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Economic challenges may erode development gains

[Seychelles] Tuna fish being loaded in Victoria harbour, fisheries provide the bulk of national income.
Tuna fish being loaded in Victoria harbour, fisheries provide the bulk of national income. (IRIN)

The relatively small economy of the Seychelles depends almost entirely on two main industries - fishery and tourism. The recent tsunami affected both these critical sectors and highlighted growing concern over the country's long-term economic stability.

Although this Indian Ocean archipelago off the east coast of Africa lies more than 7,000 km from the epicentre of the undersea earthquake that triggered the tidal waves on 26 December 2004, it suffered severe flooding and widespread damage to roads, fishing infrastructure and tourism facilities.

"Three people have been reported dead and at least four others were hospitalised. Two bridges on the road linking the airport to the capital were damaged, and a main bridge was destroyed," the World Bank noted.

A preliminary assessment puts damage to the fishing infrastructure at around $6.8 million, and to tourism at about $15 million, some of which is covered by insurance. "But bookings are down, contributing to an unknown further loss in GDP [gross domestic product]," the Bank added.

Government estimates of the cost of the tsunami and subsequent heavy rains that lashed the islands amount to $30 million, or about 4 percent of the Seychelles GDP, while a United Nations Disaster Assessment and Coordination team put the island nation's immediate needs at $8.9 million.

The World Bank has offered Seychelles a $2 million grant to help with recovery measures, and the authorities have also appealed for technical assistance in re-evaluating the country's disaster preparedness and response system.

VULNERABLE TO SHOCKS

Fishing is a vital source of income to the island nation. Alejandro Anganuzzi, executive secretary of the Indian Ocean Tuna Commission (IOTC), headquartered in the Seychelles capital, Victoria, told IRIN the country was uniquely situated "in one of the most important fishing grounds" in the world. Victoria is also a major transhipment and servicing port for vessels.

The Seychelles economic exclusion zone (EEZ) covers an area rich in pelagic (open ocean) and demersal (bottom-dwelling) fish resources.

"Being an island country, there's a long tradition of artisanal fisheries in Seychelles. Also, there's a growing small-scale semi-industrial sector, which has become an important economic activity," Anganuzzi said.

Annually, around 350 boats land between 3,000 and 4,000 mt of marine life, using mainly hook and line, beach seine nets and bamboo fish traps. Vessels range from traditional wooden pirogues to sophisticated schooners fitted with echo sounders.

ECONOMIC CONTRIBUTION

Total gross earnings from fisheries reached 1.6 billion Seychelles rupees (SR) (almost $300 million) in 2003, representing around 40 percent of the country's income; by contrast, tourism contributed around 26 percent.

About 4,600 jobs, equating to around 14 percent of the workforce, are associated with the fishing industry.

Given these statistics, Anganuzzi commented that "we've seen a growing recognition of the importance of fisheries to the economy of the country, and there are plans to reinforce the support to the fishing industry".

The Seychelles Fishing Authority and the IOTC are collaborating on a range of research initiatives, as both institutions are keenly aware of the need to husband fish resources.

"Seychelles has a very large EEZ ... it is difficult to monitor and manage this area. While Seychelles fisheries are currently in good health overall, there is a need to avoid overfishing - strong management is required both domestically and internationally. Human, technological and financial capital is limited, [so] government and the private sector must work together," the IOTC explained.

The citizens of the Seychelles, numbering just over 80,000, enjoy a relatively high standard of living as a result of the twin economic boons of fishing and tourism. According to the last census, almost 87 percent of households have access to piped water, 97 percent have access to electricity, almost 88 percent have flush toilets, about 90 percent enjoy television at home, and 71 percent have a fixed telephone line.

Life expectancy is one of the highest in the region, reaching 71 years for both males and females, with almost 99 percent coverage of vaccine-preventable diseases.

According to Dr Rui Gama Vaz, the World Health Organisation (WHO) liaison in the country, the key to these human development gains has been the government's commitment to social spending. "Health and education have been the two main priorities of the country for a long time," he told IRIN. "This year health was the first priority in terms of budget allocations of the government, the second being education."

But keeping up that progress depends on the pace of economic growth. "The whole healthcare system is completely free of charge. We need a very strong economy in order to sustain this - that's the main challenge," Vaz said. "There are many [human development] issues linked to the economy".

"Seychelles is very dependent on tourists: tourism directly or indirectly contributes 10 to 15 percent of GDP, employs 17 percent of the labour force, and is responsible for two-thirds of the country's foreign exchange; fisheries provides the bulk of national income, as well as foreign exchange. If something happens that affects one of these key areas - like [the terrorist attacks in the US in 2002 on] September 11, and the recent tsunami - there is a tremendous affect on the economy," Vaz noted.

With its reliance on tourism and fisheries, the economy of the Seychelles is less able to withstand shocks than more diversified economies, commentators told IRIN.

The country has a tiny manufacturing capacity and is almost totally reliant on imports of basic commodities, from fuel to rice and vegetable oil. The government of President James Michel has focused on a macroeconomic reform programme, with the main thrust directed at a privatisation drive and greater market liberalisation.

However, critics argue that the main impediment to sustained economic growth is the strength of the local currency against major currencies, such as the dollar and the euro.

EXCHANGE RATE QUESTIONED

Roger Mancienne, editor of the weekly newspaper, Regar, and secretary-general of the opposition Seychelles National Party, told IRIN that the parallel market value of the US dollar to the rupee "is easily double the official exchange rate, which is an artificial rate maintained for convenience".

"The SMB [Seychelles Marketing Board] needs cheap dollars, as the SMB imports our commodities - just about everything, actually - and although it's loosening now and allowing others to import, it still has first rights to dollars, [based on the country's commodity needs]" he explained.

"The only thing we don't import is fish ... all manufactured items we basically import - even those we make here have a high component of imported raw materials," he added.

Mancienne argued that devaluing the currency would not necessarily lead to rising levels of imported inflation. "Locally we are already paying high prices - at dollar terms the prices of goods here are very high ... compared to other countries [in the region]." But he maintained that devaluation "is the only way to stimulate the economy. As long as business cannot get foreign exchange to maintain their investments and equipment etc ... we cannot move forward."

Government departments have also had to cope with foreign currency shortages, he alleged. "Now our hospitals are short of medical supplies and critical equipment ... government departments themselves have to struggle to get forex - they are not succeeding; they are building up huge unpaid bills with suppliers overseas," Mancienne said.

MACROECONOMIC REFORM

Central Bank general manager Dr Peter Larose said there was no official policy to devalue the Seychelles rupee, despite news reports intimating as much. However, the current administration has embarked on a programme to reform the economy, in order to address some of the more pressing challenges facing the country.

"The argument that keeps on surfacing is that we have an overvalued local currency ... and that this has an impact on income generating sources, especially from a tourism point of view. There is a mention of the exchange rate in the macroeconomic reform programme, but there has not been any policy to take action on the exchange rate," he said.

Mancienne noted that in terms of tourism, the Seychelles was losing its competitive advantage.

"Prices are ridiculous - we've milked tourism on that basis just too much. There are enormous taxes on wines, and hotels place their own high charges on wines on top of that. It's just a turn-off for the tourist. The impression now, internationally, is that Seychelles is over-expensive and you're being ripped off. Even the value of the rupee comes into play in this regard," he said.

Mancienne added that the country has "fewer hotel beds now than four years ago ... the government has put a lot of emphasis on five-star developments with a limited number of rooms, which is where we've got it wrong. All these high-end, five-star establishments keep a lot of the forex they earn overseas, whereas the smaller family-run establishments will put everything back into the local economy - they buy fish here, vegetables ... from local markets. The five-star places, however, are bringing in steak from South Africa".

Commenting on the future development of the economy, Larose concluded that "the current administration certainly feels we need to apply a new model in terms of allowing the private sector to be the engine of growth, and switch to market-based economic principles to modernise, privatise and liberalise. The whole world is moving in one direction, therefore we need to follow the trend, and it's the only way to resolve some of our problems and create economic growth that will sustain our development."


This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information: https://shop.un.org/rights-permissions

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