It’s the economy, stupid… (The Solomon Island Economy Part I)

In my first couple of months here, as I gradually learnt more and more about the Solomon Island economy, my overwhelming feeling was one of increasing pessimism about the country’s prospects. And that was from a starting point that I like to think of as ‘realistic’ (i.e. I’ve been to a few developing countries and have seen all too well the difficulties of achieving growth, development and poverty reduction). More recently, however, this negative outlook regarding the country’s future has softened somewhat. Why is this, I wonder to myself? There are a couple of concrete reasons for some optimism, but in the main I think it comes down to something more subjective and less rational. Being surrounded by such lovely people, and with consciousness of the fragile peace we inhabit highly evident in conversations and newspaper headlines everyday, the consequences of economic stagnation or deterioration do not bear thinking about. And so I suspect it is simply hope that gives me cause for optimism. Anyway, I’ll give you an overview of economic activities here. It shouldn’t take long!

Apart from subsistence production that feeds 80% of the population, production here is basically limited to five primary commodity exports: fish, cocoa, copra, palm oil and logs. (Gold mining is also expected to commence in 2008). The ‘fishing sector’ comprises a grand total of two fishing companies. One of these catches around 70% of the total catch, most of which it freezes and exports to Asia. The other is a loss-making State-Owned-Enterprise which processes tuna for export in cans, including, once-upon-a-time, to good old Sainsbury’s. The fishing industry is still relatively tiny however, and most of the big boats you see in Solomon waters are foreign vessels that freeze their catch on board and head off back to Asia without even coming ashore.

Cocoa and copra are the only real source of income for the rural population, but production levels are still relatively tiny. The British gobblers of Cadbury’s know only too well the significance of cocoa, but copra is probably somewhat more of a mystery. Copra is made by scraping and then drying the flesh of old (fallen) coconuts, and is a laborious process for which producers receive a pittance (as a rule the further you are from Honiara, the less you receive from your labour). One short piece of research I’m going to try to do soon is looking at the relationship between international prices for copra (and cocoa) and the export and domestic price received by exporters and ‘farmers’. Since copra production in particular is very much a supplementary source of income rather than being necessary for survival, it will also be interesting to examine how production levels respond to changes in the domestic price. Copra is largely exported as a raw product, but is also used to make coconut oil for use in cosmetics. An increasing amount of coconut oil is being produced in Honiara however, which is a particularly interesting development since it can be mixed with a small amount of diesel to make a bio-fuel that can be used in standard generators. A third of all imports here are for fuel, and reducing this dependency would help to reduce our trade deficit, which in the last couple of years has been growing and growing.

I have left the two biggies till last. These two are the antithesis of each other; the classic good guy, bad guy. Palm Oil is the 2006 poster-child of the Solomons, as this year production finally resumed after a halt of around 8 years due to the ‘tensions’. Only one company is operating so far, but two other plantations are under negotiation. Once the (considerable) challenge of establishing agreeable royalties to landowners has been undertaken, palm oil is fairly straightforward to produce, and seemingly has a lot of potential. It is labour-intensive so generates large numbers of jobs (around 2,500 already even though the current operator GPPOL hasn’t reached anywhere close to full capacity), but also offers scope for landowners to operate their own small plantations supplying the raw product (palm nuts) to the mill operator. Unlike logging there are no unpleasant side-effects, in fact GPPOL generates all the power it requires by burning the palm husks, and is even about to start exporting surplus electricity to Gold Ridge Mining Company. International demand is strong, prices are high and rising and people are even beginning to whisper that palm oil might be a replacement for the logging sector.

They will have to be very quick though. ‘Unsustainable’ is not a strong enough word to describe what is happening to the country’s forests. In the lush abundance of the land around Honiara, and in fact much of the coastal areas in the Solomons, it easy to be blissfully unaware of what is happening. But the statistics say it all. A recent survey estimated that the stock of harvestable forest will be exhausted by 2010 if production (though of course it should really be called destruction) continues at 1 million cubic metres per year. In 2006 production was over 1.1 million cubic metres, and this year we have forecast it will increase by another 12%. The logging crash is going to hit soon, and it’s going to hit hard - in particular, government revenue will take a severe smack in the nose. More worrying for us at the Central Bank, logging is the source of 70% of all export earnings and a sudden halt in logging in a couple of years will leave a gaping whole in the trade balance, and us scrambling to maintain the foreign reserves. I could spit bile about the logging industry for several trees-worth of pages, and perhaps I will at a later date. But to end on a more positive note, in a few isolated and small-scale places forestry plantations, managed by villages, offer a potential sustainable future for logging in the country.

And that, pretty much is that. Manufacturing (apart from tuna, booze and fags) is pretty much non-existent. With the huge numbers of cheap Chinese goods flooding the market along with food products from Fiji and Papua New Guinea, developing a manufacturing industry (let alone one capable of export) will be a tough task. Tourism is also miniscule; in fact the prospective arrival of les Barones is expected to double the monthly visitor figures. The country is too far from Europe, there are not enough fancy hotels and golf courses for the Americans and Japanese, and the Aussies and Kiwis are scared off by Embassy Travel Advice which places the country on the same level of alert as Iran. The recent Tsunami, though with little immediate consequences for the economy, will do little to help us attract greater numbers in future. On top of all this is the knowledge that the vast volumes (in per capita terms at least) of assistance pouring into the country as a result of the RAMSI presence will not be infinite.

It is anyone’s guess as to where the country and economy will be in 50 years - predicting the situation even five years from now is impossible. But as I get increasingly absorbed in the work, and learn more and more about the economy, I feel myself becoming entwined with the country’s fate. In a year and a half there’ll be just as many questions about the future as we ponder now, but hopefully in that time we’ll see a fair few answers unfold too.