The Vanuatu Employment Conundrum

July 5, 2022 11:37 pm | Posted in Features | Share now Twitter Facebook

Arguably, employees of any organization are the most valuable resource in an organization. Productive, motivated and well remunerated staff are behind any successful organization.
At 2.4%, Vanuatu had one of the highest rates of population growth rate for 2020 in the world, outside of Africa. In the Oceania region, it is only exceeded by Solomon Islands at 2.5%. Over half of the population (53.64%) is under the age of 24. Each year, thousands of young ni vanuatu leave school and go out in the workforce. The prospects of finding jobs for these school leavers is very much dependent upon economic growth with demand for new employees only coming about through growth in the economy and new business investments.

Along came a Virus. For the last two and a half years, the economy has been battered by the COVID pandemic as a result of the border closures and the shutdown of the Tourism Sector. Many workers were laid off as businesses experienced large downturn in revenues. The prospects of any school leaver finding employment in this environment were very low.

The Vanuatu Government tried to take up the slack. Backed up with revenues from sale of passports and support from Aid Donors, it implemented a series of economic stimulus packages and embarked on a program of large public expenditure to stimulate the economy. Despite the efforts of the Vanuatu Government to assist the economy, the cushioning of the economic downturn would not have been possible without the remittances of Seasonal Workers in NZ and Australia. Whilst in existence much earlier than 2020 when the Pandemic arrived, the NZ based Recognized Seasonal Employer (RSE) program and Australia’s Seasonal Worker Program (SWP) experienced huge growth in demand as many laid off workers who had been trained for many years in Tourism and Hospitality left Vanuatu for work overseas.

The Pacific Labour Mobility Programs

The New Zealand based, Recognised Seasonal Employer (RSE) scheme came into effect in April 2007. The program was introduced to allow the horticulture and viticulture industries to recruit workers, primarily from Pacific Island countries for seasonal work when there was not enough New Zealand workers to fill that gap.

The Australian Seasonal Worker Programme (SWP) was established in 2012 to provide seasonal horticultural opportunities to workers from eight Pacific Islands and Timor-Leste. Initially there was a cap on the total number of workers but after a slow start, in 2015 the program removed both the cap on workers and the demand-side constraints on employers, accelerating take-up. The program expects to bring in 37,500 workers a year by 2030.

There has a lot of debate on the merits of the Pacific Labour Mobility Schemes. It has been a win for both New Zealand and Australia as development partners to the Pacific by providing a solution to the short term labour requirements in the horticultural industry and also without direct financial aid, facilitated much needed injections of foreign currency during the Pandemic, in to the economies of Pacific Countries through remittances.

For many Ni Vanuatu who have participated in the schemes, it has been life changing. The higher
incomes earned whilst overseas have assisted many to support families and communities back home, pay for school fees, build homes, and start small businesses through the skills they have learned. Whilst it has also been a lifesaver for those workers who lost jobs during the pandemic, the dynamics of the labour market and the economy have changed significantly. The largest impact of the Labour Mobility schemes
on the business sector has been the loss of skilled staff who have decided to resign from their jobs and go to NZ or Australia. Anecdotal evidence suggests that in most cases, very little notice had been given to employers for the departure of staff who had been trained in positions that they had held for many years. In Australia, minimum wages paid to seasonal workers are much higher than rates paid in Vanuatu at around VT1,700 per hour.

After years of hard work campaigning and organising by farmworkers and their unions, a new minimum wage guarantee for horticulture workers began on 28 April 2022. All horticulture workers are now guaranteed a minimum wage of $20.33 per hour. https://www.columban.org.au/mediaand publications/newsletters-andbulletins/pej-ebulletin/archive/2022/ pej-ebulletin-may-22/minimum-wageguarantee-for-seasonal-workers

In comparison to this, the minimum hourly rates paid to workers in Vanuatu is currently VT220 per hour. Many employers that the Vanuatu Business Review spoke to paid most of their staff at higher rates than this, but even if the rates paid were double of the minimum, it would have still been significantly less than the rates paid in NZ and Australia under the seasonal worker programs. Instead of addressing the unemployment problems by creating an option for income and jobs for school leavers, the opposite effect has been a drain in the Vanuatu pool of skilled workers. A scheme that was created to address partly, unemployment in Vanuatu has inadvertently created an employment conundrum.

According to figures obtained from the World Bank website, personal remittances in 2020 amounted to US$87m. There are approximately 10,000 Ni Vanuatu who are currently participating in the program which is projected to generate around VT10b in remittances per year. Overseas Remittances have now become an integral part of the economy in generating foreign exchange and contributing to the country’s GDP.

The Re-Opening of the Borders to Visitors

In April 2022, the Vanuatu government announced that from 1st July, Vanuatu would open its borders for international visitors to come to Vanuatu without the need for quarantine. This announcement was welcomed by the Tourism sector and it now had three months to prepare for the return of tourists. Since the announcement, there has been an air of optimism and confidence as many hotels and resorts embarked on plans to renovate and refurbish their facilities. However, there was a problem. Many of the previously trained and experienced staff who had been laid off as a result of the COVID Pandemic had left the country to join the RSE/SWP schemes. Many are still overseas and resorts have struggled to fill positions that had been left vacant.

The Review of Minimum Wages and Employment Benefits

In May of this year, the Vanuatu Government announced that the minimum wage rate of VT220 per hour would be reviewed along with the proposal to increase severance entitlements. Since that announcement, there has been considerable public discussion on the proposal with the general agreement that the minimum wage rate of VT220 needed to be reviewed.

The war in Ukraine, and global supply chain problems have led to Inflationary pressures worldwide. As a result, Vanuatu has been experiencing large price increases in many products including imported food, fuel and building materials. The everyday pressures on workers paid minimum wages to put food on the table, and support their families have increased due to increases in prices for food staples. Whilst the Vanuatu Government has the mandate to created laws that regulate the labour markets, it is the market forces that determine and affect the workforce. Businesses operate based upon a business model of revenues and costs and over a long period of time will not survive if costs exceed revenues. There have been a few casualties of COVID where businesses have closed with no re-opening plans.

Staffing is one of the main costs in operating a business. During the COVID pandemic, many businesses
experienced large downturns in revenues and restructured their operations to reduce costs. Many
workers were laid off, and existing staff had working hours reduced. When the government passes laws changing employment benefits for workers, it affects the dynamics of each business and similar to what happened during COVID, existing employers adapt and change the employment environment of their staff to address these developments. Any changes to employment benefits that will increase the cost to operating any business will be met with moves to maintain total cost structures without affecting service delivery. Possible outcomes could be:

The freezing of wage reviews for staff already being paid above the minimum

Reduction in working hours of staff

In extreme cases, the termination of non-essential staff

The generation of jobs is dependent upon economic growth and business investment. Direct Foreign investment is a vital part of economic growth in the country and labour costs are a vital part of any business investment decision. It is therefore important that the Vanuatu Government considers
the ramifications of any changes to the employment laws that will increase the costs to employers without considering the current state of the economy and business outlook.

Comparison of Labour costs in Melanesia

Vanuatu has one of the highest staffing costs in Melanesia. The minimum hourly rate is VT220 per hour (USD1.85). As a comparison, the minimum hourly rate of Solomon Islands, our closest neighbor, is $SI4.00 per hour which is only USD0.50. Other labour on-costs such as Long service leave, annual leave and Provident fund also need to be included in the calculation of the actual costs to employers. The inclusion of labour on-costs has made Vanuatu at over 30%, the most expensive country in Melanesia to be an employer and one of the least attractive countries to invest in for labour intensive industries.

Conclusion

Vanuatu is at the crossroads in its Economic Future. On 1 July the Tourism and Hospitality sector open. The Policy makers in this country are faced with choices. After two and a half very difficult years, many businesses have found them confronting a different economic environment of ever increasing costs, and stagnant revenues that will take a few years to achieve pre COVID levels. The Pacific Labour Mobility Schemes have also changed the dynamics of employment. To retain staff, employers will need to make employment conditions much more attractive through higher wage rates. This will lead to inflationary pressures on prices businesses charge for their services further compounding inflation and the costs of living. The Vanuatu Government is also under pressure to assist Ni Vanuatu to cope with the ever increasing costs of living but must balance any decisions it makes on employment benefits taking in to consideration the viability of many employers and achieve sustained economic growth. In addition, revenues from the sale of passports have slowed as a result of the cancellation of visa
free travel by the EU to Schengen countries affecting the fiscal position of the government.

The Pacific Labour Mobility Schemes will be here to stay. They now play too important a role in the economy through the remittances they bring. The large differences in wage rates between those paid in Australia and NZ will mean that there will be continued growth in this sector. To adapt, businesses will be forced to evolve and change in to those that are less dependent upon the employment of low to medium skilled staff to those who are highly paid and skilled.