NIUE ATTEMPTS SHIFT FROM AID TO INVESTMENT

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By Arthur McCutchan

SUVA, Fiji (Islands Business, January) – Niue’s economy, battered a year ago by a cyclone that tested the country’s capacity to preserve its sovereignty, is showing symptoms of economic viability. The opening last October of two factories has also fuelled expectations that it can at least partially wean itself off foreign aid.

Deputy premier and minister for finance Toke Talagi says the factories, one for fish and the other for processing the medicinal fruit nonu, were deliberately approved for completion after Cyclone Heta struck.

"This caused some problems with the use of scarce manpower, equipment and other resources," Talagi said. "However, (they) have given Niue the opportunity to not just recover from the cyclone but create employment and income earning opportunities as well."

These initiatives also concentrate on the country’s underutilized land and sea resources and were part of government initiatives discussed with New Zealand in March 2003.

Niue has a self-governing free association with New Zealand and depends on whatever agricultural exports it can produce on its 259-square-kilometre land area. In the past, it has earned some revenue from the sale of fishing licenses and stamps. But its limited domestic production and high demand for goods and services has created a trade deficit that is offset only by the country’s heavy dependence on aid, most of it from New Zealand.

This deficit, reportedly valued at NZ$1.7 million (US$1.2 million) in 2004 and estimated at $1.4 million (US$998,000) this year, is at the core of Niue’s 2005 Budget.

"One of the main concerns that I have (is) the size of the deficit and our lack of resources to adequately cover it," Talagi says. "The major obligation of the budget therefore was fiscal responsibility and control."

His comments are an extension of those he gave the Niue Parliament during his budget address. Talagi said: "This is a very responsible budget...because it does not pander to the interests of any particular group but instead attempts to rationalise spending according to need."

Over the past two years, Talagi said he had analyzed the reasons why the country continued to rely so heavily on aid despite its 30 years of self-government.

"This government recognizes that we must build a more robust economic base and look to key investments in the areas of targeted agriculture, commercial crops, fisheries and tourism. The establishment of a trust fund and the pursuit of ownership and development of what is termed ‘sovereign assets’ will further achieve this objective."

Talagi told parliament the government was embarking on a strategy that would tackle aid dependency. Over the next five to 10 years this would give Niue financial stability and sustainability.

"Our focus is already shifting from aid to investment and our investment and donor partners are already responding favorably to our approach," he said.

But he confesses that switching to procedures that encourage investment has been challenging.

"It has not been an easy policy to promote because our underlying philosophy does not necessarily meet with the sometimes very strict and rigid criteria which donor countries and international organizations use to allocate their aid resources. In some cases, it does not meet their own donor philosophy," Talagi says.

No surprise then about the excitement the fish and nonu factories are generating. Both projects are 50:50 joint ventures between the Niue Government and the New Zealand-based shipping firm Reef Group, with Reef reportedly spending NZ$3.5 million on the projects in the past year.

"The projects will create between 300 and 400 new jobs and generate the much needed economic activity which will help boost the small but very keen private sector here," Talagi says.

While planning the 2005 Budget, he says they wanted to guarantee that the country’s social, education and health obligations were met. There was also the need to ensure that they utilized strategies outlined in Niue’s Integrated Strategic Plan 2003-2008 to map out the use of the nation’s limited financial resources.

"These included the preparation of an asset management and maintenance plan for every government asset. This comprises buildings, equipment, roads, water, power cables and so forth."

The strategic plan would enable them to anticipate and prepare for replacement and conduct maintenance better than they had in the past. "Much of our assets have been neglected and this plan ensures that we know what is needed annually and in the long-term," he says.

Talagi also rejected the tag a New Zealand newspaper article recently assigned to Niue. The piece in The Herald on Sunday called attention to the country’s capacity for soaking up foreign aid.

It branded Niue as the greatest aid economy in the Pacific, where the amount of aid New Zealand taxpayers "give each man, woman and child...has gone up to NZ$9,615 each year".

"It’s called The Rock—but could easily be labeled The Sponge," the article said.

It also took a stab at the country’s reputation, "tainted with wacky money-making schemes, including a walled community for a religious sect, selling medical degrees, and operating a tax haven". And then New Zealand offered "another NZ$20 million assistance over five years, taking the annual aid package to the country of 1,100 Niueans and 200 foreigners to NZ$12.5 million a year".

In response, Talagi says the article was ill-informed and lacked depth in understanding aid for Niue over the past 30 years.

"We all agree that as long as we continue with the aid package, which just enables us to keep our recurrent systems ticking over, then we will not become self-sufficient. We have also recognized that economic initiatives in the past have been less than fully funded. This has led to some well-intentioned economic initiatives which have not been given the chance to succeed simply because they have been under-capitalized and not considered in a holistic manner," he says.

The best example of this, Talagi says, was the funding of the Matavai Resort. There was funding for the extension of the airport runway to allow fully laden aircraft to operate between Niue and the main market of Auckland.

"But what wasn’t included was an airline deal and a promotional marketing package."

Talagi says the NZ$20 million that was incorporated in a Memorandum of Agreement (MOA) with New Zealand, has been provided to enable the government to capitalize and provide assistance to the private sector and to boost economic initiatives.

"It also makes provision for loans which will be carefully utilized to enable the government to seek earlier funding from lending institutions to accelerate developments where needed.

"In effect, what the MOA means is that we have been given more aid so that we can become less dependent on aid."

January 25, 2005

Islands Business Magazine: http://www.islandsbusiness.com

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