recent shocks and long-term change in the samoan economy · 2015. 2. 19. · the university of...

8/02/2011THE UNIVERSITY OF WAIKATO - TE WHARE WANANGA O WAIKATO 1

Crawford SchoolAustralian National University

February 8, 2011

Recent Shocks and Long-term Change in the Samoan Economy

John GibsonUniversity of Waikato

Economic growth and composition• Volatile growth since 2006

• Construction-led growth bubble from the SP Games

• 2005-07 had 13% p.a. growth rate in construction, since then a 2% per annum decline

• Reductions in employment and exports from the EDS/Yazakivehicle harness factory post GFC

• Declining importance of agriculture, fishing and manufacturing

• Share of GDP fallen from 27% in 2005 to 20% in 2010

• Economic activity increasingly from commerce, construction, transport/communication and services

• Centred on Apia

• Import needs for these sectors funded from aid, tourism, remittances since goods exporting sectors in decline

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 2

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 3

TsunamiGFC

Employment• Long slow expansion from 1998-2007

• Added 4000 formal sector jobs

• 0.5% p.a. growth rate matches recent population growth rate

• NB: Scale of rich country labour market access does not need to be very large to rival in situ job creation

• Employment decline started 1 year before the GFC• 2000 jobs lost since Sept 2007

• Some due to cuts at EDS/Yazaki but mostly to decline in construction activity

• Future construction-led employment growth may be harder with rising importance of donors (China) who provide the workforce for buildings that they grant

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 4

Formal Employment

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 5

17000

18000

19000

20000

21000

22000

23000Ju

n-98

Dec

-98

Jun-

99D

ec-9

9Ju

n-00

Dec

-00

Jun-

01D

ec-0

1Ju

n-02

Dec

-02

Jun-

03D

ec-0

3Ju

n-04

Dec

-04

Jun-

05D

ec-0

5Ju

n-06

Dec

-06

Jun-

07D

ec-0

7Ju

n-08

Dec

-08

Jun-

09D

ec-0

9

Prices and exchange rates• Inflation target of 3-4% annual CPI increase exceeded for most of period 2005-2009

• Commodity price inflation in early 2008, choked off by GFC

• Rapid growth in credit to private sector (peaked at 30% y-o-y in late 2006)

• Deflation for some of 2010 but expansionary conditions from balance of payments deficits with tsunami recovery and return of food price inflation will be challenging for monetary policy

• Nominal exchange rate stayed in tight 2.6 – 2.9 tala per US$ band

• Real exchange rate appreciation

• May affect competitiveness of tourism and goods exports8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 6

Prices and Exchange Rates

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 7

1.0

1.4

1.8

2.2

2.6

3.0

0

3

6

9

12

15

2005/06 2006/07 2007/08 2008/09 2009/10

Exch

ange

Rat

e (S

T$ p

er U

S$),

perio

d av

erag

e

Infla

tion

Rat

e (p

er c

ent c

hang

e)

Inflation Rate (Left hand axis) Exchange Rate (Right hand axis)

External sector• Persistently high trade deficits

• Merchandise exports equivalent to just 3% of GDP

• Merchandise imports equivalent to approx 50% of GDP

• Reliance on services exports (tourism) and private transfers (remittances)

• Current account deficit peak of 10% of GDP in 2006/07• Partly due to the brief economic bubble from the SP Games

• Forecast BoP deficits of up to 20% of GDP for 2009-11 in IMF consultations

• partly due to tsunami-recovery related imports and forecast lower tourism

• Tourist arrivals have grown 6% p.a. for last 7 years but spending per visit fell by almost 10% in 2010

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 8

Balance of payments (2004/05-2008/09 ST mil)

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 9

2004/05 2005/06 2006/07 2007/08 2008/09

Exports (fob) 35 30 31 32 28

Imports (cif) 465 550 617 593 626

Trade balance -430 -520 -585 -561 -598

Net services 110 169 201 127 227

Net transfers 260 288 256 293 314

Current account balance

-60 -62 -128 -140 -58

Capital account (net)

149 70 125 55 95

Overall balance 89 7 -3 -86 38

Remittances

• Contribute ca. ST 350 million to balance of payments• grown strongly from New Zealand and Australia

• Doubling of (nominal) values every 6-7 years

• Some due to the RSE (approx ST 10 million per year)

• No trend growth in remittances from USA or American Samoa

• Provide an important insurance safety net• Post-tsunami, the December quarter 2009 remittances were

about ST 25 million more than usual quarterly in-flow

• If targeted just to affected population would have replaced one-third of per capita income in the tsunami-affected region

• Whilst not full insurance, this informal safety net from overseas Samoans responds quickly to disasters and is an important strength of the Samoan economy and society

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Remittance trends and shock responses

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0

5

10

15

20

25

30

35

40

45

50M

ar-0

5

Jun-

05

Sep-

05

Dec

-05

Mar

-06

Jun-

06

Sep-

06

Dec

-06

Mar

-07

Jun-

07

Sep-

07

Dec

-07

Mar

-08

Jun-

08

Sep-

08

Dec

-08

Mar

-09

Jun-

09

Sep-

09

Dec

-09

Mar

-10

Jun-

10

Tala

(Mill

ion)

NZ (g=2.9%)**

Australia (g=2.6%)*

USA (g=0.2%) ns

AmSamoa (g=0.2%) ns

Tsunami

Government Finances

• Fiscal settings have been expansionary since 2007

• IMF forecast a deficit of 10% of GDP for 2009-11• half of this is tsunami-related

• Major contributor is development expenditures, which were already on an increasing track since SP Games in 2007

• Revenues have a relative stable tax base (equivalent to ca. 22% of GDP)

• External grants vary from 5-15% of GDP over the 2005-2011 period as donors help Samoa respond to various shocks

• donors also provide shocks to the physical capital stock, with donor-constructed (incl. labour) government buildings in Apia

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 12

Poverty and inequality• Poverty estimates available for 2002 and 2008

• Based on HIES data

• basic needs diet assumed to cost the same in all parts of Samoa

• Ideally food prices should be collected regionally

• Non-food allowance for each region based on non-food spending of the poorest 30 percent in each region

• Tends to blur regional differences

• 27% of the Samoan population was below this poverty line in 2008

• Similar procedure and data gave headcount poverty rate of 23% in 2003

• Regional gaps in living standards beginning to appear, as Savaii and Rest of Upolu fall behind Apia and NWU

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Regions of Samoa

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Northwest Upolu

Rest of Upolu

Poverty change (headcount poverty rate in 2002 v 2008)

-4

-2

0

2

4

6

8

10

12

14

Apia Urban Northwest Upolu Rest of Upolu Savaii

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Regional Welfare Differences (HIES 2008)

0

5

10

15

20

25

30

35

40

45

Apia Urban Northwest Upolu Rest of Upolu Savaii

Food Shares (% of total household budget)

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 16

Regional Income Differences (SLMS estimates)

0

5

10

15

20

25

30

Apia Urban Northwest Upolu Rest of Upolu SavaiiAnnu

al H

ouse

hold

Inco

me

(‘000

s Ta

la)

Earnings Total Income (incl. own-production)

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 17

Population change due to internal migration (2006 Census location vs birth place)

-10000

-5000

0

5000

10000

Apia Urban Northwest Upolu Rest of Upolu Savaii

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 18

Impact of the Tsunami• Sept 29, 2009 tsunami killed 143 and injured more than 300 others

• 850 households directly affected with about 500 dwellings completely destroyed

• Damage to 50 beach fale tourism operators and several resorts

• Physical damage to roads, wharves, water supply, power and telecoms of ca. US$60 million (10% of GDP)

• GoS report on the Tsunami gives detailed inventory of the aid received

• An accounting rather than an economic evaluation

• An economic evaluation could help provide lessons for future disaster response in the Pacific

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Key Questions for economically-focused monitoring and evaluation effort

• How much of pledged aid was delivered?

• Of the delivered aid, how timely was the delivery?

• Of the delivered aid, how much reached the affected region and how much stayed in Apia?

• Of aid which reached the affected region, how much reached the neediest households?

• How large are the displacement effects of the aid, at macro and micro levels, in terms of crowding-out private coping responses?

• How large are the incentive effects of the aid in blunting investment responses to disaster risk?

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 20

Evaluation of Tsunami recovery effects

• On-going evaluation of the Boxing Day tsunami shows the feasibility of answering Key Questions for M&E

• Much of the on-going support in money, goods and housing comes from existing social networks

• If M&E focus is just on formal recovery operations and ignores informal support it may fail to identify the truly vulnerable

• If any future attempt was made to evaluate the Tsunami impacts and recovery, a key requirement is baseline data

• Fortunately, HIES and the Samoa Labor Mobility Survey (SLMS) were both fielded approximately 10 months pre-Tsunami

• Overlaid SLMS locations with a GIS buffer around centers of tsunami-affected villages to compare pre-tsunami incomes

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Tsunami-affected villages (SLMS)

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Income comparisons (pre-Tsunami)

0

5000

10000

15000

20000

25000

Tsunami-affected Other villages

Annu

al H

ouse

hold

Inco

me

(Tal

a)

Other

Remittances

Earnings

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Any evaluation should recognise that the Tsunami-affected areas were already considerably poorer than the rest of Samoa and were losing population

Conclusions

• decade of steady growth to 2007 gave Samoa a good base to withstand multiple shocks

• Responses for a ‘traditional’ economy of winding back the fiscal stimulus, lowering domestic income and exporting out of difficulty not very applicable

• Goods exports only five percent of GDP

• Fiscal conditions depend on shocks and on donor responses

• Instead, main supports are aid, remittances and tourism

• While all three appear to have held firm questions remain about their future reliability

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 24

Concluding questions (1)

•Can Samoa continue to benefit from donor engagement and competition, especially when models of aid delivery by some newly important donors result in positive shocks to stocks of public capital, such as government buildings, but have minimal impact on employment and economic activity?

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 25

Concluding questions (2)

•Will tourists continue to visit a destination that is vulnerable to natural disasters and which is becoming more expensive due to the real exchange rate appreciation created by a stable nominal currency and higher inflation than in several competitor countries?

8 February 2011© THE UNIVERSITY OF WAIKATO • TE WHARE WANANGA O WAIKATO 26

Concluding questions (3)

•For how long will the Samoan Diaspora continue to remit?

• Can technological and regulatory developments introduce less costly remittance services to maximise the development impact of the money sent to Samoa in case of future decay in the incidence or intensity of remitting by overseas Samoans?

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Acknowledgements• Assistance

• Samoa Bureau of Statistics• Central Bank of Samoa• Ministry of Finance• Geua Boe-Gibson, Steven Stillman and David McKenzie

• Funders• Crawford School• Marsden Fund (Royal Society of New Zealand)• Department of Labour (New Zealand)

• For more information visit:

www.pacificmigration.ac.nz

PEB RIP