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Tokelau - Economy

Tokelau's Gross Domestic Product was estimated by the CIA at $1,500,000, making it by fare the smallest of the 229 states and dependencies tracked by the agency.

Tokelau's small size (three villages), isolation, and lack of resources greatly restrain economic development and confine agriculture to the subsistence level. The principal sources of revenue come from sales of copra, postage stamps, souvenir coins, and handicrafts. Money is also remitted to families from relatives in New Zealand. The people rely heavily on aid from New Zealand - about $15 million annually in FY12/13 and FY13/14 - to maintain public services. New Zealand's support amounts to 80% of Tokelau's recurrent government budget. An international trust fund, currently worth nearly $32 million, was established in 2004 by New Zealand to provide Tokelau an independent source of revenue.

It is generally recognized that Tokelau's greatest asset is in its natural marine resources. Tokelau's fisheries are made up of an inshore lagoon fishery, reef fishery, and an abundant offshore pelagic fish and deep-ocean fishery. It has been reported that up to 55% of all animal protein consumed in the atolls is from reef, migratory, and shellfish. The offshore fisheries provide Tokelau with the majority of its annual national income and therefore are of great importance.

Tokelauans produce fine woven handicrafts, such as mats, bags, hats, and fans. Tokelau stamps and coins are also sold as collectibles. when Tokelau speaks of economic development, this includes an element of maintaining traditional knowledge and skills along with increasing financial returns. As such there is a strong focus on traditional culture, knowledge and skill within most economic development activities. It was unclear whether support to revive traditional skills and knowledge (particularly in relation to weaving and carving) achieved this objective, however it did help prevent these skills and knowledge being lost. It also increased income generation opportunities among women.

The approach of undertaking labour activities through the Aumaga appears to have had positive outcomes in terms of providing direction, reducing people ‘sitting around’, and supporting the community culture. At the same time, full-time work has limited people’s ability to grow, gather and fish for local food thus increasing dependency on store bought food. With availability of power and improved communication, this has increased costs for families.

The most important thing is that people have a comfortable home to stay in. If they are not comfortable they will not want to stay in their homes. Having a good water supply and a clean toilet are very important parts of this. And it also means they will have less sickness. A clean, safe and comfortable home is a priority for everybody.

Tokelau is the highest aided country … ever … in the history of international record keeping (see Figure c). Accounting for size, Tokelau remains one of the highest aided middle income country or territory ranking the second highest recipient of ODA as at 2008 when accounting for GNI in per capita terms (250%). Nauru, the world's smallest island nation, had a peak aid (population adjusted) significance ratio of just 22%. Tokelau would also be in the top 10 aid dependent states if compared to Low Income Countries (LICs).

Breaking aid-dependency is theoretically achievable through good trade-related industry policies. If implemented over time, such policies have the power to produce high levels of revenue and economic growth, with growth slow in the early stages but picking up significantly in later years. Tokelau has a number of untapped growth opportunities (possible examples include fisheries, tourism, deep sea mining). Such growth would allow Tokelau to reach high income country status over the medium-long term.

The secret will be overcome Tokelau’s constraints to growth: primarily being: i) remoteness and undeveloped transportation industry arrangements impacting on viability of boutique tourism; ii) uncertainty around existence/level of mineral reserves; iii) barriers to small business entry and disincentives surrounding trawler and high value fishing; and iv) a lack of medium perspective in the budget and policy development systems.

Absorptive capacity analysis reveals areas where absorptive capacity is weakest are associated with the following: i) limited power of the private sector to efficiently utilize additional development resources; ii) institutional capabilities have improved but are still too weak to ensure all key fiduciary and development risks are minimized; and iii) there is room for improvement in donor practices, including aid predictability, reporting and dialogue. There is capacity to carefully introduce some form of concessional borrowing when the time is right and there is evidence of aid-induced resource curse.