From Matangi Tonga Magazine Vol. 13, no. 4, December 1998.

By Pesi Fonua

Tonga's economic downturn will not be turned around until the island country finds a way to get seriously into exports as a way of life. Incentives to attract investors and motivation to make people work remain elusive goals, while waiting for a plan of action.

The Tonga government has yet to announce a new recovery package for Tonga’s declining and largely under-developed economy.

In recent years the government decided to embrace privatisation in preparation for joining the World Trade Organisation, and to stake a claim in the so-called global economy.

This economic reform depended on government privatising some of its commercial activities, and to create an environment conducive for business development, in order for the private sector to become the so-called engine for economic development.

As government was restructuring the civil service and privatising its commercial activities, the private sector was scooping up business opportunities, and in a number of areas government-owned companies.

But both parties are conducting a balancing act. Government is trying to boost the development of the private sector in order to absorb public servants when they are eventually laid off. At the same time local businesses are struggling to make ends meet in an atmosphere of uncertainty on whether government is really serious about privatising the economy.

The time is ripe for a recovery package. The crunch of the matter is that Tonga, amidst the reform and the restructuring of the economy, has to narrow its visible trade deficit, which has been around $75 million a year.

In the past this trade deficit has been balanced with invisible foreign currency earnings of about $60 million a year from remittances sent by Tongans who are working overseas. Added to this is $16 million a year from Tourism; and over a number of years $40 million from the Passport Scheme; $10 million from TongaSat for the leasing of orbital slots, and the returns from government investment overseas, foreign investment in Tonga, and foreign aid grants from friendly countries.

Falling currency

With the current financial crisis in Thailand, Indonesia, Malaysia, South Korea and Japan, Tonga’s foreign currency earnings are continuing to fall, depleting its foreign reserve and forcing the value of the Tongan pa’anga down against the currencies its major trading partners.

The Asian Crisis has a negative impact on the economies of the world, and Tonga’s two main trading partners, New Zealand and Australia. Unemployment is up in both New Zealand and Australia, and there is a fear that it could affect the flow of remittances and aid from these countries to Tonga. No one can predict how much and how soon the funds from these essential sources will dry up.

In addition to the possible losses of remittances and aid, the Tonga government decided to terminate its lucrative Passport Scheme in December (see Putting an end to immigration migraine) [2]. That leaves Tonga with only TongaSat, tourism and the returns from government investments overseas as its remaining sources of invisible foreign currency earnings.

The fabled tourism industry with all its potential for development has been stagnant during the past four years. Now there is a possibility that the four big tourist facilities in Tongatapu, the International Dateline Hotel, the Pacific Royale Hotel, the Friendly Islander Motel and the Royal Sunset Island Resort will be closing down after losing a long struggle with low-occupancy rates. (See Tourism disaster). [3]

If Tongans were complacent about exports in the past, because we have been relying on foreign invisible earnings to balance our visible trade deficit, then it is time to get seriously into exports as a way of life. Exports can build up local industries, offer employment to our people and bring in foreign currency earnings, and strengthen Tonga’s economy and the value of the Pa’anga.

Agriculture, traditionally has been Tonga’s main source of exports. Despite the hard times of the past few years—due to the collapse of both the copra and the banana industries, a drop in the price of vanilla and the instability of the squash industry—agriculture is still Tonga’s main source of exports.
Manufacturers are fighting almost insurmountable barriers of scale in the new unprotected trading environment. (See Local manufacturers fight imports). [4]

Haniteli Fa‘anunu, the director of the Ministry of Agriculture believes that the backbone of the Tongan economy has to be agriculture, and a plan to boost production and export is currently being implemented.

Diversification has been the buzzword in the Ministry during the past few years, “and today there are a number of commercial crops which are available to the growers. Instead of having just one miracle crop such as vanilla or squash, we now have a number of miracle crops, such as pawpaw, watermelon, vegetables, potatoes, coffee and, of course, kava.” Haniteli expected that crops such as vanilla, banana and copra would bounce back soon, and that two new types of coconut would be distributed for planting early next year.

Government is now set to lease about 2000 acres of prime land in Hawaii, which will be farmed by Tongans to supply not only Hawaii but also the mainland United States. Haniteli said that they are looking at about 40 different crops.

Part of this export-driven agricultural plan could result in the establishment of a Tongan Market in the South of Auckland to cater for the needs of the Tongans and Pacific Island communities there. There is also a plan for another market in Pago Pago, American Samoa, to be the centre for the marketing of Talo Tonga to the Samoas.

The realisation of the export potential of Tongan produce pushed Government to sign bilateral trade agreements with its neighbouring countries of Fiji in 1996, and Niue early this year, and Tonga is currently negotiating a Trade Agreement with Samoa.

Haniteli said that Tonga’s export capability was further enhanced with the opening of the new hot-air treatment plant at the Fua‘amotu Airport, and the opening up of Tongan watermelon and a variety of vegetable exports to New Zealand and Fiji.

“Quarantine restrictions have always been a major constraint, but with the hot-air treatment plant it has made it possible for Tonga to export more agricultural produce overseas. I am now looking at a second plant at the airport and a facility with electrical points for refrigerated containers.” Haniteli said that he is also looking for a hot-air treatment plant for Vava‘u, and a smaller one for the Niuas.

To make this Export Driven Agricultural Plan work Haniteli said that he had restructured the Extension Service of his Ministry and reduced the number of stations from seven to three. The Extension Service and the Research Division is now one unit. “The change will improve the service that we provide to the growers, so that instead of having lesser-qualified staff dealing with the needs of growers we now have qualified staff,” he said.

“The other new division is our Core Specialists. These are scientists headed by ‘Aleki Sisifa and they are specialists in various areas of production. So if there are any problems of the growers that the Extension Service can’t deal with they are passed on to our Core Specialists.” Fostering a rapid expansion of kava growing is one of the current challenges. (See Hot demand for Kava). [5]

If Kava is to be the miracle crop for Tonga’s agricultural industry then the seaweed Limu Tanga‘u, known as Mozuku to the Japanese, and Angel’s Hair to San Franciscans, is the new miracle crop for the Fisheries Industry.

‘Akau‘ola, the Secretary for the Ministry of Fisheries, said that the Limu Tanga‘u project, took off with a burst last year after they approached the FAO to look at the possibility of exporting the seaweed. Through the FAO five Japanese from the Horiuchi Company of Japan arrived, and began buying and cleaning Limu Tanga‘u for a trial shipment. At the end of the 1997 Limu

Tanga‘u season, more than 400 tons were exported. Horiuchi is still buying at 25 seniti per kilo of wet Limu Tanga‘u, and this year they are hoping to be able to export about 2,000 tons. The trial shipments of Horiuchi will end this year, “then they will decide whether to continue operation here.”

‘Akau‘ola believed that Limu Tanga‘u was already on its way to become a big exporting industry, and the local fishing company Sea Star was also buying Limu Tanga‘u at 35 seniti per kilo for export to Japan, and they had extended their operation to Ha‘apai.

 ‘Akau‘ola was taking a very cautious approach to the development of the Limu Tanga‘u industry, because he believed that it could become as big as the squash industry, “but we do not want to get into the same problem that the squash industry has been through.

“We are also monitoring carefully the size of our Limu Tanga‘u, which is a seasonal crop from September to December.” ‘Akau‘ola said that their findings could mean that they have to establish a quota and restrict the number of exporters to two or three companies.

Besides Limu Tanga‘u ‘Akau‘ola predicted that the export of fisheries products from Tonga could easily jump from $4 million a year now to $50 million a year by the year 2000. “We have about 14 months to go, but there are already 10 new fishing boats, besides the two new fishing boats of the Sea Star that will be catching fresh fish for export by next year.

“Our aim is to have 20 fishing boats by the year 2000, but to make it happen government has to offer some incentives,” he said.

“We are not asking for very much, just to remove the 63 per cent duty on fuel used by fishing boats, and some capital funds so that fishermen can buy new fishing boats. There are some good fishermen out there but unfortunately they started off with the wrong boats and now they have to buy new boats.”

‘Akau‘ola said that following the recent review of the Tongan Fisheries Industry he was looking at opening up Tonga’s policy of fishing, to allow foreign fishing boats to fish in Tongan waters.

“We are the only country in the whole South Pacific that does not sell licences for foreign fishing boats to fish in our waters, so we are looking at the legal right of Tongans to be a major share holder in a fishing company. There are many ways to look at it, it is not just the question of 51 per cent for local ownership. What we can do is to equate the right to fish in Tonga to 51 per cent of the assets of that company, so a company will come with their ships, and if things do not work out then they just sail away.” ‘Akau‘ola is not too keen with the idea of selling fishing rights to foreign fishing boats, “it is the fastest way to earn some money but why settle for only $5,000 per licence, when we can develop an industry and earn millions?”

‘Akau‘ola said that there are other areas in fisheries that are attracting interest, “such as pearl farming, and now there is a Pearl Farmers Association in Vava‘u, and we are supporting them.”

Tonga Trade

A new initiative by government to boost exports and increase its foreign currency earnings, saw the establishment of Tonga Trade early last year.

Haniteli Fa‘anunu said that the establishment of Tonga Trade was part of a loan package that the government of Tonga raised with the Asian Development Bank. The loan of $6 million pa‘anga was for an Agricultural Development project for ‘Eua, Niuatoputapu and Niuafo’ou. (See page 13).

Initially, what he had in mind was for Tonga Trade to come under the Ministry of Agriculture, and to run in a similar fashion to that of Fiji Trade, and to focus its activities in the marketing of agricultural produce. “But instead it became a division of the Ministry of Labour, Commerce and Industries with a very broad responsibility, but with very few staff, and I think they are only scrapping the surface,” he said. “But there is a need to make a definite strong move to develop export trade, and so we have our own marketing unit.

“We have got the capability from production in the field to the market place. It is important for us to work very closely with the growers and the exporters because in the end, for their products to be exported overseas, there is a need for quarantine and quality control, and we are responsible for that.”

Garth Atkinson of Tonga Trade said that their prime role is to market Tongan products, “a very wide mandate, but we have narrowed it down to a number of products that we need to focus on, fish, kava, vanilla, handicrafts and vegetables, but we will look at other things that come along.

“Our role is simply to establish how big the market is, and what the supply requirements are. We supply that information to the Ministry of Agriculture, who passes it on to the growers.”

Garth said that during the two years that Tonga Trade has been in operation, they had been more successful in identifying problems.

“We have never have a problem finding a market for a product, but we have a lot of problems getting the production organised. The biggest problem that we face in Tonga is the reluctance of people in agriculture to reinvest in their farms. Someone decides to grow squash, vanilla or kava, often he borrows from the bank, repays the loan and then he spends the profit.

“The country will not move ahead if that is all it was doing. That is one of the problems, lack of investment in the farms.”

The other problem that Garth has identified is with production. “We staged the Fiji bilateral trade Fair last year, and found that there was a market in Fiji, and we came back with potential order of about $1 million pa‘anga. We have not been able to fulfil those orders, and the reason is because production base in Tonga is simply not organised.”

Garth said that Tonga had lived a luxury life style for a long time, but it would have to go. “A grower will export one container of kava and then rest for a while then make another shipment. Tonga can’t be an export nation if that is how it is going to operate. We can’t do both, become an export country and to live a relaxing life style. With exports we have a contract to fill, and the reputation of the country is at stake.

“There is only one way to export, and that is the way the market requires it,” he said. “The danger we have in Tonga at the moment, and I will be a bit blunt here, is that some of the donor countries want Tonga to become a private sector oriented country. Now, it has not actually worked as well in New Zealand, for example, but they all say look at New Zealand as a good example. But New Zealand has some of the highest telephone charges and air fares in the world, and a health care system that is breaking down rapidly, and 250,000 people unemployed, it is not a model at all. New Zealand is bankrupting itself by trying to be a market led economy.

“In a small country like Tonga there is a definite role for government to ensure that certain standards are met and people are looked after.”

Garth said that by early next year Tonga Trade would become a private company, “it will be a government company, but it will function as a private sector company, and we may develop and become a marketing agent. If an industry is struggling then we may assist in marketing at a fee.” Garth said that Tonga Trade may even get into the exporting business, “but we do not want to end up competing with the private sector.”

Because of the difficulties faced by Tonga’s many small exporters, there is a feeling of nostalgia by some that the old Commodities Board structure should be reintroduced.

Lisiate ‘Akolo, a former Managing Director of the Commodities Board and the man who dismantled the Board, is strongly opposed to any proposal to establish a marketing entity similar to the former Commodities Board.

“The Board is dead and should not be revived,” said Lisiate. “The trouble with getting government involved in business is because their priority is to keep the growers happy, and whenever they have a financial problem, government would step in to subsidise their loss. The only role government should play, is to make it easier for exporters to export.”

Lisiate said that growers should be made to understand how difficult it is for the exporters to raise funds, and to make deals with the overseas buyers, “after all that, the return is marginal. Once an exporter makes a commitment to a Japanese importer, he has to keep his part of the agreement at all cost, and it may mean that he will not make any profit at all,” he said.