Financial Secretary Office News

Financial Secretary Office News

Business environment reforms gain momentum

The Government with the assistance of the Asian Development Bank (ADB), Pacific Private Sector Development Initiative’s technical support continues to progress implementation of important business environment reforms. The reforms consist of drafting of a new modernised Companies Act and a Personal Property Securities Act (PPSA) tailored to meet local conditions. The bills, having been drafted, were presented to stakeholders in a visit in August and are now being finalised and will require final endorsement by cabinet, hopefully later this year.

Once the Companies Act has been passed, NZ Aid Programme funding will allow the implementation of a new on-line company registry. ADB together with the NZ Companies Office will support the full implementation of the new law and on-line registry. The new PPSA will allow for moveable property to be used as collateral for loans. The new system which will be supported by an on-line registry will make it easier for individuals and businesses to access finance.

This will bring significant benefits to all local businesses including lowering the compliance and registration costs for incorporating a company, providing greater transparency in the operations of companies and the Act also has the potential to lower interest rates on loans supported by moveable property.

Financial Secretary Garth Henderson endorses the updating of legislation to reduce the cost of doing business in the Cook Islands and supports the increased access to finance for small businesses. He states “this move to greater transparency and cost reduction has been happening across the region and we are very pleased with progress to date. We look forward to the introduction of this legislation in the Cook Islands and will see it bring significant benefits from 2017 onwards”.

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Government serious about disaster risk management

The Cook Islands experiences a range of natural hazards, including tropical cyclones, tsunami, floods and droughts. We face particularly high tropical cyclone risk, with associated high winds, storm surges and flooding. Cyclone risk was highlighted in 2005 when we experienced five consecutive cyclones over a period of two months, including four category five storms, causing damage estimated at $14.5 million. Previously, Rarotonga was extensively damaged by Cyclone Sally in January 1997. In November of the same year, Cyclone Martin destroyed about 90% of houses and killed 19 people on Manihiki atoll. The most recent major cyclone occurred in 2010, damaging 78% of houses in Aitutaki, devastating crops, disrupting tourism, and required a $6.9 million recovery and reconstruction program. Recent analysis undertaken under the Pacific Catastrophe Risk Assessment and Financing Initiative (PCRAFI) indicates that the country faces an average annual loss of $4.9 million from tropical cyclones alone, with probable maximum losses of $56.8 million, $103.0 million and $198.1 million from 1-in-50, 1-in-100 and 1-in-250 year events respectively, equivalent to 18.8%, 34.0%, and 65.5% of GDP in FY2016.

The Government takes these risks very seriously. In addition to building its’ Disaster Response Trust Fund by a further $600,000 this financial year (fund now totals NZD$1.5mil) and continuing to have Catastrophic Risk Insurance (PICRAFI), it is now working with the Asian Development Bank (ADB) to finalise a Policy Loan of approximately USD$10 million to be utilized if a state of emergency is declared in the Cook Islands. This loan would provide rapid access to a pool of resources enabling government to initiate recovery and reconstruction efforts with minimum delay, mitigating a disaster’s immediate economic and social impact.

To assist us, the loan has some medium term policy actions which will be monitored to ensure we continue to build our resilience for a state of emergency. An example includes the introduction of a damage and loss database and post-disaster expenditure tracking system. This complements existing government initiatives like updating our joint national adaptation plan (JNAP) for disaster risk management (DRM) and climate change adaptation and the implementation of the national action plan specifically focused on DRM.

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Media Release: Review of the Los Angeles and Sydney underwritten flights

As part of the process for the tendering of underwritten air services, the Cook Islands Government (CIG) commissioned an independent assessment of the underwritten, direct, flights from Los Angeles (LAX-RAR) and Sydney (SYD-RAR). The assessment looked at the contracts for those routes, as well as the financial and economic performance of the underwritten flights.

The lead reviewer was Market Economics, a leading New Zealand (NZ) economic research consulting firm, in partnership with the Hillhouse Group and Astral Aviation.

As a whole, the two underwritten flights are estimated to have a positive effect for the Cook Islands economy, with the additional spending by overseas visitors outweighing the cost to the taxpayer, particularly for the direct to Los Angeles service.

  • The underwrite for the Los Angeles service is estimated to deliver approximately $11.5 million to the national economy, and have a positive impact on job creation for local workers.
  • The economic effects of the Sydney underwrite are smaller. The average economic outcome over the 2014-15 period showed a net negative effect of 1.1 million in GDP terms, although 2016 and 2017 are expected to be better due to strong tourism arrivals and low fuel prices.

The expected replacement of the Boeing 767 aircraft with the larger Boeing 777-200 aircraft (B772) by Air New Zealand on both routes will improve service levels and make the flights to the Cook Islands more attractive to visitors, with increased numbers of premium economy and business class seating. However, changing to the B772 will greatly increase costs in the short term.

Going forward, the costs of the larger aircraft will be reduced if visitor numbers remain strong. The NZ, Australia, USA and Asia markets have shown strong growth over the 2010-2016 period, and the B772 service is expected to have a positive effect on visitor numbers from these markets as they continue to grow.

In addition to the generally positive effects on the economy, the reviewers felt that there are important strategic reasons for keeping the direct services from Los Angeles and Sydney:

  1. Direct flights with key tourist markets, especially the USA and the Northern Hemisphere markets through the Los Angeles service;
  2. Market security and diversification by making it easier for visitors from Australia and the Northern Hemisphere to visit the country; and
  3. Broadening the visitor base by attracting more higher-end visitors via the B772.

The reviewers conclude that the underwrites are delivering positive benefits to the country but there is room for improvement. Over the medium term, the focus should be on limiting the costs and increasing revenue. The reviewers recommend CIG and Air New Zealand engage in joint marketing programs to help achieve this.

Additionally, strengthening the governance arrangements of the contract and increasing the ability of the CIG to actively manage the relationship is also a key factor that will help the success of the underwrite in the future.

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30 August 2016