Economy and Trade
Named after Captain Cook, who sighted them in 1770, the islands became a British protectorate in 1888. By 1900, administrative control was transferred to New Zealand; in 1965, residents chose self-government in free association with New Zealand. The emigration of skilled workers to New Zealand, and government deficits are continuing problems. Like many other South Pacific island nations, the Cook Islands’ economic development is hindered by the isolation of the country from foreign markets, the limited size of domestic markets, lack of natural resources, periodic devastation from natural disasters, and inadequate infrastructure. Agriculture, employing about one-third of the working population, provides the economic base, with major exports made up of copra and citrus fruit. Black pearls are the Cook Islands’ leading export. Manufacturing activities are limited to fruit processing, clothing, and handicrafts. Trade deficits are offset by remittances from emigrants, and by foreign aid, overwhelmingly from New Zealand.
Economic Policy over 12 Months
In the 1980s and 1990s, the country lived beyond its means, maintaining a bloated public service, and accumulating a large foreign debt. Subsequent reforms, including the sale of state assets, the strengthening of economic management, the encouragement of tourism, and a debt-restructuring agreement, have rekindled investment and growth. In the 2008–2009 Budget, Finance Minister, Sir Terepai Maoate, said that the country’s Standard and Poor’s rating had improved from BB− to BB, with a positive outlook over the year as a result of prudent fiscal management. The government’s goal is to provide a stable fiscal platform to enable the private sector to grow. The long-term principles guiding the Islands’ fiscal policy were set out in the Ministry of Finance & Economic Management Act 1995–1996, the Act that started the move back to fiscal prudence. The goals include ensuring that unless Crown debt is at prudent levels, operating expenses will always be less than operating revenues, which means that the Act mandates an operating surplus. The Act also makes the government responsible for achieving and maintaining levels of Crown net worth that provide a buffer against future shocks. It also constrains government to ensure “a reasonable degree of predictability” about the level and stability of tax rates. While the current budget does look to external financing to build long-term infrastructure, it aims to keep such borrowing within prudent limits.
In July 2008, a Cook Islands delegation and the European Investment Bank (EIB) met to explore infrastructure funding loans. That meeting, led by Sir Terepai Maoate, went well for the Islands, and the EIB agreed to provide funding for water and sanitation developments, with the Rarotonga Apopo and Aitutaki Apopo infrastructure plans being uppermost there. The EIB also indicated that it would support alternative energy prospects to minimize the impact of climate change, and that loans for this purpose would attract very low interest rates. Loans would be in New Zealand dollars rather than euros, so the Islands will not be exposed to foreign-currency risks. The EIB also approved a NZ$5 million facility for the Bank of the Cook Islands (BCI) for private-sector initiatives, with repayments to be spread over the next 15 years. This was the first facility the BCI had obtained from the EIB.
Economic Performance over 12 Months
Recognizing that developing the skills of its people is crucial to building the nation, stimulating future exports, and attracting foreign inward investment, the government has committed to providing New Zealand and other internationally recognized tertiary qualifications through trades training institutions. Although there are already incentives in place to encourage Cook Islanders to return and contribute to sustainable economic growth—the brain and skills drain to New Zealand, in particular, is seen as tremendously damaging—the government is committed to reviewing existing incentives. It also plans to put resources into a communications strategy to publicize this campaign to bring Cook Islanders home. Because the private sector is recognized to be a key growth driver, the government is bringing out a new Economic Sector Plan, which will look at where government intervention in the economy can be made successfully. With agriculture, fisheries, and pearls key to the Islands’ export capabilities, there are plans for the government to help with promotional activities for commercial fisheries. The island has discovered reserves of manganese nodules in sufficient quantities to provide real economic value to the Islands. However, the government plans to ensure that extraction will not involve any detriment to the marine ecosystem, which is being managed in a long-term sustainable fashion.
Ensuring economic growth for the Outer Islands is a perennial problem for government. In 2009, it plans to work on ensuring reliable and effective access to markets for the Outer Islands, where there are challenges to be faced in regard to both sea and air transportation. One option being explored is for the government to provide storage for exports. With tourism being the main driver for the Islands’ economy, the fact that the Cook Islands will be hosting the 2009 Pacific Mini Games is seen as highly important. A review of the Islands’ telecommunications infrastructure is also planned.
The two main indicators of short-term economic performance on the Islands are VAT receipts, and visitor numbers. The government says that exceptional growth was recorded in VAT receipts through to the end of the 2007–2008 fiscal year, when it reported 7.9% growth, up 20% on the figure for 2006. Visitor numbers also increased, but at a much slower rate—by 5.1% between 2006 and 2007, and by just 3.0% between 2007 and 2008. The global slowdown is expected to keep growth in visitor numbers depressed through 2009. The Consumer Price Index (CPI) increased by 4.1% between December 2006 and December 2007, and the final CPI for 2007–2008 is expected to be around 4.3%, with the price of oil being the major cause of rising price inflation. However, that is expected to fall back in 2009.
Support for Inward Investment and Imports
Non-Cook Islanders seeking permission to reside or do business in the Cook Islands are regulated by the Development Investment Act 1995–1996, which means that they have to get prior approval, and register their planned activities. Applications must be made to the Cook Islands Development Investment Board. The Board’s investment code states that, generally, provision should be made in the case of a new foreign investment for the acquisition of equity by or on behalf of Cook Islanders, or for joint ventures with enterprises owned or controlled by Cook Islanders. In broad terms, the more equity in any joint venture Cook Islanders will have, the greater the chances of success for the application.
There are some exemptions. The Cook Islands Development Investment Board can provide details.
GDP growth: 0.1%
GDP per capita: US$9,100
CPI: 2.1% (2005)
Key interest rate: N/A
Exchange rate versus dollar: NZ dollars per US dollar—1.4151
Current account deficit/surplus: US$26.6 million (2005)
Source: CIA World Factbook except where stated