Regions and Countries

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p. 2 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Level

Country Strategy and Program Update 2002-2004: Samoa

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II. Implementation of the Country Strategy and Program

A. Poverty Reduction

11. Samoa ranks fifth of all the ADB's PDMCs on two UNDP indexes, the Human Development Index (HDI) and the Human Poverty Index (HPI). With sound macroeconomic management, economic growth has been strong. Governance standards are high, based on a strong degree of village participation in planning processes, combined with the Government's clear vision for economic, social, and environmental development. Social sector spending is increasing, and the Government is committed to providing reasonable and satisfactory access to health and education services in both urban and rural areas. Approximately 47 percent of the population live in the urban area of Apia,² and a balanced approach to service and infrastructure provision to meet their growing needs is essential. Literacy levels are among the highest in the region. As in other PDMCs, lifestyle diseases, especially obesity, high blood pressure, and diabetes are prevalent. Formal employment is focused on urban Apia and 80 percent of the population is engaged to varying degree in agriculture and fishing. Investment in agriculture is wavering and SOEs are generally inefficient, with some requiring varying levels of subsidy. Remittance income is important to many families in both urban and rural areas including low-income groups. The strong traditional society, the church, and religion are vital elements in the existing social, cultural, and economic organization, underpinning strong urban and rural village arrangements. Drug consumption among the young, particularly soft drugs like marijuana, is rising.

12. The vision expressed in the Government's Statement of Economic Strategy (SES) 2000-2001 aims at improving the quality of life for all Samoans. The SES makes specific reference to revitalizing the village economy and the Government has invested substantial amounts to improve infrastructure in rural areas and provide better opportunities and access to services to the less advantaged. While absolute poverty is rare in Samoa, and the large majority of Samoans have a good standard of living, some problems are emerging as people from the rural area move toward the city, and some families have difficulties maintaining a reasonable standard of living. In the growing Apia urban area, the increasing population is putting stress on family and communal systems and bring about issues of social and economic security, often emanating on customary lands. There are urban groups whose quality of life is increasingly at risk because of their inability to get access to essential basic services including land. Economic vulnerability directly affects many areas of family life including health, employment opportunities, and educational participation. The extent to which certain groups are vulnerable to inequities relative to other groups, especially within the burgeoning Apia urban area, is currently being assessed. Vulnerable groups in the urban area are likely to embrace the youth, often those with minimal formal education and who have little employment prospects; those who have migrated from the rural areas and have no or little access to land; households headed by single women; and the elderly and the disabled.

13. The economy has a narrow export base of mainly agricultural products and remains vulnerable to external economic shocks and natural disasters, over which there is little control. The Commonwealth vulnerability index ranks Samoa in the group of countries characterized by high vulnerability. Soundly based economic diversification may reduce the extent of aggregate export instability, and continued good economic management can prevent the translation of such disturbances into general macroeconomic instability. With respect to natural disasters, measures have been taken to improve the resilience of coastal communities, including preparing of coastal management infrastructure plans in partnership with village communities. However, cyclones such as those experienced in 1990 and 1991 and crop diseases such as the taro blight that struck the country in 1993 can, at least temporarily, derail the reform process and undermine the growth needed to improve living standards especially in the rural areas.

14. ADB's approach to poverty reduction in Samoa is threefold. First, ADB's program of assistance for building capacity for sound economic management, supporting financial reforms, and facilitating privatization of SOEs, aims to promote economic growth, foster good governance, and support equitable social development. Second, the program aims to improve living standards and reduce income disparity through improved equity and access to quality education for all Samoans. And third, ADB's program will support infrastructure improvement projects and programs designed to create an enabling environment for private sector development aimed at fostering economic growth and income and employment generating opportunities. Appendix 3 summarizes the strategy statement.

B. Social Development and Gender

15. Women play an important role in traditional Samoan society and also occupy a number of senior positions in the public sector. Women occupy 2 of the 49 seats in Parliament, with one of them holding a high cabinet ranking (Minister of Education). A number of top senior public service positions¾including the Attorney General, the Financial Secretary, and the Secretary of the Public Service Commission¾are currently occupied by women. Women also hold senior positions and participate in significant numbers in education, health, foreign affairs, tourism, and trade and commerce. The Ministry of Women's Affairs was established in 1991, and formulated a policy framework and action plan for enhancing women's development efforts. There are more than 50 women's nongovernment organizations (NGOs), two of which are large umbrella organizations (the National Council of Women and the Women's Development Committee). A pilot microfinance scheme has been approved as part of the ADB loan for Small Business Development Project.³ The scheme provides microcredit to assist rural economic development, and is expected to help increase the role of women in economic development.

C. Governance

16. The political situation in Samoa remains stable. Elections in March 2001 have returned the reformist HRPP government to power with a reduced majority of seats. The Government and the new Minister of Finance remain strongly committed to economic, financial, and public sector reforms. Over the years, the Government has made good governance a cornerstone of its economic strategy, which emphasizes macroeconomic stability, public sector efficiency, improved education and health standards, and promotion of a true partnership between the public sector and private sector. Another important feature of the Government's strategy is the extensive consultation with civil society and stakeholders to ensure that the community shares the benefits of the reform program at large.

D. Private Sector

17. ADB has been supporting a number of initiatives designed to promote private sector development in Samoa. Significant improvements have been achieved, for instance, in liberalizing the financial sector through the Financial Sector Program Loan (FSPL).⁴ The FSPL was also pivotal in assisting the government in meeting the major objectives of its privatization strategy, and significant progress has been made in enhancing the efficiency of SOEs. The recently approved Small Business Development Project (footnote 3) is also expected to play a major role in promoting private sector development.

18. In recent years the private sector in Samoa has grown significantly, however the majority of companies are SMEs, and a substantial proportion of economic activities are still being carried out in the informal sector. While financial and macroeconomic reforms have increased opportunities of small businesses, barriers still remain, especially in access to finance, business-related regulatory and legal impediments, and lack of entrepreneurial capacities and skills. Restricted availability of land for economic activities and the fact that land cannot be used as collateral to improve access to finance, continue to be key constraints to private sector development in certain areas. Price control is also a constraint. Furthermore, cost, availability, reliability, and quality of the supporting infrastructure, particularly communications, power, and water supply, play a significant role in investment decisions and will therefore need to be prioritized in the private sector development strategy.

19. The Small Business Development Project is designed to address a number of constraints to private sector development by improving access to credit for SMEs, providing business training and advisory services, and by improving the policy and legislative environment for small business development. In addition, a venture capital facility will be established under the project (under cofinancing arrangement with International Finance Corporation and South Pacific Project Facility) to provide unsecured loans and equity instruments to SMEs as financing for venture capital, seed capital, and expansion credit.

20. Major legal and regulatory reforms with the underlying objective of reducing transaction costs of doing business in Samoa are in their final stage. A package of company bills, including a new company act, several business-related bills and consequential regulations have been drafted and will be considered by the Cabinet by mid-2001. The package also includes provisions enabling NGOs to establish finance companies, facilitating their authorized engagement in microfinance.

E. Sector Policies

1. Human Resource Development

21. Education. Education is an essential element in the process of human, social, and economic development. The main purpose of investment in education is to empower people with knowledge, skills, and attitudes so as to improve their quality of life, enhance their productivity and their capacity to learn new skills, and enable them to participate fully in the development process. There is a direct relationship between education and poverty reduction. People with education have higher income-earning potential and are better able to improve the quality of their lives than those without. In this context, ADB's overarching objective of poverty reduction can be better achieved through equitable access to quality basic education. ADB's sector priorities with respect to education are therefore to support initiatives that promote increased equity and access and improved quality of education services, strengthen management efficiency, and mobilize resources for sustainable education delivery.

22. In Samoa, male and female literacy rates and gross enrollment rates are among the highest in the region. Despite this, there is evidence that the quality of education needs improvement. In particular, indications are growing of disparities in literacy and numeracy between urban and rural children. Rural children have limited access to secondary education for instance.

23. In its SES 2000-2001, the Government stresses its continued commitment to strengthen education and training, and to ensure access to quality education for all Samoans. In particular, the SES recognizes the need to improve the learning environment at the primary level, and to expand and improve the quality of secondary education. ADB's sector strategy in Samoa is to support the Government's policies and strategies to improve the quality and delivery of education services at primary and secondary levels. In this context, in 2000 ADB approved a loan for the education sector.⁵ The project is expected to contribute to equitable and sustainable high quality economic growth. In line with this objective, the project will increase equity of access to a relevant, efficient, and higher quality public primary and secondary education system.

24. Health. Life expectancy in Samoa has increased from 57 to 71 years between 1970 to 1998. Infant mortality is low at around 22 per 1,000 births, and has been at this level for a decade or more. Patterns of disease in Samoa are changing. Infectious diseases have been almost eliminated. Poliomyelitis, tetanus, and diphtheria are virtually eliminated, while the incidence of whooping cough, tuberculosis, and measles remains low. Immunization rates are high. However, lifestyle diseases, such as diabetes, hypertension, and heart problems have become significant health issues. The key lifestyle issue is the Samoan diet loaded with fat and carbohydrates.

25. There are urban-rural disparities in access to health services. An estimated 90 percent of the population have access to safe water. However, access varies between rural and urban consumers. In disadvantaged rural areas, access to clean water close to the home is a problem for some. There is almost complete access to sanitation, with rates of access being quoted at 100 and 95 percent for urban and rural dwellers, respectively.

26. Support for the Government's health strategy has come through an increase in recurrent Government budget expenditure and through international assistance. Major external assistance in this sector comes from Australian Agency for International Development, Japan International Cooperation Agency , New Zealand Overseas Development Assistance , World Bank,⁶ and World Health Organization.

2. Financial Sector

27. Initiated under the ADB-financed FSPL, substantial progress has been made in liberalizing Samoa's financial sector. The reforms have comprised the abolition of direct monetary instruments and adoption of indirect monetary instruments by the Central Bank of Samoa (CBS) to encourage credit expansion and appropriate pricing of risks; development of money markets through auction of CBS securities; and strengthening the capacity of the CBS, Treasury Department, National Provident Fund, and Development Bank of Samoa to implement reform initiatives. The FSPL also supported the implementation of a comprehensive privatization and corporatization program.

28. Through its SESs, the Government has identified a clear sequencing of reform initiatives aimed at macroeconomic stability, financial sector liberalization and private sector growth. Now that the policy and reform frameworks have been entrenched, the Government is orientating its initiatives at consolidating the gains of financial sector reforms. A wide range of structural reforms successfully implemented in the last four years have helped revitalize economic growth. The financial sector has been strengthened, largely through the introduction of corrective monetary policy stance, improved financial and management procedures and processes, and enactment of supporting legislation. Recurrent expenditures have been refocused on high priority programs in the education and health sectors and the Government's investment program is being redirected to support private sector expansion.

29. The ADB-financed technical assistance (TA) for implementing a privatization strategy,⁷ which accompanied the FSPL, has helped the Government implement its SOE restructuring strategy. The program is being implemented in a cautious manner allowing for comprehensive consultation with stakeholders. The TA has helped establish a policy framework and related legislative and regulatory packages, and a track record of successful privatization and corporatization. Notwithstanding the progress made to date, a number of issues remain to be addressed, including (i) further Government divestiture of its shareholdings in companies that were slated for privatization in FY2001; (ii) the need for performance budgeting with SOEs to improve transparency, efficiency, and accountability; (iii) enhanced managerial autonomy of SOEs; and (iv) the need for more up-to-date and relevant reporting, to give SOE boards a stronger commercial focus.

3. Agriculture and Fisheries

30. Agriculture plays an important role in the rural and national economies, with up to 80 percent of households reliant on a mixture of subsistence and cash income, and the agricultural sector overall accounting for about one third of Samoa's export revenues. However, agriculture and the economy are vulnerable to the potentially destabilizing effects of external shocks of economic or natural origin. While the relative importance of the aggregate agriculture sector has been declining over the past years, the fisheries subsector has been steadily growing as a result of the rapid expansion of the offshore long-line fishery.

31. The Government's SES 2000-2001 reflects the vital role of the agriculture sector in general, and fisheries in particular. The SES identifies agriculture as a key strategic development theme in its own right, and links agriculture with other priority themes such as private sector development, improvement of the rural economy, and expansion of tourism. Thus, much of the country's development relies on the sound and sustainable management of the nation's natural assets¾its fisheries resources, agricultural land, and natural beauty¾and the preservation of its strong culture. Given the inherent uncertainty of agricultural production, the SES supports the revitalization of traditional food production as well as the development and diversification of cash crops. At the same time, priority is given to improved research, development of extension services, and market information. In terms of fisheries development, the SES foresees the improvement of fisheries management and regulatory frameworks and procedures as well as special emphasis on support to village fisheries.

32. With agriculture being predominantly a private sector enterprise, the approach to development of the sector should strategically focus on private sector initiatives (particularly those already successfully operating in commercial agriculture), including initiatives to attract direct foreign investment where possible. This approach will help use the knowledge, skills, initiative, and risk-taking associated with private sector operations, and create incentives for establishing higher value activities such as processing industries. A supporting policy package to assist market development and improve the efficiency of the sector will need to be carefully designed. In developing this strategy, consideration must be given to include a tax and regulatory system based on the principles of economic efficiency and equity; a clear definition of role of the Government to provide core functions in extension, research, regulation, market information, and policy development; a Government plan for divestiture of commercial activities in the sector; and the continuation and deepening of financial and business-related reforms (including the issue of land use) to facilitate entrepreneurial activities and enhance access to financial services. This should also be accompanied by measures to facilitate capacity building for setting up and operating agro-businesses, appraising projects, and marketing.

33. Fisheries, like the overall agriculture sector, remains important for both subsistence and cash income, and has developed into a major export earner. The sector has in recent years been characterized by a growing gap between inshore and offshore fisheries, with the latter rapidly expanding as a result of successful long-line fishing for tuna. Issues that require strategic attention include (i) sustainability of the catch; (ii) provision and management of appropriate infrastructure, including a wharf and marina complex; (iii) reforms toward a more efficient taxation regime; (iv) measures for cost recovery in areas such as fisheries management and wharf operations; (v) revision of the current system of vessel registration and licensing and introduction of a vessel monitoring system; and (vi) training and skills improvement especially for rural, small fishing operators.

34. The Financial Sector Program Loan (footnote 4) and the Small Business Development Project (footnote 3) support promotion of the private sector as the "engine" for growth in the agriculture sector, including fisheries. With its focus on the rural economy, the Small Business Development Project aims at increasing agricultural activities, and thereby supporting increased and sustained output in primary agricultural industry as well as in agro-processing and complementary service industries, and in agricultural diversification. SMEs in agriculture in general and fisheries in particular, are expected to substantially benefit from enhanced access to credit and the provision of business advice and related training. Under its TA for Strengthening Capacity for Macroeconomic Analysis and Policy Formulation,⁸ ADB is assisting the Government to prepare a study to derive relevant policy directions in agriculture, focusing on crop and livestock. Discussions are also taking place regarding possible external assistance for developing appropriate supporting infrastructure for the fisheries subsector in the medium term.

4. Tourism

35. The contribution of tourism to the economy has increased in recent years and, in economic terms, tourism has become one of the largest industries in Samoa. As a result, tourism has had positive impacts, directly and indirectly, in terms of economic growth, employment generation, balance of payments, government revenues, imports generated by tourist spending, and the development of complementary private sector businesses. For the tourism industry to reach its full potential, however, a number of key constraints must be addressed, including (i) the lack of a comprehensive, coherent national tourism strategy; (ii) relatively high costs in terms of room tariffs and air fares; (iii) limited access to (customary) land for tourism development projects; (iv) limitations regarding the use of land as security for credit; (v) reliability, quality, and costs of infrastructure such as roads, water supply, electricity, and telecommunications; and (vi) the relative high cost of business.

36. The Government has identified tourism as one of its priority areas in its SES 2000-2001. Five themes have been identified to promote sustainable tourism development: (i) promotion of sustainable tourism consistent with Samoan traditions and customs; (ii) introduction of ecotourism; (iii) intensification of coordinated marketing efforts; (iv) facilitation and strengthening of product development; and (v) improvement of research and statistics for marketing, planning, and development purposes.

37. Reforms initiated under ADB's FSPL such as the streamlining of the tariff system, reduction of income taxes, financial liberalization, and promotion of foreign direct investment, have assisted private sector development in general and tourism development in particular. Furthermore, activities to be undertaken under the Small Business Development Project will address constraints relevant to tourism development, including (i) business-related laws and regulatory frameworks, including land issues; (ii) access of tourism projects to credit and venture capital; and (iii) provision of business training and advisory services for qualifying tourism entrepreneurs. The ADB-assisted TA for strengthening capacity for macroeconomic analysis and policy formulation (footnote 8), will help develop a clear sector strategy for tourism development.

5. Energy

38. Energy is a critical element underpinning the Government strategy for economic growth and social development. A sound, secure, reliable and affordable supply of energy is essential to promote and achieve private sector led economic growth. Barring a major natural disaster or external shock, the outlook is good for Samoa to achieve sound and sustained economic growth in the medium term. This implies a steady growth in energy demand and increasing need to improve sector performance.

39. Throughout the 1990s, Samoa went through a rapid transformation in its energy consumption pattern from heavy use of traditional indigenous biomass toward a more commercial energy supply based on imported petroleum and hydro-generated electricity. No hydrocarbon deposits have been found in Samoa, and although a small geothermal source has been located, it is too remote from population centers to be utilized. Solar energy is limited to water heating and some photovoltaic systems on the smaller islands. Besides fossil fuel generation, the most important and renewable source of electricity is hydrogeneration. The Afulilo hydro-power scheme, on the island of Upolu, has an installed capacity of 4 megawatts (MW). Four run-of-river hydro stations also contribute a total capacity of 7.5 MW in the wet season. There are plans to increase the capacity of the Afulilo scheme and other plans to develop new hydropower generation capacity on the island of Savaii.

40. In 1997, petroleum imports accounted for 10.2 percent of the value of imports and 69.6 percent of the value of exports. These figures are expected to be higher during 1998 - 2000 as petroleum product prices increased substantially during this period. As demand for petroleum products continues to increase, the comparative cost of petroleum in Samoa's external accounts is likely to continue to rise in the medium and long term.

41. At present, besides the hydro-generated electricity, the Electric Power Corporation (EPC) of Samoa operates 12.8 MW of installed diesel generation facilities on Upolu. Much of this diesel generation capacity, however, is derated due to age and mechanical restrictions and will be retired progressively in the near future. Due to the reduction of hydro generation capacity in the dry season, additional firm energy capacity is required for the Upolu power system.

42. In the early 1990s, the Government established an aggressive rural electrification program to direct EPC to build grid extensions to rural villages. By the end of 2000, EPC had provided access to electricity for approximately 94 percent of Samoa's population. After the projects were completed, the Government reimbursed the initial costs of the rural electrification to EPC.

43. The country's energy policy is to reduce the spending of foreign reserves on the importation of petroleum products. The emphasis of the policy is to (i) employ indigenous energy resources in place of imports, whenever economically feasible; (ii) promote energy conservation, especially through use of more efficient energy equipment; and (iii) monitor deliveries of imported fuel to ensure that least-cost supply arrangements, consistent with the existing oil supply agreements, are used.

F. Environment

44. Samoa's natural resources are fragile and scarce, and require careful management. Environmental impact assessment legislation has been drafted but not passed, although Government projects and most private developments are subjected to such assessment, through use of the provisions in the draft legislation. The Government has made substantial gains in environmental management, including designating national parks and preparing a coastal infrastructure management plan in consultation with the village communities. The Government's efforts to preserve and manage the nation's resources in a sustainable way must be supported to ensure the long-term social and economic development of all Samoans. Improvements to urban infrastructure that will significantly enhance the urban environment, and the coastal waters near the town of Apia are particularly important. This is of particular relevance for the sewage and drainage project planned for 2002.

G. Regional Cooperation

45. In parallel with its Samoa-specific program, ADB will continue to support a substantial regional TA program for the Pacific. Samoa is benefiting, and will continue to benefit, from this program, which is aimed at encouraging regional approaches and solutions to economic and sector work and capacity building initiatives, as well as supporting the sharing of experiences and knowledge between countries in the Pacific region. Regional approaches also lower the high transaction cost associated with external assistance flows to the small states in the region. Given ADB's involvement in the financial sector, Samoa is expected to be one of the PDMCs participating in the regional TA, Youth and Gender-Sensitive Public Expenditure Management in the Pacific, and in the Consultation Workshops for Poverty Reduction Strategies.

H. Thematic Priorities

46. Insecure land tenure, inefficient public enterprises, and regulations that make it difficult to transact domestic and international business are important constraints to private sector development. The Government has indicated that it will devise a strategy to improve access to customary and public land, and use of customary land as collateral. This is a complex and sensitive issue and it will take time to build community awareness and acceptance for this concept and its practical implementation. These issues and constraints are expected be addressed during implementation of the Small Business Development Project (footnote 3) and associated TA.⁹

47. In education, the priority area is primary education to increase the number of literate and numerate students. Youth development is also an urgent theme in view of the increasing problems of youth delinquency, crime, drug and substance abuse, and suicide. Similarly, in health, more emphasis is needed on primary health care on a sustainable basis, including health education programs aimed at reducing the incidence of lifestyle-related diseases. The Government recognizes the need to address the social concerns related to youth, and has made this an important theme in the SES 2000-2001. A loan for education and development of young people has been included in the ADB program for 2003. The health sector is being supported with grant assistance from bilateral funding agencies and a loan from the World Bank.

48. For the fishing industry to continue its expansion to an optimum size, major investment in wharf and infrastructure facilities are required. The present fisheries wharf is extremely congested and major environmental and safety risks are associated with the wharf's present location and operations. A number of bilateral agencies have expressed interest in the fishing sector, including the People's Republic of China and Japan International Cooperation Agency.

49. A comprehensive communication and information technology policy is required to ensure that the country gains maximum benefit from continuing technology advances. Improved communications and information technology infrastructure are also key requirements for private sector development. Management of the corporatized Samoa Communications Ltd has been strengthened but much remains to be done to improve its service standards and profitability.

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