Vanuatu

Location and People

Vanuatu is located in the South Pacific on the New Hebrides Islands , just west of Fiji Islands . The country comprises more than 80 mostly mountainous, volcanic islands with narrow coastal plains. The total land area of Vanuatu is 12,200 square kilometers, but only about 65 of the islands are inhabited. Some 80% of the total population of about 200,000 lives on the 8 largest islands. Most live in rural areas, mainly along the coast. About 98% of the population is indigenous Melanesian, with French, Vietnamese, Chinese, and other Pacific Islanders making up the remainder.

Historical Background

British and French settlers arrived on the New Hebrides Islands in the 19th century. In 1906 the two countries agreed to an Anglo-French Condominium, which administered the islands until independence in 1980.

Socio-Economic Conditions

Vanuatu has considerable agriculture, fisheries, and tourism resources. However, inadequate economic management, major structural weaknesses, and volatile political developments have affected the country's economic performance. There have been some erratic fluctuations in the economy, but on average, economic growth over the past two decades has barely kept pace with the rapid increase of population.

In late 1997, social unrest and a lack of confidence led to a run on the Provident Fund, the collapse of the Development Bank, and the near-collapse of the National Bank. The Comprehensive Reform Program, created by a broad political coalition, resulted in improvements in governance and economic management, but fluctuations in economic performance have continued.

Vanuatu 's economy is based primarily on small-scale agriculture, which provides a livelihood for about 65% of the population. Fishing, offshore financial services, and tourism --- with about 50,000 visitors in 2004, are other mainstays of the economy. Mineral deposits are negligible, and the country has no known petroleum deposits. A small light industry sector caters to the local market. Tax revenues come mainly from import duties.

Economic development is hindered by dependence on relatively few commodity exports, vulnerability to natural disasters, and long distances from main markets and between the country's islands. The high cost structure and underdeveloped infrastructure are also serious constraints. Infrastructure managed by the government often fails because of little incentive for efficiency, political interference, and the tendency to overstaff and neglect maintenance. Private services such as telecommunications and utilities are deficient because private suppliers have been granted non-transparent, poorly regulated, long-term monopolies. The result is costly, inefficient services in Port Vila and Luganville, and hardly any service in rural areas. This system effectively exacerbates rather than reduces geographic constraints such as isolation and geographic fragmentation.

Vanuatu 's geographic constraints and the lack of job opportunities contribute to poverty. About 50% of its population lives below the $1-per-day poverty line. There are wide income disparities between urban, and rural and outer island areas. This is largely a result of low agricultural productivity and poor infrastructure facilities and basic services in rural and outer island areas. Most development efforts have been concentrated in the two principal urban centers.

Key Social and Poverty Indicators

Women are disadvantaged socially, economically, and politically, especially rural women. This is despite being responsible for harvesting and marketing most crops. Vanuatu has a high fertility rate, and birth rates are higher in rural areas. Poor nutrition of both mothers and infants is a major health concern. Women are more likely to be involved in unpaid tasks and work, on average, longer hours than men. Women are generally more successful in small businesses and are more reliable borrowers of bank funds. Nevertheless, women are rarely involved in formal decision-making.

Pressures on land and the marine environment of Vanuatu have become visible in recent years as communities increasingly move from subsistence to reliance on cash incomes. Daily activities are resulting in reef depletion, watershed damage, soil erosion, and contamination resulting from inadequate waste disposal. Resources are now being depleted by large-scale projects, such as logging.

Population growth and urbanization are also beginning to take their toll on the environment.

Country Outlook

The agriculture sector is expected to continue to drive economic growth in the medium term, with industry and services playing increasingly supportive roles. There is considerable potential for agricultural development, particularly in smallholder cattle and cocoa production. However, weather conditions and world commodity prices will need to be favorable. There is at present, however, no comprehensive national strategy for agricultural development.

Growth in the services sector requires continued expansion of tourism. Competition from other Pacific Island destinations is strong and increasing, however. Expansion will be difficult to achieve unless a marketing strategy successfully differentiates Vanuatu as a tourist destination. However, further increases in tourist arrivals should be aided by expanded and more competitive international air service as a result of the Government's open sky policy, and by the growing popularity of Vanuatu as a cruise ship destination.

With Vanuatu 's high rate of population growth, even achievement of optimistic forecasts for economic expansion would imply a medium-term decline in per capita income, increased unemployment and underemployment, and little alleviation of hardship in rural areas. The private investment necessary for faster growth in income and employment is unlikely to be forthcoming unless the factors deterring foreign investors are addressed. These factors include political instability, an uncertain policy environment, and the high economic cost structure. Vigorous pursuance of the reform program aimed at providing a favorable environment for private sector investment will be a key to the economic success. The high cost of financing and doing business, the lack of skilled labor, the difficulty of land acquisition, and weak policy coordination are major hindrances to private sector investment. The promotion of private sector investment and creation new job opportunities is pressing needs in Vanuatu .

Also critical is the need for energetic pursuit by the Government of the reform program in addressing the monopoly and oligopoly in public utilities, banking, and commodity sectors. Additionally, governance, accountability, and transparency in the public sector need to be improved. The positive impacts from the reform program need to be felt on the outer islands, mitigating the severe gap in living standards between urban and rural areas.

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