Fiji’s Economy – What Next?   

An Address to the American Chamber of Commerce
Suva

MR: Mar 28, 2007

Ted Mann, Deputy Chief of Mission, U.S. Embassy, Suva

I am not an economist, but an interested observer of Fiji’s economy.   I will not pretend to give a formal economic analysis, but offer impressions of Fiji’s economic prospects in the near to medium-term, and to put forward my view – which happens to coincide with the U.S. government view -  of what Fiji needs to do to get the economy back on track.    My focus will not be on economic fundamentals like trade, investment or economic reform.  My focus will be on elements we consider even more basic -  the political, judicial and legal systems that support, and unfortunately sometimes undermine, an economy. 

Perhaps the best way to start is to step back.    Before the coup,  Fiji certainly had its share of economic problems – the textile industry had nearly collapsed as WTO-mandated changes spelled the end of the old quota system, the sugar industry was teetering, the gold-mining industry was in very deep trouble, and government waste and a sometimes less-than-welcoming regulatory regime often made life difficult for investors.   Fiji had its share of corruption too although, according to the TI “corruption barometer” announced in Suva last week, Fiji  scored significantly better on the  corruption index than the U.S., the UK and the Asia-Pacific region as a whole.    Still, there were problems. 

  But there was optimism too.  The tourism industry was booming.  Investors showed increased interest into tapping Fiji’s status as a regional hub in areas ranging from consumer products to high-tech.  When Fiji floated a $150 million international bond offering in Singapore last September it was snapped up by eager investors, and oversubscribed many times, leading to a significant drop in the interest rate the government of Fiji had to pay.  Clearly, there was a perception that Fiji was on the upswing. 

The U.S. view was that although a lot of hard work was ahead,  Fiji had the requisite tools to succeed in the global economy.   In a speech he made to municipal council leaders in BA in late 2005, Ambassador Dinger made the following statement about Fiji’s role in the global economy:
 “The one indispensable factor for countries seeking to reap the benefits of globalization is good governance.  Businesses need local and national governments that are transparent, accountable, and well-managed……  Fiji has done a good job, since 2000, in reestablishing the democratic institutions that drive success in this global environment…..  You have improving law enforcement agencies and an excellent judicial system.   You have a strong commitment to open debate and free elections that are the hallmarks of a successful democracy. ”   The Ambassador concluded the speech by noting that if Fiji holds to these democratic principles, it has a bright future indeed.

Unfortunately, in looking at Fiji’s economy now, the bright economic future the Ambassador mentioned appears to have turned bleaker.   The economy is projected to decline by at least 2% in 2007, and may do worse.   Investment has stalled, tourism is still far weaker than hoped, consumer spending is down.  The economy is in a deep, deep hole, one it’s not going to be easy to climb out of. 

As the Ambassador noted in his speech, in order to reach its potential, an economy needs a governmental system that is transparent and accountable.   Unfortunately, a military regime doesn’t answer to anyone but itself.    To reach its potential, an economy needs a strong and independent judiciary and independent law enforcement agencies.  At present, that independence has been called into question.  In Fiji’s current state of emergency, there is no longer a commitment to open debate and free speech – instead an atmosphere of fear and intimidation predominates, including in the media.  And the proposed “road map” back to free elections now appears to be up to four years long, with a “mid-term” review at the end of 2009.   That is not encouraging.  

The interim government has repeatedly stated that, though economic times are likely to remain tough for a while, there is light around the corner.  They say that with a tighter budget and less government waste, and corrections to the policies of the elected government, the economy will gradually return to normal.  They predict that tourism will revive, foreign investment will begin to flow again, domestic consumption will recover, and everything will be fine. 

There are lots of economic reasons to quibble with the interim government’s forecasts.   The interim government’s prediction that tax and other revenues will increase over 2006 levels seems unrealistic.   So does the assumption that tourism revenues for 2007 will be close to last year’s levels.    Further borrowing is going to be tough.  If Fiji were to float a bond on international markets now, as some in the interim government have suggested, it is very unlikely it would get a very positive response.   

These economic factors aside, the main reason we find optimism about the economy to be unfounded is our firm belief that this economy will not bounce back until the interim government takes credible steps to rapidly return the country to democracy, to accountability, to the rule of law.   Currently that “light around the corner” is mighty dim.  In our view, without a return to democratic rule, Fiji’s society, and its economy, cannot “return to normal.”

The interim regime and its supporters often say that the people of Fiji and foreign governments need to accept the “reality” of what has taken place in Fiji, and move on.   But actually, the reality that needs to be accepted , including by the interim regime, is that the only way out for Fiji’s economy is to restore democratic rule quickly. 

If democracy does return to Fiji soon, there are plenty of reasons to believe that economic growth will return too.  The United States and other nations are willing to help.   The Pacific Island Forum Foreign Ministers in Vanuatu also made that view loud and clear.

As the Foreign Ministers indicated very clearly, the ball is in the interim government’s court.     Fiji needs to move back to democratic rule, and it needs to do it quickly, certainly within the Eminent Person’s Group “18-24 month or less” timeframe, or Fiji’s economic prospects will remain bleak.

In the meantime, we at the U.S. Embassy will do what we can to assist U.S. firms and their local affiliates.   Although it certainly isn’t “business as usual” for us with the interim government, we will continue to work with ministries and organizations like the American Chamber to try to lower trade and investment barriers, and make doing business here a little bit easier, wherever we can.  We, like you, have a stake in Fiji.  We’ll be starting construction of a new Embassy later this year – and injecting millions of dollars into the economy in the process.  We are going to stay involved and use whatever influence we have to help make Fiji a better place to live, work and do business.