ECONOMY OF TONGA

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Tonga's economy has shown resilience in the face of internal and external shocks.

Tonga's economy is characterized by a large non monetary sector and a heavy dependence on remittances from the half of the country's population that lives abroad, chiefly in Australia, New Zealand, and the United States. The monetary sector of the economy is dominated and largely owned by the royal family and nobles. This is particularly true of the telecommunications and satellite services. Much of small business, particularly retail establishments on Tongatapu, is now dominated by recent Chinese immigrants who arrived under a cash-for-passports scheme that ended in 1998.

The manufacturing sector consists of handicrafts and a few other very small scale industries, all of which contribute only about 3% of GDP. Commercial business activities also are inconspicuous and, to a large extent, are dominated by the same large trading companies found throughout the South Pacific. In September 1974, the country's first commercial trading bank, the Bank of Tonga, opened. There are no patent laws in Tonga.

Rural Tongans rely on plantation and subsistence agriculture. Coconuts, vanilla beans, bananas, coffee beans and root crops such as yams, taro and cassava, are the major cash crops. The processing of coconuts into copra and desiccated (dried) coconut was once the only significant industry but deteriorating prices on the world market has brought this once vibrant industry, as everywhere throughout the island nations of the south Pacific, to a complete standstill. In addition, the feudal land ownership system meant that farmers had no incentive to invest in planting long-term tree crops on land they did not own. Pigs and poultry are the major types of livestock. Horses are kept for draft purposes, primarily by farmers working their 'api 'uta (a plot of bushland). More cattle are being raised, and beef imports are declining. The export of squash to Japan once brought relief to a struggling economy but recently local farmers are increasingly wary of this market due to price fluctuations, not to mention the huge financial risks involved.
Tonga's development plans emphasize a growing private sector, upgrading agricultural productivity, revitalizing the squash and vanilla bean industries, developing tourism, and improving the island's communications and transportation systems. Substantial progress has been made, but much work remains to be done. A small but growing construction sector is developing in response to the inflow of aid monies and remittances from Tongans abroad. It remains to be said that the most significant contributor to Tonga's economy are remittances from Tongans living abroad. In recognition of such a crucial contribution, the present Tongan government has created a new department within the Prime Minister's Office with the sole purpose of catering for the needs of Tongans living abroad. Furthermore, the Tongan Parliament in 2007 amended citizenship laws to allow Tongans especially those living overseas to hold dual citizenship. Efforts are being made to discover ways to diversify. One hope is seen in fisheries; tests have shown that sufficient skipjack tuna pass through Tongan waters to support a fishing industry. Another potential development activity is exploitation of forests, which cover 35% of the kingdom's land area but are decreasing as land is cleared. Coconut trees past their prime bearing years also provide a potential source of timber. The tourist industry is relatively undeveloped; however, the government recognizes that tourism can play a major role in economic development, and efforts are being made to increase this source of revenue. Cruise ships often stop in Nukuʻalofa and Vavaʻu.

Vava'u in fact is well known for its whale watching, game fishing, surfing, beaches and is increasingly becoming a major player in the South Pacific tourism market. Tonga’s postage stamps, which feature colorful and often unusual designs (including heart-shaped and banana-shaped stamps) are popular with philatelists around the world.

Real estate companies have also just started to spring up in Tonga; as such, they were basically unheard of less than a decade ago. These have provided a way of making income for many Tongans as nearly every male Tongan has plots of land that he has never seen and the leasing of this valuable and attractive land allows the Tongan to live in a comfort not experienced before. There are also many Tongans who work as commission agents and earn a living by finding available land parcels and bringing them to local ex-pats or computer savvy Tongans to list on-line. Some of these so-called real estate companies have done more harm than good and one would be wise to be careful when dealing with them. However for the most part acquiring real estate in Tonga is a simple, straightforward and problem-free process.

In 2005 the country became eligible to become a member of the World Trade Organization, however on July 25, 2006 it was announced that Tonga has deferred its membership of the WTO until July next year according to the Tongan Prime Minister, Dr. Feleti Sevele. The delay he said did not mean that Tonga was withdrawing its WTO membership application, but to give Tonga more time to improve its tariff system. The Tonga Chamber of Commerce and Industry (TCCI) was incorporated in 1996 and endeavours to represent the interests of its members, private sector businesses, and to promote economic growth in the Kingdom.

Energy
Tonga is installing tailor-made policies to power its remote islands in a sustainable way – without turning to expensive grid-extensions. A number of islands within the Kingdom of Tonga are lacking basic electricity supply. In view of the decreasing reliability of fossil-fuel electricity generation, its increasing costs and negative environmental side-effects, renewable energy solutions have attracted the government’s attention. Together with IRENA, Tonga has charted out a renewable energy based strategy to power the main and outer islands alike. The strategy focuses on Solar Home Systems that turn individual households into small power plants. In addition, it calls for the involvement of local operators, finance institutions and technicians to provide sustainable business models as well as strategies to ensure the effective operation, management and maintenance once the systems are installed.