Solomon Islands: from bust to boom [economic update]


Less than a decade after its economy lay in ruins, the Solomon Islands is in remarkably good shape.

Credit: Solomon Islands Visitors Bureau/Brad Malyon

Credit: Solomon Islands Visitors Bureau/Brad Malyon

The Solomon Islands has undergone an economic transformation over the past decade. Its GDP has more than doubled since 2003, with its Central Bank estimating 2011 GDP growth at 8.2%, up from 7.2% a year earlier.

Meanwhile, the country also achieved its first trade surplus in 2011 since 2004—a major milestone indicating the economy has bounced back from the effects of the global financial crisis.

This stronger economic performance has been reflected in employment growth. While formal employment in a country heavily reliant on subsistence farming remains very low (around 10%), the Solomon Islands National Provident Fund reporting a 10% increase in membership in 2010/11. Furthermore, the Solomon Islands Government’s fiscal position is solid and strengthening, with its budget in surplus and cash reserves growing.

Solomon Islands in Brief

  • Area 28,900 sq km
  • Population 550,000 (2011 est.)
  • Capital city Honiara (c. 50,000)
  • Official languages Pijin, English
  • People Melanesian 95%, Polynesian, Micronesian, European & Chinese 5%
  • GDP US$788 million (IMF est. 2011)
  • Inflation 8.2% (August 2011)
  • Exchange rate SBD$1.00 (Solomon Islands dollar) = AU$0.130/US$0.135 (January 2012)
  • Major export markets China (59.6%), South Korea (3.4%), Thailand (3.4%)
  • Major import markets Australia (28.7%), Singapore (21.4%), China (7.8%), New Zealand (6%)
  • Head of State Sir Frank Utu Ofagioro Kabui (Governor-General)
  • Head of Government The Hon. Gordon Darcy Lilo (Prime Minister)
  • Distances by air Brisbane (3h 10m)
  • World Bank Ease of Doing Business ranking 74 of 183 (2012)

At the same time, a raft of recent business-focused reforms—online business registration, separation of the land registry from the business and movable property registries, and strengthened investor protections under the 2009 Companies Act—has led the World Bank to nominate the Solomons as one of the top dozen performers globally in its 2012 Doing Business survey. (The Melanesian nation rose seven places in the bank’s rankings, which measure ease of doing business, in just one year).

Trigger for mining boom

This economic rebuilding has been underpinned by the presence of the Regional Assistance Mission to the Solomon Islands (RAMSI) that arrived in 2003 to bring stability to the nation after five damaging years of civil unrest, commonly referred to as ‘the tensions’. With RAMSI pledging to remain as long as it is needed (see page 8 for an interview with its Special Coordinator) there is every reason to believe current economic progress will be maintained. GDP growth in 2012 is projected at 6.6%.

The recently-completed Hyundai Mall in Honiara

March 2011 saw the highly symbolic re-opening of the country’s only mine, Gold Ridge. Forced to shut during the tensions of 2000, Gold Ridge is not only a major enterprise in its own right but has also become something of a bellwether for the local economy. Many believe its revival could provide the trigger for a full-blown mining boom in a country rich in mineral wealth.

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Some experts believe that nickel alone could develop into a multi-billion dollar industry over the coming years, with large untapped deposits of gold and copper also currently the subject of energetic prospecting.

Structure of incentives

The FlySolomons Running Festival, which includes a marathon, is a popular annual event. Credit: FlySolomons

The FlySolomons Running Festival, which includes a marathon, is a popular annual event. Credit: FlySolomons

Inevitably, the country still faces major challenges, including constraints to private sector development.

‘Government action is needed to improve infrastructure … reform state-owned enterprises, simplify licensing and tax systems and strengthen land reform,’ noted Eugene Zhukov, Regional Director, Asian Development Bank, at the April 2011 launch of its flagship Asian Development Outlook 2011 report.

Almost all land outside Honiara is held communally, with no official records of title. For a would-be investor who wishes to develop a piece of land, this makes life very difficult (although not impossible, as Guadalcanal Plains Palm Oil has demonstrated). With tangible progress in the area of state-owned enterprise reform (‘we don’t have blackouts every day anymore’, as one executive put it), the overwhelming priority for the business leaders Business Advantage spoke to was for comprehensive tax reform, including a formal structure of incentives for foreign investors rather than the ad hoc system currently in place.

Under current legislation, the tariffs on imported products or inputs can be punitive (for example, on hardware in the ICT industry), there is no consistent rate of sales tax and the personal tax rate thresholds are demoralisingly low. There is every reason to hope this will change soon, given that the newly appointed Minister of Finance in the Gordon Darcy Lilo Government that came to office in November 2011 is none other than Rick Houenipwela, the highly respected former Governor of the Central Bank.

Riding in the slipstream

The Solomon Islands' new chancery in Canberra, Australia. Credit: Solomon Islands High Commission

The Solomon Islands’ new chancery in Canberra, Australia. Credit: Solomon Islands High Commission

The Solomons also has some way to go to win back the full confidence of the international business community. Tony Koraua, President of the Solomon Islands Chamber of Commerce, told a business forum in Australia in October 2011:

‘Despite the growth we are experiencing, full recognition has not yet been given to the Solomon Islands as an investment destination.’

At least the recent deluge of investment from nearby Papua New Guinea, the nation most akin to the Solomons, is a positive sign. The Solomons may not be growing quite as fast as its larger neighbour, but it is evidently riding in its slipstream rather than trailing in its wake.

First published in Business Advantage Solomon Islands 2012/13

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