The Solomon Islands’ economy grew by three and a half times between 2003 and 2016. In the first of a two-part series, Business Advantage PNG talks to Jay Bartlett, Chair of the Chamber of Commerce and Industry (SICCI) about the challenges and opportunities facing this key Pacific economy.

The Heritage Park Hotel in the capital of the Solomon Islands, Honiara. The hotel is majority-owned by PNG’s Nasfund. Source: Heritage Park Hotel

Bartlett says agribusiness, mining and tourism are three sectors with potential.

‘With agribusiness, there is a lot of scope and a lot of opportunity. Much of the population is rural and a lot of the population is already engaged in the informal sector in agriculture.

The Chamber of Commerce and Industry’s Jay Bartlett

‘So, we could possibly look at ways where we can value-add; look at the supply chains and make markets more accessible—domestic markets and maybe also regional and international markets.

‘There is a lot of scope to directly impact people working in the rural and informal sectors.’

At the moment, Bartlett says, the Solomon Islands’ biggest agricultural export is palm oil. The main player is Guadalcanal Plains Palm Oil (GPPOL), which is majority-owned by New Britain Palm Oil (itself owned by Malaysia’s Sime Darby).

‘They are looking at a significant program to expand over the next five to ten years in the Guadalcanal plains, which will likely triple the production.

‘We should be exploring and driving innovation in some of the niche products.’

That has a lot of scope to improve our export sector and create a lot of jobs for the community and the economy.’

Crops

A fresh fruit and vegetable market in the Solomon Islands. Credit: SIVB/David Kirkland

There is also opportunity with other crops such as coconut oil, taro, cassava and kava.

‘Those are obviously not going to be huge volumes,’ notes Bartlett. ‘They are done on a more small-holder scale.

But I think that has a lot of opportunity. We should be exploring and driving innovation in some of the niche products.’

Market access

Bartlett says shipping to smaller Pacific Islands is always expensive because of the lack of scale.

‘But I think the bigger challenge is access into markets, getting the right certification in place to enable some of our crops to go into some of the bigger markets, like Australia and New Zealand.

‘That is probably a bigger challenge than the actual physical logistics of it.’

Tax and land

Bartlett says the Solomons Chamber has been talking to government about broadening the tax base and diversifying the economy.

‘In Melanesia, land can be a quite complex and sensitive issue.’

‘For this to happen, the government needs to review the levels of taxes, both corporate taxes and PAYE (pay-as-you-earn).

‘At the moment, the tax system is quite complicated. If it could be simplified, made easier, it would catch a lot more and contribute more into the government’s revenue.

‘The other big fundamental issue that is ongoing is the land issue, which needs to be addressed. There needs to be more effort put into mechanisms that allow ownership structures to be put in place for customary land in order to open it up for development and investment.’

Bartlett says ‘some processes where local landowners can address land issues,’ are required. He points to the need for mechanisms ‘where we can formally register customary land through landowner groups or associations.’ He believes it is a long-term challenge.

‘We need to allocate resources today to enable that to be dealt with. In Melanesia, land can be a quite complex and sensitive issue and there is not one solution, due to the different island and cultural differences.’

PNG links

Many PNG companies are already in the Solomons, confirming commonality in the two Melanesian economies. In many areas, the two nations are at a similar level of development and face similar cultural and business challenges.

According to the PNG High Commission in Honiara, there are 52 PNG companies operating in the Solomons, among them Bank South Pacific, New Britain Palm Oil, Credit Corporation, Kramer Ausenco and Bmobile-Vodafone, representing an SBD2 billion investment portfolio and employing more than 5000 Solomon Islanders.

The Solomon Islands economy

A Solomon Airlines Airbus A320. Credit: Solomon Airlines.

The Solomon Islands is currently going through a period of economic consolidation after experiencing a strong period of economic growth over the past decade. According to the Australian Department of Foreign Affairs and Trade (DFAT), growth accelerated in 2016 to 3.2 per cent. DFAT expects it to moderate to 3 per cent in 2017 and fall to 2.8 per cent in 2018 ‘as the short-term benefits of expansionary fiscal policy and unsustainable logging dissipate.’

Although smaller, the country has many parallels with neighbouring Papua New Guinea. According to the Asian Development Bank (ADB), the majority of the population, which is growing at about 3 per cent a year, is involved in subsistence or cash crop agriculture. Less than a quarter of the population is involved in paid work.

The ADB says logging has been the most significant source of government revenue over the last decade, accounting for about half the government’s export earnings. But logging’s contribution to the economy and government revenue is expected to decline over time.

The Solomon Islands has significant infrastructure challenges. Unlike PNG, there is no undersea telecommunications cable to provide international connectivity. Distances between its six major islands and 900 smaller islands increase the difficulty of transporting goods and equipment.

There have been political issues, especially over land alienation controversies, some of which date back to colonial times. In 2003, this broke out into open conflict, leading to the Regional Assistance Mission to Solomon Islands (RAMSI) being invited in. RAMSI is scheduled to finally complete its mission on June 30 this year.

There are also physical challenges. According to the World Bank, population density, at 20 people per square kilometre, is among the lowest in the world. The World Bank says significant funds are spent on small and medium-sized capital expenditures, but there are limited systems of financing for recurrent costs and ongoing maintenance.