A short history of the CNMI economy

In 1999, when I first visited the Commonwealth of the Northern Mariana Islands as an economist, the CNMI had built a prosperous economy based on the apparel and visitor industries. But the garment factories were threatened by the impending entry of China into the World Trade Organization, which would give China access to U.S. markets.

My initial task was to build an input-output model of the CNMI economy designed for impact analysis and forecasting. Based on data for 1995, the estimated input-output employment multipliers derived from the input-output table were 1.50 for the apparel industry and 1.79 for the visitor industry. The apparel industry multiplier indicated that each apparel job indirectly supported 0.50 other jobs in the economy due to the multiplier or re-spending effects. Accordingly, each job in the visitor industry, which is largely composed of hotels, restaurants, and casinos, indirectly supported 0.79 jobs in the economy. In both cases, the indirect employment impact primarily involved jobs in trade, services, and government.

Between 1980 and 1995, CNMI employment soared from 5,940 to 35,880, while population climbed from 16,780 to 58,850. The annual growth rates were 12.7% and 8.7%, respectively. Some observers conjectured that at the time these rates were among the highest in the world.

During the 15-year period, the CNMI economy added 29,940 jobs. The apparel industry, which barely existed in 1980, contributed 7,710 jobs, while the visitor industry, whose employment increased from 1,000 in 1980 to 9,570 in 1995, added another 8,570 jobs. Considering their respective employment multipliers, these two industries were directly and indirectly responsible for 26,900 (=7,710*1.50+8,570*1.79) new jobs or 90% of the jobs created in the CNMI economy between 1980 and 1995.

In 1995, of the 35,880 jobs in the CNMI economy, the apparel and visitor industries directly and indirectly supported 28,690 (=7,710*1.50+9,570*1.79). The apparel industry accounted for 11,560 jobs and the visitor industry accounted for 17,130 jobs. Altogether this meant that four out of every five jobs in the economy depended upon the fate of these two industries.

Five factors led to the rapid expansion of the CNMI economy between 1980 and 1995: duty-free access to U.S. markets for CNMI-made products, which was granted as part of the Covenant that governs the political relationship between the Northern Mariana Islands and the United States; the CNMI’s attractiveness as a tourist destination; the availability of inexpensive foreign labor for the CNMI’s apparel and visitor industries; federal financial aid to expand the CNMI’s infrastructure; and the CNMI’s openness to outside investment.

When I returned to the CNMI in 2008, the apparel industry, though still in business, was clearly on its way out. It was doomed when China entered the World Trade Organization in 2001 and gained access to U.S. markets in 2005. After reaching a peak of 16,800 in 2004, apparel employment plunged to 5,300 in 2007. Despite a lift from the visitor industry during this period, total CNMI employment fell from 51,100 to 36,500, a decline of 28.6%, according to U.S. Government Accounting Office estimates.

In 2007 and 2008, the federal government revoked the CNMI’s authority over its minimum wage and immigration—two measures that had given the territory’s economy a competitive advantage. Consequently, the economy, which had already succumbed to a recession, appeared to be headed for a prolonged depression. In what was called the Federalization Scenario, I predicted that between 2003, the high point of the economy, and 2015, the loss of the apparel industry in conjunction with the constraints of the federalization policy, would reduce gross domestic product by $667 million in 2000 dollars (43.9%) and employment by 22,280 jobs (57.8%). The latest data show that the actual 12-year declines were 43.6 %and 48.7%, respectively.

The collapse of the apparel industry was largely responsible for a protracted depression that lasted eight years from 2003 to 2011. Making matters worse was the lack of support from tourism, as the number of visitors to the islands declined 25.5% during that period. Overall, the U.S. Bureau of Economic Analysis reported that CNMI Gross Domestic Product measured in 2012 dollars plunged from $1,509 million in 2003 to $730 million in 2011, a 51.6% decline, while CNMI employment, including jobs in the apparel industry, fell from 49,700 to 25,200, a 49.3% fall-off.

Other economic indicators reflected the severity of the eight-year downturn: population (-26.0%); employee compensation (-40.6%); business gross revenue (-28.7%); taxes and general revenue (-35.4%); auto sales (-57.0%); and residential building permits (-66.9%).

Thus, in less than a decade, the CNMI lost one-half of its economy. Once the most robust economy in the world, it was now arguably the weakest.

It is ironic that China, which torpedoed the CNMI economy after entering the World Trade Organization in 2001, attempted to throw a lifeline. Considering that real GDP fell by one-half during the downturn, the recovery got off to a slow start: 0.8% real GDP growth in 2012,

2.7% in 2013, 3.5% in 2014, and 3.8% in 2015, according to BEA. The turnaround was spurred by a rebound in tourism, as visitor arrivals rose 39.9% over the four-year period.

In 2016, however, real GDP in the CNMI climbed 29.2%. By comparison, U.S. real GDP increased only 1.5% in that year. As reported by BEA, “the export of services was the largest contributor to economic growth in 2016, reflecting significant growth in visitor spending, particularly on casino gambling. …Private fixed investment increased 60% in 2016, reflecting construction of the casino resort in Garapan and other hotel construction on Saipan.”

The luxury casino resort was being developed by Hong Kong-based Imperial Pacific International Holdings. Plans for the initial gaming facility called for a 329-room five-star hotel, villas, restaurants, shops, and a meeting place. While under construction, Imperial Pacific International opened Best Sunshine Live casino to customers reportedly for training purposes.

Despite the absence of the apparel industry, the near-term prospects for the visitor industry and the CNMI economy looked good in 2017. There was, however, a question about its long-term economic growth: will the territory run out of labor? The immigration law passed by Congress in 2008 stated that after a transition period all aliens in the CNMI would be subject to removal by the U.S. Department of Homeland Security as “illegal entrants and immigration violators.” In 2016, there were still 15,600 non-U.S. citizens working in the CNMI, down from 36,100 in 2003 but up from 12,300 in 2014. In 2018, the federal government extended the alien worker program to 2030, at which time the remaining foreign workers would be sent home. Between 2018 and 2020, the number of aliens in the CNMI workforce declined from 14,100 to 9,700, according to the U.S. Government Accounting Office.

But concerns about a shortage of labor in the CNMI became a moot point when the unthinkable happened: a one-two punch by Super Typhoon Yutu and the COVID-19 pandemic. On Oct. 25, 2018, packing 170 miles-per-hour winds, the typhoon slammed into Saipan and Tinian, causing catastrophic damage to homes and infrastructure. A little more than a year later, in the early months of 2000, not only did the CNMI register its first cases of COVID-19, but the worldwide pandemic began to shut down the visitor industry. After falling from 607,600 in 2018 to 487,000 in 2019 because of Super Typhoon Yutu, visitor arrivals plunged to 88,900 in 2020 and 12,700 in 2021 due to the pandemic.

It is not possible to fully assess the damage caused by these two disasters to the CNMI economy due to the lack of employment and real GDP estimates beyond 2020. But visitor arrivals provide a clue. After bottoming out at 12,700 in 2021, visitor arrivals bounced back to 95,600 in 2022 and, based on early counts, may hit 200,000 in 2023. However, despite the two-year rebound, the visitor industry is likely still operating at about one-third of its historical peak achieved in 2017, when the CNMI welcomed 653,200 visitors.

With the loss of the garment factories and the recent damage to the visitor industry, what can the CNMI do to shore up its economy, particularly for the long run? One logical avenue is diversification. But what good or service—manufactured product, financial service, software—could the CNMI produce competitively for export? One candidate is agricultural products. But, with just 253 farms, 1,515 acres of cultivated land, and $1.6 million in sales, farming currently plays an insignificant role in the CNMI economy, according to the 2018 Census of Agriculture. The potential for growth of agriculture lies in the fact that during World War II the territory had 40,000 acres of land growing a variety of crops. Nevertheless, without access to foreign labor or a massive movement of people from the cities to the countryside, agriculture is unlikely to help the economy turn around.

Under the current circumstances, the only option for getting the CNMI economy back on track is restoring the visitor industry. It is important to recognize that while typhoons come and go with regularity, pandemics are rare, occurring about once every 50 years. Thus, the immediate concern should be making the visitor industry infrastructure typhoon-proof.

However, related to the visitor industry, there are two other issues that should be addressed. First, in the construction and operation of the hotels, restaurants, and casinos for tourists, the CNMI government needs to play an oversight role to avoid the problems that have plagued Imperial Palace.

Second, the CNMI should request that the federal government loosen its restrictions on the use of foreign labor. Ultimately, the number of alien workers should not be capped at zero but around 15,000, about the size of the foreign workforce just prior to Super Typhoon Yutu. Fifteen thousand is also the number of non-U.S. workers employed in 2017 when the CNMI hosted an all-time high of 653,200 visitors. Given the recent devastation to the CNMI economy, which has been made worse by the 2008 federal immigration law, as well as the federal government’s inability to stop millions of illegal migrants from crossing the country’s southern border into the United States, the CNMI has a good case for petitioning Congress to cap the number of CNMI foreign workers at 15,000.

References

• Business Development Center, Northern Marianas College, An Economic Study for the Commonwealth of the Northern Mariana Islands, October 1999.

• Malcolm D. McPhee & Associates and Dick Conway, Economic Impact of Federal Laws on the Commonwealth of the Northern Mariana Islands, October 2008.

• Dick Conway, The Commonwealth of the Northern Mariana Islands Economy: Some Observations, September 2018.

The CNMI should request that the federal government loosen its restrictions on the use of foreign labor. Ultimately, the number of alien workers should not be capped at zero but around 15,000, about the size of the foreign workforce just prior to Super Typhoon Yutu.

CNMI Economy