A few weeks ago I received the email below from Raluka Benko, a student in Zurich Switzerland.
Dear Sam,
within our MBA program, my colleagues and I are working on an assignment regarding Panama.
In this respect, we were more than happy to discover your blog and all the information you published. Many thanks for all this!
As part of the assignment, we are also required to get in touch with people knowledgeable of Panama and willing to share with us their opinions.
We would like to include in the assignment some of your comments which are available on the blog site and additionally we would very much appreciate if you could briefly share with us your opinions regarding:
1. Which are 5 most important issues that will affect Panama's development in the next 10 years? Why?
2. What measures should be taken for these issues to be properly solved?
Thank you very much for your reply and kind help!
With best wishes,
Raluca Benko
MBA student at University of Strathclyde, UK (Zurich center)
I did not respond beyond suggesting that they review the archives to get the information they needed. I was pleasantly surprised to receive the following report that I believe covers a great deal of the top issues Panama contends with.
SAM TALIAFERRO
(source Panama Investor Blog, http://primapanama.blogs.com/)
An inventor by profession, Sam Taliaferro has developed and patented numerous technologies used in industrial factories throughout the world.
Mr. Taliaferro has lived in Panama since 1997 and he has invested millions of dollars into Panama’s real estate and resort markets. He is credited with having started the current Real Estate boom that is bringing billions of dollars of foreign direct investment into the country. His project, Valle Escondido, was rated the number one foreign retirement destination in the western hemisphere by the AARP in 2002 and one of the top five best lifestyle values in the world by Fortune Magazine in 2005.
Mr. Taliaferro is one of the most outspoken voices in the real estate community, primarily through his online column, the Panama Investor Blog.
Here are some of Mr. Taliaferro’s opinions on….
….economic
significance of foreign retirees in Panama
First,
let's acknowledge that the retiree, who comes to live here, is both a tourist
and a foreign investor. When he first comes to Panama, to investigate the
possibility of moving here, he makes at least one trip as a tourist. He stays
in hotels, eats in restaurants, and visits various parts of the country. During
the construction of his home, he typically makes continued visits to examine
the progress. The typical retiree we bring to Panama spends about $250,000.
This includes: his land, home, car, furnishings and legal fees for immigration.
Because the amount of money is significant, and coming from a foreign source,
he also becomes a foreign investor.
The
average retiree has about $2,000 a month in expendable income. This represents
another $6 million a year in spending on food, maintenance, and travel. In
addition to these expenditures, each retiree has an average of three visitors
per year who come as guests and consequently tourists.
There are now more than 10 such projects in the Boquete area alone,
representing more than 1,000 new homes. This does not include the hundreds of
individual farms that have been sold in the area to foreigners over the last
few years. These new projects represent about $250 million of foreign
investment into Boquete over the next five to ten years as the homes are built,
and as the retirees come to live in Panama permanently. Furthermore, they will
continue to travel and spend another $30 million a year in what I call
maintenance dollars.
It took Costa Rica 30 years to reach their
current level of tourism, but, with an effective strategy, it could take Panama
less than 10 years to accomplish the same success. There is a powerfully large
number of people now retiring globally, (13,000 every day in North America
alone) and the Internet provides us with a successful strategy in reaching
them. All of our clients found us through the Internet. It is the tool Panama
needs to use to get the attention of this exponential number of people retiring
every day.
For those who may think that this many foreigners in our small country would be
detrimental, I would rebut that 30,000 couples represent only two percent of
the current Panamanian population. If we use the number 30,000 as a goal to
achieve in 10 years, and apply the same expenditure potential that we are
seeing in Boquete, Panama would receive approximately $7.5 billion dollars in
initial investment, and $180 million more would be spent in maintenance dollars
each year. This would mean nearly one million construction jobs alone over this
time period. Combine this with the additional investment in tourist
infrastructure, and it is apparent that the retirees really are geese that lay
golden eggs. They come here to visit, then to live, and then to further invest.
This would solve a lot of the financial problems the country currently faces.
…. difficulties faced by the foreign
investors
In the case of Valle Escondido, the
difficulties began with local opposition to change.
Certain local individuals went so far as to contact the media. They falsely
accused our group of money laundering, stealing national patrimony, and even
publicly threatened my life.
Local officials demand cash payments or they will make things difficult.
Local MIVI officials allegedly acting as advisors to our project caused more
than a year of delays in project approvals, costing many thousands in lost
revenue and added costs.
Representatives of the Junta Tecnica went on the radio denouncing our building
methods and threatened to tear down our homes because the technology was not
approved in Panama. It did not even seem to matter that architects and
engineers had stamped the plans and local municipal officials had issued the
building permits. This caused many months in construction delays while testing
was performed concluding that our method, used and approved worldwide, is in
fact better than typical concrete construction in earthquake areas.
The Social Security office, fishing for any discrepancies in payments, did five
months of audits. These only resulted in a few thousand dollars of arguable
issues, but the cost in human resources for us both was many times this amount.
These are but a few examples of the many difficulties we encountered over the
past three years. Although legal issues still await final results, things have
calmed because the local residents have realized the direct benefit in jobs and
income that we bring to the community. Boquete also has a new mayor who is more
progressive and also accepting of change.
This large problem can be distilled down to weak rule of law. There are laws to
protect
the foreign and local investor, but there is weak enforcement and also
corruption both in politics and the judicial system. With the new government
coming into office, the media took polls of the Panamanian people and their
concerns. They revealed an overwhelming desire for more job opportunities and
to rid the country of crime and corruption. Our goals are the same, and a
strong rule of law is the only means to get there.
The Ministry of Trade and Industry says it is working to reduce the amount of procedures for foreign investors to make investments into the country. Although each administration makes these same promises we have yet to see any improvement in the speed at which applications and documents are handles by the state. Developers can wait years for approvals, foreign investors may have to wait years to get visas and paperwork for employees and the approvals for the introduction of new products are usually delayed way beyond reason. Not knowing how the public offices are supposed to work I cannot do more than complain about the situation, but I would think that lack of qualified people and proper incentive to perform has much to do with it. Usually you have to find the right person to pay off in order to expedite things. Maybe the government needs to pay public servants based on a quota system rather than for just showing up and shuffling papers along with the threat of jail time for taking money to expedite paperwork.
The papers have been full of proclamations from various ministries about the new tax plan to be unveiled before the end of the year. Obviously, in times when a new plan is being developed and when it finally is approved by the assembly, there is a great deal of indecision in regards to investment. Uncertainty always scares investors, so the sooner we know what the new tax laws entail the better for everyone. Apparently we still have a few months to wait, but I hope the President sticks with his plan to simplify taxes with a flat tax. This will undoubtedly help foster more foreign direct investment as it has in numerous other countries where it has been implemented.
… on
murder rate for youth
Panama ranks no.8 in LatAm murder rate for youth. In this ranking Panama would rather be in last place, but unfortunately they are in the middle of the pack of 16 countries rated by World Health Organization for young people between the ages of 15 and 24 who are victims of murder. In a recent report titled “A Map of Violence on Young People in Latin America,” the likelihood of a young person in Latin America being the victim of a murder was 30 times greater than a person living in Europe. Glad I am over 50 as the statistics show we are not the targets.
…
vegetable gardens program in Panama
In its first year, 25.000 people will receive free supplies and farming practice assistance, both in rural and urban areas. The "Urban and Rural Vegetable Gardens" project aims to make food cheaper for consumers. Every year it will add 20.000 beneficiaries, for a total 5 years. I think this is a great idea and I only hope it is implemented properly. Teaching people how to grow there own food and supplying them with the means will insure they don't grow hungry in lean times.
….
franchising
Over the last ten years we have seen many of these new businesses open and it is not just the fast food franchises that are so obvious on many street corners. Everything from mufflers to hardware has opened in Panama City, David and Santiago, Panama's major cities. Many people write me and ask what kind of business opportunities are there in Panama. Bringing in a franchise is certainly one way that is proven to be successful.
...
increased food costs in Panama a result of U.S. monetary policy
Economist Raul Moreira has correctly identified the reason the cost of food continues to increase in Panama. It is a direct result of inflation created by the monetary policy of the U.S. government. What could Panama do to solve this every increasing problem? How about working on a new currency platform back by commodities such as gold and silver. If you really wanted to see growth in foreign investment, this would be the way to do it. Some day soon the U.S. dollar is going to go into hyper-inflation and when it does, countries like Panama who are tied to the U.S. dollar are in a very bad position. The very thing that has helped them over the last 20 years, the dollarized economy, will be the thing that ruins them if they don't look at alternatives.
…
new hydro projects
Panama is to develop 31 hydro projects of 1,047 MW by 2013. When coupled with new wind farms, this will nearly double Panama's current energy generation and make it possible to eliminate existing oil fired energy generators. Panama should be a net energy exporter within the next few years.
…
social security system
Social Security was a very hot issue during the last administration, in fact after much wrangling with the unions they were able to work out a deal that would keep it from going broke. Now in today's paper we get details on operational costs and expenditures for the first 6 months of the year. Why should foreign investors care about the social security system of Panama? Well, because if anything happens to that system there will be tremendous social unrest, which will affect the economy greatly, and therefore the value of their investments.
Let’s hope the new administration will have an opportunity to work on Social Security reform even if it just comes in the form of more efficient operations needing less people on the payroll.
…
education
Education is the key to success for the country and any business venture must depend on local employment.
As a parent with children in local private schools I find that parents want their children to have greater opportunities that can only come from high quality education and they even go so far as to pay for private schools if they have sufficient funds to do so. The quality of the teaching staff in public schools are such that most kids find it easier to cheat and the teachers look the other way to get more children through the system with reasonably high marks. When it comes down to doing the work in the real world, it is a different story.
We employ 70 young people in our resort and all come with high school education and a number with college degrees. There are a few exceptions, but most high school graduates are really at an elementary school level. College degrees put them at high school graduate levels of North American schools. It is an unfortunate system of government protectionism that will keep the cycle of low educational levels perpetuated. The "college grads" go on to be teachers and the level of education continues to go down instead of up.
No matter what new plan or curriculum they try it will not work because the teachers unions will not allow any outsiders to teach in the country and they would not want the low paid jobs if they did. Unfortunately, the only way to break the cycle is to do just that.
...
immigration
I am certainly glad to read about easing visa restrictions. This is a major complaint I hear from investors, many of whom become frustrated with the system and give up. Panama needs to protect its borders and control who comes in the country. But they also must move quickly to make entry available to those who will help bring prosperity to the nation.
…infrastructure
The Ministry of Economy came out with its spending plan for the next several years, which includes the funding for the four-lane road to Boquete from David. The last administration also promised this road and nothing came of it except some public meetings to tell us it was going to be done. Most people agree that this would be a benefit as the road is usually very busy and until recently had a great deal of construction traffic to contend with. Another important project they mention that has been talked about a great deal is the lengthening of the airport in David to accommodate large jets. There are a number of other projects including the metro, but not a lot of detail.
…safe
haven
We have Hugo Chavez to thank for the increase in economic activity brought by the political refugees. I am amazed that over 65,000 Venezuelans now call Panama home. Next to Colombians, they have to be the largest group of foreign nationals in Panama. Panama benefits greatly by the instability of its neighbours. Panama is seen as a safe haven by most people in Latin America,
…
shipping industry
The current situation is causing many shipping companies to go under. The boom in shipping was all based on U.S. and European consumers and when they stopped consuming, the container industry has gone bust. From ship operators to ship building companies, they are all feeling the pain. Although they hope things will improve by 2012, there are no guaranties. The shipping companies have orders for new ships that would increase world capacity by 50%, yet shipping is down so significantly that 10% of the entire fleet is now idle. Those that are operating are doing so at a loss and not fully loaded. Just what will it take to get the people of the world feeling rich enough again to start buying goods? This is the major question one must ask. The world economy was driven by credit and most everyone is tapped out. It will take as much as 20 years for consumers to pay down the debt to levels of just 10 years ago according to economists.
