New Caledonia is a unique territory in the Pacific region. With the second highest per capita GDP in the region, it is a prosperous first-world economy that possesses a level of development and infrastructure that would be the envy of most Pacific island nations, as Andrew Wilkins reports.

The port at the Koniambo nickel project. Credit: Glencore

The keys to the territory’s prosperity are twofold. Firstly, it continues to have political and economic attachment to France, which comes with a sizeable contribution from the French taxpayer, equal to around 18% of GDP (2011). Secondly, the main island of Grand Terre possesses about 25% of the world’s nickel resources—estimated as amounting to some 300 years’ worth of metal ore.

‘New Caledonia is a small economy, very dependent on nickel and public money,’ observes Éric Wiard, Director General of Banque Caledonienne Investissement (BCI), part of the French BRED banking group that also has presences in Vanuatu and Fiji.

New Caledonia has other advantages, too. As a French territory, it offers other countries in the region a route into the European Union, one of the world’s largest trading zones. New Caledonia also has a well-educated workforce.

‘New Caledonia has good fundamentals. It just needs its political institutions to introduce confidence, hope and optimism.’

Recent downturn

Noumea. Credit Carnival Cruises

When world nickel prices are high and French government contributions adequate, such dependence is not a problem. However, when Business Advantage visited the French-speaking territory in the first half of 2014, New Caledonia—following a strong growth period—was going through a temporary slump. This was causing both businesses and government to address efficiencies and productivity.

In recent times, world nickel prices have been relatively low (albeit rallying in the first half of 2014), affecting the profitability of New Caledonia’s nickel sector. At the same time, France’s economic support has been limited.

‘Apart from nickel, which is a non-renewable source of revenue, New Caledonia is going to be confronted by a tough budget situation. French subsidies are frozen, while our needs—an ageing population, the cost of social security—are growing exponentially,‘ explains Laurent Chatenay of Groupe Sofinor, the investment company of the territory’s Northern Province.

Infrastructure spending

Faced with an economic downturn that has returned trade volumes back to 2010–11 levels, and slowed construction activity, expectations are high that the territory’s new government, elected in May 2014, will ‘green light’ major social infrastructure spending.

‘New Caledonia has good fundamentals. It just needs its political institutions to introduce confidence, hope and optimism,’ suggests the outgoing President of the New Caledonia Chamber of Commerce (CCI), André Desplat.

‘This is a territory for pioneers and entrepreneurs. Startups appear here wherever there is a gap in the market.’

With construction for the 2011 Pacific Games in Nouméa and the Koniambo nickel mine and refinery construction now completed, social housing has been identified as a priority area. The Dumbéa sur Mer suburban development on the outskirts of Nouméa—the largest suburban development in the Pacific—continues apace, with a major new hospital under construction, and further development to the north of Nouméa planned.

Also notable has been the growth in the territory’s remote north, thanks to the new Koniambo nickel mine and refinery—one of the goals of an active policy of economic rebalancing between north (with its large indigenous Kanak population) and south.

‘The Northern Province is starting to become a significant centre for economic activity,’ observes Cyrille Berhault of human resources company Ellipse Consulting.

Encouraging the private sector

With a population of just over a quarter of a million people, New Caledonia is still a small market, and much of the effort to build its economy revolve around overcoming an inherent lack of scale and reducing reliance on costly imported services and products.

‘This is a territory for pioneers and entrepreneurs,’ observes businesswoman Barbara Vlaeminck of steel fabrication business Socometal.nc. ‘Startups appear here wherever there is a gap in the market.’

With 93% of businesses belonging to the New Caledonia Chamber of Commerce (CCI) having less than 10 employees, however, the challenge for New Caledonia is nurturing its small business and providing sufficient capital for growth and development of the private sector.

Key role of investment companies

Thus, the role of the territory’s provincial investment companies, Groupe Sofinor (Northern Province), PromoSud (Southern Province) and SODIL (Loyalty Islands) is critical. Funded by their shareholdings in the territory’s nickel mining projects, these funds act both as holding companies for local businesses that would otherwise struggle to attract investment and as potential venture partners for those seeking to establish businesses in New Caledonia.

The funds play a particularly important role in housing, agriculture, aquaculture, tourism and hospitality—all areas that are essential if New Caledonia is to continue to genuinely diversify its economy.

Andrew Wilkins is Publishing Director of Business Advantage International. This article was first published in Business Advantage Guide to New Caledonia 2014/15, published this month by Business Advantage International.

New Caledonia: towards Independence?

While it has gained increased autonomy from France in recent years, New Caledonia remains part of the European nation.

However, under the Nouméa Accord that followed civil unrest during the 1980s, the territory is committed to at least one referendum on independence from France between 2014 and 2018.

Heidi Bootle

The Congress (local parliament) voted into power in New Caledonia’s May 2014 provincial elections will be responsible for determining the precise time and nature of the referendum. The elections resulted in the Congress holding a majority in favour of remaining part of France.

The general consensus among business people Business Advantage talked to for this publication was that, whatever the eventual outcome of the referendum, any changes to current constitutional arrangements would most likely be slow in coming and formed by consensus.

‘My sense is that all efforts are being made to ensure that the country continues to enjoy its current stability,’ assesses Heidi Bootle, Australia’s Consul-General to New Caledonia.