Cook Islands 2008 Social and Economic Report— Equity in in Development Cook Islands Has Transformed Its Economy Since the Public Debt Crisis of the Mid-1990S

Pacific Studies Series Pacific Studies Series Cook Islands 2008 Social and Economic Report— Equity in in Development Cook Islands has transformed its economy since the public debt crisis of the mid-1990s. The economy is privatesector-led, the Government is now on a sound financial footing and well placed to address key development issues, and the economy has proved its resilience in the face of five cyclones in 2005. The tourism sector remains the main driver of growth and visitor arrivals are expected to continue to grow. Infrastructure works are a development priority, both to support economic growth and to address the rising pressures on the all-important natural environment. Improved education services are needed to meet the ever-rising expectations of the population, and the aging population and steady rise in noncommunicable Cook Islands 2008 Social and Economic Report 2008Cook Social Islands and Economic disease are placing new pressures on the health and welfare systems. The gap between living standards on the main centers of Rarotonga and Aiututaki and the outer islands is a further key development issue. Continued improvement in institutional performance lies at the heart of an effective response to these needs. This report discusses options for responding to these needs with a view to helping guide public policy formulation in the Cook Islands.

Cook Islands 2008 Social and Economic Report Australian Government 255 London Circuit, Canberra EQUITY IN DEVELOPMENT ACT 2601, Australia Tango-tiama o te kimi puapinga www.ausaid.gov.au

Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org Publication Stock No. 041708 ISBN 978-971-561-691-1 Printed in the Philippines

Pacific Studies Series-Cook Islands main cover08-26.indd 1 8/26/08 8:14:32 PM Pacific Studies Series

Cook Islands 2008 Social and Economic Report EQUITY IN DEVELOPMENT Tango-tiama o te kimi puapinga

This publication is funded by the Asian Development Bank and the Australian Government Pacific Studies Series The series is published by the Asian Development Bank to provide the governments of its Pacific developing member countries with analyses of economic and other issues. The studies are expected to shed light on the problems facing the governments and people of the Pacific Islands, and to suggest development strategies that combine both political and economic feasibility.

Cataloging-in-Publication Data Available

ISBN: 978-971-561-691-1 Publication Stock No.: 041708

The views expressed in this book are those of the authors and do not necessarily reflect the views or policies of ADB, its Board of Governors, or the governments they represent.

ADB does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.

The use of the term “country” does not imply any judgment by the authors or the ADB as to the legal or other status of any territorial entity.

Translation to Maori was made by Tupuna Rakanui with the coordination of Mathilda Miria-Tairea.

Photos—courtesy of south-pacific.travel. Contents

Abbreviations ...... vii Glossary ...... ix Foreword ...... xi Executive Summary ...... xiii E Akakoukouanga Tutara No Te Ripoti (Translation) ...... xxix Chapter 1 Introduction ...... 1 Chapter 2 The Economic Setting ...... 7 2.1 Economic Growth ...... 7 2.2 Bank Lending and Foreign Investment ...... 12 2.3 Inflation and the Exchange Rate ...... 14 2.4 The Budget Balance and Debt Position ...... 15 2.5 The Private Sector ...... 18 2.6 Employment Trends ...... 22 2.7 Unemployment ...... 27 2.8 The Population Challenge ...... 28 Chapter 3 The Disadvantaged of the Cook Islands ...... 31 3.1 Introduction ...... 31 3.2 The Rarotonga–Outer Island Divide ...... 34 3.3 The Significance of Gender ...... 38 3.4 The Elderly ...... 41 3.5 Disabled People ...... 42 Chapter 4 Delivery of Social Services ...... 45 4.1 Introduction ...... 45 4.2 Decentralizing Service Delivery ...... 46 4.3 Education ...... 51 iv Cook Islands 2008 Social and Economic Report—Equity in Development

4.4 Vocational Training and Other Postsecondary Education ...... 60 4.5 Health Services ...... 62 4.6 Welfare Services ...... 66 4.7 Other Social Services ...... 69

Chapter 5 Private Sector Development ...... 73 5.1 The Enabling Environment ...... 73 5.2 Managing Foreign Investment ...... 78 5.3 Maintaining Competitiveness ...... 83 5.4 Factors Affecting Competitiveness ...... 88 5.5 Priorities and Strategies ...... 112 Chapter 6 Managing the Public Sector for Results ...... 119 6.1 Introduction ...... 119 6.2 A National Perspective on Service Standards ...... 121 6.3 Providing Public Infrastructure ...... 123 6.4 Raising the Quality of Public Expenditure ...... 130 6.5 Refining the Revenue System ...... 139 6.6 Maintaining Fiscal Sustainability ...... 141 6.7 Strengthening Public Enterprises ...... 147 6.8 Reforming the Political System ...... 152 6.9 Achieving Results Orientation ...... 156 Chapter 7 Conclusion ...... 163 Appendix 1: Participation and Consultation ...... 167 Appendix 2: Data ...... 183 Appendix 3: The Changing Population ...... 211 A3.1 The Size of the Population and Its Mix ...... 211 A3.2 Migration Patterns ...... 215 A3.3 The Case of Mitiaro ...... 219 A3.4 The Future Population ...... 222 Appendix 4: Outer Island Profiles ...... 225 A4.1 Introduction ...... 225 A4.2 Aitutaki ...... 225 Contents

A4.3 Atiu ...... 230 A4.4 Mangaia ...... 236 A4.5 Manihiki ...... 242 A4.6 Mauke ...... 248 A4.7 Mitiaro ...... 253 A4.8 Palmerston ...... 258 A4.9 Penhryn (Tongareva) ...... 261 A4.10 Pukapuka and Nassau ...... 266 A4.10 Rakahanga ...... 271 References ...... 277 Figures Figure 2.1 Real GDP Growth ...... 10 Figure 2.2 Contribution to Real GDP Growth ...... 10 Figure 2.3 Bank Lending by Sector ...... 12 Figure 2.4 Foreign Investment Approvals and Business Lending ...... 13 Figure 2.5 The Budget Balance ...... 17 Figure 2.6 Government Debt ...... 18 Figure 2.7 Labor Force Activity ...... 21 Figure 2.8 Private and Public Sector Employment Shares ...... 22 Figure 2.9 Size of Public Service in the Outer Islands ...... 23 Figure 2.10 Sector Employment Shares by Island ...... 24 Figure 2.11 Change in Participation in Key Activities by Region ...... 26 Figure 2.12 Unemployment Rate by Region ...... 27 Figure 3.1 2002 Human Development Index for the Pacific...... 32 Figure 3.2 Gender-Based Measures of Development in the Pacific Islands ...... 33 Figure 3.3 Cash Incomes by Island Group, 2001 ...... 37 Figure 3.4 Adults with Vocational Education by Island Group, 2001 ...... 37 Figure 3.5 Employment by Age and Gender, 2001 ...... 39 Figure 3.6 Cash Incomes by Gender, 2001 ...... 40 vi Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 4.1 School Enrollment by Age, 2005 ...... 52 Figure 4.2 School Enrollment by Age, 2001 ...... 53 Figure 4.3 School Enrollment by Island Group, 1996–2005 ..... 54 Figure 4.4 Change in School Enrollments by Island ...... 55 Figure 4.5 Student Achievement by Island Group ...... 58 Figure 4.6 Key Causes of Death, 2001–2002 ...... 64 Figure 4.7 Annual Growth in Expenditure on Welfare ...... 68 Figure 6.1 Size of the Civil Service ...... 133 Figure 6.2 Key Expenditure Shares ...... 135 Figure 6.3 Funding Allocation for Staff Costs by Island, FY2006 ...... 136 Figure 6.4 Illustrative Debt Projections ...... 143 Figure 6.5 Public Enterprises’ Rate of Return ...... 148 Figure 6.6 Funding Allocation for Staff Costs by Island, FY2006 ...... 153 Figure 6.7 Cost of Operating Parliament ...... 155 Tables Table 3.1 Female-Headed Households ...... 41 Table 4.1 Service-Providing Agencies and Organizations in the Cook Islands ...... 47 Table 4.2 New Zealand School Certificate Pass Rates for Residents ...... 56 Table 4.3 Distribution of Qualified Teachers by Island, 2005 ...... 59 Boxes Box 2.1 The Mid-1990s Financial Crisis ...... 9 Box 6.1 The Pillars of Public Sector Management ...... 120 Box 6.2 Infrastructure Needs Identified in the Infrastructure Master Plan ...... 127 Box 6.3 The Auditor-General’s Finding on the Diplomat Project ...... 150 Box 6.4 The Prime Minister on the Role of the National Sustainable Development Plan ...... 157 Box 6.5 The Auditor-General’s Report into Payments on Behalf of the Crown ...... 162 Abbreviations

ADB – Asian Development Bank AusAID – Australian Agency for International Development BCI – Bank of the Cook Islands cc – cubic centimeter CIIC – Cook Islands Investment Corporation CIPC – Cook Islands Property Corporation CISO – Cook Islands Statistics Office DIB – Development Investment Board DMC – developing member country DMF – decayed, missing, or filled teeth FDI – foreign direct investment GDP – gross domestic product HDI – human development index HIES – household income and expenditure survey IMP – Infrastructure Master Plan kWh – kilowatt hour MFEM – Ministry of Finance and Economic Management MIA – Ministry of Internal Affairs MOE – Ministry of Education MOH – Ministry of Health MOW – Ministry of Works NGO – nongovernment organization NSDP – National Sustainable Development Plan NZ – New Zealand NZAID – New Zealand’s International Aid and Development Agency OPM – Office of the Prime Minister viii Cook Islands 2008 Social and Economic Report—Equity in Development

PERCA – Public Expenditure Review Committee and Audit (Act) PIER – Pacific island economic report POBOC – payments on behalf of the crown PSC – Public Service Commission TCI – Telecom Cook Islands UNDP – United Nations Development Programme US – United States VAT – value-added tax Glossary

kikau a crop kumara a root crop maire an agricultural export commodity makatea coral mamio high-quality variety of swamp taro matoi a flowering tree motu islet nono a fruit tree raui traditional lagoon conservation method rito woven young, bleached coconut leaves rukau viti Hibiscus esculentum tarua a root crop

NOTE

The fiscal year (FY) of the Government and its agencies ends on 30 June. FY before a calendar year denotes the year in which the fiscal year ends, e.g., FY2001 begins on 1 July 2000 and ends on 30 June 2001. o o 10 55'S 18 55'S 07 COObase HR Mauke Mitiaro Mangaia G R O U P Atiu Penhryn S O U T H E R N Manuae N National Capital Reef/Atoll International Boundary Kilometers Takutea 0 100 200 RAROTONGA Aitutaki Boundaries are not necessarily authoritative. AVARUA COOK ISLANDS o o 159 50'W 159 50'W o 0 o o 20 00'S 20 00'N Manihiki COOK Rakahanga ISLANDS PACIFIC REGION o o KIRIBATI 170 00'W 170 00'W Suwarrow Palmerston TONGA SAMOA

International Dateline FIJI TUVALU OF THE ISLANDS N O R T H E R N G R O U P N O R T H E R REPUBLIC South Pacific Ocean NAURU ISLANDS SOLOMON MARSHALL ISLANDS VANUATU Nassau S O U T H PS O U T C E C I F I C O A N A Pukapuka MICRONESIA o o o o C o r a l S e a 150 00'E 150 00'E FEDERATED STATES OF 165 50'W North Pacific Ocean 165 50'W PAPUA NEW GUINEA AUSTRALIA INDONESIA o o OF PALAU REPUBLIC Sea o o o 18 55'S 10 55'S 20 00'S 20 00'N 0 Philippine Foreword

he Cook Islands has one of the best performing economies in the South Pacific. Current growth of 3.5% in 2007/2008 is forecast to continue up to 2010, on the back of tourism-related services and Tprudent macroeconomic management. While the economy has recovered from the 2005 cyclone damage, the disaster reminded the Cook Islands authorities and their development partners of the vulnerabilities affecting the Pacific. This led to a broad-based acknowledgement of the need for climate- proofing infrastructure, particularly in light of Cook Islands’ reliance on tourism growth for revenues.

The Cook Islands exemplify the fragility of Pacific island economies. Issues relating to the ecology of the islands have climbed to the top of public consciousness. Environmental sustainability, employment creation, and basic service delivery all hinge on the reliability of infrastructure, particularly on the two main islands of Rarotonga and Aitutaki. Basic service delivery on the 13 other small volcanic islands and coral atolls spread across 1.8 million km2 of ocean area also depends on the Government’s capacity to generate revenues from the mainstream tourism business on Rarotonga and Aitutaki.

Guided by its first Sustainable National Development Plan 2007–2010, the Cook Islands has adopted a posture of fiscal prudence and sound planning to identify and meet development priorities. This enables implementation of pro-poor income generating opportunities by ensuring a sustainable basis for continued growth. xii Cook Islands 2008 Social and Economic Report—Equity in Development

ThePacific Island Economic Report for the Cook Islands outlines the state of economy and social development in the country and presents a road map in addressing key development challenges. It identifies the principal binding development constraints and opportunities in public sector performance, private sector and social development, and governance.

The publication, a part of the Pacific Studies Series, is made possible under a Regional Technical Assistance for Strengthening Pro-Poor Policy in the Pacific, jointly funded by the Asian Development Bank (ADB) and the Australian Agency for International Development. The report was prepared by a team comprising Craig Sugden, Malcolm Bosworth, Margaret Chung, and Angeline Tuara, and benefited from peer reviews by development partners and valuable contributions by ADB staff, including Sirpa Jarvenpaa, Thomas Gloerfelt-Tarp, and Anqian Huang.

Philip Erquiaga Director General Pacific Department Asian Development Bank Executive Summary

Purpose of this Report

The Asian Development Bank (ADB) coordinates the This report preparation of periodic updates of economic and social examines the conditions in its Pacific developing member countries constraints to (DMCs) as part of its Pacific Studies Series. The last update development for the Cook Islands was prepared for 2001. This2008 Social to guide and Economic Report updates the Series as part of a broader policy effort by ADB in partnership with Pacific DMCs to focus on formulation endemic constraints to improvements in public and private sector productivity in the region. This broader effort supports the in-country participatory formulation of policies and institutions that work in favor of poverty reduction, as well as the local formulation of strategies to win over any stakeholders who may not immediately accept reform.

The purposes of this report are to (i) provide an underlying assessment of development constraints and opportunities; (ii) prepare medium-term macroeconomic management and fiscal target indicators; (iii) present a private sector assessment and advise on establishing an enabling environment for a competitive private sector; (iv) present a review of pro-poor service delivery; and (v) provide a basis for policy consultations to facilitate the achievement of pro-poor policy outcomes and to help the people and governments reach critical decisions on adopting and implementing appropriate policies. The report is intended to help guide both public policy formulation in the Cook Islands and the preparation of donor strategies, including ADB’s 2008–2012 country partnership strategy. xiv Cook Islands 2008 Social and Economic Report—Equity in Development

Social and Economic Setting

Social Life expectancy in the Cook Islands is high at 71 years; conditions infant mortality is low at 15–20 per 1,000 live births; are high by immunization rates reach almost 100%; secondary school developing enrollment rates exceed 90%; adult literacy is high; and country most Millennium Development Goals have been met or will standards, be met by 2015. These achievements reflect a long history and there has of heavy government investment in health, education, been good and welfare buttressed by a good natural resource base economic and benefits of close integration with New Zealand. A growth substantial improvement in the quality of economic and public sector management since the financial crisis of the mid-1990s also underpins relatively high living standards. For understandable reasons, the Cook Islands now looks to New Zealand to set its benchmarks for service standards, opportunities, and incomes.

Real gross domestic product (GDP) per head has increased by more than 3.5% per annum (p.a.) on the average since the commencement of economic reform in the mid-1990s and is now more than $10,000. The key drivers of growth are expanding tourism and rising household spending, which have reduced unemployment on the main island of Rarotonga to low levels. Rising numbers of foreign workers are required to meet the needs of the island’s expanding private sector. The second largest island by population, Aitutaki, has also benefited from tourism- led growth and is now a sustainable center of private sector activity.

The fiscal Economic growth led by the private sector has position is boosted government revenue; this, combined with tight sound fiscal management, has reduced the debt of the national Government (the Government) to a low level. The

1 Gross domestic product (GDP) is the income earned in a country, some of it by nonresidents. Executive Summary xv

Government now has the financial capacity to fund public infrastructure projects that have been put under pressure by an expanding economy and demands for higher standards of service.

Perhaps, the biggest current development challenge is A falling the long-term decline in the population of indigenous Cook resident Islanders. Those holding Cook Islands residency also hold population is a New Zealand citizenship and can freely access the New key challenge Zealand and Australian job markets and the New Zealand that calls health, education, and social security systems. More than for economic three times as many Cook Islanders live overseas than in the growth and Cook Islands. better services The predominant migration flows have been from the outer islands to Rarotonga to New Zealand and beyond. Standards of social services, notably education, are generally believed to be important determinants of migration, and migration has also responded to changes in the economic benefits of the Cook Islands. Economic management and social service delivery therefore have important contributions to make in sustaining the population and identity of Cook Islanders.

Despite its overall success, economic reform has The outer successfully generated private sector-led growth only in islands Rarotonga and Aitutaki. Elsewhere, the private sector has have failed not responded or perhaps been unable to respond to the new to achieve business environment. In general, the main impact the mid- economic 1990s reform had in the outer islands was an exodus of people. sustainability There was no offsetting gain in economic sustainability as the public sector continues to dominate the island economy and crowds out prospects of sustainable private sector activities. This crowding-out effect has grown, not eased, since the reform. Public sector and welfare payments funded by the Government now provide the future source of economic activities on most outer islands. Some of them will face the prospect of economic dependency, while others have already reached that point. xvi Cook Islands 2008 Social and Economic Report—Equity in Development

Sustaining Growth

Economic The economic reform program was very successful in reforms have creating an enabling environment required for private sector been central growth. This is evident in the improvements of private to growth sector-led economic growth, falling unemployment, and the business community’s reasonably favorable assessments of the operating environment. Key achievements were the (i) reduction in excess employment in the public service and an associated correction of public servant pay rates, (ii) reduced involvement of the public sector in business activities, (iii) adoption of a modern tax system centered on the value-added tax and the reform of import duties, (iv) strengthening of the financial system through reform of the state bank and improved supervision, and (v) more open stance toward foreign investment and workers.

Continued These reforms lifted the productivity of the economy’s gains in factors of production—labor, capital, and land—while productivity providing for the supply of additional labor and capital are required from overseas. Some signs indicate that the international competitiveness of the economy may have declined recently. These signs include an apparent decline in foreign investment and a substantial drop in long-haul tourist arrivals. Sustaining growth requires ongoing vigilance to lift productivity and ensure the availability of capital and skilled labor. Such efforts will help bolster the international competitiveness of the economy and provide the capacity needed to meet rising demand for the country’s goods and services.

Tourism will Tourism will likely remain as the driver of economic likely remain growth and will remain concentrated in Rarotonga and as the main Aitutaki. Land suitable for agriculture exists in Rarotonga and driver of the Southern Group of outer islands. Experience, however, growth suggests that the economy’s strengths are elsewhere and agricultural activity will be limited to the sale of fresh fruits and vegetables to Rarotonga and Aitutaki and small niche market opportunities (e.g., sales to Honolulu of maire, from Executive Summary xvii

whose leaves are fashioned garlands, and coffee exports from Atiu). A key factor behind this is the regionally high cost of labor and the availability of more attractive employment alternatives (e.g., in tourism or the public sector).

Pearl farming on Manihiki will remain the main private sector activity in the remote Northern Group of outer islands if issues on farm management are addressed and world prices are favorable. Other potential contributors to private sector activity in the Northern Group include offshore fishing, fish processing, and handicrafts. Nevertheless, the scale of these activities will likely remain relatively small. Public sector employment will remain the dominant source of income in the Northern Group, as in the Southern Group (excluding Aitutaki).

Raising the productivity of infrastructure is an Public important step toward sustaining overall economic growth. infrastructure The tight fiscal management necessary to correct the Cook needs Islands’ very high debt levels and the absence of a clear upgrading planning framework for infrastructure have contributed to a backlog of works. Roads, water, sewerage, electricity, and harbors and ports in Rarotonga and Aitutaki are potential constraints to growth over the medium term. Existing infrastructure tends to impose unnecessarily high costs on users and, in some cases, is unable to meet new demands at a reasonable cost or standard (e.g., water in Aitutaki or liquid waste disposal in Rarotonga).

A number of structural barriers in the economy have Structural the potential to become significant constraints to growth. barriers Most import duties were removed with the fiscal year warrant (FY) 2007 budget, but some were retained. Protective review tariffs are provided for certain locally produced goods in an attempt to reduce the competitiveness of imports and hence support local producers, especially in agriculture and drink manufacture. The difficulty is that these protective tariffs feed into the cost structure of the tourism industry and reduce its competitiveness. Furthermore, they tend to xviii Cook Islands 2008 Social and Economic Report—Equity in Development

lock scarce local labor and capital into areas of the economy with low productivity and questionable long-term prospects. Such protective tariffs would better be phased out to allow resources to move to their most productive use. Some tariffs have been kept on inputs to production to boost revenue, such as for vehicles, and again they tend to reduce the economy’s competitiveness.

While price An extensive regime of price controls covers most basic controls are food items and fuel. The intention of these controls is to generally keep key items affordable. However, they can force prices overused, up—and indications exist that they do—and tend to shift action on profit margins from one item to another rather than actually telecom- reducing the overall cost. From a public policy perspective, munications price controls can be justified only when effective competition would be is lacking. Few, if any, of the items currently controlled meet justified this criterion, at least in Rarotonga and probably also in the outer islands. A better way to keep goods affordable is to provide for a competitive business environment. Effective competition can be relied upon to minimize costs to society, but current administrative mechanisms inevitably impose additional burdens on society through market distortions and administrative costs.

While there is a tendency to over-regulate prices, one key area of the economy genuinely needs better price supervision. Telecom Cook Islands has a monopoly and for many years has earned very high profits by overcharging. Such a monopolistic behavior reduces the economy’s competitiveness and has adverse social effects. Legislative monopoly has recently expired, and prices for certain international services have been reduced. It is important that regulatory changes be made to lock in these benefits while facilitating the entry of new suppliers and removing any remaining overcharging. Similar changes in electricity supply are warranted, though the potential benefits are not as great as in telecommunications. Executive Summary xix

Education and training have important roles in Education and maintaining growth. Local labor is in short supply, imposing training have a potential constraint on growth. Adult education and further roles to play improvements in educational standards have the potential to in maintaining lift labor productivity to underpin a move to higher-valued growth activities (e.g., in tourism). Better education and training can also contribute to growth by helping keep residents in the Cook Islands so they are available to meet the needs of the labor market. Education is particularly important for the outer islanders to take advantage of the better opportunities offered by the main centers of Rarotonga and Aitutaki.

Managing Foreign Involvement

The makeup of the country is changing as the number of Foreign foreign workers and investors rises; people of Cook Islands involvement descent continue to depart; and fertility rates decline. The in the country foreign, non-tourist population was estimated at 1,000 is increasing through the 1990s. Updating the estimate of the foreign, non-tourist population is largely guesswork, but it now appears to have roughly doubled to 2,000, or 10% of the total population.

Some community members are concerned about the flow-on effects of a rising foreign presence, including the potential erosion of the Cook Islands’ identity. This has a social dimension as the culture is seen to be at risk. It is also seen to have a commercial dimension, reflecting concerns that the tourism industry may suffer if the Cook Islands’ image is lost. Some foresee that Rarotonga and Aitutaki may evolve into high-density tourism destinations with little involvement with, or connection to, Cook Islands Maoris other than through rental payments on leased land.

There is a range of potential responses to this development issue. At one extreme is a ban on further foreign involvement and at the other extreme is the free flow of foreign labor and investment. The first extreme xx Cook Islands 2008 Social and Economic Report—Equity in Development

While tighter would probably see economic growth stall as there would controls may be no additional labor to meet growing demand. It would stall growth, also carry the risk of the Cook Islands’ economy losing its free entry competitiveness and actually contracting if local labor were poses dangers too forceful in taking advantage of the opportunity created to national to increase pay rates. The opposite extreme would minimize identity the economy’s cost structure by keeping wages down and probably maximize economic growth. However, rising foreign investment could bring about very large changes in the nature of the Cook Islands as foreign presence grows, especially if Cook Islanders continue to leave for better wages overseas.

The current The current approach is a middle path. Foreign workers approach is a are allowed where local skills are not available, and foreign middle ground investment is allowed under certain conditions, mostly outside of the reserved areas for local businesses. Both foreign workers and investors pay fees, which lightly control the entry.

Efficiency, The guiding policy framework lacks clarity and accountability, coordination. This can give rise to uncertainty and and inconsistencies. For example, it has been proposed that transparency immigration fees on foreign workers be reduced, thereby can be facilitating access for foreign labor. At the same time, the improved Development Investment Board has been moving toward tighter controls on access by foreign investors. The rules adopted to guide implementation have been generally well applied, but they are open to abuse and the impacts of the current policy are not being monitored (e.g., the extent of foreign ownership cannot be measured).

A more open and clearly defined system would improve efficiency, accountability, and transparency. Support for local labor and business owners to upgrade their skills so they can play a more prominent role in the economy is probably also important to finding balance on this issue.

Tightening current controls on foreign involvement— a proposal that is already well advanced—could be achieved Executive Summary xxi

through various means. For example, higher fees are one option for limiting access. Quotas could be set for foreign labor or partial bans could be applied for certain skills, industries, or islands. Some options are better than others, and potential impacts should be analyzed openly and discussed. All efforts will work best if applied openly and transparently.

Managing the Public Sector for Results

The Government now has in place one foundation required Gains are for managing public resources effectively and efficiently. apparent The progress made is readily evidenced by substantial across the improvement in the Government’s financial position and in public sector the quality of financial management across the public sector. Steady progress has also been made in raising effectiveness and efficiency through improved budgeting practices and agency planning built on the foundations provided by modernized public sector legislation.

Demands on the public sector are rising, and there is Community a need for the public sector to respond by continuing to aspirations focus on results. The community demands higher service continue to rise standards, higher incomes, and more opportunities. The aspiration appears to be to reach New Zealand standards while preserving the Cook Islands’ modernized lifestyle in Rarotonga and maintaining a more traditional lifestyle in the outer islands. At the same time, a declining share of government revenue to GDP requires tighter prioritization of government expenditures.

For the Cook Islands, the priorities for government Priorities expenditure are likely to lie in economic infrastructure, are health, education, and health. A backlog of infrastructure work education, needs to be addressed. Considerable potential exists to raise and educational standards, and doing so is important to meet the infrastructure needs of the economy. The health sector faces the challenge of a rising incidence of noncommunicable diseases. xxii Cook Islands 2008 Social and Economic Report—Equity in Development

Public debt Health sector funds could be reallocated to generate could rise to better value for money, notably from curative to preventative 35–40% of health cares. Education also shows some potential for GDP by 2026 reallocating sector funds toward primary and secondary education. But the potential to upgrade educational standards and the economy’s need is so great that the emphasis may more usefully be placed on increasing the sector’s share of total expenditure. For physical infrastructure, a larger share of expenditure is required to make up for the recent low levels of funding. Infrastructure expenditure proposed under a recently prepared Infrastructure Master Plan could see net general government debt rise to more than 20% of GDP by 2026.

With welfare Expenditures in low priority areas need to be trimmed. and wage Welfare payments, which are large and poorly targeted, payments as provide one likely opportunity for future savings. Expenditure low priorities, constraint may need to go beyond the functional level to agreeing address the overall composition. In this respect, the key is to on realistic control the wage bill, allowing spending to shift to capital service and maintenance sides. standards is important Improvements can also be made to the ways how government operates. For example, key issues in developing infrastructure include the procurement process, management weaknesses within agencies, low cost recovery on public services, and problems faced in devolving responsibilities to island councils. The competitive outsourcing of infrastructure works to the private sector has the potential of being an important response to these problems, requiring further rethinking of the division of responsibilities between the public and private sectors.

All expenditure decisions face the need to establish realistic standards of services across the country. Improve ments to services in the outer islands inevitably come at the expense of improvements in Rarotonga and Aitutaki, thereby accentuating the gap between these centers’ standards and those of New Zealand, to which people appear to aspire. Executive Summary xxiii

The bigger the gap between Cook Islands and New Zealand standards, the larger the population outflow that imposes its own costs on the country would be.

Questioning the weighting of expenditure in favor of the outer islands appears to be reasonable. The average allocation for operating costs for health, education, and infrastructure in the outer islands is about double the allocation to Rarotonga on a per head basis. Moreover, it has been proposed that some 60% of infrastructure funding over the next 5 years would be for the outer islands. This allocation appears out of line with 19% of the population and 14% of formal employment located in the outer islands in 2001, both of which would since have declined.

One remaining gap in public sector management Systematic is the establishment of a systematic process for assessing performance performance. While the budget sets out a work plan with assessment is targeted results and performance measures for the outputs needed, as is of each ministry, they are not scrutinized systematically. The implementation management system established for ministries requires the of the national Public Service Commission to review progress in delivering plan these outputs regularly, but no such review is undertaken. Many performance measures are unrealistic—too high to be of use in the annual review. Heads of ministries are subject to performance review, but without ministry-level information, the review can be only superficial. This means that the cycle of inputs, activities, and outputs required to feed back into reformulation in subsequent years is weak at best and, at worst, completely absent.

Implementing the recently finalized National Sustain able Development Plan (NSDP) 2007–2010 would greatly assist the adoption of a performance management system. NSDP sets out the national vision and goals, as well as the direction to be followed by the lower-level plans (sector strategies, corporate plans, and the annual budget). The plan presents an important opportunity to reinvigorate the broader engagement of the community in using public sector xxiv Cook Islands 2008 Social and Economic Report—Equity in Development

resources. Some barriers have formed to achieving a focus on results in the public sector. Opening the system to scrutiny is likely to be a part of the solution to this problem.

Addressing Disadvantages

Outer islands No studies of the poverty situation in the Cook Islands suffer lower have been done, but it is widely accepted that the key service equity issue is the disparity between Rarotonga and the standards outer islands. This is reflected in development indicators and less and a steady flow of residents to Rarotonga. Providing opportunity small, far-flung communities with a full array of social than services is difficult and expensive, but the disadvantages Rarotonga suffered by outer island communities go beyond lower service standards. With the departure of public sector jobs in the mid-1990s, along went people and skills. Some communities now stay alive only through welfare payments and accepting responsibility for grandchildren. A widely held aspiration is to achieve more evenly spread economic growth and social development across all islands.

Gender Beyond this general pattern of outer island disadvantage, imbalances vulnerable members of the community include people who and are least able to help themselves, whose issues go unheard, vulnerability and who often have special needs and require extra help. exist in all The causes of vulnerability include the breakdown inthe communities traditional family support systems, emigration of caregivers, rising cost of living, and ruinous social and community obligations. The vulnerable are elderly, unemployed, single parents, children, and physically challenged, as well as smaller numbers of squatters and crime victims.

Another general pattern of disadvantage is by gender. By regional standards, the women of the Cook Islands rank well. Their main disadvantages are their relatively restricted opportunities for economic and political participation, generally lower earning capacity, and remaining subtle forms of gender bias. Executive Summary xxv

The Government’s response to the disadvantaged rests The outer on providing services to the outer islands and welfare payments. islands could It will be difficult to make further substantial progress toward be granted addressing the present imbalance in living standards through more voice funding alone. Funding already favors the outer islands to the point of overfunding in some cases. However, some progress could be made by setting and meeting minimum standards of services, addressing inequities among islands in funding for key services, and finding a more workable approach to decentralization that gives local communities a greater role in decisions affecting the outer islands.

Welfare payments are high, and this appears to be a key Welfare reason for the Cook Islands’ lack of any sizable group of very payments poor people. However, much more could be done to focus could be better the system on supporting the disadvantaged. Almost all targeted payments are made without any means testing (i.e., without determining need), and it is perhaps a misnomer to describe it as a welfare system. For example, payments are made for 1,464 elderly and 4,943 children with the only criteria being age and residency, while only 227 people receive payments for infirmities and 43 for destitution. In addition, even funding for these small groups is not according to strict needs-based definitions. For example, tiny but food-rich Mauke is home to 18% of destitute cases while generally poorer Pukapuka and Penhryn, together with Manihiki, account for only 2%.

Improving Governance

The quality of governance remains one main risk to Constitutional continued development and an area warranting renewed reform is an efforts. A key consideration is the absence of action to outstanding advance constitutional reform. A review of the constitution issue, as is was released in 1998, but few recommendations were devolution, implemented. Frequent changes of government and the which has associated political instability have probably undermined the been largely quality of government with follow-on effects on emigration reversed xxvi Cook Islands 2008 Social and Economic Report—Equity in Development

and economic growth. Political patronage remains an ongoing risk that has been exaggerated by the (i) weaknesses in the parliamentary system, (ii) ability for ministers of the crown to act outside the accountability framework, (iii) absence of a clear planning framework to guide the use of public funds, and (iv) gaps in performance management under the budget process.

A key component of reforms in the mid-1990s was the transfer of formal authority to decide and implement decisions from the center to the periphery. At the time and several years thereafter, this transfer was considered critical for the sustainability of the country. Specifically, the Government was to devolve some key resource management and public administrative control to island councils, and to provide a fully functional and effective form of self- government for each island, provided with clear and open lines of responsibility and communications with the restructured central Government in Rarotonga. The actual extent of devolution fell short of this intention. Lacking the support of a clear policy framework, devolution outpaced the development of local capacity from a low state, with the result that the devolution that did occur has largely been reversed. The balance of power between central and island governments probably has a significant effect on the quality of island services. Although devolution is a difficult area for making progress, there is value in revisiting these issues and seeking a sustainable approach.

Other measures that could support accountability and transparency include (i) making budget documents more readable; (ii) publicly releasing the reports of the independent budget committee; (iii) reducing the use of payments on behalf of the Crown; (iv) adopting codes of conduct for members of Parliament, civil servants, and officers of public enterprises; and (v) imposing tighter controls on public enterprises and appointing ministry heads to curb a tendency toward politicization. Executive Summary xxvii

Summary of Key Findings

 Living standards are generally high. Private sector- led growth has been achieved, driven by tourism. Economic reforms and improved public sector management have been critical to achieving a turnaround along the Cook Islands’ development path.

 The need to pursue international competitiveness is ongoing. Structural reforms are warranted, notably to the protective tariff regime and to promote competition in key industries (e.g., telecommunications). Infrastructure investment in the main centers of Rarotonga and Aitutaki is also needed.

 Foreign investment and workers will continue to be required to meet economic needs and to replace departing Cook Islanders. An intended tightening of access rules is likely to put growth at risk. The important national goal of preserving the identity of the Cook Islands must be balanced with the needs of the economy.

 Economic prospects are poor in most outer islands, where living standards are lower than those in the main centers. The outer islands already generally receive a lot of public funding, and further increases are unlikely to prevent their long-term population decline. Yet funds could be distributed more equitably, and more control in the use of public funds could be provided to communities.

 Education plays an important role in building the skills needed for the economy, particularly through expanded vocational training. Ongoing efforts are still required to improve the quality of lower schooling. xxviii Cook Islands 2008 Social and Economic Report—Equity in Development

 More demands are likely to be placed on the health sector with the rise in lifestyle diseases. Much stronger preventative action is important for controlling this trend.

 The nation’s fiscal position is sound; the machinery of government is relatively sophisticated; and the Government is well placed to fund development. Infrastructure, education, and health are the expenditure priorities.

 The disadvantaged deserve more support. Considerable public resources exist that could be used to help the disadvantaged, notably through the better targeting of the welfare system.

 There is an underlying need to maintain the large gains made in governance. Some signs indicate that the damaging attitudes of the 1990s remain, and a tightening of safeguards is prudent.

 Maintaining strong economic indicators can benefit from a multi-year fiscal framework. The adoption of prudent targets for benchmark indicators would help guide policy planners to achieve sustained robust macroeconomic performance. E Akakoukouanga Tutara No Te Ripoti (Translation)

Akakoroanga o teia Ripoti

Kua riro te Pangika Kimi Puapinga o Ātia ei tapapa i te Te i’oi’o nei akateateamamao anga no te au akapapaanga ta-tuatau no te teia Ripoti ki turanga kimi puapinga e te pirianga o te iti tangata i roto i roto i te au te au patireia turanga paruparu i te pae kimi puapinga o te ngai tuˉkaui i Pativika tei riro ratou ei tuanga no te au tapapaanga no te te au ravenga tuanga Apii Pavika. Ko�� te ripoti openga no te Kuki Airani kimi puapinga kua rave ia te reira i te mataiti 2001. Ka riro teia Ripoti Pirianga o te Iti Tangata e te Pae Kimi Puapinga 2008 ei apai mai i te turanga akaope ki teia tuatau e ka riro teia ei tuanga no te angaanga a te Pangika Kimi Puapinga o Ātia ma te taokotai katoa atu ki te au patireia paruparu e, e au mema ratou i roto i te pae kimi puapinga o te Pativika. Te akakoro ia nei kia akatinamou ia te akakoroanga no te akamatutu i te turanga ngatā ma te rave meitaki anga i te angaanga e totoa nei ki roto i te pae angaanga a te katoatoa e tae ua atu ki te pae paraiveti i roto i te Pativika. Te riro katoa nei teia ei turu i te au angaanga e rave ia nei i roto i te au patireia no te ‘atu anga i te au poritī ma te akatinamou i te au taokotaianga e kimi ravenga nei no te akaiti mai i te oraanga putaua. Kia ‘atu katoa ia etai au kaveinga no te iti tangata te ka riro ei uuti mai i te ngakau o tetai au tangata tei kore i ariki - kia turu ratou i teia au akakoroanga. xxx Cook Islands 2008 Social and Economic Report—Equity in Development

Ko te au akakoroanga o teia Ripoti nei koia oki: (i) kia akapapa ia te au turanga ngatā i roto i te pae kimi puapinga ma te akara katoa i te au ravenga no te kimi puapinga, (ii) kia akateateamamao ia tetai au porokaramu akatereanga mamaata no te tuatau rotopu (medium-term) ma te akataka i te turanga o te puapinga tei tapapa ia e kia rauka mai, (iii) tuku atu anga i tetai i’oi’o marie anga ma te au akamatakiteanga mei roto atu i te pae paraiveti no te akatupu i tetai turanga ei papa ngaueue kore no te au angaanga a te pae paraiveti, (iv) oronga atu anga i tetai uriuri akaou anga no te au tuanga tukaui i te rave anga i te angaanga, (v) ‘atu anga i tetai tango uiui mārama ei turu i te akameitaki anga i te au poriti e au akairo kino te kitea mai nei, ma te tauturu atu i te iti tangata e te Kavamani kia tuku i tetai au tika kia akamana ia ma te ta-angaanga i te au poriti memeitaki. Kua akakoro ia teia Ripoti ei kaveinga no te ‘atu anga i te au poriti o te iti tangata Kuki Airani e pera katoa no te akateateamamao anga i te au takainga te ka anoano ia no te patireia, me kore, no te au taokotaianga oronga tauturu ki te Kuki Airani. Ka ō katoa mai ki roto te Ātuianga-Pirianga Taokotai no te Kaveinga O te Patireia Mataiti 2008-2012 a te Pangika Kimi Puapinga o Atia.

Oraanga o te iti Tangata e te Tango o te Pae Kimi Puapinga

Me akaaite Matutu tikai te oraanga meitaki o te iti tangata Kuki Airani, ia atu ki te koia oki e 71 mataiti te roa i te oraanga. Ko te turanga o te turanga o te au tamariki e mamate nei, akaaka rava te reira, koia oki e au patireia 15 ki te 20 i roto i te au tauatini tamariki rikiriki e ora mai paruparu, ko nei i te tuatau i anau ia ei. Ko te paruru i te iti tangata mei te pirianga o te au maki totoa kua vaitata e tae ki te 100 patene. I�� roto i te iti tangata, te apii tua rua kua vaitata ki te 90 patene o te au tamariki e meitaki tei retita ia. Ko te karape i te tatau e te tata i roto i te au tikai te reira uki mamaata, e turanga teitei tei rauka. Ko te maata anga i e kua kitea te au Papauanga Kimi Puapinga no te Tau Mano Rua, kua katoa ia mai tupu ke ana me kore ka rauka i te akatupu me ope te mataiti E Akakoukouanga Tutara No Te Ripoti xxxi

2015. Kua riro teia au takainga tei rauka ei akakite mai i te te matutu i roa o te tuatau i to te Kavamani patu anga ma te akamatutu te tupuanga i te Pae Rapakau, Pae Apii e pera katoa te oraanga meitaki o te pae kimi o te iti tangata. Kua riro katoa te inuinu o te pae natura ei puapinga. tauturu i te oraanga o te iti tangata. Kua turu katoa ia teia au mea na roto i te puapinga tei rauka mei roto i te pirianga o te patireia Kuki Airani kia Nu Tireni. I teia nei kua rauka tetai papa rangarangatu i roto i te pae kimi puapinga e tae rava atu ki te pae o te akateretereanga kavamani me akaaite ia atu ki te manamanata maata o te moni kore ta te patireia i tomo na roto i te mataiti 1990 e topa ua mai ki te au mataiti i rotopu. No tetai au tumu pīāpa ua, te akara tinamou atu nei i reira te patireia no te akanoo i te kaveinga o te Kuki Airani ki runga i te turanga teitei ta Nu Tireni i akanoo nona uaorai, i roto tikai i te raveraveanga o te au angaanga no te iti tangata, te akatupuanga i te au ravenga tukeke no te iti tangata, e tae ua atu ki te akamatutuanga i te puapinga o te moni te ka rauka mai nei.

Ko te katoatoa anga o te puapinga o te patireia me tu’a ia na runga i te upoko tangata, kua tere atu te reira mei tetai 3.5 patene i te mataiti. E tuke maata teia mei te tuatau i aka-ou ma te akamatutu ia mai ei te turanga o te pae Kimi Puapinga i te mataiti 1990 e tae ua mai ki te au mataiti i rotopu. I teia nei kua taena ia ki te $10,000 Marike i te tutaki i te tangata okotai i te mataiti. Ko te taviri no te opara i te tupuanga o te pae kimi puapinga mari ra kia akamatutu ia te Pae Turoto ma te akamaata atu i te akapouanga mei roto i te au ngutuare tangata. Kua riro te reira i te akaiti mai i te numero tangata kare a ratou ngai angaanga moni tinamou i runga ia Rarotonga. Te maata aere ua atu nei te au tangata porena e anoano ia nei ei rave i te angaanga no te mea te maata ua atu nei te anoano o te pae paraiveti kia tarau ia mai tetai au tangata angaanga. Ko te rua o te enua e maata te tangata i runga iaia, mari ra ko Aitutaki. Kua puapinga katoa teia enua na roto i te akatupuanga ma te turuturu i te angaanga Turoto. I teia nei kua riro teia enua ei punanga ketaketa no te kimi puapinga i roto i te pae paraiveti. xxxii Cook Islands 2008 Social and Economic Report—Equity in Development

E turanga Kua riro te tupuanga matutu o te pae Kimi Puapinga o maˉtutu to te te pae paraiveti ei akapapu i te maata o te moni ta te Kavamani moni e rauka mai nei. Kapiti atu ki te reira, kua akamatutu katoa ia te akateretereanga o te moni, ma te akaiti mai i te teimā o te au moni akakaiou anga a te Kavamani ki tetai turanga akaaka rava. I teia nei kua rauka i te Kavamani i te akapapu e kua matutu te turanga o te moni e ka rauka rai iaia i te tutaki i te au akapouanga no te akameitaki akaou i te au Toko Tauturu i te Oraanga o te Iti Tangata. Kua kopae ia ana oki teia au tuanga no te tukaui i te tupuanga o te pae kimi puapinga. E maata katoa te moni tei anoano ia ei akameitaki atu i te raveraveanga i te au angaanga a te Kavamani no te iti tangata, e pera katoa te akamatutu anga i te au ravenga kimi puapinga.

Kua riro te Penei ko te angaanga maata ta te Kavamani e tapapa topa maata nei te ka arapaki ki te patireia no tetai roa anga tuatau, koia o te numero oki ko te numero o te iti tangata Kuki Airani e topa aere ua tangata noo atura ki raro. Ko tetai ua atu tangata e tikaanga Kuki Airani tinamou ki te tona i te noo tinamou mai ki roto i te patireia, te mou katoa Kuki Airani ra ratou i tetai tikaanga iti tangata Nu Tireni e ka tika katoa nei ei turanga ia ratou kia tomo ki Nu Tireni e pera katoa ki Autireria mei ngataˉ no te te mea atu rai e e iti tangata Kuki Airani tikai ratou. ��Ka Kavamani rauka katoa ia ratou i te kimi angaanga moni, te ta-angaanga i roto i te i te pae rapakau maki, te pae apii e pera katoa te au ravenga akamatutu paruru i te oraanga tangata i Nu Tireni e Autireria mei te anga i te pae mea atu rai e e iti tangata Kuki Airani tumu tikai ratou. Tere kimi puapinga, atu i te toru taime i te maata i te iti tangata Kuki Airani tei ma te noo tinamou ki vao mai i te patireia me akaaite ia atu ki te akameitaki atu Kuki Airani tikai e noo nei ki roto i te patireia. i te rave anga i te angaanga Ko te maata anga o te iti tangata e akaruke nei, mari ra mei te au enua i tai mai e tere mai nei ki Rarotonga e tae ua atu ki Nu Tireni. Koia katoa to Rarotonga e tere nei ki Nu Tireni e tae ua atu ki tetai au enua ke atu. Kua irinaki katoa ia e te riro nei te turanga o te au ravenga tauturu i te iti tangata ei opara i te iti tangata kia akaruke - i roto tikai i te turanga o te apii. Kua arapaki katoa te neke anga o te iti tangata ki vao mai ki runga i te turanga o te puapinga ki E Akakoukouanga Tutara No Te Ripoti xxxiii

te patireia. E no reira ka riro rai te akateretereanga i te pae kimi puapinga e pera katoa te tuku atu anga i te au ravenga tauturu no te oraanga o te iti tangata ei tuanga maata i roto i te akatinamou anga e eaa te maata o te iti tangata i roto i te patireia, e pera katoa no te akanoo anga i tetai tango turori kore no te iti tangata Kuki Airani.

Noatu oki te turanga rangatira o te puapinga tei rauka Kare i rauka mai, kua akakotinga ua ia te manuia ki Rarotonga e Aitutaki i te au enua ua no te akatupuanga i te pae kimi puapinga na roto i te i tai mai i te pae paraiveti. I runga i tetai au enua ke atu kare te reira akapapu e e akakoroanga i puapinga ia ana. Penei ko te tikaanga, kare te tupuanga pae paraiveti i rauka i te ariki i te turanga ou o te pae kimi turori kore to puapinga. Me akara mamao ia atu ko te kino maata tei tupu te pae kimi ki runga i te au enua i tai mai i roto i te mataiti 1990 e tae ua puapinga i mai ki te au mataiti i rotopu, mari ra ko te mano tini anga o te tangata tei akaruke i te enua anauanga. Kare oki e ravenga reira. ke i te tupae i te ruti no teia i te pae kimi puapinga. No reira kua noo tinamou ua atu rai te kavamani ki roto i te pae kimi puapinga i runga i te reira au enua tei riro i te opara atu ki vao i te vaerua kia akariro ia e na te pae paraiveti e akatere i te pae kimi puapinga i runga i te au enua i tai mai. Kua vai te tupuanga o teia manamanata mei te tuatau mai i akaou ia mai ei te au akatereanga no te pae kimi puapinga, e kare rai i aere marie ake te maata o te tangata e akaruke nei. Te riro katoa nei te tutaki anga moni matiroeroe, te takaua, moni tamariki e te moni metua pakari ta te Kavamani e oronga nei e tei taokotai atu ki te akateretereanga a te Kavamani ei papa no te pae kimi puapinga i runga i te maata anga o te au enua i tai mai te ka vai no te au tuatau ki mua. Ko te maata anga o te au enua i tai mai te akatika nei to ratou kaveinga ki runga i te irinaki anga e kia na vao mai rai te tauturu no te pae kimi puapinga, e ko tetai papaki kua tae ke ana ki runga i te reira kena. xxxiv Cook Islands 2008 Social and Economic Report—Equity in Development

Pange anga kia ttinamou te Tupuanga

Ko te tango no Kua manuia tikai te porokaramu akaou i te Pae Kimi te akatinamou Puapinga i te mea e kua rauka i te akanoo i tetai turanga i te tupuanga tei anoano ia e te pae paraiveti ei akatupu i to tatou mari ra ko te turanga. Kua rauka te reira i te akapapu mei roto mai akariro anga i te au akairo no te viviki i te tupuanga o te Pae Kimi i te Pae Kimi Puapinga tei arataki ia e te pae paraiveti. E meangiti Puapinga ei katoa te tārē numero tangata e kare e ngai angaanga pukuatu moni. Kua okotai te au pitiniti i te turu e kua tau marie te au turanga tei oti i te akanoonoo ia no ratou. Ko te au mea mamaata tei rauka mari ra (i) ko te akaiti mai anga i tetai maata anga o te au tangata angaanga kavamani tei kore i anoano ia ma te akatano katoa i te tutakianga i te au tavini angaanga o te korona (ii) akaiti mai anga i te au angaanga a te korona i roto i te pae Kimi Puapinga (iii) akamana anga i te akatereanga ou no te tero na roto i te tero-akauta ma te akatuke katoa i te turanga no te tero i runga i te apinga e tuku ia mai nei ki roto i te patireia (iv) akamatutuanga i te akateretereanga o te moni na roto i te akaou anga i te pangika a te Kavamani ma te akamatutu atu i te turanga o te au akaaere (v) ma te ngakau maoraora ki te au ravenga kimi puapinga a te porena e te au tangata angaanga mei vao mai.

Penei ka vai I te akara anga ka vai rai te Pae Turoto ei opara i te rai te Pae tupuanga o te pae kimi puapinga ma te akatinamou i te reira Turoto ei ki runga ia Rarotonga e Aitutaki. Te vai nei te au tuanga turaki i teia enua tau meitaki no te tanutanu i runga ia Rarotonga e tupuanga pera katoa te au enua i te Pae Tonga. Inara kua riro te au tupuanga o te au mataiti i topa i te apii mai e ko te tango ririnui atu no te pae kimi puapinga e ngai ke ua te reira. Ko te angaanga tanu e kotinga tona i te mea e ko te ua rakau, te kai kiko e te kai raurau ua te ka oko ia atu ki Rarotonga e Aituataki. Koia katoa tetai au makete takake (akaraanga, ko te maire e opko ia ana ki Honolulu tei ta-angaanga ia ei taviri ei; te kaope tei oko ia atu ki vao mai no Atiu mai). Ko tetai tukaui maata i roto i teia au kimikimianga i roto E Akakoukouanga Tutara No Te Ripoti xxxv

i teia tuanga moana, mari ra ko te maata i te tutaki i te au rima raverave me akaaite ia atu ki te au ngai angaanga moni akaieie (akaraanga, i roto i te Pae Turoto me kore i roto i te angaanga Kavamani).

Ka vai rai te angaanga tanu poe parau i Manihiki ei tango no te au kimikimi anga ravenga o te pae paraiveti i te pa enua tokerau. Ka anoano ia ra te au ngai tukaui no te akateretereanga i te au pāma kia akatano ia. ��Ka inangaro katoa ia kia matutu te moni oko i te poe i runga i te makete o teia nei ao. Ko tetai au tuanga takake i roto i te pae kimi puapinga o te pa enua tokerau koia oki ko te tautai moana, te tāviri anga i te ika e pera katoa te au apinga rangaranga e te akatikitiki a te iti tangata. Kua papu ra e ka vai meangiti ua rai te turanga o teia au ravenga kimi puapinga. Ka riro rai te tarauanga tangata angaanga a te korona ei ivi mātua e pera katoa ei ravenga kimi moni i te pae tokerau e tae ua mai ki te pae tonga (takake mei ia Aitutaki).

Ko te akamatutu anga i te turanga o te au toko tauturu Ka anoano ia i te iti tangata e tuanga puapinga maata rava te reira no te te au toko akapapuanga i te turanga tiratiratu no te tupuanga o te pae tauturu i te kimi puapinga. Kua ngingiti te Kavamani i te tuku moni oraanga o te atu ki vao no te apainga maata i te akatano anga i te tutaki iti tangata i te akakaiouanga maata a te Kuki Airani. Kare katoa oki e (infrastructure) au parani anga tau tikai no te akameitaki atu i te au toko kia akameitaki tauturu i te iti tangata. Kua�� riro te reira i te akaputu i te akaou ia au angaanga tukeke. Ko te au mataara, te vai, te ngai titiri anga repo e te tita, te au ava e te ngai akato anga pairere i Rarotonga e Aitutaki - ko tetai au tuanga teia te ka riro i te takinokino i te tupuanga o te oraanga meitaki i roto i te au tuatau rotopu (medium term). Ko te au toko e vai nei no te tauturu i te iti tangata te riro nei te reira i te akatupu i tetai au akapouanga mamaata tikai ki te au tangata e ta-angaanga nei i te reira. I tetai au atianga kare e rauka ana i teia au toko tauturu i te iti tangata i te tupae i te au anoano ou o te iti tangata ma te tutaki anga tau (ko tetai akaraanga, ko te vai o Aitutaki me kore ko te ngai titiri anga repo i Rarotonga). xxxvi Cook Islands 2008 Social and Economic Report—Equity in Development

Ko tetai au Ko tetai au arairai anga i roto i te pae kimi puapinga arairai anga ka riro mai te reira ei au ravenga takinokino i te tupuanga tei tau kia o teia tuanga nei. I roto i te mataiti moni 2007 kua takore i’oi’o marie ia tetai maata anga i te tero tuku apinga mai ki roto i te akaou ia patireia. Inara kua taporoporo katoa ia mai tetai papaki. Te vai ra tetai au apinga e maani ia ana ki roto i te patireia, te tuku katoa ia mai nei mei vao mai, inara kare te tero paruru i runga i te reira au apinga i takore ia. ��E au ravenga te reira no te turuturu atu i te apinga okooko a te iti tangata. Ka anoano ia tetai au tauturu no te au tangata e au kimi anga ravenga ta ratou mei te reira, mei te au apinga e rauka mai nei mei roto i te pae tanutanu e pera katoa te vai inu tukeke e oko ia nei. Te riro katoa nei ra teia au paruruanga ei manamanata no te mea e maata atu te moni oko i te reira au apinga e oko ia nei i roto i te Pae Turoto. Na runga atu i te reira, te topiri ia nei te ngutupa ei paruru i tetai toko iti o te au tangata angaanga mei roto i te patireia e tae rava atu ki te kapitara - e au tuanga oki te reira kare e maata te puapinga i reira ka rauka mai. ��Te kite mamao ia atu nei e kare rai e puapinga e rauka mai mei roto i te reira au tuanga i te au tuatau ki mua. No reira ka anoano maata ia te reira au tero paruru kia takore ia me kore, kia kopae marie ia atu ki vao kia rauka i te akaneke i te au ravenga ki te au ngai e rauka mai ei te maata anga o te puapinga. Ko tetai au tero kua vaio ia te reira ki runga i tetai au tuanga ei akamaata atu i te moni ka rauka mai, mei te tero o te au apinga akaoro. Kua riro katoa te reira i te akaiti mai i te turanga akarērē no te reira au apinga.

Kua putuputu Kua pararauare te akapapaanga no te akateretere i te rava te moni oko apinga e tae ua atu ki te kai e kai putuputu ia taangaanga ana e pera katoa te inu, penitini, karatini e te titara. Ko te anga i te akakoroanga o teia au akateretereanga nei mari ra kia peke i kopapa te iti tangata i te oko i teia au apinga. Inara ka rauka katoa akaaere no i te reira i te turaki kia maata atu te moni oko (te kitea mai te tukuanga nei tetai au akairo e no ta ratou i rave i kake maata ei te moni i te moni oko oko) e te rauka katoa nei ia ratou i te akaneke i te maata o apinga, no te puapinga e rauka mai ana mei runga i tetai apinga oko ki reira e mea runga i tetai ma te kore takiri e akaiti mai i te au akapouanga E Akakoukouanga Tutara No Te Ripoti xxxvii

a te iti tangata ki runga i taua au apinga ra. Me akara ia tau kia akara atu na roto i te au poriti a te katoatoa, ka anoano ua ia te ia te pae kopapa akatere i te moni oko apinga mei te mea e kare e akakitekite au Kamupani e akarērē atu ana ki tetai no te oko i te reira tuatua na roto apinga. Mei te mea e e au apinga oko tetai e ko tona turanga i te roro uira teia, kua papu e toko iti ua te reira i Rarotonga nei e penei i runga katoa i te au enua i tai mai. Ko tetai ravenga no te akapapu e kia rauka i te iti tangata i te oko i te apinga, mari ra ko te akanoo anga i tetai turanga no te au pitiniti kia akarērē. Inara ko te au rima akateretere o teia tuatau te tuku nei ratou i tetai au suko ki runga i te iti tangata na roto i te akataka papu kore anga i te tu o te makete e pera katoa te au akapouanga no te akaaere i te reira au mea.

Noatu e ko te vaerua kia akamaata ia atu te au ture akamana ia no te akateretereanga i te moni oko apinga, okotai tuanga takake o te pae kimi puapinga te ka anoano maata ia kia akatere meitaki ia no runga tikai i te turanga o te moni e tiati nei te iti tangata. Koia oki, ko te Kamupani Telecom Cook Islands. Koia anake ua aia i roto i tana tuanga kimi puapinga e no tetai au tuatau roa e maata ua atu rai te moni tere tana i rauka na roto i te tutaki maata tana e akaue ana. Ko te reira turanga e te peu kua riro te reira i te akangere i te vaerua akarērē i roto i te pae kimi puapinga. Kua riro te reira i te akatupu i te kino ki runga i te iti tangata. Takake mei te reira kua riro te reira peu i te ta-mamao i te Kuki Airani mei te turanga o te au patireia i vao mai. Ko te tikaanga pitiniti tei paruru ia e te ture nona anake ua, kua motu rai tona oraanga. I teia nei kua akaiti ia mai te tutaki no tetai au mea ta teia Kamupani e tuku nei ki te iti tangata kia ta-angaanga. E mea tau kia akamana ia tetai au ture no te tapeka i teia au tauianga te ka riro katoa i te akamaroiroi i tetai au Kamupani mei teia te tu kia tomo mai ki roto ma te takore takiri i tetai au tiati anga taukore. Ka tau katoa te reira au tauianga ki roto i te kopapa tuku uira ki te iti tangata, inara kare te turanga o te puapinga te ka rauka mai no reira e aite ki ta te Kamupani tuku tuatua na roto i te roro uira. xxxviii Cook Islands 2008 Social and Economic Report—Equity in Development

E tuanga Ko te Pae Apii e te Pae Terenianga e tuanga puapinga katoa ta te rava ta raua i roto i te akapapūanga i to tatou tupuanga. Te Pae Apii e te topa ua atu nei te maata o te au tangata angaanga. Ka riro Terenianga teia i te takinokino i te tupuanga o te patireia. Ka rauka i i roto i te te tuanga o te Pae Apii e te Terenianga i to tatou iti tangata tupuanga o te pakarikari i te akameitaki atu i te maata o te puapinga te ka patireia rauka i roto i te tuanga o te pae kimi puapinga. ��Ka riro katoa teia mataara ei papa no te akakoroanga kia maata atu te rito mei roto i te au angaanga te ka rave ia. (ko te akaraanga koia oki ko te Pae Turoto). Ka riro katoa te turanga meitaki o te Pae Apii e te Terenianga i te iti tangata pakarikari ei akamatutu i te tupuanga o te patireia na roto i te tāpū mai anga i to tatou iti tangata Kuki Airani ki roto i te patireia kia riro e na ratou e tupae mai i te makete no te au tangata angaanga. Ka riro katoa te Pae Apii e te Terenianga i te tauturu atu i te iti tangata no te au Enua i Tai Mai e anoano nei i te neke atu ki roto i tetai au ngai angaanga memeitaki i rotoo i te au taoni mamaata.

Akateretereanga i te pirianga Porena

Te maata Ko te tutu o te iti tangata i roto i te patireia te taui nei te reira ua atu nei i te mea e te maata ua atu nei te au tangata angaanga porena te pirianga e pera katoa te au ngai akatupu kimi puapinga a te porena. porena ki Ko te iti tangata Kuki Airani tikai te akaruke nei ratou i te roto i te au patireia, e te topa aere ua atu nei ki raro te numero tamariki angaanga a te e anau mai nei. I roto i te mataiti 1990 e tae ua atu ki te au patireia. mataiti i muri mai ko te au porena katoatoa kare i te manuiri turiti kua tamanako ia e mei tetai 1,000. Ko te kimi anga i te tika tikai o te maata o teia iti tangata e mea tamanako ua te reira. Kua irinaki ia ra e kua taena ki tetai 2,000 ia ratou i teia nei - me kore ra e 10% i te katoa anga o te iti tangata.

Te manamanata nei tetai papaki o te iti tangata no te au tu kino te ka tupu mai mei roto i te maata o te au porena e noo mai nei ki roto i te patireia. ��Ka riro katoa te reira i te takore marie atu i te turanga rangatira o te iti tangata E Akakoukouanga Tutara No Te Ripoti xxxix

Kuki Airani. Ka arapaki katoa teia ki runga i te pirianga o te iti tangata i te mea e ko te peu maori ka ngaro te reira. I tetai tua ka arapaki katoa te reira ki runga i te pae kimi puapinga i te mea e ka takinokino katoa ia te Pae Turoto na roto i te mono atu anga i te mata Kuki Airani ki te tutu mata porena. Kua irinaki tetai au tangata e ka riro mai a Rarotonga raua ko Aitutaki ei enua tapae putuputu ia e te manuiri. Ko te manamanata mari ra ka iti mai me kare ka takore takiri ia te pirianga Maori Kuki Airani ki roto i teia pae kimi puapinga nei - mari ua kia na roto i te tutaki anga moni enua riiti.

E maata te au ravenga no te akatano i teia manamanata. Noatu e te I tetai tua, penei e mea tau kia takore takiri ia te iti tangata pakari nei te porena auraka kia tauru akaou ia mai ki roto. Me oki ki tetai akateretere tua, penei e mea tau kia akatuera pu ua ia te ngutupa no te anga tei riro ei au tangata angaanga e te au ravenga kimi puapinga porena aka-aere marie kia tomo ua mai ki roto i te patireia ma te tamanamanata kore ia. Me ariki ia te tua mua, ka riro te reira i te akaaere i te tupuanga, marie i te tupu anga o te pae kimi puapinga no te mea kare me tuera ua te oki e rava te tangata ei tupae i te au ngai angaanga e anoano ngutupa tomo nei i te tarau tangata. Ka riro katoa te reira ei rūti no te mai ki roto i patireia Kuki Airani i te mea e kare te turanga kimi puapinga te patireia ka e matutu akaou. Penei katoa ka riro te reira takainga i te riro te reira i te akameangiti mai i te turanga o te puapinga mei roto i te pae ta-ngaro i te tu kimi puapinga mei te mea e kia mārō te iti tangata Kuki rangatira o te Airani e angaanga nei e kia akamaata ia atu to ratou tutaki Kuki Airani. i roto i te au ngai angaanga. Me aru ia te rua o te takainga, ka riro te reira i te akatopa i te au akapouanga ki runga i te pae kimi puapinga e ka meangiti katoa te tutaki anga i te au tangata angaanga. Penei ka riro te reira i te akameitaki atu i te tupuanga o te pae kimi puapinga inara ka riro te reira ei tauianga maata tikai i roto i te natura o te Kuki Airani no te mea ka maata te au porena i roto i te patireia, i te iti tangata tikai e mārō nei i te akaruke no te tere atu ki te au patireia i vao mai no te mea e meitaki atu te tutaki i te au tangata angaanga i reira. xl Cook Islands 2008 Social and Economic Report—Equity in Development

Ko te takainga Ko te takainga i rotopu te aru ia nei. Koia oki, ka e rave ia nei akatika ia te porena kia mono i te au ngai e kare e karape o te mari ra kia au tangata Kuki Airani no te rave i te reira. Ka akatika katoa noo tatou ki ia te akatupu Kamupani porena i roto i te au tuanga tei kore rotopu i paruru ia no te iti tangata Kuki Airani (e kia noo ratou ki reira ma tetai au akateretereanga) Ko te au tangata angaanga porena e pera katoa te au ona porena te tutaki moni nei ratou tei riro ei aka-aere marie i to ratou ngutupa tomo mai ki roto i te Kuki Airani.

Ka rauka i te Kare e marama meitaki ana te mataara o te au poriti. akameitaki atu Kare katoa oki i ātuitui meitaki ia. Ka riro teia i te akatupu i te maroiroi, i te turanga papu kore e te tukatikati i te angaanga me rave te tango ia. Ko tetai akaraanga kua tamanako ia ana e ko te au moni akapapuanga tutaki i te au porena tomo mai ki roto i te Kuki Airani e te vaerua angaanga ei kia akatopa ia mai te reira ki raro kia tuera ua maoraora te ngutupa tomo anga mai no te reira au tangata angaanga. Kareka te Kopapa Akamana ia no te Kimi Puapinga te anoano nei te reira kia Akamatutu ia te au akateretereanga no te porena e anoano nei kia akatupu Kamupani kimi puapinga ki roto i te patireia. Kua tau marie te ta-angaanga ia anga te au ture ei akatupu i te reira inara ka rauka katoa te reira i te akatarevake. Ko ta teia au poriti ka akatupu kare te reira i akara meitaki ia (ko te akaraanga mari ra ko te ko te maata i te tuanga a te porena i roto i te Kamupani kare te reira i i’oi’o meitaki ia ake).

Ko te turanga maroiroi, te akapapu e te vaerua maoraora ka meitaki atu te reira mei te mea e akamana ia te poriti kia akatuera ua ia te ngutupa e kia akatano meitaki ia te au turanga no te raverave anga. E mea puapinga katoa kia akameitaki ia atu te marama ma te turuturu katoa atu i te au anoano o te iti tangata Kuki Airani e mou nei i te au ngai angaanga e pera katoa e tomo nei ki roto i te angaanga pitiniti. Ka riro te reira ei turanga vaevae matutu no ratou i roto i te pae kimi puapinga. E ko eia nga manako e rua ka riro ei akatinamou i tetai tango matutu no teia manako nei. E Akakoukouanga Tutara No Te Ripoti xli

Ka rauka katoa i te akamatutu i te akateretereanga no te au porena e tauru nei ia ratou ki roto i teia au tuanga nei (kua rave takere ia ana teia tamanakoanga) e kua irinaki ia e ka tupu te reira na roto i tetai au ravenga tukeke. ��Akaraanga, koi te akamaata atu anga i te tutaki me tomo mai tetai ki roto i te pae kimi puapinga. Ka tau katoa kia akataka ia te maata o te au porena angaanga ka anoano ia; me kore ra kia arai ia tetai au tuanga (akaraanga, me e au taereni tetai no tetai au tuanga kimi puapinga me kore ra i runga i tetai au enua). Inara e meitaki atu tetai au ikianga i tetai. No reira e mea tau kia i’oi’o marie ia te au manamanata ka tupu mai ma te uri atea ua i te reira. Ka meitaki atu ra teia au akakoroanga me rave atea pu ua ia na roto i te vaerua maoraora.

Akateretereanga i te pae o te Korona kia rauka te akairo tau

I teia nei kua rauka i te Kavamani tetai papa matutu tikai Kua marama no te akateretere i te puapinga o te patireia. Kua rauka teia pu ua te i te akapapu mai na roto i tetai turanga tiratiratu o te moni puapinga e a te Kavamani e pera katoa na roto i te au akateretereanga rauka mai pakari o te moni tei oti i te akanoo ia ki roto i te au tuanga nei mei roto katoatoa o te korona. Na roto i te akameitaki atu anga i te au i te pae o te angaanga akapapaanga moni ma te parani i te au angaanga Korona a te au mangamanga tukeke o te kavamani tei tango ia ki runga i te au ture no te akatereanga ou, kua papu e te tupu meitaki nei teia pae.

Ko te tauturu a te iti tangata e anoano nei mei roto i Te maata te Kavamani te maata ua atu ra te reira. E mea tau i reira ua atura te i te Kavamani kia papu e ka rauka te tauturu na roto i te anoano o te iti akanoo anga i tetai kaveinga no runga i te au mea te ka tangata rauka. Te anoano nei te iti tangata kia meitaki te tu o te tauturu, kia kake te moni tutaki ki runga e kia maata atu te au tikaanga akameitaki i te oraanga. Mei te mea atu rai e ko te akakoroanga kia aiteite te turanga o te oraanga o te patireia ki ta Nu Tireni e oronga nei ki tona iti tangata, xlii Cook Islands 2008 Social and Economic Report—Equity in Development

ma te kore katoa e kopae i te peu o te oraanga Kuki Airani. Koia oki kia rauka te oraanga ou i Rarotonga nei ma te taporoporo katoa i te peu enua i runga i te au enua i tai mai. I roto i teia turanga nei ka anoano ia kia akanoo meitaki ia te au akapouanga a te Kavamani i te mea e te topa aere ua atu ra te moni a te Kavamani e oronga nei me tu’a ia te puapinga na runga i te upoko tangata.

Ko te au Ko te au tuanga mamaata ka anoano ia te kavamani tuanga ka Kuki Airani kia turu pakari na roto i te au akapouanga anoano maata kimi puapinga koia oki ko te au Toko Tauturu i te Iti ia koia oki ko Tangata, te Pae Apii e te Pae Rapakau Maki. E maata te au te Pae angaanga te inangaro ia nei no runga i te au Toko Tauturu i Rapakau, te te Oraanga o te iti Tangata tei kore i oti ake i te rave. Te vai Apii e te au nei tetai au ravenga takake no te akamatutu atu i te turanga Toko Turuturu o te Apii e me rave ia ka riro te reira ei pange i te pae kimi i te Oraanga o puapinga. I roto i te Pae Rapakau te vai nei tetai tuanga te Iti Tangata maata tei anoano ia kia rave ia koia oki ko te rapakau anga i te au maki piri-kore (non-communicable diseases).

Me kore e E mea tau kia akataka akaou ia te akapouanga i te akamatakite moni a te Pae Rapakau kia maata atu te puapinga ka rauka. ia ka kake Koia oki kia akatinamou ia te moni ki runga i te au ravenga atu te kaiou a paruru, auraka ki runga i te rapakau. Ko�� te vaerua katoa teia te Kavamani e kitea atu nei i roto i te Tua Tai e te Tua Rua o te Pae Apii. i te mataiti I te mea ra e te vai nei tetai au ravenga no te akamatutu atu 2026 mei te i te turanga o te apii, e mea tau rai i reira kia akatinamou 35-40% o ia te maroiroi ki runga i te akamaata atu anga i te moni te puapinga akapouanga ki runga i te Pae Apii. Ei tupae i te au toko katoatoa me turuturu o te Pae Apii ka anoano ia kia akamaata ia mai tu’a ia na te moni akapouanga ki reira i te mea e kua topa ana te au runga i te akapouanga no teia tuanga ki raro. Ko te tamanakoanga no upoko (GDP) te akapouanga moni tei akataka ia i roto i te Parani Metua o tangata te Toko Turuturu i te Oraanga o te Iti Tangata, kua irinaki ia e ka tere atu te kaiou a te Kavamani i te 20% o te puapinga katoatoa o te patireia me tua ia na runga i te upoko tangata (GDP) me tae ki te mataiti 2026. E Akakoukouanga Tutara No Te Ripoti xliii

Ko te au akapouanga ki te au tuanga kare e anoano I te mea e rava ia ana, e mea tau kia akaiti ia mai ta ratou moni mei te ko te akanoo mea e ko te akakoroanga kia akamata ia atu ta te au ngai anga o te pute puapinga. Ko te moni oronga a te Kavamani ei tauturu i te tauturu i te au matiroeroe, te takaua, te au metua pakari e te tamariki, ko metua pakari, tetai tuanga teia e tau kia akara akaou ia no te mea e pute te tamariki, moni maata teia inara kare e tau ana te kaveinga e titau ia te makimaki e nei. Kua tamanako ia e e au ravenga tetai e rauka mai ei tetai te matiroeroe, tuanga moni tere mei reira i te au tuatau ki mua. Penei ka kapiti katoa anoano katoa ia kia akara matatio ia te katoatoa anga o te atu ki te tutaki au akapouanga me uriuri ia te turanga o te au manamanata anga moni o te moni akapouanga. Te irinaki ia nei e ko te taviri mari angaanga tei ra ko te akatere meitaki anga i te moni tutaki i te au tangata raro rava te angaanga, ma te akaneke i te moni akapouanga ki runga i te reira i roto kapitara ma te paruru i te oraanga o te au apinga. i te ikianga, ka anoano ia Ka rauka katoa i te akameitaki atu i te rave anga te tetai turanga Kavamani i tana au angaanga katoatoa. Ko te akaraanga tau tikai kia mari ra, kia akataka meitaki ia te au tuanga mamaata i roto akatinamou ia i te akamatutuanga i te au Toko Turuturu i te Oraanga o te Iti Tangata. Ka ō mai te iki anga i te au angaanga no te katoatoa, te akamatutu anga i te au ngai paruparu i roto i te au kopapa rave angaanga, te akamatutu akaou anga na roto i te tutaki meangiti i te au ngai angaanga a te korona, e pera katoa te au manamanata tei anau mai mei roto i te tuku ke ia atu anga te au angaanga e te au mana ki roto i te rima o te au Konitara Enua. Me oronga ia te angaanga no te Toko Turuturu i te Oraanga o te iti Tangata ki te pae paraiveti, kua irinaki ia e ko te ravenga te reira no te akatano i teia au tarevake tei anoano ia te au manga o te Kavamani na ratou teia tuanga nei kia akara oonu atu ki roto ma te akataka meitaki i te au angaanga tei tau na te pae o te kavamani e te angaanga ka tau na te pae paraiveti.

Ko te au tukuanga tika no te au moni akapouanga e mea tau kia akatinamou ia tetai turanga tau no te rave anga i te au angaanga a te korona e kia akaue ia kia kauraro te patireia katoatoa. I te mea e te akatinamou ia nei te akameitaki anga i te rave anga i te au angaanga ki runga ia Rarotonga e Aitutaki, xliv Cook Islands 2008 Social and Economic Report—Equity in Development

kua arapaki i reira te reira ki runga i te turanga o te katoa anga o te au enua i tai mai. Ko tei tupu koia oki e tuke maata te turanga o te angaanga me akaaiteite ia teia au enua tataki tai nei, e pera katoa a Nu Tireni - ta te iti tangata e inangaro nei. Ko te maata atu o teia ko’a me akaaiteite ia i rotopu i te Kuki Airani e Nu Tireni, ko te maata atu ia i te iti tangata i te akaruke i te enua. E ruti maata katoa oki te reira ki te patireia.

E mea tau katoa kia ui ia rai te maata o te au akapouanga moni e oronga ia nei ki te au enua i tai mai. Mei tetai rua taime i te maata o te akapouanga moni ki runga i te au angaanga a te Pae Rapakau Maki, Pae Apii e pera katoa te au Toko Turuturu i te Oraanga o te Iti Tangata - no te au enua i tai mai me akaaite ia atu ki to Rarotonga. Kua taiku katoa ia ana e mei tetai 60% i te au moni akapouanga no te Toko Turuturu i te Oraanga o te Iti Tangata i roto i nga mataiti e 5 e tu mai nei, ka oronga ia atu te reira ki te au enua i tai mai. Kare teia i te kaveinga tau no te mea e 19% ua rai te maata i te iti tangata i runga i te au enua i tai mai. I runga katoa i teia au enua nei e 14% ua rai te katoa anga o te au tangata angaanga moni tinamou i te mataiti 2001. (Ko te irinaki anga kua topa takiri mai te reira ki raro). Kare katoa e irinaki anga e ka meitaki atu teia au turanga.

Ka anoano Ko tetai mea e ngere nei i roto i te akateretereanga a ia tetai te korona koia oki kare i tupu ake tetai akanoonoo anga akanoonoo meitaki tikai no te i’oi’o marie ma te paunu i te turanga o anga tau tikai te au angaanga a te korona. Noatu oki e kua akataka ia te no te i’oi’o akapapaanga moni no te parani angaanga tei akakoro ia no marie ki roto i te akatupu i tetai au angaanga, e pera katoa tetai au ravenga te matutu i te no te vaito i te puapinga o te angaanga i roto i te au Minitiri rave ia anga o ta takitai, kare e aiteite ana te turanga o teia au angaanga i te te angaanga, paunu ia anga. Kua anoano ia te Komitini o te Au Tangata koia katoa te Angaanga a te Korona kia i’oi’o putuputu i te turanga o te tei anoano ia rave ia anga o te au angaanga a te Korona, inara kare te reira no te ta- i rave ia. Ko tetai au paunuanga i te turanga o te angaanga angaanga anga tei rave ia, kare te reira e tau ana. E teitei rava te turanga i te Kaveinga tei akanoo ia. No reira kare e tau no te ripoti mataiti. Kua Nui akaue ia oki te turanga o te angaanga a te au Akaaere o te au E Akakoukouanga Tutara No Te Ripoti xlv

Minitiri kia i’oi’o marie e kia paunu ia - inara mei te mea e kare e au tapapaanga no te au tuatua mei roto mai i te reira Minitiri, ka taopenga mai e uriurianga tamanako ua. Ko te aiteanga, ko te au akapapaanga tuatua no te tauturu tei tuku ia atu ki roto i te reira angaanga, ko te tu o te au angaanga tei raverave ia, e te au akairo tei rauka mai e tei anoano ia kia ripoti ia mai i roto i te au mataiti i muri mai - e turanga paruparu tona. Ko tona turanga vi’ivi’i rava, koia oki, kare takiri e akapapaanga.

Ka riro te ta-angaanga ia anga o te Parani Kaveinga Nui o te Patireia i te tauturu i te akatupu anga i tetai akanoonooanga no te akatere i te paunu anga i te turanga o te angaanga. Kua akataka te Parani Kaveinga Nui i te orama, te au akakoroanga e pera katoa te kaveinga tei tau kia aru ia e te au parani rikiriki (mei te au takainga no te au tuanga, te parani taokotaianga, e pera katoa te akapapaanga moni mataiti). Kua riro oki teia parani ei tikaanga puapinga kia tauru akaou mai i te iti tangata ki roto i te ta-angaanga anga i te puapinga te ka akataka ia no te au tuanga tukeke o te iti tangata. E au arairai anga tetai tei tupu mai i roto i te kimi anga i te au akairo o te angaanga i roto tikai i te nga angaanga a te kavamani. Me akatuera ia te au ngutupa o te pae o te kavamani kia i’oi’o marie ia ka riro te reira ei kopae atu i teia au manamanata.

Akatanoanga i te au ngai Tukaui

Kare e akapapaanga i rave ia ake no runga i te turanga Those living putaua i te Kuki Airani nei, inara kua ariki ia e ko te in the Outer manamanata maata mari ra ko te ko’a maata i rotopu i Islands are te turanga o Rarotonga me akaaite ia atu ki te au enua i seen as tai mai. Kua taka meitaki teia i roto i te au akairo kimi disadvantaged puapinga e pera katoa ki runga i te maata o te tangata e akaruke nei i te enua anauanga ma te tere atu ki Rarotonga. Kare katoa i te angaanga māmā i te tuku anga i te akapapu e kua tu katoatoa te au enua tataki tai i te au tauturu ei xlvi Cook Islands 2008 Social and Economic Report—Equity in Development

Te paˉpaˉ ia nei akameitaki i to ratou au oraanga i te mea e kua totoa teia au te au enua i enua na roto i tetai tuanga moana maata. Ka maata katoa tai mai na roto te au akapouanga no te reira. Inara, ko te tukaui tei arapaki i te turanga ki runga i te iti tangata i runga i te au enua i tai mai, kua akaaka rava topa atu te reira ki vao ake i te turanga akaaka o te tauturu o te au ngai e tae nei kia ratou. I te mea e kua ruti tetai maata anga angaanga ma tangata i ta ratou angaanga kavamani i te mataiti 1990 e te meangiti tae ua mai ki nga mataiti i rotopu, kua akaruke katoa te katoa o te au iti tangata i te enua anauanga. Ia ratou i akaruke i te enua, ravenga kimi kua ruti katoa te enua tangata i to ratou karape. I teia nei puapinga me te irinaki ua nei tetai au kopu tangata ki runga i te moni akaaite ia atu oronga a te kavamani (Welfare) e pera katoa te tiaki are ki Rarotonga mokopuna. Kareka ra te moemoea o te iti tangata, te vai nei rai te reira koia oki kia totoa meitaki ma te aiteite ua te puapinga te ka rauka mai i roto i te pae kimi puapinga ki runga i te au enua katoatoa.

Te vai nei te I vao ake i teia au tukaui e tupu nei i runga i te au enua turanga i tai mai, te vai katoa nei tetai au tangata e turanga paruparu papaki tai o to ratou - ka ō mai te au tagata tei kore rava e rauka kia te vaine e te tauturu ia ratou uaorai, to ratou manamanata kare e rongo tane, e pera ia ana, e au anoano tuke rai to ratou, e ka anoano katoa katoa tetai ratou i tetai tauturu takake. Kua tupu mai teia au turanga au tangata na roto i te ngere anga te iti tangata i te peu turuturu a te paruparu e kopu tangata. Ko tetai au metua tei riro ana ei koukou i te takinokino ia kopu tangata kua karuke mai ratou i te enua. Kua maata rava nei i rotopu i oki te moni ka inangaro ia ei tauturu i te oraanga. Na runga te iti tangata rava ra, kua takinokino takiri ia te vaerua oaoa e te ngakau aroa o te iti tangata. Ko te au tangata tei topa ki roto i teia turanga mari ra ko te au metua pakari, te au tangata kare e ngai angaanga moni, ko te metua takitai, ko te tamariki, te iti pakipaki tai, te au tangata kare e ngutuare tinamou e pera katoa te au tangata tei takinokino ia no tetai ua atu tumu.

Ko tetai ngai tukaui mari ra ko te turanga papaki tai o te tane e te vaine. Me paunu ia ki runga i te turanga o te pae moana pativika, tei runga atu rai te turanga o te iti vaine o te Kuki Airani. Ko te ngai paruparu mari ra ko te E Akakoukouanga Tutara No Te Ripoti xlvii

meangiti o te au tikaanga e oronga ia ana ki te iti vaine i roto i te pae kimi puapinga, i roto i te angaanga poritiki, te meangiti i te turanga o te moni tutaki, e pera katoa tetai au ngai rikiriki e kopaepae ia nei te iti vaine.

Ko te ravenga a te Kavamani no teia au tukaui nei mari Ka tau kia ra ko te oronga atu anga i te tauturu ki te iti tangata i runga akamaata ia i te au enua ta-takitai e tae ua atu ki te moni tauturu i te atu te reo mei oraanga (Welfare). ��Ka ngatā i te tatara i te tukaui o te papaki runga mai i te tai i te turanga o te oraanga me ka irinaki ua tatou ki runga au enua i tai ua i te moni. No te mea kua neke ia tetai maata anga o te mai moni tauturu ki te au enua i tai mai, e i roto i tetai au tuanga e maata kino rava te moni. E au arairai anga katoa tetai e vai nei no te apai anga mai i te turanga o te tauturu e oronga ia nei ki te au enua i tai mai kia aite ki to Rarotonga. Noatu ra te reira te vai nei tetai au ravenga na roto i te akatinamou anga i tetai au turanga tau ua no te rave anga i te angaanga, ma te akatano i te tu papaki tai i rotopu i te au enua no te au akapouanga ki runga i te au tuanga angaanga mamaata. Ka anoano katoa ia tetai kaveinga tau tikai no te tukuke atu anga i te au angaanga ki te iti tangata i runga i te au enua i tai mai kia riro na ratou e tuku i te tukuanga tika no to ratou uaorai au enua.

E maata te moni e akapou ia nei ki runga i te matiroeroe, Akatano anga te takaua, te au metua pakari e pera katoa ki te tamariki. i te tutaki Penei ko te tumu teia i kore ei e kitea mai tetai pupu tangata anga i te moni putaua i roto i te Kuki Airani. Inara e maata te au mea e tauturu a te tau kia rave ia no te akatano anga i te tauturu ki to tatou pakipaki tai, iti tangata e papa ia e tetai turanga tukaui ki te oraanga. te matiroeroe, Vaitata rai e ko te au tutakianga katoatoa kare e akapapu te au metua anga e me kua anoano ia rai kia pera ia. Penei kua tarevake pakari e te i te kapiki ia anga teia e e moni tauturu i te oraanga. No te tamariki mea ko teia tutakianga ka o mai e 1,464 au metua pakari, e 4,943 tamariki e ko te nga ikianga ua ka anoano ia e rauka ei i te koi i teia moni mari ra ko te mataiti e pera katoa te ngai noo anga. E 227 rai tangata e koi moni pakipaki tai nei e e 43 matiroeroe. Ko te tutakianga o teia au pupu xlviii Cook Islands 2008 Social and Economic Report—Equity in Development

rikiriki kare katoa te reira i tango ia ki runga i te turanga e - ka anoano ia tetai tauturu. Ko tetai akaraanga ko teia enua meangiti ko Mauke, kua rava te kai i runga iaia, inara e 18% i te iti pakipaki tai tei runga i teia enua. Me akaaite ia atu kia Pukapuka, Penrhyn e Manihiki, e 2% rai te maata i te pakipaki tai i reira.

Akamatutu atu anga i te turanga o te Kavamani

Te vai nei Ko te tu o te akatereanga kavamani te riro nei rai te reira ei rai te mea manamanata i roto i te akameitaki anga i te turanga o akatukeanga te patireia e ko tetai tuanga teia ka anoano ia kia akamatutu o te Papa Ture ia atu. Ko tetai angaanga maata mari ra ko te akatuke anga i Metua kare te Papa Ture Metua tei kore i rave ia ake. I te mataiti 1998 i rave ia , e kua tuku ia mai tetai ripoti no te akara akaou i te Papa Ture ko te tuku ke Metua inara toko iti ua rai i te au tamanakoanga tei rave ia. atu anga i te Te putuputu nei te au tauianga ki te Kavamani e penei kua mana akaaere riro te tinamou kore i te turanga poritiki e te turanga papu ki vao kua kore ei akaari mai i te tutu o te Kavamani. Ko te reira tu akaoki akaou kua papaki katoa te reira ki runga i te teretereanga o te iti ia mai te reira tangata ki roto e ki vao mai i te patireia e pera katoa te tupu anga o te pae kimi puapinga. Ko te au akatereanga poritiki te maata ua atu nei rai te manamanata i te reira na roto i te (i) turanga paruparu o te akatereanga Paramani (ii) maroiroi o te au Minita o te Korona kia rave i ta ratou angaanga ma te kore e tuku mai i tetai akapapuanga (iii) kare e parani papu ei kaveinga no te ta-angaanga anga i te moni a te iti tangata (iv) e au tuanga paruparu tetai i roto i te akateretereanga i te akapapaanga moni.

Ko tetai tuanga maata i roto i te au mataiti o rotopu i te 1990 mari ra ko te akaneke anga i te mana no te tuku i te tika mei roto i te kopapa metua ki te au mangamanga i vao mai. I te reira tuatau e tae ua mai ki te au mataiti i muri mai kua irinaki ia e ko tetai tuanga puapinga rava atu te reira ei toko i te tupuanga o te patireia. Kua anoano ia E Akakoukouanga Tutara No Te Ripoti xlix

oki te Kavamani kia tuku atu i te akatereanga o te moni, te au tangata angaanga e te apinga e pera katoa te akaaere i te angaanga a te Korona ki te au Konitara Enua ma te akapapu e ka rauka i te akatinamou i tetai kavamani nana rai e akatere iaia uaorai i runga i te au enua tataki tai. Inara ka anoano katoa ia kia akatuera ua ia rai te pirianga tuku tuatua e pera katoa te akatereanga no te raveraveanga i te au angaanga mei te kopapa metua i Rarotonga ki te au kavamani enua. Kare ra te reira au akakoroanga i tupu. I te mea e kare i turu ia teia akakoroanga na roto i tetai au poriti, e kua viviki rava te oronga ia atu anga te au mana akaaere me akaaite ia atu ki te marie o te akateateamamao anga i te iti tangata na roto i te tereni anga - kua topa teia angaanga ki raro e ko te maata anga o teia au mana kua akaoki akaou ia mai te reira ki te kopapa metua. Ko te turanga o te mana akaaere i rotopu i te kavamani metua e te kavamani enua kua arapaki katoa te reira ki runga i te tu o te angaanga e rave ia nei ki runga i te au enua tataki tai. Noatu te ngatā i te akatupu anga i teia akakoroanga ei tauturu i te tupuanga o te patireia, e mea tau kia uriuri akaou ia teia au tumu manako ma te akatinamou i tetai mataara tau tikai.

Ko tetai au ravenga ke no te turu atu i te tango akapapu e te ngakau maoraora, koia oki (i) kia ngoie i te tatau anga i te au tataanga akapapaanga moni me atu ia (ii) kia tuku ia atu te au ripoti a te kumiti takake no te uriuri i te akapapaanga moni ki te katoatoa (iii) akaiti mai i te tutaki anga moni a te korona (iv) akatinamouanga i tetai tango tiama no te turanga o te au mema Paramani, te au tavini o te korona, e pera katoa te au opita angaanga ki roto i te au kopapa tukeke o te korona; e pera katoa (v) kia akamatutu ia te akatereanga o te au kopapa takake o te korona e tae ua atu ki te iki anga mai i te upoko o te au Minitiri ma te akameangiti mai i te tamanamanata anga poritiki. Cook Islands 2008 Social and Economic Report—Equity in Development

Akakoukouanga i te Au Manako Mamaata

 Ngateitei tikai te turanga o te oraanga. Kua rauka te akairo e na te pae paraiveti e opera nei i te tupu anga o te patireia tei na roto i te akamatutuanga i te Pae Turoto. E tuanga puapinga katoa to te akaou anga i te pae kimi puapinga ma te akamatutu atu i te akateretereanga o te au kopapa tukeke o te kavamani kia aru i te kaveinga tei akanoo ia no te akatupuanga i te patireia Kuki Airani.

 Te vai nei rai te akakoroanga kia matutu to tatou turanga me akaaite ia atu ki te au patireia o teia nei ao. Ka anoano ia te au akatukeanga tau ki te au turanga mei te au tero paruru, ma te akamaroiroi kia akatupu ia te papa akarērē i rotopu i te au kamupani mamaata e kimi puapinga nei (mei te au ravenga tuku tuatua na roto i te roro uira). Ka anoano maata ia te au Toko Tauturu i te Oraanga o te Iti Tangata i Rarotonga e Aitutaki kia meitaki te turanga.

 Ka vai ua atu rai to te iti tangata anoano kia akamatutu ia te akatupu kamupani porena kimi puapinga e pera katoa te turanga o te au tangata angaanga ei tupae i te tupuanga o te pae kimi puapinga ma te tupau atu i te au tangata Kuki Airani e akaruke nei i te patireia. Me tapeka ia te tomo anga mai o teia au tangata ki roto i te patireia ka riro te reira ei tamanamanata i te au tupu anga memeitaki e kitea nei. E mea tau kia paunu meitaki ia te turanga rangatira o te iti tangata Kuki Airani ki te au mea ka anoano ia no te pae kimi puapinga.

 I runga i te maata anga o te au enua i tai mai kare e matutu ana te au ravenga kimi puapinga. Tei raro te turanga o te oraanga me akaite ia atu ki te nga enua mamaata o te Kuki Airani. Kua maata takere te turanga moni e oronga ia nei ei tauturu i te tupu E Akakoukouanga Tutara No Te Ripoti li

anga o te au enua i tai mai, e me akamaata ia atu i te au tuatau ki mua kare i papu e me ka riro te reira i te paruru i te iti tangata e mārō nei rai i te akaruke i te enua. E no reira e meitaki atu kia aiteite te tua ia anga o te moni ma te oronga katoa ki te iti tangata i tetai au ravenga no te akatere meitaki i te ta-angaanga anga i te moni a te iti tangata.

 E tuanga puapinga ta te Pae Apii i roto i te akamatutu anga i te kite e te karape te ka anoano ia no te pae kimi puapinga na roto i te au terenianga te ka riro ei tupae i tetai roa anga tuatau. Ka anoano ia kia vai rai te akamaroiroi anga kia akameitaki ia atu rai te turanga o te apii i roto i te pae tua toru o te Apii.

 Te tamanako ia nei e ka maata atu te mānono anga kia meitaki atu te turanga o te pae Rapakau Maki i te mea e te maata ua atu nei te au tu maki tukeke ki te oraanga. Ka anoano ia kia matutu te au ravenga paruru ei takore i te au tu maki e arapaki nei ki runga i te oraanga.

 Ko te turanga o te moni a te iti tangata te meitaki nei te reira, kua rauka te turanga matutu o te au mangamanga no te akatere meitaki, e kua rauka tetai turanga meitaki no te Kavamani kia riro nana rai e tutaki i te au akapouanga kimi puapinga. Ko te au tuanga mua tei tau kia akara ia koia oki ko te Toko Tauturu i te Oraanga o te Iti Tangata, te Pae Apii, e te Pae Rapakau Maki.

 Ka anoano maata ia tetai au tauturu no te iti tangata tei tomo ki roto i te turanga tukaui. Te vai nei tetai pute moni maata a te iti tangata te ka riro i te tauturu i teia au tangata na roto i te akatanoanga i te kaveinga o te pute moni tauturu i te matiroeroe, te takaua, te au metua pakari e te tamariki.

 Me tāpapa marie ia te au akairo o te au tango memeitaki no te pae kimi puapinga, ka lii Cook Islands 2008 Social and Economic Report—Equity in Development

rangarangatu te turanga o te au mataiti moni. Ko te akatinamouanga I tetai kaveinga matutu ei papa tau tikai, ka riro te reira ei tarai I te mataara no te au tangata parani poritī kia tupu te turanga pae kimi puapinga mamaata ma te ngaueue-kore. Chapter 1 Introduction

he Asian Development Bank (ADB) coordinates the This report preparation of periodic assessments of economic and examines social conditions in its Pacific developing member constraints on countries (DMCs) as part of its Pacific Studies series. development TheT last update for the Cook Islands was prepared for 2001. to guide policy This2008 Social and Economic Report updates the series as part formulation of a broader effort by ADB in partnership with Pacific DMCs to focus on the endemic constraints on improvements to public and private sector productivity in the region. This broader effort supports the in-country participatory formulation of policies and institutions that work in favor of poverty reduction, as well as the local formulation of strategies to win over any stakeholders that may not immediately accept reform.

The purposes of this report are to (i) provide an underlying assessment of development constraints and opportunities; (ii) prepare medium-term macroeconomic management and fiscal target indicators; (iii) present a private sector assessment and advise on establishing an enabling environment for a competitive private sector; (iv) present a review of pro- poor service delivery; and (v) provide a basis for policy consultations to facilitate the achievement of pro-poor policy outcomes and to help the people and governments reach critical decisions on adopting and implementing appropriate policies. The report is intended to help guide both public policy formulation in the Cook Islands and the preparation of donor strategies, including ADB’s 2008–2012 Country Partnership Strategy. Cook Islands 2008 Social and Economic Report—Equity in Development

The small The Cook Islands is made up of 15 small islands islands of the distributed over 2 million square kilometers (km2) of the South Cook Islands Pacific Ocean. About 70% of the population of 20,000 lives are spread in the largest island of Rarotonga, which has a land area of over a large 67 km2. Rarotonga is the capital and the country’s dominant area driver of economic growth. Around 20% of the population lives in the Southern Group of outer islands within 300 km of Rarotonga. The remote Northern Group of outer islands, more than 1,250 km from the capital, is made up of atolls and sand cays with little arable land. These islands benefit instead from large, productive lagoons that support pearl farming and are the main base for the country’s fishing industry.

Living The Cook Islands economy has grown strongly since standards are the mid-1990s, and the current gross domestic product high (GDP) per head of more than $10,000 is the highest among independent island countries of the Pacific. Social indicators are also favorable, with the Cook Islands achieving the highest human development index (HDI) rating among the region’s independent nations. Life expectancy is high at 71 years; infant mortality is low at 15–20 per 1,000 live births; immunization rates reach almost 100%; secondary school enrollment rates exceed 90%; adult literacy is high; and most Millennium Development Goals have been met or will be met by 2015.

These achievements reflect a long history of heavy govern ment investment in health, education, and welfare buttressed by a good natural resource base and the benefits of close integration with New Zealand. A substantial improvement in the quality of economic and public sector management since the financial crisis of the mid-1990s has also underpinned the improvement in living standards. For understandable reasons, the Cook Islands now looks to New Zealand to set its benchmarks for service standards, opportunities, and incomes.

The policy and The favorable development environment was affirmed institutional in ADB’s most recent country performance assessment. environment This assessment is conducted for a DMC to determine is positive the quality of its policy and institutional framework for Chapter 1: Introduction

promoting poverty reduction, sustainable growth, and the effective use of concessional assistance. A country’s performance is assessed based on the (i) coherence of its macroeconomic and structural policies, (ii) quality of its governance and public sector management, (iii) degree to which its policies and institutions promote equity and inclusion, and (iv) portfolio performance. In the 2005 assessment, the Cook Islands received the highest ranking among Pacific DMCs, scoring 19.3. This was substantially above the average score of 12.4 for all ADB DMCs and the Pacific average of 12.1. The countries nearest to the ranking of the Cook Islands were Samoa with a score of 18.4, Viet Nam with 17.4, Bhutan with 17.3, Maldives with 15.4, and Mongolia with 14.2.

Development is occurring in the face of a long-term As the decline in resident population. Cook Islands residents hold Cook Islands’ New Zealand citizenship and can freely access the New population Zealand and Australian job markets and the New Zealand falls, foreign health, education, and social security systems. This access has presence provided Cook Islanders an important opportunity to raise increases their living standards and a valuable safety net to call on in downturns. More than three times as many Cook Islanders live overseas than in the Cook Islands.

The decline in the resident population and the strong economic growth have combined to require a rising number of foreign workers. Meanwhile, an open environment for foreign investment, which has been one catalyst of recent growth, has seen more foreign investors establish themselves in the country. The rising foreign presence is critical to growth, but some community members are concerned about its follow-on effects, including the potential erosion of traditional Cook Islands’ identity.

2 Asian Development Bank (ADB). 2006a. The latest country performance assessment for the Cook Islands was undertaken in 2007 but the results has not been made public during the publication of this book. Cook Islands 2008 Social and Economic Report—Equity in Development

Infrastructure Economic growth has boosted government revenue, and upgrades are combined with tight fiscal management, this has reduced the needed government’s debt to low levels. The Government now has the financial capacity to fund public infrastructure projects that have been put under pressure by an expanding economy and demands for higher standards of service.

How best to structure public policy and finances to see the community through the challenges it now faces remains unclear. Directions for public policy are provided in the recently completed national sustainable development plan, but the effectiveness of the plan is yet to be established. Importantly, the support needed to implement the plan may not have been in place. The leadership needed at this important phase of development is diffused by political instability, and it is unclear if the public sector is sufficiently results-oriented to meet the tests now facing the Cook Islands.

This report This report examines the options for managing these examines challenges. The overall theme of the report is “equity in challenges, development.” Key aspects of equity are explored, including describes equity between Rarotonga and the outer islands, equitable the economic support for vulnerable members of the community, and setting, and equity between native Cook Islanders and foreigners. considers social services Chapter 2 describes the economic setting, looking at and the the drivers of growth, how investment has been funded, and disadvantaged the critical role played by the private sector. Implications for employment, unemployment, and the experience of the outer islands are also described.

An overview of the delivery of social services is provided in Chapter 3. Chapter 4 examines the social services, discussing the factors that determine the effectiveness and quality of the various services and how they can better reach disadvantaged segments of the Cook Islands population. Chapter 1: Introduction

Private sector development is examined in Chapter 5, Private sector with an emphasis on what determines the competitiveness development of the economy and what can be done to maintain it. The and public chapter closes with an overview of sensible priorities and sector strategies for supporting the private sector. management are discussed The discussion then turns in Chapter 6 to managing the public sector for results. The chapter discusses how to (i) provide the needed upgrade of public infrastructure, (ii) raise the quality of public expenditure and the per formance of public enterprises, and (iii) maintain fiscal sus tainability. The chapter also discusses the importance of the unfinished agenda of political reform. Chapter 7 presents the conclusions of the report.

The appendices present background information Outer Islands and underpin the analysis of the report. These include are profiled an examination of developments in the population and its changing mix and the outlook. Profiles of each of the outer islands are also provided. Apart from Aitutaki, the outer islands receive few visitors, and it can be difficult for outsiders to appreciate the needs of individual islands. Yet, this appreciation is critical to understanding the pattern of disadvantage in the Cook Islands and those most at risk. The appendices also present economic data and a summary of the participation and consultation process followed in preparing this report.

Chapter 2 The Economic Setting

2.1 Economic Growth

The economy achieved 6 consecutive years of growth to 2004 Tourism has as it maintained a steady recovery from the crisis of the mid- led strong 1990s (Box 2.1). Economic reforms adopted, in response to growth. the crisis, catalyzed growth by building the foundation for a robust expansion in the private sector. The economy slowed in 2005 (Figure 2.1), but real gross domestic product (GDP) per head has increased by more than 3.5% per annum (p.a.) on the average since the economic reform program started.

The expanding tourism industry has driven economic growth. Visitor arrivals grew from less than 50,000 people in the mid-1990s to 75,000 in 2001 and 88,000 in 2005. This reflects an average growth of 4.3% p.a. since 2001, or more than 7.4% p.a. since the economic reform. This expansion has substantially intensified the already high dependence of the economy on tourism. In 1995, there were 2.6 visitor arrivals for every resident. By 2005, there were more than 5 visitor arrivals for every resident. By comparison, the equivalent figure for the Fiji Islands and New Zealand is 0.6; for Australia, it is 0.3.

The growth in tourism is apparent in the expansion of business in the wholesale and retail trades, restaurants

Cook Islands Statistics Office (CISO).Annual Statistical Bulletin. Various years. 4 Derived from the Fiji Islands Bureau of Statistics, Statistics New Zealand, and Tourism Australia data. Cook Islands 2008 Social and Economic Report—Equity in Development

Pearl farming and accommodation, and transport and communication and fishing (Figure 2.2). These three industries have accounted for most have grown growth in GDP post-reform. Agriculture and fishing have accounted for much of the remaining growth. Pearl exports, which provide the main source of merchandise exports, more than tripled in 2000 to reach 18 million New Zealand dollars (NZ$). But disease associated with overstocking and a fall in international prices led to a large drop in the value of pearl exports. Fish exports commenced in 2002 and were worth NZ$8 million in 2003. However, rising costs have seen fish exports weaken in recent years.

The economy Economic growth post-reform has been in the private is now led by sector. A downsizing in the public service and control of pay the private rates brought a sharp contraction from 1998 to 2001 in the sector contribution to GDP from public administration. Public administration has expanded again more recently, but far less than other sectors (Figure 2.2). This contrasts with the last period of economic expansion in the first half of the 1990s. This earlier surge was led by an expansion in the public sector that proved unsustainable and subsequently imposed a very high cost on the community through the required restructuring.

The early years of recovery relied heavily on preexisting capital stock. This is most evident in occupancy rates in the tourism industry. Available room nights increased by only 6% from 1996 to 2000. Meanwhile, room occupancy increased by 40% over the period, pushing the occupancy rate up from 57% in the mid-1990s to a peak of 76% in 2000.

Investment The initial strengthening of economic activity post- surged from reform appears to have boosted business confidence and 2000 the availability of capital, with investment subsequently surging. Notably, available room nights increased by 27% from 2001 to 2005. The increase in capacity brought a fall in the occupancy rate to 63% by 2005.

5 The value of pearl exports is widely seen to be underestimated because of under-declaration motivated by a desire to minimize tax exposure. Chapter 2: The Economic Setting

Box 2.1: The Mid-1990s Financial Crisis The economy of the Cook Islands grew rapidly over the early 1990s as the tourism industry expanded, major government-supported construction projects commenced, and the Government ran large budget deficits. However, the economy moved into recession in fiscal year (FY) 1995 as difficulties emerged in the monetary system—leading to the adoption of the New Zealand dollar (NZ$)—and as construction slowed. While the economic slowdown contributed to the Government’s 1996 cash shortage, the problem was a result of more fundamental weaknesses that had built up over a number of years. Public sector investment had surged in the 1990s, notably on projects such as the Vaimaanga Hotel and the Cultural Center, peaking at a ratio to gross domestic product (GDP) of 70%. External borrowing backed by government guarantees funded much of the investment. The failure to complete the Vaimaanga Hotel and the generally poor commercial performance of other assets created an excessive debt-servicing burden for the Government. By FY1993, the Government’s debt had risen to NZ$135 million, equivalent to 1 year’s GDP. Debt servicing had grown to more than 15% of internally funded government expenditure by FY1995. The Government had also allowed a large wage bill to build up and created a substantial welfare system providing old-age pensions, child support, and sickness and destitution allowances. A large share of public service employment was effectively an income supplement, particularly in the outer islands, with many employees reportedly contributing little if any work. By FY1996, the worsening fiscal position forced cuts in the more readily accessible areas of the Government, notably expenditure for investment and goods and services. Despite the cuts, the combination of a decline in internally raised revenue and rising debt-servicing costs created a cash shortage. As the availability of cash declined, the Government faced the politically difficult options of (i) increasing taxes, (ii) cutting public service employment or pay, or (iii) cutting the welfare system. Large arrears were accumulated, and some loans defaulted. Government salary, wage, and superannuation payments fell behind, and debt to suppliers grew. By the end of February 1996, the projected budget deficit was NZ$7 million; outstanding arrears had accumulated to NZ$30 million; and other forms of government debt totaled NZ$170 million. The arrears included loan repayments, amounts owed to donor-funded projects, subloan funds diverted from sinking funds, and funds informally borrowed by the Government from various entities such as the Cook Islands Saving Bank. This cash shortage of FY 1996 triggered the economic reform.

Sources: ADB. 1995, 2002a; Knapman and Saldanha. 1999. 10 Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 2.1: Real GDP Growth

10 )

Annual change(% 1983 1986 1989 1992 1995 1998 2001 2004(r)

-5 Year

CISO = Cook Islands Statistics Office, GDP = gross domestic product, (r) = revised, % = percent. Source: Authors’ estimates derived from CISO. Annual Statistical Bulletin, various years.

Figure 2.2: Contribution to Real GDP Growth (million in New Zealand $, 2000 prices)

Wholesale and retail trade

Agriculture and fishing Restaurants and accommodation

Transport and communication 2002–2005 Finance and business services Construction 1998–2001 Public administration

Others

-20 -15 -10 -5 0 5 10 15 20

CISO = Cook Islands Statistics O ce, GDP = gross domestic product, $ = dollar. Source: Authors’ estimates derived from CISO. Annual Statistical Bulletin , various years. Chapter 2: The Economic Setting 11

The surge in investment is also apparent in other economic indicators. The average number of new van and pickup registrations annually for the 5 years to 2005 (i.e., 2001–2005) was 33% above the annual average for the previous 5-year period (i.e., 1996–2000). The rate was 140% higher for trucks and buses. The real value of commercial building approvals issued over the 5 years to 2005 was 122% above the real value of approvals for the previous 5-year period. Moreover, in the 5 years to 2005, the real value of imports of basic manufactured goods rose by 49%, and of machinery, vehicles, and other equipment by 35%.

Economic growth is also linked to a rise in household Household expenditure: commercial bank lending for personal services expenditure (mainly housing and personal loans) rose from 15% of has risen GDP in 1996 to 28% by 2005. The real value of residential building approvals issued in the 5 years to 2005 was 71% above the figure for the previous 5-year period, and the number of new motorcycle and car registrations over the 5 years to 2005 was both more than double the levels of the previous 5-year period. Foreign direct investment (FDI) likely provided an injection of cash (e.g., through land leases and the sale of businesses) and this, combined with the general improvement in economic conditions, supported the increase in household spending.

Preliminary estimates point to near-zero economic Growth is growth in 2005. This slowdown is partly because of the likely to adverse impact of five damaging cyclones early in the year. continue Although there are no growth forecasts to draw upon, the economy appears sound and, barring external shocks, can be expected to grow over the short to medium term. Visitor arrivals remain on their upward trend; FDI approvals, albeit slowed, remain positive; banks remain committed to continued lending growth; and household disposable income was boosted in mid-2006 by the removal of most import duties. However, the rate of growth may slow somewhat because of rising interest rates, a tighter labor market, and an apparent slowdown in foreign investment. 12 Cook Islands 2008 Social and Economic Report—Equity in Development

2.2 Bank Lending and Foreign Investment

Bank lending Commercial bank lending has provided a key source of has grown funding for the surge in investment. Business lending has been concentrated in hotels and motels (Figure 2.3). Commercial bank lending to hotels and motels as a ratio to GDP was 5% in 1996, rising to 9% by 2000 and 23% in 2005.

Figure 2.3: Bank Lending by Sector

40 Ratio to GDP (%) 20

0 1995 1997 1999 2001 2003 2005 Hotels and motels Personal services Wholesale and retail trade Others

CISO = Cook Islands Statistics O ce, GDP = gross domestic product, % = percent. Source: CISO. Annual Statistical Bulletin, various years.

FDI has been FDI has also been an important source of investment vital but funding. Estimates of the actual level of FDI are not available, peaked in but the value of approvals provides an indication of the 2000 magnitude. As a ratio to GDP, FDI approvals were about 40% in 2000 and 2001. Approvals subsequently eased but remained close to the value of new business lending (Figure 2.4). Remittances from Cook Islanders overseas and the

6 Data on foreign investment approvals should be used with care. Time lags are likely to occur between foreign investment approval and actual investment, and some approved proposals will likely fail to go ahead, such that the actual value of investment falls short of the approved value of investment. Chapter 2: The Economic Setting 13

savings of returning Cook Islanders are likely to have been significant additional sources of investment funding, though their size cannot be estimated.

Figure 2.4: Foreign Investment Approvals and Business Lending

5 Ratio to GDP (%)

1998 1999 2000 2001 2002 2003 2004 2005

-5 Foreign investment approvals Change in business lending

CISO = Cook Islands Statistics O ce, GDP = gross domestic product, % = percent. Sources: Development Investment Board; and CISO. Annual Statistical Bulletin, various years.

From 2001 to June 2006, the Development Investment Board approved FDI totaling NZ$81.7 million, covering 217 projects. By value, two thirds had been for tourism, followed by the undefined category of “others” (almost one fifth), marine resources (mainly pearl farming, one tenth), and finance (one thirtieth). The number of registration approvals for foreign-owned enterprises (new and existing businesses) peaked at 77 in 2001 and then fell to only 11 in the first

7 Some 85% of all foreign direct investment (FDI) approvals were for Rarotonga, followed by the pearl farming centers of Atiu and Manihiki. Mainly Cook Islander investors have financed tourism development in Aitutaki. 14 Cook Islands 2008 Social and Economic Report—Equity in Development

6 months of 2006. The value of approvals, however, trended up until 2005. There was a short-lived decline in 2002, and the value of approvals appears likely to decline substantially in 2006.

International The data suggest that approvals that are more recent competitiveness have been for higher-value investments, probably in more may have up-market tourist resorts. The sharp drop in the number weakened, of projects approved may simply reflect an easing in FDI perhaps following a rush of earlier approvals that are now being contributing implemented. However, the declining trend in the number to slowing of approvals, combined with what appears to be a sharp fall foreign in the value of approved FDI in 2006, may be symptomatic investment of declining foreign interest. Possible explanations for the decline include the supply of tourist and related facilities catching up with demand and concerns regarding the international competitiveness of the Cook Islands.

To maintain robust economic growth, the Cook Islands needs to maintain its attractiveness both to tourists who generate demand in the economy and to foreign investors who are a key source of capital for the economy. Recent developments have reinforced the importance of vigilance in maintaining international competitiveness.

2.3 Inflation and the Exchange Rate

The Cook Islands adopted the New Zealand (NZ) dollars as its currency in 1995 following a period of excessive issuance of its own currency, an associated decline in foreign exchange reserves, a decision by commercial banks to restrict the clearance of checks denominated in Cook Islands dollars, and concern surrounding the issue of government guarantees. As a result, the Cook Islands no longer has the option of effecting an independent monetary policy.

8 Sectors with significant FDI in early 2000, such as fisheries and black pearls, have been in decline. Chapter 2: The Economic Setting 15

This has the disadvantage of limiting the Government’s Inflation has ability to manage domestic demand largely to the use of been low fiscal policy. However, the very close economic relationship with New Zealand means that using NZ dollars has the advantage of providing price stability as long as New Zealand maintains price stability. Inflation averaged 3.5% p.a. from 2001 to 2005 but had dropped to 3.1% p.a. as of June 2006.

Although NZ dollars depreciated against the United States (US) and Australian dollars, yen, and euro in the first 11 months of 2006, the trend in recent years has been for it to appreciate against these currencies, with the appreciation substantial against the US dollar and the yen. This trend may have cut into the competitiveness of the Cook Islands as a tourist destination in the American and Japanese markets.

The ability of Cook Islanders to emigrate tends to set a floor on the local wage rate, based on pay rates in New Zealand or Australia. This floor and the use of the NZ dollar place important constraints on economic adjustment within the Cook Islands. Open economies can normally address a loss of international competitiveness by adjusting the nominal exchange rate and/or real wage rate. With no ability to depreciate its currency, and limited ability to vary the real wage, the Cook Islands may find it unusually difficult to recover from any loss of international competitiveness. This economic characteristic, combined with a narrowly based economy and high exposure to natural disasters, makes the Cook Islands vulnerable to macroeconomic instability.

2.4 The Budget Balance and Debt Position

Strong economic growth, combined with improved tax administration, has provided for growth in the real (absolute) value of revenue and, consequently, of expenditure. 16 Cook Islands 2008 Social and Economic Report—Equity in Development

Size of the Nonetheless, general government revenue has fallen slightly Government as a ratio to GDP, and expenditure has been trimmed to fit the is declining more constrained revenue envelope. This trend of a declining as a ratio to ratio of revenue and expenditure to GDP is projected to GDP continue. This means that the general government sector has declined in relative importance as a source of demand and will continue to do so.

The developments on the revenue side of the budget are led by a downward trend in internal revenue collections. They declined from 29% of GDP to 27% of GDP over the 5 years to FY2006 and are expected to fall to 24% of GDP in FY2007 mainly because of the removal of most customs duties from the FY2007 budget. The total tax revenue in 2007 however improved from the better than expected economic growth. The most recent budget has projected a further fall in internal revenue to 22% by FY2009. Total revenue collections were 40% of GDP in FY2002 and 38% of GDP in FY2006. The fall in internal revenue is projected to reduce total revenue collections to 35% of GDP in FY2007 and to 32% of GDP in FY2009. As a ratio to GDP, foreign aid is relatively high, ranging from 5–7% of GDP.

The public The Government has maintained a tight fiscal stance fiscal position overall since the implementation of economic reform. In is sound, with most years, operating surpluses have been sizable, equivalent the budget to 3–5% of GDP. This has provided the Government a good showing a financial capacity to either fund investment or run overall surplus for budget surpluses. In the event, capital expenditure has been some years, restrained and the overall budget has been in surplus since at and the least FY1999 (Figure 2.5). Government is almost free of Budget surpluses have brought a steady reduction in debt government debt, and the general government sector is now almost free of debt (Figure 2.6). Government debt

9 The general government sector is the public sector excluding public enterprises. Chapter 2: The Economic Setting 17

Figure 2.5: The Budget Balance

8 Net operating balance* Net lending/borrowing** 6

Ratio to GDP (%) 2

0 1998–99 2000–01 2002–03 2004–05 2006–07 2008–09

-2

Year ending June

FY = scal year, GDP = gross domestic product, MFEM =Ministry of Finance and Economic Management, % = percent. * The net operating balance is a measure of the sustainability of government operations, showing the surplus of revenue over operating (i.e., non-capital) expenditure. ** Net lending (+)/borrowing (–) is derived as revenue less total expenditure. It is a measure of the extent to which the Government is either putting nancial resources at the disposal of other sectors or utilizing the nancial resources generated by other sectors.

Source: Authors’ estimates based on data supplied by MFEM and MFEM budget estimates, Part I, Appropriation Bill, Appropriations and Commentary, various years. had reached extraordinarily high levels over the 1990s because of poor management of the government’s involvement in commercial activities and high budget deficits. Debt peaked at 140% of GDP before a debt restructuring facilitated by ADB (known as the Manila Agreement) cut debt by around half. The recent budget surpluses, the appreciation of the NZ dollar, and a further write-down in the debt in 2004 (by the French government) and in 2006 (by the Government of Italy) reduced gross general government debt to 21% of GDP by 2006. Once government cash reserves built up to cover future loan obligations are taken into account, the net outstanding debt is only 8% of GDP. 18 Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 2.6: Government Debt 160 Gross debt* Net debt** 120

80 Ratio to GDP (%) 40

0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 Financial year ending June

FY = scal year, GDP = gross domestic product, MFEM =Ministry of Finance and Economic Management, % = percent. * The gross debt ratios are based on the book value of debt. Nearly all-current debt is held on concessionary terms with ADB. The net present value of the gross debt, which determines the eective value of the debt, is much lower than shown, notably for the post-1998 period. ** Gross debt at book value less cash holdings. Source: Authors’ estimates based on data supplied by MFEM and MFEM budget estimates, Part I, Appropriation Bill, Appropriations and Commentary, various years.

2.5 The Private Sector

The private Business confidence is high in the Cook Islands, and sector, fuelled the economy has now reoriented such that the private by tourism, is sector provides the engine of growth. The private sector’s the economy’s contribution to GDP has grown impressively since the engine economic reform. Inclusive of informal sector activity, the private sector is estimated to have grown from 59% of GDP in 1995 to the plateau of 83% of GDP in 2001. Formal private sector activity is estimated to have grown from 49% of GDP in 1995 to the current level of 74% of GDP.

The private sector engine has been fueled by tourism development. Tourism has stimulated the growth of a broad range of service industries, from retailing and restaurants to Chapter 2: The Economic Setting 19

tour operations and car and bike rentals. Development has centered in Rarotonga, but the main outer island, Aitutaki, has also benefited substantially from tourism. Tourism’s share of GDP is estimated to have risen from 20% in 1988 to the current share of 50%.10

As a country that is very small—in terms of both population and arable land—and isolated but blessed with an established tourism potential, the Cook Islands is unlikely to develop sizable manufacturing and agriculture sectors. Future growth in income, exports, and employment will hinge on developments in the services sector fuelled by tourism. Services—including electricity, water supply, and construction—accounted for 84% of GDP in 2005. While this is less than in 1995 (89%), the composition of services rendered has changed substantially in favor of the private sector. The economic reform of the mid-1990s has seen the share of GDP accounted for by public administration contract by half, hitting 13% in 2005. The growth in services has been in areas related to tourism, such as the wholesale and retail trades, which grew by 30% from 1995 to 2005, to account for 25.3% of GDP), and restaurants and accommodation (up by 63% to account for 15.2% of GDP).

The private sector is now very well developed and The private relatively sophisticated, and it is backed by a commercial and sector is legal environment closely resembling that in New Zealand. diverse, and Private companies, partnerships, or sole proprietorships the many carry out most business activity. A number of relatively businesses large companies operate in major industries such as finance, have created gasoline, light manufacturing, tourism, and the wholesale good and retail trades. The private sector also includes many small competitive businesses across a range of activities, most obviously in the pressures accommodation, car and bike rental, restaurant, and retail industries. Small family-run businesses are widespread.

10 Cook Islands Tourist Corporation. 2005. p. 9. 20 Cook Islands 2008 Social and Economic Report—Equity in Development

As expected in a small population, several key private sector participants have diversified into a range of activities. By this major means, entrepreneurs and businesses can exploit economies of scope,11 which are difficult to realize when concentrating on one activity in a small market like the Cook Islands.

The number of businesses has grown substantially, especially when compared to the small population, providing for effective competition in most industries. Currently, almost 1,300 value-added tax (VAT) registrations are active, which covers any business with an annual turnover exceeding NZ$30,000. Registration numbers have virtually doubled since 2001. The latestYellow Pages phonebooks are relatively large and diversified, listing some 800 businesses in over 150 categories. A high degree of competition is also evident in the extent of media advertising, especially on television.

Since the Cook Islands has a very small production base, the private sector relies on imports, with major suppliers frequently doing their own importation. This practice, combined with a good number of importers, provides for vigorous competition in the supply of imported goods.

Formal Formal businesses dominate the private sector, and businesses the role of the formal or cash economy now appears to be dominate approaching that of developed countries like New Zealand and Australia. The decline in the relative importance of the informal sector is evident in employment data. Employment in agriculture and fishing—the traditional mainstays of the Cook Islands economy—has been decreasing since the early 1980s, while employment in formal businesses has grown strongly (Figure 2.7). Even before the reforms, formal private sector employment had grown by more than 50% between

11 Economies of scope can be achieved when average costs are lowered by producing, marketing or distributing more than one output. Chapter 2: The Economic Setting 21

1991 and 1996. Over the 1990s, it almost doubled. These changes have brought greater monetization of the economy. The trend is also marked by a rising number of unemployed people, some of whom would previously have been involved in semi-subsistence traditional agriculture but now define themselves as being without paid work and wanting it.

Figure 2.7: Labor Force Activity 50

10 Share of labor force (%)

0 1981 1986 1991 1996 2001

Agriculture and sheries Trade, tourism, and business, etc. Unemployed

CISO = Cook Islands Statistics Oce, % = percent. Source: CISO. National Census, various years.

The Cook Islands private sector can also be thought of The export of as extending to the export of labor. Because Cook Islanders labor is a key hold New Zealand passports, they travel freely to New activity Zealand and Australia and work there. That more than three times as many Cook Islanders now live overseas as in the Cook Islands is an indication of the economic importance of the outward flow of labor.12

12 No national records of remittances exist, but they are generally understood to be small. 22 Cook Islands 2008 Social and Economic Report—Equity in Development

2.6 Employment Trends

Private sector The overall expansion in the private sector and contraction employment in the public sector is evident in the employment data has grown, generated by the 5-yearly censuses. Over the 10 years to 2001, but almost the share of the adult population of working age engaged exclusively in private sector activity has grown substantially while the on Rarotonga share engaged by the public sector has declined substantially and Aitutaki (Figure 2.8).

Figure 2.8: Private and Public Sector Employment Shares

20 Share (%) Public sector 10 Private sector

0 1991 1996 2001

Note: Derived for population aged 15–59 years, based on full- and part-time employment. The public sector includes public service and ad hoc organizations, and the private sector includes private enterprises and self-employment but not home consumption. CISO = Cook Islands Statistics O ce, % = percent. Source: CISO. 2003, 1997, and 1993.

Almost all expansion in private sector employment post reform has occurred in Rarotonga and Aitutaki. In most outer islands, the private sector has remained very small, while the public sector has remained the main source of employment and has shown the fastest growth post reform. In some cases, the public sector is relatively larger Chapter 2: The Economic Setting 23

than it was before reform, with the public sector’s share of employment in 2001 higher than it was 1996 (Figure 2.9). Manihiki is the only exception among the outer islands because of the growth in pearl farming. However, even this situation may be changing, as much of the economic stimulus in Manihiki has been stymied since 2001 by the adverse effects of disease and low world prices on pearls. Pearl exports peaked at NZ$18.4 million in 2000, but were projected at only NZ$2.2 million in 2007.

Figure 2.9: Size of the Public Service in the Outer Islands 50

0 Public servants per 100 persons

Atiu Mauke Mitiaro Aitutaki Mangaia Manihiki Penhryn Palmerston Rakahanga

1996 2001 2005–2006 Pukapuka-Nassau

Note: In 2005–2006, a large share of employees on Pukapuka, Mitiaro, and Mangaia were employed part time. An increase in part-time employment would partly explain the growth on these islands. CISO = Cook Islands Statistics O ce, MFEM = Ministry of Finance and Economic Management, MOH = Ministry of Health. Source: Authors’ estimates based on data supplied by MFEM, MOH, and CISO. 2003, 1997.

The available data suggest that the situation inthe Public service outer islands has deteriorated even further since 2001. Data has grown from the government payroll show the relative size of the on all the civil service having grown substantially in the last 5 years in outer islands, most outer islands (Figure 2.10). except Aitutaki 24 Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 2.10: Sector Employment Shares by Island

Rarotonga Aitutaki 40 40 Public 30 30 Private ) )

20 20 Public Share (% Share (% 10 10 Private 0 0 1991 1996 2001 1991 1996 2001

Manihiki Penhryn 60 40 Public Public 30 Private ) 40 Private ) 20 Share (% 20 Share (% 10

0 0 1991 1996 2001 1991 1996 2001

Mangia Pukapuka/Nassau 40 40 Public Public 30 Private 30 Private ) ) 20 20 Share (% Share (% 10 10

0 0 1991 1996 2001 1991 1996 2001

Mauke Atiu Public 40 40 Public Private Private 30 30 ) ) 20 20 Share (% Share (% 10 10

0 0 1991 1996 2001 1991 1996 2001

Mitiaro Rakahanga 60 40 Public Public Private 30 Private ) 40 ) 20 20 Share (% Share (% 10

0 0 1991 1996 2001 1991 1996 2001

Note: Derived for population aged 15–59 years. Public employment includes public service and ad hoc organizations, and the private sector includes private enterprises and self-employment but not home consumption. On some outer islands, the growth in public sector employment has largely been in part-time employment. CISO = Cook Islands Statistics O ce, % = percent. Source: CISO, 2003, 1997, and 1993.

This implies that economic reform has succeeded in generating private sector-led growth only in Rarotonga and Aitutaki. Elsewhere, the private sector has not responded Chapter 2: The Economic Setting 25

or, perhaps more correctly, has been unable to respond. Most outer In general, the main impact of the mid-1990s reform in islands remain the outer islands was the exodus of people. There was no dominated offsetting gain in economic sustainability, with the public by the public sector continuing to dominate island economies and sector crowding out prospects of sustainable private sector activity. This crowding-out effect has grown over time, not eased. The public sector and welfare payments now provide the future source of economic activity in most outer islands.

This conclusion is supported by regional differences in participation in key activities. Between 1996 and 2001, the number of people engaged in home duties in Rarotonga and the outer islands fell. In Rarotonga and Aitutaki, employment grew, and it appears that a significant share of those moving out of home duties moved into full-time employment. Most of the remainder appeared to have left the island. The outer islands, excluding Aitutaki, saw almost no employment growth and almost all those who moved out of home duties left the island (Figure 2.11). The economic reform triggered these departures as sources of livelihoods were cut back with no viable replacements emerging.

Consequently, economic activity has become even more Outer islands, concentrated. In 1991 and 1996, Rarotonga and Aitutaki excluding accounted for 74% of the adult population of working age Aitutaki, and 84% of employment. By 2001, the equivalent figures generate less were 81% and 86%, respectively. Estimates of a continuing than 15% of decline in population in the outer islands, excluding Aitutaki, employment since 2001, and the strong growth evident in Rarotonga and Aitutaki suggest that this trend has continued.

A further indication of the concentration of economic activity in Rarotonga and Aitutaki is provided by data on power generation. While all sizable island centers receive power from public electricity systems, 96.9% of all electricity generated through public electricity systems in 2005 was in Rarotonga and Aitutaki. 26 Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 2.11: Change in Participation in Key Activities by Region Change in the number of persons engaged in key activities from 1996–2001

In Rarotonga

400

200

-200

-400 Male -600 Female

-800 Total Employer Full-time Part-time or Unemployed Home duties/ Others Change in the no. of persons from 1996 to 2001 worker unpaid subsist.

In Aitutaki

400

200

-200

Male -400 Female

-600

-800

Change in the no. of persons from 1996 to 2001 Total Employer Full-time Part-time or Unemployed Home duties/ Others worker unpaid subsist.

In the Outer Islands (excluding Aitutaki)

400

200

-200

-400 Males Females -600

-800

Change in the no. of persons from 1996 to 2001 Total Employer Full-time Part-time or Unemployed Home duties/ Others worker unpaid subsist.

CISO = Cook Islands Statistics O ce, no.= number, subsist. = subsistence agriculture or shery. Source: Authors’ estimates derived from CISO. 2003 and 1997. Chapter 2: The Economic Setting 27

2.7 Unemployment

Unemployment was estimated to have remained unchanged Unemployment nationally from 1996 to 2001 at 13%. Unemployment was 13% in rates vary greatly across regions. They were estimated as 2001 substantially higher and rising in the outer islands, excluding Aitutaki, and very low and falling in Rarotonga (Figure 2.12). The stronger than expected economic growth in 2006 has produced an almost full employment on Rarotonga. The regional differences appear to be in line with the differences between regions in economic activity (e.g., activity is relatively higher in Rarotonga, so unemployment is rela tively lower). Anecdotal evidence of rising wages and a Unemployment growing need to import labor at all skill levels suggests that is low in the national unemployment rate has fallen over the last 5 Rarotonga years, though rates have probably remained high in the outer islands, excluding Aitutaki.

Figure 2.12: Unemployment Rate by Region 40

Unemployment rate (%) 10

0 Outer Islands (excluding Aitutaki Rarotonga Aitutaki) 1996 2001

CISO = Cook Islands Statistics O ce, % = percent. Source: CISO. 2003 and 1997. 28 Cook Islands 2008 Social and Economic Report—Equity in Development

2.8 The Population Challenge

The The population of the Cook Islands has been declining since population the opening of the international airport in the early 1970s. has been in As the rate of out-migration has been highest among young decline people of working age, the domestic population is getting older. The median age and dependency rates are both rising, and older people, especially women, are increasingly left to care for young children.

Until recently, there was a large enough pool of unemployed to ensure that the economy’s needs could be met even in the face of this out-migration. But this is no longer the case. To grow the economy, the Government has allowed foreign workers to replace departing Cook Islanders. Gaps in education and training opportunities for locals add to the shortage of skilled workers. In the tourist industry of Rarotonga, foreign workers are increasingly required for all types of skills and, in recent years, even for unskilled jobs.

Remote While the country benefits from new arrivals, it faces communities the gradual erosion of established communities. Few signs are at risk show this trend slowing, and it is unclear what changes it will bring and how to prepare public policy to meet emerging challenges. Most at risk are the outer islands, which depend increasingly on cash transfers, particularly on the financial support that comes with their role of caring for the young children of absent parents.

The sustainability of current service standards is eroded with every year that brings new departures. In contrast, the rising concentration of people and economic activity in Rarotonga and Aitutaki helps ensure their future prosperities.

Economic A number of factors drive these recent changes. A conditions key driver is the New Zealand citizenship held by all Cook have been Islanders. This provides them with good opportunities and an critical important safety net, but at the expense of population growth Chapter 2: The Economic Setting 29

and now, if poorly managed, potentially of economic growth. A second key driver has been socioeconomic conditions, notably their deterioration in the mid-1990s following cuts in public sector employment and changes in service delivery. Many families who lost jobs during the adjustment left the country, and some outer island populations appear to have fallen so low that their private sector has little, if any, prospect of avoiding economic dependency.

The magnitude of the demographic changes, their causes, and wide-ranging implications makes population a key dimension of public policy. Maintaining the country’s culture or identity is linked to the state of the economy and the quality of public services, as these are seen to be key factors behind a person’s decision to stay or to leave.

Chapter 3 The Disadvantaged of the Cook Islands

3.1 Introduction

Compared with residents of most developing countries, The Cook the people of the Cook Islands have a high standard of Islands is a living. Human Development Index (HDI) for the Cook high-ranking, Islands was 0.789 for 2002, placing it ﬁrst in the Paciﬁc middle-income island region (Figure 3.1). Internationally, the Cook Islands country but is a high-ranking, middle-income country.13 still vulnerable high life expectancy and adult literacy and, in turn, good standards of service delivery throughout the country and a long history of heavy government investment in health, regionally regarding gender-based indexes of development (Figure 3.2).

The country’s island developing states like the Cook Islands are vulnerable HDI and to events beyond their control, particularly environmental gender-based hazards. For example, in the mid-1990s, the Cook Islands indexes are faced a devastating cyclone and an outbreak of disease that high badly aﬀected pearl production, and in the 2005 cyclone season, Rarotonga and the Southern Group experienced ﬁve cyclones. Despite good living standards and achievements in education and health, there is little cash employment

13 United Nations Development Programme (UNDP). 2004, 139–142. 32 Cook Islands 2008 Social and Economic Report—Equity in Development

outside Rarotonga and Aitutaki. Many households get much of their livelihood from pensions and welfare, particularly in the outer islands. This lack of economic independence and the high rate of out-migration are sources of fragility. For these reasons, the concept of disadvantage remains relevant to the Cook Islands and a warranted focus of public policy.

Figure 3.1: 2002 Human Development Index for the Pacific 1.0

0.8

0.6

0.4 2002 index

0.2

0.0

FSM Palau Niue PNG Tonga Nauru Tuvalu Kiribati Samoa Tokelau Vanuatu Fiji Islands Cook Islands Marshall Islands Solomon Islands

FSM = Federated States of Micronesia, PNG = Papua New Guinea. Source: United Nations Development Programme (UNDP). 2004, 139–142.

Economic Throughout the modern history of the Cook Islands, reforms in the the main line of difference in living standards and the range of mid-1990s personal opportunities have been drawn between Rarotonga heightened and the outer islands. While there have been no studies of the well- poverty in the Cook Islands, available statistics support the being divide perception widely held within the community that the key between equity issue remains the disparity between Rarotonga and Rarotonga other islands. and the outer islands The economic reform program in the mid-1990s is a key factor behind the continuing disparity. The reforms carried Chapter 3: The Disadvantaged of the Cook Islands 33

with them a risk of the accentuating economic inequalities.14 The expectation that the reforms would foster economic growth by creating employment, increasing government spending on basic services, and redistribute opportunities to poor communities has proven to be overoptimistic for most outer island communities. The economies of Rarotonga and Aitutaki did respond well, and there have been some service improvements. However, the large losses of people, skills, and paid jobs appear to have hastened the decline in outer island economies and ensured that some outer island communities are below the point where they can sustain themselves.

Figure 3.2: Gender-Based Measures of Development in the Paci c Islands 4.0

3.0

2.0 2002 index 1.0

0.0

Palau Niue FSM PNG Samoa Tonga Tuvalu Nauru Tokelau KiribatiVanuatu Fiji Islands Cook Islands Marshall Islands Solomon Islands GDI GEM

Note: For scaling purposes, GEM was divided by 10. FSM = Federated States of Micronesia, GDI = gender development index, GEM = gender empowerment measure, PNG = Papua New Guinea, UNDP = United Nations Development Programme. Source: UNDP. Based on 2002 data.

Beyond the general pattern of outer island disadvantage, There are other a national development forum held in 2003 heard that the vulnerable vulnerable are those least able to help themselves, whose groups issues go unheard, and who often have special needs and require extra help. The reasons given for people becoming

14 See, for example, the overview of the international experience of reform in Wignaraja and Sirivardana (2004). 34 Cook Islands 2008 Social and Economic Report—Equity in Development

vulnerable included the breakdown in the traditional family support systems, emigration, rising cost of living, and ruinous social and community obligations. The vulnerable were identified as being elderly, unemployed, single parents, children, physically challenged, squatters, and victims of crime.15 The last two categories are, by far, the smallest. Although there is currently no significantly large group of squatters, the impending expiration of land leases in Rarotonga affects some outer island communities residing there, as uncertain tenure makes repairing or upgrading of houses difficult. The Cook Islands has an effective justice system, and most victims of crime receive some form of reparation.

3.2 The Rarotonga–Outer Island Divide

The outer The fiscal year (FY) 2006 budget speech of the minister of island dis finance noted: advantage persists “Development of the outer islands remains a key challenge. Our Partnership Government is well aware, that despite a considerable focus from Government in recent years, living standards in the Sister [Outer] Islands continue to remain well below those in Rarotonga.”16

The National Plan 2007–2010 described the problem as follows: “A fundamental development challenge is to achieve economic growth and social development that is more evenly spread across all islands and that involves less reliance on public service jobs and welfare benefits as sources of cash income. Government, through Office of the Minister for Outer Islands Administration and other Government entities, is committed to ongoing

15 Office of the Prime Minister. 2003, pp. 12–13. 16 Minister of Finance. 2005, p. 8. Chapter 3: The Disadvantaged of the Cook Islands 35

infrastructure development such as harbors, water, power supply, road construction and maintenance as well as airport maintenance in the outer islands.”17

It is inherently difficult and expensive to provide small, The loss of jobs far-flung communities with a full array of social services, and people has and their higher costs of communications, freight, transport, hit hard etc., must either be borne by residents or subsidized by government. Nevertheless, the disadvantage of the outer island communities goes beyond this. With the departure of public sector jobs in the mid-1990s, along went people and skills. Some communities now stay alive only by receiving welfare payments and taking on responsibility for grandchildren.

The distribution of well-being, viewed subjectively Population or objectively, is reflected in the movement of people. For flows reflects the past several decades, the predominant migration flow opportunities has been from the outer islands to Rarotonga and from Rarotonga to New Zealand and beyond. This flow reinforces the community’s perception of the disadvantage faced by the outer islands.

The most recent information on the distribution of income, and therefore economic hardship, comes from a recent household income and expenditure survey (HIES). The Cook Islands Statistics Office was processing these data at the time of writing, with only preliminary provisional tables available. An earlier HIES was conducted in 1998– 1999 but, because of funding constraints, covered only Rarotonga and the Southern Group, surveying them in 1998 and 1999 respectively. Because of the rapid changes in the economy at that time, results for the two areas are not exactly comparable. Other sources of information are the national censuses and such government administrative records on welfare distribution.

17 Cook Islands Government. 2006a, p. 27. 36 Cook Islands 2008 Social and Economic Report—Equity in Development

Income is Data collected by the 2001 census about the personal cash higher in income of economically active adults showed that, compared Rarotonga with the outer islands, fewer people in Rarotonga had very low incomes of NZ$5,000 or below, and considerably more were in the middle-income bracket between NZ$10,000 and NZ$40,000 (Figure 3.3). The average income in Rarotonga was 14% higher than the average national income.18 Regarding the few individuals at the high end of the income spectrum, Northern Group islanders did almost as well as the highest- earning Rarotongan residents, no doubt reflecting the high earnings of the larger pearl farmers.

The analysis of the 2005–2006 Household Expenditure Survey—Draft for comment found per capita income and expenditure were lower in the Southern Group than in Raro tonga. Per capita expenditure on food was similar in the two regions, and most additional expenditure in Rarotonga was on household equipment, furnishings, and transport. Despite the differences in income, the degree of income inequality was similar in Rarotonga and in the Southern Group. For both, 40% of the population with the lowest income earned 20% of total income, while the top 10% of income earners earned 30% of total income.19 This is an even distribution compared with many other developing countries, much more even than in the neighboring Fiji Islands, for example.20 Demographic trends The HIES data also suggest that the educational level compound attained by the household head, rather than the person’s sex outer island or age, most influences the amount that a household earns or disadvantage spends. A higher standard of education is generally associated with higher income.21 The concentration of higher household incomes in Rarotonga is therefore linked to the concentration of more educated people there, as well as to the more highly paid livelihoods they have access to (Figure 3.4). The education

18 Footnote 16; UNDP; and Cook Islands Association of Nongovernment Organizations. 2006. 19 Authors’ estimates derived from data supplied by CISO. 20 Fiji Government and UNDP. 1997. In FY1991, the bottom 20% of households in Fiji received 5% of all income, while the top 20% of households received 50%. 21 Footnote 18. Chapter 3: The Disadvantaged of the Cook Islands 37

and livelihood disadvantage of outer island populations is compounded by their age and sex structures with more elderly and more women.

Figure 3.3: Cash Incomes by Island Group, 2001

40 Rarotonga

30 Southern Northern 20

10 Share of adults (%)

e <5 5–10 >60 10–15 15–20 20–30 30–40 40–50 50–60

No incom Cash incomes (NZ$ '000)

CISO = Cook Islands Statistics O ce, NZ = New Zealand, $ = dollar, % = percent, < = less than, > = more than. Source: CISO. 2003.

Figure 3.4: Adults with Vocational Education by Island Group, 2001

Share of people aged 15 and over (%) MFMFM F Rarotonga Southern Islands Northern Islands

CISO = Cook Islands Statistics O ce, F = female, M = male, % = percent. Source: CISO. 2003. 38 Cook Islands 2008 Social and Economic Report—Equity in Development

3.3 The Significance of Gender

Women face Another general pattern of disadvantage is by gender. By significant regional standards, Cook Islands women score highly on the disadvantage gender development index and gender empowerment measure. Compared with Cook Islands men, they have substantially longer life expectancy (74.3 years, or 6.3 years longer than men) and higher secondary school enrollment. Primary school enrollments and reported adult literacy rates are equal for males and females.22 The main disadvantages for Cook Islands women are their relatively restricted opportunities for economic and political participation, generally lower earning capacity, and remaining subtle forms of gender bias.23

Gender The equality of men and women is recognized by stereotypes the Constitution and in family law, as well as by tradition still limit concerning the inheritance of land and rights of land women’s use. Yet no legislation explicitly prevents discrimination participation against women, such as gender discrimination in job advertisements or sexual harassment at work, nor are there affirmative action initiatives to promote equality between men and women. Despite equal opportunity for women in most respects, the National Policy on Women (1995) noted: “Subtle elements of discrimination against women perpetuated by culture, custom, and tradition continue to exist in Cook Islands society today. The continued stereotyping and confining of women’s roles and responsibilities to the domestic arena limits their participation in the development process.”24 Census data report higher employment rates for men (Figure 3.5). These data conventionally play down women’s work by defining a large part of their domestic

22 The reported adult literacy rates of 100% are estimated from censuses and are not derived from an actual survey. 23 Footnote 16. 24 Department of Women. 1995. Chapter 3: The Disadvantaged of the Cook Islands 39

activities as “uneconomic,” while men engaged in similar activities such as village agriculture, or unemployed, are more often described as being economically active. What is nevertheless clear is the growing participation of women in wage employment outside of agriculture, which rose from 38% in 1991 to 44% in 1996 and 46% in 2001.25

Figure 3.5: Employment by Age and Gender, 2001

600

500

400

300

200 Employment number

100

>64 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64

Age Male Female

CISO = Cook Islands Statistics O ce, > = more than. Source: CISO. 2003.

Alongside this paid work, women spend slightly more Women’s time than men caring for children and other family members economic and on such domestic chores as preparing food, cleaning contributions house, shopping, and home repairs.26 Most important is are still played that the 2001 census showed a significant gender difference down, but remained in earnings for paid employment. More women incomes and than men were in the lowest-income bracket (less than opportunities have grown 25 CISO. 2003, 1997, and 1993. most quickly 26 Time-use survey conducted as part of the 1998 Rarotonga household income and for women expenditure survey. 40 Cook Islands 2008 Social and Economic Report—Equity in Development

NZ$5,000) and more men than women were in the highest- earning groups (Figure 3.6).

Figure 3.6: Cash Incomes by Gender, 2001 40

30 Male Female 20

10 Share of adults (%)

<5 –10 15 20 30 40 50 60 5 – – – – – – >60 10 15 20 30 40 50

No income Cash incomes (NZ$ '000) CISO = Cook Islands Statistics O ce, NZ = New Zealand, $ = dollar, % = percent, < = less than, > = more than. Source: CISO. 2003.

However, the past decade has been a period of great change. Since the mid-1990s, more job opportunities have opened up for women. Although public service has contracted, more women now work at its senior levels. As a prominent Cook Islands woman expressed it, one least-expected outcome of the mid-1990s reform was the breaking of the glass ceiling that had inhibited the rise of women into senior levels of government.27 Along with their growing share of paid employment, more women now run small businesses. From 1998 to 2002, the Small Business Enterprise Centre assisted the start-up of 89 businesses, of which women owned 65%. Areas of business activity that have attracted women are handicraft production, agricultural and marine products, and tourism.

27 Kingston. 1999. Chapter 3: The Disadvantaged of the Cook Islands 41

Not all women are doing well. Female–headed Women are households suffer elevated risk of having low incomes or especially being socially isolated, and their number is growing. Most vulnerable to of those who receive allowances from the Social Welfare hardship Department for destitution are single female heads of households with children to support but little income. These women generally are too young for old-age benefits, and their children are too old (over the age of 10, now changed to 12) to receive the child benefit. The destitute allowance is essentially a stopgap between other welfare payments, a de facto unemployment benefit.

Table 3.1: Female–Headed Households

1996 2001

% of all households Total Cook Islands 22.7 24.0 Rarotonga 24.4 25.5 Northern Group 12.7 18.7 Southern Group 23.1 22.2 CISO = Cook Islands Statistics O ce, % = percent. Source: CISO. 2001 and 1997.

3.4 The Elderly

As traditional family support systems weaken, an especially Elderly vulnerable group is the elderly people living alone or people are supporting a grandchild or two. Because of the pattern vulnerable of out-migration and the ageing population, these are often elderly women, who suffer a real risk—even in more traditional outer island communities—of social isolation. As these communities have shrunk and aged, support systems have attenuated within them. Beyond traditional community ties among cousins, neighbors, and church congregations, the elderly look for their principal material and emotional support from children and grandchildren, yet increasingly find themselves on the remote edge of family networks now centered in Rarotonga or in New Zealand. Social support 42 Cook Islands 2008 Social and Economic Report—Equity in Development

can come down to finding the money for airfares or a child or grandchild willing to return. Even that may not be enough. On one island, the most difficult welfare case was of an elderly couple—he an alcoholic, she a diabetic with mobility problems, their three young grandchildren going hungry, unsupervised, and pilfering from neighbors. Yet, beyond paying their welfare allowances, community leaders saw no way to intervene.

The geriatric ward at the Rarotonga Hospital serves as a de facto old people’s home for infirm elderly people who do not have a family to care for them. There is no other residential facility in the Cook Islands. However, a program supported by the Rotary Club and the Ministry of Health (MOH) operates a day center for elderly people in Rarotonga.

3.5 Disabled People

Disabled Disabled people are another vulnerable group, mainly people are at because of their limited access to education and livelihood risk opportunities, although they do receive a special welfare payment. A survey in 2001 located 641 people with disabilities at 4.2% of the resident population, around the expected number in any population.28 Only 50% of the 119 disabled children of school age attended school, although attendance is supposedly compulsory.

Facilities on In 2000, the Ministry of Education (MOE) adopted its Rarotonga policy for special education to integrate disabled children into help the normal classrooms wherever possible. A special education vulnerable adviser, appointed in 2000, trains teachers to identify and assist children with special needs, including those who underperform on proficiency examinations. The only special facilities for disabled children are in Rarotonga, where the Disabled Persons Centre, a nongovernment organization,

28 McCullough. 2002. Chapter 3: The Disadvantaged of the Cook Islands 43

runs a special education classroom at Avarua Primary School and the MOE pays the salaries of two teachers. The center provides transport for children but caters mainly for people in the Avarua area. Transportation to school is difficult for severely disabled children, which is another reason many stay home.29 Efforts are being made in the outer islands to provide for disabled children in schools, but these are nevertheless the children most likely to miss out on education.

Partly funded by MOH and the New Zealand’s Inter national Aid and Development Agency (NZAID), the creative center in Rarotonga was established in 2000 to provide services for disabled adults over the age of 16. Operating part-time, the center gives disabled people an opportunity to develop creative skills and life skills, to socialize, and to stimulate their learning. Again, no facilities exist in the outer islands.

29 Footnote 27.

Chapter 4 Delivery of Social Services

4.1 Introduction

The services that contribute to vital differences in living The Cook conditions are education, health, and welfare; basic infra Islands structure services such as electricity, water, sanitation, and community waste management; services that provide basic opportunities aspires to for economic activity, such as transport, communication, international and banking services; and various government programs standards, as relating to housing, youth, and gender. do the service providers Providing services is inevitably expensive in small, highly dispersed island countries, but the Cook Islands has overcome the cost disadvantages and has achieved higher living standards for its outer island communities than have neighboring Pacific island countries. Yet the quality of service generally remains below community expectations, on both the outer islands and Rarotonga. The quality of services is to some extent subjective, gauged by users as relative to the highest standard of services available at the center, be it perceived as Rarotonga, New Zealand, or Australia.

Service providers generally aspire to meet New Zealand standards. Many Cook Islanders have spent time in New Zealand. They are familiar with New Zealand systems and institutions. Few have had a similar experience with other Pacific island countries or believe there is any good reason to be compared with them. Hence, both the community and service providers pursue substantial improvements in the quality of services. 46 Cook Islands 2008 Social and Economic Report—Equity in Development

Service quality is not simply a function of the resources spent on them. Service levels are interlinked with the demo graphic fortunes of small communities and their political and economic situation. Important issues are factors that affect the level of demand (for example, the rising incidence of chronic diseases increases demand for more expensive forms of health care), aspects of organization and management within each sector, the capacity of the community to meet some costs of providing the services, and the value placed on services by the community and the institutions that assume responsibility for them.30 For example, if the responsibility for service provision is seen to belong solely to the central Government, standards are more difficult and expensive to maintain than if the local community assumes part of this task. The political situation plays an important role concerning whether citizens can hold policymakers accountable for public services that benefit the disadvantaged, or whether policymakers make a point of truly addressing the needs of the disadvantaged.31

4.2 Decentralizing Service Delivery

Government Almost all social services are provided by the central Govern provides most ment or by public enterprises, with significant contributions from services community-based organizations or nongovernment orga- izations (NGOs) (Table 4.1). The main social services are the responsibility of ministries of Health, Education, Internal Affairs, and Social Services. Governments of the outer islands are mainly responsible for managing basic infrastructure services, in theory with direction from the Ministry of Works (MOW).

Decentralization A key component of the mid-1990s reform was to be the was a core transfer from the center to the periphery of formal authority reform to decide and implement decisions. At the time and several policy, but years thereafter, this transfer was considered critical to the the confusion surrounding it 30 Rodgers et al. (2003) discuss these issues in a Pacific island context. leaves outer 31 World Bank. 2004, p. 7. Chapter 4: Delivery of Social Services 47

sustainability of the country. Specifically, the Government islands less was to devolve some key resource management and public empowered administrative control to island councils and provide a fully functional and effective form of self-government for each island, with clear and open lines of responsibility and communications with the restructured central Government in Rarotonga.

Table 4.1: Service -Providing Agencies and Organizations in the Cook Islands

Sector Government agencies Nongovernment organizations

Education Ministry of Education Churches Department of National Community organizations Human Resource Development Health Ministry of Health Red Cross, Paci c Islands AIDS Foundation Welfare Ministry of Internal Aairs Punanga Tauturu (Cook Islands Women’s Counseling Centre), Free Crisis Counseling Basic Ministry of Works Island councils infrastructure

Source: Ministry of Finance and Economic Management

The balance of power between central and island governments has a significant effect on the quality of island services. Generally, the quality of services is higher, or at least people are more satisfied with them, when they believe their opinion counts.32 With the balance of power in question, people often feel apathetic or dissatisfied about their situation and are effectively disenfranchised from the process of development.

In practice, confusion over decentralization has made it Attempts at difficult for citizens to determine which elected representative devolution is responsible for policy outcomes, and this bodes ill for have a long transparency and accountability. The absence of effective history, but outer island administrations frustrates efforts to improve results have services to those communities and imperils the wide range been hard to of projects aiming to improve their situation.33 secure

32 Footnote 30. 33 New Zealand’s International Aid and Development Agency (NZAID). 2001. 48 Cook Islands 2008 Social and Economic Report—Equity in Development

The process of devolution had begun several decades earlier in an attempt to reduce disparities between the islands and stem population drift. The 1966 Local Government Act established island, district, and village councils and committees, and their autonomy was further increased in 1976. In 1987, the Outer Islands Local Government Act redefined the functions of the island councils to allow them to administer various ordinances and bylaws applicable to their islands, assist in coordinating social and economic development therein, and generally assist the national Government in governing. The Ministry of Outer Islands Development was established in 1994 as the vehicle through which phased decentralization could take place.

While most island people supported the principle of having more say in the running of their affairs through their elected leaders, it was evident from the outset that change would not be easy. A 1998 review found that, while mayors and island councilors were eager to assume their new responsibilities, they were frustrated with the slow pace of devolution. Some island councils had not received promised funding for months. Disharmony arose among the representatives of national ministries and local government because of unclear division of responsibilities, and these conflicts were complicated by considerable disparities in their pay. Financial management and auditing in the island administrations was often weak. There was also the general risk that some island councils could become “dictatorial little empires under a handful of local strongmen.”34

Efforts were In 1999, the United Nations Development Programme renewed (UNDP) and the Economic and Social Commission for in 1999, Asia and the Pacific funded a 3-year program to assist with new with the devolution process, in particular to revise or governance develop the necessary structures, systems, and operations arrangements to enable island councils to govern effectively their own formulated 34 Commission of Political Review. 1998. Chapter 4: Delivery of Social Services 49

island constituencies.35 This program was modeled after the apparently successful program of outer island devolution in neighboring Tuvalu. The main outputs of the project were to be the development of a devolution policy, a related human resource-training program, and a legal framework to facilitate the process. A number of studies were undertaken, documents drafted, and training workshops held. The devolution program influenced the aid programs of other major donors, particularly the New Zealand’s International Aid and Development Agency (NZAID), the Australian Agency for International Development (AusAID), and ADB.

The Office of the Minister of Island Administration was established in 2000 to provide policy advice, infrastructure development, and specific project proposals to push the outer island empowerment process ahead. As part of the revised structures for island devolution, island secretaries appointed under the Public Service Act replaced chief executive officers and were to act under a performance agreement with the mayor and the island council, with substantial responsibility allocated to mayors.

ADB built on the experience of Tuvalu and UNDP’s Economic and Social Commission for Asia and the Pacific by providing in 2001 technical assistance to examine the feasibility of an outer island development trust fund. This was to be a mechanism to fund development programs to increase employment opportunities, improve living standards, and generally improve social and economic infrastructure in the outer islands.36 These projects were to be identified by the communities themselves,

35 UNDP and Economic and Social Commission for Asia and the Pacific. 1999. 36 Asian Development Bank (ADB). 2001. Allocated for this activity was 315,000 New Zealand dollars (NZ$), including a government contribution of NZ$65,000, which was executed by the Ministry of Finance and Economic Management (MFEM) and implemented by the Office of the Minister of Internal Affairs. 50 Cook Islands 2008 Social and Economic Report—Equity in Development

according to a set of eligibility criteria. The trust fund would thereby provide a funding mechanism to support island devolution, but it was determined to be impractical and did not proceed.

Devolution has It now appears that the Government has backed away now largely from devolution or at least allowed the process to stall. Island unwound, with councils appear to have less autonomy, not more. Central no serious Government-appointed island secretaries and Konitara plans to try Tutara (central Government representatives) appear to exert again more authority, on some islands through the patronage of local politicians. Most government functions that were transferred to the islands have been recalled to Rarotonga, with no explanation available from heads of either island governments or central ministries other than that these were Cabinet decisions. For example, responsibilities for health that had been devolved to the outer islands in 1996 were returned to the ministry in 2002.37 The argument now is that education, health, and police matters are “too big” for island communities to handle and anyway require strict monitoring from Rarotonga to ensure that standards are maintained. This argument hardly holds for the smaller services, such as women and youth affairs, but these too have returned to Rarotonga. Responsibility for managing operating expenditures of infrastructure is the key responsibility remaining with the island councils.

The FY2006 budget statement reported that the devolution process would be “revisited to develop the right balance and model of local government, on both the outer islands and Rarotonga, while building capabilities and capacities.”38 This suggests that little, if any, progress has been made since the late 1990s. Significantly perhaps, the word

37 Only Rakahanga and Palmerston retained this responsibility. 38 Immediate steps to be taken were to (i) review the two existing laws to better define the functions and responsibilities of local governments in relation to the central Government, (ii) appropriate finance according to this review; and (iii) establish offices for the Konitara Tutara where there are none (Cook Islands Government, 2005). Chapter 4: Delivery of Social Services 51

“devolution” appears only once in the National Sustainable Development Plan 2007–2010.

The central Government, therefore, supplies and Service quality manages most services, with little community input. suffers Communities are most concerned with the standards of the services on their island but consider them something that they simply receive. Teachers often cite community apathy as their principal problem, which suggests the rift goes in both directions. Other government services—i.e., women’s affairs, youth and sports, and consumer affairs—as well now have little direct community input.

4.3 Education

Under the Education Act, all children aged 5–15 years Basic must regularly attend school, and it is an offence for a education is parent or guardian not to ensure this. School enrollment is compulsory therefore high and evenly balanced by gender (Figure 4.1). and free Cook Islands schools have long followed the New Zealand education system in terms of structure, content, and compulsory attendance. The 2006 Education Strategic Plan aims to tailor the school system more closely to Cook Islands needs by modifying the curricula and ensuring a more equitable access to all levels of education.

In 2000, 92% of children aged 3.5–4 years attended preschool, most of which are housed together with primary schools.39 The numbers have remained steady despite high emigration, which suggests that the proportion of enrolled children has risen. The Government aims for 100% enrollment in early childhood education and is working to improve quality further.

Schools operate on all 12 permanently populated islands, even for the smallest communities. The number

39 Education Assignments Group. 2001, p. 68. 52 Cook Islands 2008 Social and Economic Report—Equity in Development

Schools are of students per school ranges from 253 in Pukapuka and available 203 in Rarotonga down to 46 in Nassau and Penhryn, 35 throughout in Rakahanga, and 27 in Palmerston.40 The Government the country, operates most of the 33 schools, church organizations and high operate six, and private organizations two, but the Ministry enrollment is of Education (MOE) provides all schools, public or private, balanced by with curriculum advice and teacher training. gender

Figure 4.1: School Enrollment by Age, 2005 300 Male 250 Female

r 200

Numbe 150

100

0 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19+ Age

MOE = Ministry of Education. Source: MOE. 2005.

Students are automatically promoted at the end of each year, except in cases of special learning difficulty, and almost all progress to secondary school. Secondary school classes are available on all islands—with most students going up to at least senior level one—though on the very small islands of Palmerston and Rakahanga, the schools go up only to form three and on Nassau to form four. This represents a large national investment in access to education.

40 Ministry of Education (MOE). 2005. Chapter 4: Delivery of Social Services 53

Although truancy officers are tasked with enforcing the A few children Education Act, truancy is nevertheless a significant problem, miss out on particularly with older students (a survey is planned). education Despite the law, some children are unable to attend. A 2001 survey of disabled children found that only 50% regularly attended school. Students who become pregnant usually must stay away from school until they give birth, and no other provision is made for their education. There are early Figure 4.2: School Enrollment by Age, 2001 dropouts from 100 age 11 90 Out of school 80 70 60 50 In school

Percent (%) Percent 40 30 20 10 0 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Age

CISO = Cook Islands Statistics O ce, MOE = Ministry of Education. Sources: CISO. 2003; and MOE. 2001.

Calculating school enrollment rates in the Cook Islands is made difficult by the small size of the population and its high mobility. The many children emigrating deflate calculations of primary school survival rate.41 Figure 4.2 combines census and school enrollment data to indicate how many children of each age may be out of school, but the match is not exact.42 It does indicate, however, that there are early dropouts before completion of the compulsory period

41 Matheson. 1999. 42 All demographic rates require a sturdy denominator. The 5-yearly census provides the only count of the whole population but only for that point. While school enrollment figures come from early 2001, the census was conducted in December 2001, and the flow of people in and out of the Cook Islands between these times is uncountable. School enrollment figures exceed the census count for most ages. 54 Cook Islands 2008 Social and Economic Report—Equity in Development

of school attendance at age 15, and enrollments drop quite sharply after that age.

Student Many Cook Islands students have emigrated since the numbers are reforms a decade ago. From 1996 to 2005, school rolls decreased falling by 24% in the Northern Group, 38% in the Southern Group, and 3% in Rarotonga. While some outer island students went to school in Rarotonga, there was an evident net flow of students out of the country at all levels, but particularly of secondary students and above (Figures 4.3 and 4.4).

Enrollment has dropped Figure 4.3: School Enrollments by Island Group, 1996–2005 in the outer 3,000 islands by 2,500

40% in most 2,000 cases, and 1,500 this affects the quality of Number of students 1,000 schooling 500

0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Year Northern Southern Rarotonga

MOE = Ministry of Education. Source: MOE statistical bulletins, various years.

With the fall in outer island populations has come smaller school rolls and, in turn, an increased per capita cost of providing education to these communities. The closure of some particularly small schools reduced accessibility for a few children. Two related developments, namely the reduction in staffing and an increased number of classes combining students at different levels, have affected the quality of education, or at least community perceptions of quality, as some parents complain that mixed classes are difficult for inexperienced teachers to manage and children with special needs are overlooked. Chapter 4: Delivery of Social Services 55

Figure 4.4: Change in School Enrollments by Island

Palmerston & Nassau Aitutaki Rarotonga Pukapuka Mangaia Manihiki Rakahanga Mauke Mitiaro Atiu Penhryn

(60) (40) (20) 0 20 40 60 80 100

MOE = Ministry of Education, ( ) = negative value. Source: MOE statistical bulletins, various years.

At the same time, the changing age structure of the Demand for national population toward a relatively larger young adult tertiary and age group is reflected in increased demand for tertiary and vocational vocational education and other courses outside the traditional education is school system, which are relatively more expensive programs. increasing Demand has also risen with the realization that local tertiary and vocational training opportunities are essential to retaining and developing the Cook Islands’ human resources. Since the early 1990s, the weight of national expenditure on education has moved from primary to secondary and on to vocational and tertiary programs. However, balance has not necessarily been achieved. Education expenditure now favors the few tertiary students, who absorb 20% of expenditure on education.

The quality of education in the Cook Islands isof The quality of considerable concern to both the Government and the public. education is Public perceptions of school quality undoubtedly contribute of concern 56 Cook Islands 2008 Social and Economic Report—Equity in Development

to the outflow of Cook Islands students, particularly when their point of reference is often the standard of schooling in New Zealand. In 1998, the Cook Islands spent approximately NZ$1,100 per student at all levels of the school system, or less than the average of NZ$3,700 in New Zealand, making New Zealand standards hard to match. Up to 2000, when Cook Islands secondary students sat the New Zealand school certificate, local pass rates were low.43 The 1999 results were the worst on record since analysis began in 1994 (Table 4.2). The average pass rate for 1994–1999 was 31% in Rarotonga and only 22% in the outer islands.44 Many students therefore left school without any formal qualifications.

There are The gradient of quality generally falls from New regional Zealand to Rarotonga, and from Rarotonga to the outer differences in islands, particularly the Northern Group. This pattern is outcomes evitable, but it is not peculiar to the Cook Islands because it is common in small, remote rural communities the world over.

Table 4.2: New Zealand School Certi cate Pass Rates for Residents 1996 1997 1998 1999 2000 Number of students sitting NZSC 149 149 156 167 152 Total number of papers sat 693 627 670 678 648 Total papers passed 235 226 259 168 226 Overall pass rate (%) 34 36 39 25 35 Pass rate for English (%) 22 26 33 16 33 Pass rate for Mathematics (%) 24 22 25 16 29 NZSC = New Zealand School Certi cate, % = percent. Source: Education Assignments Group. 2001.

A new form National standardized tests for grade 4 students (9–10 of testing years old), which began in 1999 to upgrade educational seeks to raise standards, reveal disparities in education outcomes. The standards 43 Since 2000, the system has moved to the New Zealand Quality Authority system, which does not provide any straightforward indicator of outcome. Furthermore, it keeps results confidential to students and, to some extent, MOE. 44 Footnote 35. Chapter 4: Delivery of Social Services 57

tests measure proficiency in language (both English and Maori) and mathematics.45 Students who do not achieve required standards are referred to their teachers for extra help and sit the tests again a year later so that the MOE special needs advisor can monitor their progress and provide other remedial assistance to the student or their school as required.

Data on both low- and high-achieving students reveal Results show that Northern Group students are disadvantaged compared the Northern with all other students in the Cook Islands (Figure 4.5). Group From 2000 to 2005, the percentage of students performing generally lags low in language studies or mathematics averaged 25.9% nationwide. There were fewer low-achieving students in the Southern Group, at 21.6%, but many more in the Northern Group, at 38.4%, or almost two fifths of all grade 4 students. The pattern was repeated at the high end of the scale. The percentage of students who did well in either language or mathematics averaged 23.3% nationally, with similar results for Rarotonga (24.5%) and the Southern Group (24.6%) but much lower results for Northern Group students (12.7%).46

Commenting on the results, the examinations division recommended that primary teachers in most Northern Group schools be extensively retrained in language and mathematics teaching and learning methods.47 The disadvantage suffered by Northern Group schools is not so evident as regards the qualifications of the teachers (Table 4.3) but relates more to their professional isolation, which is a difficult and expensive problem to overcome.48

45 The tests in Maori and mathematics are made available to schools in seven island dialects, including the Pukapukan language. Schools elect to sit the mathematics test in either English or the local island dialect. Maori tests are provided in the island vernacular. In language studies, Rarotonga students did relatively well in English, but standards of Maori have dropped. More Southern Group students performed well in both languages. 46 Examinations Division. 2002 and various other years. 47 Footnote 45. 48 Director of Education. 2006. Personal communication, August. 58 Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 4.5: Student Achievement by Island Group

Students with low achievement in Students achieving well in languages, language, 2000–2005 2000–2005 National National 50 50 Rarotonga Rarotonga Southern Southern Northern Northern 40 40 (%) (%)

30 30

20 20 Percent of Grade 4 students 10 Percent of Grade 4 students 10

0 0 00 01 02 03 04 05 00 01 02 03 04 05 Year Year

Students with low achievement in Students achieving well in mathematics, mathematics, 2000–2005 2000–2005

50 50

40 (%)

(%) 40

30 30

20 20

National National Percent of Grade 4 students

Percent of Grade 4 students 10 10 Rarotonga Rarotonga Southern Southern Northern Northern 0 0 00 01 02 03 04 05 00 01 02 03 04 05 Year Year

MOE = Ministry of Education, % = percent. Source: MOE. Examinations Division. Chapter 4: Delivery of Social Services 59

Table 4.3: Distribution of Qualified Teachers by Island, 2005 Island Number of Share with Share with teachers teacher’s certi cates degrees (%) (%) Palmerston 1 100 100 Mitiaro 6 100 33 Manihiki 8 100 25 Mauke 13 100 23 Penhryn 6 100 17 Mangaia 17 100 12 Nassau 2 100 0 Aitutaki 35 94 14 Pukapuka 14 93 7 Atiu 12 92 8 Rarotonga 165 91 24 Rakahanga 3 33 0 MOE = Ministry of Education, % = percent. Source: MOE. 2005.

Cook Island schools have a high proportion of qualified Qualified teachers: 93% with certification and 16% with degrees. teachers Their distribution across the islands appears to be fairly are well even, considering that teachers with degrees teach mostly distributed in secondary schools—though of course at different times some islands fare better than others. Despite the high rate of attrition and out-migration of qualified teachers, the number of certified teachers in the Cook Islands has steadily risen. To counter the loss of teachers to other jobs or overseas, the Education Act has been amended to enable experienced local professionals and trades people to teach, and support and incentives are being provided to teachers at all levels to upgrade their professional qualifications and skills.

In terms of donor assistance, education and training Donor account for more than half the NZAID/AusAID allocation assistance for 2006–2007, including assistance to refurbish education mainly from infrastructure and to finance scholarship schemes. NZAID NZAID/ and AusAID also assisted the Government to develop a AusAID and EU sector-wide approach (SWAp) that is based on a long-term strategy to improve the quality of education services, from 60 Cook Islands 2008 Social and Economic Report—Equity in Development

pre-school to vocational education, including pupils with special needs.49 The European Union (EU) also supported the MOE and the Department of National Human Resource Development.

4.4 Vocational Training and Other Postsecondary Education

The education To the extent that many students leave school without formal system is qualifications or appropriate skills for locally available jobs, not yet well and many of the privileged or most able students migrate, aligned with the education system has not performed well in meeting the local needs economic and social needs of the country. Local shortages of labor and skills are chronic, especially in Rarotonga, and the nature of the community is changing as foreign workers fill these positions. Yet many adults feel they have not received enough education.

It is important that vocational training and vocational education respond to these needs, particularly in ensuring the mobility of outer islanders. Even if outer islanders cannot reach the desired standard of living by staying on their home island, it is desirable that they be able to supplement their skills in Rarotonga or Aitutaki so they can actively engage in their economies should they choose to move there.

Postsecondary Postsecondary education is available through govern education is ment institutions: the Cook Islands Teachers College, growing Rarotonga Hospital Nurses Training School, Hospitality and Tourism Training Centre, Trades Training Centre, University of the South Pacific Extension Centre, and the Public Service Commission (PSC). The Tourism Training Centre provides summer school courses for outer island students, especially in mathematics and English, and enrollment has steadily increased.

49 http://www.nzaid.govt.nz/programmes/c-cook-islands.html Chapter 4: Delivery of Social Services 61

There is a growing effort to tailor the types of education Facilities for and vocational training available in the Cook Islands to vocational the types of livelihoods that are available there. Emphasis education traditionally has been placed on academic skills, but most are being employment opportunities for young people will be in expanded tourism; agriculture; the pearl industry and other marine- based enterprises; culture-related areas such as art, music, and other performing arts; or sports.

The National Human Resource Department was established in 2000 to address the lack of skilled, qualified people; manage scholarships; and provide training and internships locally and in New Zealand. The Small Business Development Centre provides business advice and training, networking facilities, coordination with key organizations, and an information service to outer island residents.

The 2002 Cook Islands Training Needs Survey found unmet needs for school-leaver and adult education and training, including in basic literacy and numeracy, and urged the expansion to the outer islands of opportunities for post- school and distance education. The report recommended bridging courses for young people who had dropped out of school and possessed limited skills; skill development programs so that young people could gain access to employment; development of skills in English; technical and vocational education, especially in the trades; and training in Cook Islands cultural crafts, cultural performance, and performing arts. It also recommended that all formal tertiary education in the Cook Islands be coordinated through the New Zealand National Qualifications Framework. These opportunities are now being expanded through the “Second Chance” learning program.

While the Government encourages as many students Weaknesses in as possible to study within the country, and while education basic education and training opportunities are expanding, local institutions limit the uptake still compete poorly with schools overseas in terms of the of higher-level quality and variety of qualifications offered. Scholarships opportunities 62 Cook Islands 2008 Social and Economic Report—Equity in Development

to study abroad are available through the Government from both national and donor resources, mostly in New Zealand or at the University of the South Pacific, but often some go unawarded for lack of applicants with sufficient entrance qualifications.

4.5 Health Services

Government The Ministry of Health (MOH) operates all health provides services in the Cook Islands, apart from four private most health medical and dental clinics in Rarotonga. All health services, services are free in the outer islands, but in Rarotonga, which people aged 5–59 years are required to pay NZ$7 per are well consultation. All islands have health centers and all, distributed except the smallest islands of Nassau, Palmerston, and Rakahanga, have hospitals.

From 1999 to 2004, government health staff increased by one third to 288, with most of the increase in curative services. Most islands have a doctor, and all have at least a trained nurse practitioner. All islands also have health inspectors, and most have public health nurses. Health facilities are well equipped, and a refurbishment program— funded by the EU—is systematically upgrading the outer island hospitals. A flying-dentist program now regularly services the outer islands. This compensates for the halving of the number of dental clinics since 1996 and the removal of all on-island facilities in the Northern Group. In addition to the trained staff and equipment on the islands, a well- functioning medical evacuation system charters the domestic airline, Air Rarotonga, to fly emergency cases to Rarotonga.

Health The health status of Cook Islanders is generally good. standards The crude death rate in 2001 was 7.4 per 1,000 inhabitants. are high The infant mortality rate in 2004 was 15.8/1,000 live births, which is reasonable compared with neighboring Pacific island countries, but considerably higher than the New Zealand rate (4/1,000 in 2002), and more than double the Chapter 4: Delivery of Social Services 63

rates in New Zealand for Pacific islanders (7.7/1,000) or Maoris (8.9/1,000).50 The mortality rate of children under 5 years is 26.1/1,000, with a higher rate for boys (31.3) than it is for girls (20.8).51 A high proportion of the population has access to clean, safe water supply, adequate sewage disposal, and primary health care. Past disparities in primary health standards between Rarotonga and the outer islands have narrowed, but the disparity nonetheless remains.

The birth rate dropped in the 1990s, with the crude The birth rate birth rate at 21.7 per 1,000 inhabitants in 2001.52 In the is low outer islands especially, births are fewer each year because many young people have migrated as livelihood and other opportunities have changed, especially for women. Family planning services are available at all health centers.

The prevalence of infectious diseases has dropped, helped by high child immunization rates (100% in 2004) and active public health programs. Improved water and sanitation facilities, including the building of flush toilets in all outer island schools and health centers, have helped reduce the prevalence of parasitic intestinal worms and probably also of septic skin diseases, rheumatic fever, and diseases that obstruct airways. The only recent outbreaks of infectious disease were dengue in 2002 and influenza in 2004. One case of tuberculosis was reported in 2004.53

Where children once were vulnerable to infectious The main diseases, the main causes of child death now are respiratory causes of infection and injury, mainly from vehicle accidents. Among death are adults, the prevalence of noncommunicable diseases, accidents especially heart disease, diabetes, and cancer, has risen. This and non- has come about with the aging population, changing diets, communicable diseases 50 New Zealand Statistics. 2002. 51 Secretariat of the Pacific Community. 2004. 52 Ministry of Health (MOH). 2004. The crude birth rate decreased from 26.6/1,000 in 1990 and 27.1/1,000 in 1995; to 21.9/1,000 in 2000 and 23.2/1,000 in 2004. 53 Footnote 50. 64 Cook Islands 2008 Social and Economic Report—Equity in Development

high rates of obesity, increased use of tobacco and alcohol, curtailed physical activity, and the improved control of more quickly fatal infectious diseases. Adults also suffer injuries, especially from traffic accidents and food poisoning from fish. The main causes of adult death are heart disease (which accounted for 27% of all deaths in 2004), hypertension, cancer (at 133/100,000 in 2004), pneumonia, and diabetes. The high and rising rates of these diseases are of concern (Figure 4.6).

Figure 4.6: Key Causes of Death, 2001–2002 50

Number of adult deaths 0 Hyper tension Neoplasms Diabetes Respiratory Injuries, disease poisoning, and external Male Female conditions

MOH = Ministry of Health. Source: Data supplied by MOH.

Lifestyle Obesity is prevalent among both adults and children. diseases are For obesity rates for adults, according to the most recently prevalent figures available are 48.4% for men and 36.2% for women.54 A 2003 survey of Rarotonga schools found that 17% of the students were overweight.55 This early weight gain is a strong predictor of diabetes and other noncommunicable diseases in middle age. School curricula teach good health, and MOH works with schools to encourage school tuckshops

54 World Health Organization, cited in ADB (2006b). 55 MOH and Curriculum Unit; MOE. 2003. memo. Chapter 4: Delivery of Social Services 65

and canteens to sell more healthy food than the fatty and sugary canned soda, hot dogs, and doughnuts that typify those offered to date.

Poor diet is also reflected in high rates of tooth decay. Tooth decay A 2001 oral health survey on seven outer islands found that, is a major on average, 5-year olds had nine decayed, missing, or filled health teeth (DMF) and 12-year olds had 3.2 DMF—higher than problem the World Health Organization standard of three or fewer DMF for 12-year olds. Adults aged 18–34 had an average of 18.9 DMF; aged 35–44 had 16.2 DMF; and 55 and older had 21.4 DMF.

Despite a sharp cut to the national dental service during the reforms and the discontinuation of a national fluoride- treatment program in the late 1990s because of public fears about possible side effects, the Cook Islands operates a good dental service for children through its schools, including the flying-dentist service. Some primary schools also have daily teeth-brushing sessions. School dental nurses nevertheless report that serious dental problems in schoolchildren that stem primarily from high consumption of sugary snacks, soft drinks, and other junk food, may mean that in 30 years or so, this will be a generation without teeth.56

Tobacco and alcohol are widely used, starting at a young Alcohol and age. A 2002 survey of young adolescents (13–15 years) found tobacco use is that 43% currently smoke and 70% had smoked at some high time, with no gender difference.57 The Public Health Division tries to change this behavior through school programs, and a national tobacco strategy has been drafted with help from the World Health Organization and NZAID.

Alcohol use is associated with the prevalence of motor vehicle accidents, particularly in Rarotonga and involving young men on motorbikes. In 2004, motor accidents in

56 Cook Islands Government and United Nations Children’s Fund. 2004. 57 MOH. 2002. 66 Cook Islands 2008 Social and Economic Report—Equity in Development

Rarotonga sent 91 patients to hospital and killed 5. Over one third of these accidents were reported to be alcohol related.58 Although one quarter of the accident victims suffered head injuries, no law requires the use of safety helmets. Alcohol abuse also contributes to domestic and other violence.

High rates Noncommunicable diseases are expensive for the health of non- services to deal with, especially when they require referrals to communicable Rarotonga or overseas. MOH has stepped up the monitoring disease and management of these diseases on both Rarotonga burden the and the outer islands, improved specialist care facilities in health system Rarotonga, and extended these services to the outer islands. It is finding headway difficult, however, in increasing public awareness and preventing these diseases, and it recognizes that there has been an overemphasis on curative care at the expense of preventative care. Now that these serious health problems have arisen, the cost of achieving good health for the community has increased considerably.

4.6 Welfare Services

The Cook Islands has no sizable group of very poor people. An important reason for this is the high level of welfare allowances that Cook Islanders receive, whether they reside in New Zealand or the Cook Islands.

The welfare The Cook Islands has an extensive but mostly system is untargeted welfare system. It is modeled on the New extensive Zealand system but has the important differences of being but mostly less comprehensive and providing smaller payments. In the untargeted, Cook Islands, payments are made to all children aged up to with no 12 years (extended from 10 years in July 2006) and to all unemployment people aged 60 years and above. Special payments are made benefit to people between these ages who are infirm or destitute. One-off grants equivalent to one month’s benefit are made

58 Footnote 50. The true proportion of accidents associated with alcohol may be higher than the reported figure. Chapter 4: Delivery of Social Services 67

to the families of deceased beneficiaries to help pay funeral costs. Other special assistance is given for improving the residences of disabled people.

Unlike in New Zealand, there is no unemployment benefit apart from the relatively few people who receive the destitute allowance, most of whom are single mothers with no other source of livelihood. Cook Islanders who move to New Zealand are eligible for unemployment and related benefits there and, as elderly people, can later bring back with them to the Cook Islands the higher-paying New Zealand old-age pensions. Other payments received by some elderly people include superannuation, pensions of various kinds, and life insurance payouts.

Largely because they are untargeted, welfare payments Most contribute to the incomes of most households. In FY1999, households according to a household income and expenditure survey, receive welfare payments constituted 5% of all household income welfare in Rarotonga and were an even more important source of cash on other islands. In mid-2006, the Government was redistributing approximately NZ$600,000 per month in this way.59 National expenditure on welfare has grown substantially in recent years (Figure 4.7). As the population evidently has grown little, if at all, over this period, the increased expenditure comes from both an increase in benefit levels and improved identification of special needs. Raising benefits enjoys political support, with politicians frequently promoting higher payments to increase their appeal.

The old-age benefit rose from NZ$100 per fortnight in 2001 to NZ$110 per fortnight in 2003, and rose even higher for more elderly people (to NZ$120 per fortnight for people aged 65–69 and NZ$125 those 70 and older). In mid-2006, child benefits were extended by 2 years to cover all children aged up to 12 years. Special benefits, namely,

59 Ministry of Internal Affairs, Social Welfare Division. 68 Cook Islands 2008 Social and Economic Report—Equity in Development

part payment of funeral costs, have also been extended to all recipients of all benefits.

Figure 4.7: Annual Growth in Expenditure on Welfare

0 2000 2001 2002 2003 2004 2005 2006 -5

-10

Annual real change (%) -15

-20

-25 Year

MIA = Ministry of Internal A airs, % = percent. Source: MIA, Social Welfare Division.

Compared with 1,464 elderly and 4,943 children receiving payments, other beneficiaries are few: 227 for being infirm and 43 for being destitute. However, because these categories are not strictly defined but agreed on case by case, pressure is mounting for their numbers to grow.60

The system is To the extent that most payments are not targeted, the one of income system could be better described as income supplementation supplemen- than welfare. The rationale for the payments is largely tation historical, based on the culture of egalitarian socialism that existed in New Zealand during the mid-20th century, and is an institution that is politically difficult to dismantle.

The infirm are mostly (though loosely) true welfare recipients. The destitute generally are the worst off of the

60 Footnote 57. 2006. Personal communication, August. Chapter 4: Delivery of Social Services 69

unemployed, being adults with no other livelihood. But the national distribution of their numbers—with tiny but food-rich Mauke alone accounting for 18% and relatively poor Pukapuka and Penhryn, together with Manihiki, accounting for only 2%—suggests that the definition of destitute is quite loose. There is little doubt, meanwhile, that the best—and to some extent only—option for able-bodied adults who find themselves unemployed is to go immediately to New Zealand and get on the dole. Evidently, many do, including people quite ill prepared for employment opportunities there. The unemployment rate among Cook Islanders living in New Zealand is currently around 18% and has stayed around this level for over a decade.

The Cook Islands welfare system therefore redistributes a lot of money, is expensive, and is likely to become more so. At the same time, it does not effectively address the needs of all people who are vulnerable to hardship or poverty during some stage of their life.

4.7 Other Social Services

The Cook Islands Government reports that 100% of Access to safe households have access to safe water supply.61 To some water and extent, access to water supply is an objective measurement, sanitation is whether households have access to safe water or not, but it good is subjective regarding the type of supply that is considered acceptable. In Rarotonga, where accepted standards of living approximate those in New Zealand, all but 12% of households have water piped to inside their dwelling. The situation is quite different on the northern atolls, where a sizeable proportion of the population must cart or carry water to their dwelling.

61 Cook Islands Government, United Nations, and Cook Islands Association of Nongovernment Organizations. 2005. 70 Cook Islands 2008 Social and Economic Report—Equity in Development

The Cook Islands Government reports that 100% of households have access to adequate sanitation.62 Again, the quality of a facility has both objective and subjective aspects. In Rarotonga, the accepted standard is a flush toilet. Elsewhere, this would probably be the standard aspired to, but only in Aitutaki, Manihiki, Palmerston, and Penhryn do more than 50% of households have a flush toilet. These toilets and their attached septic tanks are associated with ground and inshore water pollution.

Various other types of government services are provided, mostly through the Ministry of Internal Affairs (MIA) and its various divisions: social welfare, gender and development, labor and consumer, and youth and sports.

MIA operates The Social Welfare Division is principally responsible largely with for the payment and monitoring of the various welfare donor funding benefits. It also provides other welfare assistance to children and families, as well as to people with disabilities. Welfare payments are distributed through the Bank of the Cook Islands. Welfare officers are stationed on each island to identify and assist welfare cases.

The Gender and Development Division, once known as the Women’s Division, is responsible for monitoring the national policy on women, assisting with the biannual national women’s conference, running training, mainstreaming gender issues, and facilitating the implementation of the Convention on the Elimination of All Forms of Discrimination against Women. It works with the umbrella body of women’s NGOs, the Cook Islands National Council of Women, and various island associations.

The Labor and Consumer Service administers and monitors industrial and labor ordinances, Worker’s Compensation Ordinance, minimum wage orders, employer’s liability insurance regulations, Dangerous Goods

62 Footnote 59. Chapter 4: Delivery of Social Services 71

Act and regulations, Control of Prices Act, Weights and Measures Metric and Equivalents Act, and Public Holidays Act.

The Youth and Sports Division facilitates the development of the national youth policy, helps youth representatives attend various national and international meetings and training programs, arranges youth day celebrations, supports the Cook Islands Sports and National Olympic Committee, and monitors the distribution of national lottery funds earmarked for sports.

NGOs also provide important services. Throughout NGOs and the country, churches are a very significant part of local the churches communities, providing spiritual and other community provide services and serving as social centers. National NGOs valuable include the National Council of Women NGOs, Cook services Islands Red Cross, and Punanga Tauturu (or Cook Islands Women’s Counseling Centre).

Chapter 5 Private Sector Development

5.1 The Enabling Environment

The economic reform of the mid-1990s created the enabling Business and environment needed for private sector expansion. The competition private sector has responded and, on the main islands, filled has flourished the void created by contraction of the public sector.

Cuts to public expenditure and public enterprises helped lay the foundation by reducing the crowding- out effect that had drained finance and labor from the private sector. A low level of government regulation and red tape has also been a feature of the enabling envi ronment and has played an important role in facilitating the transition toward private sector-led growth. The light-handed approach to regulation has allowed the entry of new competitors and reduced the cost of doing business.

With several notable exceptions, especially in utilities, direct government intervention in the economy is relatively limited, with commerce and trade largely left to the private sector. Importantly, most businesses do not need to be licensed, the main exceptions being for banking, shipping, and air services. This facilitates business entry, while the registration processes do not necessarily impede the private 74 Cook Islands 2008 Social and Economic Report—Equity in Development

sector. There are, for example, no restrictions on the entry or location of pharmacies.

The cost The costs of doing business in the Cook Islands appear of doing to be low. This reflects, in part, the generally well-functioning business is commercial and judicial systems based on New Zealand acceptable, laws and practices. The legal system functions reasonably though hard effectively, and property rights are well protected. Contracts data to are observed and legally enforceable, and although there confirm this are no bankruptcy laws, creditors may legally recover debts does not yet or secured collateral. The legal infrastructure and codified exist laws for conducting business appear very satisfactory, and this certainty boosts business and investor confidence. Entry into business services, e.g., legal and accountancy services, is good. As a result, access to the services is also good.

While the costs of doing business do not seem to impede business in the Cook Islands, this remains largely untested empirically. The World Bank maintains a database on the costs of doing business covering 175 countries, which includes 10 Pacific island economies that generally rank poorly.63 As the Cook Islands is not a World Bank member, it is not covered. Obtaining indicators of the costs of doing business along the lines of the World Bank database would be useful for verifying the observation of a favorable environment in the Cook Islands.64

New To strengthen the enabling environment further, the commercial Government intends to introduce additional commerce- legislation is oriented legislation, including the (i) Consumers Guarantee planned Act, covering the sale and supply of goods and services;

63 These are the Fiji Islands, Kiribati, Federated States of Micronesia, Palau, Papua New Guinea, Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, and Vanuatu. The database (available at www.doingbusiness. org) covers the topics of starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business. 64 The Pacific Islands Forum Secretariat has commenced such an exercise, and indicators for all member economies including the Cook Islands should be available in 2007. Chapter 5: Private Sector Development 75

(ii) Fair Trading Act, establishing the Office of Consumer Commissioner to protect consumers from unfair trading practices; and (iii) Small Claims Tribunal Act forming a small claims tribunal. By providing low-cost dispute resolution and clearer rules of appropriate behavior, this suite of legislation may strengthen consumer protection and help avoid the large backlog of commercial matters in the courts, which is currently being addressed by introducing more sittings that are frequent.

In practice, the effectiveness of these initiatives will depend on the necessary financial and personnel resources being in place for monitoring and enforcement. Legislation already in place to deal with such marketing behavior as pricing, receives little financial support. Because of this, it falls short of its objectives. Partial implementation has its downside (as discussed below); adding to the regulatory task without adequately funding it would have a downside.

The Government is also considering introducing a A commerce commerce act to establish a commerce commission aimed commission at safeguarding competition. The latest version of the is proposed, bill (May 2004) is a comprehensive piece of legislation but it would that mirrors similar pro-competitive legislation in New exceed Zealand and Australia.65 It establishes competition rules to domestic (i) outlaw restrictive trade practices resulting in a substantially supervisory lessening of competition, as well as the illegal use of market capacity and power; (ii) govern mergers and acquisitions, price controls, do more harm and authorizations and clearances; (iii) improve access than good to “services, facilities, infrastructure, and networks;” and (iv) provide legal, civil, and criminal remedies.

While such an agency would be at home in a highly developed economy, its practicability and effectiveness in a very small country like the Cook Islands is questionable.

65 An earlier version of the legislation, dated May 2002, is less ambitious and preferred by the Cook Islands Chamber of Commerce (CICC). It suffers, however, from the same practical drawbacks and this would substantially exceed domestic capacities for implementation and enforcement. 76 Cook Islands 2008 Social and Economic Report—Equity in Development

This is mainly because the business environment is neither sophisticated nor complex, and the country has very few people with the economic and legal skills needed to correctly interpret and apply such legislation and to staff the commerce commission competently. Overseas experience confirms that such commissions are very costly to operate and can generate substantial legal cases and judgments, which not only require access to highly skilled individuals but are often costly to businesses, government, and the community. They can also produce outcomes that—even if legally justifiable, and despite best intentions—may not always make economic sense and can therefore actually erode community welfare.

Such legislation as proposed, if applied ineffectively or incorrectly, may end up harming rather than enhancing competition. It may unnecessarily raise transaction costs in the economy and this can be used by well-resourced businesses, notably well-established operators, to stymie competition. While effective pro-competitive legislation can contribute to competitive markets, its role is very much secondary to maintaining open and contestable markets. This is best achieved by minimizing government regulation, which is a relatively low-cost, low-risk approach to safeguarding competition. The proposed sophisticated legislation should be a low priority for the Cook Islands.

An enhanced A more practical and useful alternative to creating a ombudsman commerce commission may be to consider strengthening may suffice the role and effectiveness of the ombudsman in commercial matters, such as monitoring and policing complaints on restrictive trade practices.

The Ministry of Internal Affairs sets maximum wholesale and retail prices on a wide range of basic food and household items, under the Control of Prices Act 1966.66

66 Commodities covered include corned beef and mutton, mackerel and sardines in natural oil and tomato sauce, rice, flour, spaghetti, baked beans, tinned stew, coffee, milo, cocoa, tea, milk, sugar, cabin bread, cream crackers, butter, eggs, sea-freighted vegetables, cooking oil, baking powder, washing powder, soap, and matches. Chapter 5: Private Sector Development 77

Wholesalers and/or retailers (often one and the same) are required to submit prices for approval per shipment— detailing importation, freight, and other costs—as pre determined wholesale and retail margins are allowed on these items. The Government approves the list of controlled items. The labor union in particular is calling for it to be extended to include new products, e.g., frozen foods, noodles, and toilet paper.

The competitiveness of the wholesale and retail food Price controls sector in the Cook Islands renders such price controls have largely generally unnecessary, and their coverage certainly should not outlived their be expanded. Despite their intuitive appeal, price controls usefulness, may inhibit competition and price discounting on these as enhanced items. Setting controlled prices at the theoretical optimum is competition very difficult. If they are set too low, retailers and wholesalers is a better will be discouraged from selling items and/or they will need alternative to be cross-subsidized by placing higher prices on other food items. Price controls can act as price leaders and encourage a general understanding among sellers not to sell below the set price. There are indications of this problem, as retailers and wholesalers seem generally to sell at maximum prices, though more variability would normally be observed in a competitive situation. Very little funding is provided for implementing the act, and it is probably inevitable that controlled prices are either too high or too low.

Competitive markets constrain prices and ensure that consumers get the lowest possible prices by compressing average wholesale and retail margins, as well as ensure the best trade-off between quality and price. These competitive pressures would apply almost universally in Rarotonga. They can also be expected to apply generally in the outer islands given the variety of retailers in operation or the ability to buy directly or through relatives from retailers in Rarotonga or overseas. Overseas experience shows that removing price controls usually encourages price discounting because it mobilizes competitive forces. 78 Cook Islands 2008 Social and Economic Report—Equity in Development

5.2 Managing Foreign Investment

Foreign Foreign direct investment (FDI) has played a vital role in investment recent growth and development. Given the Cook Islands’ has been vital very small savings base, FDI is an essential source of funding for the investment needed for development. FDI has mainly reflected its close links to New Zealand and, to a lesser extent, Australia, the origins of a number of successful private sector participants who have since become permanent residents. A number of Cook Islanders returning to establish their businesses has complemented this. Attracting FDI to kick- start the economy was a high priority of economic reform and a highly successful initiative.

DIB has The Development Investment Board (DIB) administers played an the Development Investment Act in fiscal year (FY) 1996, important which governs all foreign investment, and an Investment role Code passed in 2003. The act contains general regulations and the requirements to be met to establish new enterprises. DIB must approve and register all foreign investment projects with 33.3% or more overseas equity, including investment in other projects by approved foreign investors.67 DIB is financed from the budget with a current expenditure of about NZ$500,000, including investment promotion and marketing.

DIB attempts to provide a complete service to investors. Once investment is approved, the immigration service automatically issues entry, residency, and work permits for the foreign investor and expatriate staff for a maximum of 3 years (then renewable). Tax holidays for both domestic and foreign investors ceased some 5 years ago. While investors may import capital equipment and raw materials free of

67 Development Investment Board (DIB) approval is granted with binding conditions that prevent foreign investors from engaging in other commercial activities without approval, which requires DIB approval to vary their foreign enterprise registration. Foreign investors may exceed approved investment limits, provided the original proposal is unaltered. A joint venture project that commenced as a local investment but which subsequently exceeds the 33.3% foreign equity threshold needs DIB approval. Chapter 5: Private Sector Development 79

tariff, this incentive is largely redundant following the recent removal of tariffs on most products except motor vehicles.

The investment legislation provides that Cook FDI faces a Islanders be given priority and reserves a potentially wide seemingly range of activities for them. At first sight, this list appears restrictive overly restrictive.68 However, foreigners are allowed to reserve list purchase existing businesses in reserved activities where (i) the owner has unsuccessfully tried to sell to a local investor at a realistic commercial price; (ii) demonstrable demand for that activity exists but no Cook Islander is currently carrying on that business or has the resources to carry out the specific project, e.g., specialized construction; (iii) there is foreign capital investment of at least NZ$1 million in Rarotonga or NZ$500,000 elsewhere; or (iv) investment is to develop a niche market. Joint ventures with local investors are also encouraged, including in reserved activities where the share of local ownership is a factor considered in deciding whether to grant approval. Equity shares are left to the parties to determine, and full foreign ownership is allowed. FDI in reserved activities is also permitted if the proposed project would generate a demonstrable net economic contribution to the country such as local employment, the transfer of new skills and technology, capital injection, export earnings, import substitution, trade generation, tax revenues, and the promotion of value-added processing of domestic raw

68 Reserved investment areas are commercial agriculture or food production, pearl farming, commercial aquaculture or harvesting of pearl shell, shellfish, or other reef or lagoon products, commercial fishing, fresh fish processing or exporting, and fish bait production; food processing, including freezing and drying, and bottling of drinks; screen printing; garment manufacture; making traditional handicrafts, recordings of cultural performances, and jewelry; visitor accommodation; motor vehicle rentals; diving operations; water-sport operations; tourist tours or transfers; ecotourism; cinemas; cultural attractions; bakeries or pastry shops; grocery retail outlets (including sundry stores, superettes, and supermarkets); motor vehicle dealers; restaurants, cafés, or other operations for food preparation and sale; sale of computers; trucking and cartage operations; taverns or public bars; duty-free shops; laundry or dry-cleaning; Internet cafés; audio or video production, sale, or hire; and hairdressing salons, beauty parlors, and health spas. 80 Cook Islands 2008 Social and Economic Report—Equity in Development

materials. Priority foreign and domestic investment areas are agriculture, marine resources, and tourism. While foreigners wishing to sell a business must first try to sell it to a local investor, this does not seem to have deterred FDI. DIB has until now applied the legislation liberally in line with the Government’s post-reform priority of attracting foreign investment.

The The Investment Code is complex and potentially Investment restrictive, providing broad discretion to DIB to approve Code could FDI using largely opaque processes. The Investment Code be more would be improved if it were simplified, DIB discretion were transparent reduced, and the expansive reserve list were more clearly defined and, preferably, narrowed. It could provide for varying maximum foreign equity limits for certain activities, if thought desirable, but should make all other FDI subject to monitoring rather than approval. Although not a World Bank member, the Cook Islands may wish to have the Foreign Investment Advisory Service review and advice on its investment rules and procedures, including the revised 2006 Investment Code, to help refine the legislation.

A proposed Although FDI has successfully promoted growth, revision of the resistance to FDI appears to be rising. There is greater interest Investment in providing local investors more opportunity to participate Code is very in development. Based on public submissions, DIB has restrictive, and prepared but not released revisions to the Investment Code changes must that aim to tighten FDI restrictions.69 Future investment be managed policy is to focus on Cook Islanders taking the lead in business carefully development, especially in reserved activities.70 It proposes giving Cook Islanders priority in investment and business ownership, and requiring FDI to contribute to the country’s economic development. Joint ventures are to be encouraged. It

69 DIB. 2006. Trade in Goods and Services for the Proposed EPA. PowerPoint presentation by Terry Rangi. September. 70 Category 1 reserved areas are activities to be kept exclusively for Cook Islanders, such as pearl farming and budget accommodation. Category 2 activities are reserved for Cook Islanders but subject to exceptions, such as hotel accommodation and grocery retailing. Chapter 5: Private Sector Development 81

is proposed that any foreign shareholding would require DIB approval, thereby scrapping the 33.3% minimum threshold for FDI approval, and approved foreign enterprises could not be sold within 5 years. FDI proposals would also need to be better structured to cover niche areas not covered by Cook Islanders.

While attitudes turning against FDI are somewhat Changes must understandable, care is needed to ensure that they do not be managed translate into an overly restrictive FDI regime. This would carefully be especially worrying at a time when FDI may be falling for other reasons, such as the declining competitiveness of the economy. FDI remains essential for growth and development. Foreign and domestic investment are really complements— not substitutes—so that curbing FDI may well end up restricting domestic investment, thereby reducing total investment at the expense of growth and job opportunities. It may also adversely affect employee conditions, as foreign investors now pay higher wages than domestic enterprises.

Restricting FDI would also reduce competition in Restricting the economy, including in tourism and related services, FDI would be which would be counterproductive from a national welfare anticompetitive perspective. Calls to limit FDI should thus be viewed cautiously. While many calls may be based on the best of intentions and reflect genuine concerns that foreigners are displacing local investors and taking over the economy, these concerns may be exaggerated out of simple self-interest. It is in the interests of incumbents, including foreign investors already established in the Cook Islands, to argue for greater FDI restrictions as this would reduce competition and market contestability.

Moreover, that foreigners can only lease land in the The land lease Cook Islands, not own it, is a safeguard against foreign system works ownership that should not be overlooked.71 Foreigners can reasonably well for FDI

71 Curbing FDI also reduces demand for leasehold land, thereby not only reducing opportunities for Cook Islanders to lease land at higher prices to foreign investors, but lowering lease returns from domestic transfers as well. 82 Cook Islands 2008 Social and Economic Report—Equity in Development

lease land for up to 60 years. Joint ventures with foreign investors are common, especially in tourism, whereby the local investor frequently provides the land. Although not as flexible or as good as freehold property from a foreign investor’s point of view, or as bank collateral, leasehold transfers have worked well and have not greatly deterred investment, including FDI.

The legal system for land leases works reasonably well. It is administered by the Lease Approval Tribunal, which is staffed by experienced magistrates from the New Zealand Maori Land Council and follows its procedures covering leasehold transfers. While, on expiration of the lease, the land reverts to the owner, leases are usually renegotiated and extended, though renewal is usually for 30 years, not 60.72 Cook Islanders seem to have quickly adapted to commercial signals and have increased returns from leasing land to investors.73 Many landowners now live offshore. Commercial lease payments usually comprise a lump sum up-front, an annual rental payment, plus a share of gross receipts (normally 1.5% but sometimes higher). Efforts are underway to reduce the lease period from 60 to the 25–30 years that apply in New Zealand.

The Unit Title Largely to facilitate the revival of the failed Vaimaanga Act, passed in tourist facility by a local investor living in New Zealand, the 2005, should Unit Title Act was passed in 2005 to enable strata titling facilitate FDI of block apartments or units. This should facilitate FDI in in real estate real estate by allowing overseas residents to buy apartments as investments or holiday homes. It may also encourage residential investment of a speculative nature, and any adverse impacts from such speculation should be monitored.

72 Major land users, such as resorts, therefore frequently renegotiate to extend the lease period well before expiration to obtain security of tenure. Leased land is also subject to succession (inheritance) rights. 73 When selling property, the vendor can assign the lease on sale or sell with a sublease arrangement whereby the impending owner negotiates new lease arrangements with the landowner. Chapter 5: Private Sector Development 83

5.3 Maintaining Competitiveness

Maintaining competitiveness is essential for the Cook Islands’ Competition, continued prosperity. The economy’s competitiveness competitive- is determined by its cost structures. If these become too ness, and high relative to its trading partners, it adversely impacts growth are the economy’s performance, especially since it is heavily intertwined orientated outward toward dependence on tourism. Though consumed locally by foreign visitors, tourism services are usefully viewed as exports that are particularly sensitive to the country’s international competitiveness. Maintaining tourism demand requires competitive input and output markets to ensure that resources are used efficiently and costs are minimized. This is especially so in the Cook Islands and other small, isolated economies, which have inherently high-cost structures.74 Inefficiency caused by government intervention would only compound these cost pressures.

Countries with their own currency may be able to The Cook withstand the adverse impact of rising costs on international Islands, using competitiveness through real depreciation of their currency NZ dollars, (whereby the nominal exchange rate depreciates sufficiently lacks an to offset inflation and higher domestic prices relative to exchange-rate major trading partners). Because the Cook Islands uses the mechanism NZ dollar, it has no exchange rate mechanism with which to maintain to offset any increase in its cost structure and so maintain its international international competitiveness. Thus, domestic cost escalation competitive- is transmitted directly onto exports, including tourism. ness.

Moreover, the Cook Islands is exposed to the risk of the NZ dollar appreciating, which would be dictated by New Zealand’s competitiveness and economic performance, independent of developments in the Cook Islands. The Cook Islands must therefore stay sufficiently flexible to be able to contain its costs and so maintain international competitiveness even in the face of a currency appreciation.

74 Winters, Pedro, and Martins. 2004. 84 Cook Islands 2008 Social and Economic Report—Equity in Development

Competitive- Recent exchange rate movements of the NZ dollar ness is now may have reduced the Cook Islands’ international challenged by competitiveness.75 The NZ dollar, buoyed by foreign invest an appreciating ment and export earnings, has appreciated substantially. As NZ dollar, and of March 2008, the real effective NZ dollar exchange rate tourism may was 17% above its 20-year average.76 be especially sensitive The exchange rate directly affects the tourism sector. An appreciating NZ dollar will tend to make the Cook Islands more expensive for tourists relative to other destinations. For example, the appreciation of the NZ dollar against the Unites States (US) dollar may be one factor behind the recent decline in visitors from the US and difficulty achieving the preferred air link to Los Angeles. The appreciation of the NZ dollar may also affect the Cook Islands’ attractiveness as a holiday destination for New Zealanders, as it will improve the competitiveness of overseas holiday destinations elsewhere. A real appreciation in NZ dollar will also encourage resources in the Cook Islands to leave export activities (e.g., tourism) and move into non-tradable services.

Tourism Although the tourism industry has expanded competitive- impressively, its future is uncertain. Whether it continues ness is vital to to grow, at what pace, and whether the eventual landing is the economy soft or hard, will depend largely on its capacity to remain internationally competitive. Global tourism can be volatile, as visitors constantly seek new destinations and different lifestyle experiences. Competition for tourists has increased, including from such destinations within the region as the Fiji Islands, Samoa, and Vanuatu, which have a significant competitive advantage in terms of lower wages. Although political uncertainties in the Fiji Islands have benefited the Cook Islands by diverting international tourists, this

75 Note that the high dependency of the Cook Islands on imports means that any loss in international competitiveness resulting from the real appreciation of the NZ dollar would have been cushioned by the corresponding reduction in import prices. 76 International Monetary Fund. 2006, p. 6. Chapter 5: Private Sector Development 85

advantage may be short lived. Like other regional economies that have tourism potential, the Cook Islands must manage costs carefully.77

Rising costs are inevitable as industry expansion fuels the bidding up of land, labor, and capital costs. Some costs will inevitably have to be passed on to tourists through higher prices. However, the competitiveness of the international tourism market severely limits the extent to which this can be done. While the Cook Islands has substantial natural beauty and is a wonderful holiday destination, it does not have a monopoly on these assets, either within the region or beyond. Thus, if costs were to escalate too much, the tourism sector may end up pricing itself out of the market. Cost pressures therefore need to be contained as much as possible to retain international competitiveness. While good tourism promotion may be able to compensate to some degree for adverse movements in international competitiveness in the short run, this is far more difficult in the longer term.

While total arrivals have grown on average by almost A falling long- 5% annually over 2000–2005 and by 6% in 2005, their haul share composition has changed substantially toward short-haul may indicate tourists from New Zealand. The share of these tourists emerging during this period expanded from 27.4% to 48.8%, while problems the other main short-haul source, Australia, saw a decline from 15.1% to 11.3%. In the same period, long-haul tourists from Canada, Europe, and the US, each declined in absolute numbers and their combined share fell from 45.2% to 24.6%. The share of Europeans, the second largest group behind New Zealanders, fell from 29.4% to 18.2%. In FY2006, although all visitor arrivals rose by 5.5% to almost 90,000 and those from New Zealand increased by 18.4%, other markets declined by 7.5%. This is a worrying trend, as the long-haul tourists tend to spend more and stay longer. While this shift has undoubtedly many reasons such as airline scheduling, it may also indicate that the

77 Footnote 72, p. 35. 86 Cook Islands 2008 Social and Economic Report—Equity in Development

Cook Islands is facing difficulties maintaining international competitiveness. If this is the case, and if it continues, it may eventually affect New Zealand numbers.

Poor air links Air New Zealand is the only international airline to the US are regularly serving the Cook Islands.78 It ceased direct a concern flights from Los Angeles to Rarotonga some years ago, and the service was later provided via Tahiti. Previously, there was a direct flight from Canada and the Hawaii- based carrier Aloha Airlines started flying to Rarotonga in 2005, but since then both operations ceased. The direct flight between Rarotonga and Los Angeles was reintroduced in March 2007 with Cook Islands providing a financial guarantee to Air New Zealand for the viability of the route. Statistics for 2007 showed that there had been no marked increase in tourist arrivals, therefore the Government intends to continue its arrangement with Air New Zealand.

Limited The Government-funded Cook Islands Tourist international Corporation needs to address these issues, understand, and air schedules communicate the reasons for them. Perhaps the country’s probably comparative advantage has drifted from long-haul flights. reflect Alternatively, Americans have decided to stay closer to sustainability home. It is important to understand the message on market fundamentals fundamentals provided by these recent trends, rather than see international air schedules as the sole explanation. It is a reasonable assumption that routes will be flown if they are commercially viable and, if they are not flown, there are good reasons why not. Paying financial incentives to induce Air New Zealand to resume direct Los Angeles–Rarotonga– Auckland flights to offset its losses on the route should not be contemplated. Such subsidies are unlikely effective and could end up being very costly per additional tourist arrival.

78 Pacific Blue provides flights from Brisbane, Australia to Rarotonga via New Zealand. Chapter 5: Private Sector Development 87

As long as New Zealand visitors expand sufficiently to Increasing offset falling numbers from elsewhere, tourism growth will reliance on continue. However, becoming too dependent on tourists Kiwi tourists from one country creates vulnerability to a contracting market may raise should the New Zealand economy falter. Effective tourism vulnerability marketing and promotion may help sustain development, and the Tourism Master Plan, recently updated for 2005– 2015, suggests geotourism as the new focus of promotion.

Farming black pearls, concentrated in the island of Pearl farming Manihiki (population 500–600) has lost international faces cost competitiveness. After peaking in 2000 at NZ$18.4 million, pressures exports had dropped to NZ$1.6 million by 2005, and the and a difficult former Cook Islands Development Bank, which had directed future funds into the industry, suffered large losses from bad debts. The number of farmers has fallen from 110 to around 50.

The industry’s contraction reflects mismanagement and declining competitiveness accentuated by NZ dollar appreciation. Issuing too many pearl-farming licenses (originally 202) led to overstocking of pearl shells well above the recommended 4,000 shells per hectare and resulting ecological problems in the lagoon.79 Tahiti’s flooding the market with low-cost pearls has also lowered world prices when the Cook Islands was losing international competitiveness from the appreciating NZ dollar and the People’s Republic of China began the large-scale production of freshwater pearls.

In an effort to revive the pearl industry, which is domestically owned almost totally, the Government has recently established the Pearl Authority. However, it is difficult to see the pearl industry recovering quickly without improving its competitiveness. Perhaps, the best immediate option is to develop domestic sales to tourists further.

79 Permits continue to be issued for 5 years at a cost of NZ$20 per hectare, which encourages overstocking. 88 Cook Islands 2008 Social and Economic Report—Equity in Development

Efforts were Fishing licenses for distant-water fleets were terminated made to favor in 2000 to encourage domestic fishing, and only boats the local owned by Cook Islanders can be licensed (though an fishers, but unlimited number of licenses are available). Each licensee they have may commercially charter up to three foreign boats (usually fallen short of US boats from Palau) to fish in domestic waters. They expectations must unload in the Cook Islands, with transshipment at sea prohibited. Netting by the purse-seining technique is prohibited.

These efforts to support the local fishing industry have fallen short of expectations, and the fishing industry has contracted sharply in recent years. Exports fell from NZ$8.3 million in 2003 to NZ$3.4 million in 2005. As well as competitiveness problems, accentuated by exchange rate appreciation, fish stocks have been depleted. The number of boats has dropped to around 30. The fishing fleet now consists of larger freezer boats operating in the north that mainly sell tuna to the American Samoan cannery. Southern boats, including those from Rarotonga, operate fresh fish boats that sell locally, though a few loin fish at sea for freezing.

5.4 Factors Affecting Competitiveness

Structural Many factors determine a country’s cost structure and hence reforms its international competitiveness. Ensuring competitive improve domestic markets for inputs (including labor) and outputs competitive- so that markets allocate resources to their most efficient uses ness is important for minimizing costs. Microeconomic reforms to improve market efficiency and competitiveness are usually called structural reforms. They cover a wide range of policies designed to remove impediments to market efficiency. Of course, sound macroeconomic policies and political stability are also fundamental to a well-functioning and competitive economy. Chapter 5: Private Sector Development 89

An open trade regime is paramount. Evidence demon- Trade strates that trade liberalization improves resource-use liberalization efficiency and promotes growth. Open economies consis promotes tently outperform closed ones. Sheltering domestic indus growth tries from foreign competition through tariffs and other import restrictions encourages inefficient industries and creates an economy with high costs and low international competitiveness. Trade barriers penalize efficient industries, which often produce exports, through higher input prices, as well as force up consumer prices.

Understanding the economic proposition that import Import barriers are a tax on exports is vital to accepting the need barriers to reduce protection to promote exports. This point can be (tariffs) tax made in several ways: exports

 Tariffs and import barriers raise production costs (e.g., the costs of inputs and machinery), and exporters such as tourism operators cannot pass on these costs in international markets.

 What a country gains from trade is the ability to import the things it wants. If imports are the rewards for exporting (which finances their purchase), import barriers that reduce these rewards must also reduce the rewards for exporting.

 Protecting import-substitution industries attracts labor and capital resources into these assisted sectors from less-assisted export activities, which causes them to contract.

 Trade taxes prevent countries from specializing in what they can produce relatively easily and importing what that they have difficulty producing.

Thus, providing easy access to imports is an engine to promote exports, including tourism services. 90 Cook Islands 2008 Social and Economic Report—Equity in Development

Tariffs are Tariffs are often used to raise government revenue. a bad way However, despite their simplicity and superficial attraction, to raise tariffs are an inefficient and economically costly tax. They revenues distort production patterns and the efficiency of resource use by discriminating against imports and favoring domestic producers, and by penalizing exporters. Far less-distorting revenue measures are available. For example, excise taxes on consumer goods tax local and imported items equally, and therefore, do not offer the protection provided by tariffs.

While many The Government eliminated tariffs on most products tariffs have from 1 July 2006, citing its commitments under the Pacific been reduced, Island Countries Trade Agreement to remove most tariffs protective by 2013. This reduced the Government’s collection from tariffs consumers and downstream processors of imports by some retained NZ$6 million annually. However, protective tariffs were retained, especially on a number of agricultural products. These included tariffs of (i) 50% on fresh, chilled, or frozen pig meat and edible offal, including that of pigs; (ii) 10% on all vegetables (25% on beans); (iii) 10% on manioc, taro, and similar tubers; (iv) 10% on nuts; (v) 75% on fresh coconuts and 10% on desiccated coconut; (vi) 10% on dried or fresh fruits, but 75% on fresh or dried bananas, dried pineapples, fresh papaws, and fresh or dried citrus fruit other than oranges, mandarins, lemons, limes, or grapefruit. Imports of eggs by sea are dutiable at a tariff of 50% but duty free if imported by air. Eggs and pig meats are tariff free if not imported into Rarotonga. Tariffs were also retained on pearls (ranging from 10–100%), bottled water (10%), and soft drinks (40%). In effect, many damaging elements of the tariff regime—the protection provided to local producers— were retained.

Trade Since the Cook Islands lost preferential access to protection is New Zealand, agriculture exports have contracted, as has not a good the sector generally. Given the country’s size and land- policy availability limits, its agricultural future is to service the domestic market, catering especially for resort and restaurant Chapter 5: Private Sector Development 91

requirements for fresh fruits, vegetables, and such livestock products as poultry, eggs, and pork. Indications are that such agriculture is growing—even flourishing in some areas, such as in Aitutaki. Most farmers (95%) are noncommercial part-timers who rely on off-farm income.

Protection for agriculture penalizes consumers and the Support to tourism sector on which agriculture heavily depends for raise farm its survival. Moreover, it encourages economic inefficiency productivity by attracting land, labor, and capital resources from other is preferable activities, including tourism, thereby harming national welfare. Farmers already enjoy very high natural protection through high importation costs, especially for perishables. It is preferable that farm protection be replaced by targeted efforts to improve farm productivity and hence the competitiveness of the industry. For example, the Government has a key role to play in providing such public goods as agricultural research, extension, and training services, as it can be hard for private sector suppliers to emerge in these areas.

The Ministry of Agriculture no longer crowds out the private sector by supplying fertilizers or chemicals (except for cyclone relief), and now several firms supply these inputs. Seeds and fuel are supplied privately to farmers. However, the ministry still hires out some farm machinery such as tractors to farmers, which is an activity best undertaken by the private sector.

Tariffs have been retained on fuels: NZ$0.28 per liter Tariffs on fuel on petrol, NZ$0.22 per liter on diesel, 25% on aviation fuel, add to the 20% on lubricating oils and greases, and 10% on most other Cook Islands‘ fuels. While governments almost universally tax petroleum remoteness products as a substantial revenue source, such taxes impose distortions by taxing producers, including exporters, using fuels as inputs. This can be particularly important for the Cook Islands, with its remoteness and high transport costs. These tariffs should be minimized subject to revenue considerations. 92 Cook Islands 2008 Social and Economic Report—Equity in Development

Tariffs on Like taxes on petroleum products, motor vehicle tariffs vehicles tax producers. This is the case where they are used as inputs, benefit the such as in the transport of goods or passengers, or as rentals, rich or taxis. High tariffs on used vehicles are a substantial impost on businesses, including tourism-related ones that use them as inputs. Business investors, including foreigners, may apply to DIB to import vehicles tariff free, but this is available only for initial purchases or fleet expansion, not for vehicle replacement. Tariffs on buses, cars, and trucks are generally zero for new vehicles but then increase substantially for older vehicles and secondhand cars with large engines. The rates are complex, high, and structured to encourage the purchase of new or almost new vehicles and, in the case of cars, those with small engines. For example, used cars with an engine capacity below 1,000 cubic centimeters (cc) attract a tariff of 40% or NZ$2,000, whichever is lower. The tariff rises to 100% or NZ$4,000, whichever is lower, if the car is 10 years old or older.

Environmental The tariffs on vehicles are seen as desirable to reduce air concerns can pollution and the problem of disposing of old cars. However, be better cars are defined as old with the fairly low age of 5 years, which targeted is much stricter than in many developed countries. Motor vehicle tariffs penalize poorer consumers and businesses who prefer to buy older vehicles. They tend to benefit instead the richest consumers and businesses, who can afford to buy new ones and then resell once the vehicles are old—with the benefit of a penalty on imported vehicles of a similar age. It would be preferable to address the environmental problem of concern directly through, for example, a levy on the disposal of used vehicles and regulations to control smoky vehicles.

Beer tariffs A mixture of specific and ad valorem tariffs applies to are largely sin products such as tobacco (e.g., NZ$162.00 per 1,000 protective cigarettes), wine (mainly NZ$4.00 per liter), spirits (either NZ$36.40 or NZ$30.30 per liter of alcohol, depending upon alcohol content), and beer. The tariffs on imported beer of normal alcoholic content (2.5% or more) of NZ$21.75 per liter of alcohol is almost thrice the excise Chapter 5: Private Sector Development 93

duty on domestically produced beer, which is NZ$0.40 per liter of beer (equivalent to about NZ$8.00 per liter of alcohol, assuming 5% alcohol content). This difference of NZ$13.75 is equivalent to a specific tariff that would be very high in ad valorem terms. While there are no domestic commercial manufacturers of tobacco products but only informal producers, the tariffs on tobacco products are protective in that there is no equivalent tax on domestic production. Tariff reform Since the remaining tariffs are relatively high and is needed selectively protect domestic production, they are likely to adversely affect production patterns and the efficiency of resource use. Tariffs on food commodities penalize tourist- related activities. They are also regressive taxes, falling disproportionately on poorer consumers, who tend to spend a higher share of their income on food. Thus, further tariff reforms should be considered. The Government has reduced tariffs on pork, fresh fruits and vegetables, and soft drinks from 1 July 2007.

Apart from tariffs, trade barriers are minimal. There Nontariff are no import licenses or quotas. The Customs Service barriers are works relatively efficiently and does not impede imports. absent Transaction value (free on board), on which tariffs are levied, is rarely questioned; where highly suspect, imports are still cleared with details referred to the treasury for audit. Tariffs must be paid before clearance. Goods are processed and cleared manually, but as operations are small, the lack of electronic clearance has not hindered imports. Pre-clearance facilities exist for reputable importers and service about half of imports. Clearance times are usually less than half a day, as a declaration lodged in the morning usually enables goods to be collected in the afternoon. Customs conducts simple risk analysis based on importer’s reputation and source of imports, with less than 5% of imports physically inspected. The Customs Service licenses customs brokers. However, most major importers (retailers) employ import clerks. Private, bonded warehouses are licensed for major importers 94 Cook Islands 2008 Social and Economic Report—Equity in Development

of tobacco and alcohol. Customs staff numbers have been reduced from 32 in the mid-1990s to 5. Consultation with the business community raised no reports of customs corruption or the need for informal or side payments. Abolishing most tariffs should further simplify customs operations by reducing the scope and incentives for tax evasion from misclassification and under-invoicing.

Taxation. An efficient business taxation system that does not impede or overly tax the private sector is an important determinant of competitiveness. This covers not only the tax rates and associated deductions, but also any compliance costs imposed on businesses.

The company Company tax rates of 20% are relatively generous. tax system However, a higher rate of 28% applies to foreign-registered is generally companies. Mainly the two Australian bank branches pay sound this rate. While in principle this is likely to be a disincentive for foreign investors, it will be the case only if the Cook Islands tax rate exceeds the bank’s home country rate, which in Australia is 30%. This is because, while the Cook Islands has no double-tax agreements, companies registered in Australia and New Zealand receive a tax credit at home for company tax paid in the Cook Islands. Thus, reducing the tax rate on Australian-registered companies would effectively shift revenue from the Cook Islands to Australia. Dividends paid to domestic shareholders are deductible to avoid double taxation. The 20% company tax rate is below the maximum personal income tax rate of 30%. This may facilitate tax avoidance by encouraging companies to retain earnings instead of paying dividends. There is no capital gains tax, and interest on bank deposits is exempt from income tax. A 15% withholding tax applies to dividends paid overseas.

Immediate deductibility of capital expenditure (including buildings) introduced in 1997 was terminated in Rarotonga from 2006 and from 2011 on other islands. Such accelerated depreciation, seemingly overly generous, may Chapter 5: Private Sector Development 95

have encouraged firms to substitute capital for labor, and hence introduced distortions into the economy.

A key aspect of the mid-1990s economic reform was VAT functions the introduction of the 12.5% value-added tax (VAT). This well with comprehensive indirect tax on goods and services is a necessary acceptable complement to direct taxes and this has lessened dependence compliance on tariffs. In FY2006, VAT contributed some 40% of total costs tax revenue. Modeled on the New Zealand equivalent, it appears to work relatively smoothly. The system of tax credits and refunds seems to work well, and exports are zero rated. Compliance costs on business do not seem excessive, even for small enterprises.

VAT is also levied uniformly on imports and correctly based on the landed-duty-paid price. Collection seems to work smoothly. A system deferring payment for 1 month exists for approved importing companies, of which there are currently about 110. This is an open list, and any importer is eligible.

Since food, tourism, and restaurant services incur VAT, a large share of government receipts come from tourists. VAT is also levied on offshore financial services.80 The industry believes this disadvantages itself relative to major overseas competitors, such as the British Virgin Islands, Samoa, and Vanuatu, which follow the convention of zero-rating such transactions for VAT because services are exported to overseas clients. The industry has contracted substantially in recent years. This matter should be reviewed to assess the extent of any such disadvantage and if it is justified. The Government reduced company registration fees from NZ$500 to NZ$300 in May 2006 to support the industry.

80 The offshore financial services industry comprises six trustee companies, most being branches of offshore firms. The industry mainly operates asset- protection trusts for American and European clients. Until February 2005, the Cook Islands was on the Financial Action Task Force’s list of noncooperative countries and territories. It was removed from this list, subject to monitoring until July 2006, following the adoption of antimoney-laundering legislation and improved supervision by the Financial Services Commission. 96 Cook Islands 2008 Social and Economic Report—Equity in Development

The labor Labor Market. Labor market flexibility to provide market is for competitive wage rates and employment-related costs flexible, but is essential to maintaining international competitiveness. labor costs This is particularly important for the Cook Islands in that are high, it has no exchange rate mechanism with which to improve and a labor competitiveness and so may depend to an unusually high shortage has degree on real wage flexibility to offset any loss of international emerged competitiveness. The labor market seems flexible, with wages, including overtime and working conditions, set by supply and demand and largely negotiated between employee and employer. The minimum wage, recently raised from NZ$4– 5 per hour, is generally below hourly rates paid in Rarotonga and Aitutaki even for unskilled workers. Employment oncosts are acceptable, and employers may dismiss poorly performing employees relatively easy.

The Cook Islands has, by far, the highest wages of any independent Pacific island country. Average minimum salaries are said to be NZ$7 per hour, with higher rates of NZ$8–9 per hour common in the tourism sector. However, these relatively high wages seem to have been matched so far by labor productivity. Cook Islanders are generally well educated, and many have been trained overseas. Thus, higher wage rates have been sustainable without undermining international competitiveness.

The labor market has become increasingly tight, and this has supported wage growth. The tighter conditions are due to a continuing decline in the number of residents, rising demand, a shortage of trained workers, and—according to some employers—the reluctance by Cook Islanders in general to take unskilled jobs such as in tourism. Cook Islanders living in New Zealand and Australia have been unwilling to return and leave behind their better and improving job prospects and opportunities there. Even the unemployed can be reluctant to return and give up their entitlement to relatively high welfare payments. Chapter 5: Private Sector Development 97

While higher domestic wages benefit existing employees Rising wages in terms of their take-home pay, a possible downside is that could be wage increases may outstrip productivity improvements and damaging result in declining competitiveness. This is especially so for the labor-intensive tourism sector, which could jeopardize the sector’s growth, thereby reducing labor demand and job opportunities and encouraging employers to shed workers to retain competitiveness. It could also encourage a shift to foreign workers who would be prepared to work for lower wages than are Cook Islanders.

In a small tight labor market dominated by tourism, higher wages in the industry could quickly flow through to higher wages in other private sector activities. This is akin to the “Dutch disease,” in which a major exporting sector provides windfall revenues and crowds out other activities by attracting labor and capital and bidding up wages and interest rates. Developments in tourism are therefore of concern for the whole economy and not just for the industry itself. It is important that wage pressures be managed with the full range of potential consequences in mind.

Although the competitiveness of tourism and related Foreign services is affected by many costs, wage rates and employment workers help conditions have a major bearing on these industries due to maintain their labor intensity and need to operate outside normal competitive- working hours. Faced with labor shortages and rising wages, ness the tourism sector in particular has turned to employing foreign workers, especially Fijians and Filipinos. This has helped keep labor costs affordable.

The temporary employment of foreign workers is facilitated by immigration rules. Foreigners with entry and residence permits for over 6 months may obtain work permits if employers can demonstrate they have advertised unsuccessfully for Cook Islanders and that none are available with the requisite skills or qualifications. Indications are that these requirements are not restricting foreign employment. Employers may recruit expatriate workers from overseas 98 Cook Islands 2008 Social and Economic Report—Equity in Development

under these arrangements if the employer agrees to meet repatriation expenses for the employee (and family) and identifies a local counterpart to work with the expatriate as a trainee. Such entry and residence permits are initially issued for a maximum of 1 year but can be extended with 2- year renewals. Foreign workers dismissed by their sponsored employer may, in principle, be employed by another employer, subject to meeting the same requirements, In practice, however, this is unusual. Tourists on visitors’ permits, which are generally extendable up to 6 months, may work in the hospitality industry if the employer has been unable to find a suitable Cook Islander. DIB-approved foreign investors are granted entry, residence, and work permits of up to 3 years for expatriate staff, which are renewable.

Tighter As with FDI, opposition to foreign workers is rising, restrictions on with some calling for greater restrictions. This primarily foreign labor reflects intentions to create greater job opportunities for could slow locals, as well as social concerns about the country’s changing growth population composition, as Cook Islanders emigrate to New Zealand and Australia under open entry and work arrangements. However, in an increasingly tight labor market, restricting foreign workers is likely to accentuate shortages and wage increases, thereby adding substantially to domestic cost pressures in tourism and other labor-intensive industries, including most services. This could jeopardize the Cook Islands’ international competitiveness and growth prospects. A constitutional limit holds the number of foreign nationals with permanent residency to 500, and demand substantially exceeds the 60 or so remaining places.81

The Cook Islands, unlike most other Pacific island economies, is fortunate to have open access to New Zealand and Australia. This provides an important means by which

81 There are currently about 440 permanent residents. New Zealanders may apply for permanent residence after living in the Cook Islands for 1 year. For all other nationalities, the minimum period is 3 years. Permanent residents enjoy the same access to Australia and New Zealand as Cook Islanders. Chapter 5: Private Sector Development 99

Cook Islanders can improve their opportunities and welfare by choosing to live in highly developed countries. Many have taken advantage of this, with up to an estimated 70,000 living abroad, some 45,000 of them in New Zealand. Many choose to live abroad, even if at the lower end of the income scale in those countries, presumably because they feel better off than in the Cook Islands.

Giving Cook Islanders this choice, however, has social Foreign implications for the country. One is the ongoing decline in the workers are local population. Maintaining this choice almost inevitably the flipside of requires the Cook Islands to have an open immigration open access policy, including access for foreign workers, to mitigate to New some of its economic consequences. Otherwise, the country Zealand would likely depopulate more quickly, worsening the labor shortage and costs of having a very small domestic market. Seen another way, imposing immigration restrictions may reduce emigration pressure on Cook Islanders. However, denying Cook Islanders these opportunities or trying to force them to return would likely be counterproductive. The best way to get them to stay or return is to provide a sound, efficient, and competitive economy that offers business and employment opportunities, including in skilled areas. Moreover, some encouraging signs show that this approach can be successful, with anecdotal evidence suggesting that Cook Islanders have become more interested post reform in returning to start businesses.

An important aspect of a country’s flexibility and ability to minimize cost pressures is to have a mobile labor force that can relocate from islands with limited or declining job prospects to those where jobs are plentiful. The best alternative to foreign workers in Rarotonga could be outer islanders. While this again raises social issues and is complicated by the customary land tenure system, such mobility could be encouraged. One way this could be done is by providing subsidized public housing to those moving to Rarotonga but without customary land access. 100 Cook Islands 2008 Social and Economic Report—Equity in Development

Banking is Access to Credit. The competitive banking sector has competitive provided substantial credit to the private sector, thereby facilitating growth and competitiveness. Two branches of major Australian banks, Westpac and ANZ, account for over 90% of loans (Westpac is by far the larger). The third bank, the state-owned Bank of the Cook Islands (BCI), has improved operations but continues to struggle with very limited access to deposits.

Both Australian branches have borrowed overseas to supplement domestic funds to meet credit demand.82 Interest rate spreads have narrowed and at 3–4% are greatly similar to Australian levels. Commercial loans, especially in tourism and related services, represent a major share of both branches’ loan books, as do housing loans, the main area of recent growth.83 Commercial loans are short term (below 10 years) and usually secured against land (lease) collateral. The collateral and legal foreclosure processes appear to work satisfactorily and have not hampered bank lending. The share of nonperforming loans held by banks is low at less than 5%.

Banking Banking soundness is enhanced by having the two supervision foreign branches prudentially supervised by the Australian meets Prudential Regulatory Authority as well as by the Cook international Islands’ Financial Supervisory Commission, which also standards supervises BCI. Banks, including foreign branches, must be licensed by the Financial Supervisory Commission to operate in the Cook Islands to ensure prudential soundness in accordance with the Basel core principles on banking supervision. The number of licenses is not fixed, and entry into banking is open to any applicant meeting the prudential requirements.

82 This was accentuated recently by the Government’s withdrawal of NZ$13.2 million to repay an offshore debt. Total overseas borrowings are estimated at NZ$65 million, equivalent to some 50% of the money supply (M3–broader money aggregate that includes M1; M2; large time deposits; and commercial paper, liquid government monetary instruments, and others in lieu of currency). 83 Bank of the Cook Islands (BCI) has a lower share of commercial loans and a higher share of housing loans. Chapter 5: Private Sector Development 101

Interest rates in the Cook Islands mirror international trends as banks borrow offshore to supplement domestic sources of loan funds. In addition, Cook Islanders already deposit what is thought to be substantial funds in New Zealand, and if local banks fail to match offshore rates, they will lose more local savings.

BCI commenced operations in July 2001 as a merger The state of the Cook Islands Savings Bank and the Cook Islands bank is Development Bank. BCI currently operates as a retail now more commercial bank, focusing on smaller domestic investors. transparent It is free from government interference in its operations, and demonstrates good transparency and accountability. It nevertheless struggles to make a profit.

This is partly because BCI has to meet the Government’s community service obligation and provide branches in the outer islands. Maintaining these loss-making branches— except Aitutaki, where both ANZ and Westpac operate sub-branches—requires BCI to cross-subsidize them from the Rarotongan branch. The Government provided for the first time a payment of NZ$100,000 to BCI in the FY2007 budget to meet these costs in part. Funding loss- making branches through the budget rather than by cross- subsidies is likely to improve efficiency, accountability, and transparency. However, a further improvement would be to tender competitively the provision of loss-making branches in the outer islands to the three banks and to fund this cost through the budget.

Whether or not the banking market is large enough The need for a to sustain three commercial banks in the long term is state-owned uncertain. BCI’s small market share means it is unlikely to bank is impose any competitive pressure on the two major banks. doubtful Government involvement in such a commercial activity carries risk, including the potential for state favoritism and a breakdown in corporate governance. Although not a high priority, the Government may wish to consider divesting itself of BCI and using the funds to finance alternative 102 Cook Islands 2008 Social and Economic Report—Equity in Development

public investments that would contribute more to national welfare.

The two Efficient Access to Fuel. The efficiency of the fuel importer– market is likely to have a major bearing on private sector suppliers of competitiveness, given the transport intensity of the Cook fuel compete Islands. There are two fuel importer-suppliers in Rarotonga, with each each locally owned and with its own storage depot.84 The other larger one has an estimated two-thirds market share and imports diesel, petrol, and aviation fuel, which it sells to Air Rarotonga.85 Until recently, Mobil Fiji owned the storage facilities, but the operator recently purchased these under a 2-year exclusive arrangement to buy from Mobil. The other supplier has a joint venture with BP/Shell and currently supplies diesel to Te Aponga Power Authority.

Regulated Both suppliers import relatively low volumes, mainly maximum from Singapore through the Fiji Islands using small tankers. prices are Their relatively high prices seem to reflect high shipping high costs to Rarotonga and the lack of economies of scale. The Government sets maximum wholesale and retail prices for diesel and petrol using an agreed template based on the costs of buying and shipping from the Fiji Islands and including local distribution margins (wholesale and retail), based on submissions per shipment received from the major importer–supplier.

Sufficient Competition seems to negate the need for price competition regulation, which in any event may make things worse by negates the inhibiting competition and price discounting. All retailers need for price seem to sell at the maximum regulated price. Retail outlets regulation are numerous, including dedicated service stations and gas pump facilities at many corner shops. Though not

84 In 2001, Reef/Excil also started importing fuel into Aitutaki from New Zealand in 20,000-liter International Standards Organization tanks, displacing shipments from one Rarotongan supplier. Fuel is cheaper in Aitutaki than on Rarotonga. 85 A third company, Juhi that is a local joint venture with BP/Shell, supplies aviation fuel to Air New Zealand. Chapter 5: Private Sector Development 103

independent, but rather linked to the suppliers, they provide ample competition, so regulating wholesale and especially retail prices would seem to be unnecessary and undesirable.

Shipping. The Ports Authority is a statutory corpora Most port tion (Ports Authority Act FY1995) that maintains and activities are operates the port at Rarotonga and facilities at Aitutaki, provided by where the ships are unloaded at sea and the containers trans the private ported by barge to the wharf. In Rarotonga and Aitutaki, sector the authority provides marshalling services to move and store containers at the port after unloading and to load containers onto privately operated trucks for transporting from the port. It also operates one tug off Rarotonga. Stevedoring activities are conducted by the private sector except in Aitutaki. Port docking and unloading appear to work efficiently, with international ships generally unloaded within 2–3 days.86 The port in Rarotonga levies fees to recover costs (i.e., berthage, wharfage, cargo dues, marine service fees, electricity supply charges, and equipment charges).87

The authority has made a small profit in recent years in the Rarotongan port, which partly subsidizes losses at Aitutaki (NZ$300,000 in FY2008). The Government foregoes dividends from the authority in return for the authority’s financing of infrastructure and operation of the Aitutaki port. Cargo handling at Rarotonga has increased substantially and includes containerized freight, break bulk items (timber, cement, vehicles, and building materials), and bulk fuel, which is piped to the three storage depots. As only two international ships generally arrive per month, and interisland services are limited, substantial excess capacity exists at the Rarotongan port.88

86 Port efficiency was enhanced recently by the introduction of a large forklift. 87 These charges are claimed to be comparable to those of other ports in the region. 88 Fiscal year (FY) 2004 recorded 89 port arrivals by general carriers (31 international), 20 by tankers, 30 by cruise vessels, 142 by yachts, and 258 by fishing boats. 104 Cook Islands 2008 Social and Economic Report—Equity in Development

Domestic Domestic interisland shipping services do not pay shipping berth or wharf fees or cargo dues to contain the costs of is cross- these services. In FY2008, the revenue forgone amounted subsidized to NZ$113,186. Domestic shipping is therefore cross- subsidized by users of international shipping services. Domestic shipping operators also receive fuel excise free. All other government subsidies to domestic shipping were removed in 1986. Only one locally owned company that is operating two boats provides domestic shipping services to the outer islands, following the recent closure of a second company. These services run irregularly depending on demand, and improving services is a Government priority. A more efficient way of providing such services would be to contract out a specified basic shipping service on unprofitable outer island routes through competitive tender.

Entry into The Ministry of Transport must license domestic and shipping is international shipping operators. Licenses are valid for 2 generally years. License numbers are unrestricted, and requirements unrestricted, mainly cover safety. Entry is thus relatively open, which with limited is important as it makes the shipping market contestable. cabotage Domestic interisland shipping is, however, reserved generally allowed for majority-owned Cook Island companies.

International shipping companies are restricted from servicing interisland routes except for the main domestic shipping route from Rarotonga to Aitutaki. Prohibiting cabotage on other domestic routes prevents the international shipping lines that service Rarotonga from also providing domestic services, except to Aitutaki. Allowing cabotage would open up domestic routes to international shippers, likely raising competitive pressures to the benefit of outer islanders.

Two companies, Pacific Forum Line and Reef/Excil, which were licensed in 1998, currently provide international shipping services from New Zealand to Rarotonga and Chapter 5: Private Sector Development 105

Aitutaki.89 A third company recently ceased operations. Prior to 1998, only one company—the National Shipping and Chartering Line, which is a domestic consortium partly owned by the Cook Islands’ Government—provided international shipping services. Although the industry is thin, competition appears to have improved post-reform, and the markets are contestable. While shipping rates to the Cook Islands are high—NZ$5,500 per 20-foot container, or more than double the NZ$2,500 from New Zealand to Fiji—the small volume of cargo handled and the small ships and containers makes this unavoidable to some extent.90 Moreover, as the Cook Islands has few merchandise exports, there is little cargo back loading, and most containers return to New Zealand empty, further adding to unit costs.

The Ministry of Transport must approve maximum The control domestic and international cargo rates. The main criteria used of freight for approving freight rate increases are the fuel adjustment rates is and currency adjustment factors. Regulating prices based inappropriate on costs reduces incentives to lower costs and improve efficiency. Moreover, though only maximum rates are set, this likely reduces incentives for competition and, in practice, the shipping companies tend to charge maximum rates. Deregulating cargo rates, both domestic and international, would therefore enhance competition. This development is

89 The Pacific Forum Line is run on commercial terms by the South Pacific Forum and operates services between Fiji Islands, New Zealand, Rarotonga, Samoa, and Tonga; Australia and Rarotonga (via Fiji Islands or New Zealand); and from People’s Republic of China; Republic of Korea; Taipei,China; and to Rarotonga via New Zealand. Reef/Excil is a consortium of the New Zealand companies Reef Shipping Group and Ocean Link and the Cook Islands’ Excil Holdings, which is jointly owned by General Transport (a local stevedoring and transportation company) and three major retailers and wholesalers (Foodland, Meatco, and Cook Islands Trading Corporation). As such, the local companies each have a one-twelfth equity holding in Reef/Excil. It operates one ship (Southern Express) between Auckland, Rarotonga, and Aitutaki. 90 Ships entering the Rarotongan port are limited to 100 meters in length and to using 20-foot containers. Using larger ships (up to 150 meters) and containers (up to 30 foot) would reduce freight rates by as much as 25% but require substantial capital costs to expand port facilities. The feasibility and commercial viability of such an expansion would need to be assured to go ahead. 106 Cook Islands 2008 Social and Economic Report—Equity in Development

most likely to emerge on the international routes, given the presence of two operators and the potential entry of others. In the event that prices are deregulated, price monitoring could be used to gauge the effectiveness of competition and weigh the need for a more interventionist approach.

Anticompetitive While the ownership of Reef/Excil, which handles concerns in about 65% of the shipping, by several major local retailer– shipping may wholesaler–importers may raise anticompetitive concerns, be overstated these are tempered substantially by the operation of a major shipping competitor and the fact that individually, and as a group, they own a relatively small share of Reef/Excil.

Air Services. The Airports Authority is a statutory corporation responsible for administering the main airport, both international and domestic, at Rarotonga and the domestic airport at Aitutaki.91 In recent years, it has run a small cash surplus but with a significant financial loss due to large depreciation items. Its Rarotongan operations cross- subsidize losses in Aitutaki Airport of around NZ$600,000 annually. The authority’s fire station is required to service the community at an estimated cost of NZ$280,000 annually. The only government funding is the return of a proportion of the departure tax (NZ$16 out of NZ$30).

Most airport The authority maintains about 100 staff responsible for services are airport operations, such as security, fire safety, and simple contracted maintenance. Many services have been contracted out, out, but such as mowing, fencing, duty-free retailing, and certain landing maintenance work. Terminal space is leased at commercial charges are rates to Air New Zealand and the domestic carrier, Air high Rarotonga, which provide their own check-in, baggage handling, and refueling services.

Landing charges account for three-quarters of the authority’s revenue. They are the region’s highest and the

91 The Government recently decided that the Airports Authority would administer all Outer Island airports, but the framework for implementation has yet to be decided. Chapter 5: Private Sector Development 107

world’s fourth highest (e.g., NZ$1,500 per landing for a Boeing 737 and NZ$8,000 for a Boeing 747). Few aircraft movements and the lack of economies of scale seem to be the main reasons.

Entry into the airline industry, both international and Entry into domestic, is unrestricted but subject to the operator being the airline licensed as airworthy by the Ministry of Transport (Air industry Services Licensing Act 1984). Licenses are unlimited in is lightly number and are valid for 5 years. The Cook Islands adopted restricted New Zealand safety standards in 2002 (Civil Aviation Act) and, since 2003, the ministry has contracted the New Zealand Civil Aviation Authority to perform these services. Landing slots are unallocated as airline movements are few. Plenty of terminal space exists to allow new carriers to provide check-in and other auxiliary services.

The lack of cabotage restrictions means that interna tional carriers operating in the Cook Islands would be permitted to carry domestic passengers. Foreign operators are allowed to provide domestic air services on any route, making the market for domestic and international air services open and contestable.

Locally owned Air Rarotonga, which commenced Although operations in 1978, provides several daily scheduled there is only passenger, cargo, and charter services from Rarotonga to one domestic Aitutaki, and at least weekly services to seven of the outer operator, islands (Atiu, Mangaia, Manihiki, Mauke, Mitiaro, Penhryn, cabotage is and Pukapuka).92 Some 70% of passengers are tourists permitted, traveling the Rarotonga–Aitutaki route; other routes are and price claimed to be unprofitable. Domestic airfares on all routes regulation are controlled based on costs and benchmarked with fares seems of similar regional routes, and must be approved by the unwarranted Ministry of Transport.

The regulation of domestic airfares appears unwarranted; it could be anticompetitive and may deter new entrants.

92 Air charter services are also provided on demand to neighboring Pacific island countries including Niue, Samoa, Tahiti, and Tonga. 108 Cook Islands 2008 Social and Economic Report—Equity in Development

Because mainly tourists drive demand, travel is likely to be relatively price elastic, such that competitive pressures to entice tourists to fly to Aitutaki and other islands will constrain prices. Moreover, under current arrangements, passengers traveling the Rarotonga–Aitutaki route cross- subsidize unprofitable services provided by Air Rarotonga to the outer islands. A more efficient means of providing basic air services to the outer islands, once desired standards are clearly defined, would be to periodically—say, every 5 years—contract out by competitive tender their provision with a subsidy funded from the budget. This would remove the cross-subsidy, thereby reducing the fares in the Rarotonga–Aitutaki leg, with clear advantages for Aitutaki and the tourism sector generally.

Power supply Te Aponga Uira Power Authority. Te Aponga Uira is a statutory Power Authority is responsible as a statutory monopolist monopoly of for generating, transmitting, and distributing electricity in the Te Aponga Rarotonga and Aitutaki. Legislation prevents anyone else Uira Power from selling electricity, though generation for own use is Authority permitted. Power is expensive, at least partly, for lack of economies of scale and because of the need to use diesel generators. Power prices have escalated recently in line with rising world fuel prices. Technical losses are relatively high at 13% (4% on generation and 9% on distribution).

Te Aponga Te Aponga sets tariffs based on cost recovery. While must cross- the Government requires no dividend, the authority must subsidize meet community-service obligations and charge socially residential based tariffs. It does this by cross-subsidizing residential users use from commercial use by a substantial NZ$0.15 per kilowatt hour (kWh).93 All residential users, irrespective of

93 Tariffs were increased from 1 October 2006, largely for residential users. Resi- dential consumers face a 3-tier tariff structure of NZ$0.41 per kilowatt hour (kWh) for the first 60 kWh, NZ$0.61 per kWh for 61–240 kWh, and NZ$0.70 per kWh for higher usage. The previous rates were NZ$0.39, NZ$0.56, and NZ$0.65 per kWh. Tariffs for commercial users were increased from NZ$0.65 to NZ$0.66 per kWh, while for “demand” customers (larger users such as the major resorts), the tariff remained at NZ$0.54 per kwh. Because usage is based on a 30-day period, residential consumers usually pay the lower rates. Chapter 5: Private Sector Development 109

income levels, benefit from the cross-subsidy, and hence the practice assists poor households inefficiently. The size of the cross-subsidy to residential consumers places competitive pressures on Te Aponga, as major commercial users and resorts have the option of generating their own electricity. They are required by Te Aponga to install their own backup generators in case of supply problems. While adding to the costs borne by commercial users, self-generation is feasible should Te Aponga’s prices become uncompetitive. Moreover, the authority faces stiffening competition in the residential market for cooking and hot water from the solar-power systems that are already very popular and imported bottled liquefied petroleum gas, whose tariff of 10% is less than that for diesel.

By not requiring excise on diesel, the Government Government subsidizes Te Aponga’s operations by some NZ$1.6 million subsidizes Te annually (the diesel excise rate of NZ$0.22 multiplied Aponga by consumption of 7.2 million liters). In principle, all electricity users are thereby effectively cross-subsidized, but it is possible that the excise concession to Te Aponga does not reach consumers and instead it is eaten up by supply inefficiencies. Private operators wishing to self-generate electricity must pay excise on diesel, which places them at a disadvantage.

Te Aponga has cut costs and improved efficiency. Contracting Staffing has been reduced from 41 to 8, and an additional, out more efficient generator is being installed. Diesel is generation purchased and supplied by 12-month tender from one may help private fuel operator. However, extending the excise concession for self-generation—or reducing or removing the tariff on diesel and removing the tariff on imported bottled liquefied petroleum gas—would mean greater competition for Te Aponga.94 Further efficiencies may be achieved by

94 This assumes that the excise concession is itself desirable. An alternative approach would be to remove the excise concession to Te Aponga. While this may be preferable economically, it is not considered a viable option at this stage. 110 Cook Islands 2008 Social and Economic Report—Equity in Development

periodically contracting out privately, by competitive tender, generating electricity including generator maintenance. This would leave Te Aponga responsible for transmitting and distributing power, buying electricity from the private generator at the contracted price.

Removing Improving Te Aponga’s efficiency and removing cross- cross- subsidies favoring residential consumers would benefit subsidies private businesses. Power costs are a substantial input into would help most service industries, including tourism. They will always be high in the Cook Islands, and businesses must work around these costs by adopting measures to economize on electricity use. As power prices rise, the saving incentives will increase. At the same time, the economic viability of alternative energy sources such as wind power is being examined with the support of the Pacific Islands Applied Geoscience Commission (SOPAC) that is preparing a feasibility study of wind power on Rarotonga.

Telecom Cook Islands. Telecom Cook Islands (TCI), 60% owned by Telecom New Zealand, has had a telecommunications monopoly by virtue of an exclusive government joint-venture licensing arrangement.95 This authorizes TCI to be the sole provider of network services to, from, and within the Cook Islands. The first agreement was for 10 years, and the second, for 5 years, expired on 1 July 2006. The legislation creating TCI (Telecommunications Act 1989) requires it to be as profitable and efficient as comparable businesses and to exhibit and promote social responsibility in protecting community interests. Telecom charges must be approved by the Cabinet.

Government ownership of TCI has traditionally been seen as a means of generating government revenue

95 ��In 1997, the Cook Islands’ Government sold 20% of its shares in Telecom Cook Islands (TCI) to Telecom New Zealand and used the funds to purchase the physical assets of Cook Islands Telecommunications Assets, Limited, which included the former international service assets of the Cable & Wireless subsidiary. Chapter 5: Private Sector Development 111

from dividends. As a milking cow, TCI has been highly profitable, earning rates of return on equity well in excess of 50% and paying sizeable dividends to the Government (e.g., NZ$2.1 million in FY2007).96 However, while the statutory monopoly has helped profitability and dividends, this has come at the expense of local consumers, including businesses, which face high telecommunication charges and, in some areas, inferior services. International calls have been used to cross-subsidize local calls, which are time charged at NZ$0.10 per 10 minutes. Over 60% of TCI revenue is from international calls, with 65% from business customers.

The Government is now more concerned with the Government sector’s efficiency and has generated gains for the economy ownership of by lowering prices. National calls were reduced by 50% in TCI creates May 2004, and international calls have been lowered since conflicts of 2000, including a 20% cut in September 2003. Increased interest, but competition from new technologies is also lowering government telephone prices. While international callback services remain attitudes are prohibited, competition has increased from much cheaper changing voice-over-the-Internet services (e.g., Skype) since broadband was introduced. In September 2006, TCI introduced hourly caps on international calls of NZ$5 to New Zealand and NZ$10 to many other destinations, including Australia.

Telecom New Zealand reportedly offered the Cook The TCI Islands Government NZ$4 million to renew the mono- monopoly poly.97 The Government should open the telecommuni should not be cations sector to competition by letting the exclusive renewed license lapse and removing restrictions on providing competing services, such as international callback. This would promote competition and market contestability

96 It has been reported that TCI makes an annual NZ$8-million profit from just 12,000 users, equivalent to NZ$667 per user (Saarinen 2006).�� This estimate is consistent with actual dividend payments on the Government’s 40% share. 97 Saarinen. 2006. While unsubstantiated, this allegation, if true, would indicate the extent of rents (excess profits) received by Telecom New Zealand from the TCI monopoly. 112 Cook Islands 2008 Social and Economic Report—Equity in Development

by enabling new competitors such as Internet service providers.

As TCI owns the network, the amount of additional competition would depend on entrants obtaining competitive access to the network. TCI can be expected to resist increased competition strenuously. The Cook Islands Government should ensure this does happen, either using its equity and management stake or through regulatory action. One option is to establish an independent regulator to enforce an access regime through legislation, but this would probably be unworkable in the case of the Cook Islands because it would exceed enforcement capacity. The Government could instead monitor telecom charges and may consider applying some simple price regulation, such as capping TCI’s rate of return, if competition remains insufficient.

5.5 Priorities and Strategies

Maintain Fiscal Discipline and a Small Public Sector. The previous public sector section reviewed the successful turnaround of the private reforms sector and provided some suggestions where further policy reforms could stimulate ongoing growth. Mainly, continuing previous reforms is needed, such as ensuring fiscal discipline and a relatively small public sector with little or no commercial activity by government. The impressive gains to date could easily be lost if the excess spending and other inept practices of the early- to mid-1990s were allowed to creep back in. Fiscal discipline takes time to achieve but can be quickly lost if commitment wanes. In this respect, enshrining these key principles into the national planning scheme via a private sector development strategy may help provide some assurances against this happening through complacency or changing political priorities.

More could be done to contract out to the private sector through competitive tendering various internal functions of government, such as cleaning, gardening, and Chapter 5: Private Sector Development 113

repairs to roads and water facilities. This can be expected to improve efficiency and reduce costs. Currently, debt is low, allowing for fiscal expansion and appropriate spending on the infrastructure to support private sector led growth. Safeguards against re-emergences of fiscal imbalances due to assumption of excessive borrowing exist in the Ministry of Finance and Economic Management Act of 1995/1996. These, however, could be amplified were appropriately targeted policy-based rules and guidelines adopted to complement the legislation at operational level as was done in the mid-1990s through the indicators established under the Manila Agreement.

Deregulation. Among the top structural reform Remove most priorities should be to abolish controls on maximum price controls wholesale and retail prices for basic food and household commodities. A lesser reform would be to abolish price controls on retail sales and to retain wholesale price controls on only a greatly reduced list of items. Similarly, regulated maximum prices on petrol and diesel should be terminated at least for retail sales. The same applies to the regulation of domestic and international shipping cargo rates as well as of domestic air services. In these cases, temporary price monitoring could be introduced to oversee the removal of price regulation and ensure that the transition works competitively.

The expired TCI monopoly on telecoms should not be Allow renewed. Te Aponga prices should be balanced to remove competition the large cross-subsidy provided to all consumers and replace with TCI it with a more targeted system to cushion poor households from rising electricity prices. Contracting out power generation by competitive tender may also provide a long- term path to efficiency gains.

Tariff Reform. Further import tariff reforms Hasten tariff on agricultural and food items, as envisaged by the reform Government, should be accelerated. Moreover, tariffs on motor vehicles should be restructured to mitigate or 114 Cook Islands 2008 Social and Economic Report—Equity in Development

remove the penalty on importing nearly new vehicles, subject to offsetting initiatives being introduced to target environmental problems. The large protective tariff on alcoholic beverages, especially beer, should be reduced or replaced by an excise tax.

Think twice Managing FDI and Foreign Workers. FDI and foreign before workers have played important roles in the resurgence of the restricting private sector and recent economic growth. While foreign foreign investment and workers are always very sensitive socially workers and often generate strong if mixed emotions, placing greater or FDI restrictions on them may be shortsighted and could impose considerable costs by slowing economic growth.

Because of the importance of FDI for growth and development, the Government and DIB may wish to reconsider recent efforts to introduce restrictive FDI policies. One option would be to obtain advice from the Foreign Investment Advisory Service on proposed changes to the Investment Code. Data on FDI approvals indicate that FDI may already be slowing.

Any FDI Should restricting FDI become government policy, this restrictions should be done openly and transparently with minimal DIB should be discretion. It would be best done lightly by either issuing transparent a well-defined and narrow negative reserve list and/or by and nondiscre raising registration fees for foreign investors from the current tionary level of NZ$750. Improved FDI data would also help—in particular tracking actual FDI by monitoring actual FDI, rather than just FDI approvals in non-reserved areas.

Calls to substantially curb foreign workers are likely to be shortsighted and, in the longer term, impact negatively on the country’s growth prospects. Restrictions may hasten depopulation, which is happening because many Cook Islanders choose to live in New Zealand and Australia, where they judge their prospects to be brighter. This trend is almost certainly going to continue under current conditions. It may, however, be slowed or reversed if the Cook Islands Chapter 5: Private Sector Development 115

economy performs robustly and creates business, employ ment, and other opportunities to retain and attract back Cook Islanders.

Restricting access to foreign workers would involve considerable economic risks. However, if the Government decides to do so, it is important that the restrictions not be too severe. Foreign workers could be restricted by imposing a quota, which could be set at the existing level, preferably with an inbuilt annual growth factor. Any such quota should be determined transparently and set at the commencement of each year. The simplest method for allocating the quota among employers would be on a first-come, first-served basis, but this could disadvantage employers wishing to employ foreign workers toward the end of the year after the quota is filled. Rights to the quota could be issued instead by tender and be tradable and transferable. Instead of imposing a quota, the fee for work permits could be increased. However, this would have the disadvantage of curtailing mainly unskilled foreign workers and thereby discriminating against employers who need such employees.

Agree on a Private Sector Development Strategy. A well-enunciated private sector development strategy should be an integral part of the national planning framework. Such strategy should specify in broad terms the role of the private sector in national development and the policy framework to be provided by the Government.

While the private sector controls the means of An agreed production and decides how much to invest and what framework to produce, it is the Government that sets the rules and for private conditions by which business operates. Government failure sector in this role would impede the efficiency and development of development the private sector, which would be unable to maximize its is important contribution to economic growth. A good starting point for developing a private sector development strategy is therefore to develop such a framework to ensure that the respective roles of the private and public sectors are clearly defined. 116 Cook Islands 2008 Social and Economic Report—Equity in Development

Such a framework could usefully adopt the following principles:

 The private sector should be defined as the key user of domestic resources and driver of economic growth.

 Achieving and maintaining international competi tiveness should be seen as the overriding policy objective.

 The Government’s role should be that of a facilitator to ensure that an enabling environment exists for efficient private sector operation with minimal government intervention, except where necessary, such as to ensure that sensible environmental standards are set and enforced.

 The Government should not compete with the private sector but instead leave all commercial activities to it.

 Markets should be seen as the main means of allocating resources among alternative uses, and the Government should try to make markets as contestable and competitive as possible, abstaining from providing selective assistance favoring one activity or sector over another or trying to influence market outcomes by picking winners.

 Trade and investment liberalization to maximize resource-use efficiency should be seen as an integral part of the country’s development and growth strategies.

Consensus In preparing a private sector development strategy, it is builds important that the views of as many stakeholders as possible ownership but be obtained. This helps build ownership for the strategy and has its limits thereby helps implementation. Yet, consensus building has its limits. It is impossible to please all parties when developing a particular strategy, and even private sector participants are likely to have different views depending on their own Chapter 5: Private Sector Development 117

situations and vested interests. Therefore, the Government, advised by bureaucrats, must ultimately decide on an appropriate strategy and the necessary economic and other policies to implement it to maximize national welfare.

While this approach may make some worse off in Government the short term, or even in the longer term, the overall can compen gains from such reforms should outweigh the losses and sate those stimulate growth and employment. This would enable the who do not Government, through appropriate tax and welfare transfers, benefit from to better look after the unfortunate who have not directly economic benefited from growth. Initiatives could include upgrading growth services, such as education, to empower people to gain from private sector development. However, care is needed to ensure that policies aiming to redistribute the economic pie do not inadvertently shrink it, as this would be detrimental to the Cook Islands’ economy upon which all depend.

Chapter 6 Managing the Public Sector for Results

6.1 Introduction

Public sector management rests on four pieces of legislation Public sector enacted as part of the economic reform. These are the management Ministry of Finance and Economic Management (MFEM) has been Act, Public Expenditure Review Committee and Audit modernized (PERCA) Act, Public Service Act, and Cook Islands Investment Corporation (CIIC) Act (Box 6.1).

The MFEM Act provides for detailed annual statements of the Government’s financial position and its activities according to modern principles of budgeting. Updates of economic and financial conditions are also provided for. PERCA provides a safeguard against financial impropriety through its financial audits of government accounts and special-purpose reviews of the use of public funds. Heads of ministries operate under performance-based contracts which the public service commissioner oversees, who also has a role in establishing and overseeing the public service. CIIC was established with responsibility for the overall management of public enterprises and other public assets. 120 Cook Islands 2008 Social and Economic Report—Equity in Development

Box 6.1: The Pillars of Public Sector Management The MFEM Act of 1996 specifies in considerable detail the process of budget formulation, fiscal disciplines that the Government must adhere to, and information that must be made public and presented to Parliament. Most significantly, the MFEM Act requires the Government to keep operating expenses within the limits of the government’s internal revenues until debt levels are reduced and to publish statements of its economic and fiscal strategy in advance of budgets being drawn up. The PERCA Act of 1996 created an independent committee appointed by the Queen’s representative in the Executive Council (i.e., effectively the Cabinet) endowed with wide powers to review all aspects of public finance. The purpose is to ensure transparency in national and local government bodies. It also provides for the adoption of “generally accepted accounting principles” throughout the Government. The Public Service Act of 1996 defines the powers and responsibilities of the PSC and senior public sector managers. Significantly, it gives heads of ministries the power and responsibility to staff and manage their departments according to “good-employer” principles to achieve defined outputs integral to their own performance contracts. The intent is to free senior managers from undue political interference—though, for constitutional reasons, heads of ministries are appointed by the Cabinet. The CIIC Act of 1998 provides for the control and management of government assets and undertakings, subject to the specific objectives of the efficient management of assets, privatization, and a requirement to be socially responsible. CIIC = Cook Islands Investment Corporation, MFEM = Ministry of Finance and Economic Management, PERCA = Public Expenditure Review Committee and Audit, PSC = Public Service Commission.

Financial The main achievement of the modern management sys- management tem established under this suite of legislation has been has improved a substantial improvement in the quality of financial management. Internal management reports are prepared regularly; almost all expenditure is on budget; all assets and liabilities, including contingent liabilities, are identified; public disclosure of the financial position is good; audits are conducted timely, and most concerns they raise are minor; and expenditure is generally in line with approved funding. The improvements have been achieved across the public sector, including in public enterprises. In stark contrast to the situation 10 years ago, the Government now has in place one foundation of an effective and efficient management of public resources. Chapter 6: Managing the Public Sector for Results 121

The progress that has been made is most readily evidenced The gains by the substantial improvement in the Government’s financial are readily position. The fiscal position was unsustainable a decade ago. apparent Now, the Government is almost debt free and the fiscal year (FY) 2007 budget was able to afford a significant easing of the tax burden by removing most import duties. It is also evident in the improved alignment and harmonization of donor funds, as initiated by the New Zealand and Australian aid programs.98

This chapter examines the opportunities for continuing to improve the performance of the public sector.

6.2 A National Perspective on Service Standards

As more people experience life elsewhere, in Rarotonga and Expectations in New Zealand, their expectations of service quality can of service be expected to rise. For example, the community generally standards are aspires to the same standard of teaching and medical care as rising is available in New Zealand. Even mundane aspirations can be costly to address. For example, community discussions in Mitiaro centered on the need for a school bus to transport children to and from school—though they all live close by— so that they would not have to use umbrellas or towels, and on the unsatisfactory situation of having composite classes and a principal who had both teaching and administrative duties. Responsiveness to the community is an important element of people’s aspirations. For example, in Mitiaro, there were complaints about the slowness of people in authority to respond to community requests.99

One key issue to be faced in the use of public resources Standards are is the standard of service to be supplied on different islands. lower in the outer islands

98 As presented in the Paris Declaration (High Level Forum on Aid Effectiveness [2005]). 99 Community consultative meeting, Mitiaro, 10 August 2006. 122 Cook Islands 2008 Social and Economic Report—Equity in Development

It is important that the economic gains from development be shared among Cook Islanders through improved services, including in the outer islands. Nevertheless, most of the outer islands can never expect to achieve the same opportunities or standards of service as in Rarotonga, the expense of which would be prohibitive. Even the understandable goal of achieving New Zealand standards in Rarotonga is unobtainable, not least because the goal is a moving target as New Zealand standards themselves rise.

Agreement Planning and budgeting the use of public resources on target would be helped by agreeing on an acceptable standard of standards is services that all the outer islands can realistically expect. important Ideally, the community should understand and accept this standard broadly despite falling short of what is achievable in Rarotonga.

In setting standards, it is important to recognize that the potential increase in economic activity from each dollar of expenditure will tend to be much larger in the main centers than in the outer islands. The crowding effects of a large public sector and the shocks arising from the mismanagement of the 1990s have stymied the prospects for sustainable private sector growth in most outer islands. These prospects were already weak given the islands’ remoteness, small populations, and shallow resource bases, and their long-term sustainability was unclear even without the mid-1990s shocks. The demonstrated inability of the outer islands to respond to the improved private sector environment in the same way that Rarotonga and Aitutaki have is firm evidence of the absence of prospects for economic sustainability. Despite the best intentions, in the economic environment of most outer islands, it will be difficult to expect good returns from investment and expanded services justified on economic grounds (i.e., as the basis of increased or more productive commercial activities).

Costs will rise As time passes and the outer islands’ populations in the outer decline, the role of most outer island governments islands is narrowing to providing basic services to the small Chapter 6: Managing the Public Sector for Results 123

communities that choose to remain. An option available to outer islanders in search of better services is to move to Rarotonga. Allowing outer islanders to exercise this choice may be preferable to spending considerable public funds seeking to slow their seemingly inevitable departure from the outer islands. The community’s resources may be better used targeting instead a slowdown in the rate of departures from Rarotonga and Aitutaki to overseas, so that the long- term prospects of these centers and the country overall are strengthened.

These arguments suggest that it is more important The main to enhance services and employment opportunities in centers Rarotonga and Aitutaki than on the increasingly dependent warrant higher outer islands. Funding per head for the outer islands is standards already substantially above that of Rarotonga. A further widening of this gap may carry a significant cost in terms of opportunities lost in the main centers.

6.3 Providing Public Infrastructure

The tight fiscal position required post-reform to reduce very Infrastructure high-debt levels was at the expense of the country’s physical has been infrastructure. A backlog of works has accumulated in underfunded, the areas of roads, ports and harbors, electricity, water, and an liquid and solid waste management, telecommunications, infrastructure and government buildings. Nonfinancial factors have plan is needed contributed to the backlog of works.

The absence of a clear plan for infrastructure has (i) made it difficult to agree on a schedule of works; (ii) allowed poorly designed projects to proceed; (iii) led to cases of a poor choice and prioritization of works (e.g., the construction of new public buildings without sufficient funding for operating costs or maintenance, the construction of two hospitals in the small island of Manihiki, and the provision of health facilities on outer islands for functions no longer undertaken); and (iv) created an environment where 124 Cook Islands 2008 Social and Economic Report—Equity in Development

political gain can be placed before public need.100 Maintenance has been less than optimal, both of works completed and of the equipment used for construction and installation, such that value for money has fallen below its potential.

The policy The policy environment has also been an important environment factor. Notably, user charges have generally been absent has room for or below operating costs and contributed to funding improvement, shortfalls and the inappropriate use of the infrastructure including (e.g., overuse, high leakage).101 In addition, the sharing devolution of responsibilities between the central Government in Rarotonga and the outer islands appears to have played a role in weakening infrastructure provision.

In the outer islands, island councils and administrations are responsible for the operating expenditure of infrastructure on their islands, which is mainly funded by the central Government but also by internal revenue (e.g., fees and charges). Responsibility for capital expenditure (and public infrastructure in Rarotonga) rests with the central Government in cooperation with donors. Some island administrations lack sufficient technical or managerial capacity to operate or maintain infrastructure, and they are at risk of allocating too little of their funds to maintenance. It is also unclear whether the governance environment that has developed on some least-populated outer islands is suited to its responsibilities. Indicators of these problems are provided by the closure of the public water system in Atiu and the recent transfer back to Rarotonga of responsibility for Aitutaki’s electricity supply. Expenditure on outer island infrastructure has fallen below available funding despite the availability of donor technical support in project preparation.

100 See, for example, Financial Secretary. 2006. 101 For example, free reticulated drinking water is supplied to all users on Rarotonga. This promotes inefficient and excessive use of water, reduces funds available, and poses disincentives to improve water quality or repair the distribution system. Leakage rates are currently some 70%. Large water users are the resorts (some 40%), which generally must install their own treatment plants to improve water quality and agricultural irrigation. Chapter 6: Managing the Public Sector for Results 125

The Government’s strong financial position means it The financial is now well placed to fund infrastructure works. The capacity exists improved financial capacity is timely as economic expansion to rebuild has led to potential bottlenecks in the infrastructure network, risking growth and public safety. Roads, airports, water and sewerage systems, and the electricity network are all candidates for higher capital and maintenance spending.

The road network in Rarotonga is a priority. It has yet to be upgraded to match the increased usage arising from broader vehicle ownership and higher tourism demand, and this creates congestion and a worsening incidence of serious accidents, including fatalities. Periodic health problems arising from pollution in Rarotonga’s lagoon have provided an early warning of the potential cost of inadequate provision for the higher demands placed on the environment arising from sustained tourism growth. Such episodes may increase in frequency if solid and liquid waste-management infrastructure is not upgraded, and if complementary improvements to land-use planning are not put in place. Tourism development in some parts of Rarotonga and in Aitutaki has been curtailed by insufficient water supplies, and both islands are susceptible to water shortages during dry periods because storage systems have little capacity.

An Infrastructure Master Plan (IMP) has been prepared A 20-year to help guide future infrastructure management. The plan’s IMP is ready, emphasis is on the reconstruction of cyclone damage and at a cost of preparing for future adverse weather events. IMP covers NZ$237 million transport (by air, sea, and land); water supply; sanitation; solid waste management; energy; and telecommunications infrastructure to be funded from the budget. It identifies the potential demand for new infrastructure and provides a schedule of works for the next 20 years, broken into years 1– 5 and the longer term. The plan also addresses relationships between agencies and the capacity to undertake public works. 126 Cook Islands 2008 Social and Economic Report—Equity in Development

The preliminary estimate is for a total cost of NZ$237 million over the 20 years of the plan (in 2006 prices).102 This implies an annual level of expenditure approaching double that was achieved in recent years and compares to total budgeted expenditure for FY2007 of NZ$100 million and a gross domestic product (GDP) in 2005 of NZ$260 million. In preparing the plan, only the first 5 years of expenditure were prioritized and subject to a cap of approximately NZ$50 million. Priorities were established based on evaluation by multiple criteria, adjustments to recognize urgent technical needs, and approval of donor funding. Prioritization resulted in the identification of 44 projects for the first 5 years, with a further non-prioritized 42 projects identified for years 6–20 (Box 6.2). The arguments presented above regarding the allocation of funds to the main centers versus the outer islands test the focus of IMP in the outer islands.103 The proposed allocation of 60% of funds over years 1–5 appears out of line with the 19% of the population and 14% of formal employment located in the outer islands in 2001 (which would have since declined) and the relatively weaker prospects in the outer islands. Prioritizing This observation highlights the importance of the works is process for prioritizing works. IMP recognizes that its critical proposed prioritization will need to be frequently revisited to factor in (i) changing circumstances such as cyclones, new development proposals, or technological advances; (ii) building works and other infrastructure beyond the scope of IMP; and (iii) evolving political imperatives and the availability of financing.104 MFEM has only recently initiated work to integrate IMP and its newly developed project planning cycle. The need to have a workable prioritization process is thus not a one-off requirement, but ongoing.

102 Note that this excludes infrastructure to be funded by public enterprises; government buildings; and infrastructure for the health, education, agriculture, fisheries, and marine resources sectors. 103 The terms of reference of the Infrastructure Master Plan specified that the plan should emphasize the outer islands. 104 ADB. 2006b. Volume 5, 236–240. Chapter 6: Managing the Public Sector for Results 127

Box 6.2: Infrastructure Needs Identified in the Infrastructure Master Plan Marine transport has the highest capital cost requirement, at 26% of the 20- year budget. In the short term, the major need is to reconstruct the outer island harbors damaged by cyclones. Construction costs are high, but the facilities should operate for many decades. In the long term, the high capital cost is for improvements to Avatiu harbor and the protection of Rarotonga’s north coast from the airport to Avarua. Roads have the second-highest cost requirement, at 21% of the 20-year budget, because of the high cost of improving the inner ring road in Rarotonga and roads in Aitutaki and the outer islands in the short term, and the cost of rehabilitating the main ring road in Rarotonga in the long term. Energy priorities include rehabilitating power systems in the outer islands. The high cost, at 19% of the 20-year budget, results from the need to construct a second power-generation plant in Rarotonga, which is assumed to require budget funding. Total energy sector costs would be much higher if Te Aponga’s capital improvement program were included, but it is excluded as it is assumed to be internally funded. Air transport priorities are to improve the Northern Group airports to enable a Saab 340 service and build a new departure area in Rarotonga. Longer-term projects are to install cyclone protective measures in Rarotonga and continue improvements to the outer island airports (13% of the 20-year budget). Water supply improvements are needed on all islands and have a high priority, at 10% of the 20-year budget. The capital costs of individual projects tend to be less than the civil works costs associated with harbor or airport improvements. Over the 20-year period, operating and maintenance costs are proportionately higher. Sanitation improvements are needed on all islands, with highest priority given to treatment plants in Rarotonga. Overall capital costs are not as high as other sectors, so it should be possible to achieve all targets for the sanitation sector with 5% of the 20-year budget. A similar situation applies to solid waste management, at 1% of the 20-year budget. Providing emergency management centers in all islands is one of the highest priorities and has the fourth highest capital cost in the short term, consuming 4% of the 20-year budget. Equally, maintenance facilities have to be provided in all the outer islands in the short term to improve the island administrations’ capacity to maintain all other infrastructure (1% of the 20-year budget). In the short term, about 60% of costs are for projects in the outer islands, excluding Aitutaki, with only 32% in Rarotonga and 8% in Aitutaki. This reflects the high capital costs of harbor and airport projects. In the longer term, projects in Rarotonga represent 67% of the total capital cost, in Aitutaki 12%, and the outer islands 21%. Several projects such as coastal protection, road rehabilitation, and harbor improvements involve high capital costs and these will require staging over several years. Source: Asian Development Bank. 2006. Volume I, 21–23. 128 Cook Islands 2008 Social and Economic Report—Equity in Development

Simple and A prioritization process will enjoy the most success adaptable if it is simple to apply and if the results can be assessed processes work and understood by the broader community. Ideally, the best community should be engaged in identifying and selecting works. This is likely to be so even if community engagement comes at the expense of not getting what experts identify as the “right” decision every time. In practice, there is often a tendency to adopt too sophisticated an approach to identifying and selecting a project. While this may initially produce better results, particularly when supported by early enthusiasm and technical assistance, it can quickly become unworkable and ultimately fail to strengthen decision making. In the worse case, complex processes can become a tool to legitimize decisions that are technically poor or lack transparency and accountability. It will be important to monitor the effectiveness of the prioritization process adopted and to tailor it as necessary to the local environment and available resources.

Many issues The bureaucratic weaknesses that have contributed require a to the current situation are key challenges to be faced in whole-of- improving the provision of infrastructure. While the lack government of funding has been an important cause of shortcomings response in infrastructure, it has not been the only cause, and more than extra funding is required. Bureaucratic weaknesses are in the relationships between agencies, such as between outer island administrations and the central MOW, and in management within agencies. IMP presented proposals for reviewing agency roles and capability, including increased technical support for the outer islands from MOW and increased private sector involvement.105 In some cases, IMP presented options but declined to present recommendations, sensibly recognizing the importance of finding locally owned solutions.

One proposal put forward to overcome capacity constraints is for the Aid Management Division of MFEM to

105 ADB. 2006b. Volume 3 provides a detailed discussion of current arrangements. Chapter 6: Managing the Public Sector for Results 129

accept responsibility for project management. While this is a practical short-term response to shortcomings in agencies, it would be preferable to build the capacity of sector agencies so that, over time, they can accept more responsibility for managing their entire budget, leaving the Aid Management Division to concentrate on its core business. This highlights the need for capacity building in the use of funds to go hand-in-hand with increased expenditure.

In moving forward, it is important to look beyond a sector-based response to problems that are cross-sectoral and may require a deeper whole-of-government reform than can be envisaged in a sector plan. Shortcomings in providing infrastructure tend to be dimensions of wider challenges, such as ensuring a result-oriented public service, the financial and managerial independence of public enterprises, and finding a sustainable response to outer island governance issues.

The best solutions are likely to be found in outsourcing The private works to the private sector competitively. Outsourcing can sector has a extend from construction to maintenance and, in some cases, key role take the form of asset sales. Outsourcing is an opportunity for public sector agencies to focus their efforts on planning and supervision, with day-to-day functions undertaken by agents able to achieve a stronger drive for efficiency. The main infrastructure needs are likely to be in Rarotonga and Aitutaki, and the private sector on these islands is now strong and deep enough to be engaged innovatively. Private– public partnerships are, for example, well suited to many of Rarotonga’s infrastructure needs in cases where privatization is considered inappropriate.

The private sector would need time to build its capacity Long-term to meet existing needs, but the experiences of other countries commitments in the region have shown it possible. This is particularly the are helpful case where a sufficiently large and lengthy program of works is in place to make it viable for international firms to develop local partnerships. The Cook Islands is now well suited to committing to such a program of works. The potential for 130 Cook Islands 2008 Social and Economic Report—Equity in Development

private sector engagement is not great in the outer islands, but the potential is nonetheless there through, for example, packaging works across islands so they are viable propositions for contractors, or outsourcing some routine functions such as maintenance to permanent local providers.

The aim is Contracting out works best when the objective is to to minimize provide infrastructure at the lowest cost, subject to meeting the cost of technical standards. Attempts to favor local suppliers of infrastructure infrastructure to develop the private sector are generally misguided. They add to the costs of infrastructure—costs that have to be borne by other sectors—and can be expected to reduce community returns, rather than maximize them. Government support for the private sector is best provided through low-cost infrastructure and a favorable enabling environment for all businesses. Targeted support for local businesses is an inferior approach to private sector development. The experience of the Cook Islands tourism industry illustrates how a sustainable, vibrant private sector can and will develop in a highly competitive environments.

6.4 Raising the Quality of Public Expenditure

Progress has Key Achievements So Far. Important progress has also been been made in made in improving the efficiency and effectiveness of public the quality expenditure. The annual budget process requires ministries to of public prepare budget submissions that are scrutinized for potential expenditure, improvements by the Cabinet and MFEM, and efforts are underpinned afoot to make the process more sophisticated as agency by solid capacity allows. Capacity has been built through modernizing auditing the financial management system and improving corporate planning that is overseen by the Public Service Commission (PSC), with attention paid to staff training.

Forming a budget committee of outside parties to engage in the budget process has emerged as an important initiative. The reports of the committee are notable for Chapter 6: Managing the Public Sector for Results 131

their vigorous analysis of agency budgets and performance, and they have considerable standing in the process and in the Cabinet’s final consideration of the proposed budget. Efficiency and effectiveness are also boosted by the practice of conducting publicly available, special-purpose reviews of key issues, recent examples of which are the outer islands’ funding, health management, and police force funding and operations.

The budget process is greatly strengthened by the activities of PERCA, which has a solid record of providing forthright, detailed assessments of the use of public funds. PERCA has been prepared to go public identifying inappropriate practices at the most senior levels of the Government and the community. Areas subject to PERCA’s review include the actions of ministers, accounts of ministries, sale, or attempted sale of government assets, and donor- funded projects. The key limitations of the audit process have been the 2–3 year gap in the complete submission of public accounts for audit, which can delay PERCA’s work until well after events have taken place, and the discretion provided to Parliament regarding when PERCA’s reports are tabled or responded to. Imminent actions to improve financial management systems are scheduled to narrow the gap in the submission of public accounts to less than 1 year. The scope and standard of public disclosure achieved through the Cook Islands audit are probably now the highest among Pacific island nations and approaching those achievable by the Cook Islands’ larger neighbors.

Sector Priorities. Rising community aspirations in Priorities the face of government revenue’s declining share of GDP need to be require a clear sense of priorities if expenditure is to focus clear on community needs. Prioritization is at the heart of public expenditure management but is inevitably difficult as it requires saying no to some proposed activities. For the Cook Islands, economic priorities are likely to be economic infrastructure, education, and health. An infrastructure 132 Cook Islands 2008 Social and Economic Report—Equity in Development

backlog needs to be addressed; considerable potential exists to raise education standards (and doing so is important to meeting the needs of the economy); and the health system faces the challenge of rising incidences of noncommunicable diseases.

Health, In health, reallocating the sector’s funding, notably education, from curative to preventative health care, offers considerable and potential to get better value for money. There is also some infrastructure potential in education to reallocate the sector’s funds toward are high primary and secondary education. However, the potential to priorities upgrade education standards, and the economy’s need, are so great that the emphasis may need to be on increasing the sector’s share in total expenditure. For physical infrastructure, a larger share of expenditure is required given low current levels of funding.

Welfare and Low-priority areas of expenditure will need to be wage payments trimmed if funding is to be increased for priorities. Welfare are low payments, which are large and poorly targeted, provide some priorities of the most likely sources of future savings. Savings may also need to go beyond the functional level to the economic composition of expenditure. In this respect, the key is likely to be control of the wage bill so that expenditure can be shifted to capital and maintenance costs.

The mix of The Wage Bill.The number of public sector employees expenditure has grown considerably since the cuts of the mid-1990s. can be There were 3,200 employees in early 1996. Numbers had improved been cut to 1,500 by early 1997 and fallen further to 1,320 by mid-1999, but then began to rise and had reached 1,520 by mid-2002. There were 1,900 public servants by mid-2006. An upward trend is also evident in the number of public servants per 1,000 residents (Figure 6.1). The growth is explained in part by an increase in part-time employment in the outer islands, apparently motivated by the aim to spread the cash incomes available from island administrations. It also reflects a general expansion in the civil service. Chapter 6: Managing the Public Sector for Results 133

Figure 6.1: Size of the Civil Service 3,000 180

130 2,000

1,000

Number of employees 30 Employees per 1,000 residents

0 -20 1996 1998 2000 2002 2004 2006

Number of employees Employees per 1,000 residents

Note: the employees per residents’ data are derived from the alternative estimate of the resident population. If the o cial estimate of the resident population had been used, the dip in 2004 and 2005 would be replaced by an increase in each year. The true ratio for these years is probably above the estimate shown in the gure. CISO = Cook Islands Statistics O ce, MFEM = the Ministry of Finance and Economic Management. Sources: Authors’ estimates based on data supplied by MFEM and CISO Annual Statistical Bulletin, various years; and Quarterly Statistical Bulletin, various quarters.

The significance of these estimates lies in their consequences for the mix of expenditure. These were presented in the 2004 half-year fiscal update:

“In the past (particularly in the early 1990s), there has been a tendency for personnel costs to increase at the expense of purchases of goods and services. This has meant Government employees have had insufficient resources to perform their tasks efficiently, with negative consequences for the delivery of Government services.”

The ratio of Government personnel costs to GDP is estimated at 13.7% in FY2007/08, and is forecasted to increase as a result in rises in CPI and numbers of civil servants. By contrast, expenditure on recurrent purchases 134 Cook Islands 2008 Social and Economic Report—Equity in Development

of goods and services has fallen from 8.2% of GDP in 2001–2002 to a budgeted 6.3% of GDP in 2004–2005 and further to 5.6% in FY2007/08 estimates.

Public service Hence, in a period of fiscal restraint, excessive growth has grown and in personnel costs has evidently squeezed the level of may squeeze funding available for purchases of goods and services. out other While it is difficult to measure, this has likely impacted on expenditure government service delivery. It is important that growth in personnel costs be constrained to free up resources for spending on necessary goods and services and on development activities.106

The share These adverse impacts were noted in 2004 but have of public yet to be corrected, and a solution is not yet in sight. The expenditure FY2007 budget projects that the ratio of expenditure on on wages is staff to GDP will fall over the medium term. But a projected set to rise decline in revenue, mainly from a fall in customs and duty slightly rates, requires that expenditure, as a share to GDP, be trimmed across the board. The result is that the share of expenditure spent on staff costs is projected to rise slightly over the medium term and stabilize for other key expenditure items (Figure 6.2). One implication is that staff costs are likely to remain a barrier to the shift in expenditure toward capital and maintenance needed to recover from the backlog of public infrastructure works.

Funding varies Inequities among Islands. The regional distribution markedly of expenditure could be improved. A 2006 MFEM review across islands of central Government funding for island administrations identified significant differences in the level of funding per head across islands. Most of this funding is provided for operating infrastructure, including energy, as this is the main function still retained by island administrations. The exceptions are the Rakahanga and Palmerston island administrations, which also fund health and education. Large variations in funding across islands extend to the

106 MFEM. 2004, p. 20. Chapter 6: Managing the Public Sector for Results 135

distribution of health and education spending, which is funded directly by the central Government on most islands.

Figure 6.2: Key Expenditure Shares 50

Share of expenditure (%) 10

0 98-99 00-01 02-03 04-05 06-07 08-09 Year Sta Capital (net) Grants Use of goods and services

CISO = Cook Islands Statistics Oce, FY = scal year, MFEM = Ministry of Finance and Economic Management, % = percent. Source: Authors’ estimates based on data supplied by MFEM and CISO budget estimates, Part I, Appropriation Bill, Appropriations and Commentary, various years.

This is shown by Figure 6.3, which reports central Outer islands Government funding for staff costs per head for island funding per administrations, education, and health. These estimates head is high are prepared on a broadly similar basis and so can be compared to assess equity in providing essential public services. In total, funding for outer island staff costs for education, health, and island administration vary from NZ$1,050 per head in Aitutaki to NZ$4,600 per head in Rakahanga.107 The average for the outer islands of NZ$1,590 per head is

107 T he estimate for Aitutaki excludes any staff subsidy paid by the central Government for airport maintenance and cleaning. These activities are undertaken by public enterprises in Aitutaki but by island administrations elsewhere. 136 Cook Islands 2008 Social and Economic Report—Equity in Development

double the allocation to Rarotonga, which is estimated at NZ$760 per head.108

Figure 6.3: Funding Allocation for Staff Costs by Island, FY2006

5,000 Education

4,000 Health

3,000 Island Administration

2,000

1,000 Funding per head (NZ$) 0

Atiu Mauke Mitiaro Aitutaki Mangaia Manihiki Penhryn Rarotonga Rakahanga Palmerston

Pukapuka-Nassau

1,400 Education 1,200 Health 1,000 800 600 400

Funding per head (NZ$) 200 0

Atiu Mauke Mitiaro Aitutaki Mangaia Manihiki Penhryn Rarotonga Rakahanga Palmerston

Pukapuka-Nassau

Note: The central Government in Rarotonga does not fund the operating cost of infrastructure but it is for all other islands. Expenditure on education and health in Rakahanga and Palmerston are included in the allocation to the island administration. CISO = Cook Islands Statistics O ce, FY = scal year, MFEM = Ministry of Finance and Economic Management, NZ = New Zealand, $ = dollar. Source: Authors’ estimates based on data supplied by MFEM and CISO.

108 The estimate for Rarotonga includes (i) all health personnel on the island (except those for administration and policy advice and the nursing school), who also support outer islands patients referred to Rarotonga; (ii) the Internal Affairs outputs related to civil services, disability, youth and sports, gender and development, and Rarotonga local government; and (iii) the work outputs related to road works, water works, and waste management. It excludes any staff subsidy for functions that public enterprises undertake (i.e., energy or airport maintenance and cleaning) on Rarotonga. Chapter 6: Managing the Public Sector for Results 137

There is no obvious public policy rationale for these Smaller islands variations in funding. Islands with smaller populations tend to receive tend to receive more funding (Figure 6.3 is ordered by more population size). As a general principle, higher funding for smaller islands is defensible because unit costs may be higher in small populations, as some costs incurred in service delivery are fixed regardless of population size. But the range of the variation between the largest and the smallest islands appears too high. Moreover, some islands appear to miss compensation for their small size, suggesting that the principle is not in fact broadly applied. For example, Penhryn has about half the population of Atiu but the two receives a similar level of funding per head. Moreover, there are large variations in the allocations for islands of similar populations. For example, the allocation to Mangaia is 60% above that of Pukapuka–Nassau, though their populations are similar.

These observations on the inequities among islands are based on staff costs. But they can be expected to apply to other costs of the three sectors, as these allocations tend to follow patterns established in staff costs (e.g., the observations also apply to the distribution of the total appropriation to island administrations).

Similarly, there is no obvious development rationale for The dis the variation between islands. Generally, Northern Group advantaged islands are seen to be the most disadvantaged but, as a group, receive less they are relatively poorly funded. The funding differences may in fact be a key factor behind the relative disadvantage facing the Northern Group.

It is significant that no formal mechanism exists to compensate the Northern Group for their remoteness. In some countries, regional allocations are based on simple formulas that proxy for the effect of disadvantage. For example, for many years, allocations to Papua New Guinea’s provincial governments were based not only on population size but also on land and sea areas. This provided some 138 Cook Islands 2008 Social and Economic Report—Equity in Development

compensation for those provinces with larger areas to service, and hence, relatively higher-transport costs.

MFEM is Some inequities apparent between islands will reduce reducing the because of the recent MFEM review, which proposed a inequity gradual realignment of funding for island administrations commencing in FY2007. But the realignment does not necessarily go far enough to achieve equity in funding. The review was based on an initial broad assessment of need that did not specifically address the lower standard of living on some islands.109 The recommended funding was also based partly on the existing standard of service, such as whether an island has sealed or unsealed roads and the value of equipment to maintain. While this is a pragmatic approach, it has the disadvantage of potentially locking in, rather than correcting, existing inequities. Moreover, the realignment does not address inequities in other central government funding, notably on education and health, or ensure that other expenditure, such as capital expenditure on infrastructure, will be allocated equitably.

Deliberate, Achieving a Pro-Poor Orientation. Achieving a pro- planned actions poor orientation in government expenditure rests on finding are required ways to reduce general or particular forms of disadvantage for pro-poor by ensuring more equitable access to services and welfare orientation payments. This requires that patterns of disadvantages be identified and addressed through specifically targeted public policies and programs that favor the poor or disadvantaged, and that the necessary data are collected and analyzed to monitor progress on reducing disparities. It also requires that bottlenecks to improved service delivery be identified and addressed. It further requires that citizens have a voice in determining the nature and quality of services for their community and effectively demand better services from their government. Finally, it requires that explicit national and sectoral policies be implemented effectively and not

109 The review recommended a comprehensive review of the funding methodology be prepared for the FY2010 budget (MFEM 2006, p. 25). Chapter 6: Managing the Public Sector for Results 139

undercut by implicit but hidden policies (e.g., through the neglect of plans when agencies conduct business as usual).

No formal system exists in the Cook Islands for targeting No formal the disadvantaged other than loosely through welfare targeting payments. There is almost no systematic analysis to identify of poverty the disadvantaged, their needs, or means to address their exists needs. Because of the widely held but not necessarily correct perception that health, education, and living standards are good throughout the Cook Islands and that there is little poverty, poverty reduction does not figure prominently in government plans and policies.

An emphasis on equity, however, has long characterized Equity public policy, especially in access to basic services such as warrants health and education, and in the development of the outer stronger islands. This emphasis on equity has done much to raise emphasis the quality of public expenditure. But more could be done to focus more sharply on the disadvantaged. For example, as a group, the outer islands receive a relatively high level of funding, and this has done much to address the disadvantages they face. However, the more disadvantaged islands, notably the Northern Group, lack the special attention they appear to warrant. They receive less funding, rather than more, despite their disadvantage. In addition, the absence of welfare payment targeting means the system contributes less than it should. Its potential contribution is large, as welfare payments represent more than 2.5% of GDP and 8.0% of total expenditure.

6.5 Refining the Revenue System

Good progress has been made on the revenue side of the The revenue budget, with the tax and customs system modernized during system is well the economic reform. A modern tax system was adopted, designed and centered on a progressive income tax and flat-rate VAT. Tax administered rates have been kept reasonable and stable, and attention has but still has been paid to maintaining the simplicity of the system. The room for improved design corrected many inefficiencies and inequities refinement 140 Cook Islands 2008 Social and Economic Report—Equity in Development

in the old system. Moreover, over time, improvements have been made to administration and compliance, further raising the performance of the tax and customs system.

Removing The performance of a revenue system is normally judged penalty tax against criteria of efficiency (which relates to the distortions rates on imposed on economic activity), equity, administration cost (for second jobs is both taxpayers and the Government), and revenue adequacy warranted, as (which normally relates to the stability of revenue and the share is increasing of income and expenditure captured). Some opportunities user charges remain to improve the performance of the revenue system against these criteria, notably through the following:

 Phased removal of the remaining protective tariffs, mainly because of the efficiency costs they impose, was discussed in Chapter 5.

 Early removal of the high tax rates that apply to second jobs are inequitable, as people earning the same income can pay different amounts of tax, depending on whether they have one job or more. An equitable outcome would be one where the tax paid is equal. The high tax rates are also inefficient as they offer a disincentive to work.

 Adoption over the medium term of a capital gains tax and fringe benefits tax would include all sources of income in the definition of taxable income, which is routine in better-performing tax systems. Failure to do so can lead to inequities and people at the same income level paying different tax amounts, depending on the share of their income from untaxed capital gains and fringe benefits. Inefficiencies can also arise, as economic activity is distorted toward activities offering capital gains (e.g., real estate speculation) or allowing the receipt of more income as fringe benefits.

 Greater reliance on user charges is possible, subject to equity concerns being addressed (e.g., through concessions for the disadvantaged). There is very little Chapter 6: Managing the Public Sector for Results 141

user charging for government services (e.g., public health and education are provided free of charge). Where charges are levied (e.g., most infrastructure services) they tend to fall short of operating costs. Undercharging for services tends to encourage overuse and the expansion of services out of line with clients’ real needs, creating supply inefficiency. It is normally an inequitable way to support the disadvantaged, as both high- and low-income users benefit, not just those in need. It would be better to raise more revenue directly from users, allowing the reliance on tax and customs revenue to be reduced.

 Increased returns from public enterprises are discussed below.

6.6 Maintaining Fiscal Sustainability

The achievement of a sustainable fiscal position is one key Debt is result of the Cook Islands economic reform. Sustained budget currently low surpluses have helped the Government almost completely repay its debt. Standard & Poor’s reflect these improvements in the progressive upgrade in credit rating:

 January 1998: Long- and short-term foreign currency ratings of B-/C and long-term local currency ratings of B-/C assigned; outlook stable.

 May 2000: Long-term foreign and local currency ratings of B-/C and short-term foreign and local currency ratings rose to B.

 October 2002: Outlook revised to positive from stable.

 August 2003: Long-term foreign and local currency ratings raised to B+; outlook positive.

 October 2004: Long-term foreign and local currency ratings raised to BB-; outlook stable. 142 Cook Islands 2008 Social and Economic Report—Equity in Development

 February 2005: Long-term foreign and local currency ratings placed on credit watch negative.

 April 2005: Long-term foreign and local currency ratings removed from credit watch negative.

 March 2006: Long-term foreign and local currency ratings placed on positive outlook.

 December 2006: Long-term foreign and local currency ratings retained as BB-; outlook positive.  December 2007: Long-term foreign and local currency rating upgraded to BB/stable/B.110

The medium-term projections of a balanced budget imply a continuation of the sound bottom line. Yet the need to rebuild public expenditure to sustain growth and achieve The IMP could ecologically sustainable development now poses a major see debt rise long-term challenge to this fiscal position. to 20% of The infrastructure expenditure proposed under the IMP GDP could see net general government debt rise to about 20% of GDP by 2026 and debt-servicing payments rise to about 2% of GDP. The projection is based on the fiscal restraint that is projected for the medium term being maintained and on growth, inflation, and interest rates remaining at trend.

The sensitivity of this result is explored in Figure 6.4. If a grace period were available, debt-servicing costs would be lower initially but at the expense of an accumulation of more debt and somewhat higher debt-servicing costs in the long term. If the growth and interest rate outlooks were less favorable, the debt ratio would be somewhat higher and debt-servicing costs could be substantially higher. The worst-case scenario shown is that fiscal restraint is lost and the Government borrows to fund both IMP and capital expenditure that is currently funded from an operating surplus. Even under this scenario, debt and debt-servicing costs are not excessive though they approach the top of the comfort range.

110 Standard and Poor’s. 2006. Chapter 6: Managing the Public Sector for Results 143

Figure 6.4: Illustrative Debt Projections

40 Base case

30 ) Low growth and high interest rates 20 10-year grace period Ratio to GDP (% 10

Without an operating 0 surplus 2006 2010 2014 2018 2022 2026

Year Debt servicing costs

3 Base case

) Low growth 2 and high interest rates

10-year grace 1 period Ratio to GDP (%

Without an operating 0 surplus 2006 2010 2014 2018 2022 2026 Year Scenario Key assumptions Base case Growth in real GDP and the GDP de ator remains at the average rate for 1996–2005 (3.6% p.a. for GDP and 3.8% p.a. for the de ator). Debt is secured at the average yield on 10-year New Zealand government bonds over the last 10 years (6.2% p.a.) plus a 1% risk premium. IMP is implemented over a 20-year period, with the cost of capital expenditure rising in line with the GDP de ator and all expenditure funded through long-term debt (i.e., the capital expenditure currently in the medium-term budget projections is allocated to items not covered by IMP, which includes education, health, and government buildings). Finally, other expenditure and revenue items continue at the ratio to GDP projected in the FY2007 budget. Low growth and Base case but with half the real GDP growth rate and an interest rate 50% higher. high interest rates 10-year grace Base case but with a grace period of 10 years applying to debt-servicing costs. period Without an Base case without the operating surplus projected in the FY2007 budget (i.e., 2.6% of GDP). operating surplus That is, the projected operating balance is, near zero, and the overall budget balance moves into decit.

CISO = Cook Islands Statistics O ce, FY = scal year, GDP = gross domestic product, IMP = Infrastructure Master Plan, MFEM = Ministry of Finance and Economic Management, p.a. = per annum, % = percent. Sources: Authors’ estimates based on CISO Annual Statistical Bulletin, various years; MFEM budget estimates, Part I; Appropriation Bill; Appropriations and Commentary, various years; and Reserve Bank of New Zealand website. 144 Cook Islands 2008 Social and Economic Report—Equity in Development

In interpreting these findings, it is important to keep in mind that the Cook Islands is vulnerable to natural disasters and adverse economic developments. This vulnerability means that the Cook Islands should aim for a lower debt level than normal to provide a buffer against shocks (e.g., to retain the capacity to borrow in adverse circumstances). A debt-to-GDP ratio of 20% accumulated over some years for sensible projects would be comfortable, but a 40% ratio probably would not be.

It is prudent to act early to ensure that fiscal sustain ability is maintained as public debt rises. Fiscal sustainability would be maintained if capacity existed within the budget to meet rising debt-servicing costs without forcing major corrections on expenditure or revenue.

The best The best way to pursue fiscal sustainability would be option is to through open and transparent competitive processes with outsource more responsibility for infrastructure delegated to the infrastructure private sector or well-managed public enterprises, such that works, but infrastructure funding is off budget. This approach has the some will potential advantage of minimizing the costs of provision necessarily and maximizing the recovery of costs from users. Costs continue to are minimized because outsourcing allows competitive be funded by pressures in infrastructure provision to be maximized the budget through competitive bidding (via sale or some form of lease and require and/or licensing arrangement) or, where this is not possible, funding greater performance orientation than is achievable with initiatives general government agencies. Recovering costs through user charges helps align infrastructure provision to client needs and provides a secure source of funding for operation, maintenance, and rehabilitation costs. This, in turn, helps maximize the facilities’ value for money. User charges need not fully recover costs. Top-ups or subsidies from the budget are justifiable if they have a clear equity or efficiency rationale and are applied openly and transparently.

Not all infrastructure work can be outsourced, so a substantial share of the required work will need to be funded Chapter 6: Managing the Public Sector for Results 145

by the budget. The additional debt-servicing costs must be met by either new revenue sources or trimming growth in noncapital expenditure. Even if infrastructure is initially funded through borrowing, ultimately adjustments will be required on either the revenue or the expenditure side of the budget to meet rising debt-servicing costs.

Options for raising more revenue include the introduction of capital gains and fringe benefits taxes, greater reliance on user charges, or better financial performance by public enterprises. On the expenditure side, the main opportunities are in relation to the civil service wage and salary bill and the improved targeting of sizeable welfare payments.

A sensible way forward is to guide the future budget The MFEM position by adopting fiscal rules such as those that have already Act sets key helped guide the Cook Islands to fiscal sustainability. The fiscal rules key rules are the principles of responsible fiscal management that can be set out in the MFEM Act: reinforced

 ensuring that, unless the Crown’s (i.e., public sector) debt is at prudent levels, operating expenses will be less than operating revenues (i.e., there is an operating surplus);

 achieving and maintaining levels of the Crown’s net worth that provide a buffer against factors that may diminish net worth in the future;

 prudently managing the fiscal risks facing the Crown; and

 pursuing policies consistent with a reasonable degree of predictability about the level and stability of tax rates in future years.

Additional fiscal rules were established as part of the 1998 debt restructuring, and they provided a finer interpretation of the principles of the act. The Government had committed itself not to undertake new commercial borrowing for 7 years if the result would be noncompliance 146 Cook Islands 2008 Social and Economic Report—Equity in Development

with prudent financial ratios. These related to debt levels, the composition of expenditure, the operating balance, and borrowing by public enterprises. The practice has emerged for the budget papers to report on compliance with these ratios and the reasons for, and implications of, any noncompliance. This has helped develop the fiscal framework underlying the budget and provided clear benchmarks of performance.

An updated set of prudent financial ratios that would help ensure fiscal sustainability, if followed, could be along the following lines:

 Financial Ratio 1: The ratio of the present value of the debt of the general government sector to GDP is to be within what is affordable given medium revenue and expenditure commitments.

 Financial Ratio 2: The ratio of wages, salaries, and supplements to GDP for the general government sector is to trend down over the medium term.

 Financial Ratio 3: The ratios of investment spending and maintenance spending to GDP are to trend up over the medium term.

 Financial Ratio 4: A budget operating surplus is to be maintained in each financial year (i.e., revenues to exceed operating expenses).

 Financial Ratio 5: Borrowing by public enterprises should be limited to activities that will generate sufficient additional revenue to service the debt after allowance for any subsidy (to be provided openly and transparently through the budget).

A medium- These ratios highlight the need to manage the term budget composition of expenditure and adopt a medium-term framework outlook. A further step would be to adopt a formal medium- is worth term budget framework. This would formalize the medium- considering term outlook that is already presented in the budget (which provides projections for the budget year and subsequent Chapter 6: Managing the Public Sector for Results 147

2 years) and allow agencies to seek multiyear commitments to their initiatives. This approach is particularly suited to the major infrastructure programs now being considered by the Government. It is important to keep in mind that borrowing for poorly conceived projects is never justifiable and that all projects should be subject to quality checks, such as are provided though the project cycle recently implemented by the Aid Management Division of MFEM.

6.7 Strengthening Public Enterprises

Public enterprises are under the umbrella of the CIIC, the Public holding company for the public enterprise monopolies which enterprises include the CI Airports Authority (CIAA), the CI Ports fall under the Authority (CIPA), Te Aponga Uira (TAU, the government- umbrella of owned power utility in Rarotonga), the CI Broadcasting CIIC Corporation (CIBC), and the CI Government Property Corp (CIGPC). The CIGPC is a holding company comprising the government’s building and equipment assets, the Bank of the Cook Islands (BCI), and the CI Telecommunications Holding Ltd (CITHL, owner of the 40% government share in Telecom Cook Islands). The overall financial return from public enterprises deteriorated somewhat after 2005, following a period of improvement earlier in the decade. As of June 2006, the equity held in public enterprises was valued at NZ$143 million (compared to NZ$125 in the previous year), and assets were valued at NZ$182 million (NZ$175 million), generating a consolidated surplus after tax and before dividend of NZ$5.2 million (NZ$7.5 million) and a return on equity of 3.6% over the year (6%).

While the overall financial return on public enterprises Public is reasonable, most profits and all dividends in 2005 were enterprises generated by TCI. As discussed in the previous chapter, are profitable the very high rates of return earned by TCI indicate its as a group, exploitation of monopoly power. Such practices will with overall always harm public welfare, and it is an important role of profits government to prevent them. trending up 148 Cook Islands 2008 Social and Economic Report—Equity in Development

Figure 6.5: Public Enterprises' Rate of Return 30

25 Cook Islands Property Corporation Ltd. (CIPC) 20 Cook Islands Investment Corporation (CIIC) 15

5 Rate of return on equity (%)

0 2001 2002 2003 2004 2005 -5

Ltd. = Limited, % = percent. Sources: CIIC and CIPC annual reports, various years.

The performance of the other public enterprises is clouded by their obligation to perform the social obligations of government by, for example, providing not commercially viable services or charging less than the cost of supply. A preferable approach is for such social obligations to be costed and funded through the budget as community service obligations.111 This would help accountability and transparency by clarifying the implicit choices, enabling better comparisons of the alternative uses of public funds, and allowing the performance of public enterprises to be gauged from their financial outcomes. With public enter prise assets equivalent to 65% of GDP, it is important that they be managed to ensure a good return on the substantial capital they absorb.

CIIC provides a good basis for improvements to the financial performance of the public enterprises. It was established under the mid-1990s reform program as a

111 This need not have an impact on prices, as the funds transferred from the budget could be returned to the budget as dividends, such that there would also be no net impact on the budget (i.e., it could be a paper transfer only). Chapter 6: Managing the Public Sector for Results 149

mechanism for improving the governance and economic The CIIC Act contribution of public enterprises by providing independent, is in line professional management. The CIIC Act, which guides with modern public enterprise management, is broadly in line with modern practices, but management practices. For example, in principle, formal the CIIC itself ministerial involvement has been removed from most public is hampered enterprises and replaced by independent board members; by attitudes management of public enterprises holds responsibility that are out for day-to-day operations (an important requirement for of line with achieving efficiency); and statements of corporate intent good practice are prepared to set out the strategic direction of business activities as agreed with the Government and performance- monitoring arrangements.112 Some public enterprises also have their own supporting legislation, which is generally sound.113 The CIIC Act is a sensible response to conditions facing the Cook Islands. The holding company arrangement provides an opportunity to build a core group of professionals to provide important technical skills to public enterprises and to try to overcome the lack of independence that typically dogs managers of public resources in small communities. However, the practice has fallen short of intentions. The main concern is an apparent politicization of CIIC. This is reflected in the frequent changes ofthe chair of CIIC—six changes in the past 3 years—whenever political power changed hands. Senior ministers and public officers have also circumvented the management system. This is most evident in efforts to redevelop the Cook Islands High Commission in Wellington, New Zealand (Box 6.3). Such practices undermine the integrity of CIIC and have the potential to trigger a recurrence of the costly mistakes made in the early 1990s. This example highlights that attitudes regarding what constitutes acceptable behavior make important contributions to the achievement of good governance, and

112 The exception is the board of CIPC, which is made up of the Cabinet. 113 A notable exception is legislation that has effectively removed BCI from CIIC’s supervision. 150 Cook Islands 2008 Social and Economic Report—Equity in Development

More can that inappropriate attitudes are difficult to guard against. be done to Some additional actions that could be considered to help strengthen the strengthen the system include system.  a requirement that all ministerial directions be publicly released;

 the exclusion of all current and recent officials of political parties from board positions;

 the enactment of whistle-blower legislation to help protect those that provide early warning of inappropriate behavior;

 the establishment of a code of conduct to inform ministers and directors of their roles and acceptable behavior, monitored by PERCA and preferably backed up by sanctions (for example, along the lines of the Papua New Guinea codes); and

 tighter controls on the use of the proceeds from asset sales by, for example, requiring automatic distribution to the public accounts. At present, they are available for use by CIIC, and this may create the impression that CIIC is a potential source of off-budget funding free of normal parliamentary scrutiny.

Box 6.3: The Auditor-General’s Finding on the Diplomat Project My review into the “Diplomat Project,” involving the sale and development of Government’s high commission property in Wellington identified unacceptable practices in the public sector. This report highlights certain serious anomalies and chain of events that require the attention of the Government and the public, to review, comment, and take appropriate corrective measures. A summary of my key concerns are: i) First, in my view, the then Prime Minister should not have been directly involved in the early setup, intricate details, and pre-project arrangements with the developer. This relationship, in the key initial stages, preempted government from awarding the sale and purchase agreement of the High Commission property at 56 Mulgrave Street in Wellington, without a contestable and transparent tender process. The Cabinet’s, including the Prime Minister, Chapter 6: Managing the Public Sector for Results 151

involvement should only be in the area of public policy; in this case, approving the Project without further involvement. ii) Having done this, Government at the time, did not appropriately evaluate and assess all the available options and alternatives to ensure an informed conclusion was reached obtaining optimal return from a project of this magnitude. iii) Government failed to comply with applicable and established financial policies and procedures issued by MFEM, covering the sale of Crown assets. This noncompliance and deviation from financial procedures, opens the decision of the Cabinet to scrutiny, showing elements of favoritism and lack of accountability. iv) There is a perceived conflict of interest surrounding the planning and negotiation stages of this project. This involves three key people, being the then Prime Minister, the then chair of the CIIC, and the developer. The CIIC chair appointed by the Minister of CIIC (a statutory corporation charged with the authority to manage and facilitate the disposal of Crown assets) was also an active director in one of the developer’s companies. At the same time, it was publicly known that he was also the developer’s representative in Rarotonga. The Prime Minister and developer became close associates even to the extent that in early 2005, the Prime Minister—after his appointment to Wellington as High Commissioner—rented his private residence in Arorangi to the developer. v) The nonexistence of a clearly defined and prescribed code of conduct for Cabinet Ministers, Parliamentarians, and senior government officials makes it extremely difficult to adhere to standards of good international management practice, which sets the boundaries between what is acceptable and unacceptable behavior. vi) Inadequacies identified with regard to the lack of thorough and intensive due diligence compliance testing, specifically noting the material miscalculation of the NZ$3-million gross difference between the developer’s valuation of the diplomat project and an independent valuation [by a] company engaged by CIIC. vii) The spirit in which the developer intends to proceed with the construction of the diplomat project appears problematic given adjustments made by the developer without the consent of CIIC post signing the agreement for sale and purchase. On a positive note, the previous board of CIIC and current management staff are commended for their efforts to protect the interest of the Crown by engaging a reputable New Zealand law firm to mitigate and provide strict conditional measures to minimize the Crown[‘s] risk [of] exposure and to ensure the transaction is structured in a cost-efficient manner.

CIIC = Cook Islands Investment Corporation, CIPC = Cook Islands Property Corporation, MFEM = Ministry of Finance and Economic Management.

Source: Cook Islands Audit Office. 2005a. 152 Cook Islands 2008 Social and Economic Report—Equity in Development

6.8 Reforming the Political System

Political Attempts to improve the results of the public sector are support is sensitive to the support provided by the political system. needed to In the Cook Islands, political instability has hampered such maximize support. Four coalition governments headed by three prime results, which ministers have ruled in the past 5 years. The broad similarity requires of the policy platforms of the main parties, the Democratic a healthy Party and the Cook Islands Party, has meant that changes of political government have not had a major impact on the direction system of public policy. But the frequent need to form and then preserve coalitions—including threatened and actual party switching by individual members of Parliament—add to uncertainty and tend to politicize the use of public resources. This harms the business environment. Further, the way the political system operates is cited as one factor behind the departure of Cook Islanders. For example, the inability to form a stable coalition prompted the Queen’s representative to call a snap election in mid-2006, causing a 6-month delay in the passage of the FY2007 budget. Agencies were required to keep expenditure to FY2006 levels and largely deferred new spending initiatives. While politicians need to retain responsibility for the allocation of public resources, the underlying political system needs to be healthy to deliver desirable outcomes. Following the mid-1990s reform, the Commission of Political Review identified many weaknesses in the political system and recommended comprehensive reforms, which largely remain unimplemented. It is likely that this lack of action has undermined the efficient use of public funds. One indicator of a potential problem is apparent regional inequities in funding. A relationship can be observed between political representation. Islands that have more residents per member of Parliament (MP) tend to receive less funding for essential services per head (Figure 6.6). Political representation appears to have important Chapter 6: Managing the Public Sector for Results 153

influence than population size or development need, both of which are preferable bases for allocating funds. Indeed, it appears that the political system is helping create inequities among islands.

Figure 6.6: Funding Allocation for Staff Costs by Island, FY2006 1,500 6,000

1,200 4,000 900

Persons 600 2,000 300

0 0 NZ$ per head in 2005–06

Atiu Mauke Mitiaro Aitutaki Manihiki Penhryn Mangaia Rarotonga Rakahanga

Pukapuka-Nassau

Persons per MP (left axis) Funding for sta costs for essential services (right axis)

Note: Electoral districts are specic to one island. MFEM = Ministry of Finance and Economic Management, MOH = Ministry of Health, MP = member of Parliament. Source: Authors’ estimates based on data supplied by MFEM and MOH.

Political representation has also been a factor, and may remain so, in distributing public funds within an island. The 1998 Commission of Political Review noted:

Until recently, power was too concentrated in the The link central government. One effect of this has been that the between MP, if a member of the political party in power at the time, political has assumed a greater and sometimes autocratic role in the representation community, because they [sic] have become gatekeepers and island channeling government resources, jobs and contracts to funding those they favor, and starving supporters of opposition indicates parties. The disparity between constituencies which support politically [what]ever party is in power, and those which do not, is skewed quickly obvious.114 priorities

114 Commission of Political Review. 1998, p. 53. 154 Cook Islands 2008 Social and Economic Report—Equity in Development

A further indicator of the health of the political system is the high financial cost of Parliament arising from the high number of political representatives.115 The Commission of Political Review observed:

“New Zealanders pay about NZ$3 each per year (which the average worker there can earn in less than half an hour’s work) for their MP’s salaries and allowances. Cook Islanders pay about NZ$61 each per year for their MP’s salaries and allowances, which is about 20 hours’ work for the average Cook Islands worker. In other words, we [Cook Islanders] pay 20 times more in cash, and about 40 times more in the time needed to earn that cash. If we add the other costs of operating Parliament and related expenses paid by the people, the difference is greater again... We have not had time to calculate the cost per person which Cook Islanders have to pay for the travel of their ministers, but rough comparisons show that it is enormously more than people in most countries of the world have to pay.”116

The high financial cost is ongoing. In real terms, expenditure on the 24 MPs is now higher than it was at the completion of the Commission of Political Review, and it remains a significant share of total expenditure (Figure 6.7). The NZ$2.5 million allocated to MPs in FY2006 compares to the NZ$3.0 million allocated to staff costs for education in the outer islands in that year, the NZ$1.3 million allocated to staff costs for health care in the outer islands, andthe NZ$1.1 million allocated to the maintenance of government buildings, including schools and health facilities.

115 There are about 700 constituents per member of Parliament in theCook Islands; fewer than the 900 in Tuvalu; 2,000 in Kiribati; 11,000 in the Fiji Islands; and 32,000 in New Zealand (based on material provided by the Office of the Prime Minister and the Political Reform Commission). 116 Commission of Political Review. 1998, p. 64. Chapter 6: Managing the Public Sector for Results 155

Figure 6.7: Cost of Operating Parliament 2.5 4.0

2.0 3.0

1.5 2.0 1.0 Share of expenditure (%) NZ$m in Dec 1998 prices 1.0 0.5

0.0 0.0 98-99 99-00 00-01 01-02 02-03 03-04 04-05 05-06

Real NZ$m Share of expenditure

MFEM = Ministry of Finance and Economic Management, m = million, NZ$ = New Zealand dollar, % = percent. Source: Authors’ estimates based on MFEM, budget estimates, Part I, Appropriation Bill, Appropriations and Commentary, various years.

The relevance of the high level of funding extends beyond opportunity cost—i.e., the results that could be generated if the funds were used elsewhere. It extends to the risk that the high returns gained by winning a seat in Parliament generates inappropriate incentives to gain political power and the associated risk of rent-seeking behavior. The high turnover of governments and prime ministers, the apparent politicization of the position of CIIC chair, recent moves to undermine the independence of the civil service, and the political influence over funding decisions at the expense of equity point to the presence of inappropriate incentives in the political system.117 The politicization of the civil service and public expenditure was generally at the heart of the 1990s crisis, yet the political reform agenda established to address the problems remains incomplete. This history and the

117 In 2006, the new contracts of heads of ministries were modified to add a minister’s right to dismiss heads of ministries they deem incompatible. Previously, dismissal was reserved for incompetence or insubordination. 156 Cook Islands 2008 Social and Economic Report—Equity in Development

indications of ongoing concerns suggest that it is important to revisit political reform with a view to ensuring the health of the political system.

6.9 Achieving Results Orientation

One initial achievement of the 1990s reform program was an increased role for the community in managing public resources. This was triggered by intense community dissatisfaction with the performance of the Government and facilitated by measures to increase information flows and provide for broader input in decision making. Measures adopted included the (i) release of regular statements of economic and financial conditions as part of the budget process, including pre-election statements; (ii) release of draft budgets for public consultation; (iii) establishment in 1996 of the National Development Council, comprising business, nongovernment organi zations (NGOs), and traditional and church leaders, as a focal point for national consultation; (iv) conduct of national retreats as forums for policy debate; and (v) establishment of PERCA. An active, free media backed these measures.

While the flow of information from the budget and PERCA has remained high, most other measures faded. A notable exception was the conduct in 2003 of the National Development Forum and follow-on consultation that culminated in the Cook Islands National Sustainable Development Plan (NSDP) 2007–2010 (Box 6.4). NSDP sets out the national vision and goals, the direction to be followed by lower-level sector strategies, corporate plans, and the annual budget. It aims to clarify the prioritization of public policy and the use of public funds, assisting coordination across agencies and with NGOs and the private sector, and providing the basis for improved harmonization and alignment of donor assistance (which is already well advanced with the governments of New Zealand and Australia). Chapter 6: Managing the Public Sector for Results 157

Box 6.4: The Prime Minister on the Role of the National Sustainable Development Plan We have emerged from some painful years of structural and institutional adjustment because of national economic reforms. A consequence of this experience has been the acknowledgement that Government needed to take a long-term view of its development initiatives to meet the needs and aspirations of our people better in the context of a changing socioeconomic environment and a rapidly developing landscape shaped by increasing globalization, recent population trends, and an expanding private sector. Government’s reliance on its annual planning process as the basis for national budget allocation was deemed inadequate. Ministries and departments struggled to embrace the country’s priorities for each approaching fiscal year while the corresponding Budget Policy Statement was often found wanting because of political uncertainty, changing needs, and resulting policy inconsistency. Government and its partners in the private sector and the wider community agreed at the 2003 Development Forum that the country required more coherence, consistency, and predictability in terms of long-term goals and objectives and a greater degree of consensus and participation for initiatives to move beyond the political will of the day and reflect the will of the people. The National Sustainable Development Plan (NSDP) promises to help us move beyond the limits of political intervention and ensure our development efforts are guided by principles of good governance and sustainable development and focused on the welfare of all Cook Islanders, irrespective of power allegiances. NSDP also promises to provide us with a solid platform to engage with our development partners and seek targeted, coordinated, and harmonized development assistance based on our national priorities. NSDP is by no means the solution to all our planning and priority-setting challenges. It is, however, significant because it represents the foundation of our future cooperation regarding the sustainable development of our nation. It is a forward-looking plan and it is comprehensive though not exhaustive. It provides more clarity and direction. It brings together the cross-linkages and relationships that will underpin the achievement of our national goals. Granted there are gaps in terms of the data and information we need to make better decisions, nonetheless, we have made a solid start in the right direction. NSDP presents us with an important opportunity to weave our ideas, to make our efforts more systematic and robust and to work together with common purpose. We should not lose sight of this. Source: Extract from the Prime Minister’s forward to NSDP (Cook Islands Government 2006a, p. 3) 158 Cook Islands 2008 Social and Economic Report—Equity in Development

The tools of The next step is to finalize the sector plans and align the results-based corporate plan with the higher level strategies of the NSDP. management This planning process—combined with modernized public are almost sector legislation, improved financial management systems, in place, and a long period of capacity building in the public sector— but barriers will provide to the Cook Islands the basic tools required to remain achieve results-based management in the public sector.

There is, however, some uncertainty as to whether the tools will be used to their potential. The public sector’s contribution to development has risen over time, but there nonetheless appear to be important barriers to achieving a stronger results focus.

Performance One indicator of such barriers is the limited effort monitoring made to assess performance. While the budget sets out a is weak work plan with results and performance measures for the outputs of each ministry, they are not scrutinized in a systematic manner. The management system established for ministries requires a regular review by PSC of progress in delivering these outputs, but no such review is undertaken. Many performance measures are unrealistic—too high to be of use in the annual review of progress required under the budget system. Heads of ministries are subject to performance review, but without ministry-level information, this performance review can be only superficial. This means the cycle of inputs, activities, and outputs required to feed back into their reformulation in subsequent years is weak at best and, at worst, completely absent.

Statements Achieving results requires a workable statement of what on agency is to be achieved. Results or targets are most useful when outputs they are set to be achievable with good performance but sometimes not achievable by mediocre effort. This allows monitoring lack realism to provide an indication of the quality of work undertaken. Goals or targets that are so ambitious they cannot be reached fail to do this—or to provide incentives. Budget documents suffer this weakness. Ministries have considerable financial autonomy under the current management system. For Chapter 6: Managing the Public Sector for Results 159

example, heads of ministries can appoint staff if the personnel budget is not overspent, award bonuses and pay increases within specified bands, and reallocate funds among outputs excluding personnel costs.118 The failure to balance such autonomy with performance monitoring means that the Cook Islands system may lean too much toward autonomy.

The reasons for forming barriers against a results focus More scrutiny are unclear. Candidate explanations are capacity constraints is needed— in the civil service, resistance from political representatives and is to improved accountability and transparency, and similar proposed by resistance by the civil service or public agencies that hold the the national balance of power under the current system. Regardless of plan the causes, the solution is likely to lie in opening the system to scrutiny. This is likely to require revisiting the initial intention to engage civil society actively in decisions on the use of public resources.

The NSDP 2007–2010 provides an opportunity to achieve this broader engagement. It establishes the NSDP advisory committee—comprising representatives from government, the private sector, and community groups— meeting quarterly to provide high-level, multistakeholder analyses of outcomes. These reports are to be consolidated and presented to the Cabinet every 6 months, presented to Parliament, and then made available to the public and development partners. Each coordinating agency appointed under the plan (which includes parties from outside the Government) is to provide an annual progress report on the implementation of relevant strategies and associated key outcome targets. The vitality of this process will be critical to the success of the NSDP 2007–2010.119

It will be important that any faltering in the process be identified early so that corrective action can be taken. The NSDP 2007–2010 shares the tendency of budget

118 Cook Islands Government. 2006b, Part C, Sections 2 and 10. 119 Cook Islands Government. 2006a, pp. 42–43. 160 Cook Islands 2008 Social and Economic Report—Equity in Development

documents toward overly ambitious targets, and it is unclear whether the plan provides sufficient guidance on some key public policy issues likely to be faced in preparing and implementing sector and corporate plans, etc. The policy stance on foreign workers and investors is not spelled out, for example, nor are agreed minimum standards of service for outer islands, directions for the political system, or a policy of support for the disadvantaged. This situation appears to reflect difficulties in reaching consensus in consultation on NSDP. The same factors that hindered consensus building may also hinder implementation of NSDP. In the extreme, a mid-term update of NSDP could be contemplated to address any faltering in implementation.

Other measures could be taken to support accountability and transparency and improve the results focus of the public sector:

 It is very important that PSC succeed in its intention to establish an effective performance monitoring system for ministries and heads of ministries.

Budget  Budget documents should be made more readable. documents Focus group discussions, for example, could be could be held with a cross-section of the community to made more clarify how widely read existing documents are, readable and how well they are understood, and how they could relevant be reconfigured to provide more information to the community. It is also important that the documents begin to report the latest actual fiscal outcomes. At present, these can be obtained only from audited accounts, which are available only with a time lag and in a different format to the budget documents that makes tracking the fiscal position difficult.

 The report of the Budget Committee should be released publicly. This would have the advantage of both providing important information to the public on the use of their funds and enhancing the Chapter 6: Managing the Public Sector for Results 161

committee’s public accountability and preventing it from straying from its essential role.

 Payments on behalf of the crown (POBOCs), Payments on which currently account for around 20% of public behalf of the expenditure, should be reduced. Responsibility for crown could POBOCs lacks the clarity of a ministry output. For be phased out example, MIA views its responsibility for welfare payments as limited to their administration, with responsibility for policy matters held by MFEM (the funding agency). This breaks the link between MIA’s policy role and its ability to control achievement of the policy objectives. A recent PERCA report highlighted shortcomings in accountability with POBOCs and their vulnerability to political influence (Box 6.5). As this is a typical outcome of special-purpose funding mechanisms, they would better be folded into ministry outputs.

 A code of conduct for members of Parliament, civil servants, and officers of public enterprises should be adopted to help overcome evident shortcomings in attitudes and understanding of the role of public office. Ideally, these codes would provide for suspension from office for infringements and independent scrutiny of compliance, preferably by PERCA.

 Controls on the appointment of heads of ministries should be tightened to curb a tendency toward politicization. Specifically, it would be important to withdraw the right of a minister to remove incompatible heads of ministries. 162 Cook Islands 2008 Social and Economic Report

Box 6.5: The Auditor-General’s Report into Payments on Behalf of the Crown Payments on behalf of the Crown (POBOCs) are payments that the Crown is legally obligated to pay. They fall under three categories: (i) legislative/ contractual, (ii) subscriptions, and (iii) other Crown commitments including grants and other funds. POBOCs are not an output of a ministry; however, ministries on behalf of the Crown administer them, and the head of the ministry is responsible for the use and management of the funds in line with the appropriation. This is the first time a full review of POBOCs has been undertaken as part of the Crown audit. The focus of the audit was to evaluate the internal control processes and confirm the legitimacy of payments made by the ministries. The audit also looked at the administration of POBOCs at the Crown level by the Ministry of Finance and Economic Management (MFEM). A key characteristic of the administration of POBOCs by the Crown has been the lack of accountability put in place to ensure funds have been utilized for the intended purpose. This may have been due to the emphasis being placed upon the output and capital appropriations of the ministries. However, we emphasize that the POBOCs appropriation should have come under the same scrutiny as all other appropriations. There is no differentiation in the MFEM Act 1995–1996 in the treatment of POBOCs. Given the poor governance structure in place for the administration of POBOCs, it is not surprising that, at the ministry level, we have identified numerous deficiencies which have resulted in funds not being used most effectively and efficiently to meet the purpose of the appropriations. Some ministers and heads of ministries have used POBOCs as a vehicle to make payments that would not pass the decisive test of public acceptance. These payments have been influenced by political bias, nepotism, and favoritism. It is a sad reflection on the Cabinet that approved some of these payments. While some of our findings have been peculiar to the individual ministries, fundamental issues have been highlighted in our audit that applies to the overall management of POBOCs. It is recommended that the financial secretary, who administers the MFEM Act, under which POBOCs are made, liaise with the respective heads of ministries, to ensure that a time frame for corrective action is implemented to strengthen internal control procedures and avoid the misuse of POBOC funds in the future. Again, we stress the need for a comprehensive code of conduct for all public officials. Source: Cook Islands Audit Office. 2005. Chapter 7 Conclusion

ook Islands’ relatively high living standards are Summary of achieved through a private sector-led growth model, Key Points Cdriven mostly by tourism. The nation’s fiscal position significantly improved from the debt crisis in the mid- 1990s. From 2007, the Government became well placed to fund development projects, particularly infrastructure in the main centers of Rarotonga and Aitutaki to support environmentally sustainable growth. However, Cook Islands still suffers from rising global commodity prices, declining population, and inherent vulnerability to external shocks.

Major gaps in living standards and economic prospects exist between the outer islands and the main centers. Considerable public resources in outer islands development have achieved little, a challenge for the Government’s development agenda. The disadvantaged would benefit from better targeting of the welfare system. Education plays an important role in building the skills needed for the economy, particularly through expanded vocational training. Some signs indicate that the damaging attitudes of the mid-1990s remain, and there is an underlying need to maintain the Community large gains made in governance. aspirations are rising and can The Cook Islands community demands higher be met only service standards, larger incomes, and more opportunities. with strong Aspirations appear to be rooted in reaching New Zealand economic standards while, at the same time, preserving the modernized growth 164 Cook Islands 2008 Social and Economic Report—Equity in Development

Cook Islands lifestyle of Rarotonga and the more traditional lifestyle of the outer islands.

Continued economic growth is required to meet these aspirations, but it is not assured. Recent economic success can be attributed to the opening of the economy following the economic reform and a hands-off approach to the private sector. The future is likely to be more demanding of economic managers, and there are already some signs that the economy may be losing its international competitiveness. Public policy and the public sector will need to become more sophisticated to meet the emerging challenges if ecologically sustainable and equitable development is to be secured.

Growth will In broad terms, economic growth is a function of its require more factors of production—land, labor, and capital—and how foreign labor well these factors are used. The departure of resident labor and capital availing itself of open access to New Zealand means the economy inevitably reaches a point where it can grow only by replacing its departing labor with imported labor. This point has been reached. Open access to New Zealand now goes together with rising dependence on foreign labor if growth is to continue. Continued growth will also go together with rising dependence on foreign capital. This is provided via the banking system and by foreign direct investment, which also provides access to ideas, marketing networks, and competitive pressures that raise productivity.

There may be some resistance to rising foreign input and the changes it brings to the Cook Islands’ community. Economic policy needs to (i) become more sophisticated to manage these pressures, (ii) remain vigilant in maintaining the international competitiveness of the economy if growth is to continue, (iii) address some unnecessary regulation of competition, (iv) break down monopoly power, (v) handle the extra public debt that will be incurred in relieving infrastructure constraints, and (iv) answer a recent tendency toward protectionism. Chapter 7: Conclusion 165

At the same time, public policy will be faced with the Other social, (i) rising dependency of the outer islands as their populations political, and and economies continue to decline, (ii) social and financial environmental costs of worsening rates of noncommunicable diseases, issues are (iii) political system’s need of reform, and (iv) risks to the pressing—all natural environment imposed by recent growth and gaps in calling for environmental protection. a higher standard of Steps have been taken to ready the public sector to governance meet these challenges, most notably through finalizing the National Sustainable Development Plan (NSDP) 2006– 2011. Ongoing efforts to raise the standard of governance, most notably though more accountability and transparency in the public sector, would do much to complement these efforts.

This report advocates the adoption of rigorous but ADB realistic benchmark indicators that would guide the NSDP advocates into a path of long-term sustainable development within a fiscal sound macroeconomic context. Based on the improved fiscal responsibility governance, the Government is in a position to establish a benchmarked basis for environmentally sustainable growth by investing to a set of in robust infrastructure and to review macroeconomic sound benchmark indicators developed under the Manila indicators. Agreement for fiscal prudence that would be able to guide decision making to ensure that decisions create the desired growth and development results.

Appendix 1: Participation and Consultation

At the time that this Pacific island economic report (PIER) was being prepared, the Ministry of Finance and Economic Management (MFEM) and the Office of the Prime Minister (OPM) were seeking to finalize the National Sustainable Development Plan (NSDP) for adoption by the Government formed following the national elections of September 2006. Technical assistance was formulated to fit with this policy process and schedule. Preparation of the report was overseen in the Cook Islands by MFEM and OPM and began with a meeting with the heads and staff of MFEM and OPM to clarify expectations and review issues regarding the social sector, private sector development, economic management, and governance. Frequent discussions were subsequently held to provide feedback on the conduct of the research and refine plans for informal retreats to be held to support policy development.

The research for the report drew heavily on existing material including drafts of the NSDP, Government financial and budget reports, ministry strategic plans and background reports, statistics from the Cook Islands Statistics Office, and reports prepared by ADB and other aid agencies.

Consultation was conducted to collect views and information from representatives of Government ministries, 168 Cook Islands 2008 Social and Economic Report—Equity in Development

nongovernment organizations (NGOs), public enterprises, businesses, and other community members. Consultation included visits by the report team to the selected Southern Group islands of Mitiaro, Atiu, and Mauke. These visits provided an opportunity to observe, hear about, and better understand rural community issues and the particular economic and social setting of these islands. A list of people consulted on Rarotonga and the Outer Islands in researching the PIER is provided as Tables A.1 and A.2.

Three informal retreats were facilitated by the report team in August and September 2006 in partnership with OPM and MFEM. The retreats, conducted under the umbrella of the NSDP, offered opportunities to refine the NSDP and advance preparation of the supporting sector strategies.

Retreats on private sector development were held on Rarotonga and Aitutaki. The draft NSDP provided for the preparation of a private sector development strategy but with little guidance on what it was to contain. The retreats formulated a road map for private sector development, which was seen as potentially the basis of a private sector development strategy. A list of participants at the retreats is provided as Table A.3, the agenda is summarized as Table A.6, and the key results of the retreat, as summarized in the road map, are presented as Table A.8. It was agreed that the road map would be taken forward by the Cook Islands Chamber of Commerce, whose president was to circulate the draft to chamber members for comment and prepare an alternative for consideration by members and Government ministries.

A second retreat, also held on Rarotonga, reviewed social sector issues. Given the more advanced state of policy development on social issues, the approach was different to the private sector work. The focus was on how social issues were addressed in the NSDP and in particular asked if the NSDP was consistent with existing draft sector plans. This Appendix 1: Participation and Consultation 169

examination took place against a theme of ensuring service delivery addressing the needs of disadvantaged people and communities. A list of participants in the social sector retreat is provided as Table A.4, the agenda is summarized as Table A.5, and the key results of the retreat is summarized as Table A.7. The forum provided an opportunity to advance the achievement of consensus on the NSDP and to assist relevant agencies with their sector plans. Recommendations from the retreat included allowing more time for the social sector agencies such as Health, Education, and Internal Affairs to offer input for the NSDP and to set up a social services coordinating committee made up of NGOs and government agencies to provide a vehicle for joint policy formulation. 170 Cook Islands 2008 Social and Economic Report—Equity in Development continued on next page Manager, Petroleum Toa Manager, Edgewater Reosrt Manager, ANZ Bank Manager, JIMCO Project Manager, NZAID Manager, NZAID CEO, Telecom CEO, Ports Authority Manager, Cook Island Investment Corporation Manager, Bank of Cook Islands CEO, Te ApongaCEO, Te Uira (Electricity) CEO, Airport Authority PropertyManager, Cook Islands Investment Corporation FinanceManager,Cook Islands Investment Corporation Institutional Specialist Team Leader/TransportTeam Infrastructure Planner Project Manager Punanga Tauturu Inc President CINCW, Red Cross President, Mangaia Womens Council Mangaia, Womens’s Development Officer Auditor-General Manager, Aid Management Division Cook Islands Tourism Authority Position Bruce Manuela Heimona Browne Phil Haynes James Beer Private Sector Christina Newport Christina Stephanie Knight NZAID Stuart Davies Andrew McBirney Taukea RauiTaukea Unakea Kauvai Apii Timoti Joe Ngamata Llyod Miles Leigh Stevenson PublicEnterprises Brian Deutrom Janusz Sobieniak MathildaMiria-Tairea Cyclone Emergency Assistance Project Mii Daniels Nikki Rattle Moe Lucre Tangimama Vavia Tangimama NGOs Paul Allsworth Garth Henderson Chris Wong Person consultedPerson NationalGovernment Table A1.1: People Consulted A1.1: Table on Rarotonga Public Service Commissioner CEO, Office of CEO, the Minister for Outer Islands Manager,National Human Resource Development SeniorInspector, Labour andConsumer Division Probation Service, Ministry of Justice Secretary, Ministry of Justice ChildService/Communityand Family Officer Youth Research and Programme Officer, GAD Disability Officer Director, Gender and Development Division Chief Censor Director, Youth and Sports Division Director, Social Welfare Division Secretary, Ministry of Internal Affairs Director Policy, MOE Acting Secretary of Education Director, Public Health, MOH Policy Analyst, OPM Director, Policy Unit, OPM Chief of Staff, Office of the Prime Minister Statistics, MFEM Customs, MFEM Fund Manager, MFEM Management Accountant, MFEM Government Statistician,MFEM Economic Analyst, MFEM Ministerial Liaison Officer,MFEM Economist, MFEM Financial Secretary, MFEM Position TonumaivaoNavy Epati OthenielTangianau FrancesTopa-Apera Helen Maunga Teokotai Joseph Terry, Hagan Tumutoa Henry Ruta Pokura Nooroa Numanga Nga Teao Alfred Morris Piniki Utia John Henry Tamarii Tutangata Alexis Wolfgramm Peter Etches Ngapoko Short Maria Tuoro Vaine (Mac) Mokoroa (Mac) Vaine Tuaere Tangianau Amelia Ngatokorua NgapokoMgatamaine David Lobb Priscilla Maruariki Taggy Tangimetua Derek Johnson Dallas Young Paul Mcquire Kevin Carr NationalGovernment Person consulted Table A1.1 (continued) Person consulted Position Person consulted Position Edwin Pittman Secretary, Ministry of Foreign Affairs & Immigration Okirua Apera Toa Petroleum Tutai Toru Principal Immigration Officer, MFAI David Bridge Manager, Air NZ Tangi Aererua Immigration Officer, MFAI Kerry O’meara Accountant, Foodland Mark Short CEO, Development Investment Board Frances and Kevin Cook Directors, Cooks Bus Company Terry Rangi Projects Manager, Development Investment Board Maria Pera Manager, Tower Insurance Ina Kamana Administration, National Environment Service Ewan Smith Manager, Air Rarotonga Pasha Curruthers National Environment Service Marcus Niszow Pacific Resort Aukino Tairea CEO, Ministry of Transport Catherine Newman Manager, Westpac Bank Nga Mataio Secretary, Ministry of Agriculture Mike Carr Manager, KPMG Consultation and 1: Participation Appendix Atatoa Herman Secretary, Ministry of Works Chris Vaile Manager, Triad Petroleum Ben Parakoti Director, Water Works, MOW Iaveta Short Director, Cook Islands Trust Company Terii Tipokoroa Director, Road Works, MOW Christine Willis Frangi Company Louis Teiti Director, Building Control, MOW Jessie Sword Manager, Cook Islands General Transport Ian Bertram Secretary, Ministry of Marine Resource Teresa Manarangi-Trott President, Chamber of Commerce Lorraine Allan Financial Supervisory Commissioner Trevor Clarke Director, Cook Islands Trading Corporation

BCI = Bank of the Cook Islands, CICC = Cook Islands Christian Church, CEO = chief executive officer, CINCW = Cook Islands National Council of Women, GAD = Gender and Development Division, PSC = Public Service Commission, MFAI = Ministry of Foreign Affairs and Immigration, MFEM = Ministry of Finance and Economic Management, MOE = Ministry of Education, MOH = Ministry of Health, MOW = Ministry of Works, NGO = nongovernment organization, OPM = Office of the Prime Minister, NZAID = New Zealand’s International Aid and Development Agency. Source: Pacific Island Economic Report team. 171 172 Cook Islands 2008 Social and Economic Report—Equity in Development continued on next page Ngatiarua Areora Tengatangi Deputy Mayor (Mapumai) and Agriculture Officer Teenui Island Secretary Island Council Administrator Position Mayor Women’s Development Officer, GAD Social Welfare Officer/Disability Government Representative Nurse Health Public Health Inspector Taparere Lodge Atiu Villas Director, Atiu CoffeeFactory Ltd/ Atiu Development Corporation Atiu Tours Nui Café and Craft andTautu Sons (excavator and tractor supply) Agent, Air Raro Island of Atiu Teura Kea Jnr Tuainekore Samuel PorioTauu Maara Tairi Ngametua Pukeiti Island Council Island Adminstration Man Unuia Teariki Maurangi NGOs Person consulted Tura KoronuiTura Tangi VainepotoTangi Tangata Edwards National Government Moetaua Boaza WindyTeina Dr Don George Aere Upokokeu Private Sector Paiere and Nga Mokoroa Dr Roger Malcolm Juergen Manske-Eimke Marshall Humphreys Parua Tavioni Marjorie Tautu Nellie Mokoroa Table A1.2: People A1.2: Table Consulted on the Outer Islands Island Administrator Heavy Plant Foreman Infrastructure Foreman Workshop Manager Justice of the Peace, Accommodator Government Representative, BCI Bank staff, Acting Youth and Sports Officer Position Mayor Nurse in Charge of Hospital Acting Principal, School teacher (G6, F1&2) GradesTeacher, 3, 4, and 5 Teacher, GradesTeacher, 1 and 2 Pre-school teacher, New entrants CICC Pastor’s wife, President CICC Women’s group CICC Women’s group CICC Women’s group Nukuroa Vainetini Catholic Womens League Catholic youth CICC Women’s group, Girls Brigade, Sunday school teacher CICC Women’s group, Nukuroa Vainetini, Red Cross Catholic Womens league, Nukuroa Vainetini Ngametui Kimiora TetavaTeata Toru NgatokoToru Person consulted Island of Mitiaro Tai Topa Tai Makava Murare Tungane Pokoati Island Council Island Administration Peter Van Dongen National Government Ngamata Bryson Teremoana Teuira Ngatuaine Rongo Maara Ngatoko Aremaki Henry Raeputa Tunoa NGOs Tongia Rasmussen MurareTuroa Vainetopa Toa Nooroa Tereva Noopoti Taero Ngatupuna Ngametua Kimi Pouao Cecilia Samuela Table A1.2 (continued) Person consulted Position Person consulted Position Tereapii Aurupa Girls Brigade, Sunday school teacher, Island of Mauke CICC Women’s group, Nukuroa Vainetini Parliament Kimi Turangatira President Nukuroa Vainetini, Disability, Red Cross, Mapu Taia Member of Parliament Child Welfare Island Adminstration Toru Vaine President Child Welfare Tai Tura Island Secretary Community Members Taputu Mariri Admin/Finance Nga Teuira Returnee (Government worker from Melbourne) National Government Maora Murare Mother Akerongo Moekaa Social Welfare Officer Rua Ngatuakana TV Agent Josephine Ivirangi Mauke School Principal

Ake Pouao Widow Dr Myoaung Doctor Consultation and 1: Participation Appendix Maine Tuakava Mother Terepai Tuakana Public Health Inspector Tini Keu Nurse Ake Maruaiki Nurse

BCI = Bank of the Cook Islands, CICC = Cook Islands Christian Church, F = form, G = grade, GAD = Gender and Development Division. Source: Pacific Island Economic Report team. 173 174 Cook Islands 2008 Social and Economic Report—Equity in Development continued on next page Position President, Chamber of Commerce PetroleumToa Director, KPMG Chartered Accountants Manager, ANZ Bank Secretary, Ministry of Internal Affairs Accountant, Zetland Trust Manager, Bank of the Cook Islands Secretary, Ministry of Transport Chief Executive Te Officer, Aponga Uira Technical Adviser, National Environment Service Private Consultant Assistant to Secretary, Ministry of Agriculture Secretary, Ministry of Works Aid Management Division Aid Management Division Manageress, Cook Islands General Transport Staff, OPM Secretary, Ministry Marine Resources CEO, Office of the Public Service Commission Director, Foodland Ltd Director, Cook Islands Trust Policy Adviser, Democratic Party Director, Meatco Ltd National Administrator, CINCW Domestic Violence Coordiantor, Punanga Tauturu Inc Policy Director, OPM Policy Analyst, OPM Participants Rarotonga Teresa Manarangi-Trott Okirua Apera Mike Carr Phil Haynes Tamarii Tutangata Michael Innes-Jones Unakea Kauvai Aukino Tairea Apii Timoti Pasha Carruthers Tarita Huthinson Ngatoko Ngatoko Atatoa Herman Jim Armistead Teruautu Ringi Jessie Sword Pauline Rangi Ian Bertram Russel Thomas John Wichman Iaveta Short Ken Buchanan Brett Porter Rongo File Mii Makikiriti Mac Mokoroa Maria Tuoro Table A1.3: Participants A1.3: Table in Private Sector Development Retreats Ministry of Marine Resources, Hatchery Manager, Amuri Guest House Manager, Bishops Transfers Island Secretary, Aitutaki Island Admin Officer Agriculture Officer Manager, Aitutaki Aluminium Manageress, Aretai Beach Villas Manageress, Samade on the Beach Manageress, Esma Beach Villas Manageress, Poko’s Shop & Takeaway Co-Director, Aquila Rentals Ltd Government Representative Member of Parliament Pastors wife, Church SDA Arutanga CICC Minister Member of Parliament Women’s Development Officer Chairperson, Aitutaki Tourism Council Environment Service Officer Economist, MFEM Policy Analyst, OPM Macroeconomist, PIER Team Private Sector Specialist, PIER Team Facilitator, PIER Team Position Aitutaki Richard Story Nga Tom Tekura Bishop Fred Charlie Tepaeru Cameron Teiti Teiti John Winchester Tutai Nicholas Adrianne Vakalahi Ani Katu Alone Maea Ngapare Tatira Savage Lockington Junior Maoate Louisa Puna Maara Tairea Kete Ioane Lockington J.J. Browne Vavia Puapii Paul Mcquire Maria Tuoro Craig Sugden Malcolm Bosworth Angie Tuara Participant Resource Personnel Table A1.3 (continued) Participant Position Participants Position Rarotonga Resource Personnel Mii Dyer Cook Island Investment Corporation Paul Mcquire Economist, MFEM Maria Herman Small Business Enterprise Centre Tuaere Tangianau Chief of Staff, OPM Lydia Tararo Marsh Administration Officer, Small Business Enterprise Centre Terry Rangi Staff, Development Investment Board Kevin Carr Financial Secretary, MFEM Craig Sugden Macroeconomist, PIER Team Garth Henderson Manager, Aid Management Division Malcolm Bosworth Private Sector Specialist, PIER Team Priscilla Maruariki Management Accountant, MFEM Angie Tuara Facilitator, PIER Team Dallas Young Ministerial Liaison Officer, MFEM BCI = Bank of the Cook Islands, CICC = Cook Islands Christian Church, CEO = chief executive officer, CINCW = Cook Islands National Council of Women, Inc = Incorporated, Govt = government, Ltd = Limited, MFEM = Ministry of Finance and Economic Management, OPM = Office of the Prime Minister, NZAID = New Zealand’s International Aid Consultation and 1: Participation Appendix and Development Agency, PIER = Pacific island economic report, SDA = Seventh Day Adventist Church. Source: PIER Team. 175 176 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A1.4: Participants in the Social Sector Retreat

Participant Position Pastor Tutai Pere President, Religious Advisory Council Donna Smith Team leader, Disability Action Team Dallas Young Ministerial Liaison Officer, MFEM Bim Tou CEO, Cook Islands Sports & National Olympic Committee Robert Graham Sports Development Unit Manager, CISNOC Karen Tairea Dietitian, Ministry of Health Mere Pakitoa Nurse, Are Pa Metua Niki Rattle Secretary Red Cross, President CINCW Tamarii Tutangata Secretary, Ministry of Internal Affairs Jackie Evans Senior Public Health Officer, MOH Edwina Tangaroa Health Educator. MOH Mii Makikiriti Domestic Violence Coordiantor, Punanga Tauturu Inc Ruki Mauri Probation Officer, Ministry of Justice Annafaye Newbigging Probation Officer, Ministry of Justice Ana File Peer Educator, Pacific Islands AIDS Foundation Rongo File National Administrator, CINCW Frances Topa Apera Manager, National Human Resource Development Peter Etches Acting Secretary for Education Priscilla Maruariki Management Accountant, MFEM Paul Mcquire Economist, MFEM Tumutoa Henry Child and Family Service, INTAFF Nooroa Numanga Disability Officer, INTAFF Nga Teao Director, Gender and Development Division, INTAFF Helen Maunga Act Director, Labour and Consumer Service, INTAFF John Henry Director, Social Welfare Division, INTAFF Piniki Utia Director, Youth and Sports Division, INTAFF Mata Winchester Councillor, Local Govt—Te Au O Tonga Vaka Marjorie Crocombe Patron, Punanga Tauturu Inc Nani Samuela Legal Rights Training Officer, Punanga Tauturu Inc Mere Worth Are Pa Taunga Maire Dubott CEO, Pacific Island Aids Foundation Mereana Taikoko Director, Te Kainga (Mental Illness Centre) Dr Roro Daniel Secretary, Ministry of Health Madeline Metcalf Volunteer, Te Kainga Polly Tongia Volunteer, Tobacco Group Julian Westrupp Peer Educator, Red Cross Maria Tuoro Policy Analyst, OPM Tuaere Tangianau Chief of Staff, OPM Craig Sugden Macroeconomist, PIER Team Margaret Chung Social Sector Specialist, PIER Team Malcolm Bosworth Private Sector Specialist, PIER Team Angie Tuara Facilitator, PIER Team CEO = chief executive officer, CINCW = Cook Islands National Council of Women, CISNOC = Cook Islands Sports and National Olympic Committee, GAD = Gender and Development Division, Govt = government, Inc = Incorporated, INTAFF = Ministry of Internal Affairs, MFEM = Ministry of Finance and Economic Management, MOE = Ministry of Education, MOH = Ministry of Health, OPM = Office of the Prime Minister, PIER = Pacific island economic report. Source: PIER Team. Appendix 1: Participation and Consultation 177

Table A1.5: Agenda for the Social Sector Retreat

Opening Service and Prayer Introduction Outline of providing services to the disadvantaged NSDP Overview of draft NSDP Presentations by Sectors Health Human Resource Development Education Welfare Sports Group Work by Sector How key social issues feature in the NSDP 1. Does the NSDP define its visions and goals clearly? 2. Do the sectoral plans reflect these visions and goals? 3. Who are the disadvantaged? 4. Are theirs needs being met? Plenary Group presentations on findings The Way Forward Recommendations Closing Address and Prayer

NSDP = National Sustainable Development Plan. Source: Pacific Island Economic Report (PIER) Team. 178 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A1.6: Agenda for Private Sector Development Retreats

Opening Service and Prayer Brief Outline of the draft National Sustainable Development Plan What is a sector plan? What is the private sector development strategy to achieve, and what are the issues? 1. External view 2. Ministry of Finance and Economic Management 3. Development Investment Board 4. Chamber of Commerce Open discussion Group work on “What is the private sector development strategy to achieve?” Discussion in groups of what key actions are to be undertaken under a private sector development strategy, including addressing possible impediments to doing business and private sector growth Plenary discussion on “What is the private sector development strategy to achieve?” Group work on prioritization Discussion in groups on prioritizing what key actions should be undertaken Group work on how the key actions should be implemented Discussion in groups on how key actions are to be implemented Plenary discussion on how key actions should be implemented and recommendations Closing Address and Prayer

Source: Pacific Island Economic Report (PIER) Team. Appendix 1: Participation and Consultation 179

Table A1.7: Key Conclusions from the Social Sector Retreat

Health • Need to improve service delivery • Indicators need to be changed to reflect updated statistics and data • Need to meet again for better incorporation and reflection of health into the NSDP

Human Resource Development • Current write up in NSDP is sufficient

Education • Annual budget to increase by 100% by 2010 • All outer island students should achieve on average 50% of the difference of their peers on Rarotonga by 2010 • Dropouts, pregnant girls from school students in the outer islands in particular nongovernment students (disadvantaged) be able to go back to school (after school hours) through establishment of continuing adult education by Jan 2008 • Teacher refresher courses to be introduced • Career teachers to also included orientation module for easing outer islands students into Rarotonga life and changes to their environment (transition might be challenging) • Teachers/trainers should be trained to teach adults also (capturing older children who may have left the system too early or willing to get back into school for formal qualifications) • Relocation of the Maori Language Commission from current (Ministry of Culture) to the Ministry of Education to facilitate the implementation of Maori language programs—resource development by 2008 (insert into NSDP) • Current write-up on HRD in the current NSDP draft is sufficient • Recommended that Immigration handling of foreign workers be addressed and done properly in collaboration with HRD also, as well as the inclusion of Hospitality and Tourism Training Centre (HTTC) training and other key

Welfare NSDP • More consideration of other key services such as labor, consumer, disability services • Welfare services need to be better clarified (maybe inserting relevant legislation into the NSDP could support the strategies and justify outcome targets • Youth, marginalized in the NSDP and national planning • Internal Affairs lacks act of Parliament to justify existence • Vision needs to incorporate (spiritual) values • Encourage participation in planning from other key/relevant stakeholders for welfare and other social services • Partnerships also encouraged to share resources (funds and manpower) • CRC—Children issues need to be clarified also and highlighted further in the NSDP (investment in their future) • Caregiver support for those caring for people with disabilities and also for the elderly

Sports • Review draft for Mini Games to reflect national well-being • Sports grounds and centers need to be accessible and affordable

NGOs • where do they come in the process?

Recommendations • Need to recognize NGO contribution to the NSDP process • Office of the Prime Minister to look into this further to support the process within the NSDP • Set up a Social Services Coordinating Committee, made up of NGOs and interested Government agencies • Develop terms of reference for social sector group to compile information to be included in the NSDP

CRC = Convention on the Rights of Children, NGO = nongovernment organization, HRD = human resource development, NSDP = National Sustainable Development Plan. Source: Pacific Island Economic Report (PIER) team. 180 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A1.8: Road Map to Private Sector Development What How Provide for a more informed • Collect and release to the public better information and community. data on private sector activities, including forecasts. • Ensure the Government and political representatives are better informed on private sector issues. • Provide for improved coordination among the central • Government, island councils and the private sector on private sector issues. • Allow for community debate on key issues. • Conduct research on new opportunities for expanding the economic base. Ensure the provision • Adopt an infrastructure master plan that provides a clear and sound pricing of critical and consistent policy and avoids inappropriate political infrastructure. interference. • Prioritize expenditure toward infrastructure that offers a high rate of return on investment, e.g., probably toward infrastructure whose lack is constraining private sector expansion (e.g., water and power on Aitutaki). • Establish and achieve minimum standards of service. • Increase public expenditure on essential infrastructure. • Allow Government borrowing for infrastructure provided that it is within the its borrowing capacity. • Pursue donor funding, especially for outer islands. • Explore on a selected basis self funding (e.g., private installation of water tanks, better septic tanks) or user charging for infrastructure. • Pursue management reforms in infrastructure providers (e.g., in island administrations, public enterprises, and Ministry of Works). • Increase the funding and technical capacity for maintenance of public infrastructure. • Ensure that social and environmental impacts are factored into decisions on infrastructure. • Improve the regulation of monopoly infrastructure. Expand the supply • Review options for retaining Government staff sent of needed labor. overseas for training (e.g., bonding, improved career paths). • Increase the share of overseas training provided in the Fiji Islands • Increase the share of overseas training provided in the Fiji Islands • Consider tightening access to social security immediately upon arrival in New Zealand. • Improve the quality of education, especially through adult education. • Pursue political stability to remaining in the Cook Islands more attractive • Update labor laws to make the labor market more responsive to the needs of the private sector.

continued on next page Appendix 1: Participation and Consultation 181

Table A1.8 (continued)

What How Attract foreign direct • Make public debate possible on the appropriate level investment. of foreign direct investment, taking into account its contribution and risks. • Adopt a clear and consistent policy on foreign direct investment that provides a balance of commercial and social benefits and costs. • Monitor the level and impact of foreign direct investment.

Make the Government work • Review the Government to examine the competency of better to become less of an the civil service and the current situation compared to that impediment to the private intended under the reforms. sector and provide better • Prepare a transition package for any surplus workers to support where necessary. leave the public service (e.g., retraining). • Monitor the commitment of the Government to any renewed reform effort. • Implement constitutional reform to provide for political stability. • Sell off or close activities that could be better undertaken by the private sector. • Reduce the potential for inappropriate political interference on private sector matters. • Improve the capacity of local government. Improve the management • Ensure better management of liquid and solid waste, with of environmental assets an emphasis on marine areas. important to tourism. • Set appropriate standards for home construction (e.g., the installation of water tanks and better septic tanks). • Explore the adoption of zoning to regulate the nature of development. • Improve the monitoring and enforcement of environmental regulations. • Raise community awareness of issues and good management practices.

Source: Pacific Island Economic Report team.

Appendix 2: Data

Table A2.1: Population Estimates and Vital Statistics

Year Total Total Total Crude Total Crude Natural Infant Infant Marriages (June) population resident births birth deaths death increase deaths mortality (number)d estimate estimatea (persons) rateb (persons) rateb (persons) (persons) ratec (persons) (persons)

1996 20,000 18,800 510 27.1 110 5.9 21 12 23.5 210 1997 18,300 17,400 413 23.7 144 8.3 15 15 36.3 229 1998 17,300 16,600 386 23.3 108 6.5 17 8 20.7 259 1999 16,400 15,500 361 23.3 96 6.2 17 5 13.9 387 2000 17,900 15,000 309 20.6 115 7.7 13 6 19.4 715 2001 18,100 14,000 313 22.4 88 6.3 16 4 12.8 578 2002 18,400 14,800 292 19.7 97 6.6 13 2 6.8 604 2003 18,400 13,900 298 21.4 87 6.3 15 5 16.8 623 2004 20,300 13,500 297 22.0 99 7.3 15 5 16.8 645 2005 20,200 12,400 280 22.6 91 7.3 15 6 21.4 755 2006r 20,800 11,800 278 23.6 85 7.2 16 3 10.8 707 2007p 21,100 12,500 287 23.0 82 6.6 16 3 10.5 786 a Residents are defined as people usually resident in the country who have had an estimated residence in the country of at least 1 year. The resident population may be under-estimated between census years, as overseas Cook Islanders that enter the country as visitors but remain and become residents may be excluded from the count (Secretariat of the Pacific Community Demographic Program [2004], p. 23). b Crude birth rate and crude death rate are calculated per thousand resident population as of 1992. c Infant mortality rate is calculated per thousand births. d Number of marriages includes also marriages of non-residents officiated in Cook Islands as the Islands is being marketed as a South Seas wedding and honeymoon destination. About 93% of the total number of marriages were non-resident. r revised p preliminary Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years; and Quarterly Statistical Bulletin, December 2007 Quarter. 184 Cook Islands 2008 Social and Economic Report—Equity in Development 6 4 0 1 0 0 0 10 Suwarrow 141 169 249 262 339 269 282 283 Rakahanga 612 531 357 251 497 503 608 606 Penhryn 51 49 49 63 62 56 66 48 Palmerston 515 515 351 351 452 452 508 508 663 663 266 266 405 405 668 668 Manihiki Manihiki 71 72 99 119 137 102 123 160 Nassau 761 670 797 507 732 779 785 664 Pukapuka 319 219 331 247 273 256 230 305 Mitiaro Persons 470 710 763 652 393 692 639 681 Mauke 0 0 0 0 0 0 2 0 Manuae Table A2.2:Table Population by Island 744 654 1,108 1,214 1,530 1,229 2,081 1,364 Mangaia 957 572 623 956 Atiu 1,312 1,455 1,225 1,006 2,194 1,946 2,335 2,357 2,423 2,855 2,389 2,390 Aitutaki 9,530 9,826 9,802 14,153 11,478 12,188 11,225 10,886 Rarotonga Cook 17,614 17,614 17,743 17,743 19,103 19,103 18,126 18,126 18,617 18,617 21,322 21,322 18,027 18,027 19,569 19,569 Islands b a a a 2006 census preliminary results and is likely to change Persons at sea at the (9)—are time and (8), 1986 1991 (85), ofrecorded the Census —1981 in the total population. 1991 2001 1986 1996 Year 2006 a b Source: Cook Islands Statistics Office online statistics accessed July 2008. 1971 1976 1981 Table A2.3: Population Change by Island and Age Group Region Island Total <5 5–9 10–14 15–19 20–24 25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69 70–74 75–79 >79 Change from 1996 to 2001 (%) Total (6) (30) (16) (6) (13) (25) (13) (3) 16 34 9 12 5 23 25 12 16 (4) Rarotonga 9 (23) 0 7 (2) (7) 4 10 30 47 16 27 16 42 42 35 33 19 Southern Group (26) (44) (33) (17) (30) (60) (44) (27) (6) 2 (13) (9) (9) (3) 18 (15) 18 (8) Aitutaki (19) (50) (28) (12) (16) (43) (33) (17) (8) 11 1 (7) 9 3 79 (13) 50 (26) Mangaia (33) (46) (38) (31) (25) (61) (60) (34) (16) 19 (47) (26) (9) (25) (30) 21 0 8 Atiu (35) (32) (51) (6) (55) (71) (55) (34) (3) (18) (21) 3 (38) (22) (33) (13) (13) 50 Mauke (28) (39) (20) (19) (29) (77) (62) (31) (3) (21) 0 (16) (21) 29 21 (53) 0 (20) Mitiaro (28) (29) (22) (39) (63) (92) 0 (52) 55 (8) 22 50 (54) 50 133 (63) 133 (25) Northern Group (26) (29) (30) (25) (22) (38) (43) (23) (15) 29 20 (31) (27) (19) (31) (8) (39) (48) Palmerston (2) 38 100 (67) (40) 133 (25) (50) (100) 50 100 (50) 0 (100) 200 (50) 0 (100) Pukapuka (15) 4 (16) (25) (30) (46) (30) (12) 13 79 38 (40) (36) 8 (11) 33 (13) (73) Nassau (27) (55) 13 18 (22) (67) (20) (20) (20) 100 0 (100) 50 (33) (67) (100) 0 0 Manihiki (23) (42) (44) (15) 26 (14) (48) (31) (19) 33 54 6 (5) (44) (53) (14) (91) 0 2: Data Appendix Rakahanga (32) (49) (19) (38) (40) (45) (19) (53) (64) 0 (10) (10) (36) 14 (33) 100 0 25 Penhryn (41) (51) (47) (35) (38) (50) (61) (9) (15) (19) (15) (50) (44) 0 (47) (45) (43) (56) Suwarrow (75) (100) 0 0 (100) 0 (100) 0 (100) 0 0 0 0 0 0 0 0 0

( ) = negative value, % = percent. Source: Cook Islands Statistics Office (2003, 1997). 185 186 Cook Islands 2008 Social and Economic Report—Equity in Development 0 8 0 0 5 33 25 (8) (10) >79 (23) (73) (56) (20) (25) (48) (100) 0 0 0 7 0 0 1 0 11 13 133 (13) (13) (91) (43) (39) 75–79 0 8 21 45 50 (3) (7) (11) (13) (13) (53) (45) (63) (29) (50) (100) 70–74 0 8 15 15 21 78 117 (16) (53) (33) (33) (32) (33) (47) 200 (67) 65–69 8 0 8 0 14 29 50 (9) (9) (7) (21) (19) (33) (24) (40) (100) 60–64 0 0 50 (2) (6) (21) (14) (16) (16) (10) (36) (29) (69) (36) (38) (44) 55–59 0 3 0 50 (4) (8) (11) (12) (16) (10) (53) (33) (24) (50) (40) (100) 50–54 0 0 5 67 20 38 22 (5) (8) (7) (7) (21) (16) 100 (30) (46) 45–49 0 0 11 15 74 19 35 26 50 (4) (8) (13) (21) 100 (24) (20) 40–44 0 3 11 13 55 (3) (7) (17) (19) (19) (18) (71) (10) (20) (100) (100) 35–39 0 (9) (13) (12) (31) (21) (19) (53) (32) (52) (35) (37) (50) (29) (20) (25) 30–34 0 (100) 133 (25) 133 (26) (21) (26) (51) (48) (51) (48) (19) (64) (51) (16) (46) (16) (92) 0 (92) (38) (32) (38) (67) (20) (67) (50) (65) (50) (72) (56) (72) (63) (60) (63) (39) (44) (39) (46) (30) (77) (60) 20–24 25–29 26 (9) (17) (16) (63) (23) (23) (56) (29) (22) (38) (30) (48) (30) (40) (100) 15–19 Change in the resident population from 1996 to 2001 (%) 1 0 18 (9) (31) (13) (19) (16) (18) (10) (45) (35) (26) (67) (37) (25) 10–14 0 Table A2.4:Table Resident Population Change by Island and Age Group 13 (5) (17) (19) (16) (18) 100 (53) (33) (45) (47) (24) 5–9 (36) (29) (30) 4 38 <5 (51) (51) (51) (55) (33) (45) (38) (29) (28) (30) (34) (44) (44) (100) (2) (9) (15) (17) (42) (32) (24) (37) (75) (23) (27) (27) (36) (27) (29) (28) Total Rakahanga Palmerston Atiu Mauke Pukapuka Manihiki Aitutaki Mangaia ( ) = negative value, % = percent. Source: Cook Islands. Statistics Office (2003, 1997). Northern Group Mitiaro Nassau Rarotonga Southern Group Penhryn Suwarrow Region Island Total Appendix 2: Data 187

Table A2.5: Composition of the Resident Population

Region Island Residents in 1996 Residents in 2001

Total Those Those Those Those Total Those born Those Those from still in the went to that that in the there in Other Overseas country other have went previous 1996 and islands in 2001 islands died overseas 5 years still there

Persons Total 18,034 12,103 0 549 5,382 14,990 1,609 12,103 0 1,278 Rarotonga 10,337 6,892 165 315 3,130 9,424 947 6,727 721 1,029 Southern Group 5,258 3,632 508 160 1,466 3,777 390 3,124 104 159 Atitutaki 2,272 1,586 168 69 617 1,743 149 1,418 79 97 Mangaia 1,083 746 129 33 304 739 80 617 19 23 Atiu 942 596 113 29 317 600 72 483 26 19 Mauke 643 476 91 20 147 469 54 385 15 15 Mitiaro 318 228 50 10 80 226 35 178 8 5 Northern Group 2,439 1,579 250 74 786 1,789 272 1,329 98 90 Palmerston 49 42 11 1 6 48 11 31 4 2 Pukapuka 778 568 98 24 186 662 132 470 45 15 Nassau 99 98 36 3 (2) 72 10 62 0 0 Manihiki 656 423 75 20 213 497 53 348 56 40 Rakahanga 249 139 19 8 102 158 17 120 17 4 Penhryn 604 308 46 18 278 351 49 262 11 29 Suwarrow 4 1 1 0 3 1 0 0 1 0

Share of the total for each year ( %) Total 100 67 0 3 30 100 11 81 0 9 Rarotonga 100 67 2 3 30 100 10 71 8 11 Southern Group 100 69 10 3 28 100 10 83 3 4 Atitutaki 100 70 7 3 27 100 9 81 5 6 Mangaia 100 69 12 3 28 100 11 83 3 3 Atiu 100 63 12 3 34 100 12 81 4 3 Mauke 100 74 14 3 23 100 12 82 3 3 Mitiaro 100 72 16 3 25 100 15 79 4 2 Northern Group 100 65 10 3 32 100 15 74 5 5 Palmerston 100 86 22 3 11 100 23 65 8 4 Pukapuka 100 73 13 3 24 100 20 71 7 2 Nassau 100 99 36 3 (2) 100 14 86 0 0 Manihiki 100 64 11 3 32 100 11 70 11 8 Rakahanga 100 56 8 3 41 100 11 76 11 3 Penhryn 100 51 8 3 46 100 14 75 3 8 Suwarrow 100 25 25 3 72 100 0 0 100 0

() = negative value. Source: Authors’ estimates derived from Cook Islands Statistics Office (2003, 1997). 188 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A2.6: Alternative Population Estimates

Year Official Official Net visitor Births less Net resident Estimated Alternative Alternative estimate of estimate of arrivals deaths departures tourist estimate of estimate of population resident (persons) (persons) (persons) population resident population (persons) population (persons)b population (persons)d (persons)a (persons)c

2001 18,100 14,000 288 225 950 2,230 14,000 16,518 2002 18,400 14,800 796 195 727 2,202 13,756 16,754 2003 18,400 13,900 2,361 211 703 2,559 14,060 18,980 2004 20,300 13,500 2,188 198 943 2,652 15,676 20,516 2005 20,200 12,400 1,573 189 880 3,059 17,173 21,805 2006 20,800 11,800 1,959 193 985 3,234 17,954 23,147 2007 21,100 12,500 2,064 205 838 3,409 19,280 24,753 a This estimate is presented by the Cook Islands Statistics Office and is derived from data on births and deaths and the net migration of residents. It does not appear to factor in those visitors that become residents (the statistical definition of a resident, as opposed to the legal definition, is a person that has lived in the Cook Islands for more than 12 months). b This is derived from the number of tourist days in a period, divided by the number of days in a period. Tourist days in a period is the number of tourists present times the average length of stay. It is calculated for the shortest data period available (e.g., the month of June). c Derived from the following: The population can be separated into three groups:

populationi = residentsi + non-tourist visitorsi + touristsi where i is the current year, Assume that the population is measured on 31 December and all non-tourist visitors arrive on 1 January. Then if net visitor arrivalsi is greater than 0, the difference equals the number that stay in the Cook Islands for more than 12 months, so convert them from visitors to residents on 1 January of the following year. It follows that those visitors that convert to residents in a year equals the net non-tourist visitor arrivals of the previous year. Furthermore, their ultimate departure will be captured in net resident departures. That is,

residentsi = residentsi-1 + non-tourist visitorsi -1+ birthsi – deathsi – net resident departuresi where

non-tourist visitorsi =net visitor arrivalsi and i-1 is the previous year. Now, assume instead that all non-tourist visitors arrive in June. The definition of net visitor arrivalsi remains the same, but all arrive in June. The definition of those staying in the Cook Islands for more than 12 months and converting to residents is also the same, being net non-tourist visitor arrivals of the previous year. The only difference is that they convert from being a visitor to resident on 1 July. Similarly, their ultimate departure will be captured in net resident departures. It follows that the definition of the resident population above applies regardless of when the visitors arrive during the year, provided that they all arrive on the same day. In the more general case where non-visitors arrive throughout the year, the formula can cause erroneous volatility in the annual estimate if the time profile of visitors varies significantly from year to year. d This is derived as the sum of the alternative estimate of the resident population, net visitor arrivals and the tourist population. Source: Authors’ estimates derived from Cook Islands Statistics Office,Annual Statistical Bulletin various years, and Quarterly Statistical Bulletin various quarters. Appendix 2: Data 189 (6.1) (5.9) (5.4) (5.4) (5.4) (5.7) (5.6) (5.2) (6.0) (6.3) (6.2) (5.5) Bank Charges Imputed 9.6 8.8 8.3 of 11.9 17.8 11.3 12.7 12.0 13.3 12.5 10.5 18.2 Dwellings Ownership 31.6 31.2 33.0 24.0 29.2 33.8 34.9 23.0 24.3 26.3 23.2 36.2 Public Admin- istration 7.7 7.0 7.0 7.8 7.3 6.1 3.6 3.6 5.2 3.5 6.2 4.2 Services Community and Personal 17.7 18.1 13.7 16.9 15.2 14.6 18.0 14.3 20.7 18.8 16.2 16.8 Services Business Finance & Tertiary Sector 17.7 17.7 and 33.1 20.1 35.7 16.4 30.9 30.0 36.6 25.2 36.5 34.8 Transport Commun. 37.0 13.9 14.9 13.5 39.6 39.3 16.8 33.2 36.0 44.7 46.4 23.3 Restaurants and Accommodation 67.1 28.1 39.7 55.4 65.7 49.6 32.7 29.5 60.4 64.7 44.9 28.2 Trade and Retail Wholesale , various years; CISO online statistics accessed July 2008. 7.8 5.1 9.6 3.9 8.9 6.6 6.6 3.3 3.3 4.2 10.9 10.3 Table A2.7:Table GDP in Current Prices (NZ$ million) Const- ruction 3.1 3.7 5.6 2.7 3.4 3.8 4.8 3.8 4.2 3.5 6.2 3.3 supply Electricity and water Secondary Sector Annual Statistical Bulletin 9.1 7.8 7.5 6.1 9.4 9.6 3.7 5.0 8.4 3.8 4.8 and 10.4 Manuf. Mining and 37.6 27.2 15.9 15.6 35.0 20.9 32.0 23.7 35.3 33.2 23.8 23.2 Fishing Primary Agriculture 141.1 137.0 177.8 277.6 261.3 130.9 152.8 205.7 GDP 220.6 286.7 246.0 258.4 Total 2007(p) Commun.= communication, GDP= gross domestic product, Manuf.=manufacturing, NZ$= New Zealand dollar, (p) = preliminary, (r)=revised,Source: () Cook = negative Islands value. Statistics Office, 2006(r) 2004 2005(r) 1997 2003 1996 Year 1998 2001 1999 2000 2002 190 Cook Islands 2008 Social and Economic Report—Equity in Development (5.1) (5.1) (5.6) (5.6) (4.6) (5.3) (5.3) (5.3) (5.3) (5.2) (5.3) (5.5) Bank Charges Imputed of 11.7 11.4 11.4 11.6 12.1 11.5 11.3 11.3 11.5 11.5 11.2 12.2 Dwellings Ownership 37.8 29.0 43.8 24.8 22.6 25.8 22.4 23.8 23.2 23.8 25.3 22.8 Public tration Adminis- 5.7 3.6 4.4 5.2 6.4 3.8 3.8 5.3 6.2 6.3 6.5 6.3 Services Community and Personal 17.0 15.0 16.9 15.8 15.5 15.2 16.6 16.0 14.2 14.2 14.5 16.8 Services Business Tertiary Sector Finance & 17.1 27.8 29.7 18.4 and 18.3 29.3 28.0 20.2 25.2 30.2 30.5 30.3 Transport Commun.

and 27.9 16.1 15.9 16.9 25.9 24.4 16.5 25.0 29.3 30.6 26.8 23.3 Restaurants Accommodation 39.7 49.7 53.4 33.6 52.0 45.6 30.7 55.5 29.2 29.3 42.3 56.6 Trade and Retail Wholesale various years; CISO online statistics accessed July 2008. 7.4 5.1 7.8 6.1 8.9 4.0 6.0 6.4 8.0 3.3 3.3 4.3 A2.8: Real GDP (NZ$ million, 2000 prices) Const- ruction 3.1 3.9 3.7 4.4 3.5 2.8 2.8 2.8 4.2 4.2 4.3 4.3 supply Electricity and water

Secondary Sector 7.0 7.6 7.6 5.1 6.1 3.9 6.9 5.0 4.0 8.4 8.3 8.3 and Annual Statistical Bulletin, Manuf. Mining

and 29.1 31.6 31.6 15.7 21.8 23.1 16.3 32.5 23.8 23.8 25.3 30.5 Fishing Primary Agriculture Total 191.4 186.6 156.2 177.8 152.1 157.0 153.3 220.3 217.5 215.9 216.0 GDP 207.0 Year 2002 2001 1999 2000 Commun.= communication, GDP= gross domestic product, Manuf.=manufacturing, NZ$= New Zealand dollar, (p) = preliminary, (r)=revised, () = negative value. Source: Cook Islands Statistics Office, 1998 1996 1997 2007(p) 2006(r) 2004 2005(r) 2003 Appendix 2: Data 191 4.4 0.5 2.5 (1.0) (0.6) (0.7) (0.7) (2.0) (3.8) (0.2) 16.6 Bank (19.1) Charges Imputed of 5.7 0.8 2.5 2.3 (0.4) (0.4) (0.4) (0.4) (0.7) (0.7) (0.7) (0.7) Dwellings Ownership 1.9 2.0 2.0 4.2 4.3 (1.1) (5.6) (2.3) (2.8) (17.9) (23.1) (13.8) Public tration Adminis- 5.1 2.0 (0.1) (1.3) (4.9) 11.9 11.6 15.0 10.9 18.9 18.3 and (14.1) Services Personal Community 7.0 1.8 0.9 (0.1) 11.5 (0.9) (5.0) (4.5) (2.7) 12.2 10.0 (13.8) Services Business Finance & Tertiary Sector 5.4 0.6 3.5 0.3 and (1.7) (0.7) (0.7) (6.7) (0.8) 11.0 18.0 24.4 Transport Commun.

7.2 6.1 1.2 4.9 4.4 3.6 6.6 4.2 2.5 and (3.4) (2.5) 37.7 Restaurants Accommodation 7.6 9.1 7.5 1.6 5.9 4.9 9.5 6.6 (0.1) (1.8) (6.4) 18.2 Trade and Retail Wholesale , various years; CISO online statistics accessed July 2008. 1.1 9.6 8.0 8.3 (1.8) 31.1 17.8 19.9 20.1 15.4 14.0 Const- (27.6) ruction Table A2.9:Table Growth in Real GDP per (% annum) 1.1 7.0 5.9 0.4 4.6 6.4 0.3 (1.1) (4.1) (0.4) 13.0 10.2 supply Electricity and water Secondary Sector Annual Statistical Bulletin 9.2 3.0 3.2 (2.6) (0.3) (8.5) and 19.8 10.9 14.6 24.0 10.5 (11.3) Manuf. Mining 0.1 9.2 9.5 8.4 4.2 and (2.9) (4.6) (2.6) (3.5) 12.7 33.5 28.3 Fishing Primary Agriculture 1.3 4.9 0.7 2.7 0.0 2.6 4.3 8.2 (2.3) (0.3) (0.8) GDP 13.9 Total Year 2001 2000 1998 2006(r) 2005(r) 1999 1997 2002 2003 2007(p) 2004 Commun.= communication, GDP= gross domestic product, Manuf.=manufacturing, (p) = preliminary, (r)=revised, % = percent, () = negativeSource: Cook value. Islands Statistics Office, 1996 192 Cook Islands 2008 Social and Economic Report—Equity in Development

17.7 17.0 17.2 17.2 17.5 19.2 16.7 16.8 16.8 30.7 36.8 22.5 Public sector 77.5 69.3 83.0 83.2 63.2 83.2 82.8 82.8 82.5 83.3 82.3 80.8 sector Private By broad sector Total Total GDP 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (4.1) (3.1) (4.0) (2.4) (3.7) (2.6) (2.3) (2.2) (2.3) (2.2) (2.7) (3.5) Bank Charges Imputed 5.1 5.1 6.1 4.9 6.9 5.4 6.7 6.4 6.4 6.4 5.8 6.8 Ownership of Dwellings 17.0 15.1 12.9 12.9 13.0 12.6 12.6 12.8 18.7 12.8 13.2 22.8 Public Adminstration 7.9 7.4 7.6 7.5 6.1 6.9 6.4 8.4 6.6 6.5 8.2 6.3 Subsistence 4.1 4.9 3.9 4.7 4.7 4.0 4.0 5.5 3.8 4.2 12.0 14.0 Public Enterprise , various years; CISO online statistics accessed July 2008. 67.8 67.2 70.1 69.0 65.9 69.8 53.8 48.9 62.3 68.4 68.2 68.3 Corporate Enterprises Enterprises Table A2.10: Composition A2.10: Table of GDP by income source (%) 4.1 4.1 4.7 4.4 4.0 4.0 4.6 4.0 4.6 4.2 4.5 4.2 Enterprises Annual Statistical Bulletin Unincorporated Private Enterprise

74.1 71.4 52.9 73.9 70.0 72.9 72.4 73.2 73.5 72.2 58.3 66.5 Sub-Total Private Sector GDP Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Year 2007(p) 2004 2006(r) GDP= gross domestic product, (p) = preliminary, (r)=revised, () = negative value. Source: Cook Islands Statistics Office, 2005(r) 1996 1998 1997 1999 2000 2001 2002 2003 Appendix 2: Data 193

Table A2.11: Estimates if GDP per Head (NZ$)

Year GDP per head (current prices) Real GDP per head (2000 prices) Official estimate Alternative Official estimate Alternative estimate of resident estimate of resident of resident population of resident population population (persons)a population (persons)a (persons)d (persons)d 1991 — — — — 1992 6,902 6,902 7,580 7,580 1993 7,750 7,750 8,174 8,174 1994 8,098 8,098 8,282 8,282 1995 8,761 8,761 8,617 8,617 1996 7,570 7,570 8,764 8,764 1997 7,874 7,874 9,045 9,045 1998 7,888 7,888 9,455 9,455 1999 9,100 9,100 9,889 9,889 2000 10,184 10,184 10,139 10,139 2001 12,702 12,702 11,155 11,155 2002 13,897 14,952 12,016 12,928 2003 15,867 15,686 13,422 13,269 2004 18,225 15,695 14,175 12,207 2005(r) 20,841 15,049 16,692 12,052 2006(r) 22,148 14,556 18,297 12,026 2007(p) 22,212 14,401 17,277 11,202

Memo items: Average annual growth rate (% p.a.) - 1997 to 2007(p) 10.9 6.2 6.7 2.2 - 1997 to 2001 12.7 12.7 5.4 5.4 - 2001 to 2007(p) 9.8 2.1 7.6 0.1

- = no data available, GDP = gross domestic product, (p) preliminary, p.a. = per annum, (r)= revised, % = percent. a The estimates derived by the Cook Islands Statistics Office (CISO) from immigration records and births and deaths data. b Based on the annual population estimate less than an estimate of the average short-term visitor population (derived from the number of visitors and average intended length of stay). See Table A2.6 Sources: Author’s estimates derived from CISO, Annual Statistical Bulletin, various years; and CISO (2006, 1997). 194 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A2.12: Consumer Price Index

Calendar All Food Housing Household Apparel Transport Tobacco & Miscellaneous Year Groups Operation Alcohol Annual average index (December 1998 = 100.0)

1996 99.4 98.4 104.5 100.3 101.7 98.5 99.7 99.2 1997 99.0 98.2 100.7 97.1 103.0 100.0 101.4 99.7 1998 99.8 99.6 99.2 98.3 104.0 100.6 100.6 99.6 1999 101.1 100.0 99.1 106.4 100.7 101.4 98.7 101.2 2000 104.3 103.4 98.7 104.7 106.7 106.7 104.7 104.2 2001 113.4 113.1 115.4 110.7 118.3 117.8 111.3 108.7 2002 117.2 120.9 115.8 111.1 120.9 118.6 113.1 118.4 2003 119.5 124.0 120.7 112.8 119.6 120.1 113.4 124.5 2004 120.6 125.1 122.8 113.3 122.4 122.0 112.7 126.2 2005(r) 123.5 126.5 128.9 120.6 123.6 125.9 115.4 122.8 2006(r) 127.7 129.5 145.7 127.6 123.6 129.4 115.1 127.0

(r)=revised. Source: Cook Islands Statistics Office, 2007 Annual Statistical Bulletin.

Table A2.13: Inflation (Consumer Price Index)

Calendar All Food Housing Household Apparel Transport Tobacco Miscellaneous Year Groups Operation & Alcohol Annual change (%) 1996 (0.6) (0.7) (0.3) 0.0 (1.1) (2.0) 2.1 (1.0) 1997 (0.4) (0.1) (3.7) (3.2) 1.3 1.5 1.7 0.5 1998 0.7 1.4 (1.4) 1.3 0.9 0.6 (0.8) (0.1) 1999 1.4 0.4 (0.2) 8.2 (3.2) 0.8 (1.9) 1.6 2000 3.1 3.4 (0.4) (1.6) 6.0 5.2 6.1 3.0 2001 8.7 9.3 16.9 5.8 10.9 10.4 6.3 4.3 2002 3.4 6.9 0.4 0.4 2.2 0.6 1.6 9.0 2003 2.0 2.6 4.3 1.5 (1.0) 1.2 0.3 5.1 2004 0.9 0.9 1.7 0.5 2.3 1.7 (0.7) 1.3 2005 2.4 1.1 4.9 6.4 1.0 3.1 2.4 (2.6) 2006 3.4 2.4 13.1 5.8 (0.0) 2.8 (0.2) 3.3

% = percent, () = negative value. Source: Cook Islands Statistics Office, 2007 Annual Statistical Bulletin. Appendix 2: Data 195 — — — 818 574 659 873 705 902 580 888 1,195 1,414 1,318 1,792 3,718 1,028 1,539 1,738 1,879 1,536 1,829 1,499 2,436 Others — — — 379 627 538 766 450 354 936 354 599 599 447 654 308 443 548 646 1,163 1,326 1,442 1,334 1,089 French Polynesia — — — 742 552 459 581 550 744 503 498 545 494 449 546 600 Asia 1,793 1,055 1,072 1,620 1,845 1,366 3,282 — — — 4,141 1,961 3,074 2,757 3,991 5,992 1,825 3,962 2,293 3,622 2,667 4,087 5,230 2,443 15,162 18,162 18,108 21,559 20,410 22,817 19,630 Europe — — — 3,181 6,417 2,919 2,419 7,839 7,898 5,270 3,760 5,949 2,029 4,789 5,853 6,270 2,723 3,233 4,397 5,365 6,734 4,295 2,204 6,088 Canada — — — US 5,119 7,145 5,186 7,630 5,476 6,716 4,021 5,376 6,939 4,075 4,351 4,950 5,626 4,361 3,907 6,026 5,272 4,434 5,889 5,864 12,128 — — — 9,952 17,137 11,313 14,161 15,412 11,470 11,470 14,150 13,916 15,312 17,872 11,826 11,850 13,039 22,019 12,481 14,538 14,067 13,234 15,306 14,464 Country of usual residence of visitor arrivals Australia — — — 6,020 5,650 5,345 NZ 5,344 8,460 17,500 51,841 30,921 18,024 13,529 19,290 38,755 19,896 18,382 24,325 49,088 28,841 18,600 23,683 20,380 58,946 — — — Persons 97,019 32,148 57,293 47,899 33,476 51,097 74,575 34,315 72,781 92,351 33,202 Total 53,835 55,599 83,333 78,328 49,866 72,238 48,629 48,354 88,405 40,300 6 33 69 117 374 974 156 537 693 447 449 (89) (218) (534) (662) (646) 1,874 1,245 1,658 1,226 1,294 Table A2.14: Arrivals A2.14: Table Total (2,613) (1,708) (1,282) 10 , various years; CISO online statistics accessed July 2008. 331 370 783 764 807 796 288 (616) (106) (675) (509) 1,126 (386) 2,188 1,959 1,703 2,515 1,573 1,699 2,361 2,023 2,064 (1,783) Visitors 527 168 398 883 Arrivals less departures (214) (214) (641) (703) (943) (950) (985) (838) (830) (727) (896) 1,122 (880) (1,176) (1,574) (1,429) (1,322) (1,697) (1,298) (1,666) Residents Annual Statistical Bulletin 31,918 29,173 35,130 37,779 Total 81,473 56,146 62,970 55,552 63,923 87,846 38,957 82,736 38,455 45,395 59,384 38,573 54,239 56,669 80,485 54,286 94,086 109,115 100,360 104,444 97,019 39,976 57,293 30,194 50,190 27,389 47,899 74,575 72,781 92,351 29,503 55,599 30,439 83,333 29,569 28,378 53,569 78,328 72,994 49,866 48,629 24,644 48,354 88,405 Visitors Arrivals 8,161 7,491 7,371 5,419 9,518 5,815 5,932 8,210 8,518 6,752 8,952 5,956 6,923 8,379 4,529 8,692 4,529 6,630 6,803 6,340 11,955 10,753 12,093 12,096 Residents 1985 1988 1987 1984 1989 1990 1983 1997 1996 2000 1991 - = no data available, NZ = New Zealand, (p) preliminary, US = United States, () = negative value. Source: Cook Islands Statistics Office, 1998 1999 1993 1994 1995 2002 2001 2005 1992 2003 2007(p) 2006 2004 196 Cook Islands 2008 Social and Economic Report—Equity in Development

A2.15: Availability and Occupancy Accommodation

Year Room Nights Bed Nights Occupied Available Utilized Occupied Available Utilized (number) (number) % (number) (number) %

1996 155,588 270,668 57 351,063 714,075 49 1997 157,083 256,833 61 373,749 692,017 54 1998 161,316 276,140 58 384,075 726,088 53 1999 174,717 283,449 62 473,176 776,106 61 2000 218,444 286,537 76 547,737 798,682 69 2001 225,244 316,762 71 502,957 856,693 59 2002 209,397 331,892 63 470,979 900,880 52 2003 204,648 338,296 60 476,274 899,731 53 2004 207,749 375,167 55 458,599 1,031,048 44 2005 230,319 363,867 63 548,915 1,011,947 54 2006(p) 260,754 308,459 85 703,556 1,040,199 68

(p) = preliminary, % = percent. Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years.

Table A2.16: Room Availability and Occupancy by Establishment Size Year 1–8 Room Establishments 9–19 Room Establishments 20+ Room Establishments Occupied Available Utilized Occupied Available Utilized Occupied Available Utilized (room (room (%) (room (room (%) (room (room (%) nights) nights) nights) nights) nights) nights) 1996 12,517 21,541 58 35,479 61,718 57 107,592 187,409 57 1997 14,331 24,663 58 38,564 64,021 60 104,187 168,149 62 1998 11,430 23,108 49 43,400 70,483 62 106,486 182,590 58 1999 11,165 21,937 51 45,966 70,939 65 119,691 188,390 64 2000 11,439 19,098 60 47,899 64,909 74 159,107 202,530 79 2001 12,437 21,538 58 43,662 61,732 71 169,147 233,492 72 2002 9,853 22,234 44 36,735 55,918 66 162,809 253,740 64 2003 8,225 21,502 38 37,404 59,115 63 159,022 257,679 62 2004 14,450 33,028 44 46,319 78,655 59 146,924 263,484 56 2005(p) 14,008 28,305 49 42,237 68,931 61 174,075 266,631 65

(p) = preliminary, % = percent. Source: Cook Islands Statistics Office. Annual Statistical Bulletin, various years. Appendix 2: Data 197

Table A2.17: Building Approvals Year Total Residential Commerciala Number NZ$ ‘000 Number NZ$ ‘000 Number NZ$ ‘000 (2000 prices)b (2000 prices)b (2000 prices)b

1996 102 5,294 70 3,025 32 2,269 1997 75 5,435 44 2,184 31 3,251 1998 164 8,605 147 5,727 17 2,878 1999 68 7,366 45 3,599 23 3,767 2000 102 10,613 64 4,079 38 6,534 2001 127 11,709 74 5,124 53 6,585 2002 140 18,376 183 7,519 66 10,857 2003 134 20,954 80 6,989 54 13,966 2004 111 10,811 75 5,312 36 5,499 2005 104 11,586 76 6,899 28 4,686 2006 157 16,631 121 10,723 36 5,908 2007 149 16,430 117 10,408 32 6,022

NZ$ = New Zealand dollar. a Commercial establishments include non-private accommodations and industrial construcions. b Deflated using implicit gross domestic product deflator for the construction industry. Source: Author’s estimates derived from Cook Islands Statistics Office, Annual Statistical Bulletin, various years. 198 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A2.18: Employment by Employer

Island Year Employed Population by Principal Employer Population Total Public Private Ad-hoc Self- Religious Otherb 15 years 15 to 59 service enterprise organiz.a employed organiz. and over years Persons Atiutaki 1991 569 319 162 50 0 11 0 1,394 1,206 1996 394 124 236 11 17 6 0 1,461 1,269 2001 519 114 281 36 76 8 4 1,300 1,075

Atiu 1991 273 171 46 1 0 2 2 616 509 1996 117 57 46 4 8 2 0 611 503 2001 131 72 35 3 19 2 0 460 371

Mangaia 1991 351 230 31 2 0 5 2 745 611 1996 165 80 39 2 40 4 0 681 551 2001 139 81 15 8 31 4 0 578 464

Manihiki 1991 158 50 49 0 0 2 2 424 370 1996 172 47 96 4 23 2 0 403 352 2001 218 36 102 5 70 4 0 344 319

Mauke 1991 151 112 18 1 0 6 0 371 313 1996 66 47 9 3 1 6 0 393 335 2001 73 50 8 3 7 5 0 278 221

Mitiaro 1991 73 55 8 0 0 1 0 159 129 1996 55 33 10 1 10 1 0 193 162 2001 77 59 3 6 7 2 0 173 131

Palmerston 1991 10 8 0 1 0 1 0 31 23 1996 8 7 0 0 0 1 0 32 22 2001 8 6 2 0 0 0 0 29 21

Penhryn 1991 83 43 5 3 0 2 1 284 237 1996 134 58 17 1 54 4 0 349 296 2001 90 42 25 8 13 2 0 217 184

Pukapuka/Nassau 1991 103 69 3 1 0 0 0 428 457 1996 68 59 7 1 0 1 0 488 418 2001 70 61 1 6 2 0 0 469 409

continued on next page Appendix 2: Data 199

Table A2.18 (continued)

Island Year Employed Population by Principal Employer Population Total Public Private Ad-hoc Self- Religious Otherb 15 years 15 to 59 service enterprise organiz.a employed organiz. and over years

Persons Rakahanga 1991 34 32 0 1 0 1 0 159 139 1996 29 22 2 3 0 1 1 159 138 2001 34 30 1 1 1 1 0 112 89

Rarotonga 1991 4,612 1,728 2,310 342 0 29 35 7,640 6,917 1996 4,021 1,024 2,530 279 113 55 20 7,728 6,832 2001 4,569 900 2,818 180 512 64 95 10,083 8,841

Cook Islands 1991 6,417 2,817 2,632 402 0 60 42 12,251 10,911 1996 5,229 1,558 2,992 309 266 83 21 12,498 10,878 2001 5,927 1,451 3,291 256 738 92 99 14,043 12,125

organiz.= organization. a Ad-hoc organizations are mainly semipublic organizations such as Telecom Cook Islands. b The 1991 data included a home consumption category that has no comparable employer category in the data of subsequent years and is not reported. Source: Cook Islands Statistics Office (2003, 1997, 1993). 200 Cook Islands 2008 Social and Economic Report—Equity in Development

5 3 2 6 7 17 15 15 13 13 15 15 19 14 31 21 27 32 32 53 45 39 20 28 23 38 34 46 46 40 Unem- rate ( %) ployment 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Total continued on next page 7 9 4 4 5 5 7 4 7 7 3 6 6 5 4 3 5 8 4 8 8 9 6 6 2 11 11 13 12 14 Retired 5 11 17 15 41 16 51 76 47 42 37 42 27 33 57 32 24 32 26 49 26 65 65 38 56 50 60 66 48 64 Home duties

7 1 1 1 1 9 2 5 2 3 6 11 11 11 17 12 12 13 14 31 19 19 19 14 10 16 16 10 20 22 Unem- ployed 6 8 9 9 8 9 3 8 6 2 2 7 0 2 7 9 6 8 7 7 7 1 11 15 13 12 13 10 10 10 Student 1 0 1 0 1 1 1 1 0 0 1 4 1 0 1 5 8 1 6 2 0 0 1 0 3 1 6 14 10 10 family Unpaid 1 3 3 3 1 1 1 1 2 1 1 1 2 2 5 1 1 4 4 1 3 1 1 2 1 2 4 3 2 3 Share of population aged years 15 and over ( %) Working part time 8 12 13 15 15 15 15 15 19 41 14 14 14 18 21 32 32 33 33 45 26 26 20 20 38 23 22 23 34 46 full time full time Working 2 0 2 3 2 4 1 9 1 1 1 2 7 4 6 4 4 4 4 8 1 4 2 4 3 Table A2.19 Activities A2.19 Table of the Population and Years Older 15 14 18 10 10 23 Employer 315 191 143 167 551 331 138 195 187 134 561 189 199 478 337 333 378 245 673 277 287 227 233 602 394 683 388 668 1,112 1,356 Number (persons) Sex Female Female Male Female Total Male Total Total Male Female Male Total Female Female Male Female Total Male Total Total Total Male Total Female Female Male Male Male Female Total Year 1996 1996 2001 1996 1996 1996 2001 2001 2001 2001 Island Atiu Mauke Atiutaki Manihiki Mangaia Table A2.19 (continued) Unem- Number Share of population aged 15 years and over ( %) Island Year Sex ployment (persons) Employer Working Working Unpaid Student Unem- Home Retired Total rate ( %) full time part time family ployed duties

Mitiaro 1996 Total 193 2 18 1 8 8 18 32 12 100 38 Male 99 3 22 0 13 7 30 7 13 100 44 Female 94 0 14 2 2 9 4 57 12 100 19 2001 Total 138 2 51 0 2 2 7 16 19 100 11 Male 74 1 55 0 0 3 7 8 26 100 11 Female 64 3 47 0 5 2 8 25 11 100 13 Palmerston 1996 Total 32 0 22 3 0 3 0 69 3 100 0 Male 17 0 29 6 0 0 0 59 6 100 0 Female 15 0 13 0 0 7 0 80 0 100 0 2001 Total 29 0 28 0 0 0 17 52 3 100 38 Male 15 0 53 0 0 0 20 20 7 100 27 Female 14 0 0 0 0 0 14 86 0 100 100 Penhryn 1996 Total 347 1 13 0 0 2 13 65 4 100 48 Male 191 1 19 0 0 3 23 47 5 100 53 Female 156 1 6 0 0 2 2 84 3 100 25 2001 Total 211 0 17 0 0 6 27 45 5 100 60 Male 112 0 25 0 0 5 33 29 7 100 56 Female 99 0 9 0 1 6 21 62 2 100 70 Rakahanga 1996 Total 159 8 18 1 11 3 16 32 9 100 29 Male 80 6 24 2 13 3 24 17 10 100 34 Female 79 12 12 0 8 4 7 50 8 100 19 2001 Total 104 2 36 0 4 3 22 28 4 100 34 Male 51 3 49 0 5 2 24 11 6 100 30 Female 53 1 22 0 3 4 19 48 2 100 42 2: Data Appendix Raratonga 1996 Total 6,938 1 16 0 1 0 6 69 7 100 26 Male 3,531 1 23 0 3 0 10 55 9 100 28 Female 3,407 0 10 0 0 0 3 82 5 100 20 2001 Total 6,431 0 29 3 1 1 21 36 10 100 39 Male 3,258 0 43 4 0 2 25 12 14 100 35 Female 3,173 0 15 2 2 0 17 58 6 100 47 Cook Islands 1996 Total 11,564 7 43 7 1 7 6 21 7 100 9 Male 5,922 5 47 7 1 7 8 11 9 100 10 Female 5,642 2 38 7 1 7 3 32 6 100 6 2001 Total 9,881 4 56 5 0 7 5 9 8 100 7 201 Male 5,018 6 60 3 1 6 4 4 9 100 5 Female 4,863 3 52 6 0 7 6 14 7 100 9 % = percent. Source: Cook Islands Statistics Office (2003, 1997). 202 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A2.20: Current Account

Year Current Account Balance Exports of Goods & Services Imports of Goods & Services NZ$ ‘000 % change f.o.b.(NZ$’000) % change f.o.b.(NZ$’000) % change 1996 8,008 1,069 87,102 0 (79,094) (8) 1997 1,228 (85) 92,000 6 (90,772) 15 1998 3,998 225 94,825 3 (90,827) 0 1999 13,750 244 125,905 33 (112,155) 24 2000 19,294 40 168,982 34 (149,689) 34 2001 33,797 75 185,997 10 (152,200) 2 2002 29,536 (13) 173,961 (7) (144,425) (5) 2003 25,658 (13) 187,210 8 (161,552) 12 2004(r) 18,134 (29) 176,841 (6) (158,707) (2) 2005(r) 34,770 92 198,202 12 (163,431) 3 2006(p) 39,447 14 218,514 10 (179,066) 10

f.o.b.=valued as free on board, NZ$ = New Zealand dollar, (p) = preliminary, (r)= revised, % = percent, () = negative value. Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years; CISO online statistics accessed July 2008.

Table A2.21: Balance of Trade

Year Balance of % Exports, % Imports, % trade (NZ$m) Change f.o.b.(NZ$m) Change c.i.f. (NZ$m) Change 1996 (58.4) (13) 4.58 (34) 62.95 (15) 1997 (68.1) 17 4.27 (7) 72.33 15 1998 (64.7) (5) 6.01 41 70.72 (2) 1999 (71.9) 11 6.74 12 78.64 11 2000 (91.7) 28 19.97 196 111.70 42 2001 (95.5) 4.1 16.1 (19.2) 111.6 (0.1) 2002 (90.7) (5.0) 10.9 (32.3) 101.7 (8.9) 2003 (106.4) 17.3 14.6 33.5 121.0 19.0 2004 (103.6) (2.7) 10.8 (26.2) 114.4 (5.5) 2005 (107.8) 4.1 7.4 (31.1) 115.3 0.8 2006(r) (148.2) 37.4 5.4 (26.9) 153.6 33.2 2007(e) (230.2) 55.4 7.0 28.2 237.1 54.4

c.i.f.=valued at cost+insurance+freight, f.o.b.=valued as free on board, m = million, NZ$ = New Zealand dollar, (p) = preliminary, (r)= revised, % = percent, () = negative value. Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years; CISO online statistics accessed July 2008. Appendix 2: Data 203

Table A2.22: Principal Exports

Year Total Pawpaws Taro Live Fresh or Pearls Pearl Clothing Maire Others Fish Chilled Shell Fish NZ$’000 (current prices) 1996 4,581 1,143 171 152 250 1,473 406 279 104 603 1997 4,270 371 54 132 0 3,036 225 121 39 292 1998 6,011 381 34 214 0 5,033 2 166 42 139 1999 6,739 337 0 138 2 5,342 34 253 36 597 2000 19,967 351 0 252 0 18,395 2 165 47 755 2001 16,132 249 0 100 0 14,591 4 281 34 873 2002 10,928 163 0 211 2,334 6,405 6 322 36 1,451 2003 14,588 620 0 281 8,258 2,843 49 229 33 2,275 2004 10,771 122 7 135 2,898 3,177 37 204 37 4,154 2005 7,417 32 0 111 3,381 1,646 3 176 18 2,050 2006 5,420 263 0 141 1,066 2,044 3 136 30 1,737 2007(p) 6,951 117 0 54 3,141 2,109 218 50 17 1,245

NZ$ = New Zealand dollar, (p) = preliminary. Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years; CISO online statistics accessed July 2008. 204 Cook Islands 2008 Social and Economic Report—Equity in Development 319 319 279 279 428 428 850 343 383 496 389 500 364 808 1,292 1,292 Others 9,513 9,513 8,947 8,728 15,104 15,104 14,071 14,071 15,697 15,697 16,693 16,693 10,630 14,877 15,944 14,066 22,686 Goods Misc. Mfd. 15,412 15,412 11,457 11,457 19,750 19,750 29,215 29,215 26,713 26,713 16,393 62,789 39,220 29,605 24,463 34,799 26,906 Machines, Equipment Transport, & 8,537 9,899 11,195 11,195 17,871 17,871 Basic 17,334 17,334 15,752 15,752 21,262 21,262 10,041 10,041 26,766 20,851 20,992 20,458 Mfd. Goods 7,513 7,513 7,935 7,935 7,692 7,692 7,301 7,301 6,915 6,915 7,772 7,772 6,502 4,069 4,054 4,946 4,885 10,538 Chemicals 6,781 6,781 5,495 9,043 8,450 9,080 8,572 8,564 11,071 11,071 34,137 34,137 19,677 19,677 53,521 53,521 10,452 10,452 Minerals, Fuels, etc. NZ$’000 (current prices) 3,186 3,186 1,655 1,655 1,335 1,335 1,722 1,722 3,702 3,702 3,553 2,875 4,945 1,666 4,236 3,508 3,094 Table A2.23:Table Merchandise Imports Crude , various years; CISO online statistics accessed July 2008. Materials 4,112 4,112 3,176 3,176 2,615 2,615 2,317 2,317 4,557 9,607 2,526 4,891 2,897 3,467 5,383 2,206 & Tobacco Beverages Annual Statistical Bulletin Food 17,501 17,501 17,635 17,635 29,914 29,914 16,702 16,702 22,927 22,927 27,866 27,866 19,309 19,309 25,077 20,047 23,232 & Live 26,509 44,980 Animals Total 70,716 70,716 62,952 62,952 72,332 78,638 111,616 111,616 111,701 111,701 237,124 237,124 121,021 121,021 Imports 115,255 115,255 114,378 114,378 101,673 101,673 153,576 153,576 1996 1997 1998 2003 2001 2006(r) Year 1999 2000 2002 2004 2007(p) 2005 Mfd. = manufactured, Misc. = miscellaneous, NZ$ = New Zealand dollar, = revised, (r) (p) = preliminary. Source: Cook Islands Statistics Office, Appendix 2: Data 205

Table A2.24: Vehicle and Motorcyle Registrations Newly Registered Vehicles

Year Number of Newly Registered Vehicles Total Motor Cars, Station Trucks Vans Other Cycle Wagons & & Pickups Vehicles & Jeeps Buses

1996 447 314 47 3 79 4 1997 639 375 133 6 123 2 1998 622 404 106 18 92 2 1999 965 605 212 25 122 1 2000 1,256 796 273 63 115 9 2001 1,698 1,115 361 67 149 6 2002 1,254 809 239 55 144 7 2003 1,641 984 400 55 192 10 2004 1,588 1,151 293 41 89 14 2005 1,660 1,086 350 58 131 35 2006 1,862 1,323 307 55 141 36 2007 1,648 1,047 355 65 163 18

Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years; CISO online statistics accessed July 2008.

Table A2.25: Electricity Generated

Year Total Rarotonga Aitutaki Atiu Mauke Mangaia Mitiaro Penrhyn Rakahanga Manihiki Palmerston (kwh’000) 1996 19,840 17,046 1,756 226 138 347 71 93 41 111 11 1997 19,615 16,790 1,831 269 155 319 65 78 27 78 3 1998 19,822 17,224 1,643 293 166 308 78 86 22 2 1999 21,851 19,135 1,751 255 202 339 74 84 11 2000 24,697 21,367 2,231 359 189 363 83 87 18 2001 25,837 22,292 2,410 353 196 361 82 78 36 26 3 2002 27,715 23,998 2,393 335 166 391 114 95 36 185 2 2003 29,119 25,795 1,992 354 192 407 115 111 36 117 2004 29,758 26,297 2,012 389 250 422 110 116 28 134 2005 29,885 27,107 1,841 308 183 459 111 118 28 139 2006 32,154 28,390 2,345 316 218 465 115 121 30 154 2007 33,695 29,592 2,384 443 273 464 130 124 54 231 kWh = Kilowatt hour Source: Cook Islands Statistics Office, Annual Statistical Bulletin, various years; CISO online statistics accessed July 2008. 206 Cook Islands 2008 Social and Economic Report—Equity in Development

Table A2.26: Foreign Investment Approvals, 2001 to Mid-2006 Number of Total value Average approvals (NZ$)a value (NZ$)a Type Extension 10 2,050,000 683,333 New 94 54,902,386 1,193,530 Purchase of an existing business 32 12,336,294 493,452 Vary existing registration 51 8,425,605 300,914 Other 29 4,000,000 1,333,333 Total 216 81,714,285 778,231 Sector Agriculture 9 2,015,213 403,043 Finance 26 2,226,600 111,330 Marine 26 8,946,774 1,118,347 Manufacturing 5 50,000 50,000 Other 52 14,529,400 1,452,940 Tourism 98 53,946,298 884,366 Total 216 81,714,285 778,231 Year 2001 77 20,300,604 483,348 2002 37 6,427,938 428,529 2003 44 12,255,774 583,608 2004 19 18,167,000 2,018,556 2005 29 20,462,969 1,461,641 2006 (to Jun) 11 4,100,000 1,025,000 Total 217 81,714,285 778,231 Location Aitutaki 8 614,000 102,333 Atiu 4 7,459,213 1,864,803 Manihiki 12 4,150,000 2,075,000 Rarotonga 192 69,491,072 747,216 Total 216 81,714,285 778,231 Size of investment $10m+ 2 21,000,000 10,500,000 $5m < $10m 2 11,100,000 5,550,000 $3m < $5m 2 6,950,000 3,475,000 $2m < $3m 5 11,815,469 2,363,094 $1m < $2m 12 15,495,213 1,291,268 $0.5m < $1m 11 6,940,000 630,909 $0.25m < $0.5m 13 4,185,000 321,923 $0.1m < $0.25m 19 2,716,101 142,953 < $0.1m 116 1,512,502 38,782 $0 33 0 0 Total 215 81,714,285 778,231 Source country New Zealand 97 37,231,348 590,974 Australia 22 13,054,400 815,900 United States 29 13,653,999 758,556 Japan 7 0 0 Canada 8 712,725 118,788 Italy 7 146,000 73,000 Bermuda 14 383,100 27,364 United Kingdom 6 2,495,000 499,000 People’s Republic of China 1 6,000,000 6,000,000 Netherlands 1 3,000,000 3,000,000 Others 24 5,037,713 209,905 Total 216 81,714,285 592,133

m = million, NZ$ = New Zealand dollar. a Current prices. Source: Authors’ estimates derived from data supplied by the Development Investment Board. Appendix 2: Data 207 9.1 1.8 0.7 5.4 5.4 5.4 9.3 2.7 0.0 2.0 0.2 2.8 11.9 11.5 21.6 43.1 77.8 12.7 14.6 (1.8) 26.4 22.0 33.3 30.2 114.1 104.8 FY2009 Projection 5.1 5.1 3.1 1.7 9.7 5.0 0.0 0.8 3.5 11.0 41.7 35.1 (0.1) 13.0 74.7 15.2 29.7 13.3 29.0 25.4 23.8 20.3 (5.4) (5.5) 119.4 109.8 FY2008 Projection 4.9 0.0 0.0 2.4 2.6 2.6 0.8 4.8 0.2 0.2 4.8 17.7 17.2 13.1 27.8 71.7 12.9 21.2 21.5 12.4 12.5 10.6 96.7 34.4 40.0 109.8 Budget FY2007 7.1 1.1 7.9 0.0 2.4 2.4 0.2 3.2 4.5 4.5 6.8 4.2 17.5 27.6 37.3 14.9 19.2 12.4 15.2 12.2 10.8 76.4 20.0 30.4 90.5 105.4 FY2006 Estimate 1.4 0.4 6.7 6.7 0.0 2.0 3.8 3.8 4.2 2.2 4.3 6.3 17.2 27.6 15.9 13.4 12.8 10.6 14.8 18.6 10.5 70.0 96.7 83.3 23.3 34.2 Actual FY2005 7.3 1.4 1.5 9.5 5.0 0.4 3.6 0.0 3.6 4.0 4.5 4.3 2.3 21.1 11.0 15.1 11.8 27.7 67.4 12.6 12.3 12.2 16.6 33.4 76.3 88.6 Actual FY2004 1.9 1.6 1.5 2.9 5.6 6.7 0.0 3.8 3.5 3.5 2.2 8.3 11.3 77.9 10.1 26.1 13.0 12.6 14.0 86.1 (1.4) 18.0 65.9 NZ$m (in current prices) 10.3 20.4 32.8 Actual FY2003 1.4 9.9 9.6 1.5 9.8 3.4 4.7 3.4 6.7 0.0 2.0 8.4 6.4 8.0 5.5 2.3 21.6 82.1 13.0 13.2 64.1 73.7 24.4 20.2 30.2 (4.7) Actual FY2002 3.1 3.1 9.7 1.5 9.8 6.9 4.4 8.4 6.6 8.0 0.2 2.8 2.3 17.6 24.1 13.4 15.6 12.0 14.6 82.9 18.2 26.4 60.2 68.2 Actual FY2001 (Current prices) 7.1 1.1 7.3 7.3 9.4 1.2 9.8 6.7 3.0 2.7 3.0 0.4 3.0 2.0 4.0 4.2 57.4 49.1 19.2 10.7 13.3 14.6 64.1 24.4 FY2000 Estimate Table A2.27:Table Revenue and Expenditure 7.1 3.1 3.1 1.0 1.6 1.6 1.5 1.5 8.9 4.0 8.7 8.7 5.3 3.8 0.8 3.2 8.2 11.9 57.5 42.1 23.1 10.7 10.4 52.2 FY1999 Estimate Interest Voluntary transfer other than grants Other taxes Dividends Sales of goods and services Taxes onTaxes income, profits and capital gains onTaxes international trade and transactions Taxes onTaxes goods and services Grants Other expense Compensation of employees Use of goods and services Interest Consumption of fixed capital Grants Other revenue Taxes Acquisition of fixed assets Consumption of fixed capital Net acquisition of non-financial assets Net operating balance Expense Net lending/(borrowing) Statistical discrepency/error Revenue Transactions in non-financial assets FY=fiscal year(ending 30 June), NZ$m = millions of New Zealand dollars, () = negative value. Source: Authors’ estimates derived from data from Cook Islands Government; Budget Estimates, Part I; Appropriation Bill, Appropriationyears; and Ministry and Commentary of Finance and various Economic Management personal communication. Transactions in financial assets and liabilities Transactions affecting net worth 208 Cook Islands 2008 Social and Economic Report—Equity in Development 0.1 1.7 1.7 1.7 9.4 3.7 2.9 6.9 0.0 3.6 0.0 4.0 0.6 6.7 0.6 0.8 0.2 2.8 4.5 8.2 13.4 10.4 32.6 35.5 23.3 (0.5) FY2009 Projection 7.8 1.7 1.7 1.7 1.0 9.8 5.0 0.0 3.6 4.4 0.0 6.7 0.0 0.5 3.2 0.3 4.3 8.3 11.6 13.7 36.1 10.0 39.3 (1.8) (1.8) 25.2 FY2008 Projection 7.6 7.5 0.1 0.1 1.7 1.7 1.7 6.1 0.9 0.0 4.4 0.0 0.0 4.4 4.6 3.8 0.8 4.5 0.3 6.2 14.1 10.9 12.2 26.9 38.8 34.2 Budget FY2007 7.1 7.4 0.1 1.7 1.7 1.6 0.9 0.9 2.9 5.6 0.0 0.0 0.4 4.0 4.6 2.6 5.5 4.5 2.5 6.5 27.1 11.2 13.8 39.0 10.2 33.5 FY2006 Estimate 7.1 0.1 4.1 4.1 6.1 1.7 9.0 0.9 1.5 1.5 4.9 5.7 0.0 0.6 2.4 2.6 2.6 6.6 0.8 5.2 0.3 13.1 37.2 10.6 32.0 25.7 Actual FY2005 0.1 1.9 1.7 8.1 1.4 1.4 1.8 0.9 4.9 3.7 4.7 0.0 0.6 5.8 6.4 4.6 0.2 0.5 2.8 4.8 4.2 12.9 10.7 24.7 29.5 34.3 Actual FY2004 Ratio to GDP (%) 5.1 7.3 4.1 1.4 1.4 1.6 1.2 5.7 0.9 0.7 0.0 2.7 0.0 3.4 0.6 4.6 0.8 5.3 4.2 8.3 31.6 10.6 13.3 35.0 24.6 (0.6) Actual FY2003 3.1 1.0 5.9 1.5 1.5 0.9 0.7 0.7 2.9 9.8 9.2 0.0 3.6 4.4 4.4 6.0 3.8 0.2 4.5 2.2 11.1 37.2 13.7 (2.1) 33.4 26.7 Actual FY2002 7.1 1.1 7.6 0.1 4.1 1.4 1.0 1.5 1.5 3.9 0.7 4.7 4.7 8.9 5.8 8.6 3.2 2.2 6.5 11.7 12.8 26.9 33.2 40.3 Actual FY2001 (Ratio to GDP) 1.1 7.5 4.1 4.1 1.7 1.7 1.7 1.5 0.7 0.0 0.6 4.0 6.0 5.3 5.5 0.2 3.8 2.3 8.2 13.7 10.8 32.3 36.0 25.3 FY2000 Estimate Table A2.28:Table Revenue and Expenditure 7.0 7.8 2.1 1.0 1.0 1.0 1.0 5.7 0.7 5.4 0.0 5.8 2.0 4.6 0.5 0.3 3.5 6.8 2.5 15.1 11.2 37.6 34.1 25.0 FY1999 Estimate Interest Dividends Taxes on international trade and transactionsinternationaltrade and on Taxes Taxes onTaxes goods and services Other taxes Taxes onTaxes income, profits and capital gains Voluntary transfer other than grants Sales of goods and services Other revenue Grants Taxes Compensation of employees Consumption of fixed capital Use of goods and services Consumption of fixed capital Acquisition of fixed assets Grants Other expense Interest Expense Revenue Net lending/(borrowing) Net acquisition of non-financial assets Statistical discrepency/error Net operating balance Transactions affecting net worth Transactions in financial assets and liabilities FY=fiscal year(ending 30 June), GDP = gross domestic product, () = negative value. Source: Authors’ estimates derived from data from Cook Islands Government; Budget Estimates, Part I; Appropriation Bill, Appropriationand Ministry and Commentary of Finance and Economic various Management years; personal communication. Transactions in non-financial assets Appendix 2: Data 209 0.1 1.9 1.4 3.9 3.9 3.9 1.3 6.7 9.2 0.0 0.0 8.6 6.6 0.5 8.3 21.7 31.0 15.9 19.0 15.6 (1.3) 10.5 24.0 75.5 54.0 82.2 FY2009 Projection 7.2 9.9 9.7 1.2 3.7 0.6 0.0 0.0 3.8 3.8 2.3 8.2 17.7 31.1 15.1 11.3 57.0 (4.1) (0.1) 81.8 18.9 89.0 22.6 26.2 22.2 (4.0) FY2008 Projection 0.1 1.9 9.9 9.7 9.6 3.7 3.7 0.0 0.6 0.0 0.0 2.0 3.8 0.2 8.3 10.1 13.7 74.6 13.3 16.6 16.4 30.9 26.6 58.7 84.7 23.8 Budget FY2007 1.9 1.9 9.9 9.7 0.9 5.4 5.6 3.4 3.6 3.6 0.0 0.0 8.6 0.2 6.3 11.9 15.4 22.1 14.0 12.2 16.0 29.8 24.3 72.3 58.5 84.2 FY2006 Estimate 1.6 1.2 1.8 0.7 0.0 8.7 5.2 5.5 8.6 5.5 3.2 3.2 3.5 0.3 19.1 11.0 12.1 14.1 13.0 15.2 10.5 79.3 54.7 28.0 22.6 68.3 Actual FY2005 9.1 4.1 1.9 6.1 1.2 1.3 9.8 3.0 3.0 0.4 0.0 3.6 8.0 3.8 0.3 17.5 10.1 27.8 23.1 13.8 12.5 73.9 10.3 10.5 53.2 63.6 Actual FY2004 7.0 1.4 1.6 1.8 1.3 5.7 9.5 3.0 3.0 0.0 0.0 8.7 3.2 2.5 8.5 51.1 17.2 11.0 27.7 11.8 22.1 15.2 10.7 (1.2) 65.8 72.8 Actual FY2003 NZ$m (in constant 1998 prices) 7.3 4.1 1.7 1.3 1.3 6.9 3.0 5.6 3.0 0.4 0.0 2.0 5.8 8.4 8.6 8.5 51.1 17.5 11.2 11.5 (4.1) 21.2 71.2 18.7 63.9 26.2 Actual FY2002 7.7 7.4 4.1 6.1 1.4 1.8 9.0 2.9 2.9 8.9 0.0 0.0 2.6 0.2 2.2 11.0 16.7 13.5 12.3 14.3 16.2 62.7 76.2 24.3 50.8 22.2 Actual FY2001 7.1 1.1 1.1 7.2 1.9 3.9 2.9 6.9 3.0 3.0 0.0 0.0 9.2 9.5 0.0 0.4 2.6 6.6 13.0 55.9 10.4 18.7 43.7 14.3 62.4 23.8 FY2000 Estimate 7.0 3.1 3.1 1.6 1.6 1.0 1.5 1.5 0.0 0.0 8.9 0.0 8.7 3.8 5.3 0.8 0.5 8.2 17.0 11.9 51.9 57.2 10.7 10.3 23.0 38.0 FY1999 Table A2.29:Table Revenue and Expenditure in Real Terms Estimate Taxes onTaxes income, profits and capital gains Voluntary transfer other than grants Taxes on international trade and transactions and trade international on Taxes Other taxes Interest Taxes onTaxes goods and services Sales of goods and services Dividends Grants Other expense Use of goods and services Interest Consumption of fixed capital Consumption of fixed capital Taxes Compensation of employees Acquisition of fixed assets Grants Other revenue Net operating balance Net acquisition of non-financial assets Net lending/(borrowing) Statistical discrepency/error Revenue Expense Transactions in non-financial assets Transactions in financial assets and liabilities FY=fiscal year(ending 30 June), NZ$m = millions of New Zealand dollars, () = negative value. Source: Authors’ estimates derived from data from Cook Islands Government; Budget Estimates, Part I; Appropriation Bill, Appropriationand Ministry and Commentary of Finance and Economic various Management years; personal communication. Transactions affecting net worth 210 Cook Islands 2008 Social and Economic Report—Equity in Development 7.9 9.4 2.9 0.0 0.0 6.0 11.1 67.0 25.8 56.2 (3.8) (2.2) (0.8) (56.1) (15.5) (24.2) on equity (%) Rate of return 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.4 0.0 0.0 0.0 0.0 2.4 2.4 (NZ$m) Dividend 1.1 0.1 0.1 0.1 9.9 4.9 9.8 0.0 0.0 0.0 0.8 3.3 0.3 (0.4) (0.2) (0.5) and taxation (NZ$m) Surplus before dividend 7.6 0.1 6.1 1.5 0.0 0.0 0.0 2.0 2.2 2.5 47.6 78.1 33.7 63.6 20.8 170.0 Assets (NZ$m) 0.1 5.9 4.9 0.7 8.9 0.0 0.0 0.0 2.2 38.1 59.5 18.6 44.4 (0.3) 124.6 (12.3) Equity (NZ$m) Table A2.30:Table Financial Status of Public Enterprises, 2005 Entity Consolidated results Cook Islands Investment Corporation Cook Islands Government Property Coorporation Ltd Cook Islands Government Property Coorporation Ltd Stand-alone Entities Cook Islands Investment Corporation Small Business Enterprise Centre Ltd Airport Authority Cook Islands Broadcasing Corporation Cook Islands Telecommunication Holdings Ltd Suarrow Development Corporation Ports Authority Aponga Te O Tumu-te-Varovaro Cook Islands Property Coorporation (NZ) Ltd The Rarotongan Hotel Co Ltd Banana Court Ltd Bank of the Cook Islands Holding Corporation Cook Islands Development Bank Former Loans Ltd Co = Company, Ltd = Limited, NZ$m = millions of New Zealand dollars, () = negative value, % = percent. Source: Cook Islands Investment Corporation and Cook Islands Property Corporation annual reports for the year ended 30 June 2005. Appendix 3: The Changing Population

A3.1 The Size of the Population and Its Mix

Between 1996 and 2001, the population of the Cook Islands had an average annual growth rate of –3.7%; that is, it dropped by almost 17% over the 5-year period. Preliminary official estimates suggest that the total population has increased slightly since 2001. The rise is attributable to a large increase in arrivals of nonresidents that is officially estimated to more than offset continuing high resident departures. The resident population is officially estimated to have dropped considerably since 2001 (Figure A3.1).

These changes are creating opportunities for returning nonresident Cook Islanders and also a need for foreign labor to meet labor shortages. Local tourism operators in particular have had difficulty employing Cook Islanders, and the number of foreign workers, mainly Fijians and Filipinos, has risen quickly. The number of foreign tourists in the country at any one time is also rising as tourist numbers approach 100,000 per year.

There is a growing gap between the total population and the resident population. This gap is made up of the tourist population, foreign workers and investors, and returning Cook Islanders who have returned within the last 12 months and are not yet statistical residents. 212 Cook Islands 2008 Social and Economic Report—Equity in Development

The number of tourists vacationing in the country is estimated to be about 79,775 in 2007 up from 66,883 in 2006 and 1,300 in 1996. There were as many as 351 foreign workers and 2,764 business investors in the Cook Islands in 2007. An exact estimate of number of foreign workers and investors is difficult to prepare prior to the detailed count of the 2006 population census, but it appears the number has more than doubled.

Figure A3.1: Population, 1982–2006

25,000

20,000

15,000

Persons 10,000 Population Resident population

5,000

0 1982 1985 1988 1991 1994 1997 2000 2003 2006 Year (Mar)

Source: Cook Islands Statistics O ce. Annual Statistical Bulletin, various years.

One way to estimate the number of foreign workers and investors in the country is to review the number of permits issued by the immigration service. Permits numbering

1 Source: Cook Islands Statistics Office. 2008. 2 The policy is that a permit is needed to remain in the Cook Islands as a worker or investor for more than 30 days, and the usual permit length is 12 months. Some permits are issued for shorter periods. Appendix 3: The Changing Population 213

1,618 were issued to foreign workers and investors in fiscal year (FY) 2003, and 2,114 were issued in FY2006, usually for a 12 month period. But the data on permits are not computerized, and it has gaps (e.g., data on FY2005 are unavailable), the foreign worker system is almost completely unpoliced, and tourists can work on their visitors’ permits (under certain conditions) if issued by the immigration service. There is anecdotal information that some people arrive as visitors but stay as workers by informally securing a job through relatives or friends already working here. These considerations suggest that foreign workers and investors may now account for about 10% of the population, or about 25% of the economically active population. The true size and mix of the population are key statistics to monitor. But it is extremely difficult to do so in Cook Islands given the highly mobile resident population and relatively large number of visitors. The key difficulty is distinguishing between a resident and a nonresident. The statistical definition of a resident is a person that has lived in the Cook Islands for at least 12 months (as opposed to the legal definition, being those holding permanent residency status). Accordingly, a visitor is someone in the country now that did not live in the Cook Islands over the whole of the preceding 12 months. This means that returning Cook Islanders that have lived overseas for more than 12 months are termed visitors on their arrival, regardless of their intention to return. They become residents for statistical purposes only after they have been in the Cook Islands for 12 months. Similarly, some foreign workers and investors arrive as visitors; after 12 months they become residents and then leave as residents. The official methodology for estimating the population between censuses works well for a normal population but has weaknesses when applied to the Cook Islands. The

Ministry of Immigration and Foreign Affairs personal communication. 214 Cook Islands 2008 Social and Economic Report—Equity in Development

weakness is that the official methodology does not factor in the transition from visitor to resident status and so probably undercounts residents. The official count of the resident population is 12,400, as of the end of 2005, in a total population of 20,200. The estimated population is volatile, and the estimated resident population was 11,900, as of December 2007, in a total population of 24,300. Overcoming this weakness is very difficult. An alternative estimate can be prepared based on a methodology that analyses visitor arrival data. These alternative estimates suggest that the resident population began to recover in 2003 and had reached 17,000 by 2005 (see Appendix 2). This methodology estimates that about 7,000 nonresidents entered the Cook Islands from 2001 to 2005 and became statistical residents. Some of them would have been returning Cook Islanders, while some would have been foreign workers and investors. Over the same period, 3,200 statistical residents left, comprising a mixture of Cook Islanders and departing foreign workers and investors. This suggests a net inflow of about 4,000 residents from 2001 to 2005, some of whom would be returning Cook Islanders.

A second alternative estimate is provided by the Ministry of Health’s (MOH) Filariasis Household Survey conducted in June 2006. This counted 14,901 people resident in the Cook Islands.

What these alternative estimates suggest—and this appears a plausible conclusion—is that the resident population has at least stabilized in recent years. It was estimated at 14,990 by the 2001 census, or 14,000 as of the end of 2001. An accurate, up-to-date estimate will be available only in 2007 following the analysis of the December 2006 census.

4 Secretariat of the Pacific Community Demographic Program (2004), p. 23. Appendix 3: The Changing Population 215

A3.2 Migration Patterns

Most people who left the Cook Islands following the reforms were younger than 35 years. Of the people who left between 1996 and 2001, 50% were aged 15–34, and another 30% were children under the age of 14. There were approximately equal numbers of male and female migrants (Figure A3.2). Most went to New Zealand.

Figure A3.2: The Makeup of Departing Residents, 1996–2001

Males Females

75+ 70–74 65–69 60–64 55–59 50–54 45–49 40–44 35–39 Age Group 30–34 25–29 20–24 15–19 10–14 5–9 0–4 400 300 200 100 0 100 200 300 400 Number of persons

Source: Secretariat of the Paci c Community. 2004.

The outer islands were the most exposed to population decline from 1996 to 2001. The worst affected islands of Penhryn, Rakahanga, and Atiu bore a population reduction of more than one-third, with most islands facing a population decline of at least one-quarter. Even Rarotonga saw a quarter of its 1996 population emigrate, though this was partly offset by new arrivals, such that Rarotonga was

Secretariat of the Pacific Community (2004). 216 Cook Islands 2008 Social and Economic Report—Equity in Development

the least affected by outward migration. Births meant that the Rarotonga population actually rose over the period. Preliminary estimates of the current population suggest that since 2001 the population has continued to decline in all Outer Islands except Aitutaki, albeit at a much lower rate.

Almost all of those that left their islands between 1996 and 2000 migrated overseas (Figure A3.3). Only 70% of the those in the Cook Islands in 1996 were still there in 2001. Some inter-island migration also took place, predominantly to Rarotonga. During the 12 months before the 2001 census, Rarotonga had a net gain of 220 people from the outer islands, and 556 during the 5-year period before the census. Very few people moved between the Northern Group and Southern Group. At the same time, most arrivals from overseas established themselves in Rarotonga. By 2001, arrivals from overseas were as important a source of population growth in Rarotonga as births and arrivals from the outer islands. In contrast, most new arrivals in the outer islands were born there (Figure A3.4).

The factors motivating the move overseas by Cook Islanders have yet to be studied systematically. The key factors are widely perceived to be education, healthcare, and

Figure A3.3: What Became of the 1996 Population?

100 Went overseas

80 Died 60

Percent (%) Percent Went to other islands 20

0 Still in the country in 2001 Rarotonga Southern Group Northern Group

Source: Authors’ estimate derived from Cook Islands Statistics O ce (2003, 1997). Appendix 3: The Changing Population 217

jobs. Significant numbers of those moving are of school age. The migration of whole families, particularly of younger families, has reportedly increased since 1996, with parents seeking better job opportunities and better schooling and healthcare for their children.

Figure A3.4: Origins of the 2001 Population

100 From overseas

80 From other islands 60

40 Percent (%) Born in previous 5 20 years

0 There since 1996 Rarotonga Southern Group Northern Group

Source: Authors’ estimate derived from Cook Islands Statistics O ce(2003, 1997).

The share of people aged 15–19 that leave in search of education or employment overseas is also significant. The move overseas can be relatively brief. Although education facilities have grown in the Cook Islands, going overseas for a few years is a necessary step for many young people to access a wider range—and often higher standard—of vocational training or tertiary education.

The movement of people is also strongly influenced by socioeconomic conditions in the destination countries, including the higher wages, lower prices, and the better quality of many goods and services in New Zealand and Australia.

While the outward migration is a long-term trend, there has been some sensitivity to variations in economic conditions at home. The sensitivity was evident in the early

Secretariat of the Pacific Community (2004). 218 Cook Islands 2008 Social and Economic Report—Equity in Development

1990s when more residents began to return than were leaving, and new arrivals slowed (Figure A3.5).

Figure A3.5 : GDP Growth and Visitor Arrivals

Net arrivals

6,000 Net resident arrivals

Net visitor arrivals 3,000

0 Persons

-3,000

-6,000 85–87 88–90 91–93 94–96 97–99 00–02 03–05 Year GDP growth

0 85–87 88–90 91–93 94–96 97–99 00–02 03–05 Average annual change (%) -2 Year

GDP = gross domestic product. Source: Authors ’ estimates derived from Cook Islands Statistics O ce, Annual Statistical Bulletin, various years .

This change in migration flows over the first half the 1990s was probably either (i) a delayed response to the economic expansion following the opening of the economy and emergence of the tourism industry as a key driver or (ii) a response to the large expansion in employment in the public sector. Regardless of the causes, the unsustainable nature of the public sector expansion subsequently had a heavy impact on the population. As job opportunities and Appendix 3: The Changing Population 219

the economy contracted, more residents again began to depart than were returning.

It is significant that net resident departures have been high in recent years despite the much improved economic conditions. Net visitor arrivals also appear to have responded to the change in economic conditions. They have been very high in recent years, reflecting a tightening labor market and hence increased need for foreign workers.

A3.3 The Case of Mitiaro

The island of Mitiaro provides an example of the potential effects of the loss of an island community. From 1996 to 2001, the population fell by approximately 29%. In mid-2006, there were 204 residents, reflecting a further loss of about 10%. What the size of the population does not reveal is the impact that this loss of numbers has had on the lives of those that remained.

One contributing factor is that many of the people who left the island—reportedly going directly to New Zealand— were those who were unskilled and had the least chance of thriving if they remained. They also had at the least chance of sending remittances once they settled in New Zealand. The Cook Islands community in New Zealand has an 18% unemployment rate, largely unchanged for 10 years. People living in New Zealand on welfare or low salaries find life

7 Note that some resident departures are of foreign investors and workers that arrived as visitors but became statistical residents after 12 months. This means that net resident departures will tend to grow in periods of high visitor arrivals. 8 The figures are not fully comparable. The 1996 and 2001 numbers come from the census count; the 2006 figures come from the island health center. 9 New Zealand Statistics (2004). This is slightly down from 20% in the early 1990s, but unemployment trends in New Zealand also reflect changes in that economy. 220 Cook Islands 2008 Social and Economic Report—Equity in Development

tough, and this makes it hard to send money back to those that remained on Mitiaro.

No national records of remittances exists, but there is some anecdotal information that Cook Islands residents now send remittances to their family members in New Zealand. One elderly widow who lives alone spoke of her children, who very occasionally visit from New Zealand but stay only a day or two. She has arranged for a family reunion and saved for airfares and hotel accommodation for her children and grandchildren, all New Zealanders now, who can come no further than Rarotonga. For them, too, the trip is an expensive obligation.

In mid-2006, the health clinic recorded 55 households on Mitiaro, and almost half were headed by a person aged 65 years or older. The nine youngest household heads, men aged 30–41, all live with their wives and children, and all but one have full-time, salaried jobs on the island with the island administration, central Government, or national corporations such as Air Rarotonga. The only other households, consisting simply of married couples and their children, also were headed by men who had salaried jobs in government or business.

Most children and youths on the island are grandchildren or great-grandchildren, whose parents live elsewhere. Most households consist of older adults who live with their children and grandchildren or only their grandchildren. One-third (34%) of households are headed by a single adult living with children or grandchildren, but over one quarter (29%) of all households are adults living alone, most of them elderly men (Figure A3.6 and Table A3.1). There are reports from other islands of relatively large numbers of elderly people and a growing problem of their neglect.

On Mitiaro, grandchildren account for over half of the school roll. These children almost always leave the island when their grandparents die. The coming generations of Appendix 3: The Changing Population 221

potential parents and grandparents are very small. According to people on the island, the people who later return are generally those who lived there as children, and overall this number is shrinking.

Figure A3.6: Children and Youths on Mitiaro, August 2006

20 Child of household head 16 Grandchild of household head 12

Number of children 4

0 >5 5–9 10–14 15–19 20–24

Age group (years)

Source: Mitiaro Health Clinic data.

Table A3.1: Mitiaro Household Heads by Age, Sex, and Household Characteristics

Age of Male Female household head Living with With With Living Living with With With Living (years) wife and/or children grand Alone wife and/or children grand Alone children and grandchildren children and grandchildren children children

30-34 4 0 0 0 0 0 0 0 35-39 3 0 0 0 0 0 0 0 40-44 3 1 3 0 0 0 0 1 45-49 1 2 0 1 0 0 0 0 50-54 1 4 0 1 0 0 0 0 55-59 0 2 0 0 0 0 0 1 60-64 0 0 0 1 0 0 0 1 65-69 1 0 4 2 0 2 0 1 70-74 1 1 0 3 0 0 0 0 75-79 0 0 1 1 0 1 0 1 80+ 0 1 3 1 0 0 1 1

Total 14 11 11 10 0 3 1 6

Source: Mitiaro Health Clinic data. 222 Cook Islands 2008 Social and Economic Report—Equity in Development

A3.4 The Future Population

As the tourism industry grows, demand will rise for workers to fill lower-paid jobs such as cleaners and waiters. As these jobs and wages are mostly unattractive to local people, many are likely to be filled by foreign workers. Demand will also grow for higher-end tourism jobs such as accountants and managers. But the local skill base has never been sufficient to meet this demand and it may again prove insufficient— particularly so for Outer Island immigrants to Rarotonga with their generally lower levels of education and marketable skills. Commercial interest in foreign workers is likely to intensify because foreign workers are prepared to work for lower pay than many local people, and maintaining cost competitiveness is important to continued business growth. Businesses favoring foreign over local workers will create pressures that will be hard to control despite any intention of Government to do so. As these pressures build and slow wage growth, a move overseas to the higher-paid and restrictive Australian and New Zealand job markets will become even more attractive to Cook Islanders. The Cook Islands may follow a pattern of demographic change similar to that of Hawaii after tourism took off there in the 1970s. There, too, a highly mobile population with free access to a large, high-paid labor market (i.e., the continental United States) was progressively displaced by foreign workers in the burgeoning tourism industry, either because they would accept lower pay or had the necessary skills. As tourism fuelled the Hawaiian economy, and as romantic visions of a Hawaiian lifestyle were promoted by the industry, land rents and real estate prices rose. Hawaiians found themselves bought out by wealthier immigrants. As generations of Hawaii-born young people were unable to find local jobs and went instead to the mainland, and as their parents found either a windfall or difficulty coping with escalating real estate values, there has been a major displacement of Hawaii-born people, with poorer foreigners now posing in the hotels and shops as Hawaiians, Appendix 3: The Changing Population 223

and wealthy mainlanders living the “Hawaiian life” in the condominiums and suburbs.10

The outlook of a rising foreign presence appears to be inevitable if the economy is to continue to grow, unless there is a major change in behavior among Cook Islanders. More foreign labor will be needed unless either more Cook Islanders with the right skill sets remain or return from overseas, such that the local labor force grows in line with economic need. The record suggests that such a change in behavior is unlikely. Projections are for a downward trend in the local population, excluding foreign workers and investors that become statistical residents (Box A3.1).

The population transition now in progress can be relatively rapid and is likely to be irreversible. For example, in Palau, which shares with the Cook Islands a small, tourism- dominated economy and ready access to a large foreign economy, non-Palauan workers accounted for 34% of the workforce in 1994. The figure had reached 50% by 2001.11

The rising dependency on foreign involvement has both social and commercial dimensions. Some community members are already concerned about the potential erosion of the Cook Islands identity: the loss of the traditional culture and community networks. There are also concerns that the tourism industry may suffer if the easy-going lifestyle and Cook Islands face of the industry is lost. Some foresee that Rarotonga and Aitutaki may evolve into high- density tourist destinations with little involvement with, or connection to, Cook Island Maoris other than by way of rental payments on leased land.

The management of the population transition has long been key public policy for the Cook Islands. Its importance is likely to intensify rather than moderate over time.

10 See Gardner and Nordyke (1974) for a discussion of Hawaii’s population transition. 11 Asian Development Bank (2005). 224 Cook Islands 2008 Social and Economic Report—Equity in Development

Box A3.1: Projections of the Resident Population Preparing population projections for the Cook Islands is particularly difficult because of recent extreme variation in the migration level. It ranges from -300 people per year during 1991–1996 to -860 people per year during 1996–2001. To cover all possible developments (within reason), three different migration assumptions have been prepared. The Cook Islands resident population in the year 2021 will remain at its 2001 size of 15,000 people or more if net migration is lower than pre-1996 levels, and if the total fertility rate (i.e., average number of births per woman) does not decrease significantly. This is the High variant. If migration declines immediately to -300 people annually, the population in the year 2011 will be less than in 2001, at only 14,377 people. This is the Medium variant. The resident population would decline to a very low 5,700–6,500 people in the year 2021, if the current high level of negative migration gradually declines from its 1996–2001 level to the pre-1996 level of -300 people annually by 2021. This is the Low variant. Although the Low variant projection results in a population so small as to seem unrealistic, it needs to be pointed out that it assumes (i) migration rates that are moderate compared to those of the period 1996–2001 and (ii) a level of fertility above that in many parts of the world, including New Zealand and Australia. Population changes close to those shown in the Medium variant appear to be the most likely outcome. Figure A3.7: Population Projections

20,000

Past 15,000

High 10,000

People Medium

5,000 Low

0 1991 1996 2001 2006 2011 2016 2021 Year

Note: The resident population presented in these projections should be interpreted as excluding those foreign workers and investors that remain in the Cook Islands for more than 12 months and hence become statistical residents.

Source: Secretariat of the Pacific Community. 2004, pp. 34–35. Appendix 4: Outer Island Profiles

A4.1 Introduction

Island strategic plans originally prepared under the outer islands devolution program were updated in 2002–2003.1 The12 update involved the preparation of socioeconomic profiles drawing on the results of the 2001 population census (the latest available), the 2001 agriculture and fisheries census, Ministry of Health (MOH) data for 2004, data of other national agencies, and consultations on the outer islands. This annex summarizes the island profiles, updated by a review of recent data and reports and, where possible, by island visits undertaken for this report.

A4.2 Aitutaki

Geography. Aitutaki lies 277 kilometers (km) northeast of Rarotonga. It is a low volcanic island situated on a near atoll and has a total land area of 18.1 square kilometers (km2). The encircling reef is over 40 km long and studded with 15 additional islets (motus). Aitutaki rises to about 121 meters above sea level at its highest point, Maungapu. Aside from this hill, the island consists of flat-topped terraces, fertile

1 Supported by Asian Development Bank technical assistance No. 3795, Preparing the Outer Island Development Program. 226 Cook Islands 2008 Social and Economic Report—Equity in Development

planting areas, and fairly extensive areas of coral. The lagoon measures 66 km2 and has an average depth of about 5 meters. There is no deepwater passage into the lagoon. The uninhabited atoll of Manuae, traditionally regarded as part of Aitutaki, has a lagoon well stocked with fish. Access is usually by pleasure and fishing boat. The airstrip is rarely used.

Preservation of the beauty of the lagoon is a high priority as the tourism industry grows. Areas of the lagoon are now under raui, a traditional conservation method in which extraction activities are not permitted for given periods. This is to assist the reestablishment of the native clam population as well as reef fish. The islets are also breeding grounds for the lorikeet.

The island has eight distinct villages divided into four census districts: Amuri-Ureia, Arutanga, Tautu, and Vaipae- Avanui. The total number of dwellings in 1996 was 507. By 2001, the number had declined to 452, with an average size of four people. There were 1,743 residents on Aitutaki in 2001, down from the 1996 figure of 2,272. The 23% drop in population was concentrated in the age groups of under 5 years and 20–29 years. The loss of young children was the main reason that the dependency ratio fell from 94 dependents for every 100 economically active persons in 1996, to 91 dependents for every 100 in 2001. The ratio of males to females did not change between the census years.

Public Infrastructure. The island has wharf facilities for offloading cargo from workboats and barges loaded from inter-island ships near the opening to Arutanga Landing. The port is managed at present from Rarotonga through the Ports Authority. Inter-island ships run regularly to Rarotonga, and large cargo ships provide direct access from Auckland and Rarotonga. The airport was upgraded and resurfaced in 2004 and is fully managed from Rarotonga by the Cook Islands Airport Authority. Two airstrips of 1.8 km and 1.4 km in length occupy the northern end of the island. Appendix 4: Outer Island Profiles 227

In mid-2006, there were at least four scheduled flights per day to Aitutaki on Monday to Saturday, and one on Sunday. Aitutaki has 16 km of sealed road and 45 km of unsealed road.

In 2001, 433 households were connected to the public water main, 162 had their own rainwater tank, and 23 relied on public water catchments. The majority (283) had water piped inside the home; 157 had water piped to outside the home; and only one had to cart water to the dwelling. Water supply falls short of consumption requirements. All major new commercial users are required to install rainwater collection tanks or desalination systems, and households are encouraged to install private water tanks. In 2001, 278 households had flush toilets, 55 had pour-flush toilets, and 176 used pit latrines.

Electricity is supplied 24 hours at a cost in 2002 of 42 New Zealand cents (NZ$0.42) per kilowatt-hour (kWh) for domestic use and NZ$0.60 per kWh for business use. Major users such as Pacific Resort pay concessional rates. There has been significant growth in total electricity generated each year as tourism growth and the increased use of household electrical appliances has more than offset population decline. Over 95% of households had electricity in 2001 and used it to run a wide range of household electrical appliances, including freezers (318) refrigerators and/or freezers (301), washing machines (293), radio and/or cassette players (389), televisions (412), and video recorders (310). Gas was the principal means of cooking.

Social Services. Aitutaki has a 28-bed hospital, one outpatient clinic, one dental clinic, and eight child welfare clinics. In 2004, there were two full-time doctors in attendance and two nurses. There is also one health inspector, one public health nurse, three nurse aids, one dentist, one dental technician, and one pharmacist who also works in radiology and the outpatient division. As of 2001, 71% of the male population and 68% of the female 228 Cook Islands 2008 Social and Economic Report—Equity in Development

population held no qualifications, and only 1% of females and 1.5% of males had achieved university entrance.

Aitutaki had five schools in 2001. However, Amuri School closed in 2002 due to falling enrollments. Falling enrollments are of concern generally, with the 2002 total enrollment of 595 down 30% on the 1996 level. In 2002, there were 289 primary school students spread fairly evenly through the grades and 264 secondary school students. While over 90% of those enrolled in Grade Six of primary school enter Form One of secondary school, the retention rate falls off in upper secondary school. There were 41 teachers on Aitutaki in 2002, 38 of whom were certified and seven of whom held bachelors’ degrees. The percentage of female teachers has increased markedly in recent years, while the student-to-teacher ratio has remained low.

In December 2002, there were 623 welfare beneficiaries, representing 35% of the population. Males have dominated the old-age pension category since 1997.

The island has no rubbish-disposal program, which makes mosquito and fly control difficult. A waste- management project was designed to overcome these problems through the construction of a landfill.

Economic Activity. In 2001, there were 1,112 residents of Aitutaki aged 15 years and over. Of them, 51% were female; 27% were engaged in home duties; 45% were employers, self-employed, or working full time; 9% were students; 2% worked part time or as unpaid family labor; 9% were students; and 7% were retired. The unemployment rate was estimated at 19% in 2001 (23% for females, 15% for males), up from the 15% estimate for 1996.213

2 The unemployment rate is the share of the economically active population (working or looking for work) that is unemployed. Appendix 4: Outer Island Profiles 229

In contrast to the situation on most other outer islands, the public service downsizing of the mid-1990s seems to have been durable. Public service numbers have dropped since 1996, and employment in private enterprises has expanded, providing 54% of employment in 2001, while the public service provided 22% of employment (for 114 people). Self- employment saw a marked rise between 1996 and 2001, from 4% to 15%. In fiscal year (FY) 2006, there were 41 employees of the island administration (down from 54 in 2002), the Ministry of Education (MOE) employed 36, MOH employed 27, and another 13 people were employed by other national agencies (117 in total).

In 2001, 24% of the population over 15 years of age reportedly received no cash income, compared with 42% in 1996. This category had roughly equal numbers of men and women, reflecting heavy involvement in subsistence production for men and home duties for women, though Aitutakian women do not produce handicrafts to the same extent as residents of other Southern Group islands. Almost 41% of the female population earned less than NZ$5,000 per year, compared with 25% of the male population. Correspondingly, males dominated the over-NZ$5,000 categories. Over 22% of the population aged 15 years and over earned NZ$10,000 or more per annum.

Aitutaki is relatively well endowed in land: 52% of the island is suitable for annual and tree crops, and an additional 26% is suitable for tree crops. In 2000, only eight of 444 households surveyed were not engaged in agricultural activity of any sort, though many others had little involve ment. Most of the households produced exclusively for home consumption (53%), while some supplemented subsistence production with cash cropping. Nineteen households (4%) engaged in commercial agricultural production, with four of these households holding bank loans.

The main tree crops are banana, mango, and coconut. Vegetable and fruit crops include beans, cabbage, capsicum, 230 Cook Islands 2008 Social and Economic Report—Equity in Development

melon, pineapple, and tomato. Root crops include cassava, kumara, wet and dry taro, and tarua. Wild nono trees are scattered around the island.

Of the 444 households, 300, or 68%, raised livestock, especially pigs, for subsistence and special occasions. In 2000, 285 households were involved in fishing, 211 of them solely for home consumption and 67 for subsistence and occasional sale. Seven households engaged in commercial fishing. The average number of fishing trips per month was 4.5, involving mostly hook-and-line fishing and spearfishing in the lagoon. A distinguishing feature of fishing off Aitutaki is that 54% of the households engaged in fishing used a motorized boat.

Tourism is the leading sector in Aitutaki’s development. The island annually hosted as of 2000 approximately 12,500 visitors (who were staying up to 4 days) and about 4,200 day trippers. As of 2003, tourism-related businesses included three resort hotels, 11 self-catering establishments, five budget accommodation houses, three guest houses, six restaurants, nine tour operators offering lagoon cruises and/or diving, four fishing tour operators, and two Internet cafes. A few women produce handicrafts for sale to tourists. There were 49 active businesses in 1999.

A4.3 Atiu

Geography. Atiu is a raised volcanic island surrounded by steep makatea (coralline) cliffs that rise 3–6 meters above sea level. Red volcanic inland soils are heavily wooded, with rolling hills rising to 72 meters above sea level. Valleys run east and west, and settlements are located on a plateau surrounded by swamps and a small lake. The narrow, fringing reef drops steeply to the ocean floor 4,500 meters below. Takutea, which is an uninhabited 122-hectare (ha) island lying 21 km off the coast of Atiu, is regarded as part of Atiu. Appendix 4: Outer Island Profiles 231

Atiu has the highest annual rainfall in the Cook Islands (2,140 millimeters). There is noticeable erosion in parts of the inland hills, while limestone cliffs, caves, and swamplands are important environmental features. Makatea wildlife and the Atiu kopeka (swiftlet) are common in particular areas. Takutea is well known as a nesting site for frigate birds.

Atiu has five distinct villages: Teenui, Ngatiarua, Areora, Tengatangi, and Mapumai. The total number of occupied dwellings in 1996 was 198, but by 2001 the number had declined to 161, with an average household size of four people. The population of Atiu has fallen continuously since 1971, dropping by 37% to 600 people during the decade to 2001. The population was estimated at 559 as of mid- 2006.

The decline in population has been especially rapid in the age groups of under 5 years and 15–34. In 2001, 37% of the population was under 15 years of age, and 14.5% was over 60, resulting in a ratio of 106 dependents for every 100 economically active people (up from 90:100 in 1996). The male-to-female ratio fell slightly from 1.06 in 1996 to 1.02 in 2001.

Public Infrastructure. Atiu has an airport constructed of makatea soil. Upgraded in FY2002, it is now suitable for small craft as well as the larger Saab airplane. In 2003, there were normally daily flights to and from Rarotonga with connecting flights to Aitutaki once or twice a week. By mid- 2006, there were a total of four scheduled flights per week to and from Rarotonga and one to Aitutaki.

Taunganui landing wharf provides services for inter- island vessels that call at the island sometimes monthly to offload cargo outside the reef onto workboats. The current wharf and packing shed are deteriorating and in need of repair. The harbor launching area needs to be dredged and upgraded. A road runs around the island, linked at several 232 Cook Islands 2008 Social and Economic Report—Equity in Development

locations to the central settlement by a small network of inland roads. As of 2006, a few kilometers through the settlement are sealed. The road from town to the wharf and airport harbor is two lanes of compacted coral and dirt, and most other roads are of bush track standard.

Most households (138) in 2001 were connected to the public water mains; 100 had their own rainwater tank; and 23 drew water from public water catchments. The piped water supply was discontinued in 2005, and by 2006 almost all households had rainwater tanks, with supplies supplemented by tankers filled at public reservoirs or natural wells on the makatea.

As of 2001, almost all households had electricity, which is supplied continuously, but most continued to use firewood and then gas as the principal means of cooking. Electricity was used to run radio and/or cassette players (157 households), televisions (140), video players (99), freezers (129), fans (61), sewing machines (55), and washing machines (49). Although the population has fallen steeply, electricity generation increased by 59% between 1996 and 2000. The 2006 electricity tariff of NZ$0.62 per kWh for commercial users and NZ$0.40 per kWh for households was below operating cost.

Social Services. Atiu has a nine-bed hospital, an outpatient area, a public health clinic, and one child welfare clinic. In 2004, there was one doctor, one senior clinical nurse, and three nurse aids employed by MOH, and the island council employed one dentist, one public health nurse, one health inspector, and one assistant health inspector. The dentist had departed by 2006, and it was unclear if the now-retired doctor would be replaced when he finished work. Families make a quarterly cash contribution to cover health costs, which totals NZ$10 per family per year. A dental clinic is equipped largely with donated materials and instruments. Appendix 4: Outer Island Profiles 233

Child and mother health data record Atiu as having a declining number of live births, as would be expected from the precipitous population decline. Whereas there were 71 live births between 1991 and 1995, for an average of 14 per year, there were only six births in 2002.

Atiu’s school population fell by 41% between 1996 and 2002, which compelled the combination of the primary school and secondary college into the single Enuamanu School. The Uturei Adventist School closed at the end of 2000 because of small enrollments. About one-third of the school population in 2001 was studying at the secondary level, 57% at primary level, and the remainder at preschool level. Females represented 52% of primary students and 56% of secondary students. Of the 40 students enrolled in Grade One of primary school in 1996, only 14 were in Grade Six in 2001. This largely reflected the out-migration of entire families between 1996 and 2001. Unusually, there were eight students in Form Six of secondary school in 2003, but Form Seven is unavailable on the island.

There were 13 teachers on Atiu in 2003, as there had been in the previous 2 years. Three of the teachers held degrees, and 10 were certified teachers. The majority were female. The average student-to-teacher ratio is 14:1, which is low by international standards, but that all classes are multilevel complicates teaching.

Three-quarters of the male population and 69% of the female population held no qualifications at secondary or tertiary level. Among females, 28% held a secondary-level certificate, compared with 20% for males; 3% of both males and females held tertiary-level qualifications.

There were 240 welfare beneficiaries on Atiu in 2001. As there were 161 households, every household likely received at least one type of welfare payment. 234 Cook Islands 2008 Social and Economic Report—Equity in Development

The 2001 census recorded 58 flush toilets, 52 pour- flush toilets, and 100 pit toilets, and showed 118 households with a bath or shower. Rubbish is collected and disposed of by the island administration in managed dumps.

Economic Activity. In 2001, there were 378 Atiuan residents aged 15 years and over. Of them, 49% were female; 37% were engaged in home duties; 30% were employers, self-employed, or working full time; 7% were students; and approximately 5% worked part time or as unpaid family laborers. The unemployment rate was estimated at 32% in 2001 (39% for females, 28% for males), up from the 27% estimate for 1996.

The share of employment provided by private enterprises fell from 39% in 1996 to 27% in 2001, the self- employment share rose from 7% to 15%, and public service employment accounted for 55% of total employment in 2001 (72 people). In FY2006, there were 65 employees of the island administration (up from 45 in 2002), MOE employed 15, MOH employed 9, and another 10 personnel were employed by other national agencies (99 in total).

A quarter of the 2001 population 15 years of age or older reportedly received no cash income, compared with 36% in 1996. The percentages for males and females were 26% and 25% respectively. Almost 55% of the female population earned less than NZ$5,000 per year, compared with 39% of the male population. Close to 35% of males and just 20% of females earned above NZ$5,000 per annum.

Agriculture remains the principal productive sector of the island economy. Over 17% of Atiu’s land area is Class One land, which is suitable for annual and tree crops, and a further 51% is Class Two land, suitable for tree crops. Of the 159 households covered in the 2000 agricultural census, only seven were uninvolved in agricultural activity of any sort, and 32 were engaged in only minor agricultural activity. Of the remaining households that engaged in significant Appendix 4: Outer Island Profiles 235

agricultural activity, 80% produced entirely for home consumption, and 16% engaged in subsistence production with some cash cropping. Thus, only 4% of agricultural producers were commercial. As would be expected, the use of commercial finance is correspondingly limited, with only nine of the 120 agriculturally active households holding bank loans.

Raising livestock is an important activity, with 137 households (86%) in 2000 raising pigs, goats, and/ or chickens. Tree crops planted on Atiu include banana, coconut palm, coffee, and nono. Fruit crops include melon, pineapple, and tomato, and root crops cassava, kumara, and swamp taro. Chillies and onions have also been grown. Soil studies indicate that the unused slopes on Atiu are capable of growing kava, vanilla, aloe vera, ginger, black pepper, tomato, cassava, and coffee.

In the past, citrus, pineapple, coffee, and vanilla have been introduced, cultivated, and exported. However, except for some coffee for export, these export activities have not lasted. Following the demise of the pineapple industry, the Government introduced pine plantations to protect against soil erosion. Forest maintenance through pruning and thinning has been limited, and there is no operational treatment plant—in light of the high rate of pest attack. Some trees are now mature, but harvesting them is unlikely to be commercially viable. The landowners own the trees. Atiu-based research has led to a new industry of treated kikau, which earned NZ$30,000 of export revenue in 1999. A native tree called matoi produces a fragrant flower that possibly could be used to produce high-quality perfume.

In 2000, 82% of all enumerated households were involved in fishing. The 2000 census found that most households fish for home consumption only, with some occasionally selling their catch. On average, 2.5 fishing trips are made per month. There was only one commercial fisherman on Atiu in 2000. The bulk of fishing activity 236 Cook Islands 2008 Social and Economic Report—Equity in Development

occurs inside and on the reef, but an increase in the number of outboard motors has permitted access to the sea beyond the reef, so that trolling and deep bottom fishing have increased.

Annual visitor numbers have grown from around 850 as of 2002 to about 1,500, with a typical stay lasting 2–3 days. There are five lodges focused on tourism. The natural beauty and wildlife of the island are major attractions. The frequency and capacity of domestic flights is a significant determinant of visitor numbers, along with the effectiveness of marketing.

The number of active businesses on Atiu in 1999 was 17. They included one commercial farming-and-fishing operation; six businesses in the mining, quarrying, and manufacturing sector; and 10 in the trade, restaurant, and accommodation sector.

A4.4 Mangaia

Geography. Mangaia is the second largest and most southerly of the Cook Islands. It is a volcanic island rising to 169 meters above sea level and surrounded by sharp makatea cliffs of up to 80 meters. Beyond the cliffs are rolling hills of red volcanic soils, among which are natural freshwater lakes and swamps used for taro production. Pronounced erosion marks the infertile fern lands and former pineapple- production areas. The resulting siltation has affected taro swamp drainage through the makatea, which features extensive cave systems. Key wildlife is the rare Mangaian kingfisher.

The island has three villages: Oneroa, Ivirua, and Tamarua. Oneroa is the administrative center. There were 237 occupied dwellings in 1996 and 199 in 2001, with an average household size of four people. The population of Mangaia in 2001 was just 36% of its 1971 level, and by Appendix 4: Outer Island Profiles 237

the end of 2002 had dropped further to 699. The most dramatic drops since 1996 have been in the age groups of 20–29 years. Above-average falls were also recorded for those under 9 years of age. Whereas in 1996 there were 101 dependents for every 100 people in the economically active age groups between 15 and 60 years of age, in 2001 the ratio was 102:100. The ratio of males to females fell from 1.04 to 1.02 during this last intercensal period.

Physical Infrastructure. The island has wharf facilities at Oneroa Landing. The 120-meter channel provides services for inter-island vessels, which call at the island every 2–3 weeks to offload cargo outside the reef onto work boats. There are no sealed roads on Mangaia, but the coral roads are in good condition, providing reasonably easy access to any part of the island. A perimeter and inland road network of 55 km links the three villages. Mangaia has an airstrip with a coral surface 1,060 meters long. There were four flights a week to and from Rarotonga in 2002. By mid- 2006 services had fallen by one.

In 1996, 234 households were connected to the public water mains, and only 27 households had private rainwater tanks. There were also 61 public water tanks. However, since then the galvanized pipes of the water reticulation system have deteriorated, and tanks, roofs, and guttering have fallen into disrepair. The result is that water is sometimes in short supply. In 2001, most households (197) were connected to the public water main; 90 accessed public water catchments; and 50 had their own rainwater tanks. Most households (113) had water piped to outside the house, 80 had it piped inside, and six carried water to the house.

Most dwellings had electricity in 2001 but used gas and then firewood as the principal means of cooking. Electricity was used to run freezers (184) radio and/or cassette players (159), televisions (149), video players (105), washing machines (61), fans (58), and sewing machines (52). Electricity is supplied 24 hours a day by diesel generators. 238 Cook Islands 2008 Social and Economic Report—Equity in Development

The total electricity generated has remained fairly stable in recent years.

Social Services. The population is served by the Mangaia hospital, which is an old but reasonably well- maintained timber building with six beds. The operating and delivery area is at the back of the building, adjoining the wards and the doctor’s and medical records rooms. There are six child welfare clinics. A dental clinic is adjacent to the hospital building. Supplies were reported to be very poor in 2002 except when there were visits from German dental students who provide the necessary supplies. In 2004, health staff consisted of one doctor, one clinical nurse, one public health nurse, four nurse aids, one driver and grounds man, one health inspector, one assistant health inspector, and one dental officer. Health inspector activities include water testing and checks, running the filariasis control program, and round-the-island inspections.

Illness is generally understood to be caused by viruses and germs, hereditary factors, and sexual relationships. Traditional healers on the island, who are paid for services with food and goods, use herbs and psychological treatment.

Those who held no qualifications were 39% of the male population and 43% of females. One quarter of females held a secondary school certificate of some kind, compared with 28% of males. Males held a higher percentage of tertiary level qualifications (2.6%) than females (1.2%).

The school population on Mangaia fell by 32% between 1996 and 2002. Falling rolls caused the closure of Oneroa Primary School in 1999 as it merged with Mangaia School. The two remaining primary schools have experienced falling rolls and struggle to remain viable. Almost 43% of the school population in 2001 was studying at the secondary level, 43% at primary, and the remainder at preschool. Females represented 46% of primary students but a higher 54% of secondary students. Appendix 4: Outer Island Profiles 239

While there were 21 students enrolled in Grade One of primary school in 1996, only five were in Grade six in 2001, presumably reflecting the out-migration of entire families between 1996 and 2001. The number of students attending secondary school was 123 in 2000 and 114 in 2001, with an unusual rise in Form Six numbers in the latter year to 12, and a further large rise to 24 in 2002. The island does not offer Form Seven.

There were 19 certified teachers on Mangaia in 2002, 17 of them Cook Islanders and 12 female. Only three teachers held bachelors’ degrees. On average there were 14 students per teacher—13:1 in primary and 12:1 in secondary. These low ratios conceal the fact that all teachers are required to teach a number of grades or forms at the same time.

In 2000, Mangaia was well served regarding modern sanitation facilities, with flush toilets in 78 households, 48 community and public toilets, 10 in Government buildings, and 10 in commercial establishments. However, 130 households still used pour-flush toilets, while a smaller number (39) used pit latrines. The 2001 census recorded 77 households with flush toilets, 70 with pour-flush toilets, and 89 with pit toilets. There were 114 dwellings with a bath or shower. Rubbish is collected and disposed of by the island council in managed dumps.

In December 2002, there were 286 welfare beneficiaries. The decline in the number of beneficiaries from 416in 1997 is consistent with the decline in the population. More females than males collect old-age pensions and allowances for infirmity or destitution.

Economic Activity. In 2001, there were 478 Mangaians aged 15 years and over. Of them, 51% were female; 32% were engaged in home duties; 27% were employers, self- employed, or working full time; 12% were students; just over 1% worked part time or as unpaid family laborers; and 8% were retired. The unemployment rate was estimated at 240 Cook Islands 2008 Social and Economic Report—Equity in Development

40% in 2001 (53% for females, 31% for males), up from the 32% estimate for 1996.

The share of employment provided by private enterprises fell from 24% in 1996 to 11% in 2001, the self- employment share fell from 24% to 22%, and public service employment accounted for 58% of total employment in 2001 (81 people). In FY2006, there were 66 employees of the island administration (75 in 2002), 28 of whom were employed on a part-time basis. MOE employed 25, MOH employed 12, and another seven personnel were employed by other national agencies (110 in total).

In 2001, 31% of the population over 15 years of age reportedly received no cash income, compared with 41% in 1996. There were roughly equal numbers of men and women in this category, reflecting heavy involvement in subsistence production for men and home duties for women. Almost 44% of females earned less than NZ$5,000 per year, compared with 26% of males. Correspondingly, males dominated categories earning over NZ$5,000.

Mangaia is poorly endowed with land by Southern Group standards. Only 8% of the island is suitable for annual and tree crops, with an additional 41% suitable for tree crops alone. Nonetheless, agriculture is the principal productive sector in the island economy.

In 2000, only 24 of 204 households were not engaged in agricultural activity of any sort, and a further nine households had only minor involvement. Most of the households produced exclusively for home consumption, but a substantial number supplemented subsistence production with cash cropping. Although only one household engaged in commercial agriculture, seven had bank loans.

The 2000 agriculture and fishing census recorded the following main crops: avocado, banana, breadfruit, chestnut, coconut, mango, taro, and tarua. Home garden crops range Appendix 4: Outer Island Profiles 241

from rukau viti (Hibiscus esculentum) to tomato, cabbage originated from the People’s Republic of China (PRC), and kumara. Home gardens are mainly the responsibility of the women to plant, maintain, and harvest, but other family members help out from time to time. To a certain extent, women are still associated with the cultivation of the very high-quality swamp taro known locally as mamio.

Various agriculture schemes begun on the island in the past include coffee rehabilitation, ostrich farming, reforestation programs, inter-cropping subsistence and cash crops, vanilla cultivation, root crops, and vegetable gardening. Taro and pineapple have been major exports from the island in the past. Today, only taro is exported.

Nono is considered the latest tree crop to have export potential, along with Caribbean pine. However, after the island council sank funds into rehabilitating the old jail as a nono juice factory in 2002, the private developer pulled out.

Of the 204 households surveyed in 2000, 184 raise livestock, primarily pigs, goats, and chickens for home consumption.

In 2000, 181 households were involved in fishing, 158 of them solely for home consumption and 23 for subsistence and occasional sale. No households were engaged in commercial fishing. The average number of fishing trips per month was 4.5, involving hook-and-line fishing on and around the reef. Eight in ten households did not use a boat.

There were approximately 300 visitors to Mangaia in 2001 and 200 in 2002, staying for an average of 4 days. Participation in the tourism sector is mainly restricted to supplying handicrafts made by women to craft outlets and family contacts on Rarotonga for selling on to tourists. The island is famous producing beautiful pandanus baskets and 242 Cook Islands 2008 Social and Economic Report—Equity in Development

mats, fishing baskets, and shell necklaces made from pupu shell.

In 2002, the formal private sector consisted of 11 retail stores, four tourist accommodations (nine beds), two bars, two restaurants, a handicraft outlet (the women’s center), a transport service (Clarke’s Tours), a banking service, two communication services, and a mechanic service.

A4.5 Manihiki

Geography. Manihiki is a coral atoll located over 1,200 km north of Rarotonga. Its nearest neighbor, Rakahanga, is 44 km distant. The total land area of 5.4 km2 makes Manihiki the second-largest island of the Northern Group. It’s highest point above sea level is under 4 meters. No land suitable for both annual crops, and the main tree crops are coconut, pandanus, and a little breadfruit. Indigenous trees such as ngangie and toa are prevalent on all the islets (motus) along the reef. The lagoon area of 4,063 ha constitutes a crucial marine resource.

Environmental features include extensive seabird nesting on isolated motus, turtle nesting grounds, and stocks of blacklip pearl oyster. The existing and potential impact of black pearl oyster production on lagoon ecology is an important environmental issue. Of the uninhabited motus, Porea, is significant because it has an enclosed lake in which milkfish ava( ) are farmed.

Temperatures are higher than in the Southern Group, averaging 27–28°C throughout the year, with March–June the coolest months and December–March the hottest and wettest. Drought can be a very serious problem.

The island has two villages located about 6 km from each other across the lagoon. Tauhunu is the bigger village Appendix 4: Outer Island Profiles 243

and shares the island administration with the smaller village, Tukao.

The total number of dwellings declined from 149 in 1996 to 118 in 2001, with an average household size of four people. There were 498 people on Manihiki in 2001, or 25% less than in 1996. The decrease can be attributed to Cyclone Martin, which destroyed about 90% of the houses and killed 19 people in November 1997. Almost the entire population was evacuated, and some families did not return. Manihiki exhibits a relatively low dependency ratio. In 2001, there were 61 people in the dependent age groups for every 100 people between the ages of 15 and 60 years, compared with 91 in 1996. The male-to-female ratio is also comparatively high at 103 males for every 100 females, and higher among those 15–34 years old, reflecting the presence of young males working in the pearl industry.

Physical Infrastructure. Small boat passages have been blasted in the reef at both of the two villages, but there is no ship passage into the lagoon, and the flats betweenmotus can be shallow. Tauhunu Landing allows offloading of workboats that have received cargo from inter-island ships berthed outside the reef. The newly established landing at Tukao allows boat passengers from Rarotonga to disembark. A 1.1-km airstrip was built in the early 1980s. It was served twice weekly by Air Rarotonga in 2002. By mid-2006, there was only one flight per week. The strip can accommodate the larger SAAB 340 aircraft in addition to the Bandeirante.

Electricity is supplied 12 hours per day by diesel generators, with most households connected to the mains system. The total electricity generated each year declined in the late 1990s. In 2002, the cost of power was NZ$0.58 per kWh for commercial users and NZ$0.36 per kWh for domestic users.

In 2001, 103 households relied on their own rainwater tanks for water supply, with 28 using public water 244 Cook Islands 2008 Social and Economic Report—Equity in Development

catchments. Only 48 households had water piped inside the home, 37 had it piped to outside the dwelling, and 33 had to carry water home. Rain is the only source of water on Manihiki.

Social Services. Manihiki had one two-bed hospital in 2004, and a new four-bed hospital was constructed in 2005. The clinic at Tauhunu is housed in the child welfare clinic and is in poor repair. There is a wide verandah and an open ward area with four beds, but no storage facilities. The Tukao clinic is also in poor repair, and hygiene standards suffer. Inadequate power supply compromises vaccines.

Health services are provided by a visiting doctor, who has been based in Tauhunu since December 2002, and one nurse. The child welfare committees in both villages are very active and the mainstay of support for nurses and teachers on the island. There are no dental services on the island, but the dentist on Rakahanga is expected to make regular visits. Traditional medicine is practiced on the island, with nono being a popular treatment for many ailments.

Health indicators suggest an unusually high prevalence of diarrhea, influenza, and acute respiratory infections, which suggest in turn such environmental causes as poor hygiene and the lack of safe food and water.

Among those of 15 years or older, 74% of males and 68% of females held no qualifications at secondary or tertiary levels. Thirty percent of females held a secondary level certificate, or half again as many as the 20% of males, but more males held tertiary level qualifications (6%) than females (2%).

There are two schools on Manihiki. Tukao Primary provides classes from preschool to Form Four, and Tauhunu High School preschool to Form Five (the Cook Islands School Certificate level). There were 129 students enrolled in 2001, a drop of 25% from 1996, but in 2002 there was a Appendix 4: Outer Island Profiles 245

recovery in numbers to 147. About one-third of the school population in 2002 was studying at the secondary level, 54% at primary, and the remainder at preschool. Females represented 46% of primary students and 47% of secondary students, which was broadly in line with their share of the school-age population.

In 1996, there were 26 students in Grade One of primary school, but in 2001 there were only 10 in Grade Six, presumably because of out-migration of families after Cyclone Martin. However, enrollment in Form One of secondary school was 10 in 2002, and there seemed to be reasonable retention rates to Form Five. Six of the eight female teachers on Manihiki are certified, and one has a degree. There were 18 students per teacher in 2002. Classes are multilevel.

Of the 118 households in 2001, 80 had flush toilets, 25 had pour-flush toilets, two had pit toilets, and 12 had lagoon toilets. Tukao now has regular rubbish collection and a large landfill hole that is used as a community dump. There is no rubbish collection on Tauhunu. Wandering pigs and the cleaning of pearl shells at the edge of the lagoon are problems.

In December 2002, there were 161 welfare beneficiaries, representing almost one-third of the population.

Economic Activity. In 2001, there were 334 Manihikians aged 15 years and older. Of them, 41% were female; 16% were engaged in home duties; 59% were employers, self-employed, or working full time; 9% worked as unpaid family labor, notably on family pearl farms; 2% were students; and 4% were retired. The unemployment rate was estimated at 18% in 2001 (20% for females, 15% for males), up from the 13% estimate for 1996.

The share of employment provided by private enterprises fell from 24% in 1996 to 11% in 2001, the self- 246 Cook Islands 2008 Social and Economic Report—Equity in Development

employment share rose from 13% to 32%, and public sector employment accounted for 58% of total employment in 2001 (81 people). In FY2006, there were 66 employees of the island administration (75 in 2002). MOE employed 25, MOH employed 12, and another 7 personnel were employed by other national agencies (110 in total).

In 2001, 17% of those 15 years of age or older reportedly received no cash income, compared with 22% in 1996. The percentages for males and females in 2001 were the same. Just over 49% of the female population earned less than NZ$5,000 per year, compared with 31% of the male population, while 51% of males and 33% of females earned above NZ$5,000 per annum, with eight males and three females earning NZ$50,000 or more annually. Income levels have greatly risen since 1996, generally reflecting the buoyant pearl market.

Pearl farming has been the mainstay of the economy, having developed from the early 1980s into a lucrative income-earning option. In 1997, there were 240 pearl- farming permits granted, including 74 to women. The Pearl Federation found that women were actively engaged in shell cleaning, food preparation, and seeding (but not diving) on a daily basis. It is believed three women are now qualified to seed round and half pearls. The 2000 census of agriculture and fisheries reported 106 pearl farms with a total of 2,162,795 farm shells: 83 pearl farms had 819,682 seeded shells; 81 farms had 1,005,513 drilled but unseeded shells; and 51 farms had 337,600 shells yet to be drilled or seeded. Pearl farm operators were projected collectively to have 2.4 million shells seeded by 2003 and 4.6 million shells seeded within 5 years.

The pearl farm workforce in 2000 consisted of household members and others. In the former category were 103 pearl farm operators working an average of 15 hours a week, 32 paid workers working an average of 34 hours per week, and 90 unpaid workers working an average of nine Appendix 4: Outer Island Profiles 247

hours per week. In the other category were 37 paid workers and 13 unpaid workers. Workers were mainly men—203 compared with 72 women. The average wage for paid laborers was NZ$435 per month, with one in five workers receiving free housing and/or food.

Of the 103 pearl farm operators, 24 respondents indicated that they derived all their income from the pearl farm, 13 half to three-quarters, and 38 one-quarter to one- third. Fifty operators held bank loans, primarily from the Bank of the Cook Islands (BCI).

The 2000 agriculture and fishing census revealed that, of 118 households, 51 had no involvement in agriculture and 40 had only minor involvement. The 27 households that had a significant involvement were engaged entirely in subsistence production, harvesting coconut and planting banana, kumara, and puraka. Home gardens also included rukau viti (Hibiscus esculentum), tomato, and PRC cabbage. Women and men shared home gardening activities. Over 80 households raised livestock, mainly pigs and chickens, mainly for subsistence. The importance of fishing is demonstrated by 105 households being engaged in fishing in 2000. Of these, 97 fished for home consumption only, and eight for home consumption and occasional sale. No commercial fishing operations were recorded in 2000, though there were some in 1996.

Formal businesses include BCI, pearl farms, two retail stores on Tauhunu, and two retail stores, and a food takeaway on Tukao. Market day is every Friday. There is no registered tourist accommodation on Manihiki, though a few homestay operations exist. Manihiki women were once prolific producers of beautiful rito hats, fans, and purses, but this is no longer the case due in part to the demands of pearl farming. 248 Cook Islands 2008 Social and Economic Report—Equity in Development

A4.6 Mauke

Geography. Mauke is a raised volcanic reef island, 29 meters above mean sea level, surrounded by makatea to 20 meters. Roughly oval shaped, it is 6.4 km long and 4.0 km wide. The central plateau is low-lying and flat, with numerous swamp areas between the plateau and the makatea. This makes access to the sea generally difficult. Mauke has a diverse environment of caves, swamplands, and makatea whose wildlife could, if properly promoted and maintained, attract ecotourists.

The island has three distinct villages: Kingatau, Ngatiarua, Areora-Makatea, also known as Oiretumu. Each village has a governing committee that deals with matters relating to beautification, women’s affairs, and cleaning roads. They are also responsible for the quarterlytutaka health inspections in and around the households in the village.

The population of Mauke dropped by 38.5% between 1971 and 2001. The fall in the latest intercensal period was most marked in the age groups 20–29 and involved both males and females. The male-to-female ratio fell from 111.4 in 1996 to 107.5 in 2001.

As a result of the out-migration of people in their twenties, the dependency ratio rose. In 1996, there were 96 dependent people for every 100 people in the economically active age range of 15–60. In 2001, there were 113 dependents for every 100 economically active people. Dependents constituted 53% of the total population, with females predominating among those aged 60 years and older. There were 134 households in 1996 and only 110 households in 2006, with an average size of four people, recorded in 2001.

Public Infrastructure. The Taunganui landing or wharf provides services for inter-island vessels that call at the Appendix 4: Outer Island Profiles 249

island, sometimes monthly, to offload cargo and/or passengers outside the reef onto one of the three aluminum workboats.

There are no sealed roads on Mauke, but the coral roads are in good condition. An interior road has been constructed to ensure access to the airport if weather makes the coastal road impassable. The road network provides easy access to any part of the Island.

Mauke has an airstrip constructed of makatea soil. It was upgraded in FY2002 and is now suitable for small craft as well as the larger Saab airplane. In 2002, there were six flights a week to and from Rarotonga with connecting flights to Aitutaki once or twice a week, and two triangular return flights every Tuesday linking Rarotonga, Mitiaro, and Atiu. By mid-2006, there were three scheduled flights per week.

Water is pumped from boreholes by one old windmill pump and a diesel engine pump. The diesel engine pumps water into four large, 38,000-liter holding tanks, which feed the reticulation system by gravity. Two communal water tanks need to be upgraded and repaired before they can be used. A large reservoir dam maintains the water table. In 2001, 109 households drew water from the public water mains, one accessed a public water catchment, and 31 had their own rainwater tanks. Most households (61) had water piped inside the house, and the remainder (49) had water piped to outside the house. Gas and then firewood were the principal means of cooking.

Electricity is supplied from 5 am to midnight at a cost in 2002 of NZ$0.58 per kWh for commercial users and NZ$0.36 per kWh for domestic users. The electricity generated each year has grown despite the loss of population because of the increased use of electrical appliances. In 2001, electricity was used to run radio and/or cassette players (83), televisions (75), video players (69), freezers (87), and a range of other household appliances. 250 Cook Islands 2008 Social and Economic Report—Equity in Development

Social Services. Mauke hospital has a six-bed ward, outpatient area, small procedure room, and maternity ward. There were 102 births during 1991–1995, but the number fell to one per year by 2002. The health inspector and public health nurses carry out health education in schools as well as immunization and de-worming. In 2002, the island had one full-time doctor, one nurse, and one public health inspector. There is a dental clinic on the island, which had previously relied on visits by the mobile dental unit. Traditional medicine is practiced and supported by the doctor where considered appropriate. Nono is popular for many ailments.

Mauke has two schools: St Mary’s, a Catholic primary school, and Mauke School, which serves both primary and secondary students. The school population has declined by 29% since 1996. Whereas there were 25 students enrolled in Grade Two in 1996, there were only seven enrolled in Form One in 2001. In contrast, 17 students entered secondary school in 1996 and 15 completed at least the Form Five New Zealand School Certificate level in 2001. This 88% retention rate of secondary students on Mauke is high compared with all other secondary schools in the Cook Islands. However, there is no provision for these students to enter Forms Six or Seven on the island.

In 2001, all 16 teachers on Mauke held teaching certificates, but only two held tertiary degrees. Female teachers represented only 38% of the teaching staff. The average student-to-teacher ratio was 14 students per teacher in 2001. The primary student-to-teacher ratio was 14:1, while the secondary ratio was much lower at 10:1. All classes are multilevel.

Among those aged 15 years or older, 64% of males and 68% of females held no qualifications. Only 12% of females held a New Zealand School Certificate, Higher Leaving Certificate, or Form Six Certificate, compared with 16% for males. A higher proportion of males than Appendix 4: Outer Island Profiles 251

females proceeded to tertiary qualifications, but in both cases absolute numbers were small.

In December 2002, there were 164 welfare beneficiaries on the island, fewer than half of the 369 in 1997. As before, more females than males collect old-age pensions, but other benefits showed gender balance.

The 2001 census recorded that 58 dwellings had flush toilets, five had pour-flush toilets, and 100 had pit toilets, so some dwellings must have had more than one type. Rubbish is collected every 2 weeks and disposed of by the island administration in managed dumps.

Economic Activity. Mauke’s population aged 15 years or over was mostly occupied with home duties in 2001. Full-time workers and employers accounted for 24% of the working-age population, with males accounting for 67% of those in this category. The unemployment rate was estimated at 46% in 2001 (46% for females, 45% for males), up from the estimate of 3% for 1996.

Employment provided by private enterprises rose from 47 people in 1996 to 50 in 2001, self-employment fell from 10 people to 7, while public sector employment accounted for approximately 70% of total employment from 1996 to 2001 (81 people in 2001). In FY2006, there were 36 employees of the island administration (unchanged from about 35 in 2002). MOE employed 10, MOH employed 6, and another 8 personnel were employed by other national agencies (60 public servants in total).

In 2001, 35% of the 2001 population over 15 years of age reportedly received no cash income, somewhat less than the 44% in 1996. The percentages for males and females in 2001 were 40% and 30%, respectively. Almost 52% of females earned less than NZ$5,000 per year, compared with 23% of males, while 37% of males and just 17% of females earned above NZ$5,000 per annum. It is noteworthy that 252 Cook Islands 2008 Social and Economic Report—Equity in Development

the number of people earning above NZ$10,000 has more than doubled since 1996 despite the population decline, with women accounting for much of the difference.

Mauke’s land area suitable for cultivation of both annual and tree crops is 23% of the total, and a further 63% is suitable for tree crops. Land availability is not a constraint to production, especially with the decline in population of working age. According to the 2000 agriculture and fishing census, only 7% of households did not engage in any agricultural activity, and 12% did so only in a minor way. Of those substantially involved, over two-thirds farmed only for home consumption, and 16% engaged in subsistence production with supplementary cash cropping. Only two households were committed to commercial production, one of them deriving all of its income from this source. Only one household held a bank loan.

Ninety-six of the 116 households surveyed in the 2000 agriculture and fishing census were involved in raising livestock, primarily cattle, pigs, goats, and chickens. The many wild and wandering goats and pigs require that garden plots be fenced. The main tree crops are banana, mango, and coconut. Vegetables and fruits include beans, cabbage, capsicum, melon, pineapple, and tomato. Root crops include cassava, kumara, and wet and dry taro. Wild nono trees are scattered around the island, and the fruit has been collected and exported to Rarotonga. Home garden grow rukau viti, tomato, PRC cabbage, and kumara and are in most cases maintained by women. Maire exported to Hawaii has been the largest revenue-earner for the island. Total income recorded for 2001 was NZ$104,500.

In 2000, 71% of households were involved in fishing. Most households fish for home consumption only, though some occasionally sell their catch. Only one fisherman recorded selling half of his catch, and six recorded selling a quarter of their catch. On average, 4.5 fishing trips are made per month. The census shows that of the 82 households, Appendix 4: Outer Island Profiles 253

only 12 used a motorized boat when fishing, while 23 used a canoe or dinghy.

In late 2002, the formal private sector consisted of 11 businesses: four retailers, one five-room tourist accommodation (tourist numbers were estimated at 300 per year around 2002), one bar, one transport service, one banking service, and one communication service. There were 12 businesses in 1999. A local market operates every Friday, with total sales for 2002 recorded at NZ$35,000. Handicrafts are supplied to Rarotonga, with two women on the island fully dedicated to handicraft production.

A4.7 Mitiaro

Geography. Mitiaro is a low-lying, 15-meter–high, scrub-covered island with a makatea fringe, central peat swamp, and brackish lake. It is the fourth-largest island in the Cook Islands, about 6.5 km long and 4.5 km wide, with an area of 2,230 ha. There is relatively little fertile soil. The central volcanic mass comprises four low- lying basalt “islands” in an area of swampland and lake. These islands total 120 hectares in area and contain fertile pockets known as the Atai, Auta, Taurangi, Mangarei, and Takaue foodlands. The foodlands are situated about 12 meters above sea level. Agriculture is limited to these lands and composted gardens bordering villages. Within the swamplands are two lakes—Rotonui and Totoiti—home to the famed freshwater Mitiaro eel (itiki), a popular local delicacy. There are also excellent limestone caves, large peat reserves, and considerable makatea and swamp life.

The four villages on Mitiaro—Atai, Auta, Mangarei, and Takaue—are near the Omutu landing, where the administrative seat of the island is located. There were 63 households in 1996 and 62 households recorded in 2001, with an average size of four people. The population of Mitiaro fell by 32% between 1971 and 2001 and in 254 Cook Islands 2008 Social and Economic Report—Equity in Development

March 2003 was 212. The decline in population has been especially rapid in the age groups between 10 and 24 years. In 1996, there were 96 dependents for every 100 economically active people, rising to 133 in 2001, along with a marked increase in the numbers of residents aged over 60 years. The male-to-female ratio fell from 1.4 in 1996 to 1.3 in 2001.

Physical Infrastructure. Mitiaro has an adequate, reasonably well-maintained road system that circles the island and connects the four villages with the airport, lakes, and foodlands. The island has wharf facilities for offloading cargo from the workboats of inter-island ships standing off in the opening of the Omutu passage, which is very narrow and shallow and so suitable only for shallow- draft lighters and fishing boats. Shipping services to Mitiaro are infrequent and normally dictated by demand. The shipping service is likely to remain sporadic unless sufficient inbound and outbound cargo can be generated to make a more frequent and reliable service economically feasible. A 1.6 km airstrip is constructed of crushed and compacted coral and rubble. Air Rarotonga operates three scheduled flights a week (compared with 2–3 flights in 2002) using an 18-seat Bandirante aircraft.

Electricity is supplied from 5 am to midnight daily by three Lister diesel generators. Some growth in the total electricity generated each year occurred during the late 1990s. Population decline has been offset by increased per capita consumption, as has occurred elsewhere in the Southern Group. The cost of power is NZ$0.58 per kWh for commercial users and NZ$0.36 per kWh for domestic users.

Rainwater is the principal source of drinking water for Mitiaro. A public reticulation system of 56 km provides brackish water for laundering, bathing, and other uses.

Social Services. Mitiaro’s new health clinic came into operation in 2006 with overnight beds for two Appendix 4: Outer Island Profiles 255

patients and a maternity ward, though all births are now on Rarotonga. It provides outpatient services for basic medical problems and serves as a focal point for mother- and-child activities. In 2003, the one senior health nurse, one dental technician, and one health inspector had no backup when off the island. The dental technician operates a small clinic without plumbing located at the school. Her work is mainly preventative and minor treatments. Staffing was unchanged in mid-2006.

Traditional medicine is very popular, often as the first treatment. The community combines both traditional and modern methods of treatment and values both.

Because of the relatively large number of residents over 60, concerns have been raised over the lack of facilities and equipment required to help families look after the elderly. Six of the 20 elderly in 2000 could not look after themselves.

Among those over 15 years of age, 76% of males and 61% of females held no qualifications, but significantly more females than males had achieved secondary qualifications. Only a handful among the population proceeded to acquire tertiary qualifications.

Mitiaro School caters for preschool, primary, and secondary education. The number of students has dropped substantially in recent years, falling by 32% between 1996 and 2001. In March 2003, 77 students were enrolled. Most children were in preschool or Grade One or Two of primary school, with only a small number in junior secondary school. Children have to leave the island at 14 or 15 years of age if they are to further their secondary studies.

A major exodus of teaching staff occurred in 1999, leaving only one teacher in the school, but new teachers were subsequently recruited. The student-to-teacher ratio in 2002 was 15:1. The teachers—all female—are required to teach at a number of levels including secondary school. Four 256 Cook Islands 2008 Social and Economic Report—Equity in Development

teachers in 2002 were certified, but none held a tertiary degree. There were six teachers in 2003.

Most households (56) in 2001 were connected to the public water mains, 45 had their own rainwater tank, and 15 drew water from public water catchments. Of the 62 dwellings, 35 had water piped to outside, 20 had water piped inside, and seven had to cart water to the house. Almost all households had electricity, but most continued to use gas and then firewood as the principal means of cooking. Electricity was used to run radio and/or cassette players (37 households), televisions, (46), video players (14), freezers (49), and washing machines (20).

There were 110 welfare beneficiaries in December 2002, representing 48% of the population, following a 14% decline in the number of beneficiaries between 1997 and 2001.

The sanitation system on the island is well designed and effective, according to the 2000 health review. In 2001, 23 households had flush toilets, 36 had pour-flush toilets, and just seven had pit latrines. There is one dump, and rubbish is collected and disposed of by the island council. A recycling program raises money for the school.

Economic Activity. In 2001, people on Mitiaro aged 15 years and older numbered 138, 46% female; 16% engaged in home duties (a small proportion compared with other outer islands); almost 54% were employers, self-employed, or working full time (high compared with the 1996 figure); 19% were retired; 2% were students; and 2% worked part time or as unpaid family labor. The unemployment rate was estimated at 11% in 2001 (13% for females, 11% for males), down from 38% in 2006.

Employment provided by private enterprises fell from 10 jobs in 1996 to three in 2001. The self-employed fell from Appendix 4: Outer Island Profiles 257

10 people to 7, and the public service share of employment rose from around half in 1996 to approximately 80% in 2001 (59 people). In FY2006, there were 41 employees of the island administration (29 in 2002), 26 of whom were employed part time. MOE employed six, MOH three, and another six personnel were employed by other national agencies (56 in total).

In 2001, 7% of the population 15 years of age or older reportedly received no cash income, compared with 38% in 1996. The male population registered the largest drop in this category. Over 56% of females earned less than NZ$5,000 per year, compared with 49% of males, while close to 41% of males and 36% of females earned above NZ$5,000 per annum.

Mitiaro is poorly endowed with agricultural land. Only 5% of the land is suitable for annual crop cultivation and 41% for tree crops. All households surveyed in the 2000 agriculture and fishing census were nevertheless engaged in agriculture, 37 in purely subsistence production and the rest in subsistence production with supplementary cash cropping. Of the 49 households, 10 derived all their income from agriculture, 32 three-quarters, and four half. The main tree crops identified in the census were banana (ladyfinger variety), mango, and coconut, with taro and tarua also grown. Home garden crops included rukau viti, tomato, PRC cabbage, and kumara.

Various agricultural schemes launched on the island in the past include coconut planting, lime tree planting, spice tree introduction, sandalwood planting and restoration, banana rehabilitation, inter-cropping, and root-crop and vegetable gardening. Although there is an abundance of food grown on the island—such as taro, banana, breadfruit, yam, cassava, kumara, coconut, avocado, chilli, and lime— no headway has been made in commercializing any of these crops. The piere, a dried banana made from one of the ladyfinger varieties, has been exported to the tourist 258 Cook Islands 2008 Social and Economic Report—Equity in Development

market on Rarotonga on a stop-go basis, but now only a few households continue to produce this product. Success has been found with women’s production of handicrafts and, more recently, maire for export. Sales of maire can be on the order of NZ$10,000 per month, but the crop is available for only part of the year.

In 2000, most households (47) raised livestock, mainly pigs, goats, and chickens, mainly for subsistence. Fish, eel, and seafood from the reef are a regular part of the diet. Even households without a resident fisherman can buy or receive through the family network fish and other sea products caught by male members of the extended family. Communal sharing of fish catches is important. In 2000, 48 households were involved in fishing, 44 of them for home consumption only and four for subsistence and supplementary cash. No commercial fishing was recorded.

In early 2003, the main private businesses were two retail stores, one three-bed tourist accommodation, a carver, a women’s handicraft center, and a BCI branch. By 2006, the accommodation had closed, but a guest house was in operation, and a number of smaller stores were operating. The number of tourists visiting Mitiaro annually has been about 200 but in decline in recent years.

A4.8 Palmerston

Geography. Palmerston is an atoll made up from the summit of an old volcano, which rises 4,000 meters from the ocean floor. The highest point above sea level is less than 4 meters, and the soil of the six islets along the reef is infertile. Officially there is no Class One soil suitable for annual crops, but what are known locally as “planting pits” have been created by composting, and a range of crops is grown, including breadfruit, pawpaw, lime, taro, and banana. In addition are the typical atoll tree crops of coconut Appendix 4: Outer Island Profiles 259

and pandanus. Indigenous trees such as ngangie and toa are prevalent on all the islets.

Palmerston is a major nesting site for green turtle, which is hunted for subsistence. Rare seabirds also nest on Palmerston. Parrot fish are caught and sold to buyers on Rarotonga to such an extent as to put pressure on fish stocks.

One settlement exists on Horne islet. The number of dwellings in 1996 was 11. In 2001, the number was 12, with an average household size of four people. Forty-nine people lived on Palmerston in 2001.

Physical Infrastructure. Access to the lagoon for canoes and light boats is limited to several reef passages to the north of the main village. Over 2 km of sandy road has been constructed in recent years. There is no airport.

In 2002, electricity was supplied 12 hours per day, with most households connected to a mains system. Following an upgrade of the cables, supply for 18 hours a day was being trialed in early 2003. The cost of power was NZ$0.36 per kWh for domestic use in 2003.

In 2001, 11 households had their own rainwater tanks, and five used the public water catchment. Eight had water piped inside the dwelling, two had it piped outside, and two had to cart it.

Social Services. Palmerston has a male nurse and a trainee nurse aid that provide outpatient services and implement child welfare and immunization programs.

A very high 90% of the population of 15 years of older who were resident in 2001 held no qualifications at secondary level or above (86% for females). One female and one male had achieved university entrance. Lucky Primary, the only school on the island, offers classes from preschool to secondary Form Two. Seventeen students 260 Cook Islands 2008 Social and Economic Report—Equity in Development

were enrolled in 2002, most in preschool and primary, with just two female students at the secondary level. There was one unqualified teacher in 2002. In 2003, the principal’s position was vacant, and students were studying by correspondence under the supervision of two ancillary staff.

In 2001, 11 households reported having a flush toilet; five reported having a pour-flush toilet; and five indicated they had a pit latrine. Some households had more than one facility.

In December 2002, there were 36 welfare beneficiaries.

Economic Activity. In 2001, there were 29 residents of Palmerston aged 15 years and older. Of them, 15 were engaged in home duties, eight worked full time, five were unemployed, and one was retired. Two individuals worked in the private sector, while six were in public service. There were 15 public servants employed on the island in FY2006, 11 in the island administration. A quarter of the 2001 population 15 years of age or older reportedly received no cash income, which was down on the 1996 figure. Almost half of the population earned less than NZ$5,000, and eight individuals earned more than this amount.

The 2000 agriculture and fisheries census found that nine households were engaged in agricultural activity but only in a minor way. Eight households raised chickens and pigs. Six households engaged in fishing, three for home consumption only, and three for subsistence and cash sales. A privately owned blast freezer was used to freeze parrot fish for transport to Rarotonga. Palmerston has no tourist accommodation, but homestay arrangements are possible. There is no formal private sector business or banking service. Appendix 4: Outer Island Profiles 261

A4.9 Penhryn (Tongareva)

Geography. Penhryn is the largest atoll in the Northern Group, with a total land area of 9.8 km2. Approximately 53 motus surround the lagoon of 60 km2, which is one of the largest in the Pacific and can be entered by ocean- going vessels. The highest point above sea level is less than 4 meters, and the soil is infertile, consisting mainly of coral debris, fragmented shells, and limestone silt. As the soil texture is coarse, moisture retention is poor. Coconut palms, pandanus, and breadfruit trees are the main vegetation. Indigenous trees such as ngangie and toa are prevalent on all the islets. The island is notable for its green and hawksbill turtle nesting sites and natural stocks of blacklip pearl oyster.

The two main populated islands that make up Tongareva are Omoka and Tetautua, which are separated by a 10.5-km lagoon. Omoka is considered the main island because of its central location for shipping and air services. The administrative seat of the island is on Omoka.

The number of dwellings fell from 113 in 1996 to 84 in 2001, with an average household size of four people. The population of Tongareva fell by 42% between 1996 and 2001. In the latter year, there were 96 people in dependent age groups for every 100 people between the ages of 15 and 60 years, compared with 105 in 1996. The decline is attributable to relatively large drops in population in the age groups under 9 years and over 65. The male-to-female ratio fell from a very high 113:100 in 1996 to 105:100 in 2001.

Public Infrastructure. The main Omoka wharf was built during the American occupation and has a fuel depot and the capability of berthing medium to large vessels. Ships can access the wharf and the lagoon through three reef passages. There is a small wharf on Tetautua. Tongareva 262 Cook Islands 2008 Social and Economic Report—Equity in Development

has a large airstrip of coral sludge 1,400 meters long and 100 meters wide, which was built by American forces in 1942. It has small but adequate airport facilities for the one domestic flight per week (on request). Surveillance flights land at Penhryn at least 2–3 times per year. Most roads are unsealed on Omoka, leading from the airstrip to the main village and around the village. On Tetautua, the road is unpaved and connects both ends of the village.

Electricity is supplied 18 hours per day, with most households connected to the mains. Electricity generation was fairly steady in the late 1990s. A new powerhouse was completed in 2000, and a new generator with substation and cable followed to allow 24 hour supply. Some households have their own back-up generators. The cost of power was NZ$0.48 per kWh in 2002 for domestic and commercial users alike.

In 2001, 79 households had their own rainwater tank, and 20 relied on a public water catchment. Water from these sources was piped inside the house in 21 cases and to a point outside the house in 29 cases. A relatively large number of 33 households had to carry or cart water to the dwelling.

Social Services. There are two health clinics. The clinic on Omoka consists of a single building with three rooms: a small consulting room, a small treatment room, and an inpatient room with two beds. The clinic has no power at night, and the water tank has to be filled manually as the building has an asbestos roof and therefore is unsafe for collecting rain. Equipment in the clinic is in poor repair. The clinic on Tetautua is in relatively good condition. In 2002, the health staff consisted of a nurse practitioner for each village and one health inspector, but no dental staff. The island administration arranged a visiting service in 2000, but there was insufficient time to complete the work. Appendix 4: Outer Island Profiles 263

Among those over 15 years, 66% of males and 59% females held no qualifications at the secondary or tertiary level. Thirty-nine percent of females held a secondary certificate, as did 29% for males, but males held a higher percentage of tertiary level qualifications (5%) than females (2%).

The two schools on Penhryn are Tetautua Primary and Omoka High School. The school rolls in 2002 had 124 students, a decrease of 36% since 1996. Tetautua Primary provides classes from preschool to Form Two, but demand from members of the community has seen the school taking secondary students. At Omoka High School, classes cater for preschool to Form Five (Cook Islands School Certificate level). Enrollments for 2001 at Omoka showed gender balance at most levels, with males showing slightly more enrollments at both primary and secondary levels. Tetautua School was predominately male at the lower levels with two more females at the secondary level.

Over one third of the school population in 2002 studied at secondary level, 52% at primary level, and the remainder in preschool. Females represented 51% of primary students and 48% of secondary students, which was higher than their 42% share of the school-age population.

In 1996, there were 23 students in Grade One of primary school, but in 2001 there were only seven in Grade Six, presumably because of out-migration of families. Only a handful of students proceed to the Cook Islands Certificate level (Form Five). In 2002, six of the nine teachers on Tongareva were certified, though none had a degree. Seven of the teaching staff were female, and the student-to-teacher ratio was 14:1. As usual on the outer islands, classes are multilevel.

Of the households surveyed in 2001, 44 had flush toilets, 29 had pour-flush toilets, and 14 had lagoon toilets. Water shortages can cause problems for all flush toilets. 264 Cook Islands 2008 Social and Economic Report—Equity in Development

No rubbish is collected, but there is a community rubbish dump.

In December 2002, welfare beneficiaries numbered 122, representing 35% of the population. The decline in the number of beneficiaries from 1997 to 2002 is consistent with the decline in the population.

Economic Activity. In 2001, 211 Tongarevans were aged 15 years and older. Of them, 47% were female; 28% were engaged in home duties; 38% were employers, self- employed, or working full time; 4% worked as unpaid family labor, notably on family pearl farms; 3% were students, and 4% were retired. The unemployment rate was estimated as 34% in 2001 (42% for females, 30% for males), up from the 29% estimated for 1996.

The share of employment provided by private enterprises rose from 13% in 1996 to 28% in 2001. The self-employed share fell from 40% to 14%, while public sector employment accounted for 28% of total employment in 2001 (42 people). In FY2006, there were 39 employees of the island administration (28 in 2002). MOE employed eight, MOH four, and another 10 personnel were employed by other national agencies (61 in total).

In 2001, 20% of the those over 15 years of age reportedly received no cash income, with little difference between males and females (22% in 1996). Just over 44% of females earned less than NZ$5,000 per year, compared with 20% of males, while 61% of males and 37% of females earned above NZ$5,000 per annum. Seven males earned NZ$30,000 or more annually. However, since 1996, the number earning over NZ$50,000 per annum has dropped.

Fishing and pearl farming are the mainstays of the island economy. All households rely on fish for their food, and pearl farming has developed into an important income- earning option. In 1991, there were only 15 farms established Appendix 4: Outer Island Profiles 265

on a very small scale, with 100–2,000 oyster shells. By 1997, there were 85 farms mostly ranging from 500 to 2,000 shells, with a couple running up to 10,000 shells. The 2000 agriculture and fisheries census reported 66 pearl farms with a total of 298,027 shells: 55 pearl farms had 103,817 seeded shells, 56 farms had 116,710 drilled but unseeded shells, and 50 farms had 77,500 shells yet to be drilled or seeded. Pearl farm operators were projected collectively to have 833,000 shells to be seeded by 2003, and 1.7 million shells within 5 years.

The pearl farm workforce in 2000 had 103 household members working an average of 7 hours a week. There were another 15 paid workers working an average of 36 hours a week, and 16 unpaid workers, most of whom were men. The average wage for paid laborers was NZ$613 per month, with 15% of workers receiving other benefits, primarily free housing and/or food.

Of the 65 pearl farmers, 27 derived three quarters to all of their income from the pearl farm, nine derived between one-quarter and a half, and 26 reported receiving none of their income from this source (however unconvincingly). Nineteen operators held bank loans, primarily from BCI. Farming is open to any person of Tongareva descent, and joint ventures and outsiders are permitted. A few local farmers have become seeding technicians through observation rather than formal training.

The 2000 agriculture and fishing census revealed that, of 93 households surveyed, two had no involvement in agriculture and the rest had only minor involvement, harvesting coconut and planting banana, kumara, and puraka. Home gardens included rukau viti, tomato, and PRC cabbage. Women and men shared home gardening activities. Sixty-seven households raised livestock, mainly pigs and chickens for home consumption. Fishing remains important for subsistence, though local fishermen are constrained by declining yields in traditional fishing 266 Cook Islands 2008 Social and Economic Report—Equity in Development

spots and time-consuming duties associated with pearl farming.

There is no registered tourist accommodation on Penhryn, but a few homestay operations exist. Tongareva is considered the Cook Islands’ center of creative work utilizing rito, the woven craftwork of young, bleached coconut leaves. The highly sought-after products consist of hats, fans, purses, mats, and brooms. In the past, craftspeople on Tongareva have relied on agents and outlets on Rarotonga to market their goods. Some resentment has built around high retail markups. Carving on Tongareva is subject to whatever arrangements may be struck with Rarotonga agents and outlets. At present, the few shell carvers on the island are severely restricted by outmoded tools and limited promotion. In addition to BCI and pearl farming, the formal business sector consists of six retail trade outlets.

A4.10 Pukapuka and Nassau

Geography. Pukapuka is a coral atoll with three islets (motus) situated at the corners of a roughly triangular lagoon. The motu of Wale has significant swampy areas of taro and puraka, a taro variety adapted to the atoll environment. There is an 8-km submerged reef to the west of the island, from which Pukapuka derives its name “Danger Island.” The island is vulnerable to cyclones. Its highest point is less than 5 meters above sea level, and the soil is infertile. Coconut palm, pandanus, puraka, and a few breadfruit trees constitute the main vegetation. Indigenous trees such as ngangie and toa are prevalent on all the islets. The atoll is a nesting site for green and hawksbill turtles. Trochus and blacklip pearl oysters have been introduced. Nassau is a sand cay of 121 ha with dense vegetation and a wide reef.

Pukapuka atoll is the main island and has three permanent villages on the lagoon side: Yato, Roto, and Appendix 4: Outer Island Profiles 267

Nake. Roto is the main center. There are three alternative village sites situated on Motu Ko, Motu Kotawa, and Motu Roto. People from the village of Nake spend 6 months on Roto and then 6 months on Motu Ko. The people of Yato use Motu Kotawa as an alternative site, while people of Roto village have two settlements on the main island. At various times, settlement sites are closed by traditional raui to allow them to rejuvenate. Families residing on outer motus leave children of school age with their extended family on the main island so they may attend school.

The number of dwellings in 1996 was 120. By 2001, the number had increased to 124, with an average household size of five people. Nassau had 21 dwellings in 1996 and 15 in 2001, also with an average household of five people. There were 734 people residing on Pukapuka and Nassau in 2001. This population was 16% below that recorded in 1996. In 2001, Pukapuka had 109 people in dependent age groups for every 100 people between the ages of 15 and 60 years, compared with 108 in 1996. The numbers of dependents per 100 in the 15–60 age group on Nassau were 132 in 2001 and 111 in 1996. In 2001, 47% of the population of the two islands was younger than 15 years of age, and the male-to- female ratio was comparatively high at 124 males for every 100 females.

In 2001, 114 households on Pukapuka had pour-flush toilets, 10 had flush toilets, and four had pit latrines. In Nassau, nine households had pour-flush toilets, six had pit latrines, and one had a flush toilet. Water for washing is from shallow wells. Rubbish is collected when drums are full. There is no community rubbish dump, but rubbish is dumped as composting material to help the growth of plantation trees. Households burn plastic and paper.

Physical Infrastructure. No ship passage exists into the Pukapuka lagoon, and the flats between motus can be fairly shallow. Harbor facilities would need to be upgraded to minimize the danger to boat owners. Financial assistance 268 Cook Islands 2008 Social and Economic Report—Equity in Development

is being sought to deepen the harbor and widen and deepen a lagoon passageway. A jetty for offloading cargo on the beach at Yato is proposed. An airstrip was constructed in 1996 on the islet of Motu Ko, the alternate settlement for one of the villages. It is 1.5 km in length and used infrequently. Flights to Pukapuka are charters. Roads on the island are of an acceptable standard, though the causeway joining Yato and Walepia remains to be completed.

Power to houses and for street lighting is supplied by a solar power system established with assistance from the French Government, but it is nearing the end of its useful life. Public buildings were not included in the system and rely on a diesel generator, which provides power from 9 am to 3 pm daily. Nassau has its own generator. No statistics exist on the amount of power generated annually on the island. Households pay NZ$20 per month into three village bank accounts that are earmarked for future expenditure on power generation.

Households on Pukapuka rely heavily on firewood as the principal means of cooking, with gas as a supplementary energy source. Nassau relies entirely on firewood. Electricity is used to run such household appliances as radios, televisions, and freezers.

In 2001, 81 households on Pukapuka and 15 on Nassau relied on public water catchments for water, while 58 households in Pukapuka and one in Nassau had their own rainwater tanks. Only 11 households had water piped inside the home, 68 had water piped to a point outside the dwelling, and 60 had to carry water to the dwelling.

Social Services. Pukapuka hospital consists of rooms for outpatient treatment; medical stores; and consultation, deliveries, and minor surgery, as well as a four-bed ward with adjacent bathroom. A dental clinic serves as the health inspector’s office. Appendix 4: Outer Island Profiles 269

As of 2004, there was one doctor, a nurse practitioner, two nurse aides, one health inspector, and a grounds man. No dental service exists on the island as the dentist left but the nurse practitioner performs extractions. The nurse practitioner also undertakes monthly school medical examinations. The community strongly supports health activities with committees overseeing child welfare and the hospital.

On the two islands together, 78% of the those 15 or older held no secondary or tertiary qualifications in 2001, the figure almost exactly the same for males and females. Only 23% of females held a secondary certificate, compared with 21% for males. One male had passed university entrance, and one female held a tertiary certificate.

Pukapuka High School provides classes from preschool to Form Five. Nassau Primary caters for preschool to Form Two. School enrollments in 2002 were down by almost 18% from the 1996 level. Almost one-third of the school population in 2002 studied at the secondary level, 64% at the primary level, and the remainder in preschool. Females represented 38% of primary students and 50% of secondary students. Males accounted for two thirds of total school enrollment in 2002, somewhat more than their 55% share of the 2001 population aged under 19 years.

In 1996, there were 25 students in Grade One of primary school, and in 2001 there were 24 in Grade Six, suggesting good retention rates. In the following year, 21 students were enrolled in Form One of secondary school. The statistics suggest reasonable retention rates through to the Cook Islands Certificate level. In 2002, there were 13 teachers on Pukapuka and Nassau, with respective student-to-teacher ratios of 26:1 and 17:1. All but two of the teachers were certified, but only one held a degree. Six of the teachers were female. 270 Cook Islands 2008 Social and Economic Report—Equity in Development

In December 2002, there were 310 welfare bene ficiaries, representing 42% of the 2001 population of both Pukapuka and Nassau. Child benefits, particularly for males, dominate.

Economic Activity. In 2001, there were 390 residents of Pukapuka and Nassau aged 15 years or older. Of them, 48% were female; 45% were engaged in home duties; 17% were employers, self-employed, or working full time; 6% were students; and 5% were retired. The unemployment rate was estimated at 60% in 2001 (70% for females, 56% for males), up from 48% in 2006.

The number employed by private enterprises fell from seven in 1996 to one in 2001, as the self-employed rose from nil to two. Public sector employment accounted for approximately 90% of total employment in 2001 (42 people). In FY2006, there were 178 employees of the island administration (29 in 2002), 156 of whom were engaged part time. MOE employed 17, MOH six, and another 11 personnel were employed by other national agencies (212 in total).

In 2001, 39% of the population over 15 years of age reportedly received no cash income, compared with 46% in 1996. The percentages for males and females in 2001 were 53% and 24%, respectively, confirming the heavy involvement of men in subsistence production. Just under 63% of females earned less than NZ$5,000 per year, compared with 25% of males, while 22% of males and 13% of females earned above NZ$5,000 per annum.

The 2000 agriculture and fishing census found that 123 households out of 137 surveyed engaged in purely subsistence agriculture, with the remainder engaging in little or no agricultural activity. The 123 households harvested coconut and planted banana, kumara, and puraka. Home gardens included rukau viti (Hibiscus esculentum), tomato, and cabbage. Women and men shared home gardening Appendix 4: Outer Island Profiles 271

activities. All but 13 of the 137 households kept pigs and chickens.

Fishing remains important for subsistence purposes. Most of the households on Pukapuka engage in fishing for home consumption, while all those on Nassau supplement subsistence fishing with some cash sales. There is no commercial fishing.

There is a branch of the BCI and 21 retail trading outlets, including two home-based bakeries. A local market day occurs occasionally at a chief’s residence. No registered tourist accommodation exists on Pukapuka, and access is difficult because of the limited availability and high cost of flights.

A4.10 Rakahanga

Geography. The island of Rakahanga is a raised coral atoll lying approximately 162 degrees west and 10 degrees south of the Equator. A rectangle of nine islets, it is the third largest island in the Northern Group and, at 647 nautical miles, the second furthest from Rarotonga. The highest point is less than 5 meters above sea level. The atoll has a shallow lagoon that is almost completely enclosed. Anecdotal evidence suggests that the lagoon underwent a major ecological event in the 1950s when its fish stocks experienced a significant fall. Today the lagoon appears semi-stagnant due in part to being enclosed. The atoll is a green turtle nesting site.

The soil is poor, and vegetation consists mainly of coconut palms, pandanus, and a few breadfruit trees. Indigenous trees such as ngangie and toa are prevalent on all the islets. Taro swamps are the main sources of root crops.

One village sits at the southwestern end of the atoll. The number of dwellings in 1996 was 42. By 2001, the number 272 Cook Islands 2008 Social and Economic Report—Equity in Development

had declined to 32, with an average household of five people. The population of Rakahanga has fallen steadily since 1971, standing at 158 in 2001. This was 37% down on the 1996 figure. The drop in population was especially marked among those under 5 years of age, teenagers, and young adults in their early twenties, and adults in their thirties. The dependency ratio rose from 80 in 1996 to 93 in 2001.

Public Infrastructure. No ship passage enters the lagoon, and the flats between motus are shallow. Harbor passages need to be enlarged to allow room for incoming boats to turn inside the lagoon. This would help to prevent damage to boats reversing out to the open sea after unloading cargo and passengers. Inter-island ships take up to 3 days to reach the island from Rarotonga. A small boat makes the journey from Manihiki, which can take 2 hours or more depending on the seas. A 1.7-km airstrip was built in the early 1980s but is out of use since following damage by cyclones in 1987 and 1997.

In 2002, electricity was supplied 24 hours per day at a cost to domestic users of NZ$0.40 per kWh and to commercial users of NZ$0.62 per hour. Most households run a range of household electrical appliances. Energy consumption was stagnant in the late 1990s. Households used gas as the principal means of cooking, supplemented with firewood and kerosene.

In 2001, 26 households had their own rainwater tanks, and six households relied on four public water catchments. Sixteen had water piped to outside the dwelling, eight had it piped inside, and eight had to cart it.

Social Services. Rakahanga has a health clinic offering outpatient services, a dental clinic, and a child welfare clinic. A public health nurse undertakes mother and child immunization and health programs. Dental services are lacking, and equipment and supplies of medication are insufficient. Appendix 4: Outer Island Profiles 273

Among those over 15 years old, 86% held no qualifications at the secondary level or above (83% of females and 88% of males). Only 17% of females and 12% of males had secondary qualifications. No resident Rakahangan held tertiary qualifications.

Rakahanga High School provides education from preschool to Form Four secondary level. Total enrollments in 2002 were down 31% on the 1996 level, reflecting the drop in population in that period. Almost 18% of the school population was in preschool, 65% were studying at the primary level, and just under 18% at the secondary level. Females represented 53% of the school population. Only a small number progress from primary to secondary education.

In 2002, there were four teachers on Rakahanga, three of whom were certified, but none with a degree. The teaching staff was 75% female, compared with 40% in 1999. There were 10 students per teacher in 2002, which is low by national standards and very low by international standards. However, quality teaching depends on adequate resources and appropriately skilled staff, and only one teacher was available to teach all secondary classes.

Twelve of the 32 households in the 2001 census had flush toilets, and 20 had pour-flush toilets. No pit or lagoon toilets were still in use. There is a rubbish collection service and a community rubbish dump. A weekly community program systematically cleans designated areas.

In December 2002, there were 61 welfare beneficiaries, representing 39% of the 2001 population.

Economic Activity. In 2001, 104 residents of Rakahanga were aged 15 years or older. Of them, just over half were female; 30 worked full time; 37 engaged in home duties; one was a student; and 10 were retirees, most of them male. The unemployment rate was estimated at 39% 274 Cook Islands 2008 Social and Economic Report—Equity in Development

in 2001 (47% for females, 35% for males), up from the 26% estimate for 1996.

The number employed by private enterprises fell from two in 1996 to one in 2001, as the self-employed rose from nil to one. Public sector employment accounted for approximately 90% of total employment in 2001 (30 people). In FY2006, there were 40 employees of the island administration, which includes education and health (43 in 2002). Eight of these were engaged part time. Another seven personnel were employed by national agencies (47 in total).

In 2001, 29% of the population over 15 years of age reportedly received no cash income, compared with 51% in 1996. The percentages for males and females in 2001 were 33% and 25%, respectively. Just over 47% of females earned less than NZ$5,000 per year, compared with 14% of males. Meanwhile, 53% of males and 28% of females earned above NZ$5,000 per annum. It is noteworthy that only 66% of the resident population responded to the census question on income.

Fishing remains important for subsistence. Some potential exists for other marine products such as dried fish, sea urchins, and beche de mer. Pearl farming has become a significant activity on Rakahanga. The 2000 agriculture and fisheries census covered farms owned on Manihiki and reported that there were 10 with a total of 143,622 shells. Pearl farm operators were projected collectively to have 248,000 shells to be seeded within 5 years. About half the operators reported receiving over half of their income from pearl farming. Two operators reported that they had loans from BCI.

The pearl farm workforce in 2000 included among household members 11 pearl farm operators working an average of 6 hours per week and 17 unpaid workers working an average of 8 hours per week. One other paid worker Appendix 4: Outer Island Profiles 275

worked 30 hours per week and another was unpaid. Twenty- nine of the workers were male, and only one female. The average wage for paid labor was NZ$125 per month. Free food and/or housing was provided to two workers.

The 2000 agriculture and fishing census found that 47% of households had little or no involvement in agriculture and that 17% engaged entirely in subsistence production, harvesting coconut and planting banana, kumara, and puraka. Home gardens included rukau viti (Hibiscus esculentum), tomato, and PRC cabbage. Women and men shared home gardening activities. Twenty-seven households kept pigs and chickens for home consumption. Nono fruit is harvested from wild plants, which are native to the island and grow in abundance. Potential exists to expand the cultivation and harvest of nono as an export commodity. The current emphasis is, however, on pearl farming and developing hydroponics to grow vegetables to add vitamins and minerals to the local diet.

There is a branch of BCI, but the formal business sector is quite small, with three retail shops.

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———. 1998. Western Pacific Regional Health Databank. Manila: WHO. Pacific Studies Series Pacific Studies Series Cook Islands 2008 Social and Economic Report— Equity in in Development Cook Islands has transformed its economy since the public debt crisis of the mid-1990s. The economy is privatesector-led, the Government is now on a sound financial footing and well placed to address key development issues, and the economy has proved its resilience in the face of five cyclones in 2005. The tourism sector remains the main driver of growth and visitor arrivals are expected to continue to grow. Infrastructure works are a development priority, both to support economic growth and to address the rising pressures on the all-important natural environment. Improved education services are needed to meet the ever-rising expectations of the population, and the aging population and steady rise in noncommunicable Cook Islands 2008 Social and Economic Report 2008Cook Social Islands and Economic disease are placing new pressures on the health and welfare systems. The gap between living standards on the main centers of Rarotonga and Aiututaki and the outer islands is a further key development issue. Continued improvement in institutional performance lies at the heart of an effective response to these needs. This report discusses options for responding to these needs with a view to helping guide public policy formulation in the Cook Islands.

Cook Islands 2008 Social and Economic Report Australian Government 255 London Circuit, Canberra EQUITY IN DEVELOPMENT ACT 2601, Australia Tango-tiama o te kimi puapinga www.ausaid.gov.au

Asian Development Bank 6 ADB Avenue, Mandaluyong City 1550 Metro Manila, Philippines www.adb.org Publication Stock No. 041708 ISBN 978-971-561-691-1 Printed in the Philippines

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