Does the NMI have a problem with its foreign investment image?

[I]Editor’s Note: With several decades of international experience as an economist and foreign investment advisor for development banks and finance institutions in North Africa, the Bahamas, Thailand’s Board of Investment and the Inter-American Development Bank, the author offers a perspective and point of view of critical importance to government policy makers who want to encourage foreign investment.[/I]

The Dale Carnegie organization conducts a series of expensive seminars for participants who want to improve their management skills. I recall in particular one of the tenets of their instruction being, “You must have earned the right to speak to a group.” Meaning, of course, that before one addresses an audience through a public forum—and in doing so occupy their time and attention—one must have something valuable to offer. Interesting advice to remember.

With that observation to establish a point of departure, I would like to advance an opinion for the reader to judge based on my qualifications while asking for your time and attention to consider a matter related to economic development in the NMI.

First, however, a little background in an attempt to qualify for making the assertions which follow. When Kennedy became President he was aware that many of the newly emerging nations in Africa, Asia and elsewhere—all former colonies of France, England and Belgium—had gained their independence and were becoming members of the United Nations (where, of course, they could vote). Many of these new nations were flirting with socialism and communism as an economic philosophy and Kennedy decided that as a part of his foreign policy he would require the State Department to instigate programs, supported by foreign aid, to encourage the concept of capitalism and private enterprise as an alternative to—and a counter of—socialism and communism.

This was the period at the height of intense competition on all fronts of the Cold War. I became affiliated with this State Department program and soon became a crusader for private enterprise and foreign investment. It has almost been a religion with me and certainly a career of more than four decades—that’s why I feel so strongly about a positive and successful effort for economic development in the Commonwealth. I carry the intensity of that economic philosophy in thinking about the situation in the NMI and the dire need to stimulate economic growth, partially through the encouragement of additional foreign investment, ideally in the form of joint ventures with local participants.

As I have mentioned previously in this column and for the benefit of those who might not have been a resident of the islands at the time, the rapid economic expansion experienced on the islands during the mid-’80s through the early ’90s was a result of being geographically situated in the right place at the right time. The great “boom” period resulted in a rapid development pace that, during normal times, would have required some 20 years or so to achieve. In the CNMI, this development pace was “squeezed” into the short span of five or six years. Those halcyon years distorted the perception of many on the islands who benefited enormously from financial “windfalls” never before experienced on the islands. At one point I calculated there were more millionaires per capita among U.S. citizen residents than anywhere else in the United States of comparable size and at the time.

The foreign investment which fueled the CNMI’s economic engine was a direct result of the devaluation of the dollar in relation to the yen at the Plaza Accords in New York in 1986. In the ensuing five or six years, every sector of the economy in the Northern Marianas grew by an annual rate of 16 percent. In all probability the islands will not see such growth again in this century, if ever. Yet the intoxication of easy money though land leases still remains wishful thinking among some that such will again occur. I dare say it won’t—not at previous levels—but that’s no reason not to try.

In the past the Commonwealth has mostly reacted to investment proposals brought to its attention from the outside. In other words, and with several exceptions such as the various government promotional efforts in Korea, Japan, and Taiwan, the effort has been somewhat passive as opposed to being aggressive in seeking out new investors, particularly those from the mainland United States.

When businessmen and women review the business potential of any area, if they are smart, no factor will escape analysis, most of all the so called “business climate” and the experience of other foreign investors. This important review should be kept in mind when establishing the NMI’s “investment climate” within which one hopes to attract risk investment capital.

It is worthwhile considering that development itself cannot be “legislated” as is so commonly thought by many on the islands. Only the legal environment known as the “business climate” under which such investment is expected to thrive can be established by an area’s legislative body and even then there is no guarantee investment will result, but such legislation is, in a real sense, a “welcome mat.”

Future potential foreign investors considering the NMI as a business location will probably discover the abandoned San Roque Mall and wonder why the government, as the owner, permitted such a valuable asset to fall into disrepair. They will no doubt be puzzled over this—after they discover that the original investors wanted out so badly that they sold the facility to the government at a “fire sale” discounted price.

Looking around further and probing deeper—which they are very likely to do unless they are rank amateurs—they may wonder why, after massive injections of federal money either sourced from the Covenant or from outright federal program grants, that the government failed so miserably over the years to properly maintain and improve the islands electric power generating system? They may wonder, “Where did the money go?”

On top of all that I have the impression that those potential investors who care to look deeply enough will conclude that the island’s investment reputation has also been tarnished as a result of adverse publicity that has—rightly or wrongly—appeared in the media, on the net and by word of mouth. This ranges from highly publicized crimes against visitors; alleged corruption in government; a recalcitrant legislative body, (at least in terms of working cooperatively with the administration); the Article XII “hangover”; alleged labor abuses; questions regarding the fairness of a jury trial within a small society (e.g., “windfall” awards as in the case of the golf course broken ankle issue); past and present administration’s failure to honor their contractual agreements (e.g., Retirement Fund), and the cynicism resulting from nepotism in government, not to mention the bureaucratic “red tape” and regulation and permitting “hoops” investors are required to jump through and the time and expense involved in their attempt to achieve compliance.

There is also the publicity surrounding HB 15-146 to authorize a commission to “revisit the provisions of the Covenant, and examine alternative “political” and economic status options for the Northern Marianas.”

It should be realized that any interested potential foreign investor monitoring conditions in the NMI must wonder if they can depend upon the future political stability of the islands and whether the islands will continue to be associated with the United States in view of the apparent dissatisfaction on the part of some legislators that must exist with the relationship and which is severe enough to even hint at a possible change in political status. Those lawmakers supposedly represent the wishes of their constituents so they must reflect their desire.

Those investors who invest in the international arena are well aware of the dangers in risking their capital in unstable economic and political environments and will avoid such areas like the plague. Something for the NMI to keep in mind if it wishes to stimulate its economy by encouraging foreign investment.

I believe the islands have an image and credibility problem as a result of some or all of the above but don’t take my word for it. Ask some of the area’s longstanding business men and women. Also, ask the Japanese investors who have bailed out of the economy if their reasons were purely economic as a result of market forces or did their decision have anything to do with the NMI’s business and investment climate? I’m not aware they have “sold out and bailed out” of Guam, Hawaii, Vietnam and elsewhere to the extent that they have abandoned the NMI. Why?

Just how might the NMI’s negative investment image be overcome and enhanced? I frankly don’t know, but if its undertaken it will involve an expensive advertising campaign and time to achieve.

[I]William H. Stewart is an economist, historian, and military cartographer.
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