Vanuatu economic outlook February 2019 Vanuatu economic outlook Kishti Sen International Pacific Economist Follow us on Twitter @kishtisen @ANZ_Research This is not personal advice. It does not consider your objectives or circumstances. Please refer to the Important Notice.

Topics Discussion topics Current state of play and outlook Opportunities and risks Australia’s step up: regional implications Some concluding remarks 1 2 3 4

Current state of play and outlook

Tourism, agriculture and construction key growth drivers Real GDP, annual per cent change Source:

Construction a key driver of recent growth … GDP by industry Source:

Construction contribution to growth … more to come Construction contribution to growth Source:

Crop production contribution to growth Agriculture chimed in Crop production contribution to growth Source:

Economic expansion to continue Vanuatu’s economy is largely dependent on visitor arrivals Prone to cycles in global economic conditions Visitor arrivals will hold, global conditions not tanking, Australia still growing despite negative sentiment Decline in the Australian dollar has made it tough However, forward bookings are improving Agriculture (crop production) mainly copra has contributed although the base is broadening (kava, coffee and cocoa) Construction cycle close to peaking Remittances from Pacific labour scheme strong helping underwrite demand We expect growth to be in the 3 to 4 per cent range over the next two years Outlook summary

Medium term outlook more promising Tourism infrastructure and capacity investment to drive the next cycle of work Traditional growth drivers yet to reach potential Pacific gets a very small proportion of visitors to the region and Vanuatu gets even less. With natural beauty and unique cultural experience, upside is huge Infrastructure needs upgrade and more investment We welcome Vanuatu Tourism Office’s initiative for a marketing plan to 2030 Tourism demand picks up, investment will pick up and become a key driver of growth Harness potential in agriculture: not only overseas demand but also domestic market in particular the tourism industry Agriculture needs a coordinated approach – fertile land and abundant opportunities across the sector. Options for downstream processing in Vanuatu. A strategy document to maximise the benefits of this sector necessary Agriculture will also deliver a broader based economy and opportunities for Ni-Vanuatu in rural areas

Global tourism has picked up International tourist arrivals, world Source:

Pacific getting a tiny proportion of visitors International tourist arrivals Source:

Australia’s step-up: what does it mean for the region?

The New Pacific strategy Pacific has become the new ‘best friend’ Pacific ‘front and centre’ of Australia’s foreign policy No more just donor-recipient relationship No longer looking at the region through the security and stability lens – good governance and strengthening institutions was a priority. Still important. Serious about bringing prosperity to the region Providing options to fund infrastructure gap Programs to enhance productivity in the agriculture sector Step-up in soft aid as well to bring diplomatic relations closer Ongoing support in mentoring good governance practices and helping build stronger institutional capacity Overall, a very positive step The New Pacific strategy

Some concluding remarks

Bringing it all together Faster pace of growth to create more employment Vanuatu is still a relatively young and developing country Economic growth of 3 to 4 per cent not good enough Aim higher to give more people an opportunity to work. We’ve hit high 6’s to 7 per cent before. Achievable given huge potential of traditional growth drivers. China became richer by becoming a workshop to the rest of the world. Vanuatu can harness the potential in its natural beauty. Focus on your comparative advantage – tourism and agriculture. Era of being inward looking and finding state based solutions to problems is behind us. Private sector can provide solutions and contribute to economic progress. Yes, we can go a lot higher! Let’s work together to make Vanuatu an even better place to live and work. Bringing it all together

Thank you