REPORT ON THE SOCIO-ECONOMIC SITUATION OF THE FALKLANDS

Reproduced from The Teaberry Express, Issue 4, No. 2 20/8 to 3/9/97

(A Report for Calling the Falklands by D. Palmer 12/08/97)

John Hawksworth of Coopers and Lybrand got back to London at the end of last week after presenting the draft report of the Socio-Economic Study to the Falkland Islands Government. He now has the job of writing the final report, which should be completed next week. Earlier today Mr. Hawksworth came into the calling the Falklands Studio and I asked him how he sees the current social and economic structure of the islands.

JH The current situation is actually quite favourable. The islands have seen a reasonable level of income compared, say, to the U.K. They've got virtually full employment, they've got a large government surplus, a large amount in government reserves, they've got a strong current account surplus compared to the U.K. which regularly has a deficit so, those actually look pretty good. There has been a small increase in population but nothing unsustainable. There are some problems on the housing side in terms of shortages but, again, I think that can be dealt with through proper so, the current situation looks pretty good and there are plenty of opportunities to build on that.

DP Do you feel you've got enough information to do a rigorous and accurate report?

JH Well, obviously in a small place like the Falklands, you are not going to be able to collect the same amount of economic statistics as happens in the U.K. where you've got teams of hundreds of statisticians. In the Falklands I think there is one (he's wrong here) so there are obviously limitations on that. I think there's enough to do a report which identifies the key trends but not, perhaps to do the kind of detailed quantitative analysis that one would be able to do in the U.K. or another larger economy.

DP Now, supposing the prospecting for oil is successful and an oil industry does develop. How do you see the future of the islands then?

JH Obviously it depends. I think that clearly offers opportunities. Clearly it would depend on the scale of the find. How much of the money the islands retain as opposed to passing it back to the U.K. government. It would also depend on how the government chose to invest the money. Clearly one possibility would be to invest it in financial assets for the future generations and another possibility would try to help new businesses start up on the Falklands. That I think would be worthwhile. Another possibility would be to invest more in social infrastructure, roads and so forth, a new port, hospitals, school and so on. Particularly, as oil would attract more people to the Falklands, and would create the kind of wealth to sustain a large number of people.

DP But, what if there is no oil or oil that is worth exploiting commercially? What is the future there?

JH That's the most likely scenario. Most experts seem to think that oil is pretty unlikely at the moment. Obviously no one knows for sure but it is perhaps in the order of 1:5 at most so the main scenario is that oil isn't there. I think one needs to take a prudent approach because, you never know what will happen to the fish licence revenue. It could stay where it is or it could decline over time. So, I think the government needs to take a prudent approach to it's investment expenditure. There is certainly no reason to feel that there is going to be a financial crisis. The government's in a strong position at the moment. One wouldn't want to invest too much money at this stage, say in infrastructure development on the islands given the costs that would imply in terms of maintenance operations. One would want to take a prudent approach to investment.

DP There has already been some private investment. People who seem to be actually pinning their hopes on oil being there. Do you think perhaps those sorts of development in the private sector are happening a bit too quickly

JH I don't think it's for us to try and second guess the private sector. I leave it to the private sector to make its own decisions in that respect. I think they will be aware of the risks and they will take their decisions accordingly.

DP So bearing in mind the variables. In the oil industry, we have talked about the fishing industry having its ups and downs. How can the islands best prepare for the future?

JH In the short term, when one doesn't know what the oil situation is, one has to be quite prudent. There's room, certainly, to maintain current levels for investment in infrastructure and supporting businesses but one does not want to go ahead too fast with that. Remain prudent for the moment and do some studies to actually plan for the contingency of oil so you are well prepared and you are not rushing your decisions. That would include things like the deep water port which may be needed in five year’s time. Also it would mean further expansion of the road network made possible with the oil money. it would include things like a cross-sound ferry which might be an option if you have more resources and it would include the housing and the knock-on effects for the hospital or education services. So, prudent approach with careful forward planning will do.