Small Pacific Island States: Development of International Trade

PACIFIC ECONOMIC BULLETIN

Small Pacific island states: development of international trade

Colin S Mellor

This article provides an assessment of a range of issues con- Colin Mellor is a cerned with the development of international trade for small consultant working on Commonwealth states in the South Pacific region. The irony for the Pacific region. He is the South Pacific small states is that the worldwide push for a a former South Pacific more liberal international trade environment is almost certainly economist with AusAID. detrimental to their trading prospects, certainly in the short to medium term. With tariff barriers declining throughout the world, current trading advantages enjoyed by the Pacific island nations under SPARTECA and Lomé will dissipate. Appropriate strategies in this context are offered to small island states.

The wide diversity between the South development of international trade, all Pacific small states encompasses many South Pacific small states are islands, and factors and perspectives, including subject to extreme isolation. As compared natural resources, populations, cultures, to mainland small states which can and socioeconomic conditions. A measure typically take advantage of infrastructure of this diversity is provided by the UNDP services, resources and access to Human Development Index (HDI) for the contiguous land areas, this is not possible small states, based on a mix of indicators for island small states. Diseconomies of of GDP per capita, educational status and scale are therefore greatly accentuated for life expectancy (see box and Table 1). island small states, as compared to mainland small states, with powerful implications for identifying successful Regional economic development trade development strategies. In the context of identifying possible Second, there is evident and extreme future economic development strategies diversity between the small states of the for small states, in particular related to South Pacific. In terms of natural land

70 DEVELOPMENT OF INTERNATIONAL TRADE

Table 1 Commonwealth States in the South Pacific

Population Area GNP, US$ million (1994) (square kilometres) (1994) Solomon Islands 366,000 28,370 293 Vanuatu 165,000 14,760 190 Western Samoa 169,000 2,935 164 Tonga 98,000 747 160 Kiribati 77,000 810 56 Tuvalu 9,000 26 7 Nauru 10,000 21 n.a.

Source: These data are best estimates available from the Australian Agency for International Development (AusAID) and should not be taken as precise figures. Solomon Islands is actually outside the category of ‘small states’ as defined (being more than 25,000 square kilometres in area), but is included for the sake of completeness.

resource endowments, the small states ‘cultural areas’ within the region, have conventionally been grouped into reflecting different cultures and histories. three categories. • Melanesia includes Solomon • Comparatively well endowed— Islands and Vanuatu, with extreme Solomon Islands and Vanuatu, with cultural and linguistic diversity, and substantial and rich land resources, are where significant interaction with the generally seen as having adequate natural international community commenced resources to aspire to sustainable levels of only in the late 19th century. economic development. • Polynesia includes Western Samoa, • Marginally well endowed— Tonga and Tuvalu, with populations Western Samoa and Tonga, with which are ethnically homogeneous and comparatively rich but limited land where contact with the international resources, are generally considered to be community began much earlier in the ‘borderline’ cases, with some prospects 19th century. for economic development, but likely to need ongoing external support to be Table 2 Small island states: GDP per sustainable. capita and HDI • Inadequately endowed—the sparse, atoll island groups of Kiribati and GDP per capita HDI (US$) (1993) Tuvalu are generally seen as having insufficient natural resource endowments Solomon Islands 529 0.191 for sustainable economic development (in Vanuatu 1,020 0.424 the absence of permanent international Western Samoa 722 0.572 Tonga 1,396 0.723 support). In the absence of phosphate Kiribati 461 0.439 resources, Nauru would also fall into this Tuvalu 1,068 0.652 category. Nauru .. .. Another element of significant diversity at the regional level in the South Source: World Bank 1996a. World Development Report, Oxford University Press, New York. Pacific arises from the three recognisable

71 PACIFIC ECONOMIC BULLETIN

Country profiles

Solomon Islands • Australian aid was A$12.6 million in 1995–96. • per capita GNP of US$800 (1994), and static or Other donors include Japan, New Zealand and declining the European Union.

• population growth rate 3.4 per cent per annum Tonga • all exports derived from primary products, • per capita GNP of US$1,640 (1994), rising mainly timber (80 per cent), fish, palm oil, copra slowly and cocoa. Total exports f.o.b. of US$131.7 • population growth rate 0.8 per cent per annum million (1993) • main exports are squash (80 per cent) and • manufacturing and tourism underdeveloped vanilla. Total exports f.o.b. of US$20.3 million • subsistence sector substantial (estimated about (1993/94 estimates) 20–40 per cent of GDP) • limited manufacturing for local market, and • Australian aid was A$11.6 million in 1995–96. small scale tourism Other donors include New Zealand, Japan, • Australian aid was A$11.4 million in 1995–96. United Kingdom and World Bank. Other donors include New Zealand, Japan, Vanuatu European Union, UN agencies and Asian • per capita GNP of US$1,150 (1994), and rising Development Bank. only slowly Tuvalu • population growth rate 2.5 per cent per annum • per capita GNP of US$760 (1994), and static or • principal exports are primary products, mainly declining copra, beef, veal, cocoa, coffee, timber and • population growth rate 1.7 per cent per annum kava. Total exports f.o.b. of US$22.7 million in • mixed market, subsistence economy, with 80 1993 per cent of the population involved in fishing • limited manufacturing for local market, with and agriculture. Limited exports of copra. significant services sector (government, Effectively no local manufacturing or tourism tourism, financial services) • Australian aid was A$3.9 million in 1995–96. • fishing is a major subsistence activity Other donors include New Zealand, United • Australian aid was A$14.9 million in 1995–96. Kingdom, Japan and UNDP. Other donors include United Kingdom, New Nauru Zealand, France, China, Japan and the •little comparable data are available on Nauru. European Union. Its economy is completely dependent on Western Samoa exploitation of phosphate resources, which is • per capita GNP of US$970 (1994), with limited expected to cease in the next 20 years growth on average over time • disposable household incomes were estimated • population growth rate 0.5 per cent per annum at around US$4,500 in 1992, based almost • total exports f.o.b. of US$6.4 million in 1993, entirely on returns from phosphate production. mainly coconut cream and automotive wiring Other primary production is confined to minor harnesses (Yazaki car parts plant) plots of tropical fruits and vegetables (including • limited manufacturing for local market, and coconuts and pandanus) small-scale ecotourism ventures • population growth rate 2.9 per cent per annum • significant mixed subsistence agriculture • Australian aid to Nauru was A$3 million in (forestry and fisheries) 1995–96.

72 DEVELOPMENT OF INTERNATIONAL TRADE

• Micronesia includes Kiribati and • extreme isolation from major world Nauru, with populations more culturally markets and ethnically mixed than Polynesia, • archipelagic land resources with including significant affinities with difficult internal transport Southeast Asia and longer periods of contact with the international community. • vulnerability to natural disasters, particularly tropical cyclones in most With such evident diversity across the states, and earthquakes in several South Pacific region, it is apparent that specific growth and economic development • political instability in some strategies need to be tailored to the countries prevailing circumstances within each • high population growth rates in small state (including natural resources, some countries sociocultural and political/economic conditions). For example, in several small • high labour costs and low labour productivity island states (such as Kiribati and Tuvalu) traditional island customs militate against • complex land ownership systems, conventional ‘Western style’ private which can limit conventional capital sector development, with their emphasis formation on communalism. • ‘inherited’ colonial practices and policies which may not be appropriate • fragile ecosystems, including special Constraints to economic threats arising to the low-lying island development countries from possible future ‘greenhouse’ ocean level changes (World There are commonly recognised Bank 1996b). constraints to the development of Taken together, there is wide international trade and investment flows agreement among analysts that the South for small states including Pacific region does face a ‘special’ set of • small domestic markets and constraints to conventional economic problems of economies of scale in development focused on increasing production international trade and investment flows. • typically limited natural resource Nevertheless there is a broad consensus base and narrow human resource base that the promotion and development of a viable commercial sector is a fundamental • many constraints in related requirement for future sustainable infrastructural and institutional areas economic development in the region. arising from small size and difficulties of achieving ‘critical mass’ scale economies. In the South Pacific region however, Future economic prospects these common constraints are accentuated by a host of compounding It is apparent that the South Pacific region factors. Indeed, as described by the World remains heavily reliant on aid flows from Bank, developing Pacific island countries the international community. But it is face a ‘unique set of development widely acknowledged that the island challenges’, including economies have performed poorly in

73 PACIFIC ECONOMIC BULLETIN

recent years, especially in terms of per lasting. In this view, these economies are capita income. In 1993, developing island going out backwards, and prone to major countries of the South Pacific reportedly and fundamental ‘corrections’ to adjust to received an estimated aid total of US$350 the newly emerging economic realities of million (approximately 13 per cent of the global marketplace. A current example their GDP). However, real GDP per capita of such fundamental change is now taking growth has been low, estimated to average place in Cook Islands, with a planned 60 per cent reduction of public sector only 0.4 per cent per annum over the employment begun in mid-1996, as well period 1983 to 1993. as salary cuts exceeding 60 per cent for This situation of indifferent economic remaining public sector employees. performance despite high levels of Irrespective of this divergence of external assistance, adequate natural views, there is general agreement that a resource endowments in some island practical focus on development of states, and relatively prudent economic international trade and investment oppor- management, was labelled as the ‘Pacific tunities in the small island economies is Paradox’ in 1993 by the World Bank. extremely important (if not crucial) for Other observers find these results as less their future economic well-being. Marginal paradoxical given the array of develop- gains can always be achieved by address- ment constraints faced by the South ing specific obstacles to developing trade Pacific small states. Moreover, these and investment (while recognising that regional level economic results combine major gains may necessitate more together the performances of a diverse fundamental realignments of the range of small island countries, some of economic structures of these small states). which face far greater constraints to growth than others. With respect to future economic Supply constraints growth prospects in the South Pacific small states, there are broadly two views While future growth requires an orientation towards international trade • cautious optimists—the more-or- and investment, it is apparent that limited less conventional wisdom is that the Pacific island states are making some resources (both natural and human) progress, albeit slow and decidedly dictate that labour-intensive agriculture patchy, towards building sustainable and manufacturing strategies (which have economies. As expressed in the recent been successful elsewhere) show little World Bank survey of the region (1996b), promise. Rather, the general principles of they are building a ‘resilient economic comparative advantage suggest a twin base for the 21st century’. approach to future growth • pessimists—another view of the • maintain and intensify the develop- real economic prospects of the island ment focus on available natural resources economies, in conventional export-led —fisheries in all states, forestry and growth terms, is far less sanguine. This mineral resources where they exist, and pragmatic view holds that in general the land-based agriculture for at least the small island economies are inherently domestic market combined with some ‘uncompetitive’ in their current forms, specialist agricultural exports and agro- and future international aid support on processing. While there have undoubtedly an indefinite basis is unlikely to be long- been many ‘failures’ in this context in the

74 DEVELOPMENT OF INTERNATIONAL TRADE

South Pacific, there have also been some high input costs such as utilities, and lack ‘successes’, such as fresh fish exports of raw materials and a supporting from Solomon Islands; prime beef and industrial infrastructure. veal exports from Vanuatu; squash exports from Tonga; and tuna jerky The only known manufacturing production in Kiribati. export success story in the region is Yazaki in Western Samoa which provides • diversify the economic base of the automotive wiring assemblies to the small island states into services, in Australian market. This factory particular tourism—it is evident that, commenced operations in May 1991, and despite various difficulties, tourism offers considerable potential to the small states now reportedly employs more than 3,000 for employment and foreign currency people and is undoubtedly the largest earnings. Recent growth throughout the single private sector employer in the South Pacific has been encouraging, region. Few details are available on this though most of the tourist arrivals have venture, such as the financial incentives been in other South Pacific nations offered by the Government of Western (primarily Fiji). For the seven Common- Samoa for its establishment. Without wealth small states, only Vanuatu further detailed knowledge on the project currently has a significant tourist industry. it is difficult to comment on its real economic value-added and sustainability, • Solomon Islands needs air access to Australia upgraded to activate various and on the potential for replication of tourism ventures in the country. Definite such sizeable employment-generating tourist potential is based on range of activities elsewhere in the region. natural and special interest attractions (such as World War II relics and battlefields). Infrastructure constraints

• Western Samoa has considerable Basic infrastructural constraints constitute tourism potential subject to appropriate major impediments to the development of investment strategies and air access. international trade and investment in the • Tonga has reasonable tourism small island states, and there are few potential, though limited by small size of grounds for optimism that these the country, and air access restrictions. constraints can be quickly addressed. • Kiribati has some specialist tourism Evident problem areas relate to ‘hard’ prospects (World War II relics and infrastructure (such as transport facilities, battlefields), Christmas Island (fishing power generation utilities, communication and bird watching) and eco-tourism. networks, and so on) as well as ‘soft’ infra- • Tuvalu and Nauru have minimal structure (such as supportive commercial prospects. structures, market intelligence, export promotion services, and so on). Concerning commodity manufacturing, there appears little or no scope for There are at least three successful significant growth in this field, except for strategies which the small states in the selected import substitution activities. region have adopted. The array of factors militating against As technology advances occur, it is conventional manufactured exports is possible to overcome at least some of daunting, including high labour costs, these infrastructural constraints. For low productivity, high transport costs, example, telecommunications within the

75 PACIFIC ECONOMIC BULLETIN

region have improved markedly in recent customs clearance procedures. Other such years, partly addressing the inherent constraints are even more fundamental, difficulties of extreme isolation. In some such as the antiquated business licensing instances, the small size of states can system in Tonga. Appropriate strategies actually be an advantage in this context, to address such constraints include making easier the introduction of new • ongoing efforts to streamline existing technology and having the ability to ‘leap systems to minimise the impediments to frog’ over conventional hurdles to change trade development efforts arising from entrenched systems by adopting ‘state of the art’ technology • where possible, complete abolition where appropriate. of unnecessary administrative constraints on commercial enterprises (such as By pooling resources and adopting a general business licensing schemes) regional approach, the South Pacific small • promotion of active dialogue states have made some progress in between government and the private important sectors such as shipping and sector to allow problem areas to be air services. Nevertheless, it is evident identified and improvement options to be that much more might be done to upgrade explored. regional airline operations (such as reviving the Air Pacific regional airline concept) and enhancing regional shipping Institutional capacity constraints operations through Pacific Forum Lines. related to trade agreements Specific commercial initiatives can be taken in support of economic develop- The irony for the South Pacific small states ment, such as the recently established is that the worldwide push for a more Pacific Islands Investment Facility (PIIF). liberal international trade environment This fund was set up by IFC specifically arising from the Uruguay Round multi- to address the shortage of equity or risk lateral trade agreement and establishment capital in the region, and is aimed at of WTO is almost certainly detrimental to supporting commercially viable projects their trading prospects, certainly in the in the range of US$0.5–5 million. This fund short to medium term. That is, the Pacific has had a rapid take-up in the first two island nations have enjoyed a free trade years of operation, and appears likely to environment for some time, with attract strong further support from inter- essentially tariff-free access to Australia national donors keen on promoting viable and New Zealand under the SPARTECA commercial ventures in the South Pacific. agreement, and considerable preferential treatment on exports to European Union countries through the Lomé Convention. Administrative constraints With tariff barriers declining throughout the world, current trading advantages Undoubtedly there are many examples of enjoyed by the Pacific island nations under administrative constraints in the South SPARTECA and Lomé will dissipate. In Pacific small states. Examples quoted by addition, there is a strong possibility that the World Bank's Foreign Investment the overall terms of trade of the island Advisory Service include excessively countries will deteriorate in the context of detailed application procedures for new a wider global competitive market. That is, investment proposals, and cumbersome prices for traditional commodity exports

76 DEVELOPMENT OF INTERNATIONAL TRADE

(such as tropical tree crops) are likely to respect to import substitution and export diminish, while prices for imported goods promotion. to the islands could increase in relative However, one issue of special terms. A related difficulty for the island significance to many South Pacific states nations is the considerable reliance by is prevailing foreign exchange rate policy. governments on public revenue from Many observers view the comparatively tariffs (and export taxes), which can be strong local currencies in many states as expected to decline under a liberalised being unrealistic. Strong exchange rates trade regime. have been supportable primarily due to Appropriate strategies for the small inflows of funds from aid grants and soft states in this context include loans, as well as from remittances from foreign workers in some countries. • reinforcing an economic divers- However three of the small states ification push into the non-traded services sector, notably tourism (Kiribati, Tuvalu and Nauru) do not have separate currencies, and use the • exploring alternative public Australian dollar. revenue raising options, primarily consumption taxes Undoubtedly there are strong domestic political reasons for maintaining strong • adopting a regional approach to local currencies in the other states international trade negotiations, through the established South Pacific Forum, and (Solomon Islands, Vanuatu, Western regional coordination of trade policies Samoa and Tonga), given the high import content of local consumption. Never- • consideration of unilateral adoption theless, a managed depreciation of local of parallel trade and investment liberal- currencies over a reasonable period isation measures, such as promulgated by would appear a prudent strategy, to give dynamic new trading blocs (particularly APEC), rather than attempting to obtain extra support to develop service industries formal membership of such regional group- such as tourism as well as additional ings. In this way, the small states can partly incentives to exporters. Such a deliberate avoid being marginalised by exclusion strategy would also provide a signal to from the major new trade groupings. the international community that the small states of the South Pacific are cognisant of global realities, including a General policy constraints realistic assessment regarding the likeli- hood of the indefinite continuation of There is a host of issues which can be international aid funding to the island addressed by small states in this context nations in general. to reduce evident constraints on trade and investment growth. Typical examples include Export promotion services • high rates of taxation, and direct taxes on exports In general, the seven small states of the South Pacific provide only minimal or • absence of various financial non-existent export promotion services at support measures to exporters the national level. This situation clearly • lack of an export culture, and reflects one of the many constraints on inappropriate industry policies with developing international trade in small

77 PACIFIC ECONOMIC BULLETIN

states arising from the lack of economies success and failure, attempts at new of scale. marine exports (black pearls, seaweed), and some spectacular failures, such as At the regional level, however, some large scale aquaculture (including the progress has been achieved through the Christmas Island shrimp farming fiasco in South Pacific Forum, in particular the Kiribati in the 1970s). Secretariat’s Trade and Investment Division based in Fiji. The Forum now One approach has been to promote coordinates the South Pacific Trade activities which exploit the remoteness Commission activities, with offices in and isolation of the small island states, Australia (Sydney) and New Zealand including (Auckland). Late in 1996, a new office • military bases, weapons testing, was opened in Japan (Tokyo). Services chemical and hazardous waste storage provided cover three main areas: trade and business development; investment • transhipment of dangerous cargoes facilitation and promotion; human • offshore quarantine establishments resource development. • satellite communications stations, Further assistance with export and wireless and cable relay stations promotion at the regional level is provided • rocket launching facilities along the by the South Pacific Project Facility (SPPF) equatorial belt based in Australia (Sydney). SPPF’s focus is on developing productive small and • prisons and penal settlements medium-sized private sector enterprises • biological conservation stations, in the South Pacific, and has activities in and baseline monitoring and scientific all states except Tuvalu and Nauru. research Emphasis is given to projects with the potential to stimulate export earnings and • export of pathogen-free crops or livestock productive employment. This IFC initiative was established in 1991, and has • export of unique products (such as recently received an extended mandate flora and fauna) and manufactures (such for another five years of operation, and as handicrafts) can be considered a successful regional • philately and coins. initiative in this context. All of these activities, and many others, have been promoted and/or Niche markets attempted in the South Pacific, with mixed success. For example, at one time during the 1980s, the value of Tuvalu’s Considerable efforts have been expended exports of stamps was greater than for over many years to identify product copra, and the island’s Philatelic Bureau ranges and niche markets that can serve (a joint venture between the government as a basis for developing sustainable and a UK firm) was the largest employer trade for the South Pacific small states. in the country. There have been mixed results in this regard, ranging from new agricultural Other island countries have promoted exports (coffee, cocoa, spices, tobacco, the planting of high-value tropical and so on) with varying degrees of hardwoods (such as mahogany) which in

78 DEVELOPMENT OF INTERNATIONAL TRADE

the South Pacific area are free from efforts to locate commercially viable pathogens which affect these timbers in petroleum resources based on identified other tropical regions. Most of the South trace deposits, without success to date. Pacific small states (with the probable The atoll states of Kiribati, Tuvalu and exception of Nauru) already achieve Nauru have minimal prospects in this modest export earnings from local handi- context (apart from mainly completed craft production unique to each island extraction of natural phosphate deposits). state. Some of the other activities however Clearly, the island nations alone do (such as weapons testing and storage of not have the technical and financial hazardous wastes) attract minimal resources to provide the research and enthusiasm. development effort required to establish Part of the difficulty with concentrat- these new technologies and processes. ing on niche markets and products is that, However, with international support, it once a ‘winner’ is found, it is likely that seems feasible that some advances can be lower-cost international competitors will made which might benefit island nations soon arise to capture the market. A current over the medium to long term. case in point is the recent success story of Yet another approach to developing a squash exports from Tonga to Japan. sustainable economic base for some South Reportedly due to recent supply problems Pacific states has focused on the provision in Tonga (from a drought period), it is of financial services, including offshore understood that Mexican producers are in banks, tax shelters, and related services the process of capturing this specific (including vessel registers, passports for market. foreigners, and so on). Vanuatu has Another broad approach to promoting achieved some success in this regard, sustainable development in the small primarily with respect to adding modestly states has focused on new and emerging to public revenues, but creating little technologies. For example, new power employment in the country. The Tongan generation methods (solar, wave, wind, scheme of providing passports for geothermal, OTEC—Ocean Thermal foreigners has been of dubious merit. The Energy Conversion) may all have long- broad conclusion with respect to the term applications of benefit to the islands, future prospects of the exotic financial though success to date has been confined services industry in the South Pacific is to some small-scale solar powered units not promising. Metropolitan states in isolated locations. worldwide are tightening international tax arrangements, making legitimate tax There has also been excitement havens generally obsolete. This is generated from time to time with new particularly the case for Australia, which mining exploration and extraction has in the past been a major source technologies, including harvesting of market for tax havens in the South Pacific. offshore polymetallic nodules. Some considerable success has been achieved in Another mooted activity in this new gold exploration theories, in context is the gaming industry, including particular epithermal gold deposits with casinos, offshore gambling, and specialist potential benefits in the volcanic islands lotteries. However, this industry is now (Solomon Islands, Vanuatu and possibly opening up worldwide and particularly Western Samoa). Tonga has persisted in in Australia and New Zealand, and the

79 PACIFIC ECONOMIC BULLETIN

‘windows of opportunity’ in the South • South Pacific Trade Commission Pacific region for such operations, which • South Pacific Project Facility. may have existed in the past due to legislative constraints in mainland In addition, there are various other jurisdictions, appear limited to relatively organisations which play a role in this small-scale activities in association with context, including the Asian Development other established tourist attractions. Bank, UNIDO, ILO, Centre for the Development of Industry of the European On balance, it appears the small states Union, bilateral aid agencies, non- need to maintain the focus on sustainable government organisations and various exploitation of natural resources (both private sector organisations. land based and marine) and take maximum advantage of specialist agricultural and Further institutional support for marine exports, agro-processing, and attracting inwards investment is provided minerals where possible. States should to South Pacific small states (except also seek to obtain higher returns from Tuvalu and Nauru) by the World Bank’s such activities (through access fees paid Foreign Investment Advisory Service by fishing nations, royalties on timber; based in Sydney. The most significant and so on). Second, the diversification of constraints to attracting foreign direct their economies into services, particularly investment are seen to be tourism, needs primary attention. The • access to land, with problems of small states can also benefit from some gaining secure titles in customary land ‘exports’ of labour, such as seamen from ownership regimes Kiribati and Tuvalu working for foreign lines and remitting income to their • investment approval mechanisms can be tedious and complex, lacking countries. However, Tonga’s recent transparency and consistency enthusiasm for more general ‘guest worker’ schemes with mainland states • restrictions on hiring expatriate has not been reciprocated. workers by investing foreign companies. Various strategies can be adopted to address these complaints, ranging from Attracting inward investment gradual approaches to simplifying and codifying procedures and regulations, to Each of the South Pacific small states more fundamental approaches such as (with the possible exception of Nauru) abolition of the work permit system for makes modest efforts at the national level foreigners. General land reform measures to facilitate business development, and are clearly more problematic, but where appropriate to attract inward governments can usually assist in these investment. Needless to say, the inherent matters when the will exists to do so constraints of small size and diseconomies (such as by provision of dedicated of scale militate against such efforts. industrial land for foreign investors, and However at the regional level there is a by targeted negotiating support with reasonable institutional framework to traditional landowners for major support inward investment promotion, investment proposals, such as tourism including resort ventures). • Forum Secretariat, Trade and A final comment regarding the Investment Division institutional framework existing in South

80 DEVELOPMENT OF INTERNATIONAL TRADE

Pacific small states for promoting trade development, including extreme isolation, and development is the widespread archipelagic land resources, vulnerability phenomenon of ‘aid overload’. That is, it to natural disasters, complex land is readily apparent in the small states that ownership systems, fragile ecosystems, considerable time and resources are and a range of other constraints. ‘wasted’ in the process of handling the Economic growth performance in the many, generally well-intentioned, aid South Pacific small states has been agencies, investigatory missions and generally poor in recent years, with real similar interventions by the international GDP per capita estimated to have community. It is an unfortunate fact that increased only 0.4 per cent per annum for skilled and competent decision-makers in the region over the period 1983–93. The both the public and private sectors of the conventional wisdom is cautiously small states are in limited supply, and optimistic that progress towards self- these key people tend to be ‘swamped’ by sustaining economies is being made, the many calls on their time generated in albeit slowly. Other observers are more this context. There are still substantial pessimistic, and see the need for the gains to be made through better South Pacific small states to undertake coordination of the diverse efforts of the fundamental economic restructuring to international aid agencies, as well as adjust to the emerging realities of the greater focus and concentration of aid global market. Nevertheless, there is efforts to achieve coherent results rather general agreement on the importance of than dissipating efforts over too many further attention to international trade separate activities. development in the small states. Three strategies are suggested for Recommendations addressing the wide range of constraints related to provision of infrastructure, both ‘hard’ and ‘soft’. It is important to recognise the considerable diversity between South Pacific small • Small states can take advantage of states, including natural resource endow- major technological advances in some ments, cultures, population sizes and infrastructure, often more easily than socioeconomic conditions. Estimated larger states. income levels are modest, ranging from • By pooling resources and adopting under US$500 per capita GDP in Kiribati a regional approach, some essential to nearly US$1,400 per capita GDP in services can be better provided (such as Tonga (see Table 2). However, income air and shipping). statistics from the South Pacific need to be • Specific commercial support interpreted with considerable caution, initiatives, such as the Pacific Islands due to widespread participation in Investment Facility, can address shortages subsistence production activities and also of equity and venture capital in the constraints on data collection and region. precision. With the array of administrative In addition to the common constraints constraints impeding international trade found in all small states, the South Pacific development, three strategies for success small states have to confront further may be to continue efforts to streamline constraints to international trade existing systems; abolition of unnecessary

81 PACIFIC ECONOMIC BULLETIN

administrative constraints where feasible; dealing with trade and investment activi- and promoting more active dialogue ties in the South Pacific as follows between government and the private • Foreign Investment Advisory sector to address constraints. Service, World Bank, Sydney (covering all The small states have little option to small states except Tuvalu and Nauru) adopting a regional approach to • South Pacific Project Facility, IFC, international trade negotiations, and may Sydney (activities in all small states need to adopt unilaterally parallel trade except Tuvalu and Nauru) and investment measures to ‘join’ in • South Pacific Trade Commission, major trade blocs, particularly APEC. South Pacific Forum, Sydney (covering all Considerable efforts have been small states). expended by the small states to identify For the purposes of this article, a and exploit niche markets. There are also ‘small state’ is generally defined as opportunities for the productive having a population less than 5 million, application of new and emerging an area below 25,000 square kilometres, technologies, such as in power generation and GNP below US$6 billion. There are and mining. Prospects for successful seven Commonwealth small states in the growth of financial services industries South Pacific region (see Table 1). and gaming activities appear to be limited. This article is drawn from a report on regional studies which was prepared with Significant attention is already the generous support of AusAID. provided to promote inward investment to the South Pacific small states. However, some key constraints are gaining access to land in customary title References regimes; complex investment approval mechanisms; and restrictions on hiring AusAID, 1996. Country Briefs for expatriate workers. Solomon Islands, Vanuatu, Western Samoa, Tonga, Kiribati, Tuvalu, A general institutional problem for Nauru, August, Canberra. South Pacific small states is ‘aid overload’, and there are still substantial ——, Country Economic Reports on gains to be made from better coordination Solomon Islands, Vanuatu, Western and great focus of international aid Samoa, Tonga and Sector Reports on efforts. Forestry and Fisheries, Canberra.

Asian Development Bank, 1996. Note Sociocultural Issues and Economic Development in the Pacific Islands, Asian Development Bank, Manila. This article is based on a brief review of recent literature readily available on trade Fairbairn, T.I.J. and Worrell, DeLisle, and economic development in the South 1996. South Pacific and Caribbean Island Pacific small states. Interviews were also Economies, A Comparative Study, by the conducted with relevant officials of Foundation for Development AusAID in Canberra, and with officers of Cooperation for the South Pacific three specialist international agencies Forum Secretariat, Brisbane.

82 DEVELOPMENT OF INTERNATIONAL TRADE

Grynberg, R., 1996. The Uruguay Round and the Pacific Island Countries, South Pacific Working Paper 96/3, National Centre for Development Studies, The Australian National University, Canberra.

International Finance Corporation, 1994. Mid-Term Review of South Pacific Project Facility, Washington, DC.

South Pacific Forum Secretariat/AusAID, 1994. Review of South Pacific Trade Commission, AusAID, Canberra.

South Pacific Project Facility, 1996. Five Year Report and Annual Report 1995, Sydney.

Treasury Submission to the Independent Review of Australia’s Aid Program, 1996. Published in Economic Roundup, September, of the Commonwealth Treasury of Australia.

World Bank 1996a. World Development Report, Oxford University Press, New York.

——, 1996b. Pacific Island Economies, Building a Resilient Economic Base for the Twenty-First Century, World Bank, Washington, DC.