Can The Island’s Locally Owned “Mom and Pop” Stores Survive Over The Long Term?

Can The Island’s Locally Owned “Mom and Pop” Stores Survive Over The Long Term?

There are some in the Commonwealth that may not have given a great deal of thought to the various economic linkages which, when multiplying financial expenditures throughout the economy, tie it all together. The adage "an economic chain is only as strong as its weakest link" has not always been fully appreciated by some and there are now several indications in the Commonwealth's economic life that may not bode well in the future for many of the smaller “mom and pop” businesses currently operated by local people.

Few probably haven’t considered to any great degree that a foreign investor leasing land from one local owner may eventually spell the demise of another locally owned business. Of the 41,971 land transactions recorded since 1986 a very large number involved the lease of land to non indigenous investors. No foreign investor is going to pay a high price for leased land and then leave it idle. He is going to develop his investment either for residential use or for some commercial endeavor, often as a result of superior financial resources as compared with many local businessmen and women.

Many of the new foreign owned businesses are larger, well stocked and possibly more efficient. While it is a free country and competition is a good thing in the market place eventually the smaller, locally owned businesses will feel the pressure of lost customers. When that happens it will become a case of survival of the fittest. Too often, it will be the smaller local business person who will lose out. Returning to the initial land transaction that occurred in the first place when a site was leased from a local owner by a foreign entity, in the early period following the exchange of funds for land, such transactions have frequently resulted in two construction projects. The investor implements his project by constructing a structure and the local person who leased the land now has funds for his project. Tax for the transaction is paid to the government. The investor starts construction, materials are imported with excise taxes paid. The contractor hires workers and they pay taxes while the contractor pays a gross revenue and the NMTIT tax. The workers purchase food and other commodities from merchants who in turn pay taxes and hire sales staff who also pay taxes and have money for outside purchases. Automobiles, clothing, food, supplies, telephone communications, vacations, restaurant meals, boats, fuel, airline tickets and hundreds of other items are all purchased – again generating business gross revenue upon which tax is paid to the CNMI Treasury providing funds to hire employees, build roads, finance power and water lines, provide for public safety, furnish schools and employ teachers, doctors and nurses. Money flows through the economy – up and down – in and out – all the while turning over and over again as it circulates throughout the islands before it leaves the island in the form of remitted profits or to pay for imported commodities, etc.

Economists refer to this as “leakage.” Few people think about and appreciate these connections and the interlocking elements of "trickled-down" investment and business activity. One occasional and lamentable “trade-off” being that the new foreign owned business can often force another locally owned enterprise out of business – all a result of a land transaction and the subsequent issuance of a long term business entry permit. I certainly believe in free enterprise and competition, and while an individual’s ethnicity or nationality means little to me, I also believe in taking care of your own people first. There are a lot of young people coming along that will need the opportunity to own their own businesses. Will any of the smaller opportunities be left for them to implement? I mentioned previously in the column the number of students currently in school. In the 1994 -’95 school year which has just ended there were 3,767 secondary and 9,767 elementary students enrolled in both the public and private school systems. Exactly how many of that number will want to own and operate their own business is impossible to say but certainly many will wish to pursue such a career.

So here is the dilemma. While large “outside” investment is welcome and, hopefully, will continue to be so saluted, one is astonished at the large number of smaller, lower capital investment enterprises that are foreign owned which have also located in the CNMI. 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. Again, as mentioned in a previous article, very often the profits from such businesses are fugitive in that they are not reinvested in the local economy. 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. 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? Currently a foreign investor need only demonstrate that an investment of $50,000 has been made in the Northern Marianas.

I once thought the amount far too low and that the minimum investment threshold should be several million dollars. But then what about such desirable investment as, for example, watch or shoe repair, portrait photo studios, tailor shops, computer software programmers and hundreds of other small businesses? These activities require a small capital outlay – far less than $50,000. Are we to forego these services if no local person seizes the business opportunity? When you think about it – you can begin to appreciate the dilemma. Loss Of Economic Control 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. In 1993, the year in which the most recent data is available, of the 3,362 hotel rooms in the CNMI, only 5 percent or 165 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 85 rooms or 52 percent of total number of locally owned hotel rooms. Local owners on Saipan controlled 5 hotels with a total of only 80 rooms. However, a substantial number of apartments and office buildings are locally owned. According to data from the CNMI Department of Commerce of the 4,575 business licenses issued in 1992 only 299 or 6.5 percent were issued to United States citizens and of this number only 143 (48%) were issued to indigenous people. These licenses were as follows: tours, charters and car rental – 27; speciality shops – 79; general merchandise – 45; food outlets – 30; hotels, night clubs and bars – 38; commercial farming and fishing – 30; general export/import – 50.