Joe M. Arnett
Senior advisor
Deloitte & Touche

The 2015 Top Companies survey has been another interesting and enjoyable process. If you compared last year’s comments to this one, you would find many of the same opinions and optimism for the future. The expansion of business activity that was discussed last year has continued in to our current survey. This is year three of a noticeable increase in economic activity in our region, and it is the expectation of many that this will continue into next year and beyond. But it is not without its challenges.

The business expansion 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 in the business segment that supports tourism. Local businesses are also looking beyond Guam and Micronesia to establish new footholds in other Pacific islands.

As discussed last year, the Guam 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. Other regional construction companies have embarked on new investments in housing and other projects related to the increase in the U.S. Department of Defense activities in Guam and the Northern Mariana Islands.

The substantial completion of two other significant projects in 2015, the Guam Museum and the Guam Regional Medical City, has reduced the volume of Guam construction activities.

For Saipan the increasing number of tourist arrivals from China continues to drive their market. With more flights to Saipan, Korean visitors are also arriving in Saipan in ever-increasing numbers.

In Saipan the predominantly Chinese investment in the casino\hotel industry has helped maintain a solid increase in visitor arrivals. This new infusion of capital into Saipan has also resulted in a wave of new development, real estate transactions and business expansion among those businesses that support tourism.

With new hotel projects under construction in Saipan, plans for new development in Tinian is under discussion as well. Visa issues for foreign workers in Saipan may affect the pace of new developments and the operations of established businesses as well. The limits placed on recruiting temporary foreign workers, many of those from the existing CW program is straining Saipan’s ability to meet the demands of an expanding economy. This has resulted in a shortage of labor and the potential for an upward pressure on wages.

In Guam the total visitor arrival numbers remained strong once again in 2015. For the 12-month period ending September 2015, Guam received nearly 1.4 million visitors. The strong U.S. dollar continues and other economic issues at home resulted in a continuing decrease in Japanese arrivals for 2015. This decrease was offset primarily by an increase in arrivals from the U.S. mainland and, more notably, Korea. Guam is on pace to set a new record for visitor arrivals in 2016.

Unemployment numbers improved modestly in 2015 ending the year approximately just below 7%. Gross domestic product dropped modestly in 2015 led by a decrease in private investment.

Department of Defense spending in Guam and the region for 2015 was below expectations. Environmental issues have delayed some of the more critical construction projects while others have continued. The U.S. presidential election has also affected the pace of accelerating construction activities in Guam. There are signs that activity levels will be renewed in 2017 after the new leadership of the country and the Department of Defense has been decided.

Pending requests for proposals for infrastructure projects to support increased levels of personnel stationed on Guam is proceeding. Underway is the removal of approximately 700 existing housing units at Andersen Air Force Base to make way for new housing construction for the relocation of U.S. Marines to Guam plus a planned increase in the force numbers overall. The Terminal High-Altitude Area Defense battery on Guam, manned by members of the U.S. Army’s Missile Defense Command, will move from a temporary to permanent posture. This would include the permanent assignment of approximately 200 command staff to Guam.

The issue of H-2 approval rates for Guam is becoming a significant issue for continued economic development in Guam. From a near 99% approval rate for H-2 renewals at the beginning of 2015, the rate approval rate has fallen closer to 0% by the end of the fiscal year.  Changes in administrative review criteria is the cause most often cited. Without adequately skilled construction workers in Guam, local building projects, both public and private, will be delayed with serious financial consequences for the Guam economy.

At risk is also the pace of the Department of Defense construction projects in Guam. Madeleine Z. Bordallo, Guam’s delegate to Congress, has introduced legislation as a part of the 2017 Defense Authorization Act to exempt military construction from the administrative rules being applied to H-2 applications filed for Department of Defense projects. The NDAA should be passed by Congress in late 2016 or early 2017.

A group of business leaders led by the Guam Contractors Association and the Guam Chamber of Commerce have joined to file a lawsuit against the U.S. immigration services for the sudden, unexplained change in position they have adopted for reviewing H-2 worker applications from Guam employers. The outcome of this legal battle could have a significant impact on the Guam economy.

The government of Guam has significant projects it has listed as priorities that will be affected. This list includes significant renovations to the hospital, road construction and infrastructure improvements.

As cited last year, the per capita debt of the government of Guam has reached alarming levels. In the United States, average state debt per capita is just over $2,000 per person with the highest state being approximately $5,000 per capita. Guam’s per capita debt is over $9,000. A strong, growing economy is necessary to provide the funds to repay these debts without a significant impact on government services and retirement benefits.

In spite of these challenges, our top companies are adjusting to the changing economic environment. They are planning for the opportunities ahead and taking steps now to remain profitable by exploring new opportunities outside of our region. With diligence and planning, the economic future of our region does indeed look promising.

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 always learn new insights and ideas of how the top companies in our region succeed by sharing their vision of the future.