The silly games we play
p. 31 · Read in the full issue
AS THE ISLAND nations of the Pacific strive, with little or no resources apart from their paradiasical settings, to develop sustainable economies, there are some silly little games being played.
They are silly because they are going to deprive their people of some of the benefits that economic develop ment can and should bring - benefits which after all are the whole point of the exercise.
I am talking about a tendency to
indulge in “beat-your-neighbour leap
frogging” when drawing up incentives like tax holidays to attract foreign investors to put their capital into development projects in one of the island countries rather than another.
Sure, it’s a competitive business.
There is no shortage of countries -
including New Zealand, which is looking for $lO billion of investment every year just to maintain current development levels - on the hunt for overseas capital.
Western Samoa, for instance, is planning to increase its 10-year tax holiday for new export-orientated enterprises to 15 years. This period was deliberately chosen to top Fiji’s 13-year come-on.
The problem is that small-to medium-sized companies (and they are the ones most likely to be interested in setting up operations in the Pacific island nations, for they do not have the population or infrastructure to support giant multinationals), are usually looking for a payback on their investment well inside a decade and a half.
They want a return in seven or eight years, so while they will be quite happy to salt away profits after that time, the host country is losing six or seven years of valuable tax revenue it could be spending on its people.
Steve Houlihan, director of the South Pacific Trade office in Auckland, suggests tax holidays are over-rated as an enticement for foreign investment. He says they are not the most important factor.
The biggest constraint on attracting overseas capital into the Pacific, he says, is lack of knowledge. While they say they want investment monies, the island nations do not promote themselves or spell out what they offer or require from foreign investors.
“Even we find it difficult to find out what the rules are,” he said, of his office, which is charged with encouraging New Zealand companies to form joint ventures with local interests in South Pacific Forum countries. “We have to force the information out of them.”
Applause then for the Western Samoan government despite my earlier comment about tax holidays, which was intended as constructive criticism.
The Apia administration, bent on diversifying a fragile economy built on remittances from Samoans living overseas and coconut and taro crops recently took its message directly to potential overseas investors.
An investment mission, the first ever mounted by the government, and led the minister of finance, Tuilaepa Sailele Malielegaoi, visited Singapore, Djakarta and Australia before holding seminars in Wellington and Auckland.
The results, of course, have yet to be seen, but it was an
impressive display of get-up-and-go by an island nation that few foreign investors would probably ever think of as offering investment opportunities. The Wellington sem inar, which I attended, did not attract anything like the attention it deserved from the local business community and will need following up, but it was a start.
Sailele Malielegaoi, who is also minister of trade, commerce and industry, made it clear that Western Samoa, devastated by two cyclones in as many years, was determined to do nothing less than create an entirely new economy for its 160,000 people.
The aim is an economy that is less reliant on copra and taro, which are particularly vulnerable to cyc lones, and less reliant on an over
blown public sector - a feature of many island economies.
This means boosting private sector activity and diversifying into other areas of primary production and establishing a light manufacturing base.
Western Samoa has a head start in this aim, and the minister admitted the impetus for his mission came from the Japanese Yazaki Corporation which last year transferred its manufacture of automobile wiring harnesses from Melbourne
to Apia.
Yazaki executives told him the move had been so successful for them, they were sure other foreign companies would follow if only they knew about Western Samoa’s advantages and opportunities. They urged him to spread the message abroad.
The main advantage for Yazaki in making its move, of course, was the island state’s low labour rates - about SWSTI.33 an hour for production workers. While some in more developed countries question the wisdom of building an economy on such wages, there is little doubt Yazaki’s 1000-plus workers would sooner be earning something than nothing.
And with only about 50 per cent of an estimated workforce of 88,000 in regular employment, the creation of jobs and importantly private sector jobs is vital. With about 8000 still employed in the public service, the government has set a target of creating 5000 additional jobs in the private sector over the next five years.
Diversification of agriculture into high value herbs, spices and vegetables, to reduce the reliance on copra and taro exports, and the development of forestry and fishing have been declared priorities.
Following the Yazaki success, the government has developed a 100-acre industrial estate near Apia to attract light manufacturing and further broaden the economic base.
Tourism, handicapped in its development by the refusal of the government in the 1950 s (which feared the impact of an influx of visitors on traditional life) to sanction an international airport, is another target industry.
Sailele Malielegaoi and his officials painted a pretty exciting picture of the Western Samoa they want to see ; develop. Everyone in the Pacific will wish them well, and maybe learn some lessons from their experience.