Palau’s foreign investment climate discourage private sector growth

Aside from the strict requirements for foreign investment, the country’s financial systems, land ownership system, labor market and commercial conditions.The report said that investments is very restricting because it requires that all applications must be approved by the Foreign Investment  Board (FIB).The law requires investment of a minimum of $500,000 or a minimum of 20 percent Palauan ownership.Due to the stringent requirement, it has encouraged the establishment of front businesses, where foreign investors operate illegally through a Palauan partner.     There is also a lack of available skilled labor in Palau with government officials expressing concern about illegal importation of unskilled foreign workers.     Report said that current labor laws discriminate against the import of skilled labor and that minimum wage laws for Palauan workers encourage employers to import foreign workers.      The report also cited  that Palau’s Division of Labor receives many grievances from the Philippines Embassy about treatment of unskilled workers, who are often paid less than $150 per month and are not provided health benefits.The land ownership system also disallow the use of land for development and that most of the land is family owned and not officially registered but that the Palau’s Land Court is working to ensure that all lands are registered.The  report also noted that Palau’s financial markets do not effectively finance investment but instead supply large amounts of consumer credit. It also noted that a weak banking industry which officials from Palau Financial Institution Commission said are being addressed through legislative amendments.The report said that Palau’s commercial conditions are also outdated and lacking laws for bankruptcy, sales and consumer privacy protection.The report stated that because of this government often delays payment of vendors for several years.In 2009, the governments of the U.S. and Palau will formally review the terms of the compact and its related agreements. Compact and other U.S. assistance has contributed to several areas important to Palau’s self-sufficiency and economic advancement. Compact direct assistance will expire in 2009, but provisions inn several federal services such as postal, weather, and aviation may be affected.