$Unique_ID{COW01303} $Pretitle{294D} $Title{Fiji Chapter 2. The Economy} $Subtitle{} $Author{Stephan B. Wickman} $Affiliation{HQ, Department of the Army} $Subject{percent government fiji tons production sugar gdp period hectares land} $Date{1984} $Log{Table 2.*0130301.tab Table 3.*0130302.tab } Country: Fiji Book: Oceania, An Area Study: Fiji Author: Stephan B. Wickman Affiliation: HQ, Department of the Army Date: 1984 Chapter 2. The Economy Although the gross domestic product (GDP-see Glossary), equivalent to about US$1,134 per person in 1982, was high by comparison with some other developing countries, the economy still depended heavily on sugar exports and tourism-both of which were sensitive to fluctuations in the international economy. About one-third of the Fijian work force, moreover, was still employed in subsistence farming or fishing. Fijians produced little for sale in the commercial sector, where the other ethnic groups generated most of the wealth. The narrow basis for future economic growth, persistent unemployment, and differences in the standard of living between urban and rural households continued to disturb the government, which nonetheless has presided over a relatively prosperous economy since the nation's independence. National income statistics for Fiji have not been completely reliable, but the available data show that during the 1960-79 period, GDP grew by between 5 and 6 percent per year in real terms. The yearly pace of economic growth has varied, and it slowed considerably in the 1980s. Economic activity and income actually shrank in 1980, 1982, and 1983 because of depressed international sugar prices, increases in the cost of imported oil, and the onslaught of a hurricane and prolonged drought. The structure of economic demand has changed slightly. From the 1958-60 period to the 1978-80 period, exports decreased in value from over 51 percent to 45 percent of GDP. Government consumption expenditure rose from 16 to 17 percent of GDP, while private consumption declined from 65 to 62 percent of GDP. Investment changed most strikingly from 16 to 24 percent of GDP. Some of the increase, however, went to the purchase of imports, raising their value from 48 to 50 percent of GDP. The gap between exports and imports widened further in 1981 and 1982, according to preliminary statistics, averaging about 9 percent of GDP. The level of employment and unemployment, which was a major concern to the nation's economic policymakers, was difficult to determine because of the large subsistence sector. The labor force was probably growing by 2.5 to 3 percent per year during the 1976-81 period, but formal employment expanded at best by 2.9 percent per year. The negative economic growth rates experienced since that time suggest that the employment situation has deteriorated significantly. Economic Policy and Management The Fiji government has favored private enterprise and initiative since colonial times but has directed the economy through consecutive five-year plans, the eighth of which spanned the period from 1981 to 1985. The plans have helped guide public investment over the long run, despite temporary changes in fiscal policy during individual years. The seventh and eighth plans concentrated on expanding investment in the rural sector, encouraging Fiji citizens to enter business ventures either on their own or jointly with foreign help, and improving the basic needs of the population through investment in public service. Total government expenditure during the 1976-80 period averaged more than one-quarter of GDP, rising slightly during the period. Current expenditures were equivalent to 19 percent of GDP and increased more rapidly than capital expenditures. In 1981 total expenditure rose to more than 29 percent of GDP, pushed upward by capital spending, which topped 9 percent of GDP for the first time. The increased capital expenditures were devoted to a major water supply project in the Nadi and Lautoka areas and a large hydroelectric project. Budget estimates for 1982 and 1983, which were made before a major hurricane hit the islands in 1983, projected that total expenditures would remain at around 30 percent of GDP. Although capital spending was expected to fall off sharply, pressures for salary increases from the civil service and the cost of financing the national debt would boost the overall level of spending. Expenditures on social services and welfare have made up the largest category of public spending, representing more than 37 percent of the total in the 1976-80 period as spending on economic services and infrastructure rose. Interest payments on the outstanding government deficit also increased, from an average of about 6 percent of total expenditures during the 1976-80 period to nearly 10 percent of the total in the 1981-83 period. The reasons for the increase in the government deficit from less than 4 percent of GDP in the 1976-80 period to nearly 6 percent in the 1981-83 period were the close link between government revenue and economic growth and the political difficulty in cutting expenditures and raising taxes. Domestic taxes were equivalent to 12 percent of GDP in the 1976-80 period, and taxes on international trade added another 6 percent. The total tax burden rose to about 20 percent of GDP in 1981. In 1982 and 1983, however, total tax revenue was estimated to have declined from 18 percent of GDP, particularly because of decreased revenues from excise and custom duties. Part of the shortfall was caused by reductions in export taxes for sugar and coconut products, which faced poor international prices until 1983. Managing the money supply within the context of the balance of payments and inflation has been a major activity of the Ministry of Finance and the Central Monetary Authority, the nation's central bank. Much of the economy's inflation has been imported, particularly since the surge of international oil prices began in 1973. The overall average increase in the consumer price level was about 10 percent per year during the 1972-82 period, but the worst years were those immediately after major adjustments to the price of imported oil. After peaking at about 14.5 percent in 1980, however, inflation fell to around 6 to 8 percent in the 1981-83 period. The central bank has generally followed a countercyclical monetary policy that encouraged domestic credit to expand when export earnings were low and restricted growth when the balance of payments was favorable. One noteworthy trend since the late 1970s has been the tendency of the government and official agencies, such as the public utilities, to grab a larger share of the available domestic credit; their claims rose from 15 to 26 percent of domestic credit during the 1976-82 period. To prevent any additional crowding out of the private sector, the government raised as many of its financing needs as possible overseas. The central bank strictly regulated the local banking industry by maintaining maximum deposit and lending rates in all categories of finance in addition to reserve and central bank discount requirements. Beginning in late 1981, however, the banking authorities raised interest rates significantly. In 1983 and 1984 the Ministry of Finance introduced new banking legislation drafted with the advice of the International Monetary Fund (IMF-see Glossary) to reform the system. Among the many changes that were designed to make the financial market more efficient were the creation of merchant banks and the elimination of interest rate controls on large deposits and loans. In 1980 Fiji had five commercial banks-four foreign and one government-owned-one government development bank, and numerous credit unions. Foreign trade has been critical to the well-being of the insular economy (see table 2). Merchandise exports, excluding reexports, have fluctuated between 15 and 25 percent of the value of GDP; earnings from services, especially tourism, have been equivalent to around 30 percent of GDP. The government has actively promoted exports by sending trade missions overseas, participating in international commodity and trade agreements, and closely monitoring foreign financial and trade markets. The central bank has carefully pegged the value of the Fiji dollar to the weighted value of the currencies of its major trading partners-Australia, Britain, Japan, New Zealand, and the United States (see table 3). Imports have averaged over 50 percent of the value of GDP, and customs duties have been relatively low in comparison with other developing countries. Capital inflows in the form of international loans and investment have offset the frequent current account deficits; Fiji has received little grant assistance. The government had long-term loans of about F $146 million outstanding in 1982; debt-service payments were expected to be equivalent to some 7 percent of the value of export earnings in 1983. Direct foreign investment, which came to a complete halt in the 1976-78 period, increased by more than 50 percent per year from 1979 to 1982, when it totaled F $32 million. The government created the Economic Development Board in 1979 to be a one-stop center for approving foreign investments. The agency was elevated to executive rather than advisory status in 1981 and seems to have been at least partially responsible for the upsurge in investment. Although the government claimed to have one of the most favorable incentive programs for foreign investors in the world, a report compiled by a British consultant suggested that the system remained complex, understaffed and inadequate by international standards. [See Table 2.: Fiji. Balance of Payments, 1981-83 (in millions of Fiji dollars)] The government has also intervened in the labor market via the Tripartite Forum, established in 1976. The forum has brought together for annual wage negotiations representatives of the Fiji Trade Union Congress-the largest labor federation in the country-the Fiji Employers' Consultative Association, and the government. Although the forum has no statutory authority, the members have generally agreed to abide by its findings. The decisions of this body have had an important effect on negotiations between the many smaller unions and employers' groups unaffiliated with the tripartite representatives. The 45 unions in existence in 1982 represented slightly more than one-half of the paid work force of 80,000. [See Table 3.: Fiji. Direction of Trade, 1981-83 (in millions of Fiji dollars)] In general, the government has steered clear of outright wage and price controls. Wages were expected to be determined by collective bargaining agreements or, in the absence of unions, by the determination of wage councils, having equal representation from both management and labor. The government has set up agencies to regulate prices for the major utilities and selected agricultural, forestry, and fishery commodities. In 1983 there were 14 nonfinancial public enterprises engaged in producing or marketing economic goods and services. Agriculture, Forestry, and Fishing Natural tropical forests covered some 848,000 hectares-nearly one-half the area of Fiji-in 1982. Sugarcane fields and coconut plantations stretched over some 140,000 hectares, pine tree plantations over 58,300 hectares, and mangrove swamps another 38,600 hectares. The remaining 750,000 hectares consisted of built-up areas or land used for subsistence and other types of agriculture. Sugarcane land has been the most economically useful for over a century, but the government expected the developing pine plantations to be valuable in the 1990s. The terms of land tenure and sugarcane marketing have been the most controversial issues facing the economy for decades. The nationalization of the sugar industry in 1973 went far toward placating the sugarcane farmers, but the land issues remained a sore point for the Indian community. The basic controversy stemmed from the fact that the Fijian mataqali owned about 83 percent of all the land. The government had acquired title to 7 percent of the land, and another 10 percent belonged to the non-Fijians. As a result, about 30 percent of Fijian-owned land has been rented out, primarily to Indian farmers. Disputes between landlords and tenants over the payment of rent, the length of tenure, and compensation for improvements to the land have been frequent. The Native Land Trust Board, established in 1940, determined which lands were to be reserved exclusively for Fijian use and administered the leasing of unreserved lands. The board was responsible for collecting all lease monies on behalf of the Fijians and in 1978 received F $1.7 million. In 1975 the board set up a subsidiary, the Native Land Development Corporation, to promote commercial farming among the Fijians. The Department of Land, Mines, and Surveys administered the leases for state-owned properties. In 1967 representatives of the major ethnic groups and political parties agreed on the terms of the Agricultural Landlord and Tenant Ordinance, just in time for the nation's independence. The legislation provided that leases be drawn up for a minimum of 10 years on a renewable basis. In 1976 the legislature lengthened the minimum lease period to 30 years, giving the Indians somewhat more security. Rents, which had not been changed since the passage of the original ordinance, were allowed to be adjusted every five years. In addition, the amendments set up special land tribunals throughout the country, which had all the powers of a court in adjudicating land disputes. Sugarcane. For more than a century sugarcane has been the mainstay of the economy, accounting for 70 to 80 percent of export revenues and for around 16 percent of GDP, including processing. The industry has employed about one-fourth of the work force and has indirectly benefited many others. The management of production changed drastically in March of 1973, when the government bought out all of the shares of the Colonial Sugar Refining Company and set up a monopoly named the Fiji Sugar Corporation (FSC). Since then, the FSC has monopolized all sugar milling. About 21,724 farms averaging 4.5 hectares in size sold their production to the mills for conversion into raw sugar and molasses in 1983. A separate government marketing organization sold most of the milled products overseas. Since the late 1950s the quantity of sugarcane supplied by the small farmers has more than doubled; production rose from 2.7 million tons to more than 4 million tons from 1977 to 1982 alone. The increase resulted almost exclusively from the expansion of the area cultivated; farming skills, such as the proper application of fertilizer, variety selection, and land management have been well developed for 30 years or more. The average yield per hectare harvested has increased, however, from 57 tons in the 1956-60 period to 65 tons in the 1976-80 period. Most of the variation was caused by weather conditions, the single most important factor in production. The 1982 harvest was a record 4.1 million tons of cane. In 1983 and 1984, however, the combined effects of a hurricane and a prolonged drought caused a severe hardship for most farmers. Analysts projected in late 1983 that F $12 to F $18 million of financial subsidies would be needed to get the industry up to the production of 415,000 tons of refined sugar by 1987-about 15 percent less than in 1982. The production shortfall was making it difficult for Fiji to live up to its contractual obligations for deliveries to several international markets. Fiji had about 256,000 tons of raw sugar in 1983 to fulfill contracts for 380,000 tons worldwide. Since 1982 the government has been able to stockpile 18,000 tons of reserves previously committed to the International Sugar Organization (ISO), in which Fiji was an active member. The ISO was willing to let the nation retain another 26,000 tons by the end of 1984. These reserves would enable the country to keep its contracts with Britain, which paid an attractive price for Fiji sugar. The marketing authority also hoped to cancel part of the agreements with New Zealand, Malaysia, and China so that it could fulfill its contracts with the European Economic Community (EEC), which also paid a special price under the terms of the Lome Convention (see Glossary). Fiji's EEC quota was 174,000 tons in 1983. The government also imported some white sugar from the Philippines in 1983 for domestic consumption in order to free supplies of brown sugar for export to the United States. Despite these measures, however, the timing of the shortfall with a cyclical rise in the world price for sugar was expected to cost the nation some F $80 to F $100 million of lost revenue. The long-term prospects for Fiji sugar remained good in 1984. The farmers received an excellent incentive to produce from the pricing system, which returned some 70 to 75 percent of revenues from sugar sales to them, after deductions were made for the costs of marketing, research, and the staffing of a few management boards. The actual percentage depended on the quantity of sugar produced. Using tractors or trucks, the farmers bore the cost of transporting the cane to the nearest mill or to the nearest loading point on the FSC railroad system. Each sugar mill, moreover, maintained a field services staff that contacted the farmers and instructed them in the use of the appropriate varieties and fertilizers, which the FSC also supplied. The FSC has expanded its milling capacity at all of the mills and has been rehabilitating its aging equipment since 1982, although some of the work has been postponed because of financial constraints. Despite these improvements and the relatively high wages paid to the farmers and mill workers, the costs of sugar production in Fiji remained among the 10 lowest in the world. Fiji has also been a leader in world research on sugarcane. Its research center in Lautoka maintained some 4,000 hybrid varieties and produced about 1,500 experimental varieties each year. Except for the possible introduction of cane in the Rewa River Valley, most of the future extension of the area planted would be in less fertile soils on sloping terrain, thus necessitating the development of hardier sugarcane varieties. The research staff has been concentrating on this problem. Other Crops and Livestock. Although some Fijians engaged in commercial sugarcane farming in 1984, a vast majority worked subsistence farms, obtaining their cash requirements from the sale of coconuts or copra. About one-half of the copra produced, however, came from plantations owned by Europeans or Part Europeans, who often employed Fijian laborers. The other half came from native stands. About 59 percent of the 22,000 tons of copra produced in 1982 came from Northern Division, particularly from the Savusavu area of Vanua Levu and from Taveuni, where the plantations were located. Rotuma, the Lau Group, and the Lomaiviti Group produced most of the rest, chiefly from native stands. Production, however, decreased from nearly 31,000 tons in 1977. Not only had the trees become aged and unproductive but also many coconuts were being diverted to urban consumers. The government more than doubled the area planted with new coconut varieties in 1982 to 680 hectares. A new pricing proposal that would raise the average earnings of farmers some F $40 per ton of copra was opposed by the two international companies processing coconut oil in 1983 but would go a long way to improving the incentives for production. One domestic processor, however, said he was happy with the new payment formula. The government has not been very successful in its drive to make the country self-sufficient in the production of rice, a major staple of the Indian community. Over one-half of the nearly 44,000 tons of unmilled rice consumed in 1982 was imported at a cost of about F $6.4 million. Over three-quarters of the rice produced came from about 8,500 hectares of rain-fed fields; only 1,100 hectares of irrigated fields were harvested. China and Australia were offering assistance in irrigated rice culture at Navua, on the southern coast of Viti Levu, and along the Dreketi River in Vanua Levu. Most of the rain-fed rice fields were located in the sugarcane areas. Root crops-especially taro, cassava, and yams-have been the most important staples of the diet. Since most production took place on subsistence farms, production statistics have been available chiefly for commercial farms. According to the 1978 agricultural census, taro was produced on about 2,900 hectares of land, only 500 hectares of which were commercial. As of 1982 the area under commercial production had been increasing by over 12 percent per year and production itself by 15 percent per year. Commercial cassava production also increased by 15 percent per year to 16,150 tons from 850 hectares in 1982. Yams were mostly grown in Northern and Eastern divisions; commercial production increased by over 68 percent per year from 1976 to 1982, when 3,570 tons were harvested on 255 planted hectares. Other crops grown primarily for export included ginger, cacao, passion fruit, oranges, pineapples, and coffee. With the exception of ginger, the production of which grew by over 11 percent per year after 1977 to 4,500 tons in 1982, farm output has been small. Abundant vegetables for the home market were produced on small farms in the Sigatoka River Valley, known as the nation's "salad bowl," and in the Rewa River Valley. A major objective of the government has been to improve the domestic supplies of livestock products, and, except for mutton, the goal has virtually been met. In 1982 Fiji was able to produce domestically all of its poultry, some 97 percent of its pork, about 92 percent of its beef, approximately 72 percent of its goat meat, but none of its mutton requirements. Most of the cattle farms, including many under the supervision of the Fiji Development Bank, were in Central and Western divisions. Australian and New Zealand aid teams were assisting in the development of a 40,000-hectare scheme on Kadavu and on some 25,000 hectares of farms in the upper reaches of the Sigatoka River. Local dairy production was concentrated on small farms in the Rewa River area, which produced less than 15 percent of the nation's needs in 1982. In 1983 New Zealand promised Fiji some F $300,000 of assistance to build the country's first tannery. The drought in 1983 and 1984, however, seriously weakened the existing cattle herds. Forestry. Wood products have been an important source of building materials, cash earnings, and energy. During the 1970s the country became virtually self-sufficient in the production of sawed timber and plywood and began to export small quantities. In 1981 about 220,000 cubic meters were harvested, of which some 17,000 cubic meters were exported; about 2,500 square meters of veneers and plywoods were also sold overseas. Altogether about 250,000 hectares of natural forest were considered to be of commercial value. The Forestry Department, however, has strictly regulated the harvest to maintain at least 60 percent of the forest cover in the logging areas and to prevent the extraction of undersized trees. In an effort to maximize the rich potential for forestry, the government established the Fiji Pine Commission in 1976 to plant pine plantations on unused or denuded land. By 1982 the commission controlled some 40,000 hectares of plantations; private planters and the Forestry Department had also established some pine plantations. The commission was planting an additional 2,000 hectares a year in the early 1980s. Experience has shown that livestock could also be raised successfully among the trees. In 1982 only about 12,000 cubic meters of plantation pines were exported; by 1985 the government hoped to more than triple production. By the late 1980s the government planned to export some F $50 million of pine logs, chips, and pulp each year-more than one-third of the value of sugar exports. In one plantation area, however, the local chieftain has opposed the government's chosen joint venture partner, British Petroleum, in exploiting the pine forests. In the 1960s and early 1970s Fiji also developed some 11,000 hectares of mahogany plantations. A tree disease attacked the plantations in 1972, halting expansion, but in 1982 an estimated 16,000 cubic meters of hardwoods were felled in these forests. Efforts to expand the area under tropical hardwoods were proceeding more slowly than for softwoods. Fishing. Commercial fishing remained relatively underdeveloped in 1984. The government-owned Ika Corporation maintained a fleet of 13 pole-and-line tuna fishing vessels, eight of them hired from other domestic and foreign companies. Its catch in 1982, however, was only 3,830 tons, down from a modest record of 4,700 tons the year before. The director of the corporation was forced to resign in 1983 because the company had accumulated debts totaling more than F $2.2 million. The director had nevertheless taken important steps to replace the large, inefficient vessels with smaller, more fuel-efficient ones from a government shipyard in Suva. The outgoing director had advised hiring Japanese skippers to take over the helms of the company ships until the Fijian captains were better trained. Private purse seine and longline vessels also fished for tuna from bases in Fiji, catching more than 4,000 tons in 1982. Shark fins, smoked fish, shellfish, and other fish and fish commodities totaled more than 4,700 tons in 1982. The total production for that year was down from 13,800 tons in 1981. As a result, the value of fishery exports decreased from F $18.8 to F $13 million. The 2,800 coastal fishing vessels that produced fresh fish for local consumption have marketed more and more of their produce at centers run by the National Marketing Authority or private canneries. The government authority has expanded the amount of freezer space at its facilities and has regulated fish prices so that the fishing families could receive a profitable margin. Coastal fishing was hindered by the rapid drop-off of the continental shelf around many of the islands, which made fishing for bottom fish difficult. Coastal fishing vessels nevertheless netted about one-third of the catch in 1982. Fish farming, which had an excellent potential in Fiji, was at the experimental stage in the early 1980s and produced only a small catch.