Time for business to power development in the islands

By Dev Nadkarni

Pacific island governments have never seriously looked at business and trade as drivers of development in all these decades. Thin populations, long distances from trading partners and lack of infrastructure, among other things, have been the all too obvious reasons pointed out for this continuing lacuna.

The emphasis, instead, has almost exclusively been to rely on aid and grants for funding development activity, which time and again throws up the aid versus trade debate in academic circles.

In a recent Pacific Institute of Public Policy discussion paper on the subject the institute’s executive director Derek Brien says, “most people equate aid with charity, but the reality is far more complex than that. The aid industry now spans so many disciplines, that it is impossible to determine its overall success or failure without delving further into the humanitarian, political, economic and social dimensions. Some countries, for example, use aid money to influence solidarity or security; these are rational foreign policy objectives but it is not aid. Let’s call it for what it is.”

While a relook at the whole idea of aid is long overdue and needs a whole new approach to accommodate new realities to be effective, it is also equally important to look at other drivers of development like business and enhance their role by boosting both investment avenues and local and regional capacity toward encouraging private business.

Hitherto there have been few government incentives for starting businesses in the private sector. In fact there was not even an initiative to promote business regionally until just three or four years ago when the Pacific Islands Public Sector Organisation (PIPSO) was formed.

Not that the regional governments haven’t realised this. Speaking at last month’s PIPSO workshop in Fiji, Secretary General of the Pacific Forum Tuiloma Neroni Slade said, “Under the Cairns Compact on Strengthening Development Coordination in the Pacific mandated by Forum Leaders last year, there is an expressed interest by Forum Leaders to consult and dialogue with the private sector, and a process is currently being considered to facilitate this.”

A beginning has been made but the idea needs more traction. The environment in the islands needs to be more business friendly. The costs of doing business – something that was also discussed at the workshop – need to come down for overseas investors to be attracted.

Encouragingly, deregulation in the telecommunications sector and the introduction of multiple service providers particularly in the mobile sector in several islands as well as changes in global aviation trends have considerably driven down the costs of telecommunication and air transportation across the region, which indeed is a welcome development for encouraging business.

Perhaps the biggest promise for business development in the region though is poised to come from the natural resources sector as the Melanesian islands have already discovered. The forthcoming extended boundaries of the continental shelf of each of the island nations thanks to changes in the United Nations Law of the Sea will bring vast swathes of the open ocean and the seafloor beneath under the sovereign purview of respective island affording them the possibilities of exploration and exploitation of mineral resources. Prospecting has begun in right earnest in several countries in recent years and mining and extraction is bound to follow soon.

Business has traditionally looked at the islands almost exclusively from the point of view of their tourism and hospitality sector potential. It must now look at them afresh from the angles of information technology services – especially given their prime location with respect to the time zones – and the natural resources sector. Both these have the capacity to boost regional investment greatly.

It is good that this new latent business potential of the islands region is now being recognised and showcased to the outside world by private agencies that have spotted it and see big possibilities for regional investment in multiple sectors.

Perhaps the biggest such initiative to date will kick off in Sydney next month over two days on August 12 and 13. The inaugural Pacific Islands Investment Summit is hosting an impressive number and variety of business leaders, investors, bankers, airline specialists, hospitality entrepreneurs, telecommunications specialists, business consultants besides government officials and a range of other delegates from all over the Asia Pacific region to participate in the event.

The event has received top billing in Australian government circles with the keynote address being delivered by Federal Minister for Trade Simon Crean who said, “Trade helps underpin sustainable economic growth, and developing countries require assistance to take full advantage of the benefits of trade liberalisation.”

The event organisers have roped in a range of presenters and speakers from across the Asia Pacific region including government investment officials from the islands. This summit hopes to examine events and policies that will affect investment decisions in the region in the coming economic cycle, including trade negotiations, political stability and the growing trend of Asian investment in the region – which indeed is already a reality in many of the island countries.

It is hoped that the event will help focus the interests of wider Asia Pacific regional investors on the growing possibilities in the islands. Papua New Guinea’s LNG project and the estimated US$ 15 billion United States military base in Guam – the largest infrastructure project ever in the region – have already made world headlines and are attracting a slew of investors from across the globe.

Meaningful investment with infrastructure to match, a friendlier regulatory environment that optimises the costs of doing business by rationalising and simplifying compliance costs and licencing regimes besides timely local capacity building are something that regional governments will have to address to meet any big private investment initiatives half way.

Meanwhile, the age old problems of the tyranny of distance, which has been the patent excuse of governments for explaining away the lack of investment in the islands will change solely because of commercial forces. Advances in transport and digital connectivity are bound to slowly but surely transform the hitherto lacklustre business climate of the region into a more interesting and competitive one in the islands. That indeed would be the ideal and welcome alternative to aid dependent development.

First appeared in Islands Business, July 2010