Cohen remains optimistic about the NMI

Deputy Assistant Secretary of the Interior David B. Cohen told attendees at the wrap-up session of the Saipan Chamber of Commerce’s Marianas Roundtable this past Saturday that he was optimistic about the CNMI economy.

“I believe in the place, in its logic, in the story it has to tell, and I will do everything in my power to make sure the islands succeed,” he said, adding that he wants his agency to offer empowerment, not welfare.

Cohen noted, however, in regards to DoI bringing investors—who he said had been carefully and deliberately chosen—to the CNMI, that the DoI can bring the horses to the trough, but it’s up to the CNMI to make them drink.

Moreover, he said, there’s also a gestation period involved. People don’t just invest in projects, he cautioned. There’s a “due diligence period”—where investors come out and look, gather data, make comparisons—that occurs between the first idea and the eventual establishment of a business.

Cohen, who had been on Guam and Saipan earlier in the week with 13 potential U.S. investors as part of DoI’s Business Opportunities Mission in follow-up to an investors conference held in Los Angeles last year, had just returned from Palau with mission members.

The Marianas Roundtable was held Friday and Saturday at the Dai-Ichi Hotel Saipan Beach.

Conference gleanings

Qualifying certificates came in for considerable attention at the Roundtable, with David Burger, CPA and panelist at the Saturday morning session, noting that the CNMI has issued only nine certificates since the program began several years ago.

Created as an incentive for potential investors, the QC program has not lived up to expectations because its purposes have not been understood, said Chamber president Alex Sablan. “People think it takes money from available island revenue but that is not true. We need to do a better job of advertising its benefits,” he said.

Lynn Knight, head of the Hotel Association of the Northern Mariana Islands, said the QC program was not working. Conditions should not include requirements that developers hook up to CUC, or hire fixed percentages of local labor, for example.

“Those may be problems here, but they are irrelevant to the purpose of the QC program,” she said.

Knight reported that hotels that had anticipated spending up to $30 million in renovations and improvements, such as the Hyatt’s plan to build a conference facility—which would have brought substantial benefits to the CNMI both immediately in the construction stage and in the long term because of the improved services—are being forced to upgrade their services on a piece-meal basis (at only $2-6 million a year).

Among comments made during the session, which focused on investment opportunities and revenue generation, were that the “underground economy” is an issue, that the CNMI must be more aggressive in seeking investors, including Asian and Australian investors, and that perhaps a trade mission is needed.

Tax issues were also discussed, with Joe Arnett of Deloitte Touche emphasizing the importance—as an investment tool—of the CNMI’s ability to rebate taxes, and Alexis Fallon, international tax expert, describing a new Treasury law affecting all territories from which the CNMI is seeking certain exemptions, and the advantages to the CNMI of recent IRS decisions regarding tax code applicability and the definition of U.S.-sourced income.

In contrast, Burger pointed out the regressiveness of the Business Gross Receipts tax, a holdover from Trust Territory days that applies to a business regardless of whether the business is successful. Such investment barriers need to be reduced for the economy to grow, he said.

Two Saturday presentations summarized discussions of the previous day’s closed breakout sessions, one on telecommunications and one on tourism.

Telecommunication consultant Robert Kelly said a second fiber optic cable is needed in the CNMI to provide redundancy, if for no other reason. At present, he warned, the CNMI is dependent on the one cable now in place. If something happens to it, no backup is available. A second cable would also provide diversity and increased capacity—a significant attraction to potential investors, but it should be multi-owned, he said.

In informal discussion afterwards, Kelly noted that both sides in the present dispute before the Commonwealth Telecommunications Commission have valid concerns, but it was a pity that they were being addressed on political/legal terms, rather than by experts in the field.

In the discussion on tourism, it was pointed out that the Marianas Visitors Authority should not be left to underwrite all of the work involved in promoting tourist travel to the CNMI. Not only should the Commonwealth Ports Authority be “brought to the table” in discussions of tourist arrivals but the Hotel Association of the Northern Mariana Islands and the Chamber of Commerce should work together to develop strategies for fixing infrastructure problems and to promote a more pro-tourism attitude among government leaders as well as the community.

The presentation summarizing the tourism breakout session was made by Guam Visitors Bureau chair David Tydingco.

He reported that the panel also recommended that the CNMI focus on yield over volume by developing a niche for high-end tourists, who generally stay longer and spend more. The CNMI should also pay attention to MICE—Meetings, Incentives, Conventions and Exhibits—as a source of additional tourists. In regard to the shortage of airline seat space, the panel suggested that the MVA should visit Minneapolis and Houston, hubs of the Northwest and Continental Airlines, coming as partners, not beggars, rather than limiting itself to trips to Japan, Korea, etc.

Friday’s panel discussion on the garment industry “Reality Check and Ray of Hope” re-emphasized that the garment industry is one of the three pillars on which the CNMI economy depends—together with tourism and either government and/or the poker industry. It was pointed out that the garment industry, while declining of late, appeared to be a steadier source of revenue than tourism has been, and there was eventual consensus that for the sake of the CNMI economy, the garment industry should be supported, and that the first step should be a favorable ruling on reducing Headnote 3A’s value-added figure from 50 percent to 30 percent.

Chamber’s Sablan declared, however, that nothing could be done in the U.S. Congress toward that end until Congress had resolved its current pre-occupation with the Central America Free Trade Agreement.

A full report of the Summit proceedings should be available in about a month, according to Jay Merrill, head of Market Research and Development Inc., who served as master of ceremonies throughout.