Northern Marianas
On The Ropes
Saipan's Main Industries Battle Long Odds
This is the moment of truth for the battered Commonwealth of the Northern Marianas. For the past six years, its once vaunted tourism industry has been pummeled by Japan's deepening economic woes, the meltdown of Asian currencies, fear of international terrorism, war in Afghanistan and Iraq, and most recently SARS. And its often-criticized garment industry, which has kept the U.S. territory from sinking beneath the economic waves, is likely to quickly contract because of new international trade deals.
"I think the next two years will be critical for the CNMI," says John Sheather, Bank of Hawaii's Saipan-based senior vice president and country manager. "While the prospects for development and revitalization of visitor markets seem promising, the overall long-term effects of a shrinking garment industry remain the biggest piece of the puzzle."
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There is no better indication of the woes besetting the CNMI than gross business revenues, which last year were at their lowest level in seven years. In 2002, gross business revenues were 29 percent below the peak reached in 1997. They were down 12 percent from 2001.
If it weren't for the garment manufacturing industry, the CNMI today would be an economic disaster zone. That's a reality that many in the commonwealth seem reluctant to acknowledge publicly, even after watching the once-sizzling tourism industry sputter to a near standstill.
Garment manufacturing in the CNMI began in the 1980s, encouraged by the government, and fueled by the commonwealth's exemption from U.S. quotas, its duty-free status, the ability to import foreign labor since it controls its own immigration and a wage scale below the U.S. minimum wage (CNMI minimum wage is currently US$3.05 per hour; U.S. minimum wage is $5.15).
"We account for probably 50 percent of the money in circulation in the CNMI," says Richard Pierce, executive director of the Saipan Garment Manufacturers Association, the major industry group. "We provide for probably 20 percent of government jobs just by the money we create here."
The garment industry has been under pressure on several fronts, including a ban on arrivals from SARS-affected areas, which hindered its ability to bring in replacement workers from China or Taiwan. The recent lifting of those travel bans is good news for the industry.
Until the SARS outbreak, the CNMI garment industry's biggest problem was adverse publicity and lawsuits concerning pay and working conditions. The negative news translated into fewer orders for some of the 27 garment factories on Saipan, which employ 16,500 workers. More than 80 percent of Saipan's private sector workers are non-U.S. citizens; more than 40 percent of all U.S. citizens employed in the CNMI work for better paying, though financially-troubled, government.
It seems certain there will be a minimum wage increase. Several proposals have been advanced on how to proceed. Suggestions include exempting the garment factories from any hike; implementing the increase in increments of 70 cents per year for three years; or evaluating the 70-cent increase each year to determine whether to proceed with the next increment.
"The Chamber of Commerce is not against raising the minimum wage so much if we can take some of benefits we have to give our nonresident workers off the table," says Jay Jones, president of the Saipan Chamber of Commerce. "Let them house themselves. Let them handle their own transportation. They're adults. They're working. They can do these things for themselves. We'll pay them more money in return."
The biggest threat to garment manufacturing in the CNMI is the elimination of tex tile quotas in January 2005 as a result of new trade rules under the World Trade Organization and the Multi-Fiber Agreement.
So it is not if the Saipan garment industry will shrink, but by how much. Smaller factories have already closed. But many believe that larger operations, particularly those with factories elsewhere, will continue to operate in the CNMI partly as a hedge against adverse conditions, such as civil unrest elsewhere that might hinder production.
"If our other costs don't go up, we believe we can be competitive in some of the larger firms after 2004," says Pierce.
Like tourism elsewhere in the Pacific, the industry in the CNMI has suffered from the Asian economic woes, particularly Japan's ongoing recession. Some 70 to 75 percent of CNMI visitors are Japanese. Korea represents a market with good growth potential, but the big numbers are still driven by Japanese visitors.
Several efforts are under way to shore up the CNMI's tourism industry.
Officials hope to attract visitors from China though the SARS bans delayed efforts. A major boost to developing the Chinese market is expected when the CNMI is approved as a tourist destination by the Chinese government. Without the designation, "We cannot advertise, we cannot promote," says David Sablan, chairman of the Marianas Visitors Authority. "We can only make the Chinese aware of the amenities that are available here."
While Saipan remains the centerpiece of CNMI tourism, there is some encouraging news on neighboring Tinian island. The Tinian Airport's new 2,580-meter runway opened in July and will be able to handle full-size commercial aircraft for the first time. Previously, the CNMI's only casino, the Tinian Dynasty Hotel and Casino, operated charters from Guangzhou, China to Saipan. Visitors then transferred to Tinian by boat. The first charter directly into Tinian was scheduled to arrive on July 18. The development is expected to make the island more attractive to investors, particularly casino owners.
A key element in Saipan's plans to be more attractive to Asian tourists will be the badly needed renovation of a four-block commercial area in Garapan near the Hyatt Regency and Dai Ichi hotels. It is now a gaudy collection of T-shirt and trinket stores, restaurants and hostess bars. At night, and even during the day, scantily-clad women can be seen trying to hustle wary tourists into clubs.
A pedestrian mall will be constructed on Third Street, in the heart of the district. The project, designed by Winzler and Kelly, will cost between $4 million and $5 million. Construction is scheduled to begin in September and be completed by June 2004. An integral part of the plan is the removal of the numerous adult entertainment establishments in the area.
"We want to turn Garapan into a family-oriented district, where everyone can have a good time," says Jonas Ogren, MVA managing director. At the same time, the adult businesses "are part of our product right now. Many of the people who come to Saipan frequent those businesses." Their relocation is under discussion.
Though it represents little more than 1 percent of total arrivals, an active and welcome visitor market is the U.S. military. Last year, 6,100 crewmembers of 41 ships enjoyed liberty calls in Saipan. During the first six months of this year, 21 ships brought 3,700 sailors and marines into the commonwealth.
One of the more imaginative ways to bring visitors into the CNMI and improve education in the commonwealth is Northern Marianas College's Pacific Gateway Project. The college plans to take advantage the CNMI's immigration control as well as the growing demand for U.S. education, particularly English language instruction, among Asian students. Proponents cite the rise in Asian students enrolled in the mainland U.S. (from 572,000 in 1990 to 910,000 in 1999) and an increasingly large number of Asian students who are accepted to U.S. colleges, but who are unable to get student visas.
The CNMI's proximity to Asia (Tokyo is only three hours away by jetliner), tropical climate and cultural makeup add to the plan's marketability. The college plans to acquire the La Fiesta mall in San Roque for about $3.5 million and convert it into a new NMC campus. The two-year college currently has about 1,200 students.
The Gateway project calls for 6,700 non-resident full time students by 2014.
While the commonwealth's two major industries face tough odds, hard decisions will also have to be made on Saipan's Capitol Hill, where the governor and Legislature hold court. But the reality is that there appears to be little in the way of new ideas about how to help tourism and the garment industry, or leadership to show the way forward for worried residents.
Government has its own problems, too, some quite significant. A dwindling tax base has meant that the commonwealth government has had to shift funds to meet payroll. The immediate problem (see related stories) is that the government has fallen far behind in its mandated payments into the CNMI retirement system, which threatens the very credibility of the government.
There is some disillusionment with Gov. Juan Babauta in the CNMI private sector which has led to speculation he will be a one-term chief executive. That's led to the political equivalent of a shark feeding frenzy, and there's no shortage of opinions on who will be the commonwealth's next governor in two years.
So at a time when the major engines of economic growth in the CNMI need significant attention and support, most public attention is focused squarely on politics. That might have worked in the 1980s and early 1990s, when visitor arrival figures were growing by double digits each year, and the garment industry was pumping millions of dollars into commonwealth coffers. It doesn't work today, as the Northern Marianas finds itself on the verge of being a forgotten asterisk in the charts of economic growth in the Asia-Pacific region.
CNMI Statistics:
| Year | Visitor Arrivals |
Hotel Tax | Business Gross Revenue |
General Fund Revenue |
Garment Industry Exports Value |
| 1997 | 694,888 | $10,800,000 | $2,610,000,000 | $248,040,000 | $749,000,000 |
| 1998 | 490,165 | $7,700,000 | $2,238,000,000 | $242,300,000 | $994,600,000 |
| 1999 | 501,788 | $6,000,000 | $2,213,000,000 | $241,000,000 | $1,062,200,000 |
| 2000 | 528,597 | $6,100,000 | $2,255,000,000 | $230,200,000 | $1,017,000,000 |
| 2001 | 444,281 | $6,100,000 | $2,117,000,000 | $222,600,000 | $925,700,000 |
| 2002 | 475,169 | $4,740,000 | $1,860,000,000 | $187,860,000 | $831,300,000 |
