South Pacific Business

EnvironmentCountry Report – Palau

Unaisi Vuniwaqa

S02000455

Seini Fotu

S02006013

Hanisivai Visanti

S11112274

2014 MBA 434: Tuesday Session

Learning Outcomes

• To identify the Political, Economic, Social,

Technological, Legal and Environmental factors

that influence the business environment in

Palau and Tonga.

• Compare and contrast the business

environments of Palau & Tonga.

Outline

Palau

Introduction

Business Environment (PESTLE Analysis)

Tonga

Introduction

Business Environment (PESTLE Analysis)

Palau & Tonga

SWOT Analysis

Comparison

Conclusion

Recommendation

Population: 21,000

Capital:

Ngerulmud, Melekeok State

Area: 489 square km

Currency: U.S. dollar (USD)

Upper middle Income

Language

Official : English, Palauan

Recognised: Japanese, Angaur,

Sonsorolese, Tobian

Demonym: Palauan

Drives on the: right

Ports of Entry via Air:

•Seoul, South Korea / Guam

•Honolulu / Guam

•Honolulu

Fishing, mining phosphates &

bauxite

Exports – shellfish, tuna, copra

& handicraft

Imports – foodstuff, fuel,

machinery, equipment

Small scale – fish processing,

bottling, boat building

National Plan (Palau)

Palau 2020: National Plan for Development (25 years)

Medium term Development Strategy

(5 years)

Macro- Plans

Economic DevelopmentManagement Action

PlanSector Plans

Public Sector Investment

National Master Plan Education

National Health Plan

Biodiversity Strategic Action

Palau National Master Development Plan

To substantially enhance the quality of life of Palauan

and future generations of Palauans

The key development goals necessary to achieve this vision are

to;

• Increase real economic growth per capita on a sustained

basis

• Share the benefits of economic growth on an equitable basis;

and

• Enrich and enhance confidence in the Palauan culture, raise

national consciousness, and protect the natural environment

of Palau

VISION:

PESTLE Analysis - Palau

• Political

• Economic

• Social

• Technological

• Legal

• Environmental

PESTLE Analysis: Political

ParliamentMulti-Party Democratic Republic

Executive Branch:

•President – Head of State

Legislative Branch:

•Upper House - Senate

•Lower House House of Delegate

4 year tenure (2012)

Council of Chiefs (16)

Constitution

JudiciaryLegal system: Civil Law

•Supreme Court

•Court of Common Pleas

•Land Court

Judges appointed by President

Lifetime tenure

MembershipAsian Development Bank

International Olympic Committee

Pacific Islands Forum Secretariat

Secretariat of the Pacific Community

United Nations

World Bank

World Health Organisation

RelationsIndependence USA – 1 Oct, 1994

Strong ties to USA - Duty-free access

*Japan *Guam * South Korea

* Taiwan * Nauru * Pacific Island Nations

RatingsCorruption Perception Index – Unranked

2014 Press Freedom Index - Unranked

Voting age 18 years old

Growth OpportunitiesLight Manufacturing:

Ngardmau Free Trade Zone Facility

Tourism:

Hotel & Resort Development

Timeshare Marketing / Sales

Film TV & Commercial Productions

Acquaculture – Seafood & Acquarium

PESTLE Analysis: Economic

StabilityGovernment major employer

Purchasing Power Parity (83 / 215 in 2013)

Inflation rate - 2013: 3.5% and 2012: 3.8%

Unemployment - 4.2% (162 / 199)

National External Debt:

2011 USD49,515,427 (10.5% GDP)

Government InitiativesForeign Investment Reform

Financial Reform

Tax Incentives:

Agri-Business Development & Tax Reform

Regional Integration

Ngardmau Free Trade Zone

Banks•Bank of Guam

•Bank of Hawaii

•Bank of Palau

•Bankpacific

•Guam Savings Bank

•Pacific Savings Bank

•Melekeok Government Bank

Palau Construction Bank

•World Bank Group – Pacific

Islands

•National Development Bank of

Palau

•Asia Pacific Commercial Bank

•Rizal Commercial Banking Corp.

USD 0

USD 50

USD 100

USD 150

USD 200

USD 250

20042005

20062007

20082009

20102011

20122013

USD 191 USD 206 USD 209 USD 212 USD 213

USD 198 USD 198

USD 217USD 232

USD 247

Millio

ns

Palau (GDP) per annum

Year

Data Source: World Bank Indicators

0

2

4

6

8

10

12

14

16

20042005

20062007

20082009

20102011

20122013

12.56 12.96 13.16 13.7613.38

12.2 12.71 13.3714.29 14.54

Th

ou

san

ds

(US

D)Palau:

GNI per capita, PPP (current international $)

Year

Data Source: World Bank Indicators

PESTLE Analysis: Social

BackgroundGood quality of life

Subsistence agriculture

Matrilineal System

70% Christian

Rich cultural heritage & ethnic cuisine

RatingsPopulation rate:

0.79% (2013) from 0.72% (2012)

Life expectancy 72 years old (2013)

High Human Development - HDI 0.775 (60 / 187)

•Literacy

•Poverty

•Life expectancy

Low crime rate:

Felony crimes: 473 (2012) 78 (2013)

Misdemeanor crimes: 762 (2012) 1230 (2013)Social Life“No child left behind Act 2001”

92% literacy rate (2013)

100% immunisation:

Polio, measles, Hepatitis B

No Malaria and low TB

High standard of health care

Increase violence – drug & alcohol

Being Palauan means: • Respect & Humility

• Sharing and cooperation

• Communal activities & decisions

• Work and knowledge & practice culture

• Responsibility and self-reliance

• Spiritual values

PESTLE Analysis: Technological

Technology

“Sophisticated”

Unmanned aerial vehicles –

“DRONES”: Exclusive Economic Zone

Submarine cabling system to enable ICT:

•Telecommunications

•Broadband wireless internet

Acquaculture production technology -

giant clams, oysters, scallops & mussels

Looking to solar & hydro power

Infrastructure

“Well established”

24 hr access to electricity and water –

urban & some rural areas

Access to safe drinking water

High level of sanitation & hygiene

80% of urban area paved roads

1 international airport (paved)

2 domestic airports (unpaved)

1 international sea port

PESTLE Analysis: Legal

BackgroundCitizenship by birth only

No dual citizenship

Banks close Saturday & Sunday

CBD closure Sundays

TaxesNo income tax

Corporate tax 4%

General sales tax 7.5%

Social security contribution:

Employee 6% wages

Employer 6% wages

Health insurance contribution:

Employee 2.5% wages

Employer 2.5% wages

VAT: 2015 – 2016 Tax Reform

Bill

Expatriate limitationNo land ownership

Building ownership – 99 year lease

Locally owned:

Wholesale, retail, land & water,

transportation, diving, water sports,

restaurants, resorts & bakeries

Labour force•No trade unions

•Minimum wage USD3.00 per/hr

•Mismatch jobs to labour force

•No legally prescribed work hours

PESTLE Analysis: Environment

Background

“Leaders”

National Marine Sanctuary.

Ban commercial fishing in

Exclusive Economic Zone (EEZ).

Seven Wonders of the Underwater World

Natural ResourcesAbundant tuna fishery

Rich biodiversity

Pristine marine ecosystems & environment

Rock Islands (unique & beautiful limestone islands)

Data Source: World Bank “Doing Business 2014 -

Palau

How Palau ranks on Doing Business topics

Data Source: World Bank “Doing Business 2015 -

Palau

020406080

100120140160180200

Starting a business

Dealing with ConstructivePermits

Getting Electricity

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Resolving Insolvency

Palau 2014 (100) Palau 2015 (113)

Data Source: World Bank “Doing Business 2014 - 2015

Ease of Doing Business in Palau 2014 - 2015

Population: 105,323 (2013)

Capital: Nuku’alofa

Consists 171 islands

3 main groups:

Tongatapu, Ha’apai & Vava’u

Area: 748 square km

Currency: Tongan Pa’anga

(TOP)

Upper middle Income

Official Language: Tongan,

English

Demonym: Tongan

Drives on the: left

Ports of Entry via Air:

•Auckland

•Sydney

•Nadi

•Suva

Country Plans (Tonga)

Guide further formulation plans

Inform sectors – generate

consultation

Government foundation – economic

relations & partners

Indicators - monitor & measure

progress

PESTLE Analysis - Tonga

• Political

• Economic

• Social

• Technological

• Legal

• Environmental

PESTLE Analysis: Political

ParliamentConstitutional Monarchy

King – Head of State

Prime Minister appt King

Elections November – 2010 & 2014

JudiciaryLegal system: Civil Law

•Supreme Court

•Magistrates Court

•Land Court

Judges appointed by King

MembershipAsian Development Bank

International Olympic Committee

Pacific Islands Forum Secretariat

Secretariat of the Pacific Community

United Nations

World Bank

World Health Organisation

Relations* People’s Republic of China * Fiji * Russia *Pakistan

* United Kingdom * United States

* Pacific Island Nations

RatingsCorruption Perception Index – Unranked

2014 Press Freedom Index – Ranked 63 out of 180

Voting age 21 years old

Growth OpportunitiesTourism

Untapped potential

Rebrand Tonga

Agriculture

Access to new markets

Heat treatment & fumigation

Fisheries – Deep Water Strategy

Timber – Explore Coconut Palm

PESTLE Analysis: Economic

Sectors & IndustriesTourism, Construction, Fishing & Agriculture

Export Destinations

New Zealand, United States, Hong Kong

Product – squash, fish, vanilla beans, root

crops

Export Origins

New Zealand, Singapore, United States

Products – foodstuff, fuel, machinery, fuel

StabilityNational External Debt:

2012 USD197,382,000 (77.2% GDP)

Purchasing Power Parity (147 / 215 in 2013)

Inflation rate - 2013: 1.2% and 2012: 0.7%

Government InitiativesIntra-Government Co-ordination

Business Licensing Reform

Tax Incentives: Zero (Duty & Consumption)

- Agriculture, Export, & Fishing Industries

Reduced – Tourism & Manufacturing

0.00

100.00

200.00

300.00

400.00

500.00

20042005

20062007

20082009

20102011

20122013

240.79264.81 296.00 301.06 346.85

318.52

369.21423.04

471.58

466.26Millio

ns

(US

D)

Tonga - GDP per annum

Y e a r

Data Source: World Bank Indicators

0

1

2

3

4

5

6

20042005

20062007

20082009

20102011

20122013

4.35

4.51 4.62

4.55

4.64 4.79 4.945.21 5.37

5.45

Tho

usa

nd

s -

USD

Tonga - GNI per capita

Year

Data Source: World Bank Indicators

PESTLE Analysis: Social

BackgroundGood quality of life

90% Christian

Rich cultural heritage

Conservative

RatingsPopulation rate:

0.4% (2012 & 2013)

Life expectancy 72 years old (2013)

High Human Development - HDI 0.705 (100 / 187)

•Literacy

•Poverty

•Life expectancy

Low crime rate:

22.4% (2007) / 29% (2006) Social LifeFree education – primary & secondary

Scholarships – higher education

99% literacy rate (2011)

Unemployment - 13% (67 / 199)

99% immunisation (2013):diphtheria, pertussis (or whooping cough), and tetanus (DPT) Universal access health care

Being Tongan means: • Respect & Humility

• Sharing and cooperation

• Communal activities & decisions

• Work and knowledge & practice culture

• Spiritual values

PESTLE Analysis: Technological

Technology

“Developing Sustainable Pathways”

Looking to solar & hydro power:

2010–2020 Tonga Energy Road Map (TERM)

IRENA - International Renewable Energy Agency

PESTLE Analysis: Legal

BackgroundCitizenship: birth & naturalisation (5yrs)

CBD closure Sundays

TaxesProgressive income tax:

Resident: 15% - TOP100k / 30% - TOP100k +

Non Resident: 37.5% - TOP50k / 42.5% - TOP50k +

Superannuation contribution:

Employee 5% wages

Employer 5% wages

VAT 15%

Tax on Interest 10%

Expatriate limitationNo land ownership

Building ownership – 99 year lease

Labour force•Right to Trade Unions

•No Minimum wage

•Mismatch jobs to labour force

•65% agriculture

PESTLE Analysis: Environment

Infrastructure

“Well established”

24 hr access to electricity and water – urban &

some rural areas

Access to safe drinking water

High level of sanitation & hygiene

27% of urban area paved roads

1 international airport (paved)

5 domestic airports (unpaved)

1 international sea port

Medium threat of natural disasters

How Tonga ranks on Doing Business topics

Data Source: World Bank “Doing Business 2014 -

Tonga

Data Source: World Bank “Doing Business 2015 -

Tonga

0

20

40

60

80

100

120

140

160

180

Starting a business

Dealing with ConstructivePermits

Getting Electricity

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Resolving Insolvency

Tonga 2014 (57) Tonga 2015 (69)

Data Source: World Bank “Doing Business 2014 - 2015

Ease of Doing Business in Tonga 2014 - 2015

SWOT Analysis – Palau & Tonga

• Strengths

• Weaknesses

• Opportunities

• Threats

Strengths

TongaAccess to;

capital

seasonal worker scheme

Online business system

Initiatives to promote

Sustainable energy

(Tonga Energy Road Map)

Geographical accessibility

PalauGeographical proximity to

Asian markets

Preferential & duty free

trade:

•Compact Free

Association (USA)

•PICTA & PACER

Low tax structure &

incentiives

Low & stable inflation rate

Drones to monitor EEZ

Environmental Legislature

Ease of registering property

Good construction regulation

CommonStable political climate

Access regional & international forums

Good legal framework

Skilled labour

Local job creation

Good transportation & ICT infrastructure

Low crime rate

Access to quality education

High literacy rate

Excellent health care

Multicultural & diverse

Low CO2 emissions

Weaknesses

TongaLimited:

Employment opportunities

Access – business sectors

High dependence:

Remittances from abroad

Enforcement existing legislations

Non adherence time schedule

PalauGeographical isolation

Irregular direct flights

Complex customs and

administrative procedures

Lengthy period & cost to;

•enforce contracts

•formally register a business

•attain electricity

No registry for credit history

Inadequate policies for

corporate governance

Multiple taxation requirements

Manual mode payment – tax

Lack of skilled workers

CommonDonor dependence

Limited Policies to encourage:

R & Development

Green practices

High dependence:

Imported food & fuel

Economic vulnerability

Sunday business closure

Lengthy period & cost to;

resolve insolvency

Opportunities

TongaIncrease

Scheduled flights & cruise ships

Re-forecast

Daily regulatory reforms

Women in business

PalauDiversify Tourism – niche & high

end markets – USA & Asia

Expansion into new markets;

•Aquaculture

•Film, Television, and

Commercial Productions

• “light” Manufacturing

Commercial partnerships

Ngardmau Free Trade Zone

Marine Research Activities

Cultured pearl production

CommonRegional intergration

Access – new markets

Niche markets

Threats

Tonga

Political instability

High level -national external debt

Palau

Health Epidemic (SARS)

Over-fishing

Sand & coral dredging

Common

Urban over-population

Global economic crisis

Increase price – fuel &

imported food

Climate change – natural disasters

Growing NCDs

Comparative

Palau vs Tonga

DEVELOPMENT AID AT A

GLANCE

Source: ODA Report 2014

How Tonga and comparator economies rank on the ease of doing business

0

50

100

150

200

Starting a business

Dealing with Constructive Permits

Getting Electricity

Registering Property

Getting Credit

Protecting Investors

Paying Taxes

Trading Across Borders

Enforcing Contracts

Resolving Insolvency

2014 Comparative Analysis on Ease of Doing Business for Palau and Tonga

Tonga 2015 Palau 2015

Data Source: World Bank “Doing Business 2015

ConclusionGood investment climate;

• Political stability

• Regulation

• Tax incentives

• Finance

• Infrastructure & labour

• Strong trade agreements

Diversify & develop niche markets:

• Tourism

• Agriculture

Reforms Reforms

Regional Co-operation

• Pooling resources

• Mentoring

• Sharing of knowledge

Recommendations

TongaPalauEncourage Foreign Investment

Replace current regulatoryapproach with a registrationprocess, and monitoring system.

Limit restrictions to competition & joint ventures.

Modify labor permit proceduresfor foreign workers.

CommonRegional Co-operation

•Pooling resources

•Mentoring

•Sharing of knowledge

M & E - current strengths to

maintain / improve standards

Capitalise on opportunities

Threats

•M & E

•Implement procedure –

address

Recommendations

TongaPalauTrading Across Borders

Reduce & streamline customs

procedures

Online customs payments &

procedures

Invest - port equipment

& infrastructure

Enforcing contracts

Maintain specialized

commercial court or division

Introduce case management

systems & e-filing

Common

Insolvency;

•streamlining insolvency

proceedings

•establishing effective

reorganization proceedings

Promoting public & private

sector partnership:

appropriate incentives

Streamlining;

•rules

•regulations

Recommendations

TongaPalauStarting a business

•Reduce minimal capital required

•Create single online interface

facilitate / satisfy requirements

Getting electricity

•Streamlining approval processes

•Regulating the electrical

profession

•Reduce security deposits

Common

Recommendations

TongaPalauProtecting investors

•Implement policies & procedures –

corporate transparency

•Monitor, evaluate & enforce

procedures

Paying taxes

•Simplify tax compliance

•Introduce electronic filing &

payments

Common

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•http://spto.org/your-images/image?view=image&format=raw&type=orig&id=628

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• Information.”

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Acknowledgements

Our Lord God Almighty

Professor James McMaster, Professor Management Studies

Mr Meli Cavu, ONOC Medical Commission Liaison

Mr Jason Nolan, Chairman Palau Medical Commisson

Our families

Mesulang! Malo au pito!