IS AMERICAN SAMOA GOING TO FACE "DRASTIC ECONOMIC SETBACKS?"

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By Lewis Wolman

HEADS UP, AMERICAN SAMOA!

"There are strong probabilities that American Samoa could face drastic economic setbacks in this decade," states the newly approved Comprehensive Economic Development Strategy (CEDS) for American Samoa.

The 50-page document lays it out in stark terms. First, what we have now isn’t very good. "American Samoa is making little headway in economic diversification, stability and self-reliance."

Second, it is likely to get worse, possibly much worse. American Samoa is dependent on the tuna fishing industry and money from the federal government, yet the canneries’ future in American Samoa is in doubt, and the federal government has been providing less and less support for American Samoa these past ten years.

The document addresses overall economic conditions in the territory. It is not about the financial condition of the government (although it does state, "Given ASG’s debt difficulties along with these fiscal trends, it is going to be very difficult for the ASG to maintain employment at present levels." It also notes that ASG employs 35% of the local workforce, which is down from 48% in 1980, but still considerably higher than the U.S. average of 15%).

WHAT WE HAVE NOW

What we have now, the report states, is an economy that relies on the fishing industry and money from the federal government, and an economy which provides the average resident with a lower standard of living than the average resident enjoyed twenty years ago.

"Roughly 90% of the American Samoa economy is based directly or indirectly on canned fish exports and federal revenues. The remaining 10% is accounted for by tourism, apparel exports and possible some miscellaneous exports."

The report states that 8,247 workers receive money that flows onto the island from the fishing industry and the federal government, while the other 5,702 workers make their living by offering goods and services that people can afford thanks to the money that flows on-island to pay the 8,247 who are directly paid with money from overseas.

FISHING INDUSTRY

The report states that 60% of the jobs in American Samoa are either cannery jobs, cannery-related jobs, or jobs that only exist because of the income earned by fishing industry workers.

Those jobs, which have substantially increased in number over the past ten years, are at serious risk, the report states. (See more below).

FEDERAL FUNDING

As for federal expenditures, the report states that the boom years are over and the good times will not continue to roll. In the 1960s, 1970s and 1980s, federal expenditures increased year by year.

In the 1980s, such expenditures increased 9% a year, year after year. But in the 1990s, federal expenditures have been increasing by less than 1% a year. After adjusting for inflation, federal expenditures have been falling by 3.6% a year. After adjusting for population growth, per capita federal expenditures have been falling by a much higher percentage.

"There is little likelihood," the CEDS states, "that federal fund will be the force they once were in promoting growth in American Samoa."

While the CEDS states that our local infrastructure and services (e.g., industrial park, water, sewer and power) are "the envy of many areas of the Pacific Basin," that infrastructure is "not up to industrialized nation standards" and ASG’s Capital Improvement Projects (CIP) plan "demonstrates that American Samoa is grossly deficient in adequate infrastructure." ASG will "struggle just to maintain what it has and to remedy existing deficiencies over the years ahead."

The report notes that the CIP plan calls for spending $68 million a year, but Congress is only providing $10.1 million a year for CIP, so each year we are falling further behind on meeting our needs.

STANDARD OF LIVING

The CEDS states that American Samoa residents have not raised their standard of living these past decades, and that we are growing poorer in relation to the United States.

Average personal income increased about 3.8% a year from 1979 to 1994, but after adjusting for inflation, government economists reckon that average personal income actually declined 1% a year during that 15-year period.

"American Samoa’s most serious economic problem is low per capita personal income, estimated to be approximately one-fifth the U.S. average. More alarming is the fact that the income gap between American Samoa and the U.S. appears to be getting larger, not smaller.

In 1979, our per capita income level was 26% that of the U.S. per capita income level. But we did not close that gap, or even keep pace. By 1994, our per capita income was less than 20% the U.S. level. Specifically, our per capita income was $3,270, while in the U.S. the average income per person was $16,555.

The report concludes, "the economic growth that has occurred over the last several decades has not done very much to raise American Samoa’s standard of living. . . The reason for this is that the private sector development that has occurred has been offset by large-scale in-migration. In other words, instead of increasing the average wages of resident workers, most of the new income went to in-migrants."

FUTURE OF THE CANNERIES

The canneries have been able to thrive here due to a combination of factors, including low wages, low taxes, abundant water, and preferential trade terms.

But American Samoa's advantages are "eroding" due to trends in world trade, especially the reductions in tariffs that have given the local canneries the "leg up" they have needed to survive the competition from foreign-produced tuna.

As for the fledgling garment apparel business in American Samoa, it will be over before it reaches its tenth birthday, the report predicts.

Recent international trade agreements will remove the quotas on garment exportation into the U.S. from such countries as China. These quotas, along with American Samoa immigration permits, created the favorable conditions for BCTC and Daewoosa.

Removal of the quotas in 2005 will most likely "render the (garment) industry infeasible in the U.S. territories" because the foreign workers brought here from China and Vietnam will be able to stay at home and do the work there, at much lower cost.

The CEDS report states, "Time is running out on American Samoa’s low wage, labor intensive industries (such as tuna canning and garment factories) primarily because the artificial location advantages upon which they depend (e.g., tariffs and quotas) are disappearing.

"American Samoa industries of the future will have to stand more on their own merit. That means that American Samoa workers and business will have to increase productivity to levels equal to their income goals."

Increasing productivity involves several things, the report states: a better-educated, better-trained workforce; a more efficient class of managers; and capital investment in new technology.

Although there has been a fast growing increase in the percentage of high school graduates the last 20-30 years, the same is not necessarily true of college graduates. The report finds: "It appears that the percentage of those earning college and professional degrees is not rising as rapidly as other educational achievement categories. It is also possible that those with higher educational achievement are not returning to the territory."

This is critical, because "education may be the single most important factor in American Samoa’s future development. The value of artificial advantages (tax incentives, duty free access to the U.S., etc.) is diminishing. American Samoa’s future development will depend on the education, training, skills, and diligence of AS workers and businesspeople, particularly their ability to compete in the world market. Artificial advantages can be taken away. Education cannot be."

DIFFICULT CHALLENGE

Economic development is exceedingly difficult in small remote islands like American Samoa. Some of the problems are caused by the distance to markets and sources of supply, diseconomies of scale, lack of raw materials, and capital and labor force deficiencies.

American Samoa will have to seek to develop industries for which it has genuine, not artificial, advantages. Such industries include local fisheries and fisheries, the economic development planners say.

The report holds out high hopes for the tourism industry, even though it notes that tourism is "an industry that has failed dramatically in American Samoa."

In the 1970’s, 35,000 tourists a year visited American Samoa. Now there are less than 5,000.

There are many reasons given for the decline, but none so important as the deterioration of the government-owned Rainmaker Hotel.

Resolving the Rainmaker Hotel problem "is the single most immediate opportunity for American Samoa to generate new income and reestablish a basic industry that has faltered in recent years." Continued efforts in this regard could yield enormous dividends in revitalizing American Samoa’s visitor industry, which is critical to American Samoa’s future development.

"Sale or improvement of the Rainmaker Hotel is an extremely difficult issue," the report states. Sale of the facility is "something the government no doubt would be delighted to do. However, it is not something the government can just walk away from without some forethought."

The CEDS was approved by the government’s Territorial Planning Commission, chaired by Dr. Meki Solomona. The TPC questions whether American Samoa is really much interested in tourism.

NOW WHAT?

Having established the basic situation and difficulties, the CEDS lays out some goals for the future, as well as some "action plan" elements.

The goals include increasing the incomes of American Samoan residents (not, it states, increases in the incomes of in-migrants). Other goals include diversification of the economy, greater individual opportunities, protection of the environment and protection of the Samoan culture.

The report suggest that American Samoa may want to address the lingering question of whether or how to limit businesses not owned by American Samoans that compete directly with businesses that are owned by American Samoa.

With respect to developing new industries and improving infrastructure, the report lists over a dozen action steps.

The first is creation of a "small business incubator and training facility." The facility would ideally be a large building at the Tafuna Industrial Park. The other priority activities include:

· Pursue tourism development.

· Establish a fish-processing center in the Industrial Park for the local fishing fleet.

· Support new export industries, including those that take advantage of new telecommunication capabilities (e.g., data processing).

· Coordinate education and training with needed skills.

· Expand the industrial park by 12 acres.

· Redevelop the Farmer’s Market, the "cornerstone of the Fagatogo Redevelopment Plan."

· Develop two new surface water treatment plants.

· Upgrade port facilities.

· Establish municipal solid waste incinerators to burn 60-80% of all solid waste generated in American Samoa.

· Build a yacht quay and slipway.

· Rehabilitate the tramway.

· Build a large (12,000 square foot) tourism center in Utulei with a bank, five restaurants, six shops, etc.).

· Conserve water.

· Expand the fisherman’s net yard.

· Build a cultural center.

· Implement energy efficiency program.

The report, which has already been approved by the Territorial Planning Commission and the U.S. Economic Development Administration, was prepared by Department of Commerce staff and an experienced consultant, Malcolm McPhee.

The report notes that new manufacturing facilities currently under consideration include a seafood processing plant, sausage manufacture, slaughterhouse, cardboard manufacture, watch assembly, fish hook factory, rum distillery, and a brewery.

The report has very little, if anything, to say about local agriculture, small-scale and grass-roots development, lack of finance capital, the airport extension, communal land considerations, or the future of the purse seine fleet (a separate issue than the canneries themselves).

These omissions are important because they are some of the main topics of other efforts to address American Samoa's economic development challenges.

The American Samoa Economic Advisory Commission believes local agriculture, the airport extension and a pending Harbor Plan are three of the most important economic development concerns needing immediate attention.

The private sector consistently lists lack of finance capital and limited access to land as primary obstacles to economic growth.

Items from the SAMOA NEWS, American Samoa’s daily newspaper, may not be republished without permission. To contact the publisher, send e-mail to

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