Panama’s Newest Tourism Incentives to Boost Local Economies
GUEST GRI WRITER:
Investment Banking Director
Panama is sending a strong message to both national and international developers and investors with the announcement of new tourism incentives. These incentives, according to experts, show great potential in welcoming private investment in local tourism and infrastructure development.
Having a dollarized economy, a logistics network with global maritime and air connectivity, a first-class communications and financial services platform along with an investment grade country rating, Panama has experienced enviable growth levels so far this century.
This growth has brought with it significant investments in infrastructure, both public and private, largely aimed at accommodating the accelerated growth of Panama’s urban areas. As a consequence, the supply of hotels and restaurants in Panama City has increased, yet this sector represented only 4% of the GDP in 2019 with hotel occupancy below 50%. It is estimated that tourism in general represented 14% of the GDP in 2019, a year in which more than 16 million people passed through the Tocumen Airport, but only 3 million actually entered the country.
Panama’s Strategy to Attract Tourism and Real Estate Investment
To boost tourism, the strategy is to first develop areas surrounding Panama City that have untapped resources that can compete with other world class destinations. The government has created incentives for investors such as tax credits equivalent to 100% of the sums invested, which must be made through bonds, shares or other financial instruments issued by tourism companies or real estate investment companies that have this purpose and meet the requirements established by law. The tax credits are completely independent from the securities that originated them and may be assigned or sold to third parties.
What are the advantages of these incentives?
The first advantage is that by using or transferring the tax credits to third parties, the risk of loss of the investor's capital is significantly reduced. The potential ROI may also increase, as the investors could receive their capital sooner than expected.
Another advantage is that incentives such as these alleviate the uncertainty of investing in projects before having tourists or waiting to have tourists to build, since by reducing investment risk through the granting of tax credits, investors would have an additional window of time to see their investments stabilize without affecting their return on capital.
Last but not least, it is widely studied and demonstrated that if responsibly planned and executed, tourism has the potential to generate socially inclusive development in the impact areas, protecting the environmental resources that provide the basis for these types of tourist attractions.
In conclusion, the recent regulation of these incentives for the development of tourism in Panama opens a window of opportunity for new infrastructure projects that may not have been executed before because the financial risk of the investment did not merit the expected profitability. In the future, we expect to see an imminent revival in the development of projects outside Panama City, which in turn would generate a positive and sustainable impact on the development of these communities along with the responsible use of environmental resources, thus helping to diversify the country's economy.
This is a guest article written by GRI Club member Roger Kinkead, Director of Investment Banking at MMG Bank. Any views or opinions expressed belong solely to the original author of the article and do not necessarily represent the views and opinions of the GRI Club.