Solomon Islands. Country Profile 2006

Transcription

1 Country Profile 2006 Solomon Islands This Country Profile is a reference work, analysing the country s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit s Country Reports analyse current trends and provide a two-year forecast. The full publishing schedule for Country Profiles is now available on our website at The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom

2 The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) Fax: (44.20) london@eiu.com Website: New York The Economist Intelligence Unit The Economist Building 111 West 57th Street New York NY 10019, US Tel: (1.212) Fax: (1.212) newyork@eiu.com Hong Kong The Economist Intelligence Unit 60/F, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) Fax: (852) hongkong@eiu.com Electronic delivery This publication can be viewed by subscribing online at Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright 2006 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN Symbols for tables n/a means not available; means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK.

3 Saipan Guam Northern Mariana Is. NORTHERN MARIANA ISLANDS (US) Marshall Is. Johnston Is. Kauai Honolulu Oahu Maui Wake Is. Hawaii Hawaiian Is. MARSHALL ISLANDS HAWAII Revilla Gigedo Is. MEXICO Babelthuap PALAU Caroline Islands Bismark Archipelago Manus Rabaul New Britain PAPUA NEW GUINEA AUSTRALIA Port Moresby Pohnpei FEDERATED STATES OF MICRONESIA New Ireland New Georgia Bougainville Brisbane Kolonia Choiseul Honiara Guadalcanal Kwajalein SOLOMON ISLANDS Santa Isabel Malaita San Cristobal VANUATU Port Vila NEW CALEDONIA New Caledonia Nouméa Lord Howe Is. Nauru Tarawa Norfolk Is. Majuro Ratak Chain c i M Ralik Chain n o r NAURU Espiritu Santo Efate Gilbert Is. Funafuti TUVALU Vanua Levu Viti Levu WALLIS & FUTUNA Suva Funafuti Phoenix Is. Tokelau SAMOA AMERICAN Northern Cook Is. SAMOA Wallis Apia Futuna Upolu Pago Pago Cook Is. Tutuila TONGA COOK ISLANDS NIUE Southern Cook Is. Alofi Tongatapu Avarua Nuku' alofa Rarotonga Kermadec Is. KIRIBATI Kiritimati a i s e FIJI PACIFIC OCEAN Leeward Is. Tahiti Tubai Is. Papeete THE PACIFIC ISLANDS L i n e I s l a n d s Marquesas Is. Windward Is. Hiva Oa Gambier Is. Pitcairn Is. PACIFIC OCEAN Tuamotu Archipelago Society Islands FRENCH POLYNESIA Sala y Gómez. Easter Is.. Canberra Melbourne Sydney Auckland NEW ZEALAND Ernest Legouve Maria Theresa. TASMAN SEA Tasmania Wellington Hobart Christchurch Chatham Is. 0 km 500 1,000 1,500 2,000 2,500 International Date Line The Economist Intelligence Unit Limited miles 500 1,000 1,500

4 Comparative economic indicators, 2005 Gross domestic product (US$ bn) Gross domestic product per head (US$ '000) Australia Australia 34.8 New Zealand New Zealand 26.4 Papua New Guinea Fiji(a) Fiji(a) Samoa(a) Samoa(a) Tonga(a) Vanuatu(a) Vanuatu(a) Solomon Islands(a) Papua New Guinea Tonga(a) Solomon Islands(a) (a) Sources: Economist Intelligence Unit estimates; national sources (a) Sources: Economist Intelligence Unit estimates; national sources. Solomon Islands(a) Gross domestic product (% change, year on year) Samoa(a) Consumer prices (% change, year on year) Vanuatu(a) Tonga(a) Fiji(a) Solomon Islands(a) Samoa(a) Fiji(a) Papua New Guinea New Zealand Australia Australia New Zealand Vanuatu(a) Tonga(a) (a) Sources: Economist Intelligence Unit estimates; national sources. Papua New Guinea (a) Sources: Economist Intelligence Unit estimates; national sources. Country Profile The Economist Intelligence Unit Limited 2006

5 Solomon Islands 1 Contents Solomon Islands 3 Basic data 4 Politics 4 Political background 5 Recent political developments 7 Constitution, institutions and administration 8 Political forces 8 International relations and defence 9 Resources and infrastructure 9 Population 9 Education 9 Health 9 Natural resources and the environment 10 Transport, communications and the Internet 10 Energy provision 11 The economy 11 Economic structure 11 Economic policy 12 Economic performance 12 Economic sectors 12 Agriculture 13 Mining and semi-processing 13 Manufacturing 13 Financial services 14 Other services 14 The external sector 14 Trade in goods 14 Invisibles and the current account 15 Capital flows and foreign debt 15 Foreign reserves and the exchange rate 16 Regional overview 16 Membership of organisations 18 The regional economy 20 Appendices 20 Sources of information 20 Reference tables 20 Government finances 21 Money and credit 21 Real gross domestic product by industrial origin 21 Inflation 22 Output of selected products The Economist Intelligence Unit Limited Country Profile 2006

6 2 Solomon Islands 22 Visitor arrivals 22 Main exports 22 Main imports 23 Main trading partners 23 External debt 24 Net official development assistance 24 Foreign reserves 24 Exchange rates Country Profile The Economist Intelligence Unit Limited 2006

7 Solomon Islands 3 Solomon Islands Basic data Land area Population Major islands Capital Climate Weather in Honiara Languages Measures Currency Time Public holidays, ,556 sq km 409,042 (1999 national census); 521,000 (Asian Development Bank, July 2004 estimate) Guadalcanal, Choiseul, Santa Isabel, New Georgia, Malaita, San Cristobal Honiara (population 49,107 in 1999), on Guadalcanal Tropical, maximum temperature 31 C; cooler season April to November. From November to April higher temperatures, occasionally accompanied by cyclones Average rainfall 2,290 mm per year English (official language), Pidgin, 87 local languages also in use Imperial and metric Solomon Islands dollar (SI$)=100 cents. Average exchange rate in 2005: SI$7.53:US$1. Exchange rate on July 20th 2006: SI$7.286:US$1 11 hours ahead of GMT January 1st (New Year s Day); April 14th-17th (Easter); June 9th (Queen s Official Birthday); July 7th (Independence Day); December 25th (Christmas Day); December 26th (National Day of Thanksgiving) The Economist Intelligence Unit Limited Country Profile 2006

8 4 Solomon Islands Politics The Solomon Islands gained independence from the UK in Standards of governance were poor from the start, but mismanagement by the government of Solomon Mamaloni during the mid-1990s led to a financial crisis. This exacerbated long-simmering ethnic hostilities between the people of Guadalcanal (the largest island) and the many thousands from Malaita, who had moved to Guadalcanal, especially to the capital, Honiara, and the surrounding areas. Malaitans came to dominate the public service and the police and, by the end of the decade, the hostilities had developed into militia warfare. A reform-minded government, led by Bartholomew (Bart) Ulufa alu, was elected in 1997, but an armed Malaitan militia forced the government from office in June 2000 and installed an administration led by the former opposition leader, Manasseh Sogavare, who had also been finance minister in the Ulufa alu government. Mr Sogavare called a general election in December 2001, in which his People s Progressive Party (PPP) saw its number of parliamentary seats reduced to two. A new coalition government was installed under Sir Allan Kemakeza, the leader of the People s Alliance Party (PAP). Under his leadership, the Solomon Islands government began to disintegrate in the face of renewed ethnic conflict and growing lawlessness. Law and order was restored following the intervention in July 2003 by the Australian-led Regional Assistance Mission to the Solomon Islands (RAMSI), at the request of Sir Allan. The peace proved fragile. Fierce rioting occurred soon after the general election in March 2006, directed against the ethnically Chinese population of Honiara, following the election of Snyder Rini as prime minister in mid-april. Mr Rini resigned shortly afterwards, and a parliamentary vote saw Mr Sogavare, now leader of the Social Credit Party (SCP), selected to fill his place in May Political background Post-independence rulers set poor standards In the ten years following independence the Solomon Islands had three prime ministers. The first was Peter Kenilorea, who had been chief minister at the time of independence. He was succeeded in 1981 by Solomon Mamaloni, also a former chief minister, but returned to office in Mr Kenilorea resigned in 1986 after allegations that he had secretly accepted French aid for repair work in his home village. He was replaced by Ezekiel Alebua, who held the post until 1989, when Mr Mamaloni became prime minister again. After the 1993 election a number of opposition parties combined to form the National Coalition Partners (NCP), with the sole aim of removing Mr Mamaloni from power. The NCP nominated Francis Billy Hilly, an independent, for the post of prime minister and he was duly elected. But he lost office in October 1994 as a result of an attempt to reduce the highly lucrative, but unsustainable and illegal, rates of logging that had developed throughout the country. Some members of his coalition shifted allegiance to Mr Mamaloni, leader of the Solomon Islands National Unity, Reconciliation and Progressive Party, who then became prime minister once again. Country Profile The Economist Intelligence Unit Limited 2006

9 Solomon Islands 5 Mr Mamaloni presided over a period of mismanagement that all but bankrupted the country and caused widespread public disillusionment with politics. The desire of the population for change led to a large number of new members of parliament being elected in the general election in August It prompted former opposition members party representatives and independents alike to form a coalition called the Solomon Islands Alliance for Change (SIAC), which elected Mr Ulufa alu, leader of the Liberal Party, as prime minister. He made economic and financial management a priority, along with structural reform to secure and maintain the support of international financial institutions and aid donors. Recent political developments The government is forced out of office by a militia An Australian-led force intervenes to restore order The reform programme was opposed by beneficiaries of the status quo, and struck major obstacles stemming from the long-running ethnic rivalries between the people of the two largest provinces, Guadalcanal and Malaita. The capital, Honiara, situated on Guadalcanal, had become virtually a Malaitan enclave and thousands of other Malaitans had settled on Guadalcanal outside Honiara. As violence flared up, armed militias killed dozens of people and forced thousands more to flee. In June 2000 an armed Malaita militia, supported by most of the police special force, took over Honiara, and forced the Ulufa alu government from office. The Sogavare administration was installed, declaring its intention to produce peace and national reconciliation, but it struggled to find credibility, especially when Mr Sogavare sought to scrap elections indefinitely while he considered changes to the constitution. The economy collapsed and, despite the negotiation of a peace agreement in Townsville, Australia, in late 2000, hostilities continued. The prospect of losing international financial support forced Mr Sogavare to call a general election in December 2001, when a new coalition government was installed, led by Sir Allan. The Solomon Islands slid into deeper trouble in almost every area of governance following the general election. The Townsville Peace Agreement reached with rebel ethnic militias in 2000 provided for the integration of rebel militiamen into the police force. Although no real peace process took hold, the government increasingly found itself the pawn of armed gangs, many of them nominally employed by the government, and large parts of the country ceased to respect government authority. In the Weather Coast region of Guadalcanal, Harold Keke, the one warlord who had refused to sign the Townville agreement, entrenched his power, and government attempts to seize him proved fruitless. In August 2002 the minister for youth, sports and women s affairs, Augustine Geve, was assassinated by Mr Keke, but the government proved unable to investigate the killing. Attempts to demobilise the various ethnic militias were setback when Sir Frederick Soaki, a member of the National Peace Council, was assassinated. With the government nearing collapse, in June 2003 Sir Allan called for Australian intervention to restore order. The RAMSI received the backing of all 16 members of the Pacific Islands Forum (PIF) at end-june 2003, and in July the Solomon Islands parliament voted unanimously to approve the intervention. The 2,250-strong force containing The Economist Intelligence Unit Limited Country Profile 2006

10 6 Solomon Islands contingents from Australia, New Zealand, Fiji, Papua New Guinea (PNG) and Tonga began to arrive in July 2003, backed by the presence of an Australian warship, HMAS Manoora. Law and order was quickly restored and all major militant leaders wanted on murder, intimidation and robbery charges were arrested, including the notorious Mr Keke, who has since been sentenced to life imprisonment for murder. Several militants currently await trial on charges ranging from murder to intimidation and corruption, and other prominent figures, including former cabinet ministers, await trial on corruption charges. Australian advisers led the rebuilding of the government s financial systems and the general repair and reform of the public service, and considerable progress has been made since their arrival. The military component of the RAMSI force has been scaled back to a few hundred troops, although the Australian government has indicated that it will remain in the country as long as necessary. Under the agreement with the Solomon Islands government underpinning RAMSI s presence, either side can give three months notice of its intention to end the mission. However, according to RAMSI officials, it could take up to ten years to fully restore the country s public service, economy and infrastructure. Despite calls by some politicians for RAMSI to be withdrawn, the mission will continue to enjoy widespread support from ordinary Solomon Islanders. Financial aid, mainly from Australia but also from New Zealand, Japan and the EU, will continue to underpin the country s restoration and recovery. Reform of the voting system to help to prevent ballot rigging was approved by parliament in July 2005, ahead of the March 2006 general election. The new electoral legislation provided for a single ballot box to be used at polling stations and voting arrangements that enabled individual voters to be seen inserting just one ballot slip into the single box. Under previous arrangements, voters had been able to buy hundreds of ballot papers and insert them into several ballot boxes undetected. Rioting forces the newly elected premier to resign However, in the event, such reform was of little consequence. The election in April of Snyder Rini as prime minister following the March 2006 general election prompted a series of riots in Honiara that led to Mr Rini s subsequent resignation on April 26th. Two candidates Fred Fono, former deputy minister of Rini s Alliance of Independent Members Party (AIMP), and Mr Sogavare were then fielded to contest the position on May 4th. Mr Sogavare clinched 28 of the 50 votes to take victory. As it turned out, Mr Sogavare s ten-member party had actually swung the vote in favour of the Rini administration in the first prime ministerial election on April 18th, after losing the first round of voting to Mr Rini and a third candidate, Job Dudley Tausinga, the leader of the Rural Advancement Party (RAP). The rioting appears to have stemmed from the belief that the elections had been unduly influenced by Chinese businessmen with an interest in a chain of Solomon Island casinos, and that Mr Rini, to all intents and purposes the anointed successor of Sir Allan Kamakeza, had essentially been "bought". The discontent was initially fomented by supporters of Mr Tausinga, who gathered outside the parliament building and jeered as the results were announced. No Country Profile The Economist Intelligence Unit Limited 2006

11 Solomon Islands 7 amount of conciliatory rhetoric from various members of the government, including Mr Tausinga, succeeded in placating the crowd, and subsequent violence spiralled out of control. In an attempt to quell the rioting, Australia sent 150 soldiers and police into Honiara on April 20th, followed by 55 from New Zealand and 25 from PNG. It is also possible that tensions may have arisen from Taiwan's involvement in the Solomon Islands. Taiwan has had a long-standing relationship with the Pacific island nation, which recognises its political sovereignty, and is thus a valuable ally. In return, Taiwan channels a considerable amount of aid into the country in the form of development projects. The funding for these projects is administered by local politicians whose task it is to distribute the funds accordingly, and there has long been suspicion that not all the money ends up at its rightful destination. However, Taiwan has denied any influence in the election fall-out, and the businesses and citizens targeted were indeed largely of mainland Chinese origins. Constitution, institutions and administration The Solomon Islands is a constitutional monarchy with the British sovereign as head of state, represented by a governor-general, who must be a Solomon Islander. Executive power is in the hands of a cabinet headed by the prime minister. The national legislature is a unicameral 50-seat parliament, elected for four-year terms by universal adult suffrage. There are nine provincial governments and an extensive system of area councils and assemblies. A draft replacement for the current constitution, adopted when the Solomon Islands became independent in 1978, was submitted to the government in July The draft, put together by a government task-force assisted by UN advisers, proposes the adoption of a federal form of government. Handicapped by an acute lack of funds and skilled manpower, the country s weak provincial governments have for many years been pushing for greater decentralisation, and the handing over of funds and responsibilities that it implies. The draft constitution envisages a federal republic with the present head of state, the British monarch, replaced by an elected president. The national parliament would remain, but a significant number of political, financial and legal powers would be transferred to state governments over a period of ten years. However, there is some concern about the costs involved in setting up a federal structure, while some critics argue that the proposed changes would not necessarily bring about a much-needed improvement in the delivery of public services. The draft constitution will be referred for public consultation. Decentralised economic zones are created In July 2006, Mr Sogavare announced the formation of four decentralised economic zones in Guadalcanal, Malaita, Temotu and Choiseul. The aim of the scheme is the more even distribution of economic prosperity throughout the country, and a shift away from the central and economically dominant island of Guadalcanal. No specific timetable has been given for the implementation of these zones, but the government is in the process of drafting the necessary legislation. The Economist Intelligence Unit Limited Country Profile 2006

12 8 Solomon Islands Political forces Party allegiances are fluid Party allegiances in the Solomon Islands tend to be fluid, and are based more on individuals and particular issues than long-standing political or ideological positions. Parties include the National Action Party, the Labour Party and the National Party, all of which, together with three minor parties, were members of the SIAC coalition government ousted from power in mid The influence of Mr Sogavare s former Solomon Islands National Unity, Reconciliation and Progressive Party was greatly diminished by the 2001 election, whereas that of the ruling PAP increased. There is invariably a sizeable group of independents at the beginning of each parliament. A number of new parties, founded by candidates who contested the 2006 general election, were launched in Most of these parties can be expected to disappear following the election if their protagonists fail to get elected. International relations and defence Successive governments have followed a policy of non-alignment since independence. However, the government s decision in 2003 to invite in an Australian-led intervention force to restore order has led to greater long-term involvement by Australia in domestic affairs, particularly now that the mission has turned its attention to issues such as corruption. The Solomon Islands is a member of the Pacific Islands Forum (PIF) and the Melanesian Spearhead Group (MSG). Relations with neighbouring PNG were strained by the ten-year secessionist war on PNG s Bougainville island, which began in Bougainville is close to the Shortland Islands, the most north-westerly part of the Solomon Islands, and family and community ties span the border. There were recurring armed incursions in both directions until a peace agreement was signed in In July 2004 the government signed a border agreement with PNG relating to Bougainville, providing for the setting up of police posts and exchanges of magistrates, as well as financial assistance from PNG for the Solomon Islands. Relations between the two countries continued to warm in 2005, when discussions on greater crossborder co-operation in several areas got under way. Three PNG-based companies have recently announced investments in the Solomon Islands, and in June 2006 Port Moresby s police college started a programme to help recruit and train members of the Solomon Islands police force. The Solomon Islands has no army, but there is a well-armed police field force, which provided the weapons and many of the personnel for the overthrow of the government in Many of the Malaitan militiamen were taken into the police force as special constables; these were demobilised as part of the current intervention. William Morrell, of the UK s Manchester police force, took over as police commissioner in January He was succeeded in July 2005 by Shane Castles, who has served in the Australian Federal Police (AFP) for 28 years and has been responsible for co-ordinating AFP resources for the RAMSI mission. Country Profile The Economist Intelligence Unit Limited 2006

13 Solomon Islands 9 Resources and infrastructure Population At the time of the last national census, held in November 1999, the population totalled 409,042, up from 286,043 in the previous census in The Asian Development Bank (ADB) estimated a population of 521,000 in mid In 1999 the population of the capital, Honiara, was 49,107, around 12% of the total population. Provincial populations were: Malaita 122,620; Western 62,739; Guadalcanal 60,275; Makira-Ulawa 31,006; Central 21,577; Santa Isabel 20,421; Choiseul 20,008; Temotu 18,912; and Rennell-Bellona 2,377. Education Basic services such as education are in a poor state The adult literacy rate was estimated at 76.6% in Normally about twothirds of children are in formal education, but with the near breakdown of public services many schools have closed for lack of funds to pay teachers and maintain facilities. The New Zealand government has supplied funds to help restore primary school education services. Health In 2002 public health expenditure accounted for 4.5% of GDP, according to UN Development Programme (UNDP) figures, but the breakdown in basic services over the past three years has also been reflected in widespread closures of health facilities. There were 15,172 malaria cases per 100,000 people in 2000, although efforts to curb malaria have been stepped up since the Australian-led intervention of mid The recent political problems had threatened partly to reverse some impressive past improvements in healthcare indicators. Life expectancy at birth has increased from 55.6 years in to 62 years in 2003, according to UNDP figures. The rate of infant mortality has improved dramatically from 120 per 1,000 live births in 1960 to 19 in Natural resources and the environment The country is composed of six large islands, 20 smaller ones and hundreds of small islets and coral reefs, giving a total surface area of 27,556 sq km. Honiara is on the largest island, Guadalcanal. The other major islands are Choiseul, Santa Isabel, New Georgia, Malaita and San Cristobal. The most heavily populated islands are Malaita and Guadalcanal. Forests and woodland cover 84.8% of the total land area, which is the reason that the logging industry is the dominant sector within the economy. Around 90% of land is held under traditional community land-tenure arrangements. Some minerals deposits exist on the islands Surveys have indicated that there are deposits of phosphates amounting to 10m tonnes on Bellona Island, and deposits of asbestos, zinc, bauxite, lead, cobalt and nickel have also been found on the islands. A total of nine prospecting The Economist Intelligence Unit Limited Country Profile 2006

14 10 Solomon Islands licences were issued to mining companies in In May that year the government signed an agreement with Australian Solomons Gold (ASG, which is 47.5% owned by an Australian mining company, Michelago) for the refurbishment and recommissioning of the Gold Ridge mine on Guadalcanal (the country s only gold mine), which was wrecked and subsequently abandoned during the unrest of However, many landowners and the Guadalcanal provincial government, led by the current premier, Abel Arabola, oppose the reopening of the mine and have demanded a review of the central government s agreement with ASG. They oppose the deal on the grounds that it was not as sensitive to their concerns as an agreement made earlier in the year with a Malaysian company that is seeking to revive Guadalcanal s oil palm plantations. ASG announced in May 2006 that it expected to have finished prospecting at the mine by the end of the year, after which reconstruction would start. The Gold Ridge mine, which is located around 40 km outside Honiara, has reserves estimated at around 2.3m oz. Transport, communications and the Internet The central and provincial governments maintain about 1,300 km of roads, of which about one-third are classified as main roads. Another 800 km of private roads are maintained mostly for plantation use. There are usually international shipping services between the Solomon Islands and Australia, New Zealand, Hong Kong, Singapore, Taiwan and a number of European ports. There is an extensive inter-island shipping system, involving more than 100 vessels. In 2004 the first of seven outer-island jetties being built with money from the EU was completed and opened. According to Honiara and Noro port authorities, both ports met the July 2004 deadline for fulfilling new international safety and security requirements. Air services operate through one international and 25 domestic airports. International services are operated by Solomon Airlines (to Australia, New Zealand and Vanuatu), Air Nauru, Air Pacific and a limited service by Air Niugini (Papua New Guinea). Domestic services are operated by Solomon Airlines. The Solomon Islands in May 2005 became the seventh Pacific island government to sign the Pacific Islands Air Services Agreement (PIASA) and Pacific Islands Civil Aviation Safety and Security Treaty. The PIASA is intended to open up the Pacific islands regional civil aviation market by allowing airlines more air route flexibility. Internet take-up has been very slow but is picking up as the economy recovers. Most government websites are out of date, with the notable exceptions of the Central Bank of Solomon Islands (CBSI). Energy provision According to the ADB, total energy production amounted to 58m kwh in Consumption per head of electricity stood at 55 kwh in 2003, down from 63 kwh in The turmoil in recent years affected all services, including power supply. However, assistance from Australia and Japan enabled the Solomon Islands Electricity Authority (SIEA) to restore a reliable supply to Honiara in 2005 and there are plans to increase generator capacity. Country Profile The Economist Intelligence Unit Limited 2006

15 Solomon Islands 11 The economy Economic structure Main economic indicators, 2005 Real GDP growth (%) 4.4a Consumer price inflation (av; %) 7.2 Current-account balance (US$ m) 66.7b Exchange rate (av; SI$:US$) 7.53 a ADB estimate. b Sources: Central Bank of Solomon Islands; Asian Development Bank (ADB); IMF, International Financial Statistics. The population relies on subsistence agriculture Economic growth is largely determined by the performance of the agricultural sector, which accounted for 62% of GDP in 2002, a share that has risen, following years of turmoil and interruptions in the provision of many services. About 90% of the population relies on subsistence agriculture. Exports are almost entirely of agricultural commodities, of which timber is the largest category, accounting for 68% of total export earnings in Other significant exports include fish and fish products, palm oil, copra and cocoa, although all were affected by the recent political turmoil. Cocoa production declined in 2005, and copra output suffered from weaker prices. Progress has been made on the restoration of some of the businesses abandoned in the aftermath of the coup of mid A newly established company, Guadalcanal Plains Palm Oil (GPPOL), finally began work in April 2005 on the restoration and expansion of oil palm plantations on the Guadalcanal Plains, which had been abandoned by the British former operator owing to the violence that began in A Malaysian company, New Britain Palm Oil, is leading the GPPOL project in a joint venture with landowners, most of whom have agreed to grant leases covering more than 5,000 ha and will have a 20% joint stake in GPPOL. Economic policy The public finance situation has begun to improve The turmoil that erupted in 2000 caused the public finances to deteriorate sharply that year, with the government deficit (excluding grants) swelling to SI$144.8m (US$19m), according to figures from the Asian Development Bank (ADB). The deficit subsequently rose further, to a peak of SI$417.8m in However, the Australian-led mission has since overseen considerable progress in downsizing the public service, restoring discipline in the management of government finances and improvements in the collection of income tax and import revenue. As a result, the deficit fell to SI$98.9m in 2004 (including grants, there was a surplus of SI$217m). The government also started to repay debt again in 2004, which was much earlier than expected, although the Central Bank of Solomon Islands (CBSI) has warned that without debt forgiveness the government will be unable to meet all its debt obligations in the medium term. The Australian prime minister, John Howard, has pledged more than SI$800m (US$104m) in aid for , but at the same time has emphasised that intervention must increasingly focus on rooting out corruption in the government and the public services. The Economist Intelligence Unit Limited Country Profile 2006

16 12 Solomon Islands Despite the unrest in April 2006, the government appears to have managed to avoid any negative economic repercussions, and is pressing on with reform and decentralisation. According to the CBSI, larger companies have expressed reservations about further investment owing to uncertainties about taxation rules, labour regulations and government incentives, the lack of infrastructure development and high utility costs. The government has acknowledged that long delays in obtaining business licences, uncertainty over immigration and other approvals, and unreliable infrastructure were all discouraging foreign investment. It hopes that a new foreign investment bill designed to streamline the approvals process, which was enacted in August 2005, will begin to address some of these issues, although security concerns will remain. Economic performance Economic growth picks up again Consumer price inflation has fallen No economic activity escaped unscathed from the conflict that followed the 2000 coup, although the export sector was probably worst hit. Exports of commodity products continued nonetheless, helping to keep the economy afloat. The CBSI estimates that the economy expanded by 5.6% in 2003, thanks to the restoration of law and order, the resilience of the private sector, improving external demand and inflows of donor funds, and the start of infrastructure rebuilding, especially in battered export-oriented areas. Since the turmoil in , the economy has expanded each year, with the ADB estimating growth of 4.4% of According to the CBSI, real GDP expanded by 5.5% in 2004, the fastest rate since the logging boom of the early 1990s, underpinned by a strong recovery in export earnings, strong commodity prices and rising donor inflows. However, growth was also attributable to a rapid expansion in logging, the pace of which was four times the estimated sustainable rate, according to the CBSI. Consumer price inflation eased from an average rate of 10.1% in 2003 to 6.9% in 2004, partly reflecting the relative stability of the Solomon Islands dollar following its depreciation in the previous three years, but rose slightly again to 7.2% in Employment in the formal economy rose by 1.3% to 42,297 in However, this figure represents only 10% of the country s working-age population and the pace of job creation was insufficient to absorb most of those leaving the education system. Economic sectors Agriculture Copra production recovers Coconut products are traditionally the main agricultural output. In 2002 production of copra slumped to just 2,000 tonnes, compared with 19,000 tonnes in 2000 and 27,000 tonnes in However, production has recovered strongly since 2003 to reach 26,000 tonnes in Commercial fish production, which in 1998 was around 49,000 tonnes, was only 24,000 tonnes in 2005, but price rises have helped to mitigate revenue losses. The sale of fishing Country Profile The Economist Intelligence Unit Limited 2006

17 Solomon Islands 13 licences to foreign ships has been a major source of revenue for the government in recent years. Forestry output has fluctuated wildly Forestry output has fluctuated wildly in recent years. The government has taken some steps to curb illegal forestry, but over-logging remains a serious threat, both to the environment and to the timber industry s long-term future. Log output of 1.2m cu metres in 2005 was a record and four times higher than the estimated sustainable rate of 300,000 cu metres per year. The country s heavy dependence on this commodity risks undermining the economy, given the vulnerability of the tropical log market to price crashes. Mining and semi-processing Gold production was suspended in mid-2000 Initial estimates had suggested that the Gold Ridge mine on Guadalcanal, which began production in September 1998, would produce 100,000 oz of gold a year over ten years, with further exploration leading to the discovery of additional reserves. However, production was suspended indefinitely in mid after the mine was wrecked by militants and its Australian owners withdrew. In May 2005 the government signed an agreement with another Australian company, Australian Solomons Gold (ASG, which is 47.5% owned by an Australian mining company Michelago Ltd), which intends to restore the mine and resume production in However, some landowners have objected to the reopening of the mine. Manufacturing The manufacturing sector has stagnated Manufacturing activity is concentrated on the processing of agricultural products, particularly fish and timber. The manufacturing sector stagnated in the face of the unrest caused by the 2000 coup and subsequent violence, political instability and government indebtedness. Manufacturing activity has, however, begun to recover since the arrival of the Australian-led Regional Assistance Mission to the Solomon Islands (RAMSI) in July Financial services Security concerns hit the sector hard From late 1996 activity in much of the banking sector was, in effect, frozen by the scale of government debt. Transactions in all forms of Treasury paper ceased because the government had exceeded its statutory debt ceilings, and the high level of government indebtedness to the private sector forced a reduction in the already limited branch structure of the banks. These trends were exacerbated by the events of June By the end of 2001 the banks liquid assets ratios were three times the statutory minimum, indicating that there was little inclination to either lend or borrow. By May 2003 the security situation had deteriorated to the point where banks, including the Central Bank of Solomon Islands (CBSI), had to close their doors temporarily owing to bomb threats. The Australian-led intervention has led to an improvement in conditions in the sector, with credit to the private sector rising by over 60% in The Economist Intelligence Unit Limited Country Profile 2006

18 14 Solomon Islands Most of the foreign-exchange restrictions imposed by the CBSI in 2000 were removed in Other services Tourism facilities are not well developed Tourist arrivals fell to 6,100 in 2000 as tourism collapsed after the government was toppled and most expatriate residents were evacuated, and slumped further in Visitor arrivals have since begun to recover slowly, with most visitors once again booked for diving holidays. The Solomon Islands Visitors Bureau also hopes to exploit niche markets such as ecotourism, game-fishing, tours of battlegrounds from the second world war and canoe trips in the country s spectacular lagoons. The national art gallery building (formerly the official residence of the governor-general) in the capital, Honiara, was sold in 2005 to a Papua New Guinea-based hotel company for SI$8.2m (US$1m), and will be converted into an upmarket hotel. Other hotel projects are planned. Nevertheless, compared with other Pacific islands, tourism facilities are not well-developed, and there are problems accessing some of the islands. The external sector Trade in goods China is the largest export market The value of goods exports fell from SI$608.3m (US$126m) in 1998 to SI$248.7m in 2001, largely as a result of the political and economic turmoil, but recovered modestly to SI$390m in A stronger rebound was recorded in 2003 and 2004, and export earnings reached an estimated SI$642m in Timber, agricultural commodities, fish and fish products account for all but a fraction of total exports. Japan, traditionally the Solomon Islands largest export market, mostly for fish, was overtaken in 2003 by China. China remained the largest export market in 2004, absorbing 28.2% of total exports in that year. Thailand has also become an increasingly important market in recent years. Merchandise imports fell from SI$616m in 1998 to SI$431.9m in 2001, but picked up to reach an estimated SI$1.4bn in 2005 (owing partly to higher fuel prices). The most important categories are mineral fuels, food and live animals, and machinery and transport equipment. Australia is the most important source of imports, accounting for 25% of total imports in According to the Central Bank of the Solomon Islands (CBSI), there was a merchandise trade deficit of SI$752m in Invisibles and the current account According to CBSI figures, current-account surpluses of SI$207m (US$28m) and SI$502m were recorded in 2004 and 2005 respectively, after several years of deficits. The surpluses were, however, entirely the result of transfers to the Country Profile The Economist Intelligence Unit Limited 2006

19 Solomon Islands 15 government (for example, grants), with the merchandise trade and services accounts remaining in substantial deficit. Capital flows and foreign debt Foreign debt is substantial Aid flows remain crucial The government has traditionally accounted for a large proportion of total foreign debt. At the end of 1997 Manasseh Sogavare, the then finance minister, told parliament that the government owed more than SI$400m (US$85m) to external creditors, although this is considerably lower than the World Bank s estimate for total external debt at end-1997 of US$139.9m (equivalent to 39% of GNP). Total external debt has risen as a proportion of GNP since 1997, to stand at 75.1% at end-2003 (ADB figures). The Solomon Islands has benefited substantially from inflows of aid from abroad in recent years. Net official development assistance (ODA) was broadly unchanged at around US$40m in , but rose sharply in 2000, reflecting additional funds from the EU. Inflows remained substantial in 2001 at US$54.4m, but fell to US$25.3m in 2002, with donors withdrawing funds as the country descended into turmoil. Following foreign military intervention, aid disbursements picked up rapidly, to reach US$124bn in Australia is by far the largest bilateral donor, although New Zealand also contributes. Most multilateral funds come from the EU. Foreign reserves and the exchange rate Foreign reserves hit a new high in 2005 Foreign reserves (excluding gold) peaked at US$51.1m at end-1999, before dwindling to US$19.3m by the end of 2001 (IMF figures). In an attempt to halt the decline in foreign-exchange reserves, the currency was devalued by 25% in March However, the decision to devalue had apparently not received the formal endorsement of the cabinet, and amid alarm among members of the coalition government regarding the likely rise in inflation, the move was reversed. More recently, the influx of foreign aid and rising export earnings have enabled the Solomon Islands to begin building up its foreign reserves. These reached a new peak of US$80.6m at the end of December 2004, and then rose further to US$95.4m by the end of The Solomon Islands dollar depreciated slowly but steadily against the US dollar between 2000 and 2003, when the unit averaged SI$7.51:US$1 (compared with SI$4.84:US$1 in 1999). However, it remained broadly stable against the flagging US currency in 2004, and only lost a little ground during 2005 and early The Solomon Islands dollar has, however, depreciated against many regional currencies. The Economist Intelligence Unit Limited Country Profile 2006

20 16 Solomon Islands Regional overview Membership of organisations The Pacific Islands Forum The Pacific Islands Forum (PIF) is the most important regional organisation. It was formerly known as the South Pacific Forum, which in turn developed from the South Pacific Bureau for Economic Co-operation, established more than 40 years ago. The Forum officially adopted its new name at its annual meeting in 2000, recognising that not all of its members are in the South Pacific since the admission of former US trust territories north of the equator. The Forum was created in 1971 in response to the spread of self-government in the region and the need of the new states to have a political forum. The 16 current members are Australia, the Cook Islands, the Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, the Marshall Islands, Samoa, the Solomon Islands, Tonga, Tuvalu and Vanuatu. The Forum meets each year at head of state/government level, and after the meeting ministers spend two days in consultation with the Forum dialogue partners Canada, China, the EU, France, India, Indonesia, Japan, Malaysia, the Philippines, South Korea, the UK and the US. A separate dialogue session is held with Taiwan by the five Forum members with which it has diplomatic relations. The Forum Secretariat (based in Suva, the capital of Fiji, with a staff of about 70) administers a series of programmes aimed at promoting regional cooperation among member states through trade, investment, economic development, and political and international co-operation. It has also developed a growing portfolio of technical training programmes as part of broader initiatives for institutional strengthening, good governance and accountability. Operations are funded by contributions from member governments and donors. Current donors are the dialogue partners, together with Australia, New Zealand, the Commonwealth Secretariat and Germany. Since October 1994 the Forum has had observer status at the UN General Assembly. Island governments have used the PIF and other regional forums to make their views known on other issues, such as climate change and the impact of rising sea levels. Other perennial issues are pooled regional governance, greater cooperation on regional air transport, security and crossborder crime (eg moneylaundering). The PIF is now focusing on implementing the Pacific Plan, a wideranging package of measures agreed at its summit meeting in October 2005 in Papua New Guinea. One key objective is to integrate trade in services (including temporary labour movement) into the Pacific Island Countries Trade Agreement (PICTA) and the proposed EU Economic Partnership Agreement (EPA) by There are also plans for the bulk purchase of commodities such as oil. Greg Urwin, an Australian and a former high commissioner to Fiji, Samoa and Vanuatu, was appointed secretary-general-designate of the PIF at the organisation s annual summit in August The post of secretary-general, the senior regional position, had always previously been filled by a Pacific islander, and the leaders of some of the smaller PIF member states, including Nauru and the Cook Islands, were unhappy at the aggressiveness of Australian lobbying for Country Profile The Economist Intelligence Unit Limited 2006

21 Solomon Islands 17 their candidate and suspicious of Australia s motives in seeking the top position in the organisation. Nevertheless, Mr Urwin, who is married to a Samoan, was finally appointed in a secret ballot. Australia s increasing military role in the region, along with its aid activities, means that it is likely to play a crucial role in PIF activities. The rising power in the region is China, and the Chinese government held discussions with several PIF members in Fiji in The Pacific Community Other regional organisations The EU-ACP Convention A second regional organisation is the Pacific Community (formerly the South Pacific Commission), formed in 1947 by Australia, France, the Netherlands, New Zealand, the UK and the US. They were then the colonial powers in the region and insisted that the organisation be non-political, dealing only with technical issues and matters of practical co-operation. It now has 26 members and continues as a non-political body, offering technical advice, assistance, training and research. Its headquarters are in Nouméa, New Caledonia, with a substantial presence in Suva. It is a bilingual organisation (English and French), with a staff of around 175 and a limited budget, augmented by special funding for particular projects. Its director-general is Jimmie Rodgers, who was appointed in November It has an integrated work programme based around the development of the region s land-based, marine-based and human resources. Its current corporate plan concludes in 2006, so the organisation will now need to draw up a new list of priorities. Better use of land and marine resources will be an important future focus. The secretary-general of the Forum Secretariat chairs the Council of Regional Organisations of the Pacific (CROP), which brings together the Forum and the Pacific Community, as well as six other regional organisations: the Forum Fisheries Agency (based in Honiara, Solomon Islands); the Pacific Islands Development Programme (based in Hawaii); the South Pacific Regional Environment Programme (based in Apia, Samoa); the South Pacific Applied Geoscience Commission (based in Suva, Fiji); the South Pacific Tourism Organisation (also based in Suva); and the University of the South Pacific (based in Suva, but with campuses and centres throughout the region). A further regional organisation, although narrower in membership than either the PIF or the Pacific Community, is the Melanesian Spearhead Group (MSG), which brings together the Solomon Islands, Papua New Guinea, Vanuatu, Fiji and the New Caledonia independence coalition, the Front de Libération Nationale Kanak Socialiste (FLNKS). The MSG aims to promote co-operation between members in economic, political and cultural matters, and is implementing a free-trade agreement between its members. All PIF members excluding Australia and New Zealand are also members of the 78-state ACP (Africa, Caribbean and Pacific) group within the Cotonou Agreement. This agreement, which was ratified in February 2003, is the successor to the Lomé Convention and gives the ACP nations preferential trading access to the EU market and a share in EU aid programmes and other assistance. The secretariat of the PIF is charged with the task of drafting a joint position for negotiations between the PIF members and the EU provided for under the agreement. The Economist Intelligence Unit Limited Country Profile 2006