Everything you need to know about business in the Solomons
David James reports that economic advances are being made in the Solomon Islands, providing plenty to smile about.
The Solomon Islands, 1400 kilometres east of Papua New Guinea, is a country that is making big economic advances. Although it faces many of the familiar challenges confronting developing Pacific economies, such as a narrow industry base, the country has been making some positive gains.
According to the United Nations’ Human Development Index, between 2000 and 2015 the Solomon Islands’ rating increased from 0.442 to 0.515 – an improvement of 16.5 per cent.
The UN estimates that between 1990 and 2015, Solomon Islands’ life expectancy at birth increased by 11.4 years, mean years of schooling increased by 0.7 years and expected years of schooling increased by 3.6 years.
Over the same period, Solomon Islands’ gross national income per head (GNI per capita) increased by 14.8 per cent.
The bulk of the population depends on agriculture, fishing and forestry for at least part of its livelihood. Most manufactured goods and petroleum products must be imported. The islands are rich in undeveloped mineral resources such as lead, zinc, nickel and gold. Some calculations put the country’s GDP at $US1.317 billion in 2017.
The Asian Development Bank’s Asian Development Outlook 2018 notes that cash crops, fishing revenue and construction remained strong in 2017, but economic growth slowed because of a decline in logging exports.
“Inflation decelerated on lower food prices, and the current account deficit almost halved. Slower growth is expected in 2018 and 2019 as new construction only partly offset a likely further decline in logging output. Progress is being made in implementing a muchneeded national transport plan, but challenges remain.”
Jay Bartlett, chairman of the Solomon Islands Chamber of Commerce and Industry, says progress on broadening the country’s agricultural base has been relatively slow in the short term. “There is a little bit of small niche products getting exported at the moment but nothing very substantial.”
In the medium term, however, there are plans for expansion of the palm oil industry.
A subsidiary of New Britain Palm Oil, GPPOL, is, says Bartlett, looking at an expansion program in the Guadalcanal, in the east of the country.
“GPPOL is looking at more plantations; that is in the pipeline. There just needs to be some key
infrastructure built: two bridges to open up access.”
Bartlett says there are some cassava exports but it is still on a “quite small scale”. Virgin coconut oil production has been growing slowly, but could potentially be affected by spread of the coconut rhino beetle.
“That is a huge threat to the livelihoods of our rural population that depends on the coconut industry. It is also having a negative impact on the palm oil industry, as well. It is spreading around the Solomons at the moment and being found in a number of different provinces.
“A task force has been established. The Chamber of Commerce is working with the Government and the Ministry of Agriculture. The private sector is taking the lead to find a solution. It needs to be a biological solution … a virus that will kill it.”
Bartlett says the government is embarking on a three-year review into tax reform “to ensure that its administration is efficient and simpler”. He describes it is a very positive step.
“We in the private sector, the Chamber of Commerce, we are part of the committee so we are trying to ensure that the government understands
the business point of view and how we would like to see the reform happen.
“It will broaden the base, make tax easier to pay and broaden the net. There is a large informal sector that at the moment isn’t contributing to government revenue so hopefully we can look at getting more businesses into the formal sector with a simplified tax system. That is something we can promote.”
Bartlett says the members of the chamber are businesses that “contribute and comply”. He says it is hard to say what the level of compliance is across the whole economy. “We believe there is a lot of room for improvement.”
Two positive developments for the Solomon Islands are the Tina River Hydropower Development Project and the Solomons Undersea Cable Project (which will be mainly funded by the Australian Government). The ADB estimates that these will start contributing to economic growth in 2019.
Bartlett says the laying of domestic cables is expected to begin in May 2019. The main international cable will go into Honiara and there will be three additional domestic connections. He says it will “definitely” lead to more efficiency in business, lower costs and increased speeds.
Bartlett says after that immediate impact, experience suggests that consumption will double every year for the first five years. “It creates other avenues where we can use technology a lot more to deliver services and infrastructure; connectivity is always a challenge and logistics costs are always very expensive. I think innovation is a big area that can grow from this.”
The Solomon Islands is mostly Melanesian, and has strong cultural connections with PNG. “I think people that invest and run business in Papua New Guinea and Melanesia probably see the Solomons as a good opportunity as well,” says Bartlett.
A trade delegation from the Solomons to PNG is being planned. “It will be a partnership between the private sector and government just to gauge what sort of interest we can get in PNG and also for us to go on a bit of a learning mission as well.
“There is a lot of innovation that is happening in Papua New Guinea with agriculture. So maybe there are some lessons we can learn and bring back. We are still in dialogue with the Port Moresby Chamber, the Trade Commissioner and the High Commissioner in PNG but we would like to do it this year, working towards September.”
The Solomon Islands is recovering from some serious civil conflict. According to the International Monetary Fund (IMF) the Australia-led Regional Assistance Mission to Solomon Islands (RAMSI) withdrew this year after 14 years, “having succeeded, together with the authorities, in restoring law and order and re-establishing public institutions”. RAMSI was established in 2003 to deal with ethnic violence, the closure of key businesses, and government fiscal stresses. Bartlett says the relationships remain. “It has just changed from the mission to a bilateral relationship so we still have a lot of support from the Australian government. One of the things we are doing as a chamber is working with law enforcement and police to build trust and confidence in business, and to encourage more investment.
“The Solomons is a safe country. But we do have a lot of (negative) elements like unemployment, which is very high. We have also got a very young population.
We are talking seven out of 10 under 30 – so similar demographics as PNG.
“With a lack of economic opportunity for young people and a lot of unemployment, in the future security could be a concern. So we are just looking at ways we can address this holistically. Not just focus on how we can stop it, but also why these issues are there.”
Land ownership is another issue, says Bartlett.
“Accessibility to land is always challenging. Similar to Papua New Guinea, most of the land is customary owned.” Bartlett estimates 85 per cent of the land is customary land and only 15 per cent is registered land.
“With the majority of our land we need to get some ownership structures in place so we can move on development and get infrastructure in place. There are different models in the Pacific.
“Some of them are quite successful, like in Fiji – they have the Native Land Trust Board that manages this. But it is a long-term process. Land reform is about people, not land. We have to go through some sort of identification process to really understand who is there and what people own. It is not something that is going to happen quickly. It will take some time and it needs a lot of political will to drive it.”
Bartlett adds that the Solomons chamber represents “a quite diverse group of businesses”.
He says the big-ticket items are infrastructure, the cost of business, utilities, roads and general business efficiency.
He says the cost of internet is also prohibitive, but he expects that to fall with the laying of the overseas cable.
I think people that invest and run business in Papua New Guinea and Melanesia probably see the Solomons as a good opportunity as well.
The bulk of the population depends on agriculture, fishing and forestry for at least part of its livelihood.
Jay Bartlett … chairman of the Solomon Islands Chamber of Commerce and Industry.