St Helena Online

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Price rumours ‘wrong’, says Owen, as inflation tumbles

Inflation in St Helena’s shops has fallen to its lowest level for at least five years, according to the island’s chief economist.

Owen James’s latest bulletin has scotched reports of “extremely rapid” price rises – and a “myth” that figures have been manipulated.

But the official figures do not take account of all living costs – especially increasing housing rents.

The island’s inflation figure is based on a so-called shopping basket of products: the prices of those goods in the shops are tracked in order to give an inflation figure.

Contrary to popular belief, inflation is not at 10%,” said Owen.

“Annual inflation on the retail price index stands at 3.9%, down by 2.2 percentage points from the previous quarter.

“Despite reports in the media, the last time annual RPI inflation broke the 10% barrier was over three years ago.”

He said annual inflation had averaged 6.1% over the past year – slightly below the five-year average.

He said: “There also seems to be a perception that inflation for low income households is higher than the average. The latest statistical news bulletin suggests this might not be the case.”

Figures suggested the opposite, he said.

“There is also a myth doing the rounds suggesting government adjusts the basket of goods and services used to calculate the RPI to suit its needs. This is not true.

“The RPI basket is based on a survey of households. This survey is carried out every eight years. The basket does not change during the interim and formulating it is a scientific process and not one which can be influenced by government or anyone else.

He said inflation rose last year for various reasons – including that people had more money to spend after changes to tax allowances and a government pay review. As that effect wore off, inflation had settled down.

And there was no rampant inflation in the countries St Helena traded with, said Owen.

He said the strength of the pound against the South African rand meant cheaper imports, “although this is not necessarily reflected in the price shops charge.”

Higher inflation could be the result of rising standards of living, he said.

“There are tentative signs of the economy growing. This should only continue as investment flows into the island and the airport project steps up its pace.

“The result of this should be an increase in wages. Consequently, inflation rates may increase, but that’s not necessarily a bad thing.”

Do the maths, says economist: tourists equal millions (comments added)

The secret formula for St Helena’s future prosperity has been worked out by the island’s economist. And here it is:

30,000 x £150 x 7 = £31.5 million

Owen James says the prospect of air travel from 2015 offers scope to improve living standards “on a scale unimaginable without an airport.”

But he adds: “Until I did some simple maths, even I didn’t realise how achievable huge improvements could be.”

In his Economy Watch report, he says the island needs “two or three hotels” to provide enough beds to be able fly in a plane load of tourists every day.

The maths isn’t hard: 30,000 tourists a year, who spend £150 per day, for 7 days each = £31.5 million.

One or two large hotels would be able to accommodate 30,000 tourists annually, while £150 per day is very low spend for a high value location and not many people are going to come to St Helena for much less than a week.

So my maths is very conservative and even so it would more than double or treble on-island spending, meaning more money flowing through local businesses and into the pockets of local people.

The island needs to start making it happen, there isn’t much time, so let’s focus on what’s important and do it.”

Mr James issued his report shortly after executive councillors approved the island’s economic blueprints for the years ahead.

The Sustainable Development Plan outlines what St Helena wants to achieve over the next ten years: better jobs, wages, opportunities and public services. It also sets out challenging targets for education and health.  

The second document, the Sustainable Economic Development Plan, sets out a strategy for kick-starting an enterprise culture on an island that has lived on UK aid for decades.

It is launched under the slogan: “Small footprint, huge step forward.”

COMMENT:

Let’s hope the author is right. Does anyone have any reliable statistics as to the amount of employment that 500+ tourists a week can be expected to bring? 

I aasume the £150 a day includes the cost of hotel rooms. Presumably the hotels will be overseas owned, although they will generate some local employment, but it would be surprising if they did not bring in a fair number of short-term overseas staff in order to maintain international standards of service.

Most of the food and alcohol consumed by the tourists will have to be imported, some of it directly I imagine by air to provide the fresh food that modern tourists expect, and therefore with a minimum of benefit to any St Helena based business. 

I don’t doubt that some will do very well out of all this, and the island will certainly get a boost from all the initial capital investment involved in building hotels and airport, but I suspect that the major profits will go to airline and hotel companies based outside St Helena, and that like the current expatriates’ salaries, much of that £31.5 million will not be spent in St Helena.  I do expect, though, that property prices will increase, that more members of the diaspora will be encouraged to return home and buy or build a house for their retirement, and that St Helena may become an attractive retreat  from the African continent for those with executive jets.

John Tyrrell
www.johntyrrell.blogspot.com

I’m thinking that if we have a “huge step” concentrated into a “small footprint” then that means somebody will be under a lot of pressure (like the elephant in stilettos from my school physics exam).  🙂

John Turner, St Helena
www.burghhouse.com

LINKS:
Economy Watch April 2012
Sustainable Development Plan (the island’s top-level planning document)
Sustainable Economic Development Plan (the strategy for boosting the private sector)

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‘Don’t blow our golden chance’, says St Helena economist

UK aid will amount to £70,000 for each man, woman and child on St Helena over the next three years, says the island’s economist – but he warns that Saints must repay the British government’s trust with ‘a change in mindset’.

That will mean making ‘difficult decisions’, says Owen James.

The latest Economy Watch briefing from The Castle follows the signing of an aide memoire by governor Mark Capes and the Department for International Development, agreeing aid worth £24.4 million next year, with more to come. That’s on top of the £200m to fund the airport.

Mr James says: ‘To get an increase in support of this magnitude from the UK government, at a time when its own budget is being slashed and the future of its economy is so grim, is phenomenal.

‘But let’s avoid patting ourselves on the back too hard. The generous settlement is more a result of DfID’s willingness to support the island.

‘It is less a result of them being overwhelmed by St Helena’s enthusiasm to implement the changes needed to make the airport a success.’

In recent weeks there has been strong criticism of plans to restrict building on some parts of the island, at the same time as offering attractive sites to outside investors to build tourist developments.

Mr James acknowledges that great efforts were made to meet the demands set out in the Memorandum of Understanding that paved the way for the signing of the airport contract.

But he says: ‘St Helena has to be steadfast and continue to show it will contribute to its future prosperity, rather than presuming it can rely on greater amounts of overseas aid.

‘This will involve making some difficult decisions in order to radically alter the structure of the economy.

‘St Helena has been handed a golden opportunity to improve its future, but without a change in mindset – in both SHG and the private sector – we will fail to take advantage of it.’

The message, he says, is clear: ‘We either use it and use it well, or lose it.

‘With UK ministers and senior officials under extreme pressure to cut costs, DfID will be facing greater and greater pressure to ensure St Helena not only fully uses the money offered to it, but does so wisely. It’s in our hands.’

His comments echo comments in SHG’s draft Sustainable Development Plan about the scale of change needed in the economy – and the island’s culture. Without wholesale transformation, on a scale few other places have experienced outside of wartime, there is a danger that St Helena will not be ready to take advantage of the potential for tourism.

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