When we talk about Panama, the first thing that comes to mind is the Panama Canal, the famous maritime crossing channel that connects the Atlantic and Pacific oceans, greatly accelerating world trade for more than 100 years.

Over time, Panama became more than a point of passage, evolving into a center of attraction for investments and businesses due to its legislative innovations to attract capital from all over the world, and the easy and very rapid opening process for off-shore companies (which was abused by various companies and individuals worldwide and which led to a global fiscal and media scandal, but which has since been alleviated thanks to the prompt action of the Panamanian authorities). Panama is still a great country to businesses to invest in with many benefits, particularly for those involved with buying and selling goods.

One of the reasons for this is that in the middle of the last century, Panama sought to take greater advantage of the fact that many ships passed through their country with goods and consequently created the Colon Free Zone.

What is the Colon Free Zone, and how does it help businesses?

The Colon Free Zone (Zolicol or ZLC) is a first-generation free zone located within the city of Colon, Panama, on the Atlantic entrance to the Canal. It is located in the southeastern corner of the City of Colon, occupying 2.4 square kilometers, and it is the largest free port area in ​​the Americas and the second largest in the world, after Hong Kong. It generates an annual volume of close to $20 billion dollars per year in imports and re-exports.

The Colon Free Zone allows companies to save money by avoiding many tax obligations (in Panama) related to their commercial activity while operating within this customs area. There are several available tax benefits offered by the Colon Free Zone:

• There is a tax exemption on imported products for re-export
• No import or export fees or quotas are paid
• No taxes are paid for services that have effects abroad
• Taxes are not paid for the profits obtained in operations abroad. The municipal taxes are not applicable to the companies that operate in the Free Zone
• There are no taxes on capital investments
• Low costs in the rental of land and buildings
• Only 5% tax on dividends

Within the zone, companies can enter, store, display, condition, pack, unpack, split shipments, reload, assemble, group, label, mix, conserve and generally perform all activities related to the operation and handling of all kinds of goods, products, packaging and other commercial effects for import, export and re-export.

The zone includes a collection of services and import centers, storage space, packaging and re-export opportunities for products from all parts of the world, in a diverse set of industries ranging from special electrical products to pharmaceuticals or liquors, among others.

Imports mainly come from China, Singapore and the United States, and goods are then most commonly exported throughout South America, Central America and the Caribbean.

How is the Colon Free Zone organized?

The Colon Free Zone is composed of 9 segregated areas. The most well known is the Casco Viejo, where the majority of company showcases and showrooms are concentrated. The second best known is the France Field area, where the merchandise storage center operates due to its proximity to the Manzanillo International Terminal and Colon Container Terminal ports.

The other 7 segregated areas of the free zone are Coco Solo, Coco Solito, December 20, Logistics Park, Enrique Jiménez Airport, Margarita Island and Davis, where companies like HP, Huawei, Koyo, Sanyo and Sony operate multinational distribution centers.

The transportation of goods in the Colon Free Zone operates through a multimodal transport system called the Multimodal Logistics Platform of World Trade. The system integrates the seaports at Manzanillo International Terminal, Colon Container Terminal, and Puerto de Cristobal; the Panama Railroad; the Enrique Adolfo Jiménez Airport and the Panama-Colón Highway. This free zone is visited by some 150,000 tourists a year from all parts of the world, particularly from the Caribbean, Central and South America, and the U.S.

How to operate from the Colon Free Zone

There are three ways to operate from the Colon Free Zone.

1. Leasing available land within the free zone and building a building. This lease can be signed for 20 years with the option to be renewed.
2. Another way is by renting a space destined for that purpose within the Colon Free Zone itself. This lease is monthly and is paid according to the size of the space in square meters, as well as the duration of the contract.
3. Lastly, you can opt for public storage. This is most common when the expected volume of business is not high enough to justify the rental of a space or the construction of a building. In this case a storage company can provide all the required services.

The payment of these services is usually done on a monthly basis, depending on the volume of merchandise stored. For this, previously the person or society must register with the authorities of the Free Zone.

Opportunities abound for businesses in Canada and worldwide

With all of these available benefits, it could be very interesting for some companies in Canada to establish immediate distribution operations of their products for Latin America. By doing so, they could continue taking advantage of the commercial treaties that are in force between Canada and other Latin American countries, reduce the transit time of goods, and offer more agile transactions for Canadian sellers and Latin American buyers. Companies can also hire local staff to improve customer service in their own language. It will be very advantageous for Canadian businesspersons to expand their vision to be more creative with the multiple tools that exist in the zone.

The African continent has taken a major step towards advancing the free exchange of goods and services under rules that facilitate interaction between the parties. This should foster prosperity and development directly for the parties involved, and even for third parties indirectly, as all this is the result of the profits generated by these transactions.

May 30, 2019 was the launch of the major agreement of Africa Continental Free Trade Area (AFCTA). 52 countries signed the agreement, and are currently ratifying their adherence to it. This means that the weaker economies of the continent can do more business with their African neighbours, and increasingly compete with countries that are already major players in the global economy.

Africa has a very great potential for the production of goods, especially perishable goods and diverse manufactures, because they have an impressive diversity of natural resources; the continent’s other great resource is its people.

The potential to generate significant economic activity

According to the last article published by the World Economic Forum, this agreement will allow the area to generate about $4 trillion USD for investments and commercial transactions of goods and services. This already makes this market more appetizing, for large, medium, small and micro entrepreneurs. The latter are those that can benefit the most, by the removal of the tariff and non-tariff barriers to intra-regional trade, which would now be better called intra-continental. The harmonization of tariff rates is important, since a Free Trade Agreement between two or three countries is not the same as one with 52, and each with different visions and interests.

This is where the political will must assert itself and leave behind the particular interests of rulers who dictatorially determined the commercial, financial and social policy of their respective countries. Their actions unleashed many socio-political problems that always maintained an image of instability and high risk regarding doing business in Africa.

Times have changed in Africa

Now times have changed. There are more democratic governments, and there is more investment and development. True, that has not always been exponential, but has been well directed and has stimulated emerging economies with good attractions such as South Africa (host of a World Cup of Soccer, and being the first African country to participate). Kenya follows, impelling the formalization of its micro and small entrepreneurs, You can also include Equatorial Guinea in the scenario, the hidden oil reserve of Spain and perhaps a good part of Europe.

All this indicates that the horizon looks very promising. There will be growth platforms for the local businessmen of each of the signatory countries, and with that, real wealth increasing through the free exchange of goods and services and investments. However, there are also great challenges to make order and harmony prevail.

Challenges remain

Among these challenges are establishing the minimum and necessary legal frameworks so that resolutions of conflicts and disputes can be carried out efficiently.

Another significant challenge for all governments will be to modernize and improve the road infrastructure of all the countries involved. When talking about road infrastructure, I refer to all forms of transport that are part of the channels of supply chains used in commerce. The network of roads and highways are best to start with, as this should dramatically reduce the transit times of heavy transport and people throughout the treaty regions.

It will be important to accentuate the efficiency of infrastructure and customs personnel within borders, so that there is free transit of merchandise according to the bases of the treaty, combined with the internal laws of the country where it is only transited or is the end point of destination of the goods or people. More investment should also be made in the rail network, as well as in ports and airports.

These last three types of road infrastructures are critical for commercial development, since supply chains that have efficient multi-modal forms bring reduced costs, increasing the competitiveness of all the countries involved in this agreement.

E-commerce is also an important part of the future of this vision, which will be supported by clear rules, together with a modern regulatory framework. It could create the conditions to generate the sale of millions of products, following the major global trends of retail and business to business (B2B).

Another critical and major challenge is financial control, due to the high flow of transactions that will result from the opening of investment markets and the exchange of goods and services, as well as the mobility of people.

This control should be aimed at monitoring monetary flows and their origins. The scourge of money laundering is a global problem, and is also an issue within Africa. It may not be easy to apply more efficient controls and policies adapted to the reality of the way in which criminal structures operate. However, the support of countries with more development in establishing and enforcing financial controls could help Africa, supporting economic growth through trade and investment, and bringing development and prosperity for its inhabitants.

Beyond just sending humanitarian aid (which has been vital in most cases), it is extremely important to support the African continent so that they can make full use of their potential and thereby also enter more markets globally. Being more efficient as a block will also bring improvements at the individual level of each country, since together they can improve their negotiations with other large economies, which otherwise would be impossible.

This treaty is the best example of what looks to be a trend in world trade: an economy of blocks. I firmly believe that Africa is reinventing itself.  We can already see a new Africa, open and determined to compete strongly in the global conglomerate.