Vanuatu

Economic performance in recent years

1. Investment attractiveness

Vanuatu has a unique ethnic culture and beautiful natural environment, and the government is committed to promoting economic development and improving people's livelihoods. In recent years, the Vanuatu government has placed particular emphasis on encouraging the development of private enterprises, increasing employment, exporting to earn foreign exchange, and increasing government fiscal revenue, welcoming foreign investment. Most private enterprises have foreign investment components, including finance and insurance, retail and wholesale, travel agencies, hotels and restaurants, car dealerships, gas stations, construction, communication, water supply, power supply, transportation, farms, fisheries, etc.

In recent years, foreign direct investment in Vanuatu has shown a stable growth trend. In the macroeconomic environment of Vanuatu, more and more foreign investors are coming to invest in tourism, wholesale and retail industries, agriculture, forestry and fishery, as well as construction materials industries with development potential.

On October 24, 2019, the World Bank officially released the 17th edition of the 2020 Global Business Environment Report. This study has prompted governments around the world to undertake business reforms to promote sustainable economic growth. The report measures regulations in 12 commercial regulatory areas across 190 economies, covering issues such as starting a business, engineering permits, power supply, real estate registration, obtaining credit, protecting small and medium-sized investors, taxation, cross-border transactions, contract fulfillment, and resolving bankruptcy. Among them, Vanuatu ranks 107th in the world in terms of business environment convenience and 15th in East Asia and the Pacific region.

2 Macroeconomics

Vanuatu is economically backward and is listed as one of the least developed countries by the United Nations. Vanuatu has a weak industrial foundation, with basic industrial products relying on imports. Agriculture and tourism are the economic pillars of Vanuatu. Since 2008, Vanuatu has been reforming monopolistic industries, introducing competition mechanisms, and adopting a series of measures such as levying value-added tax and reducing import tax to encourage economic development. In recent years, Vanuatu's economy has shown a steady growth trend overall, but in 2015, the economic growth rate slightly decreased due to the impact of hurricanes. The service and construction industries, mainly based on tourism, remain the main driving forces for Vanuatu's economy. In 2020, affected by the COVID-19 and Hurricane Harold, Vanuatu's economic development and other activities will be severely frustrated, the tourism industry will be bleak, foreign trade will shrink, financial pressure will increase, and debt risk will rise. The recovery and development period in the "post epidemic" era will be difficult.

Economic growth
In 2015, due to the impact of Hurricane Pam, Vanuatu's gross domestic product (GDP) was 685 million US dollars, a decrease of 1% year-on-year. In 2016, Vanuatu's GDP was approximately 711 million US dollars, a year-on-year increase of 3.8%. In 2017, Vanuatu's GDP was approximately 883 million US dollars, a year-on-year increase of about 4.4%. In 2018, Vanuatu's GDP was approximately 914.3 million US dollars. The GDP growth rate is expected to be 3.3% in 2019 and 3.8% in 2020, but under the impact of COVID-19 and Hurricane Harold, the GDP will show negative growth.

Fiscal revenue and expenditure
According to reports released by the Vanuatu Ministry of Finance and the Vanuatu Bureau of Statistics, the Vanuatu government has continuously achieved fiscal surplus since 2013. Among them, a surplus of 563 million watts was achieved in 2013, 1.415 billion watts in 2014, 6.768 billion watts in 2015, 2.267 billion watts in 2016, 4.07 billion watts in 2017, 12.958 billion watts (including aid) in 2018, and 10.451 billion watts (including aid) in 2019. In recent years, the increase in fiscal revenue in Vanuatu has mainly been attributed to the Honorary Citizen Program and the increase in value-added tax rates.

Unemployment rate
According to the latest data from the World Bank, the total unemployment rate in Vanuatu in 2019 was approximately 4.38%.

Debt situation
Since Hurricane Pam in 2015, Vanuatu's public debt balance has sharply increased, rising from 18.185 billion watts at the end of 2014 to 45.836 billion watts in 2018. The proportion of total debt (domestic debt, external debt, and government guarantees) to nominal GDP has increased from 23.1% in 2014 to 43.5% at the end of 2018. As of the end of December 2018, the total debt balance was 45.836 billion watts, accounting for 43.5% of GDP. Domestic debt was 7.307 billion watts, accounting for 6.9% of GDP, and external debt was 38.529 billion watts, accounting for 36.5% of GDP, accounting for 84.1% of total debt. 44.3% of the external debt balance was in Chinese yuan, 27.0% in Japanese yen, 25.6% in US dollars, and 1.9% in US dollars. According to assessments by the World Bank and the International Monetary Fund, Vanuatu's external and total debt risks are moderate, with a moderate debt tolerance, but limited fiscal flexibility.

Foreign exchange reserves
According to the Vanuatu Bureau of Statistics, as of the end of 2018, Vanuatu's foreign exchange and gold reserves amounted to 418 million US dollars (47050.8 billion watts, 1 US dollar ≈ 112.3 watts).

Inflation
From 2013 to 2020, the inflation rates in Vanuatu were 1.5%, 1%, 2.5%, 0.9%, 2.6%, 2.3%, 1.9%, and 1.8%.

Sovereign Rating
The three major rating agencies, Standard&Poor's, Fitch International, and Moody's, have not rated Vanuatu's sovereign debt.

3 Key/characteristic industries

Agriculture
Vanuatu is a traditional agricultural country, with a rural population accounting for 80% of the country's population. The total land area is about 1.2 million hectares, of which 40% is arable land, with an average of 10 hectares per household. More than 90% of the land is hereditary, while the remaining 10% is government owned or leased land. About one-third of the inherited land is currently used for cultivation. The climate and soil conditions are suitable for agriculture and grass development and cultivation. Vanuatu's livestock industry also has certain advantages, and beef has been exported to countries such as Papua New Guinea, Solomon Islands, Australia, and Japan. 41% of Vanuatu's territory is arable land, with only 18% of developed arable land. The main agricultural products are dried coconuts, kava, cocoa, coffee, taro, cassava, sweet potatoes, tropical fruits, etc. Vanuatu's agricultural production methods are backward and basically adopt primitive farming methods. The main exported agricultural products are dried coconuts, kava, beef, wood, etc.

Vanuatu's agriculture is divided into three parts: labor-intensive livelihood based, semi commercial, and commercial agriculture. Livelihood oriented agriculture mainly focuses on the cultivation of rhizome crops (taro, yam, cassava, and sweet potato). Semi commercial agricultural activities are mainly concentrated near urban centers, including planting leafy vegetables, cabbage, tomatoes, chili peppers, eggplants, as well as spices and herbs. Commercial agriculture is based on the cultivation of limited traditional economic crops, including cocoa, kava, coffee, and coconut, as well as some new varieties of economic crops such as pepper and vanilla.
By value, coconuts, cocoa, kava, and beef account for over 60% of Vanuatu's total exports, while agriculture accounts for 20% of GDP.

Industry
Due to the high prices and production costs in Vanuatu, industrial products lack export competitiveness. Foreign invested industrial products are mainly used for import substitution and sold domestically in Vanuatu. Vanuatu only has small factories for food, wood processing, slaughtering, cocoa and coffee processing, coconut shell fiber production, coconut oil, soap, food, and kava processing.

Fisheries

Vanuatu's exclusive economic zone covers an area of 680000 square kilometers and is rich in tuna and other fish. Currently, more than 100 foreign fishing vessels are cooperating with Vanuatu to fish in the exclusive economic zone of Vanuatu. According to relevant regulations in Vanuatu, foreign fishing vessels can engage in fishing operations in the sea area between 12 and 200 nautical miles with the consent of the Vanuatu side. Only Vanuatu citizens and domestically registered companies are allowed to fish within 12 nautical miles, and fishing within 6 nautical miles is under the jurisdiction of the local provincial government. The scale of commercial fishing for domestic citizens is small, and the government's investment in fishing is very limited. Vanuatu's fishing industry mainly includes aquatic product processing, shell processing, aquaculture, tuna fishing, etc., but the scale is very small.

Tourism industry
The tourism industry is an important pillar industry and source of foreign exchange for Vanuatu. In 2017, the contribution rate to the GDP of tile was 46.1%, and the contribution rate to employment was 39.3%. The industry mainly provides services such as hotels, entertainment services, inter island cruise ships, and ecotourism. Vanuatu hotels have over 2000 beds and an average annual room utilization rate of over 57%. In 2018, there were approximately 359000 passengers traveling to Vanuatu, including 115000 air passengers and 244000 cruise passengers. The main tourist destinations are Australia, New Caledonia, and New Zealand. The direct contribution of the tourism industry to GDP is approximately 16.987 billion watts, accounting for 18.9%. The main tourist attractions include Tana, Santo, Malekula, and Pentecost Island. In recent years, the number of Chinese tourists to Warsaw has been growing rapidly.

finance
The government of Vanuatu has maintained its status as a tax haven and international financial center before independence, providing extensive offshore banking services to approximately 2000 registered institutions, supporting investment, legal, accounting, insurance, and trust company services.

Key Enterprises

Mainly including:
(1) UNELCO: Established in 1939 with a capital of 350 million watts and an annual revenue of 1 billion watts. Engage in urban power and water supply business. The company is jointly operated by French company ELYO and the government of Vanuatu, with 85.61% and 14.39% shares respectively.
(2) Telecom Vanuatu Ltd., formerly known as Vanitel National Telecommunications, was founded in the late 1970s and changed its name to its current name in December 1992. The capital is 757 million watts and the annual turnover is 1 billion watts. In 2017, TVL was acquired by Vodafone Telecom in Fiji. In 2020, it was renamed Vodafone Vanuatu. ZTE provides technical support for TVL.
(3) DIGICEL Company: In 2006, it expanded into the South Pacific market and became the fastest-growing mobile phone network supplier in the Pacific region. We currently have operations in countries such as Vanuatu, Fiji, Tonga, and Samoa. Huawei provides technical support for it.
(4) AuBon Marche: Established in September 1974, it operates businesses such as supermarkets, hardware stores, gas stations, and wholesale stores.
(5) Air Vanuatu: Established in 1981 and wholly owned by the Vanuatu government, it mainly operates 6 international flights with neighboring countries and 28 inter island routes within Vanuatu. Its main aircraft types include 737-800 and ATR72-500.

4 Development Plan
Vanuatu's medium - and long-term development strategy is committed to reforming its financial sector, developing the private sector economy, promoting employment, continuously improving the business environment, maintaining macroeconomic stability, strengthening regulation and carrying out public sector reforms, providing better services to society (especially rural areas), making 80% of the rural population independent and self-sufficient, and carrying out infrastructure, auxiliary services, education, and human resource construction. To implement the United Nations Sustainable Development Goals, the Vanuatu government has formulated the National Sustainable Development Plan 2016-2030.