Introduction
2.1
The challenges of doing business and developing trade opportunities in the Pacific were identified in numerous submissions to the Sub-Committee and at hearings. Despite the economic rise of China and impediments to trade from the isolation of many Pacific island countries with limited infrastructure, Australia remains a major trading and investment partner.
2.2
This chapter outlines Australia’s existing trade and investment relationships with Pacific island countries, the challenges faced, the growth of Pacific tourism prior to the COVID-19 pandemic and importance of labour mobility.
Australia as a trading partner
2.3
Australia, as a close neighbour, has a long history as a major trade and investment partner with many Pacific island countries. Australia currently represents approximately 18 per cent of the total merchandise trade (imports plus exports) of Pacific island countries. According to DFAT this share has declined over the past decade as other trading partners, notably China, have increased their trade with Pacific island countries.
However, evidence from the Pacific Islands Export Dynamics Survey confirms that Australia and New Zealand are the key target markets for exporters in Pacific island countries. Given the limited growth drivers available to Pacific island countries, it is particularly important that Australia maximise trade and investment opportunities with Pacific island countries.
2.4
Papua New Guinea dominates Australia’s merchandise trade with the Pacific, accounting for 80 per cent of total trade with Pacific island countries. According to DFAT, Fiji (8 per cent) and New Caledonia (6 per cent) are Australia’s next most significant Pacific trading partners, with the remaining 12 Pacific island countries accounting for just 6 per cent of Australia’s total trade with Pacific island countries. Figure 2.1 shows changes in total trade in goods and services between Australia and eight Pacific island signatories of the PACER Plus agreement from 2008 to 2018.
2.5
Professor Stephen Howes, the Director of the ANU’s Development Policy Centre identified that Australia has ‘…traditionally been the Pacific’s main trading partner, but this is changing’.
It’s probably no surprise to you to see that China has overtaken Australia’s role as the Pacific’s main trading partner. It’s a bigger recipient of exports from the Pacific and, more recently, it has become a bigger source of imports to the Pacific as well. That’s for the Pacific Islands, excluding PNG. Of course, PNG is so much bigger than the other countries that we often treat it separately. You can see, if you look at PNG, a similar story. Australia is still a bigger source of imports to the Pacific than China, but the gap is closing and China has taken over on the export front.
2.6
The Department of Agriculture, Water and the Environment conceded the nature of Australia’s existing agricultural trade with Pacific island countries was small in comparison to Australia’s other markets.
In 2017-18, Australia exported $591.1 million of agricultural products to the Pacific, while imports from Pacific island countries totalled $95.4 million. Despite the relatively small overall size of trade, some key products are significantly traded in both directions. Australian wheat exports in 2017-18 to Pacific island countries were $124.4 million and Australian coffee imports from Pacific island countries were $34.5 million.
2.7
The Department of Industry, Science, Energy and Resources identified that in 2018, Australia’s trade and investment with the Pacific island countries was ‘…relatively small, with two-way trade in goods valued at $3.45 billion, representing approximately one per cent of Australia’s total (global) goods exports’.
Of this, industrial and resources goods were valued at $2.81 billion, comprising approximately 81 per cent of trade. Of the two-way trade in industrial and resources goods between Australia and the Pacific islands in 2018, trade with PNG was clearly the greatest in value, almost 10 times greater than the second country of Fiji.
2.8
The ANU Development Policy Centre outlined the growth of trade between China and the Pacific major traders PNG and Fiji compared to trade with Australia, as shown by Figures 2.2 and 2.3.
With a good understanding of the Pacific, and how it interacts with the outside world, we can turn to the interaction between the Pacific and Australia, under the three headings of trade, aid and remittances. Australia has traditionally been the Pacific’s major trading partner, but China now shares that role. Fiji and PNG are by far the Pacific’s biggest traders…while exports to and imports from China are increasing, Fiji’s and PNG’s exports to and imports from Australia have been falling or stable.
2.9
Economist Professor Stephen Howes, the Director of the ANU’s Development Policy Centre described the Pacific business environment as unique.
Every country has to earn foreign exchange to survive and prosper. Most countries do that mainly by exporting, but the Pacific has a more diversified strategy. It benefits from high levels of aid, but it also has high levels of remittances.
There are a whole range of things, but the ones that pop up frequently are aid, remittances, tourism, and fishing license revenue, because of the big Pacific fisheries. So, it’s a very diverse set of foreign exchange earning portfolios... The Pacific is certainly a lot more open—it has a higher export-to-GDP ratio than Australia, just because any small country has to trade a lot—but, if you look at those numbers, they go across the spectrum.
2.10
In terms of volume, DFAT submitted that New Zealand, as shown by Figures 2.4 and 2.5, is Australia’s largest market in the Pacific with over 18,000 Australian exporters supplying goods and services in 2017-18.
As this relationship [with New Zealand] is mature and highly developed, Austrade’s activities focus on supporting the Government’s Single Economic Market (SEM) agenda, identifying emerging opportunities, and supporting Australian businesses. In comparison, PNG attracts more than 4,000 Australian exporters and Fiji more than 3,000 exporters.
2.11
In terms of volume, DFAT submitted that New Zealand, as shown by Figures 2.4 and 2.5, is Australia’s largest market in the Pacific with over 18,000 Australian exporters supplying goods and services in 2017-18.
As this relationship [with New Zealand] is mature and highly developed, Austrade’s activities focus on supporting the Government’s Single Economic Market (SEM) agenda, identifying emerging opportunities, and supporting Australian businesses. In comparison, PNG attracts more than 4,000 Australian exporters and Fiji more than 3,000 exporters.
2.12
Highlighting the growing importance of China in Pacific trade, in 2019 ‘…half of New Caledonia’s exports were directed to China, the country that buys most of New Caledonia’s nickel ore’.
2.13
Despite its French Overseas Countries & Territories (OCT) status New Caledonia ‘…exports little to France, mainly fishery and aquaculture products’.
2.14
In 2019, New Caledonia imported less from China (-0.8 per cent). China is the fifth trade partner of New Caledonia, behind France, the European Union, Singapore and Australia. Fossil energy sources such as coal, oil and gas, represent a large part of New Caledonian imports.
In 2019, exports to Australia have drastically decreased, representing (3%) of global exports, with products from the metallurgical industry being mainly concerned. Australian products imported into New Caledonia are mainly food products and minerals.
2.15
Australia is one of Solomon Islands’ closest neighbours and the two countries share a common maritime boundary, according to the Solomon Islands Government.
The two countries share a long history of interaction, including colonial and trade relations. Solomon Islands and Australia are members of the World Trade Organization and trade relations between the two countries has continued to grow over the years.
Trade in goods between the two countries over the past 3 years 2017 – 2019) was valued at SBD$299,913,901 of exports by Solomon Islands to Australia and with imports valued at SBD$2,704,494,479.50. The figures represented a net deficit of trade for Solomon Islands in its trade in goods with Australia of some SBD$2.4 billion.
2.16
The Solomon Islands Government noted from its summary of export and import value and volumes of goods between the two countries it must work ‘…more with Australia towards opening the potential for exports of its products’.
And although Australia being a much larger economy will have the inevitable dominance in the balance of the trading activities between the two countries, it also offers a window of opportunity for Solomon Islands, in terms of potential investments and opening up of new markets for products that could be developed and produced to meet required export standards of the Australian market.
2.17
As for connectivity associated with travel and business, the Solomon Islands Government identified that Australia can be ‘…singled out as the most dominant gateway for Solomon Islands in international travel to Asia, Europe and the rest of the world’.
Australia also made up the largest number of tourist visitors to Solomon Islands in the tourism sector.
Table 2.1: Australia’s top five two-way trade partners of industrial and resources goods
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|
|
|
|
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1 - Papua New Guinea
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$1,829,052,955
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$3,560,588,134
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$5,389,641,089
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2 - Fiji
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$387,467,668
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$151,649,074
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$539,116,742
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3 – New Caledonia (Fr)
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$324,708,825
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$45,976,842
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$370,685,667
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4 – Solomon Islands
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$100,363,629
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$8,452,837
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$108,816,466
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5 – Vanuatu
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$59,104,508
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$953,209
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$63,402,246
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Source: Dept. of Industry, Science, Energy & Resources, Submission 22 based on ABS data, Dec 2019
2.18
Deputy Head of Mission in Canberra for the Kingdom of Tonga, Mr Curtis Leonard Tuihalangingie, told a parliamentary roundtable of the range of economic challenges faced by Tonga in 2020.
COVID-19, along with Tropical Cyclone Harold, hit Tonga in April this year (2020) and have highlighted Tonga’s vulnerabilities—a dependence on imports and economic exposure to external shocks. These events are beyond Tonga’s control. Let me be honest: Tonga and Australia’s trade are [more or] less a one-way trade. At the same time, restrictions and strict specifications imposed by Australia on our farmers coupled with our limited technology prevent us from fully accessing the Australian market.
2.19
To better promote more Pacific trade, the Whitlam Institute at Western Sydney University, submitted for the Australian Government to support hosting a regular Pacific Expo in Australia to showcase products and grow business to business linkages.
The excellence of many Pacific products is not well known to Australians and investment in prioritising Pacific products needs to be matched with investment in building up the Australian market. A regular Expo would showcase primary and value-added products, foster business-to-business ties and offer an incentive to Pacific producers to get their products ready for the Australian market.
2.20
The Counsellor and Official Representative of New Caledonia to Australia, Dr Yves Lafoy, told the Sub-Committee while New Caledonia was at the crossroads from a constitutional perspective, it remained well positioned as a ‘…trade partner, providing a stable economic environment, well-developed infrastructure and strong growth prospects’.
With regard to the second pillar of the Pacific step-up, last year the balance of goods remained largely in Australia’s favour. Trade with Australia remains limited due to difficulties in adapting to the Australian market and its non-tariff barriers. It is therefore essential for New Caledonian companies to capture niche markets, particularly in services that require tropical expertise.
2.21
Dr Lafoy stated New Caledonia’s Minister for the Economy, Foreign Trade and Energy, Mr Christopher Gyges, highlighted New Caledonia’s comparative advantages as a trading partner during his visit to Australia in March 2020.
The visit aimed to attract potential Australian investors to boost existing cooperation in mining, agriculture and forestry, education, health, research and innovation, renewable energy and the environment. Regarding the latter, the creation of the Coral Sea Marine Park in 2014 and the Pacific Islands Forum commitment to make the preservation of the oceans its priority under the Blue Pacific narrative should lead New Caledonia to increase its regional action in this area.
Doing business in the Pacific
2.22
Despite the number of Australian companies exporting to the Pacific, Austrade conceded there was a ‘…limited number of Australian companies with a direct investment in these markets through, for example, the provision of branch offices or other physical presence in country’.
The reasons are varied but market observations highlight limited scale and size of markets, surety of ongoing orders, certainty of project pipeline and scale of projects, variable quality of communication and access systems including telecommunications and internet bandwidth, and adequacy of transport infrastructure. Larger businesses, particularly in the infrastructure sector, often overlook the Pacific in favour of high growth opportunities in Australia or ASEAN.
2.23
The Australia-PNG, Australia-Fiji and Australia-Pacific business councils jointly submitted that ‘…doing business in the Pacific islands countries has never been straight forward but generally has become more challenging for Australia business in recent years than was the case previously’.
There are a plethora of reasons for this, but some of them are:
Poor governance and corruption in many Pacific governments including the introduction of business practices which tilt the playing field against Australian business.
Poor business regulation environment in many countries which leads to the highest ranked Pacific islands countries in the World Bank’s Ease of Doing Business rankings being Tonga at 91. We do not regard the rankings as an absolute measure, but they are indicative.
The high production input costs. Some of the contributing factors to this are the cost and reliability of utilities, transportation costs, poor infrastructure, and low productivity at all stages of the production cycle.
Foreign exchange risk in jurisdictions with their own currency.
2.24
Indra Australia is the Australian arm of global technology business Indra, with 49,000 employees in 140 countries, and earning $5 billion in revenue in the 2019 financial year. The Managing Director Mr Tehmur Khan Galindo outlined the challenges of contracts and doing business in the Pacific.
In our view, even though…the Pacific islands are a compendium of countries with different cultures and different ways of approaching business, we experience more or less the same issues across the board, from a problematic financial perspective. I believe that the way contracts are managed here in Australia is very different to how contracts are being managed in the region, and also with some of the adherence to contractual frameworks and schedules. Obviously, the financing is very important. Many customers struggle meeting funding requirements and, therefore, have problems with payments. We believe that is something that is pretty much common across the board in the Pacific nations.
2.25
The Australia-PNG, Australia-Fiji and Australia-Pacific business councils also raised the ‘…less than optimum Australian political support for Australian business in the region especially by comparison to that provided to New Zealand business by the New Zealand Government’ and ‘…reduced Austrade staffing in Pacific’.
…all of the business councils, including Fiji, have a wealth of knowledge and a deep history that can be accessed to assist government. We really encourage that proactive communication from Canberra. We’re very, very happy to be involved. Something to keep in mind is that when we compare Australia’s performance in this area to New Zealand we are outshone, frankly, by what the Kiwis do up in Fiji.
2.26
In recent years some Australian companies with history of operating in the region have also re-assessed their business models and made changes to their operating profile in the region, according to the Australia-PNG, Australia-Fiji and Australia-Pacific business councils.
2.27
The councils submitted examples of this including Westpac Banking Corporation in 2015 exiting from operating in five countries (Cook Islands, Samoa, Solomon Islands, Tonga and Vanuatu), ANZ Banking Group exiting retail banking in Papua New Guinea in 2019, and Australian insurance companies changing their insurance underwriting arrangements in part because of recent major cyclones in the region changed the risk.
Some companies have transferred the management oversight of their Pacific operations from Australia to New Zealand or Singapore effectively putting them at arm’s length from Australian business although this may not have been the intention. However, we have also seen some companies (eg: ANZ PNG) move management oversight to Australia.
Overcoming poor internet and dated IT hardware in the Pacific
2.28
After being approached by a Fijian business in 2019, the Director of an Australia software company, Connect Direct Pty Ltd, Mrs Robyn Peters, relayed her company’s positive experience of providing its medical software Direct Control to medical centres in Fiji. Zens Medical Centres used it for administration and clinician purposes in Nadi and three other locations in Fiji. The experience highlighted to Mrs Peters the importance of physically being able to travel to Fiji to support and help the medical centre make the transition.
We had to reduce our pricing because the biggest problem that they have—is the infrastructure. They don’t have the tier one computers or the levels of what we have [in Australia]. You can’t rely on internet for many reasons…but we managed, over a 12-month or even a six-month period, to get it started.
2.29
Direct Control was installed at the Nadi head office with remote access for all of Zens Medical Centre’s staff, along with a Fiji Revenue and Customs Service point of sale facility. There were also 140,000-plus patient records scanned into the program.
[Zens Medical Centre] went from totally paper to paperless. The doctors could sit in their rooms and do pathology requests, radiology requests and get the results back, the reports, all without paper at all, just through using a system. The system happens to be called Direct Control, but it’s purely the system that works. He can, say, click a button and know exactly how much revenue he has earned today.
Cairns as a business gateway to the Pacific
2.30
Cairns Regional Council highlighted the North Queensland city’s potential for activating greater trade capacity through Cairns’ air and sea ports into the Pacific. These links bolster Cairns’ strong business connections with Pacific nations and why it is home to Tradelinked Cairns-PNG-Pacific, a regionally focused network established to facilitate the engagement of businesses trading between Cairns and Pacific neighbours. Furthermore, Cairns also hosts 12 foreign consulates.
Tradelinked Cairns-PNG-Pacific also hold monthly networking events in Port Moresby, regularly attracting around 150 businesses with an interest in trade with Australia via Cairns. Bougainville and the Solomon Islands are also regions engaging in reciprocal activity between business groups and Tradelinked Cairns-PNG-Pacific.
2.31
Cairns air and sea ports exported 730,210 tonnes in 2017-18 to countries which are signatories to the PACER Plus, according to the Regional Council.
These exports included telecommunications equipment, electrical machinery, aircraft and equipment, ships/boats and floating equipment. Additionally, the figures almost triple to 2,184,106 tonnes in the same period with the inclusion of other Pacific island nations which are not PACER Plus signatories, such as PNG and Fiji.
2.32
In terms of investment, the Regional Council submitted the value of land acquisitions from PNG in Cairns over the 2016/17 and 2017/18 financial years was $3,793,248, which represents 2.3 per cent of the total foreign land acquisition for that period.
Papua New Guinea dominates Australia’s trade with the Pacific
2.33
The concentration of trade with Papua New Guinea is even greater when just looking at Australia’s imports from Pacific island countries, with PNG accounting for 94 per cent of total imports, according to DFAT. These figures are dominated by mineral imports from PNG, including gold. Fiji is the only other significant source of imports, accounting for 4 per cent of total imports from Pacific island countries.
2.34
Australia’s trade relationship with PNG is underpinned by significant Australian business investment, according to the Department of Industry, Science, Energy and Resources (DISER).
Australian companies invested $17 billion into PNG in 2018, with some 4,600 Australian firms doing business there. This strong investment relationship has been driven by the resources sector with many Australian companies having a long history of operating in PNG.
2.35
DISER described Australian investment in PNG’s resources and energy sector as extensive and multifaceted.
Australian companies have holdings in four of the eight major mines operating in PNG, and have significant interests in oil and gas operations. Australia is also a leading player in the delivery of resources infrastructure in PNG, with numerous companies and expatriate workers operating in the light manufacturing and mining service delivery sectors.
2.36
DISER noted the largest Australian industrial and resources exports to PNG are crude petroleum, civil engineering equipment and parts.
…major imports to Australia from PNG are gold, crude petroleum, silver and platinum. Accounting for most of Australia’s imports from PNG are gold ore imports that are processed further in Australia and then re-exported.
2.37
DISER also noted the growing international interest in PNG and warned of the impact on Australian businesses and the need for continued Australian government efforts to ‘strengthen resources engagement with PNG’ to promote sustainable growth in the sector.
…Australian interests are competing in PNG against a growing number of trade and investment interests from other major international players. This rapidly changing global business landscape, against the backdrop of political and regulatory challenges and uncertainty caused by PNG tariff increases and proposed foreign investment regulatory amendments, means that the PNG economic environment can be challenging for Australian business. Continued Australian government efforts to strengthen resources engagement with PNG necessary to promote sustainable growth for the sector and facilitate opportunities for business.
The importance of fisheries access fees for smaller Pacific nations
2.38
The Pacific region contains one of the largest exclusive economic zones in the world, according to the Development Policy Centre, and control over the largest sustainable tuna purse seine fishery is through the Parties to the Nauru Agreement (PNA). PNA member countries generate revenues as shown by Figure 2.6 by selling fishing licences and charging fishing access fees to foreign nations.
…fishing licence and access fee revenue is in the top 3 most important sources of foreign exchange for Kiribati, FSM and Marshall Islands. A comparison of revenue earned in 2008 and 2016 shows that all PICs have increased their fishing licence revenue over that period, most by more than 200 per cent.
2.39
Looking at these revenues on a per capita basis, the Development Policy Centre outlined in Figure 2.7 that fishing licences and access fees particularly benefit PICs with smaller and more remote populations such as Tokelau (a dependent territory of New Zealand), Nauru, Tuvalu and Kiribati.
Combating illegal, unreported and unregulated fishing
2.40
Australia is a key regional surveillance and enforcement partner in the Pacific region, according to the Department of Agriculture, Water and the Environment. Australia’s fisheries engagement is directly supporting the implementation of the Department of Defence’s Pacific Maritime Security Programme, ‘…critical for both Australia’s and Pacific island countries’ maritime domains awareness’.
Australian fisheries authorities have invested heavily for many years in both building our own national capabilities and bolstering regional monitoring, control and surveillance (MCS) capabilities to combat illegal, unreported and unregulated fishing (IUU). Australia provides a range of activities aimed at building Pacific island countries’ capacity to combat IUU. This includes training and cooperative activities involving Australian Fisheries Management Authority (AFMA) fisheries officers and legal and operational support for the implementation of the Niue Treaty Subsidiary Agreement.
International law for sustainable management of Pacific fisheries
2.41
The Pacific island countries rely heavily on their fisheries industries and exports for economic security, according to the Department of Agriculture, Water and the Environment. The department leads Australian Government engagement in Regional Fisheries Management Organisations (RFMOs), which facilitates cooperation in the management of shared fish stocks.
2.42
The department outlined that Australia’s engagement in the Western and Central Pacific Fisheries Commission (WCPFC) is interlinked to the Pacific Islands Forum Fisheries Agency (FFA), which operates as a ‘…regional bloc to ensure Pacific island countries maintain effective representation’.
The department’s involvement and leadership in both forums is critical to helping Pacific island countries maximise economic gains while ensuring a sustainable catch. The WCPFC manages the world’s largest tuna fishery, accounting for 55 per cent of the total tropical tuna catch and providing up to 98 per cent of government revenue for some Pacific Island nations.
Tourism a growing source of trade before COVID-19
2.43
Before the international travel restrictions put in place to minimise the spread of COVID-19, tourism was one of the largest sources of services exports for several Pacific island countries.
Fiji recorded almost 900,000 visitor arrivals in 2018 and tourism is Fiji’s largest source of foreign exchange – bigger than the combined earnings of their top five merchandise exports combined. Australia is the largest source market for tourists, accounting for over 40 per cent of total arrivals.
2.44
Executive Committee member of the Australia Pacific Islands Business Council Ms Tessa Price, noted ‘…tourism is almost everything in the Pacific’.
We know the economic damage. A lot of countries will actually get downgraded, which will also mean it will be more expensive to borrow money. With the borders still shut, the tourism economies of Fiji, Cook Islands, Vanuatu, Samoa and, to a lesser extinct, Tonga have not had any travellers since April [2020].
2.45
Professor Stephen Howes, the Director of the ANU’s Development Policy Centre identified that the one area of trade before the COVID-19 pandemic that was very important for much of the Pacific was tourism.
You can see that Fiji is the tourism giant, but Vanuatu, Samoa and Palau are also countries where tourism is important and where it constitutes the bulk of their exports. We’re not talking about the export of goods; we’re talking about the export of services, in particular tourism.
2.46
Acting Assistant General Manager of Austrade’s International Branch Mr Dan Williams, highlighted Australia’s role with the Fijian tourism sector.
Australian inputs to what is that key earner are really essential. Whether it’s a providoring side, whether it’s room-booking systems, whether it’s a desal plant—because they’re out on an island—or a diesel generator, these are all critical inputs to what is one of the country’s core offerings and core earners.
2.47
Tourism was a major export sector for Vanuatu, with 115,000 visitor arrivals by air and almost 235,000 arrivals by cruise ship in 2018. Half of the air arrivals and about 80 per cent of cruise arrivals come from Australia.
2.48
According to the ANU Development Policy Centre island nations such as Palau, Vanuatu, Samoa, and Fiji are more reliant on tourism for their exports as shown in Figure 2.8 as compared to PNG and the Solomon Islands that rely on the export of their natural commodities such as gold or timber.
Do fears of violence hamper Papua New Guinea tourism
2.49
With respect to Papua New Guinea tourism and COVID-19 travel restrictions aside, it was not correct to say there was zero tourism in PNG before 2020, according to the President of the Australia PNG Business Council, Mr Mark Baker.
2.50
‘The perception of PNG being a violent and dangerous place does hold back tourism…’ and despite unsavoury criminal acts and even tribal violence occasionally, Mr Baker stated he has travelled the country with his young family when they visit.
It’s also, I’d suggest, not correct that it’s entirely unsafe to travel. My family all come from Australia at least once a year and we travel extensively around PNG. Tourism here is small and bespoke. I absolutely agree with you that, actually, there is a huge untapped potential for tourism in PNG, but I would suggest that PNG will never be able to go down the route of Fiji. PNG will be a more bespoke type of tourism—more experiential, if you like. For example, there are the Conflict islands, which are repositioning themselves now cruise ships no longer go there, and there is quite an extensive local tourist arrangement which is going on.
2.51
Mr Baker described violence in Papua New Guinea as multifaceted.
It’s extraordinarily complex. Some of it is simply a question of criminal activity, which is really people who don’t have much wanting to get things that other people have. So, really, that’s when you talk about raskols.
2.52
Mr Baker believed before the pandemic struck in 2020 that the PNG government was trying different things to drive tourism.
One was to have direct flights from Cairns into Kokopo—it is generally safer in East New Britain—and avoid Port Moresby. Port Moresby will never be a tourist destination to speak of. When I describe those two types of violence, Port Moresby is much more around the criminal element rather than the purely tribal.
2.53
PNG has a future in tourism away from Port Moresby, including trekking the popular World War Two Kokoda Trail, according to Mr Baker.
I think the future for tourism is going to be around tourist hubs in areas which are generally perceived to be safer than Port Moresby and building upon that. It was tried a few years ago. It didn’t really go anywhere, and, again, I think it’s probably still because of the perception of PNG in general. There is no easy solution to the lawlessness in PNG. It’s a capability piece amongst the Papua New Guinean police. It’s a resourcing issue. I think the Australian partnership on the ground certainly helps, but that is really pretty much focussed on Port Moresby and Lae.
Australian investment in the Pacific
2.54
Australia is also a significant source of investment for Pacific island countries. Although data is patchy, Australian investment in Pacific island countries was valued at around A$18,466 million at the end of 2018.
2.55
According to the Australian Bureau of Statistics’ International Investment Position 2018, Papua New Guinea was by far the largest investment destination with A$16,889 million. Fiji accounted for A$1,348 million, Vanuatu A$105 million, Samoa A$60 million, New Caledonia A$40 million, Cook Islands A$13 million, and Kiribati A$11 million.
2.56
DFAT outlined that investment is a necessary component in stimulating trade between Australia and the Pacific island countries.
Like Australia, Pacific island countries rely on foreign direct investment as a key driver of long-term economic growth and development. Pacific island countries have small populations, small revenue bases and relatively high investment needs compared with larger markets or more densely populated countries. While Papua New Guinea has attracted investment in large resource projects, economic growth in Pacific island countries has been impeded by relatively small capital inflows and poorly developed and relatively opaque financial markets.
2.57
Mr Peter Taylor, the Immediate Past President of the Australia Papua New Guinea Business Council believed that the 1991 Agreement (No. 38) between the Australian and PNG governments for the promotion and protection of investments had helped encourage significant Australian investment.
What I think has made investment, particularly large investments, in Papua New Guinea more palatable despite all the issues is the fact that we have a treaty with PNG that more or less discourages expropriation of Australian company assets. That’s very important, and there is talk of renegotiating or looking at the treaties we have with Papua New Guinea. If that’s the case, I certainly hope that stays in.
2.58
Mr Taylor would also welcome further protections in dispute mediations for investors in any new treaties.
The other thing I think would help is, if there is to be a new look at treaties, to include the rights of Australian investors in Papua New Guinea—and some pretty big investments go in there, billions of dollars’ worth—and have a provision that allows any dispute, and the resolution thereof, to go to a third country. Singapore’s a bit of a favourite. There have been problems in this area where you find yourself before PNG courts only and that does in some cases discourage investors.
2.59
Mr Taylor raised currency manipulation of the PNG Kina as a concern.
Currency manipulation as occurs in PNG is an impediment to investment because;
A. The PNG Kina is overvalued which discourages bringing hard currency into PNG. An investor is taking a discount on the way in and out, if in fact hard currency is available to repatriate.
B. One consequence of A is a hard currency shortage in PNG thus limiting the ability of local businesses to fund foreign sourced inputs to local production. It also restricts the ability of foreign businesses to remit dividends because hard currency cannot be sourced.
C. The result is de facto exchange controls which discourages foreign investment. Australia should look at using Export Finance Australia to provide a hedge for Australian overseas investors in ‘soft’ currency jurisdictions. Longer term something akin to Special Drawing Rights based on the Australian and/or New Zealand currency to underpin Australian Pacific investment.
2.60
Dr Stephen Nash, who has an extensive experience as an institutional fund manager with direct experience in PNG, submitted there are two main initiatives that are required to ‘…assist the private sector, specifically, the institutional superannuation community, to increase investment in the Pacific region’.
2.61
Dr Nash believed these two initiatives are required to ‘…alleviate some problems that are apparent in terms of investment in the Pacific’, which are as follows:
Lack of institutional investor knowledge of the Pacific: Even though Australia is physically adjacent to Pacific region, hereafter ‘the region’, most institutional investors are focussed on developed world, and emerging market investments, which are far from the region. While the region has vast potential and while it also has a strong strategic alignment with Australia, the level of knowledge remains low…, and
Market failures in the Pacific: Australian institutional investors face three main risks, or market failures, which require government intervention to address...
2.62
Dr Nash outlined in order to assist the Australian Government, in terms of developing the Pacific region, ‘…institutional investors first need to acquire knowledge of the Pacific, especially of PNG’.
While large potential rewards await investors, the strategic risks for investors are large, and the strategic risk for Australia remains elevated. In order to unlock the potential rewards, and to moderate risk, a long-term, strategic, approach is needed to be initiated by the Commonwealth government. Even if this approach was adopted, the requisite knowledge of the Pacific needs to be acquired, and then several market failures need to be addressed. Accordingly, the Commonwealth government will need to take steps to work cooperatively with institutional investors, so as to gradually alleviate knowledge deficiencies and to address these failures.
2.63
Dr Nash outlined the vast trillion-dollar size of the pool of private-sector capital in Australia that’s ‘ready, willing, and able, to invest’ in regional infrastructure.
Specifically, the Australian institutional superannuation market is very large, at around $2.5 trillion. As investors begin to appreciate the benefits of infrastructure investment, the search for ‘good’ infrastructure projects is, among other things, pushing new transaction yields lower and lower around the world.
Yet, despite the demand for infrastructure projects by the large Australian superannuation sector, virtually no institutional investor is looking to the Pacific for infrastructure investment opportunities. In many ways, the Pacific constitutes an investment vacuum, which the institutional investor must traverse, so as seek infrastructure opportunities elsewhere.
Linkages between Australia and the Pacific
2.64
The Australian Government, according to the Department of Foreign Affairs and Trade, is ‘increasingly working with the Australian private sector, civil society and Pacific diaspora communities to build linkages to create opportunities for Australian businesses and investors in Pacific island countries. Australian businesses are already operating across the Pacific in a range of sectors, including construction, energy, healthcare and education’.
For example, there are 4,400 Australian businesses doing business in Papua New Guinea, and 3,300 in Fiji. The Government’s Pacific Labour schemes are also building strong linkages between the Australian private sector and Pacific island countries.
2.65
Australia, according to DFAT, is an active regional and multilateral player on trade and economic issues. Australia engages with other donors to, and trading partners of, Pacific island countries.
We are supporting effective implementation of the PACER Plus agreement, recognising its significant potential to deliver vast benefits to the region. We are also supporting the sustainable development of industries where the Pacific has a comparative advantage, such as tourism.
Pacific diaspora, employment and labour mobility
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Dr Newton Cain the Project Lead from the Griffith Asia Institute’s Pacific Hub outlined that most Pacific islanders, aside from those living in Fiji, are more concerned about the transport infrastructure to get their agricultural produce to market than the potential for e-commerce.
…in Pacific island countries the predominant economic and livelihood activity that people are engaged in is agriculture and what is sometimes referred to as a subsistence-plus livelihood—that is, providing for yourself and your family and then generating a surplus to sell, whether domestically or for export.
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Australia is one of the major destinations for migrants from the Pacific, according the ANU Development Policy Centre and Figure 2.9.
There are around 130,000 Pacific islander-born residents in Australia, compared to 156,000 in New Zealand, and 185,000 in the United States. Yet Pacific islander-born migrants are a very small proportion of the overall population in Australia at 0.6 per cent, compared to 3.3 per cent in New Zealand.
2.68
The Development Policy Centre highlighted there has been no dedicated permanent migration pathways to Australia for Pacific Islanders.
Australia’s policy focus on skilled migration has favoured migrants from Fiji – around 61,500. Most Pacific islander-born residents in Australia have entered via the New Zealand Special Category Visa pathway due to long-existing opportunities for Polynesians to migrate to New Zealand and become New Zealand citizens.
2.69
Professor Stephen Howes from the ANU’s Development Policy Centre identified Australia as one of three major destinations for Pacific Islanders, alongside New Zealand and USA.
…but it’s a very small proportion of the Australian population. It’s less than half a per cent. In particular, the composition of Pacific migrants to Australia is very skewed in favour of Polynesia. That’s Polynesia, which is Samoa and Tonga mainly. The small one is Melanesia and Micronesia, which is PNG and the Solomons.
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Professor Howes explained the anomaly of Polynesian migration being so much higher than from Melanesian countries was due to New Zealand being a gateway to Australia for Tongans and Samoans than Solomon Islanders.
That’s a very surprising result because the Melanesian countries are so much bigger. In fact Australia, historically, has had a closer relationship with Melanesia in particular; PNG used to be an Australian colony. But the reason for this is really New Zealand. New Zealand has given a lot of access to Polynesian countries and they have then become New Zealand citizens and then migrated to Australia. So that has benefited Polynesia, but there has been no similar route to benefit Melanesia and Micronesia….The good news is that Australia is now providing more labour market opportunities to the Pacific, and Melanesia, in particular Vanuatu are taking advantage of this and so we are now providing more remittances. And these Melanesian countries that have large levels of unemployment and low levels of remittances really need these labour mobility opportunities.
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The Development Policy Centre also contrasted the numbers of migrants in Australia from Samoa compared with PNG with Figure 2.10 above highlighting that many more Polynesian migrants are living in Australia than from Melanesia and Micronesia.
Samoa has a population of 198,000 and was a former New Zealand colony; PNG has a population of almost nine million, and was a former Australian colony. However, there are 24,000 Samoan migrants in Australia and 21,000 from PNG.
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New Zealand’s more accessible visas for Pacific Islanders have led to a much higher percentage of its population with Pacific Islander origins than in Australia.
At the time of the 2018 New Zealand Census, the Pacific diaspora population was estimated to be 381,642 (8.1 per cent of the overall population), in comparison to the Pacific diaspora in Australia which was 265,796 (1 per cent of the overall population). Around 85 per cent of the Pacific diaspora in Australia is of Polynesian ancestry, predominantly Samoan, Fijian and Tongan (Figure 2.11).
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The World Bank Group and International Finance Corporation submitted that Pacific island countries face ‘unique constraints to economic growth that result from a combination of smallness, isolation, and dispersion’.
Demographic trends put additional pressure on the job market, with many Pacific island countries, especially those in Melanesia, witnessing rapidly growing populations along with a ‘youth bulge’. In this context, domestic employment growth is not taking place rapidly enough to absorb all new entrants, especially for low-skilled workers who are more likely to be poor. In Tonga, for example, there are an estimated 250 – 300 formal sector jobs created annually compared to 2,000 – 3,000 new labour market entrants.
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A history of labour mobility opportunities have long provided Pacific Islanders with a means to gain employment, skills and an income where such opportunities are not available domestically, according to the World Bank Group.
Many countries in Polynesia and Micronesia already have a successful history of engaging with labour mobility and migration opportunities. Large overseas diasporas have helped these countries avoid the ‘youth bulge’ affecting parts of Melanesia while also generating remittance income and business opportunities for those that remain.
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The ANU Development Policy Centre reiterated from its economic research that the populations of Pacific island countries (PICs) are ‘young and characterised by high levels of underemployment’.
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Ms Tessa Price, on the Executive Committee of the Australia Pacific Islands Business Council stressed the importance of Australia’s labour mobility programs to help the economies of Pacific island countries.
We have high levels of unemployment and Fijians and Vanuatuans can go and earn in six month’s time what it takes two years to earn if there actually was a job in their country. I know that they’re exceptionally keen, and the governments also know that the remittances that the seasonal workers send home can equate to up to 25 per cent of a Pacific islander’s disposable income as well. It’s a huge economic driver. In countries like Tonga, it can be up to 40 per cent. So they’re very keen and they know the value of the Seasonal Worker Program in Australia.
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The Australia labour mobility program could be extended further, according to Ms Price.
I welcome the fact that there’s an annual review of it. We have fruit pickers. But if you think about aged care and what’s happened in Australia, with the high level of education, English, short courses that people can now do in aged care, there could be an opportunity to extend that further and get high-quality caregivers out of countries like Fiji into the Australian market. Rest assured on that front: the Pacific countries and governments are very keen to supply more workers.
When I went back to Fiji recently, all the seasonal workers were coming back from New Zealand. They had done their time, but they were keen to go back. So they go back, year one, two and three and, by year three, they’ve achieved a lot of goals, whether it’s a fishing boat, a water tank or whatever it happens to be, for their village back home. They’re invaluable programs that I encourage the Australian government to keep supporting.
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Drawing upon the UN World Population Prospectus’ 2020 estimates, the Development Policy Centre noted that ‘54 per cent of the PIC population (including Timor-Leste) are aged under 25 creating what is referred to as a “youth bulge”.’
Formal sector employment opportunities are limited; PICs are not creating enough formal sector jobs to meet demand. For example, in PNG 87,000 people enter the labour force each year and are competing for just under 12,000 formal sector jobs created annually. A similar mismatch between demand and supply is present in Kiribati, Solomon Islands, Tonga, and Vanuatu. Of course, in developing countries most workers are engaged in the informal economy. But the numbers here show the limited opportunities to move out of the low-productivity informal sector into the formal sector. It is difficult to measure unemployment…definitely underemployment is rife.
Table 2.2: Pacific labour force entrants and formal sector jobs created
|
|
|
|
|
Kiribati
|
3,200
|
65
|
|
Papua New Guinea
|
87,000
|
11,932
|
|
Solomon Islands
|
13,000
|
2,089
|
|
Tonga
|
5,600
|
325
|
|
Vanuatu
|
3,800
|
1,260
|
Source: ANU Development Policy Centre, Submission 52, p. 3; & Pacific Possible Labour mobility: the ten million dollar prize & census data. Submitter cautioned these numbers are approximations only.
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The Development Policy Centre submitted that the Census of Population and Housing data (2016) on labour force status (Figure 2.12) showed that within Pacific Islander communities both males and females were employed full time at a ‘…higher rate than all male and female residents of working age within Australia’ and in many sectors (Figures 2.13 & 2.14).
While the Pacific Islander community in Australia is relatively small, the population was employed across a diverse range of industries. The top three industries for males were manufacturing (14%), construction (14%), and transport, postal and warehousing (13%). Health care and social assistance stood out as the most prominent industry of employment for females (25%), followed by retail trade (10%), and education and training (9%).
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Development Policy Centre Research Officer, Ms Beth Orton, examined where Pacific Islanders were employed in Australia.
Certainly there’s a lot of employment particularly in those aged-care service industries—nursing, health care and social services.
Dependence on remittances varies across the Pacific
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The ANU Development Policy Centre highlighted Tonga’s dependence on remittances but also that some Pacific island countries such as PNG were much less dependent on remittances.
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Professor Howes identified the receipt of remittances as where you see the greatest diversity between PICs.
Tonga has the highest ratio of remittances to GDP in the world, but PNG is the third lowest. You see the entire spectrum in the Pacific in terms of remittances.
2.83
The Policy Centre outlined that the importance of remittances varied according to the extent to which Pacific countries have been able to build up an overseas diaspora in countries such as Australia and New Zealand.
Strikingly, for Cook Islands there are 118 per cent more emigrants than residents. A relatively high proportion of Palauans, Tongans, and Marshallese have also immigrated to other countries. These are all countries with full (Cook Islands) or partial (Tonga) access to New Zealand or with full access to the United States (Palau, Marshall Islands).
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The six countries with the smallest diaspora relative to domestic population according to the Development Policy Centre are: Nauru, Kiribati, Timor-Leste, Vanuatu, Solomon Islands, and PNG.
…these countries lack special immigration arrangements: their populations have historically been, and largely remain, isolated.
2.85
Professor Howes explained the great diversity of remittances reflected more upon how many migrants of certain islands lived overseas.
In Cook Islands, you’ve got more Cook Islanders living outside Cook Islands than in Cook Islands, right? Massive diaspora—there are going to be a lot of remittances. Tonga and Samoa are around 50 per cent. Down the other end, Vanuatu, Solomons and Papua New Guinea have very small percentages of their population living overseas and, therefore, are unable to benefit a lot from remittances.
2.86
Her Excellency Ms Hinauri Petana, High Commissioner in Australia for the Independent State of Samoa welcomed the importance of Australia’s labour mobility schemes such as the Seasonal Worker Programme and the Pacific Labour Scheme to provide work opportunities for Samoans but stressed the schemes are not without problems either.
Since their implementation we have seen a steady increase in numbers and acknowledge the benefits of these schemes in supporting families and communities back in Samoa, not to mention the positive impact on our foreign exchange, balance of payments and overall liquidity. There are still some areas which require further review to ensure worker welfare is consistently addressed under both schemes. They range from accommodation to contractual issues, insurance and access to superannuation.
Australia’s past history of exploitative recruitment
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Senior Research Fellow from Deakin University, Dr Victoria Stead, drew on her SWP-focussed research project Race, Labour and Belonging: Strengthening Rural Workforces and Communities to highlight Australia’s past history with Pacific workers.
People are often grateful for their employment, and the benefits they have access to, but may also feel that the situations they are in are exploitative or otherwise unequal.
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Dr Stead claimed SWP workers often articulated to her an awareness of the history of ‘blackbirding’ in Australia – the ‘coercive or exploitative recruitment’ of Pacific Islanders to work the cane-fields of Queensland and northern NSW through the 19th century.
Workers sometimes invoke a language of ‘modern day slavery’ to describe parallels between the past and their own present experiences. At the same time, the same people may also strongly desire and actively pursue the continuation of their own employment. These facts are not contradictory, but rather reflect the reality of an unequal field in which workers seek to make the best of situations that are nevertheless marked by sharp inequalities.
Concerns about exploitation of workers on Kokoda Track tours
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Dr Stead, drew on her Papua New Guinea research project War Memories and War Tourism that local people on PNG’s Kokoda Trail were being impacted by their interactions with region’s growing war tourism industry. Dr Stead found in the context of the trekking industry around the Kokoda Track, local people who describe the ‘…socio-economic inequalities that structure their relations with Australians’.
Locals who have attempted to enter the industry as operators or trek companies describe the difficulty they face in doing so, because they cannot meet the costs or effectively compete against Australian trekking companies. Here, too, the perception is that the kinds of work available to Papua New Guineans (as porters carrying Australian trekkers’ bags, for example) are more junior, and less profitable kinds of work compared to those available to Australians. Many Papua New Guineans described seeing benefits and profits accruing to outsiders.
2.90
Dr Stead some local people viewed their own employment challenges, and their interactions with Australian trek companies and trekkers, within the context of Australia’s colonial history in PNG.
Indeed, awareness of this colonial history is much more widespread and alive for Papua New Guineans than it is for the vast majority of Australian trekkers or trek company operators who I have interviewed in the course of my research.
2.91
Papua New Guineans draw attention to the inequalities and grievances ‘…they see as reflective of this colonial dynamic continuing into the present day’, even as they also pursue and desire participation in the industry.
In PNG, porters on the Kokoda Track were highly reluctant to complain because they feared (based on experience and the experiences of those they worked with) that they would not be picked for work on future treks. They described, moreover, a strong compulsion to ‘be friends’ with the Australians whose bags they carried, and to maintain good relations at all costs because the gifts and tips that Australians sometimes give at the end of a trek have become a critical part of people’s livelihood strategies.
Education linkages between Australia and the Pacific
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The Director of the Partnership Development Branch of the Department of Education, Skills and Employment (DESE), Mr Stephen Trengrove-Jones, confirmed education engagement with the Pacific island countries has largely been driven out of DFAT than DESE. As of August 2020, more than half of the Pacific students studying in Australia came from PNG.
We work closely with the Department of Foreign Affairs and Trade, which has a number of initiatives in place to support international engagement in the school sector, also through the Asia Pacific Training Coalition…and working with the University of the South Pacific. At present, as at August, we had about 2,200 international students from the Pacific island countries studying with Australian providers on a student visa. Most of them, about 1,100, came from Papua New Guinea and a bit more than 800 came from Fiji—828 students. For the remaining countries, the numbers are…very small and…in part, that reflects the size of the countries and the opportunities and pathways into education for their populations.
2.93
DESE submitted that the number of Pacific islander students studying in Australia is ‘…very small, representing approximately 0.31 per cent of the total 758, 154 international students as at December 2019’.
Pacific island student numbers have been steadily increasing over the last 10 years, from 1, 316 in 2009 to 2,349 in 2019. Only 312 students (13 per cent) of the Pacific islander student cohort came from PACER Plus countries in 2019 – the majority (86 per cent) came from Papua New Guinea (1,251 students) and Fiji (779 students).
2.94
Dr Wesley Morgan, Adjunct Research Fellow at the Griffith Asia Institute highlighted that Fiji is a slight exception to most Pacific island countries due to Fijians having much better access to reliable internet and higher education.
Fiji is and has long been on the undersea cable that connects the United States to Australia and New Zealand, so it has good, fast internet, and it has a well-educated and urban workforce and lots of people who have IT skills. So there are internet service providers. There are web designers. I think ANZ has a call centre based in Suva. Fiji does have some competitive capabilities in IT, but I would say that Fiji is something of an exception in the region in that regard. It has that unique set of circumstances going on.
2.95
The New Caledonia Government outlined its own improved education linkages with Australia after a Memorandum of Understanding (MoU) was signed April 2020 between the South Province and the NSW Department of Education International.
The MoU includes:
teacher professional development programmes organised by DE International;
collaboration between schools in the two jurisdictions that may include :
exchanges of teaching methodologies or curricula,
digital collaborative activities, including professional learning for staff or project-based learning for students,
visits by teaching staff between schools.
Australia Pacific Training Coalition
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The Australia Pacific Training Coalition (APTC) is Australia’s flagship education and skills investment in the Pacific, according to DFAT. APTC delivers Australian qualifications at Certificate III, IV and Diploma levels to Pacific islanders from 14 countries across five campuses in Fiji, PNG, Samoa, Vanuatu and Solomon Islands.
The APTC works with the Pacific Labour Facility, that administers the Pacific Labour Scheme (PLS) on behalf of DFAT, to match APTC graduates to PLS Approved Employers.
Both Seasonal Worker Programme (SWP) and PLS workers are able to access Add-on Skills Training which includes basic training in First Aid, English and IT skills. This is provided at no cost to participants.
Qualifications are available in the automotive, manufacturing, construction and electrical, tourism, hospitality, health and community sectors. APTC has made a significant contribution towards creating a skilled and competitive Pacific workforce. More than 1,200 Pacific Islander graduates enter the workforce each year with highly regarded qualifications. APTC had trained and graduated over 14,800 graduates with Australian qualifications, including over 5,900 women as at 31 July 2019.
2.97
Mrs Kylie Sterling, Austrade’s Trade and Investment Commissioner Pacific, highlighted a practical example of capability development by a company CEQ. CEQ have set up in Papua New Guinea and have been working with the Australia Pacific Training Coalition, which is DFAT funded.
They’ve been training locals to work on the projects that they’ve been winning in the country. What’s exciting about that is they’ve now moved into Fiji and set up an office, and are developing that relationship with the APTC. They’re also now investigating the mobility scheme—so trying to get some of these Pacific islanders coming to their projects in Australia to help develop that link and the capability of having the ticket, the qualifications from the APTC, in their Pacific region, but then also coming and having that practical experience in Australia on the projects and then going back home to work with the Australian businesses there.
2.98
The ANU Development Policy Centre recommended a strengthened focus on promoting migration opportunities to improve employment outcomes for Australia Pacific Training Coalition (APTC) graduates.
Recent analysis shows that APTC graduates are increasingly struggling to find employment. Among the roughly half of APTC graduates who do not have a pre-existing employment arrangement to return to, more than one-third are out of work at the time of follow-up tracer surveys, compared to less than 10 per cent at the start of the last decade. The APTC needs to train fewer graduates for domestic markets and more for overseas markets.
Developing Cairns as an education destination for PNG students
2.99
The Cairns Regional Council submitted that Cairns according to a Deloitte Access Economics, International education and training snapshot, was a ‘key destination for international education’ pre-COVID-19 with 249 international students from PNG enrolled in education locally, also nine from Fiji and three from the Solomon Islands.
PNG as the third largest source market for enrolments which therefore indicates Cairns is a natural destination for students travelling from the Pacific…The city enjoys an excellent English Language Intensive Courses for Overseas Students (ELICOS) and tertiary offer. With two major universities having a significant presence in Cairns (James Cook University and CQUniversity) there is an opportunity to further grow this sector. Darwin based Charles Darwin University also has a presence in Cairns through the EiiC (Exchange Innovation & Information Centre).
2.100
The Regional Council expected the Pacific Secondary Scholarships program, that commenced in January 2020, to open new opportunities for connections between Cairns and the Pacific.
Building intellectual capacity within Pacific countries (including PNG) is a way to respond to one of the key challenges identified by Pacific leaders and communities themselves, that challenge being to support the growth and promotion of educated populations. Initiatives aimed at addressing this challenge are therefore in direct alignment with the Federal Government’s Pacific Step-up policy.
2.101
The Regional Council believed the Pacific’s education capability and intellectual capacity would be bolstered by the Australian Government offering Commonwealth Supported Places (CSPs) at North Queensland universities to some Pacific students, in addition to CSP allocations to Australian students.
A further opportunity to boost engagement in this regard would be to offer a capped number of Commonwealth Supported Places (CSPs), or equivalent, to prospective students from Pacific nations (including PNG), at universities in Far North Queensland on the proviso they would return to their home countries upon graduation.
2.102
The Regional Council outlined there was also a strong alignment between Cairns’ tertiary institutions and the Australia Pacific Training Coalition, with structures already in place to administer the new Australia-University of the South Pacific partnership worth $84 million over six years from 2019-24. University research projects with the Pacific already exist and there is scope for further engagement.
2.103
James Cook University (JCU)’s Cairns Institute also has established links with PNG via its Twinning Partnership with the University of Papua New Guinea (UPNG).
The UPNG-JCU Twinning Partnership is a product of the University of Papua New Guinea and JCU’s desire to work together to expand cooperation and the exchange of ideas, knowledge and expertise in areas of mutual interest…JCU’s Cairns Institute also has a relationship with the University of Technology in Lae, PNG, as well as relationships with education providers in a number of other Pacific Countries.
2.104
Cairns according to the Regional Council also offers marine training through its Great Barrier Reef International Marine College, and avionics training through the Cairns Aviation Skills Centre, which provides the ‘…opportunity to contribute to the development of South Pacific nations’ capacities in both marine and aviation capabilities’.
Sources of investment for the Pacific
2.105
DFAT submitted that foreign investment, from Australia and elsewhere, on a business-to-business, bilateral and multilateral basis is ‘…driving growth in infrastructure, information and communications technology (ICT) and resources sectors across Pacific island countries’.
Outside the resources sectors though, most of this foreign investment is from public sector or multilateral institutions.
2.106
Department of Industry, Science, Energy and Resources noted the investment statistics between Australia and the other Pacific islands also highlighted the ‘difference in size of the bilateral economic relationships, in comparison to Australia’s relationship with PNG’.
Australian investment into Fiji, our second largest two-way trading partner in the Pacific was only $1.3 billion in 2017. This then drops to $40 million of Australian investment into New Caledonia, the third largest Pacific trading partner, in 2018.
2.107
Official Development Assistance (ODA) is a major source of investment in Pacific island countries. Australia invested A$1.3 billion in grants across the Pacific in 2018-19, and a total of A$3.8 billion from 2017-2020.
2.108
Other development partners also invest significant amounts of ODA in the region. According to the World Bank’s World Development Indicators, New Zealand’s development assistance program will provide $A1.3 billion to Pacific island countries over the next three years, while the World Bank and the Asian Development Bank have allocated A$4.4 billion, predominantly in concessional loans, to Pacific island countries over the period 2017 to 2020.
Aid investments present an opportunity for Pacific island countries to finance much needed infrastructure and public services, dealing with many of the constraints that present challenges to the mobilisation of increased levels of foreign investment. Australia works hard to ensure its aid program is coordinated and managed effectively to expand investment opportunities, while being careful to help ensure private sector investment, foreign and domestic, is not crowded out; particularly given the small scale of many Pacific island countries and the limited number of viable investment opportunities.
2.109
DFAT submits that Pacific island countries as a group perform relatively well in attracting foreign investment. For example, in 2018 the average net inward foreign direct investment accounted for 4.5 per cent of GDP, which compares well to the equivalent ASEAN measure of 3.9 per cent of GDP in 2018. However, the picture is mixed across individual countries.
2.110
International Business Development Manager for Entura, Mr James Mason, warned that many of the projects in the Pacific were funded through multilateral development banks often working in partnerships but sometimes with different goals to each other.
The fairly active ones are the Asian Development Bank and the World Bank, and also some of the European banks, although less so. Compared to internationally, the Pacific is probably the only region where we see those agencies working together. They are challenged because they’re all trying to achieve their goals and sometimes differing goals, but they do work together in the Pacific. However, the funding stream is a little bit disconnected, so the ability of a country in the Pacific to plan the funding with multiple banks and then put it into a program is a little bit challenging.
2.111
Mr Mason noted compared to South-East Asia, Australia has a much stronger presence financing projects in the Pacific.
In South-East Asia, they tend to co-fund with other agencies; they will tack onto the World Bank and the ADB. But we do see a change in the Pacific where they are wanting to be much more overt. I think the AIFFP is an example where they are looking to take a leading role and coordinate funding from other bodies to put those countries in the Pacific.
2.112
Her Excellency Ms Hinauri Petana, High Commissioner in Australia for the Independent State of Samoa stated her government wanted to make it easier for Australian businesses to invest in Samoa.
On investment, we would seek the active promotion of Samoa and the Pacific to Australia’s manufacturing and investment businesses, to allow direct investment into the region. Samoa’s investment landscape has improved considerably in the last 5-7 years with streamlined processes for setting up businesses, including procedures and essential information available online.
Private sector investment in the Pacific
2.113
For the private sector, DFAT using analysis of investment in the Pacific by the New Zealand Institute for Pacific Research claimed that the determinants of an investment decision rely on at least three features of investment:
the motive for investment (for example, resource, market, efficiency, or strategic-asset seeking – on both the supply and demand sides of the investment deal);
the type of investment (for example, manufacturing or services); and
the investment size (for example, small and medium enterprises or large enterprises).
…Pacific Research identified that openness to trade, income and location have significant effects on FDI inflows. Small size in itself was not found to be a significant barrier to attracting inflows of FDI.
2.114
DFAT submitted that Pacific island countries face strong competition in attracting the attention of private sector investors and traders.
On the supply side, the quality of the business environment affects the ability of a country to attract and retain investment, and to harness investment to support sustainable economic growth and development. PACER Plus rules, commitments and cooperative mechanisms in the areas of goods, services and investment have the potential to ensure business environments of Pacific island countries are more transparent, predictable and harmonised with international rules, standards and best practices.
2.115
DFAT research undertaken by Pacific RISE in 2018 identified 208 Pacific island enterprises suitable for foreign direct investment, of which 36 were assessed to have real investment potential and seven whose owners were ready to accept external investment partners.
However, foreign direct investment (FDI) also relies on demand for external investment, which is often offered as equity or debt financing and as such may not be attractive to family enterprises or medium-sized businesses that are comfortable with their scale of operations...While the business environments of Pacific island countries have improved, they remain relatively challenging to invest in and do business with in comparison to other countries…Constraints to private sector development, like small size, reluctance to share equity or take on debt and remote geography can be exacerbated by weak institutions and governance..
Infrastructure development in the Pacific
2.116
The Pacific island countries that are members of the World Bank Group have a combined population of just over 2 million scattered over more than 600 islands.
These island countries are known for their remoteness and the infrastructure connectivity is often a challenge. Such remoteness can also be perceived as an obstacle for investors and companies working across major international markets. The outer islands in the Pacific, in particular, have limited access to basic infrastructure, public services and economic opportunities.
2.117
DFAT agreed that infrastructure will be the critical element of the enabling environment for business and private sector development in the Pacific.
Access to affordable and reliable infrastructure increases productivity, reduces production costs and stimulates private investment. Infrastructure enables access to markets, employment and critical services such as health, education, potable water and sanitation.
2.118
Ms Danielle Heinecke, First Assistant Secretary, Pacific Operations and Development, DFAT indicated there were lots of synergies between the development agenda and the trade agenda, and there are ‘lots of ducks lined up essentially to really take forward that economic and trade agenda’.
I think one of the things that really illustrates that is the work that we’re doing in the infrastructure sector, where there is a higher level of small companies that are interested in providing services and commercial arrangements in the Pacific, whether that’s through a PPP, like the Aspen example…or whether that’s in the climate change and energy renewables space.
2.119
The Asian Development Bank (ADB) report Meeting Asia’s Infrastructure Needs estimates that Pacific island countries will require investment in infrastructure of US$3.1 billion annually to 2030, according to DFAT. DFAT submitted that ‘mobilising private investment in infrastructure will be critical to meeting this need’.
2.120
To help fund the infrastructure need is the Australian Infrastructure Financing Facility for the Pacific (AIFFP), which became operational on 1 July 2019.
This $2 billion initiative will use grant funding and loans to support transformative infrastructure in Pacific island countries.
2.121
Mrs Kylie Sterling, Austrade’s Trade and Investment Commissioner Pacific, outlined that the focus of Austrade in the Pacific was around the development of ‘…infrastructure—renewable energy, transport and more around ports and airports—and water’.
We have great expertise in Australia around remote water solutions. There is also a focus on telecommunications now. There is big investment in the Pacific around data cables et cetera, there are a lot of opportunities around that digital space.
2.122
Mrs Sterling recalled a forum in Sydney in February 2020 around Pacific investment opportunities.
We could only fit 160 people in the room, and we were oversubscribed. We had over 50 different Australian businesses that couldn’t make it to that forum, which is a great indication of the interest.
We have been working closely with the Australian Infrastructure Financing Facility [for the Pacific] and helping them collaborate with the Pacific super funds. There is a lot of money in the Pacific around infrastructure—trying to marry the debt with the equity and getting private business engaged and excited about infrastructure.
Improving energy and water infrastructure in the Pacific
2.123
The generation of utility power in the Pacific is traditionally through diesel power, with larger centralised units in the capital cities and smaller decentralised units in the outer islands, according to Entura, a specialist Australia power and water professional services firm linked with Hydro Tasmania. Entura currently provides renewable energy, water and power engineering services in Australia and the Indo-Pacific.
2.124
Entura submitted the main exception to diesel power are Tahiti, Samoa, Fiji and Papua New Guinea (PNG) who have access to baseload hydropower, other renewables and indigenous gas, while also using heavy fuel oil systems as part of their energy mix.
There are some small hydropower projects (under 10MW [megawatts] each) scattered throughout the Pacific. Over the last 5 years there has been an increase in photo voltaic solar battery installations, to reduce the consumption of diesel.
2.125
Larger power grids in the Pacific face challenges and have outages, according to Entura.
For the larger grids, the transmission networks are often antiquated due to the challenges of developing new lines (such as land acquisition, access, mountainous terrain and tropical vegetation) and as a result suffer from poor reliability, reduced availability and forced outages. Populations are often dispersed, providing challenges for the network to reach all residents, resulting in fewer residents having access to electricity and lower electrification rates.
2.126
Entura believed the renewable energy projects were economically feasible and provide significant contribution to the governments’ carbon reduction program, however, they are ‘…challenged by reducing diesel prices and increasing cost of enabling technology (energy storage, integrated control systems, UPS, flywheels and resistors) to support high renewable energy penetration outcomes’.
The diesel cost for a Pacific utility (and thus the government) is a significant component of their budget, with the on-going benefits of avoided diesel costs able to be re-invested into other assets and services.
We have seen no issues with reliability of renewable energy at this stage, with quality and performance of the equipment increasing. However, the availability of skilled maintenance personnel familiar with renewable hybrid energy systems is limited in the Pacific.
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Entura’s International Business Development Manager, Mr James Mason, explained that many of the Pacific island countries have announced that they ‘…want to be 100 per cent renewable by a certain date, anything from 2030 to 2040’.
They’re probably a bit optimistic; however, there has been a significant drive over the last five years to displace diesel. They have an abundance of solar in certain areas and they have an abundance of wind. But every litre that’s displaced is beneficial to the communities. So, definitely, most of the islands have a basic plan, and probably a handful of them are 50 per cent renewable already. That will continue.
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Mr Mason outlined on average about 30 to 40 per cent of the islands in the Pacific have access to small hydropower projects—less than 10 megawatts.
Some of the bigger islands like Fiji and PNG obviously have large-scale hydropower, but most of the other islands have small grids so they only need a small power source, but they often are quite mountainous so they have that ability to have a head that can generate some electricity. So we find that 30 to 40 per cent of countries in the Pacific would have a small hydro project either in being or proposed…and it would replace the diesel. Most of the Pacific is fuelled off diesel, so every time the hydro facility works the generators can turn off.
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Access to secure and sustainable energy sources is one particular issue for Pacific island countries that is exacerbated by their geographic isolation and limited natural resources, according to a global technology business Indra.
This acts as a handbrake on economic growth and adds further difficulty for PICs to maintain reliable and unrestricted access with global markets.
However, technological developments in renewable energy and smart micro-grids provide potential solutions that are increasingly affordable for small and isolated communities.
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Managing Director of Indra Australia Pty Ltd, Mr Tehmur Khan Galindo, declared ‘…unrestricted and reliable access to critical utilities, such as energy, through sustainable networks’ as crucial to the development of trade and investment in the Pacific’.
In this space, Indra is interested in offering smart energy solutions to Pacific Island nations, allowing them to better integrate renewable sources into their networks and to move away from imported fuel sources, such as diesel. Indra’s solution has been a smart energy microgrid to provide a cost-effective approach that optimises the use of renewable sources and which minimises the need for fossil-fuel-generated baseload or expensive storage. One of the key enablers of this solution is smart metering systems. These are being adopted extensively throughout Asia.
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Entura stated the peak power demands on the Pacific islands were relatively modest and typically at dinner time.
From 10am until 4pm the load is at around 80 per cent demand and tends to drop off at around 8 pm, with a night-time load of around 20-40 per cent.
In the Pacific, 1MW of power will supply around 700 – 2 000 households, with large variability depending on the level of development. Demand in the Pacific is less than 40MW in the capital cities and for, Guam, Tahiti, Fiji and PNG it is typically between 100MW and 250MW.
Demand growth in the Pacific is either driven by population growth and the tourist industry or by small and major industrials or mining developments.
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A not-for-profit Australian company jointly established and owned by federal and state governments, eWater Ltd, to further develop Australia’s world-class water modelling tools is warning of the impact of water scarcity in the Pacific.
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eWater provides modelling tools, technical support, capacity building and a community of practice in:
Integrated catchment management
River system management and operations
Stormwater quality modelling
Planning environmental water use
Water management governance
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Climate induced water scarcity, according eWater, threatens to undermine economic development in many regions of the world, including in the Pacific.
Rising sea level and storm surges from the more intense and more frequent cyclones are causing increased saltwater intrusion into the freshwater lenses that provide drinking water to the remote low lying coral atoll islands.
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In the volcanic island nations, especially in Melanesia, eWater outlined how informal urban settlements and isolated communities ‘…often have inadequate water supply and sanitation, leaving people vulnerable to drought and to water borne diseases’.
In some islands, increased storm surges are causing people to move away from the coast where water and sanitation services are available. With the result that increased investment is needed to relocate services to areas higher on the island where people are relocating their homes.