B&E | How Fiji can Sustain its Growth Momentum

The Fijian economy has registered six consecutive years of GDP expansion in 2016, making this the strongest period of sustained growth in recent decades.

By Utsav Kumar

via Asian Development Bank

Image Attribute: Fiji Water by hacenem Flickr Creative Commons

The Fijian economy has registered six consecutive years of GDP expansion in 2016, making this the strongest period of sustained growth in recent decades. The government’s strong social, economic and political reform program, and continuing macroeconomic stability have contributed to this success and provided the foundation for future growth. Still, while Fiji is clearly rising to the challenges of the 21st century, the country can’t rest on its laurels. Much remains to be done to maintain the momentum and deliver long-term sustainable growth and economic stability.

Fiji’s growth historically has been volatile in part due to the country’s vulnerability to external shocks, including in recent years the global economic crisis and a series of natural disasters. Indeed, Tropical Cyclone Winston in February 2016 was a stark reminder of how costly natural hazards can be for small countries like Fiji, with damage and losses estimated at the equivalent of around one-third of the country’s output.

Internal shocks too have seen private investment levels fall far below their potential. However, with the successful elections in 2014, private investment has picked up—reaching an all-time high of 20.9% of GDP in 2015––as confidence in the economy has grown.

Fiji’s vulnerability to shocks underscores the importance of ensuring growth is broad based and inclusive in that it benefits all sections of society. This is critical, because despite recent gains in reducing poverty country-wide, the most recent Household Income and Expenditure Survey suggests that around 28% of Fijians remain below the national poverty line. The headline unemployment rate is low at 4.7%, but many Fijians are underemployed or employed in the informal sector.

A recent ADB country diagnostic study (released in November 2015 and launched today at the 2016 Pacific Update Conference) identifies four critical constraints to inclusive growth in Fiji:

1. The legislative and regulatory environment for private sector investment, particularly relating to registering, starting and operating a business. While government can do much to facilitate business development, ultimately it is the private sector that drives investment and growth. Removing the constraints to business development, especially those affecting small and medium-sized enterprises, is therefore critical to the future prosperity of the country and its citizens.

2. Substantial investments are required in transport and communications infrastructure to promote the effective flow of information, goods and services. As the rapid growth of fiber-optic broadband in the region has shown over the past decade, much of the investment needed in infrastructure development can come from opening up markets and encouraging new private sector operators to work in partnership with government.

3. Institutional and policy constraints—such as slow and complex customs procedures—need to be addressed. Regional or bilateral trade agreements with major trading partners and other Pacific Island countries also offer potential benefits for Fiji, especially if these also allow greater labor mobility. Also important is to find ways to improve access to finance and unlock the economic potential of land.

4. Investments in human capital – improving and expanding opportunities for education and developing the skills needed for a modern thriving economy, will open up greater opportunities for employment creation and for Fijians to engage globally. 

The country diagnostic report offers several policy recommendations, many of which are a part of the current policy discussions in Fiji. For example, ADB’s Pacific Private Sector Development Initiative is working with the Reserve Bank of Fiji to modernize the secured transactions framework to make it easier to raise credit for small and medium-sized enterprises. ADB is also investing in Fiji’s infrastructure through loans in the transport  and urban development sectors, and is providing technical assistance for a master plan on ports development.

The Government of Fiji is also implementing important policies to address many of the constraints, such as the launch of a single-window clearance that allows for online investment approval in July 2015, and the passage into law of a new Companies Bill in May 2015. The government plans to launch a new development plan in August this year and we hope that this study contributes to the government’s efforts.  

Moving beyond the aforementioned constraints to inclusive growth, three other deeper factors are also likely to play an important role in Fiji’s future:

1. To achieve inclusive growth, Fiji needs political stability and policy certainty. A new constitution was enacted in September 2013, and successful elections in September 2014—the first since 2006—have helped boost investor and consumer confidence.

2. Economic geography. Fiji faces the double whammy of having a small population and a remote location, so its development trajectory is therefore unlikely to resemble that of East and Southeast Asian economies. Fiji’s growth is likely to come from sectors that can surmount the constraints of high costs imposed by its smallness and remoteness.

3. Cultural practices like kerekere (the custom of borrowing from kinsmen with no obligation to repay), while an important form of informal social security, can stymie entrepreneurial spirit among the indigenous iTaukei population, as the benefactor takes up productive economic activity only to give away the fruits of her/his labor.

Fiji’s challenge is to avoid a repeat of the past, when growth spells were interspersed by bouts of volatility. The private sector will play a crucial role in generating sources of sustained growth, so it’s time to continue and deepen the reform process so private sector firms get the enabling environment they need to do business, create more jobs, and extend the benefits of growth to all Fijians. In doing so and making growth more inclusive, it is important to address vulnerabilities to natural hazards through, for example, better project designs and incorporating elements of climate proofing as well as through policy measures, such as agricultural insurance and social security, that help ring fence source of livelihoods.

About the Author:

Dr. Utsav Kumar is an economist with ERCD’s Economic Analysis and Operations Support Division at Asian Development Bank. He holds a PhD in Economics from University of Maryland, College Park.

This article was first published by the Asian Development Bank