Yesterday Ferid Belhaj, World Bank Director for PNG, Timor-Leste and Pacific Islands and Vivek Suri, World Bank Lead Economist for the same region came to the ANU to present the new World Bank publication Pacific Futures.
Stephen Howes and Jonathan Pryke summarise the report and presentation below.
The starting point for Pacific Futures is the recognition that the Pacific island region is different and should not be expected to follow a conventional growth path. “Geographical factors limit Pacific Island Countries’ [PICs’] capacity to follow the path taken by rapidly growing states.” Many countries in the region are simply too small and remote to follow the conventional development path to success through industrialization and exports.
This is not to say that the PICs have no advantages. The Bank identifies three:
1. Natural resource wealth and niche opportunities (including specialised tourism). Low business costs are not a prerequisite for attracting investment when an economic rent can be earned from the exploitation of natural resources (including unique scenery) and the negative impacts of high costs of distance are less relevant. This is reflected in PICs historical heavy reliance on fisheries, minerals, forestry and tourism.
2. Remittances from their population living abroad. With a scarcity of local employment opportunities, workers have demonstrated flexibility in moving to where jobs are located.
3. Aid. PICs have been successful in leveraging their historical ties, strategic locations, and close diplomatic relations with larger economies to access sustained and durable transfers of aid.
What are the implications of a natural resource/migration/aid-based strategy to development? Pacific Futures argues for a four-pronged approach:
1. Integrating to reduce the economic costs of distance
– Increased labour mobility
– Better transport and communication links
– Harmonising regulatory frameworks and services
2. Integrating to reduce the costs of providing public services
– Options for regional approaches include shared telecommunications and competition regulation, specialist financial management capacities (such as audit and tax assessment), and specialized health and education facilities.
3. Maximising gains from natural resource industries
– Extensive policy and regulatory reform, and institutional strengthening, are required to ensure better outcomes in PICs from natural resources.
4. Mainstreaming and maximising the benefits of aid.
– Providing sustainable donor financing for the establishment and operation of shared institutions.
– Increasing the use of budget support.
– Increasing the role of the private sector in delivering aid-financed goods and services.
– Using sustained capacity support rather than short-term capacity building in highly specialised areas with broad development impacts (for example, audit, taxation policy, or mining regulation).
– Ensuring climate change adaptation funds can be accessed and are well-utilised.
Not all of this analysis is new: some academics have long argued that remittances and aid were critical for island economies. Moreover, the Pacific island region is extremely diverse, and the Bank itself notes that its analysis applies much more to the smaller countries in the region than the larger. Overall, however, there is no doubt that Pacific Futures not only challenges conventional wisdom about the Pacific, but in some cases turns it on its head.
What the Bank will do with its new ideas remains to be seen. The publication itself is labelled a draft “Discussion Note.” And Regional Director Ferid Belhaj stressed at the seminar the importance of consultation and experimentation. But Belhaj also suggested that now was the time to move from analysis to action, stating “we want to move from concept to reality, from concept to concrete steps.”
How Australia responds to these new ideas from the World Bank will be a lot more important than what the Bank itself does. We are after all the dominant power in the region. Are we prepared to accept that aid will be a permanent feature of the Pacific? (“Overall, international assistance of various kinds is likely to remain an enduring feature of pacific Island economies for the foreseeable future.”) Will we open up our labour market to the Pacific? (To remove “barriers to increased flows of short and eventually, longer-term or permanent migrant workers to large markets”.) And are we willing to share our institutions with neighbours willing to adopt them? (“In some cases, more effective regional integration may arise from negotiating the expansion of larger country institutions to cover PIC economies.”)
The release of Pacific Futures by the World Bank is an important milestone. It deserves to be widely read and debated throughout the region.
Pacific Futures is available here.
Stephen Howes is Director of the Development Policy Centre and Jonathan Pryke is a Researcher at the Centre.
I am a little ambivalent about the identification of remittance as an advantage on which to base a development strategy. First of all this will involve a paradigm shift in a few countries. The existing thinking is that development serves to lessen migration, to keep the maximum number of people in place. A remittance-based development strategy on the other hand involves the active encouragement of migration. In reality given the chance to move people do seek better economic opportunity, but from there to set up positive government policy to encourage movement is another matter. There are internal issues but also issues with the receiving countries. More likely than not the receiving countries would object or come under internal political pressure to so so, claiming strain on their own social services. So the World Bank should be careful about promoting that as a development strategy.
For many years, the World Bank’s approach to the region has not always been very clear, and in many of the countries it has had very little to no activity whatsoever (this is especially true in the northern islands). So I commend the Bank for its efforts to clarify its thinking on the Pacific.
I agree that many of their observations serve to reaffirm what are already well recognized ideas and approaches for development in the region. I’ve yet to read the full paper, but from this summary it does appear that they’ve made a genuine effort to offer new “how to” approaches to some age-old challenges.
Their discussion confirms the long-standing argument that when it comes to development in the Pacific, some degree of (cautious) “exceptionalism” is needed, especially in the smallest states where high “fixed-costs” and other endemic constraints are very real.
But in the end, I totally agree with Paul that our own policies, institutions, and (let’s be brutally honest!) quality of leadership are also major factors that add burden to an already difficult development situation.
Yes, the islands face many real development challenges, but there’s also much room for self-help and improvement.
Every country in which I have worked, and it is now close to 50, claims that it is “different”. And of course, in a number of senses, each is correct. Each country has a unique history, culture, and institutions, which determine how people behave, the opportunities, and their policy choices.
However, in another sense, many are depressingly similar. Policy actions and outdated institutions make achieving prosperity difficult. Most Pacific region countries simply do not have the fundamentals that effectively encourage private enterprise. Their policies do not promote investment or entrepreneurship. Many countries view business activity with suspicion and as something that needs to be controlled. Foreign investors have to have amazing persistence if they wish to invest. Yes, Pacific region countries are small and remote, but many of their actions amplify the disadvantages of size and distance. In turn, this makes many of them more dependent on aid, so a vicious circle is established. None of the suggestions in the “new” World Bank approach are are in fact new. What is needed, is not another initiative, but rather a renewed focus on fundamentals. Countries in the Pacific would do well to look at the example of Cape Verde for a small isolated country that has achieved high growth.
I agree with you Paul. I don’t recognise much that is new in the World Bank’s approach. Pacific island countries and donors have long been discussing integration of transport and communication links, increased labour mobility, and regional approaches to regulation and public sector capacity in specialist areas like telecommunications, audit and statistics. The problem is not what needs to be done, it’s how to reach agreement and then progress to implementation. The World Bank’s 3rd prong, Maximising gains from natural resource industries, takes us back to the hardy perennials of governance, accountability and public sector capacity that have been the focus of aid programs for decades. Certainly innovative approaches to ensuring better outcomes from natural resources are needed and one such innovation in the World Bank’s 4th prong is to increase the role of the private sector in delivering aid-financed goods and services. This suggestion draws on international experience over the past decade of the private sector in leveraging development outcomes. In the Pacific island region, there are many examples of private sector development activities that are delivering health, education and economic benefits. The private sector brings logistics, management skills and innovation to basic service delivery challenges and in the case of mining companies, can often reach remote and hard to access populations. But engaging the private sector in delivering goods and services also requires accountability and transparency. At present, it is difficult to tell from company reporting the extent or the cost of the services they deliver whether as part of a formal operating licence agreement or as a voluntary corporate social responsibility project. If donors in the Pacific were to move to having more partnerships with the private sector to deliver aid-financed goods and services, and they provided public reporting on the cost and effectiveness of these partnerships, this could pave the way for governments in the region to consider the private sector to supplement resources for delivering basic services.
Thanks for the summary.
Another point that stood out for me in the presentation, and which turns conventional thinking in the Bank on its head, is the claim that the public sectors of some (mainly micro) states will and should remain large relative to their economies. This focus on the “crowding in” effect of public spending contrasts with previous attempts to downsize the public sector of Pacific island countries. In my mind, this seems a sensible and refreshing approach, especially in micro-states like Tuvalu where aid money is likely to remain a large proportion of GDP. At the same time, it shouldn’t justify a deterministic approach, nor is it appropriate in larger countries.