by Francis X. Hezel S.J.
September 08, 1993 Economics Government
Fr. Fran Hezel, Director of the Micronesian Seminar, introduced the subject by situating it in the context of the development needs of the FSM. We are now in Year 7 of the 15-year Compact period for FSM. Compact Funding for the FSM Government's operational expenses has already dropped from $36 million a year (in 1982 dollars) to some $30 million, and in three more years operational funds are scheduled to drop once again–to $24 million (again in 1982 dollars). Hence, FSM will be losing one-third of its initial funding from the US under the terms of the Compact.
This arrangement, which is known as "front-end loading," was designed to foster initiative on the part of the government to set up industry as quickly as possible. The industry, financed in part by the capital funds that were allocated in the Compact, was intended to provide the base from which FSM could increase its internal revenues. In theory, at least, these revenues were to replace the cuts in US operational funds so that the government could maintain the present level of services to its people.
The hope of FSM and its neighboring island nations seems to lie in either tourism or the fishing industry, unless the nation were to discover oil or other valuable mineral resources. Tourism has become the backbone of the economy of Guam and the Northern Marianas, but in FSM it is still an unrealized dream. Visitor entries into Pohnpei and other states, although they have increased slightly over the years, are still well below what is required to turn the economy around. The main hope at present, therefore, lies in the fishing industry. FSM is blessed with rich ocean resources that are a potential source of substantial income. How is the FSM doing in capitalizing on these ocean resources?
As an alternative to fishing its own waters, FSM has been collecting fees from other governments in return for allowing them to fish within the FSM economic zone. This was a consequence of the new Law of the Sea, ratified by most world governments ten years ago, that defines a 200-mile exclusive economic zone around the archipelago. Since FSM began selling fishing rights to other nations in 1982, it has collected almost $80 million in fishing fees. It currently has agreements with Taiwan, Korea and Japan that have netted FSM nearly $18 million in the current year, and this figure will almost certainly exceed $20 million by the end of
the year. The US is not yet paying fees since its multi-lateral treaty is not yet ratified. There have been disagreements in the past over whether the US should be obliged to pay for the catch of migratory species. When the treaty is finally ratified, as it should be soon, the US will be added to the list of nations paying FSM for the privilege of fishing in its waters.
The rapid increase in fishing fees can be seen in the following year-by-year table.
The fees are calculated on the basis of estimates of the amounts of fish caught by ships registered under these different nations. The large jump in fees paid to the FSM reflects the increase in catch by foreign fleets, but it is also partially due to the growing strength of the Japanese yen against the American dollar. An estimated $15 million of the $20 million that is expected in fishing fees this year will be paid by Japan, with the rest coming from Korea and Taiwan.
The impact of fishing fees on the FSM's economy is considerable at present. Fishing fees, which go directly to the FSM National Government, account for over half of the government internal revenue. There are other sources of income related to foreign fishing besides: shoreside spending and ship servicing (which brought in an estimated $1.4 million to Yap alone this past year) and fines for violations (which are split equally between the states and FSM).
With such a lucrative source of wealth in its surrounding waters, why doesn't FSM exploit this itself rather than simply sell its fishing rights to other nations? There are some reasons against what would seem to be an obvious direction for FSM to take. The initial investments required to set up a local fishing industry are substantial. Modern fishing boats are not cheap, and refrigeration facilities and other things are also needed. The fluctuating price of tuna is also a problem, especially when it drops the way it has this past year or two.
Nonetheless, FSM has made moves toward setting up its own fishing industry. A few years ago it established the National Fisheries Corporation (NFC), a government-sponsored agency that can go into partnership in joint venture fishing operations-something that the FSM Government itself cannot do. NFC was founded to be the business arm of the government. At the present time NFC is involved in joint ventures in each of the states.
A survey of the fishing operations in the states shows both the promise and problems of establishing a fishing industry.
Pohnpei has two fishing companies: Caroline Fishing Corporation (CFC) and Pohnpei Fishing Corporation (PFC). PFC is actually a fish processing plant rather than a fishing operation itself. Acquired ten years ago by Pohnpei State for some $11 million, the plant is considered something of a "white elephant" since it was designed to process reef fish rather than tuna. For this reason it cannot operate at maximum efficiency. Even if it could, however, its success would depend on obtaining sufficient fish, for it has no boats of its own. At the present time PFC, buying from local fishermen, exports three tons of processed fish a week. The fish goes to Japan for ten dollars a pound, while rejected fish is sold locally at less than a dollar a pound.
Caroline Fishing Corporation, meanwhile, is equipped with three purse-seiners that bring in an average of 700 tons a year. This company, of which NFC is a co-owner, appears to be hampered with cash flow problems and is barely getting by. Most of the fishermen on these vessels are foreigners, some of them from Yugoslavia. For some reason or other, CFC does not regularly sell fish to the PFC processing plant, although it is trying to work out a contract to do so. Meanwhile, the PFC plant is busy arranging for a Chinese company to come to Pohnpei to fish on condition that it sell its catch at half price to PFC. Why bring in a foreign company to do what a Micronesian-owned fishing company should be able to do? Because Chinese salaries and overhead are lower than Micronesian and PFC stands to make a bigger profit from the deal.
Other states have their own fishing companies, with the National Fisheries Corporation a co-owner of at least one fishing company in each state. The Yap Fisheries Corporation, founded by NFC and Yap State, owns four purse-seiners. The ships are old, however, and maintenance costs are steep. The drop in the price of tuna over the past year has hurt the company, but it seems to be getting by. Aside from about ten Micronesians, the fishermen are Americans.
A second fishing company in Yap is Yap Fresh Tuna, Inc. (YFTI). This company, like so many other new fishing operations in FSM, is trying to take advantage of good prices for high-grade tuna to satisfy the Japanese craving for sashimi. YFTI is now putting up a cold storage facility and transships to Japan tuna that it buys elsewhere.
Chuuk has its own fishing company that also exports tuna to Japan. The company, called Chuuk Fresh Tuna, Inc. (CFTI) and partially owned by NFC, has about twenty long-liners supplying the fish it exports. Some of the boats are Chuukese-owned, but most are foreign. Kosrae's new fishing operation, Kosrae Sea Venture, is just getting started and is not yet producing fish.
Today there are between 400 and 500 foreign commercial vessels fishing in FSM waters. The income from the fees that these foreign vessels pay, an estimated $20 million in 1993, constitutes a substantial part of the FSM income. Expenses are minimal and there is little uncertainty about this source of income from year to year. The $20 million can be considered profit. .
Does foreign fishing at this level pose any real dangers to FSM? Marine scientists assure FSM leaders that fishing at the present level will not exhaust the present fish resources. In fact, they say that fishing could be increased with no real harm to the major species. There is always the risk of environmental hazards, of course, such as polluted waters in ports frequented by fishing vessels. This has already happened in Yap and threatens other places in the future.
The main issue seems to be this: Why should foreign companies be profiting from resources that they take from Micronesian waters? Why shouldn't Micronesians be fishing their own waters and making even larger profits from their own resources? These questions are especially urgent in view of the fast approaching end of the Compact period. FSM needs productive industry, and what better industry than fishing?
There are risks involved, to be sure. Management of business ventures in the islands has often been less than ideal. Micronesian fishermen do not like the long periods at sea that are required of commercial operations. Over a fifteen-year period of operation in Palau, Van Camp was never able to hire more than a handful of Palauans to work on the fishing boats; they had to be staffed by Okinawans to the very end.
Even so, there was strong feeling among the participants at the discussion that FSM should have its own fishing industry. In soliciting fees from foreign nations for fishing rights in its waters, FSM is buying time for the creation of a locally-owned industry.
A fishing industry will require a good infrastructure, foreign investment, and trained local manpower, among other things. Yet, these are all within the realm of possibility for FSM. Other nations have already shown an interest in investment opportunities in FSM. The docks and refrigeration, along with other needed infrastructure, can be provided with the help of gifts from wealthier foreign countries like Japan. The Micronesian Maritime Academy in Yap is even now providing training for the young men who could in time become the officers on FSM's own commercial fishing fleet.
Yet, there are some important steps still to be taken if FSM is to develop a successful fishing industry, some participants felt.