Political change In recent history, multiple factions have led to some political instability and frequent changes of prime ministers and ministers.
The Economist Intelligence Unit noted factionalism was an ongoing challenge “partly as a result of parliament being made up of large number of parties and independents with allegiances regularly shifting between groupings”.
“This will take a toll on policy formation in 2017-18 and derail some efforts for political reform. Real GDP growth is expected to decelerate over 2017-18, averaging 3 per cent annually in those years, as many reconstruction efforts following Cyclone Pam in 2015 come to an end,” the EIU says. Political change though is well on the official agenda.
In January, Prime Minister Charlot Salwai launched ‘Vanuatu 2030’, the country’s new National Sustainable Development Plan. The plan emphasises society and the environment as well as the economy with a strong emphasis on culture.
“I like to think of the structure as a large nakamal (traditional meeting house) with the three pillars holding up the roof and the foundation is our culture and kastom,” the PM says.
According to the latest ADB Asian Development Outlook, the infrastructure push currently underway is the main growth catalyst but, while sorely needed, it alone will be insufficient to deliver the required lift to growth.
“Limited capacity for managing public investments risks undermining the benefits of the infrastructure push,” the ADB says. “The current investment pipeline amounts to over Vt10 billion each year in 2017 and 2018, equal to more than 12 per cent of GDP. By comparison, the average annual value of public investment projects implemented during 2008–2010, the most recent previous peak in public investment, amounted to only Vt3.5 billion, not much more than 5 per cent of GDP.
“The sudden scaling up could overwhelm limited project implementation capacity. Meanwhile, inadequate infrastructure planning could skew project selection, and the historical pattern of inadequate attention to maintenance threatens to undermine return on investment.”
The ADB also pointed to the need for productivity improvement across the economy, noting productivity growth has been deteriorating in recent years “by an average estimated at 1.5 per cent during 2010–2014”.
“Insufficient progress in implementing reform designed to enhance private sector development and productivity appears to be the key issue,” the bank says.
This was also a key theme of Governor Athy. He says one of the collateral impacts of political instability had been a build-up in “friction” in the economy, making it harder for both local and foreign businesses to operate – with consequent productivity impacts.
One of the costs is relatively high interest rates in Vanuatu which are not entirely due to direct monetary policy.
“Some of the financial costs of doing business I can understand and they’re due to process we are looking on but some of the other costs are difficult to justify – some things are more expensive here than Samoa,” he says.
ANZ’s Pinto argues there is a huge amount of opportunity in both micro and macro reform in Vanuatu which could conceivably multiply GDP growth over the next decade.
He points to the agricultural opportunity built on incredibly fertile soils if the transportation logistics can be improved: “Vanuatu has immense potential on this front and a walk to the local markets and around the streets will capture the green growth around. And most importantly in today’s health conscious world, organic agriculture is preeminent in Vanuatu”.
For that potential to be delivered, Pinto says investment in education is critical, particularly shorter courses on particular skills.
Though low profile, the quality of Vanuatu beef is already internationally recognised in some premium markets such as Japan – the biggest export destination. Australians – including the actress Cate Blanchet and her husband Andrew Upton – are among those ramping up investment.
Another Australia, Terry Adlington, has developed the organic and Fair Trade certified Tanna coffee, defying the prevailing view that quality Arabica beans can only be grown at altitude. Farming predominantly at the base of the Mt Yasur volcano on Tanna Island, in deep, dark rich soils, Adlington is striving to provide a commercially viable industry for local farmers.
“More than 80 per cent of the population relies on agriculture, we support over 700 farms and 5,000 people, ” he says. Told by no less a figure than Ernesto Illy of Illycafe that premium Arabica needed to be grown at high altitude, Adlington has won many awards for Tanna. “We have a latitudinal compensation,” he says – meaning Tanna makes up for its sea level location by being much further from the equator but still tropical.
Tourism though is the main opportunity for Vanuatu – which is why the airport project is so critical.
If 80 per cent of the population relies on agriculture, Pinto says almost 50 per cent of GDP directly and more like 65 per cent of GDP indirectly is tourism. “There’s an opportunity for some quick wins but action is the key to success.”
Andrew Cornell is managing editor at BlueNotes