Country Report Solomon Islands March 2007 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 60 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 2007-08 7 The political scene 9 Economic policy 9 The domestic economy 10 Foreign trade and payments The region 11 Summary 12 Outlook for 2007-08 15 The political scene 17 Economic policy and the domestic economy List of figures 5 Solomon Islands: foreign reserves 5 Solomon Islands: foreign trade 7 Solomon Islands: gross domestic product 7 Solomon Islands: consumer price inflation Country Report March 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 2 Solomon Islands Solomon Islands March 2007 Summary Outlook for 2007-08 The prime minister, Manasseh Sogavare, will carry on trying to undermine the Regional Assistance Mission to Solomon Islands (RAMSI). However, he will face continued opposition to his actions at home, and regional pressure on him to accept RAMSI’s continued presence will be enormous. The medium-term economic outlook would be greatly enhanced by the successful delivery of the 2007 budget programmes. Major structural change will be necessary as the logging industry begins to shut down. GDP growth of close to 5% is possible in 2007 and 2008, but deteriorating public finances will increase the temptation for the government to borrow, and consumer price inflation is likely to remain uncomfortably high. The political scene Relations between the government of the Solomon Islands and RAMSI remain strained, with Mr Sogavare keen to reduce RAMSI’s power. Recent problems have included Mr Sogavare’s plans to rearm his police guard and his refusal to accredit Australia’s new high commissioner, Peter Hooton. Mr Sogavare has asked for a review of RAMSI’s operations by the Pacific Islands Forum (the main regional political body). Mr Sogavare has continued to face domestic political opposition, and has lost the support of several senior political figures. The majority of Solomon Islanders appear to think that the country would collapse if RAMSI were to withdraw. Economic policy The 2007 budget, handed down in February, depends heavily on the generosity of international donors but has continued the trend towards economically sensible policies and fiscal caution. Improvements in revenue collection are planned, as are reforms of state-owned enterprises. The IMF remains worried about an eventual rise in public debt. The domestic economy Despite some recent encouraging palm oil and gold-mining start-ups, reform of land use legislation will be necessary to encourage business investment. The government has pledged to introduce a bill on land use in mid-2007, but its detail is uncertain. Australian Solomons Gold has indicated that the Gold Ridge mine should reopen by the end of 2007. Consumer price inflation has risen in recent months. Foreign trade and payments Merchandise trade deficits have continued to be offset by strong transfer inflows connected with the large foreign presence in the Solomon Islands. Editors: Graham Richardson (editor); Gerard Walsh (consulting editor) Editorial closing date: February 16th 2007 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report March 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 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 In May 2006 an alliance of parties under the banner of the Grand Coalition for Change formed a government under Manasseh Sogavare, the leader of the Social Credit Party. In practice parties do not represent enduring policy positions, and have fluid membership reflecting constantly shifting political alliances Main political parties The People’s Alliance Party (PAP); the Association of Independent Members (AIM); Socred; the Christian Alliance Solomon Islands (CASI); Lafari Party; National Party; Solomon First Party; Democratic Party; Labour Party; Liberal Party; United Party Prime minister & public service Manasseh Sogavare Deputy prime minister, agriculture & livestock Toswell Kaua Key ministers Commerce, industries & employment Peter Shanel Communications, aviation & meteorology Patrick Vahoe Culture & tourism Bentley Rogosamani Education & human resources Derek Sikua Energy & mines Mark Kemakeza Finance & Treasury Gordon Darcy Lilo Fisheries & marine resources Nollen Leni Foreign affairs, external affairs & immigration Patteson Oti Forests, environment & conservation Mark Kemakeza 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 & peace Sam Iduri Planning & aid co-ordination Steve Abana Police & national security Isaac Inoke Provincial government & constituency development Japhet Waipora Public service Joses Wawari Sanga Central Bank governor Rick Hou Country Report March 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 4 Solomon Islands Economic structure Annual indicators 2002a 2003a 2004a 2005a 2006b GDP at current prices (SI$ m)c 1,537.3 1,737.5 1,995.7 2,244.8 n/a Real GDP growth (av; %)c -1.6 6.4 8.0 5.0 5.3 Consumer price inflation (av; %)c 9.3 10.0 6.9 7.3 8.2 Population ('000)d 440.5 451.5 460.1 470.7 n/a Exports fob (US$ m)c 58 74 97 103 n/a Imports cif (US$ m)c 65 67 72 144 n/a Current-account balance (US$ m)c -16.3 2.9 32.3 -32.3 -51.9 Reserves excl gold (US$ m)c 17.5 36.0 79.0 94.6 98.2 Total external debt (US$ m)c 152 161 161 162 164 Debt-service ratio, paid (%)c 10.3 9.3 5.9 7.2 5.2 Exchange rate (av; SI$:US$)e 6.749 7.506 7.485 7.530a 7.600 a Actual. b Economist Intelligence Unit estimates. c IMF, Country Report. d Asian Development Bank. e IMF, International Financial Statistics. Origins of gross domestic product 2004a % of total Electricity, gas & water 17.5 Forestry, logging, sawmilling 15.7 Finance 14.9 Retail & wholesale trade 9.7 Transport & communications 9.1 Manufacturing 8.9 Other services 7.6 Principal exports fob 2005b SI$ m Principal imports cif 2005b 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 2005b % of total Main origins of imports cif 2005b % of total China 41.5 Australia 25.2 South Korea 13.2 Singapore 24.8 EU 8.7 New Zealand 6.0 Thailand 6.9 Fiji 4.1 Philippines 4.5 Japan 3.7 Singapore 1.5 China 3.7 a Central Bank of the Solomon