Business 604: Panama Ricky McNeal Liberty University Dr. Stephen Preacher October 5, 2012

Abstract

Panama, a small country located in Central America, is very diversified in both its people and its climate. Considered to be the isthmus connecting South America to North America, Panama has played a key role in global transportation since the creation of the Panama Canal. The canal goes through the midsection of the country connecting the Atlantic and Pacific oceans, allowing for much faster sea travel. Because of its location, Panama has been heavily influenced by several countries including Colombia which they were ruled by until 1903 and the United States which played such a large role in the realization of the canal. These foreign influences can easily be found in Panama's cuisine, music, and artwork as well as all the tribes that have settled within the country. The culture and political structures of Panama as we know it today has evolved from an incredibly diverse and interesting history.
Punctuality is appreciated by business people, as is giving your host enough time to plan for your arrival. Thus, you should make appointments at least one week in advance. When you meet with your Panamanian colleagues, a handshake is a normal greeting. Do not rush into a meeting with talk of business right away. Your associates are more likely interested in getting to know you first. The exchange of business cards is important.

A major challenge of doing business internationally is to adapt effectively to different cultures. In international management, culture is acquired knowledge that peoples use to interpret experiences and generate social behavior. This knowledge forms values, creates attitudes and influences behavior. Because different cultures exist in the world an understanding of the impact of culture on behavior is critical in the international management. There are many way of examining culture differences and their impact on international management. Culture can affect technology transfer, managerial attitude, managerial ideology and even business-government relations. Cultural affects a host of business-related activities, even the including the common handshake.
Agriculture is big business in Panama. Not only does it account for much of the country's exports (over 50%), but subsistence farming still employs many Panamanians who only grow enough food to feed their families (nationalencyclopedia.com). The main crop in Panama is bananas by a large margin, and is also one of the countries largest exports. Besides bananas, the other main exports are sugar and coffee beans, while the largest domestic crops are corn, rice, cocoanuts, tobacco and the exotic root vegetable yucca (Bennett 78). In spite of the fact that agriculture employs a large portion of the population and uses approximately half of the land, agriculture in Panama is in trouble. Panama’s tropical maritime climate poses some restrictions to the growth of crops, but the troubling issue at hand is the erosion of soils. As Panama’s population grows rapidly and the rainforest is cleared, overuse of soils and improper agricultural methods are threatening the growth of crops and draining Panamanian soils. As much of Panama’s political history and current economy is tied to agriculture, this is an issue that will raise many questions for the future of Panama.

Bananas have a long history in Panama. Bananas are grown best in humid lowland regions, and in Panama, this means on the Atlantic side of the country (Bennett 70). Production does, however, extend to the Pacific side of Panama with successful irrigation methods (Bennett 71). United Fruit, an American company, moved into Panama in 1899, and owned as much as 70% of the Panamanian banana industry up until the 1970’s (country-studies.com). As bananas can count for as much as 33% of Panama’s total exports, very little of this lucrative production was Panamanian owned. In the 1970’s, the “banana wars” broke out as a disagreement between the government and United Fruit erupted over export taxes on bananas (country-studies.com). An agreement was reached when United Fruit sold back the land on which they grew their bananas in exchange for banana tax credits.
Panama is surrounded by a lot of water as the Atlantic Ocean lies on the eastern side of Panama and the Pacific Ocean lays to the west. The country is divided down the middle from Costa Rica to the canal by the Cordillera Central mountain range. The shadow effect of the mountains causes the Pacific side of the mountains to have a dry season as well as a rainy season, whereas the Atlantic side of the country is rainy for most of the year. Many of Panama’s crops (besides bananas) are grown in this Pacific side. Sugar cane is the main west coast product, as well as Panama’s second largest agricultural export (Bennett 76). Sugar cane benefits from the western coasts dry season that runs from around December to April. Panama’s third largest agricultural export, coffee, is a crop of the highlands, which in Panama are known for their exceptionally good volcanic soil (Bennett 74). The best coffee is said to be grown at elevations of 3,000 and 4,500 feet and this Panama can provide (Bennett 74). Coffee beans are grown in both the western and eastern climates; however the regularity of rain is very important to the beans growth, so both the humid wet climate of the east and the dry season of the west offer dangers to the beans maximal development (Bennett 75).
Of the smaller crops that are used for domestic consumption, in Panama, corn is king (Bennett 78). Corn is grown in all areas of the country, in a variety of soils and weather conditions, and is a major part of the local diet (Bennett 78). Vegetables, such as the yucca root, are grown on a small scale and are centered in the western highlands where the rich soils of the volcanic ash are conducive to healthy crops (frommers.com). As Panama is surrounded by so much water, shrimp makes up a small portion of the countries agricultural exports (nationsencyclopedia.com). Shrimp in Panama is both sea-caught and locally farmed (nationsencyclopedia.com).
As the population of Panama grows, land for agriculture becomes more and more sparse. In the past seventy-five years, much of Panama’s rainforest has been deforested for agricultural use (Croat 465). The southern province of Darien has been particularly hard hit by deforestation (Croat 465). As agricultural production increases, not enough farming techniques are known about tropical agriculture to keep it sustainable (Croat 465). The consistent high temperatures and heavy rainfalls have drained the soils of their nutrients; this problem hitting the Chiriqui province particularly hard, the soils there have been tested and shown to have zero levels of important elements such as phosphate and potash (Croat 465). Most agricultural methods have been developed for temperate climates, not the tropical maritime climate that is Panama (Croat 466). In the past, the slash and burn technique of tropical agriculture has been effective, but because of the population pressures today, the land is not being left unused long enough to let the soils replenish (country-studies.com). Deforestation leaves the soils exposed as the heavy rainfall of Panama’s climate cause it to slowly erode and leaving less water within the soil which is needed for the soil to replenish its nutrients (Croat 466). As less water is retained in the forest and soils, there is less evaporation and can thus cause droughts during the limited rainfall of the Pacific dry season (Croat 466).
As Panama continues to face population constraints, sustainable agriculture will continue to become a major issue. As the population increases there will be continual pressures on the land to produce high quantities of food. But with current agricultural methods, the land is becoming less and less arable and thus crop yields are declining (Croat 465). To avoid an agricultural crisis, sustainable agricultural practices must be developed and implemented in Panama.

Poverty in Panama versus the United States
Recent years have seen a significant reduction of poverty in many countries of the world due to the recovery of economic growth after the “lost decade” of the 1980s. Yet, poverty keeps on being a social problem that affects thousands of individuals of different countries like Pananma and the United States. Everyday more and more children and women are living on the streets. In both Panama and the United States, most of the poor are the children under 18 years old, as well as the women, most of whom have children, yet have never been married, or have been through a divorce which has left them without anything, and the elderly. The difference thought is that in the United States are also included both latinos and afro-americans. Both racial groups have had immigrated to the country looking for better opportunities. Years ago, African Americans constituted a great percentage of poverty in the United States, yet, now a days, Latinos are being more and more exposed to low salaries, poor neighborhoods, large families and discrimination from some. All these are rapidly contributing to the rise in percentage of poverty among Latinos. Since a huge part of the United States population comes from immigration, the poor in the United States are probably younger than in Panama. This being because most immigrants are young individuals who come looking for opportunities. They usually come alone to find work and end up forming their own families as well. Then, they send for their families. In Panama on the other hand, as well as in most of Latin America, immigration is not a very big social problem.
Most of the poor people living in Panama are those in the rural parts where jobs are not available, unless you are a farmer, and where living conditions are terrible. There are places in which there is no electricity or telephone and drinking water is not available. This brings diseases yet, there are not hospitals available in those places and if there are, they have not got the equipment to give the proper assistance. This is basically what contributes to the poorness in Panama. Unemployment is also a problem in both Panama and in the United States. In 1998, poverty was reduced to 38% and unemployment to 13.2% from the economically active population in Panama of 1.1 million people. On the other hand, in 1997 the United States reduced its poverty level to 4.7% from which adult women was 4% and men 4.1%. Another problem that increases poverty in both countries is the lack of equity in the distribution of wealth. In Panama more than 25% live with less than a dollar.
Panama offers a dollar-based economy, low inflation and zero foreign exchange risk for foreign investors. The government of Panama actively seeks foreign investment, and there are real opportunities available in the former Canal Zone properties being transferred to Panamanian jurisdiction in connection with the transfer of the Canal itself in 2000. Privatization of state-owned enterprises also offers an opening for foreign investors. The Colon Free Zone is a much bigger market than the country of Panama. Free Zone imports amounted to $5.6 billion in 1995, with the US claiming 11% of the market. Panama has potential for substantial growth in the areas of electric power generation, health care services, mining exploration and operations, port

construction and operation, land development, road construction, telecommunications, and tourism. Panama has no restrictions on the outflow of capital or outward direct investment.
Taking advantage of Panama's key location, the government and business community have long promoted it as an international trading, banking, and services center. Panamanian business people and officials can point to Panama's dollarbased economy as offering low inflation and zero foreign exchange risk.
Panama's government actively seeks foreign investment and there are real opportunities available in the former Canal Zone properties being transferred to Panamanian jurisdiction in connection with the transfer of the Canal itself in 2000. Privatization of state-owned enterprises also offers an opening for foreign investors.
Due to the evolution and composition of Panama's economy, the extent and nature of local competition is very limited in most of the non-service sectors. Although the United States is Panama's most important trading partner and U.S. products have a high degree of acceptance in Panama, competition from third countries is strong in certain sectors, including: telecommunications equipment, automobiles, heavy construction equipment, consumer electronics, computers, apparel, gifts and novelty products.
The Colon Free Zone is a much bigger market than the country of Panama. Free Zone imports amounted to $5.6 billion in 1995. These were mostly electronic products, clothing, and other consumer products. Because of this product mix, U.S. market share is lower in the Zone than in
Panama (11 percent vs. 43 percent). Hong Kong is the Free Zone's biggest supplier, while Colombia and Ecuador are the major final destinations for Zone reexports.
Panama's economy is based primarily on a well-developed services sector that accounts for 70 percent of GDP. Services include the Panama Canal, offshore and domestic banking, the Colon Free Zone, insurance, and government. Manufacturing, mining, utilities, and construction together account for 20 percent of GDP. Manufacturing is principally geared to production of items such as processed foods, clothing, chemical products, and construction materials for the domestic market. Agriculture, forestry and fisheries make up the remaining 10 percent of GDP.
A Similar Culture
Business practices and attitudes in Panama are similar to those in the United States. American television and radio programs, and U.S. magazines are all available and popular in Panama. Panamanians frequently travel to the U.S. for vacation, medical treatment, study, and business. Their buying patterns and tastes are similar to ours.
The use of the U.S. dollar as local currency and somewhat lower import duties on some items have helped U.S. products remain price competitive in recent years. The U.S. share of the market in Panama rebounded to 43 percent in 1995 after suffering small declines for the three years ending in 1994. The U.S. also had 11 percent of the larger Free Zone market in 1995. Future U.S. sales in Panama will be directly related to economic growth in the country, which recently has shown signs of weakening.

Panama has potential for substantial growth in the areas of: electric power generation, health care services, mining exploration and operations, port construction and operation, land development, road construction, telecommunications, and tourism. Commitment to Trade Liberalization
Panama has no restrictions on the outflow of capital or outward direct investment. The government has demonstrated its commitment to trade liberalization since taking office in 1994.
President Ernesto Perez Balladares has pressed for trade liberalization in the National Assembly and the government has signed the agreement for Panama to join the General Agreement on Tariffs and Trade/World Trade Organization (GATT/WTO). Panama should be a full WTO member by the end of this year. Panama's antiquated, pro-union Labor Code was mildly reformed in 1995 but political opposition prevented the sweeping revision needed. The Perez Balladares government has pressed forward with reforms but continues to face formidable opposition from some industrial, agricultural, and labor organizations. The government has supported its GATT/WTO negotiations by enacting legislation to lower tariffs, remove non-tariff barriers to imports, reduce producer subsidies, prohibit anti-competitive and monopoly practices, and strengthen intellectual property protection.
Government regulation and occasional intervention in the Panamanian economy have tended to reduce transparency, hinder competition and hamper the efficient allocation of investment. The Government's economic liberalization program has been designed to reduce these distortions and increase competition and competitiveness, but has fallen short in some areas.
The combination of relatively high costs for both utilities and labor makes unit production costs higher than average for the region. Also, investors complain of burdensome and excessive product registration requirements, although the government is trying, through a "one-stop shopping" concept, to make its regulations more investor-friendly for those producing for export. Bid procedures for certain privatizations and governmentfinanced major projects have been questioned over transparency and there have been some seemingly unjustified rebids.
The most interesting sectors for new foreign investment are privatizations and investments in the former Canal Zone. To date a state cement company and a state-owned fruit company have been privatized. The government awarded concessions for a private toll road in 1994, cellular phone service and another private toll road in early 1996, and two ports in mid-1996. Intel, the Panamanian telephone company, is scheduled for partial (49 percent) privatization by early next year. Other possible mid-term privatizations include a large convention center, the casinos, a race track, refuse collection services and certain water utility operations. The government is actively looking for foreign investment in former Zone properties in the fields of tourism, marine services, and inbond assembly and manufacturing.

References

Bennet, H. (1926). Agriculture in Central America. Annals of the Association of American Geographers, Vol. 16, No.2. pp. 63-84. http://www.country-studies.com/. Agriculture. Retrieved on10/03/2012 from www.country-studies.com/panama/agriculture.html.

Croat, T. (1972). The Role of Overpopulation and Agricultural Methods in the Destruction of Tropical Ecosystems. Bioscience, Vol.22, No. 8. pp. 465-467.

http://www.frommers.com/. Food and Drink. Retrieved 10/03/2012 from www.frommers.com/destination/panama/3285020880.html.

www.nationsencyclopedia.com . Panama Agriculture. Retrieved 10/03/2012 from www.nationsencyclopedia.com/economies/Americas/Panama-AGRICULTURE.html.
Panama: Business practices and attitudes here are similar to those in the united states, and most U.S. products are services are well accepted. (1996). Business America, 117(11), 29-30. Retrieved on from http://search.proquest.com/docview/203895761?accountid=12085; http://rx9vh3hy4r.search.serialssolutions.com/?ctx_ver=Z39.88-2004&ctx_enc=info:ofi/enc:UTF-8&rfr_id=info:sid/ProQ%