Vanuatu

Politics:

• Analysis

  Vanuatu politics: Quick View - Moana Carcasses elected prime minister

  Event

  On March 23rd Vanuatu's parliament elected Moana Carcasses, leader of the Green Confederation, as prime minister. The former finance minister replaces Sato Kilman, who resigned days earlier after the opposition called a no-confidence vote.

  Analysis

  Mr Carcasses' election was the culmination of a dramatic fortnight in Vanuatu's politics. Mr Kilman resigned after the no-confidence vote was tabled and eight members of parliament (MPs), including Mr Carcasses, switched to the opposition camp, ending the government's majority. A stalemate ensued when the parliamentary speaker refused to convene parliament to elect a new prime minister, but the supreme court ended this by forcing the vote to go ahead. Mr Carcasses won the support of 34 out of 52 MPs.

  Mr Carcasses is an experienced politician, who has served in several ministerial and cabinet positions. The new prime minister also has a reputation as a reformer, with good connections in the business community. However, beyond a pledge to improve transparency and government services, little is known about his policy intentions. The prime minister's party, as its name suggests, has an environmental background, but coalition politics will serve to blur its ideology. In the short term, the main challenge for his government will be to provide stability after several years of political infighting and volatility.

  Unfortunately, precedent suggests that the new prime minister's prospects of restoring political calm are poor. Mr Kilman himself first became prime minister after ousting his predecessor in a no-confidence vote in December 2010. Since then, Mr Kilman has faced no less than seven no-confidence votes, including one that he lost (he was restored to office by a court of appeal ruling, which in turn was overruled by the supreme court, but then Mr Kilman was voted in by parliament again).

  There is an outside chance that Mr Carcasses' numerically convincing win will earn a honeymoon period free of overt political and legal challenges to his leadership. However, several factors-including the fluidity of political allegiances, the overuse of no-confidence motions and frequent intervention by the courts-suggest that the political scene will remain turbulent.

  March 25, 2013

• Background

  Vanuatu: Key figures

  Ham Lini

  Prime minister since December 2004, and leader of the National United Party.

  Edward Natapei

  Prime minister from 2001-04, and leader of the Vanua'aku Party.

  August 27, 2008

• Structure

  Vanuatu: Political structure

  Official name

  Republic of Vanuatu

  Form of state

  Parliamentary, based on the UK model

  The executive

  Council of Ministers, made up of members of parliament (MPs) chosen by the prime minister, who is in turn elected by the legislature from among its members

  Head of state

  Iolu Abil was elected president in September 2009. The president is elected for a five-year term by an electoral college consisting of MPs and heads of local government

  National legislature

  Unicameral parliament of 52 members, elected for four-year terms on a universal franchise and using a system containing an element of proportional representation. The National Council of Chiefs, elected from the district councils of chiefs, exists alongside parliament to discuss and be consulted on matters relating to custom and tradition

  Legal system

  A system of magistrates' courts, leading up to the Supreme Court

  National elections

  The last parliamentary election was held on October 30th 2012; the next is due by November 2016. The next presidential poll is due by 2014

  National government

  Like other recent elections, the October 2012 vote failed to result in a clear mandate to govern for a single party. However, the incumbent, Sato Kilman, was re-elected prime minister with the backing of 29 out of 52 MPs

  Main political organisations

  Vanua'aku Party (VP), People's Progressive Party (PPP), Graon mo Jastis Party, Union of Moderate Parties (UMP), National United Party (NUP), Nagriamel, RMC, Green Confederation

  Prime minister: Sato Kilman

  Deputy prime minister, minister for trade, commerce & industry: Ham Lini

  Key members of the Council of Ministers

  Agriculture: Kalfau Moli

  Education: Steven Kalsakau

  Finance: Charlot Salwai

  Foreign affairs: Alfred Carlot

  Health: Don Ken

  Public utilities: (vacant)

  Internal affairs: Toara Daniel Kalo

  Justice: Thomas Laken

  Lands: James Bule

  Ni-Vanuatu (indigenous people) business: Marcellino Pipite

  Minister of civil aviation: Samson Samsen

  Parliamentary speaker

  George Wells

  Central bank governor

  Odo Tevi

  January 01, 2013

Economy:

• Background

  Vanuatu: Economic background

  Gross domestic product by sector
  (Vt m; constant 1983 prices)
  	2001	2002	2003	2004	2005
  Agriculture	n/a	2,894	3,083	3,305	3,259
  Manufacturing	n/a	569	595	625	674
  Electricity, gas & water	n/a	414	410	424	442
  Construction	n/a	506	537	576	646
  Trade	n/a	4,849	4,854	4,773	5,331
  Transport & communications	n/a	1,459	1,512	1,747	1,880
  Finance	n/a	1,162	1,266	1,346	1,597
  Public administration & others	n/a	2,131	2,207	2,223	2,268
  GDP incl others	n/a	15,444	15,936	16,812	17,953
  Source: Asian Development Bank, Key Indicators of Developing Asian and Pacific Countries.

  Download text file (csv format)

  August 27, 2008

• Structure

  Vanuatu: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011a	2012b
  GDP at market prices (Vt bn)	60.1	63.0	66.8	71.3	84.1
  GDP (US$ bn)	0.6	0.6	0.7	0.8	0.9
  Real GDP growth (%)	6.2	3.5	3.1	4.3	4.5
  Consumer price inflation (av; %)	4.9	4.2	2.8	0.9	1.5
  Population (m)	0.2	0.2	0.2	0.2	0.3
  Exports of goods fob (US$ m)	41.9	55.2	51.3	67.4	56.6
  Imports of goods fob (US$ m)	-317.8	-187.2	-290.8	-310.2	-316.4
  Current-account balance (US$ m)	-176.0	-12.0	-105.2	-126.9	-120.6
  Foreign-exchange reserves excl gold (US$ m)	115.2	148.6	161.4	173.8	207.7
  Total external debt (US$ m)	125.8	129.8	–	–	–
  Debt-service ratio, paid (%)	1.4	1.7	–	–	–
  Exchange rate (av) Vt:US$	101.33	106.74	96.91	89.47	93.00
  a Actual. b Economist Intelligence Unit estimates.

  Download the numbers in Excel

  Origins of gross domestic product 2009	% of total	Components of gross domestic product 2008	% of total
  Agriculture	21.8	Private consumption	58.4
  Industry	10.9	Government consumption	14.9
  Manufacturing	3.0	Fixed investment	32.6
  Services	77.9	Stockbuilding	0.0
  Statistical discrepancy	-10.6	Exports of goods & services	47.8
  		Imports of goods & services	56.1
  Principal exports 2010	Vt m	Principal imports 2010	Vt m
  Coconut oil	934	Machinery & transport equipment	7,252
  Copra	579	Food & live animals	5,108
  Kava	508	Basic manufactures	3,818
  Beef	494	Mineral fuels	3,618
  Cocoa	384	Miscellaneous manufactured goods	2,736
  Main destinations of exports 2011	% of total	Main origins of imports 2011	% of total
  Thailand	57.3	China	26.7
  Japan	21.8	Singapore	21.2
  South Korea	2.3	Australia	13.6
  Malaysia	2.1	New Zealand	7.2
  Netherlands	1.9	Fiji	6.7

  Download the numbers in Excel

  Download text file (csv format)

  January 01, 2013

• Outlook

  Vanuatu: Country outlook

  Vanuatu: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: Vanuatu's politics will remain fractious. The prime minister, Sato Kilman, will struggle to hold his coalition government together in the face of repeated no-confidence motions. Tensions between the police and the political authorities may be a source of instability in the 2013-14 forecast period. Exports are expected to grow, boosted by Vanuatu's new membership of the World Trade Organisation (WTO), but strong non-oil import growth means that net exports will still subtract from GDP growth. Private consumption will remain the main driver of real GDP growth in the next two years. The economy will expand at an average annual rate of 4.7% in the period. Inflows of workers' remittances should expand in 2013-14, supported by the development of seasonal-worker schemes in New Zealand and Australia that allow Vanuatans temporary access to work in those countries.

  DOMESTIC POLITICS: Vanuatu's political scene will remain fractious in 2013-14. The election held at the end of October 2012 saw 17 small parties gain representation in parliament, with a further four independent members of parliament (MPs); these forces will vie among themselves for control of the government. Despite this, Mr Kilman managed to put together enough support in the legislature to be re-elected to the post on November 19th. However, it is unclear how long his administration will last. The election victories of several MPs have been challenged, and Mr Kilman's candidacy has been questioned on procedural grounds, with opponents arguing that he should not have been able to stand for office as he owed the state money. If the authorities overturn any of the election results, the balance of power could be affected. No-confidence motions are used frequently in Vanuatu, often bringing down the prime minister: between January and June 2011 there were four changes of leadership. Mr Kilman's latest government faced its first confidence vote less than a month into its term, in December. Although the motion was defeated, with 27 MPs supporting the government, the prime minister's support base looks fragile. If the government does fall, it will likely be replaced by an administration led by the Vanua'aku Party, headed by a former prime minister, Edward Natapei, who would be in a good position to assume the post should Mr Kilman be forced out. There will continue to be calls for legislation to make it more difficult for lawmakers to launch no-confidence motions. Laws preventing such motions from being introduced for a set period following a general election or an earlier no-confidence motion have been passed in other Pacific island countries-for example Papua New Guinea, where the restrictions have contributed to improved political stability. To date, however, such measures have not been forthcoming in Vanuatu. Several issues have the potential to cause social unrest in 2013-14. Land sales by the government are a frequent source of tension, especially when such lands are held under traditional community ownership. Vanuatu's recent accession to the WTO may also be a source of controversy as vested interests are challenged by the more open trade environment. Tensions between senior members of Mr Kilman's government and the police were evident in 2012, and several police officers have been arrested on "mutiny" charges. The Economist Intelligence Unit does not expect these strains to escalate into police action against Mr Kilman's new government. However, given the volatile nature of local politics and the fragile state of Vanuatan institutions, tensions between the security forces and politicians are troubling. Corruption will remain a concern in Vanuatu, owing to close ties between politicians and local businessmen, in addition to the limited independence of the police and the judiciary. In September Radio Vanuatu reported that the acting ombudsman, Alain Molgos, had promised to investigate the sale of government land leases to civil servants.

  INTERNATIONAL RELATIONS: Relations with Australia and New Zealand will remain tense following Mr Kilman's re-election. Ties with Australia were strained after the police arrested Mr Kilman's private secretary in April 2012 as the prime minister's delegation was transiting through that country on a diplomatic trip. The arrest, which is thought to have been part of the Australian government's efforts to crack down on tax evasion via Vanuatu, prompted the Vanuatan authorities to expel several representatives of the Australian Federal Police who were stationed in the country.

  POLICY TRENDS: The new government will continue with reforms aimed at improving Vanuatu's business environment, but progress will be slow, mainly owing to the country's chronic political instability. After almost a decade of negotiations with the WTO, Vanuatu officially joined in August 2012. The country is expected to apply fully all WTO provisions except those relating to intellectual property and the publication of trade information, which are to be phased in. Vanuatu will apply an average final bound tariff rate of 39.7% (43.6% for agricultural products and 39.1% for industrial products). Accession to the WTO will provide further impetus to the introduction of pro-business reforms. In the early 2000s the country was taken off an OECD blacklist of countries suspected of being centres for money-laundering, after the authorities took steps to bring regulations into line with global standards. However, the national financial regulator, the Vanuatu Financial Services Commission, will need to reassure international regulators periodically that it is continuing to fulfil its obligations in this area. Vanuatu has slipped to 80th out of 185 countries assessed by the World Bank in terms of the ease of doing business, according to the Bank's 2013 survey, from 78th in the previous year. The survey noted that business access to credit was likely to be improved by the country's imminent introduction of a credit registry, but it added that Vanuatu had introduced a mandatory preliminary environmental assessment for those wanting to obtain construction permits, while also raising the fees involved. The government will remain dependent on foreign grants and loans to balance its budget. Based on data from the Asian Development Bank, in 2011 Vanuatu recorded a budget deficit of Vt1.6bn (US$17m), equivalent to 2.3% of GDP, but without grants the deficit would have stood at Vt2.4bn (3.4% of GDP). The 2012 budget, which was approved by parliament in December 2011, targeted a deficit of around Vt2bn, although we expect the deficit for the year to come in at Vt2.5bn. The government is required by the 1998 Public Finance and Economic Management Act to target budget surpluses, but it is expected to post modest deficits in the forecast period, averaging 1.8% of GDP. Government debt will nevertheless remain low as a proportion of GDP in the next two years.

  ECONOMIC GROWTH: In recent years the performance of the domestic economy has been volatile. Real GDP grew by 3.3% a year on average in 2009-10, after expanding strongly, at an average annual rate of 6%, in the previous five years. Annual economic growth is estimated to have recovered to an average of 4.4% in 2011-12 and is forecast to remain strong in 2013-14 at 4.7%. Growth in the next two years will be driven largely by construction of infrastructure and other facilities. Tourism will also contribute to economic expansion, partly thanks to more frequent flights linking Vanuatu to both Australia and Fiji. Economic conditions in Australia and New Zealand, two important sources of tourists for the local economy, should remain positive in 2013-14. Real GDP will expand by 3.3% a year on average in Australia and by 2.7% in New Zealand. However, a weakening of the New Zealand's currency against Vanuatu's vatu may have a negative impact on arrivals from that country. Meanwhile, tourist arrivals from other developed countries are likely to be unimpressive, owing to the difficult global economic climate. Vanuatu's membership of the WTO should provide a modest fillip to merchandise trade growth, giving a boost to trade-related services sectors.

  EXTERNAL ACCOUNT: The deficit on the current account will remain large in 2013-14, and attracting sufficient foreign funding to finance the shortfall will continue to be a challenge. According to the IMF, in 2011 the current-account deficit expanded to US$126.9m, from US$105.2m in 2010, driven largely by a widening merchandise trade deficit as the increase in imports outpaced that in exports. The transfers surplus also weakened as remittances from Vanuatans working overseas were negatively affected by the deteriorating global economic climate. Current-account weakness is likely to have persisted in 2012. Merchandise trade growth should be boosted by WTO membership in 2013-14, but the overall impact will be mild, as tariff reductions will generally be small and will be implemented gradually. In 2013 the value of imports is expected to fall from the high level reached in 2012, owing to a decline in global oil prices and increased local production of food and other goods. Meanwhile, remittance inflows should pick up in 2013-14, supported by temporary-work schemes for Vanuatans in New Zealand and Australia as well as by an increase in remittances from the US as that country's economy strengthens. In addition, foreign grants are expected to support the balance of payments in the forecast period.

  January 04, 2013

View detailed map

Country Briefing

Land area

12,190 sq km

Population

245,619 (2011, World Bank estimate)

Major islands

Efate, Espiritu Santo, Malakula, Tanna, Erremango

Capital

Port Vila (population 44,039, according to 2009 census)

Climate

Tropical

Weather in Port Vila

Cool weather in winter and cyclones in summer (December-April). Average annual rainfall is around 2,300 mm; average humidity is 83%. Average temperatures are in the range of 22-27°C

Languages

Bislama (Pidgin), English and French (all official); about 110 local languages

Measures

Metric

Currency

Vatu (Vt). Average exchange rate in 2011: Vt89.5:US$1

Fiscal year

Calendar year

Time

11 hours ahead of GMT

Public holidays

January 1st; February 21st (Father Lini Day); March 5th (Custom Chief's Day); April 6th (Good Friday); April 9th (Easter Monday); May 1st (Labour Day); July 24th (Children's Day); July 30th (Independence Day); August 15th (Feast of the Assumption); November 29th (Unity Day); December 25th (Christmas Day); December 26th (Family Day)

January 01, 2013