The offshore alternative
p. 19 · Read in the full issue
IN March, the Australian government released a major industry statement which now seems to be offering Pacific Island nations the prospect of much sought after new investment.
Already the giant Melbourne-based Yazaki automotive manufacturer has decided to move one of its major component plants off-shore to Western Samoa. Other manufacturers are considering following suit.
Essentially, what Australian Prime Minister Bob Hawke did in the March 12 statement was to speed up Canberra’s tariff reductions. As a result Australia is now aiming at a general tariff level of just 5 per cent on most manufacturing and agricultural imports by 1996.
Although clothing, textiles and car parts will retain their relatively high levels of protection for longer, those levels, too, will come down faster than originally anticipated under specific
industry plans.
In the Island nations, with their special
preferential access to the Australian market, lower tariffs have been seen as a threat. Many Pacific businesspeople fear increased competition from big producers in Asia may wipe out the Pacific’s fledgling export industries.
There is no doubt lower tariffs will make it tougher for Island manufacturers who have enjoyed duty free access under Sparteca (the South Pacific Regional Trade and Economic Co operation Agreement), but it will be possible for Island exporters to meet the challenge.
At the same time the industry statement holds out the promise of more investment in island economies.
The lowering of tariffs makes it much more attractive for Australian manufacturers, now paying high Australian wage rates, to go off-shore. At the moment Australian garment manufacturers are looking at the possibility of relocating in the Solomons, Vanuatu, Fiji, Tonga and Western Samoa. Other manufacturers are interested in part processing in the Island nations.
Although the Island nations have the advantage of being close to Australia, generally stable, and in many cases with their own preferential access to markets in the United States and Europe, (under the Lome Convention), the competition to win investment is still tough.
Australian manufacturers are also examining opportunities in the bigger low wage countries in Asia, most of which have more years of experience in attracting this sort of investment.
Some are investigating possibilities in places closer to target markets. Garment manufacturers exporting to the US, for instance, have been looking at prospects in the Caribbean.
So what are Australian investors looking for when they consider off-shore investment?
For those I have spoken to, by far the most important element is predictability in government policies. It is not so much the sort of requirements that government place on business but the ability of business to accurately predict the outcome of its own decisions which influences the original decision to invest.
Many Island nations are now offering attractiive investment incentives. What is most important to investors is to know that company law and licensing requirements are easily understood and not subject to the whims of various public servants or ministers, that there will not be catastrophic hidden costs and
that the ground rules will not change, suddenly, once they are established. Although some investors are holding back until after upcoming elections before making their decision to invest in Fiji and Vanuatu, they are optimistic about the future in both countries.
In Australia, Fiji’s Finance Minister and co- Deputy Prime Minister, Josevata Kamikamica, has won wide respect for his efforts to set the interim government’s relations with foreign investors on a sound footing. And Vanuatu’s prospects under new Prime Minister, Donald Kalpokas, are seen as bright.
While some still have concerns about political stability, particularly in Fiji, there is a growing feeling of confidence. In Fiji that confidence has been boosted by Major General Sitiveni Rabuka leaving the army and joining the interim government. Rabuka, the leader of the 1987 coups, is now joint Deputy Prime Minister with Kamikamica.
Just at present Australia’s own recession, now admitted by Treasurer John Kerin to be the worst for sixty years, is dampening investor’s enthusiasm. Australia’s Trade and Overseas Development Minister, Neil Blewett, has warned that the rate of recovery in the retail sector, so important to Island exporters, is expected to be “quite slow”.
In the longer term, however, because the industry statement is about restructuring, Australian investment in the Pacific is likely to be unaffected. And some companies are moving off shore despite the recession.
That can be seen in Yazaki’s decision to invest in Western Samoa. Yazaki, a big car part manufacturer, will be making automotive wire looms, a lightweight labour intensive component which links the car battery to lights indicators and other accessories. Yazaki’s decision to move to Western Samoa was based on its good experiences with Samoan workers in New Zealand and its increasing concerns about high labour costs in Australia.
The Australian government’s decision to exempt car components made in Forum island countries from duty means more investment in that area is likely. Other manufacturers, too, in a wide range of industries are considering the island nations as a site for part processing.
In the longer term interest is still strong in investment in tourism. Australian investors are aware that with the dawn of the Pacific century much of the wealth and therefore the people most able to spend on tourisjn will be located just a short air hop from the Island nations, in Asia.
Other long term investment prospects lie in more high tech industries.
With its proximity to Australia and its lower wages the South Pacific has a natural advantage for producing small lightweight components which are easy to transport.
A recent joint meeting of the Fiji-Australia and Australia- Fiji business councils nominated opportunities in communica tion and data processing, health and educational services, component manufacturing and consultancy services serving the region as potential growth areas for the next 5 years. In relation to health services the councils were envisaging investment in high grade hospitals selling operation and recuperation packages for wealthy people seeking a pleasant way of dealing with their non-acute ailments.
At the moment many travel to Australia for treatment. □