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Tales from Tuvalu

May 19, 2011

The latest trade diagnostic work i’ve been doing in Tuvalu has just been published. Several striking findings emerge from the research. In such a tiny country —  the world’s ninth-smallest by population — the standard solutions don’t work, and analysis and policy recommendations have to be tailored to the local situation. For instance there are no private domestic banks, so government has to borrow from international agencies like the Asian Development Bank. This has major implications for the way the government controls domestic demand and for the level of debt that can be tolerated.

In a country with only 11,000 people, competition in most sectors is unlikely, so the sale of state-owned enterprises won’t have the effect that is supposed to in bigger economies. It’s also unlikely that competition would work its magic on management. Highly skilled managers exist, but they form just the same proportion of the working population as elsewhere, so there are only a handful. Many emigrate.

Government is massive — accounting for 97.7% of GDP. But the state probably has to remain a lot bigger than in larger, less remote economies because of the need for it to perform a role of insurance in times of environmental or economic crisis, and to support isolated communities in the eight outlying islands.

Trade liberalisation is somewhat pointless. The government spends an enormous amount of time negotiating regional trade agreements, but goods exports are almost dormant. We calculated that total goods exports since data became available in 1990 were $40 million. That’s about what Britain exports every 35 minutes. The country is so tiny (about 26 square kilometres) and fragmented that there’s no room to grow crops or graze animals, and industrialisation is virtually off the agenda. Tuvalu simply doesn’t have the productive capacity to be able to export much. It’s also too far away.

Climate change isn’t as big a deal for local people as it is for the international community. Yes, sea-level rise threatens to submerge parts of the country, and quite rightly the government is raising the issue on the international agenda. It’s about the only way to get noticed. But what people really care about is making a decent living — being able to stand on their own feet without aid handouts. Domestic government policy in fact pays very little attention to environmental sustainability, and much greater use could be made of renewable energy and recycling.

In general government policy doesn’t really aim at the right areas. There’s lots of talk of agricultural development and building fisheries plants, but when you’re thousands of miles from your nearest major market, Fiji; there’s no room to put a processing plant; and scant supplies of fresh water, none of those things are likely to work.

What may work, and what is woefully under-prioritised, is tourism. Tuvalu’s culture and natural environment are amazing and unique, yet only 400 tourists visited in 2009. There’s only one proper hotel, few tourist facilitites and a limited number of tours. A range of other service industries should probably be prioritised, including employment overseas.

Aid and development in Tuvalu, like in most countries, needs to depart from the usual mould. Donors and government need to think afresh about how to conduct development, avoiding the kind of templates used elsewhere.

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