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Home , Fiji, Island country, Pacific Forum Line

’s economic links with Pacific ’

Rory McLeod

ew Zealand’s economic links with Pacific Regional Economic Report shows that growth N island countries go back to the rates in most of the Pacific island countries time-around 1000 AD-when the first surveyed over the last decade have been Polynesian migrants arrived in New Zealand. modest, averaging less than 2 per cent per Today these links are many and varied, annum. Increased populations have meant ranging from trade in goods and services to that some Pacific island countries have in fact flows of official development aid (ODA), experienced declines in per capita income over investment and labour. the period. Furthermore, growth rates have In respect of such links, New Zealand’s been highly uneven and prone to extreme interests are directed towards: swings. contributing to its own security Development issues and ODA objectives in the South Pacific by promoting greater prosperity in the New Zealand has long been a donor in the Pacific island countries; South Pacific. Initially, a large proportion of New Zealand ODA to the region was provided maximizing its own direct economic for political or humanitarian reasons or benefits from the region by securing to territories where New Zealand had gains from trade, investment, etc.; and administrative responsibilities. Today, almost making it easier for the rest of the all New Zealand’s ODA is provided in support to be economically involved in the of the Pacific island governments’ own region as a whole. efforts to promote increased prosperity in their The first two objectives are well understood countries. and have formed the basis of New Zealand Although New Zealand has never been a economic policy in the South Pacific for many particularly large donor in the region, its years. The third stems from the growing importance in relative terms has declined in realization that , New Zealand and recent years as outside donors have become the island economies are located on the edge of more active. For example, New Zealand ODA the increasingly dynamic -Pacific region. accounted for as little as 3.4 per cent of the Asian countries are taking a growing interest grand total for the region in 1988 (Table 1). in the South Pacific in terms of aid, investment, trade and purchase of services The importance of New Zealand ODA vanes such as and education. At the same from country to country. Its impact is greatest time, rapid advances have made the region in and where alternative sources increasingly open to access by outsiders. of revenue are very limited. In Cook , New Zealand budget support is now less than New Zealand, however, has had to recognize 15 per cent of government revenues. that a great deal of internal structural adjustment is required before it can take full New Zealand’s effort needs to be seen in the advantage of economic developments in the wider context of the role of ODA in the region. . A similar situation would The ’s view on ODAis that while it appear to prevail in many Pacific island has generally played a positive role in the countries. The recently released World (through the provision of

1 This paper is written in a personal capacity and the opinions expressed in it do not necessarily reflect the views of the . NEWZEALAND'S LINKS WITH PACIFICCOUNTRIES 19

infrastructure, technical expertise, human policies in discussions with New Zealand and resources development, etc.), it can also act as other donors. an impediment to development. For example, large inflows of ODA can lead to over- Labour market issues valuation of real exchange rates by raising The ease with which labour can move to New wages and the prices of non-tradables, thus Zealand from individual Pacific island disadvantaging both export- and import- countries varies. Cook Islanders, Niueans and competing sectors. Large inflows of aid also Tokelauans are New Zealand citizens and thus tend to foster the growth of the public sector at have free entry. Other Pacific islanders must, the expense of the private sector, thereby in general, go through normal immigration hindering private sector development. procedures. There are perhaps more opportunities for people from , and Table 1 Official development aid to Western under family reunification Pacific island countries, 1988 criteria, because of significant populations (US$million) already established in New Zealand, and through a special quota for Western Samoans. New Zealand All New as percent Special arrangements exist for an agreed countries Zealand of total number of workers from and to obtain employment in New Zealand on a 12.0 8.8 73 temporary, revolving basis. Fiji 54.4 1.8 3 Migrants often remit funds to those people Kiribati 16.3 1.7 10 Niue 5.3 4.7 89 left in their countries of origin. to 381.0 2.6 1 Tonga and Western Samoa are worth as much 58.3 1.5 3 as ODA flows in most years. In 1987, Tokelau 3.7 3.4 92 remittances from New Zealand alone were Tonga 18.9 2.8 15 estimated at NZ$31 million (twice the value of Tuvalu 13.9 1.2 9 exports) for Tonga and NZ$37 million (almost 39.3 2.2 6 the value of exports) for Western Samoa. In Western Samoa 31.1 4.0 13 addition, remittances are generally channelled Sub total 634.3 34.8 5 direct to the private sector and are the source of most domestic savings. Othersa and unallocated 804.2 14.6b Trade issues New Zealand imports from most Pacific island Total 1,438.5 49.4 3 countries are small (Table 2). They have been 'Includes US and French dependent territories. static or declining, except for Fiji, with imports ''The New Zealand portion is all unallocated. of apparel and gold accounting for most of the Source: Ministry of External Relations and Tmde. growth. At around NZ$20 million in 1990, imports from Fiji now account for 27 per cent of New Zealand supports the conclusions of the all imports from the Pacific island countries. World Bank and the Pacific Island Forum2 on This is a significant proportion when it is the need for improved donor coordination and considered that phosphate from makes policy dialogue with Pacific up a further 13 per cent of imports. governments. Policy dialogue is important as a New Zealand exports to the South Pacific, at means of showing that ODA is being delivered around 3.2 per cent of total exports in 1990, are into a policy environment capable of yielding a not particularly significant. Over the decade, reasonable rate of return. This is particularly these exports have grown less quickly than relevant given New Zealand's own current total exports. Notable exceptions are Fiji (with budgetary situation. exports currently worth NZ$158 million) and New Zealand does not see such dialogue as a the French Territories (which combined are means of foisting unwanted policies on Pacific worth NZ$115 million). These two markets island country governments from outside. On have grown more quickly than the global the contrary, it is important that Pacific island average and are now important in their own country governments decide on their own right. They are distinguished by the fact that policy frameworks in light of the requirements their consumers, many of whom are visitors, of individual economies. It is also important enjoy a much greater level of affluence than is that they should be able to defend these present in other economies in the South

2 See 'Current economic trends in selected South Pacific countries'in this issue. 20 PACIFIC ECONOMIC BULLETIN

Table 2 New Zealand’s trade with Pacific island countries, 1990 Value of New Zealand* trade (NZ$m) New Zealand trade New Zealand’s as a percentage of rank in country’sb

Exports Imports ~ ~ to from Imports Exports Imports Exports

American Samoa 24 - Cook Islands 24 6 Fiji 158 20 17 5 4 78 - Nauru 2 13 37 - - - 61 16 4 1 13 Solomon Islands 10 1 30 10 1 Tonga 24 4 30 30 1 Western Samoa 38 8 33 37 1 Vanuatu 10 - 3 - - Other Pacific islands 25 7

Total Pacific islands 491 75

Total New Zealand trade 15,269 10,646

Sources: New Zealand, Department of Statistics, Economic Division; IMF, Directim of%de Stntistics 1990 Yearbook.

Pacific. Some current and former American Zealand continues to be only a small trading territories in also hold significant partner with the French territories but it potential for New Zealand exporters in this would appear that many of the inhabitants of respect. these territories are keen for trade with New New Zealand exporters enjoy a number of Zealand (and other countries of the region) to advantages in the Pacific. New Zealand’s increase. geographic proximity, established business links and the existence of reliable air and South Pacific Regional Trade and transport services mean that New Zealand Economic Cooperation Agreement exporters are often competitive in the region The South Pacific Regional Trade and Economic where elsewhere they are not. Cooperation Agreement (SPARTECA) came into This is reflected in the composition of New force in 1981. Since that time, New Zealand Zealand exports. Around 75 per cent of New has eliminated all tariff and quantitative Zealand’s exports receipts are derived from restrictions on imports from South Pacific primary products. This is not the case, Forum island countries (while Australia has however, in South Pacific markets such as Fiji eliminated almost all). With the notable and the French territories. No single product is exception of Fiji, SPARTECA has had almost dominant in these markets but items to show no effect on the level of Pacific island country useful totals include processed foods, mineral exports to New Zealand over the last decade. fuels, textiles, clothing and footwear, For some Pacific island countries, exports have mechanical and electrical appliances and actually declined over the period. (Australian boats. The figures outline the importance of imports from the Pacific island countries have such markets to New Zealand’s manufacturing shown a similar pattern.) sector and their potential to become the same Some have argued that SPARTECA has kind of market for New Zealand manufactured ‘failed’ and note that the preference accorded to exports that New Zealand is for Australia. Pacific island country exports has been eroded On the other side of the coin, New Zealand as Australia and New Zealand have liberalized looms large in the trading profiles of many of their general protection policies. Others have the Pacific island countries. Not only is New said that modified rules of origin under the Zealand the largest trading partner for agreement would improve the prospects for Polynesian countries such as Tonga and Pacific island country exports. New Zealand Western Samoa, but it is an important (and does not accept these arguments. SPARTECA growing) trading partner for Fiji and an was designed to provide the certainty of free important source of imports for countries in and guaranteed access to the Australian and and Micronesia as well. New New Zealand markets for Pacific island NEWZEALAND’S LINKS WITH PACIFIC COUNTRIES 21

country exporters. Although its initial effect Future developments was to provide a sheltered market for some The opportunities for New Zealand and products from the Pacific island countries, it Australia to benefit from the provision of was never intended as a preferential education for residents of smaller countries agreement. Furthermore, modest changes in have been barely recognized until recently. The the rules of origin would have little or no provision of this service would benefit the two impact on the level of Pacific island country countries, but it could bring even greater exports under the agreement. benefits to the growth of the Pacific island The World Bank has argued convincingly countries. New Zealand has long been active in that the failure of Pacific island country export the provision and sale of education services to sectors is clearly rooted in the choice of the South Pacific. A substantial proportion of national policies and has little to do with these have been subsidized under the ODA market constraints. New Zealand has suffered program and elsewhere, but it is one of the from problems similar to those facing the more valuable contributions of ODA to human Pacific island countries and is going through a resource development in the area. process of reorienting its trade and protection A competitive, inventive and agile civil policies in an attempt to encourage competition aviation network is crucial to overcoming, at in its domestic market so that New Zealand minimum cost, the remoteness of many South industries will become genuinely internation- Pacific countries. New Zealand, as the most ally competitive. isolated of all South Pacific countries, has a At present, SPARTECA is an agreement significant interest in seeing the establishment that applies to trade in goods only. Some of such a market driven network. Air services commentators have suggested that a regional are currently offered from New Zealand to framework is now also required to cover trade many points in the region under a variety of in services. The Australia-New Zealand Closer regulatory regimes that provide a range of Economic Relations Trade Agreement (CER) results in terms of the price of airfares and provides a useful precedent for this. levels of customer service. Trade in services could be just as, if not Shipping is a recent success story in the more, important to the region as trade in goods. South Pacific. After years of heavy subsidies, Countries for which services comprise a the was corporatized and particularly high proportion of both GDP and now runs without support (with the exception exports include Fiji and Vanuatu (Table 3). of the feeder service to Micronesia). The Looked at from New Zealand’s point of view, Auckland-Niue-Rarotonga service is now run the region could hold more potential for exports by a private company, again without subsidies. of services than of goods. New Zealand is These companies are competing with a range of already a major supplier of civil aviation and other private companies operating in the transport services and other areas that have region, the largest of which is the French potential include television (with TVNZ company SOFRANA. Commentators have already quite active in the region) and identified high port costs in Australia and New telecommunications (with Telecom New Zealand and the union imposed monopoly for Zealand developing into a more outward Australian and New Zealand crewed vessels looking organization). operating on the Tasman Sea as constraints on running internationally competitive shipping Table 3 Pacific island country services services out of the region. New Zealand is keen as a proportion of GDP and to make progress in both these areas and exports, 1989 (per cent) believes that to do so will benefit the region as a whole. Exports of In its early days, Pacific island country GDP goods and servicesa tourism was developed by tapping into the Australian and New Zealand markets. Today, Fiji 69 46 however, the fastest growth in tourist numbers Pauua New Guinea 39 9 to all major destinations in the South Pacific, Soiomon Islands 44 20 including New Zealand, comes from such Tonga 43b 67 Vanuatu 66‘ 69 sources as and East Asia. Given Western Samoa 46d 68 the high costs of travelling to the region from outside, there is considerable scope for the “Excluding interest and similar receipts and otlicial and private transfers. development of ‘multi-destination packages’ b1983. and of infrastructure that can be shared by the ‘1987. tour operators of the region. These points were d1986. made strongly by the New Zealand Tou,rism Source: National statistical department for each country. 22 PACIFIC ECONOMIC BULLETIN

Strategic Marketing Group in its report to the New Zealand's views on the framework that government in 1990. regulates economic relations with other South Pacific countries reflect national self interest. Conclusion At the same time, many areas of common New Zealand has substantial economic links interest with other counties of the region can with the Pacific island countries in such areas be identified. In most such areas, New Zealand as ODA flows and private remittances, currently favours an open and outward looking movements of labour and trade in goods and approach so that New Zealand and the region services. The importance of these links to as a whole can benefit from developments in individual Pacific island countries varies quite the wider Asia-Pacific region. This widely. They are particularly important to complements the approach that is being taken Polynesian countries in the Eastern Pacific, in setting policy for New Zealand's domestic especially those with which New Zealand economy, which is increasingly open to continues to have constitutional links. international competition.