Islands Business - Vanuatu: MELANESIA’S GREAT SURVIVOR

Things looking up for Vanuatu

Dev Nadkarni

Port Vila...Vanuatu’s tourism infrastructure is gearing up to cater for the growing tourist numbers. All Pics: Dev Nadkarni

Vanuatu has successfully ducked the fiery sweep of the infamous Melanesian arc of instability. For one, the political turmoil that spread like an endemic across broad swathes of the southern Pacific Ocean last year did not touch its shores.

It also seems to have got past its tendency for frequent changes in government with the present Ham Lini-led 10-party coalition in power for just over two years now—though not without having faced a few no-confidence motions along the way.

After being voted the happiest place on earth in July last year, the world has been showering its attention on the 83-island archipelago, to say nothing of the popularity it gained after hosting the popular television series “Survivor”. Things have indeed been looking up.

Ham Lini... prime minister.

The uncertain political situation in neighbouring Fiji late last year brought in a surge of tourists from Australia and New Zealand—the country’s two leading tourism markets. Tourist arrivals for 2006 are expected to exceed 150,000 (including those arriving by boats and cruise ships), according to Tourism Minister James Bule. This is the highest number the country has had so far (a 25 percent increase over 2005). “Survivor” boosted American tourist numbers by five percent, says a tourism official.

That influx was well anticipated. Air Vanuatu and Air New Zealand inked a code share deal last year bringing in more Air New Zealand flights into Port Vila, supplementing the national carrier’s greatly stretched single jet inventory.

James Bule... trade minister.

“It is possible to land wide-bodied Boeing 767s now,” says Bule.

Meanwhile, Solomon Airlines also began its Boeing 737 flights in November between Honiara and the country’s largest island and fast-growing tourist destination, Espiritu Santo. Pacific Blue, now flying from Brisbane, is expected to add new flights from Sydney shortly.

TOURISM POTENTIAL: Minister of Finance Willie Jimmy Tapangararua is optimistic. He told Islands Business that he expects tourism’s contribution to GDP to grow from between 15 and 20 percent today to nearly 50 percent by 2010.

A little too optimistic though it may seem, the country’s immense tourism potential is being taken seriously by the government—especially following the global spotlight and the disturbed political atmosphere in its more famous neighbourhood.

“Vanuatu’s tourism infrastructure is gearing up to cater for the growing tourist numbers,” says Vanuatu Tourism Authority General Manager, Linda Kalpoi.

As well as refurbishments and extensions at existing resorts on Efate Island and around the national capital Port Vila, several new small to mid-size holiday apartment complexes and resorts are being built–many of these by Australian entrepreneurs.

Port Vila's produce market.

The Warwick Group, which runs the upscale Le Lagon Resort, outside Port Vila, is planning a luxury resort on Espiritu Santo, according to the group’s general manager, Jamal Serhan.

It is not only this anticipation in the impending tourist boom that is fuelling the construction industry. A number of large construction projects are also taking shape or are in the final stages of planning.

Among these, are several new government office buildings, a new convention centre that will have the capabilities to host regional and even international conferences and events, a regional school of hospitality and tourism, and the Chinese-funded and built headquarters of the Melanesian Spearhead Group (MSG).

In addition, the first installment of US$1.1 million from the Millennium Challenge Corporation’s total funding commitment of US$65 million is being deployed to strengthen Efate’s severely pothole-ridden road network and also build new roads on the outer islands, particularly Espiritu Santo.

Tourism and construction are two sectors where most of the investment in Vanuatu is directed, accounting for 57 percent of all investment between the two (47 and 10 percent respectively). By contrast, education and health share just 10 percent. Primary education is not free and is cited to be the main reason for the country’s poor performance in early childhood education.

Willie Tapangararua.. money man.

AGRICULTURE: Last year proved promising for the trade sector as well with the trade deficit dropping to slightly over one billion Vatu (about US$10 million), thanks in part to the resumption in kava exports after the hiatus following the long drawn-out spat between the government and the country’s commodities marketing board.

Agricultural exports also improved last year and are expected to rise further with New Zealand progressively opening its markets to Vanuatu’s produce this year (it started accepting shipments of citrus fruit last year).

The sector—chiefly comprising coconut oil, kava, copra and beef—contributes about 20 percent to total exports. The government has declared 2007 to be ‘Year of the Traditional Economy’.

Trade deficit is expected to drop further with falling oil prices combined with Vanuatu’s successful experimentation with coconut oil as a biofuel replacing petroleum products in power generation as well as in vehicles.

Last year, the country’s power provider used over 30,000 litres of this new biofuel in generating electricity, contributing a significant five percent saving on the petroleum import bill.

The government is following through on its programme to convert its vehicles to use biofuels. While saving precious foreign exchange, increased coconut production is also expected to benefit the local economy with nearly 65 percent of the population dependent on the agricultural sector.

Primary education in Vanuatu is not free

But recent reports point to growing dissatisfaction amongst coconut farmers at the low price the government offers for copra and in some cases prompting migration from outlying islands into Port Vila.

Over the last two years, the country’s foreign exchange reserves have grown from US$45 million to over US$70 million and economic growth is expected to continue at roughly three percent, consistent with the growth rate over the past few years.

But Finance Minister Tapangararua has some big tasks ahead. “2008 is the year when a lot of the debt has to be retired,” he says. This includes loans from the World Bank, Asian Development Bank and the Chinese government.

In addition, his ministry has to provide for the Government Remuneration Tribunal Award that directed a 25 percent salary increase to civil servants who have not had a salary revision in decades. The bill is a whopping 180 million Vatu every month and rolled out payouts to the 5000 government employees have begun since July last year.

Finding the resources to fund the long overdue exercise is a challenge, admits the minister, as the money has not been provided for in the national budget. Earlier, assisted by international aid agencies, Vanuatu streamlined its bureaucracy by shedding nearly 10 percent of the government workforce and introducing career officials as director-generals of various ministries to bring in a measure of continuity in the wake of its notoriously short-lived governments throughout the past decade or so. This step has worked better in the implementation of development programmes, say observers.

INVESTMENT: The country is pursuing other avenues to shore up resources. Vanuatu Investment Promotion Authority (VIPA) CEO Joe Ligo says foreign investment is being wooed more aggressively and systematically than before. His outfit is putting in a number of initiatives to streamline the overseas investment process.

Joe Ligo... VIPA CEO.

“We already have a one-stop-shop in place for potential investors,” he says. All the central agencies dealing with foreign investment proposals—VIPA, the directorates of trade, finance, customs, lands, labour and immigration—are being moved into a single 200 million Vatu facility being constructed in downtown Port Vila.

Over the years, Vanuatu has maintained its pre-independence status as a tax haven and international offshore financial centre offering a range of services. Offshore tax havens came under the glare of international publicity some years ago when OECD countries raised concerns about some of their operations. The government has since put in place procedures that comply with international codes. But recent reports have pointed out that costs of such compliance are making offshore financial centres like Vanuatu uncompetitive.

Asked about recent criticism in the media from Australia’s financial sector on Vanuatu’s offshore services, Tapangararua says, “Australian banks should stop being critical. Vanuatu has been acknowledged to be better than Australia on the issue of legislation on reporting of suspicious transactions.”

SHAKING OFF OLD IMAGE: According to a long-time Vanuatu resident and academic, the country has taken steps to shake off its earlier image as a state whose leaders were involved in selling its passports to foreigners of questionable credentials and whose politicians frequently forged papers and fudged public documents. But there is a growing perception and concern in the country as regards to the sale of land to overseas investors and developers. There are fears of the traditional agriculture sector increasingly falling into foreign control.

Though the present coalition of 10 parties led by Ham Lini has survived two years—impressive going by Vanuatu’s recent track record—it is rife with factionalism and many think the government is quite fragile.
It has already survived a couple of no-confidence motions and there could be more in the run-up to next year’s general election.

The country still lags in several critical indices of the Millennium Development Goals, notably primary education and healthcare.

Investment continues to be poor in both sectors. It is still unaffordable for many to send their children to school. But thanks to widespread reliance on subsistence economy, few, if any, go hungry in the archipelago. However, the pressures of a monetised economy are growing particularly in urban centres like Port Vila.

But for now, with the situation in the Solomon Islands, Fiji and Tonga being what it is and with its newfound status as the world’s happiest place, Vanuatu is proving to be a hugely popular survivor in the region while basking in a well earned spot of warm Pacific sunshine.