One example of this vulnerability is the natural disaster which recently struck Vanuatu. “There was a category five cyclone there in March this year – which is both a tragedy and a logistic challenge for businesses,” explains Michael Murphy, CEO for mobile communications provider, Digicel Pacific. “We managed to get our mobile network back up within five days but I think a lot of people forget that in this region we have very different terrains. Building locations and connectivity into these markets is very challenging and will remain so until the infrastructure starts to improve over a longer period.”
Moreover, ANZ notes several challenges associated with doing business in Oceania’s developing countries: the limited avaliability for overseas businesses to own land in Samoa; the 820 indigenous languages spoken across PNG and the corrupton that can exist within parts of the public service, as well as in PNG’s business environment; and stringent controls over cross-border payments from Fiji are but a few examples.
What needs to done?
Nevertheless, opportunities for growth are set to expand as more companies and investors see the region’s potential. As De Silva explains: “Although they are not always seen as strategic countries, there are donors from across the globe investing in Pacific island countries. It is amazing that some of these countries – even the smallest with only 30-50,000 people – will have up to 40 active donor partners.”
In addition, privatisation of public utilities by many of the governments in Oceania is opening up opportunities for forward thinking companies. Digicel Pacific, for example, has taken on the challenge of establishing operations in the region (described by Murphy as “up mountains and down rivers”), and, according to De Silva, “has absolutely changed the landscape in terms of telephone usage, the efficiencies of telephone usage, the cost of usage and its reach.” The telecoms company now boasts expansion over six pacific countries (Vanuatu, Samoa, PNG, Tonga, Fiji and Nauru), including 4G in two markets.
Before Digicel, each of these six countries had government-owned single monopoly telephone operators which were inefficient, costly and limited to urban areas. Certainly, the dialogue around private sector investment in such areas is increasing and De Silva predicts in the next few years that “we will see the Pacific governments pursuing private sector investment as a priority for economic sustainability and growth.”
A helping hand
South Pacific Business Development (SPBD) is one example of an organisation assisting companies in the region with the identification of opportunity and provision of financial support at the other end of the scale of opportunity. Inspired by the pioneering organisation in microfinance, Grameen Bank, SPBD targets the base of the economic pyramid in four pacific island countries: Samoa, Tonga, Fiji and the Solomon Islands. “The top 20% of the population in the South Pacific have most of the wealth, education and business connections meaning a lot of the existing financial services and development is channelled through them. But if you are going to achieve improvements to the quality of life for the masses, then you need to do it through a vehicle like us,” explains Greg Casagrande, Founder and President of SPBD.
“Due to the small-sized nature of Oceania’s developing economies, there are very few formal waged employment opportunities. SPBD enables individuals to be self-employed, invest in capital equipment and increase their productivity to enhance their income.” By providing training on loan applications, granting those loans without the requirement of collateral and maintaining ongoing business guidance, SPBD “empowers people at the grass roots level through getting them established privately.” That, according to Casagrande, “is what’s sustainable and scale-able.” Indeed, such opportunities help leverage a business environment where the private sector can flourish.
Doing business in Oceania
Problematic for both corporates and entrepreneurs alike, however, is the limited access to finance in Oceania. With the exception of Fiji, in the majority of countries, less than 20% of the population have access to finance. “The banking sector faces the same challenges that a corporate would because of limited access to actual infrastructure,” explains Murphy. Moreover, “traditional banks that demand collateral or formal wages end up excluding 80% of the population from any sort of financing,” says Casagrande.
Reliance on cash is particularly problematic for entrepreneurs as they have to travel long distances to deposit money at distant bank branches. But a new trend has been emerging where banking services can be available at their fingertips using technology. Several initiatives have launched where payments and transfers can be completed using mobile phones – so although consumers and businesses may be geographically remote, they can be connected to their banking provider. Money can then be withdrawn from electronic funds transfer machines or at local shops operating as agents for the banks. Currently, BSP, ANZ and Westpac are all implementing electronic and/or mobile banking platforms.
For larger corporates, research must be undertaken into which banks can support their local needs. ANZ, for example, has a regional operations hub in Fiji’s capital city, Suva, and operates branches with corporate services in many of the island countries.
The reliance on external support and investment, as discussed earlier in this article, is recognition of the tough conditions that economic and social development face in the small island countries of Oceania going forward. Although the majority of Oceania’s nations are likely to remain aid-dependent for some time, the nature of dependency has the potential to reach a point at which financial assistance could support budget implementation by governments, rather than dominating it.
The reason – change is beginning to occur: “A while back, the governments in the region seemed happy enough to receive aid and manage bilateral relations. In the last five years, however, we have seen a marked improvement in the way governments are engaging with the importance of the private sector,” explains IFC’s De Silva. Pacific governments seek (increasingly so) to build a greater capability to respond to operational and business challenges, attracting investor attention along the way.