Watch markets off the beaten track


Panama, a future watch hub?

TRAVEL NOTES 🇵🇦 PANAMA

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August 2018


Panama, a future watch hub?

The country is already a commercial, logistical and financial hub for Central America and the Caribbean region. With its modern infrastructure, political stability and low taxes, Panama is attracting more and more wealthy residents. Above all, it is counting on the recent extension of its famous Canal to strengthen its status, benefiting from the globalization of trade.

T

he cargo arrives, the lock closes, the water level drops, the lock opens: in Miraflores, in the suburbs of Panama City, the maritime ballet is repeated to infinity, 24 hours a day. It takes a dozen hours for a ship to pass, for a fee, from the Atlantic Ocean to the Pacific Ocean or vice versa, via the Panama Canal. This shortcut will prevent it from having to travel all over Latin America and make its transfer much faster from the United States to the Chinese commercial eldorado... or bring him back in the opposite direction, filled with goods produced in Asian factories!

The Panama Canal is the economic “artery” of this small country of four million inhabitants, and makes it the commercial hub of Central America and the Caribbean. The local economy, one of the major beneficiaries of the opening of China to the world economy over the past twenty years, has developed strongly since the return of the canal to Panamanian sovereignty, from the United States on December 31 of the year 1999.

Panama is one of the major beneficiaries of the opening of China to the world economy over the past twenty years.

Panama, a future watch hub?

Panama, a future watch hub?

The canal was expanded two years ago for over $5 billion to accommodate larger vessels, known as “post-panamax”. Cargo ships with a capacity of 14’000 containers can now use the canal (compared to 5’000 previously). The Panama Canal Authority expects to triple its revenues with this extension. In addition to direct revenues from ship transit taxes, the canal has enabled the country to become a logistical and financial hub, attracting multinational corporations and banks.

The Panama Canal Authority expects to triple its revenues with this extension.

Some key figures on this strategic passage point of the planet:
- 80 km long between the Atlantic and the Pacific.
- Construction initiated by the French Ferdinand de Lesseps in 1881 and completed by the United States in 1914.
- Return of the canal to the State of Panama on December 31, 1999.
- To transit, each ship must pass through 3 locks.
- 427m x 55m x 18.3m: in length, width and depth, the dimensions of the new locks of the canal.
- 14,000 ships pass through the Panama Canal each year, about 6% of world maritime traffic.
- 280,000 tonnes of goods pass through the canal every year.
- The Panama Canal Authority, the government agency that manages the Panama Canal, accounts for 45% of the country’s GDP.

Panama, a future watch hub?

Panama has also developed as an aeronautical hub, through Copa Airlines, a relay point between Latin America (with direct flights to no fewer than nine Brazilian cities, for example) and North America. In fact, most passengers are only in transit in Panama and do not leave the airport - you realize it when you actually get out and desperately seek a taxi!

In this configuration, we could also expect a watch market in full boom! It is indeed developing, but it is not yet the watch’s tax-free “eldorado” that one might believe to find. Panama only ranks 47th in international markets for Swiss watch exports - just ahead of Brazil and its appalling protectionism.

The Latin American watchmaking giant remains Mexico, with its strong appetite for luxury watches - an important market for brands like RJ or Hublot, to name just a few (we will go to Mexico City to report on the SIAR next October). And the undisputed watch hub for all Latin Americans remains Miami, where the first edition of Watches & Wonders (see here) was held this year - relocated for the occasion from Hong Kong.

In fact, most passengers are only in transit in Panama and do not leave the airport.

Panama, a future watch hub?

The watch distribution structure in Panama includes subsidiaries of large holding companies with very varied activities, such as Motta and Grupo Wisa. But the most prestigious watch retailer in the country is undoubtedly the family company Mercurio Joyeros, which has represented Rolex exclusively since 1981. It has four stores in Panama City and recently opened a new point of sale at the international airport - a wise choice given the country’s growing importance as an air transit hub.

The history of this retailer goes back to 1944 with the opening of a first shop, by an immigrant of Austrian origin. In 1977, it was taken over by Don Carlos Jelenszky, of Cuban origin and who had left the country following the revolution, with his family of nine children including eight boys.

We had the chance to meet one of the heirs of this watchmaking dynasty, Luis Jelenszky, in Mercurio Joyeros’ main boutique on Samuel Lewis Avenue in Panama City. Three of his brothers also work in the company and his son has just joined the company. He himself studied at the Centre de Formation en Horlogerie in Lausanne.

Mercurio Joyeros, the most prestigious watch retailer in Panama
Mercurio Joyeros, the most prestigious watch retailer in Panama

“It was in the 21st century that the Panamanian economy really took off, with growth rates among the highest in Latin America,” he emphasizes. “In recent years, growth has stabilized at around 5%.”

Two-thirds of the retailer’s clientele is resident. “Panama is an easily accessible country with low taxes,” says the watchmaker. “It is now benefiting from the arrival of multinationals such as Procter & Gamble or Dell and other companies fleeing the troubles affecting Venezuela.”

Surrounded by a Colombia that is beginning to recover from the civil war, a Venezuela plunged into a deep crisis and a Central America plagued by drug trafficking, Panama is a haven of peace for the inhabitants of the region, as well as for capital and financial flows, with its political, commercial and monetary stability (with the use of the American dollar, to which the local currency (the Panamanian Balboa) is pegged).

This tropical tax haven - see the famous “Panama Papers” - indeed tries to be much more than a giant mailbox or a cash register of dubious flows... and attracts more and more pensioners from the European middle class!

Panama, a future watch hub? Panama, a future watch hub?

Mercurio Joyeros also has a passing clientele, accounting for a third of its sales. “The country is trying to develop tourism, to the point that the hotel offer in Panama City is in overcapacity of rooms,” explains Luis Jelenszky. With its sixty storey towers, reminiscent of a “Dubai Latino”, the city seems disproportionate for this small country. This allows, however, to find luxury rooms at a very good price... Unlike many congested megacities, there is room here to grow. The infrastructure is already there! Panama’s economic ambition is evident as soon as we arrive in this country, via its architecture and city skyline.

As regards the portfolio of brands represented by Mercurio Joyeros*, Luis Jelenszky emphasises the choice of a price pyramid without overlap, ranging from Tissot to Audemars Piguet. The flagship brand remains of course Rolex - as for any retailer around the world representing the company with the crown! “We are fortunate to work with brands like Rolex and Audemars Piguet, which protect their retailers. In Panama, it is not so easy to find quality watches, so we have a good historical position and have been able to build a strong credibility.”

“We are fortunate to work with brands like Rolex and Audemars Piguet, which protect their retailers.”

Panama, a future watch hub?

What about the internet and the development of e-commerce? “Whoever says that digital is not important would be a liar! But the thing we do best is to be a family business that offers a difference in trust, compared to what we find online.” Mercurio Joyeros indeed carefully chooses its development axes. As proof, he chose not to settle in Colon, a town in the north of the country located on the canal access from the Caribbean Sea. A tax-free wholesale area, rather cheap, but very insecure and whose golden age was really in the 1990s.

Like many Latin American nations, the country combines the worst and the best, with for example the highest rate of territory in the world covered by national parks... and one of the highest rates of human inequality. Yet the country has just joined the list of “high per capita income” nations, according to the World Bank. The watchmaking development potential, if it follows the curve of Panama’s economic ambitions - particularly with the extension of the canal - is promising.

With its sixty storey towers, reminiscent of a “Dubai Latino”, the capital seems disproportionate for this small country.

*Brands represented: Rolex, Tudor, Audemars Piguet, Officine Panerai, Baume & Mercier, Michel Herbelin, Tissot