Economy of Tuvalu - Island Economy

Island Economy

Tuvaluans are primarily involved in traditional agriculture and fishing. About 500 Tuvalu men are employed abroad at any given time as sailors, primarily on German-owned ships. Another 300 sailors are in Tuvalu on leave between rigorous, 12-plus-month cruises. Remittances from seafarers is a major source of income for families in the country. In 2002, the Asian Development Bank approved an assistance package to upgrade the Tuvalu Maritime Training Institute which trains young Tuvaluans so they can work aboard foreign vessels. The Global Economic Crisis (GEC) that began in 2007 has impacted on global export-import activities and the demand for shipping, which reduced the need for seafarers from Tuvalu.

From 1996 to 2002, Tuvalu was one of the best performing Pacific Island economies and achieved an average real gross domestic product (GDP) growth rate of 5.6 per cent per annum. Since 2002 economic growth has slowed as Tuvalu was exposed to rapid rises in world prices fuel and food with the level of inflation peaking at 13.4% in 2008, and falling to -1¾% in November 2010. The International Monetary Fund 2010 Report on Tuvalu describes the economy as contracted over recent years, with real GDP growth of: 7.0 (2008), -1.7 (2009), 0.2 (2010), 0.0 (2011 est.).

However due to the acute level of geographic, macroeconomic and financial isolation, scale of area, population infrastructure and agriculture, climate change, oil dependency, contracting GDP and economic dependency many sources in this decade view Tuvalu as an extremely vulnerable economy.

World Bank Statistics outline that in 2010 Tuvalu produced a bottom-tier ranking Gross Domestic Product of $31,350,804 and Gross National Income of $4,760. In terms of GNI the nation compares, adequately with other pacific SID states such as Kiribati ($2,010) and the Marshall Islands ($3,640). Fishing licensing agreements with Taiwan, Japan, Korea, New Zealand and the United States generating an income of A$9 million in 2009. However a large proportion of national income is obtained through the employment of 15% of adult male Tuvaluans, overseas in the maritime industry. The value of these remittances was valued at A$4 million (est. 2006) and on average accounts for 10% of GDP. A UN Report makes reference to the fact that these revenue streams are vulnerable to macroeconomic change while the national budget remains heavily subsidised through international aid and funding schemes such as the The Tuvalu Trust Fund (TTF) (value $77 million, 2006 est), with a strong reliance on the importation of food (imports $15.5 million 2007 est.

The country is also imported-fuel dependent, with gas prices quoted at $12/gal (2009). Although listed by the UN as a Lower Middle Income LDC, it scores very high in terms of EVI (Economic Vulnerability Index), with a rating of 79.7 out of 100 in 2009, leading the UN to state that Tuvalu is the most "economically vulnerable country in the world". Due to the factors addressed earlier, Tuvalu yields a limited revenue from exports. Figures in 2007, estimated a Tuvalu export value of $100,410 derived from Copra and miscellaneous items such as stamps. The Tuvaluan economy therefore relies heavily on its fishing income, with 42% of the Tuvaluan population involved in Fishing activity at various levels. UN Data calculated a gross value of fisheries at US$43,773,582 (2007 est), which accounted for the output of coastal commercial fishing, coastal subsistence fishing, locally based offshore fishing, foreign-based offshore fishing, freshwater fishing and aquaculture. In recent years all of the income has been generated through the listed activities in Tuvalu waters, rather than through exports direct from Tuvalu. The activities of international fishing fleets, which in 2008 comprised 42 longline fishing vessels, 3 pole/line vessels and 126 purse seiners, far outweigh domestic activity, with a production volume of 35,541 tonnes worth US$40,924,370 (2009 est) or 93.5% of gross value, although Tuvalu retains a sizeable share in income via licensing. The fishing in the 900,000 km2 of water area mainly consists of Skipjack Tuna, Yellowfin Tuna and Bigeye Tuna.