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Vanuatu floats scheme to sell passports to rich Chinese

Vanuatu's prime minister Joe Natuman during the seventh Pacific Island Leaders' Meeting (PALM) in Fukushima on May 23.

AUCKLAND, New Zealand -- In a near-miraculous escape, the death toll from a powerful cyclone that hit Vanuatu in March only reached 16. But the economic damage appears to have been even higher than first thought, prompting desperate government attempts to raise funds for reconstruction.

     Aid donors have been distracted by higher-profile disasters such as the recent earthquake in Nepal, limiting aid to a trickle. That has the devastated island looking at other options, including a plan to raise money by selling "honorary citizenship" to wealthy Chinese investors.

     The Vanuatu government said in mid-May that that 70% of the country's population had been displaced by Cyclone Pam, a top-strength Category 5 storm that roared across the South Pacific archipelago of 277,000 people between March 12 and March 14. Hard data on the cyclone's impact is in short supply. But according to government ministers, about 188,000 people are in danger of running short of food due to losses of crops, forests, animals and marine resources.

     Officials put the financial cost of the disaster at about 50 billion vatu ($460 million), equivalent to 56% of the tiny county's gross domestic product. The Asian Development Bank says the economy is likely to contract by 0.5% this year, compared with its forecast for 4% growth forecast before the disaster.

Ill wind

Some independent experts say the long-term impact on growth may be greater than these figures suggest. "Cyclone Pam was not like other cyclones that regularly hit Vanuatu," Matthew Dornan and Tess Newton Cain, told the Nikkei Asian Review in an email. "It was a unique event, which one hopes will not be repeated for some time."

     Dornan, a research fellow at the Australian National University's Development Policy Centre, and Newton Cain, a Vanuatu researcher and consultant who is a regional expert on politics and development, said the private sector took the biggest hit, with only a small portion of losses covered by insurance.

     The academics said tourism, which employs 6,000 people and accounts for about 40% of Vanuatu's economy, is struggling to recover and warned it could be years before "the Vanuatu 'brand' fully recovers." In the meantime, Australian and New Zealand tourists are traveling to competing destinations such as Fiji instead, they said.

     Soon after the cyclone hit, the government appealed for $30m in aid, but received less than half that sum, reflecting a lack of enthusiasm among donors for providing direct budgetary assistance, in spite of Prime Minister Joe Natuman's decision to publish itemized accounts of the sources of aid, and where the money is held.

     Vanuatu is a low-tax financial center that has often faced allegations of secrecy and corruption.

     Unable to raise money through higher taxes, because of the largely subsistence nature of the economy, the government has launched a scheme to sell citizenship to 100 wealthy Chinese investors for $130,000 each, raising $13 million -- or more if ministers decide to extend the sale.

Checkered history

George Bogiri, Vanuatu's director general of internal affairs, told the Australian Broadcasting Corporation's Pacific Beat service that the plan was "a revenue initiative" in response to the disaster. "Cyclone Pam came along and the situation was very critical, and we had to look around and find a solution and we came up with this," he said.

     Successful applicants will receive a Vanuatu passport, but would not be expected to live or work in the country. Because they would be classified "honorary citizens," applicants would not be in violation of China's ban on dual citizenship. "We know that people are interested, and talking to agents," Bogiri told the ABC.

     Vanuatu has a long and checkered history of selling citizenship to assorted colorful characters since independence in 1980. Most schemes have failed because of dual citizenship bans by other countries, including China, or because the newly issued Vanuatu passports were not recognized outside the country.

Setting priorities

Vanuatu does have an alternative: It could borrow on international markets to finance reconstruction. The country's debt is equal to 21% of GDP, low by international standards. But the government is committed to a series of infrastructure investments agreed before the cyclone that would lift debt to 40% of GDP.

     Dornan and Newton Cain said that while canceling or postponing the projects might be painful, "not doing so will also be painful -- in the long-term -- as it will limit the government's ability to borrow funds for reconstruction."

     The academics said an obvious target for cancellation is a road upgrade on two islands, funded by a $50 million loan from China Exim Bank at 2% interest over 20 years with a five-year grace period. Dornan contrasted those rather stiff terms with a $40 million loan from Japan for wharf construction at 0.56% over 40 years with 10 years' grace.

     However, work started on the Chinese-funded project soon after the cyclone, in spite of serious problems caused by the high winds. The China Civil Engineering Construction Corporation, which is building the roads, said some of its workers were close to starvation. 

     "Once the strong winds from the cyclone weakened, over 20 staff of CCECC began the self-rescue work in spite of [being] cut off from food, communications and material supplies," the Vanuatu Daily Post reported. "Because of food shortages, the CCECC staff had to appease their hunger with seaweed from the sea at that most difficult time."

     Beijing sent five chartered planes to Vanuatu carrying relief supplies worth 30 million yuan ($4.8 million).

     Japan has also made clear that it is ready to help reconstruction efforts. "The government of Japan is ready to consider ... medium-to-long term assistance to build a more resilient society against natural disasters," said Japanese Ambassador Takuji Hanatani in an open letter to the Vanuatu government and the Vanuatu Daily Post.

     However, Peter Korisa, of Vanuatu's National Disaster Management Office, said international organizations were scaling down their aid as they became more "focused on other areas," especially earthquake-hit Nepal. The people of Vanuatu would have to look after themselves more, he told Radio New Zealand. "It is a challenge for us, with our local capacity that we have at the moment. We are trying our best, trying to use whatever resource we have," Korisa said. "It is overwhelming for us, but again we do our best and we try to handle the situation."

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