Development challenges of Small Island Economies

The United Nations (UN) define SIDS as a distinct group of 38 UN Member States and 20 Non-UN Members/Associate Members of United Nations regional commissions that face unique social, economic and environmental vulnerabilities.

Local Island Maafushi, Source: Kaani Beach Hotel

Local Island Maafushi, Source: Kaani Beach Hotel

Small Island Developing States (SIDS) have different realities. The unique characteristics such as their smaller size, geographic remoteness and vulnerability to environmental threats pose particular challenges to their development. Thus, geographically, demographically, and economically the landscape for development in these nations are vastly different. 

The United Nations (UN) define SIDS as a distinct group of 38 UN Member States and 20 Non-UN Members/Associate Members of United Nations regional commissions that face unique social, economic and environmental vulnerabilities. These nations are located in three geographical regions: the Caribbean, the Pacific, and the Atlantic, Indian Ocean and South China Sea (AIS). Among these nations is the Maldives.


1.     Smallness: in addition to being small, many SIDS are made up of several small islands. Consequently, The United Nations Office for Project Services (UNOPS) reports that these nations face restrictions in the form of land mass. Yet, the population is densely dispersed.  Smallness of nations result in smaller domestic markets and low technical and institutional capacity. These nations also face intense pressure from competing land uses for agriculture, residential and infrastructure development, industrial production, tourism, and waste disposal.

Subsequently, it is these features that result in a narrow resource base, food insecurity, import dependence, a narrow range of exports and a lack of economies of scale and competition. As the OECD in 2018 explained, this characteristic of small and dispersed populations leads to high transaction, transportation, and service delivery costs. This results in weighing down the public sector.

2.     Economic Challenges: SIDS are often characterized as being economically vulnerable, highly susceptible to exogenous shocks. Generally, due to lower capacity within a country, SIDS are more open to trade, dependent on strategic imports such as energy, fuel, food, and industrial supplies. Subsequently, these countries are often characterized with narrowly based economies that depend on just a few products and sectors.

Maldives is a text book example of this economic vulnerability, from the strategic dependency to the unhealthy over-reliance on the tourism industry. Such dependence opens doors for vulnerable external economic conditions over which there is little to no direct control. The COVID-19 pandemic has illustrated the susceptibility of Maldivian economy to external shocks. 

3.     Remoteness: many SIDS are remote, typically located at significant distances from other countries and major shipping routes and networks. Due to this distance, SIDS experience poor connectivity of people and freight, which impacts international trade, productivity and

innovation. Time delays and infrequency of shipping services also cause uncertainties in trade. Additionally, distance and expensive means of transportation constrain inter-island connectivity, deterring coordination and leading to lost opportunities to build economies of scale. High transportation costs also affect imports and exports, hindering SIDS’ access to international markets and limiting their ability to become a significant part of the global supply chain.

UNOPS also reports that a lack of diversification reduces SIDS’ competitiveness and ability, rendering them less attractive for foreign direct investment. At the domestic level, these factors contribute to local producers becoming monopolists that set uncompetitive prices to the disadvantage of the SIDS populations. When it comes to infrastructure, higher transportation and import costs can discourage its construction, operation and maintenance, especially in remote areas.

4.     Environmental and climate vulnerability: Natural hazards represent the greatest challenge to SIDS’ drive towards sustainable development. In fact, 90% of SIDS are located in tropical areas, where they are at high risk of experiencing extreme weather events, which have a significant impact on economies and the well-being of their populations. In the case of Maldives, as with other island nations, now there is a blurred line between the monsoons, with prolonged severe weather conditions. In such analysis, OECD compares vulnerability with resilience of the nations. Vulnerability here relates to the physical impacts of the hazard while the ability to manage or adapt to that event/change is the resilience.

Many SIDS such as the Maldives are vulnerable to sea-level rises and storms due to being low-lying, particularly harmful given the dependency on sectors such as tourism and fishing. Yet, there are many instances where economies have thrived in the face of vulnerabilities as well. Most islands are rich in biodiversity, natural and ocean resources which have been used to convert the challenges into opportunities to create jobs and a shared prosperity for its peoples.

5.     Human development lags: there is mixed evidence on this. While some evidence indicates that human development indicators in SIDS lag behind other developing countries, there are studies that indicate otherwise. Yet, when compared with other groups of countries, the long-term progress is relatively.

UNOPS reports that SIDS also have a smaller skilled labour force that is further diminished by high brain-drain rates of 50 percent on average and up to 75 percent in some cases. There are also gender gaps in the workforce; This creates a barrier to the improvement of women’s socio-economic conditions and promotes the feminization of poverty in some islands

In SIDS territories development is analyzed from the perspective of economic, social, and environmental vulnerability affecting their growth prospects. Infrastructure sectors, including transportation, energy, water, wastewater, solid waste, digital communications and buildings, are essential services that underpin SIDS’ ability to develop sustainably and achieve the Sustainable Development Goals (SDGs).

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