The Solomon Islands’ economy has a rich resource base but faces many obstacles, according to Vsevolod (Seva) Payevskiy, Country Resident Representative for the International Finance Corporation. He tells Business Advantage PNG the best options for growth are agriculture, fisheries, mining and tourism.

Business Advantage PNG (BAPNG): What are the strengths and weaknesses of the Solomon Islands’ economy?

The IFC’s Vsevolod Payevskiy, Solomon Islands country representative.

Payevskiy: The weaknesses in the Solomon Islands’ economy, as with many other development challenges the country faces, stem from its smallness and remoteness.

The small, dispersed population increases the costs of public service delivery, constrains the reach of infrastructure and reduces the range of opportunities for private sector development.

Remoteness, on the other hand, inflates transport costs for all traded inputs and products which, together with a lack of the economies of scale in the provision of basic infrastructure that is required for economic activity, pushes up the total cost of goods and services.

The upside, however, is there is a relatively rich resource base in agriculture, including fisheries, and also untapped wealth in natural resources.

BAPNG: Where do you see the greatest business opportunities?

Payevskiy: Since the end of ethnic tensions, the post-conflict growth in the Solomon Islands has been driven mostly by the rapid expansion of logging and large increases in international aid flows. Aid, and the recycling of logging revenues through the public sector, has driven the urban service economy.

‘Some form of public-private partnership (PPP) is likely to be required for these infrastructure developments to occur.’

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With recent declines in aid and expected declines in logging, the macroeconomic challenges may become severe. So, with the logging scaling down, the greatest opportunities are in the sectors that have significant potential to support growth—namely in agriculture and fisheries, mining and tourism.

BAPNG: How best can the Solomons diversify its industry base, in your view?

New economic opportunities in mining, tourism, agriculture and fisheries in the Solomon Islands are likely to be in areas of the country where basic infrastructure needs to be established, or significantly upgraded. Some form of public-private partnership (PPP) is likely to be required for these infrastructure developments to occur.

‘Access to land is the universal issue.’

That is, developing the infrastructure jointly with the private sector, would potentially help to diversify the economy.

BAPNG: What are the greatest policy challenges facing the country in your view?

Speaking about the business-enabling environment, the government’s approach to private sector issues is perceived to be ad hoc in the absence of a guiding strategy or dialogue mechanism.

Access to land is the universal issue, cited by many companies as a major constraint to development. The government is trying to tackle it, but progress is minimal, due to the complexity of the issue.

‘There are also important mismatches between skills provided through the education system.’

Mining policy reform is also of considerable importance as mining is one of the few major alternative sources of growth that the Solomon Islands is going to be able to develop in the mid-term.

BAPNG: What is the approach to taxation?

Businesses in Honiara often report the relatively high burden of taxation falling on compliant businesses and the scarcity of urban land for business expansion.

Additionally, there are also important mismatches between skills provided through the education system and those sought by firms, often forcing firms to rely on skilled migrant workers.