Trade, regionalism and economic sustainability: how to pay for import needs Paper for LARJE UNC conference “Quelle économie pour la Nouvelle-Calédonie après 2018?”, Noumea, 15-16 September 2017 Geoff Bertram Institute for Governance and Policy Studies Victoria University of Wellington
1. Introduction New Caledonia is one of very few successful mineral export economies across the smallisland world. (Svalbard no longer exports coal, the Pacific phosphate deposits of Angauar, Banaba, Nauru and Makatea have been exhausted, and the Panguna mine in Bourgainville remains closed). New Caledonia’s chief export, nickel, accounts for 90% of the countrry’s total export earnings. It is exported out of the Pacific region to large metropolitan economies with heavy metallurgical industries; there is no market for nickel within the small-island Pacific region. In common with other Pacific island economies, New Caledonia faces outward from the region both economically and politically, and is drawn into convergence with its metropolitan patron rather than with the other small islands of the region (Bertram 2004). Also in common with many of the other small islands, New Caledonia has become increasingly reliant on financial transfers from its metropolitan patron to maintain its level of income – transfers that are determined by the closeness of the political ties between centre and periphery. The combination of a successful leading export sector and political integration with the French metropole accounts for New Caledonia’s high ranking in terms of income per capita relative to other small island economies – see Figure 1. (As Poirine’s paper for this conference shows (Poirine 2017), the divergence of French Polynesia from New Caledonia in the past two decades is attributable largely to New Caledonia’s having two major sources of external resources – export earnings as well as official transfers – in contrast to French Polynesia which has lacked a major export sector since the end of nuclear testing.)
1
Figure 1: GNI (or GDP) per capita in 24 Pacific economies 60,000
Sovereign independent states
US dollars per capita
50,000
Non-sovereign (metropolitan citizenship)
40,000
{
New Caledonia
Other Pacific
30,000
20,000
10,000
0
Sources: All sovereign economies, plus French Polynesia, New Caledonia, and Cook Islands, from https://unstats.un.org/unsd/snaama/resQuery.asp accessed 25 August 2017, accessed 25 August 2017. All figures are for 2015. American Samoa, Guam, Hawaii and Northern Marianas from US Bureau of Economic Analysis website www.bea.gov accessedv25 August 2017. Wallis et Futuna calculated from “TABLEAU DE BORD FEDOM PM, Mis à jour, 15 Janvier 2016”, www.fedom.org/wp-content/uploads/2-15/06/TdB-15-Janv-2016.pdf , Tables 7a and 7b converted to USD. Niue from https://dfat.gov.au/trade/resources/Documents/niue.pdf , figure for 2012.
Figure 2: Per capita GNI or GDP for 74 small island economies Non-core sovereign
120,000
Core sovereign Core SNIJ 100,000
Sovereign
Non-sovereign
Non-core SNIJ Core sovereign average
US$ per capita
<-----New Caledonia
80,000
60,000
40,000
Non-core SNIJ average Non-core sovereign average Core SNIJ average Sovereign average SNIJ average
0
Comoros Sao Tome and Principe Solomon Islands Vanuatu Cabo Verde Kiribati Micronesia, Federated States of Samoa Tonga Marshall Islands Fiji Tuvalu Saint Vincent and the Grenadines Dominica Saint Lucia Grenada Palau Antigua and Barbuda Barbados Seychelles Saint Kitts and Nevis Nauru Bahamas, The Malta Iceland Bermuda Isle of Man Svalbard Chatham Islands Jersey Cayman Islands Falkland Islands (Islas Malvinas) Faroe Islands Guernsey Aleutians St Barthelemy Aland Saint Pierre et Miquelon Norfolk Island Tasmania US Virgin Islands Greenland Christmas Island Shetlands Prince Edward Island New Caledonia Guam Martinique British Virgin Islands Jeju Orkney Islands Aruba Reunion Guadeloupe Azores Curacao Anguilla French Polynesia Madeira Turks and Caicos Islands Northern Mariana Islands Wallis and Futuna Cook Islands Easter Island (Rapanui) Labuan American Samoa Niue Montserrat Mayotte Galapagos Saint Helena, Ascension, and… Maldives Cocos (Keeling) Islands Tokelau
20,000
Source: Bertram and Poirine forthcoming, Figure 2.
2
It is clear from Figure 1 that across the Pacific region, small island states that are fully independent tend to have lower incomes than those which retain associations with metropolitan patrons and share the citizenship of those patrons. This pattern is not restricted to the Pacific. As Figure 2 shows, across the wider global economy the same pattern holds true. Small islands that are still part of, or closely linked with, larger metropolitan states, tend to have higher per capita incomes than small islands that have become or remained independent sovereign states. This is by now a well-established stylised fact (Armstrong and Read 2000, 2002; Bertram 2015, 2016; Feyrer and Sacerdote 2009; McElroy and Parry 2012). However, it is not at all clear which way causality runs. Looking at a global data set, the gap between the two sets of small islands developed before political status was assigned and has persisted since at least the mid-twentieth century at a fairly constant relativity (Bertram 2015, 2016). In the Pacific, long-run import data extending back before decolonisation is available for thirteen small island economies – seven that have become independent, and six that remain affiliated to metropolitan states. Figure 3 shows the long-run growth paths of per capita real imports for the two groups of economies separately, then combines them, providing a comparative story from 1900 to 2013. Figure 3: Long-run trends of per capita real imports 1900-2013 Imports per capita, US$ at 2005 prices, seven still-affiliated Pacific small islands
10,000
1,000
100
10
1
1900 1903 1906 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Real per capita imports, US$ at 2005 prices, log scale
100,000
3
Imports per capita, US$ at 2005 prices, seven now-sovereign Pacific small islands
1,000
100
10
Pre-independence Post-independence
1
1900 1903 1906 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Real per capita imports, US$ at 2005 prices, log scale
10,000
100,000
10,000
1,000
100
10
Affiliated including pre-independence Sovereign post-independence
1
1900 1903 1906 1909 1912 1915 1918 1921 1924 1927 1930 1933 1936 1939 1942 1945 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Real per capita imorts US$ at 2005 prices, log scale
Imports per capita, US$ at 2005 prices, affiliated versus sovereign, sixteen Pacific small islands
The outstanding feature of Figure 3 is that the income gap, between islands that are today sovereign and those that are not, was already established by 1950 and that the two groups of islands have grown parallel ever since. The gap, in other words, opened up before decolonisation, and becoming independent made no difference, either positive or negative, to the growth paths. Figure 4 shows the population-weighted per capita real imports of the two sets of island economies, and the ratio of those still affiliated to those which became independent. The ratio was already nearly 2 at 1900, rose to 3 by the 1950s, and has been 4
constant at 4.4 for four decades since 1970. The dates of independence of the seven nowindependent countries in Figure 4 were pre-1900 for Tonga, 1962 for Samoa, 1970 for Fiji, 1978 for Tuvalu and Solomon Islands, 1979 for Kiribati, and 1980 for Vanuatu. The big shifts in the import ratio took place in the decades before independence – not afterwards. Figure 4 Real imports per capita for thirteen small Pacific island economies with pre-independence data
1,000
100
Six still-affiliated
2012
2008
2004
2000
1996
1992
1988
1984
1976
1972
1968
1964
1960
1956
1952
1948
1944
1940
1936
1932
1928
1924
1920
1916
1912
1908
1904
1
1980
Seven that became independent
10
1900
Real per capita imports, US$ at 2005 prices, log scale
10,000
Ratio affiliated/independent, ten-year averages
Ratio of per capita real imports, six affiliated relative to seven now-independent Pacific island economies 6.0 5.0 4.0
3.0 2.0 1.0 0.0
5
There is, therefore, nothing in the historical record to suggest that moving from nonsovereign to sovereign status necessarily means a reduction in income, or vice versa – at least so far as can be told from the import data. Nevertheless each small island economy has followed its own particular historical trajectory, and its modern situation is pathdependent. The policy options for each must, therefore, be assessed in the particular historical context. In the remainder of this paper I first look at long-run historical patterns of trade and development to illustrate the issue of how funding is secured to pay for the imports which sustain, and largely determine, the level of income and development in a small island economy. I then distinguish between two different types of region and show why regional trade integration has little to offer the small-island Pacific. This means that although integration has a role as a political and cultural project, it does not have a clear economic side to it.
2. How to pay for imports: the “Jaws Effect” Trade is a two-way process, and it is common in the literature to think of economic development in an open economy as a process in which trade is balanced: export earnings grow, and pull imports up with them via some sort of Keynesian multiplier process. Some small island economies do exhibit this sort of balanced-trade growth – see Figure 5. These are, however, exceptions that prove a very different general rule.
6
Figure 5: Small island economies with (roughly) balanced trade Faeroe Islands
Greenland
1,200
1,000
Imports
1,000
900
Imports
700
600
Exports
400
US $ million
US $ million
800
800
600 500 400 300
Exports
200
200
100
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
0
Iceland
Malta
8,000
6,000
7,000
US $ million
5,000 4,000 3,000 2,000
Exports
3,000
2,000
Exports
1,000
1,000 0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
0
Puerto Rico
Solomon Islands
80,000
350
70,000
300
Imports
60,000
Imports
250
US $ million
US $ million
Imports
4,000
50,000 40,000 30,000 20,000
Exports
200 150 100 50
0
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
10,000
Exports
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
US $ million
5,000
Imports
6,000
In strong contrast to the economies shown in Figure 5, the trade statistics of the great majority of small island economies since the Second World War exhibit a “jaws effect”: imports have raced away relative to exports, creating spectacular gaps between the two. Some examples are in Figure 6.
7
80
60
40
US $ million
100
80
60
US $ million
500
0
140
40
100
20
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
US $ million 1,500
1,000
US $ million
2,000
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
US $ million
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
US $ million 800
600
US $ million
1,400
Cayman Islands
1,200
1,000
Imports
400 Exports
200 20
0 0
French Polynesia
2,500
Imports
180
Tonga Imports
120
Exports
20 500
0 0
120
St Pierre et Miquelon Imports
Exports
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
US $ million
Figure 6 The jaws effect 120
Cook Islands
100 80
Imports
60
40 Exports
350
Samoa
300
250
Imports
200
150
Exports 100
50
Exports
0
3,500
Bahamas
160
3,000
2,500
Imports
2,000
1,500
1,000
Exports
3,000
Reunion
2,500
2,000
Imports
1,500
1,000
500
Exports
0
8
Kiribati
Netherlands Antilles
80
4,500 4,000
70
Imports
40 30 20
Exports
3,000
2,500 2,000
1,500
500
0
0
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
Exports
1,000
10
1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
50
Imports
3,500
US $ million
US $ million
60
In small island economies such as these, the leading sector has been imports rather than merchandise exports. To maintain balance of payments equilibrium in the absence of massive borrowing, these economies have secured large flows of external resources from some other source or sources (Baldacchino 2006; McElroy 2006; Bertram 2006; Baldacchino and Bertram 2009). The literature on island economies has highlighted the importance of several of these:
Migrant remittances (important in Samoa and Tonga) Official transfers (important in French Polynesia and Reunion) Tourism earnings (important in the Cook Islands and Bahamas) Licence fees from fisheries, ship registries, tax havens (important in Cayman Islands) Income from sovereign wealth funds (important in Kiribati)
The resource requirements and specialised skills required for success in these non-trade activities are quite different from those needed to operate an export economy. Generally speaking, many small islands pay for their imports out of rents that flow from particular endowments they possess or have acquired. Tourism requires landscapes and climate; remittances require migration outlets and human capital suitable for external labour markets; tax havens and offshore financial centres require specialised jurisdictional and institutional arrangements; official transfers require strong political connections with metropolitan funders. In Bertram and Poirine (2018 forthcoming) we consider various ways to cover the cost of imports of goods and services across the world’s small island economies. Figure 7 reproduces our findings for our global set of 74 economies. In each chart a horizontal line shows the 40% threshold beyond which, we argue, an economy can be considered “dominated” by a particular source of external purchasing power. Data are averages over the period 2010-2015. In each chart, the position of New Caledonia is highlighted for comparison. Sovereign independent small islands are cross-hatched on the left of each chart; non-sovereign small islands are in solid fill on the right.
9
-10 20
-20 0
60 Maldives
COM KIR FSM MHL Nauru Saint Kitts and Nevis
WSM TON TUV
SLB Aruba
BMU Faeroes
PYF
120
220
200
100
Sovereigns
60
Nonsovereigns
MHL ABW
30
20
80
Remittances
BMU
Sovereigns
60
50
WSM
Nonsovereigns
30
20
10
0
NIU WLF
180
160
Sovereigns
140
MYT
Nonsovereigns
GLP MSR MTQ REU SPM
40 GRL
20 40
0
60
-60
0 -120
-20 -140
Antigua and Barbuda Bahamas, The Barbados Cabo Verde Comoros Dominica Fiji Grenada Iceland Kiribati Maldives Malta Marshall Islands Micronesia, Federated States of Nauru Palau Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Samoa Sao Tome and Principe Seychelles Solomon Islands Tonga Tuvalu Vanuatu American Samoa Anguilla Aruba Bermuda Briish Virgin Islands Cayman Islands Cook Islands Curacao Faeroes French Polynesia Greenland Guadeloupe Guam Martinique Mayotte Montserrat New Caledonia Niue Northern Marianas Prince Edward Island Reunion St Helena St Perre et Miquelion Turks and Caicos US Virgin Islands Wallis and Futuna
FRO
% of imports of goods and services
ASM
% of imports of goods and services
ICE
Antigua and Barbuda Bahamas, The Barbados Cabo Verde Comoros Dominica Fiji Grenada Iceland Kiribati Maldives Malta Marshall Islands Micronesia, Federated States of Nauru Palau Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Samoa Sao Tome and Principe Seychelles Solomon Islands Tonga Tuvalu Vanuatu American Samoa Anguilla Aruba Bermuda Briish Virgin Islands Cayman Islands Cook Islands Curacao Faeroes French Polynesia Greenland Guadeloupe Guam Martinique Mayotte Montserrat New Caledonia Niue Northern Marianas Prince Edward Island Reunion St Helena St Perre et Miquelion Turks and Caicos US Virgin Islands Wallis and Futuna
US Virgin Islands
St Perre et Miquelion
Reunion
Northern Marianas
New Caledonia
Mayotte
Guam
Greenland
70
Cook Islands
40
Briish Virgin Islands
TON
Tuvalu
SLB
American Samoa
70
Solomon Islands
Sao Tome and Principe
COM
Saint Vincent and the Grenadines
FJI
Marshall Islands
50
Fiji
80
Iceland
40
Comoros
Barbados
Antigua and Barbuda
% of imports of goods and services 2010-2015
Merchandise exports
Antigua and Barbuda Bahamas, The Barbados Cabo Verde Comoros Dominica Fiji Grenada Iceland Kiribati Maldives Malta Marshall Islands Micronesia, Federated States of Nauru Palau Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Samoa Sao Tome and Principe Seychelles Solomon Islands Tonga Tuvalu Vanuatu American Samoa Anguilla Aruba Bermuda Briish Virgin Islands Cayman Islands Cook Islands Curacao Faeroes French Polynesia Greenland Guadeloupe Guam Martinique Mayotte Montserrat New Caledonia Niue Northern Marianas Prince Edward Island Reunion St Helena St Perre et Miquelion Turks and Caicos US Virgin Islands Wallis and Futuna
80 Antigua and Barbuda Bahamas, The Barbados Cabo Verde Comoros Dominica Fiji Grenada Iceland Kiribati Maldives Malta Marshall Islands Micronesia, Federated States of Nauru Palau Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Samoa Sao Tome and Principe Seychelles Solomon Islands Tonga Tuvalu Vanuatu American Samoa Anguilla Aruba Bermuda Briish Virgin Islands Cayman Islands Cook Islands Curacao Faeroes French Polynesia Greenland Guadeloupe Guam Martinique Mayotte Montserrat New Caledonia Niue Northern Marianas Prince Edward Island Reunion St Helena St Perre et Miquelion Turks and Caicos US Virgin Islands Wallis and Futuna
VIR
% of imports of goods and services
% of imports of goods and services 0
Antigua and Barbuda Bahamas, The Barbados Cabo Verde Comoros Dominica Fiji Grenada Iceland Kiribati Maldives Malta Marshall Islands Micronesia, Federated States of Nauru Palau Saint Kitts and Nevis Saint Lucia Saint Vincent and the Grenadines Samoa Sao Tome and Principe Seychelles Solomon Islands Tonga Tuvalu Vanuatu American Samoa Anguilla Aruba Bermuda Briish Virgin Islands Cayman Islands Cook Islands Curacao Faeroes French Polynesia Greenland Guadeloupe Guam Martinique Mayotte Montserrat New Caledonia Niue Northern Marianas Prince Edward Island Reunion St Helena St Perre et Miquelion Turks and Caicos US Virgin Islands Wallis and Futuna
% of imports of goods and services
Figure 7: Coverage of cost of imports (of goods and services) by: 120
Tourism earnings
90
100
TCA
80 MDV
BHS ATG BRB
60
80
KIR
COK MNP
60 PLW
DMA
160
FSM
Remittances plus official transfers
MLT
VUT AIA
SLB
VGB
200
NRU
140
120
100 80 TUV
140
BMU
-20
Sovereigns
ABW
GUM
Nonsovereigns
LCA
10 20
220
Government transfers/aid
180
NIU WLF
MYT
Sovereigns
REU SPM SHN
Nonsovereigns
GLP MSR MTQ
PYF GRL
40
120
Other sources of funds
100 CYM
CUW
Sovereigns
40 PEI
Nonsovereigns
20
-40 0
COK WLF
-100 -80
NIU
Merchandise exports play a leading role in only a few small islands world wide. In the Pacific, only American Samoa, Fiji, Marshall Islands and Solomon Islands fund more than 40% of their import requirements from this source. New Caledonia follows them, with a coverage ratio of one-third. Of the 74 economies plotted in Figure 7, only eight paid for more than 40% of their 2010-2015 import requirements out of merchandise export earnings, and those eight have been reduced to six following closure of large oil refineries in Aruba and the US Virgin Islands. Thirteen of the 74 were tourism-led; four had remittances around or over the 40% threshold (though the remittances flowing into Bermuda’s tax haven are not the sort usually discussed in the small-island literature); fifteen relied on official transfers of funds (aid or budget support); and six (including Bermuda again) were funded from other sources: non-tourism services exports, private capital inflow, and the returns on Kiribati’s sovereign wealth fund. The remaining small island economies had more diversified sources of funding with none reaching the 40% threshold.
10
Marshall Islands
0
Vanuatu
Cook Islands
Guam
20
Fiji
PYF
-20 Guam
200
0
-40
-60 Wallis and Futuna
Northern Marianas
Niue
New Caledonia
TUV
French Polynesia
Cook Islands
American Samoa
Vanuatu
Tuvalu
220
Wallis and Futuna
40
80
Niue
SLB Wallis and Futuna
Northern Marianas
Niue
New Caledonia
Guam
French Polynesia
Cook Islands
American Samoa
Vanuatu
Tuvalu
Tonga
Solomon Islands
Samoa
Palau
Nauru
80
Northern Marianas
Nonsovereigns
VUT
Guam
Sovereigns 70
New Caledonia
WLF
Cook Islands
60 Micronesia,…
100
French Polynesia
Remittances plus official transfers
Vanuatu
160
PLW
American Samoa
180
0
SLB
Tuvalu
NIU
FSM
Tonga
-20 60
Solomon Islands
0 Marshall Islands
Exports of goods
Tonga
-10
Solomon Islands
Nonsovereigns
Samoa
10 160
Samoa
20
Palau
Sovereigns 60
Palau
30
Nauru
TGA
Marshall Islands
Remittances
Nauru
100
0
Micronesia, Federated…
0
Marshall Islands
120
Fiji
10
Kiribati
20
Fiji
Sovereigns
Kiribati
30
% of imports of goods and services
Wallis and Futuna
Nonsovereigns
% of imports of goods and services
Niue Northern Marianas
MHL
% of imports of goods and services
Guam New Caledonia
40
Wallis and Futuna
Cook Islands French Polynesia
60
Micronesia, Federated States of
140
Northern Marianas
Niue
New Caledonia
Guam
French Polynesia
Cook Islands
American Samoa
American Samoa
Vanuatu
Tuvalu
Tonga
Solomon Islands
Samoa
Palau
Nauru
ASM
Kiribati
200
Wallis and Futuna
Northern Marianas
220
Niue
New Caledonia
TUV
French Polynesia
Tuvalu Vanuatu
WSM
Tonga
Marshall Islands Micronesia, Federated States of
SLB
American Samoa
TGA
Tuvalu
WSM Samoa
40
Solomon Islands
50
Tonga
FSM Palau
Nauru
Micronesia, Federated States of
Fiji Kiribati
70
Solomon Islands
80
Samoa
Palau
Nauru
KIR MHL Marshall Islands
Kiribati
Fiji
% of imports of goods and services 2010-2015
FJI
Micronesia, Federated…
60
Kiribati
% of imports of goods and services
50
Fiji
% of imports of goods and services
New Caledonia is one of those diversified cases, with 33% coverage from goods exports, 31% from official transfers, and 34% from “other”, which in New Caledonia’s case is foreign direct investment flowing into the economy. Tourism (under 4%) and remittances (marginally negative) do not play any major role.
Figure 8 repeats the calculation shown in Figure 7, but this time including only the nineteen Pacific Island economies in our dataset. The importance of aid and remittances combined, especially for the sovereign independent island states of the Pacific, stands out, accounting for over 40% of import funding in ten of the nineteen Pacific island economies in Figure 6, which is why the “MIRAB” model emerged in this region (Bertram and Watters 1985).
Figure 8: Coverage ratios for 19 small Pacific island economies, 2010-2015 average Tourism earnings
90
COK MNP
GUM Sovereigns
50
Nonsovereigns
40
30
20
10
Government transfers/aid NIU
180
WLF
140
NRU Sovereigns
120
100
Nonsovereigns
40
PYF
20
KIR
Other sources of funds
40
20
KIR
Sovereigns
-80
Nonsovereig ns
-100
-120
-140
11
To trace the long-term historical roots of New Caledonia’s current profile of import funding, Figure 9 reconstructs the balance of payments since 1891. The structure of the chart starts from the “jaws effect” gap between imports and merchandise exports, and shows how the gap between the two has been filled by official transfers from France, tourism earnings, and capital inflow. Figure 9: New Caledonia sources of import funding 1891-2015 25,000
20,000
US $ per capita at 2015 prices
Foreign direct investment inflow Government spending on salaries and armed forces spending
15,000
Direct official transfers Services exports excl tourism from 1995 10,000
Tourism net spending Exports of goods
5,000
Imports of goods only Imports of goods and services
1891 1895 1899 1903 1907 1911 1915 1919 1923 1927 1931 1935 1939 1943 1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
0
Source: figures assembled by the author from multiple sources.
From Figure 9 it is clear that a structural transformation of the New Caledonia balance of payments occurred in the early 1980s, in the context of a sharp downturn in export earnings from nickel. From that point on, official transfers to the New Caledonia government, together with government spending directly funded from Paris, quickly moved to equal export earnings. Apart from the short-lived export booms of 1988 and 2006, this French Government funding of the local economy has remained a mainstay of its import capacity for nearly thirty years. (In the past decade, foreign direct investment in major new smelters and mine development has both caused and funded a steep increase in total imports, but as investment projects are completed, this component of total imports is likely to come down again, leaving per capita imports between $10,000 and $15,000.)
3. What sort of region is the Pacific? A region is generally defined as a set of geographically-contiguous territorial units bound together by some common characteristics. Figure 10 contrasts two ways in which the economic dynamics within a region can operate, on the basis of whether the biggest
12
gravitational attraction for trading and policy interactions lies within the region (a “centripetal” dynamic) or outside it (a “centrifugal” dynamic. Figure 10: Two patterns of economic and political gravitation (a) Centripetal
(b) Centrifugal
Centripetal regions such as the United States and the EU have dense networks of withinregion economic interaction, shared history and culture, and success with consolidation of central governing arrangements to pursue a common purpose. Regional integration makes obvious sense in that setting because resource endowments, trading opportunities, and common infrastructure needs in a setting of large populations, all point to an inwardfocused entity. External transactions with the outside world are secondary, not the prime driving force for the units within the region. In a centrifugal region, each entity within the region relates more directly with countries outside the region than with its neighbours within the region. Regional dynamics are dominated by the trading and political relations of individual units with powerful patrons and partners in the outside world. The island regions of the Pacific, Caribbean and Indian Ocean all exhibit this centrifugal pattern, especially in regard to their trading relations. These collections of small entities scattered across oceans form “regions” only in the weak geographical sense of shared space, combined in the Pacific and Caribbean with strong ethnic and cultural affinities. What is ;lacking is the strong internal gravitational forces that pull continental regions with large populations together and deliver large gains from freer trade. As Figure 11 shows, not only do Pacific island countries run large trade deficits (the “jaws effect”), but virtually all their exports go to destinations outside the Pacific island region, mostly further afield than Australia and New Zealand. Although Australia and New Zealand loom larger as suppliers of imports to the Cook islands and Tuvalu, most of the countries in Figure 9 draw their imports from further afield. 13
Figure 11 Pacific Islands trading partners EXPORTS
IMPORTS Vanuatu Tuvalu
Exports to Pacific islands
Tonga Solomon Islands
Exports to Australia and NZ
Samoa
PNG
Exports to other destinations
Palau
Imports from Pacific islands
New Caledonia Micronesia
Imports from Australia and NZ
Kiribati French Polynesia
Imports from elsewhere
Fiji Cook Islands -11,000
-9,000
-7,000
-5,000
-3,000
-1,000
1,000
3,000
5,000
US$ per capita trading credits and debits
Note: Source:
Imports are shown here as negative exports to make the trade balance easier to see. Data from the World Bank’s ‘World Integrated Trade Solution’ website http://wits.worldbank.org/countrystats.aspx?lang=en accessed 25 August 2017.
at
Figures 12 and 13 show import and export data separately, reinforcing the point that regional trade integration among the Pacific islands has made effectively no headway to date. Aggregating the 13 economies into Table 1 shows that only 4-11% of their exports go to other Pacific islands, and only 2-4% of imports are sourced from other islands in the region (the higher figures result if PNG is excluded from the calculation). Table 1: Destinations of exports and sources of imports for 13 Pacific Island economies, %
All 13 economies in Figure 5 Region excluding PNG
Exports to Pacific islands 4% 11%
Exports to Exports to Australia other and NZ destinations 26% 70% 9% 80%
Imports from Pacific islands 2% 3%
Imports from Imports Australia from and NZ elsewhere 29% 69% 21% 76%
Source: as for Figure 5.
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Figure 12
Figure 13
It is because of the lack of centripetal economic and political opportunities that efforts at regional integration have not borne fruit in the Caribbean and the Pacific, despite half a century of attempts since decolonisation began. Rather than drawing together as unified 15
wholes, these island regions have remained fragmented amongst different externally-linked spheres of metropolitan influence, exercised from outside the island space. In the Pacific France, Australia, New Zealand, the United States, Japan and China provide the key reference points for both trade and political linkages. From these metropolitan economies come financial transfers, direct investment, technical assistance, migrant remittances and political leadership, as well as demand for the export commodities of New Caledonia, Solomon Islands, Marshall Islands and American Samoa. It is to the metropolitan states that most islander migrants go. The resulting constellations of economic transactions emerge from straightforward mutual interests mediated through global markets and institutions, within long-standing spheres of influence laid down in the nineteenth and early twentieth centuries. There is therefore serious doubt about the effectiveness and underlying purpose of the much-hyped so-called “free trade agreements” such as PACER-plus – not simply the fact that they have been driven by Australia and New Zealand as a means to consolidate their regional power and influence, but more generally the lack of obvious economic (as distinct from political) payoffs for the region’s small island economies. There is no realistic prospect of island states in the Pacific replacing their historicallygrounded external linkages with a dense regional network of interconnections among complementary economies. The island economies are too similar in their resource endowments to get big gains from trade amongst themselves; the gains from trade and other economic interactions require exchange with larger outside units. Changing patrons is always a possibility, but doing without bilateral external links is not. Crocombe (2007), documenting the recently rising power and influence of China and Japan in the Pacific islands, commented that a primary role for regionally-integrated institutional organizations of Pacific island governments is not so much to build within-region economic interaction, as to mediate in bilateral exchanges with outside powers, in the attempt to add at least a little more strength to the island nations’ inherently weak bargaining positions: A concern for the Islands is which activities will be best dealt with bilaterally with Asian nations, which through regional organizations, and which through or in association with thirds parties: at present mainly Australia and New Zealand in the South Pacific and the USA north of the equator. Most governments prefer to deal directly but few are equipped to do so. The rhetoric of working regionally is stronger than the reality, and some who agree to work regionally work bilaterally behind the scenes….. So small countries often seek the help of larger partners who are prepared to help, or see it as in their long-term interest to do so. (Crocombe 2007 p.469).
The admission of New Caledonia and French Polynesia to full membership of the Pacific Islands Forum in September 2016 brought the Forum up to eighteen full member states, six observer states, one associate member, five observer institutions, and eighteen “dialogue partners” including France. The issue of whether French entry to the Forum would make 16
any difference to the lack of results over half a century of attempts to promote regional economic integration drew the following comment from the Fijian economist Kaliopate Tavola (Pareti 2017): [R]egional cooperation has been undermined by high costs, lack of benefits to members due to regionalism being voluntary and due as well to members’ great diversity of interests, in resources, economic strengths and degree of integration into the global economy… …[R]egional market integration has not been successful – see e.g. … SPARTECA, PARTA, PICTA, PACER and PACER-Plus…. [T]he pooling of resources for regional service has floundered in a number of high-profile regional projects, e.g. Air Pacific, the Forum Shipping Line etc; [D]eepened regional integration has not taken root at all. Will the incorporation of France in Pacific Regionalism mark the death of decolonization efforts? Or will it signify an historic change in the approach to decolonisation?
For New Caledonia, moving to a fully-autonomous, prosperous existence within a selfsufficient regional economy is not an option. Relationships with the outside world beyond the Pacific will remain dominant, and policy options will involve balancing alternative external patrons. Neither Australia nor China has obvious advantages over France as patron, so the first step must surely be to get the best possible results out of the relationship with metropolitan France. Economic history suggests that no significant economic gains would follow independence from France, though there may well be political and cultural gains for the Kanak people. Whether there would be economic losses from independence is less clear, because of uncertainty about whether France would continue to provide financial support and whether an alternative patron might emerge. The choice is really about which patron to prefer – not about escaping altogether from any patron – and how to identify the institutional arrangements that gain for New Caledonia’s population the greatest possible gains from the patronage relationship.
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