TCM Sector Plan-second draf-Trade Commerce and manufacturing Sector Plan

b Manufacturing C Foreign Trade Two main government bodies are entrusted with governing this sector, namely the Trade Division at theMinistry of Foreign Affairs and Trade MFAT and the Mi

Trade, Commerce and Manufacturing (TCM)

Sector Plan First Draft

Table of Contents

Part I: Framework of the PlanChapter 1: Introduction

A Introduction

The Government of Samoa has defined the direction of its national reforms over many years through a

series of policy documents with various names but currently known as the Strategy for the Development

of Samoa (SDS) From these documents, government ministries and public bodies formulate their

corporate plans and performance targets Recent developments in the public finance management reform identified the need to develop sector plans, complemented by medium term expenditure framework and investment plan to enhance the link between sector planning and the budgeting

process The sector planning approach was, therefore, introduced and a framework and guidelines were

established The Sector Planning Manual for Samoa (SPMS) 2009 provides the guidelines for developing sector plans in terms of content and format, scope and mandate, responsible agencies of development and/or implementation as well as procedural guidelines for approval, adoption, budgeting and resource allocation and mentoring and evaluations The Samoan economy has been sub-divided into 14 sectors identified and defined in the SPMS

B Background: Overview of the Samoan economy

The economy of Samoa has traditionally been dependent on agriculture, fishing, development aid andworkers’ remittances Agriculture and fisheries sector employs two-thirds of the labor force andcontributed 90% of the exports and 11.5% of GDP in 2010, down from 20% in 1998 The industrial sector(including utilities and construction) contributed 26.6% of GDP in 2010 The fishery sub-sectorcontributed around 6% of GDP in 2009 and 2010, slightly down from an average of 8% in 1998 and 1999.Meanwhile the contribution of services sector to GDP rose from 56% in 1998 to around 62% of GDP in

2010, of which tourism accounted for 25% of GDP The manufacturing sector, which processes mainlyagricultural products, contributed around 8.5 % in 2010, down from 14.5% in 1998 The country has aForeign Trade Zone where one factory currently employs around 900 workers, down from nearly 3000 in

2008, to make automobile electrical harnesses for an assembly plant in Australia

Figure ?? Sectoral shares of GDP 1998-2010

Source: Samoa Bureau of Statistics

Socio-economic parameters place Samoa in the medium human development level Per capita income isslightly over $2,000 and the government spends 4.1% of the GDP on health as well and 4.5% oneducation Comparing the Households Income-Expenditure Survey (HIES) of 2008 to that of 2003, theproportion of the population living below the Basic Needs Poverty Line rose from 20% in 2003 to 26.5%

in 2008 The proportion of the population living below the Basic Needs Poverty Line was 15.6% in 1997.There are some major imbalances in the overall economy One imbalance is in foreign trade Totalimports are about 50% of GDP whereas exports are only slightly over of 25% and, thereby, the ratio ofimports to exports is high About 90% of the exports consist of agricultural products with relatively lowvalue added Any redress in the merchandise trade deficit originates from remittances (about 5% ofGDP), exports of services (e.g tourism) and foreign aid The performance of foreign trade, however,reflects the overall performance of the productive sectors, mainly agriculture and manufacturing Yet another imbalance is in the sectoral distribution of the labor force The agricultural sector’scontribution to GDP is 11.5% and yet it employs 66% of the labor force The remaining 34% is employed

by the industry, which is mostly agro-processing manufacturing and construction (which contributes26.6% of GDP) and in the service sector which is mostly hotels and tourist services contributes 61.9 % ofGDP

As can be surmised, the economy of Samoa is rather fragile, for it depends largely on a couple ofagricultural products, tourism and remittances from abroad Devastating storms also increase thevulnerability of the island The September 29, 2009, natural disaster of tsunami1 has exacerbated thefragility It is of importance to observe the very recent economic history and the projections for theyears 2011 and 2012 from the stand point of government revenues and the realism contained in therecommendations put forward in this report

Figure ?? GDP and GDP per capita real growth rates 1999-2010

Source: Samoa Nationals of of Statistics

As a result of the global economic crises, the Samoan economy suffered from negative growth for twoconsecutive years, 2008 and 2009 The declines in agriculture,2 tourism receipts, and remittances fromabroad offset the growth in construction, manufacturing, transport and communications in FY2010

1 In addition to physical damage, the tsunami dealt a severe blow to the confidence in Samoa as an attractivetourist destination As a result tourism, economy’s single most important foreign exchange earner, caused the

economy to contract in 2010, and most probably the impact will be carried on to 2011 See: IMF, Samoa, Country

Report no: 10/2125.

(ended 30 June 2010), leaving GDP flat Even though visitor arrivals rose by 3.5% to 131,300, earningsfrom tourism fell by 6.0% to US$130 million owing to a decrease in tourist spending per head.Remittances fell by 5.3% to US$148.8 million Merchandise exports slowed down in 2010, droppingslightly by 0.2% over 2009, depite the relatively good performance during the first two quarters of 2010led by strong performances from Nonu fruit and coconut oil Merchandise imports picked up by 24%reflecting higher costs of fuel and food A wider trade deficit, coupled with reduced remittances, saw thecurrent account deficit worsen to 8.1% of GDP

However, the overall balance of payments was in surplus due to net disbursement of foreign loans tothe government for the September 2009 tsunami reconstruction Foreign exchange reserves ofUS$165.7 million in June 2010 were equivalent to cover 7.6 months of imports Inflation slowed toaverage 1.2% in 2010 The deceleration was a result of falling commodity prices and subdued domesticeconomic activity A stronger tourism marketing effort is likely to have some positive impact in 2011,and private remittances should benefit from economic growth in Australia For the first 7 months of

2011, earnings from tourism and remittances rose by 4.0% and 1.1%, respectively Growth is seen rising

to 3.0% in 2012 on continued post-tsunami reconstruction and an expected increase in tourism Inflation

is projected to increase to around 3.0% this year as domestic economic activity picks up and as a result

of higher global food and fuel prices.3

C Overarching outcomes

The policies governing this sector draw the main underlying principals and objectives from the Samoa Strategy for Development (SDS) 2008-2012, as follows:

iv A level playing field for all in the domestic market;

targets, particularly employment generation and poverty reduction;

D Sector Scope and Definition

In line with the sector-wide planning approach adopted by the government of Samoa, this sectorencompasses three key productive and distributive sub-sectors:

2 There are intents to diversify the agricultural sector Recently a World Bank designed project to develop theproduction of fruits and vegetables, livestock and enhance market opportunities is in the pipeline See, World Bank

ID P115351 report no AC4501

3 For details see: AsDB, Asian Development Outlook 2011 Manilla 2011.

a) Commerce: domestic trade of goods and services This sub-sector primarily focuses on wholesale andretail trade

b) Manufacturing

C) Foreign Trade

Two main government bodies are entrusted with governing this sector, namely the Trade Division at theMinistry of Foreign Affairs and Trade (MFAT) and the Ministry of Commerce, Industry and Labor (MCIL),which also mandated with labor and employment affairs

Hotels, accommodation and restaurants; personal and other services; real estate, banking, insuranceand financial services; transportation; and, communication are not included in the scope or the mandate

of this sector The aforementioned sectors, as well as the agricultural, are closely linking to the TCMsector and such linkages will be addressed in this plan In addition, the plan will propose coordinationmechanisms with relevant governmental agencies mandated with those sectors

E Methodological Framework

F Monitoring and Evaluation

Part II: Sector Situation Analysis and Strategies Chapter 2: Regulatory and Institutional Framework

A Current Regulations

Overall decisions on trade, commerce and industry go through the ACDM division of the Ministry ofFinance (MOF) The Cabinet for Development Coordination (CDC) endorses projects with budgetsexceeding $100,000 EPPD is responsible for the provisioning of policy advice and support to keyagencies in the formulation and implementation of strategic plans and policies The CDC, with EPPD ofthe Ministry of Finance as the secretariat, also Contributes to and participates in decisions on traderelated issues on trade related issues The Ministry of Foreign Affairs and Trade (MFAT) is responsiblefor negotiating Trade Agreements with the rest of the world In order to solicit a commonunderstanding on trade and related issues, a National Working Committee on Trade Arrangements(NWCTA) has been established which advises on Trade Agreements

The Trade, Commerce and Industry Development Board (TCIDB) is responsible for administrating Trade,Commerce and Industry Act 1990 The Board’s role focuses on providing a forum for government-private sector dialogue on key issues pertaining to trade and investment Some of its key tasks in recentyears have been the review of the tariff anomalies for some locally produced and processed products.The Board also initiated the “Lotonuu” logo aimed at promoting the development and marketing ofSamoan products The Board has become a useful forum for consultation on trade, commerce andinvestments issues Provision of information on trade related issues resides withministries/organizations represented on the Board The board, however, needs to be more focused onproviding well-informed and research based advice to government on creating the right enablingenvironment for the private sector to flourish as the engine that leads to economic expansion

Recently a National Working Committee for Trade Arrangements (NWCTA) was established by Cabinet

to provide a forum for discussion of issues relating to trade arrangements as well as to provide strategicadvice to Cabinet regarding trade matters The NWCTA comprises 14 core members with 11 governmentagencies, 1 civil society group and 2 private sector organizations with the secretariat functionsundertaken by MFAT

NWTC focuses on Samoa’s preparations in relation to its obligations in all regional and internationaltrade agreements, which involves a great influence over Samoa’s trade and investment regimes TCIDB

is a forum for dialogue between government and private sector focusing on improving trade andinvestments There is a certain degree of confusion between the NWCTA and the development Boardwith regards to who is ultimately responsible for the development of trade and investments policiessince both bodies deal with trade issues to some degree Notably, in terms of mandates and resourcingthe Board has more leverage and influence as it is mandated by a legal Act and is also chaired by aCabinet Minister, however, in relation to specific trade policy issues NWCTA has a clear advantage inthat it has a broader spectrum of key stakeholders directly involved with trade Specifically, both MCILand MFAT deal with trade related issues Furthermore, the Ministry of Finance and EPPD in particularalso have a large input at the macro level on trade development efforts

The government has made substantial institutional reforms with regards to mainstreaming trade intothe overall development framework This included the restructuring of the Department of Trade,

Commerce and Industry which lead to the shift of the Trade Division to the Ministry of Foreign Affairs(now MFAT) and the Commerce and Industry Component to the Department of Labour (now MCIL) in

2003 This reform reflected the need to closely integrate oversight of foreign policy and internationaltrade arrangements through the MFAT and the need to ensure that employment policies are alignedclosely with the needs of the commerce sector through MCIL Currently, a review of this reform is beingconducted

B Institutional arrangements

1 MCIL

The Ministry of Commerce, Industry and Labor (MCIL) has a broad mandate encompassing 38legislations It ranges from intellectual property business registrations, investment promotion, fairtrading to harmonized industrial relations, fair terms and conditions of employment, safe workplace andoccupational safety and health of workers, promotion of decent employment for all, improve labourmarket collection and dissemination of information This wide range of functions also jeopardizes theeffective implementation of some of its core roles such as trade and investment policy advice,enforcement and compliance MCIL is also the key focal contact point for the private sector whendealing with the government on commerce and industry regulatory matters The provision of qualityadvisory service and developing pragmatic regulatory frameworks to facilitate the development of theprivate sector to stimulate investment, industry development, increased innovation, registry integrity,generate more employment opportunities and highly-skilled local workforce and promote safe workenvironment and fair competition in Samoa are a necessity There are also various schemes design toassist the private sector with the development of trade that are administered by MCIL such as the DutyConcession and Private Sector Support Facility At the operational level the ministry faces manychallenges especially with additional mandates pertaining to foreign investment, industry andcommerce issues This places other roles such as investment promotion role at risk According to theorganizational structure of MCIL (annex ??), the ministry houses six main departments: Dep of FairTrading and Codex, Dep of Industrial Relations, Work Permits, Occupational Safety and Health, Dep ofApprenticeship, Employment and Labor Market, Dep of Corporate Services, Dep of the Registry ofCompanies and Intellectual Property (RCIP) and Dep of Industry Development and InvestmentPromotion, each of which is headed by an assistant CEO

1.1 Dep of Fair Trading & Codex

The Department is the Secretariat for the Prices Board and the Samoa National Codex Committee(SNCC) It provides advisory services to all stakeholders including traders, consumers and the generalpublic on all matters to do with fair trading and consumer protection

The department is also responsible for setting standards for trade practices and for the production,distribution and trading of goods and services and enforcing compliance and protection of consumersfrom unfair trade practices The department administers six legislations that define its majorresponsibilities:

Measures Ordinance 1960

Consumer Information Act 1989

Fair Trading Act 1998 (consumer protection)

Daylight Saving Act 2009

Fair Trading (Approved Egg Standard) Regulation 2010

International Date Line Bill 2011

The administration/implementation of the above legislations includes receiving complaints, investigatingand arbitrating and/or prosecuting It also includes the Price Control requirement of the Fair Trading Act

1998 and issuing the General Price Orders (GPOs) on a monthly basis

The Measures Ordinance 1960 is outdated Drafting is currently on the way for the Trade MeasurementBill to replace the Measures Ordinance 1960 This work is being funded by the CommonwealthSecretariat The Ordinance provides for the use of the imperial system only in Samoa; however, a largeshare of domestic trade transactions is based on the metric system More supermarkets and large retailshops, particularly in urban areas, are now engaged in the use of digital scales, while manual scales aremore common in use in rural areas The department is currently engaged in two key projects:

Codex Alimentarius

Current work of the National Codex Committee includes the development of the Food LabelingStandards and Food Safety and Hygiene Standards New work approved by the Codex Committeeinclude the Standard on Bottled Water and a Standard on Fat and Fat Content in Meat

Consumer Rights

Consumers are entitled to rights as consumers, and these rights provide protection to consumers Theformulating of rights through government legislations, and through the formation of consumerorganizations and agencies, help consumers make better choices in the market place Consumer rightsthrough the legislative base, first and foremost, and then through the formation of consumerorganizations and agencies, should put the consumer in the center as entitled to a fair cost for theproducts or services they consume The Fair Trading Act forms the basis for this but it is missinglegislation The Office of the Regulator attempts to address these issues but fails because it has nomandate to look after consumers only the industry and there are plenty of examples of the consumerbeing taken advantage of by monopoly providers with the Government not having any legislation to dealwith this

1.2 Industrial Relations, Work Permits, Occupational Safety and Health Division

The Division advises government on policy matters relating to industrial relations in general;occupational safety and health in particular; and requirements of the Shops Ordinance 1961 It advisesemployers and workers on their rights and obligations under the Labour & Employment Act 1972,Labour and Regulations 1973, and Occupational Safety and Health Act 2002

The Division carries out routine inspections of workplaces to ensure full compliance with requirements

of above legislations Maintain records of all grievances lodged with the Ministry both in industrialrelations and OSH as an important indicator in the review of relevant legislation and policy TheDepartment administers the following legislations:

i Immigration Act 2004

ii Public Holydays Act 2008

iii Labor regulations 1973

iv Labor and Employment Act 1972

v Ocupation Safety and Health (OSH) Act 2002

vi Shops Ordinance Act 1961

 Investigates work-related accidents

 Engages in grievance settlement either through mediation, conciliation, and/or arbitration asper the requirements of the labour laws

 Effects court action where necessary

 Assessment of applications of non citizens workers in line with stipulated requirements of theImmigration Act 2004

 Investigates for confirmation of information given by non-citizen applications

Provide recommendations to Immigration for issue of work permits or for non approval of an applicationAdministrative Functions

 Maintaining records of all grievances lodged with the Ministry both in industrial relations andOSH as an important indicator in the review of relevant legislation and policy

 Regular record of all non citizen applications lodged with the Ministry

 Constant upgrading of skills of staff to ensure efficiency and a high standard of professionalismMonitors general compliance of Samoa ILO Conventions and Recommendations

In 2005 Samoa ratified 8 core ILO conventions These conventions are addressed in the new Labor andEmployment Relations Bill 2010, Regulations 2010 and OSH Amendment Bill 2010, which will besubmitted in 2011 to the Parliament to be enacted into law

Obligations in joining the ILO under the Decent Country Work Programme (2009-2012) for Samoa arethreefold:

 Priority 1: Modernization of Labor Law;

 Pririty 2: Promotion of decent employment opportunities, particularly for the youth, andinclusive of persons with disabilities;

 Priority 3: Capacity building of partners and enhancement of social dialogue

1.3 Apprenticeship, Employment and Labor Market (AELM) Division

As Secretariat for the Apprenticeship Council, the division administers trade testing and certification Italso acts as the ILO's focal point in Samoa The division performs several advisory, regulatory andadministrative functions and administers the Apprenticeship Act 1972, Apprenticeship Regulations 1973and Labor and employment Act 1972 This includes the following regulatory functions:

 Enforces requirements of Apprenticeship Acts and Regulations especially in regards toapprenticeship contractual obligations of both employers of apprentices and apprentices

 Investigates complaints by employers and/or apprentices and instigates legal action incollaboration with the office of the Attorney General where necessary

 Enforces legal obligations of employers concerning the maintaining of records of workers andthe submission of periodic returns on employment

The division administers the registration and referral of job seekers to employers for placement inavailable job vacancies compatible with their skills/experience It also maintains and disseminates up-to-date database of labour market information on employment and labour market and on other functions

of division to users and stakeholders, through periodic surveys and collecting information from othersources The collection of labour market information from employers for the assessment of employmentlevels, training needs and employment opportunities of the private sector allows the Division tomaintain a database on labour market information

AELM is currently engaged in several key projects, as follows:

a) Apprenticeship Scheme

b) Job Referral & Placement Service

The Job Referral and Placement Service is is designed to assist those in the general populationwho are looking to find employment AELM Division keeps a record of job seekers who registerwith the Ministry The Ministry then refers these jobseekers (who meet the correct criteria) toemployers, who contact the Ministry with information on vacancies in their respectivecompanies.Placement of jobseekers from the registry occurs when employers accept thereferred jobseeker after interviews or other evaluation methods used by each respectiveemployer

c) Trade Test Scheme

Although it can be expected that an increasing number of workers will enter the trades training throughthe apprenticeship scheme, the majority of skilled workers in Samoa are, and will continue to be forsome time, persons who have not had this opportunity Therefore, a Trade Testing scheme has been set

up for the purpose of carrying out trade tests

The scheme aims to provide the means whereby those persons who achieved their present status byexperience on-the-job only may obtain formal recognition of their skills This does not only provide skillstandards allied to local trade practices but also a workforce, in certain trade areas, with a knowndegree of skill by whom apprentices can be trained on-the-job

Workers who successfully pass a trade test will acquire an authoritative certificate of proficiency in theirtrade at varying levels of skill which will give them a recognized status, not only in the industry in whichthey are employed but also, in the case of workers employed by Government Ministries, by the PublicService Commission

1.4 Corporate Services Unit

The division Consults with the Ministry of Finance on all budgetary and other financial managementmatters and advises the Minister of budgetary issues and on matters to do with the generaladministration of the Ministry It is also responsible for the inter-ministry dissemination of all

information on budgetary, personnel management and general administration affecting all divisions Itmonitors inter-ministry compliance with requirements of the Public Service Act and policies, PublicFinance Management Act and related policies by the Ministry of Finance, compliance by MCIL withreporting obligations placed on it by other legislations it administers and carries out internal audits andinvestigations as it deems fit on any matter pertaining to personnel and financial management of theMinistry in general The department is also responsible for coordinating the preparation andimplementation of MCIL's budget, corporate Plans, service charters, and other required plans, inconsultation with all divisions/output managers It also manages and facilitates the maintenance,including re-design and re-development of MCIL's website and periodic Newsletter and coordinatespreparation of ministry's Annual report The department is also responsible for the coordination ofvarious training programmes in all divisions of MCIL.

1.5 Dep of the Registry of Companies and Intellectual Property (RCIP)

RCIP administers and enforces the registration of companies, incorporated societies, cooperatives,credit unions and charitable trusts The Company structure is the most common form of businessstructure being used by those conducting business in Samoa The division is also the focal point for theWorld Intellectual Property Organisation (WIPO) and as such it coordinates consultations on copyrightand intellectual property issues

Other functions include advising and monitoring compliance on matters relating to registration ofcompanies, incorporated societies, credit unions, cooperatives, charitable trusts, and intellectualproperty, and investigate complaints concerning violations of copyright and intellectual property laws

Regulatory Functions

 Administers and Enforces requirements of the Companies Act 2001, Receivership Act

2006, Security Act 2006, Transitional Provisions Act 2006, Charitable Trusts Act

1965, Cooperatives Societies Ordinance 1952, Credit Union Ordinance 1960, IncorporatedSocieties Ordinance 1952, Copyright Act 1998, Industrial Designs Act 1972, Patents Act

1972, and the Trade Marks Act 1972 administered in this Division of the Ministry

 Monitors compliance by companies, incorporated societies, cooperatives, and other entitiesregistered under the legislations administered in the Ministry, with their obligations under thelaw

 Investigates complaints concerning violations of copyright and intellectual property laws

 Provide advice to international organisations on Intellectual Property areas

 Provide data on companies and other legal entities to various users, including the WIPO forIntellectual Property information

Administrative Functions:

 Focal Point of WIPO

 Coordinates consultation with local interest groups (e.g Musicians Association) on copyright andintellectual property issues

 Maintains and updates registries as required under legislations administered in the Division

 Undertake reviews of legislations administered in the Division in collaboration with AttorneyGeneral's Office

 Implement public awareness programme on general requirements of various legislationsadministered in the Division

 Assess staff capability and institute training to rectify skill deficiencies

The RCIP division plays a crucial role in the implementation of projects and programs that would

contribute to the achievement of its mandate of providing an environment conducive to the development of the private sector as the engine of economic growth The genesis of any business that

is structured in the form of a company begins with its registration with the RCIP Division Before acompany can obtain a Foreign Investment Certificate (from MCIL-IDIP) or a Business License (from theMinistry of Revenue) or legally employ any personnel (MCIL-AELM/IRWP&OSH) to conduct its businessactivities, it must first of all be incorporated and registered with the RCIP

RCIP also actively manages the registration and protection intellectual property rights holders in subjectmatters such as trademarks, patents, industrial designs and copyrights The aforementioned forms ofintellectual property are the various tools that an entity can use to develop and protect its products,emblems, creative designs, scientific, technical, industrial or commercial knowledge and so forth –mechanisms that are important to its trading activities and the protection of its income earningcapabilities both domestically and internationally

Some of the projects and programs that RCIP undertook include the review of various legislations,awareness exercises targeting the various interest groups in the community, the development of anelectronic registry system and, notably, the passage of the Companies Amendment Act 2006, includingsubsidiary legislations such as The Receiverships Act 2006, The Securities Act 2006 and The TransitionalProvisions Act 2006 This was seen as one of the tools that would contribute immensely to theimprovement of the corporate regulatory framework for doing business in Samoa

RCIP is currently coordinating three key projects that will impact on the registration and management ofIntellectual Property in Samoa, namely: The Modernization of the Intellectual Property (‘IP’) laws inSamoa; The Development of a Samoa National IP Strategy (NIPS) and Electronic Registry of Trademarks.Another important project that is currently being steered by the RCIP Division is the development andenactment of a Personal Property Securities Act (PPSA) for Samoa The purpose of a PPSA is to increaseeconomic activity It does so by making it easier and less expensive for debtors to obtain credit.Increasing access to credit leads to increased economic activity which will contribute to employmentcreation and a resultant increase in the tax base A PPSA accomplishes this goal by providing a means bywhich movable property may easily serve as collateral for a loan, in essence unlocking the value ofmovable property that otherwise would sit idle

1.6 Industry Development and Investment Promotion Division

The Division provides policy and other advice on investment promotions, industry development as well

as various schemes administered in the ministry such as the Government Export Guarantee Scheme(GEGS), Private Sector Support Facility (PSSF), Duty Suspension Scheme (DSS), Duty Concession Schemeand Code 121 and others

It facilitates the development of the industrial sector through active promotion of both local and foreigninvestment in the country It registers foreign investments and maintains the Foreign Investors registryand follows up on status of those investments The Division coordinates information on the state ofindustry and economic development and works closely with the Ministry of Foreign Affairs and Trade on

trade related issues.

To enhance the development of a sound enabling investment environment through the provision ofadequate, accurate and timely information for investor decision through effective administration ofexisting programs of assistance These are aimed at sustaining the private sector development

The division also monitors compliance with requirements of GEGS, PSSF, Duty Suspension Scheme (DSS),Duty Concession Scheme (DCS) and Code 121 all administered in the Ministry In addition, the divisionadministers the following legislations:, Foreign Investment Act 2000, Foreign Investment Regulations

2011, Trade Commerce and Industry (TCI) Act 1990 and Trade Commerce and Industry (TCI)Amendment Act 1998 These Acts are administered by MOR, i.e in the exemption of duties under theDSS, DCS and Code 121 schemes MCIL’s roles is administrating and facilitating the schemes under thesecustoms legislations

Administrative Functions:

 Provide a high level of industry development and facilitating an Investment friendly environment,

 Secretariat for PSSF Steering Group and the TCI Development Board

 Register Foreign Investments in accordance with conditions of Foreign Investment Act 2000 andmaintain registry of Foreign Investors and follows up on status of their investments

 Works closely with Private Sector industries and coordinates information on the state ofindustry and economic development

 Consult closely with the Trade Division at MFAT on trade related issues affecting industrydevelopment and investment promotion matters

 Disseminates information to stakeholders on general functions of the Division and on variousschemes administered by the Division

 The division is currently executing several projects, some of which are funded developmentpartners, as follows:

a) Duty Suspension Scheme

The aim is to encourage and assist exporters who produce mainly for overseas markets The DutySuspension Scheme (DSS) is designed to assist regular exporters import raw materials needed for exportproduction without prior payment of duty

b) Duty Concession Scheme

This Scheme is aimed to assist exporters within the manufacturing industry as well as propertydevelopers (hotels, motels and beach resorts) within the Tourism Industry Its purpose is to assistthrough importation of materials on a duty free basis

c) Private Sector Support Facility

This fund combines previous allocated type funding (Tourism Support fund (TSF), Private SectorSupport Allocation (PSSA) and Structural Adjustment Facility (SAF) schemes) supporting Samoa'sprivate sector The ultimate objective of PSSF is for private sector development and trade as theengine of economic growth for the country Improving private sector and trade (exports)

performance is expected to directly contribute to improving livelihoods and increase the quality

of life of every Samoan citizen

d) Code 121

This scheme is one of the Government’s assistance program to further develop domestic businessesincluding; Commercial Poultry Farmers, Commercial Manufacturers of Agricultural Products, CommercialHandicraft Manufacturers and Commercial Elei Garment Manufacturers to effectively manufacturequality competitive products for both the domestic and international markets The assistance is mainlyfor the reduction of Import Duty from 8% to 0 for imported raw and other particular materials fromoverseas suppliers for use by businesses approved under the Customs Tariff Amendment Act 2008

2 MFAT

Apart from being the gateway to the rest of the world, MFAT’s current core mandate in relation to trade

is focused on trade development, trade negotiations (bilateral, multilateral and WTO accession) andexport promotion At the operational level, MFAT has been tasked with the responsibility of formulating,negotiating and implementing the national trade policy The coordination of the 2010 DTIS was vestedwith MFAT MFAT is the main channel of communication with other governments and administersforeign affairs and trade relations with other nations as well as policy advice and representationactivities The scope of the MFAT role in negotiating and managing trade relations/agreements betweenSamoa and other countries, however, needs to be clearly defined to ensure it does not overlap with thefunctions performed by MCIL, MAF and others It is also important not to detach international tradenegotiations from the national policies and strategies for trade and productive sectors

The role of the Trade division has been marginalized since the institutional reform in 2003 as it seems tooperate separately from the whole Ministry The Trade division staffed with around 10 full timeemployees receives approximately 3 percent of the annual MFAT budget appropriation There is minimalbudgetary allocation for local consultations with the private sector as well as marketing efforts and thelack of adequate resources has hampered the division’s ability to effectively carry out its other coretasks such as export promotion and development Minimal activities, nonetheless, have been done forexport promotion largely due to budget but also due to the amount of work required for tradearrangements and negotiations The establishment of the Export agency will ultimately remove theexport promotion functions from the trade division of MFAT Alternatively, this could be transferred toMCIL which also has the investment promotion mandate

MFAT has received assistance from international organizations for technical expertise and training with

a focus on international trade policy This has not assisted export promotion despite the development ofthe National Export Strategy (NES) with assistance from the Commonwealth Secretariat in 2008 The NEScontains numerous recommendations that are yet to be implemented There should be an opportunityfor broader consultations on the NES, particularly the reasons for lack of follow up on theimplementation of its recommendations

The trade division of the MFAT services the following committees:

a) The NES Steering Committee – this committee was established to develop the Export Strategy.Upon the completion of the NES, it now has the function of monitoring the implementation ofthe NES

b) The IF Steering Committee – this committee had the specific task of guiding the development ofthe DTIS Its major function now is also to monitor the implementation of the action matrixunder the DTIS It would also contribute to the development of the Tier 1 and 2 proposals.c) The National Trade Facilitation Committee – Set up in 2003, this committee has been inactive forthe past few years Its mandate was to bring together the border agencies and other lineministries/organizations to discuss ways to improve systems/procedures to minimizebottlenecks at the border.

d) National Working Committee on Trade Arrangements (NWCTA)- formerly known as the WTOWorking Committee, the mandate has been changed to allow for other trade agreements such

as PICTYA, PACER & PACP-EU EPA This committee is where Samoa’s positions are discussed andendorsed It has a wider membership than the other committees and ensures that informationrequired from other line ministries is received in a timely manner

The private sector and civil society are represented in all the above committees MFAT is notrepresented in the Trade, Commerce & Industry Board so issues relating to its trade related mandate arepursued through the NWCTA

To boost trade, Samoa needs to accord more priority on building supply-side capacity rather thansecuring and/or enhancing the size or access to international markets According priority to theimplementation of the NES will also provide a clear framework for MFAT to draw from in terms of keyproductive sectors when undertaking trade negotiations with international and regional partners.However, there is limited resource within MFAT to effectively carry out its functions There are,however, several ministries and organizations that work closely with MFAT in the discussions of traderelated issues both at the operational and strategic level In this sense, the collaborations betweenMFAT and MCIL, MAF, MOF, SROS and STA need to be strengthened

3 MAF

The ministry for Agriculture and Forestry (MAF) has an enormous and challenging task given theimportance of the agriculture sector to the Samoan economy This is compounded given that theagriculture sector has been declining over the last 3 decades The formulation of the recent Agriculturesector plan is a tangible sign of the importance government has placed in revitalizing the agriculturesector This plan will set concise sector policies, strategies and investment programmes aimed ataddressing supply side issues, institutional constraints, quarantine issue hindering market access as well

as nominating crops and varieties that would not only generate income but also be resilience to theimpacts of climate change Furthermore the sector plan will seek to explore opportunities for importsubstitution potential

4 MOF

The MOF is responsible for the development of the overall strategic plan, sector planning The ministry

is also responsible for aid management and budgetary allocation This places the ministry in an utmostposition in ensuring that plans are consistent and are supported by adequate financial resources criticalfor the successful implementation of the plans.The aid coordination roles would also assist in securingtechnical assistance and long term funding to support the government agencies, NGOs and the privatesector in meeting gaps in skills and technical knowhow as part of developing trade

5 MFR

The Ministry for revenue plays a key role in facilitating trade The Inland Revenue section is the focalpoint for establishing businesses and issuing business licenses Another important function theyperform relates to tax lodgments especially refunds as part of certain assistance and exceptions given todevelop trade The Customs section is the focal point for border control as well as facilitating themovement of goods

6 MWCSD

The Ministry for Women Community and Social Development mobilizes the support of the village

communities in the implementation of programmes to increase economic use of customary lands, and assist in the coordination of programmes of the various ministries and agencies of government and those of nongovernmental organizations targeting community development.

Chapter 3: Commerce (domestic trade)

A Introduction

Economic growth in recent years has been driven largely by growth in commerce, transport,communications and construction, all linked to and supported by increasing tourism and remittances.The commerce sector in Samoa has been growing steadily during the period from 1998 to 2010, withexception of 2003, 2008 and 2009 Its share of GDP grew from 16 per cent in 1998 to 19 per cent in

2010, indicating the growth of Samoa’s domestic market as the GDP per capita continues to grow in realterms The private sector contributes nearly 100 percent of commerce activities The growth in servicescan be understood as a result of three reinforcing factors: first, as a result of high inward remittances,there is an increased demand for commercial services; second, the needs of servicing increasing touristarrivals and their consumption in terms of hotels, restaurants, taxi, and related demands; and, finally,there is increased demands for additional professional services - legal and financial - for both thedomestic and external sectors

Figure ??: Output growth of services and sectors during the period 1998-2009 (constant 2002 prices, thousands of Talas)

Source: Central Bank of Samoa

The negative growth of commerce sector in

2008 and 2009 was, mainly, due to the impact

of global economic crises, as the Samoan

economy as a whole experienced negative

growth during those years The GDP and GDP

per capita real growth rates recorded for 2008

and 2008 were negative

Figure ?? Trends of the real growth rate of thecommerce sector and share of GDP 1998-2010

Source: Smaoa Bureau of Statistics

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000

Commerce Transport, Communication Finance and business services Public administration Personal and other services Hotels, restaurants 0

Personal and other services Hotels, restaurants

B Commerce and poverty reduction

The commerce sector plays an important role in promoting inclusive growth, poverty reduction anddirect and indirect employment creation through the expansion of domestic market In addition to jobcreation, the commerce sector absorbs the bulk of small and medium enterprises (SMEs) and typicallyoffers the most suitable environment for new entrepreneurs Therefore, market regulations that ensurefree entry and exit to domestic markets are essential to allow for the growth of SMEs A properlyregulated domestic market will lead to protection of businesses and consumers from fraud, harmfulproducts, misleading advertisement and uncompetitive behavior Such market imperfections ultimatelydistort income and wealth distribution and effectively addressing them will contribute to more inclusiveeconomic growth

C Sector Performance

Table ?? below shows the number of businesses being issued licenses to operate from 2006-2010,classified according to the nature of their operations Wholesale and Retail is the dominant sectorfollowed by Transport and Storage whereas the latter is increasing the former appears to be on thedecline The sharp fluctuations, however, in the number of businesses registered with MOR, shown intable ?? below, can be explained by delays in renewal of business registrations and payment of feesresulting in business droping out the registry system, while still operating Businesses eventually renewtheir registration and pay the required fees and, hence, reappear in the registry The differencesbetween the data collected by MCIL and that by the MOR for the years 2009-2010, for instances, showsthe number of retail that were considered inoperative by the end of the year under review, mainly forfailure to renew their registrations with MOR The fluctuations, therefore, cannot be considered as realchanges in sectors’ performance or reflect actual fluctuation experienced by operating businesses.Table Business Licenses Issued 2007-2010

Goods Producing Industries 2006 2007 2008 2009 2010

Services Producing Industries

in 1998, and 24 per cent live in Savaii in 2010, down from 28 per cent in 1998

Figure ??:Total Retail Shops in Samoa 2009-2010

Source: MCIL

Notably, the number of workers in the retail and

wholesale sector has declined as well, from a total

of 2898 workers in 2007 (up from 2524 workers in

2004) to a total of 2157 workers in 2010 The

gender distribution of workers has fluctuated

during the same period In 2004, 36 per cent of

the workforce in the wholesale and retail sector

was females The percentage increased to 39 per

cent in 2007 and declined to 37 per cent in 2010

The average weekly earnings in the wholesale and

retail sector has also increased between 2004 and

2007, but decline during the period from 2007 to

2010 (figure ??) In the 2004 and 2007 private

sector labor market surveys, the wholesale and

retail sector recorded higher average weekly

earnings than the manufacturing sector This

ranking has changed in 2010 Currently, the sector

offers the third lowest average weekly earnings,

following accommodation, café and restaurants

(the lowest paying sector) and building andconstruction

Figure ??: Average weekly earnings in thewholesale and retail sector

Source: MCIL Private Sector Labor Market Servey 2004,

2007 and 2010

The aforementioned trends in the wholesale and retail sector confirm the impact of the global economiccrises on the Samoan economy and domestic market, manifested by a contraction in private spending,particularly households’ consumption, declining business confidence and increasing businesses’ costsstructure (due to higher food and energy prices) The government of Samoa has adopted expansionarypolicies in 2008, 2009 and 2010 to counter the impact of the crises and, as a result, the GDP recordedpositive growth in 2010

D Domestic trade and market regulations

The government of Samoa has made a significant progress in creating a level field in the domesticmarket and protects Samoan consumers and businesses from unfair practices There are several

legislations in place, which are administered by MCIL, to regulate the domestic market, as discussed inthe previous chapters

Consumers and traders are increasingly aware of their legislative obligations through the variousawareness programmes carried out particularly during the annual celebrations for World ConsumerRights Day (WCRD) 15 March Policing by the Ministry was increased, resulting in improvements of work-systems i.e new computerized database in place to facilitate retention of information on: (i) the number

of active retailers in the entire country; (ii) level of compliance {issuance of warning letters}; (iii)complaints received from consumers; (iv) improvement in the costing database and (v) consistentinspections to name a few A major achievement in the period was the increased involvement of Samoa

in international and regional Codex foras which contributed immensely to the Ministry’s and other Ministries, capability and capacity in developing national food standards In 2004 Samoa being theRegional Coordinator for the geographical Codex Committee of North America and the South WestPacific (CCNASWP) organized the first CCNASWP meeting ever to be held in the Pacific on Codexmatters

line-Nonetheless, several deficiencies in legislation and administration still persist On the legislative side,revising and updating the Measures Ordinance Act 1960, including all necessary amendments anddeveloping the Food Labeling Standards and Food Safety and Hygiene Standards are the highest priority.This work should be complemented with a public sector raising awareness campaign and a capacitybuilding programme for the governmental agencies responsible for administering the new regulations.Figure 1 is the current structure of the Fair Trading & Codex Division of MCIL, which is the main divisionresponsible for administering the aforementioned legislations

Fig.1 Current Division Organization Structure

The division of Fair Trading and Codex is understaffed The mandate and scope of work of the division isgrowing, with a significant number of urgent legislative and administrative competing priorities Withthe growth of businesses, there is evidence of anti-competitive practices being pursued by somebusinesses MCIL is looking into commissioning work in this area and will be engaging technical expertise

to undertake this Therefore, there is an urgent need to review the current structure, staffing andtraining requirements of the division Figure 2 portrays the ideal structure if the Ministry was to ensurethat the bulk of the Division’s mandate was fully implemented effective and efficiently

Fig.2 ideal structure of the Division in light of its current mandate

The protection of consumer rights is well addressed in terms of legislations, yet lacks the propermechanisms to effectively carry out administration, enforcement and monitoring of compliance Forinstance, the website of the division of codex and fair trading lists the rights of consumers, yet thereseems to be no noted way of implementing or administering these rights, no section for consumers,which details the legislation into practical and accessible information for them, ie What is a contract?What are my rights as a consumer/business? What to do and/or who to contact if I believe those rightshave been violated? There is no dedicated bureau or unit to handle consumer complaints andarbitrations and advise consumers and businesses on legal actions and litigations There is no clearstrategy for raising public awareness.

According to current legislations there are 8 main Consumer Rights, protecting the rights of all Samoans:

1 RIGHT TO SATISFACTION OF BASIC NEEDS

To have access to basic, essential goods and services: adequate food, clothing, shelter, health care,education, public utilities, water and sanitation

or unsatisfactory services.

7 RIGHT TO A HEALTHY ENVIRONMENT

To live and work in an environment which is non-threatening to the well-being of present and futuregenerations

8 RIGHT TO CONSUMER EDUCATION

To acquire knowledge and skills needed to make informed, confident choices about goods and services,while being aware of basic consumer rights and responsibilities and how to act on them

In general, administration and enforcement of legislations are inadequate for a number of reasons:

a Lack of capacity of responsible departments at MCIL, mainly due to the limited number of staff,limited financial resources, and lack of targeted training programmes

b Lack of public awareness

c No clear mechanisms for enforcements and monitoring of compliance

Chapter 4: Manufacturing

A Introduction

The manufacturing sector is the main middle link in the production-trade-consumption chain AsSamoa joins the WTO, it is imperative to strengthen the manufacturing sector in order to reap thegains from trade and minimize some of the adverse effects of trade liberalization

Samoa has natural comparative advantage in a wide range of products and good potential for processing The natural resource base has supported the closely interrelated production activities in theprimary sector, which has crops, livestock, fisheries and forestry sub-sectors Root crop productiondominates the food crops sector, with small quantities of vegetables and fruit being grown Coconut,cocoa and small areas of kava and coffee are the main tree crops, and there are minor tree crops such asoranges, avocadoes, breadfruit, lemons, limes, mangoes and paw paws The major crops in 1999 werelisted as coconuts (used for drinking, cooking, feeding animals); cocoa; banana; taro; taamu or "gianttaro", and often banana, taro and taamu are commonly grown with coconuts Long standing and notablefeatures of the agriculture sector include both its importance to the economy as well as a decline overseveral decades

agro-The characteristics of the manufacturing sector in Samoa are similar to those of small economies: i)firms tend to have narrow product range and low capacity utilization; ii) relatively small number ofmedium sized firms which account for a high proportion of the industry’s total turnover; iii) a largernumber of small enterprises producing primarily for the local market and frequently dependent onimported raw materials and; iv) exports have been dominated by either simple or more complexprocessing of traditional commodities, primarily coconut oil, coconut cream, copra and Nonu; v) lack ofeconomies of scale A major challenge for Samoa is to revive the primary sector through initiatives toredevelop traditional crops, together with diversification and value addition through industry Thepromotion of the primary sector has always been accorded a high priority in the national economicplans4 period, where this has always been seen as a component for the revitalization of the villageeconomy

Figure ?? Real growth rates of manufacturing

and agricultural value added 1999-2010

4 See for instance - 2000-2001 Statement of Economic Strategy;

Source: Bureau of Statistics-Samoa

Figure ?? Value added in constant 2002 prices(1998-2010, thousands of Talas)

Source: National ofice of Statistics-Samoa

B Situation Analysis

Samoa’s manufacturing sector is small and accounts for 9 percent of GDP Yet, it is an importantcontributor to the country’s exports and a source of employment The key sub-sectors are food andbeverage, agro-processing based on domestic agricultural products, tobacco, declining garment andclothing manufacturers together with one important manufacturing activity of the Yazaki Companymaking electrical harnesses for automobiles Garment industry is currently facing serious import competition from overseas products and is struggling to compete with some of the challenges such as duties as highlighted below Figure ?? shows that there were hardly in real growth in themanufacturing sectors and sub-sectors over the last twelve years The positive growth during the periodfrom 1998 to 2003, was offset with a prolonged period (2004-2010) of decline Manufacturing exportshave also declined from around SAT 18 million in 2005 to less than SAT 8 million in 2010

The key sub-sectors include food based on agro-processing, beverages, and tobacco, representing about16% of all manufacturing and amounting to less than 2% of GDP There were around 200 manufacturingbusinesses registered with the Ministry of Revenue The largest numbers are in food processing, atalmost one 30% of those registered Businesses in building products, garments and printing andpackaging make up an almost equal numbers in each around 15% Furniture making represents around5% of the businesses There is declining clothing manufacturing sector, but garment makers usingimported materials could become a growth area, targeting niche export markets for special clothes.However, the food processing and beverage industries remain the most competitive The cigarettes andbuilding-component industries could be made more viable if major constraints such as anomalies in thetariff structure between raw and finished goods, and between capital and finished goods wereaddressed They are relatively capital intensive and rely on imported raw materials Prospects forgarments would be the least secure but there is a possibility for higher end products for tourist andforeign markets that emphasize Samoan design Adjustments would therefore be necessary for thoseenterprises to improve cost-effectiveness, and diversify into higher value added products and sources ofintermediary products Such adjustments however, would require capital, but high interest rates andcosts of financing limit their ability to adjust

Most firms in the manufacturing sectors are small with narrow product range There is one foreignowned manufacturing firm Yazaki Samoa Ltd a wholly owned Japanese company, making automotivewire harnesses for the Australian market When Yazaki began operations in 1991, it started with 3,000

employees In 1999, Yazaki provided for only 1,700 jobs, still important at 16% of all jobs in the formalprivate sector In 2011, Yazaki reported a work force further reduced to between 800 and 1000employees, and even some of those numbers were temporarily under threat due to the disruptions ofthe 2010 earthquake and tsunami in Japan on the global auto supply chain Yazaki Samoa enjoys thesupport of Samoa in terms of the provision of facilities for their factories this is a large advantage as itenables them to reduce their investments in Samoa to only their operational needs Manufacturedexports are beer to American Samoa, the electrical wire harnessing by Yazaki to Australia; some limitedand growing exports of bottled water to China; Nonu products to China; and, snacks and processedfoods to Samoan Diasporas, mainly in New Zealand

Manufacturing in Samoa will always be constrained by the country’s distance from main internationalmarkets and its small size (in terms of both land and population), which combined lead to small localmarket and lack of economies of scale Large scale production, therefore, is not feasible due toinadequate supply of local raw materials and the need for bulk imports The lack of economies of scalecoupled with low capacity utilization contributes, further, to increasing the cost structure and reducingcompetitiveness In addition, the large distance from major markets makes all imports more expensive,and reduces the competitiveness of exports due to high shipping costs, twice, once for imports and thenfor exports Akin to most small island economies in the Pacific and elsewhere, while Samoa has a largeexclusive economic zone and abundant marine resources, the two main factors of production, namelyland and labor, are limited and, hence, the feasibility of developing economies of scale is also limited.Meanwhile, large scale capital intensive industries requires attracting foreign investments and technicalexpertise of multinational corporations that may not find Samoa appealing for this type of ventures Theaforementioned factors are beyond the realm of feasible solutions by government or the private sector.Lack of venture capital and weak credit system, which have resulted in relatively high interest rates and,inappropriate infrastructure (telecommunication, electricity and water) are repeatedly cited asconstraining factors that also feed into high costs of production

Table ??: World Bank Cost of Doing Business in Samoa (2004-2011)

Cost of Doing Business - Samoa

200 4

200 5

200 6

200 7

200 8

200 9

201 0

201 1

Cost to enforce a contract (% of claim) 19.7 19.7 19.7 19.7 19.7 19.7 19.7 19.7Cost to register property (% of property value) … 2.1 1.9 1.8 1.8 1.7 1.6 1.6Cost to start a business (% of income per capita) 52.3 48.7 46.4 45.5 41.3 39.8 9.9 9.8Time required to enforce a contract (days) 455 455 455 455 455 455 455 455Time required to register property (days) … 147 147 147 147 147 147 27Time required to start a business (days) 42 42 35 35 35 35 9 9Procedures required to enforce a contract (number) 44 44 44 44 44 44 44 44Procedures required to register a property (number) … 5 5 5 5 5 5 5Procedures required to start a business (number) 9 9 9 9 9 9 5 5Time to prepare and pay taxes (hours) … … 224 224 224 224 224 224Total tax rate (% of profit) … … 20.2 20.2 19.8 18.9 18.9 18.9Trade: cost to export (US$ per container) … … 930 930 930 820 820 820Trade: cost to import (US$ per container) … … 848 848 848 848 848 848

The World Bank cost of doing business annual assessment indicates good progress in reducing the cost

of doing business in Samoa (table ?? above) Samoa has improved its ranking from 67 in 2010 to 61 in

2011 among 188 countries review by the World Bank Six out of the fifteen WB cost of doing businessindicators have improved markedly The costs and time required to register properties and start abusiness have been reduced and currently are below the regional averages (East Asia and the Pacific).Taxes on profits have been lowered and the number of procedures required to start a business has beenreduced Nine indicators remain unchanged and some of which are considered high Costs to enforce acontract remain high Despite significant improvements, the costs to register property and to start abusiness are still higher than international averages Similarly the number of processes and the timetaken for them also seem high Tax administration is definitely an area that requires improvement Thetime needed to prepare and pay taxes remained unchanged and exceeds the time needed to prepareand pay taxes in Vanuatu, Fiji and Mauritius, as well as the regional and international averages (224compared 218 and 199, respectively) The above costs of doing business table of the World Bank couldsuggest that there is still room for the Samoa government to increase the efficiency of processes thathinder business growth It is important to note that the trade costs and timeframe are quite high due tothe costs of shipping and logistics, including the frequency of ships and flights

Fiji and Vanuatu are considered to be the main competitors for Samoa, while Mauritius is a small islandeconomy with similar characteristics that did relatively well in the realms of industrial and private sectordevelopment and export promotion Comparing Samoa with the four aforementioned countries, it isevident that Samoa is not significantly more costly Trade related costs and timeframe are lower inMauritius and Fiji, which may have been instrumental for trade promotion Time needed to export andimport in Samoa is higher than in Fiji, Vanuatu and Mauritius as well as the East Asia and the Pacificregional average of 10.9 days for export and 11.4 for imports The costs to register properties and thenumber of procedures required to start a business are low in Samoa than all three countries Overall,Samoa has significantly lower cost of doing business than Vanuatu Samoa’s taxes on profits, however,are higher than Vanuatu, yet significantly lower than Fiji and Mauritius It takes more time to enforce acontract in Samoa than in Fiji and Vanuatu, yet less time than needed in Mauritius In conclusion, highcosts structure is typical of small island economies as well as the lack of economies of scale Samoa isnot doing worse and, more importantly, there is very little room for small islands economies, in general,

to reduce their cost structure

Table ??: World Bank Cost of Doing Business comparison (2011)

Cost of Doing Business - 2011 Vanuatu Fiji Samoa Mauritius

Cost to register property (% of property value) 7 2 1.6 10.6Cost to start a business (% of income per capita) 37.9 23.8 9.8 3.8

Procedures required to enforce a contract (number) 30 34 44 36Procedures required to register a property (number) 2 3 5 4

Scale: 1 - Lowest, 4 - Highest 1 2 3 4

There are three types of manufacturing that can be relevant to Samoa First, based on available orpotentially available supplies, is the agro-processing sub-sector But for this to thrive requires areduction of risks faced along the value chain by farmers and by buyers on supply shocks and lowvolumes At the same time, the weaknesses in the supply of local agricultural products; their poorquality and a lack of supply chains has hampered a potentially viable agro-processing sub-sector Thesecond type is the assembling manufacturing for re-export (e.g Yazaki)

The third is the high value value-added high-end specialized niche products, which capitalizes onSamoa’s comparative advantage This third type maximizes the returns on Samoa relatively limited size,resources and comparative advantage It is unlikely that private sector in Samoa will be able to build thescale and the capacity to compete on the basis of price and/or quantity with large producers in Asia andSouth America It is more feasible to specialize in niche products (typically with low price elasticity andhigh income elasticity), targeting specific niche markets and compete on the basis of quality andbranding, rather than quantity and price This model tolerates the high cost of production in Samoa andallow for larger markup For instance, the organic certification for the virgin coconut oil produced andmarketed by WIBDI allow justifies a higher price than average international prices for coconut oildomestically and overseas Coconut based cosmetic and skin and hair care products have higher valueadded and are typically high end products with relatively low price elastic There is ample opportunityfor high value added high end organic Noinu products, such as energy drinks and herbal and naturalsupplements The market for energy drinks and herbal and natural supplements in developed countries,particularly the US, is increasingly growing, with particular demand for organic products and importsfrom countries known to have low levels pollution, which exclude nearly all industrialized developed andmiddle income developing countries

C Poverty reduction and employment generation

The growth of the manufacturing sector is crucial for balanced inclusive growth, which is a necessarycondition for poverty reduction The manufacturing sector currently directly employs about 10 % of totalemployment and around 14% of total employment in the private sector, down from 18% in 2007.Employment in the manufacturing sector has been declining over the last 6 years, from 3505 workers in

2004, 3230 workers in 2007 to 1805 workers in 2010 The drop in employment is mainly due to thesignificant reduction of the workforce of Yazaki from 2137 employees in 2007 to 836 in 2011 Clearly themanufacturing sector has yet to realize its potential in poverty reduction in Samoa through direct andindirect employment generation Indirect employment in commercial agriculture and supportingservices (e.g shipping, accounting, payroll, marketing, legal services and IT) could benefit from thedemand that can be created by a growing manufacturing sector In addition, a growing manufacturingsector ultimately serves as import substitution, export oriented or, ideally, both at same time This willreduce the trade deficit, ease the pressure on the government budget and foreign reserves allowing formore resources to be allocated for poverty reduction and accelerating the progress towards theachievement of MDGs

D Investment

Key to the development of the private sector is the creation of a conducive environment for encouragingmobilization both domestic and foreign private investment towards trade The inward flows of foreigndirect investment into Samoa in 2009 amounted to USD 1 million which is below average whencompared to the annual FDI flows of USD 3 million between 1995 and 2005 In comparison to Fiji andthe present scale of the Samoan economy, Samoa has the potential to attract an average of USD 54

million per annum44 Whilst significant progress has been made in maintaining financial and

macroeconomic stability, there is concern that such a situation has not led to an increase in foreigndirect investments However, private investment flows into Samoa are masked by the foreignremittances inflows It is estimated that at least 10 percent of foreign remittances could be in the form

of long term investment projects although there has not been an in-depth study conducted to verifythis

Foreign direct investments (FDI) are demand driven, cost driven or a combination of the two Demanddriven FDI usually cater to domestic market in the recipient country, geographically nearby major exportmarkets and/or major export markets that are easily accessible through the recipient country due toFTAs The latter, for instance, encouraged South-East Asian countries to invest in Arab and SouthAmerican countries to escape the quota system in the US The cost driven FDI, on the other hand, areattracted by lower costs of production in recipient countries, such as cheap labor Developed anddeveloping countries, alike, are competing fiercely for at the global level for FDI At the regional level,Samoa is competing with other Pacific countries, particularly Fiji and Vanuatu Furthermore, the Pacificregion as whole has low potential, compared to other regions, for attracting FDI, with the exception ofthe tourism industry and some services In general, Pacific countries attract, mostly, intra-regionalinvestments

E The cluster development approach

Cluster Initiatives are one of several local economic development initiatives that provide a promisingapproach for Samoa that combines sector, village and business development in an integrated manner.The approach enables the effective utilization of Samoa’s natural resources base and comparativeadvantage will require a proper cluster development strategy and plan of action designed in closecollaboration with main private and public sector stakeholders in the agriculture, industry and tradesectors Proper feasibility studies and value chain analysis are essential to identify certain clusters andthe required interventions to develop them Supporting policies and incentive structures to promotevalue addition activities for each commodity may vary and so will the approach needed to addresssupply constraints and other bottlenecks in the value chain5

The cluster approach focuses on the linkages and interdependence between actors, but is not limited to

a sector in the traditional sense It also includes those that use the outputs or provide some of theinputs, infrastructure, skilled workers, and know-how Competitiveness requires the coordination allproducers of intermediate goods, infrastructure providers, the government for necessary policy and

5 The value chain is the sequence of productive stages of a process – for instance seed production for a crop, other inputs required such as fertilizers, water, energy, know how to deal with pests and other hazards, harvesting, post harvesting storage, transport, markets, further processing where required to make additional products, and so on The Value Chain involves different actors that provide specific inputs into the different stages of the process Value added initiatives can be defined as those that promote, strengthen or even build for the first time where missing, the different stages of the value chain that will eventually contribute to the competitive advantage of a product or service Value chain analysis emphasizes the needs and benefits of micro-level cooperation and coordination

regulation,training center Clusterinitiatives support inter-firm and public-private collaboration, institutional development andthe removal of constraints to targeted regions to promote local/regional industrial development.Clusters are networks that include firms/producers in one sector, often located in one geographic area,with interdependent firms and specialized suppliers - marketing, packaging, testing and so on;knowledge institutions - the local university; research institutes, such as SROS; training institutes;bridging institutions such as brokers and consultants; and customers such as hotels, traders, shops,exporters and processing firms - linked to each other in a value chain6 Figure 3 is a simplifiedillustration of a cluster development approach to coconut7.

Figure 3: Illustration of cluster development diagram

6 Cluster initiative build on the models of Porter on determinants of firm competitiveness and have a strong

emphasis on the local/regional dynamics of production and competitiveness For a review of Porter's views see Porter, M.E Clusters and Competition,

7 There are numerous coconut-based high value added products, some of which are: in Fiji, Pure Fiji organic and natural coconut-based cosmetic and skin and hair products; similar products to Pure Fiji are produced in Thailand and Sri Lanka; in Brazil, a natural and organic energy drink based on coconut developed manufactured and

marketed by an American firm (all production processes are based in Brazil); in the Philippines, a new use was found for coconut husks as the fiber could be made into mats that were much cheaper than imported synthetic materials used for control the erosion in infrastructure such as roads and bridges; in Samoa, SROS established bio-diesel plant that produces 200 liters of bio diesel per batch from coconut oil; and possibilities for commercial level coconut oil extraction plant with the capacity of producing 2 million liters per year that could be used for electricity generation, and Women in Business Development Inc (WIBDI) in developing a market for virgin coconut oil, and for organic production and certification that raises the price of coconuts by five times

Value Added

Scale

Low

The advantages of adopting this approach is that it allows for linking policies and plans in various sectors(mainly AFF, manufacturing and trade) in a coherent and practical framework, it identifies bottlenecks ineach stage of the production chain and directly traces them to the relevant sector and/or sub-sector,better monitoring and evaluation as the approach provides clarity and concrete and quantifiable targetsand since it is built on private sector business models, it is relatively easier for the private sector tocomprehend and utilize Government and development partners’ support, incentive structures andcapacity development efforts would be tailored, accordingly, for more precise targeting at the sub-sector and firm levels Feasibility and product development studies and comprehensive cost-benefitanalysis must proceed to identify the clusters and the feasible programs to develop them

F Trade, manufacturing and agricultural linkages

Samoa suffers from a chronic, persistent and

unsustainable trade deficit In 2010, the trade

deficit was nearly 30% of GDP and the

merchandise trade deficit was 45% of GDP,

slightly below the average throughout the last

decade Figure ??, demonstrate the low and

declining ratio of merchandise exports to

imports Reducing the trade deficit to a

sustainable levels can be achieved through the

expansion of export oriented productive sectors

(i.e agriculture, manufacturing and services),

import substitution and/or, ideally, a

combination of the both

Figure?? The ratio of exports to import duringthe period from 2000 to 2010

Source: Central Bank of SamoaThe main possibilities for export oriented and/or import substitution industrialization in Samoa could beagro processing This will again perpetuate the importance of agriculture both in terms of its

contribution to subsistence activities for the Samoan economy especially in the development of the rural areas The linkages between agriculture and manufacturing will need to be strengthened Utilizing

cluster development approach, agriculture policy and sector plan should, primarily, cater to processing manufacturing though through promoting agricultural products which enter into agro-High

agro-processing value chains designed by industrial policies and complemented with careful trade policiesthat provide the necessary protection during the infancy phase as well as facilitate and enhance access

to foreign markets Export promotion will require enhancing competitiveness, which in turn necessitatesreducing production costs

Figure ??: Primary sector output during the period from 1998-2009 (At constant 2002 prices inThousands of Tala)

Source: Samoa Bureau of Statistics

Samoa does have a relatively productive natural resource base that has supported interrelatedproduction activities in the primary sector such as crops, livestock, fisheries and forestry products Thepromotion of the primary sector has always been accorded a high priority in the national economicplans8 period, where this has been seen as a component for the revitalization of the village economy.Yet the outcomes in the sector over the last decade have been disappointing, with overall reductions inoutputs across the sector and declines in productivity from a low base

Although the agriculture and fisheries sector combined contributed less than 10% of the country’s GDP

in 2010, around 70% of households (15,786) are active in agriculture, with a total population of just over118,000 Although 50% of these agriculturally active households derive some of their income fromagriculture, only 728 households reported that their agricultural production was mainly for sale Formost agriculturally active households, their agricultural production is either totally for subsistence(7,776 households) or mainly for home consumption (7,282 households).

Agriculture’s contribution to Gross Domestic Product from 2005 – 2009 illustrated an average growthrate of 1.0 percent whilst Fishing exhibited an average growth rate of -0.8 percent Average annualgrowth for commercial agriculture was found to be 4.8 percent from 2005 to 2009 whilst averagegrowth for subsistence agriculture was -1.76 percent for the same period The contribution ofagriculture and fisheries to GDP has stagnated or declined over the last five years, from 2006 to 2010.Both of these showed a drop in 2010 – agriculture to 4.7% (as compared to an average of 5.8% over thefive years) and fisheries to 5.1% (as compared to an average of 5.7% over the five years) AlthoughAgriculture is still considered as a major contributor to subsistence activity within the economy, thetrend for this over the period indicates a decline in subsistence agriculture activity which is indicative ofshifts in demographics and labour mobility within the economy

Opportunities for agriculture are constrained first by access to land and second by the nature of potential markets The domestic market is small and is catered mainly by subsistence rather than commercial production The domestic market is steadily increasing driven mainly by the demands of the tourism industry and export opportunities These new demands will require investment in production of local products to meet high quality and supply requirements that will be best met through a combination of enhanced subsistence and commercial farming The competiveness of export products

8 See for instance - 2000-2001 Statement of Economic Strategy;

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

Fishing Agriculture

will require efforts in reducing the cost and logistics of transport given Samoa’s relatively remote

location

There has been a growing income disparity between rural and urban areas with a thriving services sector

around urban areas in contrast with the stagnating rural-based agriculture It has been noted that poverty and income disparities between the rural and urban areas have worsened It is therefore critical that the development of agriculture is the most effective means to address the poverty and income

disparity concerns.Based on the 2006 Census it is estimated that at least 75 percent of the householdsengage in agricultural activity Notably, many wage-earning households also engage in supplementarysubsistence production However despite the economy growing consistently since the 1990s, agriculturehas been stagnating for a number of years and now only accounts for just 6 percent of GDP, comparedwith 22 percent a decade earlier, and three times that in the early 1990s

The deteriorating Agriculture sector also reflects the lack of investment and financing in the sector overthe last decade Profitability of the main long term crops, coconuts and cocoa have become negative ormarginal, at best, given the increasing developmental and maintenance costs and declining trends andincreasing volatility in world market prices The short term crops like bananas and taro have also beendevastated by pests and diseases Furthermore the removal subsidies for agriculture inputscompounded with reduction in agriculture import duties have devastated the sector over the last twodecades The lack of countervailing measures led to flooding the Samoan domestic market with heavilysubsidized agriculture substitutes The demise in agriculture is also linked to the lack of clarity in legal,policy and administrative processes to access and secure customary land property rights has been amajor factor in investors and financiers shying away from the use of customary lands There is a lack oftimely agricultural data and business statistics to allow more vigorous analysis of the constraints andopportunities in agriculture Whilst there are relatively adequate capital and labor from existing villageresources to meet the demands for subsistence farming, it is clear that commercial farming will requiresignificant inputs of capital investment, technology, expertise in agriculture farming and skilled labor

Although there is an income tax holiday in place for primary producers, this measure has not been able

to attract the level of capital investment and financing required for the commercial farming In efforts toensure sustainable economic and social progress, the government has stated agriculture developmentwill target increased agricultural activity for local consumption as well as commercial investment Thekey sub-sectors within Agriculture are crops, fisheries (addressed in a separate chapter) and livestock Assuch, improved crop production, fisheries and livestock development will also be intensified toaccelerate agriculture growth as stated in the 2008-2012 SDS with key objectives including the following:Increase exports; Employment creation; Food Security; Import substitution; Sustainable environment.The challenge however is how to translate these policies into affirmative action that would increaseagriculture outputs

G Challenges facing the manufacturing sector

The manufacturing sector in Samoa faces numerous challenges that can be summarized as follows:

i Inadequate and unstable domestic supply of raw material and intermediate inputs, mainly due tothe weakness of the agriculture sector;

ii Lack of economy of scale

iii Lack of venture capital and limited finance options The credit and finance systems and markets inSamoa are limited and, relatively, weak There are Low levels of banking by the population, limited investments available to individuals and firms because of the higher consumption

over income, as recorded in the last households’ income and expenditure survey (HIES)

2008, and high interest rates with large gaps between what the financial institutions pay for deposits and what they collect in interest This difference of 7-9% between deposits and loans, is high and has remained high in spite of the recent economic reforms;

iv Due to the lack of domestic savings, Samoa relies heavily on foreign investments In this realm,Samoa competes regionally with Fiji, Vanuatu, Solomon Islands and PNG, and globally with otherdeveloping countries, many of which provide more favorable investment environment

v High costs of doing business

vi Private sector lacks management and marketing capacity, particularly export oriented expertise;vii Land tenure remains an obstacle in two form: first, inadequate land for industrial developmentand supporting projects and infrastructure; second, limits access to finance, since land is onlyaccepted collateral for secured loans;

viii Trade and industrial policy measures: currently there is no coherent trade and industrial policiesthat are geared towards promoting the manufacturing sector and target particular clusters based

on Samoa’s comparative advantages

ix Failure to meet SPS and bio-security requirements in export markets often constitute a challenge

to increase Samoa’s exports MAF introduced the need for HACCP approvals in the fisheries areaand this saw the growth of this export area

x Tariff schedule anomalies: tariff applied to imported finished products is the same for importedraw materials For example: Yoshida Commercials imports its raw materials for manufacturingsandals at 20% and the finished products (sandals) are imported at 8% duty rate, these are some

of the challenges faced by the industries The same anomalies are shared by the garmentindustry Tariff on Plant/Machinery for manufacturing purposes is 20% duty rate

xi Trade liberalization, including PICTA and approaching WTO accession, will create new challengesfor the Samoa’s manufacturers

xii Samoan manufacturers face very tough competition from Fiji in regional markets as well asSamoa’s own domestic market Fiji has been making concerted efforts in marketing and brandingthat have paid off (e.g Pure Fiji, Fiji Water and Furniture)

xiii Fiji has tariff free entry under PICTA for its goods from next year whilst Samoa continues to facetariff and now excise tax barriers

Chapter 5: Foreign Trade

A Introduction

Samoa is a relatively open economy with very narrow export base and a persistent sizable trade deficit.Foreign trade policies have just undergone a comprehensive review as part of the EIF programme Thetrade diagnostic study (DTIS), which also included trade facilitation, trade performance, institutionalarrangements and supporting and related sub-sectors, has been finalized, validated by stakeholders inNovember 2010 In addition to assessment and situation analysis, the study provides a plan of actionsfor implementation over the next three years as well as funding mechanisms for various trade relatedprojects Therefore the TCM sector plan will rely on the DTIS situation analysis and action matrix Thefollowing is brief situation analysis to complement the comprehensive situation analysis provided in theDTIS and link foreign trade with manufacturing and other productive sectors and sub-sectors

B Merchandise trade performance

Samoa’s export structure comprises of mainly agriculturally based goods with minimal value adding.Throughout the period from 2000 to 2010, merchandise trade has recorded a widening deficit of, whilenet services recorded an insignificant surplus (figure ??) As a result the overall balance of trade hasbeen negative throughout the entire period While growth rates of merchandise exports and importshave been highly correlated during the period from 1999 to 2009 This correlation broke in 2010 withsudden spike in imports and small drop in exports causing the merchandise trade deficit to widen Thedecline in exports at 2010 came despite a relatively good performance during the first two quarters,compared with first two quarters of 2009 The deficit is mainly financed by receipts from tourism,remittances and foreign aid

Figure ??: Growth rates of merchandise

exports and imports 2000-2010

Source: Central Bank of Samoa

Figure ?? Trade indicators (% of GDP) duringthe period from 2000 to 2010

-60 -40 -20 0 20 40 60

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Merchandise Exports Merchandise Imports Net Services

Balance of Merchandise Trade Balance of Trade

Source: Central Bank of Samoa