‘It’s a sales job’

By WILLIAM H. STEWART
Economist

Last of a two-part series

Potential investors review an area’s business, political and social track record long before making their business decisions. Today this information is on the Internet or spread by word of mouth. I don’t get any pleasure from the following assessment but the Commonwealth is no longer the end of the investor’s rainbow it once was. Far from it.

The CNMI must generate a favorable “renewed” business climate reputation. Looking at it from an unbiased point of view—and from the perspective of an observer of the islands’ economy—in terms of manufacturing endeavors I don’t see where there are too many “high income” generating options for the replacement of the garment sector’s contribution to the economy. Tourism certainly—that’s a “no brainer”— but changes are needed and if you are in the business you know what they are.

Considering the length of time that has passed since the inception of the Free Trade Zone concept—some six or seven years—it is unfortunate that so little interest has been displayed toward the site and the preparation of such pre-investment project feasibility and marketing promotional tools so necessary in exposing business opportunities to potential investors. This may be because only a few in government have ever seen such basic promotional tools. Normally the only people who would ever examine such work are those that understand the purpose of such presentations—people like David M. Sablan. Others are economists, CPAs, bankers, developers and sometimes college personnel. Few others would be interested. Once this basic investment information is presented, serious investors can then “double check” the projected income and expenses that should be presented as examples, work out cash flows, determine internal rates of return, run sensitivity analyses and other profitably tests.

Entrepreneurs usually examine three levels of economic geography in arriving at an investment decision. First, the country and its laws—in this case the United States; second, a specific area or region such as the Commonwealth along with its local laws, regulations and incentives; the product’s market and any comparative advantage which may exist; and finally, a specific site as may be situated in the FTZ or elsewhere on private land.

Ideally, business location data should be collected and presented in a portfolio complete with a site description, oblique and vertical aerial photographs, topographic and cadastral maps depicting English, Japanese, Chinese and Korean systems of measurements and, of course, metric along with utility lines shown, access roads and lease costs, all designed to permit an initial office reconnaissance and review long before actually walking over the possible business site. The potential investor could then identify several locations that appear to meet his criteria and subsequently make direct contact with the responsible party and negotiate the terms with the owner, agent or management of the FTZ. The site portfolio could be made available for inspection by anyone, the potential investor, chamber of commerce, island realtors, attorneys—anyone servicing an interested client. It’s a factual sales tool.

Any private land offered an investor had better be free of an Article XII problem. All the islands need is another Hotel Nikko flap reminiscent of a few years ago to put the kibosh on foreign investment forever. This—in spite of Public Law 8-32 and the Legislature’s attempt to mitigate any adverse consequences resulting in loss to an unsuspecting investor. This is still another issue that the promotion staff must be cognizant of and act accordingly, always in the best interest of the investor.

Remember the avalanche of adverse publicity in the early nineties surrounding the CNMI Court’s decision relative to Article XII that began to appear in the press throughout Asia and North America under headlines such as: Indian Givers?, Guam Business News (July ’91); Northern Marianas, Land Alienation, Guam Business Almanac (’92); Paradise Postponed, Guam Business News (July, ’92); Saipan: Land of Disenchantment, Building Industry (May ’93); Gambling, Gangs and the Sleepy Marianas, Far East Economic Review (July 15, ’93); CNMI: Paradise for Gangsters, Lawyers, Pacific Daily News (Aug. 16, ’93); Asian Developers Bypassing Saipan, Marianas Variety (Aug. 23, ’93), and other negative banners.

The unfavorable publicity generated by confusion over Article XII that probably still lingers in the minds of many potential foreign investors could be overcome by placing appropriate, well designed, positive advertising announcements in the major news media throughout Asia and elsewhere.

Development tools such as discussed in this essay are used extensively by development organizations in the United States and many foreign countries as standard operating procedures. Considering the economic situation the CNMI now faces, the area can’t afford to do less. The competition from other areas is severe.

Get serious about economic self-sufficiency and self-reliance. Provide reliable power, 24-hour potable water, excellent educational opportunities, come down hard on crime and clean the place up. It’s all part of the total investment package. Investors expect no less and visitors certainly assume that utilities are functioning and reliable and they expect a clean, safe, attractive environment. Wouldn’t you—if you spent the time and money to visit the islands?

Let’s hope that any program that might evolve that’s designed to stimulate investor interest is not one where an office or staff is given the responsibility to do the job but does not have the authority and money required to accomplish the task. That’s an old T.T. bureaucratic trick. There are no magicians in this business—no magic wands and the effort can’t be done with mirrors. It requires a lot of hard work, much of it thankless; a dedication toward achieving success; a concern for the future and a respect for the investor and the islands’ needs. A little luck also helps. The effort requires a long-term dedicated commitment since overnight miracles are rare. Patience in this business is a virtue.

As mentioned previously in this column, development itself can not be “legislated” to occur. Only the legal environment known as the “business climate” under which such investment is expected to thrive can be established by an area’s legislative body and even then there is no guarantee investment will result, but such legislation is, in a real sense, a “welcome mat.”

Local laws offering investment incentives is only one element in the grand plan; such incentives still have to be made known outside the area and recognized by potential investors as business opportunities. In short, they must first be identified, documented, packaged, advertised and the initial inquiries adequately and successfully serviced.

So don’t lose hope. The islands have a lot going for them. Use the time to put the CNMI “investment package” in order.

Some suggested additional research work includes:

* More should be learned as to the “real” reason Japanese investors are “bailing out” of the islands. I believe there is more to it than we have been led to believe. The exodus appears to have started before the public announcement that JAL was pulling out. Their abandonment is truly surprising considering their long history in doing business in the Northern Marianas, the Japanese ancestral connection and the proximity to Japan. The Japanese are known for their politeness—and their face saving attributes. Could they also be leaving for reasons they consider best kept to themselves and choose not to “tell it like is”? We should find out. The Japanese are not pulling out of Hawaii. Far from it;

* At the present time, the U. S. Alien Entrepreneur Program does not apply on the islands. It might possibly be modified to apply—if the U.S. law was modified or a waiver was requested. This law relates to citizens of other countries seeking permanent resident visas in the United States (commonly referred to as “Green Cards”). These people may apply for such status in any of the 50 states but currently not in the NMI since the Northern Marianas administers it own immigration laws. This program is administered by the U.S. Immigration and Naturalization Service for those individuals that can qualify by investing at least $1 million in a new or existing business that will employ at least 10 people. The requirement is only one half million if the business is located in a rural or economically distressed area in the U.S. mainland or Hawaii. It may be that the CNMI could obtain a wavier and qualify should the program be deemed to be of interest. It may be worth looking into—”nothing ventured, nothing gained”;

* Determine if Section 936 of the Internal Revenue Code has been extended and is still valid. If so, this section permits “qualified” U.S. corporations operating in the CNMI to benefit from certain lucrative tax concessions. It could be a useful investment incentive under limited circumstances for certain U.S. firms if it’s still on the books.

There’s a big job ahead and the new administration appears to be well aware of the need to “hit the road running.” Everyone should cooperate to the fullest extent possible and don’t expect any economic miracles for quite some time—but better days are ahead. Don’t worry too much about the “fat cats” (of whatever nationality) making even more money—I don’t know of too many poor people creating jobs.