Key factors influencing growth of NMI economy

In a nutshell, the three basic ingredients needed for economic growth and development are land, capital (money), and labor. There are also other important factors needed, such as a developed infrastructure, technology, financial services, telecommunications, and a skilled and educated workforce. All of these factors contribute to the growth and development of any economy. Absent any of these key ingredients, the economy of a place will have difficulty developing and growing.

The economy of a place involves the buying and selling of products produced and services provided or rendered. In the case of the Northern Mariana Islands, the product we are selling and the services we are providing are the islands themselves as a visitor destination, with all of the attendant services that ordinarily come with the hospitality industry. They require quality hotels, diverse recreation and relaxation activities, excellent golf courses, clean and white-sand beaches, deep sea fishing, good restaurants, great sightseeing, cultural parks, and a warm and friendly people, among other things.

For purposes of our visitor industry, the CNMI has almost all of the foregoing. So the question that arises is why is the CNMI visitor industry not doing well? Fewer visitors have been coming to the CNMI over the past several years. As we know, one key reason why fewer and fewer visitors are coming here has been the substantial reduction in the number of airline flights and seats available to the CNMI from our key visitor source: Japan. Unless we revive the number of flights from Japan and elsewhere, the CNMI visitor industry will continue operating without making a profit. The first consequence of our economic downturn, as we have already begun seeing over the past two years, is that more and more businesses have closed up shop. They have left for other places where they could make a profit. Potential investors, as we have seen, are no longer willing to invest in the CNMI.

Which businesses and investors are directly affected by the decline in the CNMI visitor industry? Literally all businesses in the CNMI are adversely affected. Many of these businesses are owned by the major investors who have spurred the economic growth of the CNMI over the past 30 years. They are the foreign investors from Japan and Korea who built our major hotels and golf courses and bring in visitors from their countries. They are the local investors from the CNMI and the U.S. All these investors have built our golf courses, duty free gift shops, and operate restaurants, supermarkets, water sports, sightseeing activities, boating trips to Managaha and the other islands nearby, and so forth.

During the economic heyday of the CNMI from about 1985 to 1998, the CNMI economy was booming. Much of our economic boom could be attributed to the influx of investment monies from foreign investors, primarily investors from Japan and Korea. The investors, at that time, had strong faith and confidence in the economic future of the Commonwealth. They, therefore, invested huge sums of money in land acquisition, in hotel construction, golf course development, and other business ventures in the CNMI. As investors, they clearly prefer obtaining fee simple ownership of the property where their investment is; but they were, at that time, willing to invest even with only a 40 year leasehold interest that they could acquire under CNMI law.

That was about 20 to 30 years ago, when foreign investors could acquire a maximum leasehold interest of 40 years on public land and a 55-year leasehold on privately-owned land. Over the years, however, the remainder interest on their leasehold has become shorter and shorter, and the investment equation has dramatically changed since. With a leasehold interest of sometimes only 10 to 15 years remaining, many of these long time investors are now wondering whether they should continue making any further improvement on their existing investment; or whether they should begin winding down their operation, especially with the extremely poor economic condition of the CNMI. The question that has been confronting these investors is: should they stay, or should they pack up and leave the CNMI? As we know, some of our major investors have already done just that: packed up and left the CNMI.

The answer to the dilemma facing existing investors rests in large part on the local government, on our laws, and on investor concern as to whether the local economy would turn around. The chances of the local economy improving depend largely on our resolution of the issues directly affecting the CNMI economy. In the case of the CNMI visitor industry, a major culprit has been the absence of reliable and adequate air service between Saipan and Japan. If another air carrier, in addition to Northwest Airlines, were to begin regular air service between the CNMI and other cities in Japan, there is general agreement that the visitor industry would begin to rebound. Of course, we have to spruce up and improve our visitor industry product with quality hotel facilities and services. We also have to begin implementing innovative and new cultural and relaxation activities for visitors to enjoy and spend their time on, particularly at night. But there is little doubt that the visitor industry for the CNMI would rebound if air service is enhanced.

A second critical factor that must be addressed by CNMI government and business leaders is the need to attract new investors so that they would come and invest in the CNMI. New investors would seriously consider investing in the CNMI if the CNMI government would only make good on its promise to cultivate an “investor-friendly climate.” For example, if potential investors could be assured in no uncertain terms by the CNMI government (under CNMI law) that they could acquire fee simple ownership of the property that they are going to build their investment on (or, at the very least, like Palau now, be able to acquire a 99-year leasehold on CNMI land), that would clearly attract new investors to the CNMI. Liberalizing our existing land ownership law would give potential investors the needed boost and confidence to seriously consider investing in the CNMI. So far, potential investors have shied away from the CNMI because we have not given investors a strong reason to invest here. The land ownership paradigm of the past 30 years has got to change, if investors are to consider making the CNMI their home.

It is incumbent (indeed, mandatory) for the CNMI government to take the initiative in luring investors to the CNMI. But we must also work hard to ensure that existing investors do not leave the CNMI. The CNMI simply cannot afford to lose our present investors to other places. An initiative to liberalize our land laws, for example, would immediately instill confidence in existing and potential investors. Amending and liberalizing our land ownership laws would be one of the best actions we could take to show our renewed commitment to investors and to improve our economy. The CNMI government must show investors that it is in fact committed to make the CNMI an investor-friendly place. But we need to take affirmative action to do so. Lip service is not enough.
[B][I] To be continued.[/I][/B] [I]Jose S. Dela Cruz is a former justice in the CNMI Supreme Court.
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