Tropiland

Here is a great piece of news for all who live, work and have invested in the Los Santos province in Panama (like yours truly), coming straight from the Ministry Of The Presidency web site.

Martinelli’s government will be investing $107.5 million (this year alone) in the province of Los Santos, according to vice Minister of Finance Dulcidio De La Guardia, who made the announcement  during the celebration of the Cabinet Council held in Las Tablas.

Since Los Santos is  a region dedicated to agriculture, the bulk of the investment will be directed to this sector , some $38.3 million, mostly directed to agricultural management, agriculture activities and construction. .

In the transportation sector, projects will be funded with  o$24 million, $5 millions of which  are being devoted to rehabilitation and maintenance of the road between Guarare-Las Tablas, and rehabilitation of a section of the road Macaracas – Sabana Grande, an estimated $4 million.

Amother important project is the expansion to four lanes of the road over the river La Villa. The project  could be completed this year.

The government also plans to build and rehabilitate secondary roads throughout the Los Santos region, so that the province is left with a road network that will lead to effective marketing of all that the area has to offer from a tourism and business perspective.

Regarding education, the Government allocated  $1 million towards implementing  aggressive scholarship programs.

With regard to Social Program investments,  $12 million (representing 13.6% of the total cost) will go towards the completion of  60 housing  projects.

Well…60 housing projects? Really? I am all for development and modernization and especially all for social development, but 60 housing projects in a province (or an area) that represents only 1/15 of Panama’s population sounds a bit of a pipe dream to me.

Anyhow, it looks as though Martinelli’s government is taking some steps in decentralizing Panama and start developing rural areas with long-term rewards in mind.

Petaquilla Minerals Ltd., the Vancouver Canada based gold mining company, has signed an engagement letter, pursuant to which it will work with a leading financial institution to execute a US$70 million gold linked facility, under which they would be required to deliver 91,710 ounces of gold over a five year term.

The terms of this facility are outlined in an indicative financing term sheet, which includes other price participation terms that enable Petaquilla to participate in gold prices up to US$1,250 per ounce for the committed ounces.

The transaction is subject to structuring and underwriting fees totaling 4% of the facility amount. No other upfront fees, warrants or interest are to be paid to the financial institution during the term of the facility. This transaction is subject to technical, legal and financial due diligence and the execution of final, legally binding transaction documentation.

The IRR of the facility is 8.5%, assuming that gold prices stay within the agreed limits of the price cap.

The term-sheet includes an “optional early termination” clause whereby Petaquilla has the option to early repay the outstanding balance of the gold facility in the event gold prices move upwards and beyond the level of US$1,250 per ounce. This optional early termination clause is subject to a 5% premium payment calculated on the early repayment amount.

The terms of the engagement letter incorporate the possibility of a simultaneous or subsequent participation of one or several leading Panamanian banks which have expressed their interest in funding up to US$35 million of the total US$70 million financing requirement.

In such event, the gold facility would then be reduced by the amount equivalent to the Panamanian banks’ participation. No early termination premium of 5% is to be payable in case the Panamanian banks’ participation is to occur subsequent to the closing of the initial US$70 million facility.

The amount of 91,710 ounces that would be committed to the gold facility represents approximately 8.5% of Petaquilla’s total gold resources or 4.2% if the facility is to be reduced to US$35 million as a result of the above mentioned participation by Panamanian banks.

The proceeds of the facility will be used principally to redeem all of Petaquilla’s outstanding senior secured notes, in the combined amount of US$69.6 million in principal, plus any accrued interest up to the date of redemption. These senior secured notes would otherwise mature at various dates during the next 12 months.

The five year term of the gold facility, coupled with an attractive embedded cost of capital, will substantially strengthen the financial profile of the Company, providing additional liquidity to further develop its production capabilities and exploration potential.

This gold facility will enhance Petaquilla’s balance-sheet, by reducing the financial risk implicit in the outstanding high-yield senior secured notes, while extending the repayment of the credit facility to five years.

Petaquilla further announced that it will now focus its efforts on the very promising exploration potential of its Oro del Norte concession, where it has initiated a drilling program aimed at confirming the prospective gold grades identified during the early superficial rock sampling and trenching stages, while also advancing the Molejon heap leach project, which will add approximately 150,000 ounces, over the life of mine, to the existing process operation, and completing the spin out of its infrastructure affiliate, Petaquilla Infrastructure Ltd.

Petaquilla Minerals Ltd. is a gold producer operating its gold processing plant at its 100% owned Molejon Gold Project in Panama. Anticipated throughput for the project during the first year of commercial production is estimated to be 2200 tonnes per day. Commercial production commenced January 8, 2010. The Molejon mine site is located in the south central area of the company’s 100% owned 842-square kilometre concession lands, a region known historically for gold content.

Panama has joined the privileged group of Latin American countries ranked as investment grade, which includes Brazil, Mexico.

Fitch Ratings has upgraded the Republic of Panama’s long-term foreign currency and local currency Issuer Default Ratings (IDRs) to ‘BBB-’ from ‘BB+’. Both Rating Outlooks remain Positive. Fitch has also upgraded the short-term foreign currency IDR to ‘F3′ from ‘B’ and the country ceiling to ‘A-’ from ‘BBB+’.

The upgrades reflect a sustained improvement in public finances, underpinned by recent tax reforms, and the economy’s resilience to the global financial crisis and associated recession.

Although economic growth decelerated to 2.4% in 2009 from 10.7% in 2008, it was one of the strongest rates of growth in Latin America and among ‘BBB’ rated peers. Similarly, fiscal deterioration was moderate, especially by international standards while Panama’s general government debt/GDP ratio stabilized around 45%.

The Positive Outlook reflects the expectation that government debt/GDP ratio will further decline as the growth accelerates and fiscal discipline is maintained despite an ambitious public investment program.

Photo, Courtecy of LA PRENSA/ Jihan Rodriguez

The project to expand the Canal has increased the value of these lots, which used to be managed by the United States before the signing of the Torrijos-Carter treaty, which recognized Panamanian sovereignty over the Canal.

There are 5.000 hectares of undeveloped land surrounding the Panama Canal.

Such lots are interesting for touristic endeavors or for installing maritime or logistic facilities. The Panama Canal Authorities and the Recovered Goods Unit of the Economy Ministry are already planning their development.

One of these areas, Fort Sherman, is expected to become “a major touristic center. The first steps to develop it are similar to what was done in Howard. There, the Government hired a consulting company (C4T Tourism Business & Planning) for $266.000, to develop a master plan.

The association agreement is the most advanced kind that the European Union signs with a country or region.  It covers political dialogue, trade and cooperation, as well as issues such as human rights, climate change, science and technology and global governance.

Political relations between the EU and Panama have been shaped by the San José Dialogue, which was launched at an EU-Central America Ministerial Meeting in Costa Rica in 1984. Panama is a signatory to the 1993 EU-Central America Framework Cooperation Agreement and to the Political Dialogue and Cooperation Agreement signed in 2003. It sits in as an observer on the EU-Central America negotiations with a view to an Association Agreement, including a free trade area.

The EU is the top foreign investor in Panama, the leading aid donor to the country and its third trading partner. Due to its relatively high economic development indicators, Panama is not considered a priority country for cooperation by international donors. It has nevertheless been allocated €38 million from the EU budget for the years 2007-2013 (see the Country Strategy Paper). The objectives are: (1) to improve social cohesion focusing on social policies and services in order to help reduce poverty; and (2) to support regional integration with the Central American countries with a view to sustaining Panama’s efforts to develop policies in line with those of the rest of the region.

Panama joins Honduras, Costa Rica, El Salvador, Guatemala and Nicaragua which make up the Central American negotiating block.

Mexico signed agreements to avoid double taxation and prevent fiscal evasion with both Panama and the Bahamas, on the occasion of the Summit of Latin American and Caribbean Unity.

The purpose of the agreements was to promote international cooperation in tax matters through information exchange and verify that in future, the appropriate amounts of tax are paid.

The agreements also establish a ‘Mutual Agreement Procedure’ for resolving amicably conflicts that could arise from their application and interpretation.

The wording of the agreements conform with OECD standards, and, in the case of the Bahamas Agreement, cover all federal Mexican taxes and Bahamian taxes of every kind and description, including identical or substantially similar taxes imposed added later or replacing existing taxes.

During his speech Mexican President Felipe Calderón said that, with the signing of the Agreement with Panama, Mexico could promote Panama internationally as a country that meets international standards on fiscal matters.

In order to protect the country’s financial services and remove its name from the OECD’s ‘grey list’, Panama is working on similar agreements with Italy, Belgium and Spain and has initiated negotiations for more than a dozen agreements.

Though experts’ predictions for the Panama property market and economy in 2010 are not as bright as the predictions of a couple of years ago, the consensus of opinion is still for considerable growth in the value of Panama properties and Panama rental income if not over the short or the medium term then definitely over the long-term — of course depending on who you speak to.

One thing that is not in dispute is the fact that wages of Panamanians at large have increased by a great deal in the last few years. Despite this fact, developers tending to target the luxury market has left a shortfall of  Panama property that is affordable to Panamanians and these people are currently forced to rent their accommodation. This is great for buying Panama properties to let.

Unfortunately this is irrelevant to most  foreigner Panama property buyers, who either want to take holiday renters so they can use the Panama property themselves, or so that they can make higher returns. None the less, growing affluence in the community can only be a good thing, because there will be demand for luxury Panama properties from the internal population years down the line; as affluence spreads more people can afford to go to and to send their children into school, which breeds even more affluence into the future.

There are even a few predictions going about that suggest the level of borrowing for the Panama canal expansion will see traffic through the Panama canal drop in the coming months and years. Maybe it will, maybe it won’t but again, in terms of the bigger picture the Panama canal expansion will bring massive economic growth and increasing affluence from its completion in 2014 onwards.

The French authorities have prepared their own list of countries considered to be “tax havens“ consisting of  18 “accused”, between them Costa Rica, Guatemala and Panama.

The list came forward yesterday by the newspaper Le Figaro, and will be valid until January 1, 201. The list will serve as a reference point to all French companies operating in these countries, who will charged with higher taxes.

In the list , presented by the newspaper and confirmed by official sources , no European country is listed. Instead there is an extensive coverage on Anguilla, Belize, Brunei, Dominica, Granada, Guatemala, Islands Cook, Island Marshall, Liberia, Nauru, Niue, Panama, Philippines, Saint-Kitts-et-Nevis, Saint Lucia and San Vicente and Granada.

The inclusion of Panama in the list came despite a bilateral agreement to avoid double taxation, for which Paris showed its satisfaction for Panama’s efforts on the subject of fiscal transparency.

There is a strong Central American and Caribbean “representation” on the list, and, curiously enough,  nor Chile or Uruguay were included, which they had been mentioned in the past as countries that do not provide enough cooperation on the subject of fiscal information exchange.

The list does not also include Andorra, which signed an information exchange agreement in fiscal matters with France last September.This was one of the steps taken  by the Principate to leave the Organization for the Cooperation and the Economic Development (OCDE) “tax haven” list.

Switzerland, which last Friday agreed to resume the process of ratification of fiscal information exchange with France, is not on the list either.

According to  Le Figaro,  French companies operating in the countries included on the list will receive a harder fiscal treatment, by means of  50 % (!) taxation on all income generated from businesses within those countries (ouch!). The measurements, according to the source, will begin to be applied from March 1 on.

This ,of-course, is really bad news for Panama since there is a large number of French companies operating within its territory.

Vive La France!

Between 2005 to mid-2008, property developers in Costa Rica witnessed enormous increases in property launches and sales as vacant land on the ocean and in the highlands was developed into second homes for North Americans and Europeans.

There were three key factors supporting the boom:

• Political stability – Costa Rica has had over half a century of uninterrupted democracy, making it one of the most stable countries in the region.
• Its long-standing as an eco-tourism destination – Costa Rica’s express commitment to environmental conservation and it’s rich biodiversity have enabled it to develop a unique “eco” travel product.
• US retiree haven status – With more US citizens venturing abroad, Costa Rica has benefited enormously from its retiree haven status.

But since the global economic collapse the Costa Rican Real Estate landscape has changed.  Large scale, ultra leveraged properties have suspended operations, others have stalled or cut-back on the more ambitious aspects of the master plan, and prices have been cut for the first time since the boom.

Still, asking prices in the luxury end of the housing market (ie: master-planned communities, resort developments and condo projects catering to the international buyer) have held up relatively well compared with the sharper declines experienced in the developed world.  Our year-on-year numbers to September 2009 show relatively modest fall of 8.75% for serviced lots, 3.73% for condos and 8.92% for single-family homes across the main master-planned communities.

Optimists will find some solace in the fact that Costa Rica has been shielded somewhat from the collapse in house prices witnessed in the developed world. It’s relatively underdeveloped mortgage market, formerly considered a weakness, has meant that it has avoided the rampant foreclosures that have tugged at the bottom of the market in the US.

But property pessimists will doubtless point to the high profile project suspensions such as the St Regis Project, the Rosewood Residences at Costa Carmel and La Punta Papagayo in Gunacaste. They may also insist that with re-sales (sales from end-user to end-user) continuing to undercut developer direct prices, the data under-reports the extent of the decline and there are more falls to come.

Perhaps it’s time for Panama’s real estate developers to take the hint and start adjusting their prices as well. Even though prices are generally lower in Panama than Costa Rica, the global economic crisis dictates that Panama real estate developers need to make the shift in order to offer a competitive product.

The 1 % deficit registered in 2009 for Panama’s economy ,placed  the country in a “fast-track” way to achieve “investment grade” status from qualified risk agencies around the world.

Having attained this rating, the country might resort to other financing sources, new investors would be attracted and the development that the Martinelli administration has proposed  would be more feasible.

This is another piece of good news for Panama amidst the global economic turn around that is slowly starting to emerge.  Better investment rating would attract more investors willing to bring their money and developmental know-how into Panama.

However, I’ve said it before, here and on other blogs, that all these fancy ratings and theoretical assessments will not mean anything unless they are followed by meaningful, well-though and well laid-out plans and systems of long term cultural, economic and business shifts.