With resumption of tourism remaining uncertain, Guam’s economy will continue to rely on federal dollars to stay afloat
Toward the end of 2019, local businesses were optimistic that 2020 would be a robust year for Guam, with tourism on a steady rise. The optimism began fizzling out when the Covid-19 pandemic crept in, bringing world travel on halt and immobilizing Guam’s main industry.
Several businesses shut down. Guam’s unemployment rate went up from 4.6 percent in June 2019 to 17.3 percent in June 2020.
The Tourism Attraction Fund—filled with 11 percent occupancy tax that hotels collect from their guests — shrank to $18 million as of August 2020, down from $30 million during the same period in 2019. Quarantine use and military businesses were unable to replace or cover the loss of 1.6 million tourists.
Yet, Guam is swimming in cash, thanks to the federal CARES Act that spewed out millions in assistance to states, territories and freely associated states.
The irony of the pandemic economy is that the government of Guam has never been wealthier. As of July 31, GovGuam has received $949 million out of the estimated $1.6 billion from the U.S. Department of Treasure and other grantors. Guam will be secured with the extension of the pandemic relief under the newly signed $1.3 trillion federal spending bill that allocates $900 billion in new Covid aid package.
So what’s in store for Guam in 2021? No one can tell for sure.
In a largely unprecedented situation, it is premature to make any forecast, said Gary Hiles, Guam Department of Labor’s chief economist.
“Predictions about the 2021 economy, and Guam in particular at this time, are difficult to make with any certainty due to the multitude of pandemic, political and economic uncertainties internationally and domestically which can affect Guam,” Hiles said. “Reliable forecasts are usually supported by a continuation of existing trends and identifiable issues and events.”
Certain trends may lead to certain outcomes for Guam, Hiles said. “There are some basis to make predictions about future directions. However, the timing and magnitude of such changes remain highly uncertain and preclude precise quantitative forecasts,” he said.
“Construction activity and employment will continue its moderate upward trend due to the number of civilian and defense construction projects contracted and further supported by a workload backload and National Defense Authorization Act provisions easing restrictions on importation of foreign workers.”
The $740-billion National Defense Authorization Act of 2021 appropriates $662 million in military buildup spending for Guam. As of this writing, the U.S. Senate and House were preparing to override President Trump’s veto of the defense spending bill, which also includes a provision to ease restrictions on H2B recruitment for Guam’s civilian projects.
The military, which is another pillar of Guam’s economy, provided a crutch to the hotel industry at the height of the pandemic. “Despite visitor arrivals plunging with military air arrivals being the majority, hotel occupancy in September 2020 dropped less severely falling to 34.7 percent, an amazing level under the circumstances,” Hiles said. “This occupancy was obtained primarily with military personnel and hotels used as quarantine facilities.”
While hopeful that tourism returns in 2021, Hiles does not expect a full recovery. “Tourism will begin a partial recovery primarily from its major markets of South Korea and Japan but slowly in the early part of 2021. The timing is heavily dependent on Covid-19 infection rates and government policies, not only on Guam but in the source markets as well,” he said.
The availability of vaccinations and testing to screen travelers will be important keys to resuming tourism. “United Airlines has implemented a preflight testing program for San Francisco to Honolulu travel which could be a model for expansion if successful,” Hiles said.
He said if vaccinations proved effective in preventing or minimizing transmission as well as providing protection against the coronavirus, then people would feel more at ease to travel and governments would be more confident to ease travel restrictions and requirements.
Guam Visitors Bureau president Carl Gutierrez predicts 2021 will be a better year for tourism. “We have simultaneously prioritized coronavirus rapid testing and contact tracing while fast-tracking the procurement of vaccines and planning for a successful post-pandemic economy,” said the former governor.
Guam welcomed 1.6 million visitors in 2019. GVB had hoped to start recouping the industry’s losses when the administration scheduled to welcome back visitors on July 2. The reopening was cancelled when the number of Covid positive cases began resurging, prompting a second lockdown.
Gutierrez said the government and private sector stakeholders have since taken great care to reevaluate, test out and retool business operations. “Now safe tour and travel protocols are stronger than ever, breakthrough data-driven technologies are being emplaced,” he said.
Although Guam has rolled out its Covid-19 vaccination program, tourism is not likely to reopen till the first quarter of 2021, Gov. Lou Leon Guerrero said in a press conference on Dec. 16. “In lifting restrictions, we look at science and data collected with our testing and metrics, hospitalization, CAR score, positivity rate and new cases coming up,” the governor said.
Resumption of tourism would also entail rebranding, Gutierrez said. “We have made an ironclad commitment to reshape our destination’s product-offering into a unique and sustainable CHamoru-centric set of appeals in order to begin attracting higher-profile travelers and adventurers who command more expendable income,” he said. “Although we welcome volume, we will concentrate on delivering high-quality traveler experiences as never before.”
Over the decades, Guam’s economy has relied on tourism from Japan and more recently tourism from Korea. Gutierrez hopes Guam can expand to entice more Taiwanese visitors. “I have taken a pointed interest in developing our local visitor industry’s burgeoning Taiwan market. It has grown impressively over the last several years and normally accounts for the third highest number of visitors arriving into Guam annually, behind Japan and South Korea, which alternate between the number one and two positions for most foreign market arrivals,” he said.
GVB has been negotiating a travel bubble with Taiwan. Gutierrez said the governor plans to lead an official delegation to that nation to cement sister city relationships with two municipalities and help wrap up a deal that could see the addition of air routes from the Taiwan-based StarLux passenger-jet line.
“Our economy has nowhere to go but up over the course of the next five years. I predict steady, scalable growth,” Gutierrez said.
In the meantime, displaced employees will have to rely on federal assistance.
“The economic welfare for much of the population of Guam in 2021 will depend on continued federal coronavirus support which substantially, but not entirely and not evenly, offset the losses in business and employment income in 2020,” Hiles said. “Some of the 2021 relief was saved reducing the current stimulus effect but the savings should provide additional resiliency for the future.”
Hiles expects the federal government to provide additional relief as well, and hopes that relief will go toward extending unemployment compensation and subsidies to business and cover some state and local government costs.
“The limits to landlord, both commercial and residential, financial institutions and utility forbearance for their customers may be exceeded or lifted by governments causing credit downgrades, bankruptcies, evictions, foreclosures and utility disconnections for some, possibly many, if sufficient government relief is not provided to survive the pandemic and economic downturn until economic recovery occurs,” he predicts.
“The forbearance provided voluntarily and required by law in 2020 provided critical breathing room to avoid an adverse and unnecessary downward spiral of consequences, for many, while waiting for relief funding. Unemployment will remain high and the market for those seeking employment will be difficult. Persons and families may relocate.”
Despite the uncertainties of 2021, the economist believes that certain things may not drastically change. “The Federal Reserve will continue a very accommodative monetary policy with low interest rates which will help support investment,” he said. “Prices will remain relatively stable with low inflation rates due to a continuation of reduced demand somewhat offset by supply chain and low volume cost pressures.”
Hiles also predicts that online industries will continue to prevail in 2021. “The pandemic necessitated and accelerated the trend to online financial, retail, work and educational activities,” he said. “There is strong pent-up demand for a return of too many pre-pandemic social activities but some of the changes to economic and social activities will become permanent.”
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