Stimulating our Economy: Building A Brighter Future for All

A challenge for any country is balancing the pressures of stimulating growth and development versus delivering core services and ensuring stability. For Vanuatu, being a small island state, one of the most natural disaster-prone nations in the world, and one that has faced prolonged political instability, this is especially challenging. Following the December 2024 earthquake that resulted in hundreds of job losses and another serious economic downturn, now more than ever it is critical that we not only discuss but rapidly implement effective measures that stimulate the economy.

There is no magical solution, success lies in prioritizing and quickly implementing the most effective measures. This article provides a summary of 6 key priority initiatives that would stimulate the economy and provide short to midterm benefits to our people.

 

1. Enable rapid expansion of the Building and Construction Industry

There is already significant demand in the Building and Construction industry following the recent earthquake. To quickly enable growth will require a combination of policy initiatives, investment in infrastructure, and support for innovation and business growth. The Government plays a pivotal role by focusing on large-scale public infrastructure projects and ensuring that approvals and spending are fast tracked – these can include roads, bridges, housing and school repairs, which create immediate demand for construction services and jobs. Practical measures include rapid approvals for tenders and commitment of spend and improved project management.

Additionally, offering tax incentives or subsidies for private sector construction projects can encourage development, especially in residential and commercial real estate. In Vanuatu’s case increasing (even if it is for short term) the number of construction permits, and the processes to apply being streamlined can also accelerate project timelines, making it easier for developers to get projects off the ground.

One of the major issues for this industry is access to experienced and reliable labour. Our workforce is seeking opportunities overseas via labour schemes and this has been a safeguard to incomes for many families and is unlikely to change. While this happens, it makes scaling up much more difficult for local construction companies as they struggle to source and maintain appropriate skills and people. So fast tracking immigration programs where overseas construction resources are brought into construction projects in Vanuatu is now appropriate as a short-term measure for the next 2-5 years. Ensuring that appropriate fast track visas are in place for 2-5 years will assist this.

For the longer term, the Government and its skills development partners must prioritize supporting the workforce through training programs and apprenticeships in this industry. Only by upskilling Ni Vanuatu so they can take on more skilled work and charge more than unskilled workers, will this be effective. Skills initiatives will then address labour shortages and ensure more employment of appropriately skilled Ni Vanuatu on higher wages in this industry in the longer term.

Development of the Building and Construction industry is closely related to the next initiative that focuses on access to preferential finance rates and fiscal incentives.

 

2. Incentivise Investment via Preferential Financing & Fiscal Incentives

Access to appropriate finance is critical for investment and growth. This affects everyone from private individuals, small business thru to larger enterprise. This section has been split into short and mid-term solutions:

SHORT TERM (1-6 Months – Earthquake Recovery)

1. Employment & Small Business Stimulus: Quickly implement appropriate fiscal support schemes to ensure employment continues and small businesses survive.

 

2. Business Recovery Post Earthquake: Provide rapid approval for zero to two percent loans for immediate recovery (available for 12-18 months) for businesses. This enables them to support cashflow for relocation and trading and keep staff employed. This would require Government to underwrite the interest to the banks.

 

3. Broadening Duty Relief Categories: remove restricted industries so that there is more access to affordable construction and recovery related imports for all the most affected businesses and individuals.

MID TERM (1-5 Years)

1. Reduce duties on Construction Materials & Furniture/Furnishings for next 5 years – This stimulates commercial and private investment in buildings, business fit out, homes, retail and hardware and creates employment. Recovery is not just a matter of 6 months or short term. Good stimulation of the economy that has a real effect on the economy takes longer.

 

2. With recent global instabilities, Vanuatu has two significant income streams – via the Citizenship Program and ensuring we remain off International Blacklists. Post COVID-19 many nations are experiencing leadership difficulties, and more employers allow remote working. This drives more people to seek to live and work overseas. Vanuatu already has appropriate legislation in place to seriously maximise returns from this with the citizenship program and financial systems but these require urgent process and procedural review and removal of opportunities for corruption.
3. Land Tenure Stability – Priority on Municipal Leases

A critical land issue currently facing the country is the imminent expiry of the first generation of 50-year land leases (which are mostly in Municipal or urban areas). These were established in July 1980 and therefore they expire in less than 6 years – July 2030. This also represents one of the largest revenue opportunities for the Government with billions of vatu worth of lease renewals potentially available to the Government in a very short timeframe.

With more than a thousand leases about to expire, this presents significant implications for the country’s housing market, commercial property, and broader investment landscape. All investors, including Ni Vanuatu domestic investors, may be hesitant to commit to new developments or purchase properties with soon-to-expire leases, potentially leading to a decrease in property values and a slowdown in market activity. Likewise financial institutions lending money secured by leases will be unlikely to provide loans secured against leases with such short remaining terms.

There is considerable pressure to act quickly on this matter following the December 2024 earthquakes. Many buildings require investment to make them functional, and no sensible investor would do this, with less than 6 years of lease remaining.

This all points to an urgent need for the Government to address the situation as promptly as possible. It is understood that the Director General of Lands and his senior management team have conducted appropriate research and wisely made available sensible options on this matter – these need to be implemented by the Government urgently and well communicated to land lease holders.

There are other critical improvements to other lands matters such as the processing of lease transfers that would facilitate more effective transactions that we have chosen not to address in this article but require attention.

4. Tourism

Revenue from tourism brings much needed foreign income into the country, employs thousands of our people across transport, hospitality, accommodation, retail and services industries, and represents a very significant contributor to the overall economy. Also, importantly these businesses pay VAT, so this income directly contributes a significant portion of Government revenue.  Measures that would improve stability and returns would include:

1. Reliable Airlines & Sensible Aviation Decisions & Investment – critical focus should be on reliable international and domestic airlines and aviation infrastructure including the airports. Vanuatu has chosen to invest heavily in Air Vanuatu – an airline with a poor reputation and track record. It may be wiser to invest in core infrastructure such as airports and leave airlines to the specialist companies that run them internationally.

 

2. Remove opportunities for political interference: ensure that qualified specialist and independently run airlines and infrastructure to guarantee profitability and therefore long term sustainability for the benefit of ALL Ni Vanuatu.

By simple observation, we can see that Fiji has successfully transformed its economy through tourism investment. We have the benefit of being able to observe their success and challenges and adapt our strategy to this and learn from them, however we don’t appear to be doing so.

 

5. Ease of Doing Business

Internationally, ease of doing business was measured by the World Bank’s “Doing Business” project, which ranks countries based on a score calculated from various indicators with the top country being ranked 1^st and the most difficult being 190^th. The rank of Vanuatu deteriorated to 107 in 2019 from 94 in 2018, and is well behind many Pacific neighbours.

Solutions that should be considered include:

• Co-locating VFIPA, VFSC, VAT / Customs & Finance departments all in one building.
• Engage an urgent review of service delivery for these agencies, and implementation of practical measures such as implementing shift work so that offices can be operational through lunch and cashiers do not close early in the afternoon. Provide services from 7.30am all the way through to 4.30pm.
• Investing in digitizing processes and documentation workflows and reviewing Government IT systems to ensure basic tools such as email are functional.
• Facilitate online payments within 12 months, for all regular payments. This is to include vehicle and road taxes, business licenses, construction permits, business name renewals and so on.

6. Encouraging More Ni Vanuatu Entrepreneurship & Business Success

There have been a number of successful entrepreneurship and business support programs implemented in the past 5 years. These increase the likelihood of business success for locally owned and operated businesses. These have been primarily implemented by V-Lab and the Chamber of Commerce and Industry.

Further investment in our people and their capacity to successfully operate businesses is needed. This leads to increased employment, increased VAT revenues to the Government and sustainable economic development.

The Government could immediately stimulate this activity by providing the correct legislated budget to VCCI as per the Act.  A membership fee per Business License is stipulated in the law to go to VCCI – could this be implemented following the current law, in 2025?

While there are many different approaches that could be taken to stimulate the economy, this article prepared by VCCI, has focused on short and mid-term solutions and supports Ni Vanuatu entrepreneurship and business growth – as this is VCCI’s role. This article stays focused on ideas that can easily and quickly be implemented. There are of course a multitude of challenges in Vanuatu, and failure to mention health and education would be unwise, as these seriously affect our people. However, success and a turn around of the economy requires focus and action. We cannot change everything overnight, but we can change some things quickly if we focus and implement. We need to work smarter, not harder. Our Government and our people have an opportunity now, let’s see some action on key points that affect our economy and provide hope and a brighter future to our people.