When one of my clients came to me a few years back and suggested that he might want to put a million dollars to work by investing in Panama Real Estate, I took him as serious as a heart attack. After a year of keeping my eyes opened for the right opportunity, I found a great piece of land that we bought for little over $200,000. For close in land in Boquete, it was priced right. The key to the deal was to think outside the box and that is where my architect Rene Bacil came in. He drew up a plan for a cluster home project that we could build, targeting higher end rental clients that wanted a single family home in a botanical garden setting with no maintenance worries. Boquete Gardens was born and phase 1 is now fully occupied with the first 5 homes.
I have found another property for a much larger project of 20 homes in another close in location. That story will be told too but for now, what is the driving force behind the larger investment picture here in Panama. For that I found a great article on the big economic drivers here.
The Mossack Fonseca leak comes as a reality check for Panama but will not necessarily tarnish the country’s appeal as a major FDI destination in Latin America. With the multibillion-dollar expansion of the Panama Canal wrapped up in June, the country has a chance to find new economic steam despite the fallout of the Panama Papers.
An extremely favourable tax regime, combined with strict bank secrecy, has long since made Panama a popular offshore financial centre, with banks, insurers and financial services providers from around the globe filling up the skyscrapers that have mushroomed around the sail-shaped Trump Tower in Panama City.
Financial services have made up by far the largest number of FDI greenfield projects since 2003, according to figures from fDi Markets, an FT data service that tracks cross-border greenfield FDI.
Panama’s favourable regulation and business climate came in as the second most important reason cited by foreign investors for investing in the country. But the potential for growth of the domestic market remains the first reason to have a footprint in the country, according to fDi Markets.
This potential inevitably traces back to the country’s most coveted asset, the Panama Canal.
The canal handled around 2.3 per cent of global trade in 2014, contributing to about 22 per cent of the national GDP, according to the Panama Canal Authority.
The $5.25bn expansion scheme to upgrade the canal’s capacity to take New Panamax vessels is set to wrap up on June 26.
This will provide an additional boost to maintain “vibrant growth”, the IMF said in March. GDP growth is projected to remain at around 6 per cent in 2016, far better than a contraction of 0.3 per cent estimated for the whole of Latin America.
| Industry sector | Projects | Capex ($m)* |
|---|---|---|
| Financial services | 60 | 1,582 |
| Software & IT services | 28 | 151 |
| Business services | 27 | 98 |
| Communications | 20 | 1,974 |
| Hotels & Tourism | 20 | 2,067 |
| Alternative/renewable energy | 16 | 6,069 |
| Industrial machinery, equipment & tools | 14 | 134 |
| Transportation | 12 | 1,047 |
| Warehousing & storage | 11 | 1,599 |
| Coal, oil and natural gas | 10 | 1,759 |
| Real estate | 9 | 1,389 |
| Business machines & equipment | 6 | 130 |
| Chemicals | 6 | 154 |
| Consumer electronics | 6 | 93 |
| Electronic components | 6 | 36 |
| Metals | 6 | 7,029 |
| Pharmaceuticals | 6 | 156 |
| Textiles | 6 | 62 |
| Beverages | 5 | 120 |
| Building & construction materials | 5 | 363 |
| Data for companies investing in Panama between Jan 2003 and Feb 2016. | ||
| Source: fDi Markets *includes estimates | ||
The project has already prompted major logistics operators including DHL and PSA International to upgrade their local facilities to accommodate growing trade volumes.
Meanwhile, Panama’s long-overlooked mining industry is also emerging as a major recipient of FDI.
Vancouver-based First Quantum alone is investing a total of $6.4bn to develop a massive copper and gold deposit in Colón province.
Booming services and mining sectors, plus the Canal expansion, propelled total FDI to record levels in both 2013 and 2014, when it reached, respectively, $3.9bn and $4.3bn, according to figures from the National Institute of Statistics and Census (INEC).
As the Panama Papers case rolls on, some office space around the Trump Tower will probably remain vacant.
But that will not prevent growing trade and investment from flowing through the new locks of the Panama Canal.
Jacopo Dettoni is deputy editor of fDi Magazine, an FT publication.