FIJI
Country Engagement Strategy September 2016
FIJI
Country Strategy
The Market Development Facility (MDF) is Australia’s flagship private sector development programme in the Indo-Pacific region. MDF began in 2011 in Fiji and has expanded to TimorINTRODUCTION Leste in 2012, Pakistan in 2013 and Sri Lanka and Papua New Guinea in 2015. MDF stimulates business innovation, investment and regulatory reform with the aim to create additional jobs and income for poor women and men in rural and urban areas through sustainable and broad-based, inclusive pro-poor economic growth. In Fiji, MDF aims to create approximately 1,430 jobs and increase incomes for 28,410 households over a six year period (2011 – 2017).at the end of MDF Phase 1. Results will increase in MDF Phase 2. To achieve this, MDF stimulates growth in sectors that represent a major part of the economy, have long-term growth prospects and are relevant for poverty reduction. MDF focuses in Fiji on Horticulture and Agro-Export, Tourism and Related Support Services and Industries and Export Processing Industries.
Poverty
Poverty remains a significant concern in Fiji, despite the overall level of development and the moderately high average incomes. In Fiji, 31% of the population lives below the national poverty line. The poor are concentrated in the Northern and Western Divisions, which make up former sugarcane growing areas. All urban areas have seen some reduction in poverty but most rural areas saw increases in the incidence of poverty. The Northern Division remains the poorest of all the divisions, with some 45% of the occupants below the basic needs poverty line. The poor are also concentrated around urban areas such as Suva, Nadi and Labasa. Rural to urban migration has increased steadily over the last ten years as people leave the land in search of a better life in the city due largely to non renewal of sugarcane farm land leases. Despite this rural-urban drift, urban poverty is around 19%. Poverty in Fiji is strongly related to employment and is largely the result of a decline in traditional export industries and little economic diversification beyond these traditional industries. Overall though, the highest concentration of poor people is in urban and peri-urban areas.
Growth
Fiji’s GDP decreased in 2015 to 4.2% compared to 4.7% in 2013 and 5.3% in 2014. The Category 5 Tropical Cyclone Winston that devasted Fiji in February 2016 has also impacted economic growth through damage to infrastructure and agriculture and has resulted in a revised economic growth of 2.2% from the 3.7% forecast for 2016. This is expected to improve through the various impetus provided by government and the private sector. Foreign Direct Investment stood at 6.15% in 2015 and the trade deficit has doubled in the last five years. Fiji currently imports more than double the value of its exports. About half the workforce is engaged in subsistence-oriented or semi-commercial farming. With total agricultural output declining, subsistence farming is showing an increase. Only 59% of the population earns a wage. Growth is visible in new private sector-led export industries such as horticulture and tourism. Whereas other agricultural exports are declining, horticulture is growing. Tourism is one of the biggest contributors to foreign earnings and employment. Growth in tourism also stimulates growth in supplying industries. Urban growth is predominantly driven by growth in urban service industries, construction and finance.
• Declining key agricultural commodities
Development Challenges
With the decline in production of traditional export industries such as sugarcane and copra, farmers are looking for alternative income earning and employm ent opportunitie s. Farmers can benefit from diversification into new export crops, crops in demand by the tourism sector, and crops not yet cultivated in Fiji. Farmers can also benefit from using production techniques which have the potential to turn farming into a commercial activity.
• Lack of alternative employment opportunities Farmers are leaving the land and with large-scale urban manufacturing having gone through a decline, there is a need for alternative off-farm employment opportunities. Workers would benefit from more off-farm employment opportunities in growing sectors such as tourism, industries supplying the tourism sector, agricultural exports and food processing.
• Lack of economic diversification The Fijian economy needs economic diversification and new entrepreneurs to make use of the opportunities offered by growing sectors such as tourism, horticulture and agro-exports. More opportunities can be developed which turn farming into a commercial activity, create off-farm employment, stimulate growth and reduce the trade deficit.
• Geographic inclusion Fiji’s economic activity is concentrated on the island of Viti Levu, leaving other islands with few economic alternatives beyond established yet declining key sectors. Islands beyond Viti Levu would benefit from access to new economic opportunities offered by sectors such as tourism, horticulture and agro-exports.
CAPTURING OPPORTUNITIES FOR GROWTH AND POVERTY REDUCTION
Poverty ••
31% of the population is poor or vulnerable to fall into poverty
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Poorest regions are Northern and Western Division
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Concentrated in rural areas with subsistence-oriented farming increasing
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Also concentrations around urban areas, with an increase in rural-urban migration
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Strong correlation with lack of employment opportunities.
Growth
Challenges
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3.62% average growth rate over the last five years
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Industries once key for GDP and employment are declining
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Low and declining private sector investment: currently it stands at around 4% of GDP.
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Lack of alternative employment opportunities
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Only 59% of persons of working age (18-55 years old) are in wage-earning employment
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Lack of economic diversification
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Need for geographic diversification.
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High imports and growing trade deficit
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Declining agricultural output.
Market Development Facility ••
Focuses on key sectors with high growth potential to capture opportunities for sustainable pro-poor growth
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Tourism and Related Support Services and Industries, Horticulture and Agro-exports and Export Processing Industries identified as growing sectors with the potential to generate employment opportunities and improve livelihoods for many rural and urban families
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Partners with local businesses and organisations within those sectors to develop innovative ideas that address constraints to growth, increase business performance, and improve service delivery which benefits the poor.
Expected Results will be ••
Activities stimulate economic growth, creating approximately 1,430 new jobs and increasing incomes for 28,410 households
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Access to essential products and services improves for poor producers and consumers
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Livelihood opportunities are created in areas with few alternatives
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Local production and exports increase, replacing costly imports.
Horticulture and Agro-Exports
SECTOR SIZE AND RELEVANCE • The only sub-sector of agriculture with increasing exports. • Exports decreased by 5% between 20142015. • Involves or could involve approximately 65,000 – 68,000 farmers in rural areas, where poverty is highest.
LONG TERM GROWTH PROSPECTS • Potential for growth in exports through more diversified produce and new processing, packing and preservation methods. • Opportunities for higher yields, expanded off season production and introduction of new crops for domestic markets, substituting imports. • Alternative income opportunities for thousands of former sugarcane growers and those diversifying out of sugarcane industry. • Investment in disaster mitigation strategies likely to develop resilience for growing SME’s.
RELEVANCE TO POVERTY REDUCTION • As the agriculture sector has declined, the share of Fiji’s poor who work in agriculture has increased. This shows the close relationship between growth and poverty in the agriculture sector. As a growing sub-sector, horticulture has the potential to reduce poverty in Fiji. • Reaches the poorest segments of the population – those working in the agriculture sector and living in rural areas. • Potential for pro-poor growth by improving yields and income through better cultivation techniques and access to inputs, diversifying production, more continuous year-round production, and increasing access to both international and domestic markets.
Tourism and related support services and industries
SECTOR SIZE AND RELEVANCE
LONG TERM GROWTH PROSPECTS
• One of the largest contributors to employment and foreign exchange earnings.
• Strong growth prospects through seeking out new niche markets and increasing tourist spending.
• Contributes 37% of total GDP and is expected to continue growing.
• Opportunities for economic diversification by developing the supporting industries supply more locally produced inputs and replace current imports.
• Provides low and high skilled employment to an estimated • 40,000 people, a large share of them women.
• Generates off-farm employment and has potential to reach geographically dispersed communities.
RELEVANCE TO POVERTY REDUCTION • As the tourism sector has grown, the number of poor households employed in tourism has decreased. This demonstrates how increased growth in the sector can help to further reduce poverty in Fiji. • Contributes to employment and livelihood opportunities in areas with few alternatives. • Potential for pro-poor growth by increasing local sourcing, increasing tourist arrivals and expenditure, and diversifying Fiji’s tourism product to include more activities in different places.
Export Processing
SECTOR SIZE AND RELEVANCE
•• Contributes to 14% to GDP. •• Provides low and high skilled employment to around 12,000 people. •• Includes growth areas like ICT and garments which have a majority female workforce. •• Is a sector that is focused on addressing urban poverty.
LONG TERM GROWTH PROSPECTS
RELEVANCE TO POVERTY REDUCTION
•• Potential for growth and through increased visibility in international markets, improved skills and technology access and better dialogue between key private and public institutions.
•• The export sector being a key employer in the urban economy is closely linked with urban poverty. As the sector grows more would be employed within this sector and help further reduce poverty in Fiji.
•• Increased growth and skill development would lead to increased employment opportunities for low skill workforce as well as build scope for employees to transition to higher paid jobs.
•• Contributes to employment and livelihood opportunities including poor people living in informal settlements.
•• With growth of seafood exports, increased opportunities for community participation.
•• Potential for pro-poor growth by supporting product development and increased promotion, better supply chains, and an increased voice for small businesses working in or venturing into export.
•• Employs women as a majority in its workforce.
Horticulture and Agro-Exports
The Horticulture Sector and Agro-Exports covers the cultivation of food products, specifically fruits, vegetables and root crops. It covers agriculture production outside of livestock, dairy, sugarcane and cereals. This includes fresh, frozen and processed fruits and vegetables for both domestic and export markets.
Sector Relevance Horticulture makes up approximately 47% of total agricultural production GDP. It is estimated that as a sub-sector, horticulture contributes or could contribute to paid employment for up to 76,000 farmers and workers, which makes up 15% of the total labour force in Fiji. This includes farmers and workers on fruit and vegetable farms, non-commercial root crop farmers and sugarcane farms which have diversified into other horticulture crops. The agriculture sector as a whole is the poorest sector in Fiji, with 49% of households working in agriculture classified as poor.
Growth Potential Total agricultural output has declined within the last three years by an average of 3% per year, largely as a result of declining cash crops such as sugarcane. Horticulture is one of the largest growing sub-sectors of agriculture and holds potential for continued growth. It is the only sub-sector within agriculture with increasing exports of a large variety of products. Further growth potential lies in increasing access to new markets through new modes of transportation, processing and packing; increasing productivity, improving quality, developing year-round production and introducing new crops; and improving access to new production techniques, information and high quality production inputs.
Constraints to further growth in Horticulture Sector and Agro-Exports Sector
MDF’s strategy to unlock growth in Horticulture Sector and Agro-Exports Sector
Dependence on a limited number of market channels and means of transportation limits the growth potential of horticulture and agriculture in general.
To work with exporters and wholesalers to access new market channels with more diversified produce, new markets, new modes of transportation or new manners of processing, packing and preservation.
Limited access to extension services or other alternatives for farmers results in farmers using ineffective cultivation techniques, experiencing low yields and facing high rejection rates for export.
To encourage backward linkages and private extension services which address areas that help increase farmer productivity, consistency and quality.
Limited access to relevant information about farming – where and when farmers need it, also results in farmers applying ineffective cultivation techniques, experiencing low yields and facing high rejection rates for export.
To work with local businesses to provide access for famers to relevant and accurate information on cultivation techniques and input use, so that it is available where, when and how the farmers need it.
Limited access to good quality and appropriate agricultural inputs (seeds, fertiliser and crop protection) and equipment prevents farmers from getting higher yields and better prices for a higher quality product, cultivating more land, and diversifying crops and seasons.
To work with local agriculture suppliers to provide low cost effective equipment and appropriate and quality production inputs for farmers.
The short cultivation window currently utilises results in temporal overproduction followed by periods characterised by undersupply, affecting the price farmers can get for their produce; and limiting exports or yearround supply opportunities.
To work with local agriculture suppliers to provide information and materials for year-round production so that farmers can extend cultivation beyond one season and provide a consistent supply of produce.
The limited number of crops currently cultivated results in overproduction while leaving opportunities in other crops underutilised.
To work with local businesses to introduce new crops, by providing cultivation inputs and knowledge to farmers.
More could be done to mitigate and manage risks related to flooding, storms or improper disease control, as these undermine consistent supply and willingness to invest in horticulture cultivation.
Maintain specific focus on increasing access to good agricultural practices that help reduce agricultural risk and promote environmentally and socially responsible business.
More could be done to promote high value agriculture, which can accept slightly higher transportation cost, in areas farther from main markets, such as Vanua Levu.
Maintain specific focus on promoting horticulture and commercial agriculture opportunities on Vanua Levu.
Sector Results Chain – Horticulture and Agro-Exports
SECTOR CHANGES
BENEFITS TO FARMERS AND PRODUCERS
Improved private extension services and advice through backward linkages
Farmers get informa�on on more efficient cul�va�on techniques and input use
Suppliers provide be�er quality produc�on inputs for farmers
Suppliers provide appropriate and affordable equipment and produc�on materials for farmers
Farmers reach more diversified end markets as new or more efficient modes of transport are offered
Farmers reach more diversified end markets as new manners of processing, packaging and preserving are u�lized
RESULTING PRO-POOR GROWTH
Farmers improve the quality of their products
Farmers increase their yield
Farmers can produce year-round and supply produce to the market at off season
Farmers produce more of greater varie�es and be�er quality
Farmers increase their sales volumes, including new products to new markets
Increased employment
Increased incomes
Farmers can grow and sell new crops or new varie�es
Exporters sell more diversified produce into new markets
Exporters demand/buy more from farmers
Increased exports and reduced imports
Tourism and related support services and industries
The tourism sector consists of all industries which are involved in catering to, and creating an experience for, incoming tourists. This includes accommodation, transportation, entertainment, activities, retail and food and beverage services. To stimulate broad-based growth, MDF also focuses on those industries which produce items and supply the tourism sector. This includes food wholesalers, farmers, and handicraft producers.
Sector Relevance In 2014, tourism contributed 14.3% of Fiji’s total GDP. When considering indirect contributions, such as those industries supplying the tourism sector, tourism is responsible for estimates as high as 37% of total GDP. Direct employment within the tourism sector is estimated at 41,500, or almost 12.3% of the total labour force. When including the total number of jobs within supporting industries the total employment figure is 112,500. As a result of its strong growth, poverty within the sector has declined; however there are still 25% of households working in tourism which live in poverty.
Growth Potential The tourism sector grew by 9.4% in 2015 and is expected to grow an average of 4.9% per annum over the next ten years. Growth within the tourism sector and supporting industries is also a step towards increasing exports. Further growth potential lies in increasing and diversifying tourism in Fiji. This includes bringing more tourists to Fiji who stay longer, visit more parts of the country, and increase spending on shopping, activities and entertainment; and by increasing local purchasing of supplies by hotels and resorts.
Constraints to further growth in the Tourism and Supporting Industries
MDF’s strategy to unlock growth in tourism and Supporting Industries
Domestic and international transportation linkages are limited, inefficient and expensive, making it difficult for tourists to get to and travel within Fiji.
To encourage improvements in international and domestic travel linkages, opening up options for tourists, and improving efficiency and cost.
A lack of well-organised travel information and booking options prevent tourists from arranging longer or more diverse trips.
To support local organisations to offer diversified, informative and well-organised online travel information and streamlined booking options for tourists.
Limited shopping and entertainment activities outside of resorts restrict tourist spending and decrease demand for locally made products.
To work with local suppliers and producers to offer more diversified locally-produced goods attractive to tourists; and more diversified activities and entertainment options for tourists.
High use of imported produce and processed food results in tourism spending leaving Fiji through higher imports and puts increasing pressure on tight margins for hotels, resorts and restaurants. Lack of awareness of Pacific cuisine results in limited use of locally available produce by chefs and higher imports. Lack of hospitality skills that match the cost-level and ambitions of Fiji as an exclusive destination. Hotels and resorts use a high percentage of imported nonfood supplies due to lack of suitable local manufacturers or suppliers, thus increasing costs and imports. More could be done to brand Fiji as a ‘green’ or ‘unspoiled paradise’ destination, to strengthen its brand and mitigate the environmental impacts of tourism. More could be done to stimulate tourism in areas with few economic alternatives such as Vanua Levu.
To work with local wholesalers to offer more year-round processed and fresh produce for use in hotels, restaurants and resorts.
To encourage promotion of Pacific cuisine and the use of locally available ingredients, enhancing the tourist experience in Fiji and increasing purchase of local produce. To work with local organisations to increase access to appropriate hospitality and hotel management skills. To work with local businesses on innovative solutions to offer locally produced non-food related supplies for hotels, resorts and restaurants. Maintain specific focus on promoting use of sustainable practices in the tourism industry, such as renewable energy or organic farming.
Maintain specific focus on capturing opportunities on Vanua Levu.
Sector Results Chain – Tourism and related support services and industries
SECTOR CHANGES
BENEFITS TO FARMERS AND PRODUCERS
RESULTING PRO-POOR GROWTH
Suppliers increase turnover and expand
More labourers employed longer
Resorts increase turnover and expand
Increased income
Hotels can buy more diversified fi�ngs and supplies made locally Local wholesalers provide more year-round processed produce and food-stuff
Resorts buy more locally produced goods
Unique Pacific cuisine promoted along with the use of local ingredients Improved online travel informa�on and booking op�ons available to tourists Improved interna�onal and domes�c travel links available for tourists Local businesses offer more diversified and a�rac�ve ac�vi�es for tourists Local businesses offer more diversified and a�rac�ve goods for tourists
More tourists arrive from exis�ng and new markets, tourists stay longer and visit more loca�ons
Tourists buy more locally produced goods and services (ac�vi�es)
Suppliers increase turnover and expand
Increased exports and reduced imports
Export Processing
The export processing sector consists of all exporting industries involved in garments, Information and Communication Technology (ICT), seafood and processed food. This includes companies, which focus on export, but also cater to the domestic market. Also included in the sector are the communities, farmers, and small enterprises that supply to the above-mentioned industries.
Sector Relevance In 2013, it was estimated the export processing sector contributes 12-14% to the GDP and employs around 12,000 people. Garments alone employs around 5,000 people, 70% of whom are women. Also many women are employed in ICT. With the majority of the workforce residing in urban locations such as Suva and Lautoka, this sector can deal with issues relating to urban poverty. As a result of rural-urban ‘drift’, informal settlements have dramatically increased in Fiji. For example, it is estimated that in Suva, around 80,000 people live in these settlements (9.0% of the total population); around 40% of those who live in these settlements live in absolute poverty.
Growth Potential The export processing sector grew on average around 3% in the last three years. Such growth rates are modest, but for a country that experienced stagnant or negative growth rates in the last decade, these are encouraging. Further growth potential lies in increasing market visibility of Fijian exporters, improving access to technology and skills, and facilitating greater dialogue between the industry and policy makers.
Constraints to further growth in Export Processing Sector
MDF’s strategy to unlock growth in Export Processing Sector
Exporters lack adequate marketing and competitive products in key international markets, which limits their ability to grow.
To support exporters in product development and promotion of their products and services and thereby open up access to new markets.
Limited transportation channels, port congestion and elaborate customs documentation increase the cost of operation for exporters and reduce their efficiency.
To support local organisations in improving logistics, service delivery, regulatory compliance and promoting efficiency in exporters.
Low adoption rates of management systems, inefficient factory floor planning and limited investment in maintenance of machinery and production processes undermine productivity and increase the cost of production for exporters.
To work with local service providers and exporters on improving management systems, machine maintenance, floor planning and production processes to increase productivity of exporters.
Limited availability of sufficiently skilled labour and limited investment by exporters in improving labour skills undermine productivity.
To work with local organisations to increase access skilled labour and/or upgrade labour skills.
Getting necessary approvals is complex; procedures are difficult to negotiate, resulting in the fact that a) more resources are needed to gain project approval than would be desirable; and b) project implementation is often delayed.
To support key institutions and/or associations in creating a more enabling and conducive business environment for export to flourish.
Application of price controls on food items restricts companies’ profitability and acts as a disincentive for product innovation and investment.
To work with exporters and key agencies and institutions to explore ways to better balance the interest of consumers and exporters to create more incentives for investment and innovation.
Enterprises that use Fijian-produced raw materials face difficulty in obtaining a regular and stable supply of suitable products due to a lack of integration with the farmers and suppliers.
To support exporters in setting up and managing better supply chains that allow for more and more efficient sourcing of local raw materials and hence improve production.
Small business, which are potential exporters, face difficulties in accessing formal credit due to compliance issues and limited awareness among financial institutions.
Promote better understanding and facilitate linkages between financial institutions about small businesses.
More could be done to stimulate export in garments and fisheries in areas such as Vanua Levu.
Maintain specific focus on capturing opportunities in Vanua Levu.
Sector Results Chain – Export Processing
SECTOR CHANGES Be�er dialogue between the public and the private sector around policies and regula�ons in export processing sector
Exporters introduce new products and expand produc�on capacity to tap into growing markets
Exporters improve their promo�on ac�vi�es and increase market access
Exporters offer relevant and affordable skill training to labourers and middle managers
BENEFITS TO FARMERS AND PRODUCERS
Be�er business enabling environment in export processing sector encourages growth
Exporters increase export volumes
Exporters increase export and expand
More employment for workers
Exporters improve opera�onal efficiency
Exporters invest in new technology and support services
Local suppliers are able to supply more to exporters as new manners of processing, packaging, and transporta�on are applied
RESULTING PRO-POOR GROWTH
Increased income
Exporters buy more locally produced raw materials from local suppliers
Local suppliers increase turnover and expand
Market Development Facility, Fiji
Level 5, Fiji Development Bank Building, 360 Victoria Parade, Suva, Fiji PO Box 359, Suva, Fiji (+679) 3100 272 / 3100 273
(+679) 3100 274
info@cardnomdf.org
www.marketdevelopmentfacility.org