Panama country brief

Overview

Australia and Panama enjoy warm and expanding relations, based on trade, investment and cooperation on a range of international issues, including the environment, agricultural development, climate change, transnational crime and disarmament.

The two countries established diplomatic relations in 1974, when Australia’s first Ambassador to Panama, Owen Davis, presented credentials. The Australian Embassy in Mexico City, is accredited concurrently to Panama. Australia has an Honorary Consul in Panama and Panama has a Consulate-General, headed by an Honorary Consul, in Sydney.

Panama is situated in the southern end of the Central American isthmus, with Caribbean and Pacific coastlines. It shares borders with Colombia and Costa Rica. Panama is a tropical country, with a prolonged rainy season (May to January) and a short dry season (January to May).

Panama’s population is approximately 3.7 million (2016 est), comprising a variety of ethnic groups. Roman Catholicism is the main religion with around 85 per cent of the population identifying as Catholic. Spanish is the official language of Panama.

Political overview

Explored and settled by the Spanish in the 16th century, Panama broke with Spain in 1821 and joined a union of Colombia, Ecuador, and Venezuela to form the short-lived Republic of Gran Colombia, which dissolved in 1830. Thereafter, Panama remained part of Colombia until seceding in 1903 with United States backing. The new state promptly signed a treaty with the United States allowing for the construction of a canal and accepting United States sovereignty over a strip of land on either side of the structure (the Panama Canal Zone).

Panama’s fortunes have been tied to the Panama Canal since it was completed in 1914.

The Panama Canal was built by the US Army Corps of Engineers between 1904 and 1914. In 1977, an agreement was signed for the complete transfer of control of the Canal from the United States to Panama by the end of the century.

The entire Panama Canal, the area supporting the Canal, and remaining US military bases were transferred to Panama by the end of 1999.

An ambitious expansion project to more than double the Canal's capacity - by allowing for more Canal transits and larger ships - was carried out between 2007 and 2016.

System of government

Panama has a democratically elected representative government with a strong executive. The President, who is the head of state and government, is elected for a five-year term. Consecutive re-election is currently not permitted. The 71 member unicameral National Assembly is elected for a five-year term.

Recent developments

President Juan Carlos Varela was elected on an anti-corruption platform and faces pressure to improve transparency after the leak of the Panama Papers. He currently has the support of 49 of the 71 members of congress even though his own party only has twelve seats. His economic strategy is focused on strengthening Panama’s role as a global transport and logistics hub.

Foreign and trade policy

Panama is a member of the Organisation of American States, the Community of Latin American and Caribbean States (CELAC) and the Central American Integration System (SICA). It is an observer of the Pacific Alliance and has FTAs in force or under negotiation with all Alliance members. Panama remains interested in becoming a Pacific Alliance member or associate member.

On 19 June, President Varla became the fourth Latin American President to meet US President Donald Trump. Panama has a dollarized economy and the United States is its largest trade and investment partner. Around half of the trade flowing through the Panama Canal originates or terminates in US ports.

In 2017, Panama switched diplomatic recognition to Beijing from Taipei, the second country in Central America to do so after Costa Rica. While discussing the decision, President Varela said that China was the second most important user of the (Panama) Canal and the largest provider of merchandise in the Colon Free Trade Zone.

Panama, collectively with Central America and the Dominican Republic, has FTAs with the United States (since 2009) and the European Union (since 2012).

Bilateral relations

Australia and Panama both participate in the Forum for East Asia-Latin America Cooperation (FEALAC) and the WTO Trade in Services Agreement negotiations. Australia is an observer of CELAC and SICA.

In 2001, the Australian Government established the Council on Australia-Latin America Relations (COALAR) which aims to enhance commercial, political and cultural relations between Australia and Latin America. Since its inception, COALAR has been active in promoting business, education, tourism and cultural links between Australia and Latin America. For updates on COALAR activities and information on the annual grants program, follow COALAR on Facebook.

People to people links

Panamanians are eligible to apply for Australia’s Endeavour Awards Scholarships and Fellowships. The program opens annually in April and closes in June.

Development assistance

Since 2010, Panama has been eligible to receive Australia Award Fellowships but none have been granted to date.

From 2010 to 2014, Australia provided $100 million in official development assistance to Latin America, including 250 Australia Awards scholarships. Panama received seven Australia Awards Scholarships. The regional program has now closed, though some activities that have already been funded will continue until 2018.

The Australian Embassy in Mexico City manages a Direct Aid Program (DAP), which provides financial support to a broad range of projects in Panama, including community development projects and those designed to address challenges in vulnerable communities. In 2016-17, two Direct Aid Projects were funded: the Women’s Institute on Leadership and Disability (WILD) hosted by Mobility International USA (MIUSA) and ‘To Empower Children for them to be better citizens’, managed by Asociación Deportes para Compartir Guatemala.

Economic overview

For latest economic data refer to Panama fact sheet [PDF 27 KB].

Economic directions

Panama’s economy has been one of the fastest growing globally in the last decade averaging growth rates of between 5 and 12 per cent for the last decade.

Panama is a regional shipping. logistics and corporate-administration hub. Some 134 multinational firms operate under a 2007 program known as “Licences for Multinational Business Headquarters (SEM)”. Together, these firms represent US$800 million in investment and employ 500 people.

Economic outlook

In 2016, Panama’s economy grew 5.2 per cent, down from 11.8 per cent in 2011. Poverty has fallen across Panama, but at an unequal pace.

Growth is expected to be driven by construction and inflation is expected to increase to 2.2 per cent annually as oil prices recover.

Trade and investment

Economic and trade relationship

Six Australian companies operate in Panama including First Quantum Minerals and Orica. In 2016, two-way trade was around $87 million.

Export opportunities

Despite the modest nature of two-way trade, Australian companies are taking advantage of niche opportunities to provide professional services throughout the region. The Australian Government, through our post in Mexico City and our Austrade representation there, helps raise the profile of Australian companies and ensures that Australian businesses and exporters are well positioned to make the most of emerging opportunities. Australia’s Honorary Consul also assists the Australian Embassy in Mexico to identify commercial opportunities in the region.

Education

There is scope to promote the Australian education system as an attractive option for tertiary students and students wanting to study English. Panama faces a shortage of skilled labour, with potential opportunities for the provision of vocational training.

Mining and resources

Perth-based First Quantum Minerals is developing a $5 billion copper mine in Colon Province, Panama, the world’s largest greenfield mining project and second largest project in Panama after the canal. Orica (explosives) is also active in Panama.

Information technology and communications

Australian ICT company Opmantek has opened an office in Panama.

Infrastructure development

Infrastructure renewal in Panama may provide opportunities for Australian involvement. Projects include airport terminal expansions, new highways including toll roads, port infrastructure, canal development and public transport.

Clean energy and environment

Panama operates the region’s largest windfarm, which supplies around seven per cent of the country’s electricity requirements. It is also developing potable water and wastewater treatment plants. Opportunities in this sector are likely to continue to grow.

Health

Austrade has assisted Australian businesses such as Cochlear in Panama to position the company as a preferred supplier of hearing implants.

High level visits

  • June 2017: Minister for Foreign Affairs, the Hon Julie Bishop MP, visited Panama.
  • May 2017: Australia’s Special Evoy for Human Rights, the Hon Philip Ruddock MP, visited Panama.
  • July 2013: Then Prime Minister Kevin Rudd visited Panama.

Last updated July 2017.

Last Updated: 31 July 2017