Recent Developments in Vanuatu
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PACIFIC ECONOMIC BULLETIN Economic surveys Recent developments in Vanuatu David Ambrose and Savenaca Siwatibau After a year of lurching from crisis to crisis, in early David Ambrose is Convenor of 1997 the Government of Vanuatu announced a the State, Society and Governance comprehensive reform program, to include in Melanesia project and Visiting strengthening of government capacity and Fellow at the Research School of legislation to regulate financial dealings. The Pacific and Asian Studies, The Australian National University. benefits to Vanuatu of the reform program will Savenaca Siwatibau is Head, be far-reaching, but the success of these reforms Pacific Operations Centre, United calls for much determination and leadership on the Nations Economic and Social part of policymakers if it is to succeed. Commission for Asia and the Pacific, Port Vila. The broad background population growth rate, reflecting the accelerating pace of urbanisation in the There are more than 80 islands in country. Population growth had steadily Vanuatu, spread out over more than 1,000 declined from the 3.4 per cent average for kilometres, with a total land area of about the period 1967 to late-1970s as estimated 4,700 square miles. Air services which in the 1979 census. The projected support a promising tourist industry and population structure will however remain afford potential for airfreighting low- predominantly young for the next ten to bulk, high-value agricultural and fisheries twenty years. The fiscal burden on products, are well developed. The sea government for providing social infra- transport system within the Vanuatu structure and services in health, education islands and with its external markets is and social welfare will stretch its domestic not as well developed and shipping resource mobilisation capacity to the services are irregular and expensive. limit. The large influx of young people in search of jobs and other gainful economic The population of Vanuatu was pursuits will continue. The rate of estimated at about 160,000 in 1994. With absorption into an expanding economy of population growth projected at an these young people will depend critically average annual 2.4 per cent, the popula- on the level of private sector investments, tion is currently in the vicinity of 173,000. effective training programs for skills Some 32,000 people live in Port Vila, and acquisition, enlightened domestic policies a further 10,000 in Luganville, the only and an expanding pipeline of well thought other urban centre, located on the largest out public sector investment programs island, Santo. These urban centres are which effectively support private growing at more than twice the national initiatives and investments. 1 PACIFIC ECONOMIC BULLETIN Economic surveys The country is well endowed with will steadily decline in importance as a natural resources. It has good soils; some source of first resort for development 40 per cent of the total land area has expenditures and balance-of-payments fertile soils. Its isolation has some support. offsetting advantages such as the relative Skills, at all levels, are scarce. For each absence of pests and a pollution-free 120 young people, at the age of six, only environment. About 80 per cent of the 100 are able to secure places in the first country’s total population live in the rural year of primary schooling. Of these, some areas. These people depend entirely upon 80 leave school before reaching the sixth agriculture, fisheries and forestry for form and only about 5 of the remaining 20 subsistence and cash income. As in the may ultimately get into tertiary other larger island economies in the institutions. Facilities for training and Pacific, the rural economy provides a ensuring relevant skills acquisition in the dependable and effective economic shock vocational and technical areas for the 115 absorber for the country. Traditional food who have no formal schooling or drop crops provide ready substitutes in times out of school are grossly inadequate. of budgetary and balance of payments difficulties. Although supporting the Gross domestic investment rates livelihood of the bulk of the population, hover around 30 per cent in Vanuatu; a the contribution of the subsistence sector figure comparable to some of the dynamic to the country’s gross domestic product, economies of Asia. Reflecting the annual GDP, is featured in the national accounts deficits in the current account of the at only 9 per cent. This figure appears to balance of payments, domestic savings be a gross underestimate, reflecting the traditionally fall well below national weakness of national accounting capacity domestic investments. Financing of in the Statistics Office. investments from external sources including reinvestments of profits by Substantial external aid receipts are overseas-owned entities and external available to Vanuatu each year, including public sector borrowings was, in recent external soft loans sourced from multi- years, regularly resorted to. But high lateral sources, which form a small domestic investment rates are associated proportion of the total. Aid receipts with low average economic growth rates amounted to 3,174 million vatu in 1993, since independence. So the quality of 3,600 million vatu in 1994 and 5,550 investments, particularly of the public million vatu in 1995.1 Since independence sector has been relatively low. The social in 1980, aid has financed the bulk of and economic yields of such investments government development expenditures were low or average capital/output ratios and effectively underwritten the stability very high. of Vanuatu’s balance of payments and external reserve positions. The land tenure system remains one of the many serious bottlenecks to private But the aid-giving climate appears to investment in Vanuatu. The Constitution be changing. Larger developing countries declares that all lands in the Republic which are strategically and economically belong to the indigenous custom owners more important to traditional donors and their descendants. All existing have added to the collective demand on freehold titles were therefore voided when diminishing aid budget allocations. So, as the country became independent. But in other island countries, aid in Vanuatu legislation has been enacted in an attempt 2 PACIFIC ECONOMIC BULLETIN Economic surveys to facilitate the leasing of lands in order to Recent political trends provide security to investors and to lenders. The general elections in Vanuatu in The government is now effectively December 1991 marked the beginning of a lessor of all urban lands and leases of such new phase in the politics of the country. lands are readily bought and sold in the Those elections brought to an end the market place. But accessing custom lands unbroken post-independence rule of the outside of the plantations and the two Vanua’aka Party (VP) which had led the urban areas of Port Vila and Luganville is successful indigenous struggle for fraught with difficulties. Permission from independence from the Condominium government is required for someone to powers of France and Britain in 1980. Its negotiate a lease with custom owners. success as a political party stemmed from The boundaries of land claimed by custom an effective grassroots organisation groups are not determined. So lease extending throughout the islands, a negotiations and agreements with a land- coherent nationalist political agenda, and owning group generally end up in the an unexpectedly high recognition and island court or proceed all the way to the respect internationally deriving from its Supreme Court to sort out competing strong anti-colonial credentials and claims from other custom groups. The membership of the Non-Aligned land dispute resolution processes are Movement. Even more importantly for its inadequate. dominance of domestic politics post- independence, it enjoyed internal unity The Offshore Financial Centre, OFC, behind a charismatic leader and a cohesion is the best developed in the region. It was which arose from popular support for its established in 1971 and is effectively nationalist platform among a majority of supervised by the Vanuatu Financial the predominantly anglophone, Protestant Services Commission, VFSC, a regulatory population who shared its anti-French body set up under statute. Licensed character and ambitions. offshore banks, trust companies, insurance companies and shipping companies, The VP’s loss of government at the operating in the OFC, like other entities in elections in 1991 was attributable to its the country, are exempt from all direct loss of internal party unity rather than any taxes. These entities are also protected radical shift of voter preference away from under domestic secrecy laws and are not traditional linguistic and denominational required to file annual financial statements affiliations. A split in the once-dominant with the authorities. party and the division of its support base into two prevented either faction from The annual benefit to the country from gaining a majority in the elections. the OFC is difficult to determine because of the paucity of information about the The four years of francophone-led activities of entities within it. It employs coalition governments which followed skilled people and undertakes in-house provided an object lesson in the dangers training relevant for other sectors of the to political stability of unnatural alliances economy. It currently employs about 400 based on opportunistic self-interest and people