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FIJI ECONOMIC REPORT • SEPTEMBER 1998

ACKNOWLEDGMENTS

This report was written by Wali M. Osman, with gratefulacknowledgment to the Office of the Minister of Financeand the Ministry of Finance, Office of the Minister ofTourism and the Ministry of Tourism, Central PlanningOffice, the Reserve Bank of Fiji, The University of the SouthPacific, South Pacific Forum Secretariat, Fiji EmployersFederation, Tourism Council of the South Pacific, SuvaChamber of Commerce & Industry, Australian HighCommission, US Embassy in Suva, and especially to Bankof Hawaii, Fiji, and a number of business and governmentleaders for their information and advice. Also, specialacknowledgment to Bankoh intern, Christine E. Hammer,who put considerable effort into this and other SouthPacific economic reports.

Cover Photos: Fijian resort on the Coral Coast, PeterHenning, Cadillac Ltd. Inset photo: Fijian gold mine,Peter Henning, Cadillac Ltd.

In-Text Photos: John Penisten, Pacific Pictures; RobertKiste, PhD, Center for Pacific Island Studies, University ofHawaii; and Peter Henning, Cadillac Ltd.

©1998 Bank of Hawaii. All rights reserved.

CONTENTS

I. General Characteristics 81.1 Introduction1.2 A Brief History1.3 A Hybrid Institutional Setting1.4 Land Tenure and Use Rights

II. Macroeconomic Review 122.1 Introduction2.2 A Macroeconomic Appraisal2.3 Private and Public Investment2.4 Labor Force and Employment2.5 Fiscal Management2.6 Monetary Policy2.7 Balance of Payments2.8 Debt and Payments

III. Economy by Sector and Major Industry 183.1 Agriculture, Forestry & Fishing

3.1.1 Potential for Growth3.2 Tourism

3.2.1 Tourism Statistics3.2.2 Tourism’s Potential

3.3 Manufacturing & Mining

IV. What Lies Ahead 24


We take pride in presenting this, our third report on the economy of Fiji and the latest in Bank of Hawaii’sseries of studies on the economies of the Pacific region. In this report, we review the current economic conditionsand some of the factors likely to affect Fiji’s economic future. Our goal is to provide information and analysis thatwill be useful to those who share our interest in and commitment to the Pacific region.

Since 1973 when Investors Pacific Ltd., a wholly-owned subsidiary of Hawaii Bancorporation, Inc.,(now Pacific Century Financial Corporation) was organized and chartered in Suva, we have had a keen interestin Fiji’s economic growth and played an active role in the country’s development.

Currently, there are Bankoh branches in Suva, Nadi and Lautoka, and we offer a full range of qualityfinancial services to the people and businesses of Fiji. Bank of Hawaii serves all of the major markets of theSouth and West Pacific, including French Polynesia, New Caledonia, Samoa, American Samoa, Vanuatu,Solomon Islands and Papua New Guinea. This region forms an integral part of our greater Pacific regionalstrategy, and we are committed to serving these markets.

We invite you to visit the Bank of Hawaii web site at <www.boh.com> to view reports on other Pacificeconomies and to contact any Bank of Hawaii branch to learn more about our full range of financial services.

Sincerely,

Lawrence M. Johnson Richard J. DahlChairman and CEO President and COO

TO OUR FRIENDS AND ASSOCIATES:

Lawrence M. Johnson Richard J. Dahl


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Adapted from The Pacific Islands, 1992, courtesy of the East-West Center’s Pacific Islands Development Center and the Hawai’i Geographic Society.

Dotted lines group islands under thesame political jurisdiction. Unbrokenlines denote cultural affiliations.


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FIJI

CURRENCY

Fiji dollar1997 exchange rate: 1.994 Fiji dollars per US dollar

ECONOMY

Income sources: agriculture and fishing, tourism,manufacturing and servicesGross domestic product (GDP) in 1997: F$3,201.4 million

US$2,148.9 millionPer capita GDP in 1997: F$3,806.40

US$2,636.60

1997 GOVERNMENT BUDGET ESTIMATES

Revenues: F$803.5 millionExpenditures: F$1,085.3 million

DISTANCE FROM

Honolulu: 3,000 milesSydney: 1,850 milesAuckland: 1,200 milesTokyo: 4,445 miles

LAND AREA

Total: 7,061 square milesLargest island: Viti Levu (4,011 square miles)

with Fiji’s capital: SuvaTotal islands: 322Inhabited islands: 106

POPULATION

1997: 815,0451998 estimate: 827,271Population by groups: 52 percent Fijian

43 percent Indian5 percent other

1997 growth rate: 1.5Average life expectancy: 72 yearsAdult literacy rate: 92 percent

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PACIFIC ISLANDS FACT SHEETUS DOLLAR-DENOMINATED ECONOMIES

Capital/Land Area Notable Distance

(square Geographic fromPopulation miles) Characteristics (miles) Currency

GUAM 153,700 212 One island. Major US naval Agana/ US dollarbase and regional trans- Honolulu 3,800shipment center at Apra Tokyo 1,600Harbor. In hurricane path.

COMMONWEALTH 63,000 177 Saipan the largest island, Garapan, US dollarOF THE Tinian and Rota next, Saipan/NORTHERN 14 others in the chain. Honolulu 3,700MARIANA ISLANDS 125 miles north of Guam. Tokyo 1,500(CNMI) US territory closest to Asia.

FEDERATED 105,506 270 607 islands and atolls, Kolonia, US dollarSTATES Pohnpei 130 square miles, Pohnpei/OF other major islands Kosrae, Honolulu 3,100MICRONESIA (FSM) Yap and Chuuk. The 4 FSM Hong Kong 3,100

states span 1,700 miles fromeast to west.

REPUBLIC 18,146 170 343 islands, the main group Koror/ US dollarOF encircled by a hundred mile Honolulu 4,600PALAU reef. Babeldaob 136 square Tokyo 2,000

miles. 8 other inhabited Hong Kong 1,700islands. Rock Islands.

REPUBLIC 62,924 70 34 coral islands, 870 reefs, Majuro/ US dollarOF THE highest elevation 33 feet Honolulu 2,300MARSHALL above sea level, average Guam 1,800ISLANDS (RMI) elevation 7 feet.

AMERICAN 58,900 76 5 islands, 2 atolls. Pago Pago, US dollarSAMOA Pago Pago Harbor. Tutuila/

Home of newest US national Honolulu 2,600park. In hurricane path. Los Angeles 4,800

TOTAL/AVERAGE 462,176 975

NON-DOLLAR ECONOMIES

FRENCH 220,524 1,609 130 islands, mostly atolls Papeete, Tahiti/ FrenchPOLYNESIA in 5 archipelagoes. Tahiti Honolulu 2,700 Pacific

the largest island, 400 Los Angeles 4,100 francmiles square, maximum Paris 10,400 (F CFP)elevation 7,464 feet. Tokyo 5,900

NEW 196,836 7,376 Main island, Grande Terre Noumea/ FrenchCALEDONIA 250 miles by 30 miles (larger Honolulu 3,900 Pacific

than the Hawaiian Islands Paris 10,400 franctogether), mostly mountainous. Brisbane 900Several small islands.

WALLIS 14,800 106 2 main islands, highest Wallis Island/ FrenchAND elevation 2,493 feet. Honolulu 2,700 PacificFUTUNA Paris 10,000 franc

PAPUA 4,150,000 179,490 Eastern half of the island of Port Moresby/ KinaNEW New Guinea. Largest by far Honolulu 4,300GUINEA Pacific island-state land mass. Cape York,(PNG) Other main islands New Australia 300

Ireland, New Britain and Tokyo 3,100Bougainville. Hong Kong 3,100

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GDP Per Major Major(US$ Capita Major Sources Sources

Major million GDP Income Political of External of FutureLanguages current) (US$) Sources Status Investment IncomeEnglish, 3,109.0 20,228 Tourism, US territory since 1898. US, Tourism, Chamorro, military, Guam Organic Act of 1950 Japan, servicesalso Tagalog, trade and conferred US citizenship. KoreaJapanese services Some push for common-

wealth status.English, 650.6 10,327 Tourism, After WWI under Japanese Japan, Tourism,Chamorro, garment mandate. In 1947 became Korea, servicesCarolinian manufacturing, part of US Trust Territory of Hong Kong,

trade and the Pacific. Since 1978 a USservices Commonwealth of the US.

Islanders are US citizens.English, 215.8 2,045 US payments, After WWI under Japanese US, Compact8 major government mandate. In 1947 became Japan status un-local services, part of US Trust Territory. certain as languages fisheries, Became sovereign in 1979. of 2001.

tourism In compact of free associa- Fisheriestion with US as of 1986. d e v e l o p m e n t ,

tourismEnglish, 159.8 8,806 US Compact After WWI under Japanese Japan, CompactPalauan, payments, mandate. In 1947 became US money,Sonsorolese- tourism part of US Trust Territory. tourismTobian Became sovereign in 1994,

in compact of free associa-tion as of 1994. Compact ends 2044.

English, 102.1 1,623 US payments, After WWI under Japanese US, US military.Marshallese Kwajalein Missile mandate. In 1947 became Japan Compact dialects Range, govern- part of US Trust Territory. status un-

ment services, Became sovereign in 1979. certain as copra, fisheries In compact of free associa- of 2001.

tion since 1986. Fisheries.English, 253.0 4,295 Tuna canneries, US territory since 1899. US Canneries,Samoan government Samoans are US nationals. remittances,

services, remit- UStances from entitlementsSamoans overseas

4,490.3 9,716

French, 3,655.8 16,578 Payments from French controlled from the Metropolitan FrenchTahitian Metropolitan 19th century. Overseas France transfers,

France, tourism, territory of France since tourism,Tahitian pearls 1957. Active independence pearls

movement.French, 3,717.5 18,886 Payments from 1853 became a French Metropolitan French30 Kanak Metropolitan possession. Overseas France transfers,dialects France, nickel, territory of France since nickel,

agriculture and 1946. Relation to France tourism,ranching, tourism, under review. agriculture,aquaculture aquaculture

French, 25.0 1,689 French transfer French controlled from Metropolitan FrenchEast Uvean, payments, the 19th century. Overseas France transfersEast Futunan trochus shells territory of France since

1961.English, 4,957.0 1,194 Minerals, Under Australian & German Australia, Minerals, oil,Tok Pigin, oil and gas, control before WWI. Admin- UK timber,Hiri Motu, forestry, istered by Australia after WWII. fisheries,hundreds of agriculture, Independent within the British tourismvernaculars tourism Commonwealth since 1975.

The Bougainville secessionistmovement ended by a formaltreaty in April 1998.

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PACIFIC ISLANDS FACT SHEET (continued)Capital/

Land Area Notable Distance(square Geographic from

Population miles) Characteristics (miles) CurrencyCOOK 19,600 92 15 widely dispersed islands Rarotonga/ NewISLANDS including volcanic peaks and Honolulu 3,000 Zealand

atolls. Rarotonga the largest Wellington 2,000 dollarisland 26 miles square. In hurricane path.

SAMOA 170,000 1,158 4 inhabited islands, 5 Apia/ Talauninhabited. Highest point Honolulu 2,6006,100 feet, Mt. Silisili on Suva 700Savai‘i. In hurricane path. Brisbane 2,500

FIJI 815,045 7,055 320 islands. Viti Levu 4,000 Suva/ Fijimiles square, Vanua Levu Honolulu 3,100 dollar2,100 miles square. Major Sydney 2,000islands are mountainous Tokyo 4,500and forested to windward.

KIRIBATI 82,400 266 33 islands scattered 2,400 Tarawa/ Australianmiles east to west, 1,300 miles Honolulu 1,300 dollarnorth to south. Almost entirely Tokyo 3,900low-lying atolls, Christmas Island the largest.

SOLOMON 393,000 11,197 850 mile long double island Honiara, SolomonISLANDS chain. 6 mountainous main Guadalcanal/ Island

islands, Guadalcanal 2,080 Honolulu 3,960 dollarmiles square. Port Moresby 900

TONGA 99,000 386 Main islands volcanic, Nukualofa/ Pa‘angasome 150 coral atolls, Honolulu 3,10036 permanently inhabited. Brisbane 2,000

VANUATU 185,000 4,707 80 scattered islands, several Port Vila, Efate/ Vatuactive volcanoes. Largest Honolulu 3,500island Espiritu Santo 1,500 Tokyo 4,100miles square, highest point 6,158 feet.

NAURU 11,200 8 A single island with a 100 Nauru/ Australianfoot high central plateau of Honolulu 2,800 dollarnow nearly exhausted phos- Banaba, Kiribatiphate-bearing rock. 200

NIUE 2,500 101 Coral island rising 65 feet Alofi/ Newfrom the ocean and another Wellington 1,800 Zealand130 feet to a central plateau. Suva 800 dollar

TOKELAU 1,800 4 3 atolls with islets 10 to 16 Nukunonu/ Newfeet above sea level. Honolulu 2,300 ZealandIn hurricane path. Wellington 3,800 dollar

TUVALU 10,200 10 5 atolls, 4 coral islands, Funafuti/ Australianmaximum elevation 16 feet Suva 700 dollarabove sea level. Sydney 2,500

TOTAL/AVERAGE 6,371,905 213,565

GRAND TOTAL/AVERAGE 6,834,081 214,540

HAWAII 1,205,126 6,423 4 main islands. Island of Honolulu/ US dollarHawaii 4,028 miles square, San Franciscohighest point of Mauna Kea 2,40013,796 feet. Mauna Loa and Los Angeles 2,600Kilauea on Hawaii both active Washington 4,800volcanoes. Maui 727 miles Tokyo 2,500square, Oahu 597 (Waikiki), Kauai 552. In hurricane path.

SOURCES: Central Intelligence Agency, The World Factbook, 1994; Norman and Ngaire Douglas, editors, Pacific Islands Yearbook, 17th edition,Suva, 1994; Europa, The Far East and Australasia, 1994; Gary L. Fitzpatrick and Marilyn J. Medlin, Direct-line Distances, International Edition,New Jersey, 1986; International Monetary Fund, International Financial Statistics, June 1996; David Stanley, Micronesia Handbook, C h i c o ,California, 1989; David Stanley, South Pacific Handbook, 5th Edition, Chico, California, 1993; State of Hawaii Department of Business and

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GDP Per Major Major(US$ Capita Major Sources Sources

Major million GDP Income Political of External of FutureLanguages current) (US$) Sources Status Investment IncomeEnglish, 50.9 2,596 Government Self-governing since 1965 New TourismCook Islands aid, services, in association with New ZealandMaori tourism Zealand. Cook Islanders

are citizens of both CookIslands and New Zealand.

English, 170.0 1,000 Agriculture, Under German control before New Agriculture,Samoan remittances from WWI, New Zealand after. Zealand, tourism,

abroad, tourism, New Zealand trusteeship Japan lightmanufacturing after WWII. Independent manufac-

since 1962. turingEnglish, 2,148.9 2,637 Sugar and other Annexed by Great Britain in Australia, Agriculture,Fijian, agriculture, 1874. Became independent New tourism,Hindi tourism, forestry, within the Commonwealth Zealand, mining, light

fishing, mining, in 1970, rejoined the EU, manufac-garment industry Commonwealth in 1997. Japan turing

English, 54.6 662 Agriculture Annexed by Britain in 1919. NA FisheriesMicronesian (copra), A republic within the British development

remittances, Commonwealth since 1979.aid

English, Solomon 343.7 875 Agriculture, British protectorate as of Australia, Agriculture,Islands Pijin, timber sales, 1873. Politically independent Japan fisheries,more than 80 fishing and fish within the Commonwealth tourismvernaculars canneries, aid since 1978.Tongan 124.9 1,262 Agriculture, British protectorate as of NA Tourism,

tourism 1900. Independent monarchy agriculturewithin the Commonwealth.

French, 247.0 1,335 Agriculture and Anglo-French New Hebrides Australia, Tourism,English, ranching, tour- Condominium in 1906. Japan agricultureBislama ism, Offshore Republic of Vanuatu within

Finance Center, the British Commonwealthservices established in 1980.

English, 80.7 7,205 Phosphates and From 1919 administered by NA InvestmentsNauruan investments Australia. Became an from

from independent republic in phosphatephosphates 1968.

English, 7.1 2,825 Subsistence Self-governing since 1974 NA TourismNiuean activity, in free association with

government aid New Zealand.English, 1.2 667 Subsistence Non-self-governing territory NA SubsistenceTokelauan activity, administered by New activities,

government aid Zealand beginning 1925. governmentaid

English, 3.8 373 Subsistence Independent state within NA SubsistenceTuvaluan activity, British Commonwealth activities,

government aid since 1978. governmentaid

15,588.0 2,446

20,078.3 2,938

English 35,146.4 29,164 Tourism, Annexed in 1898, became US, Tourism,services, a US territory in 1900, Japan, defense,trade, became a state in 1959. Australia services, government trade,

government

Economic Development, Data Book 1995, Honolulu, 1996; Peter W. Thomson, Trade and Investment in the South Pacific Islands, Honolulu, 1989;World Bank, World Development Report, 1996; various Bank of Hawaii economic reports, 1992–97, and other sources. (Rev. 4/22/98)

For further information, contact Bank of Hawaii Regional Economist Wali M. Osmanat 808-537-8349 (phone), 808-536-9433 (fax) or [email protected] (e-mail).


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1.1 INTRODUCTION

The Republic of Fiji is located 1,850 miles (3,000kilometers) northeast of Sydney, 1,200 miles (2,000 km)north of Auckland and 3,000 miles (5,000 km) southwest of Honolulu. Fiji spans just over 270,000 square miles(700,000 square km) of the southwest Pacific Ocean, and itsclosest neighbors are Tonga to the southeast and Vanuatu tothe southwest. Its total land area of roughly 7,061 squaremiles (18,300 square km) is 10 percent larger than Hawaii’s .

Of the 322 islands that make up the Fijian nation,one-third or 106 are inhabited. Viti Levu is the largestisland with 4,011 square miles (10,388 square km). Itcomprises 58.6 percent of Fiji’s land area and is home toabout 70 percent of the population. Suva, the capital city,and Nadi, site of Fiji’s international airport and some of itsbest-known resorts, are on Viti Levu. Nadi and the rest ofViti Levu’s western coastline offer many more spectacularsites for future hotels and resorts. Just north of Viti Levu isthe second largest island of Vanua Levu which accounts for30.2 percent of Fiji’s land area (2,140 square miles or 5,538square km) and 15 percent of the population.

English is the main, though not exclusive, languageof business and commerce, and is widely spoken along withnative Fijian and a variation of Hindi among Fiji’s Indiancommunity.

The average life expectancy of 72 years in Fiji ishigh when compared with that of large developingeconomies such as Thailand, where the average lifeexpectancy is 69 years. With a per capita gross domesticproduct (GDP) of US $2,637, Fiji is in the top third of theWorld Bank’s list of lower-middle-income economies.Fiji’s per capita GDPis in the same category as those ofLatvia, Peru, Costa Rica and Lebanon. Turkey, anotherlarge developing economy, has a slightly higher per capitaGDP (US $2,780) than Fiji but a lower life expectancy of67 years. Fiji’s adult literacy rate of 92 percent places itamong economies with high literacy rates. Such a literatework force enhances the capacity for national productivity.

Fiji’s indigenous people are mainly a Melanesian-Polynesian mix, and they are concentrated in the easternparts of the country. The Polynesian influence comes from

several centuries of interaction with Tonga. The estimatednative Fijian population of 430,000 in 1998 is 52 percent ofthe country’s total. Native Fijians make up 40-50 percentof the population on Viti Levu and Vanua Levu, and nearly100 percent on the remaining smaller islands.

Fiji’s Indians are descendants of indentured laborersbrought to the islands more than a century ago from India,and are now Fijian citizens. Fiji’s current Indian populationof 355,000 has declined as a share of the country’s totalfrom a peak of 50.2 percent in 1981 to 43 percent in 1998.Those other than native Fijians or Fijian Indians representroughly 42,000 or five percent of the total population.

In 1990-98, Fiji’s total population grew from736,000 to an estimated 827,000, averaging an annualgrowth rate of just 1.5 percent, which more closelyresembles the rate of developed economies than that ofdeveloping ones. Population growth during the last decadehas been moderated by Indian emigration resulting from thepolitical and economic uncertainty arising from the 1987coups d’Ètat and the adoption of a racially biasedconstitution in 1990.

The Indian population was declining gradually as aproportion of the total even before the 1987 coups but hasdropped more rapidly since. In 1986-96, the rate of changein Fiji’s Indian population dropped from close to a 2.0percent gain to a 0.5 percent loss annually. Overall,between 1990 and 1998, Fiji’s Indian population declinedby 0.25 percent while the native Fijian population grew by2.25 percent. Without the Indian emigration, the Fijianpopulation growth rate would have been comparable to thatof other developing economies in the region.

The Indian emigration not only affected Fiji’spopulation growth pattern but also the productive capacityof its economy. Averaging 3,000-5,000 people a yearbetween 1987 and 1997, most of those leaving were skilledand financially secure individuals. Thus, while thesepeople were able to resettle easily in other markets, theemigration created a drain on Fiji’s skilled labor force.

With a new more flexible constitution taking effecton July 27, 1998, Indian emigration is expected to diminish,thereby stabilizing population and the effects on thenation’s labor force.

One other aspect of Fiji’s ethnic mix stands out. A sin New Caledonia to the west of Fiji, the two main ethnicgroups have not intermarried or mixed much in otherways. Anecdotal evidence suggests that in instances ofintermarriage, native Fijians have indicated a willingnessto marry Indians while Indians (especially men) haveshown less willingness to marry Fijians. Unlike Hawaii orFrench Polynesia with similar histories and ethnic mixes,F i j i ’s two main groups have remained distinct after morethan a century of living in the same country. While theirhome life and family consumption patterns have remainedd i fferent, they have managed to live and work together on

I. GENERAL CHARACTERISTICS

SELECTED HEALTH INDICATORS1990 1991 1992 1993 1994 1995 1996

Crude Birth Rate 2 4 . 3 2 4 . 0 2 4 . 8 2 4 . 9 2 4 . 3 2 4 . 7 2 2 . 5(per 1000 population)Infant Mortality Rate 1 6 . 8 1 9 . 0 1 9 . 0 1 6 . 6 1 6 . 3 1 4 . 7 1 7 . 1(per 100 live births)Annual Population 1 . 3 1 . 4 1 . 6 1 . 7 1 . 6 1 . 1 1 . 7Growth Rate (%)

S o u rce: Ministry of National Planning, Development Strategy for Fiji, p. 134


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day-to-day matters. Although tension arising from political divisions has

begun to subside, that linked to long-term land leases forsugar production remains. Since Parliament has made thesame commitment to resolving land leases as it did toresolving the constitutional problem by forming a JointSelect Committee of Parliament, there is a good chance thatlong-term land leases will be addressed.

1.2 ABRIEFHISTORY

The Fiji islands were settled some 3,500 years agoby Melanesian and Polynesian voyagers. As in other SouthPacific islands, the first European settlers were sandalwoodtraders, missionaries and shipwrecked sailors who arrivedin the 19th century. Foreign influence brought diseases anddivisiveness to Fiji and intensified local conflicts, whichreached unprecedented heights by the 1850s when Ratu orChief Seru Cakobau gained tenuous control over thewestern islands. To maintain control, Cakobau turned toBritain for aid and eventually ceded the islands to Britain,which formally proclaimed Fiji a British colony in 1874.The Island of Rotuma and its dependencies were added tothe colony in 1881.

Nearly a century later in October 1970, Fiji becamean independent member of the British Commonwealth. Fijileft the Commonwealth when it declared itself a republicafter the 1987 coups, but rejoined it in late 1997 afterrecognizing the economic advantages of Commonwealthmembership.

Fiji’s racial and ethnic mix is a legacy of the colonialera, when the British brought in Indian laborers to growsugarcane. Over the past century Indian sugar growers,who lease the land from native Fijians, have controlledsugar production. They produce 90 percentof Fiji’s sugar, the country’s largest exportcommodity. Until the 1960s Indians werepoorly represented politically while nativeFijians controlled the country’s politics,government and judicial system.

The Fijian-dominated Alliance Party(AP) ruled Fiji politically after independence.In the 1977 election, the Indian-led oppositionwon the majority of seats in the House ofRepresentatives but did not form agovernment because its leaders wereuncertain whether the Fijians would accept anIndian leadership. In the 1982 election, theA P won 28 seats and the Indian-dominatedNational Federation Party (NFP) won 22seats. Tensions rose between the two groupssoon after the election, leading to thefounding in 1985 of a new multi-racial labor-dominated party, the Fiji Labor Party (FLP).

The new party wanted to play a more assertiveopposition role, running on a platform of free education anda national medical and health care program. In 1987, anNFPand FLP coalition defeated the APby winning 28 seatsin the House as opposed to the AP’s 24 seats. Even thoughthe Prime Minister and all ministers concerned with Fijianaffairs remained native Fijian, a period of unrest followedthe election fomented by nationalist Fijians who perceivedtheir political dominance to be endangered because morethan half of the new ministers were Indian.

The coalition proposed an inquiry into the country’sperennial land lease problems and promised other reformsas well. The direction taken by the new government drewthreats of violence. The third-ranking officer of the armyled the first of two coups d’Ètat and eventually seizedp o w e r. The coups gained widespread support amongFijians because of their fear that they were losing controlin their own land. The discontent among the minorityMaori in New Zealand and the Aborigines in A u s t r a l i aprobably stimulated the fears of native Fijians. Butcomparisons with other indigenous groups in the area’seconomies are misleading since the Fijians control over 90percent of Fiji’s land and have dominated the politicalprocess since independence. The coups and subsequentevents created an environment of strife and uncertainty,which presented serious challenges for Fiji’s economy.

Economic stagnation persisted through most of the1987-97 period because of a steady slowdown in privateinvestment stemming from two issues: contention over the1990 constitution and extension of long-term sugar landleases to Fiji’s Indians. Following a national dialogue onpolitical reform in 1996-97, the Parliament adopted a newconstitution last year. If the issue of long-term land leasesis resolved, Fiji will be poised not only to resume economic

Small port town and harbor of Savusavu, Fiji


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growth and market dynamism, but also to assume a role inregional economic development.

Returning to reconciliation and rebuilding improvesFiji’s comparative economic advantage. Preferentialaccesses to markets such as Australia, New Zealand, theEuropean Union and, to a smaller degree, the United States,will aid Fiji’s economy in both the short and long terms. Itwill also enable Fiji to compete economically and rebuildits own capital market and skilled labor force. Politicalreform, the national desire to address land leases andgovernment’s willingness to reform the public sector willencourage private investment, which has been theeconomy’s main growth engine.

1.3 AHYBRID INSTITUTIONALSETTING

It may appear that Fiji’s social and economicdilemma arose from the divided nature of its population:two distinct ethnic groups continuing to exist apart fromeach other. However, more than ethnic diversity led todisruptive tensions. The dilemma is rooted in theconflicting institutional structures of the Fijian and Indiancultures.

As in New Caledonia and elsewhere amongindigenous Melanesian and Polynesian peoples, the Fijianculture is communal, with individual rights and privilegessubordinated to the larger community’s interests. Thisapplies to property, material wealth and other possessions,of which land is the most valuable because it is fixed insupply and considered a perpetual source of sustenance.The communal property regime is prevalent and stronglyupheld by the Pacific’s developing economies, though it isnot practiced exclusively.

The essence of the communal system is preservationof the land system, which prohibits alienation (sale). Incontrast to market cultures where individual property rightsare not only recognized but also considered essential to afunctioning market system, traditional cultures believe landto be more than a tradable commodity. It is part of theircultural, social and economic heritage.

This ancient doctrine remains strongly held in thePacific because the principal sources of sustenance,including markets such as tourism services, continue to bebased on land and its attributes. Selling land is consideredto be abandoning and alienating it. Since non-land-basedeconomic resources in most Pacific economies (includingFiji) are either limited, or have been of limited economicvalue, land today is as valuable as it was when farming andfishing were the only sources of sustenance.

Fiji’s Indians, on the other hand, come from a culturein which private property rights have long been establishedand individuals expect to be rewarded for their labor. Fiji’sIndians, like the Japanese and other Asian workers in

Hawaii early in this century, worked and saved a portion oftheir wages. Each generation of Fiji’s Indians accumulatedmore wealth than the one before. As their wealth increasedthey invested in human and physical capital, not only ingrowing sugarcane but also in trade, commerce andprofessional services.

As more Indians became wealthier over time, theysought more power in their adopted country. Since theywere Fijian citizens they invested in Fiji, and some ofthem made the transition from being laborers to beingmanagers and owners. But as the Indian and the Fijiancultures moved along their respective paths, theirexpectations remained different. Conflict arose when theIndians sought greater control over the land theycultivated, not necessarily for transfer (alienation) but forlong-term use and exchange.

F i j i ’s Indians are demanding long-term leases sothey can plan the investment necessary not only to growmore sugar cane but for new technology that makes sugarproduction more efficient. While Fijians do not cultivatemuch of the land, they have been reluctant to transferlong-term control to the Indians because in this islande c o n o m y, land means economic and political power, andthis power has traditionally rested with the indigenousF i j i a n s .

The conflict is not so much between two ethnicgroups as it is between two different social and economicsystems. The challenge in Fiji has always been to find amiddle ground where each culture’s institutionscomplement rather than neutralize those of the other. Asdifferent as the communal and market systems may appear,each has institutions that can be modified to coexist withthe other. Apermanent solution is to establish a commonground in property ownership, use and exchange rights thatis definitive, permanent and enforceable.

Reconciliation can occur only if the two sidesaccommodate each other. They are beginning to do this byadopting the new constitution and making efforts to resolvethe issue of land leases. By making accommodations andfocusing on the long-term economic welfare of the country,the larger national goal of steady economic growth and ahigher standard of living is certainly within the reach of theFijian nation.

Meanwhile the economy’s more rapidly growingsegment, trade and services managed largely by Indians,has become a major source of the country’s income over thelast five decades. More expansion in trade and commerceis likely, but future growth will require predictability andstability. While adopting more elements of the marketsystem will certainly add to Fiji’s economic dynamism andefficiency, retaining basic elements of the communalsystem will also be critical in maintaining the integrity ofFiji’s unique hybrid institutional system.


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1.4 LAND TENURE AND USE RIGHTS

Fiji’s land ownership, use rights and management areremnants of the colonial system. The purpose forestablishing the Native Land Trust Board (NLTB) in 1940was to create a formal institutional structure in an economythat lacked such a structure but had potential for growth.The NLTB, which manages native lands, has the power toreserve land without compensation to tenants.

The NLTB is a part of the central government thatworks with the tribal chiefs in managing native lands onbehalf of the mataqalis (village groups). Leases can bearranged for different lengths of time depending on use, butnative land cannot be alienated (sold). Acting as a trusteefor the villagers, the NLTB is also responsible fordevelopment.

While there are numerous types of leases,commercial, residential and tourism leases are the mostcommon. Lease terms vary from 10 to 99 years, dependingon use and other issues. About 95 percent of all land hasbeen surveyed and registered, with boundaries mapped.NLTB is the central authority for all communally ownedunits of land, and it maintains an inventory of assets on theland such as crops and forest species.

In the various common property regimes found in thePacific, even where private property rights apply to land,residents are favored. In French Polynesia, for example,foreigners can lease but not own land. This has inhibitedforeign speculation in the land market. In Hawaii andGuam, on the other hand, private property rights for landwere created a long time ago to allow markets to becomeestablished and grow, though Hawaii has retained acommon property regime covering shorelines and shoreline

access. Fiji’s common property regime extends toshorelines, fisheries and underwater resources and includesmineral, forest and water rights.

F i j i ’s land market presents problems for foreigners.Despite some streamlining in the NLTB, the present landregulatory mechanism is inefficient, particularly where landtransfers and land use changes are concerned. ContemplatingF i j i ’s economic change path under a purely private propertyrights regime may be impractical, but it can be said that thepresent system imposes undue costs on both users ands o c i e t y. Profitable business opportunities are possible underthe present system, but the land ownership and use rightssystem as a whole needs to change to create a market-likesystem that promotes certainty and predictability forinvestment and economic growth.

The Agriculture Landlords and Tenants Act (ALTA)is the institutional and legal structure for managing leasesof agricultural lands in Fiji. The first leases were issued in1915 for 21 years with the possibility of a 9-year extension.Most leases have been renewed haphazardly and the systemis unreliable. The majority of current leases, mainly sugarland leases, began expiring in 1997. While the communalregime can be expected to remain a fixture of Fiji’seconomy, making it more flexible, especially to the needsof the Indians who cultivate the land, will be a positive steptoward reform and steady sugar production.

Some mataqalis may prefer not to lease land butinstead to cultivate it themselves. There is some speculationthat other mataqalis prefer to negotiate with tenants directlyrather than through the NLTB since they consider themselvesrightful owners. The friction between the NLTB and locallandowners appears to be increasing, adding yet anotherdimension to a system that is already plagued with

d i fficulties. There have been efforts to finda market-like system for determining rents,but they have not received the attention theyd e s e r v e .

The government has adopted anumber of reforms since the late 1980s,hoping to make Fiji an export-drivene c o n o m y. These reforms include changes tothe product and labor markets, taxes and thet a r i ff system. Further reforms in these areasmay be forthcoming. However, the landtenure system and use rights exchangemarket, which are critical to economicgrowth, have not changed much sincecolonial days. Reform in these areas can beaccomplished in two steps: first, long-termleases and market-driven rents that promotecertainty must be established, and second,these leases and rents must be enforceableand subject to mutually agreed-uponchanges as market conditions warrant.Sugar cane farms near Nadi, Fiji


12

II. MACROECONOMIC REVIEW

2.1 INTRODUCTION

Diminished political uncertainty in Fiji will pave theway for a gradual increase in economic stability, but it willtake time to change Fiji’s reputation in the region as adivided and contentious economy. Meanwhile, restructuringFiji’s economy to become more market-driven remains achallenge. If the government of Fiji invests as much ineconomic restructuring as it did in political reform, Fiji willhave the means to achieve a much higher standard of livingthan it now enjoys.

Revising the laws governing long-term sugar landleases under ALTAis a critical test facing the government.Most 30-year leases expire in 2000-2001. The governmenthas already taken the first step by creating a parliamentarycommittee to address ALTA. Since forming this committeehas involved the same steps that led to the one thatsuccessfully achieved constitutional reform, there is a goodchance the government will resolve ALTA. If it does, themacroeconomic uncertainty will diminish significantly.

F i j i ’s macroeconomic uncertainty has two sources.First, there is a lack of confidence in public enterprisesbecause a large, inefficient and communal public sectorcontrols many of these enterprises. In 1996, the total marketvalue of public enterprise assets including power plants,airlines, banks, telecommunications and agriculture was, inFiji dollars, F$2.049 billion, or 68.7 percent of GDP. W h i l eF i j i ’s public sector included enterprises which normallybelong to the private sector, it did not include national parks,historic sites and other assets of similar character that aregenerally maintained by national or state governments.

Because of its communal roots, the government’smain goals in owning and managing these publicenterprises are to ensure steady and reliable service whileproviding a more equitable distribution of income to all.However, as a Ministry of Finance report says, “There isalso the implicit expectation that Government will notallow public enterprises to fail, should they get intofinancial difficulties. As a result, lenders do not haveadequate incentives to properly assess credit risk whenlending to public enterprises, and management have theexpectation that they will receive Government funding ifthey experience financial problems.” 1

There are various proposals to privatize. Governmentmay feel that given the changes that have been made andthose that are underway (ALTA) it may not have the publicsupport to undertake a major privatization scheme. However,the ongoing economic downturn and the structural problems

that need to be addressed to make the economy moree fficient may be grounds for seeking outside aid to carry outan effective privatization scheme. This assistance may be inthe form of loans from global organizations such as theWorld Bank, International Monetary Fund (IMF), A s i a nDevelopment Bank (ADB) and others.

The second source of uncertainty in Fiji arises fromits basic private sector structure, with its dependence oncommodities, lower-value manufacturing (e.g. garmentsand sugar processing) and tourism which is volatile andinfluenced by regional financial conditions. Reducinguncertainty from this end of the economic makeup is along-term proposition that requires decreasing dependenceon commodities, increasing export of higher-value productsand diversification of the economy. However, given Fiji’srelatively large labor force and basic infrastructure, it is in abetter position than most developing Pacific Islandeconomies to achieve its goals.

2.2 AMACROECONOMIC APPRAISAL

Standards of living comparisons in terms of totalGDP and per capita GDPare usually made in US dollars.With stable currencies and exchange rates, the comparisonsare valid and less distorted. When currencies are unstableand exchange rates vary widely, comparisons in US dollarscan be misleading, especially if they omit purchasing powerparity issues, as do most market exchange rate quotes. Therecent devaluation of the Fiji dollar against the US dollarimmediately lowered the value of Fiji’s output as measuredin US dollars. While this did not mean that the overallFijian standards of living immediately dropped, it did meanchanges in terms of foreign trade activities, which arecustomarily expressed in current exchange rates.

In US dollars, Fiji’s GDPwas $2.149 billion in 1997,up slightly from $2.126 billion in 1996. Fiji’s per capitaGDP in US dollars was $2,637 in 1997, about $300 belowthe average for the entire Pacific (West and South Pacificeconomies) and just slightly below the 1996 figure of$2,648. Both total and per capita GDP have increasedmodestly in the 1990s. While international comparisons inUS dollars are necessary, Fiji’s macroeconomic accountsare maintained in Fiji dollars.

Real (adjusted for inflation) GDPgrowth averaged1.9 percent in 1990-97 and per capita real GDPgrowthaveraged 0.9 percent, less than the rate of populationgrowth. Areal per capita GDPgrowth rate that did not keepup with the population growth rate means that the averagestandard of living in Fiji deteriorated in the 1990s. Fiji’ssituation mirrors that of the region’s other economies,including the high-income French territories where

1Ministry of Finance and Ministry of National Planning, “Supplement to the Budget Address,” 7 November1997, p. 58.


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FIJI’S ECONOMIC AND FINANCIAL INDICATORS1990 1991 1992 1993 1994 1995 1996 1997 1998

Nominal GDP ($US million) 1 , 3 1 8 . 0 1 , 4 0 0 . 3 1 , 5 5 3 . 4 1 , 6 6 3 . 6 1 , 8 4 2 . 2 1 , 9 9 9 . 2 2 , 1 2 6 . 1 2 , 1 4 8 . 9 —Nominal GDP Per Capita ($US) 1 , 7 9 0 . 8 1 , 8 7 7 . 1 2 , 0 4 9 . 4 2 , 1 5 7 . 7 2 , 3 4 9 . 8 2 , 5 3 0 . 7 2 , 6 4 7 . 6 2 , 6 3 6 . 6 —

Nominal GDP ($F million) 1 , 9 5 1 . 9 2 , 0 6 6 . 3 2 , 3 3 4 . 8 2 , 5 6 4 . 9 2 , 6 9 7 . 2 2 , 8 1 1 . 5 2 , 9 8 3 . 5 3 , 1 0 2 . 4 2 , 7 9 2Nominal GDP Per Capita ($F) 2 , 6 5 2 . 0 2 , 7 6 9 . 8 3 , 0 8 0 . 2 3 , 3 2 6 . 7 3 , 4 4 0 . 3 3 , 5 5 8 . 9 3 , 7 1 5 . 4 3 , 8 0 6 . 4 3 , 3 7 5 . 1Nominal GDP Growth (%) 3 . 8 5 . 9 1 3 . 0 9 . 9 5 . 2 4 . 2 6 . 1 4 . 0 —Real GDP at Factor Cost (‘89 Prices, $F) — 1 , 5 8 5 . 9 1 , 6 8 3 . 6 1 , 7 1 0 . 7 1 , 7 7 8 . 9 1 , 8 1 5 . 3 1 , 8 7 1 . 6 1 , 8 2 4 . 8 —Real GDP Growth (%) 2 . 6 ( 1 . 7 ) 6 . 2 1 . 6 4 . 0 2 . 0 3 . 1 ( 2 . 5 ) —Real GDP Per Capita ($F) — 2 , 1 2 5 . 9 2 , 2 2 1 . 1 2 , 2 1 8 . 8 2 , 2 6 9 . 0 2 , 2 9 7 . 8 2 , 3 3 0 . 8 2 , 2 3 8 . 9 —

GDP by Expenditure ($F m i l l ) 1 , 9 5 1 . 9 2 , 0 6 6 . 3 2 , 3 3 4 . 8 2 , 5 6 4 . 9 2 , 6 9 7 . 2 2 , 8 1 1 . 5 2 , 9 8 3 . 5 3 , 1 0 2 . 4 —Private Consumption 1 , 4 4 2 . 7 1 , 5 8 1 . 8 1 , 6 8 3 . 2 1 , 8 0 2 . 3 1 , 9 0 1 . 5 1 , 9 8 6 . 7 2 , 0 2 6 . 5 2 , 1 4 1 . 4 —Government Consumption 3 0 3 . 5 3 6 0 . 2 4 1 8 . 3 4 6 6 . 4 4 5 4 . 2 4 5 8 . 7 4 6 0 . 0 4 6 6 . 6 —Gross Fixed Investment 3 2 9 . 3 3 0 4 . 3 3 1 0 . 8 3 6 9 . 8 3 2 2 . 5 3 5 7 . 9 3 2 0 . 4 3 4 9 . 8 —Exports of Goods & Serv i c e s 1 , 2 3 1 . 5 1 , 1 6 4 . 5 1 , 2 0 5 . 2 1 , 3 0 6 . 5 1 , 4 9 0 . 5 1 , 5 4 1 . 1 1 , 6 2 9 . 4 1 , 7 2 7 . 5 —Imports of Goods & Serv i c e s 1 , 3 2 9 . 7 1 , 2 3 5 . 5 1 , 2 6 4 . 2 1 , 4 9 8 . 9 1 , 5 9 3 . 1 1 , 6 2 0 . 4 1 , 7 0 0 . 3 1 , 7 9 8 . 0 —Change in Stock & Discrepancies ( 2 5 . 4 ) ( 1 0 9 . 0 ) ( 1 8 . 5 ) 1 1 8 . 8 1 2 1 . 6 8 7 . 5 2 4 7 . 5 2 1 5 . 1 —Imports of Goods Only — 8 1 0 . 6 8 0 9 . 8 1 , 0 0 6 . 5 1 , 0 5 3 . 7 1 , 0 7 0 . 8 1 , 1 7 5 . 5 1 , 1 8 0 . 5 —

Ratios, GDP by Expenditure (%) 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 1 0 0 . 0 —Private Consumption/GDP 7 3 . 9 7 6 . 6 7 2 . 1 7 0 . 3 7 0 . 5 7 0 . 7 6 7 . 9 6 9 . 0 —Government Consumption/GDP 1 5 . 5 1 7 . 4 1 7 . 9 1 8 . 2 1 6 . 8 1 6 . 3 1 5 . 4 1 5 . 0 —Gross Fixed Investment/GDP 1 6 . 9 1 4 . 7 1 3 . 3 1 4 . 4 1 2 . 0 1 2 . 7 1 0 . 7 1 1 . 3 —Exports of Goods & Serv i c e s / G D P 6 3 . 1 5 6 . 4 5 1 . 6 5 0 . 9 5 5 . 3 5 4 . 8 5 4 . 6 5 5 . 7 —Imports of Goods & Serv i c e s / G D P 6 8 . 1 5 9 . 8 5 4 . 1 5 8 . 4 5 9 . 1 5 7 . 6 5 7 . 0 5 8 . 0 —Change in Stock & Discrepancies ( 1 . 3 ) ( 5 . 3 ) ( 0 . 8 ) 4 . 6 4 . 5 3 . 1 8 . 3 6 . 9 —

Fiscal IndicatorsGovernment Revenues ($F mill) 5 5 1 . 2 5 6 8 . 9 6 0 2 . 5 6 5 4 . 1 6 9 7 . 8 7 1 8 . 9 7 4 3 . 3 8 0 3 . 5 —Government Spending ($F m i l l ) — 6 6 7 . 3 7 1 4 . 6 8 1 2 . 7 8 0 3 . 5 8 1 1 . 6 9 5 8 . 4 1 , 0 8 5 . 3 —Budget Balance (Revenue less Spending) — ( 9 8 . 4 ) ( 1 1 2 . 0 ) ( 1 5 8 . 7 ) ( 1 0 5 . 7 ) ( 9 2 . 7 ) ( 2 1 5 . 1 ) ( 2 8 1 . 9 ) —Government Revenues/GDP (%) 2 8 . 2 2 7 . 5 2 5 . 8 2 5 . 5 2 5 . 9 2 5 . 6 2 4 . 9 2 5 . 9 —Government Spending/GDP (%) — 3 4 . 2 3 4 . 6 3 4 . 8 3 1 . 3 3 0 . 1 3 4 . 1 3 6 . 4 —Budget Balance/GDP (%) — ( 5 . 0 ) ( 5 . 4 ) ( 6 . 8 ) ( 4 . 1 ) ( 3 . 4 ) ( 7 . 7 ) ( 9 . 4 ) —

Other IndicatorsTourist Arrivals 2 7 9 , 0 0 0 2 5 9 , 0 0 0 2 7 9 , 0 0 0 2 8 7 , 5 0 0 3 1 8 , 8 0 0 3 1 8 , 5 0 0 3 3 9 , 5 6 0 3 5 9 , 0 0 0 —Total Visitor Expenditures ($F mill) — — — 3 4 7 . 4 3 9 2 . 5 4 0 5 . 0 4 3 0 . 0 4 7 9 . 1 —

M o n e y, Rates, Prices & Exchange RatesM1 (Narrow Money, $F mill) — 2 7 4 . 4 3 1 4 . 1 3 6 3 . 8 3 4 4 . 6 3 8 6 . 2 4 5 6 . 3 4 4 5 . 3 4 5 4 . 9M2 (Broad Money, $F mill) — 8 5 5 . 4 9 7 7 . 4 1 , 0 1 3 . 7 1 , 0 6 9 . 7 1 , 0 8 9 . 6 1 , 0 3 2 . 1 9 1 3 . 2 8 9 5 . 6Total Money (M1 + M2) — 1 , 1 2 9 . 8 1 , 2 9 1 . 5 1 , 3 7 7 . 5 1 , 4 1 4 . 3 1 , 4 7 5 . 8 1 , 4 8 8 . 4 1 , 3 5 8 . 5 1 , 3 5 0 . 5Lending Rate (%) — 1 2 . 2 5 1 2 . 3 5 1 1 . 7 4 1 1 . 2 8 1 1 . 0 6 1 1 . 3 3 1 1 . 0 3 1 0 . 1 8Consumer Price Index (1990=100) 1 0 0 . 0 1 0 6 . 5 1 1 1 . 7 1 1 7 . 5 1 1 8 . 2 1 2 0 . 8 1 2 4 . 5 1 2 8 . 7 1 3 5 . 2Consumer Price Inflation (%) — 6 . 5 4 . 9 5 . 2 0 . 6 2 . 2 3 . 1 3 . 4 5 . 1Official Exchange Rate: $F/$US 1 . 4 8 0 9 1 . 4 7 6 1 . 5 0 3 1 . 5 4 2 1 . 4 6 4 1 . 4 0 6 1 . 4 0 3 1 . 4 4 4 1 . 9 9 4

Population & EmploymentP o p u l a t i o n 7 3 6 , 0 0 0 7 4 6 , 0 0 0 7 5 8 , 0 0 0 7 7 1 , 0 0 0 7 8 4 , 0 0 0 7 9 0 , 0 0 0 8 0 3 , 0 0 0 8 1 5 , 0 4 5 8 2 7 , 2 7 1Population Growth (% per year) 1 . 4 1 . 4 1 . 6 1 . 7 1 . 7 0 . 8 1 . 6 1 . 5 1 . 5Paid Employment (000) 9 0 , 0 2 3 9 1 , 7 2 9 9 3 , 4 9 4 9 5 , 2 5 4 9 6 , 3 3 6 9 8 , 6 8 6 1 0 0 , 6 6 0 1 0 2 , 1 7 0 —Employment Growth (%) — 1 . 9 1 . 9 1 . 9 1 . 1 2 . 4 2 . 0 1 . 5 —

Balance of PaymentsCurrent Account Balance ($F mill) — 4 . 2 1 6 . 9 ( 1 2 5 . 0 ) ( 1 0 1 . 6 ) ( 3 6 . 2 ) 9 3 . 4 ( 3 3 . 5 ) —M e rchandise Trade Balance ($F mill) — ( 2 7 5 . 6 ) ( 2 8 4 . 1 ) ( 4 3 4 . 6 ) ( 3 3 6 . 0 ) ( 3 4 0 . 0 ) ( 2 7 6 . 2 ) ( 3 7 6 . 4 ) —S e rvices Balance ($F mill) — 2 3 2 . 5 2 5 8 . 8 2 8 6 . 7 2 9 0 . 3 2 7 8 . 7 3 4 2 . 9 3 5 3 . 7 —Investment Income ($F mill) — ( 5 8 . 5 ) ( 7 5 . 2 ) ( 8 3 . 6 ) ( 1 2 6 . 1 ) ( 1 0 1 . 2 ) ( 8 6 . 0 ) ( 9 9 . 2 ) —Transfers ($F mill) — 1 0 5 . 8 1 1 7 . 4 1 0 6 . 5 7 0 . 2 1 2 6 . 3 1 1 2 . 7 8 8 . 4 —Capital Account Balance ($F mill) — ( 2 6 . 4 ) 8 8 . 2 2 0 . 7 4 0 . 7 1 0 1 . 2 ( 1 9 . 4 ) 3 0 . 0 —Errors & Omissions — 3 4 . 9 ( 5 0 . 9 ) 3 3 . 9 4 4 . 3 4 4 . 0 2 3 . 4 ( 4 5 . 3 ) —Overall Balance — 1 2 . 7 5 4 . 2 ( 7 0 . 4 ) ( 1 6 . 6 ) 1 0 9 . 0 9 7 . 4 ( 4 8 . 8 ) —International Reserves Minus Gold ($US m) — 2 7 1 . 3 3 1 6 . 9 2 6 9 . 5 2 7 3 . 1 3 4 9 . 0 4 2 7 . 2 3 6 0 . 3 3 8 8 . 6Months of Import Cover — 3 . 9 4 . 5 3 . 3 3 . 0 3 . 6 4 . 2 3 . 5 —

Ratios (%)Current Account Balance/GDP — 0 . 2 0 . 7 ( 4 . 9 ) ( 3 . 8 ) ( 1 . 3 ) 3 . 1 ( 1 . 1 ) —Overall BOP Balance/GDP — 0 . 6 2 . 3 ( 2 . 7 ) ( 0 . 6 ) 3 . 9 3 . 3 ( 1 . 6 ) —

F o reign Debt Stock & Serv i c i n gTotal Public Debt Outstanding ($F mill) — — — — — — 1 , 1 3 0 . 2 1 , 4 0 0 . 6 1 , 4 5 5 . 5Total Domestic Debt ($F mill) — — — — — — — — —Total Foreign (External) Debt ($F mill) 5 4 5 . 9 5 1 6 . 0 4 9 9 . 1 4 5 0 . 0 3 9 9 . 2 3 8 4 . 7 3 5 3 . 7 3 5 2 . 2 —Total Debt Service ($F mill) 1 5 4 . 9 1 2 0 . 5 1 0 2 . 4 9 6 . 8 1 1 0 . 4 7 4 . 1 7 5 . 3 5 2 . 2 —Total Debt as Share of GDP (%) — — — — — — 5 4 . 7 6 0 . 0 5 6 . 7

S o u rces: International Monetary Fund, I n t e rnational Financial Statistics, May 1998; Ministry of Finance (Fiji), Supplement to the 1998 Budget Addre s s ,November 7, 1997; Reserve Bank of Fiji, Q u a rterly Review, December 1997.


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standards of living in the1990s have not improved.

Switching to accountsin Fiji dollars, the 1997 realGDP of F$1.825 billion wasdown 2.5 percent from 1996.Real per capita GDPin 1997was down 3.9 percent, thebiggest drop of the 1990s andone of the largest sinceindependence. Since allindications are that theeconomy has continued todeteriorate in 1998, thisyear’s GDPwill be downeven more from 1997. Theactual measure of the dropwill depend on theperformance of economicactivity in the second half ofthe year, but it seems apparentthat Fiji is in its worsteconomic downturn in morethan a decade.

The ongoing droughtattributed to El Niño anddeclines in visitors from A s i a2

compounded Fiji’s economicproblems in 1998. The severedrought has been called theworst on record and hascaused catastrophic damage,especially to sugar production.The Fiji Sugar Corporation’searly August estimate for totalsugar production was reviseddown to 197,500 tons, lessthan half of the normal sugar production level of 400,000 to450,000 tons. Last year’s total sugar production of 347,000tons was down 24 percent from the previous year because ofthe drought.

These declines in sugar production may prevent Fijifrom reaching its sugar export quotas to some Asiancountries, mainly Malaysia and Japan. Export earninglosses may amount to F$100 million or more this year. Inaddition to the loss of export income, more than 20,000farmers of small sugar cane holdings will suffer financiallybecause of crop failure. The government has agreed to acrop rehabilitation program that would cost at least F$40million. That cost will certainly go up, however, if the

drought continues. Altogether, the total economic impact ofthe drought could be much larger as additional lossesthrough secondary and tertiary activities may cause thedrop in GDPto be higher than reported thus far.

Gains in garment exports and tourist traffic fromAustralia and New Zealand will only partially offset thenegative impact of the drought in the rest of this year. T h e s egains are attributed to the 20 percent devaluation of the Fijidollar earlier this year which increased demand for exportsand the unfavorable impact the Asian crisis has had on ther e g i o n ’s other tourist destinations such as Indonesia. To t a ltourist count in the first quarter of 1998, however, was downeight percent from the same time a year earlier, mainlybecause of the decline in tourists from East Asia. It is

2Following its decision last Septemberto stop service to Guam and the Commonwealth of the Northern Mariana Islands, Korean A i rLines which had re g u l a r weekly flights to Fiji shut down its Seoul-Nadi route aftera KAL747 crashed on Guam in August last year.

GROSS DOMESTIC PRODUCT BY SECTOR($ million at 1989 prices) 1991 1992 1993 1994 1995 1996 1997e

A g r i c u l t u re, Fore s t ry & Fishing 3 2 4 . 5 3 3 6 . 6 3 3 7 . 9 3 7 2 . 5 3 6 0 . 3 3 6 3 . 0 3 4 3 . 5Sugar Cane 1 3 0 . 2 1 4 2 . 7 1 4 7 . 8 1 7 2 . 5 1 5 3 . 1 1 5 2 . 1 1 3 1 . 8Other Crops 4 2 . 2 4 1 . 3 3 5 . 9 3 8 . 9 4 0 . 6 4 1 . 5 3 9 . 0Livestock Products 1 5 . 6 1 5 . 8 1 5 . 4 1 7 . 8 1 8 . 3 1 9 . 1 1 9 . 8F i s h i n g 1 4 . 7 1 4 . 7 1 6 . 9 1 8 . 9 2 1 . 0 2 1 . 6 2 2 . 2F o r e s t ry 1 6 . 1 1 4 . 8 1 7 . 8 1 8 . 7 1 9 . 9 1 9 . 5 1 9 . 7S u b s i s t e n c e 1 0 5 . 7 1 0 7 . 3 1 0 4 . 1 1 0 5 . 7 1 0 7 . 4 1 0 9 . 2 1 1 1 . 0

Mining & Quarry i n g 3 6 . 9 4 9 . 8 5 0 . 9 4 6 . 3 4 6 . 7 6 1 . 2 7 1 . 1M a n u f a c t u r i n g 2 2 0 . 0 2 2 3 . 1 2 4 9 . 9 2 6 7 . 5 2 6 8 . 1 2 7 7 . 2 2 7 4 . 1

S u g a r 5 3 . 1 5 8 . 3 6 0 . 4 7 0 . 6 6 2 . 0 6 2 . 0 5 3 . 7Other Food Industries 5 5 . 1 5 2 . 7 6 3 . 5 6 6 . 8 6 7 . 2 6 6 . 9 6 6 . 2Clothing & Footwear 2 7 . 8 3 1 . 7 3 5 . 2 3 0 . 8 4 2 . 9 5 8 . 1 6 3 . 9Other Industries 7 7 . 8 7 4 . 1 8 4 . 4 9 2 . 7 8 9 . 3 8 3 . 4 8 3 . 4Self Employment 6 . 2 6 . 3 6 . 4 6 . 6 6 . 7 6 . 8 6 . 9

E l e c t r i c i t y, Wa t e r, Gas 5 6 . 7 6 1 . 8 6 3 . 5 6 8 . 4 7 1 . 5 7 7 . 0 8 1 . 4C o n s t ru c t i o n 6 8 . 4 8 4 . 8 7 8 . 4 7 8 . 0 8 2 . 2 8 4 . 0 8 2 . 3Trade, Hotels, Cafes, etc. 2 4 4 . 0 2 5 8 . 9 2 5 8 . 3 2 7 2 . 9 2 9 9 . 7 3 0 8 . 4 3 1 0 . 8

Wholesale & Retail Tr a d e 2 0 0 . 3 2 1 4 . 2 2 1 2 . 2 2 2 0 . 3 2 4 6 . 6 2 5 4 . 2 2 5 4 . 2Hotels, Cafes, etc. 4 3 . 7 4 4 . 7 4 6 . 1 5 2 . 6 5 3 . 1 5 4 . 2 5 6 . 6

Tr a n s p o rtation & communications 1 6 8 . 6 1 9 0 . 7 1 9 2 . 0 2 0 4 . 4 2 2 3 . 0 2 3 5 . 3 2 5 0 . 3Tr a n s p o r t 1 2 2 . 4 1 4 2 . 2 1 4 0 . 0 1 4 5 . 7 1 6 0 . 4 1 6 4 . 1 1 7 2 . 0C o m m u n i c a t i o n s 4 6 . 2 4 8 . 5 5 2 . 0 5 8 . 7 6 2 . 6 7 1 . 2 7 8 . 3

Finance, Insurance, etc. 2 3 0 . 3 2 3 7 . 0 2 4 4 . 7 2 5 5 . 2 2 6 0 . 7 2 6 3 . 3 2 6 6 . 4F i n a n c e 1 1 0 . 4 1 1 3 . 9 1 1 8 . 7 1 2 5 . 5 1 2 8 . 1 1 2 8 . 4 1 2 9 . 0I n s u r a n c e 1 0 . 6 1 1 . 6 1 2 . 1 1 2 . 8 1 3 . 6 1 4 . 3 1 4 . 8Real Estate & Business Serv i c e s 3 8 . 8 3 9 . 9 4 1 . 2 4 3 . 0 4 3 . 9 4 4 . 3 4 5 . 0Ownership Dwelling 7 0 . 5 7 1 . 6 7 2 . 7 7 3 . 9 7 5 . 1 7 6 . 3 7 7 . 6

Community & Social Serv i c e s 3 4 3 . 6 3 5 1 . 1 3 5 0 . 2 3 3 5 . 8 3 2 7 . 7 3 2 6 . 8 3 3 4 . 1Less: imputed service charg e s – 1 2 0 . 0 – 1 2 3 . 8 – 1 2 9 . 1 – 1 3 6 . 4 – 1 3 9 . 2 – 1 3 9 . 5 – 1 4 0 . 2GDP AT FACTOR COST 1 , 5 8 5 . 9 1 , 6 8 3 . 6 1 , 7 1 0 . 7 1 , 7 7 8 . 9 1 , 8 1 5 . 3 1 , 8 7 1 . 6 1 , 8 8 9 . 4P e rcent Change on Previous Ye a r – 1 . 7 6 . 2 1 . 6 4 . 0 2 . 0 3 . 1 1 . 0GDP Excluding Sugarcane & Sugar 1 , 4 0 2 . 5 1 , 4 8 2 . 6 1 , 5 0 2 . 4 1 , 5 3 5 . 8 1 , 6 0 0 . 2 1 , 6 5 7 . 4 1 , 7 0 4 . 0P e rcent Change on Previous Ye a r – 1 . 3 5 . 7 1 . 3 2 . 2 4 . 2 3 . 6 2 . 3

S o u rce: Ministries of Finance and National Planning, Supplement to the 1998 Budget Addre s s , p. 3


15

possible that some tourists from Australia and New Zealandnormally going to Indonesia and other Asian destinationsmay now be heading to Fiji where prices (in Fiji dollars) arel o w e r, the political situation is more stable than in Asia, andthe hotel inventory is largely underutilized.

As things stand, it is unlikely that tourist spending in1998 will make up for losses in sugar production. Theimpact of the drought has shown how critical sugar is toFiji’s economy. The renewal earlier this year of the LomeConvention’s Sugar Protocol (the European Union’sagreement to buy Fiji’s sugar at high prices) for anotherfour years, brought a certain measure of certainty about theindustry’s future. In fact, EU’s offer to continue buyingFiji’s sugar at higher prices provides a major source ofeconomic stability while Fiji focuses on expanding itsproductive capacity. The government may offer theadvantage of EU’s higher prices in their negotiations underALTAwith landowners.

Meanwhile, Fiji’s continuing economic declinecompelled the Reserve Bank to issue a statement ofeconomic distress in May. The Bank anticipates a far moreserious downturn in the economy this year than in 1997,and has urged business not to raise prices and wages but tofocus on increasing productivity to make up for the risingcosts of imports. Just as the economy was beginning toadjust to devaluation, the recession has grown progressivelymore serious.

The Bank noted that 1997-98 is only the second timesince Fiji’s independence in 1970 that GDP declined fortwo consecutive years, causing a severe recession. Unlessthe drought ends soon, the economy will continue to faceserious challenges. The positive impact of devaluation maynot be enough to make up for the losses in production fromindigenous resources.

2.3 PRIVATE & PUBLIC INVESTMENT

While the production sideof the national output remainedrelatively consistent throughmuch of 1990-97, the spendingmix of GDP changedsignificantly. As noted in Bankof Hawaii’s 1996 Fiji EconomicReport, total private and publicinvestment has dropped as ashare of GDP since the mid-1980s. Total private investmentalone as a share of GDPfell from16.9 percent in 1990 to 10.7percent in 1996, the lowest so far.In 1997, the trend seemed toreverse when private investmentspending rose slightly to 11.3

percent. Since practically all 1997 data are subject torevision, the small gain last year cannot be established asthe beginning of a trend until further evidence emerges.Still, passage of the new constitution and government’scommitment to other reforms may be construed as thecritical turning point.

In contrast, investment in public enterprises roseconsiderably in 1985-95, reaching as much as 8-10 percentof GDP, perhaps in an effort to offset declining privateinvestment. Given Fiji’s mix of communal and marketcultures, the investment of a large share of national outputin public enterprises is not unexpected.

While basic utilities such as power, water andtelecommuni-cation services in the Pacific Islands aregenerally provided by public enterprises, it has been clearfrom the experience of large developing economies thatpublic enterprises do not attract as much capital as privatefirms. Most large developing economies have recognizedthis as an economic inefficiency and in recent years haveprivatized utilities. Even the People’s Republic of China, theonly major command economy in the world, has adopted arestructuring program aimed at large scale privatization ofhundreds of thousands of state-owned enterprises.

The drop in private investment as a percent of GDPover the last decade will have important consequences forFiji in the years ahead. Even at 16.9 percent of GDP, totalprivate investment was not high enough to generate thekind of robust growth typical of growing economies. Fiji’stotal investment as a share of GDPis more like that ofmature economies such as the United States and WesternEurope, rather than that of a dynamic developing economy.

2.4 LABOR FORCE & EMPLOYMENT

F i j i ’s labor force and employment figures differ fromthose of the United States and Western Europe. In mosteconomies, one must attain the age of at least 14-16 years to

PAID EMPLOYMENT BY SECTOR(Number of Persons as at December)

Sector 1990 1991 1992 1993 1994 1995

Agriculture, Forestry & Fishing 2 , 3 0 2 2 , 6 0 7 2 , 2 9 9 2 , 1 6 4 2 , 3 3 7 2 , 3 1 0Mining & Quarry i n g 1 , 3 1 5 1 , 1 2 6 1 , 6 5 0 1 , 8 6 9 2 , 0 5 0 1 , 9 2 5M a n u f a c t u r i n g 2 1 , 9 1 4 2 2 , 9 8 4 2 2 , 0 3 7 2 3 , 3 6 6 2 4 , 5 9 2 2 5 , 6 9 5E l e c t r i c i t y, Water & Gas 2 , 4 0 3 2 , 7 2 1 2 , 6 4 8 2 , 4 3 1 2 , 0 2 9 2 , 5 6 4C o n s t r u c t i o n 6 , 0 7 3 6 , 6 8 3 7 , 4 4 4 7 , 3 0 0 6 , 9 8 5 7 , 1 7 2Wholesale & Retail Trade & Restaurant 1 4 , 6 2 9 1 4 , 1 3 8 1 3 , 7 9 5 1 3 , 1 8 1 1 4 , 2 5 3 1 4 , 0 7 8Transport & Communications 9 , 8 0 2 9 , 0 0 7 1 0 , 1 7 9 1 0 , 3 4 2 1 0 , 4 3 3 1 0 , 2 5 3Finance, Insurance & Business Serv i c e s 5 , 9 0 6 5 , 6 5 2 5 , 8 1 0 6 , 1 0 8 6 , 0 0 7 6 , 1 5 6C o m m u n i t y, Social & Personal Serv i c e s 2 5 , 6 7 9 2 6 , 8 1 1 2 7 , 6 3 2 2 8 , 4 9 3 2 7 , 6 5 0 2 8 , 5 3 3

To t a l 9 0 , 0 2 3 9 1 , 7 2 9 9 3 , 4 9 4 9 5 , 2 5 4 9 6 , 3 3 6 9 8 , 6 8 6

S o u rce: Ministries of Finance and National Planning, Supplement to the 1998 Budget Addre s s, p. 70


16

be considered in the labor force. In 1996(the most recent year for which suchfigures are available), 281,000 people or35 percent of Fiji’s population made upits labor force (as compared to 51percent in the United States and 45percent in Western Europe). A c c o r d i n gto the Ministry of Finance, of the281,000 in Fiji’s labor force, 265,000were employed and the rate ofunemployment was 6.0 percent. Interms of persons, those out of worknumbered 16,860. Of those employedthat year, 98,686 were on payroll, whilethe remaining 165,454 were self-employed.

Even without applying the USlabor force, employment andunemployment rates and standards toFiji, it is clear that unemployment andunderemployment are far more seriousthan formal labor force figures show.The untapped resource of Fiji’s laborforce makes Fiji potentially a far moreprosperous economy. The economic downturn underwayexacerbates present labor force problems, but Fiji’s long-term potential as a growing economy lies in the dynamismof its labor force and its ability to make better uses of all ofits resources.

2.5 FISCALMANAGEMENT

Fiji’s large recurrent fiscal deficits of the 1990sreflect the government’s inability to manage effectively itsfiscal resources and its numerous public enterprises.Deficits have ranged from a low of 3.4 percent of GDPto asmuch as 9.2 percent. Deficits of any amount reflect poorfiscal discipline, but if governments justify them on thegrounds of public capital formation, shortfalls of up to threepercent of GDP are considered routine.

Fiscal deficits as large as 5-9 percent of GDP a r econsidered to be problems rather than fiscal stimuli. Fiji’sfiscal deficits became progressively larger in the late 1990s,rising from 3.4 percent of GDPin 1995 to 9.4 percent in 1997.Recurrent large deficits cause many difficulties, the mostserious of which is crowding out, when the public sectorabsorbs resources that would normally go to the private sector.

Afiscal deficit amounting to 9.4 percent of GDPistoo high by any standard. However, without funding for theNational Bank of Fiji (NBF), the ratio would have been 2.5percent.3 Agovernment committed to creating private

sector enterprises out of public resources is a problem inFiji that needs resolution. With the NBF on its way tobetter management, the budget deficit as a share of GDPshould be down to 4-5 percent of GDPin 1998, whichwould still be high for a small developing economy such asFiji. The current economic downturn makes it unlikely thatFiji will have a balanced budget soon.

2.6 MONETARY POLICY

Monetary policy appears to have been alternatelyaccommodative and restrictive, depending oncircumstances. The recent economic downturn has madeachieving an optimal balance between combating priceinflation and keeping sufficient liquidity in the financialmarkets a challenge for the Reserve Bank of Fiji. Increasesin so-called narrow money (M1) averaged 8.8 percent in1992-97, which is considered reasonable. In early 1998,the rate of increase in M1 was down to 2.2 percent,following a decline of 2.4 percent for all of 1997.

In January, the Reserve Bank devalued the Fijian dollar20 percent in response to regional competitive pressurespartially linked to the Asian financial crisis. As a result,inflation began to rise. In the second quarter of 1998,consumer price inflation was 5.8 percent, up from the firstq u a r t e r’s rise of 4.3 percent. These increases were in contrastto 2.9 percent for all of 1997 and 2.4 percent for 1996. In

British colonial-style structure in downtown Suva, Fiji

3Reserve Bank of Fiji, Quarterly Review, March 1998, p. 9.


17

1994-95, inflation was even lower.Fiji is not as dependent on foreign labor paid in

foreign currencies as are other economies in the region, thusthe total impact of devaluation on inflation will berelatively mild. However, since Fiji imports a wide rangeof goods and services, inflation arising from devaluationmay increase further in the second half of this year. As ashare of GDP, imports of both goods and services amountedto 58.0 percent in 1997, a figure consistent with the rest ofthe late 1990s. Because imports are so important to theeconomy, an increase in their prices of as much as 20percent (assuming the full impact of devaluation is passedon to consumers), would cause higher price inflation duringthe rest of the year.

At the same time, Fiji’s goods and services soldabroad are cheaper by 20 percent, causing increaseddemand for them. Fiji would presumably export more andthus earn more to pay the higher import prices. Asexperience elsewhere has shown, it takes time for majorchanges in exchange rates and their total impact to beabsorbed by the economy. Fiji’s economy will needperhaps until the middle of 1999, to absorb the total impactof devaluation.

As expected, the pressure arising from higherinflation will cause interest rates to increase. However,given the weak economy and weak demand for credit,interest rates may not rise much, and the Reserve Bank maymaintain its accommodative posture until the impact of

devaluation works its way through the system.Apart from devaluation and monetary policy,

another notable change of some consequence in Fiji hasbeen a large drop in the so-called quasi money (thecombined total of time and savings deposits) whichpeaked in the first quarter of 1996 at F$1.125 billion. A tthe end of the first quarter of 1998, quasi money wasdown 24.2 percent from its peak. The drop was caused bya loss in time deposits, which declined from F$808.7million in the first quarter of 1996 to F$554.3 million inthe first quarter of 1998.

It is not clear whether the deposits withdrawn wentto other financial assets or were converted to real assets. Itis possible that some may have left Fiji. Of particularimportance, however, is the fact that the money and creditmarkets in Fiji still show signs of volatility, and devaluationhas added to it.

2.7 BALANCE OF PAYMENTS

In the context of balance of payments (transactionswith the rest of the world), Fiji has had a less precariousrecord during the 1990s, mainly because this is an open andglobally-connected economy. In 1997, total market valueof exported goods and services amounted to 55.7 percent ofGDP as opposed to imports at 58.0 percent. The overallbalance of payment has ranged from a deficit of F$70.4million to a surplus of F$109.0 million, for an average

surplus of F$19.6 million in 1991-97.To the extent that balance of paymentsaccounts are influenced by externaleconomic and financial changes (e.g.exchange rates) over which a countryhas no control, Fiji has had its share ofu n c e r t a i n t y. The most demonstrableexample of a change caused by externalfactors in Fiji as well as the rest of thePacific over the last year has beendevaluation brought about by the A s i a nfinancial crisis. It can be said, then,that Fiji’s 1997 deficit of F$48.8million in overall balance of payments,following two years of notablesurpluses (F$109.0 million and F$97.4million) was caused more by externalconditions than internal ones. Thus Fijiwill benefit when stability returns to theAsian markets.

Meanwhile, Fiji’s externalaccounts will continue to reflectsome uncertainty. Fiji’s currentaccount showed a deficit averagingF$26.0 million in 1991-97, becausethe surplus in services (mainly

IMPORTS BY MAJOR CATEGORY($F million)

Category 1991 1992 1993 1994 1995 1996p 1997f

I m p o r t s1

F o o d 1 2 9 . 0 1 3 6 . 2 1 6 6 . 9 1 6 5 . 9 1 8 2 . 3 1 9 5 1 9 7 . 5Beverages, To b a c c o 7 . 9 8 . 1 9 . 9 1 0 . 5 1 3 . 2 1 3 . 2 1 3 . 2Crude Materials 7 . 9 7 . 2 6 . 4 7 9 . 1 8 . 8 9 . 4Mineral Fuels2 1 4 6 . 3 1 3 3 . 5 1 3 2 . 7 1 3 7 . 3 1 3 7 . 5 1 8 4 . 8 2 0 4 . 8Oils & Fats 1 0 . 1 1 1 . 3 1 3 . 1 1 2 . 7 1 6 . 5 1 4 . 8 1 5 . 1C h e m i c a l s 7 2 . 7 7 8 . 6 8 2 . 1 8 9 . 5 9 2 . 8 1 0 2 . 9 1 0 7 . 6Manufactured Goods 2 4 5 . 6 2 3 9 . 1 2 5 1 . 6 2 7 9 . 0 3 3 7 . 0 3 5 7 . 8 3 7 2 . 4M a c h i n e ry & Transport Equip. 2 1 6 . 7 2 4 5 . 3 3 6 2 . 4 3 9 6 . 4 3 1 2 . 7 3 2 8 . 7 2 7 4 . 6Miscellaneous Articles 1 0 4 . 3 9 0 1 2 6 . 6 1 1 8 . 5 1 3 9 . 3 1 6 0 . 8 1 6 5 . 2Commodities n.e.s 1 0 . 2 9 . 1 1 4 . 2 1 2 . 3 1 3 . 5 1 3 . 8 1 4 . 1Total Imports3 9 5 0 . 7 9 5 8 . 4 1 , 1 6 5 . 9 1 , 2 2 9 . 1 1 , 2 5 3 . 9 1 , 3 8 0 . 6 1 , 3 7 3 . 9Total Re-Exports 1 0 9 . 8 1 1 2 . 2 1 0 4 . 0 1 6 8 . 6 1 0 5 . 5 2 2 8 . 7 1 4 5 . 0Total Retained Imports 8 4 0 . 9 8 4 6 . 2 1 , 0 6 1 . 9 1 , 0 6 0 . 5 1 , 1 4 8 . 4 1 , 1 5 1 . 2 1 , 2 2 8 . 9Non-Oil Retained Imports 7 6 3 . 1 7 7 0 . 3 9 9 9 . 1 9 8 2 . 1 1 , 0 7 6 . 0 1 , 0 5 1 . 3 1 , 1 1 1 . 6Oil Retained Imports 7 7 . 8 7 5 . 9 6 2 . 8 7 8 . 4 7 2 . 4 9 9 . 9 1 1 7 . 3

Note: 1c.i.f. Va l u e s2includes fuel sales to foreign aircraft & ships3Imports in 1990, 1992-96, 1997 include purchase of airc r a f t(p): provisional; (f): forecast

S o u rce: Ministries of Finance and National Planning, Supplement to the 1998 Budget Addre s s, p. 12


18

tourism) was not enough to make up for the deficit inmerchandise trade. Another item contributing to thecurrent account deficit has been a notable investmentincome going overseas (repayment of foreign investment)averaging F$90.0 million in 1990-97. Transfer payments,including aid, which averaged F$103.9 million in 1991-97 made up for that shortfall to a large extent. A s u r p l u sin the capital account averaging F$33.6 million in the1990s also provided financial relief to Fiji’s externalaccounts.

Direct investment in Fiji by overseas concernsreflects expectations of future economic stability andincome, and contributes to a healthier external accountsystem. This investment has so far been lower than foreignaid and other transfer payments, which is not out of linewith the general characteristics of open, developingeconomies with global links. It is unlikely that Fiji willattract more capital soon. However, recent political reformsallow for such a flow to occur if decisive action is taken onlong-term land leases for sugar production. Although sugaris expected to play a gradually reduced role in Fiji’seconomy in the years ahead, it remains critical for incomestability in the short term.

2.8 DEBTAND PAYMENTS

F i j i ’s total public debt has risen rather rapidly in recentyears, mainly as a result of accumulating fiscal deficits. To t a loutstanding public debt was F$1.40 billion in 1997 (60.0percent of GDP), up from F$1.13 billion in 1996. It wasexpected to rise to F$1.45 billion in 1998. As a share ofG D P, Fiji’s total public debt is not expected to change muchthis year. Change will require serious fiscal discipline, whichis unlikely to be in place soon because of the worseninge c o n o m y. The burden of a growing public debt is theservicing cost which requires the commitment of resourcesthat might otherwise be put to more productive uses.

Total external debt in 1997 was F$349.7 million ofwhich public debt was F$222.4 million and private debt wasF$127.3 million. Both amounts were small shares of GDPand, therefore, of no great concern.

III. ECONOMY BY SECTOR AND MAJORINDUSTRY

3.1 AGRICULTURE, FORESTRY& FISHING (AFF)

More than 75 percent of all Fiji households engage insome way in crop production, livestock, forestry or fishing.Despite its importance to the Fijian economy, agriculture isdeclining as a share of total income principally because oflow productivity. Since the labor share of agriculture hasremained high, especially in rural areas where no otheralternatives for work exist, income from agriculture hasfallen in relation to other sectors. The continuing drop inincomes has deterred investment in farming, which in turnhas led to lower productivity.

In an effort to help agriculture preserve its incomelevel and thereby make it an attractive occupation, thegovernment has attempted price supports, protective tradepolicies and subsidies, all with limited results. Raisingproductivity and restoring the opportunity to earncompetitive income in agriculture will require a thoroughassessment of the sector’s place in the economy and itscontribution to Fiji’s lifestyle and social and politicals t a b i l i t y. Since Fiji already has the land, labor and markets, ahighly productive and efficient agriculture sector, especiallyin sugar, appears to be justified.

An important step in that direction was a 1996 studydone jointly by ADB and Fiji’s Ministry of Agriculture,Fisheries and Forests, that outlined a strategy for growthand development.4 Reviewing AFF production and policy

4Asian Development Bank and Ministry of Agriculture, Fisheries and Forests, Fiji Agriculture Sector Review, July 1996.


19

in the 1985-95 period, the report’s mostimportant conclusion was that Fiji’sAFF must now operate in a freer tradeenvironment, which makes marketreform and efficiency more critical thanever before. This trade environmenthas come about following the UruguayRound of international trade talks toreform tariffs worldwide.

Because isolation from marketsadds to production and distributioncosts in economies like Fiji, its AFFmay never be as efficient as that ofChina, Mexico and other largedeveloping economies whereeconomies of scale make it possible toovercome these problems. But thatsame isolation has helped to preserveFiji’s natural tropical beauty and itsrelatively pest-free, unpollutedenvironment. It has also bolstered theFijian farmers’ability to produce avariety of foods and fiber for bothdomestic and overseas markets.

Sugar is still the backbone ofF i j i ’s commercial agriculture,accounting for 40 percent. It directlyemploys a quarter of Fiji’s labor force,with the typical sugarcane farmaveraging 4-5 hectares. In 1995 some22,400 small holdings cane growersworked in sugar production andprocessing. The average cane farmerharvested 183 tons of cane and receivedF$9,810 in 1995. The average cane farm harvest was 3.3hectares and the average cane yield was 55.1 tons perhectare. More than 60 percent of all cane growers produceless than 150 tons a year, and 25 percent produce less than 50tons a year. In 1995, a total of 454,000 tons of raw sugar wasproduced and 98 percent of it (445,000 tons) was exported,earning F$276.1 million. In 1996, Fiji’s total export valuerose to F$301.7 million, but fell to F$213.4 in 1997.

The Fiji Sugar Corporation (FSC), a quasi-publicentity, produces the raw sugar. The Fiji Sugar MarketingCompany, a subsidiary of FSC, markets the sugar. Virtuallyall raw sugar goes to export markets, roughly half of whichgoes through the UK to EU at preferential prices. Asmallamount also goes to the United States under quota atpreferential prices (1.5 to 2 times the world price). Theremainder is sold in open markets.

Because of its dominant position, Fiji’s sugarindustry is more than a segment of Fiji’s economy. Aninstitutional structure is in place that gives the governmenta strong role in every aspect of the industry. The Sugar

Industry Act of 1984 governs the industry through theSugar Commission of Fiji, the Sugar Industry Tribunal, theSugarcane Growers’Council and the Mill AreaCommittees. All these operate independently of the FSC.The Act also created provisions governing the rights andobligations of FSC and the growers. The 19-member SugarCommission serves as the industry’s coordinating body.

Sugar is among the world’s most protected goodsbecause it is a universal sweetener. Retail prices in theUnited States and EU are 2-3 times world market prices.This discourages consumption, promotes inefficientresource allocations and causes distortions in markets. Yetall the global trade talks concerning general agreement ontariffs and trade have left the sugar-marketing arrangementsof the US and EU practically untouched. As a result, theglobal sugar market may remain as distorted in the nearfuture as it has been in the past, directly benefiting Fiji.

How long the United States and the EU will pay 2-3 times the world price for sugar from Fiji and otherdeveloping markets is uncertain, but these pacts allow

EXPORT BY MAJOR COMMODITY1

Commodity 1991 1992 1993 1994 1995 1996p 1997f

S u g a rVa l u e 2 2 0 . 4 2 2 1 . 3 2 3 0 . 7 2 5 2 . 2 2 7 6 . 1 3 0 1 . 7 2 5 5 . 1Volume (000 tonnes) 3 5 7 . 1 3 6 4 . 9 4 3 9 . 1 4 7 2 . 0 4 4 4 . 3 5 0 0 . 3 3 9 5 . 0Unit Value (F$/tonne) 6 1 7 . 2 6 0 6 . 5 5 2 5 . 4 5 3 4 . 3 6 2 1 . 4 6 0 3 . 0 6 4 5 . 8

M o l a s s e sVa l u e 1 3 . 3 1 3 . 1 1 0 . 0 1 3 . 6 2 1 . 3 2 2 . 0 1 5 . 0Volume (000 tonnes) 1 5 5 . 3 1 3 6 . 7 1 1 7 . 7 1 4 0 . 3 1 8 8 . 5 1 4 4 . 0 1 3 3 . 0Unit Value (F$/tonne) 8 5 . 6 9 5 . 8 8 5 . 0 1 0 1 . 5 1 1 3 . 0 1 5 2 . 8 1 1 2 . 8

Coconut OilVa l u e 2 . 3 5 . 7 3 . 7 3 . 8 3 . 9 5 . 6 6 . 0Volume (000 tonnes) 3 . 6 7 . 9 6 . 0 4 . 1 4 . 0 5 . 7 6 . 1Unit Value (F$/tonne) 6 3 8 . 9 7 2 1 . 5 6 1 6 . 7 9 2 6 . 8 9 7 5 9 8 2 . 5 9 8 3 . 6

G o l dVa l u e 4 6 . 6 6 0 . 7 6 6 . 7 6 2 . 6 5 8 . 6 8 1 . 6 8 1 . 6Volume (000 fine oz) 8 7 . 0 1 1 8 . 8 1 2 1 . 6 1 1 2 . 6 1 0 9 . 6 1 5 0 . 7 1 7 0 . 0Unit Value (F$/fine oz) 5 3 5 . 6 5 1 0 . 9 5 4 8 . 5 5 5 6 5 3 4 . 7 5 4 1 . 5 4 8 0 . 0

Timber & cork & wood manufactures 3 1 . 3 3 5 . 9 3 6 . 4 3 7 . 8 5 3 . 1 4 5 . 6 4 9 . 3– Wood in chips or in particles 1 8 . 7 2 2 . 9 1 8 . 2 1 5 . 8 3 2 . 2 2 6 . 8 2 9 . 5F i s h 4 9 . 0 4 1 . 0 4 8 . 3 6 3 . 8 6 9 . 8 6 0 . 4 6 1 . 9G a r m e n t s 1 3 1 . 1 1 1 6 . 8 1 2 8 . 8 1 4 1 . 0 1 8 5 . 0 1 8 9 . 9 1 9 5 . 6F o o t w e a r 4 . 6 4 . 3 1 1 . 5 1 4 . 0 1 5 . 5 1 2 . 8 1 2 . 0D a l o 1 . 0 2 . 0 0 . 5 5 . 5 8 . 0 9 . 4 1 0 . 0Ya q o n a 1 . 2 1 . 3 1 . 9 2 . 6 2 . 7 2 . 4 2 . 6Other Domestic Exports 5 3 . 9 5 3 . 2 4 9 . 9 6 0 . 4 6 6 . 5 6 9 . 3 7 0 . 1Total Domestic Exports 5 5 6 . 7 5 5 6 . 5 5 9 3 . 5 6 6 5 . 0 7 7 0 . 4 8 2 1 . 1 7 8 9 . 2R e - E x p o r t s2 1 0 9 . 8 1 1 2 . 2 1 0 4 . 0 1 6 8 . 6 1 0 5 . 5 2 2 8 . 7 1 4 5 . 0Total Export 6 6 6 . 5 6 6 8 . 7 6 9 7 . 5 8 3 3 . 6 8 7 5 . 9 1 , 0 4 9 . 8 9 3 4 . 2

Note: 1Values in millions of Fiji dollars2Re-exports in 1992, 1994, 1996 & 1997 include the sale of airc r a f t(p): provisional; (f): forecast

S o u rce: Ministries of Finance and National Planning, Supplement to the 1998 Budget Addre s s , p. 11


20

producers like Fiji the time to become moreefficient and more diversified. The LomeConvention allows Fiji until 2004 to sell sugar toEU, while the US quota, reviewed annually, islikely to remain unchanged in the next few years.The pressure in the United States and EU to endforeign sugar subsidies will more likely comefrom domestic dialogues concerning subsidies ingeneral rather than from global trade pressures,because sugar represents a relatively small shareof world trade.

Given these conditions, it would beadvantageous for Fiji to give higher priority tosugar. Increased production in sugar would makeits contribution to the economy much higher,raising local incomes and living standardsoverall. Yet, as the ADB and Ministry ofAgriculture, Fisheries and Forests study finds,agriculture’s contribution to the economyremained practically unchanged over the studyperiod (1985-95) at 16 percent of GDP(F$487million in 1996).

3.1.1 POTENTIALFOR GROWTH

About one million hectares can potentially becultivated in Fiji, but only slightly more than a quarter ofthat is used for crops. With agricultural production belowits full potential, production and exports can both rise.With its resources of land and labor, Fiji can achieve higherproductivity in existing crops and can produce new onesincluding cash crops for export markets, by givingagriculture more support.

In addition to sugar, other opportunities foragricultural growth exist in irrigated rice, dairy, beef andpoultry products, high-value fruits and vegetables such as ginger, pineapple, taro, kava and squash for export.

Further markets can be developed for processed fruit andvegetables. Some efforts in crop production other than canehave so far failed to adapt to local climatic and culturalconditions. Fertilizer and other agricultural chemicals arestill rarely used. Agricultural research and extension havebeen weak in promoting and marketing new crops. Bygiving a higher priority to diversified agriculture, thegovernment will support a sector in which Fiji has arelatively strong comparative advantage. Also, world aidorganizations are amenable to assisting in achievingagricultural production goals.

An important issue in the current debate over howcrucial agriculture is to Fiji is the growth of tourism.Tourism is a growing global industry and its supportersargue that it should receive more attention. While thisargument has merit, it ignores the reality that not all PacificIslands share the same attributes of successful destinations.Of equal importance is that relying on tourism without thebalance of domestic productive resources leaves aneconomy vulnerable to external events such as the currentAsian financial crisis and the recent devaluation.

F i j i ’s large unspoiled land area, small population and

Workers in a sugar cane field

SUGAR PRODUCTION, EXPORTS AND PRICE(‘000 tonnes; $/tonne; $million)

1995 1996 1997e

Cane Production 4 , 1 1 0 4 , 3 7 9 3 , 6 0 0Sugar Production 4 5 4 4 5 3 4 1 0Total Cane to Sugar Ratio (TCTS) 9 . 0 9 . 7 8 . 8Export Va l u e 4 2 7 4 0 9 3 6 7Unit Va l u e 6 8 3 5 9 7 6 1 5Sugar Export Earnings 2 9 2 2 4 4 2 2 5Molasses Production 1 8 1 1 8 5 1 4 6Molasses Export Earnings 2 1 2 7 1 5Price Paid to Growers 5 3 . 7 8 4 5 4 8

S o u rce: Ministries of Finance and National Planning, Supplement to the 1998Budget Addre s s, p. 69

TOURISM: VISITORS, LENGTH OF STAY AND EXPENDITURE

1993 1994 1995 1996e 1997e

Visitors (000) 2 8 7 . 5 3 1 8 . 8 3 1 8 . 5 3 3 9 . 0 3 5 9 . 0Average Length of Stay (Days) 8 . 6 8 . 6 8 . 5 8 . 3 8 . 7Visitor Days (million) 2 . 4 2 . 7 2 . 7 2 . 8 3 . 0Earnings ($ million) 3 4 7 . 4 3 9 2 . 5 4 0 5 . 0 4 3 0 . 0 4 7 9 . 1

S o u rce: Ministry of National Planning, Development Strategy for Fiji, p. 90


21

relative closeness to large markets areadvantageous attributes for developingtourism. But tourism’s advantage and thatof agriculture are not mutually exclusive.R a t h e r, they are complementary sinceagricultural operations such as botanicalgardens and exotic crop plantations can betourist attractions, and an environmentallysafe agriculture can be critical to ad e s t i n a t i o n ’s appeal. An economy such asF i j i ’s that is potentially strong in bothagriculture and tourism will benefit muchmore in the long run from developing both.

3.2 TOURISM

3.2.1 TOURISM STATISTICS

F i j i ’s tourism has grown over the lastdecade to become a major source of income,exceeding agriculture as a source of foreignexchange earnings. Estimated touristspending of F$479.1 million in 1997 wouldmake tourism the largest industry. However,since a large portion of tourist spending leaks out of theeconomy as payments for imports, the net economic impact oftourism is smaller than that implied by tourist spendingnumbers. Still, tourism is a critical source of jobs and foreignexchange and is a means of access to the rest of the world.

In 1991-97, total annual tourist count increased 38.6percent from 259,350 to 359,441, with an average annualgain of 5.6 percent. During that time, total arrivals to Fijidropped only once in 1995 by 0.1 percent, following thedecade’s largest gain of 10.9 percent the year before.

In 1997, tourist arrivals to Fiji totaled 359,441, up5.7 percent from 1996’s total of 339,560. Total tourist

spending of F$479.1 million was up a healthy 11.4 percentfrom 1996. In the first half of 1998, total arrivals were up2.4 percent from the same period in 1997, but notablechanges occurred in the relative shares of tourists from thevarious markets. Most of these shifts resulted from thedevaluation of the Fiji dollar and the Asian financial crisis.

Between January and June, tourists from A u s t r a l i aincreased the most, by 29.2 percent, and their share of thetotal rose from 22.4 percent for all of 1997 to 28.1 percent inthe first six months of 1998. Devaluation of the Fiji dollar,along with concerns about other destinations where domesticunrest prevails (such as Indonesia), caused the increase in

tourists from Australia. Declining the most in the firsthalf of 1998 were tourists from Japan, down 23.2percent from the same time in 1997. This plunged theJapanese tourists’market share to a single digit (9.2percent) for the first time in the 1990s. The main causeof the traffic drop from Japan is the deterioratingJapanese economy.

Also declining in the first half of 1997 weretourists from Canada, whose count was down 9.5percent from the previous year, although their share ofthe total was unchanged at 3.8 percent. In 1991-97,Canadian tourists dropped both as a share of totalarrivals (from 5.9 percent to 3.8 percent) and in totalnumbers (from 15,242, to 13,359). Not even thecheaper Fijian dollar did much to attract more touristsfrom Canada. The enormous distance to Fiji and thehigh cost of travel seem to be the major factors.

While devaluation of the Fiji dollar workedBananas at a typical Suva market

VISITOR ARRIVALS TO FIJIAustralia NZ USA Canada Europe Japan Others Total

1991 86,625 30,631 31,842 15,242 42,820 27,802 24,388 259,3501992 87,395 37,227 34,802 12,602 46,308 35,960 24,240 278,5341993 77,609 40,778 42,557 12,447 50,019 38,203 25,849 287,4621994 85,532 53,495 45,351 12,018 54,919 39,782 27,777 318,8741995 78,503 59,019 39,736 10,412 55,377 45,300 30,148 318,4951996 79,534 63,430 38,707 11,431 60,782 44,598 41,078 339,5601997 80,351 68,116 44,376 13,359 67,825 44,783 40,631 359,441

1997: Jan-Jun 37,352 28,488 20,028 7,252 34,711 20,507 19,648 167,986

1998: Jan-Jun 48,255 29,958 21,731 6,566 34,379 15,747 15,387 172,023

% Change 29.2 5.2 8.5 (9.5) (1.0) (23.2) (21.7) 2.4

Percent Shares1991 33.4 11.8 12.3 5.9 16.5 10.7 9.4 100.01992 31.4 13.4 12.5 4.5 16.6 12.9 8.7 100.01993 27.0 14.2 14.8 4.3 17.4 13.3 9.0 100.01994 26.8 16.8 14.2 3.8 17.2 12.5 8.7 100.01995 24.6 18.5 12.5 3.3 17.4 14.2 9.5 100.01996 23.4 18.7 11.4 3.4 17.9 13.1 12.1 100.01997 22.4 19.0 12.3 3.7 18.9 12.5 11.3 100.0

Sources: Reserve Bank of Fiji and Bureau of Statistics.


22

visibly to attract more tourists from Australia, it has donelittle thus far for tourists from New Zealand. New Zealandvisitors were up only 5.2 percent in the first half of 1998 overthe same period in 1997, but at that level of arrivals, theyrepresent a smaller share of the total this year than in 1997.Last year, New Zealand tourists accounted for 19.0 percent oftotal arrivals. In the first half of 1998, they were down to17.4 percent of the total.

Rising in numbers but not in relative share of the totalin the first half of 1998 were tourists from the United States.The number of American tourists was up 8.5 percent in thefirst half of 1998, but remained unchanged as a share of thetotal at 12.6 percent. Amore positive trend for tourists fromthe United States can be seen in their numbers for the entire1991-97 period when they increased 39.4 percent from 31,631to 44,376. Again, the relative share of A m e r i c a ntourists did not change during the period,averaging 12.9 percent. The closest in marketshare to American tourists in 1991-97 weretourists from Japan who averaged 12.7 percent ofthe total.

The static shares of American andJapanese tourists in 1991-97 indicate that nospecial efforts were made to increase lift capacitybeyond the natural market progression. Bymaking special efforts such as creating charteredflights or acquiring more aircraft to generate newlift capacity, the market shares from both Japanand North America can be expanded since thepotential tourist pools in those markets are muchl a rger than those in the Pacific region.

Based on 1995-96 data, the averagelength of stay was 8.5 days for all tourists, 10.5for Australians, 9.2 for New Zealanders, 7.4 for

Americans, 11.7 Canadians, 8.0 for those from UK andother Europeans and 5.1 days for Japanese tourists. Thetotal hotel and motel inventory was 5,770 rooms in 1996,slightly lower than the early 1990s. Overall occupancy rateaveraged 53.9 percent, again only slightly down from theearly 1990s.

3.2.2 TOURISM’S POTENTIAL

All indications are that Fiji’s tourism will grow.How much and how fast it will grow depends on manyfactors, both internal and external. Australia and NewZealand have so far been Fiji’s major markets, supplyingover 40 percent of tourists as recently as 1997. Expandingthose markets should be relatively easy because of theirproximity and close economic ties to Fiji. Expandingmarkets in Japan and North America, however, will remaina bigger challenge but one that is critical to diversification.One way that will help Fiji expand and diversify its touristmarkets, especially in North America and Japan, is to attractmore global and regional hotel chains. Secondary activitiesthat arise from the presence of major hotel chains can alsobe significant contributors to the local economy.

As the Asian economies recover from their currentdownturns and others such as North America continue togrow, the demand for travel to tropical markets should rise.This holds true for Asia-Pacific travelers not to only Fiji,but also to other island destinations such as Guam andHawaii. Fiji has a better combination of resources andinfrastructure than some of its neighbors, which makes it amore desirable tourist destination. The question of howmuch tourism is optimal and what other industries canbenefit from tourism is yet to be answered.

All indigenous resource owners may gain from thedevelopment of tourism along with agriculture and other means

PRODUCTION OF MAJOR COMMODITIES1991 1992 1993 1994 1995 1996

Sugar Cane (‘000t) 3 , 3 8 0 3 , 5 3 3 3 , 7 0 4 4 , 0 6 4 4 , 1 1 0 4 , 3 7 9Sugar (‘000t) 3 8 9 3 8 4 4 4 2 4 3 0 4 5 4 4 5 3Gold (kg) 2 , 7 4 3 3 , 7 0 1 3 , 7 8 4 3 , 5 3 5 3 , 4 9 6 4 , 5 5 5Copra (‘000t) 1 5 . 2 1 6 . 3 1 0 . 6 8 . 4 1 0 . 7 1 1 . 0Coconut Oil (t) 8 . 7 9 . 2 6 . 2 4 . 6 5 . 5 5 . 7Paddy Rice (‘000t) 2 9 . 0 2 2 . 4 2 2 . 2 1 8 . 0 1 8 . 4 1 8 . 8Cocoa (t) 3 6 3 3 2 5 1 5 2 1 6 3 1 0 0 1 2 6Ginger (t) 6 , 5 0 0 6 , 2 1 3 4 , 2 7 6 6 , 5 5 2 2 , 4 0 4 2 , 2 2 0Beef (t) 2 , 8 4 7 2 , 6 2 4 2 , 4 3 0 2 , 3 0 6 2 , 2 1 7 2 , 4 0 1Pork (t) 7 1 5 7 1 1 7 6 5 8 3 1 7 5 4 7 9 1Goat (t) 6 6 0 7 2 0 6 3 7 7 5 8 8 0 1 8 4 0Chicken (t) 5 , 8 8 8 6 , 0 5 7 5 , 7 4 2 8 , 1 4 4 8 , 7 6 3 9 , 6 0 0Eggs (t) 2 , 3 9 2 2 , 4 7 5 2 , 4 4 8 2 , 5 2 6 2 , 5 7 6 3 , 7 8 1Fish (‘000t) 1 3 . 8 1 3 . 5 1 3 . 9 1 6 . 7 1 7 . 3 1 0 . 7Sawn Timber (‘000cu.m) 8 4 . 2 9 5 . 5 1 1 1 . 1 1 2 6 . 7 1 1 3 . 9 1 2 2 . 1

S o u rce: Ministry of National Planning, Development Strategy for Fiji, p. xxxi

Guest cottages at a resort in Savusavu, Fiji


23

of production. Fiji’s relatively large land mass and numerouspotential resort locations make it possible to develop competingindustries without serious problems of encroachment.Development of multiple industries in turn creates work for thel a rgest possible proportion of the labor force.

With political and economic uncertainty diminishingas a result of the government’s commitment to reforms,tourism can certainly be one of the major beneficiaries.Unlike some of the smaller island economies where eventhe basic infrastructure is rudimentary, Fiji has reasonablygood physical facilities that can easily be upgraded andexpanded. By unveiling the Fiji Tourism DevelopmentPlan: 1998-2005 (FTDP), both the industry and thegovernment have shown their enthusiasm for developingtourism. Fiji’s potential as a destination and what it willtake to reach that potential can now be identified.

The first step is to determine the optimal number oftourists annually. This number is a function of air serviceand lift capacity, infrastructure on the ground and, ofcourse, the disposable income of potential tourists. Theexperience of other destinations in the Pacific, especiallyHawaii and Guam, should offer some useful directions.Hawaii, one of the world’s major destinations, receivednearly seven million tourists at the peak of the cycle in theearly 1990s when Japan became a far more importantmarket than before. While that momentum has notcontinued, Hawaii is still a destination of seven millionvisitors a year. Guam has received up to 1.4 million a yearand aims for 2.0-2.5 million as its optimal market size. Itwill most likely achieve that number in the next 5-10 years.

The optimal visitor count for Fiji is dependent on notonly the market forces but also the degree of Fiji’s desire todevelop tourism. The FTDP suggests Fiji’s optimal touristcount may be 600,000 over ten years. Achievement of thatgoal is likely even without any special effort since thecurrent rate of 5.6 percent growth a year (excludingextraordinary years such as 1997-98 that are shaped byglobal financial crises) is sufficient. At this rate, Fiji’stourists will total about 620,000 in 2009.

Fiji can, however, reach its optimal tourist levelsooner if it puts in place both the institutional and physicalinfrastructures to facilitate the growth of a world classdestination. The government not only needs to encouragetourism, but make investing in tourism facilities moreattractive. Streamlining the permit process, lands leaseissues and offering other incentives may be necessary toexpand tourism more rapidly.

Regardless of the development pace, Fiji has tocompete for capital in a highly competitive global market.The market for capital is now shrinking rapidly because theAsian financial crisis has turned economies with capitalsurplus to economies with serious capital shortfalls. T h eusual market conditions (e.g. production and distributiontrends returning to normal as a result of the so-called business

cycle) no longer apply. The stock of capital is shrinking, butthe demand for higher investments (higher levels of income)is rising. Only the most reliable and potentially mostprofitable markets will receive this scarce capital. Fiji cancompete in capital markets on the strength of its resources andby adopting a new attitude toward foreign capital.

3.3 MANUFACTURING & MINING

Economic diversification in Fiji has been hamperedby political and economic uncertainty over the last decade.However, one area of significant gain during the last fewyears has been garment manufacturing. Garment exports,according to the Reserve Bank, increased from F$131.1million in 1991 to F$200.1 million in 1997. In 1998,further gains in exports are expected as a result of favorableprice conditions caused by devaluation of the Fijian dollar.Garment manufacturing now employs 17,000 people (over90 percent female), more than half of the estimated totalmanufacturing employment. Atotal of 104 registeredgarment manufacturers operate in Fiji.

Fiji’s comparative advantage in manufacturing, as inagriculture, lies in its low-cost labor. But mass productionsuch as garment making can be accomplished at even lowercost in economies with large populations and large pools ofunemployed labor as China, the Philippines, Indonesia andMalaysia. Another aspect of manufacturing that affectsFiji’s comparative advantage is preferential access tomarkets. Like Fiji’s sugar sales to the EU, goodsmanufactured in Fiji can enter Australia and New Zealandunder a non-reciprocal compact called the South PacificRegional Trade and Economic Cooperation Agreement(SPARTECA). The main purpose of the agreement is tofoster trade in the region and to give Fiji’s manufacturingthe advantage to get established and grow.

S PA RT E C A has helped Fiji’s export sales in A u s t r a l i aand New Zealand grow, but this and all other regional tradepacts will change in the years ahead because of global andregional economic and trade changes, especially inmanufacturing. The disadvantage inherent in small isolatedmarkets is the limited labor supply, especially of skilled labor.

The question for Fiji is what manufacturing activitywill generate the most benefit in both the short and longterms? The answer is that which is most efficient, allowingproduction at competitive cost whether or not preferentialterms exist. Economies such as Fiji need time to becomeefficient to compete with large producers such as China andother major labor-surplus economies in Asia. Areas otherthan garments in which Fiji may have comparativeadvantage include other light manufacturing and assemblyand food processing, particularly of high value productssuch as preserved tropical vegetables and fruits.

Mining currently accounts for less than one percent ofG D P and is dominated by one gold mine employing some


24

2,000 workers. At current extraction rates the mine isexpected to last about 10 years. According to A u s A i d ,another body of 930 million tons of copper and gold depositshas been proven, the development of which could produce asmuch as F$400-500 million a year for 30 years, expandingF i j i ’s economic base both directly and indirectly. To makesuch a project work and undertake more explorations,h o w e v e r, Fiji would require large sums of capital.

IV. WHAT LIES AHEAD

Following a decade of political uncertainty and sloweconomic growth after the 1987 coups d’Ètat, Fiji’sParliament unanimously passed the new constitution inAugust 1997 which finally took effect a year later.Supplemented by a detailed Bill of Rights that extends equalprotection to all Fiji citizens, the new law will guide the nextparliamentary elections currently scheduled for Februarynext year. The new constitution is more flexible than theopposition (mainly Indians) expected, and is indeed a majorfirst step toward restoring stability and confidence in Fiji.

The new constitution also moves Fiji into ahistorically significant transition, from contention toreconciliation and rebuilding. As important as reconciliationis to restoring political stability to Fiji, it will not meanimmediate economic growth. This transition is under way ata peculiar time. The Fijian economy is now at its weakestpoint since the mid-1980s when the biggest drop in GDPoccurred (5.1 percent in 1985 and 6.4 percent in 1987).

Obstacles to rapid economic growth remain. Thereis an urgent need for long-term land lease reform, as sugargrowers can invest in new technology only if they haveassured access to the land. Mechanisms that need to be putin place to attract more capital to Fiji includetax holidays, rapid depreciation and otherprograms to make it possible for business to setup shop and expand. There are also proposalsto restructure government, privatize publicenterprises and commit to developing adynamic market economy, but transforming acommunal economy with market elements to amarket economy will take time.

Meanwhile, the change in mood, fromuncertainty to certainty, is a positive trend forF i j i ’s business community. Air Pacific, Fiji’sinternational airline, will take delivery of newaircraft by the middle of next year, which willincrease its lift capacity and add to the visitorcount. And its new code sharing agreement withAmerican Airlines is a major first step towardexpanding its North American market share.

By rejoining the Commonwealth, Fiji hasclearly learned that access to large markets is

critical to economic vitality. Having taken an immenselyimportant step toward normalcy and stability, Fiji now needsto embark on a new path to reform and aggressively marketitself in order to gain worldwide recognition as a viablee c o n o m y.

According to the World Bank, Fiji’s economy caneasily grow five percent annually if it takes full advantage ofits productive capacity. It follows that the economy can groweven faster if it incorporates new tools such as informationtechnology to enhance production and distribution.

Fiji’s economic performance will depend on theflexibility of its institutional, market and technologicalsystems. Fiji will be poised to become a regionallycompetitive economy only when it makes the marketchanges that will allow for efficient production anddistribution of competitively priced products for bothdomestic and global markets. Fiji’s economic expansion ofmore than five percent annually after independence showedthat the economy could perform at a high level.

With the Asian financial turmoil coming to an end inthe next 12-18 months, the regional markets shouldstabilize. Depending on how soon the drought ends, theFijian economy should also begin to stabilize next year andthen start to grow once again.

Government, business and labor need to come upwith a new economic development strategy that builds uponwhat has already been accomplished since Bank of Hawaii’slast report two years ago. Fiji’s recession should hit bottomat the end of this year and the economy should begin to grow3-5 percent next year. With an effective campaign to marketthe new politically stable and economically reformed Fiji,foreign capital and skills should once again flow to Fijimaking this potentially one of the most dynamic economiesin the entire Pacific.

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