Trade In Services

Overview

Services account for the second-highest proportion of total exports among LDCs. Vanuatu is a net services exporter, recording a surplus in the services account of US$160 million in 2012. The latest data show that the services sector accounted for an extraordinary 67% of GDP (above the LDC average). Commercial services exports doubled in the period 2005-2011 to reach US$ 282 million.

Services has also been a source of job creation for the Vanuatu economy as a whole. In terms of employment trends, labour market statistics are scarce, with the last full labour market survey carried out in 2000. However the 2009 census gives broad data on employment by industry, and shows that while 60% of the population are employed in agriculture, forestry or fisheries, some 35% are employed in the service sector (or 28%, excluding government workers). It is worth noting that this marks a significant change over time: previous consensus estimates suggested the ratio of agricultural to services workers was in the region of 80:20 per cent. According to the company register, the vast majority of registered businesses in Vanuatu are in the services sector, suggesting that services make up the bulk of the formal sector, supporting generation of tax revenues and thus public sector wages and investment. At the same time, there remains a clear divide in Vanuatu between the formal, urban, services sector and rural areas where employment continues to be dominated by the agricultural sector.

Sectorial Report

Tourism currently represents 40% of GDP and forms the largest single component of services export growth over the last decade. In comparison to a decade ago, agriculture accounted for a higher proportion of economic output that tourism, at 18% of GDP. Gross tourism receipts now account for 3.9 times the total value of merchandise exports. In 2012 three-quarters of visitor arrivals came from ANZ, 61% from Australia and 13% from New Zealand.

Services have also been associated with Foreign Direct Investment (FDI). Of VT85bn of proposed FDI projects submitted to the Vanuatu Investment Promotion Authority (VIPA) over the 2007-12 period, some 85% by value were in the services sector, notably again in tourism services, retail, finance and construction. This compares with 8% of proposed FDI flowing to manufacturing projects and less than 5% to agricultural projects.

The export of Labour is increasingly important. Under the New Zealand Recognised Seasonal Employer (RSE) scheme launched in 2007, Pacific Islanders including those from Vanuatu have had the opportunity to work on New Zealand farms in horticulture and viticulture on a seasonal basis for a period of seven months. At least 11,000 workers have used the scheme, with overall income estimated at around US$41 million. The net gains per individual are estimated at a 35% rise in annual income, with a number of additional spin-off benefits. 

A similar scheme in Australia, the Pacific Seasonal Worker Scheme, has involved fewer Ni-Vanuatu workers but is estimated to have made an average contribution of around US$12,000-US$13,000 per annum to participating workers, of which around US$5,000 is remitted to the home country per person, which represents a gain of US$2,600 once the opportunity cost of staying in the Pacific is discounted. Both of these labour schemes have implications for PACER Plus in that it would be desirable to embed them within a trade agreement so as to make their benefits ongoing and permanent, much as several Polynesian states have permanent migratory access into New Zealand and Australia.

The onshore financial system consists of four banks, three of which are foreign-owned branches and subsidiaries, four insurance companies, two of which are local. Credit growth, in part boosted by the entry of a new bank in 2007 and several large commercial and tourism projects, has slowed gradually. Banks remain well capitalized and profitable, and Vanuatu is attractive as a retirement and investment destination for Australian citizens due to its low-tax regime and absence of income tax. 

The offshore financial centre was established in 1971 under the colonial administration, which aimed to provide further economic diversity to a heavily copra-dependent economy. Vanuatu has no income tax, capital gains tax, inheritance tax or withholding tax. Risks in the financial system have risen recently, however, due to the weak economic environment (including a decline in house prices), and structural change stemming from enhanced oversight by the Australian Tax Office (ATO) of Australian citizens’ financial assets in Vanuatu, which has led to the repatriation of some foreign-currency deposits. The increasing Australian focus on illicit money flows to secrecy jurisdictions promises to place further pressure on the operations of the financial centre.

Address

Address:
Independence Garden, Churchill Avenue
PMB 9051|Port Vila|Vanuatu
Tel:
(678) 27750
Fax:
(678) 27832
Email:
info@vanuatu.gov.vu