A curious thing has been happening in the Pacific. Instead of running trade and investment road-shows in Australia, New Zealand or China, two Pacific Island countries have been courting investment from each other, observes Jenny Hayward-Jones.

The Lowy Institute’s Jenny Hayward-Jones

Fijian Prime Minister Frank Bainimarama led a trade and investment delegation to Papua New Guinea for his first state visit to the country in April this year. Papua New Guinea’s Prime Minister Peter O’Neill had led a similar mission to Fiji in October last year.

Bainimarama’s April visit took place against a background of increased two-way investment.

Of particular note has been the investment from pension funds. PNG’s NASFUND, along with Lamana Development Limited, has invested in the redevelopment of Suva’s once iconic but long dormant Grand Pacific Hotel. NASFUND has a 50% share of the project with its FJD$90 million (K111 million/US$48.73 million) investment. Fiji’s National Provident Fund (FNPF) has invested in the newly partly-privatised Bemobile telecommunications group in Papua New Guinea. The FNPF has a 40% share in the new Vodafone Bemobile.

The confidence shown by NASFUND in Fiji’s tourism market and by the FNPF in PNG’s telecommunications market has more to do with the potential growth in these markets than with Melanesian solidarity.

An even more curious development was Papua New Guinea’s decision to provide K50 million (US$22.1 million) in aid for Fiji’s 2014 election. Fiji does need assistance for its long-awaited elections but it has not escaped public attention in Papua New Guinea that the PNG Electoral Commission itself needed very significant Australian assistance to hold its own elections against a fraught political background in 2012.

Potential growth

Investment decisions by pension funds are made on a commercial basis. The confidence shown by NASFUND in Fiji’s tourism market and by the FNPF in PNG’s telecommunications market has more to do with the potential growth in these markets than with Melanesian solidarity.  It also makes sense for PNG and Fiji companies to invest close to home because they can more easily develop good working relationships with counterparts in neighbouring countries than with those further afield. NASFUND’s Ian Tarutia has also commented on the importance of working with the government in Fiji.

But these kinds of commercial decisions, even if based on a profit rather than political motive, cannot be divorced from the political sphere and can help to cement bilateral relationships.

Regional ambitions

PNG’s Prime Minister Peter O’Neill speaking at the Lowy Institute last year

Prime Minister O’Neill has a vision for Papua New Guinea to be a regional leader, which he explained in this Islands Business article. As the Prime Minister told me in this interview at the Lowy Institute in November 2012, Papua New Guinea has an interest in contributing to the prosperity of Pacific Island countries. Papua New Guinea’s decision to remove import duties under the Melanesian Spearhead Group Trade Agreement and its freeing up of restrictions on labour mobility are tangible indications of its commitment to regional prosperity.

Prime Minister O’Neill also wants to see democracy returned to Fiji but is prepared to be more flexible in bilateral dealings with Fiji than Australia or New Zealand have been. His decision to commit funds to assist Fiji’s elections is a clever move, as it puts more pressure on Bainimarama to hold elections as promised.

Bainimarama, for his part, needs friends and, since the political demise of Sir Michael Somare lost him potentially his greatest ally in the region, he needs to cultivate Prime Minister O’Neill and maintain his support. To guarantee this, however, he may end up ceding Fiji’s historical role as regional policy setter and leader to a more ambitious Papua New Guinea.

Jenny Hayward-Jones is Director of the Myer Foundation Melanesia Program at the  Lowy Institute for International Policy in Sydney, Australia