Small Islands and Economic Viability

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Small Islands and Economic Viability

• Rose Marie Azzopardi
• Ph.D Student
• University of Sussex
• UK

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Main Question

• Are small islands helpless or resourceful?

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The Claims and the Empirical Evidence

• Disadvantages and Advantages
• In terms of GDP per capita, six out of 10 richest
  countries are small states
• Islandness is not statistically significant
• Contradictory
• Inconclusive

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and

• Salvatore (2001) excludes from his analysis
  nations with less than 1 million population
  often small island nations with only a few
  thousand people and little economic significance
• MIRAB, PROFIT, Non-market solutions
• Vulnerability index

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My Paper

• 26 small independent island states, 30km²land
  area, 1.5 million population
• arguing that successful islands are more focused
  on invisibles rather than visibles, services
  rather than manufacturing, to override
  transportation costs
• reassessment of successful islands still needed
  due to
• erosion of trade preferences
• stricter rules in financial activities
• widening remit of the WTO
• regionalism

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The Hard Facts

• High Income (4 islands) (4/78) 5.1
• Upper Middle (11 islands) (11/64) 17.2
• Lower Middle (8 islands) (8/58) 13.8
• Low Income (3 islands) (3/8) 37.5

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Region

• Mediterranean islands high income
• Persian Gulf (high income)
• Caribbean islands upper middle
• Pacific (except Palau) all lower end
• Atlantic and Indian (mixed groups)

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GNI per capita of neighbour

• Pacific all lower
• Indian Ocean and Persian Gulf all above
• Caribbean 6 lower, 2 higher
• Atlantic 2 lower, 1 higher
• Mediterranean, 1 lower, 1 higher

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Dependence on trade and Openness of the economy

• All islands import more than average of group
• Only 4 export less than average of group
• Except for Comoros, all islands have very open
  economies, above world average and above group
  averages

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Sectoral ActivityPrimary Sector

• Majority of islands are above group average (ex
  Sao Tome Principe, Cape Verde, Bahrain, UM5)
• dependence on agriculture, fisheries, forestry
• subsistence and exports
• Sugar, bananas, fish, copra, cocoa

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Secondary Sector

• Almost all islands are below group average (ex.
  Seychelles, T T, Bahrain)
• scale for competition transportation costs
• industrialization is not heavy on islands,
  normally food processing and textiles
• Bahrain - petroleum products and aluminium
• T T - petroleum products, chemicals and steel
• Seychelles - canned tuna and frozen fish

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Tertiary Sector

• Almost all islands are above group average (ex
  Comoros, Solomon Is. Fiji, T T, Bahrain)
• High concentration on services, which includes
  government
• Almost all have tourism as one of their main
  industries, followed by offshore banking

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GNI per capita

• Only 9 out of 26 are above the world GNI per
  capita average of 5500
• High income average is 28,550
• While the four islands in this group range from
  9,260 to 15,110 - all well below the group
  average

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Sectoral Employment

• Only the four high income islands have single
  digit percentages of employed people in the
  primary sector
• Light industry for most islands and not many
  people employed in the secondary sector
• Islands with at least 64 employed in tertiary
  sector are either in high or upper middle groups
  and their GNI per capita is above 7000.

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Other issues for consideration

• Tax havens 15(18)/26 OECD 1998 list
• Trade concessions (REPAs, WTO)
• Donor fatigue (ODA decreased by 1/3 in real terms
  in the 1990s) World Bank, surveillance,
  effectiveness, package deal
• Regionalism -innocent bystander dilemma
• Informal economy - multiple jobs, small family
  enterprises

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Summing Up

• Islands still too dependent on primary sector
• Manufacturing not affordable, unless one has
  developed a niche market (Bahrain, Seychelles)
• Focus on services should not be restricted to
  tourism due to increased competition

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Concluding comments

• Data analysis inconclusive on helpless/resourceful
  dichotomy
• Mixture of external management blended with a
  variety of internal policies
• Each island must design its own mode of
  development, based on own geographical, cultural
  and social realities, yet remaining open to new
  ideas and engaging more with the global economic
  environment

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Thank you