Thursday 19 Jul 2018 | 02:31 | SYDNEY
Thursday 19 Jul 2018 | 02:31 | SYDNEY

Potential in the Pacific

26 August 2011 14:58

Danielle Romanes and Michael Gaskin are interns in the Myer Foundation Melanesia Program at the Lowy Institute.

Geographically isolated, beleaguered by frequent natural disasters and restricted by minute internal markets, the Pacific region has always had to contend with extraordinary constraints on development and a corresponding lack of investment interest and economic growth. Frequent misgovernment hasn't helped, and opportunity has more often than not been squandered with resource revenue booms fueling environmental degradation, Dutch Disease, civil instability and corruption.

Thus, despite being at the receiving end of some of the largest per capita aid flows in the developing world, countries in our region have posted consistently sub-par economic growth rates (see graph below; the green line represents Pacific Islands GDP growth, while orange shows all developing countries) and many have lagged in progress on the Millennium Development Goals.

As the 42nd Pacific Islands Forum approaches, however, there is cause for cautious optimism about a turnaround. 

Of late, the Pacific region has found itself on the radar of some of the largest multinational corporations in the world, and FDI is flowing into the region from a number of unlikely corners. Investment interest abounds, with a host of multinationals engaging in a US$16 billion LNG project in PNG, Digicel (aided by the IFC) rapidly snapping up the hitherto neglected Pacific telecommunications market, and the world's largest aluminum producer Rusal busy prospecting in Fiji.

The United Arab Emirates has acquired A$1.68 billion worth of exchangeable bonds in a PNG oil project, Bollywood will film three productions in Fiji in the next twelve months, India is pouring money into Fiji's flailing coconut and sugar industries, and the Philippines, China and Malaysia are investing heavily in the development of PNG's fisheries, retail, mineral extraction, and timber industries. 

There is a lot going on, and for once it's not exclusively located in the larger states. Increasing buzz is mounting around the lucrative minerals of the Pacific Ocean floor, with Canadian, South Korean, Russian, Chinese and American mining interests pursuing potential extraction projects. Nauru has been particularly active in getting exploration going, and Tonga and the Cook Islands are preparing to follow suit. 

The opportunities for development in the Pacific go beyond mining, even for the micro-states. The Pacific's large and lucrative Exclusive Economic Zone fisheries are likely to become increasingly valuable as emerging economy demand grows while global fishery populations decline. Tourism growth potential is equally strong, with the postcard-perfect beaches of the Pacific an economic stalwart, and the growing middle class of the world's emerging economies an obvious market there to be captured, particularly that of China.

Yet converting economic potential into economic growth is often easier said than done. Resource revenues are notorious for their debilitating impact on governance and their correlation with underdevelopment. Remoteness and high input costs are prohibitive obstacles in Pacific tourism development, and in order to penetrate new markets, the Pacific Island states are going to need aggressive marketing to distinguish themselves from a myriad of global tropical getaways.

States are likewise going to need to invest heavily in capacity to reap the benefits of their fisheries – at present, foreign operators take over $1 billion worth of their tuna, while locals catch just $200 million. Sustainability is a worry for both the fishery and resource extraction industries, and increasingly also for tourism

The 42nd Pacific Islands Forum in Auckland this September is likely to address the challenge of improving upon past performance in converting comparative advantage into development, but PIF members often struggle to convert communiqués into action – Australia and New Zealand included.

With the burgeoning transformation of telecommunications in the Pacific, however, there is no reason why this debate should be restricted to ministerial meetings. Pacific Islanders are enjoying rapidly improving access to information and social media, and are engaging in lively online debates around issues of regional importance. ICT has the potential to make Pacific Islanders increasingly active and influential members of the Pacific's political sphere.

The Lowy Institute's 5 September 'Pacific Islands and the World Conference: Realising the Pacific's Potential' in Auckland will engage the private sector, civil society and governments in discussion on the various means the Pacific region can act on opportunity. The conference will draw on a large pool of regional and international talent to discuss examples of best practice in global development, and to consider the key questions we face as investment and international interest in our region intensifies: how can Pacific countries best manage windfall gains for the benefit of all citizens?  What lessons can be learned from other parts of the world? How can the Pacific's links with the global economy be leveraged for a sustainable future? 

Over the next few days, we'll be blogging on the major themes of the conference: natural resources, tourism, labour mobility, ICT connectivity, and leadership.