Islands Business - WE SAY: Reforming through difficult times

October 2009 Issue

‘...many Pacific Islands countries have not only woken up to the fact that simplifying business procedures is key to expanding their economies but also to the fact that if they don’t do it quick enough, a competing country will grab an already shrinking pool of investible funds. This isdoubly so in the context of the current economic environment where business credit is expected to be hard to come by for at least another couple of years’

The World Bank’s big tick to several Pacific Islands countries for their pace in progressively easing regulations related to doing business is a most welcome development, especially at a time when news and opinions about the doom and gloom of collapsing economies continue to fly across the globe.
The past year was particularly brilliant for Asia/Pacific where the bank says reforms took place the fastest. Leading the brigade in this vast geographic space are Singapore, New Zealand and Hong Kong (which, in fact means China).
As many as 17 of the 24 regional economies achieved goals on the reform programmes they had embarked on. In the same vein, the Pacific Islands states’ pace by the standards and scales of their own levels were equally impressive. The Pacific Islands region as a whole has been commended for keeping its pace of reforms in step with the rest of the world in the bank’s annual doing business report titled “Doing Business 2010: Reforming through Difficult Times”. The report this year has ranked 183 countries on some 10 criteria relating to the ease of doing business.
Five of the Pacific Islands states have received a mention for expeditiously conducting reforms in the areas of business taxation policies, enforcement of contracts, access to and ease of obtaining business credit and the overall ease of getting a business activity started. These are Papua New Guinea, Tonga, Vanuatu, Samoa and Timor Leste.
The report clearly shows that many Pacific Islands countries have not only woken up to the fact that simplifying business procedures is key to expanding their economies but also to the fact that if they don’t do it quick enough, a competing country will grab an already shrinking pool of investable funds. This is doubly so in the context of the current economic environment where business credit is expected to be hard to come by for at least another couple of years.
The reforms on so many fronts relating to business are indeed encouraging and extremely commendable. Some countries have exceeded expectations. Samoa, for instance, came up as the best reformer on a worldwide scale on measures to make it easier to start a business. Samoa has been on a roll as regards economic reforms, which saw its economy grow at an average of nearly five percent every year in the early part of this decade. These reforms and the concomitant pace of growth took Samoa’s reputation high on the list of the world’s development agencies and financial institutions until last year.
It has now hit a rough patch following a sudden slowdown in construction activity and increased unemployment following problems at neighbouring American Samoa’s fish processing plants where a considerable number of Samoans were employed as also problems at Samoa’s largest private sector employer, auto components manufacturer Yazaki. These problems will make themselves felt in next year’s economic indices. Yet, despite this, Samoa performed impressively on the ease of doing business index.
Vanuatu has been recognised for improving access to credit, especially for indigenous businesses—a welcome development for the latter especially as it has been facing criticism over several years of being used by shady overseas companies running offshore finance schemes. Last year, the Australian Federal Police raided business establishments on suspicion of money laundering.
Also Vanuatu’s opening up of credit lines for indigenous people couldn’t have come at a better time because of the success hundreds of them have achieved in terms of earning overseas wages after being employed in New Zealand under its Registered Seasonal Employer (RSE) scheme. This was the first time that Vanuatu citizens have had the chance to send back remittances to their homeland after employment overseas in the kind of volumes seen last year. The money they have sent back supplemented by additional credit has encouraged indigenous people to start small businesses.
Tonga impressively followed up on its previous year’s performance when it reformed its contract law by implementing reforms in its taxation laws, thus leapfrogging ahead of Fiji by two places in the ease of doing business index. Last year’s action on contract law reform helped the courts clear thousands of pending cases, significantly clearing the backlog that had clogged the judicial system for years.
Though a late starter even by Pacific Islands standards, Timor Leste performed impressively improving its ranking to 164 in the present report over 173 last year. It achieved this by enacting new tax laws in July last year, which cut the profit tax rate from 30 percent to 10 percent and abolished the alternative minimum tax and withholding tax on interest. Simultaneously, corporate income tax has been made payable in quarterly installments in cases where the turnover is less than $1 million.
The report is an excellent reflection on the economic leadership of the Pacific Islands. The World Bank has in recent years also played a catalytic role in reforms process at a regional level by facilitating a better business environment by initiating several programmes, most notable being the role its Sydney office played in bringing all stakeholders together to make the money transfer process across the Pacific easier and cheaper.
This not only led to cutting rates for transfers of remittances—the Pacific Islands’ biggest revenue earner—but also spawned a number of cross border financial products introduced by the commercial banks.
It has committed to increasing its activities and presence in the region, which is indeed an extremely encouraging sign and a further endorsement of the achievement of the islands over the past few years.
The proliferation of telecommunication networks, particularly the mobile phone and Internet, further to many of the countries reforming their telecommunication and ICT regulatory regimes has also helped in no small measure in ushering in a more friendly business environment with better efficiencies as well as driving down rates.
Governments now need to follow up on these successes by cooperating on some of the regional aspects for doing business that have been hanging fire for several years in the sectors of aviation and inter-island trade and shipping logistics. Success on those fronts will truly turn the Pacific Islands region into its very own economic zone that holds promise of bringing in an era of unprecedented prosperity for its people.
The World Bank report is an encouraging indication that this will happen sooner rather than later.