I just returned last night from a whirlwind tour of a booming country in Central America that reminds me of Hong Kong. It was hot, muggy and rainy, bustling with construction, and enjoying the steady growth of trade, consumer spending, and investment.
In many ways, Central America is the mirror image of Southeast Asia – a collection of fascinating countries offering investors plenty of growth, progress and opportunity – minus the jet lag.
And while Southeast Asia serves as a bridge between China and India and the Pacific and Indian Oceans, Central America ties together North and South America and the Pacific and Atlantic Oceans.
And at the heart of this region is the “Hong Kong of Central America” – Panama.
The passing of the U.S.- Panama Free Trade Agreement has deepened its rising financial and trade role in tying two continents more closely together. But the Republic of Panama is booming not just because of lucky geography – smart free-market, investment-friendly policies have sharpened its advantages.
- Panama’s currency is the U.S. dollar and this makes investing in the country easy.
- Banking and communication services are world class.
- Panama has launched a five-year, $13.6 billion investment plan, focusing on schools, hospitals, sewerage, roads and metro transit system
- Panama’s import tariffs are among the lowest in Latin America, and the country has received foreign direct investment worth nearly 9% of GDP
- Panama is a well-regarded tax haven and its 130 banks offer a high degree of privacy.
The result of all this good stuff is an economy that has grown at an 8% clip over the past five years. A construction boom is also changing the landscape of Panama City. There are dozens of office towers going up and I had the chance to visit two of them during my visit: the grand Trump Ocean Club and Latin America’s first Waldorf-Astoria – the Panamera.
Oh, I almost forgot to mention the doubling of the capacity of the Panama Canal, which I finally got to cross off my bucket list.
The Panama Canal’s annual revenues have grown to over $2 billion (7.5% of GDP). Traffic and revenue was up about 25% in 2012 and this produces a ripple of growth in many related businesses such as insurance, ship maintenance and repair, trade finance and banking. The canal and Panama’s business-friendly regulations have expanded big insurance, finance and legal offshore industries.
Last year, the free-trade zone in Colón on the Atlantic end of the canal and Balboa, Panama’s Pacific-side trade gateway, became Latin America’s two busiest ports.
Get ready for the growth of these two ports to explode soon after the canal’s $5.25 billion expansion project is completed next year. It is double-barreled shot of growth because it double capacity and allows for much larger vessels to travel through the canal. These bigger “Panamax” ships will be longer and wider and deeper and able to carry double the cargo of ships currently using the canal.
This is one reason Colón has become the regional base of firms like Procter & Gamble. Since 2/3 of the traffic through the canal is coming from or going to America. The New York Times reports that the Port of Charleston in South Carolina is spending $1.3 billion over 10 years on improvements to handle the additional cargo from the canal and other routes and Dean Campbell, a soybean farmer from Illinois expects the expansion will help him compete with farmers in South America.
To get a piece of this growth, take a look at what I call the “Panama Proxy” – Banco Latinoamericano de Comercio Exterior S.A. (NYSE:BLX) more commonly referred to as “Bladex”.
My case for Bladex is that its core banking business is steady and safe trade finance that should grow nicely with rising canal traffic. The bank has sharply expanded business with Chile and Peru and a major goal is to increase fee business from asset management and private banking. BLX has delivered its investors a total average return of 33% per year over the last ten years and last year Fitch upgraded its credit rating due to a better balance sheet. BLX is trading right at book value and 13 times earnings, delivers impressive 59% profit margins, and sports an attractive 4.7% dividend yield.
In short, Bladex represents great value, high quality, and a big upside.
My advice is to search the world for opportunities like Panama that even the most sophisticated investors overlook.
Opportunity awaits,
Carl Delfeld.
