Republic of the Marshall Islands

Economic Environment

The Republic of the Marshall Islands lies between 4° and 19° North latitude and 160° and 175° East longitude. Although the total land area accounts for only 70 square miles, the Republic is scattered over 500,000 square miles of the central Pacific. Twenty-nine atolls and five major islands form two parallel chains called the Ratak (Sunrise) and the Ralik (Sunset) Chains. According to the 1999 Census, the population of the Republic of the Marshall Islands was 50,840 people. This is an increase of 7,460 people or 17 percent from 1988's population of 43,360 people. Although the population of the Marshall Islands has doubled in the last 26 years, the average annual growth rate between 1988 and 1999 was 1.5 percent. This indicates a decreased, yet still high, growth rate compared to the average annual growth rate between 1980-1988, which was 4.2 percent – one of the highest population growth rates in the world. The high birth rates and low death rates of the Marshall Islands result in over half the population (54.8%) being either under 15 or over 65 years of age (1999). However, the population in 1999 was about the same as that in 1992, which suggests that people have been emigrating from the islands just as fast as babies are being born.

Of the 34 atolls and islands, which compose the Marshall Islands, 25 are inhabited. Majuro Atoll is the governmental and commercial center of the Marshall Islands. The majority, or 46.6 percent of the population (23,676), resides in Majuro. This is a 17.9 percent decrease, however, from 1988. Approximately 21.4 percent of the population or 10,902 people live in Kwajalein Atoll (primarily on Ebeye Island), the largest atoll and site of a U.S. intercontinental ballistic missile test range. The remaining 32 percent of the population live on the other atolls and islands.

In January 2000, Kessai H. Note was elected president of the Republic of the Marshall Islands, the first commoner to ever hold the office. Note had been Speaker of the Nitijela (the Republic's parliament) under the previous administration of Imata Kabua, a powerful traditional leader from Kwajalein Atoll.

The Marshall Islands’ economy, like that of the other American Affiliated Pacific Islands, is largely funded, in one way or another, by U.S. Compact funds. This reliance on U.S. funds has made the government the single largest employer in the Marshall Islands, employing approximately 30 percent of the workforce in 2000. Although the United States and the Marshall Islands are currently in Compact renegotiation talks, until the U.S. settles all nuclear testing claims and until it is ready to give up military bases in the Pacific, it can be assumed that the Marshall Islands' economy will continue to rely on U.S. aid into the near future.

The Marshall Islands has a dual economy. The modern service-oriented economy, which offers cash income, is primarily located in the urban centers of Majuro and Ebeye. This modern sector consists of wholesale and retail trade, restaurants, banking and insurance, construction, repair, professional services, and copra processing. Copra production has been the largest commercial activity for over 100 years, peaking at 7,201 tons in 1995, but dropping to 3,355 tons in 1999, and now dependent on government subsidies. A tuna loining plant also provides employment for about 350 workers, mostly women. In addition, the tourist industry is a small source of foreign exchange, employs about 10 percent of the workforce, and remains the best hope for future added income. Although the production of copra and handicrafts provides some cash income on the outer islands, the mainstay there is a subsistence economy consisting of fishing and agricultural cultivation of breadfruit, banana, taro, and pandanus.

The government's top development priorities are currently marine resources, tourism development, and agriculture. With some of the world's richest fishing grounds surrounding the Marshall Islands, the RMI government sells fishing rights to other nations as a source of income. Fishing vessels from the United States, Japan, China, Taiwan, Korea, Vanuatu, Kiribati, and the Federated States of Micronesia presently operate in Marshall Islands' waters. In order to provide these and their own vessels with skilled laborers, the Marshall Islands Marine Resources Authority operates a National Fisheries and Nautical Training Center, where students learn skills that prepare them to work on commercial fishing vessels. A breakthrough in foreign direct investment for the fisheries industry came in 1999 when a fish loining plant was built in Majuro. A private company operates the plant, which processes fish for shipment to the Starkist cannery in American Samoa. Future developments in the marine resources industry include an agreement by PM&O Processing Co., LLC to build a tuna loining plant on Majuro and the construction of a service center for fishing vessels.

As for tourism, as one of only four coral atoll nations in the world, the Marshall Islands offer a unique environment and landscape, consisting of saltwater lagoons, white sand beaches, and small low-lying islands. Activities such as swimming, snorkeling, fishing, bird watching, diving, and WWII artifact exploration abound. The best swimming spots are at Ailinglaplap Atoll, Mili Island, and Laura Beach in Majuro. Aur and Ailinglaplap Atolls are great snorkeling spots, where a variety of tropical fish, corals, sea turtles, and sharks can be seen. The waters off Arno Atoll are known for excellent deep-sea fishing and catches of marlin, yellowfin tuna, mahi mahi, and sailfish. Birdwatchers should visit Bikar and Taonhi Atolls, both of which have the potential to become national preservation areas.

Some of the most pristine diving conditions are in Mili Atoll's waters, although perhaps the most unique diving is found on Bikini and Jaluit Atolls, where dozens of WWII ship and plane wrecks rest in the lagoons. Exploration of WWII relics on land can be seen on Wotje, Mili, and Maloelap Atolls. Recognizing tourism's potential, the RMI government established the Marshall Islands Visitors Authority in 1997, which is in charge of tourism development, marketing, and promotion. In addition, the government is attempting to improve the tourism investment environment by introducing legislation to streamline and simplify foreign investment licensing and land lease procedures.

The government continues to support agriculture mainly in an effort to create import substitution, as the majority of food crops produced by households are for their own consumption. In 1999, the estimated value of subsistence food crop production was $1.4 million. In an effort to increase local food production, the Marshall Islands Development Authority (MIDA) established a chip factory, which was to produce chips from breadfruit, taro, and bananas. MIDA is now looking for a private investor to operate the factory, which is currently idle. The government also continues to support the islands' only significant cash crop, copra, which is processed in Majuro into such products as coconut oil, copra cake, refined oil, bath soap, and laundry soap. The majority of these products, approximately 98 percent, are sold overseas. Tobolar Copra Processing Plant Inc. is currently looking into product diversification and hopes to upgrade its mill and increase production capacity in the near future.

Total Gross Domestic Product (GDP) in 2000 was $95.9 million, down 1.5 percent from 1999 and down 8.9 percent from the 1995 peak, while per capita GDP in 2000 was $1,821, down 4.9 percent from $1,914 in 1999 and down 18.0 percent from 1995's high of $2,221. Although the early 1990s saw GDP rise every year due to increased fishing activity and Compact-funded expenditures, between 1996 and 2000 GDP fell back as the tuna industry contracted, and fiscal problems forced a sharp contraction of government expenditures. Government services continues to account for approximately 33 percent of GDP, or the largest portion of the GDP pie. Finance, insurance, and real estate accounts for the next largest portion at about 15.9 percent. Trade comes in third at 14.7 percent, followed by construction (10.1 percent), hotel and restaurants (4.6 percent), transportation and communication (3.4 percent), utilities (1.6 percent), and manufacturing (1.5 percent).