Encouraging increased foreign investment

In the past the NMI government has mostly reacted toward investment proposals brought to it from the outside. With several exceptions such as the various government efforts in Korea, Japan and Taiwan, the effort has been somewhat passive as opposed to being aggressive in seeking out new investors, particularly those from the mainland United States. While I participated in several investment missions in the past that were well organized, there was little follow up with advertising in appropriate business journals such as the Far East Economic Review or the Asian Wall Street Journal. Nor, to my knowledge, have investment promotional ads in U. S. mainland newspapers and journals or those of Asian nations been purchased. This type of advertising is very expensive and no doubt budget constraints have been the reason. But the old adage still holds true: “You have to spend money to make money.”

A useful promotional tool is a generic hotel financial feasibility analysis to generate initial investor’s interest in this industry. Such an analysis displays the profit potential for a typical island resort hotel or tourist attraction and is based on realistic income projections. The analysis should indicate the number of guests required to achieve the various occupancy levels.

Financial feasibility studies are not market analyses. They can tell you how many guests you need to break even but they do not address the methods to achieve those results. The other side of the process is destination promotion and that’s where a variety of marketing tools and programs are essential. MVA is well aware of this.

Proposed project analyses must also describe other factors for doing business in the Commonwealth, and are useful to government promotional agencies, private developers and brokers to convince investors that the area is a profitable place to do business.

Having been involved in such activity since the late 1950s in many areas of the world, including the United States, Tunisia, Thailand, Ghana, Ivory Coast, the Bahamas, Palau and, of course, the Northern Marianas, I have had the opportunity to consider this effort from widely different perspectives and over a time span of more than three and one-half decades. The following is what I have observed.

In any foreign investment promotion program, the area’s business opportunities must be brought to the attention of potential investors as well as the location of the geographic area, and its “business climate.” By that I mean laws relating to business, and any advantage, comparative or otherwise, which makes the islands a profitable place from which to conduct a particular business.

Unlike the economic sectors of manufacturing, agriculture, fishing and so forth, the tourist sector of any economy is the only sector that, by necessity, strives to inject an ever increasing number of visitors into an area. It goes without saying that more visitors require more hotel rooms, rent-a-cars, banking services and a myriad of entertainment forms and all these activities must be staffed by skilled, reliable employees.

The drafters of legislation effecting either existing or potentially new businesses must realistically examine the situation from the investor’s viewpoint. In order to do this, one must recognize two factors basic to the issue. Given the fierce competition for foreign investment among countries around the Pacific rim, the islands should abandon the attitude that they are doing a potential investor of a large project a favor by letting him do business in the area. It is actually the other way around: the businessman making a large capital investment does the area a great service by investing within its borders.

When businessmen and women review the business potential of an area, no factor escapes analysis, most of all the so-called “business climate” and the experience of other foreign investors in the area.

As I have mentioned previously in this column it is worthwhile considering that development itself cannot be “legislated” as is so commonly thought on the islands. Only the legal environment known as the “business climate” under which such investment is expected to thrive can be established by an area’s legislative body and even then there is no guarantee investment will result, but such legislation is, in a real sense, a “welcome mat.”

One of the measures of how badly an area wants foreign investment may be gleaned from the incentives it offers. These can take various forms, several of which follow as examples found in the various states in the United States as well as other countries.

* The provision of adequate infrastructure including reliable and sustained power and water is absolutely basic;

* Training of employees at government expense;

* Provision of access roads to business sites not presently adjacent to a public highway;

* Provision of utility lines (water, power, sewer) to the business property line when such sites are not located along such facilities;

* Assistance with the leasing or construction of shell buildings for lease with an option to buy or outright purchase;

* Duty free importation of raw materials equipment and supplies (when not for resale within the area as, for example, in a free trade zone);

* Private sector operation of a Free Trade Zone;

* Tax holiday;

* Provide a guarantee against an increase in taxes for a specified period. This need not necessarily be confined solely to foreign investment but can be directed to new local business investment as well.

* Research and provide basic geographic, economic, business and legal information for the potential investor’s review in a single, published package;

* Identify and document business opportunities open to foreign investors. Where it is possible to do so include a financial feasibility study and/or a marketing analysis for the project the government wishes to encourage. Provide potential projects with a “paper personality” for the potential investor’s review and analysis;

* Where necessary, identify local joint venture participants and the potential site for the endeavor free of any potential Article XII problem;

* Promote (advertise) the opportunity in international media;

* Fully service all inquires for information from potential interested investors;

* Check the financial and character references of all foreign investors when a joint venture with local parties is planned;

* Provide all possible assistance during the initial startup of the enterprise;

* Assist in the preparation of any require environmental impact analysis and if need be, assist in the mitigation process.

The above will constitute an aggressive foreign investment program and it will cost money. Results shouldn’t be expected to occur overnight.