Report from Panama - October 2013
Reprinted with permission from Bob Adams of Retirement Wave.
Additional Note to readers: you may wonder why, whenever I mention the word "billion" as a statistic, that I immediately follow that with the same number, expressed differently. For example, I may write "$2 billion ($2,000 million)". The simple fact is that there are two different definitions of "billion", each used by many nations. By presenting "billions" in this manner, I am simply clarifying exactly what I mean to both groups. For similar reasons, I try to avoid English contractions like "don't", "isn't", "it's" and so forth. These can be annoying to some readers for whom English is a second language.]
[1 October 2013] It is time for a quarterly "report from Panama", so here it is! I hope you find it useful.
A World of Differences
I pretty much try to stay in a constant state of confusion just because of the expression it leaves on my face.
Johnny Depp – actor (1963 – present)
Well, Johnny, If you keep up with global political, social, and economic affairs, you will not have any problem staying in a state of confusion.
I will be blunt. The nations of North America and Europe have become boring and tiresome. Year after year, their citizens fight. There is no consensus, even in an individual nation, much less the North Atlantic region as a whole. It leaves the impression that there are only two ways out of this seemingly never-ending melodrama up north. Either things suddenly and unexpectedly go right for some now unknown reason, or there is yet another crisis that finally forces people to come together and find a compromise the majority can live with. Until then, like Johnny Depp, they stay in a constant state of confusion. But that is not a fair comparison. Johnny Depp gets paid for it.
Whether you date the beginning of the global financial crisis from the late summer/early autumn of 2006 when real estate indices in the US showed a "top" and began to fall, or from the introduction of the term "sub-prime" in 2007, or the bankruptcy of Lehman Brothers in 2008 which caught the attention of even the most clueless investment analyst, this crisis has been going on for years and gives every appearance of continuing for a few more. No one really knows and fewer and fewer people outside the so-called "advanced nations" care. There is nothing we can do about it, so we just go about our lives and wish the North Americans, Europeans, Japanese and others the very best.
Yes, it has had a negative impact on the rest of the world, but less than most people thought when it began, and hardly at all in Panama. These have been years of dramatic growth in the Panamanian economy and everyone here has to "run to keep in place". There is no antagonism toward the troubled nations at all. We are just too busy growing.
I will leave it at that.
Meanwhile, down here in Panama….
"Without continual growth and progress, such words as improvement, achievement, and success have no meaning."
Benjamin Franklin – publisher, author, inventor, etcetera (1706 – 1790)
I know many of you appreciate it when I list a few of the many things going on here that affect our economy, and thus our society, both citizens and foreign residents. So here is a short list of some that might be of interest.
- So how has the continuing global financial crisis affected the Panama Canal in recent months? The number of ships passing through the Panama Canal from October 1, 2012 to July 31, 2013 was estimated last year to be 12,459, but only 11,408 ships actually passed. This likely reflects the economic problems elsewhere in the world. So, Panama made less money?
No, the Panama Canal Authority also had estimated that for the same period they would receive $1,529 million in toll revenues. The actual figure was $1,535 million, or $6 million more. So revenues rose, despite a drop in the number of ships. Why? Because tolls on the Canal had been raised, so each ship paid more, but it also underlines one of the strong points of the Authority. They are very conservative in estimating future income. It is not the number of ships that pass; it is the revenue generated that really counts. The Canal is doing fine.
- COPA Airlines, our "national flag carrier", but privately owned, set a goal of 11 million passengers this year. By the end of August with traffic up 18.9% so far this year, it has already had 9.6 million passengers, so their target is clearly going to be surpassed. A new direct flight to Boston in the US was initiated in 2013 and additional direct flights to and from Tampa, Florida will begin in December. COPA now has direct flights to 15 US cities, as well as 51 cities in 28 other nations. In the first six months of this year, COPA had a net income of $188 million on total revenue of $1, 233 million and is one of the fastest-growing and most profitable regional airlines in the world.
- The Ministry of Labor reported the signing of 159,866 new work contracts through July of this year. 37% of the contracts were permanent, 29% temporary and the remaining 34% were for projects that had a fixed completion date. This is 14% more than for the same period last year. The increase is not only from new projects, but also because there is a transition underway from hiring people "informally" (or "off the books", as they say up north) to hiring them under formal contract, thus guaranteeing the benefits that come with regular employment. Not only does it mean the workers have incentive to be more productive; it also means that businesses are doing well and can afford to treat their workers appropriately.
- Once again, car sales are up. They are always up, or so it seems. I cannot remember the last time they fell. And the increases are not tiny. Anyhow, car dealers sold 31,745 new vehicles through July, an increase of 17% from the same period last year, according to statistics from the Automobile Dealers Association of Panama. For those interested, the best-selling brands are Hyundai, Toyota, Kia and Nissan in that order.
- Another major seaport (seventh? eighth? I have lost count) will begin construction in October in Aguadulce on the Pacific coast at an initial cost of $1.25 billion ($1,250 million). Not only a bulk carrier and container port, it will include facilities for cruise ships and be an "oil port" with large fuel storage tanks that may add another billion (thousand million) onto the cost. And there is at least one other new major seaport under serious consideration.
- At some point in the near future, a tender will go out requesting bids on the development of oil and natural gas resources in the eastern third of the nation. Unlike the mining operations elsewhere, this development requires more time. There will be a couple years of seismic studies, we are told, before serious drilling begins. But combined with nearly $100 million in new road projects and a dramatic increase in FDI (foreign direct investment) in a variety of projects, eastern Panama is at the initial stages of a major economic boom
Contrary to some reports, the comarcas (areas set aside for our indigenous people), the Darien National Park that includes the famous Darien Gap, and other protected areas will not be included in this development. Indeed, the early estimates are that most of the resources will be off-shore, but time will tell. The need to give serious attention to the needs of the non-human environment are clear, as is the need to attend to the needs of people who have been neglected and ignored for generations, but desperately need employment opportunities. Finding a good balance is one that preoccupies me professionally, but it can be done and it must be done.
- To finish off the various specific examples, here is an unusual one. Panama is to be the home of a "diamond exchange" where diamonds, other precious gemstones, and pearls will be available to retail buyers throughout the region. This is not a simple process. Tocumen Airport had to be certified as having security and facilities sufficient for the transport of uncut diamonds and Panama had to receive "Kimberly certification", an international standard required for such an exchange. The two-phase construction of the exchange on about two hectares (roughly five acres) in the eastern end of the city near the airport will cost a little more than $138,000,000 and be finished in 2017, although the exchange will be operational as of May of 2014 upon completion of the first phase. Currently, Latin American dealers looking for such stones and pearls must fly to one of the two such exchanges in the US, one in New York and one in Los Angeles. Given the dramatic growth in Latin American economies, demand has risen sharply and Panama is easier and cheaper to get to than the US. Once again, Panama is chosen over much larger rivals for a specialized regional service.
Enough. The list can go on and on. I have not even mentioned that Panama City’s new Metro system has entered its testing phase where possible, although construction is on-going. More to the point, it is scheduled to open by this January and, trust me, I will be one of its first passengers. In any case, this major project is almost done and when it is, we start construction of the second line, followed by the third. That is the way it is. One project after another. There is so much going on that it is impossible to keep up with all of it.
Instead, let’s look at the overall stats. GDP growth for the first quarter was 7% and 7.6% for the second quarter. It is fairly safe to say that the final 2013 growth rate will be north of 7% and we may make it to 8%. No big deal. Our latest GDP figure is from 3 to 15 times higher than those nations on both sides of the North Atlantic. And it is more than five times our population growth rate. Anything over 7% assures we will among the fastest-growing economies in the world as has been true for several years.
Others who are in that category are usually poorer nations, Mongolia whose population is close to that of Panama for example, and high growth rates are much easier from a low base. But Panama is already listed as an "upper-middle income nation", so these high growth rates are on top of a much higher base. That makes it all the more impressive. After all, using 2012 final GDP stats, if Mongolia grows at 7.5% this year, its per-capita (per-person) GDP will rise a little over $400. When Panama’s goes up 7.5%, the increase is almost $1200.
Fine, but I still like to provide the chart showing changes in the Monthly Index of Economic Activity (IMAE is the Spanish acronym). The IMAE shows most of the same activity as the GDP, but not everything. GDP figures only come out quarterly and they require gathering a huge amount of data. The IMAE simply covers those sub-sectors where the stats are more quickly available (it may be roughly 80% of the total) and thus the Index value can be released every month. Although not the as comprehensive as the GDP number, the two are very closely related and move in the same direction.
The joy of the IMAE graph is that it begins in January of 2008 so it shows growth right through the worst of the global financial crisis in 2009, it shows activity monthly activity instead of quarterly, and it provides a trend line which statistically "smoothes" out growth over time and provides a clear indication as to whether economic activity is rising, declining, or stagnating. Here is the latest graph available through the end of June, 2013. The pink dots are the monthly results. The blue line is the statistical trend line.
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I like this indicator. It is not as dramatic as GDP numbers that bounce up and down. The IMAE monthly figures do that, but the trend line is what I appreciate. It may not be as dramatic to the eye, but it demonstrates the movement of the economy over time. And yes, the figures are adjusted for inflation, just like the GDP numbers.
I have said it before and I will say it again, you do not have to shed any tears for poor little Panama. We are doing just fine and there is a long list of nations, probably including yours, that wish they had a trend line like the one above for the last five and a half years.
Some General Thoughts on Panama
All growth is a leap in the dark, a spontaneous unpremeditated act without benefit of experience.
Henry Miller – author (1891 – 1980)
It was about eight years ago, I do not remember exactly. I was with a group of friends having dinner at a nice restaurant in Panama City. Two of us stepped outside for a few minutes to talk in a quieter space. We noticed two men, probably in their 30’s, standing nearby. One of them asked, "Are you Americans?" We said, yes, and they proceeded to tell their story. They were Panamanians who had gone to university in the US and had stayed to work. They had heard the stories of Panama’s rapid economic growth, so they had come home to see where they could fit in. They were returning to the US the very next day. Why? They said that salaries were way too low and they could not support themselves in the style they desired, so they were returning to where the opportunities were greater.
Since they were within hours of departure, we said nothing negative, but simply wished them the best. I stood there smiling, but thinking, "You are making a mistake! This is the beginning of a greater story. You have to make your own opportunities. You cannot expect others to do that for you. Panama is full of opportunities. If you could look further ahead than the next few months, you could see those opportunities and take advantage of them."
In the years since that evening, Panama’s GDP (gross wealth produced in a year) has doubled and the nation has continuously been one of the fastest-growing nations on the planet. Many of the opportunities available eight years ago have been taken by others, but more are created every year as the nation continues to grow. The key to success is to look beyond today into the future, see the potential opportunities, jump on one, and work your butt off. It is not easy, it is never easy, failure is always an option, but it has been done, it is being done, and it will be done.
I think back on that evening because it serves as a simple example of one of my concerns for Panama and Panamanians. The older generation of Panamanians is still in charge of the economy, but too many of them fail to look any further into the future than a few months. They are missing opportunities as a result of short-term thinking in a long-term world. They look for the "fast buck", as North Americans put it, the easy money that comes quickly. Too many are willing to sell what they could develop themselves. Very frequently, they are selling to foreigners who will do the work of creating much greater wealth because they look out into the future.
Let me immediately say that there is nothing "Panamanian" about this. It is human. I have seen it many times before in nations that are experiencing rapid growth. It is very rewarding in the short-term to let others do the innovation and just sell them what you have. You get the money up-front. They have to wait. But when they succeed, they get the big returns, not you.
Let me be very clear. I am very pleased that Panama is as open as it is to foreigners living and investing here. This is a very smart move as it has accelerated growth for everyone that would not have been possible otherwise. I salute that!
Panama is unique among nations for a variety of reasons, but one that is the most obvious is the Canal, of course. Most people think that the Canal’s greatest gift to Panama is the money it provides, but it is more than that. It has been critical to the stability and security of the nation as well, but there is something else that I consider to be as important as the money, stability, and security.
For over a century, the Canal has brought dozens of nationalities to Panama on a regular daily basis. In all my travels and professional work, I have never seen a small nation that is more comfortable living with foreigners than Panama. Decades ago, Panamanians learned the value of tolerance and acceptance of other nationalities working and living in their nation. I have no doubt that it was not always easy, but it was done and it has been a success. I do not care what nation you are from, the probability is nearly 100% that Panamanians have worked with people from your nation longer than you have been alive. They provided services to your people and your people paid. Even before the turn-over of the Canal, Panama was providing services to people using the Canal and that has been a major component of their economy since there was a Panama.
This history of providing services face-to-face with a multitude of nationalities has helped create a nation that is in a very good position to benefit from the increase in global economic activity. Panamanians do not have to learn how to live peacefully with foreigners. They have been doing it for generations and they are benefiting from it as they have since the beginning of their nation, but on an even greater scale today than ever before. And the best part is that, to one extent or another, this has been the experience of all classes of Panamanians, not just the wealthy.
But I would like to see Panamanians use some of the money they earn from this unique experience to get out in front and be the people who see the long-term potential and act to take advantage of it. Panamanians need to be leaders, not followers, in their own nation. It was foreigners who introduced Chiriqui province and Boquete, Volcan, and other towns to the global public. It was foreigners who settled tiny islands off the coast of Bocas del Toro province and who, with great effort in the face of multiple obstacles, have made those islands a growing tourist attraction with a future beyond small-scale fishing and agriculture. Today, it is foreigners who are moving to create new wealth in the eastern third of the nation, an area with which most Panamanians are still unfamiliar. And these are just examples of what is happening in many sectors of the economy.
Will this change? Yes, it is underway, but it has much further to go. As one example, the Ciudad del Saber (City of Knowledge) in Panama City is doing a wonderful job of helping Panamanian entrepreneurs to take their business concepts and turn them into successful businesses, among many other activities meant to enrich Panama not only financially, but socially and culturally.
I dislike using terms that are often over-used, but I see a "generation gap" in Panama. Much too often, the older generation sits and waits for someone else to lead, then they follow. Many younger adults in their 20’s and 30’s see the opportunities and want to lead, but do not yet have the resources required. The Ciudad helps a few of both groups to come together and step out in front of the crowd, but that is definitely not enough.
Short-term thinking in a long-term world will fail in the long-term. That means the older generation is not doing its job for the younger generations -- their children and their grandchildren. It is changing, but it needs to change more quickly or the generations to come will be dependent on foreigners for leadership.
This is a problem for other nationalities as well. American and Canadian "investors" come quickly to mind. I have dealt with more North American investors than I can count over the last decade. I have seen them come with their money, intent on finding opportunities. I am still amazed at how many of them measure the total time they have spent in Panama in weeks, sometimes days, and who depend on commercial English-language websites for their "research" and, despite the clear inadequacy of their preparations, invest their money thinking that have identified the pot of gold at the end of the rainbow, only to discover otherwise a year or two or three later.
I am not talking about folks who set up small businesses here. Many fail, but others thrive and grow. All of them face challenges, but that is the case in every nation, including their original home nation. No, I am talking about those who have a million dollars or more and think that makes them professionals. Sorry, guys, a million dollars is nice to have and there are plenty of people willing to help you spend it, but it is not an impressive investment here in Panama. But it is big money for them and to see them commit those funds without a solid foundation of knowledge and research to back it up is sad, but common.
However, they can be "forgiven" in a sense. Their ignorance is obvious to us down here, even if they are blind to it themselves. Panamanians do not have that excuse.
I know I have Panamanian readers, some of them with substantial wealth and holding responsible positions in the society and the economy. You are very intelligent people and far more aware of the situation here than most foreigners can hope to be, but I am speaking directly to you right now. All my experience in decades working all over the world lead me to say to you, get out in front and lead, or get left behind. You may be very comfortable right now and not want to take Mr. Miller’s "leap in the dark" mentioned at the outset of this section, but do it for your children and your grandchildren. It is not as "dark" as you think.
From the world to Panama to you
Personal transformation can and does have global effects. As we go, so goes the world, for the world is us. The revolution that will save the world is ultimately a personal one.
Marianne Williamson – author (1952 – present)
Nine years of corresponding with thousands and visiting with hundreds of Retirement Wave Members leads to me to share a few suggestions. I am not going to go into detail. These are general suggestions, but they are based on my experience and that of RW Members.
First, find what you need. – I say this pretty much every time. Sit down and seriously discuss what you feel sure you will need to function well in Panama or anywhere else. For some people, that means proximity to a hospital with specialized medical staff. For others, proximity to a good hardware stores. For others, proximity to an international airport with flights to a specific nation or city. For others, proximity to restaurants and other entertainment facilities. For others, isolation is preferred. Your list may be short. Just be clear on what you need before you look. Judge each property, no matter how attractive, to be sure those needs are met nearby. When you find an area where what you need is within a reasonable distance, then look for what you want within that area. If you "fall in love" with a property with a spectacular view, for example, be especially careful. Emotion has its place, but not if it means living in a location that cannot provide you with what you need six months after you have bought it. Does this happen? Yes. Not a good idea.
Compromise is not always bad. – Remember, Panama is a small nation, about half the size of Florida, but with a longer coastline. That is the case because Panama is "stretched out" in comparison to Florida and nowhere near as wide on the whole. In addition, we have mountains that, more or less, run across the center of the nation. Simply put, you are never far from the beach or the mountains. So if your budget does not allow for the high costs of oceanfront or high mountain views, you can very likely find a property that fits your budget, but is only a short drive from the ocean or the mountains you love.
Use a lawyer before signing a contract. - One of the worst problems a few RW Members have faced here is signing a legally-binding contract, written in legal Spanish that they rarely can read or understand, without first having it reviewed by a lawyer and the clauses clearly explained to them. Use your own lawyer, not the seller’s lawyer. If handed a contract to sign, politely decline to sign, just say your lawyer will have to review it first. One way or another, let the seller know that you are not signing anything without legal advice. This is one mistake that is far less expensive to avoid than it is to reverse at a later date, if that can be done at all.
Lose the stereotypes, if you have any. - Panama is "Third World"? Your nation is "First World"? It may be comfortable to live in the last half of the 20th century, but the rest of us live in the second decade of the 21st century. Give up the old stereotypes, join us, learn, and add to the nation’s progress, the progress which benefits everyone, including you.
Be prepared to change. - Take a moment to read Marianne Williamson’s comment above again. No matter how limited your financial resources or how old you may be, your own "personal revolution" will require change, so do not fight it. Expect it, look forward to it, and change!
And so another commentary is finished. If you have read any of the others, you know exactly what will happen now. It is my own way of expressing the humility that I recommend to others. So let us read it together again.
No one knows the future. Free markets go up and free markets go down. The future is not a simple extrapolation of the present. Anything can happen. Everyone has an opinion and those words above are just opinions.