The Fiji Islands government regards the South Pacific Games as an opportunity to prove to investors that it is an advantageous location for business but how robust is it?

In the middle of Suva, the hot and bustling capital city of the Fiji Islands, there is a large digital clock, counting down the number of days until the start of the South Pacific Games. Athletes from 22 countries in the Pacific will compete at the games at the end of June. Big sporting events always bring an air of promise to a country and the atmosphere in Fiji is one of optimism.

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The government regards the games as signifying the re-emergence of Fiji as the political, business, transport and services hub of the south Pacific. The Reserve Bank predicts 6% growth this year on the back of the games and the infrastructure development associated with sports events is under way – Nadi International airport, for example, is undergoing expansion to accommodate more visitors.

Out of the wilderness

The boost to the islands is much needed after three years in the political and economic wilderness caused by a coup in May 2000 that removed the prime minister, Mahendra Chaudhry. Images of looting and rioting crowds did little to attract investors to Fiji and it appears that the ethnic tensions between indigenous Fijians and Indo-Fijians are still playing on the international business community’s mind.

Eric Gan, general manager of Nestlé Pacific Islands, believes that too much emphasis is put on political instability in Fiji. “If we compare Fiji with Papua New Guinea, Solomon Islands, Vanuatu, Tonga, Samoa, etc, it is relatively stable. In spite of the coup, there are no difficulties in doing business in Fiji. Our factory and trading operation continued undisturbed in the recent troubles. At no time did we have to stop production because of political unrest. Inflation was kept low all the time and the country maintained a satisfactory foreign currency reserve and was able to meet exchange requirements,” he says.

The garment industry, which is the second largest contributor to Fiji’s economy (15.4% of GDP), did suffer after the coup as a result of a drop in sourcing and orders from its main market, Australia. However, business has picked up. Mark Halabe, managing director of clothing manufacturer Mark One Apparel, is an enthusiastic representative of the industry and is convinced that Fiji is a niche market offering a stable, low cost location for Australian small-scale manufacturers. “When locating in Fiji, you can control your own destiny and do not lose control of your business. Places like China are too big for a small manufacturer and there are problems with language, culture and logistics,” he says.

About 6% of clothing imported into Australia is made in Fiji. Mr Halabe believes that this position can be built on, particularly if the Fiji Islands Trade and Investment Bureau (FTIB) actively promotes the sector in Australia and improves its incentive package. The current package includes, for example, duty free importing of equipment and tax-free profits for a limited period. Mr Halabe suggests that lowering tax from 30% to 15% with no provisional tax pay-out would further entice investors. He also sees it as vital to Fiji’s competitiveness that the bilateral trade agreement with Australia, which gives Fiji preferential duty access, is renewed when it expires in 2004.

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Trade agreements

Preferential trade agreements are important to Fiji’s garment sector. Jesoni Vitusagalevu, chief executive of FTIB, admits that Fiji has lost some garment factories to Lesotho under the preferential terms of the US’s African Growth and Opportunities Act (AGOA).

The sugar industry, the third largest sector and largest employer in Fiji, has also been buffeted by global trade influences. Preferential quotas and prices with the European Union are due to end in the near future. The Fijian government acknowledges that this will lead to the collapse of the sugar industry, which has suffered from under-investment for years and cannot hope to compete in the international market.

Mr Gan emphasises this vulnerability. “Nestlé is currently using local sugar as much as possible. If the sugar industry is not competitive we would have to source our sugar from other countries,” he says. The collapse of the industry stands to affect the livelihoods of 200,000 people in Fiji, one-quarter of the population, and would put an end to the optimism.

Mr Vitusagalevu, however, is positive about “filling the vacuum” created by the collapse of sugar with sectors such as mahogany, fisheries and gold, especially because gold prices are rising. He points to increased diversification in investment, using the example of Douglas Pharmaceuticals, a New Zealand-based generic drug manufacturer, which has a drug development and manufacturing plant in Nadi, the third largest city in Fiji.

Attractive location

Andrew Van Brugal, operations manager for Douglas Pharmaceuticals, compliments FTIB for its “professionalism and structure of incentives package”. Fiji would not be the first place that springs to mind for pharmaceutical research and development but Mr Van Brugal says that the company was drawn to the country because of the professionalism of the investment board, good value labour and liberal industry regulations.

Like Mr Halabe, Mr Van Brugal says that for a small company it is a great place to invest because ministerial access is good. “Other countries that are more commonly associated with the sector all had some deterring factors – in Philippines, political instability and in Singapore, high expenses and complex bureaucracy,” he says. The plant opened in 2000 and although Mr Van Brugal is not worried about political instability, he does admit that the company handles its finances carefully, having the least liquidity possible.

Other projects that indicate growing economic diversification include Australia and New Zealand Banking Group (ANZ) establishing a call centre last year in Suva to service the Asia-Pacific region. But one sector dominates the government’s plan to fill the vacuum: tourism. With its welcoming people, blue lagoons and white sand beaches, Fiji is a popular holiday destination. In 2002, there were 397,000 visitor arrivals generating FJ$521m ($264m), 25 % of Fiji’s GDP. The government has ambitious plans to create a billion dollar industry by 2007 and is pouring money into infrastructure to attract investors as well as offering an array of incentives. However, to date, the money has not been forthcoming.

Tenuous tourism

A range of factors easily influences the tourist industry. This was highlighted after the coup when numbers fell by more than 25%. The sector also requires a pristine environment, which could be undermined by large-scale tourism development. It all seems tenuous.

The countdown to the South Pacific Games could also indicate a countdown to how robust the Fijian economy is and whether it can carve a niche for itself in terms of low volume and low cost sectors, or whether it will suffer due to the collapse in sugar and an over-dependence on tourism.

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