SAMOA REDUCES DEPENDENCY ON REMITTENCES

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By Cherelle Jackson

SUVA, Fiji (Islands Business Magazine, December 2007) – Samoa has eased its dependency on foreign remittances despite regional figures at an all-time high.

For the last 10 years remittances accounted for more than 20 percent of Samoa’s Gross Domestic Produce (GDP). However, the latest figures by the Central Bank of Samoa (CBS) suggest a significant decrease in remittance dependence.

"Provisional estimates for private remittances indicate a 10 percent - 2.4million tala [US$961,423] decline to 20 million tala [US$8 million] in August 2007, reflecting a decreased inflow of funds to households," CBS stated.

With a population of close to 180,000, Samoa has gone from a subsistence economy to one highly dependent on foreign aid and remittances.

CBS indicated that private remittances into Samoa dropped by 38 percent in the earlier part of 2007—amounting to $11.8 million in total.

The inflows were mainly recorded in household private remittances and charitable organisations which include the church.

Despite the overall drop in Samoa’s remittances, the Pacific this year recorded the highest figures, compared to the last five years.

According to the World Bank, remittances to the Pacific region tripled over the past decade to reach US$425 million (A$519 million).

Although Samoa is noted as a high recipient, Tonga and Fiji are on par.

Remittance receipts account for a growing percentage of the country’s GDP, according to the World Bank with shares of 41.9 percent of Tonga’s GDP; 26.3 percent of Samoa’s GDP; and 6.7 percent of Fiji’s GDP.

"The cash that immigrants send home is a vital source of income for the daily survival of Pacific Islands households," said Dr Manjula Luthria, a senior economist with the World Bank’s Pacific office.

But even with a significant drop in local reliance on remittances this year, Samoa is still very much dependent on the foreign dollar as a source of income.

According to a research by the Asia Development Bank, remittances are bi-directional because social networks continue to be significant in Samoa.

"There is no question that remittances have contributed to development in various contexts. They meet real needs especially on smaller islands in remote regions and in independent states," ADB stated.

This is a risky business however as remittances continue to be a major part of Samoa’s economic growth.

According to publications by the International Monetary Fund, the economy is vulnerable to external shocks, particularly with its persistent trade and current account deficits.

A debt-sustainability analysis in 2005 by IMF showed that isolated shocks to the economy might not seriously affect debt ratios, but a combination of shocks could return the debt-to-GDP ratio broadly to the level before a mid-1990s macroeconomic stabilisation programme was implemented.

IMF advised that reducing the economy’s vulnerability to such shocks as possible cuts in aid flows and remittances requires the nurturing of a business environment and growth in exports.

"There is room for improvement in the time taken to start a business, acquire licences and enforce contracts," the IMF suggested.

Despite Samoa’s hopes to attract investments as apparent in the 2007 Budget Address, the country remains hostile to foreign investors.

Samoa is ranked 60th out of 155 countries in the 2007 Doing Business report by the World Bank, but is expected to drop its ranking in 2008.

Apart from remittances and foreign aid, the tourism industry is Samoa’s hope for higher internal revenue.

"This year, sees the biggest increase to be allocated towards tourism development, with a total of 7.3 million tala," Minister of Finance Niko Lee Hang said in his Budget Address.

New luxury hotel developments proposed in the last five years is part of this initiative. But unfortunately Samoa’s hostility towards foreign investors has continued to prevent the industry from thriving.

"The land issue is one of the major factors with the current land ownership system prohibiting investment to a certain extent," says John Perrottet, Tourism Programme Manager for Pacific Enterprise Partnership of the International Finance Corporation, a World Bank Group.

Perrottet is convinced that stringent rules and less than transparent way in which investments are processed contribute to the barriers on foreign investors in tourism development in Samoa.

The biggest barrier to tourism development according to Perrottet is in the process of investing in Samoa. "The process here is not transparent, there is a lack of clarity and it is mainly discretionary," he said.

Perrottet acknowledged the proper placement of rules, but "they are hard to find. The actual implementation of projects is very tough."

The lack of transparency in the investment and development process has hindered the growth in tourism investments in Samoa.

He said such barriers create significant costs and therefore discourage foreign investors from investing in Samoa.

"The processes need to be more open," he said.

But transparency remains a foreign concept to Samoa, just like the majority of our income is earned on foreign land.

Over the last six months, consultations between the World Bank and Pacific Islands communities in Australia and New Zealand have revealed that working Pacific Islanders are struggling to meet the high costs involved in sending money home.

Islands Business Magazine

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