Solomon Islands Sources of Growth Roundtable Meetings: Background Materials

Transcription

1 Solomon Islands Sources of Growth Roundtable Meetings: Background Materials March 2009 Prepared for March 5 & 6, 2009 Roundtable - Honiara 1

2 Solomon Islands Sources of Growth OVERVIEW March 2009 This document includes materials that were presented at the Sources of Growth Roundtable held in Honiara in March These materials present a snap-shot from a wider process of analytic work being undertaken by the World Bank and International Finance Corporation. Given the likelihood that the Solomons natural log exports would decline sharply over the next five years as forests became exhausted, the Government asked the Bank and the IFC in mid-2008 to help it analyze the likely impact on the economy, the balance of payments and government revenues of this decline in logging. It also asked for assistance to identify alternative sources of economic growth, exports and revenues. The global economic crisis has brought forward some of these pressures. A team from the Bank and IFC, therefore, presented its initial findings to an informal Roundtable discussion in Honiara on 5 th and 6 th March. The Roundtable included the Government, the Central Bank, donors and representatives of the private sector. The team identified four major projects and two sector initiatives which might contribute over time to growth, exports and revenues. It discussed various scenarios with the Government. In particular, it developed a scenario where on favourable assumptions the major projects largely come on stream over the period to Given the sharply worsening short term situation, however, the team estimated that on unchanged policies and even assuming that donors maintain their existing substantial aid flows in real terms, Solomon Islands would face an external financing gap over the period to The team s analysis of the scale of this financing gap, not included in this document, will be reviewed as part of the forthcoming IMF Article IV consultations, expected to occur during July The term economic prospects refers to sectors where potential economic growth could occur in the medium-term, that is, over the next five years. These growth prospects depend to some extent on what are sometimes locally referred to as Big Ticket Operations or BTOs - leading enterprises in each sector. It is very important to note that preliminary analysis shows that the economic impact of the decline in natural forestry logging cannot be filled by a single BTO or by a single sector. Economic growth will need to come from a range of initiatives across a range of sectors. The scope of research into the six sectors and associated BTOs was limited to the extent required to obtain a reasonable estimate of the economic impact (BoP, government revenue and employment) of sector growth and to identify key development constraints. The sector notes were not intended to be a comprehensive in-depth analysis of sectors, industries or businesses. They do not provide an exhaustive list of solutions to the economic impact of the decline in commercial natural forest logging but rather were intended to paint a clear picture of the current situation and the prospects for sector/business development within the near term. The focus on the three specific leading enterprises (Soltai, KFPL and GPPOL) does not imply that the path to longer term growth lies solely with the development of individual businesses as opposed to sector level development. The analysis also excludes the secondary economic effects of the leading enterprises, such as an improvement in the domestic economy due to increased employment/wages and the development of the micro to small business sector to serve both the leading enterprise and the increased domestic economy. The background materials are divided into three sections: the first section explains the origins of the Sources of Growth work; the second section looks at prospects for the following sectors: minerals, tuna fisheries, plantation forestry, tourism, plantation agriculture and palm oil; and the third section looks at the aggregate effects of the most favourable outcome of these six sectors combined in relation to the Balance of Payments, Government revenue and employment. Prepared for March 5 & 6, 2009 Roundtable - Honiara 2

3 Part One Introduction 4-6 The Origin of the Sources of Growth discussion series 4 5 Roundtable Participants 6 Part Two Sector Studies 7-47 Sector Study Overview 7 Mineral Sector Analysis 8-13 Tuna Fisheries Sector Analysis Plantation Forestry Sector Analysis Tourism Sector Analysis Plantation Agriculture Sector Analysis Palm Oil Sector Analysis Part Three Conclusions and Aggregate Effects of most Favourable Outcomes Aggregate Effect of Balance of Payments Aggregate Effect on Government Revenue 54 Aggregate Effect on Employment 55 The Current Outlook 56 Prepared for March 5 & 6, 2009 Roundtable - Honiara 3

4 Solomon Islands Sources of Growth BACKGROUND MATERIALS March 2009 The Origin of the Sources of Growth discussion series The Sources of Growth work stems from the Government s request that a World Bank economics team visit Solomon Islands in June The team s visit coincided with the circulation of the Government s Medium Term Fiscal Strategy The Bank s assessment was that the country was facing a risk of economic stagnation. Unless significant policy changes occurred, there could be a sharp fall in economic growth, foreign exchange earnings and budget revenues as native forest logging declined. The Bank suggested several steps to avoid a significant compression in public expenditures, a deterioration of services and reduced standards of living. These included efforts to control recurrent expenditures, improve revenue collection and execute the development budget better. The Government also felt that a concerted effort would be needed to bring potential new sources of economic growth and revenue on stream. Accordingly, during a subsequent visit in November 2008, the Bank agreed to begin research on two aspects of Sources of Growth: 1. Near and Medium Term Growth Prospects (looking at economic prospects to 2013). This work would examine commercial prospects in six sectors mining, tourism, palm oil, plantation agriculture, plantation forestry, and tuna fisheries. The aim of this work was to answer three questions: i) What are the constraints that investors face, and how might sector prospects be improved? ii) iii) What impact would growth in these sectors have on exports, government revenues and employment? Could these potential growth prospects compensate for the projected decline in commercial logging? 2. Long Term Growth Prospects, 2013 and beyond. This work would look at longer term growth prospects. Even if the immediate large projects and sector initiatives were realized in the medium term, in many cases their impacts would be concentrated geographically and contribute modestly to the economy, the balance of payments and government revenue. It was therefore agreed that the Bank would thoroughly review ways in which Solomon Islands might achieve lasting and widely distributed growth in incomes and welfare. This work is still underway, but will be discussed in further consultations in the Solomon Islands during These consultations would be also led by the Solomon Islands Government. The Bank s aim has been to contribute directly to the Government s own strategic efforts to manage the economic and fiscal challenges they face through the requested analytical work. Thus, the Bank s work does not occur as a separate set of analyses and products delivered independently but in coordination with many official stakeholders. Prepared for March 5 & 6, 2009 Roundtable - Honiara 4

5 The March 5-6 Roundtable Discussions The Bank/IFC team has concluded the first stream of work: Near and Medium Term Growth Prospects to The team s findings were presented to a Roundtable comprising a small group of Solomon Island officials and business people. The Roundtable was sponsored by the Central Bank of Solomon Islands and the event was moderated by the ex-governor of the Central Bank. Participants, listed below, included the Ministers responsible for finance, planning and rural development; senior officials from the Cabinet and Prime Minister s office; the Central Bank, and the private sector, including the Chamber of Commerce and board members from leading enterprises. Representatives of the IMF and Asian Development Bank also participated. Sources of Growth Roundtable - Near and Medium Term Growth Prospects Sessions: 1. Growth Prospects, Challenges & Constraints 2. Impact of Major Prospects on the economy, the balance of payments, government revenue and employment 3. Sector Prospects, and the Near and Medium Term Outlook 4. Actions to Over-come Constraints 5. Practical Actions: priorities for immediate follow-up Disclaimer The data included in this document is based on the most current available information to 5/3/09. The views expressed in this document do not reflect the individual policies or views of the Central Bank of Solomon Islands, the Government of Solomon Islands or the World Bank Group. Prepared for March 5 & 6, 2009 Roundtable - Honiara 5

6 Roundtable Participants Hon. Fred Fono MP, Deputy Prime Minister and Minister for Rural Development Hon. Steve Abana MP Minister for Planning Mr Shadrach Fanega Permanent Secretary, MoFT Mr Gane Simbe Deputy Governor, CBSI Mr Ashley Wickham Head of Policy & Planning, Prime Minister s Office Mr Mike Hemmer SI Chamber of Commerce and Industry Hon. Snyder Rini MP Minister for Finance Mr Denton Rarawa Governor, CBSI Ms Ruth Liloqula Permanent Secretary to Cabinet Mr Alan Daonga Under-secretary, MoP Mr Tony Hughes Board Chairman Mr Bruce Saunders BJS Agencies Ltd Mr Mathew Quan Chinese Business Association Moderator Mr Rick Houenipwela, Adviser, World Bank Executive Director In attendance Edith Bowles, Country Manager, World Bank Doug Porter, Sources of Growth Team Leader Geoff Walton, Senior Investment Officer, IFC, Evelyn Ng, Research Analyst, World Bank Tony Bottrill, Macro-economic Specialist, World Bank Ross Chapman, IFC Economist, Karen Melloul, Communications Specialist, World Bank Aleta Moriarty, Communications Officer, World Bank Michael Brown, IMF Adviser, CBSI Vinnie Wicklein, ADB Prepared for March 5 & 6, 2009 Roundtable - Honiara 6

7 Solomon Islands Sources of Growth SECTOR STUDY SUMMARIES March 2009 Sector Studies 1. MINERALS In this sector, gold, and in particular the rehabilitation of the Gold Ridge mine, is the most promising medium-term prospect. Gold Ridge could potentially offset a large share of the export losses from logging, but over a limited period. 2. TUNA FISHERIES 3. PLANTATION FORESTRY Despite constraints over revamping management and production at the Soltai plant, this sector continues to make a significant contribution to exports. Its value is around 25 percent of log exports, and ranks as the second major export. Plantation forestry, both large scale commercial and village scale, offers a long term, sustainable but partial, restoration of earnings and jobs from depleted forest resources. But even under favourable conditions these activities might replace less than 10 percent of recent annual export earnings from extractive logging by TOURISM Recreational tourism remains disappointingly low. Visitor spending and room occupancy are currently driven by personnel associated with donor assistance. Without resolution of the airline access problem to outer islands, resort tourism and related regional incomes may grow only slowly. 5. PLANTATION AGRICULTURE 6. PALM OIL PLANTATIONS Limited value adding capacity for copra along with the RIPEL dispute, and marketing and quality deficiencies for cocoa, are holding back growth. Output has the potential to increase substantially from the existing GPPOL plantation, out growing and the development of a new plantation on Malaita, providing land issues can be resolved and world oil prices recover somewhat from their recent decreases. Prepared for March 5 & 6, 2009 Roundtable - Honiara 7

8 1. MINERALS March 2009 In this sector, gold, and in particular the rehabilitation of the Gold Ridge mine, is the most promising medium-term prospect. Gold Ridge could potentially offset a large share of the export losses from logging, but over a limited period. 1. Sector Snapshot and Prospects Sector Overview MAIN ACTIVITIES SCALE LOCATION GOLD ALLUVIAL MINING 2000 oz/year Guadalcanal GOLD GOLD RIDGE When last last operating in in 2000: 110,000 oz/year Guadalcanal PROSPECTING prospecting licenses Nationwide 1. Historical background Mining activity has been dominated by Gold Ridge Survey information points to a variety of mineral resources capable of development in the long term gold, copper, nickel, molybdenum, and massive under-sea sulphide deposits. The main mineral extraction activity in recent years has been confined to gold, with small scale alluvial mining and a 2-year period of operation of the Gold Ridge lease on Guadalcanal under its former owners, Ross Mining. Over 200,000 ounces were extracted before the mine was partially destroyed and rendered inoperable during the civil unrest. Unconfirmed press reports suggest that Phoenix mining is discussing 1 million ounces of alluvial gold a year. Prepared for March 5 & 6, 2009 Roundtable - Honiara 8

9 More than US$100m will have been spent to start operating Current state of activities Gold Ridge has a potential for large scale mining for at least seven years. Mining could begin by 2011 if remaining finance and regulatory constraints are dealt with. As Nickel on Isabel is subject to a re-tender process, further prospecting may be delayed Government involvement The regulatory framework for the sector is rudimentary and ad hoc The Ross Mining lease and related exploration rights have been acquired and the pits partially refurbished by the Australian registered company ASG (listed on the Canadian stock exchange), of which 40% is owned by venture fund Resource Capital Fund. More than US$40m has already been spent on restoration work since 2005 and ASG is seeking to raise more than US$100m in further debt and equity funding. This requirement has already put back a possible starting date. The Gold Ridge lease and adjoining areas have over 1.5 million ounces of deposits. A mine life of seven to 10 years is likely at an annual average extraction rate of 124,000 oz. ASG has dealt with 17 local land owner groups impacted by the redevelopment and more than US$10m has been spent in relocating over 1200 occupants of the site. Eventually up to 2200 may be relocated. Currently 180 local people are employed in refurbishment and related activities. The company could resume mining within 14 months of raising the additional finance and settling outstanding taxation-related issues with government. Environmental requirements including SIG requirements and international Equator standards voluntary standards to manage social and environmental risks facing banks lending to such projects will be met according to an environmental impact study. Exploration for gold and other minerals is taking place under 55 current exploration licences (including 33 under-sea licences), according to the acting Director of Mines. Previous activity on Isabel undertaken by Sumitomo has revealed large lateritic nickel deposits. Failure to reach agreement with local landholders by Sumitomo Mining within the required period resulted in their exploration licence being revoked. A subsequent High Court decision has led to the licence being put to international tender. SIG does not have a developed minerals policy or a well-defined regulatory framework for mining or mineral exploration. This means that dealings between government and mining and exploration companies can be ad hoc and uncertain. SIG is dealing with ASG under terms of an Assignment Agreement which recognises the transfer of many of the previous legal provisions, including the Mining Agreement, Mining Lease and Prospecting Licence that applied to Ross Mining and related companies to ASG and its related companies. However, there are outstanding matters recognised in that Assignment. SIG and ASG have not settled on final taxation arrangements. Tax arrangements for Gold Ridge may translate into significant potential revenues. The original Mining Agreement which specifies the tax obligation for the Gold Ridge operation is not public. It reportedly provides for: Royalties and export taxes 3.0% SIG Local taxes 1.2% Prov. Govt Community payments 0.3% Loc. Com. Income taxes on employees Profit taxes at the corporate rate offset initially by provision to immediately write off capital now 30%, previously Prepared for March 5 & 6, 2009 Roundtable - Honiara 9 SIG SIG

10 expenditure (assessed to be equivalent to approximately 4 years profit tax holiday, depending on gold price levels) Exemption from most import duties on imported inputs but 15% goods tax still to apply. Unlike alluvial miners, the 5% export tax on gold would not apply 35%? SIG The final agreement on these tax arrangements will have a major impact on the revenue outcomes for SIG and other beneficiaries (approximately US$3 million per year government revenue, US$1.2 million per year for land owners). This includes royalties and export taxes but no indirect revenue gains from PAYE or goods tax. No company tax on profits will be due before The exploration sector has operated without consistent policy guidelines. The adequacy of recent changes to the Act remain to be tested Prospects Large scale gold extraction but modest job increases, confined to Guadalcanal. No other large scale mineral extraction activity before The experience with the Sumitomo lease may have contributed to a recent change in the Mines and Minerals Act with the intention, according to the to Bills and Legislation Committee of Parliament to allow investment in the mining sector by placing land areas identified for mining in the open market under a fair and transparent process. Government wishes to prevent the continued issuance of licences to companies that do not proceed to mine. There is increased pressure on prospecting companies to take up mining leases, but it is not retrospective. The Bills and Legislation Committee of Parliament has expressed concern that there has been insufficient due diligence in issuing prospecting applications and that the Director of the Mines and Minerals Board had insufficient powers for the independent assessment of applications for prospecting licences and reconnaissance permits. If the financing and regulatory issues are resolved, the Gold Ridge mine could, from 2010, be producing and exporting 135,000 ounces each year until 2013 and 124,000 ounces for four years annually beyond that. Small alluvial mining could also benefit from downstream effects of the pit mining. Local employment could rise from 180 to 400 if mining commences. ASG holds an adjoining lease which could extend extractable reserves beyond 2 million ounces. This would significantly extend either extraction rates or the mining life in the area. A side benefit would be some increase in alluvial mining. Other large scale mining before 2013 is unlikely, even with metal price recovery. The proposed US$1.9 billion nickel smelter proposed by Sumitomo under record nickel prices will not be built in this time frame (if at all), given the collapse of metal prices and the access/licensing dispute. Prepared for March 5 & 6, 2009 Roundtable - Honiara 10

11 2. Constraints Financing Financing is the binding constraint for Gold Ridge Issues with government ASG and SIG differences on fair tax arrangements could be an ongoing impediment. There is a risk that lack of financing for Gold Ridge will delay further required refurbishment and prevent any mining start before ASG has sought sovereign risk insurance from Australia s EFIC as a precondition for further support from its banking syndicate. The granting of that cover is necessary but not sufficient for attracting the additional required funds given the global financial crisis. An additional US$10 million has been raised from ASG s principal shareholder, but a large funding gap remains. Reported outstanding differences between ASG and SIG on taxation privileges and obligations may provide another source of delay to the Gold Ridge project. ASG has reportedly been importing US$40m annually including large quantities of fuel subject to 15 percent goods tax and is seeking relief. Fuel imports will continue to be significant during operations, especially if there has to be continued reliance on diesel power generation. On the other hand, royalty and export tax payments to SIG at a combined three percent will not generate large revenue streams. Liability for corporate and individual income taxes on expatriate staff may also require agreement and finalisation. Any inconsistent treatment of companies will raise both risks and required rates of return Risks over land tenure Gold Ridge experience shows that land access and local community concerns can be overcome but risks remain in the absence of clearer guidelines on engagement with local communities. Adequacy of the amended Mining Act and uncertainty about how it will be implemented, poses an ongoing risk for potential prospectors. There still appears to be scope for highly discretionary/discriminatory treatment of potential miners. Sunk costs can be substantial in bringing a prospective area to a mining start, and these help to determine required rates of return. Investors will want to be satisfied that they do not face unreasonable risks, such as the refusal of licence renewal and unfair/inconsistent treatment due to undefined discretionary power. Land access issues can impede mining exploration and mining activity. These seem to have been successfully addressed at Gold Ridge with resettlement, local training and provision for community payments reported as 1.2 percent of production value. The publicity associated with the Sumitomo case may have adverse consequences for further nickel prospecting on Isabel, particularly given recent (non gold) metal prices. The needs and concerns of local communities and access arrangements to customary land are critical to success of both prospecting and mining. There is no minerals policy that clearly defines how local communities are to be dealt with. Prepared for March 5 & 6, 2009 Roundtable - Honiara 11

12 3. Conclusions and Projections Potential impact on economy through exports, employment and government revenues Export revenues around US$100m for the first three years of Gold Ridge can be expected As Scenario 1 (the favourable case) below shows, the single Gold Ridge project and associated small scale alluvial gold mining could generate more than US$97 million in annual export revenues in its first three years of operation. However with large import bills for inputs, there will be offsets in the balance of payments. Neighbouring reserves could extend the life beyond the initial seven to 10 year estimates. but jobs and revenue contributions could be modest. Elsewhere, widespread active prospecting is essential. The job-generating effect will be modest, perhaps 400 local jobs on Guadalcanal. This includes the 180 already employed refurbishing the mine as well as 220 assumed new employees. Contributions to government revenue remain unclear until the final terms of the Mining Agreement are known. On its own the reported 1.5 percent royalty and 1.5 percent export tax, coupled with effective shelter from profit tax for around four years will yield only US$3 million a year in total SIG revenue in the first three years of operation, unless gold prices remain significantly above the World Bank forecast average of around US$700 for the period. Solomon Islands cannot expect any revenue or job replacement from nickel or other mining in the time frame. Development elsewhere will depend on continued exploration activity and recovery in metal prices. Metal prices are beyond government influence. But long term export and government revenues will depend on support for continued exploration. Further large scale development of gold and other metals will depend on global price development and government policy performance in the medium to long Key measures conducive to achieving favourable case scenario Opportunities exist for government to make a difference in securing favourable outcomes. To have the best chance of securing the best medium term outcomes from this sector and to set the scene for longer term benefits to the SI economy, there are some areas where government decisions and activity can contribute. They include the following: Finalised arrangements for taxation, a minerals policy and transparent dealings with prospectors are priorities. With independent advice, finalisation of the terms of the Mining Agreement as it applies to the taxation obligations and concessions that govern ASG. The opportunities for SIG to participate in any supernormal profits that might arise from sustained high gold prices is an important consideration in this process. As recommended by the recently concluded Diagnostic Trade Integration Study to which SIG was a contributor, development of a coherent minerals and mining policy. This would provide an opportunity to set out clear guidelines for prospective mining companies in their dealings with local communities. Implementation of the amended Mining Act in a way that maximizes the transparency in dealings between prospective miners, SIG and local communities, and minimizes any unaccounted-for decisions by the Director of the Minerals and Mining Board in awarding or renewing licenses and leases. Prepared for March 5 & 6, 2009 Roundtable - Honiara 12

13 Medium-Term Options Scenario I Favourable Assumptions Case Scenario II Unfavourable Assumptions Case Assumptions Assumptions External External ASG obtains sovereign risk insurance cover from Australia s EFIC. ASG financing issues are resolved Continuation of refurbishment and equipment purchase (including generators) leading to a start of mining operations in Additional estimated reserves in the extended ASG area are confirmed. Finance markets, metals markets remain depressed and/ risk insurance unobtainable. ASG financing delayed to 2011 Gold price at WB forecast average US$700 through to 2013 Gold price reverts to US$500 (9 yr past average is $472) Governmental Governmental Memorandum of Agreement issues are settled. Gold Ridge pays 3% total royalties (1.5% to SIG), plus 1.5% exporter tax. Alluvial miners do not pay royalties, instead paying 5% export duty. ASG and SIG resolve remaining differences on tax (e.g. requirement to pay 15% goods tax on imported fuel) Minerals Policy developed to cover and clarify exploration companies rights and responsibilities for dealing with local communities. Failure to finalise Mining Agreement until (This could contribute to financing difficulties.) No progress on mining policy and administration reform and transparency of processes; Results in Results in 1. Outputs: Gold Ridge mines produces 135,000 oz/pa for first 3 years Doubling of alluvial output on back of Gold Ridge up to 4000 oz annually. Exploration permits remain in demand, exploration activity widespread in response to government administrative reforms 1. Outputs: Gold Ridge start delayed to 2012 Exploration diminished, long run possibilities for nickel/other minerals set back 2. Export value: In 2013 US$97.3m; over 3 yrs $291m in total 2. Export value: In 2013 US$69.5m; over 2 years $139m, 3. Royalty & export tax revenue: 4. Employment generation: 5. Geographical impact: In 2013 US$3m; over 3 yrs $8-9 m. 400 local jobs from 2011 (approx. 180 jobs now) Mining in Guadalcanal mining, exploration nationwide 3. Royalty & export tax revenue: 4. Employment generation: 5. Geographical impact: In 2013 US$1.1m; over 2 years $2.2m The 220 additional jobs delayed until 2012 Mining in Guadalcanal, exploration in most promising sites only. Prepared for March 5 & 6, 2009 Roundtable - Honiara 13

14 2. TUNA FISHERIES March 2009 Tuna already appears as one of the top three exports. In addition, significant potential could be realised from expansion of the high added-value processing activity of loining. 1. Sector Snapshot and Prospects Sector Overview CATCH PROCESSING FOREIGN Sales by by foreign fishers Frozen Fish Exports LOCATION DOMESTIC EEZ Loining Domestic: -Canning -Fishmeal -Smoked Western Province Exports Domestic consumption Current activities Foreign vessel catch has dominated in SI waters Recent performances reported by the Ministry of Fisheries in SI s exclusive economic zone shows a total commercial tuna catch is dominated by licensed foreign vessels. Typically, foreign vessels do not land their catch in Solomon Islands for processing, but ship it direct to Bangkok and other markets as their country s own export, or to their home country market for domestic consumption or re-export. Total tuna catch by declined 25 percent between 2004 and Domestic fishing vessel catch (tonnes) Tuna Catch Foreign fishing vessel catch Total tuna catch Prepared for March 5 & 6, 2009 Roundtable Honiara 14

15 and relatively plentiful skipjack tuna predominate. Of the fish taken under an allowable catch of 120,000 mt, the skipjack species less threatened and more sustainable than the more valuable yellow fin and bigeye has made up 75 to 80 percent of the total catch in recent years. The average annual catch value (domestic and foreign) for the period was assessed as US$64.5 million with the access catch by foreign vessels making up US$49 million of that total. Domestic vessel catch is 80 percent exported after processing values exceed US$20m Fisheries have consistently been the second largest Solomon Islands export earner behind forestry. The domestic catch is processed to varying levels and the majority is exported (nearly 80 percent of the 2007 catch) with export values in the US$20m-$30m range. The remainder has supplied, along with imports, local demand especially for canned product. Solomon Islands Export of Tuna Products (metric tonnes) Frozen fish Canned Smoked Meal Loin Total Total approx value (US$) $22m $26m but much processing consists of low value added freezing. Tuna are essentially caught for their loins which represent about 40 percent of the weight of a whole fish. The remaining 60 percent of the fish is byproduct in the form of flakes/chunks (canned for international market), red meat (canned for domestic market) and meal. The difference in price between a whole fish and loins is represented by the yield (loin/fish) and processing costs. More than half of all exports are currently made up of frozen fish with no additional processing beyond freezing. Domestic catching is through one foreign owned but SI registered company NFD Processing is through one operator Soltai. Noro in Western Province, the second major international port, is also the base for the country s only deep water domestic fishing operator, National Fisheries Development Ltd (NFD), an SI-registered company owned and operated by the international Trimarine International, a world scale integrated tuna fishing and exporting company. A government-owned pole and line fishing fleet is now mothballed and the domestic catch is provided through the purse seine fleet of NFD. Domestic value adding is now restricted to processing by the one major operator Soltai Fishing and Processing Ltd based at Noro. Soltai was established as Solomon Taiyo in 1979 to operate freezing and chilling, tuna canning, smoking, and fishmeal operations at Noro. Loining operations are now a significant value adding component. In 2006 Soltai signed an MoU with Trimarine International. In return for new tuna canning equipment, Soltai agreed to increase the processing of high value tuna loins supplied by Trimarine for the European market. The company expanded its workforce and is reported to have reached more than 1000 full and part time employees at peak operations. Prepared for March 5 & 6, 2009 Roundtable Honiara 15

16 1. 2. Government involvement and access to the resource With the collapse in tuna prices and civil unrest, Solomon Taiyo was close to collapse in SIG acquired 51 percent ownership and Western Province 49 percent ownership of the renamed Soltai company. It has been run as a state owned enterprise; however a recently signed MOU and Management Service Agreement between by Soltai and Trimarine should put the company on a firmer financial and management footing. Access to the resource is governed by a regional agreement. Government revenues from all SI Fisheries sources have recently exceeded US$12m. The exploitation of fish stocks within the EEZ of Solomon Islands is occurring under an access regime where SI, as one of the eight Pacific Nauru Agreement (PNA) nations, has agreed to implement a Vessel Day Scheme (VDS). This scheme is viewed as a conservation measure and the primary means of rationing access to and maximizing revenues from its tuna resource. The total allowable catch has been assessed at 120,000mt. It is important to recognise that this is a ceiling and the actual catch may be, and often is, significantly lower than this due to climatic changes, seasonal conditions and absence of commercial quantities of fish. The scheme was agreed to in 2002 but came into effect for the bilateral nations (Korea, Taiwan etc) only in December The outcome for government revenue in 2009 and beyond will depend on a combination of sanctioned fishing effort, catch, fee structure and domestic value adding. Despite the decline in catch, total reported SIG revenue collected from fishing activities was US$12.5 million in 2007, with an expectation that this would increase to US$13.5 million in Favourable fishing and high tuna prices were cited as the reason for the favourable 2007 result 1. But these revenues exceed what would be expected from the six percent fee on foreign catch. However, these revenues appear to contain significant fixed fee components and are more than double what would be expected under the percentage value of catch method of charging for foreign access. Under that announced method of charging, PNA countries raise revenue from vessel operators through an access fee calculated at approximately six percent of the running average f.o.b. Bangkok market price (RAP) for four to 7.5lb skipjack tuna 2. This running average price is applied to the whole catch reported by the vessel to calculate the access fee. Operators pay a fixed fee at the beginning of the fishing year based on projected RAP and catch and face quarterly adjustments based on declared catch. According to industry sources, manipulation of declared catch is suspected especially where vessels can claim catch as being from neighboring high seas rather than EEZ sourced. The government also earns revenue from the five percent export tax it imposes on whole fish exported from the domestic catch. That component 1 March Solomon Times Online and Radio NZ International. A reference value of $80/mt in foreign vessel access fees is used by P. Philipson (2007) Development of a regional strategy to maximize in the economic benefits of domestic purse seine fishing and processing, FFA DevFish. This implies fee revenue of US$4.6million for 2007 for SIG based on 6% of foreign vessel catch revenue. It is not clear what would account for the remainder of the US 12.5m cited by the Ministry. The remainder would presumably need to be raised from taxation, including export levies on fresh, chilled and frozen fish (but not canned product) at 5% fob and agreement payments. For example the 2006 Fisheries Partnership Agreement between the EC and SIG is reported by the EC to contribute Euros over 3 years, plus various annual advances on catches and fees on tonnages caught. 2 Skipjack is the predominant species in Solomon Islands waters and made up nearly 70% of the 2007 catch. Prepared for March 5 & 6, 2009 Roundtable Honiara 16

17 of revenue would decline should more fish be exported as loins and less as frozen fish. 2. Prospects and constraints Increasing efficiency and adding value Increased value adding through loining is an opportunity. Under favourable conditions, tuna fishing activities can continue to be a significant foreign exchange earner. Several factors could support loining expansion: 1) the proximity to tuna grounds in the west, and 2) the commercial advantage of processing loins close to catch and shipping loins rather than lower value whole fish. It should be possible to achieve more than four times the level of 2007 tuna loin exports by 2013 and to add a further 1000 jobs in processing. However, several steps are necessary to ensure future tuna resources contribution to the economy lies not only in access for foreign vessels. Since Soltai s expansion in 2007, a significant cold storage capacity constraint has been addressed. Planned improvements in management as well as injections of financing and equipment will lead to greater efficiency raising, and this will increase through-put from its current 25 to 30 tonnes. In December 2008, SIG was negotiating a memorandum of agreement addressing a new management services agreement between Trimarine and Soltai and a new processing contract. In addition to being central to improved operations at Soltai, increases in efficiency are also needed as a demonstration to other prospective investors interested in tuna loining operations in Solomon Islands. Prospective investors are known to favour improved access and opportunities to process close to catch, however there are also alternative locations in the region. There are interests in another loining plant. Several Korean investors have expressed interest in establishing loining operations, including Dongwon, the large Korean operator which has purchased the large scale Starkist cannery in Pago Pago. The government has also announced its intention (Solomon Star Nov ) to establish a tuna loining plant at Tenaru, in Guadalcanal, with an agreement between SIG, the provincial government and local land owning groups. It is thought that any such project would involve foreign probably Korean investment Access regime and access charging Signing up foreign vessels is Under the VDS, each country has been awarded a set number of vessel unfairly limited under the days per year. This available fishing effort can then be allocated to VDS. operators in its waters, and charge for the right. Countries are obliged to monitor the uptake of vessel days. Solomon Islands is currently awarded 3000 days out of a total of 34,000. At an average catch of 30mt per vessel day this would equate to 90,000 mt, well inside the estimated maximum allowance of 120,000 mt. Industry observers consider this Solomon Islands allocation unreasonably low, as it was based on an average of regional catches over years which included the period when Solomon Islands was badly affected by civil unrest and all economic activity including fishing Prepared for March 5 & 6, 2009 Roundtable Honiara 17

18 was depressed, biasing downwards the allocation. Nauru Agreement access fee scheme may be inequitable and costly to revenue. Discussions are currently underway which could substantially improve the return from the tuna fishery to the resource owners Land and rent extraction Potential new processors may be discouraged by local community demands Energy and taxation Inefficient and costly power supply reduces competitiveness. The six percent access fee regime has also been criticised. When tuna prices rise significantly, as they did in 2008, with skipjack rising to above US$2000/mt, the share of the increased resource rent enjoyed as increased profits by the foreign access vessels increases disproportionately. Thus, the government s relative share decreases. Critics have advocated modification of the VDS based scheme to a) reflect the benefit of restrained fishing effort in higher prices and hence higher economic rent 3 from the resource and b) a formula that captures a higher proportion of the rent by the resource owner. There is reportedly considerable discontent within the membership of the Parties to the Nauru Agreement regarding the lack of economic benefits derived from the regional tuna fishery. At the time of writing the PNA were discussing an option to create an arrangement which would, most likely, result in fewer vessels and a lesser catch. Such an outcome is expected to result in a more sustainable fishery, higher fish prices and improved profit for the vessels. Improved profitability and restricted access in the sector will provide an opportunity for resource owners to substantially improve their share of the fishery financial return. Any new tuna loining operations will depend on prospective investors gaining a clear and continuing assurance that they have secure access to land on which to erect a processing plant. The process for securing these outcomes is not assured under the existing legislation and practice. The high price charged for government owned power supplies and reliability of those supplies will remain a problem for Soltai and any future operator. This will continue to disadvantage Soltai s efforts to generate (taxable) profits and jobs. It could also deter other prospective loining investors Distance and scale obstacles to canning expansion Processing for loin exports may be competitive but remote small scale canneries are not. Prospects for significant expansion of canning for export (as opposed to loining) are not well understood. For example, transport costs are a significant component of total supply chain cost and their dynamics will impact decisions on processing location (shipping whole fish is 2.5 times more costly than shipping the equivalent loins). Recent canning operations by Soltai have largely serviced the domestic rather than the highly competitive export market. Capital costs of integrated canning operations are high, at around US$2500 per tonne of capacity according to Philipson (2007). There is already significant canning capacity in PNG, in American Samoa, including the Korean owned Seakist, the largest in the region, and in Fiji. RD Canning in PNG has indicated that they have no interest in extending operations to SI. The scale of new canneries in the Seychelles, close to European markets, suggest that 300mt per day throughput may become the new efficient scale for big integrated canneries, compared to the 30mt recently estimated at 3 Resource rent is defined as landed value of fish less full economic cost of capture (excluding any access fee). Prepared for March 5 & 6, 2009 Roundtable Honiara 18

19 Soltai. Favoured access to European markets for loins imported from Solomon Islands supports the medium term profitability of this activity. There are longer term risks that tariff preferences could be reduced. There are also risks that the European canning industry, which uses the loins, may cease to be competitive, reducing demand for the key export product. 3. Projections and Conclusions Potential impact on economy through exports, employment and government revenues Doubling of export values and more than 1000 new jobs are achievable. Solomon Islands, as part of the regional fishery, has an entitlement to 120,000mt which is sufficient to underpin sustainable fishing. There is an opportunity to expand value adding through increased loining. Exports could exceed US$40 million and more than 1000 new jobs could be created. This could happen through revived and expanded activity at Soltai and through new entry by a foreign investor. While export revenues and jobs from loining would rise, there would be some trade off in SIG revenues. Some fish export taxes would be sacrificed if increasing amounts of catch were diverted to expanded domestic loining operations Key measures conducive to achieving favourable case scenario To have the best chance of achieving medium term job and value adding outcomes close to those set out in Scenario 1 below, and to help underpin the longer term value of the resource to SI, the following measures may be helpful, if not essential: Implementation and adherence by government partners to memorandum of agreement and management contract involving government, Soltai and Trimarine. A mechanism for ensuring that any approved entrant has assured and clear access to a site for plant construction and that the terms of occupancy are free from any subsequent demands by local communities. Consideration by SIG of the advantages and trade offs of encouraging a new entrant to set up near Soltai based on any demonstrable economies of concentration. Clarification and analysis of the existing method of access charging for foreign vessel catch, to improve economic rent payments to the SIG (and other PNA countries). Revisit the SI allocation of only 3000 days under the Vessel Day Scheme. Prepared for March 5 & 6, 2009 Roundtable Honiara 19

20 Scenario I Favourable Assumptions Case Medium-Term Options Scenario II Unfavourable Assumptions Case Assumptions Assumptions External External Tuna prices maintain average around US$1300 per mt (2007 price $1289) Tuna prices revert to 20 year average $950 Loin price/whole fish price ratio maintained around historic average (2.75) Other conditions as for Scenario 1. Fishing conditions allow full exploitation of Vessel Day Scheme limit (approx tonnes annually) Favourable tariff access to EU market continues Governmental Governmental Memorandum of Agreement between Governments/Soltai/Trimarine reduction in government involvement and loining contract both finalised and complied with reduced government equity and no involvement in management of Soltai. Throughput to efficient levels (60 mt /day).canning at Soltai resumes for domestic sales only Government identifies and facilitates land access for commercial loining factory; private sector operations commence 2010 without further government involvement; fish throughput sourced from foreign vessel catch. Implementation of food safety standards ensuring continued access to European tuna market Access fee basis at six percent of value of foreign vessel catch, five percent export tax on domestic whole fish exports Results in Results in 6. Outputs: Soltai throughput for loins to tonnes (approx 8000 in 2007) from daily throughput at 60mt 6000 tonne loin output by 2013; Similar scale at new plant Total loins mt by 2013 Whole fish exports reduced to 5000mt (Approx mt in 2007) 7. Export value: Total loin exports US$43m by 2013 depending on catch and scale of new entrant Value of whole fish exports $6.5m 8. Tax revenue: $5.5 m from 6 percent foreign catch value component; $0.3m from export tax on domestic whole fish exports 9. Employment Approximately 1000 additional jobs with /throughput generation: 10. Geographical impact: loining expansion Western Province and new loining factory location Agreement fails to hold with impact on Soltai efficiency- only attaining break even levels (45mt/day). Government credibility affected by Soltai outcome. No new loining plant entrant before Other conditions as for Scenario 1 6. Outputs: Soltai throughput only reaches 12,000 mt Loins 4500 mt Whole fish exports 8000 mt 7. Export value: Loins $11.8m, whole fish $7.6m Value of whole fish exports $7.6m 8. Tax revenue: $4m from 6 percent fee, $0.4m from export tax 9. Employment generation: 10. Geographical impact: No recovery above 2007 levels of 800 at Soltai Western Province Prepared for March 5 & 6, 2009 Roundtable Honiara 20

21 3. PLANTATION FORESTRY March 2009 Plantation forestry, both large scale commercial and village scale, offers a long term sustainable approach to the partial restoration of earnings and jobs from depleted forest resources. But even under favourable conditions these activities will be able to replace less than 20 percent of recent annual export earnings from extractive logging by Sector Snapshot and Prospects Commercial Plantations Estate size (ha) Area planted effectively (ha) Potential productive area by 2013 (ha) Recent planting/replanting program(ha/year) Kolombangara Forest Products Limited (KFPL) 39,000 9,000 15, Pacific Plantations Limited (EPPL) 25,000 7,000 11,000 1,000 Community plots 15,000 N.A Historical background and context Solomon Islands has favourable climatic conditions for commercial forestry plantations however production comprises less than 10 percent of extractive logging. Historically, tree harvesting based around plantation practices rather than the extractive logging of native forest and regrowth has comprised a very small proportion of total forestry output less than 10 percent. It takes two forms. The first is large scale commercial plantation forestry. It is based on leased land with renewable 75-year leases. The two commercial plantations are Kolombangara Forest Products Limited (KFPL) and Eagon Pacific Plantations Limited (EPPL), see table above. The second is practised in collaboration with customary land owners on a mixture of alienated and unalienated land. The village based small holder sector, which has been encouraged with Forestry Department support, occupies approximately 15,000 ha nationally, but little will have reached harvestable age by 2013 (past plantings have often been of very slow maturing species such as teak). Teak growers under these schemes report a lack of support in tending and marketing the trees. In the case of both plantations, productive terrain is smaller than the estates. Prepared for March 5 & 6, 2009 Roundtable Honiara 21

22 EPPL is now under full Korean ownership and KFPL is 60 percent privately owned. Both of the large scale plantations have had previous government involvement in management. The EPPL operation was established by its Korean Parent company in 1995 on an un-used run down governmentowned plantation site on New Georgia. Although established as an estate in 1904, commercial logging only started on KPFL in the 1960s. The company is currently owned by the state-owned Investment Corporation of Solomon Islands (ICSI) with a 40 percent share, and the Tropical Timber Fund (TTF) with 60 percent, and management outsourced to the Sydney based New Forests Asset Management (NFAM) Recent events and current activities Both companies have taken steps to improve profitability, including significant replanting. Until the onset of the global financial crisis, both of the commercial plantations had been undertaking extensive replanting and new planting programs. Prior to takeover by the current management in December 2006, the KFPL plantation was in a commercially run down and near bankrupt state and significant areas had been planted with unsuccessful species. The recent planting program has included 900 ha per annum of replanting. According to a report for the Agriculture and Rural Development Strategy, EPPL also still has significant stands of unsuccessful species which require replacement. Recent activity levels disclosed by the two companies are as follows: (Exports sourced from community plots are not reported but thought to be very small). Approx log export volumes 2007 Approximate log export volumes 2008 Reported harvest capacity 2008 KFPL 65,000 m 3 65,000 m 3 108,000 m 3 EPPL 30,000 m 3 4,000 m 3 n.a Community plots n.a. n.a. n.a. Combined exports reached 105,000 m 3 in 2007 but have fallen 25 percent since. The combined export levels of 2007 were supported by continued strong construction-related demand in Asia and prices were supported by China demand in particular. Log prices vary widely by species. KFPL reports that it received an average of US$82 per m 3 in At least some buyers, however, reportedly resist paying extra for KFPL s product despite its FSC-certification. With the global downturn, the Baltic Dry Index, used as an indicator of international dry freight prices, has experienced an historic drop as demand has contracted. Reported Malaysian log prices have dropped by seven percent in recent months, affecting all logging operations. As a result, KPFL has reduced output to only 65,000 m 3 for 2008, while EPPL output has fallen to around 4,000 m 3. Maximum employment levels are around 1000, with 600 permanent jobs. Firm estimates for employment by the native forest logging companies are difficult to obtain and vary between 3000 and 5000 workers nationally. Until recent difficulties, KFPL had engaged 235 employees on a permanent basis, a number that has decreased to 173 currently. In addition, field contract work provides opportunities for the equivalent of 600 full time labourers. KFPL suggests that a steady state figure of 600 people Prepared for March 5 & 6, 2009 Roundtable Honiara 22

23 working on the various plantation activities at any one time is a guide. EPPL has a published employment figure of 400 Solomon Islanders Plans and prospects for the companies and government KFPL has made concerted efforts to increase output Prior to the recent setback, in addition to replanting, KFPL planned to expand through additional plantings and implementation of improved silviculture practices and minimization of waste. The goal is to reach an ultimate output of 300,000 m 3, with a doubling of output from the existing area of land a possibility. KFPL expects to be able to achieve its expansion plans through improved species management (and more efficient labour) rather than through significant increases in employment. and was ahead of schedule before financial and market setbacks in Though a mill would add value, shipping problems remain. An earlier set of KFPL projections envisaged reaching outputs of 100,000 m 3 by 2013, 140,000 m 3 by 2018 and 180,000 m 3 by Plantation sustainable yields of 20m 3 per ha per year which are often cited would make this achievable. If the full 15,000 ha of plantable land were planted and average growth of 20 cubic metres achieved sustainable output might rise in the long term to as much as 300,000 m 3 per year. Although harvest levels of 108,000 m 3 were already considered achievable in 2008 market forces restricted actual harvest to 70,000 m 3. Additionally, a heads of agreement has been signed to establish a joint venture timber milling enterprise to add value to KFPL product. It is envisaged that the portable mill would have a round log capacity of 30,000 m 3 throughput and would increase the value of KFPL output significantly on that component of its harvest. Markets for the product include pencil manufacturing in Indonesia and Middle Eastern markets where the FSC qualification is valuable. There is the possibility of developing a biomass energy project with waste wood product as the fuel source to replace one of the diesel generation power sources for the company. New wharf construction at an estimated cost of US$5 million to service KFPL s expanded operations has been considered but will require additional financing. EPPL has committed to long term investments despite market contraction. Tax holidays and exemptions limit government revenue but may be necessary in order to create a sustainable industry. EPPL has asserted that, despite the market downturn, it will continue with its demonstrated commitment to a long term presence, and will develop the estate to full capacity. This involves planting an additional 1000 ha annually until the commercial limit of around 15,000 ha is reached (possibly by ) and replanting of logged areas is undertaken as part of the replacement cycle. Output of 70,000 m 3 by 2012 and 150,000 m 3 by 2016 is considered achievable. In addition, a US$1 million veneer mill has been constructed at Arara and exported its first shipment of product to Korea. Government revenue will be limited as plantation logs, which will remain the main form of product, do not attract export levies in contrast to the natural rainforest log exports that they will only partially replace. Fuelbased taxes and other imports not eligible for exemptions will grow in line with activity levels. Low average wage levels would mean that only minimum individual income tax would accrue as government revenue. The Prepared for March 5 & 6, 2009 Roundtable Honiara 23

24 combination of financial challenges at KFPL and reduced log prices will presumably mean that taxable profits will be minimal for at least two years, as KFPL, with its areas of immature trees was only operating near break even levels prior to its current difficulties. Given loss carry forward possibilities, until 2013 corporate tax from both plantations will be negligible. 2. Constraints Financing Markets, depressed prices and the financial problems of KFPL are the immediate concern. The main impediments to companies meeting expansion targets are external, notably the drop in international construction. If European markets are slower to recover than Asian ones, the contribution to KFPL earnings from the FSC premium prices it attracts in Europe will be smaller, as European sales will make up a smaller share of its total exports. EPPL is also likely to face challenges in maintaining its planting and nursery program while construction activity in Korea remains depressed. The global financial crisis has affected TTF and led its owners to offer its interest in KFPL (60 percent) up for sale by competitive tender Transport Shipping reliability, large vessel access and port space threaten value adding options. Shipping frequency and reliability continues to be an issue for all forestry plantation companies in Solomon Islands; buyers of logs charter vessels to collect the cargo. The rudimentary jungle ports currently operated by KFPL and EPPL do not provide berthing facilities for larger vessels. Any new milling operation on Kolombangara, for instance, faces the problem of getting containerized product off the island. Port space at Noro, which can accept large vessels, could be a constraint that would suggest the need for new facilities on Kolombangara capable of accepting larger vessels. The falling freight prices that will advantage shippers on some world routes have to be viewed as short to medium term and must be set against the difficulty of securing reliable long term regular service to the Western Province islands Customs Customs procedures remain an obstacle. Bureaucratic difficulties in dealings with Customs officials over classification of equipment for duty exemptions on imported capital equipment have been reported by EPPL. This is one example of how administrative barriers can impede even established companies and act as a disincentive to expansion and new value adding activities Risk of instability The risk of civil strife/ lawlessness is still a concern to both large operators. There are no apparent immediate threats to property (through expropriation or civil unrest and damage) at either plantation. However, EPPL rated ongoing sovereign risk, and law and order as among its top three concerns. KFPL has emphasized that it continues to outlay funds on local patrols and contributions to local community stability. If value adding investment goes ahead as planned, both companies or their joint venture partners will have an increased value of assets at risk should civil unrest re-emerge Sustaining community plantations Prepared for March 5 & 6, 2009 Roundtable Honiara 24

25 Village plantings and plot maintenance need sustained support. While significant exports from as-yet immature village plantations are some way off, they are a critical component of longer term sustainable forestry for SI. Estimates place log volumes from these sources at roughly half the wood flows from the big two plantations by the mid 2020s. Local communities need ongoing support through Department advice and extension services. If this is reduced or withdrawn under budget pressure, this could be a constraint on establishment of a viable sector. Concerns have been raised with the scope and effectiveness of these services. 3. Projections and Conclusions Potential impact on economy through exports, employment and government revenues Plantation forestry cannot replace logging. The longer term could see a substantial plantation forestry contribution to the recovery of wood flows from over-exploited natural forest areas, particularly if plans to support 500 ha of additional village planting each year are followed through into future decades. However, indications are that only 50 ha are being achieved at present. Production levels from plantation forestry will nevertheless remain below 15 percent of what is currently being extracted through native forest logging well into the next decade and export values will be less than 20 percent. But recent volumes from plantations could be increased by 70 percent by The recovery of world markets could see a recovery and growth of export values from the two large commercial plantations to US$15m by This would be based on harvest levels of 170,000 m 3 being attainable by then. In achieving this it is not envisaged that there will be significant increases in employment particularly full time jobs Key measures conducive to achieving favourable case scenario Much depends on external factors in shaping the immediate prospects for the commercial plantation forestry sector in SI. World markets and new ownership for KFPL are foremost. Nevertheless government can help ensure expansion and development plans are put back on track as soon as possible as well as guarantee that long term opportunities at the village level are not lost. Specifically the government could strive to: ensure continued access of KFPL and EPPL to agreed duty concessions on imported equipment with minimum bureaucratic barriers keeping business costs to a minimum; give supportive treatment to KFPL over investigation of port space at Noro if required; provide support for maintenance of law and order at plantation sites which are remote from main centres and services; provide continued Government Forestry Department support for village scale planting, silviculture and preservation of plantings and to recommit to the 500ha per year target with extension services support. Prepared for March 5 & 6, 2009 Roundtable Honiara 25

26 Scenario I Favourable Assumptions Case Medium-Term Options Scenario II Unfavourable Assumptions Case Assumptions Assumptions External External Immediate sale of TTF interest in KFPL to commercial interest enabling debt repayment at KFPL EPPL supported by parent company to maintain planting regime KFPL log prices continue to receive average US$10 m 3 premium for Forest Stewardship Certification (FSC) Recovery of world log prices within 18 months to 2008 levels; decline in harvest rates and plantings temporary; resumption of expansion plans at both plantations 2010; KFPL mill commences 2011 diverting m 3 from KFPL log harvest by Governmental Governmental Continued access of KFPL and EPPL to concessions on imported equipment with minimum bureaucratic barriers; supportive treatment for KFPL over port space at Noro if required Continued Government Forestry Department support for village scale planting, silviculture and preservation of plantings; Support for law and order at plantation sites. Results in Results in 11. Outputs: Log harvest volumes recover from in 2008 to 150,000 m 3 in 2011 and in 2013; KFPL diverting 30,000 m 3 to higher value mill inputs by Depressed log prices and delayed sale of TTF interests delays resumption of expansion plans at KFPL; EPPL continues planting regime despite downturn but resumption of large harvesting volumes delayed until 2012 KFPL Mill construction and operation plans not implemented in medium term. As for Scenario 1 Reduced long term support for village forestry 11. Outputs: Harvest recovery delayed until 2012, reaches by 2013; longer term village contributions to wood flows compromised 12. Export value: US$13m in total export value by 2011, ($2m in mill export component) $15m by Export value: US$6m (log exports only) by 2011, $13m (log exports only) by Tax revenue: Corporate tax holidays continue to apply 13. Tax revenue: Corporate tax holidays continue to apply 14. Employment generation: Little net gain in large scale commercial forestry jobs above 2008 levels of ; unknown expansion at village level 14. Employment generation: As for scenario Geographical impact: Large scale plantations confined to Kolombangara and New Georgia, village activity widespread through SI, especially Malaita and Western provinces 15. Geographical impact: As for Scenario 1 for Commercial Plantations. Less village activity in remote areas Prepared for March 5 & 6, 2009 Roundtable Honiara 26

27 4. TOURISM March 2009 Recreational tourism remains disappointingly low. Visitor spend and room occupancy are currently driven by personnel associated with donor assistance. Without resolution of the airline access problem, resort tourism and related regional incomes will grow only slowly. 1. Sector Snapshot and Prospects Current Activities Recreational tourism is now below what it was in Arrival and defining events Source: Year SIVB Total Arrivals Defining Events , , ,208 Tensions , , , ,565 RAMSI (June) , , ,482 Riots (April) ,748 Tsunami (April) Compared with the tourism situation in 1984, the number of leisure visitors has declined from 70 percent to 20 percent of total, the number of cruise ship visitors has diminished and the number and percentage of visitors travelling beyond Honiara has reduced. Performance has fallen well short of targets set in a report Tourism Strategy for Solomon Islands Visitor arrivals (excluding ships) 1984 Av. Stay (days) 1990 Strategy target Av. Stay (days) 10, ,000 14, Cruise ship visitors 8,000 9,000 Neg. Business visitors % n.a 65% Leisure/diving % 70% 20% The 33 percent growth in visitor arrivals since 1984 compares unfavourably with the 194 percent increase for world international visitor arrivals and with the 525 percent increase for the Asia-Pacific region. Prepared for March 5 & 6, 2009 Roundtable Honiara 27

28 Cruise ship passenger numbers in the Pacific region have also grown dramatically during this period Tourism has been strongly affected by the conflict and still is by the post-conflict setting and therefore concentrates on Honiara. Significant investment is improving the accommodation offer. Of the visitors, 68% of visitor nights were spent in Honiara. There was a steep decline in the proportion of leisure visitors travelling outside the capital. The current high percentage of long stay personnel associated with aid and other business travellers, masks the overall decline of leisure visitors. This is also a factor that impedes further tourism growth due to the very high percentage of available room nights they occupy, especially in Honiara. According to the listing of all available accommodation rooms in Solomon Islands 4, 55 percent are in Honiara. Whereas there is little available capacity in Honiara, there is clearly underutilised capacity available in the provinces. According to figures provided in the draft Diagnostic Trade Integration Study, there were 2533 beds available in 2007, up from only 1734 in There is significant actual or scheduled investment in the accommodation side of the industry, largely financed from off-shore sources. Projects recently completed, or underway include the following: Honiara Hotel: 2005 undertook major expansion/upgrade involving 46 new rooms, plus 50 old budget rooms; available capacity for a further 30 rooms which would be built subject to finance. King Solomon Hotel: Currently 55 rooms, with construction of a further 20 rooms commenced. Solomon Kitano Mendana Hotel: Recently completed upgrade and enlargement program (SBD$35m), with a total of 100 rooms. Heritage Hotel: Honiara, 120 rooms (including apartments) Status: Under Construction, Due for Opening July 09. (PNG Ownership) This activity adds or will add 186 new rooms to the available total in Honiara, where visitor accommodation is most stressed. In 2007 visitors spent around SBD$152m. The Solomon Islands Visitors Bureau (SIVB) expected this would have risen to SBD$177m by Other estimates put this at SBD$135m Air service is a key factor to tourism development Air access to SI had been limited to that provided by the government owned and operated Solomon Airlines until the recent introduction of competing services provided by Pacific Blue (Virgin) and SkyAirWorld. The latter has, since entry in 2008, first scaled back its service to only one flight per week and has since suspended the service indefinitely in the face of financial difficulties. It is considered unlikely to be resurrected. Honiara remains the only international hub for inbound tourism, with Solomon Airlines domestic carriers operating services from there to other islands. The reliability and costs of these services is a major issue and is expected to remain so. 4 Solomon Islands Visitors Bureau Prepared for March 5 & 6, 2009 Roundtable - Honiara 28

29 1. 2. Government involvement The SIVB has tourism development responsibilities. There is a national strategy but minimal funding. Data to inform government policy and action on the state and progress of the industry is provided by the government-established (SIVB). A bed levy provides 75 percent of its SBD$3.6m revenue. The SIVB is responsible for marketing and development of tourism from this funding, which is scheduled to be increased by government grants totalling a further SBD$10m by The government oversight of, and planning for the sector is through the Solomon Islands Ministry of Culture and Tourism. In 2006, the National Tourism Sector Strategic Plan was adopted. The Plan targets promotion of economic growth, jobs and local income export receipts through tourism with greater regional balance, local participation and sustainable interaction with local culture. The strategy recognises that, to achieve these objectives the sector will need reliable access for tourists, appropriate product development, effective marketing and sustainable resource management. However, given the budget allocations to the sector and impediments to reform, it is not clear how the Strategic Plan can be implemented Tourism is part of the Government s Medium Term Development Strategy (MTDS) where numeric targets have been set for the sector and indicative government funding outlined. While the program total is scheduled to rise from SBD$12m in 2008 to SBD$26m in 2012 the allocation to training and a hospitality school is very modest. According to SIVB revenue estimates, the major source of its funding for comes from the bed levy. Projections for include a government grant amounting to SBD$10 million out of a total of SBD$13.5 million. However the economic outlook may dictate continued heavy dependence on the levy Prospects Doubling visitor numbers by 2010 is optimistic. The government s MTDS envisages visitor numbers increasing to 30,000 by This would mean more than doubling the most recent figures, which is considered optimistic. Even a 2007 estimate of 20,000 by 2010 with a visitor spend of SBD$210m may be out of reach given global events and the impact on world tourism. The tourism industry is very much based in Honiara and the Western Province. The 2006 National Tourism Sector Strategic Plan highlights the ongoing importance of these two areas but also specifically mentions potential in Malaita, Makira, Temotu and Central Provinces. Further investments are in the pipeline. There are plans for accommodation upgrades and increases in numbers. However unless firm commitments are made or work started, some of these must be considered improbable for completion in the medium term. Identified prospects include: Prepared for March 5 & 6, 2009 Roundtable - Honiara 29

30 Honiara Resort and Casino (80% Malaysian, 10% Singaporean, 10% Honiara Casino). This project was first proposed 9 years ago, comprising 200 apartments (40-50% full time occupancy/rest part time occupancy and included in hotel inventory at other times). The proposal now has been upgraded to 400 hotel rooms and a casino but it is considered too small to attract an international operator. The project is subject to finance and enactment of strata title legislation. Construction is due to commence in June 2009 and would be completed after 2 years, employing 600 staff. Anuha Island Resort (consortium led by SkyAirWorld, Brisbane). The original resort on site was burned down. The actual project proposed 50 rooms with the company operating its own aircraft to resort strip from Honiara. Construction would follow contract signing with Ministry of Tourism. Given the recent collapse of SkyAirWorld the future of this proposal in uncertain. Isabel Island Eco-island resort. Reportedly planned by Go Tours based on the Gold Coast. Site works have started. Completion is subject to confirmation. Tavanipupu Island Resort is part owned by a Honiara and a US based investor. With access from Marau Sound Airstrip (which is currently closed due to a dispute between customary groups), the project plans to replace the old resort starting with 6 bure style accommodation suites (SBD$1.5 m investment) extending to 12 (AUD$500 p/n rate). The land has been secured and it is due for commencement subject to air services availability. Tambea Resort. On the Twin Sister Island in western Guadalcanal, the 28 bungalows resort was destroyed. The investment of a project of bungalows is estimated at SBD$6m, with room to build another 70 with some over water. The land had been secured but it is still on hold, subject to air services and finance. Additional Tambea Resort. The owner of Quality Inn is finalising acquisition of land near Tambea resort with a view to develop resort, though there are definite plans and it is subject to air access. Cruise Ship visits. P&O (Carnival Cruises) have indicated interest in visiting from 2010, depending on Solomon Islands readiness. The Minister of Tourism sent representatives to Vanuatu to explore arrangements there prior to developing a cruise visit strategy. 2. Constraints Leading constraints identified by industry operators Weak air services remain the major obstacle. Taxation and regulatory inefficiencies are impediments. Air services, particularly domestic, suffer from high cost, lack of capacity, severe lack of reliability, and the influence of government monopoly. Travel to provincially based resorts and tours is very unreliable. Some tour operators have stopped taking tours beyond Guadalcanal. For inbound there is extreme blockage of tourism dispersal, utilisation of available accommodation capacity and tourism investment. Sol Air has recently introduced online booking services with credit card payment facilities for both domestic and international travel. Major complaints relate to the business on-costs and frustrations of taxation and regulatory compliance, the lack of and conflicting and Prepared for March 5 & 6, 2009 Roundtable - Honiara 30

31 There is a shortage of required skills. Solomon Islands is off the map of tour operators. sometimes erroneous nature of information provided, tortuous processes involved in applications to Government departments (visas, permits, import approvals etc.). As a result, cost of compliance and business oncosts are increased, there is difficulty in managing budgets and project development, opportunity for corruption, creates unnecessary delays. The difficulty of obtaining basic skills required to operate and manage hotel, resort, tourism and hospitality operations is seen by investors and operators as a major impediment to further investment. Standards are reduced due to low quality service which in turn reduces yield and destination appeal, proposals are scaled back to what is manageable, fewer people are employed and pay rates are lower. There is a need to source skills from outside Solomon Islands. There is no capacity or capability in Solomon Islands to package and facilitate experiences, attractions, activities, accommodation and tours and to distribute them through the relevant distribution channels. This combined with the lack of available information makes a holiday in Solomon Islands extremely difficult to plan and book, thereby reducing the appeal or the likelihood of tourist visitation. Like any internationally traded product in an extremely competitive environment, if the destination is not in the distribution system in a marketable form, it is off the map. Many airlines operate inbound tour operator subsidiaries but there appears to be no capacity for Solomons Airlines to do this Consequences of the tensions Large presence of aid personnel has had some perverse effects on recreational tourism. In addition to the constraints listed above, industry players have identified the following impediments: Infrastructure and basic utilities lack quality, reliability and are expensive. Land availability and security of tenure are limited and there is an inability to use land as collateral. Lack of finance. Insurance issues, including inability to ensure assets and obtain public liability insurance. Communication are high cost and low in quality. Lack of effective destination marketing. While the security and other benefits of post-conflict assistance are evident, the side effects are a distorted tourist sector. The cost and availability of tourist accommodation for leisure tourists passing through Honiara is adversely influenced by the continuing pressure of demand by visitors who are not in the recreational category. The large numbers of aid personnel create a perverse effect of raising the price and reducing the availability of tourist accommodation in the Honiara hub. Prepared for March 5 & 6, 2009 Roundtable - Honiara 31

32 3. Conclusions and Projections Potential impact on economy through exports, employment and government revenues Despite great potential, likely In comparison with regional competitors, SI has failed to exploit its natural impact remains small. advantages. Even under favourable circumstances illustrated in Scenario 1 below, the direct impact of tourism growth on the economy would be slight. Available proxy data suggest that hotel and restaurant contribution to GDP is only two percent. Until constraints listed above are addressed, tourism contribution to GDP will remain at these low levels. The current dominance of visitors to the Solomon Islands by the business category to Honiara is a reflection of the failure in the past 25 years to retain and develop a leisure based tourism industry capable of spreading income and job benefits beyond Honiara Key measures conducive to achieving favourable case scenario Improvement in domestic air service is a precondition to the success of an inbound tour operator. To have the best chance of achieving medium term job and value adding outcomes close to those set out in Scenario 1 below, and to help underpin the longer term value of the resource to SI, the following measures may be helpful, if not essential: Unreliable and costly air services remain the biggest single blockage to sector development. Dealing with the dysfunctionality of Solomon Airlines, particularly as a monopoly operator on key domestic routes is recognised throughout the industry as a top priority. The airline has an operating loss said to be SBD$55m. Privatisation in the current climate may be difficult but without considerable management and operational reform the main impediment access will remain unaddressed. Government strategy to grow the sector would be enhanced by the establishment of an inbound tourism operation or destination management company with the ability to bundle product and experiences into marketable programs that wholesalers can sell with confidence. A whole of government approach to tourism is desirable ensuring better coordination between the industry and the Ministry and between the Ministry and other ministries/ departments whose responsibilities impact tourism, with greater prioritisation of its needs. Assured continued funding for the Tourism Grants Scheme which targets locally owned SME s and their products in rural areas, thereby targeting regions outside Honiara. Prepared for March 5 & 6, 2009 Roundtable - Honiara 32

33 Medium-Term Options Scenario I Favourable Assumptions Case Scenario II Unfavourable Assumptions Case Assumptions Assumptions External External World markets recover by 2010 World markets recover by 2011 Increased inbound air capacity (including Pacific Blue) will have been Current inbound airline capacity not sustained maintained and consequently fares significantly reduced to compete more favourably with directly competing destinations.. Governmental Governmental Privatisation or removal of political interference with Sol Air and the removal of the domestic monopoly (allowing the development of cheaper and more reliable domestic air services that can be pre-booked), Government planned funding of SIVB and training component of the Strategic Plan carried through Gradual normalisation of the economy. Results in Results in 16. Accommodation By 2013 there are an additional 490 rooms in Honiara; Additional 110 rooms in resorts outside Honiara with occupancy rates increased by 10-15% in regional areas 17. Visitor numbers by 2012, (14,251 now) recreational share to 35% (20% now) No improvement to Sol Air management or domestic monopoly No capacity to increase grant funding for SIVB, tourism/hospitality training Continued presence of RAMSI and associated agencies influencing accommodation and travel demands 16. Accommodation Additional 140 rooms in Honiara with postponement/abandonment of some projects Additional 56 rooms in resort areas 17. Visitor numbers , but no increase in recreational share 18. Visitor spend: SBD$277m by 2012 ($135m-$177m now estimates vary ) 18. SBD$204m 19. Employment generation: 20. Geographical impact: Approximately 1.5 additional staff per additional room, 735 Honiara, 165 elsewhere. Increased regional income share from increase in recreational tourism component, particularly to the Western and Central provinces and to the Western end of Guadalcanal 19. Employment generation: 20. Geographical impact: 140 additional staff Honiara, 56 elsewhere Existing occupancy rates of below 50% at resorts not improved, little regional gain Prepared for March 5 & 6, 2009 Roundtable Honiara 33

34 5. PLANTATION AGRICULTURE March 2009 Limited value adding capacity for copra along with the RIPEL dispute, and marketing and quality deficiencies for cocoa, are holding back growth. 1. Sector Snapshot and Prospects Sector Overview COCONUT COPRA OIL COCONUT Growing & Harvesting Drying Marketing Value added Subsistence crop Local consumption Exports COCOA Growing & Harvesting Drying Marketing Exports LOCATION Country wide Context and evolution of the sector Coconut and cocoa growing, harvesting and drying is smallholder dominated. Plantation agriculture is dominated by three tree crops: coconut, cocoa and palm oil. A separate sector brief analyses palm oil. There are also small areas of coffee emerging as a cash crop. Both coconuts and cocoa are grown throughout the country and are often cultivated together. They face similar constraints, according to the recent Diagnostic Trade Integration Study draft report. Coconut products have traditionally been both consumed domestically and exported as copra, coconut oil and some coconut meal. Cocoa is exported in dried bean form. Together these two crops comprise the second largest contribution to export revenue after logging products. Prepared for March 5 & 6, 2009 Roundtable - Honiara 34

35 The remaining large estate and its former processing activities are no longer operating as a business. Commercial copra and oil production and employment have suffered from the RIPEL events Both coconut and cocoa are attractive to small holder growing while cocoa is more demanding but rewarding Government involvement There is a history of government involvement. The colonial period saw development of large plantings of both coconut and cocoa. Among the largest was the Russell Islands Plantation Estates Limited (RIPEL), the former Lever Ltd plantation in Central Province, occupying 10a000 hectares. This dominant plantation has ceased to operate as a commercial plantation business, along with the copra crushing for oil that accompanied it. Large scale plantings of this kind had ceased by the 1980s. Smallholders dominate production and export of both cocoa and coconuts now, including any output from the dispute-racked RIPEL lands. Disruption during civil unrest and subsequent ownership and labour disputes at RIPEL have resulted in significant falls in production of both commercial crops, although cocoa has been less affected than copra. Several disputes over labour issues, land and ownership have led to the creation of a government task force to report back on options for resolving the RIPEL problem. One estimate (DTIS draft report) puts the cost to SI from the RIPEL problem at SBD$115m (US$14 m) annually because of the related absence of crushing facilities and the need to export most coconut as copra rather than more valuable oil. Coconut production for commercial sale, largely for export as copra, declined from a peak of 42,000 tonnes in the mid 1980s and has only recovered to around tonnes on the back of high copra prices. Cocoa production has been more stable but, historically prices and export values have been volatile. Coconut remains an important source of domestic food for 40% of households. All production is now undertaken by small holders and it has several attractions for smallholders. Coconut is a low maintenance, low technology crop with favourable growing conditions in SI. Harvesting intensity can be readily adjusted to market conditions with any labour hire falling, along with area harvested, when prices are depressed. The lack of other opportunities in rural SI and the corresponding low opportunity cost of labour, has meant that copra production has remained a relatively attractive cash crop option for small holders. The product is also less susceptable to deterioration in storage than cocoa beans. Cocoa makes greater demands on growers in terms of coping with disease and cultivation, drying and handling and storing practices if the price advantages of organic certification are to be maintained or achieved. However prices make the crop attractive and cocoa growing allow to combine both tree crops with other food production on smallholdings. Government involvement in the sector has had a difficult history involving the following: In the mid 1990s, it bought into the run down Lever/RIPEL plantation through the ICSI. The government regulator the Commodities Export and Marketing Authority (CEMA) became a major shareholder. The government is now involved in efforts to find a solution to the dispute involving owners, managers, landholders and labour. CEMA monopolized copra marketing and processing chain. At the same time CEMA, as sole licensed copra exporter, was establishing copra market collection points in provinces, and setting up crushing mills for Prepared for March 5 & 6, 2009 Roundtable - Honiara 35

36 oil production in 6 provinces. However, some 80 percent of all copra was destined for RIPEL s Yandina mill and smaller provincial mills supplied it with oil rather than directly exporting. The financial collapse of CEMA in 2001 combined with the civil crisis caused copra production to fall to 2000 tonnes from previous levels of 24,000 tonnes. No oil is produced from the derelict Yandina mill. The CEMA collapse also disturbed cocoa marketing because of the disruption of collection points also used in the consolidation of beans for on-sale and export. During February 2009, CEMA announced a ban on further exports of copra from December 2010 with the apparent objective of promoting substantial conversion to oil. Without very substantial milling capacity in place, this would have highly adverse effects on commercial copra production. And SIG has committed additional funding to a small holder program Current state of activities Both copra and cocoa have had buoyant exports in the past two years. SIG has introduced a Smallholder Commercial Tree Crops Program with allocated funding of SBD$35.8m in 2009 and SBD$10.9m in The implementation details and geographic spread of this program, when known, could be important for progressing growth and improvement in both cocoa and copra production. COPRA Exports of Copra and Cocoa in comparison with Logging * 2008 Value (US$m) Volume (t) 14,849 21,831 26,182 21,214 27,905 41,810 COCOA Value (US$m) Volume (t) 4,587 4,181 4,928 3,829 4,470 4,548 LOGGING Value (US$m) n.a. Volume (t) 736,000 1,043,150 1,118,000 Total export value US$m (f.o.b) 74,210 96,747 10,2477 1,13, ,54 8 1,446,14 8 n.a. 168,015 na Sources: IMF 2008 Article IV consultations statistical appendix Table 23, *2007 IMF estimates; CEMA 10 Feb 2009 annoncement Solomon Star No reliable employment estimates are available for growing and harvesting of either copra or cocoa. However, based on an estimated 23.5 person days per tonne of dried copra 5 and 240 working days per job, current levels of copra production would imply more than 2,700 jobs in copra drying activity. 5 AusAID (2007) Smallholder Agriculture Study Vol 3 Markets and Marketing Issues Prepared for March 5 & 6, 2009 Roundtable - Honiara 36

37 Marketing structures are not favourable to growers, especially for cocoa. Limited value adding occurs in either product line. Marketing of both cocoa and copra is now on a competitive rather than monopolistic basis. However, cocoa in particular has a highly concentrated marketing structure. Although there are 6 licensed exporters, most exports are through one Australian trader Holland Commodities. This concentrated buying power may be limiting returns to growers and dryers, especially in more remote locations. The growers have no bargaining power and poor access to trade finance. For copra, there is also buyer concentration with three overseas buyers dealing with and financing local licensed copra exporters. Should another large buyer emerge in the form of a new mill this should provide greater price competition to the benefit of copra growers. The absence of milling capacity since the closure of the Yandina mill and no other CEMA mills operating is an impediment to the value chain for SI. Alternative small scale options have been developed: One, distributed by Kokonut Pacific Solomon Islands (KPSI) with the assistance of church groups and support under livelihood programs, has been set up in 25 villages but only half operate consistently. Volumes are small 6 with an estimate of 30 tonnes p.a. production of organically certified oil. Each plant employs 6 people in operation. KPSI estimate that they have a market for 3 times the amount of oil produced currently. An alternative cold press technology directed at the village industry level, offered by Solomon Tropical Products, is operating 2 mini mills (Tinytech mills). These operate at a larger scale than the DME mills. Their uptake requires funding and investment of up to US$20 000, including generators. Along with high quality virgin oil for cooking and cosmetic production, they offer a means of generating a diesel fuel substitute at the village level Prospects RIPEL land can be reactivated with superior plants and smallholder participation. Market access and transport improvement can be great catalyst. Projections 7 for coconut assume that the RIPEL land will be brought back into production, though not as a large plantation model. Rather, the land is likely to revert to some form of small holder/lease holder titling. If significant tracts of the 10,000 ha of RIPEL land can be brought back into production it is assumed in the study that 7000 tonne copra production is achievable from that source with superior hybrid plantings by By 2013, production of 45,000 tonnes of copra for further processing or direct export could be available on a regular basis as a result. Although approximately 75 percent of cocoa comes from Guadalcanal and Malaita, there is scope for greater production from both Russell Islands and some of the outer provinces. The growth in the value of cocoa production and exports is based on further assumptions that: suitable land under development in Guadalcanal and Malaita reaches peak production and cocoa areas that went into decline in Western Province and elsewhere are rehabilitated under the influence of revived market access in those areas; small holder cocoa production reaches 7000 tonnes by 2013; 6 Kad, S and Weir,T (2008) Virgin coconut oil as a tool for sustainable development in outer islands Pacific Economic Bulletin Vol 23 No 3, Nov. 7 A favourable growth scenario for both coconuts as a cash crop and cocoa has been provided in the 'Summary Report on Rural Growth in the Solomon Islands' prepared as an input to the government's Agricultural and Rural Development Strategy A number of the underpinning assumptions of that scenario have been adopted here, adjusted for events post Prepared for March 5 & 6, 2009 Roundtable - Honiara 37

38 as part of this, cocoa production in Choiseul and Isabel return to previous levels and revived Russell Islands production can contribute an additional 1000 tonnes annually. Construction of a large scale copra crushing mill. 2. Constraints Transport Weak transport lines and uncertain shipping services are significant constraints Unresolved RIPEL issues RIPEL is holding back effective utilisation of prime land. The country s palm oil producer GPPOL is known to have plans to construct a new crushing plant at Honiara Port, subject to land availability, to produce coconut oil in large volumes again, replacing the role of the defunct Yandina mill. Though in early planning stages, the first step of a modular construction could produce between 6000 and 7000 tonnes of oil for export by 2013, with twice that capacity from a second module. The economics of such a mill are supported by the rationalisation of GPPOL shipping both palm oil and coconut oil from Honiara direct to Europe rather than via the Philippines for further aggregation. This rationalisation is not feasible based on current palm oil volumes alone. Shipping continues to limit potential supplies from western areas. Strengthening market access opportunities for suppliers in Western Province and Choiseul will help to underpin increased export earnings. These supplies were badly affected by the CEMA collapse. The National Transport Plan and the proposed Franchise Shipping Scheme are critical remedies in improving market access. Land, labour and ownership disputes have effectively locked up a large parcel of arable land in the form of the RIPEL estate and are one of the biggest impediments to growth in commercial copra and cocoa production and exports. A taskforce on the reactivation of RIPEL has recently reported to Solomon Islands Cabinet; options considered have included liquidation, a negotiated pay out of shareholders, and nationalization Response to market pressure Possible weakening in copra export opportunities is provoking perverse responses by CEMA High value oriented competitors Both products suffer in value comparisons with export rivals The virtual closure of European markets to copra imports in favour of oil imports may put future pressure on the price of copra exports directed largely to Asia. But a proposed end to copra exports by December 2010 announced by CEMA is unhelpful. How this proposal would be implemeted is unclear, especially given the absence of mill capacity. Private enterprise investment in substantial crushing capacity is required as a remedy and that will take time. SI attracts lower prices than regional competitors, including PNG because of inferior quality 8 discounts of up to US$150 tonne for cocoa. It has been recommended that widespread dissemination of steel drying flues to replace inferior drying techniques would help to address this for both copra drying and cocoa and apparently several hundred have been deployed. SI is yet to tap into the price premium benefits of widespread organic 8 Estimates of $50-$150 tonne discounts relative to Bougainville and other sources have been applied to Solomon Islands based cocoa product Prepared for March 5 & 6, 2009 Roundtable - Honiara 38

39 certification. Ongoing agronomic assistance on superior and disease/pest resistant varieties, particularly for cocoa, is critical. Larger scale competition is emerging for niche coconut oil producers. The commercial risks posed by scattered locations and ill functioning sea transport links require rates of return for any financing of investment in small scale virgin coconut oil production. This in turn requires consistently high prices for the small scale virgin oil product. According to analysis by Kad and Weir (op. cit. p.61) It is becoming increasingly difficult to compete in these niche markets because industrial scale producers from the Philippines are vigorously entering these markets Challenge to finance small scale oil production and financing these projects at the village level is difficult. Problematic finance for value adding investment through small scale virgin oil production is a related problem. The capital sums required for the establishment of virgin coconut oil production by either of the two methods that have gained a foothold in some villages could be around US$20,000. This is a sum that is too large for most microfinance schemes and too small for consideration by some commercial credit agencies Risks from concentration of marketing power in the hands of buyers Poor bargaining power by growers limits their incentives and financial capacity to expand and improve. The market structure for both cocoa and copra leaves small growers at a disadvantage and unlikely to get the kind of prices they might if they had greater bargaining power perhaps through better market information. Better communications links for isolated growers would help. The higher the returns to growers and primary processors (dryers) and small agents the stronger the incentive signals to produce and to raise quality when this is reflected in a higher price. Better returns can be especially important in helping to finance expansion and improvement when trade finance is not available. Cocoa growers also often depend on trade finance from small local buying agents who face finance constraints themselves Agronomic constraints Ageing trees are affecting yields. There has been no major coconut tree planting program since Trees productivity decline rapidly beyond age 50 so without systematic replanting the relatively high productivity and competitive advantage in SI could gradually be put at risk. Ministerial encouragement of replanting is indicated. 3. Conclusions and Projections Potential impact on economy through exports, employment and government revenues Coconut products and cocoa will likely remain significant contributors to SI export revenues given sustained and improved access to markets. However, opportunities for copra exports may be less favourable in coming years compared to the recent past, and compared to prospects for coconut oil production and export on a commercial scale. Niche products are unlikely to provide value adding on a scale that will make up for any reduced opportunities to export copra rather than oil. Prepared for March 5 & 6, 2009 Roundtable - Honiara 39

40 3. 2. Key measures conducive to achieving favourable case scenario Extension services to small holders, RIPEL resolution, and transport & communications improvements to increase market access are key. along with facilitation of private sector large scale copra milling. To maximize the prospects for favourable outcomes from the sector government steps could include the following : Resolution of RIPEL issues urgently required. Government would need to act on a recent Taskforce report to Cabinet on this issue. SIG cooperation to fully implement the ADB-assisted Franchise Shipping Scheme to fast track the improvement of shipping services to outlying cocoa-growing areas. Growers, buyers, and mini-mill operators all benefit. CEMA s proposed end to copra exports should be urgently reassessed. Government assistance to GPPOL negotiations with the Port Authority to secure land at Honiara Port for a copra crushing mill Government monitoring of the returns at various stages in the value chain to assess the impact of competitive marketing arrangements for both cocoa and copra to protect grower interests. Ensuring telecommunication reform can improve market price information capabilities for remote growers. Improved budget support for agriculture extension services. Continued distribution of stainless steel driers, improved plant species and advice on replanting programs and organic certification to protect yields and prevent quality gaps with competitors from widening. Prepared for March 5 & 6, 2009 Roundtable - Honiara 40

41 Scenario I Favourable Assumptions Case Medium-Term Options Scenario II Unfavourable Assumptions Case Assumptions Assumptions External External Coconut oil and cocoa prices follow Word Bank average forecasts US$854 and $1860 per tonne respectively; copra price maintains past ratio to Weaker world prices Coconut oil $631, cocoa $1635 and copra $418 coconut oil price - $563 per tonne Opportunities still remain for coconut product exported as copra Opportunities still remain for coconut product exported as copra Governmental Governmental Resolution of RIPEL situation in 2009 with increased smallholder production No resolution to RIPEL dispute Adequate resourcing of Ministry of Agriculture extension services to small holders in Coconuts and Cocoa to assist replacement plantings for quality and yield improvement; extension of organic certification in cocoa. Improvement in inter-island shipping and outer island market access, assisted by ADB-backed Franchise Shipping Scheme. Market power of buyers reduced, raising share of export value to growers. No introduction of threatened end to copra exports during or after Honiara Port Authority land secured for new copra crushing mill with tonne annual intake capacity Results in Results in 21. Outputs: Copra production to tonnes in 2013 ( now) with increases from RIPEL and outer islands. Cocoa increases to 7000 tonnes (4500 now) with contributions from RIPEL and Western, Isabel and Choisel Coconut oil output to 7400 tonnes with ramp up to capacity by new GPPOL mill Failure to encourage and support replacement plantings through extension services. Improved inter island services do not materialise Increased licensed exporter market power No land transferred for copra mill at Honiara port Active discouragement of copra exports 21. Outputs: Copra production reverts to 2007 levels faced ( tonnes) with lower prices and no improved yields or marketing no increased incentives to growers; Cocoa does not exceed past best (5000 tonnes) under these conditions; Coconut oil production remains restricted to mini- mill contributions less than 1500 tonnes 22. Export value: Copra US$17m ($20 m now); Coconut oil $6.3m ($1m now); Cocoa $13m ($9.4m now) 23. Tax revenue: Some tax revenue from GPPOL mill as result of combined earnings with palm oil production trigger tax liabilities 22. Export value: Copra $12m, Coconut oil $1m Cocoa $8m 23. Tax revenue: No improvement on current payments 24. Employment generation: 1300 additional jobs associated with coconuts/copra, 600 with cocoa, minimal jobs associated with crushing mill 24. Employment generation: No new copra drying jobs or re-employment at RIPEL, no new cocoa jobs 25. Geographical impact: Some re-employment at RIPEL (Russell Is) and improved opportunities in outer provinces 25. Geographical impact: No recovery in Russell Islands or outer provinces from this source Prepared for March 5 & 6, 2009 Roundtable - Honiara 41

42 6. PALM OIL PLANTATIONS March 2009 Palm oil plantations will continue to yield export revenues and jobs for the SI economy. Further development of GPPOL could be the pivot. Providing that a new plantation in Malaita can be developed on commercial lines under private sector management, it could contribute to a near trebling of sector output by Sector Snapshot and Prospects Historical background Palm oil accounted for 16 percent of SI foreign exchange earnings in Palm Oil industry has been affected by conflict. In 1973, a plantation Commonwealth Development Corporation established Solomon Islands Palm Oil Limited (SIPL) and 3000 ha of oil palms was planted on an estate at Guadalcanal Plains. The plantation at its peak in the 1990s was harvesting and processing fruit from 6000 ha and producing more than tonnes of crude palm oil and kernel oil for export. With the withdrawal of the former owner CDC and accompanying social tensions, Solomon Islands Palm Oil Ltd closed its plantation and milling operations on Guadalcanal and large scale palm oil production ceased in SI in The mill was badly damaged during the civil unrest and the plantation fell into disuse. At the time of SIPL s closure, some 70 percent of the workforce was from neighbouring Malaita island where no large scale growing occurred. Since the tensions ended the government and international agencies have canvassed the possibility of establishing further commercial scale plantations an operation on Malaita could be an important employment and income generator. Pressure for such an investment is strengthened by the fact that the Malaitan workforce does not have the same access to plantation work as it enjoyed prior to the civil disturbances. There were claims of discrimination and strike action by unions in 2007, citing in part discrimination against employment of Malaitan workers Current state of activities GPPOL is the main player in palm oil industry In , PNG-based New Britain Palm Oil Limited (NBPOL) established a new company, Guadalcanal Plains Palm Oil Limited (GPPOL), with plans for reactivation of the old SIPL estate. The plantation activity and milling was based on a successful model of a nucleus plantation supported by contracts for some fruit supply by village out-growers. The enterprise was established as a joint venture between NBPOL (80%) and a local landholder company Guadalcanal Plains Resource Development Corporation. Investments of more than SBD$300 million over 10 years satisfied the criteria for so called qualifying investments which attracted significant fiscal incentives, including income tax holidays and exemptions from taxes and duties on imported inputs. No other oil palm commercial plantation has been developed since Prepared for March 5 & 6, 2009 Roundtable - Honiara 42

43 GPPOL nucleus plantation GPPOL approximate figures for 2008 Outgrowers intake (ha) Rehab. area (ha) Productive area (ha) Fruit production (tonnes) Oil production (tonnes) 500 6,500 4, ,000 20,000 Outgrowers divert from palm if prices fall. Recent price falls in crude palm oil (CPO) translate into reduced prices for fruit from outgrowers. In the face of recent falls in prices, a number of outgrowers have not recommited to supplying the mill. Any continued outgrower lack of commitment could slow expansion plans at GPPOL. At present, milling operations employ approximately 110 and plantation employment reaches approximately 1700 jobs in total, directly generated by the GPPOL operations. GPPOL employs around 240 per 1000 ha, compared with 130 in Malaysia 9. At full capacity, within the existing facilities, it is estimated that 2,500 would be employed in the various GPPOL associated activities Government involvement Palm oil development is embedded in SIG plans to address economic development and social tension. Funds are committed under the Medium Term Fiscal Strategy. The conflict related history and the potential for palm oil to simultaneously address economic need and residual social tensions may be a strong motivator for announced plans for the sector s development on Malaita in particular. Palm oil development on Malaita, with the Auluta Basin area as a potentially suitable plantation site has been under active consideration since Palm oil expansion with smallholder participation is part of the SIG s Medium Term Development Strategy (MTDS) and is provided for in the Medium Term Fiscal Strategy 2009 to Government funding is set at SBD$13.7m in both 2009 and 2010 according to the recent draft Diagnostic Trade Integration Study. Government planning envisages output of oil product at 100,000 tonnes by This would represent a 4 to 5 fold increase on current production. Malaita, Choiseul, Wasisi and Vangunu are all referred to as part of this development plan. The agreement between the government and a Malaysian company for the company to develop a plantation on Vangunu in return for logging rights has not been carried through by the company and the site is overgrown. SIG had a Project Design Document (PDD) completed for a plantation of at least 6000 ha in Malaita s Auluta Basin in The total area considered necessary by the PDD for viable operations is suggested as 6000 ha with at least half of this being in the form of a nucleus estate to guarantee contract supply levels. Remaining fruit supplies would be from small holders. AusAID conducted a pre-feasibility study as recently as December 2008, but the government has already announced a breaking of ground at the site in February Based on the figures of the Federal Land Development Authority of Malaysia. Its reports some 853,000 ha of palm oil plantation under management (Malaysia has approximately 4.4 million ha in total) with direct employment of 112,635. Prepared for March 5 & 6, 2009 Roundtable - Honiara 43

44 The government has been actively involved in aggregating land for the nucleus of the proposed Malaita development. The development model needs clarification, but it appears that the government intends to commit funds to development of the plantation land area and seek a commercial investor to operate a nucleus estate and construct and operate a CPO mill Prospects GPPOL has the potential to almost triple the current area under production. Shipping cost for GPPOL could be reduced through combined shipment of CPO and coconut oil. First steps in Malaita have been taken but uncertainty remains over land area. 2. Constraints World market effects CPO prices have reached three year lows recently and efficiency gains by competitors will put pressure on any SI producer. The existing mill capacity can support inputs from 9000 ha, which means an additional 40 percent compared to the existing rehabilitated plantation. Furthermore, there is an estimated 15,000 ha of suitable land in the vicinity, including the existing plantings. Bringing this into production would depend on market incentives and critical land access agreements. However, GPPOL management in November 2008 confirmed its plans to expand in the face of recent price falls, with intentions to plant an additional 1000 ha annually. Consequently, a second mill would be required around The company production plans for 2008 targeted CPO production of 20,000 tonnes with a further 2500 tonnes of palm kernel oil. Residual after the expression of oil from the kernel is exported as cattle feed. The published long term targets for the GPPOL operations include a full 15,000 ha of plantation product of which some 2000 ha would be under the control of outgrowers on 2 ha plots. An eventual CPO output of 69,000 has been targeted in earlier projections The immediate profitability of the GPPOL palm oil enterprise could be enhanced if a plan to establish a GPPOL copra crushing mill at Honiara Port is implemented. This would deliver significant shipping gains as cargoes of CPO and coconut oil could be shipped directly to Europe for refining and marketing, by-passing the Philippines. Considerable effort has been put into surveying of land title and discussions with local leaders involved with customary land access issues. However, the total available area under clear title and access for planting as a nucleus estate was not certain by late CPO prices have fallen by more than 70 percent from March 2008 values of US$1239 per tonne to US$437 in November 2008, having reached a three-year low in October 2008 of US$376. GPPOL s original business plans we based around estimated break even prices of around US$600 for CPO, subsequently replaced by lower estimates. It is estimated that Malaysian small holdings are still profit-positive at prices of US$ per tonne but these prices may be close to break even levels for small producers in other producing countries. However some IFC sources estimate that for newly established estates in Malaysia/Indonesia break even may be below US$300/tonne. Both expansion plans and new plantation prospects in SI could be affected by recent falls in CPO prices if these are sustained. Among other things they may influence the balance between fruit sourced from nucleus plantations and from small holders respectively if smallholders do not respond to contractual supply arrangements when prices fall. Prepared for March 5 & 6, 2009 Roundtable - Honiara 44

45 Action in Malaysia and Indonesia may help ease supply pressure on price but short term. The rapid price declines of 2008 have prompted responses in the two producing countries that account for more than 85 percent of world output. Malaysia will replant 250,000 ha of ageing plantations, 125,000 of these by 2011, and Indonesia, which has more but lower yielding plantations, will replant 50,000 ha. These replantings will temporarily reduce output and take some pressure off world supply, with some price-supporting effects. However, in the longer term, they will return to production with increased yields Environmental and agronomic constraints Valuable certification requirements may make it difficult to aggregate sufficient plantation land. GPPOL is confident that it will shortly achieve Round Table on Sustainable Palm Oil (RSPO) certification for sustainable practices. Elsewhere it may be more difficult. RSPO certification allows access to more attractive price premium markets. In seeking investors for further large scale plantations development, SIG will need to consider the ability of any proposal to comply with RSPO requirements. The potential native forest clearing (high conservation value forest, biodiversity corridors, etc ) associated with the establishment of a new plantation may translate into the inability to satisfy RSPO. It may be a significant risk to the Malaita project. An IFC-commissioned review of the PDD expressed concerns that it did not fully address these issues. This point has to be put in perspective with the need for a minimum suitable land available to support a mill of efficient size, without which no profitable plantation can be envisaged Land ownership There is a minimum size for a plantation, even with smallholder contribution. GPPOL has advised the certifying authority that there are no land disputes, legal non-compliance or litigations in its SI operations. GPPOL has expressed confidence that it will be able to extend plantation activities to twice their current level with adequate areas of land with suitable topography and soils available without risks of land title issues. There is an industry view that a minimum ha is required to support a viable project. For the Malaita project, in the Auluta Basin field surveys of tribal lands title have been undertaken in the area and a local awareness program has progressed. Some tribal land has already apparently been acquired by the SIG but had not reached the minimum 1500 ha declared necessary as a milestone for progressing the project in According to the most recent survey reports, earlier work in 2007 met significant hiccups in establishing ownership boundaries with tribal chiefs Financing Land constraints can affect profitability and ability to attract finance by a private CPO producer. The ability to aggregate sufficient quantities of suitable land with assured access in the short term will remain as a significant risk to a Malaita development. This constraint has implications for attracting private sector finance. To date, the SIG has announced its intention to develop the Malaita project and lease out the operations. If the effective size of the estate is limited to below that needed to feed a mill of 30t/ha, economies of scale will be foregone and private investors may be difficult to enlist. Of course the behaviour of world prices for CPO will also be influential in Prepared for March 5 & 6, 2009 Roundtable - Honiara 45

46 determining how soon such an investor might be prepared to commit Transports and other infrastructure Transport needs and the cost to government associated with future CPO shipments need to be detailed. The plantation envisaged for Malaita is relatively small and the location isolated. Exports of CPO for refining will require adequate port facilities. The suitability of Bina harbour and alternatives as outlets need to be assessed, and the implications for any upgrading quantified. Power is not a constraint as one could expect that a new project would, like GPPOL, generate its own mill power needs using biomass fuel sourced from the plantation operations. 3. Conclusions and Projections Potential impact on economy through exports, employment and government revenues Given the constraints faced both market based and other the government s vision of production of 100,000 tonnes by 2020 would seem very challenging. Nevertheless if plans for Malaita can be realised in the medium term, Scenario 1 below suggests the following as achievable by 2013: Area under production 15,500 ha (5000 in 2008) CPO output 56,000 tonnes (approx 20,000 in 2008) Exports US$39m (US$13.7m in 2007) Jobs GPPOL 2,600 (1700 in 2008) Malaita 2,000 (Zero in 2008) Taxation revenue Corporate tax holidays will still apply Some tax revenue from goods tax and Income tax on worker incomes Key measures conducive to achieving favourable case scenario There are ways that government decisions and activity can support the best medium term outcomes from this sector and to set the scene for longer term benefits to the SI economy. They include the following: A fully detailed plan for showing the rationale, sequence and government funding component of government initiatives in developing Malaita and further plantation sites. Clarification of how current development expenditures at Bina Harbour or other possible shipping points fit in with this plan. Articulation of the strategy for attracting private sector development of the proposed sites needs to be articulated. Full consultation with GPPOL over these plans and how government might assist in any negotiations with the Port Authority in rationalising GPPOL s combined processing and shipping plans for CPO and coconut oil. Land at Honiara port secured for related GPPOL development Prepared for March 5 & 6, 2009 Roundtable - Honiara 46

47 Scenario I Favourable Assumptions Case Medium-Term Options Scenario II Unfavourable Assumptions Case Assumptions Assumptions External External International market demand supports World Bank average forecast price of CPO prices depressed until 2011, only recover to US$600/tonne; G canal US$700/tonne outgrowers do not maintain supply of fruit at this price Related vegetable oil markets remain firm from 2010 CPO substitute prices do not recover to previous levels Governmental Governmental Land sufficient for 6000 ha plantings secured at Aluta Basin without RSPO difficulties or ongoing title risks in 2009; Commercial investor identified and commences clearing and planting operations. Land at Honiara port secured for related GPPOL development Failure to aggregate sufficient land (minimum 6000 ha guaranteed) on Malaita to support inputs to an efficient scale mill before 2012; insufficient land of low conservation value and/or unresolved title issues. Failure to facilitate land acquisition from Port Authority for related copra mill at Honiara Any port improvement needs on Malaita identified and completed by 2013 Port choice/improvements on Malaita for CPO export or shipment to Honiara not completed by 2011 Results in Results in 26. Outputs: Combined GPPOL/ outgrower production 49,000 tonnes by 2013, ( 24,000 now) with expanded mill capacity, new mill by 2013; initial production from Malaita commences contributing 7000 tonnes by Outputs: Production growth restricted to GPPOL plantation increases- total tonnes 2013; mill capacity expansion deferred; no new mill before Export value: By 2013 exports reach US$39m 27. Export value: By 2013 GPPOL exports US$28m at lower US$600 price 28. Tax revenue: Some profit tax revenue from GPPOL but only if related investment in Copra crushing occurs 28. Tax revenue: Continuing tax holiday arrangements shield GPPOL from profit tax beyond Employment generation: 2000 Temporary jobs planting Malaita with further 2000 permanent jobs if full development, GPPOL adds 500 jobs by Employment generation: 500 GPPOL additional jobs 30. Geographical impact: G canal and Malaita both gain jobs and goods and services demand 30. Geographical impact: Job and demand growth confined to G Canal Prepared for March 5 & 6, 2009 Roundtable - Honiara 47

48 Solomon Islands Sources of Growth SECTOR GROWTH PROSPECTS THE AGGREGATE EFFECTS OF THE MOST FAVOURABLE CASE OUTCOMES March 2009 Leading enterprises and sector growth could bring major benefits on the economy, employment and government revenues. Additional benefits could be derived from these sectors but this requires a longer term strategic review. Provided particular constraints are addressed. The Bank/IFC team assessed the potential impact of large projects and sector initiatives on economic growth, employment, the balance of payments and government revenue over the period to 2013 on the assumption that the global economy might grow only slowly and commodity prices remain weak. This analysis was undertaken to obtain a reasonable estimate of the economic growth prospects of the six sectors within the current environment and to identify the associated growth constraints. The analysis cannot replace a longer term more strategic perspective of sector development which itself would identify other development opportunities. For example, the regionalization of the tuna fishery and the opportunities associated with management of fleet size and tuna supply. In a favourable case scenario assuming that the Government and investors successfully addressed constraints these projects and initiatives could improve balance of payments, raise government revenues and create new jobs. Roundtable discussions reviewed the constraints and opportunities, seeking to identify actions by the government, investors, aid agencies and other foreign official institutions that could address immediate impediments to particular projects, as well as improve conditions for sector growth more generally. Key issues included: Global uncertainty should not be under - estimated There is clear scope for the Government to unlock particular constraints Projections of the impact of growth in the six sectors over the period to 2013, (coinciding with the expected end of commercial logging) depend importantly on global economic conditions. Uncertainties about the severity, duration and impact of the global recession on Solomon Islands mean that assessments of sector growth prospects must be used cautiously. Success by the Government to conclude agreements with project sponsors, resolve some outstanding disputes and improve the regulation of key sectors to allow projects to proceed quickly would send positive signals to other prospective investors, particularly in mining, tuna fisheries, palm oil and tourism industries. Prepared for March 5 & 6, 2009 Roundtable - Honiara 48

49 but success also depends on favourable support by external agencies. Most of the major projects are likely to depend on foreign sponsors. In the present global environment, and in light of foreign investors perceptions of Solomon Islands risk, favourable decisions by foreign investment support organizations (e.g., to provide risk guarantees) could be key to their success., especially gold mining, and future tuna fisheries investments. On favourable assumptions. The selected major projects and sector initiatives potential benefits to the balance of payments, government revenues and employment could be especially valuable given the current strains on reserves and the budget, and the decline in logging all of which has been worsened by the current global financial crisis. Prepared for March 5 & 6, 2009 Roundtable - Honiara 49

50 Aggregate Effect of Balance of Payments Benefits to the balance of payments. If all of these large projects and sector initiatives were established promptly they could add almost SBD$2 billion to exports by But higher exports would be offset at least partly by imports of capital goods and materials for these projects, as well as higher imports of consumer goods as the economy grows. Nevertheless, the trade balance might still benefit by perhaps SBD$1 billion a year. Aggregate impact of BTOs on trade account (SI$ mn) Exports Imports Trade balance Prepared for March 5 & 6, 2009 Roundtable - Honiara 50

51 All projects contribute. Gold exports might account for half the increase in exports from 2011, while tuna and palm oil exports would account for another third. Smaller contributions could come from plantation forestry, agriculture and tourism but the contributions from these industries are likely to be more broadly distributed throughout the Solomon Islands population. Gold exports would last only until reserves were exhausted but other projects and sector initiatives offer a longer-term, sustainable exports, revenues and employment prospects. Impact of each BTO on exports (SI$ mn) Fish Agriculture Tourism Forestry Palm oil Gold Prepared for March 5 & 6, 2009 Roundtable - Honiara 51