Joe M. Arnett
Deloitte & Touche
The 2017 Top Companies Surveys have been completed and it was another good year across the region. We could have saved time and copied most of last year’s report, as the enthusiasm for business prospects in 2015 continued into 2016. Visitor arrivals in Guam and the Northern Mariana Islands reached record levels, as capacity issues are becoming a somewhat pleasant problem.
The construction industry remains challenged, with further delays in projects expected for the U.S. Marine’s plans for the region. Lack of qualified labor, regional conflicts and continued reductions from arrivals out of Japan are among the list of growing economic concerns.
The construction industry had another challenging year in Guam. Private sector and government projects were delayed, as the effect of the H-2B visa denial process continued. Approval rates that were historically near 100% for H-2B applications fell to nearly 0%. This reduced the number of qualified H-2B construction workers from more than 1,000 in 2012 to less than 100 in 2017. Most of this reduction occurred in 2016.
This lack of manpower has caused Guam contractors to scale back their operations, search for workers in the U.S. mainland or look for work outside of Guam. These decisions have significantly increased the cost of construction in Guam and the uncertainties have forced outside investors to rethink projects in Guam. This has also negatively impacted the cost of new home construction in Guam.
A lawsuit was filed by local business organizations seeking a redress of these issues from the U.S. Citizenship and Immigration Services, but the case remains unresolved at the present time. A provision in the National Defense Authorization Act introduced by Madeleine Z. Bordallo, Guam’s delegate to Congress to authorize H-2B workers for Department of Defense projects in Guam did not survive the joint committee process in 2016.
In the NMI, double digit increases in visitor arrivals launched a construction boom, particularly for the new casino and hotel operations.
Although the construction workforce for these projects was primarily made up of guest workers from China, the contract worker visa program for the NMI also saw delays in the process during 2016. Like Guam and the H-2B visa issue, the CW visa process delay affected primarily local businesses.
Both Guam and the NMI set records for visitor arrivals in 2016. Guam visitor arrivals in 2016 were approximately 1.5 million, and the NMI noted 500,000 visitor arrivals, an increase of 4.5% from the prior year.
The Guam Visitors Bureau reported a 3% increase to fiscal 2017 figures overall and taking arrivals to about 1.56 million and a record year. In the NMI, fiscal 2017 figures show a 30% increase compared to the previous year. While those figures did not reach the NMI’s 1997 banner year total, its fiscal 2017 arrival numbers of 653,150 did give the NMI its fourth highest fiscal year arrivals.
The mix of visitor arrivals has changed in both destinations. The arrivals from the once dominant Japanese market continue to slide in both places.
This was more than offset in Guam by increasing visitor arrivals from South Korea. In the NMI, the declining Japanese market share has been exceeded by visitor arrivals from South Korea and Hong Kong. New investments from South Korea and increasing airline seat capacity have continued to fuel the South Korean visitor arrivals in both locations.
Tourism dollars increased for the third consecutive year in Guam. The Bureau of Economic Analysis reports Gross Domestic Product of the island increased to a record $5.2 billion as well. While absolute GDP is at record levels, the rate of year on year growth continues to decline from the 2012 peak.
The BEA also reported that the NMI by comparison acheived a GDP growth rate in 2016 of 28.6% to $1.2 billion. The economic expansion in the NMI appears on track for further gains in 2017.
As 2016 closed out with healthy economic gains, discussions regarding 2017 and beyond have become a greater concern.
The nuclear aspirations and threats from North Korea have resulted in further declines of Japanese visitor arrival numbers, especially in Guam. The feeling is that potential visitors from other countries may also choose to defer travel to Guam and the region. This has resulted in reduction of expectations for tourism growth in Guam for 2017.
Tourism related businesses are beginning to cut back operations in anticipation of declining revenues. As this ripples through other support businesses in Guam, the economic outlook for the future is not as optimistic as it appeared in 2016.
At the same time, proposed tax increases and government borrowings would increase the cost of doing business, as the prospect of declining revenues becomes more likely. Careful economic planning is necessary to prevent a further economic decline.
A more positive expectation is the influx of dollars to the region in support the U.S. Marines relocation.
Final approvals for significant infrastructure work both in the public sector and on Department of Defense installations will significantly increase economic activity in the region. This will provide economic stimulus to not only the construction industry but the tourism industry as well.
The question of H-2B labor being available to help execute this significant increase in construction activities has also been added to by the most recent version of the National Defense Authorization Act. That version raised the hope that additional H-2B workers would be allowed to come to the Mariana Islands to perform work on military construction projects in Guam and the NMI in support of the military buildup. While this will not alleviate construction needs “beyond the fence,” the possible approval for workers for the healthcare sector would provide wide benefit to all island sectors.
Early indications are that approval of this provision is more likely than in the past.
With these thoughts, our top companies remain cautious about their business plans for the future, but remain hopeful for the long-awaited expansion of economic activity in our region.