The Beginning of Foreign Investment In The Commonwealth

The Beginning of Foreign Investment In The Commonwealth

To understand the position of foreign investment in the Northern Marianas and the condition of the economy during the early years of the Trust Territory Administration it is necessary to place the period in historical perspective. Following the war there was actually very little potential for development and, more important, the population of some 6,300 people were to few to undertake the process to any significant degree. These were the days before commercial jet aircraft when travel from Hawaii to these isolated islands required many exhausting hours.

For example, in the early fifties a flight from Honolulu to Wake Island required about nine and one half hours, from Wake to Saipan was still eight hours further. In those days Japan was occupied literally by the United States Armed Forces as well as with its own reconstruction and had little interest in its former mandated islands. Japanese facilities in the Northern Marianas had been totally destroyed and the infrastructure which remained in place was falling into disrepair from lack of maintenance.

Dense jungle growth quickly reclaimed much of the landscape previously cleared for sugar cane which had been a subsidized activity during the Japanese period. At that time to even think of a hospitality industry based on Japanese tourists was an unimaginable dream. The economy was as listless as the doldrums which frequent the islands. Cold war tensions of the period resulted in the United States Navy virtually closing off the Marianas to all but the military and the indigenous population. This situation prevailed until the sixties. The Northern Marianas' economy was to languish undeveloped for an entire generation, some 33 years, following the conclusion of the Pacific war. First, as a result of sheer exhaustion and despondence and later (until 1973) as a result of American policy exercised on the basis of the ''most favored nation" clause within Article 8 (1) of the Trusteeship Agreement For The Former Japanese Mandated Islands. From 1947 until 1973 this policy to prohibit non American investment was referred to as the "denial principle." The United States Government was not particularly interested in the islands- except for Saipan and its training base for Central Intelligence Agency covert operations for the Naval Technical Training Unit (an area now known as Capitol Hill) – and did not wish to encourage investment from the nationals of other countries. The administering authority interpreted Article 8 (1) in such a manner to be an effective tool to prohibit foreign investment. This policy effectively precluded Japan from re-establishing itself in the Marianas and the other islands of Micronesia which were administered under the Trusteeship Agreement. It was largely through the efforts of the Saipan Chamber of Commerce at a meeting held at the Royal Taga Hotel in December, 1972 that the United States was convinced of the need to relax its policy and open the islands to foreign investment. Once the United States changed its policy toward outside investors there was still a strong desire by a somewhat xenophobic Congress of Micronesia to continue to control the introduction of foreign capital.

This body, in which the Marianas District was represented, had enacted a rather stringent and restrictive Foreign Investor's Business Permit Act in 1970. This law remained in force in the Northern Marianas until 19833 when it was repealed. The door was opened to investment from all nations with few controls to regulate outside capital. I was looking at several aerial photographs of Saipan taken in February 1986 and was reminded at the relatively low level of development along Beach Road and Middle Road almost a decade ago. This prompted me to review several economic indicators to compare that distant year with the most current data now available. Of course, a full ten year period of historical growth cannot be examined until the close of 1996, never-the-less that growth which has been recorded is most impressive. With 1986 as the base year which coincides with the devaluation of the dollar against the yen, this was the Commonwealth’s year of economic “take-off.” At that time the total reported business gross revenue for the Northern Marianas was $207.1 million. While the final total for 1995 is not yet available it appears that this revenue category will have increased by about 624 percent to approximately $1.5 billion. Business licenses issued increased 65 percent from 2,586 in ‘86 to 4,257 last year. Wages and salaries paid totaled $97.8 million in ‘86 and jumped to $384.7 million or 293 percent by 1993. Nine years ago registered vehicles totaled 6,228 and increase by 146 percent by 1994 to 15,355. Commodity imports totaled $105 million (‘86) and grew to $513.7 million by 1994, an increase of 389 percent.

While the export value of garments has jumped from $67.3 million (‘87) to $329.2 million in ‘94 registering an increase of 389 percent. Since 1986 visitor entries have increased 290 percent up from 157,207 to 612,735 last year and hotel rooms have increase by 145 percent from 1,421 to 3,488 over the same period. In comparing the 1986 base year with preliminary data for last year, the CNMI’s internally generated revenues increased 314 percent from $43.2 million in ‘86 to $179 million (preliminary) in ‘95 while the number of telephone subscribers grew from 4,577 (‘86) to 15,460 in ‘95 or 238 percent. The rapid influx of foreign investment, particularly since 1986, is a direct result of several factors: the favorable exchange rate of the yen as related to the dollar; virtually no tax on business and personal income after obtaining the 95 percent rebate on tax paid; the availability of a pool of low cost labor from the Philippines; low construction costs in terms of the labor component of a project and good communication and air connections as well as a pleasant environment which appeals to an increasing number of visitors.