Alan and Geri – Canada – visiting Panama
February 2008 check out Alan's
investment website
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Retarded/Retired?
We just ate at Roxanne's, which is on
the main drag of Boquete. We ate there
last year and had the most tender ribs,
ever, so we looked forward to going
back. We both ordered the Baby Back Ribs
and enjoyed them, although they didn't
just fall off the bone like last year.
At the end of the meal, after we asked
for the check, the waitress, who spoke
no English, came over and asked us
something that we did not understand.
Something like "Oubilando" or "Oubilado",
so drawing on my French I thought she
wanted to know whether we perhaps forgot
something, but that wasn't it.
Next, I'm thinking she was perhaps
running her words together and
swallowing an indeterminate number of
letters, saying that we forgot to order
ice cream, which I saw on the menu but
didn't think was included with the ribs
(salad and bread and potatoes were), as
in "Oubi-helado" so I said to her, "helado?"
She of course looked at me like I was
crazy and went off to find someone who I
think is the owner.
The owner came up to the table and asked
us, in broken English, if we were
"retarded" and quickly caught herself
and repeated "retired".
I didn't hear the "retarded" but Geri
did and was immediately starting to
grimace in an attempt to keep from
cracking up, while I explained that we
didn't have our papers yet (Geri
volunteered to certify me a few minutes
later). It then hit us that the waitress
was asking us if we were "Jubilandos",
something we had never heard a
Panamanian say before. This is the name
for the "retired" in Panama...and a
significant part of the Panamanian
Social Security system is that the
"retired" get discounts on meals, power
bills, doctor bills, drug costs,
transportation, etc. Nobody had ever
offered a discount to us (usually
Gringos get a special price, as in
"anti-discount"). When we get our
Residency Visa, we'll get a Panamanian
Cedula (identity card) that will say we
are retired and qualify for all the
discounts.
Anyway, she said that it was OK to not
have papers and deducted some money off
the bill, which we then quickly added to
the tip, paid, and rushed out of the
place, cracking up. Total, with tax and
4 beers was $21, plus the $5 tip we left
for the "entertainment" and language
lesson.
Perhaps you had to be there, but it is
not so bad to be retarded if you get a
discount as a result.
Looking at Panama as an Investment
This country is like one of its many
real estate renovation projects. It has
some attractive sections but most of it
is run down and neglected, having been
occupied by tenants who often didn't
take great care of it, at least partly
because they were very poor and couldn't
afford it. But it is a property with
great "bones", the location is good and
the structure and exquisite detail is
all there if only it got enough care
backed by lots of money. The renovation
has started.
Presently GDP is a bit over $10 billion
and the population is a bit more than 3
million people. The country runs
east-west for about 350 miles and
averages about 100 miles wide in the
north-south direction, with a
mountainous spine running through the
middle. It has both Caribbean and
Pacific coastal property, mostly
undeveloped and is bordered by Costa
Rica on the West and Colombia on the
East.
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The country has the same electrical
system as the US and Canada, uses the US
Dollar as currency (calling it the
Balboa) and has safe and ample drinking
water, unlike many areas in Central and
South America. You do not run a
significant risk of stomach ailments
from drinking the water, eating whole
fruit, or from the food.
The Banking system is well known and has
a good reputation that makes people from
all around the world put their money
here and/or invest with Panama as a
base. Panamanian bank-secrecy laws
motivate people to hide their money
here, usually from possible claims from
creditors or in case of confiscation
dangers elsewhere, making the country a
center of commerce for Central and South
America. Of course, Panama as a
safe-haven Banking center is helped by
high taxes in other jurisdiction and the
policies of Venezuela and similar govt.s
in the region. Panamanian Bank secrecy
has been pierced somewhat by continued
unrelenting pressure from the USA
relating to money laundering, drug
smuggling, and over terrorist financing
concerns. Having been invaded not too
long ago, Panama has introduced laws to
question the source of funds and require
the many, many Banks from all over the
world that are located here, to know
their clients. You need two letters from
financial institutions and possibly an
introduction from local lawyers to open
an account (but IMO if you have enough
money, you can get these one way or
another, if you catch my drift).
Tourism is big business and growing. The
sector grew 20% in 2006 and seems to be
continuing. Infrastructure to service
this growing source of revenue is helped
by tax incentives that exempt or
partially exempt tourist-related
business income. Prices of land and
homes in tourist areas (including Panama
City) are climbing noticeably and are
unlikely to be significantly affected by
the US housing slowdown, because the
overwhelming majority of people coming
here are not Americans. Venezuelans and
Colombians are streaming in much more
than Americans, along with Argentinians,
and other from South America. The
interest from Canada seems also to be
growing but is not yet as large as the
US involvement. Even Europeans are
visiting and moving to Panama and
French, British and Spanish companies
have major large-money development
projects going in construction,
development, tourism, etc.
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And the money is pouring in.
The Canal expansion is already underway
and will pump $5 billion directly into
the economy, with another 5 indirectly,
providing employment in a country with
high unemployment. This economic
activity alone is as much as a year's
GDP. There is another 13 billion in
direct (double it to include the
indirect benefits) investment already
booked for the next 8 years, including a
$405 million European-funded project to
redevelop the Howard Air Force base
outside Panama City, expected to create
20,000 new jobs for this one project
alone. The trans-istmus oil pipeline is
getting a $100 million investment to
increase capacity and reverse the flow
so that Venezuelan oil can get shipped
to the Pacific and then to China.
Originally it was going the other way to
take Alaskan oil to the US Gulf ports,
but there is not much Alaskan oil any
more. There is a possible $7 billion
refinery project being pushed by
Occidental Pete in partnership with the
Emirate of Dubai, which I have my doubts
about).. Asian institutional investors
are funding a $1 billion expansion of
the Pacific port facilities. The old US
Canal Zone is also being developed for
residential and tourism. Lots of roads
(e.g. a $300 million road linking the
north and south coasts) are being fixed
and many new ones built, often to places
that never had a paved road before,
opening them up for settlement and
development. This is going to make the
rural people less isolated and give them
some employment other than very low-paid
farm jobs, but will present the need to
increase education in the boonies...and
most of Panama is very sparsely
populated and without utilities off of
paved roads. It is common to see
peasants walking long distances with
their families and bundles, through
heat, wind and rain, going to and from
work or a local store and home.
Businesses are moving in too. The fellow
from Edmonton I met in Panama City moved
his software company's call center here
and is very satisfied. Actually, he is
more than satisfied. He is enthusiastic
about the effects of the move and his
new life in Panama, including all the
nice Panamanians he's met and those he's
hired. Costs here for him are less than
half of what they'd be in Vancouver and
his employees are fluent enough in
English that clients don't know they are
Spanish speakers. Whereas in Canada,
call center employees are notorious for
high turnover, requiring constant costs
and effort to train new people, here his
employees are stable and happy to be
earning the premium (by Panamanian
standard) but tiny (by Canadian
standards) salaries. Hewlitt Packard is
moving a call center down here,
eventually to reach 5000 employees, to
be in operation this May.
Panama recently passed a law reducing
taxes for major companies to move
headquarters here. Caterpillar,
obviously seeing all the infrastructure
work going on in this small country, is
moving its Regional Office here, opening
a 250 acre operations center near Panama
City. The United Nations is opening
their first regional (Latin America &
the Caribbean) office in the old US
Canal Zone and this is being funded by
the European Union, which obviously sees
spin-off investment possibilities for
their member countries and is using the
opportunity to get a foot in the door
into this formerly (and still somewhat)
US-dominated land. The strength of the
Euro compared to the US$ is helping and
makes it easier and more attractive for
Europeans to invest here, because it
seems much cheaper to them than for
Americans or Canadians.
Living Costs.
As I've outline throughout this series
of reports, most things are cheaper in
Panama than in the US and certainly
cheaper than in Canada. Of course, items
imported from the US are priced at about
the same price or a bit higher. In my
research, I've found that my living
costs in Canada, where I have
significant heating and cooling costs
and much higher food, drink, and
restaurant costs (not to mention higher
taxes) cost me less in Panama even with
the addition of a full-time maid (and
live-in that is about $6 a day plus room
and board or about $300 not live-in) or
handyman. ALthough it sound kind of
Imperialistic to be hiring the natives
for house labor, the local foreigners
view it as helping the unskilled
Panamanians earn a living and better
themselves. They often get in trouble
with well-off Panamanians for paying to
much and giving their employees too many
amenities, thereby "raising the market"
and ruining the status quo. Well off
Panamanians tend to have maids. As I
understand it, some have one per child.
Of course, those people who find
employment because of the influx of
foreign money and people directly
benefit and those that don't personally
get jobs indirectly benefit in many
ways...although higher living costs is a
drawback (as those in Alberta are only
too happy to tell us).
Taxes.
The fees to go through the Canal
provides the bulk of Govt. tax revenues.
Banking related revenues are also
significant and the many Panamanian
companies, owned by people from all over
the world, pay yearly fees and help keep
Panamanian lawyers part of the upper
middle class here. Income taxes are a
flat 30% but most people don't pay much
or any income tax. There is no tax on
money earned from outside the country or
for internet-based businesses. Most
tourist-related business also has no
income tax liability. Capital gains
taxes are only 10% and people structure
their affairs, often using corporations
and foundations, to minimize taxes. The
Panamanian Govt. has just passed a tax
exoneration bill for manufacturers,
processors, packagers and industrial and
high tech. developers, to expire in
2015. It basically eliminates all taxes
except real estate taxes and license
fees, although I think that new real
estate construction from the business
will get the 20 year exoneration I
mentioned before.
This means that there is NO income tax
on business profits, NO export taxes, NO
sales taxes, NO production taxes, NO
capital levies on assets and I think
there is no import taxes on machinery
and equipment to use in the business.
These benefits include companies that
process food for example, but it does
not include natural resource extraction
companies like miners (and there is gold
in Panama, as the Spaniards of old knew,
but now it is economic to extract poorer
deposits...but the country is not
especially friendly to miners, inmy
opinion).
If you look at the tax situation as a
whole, the country has given tax
incentives to almost everything in order
to spur development and employment,
rather than levying taxes and then
paying people welfare and unemployment
benefits. This is more of an extreme
free-market capitalism than the US or
Canada or Europe. It is more like Hong
Kong than the US
Real estate taxes run about 1.5% of the
value of the property, apparently. But
laws to encourage construction,
development and jobs give a new home a
tax exoneration for 20 years on the
building, almost eliminating all real
estate tax liability. The exoneration
gets passed on, so a home built 5 years
ago comes with 15 more years of
essentially no taxes. This law expires
in 2 years, but may be renewed, as it
already expired and was renewed.
The only tax-related problem I have
found so far is the probate laws. The
Lawyers have (IMO) arranged for a 30%
cut of assets going through probate
here, including homes. This catches the
unwary who may end up having to sell the
family home to pay the lawyer 30% of its
value. There is a solution for those in
the know...put the home in a corporation
or foundation to avoid probate
completely. This is very similar to the
US practice of older people putting
their assets in a trust to avoid
complications involved in inheritance.
Bottom line
If Panama was a stock, I'd put out a buy
on it. Land values are soaring,
especially in the newly developed and
developing ocean-front areas in Panama
City, whether it is a new neighborhood
being built on land reclaimed from the
sea or areas reclaimed after the
official US presence was decreased in
the Canal Zone. The other areas of
growth are the tourist areas in the more
temperate highlands or at the nicer
beaches. If this is developing into a
bubble, it still has a long way to go,
given the fundamentals and the reasons
why there is an influx of money and
investment.
Drawbacks and risks
Any absentee ownership presents
drawbacks. And being on-site without
fluent Spanish is a drawback, although
you can hire translaters and
"facilitators", which is a growing
business function in Panama. Possible
changes in Govt. policy and in Govt. is
a definite risk. Although Panama is a
Republic, powerful families and
companies control much of what
happens...although is that all that much
different than anywhere else? It may be
more obvious here because it is a small
country. They could change the rules on
immigration and property ownership, but
that would send a very bad signal to
investors and make Panama a place were
people would flee from, rather than flee
to. This could happen in spite of it not
being in their self-interest, but it is
less likely in Panama than elsewhere,
partly because the Canal made Panama.
Panama needs to be a country open to
International commerce and the people
have always known this. And, IMO, the
USA would not allow Panama to do
otherwise because this is a major
strategic interest of the USA given the
need for shipping between east and west
cost and transit of US warships.
Weather-wise there are less risks here,
other than mildew from the heat and
humidity in the lowlands and coastal
areas or infrequent high winds in the
mountains. Certainly there is less
weather risk than Canada or the US.
There are only small earthquakes, no
direct hurricane hits or tornadoes.
There is a chance that the Volcano
called Baru could wake up after 500
years and erupt, but there would be lots
of seismic warning of that.
Politics and Labor Unions seem a bit
more dangerous but I have not found them
significantly worse than what I
experienced in Quebec. There are
left-wing labor unions with political
agendas and they fight among themselves
and with the govt. The upper classes
spend lots of money helping
establishment parties keep power and
that is not much different from the US
or Canada, although the wider poverty
here may make political change more
dangerous here. In my experience and
from data I have seen, improving
conditions, not abject poverty, is what
tends to trigger political change (in
Alberta or Panama), so in that sense,
increased prosperity may be starting to
sew the seeds of political changes.
More to come!
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Well, we got to Boquete!
We got lost getting out of Panama City,
missing a turn and having to go a mile
or so out of the way. The traffic was
crazy and I had to drive like you play
basketball, with elbows flying under the
boards, and when you start a drive, you
have to have conviction or you get cut
off.
The road to David was partly 4 lane
divided and partly 2 lane undivided and
not as bad as we were led to believe.
Having spent 25 years living in
Montreal, I didn't feel the potholes
were all that bad, although I hear that
many people do. We were not always sure
we were on the right road (the
InterAmerican Highway) from PC to David,
but we were and only got lost again when
we were trying to find our Hotel in
David. The names of the streets on the
roadmap were too small for Geri to read
without a magnifier so I had to navigate
by sense of direction, which worked out
to be more direct than the route I had
planned, but I didn't exactly know where
I was and that is not much fun. David is
a mostly run down but didn't look as
poor as the poor parts of PC. We went
into a couple of stores and, for
example, you could buy women's shoes for
$2 or $3 a pair (mostly China's
cheapest, I'd guess). Domestic Beer in a
restaurant or bar can be from $0.50 to
maybe $1.50. Medium sized shrimp pizza,
clams in garlic sauce, calamari Romana,
shrimp ceviche and 7 beers came to $30
for dinner in the restaurant of the Gran
Hotel Nacional, where we stayed last
night. It is supposed to be the best
hotel in David and was originally built
for the people to stay from the United
Fruit Company, which recently moved out
of the area. The hotel was tolerable but
not very nice. It was $78, unlike the
Veneto at $178.
For breakfast we went to the famous "24
hour restaurant". We had OJ (about 12 oz
glasses), cafe con leche (the cup was
about 10 oz), and 2 orders of toast,
which was like toasted French bread (a
baguette) that came buttered with
something that tasted better than
butter. Total bill was $2.50 It was
quite good. The restaurant and town was
hot. When PC is 88, David can be 90, but
who's counting. One wall of the
restaurant was open to the outside so it
was tolerable and the hotel had a noisy
air conditioner.
This morning we drove from David, up the
mountain to Boquete, called the "land of
eternal spring". Again, one wrong turn
and a quick double back was the extent
of getting lost before we got to Boquete.
On the way up we stopped to see Las
Montagnes de Caldera, a housing/resort
development that my Geri picked out on
the web. It was just getting started so
we looked at the area, saw a couple of
unfinished models and tested the air
(too hot for me because it was too low
on the mountain). I was surprised that
going up the mountain was not steep at
all. But the temperature got into the
70s, with a breeze in Boquete. There was
even a bit of what they call baraquete
(not sure of the spelling at the
moment), which is like a mist that falls
for a few moments and refreshes you.
Perhaps it is an errant part of a cloud.
This time I really got lost trying to
follow the directions to the hotel,
called Villa Marita (google it if you
like). After driving up and down some
steep mountain roads outside of town, we
went back to a resto-bar and had a beer
and asked. The English speaking owner
gave me good directions.
Tonight we went to dinner at Machu Pichu
with the owner of the Villa Marita and
some people I met on the web who are
from Virginia. He is developing an
organic farm (called a finca here) where
he will build a home and spend half of
each year, with Panamanians running it
for him. The owner of Villa Marita is a
very interesting and accomplished guy
who has been an agricultural and
economic consultant and has a large
thriving greenhouse and farming business
on the side. He seems also very well
connected within the power structure in
Panama.
The weather is cool nights at about 70
and in the 70s with a breeze during the
day and I am finally comfortable. Geri
wore a light sweater to dinner at a
Peruvian seafood restaurant which was
interesting and reasonably priced. If
you like Aqua, you'd like it if you
haven't already tried it.
Alan
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