‘THE CNMI IS IN CRISIS’

The Saipan Chamber of Commerce warns that should no immediate action be taken to increase visitor arrivals, the CNMI economy faces a complete collapse.

Yesterday, the Saipan Chamber of Commerce hosted 2nd Annual Economic Forum which aims to shed light on the CNMI’s current economical state and to provide ideas on how to best address issues.

Speaking on the CNMI’s current economic state, Chamber vice president Joshua Wise shared that the CNMI is in crisis mode.

“Businesses have survived the darkest times in our economic history from the end of the garment industry in 2008, to super typhoons, COVID but we’re still struggling, and we have no positive outlook. We’re now seeing signs that the economy is collapsing, people are leaving, and our population and workforce are declining. Legacy companies are closing their doors and unless anything changes, more businesses will close. We can’t take any of these signs lightly and we need to act quickly and make the right decisions,” he said.

Wise notes that the recent news of businesses like Hyatt Regency Saipan closing should be alarming as this directly impacts the entire CNMI community.

“When businesses close their doors, that’s their way of stopping their own bleeding. They’re losing more than they’re gaining while trying to stay open. So, leaving is not a loss for corporations but a loss for the people. How is this? Businesses closing means less taxes paid, a reduced government budget, which leads loss of government jobs, services, and benefits. With a smaller budget, that means smaller funding for the Public School System, Medicaid, and more. This is about the entire economy, not just the business community,” he said.

Wise further explains that fiscal year 2017 was the last year the CNMI was on track for a healthy and sustainable tourism industry.

“We were recognized by the World Tourism Organization as the third fastest growing tourism destination in the world. We had over 663,000 visitors, and the fourth highest fiscal year arrivals in history. We achieved this with nearly 5,600 flights from three major markets,” he said.

Wise adds that as of this year and last, the CNMI is far from 2017 numbers.

“Last year, we reached just over 215,000 arrivals. We are forecasted about 300,000 arrivals this year. That’s absolutely not enough. We need at least 500,000 arrivals to break even. This forecast is a 54% loss compared to arrivals in 2017. Hotel occupancy also follows arrivals. We went from 90.89% in 2017 to 37.63% in 2023. Hotel occupancy of 80% is what hotels need to make a profit but 70% is what we need just breakeven. So, at 37% occupancy, which takes into account only HANMI members, is a massive loss. When we take into account the entire island’s room inventory from non-HANMI members like guest houses, AirBnbs, our best occupancy we can achieve is just over 25%. This is an over 71% loss compared to our occupancy in 2017,” he said.

Based on these numbers, Wise says the CNMI has collected significantly less Hotel Occupancy Tax and Business Gross Revenue Tax.

“This affects our entire economy. With less occupancy, means less occupancy tax, which means less BGRT. In 2017, we had nearly $17 million collected in HOT and $5.6 million in BGRT from HANMI hotels. However, last year, we had just $6.2 million collected in HOT and over $604,000 in BGRT. This year, the CNMI is expected collect about $7.2 million in HOT and around $2.4 million in BGRT from HANMI members,” he said.

Wise explains that the significant drop in arrivals (which resulted in the significant drop in hotel occupancy) is a result of less flights.

“Less flights mean less visitors. In 2017, the CNMI received 5,597 flights but when compared to last fiscal year, the CNMI only had 1,799. that’s a 67.86% loss in flights. Meanwhile, in 2017, the CNMI had 12 airline carriers but in 2023, there are only four,” he said.

Wise said with the CNMI’s current flights, the maximum number of tourist arrivals is about 270,000 which is nowhere near the 500,000 needed to “break even.”

“The Korea market is already saturated, the Japan market is struggling with a record-low yen, and HK Airlines can only achieve 5% of China 2017 arrival. Bottom line, the current conditions are not stable,” he said.

Operation 500K

To address these issues and to bring the CNMI’s economy to the point of breaking even, Wise says the Chanber and the Hotel Association of the NMI has established “Operation 500K.”

“We at the Saipan Chamber of Commerce and HANMI have come up with a plan to get us to the 500,000 arrivals we need to breakeven which we will call Operation 500K. This only stops the bleeding in our economy, it’s not the target for a thriving economy,” he said.

Wise explained that in 2017 the market share was as follows: 51% Korea (with over 335,000 arrivals), 35% China (with 234,000 arrivals), and 8% Japan (with 51,000 arrivals).

In 2023, the market share shifted; 82% of the CNMI’s tourism market was made up of Korean visitors with 177,000 arrivals, followed by Japan at 4% with 8,000 arrivals, and finally China at 3% with 6,000 arrivals.

Pursuant to “Operate 500K,” the CNMI’s target market share should be 50% Korea with about 250,000 arrivals, 34% China with 170,000 arrivals, and 6% Japan with about 30,000 arrivals.

An immediate action plan, Wise said, should include the reinstatement of Annex VI (essentially an exemption to the U..S Department of Transportation’s China Part 213 order that caps direct flights from China to the entire U.S to a few hundred monthly), empower the Marianas Visitors Authority to promote China which includes an increase in budget, the implementation of the EVS-TAP, and the reduction of landing and terminal fees.

Should no immediate action be taken, Wise says the CNMI risks consequences including cascading business closures, increased cost of living, decline in population, and government bankruptcy.