Robust growth for the islands: UNESCAP

By Dionisia Tabureguci

In the face of an expected slowing of the United States economy in 2007 nudging Asia into what has been described as “uncertain times”, Pacific Islands economies are forecast to experience “robust growth”, according to the 2007 Economic and Social Survey of Asia and the Pacific, the flagship publication of the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP). 

In a worldwide launch of the survey report, titled: Surging Ahead in Uncertain Times, UNESCAP executive secretary Kim Hak-Su said although Asia and Pacific nations were rapidly emerging as engines of global growth, there were key questions.

“What will drive our growth if the United States economy slows down in 2007? Ten years after the Asian economic crisis, is the region once again becoming more vulnerable to shocks?  Has the region learnt to live with high oil prices?

What kinds of opportunities and challenges does China present to trading nations in Asia and the Pacific?

How do central Asian countries cope with the appreciation of their currencies in the face of rising oil prices?”

While indeed growth will be robust for Pacific islands countries in 2007, they lag behind their Asian peers, most of whom have long instituted economic and structural reforms and policies on good governance, transparency and accountability.

The report estimates Pacific’s average growth at 3.7 percent in 2007, on par with last year’s 3.8 percent.  Although considered robust by UNESCAP, the growth is not enough to push forward the standard of living of Pacific islanders.

“Much higher levels of economic growth are required if Pacific islands countries are to raise their living standards significantly in the face of rapid population growth,” said Herve Beaver, head of UNESCAP Pacific Operations Centre.

“For the future, there remains many big challenges that Pacific islands have to meet. The poor investment climate in many Pacific islands countries is depriving them of much needed investment to sustain higher economic growth. Limited scope for export diversification and poor infrastructure continues to be a problem in many countries,” Beaver said.

The report identified internal challenges faced by Pacific islands countries as poor investment climate, maintaining political stability, limited scope for export diversification and poor infrastructure.

External challenges, of which Pacific islands countries had little control, over were noted as being geographical isolation, trade liberalisation and higher oil prices.

The prevailing high oil prices, although expected to ease in 2007 as global economy slows, has posed and will continue to pose considerable challenges for policymakers in Pacific islands countries, with only PNG expected to benefit from the windfall, it being the sole producer and refiner of oil in the Pacific region.

“For other Pacific islands countries, high oil prices have reduced their terms of trade and led to the deterioration of their trade balances and current accounts. The 250 percent rise in the price of West Texas Intermediate petroleum has translated into sharply higher import bills and to higher costs for businesses and consumers, thereby reducing incomes and stoking inflationary pressures. 

“And the cost of international air travel is rising just as tourism was beginning to improve in several Pacific countries,” the report said.

The report noted that PICs had implemented various policy measures in order to manage shocks from this cost. But for most, the option of exploring and developing alternative renewable energy sources is the only logical one to take to ensure sustainable and less costly energy supply in the long-term.  

In terms of social challenges, the report identified the rapid rate of urbanisation and subsequent rise in unemployment due to lack of economic activities as root cause of what has been perceived as increasing urban poverty in the region.

To manage this, the report suggested that Pacific islands countries “develop a clearer vision of how they want their urban development to go in the future, how they might get there and who will be responsible for the different tasks”.

“Policies aimed at poverty reduction could first aim at rehabilitating those in dire danger of losing their lives due to extreme poverty and second at providing sustainable income generating opportunities,” it said.

In a special study carried out as part of this report, UNESCAP research showed that the Asia-Pacific region loses US$42 billion to US$47 billion a year due to restrictions on women’s access to education and another US$16 billion to US$30 billion a year because of gender gaps in education. It is not clear how much of these figures may be attributed to the Pacific because of lack of reliable statistics.

Nautilus’ aggressive push on Solwara project The world is watching as first underwater miner, Nautilus Minerals, aggressively advances its Solwara 1 deep-sea mineral exploration project in Papua New Guinea. President and chief executive of Nautilus, David Heydon told a luncheon presentation at the Crowne Plaza in Port Moresby last month that with the backing of major miners like Epion Holdings, Russia’s largest iron ore company, Anglo America, Techcominco and Barrick Gold, it is like going into a totally new industry. The luncheon attended by business executives and stockbrokers had the opportunity to see a video presentation by Heydon of the groundwork already done. He said a major exploration, evaluation drilling and environmental baseline study programme will commence this year over its Solwara projects. The programme, which will involve between 160 and 210 days in the water, will cover both the Solwara 1 Prospect and geophysical target generation throughout the Bismark and Solomons Seas. Two thousand four hundred metres of drilling using two remote operated seafloor drills is planned on the Solwara 1 Prospect in the second half of this year for mine planning purposes. Nautilus is holding discussions with the Port Moresby Stock Exchange (POMSoX) for possible listing in the future. “We spoke with POMSoX and our intention is to make the stock affordable for the local people. “We are not trying to raise capital,” Heydon said. In conjunction with a listing on the London AIM market, the company raised US$100 million (K313.4 million) followed by a US$75 million (K235.11 million) private placement in North America. Heydon said this financing is the next piece in their business plan to enable them to develop a low cost base metal mine based on seafloor massive sulphide copper-zinc-gold silver deposits. This financing from North America and the United Kingdom institutional investors complement the US$99.6 million (K312.2 million) financing completed late last year by major shareholders—Anglo America, Teck Comico and Epion.  Nautilus has raised about US$295 million (K924.7 million) in the first 10 months since listing on the Toronto Stock Exchange, providing a strong capital base to fund the company’s plans. “Our focus is the Solwara 1 project , the world is watching. This is the world’s first underwater mining and it has been mentioned four times at the General Assembly in the United States. “PNG did very well in the copper mines in the last century and we are going to be the next,” he said.    With US$275 million (K862 million) in the bank, Heydon said this cash, together with other sources of capital, are expected (subject to timely permitting) to be sufficient to fund the company into production at the Solwara 1 project. The funds are planned to be deployed by the company in the detailed design and construction of specialist sub-sea mining equipment, including two mechanical miners, power umbilicals, pumps, a 1800-metre riser pipe and related handling equipment, as well as subject to permitting, the construction of an on-shore concentrator plant and the acquisition of land on which to build the plant and port.  He claims that operating on an offshore mine will be cheaper and faster than land-based operations. “It’s much easier to push a pipe down 2000 metres in the ocean than to push a shaft through solid rock,” he said.   Nautilus is working in partnership with Barrick Gold and expects to complete environmental studies this year with plans to start production in 2009. —By Baeau Tai