Tourist arrivals to get a boost

Dev Nadkarni

Central bank of Samoa in Apia... The country is to host 6000 athletes coming for the South Pacific Games. Pic: Dev Nadkarni

After a dream run through the early years of this decade and the very envy of other Pacific Islands states, the Samoan economy ran out of some steam last year: some of the sheen showed signs of wearing off the aid agencies’ ‘darling of the Pacific’.

This was not wholly unexpected given the big infrastructure bills the government was faced with in the lead-up to the South Pacific Games (SPG) to be held this month in Apia.

It also had to settle a foreign currency loan that had to do with its flag carrier Polynesian Airlines.

In addition, it invested in a big-ticket showpiece resort and had to fund the merger of two of its major tertiary educational institutions.

Also, 2006 was an election year that saw government expenditure go up dramatically compared to the previous year in order to fast-track long due infrastructure projects.

In addition, the government workforce is reported to have expanded by an estimated eighteen percent. By the end of 2006, liquidity dropped precipitously and there was a considerable squeeze on business and personal credit after demand grew substantially in the previous year.

Private sector building projects were hit by delays because of the squeeze. Foreign exchange reserves also dropped to the lowest the country had seen in four years.

Finance Minister Niko Lee Hang introduced a range of belt-tightening measures on departmental expenditure and increased VAT by 2.5 percent to a total of 15 percent.

“I would have liked it to be more like 18 percent,” he had told ISLANDS BUSINESS in September last year. But those measures were insufficient to buoy up the GDP growth rate that fell to just 2.6 percent last year from the heady 4.7 percent registered in 2005.

Misa Telefoni Retzlaff... Samoa’s done well in MDGs. Pic: Dev Nadkarni

Several sectors of the economy witnessed a downturn in 2006: agriculture shrank over successive quarters as did construction, given the tight credit conditions. As is often the case with Pacific islands economies, it was tourism and remittances that saved the day.

Remittances—though about 13 percent lower than the previous year—went some way in compensating for the greatly diminished liquidity in the market.

In January, the Central Bank cut the official interest rate to 4.21 percent by nearly a one whole percent (it had increased the rate in mid-2006), but then increased it back to 5.03 percent by the middle of this year.

However, owing to the Central Bank’s tight monetary policy, the average lending rate went up to over 12.7 percent in May—up from 11.9 percent in September last year.

Though demand for credit continues to be strong, the growth rate is a shade less than the average 30 percent that was consistent over the past few years—particularly in 2005.

Smooth road ahead?

According to recent indicators, however, the road ahead is looking smoother than it did towards the end of last year.

Tourism contributed an all-time high of ST (Samoan Tala) 243 million (equivalent to A$113.6 million or F$155.4 million)—an impressive growth of 16 percent over 2005-06. Those numbers are set to get a boost with the hosting of the SPG this month.

Some 6000 athletes and officials besides at least 1000 visitors are expected to be in Samoa over the fortnight the games will be held.

“We have put in place programmes for showing off the natural beauty and sporting facilities of Samoa for SPG visitors,” says Deputy Prime Minister, Misa Telefoni Retzlaff.

Also, for the first time, the games are being telecast live in real time across the region and beyond. This is bound to bring increased exposure across a large geographical area to the country as a tourist destination.

Political events and a perception of instability in other more popular tourist destinations in the South Pacific may also result in increased tourist traffic to Samoa, thanks to its growing reputation of political stability and a largely crime-free environment.

Top revenue earner... fisheries industry. Pic: Dev Nadkarni

Retzlaff has already said the Fiji coup is bringing more holidaymakers to Samoa. He estimates revenues of as much as ST$200 million (A$93.5 million) as a result of the SPG being held in Samoa.

The country is progressing well on its plans to build infrastructure to accommodate the ever-increasing tourist arrivals. Several hotel projects big and small are underway across the country and the momentum in the building industry that has resulted from SPG infrastructure activities is expected to continue as these hotel projects near completion.

The month of May registered an impressive increase in remittances and if that trend holds in subsequent months, the tighter liquidity conditions in play since last year will likely show signs of easing.

The jump in export revenue registered in May this year over the previous month was more than any month on month growth recorded in the last three years, according to the Central Bank of Samoa.

This was mainly spurred by the country’s strongly growing fisheries industry that added ST$1.9 million in that single month, in line with the industry that is now the highest export revenue earner for the country, contributing as much as 52 percent of the ST$263 million worth of exports. The agriculture sector too has performed well in exports with coconut cream and nonu juice leading the sector.

Over the past few years, Samoa has been working on several sectoral reforms. It has restructured its ministries and tried to put in place consultative mechanisms for development projects—particularly in the tourism sector.   But there is criticism from some quarters that these mechanisms need to be more elaborate, especially in the case of people living away from the seat of national government.

Dr. Le’apai Lau Asofou So’o, director of the Institute of Samoan Studies at the National University of Samoa, has said that common people need to be involved to a greater extent in the government’s decision-making.

Among his priorities for the nation, Retzlaff lists “ensuring our poorer sectors get their fair share of the cake,” as an important factor.

“We want to continue and expand our work on microcredit and offer microcredit support that would lift up the lower echelons of the economy,” he says.

Samoa continues to depend heavily on remittances and tourism as the main engines of its economy.  High telecommunication, utility and freight costs place it among the more expensive destinations to do business in the Pacific islands region.

Over the years, there is little action from the government in promoting local business—particularly in the manufacturing sector—according to businesspeople around Samoa.

That is perhaps an agenda point for the first Pacific Islands Private Sector Organisation (PIPSO) meeting getting underway this month in Fiji.