Case Studies

The Pacific Private Sector Development Initiative (PSDI) has been working with Tonga’s Ministry of Trade and Economic Development (MTED) since 2014 to deliver a series of reforms aimed at improving competition and consumer protection, facilitating foreign investment, and simplifying business registration processes. The reforms have included the development of foreign investment legislation, consumer protection and competition legislation, and a new electronic company registry.

PSDI has worked closely with the MTED to simplify the legal and regulatory environment for business operations and investment, address gaps in competition and consumer protection laws, and strengthen the MTED’s institutional capacity. PSDI’s long-running relationship with the MTED shows how a sustained partnership can drive meaningful change across a range of areas, with the aim of creating a business environment that better serves Tonga’s businesses, investors, and consumers.

PSDI and the MTED’s long-standing relationship has focused on establishing fair competition, strengthening consumer protections, and modernizing business registration to attract foreign investment and promote private sector development. Key initiatives undertaken by PSDI include developing a new online company registry system, delivering foreign investment legislation, ensuring compliance with international anti-money laundering/combating the financing of terrorism obligations, and drafting a national competition and consumer protection bill.

Facilitating foreign investment and streamlined registration processes

PSDI drafted a foreign investment policy and bill. The policy was approved in 2019, and the Foreign Investment Act was passed in September 2020. PSDI then worked with the MTED to amend the Foreign Investment Regulations 2021, which reduced the number of reserved and restricted activities from 17 to 11, making Tonga among the most open economies in the Pacific to foreign direct investment. Poinsettia Paongo, the MTED’s deputy chief executive officer, reported that “foreign investors are happy with all these changes with our acts and regulations” and the MTED had already “seen a number of inquiries about coming in to do investment or run a business here in Tonga.”

To facilitate the implementation of the Foreign Investment Act, PSDI developed detailed specifications and undertook all necessary contracting and procurement to transition the current Tonga Business Registry, which is more than 10 years old, to a new platform funded by the Asian Development Bank. The new registry system is expected to lead to faster approvals of foreign direct investment certification applications and enable better monitoring of investment in Tonga. Additionally, the modern system will make it easier for entrepreneurs to enter the formal economy, supporting contract formation and trade, and providing access to financial services and grants.

Strengthening competition and consumer protections

The MTED also requested PSDI support to reform Tonga’s competition and consumer protection legislation. PSDI conducted an initial diagnostic review in FY2021, which investigated possible pro-competitive regulatory reform and revealed that existing laws lacked provisions for e-commerce, online transactions, and data security. Building on the diagnostic, PSDI in FY2023 delivered to the MTED a report and recommendations on consumer protection and competition in Tonga. The recommendations included a proposal for a national policy in this area, which PSDI then drafted. In August 2023, Tonga’s cabinet endorsed the National Competition Policy, which promotes fair and effective competition in all markets in Tonga. Following the endorsement of the policy, PSDI drafted a consumer and protection bill, expected to be tabled in Parliament in early 2025. The new competition legislation “makes a clearer and more level playing field for businesses to play and compete in so there is no monopoly in the market,” said Sandra Fifita, director of the MTED’s Consumer Division.

To strengthen its ability to implement the new policy and legislation, PSDI is also delivering a capacity support program to the MTED.

As the next step in this reform program, PSDI will soon begin supporting the MTED to comply with Financial Action Task Force requirements.

"If PSDI had not helped us, I don’t think we’d be at this stage where we have this online system, and all our acts and regulations are updated," said Poinsettia Paongo, MTED deputy chief executive officer.

This case study is taken from the PSDI FY2024 Annual Progress Report. Read the full report here.