The potholed road to prosperity

Vanuatu’s situation is improving, but its next steps could make or break the economy

Originally published on Pacific Politics

Vanuatu’s budget books, released earlier this month, reveal a fairly healthy economy. When you look at the broad strokes, that is. But they are far less revealing than they should be about the road ahead for the tiny island nation.

Overall, the economic news is okay. Revenues have improved significantly, largely because customs and inland revenue has tightened up its processes. Businesses are now closer to paying what they actually owe. The world economy is improving, and so is Vanuatu’s. Growth is expected to increase, from 3.3% in 2013 to 5.1% in 2014, and even higher in 2015. Inflation will remain low, likely less than 3% in the coming year. The government is taking on USD 5 million in new debt in order to contribute to a number of largely donor-funded infrastructure projects.

But dig a little deeper, and things appear less rosy. The budget does little to reflect the government’s goal of ‘a Just, an Educated, Healthy and Wealthy Vanuatu’. Overspending on scholarships in 2013 has not only left the department of education constrained at the very moment when it should be investing heavily in teachers, schools and educational resources, it’s diverted money from other areas as well.

In health, things don’t look so good either. Whatever we may think about the department’s recent decision to focus on medicine to the exclusion of other activities, it’s clear that much could be done to improve the ministry’s policy-making and implementation processes. A recent outbreak of dengue in Port Vila has caught it flat-footed. The cost in terms of medical care and, potentially, in lives, will only add to the nation’s burden.

Vanuatu managed to get through the recent global economic downturn with less damage than some of its neighbours. Some part of this is due to the government’s efforts in recent years to liberalise certain sectors, to improve conditions for businesses large and small, and to improve its own administrative processes as well. The result is that the country is a better place to do business than it was.

But we’re facing a welter of challenges still. The 2010 census contains stark evidence that the country is becoming increasingly urbanised. When peri-urban neighbourhoods like those surrounding the Port Vila and Luganville municipalities are factored in, we see that the old 80/20% rural/urban split no longer holds. Over the last few years, falling commodity prices and lack of opportunity have drawn more and more young adults into our towns. Back in 2010, the division was closer to 70/30, and based on observation alone, it’s clear that this trend is continuing at a rapid pace.

Vanuatu has to grow to survive. A rapidly rising, increasingly urbanised population requires additional investment in health and education facilities and services, more robust utilities, better roads and affordable transport over an increasingly large area. Even in the islands, where subsistence agriculture provides essential food security, more cash is needed to improve living conditions. School fee subsidies provide much needed relief to families throughout the country, but enrolment increased more in rural areas than anywhere else. And if village parents want to see their children educated beyond the basics, they need to find the means to support their children’s continuing education, usually in a boarding school at some distance from the village.

Mobile, and soon internet, charges represent new costs for all Ni Vanuatu. Since 2008, the expense has been met largely by increased economic activity rather than the reallocation of existing money. But sustaining the use of modern technology –a necessity for rural growers and urban dwellers alike– will require additional exertions. The government is doing its part, with an aggressive ‘play or pay’ universal access policy, which requires all Internet providers, large or small, either to submit plans to support the goal of broadband for 98% of the population by 2018, or to face a levy of up to 4% of profits. But more infrastructure is required, and one way or another, that requires private sector investment, which in turn requires additional consumer uptake.

The country, in short, is facing a bootstrapping problem. We’ve raised ourselves up sufficiently now that were we to fall back to earth, the drop could prove fatal. The only choice left to us, then, is to keep lifting. But how?

Leaders and strategic planners are well aware of the challenge. To meet it, they’ve laid out an ambitious infrastructure investment agenda. USD 20 million to shore up Port Vila’s decrepit road system. USD 70 million more in improvements to Port Vila wharf. Additional millions to improve the Seafront area, making it more attractive to tourists, residents and businesses alike. Money to subsidise inter-island shipping and to improve and re-equip the Luganville wharf. A new privately-funded airport is in the pipeline, and a USD 30 million submarine cable is ready to begin commercial service. Speculation abounds concerning a raft of other infrastructure schemes, including road-building in Tanna, Malekula, Santo and Ambrym.

Such plans are commendable and necessary. But we need to sound two notes of caution:

  1. Such work is necessary but not sufficient to deal with Vanuatu’s development issues. Stretched though we are, we need figure out how to do more than one thing at a time. Our health and education services need urgent attention.
  2. Infrastructure projects are hard. Even the best-managed projects face delays and budget overruns. And with costs this high, we’ll only get one swing at the bat. Whatever the results, we’ll be living with them for a generation.

The ministry of finance and the reserve bank have done yeoman service in past years in charting a sober, conservative financial course for the country. Most of their work, of necessity, is quiet slogging whose importance is too often overlooked. They have done much to keep the worst from happening. Likewise, the decision to significantly strengthen strategic planning and donor coordination capacity in the prime minister’s office is bearing fruit as well. There’s much more still to be done, and project management is still a significant bottleneck, but it’s fair to say that things are better than they were.

Below that level, though, huge gaps still exist. While PMO and Treasury can do much to assist, they simply cannot provide planning, budgeting and implementation services to each and every department. Resource constraints are Vanuatu’s lot in life. With such a tiny resource pool, there will always be situations where a single person leaving can delay a project for months.

The lack of capacity to effectively implement policies and plans is probably the single greatest threat to the successful completion of the government’s ambitious agenda. Vanuatu’s economic growth forecasts have been consistently wrong throughout the slow recovery. This is largely due to delays caused by lack of human resources and robust management processes.

To top it off, the government’s policy, planning and budgeting processes are not integrated to the degree they need to be. Ministerial fiat still threatens to destabilise what should be a careful deliberative process. We understand why politicians fight hard to see their visions realised in the short time that any minister has in one portfolio, but such impatience reflects a misunderstanding of just what policy is. A policy made properly today is a promise to see the minister’s wishes respected in the years to come. In short, policy stability should be possible even when political stability isn’t.

Faced with such severe constraints, and with the relative immensity of the work about to begin, prudence, deliberation and more than a modicum of luck will be necessary in order to see our current slate of projects to completion. Add to that the chronic weakness in health and education that have dangerously undermined the country’s self-sufficiency, and it becomes clear that we’ll have to punch well above our weight just to get by.

The last thing we need, therefore, is for well-intentioned but ill-considered projects to be thrown willy-nilly into our collective lap. There is admittedly a vast amount of work to be done. And just as clearly, different people will have different ideas about what needs doing first. But we, of all nations, can’t afford to charge blindly ahead without first considering the cost.