Economy of Samoa

The economy of Samoa is dependent on agricultural exports, development aid and private financing from overseas. The country is vulnerable to devastating storms, earthquakes, tsunamis. Agriculture employs two-thirds of the labor force, and furnishes 9% of exports, featuring coconut cream, coconut oil and copra. Outside a large automotive wire harness factory, the manufacturing sector mainly processes agricultural products. Tourism is an expanding sector more than 70,000 tourists visited the islands in 1996 and 120,000 in 2014. The Samoan Government has called for deregulation of the financial sector, encouragement of investment, and continued fiscal discipline. Observers point to the flexibility of the labor market as a basic strength factor for future economic advances

Top Sectors in Samoa

Industry in Samoa

Industry accounted for over one-quarter of GDP while employing less than 6% of the workforce. The largest industrial venture was Yazaki Samoa, a Japanese owned company processing automotive wire harnesses for export to Australia under a concessional market-access arrangement. The Yazaki plant employed more than 2,000 workers and made up over 20% of the manufacturing sector's total output. Net receipts amounted to between $1.5 million and $3.03 million annually, although shipments from Yazaki were counted as services and therefore did not officially appear as merchandise exports. Yazaki Samoa closed down in 2017, but in the same year Fero, a New Zealand manufacturer producing wiring units, set up in Samoa in the same plant used by Yazaki.

Tourism in Samoa

Samoa welcomed over 85,000 visitors, contributing over $12 million to the local economy. A significant portion, one-third, arrived from American Samoa, followed by 28% from New Zealand, and 11% from the United States. Tourism saw a notable increase in 2000, with travelers to the South Pacific opting for Samoa over Fiji due to political unrest. Over the decade spanning from 2007 to 2016, both tourism numbers and revenue more than doubled. Samoa hosted 122,000 visitors in 2007, escalating to 145,176 visitors in 2016. New Zealand accounted for approximately 46% of visitors, followed by Australia at 20%, and the United States at 7%. Samoans residing abroad represented roughly 33% of all tourist arrivals. Responding to the COVID-19 pandemic in 2020, Samoa implemented a ban on all international flights, both inbound and outbound. The service sector, which includes tourism, contributes to over half of GDP and employs approximately 30% of the labor force.

Services in Samoa

The service sector stands as a dominant force in Samoa's economy, contributing more than half of GDP and employing approximately 30% of the labor force. This sector encompasses a wide range of activities, including tourism, finance, telecommunications, and public administration. Tourism, in particular, plays a pivotal role within the service sector, driving economic growth and providing employment opportunities. Additionally, the finance industry, comprising banking, insurance, and offshore services, contributes significantly to Samoa's service-driven economy. With ongoing efforts to enhance service quality and diversify offerings, the service sector remains a key driver of Samoa's economic development and resilience.

Agriculture in Samoa

Agriculture holds historical significance in Samoa's economy, although its contribution to GDP and employment has declined over the years. Traditional agricultural activities include the cultivation of crops such as taro, yams, bananas, and coconuts, along with livestock farming. Despite facing challenges such as limited arable land, natural disasters, and competition from imported goods, agriculture continues to play a vital role in supporting rural livelihoods and food security. Efforts to promote sustainable agriculture practices, improve productivity, and explore value-added opportunities contribute to the sector's resilience and long-term viability in Samoa's economy.

Infrastructure Development in Samoa

Infrastructure development is a critical component of Samoa's economic growth strategy, aimed at enhancing connectivity, facilitating trade, and supporting sustainable development. Investments in infrastructure include the construction and maintenance of roads, ports, airports, telecommunications networks, and energy systems. These projects not only improve access to markets and essential services but also create employment opportunities and stimulate economic activity. With ongoing infrastructure projects and initiatives, Samoa seeks to strengthen its economic resilience and create a conducive environment for investment and growth.

Samoa - Key Economic Indicators

Exports and Imports

Samoa's trade data reflects its status as a small island developing state with limited export capacity and a reliance on imports to meet domestic demand. Exports primarily consist of agricultural products such as coconut products, fish, and nonu juice, while imports include machinery, vehicles, food products, and petroleum. In recent years, total exports have been valued at approximately $300 million annually, while imports have exceeded $600 million, resulting in a trade deficit. Efforts to diversify exports and enhance trade competitiveness are essential for improving Samoa's trade balance and promoting economic sustainability.

Infrastructure

Samoa's infrastructure development plays a vital role in supporting economic growth and improving living standards for its population. Investments in roads, bridges, ports, and airports are crucial for enhancing connectivity within the country and facilitating trade and transportation. The government has prioritized infrastructure projects to address deficiencies and promote sustainable development. However, challenges such as limited resources and vulnerability to natural disasters remain, underscoring the need for continued investment and resilience-building efforts.

Balance of Trade

Samoa experiences a trade deficit, with imports significantly exceeding exports. While exports contribute to foreign exchange earnings, they are limited primarily to agricultural products and face challenges such as market access and competition. Imports, on the other hand, encompass a wide range of goods to meet domestic demand, including machinery, vehicles, and consumer goods. Efforts to enhance export competitiveness, diversify export markets, and promote value-added industries are crucial for addressing the trade imbalance and fostering sustainable economic growth.

Fiscal Policy

Samoa's fiscal policy encompasses government spending and taxation aimed at promoting economic stability and development. Government spending is directed towards priority areas such as healthcare, education, infrastructure, and social welfare programs. Taxation policies include a Value Added Tax at a standard rate of 15%, along with income taxes and corporate taxes. Fiscal deficits are managed through prudent fiscal management and borrowing strategies to sustain public services and investment in key sectors.

Monetary Policy

Monetary policy in Samoa is formulated and implemented by the Central Bank of Samoa. The central bank's actions focus on maintaining price stability, promoting economic growth, and ensuring financial stability within the country. Key measures include setting interest rates, managing foreign exchange reserves, and regulating the financial sector. The Samoan Tala is the national currency, and the central bank plays a crucial role in managing its value and liquidity in the economy.

Trade Agreements

Samoa is a member of various regional and international trade agreements that shape its trade policies and economic relations. As a member of the Pacific Islands Forum (PIF) and the Pacific Agreement on Closer Economic Relations (PACER) Plus, Samoa benefits from preferential trade arrangements within the Pacific region. Additionally, Samoa has bilateral trade agreements with countries such as Australia, New Zealand, and China, which facilitate trade and cooperation. While not a party to NAFTA, Samoa's trade policies are influenced by its membership in regional blocs and international trade norms.

Environmental Regulations

Samoa has implemented environmental regulations aimed at preserving its natural resources and protecting the environment. These regulations encompass measures to mitigate pollution, conserve biodiversity, and promote sustainable development practices. Efforts are underway to address environmental challenges such as climate change, coastal erosion, and waste management. The government is committed to meeting international environmental standards and promoting green initiatives to safeguard Samoa's ecological heritage for future generations.

Tax System in Samoa

Capital Gains Tax: Samoa does not currently impose a capital gains tax on profits derived from investments. This absence of a capital gains tax provides an incentive for investment and encourages capital formation within the economy.
Corporate Tax Rate: The corporate tax rate in Samoa is 27%, applicable to the profits earned by companies operating within the country. This tax is imposed on both domestic and foreign companies, with various incentives available to promote investment and economic development.
Sales Tax: Samoa imposes a Value Added Tax (VAT) on goods and services at a standard rate of 15%. VAT is levied on the value added at each stage of production and distribution, ultimately borne by the end consumer. Certain goods and services may be exempt or subject to reduced rates.
Property Tax: Property tax in Samoa is assessed on the value of real estate properties, including land and buildings. The tax rate varies depending on the property's classification and usage. Residential properties are subject to an annual tax rate ranging from 0.25% to 0.5% of the property's assessed value, while commercial properties may have higher rates.
Payroll Tax: Samoa does not have a specific payroll tax. However, contributions are made to the National Provident Fund (NPF) by both employers and employees. These contributions fund social security benefits such as pensions, disability, and survivor benefits. The contribution rates are 7% of gross wages for employees and 7% for employers, totaling 14% of gross wages.
Tax Deductions and Credits: Samoa offers various tax deductions and credits to reduce tax liability and incentivize certain activities. These may include deductions for mortgage interest, charitable contributions, and educational expenses. Additionally, tax credits may be available for investment in certain sectors or regions, as well as for promoting employment and training initiatives.
Tax Compliance: Tax compliance in Samoa is overseen by the Ministry of Revenue, which is responsible for administering and enforcing tax laws. The government has implemented measures to improve tax compliance, including taxpayer education programs, electronic filing systems, and enforcement actions against tax evasion. Efforts are ongoing to enhance the efficiency and effectiveness of tax collection processes.
Tax Burden: The overall tax burden in Samoa is relatively moderate compared to other countries, with the combination of corporate taxes, VAT, property taxes, and social security contributions contributing to the overall tax burden borne by individuals and businesses. Efforts to maintain a balance between revenue generation and economic competitiveness are essential to ensure sustainable fiscal policies and promote long-term growth.

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National Finance Consultant

Samoa

17 Dec 2024

01 Jan 2025