-World Bank report launched today shows dire economic situation of Solomon Islands, proposes strategy to save our future
-If no improvement, by 2050 Solomons will only just reach Vanuatu’s economic level now, 2024
BY IRWIN ANGIKI
Solomon Islands needs to start improving now in order to avoid lagging far behind in development compared with the world and the region, a World Bank report has hinted.
One possible scenario is, if Solomons continues with business as usual, by 2050 we will reach the level where Vanuatu’s economy is at now, 2024.
But, if government wakes up and improves things, by 2040 we could reach the level where Indonesia’s economy is at now, 2024.
Finance Permanent Secretary McKinnie Dentana meanwhile told media on September 17th 2024 that these gaps in comparative development can be narrowed.
The ‘Solomon Islands: Country Economic Memorandum – Unlocking New Sources of Economic Growth’ Report which is set to be launched today by the World Bank and Government looks at the main barriers to sustainable economic development in the Solomon Islands.
It focuses on ‘cross-cutting challenges of economic geography and private sector development’.
During a pre-launch plug of the report yesterday, senior economists of World Bank and key authors of the report, Lodewijk Smets and Reshika Singh provided local media with the bigger picture.
Solomon Islands economy can be summarised perfectly by six features:
-Solomon Islands is a rural and dispersed economy
-Solomon Islands is urbanising at a fast pace
-The logging sector is in decline
-Non-logging sectors remain underdeveloped
-The formal private sector is small and largely based in Honiara
-Private sector faces several growth challenges
1. Solomon Islands is a rural and dispersed economy
Seventy-five percent of the Solomons’ population live in rural areas, across hundreds of islands. This small and dispersed population constrains the size of the local market and makes it challenging to get better incomes.
Large distances between populations, compounded by poor connectivity – poor quality roads, maritime infrastructure and shipping services and limited digitalization – and a high degree of exposure to natural disasters, make it costly to move goods, people, capital, and information within the country.
2. Solomon Islands is urbanising at a fast pace
Honiara’s population doubled in 10 years from 2009-2019, which represents one of the fastest rates of urbanisation in the world.
But, instead of delivering economic benefits, this rapid urbanisation gives rise to more economic problems such as increased urban under-employment along with the lack of structural transformation (services and infrastructure to allow for added value chain).
“Honiara is one of the fastest growing capitals in the world, and if we don’t have the capacity in government to deal with this massive influx, then we’ll have these problems,” media heard yesterday.
3. The logging sector is in decline
Logging contributes 22 percent of our gross domestic product (GDP), and in 2016 round log harvesting peaked at 3 million cubic metres. Last year, production dropped to 1.6 million cubic metres, which is still way above the sustainable threshold of 250 thousand cubic metres.
4. Non-logging sectors remain underdeveloped
The saying ‘Agriculture is the backbone of our economy’ is rendered hollow by the realities in the local sector.
Solomons suffers drastically from huge yield gaps in its main agricultural commodities, with none reaching even half of their potential.
With coconut, we only manage to harvest 33 percent of the potential (17,000 tonnes versus 54,000 tonnes). Banana fares worse at 0.3 percent.
In other sectors, we have an under-resourced coastal fisheries, limited tourism sector and small mining sector.
5. The formal private sector is small and largely based in Honiara
Eighty-five percent of businesses are in Honiara. Eighty percent of formal enterprises are micro, small and medium at 10 percent, and large enterprises at only 6 percent.
6. Private sector faces several growth challenges
The main obstacle for doing business is ‘Access to credit’, with corruption coming second.
Solomon Islands has one of the highest electricity tariffs in the world, but with low access to grid connectivity.
Regarding skills, 54 percent of workforce are under-educated.
With land, 80 percent is customary, and land registration is costly and lengthy, along with land disputes.
Recommendations
The World Bank proposes three growth strategies which government can help Solomon Islands salvage the dire situation it is in.
-Boost the rural economy – agriculture, fisheries – and connect them to urban markets.
-Support private sector development.
-Attract investment, especially foreign.
