FAST GROWTH IN THE PACIFIC IS POSSIBLE – LOOK AT VANUATU
Analysts have been slow to notice Vanuatu’s economic turn around reflected in an annual average growth rate of 6.6% between 2003 and 2008. Stephen Howes, Professor at the Crawford School of Economics and Government at the Australian National University and co-author of the latest briefing paper from the Pacific Institute of Public Policy (PiPP), says that this growth trend ‘dispels the myth that the Pacific island economies cannot grow’.
The briefing paper by Dr Howes and Mr Nikunj Soni, PiPP Executive Director, identifies a range of factors that are important for growth in the Pacific – tourism, active land markets, deregulation, and macroeconomic and social stability. Tourism is highlighted as a major driver of growth in Vanuatu with arrivals by air increasing annually by an average of 12.5% between 2003 to 2008 following the deregulation of the airline sector. Cruise ship visitors also doubled in the same period, reaching 106,000 in 2008.
Another main contributor to growth has been the construction sector. Construction growth increased from about 7% in 2004 to 25% in 2008. The construction boom has been driven in part by tourism growth, in part by expatriates and locals building houses, and in part now by the Millennium Challenge Corporation’s large road-building project.
Dr Howes states that Vanuatu’s recent growth has been led by the private sector and not by aid, noting ‘while average annual aid has decreased from its levels in the 1990s, commercial lending has increased across most sectors. This bears testimony to Vanuatu’s growing middle class, as well as the country’s active land market’.
Mr Nikunj Soni points to social stability as a key factor behind Vanuatu’s recent economic success. ‘Despite a fiscal crisis in the late 1990s and a tradition of intense political instability, the underlying social stability in Vanuatu, and and its ability to make transitions of power peacefully have helped lay the foundations for growth, including by enhancing the country’s reputation among potential investors and tourists and by promoting its prospects for inclusion in seasonal workers programmes’, says Mr Soni.
The authors caution that, as a small island economy, Vanuatu inevitably faces high risks. The global recession poses uncertainty about Vanuatu’s short-term prospects. The Government predicts growth of 4.4% for 2009. A downturn in tourism numbers is the major risk, but has not happened yet. In fact in the first four months of this year growth in visitor arrivals has accelerated.
Traditionally, analysts have distinguished between the relatively good performance of the Polynesian countries (Samoa, Tonga, Cook Islands) and the relatively poor performance of the Melanesian countries (Vanuatu, Solomon Islands, Fiji and PNG). That Vanuatu’s recent performance is making the contrast between these two regions less stark is a welcome development.
A copy of the briefing paper is available here.
