REPORT ON ASCENSION ISLAND
FISCAL AND ECONOMIC SURVEY

• FOREWORD
  
• EXECUTIVE SUMMARY
  
• SUMMARY OF RECOMMENDATIONS

UNIVERSITY OF PORTSMOUTH
MARCH 2000

(COMMISSIONED BY THE OVERSEAS TERRITORIES DEPARTMENT OF THE FOREIGN AND COMMONWEALTH OFFICE)

If you would like to make any comments on the Report, please email these to ao.otd.fco@gtnet.gov.uk

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FOREWORD

This Report on Ascension Island was commissioned by the Overseas Territories Department of the Foreign and Commonwealth Office in September 1999. The Report comprises of three sections. Section one, called a fiscal survey, addresses the issue of how to finance the provision of public services on the island. Section two – an economic survey – is largely descriptive and provides an introduction to Ascension’s geography, population, political-economic environment, constitutional and legal arrangements, and the current public service provision and principal physical infrastructure. In the final section we apply a strengths, weaknesses, opportunities and threats analysis to the island, and use this as the basis for an examination of the longer-term development options for Ascension Island.

This consultancy project has been predicated upon participation throughout the process of its preparation. The project team visited Ascension Island in November 1999 for a comprehensive programme of meetings; interviews; statistical data collection; social and economic mapping; and archive research. In February 2000 team members visited Saint Helena for two weeks for an extensive consultation programme with the Saint Helenian Government, the Legislative and Executive Councils, and with a wide range of islanders. We anticipate that a second round of consultation may take place after the publication of this report to enable the interested parties to respond to the report. For this reason the report should be regarded as a work-in-progress rather than a signed, sealed and delivered fait accompli.

It is our hope that this Report will provide a basis for taking important decisions about the future role and development of Ascension Island. We are grateful to the many people both in the South Atlantic and in the United Kingdom who willingly gave up their time to meet the project team to discuss Ascension Island. We hope that they will also be prepared to give up their time for the second round of consultation and dissemination. We are also particularly grateful to Ben Cattermoul and Nikola Farmer for the enthusiastic support that they provided for our research. The contents of this Report and any shortcomings are, of course, our responsibility.

JOHN CHRISTENSEN
DR MARK HAMPTON
DR STEPHEN ROYLE

27th March 2000

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EXECUTIVE SUMMARY

This Report was commissioned by the Overseas Territories Department of the Foreign and Commonwealth Office to examine the provision of the financing of public services on Ascension Island; and the island’s longer-term economic development options. The consultancy project was predicated upon participation throughout the process of its preparation.

Financing public services

The island’s ‘common services’, elsewhere called public services, but including shops and clubs, are provided by a hybrid joint venture – Ascension Island Services (AIS) - directed by a London board of the island’s Users. Funding for these services comes from the Users via an employment levy. This situation functioned for many years but change has come from several directions. The main employers are no longer para-statals but profit-motivated private companies with fixed price contracts in competitive global markets. Changed geo-political priorities and new technologies reduce the strategic importance of Ascension Island’s location. And rising salaries and falling employment levels have significantly increased the cost of the capita levy.

The London board has signalled its intention to disband the joint venture on 31st March 2001. In divesting itself of its responsibilities for providing common services, the London Board leaves a vacuum. A way must therefore be identified of either reviving the current funding arrangement or of replacing it with a more conventional system for financing public services. Whichever route is chosen will determine the future of Ascension Island.

Two principal models for funding service delivery emerged from the on-island consultations: the modified status quo option and the public finance option.

The modified status quo option involves control over budgetary affairs being passed from the London board to a local council. This council could be chaired by the Administrator acting on behalf of, and accountable to, the Governor of Saint Helena. The council could be empowered to set a budget for public service provision and to determine appropriate funding mechanisms. This model emphasises the delivery of public services at lowest cost. The majority of services would be contracted out and contractors would be allowed to operate single-status employment contracts. The funding arrangements would be derived from those currently used, ie service contracts, the Ministry of Defence contribution, and the employment levy.

The underlying assumption of the modified status quo model is that (notwithstanding the extension of democratic rights and right of abode) the island’s principal activities would be defence related. In our opinion, the continuance of the employment levy, albeit in extended form, as the basis for revenue raising would act as an insurmountable barrier to investment in employment creation, and the inevitable pressures on the funding of public service provision would lead to further population decline and social decay.

The public finance option involves the passing of responsibility for provision of common services to a local authority administered on behalf of the Governor of Saint Helena by the Office of the Administrator. This local authority could be constituted as a committee or council, with democratic representation and perhaps the potential to co-opt members from local Users. The committee or council would have tax-raising powers. The funding arrangements would consist of various fiscal measures designed to engage all of the island’s civilian and military users in the funding of public services. A small civil service would provide executive support, and the bulk of service provision would be contracted out within a regulatory framework to ensure the island’s longer-term interests.

The modified status quo option would involve considerable cost-cutting and labour shedding. The island’s population would be reduced and the population imbalance would become even more pronounced. The last semblance of community life would disappear and the island would become a single-person’s work-camp. This option closes off the potential for attracting the private sector investment that is needed to secure employment opportunities for the Saint community on Ascension Island. In doing so it would also remove the stepping-stone for investment into Saint Helena itself.

However, the consultation programme revealed that the large majority of those who supported economic and political liberalisation preferred the public finance option. This needs to be qualified by noting that this option was regarded as preferable only if offered with a liberalisation package including property rights, right of abode, opportunities for self-employment and investment in new business, and the opening of Wideawake Airfield to civil air traffic. There were strong feelings that the introduction of a tax based system of public services funding should be applied as equitably as possible across the island’s entire population. Without this package of measures the long-term prospects for Ascension as anything other than a military base are widely – and correctly - perceived as risky.

The switch to a public finance option will require a relatively prolonged transitional programme. The constitutional arrangements need to be agreed and tax-raising powers will be required before it will be possible to put this option into action. Ideally the current arrangements would be retained for a brief period in order to allow time for the new structures and laws to be put into place.

Discussions with the Saint Helenian Government suggested opportunities for sharing management and administrative facilities in several areas, eg health, education, tax administration and audit. There is a particular need for the islands to co-operate in areas such as pension provision and health insurance. The funding relationship between the Department for International Development and Saint Helena makes it undesirable to consolidate the latter’s accounts with those for Ascension Island. Accounts for Ascension would need to be entirely separate, and any transactions between Saint Helena and Ascension, eg staff secondments, should be on a full cost-recovery basis.

The immediate task must be to secure funding for the continuance of common services beyond 31st March 2001. Given the tight timing it might be necessary to prolong the use of the employment levy for one or two further years in order to avoid the risk of the administration incurring unwarranted expenditure as a result of formally agreed budgets.

The hand-over of functions from AIS to a public sector body will require the resolution of issues of asset ownership and liabilities. AIS has accumulated a large amount of property – houses, school buildings, a hospital, workshops, historic buildings etc– and other physical assets. An inventory of AIS assets was prepared in 1997, but the assets have not been valued and it is possible that a balance sheet would show a net liability arising from, among other things, health and safety risks such as asbestos contamination. It is important that this position is clarified at the earliest opportunity.

An immediate task must be to check asset existence, establish ownership, and clarify whether liabilities arise. The process will be time consuming and expensive and is likely to involve a range of experts, including surveyors and solicitors. At some later stage, an opportunity might arise to sell-off some assets to raise funds for capital expenditure.

• We recommend that the assets of AIS be valued and issues of liability and ownership clarified.

Clarification of property rights is also a priority. The majority, if not all, of the workforce on island occupies accommodation provided by their employers (the Users). The right to occupy is vested with the latter. It is assumed that once residence rights have been granted, the right to occupy will be ceded to the employee living in the property at the time. The creation of property rights would kick-start the formation of a housing market and the accumulation of privately owned wealth on the island. This will encourage investment in housing improvement, extension and renewal. Construction activity could be an important stimulus to employment and growth. In the long-term Saints planning to retire to Saint Helena would own an asset that could be sold in a housing market to yield a tax-free lump sum.

Fiscal policy will play an important role in shaping the island’s future economy. If the island is to remain a military base and communications centre there is little point in adopting relatively sophisticated fiscal measures. If, on the other hand, the island moves towards social and economic liberalisation, the need arises for a tax regime that enables the delivery of public services whilst also providing incentives for saving, investment, and environmental protection. The decision on which direction the island takes will therefore determine the nature of the fiscal regime.

In normal circumstances fiscal policy should be introduced gradually with widespread consultation. However, a gradualist approach might not be possible in the current circumstances. The urgent need to introduce an alternative means of determining a budget for AIS coincides with a need to open the island to private sector investment. As a result the island is likely to undergo a quick transition from a no-tax status to having a fiscal regime based upon a selection of taxes, duties and charges. The urgency of the situation makes it fundamental that everyone involved - employers, employees, consumers, government agencies and private sector – ‘buys-into’ each stage of the transitional process.

The introduction of a broadly based tax regime will redistribute the cost of providing public services sharing these costs across a far wider base. If a broadly based tax regime is created the tax costs to individuals will be kept relatively low and the tax disincentives to employment on Ascension will be minimised. Potential fiscal measures fall into three categories – direct taxes; indirect taxes; licence fees and public sector charges.

Income tax is generally considered equitable since most tax regimes allow for progressive increases in tax rates as incomes rise. Income tax is a cost-efficient tax, especially when pay as you earn systems are used to collect tax from employees. For reasons of equity and administrative simplicity the existing Saint Helenian tax legislation could be introduced to Ascension. Initially, similar rates and allowances could be applied, but it might be advisable to modify allowances to provide greater incentives for long-term savings provision, particularly in the form of personal pensions which is a cause for concern as the majority of Saints do not appear to save into pension programmes. The introduction of income tax is recommended on the grounds of equity, acceptability, and the high yield to cost of collection ratio.

There is no provision for a customs and excise regime on the island, and the introduction of customs duties on hydrocarbon fuels, tobacco and alcohol products would raise considerable revenues with a relatively minor administrative effort. On the basis of the import information for 1998, we estimate a potential duty revenue of around £1.8 million annually. The cost of raising this duty might be as low as one full-time equivalent post. If customs duties were introduced only on limited products it might be possible for the island’s police force to be trained in customs inspection and enforcement of duty collection. Alternatively, the entire operation could be contracted out to port handling agents.

There is a strong case for introducing customs duties without exemptions on all tobacco, alcohol and hydrocarbon products, and the proposed duty levels are low by European standards. The introduction of duties would yield considerable revenues at very low cost. Import duties on this narrow range of products would have a high yield to cost of collection ratio, and would be generally acceptable on grounds of equity, social cohesion and environmental good practice.

An environment charge is proposed as a means of raising revenues that would be hypothecated solely towards the provision of environmental services. The charge would apply to all property, ie domestic and other, including property occupied by public service organisations and the operators of ‘black box’ facilities. This charge would broaden the revenue base on an equitable basis, and to make full and sustainable provision for environmental maintenance, repair and improvement. An extensive range of environmental services could be funded from this charge including waste management and foul water treatment; street lighting; general maintenance of public spaces; removal and disposal of environmental hazards, including asbestos; maintenance of heritage sites; provision of environmental health services; and the implementation of the Ascension Island Management Plan. The principle of the environment charge is that all those with a stake in the island should be financially involved in the stewardship of its physical environment.

The basis for assessment of property for the environment charge would be similar in principle to the council charge levied by United Kingdom local authorities. All domestic properties would be assigned to a band based upon property type and size. On grounds of equity it would be preferable to use value as the basis for assessment. In the case of other users, eg commercial organisations and military bases, the charge would be levied against area occupied, but allowance will need to be made for offsetting costs.

• We recommend the introduction of income tax; customs and excise duties; and an environmental charge and stamp duties.

Economic Development Options

A strengths, weaknesses, opportunities and threats (SWOT) analysis identified the potential sectors for economic development and the principal barriers to investment. The barriers to investment are considerable. The island is remote. It has virtually no mineral resources and is environmentally sub-marginal. Although located in the southern tropics the island does not conform to stereotypical images of a tropical paradise. It has little lush vegetation and few beaches that are safe for bathing. Until recently the island has been closed for security purposes, and this effectively remains the case.

In addition to these physical barriers to investment there are some substantial institutional barriers. The island lacks the constitutional and legal infrastructure of a modern political economy. There are no democratic rights; no property rights; no rights of abode on the island. The island has never had a permanently settled population, and labour on-island is subject to short-term contract. The island has no capital market in any form, not even a credit union. With the exception of the existing Users and their sub-contractors, the island has no enterprise culture, and until recently private enterprise was restricted by official ordinance. There is no commercial law or facility for company registration; no training centres or business development agencies; no trade associations or unions, let alone a chamber of commerce. There are no planning regulations, nor a planning framework within which developers could operate. In other words the institutional basis of a modern civic society is largely absent. These institutions are not vital to economic development, but their absence constrains the type of development that can take place.

If the private sector is to take a lead in developing the island’s economy it will require some form of institutional framework within which to operate. At the very least there would need to be clarification of whether access to Wideawake airfield is to be permitted or denied, and on what terms.

The null hypothesis is: what is likely to happen if nothing is done to open the island up to new development options? The most likely outcome would be a rapid withering on the vine of existing employment opportunities in the civilian sector. The island’s usefulness as a telecommunications centre will almost undoubtedly diminish as a result of technological change, and the existing barriers to new investment are sufficient to effectively close the island to a private sector led recovery. As a result the island would revert to being a platform for the activities of the armed forces and their civilian contractors.

Another alternative might involve closing all the facilities on the island and allowing a controlled reversion to nature. The island’s ecology is unique, fragile and threatened. The suggestion therefore warrants serious consideration.

Notwithstanding all of the above, there are potential investors who see opportunities for developing tourism and commercial fishing on the island. These opportunities have not been subjected to investment appraisal and none of the interested organisations have prepared an investment proposal. And this is likely to remain the case until decisions have been taken by the United Kingdom Government on whether or not Ascension can be opened up to inwards investment. This is clearly the big issue. But opening the island to private sector led economic development will require considerable effort by the United Kingdom Government.

The first step would involve the creation of the appropriate physical and institutional infrastructure within which investment can happen. This would undoubtedly involve opening Wideawake airfield to civil traffic. It would also require property rights, a trained and flexible workforce, a legal framework for incorporation of business entities, and properly funded public services. Clarification of the respective attitudes of the Ministry of Defence and the United States Defense Department is also fundamental for private investment. If the island’s current uses are incompatible with (say) tourism, it would be best to know this sooner rather than later.

Ascension Island has a tourism potential offering interesting scenery, a variety of activities including golf, diving, sports fishing, turtle and bird-watching, astronomy, and vulcanology and its unique maritime and military heritage are also attractions. Suitably packaged, and with first class resort facilities, including possibly a casino, the island would appear to have sufficient potential to attract an up-market clientele. This potential would be further enhanced if it were possible to link Ascension to Saint Helena as a twin-centre holiday.

Ascension’s potential as a niche market destination is unlikely to be realised unless a complete marketing package is prepared. Such a package would not only involve the design of a prestigious resort facility, but also its promotion and the operation of regular charter flights. There are a number of resort operators with experience of developing small island destinations. We suggest that a prospectus of the island’s facilities be prepared and a selection of developers invited to submit proposals. If a tourism potential exists for Ascension Island, this would seem to be the most effective way of market testing.

• We recommend that a prospectus of Ascension’s facilities be drawn up and developers invited to submit their proposals for a first class resort.

Ascension Island lies on the migratory route of several pelagic species of fish. The island’s waters are already fished extensively, and at least one commercial fishing business has expressed an interest in using the island as a base for fish processing. However, quantitative and qualitative data needs collecting and a thorough stock assessment performed. Both the local and the offshore fisheries require monitoring, data collection and research. Enforcement in Ascension Island waters of unlicensed boats and of licensed boats is urgently needed if the island is to benefit from any future fisheries development. Unlicensed boats should be deterred from Ascension’s waters by the use of observers and satellite monitoring. Skippers of licensed fishing vessels should be required to keep a log of catch details and further conditions attached to the issuing of licenses.

Monitoring of local resident fisheries is required because there is a potential to overexploit these limited resources. Data from the local tuna fisheries are important to monitor trends, species compositions and earnings. The monitoring of offshore catches is essential to assess trends in fishing patterns and catch rates, the latter being required to assess appropriate levels of licensing and licence fees.

• We recommend that a full stock assessment is carried out of Ascension’s territorial waters. Enforcement and monitoring of present fishing activity is also urgently required.

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SUMMARY OF RECOMMENDATIONS

A. The Big Issues

We recommend that:

1. given the urgency of the present situation that the United Kingdom Government comes to a decision in 2000 whether Ascension’s military and communications roles are compatible with civilian activities such as tourism.

2. the United Kingdom Government forms a view on whether the island will be allowed to wither on the vine or whether it will facilitate a transition to private sector led economic development.

3. the situation regarding the opening of Wideawake airfield to civilian air traffic be clarified with the American authorities as soon as possible.

B. Financing public services

We recommend that:

4. given the urgency that current funding arrangements - ie the employment levy - be extended for one or two more years from 31st March 2001 to allow the transitional arrangements to be agreed by Government and the Users and then put in place.

5. of the two options for reforming the funding of public service provision the modified status quo option is likely to:

• be an insurmountable barrier to investment in employment creation
• involve cost-cutting and the shedding of labour
• lead to further population decline and social decay
• result in Ascension becoming a ‘single person’s work camp’
• remove Ascension as stepping stone for investment into Saint Helena.

6. the public finance option be pursued for funding service delivery on Ascension Island. However it would need to be introduced as part of a package of liberalisation that includes:

• property rights
• the right of abode
• opportunities for self-employment and investment in new businesses
• the opening of Wideawake to civilian air traffic

7. the Government take a view as soon as possible on the composition and shape of the new administrative structure for the transitional arrangements. The two main options for the new structure are:

• either AIS becomes the core of a small civil service (the local authority model)
• or AIS becomes a service provider for the new administrative structure.

8. prior to any hand-over of AIS assets to a public body that those assets be valued and issues of liability and ownership clarified.

9. property rights be clarified as a matter of priority, especially concerning residential accommodation.

10. a fiscal regime be introduced to fund public services that is sustainable, equitable and economically efficient with a high yield to cost of collection ratio.

11. the fiscal regime comprises income tax; customs and excise duties on all alcoholic beverages, tobacco products and fuels; an environmental charge; and stamp duties.

12. the proposed fiscal regime be applied to all individuals and organisations on the island without exception.

13. for administrative simplicity, income tax levels be initially set with similar rates and allowances to those on Saint Helena and would be administered through a pay-as-you-earn (PAYE) scheme.

14. pension provision be given tax relief to encourage longer-term personal savings of (say) up to 15 per cent of income.

15. customs and excise duties be levied on all alcohol, tobacco and hydrocarbon products without exemptions. Military sub-contractors would not be exempted. The small number of actual military personnel on-island would be able to continue their duty-free privileges by claiming refunds against actual consumption.

16. the environmental protection of Ascension should be funded by a hypothecated charge - an environmental charge – so that all those with a stake in the island should be financially involved in the stewardship of its physical environment.

17. the environmental charge be based upon the assessment of property (similar in principal to the existing local authority council charge in the United Kingdom).

18. ‘black box’ installations would also be liable for the environmental charge as a contribution to the island’s environment.

19. stamp duty be introduced on the registration of documents concerning property deeds.

20. to save administrative time driving licences should not be issued annually, rather that they be issued for a longer period and a £25 fee charged.

21. annual fees for cars and lorries are presently low and could be increased. Differential fees for motor vehicles be introduced to encourage the use of small cars and motorcycles to generally encourage less environmentally damaging vehicles.

22. that sundry other fees could be introduced in time following the ‘user pays’ principle such as fees relating to the approval of building applications or annual company registration fees.

23. concerning the American contribution that the United Kingdom Government consider:

• either moving to renegotiate certain sections of the current Bahamas Agreement;
• or insisting upon full implementation of the current Bahamas Agreement particularly the requirement for ‘zero economic impact’ of the American Base upon Ascension Island’s economy.

C. Economic Development Options

We recommend that:

24. certain activities can be eliminated as being impractical, commercially non-viable or highly unlikely to succeed on Ascension. These consist of offshore financial services, data-warehousing, telephone call centres, Internet gaming, minerals exploitation and niche agricultural and horticultural products.

25. investors interested in developing a cargo handling hub for the South Atlantic be encouraged to submit a full business plan of their proposal.

26. a prospectus of Ascension’s facilities be drawn up by tourism consultants and developers invited to submit their proposals for a first class resort of 120-150 beds.

27. the developers demonstrate the economic and other benefits to the island of their proposals including the creation of employment opportunities for Saints; the creation of downstream activities in retail distribution, market gardening, sports and leisure facilities etc; and the potential long-term revenue yield.

28. the developers should also demonstrate a commitment to environmental enhancement through careful resort design, the use of local building materials (where practicable); and landscaping.

29. given the unique environment of Ascension and the existence of important species such the Wideawake tern and the Green Turtle, that National Park or World Heritage Site status be secured for the whole island.

30. a full environmental impact assessment be carried out on any development proposal.

31. a health and safety assessment is carried out of the island to cover footpaths, cliff walks, the unknown radiation hazards from the aerial fields, unexploded ordinance, and blue asbestos in many buildings.

32. concerning fisheries, a full stock assessment of pelagic species is carried out of Ascension’s territorial waters.

33. a full resource evaluation programme be carried out of Ascension’s inshore waters.

34. the enforcement and monitoring of present fishing activity in both offshore and inshore waters is also urgently required. A feasibility study should be commissioned on the use of enforcement patrol craft.

35. the use of Saints as paid observers on fishing vessels in Ascension waters should be explored further.

36. to encourage an enterprise culture and any possibility of a private sector led development strategy, radical changes are needed to present labour laws that will encourage labour mobility, training and entrepreneurial activity.

37. the post of Business Adviser to Ascension be established as there is a need for such advice.

Notes for Editors

 

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