How Will Brexit Impact Panama?

England’s shocking decision to withdraw from the European Union is sending shockwaves through markets around the world. After a steep drop in the first few days, stocks have …

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England’s shocking decision to withdraw from the European Union is sending shockwaves through markets around the world. After a steep drop in the first few days, stocks have stabilized, but analysts around the world are scrambling to discern the short and long term impact of the vote.

Central America seems far away from the soap opera of Europe, but it is directly linked through a wide array of businesses. But England is a relatively small trade partner for the region. If Britain’s economy struggles and it stops buying goods, the most likely country affected would be Colombia, the largest regional exporter to Britain. But England only accounts for 2.5 percent of Colombia’s exports, Estrella de Panama reports. The U.K. accounts for only 1.7 percent of Brazil’s exports and 1 percent for Mexico.

Forecasting the impact on Panama is more complex. U.K. companies are large investors in this country, including London and Regional Properties, which is developing Panama Pacifico, the 3,450-acre mixed use project on the west side of the Panama Canal. With the British pound sliding, U.K. investors are losing a large chunk of their buying power.

But the U.K. and Panama have a special relationship. In 2013, a treaty was signed eliminating the potential of double taxation on profits, making Panama an ideal trading partner for U.K. companies. That’s not going to change due to Brexit.

In terms of property, British buyers play only a small role in the Panama City market. There are certainly many U.K. citizens living and working here, but they are usually here as representatives of their companies, which see Panama as the regional hub for business. And that’s also unlikely to change.

There may be an upside, as well. The Brexit exit might push investors to seek out financial safe havens not tied to the EU, which makes Panama appealing. With a stable real estate market and continued economic growth, Panama’s strong ties to North America will make it a likely alternative for outflow from Europe. At the same time, investors who were targeting Europe may now look elsewhere.

A recent article in the Miami Herald notes that the countries facing the most exposure to Brexit are those that depend on revenue from raw commodities. In Chile, for example, commodities make up 88 percent of the country’s export income; in Argentina it is 69 percent and in Brazil commodities are 67 percent of the export revenue.

Copper and other commodities are playing a larger role in Panama’s economy, but it is a small fraction of the country’s business, compared to other countries. While turmoil in Europe may impact growth, Panama is relatively insulated by its role in overall trade, across many sectors. In the short term, any drop in exports-imports from Europe or the U.K. would dent Panama’s economy, but hardly slow the country organic growth, which is expected to reach 6 percent in 2016.

The effect of Brexit on commercial and business activities won’t be very deep, Jeffrey Mountevans, Lord Mayor of London, recently told Costa Rica’s La Republica, when asked about the impact of Brexit on the region.  “It’s not like we are taking a nosedive, financial markets are already recovering, we are beginning to have more confidence from that perspective,” he said. “Change is always something that raises doubts, awakens fear, but we will continue working to strengthen our relationships.”

Gauging the long term impact is more complicated, and more in the territory of looking into a crystal ball. The British vote was only advisory. Government leaders have indicated they will honor the vote, and there has been no traction for a call for a new referendum. But it could take years for the EU and England to negotiate their separation, and the results of those negotiations will play a large role in how the changes roll out to the rest of world.

Europe and the U.K. are clearly due for a period of turmoil and uncertainty. And it’s probably not a good idea to invest in European banks. But, at the very least, it is clear that much of the initial fears about Brexit were overblown. In many ways, the impact will be confined to Europe, many experts now say. While it is difficult to predict with certainty, Panama has already shown its ability to serve as a secure place to ride out the economic storms in the rest of the world.

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