By Frank Whitman
Guam enters the new year with its two longtime economic sectors – the military and tourism – firmly in place. The latter is looking to get back to its level of five years ago and the former is generating the type of opportunities, and challenges, that come with high levels of economic activity.
Guam’s business leaders and the Office of Guam Del. James Moylan shared their views of what will happen in Guam’s economy during the coming year.
“By far, the most promising areas in Guam’s economy is anything related to the military buildup,” said David John, CEO of ASC Trust, “This includes job creation, investment dollars and excess tax revenues.”
He cautioned, however, that tax dollars should be invested in infrastructure upgrades and other capital expenditures.
Similarly, Philip Flores, president and CEO of BankPacific, said he sees the commitment to continuing funding from the federal government as most promising “by far.”
Patrick Bulaon, vice president and general manager of Matson Navigation, noted the increase in construction on the island, “The greatest opportunity for our island economy for years to come is in the construction industry,” Bulaon said. “We expect cargo demand related to construction to continue at elevated levels through the rest of this decade.”
The largest component of construction in the region is the multibillion-dollar military buildup. This includes the ongoing construction of Marine Corps Base Camp Blaz as well as new construction, hardening infrastructure and upgrading facilities at Andersen Air Force Base, Naval Base Guam, and facilities for Army units and the Missile Defense Agency.
The 2024 National Defense Authorization Act, which authorizes $841.4 billion in funding for the Defense Department, unleashes a wave of opportunities for Guam, where the U.S. Congress authorizes an unprecedented amount of $3.2 billion for military projects.
Bobby Shringi, Guam Del. James Moylan's chief of staff, underscored the significance of the $3.2 billion in authorizations for various military projects, emphasizing the potential for a substantial economic resurgence for the local community.
"While these projects are military-centric inside the installations, a lot of these projects will require tons of new jobs,” Shringi said at a press conference last month. “There's going to be a great economic resurgence over the next few years because these projects are not going to be completed without the efforts of the local community."
He outlined the diverse range of jobs, from bookkeepers and accountants to consultants and legal professionals, that will be required, offering a boost to local businesses and services.
The key components of the NDAA include over $166 billion for communication upgrades at Joint Region Marianas, $2.2 billion for new and continued military construction projects within military installations such as Camp Blaz, Andersen Air Force Base and the Naval Base. Additionally, there is $27 million allocated for an Air Force Reserves portal facility and $6.9 million to complete the National Guard's readiness center.
A significant highlight is the increased funding for the Guam missile defense program, now totaling $545 million.
A noteworthy allocation of $290 million for military housing construction inside the fence aims to address the housing shortage and reduce dependency on local inventory. “This correlates to rising housing costs,” Shringi said. “If we can reduce the dependency, we’re now moving in a direction where we can start seeing costs sort of stabilized to a certain degree.”
Shringi acknowledged the housing challenge, especially with the influx of H-2B workers and military personnel, emphasizing the need to find solutions to alleviate the squeeze on available housing. He highlighted the potential increase in tax revenues from H-2B workers, contributing to the island's economic growth.
Sam Shinohara, United Airlines' managing director of airport operations for Asia/Pacific, agreed and noted the effect of the growing military presence on the island’s air travel industry.
“Beyond required travel, military personnel and their families will look to experience destinations across this part of the world,” he said. “The entire military population on the island, both civilian and uniformed personnel, is a big component of United’s travel base, and we anticipate this market to continue to grow as the military’s presence expands.”
United has more than 1,000 employees in the region and serves Guam, the Northern Mariana Islands, Palau, the Federated States of Micronesia and the Marshall Islands with its broader U.S. and global network.
Growth associated with the buildup, however, affects the local real estate market negatively in the form of limited inventory, skyrocketing construction costs, shortage of labor and a scarcity of affordable housing, according to Siska Hutapea, founder and president of Cornerstone Valuation Guam Inc. The economic benefits of the buildup mostly circulate among the “select few,” she said. “Real economic activity outside the fence will only be spurred with the return of tourism.”
John also expressed concern about the housing shortage, particularly in the face of a coming population increase. “This is going to get much worse if we don't do something to bring down the cost of construction and build more housing,” he said. “Thousands of families will be coming in the near future for jobs on the new base. If we don't get the supply side of the equation in line with future demand, we risk locals being priced out of the market.”
Hutapea said interest rates are expected to drop in 2024, but it won’t be anywhere near the recent lows and buyers’ affordability will still be limited.
Bulaon noted an ongoing labor shortage, which is the “biggest challenge for the Guam economy,” he said. “Many businesses have vacant positions but there aren’t enough qualified people stepping up to fill them. There’s a competition for resources from outside of Guam and within Guam among employers in the federal, local government and private sectors.”
Older workers are retiring and younger workers are lured off island by better-paying jobs and a higher standard of living, he said.
Rampant crime is also a significant challenge, Flores said. “Each day most of the media stories are about robbery, family violence, criminal sexual conduct, often against minors, and of course drugs, drugs, drugs,” he said. Flores also blamed “social welfare handouts” for the worker shortage. “Helping those in need is praiseworthy, he said. “Making them dependent on welfare and crime is not.”
Flores said “fewer by far” business licenses are being issued as compared to previous years.
All echoed the importance of a revitalized tourism industry. Tourist arrivals are currently about half of what they were in 2019. Most of the drop is due to the weakness of the yen following the global pandemic crisis. “Our market share in both Korea and Japan is down,” Shinohara said. “So we need to work hard to recapture our fair share and develop new points of interest.”
In the past, airlines have focused on travelers heading into Guam, without much focus on outbound travel, he said. “This paradigm is shifting and will help to create even more travel opportunities in and out of Guam.”
The airline continues to invest in efforts to restart the Japanese business in all markets “because we believe in the market,” Shinohara said. “We have a dedicated sales team in Japan that focuses on Guam and Micronesia travel and regularly hosts and supports media familiarization tours to create exposure for Guam in Japan. In 2024, we are exploring new initiatives that may open new niche markets for the island.”
In an interview with the Pacific Island Times in November, Carl Gutierrez, president of the Guam Visitors Bureau said the industry is setting a goal to bring 1 million tourists in fiscal 2024. However, the Japan market needs low-cost carriers to accelerate its recovery, he said.
“It’s expensive to fly legacy carriers and I’m not blaming them. They are the only ones flying right now,” Gutierrez said. “There are other competitions where they go to. Sometimes it’s cheaper to go to Hawaii than to go to Guam. That’s why we need low-cost carriers. That’s how we're able to develop the Korean market," he added.
With regard to Taiwanese tourists, Gutierrez said recovering this market has been quite problematic. “United is the best hope right now that they will reinstitute that market that they had,” he said.
Before the Covid-19 pandemic, China Airlines was flying to Guam four times a week. “They hit a 79.8 percent capacity, then they pulled out. We are trying to get them back,” Gutierrez said.
The Taiwan-based airline is expected to get new aircraft by January or March. “They ordered Airbus 321 neos and it’s been delayed,” Gutierrez said.
GVB sought Tiger Airlines as well. “They have five new aircraft but they don’t have pilots,” Gutierrez said. “We’re talking to Philippine Airlines to ask if they have pilots that they can contract.”
Flores said that while he considers the return of tourism in the region challenging, he was recently encouraged when he saw a delegation of Guam Visitors Bureau officials heading to Taiwan to meet with tourism officials there. “It’s wonderful to see the temporary turmoil at GVB has passed,” he said.
All agreed on the need to invest in Guam tourism as a vital economic driver “by enhancing the destination, providing more transportation options for our visitors and creating more for travelers to experience while on the island,” Shinohara said. “Additionally, there is a need to revive our optional tour business and make significant investments in the infrastructure that supports it.”
John said the current rebound in Guam tourism is promising. But it will not reach “2019 tourism arrivals any time soon,” he said. “Our product slipped during Covid and we need a reset, to possibly include a new round of (hotel occupancy) tax-driven projects to rejuvenate our offerings.” (With additional reports from Naina Rao and Mar-Vic Cagurangan.)