Doing business in tuvalu report 2014 (1) by friendsfiji

A Survey on the Business Environment in Tuvalu

TUVALU DOING BUSINESS IN

2013

Pacific Islands Private Sector Organisation

PIPSO MISSION: To lead the facilitation of private sector-driven economic growth for the benefit of the region.

The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the Pacific Islands Private Sector Organisation concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. July 2013 Original: English ÂŠ Pacific Islands Private Sector Organisation 2013

CONTENTS 1. Overview

2. Background 2.1 Tuvalu Economy 2.2 Political State 2.3 Economic Conditions 2.4 Tuvalu Private Sector Strategy

4 4 4 4 5

Business Environment 3.1 Costs of Doing Business 3.2 Business Registration 3.3 Telecommunications 3.4 Electricity 3.5 Water 3.6 Cost of Finance

7 7 7 7 7 8 8

Business Structure 4.1 Business Type 4.2 Ownership Structure 4.3 Business Size

9 9 9 9

Business Set-up and Operations 5.1 Financing 5.2 Staffing 5.3 Environmental protection & sustainability 5.4 National/International Policies

10 10 10 10 10

Business Challenges 6.1 Business Obstacles 6.2 Training/Mentoring Services 6.3 Assistance to businesses 6.4 Tuvalu National Private Sector Organisation

11 11 11 12 13

Business Opportunities 7.1 General 7.2 Sectoral 7.3 Individual Business

14 14 14 16

8. Conclusion

9. Recommendations

10.

References

11. Annexures

DOING BUSINESS REPORT 1. OVERVIEW

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This report presents findings from the Tuvalu Business Survey conducted in June 2013.

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The survey was conducted with the objective to assist the Tuvalu National Private Sector Organisation (TNPSO) in understanding businesses needs and rendering or soliciting the appropriate level of assistance. Further on, the survey would also contribute towards its Strategic Plan that TNPSO is currently developing.

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2% being foreign owned; Tuvalu is dominated by micro-small medium enterprises, with around 83% earning less than $5,000 a month; Around 24% of the businesses surveyed are in wholesale and retail; Two thirds of the businesses have women directors.

Past growth Around 45% of the businesses surveyed indicated that business environment in Tuvalu have improved in the past year while 15% said that it has worsen. The remainder mentioned that it has not changed over the year. Further more, around 58% mentioned that the general business environment has affected their business and 23% were unaffected with around 19% were uncertain.

The survey was conducted over a week in June 2013 by a team comprising of a PIPSO staff and 2 TNPSO Executive members. The survey form was designed by PIPSO and formatted in the English language (refer to Annex 1). It covered 8 main areas: • Business information; • Business environment; • Staffing; • Financing; • Environment protection & sustainability; • National/International Policies/Regulations; • Training/Mentoring Opportunities; and • TNPSO services.

Obstacles to achieving business success The majority of respondents perceived at least some degree of challenge or possible challenge to their success. The three main challenges identified are: lack of financial support; Government policies and processes and lack of business know how. Included under Government issues are the increased Government taxes as the Tuvalu Consumption Tax increased from 4% to 7% in 2013. Concerns were raised on the lack of Government liaison and information sharing with the private sector as well as government’s restraining laws and policies.

The survey comprised of some questions which the respondent could easily tick off their option and a few questions that required descriptive answers. Responses were either given through interviews by the survey team or completion of the form by the businesspeople.

Opportunities for growth Looking ahead, around 61% of the businesses surveyed anticipate an improvement in the businesses environment in Tuvalu next year due to a change in government and policies. Only 9% expect a worsening of the environment and 30% are skeptical.

A few businesses were able to be interviewed by the team on the spot. However, majority of the businesses had their owner/ person in charge unavailable and preferred to have the forms dropped and picked up later or they returned it themselves.

Competition from overseas and locally Local competition is already high due to many similar businesses targeting the small Tuvalu market. The presence of the foreign businesses creates further competition and is a threat to the local businesses.

A total of 125 forms were distributed to businesses of all scales. Approximately 67% or 84 businesses submitted their forms. Refer to Annex 2 for list of businesses that responded. Out of the 84 that responded, around 10% are yet to be registered. There were two different numbers provided for the total number of businesses in Tuvalu. According to the Tuvalu Business Centre, there have been 600 registered businesses since 1992. On the other hand, the TNPSO estimates that there are approximately 160 private sector businesses in operation that are active enough to be part of its organization. From the two data, it is more realistic to work on the TNPSO’s estimate. Thus, based on the TNPSO estimate, round 49% of the total businesses in Tuvalu responded to the survey.

Increase in TNPSO membership The survey also served as an awareness for TNPSO. This resulted in 23 new members for the Organisation. The business survey report comprises of seven parts. The first part provides a brief summary of the survey followed by a review of the Tuvalu economy as well as the government strategy for private sector in Part 2. Part 3 discusses on the business environment such as the cost of doing business in Tuvalu. Part 4 then provides the actual business structure and sizes of businesses in Tuvalu. The financing ways of most businesses as well as some operational methods are detailed in Part 5. Part 6 then details the challenges as well as assistance and training required for the businesses surveyed. Business opportunities, which is Part 7, is in 3 sub-sections: for all businesses in general; sector based and then individual identified businesses.

Mainly the survey covered businesses on Funafuti. There were a few cases of businesses on the outer islands or branches on the outer islands. Characteristics of business operators The characteristics of businesses surveyed were: • Sole proprietorship is the common form of ownership; • Ninety eight percent are locally owned with only

TUVALU SURVEY 2013 2.2 Political State Tuvalu is a Parliamentary Democracy and Commonwealth realm with Queen Elizabeth II serving as the country’s head of state. The Queen is represented in Tuvalu by a Governor General appointed by the Queen upon the advice of the Prime Minister of Tuvalu. The Parliament of Tuvalu has 15 Members of Parliament, who select the Prime Minister and the Speaker of the parliament. There are no formal political parties and election campaigns are largely based on personal/family ties and reputations.

2. BACKGROUND

In August 2013, the country had a change in Government. Opposition Leader Mr Enele Sopoaga was sworn in as Prime Minister along with his Ministers to the cabinet on 5th August 2013. 2.3 Economic Conditions With a lack of natural resources, especially land and fresh water (which is continuously under pressure from environmental change), a small domestic market, geographic fragmentation, difficult and expensive access to international markets, a small private sector and a dominant government involvement in the economy, the economic potential is by large limited. According to the IMF, the Government accounts for 70% of employment with the public expenditure is estimated at 98% of GDP for 2010.

2.1 Tuvalu Economy Tuvalu is a Small Island Developing State, comprising of nine low-lying atolls and a total land area of 26 square kilometres. Located midway between Australia and Hawaii and just west of the International Date Line, the island chain stretches some 676 kilometres (420 miles) from the southern island of Niulakita to the northern-most island of Nanumea and covers 757,000 square kilometres (292,278 square miles) of ocean. The nation’s largest island is Vaitupu at 4.9 square kilometres (1.89 square miles) and the smallest is Niulakita at 0.41 square kilometres (0.16 square miles). All of Tuvalu is less than 4.5 meters (15 feet) above sea-level.

Following a Real annual GDP growth of 5% in the 1900’s, this growth slowed in the new millennium to an annual average of 1.6% from 2001-2009 (IMF Statistics). Tuvalu generates income from the Tuvalu Trust Fund, the commercialization of the ‘tv.’ Top level domain, fishing licences, the sale of stamps by the Tuvalu Philatelic Bureau, remittances from Tuvaluans living in Australia and NZ and remittance from Tuvaluan sailors employed on overseas ships. ADB growth rates have shown Tuvalu Real GDP % growth from 2010-2011 at -0.6%.

The population of Tuvalu was estimated at 10,838 in July 2000, up from 8,229 in 1985 and 9,043 in 1991. The current annual population growth rate is 1.41%. The loss of island territory has spurred many Tuvaluans to migrate to New Zealand. Tuvalu’s birth rate is 21.78 births per 1,000 population while the death rate is 7.66 deaths per 1,000 population. Partially because of sanitation problems caused by the lack of fresh water, Tuvalu has a high infant mortality rate (23.3 deaths per 1,000 live births).

The country has had no real export since independence with goods export approximately AUD $400,000 - AUD $600,000 a year from 2004 to 2009. This is less than 2% which is among the lowest of the Pacific Island Countries. Tuvalu’s currency is the Australian Dollar and the Tuvaluan Dollar. Tuvalu is a member of the World Bank and the Asian Development Bank. The country maintains close relations with Fiji, NZ, Australia, Japan, South Korea, UK and EU. It has diplomatic relations with the Republic of China (Taiwan); the ROC maintains the only resident embassy in Tuvalu and has a large assistance programme in the islands. Tuvalu participates in the operations of the Pacific Island Forum Fisheries Agency and the Western and Central Pacific Fisheries Commission (WCPFC). In July 2013, Tuvalu signed the Memorandum of Understanding (MOU) to establish the Pacific Regional Trade and Development Facility.

Most Tuvaluans are young. Some 34% of the population is younger than age 15, while just 5% is over age 65. Life expectancy is 62.7 years for males and 66.9 years for females (2011 est.). Most Tuvaluans are ethnically Polynesian.

The United Nations designates Tuvalu as a “Least Developed Country” because of its limited potential for economic development, absence of exploitable resources and its small size and vulnerability to external economic and environmental shocks. The high cost of petroleum products has encouraged the development of projects to access renewable energy in

DOING BUSINESS REPORT Tuvalu. Due to the country’s remoteness, tourism does not provide much income; a thousand tourists are estimated to visit Tuvalu annually.

Box 2 details the Key Employment and Private Sector Policy Objectives for the 10 years. Box 2: Key Policy Objectives • • • • • •

2.4 Tuvalu Private Sector Strategy In November 2005, the Tuvalu Government issued the Te Kakeega II, its 10 year National Strategy for Sustainable Developnew private sector employment are thus central challenges to be overcome.

• • • •

The National Summit identified 8 strategic areas or sectors as the broad priorities for development over the ten years, outlined in Box 1. Inevitably, Employment and Private Sector Development is one of the priority areas.

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Maintain macroeconomic stability and foster economic growth Create a conducive investment environment. Reduce subsidies to public enterprises Create a ‘level playing field’ for private sector investment Fiscal policies and budget management that do not result in deficits that absorb too much domestic credit Provide adequate, efficient and cost-effective economic infrastructure-especially power, water, transport and communications Improve access to exports markets Increase credit availability to potential investors, especially domestic investors Maintain IMO “White List” status Job creation and other areas of economic opportunity Increase by 50% the private sector share of GDP and level of national employment

To achieve this, the strategies follow growth-oriented, private sector friendly policies.

Box 1: Eight strategic areas

The key issues and challenges confronting commercial private sector development are: • Small local market; • Geographic and economic remoteness from major markets; • unsecure property rights and inability to access to land for development; • Lack of private enterprise tradition; • Generally poor service delivery by the public sector; • Dominance by the public sector of many areas of enterprise, which are often uncommercial and subsidised.

1. Good Governance 2. Macroeconomic Growth and Stability 3. Social Development: Health, Welfare, Youth,Gender, Housing, and Poverty Alleviation 4. Outer Island and Falekaupule Development 5. Employment and Private Sector Development 6. Human Resource Development 7. Natural Resources: Agriculture, Fisheries, Tourism, and Environmental Management. 8. Infrastructure and Support Services

TUVALU SURVEY 2013 Box 3 provides the national plan’s key priorities and strategies for increasing employment and private sector development.

management skills to make their ideas commercially successful. More training in these areas will be provided through appropriate means, either by NGOs or private training institutions. Offshore employment and migration, either from the outer islands to Funafuti, or from Tuvalu to overseas (historically to Nauru and Ocean Island) has long been an important employment safety valve. In recent years there has been increasing opportunity for migration to Niue and New Zealand.

Box 3: Employment and Private Sector: Priorities and Strategies 2005-2015 • • • • • • • • • • • •

Establish clear investment policy and regulatory environment, and institutional frameworks Ensure compliance with PICTA and PACER Actively support foreign direct investment, as well as domestic investment in job creating private enterprise Set fiscal policies, including subsidies to public enterprises, so it does not crowd-out the private sector Strengthen financial intermediation and domestic capital investment Tax and tariff reform, and reform Expand private sector participation in the decision making process Facilitate business and management training for local entrepreneurs Facilitate better access to markets and information on markets for local businesses. Provide resources needed for TMTI to remain on the IMO “White List” Investigate new offshore employment opportunities Strengthen consumer protection by establishing a Consumer Council to monitor product and service standards

A future strategy will be to improve these migration and explore other alternatives for offshore employment. The nine indicators to measure performance against the policy objectives, priorities and strategies: 1. Annual number of active employee accounts at TNPF. 2. Annual level of credit to private sector borrowers at NBT and DBT. 3. Annual number of seafarers employed on overseas ships. 4. Number of members of the Tuvalu Chamber of Commerce. 5. Number of participatory consultations held each year between government and the Chamber of Commerce. 6. Level of subsidy to each public enterprise in the annual budget. 7. Progress on legislative changes needed to create a better investment climate: a. Land reform b. Investment policy c. Consumer protection 8. Employment and income data reported in census and household surveys. 9. Contribution of the private sector to GDP.

A key strategy is the creation of a suitable investment policy and regulatory environment in which investors, be they domestic or foreign, have access to land, and sufficient confidence in the system that they are willing to invest and create employment and wealth in the domestic economy, with credit providers able to accept land as collateral for loans. Increasing exports is another key strategy. Access to export markets mean not only places in which to sell products exported from Tuvalu, (e.g. Fish), but also sources from which demand for Tuvalu’s tourism industry might derive customers. Tuvalu’s main export presently is seafarers, their export earnings received in the form of remittances. This is an increasingly competitive market in both cost and quality, with many nations now vying to get their seamen on foreign vessels. Tuvalu seafarers must remain competitive on both counts. Government will assist the industry to negotiate best-rate travel and visa costs, make sure that TMTI has and maintains its “White List” status, and is able to develop the facilities it needs to meet the demands of the industry. Overall, successful implementation of the strategies will require a better relationship between the public and private sector. This means more participation by the private sector in the decision-making process, and a stronger NPSO. Many potential entrepreneurs lack the necessary business and

DOING BUSINESS REPORT 3.

BUSINESS ENVIRONMENT

Table 2: Telecommunication Costs

3.1 Costs of doing business In the World Bank/IFC Doing Business reports, there is no data or ranking for Tuvalu. Some related costs of doing business in Tuvalu were obtained and outlined here after. To allow comparison, the costs in Tuvalu have been tabulated against other Pacific Island countries, where available. 3.2. Business Registration Cost of registering a business in Tuvalu is AUD $100, irrespective of the form of ownership or whether local or foreign owned. The process, however, slightly differs for foreign owned businesses as it requires approval from the Foreign Direct Facilitation Board. In comparison with other countries (as in Table 1), business registration in Tuvalu is on the high side and could be a deterrent to small business registration.

Tuvalu Landline

Cost in AUD

Set up costs: - Telecom provides phone

$50 installation + $50 for telephone $50 installation

-‐ Customer’s phone Call charges locally

10cents per minute

Minimum cost of phone cards

Mobile

Minimum cost of mobile Cost of simcard Minimum recharge card

$40 $20 $10

Internet

Business & Corporate Institutions Business & Corporate Institutions & Cafes Business & Corporate Institutions & Cafes Business Internet Outer Island Internet Outer Island Internet Monthly rental fee Local calls Calls to mobile phones Mobile to mobile 128kbps – US$350/month 192kbps – US$520/month 256kbps – US$650/month 320kbps – US$750/month Monthly – NZ$99 for 3.5GB

$300/mth 8GB $500/mth 15GB $750/mth 25GB $100/mth 2GB $200 Office $400 internet cafe $17 15 cents/ 5 mins 50 cents/4 mins 30 cents/per min $390 $580 $724 $835 $86 for 3.5GB

Kiribati

Palau

Table 1: Business Registration

Cost in local currency

Cook Islands

Table 3: Comparable cost per unit - Electricity

3.3. Telecommunication Telecom Tuvalu is the sole telecommunication provider in the country. Table 2 provides the respective costs for landline, mobile as well as internet. Cost of telecommunication and internet is high in Tuvalu compared to other countries. Telecom Tuvalu plays a monopolistic role, disadvantaging the private sector as well as the private individuals with its high costs. 3.4 Electricity In the process of a new electricity connection, the customer gets a free meter box by Tuvalu Electricity Corporation (TEC) for the outside box but they get their own meter box for the inside and have to pay private contractor to do their wiring. TEC will then liaise with the contractor and conduct inspection before connecting electricity. TEC is working on implementing pre-pay electricity system.

TUVALU SURVEY 2013 3.5 Water Under the PWD water scheme, each household is entitled to a free 1,000 gallon water tank. Businesses, on the hand have to purchase a water tank, either from the Government or Mackenzie Trading Co Ltd at $2,300 or $1,700 respectively. These exclude fittings and water. Water refilling prices are as per Table 4 below.

New businesses applying for loan below $30,000 is charged 9% and thereafter 15% interest. The Bank’s deposit products include normal savings account with a 2.5% interest normal and Term Deposits with 5%. In terms of collateral, land has been a sensitive issue and as most land is family owned, land has never been considered as security by the Bank.

Table 4: Cost of water

In the past, the Bank have accepted personal assets as collateral for their loan applications. This has created conflicting views with the Auditors in the past. For natural resources, an equity contribution of 20% is required while for other sector, a 35% equity is required. Lending is not differentiated amongst the sectors, in terms of interest rates. At the time of the interview, the bank had presently stopped lending to two sectors: • Real estate – Conflict between lending and the government scheme where the Funafuti community were getting 1 free house from the government. • Fishing sector – in particular for some islands like Nui. Repayments have been low and poor performance. In terms of fees and charges, a business is charged $10 for loan below $10,000 and $15 for loan above $15,000. National Bank of Tuvalu (NBT) The NBT can assist in business loans but is encouraging businesses to go to Development Bank for loans. As at December 2012, lending to businesses totalled $200,000 for 17 businesses. The bank charges interest rate of 9.5% for both personal and businesses.

Cost of water in Tuvalu is high, compared to other small island countries as in Table 5 below. Tuvalu’s weather pattern tends to have less of rain. Table 5: Comparable cost of water in Tuvalu

3.6

Cost of Finance

Development Bank of Tuvalu (DBT) The Development Bank was setup as per its mandate to provide loans to new and small businesses. It provides loan facilities for businesses under two categories, with the varied interest rates and using specified funding: - 15% - Grants from Government and EIB Loans - 9% - Pool of fund from ROC. This had started off at 3% as soft loan but Public Enterprise Act required SOEs to act on commercial base so it increased to 9%.

DOING BUSINESS REPORT 4.

BUSINESS STRUCTURE

4.1 Business Type It was noted that one businessperson could be involved in more than one sector, some of whom just listed their core business. Around 24% of the businesses surveyed were involved in wholesale or in particular, retail. This was followed by transport with 15%, which included motorbike hires/sales, mechanical workshops, bus services and spare parts sales. Food services includes restaurants and bakeries while Others includes preschools, printing services, refrigeration & air conditioning services, handicrafts & tailoring and scrap metal recycling.

4.3 Business size Tuvalu is dominated by micro-small medium enterprises, as reflected in the survey with majority earning less than AUD $2,000 in a month. In general, businesses rely on word by mouth advertising while a few advertise through the radio, newspaper and internet.

4.2 Ownership structure As shown in Chart 2, the common form of ownership is sole proprietorship with partnership ranking as the next common ownership form. Businesses were mostly locally owned with only 2 being partly foreign-owned. It was noted that around two thirds of the businesses have women directors.

TUVALU SURVEY 2013 5.

BUSINESS SETUP AND OPERATIONS

5.1 Financing More than half of the businesses surveyed, indicated that they used personal savings as the main financing sources while some opted for bank financing. There were a few businesses that were assisted by grants while a handful was able to borrow from friends. Around 41% of the businesses interviewed stated they did not have difficulty in approaching the banks for loan while 37% have not approached the bank at all. Furthermore, 22% were able to get loan now but had difficulty accessing bank loans, attributed to either lack of security, high debt or a relatively young business life.

5.2 Staffing This section helps to gauge the number of employees in the private sector, as a sample. Also, it analyses the composition of employees by gender. The section also assists in understanding the level of ease for employment of skilled/unskilled employees. Further on, the section also indicates if businesses had internal recruitment policies in place.

5.3. Environmental protection and sustainability Sixty percent of the businesses adopted measures to protect the economy, through organic farming and waste management, recycling and production of DVDs for environment awareness. Businesses indicated that they would be more convinced to adopt measures to protect the environment if it was to help them save money or if they received some financial aid to implement the measures.

An approximate total of 286 employees are employed from the 79 businesses surveyed, of which the preference was more towards single man. This could be mainly due to the nature of the businesses. Married men and women were also preferred as employees over single women.

5.4 National/International Policies/Regulations According to 64% of the businesses interviewed, starting a business in Tuvalu is difficult as there are too many requirements and a costly process.

From those that responded to the question of the ease of finding qualified workers, it was evident that finding qualified workers is difficult in Tuvalu. This could be due to migration causing brain drain. Chart 6 portrays that it is difficult to find suitable directors, production workers and sales workers but easy to find unskilled workers.

The main problem businesses faced with the Government in the previous year was the rise in the Tuvalu Consumption Tax to 7% from 4%, due to PICTA. Other issues included licensing fees and the land tenure.

As most businesses are SMEs, proper policies and procedures are yet to be developed and implemented. Only about 7 businesses surveyed, have recruitment policies in place while a few are currently developing theirs and the majority do not have it in place.

DOING BUSINESS REPORT 6.

BUSINESS CHALLENGES

internet, telecommunication, transport; • Restraining laws and policies; • Shipping and freight issues – These include increasing freight charges, lack of shipping and storage buildings on outer islands, unreliable shipping services as heavily rely on shipping service.

6.1 Business obstacles Raising capital is the main obstacle that most businesses in Tuvalu face, followed government issues and lack of right contacts, information and advice on businesses. In overcoming their obstacles, some businesses sought financial assistance from the Development Bank of Tuvalu and business advice from Business Centre and existing businesses of similar type.

3. Land issues - Not enough land for expansion of business operations and businesses also raised the issue of land tenure. 4. Too many similar businesses for a small population – There are many businesses of the same type in Tuvalu and competing for the same small population. 5. Traditional culture of financial expectations from relatives/ friends – There is the expectancy of communal ownership/ sharing of gains or borrowing from an individual business. 6. Bad debtors – Credit customers slow repayment or default in payment. As the Pacific culture, it is usually an uneasy situation to refuse credit, particularly to family and friends, and further on, to remind one of its debt. It was noted on the Thursday morning, as it was Government’s payday, that businesswomen/wives of businessman (particularly fishermen/landlords/money lenders) waited in front of the National Bank of Tuvalu for their debtors. 7. Competition with foreigners – An increase in Chinese businesspeople in the country has raised competition with the locals, especially in retail outlets.

In detail, the common challenges/constraints highlighted by businesses were:

8. Copycats – As common in the Pacific, there is a tendency to copy and startup similar operations of existing businesses.

1. Lack of Financial support These include issues raised on difficulty in accessing loans by businesses due to high cost of financing, lack of collateral/meeting banks’ requirements, high debt, restrictions on loans to certain sectors.

9. Low tourist numbers – Tuvalu’s remoteness makes it expensive as a tourist destination and thus records low tourist numbers. Majority of the foreigners in the country are there for work purposes.

2. Government issues There were various government issues restricting businesses. • Lack of cooperation from Customs Officials; • Increased Government taxes – The Tuvalu Consumption Tax increased from 3-4% in the previous two years and then to 7% in 2013; • Delayed Government process – Government process on queries, application are long and delayed; • Lack of Government liaison and information sharing with private sector - Information shared only between government officials-no private sector inclusion. Catering is now only given to civil servants and also ordering of materials/ tender of construction works not given to private sector; • Poor/lack of initiatives and incentives by Government to encourage business – this includes high cost of doing business such as

10. Lack of business know-how – this includes the lack of experienced persons for recruitment and lack of available training/contacts for up skilling of employees/ businesspeople. 11. Lack of overseas market penetration. 12. Shortage of ingredients in country at times - this came from businesses involved in baking, catering or food services. 13. Hard and costly to find spare parts -this was specifically raised by the mechanical businesses. 6.2 Training/Mentoring Opportunities A few businesses have had the opportunity of being mentored by the NZ Business Mentors while the others would be interested to be mentored. Two businesses indicated that they would be willing to offer mentoring to other businesses, in the areas of: starting a business and training individual to maintain

TUVALU SURVEY 2013 November. Areas of training identified include book-keeping, strategic plans and budgets. In assisting business loan applicants meet the requirements of business plans for loan proposals, DBT has referred clients for assistance in preparation of their loan proposals to either of the three: Business Centre/TNPSO and/or Individuals at a cost to clients. The Bank has noticed that for some customers, it is obvious that the proposal is prepared by someone else and does not normally align with the intentions of the actual client. The following were highlighted by businesses as needed, in general or specific to their businesses. small problems with their vehicles. Training Needs The following training needs were indicated by businesses: 1. Financial Management - Preparing a Business Plan, Business accounts, preparing Financial Statements, MYOB; 2. Management skills; 3. Marketing; 4. Organic farming; 5. Automotive and panel beating; 6. Tourism - housekeeping; 7. Customer service; 8. Trade and trade policy matters; 9. Information Technology; 10. Electronics and electrical up skilling; 11. Catering/cooking/Baking/Pizza making – there are a few bakeries based from their homes; 12. Up skilling for kindergarten teachers; 13. Video & audio production; 14. Tailoring and garments quality improvement; 15. Scrap metal recycling; 16. Mechanical-Refrigeration, air conditioning; 17. Attachments with similar established businesses. 6.3 Assistance to businesses Whilst there are some degree of assistance provided to businesses by the TNPSO, Business Centre and the DBT, there still remains a great opportunity for further assistance. The Business Centre facilitates training for businesses. Upon registration, a business is required to undertake two training conducted by the Centre: How to setup a business and Finance Management. The Centre promotes local trainers and only engaged foreign trainers in the case of non-availability of local trainers. The Centre works with the TNPSO in providing some training. During the week of the survey period, the Centre conducted training on “Pricing” as it noted that retailers were charging different prices for the same products. The Centre also works with the Development Bank of Tuvalu in assisting businesses develop business plans. DBT commenced in 2013 as an agent for NZ Mentoring. A total of 30 clients altogether with 15 more to come on board in

1. Financial Assistance – through affordable finance and more opportunities like credit lines. Businesses also highlighted the request for grace period to be given to them during increase in TCT to enable them repay their loans; 2. Training as highlighted in the sub-section on Training; 3. Advocacy with Government for: a. Improvement in shipping infrastructure and reliability; b. Reduction in Government taxes; c. Promote local businesses and discourage foreigners setup; d. Financial assistance to obtain appropriate teaching equipment; e. Developing and implementing measures/ policy to ensure a variety of businesses; f. Simplified Government policies and procedures; g. Bringing back the tender board & write off opportunities – according to a source, these had been closed off to selected individuals. 4. Link to South Pacific Tourism Organisation (SPTO); 5. Liaison with Town Council to negotiate on rent for businesses at the Town Council Building.

DOING BUSINESS REPORT 6.4 Tuvalu National Private Sector Organisation The Private Sector Organisation of Tuvalu and the Chamber of Commerce were combined in 2010 to form the TNPSO. Although this formation was assisted by the Government with the objective to provide private businesses the opportunity to organize themselves under a body who would advocate for the interests of the private sector, the TNPSO was not financially backed up by Government. In the two years following the formation, the TNPSO did not receive any funding from the Government towards private sector development. In 2013, a funding of AUD $10,000 had been received, a third of what used to be received prior to 2011. The lack of funding has greatly constrained the TNPSO in its operation and undertaking its mandated role. Further on, the TNPSO has also had a few changes in its presidency, due to its Constitution requirements of nonpolitical involvement. Operating on a minimal budget, the TNPSO secretariat has 8 executive members (inclusive of acting president, treasurer and secretary) who are all on voluntary basis: 1. Pula Matia Toafa - V/President and Acting President 2. Vavao Saumanaia - Secretary 3. Salilo Enele -Treasurer 4. Miliama Simeona – Member 5. Susana Taafaki – Member 6. Eunike Tonise - Member 7. Tolauapi Iliala – Member 8. Fili Homasi - Member 9. Petisone O’Brien – Member 10. Soloseni Penitusi – Member 11. Kiatoa Ulika - Member (studying in NZ) The secretary mans the TNPSO office, previously based in the National Council of Women’s handicraft centre in town. In July, the organization relocated to the TANGO office, which offered better facilities.

Currently the TNPSO has 66 registered members and a membership fee of AUD $25 a year. Less than half of the businesses surveyed are members of the TNPSO. There were newly joined member existing during the process. In terms of their satisfaction of the TNPSO services, 50% of the members are “sometimes” satisfied while a few indicated they are “always” satisfied. On the other hand, a handful also stated that they are “never” satisfied with TNPSO services. In terms of improving TNPSO services, the following comments were given by interviewed businesses: 1. Conduct workshops, mentoring, training on areas for business development and facilitate support through attachments, scholarships; 2. Disseminate information and liaise closely with businesses; 3. Be more vocal in dealing with government regarding laws & policies affecting business in Tuvalu; 4. Provide useful assistance to help improve businesses including more awareness on available opportunities; 5. Facilitate financial assistance through grants or lending to businesses; 6. More active role, mentoring unit; financial assistance; employing active experienced office bearers; 7. Assist businesses in preparing business plan, business advice; 8. Facilitate effective access and leverage; 9. Stop picking members of committee (family) only for training/seminars; and 10. To cease affiliating in politics but strict attendance to business interest of members. Get office established now! A low indication rate of 20% was noted on their awareness of PIPSO and its role.

TUVALU SURVEY 2013 7.

BUSINESS OPPORTUNITIES

to a Tuvalu Women in Business in existence. It is important that the Association be included in the TNPSO network and in turn the PIPSO network, for the enhancement of women owned businesses.

7.1 General Businesses highlighted the following opportunities for business enhancement, provided the right environment:

The TNPSO needs to have a dialogue with the TWIBA and include them in its network. This in turn, needs to be included in PIPSO’s network.

Supply to the outer islands on food and merchandise Businesses on Funafuti would like to expand their operations to other islands in Tuvalu, to not only provide goods and services but also creates employment; 2. Diversity of hardware products; 3. Increase funding opportunities for businesses; 4. Increase market share in supplying meat locally; 5. Upgrade to modern teaching equipment for a Typing vocational school; 6. Produce variety of unique dishes/cakes/catering services.

Bakeries/food services From the numerous bakeries/cake/restaurant businesses interviewed in the survey, the apparent need identified is the training in baking, cooking, etc. Two businesses highlighted the intention to set-up pizza businesses but needed further training/refresher courses on this. There are currently no pizza businesses in the country. Further on, as Tuvalu imports most of its food products, the challenge for the businesses in the food service is also the availability of ingredients. Facilitation of connecting suppliers to the businesses could be a way of addressing the issue.

All businesses have prospects, when provided with the appropriate support. In particular, this section aims to highlight specific businesses/sectors to the TNPSO for priority/ specific assistance. These sectors or individual businesses were selected mainly on the basis of the positive spillover effect it would have on the economy or community. 7.2

Areas of assistance by TNPSO: • Training – book keeping, business management, - Cooking, baking, pizza making, etc. A trainer could be sought from hospitality & catering schools to undertake training in Tuvalu.

Sectoral based

Tuvalu National Council of Women (TNCW) The TNCW is a co-operative of women engaging in handicrafts, sewing and food services (tea place). Women from the outer islands send through their stuff for sales in the Centre. The council has 17 executive directors, including 1 coordinator and operates in the same building as the airport, owned by the Government. The council is entitled to a grant of $10,000 annually but has been receiving only half the amount in the last two years. As its main challenges, the council highlighted the lack of knowledge, skills and management by its staff.

• Facilitate connecting of suppliers to food service businesses in country.

In observation, it appears that the food services section is the most active income earning for the council as the place is central. Although sources say that the women at the centre have good tailors, the apparels on sale at the centre could do with some improvements. The handicrafts on sale mostly consisted of fans selling at AUD $28 and very few necklaces/ earring sets. The handicrafts were relatively expensive and lacked variety and quality. Areas of assistance by TNPSO: • Training - book keeping, business management, - handicraft making, tailoring Tuvalu Women in Business Association (TWIBA) A Women In Business Association is registered under TANGO, with Ms Penieli Metia as the President since 1997. However, there appears to be a lack of communication or deferring views between the WIBA and the TNPSO. During the PIPSO women in business conference in 2012, there was no referral

DOING BUSINESS REPORT Mechanics Tuvalu has a few mechanics catering for the transport sector. Common issues raised by them include: bad debtors, the late supplies of parts due to shipping and the need for further training for staff.

repayment ability. Businesses could have been assisted by way of restructuring the loan accounts to enable repayment or government assistance in some way. Purchases of fishing equipment are costly to businesses as it is done by individuals and all the way from Fiji. In assisting the businesses, the Government could contract businesses to sell these equipment in Tuvalu as it will reduce cost to fishermen.

Areas of assistance by TNPSO: • Training - Mechanics & engineering - Book keeping, financial management

Areas of assistance by TNPSO: • Lobbying with Government for support and possible areas of assistance.

White goods technicians Households/institutions in Tuvalu more than prefer to hire white goods rather than owning them. These may be due to the cost of maintenance and repairs, the lack of technicians, availability of parts and etc. There is a lack of technician in the country and the need for further training was highlighted by the technician interviewed in the survey.

Nanumea Women’s Community Group The Nanumea Women’s Community comprises of around 120 women spearheaded by a committee of 6 working women. The Group has a double storey building in which the top flat was previously rented by TANGO and is currently being renovated while the bottom flat is the storage for the Group’s equipment which they hire out. Equipment include tables, mats, tablecloth, tarpaulin and other materials for functions or social gathering. The group also sells home-made ice block and brings in much earnings. The group maintains a Term Deposit account and is working on other business opportunities such as promotional women’s videos and tailoring.

Areas of assistance by TNPSO: • Training for technicians

Areas of assistance by TNPSO: • Training - Business Management, book keeping, - Tailoring - Include into WIB network & TWIB

Fishermen Tuvalu is surrounded by the sea and there is an opportunity for the fishing sector. However, the fishing businesses are constrained by many factors, including access to capital, high cost of businesses and etc. Currently, loan by the DBT to the fishing sector is being stopped due to poor repayment. The increase in TCT affected the costs and in turn the businesses’

TUVALU SURVEY 2013 Farming Development Authority of Nukufetau (FAN) FAN is a public owned enterprise by the Nukufetau Community, specialising in agricultural produce namely virgin coconut oil, piggery and vegetables. With 50% women ownership, the company has women in its Board of Directors and employs its young people on the farm. The company’s main source of capital at its setup was financial contributions from the Nukufetau community and the Government grant in the 2011 Government national budget. However, the grant for 2012 national budget was held back by the Government. The company has plans of expanding into eco-tourism and aquaculture. Areas of assistance by TNPSO: • Training interests – Management & Production • Product development 7.3

Individual businesses:

Nonu Tuvalu Nonu Tuvalu produces noni juice and has been in operation since 2004. With its own noni plantation and also purchasing noni from its suppliers, the company manufactures and sells bottled noni juice locally and abroad. Based from home, the labelling and packaging are manually done and limited market access. The company is looking into developing related products like soap and etc. Information on the BDF was provided to one of the partners.

• Market access; • Training interests – organic farming, product processing and development. Ana’s Scrap metal export Established in 2008, this company is the only scrap metal export in Tuvalu. The company employs 9 males and exports to NZ. Cost of shipping is an issue for the company and the need for training of staff.

Following a forwarded email by PIPSO on the interested noni buyer from China Trade Office, the owner liaised with the buyer and was able to secure a meeting with them during the buyers visit to Fiji in August. Nonu Tuvalu was able to obtain Business Development Fund to assist him with his exploration visit to meet the buyer in Fiji. The sample provided by the owner was included in the 2014 Trade Pasifika poster.

Areas of assistance by TNPSO: • Training - scrap metal recycling, - financial management • Raise issue with Government for assistance in shipping, through subsidy, etc.

From the interview with the owner at the time of the survey, the business priority areas of assistance, would include: • Product development; • Packaging and labelling;

DOING BUSINESS REPORT 8. CONCLUSION The size of Tuvaluâ&#x20AC;&#x2122;s private sector is small which is also reflective of the sizes of businesses. Like many small island countries in the Pacific, the business sector is very small and the Government provides many services like on utilities and telecommunications which makes the cost of doing business high. Registering and licensing of businesses are both expensive and lengthy processes. Further on, connection to utilities (telephone & internet, electricity and water) are costly as the providers charge monopolistic prices. Accessing finance from the two banks is difficult due to restrictive requirements, high interest rates/fees and charges, lack of assistance/advice by banking personnel. Other challenges includes lack of government facilitation, the lack of transportation links to bigger countries and lack of exports amongst others.. For a small country, there are numerous small businesses, relatively similar in operation. There is lack of creativity or market research on what is needed by the market. This restricts the return to businesses as they compete for the same small market. This is further amplified with the entry of foreign business owners into the market where it is able to capture a large portion of the market, particularly in the retail market.

With challenges in the transport links, the country is not able to export. While there are potential for exports of coconut oil, noni juice, fish and other fisheries products, not much effort is made to developed these potential industries. Financial and technical assistance is the major need identified by businesses that could be facilitated by the TNPSO/PIPSO and development partners. On the home front, partnership with the Government will ensure effective outcomes and addressing of private sector issues. The Tuvalu Government has outlined the importance of the private sector, with the issuance of its Te Kakeega II in 2005 and the formation of the PSOT in 2010. However, a lot of effort is needed to bring about the realisation of the private sector goals highlighted in the national development plans. At the same time, the TNPSO must effectively represent the interests of the business community and regularly dialogue with the government on issues confronting the private sector. This would require a well functioning TNPSO supported by its members. An effective partnership with the Government will assist in addressing most of the issues. Collaboration with PIPSO and development partners is vital to developing these businesses.

TUVALU SURVEY 2013 9. RECOMMENDATIONS

3. Promote and support the use of renewable energy sources like solar as the cost of electricity is high to due diesel fuel and transportation cost.

It is recommended that:

4. Together with the TNPSO, hold discussions with the two banks for facilitation and easing of SME financing; through custom made loan facilities, sourcing technical assistance/training and rendering appropriate assistance. Interest rates should also be reviewed as they are high.

A. Th e TNPSO: 1. Take on a pro-active role in initiating consultations with Government to address issues encounter by the businesses especially in accessing finance. 2. Assess the training needs of the businesses in Tuvalu and conduct the relevant training programmes.

5. Consider setting up proper judicial processes like Small Claims Tribunals/Bailiffs to prosecute or collect overdue debts.

3. Dialogue with Government on the export opportunities and provide solutions on how these can be carried out and outline where Government assistance is required.

6. Encourage foreign investments to potential export areas rather than allowing them into the retail market which is dominated by local businesses.

4. Collaborate with the Government, PIPSO and other development partners in undertaking relevant programmes for business development.

7. Support TNPSO through the provision of some core funding for its operations.

B. The Government to: 1. Review the cost of registering and licensing fees with a view to reduce by, tailoring fees to business type and size. In a small market economy the process can be streamlined easily to quicken the process of registration and licensing.

8. Recognising and supporting the TNPSO as the focal point for regular dialogue with government departments and ministries. 9. Encouraging greater private sector participation in government committees and on matters affecting the development of private sector.

2. Consider opening up the telecommunication sector and inviting other operators to Tuvalu. This would assist in reducing the telecommunication and internet costs as result of competition and increased suppliers.

DOING BUSINESS REPORT

REFERENCES 1.

Te Kakeega II â&#x20AC;&#x201C; Tuvalu 10 year National Development Plan

Interviews with: a) Mr Taukave, GM, Development Bank of Tuvalu (DBT) b) Ms Makatala Sapakuka, GM Lending, National Bank of Tuvalu (NBT) c) Ms Clare Foualiki & Ms Freeda Katepu, Business Center d) Ms Meelina, Technician/GIS officer, Tuvalu Telecom e) Mr Taeka Satupa, HR Manager, Tuvalu Electricity Corporation

TUVALU SURVEY 2013

Annex 1 Doing Business in Tuvalu Survey â&#x20AC;&#x201C; June 2013 Name of Business: _________________________________________________________________ Contact person: ___________________________________________________________________ Address: _________________________________________________________________________ Phone:_________________________ Email/website:_____________________________________ A. Business Information 1.

What does your business specialise in? __________________________________________ Agriculture/forestry/Fishing Construction Tourism Manufacturing Information/Communication Retail Transport Food services Others. Please specify______________________________________

What is your ownership structure? I own my business I own my business with a partner I own the business with more than two owners as a company I own the business with more than two owners as a Co-operative

Is the business: Locally owned

Foreign owned

Partly local/foreign

If foreign owned, why did you choose Tuvalu?__________________________________ 4.

Are any of the owner/directors: a woman? How many? ________________________________ a foreigner? How many? _________________________________

What would be the total monthly sales of the business, in Australian Dollars? under $2,00 $2,000 - $5,000 $5,000 - $10,000

Which year was your business started?_____________________________________________

Does your business do advertising of its product/service? No Yes. Please specify how ________________________________________________________

B. 1.

Business environment What were the main obstacles you faced when starting your business? (Can tick more than one) no obstacles finding the right contacts for your business venture financial questions (raising capital) lack of information/advice on how to start a business others (please specify)______________________________________________

How did you overcome these obstacles?______________________________________________ ______________________________________________________________________________

In your view, what are the real challenges facing: a. General business environment in Tuvalu _________________________________________ __________________________________________________________________________ b. Your business _______________________________________________________________ __________________________________________________________________________

In your view, what are the opportunities available to:

>$10,000

DOING BUSINESS REPORT a. General business environment in Tuvalau _________________________________________ __________________________________________________________________________ b. Your business _______________________________________________________________ ___________________________________________________________________________ 5.

In your view, what are the constraints to the available opportunities in (4) above to: a. General business environment in Tuvalu _________________________________________ __________________________________________________________________________ b. Your business _______________________________________________________________ __________________________________________________________________________

What assistance would be needed to obtain to overcome the constraints in (5) above and obtain the available opportunities in (4) above to: c. General business environment in Tuvalu _________________________________________ __________________________________________________________________________ d. Your business _______________________________________________________________ __________________________________________________________________________

In your view, the business environment in Tuvalu in the past year has Improved gotten worse stayed the same

Has the worsening/improvement of the business environment affected your own business? Yes No I donâ&#x20AC;&#x2122;t know

Next year, do you think the business environment in Tuvalu will: Improve worsen stay the same

C. Staffing 1. How many employees do you currently have? Single Married Total Male _____ ______ ______ Female _____ ______ ______ 2.

How do you normally find your staff?_______________________________________________ _____________________________________________________________________________

Based on your experience, please specify how easy/difficult is it to find workers with the right skills in the following job categories: Easy Difficult Directors/managers Sales workers Production workers Unskilled workers 4.

Does your business have a recruitment/HR policy?__________________________________

When employing your staff, did you have in place the following?(Can tick more than one) Contract of employment Rate per hour Womenâ&#x20AC;&#x2122;s maternity leave No of working days in a week/fortnight Sick leave days in a year which they are paid for Do your staff get paid during the public holidays even if they are not working? Do your staff get paid during their absence due to death of family member/reasonable ground?

D. Financing 1. What was your main source of capital when you started your business? personal savings bank loans/credit cards borrow from friends grant/donors other sources

TUVALU SURVEY 2013 2.

Have you ever gone to a bank or financing institution to obtain financing for your business (equipment financing, line of credit, etc)? Please answer the question that best applies. No, I have never gone to a bank for financing Yes, and I have had no problem receiving financing Yes, I use bank financing now, but I have been rejected in the past Yes, I was not able to receive financing

If you have been rejected for financing by a bank, what was the reason? (tick all that applies) lack of business/personal collateral personal credit history issues business was less than 2 years bank does not lend to your industry too much business debt already business history did not show that debt could be repaid others (please specify)______________________________________________

Has your business obtained financial assistance through a grant or donor? No Yes. If yes, which one?______________________________________________

E. Environmental protection and sustainability 1. In your business, did you adopt any measures in order to protect the environment? Please specify.____________________________________________________ 2.

In your opinion, what would convince a business to adopt measures to protect the environment? If these measures helped the business save money If the business received some financial aid to implement them If these measures helped improve the sales of the business If these measures were required by law If these measures helped improve the reputation of the business Other. Please specify_________________________________________________

F. 1.

National/International Policies/Regulations How easy is it to start a business in Tuvalu? Easy Difficult

In the past year or currently, which of the following areas did your business have problems in dealing with the government? Tariffs Taxation Licence Fees Land Tenure Corruption Infrastructure Administrative slowness Discrimination against women/ethnic origin Others. Please specify_____________________________________________________

3. When you think that a national regulation/policy can badly affect your business, what do you do? Contact the government ministry/department concerned contact the chamber of commerce Contact another institution/organization I donâ&#x20AC;&#x2122;t do anything Others. Please specify _____________________________________________________ I have never been confronted to this situation. 4.

Last year or currently, did any new/exisiting national and/or international policy, regulations or trade agreement have an impact on your business? No Yes: National ________________________________________________________ International _____________________________________________________

Has your business received assistance in any form from the Government? Please specify. ______________________________________________________________________________

DOING BUSINESS REPORT G. Training/Mentoring Opportunities 1. Has your staff participated in any events or training organized by the Chamber? If yes, please specify. __________________________________________________ 2.

Which area of training would your business be interested to have training for? ______________________________________________________________________________

Has your business had the opportunity of being mentored? No Yes. By which company/organisation and which area? ________________________________ ______________________________________________________________________________

Would your business be: interested to have a mentor; Please specify which area________________________________________________ willing to offer mentoring to another business? Please specify which area________________________________________________

H. 1.

Chamber services Is your business a member of the Chamber of Commerce? Yes (Go to 2) No. (Go to 4)

As a member of the Chamber, are you satisfied with the services provided by the Chamber? Always Often Sometimes Never What can the chamber do to improve it services to members and community? _____________________________________________________________________________

3. 4.

Which services should the Chamber offer to convince you to join? _____________________________________________________________________________

Are you aware of the technical/financial assistance available with PIPSO or other regional agencies? No Yes

Fakafetai lasi! Tuvalu National Private Sector Organisation

TUVALU SURVEY 2013

Annex 2 List of the Survey Respondents 1

L.E.L Construction

29 Charlotte Kiloalofa Restaurant

57 Moneylender

Tivoli Apartment

30 P N Sons Traders

58 Mafauke Liquor shop

Mackenzie Trading Ltd

31 Taina-Tuvalu Traders & consultants

59 Vaiaku Pre-school

Tuvalu National Council of Women

32 Tially Babywear Shop

60 Fatuloa Daelim Trading Company

Nonu Tuvalu Ltd

33 L & T Sons Store

61 PTL

Tofa Trading Ltd

34 Jed's Motor repair

62 Sewing Project - FFEKT

Nauti Seafood Market

35 Meis Bakery

63 Tokotu Quality Print

Van Camp

36 Fuavaka Bakery

64 Neiata Jacks' Company Ltd

Api Tyre Repair

37 Canimo and Brothers

65 MPV Shop

Nukuvalu

38 Henekaio Mechanical Engineering

66 Mils Fresh Bakery

Nike Construction

39 Salamatagi Screen Printing

67 Leilys Pty Ltd

Halavai Store

40 Alapese Farm

68 Paueli and Sons Ltd

Saiola Canteen

41 Sologa Farm

69 Talof Guest House

IV Store

42 L A Electrical Services

70 Grace Pre-School Education

Segali Tealofi (Bakery)

43 Sefatau Store

71 Fetau Lasi Enterprises

Seini O Services Imp & Exp

44 Peauili Store

72 Farming Development Authority

ATN Electrical Services

45 General Fale Trusted Company

73 Palu-Palu E Fishing

ET Comp Services

46 Bruce Pelesele

74 Vailina Bus Services & Trading Ltd

Filamona

47 South Pacific Solution

75 Tealapae

Saumalei Canteen

48 Luata & Potoae Rental shop

76 Moloti Video Productions

H B Mechanical Shop

49 Masparta Trading Co

77 Su's Place Company Ltd

MKH Typing, Computing School

50 Vinamai Enterprises

78 Fusia Products

Hideaway Guest House

51 Coconut Wireless Internet CafĂŠ

79 Nanumea Womens Community

Mesamasui L Supplies

52 Techspot

80 Gasma bakery

EMS Rentals

53 Nnae Cake shop

81 Lomisina

Sonsepa Motor & Tyre Repair

54 Ana Scrap metal export

82 At Trading

Jessy Gas Stop

55 Homasi & sons Engineering & transport

83 Bella

Te-Muli-Malae Mechanical Workshop

56 Tute Vailahi-Catering

84 Tania Liquor shop