While the Panamanian government may spout propaganda about how easy it is to do business in Panama, the incentives, the tax breaks….blah, blah…those of us who actually DO business here know just how challenging it can be. Here’s my simplified list of the roadblocks, headaches and daily frustrations involved with doing biz in Panama.

1. Immigration — Trying to bring in an outside manager to Panama? Good luck! For a nation as multi-cultural as Panama, the laws make it pretty clear that foreigners are not welcome to work here without a ton of paperwork and a quota system of 9 locals for every one foreign hire. For my specific business that involves tourism and real estate, the recent xenophobia that has the immigration police running all over town asking tourists to present their visas seems more than a tad counter-intuitive. Who cares if backpackers, vacationers or the dreaded “residential tourists” want to stay here 50 days instead of 30? The jury is still not out as to whether immigration officials will return the tourist visa (for Americans only) from 30 days to the standard 90. Go figure…

2. Taxes — Panama a tax haven? Not if you DO business or earn money here. Personal income tax is on a scale from 16.5 to 27% of income and corporate is 1.4% of gross income and a sliding scale from 10 to 30% of net income. Capital gains tax on real estate transactions is 10% for individuals and 30% for corporations regularly engaging in real estate deals. Not exactly a low tax nation, although recent inflation worries do have local officials considering lowering some taxes and tariffs.

3. Marxist Labor Laws — I thought Costa Rica was pretty left-leaning with its labor laws, but unlike Panama, it often skirts them to remain competitive in cutthroat, 24/7 industries like tourism. Panamanian employees are well-versed in their rights and have many employers hog tied when it comes to firings, overtime and holiday hours. The number of required paid holidays (30) is staggering, with far too many of them occurring during tourism peak season. From November to March, there are a whopping 12 required holidays, including four different “independence days” in November alone. If you count in the hangovers, long weekends and general malaise employees have before and after big events like Xmas, New Years and Carnavales, not much gets done during what should be Panama’s busiest season.

4. Local Talent – With a GDP growth that’s off the charts for three years running, the local labor pool simply cannot keep pace. The gross lack of foreign language skills and service training in the services sector is mind-boggling and the immigration, labor and protectionism laws (see below) are only exacerbating the issue. This lack of talent supply is driving up labor costs, making it more difficult for would-be employers to enter the market.

5. Protectionism — There are a ton of situations wher a business is required to have a Panamanian board member, a Panamanian director, a Panamanian with a B.S. degree in BS, and so forth. Sometimes the rules are simply silly and reek of antiquated German-style syndicate laws that are stifling to even the most robust economies. When Panama is not currently equipped locally to handle the growth at hand, it seems extremely short-sighted to “protect” its local captains of industry from outside talent that may actually have the capacity, experience and skills to DRAW more business TO the country.

Hey, I’m not here to tell Panama how to do business. They run their country the way they want and that’s their right. I’m just an outsider here investing and serving at the pleasure of a local government that has been kind enough to have me. Maybe they’ve got it all figured out, taking off more time than we “gringos locos” and treating employees less like tie-wearing cattle. But if Panama has any hope of sustaining year over year growth at anywhere near the current pace, I think a little wiggle room on some of the points above will be needed.

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Filed under: Business on March 18th, 2008