With a total population of approximately 55,000 people (12,650 in the labor force) spread out over 1,200 small islands and islets across 750,000 square miles of ocean but just 70 square miles of total land mass, the Republic of the Marshall Islands (RMI) has a tiny economy with an annual GDP of around $179 million, per capita GDP of $3,800 and just a 1.6% real growth rate. The remoteness of the RMI from major markets (2,300 miles from Honolulu, 1,900 miles from Guam, and 2,800 miles from Tokyo) severely impacts the economy. The Marshallese economy combines a small subsistence sector in the outer islands with a modest urban sector in Majuro and Kwajalein. The RMI government is the country’s largest employer, employing approximately 46% of the salaried work force. The U.S. Army Garrison – Kwajalein Atoll (USAG-KA) is the second largest employer. A semi-modern service-oriented economy is located in Majuro and in Ebeye, on Kwajalein Atoll, and is largely sustained by government expenditures and by USAG-KA. Primary commercial industries include: wholesale/retail trade, business services, commercial fisheries, construction, and tourism. Fish, coconuts, breadfruit, bananas, taro, and pandanus cultivation constitute the subsistence sector. However, as the land in RMI is not very nutrient rich, the agricultural base is limited. The RMI has a narrow export base and limited production capacity and is therefore vulnerable to external shocks. Primary export products include: frozen fish (tuna), tropical aquarium fish, ornamental clams and corals, coconut oil and copra cake, and handicrafts. The RMI continues to rely heavily on imports and continues to run trade deficits ($80 million in 2014).
The Marshallese economy remains dependent on donor funding. The RMI is part of the former US-administered Trust Territory of the Pacific Islands that gained independence in 1986 and continues to use the U.S. dollar as its currency. Since independence it has operated under a Compact of Free Association with the United States. Since 2004, the U.S. has provided over $800 million in direct assistance, subsidies, and financial support to the Marshall Islands, equivalent to approximately 70% of the country’s total GDP during the same period. The Marshall Islands have received additional aid from Australia, Japan, Taiwan, the United Arab Emirates (UAE), Thailand, the European Union, and organizations such as the Asian Development Bank.
The U.S., China, South Korea, Japan, Germany, and the Philippines are the Marshall Islands’ major trading partners. Top U.S. exports to RMI include food products, prefabricated buildings, recreational boats, excavation machinery, aircraft parts, tobacco, and wood/paper products.
With the end of the Compact’s direct grant assistance approaching in 2023, the Government of the Marshall Islands is increasing its efforts to attract foreign investment and recognizes its important role in growing private sector development. Most local government officials encourage foreign investment, though attitudes may differ from island to island. The government particularly encourages foreign investment in fisheries, aquaculture, deep-sea mining, manufacturing, tourism, renewable energy, and agriculture and provides certain investment incentives for foreign investors.
Foreign investment in the Marshall Islands is complicated, however, by laws that prevent non-Marshallese from purchasing land. There is no public land in the country and no land registry; foreign businesses must lease land from private landowners in order to operate in the country. The high cost of doing business due to the country’s remoteness, its dependence on imported materials and services, and its limited infrastructure, especially transportation links, create additional challenges. Finally, due to RMI’s very low elevation, the potential threats of climate change and sea level rise make attracting FDI to the Marshall Islands even more difficult.
The major foreign direct investments are concentrated in the fisheries sector, including a tuna loining plant and a tuna processing plant along with several fishing purse seiners, the majority of which are owned by investors from China and Taiwan. There has been no significant foreign investment over the past year.