Thursday, July 19, 2007

Panama - Glitter and Graft





Jul 19th 2007 PANAMA CITYFrom The Economist print edition
A country revamped as a service hub grows at Chinese rates

COMMUTER traffic crawls along Avenida Balboa, the coastal road that is the spine of Panama City, slowed by thousands of new cars. In the city's wealthier districts restaurants are packed, and it is hard to find a street without a skyscraper under construction. While some of its neighbours in Central America struggle with commodity-based economies, Panama is busy reinventing itself as a regional logistics and services hub.

That was a position it enjoyed in the 1970s, when an offshore financial industry briefly flourished. Then came the dark years of Manuel Noriega, a thuggish strongman toppled by an American invasion in 1989. Several undistinguished governments followed.

Several things have now come together to produce an extraordinary boom in Panama. The economy will expand by 11% this year and by over 9% in both 2008 and 2009, according to a forecast by LatinSource, a consultancy. That is faster than anywhere else in Latin America.
The first was the transfer of sovereignty over the Panama Canal in 1999. Since then, the canal has been run as a Panamanian business, rather than a branch of the United States' federal bureaucracy. President Martín Torrijos, who took office in 2004 (and whose father, a military ruler, negotiated the canal handover in the 1970s), pushed through a referendum last year which approved a $5.2 billion plan to expand the canal, doubling its capacity and enabling it to take much bigger ships. Work is due to start in August.
Other big projects are planned in the wake of the canal expansion. Occidental Petroleum, in partnership with Qatar Petroleum, plans an oil refinery, costing $7 billion, at Puerto Armuelles. A consortium led by Hutchison Whampoa, a Hong Kong company, plans to turn Balboa into the largest port in Latin America. China's government-owned shipping operator, COSCO, is competing to build a second mega-port, this one on the Caribbean coast—even though Panama recognises Taiwan. Copa, a local airline, aspires to turn Panama into an alternative regional hub for travellers deterred by the security hassles of Miami airport.

The second factor is that Mr Torrijos's government has been rather more effective than its predecessors. He has cleaned up the public finances, pushing through an unpopular reform of social security. He actively courts foreign investors. He has negotiated a free-trade agreement with the United States, which Panama hopes will soon be ratified by the American Congress. But he also has close ties to other regional leaders, including Cuba's Raúl Castro.
This week Spain's prime minister, José Luis Rodríguez Zapatero, was the latest foreign leader to drop by, with a coterie of businessmen in tow. New foreign direct investment more than doubled in 2006 compared with the previous year, accounting for 16% of GDP—a share that is twice as big as in any other country in the region, according to the UN Economic Commission for Latin America and the Caribbean.

The government has finally got around to developing the prime land once occupied by American military bases in the former Canal Zone. The UN is moving its regional headquarters into one; another will become a technology park. Last week the government signed a contract with London & Regional, a British property company, which plans to build housing and industrial units at the former Howard Air Force base. Some of the new housing is aimed at American retirees, who are flocking to Panama. Donald Trump, an American property developer, is planning a 68-storey hotel and resort.

But as the developers pile in, not everyone is cheering. Some worry that the property bubble will soon burst. Others note that a weak education system does not produce enough engineers or skilled workers. Contractors are likely to import skilled labour from abroad. But with 40% of Panamanians still living in poverty, and unemployment at 8.6% last year (though falling), that will not be popular.
A handful of families continue to control much of the country's wealth and benefit from cosy ties to government while most Panamanians struggle to make ends meet. Mr Torrijos proposes to increase the minimum wage of $300 a month. American diplomats worry that if the benefits of growth don't filter down, the resulting sense of injustice could fuel political radicalisation.
A bigger, related, worry is corruption. Foreign firms are beginning to complain that they are hampered by the informal links between government and local business oligarchs. Sam Taliaferro, an American who runs a property business catering to foreign retirees in Boquete, a hill resort, says that corruption threatens to choke off foreign investment. With three-dozen other investors, he has formed a group to campaign against what he sees as the gouging of foreign firms.

Though Mr Torrijos's government has a cleaner record than its predecessors, it has not been scandal-free. An uncle of the president controversially acquired vacant land, and went on to destroy protected mangrove swamp without the necessary permit. It is hard to judge how deep corruption goes, or how much of an impact it may have on foreign investment. But if Panama's boom is to propel it swiftly to developed-country status over the next decade or so, it would help if it rested on a stronger institutional foundation.

Thursday, July 05, 2007

Latin America's real estate Panamania

Latin America's real estate Panamania
Once a sleepy Latin American capital, Panama City has become one of the world's hottest real estate markets. How long can the fever last?

By Eliza Barclay, Fortune Magazine
July 5 2007: 11:41 AM EDT

(Fortune Magazine) -- Off in the distance, where Panama Bay becomes the Pacific, container ships loaded with merchandise bound for the U.S. bob in the haze. Closer in, a flock of construction cranes hovers over densely clustered high-rises. Fourteen stories below, on Balboa Avenue, cars inch along, their windows sealed tight against the sweltering heat.
The view belongs to Jim and Imogene Buckley, a retired couple from Greensboro, Ga., who purchased their one-bedroom condo a few years ago, before it was built, for $140,000. The apartment, which they'll use every other winter month, alternating with another couple from Wyoming, gives them a ringside seat overlooking one of the world's hottest real estate markets.

"Panama looked like a good investment and a place to have a good time," says Jim Buckley, 76, a former U.S. Air Guard pilot, while admiring the view. "You don't need a lot of sense to see that it will increase in property value."

Panama City is in the midst of an unprecedented real estate boom that is transforming the skyline of this once-sleepy Latin American capital. More than 30,000 units worth about $5.7 billion have come on the market since last July, according to Paul McBride, CEO of Prima Panama, a real estate marketing company.
That's a lot of condos in a country where the total economy measured $16.2 billion last year. And the boom shows no sign of abating: Among the showiest of the new projects is the Iron Tower, a 78-story luxury apartment building and Hilton Hotel complex that will be one of the tallest buildings in Latin America when it is completed. Even Donald Trump has a project on the boards.

Part of what's driving growth in Panama City, where the median apartment price recently surpassed the median home price in the U.S., is a wave of retirees from North America, like the Buckleys, looking for a place in the sun. So far, few Americans have moved permanently, but many are buying second homes or just plain speculating. Europeans are here too, and there's plenty of new wealth in Latin America, in places like Venezuela and Colombia, looking for a safe haven.
Call it Panamania. Is it a bubble in the making, or the rise of a new Miami? Despite the abundance of cranes around Panama City, only about 10 percent of the projects being sold are under construction, says McBride. "We're not even seeing the construction boom in Panama yet," he says. "This place will look like Manhattan if all these projects come to fruition."

Certainly the decision to spend $5.2 billion to double the width of the Panama Canal, the country's biggest source of revenue, is a sign of Panama's prosperity. The addition of a new lane and a new set of locks will allow post-Panamax container ships, the world's largest, to pass through the canal. "The expansion of the canal has woken up the curiosity of a lot of people," says Saul Faskha, the local developer of the Iron Tower and one of Panama's biggest boosters.

Panama's economy has been growing at breakneck speed - 8.1 percent last year, compared with 6.4 percent in 2005 - and the government finished the year with a surplus of $576 million. Exports from Panama's free-trade zone, the second largest in the world after Hong Kong's, have helped fuel the growth. The U.S. Congress is expected to sign a free-trade agreement with Panama sometime this year, which should boost exports even further. And several multinational corporations have moved or are moving their Latin American headquarters to Panama City, including Caterpillar, Sanofi-Aventis and Samsung.

Consumer spending has also swelled, the banking sector is strong, and 40,000 new jobs were created last year. All that is good news for the government of Martín Torrijos, son of former strongman Omar Torrijos, who ruled Panama from 1968 to 1981. Unlike his father, the younger Torrijos came to power in a fair election in 2004. And unlike his father, Torrijos doesn't have to deal with a U.S.-occupied Canal Zone: Panama took control of the canal in 1999 and has proved adept at running it. Gone, too, are the U.S. troops that toppled another dictator, Manuel Noriega, a corrupt former general who is nearing the end of a 17-year U.S. prison term for cocaine trafficking.

Rumors that Noriega might want to return to Panama have cast a cloud over an otherwise bright mood. But the country, 36 percent of whose population lives in poverty, has other problems to deal with. For one thing, says Torrijos, during a recent trip to a small mountain town, "there is a huge demand now for a skilled workforce."

Indeed, a labor shortage has already helped slow construction activity in Panama City, and developers are concerned that other factors may hinder the completion of projects. Materials and equipment are in high demand, from rebar to cement to earthmovers. The construction frenzy has also put a strain on the city's infrastructure, and the government is struggling to build enough roads, water-treatment facilities and other projects.

One big problem: All of Panama City's sewage is dumped into the bay, and a treatment plant won't be completed until 2009. "Panama has grown very, very fast - we didn't anticipate this," says Ubaldino Real, Minister of the Presidency. "The government has had to take out more money to be able to act much faster to build roads."

But that hasn't dampened the enthusiasm of people like José Manuel Bern, director of sales and projects for Empresas Bern, one of Panama City's oldest and largest developers. The company's Bayfront Tower, completed in April, is among the first buildings designed for foreigners - distinct from those built for locals because they have balconies but no maid's rooms. Bern says that he sold nearly all the apartments in the tower four years ago, and that units that originally went for $130,000 now sell for $330,000. "We used to be very focused on the local market," he says, "but now I sell to a foreigner every other day."

Prima Panama's McBride and others are worried that the building boom is ultimately going to exceed demand. "I do not think there will be sufficient buyers to absorb capacity, if in fact capacity is delivered," McBride says. "When you see prices going up, driven by speculative investors, that points to a bubble."

Try telling that to Adolfo Olloqui, a Spanish developer whose company, Grupo Olloqui, is building what will be one of the tallest luxury towers in downtown Panama City, the 77-story Palacio de la Bahia. "Panama is the Miami of the future," he says. "With the visa problems in the U.S., South Americans, Central Americans and North Americans will want to come here to do business and to live."

Or try telling it to the Buckleys, who at least have a splendid view from their new Panama perch.
From the July 9, 2007 issue

Monday, July 02, 2007

Forget Florida; Central America the New Hot Spot for Retirees

Forget Florida; Central America the New Hot Spot for RetireesBy Travis AltmanTheStreet.com Ratings Reporter6/28/2007 12:31 PM EDTURL:

http://www.thestreet.com/funds/toponepercent/10364262.html

If you travel regularly, it happens eventually. You'll be in another country, lying on a white, sandy beach or strolling through some charming village, when you turn to your significant other and say, "I could stay here for the rest of my life." The idea seems tantalizingly exotic, an elaborate scheme to be hatched over dinner while on vacation -- only to be discarded and forgotten upon return to the workday world. However, the dream may not be unrealistic at all. In fact, many Central American countries are betting U.S. baby boomers will be the generation that globalizes retirement.

They're gearing up by offering financial incentives that could make retiring internationally a smart financial move for some individuals.

The same advances that allow companies to do business across borders are making it possible for people to live out their golden years in another country. "Technology and travel developments have put us in the position to do more with our lives while still staying in touch," says Susan Black, director of financial planning for eMoney Advisor.

If you retire in Panama, for instance, you can talk to your children and grandchildren via phone or email every day if you want to, fly home a few times each year, and probably even get a satellite dish to keep up with your favorite TV programs. Still, that doesn't mean things are the same as they were at home.

Making Adjustments
Jim and Donna Hawley found this out the hard way three years ago when they moved from Minneapolis to an apartment they bought in Panama City.

When they arrived, they discovered that not only were appliances not included, but there were no lights, air conditioner, water, or even a bathtub! "It never crossed our minds to ask about that," Jim says.

Paul McBride, an American expatriate who offers free advice on relocating to Panama though his company Prima Panama, says many retirees don't ask enough questions or fail to use common sense when relocating to a new country.

Recently, he met a businessman from New York who was ready to buy property from the cab driver who picked him up at the airport. "Don't leave your brains at the border," McBride cautions. "You have to be very careful." That said, he believes Panama is on the verge of something big, and expects as many as 30,000 Americans to move there in the next 15 years -- a major development in a country of around 3 million people.


They'll be drawn by Panama's pleasant climate, lower cost of living and stable dollar-based economy. Many will also appreciate the generous incentive package the Panamanian government has put together: Retirees on pensionado visas get import exemptions on their household goods and cars, may not have to pay property taxes for up to 15 years and even receive special discounts such as 10% off prescription drugs, 25% off domestic airfares and 50% off movie tickets.

The Hawleys say it was the low cost of health care that motivated them to move. They pay $130 apiece for what they call a "Cadillac" insurance policy. As for the quality of Panamanian health care, "a lot of the doctors in Panama are U.S.-trained," Jim says.


Southern Comforts
Anticipation of the boomers' arrival is fueling wild speculation on real estate in and around Panama City.

It is also spurring the development of retirement communities all over the country such as Valle Escondido, a gated development in the mountains with its own sewage and water systems, paved roads, 24/7 security, a golf course and Internet access. Home construction costs typically run about $55 to $60 per square foot.

Throughout Central America, countries are jockeying for position, trying to attract flocks of North American retirees they believe will be willing to settle a bit farther south than Florida or Arizona for the right price.

Countries such as Costa Rica, Belize, Nicaragua and Honduras all offer retirement incentive packages similar to Panama's. Generally, the rule of thumb is the less developed the country, the lower the cost of living and the better the enticements.
And this is not to say that your retirement experience in these areas will be an unpleasant one. Ray Auxillou says he and his wife are living much better in mainland Belize than they would have if they had stayed in Florida. "In the U.S., we would currently be homeless or upper poverty class," Auxillou says.

Instead, they own their own hostel catering to backpackers and enjoy luxuries such as two pickup trucks, cable television, a nursery and maid service. The price tag? Around $700 a month.

Concerns about crime and political unrest are part of what keeps costs down for retirees in countries such as Belize and Nicaragua. However, Auxillou feels those fears are overblown. "Nothing happens here that hasn't happened in Miami," he says, "and usually [there's] much less of it."

Still, retiring to another country is definitely not for everyone, and Central America will never turn into Florida Lite.

In many areas, you need at least a bit of Spanish to get by. Routine chores that can be handled online in the U.S., such as paying the electric bill, may require you to stand in line for hours. And of course you'll have to give up some comforts of home if you want to live frugally somewhere else.

"If you have to have your Kraft macaroni and cheese in Nicaragua, it's going to cost you more than in the U.S.," says Lief Simon, who covers the Central American real estate market for International Living.

Black says the best candidates for retiring abroad have flexible personalities. Many in the expatriate community are people who traveled heavily in their former careers or who immigrated to the U.S. from another country in the first place.

"You have to ask yourself," Black says, "do you feel comfortable treated as a foreigner every day for the rest of your life?" If so, then it may be time to start looking toward Central America for your golden years.