Inclusive Sector Growth Strategy, for Poverty Reduction and WEE Fiji Export Processing Sector by Market Development Facility

Inclusive Sector Growth Strategy, for Poverty Reduction and WEE Fiji Export Processing Sector Market Development Facility

January 2015

Table of Contents Chapter 1: Export Processing Sector Growth Strategy ........................................................................... 3 1.1 Summary of Main Findings ............................................................................................................... 3 1.2 Alignment with the Government of Fiji ............................................................................................ 4 1.3 Challenges for Export Processing Sector Growth ............................................................................. 5 Chapter 2: Key Constraints and Opportunities ....................................................................................... 6 2.1 Key Constraints ................................................................................................................................. 6 2.2 Opportunities to Address Key Constraints........................................................................................ 7 Chapter 3: Sector Growth Strategy ......................................................................................................... 8 3.1 Relevance for Pro-Poor Growth ...................................................................................................... 10 3.2 Relevance for Cross-Cutting Themes .............................................................................................. 10

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List of Tables Table 1: Sector Overview and Opportunities .......................................................................................... 3 Table 2: Analysis of MDF's efforts towards relevant government policy objectives and strategies ...... 4 Table 3: Key Constraints.......................................................................................................................... 6 Table 4: Intervention Areas and Potential Intervention Ideas ............................................................... 7 Table 5: Sector Growth Strategy for Export Processing.......................................................................... 8

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Chapter 1: Export Processing Sector Growth Strategy 1.1 Summary of Main Findings This study concludes that the greatest potential for MDF impact in the third sector lies in contributing to employment for women and men in export-processing enterprises, and that this employment is likely to involve the urban poor. Based on the sector assessment, the following table was prepared: Table 1: Sector Overview and Opportunities Product/ Market

Overview

Principal Opportunities

Principal Constraints

Garment Manufacture

Garment manufacturing is buoyant and anticipates good growth based on competitive advantage incorporating short order products, just-in-time manufacturing and good customer service, particularly with reference to export to Australia and New Zealand.

- Improved sub-sector and enterprise level marketing to promote Fijian apparel business model - Development of MSG market - Growth in fashion garments - Work opportunities for women both unskilled and skilled labour

- Labour availability and skills for both floor operatives and middle management - Market access changes, particularly into Australia

Call Centres and Back Office Processing

This is a recently developing business activity for Fiji and its foundation lies on good connectivity. Fiji has good language and literacy skills and is in a good time base to provide call centre and back office processing services to a wide variety of markets.

- Targeting of specific countries to supply services - Promotion of literacy, productivity and quality advantages - Good work opportunities for young women and men

- Making potential customers aware that Fiji is open for business - Development of labour skills

Fish Processing

Fiji is capable of growing its fish processing businesses on the basis of providing skills and infrastructure, to be a fish processing hub for the Pacific utilising cheaper labour to process value added products for sophisticated markets.

- Utilisation of MSC certification and sound QA practices to produce value added fish products - Develop new products - Work opportunities at processing facilities for women and men

- EU EPA agreement to include global sourcing - Sustainability of fishing resource.

Food Processing

Capable food companies are based on imported raw materials for value addition in Fiji for supply to domestic and Pacific Island markets (a limited range of products are co-packed for the Australian market).

- Increase market share in MSG markets - Develop and promote short order, just-in-time manufacturing capabilities - Develop new products - Work opportunities particularly for women

- Shipping logistics for raw material import and finished product export - Increasing labour and utilities costs

Potential Employment Growth (5 years)

GREATER THAN 1000

500 TO 1000

250 TO 500

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1.2 Alignment with the Government of Fiji Table 2 outlines the efforts by MDF to work within the development framework set out by the Fijian government and elaborates how MDF’s projects (interventions) complement governments effort in achieving development in Fiji. Table 2: Analysis of MDF's efforts towards relevant government policy objectives and strategies Specific Government Policy

MDF’s Strategies and Efforts

Manufacturing and Commerce

MDF under the export processing sector will look into the following areas:  Textiles, Clothing and Footwear  ICT (call back centres and back office processing)  Food Processing  Seafood processing

Goal: Sustainable and globally competitive manufacturing and commerce industries. Policy objectives:  Fiji supported by a diversified and expanded manufacturing and commercial sector.  Diversifying Export Base  Improved Business Regulatory Environment

Within these, partnerships will be formed with key market actors (private and public) to help the sector grow more inclusively. Areas where the strategic direction of MDF aligns with the government are

International Relations and External Trade Goal: Global integration for promoting political and socioeconomic advancement.

Policy objective:  Communities should benefit from Fiji‘s diplomatic and economic relations.

Relevent KPI:  Exports of goods and services to be increased from 58% of GDP in 2005 to at least 65% of GDP. .

Fisheries Resources

Supporting export growth and increased contribution to GDP Supporting improved business regulatory environment Supporting the diversification of export base by supporting innovation and growth of exporters Ensuring community integration and impact result from export growth Supporting growth of sea resources (exports) which helps increasing income and employment of fisherman Supporting compliance in exporters

Goal: Pursuing growth and ensuring food security through sustainable fisheries resource management. Policy objective:  Fisheries resource utilization for optimum economic benefits. Relevent KPI:  Increase export volume and value by 5% by 2011.  Full compliance to the EU fish export standard in 2010.  Increase catch and income of small scale fishermen by 2% annually by 2010.  Increase employment in the sector by 1% annually by 2011.  Increase resource owners participation and business ownership by 5% by 2012. Financial Services Entreprenuers (both male and female) in Fiji will have access to banking and financial advisory support services to secure commercial finance, have the ability to access finance to secure appropriate funding for business development.

Partnerships with financial instutions to set up sustainable mechanisms that allows more businesses (small) access to formal credit.

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1.3 Challenges for Export Processing Sector Growth There are a number of challenges to export processing industry growth. These vary according to product/market activity and include: Visibility and marketing: There is a need (identified by enterprises themselves) to improve visibility and marketing in off-shore markets. Both the garment manufacturing and the information processing sectors have since 2009/10 developed new business models and gained increased confidence in their ability to deliver. There is now a need to develop techniques to improve visibility of such sectors. Market access: To promote economic trade across the Pacific regions a number of regulations and agreements have been drawn up. For example, the SPARTECA agreement provides access to selected products exported to Australia and New Zealand from Pacific member countries; the garment manufacturing sector has benefitted significantly from this agreement. Also as mentioned above, the MSG agreements have been designed to promote economic development through trade. Complying with such agreements to ensure market access remains a continual challenge for the exporters. Technology and support services: Certain sub-sectors (such as garments manufacture and food processing) struggle to optimise their production efficiency and sometimes even to access markets owing to constraints related to poor technology and support services. Skills availability: Unavailability of labour and low skills adequacy applies generally across all sectors, but is particularly significant in the garment manufacturing and information processing sectors. This applies both to at factory floor and mid management level especially for women. Productivity and quality: There is a lack of availability of skills and services in the fields of industrial engineering and total quality management, essential to achieving best practice operations and competitive enterprises. Product design and development: In recent years, a number of enterprises have invested in plant, equipment and processes that are able to deliver a wide range of modern products. Product development however continues to be challenging for many of these enterprises, and applies to those products with wide market acceptance and which can be competitively produced in Fiji. Seafood processing, and garment and food processing all have the potential to develop new products. Regulation: Overall regulation in Fiji is a challenge to industry. Many food and hardware items are included in the Fiji Commerce Commission price control mechanism. Garment manufacturing has been able to implement systems under the Duty Suspension Scheme (DSS) administered by the FEC to improve the handling of duty arrangements on imported raw material which is re-exported. However, the DSS needs to be reviewed so that manufacturers that import raw ingredients for further processing and re-export can access a system similar to that available to the garment sector. Regulation review and implementation of e-documentation processes would be likely to assist to reduce regulatory burden. Supply chain. For some of the sub-sectors that rely on local supply under export processing, a disconnect exists between the exporter and the community sourcing it. Scope exists to introduce greater integration which would lead to improving the efficiency of the sub-sector; for example in the seafood sector, engaging the fishing community to source more sustainably from the sea allows the supply to increase, resulting in more produce available for exporters who face increasing demand from countries in Asia.

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Chapter 2: Key Constraints and Opportunities 2.1 Key Constraints MDF has identified a number of specific constraints which restrict growth opportunities for Fijiâ&#x20AC;&#x2122;s export- processing industries (see Table 2). Table 3: Key Constraints Constraint Area

MARKETING

Lack of visibility in key markets constrains growth

Explanation and Causes -

Logistics constraints contribute to export costs

Port congestion causing delays in clearing containers adds to exporter costs. Containers are sometimes poorly packed and this leads to products losses Documentation requirements and procedures are complex and require more resources than desirable.

Enterprise performance and productivity is less than desirable

Enterprises lack access to industrial engineering and Total Quality Management (TQM) skills and advice that are necessary to improve productivity and enterprise performance There is little implementation of manufacturing MIS, which could improve the ability to manage raw materials and the stock of finished products, and monitor production metrics. In-house skills available at middle management and supervisory levels are insufficient.

OPERATIONS

Labour availability and skills constrain growth

REGULATIONLATION & COMPLIANCE

SUPPLY CHAIN

The public sector appears largely unaware of the potential economic gains from value added manufacturing in Fiji; marketing support for the sector is close to zero. Public and private sector cooperation to promote the benefits of Fiji in target markets is lacking. The size of each product/market complexes makes it difficult to stimulate cooperative marketing approaches (with the exception of TCF Council initiatives). Fiji needs to develop a strong voice in developed market access negotiations. There is a general public sector attitude that the public sector knows what is best and industry input into tactical market access development is limited.

Despite significant unemployment, enterprises struggle to attract employees. There has been no adaption or development of employment conditions suitable for urban employees, especially women (e.g. childcare, job-share, working hours flexibility). While basic skills can be attained from in-house training programmes, there is little access to training that is able to up-skill factory employees for women and men. Enterprise level resistance to up-skilling exists, as it is seen to contribute to staff turnover (higher skilled workers are attractive to other enterprises).

Lack of service availability

While access to technology does not appear to be a problem access to support services often need to be sourced from off-shore (normally Australia or New Zealand).

Inconsistent investment support policies

Regular changes in investment support policies discourages investment. Development approval is complex and procedures are difficult to negotiate, meaning a) more resources are needed to gain project approval than desirable, and b) project implementation is often delayed.

Complex regulatory procedures

Complex regulatory procedures constrain efficient and effective value adding and re-export of imported raw material are complex and cumbersome. The public sector retains a perception that the private sector operates in interest groups that distort the market and is likely to abuse any simplification of regulations. Few relevant regulations have been recently reviewed and yet the development of the telecommunications sector has demonstrated the benefits of deregulation.

Certification and auditing to customer requirements constrains growth in demand

Price controls inhibit investment and innovation

Difficulty is sourcing raw material supply from within Fiji

Insufficient numbers of Fijian manufacturing enterprises have in place internationally acceptable certification that meets customer needs for quality assurance, specification, corporate social responsibility and sector level standards. Due to the number of manufacturing enterprises in Fiji, enterprises need to source expensive certification and auditing skills from off-shore suppliers which results in resistance to adoption. The application of price controls to a wide variety of food and hardware products requires considerable executive time, limits returns on investment and constrains product innovation. Fear of the application of price controls is considered to impact on manufacturing investment decisions. Enterprises that utilise Fijian-produced raw materials have great difficulty in obtaining a regular supply of suitable products due to the lack of production enterprises with sufficient scale. It is extremely difficult to base successful manufacturing enterprise investment on supply of raw material from a largely informal production sector. Development of necessary intermediaries which collect and direct raw materials to appropriate utilisation is in its infancy (e.g. sourcing of virgin coconut oil, export-oriented horticulture products).

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2.2 Opportunities to Address Key Constraints The opportunities to address these identified constraints, and around which MDFâ&#x20AC;&#x2122;s strategy is built, are presented in Table 3 discussed below. Table 4: Intervention Areas and Potential Intervention Ideas Intervention area

MARKETING

Access: A wider range of export markets Promote: Benefits of working with Fijian enterprises Access: Appropriately skilled labour resources

OPERATIONS

Establish: Enterprise performance and productivity improvement Improve: Access to support services for technology and certification

SUPPLY CHAIN

REGULATION

Improve: Regulatory environment associated with investment in manufacturing and export Improve: Access to Fijian raw materials

Opportunities Work to establish sub-sector level position papers on all market access issues, through the Ministry of Industry and Commerce. In particular to address: garment access issues into Australia, seafood access issues into North America, Europe and Asia including the ability to adopt global sourcing and increase in access under free trade arrangements for all products into the MSG member nations. In general, target markets are unaware that Fiji is open for business in these areas. There is a need to promote the benefits of working with Fijian enterprises in these sectors through, development and support of promotion activities, development and support of enterprise level promotion activities and working with industry organisations (e.g. FCEF, FEC, TCF Council, FTBOA, FOFA) to garner public sector support of initiatives. There are opportunities to work at enterprise and at sector level to gain access to an increased amount of improved, skilled male and female workforce at both on-floor and middle management levels through ,better recruitment processes and resources, development of in-house and sector level training appropriate to each of the target sub-sectors, targeted utilisation of the training levy, development of alternative employment conditions where appropriate and establishment of employee services (e.g. childcare and transport assistance). There are opportunities to increase enterprise growth through improving enterprise productivity, efficiency, and performance through encouraging adoption of industrial engineering and total quality management processes, implementation of improved manufacturing MIS systems, development and adoption of appropriate productivity improvement methodologies, developing and implementing utilities efficiencies programme to reduce costs associated with fuel, electricity and water. Technology, certification and auditing services can be made more efficient and cost-effective by enterprises acting as a group to more effectively employ off-shore resources to assist Fijian companies in areas such as training, quality control, technical support, encourage the development of the technology support, certification and auditing sector in Fiji.

The regulatory environment surrounding investment in manufacturing and export is able to be improved through a series of activities by working with sector-level organisations such as FCEF and FEC to review and rework current regulations to improve procedures and take advantage of improved monitoring and auditing processes, develop and gain acceptance of electronic documentation lodgement and approval procedures and simplify development approvals and investment incentive procedures.

Improvement in the supply of Fijian-sourced raw materials will assist the growth of the food processing sector, thus in the short term there is a need to develop intermediaries that are able to provide a regular supply of consistent quality products to manufacturers from male and female suppliers. In the longer term there is a need to develop production models that are better able to supply manufacturers directly (this implies bigger agricultural production enterprises with all the known inherent constraints).

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Chapter 3: Sector Growth Strategy Based on these constraints and opportunities, MDF has devised an appropriate strategy for its work in Fiji’s export processing sector, presented in Table 4. Table 5: Sector Growth Strategy for Export Processing To increase export processing (and hence pro-poor urban employment and income) by stimulating investment in the export-processing industries, to increase the quality and efficiency of production, by improving access to skills, markets, support services, the business enabling environment and infrastructure. Constraint area

Markets to be influenced

Anticipated results if markets starts to work better

Type of potential partners

Contribution to WEE (if applicable)

1. (Improve) market access through better visibility and product development.

Exporters benefit through promotion leading to more direct business-to-business linkage, thereby facilitating increased exports.

Improved products, improved promotion→increased market access (new niche markets, or deepen existing markets→higher export turnover→sustained growth contributing to increased employment for women and men.

Export companies, event organisers, BMOs.

Contributes to WEE domains 1, 2, 4 and 5. It is expected that women will have income and job opportunities in garment factories as increased market access demand for short-orders rise and become more frequent throughout the year. Women will have access to skills, training and can advance to higher paid jobs in processing facilities and call centres with the new skills. Women can influence decisions made in the household.

2. (Improve/introduce) access to relevant and affordable skills and training.

Labourers/middle-managers in the export processing industries access training programmes to improve their capacity leading to higherincome jobs and more efficiency in enterprise. Training providers target export-processing industries.

Improved and affordable trainings→more skilled workforce →increased operational efficiency of enterprise→increased employment opportunities for local women and men through improved employability→higher incomes for workers through occupying higher paid and higher skilled positions.

Export companies, training providers, universities.

Contributes to all WEE domains. It is expected that women will have access to acquire new skills, training and support services (e.g. from the factory floor they can have opportunities to advance to higher-paid positions). As a result of greater income earned from higher salaries, and progression to higher position, women can influence decisions made both in the workplace and at household level.

3. (Stimulate/improve) Investment in new technology and support services.

Greater accesses to technology and support services allow enterprises to improve their efficiency and tap/deepen new/existing markets.

Investment in technology and/or support →improve product quality→Improved (new) market access→sustained growth contributing to increased employment.

Equipment resellers, banks, export companies.

Contributes to WEE domains 4 and 5. Women more employment opportunities through new skills and technology.

4. (Establish/improve) supply chain of enterprise (seafood/food processing).

Communities are better integrated in supplying more produce to exporters; logistics work better to ensure inventories are at efficient level.

Communities know better supply requirements from exporter→ source better →communities earn more. Better logistics→improved supply chain→increased efficiency in production contributing to more export and employment.

Exporters, BMOs, logistic providers.

Contributes to all WEE domains. It is expected that women will have job and income opportunities through the improved supply chain and increased market demand. Women will have access to better logistics, market information and post-harvest equipment. Access to tools and technology can contribute to making workloads manageable. Through the earned income women can influence decision making in the households.

5. (Improve) publicprivate dialogue in the export processing sector around policies and regulations.

Dialogue between relevant parties, helps improve the quality of rules and regulations and there by promotes a more conducive environment.

Business enabling environment improve→reduced cost and risk of doing business+products more competitive→more investment in the sector→more sales, better margins→increased employment.

Representatives of the private sector, public institutions, development partners.

Women will have greater employment (Objective 2) and income opportunities (Objective 1) at the processing facilities, call centres and garment production lines. Women in paid employment generally control the income earned, they will be empowered to make decisions over that sphere of income earned (Objective 4).

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To increase export processing (and hence pro-poor urban employment and income) by stimulating investment in the export-processing industries, to increase the quality and efficiency of production, by improving access to skills, markets, support services, the business enabling environment and infrastructure. Markets to be influenced

Anticipated results if markets starts to work better

Facilitating growth/introduction of export-processing industries in Vanua Levu.

Export processing industries are encouraged to set up/expand production in Vanua Levu.

Additional employment and business activity on Vanua Levu â&#x2020;&#x2019;increased employment.

Exporters.

Contributes to WEE domains 1, 2, 4 and 5. It is expected that women in Vanua Levu will have increased access to opportunities for employment in garment, seafood and food processors and earning increased income by supplying to such industries. Being in paid employment they would generally have control over the income earned.

Stimulating investment/access to finance to exporters.

Investors/exporters invest in these sectors of exports and/or have access to better credit facilities to allow for expansion.

Increased export activityâ&#x2020;&#x2019;increased productionâ&#x2020;&#x2019;additional employment.

Exporters, financial institutions, investment companies.

Contributes to WEE domains 1, 2, 4 and 5. Women will indirectly benefit from exporters/investors investing more in these sectors as they will have access to opportunities to earn additional income and be employed.

Poverty

Employment in these sectors of exports for poor urban households.

Increased employment of urban poor women and men.

In principle, all of the above.

Gender

Employment in these sectors of exports opportunities for women.

Additional income at the disposal of women through existing employees (females) moving to better paid position: more women being hired.

In principle, all of the above.

Social Responsibility

More enterprise in these export sector exhibit great societal responsibility.

Improved compliance with social responsibility indicators.

In principle, all of the above.

Disability

Opportunities for disabled workers, in these export sectors.

Opportunities to be identified on a case-by-case basis in areas where additional employment is created.

In principle, all of the above.

Constraint area

Type of potential partners

Contribution to WEE (if applicable)

Special Interest Area

Cross-cutting

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3.1 Relevance for Pro-Poor Growth Significant rural-to-urban drift has been occurring in Fiji since the 1980s, as households search out better opportunities for income generation. The highest concentration of the poor live in the six tikinas1 of Naitasiri, Vuda/Lautoka, Labasa, Suva, Nadi, and Ba, where over 50 per cent of the rural poor live. While these tikinas include peri-urban and rural areas, there are relatively good transport links to the urban areas. However, there are insufficient jobs available, and many households which relocate to urban areas find it difficult to obtain employment. Export processing industries provide an opportunity to increase employment in urban areas, in particular for women in the garment manufacture and information processing sectors. At the same time, at the work floor level manufacturing jobs tends to require semi-skilled employees, and these can be sourced from poorer households. Information processing provides job opportunities for bettereducated workers, and it would be expected that a significant number of these will be sourced from poorer households, particularly those which have encouraged their children to complete secondary school level education. Securing the employment of these young people will also assist in the alleviation of household level poverty. MDF’s interventions will be designed in such a way that they encourage the employment of members of poorer households. Pro-poor results will be measured by determining: 

additional income from employment;



employment opportunities being created in urban areas to address urban poverty;



levels of household wellbeing resulting from having more disposable household income;

3.2 Relevance for Cross-Cutting Themes Women’s Economic Empowerment MDF pays special attention to the role of women in the market, and in particular to the factors that influence their ability to participate in the workforce. The understanding around women’s economic empowerment is being integrated into MDF’s management cycle which addresses five thematic areas of WEE. MDF has chosen to focus on WEE as a means to contribute towards gender equality in the sectors that MDF is involved in. Mainstreaming gender through WEE into its programming to achieve integration of women rather than marginalization of women in segregated and non-commercial initiatives. The five thematic areas are summarised below and will be explained in further detail in the gender technical paper. The five thematic areas on women’s economic empowerment include: ■

Economic advancement – do women have access and agency?

■

Decision making – do women have freedom and authority over household income, workload and access?

■

Workloads – can women manage additional work? Can women’s workloads be more efficient/decreased?

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■

Access to opportunities – do women have access to jobs and skills?

■

Access to assets, services – do women have access to assets, services and other supports?

MDF investigated the role of poor women and men in the urban environment while conducting the Fiji Poverty Gender and Ethnicity Study in 2013. It will further investigate the roles of women and their involvement within the sector as the need arises and use this as a basis to develop its plan of action to address gender concerns. It is clearly evident, that a large portion of workers in the garments and ICT sector are female workers. As such the new jobs to be created in export processing are likely to benefit more women than men. Consequently through its interventions, MDF expects to benefit disproportionately more women than men employed within these sub sectors; through skill building measures, it is likely that existing females employees will have more scope to move up to better paid positions within the same industry/sector. In terms of upward mobility, MDF’s role may need to ensure that training program providers and recruiters provide equal opportunities to both women and men. Mobility and thereby access to information is different for men and women living in the settlements. MDF also intends to investigate further to what extent flexibility of work hours as (preferred by poor women) is something that can be built in export processing industries. Finally, MDF will also collect gender-disaggregated data on its effective outreach and use it to target beneficiaries, and to identify further additional income and employment opportunities generated through its interventions.

Environmentally Sustainable Business MDF will work according to its in-house environmental guidelines and those set down by the government of Fiji; in addition, it will actively pursue interventions with positive environmental impact. MDF will conduct environmental impact assessments for each intervention it carries out to ensure that all impacts on the environment are accounted for and addressed.

Socially Responsible Business (including Disability) MDF will wherever possible promote socially responsible business practices, including the incorporation of persons with a disability. Some tasks in export processing can be carried out by individuals with disabilities and these opportunities will be discussed as activities are developed with project partners.

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