Commonwealth of the Northern Marianas

Economic Environment

Two major demographic factors affect CNMIís economy: its explosive population growth and an unusually large foreign workforce. From 1980 to 1999, the countryís population has grown 373.4 percent, an annual increase of about 8.5 percent. Total population in 1999 was 81,126 with 90% of the total on the island of Saipan. Currently, over half of the population is foreign workers. Only 42% percent of Saipanís 73,300 people are US citizens; the rest are temporary foreign workers. Only 23 percent of those in the labor pool (16 years and older) are US citizens; 77% are temporary foreign workers.

Today, CNMI faces an uncertain economic future. The Asian economic downturn that began in mid-1997 has forced many businesses to close, as the numbers of East Asian tourists plummeted. The September 11th incident has worsened the overall affect of the economic downturn. Businesses that have survived face other challenges, including a probable minimum wage hike, tighter federal immigration control, and even more frightening, the loss of one of its major industries, garment manufacturing.

CNMIís economy expanded rapidly after the Commonwealth Covenant was signed in 1978, largely due to the expansion of the tourism industry. Between 1988 and 1996, tourist arrivals rose from 245,505 to 736,177, an average annual increase of 14.7%. A construction boom ensued, hotels and restaurants were built continuously, as well as improvements made to CNMIís infrastructure, all contributing to CNMIís rapid economic expansion.

In 1988-96 tourism become CNMIís largest industry. The sharp decline in 1997-98 and only modest recovery, before the 9-11 incident, has shown how fragile and vulnerable this industry is. In the four months of 2001, tourist traffic was down 1.4% from the same period in 2000.

Today, the garment manufacturing has grown to become CNMIís largest income and tax revenue source. In terms of direct employment, the garment industry surpassed tourism in 1977. New global trade rules, along with pressure from the US to increase the minimum wage of garment workers, may soon alter CNMIís competitive advantage. If the garment industry were to leave suddenly, the economic and financial consequences for the CNMI will be disastrous because there is no immediate use for the infrastructure by other industries.

Another major uncertainty facing businesses in the CNMI is the proposed raising of the minimum wage from its current rate of $3.05 per hour to the federal minimum wage level of $5.15 per hour. The proposed $2.10 increase would severely increase most businessí operating costs, especially those employing low-skilled workers who provide the bulk of services in the labor-intensive tourism industry. The minimum wage hike would probably also drive the garment industry out of the CNMI, as manufacturers relocate to lower labor-cost areas. While this legislative proposal has not passed yet, its supporters continue to lobby for its passage.

Many people in the CNMI believe it is only a matter of time before the garment industry will leave and have sought to bolster and expand the tourism base into other foreign markets. There is a movement within both the public and private sectors to further develop this industry.

With all of these uncertainties, CNMI leaders have begun in earnest to find other industries to help diversify the economy. A wide variety of new industries are being analyzed, some of which include telecommunications and data processing, retirement villages, pharmaceuticals, insurance, and scientific research.

Most agree that the diversification process requires a long-term investment before results are realized. With the possible departure of the garment industry in the next five years and no immediate recovery foreseen of the tourism industry, time is running out and a viable alternate economic strategy must be developed and implemented soon.