Contributed by: Don Winner
The developer of the Valle Escondido residential development publishes an article about the economic significance of this type of foreign investment and how it relates to tourism, examples of the difficulties facing foreign investors from both government and the private sector, and what the government can do to facilitate this type of foreign investment.
The potential for foreign retirees in Panama
by Sam Taliaferro
I am a Panamanian resident and a foreign investor. My wife is a Panamanian and I have three Panamanian children. I am the developer of Valle Escondido residential development and resort in Boquete. Valle Escondido is a unique residential development in Panama because it focuses on bringing foreigners to Panama to retire. Most of the retirees are from North America, although a fair number are from Europe and Panama as well. The project began about three years ago, and consists of about 200 homes. As of this writing we have approximately 50 homes completed. We will construct another 150 over the next two to three years.
The fact that we are nearly sold out, in such a relatively short time, clearly demonstrates the dynamic attraction Panama has to the foreign market. It has been powerful enough to attract foreigners to leave their own countries and come live in Panama permanently. As a pioneer, among the first foreigners to develop in the interior of Panama, we have had to overcome a number of unnecessary obstacles. Under some circumstances, these obstacles could have ended the project. My purpose in sharing this information is not to point fingers at the guilty. It is instead to suggest ways the government could help facilitate the minimization of these obstacles for foreigners who invest here.
My presentation focuses on three main issues:
First, the economic significance of this type of foreign investment and how it relates to tourism.
Second, examples of the difficulties facing foreign investors from both government and the private sector.
Third, what the government can do to facilitate this type of foreign investment.
First, let's acknowledge that the retiree, who comes to live here, is both a tourist and a foreign investor. When he first comes to Panama, to investigate the possibility of moving here, he makes at least one trip as a tourist. He stays in hotels, eats in restaurants, and visits various parts of the country. During the construction of his home, he typically makes continued visits to examine the progress. The typical retiree we bring to Panama spends about $250,000. This includes: his land, home, car, furnishings and legal fees for immigration. Because the amount of money is significant, and coming from a foreign source, he also becomes a foreign investor.
These additional foreign investors become very significant in financial terms. In the case of Valle Escondido they alone represent about $50 million in initial investment. The average retiree has about $2,000 a month in expendable income. This represents another $6 million a year in spending on food, maintenance, and travel. In addition to these expenditures, each retiree has an average of three visitors per year who come as guests and consequently tourists.
There are now more than 10 such projects in the Boquete area alone, representing more than 1,000 new homes. This does not include the hundreds of individual farms that have been sold in the area to foreigners over the last few years. These new projects represent about $250 million of foreign investment into Boquete over the next five to ten years as the homes are built, and as the retirees come to live in Panama permanently. Furthermore, they will continue to travel and spend another $30 million a year in what I call maintenance dollars. According to noted Panamanian economist Rubén Lashman, these figures represent more than 31,000 jobs in construction employment alone over this period.
Of the 1,000 retired couples that come to Boquete, many will make further investments into the area. Our experience shows that approximately 20 percent of foreign retirees make these further investments, and they make them in the form of tourist infrastructure such as hotels, restaurants and activities for visitors. Already we have seen a number of small hotels and restaurants appear to serve the growing foreign and local residents here.
By comparison, the amount of actual tourist dollars spent now in the whole interior of the country is less than $10 million a year. This estimate is based on the number for hotel rooms and occupancy rates posted by IPAT on their website.
Examining Costa Rica will reveal another perspective on the effects of retiree investing in that country. About 30 years ago, Costa Rica opened its doors to immigration by foreigners who wanted to come and live there. Today more than 30,000 North Americans live and invest in Costa Rica. They were the backbone of Costa Rica's early tourism and built most of the small hotels and restaurant infrastructure that attracted even more tourists and investors. It is only in the past 10 years that the large hotel resorts such as Marriott and Barcelo have exploded into that market. It took Costa Rica 30 years to reach their current level of tourism, but, with an effective strategy, it could take Panama less than 10 years to accomplish the same success. There is a powerfully large number of people now retiring globally, (13,000 every day in North America alone) and the Internet provides us with a successful strategy in reaching them. All of our clients found us through the Internet. It is the tool Panama needs to use to get the attention of this exponential number of people retiring every day.
For those who may think that this many foreigners in our small country would be detrimental, I would rebut that 30,000 couples represent only two percent of the current Panamanian population. If we use the number 30,000 as a goal to achieve in 10 years, and apply the same expenditure potential that we are seeing in Boquete, Panama would receive approximately $7.5 billion dollars in initial investment, and $180 million more would be spent in maintenance dollars each year. This would mean nearly one million construction jobs alone over this time period. Combine this with the additional investment in tourist infrastructure, and it is apparent that the retirees really are geese that lay golden eggs. They come here to visit, then to live, and then to further invest. This would solve a lot of the financial problems the country currently faces.
Examples of difficulties faced by the foreign investor
Now that I have demonstrated the significance of the investments being made, and the financial potential for the future of the country, I want to discuss the difficulties facing the foreign investor from both the government and the private sector.
In the case of Valle Escondido, the difficulties began with local opposition to change.
Certain local individuals went so far as to contact the media. They falsely accused our group of money laundering, stealing national patrimony, and even publicly threatened my life. Even though lawsuits for slander have been filed over three years ago we have been unable to get a judge to hear the case.
Local officials demand cash payments or they will make things difficult. Since the power of the municipality is very strong in these rural areas, they could and did make things difficult for us when they should have been supporting and aiding the largest employer in the area.
A neighboring farmer who claimed our property as a public access was able to convince a judge to allow a sequestration of the development for almost $1 million. They claim they lost that much in coffee revenue on 12 hectares of land last year. We call this extortion where I come from.
Local MIVI officials allegedly acting as advisors to our project caused more than a year of delays in project approvals, costing many thousands in lost revenue and added costs.
Representatives of the Junta Tecnica went on the radio denouncing our building methods and threatened to tear down our homes because the technology was not approved in Panama. It did not even seem to matter that architects and engineers had stamped the plans and local municipal officials had issued the building permits. This caused many months in construction delays while testing was performed concluding that our method, used and approved worldwide, is in fact better than typical concrete construction in earthquake areas.
The Social Security office, fishing for any discrepancies in payments, did five months of audits. These only resulted in a few thousand dollars of arguable issues, but the cost in human resources for us both was many times this amount.
These are but a few examples of the many difficulties we encountered over the past three years. Although legal issues still await final results, things have calmed because the local residents have realized the direct benefit in jobs and income that we bring to the community. Boquete also has a new mayor who is more progressive and also accepting of change.
Why do these things happen?
People who want to gain something for nothing find the foreign investor an easy target.
This large problem can be distilled down to weak rule of law. There are laws to protect
the foreign and local investor, but there is weak enforcement and also corruption both in politics and the judicial system. With the new government coming into office, the media took polls of the Panamanian people and their concerns. They revealed an overwhelming desire for more job opportunities and to rid the country of crime and corruption. Our goals are the same, and a strong rule of law is the only means to get there.
What the government can do to facilitate foreign investment
Most people will agree that when someone from the government comes to tell you they are here to help you, it's time to watch your wallet. I am one who firmly believes that government's primary role in society is to protect its citizens from both foreign and domestic aggressors and thieves. Foreign investors do not typically look for help from governments. They look for places where the government involvement is limited, and where it does the job of protecting its citizens well. A level and fair playing field creates the best investment opportunities.
Here are several suggestions that could help the foreign investor feel more secure about investing in Panama and also make Panama more attractive to the foreign investors/retirees who come here:
Foreign investor hotline
A hotline could be established for foreign investors to contact someone in the government whose job it is to help and who has the power to do so. As it stands, foreign investors don't have a clue about where to go for help with matters other than legal professionals. This wastes a lot of time and money.
Foreign investor oversight
An oversight committee made up of both government and private sector volunteers could be established to watch over investments of a certain size and meeting certain criteria. It needs to be highly publicized that foreign investors are very important to the economy of the country and if somebody is going to challenge them they are going to be watched carefully. I am not suggesting that committees act as magistrates, but the fact that the investors will be carefully watched would prevent a lot of frivolous actions. It would also send a clear message to the courts to act in a just manner when cases come before them.
Foreign investor visa
The retiree/foreign investor decides to invest in Panama is offered several methods for acquiring a visa in order to be able to live here. These include depositing a large sum of cash into a Panama bank or applying for a pension-type visa. Most people in this financial bracket do not like earning such low interest in bank deposits. The only other option is the pension visa, for which the individual must show an income of at least $600 a month from a financial institution or pension.
In many cases individuals who spend $250,000 on a home cannot show this income. They have generated their income from business ventures, which many times are more significant than the requirement, but do not meet the qualifications for a visa. In many cases, foreign investors do not have pensions because they have built sufficient investments to secure their future --- but the incomes from these types of investments fluctuate and do not meet the requirements either. To have spent $250,000 on a home should be sufficient to receive a foreign investor visa.
There are a number of other things the government could do to facilitate this type of investment that I will not go into at this time, but for the most part they cost the government and the Panamanian people very little in comparison to the huge positive economic and social impact these people bring.
The people and the government must understand that foreign investors have many choices of where to risk their money. At this time Panama is seen in a favorable light, but it may take only one high profile case of corruption or bureaucratic delay to end this bright outlook.
Obviously the rule of law should apply to all people equally, and the government's job should be to ensure that all are treated fairly. However, until that is the reality, the government should pay particular attention to these geese that lay golden eggs. With more people employed, and more opportunity for all, the country can quickly advance to a status where it can guarantee fairness for all of its citizens.
In closing I would like to thank the many people with whom I have had the privilege to work here in Panama. I believe Panama is in the right place at the right time to take advantage of a very bright future in the retirement market.