The Expansion of Panama's Economy and Canal
(panamarealtor.com) "I originally started off in Costa Rica, as many people in Panama today have done....Sort of on a whim, I went down to Panama for a weekend, and those three days turned into seven, and the next thing you knew, I was moving all my things out of Costa Rica and into Panama," Matt Landau, founder and CEO of The Panama Report and a real estate consultant based in Panama City, said.
"Panama absolutely amazed me."
Panama's northern neighbor, Costa Rica, has grown increasingly popular with tourists, retirees and investors alike in recent years. Now Panama is poised to attain similar popularity.
Panama is easily accessible to foreigners—particularly Americans—in more ways than one. First of all, Panama is easily accessible from the U.S. It is served by daily nonstop flights from Los Angeles, Houston, Miami, Orlando, Atlanta, Washington, D.C. and Newark; many of these flights are less than four hours.
Panama's geography is notable not only for its proximity to the U.S., but also for its variety. "The climate's a little cooler in the mountains, and in Panama, your mountains are very close to the beach areas," Jeff Duda of Panama Casa, a property management company, said. "You can be up in the mountains with beautiful views out to the ocean and be only 15 minutes from the beaches."
The Panama Canal is perhaps the most widely known feature in Panama. Charles V, Holy Roman Emperor and King of Spain, originally suggested a canal in Panama in 1534, with the intention of easing trade, and the French attempted a canal in the nineteenth century, according to the Panama Canal Authority. The canal itself was constructed under U.S. leadership and completed in 1914.
Panama's dollar economy also makes it a simpler country than many for Americans to navigate because there is no need to exchange currency or keep track of exchange rates. "It's a U.S. dollar economy, and so when you go down there, there are no exchange problems," Lyle Burke, founder of TropicalPathways.com, an investment discovery tour company, said. Panama's historically low inflation rates can largely be attributed to its dollar economy.
"Essentially, what you have in Panama is a safe country that is user-friendly for North Americans and Europeans, and that offers a whole host of benefits [for those] living there," Burke said.
Indeed, an increasing number of Americans choose to spend their retirement years in Panama. Between 1990 and 2000, the number of U.S. senior citizens living in Panama doubled, according to Panama's Census.
Foreign retirees
Panama is able to attract retirees through more than just its location, beaches and year-round sunny weather.
"Retirement properties have been considerably cheaper in Panama than in Florida, and the climate is as good or better," according to The Dallas Morning News.
In addition to the steadily sunny climate, it is important to note that Panama, unlike many areas in Central America and the Caribbean, is not in the hurricane belt.
"They've got a great program for retirees," called the pensionado program, that can cut people's cost of living in half, Burke said. "What you have to do to qualify for the basic pensionado program is you have to prove U.S. retirement monies monthly of $600 or greater."
The application for the pensionado visa costs several thousand dollars, Burke said. "But once it's approved, then there is a whole list of things" that are discounted. "For example, 10 percent [off] in all restaurants, anywhere you go. Within the country, you get a reduction on local airlines of 50 percent. You go to a pharmacy, it's 25 percent [off]," Burke said. There are also tax incentives tied to importation.
"If you want to live on a budget, it's very, very reasonable," Burke said. "The retirees look at this very favorably. Health and dental care is, in many ways and in many sectors, on par with care provided in North America, and about a third of the price."
"Although Medicare doesn't reach Americans abroad, healthcare is much less expensive [in Panama] than in the United States," according to The Dallas Morning News.
All of these factors combined have led to "a huge retirement class moving down here," Duda said. The influx of retirees, he said, "is causing a lot of growth in the beach and mountain areas."
Increased tourism
But it's not just retirees who have taken notice of Panama. Tourists are flocking to the country in growing numbers as well.
In 2006, tourists spent $841.4 million in Panama, a 20.1 percent increase over tourist spending in 2005, and the number of tourists to Panama increased by 15 percent between 2005 and 2006, according to BusinessPanama.com.
"The Panamanian government expects the tourism sector to probably exceed...the income from the Panama Canal in just a couple of years," Burke said.
Though the tourism industry is relatively new to Panama, it is developing steadily, Duda said. "Sea World is coming down here, and a couple of the other more touristy port areas are beginning to take advantage of the nice beaches around here."
Panama is a dual coast country, with beaches on both the Pacific Ocean and Caribbean Sea and many port cities. The cruise industry has taken advantage of this and has a growing presence in Panama.
"Annually some 300,000 persons arrive in cruise ships to Panamanian ports," according to BusinessPanama.com. "It is estimated that in the cruise season 2007-2008, there will arrive at least 287,650 tourists in 192 cruise ships, leaving at least $40 million to the Panamanian economy."
Despite its port cities and the canal, Panama's economy relies more heavily on the service industry than on trade. As a result, Panama is actively working to make sure that it continues to attract tourists.
The Panamanian Tourism Institute plans to spend $39.5 million on its Master Tourism Plan between now and 2020, according to BusinessPanama.com. The money will be spent on projects such as advertising campaigns, signage on main roads geared toward tourists and construction of tourism information kiosks and centers, among other things.
Unlike some of its Central American neighbors trying to increase tourism, Panama already has reliable infrastructure in place. Its infrastructure is "developed to a lot greater degree" than the infrastructure in the rest of Central America, Duda said.
"The infrastructure here is unlike anything I've seen in Central America. A lot of that is thanks to the United States government, who was here with the canal," Landau said. "You see roads and you see Internet and you see telephones in places you...really don't elsewhere in Central America."
Economy
Panama's dollar economy is not the only rare aspect of its economy in comparison to its Central American neighbors. It is not a signatory of the Central American Free Trade Agreement (CAFTA).
Rather than sign CAFTA, Panama negotiated its own free trade agreement with the U.S. The agreement, signed June 28, "will help promote the country's economic growth," according to the CIA World Factbook.
The Panama Canal is a center of trade and a key feature in Panama's overall economy. What used to be an isthmus has been a canal and a key to trade since the early 20th century. By the end of the 2006 fiscal year, 943,032 vessels had used the canal, according to the Panama Canal Authority.
"The waterway moves 4 percent of the world's cargo," according to the Associated Press.
The Panama Canal is undergoing an expansion that began Sept. 3. Two sets of locks—wider than the ones in place—are going to be constructed on each side of the canal.
"The $5.25 billion expansion is expected to double the 50-mile canal's capacity and lower the price of consumer goods on the East Coast of the United States by allowing wider vessels to squeeze through with more cargo," according to the Associated Press.
"In addition to benefiting international trade, the new locks are expected to generate more revenue for the canal and Panama's government," according to the Associated Press. Such projects are meant to draw tourists, but, in addition to drawing tourists themselves, Panama wants to attract those who invest in tourism.
"In 1994, Panama passed Law No. 8—still the most modern and comprehensive law for the promotion of tourism investment in Latin America and the Caribbean," according to BusinessPanama.com. "In so-called Special Tourism Zones, Law 8 offers incentives such as 100 percent exemption from income tax, real estate tax, import duties for construction materials and equipment, and other taxes."
The banking industry is certainly benefiting from investors. "In the first five months of this year, Panamanian banks reported profits of $444.1 million, up 19.4 percent from the same period in 2006. The banks say credit is expanding 15 percent a month," according to The Dallas Morning News.
There is a lot of development and growth happening in Panama in addition to that happening within the tourism industry. "We have the canal expansion coming in here. It's about a $5 billion project. There [are] two oil refineries coming into Panama, both about $6 billion projects," Duda said. "Panama now has the largest number of mega projects going on in the whole world."
It is this overall growth and expansion that makes many optimistic about Panama's economy, both in the present and in the future. "The expansion of the Panama Canal, hopes for big energy investments and happy days in the banking industry all point to rapid economic growth," according to The Dallas Morning News.
There is a lot of optimism surrounding Panama as an investment location because it is experiencing growth across a wide variety of sectors. While many markets take off because of one outstanding feature, Panama's success does not hinge on any individual trend.
