1 MEDIUM TERM PERSPECTIVE AND VISION
Setting the Scene
The principal objective of government's development policies, as set out in the Beretitenti's Policy Statement, is to promote improvement in the standard of living of the people of Kiribati. Without sustainable development and real economic growth it will be impossible to realise this goal. To achieve sustainable development and growth in the economy will require structural and economic reforms. These in turn will necessitate the acceptance and promotion of innovation and change in both governmental and private institutions.
All parts of Kiribati society must share in a clear Vision and have a strong commitment to the future. Without this it will be difficult to succeed in bringing about the social and cultural improvements and the higher standard of living which are the aim of the policy objectives presented in this National Development Strategy.
Everyone must work together to achieve the Vision. This is the theme of this Second statement of National Development Strategies: "Uataboan te Rikirake ao te Rau". This theme aims to take the cooperation between the public and private sectors a stage further. It emphasises the need for action to implement the strategies which are needed to realise the goal of increased prosperity for everyone.
Although Kiribati is a small, open economy with many development and structural constraints, the nation also possesses some unique advantages:
●Large and well managed foreign reserves in the Revenue Equalisation Reserve Fund (RERF);
●History of sound fiscal management; and
●Strong traditional culture which promotes social stability and family welfare.
Key Development Constraints
■Limited natural resource base, especially land and fresh water for development;
■Small domestic market with little potential for economies of scale;
■Widely scattered and sparsely populated island geography;
■Access to major international markets is expensive and hard to arrange;
■Increasingly competitive international markets for tourism and investment;
■Social and cultural system with limited understanding and experience with business concepts and practices;
■Labour force lacks education and job skills needed to support economic development;
■Land and capital markets development constrained by social values and traditions
■Low absorptive capacity for major investments
However, even though the country is fortunate to have these advantages, it must nevertheless continue to work toward strengthening its links to the international community. The continuing process of liberalisation, deregulation and globalisation in the international economy offers both opportunities and challenges that Kiribati can ill afford to ignore.
To believe that these changes in the international
economy can be ignored is likely to result in the economy becoming ever more isolated
and marginalised. It would mean the loss of opportunities for economic growth,
which when properly and carefully harnessed, could contribute significantly to
the kind of development that is envisioned. Equally, the country should not embrace
these developments without careful consideration of the likely consequences on
the country fragile economy and natural environment.
To achieve the development vision and strategic outcomes presented in this Medium Term Perspective, Kiribati must be successful in addressing key development constraints and structural weaknesses. These are highlighted in the accompanying boxes.
The fragile nature of the Kiribati economy is a consequence of these developmental and structural constraints. This has led to a heavy reliance on outside development assistance. This assistance, along with fishing license fees, seamen's remittances and investment income from the RERF, has enabled the nation to balance its external account and to cover the resource gap in the budget.
To achieve sustainable economic growth and development Kiribati must adopt an innovative policy making process. It must also be open to adopting economic and structural reforms needed to overcome the weaknesses in its economy. Kiribati must design outward looking, private sector focused strategies that will both broaden and deepen the economic base of the nation. Government needs to introduce a more service and customer oriented approach to its dealings with the public and particularly with potential investors. It also needs government enterprises to be operated in accordance with genuine commercial principles, and with the objective of privatisation at an opportune time.
Principal Structural Weaknesses In the Kiribati Economy
■Continuous trade imbalance, with exports representing less than a quarter of the value of imports;
■Large public sector characterized by low productivity and lack of customer service focus;
■Small and under-developed private sector which accounts for only around one-quarter of GDP;
■Pervasive government ownership of enterprise activities, many of which require fiscal concessions and/or subsidies to survive;
■High tax rates and import duties;
■Investment approval process that is non-transparent and burdensome for investors;
■Underdeveloped financial system characterized by low domestic resource mobilisation;
■Rapidly growing labour force that is largely underemployed and lacking skills needed to fill above entry-level job openings;
■Land very difficult to obtain for commercial development.
Lack of innovative policy development and a reluctance to embrace economic and structural reforms will lead to stagnation in economic growth and development; it will mean few employment opportunities being created, thereby leading to increased under-employment amongst our young people. It is also likely to result in a failure to improve the quality of life of our people.
The Vision is a summary of the most important goals which the nation would like to achieve within five years through a collective effort in implementing the National Development Strategy (NDS).
By 2005 Kiribati will have achieved a significant increase in real per capita incomes, along with steady growth in employment. Within the region, Kiribati will be among the leading countries in gaining improvements in education, health, environmental protection, and social indicators. Public sector reforms will have raised productivity of the civil service, together with customer service standards and managerial accountability. Through structural reform, Kiribati will have established an effective enabling environment to sustain the significant growth which it aims to achieve in private sector output and employment.
Although the NDS focuses on the period, 2000-2003, the Vision presents a clear picture of what the nation is committed to achieving in the medium to longer term. This longer-term commitment emphasizes the importance of continuity and consistency in adopting and implementing the policies and strategies needed to accomplish the goals outlined in the Vision.
To accomplish the goals contained in the Vision, Strategic Outcomes need to be targeted for the 200O-2003 NDS period. Strategic outcomes provide policy direction at the overall national (macroeconomic) level. Strategic Outcomes focus on key results or changes that must be achieved in the society and economy in order to create the "enabling environment" that will permit the nation to realise its Vision. For example, enhanced capacity in education and training institutions will be required to provide people with the job skills needed to perform the new jobs generated by increased investment, Limited training capacity and low levels of educational attainment will result in potential investors deciding not to make investments because they cannot fill their job openings with productive workers. Without new investment, growth in employment cannot be achieved.
Presenting strategic outcomes in the NDS informs all stakeholders (e.g., donors, non-governmental organizations, private investors as well as government), of what is expected to be achieved. This thereby provides a sound basis for mobilizing broad support for achieving the targeted outcomes. Another important purpose for focusing on strategic outcomes is to provide guidance to ministries to enable them to formulate consistent sector-level policies and strategies required to allow achievement of the targeted outcomes.
The six strategic outcomes which have been identified are:
Sound Macroeconomic Framework
A sound macroeconomic environment refers to general economic conditions that promote a healthy business and investment climate. Conditions such as price level stability (low rate of inflation), wage level changes consistent with labour productivity and rates of inflation, prudent fiscal management in the government budget, and a sound balance-of-payments (no difficulty in maintaining current account balance). Maintenance of favourable macroeconomic conditions is also a prerequisite for the supply of business and consumer credit on reasonable terms.
Having a sound macroeconomic framework not only contributes to a healthy business climate, but is a significant factor in maintaining the confidence and support of the aid community and potential investors.
Stronger Linkages Between Public and Private Sectors
There is an urgent need to improve communications and levels of cooperation between government and the non-government and private sectors. In this context the non-government sector should be understood to mean any non-governmental organization, either for-profit or non-profit, including cooperatives, NGO's, unions, churches, and international agencies. The private sector includes sole proprietorships, partnerships and non-government owned corporations. It is in the public interest for government to encourage a wide variety of private sector organizations which provide goods and services to the general public or to defined beneficiary groups. Increased choice promotes consumer satisfaction (through offering different styles, quality of product, and price), and is most likely to result in greater competition among suppliers. More competition in turn typically results in better value for money.
Strengthened communications between government and non-government and private sectors can be expected to result in a more efficient use of resources. Although strengthened linkages between government and the non-government and private sectors are likely to generate significant benefits even if pursued as a stand alone policy, they are likely to have a much greater pay-off if undertaken in conjunction with other policy initiatives - known as "policy reinforcement".
There may also be benefits to be gained from strengthening the role of NGO's in the provision of services to many parts of the community. This may be especially the case amongst those in the most disadvantaged categories where numbers may be small and the costs of service provision are high. This becomes an increasingly important issue as government's budget becomes more focussed on core activities.
Private Sector Development and Employment Creation
Presently, most formal employment is in the public service or in government owned public enterprises (PE's). With a population growth rate of around 2.3% it is forecast that the number of young people entering the labour force will average 1100 - 1200 each year for the foreseeable future. The public sector cannot provide employment opportunities for this number of new entrants. Efforts must therefore be directed towards increasing private sector employment both in enterprises and non-profit organizations.
To achieve this there will have to be strong government support and commitment to restructure and re-focus the economy.
Private Sector Investment Focus
■Broadening and deepening the economic base of the country;
■Encouraging the development of small scale niche market activities in the outer islands
■Increasing production for export;
■Promoting more competitive markets in goods and services;
■Strengthening the domestic financial system;
■Promoting increased investment, including joint domestic-foreign ventures in identified industries;
■Taking innovative approaches to development of fisheries, services, agriculture, tourism
The restructuring will require the establishment of an enabling environment in which government actively promotes private sector development. A more private enterprise based and competitively structured economy is needed to enable sustained growth in real per capita income, and to facilitate increased exports and foreign investment. Success in developing the private sector can also be expected to have beneficial spill-over effects in strengthening professional-technical, social and cultural linkages with the international community.
More Competitive and Diversified Export Base
It is important that Kirivati increases both the range and value of the goods and services which it exports. Currently, the export base is very narrow, consisting mainly of copra and marine products. Kiribati runs a large deficit on merchandise trade, relying primarily on factor income, largely fishing license revenue, and seamen's remittances to cover the trade deficit.
Which such a narrow export base, and heavy reliance on fishing license revenue, the country is vulnerable to large year-to-year swings in overall external receipts. Increased tourism revenues and a greater volume and variety in marine exports need to be a major development focus. Innovative strategies need to be employed to attract much greater domestic and foreign investment in export oriented enterprises.
These investment promotion strategies need to take account of the different opportunities and constrain to which face the outer islands, South Tarawa and Kiritimati.