Sunday, December 06, 2009

EIS (Economic) Blues

Ever since the EIS came out, the media on Guam has begun to sound more and more like the activists on Guam when it comes to the military buildup.

People like myself, have been long saying that the buildup won't bring the jobs people are imagining or the money people are imagining and will most likely be a far bigger burden to Guam, than a fantastic gift. Now that the EIS is out, and the bubble of dreamy prosperity has been burst, all we are left with is the harsh and horrible realities of the next five to six years. 80,000 more people on island, massive infrastructure changes, massive increases of military hardware and personnel and plenty of dangerous to Guam's natural resources.

A case in point is the article below from The Marianas Variety. For most people, what this articles covers might be new, it might be shocking, the idea that all of this military money will be coming into Guam in the form of contracts, and very few local vendors will have a chance at them.

I'm hoping that as the EIS is combed through, the Variety (and other more ideological media outlets) will publish many more pieces about the economic impacts that Guam will face. And when I say "impacts" I'm' hoping that we've seen the last of the PDN's "glorious future of swimming in military money" articles that they love to put out. Anytime we get a new shocking or less than celebratory revelation about the buildup, the PDN counters with some story about the great jobs that a handful of people on Guam will get. I am hoping (although not holding my breath), that sometime soon the PDN will at least develop some sort of critical understanding of the buildup and masge' or slip away from the Chamber of Commerce consciousness through which it decides its reporting.

As I've said before, the buildup can bring economic health to the island, but it'll primarily go to those who are already wealthy or those who have some spare resources such as houses or land which can be converted easily into some sort of spectulative investment. These people can and will make money, they are already doing very well or are very comfortable and can afford to take some new risks in the economy, or else simply sell everything and leave island. For the rest of us, things do not look good. There will be plenty of jobs out there, but they will be more of the same, low wage, primarily retail jobs. Thousands are going to come to Guam from Asia and the states to compete for the professional jobs, foreign and American corporations will bring in their own people, as they have in the past, and so those jobs will be far and few between.

Prices will rise, as they already are. Asian investors have been circling around Guam like hungry brids of prey, building plenty of housing and condos, but its hard to figure out who those are supposed to be for. They are all high end condos or houses which the majority of people on Guam can't afford. The speculating is already having a nasty effect on the economy and it will most likely get worst. Prices shot up in the first two years after the buildup was announced and then they dropped back down, leaving so many people who were building rental or sale homes or already finished them, stuck with houses that nobody could afford and the dreams of a booming real estate market that only existed in the minds of people at Captain Real Estate.

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Economic excitement fizzles
DEIS says there’s not much to expect from military buildup
by Therese Hart
Marianas Variety
December 4, 2009

MANY local business leaders and government of Guam officials continue to believe the looming military buildup will bring about an economic bonanza for the local economy and government coffers.

However, a careful reading of the recently released draft environmental impact study done by the military as a critical guiding document for the military development planned for Guam makes it clear that is not true.

The military study determined money that will actually enter the local economy will have very little effect as Guam will experience low capture rates.

Capture rate is the term describing the portion of new construction or operational expenditures expected to circulate, or be captured, within the local economy.

Citing a large percentage of foreign workers and their high rate of remittances, limited military spending at off-base enterprises and an increasing trade deficit, the impact report dryly spins technical data detailing how Guam is expected to lose out on the economic boon of the military buildup as it has been hyped thus far.

Easy come, easy go

During the construction phase of the impending buildup, a considerable portion of labor is expected to come from off-island, mostly from the Philippines. Notably, H2 workers tend to spend considerably less of their earned income in the Guam economy, instead remitting large sums off-island to their place of origin, to support families who in turn take that money and circulate it in their economies.

Guam residents working on military-related projects are naturally expected to spend a greater deal at local businesses than foreign workers.

But, the exploding population of Marines and Army personnel, their dependents, workers to support the realignment and other projects, who are housed on-base are likely going to do much of their spending with on-base businesses.

Establishments operating on-base are mostly headquartered off-island and that is where those hefty profits margins will go.

Not made on Guam

Almost all of the goods needed to construct or operate military bases would not be produced on Guam. The island would capture much lesser value than often anticipated from goods shipped from off-island and onto military bases.

Geographic isolation and low-production capacities have contributed to a near-total reliance on valuable imports. In 2008, the assessment of Guam’s imports stood at $225 million, more than twice the export value of $105 million. The island’s trade deficit was $120 million at the end of that year.

Furthermore, Guam exports do not provide a strong trade position for the territory as the most prominent exports in 2008 were vehicles. That accounted for nearly 50 percent of total exports.
But cars are not manufactured and built on Guam representing an export with zero production value for the island.

Not cashing in

The capture rate during the initial period of construction is determined by how much firms will expend for required goods and services and construction workers for their household needs. Neither of these sources is expected to contribute as much to the Guam economy, the impact report states, as it might in other regions.

The Guam Contractors Association anticipates a meager 17.5 percent of total construction expenditures will actually be spent on Guam goods and services, including 5.5 percent on equipment and supplies from Guam companies; 5 percent on Guam-supplied materials (mostly rock products); and 1.5 percent on Guam architectural and engineering services.

Catch up rate

Once the military buildup is complete and encampments and installations are operational, another supposed economic stimulus often touted by local and federal officials begins to look a lot weaker as well.

The amount of money spent locally by military bases to staff and operate the larger military enterprises on Guam determines the capture rate of monies during the operation phase of the buildup.

In general, Guam companies do not capture a large portion of military contracts of the largest, most lucrative contracts to date all going to off-island companies even when credible local options have tried to avail themselves of the opportunities with the realignment.

In 2008, only 42 percent of contracts for military related work on Guam went to Guam companies.

Other issues that complicate the retention of any considerable economic long-lasting benefit to the island include military housing provided by the government rather than through the private sector and local shippers and wholesalers that find it difficult to capture meaningful margins with products sold on-base.

Even then, the majority of the value is never realized when imported goods are sold on-base and profits not reinvested locally.

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