Buddies in bad times
The recent breakdown of Vodaphone Fiji’s investment in Papua New Guinea’s BeMobile is just the most recent in a series of missed opportunities in cross-investment that could not only improve small island economies, but mitigate against some of the worst aspects of large-scale development projects in the Pacific.
Pacific island nations possess a chronic, unfixable weakness: With few exceptions, their economies are so small and fragile that a failure which might cause only ripples in a larger economy can hamstring theirs for years. Furthermore, their diminutive markets make them unappealing to most investors. Although they’re often put in the same basket as Caribbean states, their distance from other markets renders them unique – and in the eyes of many, uniquely unsuited for investment.
It serves no one’s interests to imagine that the development and financial approaches that work well in other developing states can simply be cut-and-pasted into the Pacific. And yet, far too often, this is the hole into which our development pegs are hammered. Although development banks and donor nations offer loans at extremely low interest rates, the assumptions under which funding is offered are sometimes unrealistic. And because return on investment is generally smaller than just about anywhere else on the planet, governments are expected to offer either guarantees or exclusive concession rights to investors, or to become shareholders themselves, and sometimes both.
These can end badly, either in complacency and rent-seeking behaviour that only provides further friction for an already slow-moving economy, or in mere failure when second-rate solutions are applied to mitigate up-front costs and small returns. The latter is often self-perpetuating, too. Infrastructure, materials, supply chains and technical expertise are often poor quality and in short supply, and even then available only at eyebrow raising cost. The only way to keep things moving, then, is continually to fall back on expedients. This can only produce second-rate results. Subsequent attempts to build on what’s already there are likewise limited.
In the Pacific, plan B is generally the starting point. It all goes downhill from there.
Not every country is willing to accept second best. Samoa has embarked on a damn the torpedoes approach, using mostly Chinese funding to construct roads, airports and public buildings to a standard well above its neighbours’. (One wit in Apia noted that there are almost as many speed bumps on the main island’s pristine new ring road as there are churches.)
Many, though, are waiting for the other shoe to drop. There is a widely held belief that repayment of many –if not most– Chinese loans is contingent more on toeing the geopolitical line than on strictly financial considerations. In decades past, some debts to China were indeed conveniently forgiven. But that is not likely to be the case today. In any circumstance, gambling on such a scenario comes at a significant potential cost to national sovereignty.
Regardless of the risk, Samoa is hardly the only country doing this. Both Samoa and Tonga, for instance, have sizeable debt to GDP ratios, which inevitably will limit further development prospects.
Vanuatu has indulged in Chinese largesse, but not to the exclusion of other sources. Following the 2008 Pacific Economic Survey, which highlighted the need for wholesale infrastructure improvements (specifically, to roads, wharves and airports), the country has lined up a series of major works using a mix of funding approaches that includes grants, concessionary loans and public-private partnership.
This last is perhaps most interesting, if only because its merits and deficiencies are not as obvious as simply taking on bags of debt from a development bank. Following a long and somewhat fraught negotiation, the government gave its blessing to a private-sector company to construct a USD 30 million fibre-optic cable link to Fiji. In the latter stages of the negotiation, it appeared that NASFUND, PNG’s provident fund, would be a major shareholder. This raised the ire of a great many, who asked why Vanuatu’s own provident fund, VNPF, wasn’t involved. There were reasons. The VNPF had in fact looked at the proposal, and for business reasons declined to invest. But conditions changed, and within months of a management shuffle at the fund, it became known that they were indeed committed to a minimum 37.5% share of the cable project, with an option to increase it to nearly 50%.
At one point in time, however, three Melanesian countries might have found themselves each supporting core segments of another’s economy. Fiji’s fund, the FNPF, was set to invest USD 40 million in PNG’s struggling BeMobile. NASFUND was to own a significant part of Vanuatu’s new fibre-optic cable operation, which in turn would connect to the trans-Pacific cable via FINTEL, recently sold to a company largely owned by the FNPF.
Such a scenario has much to recommend it. Even Least Developed Countries such as Vanuatu do have considerable investment capability (relative to tiny Pacific economies, at any rate) in their respective provident funds. Given the conservative nature of retirement funds, longer amortisation periods accompanied by stable, long-term returns are more easily countenanced. And considering their social development mandate, investments that better the lives of their neighbours –especially on a reciprocal basis– makes the prospect more attractive still. Best of all, by investing close to home, but not too close, they would be less subject to political pressures that might otherwise lead them to become involved in popular but questionable domestic projects.
This cleaves closely to what Timor Leste prime minister Xanana Gusmao expressed when he set out his vision of ‘development by all, for all’ at the International Conference on the Post-2015 Development Agenda held in Dili in February. Mr Gusmao explained that developing countries are not without means, and because they understand the challenges they face better than anyone else, they should be willing to assist one another in reducing poverty and improving their respective economies.
In Melanesia, alas, we saw a false flowering of this ideal. The VNPF is now the major investor in Vanuatu’s cable, and due to cost considerations, the company has bypassed FINTEL for the time being by provisioning its internet connectivity in Australia. The FNPF/Vodaphone/BeMobile deal has come unstuck because of conflicts over the choice of contractor to conduct a sorely needed expansion of BeMobile’s infrastructure.
Vision, it seems, may not be lacking, but the ability to follow through, to invest responsibly, cooperatively and with an eye firmly on posterity, apparently is. Instead, Pacific leaders seem content to allow short-term considerations and quick (and sometimes questionable) rewards to overshadow a greater, if more distant, chance for actual prosperity.
