Encourage foreign investment through incentives By Peter R. Sgro Jr.
Policy makers in countries like the Philippines and Vietnam are enacting additional laws to provide numerous incentives to invest in their countries. A recent economic forecast conducted by economists of HSBC includes the economies of all countries in the world. The economic forecast of the Philippines places the country as one of the fastest growing economies in the world. The same forecast states that the Philippines will eventually be ranked Number 17 of all countries in terms of economic growth.
In the same report, the Philippines, Vietnam, Malaysia and Peru are only a few countries that will outpace the economic growth of the United States, Japan, Canada, France and Germany. The primary reason for these results is that policy makers in these countries enacted laws and continue to create policies that attract private investment, allow private financing to develop billion-dollar infrastructure projects usually funded by governments, provide an overall friendly environment in which to do business and provide daily support to investors that demonstrate even an interest to invest in their economies.
We only need to look at the Federated States of Micronesia as another example. The FSM government enacted laws that made the FSM a captive jurisdiction in 2007 and it now has 12 captives. Every month representatives of the FSM fly to Japan in an effort to attract additional captive investors. Guam’s captive insurance laws have existed since 1998, and we have only three captives.
We can no longer rely on Guam’s strategic location as an incentive for foreign investment. It’s all about investors achieving desired levels of return on their investments. Governments of countries in our backyard not only encourage private investment, but negotiate terms that provide a reasonable rate of return to private investors. This simultaneously eliminates governments from borrowing money for infrastructure projects.
There are laws that have existed for years that make it difficult to attract investors into Guam. Some of these laws also make it difficult for all businesses on Guam to realize growth. Policy makers that support the recently introduced bill to raise the minimum wage never inform the public that someone has to pay for this increase in costs. Unfortunately, this increased cost will be paid by every single resident of Guam. It will likewise force businesses in a position to either increase prices, lay off employees and/or close their businesses. Policy makers should make every effort to create laws that support the growth of all businesses on Guam and repeal those that discourage investment.
The following are only a few existing laws, policies and mandates in bill form that discourage investment and increase the cost of doing business:
Leases of almost all government property are limited to five years with any extensions requiring the approval of the legislature. This makes it impossible for any private investor to use private funds — for instance, to finance improvements to the port, develop a governmentcentral office complex, lease an existing government-owned building and invest to make significant improvements to the building.
There is a lack of laws that provide for build-own-operate and buildown- transfer structures that provides private financing for infrastructure improvements, rather than the government continuing to finance improvements by the sale of bonds. Current laws only allow a very limited piecemeal approach under these structures. One of the primary reasons for the economic growth of those countries mentioned above are public-private partnership laws that not only provide for 100% private financing, but for the private investor and government to share in fees generated by the privately financed infrastructure developments.
The enactment of laws that require an Economic Impact Statement to be prepared, prior to transmission to the legislature, have not been done in many cases. The entire intent of this requirement is to first provide the community with an assessment on what the cost will be relative to the proposed act. The Guam Tropical Energy Code is just one example that will mandate more expensive windows, doors, appliances and other mandates that would increase the cost of development. The sizes of affordable homes would have to be reduced to offset the additional cost.
The process of applying for a Qualifying Certificate takes more than one year and, in some cases, close to a year and a half despite the law creating the program established in 1965. It is the only program always touted at every single trade mission over the past 25 years.
All communities face hurdles in doing business, some more than others. The benefit of doing business on Guam is its relatively smaller size. This provides the opportunity to network with other businesses, partner with other businesses, participate in forums that provide for the exchange of ideas and have a greater degree of access to others in both the public and private sectors.
There also remains many goods and services not available on Guam or insufficient to meet demand. The new hospital is only one example of a development that will provide hospital beds and needed services to fill a void in our health care system. The need for assisted living facilities, adequate clinical and hospital facilities to meet the demand for veteran care, additional entertainment facilities, developing a cloud-based IT system for the entire government of Guam and greater access to produce are only a few other examples. When you consider that Guam imports approximately 60,000 pounds of produce weekly every year, there is no reason for an agricultural industry to fail.
I support the military buildup but also believe we cannot lose sight of the continued need to encourage the growth and stability of our tourism industry. We need to actively diversify our tourism industry to mitigate the risk of a slump in the event the Japanese market is affected by natural disasters or economic issues. Additional Guam visa waiver programs should be pursued, provided the countries involved meet or are making efforts to comply with requirements of U.S. immigration and the discretionary positions by the likes of Homeland Security. I also believe it is important to provide even greater stability to our tourism industry by encouraging local investors, investors from Taiwan and investors from Russia to develop additional hotels on Guam.
— Peter R. Sgro Jr. is president and chairman of International Group Inc. and International Realty Group.