Economic Climate

The Vanuatu economy is not strong.  Unemployment is extremely high though not accurately measured.  The currency is held at artificially high levels by the Vanuatu Federal Reserve Bank to keep prices low as the country imports nearly everything.  Maintaining a strong currency seems like a reasonable strategy on the surface but it makes exports uneconomic.

The balance of trade is terrible with tourism being the only significant method of bringing in foreign currency.  The government should be making efforts to improve tourism.  Unfortunately this is not the case.  The government has been cutting back on funding for tourism marketing and the government owned airlines provide poor service at a high cost.  Tourism has been in decline in Vanuatu while other South Pacific destinations have been on the rise.

The primary export product s of Vanuatu are copra (dried coconuts) and beef.  Vanuatu beef is world renowned for its quality.  Vanuatu has no bovine disease that is dangerous to humans and little that affects the weight gain of the cattle so little or no chemicals or growth stimulators are used in beef production.  Virtually all beef produced in Vanuatu is pasture fed and organic.  Producers should be getting a premium price for their product but instead they receive a price that is little more than half the price paid for ordinary cattle in Australia.

A primary reason for this is that the 2 abattoirs in the North and South of Vanuatu have legislated monopolies and so they only compete with each other.  The abattoir in the North is owned by a Japanese company that exports the premium beef to Japan.  A recent foreign investor took over a large failed cattle plantation that was about to cost the government millions in defaulted loan guarantees.   This investor bailed out the government on the understanding that he would be able to live export cattle to Indonesia.  The license to export was taken away shortly after the investor had the operation up and running and the monopolies of the abattoirs were restored.  After 2 years of struggle the license was reinstated but may again be revoked at any time.

Vanuatu also has legislated monopolies on power generation and telecommunications.  Electricity costs are among the highest in the world.  Large consumers of electricity in the Northern town of Luganville generate their own power and realize substantial savings.  Telecommunications is not as big a problem.  The telco offers surprisingly good service given their sparse customer base and large geographic area and they have reasonable prices on all but international long distance.  Here the rates are again among the highest in the world.