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BBA Economic Digest

Panama Rising

Slow growth and economic instability has characterized much if not most of Latin America.

"Latin America is sinking. In the grand scheme of things, it’s become irrelevant," writes Steve Hanke, a professor of applied economics at The Johns Hopkins University and senior fellow at the Cato Institute for Forbes Magazine.

"When it comes to listing culprits that account for the zombie growth rates in Latin America, the laundry list usually includes: high levels of corruption, a weak application of the rule of law, poor public services, a lack of public safety, and so on."

Said El Salvadorian President Nayib Bukele in a recent interview with CBS 60 Minutes: "Our whole economy is in shatters."

Much of the problem is due to the fact that most Latin American countries have central banks that issue what Hanke calls "half-baked local currencies."

Not so with Panama. a country of four million inhabitants that is about the size of South Carolina. Since 1904, Panama's official currency has been the U.S. dollar. Its dollarized economy makes it part of the world's largest currency bloc. As a result, good things have happened.

In the last 25 years, Panama has witnessed the highest economic growth in Latin America. In 2010, 22 percent of the population of Panama was poor. The figure dropped to 13 percent in 2018.

The nation’s China-like growth rates over the last decade have given it the highest living standards in Latin America. The glass and steel of Panama City’s skyline now looks more like Miami than a Central American capital. Consider:

  • Since 1994, real GDP growth has averaged 5.7% per year.

  • Since 1994, inflation has averaged only 2.2 percent per year.

  • Since Panama’s has no central bank, there is fiscal discipline, Panama’s fiscal deficit as percent of GDP has averaged 1.6 percent per year.

The services industry accounts for nearly 80 percent of the country's GDP. Services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, insurance, container ports, and flagship registry, medical and health, and tourism. The country's manufacturing sector produces aircraft spare parts, processed foods and beverages, and textiles.

The Panamanian government promotes foreign direct investment with lax regulation and guaranteeing ease of business.

The services industry accounts for nearly 80 percent of the country's GDP. Services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, insurance, container ports, and flagship registry, medical and health, and tourism. The country's manufacturing sector produces aircraft spare parts, processed foods and beverages, and textiles.

The Panamanian government promotes foreign direct investment with lax regulation and guaranteeing ease of business.

During his presidency from 2009 to 2014, Ricardo Martinelli implemented a $15 billion strategic spending plan in financial services, agriculture, logistics and tourism, in addition to the $5.5 billion spent on the Panama Canal expansion project.

Laurentino Cortizo was sworn in as Panama’s president on July 1, saying he will work during his five-year term to push for public-private partnerships for infrastructure projects and also address corruption in government contracting.

With Wealth Comes Traffic

Because of high economic growth and the fact that so many people are coming out of poverty, the number of personal vehicles on the roads in Panama has exploded.

Monthly sales growth rate of motor vehicles that averaged 6.4 percent from Jan 2006 to Oct 2019. The growth rate in October was an incredible 47.2 percent.

The result: Traffic in Panama City can only be described as shocking. I know this firsthand because I made the mistake of renting a car. (I turned it in the next day.)

The Waze Driver Satisfaction Index ranks Panama as the eighth worst place to drive in the world with a driver satisfaction rating of 3.8/10. I would not argue with that.

The Canal

The opening of the Panama Canal, an engineering masterpiece if there ever was one, revolutionized international trade. In the early 20th century a ship travelling from San Francisco to New York or on to Europe first had to travel over 13,000 miles around the entirety of South America.

That all changed in August of 1914 with the opening of the Panama Canal, bridging the Atlantic and Pacific Oceans. And while the canal cut the distance which needed to be traveled to just over 5,000 miles, it also had huge effects on the United States itself in the years that followed.

Research shows that access to markets and trading partners is an important determinant to economic development. It is why investing in transportation infrastructure remains hugely important.

The canal today handles about 5 percent of maritime trade. Overall revenues to Panama, which has been operating the canal since 1999, are about $2 billion a year. The revenue has allowed an investment rate close to 40 percent, boosting the development of industries, including logistics, telecommunications, and finance.

The $5.5 billion project to widen the Panama Canal’s locks was completed in June 2016, enabling ships of up to 13,000 TEU to transit the waterway, compared with the previous maximum of around 5,100 TEU. A TEU (twenty-foot equivalent unit) is a measure of volume in units of twenty-foot long containers.

The expansion of the canal has proved to be a game changer for the routing of containers from Asia to the US. It has also allowed U.S. natural gas companies to deliver the fuel cheaply and quickly to the other side of the globe. U.S. exports of liquefied natural gas increased 60 percent to about 22 million tons for the first eight months of the year, much of it going to Asia.

The 14-day saving to the US Gulf for the all-water route via the Cape of Good Hope and 11 days via the Suez Canal have been the drivers of growth at U.S. ports along the Gulf and East Coast.

According to Blue Alpha Capital, the number of containers handled by container terminals on the east coast increased 5.4 percent, year on year, in the three months to the end of August, to 2,551,099 TEU. US Gulf Coast ports were the biggest winners, gaining an average of 7 percent in box volumes in the period.

Growth in Tourism

I took the photo above is from Casco Viejo (Spanish for Old Quarter), which is the historic district of Panama City. First settled in 1673, it's a Unesco-protected district today with brick streets and grand colonial homes.

Not so long ago, Panama City's hippest neighborhood was the haunt of criminal gangs. Today its become some of the capital’s most stylish addresses with rooftop bars and global restaurants lining streets decorated with elaborate murals.

Colonial-era landmarks include the twin-towered Metropolitan Cathedral and the waterfront Palacio de las Garzas presidential home. Local shops sell traditional handicrafts.

I would guess that Casco Viejo is the No.1 tourist location in Panama, a country that is not especially well-known for tourism. But it is a growing industry. Last year, about 2.5 million visitors came to Panama.

With indigenous communities and stunning natural beauty, the country is ripe for tourism growth, but with no government plan for tourism, entrepreneurs are expected to work on their own.

While it pales in comparison to neighboring Costa Rica, which brands itself as an eco-tourism hotspot, eco-tourism in Panama represents 25 percent of the country’s total tourism market. Economists suggest that ecotourism can grow 16-19 percent per year, and some eco-tourism resort projects have been announced.

Soberania National Park and the Isla Bastimentos National Park of Bocas del Toro are natural wonders and national treasures to be protected.

The Invasion

December 20, 1989. The once close relationship between General Manuel Noriega and the United States had deteriorated to the point of no return.

In a televised address to the nation, President George H.W. Bush said he had ordered military forces to Panama to "protect the lives of American citizens" (Panamanian forces had killed a U.S. marine) and bring Noriega "to justice."

Noriega was facing a U.S. indictment for drug-trafficking, as well as claims he had rigged a 1989 election.

"Operation Just Cause" saw more than 27,000 US troops invade the country and seize control of key military installations. The invasion turned Panama City into a battleground.

Officially, 514 Panamanian soldiers and civilians were killed in the invasion but some local groups say the real number is closer to 1,000. Twenty-three US military personnel died.

Noriega surrendered on January 3, 1990, after spending 11 days in refuge at the Vatican diplomatic mission. Noriega was released from prison in 2017 and shortly thereafter died in a Panama City hospital from a brain hemorrhage. He was 83.

It is my understanding that most Panamanians believe Noriega was a dictator who needed to be deposed, but not by a U.S. invasion. Indeed, this year, Panama declared Dec. 20, the 30th anniversary of the U.S. invasion, a day of national mourning. Panamanian flags flew at half mast.

A Cultural Milieu

Because of its diverse history, Panama is a cosmopolitan hub inhabited by many different ethnic groups, which includes a large indigenous population. Seven major tribes continue to live traditional lifestyles in the country.

The Cuna (sometimes spelled Kuna and Guna) live on three reservations in Panama, but they also frequent and live in the cities. To say their clothing is colorful and intricate is an understatement. I felt a bit guilty taking the photo above, but did so to illustrate the cultural diversity evident in Panama City.

Panama's culture is a blend of African, American Indian, North American, and Spanish influences, all of which expressed in its traditional arts and crafts, music, religion, sports, and cuisine.

Panama is home to thousands of people of African descent, whose ancestors came from places like Jamaica, Barbados, Trinidad and Tobago to help build the canal or were slaves brought over during colonial times.

Though they live throughout the country, Afro-Caribbeans have predominantly settled in the provinces of Bocas del Toro and Colón. Many speak English with a Caribbean accent.

Ho, Ho, Ho, Feliz Navidad

The songs in Spanish, but I immediately recognized them as the popular Christmas carols that we hear so frequently here in States. I had lunch in one moderately priced restaurant in Panama City, which had a Christmas tree festooned with lights and ornaments, just like back home.

Panama has no shortages of parades, and I was about to watch a Christmas parade near my hotel in Panama City until a rainstorm drove me indoors. The Panamanians, however, remained lining the streets, most having brought umbrellas with them.

Three Kings Day -- el Dia de los Tres Reyes Magos -- on January 6th is a venerated tradition in Panama. The holiday comes from the traditional Christian feast day of Epiphany, when the Three Wise Men (Kings) brought gifts to the baby Jesus in recognition of his divine nature, according to the Biblical nativity story.

But just like Santa, children wake up January 6th to presents and sometimes candy left by the three kings, Gaspar, Melchor and Baltasar.

What We're Reading

How the discovery of an African burial ground in New York City changed the field of genetics The Washington Post

Prime Power: How Amazon Squeezes the Businesses Behind Its Store The New York Times

And the biggest scientific breakthrough of 2019 is ... Science Magazine

The Jobs of Tomorrow: LinkedIn’s 2020 Emerging Jobs Report LinkedIn Blog

In WWII, the Japanese invaded Guam. Now they’re welcomed as tourists. National Geographic

The quiet triumph of bike share Curbed

Cheese 20 Years Later

When it was published on September 8, 1998, the book "Who Moved My Cheese? An Amazing Way to Deal with Change in Your Work and in Your Life," became an immediate New York Times business bestseller and remained on the list for almost five years.

Critics have called it a "patronizing message for the proletariat to acquiesce," but the message of this fable, which has become a business classic, is that change can be a blessing or a curse, depending on your perspective.

The book has sold more than 26 million copies worldwide in 37 languages and remains one of the best-selling business books. It tells the tale of two mice -- Sniff and Scurry -- and two humans -- Hem and How -- who live in a maze and one day are faced with change: someone moves their cheese.

Reactions vary from quick adjustment to waiting for the situation to change by itself to suit their needs. This story is about adapting to change, which occurs whether a person is ready or not. Author Spencer Johnson asserts that we all must try to anticipate change and let go of the old if it is holding your back.

Along those same lines author Daniel Burrus suggests in a recent LinkedIn posting that we try to anticipate change so that it doesn't catch us by surprise.

"Realize that how you view the future shapes how you act today, and how you act today shapes your future... This allows your employees to embrace the changes before them. Remember, the good old days are not behind us. They’re ahead of us, and it’s up to you to make them happen."

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