Small island developing states face uphill battle in COVID-19 recovery

An UNCTAD report analyses this group of vulnerable nations in the wake of the pandemic, which is estimated to have led to a dramatic fall in their GDPs, especially in those that depend highly on tourism.

Small island developing states (SIDS) face an uphill battle as they strive to recover from the impact of the COVID-19 crisis amid vulnerabilities worsened by the pandemic.

The 2021 edition of UNCTAD’s Development and Globalization: Facts and Figures report, released on 10 June, highlights the numerous strengths and challenges facing these economically vulnerable countries.

The report is published ahead of UNCTAD’s 15th quadrennial ministerial conference to be held online from 3 to 7 October, hosted by Barbados, one of the SIDS. The contributions and vulnerabilities of SIDS will be key elements of the discussions at the conference.

“This report offers a unique perspective on SIDS by combining a wide variety of statistical information to examine these countries from the aspects of trade, the economy, the environment and society,” said UNCTAD Acting Secretary-General Isabelle Durant.

“I hope the report will serve as a useful statistical and analytical tool for the SIDS themselves and for all those interested in understanding these islands,” she said.

Vulnerable to shocks

While SIDS are a diverse group of countries, they share many socioeconomic and environmental challenges. SIDS are highly vulnerable to external economic and financial shocks, at least 35% more than other developing countries, according to the report. It also analyses the concepts of smallness, and islandness as a function of remoteness or isolation.

It says 2020 was a particularly challenging year for SIDS. In the wake of the pandemic, SIDS experienced an estimated fall in GDP of 9% in 2020, compared with a 3.3% decline in other developing countries based on IMF projections data.

Below are other highlights from the report:

Trade: COVID-19 has severely hit SIDS’ services exports, heavily reliant on tourism

• Services exports contribute on average 25% to SIDS’ GDP and almost half of their exports consist of travel services.
• In the wake of the COVID-19 pandemic, SIDS suffered an estimated 70% drop in travel receipts in 2020. The UN World Tourism Organisation estimates that it could take up to four years for international tourism, an essential source of jobs and livelihoods, to recover to levels observed in 2019.
• SIDS import more goods than they export - 24 of them had a negative trade balance in goods of more than 55% of imports in 2020.
• SIDS tend to import manufactured goods and export commodities, especially food. For Cabo Verde, Kiribati, Maldives, Micronesia and Tuvalu, seafood alone accounts for 70% of all exports of goods.
• High trade openness, the average of sum of exports and imports of goods and services relative to GDP, exposes SIDS to greater market fluctuations than other developing economies. SIDS’ trade openness averaged 95% for the period from 2005 to 2019.
• Remoteness poses significant challenges to SIDS’ economic development. In terms of distance to markets, SIDS are on average farther away than other countries, with SIDS in the Pacific most remote.
• Many SIDS are poorly connected in terms of maritime connectivity, paying approximately 7% more than the world average for freight for transport of their imports.
• SIDS recorded a 28% drop in port calls in 2020, primarily due to COVID-19. SIDS account for a relatively large share of ship registrations – The Marshall Islands and the Bahamas ranking 3^rd and 8^th
• Digital connectivity in SIDS is quite high as it’s not constrained by geography. Nonetheless, exports of ICT goods by SIDS account for a relatively small share of total merchandise exports, averaging between 0.5% and 3% in the period from 2000 to 2019.

Economy: Much heterogeneity in SIDS’ economies, but services dominate

• Many SIDS have built strong service economies. The service sector accounted for over 70% of SIDS’ GDP in 2019, compared with 66% in 2005. On average, two in three people work in services in the island economies, half of men and three in four women, often in jobs related to tourism.
• From 2016 to 2019, many SIDS ran large current account deficits and the collapse of tourism due to the COVID-19 pandemic was expected to widen these deficits in 2020.
• GDP per capita varies greatly across SIDS. In 2019, it was $11,561 (in current prices) in the Caribbean, three times more than in the Pacific SIDS and 1.6 times more than in the Atlantic and Indian Ocean SIDS. Half of the top 10 SIDS in terms of total GDP are also Caribbean.
• Opportunities afforded by agriculture are constrained by the climate and the availability of arable land in the smallest islands, but agriculture, forestry and fishing are still important sources of employment and livelihoods for many SIDS.
• The manufacturing sector produces less than 9% of GDP, on average, in SIDS, which is lower than in least developed countries (LDCs) (12.9%) and landlocked developing countries (LLDCs) (12.6%). SIDS in the Caribbean often exceed this average, while Pacific SIDS more often remain below.
• The informal economy contributes to jobs and income, playing an important role in SIDS, but country data are scarce. The International Labour Organization estimates that informal workers make up nearly half of the global workforce, of whom 80% have suffered damage to their capacity to earn a living during the COVID-19 pandemic.
• The UNCTAD Productive Capacities Index shows that human capital, efficient institutions, a favourable business climate and viable ICT and transport infrastructure are key for successful servitization in SIDS. GDP per capita is highest in SIDS which have succeeded in transforming from primary production to service activities.
• SIDS are among the most indebted developing countries in the world. In 2019, external debt accounted for 62% of their GDP, a record high, mostly driven by increases in short-term debt and private debt.

Environment: Many SIDS are uniquely vulnerable to the effects of the climate crisis

• Four of the top 10 most environmentally vulnerable countries are SIDS, according to the 2020 Environmental Vulnerability Index.
• SIDS are pioneers in designing and implementing green financial instruments to bolster debt resilience, especially towards climate adaptation and mitigation.
• On average, 13% of Pacific SIDS’ land lies below 5 metres above sea level, highlighting their vulnerability to rising seas. In the Maldives, Kiribati and Tuvalu, 99% of land lies below 5 metres above sea level.
• Despite suffering acutely from the impacts of climate change, SIDS emitted only 0.2% of global CO₂ emissions in 2016.
• SIDS rely on the oceans economy, or the blue economy. Coastal and marine tourism is its largest sector, while fisheries, though smaller in GDP share, are important sources of income and employment, particularly for coastal communities.
• Some SIDS export plastics-alternative materials, for instance natural fibres, glass, cardboard and paper. The increasing demand for plastics-alternatives may benefit these SIDS in the future.

Health and population: SIDS rank above the global average on several social metrics

• Child dependency is high in the Pacific SIDS, with 62 dependent children in 2019 for every person of working age (15 to 64 years old), compared with the global average of 39, and an average of 32 in the Caribbean SIDS.
• SIDS score close to the global average in Human Development Index, and 60% of SIDS receive a very high or high score.
• In 2017, the share of the population in SIDS using the internet was at the global average. ICT skills are valuable means of overcoming physical remoteness.
• Pacific SIDS have had remarkably low COVID-19 cases and death rates, well below global averages, for the duration of the pandemic (as of June 2021).
• In 2019, the Gender Inequality Index ranked most SIDS better than the world average, and all of them better than LDCs’ average. However, the share of women and girls subjected to violence has been high in some SIDS, particularly in the Pacific.
• Inequalities exist in SIDS’ labour markets, as women are more likely to be unemployed than men, and women’s labour force participation is significantly lower, on average 53%, compared with 72% for men. In businesses, female participation in ownership exceeds the world average in most SIDS.
• According to the Inter-Parliamentary Union, by January 2021 SIDS had not yet achieved an even representation of women and men in their national parliaments, although Grenada was close, with a 47% female representation in parliament.