Vaccine Rollout Could Improve the Economic Outlook in the South Pacific, While an Outside Power-struggle Lingers

Vaccine Rollout Could Improve the Economic Outlook in the South Pacific, While an Outside Power-struggle Lingers

Pacific Island Countries (PICs) are on the road to economic recovery as vaccine programmes begin, potentially reviving tourism and trade in the region. However, the region’s economy remains the subject of external influence.

While the Pacific’s response to COVID-19 has benefitted from a large sea moat and swift action to restrict travel, the region has consequently been hit hard by the economic reality of more than a year of trade disruptions and the collapse of the tourism industry. 

Pacific island economies are heavily reliant on tourism, making up close to 30% of GDP in some PICs. As small island economies (combined, the population of the Pacific is 2.3 million, covering 15% of the earth’s surface) without an abundance of resources, they are also heavily reliant on imports and development assistance. For these reasons, the Pacific is desperate for the world to return to a sense of normalcy. The first stage for them is developing resilience to the pandemic and opening their borders. 

For many governments in the Pacific, the vaccine cannot come fast enough. Fiji, for example, went back into lockdown in May after a new outbreak, which they failed to contain, now facing growing case numbers.  

Economic recovery possible with vaccine rollouts beginning

The success of Pacific vaccine programmes largely rests on the provision of vaccines from foreign powers. Already, several foreign players have provided vaccine supplies to support the small Pacific island nations. 

Australia has committed to provide up to 6 million vaccine doses to the Pacific and New Zealand committed to providing 1.2 million vaccines for its Pacific neighbours. Under Operation Warp Speed, the United States have supported Palau, the Marshall Islands, and Micronesia with their vaccination programmes; the French government have actively supported its partners in the region (French Polynesia and New Caledonia); and India and China have donated vaccines to governments across the Asia-Pacific region. 

With commitments to supply vaccines secured, the key barrier to successful vaccination programmes in the Pacific will be the willingness of pacific people to take the vaccines. Vaccine disinformation and misinformation has spread quickly across the Pacifc, sparking some vaccine hesitancy. A recent report found that 62% of vaccine-related posts on Facebook in the Pacific make unsubstantiated claims. 

Leaders such as the Prime Minister of Papua New Guinea (PNG) James Marape – who was the first person in his country to have the AstraZeneca vaccine – have led the charge on the vaccine front. With their leadership, and the provision of vaccine supplies from developed parties, it looks like the Pacific could be entering the recovery stage. 

The Pacific’s post-pandemic economic outlook 

As the tourism sector begins its slow revival, and trade gains pace again, the Asian Development Bank (ADB) predicts that Pacific economies will enjoy a return to economic growth in 2021. While the prospects for growth are brighter than a year ago, the short-term economic prospects will remain uncertain. A return to growth will be heavily impacted by the success of Pacific vaccine programmes and the eagerness of tourists to head abroad as border restrictions are lifted. 

While a travel bubble is already being mooted between Australia, New Zealand and the PICs, it is unlikely that tourism returns to pre-pandemic levels in the short-term, which could force moves to diversify economic activity in the region. With the support of their larger neighbours under the Pacific Agreement on Closer Economic Relations (PACER) Plus agreement, a regional trade and development agreement between Australia, New Zealand and 9 other Pacific Island Forum countries, which entered into force in December 2020. Pacific economies will develop their export industries, including agriculture.

Pacific governments have actively sought to support their own economic resilience through stimulus packages, liquidity injections, and unemployment assistance programs. However, their budgets are limited as they grapple with debt and the economic downturn. So, recovery will remain largely dependent on travel, development assistance, and the global economic recovery. 

A power struggle makes development assistance the Pacifics key economic driver

Perhaps the most telling aspect of Pacific vaccine programmes is that foreign powers continue to be interested in influencing the region, ensuring development assistance is not in short supply. 

In the decade prior to the pandemic, China initiated a new struggle for influence in the South Pacifc with previously dominant western powers in the region. Between 2011 and 2017, China contributed 8% of all foreign aid in the Pacific, making them the region’s third-largest donor. Furthermore, China’s construction activity in the Pacific was worth $958 million in 2017 – nearly six times the value of its aid funding. Many in the West are sceptical of Chinese support in the Pacific, believing the Chinese are serving their own military interests with projects such as an airstrip upgrade in the strategically placed atoll island-nation of Kiribati. At the end of 2020, China re-emphasised its strategic interests in the Pacific by signing a Memorandum of Understanding to fund a marine base in southern PNG, worth $150 million – further fueling Western concerns.

The rise of China’s pacific interests has also revived the interests of others in the region. In recent times, the focus of the western powers (the US, Australia and NZ) has been clear. Through trade and development agreements, they want to integrate the Pacific Island Countries in the global economic system. 

Key initiatives in the region include the PACER Plus. On the surface, PACER Plus is a trade agreement, but the agreement also commits Australia and New Zealand to providing a range of development assistance (financial and technical) to facilitate the Pacific’s ability to engage in global trade. 

Similarly, in October, Fiji signed a Trade and Investment Framework Agreement with the United States. This agreement is the first of its kind between the US and a developing state in the Pacific, signalling a new degree of willingness for the US to engage directly with the Pacific – likely a response to China’s interest in the region. 

As this struggle for influence in the Pacific grows, development assistance is likely to expand, improving infrastructure, boosting trade prospects and ultimately contributing to long-term growth in the region. The downside to this struggle remains the Pacific’s growing debt and shrinking autonomy, leaving Pacific states vulnerable to superpower confrontation. For now, Pacific leaders will be hopeful that a successful vaccine rollout can bring tourists to the region and restabilise their economies.

Categories: Asia Pacific, Covid-19

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