The Need To Diversify The Economy
I was thinking about the many firms that have invested in the Commonwealth which have since gone out of business. Numerous restaurants and construction firms, gift shops and Karaoke establishments, ground tour operators and many others have come and gone in recent years. Most, but not all, were rather small businesses dependent upon the vitality of the tourist sector.
Then there were the land speculators. Many of whom leased, or purchased, raw land for eventual sale or sub lease at some point in the future to outside project developers. During the “boom period” near the end of the last decade some land was acquired as leasehold with the sole intent of retaining it until the price increased beyond that of the original acquisition then selling it to a developer – which is, of course, normal business strategy – otherwise why bother.
There are some instances where such land was acquired ten years ago with a 55 year lease. Today, some land parcels still remain undeveloped and the price has fallen from previous high levels. In terms of Japanese and Korean investors, formerly the islands’ principle source of foreign investment capital, few are now in sight. In 1988, a time when many speculators originally planned to offer developers 55 year leases, the remaining period on several undeveloped leaseholds has now been reduced to 45 years. Considering that the economies of Japan and Korea are three to five years away from regaining their former capacity to permit the export of hard currency for foreign investment, this in turn will have the effect of further reducing the “usable” term remaining for occupancy on many such leaseholds to 40 years.
Deduct from this period about two years for the construction of large projects and the period becomes about 38 years or 69 percent of the original term remaining. The question then becomes, where will investors be found who are willing to lease land for 38 years of useful income generating operations when they can lease other so-called “fresh” parcels for the full 100 percent of 55 years or, indeed, go to Guam where they can own land in fee simple? Add to this the adverse publicity a few years ago resulting from Article XII litigation and the possible adverse impression left on potential investors along with current labor and immigration issues with the United States as well as frequent changes in local laws and you begin to appreciate the problem in dealing with future investors. For the most part large investment that occurred between the mid eighties and early nineties took place before any of the above issues had surfaced.
As one who has observed and recorded the Commonwealth’s recent economy history, it is my opinion that the development that has occurred in the Northern Marianas was largely a result of what I call a “fortunate accident” occurring as a result of the devaluation of the dollar in relation to the yen in 1986 at the Plaza accords in New York. The Japanese had more money than they could digest domestically and their capital flowed abroad. Those days are long gone. The investment rush at the time was largely precipitated by “word of mouth” discussion (promotion) among early foreign investors and their network of associates since, with few exceptions, promotional advertising has only appeared in the Guam Business Magazine and an Australian journal, and those only in the past two or three years.
The CNMI has not engaged in an aggressive advertising campaign targeted to specific audiences in an attempt to publicize its investment opportunities. The next time you pick up the Wall Street Journal, Asian Economic Review, Economist Magazine or other similar business publications examine the ads extolling the advantages of investing in various countries and the invitation to consider their particular areas. The Commonwealth needs to diversify its economic base as is now evident from the Asian crisis. So what is needed? – identify investment opportunities which compliment the tourism sector such as visitor attractions as well as those outside this sector that appear to be financially viable such as light manufacturing, exploitation of marine resources, etc.; – consider the possibility of offering additional, and in some instances, industry specific incentives; – establish an office staffed with competent and highly motivated individuals charged with identifying potential business opportunities, (recruit them from anyplace but Washington, D. C.); – identify and locate potential investors which might be interested; – invite them to consider the CNMI and then service their inquiries and “sell” them on a Commonwealth location, its incentives, etc. Such an effort takes money, dedication and a long term commitment.
No one else but the Commonwealth can do this because no one else outside the NMI, not presently an investor in the local economy, is interested. The effort has to be realistic considering that most component parts or raw materials for manufacturing activities will have to be imported and possibly the skilled workers as well. Add to this recognition of our geographic location, the distance to market or sources of supply and the transportation costs so associated and you can begin the appreciate how these factors influence investment location decisions. To illustrate the vastness of the Pacific at our latitude and the relationship to transportation visualize the Asian continent represented by the Circle of Honor at American Memorial Park and the western edge of the North American continent being situated south on Beach Road in the vicinity of the DFS traffic light with 8,835 miles of Pacific Ocean between these two points. The width of Saipan would be about 1/1,039 of this distance located in the area of the Voter’s Registration Building.
Saipan would be about the size of a water melon. Or, stated another way, about the size of a coin in an average hotel swimming pool. This is where we are in the world and this geography will exercise major influence on those business enterprises that are viable and those that are not. In order for the Commonwealth to compete with other locations for additional investment capital it must offer some competitive or comparative advantage. Just exactly what that might be must be determined from a thoroughly realistic and objective analyses. We must find out and then go out and “beat the bushes.” For some, an additional tax incentive may be one. If it turns out that the government can’t presently afford to forego tax generated revenue at present levels then one alternative would be to reduce the government payroll, use the difference in savings for operations then offer reduced taxes as an incentive.