By Joe M. Arnett
The 2015 Top Companies survey has been another interesting and enjoyable process. We thank the many companies that participated and most importantly those that gave of their time to speak with us about their businesses and prospects for the future. We greatly appreciate these frank and insightful discussions and always come away with new views and ideas we had not previously considered.
The optimism we noted in last year’s survey remains intact for the business communities of Guam and Saipan. Tourism arrival numbers have remained strong although the mix has changed. This has encouraged new business openings and expansion, particularly in the food and beverage industry.
As discussed last year, the construction industry has remained in neutral for the most part. The larger construction companies expanded their activities outside of Guam in search of new work to maintain their profit and staffing levels for the future. Notable exceptions include the construction of a significant number of affordable housing units and the completion of local government projects. Two other significant projects, the Guam Museum and the Guam Regional Medical Center, are expected to be completed in late 2015.
The 2014 visitor arrival numbers remained strong once again exceeding 1.3 million visitors. The strong U.S. dollar continues and other economic issues at home resulted in a decrease of Japanese visitors again in 2014. This decrease was offset by increases in arrivals from the U.S. mainland and more notably Korea. For Saipan the increasing number of tourist arrivals from China continues to drive their market. The per-person spend remains depressed and the strength of the U.S. dollar is once again seen as the villain.
Market diversification and improving the brand remained the priority of the Guam tourism industry. Continued work to secure a China visa waiver for Guam continues to be a priority, but there was little progress in 2014 and no indications that 2015 will be any different. There is a renewed interest to more fully develop the tourism infrastructure throughout the island. The completion of the Dusit Thani hotel and Hotel Lotte Guam renovations are seen as the first steps in the realization of this redevelopment plan. With solid visitor arrivals projected for the future many hotels are taking the time renew and refresh their facilities and offerings.
In the Northern Mariana Islands the continued development of the casino\hotel industry has helped maintain a solid increase in visitor arrivals, particularly from China. New hotel projects on Saipan continue to move forward as well as new development in Tinian. The recently announced reduction in contract worker visas will place a new emphasis on training local workers to meet the growing demand.
Growth in the Guam economy was moderate with the gross island product remaining in the $4 billion range. Unemployment numbers improved modestly in 2014 by seven-tenths of a percent, ending the year at just below 8%. The number of new jobs increased by just over 2% during 2014.
The optimism expressed last year for increased Department of Defense spending in Guam and the region for 2014 remains unabated. The recent signing of the Record of Decision for Guam has heightened this anticipation. More than $300 million is expected for new construction projects to be released in late 2015 or early 2016. Another $800 million is expected to closely follow. Overall significant military construction is anticipated to occur for the next 10 to 12 years based upon the plans as outlined in the Record of Decision. Contractors both on and off island have begun to refocus their plans in Guam as more projects are announced.
The announcement of a new Environmental Impact Statement for the divert runway in the Northern Mariana Islands indicates the U.S. Air Force has listened to the concerns of the affected citizens and will give them more opportunities to discuss the Air Force’s plans. This will delay the construction necessary until all concerns are adequately addressed.
Government deficits have hit record levels. The per capita debt in Guam is nearly $9,000. This is the highest of any U.S. territory. Although much of the new debt refinanced older debt at a lower interest cost, the burden on the current and future taxpayers of Guam cannot be understated. In addition, the cash needs of the government will increase over time as the interest only payments currently structured require both principal and interest payments in the near future. This could put the economy at substantial risk should a financial downturn occur. It only takes one natural disaster or regional conflict to negatively affect the tourism industry. As we have seen in other territories and states, severe economic times can result in reduced government programs, services and retirement benefits.
Yet our Top Companies remain optimistic. Significant transfer payments from the U.S. government flow into Guam at the rate of more than $500 million per year. The investments scheduled to be made in Guam and the region over the next 10 to 12 years by the U.S. Department of Defense will provide a significant source of revenue for workers and investors in Guam as well as the government of Guam. And the future of tourism in Guam and our region has never looked stronger.
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Deloitte & Touche ASC Trust Corp. 2015 list of Top Companies in Micronesia
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It’s a consensus: Good times are coming Guam’s way
