‘CNMI business climate unstable for rest of ’08’

Now six months through 2008, businesses in the Commonwealth are reporting that mounting costs, coupled with an ongoing economic downturn, have many of them fighting for survival and conditions later in the year are expected to get worse long before they get better.

Skyrocketing electricity prices, a recent hike in the minimum wage, the garment manufacturing sector’s rapid decline, high gasoline costs and the impending federal takeover of immigration authority combined in a veritable symphony of hardships for local business owners during the first months of the year. These factors have forced many to cut costs or scale back operations to stay open.

“It has certainly been a challenging year so far,” said Saipan Chamber of Commerce executive director Kyle Calabrese in an interview Thursday, adding the troubles facing the Commonwealth have fostered an “unstable” climate for businesses that is prompting many to put plans for new expansions or investments on hold in order to focus on day-to-day management.

“It’s tough to do anything other than short-range planning right now,” he said.

Prices on everything from food to fuel are expected to climb further later in the year, observers say, and contribute to a widespread drop in consumer spending that could worsen already tough economic conditions.

The symptoms of this are already apparent for small businesses, many of which have diminished employees’ pay and working hours to reduce overhead costs, blocking a significant amount of money from flowing back into the economy, according to Eric Plinske, chairman of the business department at Northern Marianas College.

“People just aren’t spending money in the way that they used to spend,” said Plinske. “There’s a definite downturn happening and it’s going to get deeper.”

Promising signs

Key sectors of the economy have seen some promising signs during the first half of the year that suggest certain businesses will weather the storm. Hotel and tourism experts point to the addition of a new flight from Tokyo that may draw more travelers to the region, in addition to the prospect of more flights from Korea, which could give the tourism market a noticeable boost. Car dealers and some restaurants are also reporting stable sales.

Stagnant investments

Yet foreign investment in the Commonwealth appears stagnant ahead of the federal government’s plans to establish new rules for foreign workers that could have a host of impacts on the local tourism, real estate and development industries.

“Things have frozen,” said Alex Youn of Ace Investments, who sits on a chamber committee tasked with examining the federal takeover. The level of foreign investment on Saipan, he said, has remained static for the first half of 2008 but could drop later in the year.

“I forecast the next six months to be much tougher,” he said. “A lot of investors are waiting to see how they are going to be treated when federalization happens. Things will be in a cloud until then and Saipan is a place where we need foreign investment to help the economy.”

Businesses can expect to take a significant hit later this year, he added, as the last of the Commonwealth’s garment factories close before the new labor polices begin, prompting more workers to leave in search of job opportunities elsewhere.

Adaptation

Despite the tough conditions, some businesses are still able to thrive by adapting to the new economic climate. At Joeten Motors, general manager Matthew Deets noted car dealers saw a 53 percent increase in sales in June over the same month last year.

“As bad as things are, they’re not that bad,” Deets said, adding car sales are an important indicator of consumer confidence.

One way the Joeten dealership has managed to curb the impact of mounting costs is a series of energy efficiency steps its management put in place last year, such as installing compact fluorescent lights in its offices and shutting off air conditioners during lunch breaks. In addition, the lot saves on water bills by catching rainwater for washing cars and other needs.

Shirley’s, the popular diner, is also adapting to stay open. Restaurant manager Susan Macario noted the diner has begun an aggressive campaign this year to market its food at events and find new customers despite the added financial burden of rising utility rates.

“We can’t wait around for customers to come to us,” Macario said. “We’ve had to be proactive.”

Such efforts and the ability to plan ahead could prove vital to the future of many local businesses as 2008 unfolds.

“It’s apparent the businesses that are doing well now are the ones who were able to do some good crystal ball gazing,” Calabrese said. “That’s what a lot of folks will have to do to stay in business.”