Vanuatu Country Brief - August 2008
Introduction
Australia has an important relationship with Vanuatu. Australia is the largest aid donor and the main source of tourists and investment. There is also a significant resident population of Australians. Australia and Vanuatu enjoy a very broad range of links at government, business and community levels.
Political Overview
System of Government
Vanuatu gained its independence on 30 July 1980. Formerly, as the New Hebrides, it was jointly governed by both British and French administrations. After a struggle for independence, Father Walter Lini became the nation's first Prime Minister. The second decade of independence was plagued by political instability with a number of different coalitions governing Vanuatu.
The President of the Republic (the Constitutional Head of State) is elected for a five year term through secret ballot by an electoral college comprising Parliament and the Presidents of Vanuatu's six provincial governments. The current President, HE Kalkot Mataskelekele, was elected on 16 August 2004 and is a former lawyer and Supreme Court judge as well as one of the principal authors of Vanuatu’s constitution.
Vanuatu has a unicameral 52-member Parliament, elected to a 4-year term by universal adult suffrage. Prime Minister Ham Lini of the National United Party (NUP) heads a multi-party coalition government that includes the Vanua’aku Pati (VP) led by Deputy Prime Minister and Minister for Infrastructure and Public Utilities, Edward Natapei; the Vanuatu Republican Party (VRP) led by Minister for Lands, Maxime Carlot Korman; the National Community Association; and the Labour Party. The Minister for Foreign Affairs is Georges Wells and Minister for Finance and Economic Management is Willie Jimmy.
Recent political developments
On 11 December 2004, former Prime Minister Serge Vohor's governing coalition was defeated by a no-confidence motion due to overwhelming opposition to Vohor's attempts to grant diplomatic recognition to Taiwan. Prime Minister Ham Lini formed the new government and has since survived six motions of no-confidence tabled by the opposition.
Vanuatu will hold national elections on 2 September 2008, with all 52 seats in the 17 single and multi-member constituencies being contested. A new prime minister should be elected by Parliament within three to four weeks of election day who then usually nominates a new Ministry within a few days being elected. The parliament entered into a caretaker period on 6 July.
Economic Overview
After negative growth in the early 2000s, the Vanuatu economy is currently experiencing strong and sustained GDP growth, averaging 5.6 per cent since 2003. GDP growth in 2007 was 6.5 per cent, achieved with record foreign reserves and a stable currency, and is expected to remain above 5 per cent in 2008 and 2009. Inflation however jumped in 2007 to 4.1 per cent, up from 1.9 per cent in 2006. This growth has been attributed to increasing output in the services and industrial sectors, largely driven by tourism and investment in land development and construction. GDP growth for 2008 is estimated at 5.7 per cent.
While Vanuatu’s economic growth is starting to become more broadly-based, it remains centred on tourism. Services dominate the economy, contributing 72 per cent of GDP. The economy also relies heavily on agriculture (18 per cent of GDP). The vast majority of the population, over 70 per cent of whom reside in rural areas, is engaged in subsistence agriculture although most ni-Vanuatu are also involved in the cash economy, typically trading copra for money to buy modern commodities and pay school fees.
In 2006, Vanuatu's merchandise exports grew by 28.2 per cent to 4.2 billion vatu ($50.2 million). Over 80 per cent of Vanuatu's locally-produced exports are agriculture-based, led by coconut oil (31.1 per cent), copra (13.5 per cent), kava (13.4 per cent), beef (8.7 per cent) and timber (7.5 per cent).
The tourism sector is recognised by the Government as a key sector for development, directly employing an estimated 1,200 people. Increased tourism has had direct and indirect contributions to the service sector with the flow on to local labour and producers of goods and services used in transport, communication, wholesale and retail trade, banking and insurance and hotel and accommodation services. Continuing growth in Vanuatu’s tourism sector will be crucial to providing employment opportunities for Vanuatu's young and rapidly growing population (60 per cent of which is under 25 years). The arrival of Pacific Blue into the aviation market in September 2004 stimulated competition with lowered fares and increased air tourist arrivals by 21 per cent in its first year of operation. Increasing investment in new boutique-style hotels, refurbishment of larger resorts, stronger interest in locally-owned bungalows and industry interest in the backpacker market also point to further growth in this industry.
Real estate development has seen a boom since mid 2004, although development has largely been focused on the island of Efate, particularly the capital Port Vila. Land speculation (a major element of the boom) has become a political issue, illustrated by the Government’s decision (under pressure from traditional land-owners) to place a moratorium on all new development proposals in September 2006.
Commitment to Reform and Rural Economic Development
In response to the economic and political challenges facing the country, successive Vanuatu Governments have pursued a wide-ranging reform program since 1997 with assistance from the Asian Development Bank (ADB) and international aid donors, including Australia. This has been guided by the Comprehensive Reform Program (CRP) which has helped stabilise Vanuatu's development prospects since 1997. In a move to prioritise activities under the CRP, the Vanuatu Government developed the Prioritised Action Agenda (PAA) in 2003. The PAA is a development framework of priorities to promote reform. The five year Australian-Vanuatu Joint Development Strategy signed on 31 March 2005 is based on the PAA.
Fiscal reform has led to better management systems
Vanuatu's economic reform in recent years has led to a major improvement in the management of its public sector finances, with expenditure now more carefully controlled through an accountable and transparent process. Vanuatu adopted a new fiscal format in line with the CRP, part of which was the introduction of a Value Added Tax on 1 August 1998, as well as reform of the tariff structure. A new program budgeting format was introduced in 1998 and Vanuatu now has an integrated recurrent development budget, incorporating all expenditures funded from domestic and external sources.
A limited revenue base continues to constrain government efforts to deliver services and implement reforms, although the current government is making efforts to increase revenue through tax reform and improvements in tax collection. In recent years the Government has produced budget surpluses and has implemented reforms to stimulate economic growth.
The Millennium Challenge Account
Vanuatu is the only Pacific island country eligible for funding under the US Government funded Millennium Challenge Account (a US$1 billion account encouraging good governance). On 2 March 2006, Vanuatu and the Millennium Challenge Corporation signed a Compact grant agreement (similar to a contract) for infrastructure upgrades in eight islands in Vanuatu. This five year compact program, worth US$65.69 million, aims to benefit rural agricultural producers and providers of tourist-related goods and services by reducing transportation fees.
Bilateral Relationship
Australia’s bilateral relationship with Vanuatu is underpinned by the provision of extensive development assistance to the Vanuatu Government, growing links in government to government, investment, tourism and community relations.
Development Assistance
Total Official Development Assistance from Australia to Vanuatu continues to increase and is estimated to reach $51.8 million in 2008-09. Australian development assistance focuses on needs identified through Vanuatu's Prioritised Action Agenda. Australian assistance works with Vanuatu to improve governance and reduce poverty, translating Vanuatu’s economic growth into new jobs and better services. The aid program directly supports activities to strengthen the governance of key institutions, achieve a stronger and more accountable law and justice sector and ensure effective delivery of government services such as health and education.
A key feature of Australia’s development assistance to Vanuatu is the Governance for Growth (GFG) program. Through GFG, Vanuatu and Australia are working jointly to identify and overcome governance obstacles to broad based growth, effective service delivery and poverty reduction. The program draws on a wide range of aid modalities including technical assistance, grants, direct investment as incentives, and brokering the involvement of international organisations and other donors.
A significant recent reform supported by GFG has been the opening up of Vanuatu’s telecommunications sector. Through the GFG, Australia actively supported the Vanuatu Government to negotiate the end of monopoly arrangements and introduce competition in the sector. The Vanuatu Government awarded a mobile telephone license to Digicel, which launched its operations throughout the country on 25 June 2008. The introduction of competition has led to a decrease in costs and greater coverage (from an estimated 20 per cent of Vanuatu’s population to around 85 per cent). Telecommunications reform has also included the establishment of a Universal Access Fund which will be financed mainly from revenue to support further investment in telecommunications where services are not commercially viable (for example, on some of country’s most remote islands).
Defence Cooperation
Australia has an active Defence Cooperation Program with Vanuatu. Australia assists Vanuatu to maintain and operate its Pacific Patrol Boat, which Australia donated in 1987, with two Royal Australian Navy advisers. Australia also provides an adviser to assist the Mobile Force element of the Vanuatu Police Force (VPF) develop operational, leadership and field skills, and an adviser to assist the VPF in establishing a Joint Plans and Operations Centre. The Defence Cooperation Program for 2008-09 is budgeted at $1.36 million, with just over $310,000 for the Pacific Patrol Boat Program.
Foreign Relations
Vanuatu joined the Commonwealth and the Pacific Islands Forum at the time of its independence in 1980. Vanuatu is also a member of the Francophone Community, the United Nations and several specialised agencies, and of the Non-Aligned Movement. Vanuatu is a member of the International Monetary Fund (IMF), World Bank, Asian Development Bank (ADB) and the African Caribbean Pacific (ACP) grouping enjoying special relations with the European Union. Vanuatu withdrew from the accession process to join the World Trade Organization (WTO) just prior to the Doha Ministerial Meeting in November 2001, but has recently announced it is considering resuming its accession process.
Vanuatu has diplomatic relations with 74 countries. Resident missions in Port Vila are maintained by Australia, France, New Zealand, the People's Republic of China and the European Commission. Vanuatu currently has four diplomatic offices overseas: the United Nations in New York, in Beijing, in Brussels and in Noumea, as well as a number of honorary consulates, including one in Sydney.
Members of Vanuatu's Mobile Force and Police Force have served in UN Peacekeeping missions in East Timor, Haiti, Sudan and Bosnia, in the Peace Monitoring Group and Transition Team in Bougainville, and in the Regional Assistance Mission to Solomon Islands.
Melanesian Spearhead Group (MSG)
Vanuatu has been a strong supporter of the MSG as a reference point for Vanuatu's regional policies and the MSG Trade Agreement provides for free trade in goods produced by Melanesian countries. Vanuatu and other MSG member states (Fiji, Papua New Guinea, and Solomon Islands) signed an MSG Constitution in Vanuatu on 23 March 2007.
A new MSG Secretariat building was opened in Port Vila on 30 May 2008. Vanuatu is the current Chair of the MSG (taking over from PNG) following approval by MSG Foreign Ministers at their meeting in Port Vila in May 2008.
Bilateral Economic and Trade Relationship
Australia is the main source of imports into Vanuatu. In 2007, Australia's exports to Vanuatu totalled $75 million and imports $1.1 million. Our merchandise trade interests lie in medicines, computer parts, ships, boats and alcohol. Two thirds of long stay tourists to Vanuatu are Australian. Vanuatu's principal exports include beef, seafood, woodchips and animal feed. Vanuatu remains a modest market for Australia with some growth potential, dependent largely on economic growth and development in Vanuatu. Australia is also the major source of foreign investment in the economy with a focus on agriculture, tourism, finance and construction.
Visitor Information
Australians visiting Vanuatu do not need to apply for a visa prior to travel to Vanuatu as tourist visas are given on arrival in Port Vila. Australian passport holders are permitted to stay in Vanuatu for up to four months provided they can produce evidence of an onward air or sea ticket. Vanuatu's currency is the Vatu. Australian currency is accepted in some establishments in Port Vila and is easily exchanged at banks, money changers and the larger hotels.
Websites
Australians wishing to visit Vanuatu should consult our travel advice at www.smartraveller.gov.au.