Marshall Islands - Economy

The RMI is classified by the United Nations as a Small Island Developing State. US assistance and lease payments for the use of Kwajalein Atoll as a US military base are the mainstay of this small island country. Agricultural production, primarily subsistence, is concentrated on small farms; the most important commercial crops are coconuts and breadfruit. Industry is limited to handicrafts, tuna processing, and copra. Tourism holds some potential. The islands and atolls have few natural resources, and imports exceed exports.

Fish from the surrounding seas has naturally been the traditional support of life, while the scanty land has yielded three grudging crops - breadfruit, pandanus and swamp tare, in addition to the. ubiquitous coconut. By skillful management of the harsh terrain, its cultivation has sustained existence over the centuries in a system perfectly adapted to the demands of the region.

The breadfruit trees are most carefully tended when young: they are planted (on a rainy day) in a hole at least a foot deep, which is filled with all kinds of compost. Soil is added, sometimes rotted coconut gratings, and the seedling protected by a fence. Breadfruit is prepared in many ways to bring variety; it can be preserved too as an out-of-season food. Pandanus is grown from rooting slips, their leaves bound, tamped into a damp hole in cleared bush and no further attention given to it since it will either perish or bear fruit within a year or two. The cult of the wetland tare depends on the making of pits. These are dug at a level suitable for their plants to take root in ground-water -- whose height varies with the tide - and much care is needed to supply their needs adequately but not to drown the roots. Great pits were excavated in the middle of the larger islands with constant ground-water; cultivation was systematic and intensive, using pots of pandanus leaves, humus stakes, and intensive observation.

The Marshall Islands received roughly $1 billion in aid from the US during 1986-2001 under the original Compact of Free Association (Compact). In 2002 and 2003, the US and the Marshall Islands renegotiated the Compact's financial package for a 20-year period, from 2004 to 2024. Under the amended Compact, the Marshall Islands will receive roughly $1.5 billion in direct US assistance. Under the amended Compact, the US and Marshall Islands are also jointly funding a Trust Fund for the people of the Marshall Islands that will provide an income stream beyond 2024, when direct Compact aid ends.

The government is the largest employer, employing 46% of the salaried work force. GDP is derived mainly from payments made by the United States under the terms of the Compact of Free Association. Direct U.S. aid accounted for 61.3% of the Marshall Islands $137.4 million budget for FY 2010.

The economy combines a small subsistence sector and a modern urban sector. In short, fishing and breadfruit, banana, and pandanus cultivation constitute the subsistence sector. On the outer islands, production of copra and handicrafts provides some cash income. The modern service-oriented economy is located in Majuro and Ebeye. It is sustained by government expenditures and the U.S. Army installation at Kwajalein Atoll. The airfield there also serves as a second hub for international flights.

The modern sector consists of wholesale and retail trade; restaurants; banking and insurance; construction, repair, and professional services; fisheries; and copra processing. Fish products are by far the nations largest exports, with frozen fish being exported on large freezer ships to Asia and fresh caught fish by air to Japan and Hawaii. A tuna loining plant that employs 600 workers--starting at under $2.00 per hour--reopened in early 2008. Copra production, the previous most important single commercial activity for the past 100 years, now depends on government subsidies. The subsidies, more a social policy than an economic strategy, are intended to help reduce migration from outer atolls to densely populated Majuro and Ebeye. Migration from the outer islands is estimated at 8% annually.

Marine resources, including fishing, aquaculture, tourism development, and agriculture, are government development priorities. The Marshall Islands sells fishing rights to other nations as a source of income. Since 1990, the Marshall Islands has offered ship registrations under the Marshall Islands flag. It now registers about 2,000 vessels, the fourth-largest fleet in the world, and receives an income of approximately $4 million annually. As a small nation, the Marshall Islands must import a wide variety of goods, including foodstuffs, consumer goods, machinery, and petroleum products.

With an Exclusive Economic Zone (EEZ) of about 750,000 square miles, the Republic of the Marshall Islands has great potential for the development of its fishing industry. At present, fishing vessels operating in the Marshall Islands EEZ hail from the United States, Japan, China, Taiwan, Korea, Vanuatu, Kiribati and the Federated States of Micronesia. In the case of the US, the RMI is party to the US Multilateral Tuna Treaty, which allows the US fishing vessels access to certain Pacific island EEZ’s. In addition, a Chinese longline fleet has vessels based in Majuro.

The Marshall Islands is a member of a regional arrangement known as the Forum Fisheries Agency (FFA). The FFA Secretariat assists its member countries in managing and conserving its region-wide tuna stock, in cooperation with non-Pacific island countries fishing in the region. The Secretariat of the Pacific Community (formerly known as South Pacific Commission), to which the Marshall Islands is also a member, provides necessary scientific and biological information on the marine species within the EEZ.

The capitol of the Marshall Islands, Majuro Atoll, possesses much of the necessary infrastructure and facilities for fishing vessel activities. Such facilities include: a floating dry dock, a deep-water harbor with container handling facilities, a fish base complex equipped with a bulk ice facility and a satellite chiller plant at the airport for air shipment, a 10 million liter bulk fuel storage bunker facility, regular international shipping services, and an international airport. In addition, Majuro contains many stores, fully-stocked with supplies and goods, mostly imported from the US. Ebeye, RMI’s second largest urban center, is also equipped with fishing facilities such as, a protected harbor and marina and fish base.

The outlook for energy issues in the RMI remained gloomy. By 2010 the status quo was fundamentally unsustainable, and the political will to correct the problem had not been found. The energy problems act as a severe damper on any attempts to promote economic development as they consume resources to little positive effect and add layers of costs to any transaction.

The problems plaguing the Marshalls Energy Company (MEC) were twofold. The first was ineffective or counter productive GRMI policies and the second is MEC implementing unsustainable business models in reaction to those policies. GRMI interference has come in the form of manipulating tariff rates for electrical service, keeping them artificially low and not allowing them to react to fuel price changes quickly and efficiently. This has forced MEC to generate electricity at a substantial loss, especially on Kwajalein, Jaluit and Wotje atolls, where MEC's costs are four times higher than on Majuro but their prices must be the same.