Economic growth in Solomon Islands is expected to rise at a moderate four to five percent this year, a little lower than the 5.5% growth rate in 2012.

Map of the Solomon Islands

Growth in 2012 was narrowly-based, the main contributors being logging and increased output from the Gold Ridge mine, which contributed two per cent to overall growth. But mining is expected to take over from logging as the country’s economic export earner.

‘The growth rate was pleasing,’ Jerry Maiki Tengemoana, CEO of the Solomon Islands Chamber of Commerce and Industry told Business Advantage PNG. ‘But the issue and challenge is to sustain that rate, given the depletion of our main export industry, logging.’

Rain affected log production in the second quarter of 2012, but overall exports were comparable to the first half of 2011. International prices fell, which the central bank says reflected weaker demand from China.

New industries

‘The minerals sector has potential but the process of getting a company to set up in Solomon Islands is difficult. There is a boom in sector but the process of setting up is ridiculous. It can take up to a year to get the paperwork sorted,’ said Jerry Maiki Tengemoana.

The Government has identified agriculture, fisheries, minerals and tourism as core sources of growth in the medium to long term.

Global commodity prices fell during 2012. Farmers responded by cutting production. Copra and cocoa production were one-quarter lower in the first half of 2012 than the corresponding period in 2011. Palm oil production rose slightly, as prices had fallen only slightly.

Falling export production and prices took the Solomons’ trade balance back into deficit, after four consecutive quarters of surpluses. A small surplus of US$0.7m is planned for 2013, while the Central Bank of Solomon Islands has forecast inflation to range between five and six per cent.

Spending boost

A notable boost to private consumption and government spending came from the Festival of Pacific Arts, which was held around Honiara in July. The Duke and Duchess of Cambridge visited in September, providing significant global tourism publicity. Tourism numbers have been steadily rising from a low of 5600 in 2004 to the last reported arrivals in 2010 of 21,000.

The Solomons Government endorsed a new Debt Management Strategy in May 2012, which it will use over the next five years to ensure debt levels remain ‘affordable and sustainable’. A World Bank-IMF study estimates Solomon Islands is at moderate risk of external debt distress.

Solomon Islands in brief

Population: 550,000 (2011 est.)

Capital: Honiara

Area: 28,900 sq km

Official language: Pijin, English

Currency: Solomon Islands dollar (SBD)

GDP: US$1.039 billion (2012, source: IMF)

Distance by air: Brisbane (3 hours 10 minutes)

World Bank Ease of Doing Business ranking 2013: 92 (out of 185 economies)

Business confidence up

Overall, business confidence is increasing, according to the ANZ Bank’s incoming CEO, Geoff Buchanan.

‘Infrastructure development across a variety of sectors is starting to fuel some uplift in the private sector confidence and we are starting to see signs of new construction, particularly in Honiara. However in saying this, strong competitive forces still exist across retail and wholesale, and with the drop off in commodity prices, we are starting to see some changes in consumer spending patterns.’ New investment remains ‘modest’, he said.

New projects

The feasibility study on the long-awaited Tina River hydro dam project on Guadalcanal is nearing completion and a final report will go to government soon. The 14MW project could meet as much as 50% of the power needs of the island of Guadalcanal. Geological investigations revealed weak bed rock on the proposed site, forcing engineers to move the dam site 800 metres upstream. Talks are also underway to secure about 13,200 hectares of customary land for the project. Construction of the US$100 million dam is expected to begin in 2015.

At the time of writing, the Papua New Guinea state is reported to be taking a 51% shareholding in Bemobile, which owns Solomon Islands’ second mobile phone license, with Fiji’s National Provident Fund (41%) the other major shareholder. It is believed Vodafone Fiji will manage Bemobile under contract, although the precise details have not yet been formally announced.

In September 2012, St Barbara Ltd, one of Australia’s largest ASX-listed gold producers, bought Allied Gold Mining, owner of the Gold Ridge mine on Guadalcanal, saying it expects to produce 100,000 ounces of gold in 2013. A number of international companies, including Axiom Mining and SMM Solomon, are continuing nickel exploration in Guadalcanal, Makira,Isobel and Choiseul provinces.

Deloitte’s PNG office has opened a financial accounting and consulting office in Honiara, appointing Ben Havenga as country director.

Future stability

Political instability continues to be of concern, as the Opposition continues to pass votes of no confidence in the government.

After 10 years, the Regional Assistance Mission to Solomon Islands (RAMSI) will begin withdrawing its military component from mid-2013, and will then focus on increasing the capacity of the local police force to maintain law and order. This phase will last until 2017.