With a world in crisis, Vanuatu projects growth

Samisoni Pareti



Tourism is one of three growth sectors a recent study on Vanuatu’s private sector has identified. Construction and agriculture are the other two.
“The number of tourists arriving by air rose by nearly 14% in 2007 and by over 16% in 2008,” said a report called ‘Sustaining Growth: A Private Sector Assessment for Vanuatu’. The study was commissioned by the Asian Development Bank (ADB).
 “Remarkably, despite the global economic slowdown, tourist arrivals by air in January 2009 were 28% higher than in January 2008.
“Over the past few years, there has been a very large growth in the number of cruise ships visiting Vanuatu: the number of arrivals has tripled over the past five years.
“Anecdotal evidence suggests that these rose by nearly 40% in 2008 after increasing by 60% in 2007.
“A growing number of tour ship visitors later return as tourists, which bodes well for future tourism growth.”

SOLOMON ISLANDS’ ECONOMY FALTERS OVER FALLING LOG REVENUE Tourist numbers may be on the up in the Solomon Islands but the economy is looking shaky at best. Falling log export revenue has forced the Asian Development Bank to revise its projection for the island nation. Instead of the projected economic growth forecast of 2.2% for 2009, the bank says the country’s GDP, because of depressed log prices, may even register zero growth by the year’s end. “Data on logging from early 2009 indicates that logging exports may be weakening more rapidly than previously expected,” said the ADB’s Pacific Economic Monitor for May. “From November 2008 to February 2009, logging volumes fell by 22.5% compared with the same period in 2007-2008. “A 30% decline in logging in 2009 has been projected to reduce GDP growth to zero, to see per capita income fall and to result in the current account blowing out to around 10% of GDP in 2009.” But Snyder Rini, Solomon Islands’ finance minister, told ISLANDS BUSINESS that log export revenue picked up in the second quarter and his government is still optimistic of achieving positive growth by the end of the year. “Yes, we are expecting growth to be less than 2% this year, probably about 1.5% to 1.6%,” said Rini. “We are also looking into the balance of payment issue as all our export commodities are down because of the global financial crisis. “But during the second quarter we are starting to see an increase in the price of commodities—on copra, cocoa and fish and also oil palm, and also logging is coming up again so we are really pleased with our performance in the second quarter of this year. On balance of payments, we are asking our donors if they can assist us by putting some of their funds into our reserves. We are also asking the IMF, World Bank and ADB to assist in frontloading the projects and the fast implementation of the projects to create more economic activities now.” Minister Rini said support from donor agencies had been good and his ministry had already held two roundtables with donor representatives so far this year.

Vanuatu appears to have been successful too in attracting high-spending tourists, the report observed.
In addition, improved policies towards the private sector contributed to growth in tourism, especially with the removal of the monopolistic hold of Air Vanuatu on international air services.
“Vanuatu recently opened its air transport market to international airlines, creating competition that has resulted in significantly lower airfares and higher tourism arrivals,” said the ADB report.
“Recent figures illustrate the extent of this increase: international tourist arrivals were nearly 30% higher in January 2009 than in January 2008.
“These results reinforce the wisdom of opening the country to additional foreign airlines and demonstrate the benefits of greater competition.
“In another positive step—and as a result of pressures placed on the airline by greater competition—the government is considering options for restructuring Air Vanuatu.”
 Removing monopolies, the report said has also worked in Vanuatu’s telecommunications sector.
An overseas mobile phone operator—Digicel—was granted a licence to operate which immediately resulted – as it did with international airfares – in the slashing of phone tariffs.
Internet charges in Vanuatu, however, are said to be among the highest in the world, the ADB study found.
“However, government recently announced the issuance of three new licenses for the provision of internet and other telecommunication services which should lead to better service and lower prices.”
The bank urged the Vanuatu Government to continue its policy of liberalising the country’s telecommunications sector, as well as push on with the restructure of Air Vanuatu and “franchise out the domestic air routes that require operating subsidies (as was done successfully in Fiji).”
Further, management, air traffic control services, fire-fighting and aviation security at the country’s three international airports (Port Vila, Santos and Tanna) should be out-sourced.
“Airports are in good `condition`, but high airport charges and limited capacity are depressing Vanuatu’s competitiveness as a tourist destination.
“In addition, the national air carrier, Air Vanuatu, remains a drain on the country’s budget.”
Government, the report recommended, should urgently work on maintaining its road network and increase road maintenance’s budget.
Repair works should be contracted out and a new port constructed for Port Vila, the capital.
“The domestic shipping industry urgently needs upgrades to its legislation, regulation and safety as well as increased services to outlying islands and some upgrades to wharf facilities. The commercial ports have the highest costs in the Pacific even though their efficiency is among the lowest and the road network is inadequate and poorly maintained.”
In addition to upgrading infrastructure, the ADB report also urged the Vanuatu Government to continue its policy of improving governance, deregulation, modernising its commercial laws and regulations, expanding access to finance and reforming land leasing systems.