By Joe M. Arnett
Deloitte &Touche LLP is grateful for the opportunity to be involved in the Top Companies survey. The best part of the exercise is meeting with the leaders of these companies. One always comes away with one or two new facts, insights or new perspectives from the leaders of their businesses in Micronesia, and I hope it was valuable that David John, Maureen Maratita and I were able to share some of our own insights from the perspectives of ASC Trust Corp., Guam Business Magazine and Deloitte &Touche.
There is an increased sense of optimism in the business community as a whole. Tourism remains strong with increasing numbers visiting the island. This bodes well for the wholesale, food, beverage and optional tour business sectors. Although the source of our visitors changed dramatically in the past year, the overall numbers remained strong. The construction industry remained in a steady state with large projects winding down with the promise of new work in the not too distant future.
A review of the 2013 business activity shows another strong year for tourism. Arrival numbers continue to climb above 1.3 million visitors. The rate of increase declined from the prior year, most of this blamed on the dollar\yen exchange rate. And while the absolute numbers were up, the per-person spend was actually down due to the weaker yen. The growing number of tourists from Korea and Russia helped to partially offset the declining revenue numbers.
Airlines continued to increase seat capacity to Guam by adding new routes and frequencies, notably from Russia and Korea.
The construction industry’s major projects in 2013 were the new private hospital and the Naval Hospital. Significant construction projects continued at Andersen Air Force Base, Naval Base Guam and the Port Authority of Guam.
Growth in the economy remained essentially flat with a gross domestic product of slightly more than $4 billion. Business expansion and significant new investments lagged in 2013. The result was a lower than expected increase in job growth. The unemployment rate remained in the 10% range, a slight improvement over 2012.
The rate of increase in visitor arrivals should be modest as we move into 2014. A weaker yen, significant decreases in Japanese arrivals and the suspension of charter flights from Russia will put downward pressure on the arrival numbers. An increase in visitor arrivals from other destinations, primarily Korea, will help offset the negative numbers.
Market diversification remains a priority in the tourism industry. A notable priority is the China visa waiver. Little movement was seen in 2013 on this issue and little progress is expected for 2014.
New facility projects provide a reason for optimism in the visitor industry for 2014 and future years. Both in Guam and the Northern Mariana Islands, new hotel plans have been announced. Significant investments are planned in the NMI as a result of the recently passed casino legislation for Saipan. The increase in visitor arrivals for Saipan has led to the announcement of new hotel projects in both Saipan and Tinian.
The same is true for Guam. As increased visitor arrivals limit room availability, a new hotel plan announced by Ken Corp. offers to increase capacity in the near future. The planned opening of the new DusitThani Hotel in Tumon should also add needed room inventory. And the refurbishment of the Lotte Hotel Guam will also increase visitor capacity.
The construction industry is expected to see a slowdown in building activity as 2014 comes to a close. As existing projects are completed, the rate of new construction projects will decrease in the later part of 2014 and possibly into 2015.
The building of low-income housing projects is a noticeable exception to this trend. Department of Defense construction spending continues, primarily at Andersen Air Force Base, and new contract awards are expected in late 2014 or early 2015. This should provide a boost to the economy.
There is also a sense of optimism for the future. While 2014 is expected to be a challenge, an increase in construction activity for the tourism industry and continuing military projects should provide a lift in late 2015 and into 2016.
The long-delayed Department of Defense plans for facility construction projects to support a larger presence of U.S. Marines reached positive milestones in the past year that are expected to continue through 2014 and beyond. Significant progress was made in completing Congressionally-mandated planning necessary for the funding of these projects.
Funds were awarded for a study of upgrades necessary to the Northern wastewater treatment plant, and significant progress was made toward the completion of a Supplemental Environmental Impact Statement that is required before new DOD facilities can be constructed in Guam. It is expected that the by early 2015 the SEIS will be approved, followed by an agreement to move forward with planned construction. Congressional funding is the last step and if all goes according to plan, new contract proposals should be released by late 2015 or early 2016.
There continues to be an increase in the number of training exercises conducted in Guam and the NMI by the Marines, Navy and the Air Force. This trend is expected to continue. Such training exercises provided the opportunity for an additional lift to the tourism industries of both Guam and the NMI in 2014.
Unemployment remains stubbornly high. Only new business investments can create the capacity to absorb all those seeking employment. More needs to be done to encourage investment into the island.
Government deficits and overspending take dollars away from programs needed to grow the economy. It is likely that unemployment rates will remain high through the end of 2014. The DOD investments remain the necessary light at the end of the tunnel to reduce Guam’s unemployment problem.