Pacific Island countries (PICs) are a diverse group with different cultural, geographical and resource endowments. However, in the scheme of development challenges they are very similar. Their economies are generally supported by resource based development, especially in the bigger countries such as Papua New Guinea, Solomon Islands, Vanuatu and Fiji. The smaller economies like Tonga, Samoa, and Cook Islands rely on tourism and remittances, while the smallest depend on foreign aid. For too long we have talked about how to create sustainable economies in the Pacific. I think we know what needs to be done but we seem to ignore the proper courses of action and still don’t know why they are yet to happen.
At a glance, the key issues facing Pacific economies are as follows:
- Management of natural resources in the fishing, minerals and forestry industries;
- Continuation of remittances: whatever their down side, remittances provide families and households in many countries of the Pacific with the capability and freedom to consume and, to some extent, invest;
- Aid, which should not be confused with remittances and assuming that it has a similar effect. Aid continues to be vital to the creation of public infrastructure and for the delivery of public goods and services. And;
- Economic integration needs to be deepened and made more meaningful if the costs of doing business and delivering public goods are to be met.
Given these issues, what options do we have to further develop Pacific economies?
As our local markets are small we have few alternatives to pursuing outward-facing, export oriented strategies that expand our comparative advantage. Overseas markets are distant, however, making exports expensive, and we can’t compete in manufacturing, but there is huge potential in the export of professional services such as accounting, legal counsel, architecture, music production, editing, engineering and so on. All of these can be exported through a broad band connection.
We also need to consider how we can support local and domestic industries to expand beyond their domestic market. Tourism is one such industry that has been successfully promoted, but much of its comparative advantage and the distinction of our tourism products are based on the environment. Efforts to protect this must be accelerated.
Why aren’t these issues being addressed and such options pursued?
Dookeran et.al (2012) talk about an ‘anti-growth coalition’ in the Caribbean, a concept that can easily be applied to the Pacific. Economic integration has been stalled by an anti-growth coalition of business interests, bureaucrats, politicians and some NGOs. PICs should make serious efforts to further integrate among themselves, which has so far not been pursued with any seriousness.
Further, we are surrounded by two rich neighbors with a combined GDP of more than $1.6 trillion. Australia, with a nominal per capita GDP of about $70,000, and New Zealand, with about $40,000, will continue to be our source of tourism, remittances and investment. Our integration with them is vital and we should push with urgency to complete negotiations under PACER Plus.
To break the anti-growth and integration coalition I have described above political leaders need to pursue reform, particularly of the monopolistic structures that exist in many PICs. Further competition in the ICT sector and development of broad band infrastructure are particularly important. Some argue that further competition cannot be realised in countries like Fiji. In reality, it’s a good example of where further deregulation would be beneficial.
The ICT sector also provides an opportunity for legislation to be developed to ensure that companies are regulated in the same way across different countries. The current mobile phone roaming charges in PICs are scandalous. We should collectively move to ensure that these charges are reduced. Australia and New Zealand, who are already working on such legislation, should include PICs in the deal.
These are just some ways in which the Pacific can move towards stronger economic development. The future of the Pacific is dependent on our leaders and our neighbours recognising and acting on what needs to be done, specifically:
- Improving our global competiveness by increasing our national and regional competiveness;
- Raising the quality of governance in the Pacific through transparent and inclusive political institutions and improving the political credibility of our governments;
- Pursuing integration in transport, ICT and other communication infrastructure;
- Achieving a convergence of key regulatory measures to ensure they support regional interests and;
- Pursuing policy excellence by supporting regional centres of high quality research and innovation.
Biman Prasad is Professor of Economics and Chair of the Oceania Development Network in the Faculty of Business and Economics at The University of the South Pacific. This post is based on his presentation to the Pacific Roundtable, which was held as part of the Asia and the Pacific Policy Society Conference at ANU on Thursday September 6. The rest of the series can be found here.
I would suggest some members of the so-called ‘anti-growth coalition’ are based in Canberra and that ‘breaking’ the coalition would be a tricky business. Australia’s announcement that the Seasonal Worker Scheme will only take 2,600 workers per annum for example, while 37,000 backpackers work in Australia’s agricultural sector each year, is scandalous. Much greater commitment to ‘regional integration’ is needed in this regard.
I agree with you that there may be opportunities to pursue economic opportunities through internet-based service provision (legal counsel, accounting, music production etc). However I think we need to ask whether Pacific states exhibit the necessary preconditions for this to be an area of genuine comparative advantage (at least in international trade). Ie. are telecommunications affordable?, is there domestic and regional telecommunications infrastructure? Do local workforces have specialist knowledge in ICT?, are wages competitive? Etc. Maybe some of these conditions exist in Fiji (?) – but do they exist across the region?
Even if all the necessary preconditions are met, a key question remains as to whether service provision reliant on ICT would provide sufficient (or even significant) employment generation for growing island populations?
Maybe there needs to be a greater emphasis on labour-intensive sectors like agricultural exports. While ‘old hat’ to some, agriculture is still a key source of export earnings for far more Pacific islanders than services provided over the internet. Agricultural exports also link to other key sectors – such as tourism and the ‘traditional economy’ of local food production – and are vital for generating livelihoods. Pacific agricultural exports are still dominated by traditional commodities – like sugar, coffee, cocoa, copra etc – and more could be done to ‘value add’, or to find ‘niche markets’ for higher-value Pacific products. Perhaps here there is a role for improved marketing to consumers in Australia, New Zealand, China etc? (and any new marketing should probably be pretty tech-savvy).
I note that Pacific governments could do a lot more to ameliorate quarantine issues for agricultural and horticultural exports. Australia and New Zealand could also do a lot more to assess new products for market entry. However this may require ‘political leaders to pursue reform, particularly of monopolistic structures’ – such as local ginger grower associations, or north-Queensland taro lobby groups. Again, more commitment to regional integration needed here.
Finally, the Australian and New Zealand governments should urgently review the rules of origin requirements for Pacific exporters. This would show practical support for ‘regional integration’ and may provide some certainty for Pacific manufacturing exports (for textiles, clothing and footwear exports from Fiji in particular). See: https://devpolicy.org/new-rules-to-expand-pacific-exports-only-if-action-is-taken-fast/
Thank you for your very useful comments. I do not disagree with you that some members of the so-called ‘anti-growth coalition’ may be based in Canberra! However, I do think that there is increasing awareness of about the need to break those coalitions. At least in the Pacific, I do get a sense that some governments are prepared to break that anti-growth coalition. The recent MSG agreement on labour mobility is a significant step for deeper and meaningful integration and regionalism amongst the Pacific islands. I agree and have always maintained that Australia has not been responding well to the call for better and extensive seasonal worker scheme for the Pacific Islands.
On the use of ICT, I think there is already significant capacity in some of the countries led by Fiji and others will be able to build that capacity in a short period of time. However, further reform in the regulatory environment could help build better ICT infrastructure in the region. There is more room for competition in Fiji, Vanuatu, Solomon Islands and Papua New Guinea. This could see significant cost reduction for internet and use of ICT generally.
I agree that unemployment is a significant issue in many countries and looking for sources of growth that would generate more employment would make sense. I think that promoting ICT based services export will complement and indeed help other sectors of the economy as well. I also agree with you that in some of the countries the agricultural sector and to some extent manufacturing based on value addition to agriculture will create more jobs and this should be pursued. I know there have been supply side constraints as well as difficulties to find better markets. The situation with regards to quarantine issues in relation to exports to Australia and New Zealand has always been a barrier but I see some progress is being made to resolve those.
Finally I also agree that the Australian and New Zealand governments should urgently review the rules of origin requirements for Pacific exporters. This would go a long way in supporting efforts by Pacific countries to integrate further with ANZ. Pacific governments will also need to cooperate better and take more concrete steps to work with each other to promote deeper and meaningful integration. The fact that Pacific governments and officials are meeting all the time does not mean that they are actually cooperating.