Tonga: Investing

FDI in Figures

The South Pacific island nation of Tonga is one of the smallest and most isolated on the planet, and attracts very little FDI. According to UNCTAD's 2021 World Investment Report, FDI inflows declined from USD 13 million in 2019 to USD -0.5 million in 2020, due to the global health and economic crisis triggered by the Covid-19 pandemic. The current FDI stock was estimated at USD 465 million in 2020. Agriculture and tourism remain two of the main sectors attracting foreign investment in 2022, mainly from China, Japan and the United States. Renewable energy and deep-sea mining also offer investment opportunities.

China and Tonga have deepened political mutual trust and achieved fruitful exchanges and cooperation in various fields since the establishment of diplomatic ties, and China is ready to expand cooperation with Tonga in various fields within the framework of the Belt and Road Initiative, Chinese President Xi Jinping said in September 2021.

In spite of reforms taken by the Government aiming to attract investors, the country presents many discouraging factors. The archipelago remains extremely vulnerable to external shocks and foreign investors cannot buy land in the territory. Moreover, the general lack of infrastructure development, unpredictable government policies and difficult access to certain regions of the country tend to discourage foreign investors. Foreign investment in several sectors of the economy is restricted. Property rights are uncertain, and their enforcement is weak. The judicial system is generally independent but inadequately resourced. The state's oversized role in the economy crowds out private-sector development. In February 2019, the parliament passed the Foreign Investment Bill 2019, which includes amendments to the legal framework of FDIs. The country was ranked 103rd of 190 in the last 2020 Doing Business report of the World Bank, losing twelve positions compared to previous year. The country’s performance is particularly law in the resolving insolvencies and registering a property indexes. The COVID-19 pandemic puts Small island developing economies in dire straits. A small and narrow economic base, high degree of openness and significant dependence on few large developed countries make small island economies extremely vulnerable to global economic shocks. These economies are often at the receiving end of global crises, as they are highly dependent on external flows—trade, remittances and external capital and borrowing—compared to other groups of developing countries (United Nations, 2021). The collapse in tourist arrivals not only directly affects income and employment in airlines, ground transport and hotels, but also adversely affects the rest of the economy, including agriculture and construction. Falling tourism, and subsequently, reducing tax revenues, will exacerbate fiscal balances of many small island economies and also reduce the flow of foreign direct investment (FDI), as the tourism sector is typically the largest recipient of FDI.

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Latest Update: February 2023