Vanuatu is a group of 83 islands (of which 65 are inhabited) in the south Pacific, with a total land area of 12 575 km². Its population is around 200 000. The country's economy is based primarily on small-scale agriculture, fishing, offshore banking and tourism. It is however highly dualistic, with an urban economy in Port Vila and Luganville and a rural economy in the rest of Vanuatu. Recent strong economic growth has been driven by foreign investment and increased tourism.

With a tropical climate, Vanuatu is one of the most vulnerable countries in the world as it is prone to cyclones, volcanic eruptions, tsunamis and earthquakes. In addition, its development faces various challenges including a relatively narrow export base and remoteness from major trading markets and between its constituent islands. Communications are also poor as inter-island transport costs are very high and there are very few paved road networks.

Key issues in EU-Vanuatu relations

Vanuatu and the EU signed a Country Strategy Paper for 2008-13 in 2007, with a total budget of € 23.2 M.

Under the 10^th European Development Fund, the strategy will focus on support to economic growth and creating employment, including human resources development. Many school leavers in Vanuatu do not have adequate skills to secure one of the few waged jobs available or the skills needed for agricultural work or alternative career options. The aim is therefore to facilitate income generation in order to reduce poverty and inequality, through private-sector-led economic growth and creation of employment.

The main policy measures will be targeted at developing long-term sector policies in agriculture and tourism; providing better support services to business, with an emphasis on rural areas; removing obstacles to commodity exports; and facilitating long-term secure access to land.

The other main area for action will be the use of general budget support. Vanuatu is at present the only partner country in the region to make use of this development co-operation instrument. The goal of this action will be to support the efforts of the Government to reduce poverty through development of private sector, rationalisation of public expenditure and improved public service delivery.