Tonga's main exports are pumpkins, vanilla, tuna, copra, handicrafts, kava, and taro. Although it had a favorable trade balance prior to 1960, Tonga now imports seven times as much as it exports, with food imports alone exceeding all exports.Australia and New Zealand profit most from the trade imbalance, selling food, machinery, manufactured goods, and fuels to Tonga.
Japan, Australia, the European Union, New Zealand, the United Nations Development Program, and the Utah-based Church of Latter-day Saints are Tonga's largest aid donors, and total aid compensates for a third of the trade deficit.
Fifty-five percent of the budget is currently spent on salaries for the bloated civil service. Foreign investment in Tonga is low due to the numerous demands from local entities for a cut of the action. The royal family has used its political clout to assemble extensive business interests with competitors often abruptly shut out.
In 1980, the government created a Small Industries Center (SIC) in the eastern section of Nuku'alofa for companies producing consumer goods for export to Australia and New Zealand under the regional free-trade agreement, SPARTECA, which was designed to correct the imbalance. In recent years, the value of SPARTECA had declined due to "globalization," and Tongan exports of knitwear, leather jackets, and footballs have been pushed off Australasian markets by competitors in Asia. Today, companies in the SIC produce mostly for the local market.
Traditional agricultural exports to New Zealand such as bananas have been wiped out by transnational producers and strict quarantine requirements. The replanting of Tonga's aging coconut plantations has been inadequate and copra exports have dwindled to almost nothing in recent years. Commercial fishing is on the increase, with longline vessels supplying tuna to the Pago Pago canneries. High quality fish such as red snapper is chilled and air freighted to restaurants in Honolulu and Tokyo. Fish now account for a quarter of Tonga's exports. A large fleet of Chinese fishing boats is based at Nuku'alofa.
Tonga is very much a part of the third world. The tens of millions of dollars a year remitted by Tongans living abroad, the country's largest single source of income, is crucial to maintaining the balance of payments, covering over half of Tonga's import bill. In coming years, these amounts could decline as emigrants lose touch with relatives and friends back home. Meanwhile, rural areas are neglected as government facilities and light industry are concentrated in Nuku'alofa. A quarter of all Tongans now live in the capital, and hundreds more commute daily from outlying villages. Shantytowns have sprung up in the suburbs of Nuku'alofa, and there's a growing gap between the haves and have-nots. Taxation has shifted from rich to poor as income tax and company taxes are replaced by consumption taxes. Import tariffs were slashed after Tonga joined the World Trade Organization in late 2005 and the five percent sales tax was replaced by a 15 percent consumption tax.
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