Better investment incentives pushed • Draft economic report says alternative industries may not be enough to replace garment sector

Posted on Jun 14 1999

A comprehensive analysis on the CNMI economy has recommended several steps, including better investment incentives, to prepare the island for possible catastrophe in the event of a pullout of the garment industry and continued decline in the tourism business.

In a draft of the report of the economic summit held last March on Saipan, economic analysts believe it will be difficult for the island government to develop other industries to replace the apparel sector, which has increasingly become its main source of revenues.

There is “little possibility” that the growth of tourism and other existing industries as well as the potential development of new business sectors in the Commonwealth could “substantially offset” job losses anticipated once garment factories relocate to other countries.

Included in the report entitled “An Economic Strategy for the CNMI,” the recommendations were based on the statements made by various government leaders, businessmen and other professionals during the two-day meeting initiated by the Northern Marianas College.

The 200-page report, which is funded by the U.S. Office of Insular Affairs, will be released next month, representing several critical measures that officials hope will chart the next course for the island’s future growth in the next few years.

It underscored the need for both the Commonwealth and federal government to map out plans in preparation for the worst economic case scenario. “The risk of a catastrophic economic decline in the CNMI is too high to treat less than seriously,” the report said.

Among its recommendations included:

– assessment of conditions and trends to properly target economic remedies;

– establishment of programs and policies to promote existing and new industries with the greatest potential;

– education and training of local labor force for increasingly higher productivity jobs, especially in the private sector;

– provision of public infrastructure and services for residents and business development; and

– creation of a federal and local legal framework conducive to a healthy business and investment climate.

Better business climate needed: Although the report evaluated the current status of the local economy, several recommendations zeroed in on how the government could reduce the impact of the slowdown in the tourism industry and pull-out of the garment manufacturing firms when trade barriers are brought down in 2005.

If and when the sector recovers from the Asian stupor, tourism remains the CNMI’s major economic force and has potential for expansion that will help offset the loss of revenues from the apparel exports.
Agriculture and fisheries as well as privatization of government-controlled functions may also provide hopes for the Commonwealth.

But the report suggested that the CNMI business climate be stabilized first, including federal relations, before the government works towards achieving its economic goals for the island.

“Incentives, as well as disincentives (taxes, tariffs, fines), are recommended to establish a business climate that will encourage the importation of capital, business expansion and the employment of local labor while discouraging undesirable business activities,” it said.

Washington likewise must recognize the potential economic disruption of the federal takeover proposal that will strip local control over its immigration, minimum wage and customs.

Since the report emphasized the CNMI will continue to rely on foreign workers to expand the tourism industry as well to diversify its economic base in the next few years, severe restrictions such as access to foreign manpower proposed by the federal government would only “seriously curtail” its growth.

Other than the federal factor, the local government should also be aware of the risk and cost conditions facing investors and must carry out laws that will minimize these risks.

The Northern Marianas, owing to its geographical location and its association with the United States, offers some favorable investment climate, but has to enhance its incentive package to entice foreign businessmen.

Areas that the government must consider necessary improvement included reduction of excise taxes, reduction of bureaucracy in business licensing procedures as well as removal of the security deposit requirement, reforms in the hiring regulations and amendments to land lease laws.

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