GEOPOLITICAL CROSSROADS: INFRASTRUCTURE IN SOLOMON ISLANDS

Geopolitical Crossroads:

Infrastructure in Solomon Islands

DAVID SPRING PT COLUMNIST Sydney, Australia

Countries don’t have friends, they have interests. The recent flurry of diplomacy with Solomon Islands is a case study in attempts to align national interests. Sparked by the signing of a security pact between Beijing and Honiara, the country is now at the centre of a high-stakes geopolitical contest actuated as the Chinese seek a physical presence in the South Pacific. Foreign countries who have defended and invested in Solomon Islands since the 1940s, in line with their own national interests, have until now, enjoyed the support that investment has earned. They are now scrambling to deter the appeal of the Chinese proposition. For a long time, the Solomon Islands government has been dissatisfied with a shortage of tangible outcomes from the development process offered by Western bilateral programs and multilateral banks. Since the end of the ‘Tensions’ in 2003 (refer next section) Solomon Islands’ Gross National Income (GNI) per capita has only increased from $1600 to $2200 and has been flat for a decade. New investments through the ‘traditional’ aid donors take years to materialise, seem impervious to the government’s agenda and are curtailed in scale by sensitivities to ‘safeguards’ and debt management. The search for a more sympathetic donor is understandable. The diplomatic switch from Taiwan to China in 2019 was the government’s bold move in a new direction. The short-term results from the ‘switch’ look bright – renewed interest from Western partners, new stadiums funded by China, the promise of heavy-handed security support to discourage future outbreaks of violence, and high expectations for ongoing interest and investment to deliver ‘development’ that pleases the government. But what else is at stake? This article explores the impact on the delivery and maintenance of infrastructure assets, created by the intersections and implications of this geopolitical contest. What delivery modes are most likely? What types of new infrastructure will be preferred and how will it be maintained? More importantly, how will the institutions that deliver and maintain it be supported? How will the local contracting market and general operating environment be affected? And how will all of this affect the people – the continued focus on foreigners hopelessly ignores the reality of how Solomon Islands functions – its wantok system, its priorities, the way decisions are made and its national unity. Perhaps the emboldened sovereignty of the government is the outcome of 20 years of effective institution building and reflects the democratic voice of Solomon Islanders demanding better standards of living.

n Tense Tensions

To understand the situations of today, one must look to the past. Solomon Islands’ recent history has been overshadowed by the 1998-2003 period of civil unrest, known as the ‘Tensions’ and their aftermath. The inability of the government to implement the Townsville Peace Agreement (October 2000), forged after an effective coup, led to a request for an Australian-led Regional Assistance Mission to Solomon Islands (RAMSI) in 2003, to establish and maintain law and order. The initial phase of the mission was a success, but the longer-term development and institution building had mixed results. The challenges encountered arose from colonial legacies, flawed RAMSI assumptions about state-building

and the intrinsically political nature of such an intervention, including the Taiwan-China rivalry, which played out in Solomon Islands, as it has in other Pacific nations. What’s not in doubt is that RAMSI reversed the trajectory of decline into anarchy and failed statehood. RAMSI served as an anchor for Australian bi-lateral assistance -approximately AUD 3 billion was spent over 15 years on a range of law and justice, economic governance and government services, not to mention the broader aid program. Following the completion of RAMSI in 2017 and co-incident with an Australian Foreign Policy White Paper, this moment signalled a transition in Australia’s engagement with Solomon Islands.

n To donors, with love

It’s incorrect to focus on Australia at the geopolitical crossroads in which Solomon Islands now finds itself. To do so would be to double down on an error which has contributed to the Solomon Islands’ government’s current trajectory. This trajectory is being set by their courting of a partner that seems to understand what they want: in simple terms, overt ‘infrastructure’, demonstrable development and more muscular security. Solomon Islands has a range of long-term arrangements for receiving overseas development assistance – New Zealand, Japan, South Korea, United Kingdom, United States, European Union and of course Australia. These donors, along with the multi-lateral banks, tend to fund health and agriculture programs, infrastructure, education and tourism sector initiatives, usually in parallel with institutional strengthening, economic reform and governance programs. Such aid is in service of the status quo power balance in the Pacific – the Western power axis wants to maintain stability in the western Pacific, existing trade routes and geographical buffers to the Antipodes’ northern approaches. From 1983-2019, the Republic of China (ROC) – Taiwan – provided aid to the government too, through health and agriculture programs, and contributions to the controversial ‘Rural Constituency Development Fund’ (RCDF). The RCDF was an untied fund controlled by MPs to spend on measures ostensibly to assist their constituents. “These funds have transformed Solomon Islands’ political landscape by shifting the political power base away from voters and government bureaucracy and into the hands of politicians.” The fungibility of the RCDF led to frequent accusations that these funds were used for personal gain and undermined the institutional reforms being funded by other donors. Although their contribution reduced over the years, for a long time the Taiwanese effectively used the RCDF as an inducement to retain the support of MPs for diplomatic recognition of the ROC. Yet in doing so, they sowed seeds of distrust in Taiwan amongst Solomon Islanders and elites – the RCDF enabled the perception of corruption to flourish. The RCDF was synonymous with Taiwan and so was any criticism of it. This was unfortunate, as their agriculture and health programs were very effective. The form of the RCDF weakened the public service and public financial management, further increasing the opportunity for others to emulate the modus and seek undue influence. However, the critical factor in the Solomon Islands’ 2019 switch from Taiwan to China was not inducements but economic. “China is far and away Solomon Islands’ largest export market. The most recent figures (for 2016) from the Department of Foreign Affairs and Trade in Australia state that over 62 per cent of Solomons’ exports go to China. (This is virtually all logs.) By contrast, Taiwan takes around only one per cent of exports from Solomon Islands. Such a level of economic dependence on China leaves Solomon Islands highly vulnerable to economic pressure.” While secondary to the economic importance of trade, Mainland Chinese have long been part of the economic fabric of Honiara and now other key regional centres, Auki and Gizo. Chinese-owned businesses’ influence is as disproportionate as their ability to secure visas, building permits and licences is remarkable. Regardless, their presence and integration with the economy gives purchase and legitimacy to Chinese interests. This combination of factors influenced the government’s decision to switch. “They had seen and were lured by the Chinese investments in the other Pacific Island countries they have diplomatic relations with. It was also obvious that China already had a strong informal presence in the country through its citizens, its trade and ongoing investments from Chineseowned businesses. The potential for greater investment and trade was a major driver to switch to China.” It is no great surprise that it was the Sogavare government that made the diplomatic switch to China. Sogavare had flirted with a diplomatic switch while he was Prime Minister in 2006-07, but that was more likely a tactic to leverage greater funding from Taiwan at the time. Sogavare also has exhibited a slow burn of resistance to Australian aid and interventions, centring on anti-RAMSI (specifically anti-Australia) rhetoric. If we listen to Sogavare’s recent thundering, we find the common thread of assertive sovereignty – an enduring reaction to the characteristic paternalism of aid programs from the Western axis. He is outwardly seeking greater economic opportunity

the critical factor in the Solomon Islands’ 2019 switch from Taiwan to China was not inducements but economic. “China " is far and away Solomon Islands’ largest export market. The most recent figures (for 2016) from the Department of Foreign Affairs and Trade in Australia state that over 62 per cent of Solomons’ exports go to China. (This is virtually all logs.)

compared to the invisibility of reform and governance programs. Yet, by making the switch, against the recommendation of the bipartisan Foreign Relations Committee, Solomon Islands has rolled the dice that the ‘traditional’ aid partners will continue to contribute not only aid, but other advantages that cordial diplomatic relations afford, such as access to labour schemes, training, technical expertise, election support, security deployments and proximate health care. Perhaps these are no longer valued and are considered to be not worth the shortcomings and frustrations of Western aid. The switch makes the nature of future infrastructure investments from these countries less certain.

n Chinese ambition

The security deal between China and the Solomon Islands did not materialise out of thin air. A long-term Chinese disposition of engagement can be traced – economic engagement of the Chinese diaspora, primary trade partner, diplomatic recognition, soft power initiatives, state-owned companies expanding, security agreements. Chinese state-owned and private companies now seek economic opportunities abroad (partly encouraged by the ‘Go Out/Go Global’ strategy).” China has courted the elite, built bonds with regional institutions, and increased both its aid and its investments across the region. The Solomon Islands government’s calculation is that the funding and investments by existing development partners will continue (and even ramp up, as they seek to counter China) and that Chinese largesse will expand address any shortfalls that arise if others withdraw. The former assumption has a track-record to support it. The latter, less so. The nature of Chinese intention and ambition are frequently misunderstood. The most common misconception is that because China is a centrally planned, autocratic government, which operates a heavy security and surveillance apparatus, stamps out dissent and makes a show of humbling businesses who stray from the Party line, that every action of the Chinese people is also a co-ordinated action in pursuit of a unified goal. This narrative is well-worn in Solomon Islands – that the growing interests and influence of Chinese businesses, now backed by the ‘switch’, is all part of a grand scheme to corrupt and control the Solomon Islands government, in order to secure minerals and round logs to feed the voracious Chinese appetite for natural resources. The long game, so the story goes, is to put this future outcome beyond doubt and for the People’s Liberation Army (PLA) to gain access to establish a large presence, just 2000km from Australia. It is unlikely that this is the case – it is at least more complex than the narrative suggests. Interpretation of Chinese actions cannot be reduced to simplistic explanations such as natural resource security or one-upmanship with Taiwan; the broader context of China’s strategic ambitions must be understood. These can be summarised under its stated and demonstrated ‘core interests’, first articulated in 2011 under Hu Jintao, and reinforced and expanded under Xi Jinping

since 2012. In this formulation, China’s core interest in the Pacific is directly related to China’s “territorial integrity and national reunification”, i.e., bringing Taiwan under the rule of the Chinese Communist Party. China’s boldest and most assertive activity need to be understood in the context of their contribution to this core interest. Competition for diplomatic recognition from Pacific countries heated up in the 1970s and despite some thawing when Taiwanese nationalist parties were in power, the contest for Taiwan’s international legitimacy is fierce. But tussles over diplomatic recognition are only one element of pursuing the core interest. Ultimately, so called ‘reunification’ of Taiwan and mainland China may require military means. If China chooses to exercise that contingency, success would be all but assured if the South China Sea were not contested and if it was surrounded by a buffer of projected power. Pacific Island nations exist in this geographical buffer. Taiwan’s key ally is the U.S. If western Pacific shipping lanes can be controlled and freedom of navigation can be thwarted by China, this will disrupt U.S. ability to intervene in any conflict over Taiwan. Further, a presence will enable the securing of Chinese sea lines of communication, increasing intelligence collection on foreign forces, creating a sense that Australia and New Zealand are boxed in, as well as complicating U.S. plans to move forces into the region. In this light, maritime military presence in the South Pacific beings to make specific sense. However, caution must be applied here – Chinese aid and activity is often driven by the commercial interests of firms, and it is “far more fragmented and incoherent than often assumed.” Not everything that happens can be interpreted through the reunification lens, as it is not all centrally controlled. Similarly, it would be wrong to assume that Solomon Islands has been a passive participant in the pathway to signing the security pact. The agency and intent of the Solomon Islands government to harness what was otherwise a fragmented series of activities, serves their own domestic and political objectives. So, while Chinese core interests are being pursued by the Chinese government, Chinese companies and the Solomon Islands government are also pursuing their core interests – it just so happens that there is currently a very strong alignment between those interests. Given this state of affairs, is China a reliable development partner? China certainly has the ability to deliver infrastructure investment in Solomon Islands, but many local people are conscious that “Chinese investments are as much about advancing Beijing’s interests and corrupting local politics as they are about meeting local needs.”

n Yankee doodle

The U.S.’ reaction to the signing of the China-Solomon Islands security pact was more muted than Australia’s handwringing, but the implications certainly registered. In 1942, U.S. President Roosevelt articulated the strategic importance of the Pacific Islands. This reality has not changed, though U.S. attention over the past several decades has been elsewhere. Pacific Island leaders frequently reiterate the greatest challenges they face: addressing the existential risks of climate change, collective regional security and the ‘increasingly crowded and complex’ geopolitical environment. Don’t expect that third challenge to be made any easier by the U.S. response to Chinese expansionism – far greater U.S. engagement. Washington is planning to reopen the U.S. embassy in Solomon Islands that it closed in 1993. They must appoint ambassadors to Fiji or Papua New Guinea – thus far neglected by the Biden Administration – and consider resident ambassadors to Kiribati, Nauru, Samoa, Tonga, Tuvalu and Vanuatu. Addressing the issue of representation will empower the range of activities that ‘greater engagement’ entails. Many are soft power, policy and other forms of assistance, for example, supporting multilateralism in the region. But some challenges – economic development and addressing low-lying vulnerability – can only be solved with resilient infrastructure – ports, domestic wharves, sea walls, roads, bridges, affordable green power and internet connectivity. The combined resources of the ‘traditional’ donors are extensive. Japan has been a long-term and reliable donor to Solomon Islands, committing significant funding to significant projects over recent years – Honiara International Port (second berth), Kukum Highway upgrades and Henderson airport expansion and upgrade. We’ve mentioned Australia’s programs; NZ have a more modest but important role in the aviation and tourism sectors. South Korea, the EU, UK and others have all contributed. Multilateral banks play a conflicted role. With governance stemming from the relative contributions of each country, Japan and the U.S. have the greatest voting power in the Asian Development Bank (ADB). But China also holds notable voting power and has been able to ensure that ADB procurement rules enable Chinese state-owned companies to bid for construction contracts. Using low pricing has proven to be a very successful strategy, despite building a track record of late-running delivery. The World Bank is U.S. dominated but uses similar ‘harmonised’ procurement policies. There is already a reasonable degree of co-ordination to these efforts – what’s needed is a unifying principle, and the U.S. is capable of providing that leadership. Leadership does not mean inevitable conflict with China, in fact, avoiding it will be part of any U.S. strategy.

n Crystal balls of concrete

Accordingly, a conflict in the form of an infrastructure bidding war in Solomon Islands is now predictable. This could escalate in various directions, but is unlikely to result in economically sustainable, maintainable, durable assets. The competition will likely initiate a shake-up of delivery modes for infrastructure projects. Some of this is much needed. Traditional bilateral and multilateral vehicles have not always delivered the best project outcomes – too slow, ill-suited, obscure, niche, weakly administered. Projects will be redesigned to more narrowly serve the national interests of donors – timely, targeted and with demonstrable benefits. It is also probable that, despite Solomon Islands being due to ‘graduate’ from Least Developed Country (LDC) status in 2024, their eligibility to continue to receive a high proportion of grants to loans will be maintained. Long-term, this will not advance economic maturity. The rivalry will likely result in a disproportionate focus on either developing, or heading off others from developing, the type of infrastructure that could serve as military ‘bases’ – in practice, even if not in name. A military base is not only a deep-

water port or buildings and equipment inside a secure area. If PLA personnel arrive to conduct training or defend Chinese infrastructure, they must be housed somewhere and maintain materiel somewhere – at what point does this ‘somewhere’ become a military base? There have been denials all around, about any intent to build a military base, but the grey area will be exploited, called out and defended. Militarisation is ceding sovereignty. The atmosphere of strategic enmity will likely result in less trust and create an operating environment that is closed and secretive, rather than the open, democratic, co-operative environment that locals and expatriates have built since independence. The typically secretive approach by the Chinese government and the opacity of Solomon Islands’ government around the security pact and its implications breeds suspicion, confusion and miscalculation of intent. This is a disruptive mix when one is trying to develop and deliver public assets. If the RCDF isn’t already unhelpful enough, the contention will likely result in a weakening of the ability of the public service to process projects. This will undo the decades of work given to strengthen country systems, which was achieved by using them to deliver infrastructure projects. Alternative and parallel systems will be established to bypass the public service ministries, thereby undermining the oversight of the democratically elected Ministers and their departments, reducing accountability at the operational level. The public service will become hollow of meaning – a further disincentive to work there. A diversion of the purpose of aid will likely result in inappropriate solutions, particularly regarding the long-term maintenance burden of new infrastructure. All countries have an absorption capacity in the expansion of assets that can be maintained. In Solomon Islands, the reality is that maintaining the current levels of road, bridge and wharf infrastructure which is in a maintainable condition (and doesn’t already need rebuilding) is beyond the capacity of the Ministry of Infrastructure Development (MID) to deliver and the government to fund alone. Without increased external assistance, any new infrastructure will not be maintained either. Overall, the security pact will likely result in less benefits for the people of Solomon Islands, as a sharp power focus zeros in on the specific outcomes that projects must deliver. Achieving these outcomes will be entrusted to donor-country nationals, not Solomon Island locals, even though engaging locals would better serve long-term engagement. Further, the opportunity for local contractors to participate in projects will be reduced. A blurred line already exists between long-term Chinese national contractors and truly local contractors. It is possible that both categories of firms may miss out in the drive to deliver and execute projects, and the increased secrecy around operations. This will not serve the future prosperity of Solomon Islanders.

n Flash points

The next Solomon Islands’ general election is scheduled for mid-June 2023. The government has already unsuccessfully tried to postpone the election under the ruse that the November 2023 Pacific Games preparations will disrupt voter registrations. Solomon Islands’ elections are notorious for generating civil unrest, either before or after, or both. China’s track-record for putting down dissent and unrest is as fearsome as it is infamous. It is not hard to conceive that some civil disturbance could be initiated, which generates a state of emergency, the need for a Chinese security presence ‘to protect the safety of Chinese personnel and major projects’ and the delay of elections. This is an extreme scenario and would be a very bold stratagem, putting at risk regional stability and indeed, the Pacific Games. The reaction of the public to any such situation is difficult to predict, but the tensions that caused the 1998-2003 Tensions remain under the surface and cannot be underestimated.

n Next Chapter

If these conditions around the flash points unfolded, the infrastructure industry in Solomon Islands as we know it would cease to exist. Economic activity and foreign investment would take a severe hit and the economy would be re-fashioned on new terms. The uncertain political situation could grind on for years. While severe in consequence, the likelihood of this scenario playing out remains ‘low-possible’ – overall a medium risk rating. What is more likely is that the strategic competition between China and U.S. allies will see a jostling for government approval of aid and inducements – everything from scholarships to military grade ports.

For contractors looking to take advantage of this, watch for these three trends:

1 Projects under the multilateral banks will introduce procurement rules that make it more difficult for Chinese state-owned construction companies to win work. This is targeted at generating foreign investment from Western countries, increasing engagement with civil society stemming from Western expatriates incountry and burnishing the image of Western-funded aid as being of higher quality. 2 Bilateral aid projects will be single-sourced to companies from the country of origin of the aid (aka, the ‘JICA model’), but this will not necessarily preclude local contractors from being sub-contractors. Becoming a trusted partner will be critical 3 An increasing volume of construction work will place enormous strain on the supply of local materials, the throughput capacity of the ports and accommodation in Honiara, all creating new business opportunities.

The longer-term economic prospects for Solomon Islands along this trajectory are debateable. The real risks of a geopolitical contest are not borne by foreign countries but by Solomon Islands – its people will pay the price for the brinksmanship that has brought on this watershed era. However this plays out, one thing that’s not in doubt is that every dollar, yen or renminbi granted or loaned towards infrastructure is in the service of foreign interests, not those of the Solomon Islands’ people. Countries don’t have friends; they only have interests. l