But manufacturing flounders

Dev Nadkarni
Thanks to its relatively faster pace of reforms and restructuring of its national revenue systems, good fiscal control, privatisation of public enterprises like public works and ports, Samoa has been referred to as the "darling of aid agencies" in recent times.

Over the past 15 years or so, its economy has consistently grown at an average rate of 4%. During that period, the top income tax slab fell from 45% to 29% and import duties from a high of 120% to 20% now, with duty on most items hovering around 8%.

"But the government didn't factor in the realities of the local industry while carrying out these reforms," says Papali'i Grant Percival, president of the Samoa Association of Manufacturers and Exporters (SAME), a manufacturer-exporter himself. "This restructuring has created an extremely 'unlevel' playing field for the local manufacturing and industry."

Grant believes the across-the-board import duty reductions were aimed at boosting the tourism industry and in the process made other domestic industries uncompetitive because of cheap imports.

"This has proved to be a disincentive even to farming. People have realised that inputs into farming yield no margins. It's cheaper to buy imported rice at the shop than to grow taro," he says.

While there has been a worldwide trend in tariff reduction, Grant feels tariffs in Samoa should have been preserved longer and dismantled more slowly especially because of the economy's geographical isolation.

Also, as an LDC (least developed country), Samoa can have differential tariffs but prefers not to. In his view, the government felt a compulsion to reduce import tariffs after the introduction of the 12.5% VAGST (value added general sales tax)-a move to soften its impact. "Good intentions led to a bad decision," he remarks.

Utility rates are high compared to other Pacific islands neighbours like Fiji, thus making the cost of doing business higher as well.

But the government's tourism-centric policies have begun paying dividends. At S$196 million, it is the country's second largest revenue earner, only slightly behind overseas remittances which stood at S$206 million at the end of 2004.

Merchandise exports came a distant third at just S$33 million, not including Samoa's largest private sector employer, the overseas-owned Yazaki Samoa. It exports some S$75 million worth of automotive harness products to Australia. The company employs over 2000 locals. Growth of the tourism industry has also addressed the problem of Samoa's underemployed workforce by creating jobs both in the formal and informal sectors. There are just about 13,000 jobs in the formal sector.


Fishing

Fish exports constitute over 40% of Samoa's non-tourism export earnings. Hit by a slump in 2003-04, the industry is now seeing a turnaround. "It's part of a natural cycle," says John Luff, managing director of Apia Export Fish Packers, whose company controls 80% of the export market.

Albacore destined for Pago and Pago and then on to the US

Pointing to a steadily rising slope on a graph depicting fish stocks, the veteran fishing industrialist says that factors like the atmospheric El Nino effect affect the breeding cycles of fish like albacore-Samoa's main export, comprising 85% of the volume.

"It's an almost Biblical seven-year cycle," he says, allaying any fears of over-fishing.
Luff is emphatic that albacore is not over-fished, but is more cautious when it comes to yellowfin tuna, which he feels there is a need to monitor. "The big-eye tuna is definitely over-fished," he says, adding that stocks of albacore, yellowfin and skipjack are very healthy at the present time, at least in Samoan waters.

Luff's factory exports 90% of its catch to the canneries in Pago Pago in American Samoa. The canneries have been facing labour problems last year and production has been affected. With the immigration spat between the two Samoas, the cannery has been finding it difficult to get cheap labour from independent Samoa.

Late last year, there were talks of Chinese vessels being allowed into Samoa's exclusive economic zone (EEZ). Samoa's fishing industry aggressively lobbied the government against the move.

"Samoa has the smallest EEZ in the Pacific. It made little sense to permit the world's largest distant water fishing fleet to operate here," Luff says. The proposal was shelved early this year.

Luff points to lack of infrastructure as a great stumbling block towards the industry's development. "Berthing, fuelling, vessel repair are all restricting factors," he says.

But there seems to be some hope. Under a Japanese International Cooperation Agency (JICA) assistance scheme, a new wharf area is being developed along the Apia waterfront.
Luff is hopeful of another period of growth in the fishing industry.


Telecom

Samoa's telecom sector has made impressive progress in recent years, though tariffs continue to be high.

SamoaTel headquarters: region's first 'intelligent building'

SamoaTel CEO Mike Johnstone says there is now a complete fibre optic loop around the island of Upolu and a combination of fibre and microwave links on Savai'i.

"Twenty six percent of our total revenue is spent on capital infrastructure against a world standard of just 12%," he says.

That has taken teledensity from 6 to 10% in the last couple of years and the goal is to reach 11% by the end of the year. SamoaTel has about 17,000 fixed line customers and 3000 Internet users. It wholesales Internet bandwidth to a clutch of retail outfits.

Johnstone says the bandwidth demand is rising rapidly with large companies and government realising the benefits of digital technologies.

At Faleolo Airport, digital passport readers have been installed. These are linked to a central database.

"Customers are beginning to move towards electronic banking," says ANZ Samoa managing director Mandy Simpson. The country has between 250-300 EFTPOS terminals and over a dozen ATMs, mostly in Apia. All these devices use the telecommunication backbone.

While Upolu is better linked to the Internet, Savai'i has limited connectivity since places that are linked by wireless local loop (WLL) technology have no bandwidth capacity for data transfer.

"In Samoa, we have high topography and low density that drives up costs considerably," says Johnstone.

But SamoaTel has recently begun running weekend international call specials that have attracted a high interest from users. Customers can call New Zealand and Australia and speak for up to 30 minutes for a fixed charge.

SamoaTel continues to invest in new infrastructure. Last year, it moved into its new headquarters, which Johnstone describes as a "fully intelligent building".

It has also put in place a new digital switch of 30,000 lines and disaster-proof sensitive equipment by placing it higher than ground level to escape possible floods following cyclones. SamoaTel also runs the country's postal system that contributes about 6% to its kitty.

Like elsewhere in the developing world and the Pacific islands, Samoans have taken to cellular phones like fish to water. In just two years, the mobile phone population has shot up from 4000 to 20,000.

Telecom Samoa, the country's mobile services operator, has so far been using TDMA technology. But it has been a granted a GSM licence, says managing director David Borrill. This will come with GPRS, which he expects the security industry to lap up.

The government is about to allow a third telecom service provider after the end of the tendering process, due to be completed by year-end in a bid to introduce greater competition in the industry.

"We plan to have nationwide coverage by 2006," says Borrill. "Of the 22 cell sites required, eight are in place."

He assesses the mobile market size to be about 60,000 phones.

Telecom Samoa has also received its Internet Service Provider (ISP) and WiFi licences. "We plan to provide international gateway services and wireless from 2007," he says.
That will put Samoa firmly on the Pacific islands nations' digital map.