Introduction
6.1
While a range of barriers and impediments to Australia activating greater trade and investment with Pacific island countries were highlighted to the Sub-Committee at public hearings and in submissions, none were more damaging to many Pacific economies than the impact of the COVID-19 pandemic during 2020 and 2021. An ongoing challenge for Australia will be helping the region’s communities and smaller economies more dependent on international tourism and their workers sending remittances home from Australia and New Zealand overcome the economic costs from the continued strict travel restrictions. How the pandemic is impacting on Pacific trade and some islands is outlined.
6.2
Beyond the economic ravages of COVID-19, this chapter also details the barriers to trade with Australia for Pacific agricultural exporters such as navigating its biosecurity and quarantine laws and also phytosanitary certification requirements. Other hurdles identified are the remoteness of many islands, supply chain issues, unreliable power, transport and communications infrastructure, and the poor harmonisation of standards. Other risks to doing business and investment in the Pacific included the region’s vulnerability to climate change, poor governance issues and how the customary ownership of land can curtail investment.
The impact of COVID-19 pandemic on Pacific trade
6.3
The longer-term trade and investment implications of the Covid-19 pandemic for the Pacific Islands remains to be seen, according to the Institute for International Trade (IIT).
…but the short to medium term negative impacts on traditional revenue sources particularly tourism, healthcare, and labour remittances are already being felt widely across the Pacific. Most Pacific Islands are highly dependent on tourism, for example in Fiji, where tourism comprises 17 per cent of GDP, Samoa (25 per cent), Vanuatu (40 per cent), the Cook Islands (73 per cent) and Tonga (11 per cent).
6.4
Emeritus Professor Ron Duncan AO was dismayed by how very destructive the COVID-19 pandemic had been in terms of the tourism, airlines and economic development in the Pacific.
You have now tourist numbers at virtually zero since April and as a result airlines virtually not working. Unfortunately you’ve had a number of bad decisions by the Pacific countries with regard to airlines. Samoa cancelled its arrangement with Virgin and instead purchased a Boeing 737 MAX, which is now sitting in the desert somewhere. As well as that, China funded a new international airport in Samoa. We don’t know the arrangements for the funding there. Kiribati purchased two new aeroplanes to start an airline, and of course there’s no revenue being generated there. Air Vanuatu, Nauru Airlines and Solomon Airlines are all in a bad financial situation. These bad decisions are only compounding the growing public debt problem that all of them are facing. Fiji Airways, the most important airline in the Pacific, is mostly grounded. It has laid off 700 staff and secured a government guaranteed loan of 50 million from the Asian Development Bank in an attempt to survive the crisis.
6.5
The IIT also outlined the World Bank’s list of additional COVID-19 risks beyond public health facing Pacific nations:
Commercial fishing may be reduced owing to travel restrictions;
Fish exports may be affected by a global economic slowdown;
Construction and infrastructure projects may be affected by availability of labour and materials;
Remittances from Pacific nationals working abroad will slump;
Slower global growth may impact commodity prices and resources exports; and
Global equity market declines may hit investment earnings of sovereign wealth funds, which comprise significant sources of government revenue in Kiribati for example.
6.6
The IIT recalled on April 2020, Tropical Cyclone Harold ripped through Vanuatu, Fiji and Tonga reminding Australia also of the ‘ongoing vulnerability of the Pacific to climate change and natural disasters’.
These events and the likely long term negative impacts of the coronavirus pandemic, further reinforce the importance of strong, transparent and predictable trade and investment relations with the Pacific and the very important role Australia can play in this equation, both through its trading relations but also through its Aid for Trade program.
6.7
The Managing Director of a Tasmanian government consulting firm Entura focused on delivering renewable energy, water management and climate-resilient infrastructure, Ms Tammy Chu, also outlined the extra challenges on Pacific island countries and Entura from the COVID-19 pandemic.
…we’ve obviously seen the impacts of COVID-19 on our Pacific neighbours, and that has placed even greater stress on their health and economies. The direct impacts of COVID on our business include travel restrictions, quarantine requirements and delays in projects as attention is placed on the vulnerability of the health systems.
We know that, in addition to COVID-19, the Pacific is facing urgent challenges, and those challenges include the escalating climate change impacts, the need for sustainable electrification and potable water infrastructure development, and ‘build back better’, which covers resilience to natural disasters, especially since the recent cyclone, Cyclone Harold.
Samoa
6.8
Her Excellency Ms Hinauri Petana, High Commissioner in Australia for the Independent State of Samoa outlined her country has suffered the economic consequences of the global pandemic despite remaining COVID-19 free by late 2020.
This pandemic has certainly played havoc with every economy on the globe. The fact that 10 countries out of the 12 that are COVID-free, like Samoa, doesn’t make it any easier, but the fact is that we are a price-taker. There are also the constraints at the moment in terms of movement of people, with regard to the impact on tourism, and, as well as that, our exports. It brings to mind how we could go forward in terms of the new norm that we are facing in activating trade and investment.
Solomon Islands
6.9
Solomon Islands High Commissioner His Excellency Mr Robert Sisilo welcomed that as of late 2020 the Solomon Islands was one of the few countries that is still COVID-19-free but not without a toll on its economy.
We closed our ports and airports when the WHO declared COVID-19 a pandemic in mid-March. But despite closing our borders, we continue to work very closely with our development partners, who unfailingly continue to support our efforts to remain COVID-19-free. Australia, New Zealand, the People’s Republic of China and Indonesia have committed more than 100 million Solomon Island dollars to fund our fight against COVID-19. On top of that, Australia committed A$8 million to support the health sector. It also provided an additional 25,000 items of personal protection equipment and 1,000 RNA extraction kits.
6.10
High Commissioner Sisilo compared COVID-19 is like a ‘black cloud that has descended on earth, bringing death and destruction’.
And like every black cloud, it has a silver lining. For us it has brought Solomon Islands closer than ever to our development partners. Australia’s recent assurance and support of COVAX AMC to improve access for Solomon Islands and other Pacific countries to safe, effective and affordable COVID-19 vaccines is testimony of this silver lining.
But COVID-19 is not just about our health. The measures we impose to keep the country COVID-19-free has a significant economic impact domestically. Logs, our main export, and the revenue generated from them were already declining, even before COVID-19 was declared a pandemic. But with COVID-19 the economic contraction on businesses and households just went from bad to worse.
Fiji
6.11
President of the Australia Fiji Business Council, Ms Allison Haworth West, who is also the owner of Captain Cook Cruises, an Australian Fiji business with a Fijian partner, alerted a parliamentary roundtable to how hard Fiji’s economy had been hit by the COVID-19 pandemic.
Frankly, the situation in Fiji is dire. I have to be direct and say: if the Australian government doesn’t take a more proactive role now to help Fiji through this COVID period, it will be catastrophic, keeping in mind that if Australia doesn’t act, other governments will fill that void. This is a moment to step up—pardon the use of that term—to make up for the diplomatic losses of the past and make a strong and supportive impact. Fiji needs help, guidance and support, and if it doesn’t come from us it’ll come from somewhere else.
6.12
Ms Haworth West described the pandemic as an ‘economic and humanitarian crisis’ for Fiji.
Tourism is the main pillar of the economy and it was shut off a week after the first COVID case. Forty percent of the population are now directly out of work—and plus, plus with all the linked jobs and industries. That is multiplied by the fact that multiple family members are often supported by one income earner there.
6.13
Speaking from Captain Cook Cruises’ own perspective, when Fiji’s borders closed in 2020, it had to lay off all of its workforce, apart from a small caretaker crew.
We’ve been able to start a small business for locals but it barely touches the sides and our employees are out of work. We’ve helped them manage a drip feed of their holiday pay, which for most of them is gone now. They’re accessing superannuation. We just did a fundraiser with a couple of other resorts and issued 1,000 hospitality worker families with food vouchers. It’s desperate times.
6.14
As background, Ms Haworth West outlined normally 250,000 Australians visit Fiji a year.
Tourists have disappeared, but also business travellers and their economic impact has disappeared. In the latest results for the year, to the month of September, Fiji received 1,005 visitors, versus 81,354 in 2019. Of those only 183 arrived by air. The rest arrived by sea. VAT collections were reduced by 41.2 per cent in the year to September, according to the Reserve Bank of Fiji. All this is in the context of only 32 cases [of COVID-19] and no community transmission in five months.
6.15
Besides tourism revenues, Mr Satish Chand expected COVID-19 to also impact on Fiji’s remittances.
For 2019 there were half a billion Fijian dollars of remittances. That translates to roughly A$300 million. The remittances come from all over the world. Fijians have been going abroad for a while; therefore, the flow is continuing. Some of this is from peacekeeping, which has been happening for decades now. But then there are rugby players in Australia, who are paid handsomely well, fortunately. So I think, in terms of the drop in remittances, the Fijian story is perhaps not as stark as for the others.
6.16
Ms Haworth West warned how the Australian government responds during the coming months will define the trade relationship for many years to come.
The Fiji government is already having to seek foreign assistance and will continue to do so. As a business council we want to make sure that comes from Australia, not from our competitive markets.
New Caledonia
6.17
As a result of the pandemic, New Caledonia’s financial indicators deteriorated sharply in 2020, according to its government. New Caledonia’s GDP in 2020 is expected to fall by 5 per cent, with a 3 per cent decline in employment.
6.18
Considering New Caledonia’s status as a French Overseas Territory, France and Europe have granted support of €240 million, which has made it possible for the government to finance crisis management measures such as quarantine, short-time working, and compensation for tax revenue shortfalls.
The tourism sector is strongly and durably impacted by the health crisis, even if a refocusing of the promotion of products and activities aimed at local tourism has helped to mitigate the shock.
6.19
In the air transport sector, the operating losses of the international airline company (Aircalin) and the two domestic companies are very challenging.
As a result, the airport platforms and their subcontractors are under activity, not operating at 100 per cent, awaiting the resumption of international flights planned for April 2021.
6.20
The maritime sector has been at a standstill, according to the government, since January 2020.
The service providers in charge of the reception of the liners of the companies Carnival Australia and Royal Caribean are suffering heavy losses because nearly 350,000 cruise passengers, mainly Australian, visited New Caledonia in 2019, through the 400 calls made in the ports of Noumea, the Isle of Pines, Lifou and Maré.
6.21
The New Caledonia Government conceded that the islands communities that have organised themselves to structure their activities to ‘welcome day cruisers are finding it difficult to find new economic opportunities’.
6.22
The mining sector in New Caledonia is dominated by the production of high quality nickel and cobalt (301,000 gross tonnes in 2019) for the international market. According to the government the COVID crisis has had an impact on the prices of these two minerals and therefore on mining activities in New Caledonia.
Vanuatu
6.23
High Commissioner for Vanuatu His Excellency Mr Samson Vilvil Fare outlined during 2020 that inbound tourisms had stopped.
Obviously, with the COVID-19 pandemic, we have no more tourists coming into the country.
6.24
COVID-19 restrictions has also impacted on the high numbers of seasonal workers from Vanuatu coming to Australia, except for a pilot program, according to High Commissioner Vilvil Fare.
We really welcome Australia’s move, with a pilot program, to bring in workers from Vanuatu to the Northern Territory, because I think from that we will be able to learn ways that, under COVID-19, we can bring our seasonal workers back into our country. We look forward to Australia sharing the learnings out of the Northern Territory on how it goes with the 160 or 170 workers there.
6.25
There is work going on managing tourism recovery in Vanuatu from COVID-19 according to Dr Tess Newton Cain, the Project Lead at the Pacific Hub, Griffith Asia Institute.
That includes work around ensuring that businesses understand requirements around COVID-safe practices, whether it’s as a tour operator or a hotel or the airline, and that is certainly ongoing. There’s a lot of input from the private sector into that process, through the COVID tourism task force.
6.26
Dr Newton Cain believed the big issue for the government will be around managing community anxiety about people coming from countries where COVID is still present, and that would still include Australia.
There’s a lot of community anxiety around repatriation of Vanuatu’s own people. There’s community anxiety associated with people moving between Vanuatu and Australia for seasonal work opportunities. All of those things are happening…but there will be an ongoing need to manage the issue of community anxiety. Tourism, particularly the sort of tourism that occurs in Vanuatu, would bring with it a number of high-angst conversations around what does this mean and where will the tourists be? Who will be interacting with them, and what does that mean? Obviously, for Pacific governments, their first priority is to safeguard the health and wellbeing of their communities.
Navigating Australian biosecurity and quarantine laws
6.27
Dr Wesley Morgan from the Griffith Asia Institute highlighted navigating Australia’s quarantine laws and subsequent delays as one of the biggest challenges faced by Pacific island exporters, especially of tropical fruits.
With regard to agriculture the issues are around quarantine. For example, people have previously talked about Australia having a similar requirement in Queensland to Fiji, but that this has meant partly that there’s been a bit of a go-slow on assessing specific products for entry into Australian markets—for tropical fruits, tropical crops. I think it’s about looking at more resources for and expediting the assessment of access to Australia for Pacific products. There are things like ginger from Fiji. It’s a very high quality world-class product that consumers love, including in Australian biscuits.
6.28
Dr Morgan believed rather than trying to get Fiji join PACER Plus the Australian Government should focus more attention on helping Fijian food exporters understand and clear Australia’s quarantine laws.
6.29
The Whitlam Institute at Western Sydney University called for Australia to encourage greater trade by prioritising products from the Pacific for regulatory and administrative processes, such as biosecurity approval, to get them into Australian markets.
6.30
The Solomon Islands Government submitted the challenges its agricultural exports face.
Despite a high potential for development of agriculture sector produce for exports overseas, particularly to nearby markets such as Australia, the ability meet biosecurity standards continues to be an inhibition. The need for fumigation facilities both for agriculture and agroforestry produce is constant.
6.31
Department of Agriculture, Water and the Environment expected the greater trade and investment and subsequent ‘increases in the transit of goods, passengers and mail intensifies biosecurity challenges for both Australia and Pacific island countries’ but can be supported by investment in systems, training, technical capacity building and infrastructure.
Australia’s electronic phytosanitary certification system
6.32
The Agriculture Department shared it was working directly with Samoa as a pilot country to implement its new ‘electronic phytosanitary certification system with plans to soon introduce Fiji, PNG, Cook Islands and the Marshall Islands to this new trade documentation system’.
Modern agricultural trade is moving towards increased use of electronic certification to provide a streamlined government to government document transfer which is safer, cheaper and more efficient. The technological capacity of Pacific island countries is mixed and is a potential barrier to participation in modern agricultural trading systems.
Veterinary capacity of Pacific island countries
6.33
The Agriculture Department acknowledge a shortage of veterinary services in Pacific island countries was a significant impediment to trade and investment.
This has resulted in insufficient government oversight or control programs and constrained capacity to implement guidelines for international animal health reporting obligations. For example, a lack of resources and surveillance systems has prevented Pacific island countries from achieving ‘negligible risk status’ for bovine spongiform encephalopathy (BSE - mad cow disease) despite a history of zero BSE detections in the Pacific.
6.34
The Agriculture Department believed helping more Pacific Islanders to become vets would bolster Pacific government veterinary services while also reducing the biosecurity risks to Australia.
Australia could help further strengthen government veterinary services in the Pacific (including laboratory capacity) through additional scholarships to Australian universities, secondments, twinning or other training programs.
The Pacific’s challenging business environment
6.35
Indra noted many Pacific island countries face challenges with regards to ‘corruption, professionalism, and capability and capacity developments that negatively affect their ease of doing business and their ability to attract investment’.
6.36
While Indra applauded the Australian Government’s efforts to work with PICs on improving capacity in these areas, it believed this cooperation could be ‘stepped up in an effort to help PICs build their own capacity’.
6.37
Indra outlined how the project structures with multilateral financing agencies such as the World Bank and the Asian Development Bank, as well as Australian and foreign aid programs, provide their ‘own challenges to deepening trade and investment across the region’.
These challenges include:
Complex and lengthy tendering processes;
Inflexible contractual terms and conditions that are better suited to large civil works projects than systems technology projects;
A focus on face-value price over the most appropriate and sustainable solutions;
A lack of preference given to local, experienced suppliers; and
Long delays in payments, resulting in serious cash-flow issues for businesses.
Inflexible rules for funding projects can hamper delivery
6.38
Specialist power and water consulting firm, Entura, outlined a case for changing rules for funding projects to be more flexible so as to facilitate more efficient delivery of engineering projects.
Project development involves multiple stages from concept to commissioning. For example, a project for which we provided services in Tonga was conducted in phases. For this project, Entura completed the first phase consisting of concept, ranking, feasibility, tender design and procurement. After this phase, Entura also tendered for implementation support and was nominated as the preferred consultant. This enabled collaboration with the client throughout the whole process allowing focus on the entire project, rather than just the end of the phase. The process was flexible and Entura was able to demonstrate its expertise, enabling the country representative to be engaged throughout the process. Working with the same consultant through the stages / life cycles is efficient, reduces procurement time at each stage and eliminates potential delays due to ambiguities.
We have found that if a contractor is prevented from tendering and winning following phases due to a perceived conflict of interest, new consultants can have differing views and need to spend time coming up to speed. This means time and re-work is done, making the project costs much higher than anticipated.
Lowest cost option for projects can lead to problems downstream
6.39
Entura also warned against the emphasis on seeking the lowest cost for projects that generally applies to the construction or implementation phases where the procurement is through competitive tenders. Appointment of consultants especially by financial institutions is based on ‘combination of technical competence and fee’.
Focus on lowest cost might result in:
Lack of competence and demonstrated experience – the hybrid industry is still maturing and assessment of suitability of technology offered for the cheapest price is difficult
Lower quality of work and capability of the contractor to perform and provide resources
High cost of operation and maintenance of the project – cheaper cost up-front might be expensive to maintain in the longer term
6.40
Entura highlighted with the emergence of battery technology and new renewable energy systems, the ‘industry has not yet matured to the point where all the suppliers and vendors and service providers are competent, trustworthy and have demonstrated capability in utility scale hybrid energy systems’.
As such, it takes a lot of effort to assess vendor’s claims and to be able to make recommendations. The cheapest solution often does not meet the specification (although the client may not be aware of this) and often results in stability issues and promised benefits not being realised.
Remote Pacific island countries lack competiveness
6.41
The ANU Development Policy Centre highlighted the economic challenges faced by Pacific island countries from having such small and widely dispersed populations with Papua New Guinea’s population of nearly nine million the exception. The populations of PICs are faced with higher costs of living, as shown by Figure 6.1, that impacts on wages than many more economically competitive countries in South East Asia and elsewhere.
One consequence of their remoteness and dispersion is that the PICs lack competitiveness. Most developing countries have the advantage of low wages and prices which pave their way to compete in export markets…this is not true of the Pacific.
6.42
The Solomon Islands Government stressed remoteness and small holdings were common problems faced by its agricultural producers when seeking markets.
…potentials is the lack of capacity to deal with problems related to consistent supply of produce in quantums required by external market demands. Given that most agriculture producers operations in Solomon Islands are small-hold farmers, a model must be developed that could address the issues of meeting market volume demands and quality. This is a problem further compounded by the dispersed nature of islands regions in the country, where communications and transport connect and related challenges in between islands can vary and be problematic from place to place.
6.43
Indra remarked the vastness of the Pacific, and the remoteness of many of its islands, presents its own barriers and impediments to trade and investment.
Beyond these challenges lies the vastness of the region, with Pacific nations scattered over an area equivalent to 15 per cent of the globe’s surface.
Difficulties Pacific people face to obtain visas
6.44
The Whitlam Institute highlighted the challenges and need to ‘level the playing field’ when it comes to Pacific islanders gaining access to Australia.
Travel to Australia, and doing business here, are perennial headaches for Pacific people. These concerns were raised repeatedly and by participants of all backgrounds. Action in this area would be a potent symbol of Australia’s good faith towards the region. We recommend that Australia - Make it easier for all Pacific people to travel to and work in Australia through increased access to short-term visas, student and professional exchange programs that reach beyond the scope of the current labour mobility programs.
6.45
The Australia-PNG, Australia-Fiji and Australia-Pacific business councils criticised the Pacific Australia Card and warned that visa issues faced by visitors to Australia from Pacific island countries often makes it ‘easier for them to seek business in Asia’.
The Pacific Australia Card is of no significant assistance to business. It is seen as elitist, and contrary to the spirit of ‘family’ by which the Australian Government has sought to characterise in relations with the Pacific islands countries. An APEC Business Travel Card like facility would be much more useful. Visa and work permit costs in some Pacific jurisdictions also add costs and complexity for business. In some cases these costs and complexities are directly linked to Australian government policy on visas for citizens of Pacific islands countries.
6.46
The Executive Director of the Australia Pacific Islands, Australia PNG & Australia Fiji business councils, Mr Frank Yourn, elaborated on the councils’ issues with the Pacific Australia Card, which it believed was only issued by the Australian government on invitation to people.
You don’t apply for it; you’re invited to apply for it. The target groups, I think, for those invitations, are senior politicians, maybe senior officials and selected businesspeople who are known to Australian diplomatic missions in the Pacific. It’s not a visa in the way in which the APEC travel card is like a five-year visa approved by all the participating countries. It just ensures that you get some sort of priority in your visa application process that you still have to lodge.
6.47
Dr Tess Newton Cain, the Project Lead at the Pacific Hub, Griffith Asia Institute wanted to highlight the ‘untapped market’ of Papua New Guineans and it applies across the board to other Pacific island countries, ‘who want to be able to travel much more freely and much more often to Australia’.
If we leave aside the whole COVID situation, you have people in Papua New Guinea who want to come. If we were holding this [hearing] in Cairns, the Cairns business industry would tell you that the one thing they cheered about most recently was the resumption of an extra direct flight to Port Moresby, because they see that as a market for them. Papua New Guineans want to travel to Australia for education, for holidays, for shopping, to catch up with family and for business reasons, and they are limited in their ability to do so, as are all Pacific people, because of visa restrictions. It is something that they feel quite strongly about; they feel quite strongly in a negative way about it.
6.48
Dr Newton Cain wanted to stress in terms of facilitating trade is often about ‘facilitating people-to-people links and ease of movement’.
Whilst it is very easy, leaving aside the COVID situation, for Australians to travel to Pacific Island countries for business reasons, the reverse is not true. One of the biggest limitations for Pacific business people is the difficulty they have in coming to this country. I think that’s something that needs to be addressed in the longer term.
6.49
Dr Newton Cain outlined the challenges of the Australian visa system for people in the Pacific wanting to visit Australia is that they have to apply for a visitor’s visa or a business visitor’s visa.
Essentially, there is a financial cost associated with that, which I think people generally accept. What they find much harder to accept is the administrative burden that comes with applying for those visas. It involves supplying an awful lot of information about your family, your financial situation, who’s going to be making sure that you come home. If there is a concern about overstaying, the research shows that it’s not borne out by the reality of Pacific visitors to the region. The additional issue for Pacific visitors who don’t live in Fiji—for example, people from Papua New Guinea—is that their applications all have to be processed through the office in Fiji, which takes extra time, and they feel that there’s a lack of engagement with their issues. Essentially, it just takes too long. It can take up to six weeks. In fact, six weeks is a good run to get a visa from application. So basically you have to know two months in advance that you want to go to Brisbane for the weekend to watch your kid play rugby on a Saturday morning.
6.50
Mr Yourn described the systemic issues with the way in which the Australian visa application system was set up.
The department of immigration says it has a universal, one-size-fits-all model. It does make it difficult. The documentary requirements for people coming from Papua New Guinea are significant. For example, in my office here in Brisbane I employ a Papua New Guinean. If she wants to have a member of her family visit, she has to provide a lot of her bank statements and documents of that kind to demonstrate to the immigration issuing authorities that they can be supported in Australia. She doesn’t wish to provide her family with copies of her bank statements. So I provide her with a letter, on Australia Papua New Guinea Business Council letterhead, that says that she works in my office; she doesn’t want to provide that sort of documentary evidence to people; but I can attest that she the financial means to support these people. Generally that is accepted. But not many people have the capacity to provide that sort of alternative. And why should they have to?
6.51
Mr Yourn also highlighted the visa challenges faced by PNG business visitors.
But also many of the business council members have personal reasons why they want Papua New Guineans to visit. They are married to Papua New Guineans; they have extended family members; and they all have to through this process to bring down all manner of family or relatives. So it is a significant issue. I think it needs to be resolved in the interests of the bilateral relationship.
6.52
The Immediate Past President of the Australia Papua New Guinea Business Council, Mr Peter Taylor, believed the visas are required by all Pacific countries (except New Zealand) were ‘costly and complicated to acquire’ and even resulted in business meetings being held in Singapore.
In the case of PNG with which I am most familiar the preference is often to hold bilateral business meetings in a third country such as Singapore than come to Australia because of visa issues, particularly if a meeting is called on short notice. Although the APEC card is available to eligible PNG business representatives no other Pacific Island country is a member of APEC so the APEC card is not available to them.. A Pacific card with similar privileges to the APEC card would be welcomed by the Pacific private sector.
6.53
Mr Yourn recalled when Peter O’Neill was the Prime Minister of Papua New Guinea, and he was ‘pushing very hard for visas on arrival in Australia for Papua New Guineans, which Australians could receive going into Papua New Guinea’.
When Australia wasn’t prepared to accommodate that request, he actually pulled the right for Australians to get a visa on arrival in Papua New Guinea, and they then had to apply for visas before travelling, otherwise they would be denied boarding.
But the dynamics of the way in which that played into, if you like, the populism of the support for that approach led the PNG prime minister to restrict the way in which Australians access Papua New Guinea. And so that meant time. It meant additional cost. A business visa to enter Papua New Guinea is expensive for a single visit. The best approach for Australian businesspeople is to have an APEC Business Travel Card, which gives long-term access at a reasonable price. It’s like a five-year visa. It’s a significant issue in the bilateral relationship.
Supply chain issues in the Pacific
6.54
Supply chain issues and developing policies that improve getting mainly agricultural products to market remain a big challenge for most Pacific exporters according to Dr Tess Newton Cain, the Project Lead at the Pacific Hub, Griffith Asia Institute.
When I talk to people, whether it’s kava farmers in Fiji or cacao farmers in the highlands of Papua New Guinea, what they talk about is: ‘I’ve got the stuff. I just don’t know how I’m going to get it to where I can sell it.’ That means: ‘How am I going to get it on a truck? Can I get it there by road, or do I have to fly it? If I fly it, do I have to go with it? How am I going to keep it from not spoiling? How am I going to keep it dry if it has to sit on a dock for two days till the ship comes past?’ When they talk about infrastructure, that’s very much what they are concerned about…what’s missing for them is the policy infrastructure that allows them to get this stuff into the market.
6.55
Dr Newton Cain claimed Pacific exporters face many barriers at the borders exporting to Australia.
…some of the major barriers for Pacific products, whether it’s kava or coffee or chocolate or breadfruit or sweet potatoes, are about not being able to get them across this border. Even by the time you’ve done all that other stuff of getting it to a dispatch point, the policy levers have not been switched on to allow your product to enter this market. Having IT and software and all of that sort of thing is great, but what’s really causing the major barrier for Pacific exporters is not being able to get access to the market.
6.56
These border concerns were shared by High Commissioner of PNG, HE Mr John Ma’o Kali, who highlighted how PNG grew some of the ‘best coffee in the world’ but struggled to find the market in Australia.
We find our niche markets in Europe, but it’s difficult to bring it into the Australian market. They tell us that there are biosecurity issues. It’s important that we work together with the institutions here to address those barriers because it’s a wonderful opportunity. We can try to address removing those barriers to the markets here so that we can see some PNG coffee or other Pacific island products in Woolworths or Coles. I see here a lot of coffee from other countries, but they’re not as good as Papua New Guinea coffee, to be quite honest.
6.57
The President of the Australia PNG Business Council, Mr Mark Baker, was doubtful that PNG would ever be interested in joining PACER Plus but the Australian Government should focus more on solving supply chain issues.
…the reality of agricultural exports here is people just getting them to market—the supply chain and focussing on what parts of the supply chain we can all smooth out. That is something that would have a very real and tangible impact at the most basic level of farmers who are farming coffee, cocoa, copra and the like. Right now, unless the price is right, they will not even pick their coffee to bring it in to market, because it’s just too expensive for them. Those are the areas of focus: ICT and an enabling infrastructure to help agricultural product get out, rather than PACER Plus itself.
Logistics delays in getting imports from Australia and New Zealand
6.58
Mr Denis Etournard, the Vice President of the Australia Pacific Islands Business Council stressed an essential problem faced by many businesses on New Caledonia and other Pacific island countries is logistics.
At the moment there are problems in Sydney ports, there are problems in New Zealand, the domestic market in construction is very strong in Australia and New Zealand and we’re not getting supplies or support. There are problems with building standards. We should be driving the changes and testing the products in our areas to control it.
6.59
Executive Committee member of the Australia Pacific Islands Business Council, Ms Tessa Price, declared ‘trade in the Pacific is exceptionally difficult at the moment’ due mostly to COVID-19 restrictions.
We’re not even getting products from Australia into the Pacific. We do have a lot of organisations that are hurting.
Unreliable power, transport and ICT infrastructure
6.60
The President of the Australia Papua New Guinea Business Council, Mr Mark Baker, highlighted how the lack of infrastructure was up there with governance, corruption, law and order as the general barriers to doing business in PNG.
…where we can see some real progress from the Australia government is around infrastructure. Infrastructure, or lack of it, in Papua New Guinea is absolutely something which holds back development in the country and, importantly, the development of a broad based economy where they can rely less on traditional resources and more on agriculture, for example. So, when we look at infrastructure—and it’s particularly around power, ports and roads, the previous three major areas—power is a particular one which has huge amounts of potential upside in the country. Transport: what we’re really looking at there is, if you are, for example, a small agricultural business, exporting coffee from the highlands of Papua New Guinea and you cannot get your product to market, that’s simply going to mean that it doesn’t get to where it could be.
6.61
Specialist power and water consulting firm Entura submitted the generation of utility power in the Pacific is ‘traditionally through diesel power, with larger centralised units in the capital cities and smaller decentralised units in the outer islands’ but the importing poor quality diesel and its cost poses a significant drain on the budgets of many Pacific island countries.
Diesel is imported into the Pacific and has had quality issues in the past and can be impacted by supply chain issues, thus effecting the self-reliance of the country.
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Mr Frank Yourn, the Executive Director of the Australia Pacific Islands, Australia PNG & Australia Fiji business councils highlighted the inadequacy of information and communication technology (ICT) infrastructure across the Pacific that will also hamper uptake of e-commerce platforms.
Most of these countries have undersea cable connectivity, but I don’t think that we’re seeing the benefits that could flow from that level of infrastructure flowing into the market in terms of capacity availability for people generally and the pricing of communications products…there’s some work being done in PNG on trying to understand how they can change that.
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The Managing Director of Indra Australia Pty Ltd, Mr Tehmur Khan Galindo, agreed in regards to the poor state of communications infrastructure in much of the Pacific though the bigger countries such as PNG and Fiji were much better off than the smaller island nations.
…it’s probably the bigger nations that invest more money, for obvious reasons, in their infrastructure. We’ve been executing projects in PNG and the dollar value of those programs are considerably higher than in the smaller nations. There you do have a bit more of infrastructure available. I guess the problem is the state of that infrastructure. As we all know, deploying VHF or HF communications, deploying fixed broadband communications—these are pretty big tasks for nations and the investments required are substantial…the bigger nations—they have a better, more reliable infrastructure, although they have deficits compared to Australia...
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Mr Yourn stressed one of the main impediments was there’s ‘not a great deal of competition in the redistribution markets in the Pacific’.
For example, in Fiji, there is almost a monopoly communications market. There’s a second mobile phone company, Digicel. But Amalgamated Telecom Holding, which holds all of the government’s infrastructure in communications, is majority owned by the superannuation fund, and, although it’s a listed company, competition suppression goes on. I think that impedes the improvement in IT accessibility for people.
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Mr Yourn believed there was not much availability of a wide range of computer products in the different Pacific markets, partly because the poor internet services discourage it.
If the IT infrastructure performed better then there would be greater demand on those businesses that are retailing and providing IT products in the market to lift their game. There’s a web of issues around it, but it’s a very important issue for business. I know that there’s a lot of work being done currently in the Pacific to try and upskill businesses for e-commerce, but it’s a challenge if you haven’t got the right platform to be able to do e-commerce on.
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The Chief Executive Officer of Australian software provider Connect Direct Pty Ltd, Mr John Peters, recalled from recent trips to Fiji that the IT problems extend beyond infrastructure to more specifically a lack of capacity in computer hardware across Fiji.
In our discussions with many medical practices to direct control our product needs a minimum of 16 gigabytes of RAM to run efficiently, preferably 32, and medical practices we spoke to are lucky to have four. So their infrastructure needs improvement, and they have great difficulty in obtaining those extra gigabytes of RAM. It just wasn’t available in Fiji. It’s financially restrictive for them to upgrade their systems, so they need assistance financially to do that throughout Fiji...
Poor harmonisation of standards stifle trade
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Australia’s peak non-government, not-for-profit standards organisation, Standards Australia, declared that standards should be ‘front of mind as part of trade-related government initiatives’ as a ‘tool to reduce barriers to trade in the Pacific’.
With under developed quality infrastructure and a low utilisation of standards, Pacific island countries face barriers when introducing local products like kava and virgin coconut oil into global trade. Standards would help reduce these barriers by setting benchmarks for local products in the Pacific to be exported to countries like Australia. Beyond niche local products, Pacific islands countries are interested in not only using International Standards but also Australian Standards for many industries, such as construction and electrical safety.
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Standards Australia believed harmonising standards would also aid Australia exporters trade with the Pacific too.
Harmonising with the standards in use in Australia would equally make it easier for Australia to export its products and services across Pacific borders. Standards would help level the playing field and stimulate trade between all parties.
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To underpin PACER Plus outcomes, Department of Industry, Science, Energy and Resources believed Australia should consider placing a priority on ‘ensuring Pacific countries have the ability to put in place the standards, testing and measurement infrastructure, which are the rails on which trade agreements and commerce run’.
In Australia we have major investments in well-respected measurement (National Measurement Institute), standards (Standards Australia) and testing (The Joint Accreditation System of Australia and New Zealand and the National Association of Testing Authorities) infrastructure, which is essential to our economic competitiveness. This capability cannot be matched by small countries, but there are opportunities to assist and extend Australia’s standards and conformance engagement with the Pacific.
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From his past experience working at Fiji’s Department of National Trade Measurement and Standards (DNTMS), Mr Devitt acknowledged that conformance assessment capabilities were limited in the Pacific region.
However, if policy and regulatory frameworks are aligned with international requirements, then conformance analysis can be done at the point of origin. Businesses benefit from this model as there is no separate testing that needs to be done before the goods enter the region. Pacific policy makers and regulators benefit as they can be assured that evidence of conformance with standards can be provided efficiently, theoretically supporting the rapid delivery of high quality goods and services.
Alignment with standards will also benefit trade and investment in the region. If policy and regulations are aligned with international standards, then it should facilitate international businesses investing in the region.
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DISER saw standards as one of the shapers of markets, and how they are developed lock in technology suppliers and market choices. The department hoped its contributions can also help guide Pacific island countries.
Australia’s approach as a significant ‘taker’ of new technologies, has been to engage in international standard setting and to seek that this continues to give us choice and access to the world’s best technologies. This allows us to minimise trade barriers by utilising those international standards in our domestic rules. This is also important for Pacific countries, and the alignment of approaches will have additional benefit of reducing barriers to trade and investment with Australia.
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DFAT’s Aid for Trade Adviser Mrs Sabrina Varma at Pacific Economic Growth, Trade and Private Sector Engagement, explained that work on standards needs to be scaled up.
The Pacific Islands Forum Secretariat is coordinating a regional initiative to address standards related issues, because in the Pacific context there are economies of scale in addressing these sorts of issues that relate to meeting standards in a multi-country regional way, rather than from an individual Pacific island country perspective. Australia is a part of that regional agenda, and we’ve been supporting the evolution of that agenda. It’s a very ambitious agenda but, nonetheless, it is a priority issue that’s been identified by the region as a regional Aid for Trade priority. We’re hoping that our technical agencies, such as Standards Australia, the National Measurement Institute et cetera, will be involved as a part of that process, but to date the engagement has been fairly limited and ad hoc.
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DFAT Lead Economist Mr David Osborne gave an example of the IFC, part of the World Bank Group, Australia and New Zealand providing support for a cold storage agriculture project in the Mount Hagen part of the Highlands in Papua New Guinea that meets standards.
Part of the support that is provided there feeds out into the broader agricultural sector. What we were seeing was that people were raising their standards in what they were trading to the market because they were getting taught about the requirements for cold storage and they also had an actual buyer who was able to provide a regular demand for certain products, so they could start to fit that into the network of growers. That then was opening up a trade route which did not exist prior to that.
Customary ownership of land tenure across the Pacific
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Specialist power and water consulting firm Entura declared land availability and ownership in the Pacific has an impact on all facets of the projects.
Land ownership is often complex and the land tenure models and legal frameworks vary significantly across the Pacific and it is often challenging to confirm who owns the land (individuals, families, communities) or has a connection to the land which impacts on our ability to effectively engage with the project affected persons in line with the multi-lateral social safeguard requirements.
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Ms Maureen Penjueli, Coordinator, Pacific Network on Globalisation, understood the challenges for international investors and aid projects to comprehend land ownership across many parts of the Pacific, and how a lack of awareness may stifle some projects. But Ms Penjueli believed there ‘certainly is increased awareness within Australia on the role and value of customary land tenure systems in the Pacific’.
I think that there needs to be increased sensitivity and awareness, particularly within the Australian government side, about the very nuanced differences between the Pacific island countries around indigenous and indigeneity. The customary land tenure system is a key feature of Pacific island countries’ economic setup and part of the problem with that is that it is an antithesis to development because it’s collectively owned. One of the key things is that, when you’re looking at it from a foreign investment point of view, the need to assure individual ownership can, and often does, clash with indigenous customary land tenure systems of management.
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Ms Penjueli explained while land ownership was a source of conflict, it also provided some reassurance and protection to Pacific people.
Historically, we’ve seen DFAT fund projects that seek to understand this customary land tenure system with the view to opening it up for investment. So I think that a lot of emphasis remains on the Australian side to really understand the role that customary land plays in the Pacific context. It’s more protected in constitutions and in law. It is a source of resilience, but it remains a conflict point between the push for assurances for investment—foreign investment in particular—and how land has been managed in the Pacific.
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Solomon Islands Government submitted that in a country like Solomon Islands where ‘much of the land that could be used to host businesses to trade and invest is customary owned, work must be done to ensure potential foreign investor interests have easy access to land’.
To this end, the Solomon Islands Government has in recent years worked to develop exclusive tax free zones for business and investment. Under such scheme, investors are encouraged to enter into business and be accorded tax and duty-free incentives. Such model for investment and trade however is one that needs more research to be done and the appropriate legislative frameworks drawn and adopted through statutory processes.
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The Solomon Islands Government noted the establishment of business interests and investments on ‘alienated and registered land continues to be the main modality for establishment of business in Solomon Islands - it is a competitive environment’.
…land ownership and tenure is determined by blood relations and more than 90 percent of land [on Solomon Islands] is customary land owned by tribal groups.
Targeting investment in customary held lands can be possible through different modalities and one of the most encouraged modalities is through joint ventures with locals. These however are business considerations and require negotiations.
Poor governance and risks of doing business in the Pacific
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The ANU Development Policy Centre believed the development potential of Pacific island countries is also impeded by poor governance, as shown by Figure 6.2.
Eight PICs are ranked in the lower half of the world’s countries for government effectiveness, using the World Bank ranking. Eight (almost, but not exactly the same eight) are also classified by the World Bank and the Asian Development Bank as ‘fragile states’. Poor governance, which may be linked to small population size and remoteness, compounds Pacific economic disadvantage.
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DFAT submitted that the World Bank Doing Business publication suggests that investors and people looking to start and develop a business in the Pacific face distinct challenges. However DFAT believe it also shows that despite the inherent disadvantages faced by Pacific island countries, progress is possible if the policy environment is supportive.
The natural barriers to trade, investment and economic growth make a supportive policy and enabling environment even more important for Pacific island countries if the region is to be globally competitive.
Australia’s development assistance also has a strong focus on broader economic governance, which helps support a macroeconomic environment that is conducive to business and private sector development.
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Regionally, DFAT stated Australia co-finances the International Monetary Fund’s (IMF) Pacific Regional Technical Assistance Centre (PFTAC), which provides assistance to Pacific island countries around public financial management (PFM); revenue policy and administration; macroeconomic analysis (including debt sustainability); financial sector supervision; and macroeconomic statistics.
PFTAC support enables governments to pursue greater macro-economic and fiscal stability, and strengthened governance and accountability, in Pacific Island countries, improving the enabling environment for international and domestic businesses.
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DFAT claims PFTAC supports government reforms that encourage private sector development and make Pacific island countries more attractive for trade and investment.
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The Australia-PNG, Australia-Fiji and Australia-Pacific business councils also warned of the pitfalls of diminishing Pacific finance sector when Australian banks such as Westpac exited in 2015 from Cook Islands, Samoa, Solomon Islands, Tonga and Vanuatu, the ANZ exited retail banking in PNG in 2019, and Australian insurance companies changing their underwriting services too due to a spate of cyclones.
It is fair to say that in entering overseas markets one of the indicators for business is the reliability of the banking and financial services sector. If Australian banks and insurance companies are present in a market it helps provide some confidence to Australian business in that market. Changes in that presence or in the services offered can impact on the confidence which business has in the market. It also impacts on the level of advocacy for business to participate in an overseas market.
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In 2019 Austrade commissioned specialist Pacific-focused consultant, Tebbutt Research, to undertake market research into Australian business engaged in the Pacific across PNG, Fiji, the Solomon Islands and Samoa to highlight their experiences, successes, advice and barriers to trade.
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Tebbutt Research’s ‘Commercial opportunities for Australian businesses in Papua New Guinea, Fiji and the Pacific’ report is the result of over 20 detailed client interviews with businesses active in the region. These interviews, according to Austrade, allowed Tebbutt to gather ‘peer tested’ market intelligence on the challenges facing Australian business in market, identify common themes and trends and provide factual evidence on business practices.
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As part of the reporting process, Tebutt Research composed a shortlist of business risks for Australian businesses operating in the Pacific (see Table 6.1). Along with additional information on mitigation strategies businesses have utilised and their observations.
In terms of managing these challenges in-market, it is important to acknowledge that there is no ‘one-size fits-all’ solution to the needs of Pacific Island nations, however the imperatives of strong relationships (being present), and economic cooperation through partnerships and working with local businesses and authorities is common to all markets.
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In order to succeed according to the Austrade research, Australian companies ‘need to deliver projects in partnership with local businesses; facilitate market entry, provide training for local staff, and encourage technology and business practices transfer’.
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The Vice President of the Australia Pacific Islands Business Council, Mr Denis Etournard, warned many tenders on aid projects was being lost to inferior suppliers on price alone.
With international tenders at the moment, even aid money from France, Australia or other nations—we lose them because we have competitors that are not following our standards, that are not following the company rules and that are cheating. The last thing they look at is the cheapest price. I think we have a responsibility to say we have to do quality infrastructure. We have to have quality building standards.
Table 6.1: Summary of business risks for Australian businesses in the Pacific
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Networks and knowledge
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In-country network of contacts viewed as fundamental to a successful presence.
Organisations with partners or working as a sub-contractor had significant advantages over businesses establishing a market presence for the first time
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Cultural diversity
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The Pacific comprises a diverse range of countries, with different business cultures, beliefs, and faiths
New entrants to the Pacific region shouldn’t underestimate the cultural diversity of countries (approach the market with an open mind) No ‘one size fits all’ approach to the Pacific
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Understand risk
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Understanding the risk profile of customers
Understand opportunity / operational challenges and risks regardless of sector. - This factor was heightened for those businesses operating in PNG
Payment risk was viewed as significant risk factor. - Payments are slow with businesses expected to offer standard credit terms of 60 -120 days
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Unethical business practices
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Potential exposure to corruption was identified as a major challenge for Australian businesses operating in the Pacific
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Governance and regulation
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Government stability across the region was identified as a risk that requires acknowledgement and understanding by business
Larger companies indicated that this factor represented a key component of their engagement planning and risk profiling for projects
Business registration processes, taxation, tariff and duties, and insurances are major imposts for doing business in the Pacific.
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Competition is increasing
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Aid money is influencing infrastructure opportunities (works funded by donor countries)
New companies (e.g. foreign construction) entering markets based on donor funds
Competition in the region is growing influenced by donor preference
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Social license to operate
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In order to operate successfully in the Pacific region it is critical to gain a level of acceptance from local communities and government authorities. - Develop a holistic engagement strategy when working within communities (‘make good and do good for local communities’)
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Resourcing and security
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Meeting local labour content policies can be challenging for Australian companies needing technical skills
Law and order issues were highlighted as a significant issue facing businesses operating in Papua New Guinea remote areas
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Source: Tebutt Research report – Department of Foreign Affairs and Trade, ACIAR, Austrade & Export Finance Australia, Submission 14, p. 50.
Vulnerability of Pacific island countries to climate change
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Climate change and natural disasters were already impacting on Pacific island countries already suffering from the economic hardships of the COVID-19 pandemic, warned Ms Mele Amanaki, the Tonga-based chair of Public Services International Oceania.
Further to the climate crisis, present are sustained economic shocks, starkly demonstrated by the recent devastation of Cyclone Harold, as we are grappling with the pandemic response. At the current rate of global heating, such ongoing shocks will present existential threats to our countries’ survival within decades. We welcome the direct humanitarian assistance Australia provided in response to the pandemic and recent cyclone. This included the provision of key health equipment and other necessities.
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The High Commissioner for New Zealand in Australia, Her Excellency Hon. Dame Annette Faye King outlined New Zealand was committed to working with the Pacific on climate change.
We will be delivering at least $300 billion on climate change related support by 2022. Around two-thirds of that will go into funding Pacific countries. But we also recognise the role the defence forces will need to play well as the impact of climate change worsens, particularly in the Pacific.
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Access to water is critical to improved investment and trade in the Pacific, according to eWater. It also submitted that climate change is one of the 21st century’s ‘most pervasive global threats to development, peace and security’.
Climate change impacts primarily through the water cycle and is a threat multiplier for water security. The rising demand for food, energy and water (the water-food-energy nexus) will be compounded by climate change, straining resources and potentially contributing to conflict and displacement.
The Asia-Pacific region bears the brunt of weather-related disasters, with more frequent events and greater numbers of people killed and affected than any other continent.
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eWater noted that the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP), in its 2019 Asia-Pacific Disaster Report, stated that since 1970, two million people have been killed in disasters in the region, 59 percent of the global death toll and annual economic losses are estimated at $675 billion.
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eWater highlighted that Pacific island countries face the highest disaster risk, in per capita terms, globally, according to the Asian Development Bank (ADB).
Most Pacific countries are located along the cyclone belt and are either on or near the tectonic boundary between the Australian and Pacific plates, which expose them to catastrophic events such as earthquakes and cyclones.
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Specialist power and water consulting firm, Entura, detailed that climate change is also considered within project design and siting to ‘protect the assets from future impacts such as sea level rise and to minimise cyclonic effects, or to understand future water inflows for hydropower’.
In cyclonic areas wind may not be practicable with the exception of small scale de-mountable options. Stronger wind resource is most consistent in coastal areas that may be affected in the future. Solar is a common and most applicable technology due to the almost universally available resources across the region.
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Entura declared availability of suitable land that has the right access to the energy resource, has low constructability risks and is close to any related network infrastructure was already a problematic issue for infrastructure projects but also driving innovative land use too.
Climate change forecasts for atolls and other low lying areas further limit the availability of suitable land in the future. Further, where suitable land is scarce, there is often less opportunity to avoid environmental or social impacts because there are limited site options.
Scarcity of suitable land for renewable energy projects in Pacific (and in high density nations) is driving innovation for alternatives such as utilising floating solar, combining distributed solar (virtual power plant) across existing infrastructure roofing or off-shore wind to reduce the reliance on land that can be used for agriculture or other economic activity.
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The ADB also declared in 2018 that Pacific island countries were ‘vulnerable to tsunamis and storm surges generated offshore’.
Pacific Island countries are disproportionately affected by climate change even though they only account for approximately 0.4 percent of global greenhouse gas emissions.
Inadequate water storage and supply
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Water is critical to life in the Pacific and integral to all social, economic and environmental activities, according to eWater.
Water underpins food production, electricity generation, livelihoods, life in cities and human health.
Most industries depend on water either for growing produce or for processing and manufacturing. A reliable and sustainable water supply is critical to maintaining production.
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In the Pacific, eWater claimed urbanisation was leading to large informal settlements around the major cities.
The people living in these informal settlements commonly have little or no access to safe water and sanitation, and the city utilities are often reluctant to supply water and sanitation services as the land may be customary land, meaning the squatters have no rights to live on the land.
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According to eWater a number of constraints to supplying water have been identified by the Pacific Water and Wastewater Association (PWWA), the regional association for 30 water and sanitation utilities in 21 countries across the Pacific.
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A key challenge that faces all Pacific water utilities is the challenge of working in isolated situations. This is where the PWWA provides such a valuable network of professional support and encouragement.
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The PWWA found constraints through various studies and the benchmarking studies such as:
Insufficient or weak political will and government support.
Insufficient institutional capacity.
Environmental constraints, including high vulnerability to natural disasters, climate variability and sea level rise issues.
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PWWA leaders met with the Australian Infrastructure Financing Facility for the Pacific (AIFFP) team and according to eWater were told that capacity building would only be in conjunction with specific loan projects.
The barrier that all Pacific utilities face is the lack of capacity to prepare the detailed project documents for a loan request and then to implement the project if a loan is forthcoming. A budget is often not available for operation and maintenance yet is crucial to the sustainability of the project. Strengthened capacity is needed early, not just as a possible add on to a larger loan. The sustainability of urgent investments in the water sector depends on the capacity of the isolated utilities in the Pacific Islands.
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eWater agreed with PWWA providing a well-established pathway, recognized by all Water Ministers in the Pacific, for capacity building for water and sanitation utilities across the region.
Constraints to attracting private investment
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The challenges for Pacific island countries (PICs) to attract private investment is highlighted by the low rankings of many PICs in the 2019 World Bank Ease of Doing Business publication (Table 6.2), which measures the regulations that enhance or constrain business in 190 countries.
Constraints to private sector development, like small size, reluctance to share equity or take on debt and remote geography can be exacerbated by weak institutions and governance. Aid investments continue to grow, supporting future opportunities for Australian sourced investment across the Pacific.
Table 6.2: World Bank ease of Doing Business rankings 2019
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New Zealand
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1
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0.8%
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Australia
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14
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4.3%
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Samoa
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98
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1.9%
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Fiji
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102
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6.2%
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Tonga
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102
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3.3%
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Vanuatu
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107
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4.3%
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Papua New Guinea
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120
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1.4%
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Solomon Islands
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136
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2.8%
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Palau
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145
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6.9%
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Marshall Islands
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153
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2.6%
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Fed. States of Micronesia
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158
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6.4%
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Kiribati
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164
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0.3%
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Source: Department of Foreign Affairs and Trade, ACIAR, Austrade & Export Finance Australi,. Submission 14, p. 14.
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The Department of Industry, Science, Energy and Resources warned without the strong linkages and entrenched trade and investment relationship that Australian investors share in the resources sector with PNG, a ‘different model must be used to develop opportunities for trade and investment growth with the other Pacific island countries.’
The department considers that collaborating with the Pacific island countries in industries of mutual importance is key to opening up new linkages and trade opportunities.
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The PNG mining sector continues to face significant challenges that have long impacted its ability to grow sustainably, according to DISER.
The regulatory and political environment remain a challenge to investor confidence, while mining practices are often unsophisticated and do not support productivity and efficiency gains. To continue to support the important bilateral economic relationship between Australia and PNG in the resources sector, Australia must engage with PNG to support the development of its resources industries.
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Dr Stephen Nash, who has an extensive experience as an institutional fund manager with direct experience in PNG, submitted the primary reason for their lack of interest remains market failures, of various forms.
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These market failures, according to Dr Nash, can be indicated by considering the following three main risks for investing in a foreign infrastructure project:
1
Risk one:·Currency risk—A lender, in this case the private sector, needs to obtain regular payments in the currency that funded the investment—that is, Australian dollars. In many cases, selling Pacific currencies and buying Australian dollars is impossible in the short term, although medium-term US dollar flows allow some sporadic hedging,
2
Risk two:·Sovereign default risk—Many infrastructure projects in Pacific nations link back to the state…in some cases, establish how much it would cost to hedge this risk through the credit default swap market. Even though hedging may emerge, the market depth is still woefully inadequate, and
3
Risk three: Project risk—These are the risks associated with the operational aspects of a project, which wouldn’t be borne by the Australian government, but by the institution that funded the project.
Levelling the infrastructure investment playing field, by introducing risk-sharing arrangements that address areas of market failure, as noted in risk one and two above, should significantly increase the private sector’s interest, and involvement, in the Pacific.
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Dr Nash outlined Australian Government should instead of lending money to Pacific projects, the Commonwealth would ‘subsidize insurance for hedging against the main risks of investing in the Pacific, where evidence of market failure exists’.
By insuring itself against currency and sovereign default risk, and charging subsidized premiums to institutional investors, the Australian government could possibly provide a new, and much improved, solution to the problem of funding Pacific infrastructure.
Lack of business information deters Pacific investment
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Dr Stephen Nash claimed ‘institutional investors in Australia remain generally unaware of the investment opportunities in PNG’.
This lack of knowledge, among other things, then allows other sovereign entities to operate in ways that might not be consistent with the objectives of the Australian government…While Australia does encourage small firms to invest in PNG, through various agencies, the encouragement does generally not extend to institutional investors. Accordingly, it can be argued that this encouragement, specifically to institutional investors, is now needed.
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However Dr Nash warned this investor encouragement across the Pacific region needs to be executed in a ‘careful manner, with a view to medium term outcomes’.
In order to alleviate this situation, a regular investor update, and institutional investor tour, should be initiated.
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Dr Nash claimed such initiatives were consistent with what the semi-government authorities, such as Queensland Treasury Corporation (QTC), who used to do with institutional debt investors, so as to promote investor familiarity and confidence.
More specifically, the tour would provide insights into the many opportunities, and the challenges, which are involved with PNG/Pacific region investment. As you may also know, while there are a number of new projects coming up for funding in PNG, there is no regular contact with institutional investors, except for individual companies, such as Oil Search. By broadening the familiarity of institutional investors with PNG, it may be possible to build investment knowledge, and appetite for investment, over the medium term.
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Once the COVID-19 travel restrictions ease, Dr Nash believed an investor tour to PNG could be jointly funded by DFAT and interested superannuation funds. He hope a PNG investor tour could arrange meetings and inspections for the super funds that focus on:
meeting of super funds with Kumul consolidated holdings, NasFund, and NSL,
meeting with the major banks in PNG, such as BSP, and Kina,
meeting with Total, Exxon, and Oil Search,
meeting with members of the PNG government,
meeting with Australian High Commissioner,
renewable energy development in PNG, Markham Valley in Morobe Province,
resource development sites in PNG, such as the new PNG LNG project, and
tourism development sites in PNG, such as Kavieng.
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Business Advantage International (BAI) a private media company operating in the Pacific but based in Victoria, Australia, submitted its concerns about the need for reliable information on business and investment news across the Pacific region to encourage more business activity.
At the moment, business in the Pacific has an information drought. The Pacific region is crying out of a well-resourced business media to provide this information: a Bloomberg, Australian Financial Review, Wall Street Journal or Financial Times for the Pacific.
It can’t rely on the Australian mass media to provide this, as this media is only intermittently interested in the region, and then mainly for geo-political reasons.
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The Australia Asia Pacific Media Initiative (AAPMI), which is a unique group of media industry insiders with many years’ experience in the private and public sectors in the Pacific and Asia, agreed with BAI about the paucity of business media and information across the Pacific region.
Currently, there is there is a business information drought in the region. At present there is no media organisation providing business information, programs or stories on a consistent basis on Vanuatu, Solomon Islands, Polynesian or Micronesian countries for audiences in the Pacific, Australia or elsewhere in the world.
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AAPMI noted that the coverage of the two biggest economies, PNG and Fiji was better but ‘still inadequate’.
In many Pacific countries there are important business developments that have gone little covered, including the move by Chinese business interests into areas previously dominated by Australian, New Zealand or Pacific Island companies. Every aspect of business trade, investment, aid for trade and employment links requires more public awareness and discussion.
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Since 2005, BAI have published business and investment publications on Papua New Guinea (PNG), Fiji, Samoa, New Caledonia, Solomon Islands, Vanuatu, Tonga, and annual Business Advantage South Pacific magazine, since discontinued. In recent years, BAI stated its focus has been primarily on PNG, where it published the annual business and investment guide to PNG, Business Advantage Papua New Guinea since 2006 and from 2014, BAI also published PNG’s most-read magazine, Air Niugini’s Paradise inflight magazine.
Our online business portal, businessadvantagepng.com, is PNG’s most visited business media. It has been visited by almost 900,000 readers since its launch in 2013. This portal, which includes an extensive information resource, Doing Business in PNG, is maintained by a small team of professional business journalists, who also produce a bi-weekly business e-newsletter, which is sent out to over 6000 subscribers each week, including 95 per cent of the CEOs of PNG’s largest companies.
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BAI claimed its online Business Advantage Papua New Guinea despite the success of being accessed by more than 300,000 readers annually needed more support to expand.
However, its output and activities are severely constrained by limited funding. At present, our service is entirely funded by on-site advertising and access fees. These are sufficient to fund only a limited service.
Modest Australian government support would enable us to expand and enhance this service, both in Papua New Guinea and the wider Pacific region.
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BAI believed for the Pacific islands countries (PICs) to develop economically, they need to ‘develop stronger business communities, better business connections, more robust businesses, and more skilled business owners and managers’.
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Outside Papua New Guinea and Fiji, it is ‘not profitable for any media business (Australian, Pacific or other) to provide even a minimal business information or media service’, according to the Australia Asia Pacific Media Initiative.
This is due to the small size of Pacific markets and limited availability of revenue from advertising. Over the past decade and earlier, increasing lack of profitability and other issues have seen the closure or withdrawal of many Australian-owned media businesses from the Pacific. Examples include the withdrawal of the Nine Network and AAP from PNG, the closure of Pacific Islands Monthly magazine (owned by News Corp) and the Seven Network’s decision to withdraw from its contract to run the Australian government-funded Australia Television (in the late 1990s) due to an inability to bring in sufficient advertising revenue to achieve viability.
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The AAPMI lamented the budget cuts to the ABC’s services and the ‘closure of the ABC’s shortwave radio service’ and the impact on services to the Pacific.
Ten Pacific Forum nations now have no access to ABC Radio Australia’s Pacific current programs and there no media providing a platform on which citizens of all Pacific Islands Forum nations can come together to debate important issues facing the region. Australian media is at its lowest ebb in the Pacific since World War II.
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BAI outlined there many factors can lead to the development of stronger businesses in the PICs, including:
Access to timely, accurate and reliable business intelligence
Access to information about how to do business across the Pacific (eg relevant regulations and laws, business conditions, key economic sectors in each country, business travel information, useful contacts)
Knowledge of the key features and differences between markets
Case studies of successful businesses so they can see what business strategies work
Data to help them benchmark their businesses
Knowledge of business trends and developments
Knowledge of where and how to source capital
The opportunity to identify potential business partners and connect with them
Opportunities for professional development
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BAI declared the business information that is available is ‘often out-of-date, poorly researched and presented, incomplete or, in most cases, simply not there at all’.
The lack of this basic information is not only an impediment to the development of successful businesses of all sizes in the Pacific, and trade between Pacific economies; it is also a barrier for Australian companies and investors looking to do business in and trade with the Pacific.
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BAI detailed three reasons for the lack of a sustainable revenue base as the main reason for the scarcity of viable business media in the Pacific region.
1
There are not enough regional businesses with sufficient large advertising budgets make a non-subsidised trans-Pacific business media viable.
2
There are not enough businesses to pay to receive such a service if it were delivered via a paid subscription.
3
Because intra-Pacific trade is not strong and connections between markets weak, businesses that do advertise tend to be tactical in their approach and advertise in their home markets only, and not see the region as a whole as their target market.
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BAI declared as an Australian media company already well-established in the region, with support to expand, it was actually uniquely-placed to assist with addressing information problem.
Our online business magazine www.businessadvantagepng.com is already PNG’s top-ranked business media, but with greater resources it could provide much deeper coverage of PNG (business news/features, business intelligence and trade/investment promotion), as well as expand to cover other key Pacific Island economies.
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Like media in Australia, AAPMI believed the Pacific media are also struggling to compete for advertising with global social media platforms and Google.
With the onset of digital disruption and competition from global platforms, Pacific media businesses are struggling financially and their ability to provide public interest reporting on business issues is compromised. The challenge for media businesses to make a profit in Pacific markets has been exacerbated since COVID-19. Even the most cost-efficient, well-run Pacific media businesses face a very real existential threat.
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AAPMI submitted its research indicated there have been major declines in advertising revenue in all Pacific nations.
In some cases, loss of advertising revenue is in the order of 60%. As the submission by the joint business councils (Australia-Papua New Guinea, Australia-Fiji and Australia Fiji Business Councils) notes with Australian banks also withdrawing from some places or services in the Pacific, information usually obtained from those sources is also shrinking. Chinese state-run and New Zealand media are expanding in the Pacific but rely on government funding to do so.
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BAI declared with government support and extra ‘modest funds for additional journalism, editorial and production capacity’ and regular travel outside Port Moresby and Lae, BAI outlined it could:
4
Double the monthly editorial output of businessadvantagepng.com, adding more coverage on PNG’s regions and the Pacific Islands more widely and more also on SMEs.
5
Create and maintain stand-alone country profile pages on businessadvantagepng.com for each Pacific Island economy, similar to doingbusinessinpng.com. These pages would include up-to-date and comprehensive data on each economy plus (for the larger ones) the most recent articles published on the site.
6
Enhance our monthly online business briefings businessadvantagepng.com with extra content and higher production standards.
7
Make the Doing Business in PNG (business intelligence) section of businessadvantagepng.com free (it is currently the only section behind a paywall) and produce and distribute an annual print edition of it (4,000 hard copies).
8
Produce and distribute through our networks a series of investment promotion videos on Papua New Guinea. Nothing up-to- date exists.
9
Run physical face-to-face trade and investment promotion events, when safe to do so.
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The Australia Asia Pacific Media Initiative is calling for a rebuilt multi-platform Australian media voice in the region would provide a ‘…wide range business information and discussion of relevance to both Australian and Pacific Island audiences’.
A stepped-up Australian multi-platform media voice in the Pacific would inform the wider community about the business landscape, trends in business and discuss issues of immediate relevance including government policies. It would profile companies and provide context and content that is relevant and engaging of people from all walks of life. Many business ideas have been sparked by something heard or seen in the media.
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AAPMI believed programs made specifically for young people and other marginalised groups could also do much to ‘…build financial literacy and an entrepreneurial culture’.
…as well as support Australia’s investments in APTC (Asia Pacific Training Coalition), USP (the University of the South Pacific), UPNG and other institutions. Labour mobility could be a rich source of programs ranging from the sharing of experiences to more specific discussion leveraging money earned to create new MSME’s and other benefits in workers home countries. Media is a crucial institution in any democracy and has a key role to play in holding governments and corporations to account and investigating corruption.
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The Coral Sea and other fibre optic cable into Pacific island countries will enable greater and faster access to the internet and allow more opportunity for co-operation between Australian and the Pacific media providers.
AAPMI has proposed a partnership model for the rebuilding of an Australian media voice in the region – one based around collaboration between Australian and Pacific media businesses on content. The Coral Sea and other new fibre optic cables make this more possible than ever before but are currently underutilised by media. Part of the reason for the media’s unique ability to reach large populations is its ability to utilise all platforms (television, radio, and digital and mobile platforms including streaming and social media). The availability of greater connectivity into the Pacific makes this a timely moment for expansion of Australian media.
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The AAPMI shared the call from Business Advantage International for greater government support to make any expansion of services viable.
A major step up in government funding to ensure Australia has a fit-for-purpose multi-platform media voice in the Asia Pacific region. This media service would carry a wide range of business and financial literacy programs and discussions that would build public awareness in both the Pacific and Australia about the opportunities to strengthen trade, investment, aid for trade and employment links between Australia and Pacific island countries.
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AAPMI also submitted for an increase in Australia’s development assistance to build the capacity of Pacific public interest media to ‘…at least 0.6% of the development assistance budget, in line with global standards’.