While Panama remains one of the most politically and economically stable countries in Central America, the country has faced its share of challenges over the past year.

In 2023, a lengthy drought triggered by El Niño meant that levels of water in the Panama Canal fell much lower than usual, forcing authorities to reduce ship traffic through the Canal by more than a third, with a severe effect on revenue.

That November, following months of protests, the Supreme Court declared the concession for the $10bn Cobre Panamá copper mine – which generates around 5% of Panama’s GDP – to be unconstitutional, leading to the mine’s closure. As a result, according to the World Bank, economic growth is predicted to drop to 2.5% in 2024, from 6.5% in 2023. (The mine’s operator, Canadian company First Quantum Minerals, and other mining companies have since launched multi-billion-dollar international arbitration proceedings against Panama.)

There was further controversy surrounding the May 2024 elections, which saw the victory of José Raúl Mulino of the centre-right Realizando Matas party, after stepping in to replace his running mate, former president Ricardo Martinelli, who was disqualified following his conviction for money laundering.

This combination of circumstances has meant a quieter market than usual, as law firms reported that clients were wary of entering into transactions prior to the election. (The results also raise the possibility that Mulino, who is seen as a favourite of investors, might consider reopening the Cobre Panamá mine.)

Regardless, it is likely that banking and M&A activity will pick up considerably in the coming months, as Panama continues to be an attractive destination for foreign investors, thanks to its strategic position as a financial and logistics hub for the region, its dollarised economy and strong services sector. In another key development (in October 2023), Panama was removed from the Financial Action Task Force’s ‘grey list’, following actions taken to strengthen its anti-money laundering regime, further improving the investment climate.

M&A activity in Panama remains focused mainly on the energy, telecoms and banking sectors, while firms have also noted increasing interest in investment in the real estate sector. Another significant area of activity is in the infrastructure space: following the approval of the law allowing public-private partnerships in 2019, several PPP projects are underway, aiming to improve the Pan-American Highway, which crosses Panama to the Costa Rican and Colombian borders, and construct a fourth electricity transmission line along the Atlantic Coast.

In the dispute resolution sphere, firms saw the trend towards international arbitration continue, as delays to the already-backlogged court system caused by Covid mean clients are increasingly turning to other mechanisms to resolve disputes. The Supreme Court’s June 2024 ruling that foreign-licensed attorneys can represent parties in arbitrations seated in Panama further positions the country as an arbitration-friendly jurisdiction.

Turning to the legal market, full-service domestic firms remain the dominant force in Panama. Alemán, Cordero, Galindo & Lee, Arias, Fábrega & Fábrega, Galindo, Arias & López, Morgan & Morgan and Alfaro, Ferrer & Ramírez are the leading players, although other well-established local names include Fabrega Molino, Icaza, González-Ruiz & Alemán, Patton, Moreno & Asvat, LOVILL, Pardini & Asociados, Quijano & Associates and Infante & Pérez Almillano.

The market is also home to a number of smaller practices, including corporate and financial services-focused SIGMA International and Global Market Attorneys and Virtù Atelier Legal; Delvalle, Escalona, Levy & Corró, which is building a strong reputation in the corporate and aviation spheres; specialist shipping firms such as Arias B Associates and De Castro & Robles; Estudio Benedetti and Cedeño & Méndez, which are best known for their IP expertise but are continuing to expand their offerings into the corporate and dispute resolution arenas; and disputes-focused Britton & Iglesias, which recently launched an office in Colombia to strengthen its presence in cross-border litigation and arbitration.

International firms that have secured a foothold in Panama include Central American outfit Arias, which has had a presence in the country for over a decade, Dentons and ECIJA.