Islands Business - Solomon Islands: ‘OUR ECONOMIC GROWTH HIGHEST IN THE PACIFIC’

But Lilo says the challenge is sustaining it

Dev Nadkarni
When Islands Business met him in Honiara in May, Gordon Darcy Lilo was standing in for Prime Minister Manasseh Sogavare who was away in Taiwan as acting prime minister. The fluent, Australia-educated finance minister spoke with DEV NADKARNI on a range of subjects from logging and the economy to the government’s new initiatives—and Julian Moti.

Your economy is overwhelmingly dependent on logging. How are you maximising its gains to the country?

Gordon Darcy Lilo... “We’ve cut back on generous tax breaks on logging.” Pic: Dev Nadkarni

“We are concentrating on downstream processing. Over the last 12 months we have made some strong control on the issuance of licenses. We have increased the prices of logs, general value for the purposes of calculation of duties, cutting on tax breaks, spreading the benefits evenly in the economy and ensuring better liquidity in the financial system and the government. The logging companies are now more disciplined than ever before. Unlike the last 30 years, in the first 12 months of this government we have achieved a very good growth rate. This is simply based on two things: We have not issued new licences, but we have increased the determined prices and cut back on generous tax breaks given by previous governments.”

The Central Bank report of 2006 says international logging prices have gone up. Why hasn’t that impacted the Solomons positively?

“We are making changes, revisions. Our prices are not all that different if you look at it. We are asking the companies to follow the international trend. A lot of logs are going to China and as you know it’s so difficult to get any information out of China. Some of the markets where the prices have gone up in the international market are outside the reach of the Solomon Islands exporters. We are therefore pegging on the Chinese and Indian markets. Our prices are not that different but we are pulling up our socks.”

Is there cartelisation in the logging industry here?

“That is not true. Right now because of the reduction in the forestry concessions we have few logging companies here. But the value is going up. We have also revised the determined value of the logs for the purpose of determining value of the export duty. The single most significant thing we have done is cutting back on the generous tax breaks. That has brought a flow of liquidity to the economy, government coffers and right out through the financial system.”

But you are heading for a major environmental disaster.

“We realise that there has to be an alternative to logging. This government is the first to have ever made this a policy stance—to find an alternative to logging.”

Which are?

“Most essential is tuna. We will move vigorously to phase out access fee. This country has been badly treated on the access fee arrangement. We want to move quickly into downstream processing, more onshore facilities to cater for the high-end market. We are in the heart of the tuna fishing grounds, unlike PNG, Tuvalu, Kiribati and Nauru. Yet we got S$48 million last year, which is one of the best collections of access fees for any year since independence. We barely went past S$25 million. Even S$48 million is peanuts.

We know the potential. We’ve allocated S$10 million to the pump boat operation; we are restructuring our cannery. Fishing has to be different from the cannery. Also, we want to stop this labour cost recovery formula that we have been entered into with tuna operators in our region, that loses us a lot of revenue. Tuna is a sustainable investment—it is one of the most rapidly reproducing species. Our concentration is on tuna.”

What are the other alternatives to logging besides fisheries?

“We have over 100 applications from overseas and local investors to start businesses in manufacturing, construction, fisheries, agriculture, tourism, forestry—but mostly in forestry and tourism. We have brought in a stricter control process on assessing applications. There must be a benefit to the Solomons economy and not a business that is here only for the tax break; there must be the public good.”

Are you happy with the way the economy is going?

“Yes, we have managed the economy very well so far. Since independence we never went past the 4 percent growth mark. Now it is 6.1 percent, the highest in Pacific. But we have to sustain it. That’s the challenge.”

Why is the country so expensive? A can of tuna made here is more expensive to buy here than the same from a supermarket in Suva, Fiji.

“There are several reasons. In Fiji, you get the ex-factory price. But I have to pay excise duty here. There’s no import duty in Fiji because of the MSG free trade pact. We should work at making trade fairer more than freer. What I’m saying is that you should work on the basis of equivalent of what is imported from you should be equal to the value of what you import from me. Also, freight makes things expensive here. Besides, there are some discrepancies in the market at work as well like cartel arrangements that we are strongly tackling now.”

Why is Julian Moti so much in the news?

“I don’t know why.”

Why don’t the Australians want him to be attorney-general?

“To me, I think Australia sees him as a threat... maybe that we have people like him because he could create some difficulties for them having free access to their operations in the Pacific.”

Do you think they (Australia) would be worried about that?

“Could be...they might be seeing it from the perspective that having people like him who have some very strong and deep understanding of Australia’s foreign policy...that he could jeopardise their free access in the Pacific. I want them to cut it out. As far as I’m concerned it’s all fabricated. It’s not right to tarnish the image of certain leaders of the Pacific in order to protect your position and dominance at the expense of harmony, good behaviour of citizens in those countries. I feel sorry for us Pacific Islanders in that way. Despite all that, we are growing and showing good positive results.”

Is Moti a factor in the government’s relations with RAMSI?

“No. But maybe they have heard about the aggressive nature of some of the leadership of this government. Sharp, astute legal advisers like Moti would sharpen the tools of some of these committed leaders. That could be worrying to some.”