| Plantations
In The South Pacific-Vanish To Vanuatu-Page Two |
| Plantations
In The South Pacific
Right now
you may be asking yourself: "Fine. It's nice to know about this backwater,
but I'm subscribing to this newsletter for money-making ideas. What does
Vanuatu mean to me, besides the longshot of becoming a kava importer?"
Well, if you're looking for a steady diet of stock touts, International
Speculator will be slim pickings for the next few years (except in the
ultra-depressed resource sector). The stock market is tough any time, but
during what may prove the bear market of the century, not to mention the
Greater Depression, you don't want to be in stocks. That limits us to special
situations. But special situations always make for the most interesting
investments anyway. If you only know what everyone knows, then what you
know is hardly worth knowing. |
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The real intent
of this letter (other than to act as a running commentary on what I'm
doing and thinking) is to keep readers informed of things not one person
in 10,000 has even heard about. Property in the South Pacific falls into
that category.
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There are
perhaps three ways to look at property: As a productive asset, as a
speculative holding, or as a lifestyle proposition. I've spent a fair amount
of time and money flying around Vanuatu to get a grip on property, and
I think it's worth considering, possibly on all three bases. |
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| With the exception
of some developed property in Port Vila and Luganville (pop. 3,000), all
land in Vanuatu is held in what is known as "Kustom" ownership, which means
it is the property of the locals.
Since their
ownership is informal, as is typical of a pre-literate society, there's
not much in the way of written documents to determine exactly who owns
exactly what. So buying most land is extremely aggravation and time intensive.
And you can't really buy it anyway, you must lease it, generally on a 75-year
term, with payments adjusted every five years or so. This is a concept
that is somewhat foreign to most Americans, but we're using it more and
more today. Lease payments are typically a small fraction of a percent
annually of the price of purchasing the lease itself, and there are no
real estate taxes. I would prefer freehold, fee-simple ownership, but the
system works fairly and well, in practice. |
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Offshore
Resources Gallery
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| Vanuatu is
certainly one of the world’s more beautiful locations. James Michener used
it as the model for Bali Hai when he wrote Tales of the South Pacific while
he was stationed here during WW II. The French developed numerous copra
plantations on the islands over the 100 years up to independence in 1980,
and they're still the dominant factor in today's economy.
Copra, which
is dried coconut meat, is Vanuatu’s main export. When you get visions of
being a planter in the South Pacific, this is what you’ll be dealing with.
They use the stuff for soap, vegetable oil, and margarine. All over the
country you’ll find palm trees planted in neat rows to grow copra. Depending
on the species of palm, you get between 100 and 160 trees per hectare (approx
2.5 acres), and each tree yields from 50-100 nuts. It takes about 8 nuts
to yield a kilo of copra, so each hectare theoretically yields about two
tonnes, and a tonne goes for about US$55. But you've got to get the meat
out of the nut, and dry it. Those, in a nutshell, are the basics of the
copra business. But it’s hard work husking and shelling and drying coconuts,
and it requires cheap labor. One problem here is that labor tends to work
not on a schedule, but intermittently, when they need money for a new radio,
or shirt, perhaps. |
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| Copra is
a
romantic, but not especially profitable business at the moment.
Cattle is the
second largest business in the country, but not a very big one since there
are probably only 120,000 head in Vanuatu. Good sized copra plantations
usually run cattle as a sideline, since the critters are symbiotic to the
nurture of palms. The cattle business is notoriously marginal eveywhere,
but the fact is that Vanuatu is one of the best, if not the best, places
in the world for raising them. The climate is perfect—balmy, and
never too cold—year round, the volcanic soil supports highly nutritious
grass, and there aren't any pests, predators, or diseases. The beef is
truly tender and excellent, even though it's 100% grass fed. As you know,
almost all U.S. beef comes off feed lots, which are at once inhumane, unsanitary,
unsightly and ecologically problematical. Feed-lot beef is full of fat,
as well as artificial hormones and antibiotics and is not nearly as tasty
as the free-range product. |
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| Right now
production in Vanuatu is too small to be worth building a slaughterhouse
that would meet US/EC standards to export, but there's a future here, because
production costs are certainly, and by far, the lowest in the world. The
business doesn't expand, however, because the market is strictly local,
and local beef prices are also far below world levels.
A Little
Grass Shack, Etc....
Those are some
broad generalities. The specifics are what I think will really get your
attention.
For some years
I've coveted a ranch about 10km outside of Luganville. It's 20,000 acres,
with 14 miles of beachfront. It has several thousand acres in copra, plus
a coffee and a cocoa plantation. Two healthy rivers flow through it. There's
an excellent main house near the beach, numerous farm buildings, and enough
heavy equipment to start a serious earthmoving company. Plus 10,000 head
of prime beef cattle, which provide a gross (which isn't far from the net)
of about US$350,000 a year. I promise you, I've seen lots of property,
and this is a good piece of dirt. I spoke with its receiver, and US$3 million
should take it away.
Two questions
probably come to mind: Why haven't I bought it? And why is it in receivership?
It's in receivership because it was a partnership between an Australian
fellow (51%, as I recall), the Vanuatu government (about 20%),
and a European "development" agency of some description (about 30%)
that was convinced to invest millions in the place. The Australian died,
there was no effective management and the debt to the Europeans went into
default. Management, especially when there's lots of debt, is everything.
I'd like to
buy it, but a man's got to know his limitations. And managing an operation
like that from afar is intimidating. And the highest and best use of it
isn't as a plantation. I see it as a resort. You may know that a few friends
and I, along with my publisher, Agora, partnered up to buy a 1,700 acre
ranch on the west coast of Nicaragua a few years ago. Since then, we've
put in necessary infrastructure and a club house, and have been selling
lots on the ocean. We started at the bargain price of $17,500 and the best
ones are now going for over $70,000. That is what should be done with this
ranch.
My partners
in the Nicaragua deal (see
www.ranchosantana.com)
tell me that Vanuatu is too exotic and too far from the United States to
be successful, but I'm unconvinced. Certainly the return on capital would
be breathtaking if I'm right; the world is ready for a truly exclusive
development in the South Pacific. If you have a serious appetite for something
like this, send me an e-mail through my website - info@dougcasey.com
- and we can look at the possibilities. You can get to Vanuatu from Sydney,
Auckland, or Fiji; it's about two hours from any of them. And those cities
are an easy overnight flight from LA.
But there are
other excellent prospects. One French cattle rancher I spent a day with
owns a truly beautiful farm of 5,000 acres, with about 8 miles of coast
about 30 minutes drive from the capital. He offered to sell me all the
coastline, plus about 650 acres, for $600,000. And that piece might be
even more suitable for development. Most of the property in Vanuatu is
currently being sold to Frenchmen who are bailing out of Tahiti because
it's just too expensive.
There are plenty
of similar prospects, but you get the idea.
New Countries
And Tax Havens
One might think
these gentle isles are a threat to no one, but the U.S. government and
the OECD actually consider Vanuatu a rogue nation. In fact, a recent headline
in the Washington Post reads “The Threat from Vanuatu.” What threat might
that be? Well, they're not about to mount an assault on the West Coast
in dugout canoes or join an alliance with the Devil of the Month. Vanuatu
is on a newly coined list of 35 countries (to wit: Andorra, Anguilla,
Antigua and Barbuda, Aruba, Bahrain, Barbados, Belize, British Virgin Islands,
Cook Islands, Dominica, Gibraltar, Grenada, Guernsey, Sark, Alderney, Isle
of Man, Jersey, Liberia, Liechtenstein, Maldives, Marshall Islands, Monaco,
Montserrat, Nauru, Netherlands Antilles, Niue, Panama, Samoa, Seychelles,
St Lucia, St. Kitts and Nevis, St. Vincent and the Grenadines, Tonga, Turks
and Caicos, U.S.Virgin Islands, and Vanuatu) that are engaging in (get
a load of this) "unfair tax competition.”
The formation
of offshore companies, trusts, private bank accounts, shipping flags of
convenience and the like is a significant source of income for Vanuatu.
It's not enough that the United States and other OECD members have Draconian
laws against their citizens using offshore structures to reduce their onerous
tax burdens, or gain some measure of privacy. They're making noises about
imposing sanctions on countries that offer financial freedom.
I don't know
to what degree they might succeed. It seems to me that it's another straw
in the wind that bloated nation-states are on their way out, as more citizens
take steps to get their assets beyond the grasp of their rulers. And the
citizens that do that increasingly see their governments as their enemies.
U.S. and OECD efforts to force small, poor countries to impose income taxes
and abolish financial privacy are criminal, of course, but that's true
of almost everything the United States, the EC and their minions do internationally.
About the only way countries like Vanuatu can develop is to attract capital,
and about the only way they can do that is by having no taxes and low costs.
But OECD members see that if they let some of their citizens escape the
dragnet, then a flood of others will try; so they'll go to almost any extreme
to prevent it.
And it's not
only in taxes or privacy that the governments of developed countries are
quashing the competition. Destructive organizations like the WTO are trying
to impose outlandishly expensive and often counterproductive environmental
regulations, the ILO is trying to enact pro-labor union sanctions against
low-wage countries and the World Bank and the IMF offer them loans on moronic
projects which can only be repaid through huge taxes on the impoverished
locals.
These things
simultaneously impoverish taxpayers in rich countries. When I was on Tanna,
the island where the John Frum movement is centered, the EC was in process
of building a huge international airport. To what purpose? Nobody will
ever use it, and in a few years vines will be growing across the runway.
But I've seen this nonsense throughout the Third World. Is it malevolence,
or just stupidity? Hard to say. But it's definitely the nature of government.
What's the
future of Vanuatu? I think it can, despite the obvious negatives, both
homegrown and imported, be excellent simply because the population is so
low, the people are so backward, the place is so beautiful and the prices
are so low. Actually, I first became involved in the country back in 1979,
when a tribal chief by the name of Jimmy Moly Stevens, in the Luganville
area, attempted to have the island of Santo secede from the rest of the
country. The movement was put down by British and French paratroops, but
the natives there are still restless. If a thousand, or even a hundred
rich guys set up shop on one of the properties I mentioned, would the tail
start wagging the dog? The odds are excellent it would.
The chances
of Galt's Gulch happening are much higher in the South Pacific than they
are in the United States. I suggest you look into it. The place is definitely
on my dance card.
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