Country Report

Samoa

September 2004

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Contents

Samoa

3 Summary

4 Political structure

5 Economic structure 5 Annual indicators 6 Quarterly indicators

7 Outlook for 2004-05

8 The political scene

9 Economic policy

11 The domestic economy

11 Foreign trade and payments

The region

13 Summary

The region

14 Outlook for 2004-05

15 The political scene

16 Economic policy and the domestic economy

List of figures 5 Samoa: foreign trade 5 Samoa: consumer prices 7 Samoa: gross domestic product 7 Samoa: consumer price inflation

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Samoa September 2004 Summary

Outlook for 2004-05 The strong and united Human Rights Protection Party (HRPP) government will face little challenge from parliamentary opposition, and Samoa will remain the most politically stable of the Pacific islands in 2004-05. Hurricane damage in January 2004 has dampened the economy’s growth prospects this year. However, the agricultural sector is slowly beginning to recover and growth in tourism and strong construction activity will support annual growth of around 2-3% in 2004-05.

The political scene Samoan officials have been embarrassed by their failure to persuade most of the other island governments to back the country’s choice for the post of secretary-general of the ACP (Africa, Caribbean and Pacific) grouping. Immigration issues continue to dominate relations with New Zealand.

Economic policy The finance minister has held talks with Virgin Blue, the Australia-based low- cost airline, about the possibility of a joint venture with the government- owned Polynesian Airlines. Visa rules have been amended to help to attract foreign investors.

The domestic economy After a poor start to 2004, the number of overseas visitors has picked up in recent months, with arrivals for May 2004 up by 14% year on year. A quarantine centre for agricultural produce, funded by Australian aid, opened in August.

Foreign trade and payments Export earnings slumped in the first quarter of 2004, as poor weather conditions caused the fish catch to plummet, but they recovered somewhat during the second quarter, thanks to stronger coconut-cream exports and a jump in the value of fresh fish exports. Editors: Kate Allard (editor); Graham Richardson (consulting editor) Editorial closing date: September 1st 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

Country Report September 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Samoa 3

Political structure

Official name Independent State of Samoa

Form of state UK-style cabinet government

The executive The prime minister, chosen by a majority in the Fono (parliament), selects 12 ministers to form a cabinet; cabinet decisions may be reviewed by the Executive Council, which consists of the cabinet and the head of state

Head of state HH Malietoa Tanumafili II until his death, when a successor will be elected by the Fono for a five-year period

National legislature Unicameral, 49-member Fono; 47 members are elected by all Samoans aged 21 or over to represent 41 constituencies. The remaining two members are elected from electoral rolls made up of non-Samoans; elections are held every five years

Legal system System of lower courts leading to the Court of Appeal

National elections March 2001; the next election is due by March 2006

National government The Human Rights Protection Party (HRPP), led by Tuila’epa Sa’ilele Malielegaoi, holds around 30 of the 49 seats in the Fono

Main political parties Human Rights Protection Party (HRPP); Samoa Democratic United Party (SDUP)

Prime minister, minister of foreign affairs & public service, immigration, police & prisons Tuila’epa Sa’ilele Malielegaoi

Deputy prime minister & minister of finance Misa Telefoni Retzlaff

Key ministers Agriculture, forests & fisheries Tuisugaletaua Sofara Aveau Commerce Industry and Labour Hans Joachim Keil Communications and information technology Palusalue Fa’apo Education, sport & culture Fiame Naomi Mata’afa Health Mulitalo Siafausa Justice Gaina Tino Natural resources and environment Tuala Sale Tagaloa Kerslake Police, prisons & fire service Ulu Vaomalo Kini Revenue Tofa Tuuu Anasii Leota Trade & industry Hans Joachim Keil Transport Palusalue Fa’apo II Women’s affairs, community & social developoment Tuala Ainiu Iuisitino Works, transport & infrastructure Faumuina Liuga

Central Bank governor Papali’i Tommy Scanlan

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Economic structure

Annual indicators 1999a 2000a 2001a 2002a 2003b GDP at current prices (Tala m)c 698.9 774.8 849.7 890.4 n/a Real GDP growth (av; %)c 2.6 6.9 6.2 1.8 3.5 Consumer price inflation (av; %)c 0.3 0.9 3.8 8.1 4.0 Population (‘000)c 167.7 170.7 176.8 177.7 n/a Exports fob (US$ m)d 20.5 14.3 15.6 13.7 14.8a Imports cif (US$ m)d 115.1 106.6 130.5 112.9 135.7a Current-account balance (US$ m)c 5.3 10.3 -6.5 4.9 n/a Reserves excl gold (US$ m)d 68.20 63.66 56.64 62.49 83.91a Total external debt (US$ m)e 192.4 197.4 204.3 n/a n/a Debt-service ratio, paid (%)e 5.1 10.7 n/a n/a n/a Exchange rate (av; Tala:US$)d 3.012 3.271 3.472 3.375 2.998a a Actual. b Economist Intelligence Unit estimates. c Asian Development Bank. d IMF, International Financial Statistics. e World Bank, Global Development Finance.

Origins of gross domestic product 2002a % of total Agriculture & fishing 14.3 Manufacturing 14.8 Electricity & water 3.0 Construction 5.5 Trade, transport & communications 36.1 Government & other services 26.3

Principal exports fob 2002a Tala m Principal imports 1996b % of total Fresh fish 29.0 Intermediate goods 50.5 Garments 4.5 Industrial supplies 26.4 Beer 3.9 Consumption goods 38.1 Coconut oil & cream 3.1 Food & beverages 26.0 Copra 1.0 Capital goods 11.4

Main destinations of exports fob 2002a % of total Main origins of imports 2002a % of total Australia 59.6 New Zealand 23.7 Indonesia 10.7 Fiji 20.3 US 9.0 Australia 15.7 American Samoa 2.3 Japan 12.5 Germany 2.3 US 4.3 a Asian Development Bank. b IMF, Samoa: Statistical Appendix.

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Quarterly indicators 2002 2003 2004 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr Prices Consumer prices (2000=100) 111.9 117.1 111.6 109.6 113.6 115.7 110.5 128.3 Consumer prices (% change, year on year) 9.7 8.1 5.9 1.3 1.6 -1.2 -1.0 17.1 Financial indicators Exchange rate Tala:US$ (av) 3.369 3.340 3.279 3.126 3.033 2.976 2.865 2.740 Exchange rate Tala:US$ (end-period) 3.285 3.352 3.216 3.109 2.970 2.947 2.778 2.759 Deposit rate (av; %) 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 Lending rate (av; %) 9.8 9.8 9.8 9.8 9.8 9.8 9.8 9.8 M1 (end-period; Tala m) 92.29 88.33 95.61 94.44 93.83 101.56 118.21 118.26 M1 (% change, year on year) 4.1 -0.4 10.1 15.5 14.8 15.0 23.6 25.2 M2 (end-period; Tala m) 319.22 328.20 335.99 341.80 340.43 356.29 386.37 386.13 M2 (% change, year on year) 3.6 5.6 9.2 11.1 6.6 8.6 15.0 13.0 Foreign trade (Tala ‘000) Exports foba 14,260 13,702 10,266 8,515 8,779 18,515 8,452 6,019 Imports cif -48,170 -116,793 -109,092 -92,426 -105,278 -100,912 -108,354 -102,232 Trade balance -33,910 -103,091 -98,826 -83,911 -96,499 -82,397 -99,902 -96,213 Foreign reserves (US$ m) Reserves excl gold (end-period) 64.64 64.85 62.49 59.79 63.23 68.84 83.91 85.29 a Includes re-exports. Source: IMF, International Financial Statistics.

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Outlook for 2004-05

Samoa will remain the most The strong and united Human Rights Protection Party (HRPP) government led politically stable island nation by the prime minister, Tuila’epa Sa’ilele Malielegaoi, will face little challenge from parliamentary opposition. Backed by his energetic deputy and finance minister, Misa Telefoni Retzlaff, the prime minister’s grip on power is secure until the next election, due in 2006. As a result, Samoa will remain the most politically stable of the Pacific islands in 2004-05. However, the increasing number of beggars on the streets of Apia, the capital and only town, the high number of youth suicides and the high rate of unemployment, which is relieved only by cannery jobs in neighbouring American Samoa and restricted migration opportunities to New Zealand, is indicative of underlying social strains. The government will pursue its privatisation policies by reducing stakes in four companies, and three of its agencies will also be sold in the next year or so. The financially beleaguered national airline, Polynesian Airlines, will be heavily subsidised for a second successive year in 2004, although a link-up with one of the low-cost Australian or New Zealand carriers could be on the cards. The government is expected to take steps to encourage greater foreign investment in Samoa and also hopes to encourage the development of organic farming, with the aim of boosting exports to New Zealand and Australia. Meanwhile, the framework underpinning the Lands and Titles Court, established a century ago by the then German colonial government, will be reviewed and updated. The court plays a key role in settling disputes over the ownership and use of land, and the awarding of customary titles.

Growth will slow in 2004 Hurricane damage in January 2004 has dampened the economy’s growth owing to hurricane damage prospects for this year. The damage caused a local food shortage and consequent flare-up in consumer price inflation from the low level to which it had fallen by the end of 2003. As a result of this, and high world oil prices, the Economist Intelligence Unit expects inflation to average more than 6% in 2004. However, the agricultural sector is slowly beginning to recover, and growth in tourism and strong construction activity will support annual growth of around 2-3% in 2004-05.

A mini construction boom will The construction of two large beach resort hotels, and several smaller boutique continue resorts, will help to ease the shortage of upmarket accommodation that has long held back the development of the tourism industry. Construction activity will also be boosted by the building of commercial premises, aid-funded capital development projects and facilities needed for the next South Pacific Games to be held in Samoa in 2007. The tuna catch (which accounts for the bulk of exports) plunged in 2003 and early 2004, owing to poor fishing conditions and possibly the impact of overfishing by foreign fishermen. Tuna landings have since improved, although it is unclear whether this recovery can be sustained. The economy will remain heavily dependent on rising remittances from the large number of expatriate Samoans.

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The political scene

Samoa hosts the Pacific Islands The Samoan government stepped in to host the 35th annual meeting of the Forum annual summit Pacific Islands Forum (PIF, the main political organisation in the region) in August, after the main town on the tiny island of Niue, the designated host, was shattered by a severe hurricane in January 2004. The organisation of the prestigious event went smoothly. However, Samoan officials were embarrassed by their failure to persuade most of the other island governments to back the country’s choice for the post of secretary-general of the ACP (Africa, Caribbean and Pacific) grouping, Pa’o Luteru, a Samoan trade expert who is already a senior ACP official. After consensus-seeking talks and two days of face-to-face discussions between the Samoan prime minister, Tuila’epa Sa’ilele Malielegaoi, and the prime minister of Papua New Guinea (PNG), Sir Michael Somare, the ACP members of the PIF resorted to a ballot. This was won by the rival candidate, a PNG politician, Sir John Kaputin, by 11 votes to three. The Samoan government was apparently stunned by the strong backing for Sir John, although the PNG government had lobbied strongly in favour of its candidate for many months. Samoan officials and local newspapers saw the outcome as an insult to the PIF host nation and further evidence of anti-Samoan feeling, which they attribute to the praise the Samoan government has won internationally for the success of economic and political reforms undertaken in recent years.

Immigration issues dominate Mr Tuila’epa has informed parliament that there is no prospect of a repeal by relations with New Zealand New Zealand of the 1982 act stripping Samoans born between 1928 and 1948 (when Samoa was a New Zealand administered territory) of New Zealand citizenship. However, he remains hopeful of an agreement allowing 1,100 Samoans annually to take up temporary jobs in New Zealand (where there is a large resident Samoan population). Current immigration rules would be relaxed so that the quota would be fully utilised. Permission to hold a protest on immigration issues in Apia during a PIF summit meeting attended by the prime minister of New Zealand, Helen Clark, was refused by police on the grounds that it would compromise security

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arrangements. In June 2004 several thousand people attended a march to call for the reinstatement of visa-free entry for Samoans to New Zealand, which was abolished in 1982. Mr Tuila’epa and Ms Clark have, however, agreed to meet on an annual basis to discuss matters of mutual interest. Officials from both countries will meet in Apia in September 2004 to put together an agenda, which is likely to include immigration issues. The first annual meeting will probably take place later this year.

Court says that villagers were The Supreme Court has ruled that a group of villagers who were paid Tala4m properly compensated for land (US$1.3m) for 2,872 acres of land at Salelologa (on the island of Savai’i), which has been earmarked for development as a town, were fairly treated by the government. The compensation payment had originally been agreed at a meeting at Salelologa between government representatives and clan chiefs in March 2002, although some villagers subsequently claimed the land was worth more than Tala45m. In his ruling, Justice Lesatele Rapi Vaai said that the original Tala4m payment had been agreed with legitimate village representatives and that some of those listed as seeking additional money were in fact dead, living overseas or unaware that their names had been added to those claiming extra compensation.

Economic policy

The finance minister holds The deputy prime minister and finance minister, Misa Telefoni Retzlaff, has talks with Virgin Blue held talks with Virgin Blue, the Australia-based low-cost airline, about the possibility of a joint venture with the government-owned Polynesian Airlines. The possible sale of a stake in Polynesian to Virgin Blue was also discussed, although Mr Telefoni has said that the government would retain control of the airline. After hearing of Virgin’s interest, the Australian airline, Qantas, and the state-owned Air New Zealand also contacted Mr Telefoni. Qantas had previously spurned government overtures for a joint venture with Polynesian, similar to the one Qantas already has with the successful Fijian carrier, Air Pacific. Polynesian Airlines operates flights to Australia, New Zealand (via Niue and Tonga) and Hawaii, but has had to surrender the lease of a second Boeing 737- 800 jet, with a penalty payment of Tala10m (US$7m), as a result of a slower than expected recovery from the downturn in world tourism in 2002, rising fuel prices and other difficulties. Polynesian received a Tala20m subsidy in 2003 and will receive a further Tala9m this year, although the government still hopes that the airline will make a small profit by the end of 2005. Polynesia is likely to acquire a Dash-8 propjet for domestic and some shorthaul regional services.

Computer Services stake may The government has offered to sell its 40% stake in Computer Services Ltd be sold to staff (CSL), which was established in 1977 to supply it with computing services, to the company’s staff rather than to a potential foreign buyer, Datec. The other shareholders in CSL are the Samoa National Provident Fund (27.5%), ANZ Bank Samoa (22.5%) and the Samoa Life Assurance Corporation (10%).

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Samoa has secured additional The minister for commerce, industry and labour, Hans Keil, has secured EU funding for water projects additional EU funding and technical support for various water projects and programmes. Projects include improvements to river intake structures, treatment plants, storage reservoirs, bore supplies and purification plants, as well as new waste-water disposal systems. The government estimates that by 2010, Tala6m will have been spent on extending potable water supplies to almost 90% of the population.

Visa rules have been amended The government has amended immigration rules in an attempt to encourage to attract foreign investors more foreign investment. Ten permanent resident permits will be available in fiscal year 2004/05 (June-May) for foreign investors who wish to personally manage their local investments, whereas non-Samoan spouses of Samoan citizens will no longer require a permit to work in the country.

The electricity utility turns in The state-owned Electric Power Corporation (EPC) reported a Tala1.4m profit for its first profit for some years 2003, its first profit for some years. According to the EPC, 95% of the country now has access to electricity and the company is exploring the possibility of helping isolated households that cannot not afford the cost of connection. However, the village of Tanugamanono has sought compensation from the EPC for excessive noise and pollution from a nearby power station, with villagers complaining of ear problems, migraines and nauseous fumes. Meanwhile, the Asian Development Bank (ADB) has begun an environmental and social impact study for a planned hydroelectric scheme for the island of Savai’i at Sili. Villagers initially objected to giving up land for the project, but have now allowed ADB technicians into the area to conduct their studies.

Petrol stations complain about A government price order, effective from July 1st, has reduced the maximum government price restrictions petrol price by 2.5 cents a litre, diesel fuel by 1.7 cents a litre and jet fuel by 4 cents a litre. However, the Samoan Service Station Association (SSSA) has warned that its 15 members would be forced to close unless they were allowed to charge a 15% margin on wholesale prices to cover their basic operating costs. The SSSA argues that the current allowable margin of 4% is insufficient and has forced the closure of nine service stations in the past five years. It is calling on the government to either lift the price ceiling or reduce the fuel tax. The government has agreed to examine the difficulties facing the sector.

The country is to get its own The National Kidney Foundation of Singapore is to help provide the equipment renal dialysis unit and training needed to set up a renal dialysis unit in Samoa, a move aimed at cutting the high cost of sending patients for dialysis in New Zealand. About 23% of Samoans are thought to suffer from diabetes and 19% from hypertension, two conditions that can cause kidney failure. Work has also begun on the Ta la6. 1 m re furbishme nt a nd re novatio n o f t he Tu pua Ta mases e Meao le ce ntral hospital in the capital, Apia, funded by a soft loan from the World Bank. According to Mulitalo Siafausa Vui, the health minister, Samoa will benefit from the UN Global Fund for treating HIV/AIDS, tuberculosis and malaria. He says that Samoa has had only four reported cases of HIV/AIDS and only 15 tuberculosis cases, but still needs help to prevent the diseases from spreading further.

The domestic economy

Tourist arrivals have picked up Tourism has become a important economic sector, with tourism receipts after a poor start to the year reaching Tala158.6m (US$52.9m) in 2003, up by 4% on 2002, and inbound arrivals totalling 92,440. After a poor start to 2004, the number of overseas visitors has picked up in recent months, with arrivals for May 2004 up by 14% year on year. The construction of several new luxury hotels will help to ease the shortage of upmarket accommodation that has stifled growth in the industry in recent years. The family owners of a South Pacific icon, Aggie Grey’s Hotel in the capital, Apia, have now set a June 2005 completion date for a new Tala70m resort, comprising 140 rooms and four bungalows, currently under construction. The resort, a joint venture with the Samoa National Provident Fund and the airport authority, is located near Faleolo Airport. Also under construction is an 18-hole golf course in a resort comprising 40 bungalows and condominiums, and a developer from New Zealand, Gordon Taylor, has begun work on a resort on Tamesiga Island, a 39-acre property leased from the government. It will feature a luxury hotel, waterfront bungalows and a two- floor condominium. Richard Chiu, head of the Warwick Hotel chain, which has properties in Fiji and Vanuatu, stated in August that his company was negotiating the acquisition of land in Samoa for a 140-room property to be opened ahead of the South Pacific Games to be held in Samoa in 2007.

A new food quarantine centre A quarantine centre for agricultural produce, the construction of which was has been opened funded by Australian aid, opened in August. The new centre will enable Samoa to comply with World Trade Organisation (WTO) sanitary standards and will help to smooth negotiations for Samoa’s admission to the WTO. A quarantine project was started three years ago, following attacks on crops by the highly destructive and accidentally introduced African snail, and a disease that destroyed almost all of Samoa’s local species of taro (a basic food and also formerly an important export crop to New Zealand). In other developments in the agricultural sector, a flock of a new breed of tropical sheep developed in Fiji arrived in August. The sheep will form the core of what the government hopes will become a significant local meat-producing industry, with the aim of reducing the consumption of imported, high-fat canned meat. Samoa paid about US$1,500 a head for 44 animals, with four lambs born during shipment from Fiji.

Foreign trade and payments

Export earnings pick up According to the Central Bank of Samoa (CBS), export earnings fell to Tala6m following a weak first quarter (US$2m) in the first quarter of 2004, down by Tala2.4m on the previous quarter. This was a fall of 29% year on year. The quarterly fall reflected a slump in the volume of fish exports, as poor weather conditions caused the fish catch to plummet, and the impact of Cyclone Heta in January 2004 on the volume of a range of agricultural exports, including coconut and coconut cream, bananas and copra meal. Export earnings recovered somewhat in the second quarter, rising to Tala7.8m, thanks to stronger coconut-cream exports and a jump in the

value of fresh fish exports. However, export earnings remained well below the year-earlier level in the second quarter. The cost of imports also fell during the first quarter of 2004, by Tala6.1m to Tala102.2m, as a rise in the value of government and petroleum imports was more than offset by a decline in the value of non-petroleum, private-sector imports. However, the total import bill for the first quarter was still 11% higher than in the year-earlier period. Import coverage fell slightly from 5.1 months at end-2003 to 5 months at end-March 2004. Import figures for the second quarter have yet to be released.

The region September 2004 Summary

Outlook for 2004-05 Officials of the Fiji-based Pacific Islands Forum (PIF, the main political organisation in the region) will begin implementing the PIF’s Pacific Plan, for greater co-operation between the 14 island states on political, economic and social development, by the end of 2004. Despite their many problems, most island economies are forecast to expand in 2004-05, although financial aid will remain crucial.

The political scene The Australian prime minister, John Howard, used the opportunity of the PIF annual summit to expand further on what he saw as Australia’s role in the region. Samoa has lost out to Papua New Guinea (PNG) over the region’s nomination for the post of secretary-general of the Africa, Caribbean and Pacific (ACP) grouping.

Economic policy and the Negotiations with the EU on trade and aid under the Cotonou agreement are domestic economy set to begin. Concern has grown about how little the Pacific islands benefit from fish resources in their region. Rugby union has been designated as one of the economic and social priorities to be included in the Pacific Plan. The growth of cheaper flights to the region is having a significant impact on travel and tourism in the region. Editors: Kate Allard (editor); Graham Richardson (consulting editor) Editorial closing date: August 1st 20044 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule

The region Outlook for 2004-05

Island governments will begin Officials of the Fiji-based Pacific Islands Forum (PIF, the main political implementing the Pacific Plan organisation in the region) will begin implementing the PIF’s Pacific Plan, for greater co-operation between the 14 island states on political, economic and social development, by the end of 2004. Details of the grand vision floated by the leaders of the PIF’s 16 member governments (from 14 Melanesian, Polynesian and Micronesian independent states, together with New Zealand and Australia) at a “consultation” convened by the prime minister of New Zealand, Helen Clark, in Auckland in April 2004 (June 2004, The region), and confirmed by the PIF annual summit in Apia, Samoa in August, will be devised in the coming months by a task-force. The task-force will comprise the heads of various regional organisations and representatives from each country. Practical guidelines for implementing the plan will be submitted for formal approval at the 2005 annual PIF summit to be held in Papua New Guinea (PNG), although some measures are likely to be implemented later this year, so that some progress can be seen to have been made by the 2005 summit.

Acceptance of Australia’s Although some in the region will continue to view greater intervention by higher profile is growing Australia in the region with suspicion, most island leaders now appear more accepting of Australia’s higher profile in the region. This is largely thanks to the successful intervention in July 2003 of an Australian-led force in the troubled Solomon Islands and the tact with which the new head of the PIF, a former Australian diplomat, Greg Urwin, has so far handled the key issues of reform, improved governance and co-operation since his controversial appointment at last year’s annual summit. Island governments are now largely resigned to the fact that future flows of aid will be conditional on the implementation of reforms to their government and economic systems. Australia has pledged funds and technical expertise to help the small, bankrupt island nation of Nauru and the PIF will post an official there to help its beleaguered government tap aid sources for which it had little need when phosphate exports helped it to become one of the richest countries in the world per head. Nauru’s phosphate mines are now almost depleted and the revenue squandered, leaving the country in financial crisis.

A new strategy to tackle PIF member governments have also unanimously approved the launch in HIV/AIDS will be launched December 2004 of an aggressive new plan to tackle the spread of HIV/AIDS in the region, which is particularly prevalent in PNG. New funds to tackle the problem have been pledged by the UN and the Australian government, among others. Meanwhile, concern in Australia, New Zealand and the US about the possibility that the region could be targeted by international criminal organisations that could serve as platforms for supporting international terrorism is expected to grow following the discovery in Fiji of a major clandestine factory producing the drug crystal methamphetamine, allegedly run by a criminal gang of Chinese origin.

Most islands economies will Despite continued political instability in the region, most island economies are expand in 2004-05 showing signs of improving activity and will continue to expand in 2004-05. The tourism boom in some of the region’s main destinations is expected to continue, thanks to the region’s image as being safe and peaceful, the increase in air capacity and the expansion of low-cost airline services. However, some tourism destinations appear to be losing market share to Fiji, which has become the primary focus of low-cost operators. Indeed, some representatives of the tourism industry and island governments are beginning to question the real value of cut-price airlines based in New Zealand and Australia that are now operating in some parts of the region. Government concern mainly reflects fears about the impact that low-cost operators will have on the slender financial viability of their own limping national airlines. Concern is also growing about greatly reduced tuna catches in the region. Intense debate on the cause of the slump!overfishing, climate change, still little-understood natural weather and ocean-temperature cycles, or a combination of all of these!will continue.

The political scene

The Australian prime minister At the 2004 PIF summit in Apia in early August, the Australian prime minister, outlines his country’s role John Howard, took the opportunity to expand further on what he saw as Australia’s role in the region. For many years the Australian government had appeared to display little interest in the region, but the decision by the government in mid-2003 to intervene directly to help to restore law and order in the Solomon Islands signalled an important shift in policy to one of active engagement with the region. At this year’s annual summit, Mr Howard declared the Pacific island region to be “Australia’s patch” and one regarded as such in many other parts of the world. Mr Howard noted that Australia was now deeply involved in the region, following Australian intervention (in various ways and at the request of the governments concerned) in the Solomon Islands, Nauru and PNG. He also insisted that Australia was motivated only partly by fears that weak or failing island states could become innocent harbourers of international criminal gangs and terrorist groups, emphasising that Australia’s leadership in the region was also justified on economic, historic and geographic grounds. The New Zealand prime minister went along with Mr Howard, although in a more muted way, in keeping with the New Zealand government’s feeling that it, not the Australian government, really knows the Pacific region best. Meanwhile, Ms Clark announced that New Zealand’s last territorial dependency, the three atolls of Tokelau which have around 1,200 inhabitants, was progressing towards autonomy and could become the PIF’s 17th member by around 2006.

Samoa loses out to PNG over The fallibility of the much-vaunted “Pacific Way”!the belief that Pacific ACP nomination islanders can overcome differences by means of informal discussion and consensus!was once again demonstrated at the summit when a dispute arose between the Samoan and PNG leaders over who the Pacific region should nominate for the post of secretary-general of the ACP (Africa, Caribbean and

Pacific) secretariat at the EU headquarters in Brussels. Pacific leaders feel that it is their turn to fill the role currently held by an African. The Samoan government wanted to nominate Pa’o Luteru, a Samoan trade expert who is already a senior ACP official, although the PNG government favoured a PNG politician, Sir John Kaputin. PNG had long lobbied for Sir John’s candidacy prior to the meeting in Apia. In the event, the 14 Pacific island members of the ACP failed to reach a consensus and held a ballot, which PNG won by 11 votes to 3. Samoan officials were apparently disappointed by what they said was a degree of anti-Samoan feeling. However, it remains to be seen whether Sir John will be appointed in the role, with Fijian officials predicting the job would go to another African candidate. The dispute over who to nominate for the post followed a similar debacle at last year’s summit when Pacific island leaders were unable to agree on who should succeed the outgoing PIF secretary-general and resorted to a secret ballot. This saw Mr Urwin, who has a wealth of experience in the region, appointed to the job, which is traditionally reserved for a Pacific islander.

Economic policy and the domestic economy

Negotiations with the EU on The 14 island members of the PIF will formally begin negotiations with the EU trade and aid are set to begin on new trade arrangements under the Cotonou Agreement (an agreement signed in 2000 to succeed the Lomé convention, setting out trade relations between the EU and the ACP states) in Suva, the Fijian capital, on September 10th. The talks are scheduled for completion by December 2006 and the resulting economic partnership agreement (EPA), which will underpin aid and trade relations between the Pacific island states and the EU (by far their most important aid donor), is expected to take effect from January 2008. Preliminary talks have been complicated by WTO rulings, such as the one in August cutting the level of subsidies Fiji receives from the EU for its sugar. Apart from trade, the EPA will also cover technical standards, plant and animal health regulations, rules of origin and investment. The agreed EPA is expected to oblige the Pacific island states to develop closer trade ties with Asian trade groups, the US, Australia and New Zealand.

Concern grows about scant PIF member governments have directed the Forum Fisheries Agency (FFA) to benefits from fish resources research and then convene a meeting of fisheries ministers on the revenue that each country receives from the annual tuna catch of around 1m tonnes, valued at US$2bn, taken from the island states’ 200-mile exclusive economic zones, mainly by licensed Asian fishing fleets. The FFA estimates that the Pacific islands currently receive only 5-8% of the total value of the catch. Rather than raising licence fees, FFA countries want to attract more onshore fish processing, vessel repair, fuelling and servicing facilities, and more joint-venture fishing businesses. They also want more local seamen to be hired as fishing crew. Meanwhile, a major new fisheries institution, the Tuna Commission, was established in June in Pohnpei, in the Federated States of Micronesia, to regulate high seas fishing in the western and central Pacific. Members of the new agency include the FFA countries and major fishing countries such as

China, Japan, Taiwan, Korea and the US. The creation of the new agency reflects mounting concern about the health of the region’s core yellowfin tuna stock, which like the stock of big-eye tuna, is under strain owing in part to overfishing by Asian fishing fleets.

Rugby union is designated a It was decided at the PIF annual meeting in August that sport, particularly key priority rugby union, should be designated as one of the economic and social priorities to be included in the Pacific Plan. The PIF wants Pacific island rugby unions accepted on the board of the International Rugby Union and the newly formed Pacific Islanders rugby union team (made up of top Samoan, Tongan and Fijian players) admitted to the Super 12 series, comprising teams from Australia, New Zealand and South Africa. Rugby is now important economically as well as socially in the region, with many of the top players recruited to play professionally for teams in Australia, New Zealand, England and Japan. Pacific island governments also want to set up regional rugby competitions, which are seen as potential revenue earners and tourism attractions.

The impact of cheaper flights The growth of cheaper flights to the region, which began in May 2004 with is starting to be felt lower fares introduced by Air New Zealand for travel to all its Pacific island destinations and the launch of “no-frills” flights, initially to Fiji by its subsidiary, Freedom Air, is having a significant impact on travel and tourism in the region. Pacific Blue, an offshoot of the Australian low-cost airline, Virgin Blue, will begin flights to Fiji and Vanuatu in September, and also has New Caledonia and the Cook Islands in its sights. In August, the Samoan government confirmed it was talking to Virgin Blue about a joint venture with the fully government-owned national carrier, Polynesian Airlines. Meanwhile, the Fijian national carrier, Air Pacific, has cut fares on its Australia and New Zealand routes by about 30%, while maintaining a full cabin service. According to the South Pacific Tourism Organisation (SPTO), which represents 12 national tourist offices, visitor arrivals to the region in the first quarter of 2004 were up by 8.5% year on year, although most of the increase was attributable to the sharp rise in arrivals to Fiji. Visitor arrivals to French Polynesia, New Caledonia, the Cook Islands and Tonga were down, although Vanuatu experienced some growth. The SPTO believes that the numbers reflect the beneficial impact of cheaper airfares to Fiji and Vanuatu, with both countries winning a greater share of the key markets of Australia and New Zealand.