In addition to being a hotspot for real estate investment, Panama is also home to the largest free zone in the Americas, the Zona Libre de Colon – or Colon Free Zone.
Much like the duty-free shops of international airports, the Colon Free Zone (CFZ) receives and re-exports goods from all over the world, without customs duties imposed on goods that do not remain in Panama. Because of its location at the mouth of the Panama Canal, goods can be easily shipped via any of the five nearby ports, overland within Central America, or flown to destinations further afield.
The 800-acre commercial zone is situated on the Atlantic end of the Panama Canal, near the port area. Divided into two areas, it houses some 2000 merchants from around the world, and employs more than 15,000 people.
Many of the wares on offer are of the kind seen in airport duty-free shops — clothing, electronics, perfumes, jewelry, cosmetics, liquor and cigarettes — but just about anything can be found by the determined shopper willing to sift through the hundreds of storefronts, big and small. Nearly a third of the more than 75 banks international banks operating in Panama have branches within the CFZ, making it a truly self-contained commercial area.
About a quarter of a million people visit the CFZ each year, making it Panama’s largest attraction after the Canal itself. The zone is largely pedestrian, and while there are no restaurants, food can be purchased from street vendors. Merchants line up along streets and avenues, with wares grouped in clusters, and visitors can spend all day wandering from store to store, many of which have elaborate storefronts much like their retail counterparts.
But unlike the retail industry, purchased goods don’t leave the CFZ with the shopper. Instead they are shipped, either by land, air or water to their final destination. Visitors to Panama can have their purchases delivered to the Tocumen Airport to accompany them on their outbound flight.
While individual purchases are possible, much of the business done within the CFZ is in bulk, and in some cases, the goods are shipped directly from the issuing country to the destination, without actually passing through Panama. Many of the ships passing through the Canal will pick up supplies within the CFZ as they continue their transnational shipments.
Panama’s strategic location makes it an ideal import-export hub for the Americas. The vast majority of products (about 70 per cent) in the CFZ come from suppliers in Asia, including Hong Kong, Korea and China. From there, Latin America is the primary receiver of goods, headed by Colombia, Venezuela, and Panama itself.
After Hong Kong’s free trade zone, the CFZ does the liveliest duty-free business on the planet, conducting a staggering $16 billion in business last year according to an analysis by Deloitted Touche Tohmatsu. This accounts for an estimated 15% of Panama’s GDP, making it one of the pillars of the country’s economy, and allowing it to weather fluctuations in other sectors.
In fact, the CFZ, along with other service-sector industries such as real estate, tourism, hospitality and restaurants, make up a full two-thirds of Panama’s economy, and a growing economy at that. Analysts estimate Panama’s economy will grow up to 9 per cent this year, thanks to the Canal and robust service and financial sectors.
Activity in the Colon Free Trade Zone has increased on average more than 3 per cent annually in the last two decades, according to a 2007 report by the government of Panama to the World Trade Organization. This year, the growth is expected to reach 11%. While down from the last few years’ staggering growth rate of 20% annually, global financial uncertainty and rising fuel prices are largely responsible for offsetting the CFZ’s thriving trade.
The CFZ was contemplated almost as soon as the Canal opened for shipping in 1914, but it was not to come into existence until 1948. The original grounds were far more modest than today’s, about a hundred hectares surrounded by security walls. In its 60 years of existence, the zone has expanded its borders right to the city of Colon and the surrounding sea.
The Panamanian government set up the Colón Free Zone as an autonomous institution, and today it is overseen by the Free Zone Administration, which handles the infrastructure, marketing, and rentals; overseeing the movement of goods; and ensures measures are in place to prevent money laundering and brand name piracy. Companies operating within the CFZ are represented by the User’s Association, who safeguard their interests and publish a directory of companies on their website.
Panama has streamlined the process of setting up shop within the CFZ, allowing for the very rapid turn-over of goods. There are also a number of incentives in place for merchants who wish to operate within the zone; in addition to the customs and excise tax exemptions for goods that do not remain in Panama, merchants do not have to pay any tax on income from exports. There are also tax credits and immigration incentives in place for employees.
Those wishing to do business in the CFZ can lease lots to build their own facilities (leases run to 20 years), buy an existing building, be represented by a company already operating within the CFZ, or lease space in a public warehouse. Prices vary according to the weight and volume of goods stored. Merchants can also opt sell to clients within Panama, re-export their own goods, or trade goods between one another, without hindrance or licensing requirements.
Authorities are planning an expansion of the CFZ in the coming years, extending the zone to 1200 hectares, and integrating the railroad terminal, ports, airport and a new road system. With this they hope to improve the speed and efficiency of the movement of goods between modes of transport, and increase the attractiveness of the CFZ to companies worldwide.