ANGELINE ROHOIA, KATIE LONGE’AU AND MARCO MALUSÀ |
“Challenge, Celebrate, Unite”.
Under this inspirational motto, approximately 5,000 elite sporting individuals from 24 countries and territories across Oceania convened in Honiara, Solomon Islands, between 19th November and 2nd December 2023, to compete in the XVII edition of the Pacific Games, also known as SOL2023. The event, comprising of 24 sports played across 12 venues, marked the largest gathering of its kind ever hosted in Solomon Islands, and it was thus billed as a major chance for the country to attract domestic and foreign investment, upgrade infrastructure, and elevate its regional sporting presence.
Beyond countless intangible benefits, including an electrifying display of sporting excellence, and the fostering of warm ties among the peoples of the Pacific, came the opportunity for nation-building in a post-conflict society, whereby Solomon Islanders could be united by a sense of common belonging and oneness.
But SOL2023 also promised significant economic advantages, together with sizeable risks. In this blog post, we conduct a sector-by-sector analysis of these economic benefits and costs, based on available information as well as interviews with major stake-holders. We find that beyond a moderately-sized, transitory consumption boost, the true legacy of the Games lies in the infrastructural upgrades it facilitated, either directly or catalytically. At the same time, we note that it also resulted in a substantial deterioration in the Government’s financial standing, and in a considerable diversion of public funds away from productive sectors.
Overall, we estimate the cost of hosting SOL2023 in Honiara over the five-year preparation period to stand at SB$2.38 billion (AU$428m), with $1.49 billion (AU$267m) provided by development partners, $0.85 billion (AU$153m) financed by the Solomon Islands Government (SIG) and the remaining $45m (AU$8m) coming from Games-related revenue, such as licensing and ticketing. A more detailed break-down of donor funding is provided in Figure 1 below.
Economic benefits
Industry
The hosting of SOL2023 triggered a historic surge in infrastructural investment in Solomon Islands, totalling at $1.94 billion (AU$349 million). This figure accounts for both SOL2023-related partnerships and several infrastructure projects which, while not directly geared towards the Games, saw efforts focused and timelines explicitly aligned to complete the projects ahead of the event. We term this latter impact the indirect, or ‘catalyst’, effect of hosting SOL2023; examples include a new Japanese-sponsored international airport terminal, major upgrades to the Kukum Highway, and domestically-funded improvements to water, sewage and telecommunication infrastructure.
Beyond construction, we find spill-over benefits to the manufacturing sector to have been moderately sized, but unevenly distributed. Even though a number of enterprises, especially sponsors and official suppliers, saw a significant rise in revenue over the preparation and hosting periods, the majority of firms interviewed reported little-to-no impact on outturns. Some enterprises lamented a perceived lack of transparency in SOL2023 procurement practices and a ‘missed opportunity’ for a vibrant and cost-minimising competitive process, in spite of the National Hosting Authority (NHA) reportedly having aligned its procurement procedures with Government guidelines. More generally, the 2023 Business Perception Survey carried out by the CBSI reveals that businesses viewed the Games as having had a positive influence on their operations on average (see Figure 2 below).
Services
The influx of visitors during SOL2023 provided a significant revenue windfall to the services sector. Data from the National Statistics Office reveals that 11,415 foreign visitors landed in the country in the final quarter of 2023, of whom 5,416 are estimated by the authors to have been linked to SOL2023. The overwhelming majority of arrivals were thus athletes and officials, with rather modest direct tourism-related benefits, especially as room and board for the athletes were provided by SIG.
However, in spite of the substantial influx of SOL2023 travellers, cumulative visitor arrival numbers in 2023 remained below 2019 levels (25,996 vs 28,930 – refer to Figure 3 below). Nonetheless, the surge in visitors provided much-needed post-pandemic relief to both the hospitality and the transport sectors: national carrier Solomon Airlines alone flew approximately one-third of the incoming passengers, and a substantial share of SOL2023 freight, and various hotels, lodges and restaurants across the city reported an unprecedented surge in revenue and full occupancy throughout the hosting period.
Indeed, the high occupancy rates suggest that the low number of tourists identified is likely the result of accommodation supply constraints, rather than a lack of desire to visit. This fact would point to a ‘missed opportunity’ for the country from a tourism standpoint. Overall, we estimate the influx of visitors to have resulted in the injection of approximately $5.7m (AU$1m) into the domestic economy in miscellaneous consumption expenditure alone in the final quarter of 2023, reflected in greater money-exchanging activity, higher souvenir sales and increased internet usage over the period.
Primary Sector
The agricultural sector, an essential source of livelihood for some four-fifths of Solomon Islands’ population, received minimal spill-overs from SOL2023. Balance-of-payments data reveals that the large majority of the increase in demand was met through imports, with only fruits, root crops and some meat products being largely sourced domestically. The abundance of produce also led to a slight decline in food prices at the city’s markets. It however also revealed deep geographical asymmetries in the distribution of SOL2023 benefits, as the near totality of the infrastructural and monetary stimulus accrued to the urbanised capital city and not to the largely rural Provinces.
Employment
SOL2023 led to the creation of approximately 10,000 formal-sector jobs, including 3,000 volunteers, over the five years. Even though positions were temporary, it is hoped that the labour-market impact of the exposure to new employment opportunities will live on. The hosting of the Games however proved highly unfavourable to many micro-entrepreneurs, following the disbandment of informal roadside markets for the whole duration of SOL2023. This negatively affected the livelihood of the predominantly low-income vendors, and impaired their ability to meet loan repayments, according to interviews with a local microfinance institution.
Fiscal and opportunity costs
If the benefits of hosting SOL2023 can be said to have been substantial, then so were the costs, primarily in terms of deteriorating fiscal sustainability. SIG bore slightly more than one-third of the total cost and is estimated to have allocated up to ten percent of total 2023 expenditure to the course. This resulted in a widening fiscal deficit, which more than doubled to $950m (AU$171m, equivalent to 7 percent of GDP), and in a surge in SIG debt to 21.5 percent of GDP, up from 16.3 percent in 2022. Several line Ministries interviewed faced significant budgetary cuts, payment delays and a scale-down in operations in 2023 due to resource diversion towards SOL2023. For instance, the Commodity Export Marking Authority (CEMA) saw itself forced to halt operations in two key commodity-buying centres in late 2023, one year after their highly anticipated opening, in spite of a seven-year ‘revitalisation and recapitalisation strategy’ worth $77m (AU$14m) which should have led to the opening of numerous centres in the Provinces, but which now languishes in limbo following a serious cashflow shortfall.
More generally, moving beyond a purely pecuniary cost-benefit analysis of SOL2023 in favour of a broader ‘strategic trade-off’ approach, it must be noted that in a limited-resource environment any substantial increases in expenditure in one area inevitably come with a high opportunity cost, as resources must be redirected away from other productive sectors. Indeed, while the ‘catalytic’ infrastructural stimulus produced by SOL2023 is highly welcome from a developmental perspective, the squeeze it induced in other sectors, and the strain it placed on SIG’s finances, all point to a much more complex, and potentially less favourable, holistic long-term calculus. As the dust begins to settle on SOL2023, the need for a long-term strategy for the use of the facilities emerges, not least in terms of maintenance and public accessibility. The extent to which the fruits of SOL2023 can be enjoyed by posterity will depend on the far-sightedness of the authorities’ vision in this regard.
In summary, beyond the nation-building and the sporting exploits, we find the historic SOL2023 experience to have revealed both the merits and limitations of a development strategy grounded in extensive investment into a single sector. While all key goals were achieved and infrastructure – at least in the capital – received a sorely needed boost, the longer-term implications of a rapidly deteriorating fiscal balance and atrophied investment in other sectors remain to be seen.
Ms Angeline B. Rohoia is a Senior Monetary Policy Analyst within the Economics, Research and Statistics Department (ERSD) of the Central Bank of Solomon Islands.
Ms Katie Longe’au is a Senior Government Finance Sector Analyst within the ERSD of the CBSI.
Mr Marco Malusà is a Senior Research Analyst within the ERSD of the CBSI.
The views expressed in this article are that of the author(s) and do not necessarily represent the position of the above-mentioned institution. For more information about Pacific island economies, visit Pacific Island Centre for Development and Policy Research.
