ADB experts talk investments in the Pacific, economic opportunities for Vanuatu and competing with Fiji for tourists
ADB (Asian Development Bank) Pacific Department’s experts – Ananya Basu, Rommel Rabanal and Maria Carina Tinio – in this exclusive interview for Vila Times answer our questions about the economic development of Vanuatu and other Pacific Island countries, the potential impact of climate change projections on tourism, and which Pacific-made products could achieve worldwide success.
‘Vanuatu, Fiji, Samoa and Tonga have generally done well in pushing legal and regulatory reforms that help improve the overall investment climate’
– Let’s start with investments in the Pacific. Judging by news and reports from businesses and investors Fiji and Samoa nowadays are generally considered the best countries in the Pacific to invest into. Would you agree? Which countries in this region have the most investment potential in your opinion?
Ananya Basu: We believe several countries in the Pacific region have investment potential. Economies such as Vanuatu, Fiji, Samoa and Tonga have generally done well in pushing legal and regulatory reforms that help improve the overall investment climate. The World Bank’s latest Doing Business survey ranks them as the top 4 Pacific economies in terms of ease of doing business. Fiji’s position as a natural regional hub presents key advantages in terms of well-established linkages with both advanced economies as well as the Pacific’s smaller niche markets. Samoa and Vanuatu are reaping the rewards of sustained reform efforts that have boosted market competition. Except perhaps for Fiji, smallness and remoteness tend to limit business opportunities in these economies to a few sectors such as agriculture, fisheries, and tourism-related services.
The larger resource-rich economies of Papua New Guinea and Solomon Islands benefit from natural endowments that point to clear opportunities in extractive industries, although challenges such as domestic connectivity, labor and skills mismatches, and regulatory issues need to be further addressed.
‘Niche products offer a pathway for Pacific businesses to overcome twin challenges of smallness and remoteness’
– Which industries, besides the obvious tourism, fishery and agriculture, have the most potential for investments in the Pacific nowadays?
Rommel Rabanal: Specialized products can harness the Pacific’s pristine environment, rich cultures, and unique histories to anchor product differentiation and fetch premium prices on global markets. Niche products, such as the successful Fiji Water and Pure Fiji cosmetics, offer a pathway for Pacific businesses to overcome twin challenges of smallness and remoteness. Most opportunities appear to be in agro-processing, including for example coffee from Papua New Guinea and Timor-Leste, and natural beauty products that leverage unspoiled and exotic raw materials from the Pacific’s remote locations. Other innovative products can also be developed, as illustrated by a small banana paper manufacturing venture in Kosrae, FSM. E-commerce can help support niche product development, and the increasing availability of reliable high-speed internet services can also open up other opportunities in the ICT sector.
Maria Carina Tinio: With growing efforts to build resilience to climate change, investment opportunities in renewable energy generation, particularly solar and some wind farms, will expand. The construction sector will likely see an increase in activity as efforts to build climate resilient infrastructure, including climate-proofing existing assets, ramp up.
Reform of state-owned enterprises (SOE) has also opened up some opportunities for private investment in the Pacific. The telecommunications sector has been the most prominent example of this in recent years. In smaller Pacific economies, where SOEs have had a broader portfolio scope, reforms tend to present a wider range of opportunities. In Kiribati, for example, recent SOE reforms have successfully transferred a loss-making supply company to private ownership, and paved the way for a shipyard public-private partnership concession.
‘The near-term economic growth outlook for the Pacific is mostly positive’
– Looking at the general economic development, increase of investments and the number of business projects in the Pacific, how all this correlates with rather gloomy climate change projections and general reports on this region’s states vulnerability to natural disasters?
Rommel Rabanal: Outside of lingering fiscal issues in Papua New Guinea and the risk of further weather-related shocks across the region, the near-term economic growth outlook for the Pacific is mostly positive. This is driven by welcome developments in major sectors such as tourism and fisheries, and could partly explain an apparent uptick in investment and business activity. Although climate change and vulnerability to disasters are risks that businesses must account for, these can be managed through measures to mitigate risk and limit impacts on operations. Ongoing efforts by Pacific governments to build resilience against climate change and disasters should also help encourage potential investors by effectively reducing the risk associated with investing in the region.
‘The Pacific has always been vulnerable to disasters. However, this by itself is not enough at present to discourage tourists from visiting the unique attractions and experiences that the Pacific has to offer’
– There is a considerable growth in tourism in the Pacific this year, despite concerning “climate change” projections and a number of natural disasters. Do you see a certain discrepancy here?
Ananya Basu: No, this year’s annual tourism numbers are driven by the current economic, social, and environmental situation, not future changes to the climate. The potential impact of climate projections on future tourism numbers would have to be measured over a very long-term time horizon, probably decades—while also isolating from other variables that have nothing to do with climate change—to tease out a clear relationship.
The Pacific has always been vulnerable to disasters; it perhaps faces the greatest risk among all regions in the world. However, this by itself is not enough at present to discourage tourists from visiting the unique attractions and experiences that the Pacific has to offer. Tourism to the Pacific has generally been increasing over the longer-term, driven by expanding flight linkages, destination development, and strong income growth in major source markets—Australia and New Zealand for the South Pacific, and East Asia for the North Pacific.
‘ADB has documented a clear substitution pattern among Australian tourists between visiting either Fiji or Vanuatu’
Maria Carina Tinio: Disaster-related downturns in tourism are usually temporary, and mostly contained in specific affected areas. For example, ADB has documented a clear substitution pattern among Australian tourists between visiting either Fiji or Vanuatu. Australian tourists tend to visit Vanuatu more during the immediate aftermath of weather-related shocks in Fiji, like the 2009 floods and Cyclone Evan in 2012. A mirror pattern emerges thereafter as Fiji recovers and tourism to Vanuatu normalizes.
However, if climate change causes any long-term damage to major tourism attractions (for example, the jellyfish lake in Palau), this may result in a more lasting reduction in annual visitor arrivals. Strategies to promote higher-value tourism could help ease the negative environmental impacts of mass tourism on popular sites.
‘Investors can still consider long-term projects in the Pacific, but they should carefully consider the climate risks’
– Hypothetically, would it be considered a bit short-sided to invest into the long-term expensive [business] projects in the Pacific at this point (in connection with risks of climate change disasters)?
Ananya Basu: No. Investors can still consider long-term projects in the Pacific, but they should carefully consider the climate risks, especially for projects expected to operate for many years. Some of the biggest considerations related to a project—such as location, energy demands, facility design, and access to markets—can be affected by climate change. Investors who do their climate change homework would have a comparative advantage over those who do not.
On a broader level, Pacific governments and their development partners are taking steps to address climate-related risks to the economy—which will help investors. Such measures will allow communities and businesses to address the impacts of climate change. For example, ADB projects want to ensure that infrastructure is as climate- and disaster-proof as possible. Governments are also working to build financial resilience—by allocating funds in their budgets, and securing insurance and development partner financing.
Further, early warning systems are being promoted to enable quicker disaster response. By alerting the public of incoming disasters, they can take the necessary actions to lessen disaster-related damage, loss, and casualties.
– How high the climate change-related risks are normally placed nowadays when considering the potential investments in the Pacific?
Rommel Rabanal: We think it is difficult to attach a rank or value on climate risk because it is different across Pacific economies and types of investment projects. The level of risk can also change within a project depending on the way it is set up. More and more, ADB is using climate risk vulnerability assessments to pinpoint risks and guide the design of its projects. We note that some investors are doing similar systematic assessments.
At the country level, the Pacific Catastrophe Risk Assessment and Finance Initiative has detailed profiles for all its participating countries that have been useful in disaster risk assessments for both the private and public sectors. This initiative is a joint effort from the World Bank, ADB, and the Pacific Community, with financial support from the government of Japan, the Global Facility for Disaster Reduction and Recovery, and the European Union.
‘The Pacific could be a “shop window” for environment-friendly innovations in energy, solid waste management, climate-proof infrastructure’
– At this point, do you see real potential for one or several Pacific island countries to become a leader, or at least sort of a shop-window, in the industry of “green” environment-friendly solutions (talking about different areas, including energy, waste disposal etc)?
Ananya Basu: The Pacific certainly provides a fertile testing ground for environment-friendly solutions. Vulnerability to climate change and stated commitments to reducing greenhouse gas emissions makes countries in the region open to exploring clean and climate-resilient options, which could also help reduce their dependence on imported fossil fuels.
Several Pacific countries are already leading the drive for these at the global level, starting with the push to pressure all countries in the world to limit global warming to 1.5 degrees Celsius under the United Nations Framework Convention for Climate Change. They are also undertaking a massive switch from fossil fuels to renewable energy, showing the world that this is possible even for small economies with very limited technology and resources.
The Pacific could also be a “shop window” for environment-friendly innovations in energy, solid waste management, climate-proof infrastructure, and the like. The relatively small size of most countries in the region—ADB’s 11 smaller Pacific developing member countries (except Fiji, Papua New Guinea, and Timor-Leste) have a combined population of less than 1.5 million—make them good places for testing solutions that, if successful, could pave the way for larger-scale projects in other places.