is an indoor ski resort what Panama tourism needs?

I have compared Panama to Dubai several times in previous articles, rarely intending flattery. After attending the annual AMCHAM Tourism Forum a few weeks ago (report on the way!), it became clear to me that there are two distinctive theories competing for the future direction of Panama tourism. On one hand, there’s what I call the “dressed up Cancun/Dubai” approach and on the other is a Panamanian twist on Costa Rica’s eco/boutique/sustainable model.  I count myself in the latter camp, but I worry that I may be grossly out numbered and out gunned.

Even as Dubai’s once-heralded economy teeters on the brink of disaster, Panamanian President Ricardo Martinelli echoed the “Panama as Dubai” notion when he rang the opening bell on Wall Street just last week!

Dubai/Cancun
—
Both areas experienced hyper growth, with development characterized by large scale, high density and often over-the-top design concepts.  Short-term rises in prices were applauded as the signals for success, rather than a focus on long-term, sustainable growth.  Environmental and cultural heritage were of little concern during the planning of these booms.  These were to be closed off destinations for the elite, far removed from the locals and with minimal interest in the preservation of anything indigenous.  The design and sensibility is to be modern, flashy, and always looking to the future, not beholden to any sense of history.  Business, shopping, and upscale activities like golf and sport fishing were to be among the draws.  Dubai even went so far as to create an INDOOR ski resort (see image above)! Don’t believe these two places are hurting? Jump on Travelocity or similar and check out the massive hotel discounts!

Pros:
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Attracts big money first
Fosters meteoric growth
Can create a destination rapidly

Cons:
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Destroys nature, culture
Tends to spark and fade quickly
Can result in a boom/bust

Costa Rica/Boutique/Eco
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Costa Rica has done a fair job of creating and enforcing laws that discouraged mega projects, encouraged boutique hotels and multiple destinations surrounding well-managed national parks.  This attracted eco-minded tourists who appreciated the cultural and environmental differences, rather than expecting and imposing their own cultural norms. Low density development laws, particularly along the coastline, resulted in relatively low profile, low impact beach growth.  This has permitted Costa Rica to earn the reputation of being an eco-friendly destination and enjoy a longer period of sustained popularity than is typical of newfound tourism destinations, which tend to go in and out of vogue, particularly if they fall victim to the dreaded Fourth Phase of tourism, as referenced later in this article.

Pros
—
Celebrates natural, cultural history
Maintains proximity between locals and tourists
Permits a longer period of growth and popularity
Property values in remote or eco-sensitive area have slower growth, but maintain value

Cons
—
Slower growth
Frustrating to many developers and business owners
Some tourists do not see the value; it’s not for everybody
Attracts big money last

I have spent a decade working in tourism in Costa Rica.  The country isn’t perfect, but it would be difficult to argue that Panama’s tourism sector can even compare in terms of public image, annual revenue or tourism infrastructure. I cannot claim to be an expert on Dubai, so I enlisted the opinion of a University classmate and fraternity brother (go Sigma Chi!) who is a native of Dubai for his opinion. Here’s what he wrote:

I had no I idea Panama was so similar to Dubai. I don’t know how much you have heard about Dubai but the recession has hit us REALLY badly here. The property market has taken a beating. Prices are down 50-60% in a space of a year.  Many real estate companies have gone bust.  Projects worth billions have been canceled. That has had a domino effect on construction companies, contracting companies, building materials suppliers, advertising companies, etc.  The main problem that Dubai had was that in the last 5-6 years the real estate market was going insane. I am talking about prices doubling every year. There were a few main reasons for that:

1) No regulations in regards to grey money coming into the country. As a result a lot of questionable cash was brought into Dubai.  A lot of money laundering that could not be deposited anywhere else was brought here to buy property (Russian mafia, drug money, etc).

2) Dubai promised investors a 3 year visa renewable until the time the property was in their name. So, people from a lot of the neighboring countries with political/social/religious unrest choose to invest in Dubai so that they would have a safe haven. Interestingly, they canceled this and other incentives around the same time as the recession hit (talk about a double whammy!).

3) No capital gains tax. You could buy an apartment and sell it for a 10% profit the next day and not pay any tax on it. Short-term investors were paying 10% down for a property and selling it the next month for 5% more of the original price (effectively getting a 50% return overnight). All of this TAX FREE, generating no income for the Dubai government.

Until the recession, Dubai has been successful for a few key reasons:

1) Tax free income

2) ONLY safe modern place to live from Africa to East Asia.  So a lot of companies use Dubai as a base for their operations and employees prefer to live here than the neighboring countries.  So it is THE business hub of the region like what Panama is trying to do in their region.

3) Tourist traffic has gone through the roof because of all the ridiculous attractions like indoor ski slope, world biggest mall, world’s biggest building, etc.

4) Top notch infrastructure (airport/roads/seaport)

Dubai was on fire until the recession hit.  The leadership kept saying that nothing can affect Dubai.  Boy have they been wrong! If I were to be the ruler and do it all over again, I would focus on SUSTAINABLE GROWTH.  While it is okay to have some degree of speculators, it is better to have a gradual growth model. To achieve that, I would ensure:

1) Criminals Stay Home — The harboring of “grey money” does very for the long-term growth of a country.

2) Limit Speculators — Introduce some kind of short-term capital gains tax so that people would not just “flip” properties so easily.  By the time the property got into the hands of the end user it would have been bought and sold several times and the price would be 100-200% more since everyone took their profit.  This would keep out the speculators.

3) Attract Foreigner Residents — Keep the residency rule to attract investors and rich people from the less stable neighboring countries. In fact I would go ahead an offer a permanent residency to people who invest certain amount of money here.

Eerie how similar my Dubai amigo’s ideas for “if I could do it all over again” pertain to Panama TODAY.  Tourism and overall national development requires a long-term vision and leadership that is willing to forego short-term gain for long term sustainability.  There is plenty of documentation regarding those destinations who have fallen victim to the dreaded “Fourth Phase” of tourism.  Here is how these phases are described on the UNESCO world heritage website:

Phase I
A remote and exotic spot offers peaceful rest and relaxation and provides an escape for the rich who live in isolation from the resident population.

Phase II
Tourism promotion attracts persons of middle income who come as much for the rest and relaxation, as to imitate the rich.  More and more hotel accommodation and tourist facilities are built to attract and accommodate more and more tourists.  This transforms the original character of the place from « escape paradise » to a series of urban developments with several consequences:
•     The local residents become tourism employees, in many cases foregoing agriculture and earn more than ever before;
•    The rich tourists move on elsewhere;
•    The growth in tourist population makes interaction between tourist and resident population inevitable, leading to a variety of social consequences, seen mostly as negative;
•     Increased tourist accommodation capacity leads to excess supply over demand and deterioration in product and price.

Phase III
The country resorts to mass tourism, attracting persons of lower standards of social behavior and economic power.  This leads to the socio-environmental degradation of the tourist destination.

Phase IV
As the place sinks under the weight of social friction and solid waste, all tourists exit, leaving behind derelict tourism facilities, littered beaches and countryside and a resident population that cannot return to its old way of life.

CONCLUSION:
Cancun is a failure.  I believe Dubai’s master plan will soon prove to be a fantastic failure.  Panama needs to learn from their mistakes and not seek to imitate them. Making repeated comparisons to Dubai, all the way to the office of the Presidency, does not paint a positive picture for the vision that the powers that be have for the future of Panamanian tourism.  The leadership and local residents need to take notice of the failings of these other countries and destinations and demand that their leaders put the framework in place that allow for sustainable growth.  We foreigners can simply move away if it all goes badly, but Panamanians will need to deal with the aftermath if all does not go to plan.

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Filed under: Business, Politics, Real Estate on September 27th, 2009