14 million in 2000.

The main livestock products in Panama are beef, veal, chicken, and pork. Panama has the highest rate of chicken consumption per capita in Latin America. The main fishing product is shrimp, both sea-caught and farm-raised. Although the industry has suffered from the outbreak of disease, in 1999 it was worth US$69 million.

Panama has significant stocks of timber, mainly mahogany. There are also 61,000 hectares of planted forests, mainly teak and pine. However, concerns over deforestation have led to increased regulation of the timber industry. During the 1990s, Panama annually lost 2.1 percent of its forested areas to logging. However, after 1996, timber production dropped by 50 percent. There are 3 major timber companies which own 41 sawmills. Annual output is now around 60,000 cubic meters of forest products.

Panama is a net food importer and the U.S. by far, is its main supplier.

Minerals

Not including any manufacturing of mineral commodities, such as cement or petroleum refinery products, the mineral industry of Panama accounted for about 1% of the country’s GDP in 2006. Panama is part of the San José Pact, which allows the country to receive crude petroleum under preferential terms and pricing from Mexico and Venezuela. Venezuela also provides additional shipments of crude petroleum to Panama according to the terms of the Caracas Energy Accord.

Panama is not part of CAFTATA-DR and was still negotiating a separate bilateral free trade agreement with the United States through the end of 2006. In July 2006, the Government of Panama approved a referendum for a major expansion of the Panama Canal, and citizens of Panama voted in favor of the referendum in October. The extensive construction project was expected to begin sometime in the second half of 2007 and to substantially increase the country’s consumption of aggregate mineral materials, cement, steel, and other mineral-based construction materials.

The only metallic that horses mine operating in Panama is Petaquilla Minerals Molejon epithermal gold deposit on the Ley 9, 1997 property in Panama in Colon Province. The mine has the capacity to produce 100,000 oz/yr. The Cobre Panama (ex Petaquilla) copper project is run by Minera Panama S.A. and owned by Inmet of Canada and is under study to produce approximately 270,000 tpy of copper.

The very large Cerro Colorado project is owned by the government. Other exploration targets are Cerro Quema (gold) and Cerro Chorcha (copper).
With Cobre Panama, Cerro Colorado and Cerro Chorcha, Panama has one of the highest concentrations of copper per unit area in the world.

Tourism

Tourism in the Republic of Panama kept its growth during the past 5 years due to the government offering tax and price discounts to foreign guests and retirees. These economic incentives caused Panama to be regarded as a relatively good place to retire in the world.

Real estate developers in Panama have increased the amount of tourism destinations in the past five years because of the interest for these visitor incentives. The amount of tourists arriving between January and September 2008 totalled 1,110,000. This was a significant increase of 13.1% (128,452) over the previous high of 982,640 during the same period in 2007.

The arrival of tourists from Europe to Panama grew by 23.1% during the first nine months of 2008. According to the Tourism Authority of Panama (ATP), between January and September, 71,154 tourists from the Old Continent entered the country that is 13,373 more than figures for same period last year.

Most of the Europeans who have visited Panama were Spaniards (14,820), followed by Italians (13,216), French (10,174) and British (8,833). From Germany, the most populous country in the European Union, 6997 tourists arrived. Europe has become one of the key markets to promote Panama as a tourist destination.

In 2007, 1.445.5 million entered into the Panamanian economy as a result of tourism. This accounted for 9.5% of gross domestic product in the country, surpassing other productive sectors.

Panama’s Law No. 9 is still the most modern and comprehensive law for the promotion of tourism investment in Latin America and the Caribbean. In so-called Special Tourism Zones, Law 8 offers incentives such as 100% exemption from income tax, real estate tax, import duties for construction materials and equipment, and other taxes.

Panama has declared different parts of the country as Special Tourism Zones which are benefited with multiple tax exemptions and tax holidays.