Staying buoyant
Where to now for the Solomon Islands economy?
Business ties are strong between Papua New Guinea and the Solomon Islands. In this special eight-page section, David James looks at the economy of PNG’s nearest neighbour and talks to the experts about future opportunities. There are also tips for business travellers: where to stay, visa requirements and more.
The Solomon Islands’ economy grew by three and a half times between 2003 and 2016. But, according to the Asian Development Bank, logging has been the most significant source of government revenue over the past decade, accounting for about half the government’s export earnings. That is expected to decline, meaning the country must find ways to diversify its industry base.
Jay Bartlett, chair of the Solomon Islands’ Chamber of Commerce and Industry, identifies agribusiness, mining and tourism as three sectors with potential.
“With agribusiness, there is a lot of scope and a lot of opportunity. Much of the population is rural and a lot of the population is already engaged in the informal sector in agriculture.
“So, we could possibly look at ways where we can value-add; look at the supply chains and make markets more accessible – domestic markets and maybe also regional and international markets. There is a lot of scope to directly impact people working in the rural and informal sectors.”
At the moment, Bartlett says, the Solomon Islands’ biggest agricultural export is palm oil. The main player is Guadalcanal Plains Palm Oil, which is majority owned by New Britain Palm Oil (itself owned by Malaysia’s Sime Darby).
“They are looking at a significant program to expand over the next five to 10 years in the Guadalcanal plains, which will likely triple the production.
“We should be exploring and driving innovation in some of the niche products. That has a lot of scope to improve our export sector and create a lot of jobs for the community and the economy.
“There is also opportunity with other crops such as coconut oil, taro, cassava and kava,” notes Bartlett. “Those are obviously not going to be huge volumes. They are done on a more small-holder scale. But I think that has a lot of opportunity.”
Seva Payevskiy, the resident representative, Solomon Islands, for the International Finance Corporation, says the economy’s weaknesses stem from its smallness, remoteness and dispersed population.
“This increases the costs of public service delivery, constrains the reach of infrastructure and reduces the range of opportunities for private sector development.
“Remoteness inflates transport costs for all traded inputs and products, which, together with lack of economies of scale in the provision of basic infrastructure required for economic activity, pushes up the total cost of goods and services.
“The upside, however, is a relatively rich resource base in agriculture, including fisheries, and also untapped wealth of natural resources.”
Mining policy reform, says Payevskiy, is also of considerable importance because the sector is one of the few major alternative sources of growth.
Bartlett believes the biggest challenge is access into markets. “That is probably a bigger challenge than the actual physical logistics of it: getting the right certification in place to enable some of our crops to go into some of the bigger markets, like Australia and New Zealand.”
Agribusiness, mining and tourism are three sectors with potential.
Tax policy is considered an important issue by businesses.
“Businesses in Honiara often report the relatively high burden of taxation falling on compliant businesses, the scarcity of urban land for business expansion,” says Payevskiy.
Bartlett says the Solomons Chamber has been talking to government about broadening the tax base and diversifying the economy. “At the moment, the tax system is quite complicated. If it could be simplified, made easier, it would catch a lot more and contribute more into the government’s revenue.
“The other big fundamental issue that is ongoing is the land issue, which needs to be addressed. There needs to be more effort put into mechanisms that allow ownership structures to be put in place for customary land in order to open it up for development and investment.”
Bartlett says some processes where local landowners can address land issues, are required. He points to the need for mechanisms “where we can formally register customary land through landowner groups or associations”. He believes it is a long-term challenge.
“We need to allocate resources today to enable that to be dealt with. In Melanesia, land can be a quite complex and sensitive issue and there is not one solution, due to the different island and cultural differences.”
Tourism has great potential, according to the chief executive of Solomon Islands Visitors Bureau, Josefa Tuamoto. He says international visitation in 2016 increased by 7.3 per cent on the previous year. It was the third year in a row that numbers have risen.
“One of our biggest opportunities lies in the fact the Solomon Islands holds strong appeal for international travellers looking for something different,” he says. “It is a unique ‘living’ culture with World War 2 history, diving, fishing, surfing, trekking and yachting.
“We ideally want to grow our leisure market, which currently sits on 30 per cent of our overall international visitation. With new operators coming online in both our traditional and developing source markets, we are confident this growth will be achieved.”
The most high-profile tourist and business accommodation venue is the Heritage Park Hotel in Honiara. General manager Sanjay Bhargava says it is a tough market to operate in. “It is basically for business travellers. We haven’t really been exposed so much to the world. We are in the process of doing it.
“The economy of the Solomon Islands isn’t so very strong that it can withstand many shocks. A lot of exterior forces are there which affect whether or not there is a good occupancy in the hotel.”
Bhargava says tourism is held back by cost considerations. “It is beautiful, but as a destination it is not very cheap.” Growth has nevertheless been strong and Bhargava expects that to continue. “It will take time; it is a very young country.”