Country Report Solomon Islands September 2006 The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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Solomon Islands 1 Contents Solomon Islands 2 Summary 3 Political structure 4 Economic structure 4 Annual indicators 5 Quarterly indicators 6 Outlook for 2006-07 7 The political scene 9 Economic policy 10 The domestic economy 11 Foreign trade and payments The region 12 Summary 13 Outlook for 2006-07 14 The political scene 16 Economic policy and the domestic economy List of figures 6 Solomon Islands: foreign reserves 6 Solomon Islands: foreign trade 8 Solomon Islands: gross domestic product 8 Solomon Islands: consumer price inflation Country Report September 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 2 Solomon Islands Solomon Islands September 2006 Summary Outlook for 2006-07 Constitutional reform is planned, but the political environment will remain fragmented and unstable. Outlying areas are increasingly dissatisfied with the role of central government, and the role and responsibilities of the Australian- led intervention force will be questioned. Continued economic growth is forecast in 2006-07, helped by the resumption of palm oil production. However, landowner hostility could prejudice the growth of the mining sector, and over- logging will continue to threaten the country!s long-term future. The political scene The Grand Coalition for Change government survived the sacking of the commerce minister, Francis Billy Hilly, in a crisis linked to the country!s recognition of Taiwan. The government is pushing forward with its legislative agenda, including constitutional change. However, dissatisfaction with the central government remains acute at the local level. Some outlying islands have pushed for secession. Economic policy The new foreign investment law should simplify procedures for those wishing to invest in the Solomon Islands. The government is looking to adjust economic policy with a view to promoting rural development. One aspect of this may be the commoditisation of customary land. Illegal land occupation in the capital has also caused growing concern. The fiscal position remained strong in the first half of 2006. The domestic economy Output of most key commodities, including timber, fish, copra and cocoa was down year on year in the first quarter of 2006. The Asian Development Bank and Japan have contributed funds towards the rehabilitation of rural infrastructure in the Solomon Islands, focusing on roads and bridges. Inflation has accelerated, boosted by high global oil prices. Foreign trade and payments The merchandise trade deficit rose to SI$102.9m (US$13.5m) in the first quarter of 2006, owing to the rising cost of oil imports. However, the current-account deficit was partially reduced by surpluses in services, transfers and the income account. The EU agreed to provide extra assistance to promote rural development. Editors: Graham Richardson (editor); Gerard Walsh (consulting editor) Editorial closing date: August 17th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report September 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 Solomon Islands 3 Political structure Official name Solomon Islands Form of state Constitutional monarchy The executive UK-style cabinet, led by the prime minister, who is chosen from and by parliament Head of state Queen Elizabeth II, represented by a Solomon Islander governor-general, currently Sir Nathaniel Waena National legislature Unicameral, 50-member national parliament, elected for a four-year term Local government The islands are divided into eight provinces and one town council (Honiara) Legal system English-style system; a series of lower courts leads to the Court of Appeal National elections Elections were held on April 5th 2006. The next elections are due in 2010 National government Following the April 2006 election a government based around the former government, incorporating the People!s Alliance Party (PAP) and the Association of Independent Members (AIM), was installed, led by former deputy prime minister Snyder Rini of the AIM. However, rioting led to the collapse of the Rini government within the month. A new administration based around the former opposition and led by former prime minister, Manasseh Sogavare, of the Social Credit Party (Socred), was installed in May 2006 Main political parties The PAP; the AIM; Socred; the Rural Advancement Party (RAP); the Lafari Party; the Christian Alliance Party; the Democratic party; the National Party; the Liberal Party; the Labour Party Prime minister & public service Manasseh Sogavare (Socred) Deputy prime minister Job Duddley Tausinga (RAP) Key ministers Agriculture & livestock Trevor Olavae Commerce, industries & employment Peter Shannel Communications & aviation Patrick Vahoe Junior Culture & tourism Bently Samuel Education & human resources Derek Sikua Energy & mines Toswel Kaua Finance & treasury Bartholomew Ulufa!alu Fisheries & marine resources Nollen Leni Foreign affairs Patteson Oti Forests, environment & conservation Job Duddley Tausinga Health & medical services Clay Forau Soalaoi Home affairs Bernard Ghiro Infrastructure & development Stanly Festus Sofu Justice & legal affairs Samuel Manetoali Lands & survey Leslie Boseto National reconciliation Sam Iduri Planning & aid co-ordination Gordon Darcy Lilo Police & national security Isaac Inoke Provincial government & constituency development Japhet Waipora Public service Joses Wawari Sanga Central Bank governor Rick Hou Country Report September 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 4 Solomon Islands Economic structure Annual indicators 2001a 2002a 2003a 2004a 2005b GDP at current prices (SI$ m)c 1,436 1,528 1,588 1,775b 1,990 Real GDP growth (av; %)d -9.0 -2.4 5.6 5.5 4.7 Consumer price inflation (av; %)c 7.7 9.3 10.0 7.1 7.4 Population ('000)c 476 490 508 521 n/a Exports fob (US$ m)c 47 58 74 97 102 Imports cif (US$ m)c 82 65 67 72 144 Current-account balance (US$ m)c -33 -4 27 67 n/a Reserves excl gold (US$ m)e 19.34 18.25 37.20 80.58 93.51 Total external debt (US$ m)c 134 152 161 160 n/a Debt-service ratio, paid (%)c 5.1 7.8 6.4 6.4 n/a Exchange rate (av; SI$:US$)e 5.278 6.749 7.506 7.485 7.530a a Actual. b Economist Intelligence Unit estimates. c Asian Development Bank. d Central Bank of the Solomon Islands. e IMF, International Financial Statistics. Origins of gross domestic product 2002a % of total Agriculture 47.7 Mining n/a Manufacturing 4.1 Electricity, gas & water 1.8 Construction 2.3 Trade 10.4 Transport, communications & finance 10.1 Principal exports fob 2005a SI$ m Principal imports cif 2005a SI$ m Timber 517.0 Machinery & transport equipment 386.0 Fish & fish products 67.1 Mineral fuels 324.6 Cocoa 56.8 Food & live animals 291.0 Copra 16.6 Basic manufactures 169.9 Main destinations of exports fob 2004b % of total Main origins of imports cif 2004b % of total China 28.2 Australia 25.3 South Korea 15.7 Singapore 23.8 Thailand 15.7 New Zealand 5.3 Japan 9.7 India 4.8 Philippines 5.1 Japan 3.9 Vietnam 3.1 US 1.9 a Central Bank of the Solomon Islands. b Asian Development Bank Country Report September 2006 www.eiu.com © The Economist Intelligence