Opinion: The CNMI’s non-performing economy

By Jose Dela Cruz

Aside from the issue of competency in commonwealth government leadership, a second major issue confronting the people of the CNMI is the commonwealth’s non-performing economy. The CNMI economy has been stagnant since 2006, soon after the departure of the garment industry the year before. And as we know, no governmental system—whether national, state or local— could operate for a long time without a sound economy. 

What has sustained the CNMI financially over the past fifteen years or so have been the millions and millions of dollars in federal financial assistance, aid and grant monies that we have received and have been receiving from the Federal Government, especially during the past five years. They include, among the many federal grant monies received, the substantial federal fundings from ARPA, PUA and FEMA. Absent such federal financial aid and assistance, the CNMI as a self-governing political entity would very likely have been bankrupt by now. 

The best evidence we have regarding the CNMI’s non-performing economy has been the steep decline in the amount of locally generated revenues that the CNMI legislature appropriated for CNMI government operations for each of the past three fiscal years: FY 2020, FY2021, and FY2022. The annual amount of locally generated tax revenue appropriated by the legislature for government operations for each of those three years dipped to around $110 million, a far cry from the annual appropriations budget of roughly $250 million during the mid-1990s. 

There are, of course, several major shortcomings that make it difficult for the CNMI to develop and maintain a sound and productive economy. First, unlike the much larger and more-developed countries in the Asia-Pacific Region, the CNMI is very small in comparison, both in terms of population and in terms of land area. Thus, for the CNMI to develop and grow its small, insular economy, it literally has to piggyback on the economic coattails of our economically developed neighboring countries, such as Japan and South Korea and occasionally, but so far unsuccessfully, China. 

It is very difficult for the CNMI to develop a sound economy all by itself, not only for the two reasons just noted–our small population and our small land area, but also because there are several other factors adversely affecting our ability to develop and sustain a productive economy. The third factor, of course, is our enormous distance from the continental United States and from the rest of the world. 

There is also a fourth but very important factor affecting our ability to develop a successful economy. And that is the absence of local capital that the CNMI needs in order to invest in and start a new industry or to sustain an existing one. In the past, for example, we have had to rely almost entirely on investors from Japan and Korea in order to develop our hotel and visitor industry. 

More recently, we have turned to Chinese investors from Macao and Hong Kong to start the Saipan casino industry. Unfortunately, that industry failed not more than five years after the idea for a Saipan casino industry was hatched by our political leaders. The casino industry failed either because of lack of sufficient funding to complete the construction of the casino complex in Garapan or because of the Covid-19 public health pandemic which halted world travel and stymied the world economy for over two years; or both.

In addition, there is also a fifth reason that has hindered economic growth and development of the CNMI. That is, of course, the lack of adequate manpower–both skilled and unskilled workers, that are needed to run and operate any industry that is planning to set up shop in the CNMI. The CNMI does not have enough manpower to service even the existing visitor industry, let alone service any new industry that is introduced to the islands. Indeed, that was one of the reasons why the CNMI’s now defunct garment industry had to transplant to the CNMI about 16,000 garment workers from China in order to operate the garment industry in the CNMI between 1986 and 2004. We had no skilled garment workers in the CNMI to operate such industry.

CNMI political leaders should, therefore, examine and address these five shortcomings (and maybe a few others, such as the lack of natural resources that we could exploit) which adversely affects and hinders the introduction and development of any new industry in the CNMI. Our political and business leaders must figure out what needs be done to overcome these shortcomings, if the CNMI is to develop a sound economic base and make any potential industry in the CNMI competitive and successful. And we should know by now that only by being competitive with the economies of other places in the Asia-Pacific region could the CNMI develop and sustain its own local economy. When that becomes a reality, only then would we begin to generate the revenue that the CNMI needs to, among other things, operate the commonwealth government and provide essential public service and employment for the people of the CNMI. 

As noted earlier, the first and most obvious shortcoming affecting the CNMI economy is our isolated, insular location out here in the Northwestern Pacific. Literally, everything in the CNMI must be shipped or flown in—from consumer goods and the food products we eat, to construction materials and supplies, to cars and automobiles, and so forth. All of these, of course, are imported goods and products, meaning that we don’t make or produce these goods and products ourselves. 

This, in turn, begs the following questions: Does the CNMI produce anything for sale; can we make, manufacture, grow or produce anything for export, say, to Guam and the other islands of Micronesia, or to Japan and Korea? And the answer sadly has been “No, we don’t. We don’t have anything to export.” Which raises the next question: Why not? And, again, the sorry answer: “We don’t know what to export or how to go about exporting things to other places.”

Ironically, however, we do know that there are things we could produce and export. Right? Like agricultural produce from Rota, Tinian and Saipan that could be grown in the CNMI and exported to Guam, or to the military bases in Guam. We could also develop, say, a specialized fishing industry and export certain types of seafood products, say, to Japan and Korea. 

So why haven’t our government and business leaders been looking into these possibilities since we began commonwealth self-government forty-four years ago? As the saying goes: what’s the hang-up? And if there are any hang-ups, what have our leaders been doing to address and resolve these economic hang-ups? Are we going to continue relying on Federal Government “handouts” to provide us with the funding for most of our needs? Because if this is going to continue being the case, how can we say that we could independently govern ourselves as a commonwealth of the United States?

The CNMI has been fortunate to have had and still has a viable visitor industry since we became a self-governing commonwealth of the United States. We are blessed because our islands are situated in the tropics, where the weather is mostly warm and sunny. And we are closely situated to Japan and Korea, many of whose people have the disposable income to spend on trips and take vacations in our islands. 

We are very fortunate that the CNMI has been able to develop a lucrative visitor industry, which is not that labor-intensive requiring many workers. It is also an industry that does not put too much stress on island infrastructures (roads, power, water, and so forth). 

Indeed, the CNMI has had a successful visitor industry ever since we began commonwealth government. Only recently with the Covid-19 pandemic did the CNMI visitor industry take a “nosedive” for at least two years. But as we have just learned a few days ago, United Airlines and CNMI visitor industry leaders have recently “joined hands” once again to revive and revitalize the CNMI visitor industry. And this, of course, is good news for the commonwealth. 

But we hope that when this renewed endeavor to revive the CNMI visitor industry takes off and is making money for the CNMI, for United Airlines and for our visitor industry partners in Japan, our political leaders will not then start doing things again that will hurt the industry, like trying to establish industries that are “not a good fit” for the islands, such as the casino industry or the garment industry. We should learn from our past mistakes, otherwise we will keep repeating them. Let’s stop “shooting ourselves in the foot.”

During the visitor industry heyday before the end of the 20th century, the CNMI was entertaining over 700,000 visitors annually. And our goal back then was to reach one million visitors by the year 2000. With that many visitors visiting the islands back then, the CNMI was generating quite a lot of revenue from all the tourist-related local businesses–the hotels, the restaurants, the gift shops, the golf-courses, the tour operators, the airlines, and of course, the bars and night clubs. And as we all know from our experience with the visitor industry then, the business activities from this industry were generating millions and millions of dollars in business gross revenues, which in turn translated into millions of dollars in tax revenues for the CNMI government. These tax revenues, in turn, were utilized by the CNMI government to run local government operations and provide essential public services for the people. It is, therefore, an excellent industry for the islands. So, we must nurture it and make it grow. And we should not take it for granted.

Having said all the foregoing, however, we should always keep in mind that the visitor industry is a very competitive industry, just like most industries. And we should also know that the tourist industry is a very “fickle” industry. It is easily affected by financial and economic downturns, by public health crises, by terrorist attacks and by other calamities in the world and in our region. 

For example, we have seen, for the first time, from the public health crisis caused by the Covid-19 worldwide pandemic during the past three years, that an industry like the visitor industry could become completely paralyzed. That is what happened to the CNMI and many of the other visitor destinations worldwide. Hotels in the CNMI had to shut down completely for lack of visitors. And the same was true for most of the visitor-related businesses, restaurants and gift shops which cater to tourists. The fear of being infected with a highly contagious disease, as we know, is a very powerful motivating force that makes people afraid to travel. And so, for about three years, the visitor industry in the CNMI was literally dead. 

The Covid-19 public health crisis has taught us one important lesson though: namely, that the CNMI needs to have at least two or three other industries, aside from the visitor industry, so that we could diversify our local economy. This way, when one industry fails, there would still be two or three other industries that would help fill in the gap. Our political leaders should be aware of this by now, especially after our bad experience with the garment/textile industry. That industry left the CNMI in 2005, immediately after the textile quota restriction was lifted by the World Trade Organization. 

The other bad experience we have had after the departure of the garment industry was the introduction of the Saipan casino industry, which was, as some say, a “rushed job.” It took the CNMI roughly ten years after the departure of the garment industry to come up with the idea of establishing a “Saipan casino industry.” But after that industry was established, it never quite made it to “lift-off.” From the time the idea of establishing an exclusive casino industry on Saipan was conceived by our political leaders, to the time the exclusive casino license was issued by the CNMI government, the entire process took only about six months. Sadly (or happily, for those who were against the casino industry), the Saipan casino industry failed about five years after the exclusive casino license was issued to Imperial Pacific International Holdings Company, LLC. To this day, it is still not clear what was the actual cause of the company’s failure to complete the casino construction project. Was it the lack of adequate funding? Or was it caused by the Covid-19 pandemic? It appears that only time will tell.

At any rate, in the heart of downtown Garapan today stands a colossal casino structure that has remained uncompleted and has now started to slowly deteriorate. Two high-rise construction cranes still dangerously stand idle on the very top of the fourteen-story structure. To this very day, the high-rise cranes have not been taken down, either because of lack of funding, or because the owner of the casino structure does not know what to do next. This construction predicament loudly begs the question: what are the CNMI leaders and public works authorities doing to ensure that the businesses and the general public in the adjacent properties are kept safe and protected? Shouldn’t OSHA also be doing something about this safety concern?   At any rate, whomever wins at the next general election this coming November will have his/her hands full with this and all the other issues that the CNMI needs to resolve. 

To recap all the foregoing: our incoming political leaders in the executive and legislative branches (both newly elected and those re-elected) should never lose sight of the fact that it is the local economy that sustains CNMI government operations financially, and not the other way around. And a successful economy always goes hand-in-hand with a fiscally prudent government.

Jose S. Dela Cruz lives on Navy Hill, Saipan. He is the first chief justice of the CNMI Supreme Court.

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