Colon Free Zone
In addition to being a hotspot for 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.
Nearly 14,000 ships transit the Panama Canal each year with more than 192 million tons of cargo and 700,000 passengers and crew onboard. Because of this traffic and modern port facilities, Panama is expected to become the region’s principal multi-modal logistics center in coming years.
Today, Panama has the largest maritime fleet in the world and its four new container ports represent a total investment of over US$4.5 billion. The ports, combined with the trans-isthmian railroad, are projected to move one million cargo containers in 1999 and three million by 2006.
Currently, the main ports are:
On the Atlantic Coast:
1. Manzanillo International Terminal (Stevedoring Services of America)
2. Colon Container Terminal (Evergreen International Corporation)
3. Colon Port Terminal (Hutchinson Port Holdings)
4. Colon 2000 (Cruise Ship Terminal)
Panama Canal Areas
Doing Business in Panama
Ports & Shipping
Relocate to Panama
On the Pacific side:
1. Panama Port Terminal S.A (Hutchinson Port Holdings)
2. Rodman (Alireza - Mobil) for fuel loading and unloading.
The railroad operated by Kansas City Railroad and Mi-Jack runs parallel to the Panama Canal in a 47 mile distance, and with 143 years of existence, being the first transcontinental railroad. This important transportation means, recently restored and modernized, will provide an efficient inter modal connection for world trade complemented by the present infrastructure, transforming Panama into a multimodal transportation center. Among the railroad services are:
1. Cargo transport
2. Passengers transports
Panama has a highway network of approximately 11,300 Km., in asphalted concrete roads. Among the roads that add importance to Panama and facilitate communication and transportation are:
1. The Panamerican Highway
2. The Northern and Southern Corridor
3. The Madden Colon Freeway
The construction of the highway that connects the cities of Panama and Colon will contribute to complement the intermodal logistic cluster, the services provided by the Panama Canal and the Inter Oceanic Railroad are added to this infrastructure, considering the transport of cargo they may effect, plus the services provided by the Tocumen International Airport, the airport located in the former Howard Base and the Enrique A. Jiménez Airport in Colon, Panama has the necessary and available infrastructure for the development of a multimodal logistics center of world scope.
Panama has 27 public and 41 private airports. From these public airports, 5 are full fledged airports, meaning that they have immigration and customs services.
Our main international airport is Tocumen, located a 15 minutes from Panama City, and may be easily accessed by a modem highway (Southern Corridor). The second most important airport is Marcos A. Gelabert, located as well in the capital city, providing services to national and international flights.
It is worth mentioning that the transformation of Enrique A. Jiménez Airport, located near Colons Free Zone, into an airport for cargo and passengers is one of the projected goals set by the Logistics & Multimodal Center Project, that is being currently developed in this important Atlantic area.
The Panama Canal
Since the discovery of the Pacific coast of Panama, visionaries dreamed of one day creating a great passageway from the Atlantic to the Pacific, thus avoiding the 12,000-mile journey around the tip of South America. That day finally came in August of 1914, after decades of planning and excavation. Although only 40 miles from shoreline to shoreline, the ingenuity and tenacity of the canal's creators are evident with each and every movement of this magnificent lake-and-lock-type canal. It's bound to be a voyage you will never forget.
The Panama Canal extends approximately 80 km. (50 miles) from Panama City on the Pacific Ocean to Colon on the Caribbean Sea. It is widely considered to be one of the world's great engineering achievements. The United States is the largest user of the Canal in terms of cargo tonnage, as either port of origin or destination, although Asian countries are beginning to close the gap. About 12% of U.S. sea-borne international trade, in terms of tonnage, passes through the Canal annually. Ships bound for Japan from the East Coast of the United States save about 3,000 miles by going through the Canal; ships sailing from Ecuador to Europe save about 5,000 miles.
Around 13,000 ships transit the Canal each year, hauling an estimated four- percent of the world's goods around the globe. About 70 percent of all trade through the Canal are coming from or heading to the U.S. Traffic is projected to increase two percent per year.
Fifty (50) million gallons of fresh water are needed to float one ship through the Canal and all of it is supplied free of charge by forests on the surrounding hillsides, which capture the abundant tropical rains and feed the Canal with rivers.
The Panama Canal Authority has implemented a $1 billion improvement program to maintain the Canal and keep it competitive. The program includes the widening of the narrow Gaillard Cut allowing two-way traffic for even the largest ships and increasing Canal capacity.
In 1903, the Republic of Panama and the United States signed the original Panama Canal Treaty, which allowed the United States to build and operate a canal connecting the Pacific Ocean with the Caribbean Sea through the Isthmus of Panama. The Treaty granted the United States the use, occupation, and control of a Canal Zone, approximately 10 miles wide, in which the United States possessed full sovereign rights. In return, the United States guaranteed the independence of Panama and paid the government of Panama $10 million, as well as an annuity of $250,000, which each year increased at a rate far beyond that of inflation.
On September 7, 1977, a new Panama Canal Treaty was signed by President Torrijos of Panama and President Carter of the United States that transferred full control of the Canal to Panama on December 31, 1999. Under this Treaty, the Panama Canal Company, the Canal Zone, and its government were disenfranchised on October 1, 1979, and replaced by the Panama Canal Commission that operated the Canal during the 20-year transition period that began with the Treaty. The Panama Canal Commission has now been replaced by a new Panamanian entity, the Panama Canal Authority. The treaty guarantees permanent neutrality of the Canal. Control over U.S. military facilities in the former Panama Canal Zone has reverted to Panamanian authority. The U.S. Southern Command and U.S. Army South troops moved out of Panama at the end of 1999.
Panama Canal Developments
The Canal itself is undergoing a modernization and maintenance program of up to $1 billion, which includes finishing of the widening of Gaillard Cut as well as improvement of the locomotives (mulas) used to guide the ships through the locks, the docks, the tugs and all the machinery of the Canal operation. In addition, the Panama Canal Authority has announced preparations for constructing a third set of locks. A multi-phase program includes building additional water reservoirs to increase water availability both for the Canal and the terminal cities; dredging the entrances to the Canal to allow the entrance of larger ships to the ports; similarly deepening Gaillard Cut and Gatun Lake; building the new locks and constructing two bridges over the next ten years.
Ports and Railroad
Additionally, Panama's ports are expanding their container transshipment capacity. Manzanillo International Terminal completed a $100 million expansion program, the port of Balboa is finishing a $130 million expansion program, and another $200 million phase three program. The Evergreen port at Colon will enter a second phase of expansion and a new port at Farfan, on the Pacific side, will be defined.
All this activity will allow Panama to transship over 2.8 million containers per year around year 2005 and continue growing over the years making Panama the No.1 container transshipment center in Latin America.
Together with the ports, the restored railroad by Kansas City Southern Railways already operational connect the ports creating a land bridge to complement the Canal.
This port and railroad activity will require additional services from the local economy such as financing, insurance, specialized maintenance and repair, electricity and water, telecommunications, trained manpower and other services, and it will create new business opportunities for logistics and cargo industries.
Some of the multi-million dollar investment opportunities include:
The development of major intermodal transportation and logistics centers at Colon and at the Howard/Farfan complex on the Pacific, including the construction of a new container port at Farfan.
Ship owners services, servicing of vessels, ship repair and maintenance, container repair, intermodal cargo services.
The future construction of the third set of locks, which will include the necessity for additional water resources, expanded hydroelectric power generation, the expansion of the entrances to the Canal and the deepening of Gatun Lake and Culebra Cut.
Contracts related to the Panama Canal operation (provisions, equipment, material, construction, consulting etc.) that reached $135 million in 2001, not including purchases of $22 million.
Provision of concessionary services to the ports (power, water, fuel, material, food, banking services, telecommunications, maintenance and repair, dredging) estimated at between $47 and $60 million annually).
Services to passengers and crewmembers transiting the Canal, which in 2000 numbered 255,571 and 458,134 respectively.
Services to smaller ships, such as yachts and motor cruisers, which totaled 1,748 in 2001.
The relocation of approximately 8 to 10 thousand persons, as a result of Canal expansion, requiring housing and infrastructure.
Cruise ship reception and tourism.
In terms of related air transport opportunities, Tocumen International Airport should be developed as an international and regional hub for both passenger traffic and cargo; the former Howard airforce base should become an aviation industrial center, making use of its modern airport facilities; and construction of the cargo airport at France Field in the Atlantic must be completed.
Howard/Farfan Multimodal Project
The studies made for the development of this sector clearly indicate that their location at the entrance and west shore of the Panama Canal is ideal for the establishment of a multimodal center for industry and the commerce. The existing airport infrastructure, and advance telecommunications facilities and the integration of the just in time manufacture with the multimodal transport will provide fast and flexible connections between users, suppliers and clients.
These areas and facilities that reverted to Panama at the end of 1999 have a total area of 2,628 hectares, and are one of the most important sites based on the opportunities for the development in the shores of the Canal in the Pacific.
A New Opportunity: Container Port in Farfan
Located at the Panama Canal’s entrance, near to the bridge of the Americas, the 253 hectares of Farfan are part of the former air base of Howard, the biggest military airport that the EE.UU Armed Forces had outside of the United States.
The Japanese government through its Agency for the Development (JICA), prepared a feasibility study that reveals that after occurring the maximum development of the Balboa port and after its modernization, Farfan can become the second great port of containers in the Pacific.
This port will be part of the multimodal center of transport that Panama promotes. With a view to integrate itself more indeed to the system of international transport its proximity to the port of Balboa and the airport of Howard makes this site especially attractive for the predicted development.
Business Opportunities of the Howard Project
Center of repair and maintenance of airplanes and helicopters.
Development of a harbor complex in Farfan.
Logistic center of manufacturing and distribution.
Industrial parks and processing zones for export.
Development of residential areas.
Establishment of educative and institutional centers.
Recreational parks, of sports and tourist and recreational activities.
Howard/Farfan has an estimated value of US$1 billion that will require participation from major developers or consortiums.
The Panama Canal plays a significant role in the country's economy and has contributed an average of six percent of Panama's GDP since the 1980s.
REASONS TO CONSIDER THE COLON FREE ZONE
The Colon Free Zone offer key advantages for the international firms that wish to improve their presence in the Latin American markets, the most significant of these advantages being:
GEOGRAPHlCAL POSITION. The location of Panamá is ideal to forward goods to the Central American, Caribbean , and South American regions.
CONSOLIDATION / DECONSOLIDATION OF PRODUCT LINES. The establishment of a warehouse in the Colon Free Zone allows reception of goods from various sources and to fill orders of the buyers from one single point and under one invoice.
TRANSPORTATION CONNECTIONS. The presence of three main ports at both ends of the Panamá Canal, a modem airport, and surface transportation to Central America - all with excellent frequencies and international connections - allow orders to be shipped quickly to their destination.
EXPRESS IMPORT AND EXPORT PROCEDURES. The documentation required for the entry and exit of goods is simple and expeditious. Merchandise that transits through the Colon Free Zone are not subject to import or export taxes.
PROVEN EXPERIENCE. Branches of multinational firms as well as local companies that provide the warehousing and forwarding services on behalf of foreign corporations operate in this zone as early as the late 1950's.
CAPITAL FLOW. The movements of funds in and out of Panamá are not restricted, and it occurs mainly in United States dollars, currency of legal exchange in the Republic of Panamá.
FISCAL INCENTIVES. The net earnings on the reexport operations are exempt from income tax, as well as the dividends declared on such earnings.
Other free zones can offer some advantages that may be superior to the ones mentioned; however, none offers the breadth of incentives offered by the Colon Free Zone. Since its inception in 1948, this Free Zone has become the first free trade area in the western world and the second worldwide. Proof of this is the 6 billion dollars exported from this zone in 2002.