By Joaquin P.L.G. Cook

Joaquin P.L.G. Cook
President
CEO
Bank of Guam

Hafa Adai readers!

I would like to first thank all of the companies who have participated in this annual series.  It is because of your input and the discussions we have with you that we are able to put together some sort of look into the future of what our island, and our region, will look like over the next 12 months.

Thank you especially to David John and Maureen Maratita for putting up with my barrage of questions and comments as I tried to get the best clarity on the process and the expectations of this issue. Also, thank you to them for giving me the opportunity to share my thoughts and perspective on the economies of our island regions and what we have to look forward to, and as has been the case for the past few years, what we have to continue to be concerned about.

I think a quick introduction is worth it so that you all can have a good idea of who I am and where my insights come from. I am Joaquin “Kin” Cook, president and CEO of Bank of Guam and BankGuam Holding Co. I have lived on Guam all my life aside from a seven-year period when I lived in California attending school. I am a Cham-haole boy…my mom is from Guam and my dad is from California. Most of you know them and they need no introduction.  I am married to a CHamoru lady who has also lived her entire life here on Guam and together we have four beautiful daughters. We are, to say the least, in love with Guam and all that the island has to offer. Our families are both very active in business and community activities on the island and throughout the region. I say this, because this part of the world and the people are very dear to me and I tend to always look for the opportunities and to the sunny skies ahead … beyond the challenges and hardships many have been confronted with.

The majority of my career has been as a banker and I have had the opportunity to work closely with business and community leaders in Guam, the Northern Mariana Islands, Palau, the Federated States of Micronesia, the Marshall Islands and even across the Pacific in San Francisco, Calif. I have seen waves of businesses start and succeed and have seen some fail.

It is my gut feeling that we are at a crucible point in our economic future. Times are difficult for various reasons that we have all discussed but I feel that sunny skies are just on the other side of a couple (maybe a few) quarters of hard work and grit. For those who will get there, things will be very good.

Many of our meetings with local business leaders this year revolved around the same discussions:

1. The obvious concerns of our fragile economy and the ongoing absence of any meaningful tourism arrivals.
2. Labor issues facing our island. The increasing difficulty of hiring and retaining talent. The importance of preventing “brain drain” and the need to up-skill the labor force for future needs.
3. The rising cost of living for all in our region due to inflationary pressures and supply side constraints.

The discussions, however, were not all bad. There are several bright points to make note of, as well as things to look forward to in the next year:

1. Military and federal spending continues to keep our construction industry busy and will do for the next 10 years or so.
2. Tourism is slowly returning, but not as quickly as we would like.
3. Many businesses have right-sized operations and have found new revenue streams to get into, keeping their businesses alive.

The biggest concern amongst executives is the lack of any meaningful tourism industry at the moment. We all know that Guam’s economy is like three-legged stool and tourism is one of the legs on which our economy needs to stand. Since March 2020, our economy has been balancing on only two legs. Now it is late in 2022 and all of the island’s restrictions have been lifted and tourists from one of our source markets, South Korea, have returned to travelling.  Based on numbers shared, our Korean arrivals are trending in the right direction for both Guam and NMI markets. The Japanese market has yet to see any major improvement due to the weak yen versus the dollar, compounded with Japan’s still very aggressive domestic travel campaigns that are keeping many Japanese vacationers within the nation’s borders. While numbers are nowhere near 2019 levels, there is some optimism amongst industry folks that numbers will be much better by mid-2023 with a very good 2024.

Labor issues continue to be a concern for businesses across the region. Many hospitality and food and beverage outlets have been listing openings for months without a single applicant. There are several reasons for this, but an answer to the problem has not been found. The island has seen much of its talent leave for better opportunities, higher pay, lower living costs, etc. in the mainland. Many workers have decided to change professions and are no longer interested in working in the visitor industry. Others have opted to seek jobs with federal contractors who are hiring for all sorts of positions from construction to administrative needs. This leads to several questions. What will it take to get our people back to work? How will local businesses be able to compete with federal contractors who are paying higher for the same jobs? How can we prevent further brain drain of our best and brightest leaving to the mainland? This is a problem that has no easy answer. Businesses must find ways to keep their most productive workers and on-board young talent to grow into the leaders of tomorrow.

The region’s high cost of living has forced many of our population seeking work to move abroad in an effort to find a better quality of life. With the rising cost of fossil fuels due to geopolitical forces affecting the cost of everything on island from power to clothing to milk, it isn’t a real surprise that people are leaving. This is a concern that we have always had to deal with. We see cost of goods increase when fuel charges increase. The cost of travel off island goes up as well as our power bills. It is not anything new.

This time around, however, these increases come at a time when one of the region’s largest industries, tourism, is hobbling along trying to pick up steam.

With all the concerns above, there are bright spots and I always like to look at the glass as half-full. While private business is seeing a lot of its labor force move to federal related jobs, it does put money into the pockets of people who will be spending locally, creating economic churn. The higher rate of military spend on island is also impacting other industries as well. This is evident in the good performance of the automobile and financial institution sectors. Even a few hotels have been able to maintain a decent share of their business on military guests. Automobile dealers have seen a very good few years and auto sales continue to be stable. Local banks and credit unions continue to see low delinquencies and high deposits, although this has come down slightly in 2022. The branded hotels on island have been able to keep occupancy rates in the 60-70% range, although at lower average daily rates than what they would like to see.

The growth of defenses here on Guam will not be slowing down any time soon. Construction and new awards will be coming out in the next several years that will keep our island’s construction business busy for the next decade or so. After that there will be need for support and maintenance services and — unless there is a major shift in global politics — I don’t see the U.S. military presence in our part of the world slowing down. This means more jobs, more people coming to the island and more opportunities for those willing to seek them.

I have always been told that military and tourism are counter-cyclical.  Meaning that when there is an increased presence in military personnel and activity, tourism numbers show a decline. I don’t know if that is just the timing of the military activities and the scheduling of them around peak tourist seasons, or if the two really are inversely correlated. I hope it is the latter and that our island is able to accommodate and attract a vibrant and eager to spend tourism population, even with the increased military presence.

Since the halt of visitor arrivals in 2020, the industry has seen an uptick in arrivals and continues to see bookings for the months ahead. With the worst days in the rearview mirror, hoteliers, restaurateurs, optional tour providers and the like are optimistic for the future. Many anticipate a mid-2023 return of arrivals from Japan and Korea bringing our dormant tourism industry back to life. It is nice to once again see tourists roaming the streets of Pleasure Island with similarly dressed newlyweds walking hand in hand and taking selfies and I look forward to more of this as our friends from Asia return to our shores.

With the return of tourists and the increased competition with other destinations in Southeast Asia, we must upgrade our offering.  We offer great daytime activities to enjoy in the tropical sun. What we have heard in our discussions is that the island is missing more family friendly nighttime activities.  I am excited about this as well, because we have seen a new attraction come online in Tumon with the Super American Circus, as well as the total renovation of the show at the SandCastle. Still, I think we can do better…we need to do better to provide a world class experience.  An idea that I thought would be great is a night market that happens, well, nightly. Not just on Wednesdays, but on several days to include weekends. This could be a great experience for visitors giving them exposure to more of our people and our culture. Industry leaders need to continue to work together towards providing an experience worth visiting us over and over again. I know that it can happen. It must if we want to continue to compete.

There is a song in the 1968 musical Chitty Chitty Bang Bang entitled The Roses of Success.

So every time you stumble never grumble.

Next time you’ll bumble even less!

For up from the ashes, up from the ashes, grow the roses of success!!

Most businesses have already survived through the toughest three years in the history of our island. Businesses did what was needed to in order to survive. Now that pencils have been sharpened and expenses have been right-sided, businesses will be operating at efficiency levels that are just not present in times of high sales. Veterans who have been doing business on island have seen this in the past as the island has been hit hard with events beyond our control.  Remember MERS? SARS? Earthquakes? Tsunamis? All of these have hit the region’s tourism industry hard. Businesses here have always had to persevere and rely on grit, resourcefulness and the entrepreneurial spirit to get them through the hard times. Those that are able to make it through, end up enjoying a three-to-five-year period after that of rapid uptick in income. This growth in income are the roses of success and I feel that in 2024 and beyond will be such.

With highly efficient operations, more leveraging of automation, searching for additional (in most cases unconventional) revenue streams, businesses were able to pivot and adapt because of the pandemic. Now that we have lived through that, it will soon be time to enjoy the benefits of our hard work and resilience. I project that with the federal spend (both military and non-military) continuing combined with the return of tourism to numbers close to 2019, the next five years on Guam will be very fruitful. The only point that is holding me back from being a complete optimist is inflation and what 2023 will bring in terms of increased costs of goods for our island.

In summary, to answer the question: what do I expect in 2023? I would say this … the first three quarters of 2023 will continue to be tough. We will see continued federal dollars coming to the island, but I don’t anticipate any meaningful return of tourism until third-quarter 2023 or first quarter 2024. Fuel costs will continue to increase the cost of living and employers will have to react to these pressures as well as competition from all the Federal work in order to keep their best on staff. I feel, though, that towards the end of 2023 we will see improvement as tourism returns. Top line revenues will grow and with expenses that have been well managed and controlled over the last three years, most of that growth will go directly to bottom line profits.

So, for 2023, I foresee another year of gritting it out and making things work.

After that, I hope for clear skies and smooth sailing.