With 5% growth this year, it is one of the fastest growing nations in the Pacific

Dev Nadkarni  
Vanuatu is positioning itself as the most business-friendly nation in the region on the strengths of its relative political stability, largely untapped tourism and natural resources, tax haven status and not the least, its sobriquet as the country with the happiest people on earth, according to a global survey in 2006.
At the annual rate of five percent this year, the economy of the 83-island archipelago is one of the fastest growing in the Pacific Islands region, in line with two other nations of the natural resources-rich Melanesian Spearhead Group (MSG), Papua New Guinea and the Solomon Islands (the fourth member, Fiji, is the only exception to this fast growing bloc).
Vanuatu has experienced a strong GDP growth rate over the past few years peaking at 6.8 percent in 2007.
According to the Reserve Bank of Vanuatu, it has foreign exchange reserves to cover eight months of exports—by far one of the best positions in the Pacific islands region and has a trade deficit of about 7 billion vatu.
The economy has been encouraged by the success of the country’s first ever major inward remittance programme in history—facilitated by the New Zealand Government’s Registered Seasonal Employer (RSE) scheme that earned some 1200 ni-Vanuatu workers about 55 million vatu collectively over the past 12 months.
Growth has largely been fuelled by the impressive strides in the tourism industry that accounts for nearly 40 percent of the country’s GDP and 75 percent of its foreign exchange.
Construction is the other sector that has been growing significantly in the past few years, followed by the natural resources and farming sectors.
The country exports timber, kava, copra and beef across the region as well as to distant markets in Europe and Asia. After several years of low demand, there is now a steadily rising interest in the country’s copra potential which it is keen to cash in on but is hampered by poor and infrequent shipping links, especially to the European markets.
Vanuatu has an impressive cattle farming industry with an estimated 42,000 head of cattle—almost all reared for meat alone and none for dairy products.
The quality of its beef has gained fame over the decades and demand has consistently outstripped supply. But the industry has not kept pace with developments elsewhere and several big potential markets—notably Japan and the European Community—consider the quality levels of its abattoirs (particularly their cleanliness) below par, according to an industry observer.
The country’s other formal livestock sector comprises some 420,000 poultry, about 5000 pigs and 18,000 goats.
The construction and infrastructure industry is expected to further grow in the next couple of years following the successive disbursement of tranches from the Millennium Challenge Fund, a total of US$65 million, that will help the building of several road projects around the country beginning with the island of Efate, where the country’s capital is situated.
The sector has seen growth in the number of overseas investors entering the construction market in recent years. Growth in the construction sector is expected to drive GDP growth over the next several years.
The country’s financial sector—particularly its tax haven status—has come into sharp focus earlier this year when the Australian Federal Police raided a number of offshore companies operating in Vanuatu in the course of investigating financial irregularities mainly involving money-laundering charges.
Vanuatu’s tax haven status has attracted a slew of companies to set up shop in the country over several years and the country is not new to scrutiny by international monitoring agencies.
The government has responded to these concerns in recent years and the number of offshore companies has been reduced from over a 100 a few years ago to just about half a dozen today.
“The raids have shone a light on the tax haven issue. It made the country think a bit on where it wants to sit on the spectrum of services offered. Some have operated in the grey areas. Some are pretty much black and white.
“The focus is now on what path Vanuatu wants to take in the offshore financial industry,” says the chief executive of a one of the companies who did not wish to be named.
The tax raids were hotly debated in Vanuatu’s political circles shortly after they were conducted earlier this year. Sources said that work was already under way to suggest amendments to the country’s legislation on the operations of offshore financial entities.
There is now a move to project the country more as an international finance centre rather than as a tax haven, given the negative publicity the latter term has attracted, particularly in the Pacific Islands region over the years.
The country’s banking sector is experiencing growth and the past year has seen a new bank added to the landscape called Bredbank, which has joined other Pacific regulars—ANZ and Westpac—besides Vanuatu’s own National Bank of Vanuatu which has the most number of branch operations throughout the country including the outer islands.
PNG-headquartered Bank South Pacific also has a presence. Consumer and business borrowing interest rates are between 8 and 12 percent.
The National Bank of Vanuatu has a diversified lending portfolio including extending credit to newly returned RSE workers for starting small entrepreneurial and community projects.
It is also in talks with money transfer agencies and banks in New Zealand to put in place easy and cost-effective money transfers of workers’ earnings from New Zealand to Vanuatu.
The bank reportedly has an impressive repayment record of 90 percent.
ANZ’s General Manager David Schwenke said the bank’s biggest lending portfolio was the tourism sector. As in other Pacific Islands countries, it has a specialist working in the tourism banking area in Vanuatu as well.
While residential mortgage uptake is low, growth is expected in the coming years. A 2.1 percent mortgage tax applies in the country. The property tax is at 7 percent.
Real estate is seeing a boom with a steady growth in investors particularly from Australia and New Zealand.
With coastal properties priced at nearly a tenth of prices in Australia and New Zealand, these are being lapped up.
For instance, an acre of waterfront property recently sold for A$196,000 per acre—about a ninth of what a similar sized property would fetch in Australia, said a real estate professional.
Developers from both countries have been building hotels and timeshare resorts in and around the capital Port Vila. A couple of well-known real estate agencies from both countries have already set up franchise operations in Vanuatu and are conducting sales.
Most land in Vanuatu is available on 75-year leases and investors ISLANDS BUSINESS spoke to said the process was more or less straightforward but could be fairly time consuming.
Once signed, the tenure was reasonably assured and safe, they said. Recently, there have been some big ticket real estate investments including an A$2.6 million purchase on the island of Santo.
Several investors and entrepreneurs have leased large tracts of land for agricultural and horticultural purposes as well as for the food processing industry.
The farming industry is expected to boom with demand for organically grown produce increasing the world over.
Also, over 40 varieties of crops from Vanuatu are now allowed for import into New Zealand by its quarantine authority MAF, which is working closely with Vanuatu’s agriculture industry, revealed Benuel Tarolongi of the country’s quarantine service.
Real estate companies are looking to develop the country’s first industrial park some distance away from Port Vila’s Bauerfield International Airport. Survey work has been completed and a couple of projects are already underway.
But the country is a long way off from approaching the industrial landscape of either Papua New Guinea or Fiji.
As the economy grows—particularly in the building and services sectors—the country is finding a shortage of qualified personnel. Expatriate entrepreneurs voiced this issue with ISLANDS BUSINESS but said the situation was easing somewhat in recent times.
The booming tourism industry is also seeing a surge in demand for trained hands in the hospitality and allied tourism services sector.