Cook Islands - Economy
Like many other South Pacific island nations, the Cook Islands' economic development is hindered by the isolation of the country from foreign markets, the limited size of domestic markets, lack of natural resources, periodic devastation from natural disasters, and inadequate infrastructure. Agriculture, employing more than one-quarter of the working population, provides the economic base with major exports of copra and citrus fruit. Black pearls are the Cook Islands' leading export. Manufacturing activities are limited to fruit processing, clothing, and handicrafts. Trade deficits are offset by remittances from emigrants and by foreign aid overwhelmingly from New Zealand.
In the early stages, massive debt creates a buoyant economy with more employment than ever before, explaining why government debt, in the Cook Islands as elsewhere, tends to be unpopular in principle but popular in practice. Overborrowing is a process of stealing from one's children and grandchildren, who are left with the obligation to pay back the loans. Neither governments nor voters worry much about that until it is too late, and the Cook Islands is no exception.
Many Cook Islanders were attracted back home by the long economic boom (an average growth in gross domestic product of 6.3 percent per year from 1983 to 1993-much higher than any other country in the region). This gave the Cook Islands by far the highest per capita income (US$3900 per year) among Pacific Islands members of the South Pacific Forum, with the exception of Nauru. The Cook Islands level was about eight times that of Tonga and Samoa, five times that of Papua New Guinea, and double that of Fiji. But by the early 1990 there was reporting about illegal taxes, political corruption and government hotel construction cost blow-outs in the "Crook Islands."
The islands' economic stagnation has been exacerbated by the movement of the most active, ambitious, and best educated members of the population to New Zealand. Tourism, however, has been a sector of growing importance. In 1982 the 17,464 foreign tourist arrivals exceeded the total population. The southern islands of Rarotonga and Aitutaki accommodated the majority. A 1979 study of the labor force revealed that 54 percent of the total was engaged in services, including tourism; 23 percent in agriculture and fishing; 16 percent in manufacturing and construction; and the remainder in other occupations.
The production of crops such as citrus fruits, bananas, pineapples, taro, and copra (the last principally in the northern islands) constituted the agricultural sector. Citrus fruit and juices, papaya, copra, bananas, mother-of-pearl shell, and handicrafts were the principal exports, approximately 80 percent of those being sent to New Zealand. Sale of Cook Islands postage stamps to world philatelists was another important source of revenue. Exports by value have customarily been only a small percentage of imports. In 1981 they were $NZ5 million or less than 20 percent of imports, which were valued at $NZ26.6 million. Imports included foodstuffs, textiles, and petroleum products. The processing and canning of fruit and fruit juices formed an important component of the local industry. Fishing, in both lagoons and deep waters, had considerable potential for growth but in mid-1984 remained largely unexploited except for subsistence.
In the 1980s and 1990s, the country became overextended, maintaining a bloated public service and accumulating a large foreign debt. Subsequent reforms, including the sale of state assets, the strengthening of economic management, the encouragement of tourism, and a debt restructuring agreement, have rekindled investment and growth. The government is targeting fisheries and seabed mining as sectors for future economic growth.
The Cook Islands is not a regional financial center and has no free trade zones. The Cook Islands’ substantial offshore financial sector is an important part of the country’s economy, but also represents its most significant vulnerability to money laundering and terrorist financing activities.
The large offshore financial sector allows the operation of international companies and trusts, including offshore banks and insurance companies. All offshore business conducted from the Cook Islands must be channeled through registered trustee companies. There are six registered trustee companies and four international banks. One of the domestic banks also has an international license. The industry provides a wide range of trustee and corporate services to offshore investors with a tax rate for all offshore entities of zero, guaranteeing tax neutrality.
The Cook Islands is a global pioneer in offshore asset-protection trusts, with laws devised to protect foreigners’ assets from legal claims in their home countries. According to the Cooks’ Financial Supervisory Commission (FSC), as of the end of 2014, there were 2,602 international trusts, 1,079 international companies, and 394 limited liability companies.
The Cook Islands was one of the first offshore jurisdictions, embarking in 1981 on a legislative and infrastructure program to create an offshore center. The offshore industry is a major contributor to the Cook Islands' economy with the six trustee companies employing approximately 70 people. Over the past 15 years the Cook Islands has become the foremost jurisdiction for establishing offshore trusts. The Cook Islands is recognised as the world leader in formation of asset protection trusts, safeguarding the assets of high net worth clients.
The Cook Islands also offers international companies, limited liability companies (since 2008), international partnerships and offshore insurers in its offshore sector. A well-educated, English-speaking workforce and a financial system regulated in accordance with widely accepted global standards are hallmarks of the Cook Islands offshore sector. There is an efficient Registrar's Office which can provide trust and company registration within one working day. In addition there is a well-developed financial infrastructure to service the offshore industry.
As a demonstration of the Government's commitment to the offshore industry, in June 2009 it established a statutory authority, the Financial Sector Development Authority to assist in further development of the industry. The Authority will perform the functions of strategic planning, liaison, advisory and promotional functions. It will enable the Cook Islands to have generic marketing of the jurisdiction which will assist with international recognition of the Cook Islands as an offshore center.
The Cook Islands has a generally well-supervised financial industry. The government performs annual on-site examinations of all domestic and offshore financial institutions. Large cash transactions involving locally generated funds are immediately apparent, and suspicious transactions are reported to the Cook Islands Financial Intelligence Unit for further review. Government officials note that remaining money laundering and terrorist financing risks stem from the lower KYC standards and the provision of false information to Cook Islands financial institutions by businesses and customers in other jurisdictions, particularly in Asia.
The Cook Islands has built a new and thriving industry out of interest in the black pearl. Black pearls derive their lustrous color from the greyish-black nacre of the oyster shell. There are many different shades of black. Color is not usually a factor in determining price. The price of a pearl depends on its quality and size. Pearls are graded by size, shape, surface characteristics, color and lustre. There is another extremely rare pearl to be found in the Cook Islands: the natural Golden Pearl (poe pipi). This is one of the few remaining types of natural pearls left in the world today. It grows in the lagoon of Penrhyn in the shell Pinctada maculata, the smallest pearl producing shell in the world. The pearl is seldom bigger than 8mm in diameter.
Pearl farming has been one of the main export earners for the Cook Islands since the first black pearl oysters were farmed in the Manihiki Lagoon back in the 1980's. The industry grew steadily over the years and by 1989, a total of about forty small farms, mainly familyowned, were operating in Manihiki with an estimate of around 400,000 oysters. This number quickly expanded and by 2000 there were about 80 to 85 farms in Manihiki,farming over 2 million oysters, with several farms in Rakahanga and Penrhyn. The threeatolls form the production base for the industry, with around 90 to 95 per cent of production coming from Manihiki. Between 1990 and 1999 the industry earned an average of $3.6 million a year from pearlexports, making it one of the major contributors to GDP. Since then, the value of pearlexports gradually increased over the years and by 2000, pearl exports peaked earning atotal of $18.4 million. In late November 2000, the industry suffered a major setback with the outbreak of the Vibrio harvey bacterial disease, which devastated the main pearl producing farms in Manihiki atoll. The social and economic impact of this disaster was severe. In six years, the value of Cook Islands pearl exports have been declining,dropping from an all time high of $18.4 million in 2000 to $1.6 million in 2005.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
