Private sector development is critical to the future economic health of the Marshall Islands.

The World Bank the Asian Development Bank and the U.S. government all agree: the Marshall Islands must reduce its dependence on outside assistance and private sector investment and development is the only sustainable way.

Encouraging private investment is the focus of the U.S. Department of the Interior’s 2006 Conference on Business Opportunities scheduled for Nov. 13 and 14 in Hawaii. The Marshall Islands is one of the seven U.S. affiliated insular areas targeted by the conference.

As a freely associated state the Marshall Islands enjoys duty-free access to the U.S. market and relative to many other island nations good transportation links to the U.S. Asia and other markets. As a result of spending money garnered from the Compact of Free Association agreement with the U.S. through the last 20 years the Marshall Islands also has better infrastructure than many comparable areas. Other advantages to private development include a relatively open trade regime and the islands’ natural beauty and resources.

Yet there are several obstacles to private sector development. The Marshall Islands have significant geographical restraints: a remote location especially compared to most of the other insular areas; limited land area; poor soil; and widely dispersed islands. Over fishing remains a threat to the fishing industry and the high costs of fuel and other supplies hampers private enterprise.

Political challenges also remain. After years of receiving monies under the Compact agreement and other grant monies the Marshall Islands’ economy is heavily dependent on outside assistance. As much as 70% of the gross domestic product comes from public expenditures and 50% of government funding comes from external grants. Public sector wages are high relative to the private sector creating a talent drain on the available labor force. Public enterprises in areas such as fishing and outer island shipping have lost money and competed directly with private enterprise. Diversification is an issue since most private sector employment supports the public sector.

President Kessai Note who attended the 2004 Business Opportunities Conference in Los Angeles said that his government has set private sector development as one of its areas of priority and has increased the level of contracts to the private sector since the Compact of Free Association renewal in 2003. “We have allocated millions of dollars for construction and renovation to the private business we have improved the airport runway on Majuro to attract other airlines for the tourism industry and the government is taking steps to privatize some of its operations ” Note said. He told the Journal of other improvements the government plans to make including reforming tax laws and providing solar energy to the outer islands.

David B. Cohen deputy assistant secretary of insular affairs at the Department of the Interior sees particular potential for the Marshall Islands in the military aquaculture and communications industries. “The presence of the military base in Kwajalein Atoll is an important source of economic opportunity ” Cohen said. As an example he pointed to the satellite launching facility established on the atoll by SpaceX a company founded by PayPal founder Elon Musk. In aquaculture the farmed aquarium giant clam business is showing considerable promise. “This year they expect to ship about one-third of the total world demand ” Cohen said.

The Department of Interior is directly involved in several projects to facilitate private investment in the Marshall Islands including connecting the islands into the global fiber optic network. The department has continued its Island Fellows program which researches business opportunities in the insular areas and is working with both federal government to find solutions to the area’s recent loss of U.S. mail privileges.

Robert H. Jones president and chief executive officer of Triple J Enterprises Inc. a company with several businesses in the Marshall Islands still sees a lot of room for improvement both in local and federal governments. He said the federal government needs to do a better job of tracking grant monies to ensure the money is wisely spent an issue that the new Compact has attempted to address by directing more funds to sector-specific grants rather than to general funding. Jones also said communications and air transportation are other areas of concern.

“Shipping has improved ” he said adding “I do feel that the current Department of Interior has tried harder to coordinate economic growth in Micronesia than any past leaders in decades.”

A major issue impacting private development in all of the insular areas except Guam is land ownership   Ronald H. Leach who until Aug. 31 was executive vice president of Bank of Hawaii and manager of the bank’s Pacific islands division said. “To be taken seriously as an investment domicile these islands states and nations must give consideration to improving their land tenure issues. Meaningful long-term investment will not take place in locations where land issues are uncertain and ever-changing.”

The Marshall Islands established a land registration office in efforts to address this issue but the culturally sensitive subject continues to be a challenge. It is one of the private sector constraints that the government continues to address said Note.

Jones and Leach all see the department’s Conference on Business opportunities as a critical venue for promoting private investment in the islands. “The conference in L.A. was an outstanding forum that opened up the door for dialogue for government and business leaders from different countries and businesses ” said Note.

Jones said the opportunity for island business leaders to network is important. According to Leach the Bank of Hawaii was a sponsor of the first two conferences because of the event’s considerable potential for promoting investment. “This conference allows those new to the Pacific to learn about potential investment opportunities for the first time ” he said. “For those individuals or companies who are already in the Pacific the conference provides an opportunity to interact with both potential new investors and to see opportunities in the Pacific through fresh eyes.” MBJ