Panama’s Economy Projected As Fastest-Growing In 2014

Panama By The Numbers—It’s A Convincing Case

Panama continues to enjoy impressive economic growth.

Why should you think about moving, retiring, buying a piece of real estate, or basing your business in Panama as opposed to the many other places you might also be considering for those things?

One reason could be because this country’s economy has weathered the storm of the past half-dozen years much better than most and stands today as the fastest growing not only in the region but in the hemisphere.

In 2008, many began calling for the collapse of Panama’s property markets. We didn’t agree. We predicted that real estate values in this country, specifically in Panama City, would soften…fall a bit…but not collapse. We took this position with confidence because we recognized that Panama’s property markets are not fully dependent on U.S. buying pools. Post-2008, U.S. buyers were thin on the ground in Panama, as they were elsewhere in this region. However, unlike elsewhere in this region, Panama continued to attract other buyers, from Venezuela, El Salvador, Honduras, Colombia, etc.

Panama’s property markets did not crumble in the wake of the 2008 meltdown, and neither did its economy. Panama Canal revenues have surged these past six years, continuing to keep this country cash comfortable. In addition, Panama is enjoying growth in both its financial services and tourism sectors and has established itself as a top tourist shopping destination. Now, instead of flying up to Miami to eat, play, shop, and drop some cash, South Americans with money come to Panama, which is easier to get to and far easier to get into than the United States in this War On Terror age.

Panama’s healthy economic state translates to:

  • Ongoing investment in developing the country’s infrastructure
  • Job creation
  • Appreciating real estate values
  • Expanding foreign investment
  • Overall stability

Those things in turn translate to a hard-to-ignore option for where to commit yourself, your time, and your money.

Panama’s economy has expanded by double digits for four of the last eight years. Its current growth rate, projected by the IMF to be as much as 6.6% for 2014, while not double digits, makes it the fastest-growing economy in the Western Hemisphere. Foreign direct investment continues up every year, and unemployment is low and falling (while unemployment is increasing in neighboring countries including Nicaragua, Honduras, and Costa Rica). In 2009, the World Economic Forum Competitiveness Index ranked Panama at 58; in 2013, it ranked Panama at 48.

Panama’s debt was 41.3% of domestic gross product in 2013, compared with 70% in 2004. This reduced debt burden has led to improved credit ratings.

The country’s former President Ricardo Martinelli, whose five-year term ended earlier this year, was an important part of getting this country to where it is today. Throughout his time in office, Martinelli targeted key points of concern and key challenges that could impede the country’s competitive growth agenda, specifically and especially, for example, traffic in Panama City. The traffic in this country’s capital qualifies as among the worst in the world. This is a direct result of the country’s economic growth—more people earning more money are able to afford to buy more cars, meaning additional cars on the road every month. Meantime, Panama City’s road system was developed when this was a much sleepier place. Something had to give.

Martinelli targeted this challenge head on from his first month in office. First, he took the old Diablo rojo buses (these brightly painted old U.S. school buses had been used for local transportation for decades but had become a main source of traffic chaos) off the roads. The prior two governments had said they wanted to replace these buses; Martinelli actually did replace them (well, most of them). In their place today are modern, air-conditioned buses that follow actual routes.

Part 2 of Martinelli’s plan for addressing the traffic mayhem on Panama City’s streets was to build a metro. Again, the previous two administrations had talked about the need for a metro; Martinelli actually built a metro that opened this year. Line 2 is now underway.

Looking ahead, where will additional growth come from for this market?

  • Tourism. Panama is too small for mass tourism (this country will never be France), but it can leverage its geography (two coasts, lots of islands), its history (pirates, gold route, Spanish, French, and American influences), and its infrastructure to be very competitive as a regional tourist destination. Tourism is growing, and tourism revenues now match canal revenues on an annual basis.
  •  Logistics. Since taking control of the Panama Canal, this country has seen three important related milestones—dramatic increases in tonnage, prices, and revenues, primarily as a result of reducing transit time from 33 to 23 hours. The Panama Canal returned a little over US$600 million to the national treasury in 2013. In a country this size, that’s a lot of money. And direct canal revenues are only the beginning of this story. Ripple revenues from the country’s logistics industry are also big and growing. The expansion of the canal, when it is complete, will allow for even more traffic (estimations are for as much as triple current figures).

The good economic news in Panama is, in fact, great, but, yes, there are points of concern. Corruption, for example, continues to impede efficient growth and to frustrate investors. This is a key agenda for new President Varela who has, since assuming office in July, already taken on two high-profile political corruption cases involving a minister and a Supreme Court judge.

Kathleen Peddicord

P.S. I’ve been recommending Panama as a top choice for living, retiring, investing, and doing business overseas for more than 15 years, and I’m more bullish on this country’s prospects and the opportunities it offers today than ever before.

 

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