I’m back in Panama today… I’ve never been so happy to see Panamanian soil before; the trip to Cuba, which I reported on yesterday, was fantastic– but the lack of reliable phone and internet connectivity was problematic now that I have a daily deadline to meet.
I spend a lot of time in Panama, and yet every time I fly in, I am continually amazed at how quickly it seems to be changing. I mentioned in the May edition of Without Borders that supermarket magnate Ricardo Martinelli has won the presidential election in Panama and will be innagurated to a five year term in just a few days.
Politics in Panama is taken quite seriously. The government declares a long holiday weekend and goes so far as to put a moratorium on liquor sales prior to the polls. Panamanians, being natural rule-breakers, simply stock up on beer the day before and enjoy a drunken holiday prior to choosing their leader for the next five years.
Fortunately they chose wisely.
Martinelli’s opponent was a bona fide socialist, former housing minister Balbina Herrera– a lifelong bureaucrat who lost the trust and confidence of voters when she disclosed a multimillion dollar net worth. I have met her a few times and had a drink with her shortly before the election one of her chief advisors is a former business associate of mine. She is absolutely dim-witted in the clinical sense and has zero financial acumen, other than a talent for accepting bribes.
Panama will be much better off with Martinelli. Namely, I am closely following a couple of issues:
First, proper management of the Canal expansion project is critical to Panama’s future growth. Canal revenues dominate the fiscal landscape and provide extraordinary political leverage for such a small country. Because of the Canal, developed nations tend to stay out of Panama’s internal business, as evidenced by Panama’s conspicuous absence from the OECD “black list” several months ago.
An efficiently executed Canal expansion project will generate increased toll revenues in the future and create new, sustainable industries in the country. If the government or contractors manage to screw it up, the Panama Canal will become an economic sink hole, and the country will lose tremendous credibility. A lot is riding on this.
The main contract worth several billion dollars will be awarded within the next 60-days to either Bechtel or Italy’s Impreglio. Work on the Canal will start shortly thereafter, creating a surge in demand for local labor.
Panama is already operating at high levels of employment, so much of the labor will have to be imported, spurring demand for new low and middle income housing units in key areas near the Canal. I think that land in these areas will be a favorable long-term investment, particularly since prices pulled back from their highs nine months ago.
Second, all eyes are on Martinelli to see if he maintains a pro-business climate. Being a businessman himself, this is highly likely, so I expect little change to Panama’s banking laws. In a few days I will be receiving some information from the banking regulator here, and I plan on sharing my analysis of the local banks and the liquidity situation. More to follow.
Lastly, I wanted to mention a private deal that I’ve recently been offered here in Panama. I’m thinking of backing a couple of pharmaceutical entrepreneurs who are setting up a manufacturing facility here; it’s not much money, less than $100,000, and the potential payout is enormous. I’m talking to their future customers and believe the sustained monthly cashflow will be close to my initial investment.
I’ve always been drawn to the economics of the pharma industry. Pharma companies are a lot like junior miners; entrepreneurs rally seed capital around talent and (intellectual) property, and there’s a lot of government involvement along the path to profitability. Like the juniors, good pharma stocks have explosive potential… or they could go to zero.
Unlike the juniors, however, small pharma stocks often keep to a predictable pattern due to their regulatory nature. A good analyst can eliminate the bad apples with pitiful balance sheets and achieve average returns of 40% or more. I like this. I recently met a very sharp analyst with a distinguished track record in medicine and finance who has a letter specifically dedicated to scouting the best deals. Click here for more…