Economic Assesement for South Santo Road (Canal to Tassiriki) Project (November 2013)

Executive Summary

The Agricultural potential along the southern part of Santo has been kept at bay for the past 33 years. The result of the analysis undertakes indicates that there are substantial advantages in the construction of the new road upgrade projects and the performance of most of the indicators collected during the economic assessment feedback indicates great potential still not utilize by the southern region of Santo. The economic assessment also considers the option of the free of charge user roads. Traffic on the new road projects is much higher and as consequences both users and societies are better off, as total savings are higher and externalities lower than the user fee option. With the introduction of a user fee system, basically to generate revenues for financing the loan or maintenance purposes, the new project roads would remain under-utilized during the initial years. This is can be attributed to the fact that congestions along the existing road networks not high enough to induce a significant proportion of the demand to pay for the increased speed advantages allowed by the new road projects. The Government on the hand if decided to introduce a pricing scheme only on some links of the road, it is expected to shifts traffic from the priced modes of the road network to the other non-priced links and therefore reduces the consumer surplus. From a social welfare point of view, this will lead to a less positive effect. In order to maximize the net benefits of the investment, the analysis shows that it is better to allow usage for the proposed new roads to be user free and to postpone the idea(if any) of an introduction of a user fee at a later stage,preferably,where traffic flow growth is sustained.


 TThe purpose of this study is to undertake an Economic Assessment on the 64 kilometer road infrastructure for South Santo, starting from Canal to Tasiriki. The infrastructure project worth around 14 billion vatu equivalent (US$146 million) include the 60 km road and 17 bridges of which 4 major ones, 7 medium and the rest are smaller bridges. The construction work will be undertaken by a Chinese company (China Railway First Group) schedule to commence in July 1 2014 and ends in June 30 2018, a period of 4 years. This report will also provide an economic structure of Vanuatu as background information and it will also provide background study of infrastructure development from the global, regional and national perspective. The rest of the report will cover the economic analysis and assessment, social benefits, challenges and recommendations.

Vanuatu’s population reach 260,000 in 2013 and nearly 75 percent of the population reside in rural areas. Agriculture, cattle farming, kava and fishery is the main commercial activity within the village communities and contributes to around 20 percent of the country’s GDP. However, attempts to enhance and broad the economic growth development and revenue basket was inadequate, basic services delivery in rural areas is constrained by poor accessibility due to limited transport infrastructure and services by the Government. The transports cost within most of the rural areas are expensive and unreliable.

The South Santo gravel road upgrading project has already been listed in the road upgrading plan by Vanuatu Government as no.6 according to the Ministry of Infrastructure and Public Utility (MIPU).The project proposal of South Santo road is proposed to start from Saint Michel (Canal) ,6 kilometers from Luganville and will run through the coast to end in Tasiriki. The total expected length to be covered is approximately 60 kilometers, along the road are village areas such as Mavunlep, Tanvoli, Nasulun, Taloa, Navota-farm,Tataschool, crossroad,Nakere,Tangoa,Araki,Wanapura,Jaraland ,Belmol Via Narango, Sarate,Naoune,Asefa,Vimele,Walipa,Parisa,Ibayto,Namuru,Tanavusvus and Tasiriki.

Infrastructure and Capital Investment is seen as a major foundation to economic growth and social development of most countries in the world, particularly in the developing countries and most Small Island Developing States of Vanuatu is part of. The need for infrastructure for Small Island Developing States, in Particular for Vanuatu, is crucial, given the high degree of vulnerability of these countries to exogenous shocks such as cyclones, earthquakes, flooding and external price shock.

Like other Pacific Island countries, Vanuatu’s economy depends entirely on Agriculture and the services sector of which tourism is a major economic growth contributor. The latter accounted for about 64.42 percent of GDP while Agriculture, although accounted for only 20.83 percent of GDP, serves as the backbone of the economy as 75.64 percent of total population reside in the rural areas and the most remote islands and are fully engaged in Agriculture, both for subsistence and commercial purposes. Table 1.1 shows Vanuatu’s GDP composition of which Agriculture accounted for 20.8 percent while the Services sector of 64.4 percent in 2011 (National Accounts of Vanuatu, 2011).

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