St Helena is a small self-governing UK Overseas Territory in the middle of the South Atlantic Ocean. The remoteness of the island coupled with lack of accessibility to a wider market has severely affected its economic growth. Recent reports highlighted the importance of undertaking a business enabling environment and investment climate assessment to promote inward and local investments in the island. It is against this background that BERF was commissioned to undertake an investment climate review of St Helena. A desk review and field trip was undertaken in September 2016 to inform findings of this review. Key constraints and possible reform areas recommended include the following:
- Limited access to land: In discussions with private investors, limited access to land has emerged as a key constraint across all sectors. As a volcanic island, much of the island consists of steep rocky terrain with little flat land. The government owns around 80% of acreage. This coupled with a still developing land management policy has meant that the private sector and general population do not have easy access to land for commercial and residential purposes.
- Limited skilled workforce: Investors in any market seek a reliable and steady supply of trained and skilled workforce. This has been a limiting factor in St Helena, the primary reasons being a) a narrow economic base b) limited opportunities in the private sector for decades and c) reliance on overseas short-term (2-3 year) technical consultants. Any reform process in the island will have to work around the first constraint while at the same time implement reforms to address the other two.
- High cost of utilities: This is a big disincentive for private sector investment and all stakeholders consulted have identified as one of the top priority areas for reform. The main factors for the high cost are the island topography and sparse population spread over the island, which adds to the distribution cost of utilities. Efforts to increase the use of renewable energy, which could reduce cost in the long term, are yet to have an impact.
- Lack of competition: St Helena, like many other small island states, is characterised by the presence of monopolies. The sole insurance provider for the island is Solomons Plc which is 63% owned by the St Helena Government. It is also involved in a host of businesses ranging from wholesale, retail, fuel distribution, farming to bakery. Connect, also government owned, is the exclusive utilities provider. Other monopolies are Sure South Atlantic (telecoms) and Bank of St Helena. The presence of these monopolies, in some cases, has had the effect of crowding out the private sector, limiting local entrepreneurship in the island and discouraging inward investment.
- Inefficient Financial markets: Though Bank of St Helena offers a good range of financial products and services, its small customer base makes it difficult to achieve economies of scale and adopt efficient technologies in its operation. The cost of transferring funds to the island and the time taken are all hindrances for international tourists and investors and should be addressed urgently before the airport is fully functional.
- Access to island: The biggest challenge facing the island now is uncertainty over access to the island. This is due to the delay in opening the airport to commercial flights and the short-term extension of the schedule of Royal Merchant Ship St Helena to July 2017 – particularly as the travel trade books 12 months or more in advance. This has affected not only the tourism industry but also various other stakeholders and has made planning more challenging for the government. Stakeholders interviewed have expressed dissatisfaction with the lack of information disseminated on the opening of the airport or the future of the ship.
Feasible Reform Initiatives
This review recommends measures to remove the constraints identified above:
- Develop capacity of workforce: Capacity development intervention by the government at two levels a) managerial level for the various government bodies and b) develop a forward-looking workforce development programme, addressing the existing vocational skills gap and the future demand for specific skills sets in key sectors.
- Improve land management system and develop the land market to facilitate easy access by the private sector for residential, commercial and agricultural purposes.
- Support to the private sector: Key reform areas would be a) for Enterprise St Helena to focus more on its advisory role and scale down on direct investment in the private sector and b) divestment of Solomons and off-load some of its non-essential business units.
- Improve access to finance Bank of St Helena and Enterprise St Helena should coordinate providing financial assistance to lenders. They should consider sharing information on credit history of lenders, and ways in which loan applications from BoSH and grant applications from Enterprise St Helena could be synchronised to help small business access funds from the two institutions..
- Public Private Dialogue to incorporate views of key stakeholders like Government, Enterprise St Helena, private sector, associations and Non-Governmental Organisations in the planning process and improve the confidence of investors. A formalised structure of dialogue is also needed urgently to disseminate information to all stakeholders about government plans for air access. Enterprise St Helena should drive this process and provide a consultative platform for the various stakeholders.
The St Helena Investment Climate Review looks at the key constraints and concludes with recommendations to promote St Helena as an investment destination for inward investors. Where applicable, examples of successful strategies in comparable economies are given. St Helena, due to its very small size and unique political status as an Overseas Territory of the UK, faces unique challenges and adapting successful examples elsewhere requires care.