Case Studies

Solomon Islands | 26 May 2021

The Long Game - How Ongoing Support Opened the Way for Private Sector Growth in Solomon Islands

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Above: People using an automated teller machine in Solomon Islands.

PSDI is working with the Government of Solomon Islands to encourage and expand the private sector, and to share the benefits of private sector activity. 

Like much of the Pacific, Solomon Islands has a young, growing, and increasingly urbanized population whose economic opportunities are expanding. However, it is difficult or even impossible for many to start a business due to poorly suited laws and institutions, which is similar to elsewhere in the Pacific.

To expand business and employment opportunities and to secure future revenue, the Government of Solomon Islands has long been seeking to diversify its economy, which means making it easier for people to start and grow businesses. Since 2007, PSDI has been helping Solomon Islands do that.

Through prioritized and sequenced reforms to legislation, regulation, and institutions, PSDI has helped reorient Solomon Islands’ economy to encourage, expand, and share the benefits of private sector activity. It is a partnership that demonstrates PSDI’s unique capacity to address complex, deep-seated, and interrelated challenges through ongoing but flexible expert support, underpinned by longstanding, trusted relationships and regional insight.

A suite of support for interrelated reforms

Financing growth

The first major PSDI-supported reform in Solomon Islands was the creation of a secured transactions framework in 2008. The framework—comprising legislation plus an online registry—made it safe and convenient for lenders to accept “movable” assets, such as vehicles and machinery, or even contracts and accounts receivable, as collateral. It thereby lent to borrowers who could not offer fixed assets such as land or buildings as collateral, i.e., most small and medium-sized enterprises.

PSDI helped financial institutions in Solomon Islands use the framework, which has been used to register more than 11,000 security interests over movable assets. PSDI is also helping credit unions grow through a policy and bill that will encourage operational and regulatory best practice and is assisting Solomon Islands National Provident Fund to establish a licensed subsidiary finance company.

“PSDI’s reforms to address business financing gaps in Solomon Islands also work to strengthen its broader financial system,” said PSDI Senior Finance Sector Expert Peter Dirou. “These efforts will allow new business opportunities to emerge and develop, and grow existing ones, which will increase employment and incomes and underpin sustainable economic growth.”

Business law reform

In 2010, a second impediment to quickly and easily starting a business in Solomon Islands was removed with the launch of an online companies registry—the first in the Pacific. By moving online a process that previously required paperwork, travel, and/or the hiring of an agent or lawyer, the registry made company incorporation much cheaper and faster, reducing the average time needed from more than 40 days to less than two.

“When the online companies registry launched in 2010 the registration rate more than doubled,” said Veronica Manedika, Assistant Registrar. “In 2016, we incorporated business names and foreign investment registrations, which extended the registry’s time and cost savings to micro and smaller businesses, and to international investors. This gave us an integrated and streamlined start-up process for every kind of business.”

State-owned enterprise reform

An extensive and long-running state-owned enterprise (SOE) reform program in Solomon Islands has benefitted the private sector, public finances, and consumers. The reforms focused on placing SOEs on a strong commercial footing, with robust corporate planning, professional boards, improved disclosure, compensation for non-commercial services, training for officials responsible for monitoring, and support for several privatizations.

They delivered an unprecedented turnaround in SOE portfolio profitability: from losses averaging -11% over 2002–2009, to returns averaging 10.3% during 2010–2017. The benefits of these reforms were further secured by the PSDI-supported SOE Ownership Policy in 2018.

“The policy protects the commercial mandate of Solomon Islands’ SOEs, consolidates ministerial oversight, and establishes a framework for further potential reforms,” said Mckinnie Dentana, Permanent Secretary of the Ministry of Finance and Treasury. “The principles in the policy reflect our government’s commitment to ensuring all investment in SOEs contributes to public welfare as well as to promoting business growth and economic development.”

Competition and consumer protection

Recognizing that more competitive economies grow faster, more sustainably, and with greater inclusion, PSDI has been supporting improved competition and consumer protection in Solomon Islands since 2015. Its review of competition law and policy needs that year recommended carefully sequenced reforms and substantial capacity building to develop and administer consumer and competition safeguards.

In 2018, following extensive public consultations, the government endorsed a competition policy. “The strategies articulated in our competition policy will make engaging in business fairer and more accessible, and deliver better outcomes for consumers, which will contribute to more robust economic development,” said Riley Mesepitu, Permanent Secretary of the Ministry of Commerce, Industry, Labour, and Immigration.

“PSDI is now helping us develop laws to apply and enforce the policy and will later work with us to improve our monitoring and enforcement capabilities.

Economic empowerment of women

PSDI has also implemented several targeted projects to economically empower women through training in technical skills, corporate governance, and entrepreneurship, the benefits of which were captured in PSDI’s 2018 book Women and Business in the Pacific.

Progress made possible by a unique project

PSDI’s partnership with the Government of Solomon Islands shows what can be achieved by specialist support provided on a needs and open-ended basis. Being responsive to and accommodating of government needs and processes ensures national ownership of the changes made. There may be fits and starts, and timeframes may shift, but these are necessary steps to establishing lasting, meaningful reforms.

“PSDI’s availability, flexibility, and expertise has allowed us to consider, initiate, and complete a series of complex but necessary reforms,” said Permanent Secretary Dentana. “These reforms have opened a path to our goal of a diverse, inclusive, and sustainable economy, one in which the realization of each Solomon Islanders’ economic potential contributes to the wellbeing of all Solomon Islanders.”

PSDI’s work in Solomon Islands illustrates both its impact and its appeal across the region. “Solomon Islands’ achievements thanks to PSDI’s long-running support provide a snapshot of the benefit and the potential this program offers Pacific countries,” said Leah Gutierrez, Director-General of ADB’s Pacific Department. “Multifaceted, demand-driven, and, most importantly, Pacific-focused, PSDI allows governments to incrementally implement solutions to problems that have constrained the potential of an entire region.”