Employment Creation Through The Encouragement Of Entrepreneurship And Small Business – The Northern Mariana Islands Model
In considering the above subject as it applies to the U. S. Commonwealth of the Northern Mariana Islands one has to have a historical point of economic departure in order to appreciate how far the Commonwealth has come over a relatively short period of time. By the late summer of 1970 the islands were almost devoid of the amenities of the last quarter of the twentieth century. There was one black and white television channel available operating only a few hours each evening; there were only three food stores of any size with a very limited inventory; one cargo vessel a month called at the port. The airport was an open-air tin shack with one aircraft a day. Since the airstrip was not lighted and had no navigational aids, aircraft had to overfly the strip at a low altitude prior to landing to check the wind direction and to frighten stray dogs and cattle from the landing strip.
There were no recreational craft in the lagoon except for a single glass bottom boat operated by a Palauan. There were only two hotels, the 73 room Royal Taga Hotel where the elegant Diamond Hotel now stands in Susupe and the Hafa Adai Hotel in Garapan which consisted of ten plywood bungalows each slightly larger than a shipping container. Today, after three major expansions it has 280 rooms. In those days the number of island restaurants could be counted on one hand. There were very few automobiles on the island and those consisted mostly of second hand, rusted pick-ups. The Fire Department had a single red jeep with a garden hose and there was only one stop sign on Saipan's roadways. To make an overseas telephone call one had to drive to the RCA office in Susupe and make the call from a booth.The economy was minuscule. As late as 1980 the Commonwealth still had no economy to speak of, indeed, a very prominent businessman remarked that he thought the economy "had a black hand over it." It appeared in those days that the Northern Marianas, like several islands in Micronesia that were previously part of the Trust Territory would forever remain an economically stagnate Pacific backwater. Between the period of 1985 and 1990 the Northern Marianas witnessed unprecedented growth which was a direct result of the huge amount of foreign investment which flowed into the Commonwealth. Prior to that time there was very little investment and no private sector economy worthy of the name as the principal employer was the Government. Unfortunately very few indigenous businessmen and women seized the opportunities that presented themselves except for the more obvious retail and wholesale businesses which by their very nature do not introduce new money into an economy but rather circulated only that which is already there – largely as a result of government payrolls provided, in many instances, by appropriations from the United States Government. I believe it is safe to state that very few projects have been implemented in the islands which, either produce items for export or are designed to substitute imports – both of which introduce new money into circulation, with the exception in the Commonwealth of "invisible exports" derived from the tourist sector and those earnings from the garment manufacturing industry with their large nonresident work force. There are many reasons why local people were unable to develop a tax revenue base built upon a private sector owned and operated by indigenous businessmen and women and one sufficiently large enough to generate revenues equal to, or exceeding, the annual appropriations provided by the United States Government.
Several of these reasons are: a limited number of people with the risk taking spirit of the entrepreneur; lack of sufficient capital; limited knowledge of the intricacies of export markets; infrequent ocean shipping service (at least in years past); weather uncertainties and lack of appreciation of potential business opportunities that existed. It is probably safe to state that the Northern Marianas was in such a situation until the abandonment of a restrictive Congress of Micronesia foreign investment law and the area's acceptance of the "tradeoffs" that accompany an economy with a large presence of foreign investment That act of abandonment and the acceptance of foreign investment plus our close affiliation with the United States which has inspired confidence in the international investment community are the three principal reasons for our phenomenal economic growth in recent years.
The 1986 devaluation of the U.S. Dollar in relation to the Yen as a result of the Plaza Accords in New York also contributed to the large influx of foreign investment in the Commonwealth. I am not here to state unequivocally that our economic model is the one to follow, certainly we have made some mistakes along the way which basically revolve around our inability to foresee the "unanticipated consequences" of such rapid and largely uncontrolled growth, particularly the strain placed upon, at that time, an inadequate, 40 year old infrastructure of power, water, sewer and roads. Since our influence in the world's economy is negligible to say the least, there was some fear that if we did not take immediate advantage of the investment that was expressing interest in the Commonwealth during the period 1985 thru 1991 that some event, or economic cycle, would force a down-turn in the region's economic well – being and the investment interest would dry up. It was decided to take advantage of the "goose while it was still laying golden eggs" since no one knew when the prosperity of the investing nations might recede which in turn could result in such countries placing restrictions on their citizens and companies who were investing abroad. Indeed, world events being what they are at the present – especially as regards the Middle East – and the potential negative impact on the Japanese economy, which is now cutting back somewhat on investment abroad, it is well that the Northern Marianas did adopt an "open door" policy on foreign investment and thus strike while the so -called "iron was hot" and reap the advantages of the flow of foreign capital. What has been the result of this policy? Through the boom of the mid ‘80’s every sector of the economy grew at an annual rate of sixteen percent. During this period the CNMI experienced a rate of growth compressed into five or six years that would normally require a span of two decades or more to achieve. The basic development issue several years ago was – must the islands be forever doomed to a small economy because they have a small local population? The Commonwealth now finds itself in the strange, if not unique, position of having an economy that has far outstripped the capacity of the indigenous population to provide the necessary workers for the labor force. No other area or country, with the possible exception of Saudi Arabia, is in a similar situation. For almost all other areas throughout the world the exact opposite is true, not enough jobs for the available work force to occupy. It was only a few years ago that the islands had no economy to speak of and the only employer of any size was the Trust Territory Government. By 1973 the Japanese lifted the limit on the amount of foreign exchange, (then the equivalent of $743.), that a Japanese tourist could take abroad. Many that had the money to travel sought the sun, sand and sea and the travel industry in the Northern Marianas was born. In 1980 there were only 740 hotel rooms and tourist expenditures were $58.8 million.
By 1995 the industry had grown to 3,561 rooms and the combined expenditures of 654,375 visitors has been estimated at $521.6 million. During the period since 1980 the CNMI experienced an increase in housing units of 323 percent. Between 1980 and 1990 median household income rose 43 percent from $14,425. to $20,644. Median income for owner households rose 94 percent from $13,353. to $25,960. The median value of owner-occupied, one-family houses increased 1,525 percent over the decade of the ‘80’s from $10,400. to $169,000. This was 22 times as great as the average increase in the United States which rose 68 percent from $47,200. to $79,100. In 1980 the number of housing units in the islands totaled 3,373. By 1995 the number of residential units increased substantially growing by 76.8 percent over 1990 to 14,505 units and 323 percent over the fifteen year period since 1980. In 1995 the capita income had reached $6,984 over the $2,418 recorded in 1980.Telephone subscribers grew from less than 1,600 instruments to 15,460, ('95) and registered vehicles from 5,500 to 15,355. Over this fifteen year period 54,493 land transaction were recorded. Wages and salaries for all sectors including government increased from $41.7 million in 1980 to $415.4 million, ('95). Considering earnings from tourism as an invisible export, the value of Northern Marianas' exports in 1995 was $940.7 million which includes $419.1 million in exported garments, a total slightly less than one billion dollars. In 1995 our imports amounted to $628 million. Our economic engine is fueled by tourism. In 1980 there were only 14,046 aircraft landings at Saipan International Airport. Last year there were 29,439. Visitor arrivals have increased from 117,149 ('80) to 654,375 ('95), visitor expenditures over the same period have jumped from an estimated $58.7 million to $521.6 million. Locally generated revenues have increased from $10.8 million in 1980 to $196.1 million in 1995 and our population has increased from 16,780 ('80) to 59,913 in 1995. Over the last 10 years our private sector has grown from $244.4 million ('85) in reported gross business revenue to $1.4 billion. Our growth has been so phenomenal that various policy making groups in the United States have visited the Northern Marianas to study our success for possible use as a model to improve the national economy. How was our unprecedented growth achieved? In any foreign investment promotion program, business opportunities must be brought to the attention of potential investors as well as the location of the geographic area, and its "business climate" which are those laws relating to business and any advantage – comparative or otherwise – which makes the island a profitable place from which to conduct a particular business . What has happened in recent years to the Northern Marianas and to our neighbor to the south – Guam – has to be one of the great economic success stories within the American political family in this – the last quarter of the 20th century.
However, our present growth did not come without some strain. For one thing – there is not now , and there may likely never be a large enough local population to operate the Commonwealth's "new" economy with the result that we now must rely upon foreign workers to operate much of the economy. The ratio of U. S. citizens to foreign workers is now 1.0 to 1.2. The unprecedented and unanticipated pace of development required that our infrastructure be rapidly upgraded – which was done or is currently underway. At the time the government was faced with a dilemma of either limiting private economic expansion until an adequate infrastructure base could be put in place to accommodate the much needed investment or permit private development to occur at a pace certain to strain an already inadequate infrastructure. To slow development would have required, among other things, a prohibition on all but local investment and deprive landowners of the right to exercise their freedom of choice in the use, or lease, of their land to whomever they choose. Such a policy would hardly conform to the democratic principles of a free people. The government decided to attempt to balance the two parallel objectives by making incremental improvements in the infrastructure while at the same time permitting free enterprise to flourish. This policy in the end provided increased tax revenues which will ultimately lead to less reliance on United States' financial support and the uncertainties of U. S. Congressional appropriations. If you were to visit Saipan for the first time – almost everything you would see around the island has "sprung up" within the last 10 years. Having briefly mentioned the past and summarized the present, the question to be posed is, "where do we go from here? " Very conservative projections prepared for the Marianas Visitors Bureau and our Department of Commerce indicate that barring any unforeseen economic disruption, particularly as regards the Middle East and its effect on the Japanese economy – and with the introduction of casino gambling on Tinian, by the year 2001 we will need from 5,560 to 7,290 hotel rooms in our inventory if we are to accommodate the market demand of from 1.0 million to 1.4 million visitors who will spend an estimated $1.1 to $1.9 billion annually in our islands. The most recent data (1995) on the composition of the population within the CNMI is: Chamorro and Carolinian 20,089 (33.5%); Filipino -19,668 (33%); all others 20,089 (33.5%). Economist refer to the 4 factors of production which some of you may recall from your own study of economics — these are Land, Labor, Capitol and Entrepreneurship (or management). In the Commonwealth we see all those factors inter-act largely as a result of geography. The land belongs to the local population and while it cannot be sold to non-island people it can be leased for periods up to 55 years. As might be expected the Japanese with their huge surplus of capital in recent years largely provided the financing for Saipan's economic engine. The Philippines with their large reservoir of low cost, skilled workers has provided the majority of the labor needed. It is fortunate that the Commonwealth is in proximity to the Philippines and can thus take advantage of their surplus labor.
However, the introduction of such large numbers of guest workers has not been without some problems. Unlike the economic sectors of manufacturing, agriculture, fishing and so forth, the tourist sector of any economy is the only sector that, by necessity, strives to inject an ever increasing number of visitors into an area. It goes without saying that more visitors require more hotel rooms, rent-a cars, banking services, a myriad of entertainment forms, the vast majority of which are small business and all these activities must be staffed by skilled, reliable employees. In the last 10 years our restaurants and bars, most of which are small businesses, reported gross business revenue of $6.2 million ('85) increasing to $29.5 million by 1995. Our retail sector, again most of which is made up of small business, increased their sales from $23.9 million in 1985 to $160.9 million by 1995. As I listen to people, I note their concern over the environment, the erosion of an area's cultural identity, the need to maintain local traditions and these concerns are certainly justified — but there can also be some desirable tradeoffs as an economy develops. As personal income rises – so does improved standards of living; modern medical care, opportunities for travel and the educational benefits that accrue there-from as well as many other worth-while benefits as a result of the "tradeoffs" mentioned earlier. It would certainly be a wonderful world if we could have everything we want – "have it both ways" – so speak but unfortunately it rarely works out that way. As a result the Northern Marianas has opted for a position to derive the desirable benefits of a modern economy in this last decade of the 20th century and accept the tradeoffs that are necessary and attempt to mitigate any adverse impact as much as possible as it moves toward the 21st century. Foreign Investment – Is It Wanted Or Not? Before any legislation is promulgated relative to foreign investment, the basic question should be asked, DO YOU SERIOUSLY WANT TO ENCOURAGE FOREIGN INVESTMENT? If the answer to the question is "no." . . then the steps necessary to be taken are simple — either retain cumbersome and restrictive laws or prohibit such outside investment altogether. If however the answer to the question is "yes" then certainly investment laws must be designed as an adequate tool to serve this purpose.
Assuming that a government does indeed desire to develop the economy utilizing, where necessary, foreign capital to accomplish this goal, it may be useful for the drafters of such legislation to examine the situation from the point of view of the people whose decision to invest they are trying to influence. Before addressing the subject of such investment legislation some background relative to the Northern Marianas' experience may be useful to place the subject in perspective. For a long period of time in the Northern Marianas and throughout the islands of the former Trust Territory it was the expressed intention of the United States, as the administering authority, to discourage foreign investment and leave the development of the islands to the indigenous people, or at least adopt a "do-nothing " attitude relative to the subject until such time as the local people were in a position to "rule their own houses", by governing themselves and adopting their own positions on the matter. Certainly, there was nothing wrong with that policy and it was indeed commendable. However, during this "wait and see" period of hiatus several things happened to influence the attitudes vis-a-vis foreign investment. Until April 1, 1974, the United States exercised the so-called Favored Nation Clause of the Trusteeship Agreement. Without going into laborious detail, Article 8 simply prohibited foreign investment by citizens or firms of any nation other than that of the administering authority (U.S. Investment) unless otherwise approved by the administering authority. In those Cold War days it was U.S. policy to keep the Russians and Chinese from investing in the area and this legal maneuver served this purpose. During the restless years of the mid 60's and early 70's the United States fielded its first Peace Corps volunteers to Micronesia. Many of the young volunteers who landed on Micronesian shores were themselves becoming alienated with American society, primarily because of United States involvement in Vietnam. Unfortunately, many who worked as business and legislative advisors in Micronesia at the time were also alienated against foreign investment of any kind in the area. Interestingly, those that elected to stay behind and make the islands their home are today quite successful and wealthy businessmen and women. However, for many in the early days their belief was largely that foreign investment would exploit Micronesian resources for corporate profit with little benefit accruing to the islanders. I can distinctly recall one American employee of the Department of Education in Palau being adamantly opposed to tourism development because he believed the Palauans would wind up being the maids and the waiters in hotels while management remained foreign. This individual failed to acknowledge the fact that the foreign owners would probably prefer to employ a qualified island resident and there-by save the added expense of airfare, living allowances, transfer expenses, etc. for a nonresident worker. As far as the use of local people for maids and waiters, one can not help but wonder why there was opposition to this type of employment. Such jobs are filled by nationals of various countries the world over . . . why should Palau be different? Such positions are often "starter jobs" leading to other careers in tourism such as gift shop ownership and management, food and beverage businesses and so forth. But this prominent individual's cry was heard loud and far and no one challenged his logic or countered his position . . . foreign investment in tourism was said not to be good for the islands . . and the matter was left at that. Still other factors that influenced attitudes in our islands dealt with a number of laws which had been incorporated into our legal structure from the American experience. There were – and still are – environmental protection laws, occupational health and safety laws, historical preservation, fish and wildlife, wetland laws and many others. Never mind that these restrictive laws were products which evolved out of one of the most industrialized societies the world has ever seen . . if they were good enough for the United States — they were believed to be good enough for us and they were transferred to the islands. From a developer's point of view some of these laws are so restrictive that if the United States itself has to develop its economy in 1776 under such legislation it may have never achieved the state of development it has attained. Indeed, these laws are a product of an economy that was, if anything, overdeveloped at the time, and thus some controls were obviously necessary. They are not all applicable to a developing economy and in fact may have served to stunt economic growth of some of the islands formerly part of the American administered area just as they are now inhibiting investment in the United States – one of the few countries in the world which is in the process of rapidly "de-industrializing" at this time. Certainly the environment should be protected but everything man does affects his surroundings in some way. You can't build a house without affecting the environment. But environmental "purists" have government funds to support their positions and are not readily prone to accepting the fact that "trade offs" have to be accepted. If you build a hotel – you modify the environment, . . . when you sacrifice a bit of pristine sea shore you gain jobs, tax revenues, profits, etc. That is the trade-off. None of the above can be cited as the root cause of the xenophobic attitude at that time that one frequently encountered relative to foreign investment but, taken together, these factors have had their influence on the issue and I suggest have influenced the structure of the present foreign investment laws and the economic development of many islands in Micronesia.
What Can Be Done To Encourage Foreign Investment Assuming It Is Desired? I suggest repealing any law that is considered restrictive and replace it with streamlined, efficient legislation offering various incentives for such investment. In this regard certainly preference should be given those investors desirous of joint venture participation with local investment. The drafters of such legislation must realistically examine the situation from the investor's view point. In order to do this, one must recognize two factors basic to the issue. Given the fierce competition for foreign investment among countries around the Pacific rim, the islands should abandon the attitude that they are doing a potential investor a favor by letting him do business in the country. It is actually the other way around, the businessman does your area a great service by investing in the nation. Second, there must be an appreciation of what investment capital really is . . . and from what it is derived. Investment capital is risk, venture money. 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. It is extremely rare for such money to flow into areas where these traits are not respected. In these changing times it is difficult enough to compete and succeed in business in one's own home country where the laws are familiar and where there is no question as to one's rights in terms of ownership of assets, profit and such other business essentials such as respect for contract, etc. It is quite another matter, however, in a country which has yet to establish its record in dealing in a positive way with foreign investment. The limited historical experience of a new nation relative to its relationship with foreign investment creates a degree of uncertainty . . . the one single factor such investment abhors above all else. Foreign Investment has learned the hard way from its experience in the newly emerging nations of Africa, the Caribbean and elsewhere that it is possible to be exploited, nationalized and have your assets confiscated. The result being that foreign investment has become very cautious and frequently adopts a "wait and see" attitude. When management reviews the business potential of a new area, no factor escapes analysis, most of all the so called "business climate" and the experience of other foreign investors in the area. These are just a few things to keep in mind when establishing the "investment climate" to which one hopes to attract such funds. It is worthwhile considering that development itself can not be "legislated" as is so commonly thought in the islands. Only the legal environment known as the "business climate" under which such investment is expected to thrive can be established by a nation's legislative body and even then there is no guarantee investment will result, but such legislation is, in a real sense, a "welcome mat." Streamlining The Law The old Trust Territory Foreign Investment Law under which we labored did not encourage foreign investment because of its onerous structure. The following are just a few example of its provisions and several sections in the law concerning the application for a Foreign Investor's Business Permit actually served to discourage investment.
There was a requirement for the potential investor to agree not to revalue stock shares – authorized but not issued – that had been set aside for purchase by citizens within the first five years after receipt of a business permit unless such a revaluation had the approval of the Foreign Investment Board and the President, (a board which rarely met). This was one provision in the law which made the area less than desirable as an investment location. This section of the law failed to consider the factor of appreciation of fixed assets which normally accrues to any successful business as it grows – nor did it fully consider the need for a developing business to have access to cash through the sale of the authorized shares not issued previously . The law required a detailed investment analysis and required disclosure of anticipated and proposed marketing plans. This section failed to consider the investor's need to protect proprietary information and required the divulging of information relative to the businesses' development and marketing strategy that could be damaging to the business applicant should such information fall into the hands of a competitor. No business wants to release such information. The old law required the applicant to state, among other things, the beautification programs and libraries, etc. the business intended to implement, thus tacitly implying that something other than the business investment was expected. Why should the executives of the proposed business spend the stock holder's money on facilities which are non-essential to the business? Libraries should be built with government tax dollars not stock holder's capital. The crowning constraint, however, was found in the procedures for granting business permits which stated, in pertinent part, the following: "The applicant is required to indicate the extent of participation by citizens of the country at the outset in the ownership and management of the enterprise and in the case of noncitizen corporations chartered outside the nation, the degree of willingness to form a national corporation at some time in the future and to offer a majority of the ownership and capital to citizens of the country." In more than a quarter of a century of work with foreign investors, I have yet to meet one businessman that would agree to offer a majority of the ownership and capital to anyone other than the rightful owners of the stock. The reason goes back to the earlier definition of the elements necessary to create risk venture capital. Anyone who does not fully comprehend and appreciate this attitude will never be able to understand the foreign investor's point of view. Offer Investment Opportunities One of the measures of how badly a country wants foreign investment may be gleaned from the incentives it offers. These can take various forms, several of which follow as examples found in other countries. – Training of employees at government expense; – Provision of access roads to business site locations not presently located adjacent to a public highway; – Provision of utility lines (water, power, sewer, telephone) to the business property line when such sites are not located along such lines; – Assistance with the construction of shell buildings for either lease, lease with an option to buy or out-right purchase; – Duty free importation of raw materials equipment and supplies (when not for resale within the country); – Guarantees against expropriation or naturalization of assets; – Tax holiday; – Guarantee against increase in taxes for a specified period. With respect to the latter incentive, the following is suggested for consideration. This need not necessarily be confined solely to foreign investment but can be directed to local business investment as well. Taxes Some stimuli are necessary to encourage increased private investment within the potential productive sectors of the economy and, to the extent possible, direct investment away from consumption oriented enterprises. In a society where any local investor is free to enter any legitimate business, some inducements may be necessary to convince businessmen to take the risk in implementing new productive endeavors particularly those the government desires to see undertaken. In this regard the government should also indicate a willingness to assist in sharing the risk as well. This can take the form of a tax holiday for "approved" projects. Consideration should be given to enacting laws designed to offer tax relief for a period of several years for those undertaking new projects. Of course, care must be taken to avoid prejudice against those already in business even though they may be of a smaller scale than the government desires. A number of formulae could be devised. For example, for every additional 5 acres of farm land brought under cultivation the law might permit two years relief from taxation.
The tax relief could be applied to all new project investment activities such as agri-business, food processing, production of fruits and vegetables, horticulture, animal husbandry, etc. The same legislation can be extended to forestry, timber, and lumber production, fishing, fish processing, mariculture, light manufacturing, air and sea transportation, etc. The key words here are "new projects" which must, of course, include an expansion of an existing endeavor. The tax holiday would remain in effect for a particular period providing the business itself was in operation for the duration of the tax relief period. The legislation should not be extended to retail, wholesale or construction activities (unless related to the overall project) since the objective of the legislation should be to reduce consumption of imported items through import substitution which translates into local production for both local consumption and export. A Suggested Foreign Investment Program In the discussion which follows relative to the encouragement of foreign investment it may be useful to define the perimeters of the subject. It is not suggested that foreign investment is needed or desired in any retail or wholesale activity, small construction, etc. where clearly the effort can usually be undertaken locally. It is suggested, however, that foreign investment be actively sought where it can contribute to one or more of the following: finance projects where local capital is insufficient to implement the endeavor; provide access to a foreign market not otherwise open to a local business without making a huge, expensive marketing effort, or provide technology not otherwise available on the island. In the past, the encouragement of foreign investment in some islands in our area of the Pacific has been somewhat passive in nature in that the various government administrations would react only to those investment proposals which came its way – rather than stimulate such interest as a result of a dynamic, aggressive promotional effort to generate increased investment interest. Most countries in the free world make a concerted effort to stimulate such investment as they realized that without it their economic growth would probably remain at a level where unemployment would be high, foreign exchange earnings low and tax revenues reduced. Such countries frequently staff, and fund, an office specifically charged with the responsibility to generate foreign investment within their nation. In the event your government desires to consider undertaking such an effort the following would contribute to such a program. – Organize a small office of 2 or 3 people within the present Foreign Investment Board. – Publish an information booklet as an "Investment Guide To The Area." The printing should be first class and in color since it will be the nation's calling card. A potential investor reviewing the contents of the book will receive his first impression of the area from the appearance of the publication. It must therefore be a quality document, be complete and accurate. The office should purchase advertising in various printed media around the region, inviting investment inquiries. These ads can be very expensive and great care must be taken to select the appropriate publication. For example, a 1/2 page ad in the Islands Magazine of Continental Airlines costs about $400. per month with a 3 month minimum run and is a good selection. On the other hand a small ad in the Mainichi Daily News in Japan costs about $19,000 for a one time insertion. This is not the media in which you should advertise. Probably the better approach would be to advertise specific investment opportunities in the particular trade journals concerned with specific subjects. For example, mariculture projects would have an ad in trade journals concerned with that business. Such ads are less expensive and a specific audience can be targeted. Another technique which results in free publicity is to issue press releases relative to a specific investment opportunity. These are frequently published as news items in trade journals. When investment inquiries are received the Investment Promotion Office should be prepared to provide additional, specific information in the form of an investment prospectus. This is not the general, informative investment guide mention earlier but a thoroughly researched detailed feasibility study of each project for which outside investment is sought, either in the form of a joint venture proposal or for 100 percent foreign ownership of the enterprise.
These financial analyses should indicate estimated investment requirements, pro-forma statements of potential income and expenses; cash flow calculations, internal rates of return, discounted net present values and various other recognized methods to measure a project's viability. While no firm will base an investment decision upon a feasibility analysis prepared by organizations other than their own, such documents do receive the investor's attention and sometimes assist in the preparation of the investor's own independent analyses. The investment promotion office should have sufficient funds to visit various countries, i.e., Japan, Korea, Taiwan, Hong Kong, United States, etc., for the purpose of conducting investment seminars promoting the area as an investment location and to expose specific investment proposals to interested investors. Some nations establish foreign investment promotion offices in the countries from which they wish to attract investment. Others rely upon their liaison offices to handle such duties along with other diplomatic responsibilities. Usually the latter arrangement does not work well and frequently results in the investor simply being given a printed hand-out and little more when he calls on the office to discuss investment opportunities. Frequently, the staff of such liaison offices have neither the time, inclination, or knowledge to discuss so many diverse issues in any meaningful detail and certainly can not discuss private business issues involving potential joint ventures. Whatever is done, contact should be maintained with two entities which can assist in any investment promotion effort. These are the United Nations Investment Promotion Office in Austria and the U.S. Overseas Private Investment Corporation in Washington. A 20 minute video presentation should be made featuring the area assets. A large sign should be erected at the airport displaying a welcome to potential investors and informing them who to contact for more information about business opportunities. All inquiries for information about the nation should be answered completely and promptly. Potential sites for resort hotel, mariculture ponds, agri-business, small manufacturing, etc. all have unique requirements. Such sites must be first identified; obtain an agreement from the owner that the land is available for lease for a particular purpose; the boundaries should be established based on an accurate survey indicating the length of time the land is available for lease if it can't be purchased in fee simple. The payment for the duration of the lease should be determined. A formula can be devised based on a percentage of the gross or net profit or it can be a fixed annual rent. The above are basic requirements for any serious investment promotion program. The entire effort is expensive and if not properly financed is probably better not undertaken at all. Once the campaign to generate investment inquiries gets under way a variety of responses can be anticipated of which many will be from people who have ideas but little money to carry them out. This group must be weeded out and ignored. Other inquiries will be more serious and it is this group which should be encouraged to visit the area for the purpose of meeting with government officials and private businessmen interested in joint ventures. When, and if, sufficient interest has been generated on the part of the foreign investor that he is convinced the area offers a profitable venture (if he is not convinced he will disappear – and you will hear no more about his project) – at some point prior to receiving final approval by the government, the financial and character references of the foreign participant must be thoroughly checked. This can sometimes be done by requesting a Dun and Bradstreet report, particularly for U.S. citizens, or requesting that the potential investor sign a letter to his bank permitting the bank to release otherwise confidential financial information to the appropriate Government official. This is extremely important and no permit to do business in the nation should be granted unless this information is received. Legitimate businessmen or firms will not object to this request for information as they will understand the reason behind the requirement. It will be found, however, that some who claim to be interested in investing will object to providing such information. Extreme caution should be exercised with such people and the promotion office should disengage itself from any further relationship. The reason for this action being – that once an area starts to make known its interest in generating foreign investment, a certain number of carpetbaggers, "big shot", self promoting con-men will appear and they must be identified early and ignored. You can imagine the result when the promotional agency, operating under the good offices of the government and acting as a catalytic agent, engineers a joint venture investment relationship between a local investor and a foreign participant without the benefit of a thorough financial and character investigation only to learn too late that the foreign participant had no funds to invest in the project. The agencies reputation will be irreparably damaged within the community and the local participant may lose the capital he may have advanced. This very thing happened to a prominent member of the Congress of the Federated States.
Although the government's promotional agency was not involved , the Micronesian's investor lost a $75,000 investment on a non existent air craft which was supposed to operate within the state. The money was never recovered. The above example is not cited to discourage the overall effort to attempt to generate foreign investment, but rather to illustrate that some degree of caution should be exercised when dealing with people or firms you do not know. It is not always necessary to conduct such an investigation when dealing with known, recognized reputable firms and individuals. If such an office is established it is suggested that the nation establish specific foreign investment goals to be accomplished. For example: – 10 resort type hotels each with 50 rooms or more; – 100 acres of shrimp mariculture grow out ponds; – Establish a moderate size food processing facility; – Generate interest in basing a fishing fleet in the area. Such permission would be contingent upon the establishment of shore side processing facilities; – Seek investment in specific manufacturing activities, e. g., bottling, button making, ceramics, etc. – Attempt to generate interest in a establishing a port of call for a cruise ship. These are just a few specific projects on which investment promotion initiative could be taken. To fail to do so is to acquiesce and leave the development initiative (if any) to others and therefore happenstance.
Summary Of Steps For The Promotion Of Foreign Investment – Research and provide basic geographic, economic, business and legal information for the potential investor's review in a single, published package, (printed and video); – Identify and document business opportunities open to foreign investors. Where it is possible to do so include a financial feasibility study and/or a marketing analysis for the project the government wishes to encourage; – Where necessary, identify local joint venture participants and the potential site (land) for the endeavor; – Promote (advertise) the opportunity using methods described here-in; – Service all inquires for information from potential interested investors; -Check the financial and character references of all foreign investors when a joint venture with local parties is planned; – Provide all possible assistance during the initial start-up of the enterprise. – Organize investment promotion missions to the U. S. and Asian countries consisting of high government officials and prominent local private sector businessmen (with specific documented investment proposals).