Taking Samoa’s Economic Temperature

Samoa’s Deputy Prime Minister and finance minister, Misa Telefoni Retzlaff predicts economic growth of 6 to 7 percent by mid-2005. Photo: Samantha Magick

It has become a cliché to hold Samoa up as an example to the region of sound economic management, so strong is that reputation. Just a few weeks ago at the Pacific Islands Forum, Solomon Islands Prime Minister, Allan Kemakeza said, "Samoa is one of, if not the most successful countries in the region when it comes to implementing reforms and there is much to learn from Samoa."

And there is a renewed air of optimism about the Samoan economy, even if it is tempered by some more cautious voices.

First the statistics. The Central Bank of Samoa said in May that the country's inflation rate stood at 6.6 percent. The Balance of Payments monthly deficit is at its highest level for two years at S9.1 million. The central bank attributes the increased debt to a "large trade deficit and increased short term financial outflows," and says generally economic performance has been mixed, with the improvement in local food crop supply (post Cyclone Heta) still unable to meet demand, an increase in total imports of six percent to S38.6 million, a smaller increase in the value of exports, and a 12 percent increase in tourist arrivals in May, translating to a 14 percent increase in tourism earnings.

Tourism is the industry many are pinning their hopes to. The New Zealand developer of the Taumeasina Hotel Project (5 star hotel, condominiums, restaurants, conference facilities) Gordon Taylor was reported in the Samoa Observer as saying "I have recently been told…that this is the most exciting project in the Pacific at the moment."

The good health of Air Polynesia is central to the longevity of the tourism industry. Deputy Prime Minister and Minister for Finance, Misa Telefoni Retzlaff is also responsible for Polynesian Airlines. His personal reaction to an Australian funded study on regional aviation is that the region has been patronized.

"We have been looking for joint venture partners for years." Misa says once the government began talking to Virgin Blue, there was renewed interest from Qantas and Air New Zealand.

"We worry about the motives of Qantas- whether they are genuinely interested or whether they are just pleasing John Howard," Misa says. "We would rather be insulted than patronized."

Apia’s vibrant waterfront includes commercial buildings. Photo: Samantha Magick

The deputy Prime Minister is being kept busy meeting airlines on possible joint ventures or cooperation with Air Polynesia. He planned to see three airlines (Virgin, Qantas and Air New Zealand) in separate meetings, in the space of a week.

"I've taken a very basic approach. I' ve said here is what is non-negotiable for us, what is yours… For example, they may want Government to pick up Polynesian's debts, start with a clean balance sheet…if that's the case I would rather know that up front."

Samoa's Prime Minister, Tuilaepa Sailele Malielegaoi has been similarly frustrated by the pace (or lack) of negotiations, telling Pacific Islands Forum leaders, "..we took over the then-privately owned national carrier when its collapse appeared imminent in an effort to maintain good public air services and to support a growing tourism industry…Nevertheless, in recognition of the marginal nature of the airline business, we had long desired to secure a private sector partnership that would continue to provide good airline services and at the same time spread the investment burden and operational costs. Regrettably there still remains a vast gap of frustration between our desire for a partnership and being able to secure such an arrangement."

Fisheries remain a crucial, if troubled sector of the Samoan economy. "We know now that waters became warmer and catches fell," Misa says of the industry. The deputy PM acknowledges the government may have opened a Pandora's box in bailing out some fishermen to the tune of $880-thousand when it asked the Development Bank to forgo interest on all fishing loans for the year to March 2004. He says fishermen who got loans from commercial banks now want similar assistance, and that the government is looking into this.

National Government building Photo: Samantha Magick

The government is also continuing to invest in micro enterprise projects and schemes. "It is a very big part of our economic policy," Misa says, although he believes there is a school of thought outside the region that they don't work in the Pacific, mainly because of failures in Papua New Guinea. "To me it is very important to tell people that that's not the norm in the Pacific," he says.

The government is steeling itself for a civil service pay hike next year. But Misa is hopeful that an ongoing rewards system for services, "once that is more sophisticated" will replace general wage increases of this type.

Remittances from around the world bring NZ $190 million in foreign revenue back to Samoa each year. The central bank says in May remittances soared "14 percent ($2.2 million) to $18.0 million, following a two percent rise in the preceding month." Misa is confident that figure will continue to rise.

That confidence extends to economic growth more broadly. "I'm more optimistic on growth (than the central bank)," Misa says. "My prediction is 6 to 7 percent, …certainly by the end of the financial year (June 2005)…although I would have to say that would be inflationary and the central bank would have to address that, would have to look at interest rate increases."

There is qualified optimism to be found elsewhere.

"I know from Samoa's experience that attracting Foreign Direct Investment is easier said than done and as in our case, government's intervention in targeted areas is the catalyst needed to generate foreign interest and bring together our private sector and overseas investors," Prime Minister Tuilaepa said at the Pacific Islands Forum opening.

A young Samoan on a bus Photo: Samantha Magick

The manager of Samoan consulting firm Pacific Consult, Chris Solomona says that "reform hasn't filtered through the whole system" and that Samoa has to deliver on what it promises to investors.

"There needs to be fairness throughout, that's a big challenge to the government itself," Solomona says. He believes if the bureaucracy doesn't understand the government's policies, " there'll be a few more hurdles to jump."

"I was lucky to inherit a strong economy, and my task has been to keep growth going," Misa says. And of his personal philosophy? Misa believes some in the business community seem to fear "I will go too far to the left and leave them out on a limb… but that will never happen."