Business confidence starts to build up

Following reports on the slow but sure recovery of the islands’ travel industry, stronger business confidence is beginning to encompass the Northern Marianas, as manifested by the number of business licenses issued by the Department of Commerce in the second quarter of the year.

Government records obtained disclosed that the commerce department approved the application for permits to operate of about 2,187 businesses throughout the CNMI from April to June 2000, up from the previous quarter’s 1,695 licenses.

However, commerce officials were quick to point out that the increase in the number of business permits issued does not necessarily mean that there has been a corresponding growth in the number of existing establishments throughout the island.

Analysts said this only reveals that the magnitude of ailing businesses have started to drop, indicating a significant reduction in the average number of establishments that are closing down because of economic upheavals.

In fact, Saipan recently witnessed the closure of two major retail outlets and a hardware store primarily because of the sudden shift in the spending behavior of the islands’ visitors who have been coming in trickles.

Government officials said it will take the CNMI longer years to recover from deep economic slump or at least come close to the 1997 level since more than half of all the islands’ existing establishments in 1996 have stopped operations since the Asian financial upheaval fanned towards the Northern Marianas in early 1998.

According to Commonwealth Development Authority Executive Director Marylou S. Ada, the number of businesses on the islands dropped by as much as 32 percent in 1997 to 3,800 from about 6,000 in 1996.

The CNMI economy suffered yet another blow in 1998 when the number of existing establishments fell by an additional 10 percent, which totaled only around 3,410 businesses.

Of all existing industries in the Northern Marianas, only the apparel manufacturing sector registered growth of a whooping 22.2 percent between fiscal years 1997 and 1998.

Revenue reductions in the same period ranged from a mere two percent in the shipping sector to over 50 percent in agriculture and fisheries, professional services and the fuel retail industry.

Just a couple of months back, the turtle-paced recovery of the CNMI economy from the two-year currency crisis in Asia proved its might by driving two major retailers to cease operations in the Northern Marianas.

Since the beginning of the year, A-One shoe store held a series of inventory and clearance sale, to apparently mitigate further losses, before it finally shut its doors to customers earlier this month.

Businesses have been competing with each other over the dwindling size of the local and tourist market in the Northern Marianas. Those that were not able to brave the heated competition were forced to close down.

Japan-based Yokohama Okadaya had closed down its Saipan outlet, located at the commercial district of Garapan. Its store on Guam will remain in operation.

At least 812 establishments in the Northern Marianas did not renew their business licenses last year. A report obtained from the Business License Section of the finance department noted that out of 3,410 businesses in 1998, 812 establishments opted not to renew their licenses by end-December 1999.

However, the Central Statistics Division of the commerce department disclosed that 2,775 new business permits were issued by the Business License Section last year, exceeding the number of establishments that did not renew licenses.

Overall, the government’s business licensing office processed and approved 3,587 business permits last year which represented a trivial growth of 0.05 percent from the year-ago’s 3,410.

The CNMI economy is not expected to experience major improvement between now and 2005 as economists predict another round of recession within the five-year period due to the slow growth of the tourism industry and the anticipated demise of the Saipan apparel manufacturing sector.

At most, the local economy is expected to grow by no more than one to two percent this year, primarily spurred by the number of available regular airline seats between Saipan and South Korea.

According to a report prepared by the Bank of Hawaii, the CNMI economy may pick up by 3-4 percent next year when more Japanese and Korean travelers begin taking overseas trips again.

The report also ruled out further growth in the garment manufacturing industry explaining that the sector has reached its mandatory peak for active licenses and employment due to the cap in the number of apparel factories and nonresident workers it may employ.