VANUATU

COUNTRY OVERVIEW

LOCATION AND SIZE.

Vanuatu is located in Oceania, about 2,000 kilometers (1,243 miles) to the northeast of Australia, to the south of Solomon Islands, and north of New Caledonia. It consists of a group of more than 80 islands with a land area of 14,760 square kilometers (5,699 square miles) (slightly larger than the state of Connecticut) and a coastline of 2,528 kilometers (1,570 miles).

POPULATION.

The population of Vanuatu was estimated at 199,800 in mid-2000, an increase of 3.4 percent from the 1999 census population of 193,219. In 2000, the birth rate was 36.0 per 1,000 while the death rate stood at 6.2 per 1,000. With a projected annual population growth rate of 3.0 percent between 2000 and 2010, the population is expected to reach 267,600 by 2010 and to double in 23 years.

About 94 percent of the population are Melanesian by origin, made up of about 100 different cultural groups. A further 4 percent is French, and there are small but significant populations of Vietnamese and Chinese.

With a high total fertility rate of 5.3, the population is very young, with about 37 percent under the age of 15 and only about 3 percent over 65 years. This is a result of both the high birth rate and a relatively low life expectancy. The majority of the population is rural, with only 21 percent of the people living in urban areas. However, the urban growth rate is about 50 percent higher than the total growth rate, and this growth is mainly centered on the 2 largest urban centers, Port Vila and Luganville.

OVERVIEW OF ECONOMY

Lying in the Western Pacific Ocean, Vanuatu is made up of a chain of islands with diverse physical characteristics and economic potential. The islands range from small coral atolls to relatively large islands of volcanic origin. Nearly 80 percent of the population of Vanuatu live in villages, so subsistence production of food, housing, and other items is the mainstay of the household economy. Most households also participate in some cash production, mainly of agricultural products such as copra (dried coconut flesh), cocoa, and coffee. Recently, new items that have entered the village cash economy, and which are of relatively high value, are kava and squash.

The formal economy of Vanuatu is based mainly on agricultural products and services. Copra and coconut oil are produced on large-scale plantations as well as in the villages. Coconut plantations often have cattle as well. Other products common to the village economy are also produced in plantations, in particular cocoa and coffee. Fishing supplies the internal market and is also a source of export income.

Vanuatu regularly has a negative balance of trade, and this is balanced by the services sector. Tourism has been growing steadily in recent years, partly because of heavy promotion in nearby countries such as Australia and New Zealand. Another significant source of employment and government revenues is the Offshore Financial Centre (OFC), which provides a tax haven for offshore banks, trust companies, insurance companies, and shipping companies.

International aid accounts for about 35 percent of GDP and development expenditure since independence in 1980 has been mainly financed by aid. Australia is the largest aid donor, followed by Asian Development Bank, France, Japan, and New Zealand.

POLITICS, GOVERNMENT, AND TAXATION

During the colonial period from 1906 to 1980, Vanuatu, then known as the New Hebrides, had the distinction of being ruled by 2 colonial powers, Great Britain and France. This "condominium" arrangement has sometimes been termed "pandemonium" since there were 2 systems of administration, education, and courts. Furthermore, in addition to the 2 colonial languages of English and French, inhabitants spoke one or more of about 100 indigenous languages. For most ni-Vanuatu (people of Vanuatu) the only effective language of communication was, and is, Bislama (a kind of Pidgin which has strong elements of English vocabulary and Melanesian grammar).

After obtaining independence from Great Britain and France in 1980, dual systems continued to operate in some contexts, especially education. Systems of administration, courts, etc. were combined, but still operated in at least 2 languages. The country adopted a republican system, with a president as head of state (elected by an electoral college of parliament and regional council presidents), and a prime minister selected by a parliament of 52 members elected by universal suffrage of all citizens aged 18 and over. A considerable number of political parties have formed and reformed since independence, but in most cases they are based on the colonial language split, either being Anglophone (English-speaking) or Francophone (French-speaking) parties.

The primarily Anglophone Vanua'aku Party, with Father Walter Lini as prime minister, held power from 1980 to 1991, when parliament voted him out in a no-confidence motion. Subsequently, Francophone parties, usually in coalition, have tended to form the governments. In the late 1990s, there was a great deal of political turmoil as governments changed and various political leaders were accused of corruption. In early 2001, Barak Sope, an English speaker, was selected as prime minister of a coalition government. Following much political turmoil in the late 1990s, the English-French divide appeared to be less important, as coalitions were sometimes forged across languages.

Local government is administered by 6 regional councils, and there are municipal councils in the 2 urban areas of Port Vila and Luganville. Authority over matters of tradition is held by malvatumauri (national council of chiefs) who are elected by district councils. These chiefs usually represent land-holding groups. As in many parts of Melanesia, they do not necessarily gain their position by inheritance but rather through skill in achieving economic and political power at the local level.

There is no corporate or personal income tax in Vanuatu. Import taxes accounted for 66 percent of all tax revenues in the country in 1997. There are also export tariffs that account for most of the other tax revenues. Application for membership in the World Trade Organization (WTO) means that in the future, these trade taxes will have to be progressively reduced. This means other types of tax may have to be imposed, according to David Ambrose and Savenaca Siwatibau in the Pacific Economic Bulletin.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Because of the numerous islands in the country, the main internal transport linkages are by sea and air. The islands are served by a number of government and private passenger and cargo ships, although they do not usually run on a schedule and are not much cheaper than flying. International sea linkages are well served by shipping lines from Australia, New Zealand, and Asia. However, because Vanuatu is a flag of convenience registry, there were 78 vessels (some very large) from 15 different countries registered in Vanuatu in 1998. Most of these are not seen in Vanuatu waters.

Internal air services are provided by the government-owned Vanair, which flies to 29 destinations within the country. International air services link neighboring Pacific states including Fiji, New Caledonia, and Solomon Islands and most longer distance air linkages are routed through Brisbane, Australia, and Nadi, Fiji. The national airline Air Vanuatu flies to Sydney, Brisbane, Melbourne, Auckland, and Nadi. Within the country there are 32 airports, 2 of which have paved runways, but nearly all international traffic is channeled through Port Vila.

Electricity is mainly concentrated in the towns and is generated exclusively using imported fuels. Similarly, telephone services are mainly available in towns, and communication with rural areas is generally by 2-way radio or radio bulletins on the government-owned radio station.

ECONOMIC SECTORS

In 1999, agriculture contributed 25.7 percent of Vanuatu's gross domestic product (GDP), while industry made up 14.0 percent and services contributed 60.4 percent of GDP. Some value is attributed to subsistence agriculture in the statistics for agriculture, and other significant contributors are copra production and beef production. Industry is mostly made up of small-scale manufacturing and construction. The large proportion of GDP that derives from services can be attributed to government employment, especially in education, as well as the tourism industry and offshore banking facilities. The only data available about the labor force in Vanuatu are from the 1989 census, and these are quite different from the GDP data (and 10 years older). Since the subsistence sector is such an important element in the economy, it was decided by Vanuatu's statistics department that "labor force" should include all workers, whether they were working for cash or not. Thus, the statistics show that about 75 percent of the labor force in 1989 was in agriculture, and this percentage includes all of those growing their own food for consumption as well as those selling crops and those working for wages on a plantation. Industry accounted for only 1.3 percent of the labor force, and services 23.9 percent; however, nearly all of those in industry and services were in the formal sector. Also, it is likely that these proportions will have increased during the 1990s, even when the subsistence component is included.

AGRICULTURE

The most recent economic data available show that agriculture, forestry and fishing contributed 25.7 percent of Vanuatu's GDP in 1999. Although a further breakdown is not available from that year, data from 1995 shows that subsistence agriculture made up about a third of this sector, forestry and logging another third, and the rest made up of commercial agriculture, particularly copra production and beef production.

According to the Asian Development Bank, agriculture is more important to the Vanuatu economy than it is to any other Pacific economy, since it does not have the mineral and forestry resources of Papua New Guinea or Solomon Islands, the manufacturing base of Fiji, the marine resources of Micronesia, or the remittances of Polynesia. Throughout Vanuatu, subsistence agriculture is the mainstay of the village economy, since 80 percent of the population lives in villages. Food crops produced include taro, yams, kumara (sweet potato), bananas, coconut, and a great range of fruit and vegetables.

The most important agricultural product, in terms of cash production in the villages and in terms of export, is copra. This is the dried flesh of coconuts, produced by individual households and on large-scale plantations. Production of copra is highly variable year to year depending on weather conditions and world prices, although a general downward trend in production is noticeable since the early 1980s. One explanation is that the price in real terms paid to producers has declined over this period.

In recent decades there has been an attempt to diversify the rural economy away from coconuts to a variety of crops. Much effort went into the promotion of cocoa during the 1980s, but this was not very successful. By the late 1990s, cocoa exports were still only a small fraction of the value of exported coconut products. There has also been considerable promotion of coffee, but this too has not been very successful.

After copra, the second most important agricultural product by value is beef. Vanuatu is the only significant beef exporter in the Pacific, and this accounted for about 10 percent of all exports by value in the late 1990s. Cattle are often raised under coconut trees and serve both as a source of income and as a means of keeping plantations clear of weeds. The main export markets for beef have been Japan and the neighboring countries of Melanesia.

Two other crops that have increased in value recently are kava and squash. Kava, which is made into a drink that induces relaxation and mild euphoria, is a traditional crop that has recently been commercialized. The establishment of kava bars in the towns has accelerated since the 1980s, and in the 1990s kava was being exported around the world, where it can often be found in drugstores. The success of Tonga in securing a niche in the Japanese squash market caused other Pacific nations to look at this as a potential new crop. Vanuatu was one of the first to start squash production, but it is too early to determine whether this will be a successful case of agricultural diversification.

Logging in Vanuatu has never been on the scale seen in the neighboring countries of Solomon Islands or Papua New Guinea. Nevertheless, in 1997 and 1998, timber was the second most important export by value, after copra. The logging industry has maintained a relatively small but steady rate of production for many years, and involves both foreign companies and village-based sawmills. A ban on the exports of whole logs was implemented in 1989. Although temporarily lifted in 1993, the ban has been quite successful in adding value to the industry within the country by generating jobs in sawmilling and related activities.

Fish are an important food source in most parts of Vanuatu. However, commercial exploitation of fish is much less than in neighboring countries, considering the large area of ocean within Vanuatu's Exclusive Economic Zone (EEZ). Fishing fleets based in the country in the 1960s and 1970s ceased operations in the 1980s after considerable losses. Thus, fish are not a significant source of export income. Vanuatu does, however, receive some income from royalties paid by offshore fleets fishing within its EEZ, especially Taiwanese and American. The catches of these offshore fleets are landed mainly in Fiji and American Samoa, so relatively little employment is generated within Vanuatu from these activities.

INDUSTRY

In 1999, industry made up 14 percent of GDP. Data from 4 years earlier showed that construction contributed about 48 percent of this sector. This contribution, however, varies considerably from year to year depending on new developments in the tourist sector and in private industry. Manufacturing made up 39 percent of the industry sector, and its contribution has been steady and slowly growing.

There was a manganese mine operating on the island of Efate in the 1960s and 1970s, but currently there is no significant mineral production. Nevertheless, there is much interest in the mineral possibilities of the country, since Vanuatu is similar geologically to Papua New Guinea and Solomon Islands, where gold and other minerals are currently being mined. In the mid-1990s, Australian aid allowed a countrywide survey of mineral potential, and following this, a number of exploration licenses were taken out by private companies.

Manufacturing is a relatively minor industry in Vanuatu, although in the late 1990s it contributed just over 5 percent of GDP. The most important manufacturing enterprises cater for the local market in areas such as food processing (especially meat), wood processing and construction materials. Most of the manufacturing is located in the capital, Port Vila, although small operations such as production of soap from coconut oil take place elsewhere. The growth of tourism has encouraged the production of traditional handicrafts.

SERVICES

The services sector is the largest broad economic sector in the Vanuatu economy, contributing 60.4 percent of GDP in 1999. The makeup of this sector is suggested by data from 1995, which showed that the most important service subsectors, in order, were wholesale and retail trade, government services, transport, storage and communication, finance and insurance, real estate, and hotels and restaurants. Although the last of these subsectors is mostly generated by tourism, a considerable amount of the income generated in other subsectors also relates to tourism. Specific amounts were not available.

The sector that is often thought to have the greater future potential in the Pacific is tourism, and it has been heavily promoted in Vanuatu in recent years. Visitor arrivals have doubled in the 2 decades since independence in 1980, rising from about 25,000 per year at that time to about 50,000 in the late 1990s. Tourism in Vanuatu is still a small industry compared to Fiji, but larger than neighboring Solomon Islands. The majority of tourists (about 60 percent) come from Australia, with smaller numbers from New Zealand and New Caledonia. So far, relatively few have come from the largest potential markets of Japan, North America, and Europe.

Tourism is largely focussed on the capital, Port Vila, on the island of Efate. There are several international standard hotels in Port Vila, but in the rest of the country tourist facilities are rare, despite the great potential of some islands. With over 100 indigenous cultural groups, one of the main attractions of Vanuatu is its cultural diversity, represented in different housing styles, dances, and art-forms, especially carvings. There are also the typical Pacific attractions of beaches, diving and a tropical climate.

The national airline Air Vanuatu links Port Vila to Noumea, Brisbane, Sydney, Auckland, Nadi and Honiara, and other airlines serve the capital as well, including Air Pacific, Aircalin (New Caledonia) and Solomon Airlines.

Vanuatu is one of several tax havens in the South Pacific. The Offshore Financial Centre (OFC) was established in 1971 and has been maintained since independence. This provides a tax haven for offshore banks, trust companies, insurance companies, and shipping companies. It has been estimated that the OFC employs about 400 people. OFC pays registration fees to the government, which contribute about 2.5 percent of the overall gross domestic product, according to Ambrose and Siwatibau. Local banking services are provided by the National Bank of Vanuatu, ANZ (Australia New Zealand) Bank, Bank of Hawaii, and Westpac.

Like many Pacific countries, retail services are somewhat limited. In Port Vila there are medium-sized shops and supermarkets, but in most of the country there are only small shops with a very limited range of goods.

INTERNATIONAL TRADE

Vanuatu has a large imbalance in trade, with imports exceeding exports by 3 or 4 times. This imbalance is made up for by income from tourism, tax haven revenue, and international aid.

Copra has dominated Vanuatu's exports for many years; it made up 45 percent of all exports in the years 1995 to 1998. In those years, beef and timber were almost as equally important as each other, making up about

12 percent each, while cocoa made up about 5 percent of all exports. For copra, timber, and cocoa, the processing countries of these products are significant; the 3 most important export destinations were Japan, Belgium, and Germany. Beef was mostly exported to the nearby countries of New Caledonia, Solomon Islands, and Fiji, and to more distant Japan.

The most important imports into Vanuatu are machines and transport equipment, foodstuffs, basic manufactures, and fuels. Japan is the most important source of imports, accounting for about half of these in value. Australia is the next major source of imports, especially for food and certain types of manufactures, followed by United States, Singapore, and New Zealand.

MONEY

In the period since 1982, the vatu has declined in value against the American dollar by about 40 percent. However, this is not as great a relative decline as experienced in many other Pacific countries. This may be because, despite a negative balance of trade, Vanuatu has a reasonably consistent source of foreign revenue coming from tourism and its tax haven activities. Also, the vatu is pegged against a group of currencies, and although these currencies are secret, it is believed that the most important are the Australian and U.S. dollars, with smaller weight given to the Japanese yen and French franc, according to the Asian Development Bank.

The Reserve Bank of Vanuatu has the usual functions of a central bank, including regulating the money supply, providing economic advice to the government, and general economic monitoring.

POVERTY AND WEALTH

A total of 174 countries are ranked in the United Nations Development Programme's (UNDP) Human Development Report 2000 according to the Human Development Indicator (HDI), which measures a country's state of well-being using income, education, and health measures. The HDI rank for Vanuatu was 118, meaning that it was better off than many African countries, but was the third poorest country in the Pacific. GDP per capita in 1998 was US$1403, nearly twice as much as neighboring Solomon Islands but only about one-twentieth that of the United States.

While there is no adequate information on income distribution, partly because subsistence income is hard to measure, there is evidence that there are varying levels of well-being within the country. Another indicator developed by UNDP is the Human Poverty Index (HPI). It measures conditions for those worst off in a country, such as their health status, education level, access to health services, access to safe water, and malnutrition in children. While to a traveler in Vanuatu there appears to be a kind of "subsistence affluence" in most areas, the HPI suggests that Vanuatu is still a poor country, with the third lowest HPI in the Pacific, at a level similar to that of many of the poorest African countries. For example, illiteracy is estimated at 66 percent, about 23 percent of children under 5 are underweight, and about 20 percent of the population does not have access to adequate health services, according to the UNDP. However, since there is no poverty index in Vanuatu, it is not possible to determine how many people or households can be considered to be poor. The government has many different programs underway to try to overcome some of these problems, and often these are funded by international aid, especially in the areas of education and health.

WORKING CONDITIONS

The situation of the labor force is difficult to determine, due to a lack of recent data. Using Vanuatu's definition of labor force, the bulk of the adult population is said to be in the labor force, with most of these being involved in village agriculture. Most of those working in the wage and salary economy are located in Port Vila or Luganville, the 2 largest urban centers. At the time of the last census, the unemployment rate was calculated to be only 1 percent, although there appeared to be a great deal of underemployment involving people who were working only part time. As in most Pacific island nations, there is no unemployment benefit. The minimum wage was set at 16,000 vatu (US$140) per month in 1995, and this applied to both rural and urban employment. Earlier minimum wage levels had been lower in the rural sector, and it was felt by some that the rural minimum was above market rates and would inhibit job creation, according to the Asian Development Bank.

Workers in the formal sector are represented by at least 16 trade unions, generally organized according to industrial sector, but coordinated by the Vanuatu Council of Trade Unions.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1000 B.C. Evidence of human settlement on many islands.

1606 A.D. First European sighting of Vanuatu by Pedro Fernandez de Quiros, who founded an unsuccessful settlement on Espiritu Santo, the largest island in the Vanuatu group, and claimed the islands for Spain.

1768-89. Various European explorers—most commonly British and French—visit islands and introduce metal tools and weapons and new trade goods.

1825. Sandalwood trade starts, which accelerated trade even though the sandalwood resource was exhausted quickly.

1839. First Christian missionaries land; progress in conversion is slow, and some areas resist Christianity to the present day.

1864-1911. Labor recruitment for plantations in Fiji and Queensland, sometimes called "blackbirding."

1887. Condominium of New Hebrides established by French and British.

1940-41. New Hebrides joins Free French in WWII; Vila and Santo become American bases; Jon Frum movement starts proposing that Americans can deliver followers from missionaries and other Europeans.

1960s. Nagriamel, first political party, forms and demands independence and the return of some land.

1971. Tax haven established.

1980. Vanuatu granted independence; islands of Espiritu Santo and Tanna declare themselves independent under Nagriamel and Jon Frum movements; Britain and France refuse to take military action, so troops from Papua New Guinea defeat rebels and secure country for first prime minister, Walter Lini, leader of the Vanua'aku Party.

1982. Vanuatu declares itself nuclear free.

1991-2001. Series of coalition governments, often involving French-English party coalitions.

FUTURE TRENDS

In the late 1990s, much attention was being paid to the political struggles pitting one party against another. However, the party disputes tended to be based on regional and language interests rather than fundamental differences of opinion on economic policy. There was not much dynamism in the economy, with agricultural production and tourist numbers being relatively stable. In the future, the greatest hope appears to be held for tourism, since the country has many undeveloped possibilities. There is some potential for expansion in other sectors; for example, some localization in the fishing industry is possible, although these possibilities will depend to a great extent on a higher degree of political stability than has been seen recently. In terms of the development of human resources, especially in education and health, there will be an ongoing dependence on international aid.

DEPENDENCIES

Vanuatu has no territories or colonies.

BIBLIOGRAPHY

Ambrose, David, and Savenaca Siwatibau. "Recent Development in Vanuatu." Pacific Economic Bulletin. Vol. 12, No. 1, 1997.

Asian Development Bank. Vanuatu: Economic Performance, Policy and Reform Issues. Manila: Asian Development Bank, 1997.

Economist Intelligence Unit. Country Profile: Vanuatu. London: Economist Intelligence Unit, 2001.

"Key Indicators for Developing Asian and Pacific Countries." Asian Development Bank. <http://www.adb.org/Vanuatu>. Accessed February 2001.

United Nations Development Programme, Pacific Human Development Report 1999: Creating Opportunities. Suva: United Nations Development Programme, 1999.

U.S. Central Intelligence Agency. World Factbook 2000. <http:// www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

—Wardlow Friesen

CAPITAL:

Port Vila.

MONETARY UNIT:

Vatu (VT). There are coins of 1, 2, 5, 10, 20, 50 and 100 vatu and notes of 500, 1,000 and 5,000 vatu. One vatu equals 100 centimes, although there are no centime coins still in circulation.

CHIEF EXPORTS:

Copra, beef, cocoa, coffee, timber, kava, squash.

CHIEF IMPORTS:

Food, machinery and equipment, fuels.

GROSS DOMESTIC PRODUCT:

US$245 million (1999 est.).

BALANCE OF TRADE:

Exports: US$33.8 million (1998 est.). Imports: US$76.2 million (1998 est.).