Press Conference – Launch of the Pacific Economic Survey 2008 with the Hon Bob McMullan MP, Parliamentary Secretary for International Development Assistance

Mr Bob McMullan MP: Thank you for coming along, both to the proceedings that have just been undertaken, and to this press conference. We are happy to take your questions about the survey, and about matters arising from it. We are captive here, I guess we will have to take questions on anything else you ask us as well, but we prefer, at least in the preliminary stages, to deal with views relating to the survey and business arising from it. So are there some questions people wanted to raise?

Mr Bob Makin (Independent Newspaper): Vanuatu scored well on Tourism growth. But in February, most Air Vanuatu flights between here and Australia were highly unsubscribed. So I wondered what was reflected in that figure. It would suggest that for new small tourism investments, their viability has not yet been established. How can we tell from the report what element is actually tourists coming and going and what is investment in the sector that is maybe not assured as yet?

McMullan: Maybe the two people to my right care to make detailed comment, but the first thing I would say is some part of the meaning of all these things will emerge over the subsequent years. This is not a one-off. We are going to do this regularly, and so that the shape and meaning of some of the statistics will be more easily understood in the context of four or five years of reporting that establishes a pattern. And some issues might have been aberrations for reasons that at that time we didn’t see. So all these things for the first year, I think for this first year, need to be seen in that context. But in terms of the detail of the situation with regard to tourism here in Vanuatu, can I ask Stephen first and then we might also ask the Governor to say something about any of the economic implications of it for Vanuatu in particular.

Dr Stephen Howes (Principal Author; Chief Economist, AusAID): Tourism is a volatile industry. If you look at the numbers, I don’t think the success that Vanuatu has had in promoting tourism can be dismissed as a sort of flash in the panor as insignificant. Just looking at those numbers, tourist numbers are growing in Vanuatu, from about 50,000 arrivals in 1999, up to 80,000 last year in 2007. And that represents in the last five years, average annual growth rate of ten per cent. To be honest, I am not familiar with the February numbers that you mention. It may well be some sort of down-turn. It is a volatile business. But, I think, if you compare that with the record of the last more-than-five years, almost ten years, you do see some pretty significant growth. And what I point out also, is that that growth has occurred in the last five years and that does coincide with that period where you have seen new entry into the aviation market.

McMullan: Governor, do you have something to add from a domestic economy point of view for Vanuatu?

Mr Odo Tevi (Governor, Reserve Bank of Vanuatu): Well, the tourism sector has contributed a lot to the Vanuatu economy. It’s about 40 per cent of the GDP. The majority of the contributions from the tourism sector. Like, house for sale, the numbers keep on increasing here in Vanuatu. I think, for this year, it is still early to predict, and I think it is more of a seasonal pattern. In January, February, you will see here, a low number of tourists coming here, but it will start picking up. And, of course, like Dr Howes was saying, it is a volatile area and it depends on the world economy as well, and what’s happening in the Australia and New Zealand economies. But again, I believe Vanuatu still has a lot of growth potential and it’s not relatively developed yet as in others. We still have a lot of potential to go yet.

Makin: A large percentage of the tourism growth is related to land sales, leases for tourist developments such as small hotels. In the last three, four, five years, enormous numbers of leases and all sorts of tourist developments, tiny bungalows around the coastline that have become established, these are quite often owned by Australians who have come here, who have bought up land and are thinking of retirement in a tropical tax haven. One would like to know if one could establish from the report what exactly is the increase in tourist numbers and what is due to investment in tourism?

Howes: You mean are these people coming to Vanuatu the business people, setting up?

Makin: And, in fact from land sales, might that count as…

Howes: I think those numbers are more in hundreds. These numbers are in much more in tens of thousands, almost reaching the 100,000 mark. I think it is no way that it would just be these investors. Of course, you need both sides of the market. You need someone to supply the market. That’s a very positive aspect that you have – these people setting up. But there are genuine tourists coming to Vanuatu.

Just to give you an example of that. You get cruise visitors which are not included in the figures I mentioned. I mean, that’s also doubled in Vanuatu since 2004, reaching 86,000. And those cruise visitors are definitely not your investors setting up. So there has been a genuine tourist boom in Vanuatu. And it has a long way to go. I mean, Fiji is up at the half a million mark. I am not saying Vanuatu will reach that, but you can see the scope of tourism has still only been tapped here.

Mr Jean Gabriel: The impression that one gets, we are talking a lot about growth of opportunities, access to markets, Australia, New Zealand, New Fiji. Are we looking at connecting the region, or connecting the region to key markets such as in Australia and New Zealand?

Mr Duncan Kerr SC MP: It’s both. Could I say, what this report certainly shows is that there are going to be very substantial opportunities that grow by reason of open markets and that competition, sponsored by the opportunities that can come from outside investment, are very important.

But I think there are also opportunities for internal development of economic opportunities. One of the things not much discussed was the opportunity for developing banking services which can be facilitated through improved internal communications: mobile phones, telephony, the opportunity of opening up micro-banking services like those that have been occurring in Fiji and various other places. These create opportunities for small indigenous investments to build on the back of an external exposure to new opportunities. So I think that these things will tend to work together and ultimately, of course, the drivers that we are speaking of, to develop economic growth, are going to have to be harnessed to improve the lives and opportunities for people living in the rural and remote areas, as well as the urban centres. So this penetration will extend, and if you can get mobile phone coverage of up to 50 per cent in some countries in a relatively short period of time, that’s utterly transformative of the kind of opportunities that exist for people remote from central government. And it links the countries together internally in a way which has been tremendously difficult in the past.

So, I think that we can identify both those great opportunities of competition: exposure to external markets; but also the growth of internal markets that only could become possible because people could talk to each other, or can bank, or have access to some form of finance that just wasn’t there before. And that can only happen because of these technologies becoming more readily available.

McMullan: I agree absolutely. But on a related thing that interests me, is I think that when connectivity starts to improve, there’s going to be more economic activity within the region, which takes place less than I would have thought. And there are all sorts of reasons for that, but I think when communications and connectivity improves, it will improve within the countries and between those countries and the major markets, including Australia and New Zealand, but not just Australia and New Zealand. But I think what will follow will be more trade and engagement within the region as specialisations emerge. As economies develop, specialisations emerge, some part of this region is going to be the best at one thing or another and others will trade with them on that basis, so I think there is another layer that is going to strengthen in the years ahead.

Makin: [Question on kava and whether new Australian Government will lift ban on kava import.]

Kerr: Well, I can’t answer that question specifically. But I do know that Prime Minister Sevele of Tonga has written to our Prime Minister to indicate that he would wish that this issue be raised at the Pacific Islands Forum Leaders Meeting, and that will, of course, obviously need some examination before that, so that the Prime Minister can have a response to that communication. So there plainly will be an examination of the issue. The new government has not yet altered the position and it may not. But the letter from Prime Minister Sevele, and of course it was raised by the Prime Minister of Vanuatu when we met with him, on behalf of Vanuatu, shows we are aware of that issue. We can’t give you a clear indication as to how the policy response of the Australian Government will be when the matter is finally determined, but certainly it is an issue pressing on us by countries that have a previous historic export to Australia.

Mr Allan Simeon (VBTC): Is there a reason why – apart from the six countries that were involved in the survey – is there a significance as to why Vanuatu was chosen to host the inaugural launch?

Kerr: Because it’s a success story. I think one of the key things that Bob McMullan and I have been trying to emphasise as we travel through the Pacific is that Australia’s attention to the region is not simply to trouble spots and to places in difficulty. We want to celebrate success. And that is one of the key take-outs of today’s report. We say look, often our coverage in the media of the Pacific focuses on the difficulties. It is understandable, there are difficulties. But Vanuatu presents many elements of success and we wanted to celebrate that. We wanted to be able to say something very positive about a country that has taken the bull by the horns of some reform agendas, that has generated stronger economic growth within the region as a whole. And to say there are some lessons learned here that can be of benefit to other countries, and that we need not approach the Pacific in a framework that says all is despondency and despair. There are actually points of considerable optimism that can be built on without being naïve about the real challenges of the region as a whole.

Ms Esther Tinning (Daily Post): Can you give us your views on China’s economic involvement in the South Pacific?

McMullan: Sure. I think that China’s engagement with the region is a permanent reality. China is going to be a major country in the world and in the region for as far forward as any of us can see. So we are keen to, and will, talk to our friends in China about how we can work together more effectively in the region. But it is a global power of great significance and a regional country of great significance. It will be engaged in the region as far forward as we can see, so we need to all cooperate to make it positive in the region as it has the potential to be. In some cases, it has already been positive, and in others it has got some way to go. But I think we would expect, over the next decade or more, that Chinese engagement will be significant, growing and positive, and we look forward to cooperating with them in that task. Sometimes we have slightly different approaches to some of the issues in the region, but that’s true with every country. But we expect major cooperation and major contributions from China to the economic growth of the region – both their direct contribution as donor and participant, but also as a market. They have an enormous market, and if countries in this region identify even a small part of the Chinese, or for that matter in this region, the Japanese market, and can find a niche in those very big markets, it will be an enormous economic boost to the region.

Mr Alain Simeon: Vanuatu has experienced economic growth in four years real growth in the economy. It also experienced an inflation growth of 4.7 per cent. As we focus on developing the key sectors in the economic growth, are there measures being considered to making sure that such factors that affect people directly, in the islands, are they being considered, are there measures in place?

McMullan: That is a difficult thing for us outside of Vanuatu to comment on. I don’t know from a general macroeconomic point of view about the relationship. Dr Howes wants to make a comment, but it’s the Governor’s area more than any of us to talk about the inflation in Vanuatu. Stephen, did you want to say anything of a general point of view about the relationship?

Howes: Just one very short comment. In a sense it’s a good problem to have to deal with. It’s the problem of an overheating economy, which means there is a lot of economic activity taking place here. That’s still a challenge, you have to manage inflation but better than being in a situation of stagnation, of very low growth, and therefore you don’t have the inflation problems. On how you deal with inflation, there are those of you much better qualified to talk.

Tevi: Well, like Dr Howes was saying, it is a challenge for us. It’s a pretty good challenge in the sense we are dealing with overheating. It’s really a natural consequence of an improving economy, and also as you can see demand pressures from within the economy. And of course, oil prices have also increased over the last two years which we cannot really control. But in terms of managing inflation, I think that’s where the Reserve Bank has to look in terms of the monetary policy. We are seriously looking into that. I am not going to say what we will be doing with that but it is something that we are concerned about and will try and manage with the government.

McMullan: Thank you. Spoken like a true Central Banker. Are there any other questions? Peter, is there anything you wanted to comment on? Okay. Thank you very much. Thank you for your time and attention and we will wind up the press conference now. Thank you all.

View the Pacific Economic Survey 2008.

Media inquiries: Mr Kerr's office - 02 6277 4991