Diversifying The Economy And Assisting Local Talent To Enter Business

Diversifying The Economy And Assisting Local Talent To Enter Business

In 1973 after the United States Government rescinded the so called “favored nation clause” in the Trusteeship Agreement which prohibited foreign investment in the islands, the Congress of Micronesia passed its own rather restrictive foreign investment law which continued to forestall outside investment. During the period of the Trust Territory Government, it was the policy of the United States Government as the administering authority and its implementing agent, the U. S. Department of Interior, to strive to develop the local economy for the benefit of the indigenous people. In those days everyone knew that the limited financial resources, management skills and marketing acumen of many local people was such that large projects were simply beyond their capacity to implement.

It was hoped that the smaller “mom and pop” businesses would be identified and undertaken by the Chamorro and Carolinian people and that these would eventually evolve into ever larger enterprises. To an extent some did enter the world of business and develop thriving enterprises which continue to be successful. But not enough people were willing to accept the risk that all entrepreneurs recognize when they embark on their own business venture. When the above Trust Territory law governing foreign investment was repealed by the Commonwealth legislature in the early eighties nothing was put in its place to encourage and direct “selected” outside investment. The door was opened and both large and small amounts of “off island” investment flooded into the new Commonwealth.

We see the results of this policy around the island today and the conspicuous absence of large U. S. mainland investment. While “outside” investment was welcome and, hopefully, will continue to be so saluted, one is astonished at the large number of smaller enterprises that are foreign owned which have located in the CNMI. During the period before Commonwealth status was achieved it was just such businesses as the smaller “mom and pop” operations that, hopefully, the local people would undertake. Only a few seem to have taken up the challenge. A few years ago the primary concern of many was to lease land to anyone from anywhere. It should not come as a surprise that the outside investor would develop the leased land to his or her advantage. So, in effect, the more land that was leased to, and developed by, outside investors, the more control over the local economy was lost by the indigenous people. It was a “trade off” that was accepted if not fully realized at the time. Very often the profits from such businesses are fugitive in that they are not reinvested in the local economy but are returned to the expatriate investor’s home country. Certainly a government cannot on the one hand invite outside investment at a point in its economic evolution and later “uninvite” it. To do so would seriously jeopardize its investment reputation and creditability around the world and I certainly don’t advocate such action nor has the CNMI Government.

The Commonwealth is a very safe place to invest and the tax incentives it offers are unequaled under the American Flag. I am aware that there has long been a difference of opinion among some in the community as to the type and amount of development that should be permitted in the islands. United States citizenship aside, I feel the issue is one for the islanders themselves to decide based largely on my attitude as a guest in the islands and the fact that the bones of my ancestors are not here. However, the question remains if the investment opportunities, particularly the smaller endeavors, that are available in the Commonwealth are open and available to all comers – what opportunities will remain for the local people and the graduating youth that come forward in the future? In an economy dominated by the tourism sector, few local people are directly participating in the rewards generated by the industry. Unless this record changes the local people will not be full participants in the Commonwealth’s future growth potential. Last year of the 3,488 hotel rooms in the CNMI, only 5.6 percent or 197 rooms within 12 hotels or motels were controlled by local people. Of this number 7 of the hotels were located on Rota and Tinian with a total of 88 rooms or 45 percent of total number of locally owned hotel rooms. Local owners on Saipan controlled 5 hotels with a total of only 109 rooms. However, a substantial number of apartments and office buildings are locally owned. According to data from the CNMI Department of Commerce of the 4,257 business licenses issued in 1995 only 735 or 17 percent were issued to CNMI born United States citizens.

Of the 735 – thirty six business licenses were issued for fishing and farming; 33 for travel and tour enterprises; 405 issued for general merchandise activity; 30 nightclubs and bars; 10 speciality shops; 5 car rentals and 216 import – export licenses. Some of these may be “shadow licenses” in the sense that a local serves as a “front” for the foreign investor. Diversifying The Economy The issue remains as to whether certain of the smaller business opportunities in the Commonwealth should be reserved for local implementation and, if so, the best method to do so. I have always believed that any “grand plan” for an endeavor is nothing more than the sum of its smallest elements – and so it is with economies. A healthy and diversified economy which the Commonwealth needs must consist of many different business activities. Agriculture, fishing, light manufacturing, service oriented activities and so forth. We are all aware that no economy should place all its “eggs in one basket.” There are many business opportunities available for our increasingly well educated young adults many of whom are quite aware that there are careers other than working for the government. The creativeness of entrepreneurs and the varied ways people make money in business knows no bounds particularly in an American legal environment where one is generally free and encouraged to undertake productive legal activities. I tend to separate economic opportunities into the following broad categories: – those that are one hundred percent foreign owned. For example, these might be projects where a large capital investment is required such as a resort hotel, fishing vessel repair facility, automobile ferry between the islands, etc. Still others are projects where a joint venture partnership is desirable where the local partner participates with land or a limited amount of capital matched by an outside partner. And there are projects which can be undertaken entirely by local indigenous people and other U. S. citizens. New projects that should be evaluated to determine their profit potential include the following all of which must first be determined to be viable in filling a market need and must exhibit the potential for generating a profit based upon a financial feasibility analysis which obviously is beyond the scope of this article. These include but are not limited to: Service (Tourism Oriented): Northern Islands dive and sport fishing camp, saddle horse rental (horse drawn cabs), flea market shopping operation, bottling (water -Rota), hot air sightseeing balloons (tethered), aerial cable lift (to Mt. Tapotchau with mountain top restaurant), underwater marine observatory, Suicide /Banzai Cliff observation elevator. Manufacturing or Assembly: leather sandals, belts, wallets, etc.,handicrafts and souvenirs (shell jewelry), ceramic products, beachwear (bathing suits), candy, Hafa Adai island shirts & mu mus, souvenir candles. Marine: mariculture (marine shrimp), hatchery, marine shrimp juveniles (for export) and cultured pearls (Northern Islands). Fruit Culture:Papaya: Fresh papaya, jam,marmalade, pickles,canned papaya, frozen papaya, papaya juice, banana chips, pudding, frozen or canned mango, star-apple, guava, passion fruit . Flower Culture: Flowers have high value in relation to bulk and can be flown to Asian markets, they include: plumeria, hibiscus, anthurium, chrysanthemum, roses, snap dragons, carnation, vanda orchid, ti- leaf, marigold. Scientific/Aesthetic:Cultural and performing arts center, aquarium, planetarium. For those who would say, “ I don’t know anything about such businesses.” My reply is: find out how to do it – that’s what others have done and if they can do it so can you. You have a brain, you live within a fair and impartial judicial system, you have local and federal government agencies established to assist and encourage you and there are funds and incentives available to get you started. But – realize it “ain’t” all free and it doesn’t come easy. It requires work and you must want to meet the challenge. Remember, nothing in business is certain and one enters the venture (perhaps adventure is a better word) and takes the risk that the endeavor will be a success and that the investor will be rewarded. The reward for taking the risk is the profit earned. The money which is put at risk is itself a product of thrift, prudence, planning, management and in some cases sacrifice. We also have the benefit of a great gift from the U. S. Congress permitting the export of qualified locally manufactured products duty free to the United States’ market. I am constantly asked by potential foreign investors how the process works and whether or not one product or another could be produced or assembled in the CNMI for export to the U. S. Considering that in almost all cases the raw materials would have to be imported, these could include certain electronic components, pharmaceuticals, leather products, toys and many others. There is an interesting dichotomy of sorts at work here in the Commonwealth where non U. S. citizen Asian investors can locate in the islands and export to the U. S. mainland market but mainland American investors haven’t positioned themselves to export to Asian nations. What can be done to equalize this imbalance?

One possible solution is to publicize the advantages of a CNMI location among American investors to establish themselves in the Commonwealth as Foreign Sales Corporations (FSC’s) when exporting to the U. S. mainland manufactured products to Asia. United States businesses registered in the Northern Marianas and engaged in export sales can enjoy significant tax relief from their tax obligation to the Internal Revenue Service by establishing offices within the Commonwealth since a portion of the income generated by foreign sales is exempt, or partially so, from U.S. taxes. Any firm engaged in export transactions can become eligible for these tax benefits if it meets certain simple qualifying criteria. Marketing Commonwealth Geography Entrepreneurs usually examine three levels of geography in arriving at an investment decision. First – the country and its laws – in this case he United States; second – a specific area or region such as the Commonwealth along with its local laws, regulations and incentives, the area’s market and any comparative advantage which may exist and finally – a specific site as may be situated in Garapan, Marpi, etc. As one who has been involved in briefing both foreign and domestic potential investors on the advantages of doing business in these islands, sooner or later, the question is invariably asked where the potential investor can find suitable land to lease for their project. Aside from telling them that they should contact MPLC for information on available public land and realtors listed in the phone book for private land, I have to tell them that I don’t know what sites are available or where. It occurred to me that an inventory of such sites free of Article XII problems would be helpful to both the potential investor and those land owners with parcels available for lease. Data could be collected and presented in a portfolio complete with a site description, oblique and aerial photographs, topographic and cadastral maps depicting English, Japanese, Chinese and Korean systems of measurements and, of course metric, all designed to permit a “one stop” initial office reconnaissance and review of such a private land inventory retained somewhere for ease in examination.

The investor could then identify several locations that appear to meet his criteria and subsequently make direct contact with the responsible party and negotiate the terms privately with the owner or agent. The site portfolio could be made available for inspection by anyone, the potential investor, chamber of commerce, island realtors, attorneys – anyone servicing the client. This would be the extent of government evolvement which would not otherwise interfere with any legal land transaction between the private parties. While recalling the old Indian proverb, “buy no land until you have walked over it in your moccasins”, this process alone will not result in a transaction agreement, it’s only a useful tool which could be helpful to all parties concerned.