Countries and Regions

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Country Strategy and Program Update 2002-2004: Vanuatu

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III. Implementation of the Country Strategy and Program

A. Poverty Reduction

1. General Assessment

19. Vanuatu is the third-poorest country among the ADB member countries in the Pacific as GDP growth has failed to support rapid population growth. The vast majority of people are in the subsistence or informal sector, and their search for employment, cash income, and education has concentrated them on the main islands of Efate and Santo. As people become increasingly dependent on the cash economy, traditional social networks break down.

20. Remote and isolated, smaller communities have difficulty accessing Government services. Improved access to transportation, communications, health services, and education will help reduce poverty in the outer islands.

2. Pro-poor Growth and Interventions

21. The Government is developing the outer islands by decentralizing its power. The Decentralization Review Committee was formed in 2000 to review and recommend directions for decentralization. The committee compiled its final report by June 2001. The committee recommends amending the municipalities and decentralization acts, and clarifying the role and responsibilities of the Government, and provincial and area councils, particularly in delivery of transport, agriculture, education, and health services. Road maintenance, agriculture extension services, and aid-posts are particularly important to rural island communities. The Rural Economic Development Initiative started in 1999 in Tafea Province and is spreading across the other five provinces to identify sectors and potential projects to promote economic growth. This is the first such movement initiated by the provinces involving the provincial councils, community representatives, the private sector, and NGOs. The Government's planned outer islands infrastructure development project aims to reduce poverty and urban-rural disparities by upgrading roads, wharves and storage, and airstrips in the major outer islands. Still, sustainability of poverty reduction remains a problem due to weak public finance and service delivery.

22. ADB has proposed that Vanuatu be covered by the regional TA to help selected Pacific developing member countries to prepare national poverty reduction strategies. A poverty partnership agreement between ADB and the Government is expected to be concluded by 2002. Most of the ongoing or proposed ADB assistance focuses on providing roads, wharves, and airstrips to the outer islands and helping people acquire technical vocational skills. Basic health and education are being assisted by various bilateral and multilateral funders. An urban sanitation and environment project for slum areas will be explored by the Government and ADB.

B. Thematic Priorities

1. Economic Growth

23. In the latter half of 2001, the economic report written under the TA for Strengthening Development Strategies¹⁴ will help the Government and its development partners identify economic growth opportunities. The report will propose a policy and institutional framework for each sector to support sustained economic growth. The programmed outer islands infrastructure development project will facilitate the flow of agricultural products to domestic and international markets, stimulating the economic growth in the outer islands.

2. Human Development

24. Vanuatu remains one of the poorest nations in the Pacific in terms of human development. In particular, vocational education and training is extremely poor. To develop vocational skills in the formal and informal sectors, a loan project for technical, vocational education, and training project is programmed for 2004.

3. Gender and Development

25. Clear gender differences exist in Vanuatu, in terms of access to resources and entitlements. Social, economic, and political indicators highlight female disadvantages in all areas. Rural women are especially disadvantaged and women's groups demand to participate more actively in various activities. The CRP supports gender equity. ADB, in addition to its regular policy dialogue with the stakeholders, provided a TA for the capacity building of the National Council of Women in 2000.¹⁵

4. Good Governance

26. Governance remains weak despite the substantial progress under the CRP. While the capacity of central agencies and line ministries has been enhanced, leadership and management problems, severe human resource shortages in many agencies, and financial limitations make service delivery difficult. Parliament lags far behind other core institutions in good governance. Parliament should be strengthened by improving the functions and procedures of its sector standing committees, the standing orders governing legislative procedures for review and discussion of bills, and functions of clerks. An ADB TA is programmed in 2001 for this purpose.¹⁶ Institutions responsible for maintaining law and order, resolving disputes, prosecuting and defending the accused, and preventing corruption in the Government must also be strengthened. ADB supports capacity building of SLO through three TAs.¹⁷

27. Policy coordination among core planning agencies could be improved. Developmental policies require sufficient reviews by and consultations with concerned stakeholders before being formulated. The Development Committee of Officials' policy consultation role and decision-making authority should be strengthened. Macroeconomic management and growth policies and a mechanism should be developed to coordinate growth policies, sectoral strategies, corporate plans, and budgets. ADB assistance will focus on enhancing governance and policy coordination.

28. Involving communities in the reform process will engender their support and ownership. The National Task Force and National Summit meetings held in 1998 and 2000 were excellent opportunities for communities to participate in reviewing and assessing the progress of the CRP during phases 1 and 2, and in setting new strategic directions for reforms under phase 3. Civil-society organizations, and women's groups in particular, hope to be more involved in the CRP's strategies and action plans. NGOs also emphasize the need for a stronger focus on social development for equitable distribution of the benefits of economic growth. All civil-society groups express a strong desire for community monitoring of the CRP's social impacts and involvement in policy formulation. The Government has thus (i) organized annual national summits to focus on major development issues, (ii) supported regular National Task Force meetings to review CRP progress, (iii) reviewed membership of the National Task Force and National Summit to ensure adequate civil-society representation, (iv) organized sectoral task forces and working groups to discuss major reform policies, (v) organized regular provincial summits to discuss community participation in improving service delivery to rural areas, and (vi) improved dissemination of CRP information. A business forum on investment policies is also planned in 2001 to improve consultation between the Government and the private sector. Information dissemination through normal Government channels to the community level should be continued.

5. Private Sector Development

29. The private sector should be the main engine for growth. However, private investment did not pick up as anticipated when the CRP commenced due to slow progress of the reform, weak governance, and lack of transparency in certain private investment deals with the Government. Foreign investment remains extremely low despite the efforts of the Foreign Investment Board, which introduced "one-stop" licensing. It is difficult and costly to start a business. The land tenure regime, lack of skilled labor, and lack of security of property discourage investment, job creation, and economic growth. The monopoly and/or oligopoly in utilities, banking sector, and commodity distribution must be dismantled.

30. An integrated policy to promote private investment is needed. In August 2001, a business forum will be organized by New Zealand Overseas Development Agency (NZODA) and assisted by ADB to build a consensus on promoting the private sector. The Ministry of Trade and Business Development plans to strengthen its business advisory and microcredit functions. The proposed TA to improve service delivery¹⁸ will help improve the investment process and identify administrative barriers to promoting private investment. ADB is considering a TA to provide a policy framework to develop the private sector.

6. Environmental Protection

31. Pressures on land and the marine environment have become visible only in recent years, as communities move from the subsistence to cash economies, which results in reef depletion, soil erosion, and contamination due to inadequate waste disposal. Environmental resources are being depleted by large-scale projects such as logging. High population growth and urbanization are beginning to take their toll on the environment. New environment legislation is being finalized with ADB assistance. Continuing urban migration has given rise to slum communities without adequate water, sewerage, and waste management systems. Deterioration of major urban areas will be difficult to reverse and will harm the tourism industry. The Government is considering an urban sanitation, public health, and environment project around 2005.

7. Regional Cooperation and Donor Coordination

32. Vanuatu cooperates with other Forum Secretariat member nations in economic management and trade and investment. Recently Vanuatu cooperated with other Pacific offshore financial center countries through the Commonwealth and Forum Secretariats to defend itself from the OECD's Initiative on Harmful Tax Competition and the Financial Action Task Force's List of Non-Cooperative Countries.

33. Since the CRP was launched, ADB has played a pivotal role in coordinating assistance for Vanuatu. In addition to convening regular in-country meetings of all funder representatives based in Port Vila, ADB also convened the first Consultative Group Meeting (CGM) for Vanuatu in July 1997. All funders in Vanuatu support the CRP through their own programs and strategies. Another Consultative Group Meeting¹⁹ may be held in late 2001 or early 2002.

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