Obstacle to economic growth - Solomon Star News

Obstacle to economic growth
Featured

12 September 2019
Author 

DEAR EDITOR – In 2016, the former Managing Director and World Bank Group Chief Financial Officer, Joaquim Levy, wrote about the gap he perceived in private investment.  

Although he was then writing in general terms, there were several paragraphs in his article I thought relevant to the situation in the Solomon Islands at that time.

Four years on, I still perceive relevance in private investment limitation in the Solomons and couple his earlier observations to factors still, unfortunately, hindering growth at home.

I will quote some of his words to help explain my reasoning.

Quote:

"In a world of slow growth and very low interest rates in most major economies, there is increasing interest in infrastructure development. 

“Building quality infrastructure helps spur economic activity and jobs in the short term and expand countries' capacity and potential growth in the medium term. It also contributes to higher confidence levels — a key ingredient to macroeconomic stability.

"Today, the private sector still provides only a small share of the total investment in infrastructure for emerging markets, despite the importance of private operators in many.

"The appetite for infrastructure on the part of fixed-income investors, in particular, is clearly below its potential. 

“This is in part because of insufficient information and an apparent mismatch in risk-adjusted returns. 

“Good projects and innovative risk mitigation instruments can help address this mismatch and unlock new sources of finance for infrastructure.

"Political instability, regulatory hurdles, market volatility, foreign exchange fluctuations, and information asymmetries are among the most common causes of concern for institutional investors investing in developing countries. 

“There are many ways to mitigate these risks, including comprehensive government investment programs with standardized features that reduce the costs of gathering and processing information for investors.

"Most importantly, closing the infrastructure gap, while providing a steady income stream to investors, will mean that billions of people living without basic services — from electricity, to all weather-roads to clean water and sanitation — will have access to the infrastructure they need to lift them out of poverty.”

The Solomon Islands is working to close the infrastructure shortcomings with help from several donor partners, including the USA, the World Bank and the Asia Development Bank but constraints on private sector business investment will, unfortunately. likely remain hindered for several reasons, including the following factors.

The relatively high cost to potential investors of accessing international markets and importers of shipping due to distance.

Low coverage and relatively high cost of electricity reduces profitability of any business requiring manufacturing, processing or refrigeration.

Relatively low density of roads and high cost and infrequency of inter-island shipping imposes high costs and reduces economic productivity.

Shortage of particular specialized skills imposes relatively high costs on business.

Low coverage and relatively high cost of electricity reduces profitability of any business requiring manufacturing, processing or refrigeration. 

Lack of appropriate regulation and administration of existing registered land limits availability of land. 

 Contestability of rights and agreements involving customary property increasing risks and costs for large scale investors and dissuades international investment. 

Frank Short
Bangkok, Thailand

 

559 Views
Editor