Economic Myths(A Reality Check)

Presented by:

Fr. Fran Hezel & Chris Lightfoot

Economic Myths

1. Population Growth is a Problem

2. Out-migration Causing Brain Drain

3. Fisheries: Hundreds of Millions there for the Taking

4. Tourism: Build it and they Will Come

5. Agriculture: Under-performing

6. FSM must be Domestically Self-Reliant

7. Poverty is Prevalent / Non Existent

Myth #1

Population Growth is a Problem

Myth #1: Population Growth is a Problem

FSM Resident and Non Resident Population

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

194

5

195

0

195

5

196

0

196

5

197

0

197

5

198

0

198

5

199

0

199

5

200

0

Non Resident Population (est)

Resident Population (Census)

Source: Various Population & Housing Census from 1935 to 2000; consultants own calculations

FSM Resident and Non-Resident Population

Myth #1: Population Growth is a Problem

1987 1995 2004

In FSM 12,209 16,003 15,156

Overseas (est) 729 2,063 7,947

-

5,000

10,000

15,000

20,000

25,000

FY87FY88

FY89FY90

FY91FY92

FY93FY94

FY95FY96

FY97FY98

FY99FY00

FY01FY02

FY03

FY04e

Num

be

r E

mp

loye

es

Source: FSM Department of Economic Affairs. Note: e- data are estimates.

In FSM

Overseas

Wage & Salary Employment(all sources)

5.0

5.5

6.0

6.5

7.0

7.5

8.0

8.5

9.0

9.5

FY87FY88

FY89FY90

FY91FY92

FY93FY94

FY95FY96

FY97FY98

FY99FY00

FY01FY02

FY03

FY04e

Person per FSM jobs

Persons per total jobs

Persons per Job

1987 1995 2004

FSM Jobs 7.8 7.2 9.2

Total Jobs 7.4 6.4 6.1

Myth #2

Out Migration is Causing a Brain Drain

Myth #2: Out Migration is Causing Brain Drain

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Pro

po

rtio

n o

f P

op

ula

tio

n

High School Graduates x Place of Residence(2000)

In FSM Overseas

36.0%

53.0%

College Graduates x Place of Residence(2000)

In FSM Overseas0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Pro

po

rtio

n o

f P

op

ula

tio

n

5.0%

2.0%

Myth #3

Fisheries: Hundreds of Millions there for the Taking

Myth #3: Fisheries: Hundreds of Millions there for the Taking

Profit & Loss in FSM Public Owned Fishery Enterprises

Source: Matthew Jacobs, (2002) Micronesian Counsellor, Issue 40.

-$2.2m

-$5.4m

-$8.6m

-$2.7m

-$2.1m

-$6.1m

-$0.02m

-$10.0m

-$9.0m

-$8.0m

-$7.0m

-$6.0m

-$5.0m

-$4.0m

-$3.0m

-$2.0m

-$1.0m

$0.0m

1993 1994 1995 1996 1997 1998 1999

Myth #4

Tourism: Build it and They Will Come

Myth #4: Tourism: Build it and They Will Come

TourismInternational Arrivals

18,15917,083

14,275

15,512

20,038

15,494

18,700 18,49618,004

0

5,000

10,000

15,000

20,000

25,000

1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: FSM Department of Economic Affairs

Myth #5

Agriculture: Under-performing

Myth #5: Agriculture - Underperforming

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

FY87FY88

FY89FY90

FY91FY92

FY93FY94

FY95FY96

FY97FY98

FY99FY00

FY01FY02

FY03

FY04e

Subsistence Share of Economy

Source: FSM Department of Economic Affairs

Myth #5: Agriculture - Underperforming

Commodity 1992 1993 1994 2000 2001 2002 Copra 222 0 390 186 201 211 Banana 278 754 456 72 33 26 Citrus 15 8 9 44 23 28 Kava -- -- -- 152 160 241 Betel Nuts 94 267 252 625 908 888 Black Pepper 32 36 95 -- -- -- Root Crops 11 85 91 30 17 4 Other Fam Commodities 306 530 327 30 25 30 Total Agriculture Exports 958 1,680 1,620 1,139 1,367 1,428

Marine Products Offshore Fish 19,485 25,217 73,573 12,143 12,100 8,796 Reef Fish -- -- -- 75 101 110 Crab/Lobsters 65 75 97 172 178 206 Trochus Shells/Meat 524 3 430 -- -- -- Other Marine Products 39 30 13 42 3 26 Total Marine Exports 20,113 25,325 74,113 12,432 12,382 9,138

Other Products Garments 2,045 2,055 2,161 3,010 4,391 3,591 Handicrafts & Souvenirs 35 85 240 9 11 11 Cooked Food -- -- -- 191 232 251 Other Products N.E.C. 168 24 39 6 17 22 Total Other Exports 2,248 2,164 2,440 3,216 4,651 3,875

TOTAL EXPORTS 23,319 29,169 78,173 16,787 18,400 14,441 _____________________ Source:FSM Trade Bulletin No.9, Department of Economic Affairs, Statistics Unit, November 1998.

Exports ($ ‘000)

Myth #6

FSM must be Domestically Self-Reliant

Myth #6: FSM Must be Domestically Self-Reliant

Imports and Exports

-$160.0m

-$140.0m

-$120.0m

-$100.0m

-$80.0m

-$60.0m

-$40.0m

-$20.0m

$0.0m

$20.0m

$40.0m

1994 2004200320022001200019991998199719961995

Imports

Exports

Myth #6: FSM Must be Domestically Self-Reliant

Current Account Balance

$6.5

$35.4

$18.9

-$5.7 -$5.1

$4.7

$0.7

-$11.9

$16.2

$3.9

-$23.9

-$30.0

-$20.0

-$10.0

$0.0

$10.0

$20.0

$30.0

$40.0

FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04

US

$m

Myth #6: FSM Must be Domestically Self-Reliant

“The Prescription” • Rule of Law Enforced• Stable Government• Functioning Markets• Non-Discriminatory Laws• Transparent & Consistent Governance• Secure, Transferable Property Rights in Land• Harmonised & Straightforward Investment

Procedures

Myth #7

Poverty is Prevalent/Non-Existent

What Does the Future Hold?Likely Outcomes• Remittances become a major source of income• Household production remains important support for

livelihoods• Extent of Government services will be closely linked to

Compact funding • Fishing Licence Fees Significant but Highly Variable

Possible Additional Outcomes• Increased Tourism• Development of Small Niche Industries

Likely Impact on Livelihoods

• No Significant Change in Livelihoods of FSM Residents• Increasing number of families moving overseas to find

work

Where to now?

What Should be Done?• Initiate Strategies to Increase Value of

Remittances• Establish Conducive Environment for Investment• Ensure Compact Trust Fund Achieves Potential

What Should Not be Done?• Pursue investment fantasies using limited Gov’t

funds• Allow the size of Gov’t to grow to unsustainable

levels