Posted by: nativeiowan | February 27, 2013

Neo-Colonialism, alive and well…

Headlines in today’s Solomon Star are marketing what I feel is a neo-colonialistic attitude that, for some dumb reason, people far and wide think is great.

It is all about PACER Plus… Pacific Agreement on Closer Economic Relations (PACER) Plus.

I was involved in the kickoff of PACER Plus in 2009. The Aussie Gov had come to the SI Chamber of Commerce and asked for our support. We reviewed the information and said, “hey wait a minute”…

The “Agreement” gave Aus advantaged access to pacific wide markets while supposedly making it easy for PICs (Pacific Island Countries) to export to Aus.

Of course the long list of items that were acceptable to export from a PIC to Aus was restrictive and the reality of some of it was a joke.

I do not have the Pacer Docs any more but I recall that some export items were taro (big trade in taro from PICs to Aus) but the Taro had to be in approved packages, yep… you got it, which is available only from Aus.

Same with Kava, etc. I do recall sitting and exhaustively reviewing the list with some very smart Solomon Islanders and determining that there was nothing of advantage to SI gained through Pacer. In fact it opened SI’s markets up to more subjugation and neo-colonialistic attitudes.

The fun part of this story is that I was invited to an Economic and Trade Summit the Aussies put on. Quite a big marketing ploy on their part. Everyone that was anyone in government or commerce was there. I was asked to give a short key note speech. I sat next to (in the front row) the then Aussie and SI  Minsters of Trade, The High Commissioner for Aus to Solomons, and the big-dick for RAMSI (Regional assistance missions SI)…

My key-note speech was a rather long discussion on the Solomons economy that very much questions the validity of PACER.

After my speech the Aussie big wigs I was sitting with all moved a fair measure away from me.

1st… today’s article, then 2nd… my speech from 2009…

#1….

Foreign minister highlights challenges and benefits of Pacer Plus

A one day national consultation on the Pacific Agreement on Closer Economic Relations (PACER) Plus on Monday has highlighted key challenges and potential benefits facing the Solomon Islands.

The consultation brings together stakeholders from the government, private sector and representatives from the informal sector.Speaking at the workshop opening, Minister of Foreign Affairs and External Trade, Hon. Clay Forau Soalaoi said out of all the regional and sub-regional trading agreements we have signed up to or currently negotiating, a PACER-Plus trade agreement with Australia and New Zealand will probably have the greatest impact because most of the imports of Forum Island Countries come from Australia and New Zealand.

Minister Forau noted that there will be a lot at stake, as negotiations for a new trade agreement with Australia and New Zealand are likely to result in a binding international agreement that will eclipse all previous regional initiatives in the Pacific, in terms of its scope and impact.

“For Solomon Islands and other Pacific Island Countries, our isolation resulting in high transportation costs mean that our potential exporters face considerable constraints – such as distance from markets, expensive or infrequent inputs, small economies of scale etc,” Minister Forau said.

This will result in Solomon Islands exporters not becoming competitive and therefore not being able to trade.

Some of the challenges that must be address include substantial loss in government revenue due to liberalization, higher taxes for the poor and opening our markets to large well established corporations in Australia and NZ who do not operate within these constraints may not necessarily make Pacific businesses more efficient – it may instead wipe them out as well as undermining indigenous rights to land.

Minister Forau specially noted that indigenous peoples across the Pacific have a distinctive physical and spiritual relationship with their land based on the concept of custodianship and free trade agreements can have implications for indigenous rights and land tenure, particularly if they contain provisions to allow foreign ownership of land.

Minister Forau, however, indicated that there are also opportunities PACER Plus has to offer with Labor mobility schemes in Australia and New Zealand providing employment opportunities for Solomon Islanders.

Temporary labor mobility schemes for low and semi skilled workers to Australia and New Zealand are very important to the Solomon Islands. They represent the largest source of untapped gains for economic development for the Solomon Islands and for the region.

Minister Forau also highlighted that other potential benefits will included Infrastructure Development – particularly on shipping and upgrading of port facilities, Fisheries development – Fishing licenses and processed fish is the other major revenue earner for Solomon Islands and Capacity Building – particularly to the private sector, which is the countries engine for economic growth, to ensure we can take advantage of the market access opportunities PACER Plus has to offer.

“I am comforted by the fact that both Australia and New Zealand have assured us that development will be at the core of PACER-Plus. It has to be sensitive to the different stages of development of the parties.  And more importantly, there is no commitment to liberalize trade.  We are only obliged to negotiate a reciprocal free trade agreement with Australia and New Zealand,” Mr Forau said.

Since the launch of the PACER-Plus negotiations in August 2009, Solomon Islands has been negotiating on a series of ‘common priority issues’ Forum Trade Ministers have identified namely labor mobility, rules of origin, development assistance, customs procedures, sanitary measures and technical barriers to trade.

Minister Forau said PACER Plus will be an instrument that will form the foundation of a long-term, evolving partnership based on economic and trade cooperation between ANZ and the Pacific Island Countries.

“It will therefore be the most important economic negotiations that Solomon Islands and other Forum Island Countries will undertake this decade.  And it’s impact will be huge.  So huge and far-reaching that it will simply dwarf any other regional initiatives,” Minister Forau said.

 

#2….

Protocol:

 

The Hon Simon Crean, Australian Minister for Trade

 

Hon Francis Billy Hilly, Solomon Islands Minister of Commerce

 

Mr. Frank Yourn, Executive Director, Australian Pacific Islands Business Council

 

Mr. Gary Clifford, Vice-President, Australia Pacific Islands Business Council

 

Mr. Gane Simbe, Deputy Governor, Central Bank of Solomon Islands

 

Official invitees, dignitaries, Ladies and gentlemen

 

I thank all involved for the honour of being here today. The SICCI is the voice of the Private Sector in Solomon Islands. With over 100 members we like to think we have our finger on the economic pulse of the Country.

 

The Solomon Islands Economy

 

There is much discussion in the Solomons right now that revolves around what comes “next” for our economy. Of course, Logging is no longer the future of the islands. There is much talk of mining, fishing, tourism or… something else that is required to fill the void that the fall in logging based revenues is creating.

 

As a “least developed country” the Solomons is both ahead and behind other countries in the Pacific region. Ahead in that, as I like to think, there are opportunities galore in the Solomons. Behind in that recent trends, occurrences and mishaps have made investing in our lovely island homeland difficult, at best.

 

Allow me to briefly review three main impediments the Solomons as a whole and investors in general currently face.

 

1st : The Cost of Doing Business in the Solomons is prohibitively high…

h   Failing or nonexistent infrastructure means the cost of all commodities increase disproportionately every time they are handled or moved.

h   Of course the Security Issues we live with in the Solomons costs all companies extra. All business houses must hire, train and retain large numbers of expensive security guards… in my company one half of our 100 employees are security personnel. It is my view that our “Security Problems” will not go away quietly. 50% of our population is under the age of 25. If we do not develop a mechanism to engage, educate, employ and recognise this growing population the situation will not get better.

h   The failing, obsolete and poorly maintained public services cost all users too much. Currently a unit of electricity costs us USD fifty cents. This is in comparison to USD fifteen cents for an average unit here in Australia. There is a distinct need to get the SOE’s in the Solomons operating properly. This need is immediate if not over due.

2nd : Land tenure in the Solomons is a difficult and sensitive issue…

h   Over 80% of our land is held under a “Customary Land System”. If you want to come and develop a new enterprise – outside the urban setting – you’ll have to deal with Customary Land owners. This can be time consuming, costly and, for the newly initiated, quite daunting.

h   Add to this: The National Lands Registry is poorly managed, susceptible to corrupt influences, and, sadly, has not received the attention, money or care that is required to make this system work in a modern society. I wish to comment here that “without security of tenure of Land” there can be little or no honest investment. We must get this right before we move forward.

3rd : The tax regimen in the Solomons does not attract investment…

h   There has been a propensity for successive Governments to view the Private Sector as their very own “cash-cow”. When the Central Government needs more revenue… they target the Private Sector. They raised the Goods Tax from 8 to 10%. Then to 15%. This is a negative trend and simply is not sustainable. The tax regimen we currently live under is actually pushing business away. We live under a system of taxes on taxes. Sorta’ makes me wonder why or how we’d think investors would even consider the Solomons as a viable option.

h   It is this onerous if not draconian tax regime that forces doors of graft and corruption open. A fair and professionally implemented tax system will mean a broader tax base, easier regulation, better compliance and, in the long run, more revenue.

 

I know, it all sounds pretty negative. I can guess that many here today are asking themselves… “if it’s all that bad why is he still there?”…

 

The simple answer is that… Things have not always been this way. In the 80s corruption was nonexistent. Taxes were reasonable. The lifestyle was the best our planet offered. And, ladies and gentlemen, the Solomons is Home.

 

OK, We’ve had the negative, where’s the positive… there has to be a positive somewhere…

 

What does the Solomons have that can be the tool or tools we all put our hand to? The tool we can use to start digging our way out of the problems we are in?

h   Of course our idyllic island lifestyle is a marketable entity. Tourism can be “a savour” for us. But we need to solve many problems before we can “bank” on tourism.

h   There is no doubt that mining is viable in the islands. There is no doubt that there “is gold in them thar hills”. But, are we ready to move in that direction? Do we need to solve some associated issues before we move full speed into mining?

h   Agricultural Business offers a positive opportunity. At present there is an abundance of unexploited land in the Solomons. It may make sense for us to focus on the agriculture sector. Growth in agriculture will benefit the rural areas, where most of the population live. We already have a strong agricultural base. Agriculture will also create the required jobs that will encourage people to stay in the rural areas, rather than move into town to look for work.

h   Manufacturing, in contrast to agriculture, mining and fisheries, is very attractive as it enjoys increasing returns to scale.  As you manufacture in greater numbers your costs decrease. It is obviously premature to talk about Solomon Islands developing high tech industries at this point in time. However, at the very least the government must plan for greater manufacturing and industry in the economy. Looking at international experience, it is the manufacturing sector that pushes wages up. Something we need in the Solomons.

h   One last thought on Manufacturing: Manufacturing has the potential to absorb educated and skilled labour. In agriculture the majority of the jobs are unskilled. If a country educates its citizens without having the jobs available the inevitable consequence is “brain drain”. A situation where the country’s most skilled people move to other countries to find gainful employemnt. This is a problem we currently face. It is not acceptable to suggest that the Solomon Islands simply does not educate its population. It is also undesirable to spend valuable and limited resources on training people when they are likely to leave.

 

So we do have a few, limited options or opportunities. The only problem with relying on agriculture and raw materials export is that the result will be a low wage economy, little technological progress and a pattern of exporting raw materials and importing manufactured goods.

 

Protection versus Free Trade

 

Historically countries have protected industries that they recognise as desirable. They do this by setting high import duties for those goods that they wish to produce themselves. This gives any national business an advantage in the domestic market.

 

In the case of the Solomon Islands the domestic markets are small. With only 15% of our population living in urban centres the demand for goods that can be produced locally is small. Unlike other developing countries, even if a company is protected from foreign competition, we may never have enough local demand to become ultimately successful.

 

However, there are two reasons for contemplating protectionist strategies. Firstly, having an advantage in the domestic market may make the difference between a firm being profitable or not. The fact that jobs in manufacturing generally have higher wages is a good reason to desire a manufacturing sector. The question has to be asked whether, in opposition to comparative advantage theory, it is better to protect an inefficient manufacturing sector than to have no manufacturing sector at all.

 

PACER

 

My discussion on protectionistic opportunities logically leads us to PACER… The Australian government has stressed that the PACER negotiations will be conducted with a view toward development rather than an effort to capitalise on potential markets. If this is the case then PACER could be a better development tool than 10 years worth of aid.

 

I believe that the Solomons must be allowed and encouraged to protect those industries that are beneficial. That is to say those industries that have: increasing returns to scale, encourage innovation, are as high tech as possible, utilize inputs that are locally sourced, offer high wage levels, and/ or produce synergies and experience high growth.

 

However, all of this is insufficient to develop our country’s economy to its full potential. The Solomon Islands needs to have a long-term economic development plan. We need to be building infrastructure that encourages investment of the right or desired type. I have said this many times before… The SIG should not stimulate business development and growth through handing out grants. Build the infrastructure required and let the Private Sector manage the rest.

 

It would though seem that the PACER negotiations could well compel the Solomon Islands Government to start thinking of a long-term economic development strategy.

 

The Solomon Islands government really must start thinking in the long term. The Government and Private Sector must cooperate and share a positive forward focus. We will not develop unless we have carefully thought out plans, and combine them with the will to see such plans through to completion, despite any and all difficulties.

 

Again, one and all I very much appreciate the time granted today to the Solomon Islands Chamber of Commerce and Industries.

 

Thank you and g’day…

 

 

 

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Responses

  1. I was around at that time if I recall right, and yes, it was an unpopular position … but look who it was unpopular with.

    People have the mistaken idea that free trade is of benefit to the small countries, and the small businesses and suppliers they contain. It is not.

    Consider this:

    If free trade is such a good idea for the small countries and small business … how come it’s only the big countries and big corporations that are pushing it and putting money behind it and trying to get the small countries to buy in?

    Do you really think that big corporations and countries have the best interests of small countries and small businesses at heart?

    Notice who moved away from Mike … big countries …

    My best as always, my friend, well done, well written.

    w.

    • Makes me think of this book…

      Book Description
      Publication Date: October 7, 2008
      In this refreshingly revisionist history, Erik S. Reinert shows how rich countries developed through a combination of government intervention, protectionism, and strategic investment—rather than through free trade. Yet when our leaders lecture poor countries on the right path to riches they do so in almost perfect ignorance of the fact that our economies were founded on protectionism long before they could afford the luxury of free trade. How Rich Countries Got Rich… will challenge economic orthodoxy and open up the debate on why self-regulating markets are not the best answer to our hopes of worldwide prosperity.

      http://www.amazon.com/How-Rich-Countries-Poor-Stay/dp/1586486683


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