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.

Panama will begin oil exploration in the province of Darien, close to the Colombia border, where surface oil deposits have been detected, with the aim of studying its commercial exploitation.

This was confirmed on Wednesday by president Martinelli, who is scheduled to travel to the province on April 22nd to tour the areas where the said fossil fuel deposits are.

Martinelli made a speech  last Tuesday night at the opening of the Annual Conference For Business Executives (CADE), in which he shared with former President Tabaré Vázquez a vision for economic and social development and the need for utilization of energy resources .

The Panamanian leader stressed that farmers in Darien used “oily substance ” to feed their  “Guariche” or handcrafted lamps for night illumination. “In Panama there is oil, and we have confirmed that  Colombian veins extend in to Panama,” he said.

In recent years, 36 oil wells were opened and shut in the areas under study. Cañazas Piercing in Panama province, and Garachiné, in Darien, revealed the presence of so-called “black gold.”

Other findings include a Capetian and Rancho Orchado in Darien, while in the area of El Plaris in the Gulf of Panama and Las Mareas in the Gulf of Mosquitos, in the Caribbean, natural gas was detected.

In 2008, Harken Panama Limited, a subsidiary of Global Energy Development Group, linked to the Bush family, U.S., began explorations in Darien, the province with the highest distribution of tropical forests.

Martinelli used his speech at the 2010 CADE symposium to defend all mining projects, with adherence to environmental principles, and announced the expansion of ports adjacent to the Panama Canal, the increasing the road network and construction of provincial airports to “change  this country. “

Along these alternaticve energy lines,Martinelli’s government plans  to  replace all heat production plants (coal and oil) by hydroelectric sources.

Good luck and God Speed Mr President. As Panamanians often say “veamos”.

As expats, foreigners and tourists in Panama we often see (or want to see) the attractive side of this country; the glamorous Panama City skyline, cheap medical tourism, fancy Pacific Ocean resorts, sport fishing etc.

There is also the “other side” of Panama. One that rarely (if ever) makes the front page news or the advertising campaigns or even our very own online forums.

Poverty in Panama affects 1.015.000 persons, who represent 37,1 % of the entire population of the country. Of that number, more than half a million live in conditions of extreme poverty, that is to say they do not manage to fulfill minimal nutritional and quality of life requirements.

As Panamanian Nourishment Health Authority reports, approximately 76 % of Panama’s “poor” are in rural areas and almost 88 % of the population in extreme poverty reside in Panama’s rural native reserve areas.

On a national level, more than 150.000 children, five years or younger, live in poverty. This represents 52 % of  Panama’s children! More than half…

To help to diminish these embarrassing stats  the Patronage of Nutrition, is working on a new program called Farms For Development and Self-sustainable Production.

Up to the date, there are already 314 farms  at national level, which benefit more than 31.000 persons. The program’s goal  is the creation of 250 additional farms in the next six years.

The Fund For Social Investment (FIS) contributes approximately $ 25.000 to the construction of new farms and $ 10.000 to improve the already existing farms. Even though it is helpful, this kind of money is not nearly enough and, in my opinion, is there so the powers that be can claim that they are committed in new social programs.

In the beginning, the farms were created to help  improve food securityat home by means of easy and immediate access to food sources. Further more, the farms provide employment and production surplus revenue for their communal owners and workers.

Twelve years later, a new vision comes into play, since now the auto-sustainable farms enter the rural agricultural tourism arena. In particular one of the 65 farms in the province of Cocle appears to be very active in its new role.

It is farm is located in Copé, within the Omar Torrijos Herrera National Park,  an area protected by the National Ambiance Authority (ANAM) and  a tourist draw much visited by nationals and foreigners alike.The farm practices organic farming and aims to produce  everything that could diminish the under-nourishment of the 14 families that run it.

Although the life in the field is not easy, Alejandro Rodríguez, president of the Farm, said that by means of this program he can feed his children, and help in reducing  the under-nourishment levels.

Under the new program, these farms will be able to gain access to loans to reinforce their facilities and  to construct  tourist ranches for the visitors who seek to experience Panama’s agricultural life.

Eventually, these farms will become producers’ associations (co-ops), and will be able to continue with activities not only for subsistence, but as small agriculture businesses.

At present four big associations of farms exist in Panama West, Colon, Chagres and Penonomé, Panama East and Veraguas.

Along the same lines, the Martinelli administration is now planning the creation of about 20.000 orchards and 500 auto-sustainable farms during  its five years of government.

The Panama Tourism Authority is lobbying insurers in order to be able to offer free travel insurance to all tourists entering Panama through Tocumen Airport (PTY) and only through this port.

The proposed term is 30 days from the time of entry and an estimated $4 million are earmarked for this venture.

This project has its origins in…Mexico, the first country to offer free insurance to tourists after the H1N1 explosion.

Of course, many aspects of this project still need to be defined, such as how the tourists will be registered, how they will manage claims or how much will the policy cover.

However, it seems to me that this administration is serious about making the necessary moves that will help panama become a more popular tourist destination.

On a somewhat related issue, the Maritime Authority of Panama  (AMP) decided to exempt tourism vessels from paying port taxes. The measure applies for those vessels (sailboats and yachts) entering Panamanian ports for tourism purposes.

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.

The Martinelli administration recently  announced that Panama’s Gross Domestic Product (GDP) grew by 2.4% in 2009 from 10.7% in 2008. Despite the huge decline, it is still an economic growth and, as such, it is commendable given the fact that it occurred in the midst of the infamous  global economic downturn.

Economic activities linked to external demand plummeted, due to their connection to world markets, but economic activities linked to domestic demand grew, and helped to offset the GDP contraction during 2009. Economic sectors linked to external markets that contracted were agricultural and seafood exports, Colon Free Trade Zone exports, railway, container transshipment ports, Panama Canal, bunker sales to ships, air transport, travel agencies, banking and real estate. Economic activities linked to domestic demand that grew were electric power generation, retail, restaurants, domestic transportation, telecommunications, education, private health care and social services.

The agriculture and fishing value added contracted by 8.6% and 2.9% respectively, according to a report published by the General Comptroller of the Republic of Panama on its website , as a result of sharp contraction of U.S. and European Union export demand.

In the same report, the wholesale and retail value added contracted 3.7% ,  as a result of Colon Free Trade Zone value added contractiof 9.2%. Colon Free Trade Zone (CFTZ) was affected declining Venezuelan and Ecuadorian oil prices. Moreover, Ecuador imposed commercial restrictions against CFTZ imports to protect its foreign reserve.

Panama Canal, railway and air transport value added fell by 10.5%, 9%, 22.6% and 3.7%  respectively. Nevertheless, the transportation, warehousing and communication sectors (which include the Panama Canal,  Panama’s ports, railways and air transport) expanded by 8.3%, due tothe sudden and extraordinary  growth  of the telecommunications sector by 38.5%. This huge increase in telecommunications was due to the entry of two new competitor companies (Digicel and Claro) in Panama’s market, which expanded the cell phone supply and gave existing companies (Cable & Wireless and Movistar) a run for their money.

Banking value added fell by 2.2% in 2009, because the credit banks restricted credit and sacrificed profits  to offset the global financial downturn. However, rest assured that bank profits were  still positive. Panama’s National Banking System continues being one of the strongest in Latin America and better equipped to face the global financial downturn.

Demand sectors linked to external market is weak at the moment, however economist expect  it to recover in 2010.  However, the Ministry of Economy and Finance sees that Panama’s economy will grow by 5%.

A strong growth in 2011 and 2012 by 9.4% and 8.6% respectively is also expected, due to  the recovery of the baby boomer real estate market , the Canal expansion, and the construction of Panama City’s Metro, to name a few private and public investments. This growth will shrink the unemployment rate down to 4.8% and 4.6 % in 2011 and 2012 respectively.

Throughout my years in Panama I learned to take all government based stats and forecasts with a grain of salt. However, it is evident that, in general, Panama’s economy was not affected as hard as others from the global crisis. It is also clear that all these private and public mega projects will (in theory) give Panama’s economy a huge boost for the next three years.

Only time will tell! I’ll be here to write about it which ever way things turn out to be.

Panama’ president, Ricardo Martinelli, made a surprising announcement yesterday in Colombia. He promised the creation and commencement of a new immigration program to legalize thousands of Colombians living and working illegally in Panama.

While he was receiving the keys of the city of Medellin, by its mayor Alonso Salazar, Martinelli said that the Panamanian government will shortly implement “a program of reintegration and  legalization of all the undocumented Colombians in Panama”.

“They are honest and hard-working, and many of them are not a part of the formal  Panamanian economy. Further more, they cannot cover their basic needs living secretly.” added president Martinelli .

The issue of illegal  Colombians in Panama have generated many heated debates during previous administrations  due to the increase of violence as a product of drug trafficking and due to the fact that these undocumented aliens are “stealing” jobs from Panamanians.

Even though the Martinelli administration will have to step on some serious union and social toes to implement such a bold immigration policy, I think that, if completed, such a move will have great effects for Panama. Here is why.

1. Colombian worker labor who is now a big part of Panama’s “under-economy” (or Black Market if you like) will become part of formal economy, generating, at least on theory, new tax revenues.
2. For those who have used Colombian workers (especially in construction), it is not a secret that their level of skill and labor ethic is far superior to the Panamanian counterpart. Legalizing Colombians will (again on theory) bring some healthy competition to all Panamanian workers. The later, will now be forced to improve their own work practices and not rely on unions and immigration protection.

A number of existing trade agreements, especially the Central America Free Trade Agreement (CAFTA) are a nightmare for importers and exporters alike.

I already posted on why CAFTA will be detrimental to Panama. let’s now examine why CAFTA is not what its name implies from the US point of view.

Importers are burdened with regulations that are restrictive and expensive to implement, while exporters can’t sell their goods in the United States unless they comply with the regulations and other stipulations.

Economists categorically state that there are no “truly free” free trade agreements. All free trade agreements are managed trade agreements. Underlying economic theory demands that supply and demand is not restricted by government market intervention. Fundamentally, managed trade is protectionist trade.

Better yet, to accurately reflect their true nature, all of them [free trade agreements] should be called Managed Trade because on each page within every agreement are quotas, stipulations, and byzantine clauses that rival the federal tax code.

On the other hand, importing from countries not governed by free trade agreements with the United States is cheaper and easier, as they are not governed by costly and unwieldy regulations and the United States operates under an open door trade policy.

Rules on tariff liberalization, place of origin, restrictive standards and controls, consumer protection requirements, custom duties, labor standards, and intellectual property rights make some free trade agreements nightmarish.

Trade conflicts, non-tariff barriers, and dumping do not disappear; they often go underground, which makes detection and cooperation more difficult.

To benefit from CAFTA, importers must comply with specific custom regulations and provide detailed information that is extremely time consuming to put together and often difficult to ascertain.

The importer must conduct regular factory visits to their foreign suppliers’ manufacturing locations to make sure that the goods for which they claim trade preferences are legitimately entitled to them.

During the four years ending in 2008, imports from Central America to the United States rose by only 10 percent from roughly $13 billion dollars, while exports to the region from the United States soared by 48 percent to slightly above $24 billion.

Not only CAFTA, but any trade agreement is beneficial to the corporate world, as it is not only easier to outsource jobs, but cheaper to import products and save a great deal on import duties, affecting the corporate bottom line positively.

The corporate world envisioned that “CAFTA would lower the cost of importing from the five countries of Central America as well as the Dominican Republic,” according to the KW report.

However, CAFTA and many other trade agreements have a glitch. Any U.S. corporation, no matter where it is based, can sue the government of a CAFTA country outside U.S. jurisdiction, if any regulation would put a dent into its operations or attack its interests in the region.

“The fundamental problem is that, on many issues, CAFTA would give multinational corporations more power than our [Costa Rica] government,” according to a 2007 article on the Economic Policy Institute Web site by Ottón Solís.

Current CAFTA members include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.

No matter how you slice and dice it there is not enough electrical energy in Panama to satisfy the growing demand. especially during a long and dry spell like the one Panama is going through this year due to El Nino.

Recognizing the problem, the Martinelli administration is moving in fast approving some $3,9 billion (!) for the execution and completion of  22 new power generation projects during the next four years.

These projects will generate approximately 1,061 Megawatts (MW). This is a much needed capacity increase since currently Panama’s power generation ability runs at approximately 1,208 MW, a number very close to the current demand that reaches 1,153 MW.

The biggest chunk of that investment money will go to hydroelectric projects ($1,7 billion). Also two wind parks will be constructed ($1 billion) while $1,2 billion will go to thermal generation projects.

According to information released by the Authority for Public Services (ASEP), there are 19 hydroelectric projects currently in construction with installed capacity of 723.60 MW, 2 wind projects (330 MW) and a thermal one in its final licensing stage (8 MW).

Presently, the most ambitious hydro-electric project  is a $600 million one in Changuinola (Bocas del Torro). This project is at 60 % completion rate and it is scheduled to start operations in May, 2011 with a generating capacity of  223.00 MW.

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.