Islands need to improve economies


Pacific Islands countries have flunked. If one were to assess their economic and social progress in the last 10 years, the result is likely to be a dim appraisal of the islands economies.

One such assessment was made by Australian National University-based Dr Satish Chand, who was commissioned by the Pacific Islands Forum Secretariat to do a “stock-take” on the progress made by the Pacific Islands Forum member countries in relation to resolutions made at its annual Forum Economic Ministers Meeting (FEMM).

Chand presented his findings to delegates at this year’s FEMM held in Honiara in the Solomon Islands last month.

While his paper—titled  ‘Economic Growth: Lessons Learnt from the Last Ten Years, and Challenges and Opportunities Ahead’—pointed to what could be described as an unsatisfactory 10 years, there is still room for improvement.

“There are three key messages in my paper,” said Chand in a media conference afterwards. 

“One: that Pacific islands countries have performed well below potential so we could do much better than what we have done so far. Two: it is more the policy choices rather than the handicaps of size and isolation that have been responsible for our poor performance. Three: over the last decade we have experimented with a number of policies to raise the rate of growth of income in our countries. So there are lessons from the past about what we can do about the future if we want to see our people get higher income, if we want to see lower poverty in the region.”

Keeping in mind that the main measure of this economic progress topic is the alleviation of poverty and subsequent economic empowerment of Pacific islands people, Chand’s assessment is a reminder that Forum islands countries have faced and still face a host of challenges associated with economic growth. 

This is not to say that everything had been doom and gloom. Chand put forth examples of Cook Islands and Samoa, whose economies grew at relatively high rates of 4.7 percent and 3.4 percent per capita respectively between 1999 and 2004, as noteworthy success stories. This success was not accidental. Chand attributed it to the two countries’ undertaking the necessary economic reforms much earlier than everyone else. 

Hand in hand with an accommodative labour market that promoted labour mobility, the reforms had catapulted Cook Islands and Samoa to become leaders in the Pacific in terms of economic progress measured by growth. 

To some extent, Papua New Guinea, with its nucleus enterprise model for growing oil palm, had made inroads into poverty reduction while the Denarau tourism investment project in Fiji was a good example of a successful handling of land related matters by the careful management of its portfolio of state, freehold and native leases. 

But on whole, countries in the region are still lagging behind and even more so when compared to other countries in the world with similar geographical peculiarities and who face similar challenges.

Chand used the economies of Maldives, Mauritius in the Caribbean and Malta in the Mediterranean to illustrate this point, as these are islands countries similar to countries in the Pacific.

“These countries are in the rich country club and the question is why?  If you walk around the place or in any Pacific island country, you are likely to see a lot of land lying idle, a lot of people hanging around doing nothing and at the same time, you have poverty. The question that needs to be asked is why do we have all these idle resources and still have poverty?

“If we were very rich and not using our resources, that’s fine. Then again I don’t think the environment (for investment) has been very conducive to growing all these idle resources to production so that we can grow more rapidly economically. 

“And to me, that is the challenge for our ministers or the managers of these economies. The challenge is to create conditions to allow our idle resources to be used productively. They also need to look at how we can make our people move to jobs or how to make jobs move to people,” Chand said.

So where, if one was to look at the Malta, Maldives and Mauritius successes, did Pacific islands countries go wrong?  

Was it the lack of political will to take on what obviously were tough challenges and to make necessary changes? 

Chand opined that much had to do with policy choices made by countries in the Pacific. 

Whereas in the Maldives, Mauritius and Malta, economic progress was linked to liberalised domestic market environment to power private sector activities, highly productive labour force and concerted reform efforts on the part of governments, Pacific islands countries had been comparatively content in the comfort zone of protectionism.

“One of the mistakes that we have made in the past is that we have tried to protect in order to create industries,” said Chand. 

“I think we have learnt that when we protect to try to create industries, they tend to last as long as the preferences are there. 

“A good example of this is Fiji’s sugar and TCF (Textile, Clothing and Footwear) industries. Take away the preferences and the industries disappear. 

“The other lesson is that if we have governments trying to run a business, it has been a disaster in almost every case. If we want to create business through the state, then I think we have to think twice, if not thrice.”

The other side of the coin in this discussion of slow economic progress is that room for improvement is there and the potential in it could be realised by looking at the lessons learnt. 

Chand said the biggest challenge for Pacific islands governments was to grow idle resources into production and for that to happen, wise policymaking was crucial in order that the region attract genuine investors.

“I think high on my list are the three Ls,” Chand explained, concerning measures to complement policymaking and create a favourable environment for private sector development.

“These are Law and Order, Land and Labour. What we need is long-term stability if we are to have investments that are to have longer term horizons. So to me, policy certainty on law and order is important. Secure property rights are also important. 

“I think it is time Pacific islands countries bite the bullet on land. That is one issue that needs to be resolved. The third is labour, especially unskilled labour. I think we need to draw these people into production so that once they have a stake in stability, they become assets to society rather than liabilities.

“So I think we need to work on these things.  We of course need to work on a hundred other things. But those three things are on my list of priorities,” Chand said.