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April 14, 2013 - Freedomain Radio - Stefan Molyneux
12:50
2360 Panama - An Economic Engine - An Interview with Brian Koslow
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Time Text
Hello, hello.
I'm here with Brian.
We are in Belize.
It is my last day, your last day?
My last day.
Yes.
Leave in the morning.
So I'm going to try and make it through the entire interview without bursting into tears.
I don't imagine I'm going to make it.
So you'll be there for how gift necessary, right?
Just in case.
All right.
So you gave a bit of a chat about a Panama living, travel, expatting in Panama.
And it's one of your favorite places, right?
Yeah.
It is.
It's an amazing country.
You want me to kind of give you the broad stroke on it?
Yeah, let's, you know, so if you're thinking of bungeeing out of the sinking fascist state, North America and or Europe, why would you say Panama?
I mean, obviously the hats.
No question.
Everybody's dressed in a Panama hat.
Curious George Banana suits.
But what is so great about Panama?
You know what?
Panama is, first of all, it's an economic engine.
It's growing like crazy.
It's got double-digit GDP, and that's year after year.
If you look at even previous years, even when the rest of the world was slowing down, and through the 2007, 2008, 2009, that whole period of recession and depression, really, in some countries, or even bankruptcy in some countries, Panama was growing at 7% or better GDP. They are really rocking.
And if anyone hasn't been there in a dozen years, you come back and you look at it, you actually will not recognize it.
It is incredible.
Absolutely incredible.
A lot of growth, a lot of economy.
No matter what business you're in, you can actually do extremely well in Panama.
How are they achieving that?
Well, first of all, the Panama Canal is about to expand in size so that these 300-foot wide football field size tankers could come through.
And you know when you put 15,000 crates or containers on a ship, that's three times more than what they can get through now on a 5,000 container ship.
That's a lot of revenue at $73 a container.
So the government is making a lot of money.
It is an ATM machine in the ocean, and it spins off free cash flow to the government at an astounding rate, 24 hours a day, 7 days a week.
That is the primary economic engine, although the country does have other economic engines as well.
For example, it's a mecca, a center for banking for all of Latin America.
It's also a shipping center for all of Latin America.
It's got the best rail systems, it's got the waterway systems, because of its narrow base, its narrow size, you can get to the Atlantic, you can get to the Pacific.
There's a lot of reasons to look at Panama.
Now, do they sort of take the money from the foreigners and pass the savings along to the local citizens?
What are the tax rates, the red tape, the bureaucracy?
What is that like in Panama?
Well, you know what?
There's not a lot of bureaucracy in Panama, actually.
They make so much money from the canal.
They do have other taxes, but it's quite interesting how it works.
There's a lot of tax-favored areas.
For example, they have the second largest tax-free zone in the world, after Hong Kong.
So as a trading zone, it's a tax-free zone and it allows for a lot of goods to be shipped from there, purchased from there, and sent all over South America, Central America, and for that matter, North America or the world.
So just like Hong Kong's free trade zone, it's a big deal.
The other thing about Panama is they passed something called Law 41.
And Law 41 was designed to attract these multinational, billion-dollar corporations to put their Latin American headquarters in Panama.
Now, it may not seem like much, but one billion dollar corporation, two billion dollar corporations before you know it.
You're talking about real money.
50 or 60.
That's right.
That's right.
George Benson said that.
Benson said that.
A trillion here, a trillion there.
Yeah, a trillion there, a trillion here.
It adds up.
So, you know, you're talking about these multi...
Billion-dollar corporations setting up Latin American headquarters from Johnson& Johnson to Caterpillar to M&M Mars.
I mean, one after the other after the other.
There's over 200 of them there now.
And by the end of 2014, there's speculation that there'll be over 500.
So you think about that rate of growth.
You're talking about these massive companies coming in, employing people, bringing people in.
These are people with high spending power.
These are people with foreign dollars that will be spent in Panama.
And the way Law 41 works, it's so important to understand this because you understand the economic engine of Panama and how the government works and how they think.
It's terrific.
Very progressive.
They get out of their own way immediately and make things happen.
And we'll talk about the Convention Center in a moment and what they're doing with that, which is very clever.
But they have this Law 41 with these billion-dollar corporations.
And when you have a company moving in like that, people come to the country to call on them, to provide goods and services.
Business people are having to come in and provide, you know, what they have to provide to them.
And so they have to stay in hotels.
And they stay in hotels now statistically longer and longer and longer.
So there's a hotel boom.
There's a hospitality boom.
These are businesses.
Big dollars because they're foreign dollars being spent in Panama.
You don't see the local Panamanians staying in the hotel, but you see the foreigners with the bigger dollars being spent at the hotels.
What was that occupancy rate you were telling me about?
Well, it runs around 78%, and it's the second highest occupancy rate in the world.
So, you know, it sounds funny because Panama is this little country with 3 million people, but actually it's such an incredible destination in Latin America.
It's a hub of everything in Latin America.
Right.
Second to?
Sydney!
Sydney, Australia.
Yeah, that has more...
For some reason, that is a higher hotel occupancy.
I've never been to Sydney, but maybe there's only a few hotels.
I don't know.
I don't know what the reason is.
It's the Finding Nemo Tour.
It's the supply and demand factor, you know?
Especially on hotel suites.
The demand is high because people are staying longer and longer, especially business people, but their supply is very low because most hotels may have 30 stories of hotel rooms, but there's only two or three floors of suites.
So they're in a higher demand.
Now...
You have been working for, is it a year and a half, two years, on the hotel?
I've been working on the hotel now for about two years.
Bruno Conicello, who's the developer partner in the hotel, he's been working on it for more than that.
I mean, you have all the soft...
Aspects like developing the plans, buying the land, clearing the land, doing all the architectural, etc., etc., getting all the permits.
All of that has to take place before you get any kind of acceleration on any project.
Right.
Arranging for funding and all that.
So we finished the pile driving.
We've got the foundation going down now.
It's very exciting.
And the hotel is slated to be completed, projected to be completed around September of 2014.
Now that...
Compared to the kind of construction that goes on in North America where you have restrictions on work, and as you said, I think you want to screw a light bulb in, you need one guy to hold the ladder, one guy to go up, one guy to stand there and watch.
What is it like doing business in construction in Panama where I wouldn't say loosey-goosey, but it's not quite as restricted as in trying to get things done in North America.
You have different label laws.
Panamanians tend to have a lot of holidays in comparison to North America, but they work a lot longer hours.
And in fact, you can have 24-hour day through different shifts.
You could build a project 24 hours a day.
So, for example, they built a huge highway system.
They used land taken out of the Panama Canal because they're digging through the 52-mile lane, the seaway of the Panama Canal.
They took all this dirt and they added it to the front of the city and created a new highway system that goes around the city.
Now, you would think it would take years.
I mean, you look at this thing, it's massive.
I mean, it's an incredible feat and accomplishment.
You'd say, oh, that had to take five years to build.
They actually built it in one year.
It's incredible because they go 24 hours a day, seven days a week, nonstop.
Right, right.
It's really incredible.
It's remarkable.
Well, when you mentioned that, some guy was saying that they built the whole Empire State Building in about a year.
Yeah.
Because it was back in the day where you could really, you know.
You didn't have the same labor laws and you could do things differently.
Right, right.
Yeah.
And there is a website for people who are interested.
I would definitely recommend taking a look at it.
It's a very interesting project.
I think very high quality.
It's under the Radisson brand.
So you've got some very high quality stuff going in there.
And what was the website again?
Yeah, www.panamounicorn.com.
Right, and so the opportunity is people come in and they can basically buy suites.
They buy a suite.
Here's the way it works.
They buy a suite.
It's fully furnished.
There's nothing else they need to buy.
They buy the suite and it's completely operated professionally and governed professionally and it's got the Radisson Hotel flag on it and I mean it's fabulous.
You don't have to worry about being a landlord.
You don't have to worry about leases and tenants and lawyers and all these things you normally have to worry about with either commercial or residential property.
The other thing I want to say about hotel and the hospitality area of business that I find fascinating, and it really, especially with inflation on the rise, I mean, we can see inflation's happening, whether or not it's reported, who knows, or how it's misreported, but inflation is here, and it's going to get bigger and bigger, and I don't think that's a brilliant statement.
I think it's obvious, but when you think about commercial properties, residential properties, buying a home or condominiums, once someone moves in, you cannot change the lease price, sometimes for many years.
I mean, you're Whatever inflation is, you're not going to get the benefit of being able to change the rate.
And that's really tough because if you understand there is going to be inflation, you have to build that into your price ahead of time, which makes you less competitive in a sense in the short run for people who don't.
Now, they'll lose in the long run.
Yeah, it's better for the tenants initially because the tenant has a lease that's They're paying with lower dollars or lower price money.
But look at a hotel.
If there's inflation, the hotel raises their rate every day if they need to, every other day, whatever they can do, you know, given market conditions.
But the point is that they're not stuck in a long-term lease, and that's critical.
So it's a good hedge.
So it's a great hedge for inflation.
Now, for tax advantages, for people who are interested in that, real estate seems to have, and I'm not expert, but seems to have really good tax advantages relative to other things that you can buy.
Yes, well, you can still, you know, you get the mortgages, all that's pretty much the same.
The real advantages in Panama is that there are either low taxes or no taxes.
And the taxes are so low, it's practically no taxes anyway.
But when you look at what the big cost is in any type of condominium, or even if you're going to buy a home and have a management company manage the home, the big costs are really three things.
One is repair and maintenance.
The other is the taxes.
And the third is insurance.
And we should just touch a bit on each one, just briefly.
So, the labor in Panama is extremely inexpensive.
It's about $2 an hour, roughly, give or take, you know, 25, 50 cents, depending on the level of skill, etc., for maintenance.
So...
What's your HOA fees?
Well, your HOA fees are a fraction of what they might be in North America simply because somebody's happy to fix your plumbing or change a light bulb or do whatever has to be done.
It gets done and you probably either won't see a bill or it's 40 cents or a dollar.
It's just not...
It's not what you're used to paying for maintenance.
And that's all included, of course, in the management fee anyway.
But it's a very low management fee because the labor cost is so low.
The second reason is that the taxes are so low.
So you don't have these insane taxes that are supporting the schools and supporting the pensions and supporting the welfare state and military.
I don't think Panama has a huge number of bases overseas, so they're not circling Iraq and Iran.
Exactly.
They don't have these crazy legacy costs or Medicare, Social Security, all these things that other countries have that are dragging them down.
Panama's a young country.
So you don't have those costs built in.
You also don't have insurance costs the same way you do in North America and other parts of the world, for example.
In America, you've got a lot of places you have wind insurance that you have to buy.
It's thousands and thousands of dollars.
You have flood insurance that you have to buy.
And now with Hurricane Sandy having gone through, they're rezoning a lot of areas to include flood zones where there weren't flood zones before because of the new global warming.
You know, what that might mean to insurance carriers.
So all of a sudden, someone who owns a home and happens to be in a new flood zone is paying $6,000 or $8,000 or $12,000 a year for flood insurance that they weren't paying for before.
Same thing with even vandalism and crime.
In Panama, your crime rate is so low.
Is there petty crime?
Of course there's petty crime.
Is there other crimes?
Yes.
But is it low?
Yes.
It's safer.
I'd rather walk down the streets of Panama than I would in half the cities in the United States and other parts of the world.
It's just...
It's safe.
I walk down the streets at 2 o'clock in the morning, you see ladies, you know, crossing streets, and it's just not a...
Nobody thinks about it.
It's not an issue.
So it's very safe.
You know, and like any city, like I said, you know, is someone going to do petty crime?
Yeah, I'm sure there's petty crime, but that's just not the kinds of things you see elsewhere.
People in Panama are lovely.
They're peaceful.
They're good-hearted.
They're friendly.
They're just, you know, they're really terrific.
And you have the language advantage, right?
Yeah, and there's a language advantage.
They have both English and Spanish spoken there, and they teach English in the schools, so that's a big advantage as well.
Fantastic, fantastic.
Well, yeah, so you might want to check it out, panamayunicorn.com.
It's very, very interesting.
Panama is a country I've never particularly thought about, but I've heard so many great things about it from Macarena, who I also did a chat with during this conference, and thank you so much for your time.
Oh, you're very, very welcome.
Good luck with the project.
Thank you so much.
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