Friday, December 04, 2009

Economic excitement fizzles

Economic excitement fizzles

Friday, 04 December 2009 04:18
by Therese Hart | Variety News Staff

DEIS says there’s not much to expect from military buildup

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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