Why Panama Remains The Offshore Haven To Beat

Big news from one of my favorite offshore havens—the country where Kathleen and I spend most of our time (and base our business)…

Last week, Panama’s Supreme Court made a ruling with major implications. Panama has faced weeks of protests over the government’s renewal of a contract with Canadian corporation First Quantum, which operates the country’s large copper mine.

My friend, real estate agent and Panama expat Liz Larroquette—who you may have met at our Panama events—had a great take on the protests: “The mine has operated in Panama for almost 10 years, creating 9,387 direct jobs and up to 31,000 additional indirect jobs. Their annual payments to the government for the copper mine account for around 6% of Panama’s Gross Domestic Product (GDP).

“What??? Why isn’t all that good for Panama? Of course, jobs and a growing GDP are tremendous. “Still, the demonstrators say while their protest is about a mining contract (‘because Panama is worth more without mining’), it is also about allowing transparency in government and, at last, shaking off the idea that Panama is corrupt.

“Protestors say the mining company had a sweetheart deal with the government, whose officials may have benefitted directly or indirectly…

“Other essential considerations include deciding whether Panama wants to be a country that preserves or develops its national resources and at what cost.”

A Tale Of Three Strike

Liz also had this to say: “Many of my clients and friends have called to inquire about the ramifications of the strike. While serious, I have considered it a positive direction for Panama and around essential topics.

“Did anyone worry about the United States’ property values or stability when the United Auto Workers went on strike?

“And, is it much different for me to be inconvenienced in traffic than North Americans not having late-night television shows because of the Screen Writers Guild strike? In one word, NO.”

The protests have brought parts of the country to a standstill…

But last week, after four days of deliberations, the Supreme Court ruled the mining contract with First Quantum unconstitutional.

Many Panamanians greeted the court’s ruling with relief and elation…

Adriana Valdez, Editor of Live And Invest Overseas’ Panama Letter, reports:

“Cheers and laughter filled the air… the country started lifting roadblocks and protests turned to gatherings of celebration.

“Panama has work to do to recover, though. Farmers and dairy companies in Chiriquí experienced an enormous loss. Not able to leave the province to sell their products, they had to give away or attempt to sell what they could. However, whatever wasn’t sold would eventually go bad and was thrown out. As a result, Central Provinces and Panama City experienced a shortage of fruits and vegetables and an increase in their prices during this time.

“While Chiriquí had fruits and veggies, those who live in this province found themselves quickly running out of gas tanks to cook and heat water as well as fuel for vehicles. Many business owners were affected. Restaurants were closed or had to suspend the contracts of most of their workers.

“Tourism was also greatly affected by the country’s situation. Barely 12 days after the protests began, the tourism sector saw a loss of about $200 million.”

A New Declaration Of Independence

Adriana points out that the date the court made its ruling, Nov. 28, is the day that Panama celebrates its independence from Spain…

And now, “Tuesday, Nov. 28, 2023, is considered by many Panamanians to be a turning point in this little isthmus’s history.

“As crowds gathered to celebrate the ruling of unconstitutionality, ‘Viva Panamá,’  ‘Abajo la corrupción,’ ‘Solo el pueblo salva el pueblo,’ ‘Panamá es verde,’ were some of the phrases they chanted.

“In English, these phrases mean, ‘Long live Panama,’ ‘Down with corruption,’ ‘Only the people can save the people,’ and ‘Panama is green.’”

Panama’s president directed First Quantum to shut the mine… and commercial production has now been suspended.

First Quantum has lost $10 billion in market capitalization since the protests began…

The Days Ahead

It remains to be seen what happens now… There is a possibility that the mine reopens with greater government control—since part of the rationale for the protest was that Panama was getting a raw deal and a
foreign company was reaping the major profits…

The other element of the protest was an environmentalist belief that Panama should do better at preserving its natural resources—“keep it in the ground,” like many say about oil these days.

Look, I get that we all want a cleaner environment… and mining potentially affects not just biodiversity and local habitats but also human health. There are reports of a spike in kids with kidney failure in the areas surrounding the mine…

So, I understand why you would protest today to save the trees (mining requires massive deforestation) and for your kids’ brighter future.

But what happens tomorrow when tens of thousands are out of work…

When making ends meet is harder because of the knock-on effects on Panama’s economy…

When the price of everything electrical skyrockets because there’s a copper shortage…

Copper is a major element needed for electric vehicles, a key part of the world’s plan to wean itself off fossil fuels.

According to Reuters:

“The ruling will also have consequences for the copper market, as Cobre Panama accounts for about 1% of global copper production. Benchmark copper on the London Metal Exchange was up…

“Dwindling copper supply from Panama and Peru could wipe out global surplus in 2024, analysts said.”

You know me: I’m a straight shooter.

And this ruling is not all good news for Panama.

Seven thousand workers at the mine have now had their contract suspended…

The laid-off miners are now the ones out protesting…

When the impact hits the tens of thousands who indirectly depend on the mine for employment… what then?

The mine represents around 6% of Panama’s GDP. How will Panama replace that?

Panama will struggle to keep up with their national debt payments and/or paying for new infrastructure projects without the revenue from the mine… while at the same time, revenue from the canal is down due to a water shortage and an expected water shortage over at least the next year…

Panama also (like most countries) is still catching up from all the debt incurred by COVID subsidies…

What happens if the country starts struggling to pay for its public services; struggling to pay police salaries or for public healthcare costs?

If Panama has to pull back on those kinds of things, it could lead to a new kind of unrest…

If the mine remains completely shut down, Panama will probably enter a recession—which would be a disappointing result for a country expected to see 6% growth in 2023, the highest in the region.

Always A Silver Lining

The “benefit” of the recession would be lower prices for retirees…

Short-term rentals that appeal mostly to foreign tourists should be OK, as I doubt that tourism will go down long term, assuming the protests go away…

Liz’s take was that the protests are a sign of Panama becoming an adult on the world scene—a people who will not be pushed around by their government telling them what’s good for them…

And let’s face it: Protests against government and how business impacts local economies are a feature of developed democracies. Whether it’s protests against an Amazon HQ in New York… or recent rioting supposedly against immigration in Dublin, Ireland…

Protests against some government policy or other are a regular feature of life in Paris, France—where I am now—but it rarely affects my life in the city…

When I spoke at my recent Offshore Wealth Summit with Jose Bern, Vice President of one of Panama’s largest real estate groups, he warned not to compare Panama “to the Almighty… just to the alternative.”

(You can watch that full interview right here, by the way.)

When you look at the alternatives in the region or even around the world… Panama is still a place to beat.

Stay diversified,

Lief Simon

Editor, Simon Letter