When Teddy Roosevelt went down to Panama after America took over the massive canal project from the French, he cut the ribbon to begin the American effort with the words: “Let the dirt fly.”
It sure did — over 545 million cubic meters of it.
“We built it, we own it, and we’re going to keep it.”
This was candidate Ronald Reagan’s battle cry during his 1976 presidential primary fight and the debate over the Panama Canal Treaty that was signed by President Carter in 1977.
And since this week commemorates the 100-year anniversary of the opening of the canal, as well as 15 years of successful management by the Panamanians, I just had to write about how far the canal and country have come in a century of growth.
One stunning fact is that more than 1 million ships have passed through its gates.
Panama has intrigued me ever since I read David McCullough’s definitive The Path Between the Seas: The Creation of the Panama Canal. Finally, last November, I visited Panama on my own nickel to learn more about how it has become a boomtown as the “Singapore of Latin America.”
One huge reason for Panama’s role as a global trading and financial center is its location at the center of two oceans and two continents. The recent passing of the U.S.- Panama Free Trade Agreement will only deepen its rising financial and trade role in tying the two continents more closely together.
And though when we think of safe havens and offshore banking centers, Switzerland most often comes to mind, Panama is another great option just a short flight from America.
Panama is Booming
The Republic of Panama is booming not just because of lucky geography and a smart free-market but also because investment-friendly policies have sharpened its advantages…
-
Panama’s currency is the U.S. dollar, and this makes investing in the country easy.
-
Banking and communication services are world class.
-
Panama has launched a five-year, $13.6 billion investment plan, focusing on schools, hospitals, sewerage, roads, and metro transit systems.
-
Panama’s import tariffs are among the lowest in Latin America, and the country has received foreign direct investment worth nearly 9% of GDP.
-
Panama is a well-regarded tax haven, and its 130 banks offer a high degree of privacy.
-
There is no tax on interest earned from bank accounts for locals or foreigners.
-
There are no corporate or personal taxes on offshore activity.
-
Residents pay no local taxes on their foreign earned income.
-
In Panama, any legal resident may buy and own property. Retirees don’t have to pay property taxes until they sell their homes. On new homes, there is a 20-year tax holiday.
The result of all this good stuff is an economy that has grown at an 8% clip over the past five years.
Building Panama
A construction boom is also changing the landscape of Panama City. There are dozens of office towers going up, including the Trump Ocean Club and Latin America’s first Waldorf-Astoria: the Panamera.
Oh, I almost forgot to mention the doubling of the capacity of the Panama Canal.
The Panama Canal’s annual revenues have grown to over $2 billion (7.5% of GDP). Traffic and revenue were up about 25% in 2013, and this has produced a ripple of growth in many related businesses such as insurance, ship maintenance and repair, trade finance, and banking.
The canal and Panama’s business-friendly regulations have expanded big insurance, finance, and legal offshore industries.
The free-trade zone in Colón on the Atlantic end of the canal and Balboa, Panama’s Pacific-side trade gateway, have recently become Latin America’s two busiest ports.
Get ready for the growth of these two ports to explode soon after the canal’s $5.25 billion expansion project is completed in 2015. This double-barreled shot of growth doubles capacity and allows much larger vessels to travel through the canal.
These bigger “Panamax” ships will be longer, wider, and deeper and able to carry double the cargo of ships currently using the canal.
This is one reason Colón has become the regional base for firms like Procter & Gamble — particularly since two-thirds of the traffic through the canal is coming from or going to America.
The New York Times reports that the Port of Charleston in South Carolina is spending $1.3 billion over 10 years on improvements to handle the additional cargo from the canal and other routes. Dean Campbell, a soybean farmer from Illinois, expects the expansion will help him compete with farmers in South America.
To get a piece of this growth, invest in what I call the “Panama Proxy” — Banco Latinoamericano de Comercio Exterior S.A. (NYSE: BLX), more commonly referred to as “Bladex.”
Bladex’s core business is steady and safe trade finance that should grow nicely with increased canal traffic. The bank has sharply expanded business with Chile and Peru, and a major goal is to increase fee business from asset management and private banking. BLX is also trading about nine times earnings while sporting a nice 4.5% dividend yield.
The Economist recently commented that Panama’s former president, Ricardo Martinelli, made his first state visit to Singapore in 2010 and later said, “We copy a lot from Singapore and we need to copy more.”
Panama needs to improve infrastructure, education, and transparency to get to Singapore quality, but it is on the right track.
Get a piece of the action right now as Panama begins another century of growth.
Until next time,
Carl Delfeld for Wealth Daily
