Aid Or FDI: Which Is Good For Pacific islands?

Last week, academics, government policy makers and businessmen from the region gathered in Suva and reviewed economic trends in Pacific island countries (PICs). They also explored future options for growth and development. The event, known as Pacific Update, was sponsored by Asian Development Bank in conjunction with Australian National University and the University of the South Pacific (USP). One of the topics of perennial interest is the role of foreign aid in growth and development in PICs. Known as overseas development assistance, aid is considered as unrequited or unreciprocated transfers of resources supplementing domestic savings for helping less developed countries (LDCs) to overcome their capital shortages. It was first pledged 35 years ago in a 1970 General Resolution of the United Nations that developed countries should transfer at least 0.7 per cent of their gross domestic products each year to LDCs. The target of 0.7 percent has been re-affirmed from time to time in many international agreements over the years, including 2002 International Conference on Financing for Development and the World Summit on Sustainable Development held in Johannesburg.

PICs continue to be among the top recipients of foreign aid in term of percentages of their gross domestic products, just as they rank high among the receivers of remittances. Vanuatu was the fourth highest aid recipient (13% of GDP) amongst PICs, next only to Solomon Islands (31%), Samoa and Tonga (17%), though higher than Fiji (2.7%), Vanuatu is among the least recipient of remittances. Vanuatu (3% of GDP) lags behind Samoa (23%), and Tonga (13%) and Fiji (4.7%). On the other hand Vanuatu has been traditionally an attractive destination of foreign direct investment (FDI), which is influenced purely by profit motive. With no direct taxation of any kind and no exchange controls and with additional attraction of being a tax haven, FDI inflows were into agricultural projects such as cattle ranches and plantations in initial years and later in tourism industry. Until mid 2000s, Vanuatu was the top recipient of FDI inflows (11 percent of GDP) followed by Fiji (4%). In recent times, Vanuatu was pushed to the third position with Solomon Islands becoming the first (17% of GDP) and Fiji, the second (11%) and Vanuatu, the third (5%).

http://fijisun.com.fj/2015/07/25/opinion-aid-or-foreign-direct-investme…