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December 9, 2011

Last week the UN held an expert meeting in Mauritius on small island developing states aimed at better defining the category and proposing measures to help them.

SIDS are a special case. They’re not poorest countries in the world but their development  options are limited. Their home markets are often miniscule and scattered. Many can’t easily export to bigger countries because they’re so far away. A lack of diversification makes them vulnerable to outside economic shocks. Natural disasters like hurricanes and tsunamis add to the uncertainty, and climate change means that several, like Tuvalu, are likely to suffer coastal erosion in years to come.

Any support from international donors and trading partners should reflect these special characteristics. One size doesn’t fit all, so good diagnosis is critical. Aid should be spent on trade-related technical assistance for SIDS, along the lines of the Enhanced Integrated Framework for Least Developed Countries.

The biggest unexploited area, in my view, is the internet. Lots of SIDS don’t have broadband or even affordable mobile phone access. It doesn’t matter whether you’re in New York or the middle of the Pacific, you can still do business online. Some commentators, like Nicholas Negroponte of MIT, have even argued that the future of international commerce is on the web. We’ll trade in bits, not things. SIDS might even be at an advantage because they’re not lumbered with natural resources like bigger mainland countries. Generally they’ve got higher levels of education so they can take advantage of internet opportunities.

SIDS also tend to have big communities offshore which could benefit their home countries in the form of remittances and the transfer of expertise and capital. The likes of Tonga, the Seychelles and Samoa, for example, have as many relatives living in developed countries as they have at home. The diaspora could be helped to contribute more to their home countries through things like tax breaks and other incentives.

Developed countries should also hand out more working visas to SIDS-dwellers. This shouldn’t alarm immigration-averse governments because it wouldn’t involve too many people. Labour mobility has been shown to be one of the best development interventions, far outperforming measures like microfinance  or business grants.

More could be done to mitigate the problems of islands. The Caribbean has a disaster insurance system aimed at protecting against hurricanes. This should be extended to other small island states in the Indian ocean and Pacific. Trust funds like Tuvalu’s effectively function like an insurance system because they diversify risk across a number of countries.

Donors and development banks should also recognise that governments in SIDS need to be bigger than normal, reflecting the need for some government services to be duplicated on different islands in an archipelago and that in the absence of sizeable markets government simply has to perform a backstopping role. If a shop on a remote island closes, people can simply go hungry. There may  be few incentives for the private sector to provide the service, and government may need to step in instead.

Doubtless many more things could be done to help SIDS. But now is a good time to try and do something about their problems, when attention is focused on climate change and developed countries appear more sensitive to the difficulties of nations on the global periphery.

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