Reimagining Growth in Solomon Islands: Addressing Challenges for a Sustainable Future

Study by the World Bank highlights the country's urgent need for economic diversification as its logging sector declines, focusing on improving infrastructure, digital connectivity, and labor mobility programs to unlock new growth opportunities. Without significant reforms, the Solomon Islands risks failing to meet its long-term economic goals.

Research conducted by the World Bank examines the pressing economic challenges facing the Solomon Islands, focusing on the geographic, economic, and institutional barriers to growth. The report highlights the small island nation's struggle with delivering public services and infrastructure across its remote and dispersed population, spread over 90 inhabited islands. This unique geography, combined with limited state capacity, has led to high costs for infrastructure and limited private sector activity. The Solomon Islands has long relied on the logging industry, but as this sector declines due to unsustainable practices, the country is urgently seeking to unlock new sources of economic growth. Without significant reforms, the World Bank warns that the Solomon Islands may not achieve upper-middle-income status by 2050.

Volatile Growth and Declining Logging Industry

Economic growth in the Solomon Islands has historically been slow and volatile, largely driven by developments in the primary sector. From 1981 to 2021, GDP growth averaged only 2.5 percent, often influenced by external shocks such as fluctuating commodity prices and natural disasters. The country’s economic base has remained concentrated in logging, which at its peak in 2016 contributed 22 percent of GDP and 70 percent of goods exports. However, logging is now in sharp decline, with output halving between 2016 and 2022 due to the depletion of forest resources. The Solomon Islands must now transition to other industries to sustain growth. However, most other sectors—agriculture, fisheries, and tourism—remain underdeveloped, and economic diversification has been slow. Per capita incomes have stagnated, and the country has yet to recover from the economic disruptions caused by the ethnic conflict known as the ‘Tensions’ in the late 1990s. In 2022, per capita income was still 5 percent below 1999 levels, and the Solomon Islands lags significantly behind its aspirational peers, with per capita income less than one-fifth of countries like Fiji and Maldives.

The Urgent Need for Infrastructure Reforms

The report highlights the urgent need for reforms to unlock new growth drivers. The Solomon Islands faces numerous structural challenges, particularly its challenging economic geography, which restricts the movement of goods and people. The country’s transport network, largely reliant on small maritime vessels and underdeveloped road infrastructure, is inefficient and costly, especially for communities located in remote or hard-to-reach areas. Furthermore, digital connectivity, which could mitigate some geographic constraints, remains limited. Only 17.5 percent of the population has access to the Internet, with access concentrated in urban areas and significant disparities between men and women in digital usage. Enhancing transport and digital infrastructure will be crucial for improving access to markets and services, boosting productivity, and promoting economic development in rural areas.

Agriculture and Fisheries: Underutilized Economic Engines

Agriculture and fisheries, while vital to the livelihoods of the majority of the population, are underutilized as engines of growth. The agricultural sector, which contributed 17 percent to GDP in 2020, remains predominantly small-scale and focused on subsistence farming. The fisheries sector, too, is critical for food security and income generation but suffers from inefficiencies, such as poor post-harvest handling and limited access to markets. Addressing these constraints will require investments in infrastructure, access to finance, and better extension services to improve productivity and integrate farmers and fishers into larger value chains. Tourism, though rich in potential due to the country’s natural beauty and cultural heritage, remains in its infancy, representing only 10 percent of GDP before the COVID-19 pandemic. The report suggests that developing niche tourism markets could generate significant economic benefits, but this will require improvements in transport infrastructure, governance, and the business environment to attract private investment.

Labor Mobility Programs: A Growing Opportunity

The report also emphasizes the importance of labor mobility programs as a potential growth avenue. Solomon Islands has a young and growing labor force, with around 9,000 new entrants to the labor market each year, but formal job creation is limited. Participation in regional labor mobility programs, such as those in Australia and New Zealand, has increased in recent years, providing much-needed employment opportunities and remittances. However, the report warns that this could lead to brain drain and other negative social impacts, such as labor shortages in key sectors. To maximize the benefits of labor mobility, the Solomon Islands must invest in education and training to ensure its workforce is equipped with the skills needed both domestically and abroad.

Comprehensive Reforms for Long-Term Growth

The World Bank's memorandum underscores that without comprehensive reforms, the Solomon Islands will struggle to achieve its long-term growth targets. Addressing key constraints such as poor transport and digital connectivity, limited private sector development, and a narrow production base is essential. By focusing on improving infrastructure, enhancing human capital, and diversifying the economy, the Solomon Islands could unlock new sources of growth and move closer to achieving upper-middle-income status by 2040. However, without these efforts, the country’s potential will remain limited, and its economy will continue to face significant risks.