I. SOCIAL, ECONOMIC AND NATURAL RESOURCE SETTING

[ I-A | I-B | I-C | I-D]

D. Economic performance: marginalized consideration of environmental issues

Fiji, as a small island economy, faces obstacles in the development process that are not present in larger countries. It is inherently less diversified, which makes it more vulnerable to both internal and external shocks. With a small population, economies of scale are difficult to achieve in domestic markets, and investment in infrastructure is more costly and often uneconomic. Superimposed on the problems of smallness, Fiji is relatively geographically isolated, prone to natural disasters and operates under a land tenure system that constrains the availability of land and its productivity. But despite those constraints the economy of Fiji, although structurally weak, has performed well in the two and half decades following independence. However, in the face of seemingly intractable political and land tenure problems, the economy is now at a crossroads which will have fundamental implications for the management of the environment.

The 1970s was a period of remarkable growth driven by the expansion of the sugar industry and, to a lesser extent, tourism.  During that decade, sugar production grew by 40 per cent. Because of the small-holder structure of the sugar industry, expansion was accompanied by high rates of employment generation and high net additions to foreign exchange earnings. Thus job creation more than kept pace with the increasing workforce, the balance of payments remained healthy, internal balance was maintained and foreign debt was low. Social services continued to improve and the government initiated major infrastructure projects, particularly in the area of hydroelectricity, water supply, and roads.

As a result of government initiatives, substantial pine plantation and tuna fishing industries were established. Elsewhere in the economy, performance was lack-lustre, commercial non-sugar agriculture made little progress despite substantial investments of public funds, and industrialization remained insignificant. However, by the early 1980s the inherent fragility of Fiji industry became apparent as growth in the sugar industry began to falter following a series of natural disasters and depressed world prices. A concerted push was made to encourage import substitution in manufacturin and agriculture through high tariffs and quotas. The high rates of effective protection that were created compounded the contraction of the economy.

By end of 1986 the economy was showing signs of recovery, again driven by the sugar and tourism sectors.  However, the economic climate changed dramatically with the coups of 1987. The economy plunged into an unprecedented financial crisis. There was an immediate outflow of capital, tourist arrivals plummeted and sugar production fell sharply. The Reserve Bank of Fiji took decisive action and the economy was successfully stabilized by the implementation of policies of fiscal adjustment, currency depreciation and sustained use of foreign exchange.  That period, however, was also one of considerable environmental damage as a result of widespread burning of sugar cane and pine plantations.

The political events of 1987 not only precipitated an economic crisis but also marked a radical reorientation of economic policy. Government policy moved from import-substitution to export-led growth, with particular emphasis on encouraging the expansion of the private sector as a means of achieving economic development. That involved deregulation, corporatization and control over the size of the public sector. Reforms were introduced in the financial and services sectors and extended to the labour market. Agricultural subsidies, trade restrictions and tariffs are slowly being phased out.

The large currency depreciation was accompanied by strong restrictions on nominal wage movements and the promotion of a tax-free factory scheme. The latter coincided with significant changes in the rule of origin provisions of the South Pacific Regional Trade and Economic Cooperation Agreement that were favourable to garments manufactured in Fiji. A policy of deregulation was introduced which replaced import licensing with a streamline tariff system, which allowed a progressive reduction from a maximum of 50 to 20 per cent. With those policy initiatives the Fiji economy showed a remarkable ability to recover from adversity, experiencing substantial growth in 1989 and the first half of the 1990s. The lead sector of that growth was garments, which became the second biggest gross export earner after sugar. Garments and other assembly manufactured products attracted by the tax-free factory scheme are generally not regarded as highly polluting in nature. However, the diversification of industry further taxed the already inadequate pollution control infrastructure. Furthermore, some of the new manufacturing complexes in western Viti Levu contributed to the steady conversion of prime agricultural land to other uses, particularly housing. The rapid expansion of those low-income, labour-intensive industries accelerated urban drift and increased pressure on an already inadequate urban infrastructure (housing, water and sewerage).

The nation's economic circumstances since 1987 have been unduly negatively influenced and dominated by political factors.  Fiji, in contrast to many multicultural nation states that have been destabilised, has been able to adopt a broadly acceptable constitution aimed at achieving national unity and nation building.  This was done through a process of wide consultation and consensus.  The adoption of the 1997 Constitution has changed the political environment and removed one of long standing impediments to investment and economic growth.  The patience and understanding that were shown during the process of constitution building provides a powerful positive indicator that Fiji's communities can work together in harmony to achieve key national objectives.  If it can be done for the Constitution, a similar broadly acceptable resolution will be found to the other major outstanding issue - the future of land leases.

The implementation of deregulation policies have begun to falter and in some areas reversed. Coming at a time when the value of trade preferences offered under South Pacific Regional Trade and Economic Cooperation Agreement are being eroded thereby undermines the viability of many of the tax-free factories in Fiji, particularly in the garment sector. A declining garment industry brings with it the prospect of increased urban unemployment and socio-economic strain.

There have been a few encouraging economic developments over the past few years, particularly in the resource-based sectors, which have had both positive and negative environmental implications. One example is a major expansion in sashimi grade tuna exports; however, the long-line fishing technology adopted is reported to had a detrimental impact on the population of other pelagic fish species. Taro has become Fiji’s second largest agricultural export after sugar; however, the production system adopted has relied on excessive levels of herbicide use. There has also been significant growth in agroprocessing. Fiji is now a significant exporter of fruit purees produced by smallholders under the certified organic production system. A state-of-the-art quarantine treatment facility is now in place that allows a range of fruit to be exported without the use of toxic and environmentally damaging fumigants.

Prudent fiscal and monetary policies that saw the economy through the upheavals of 1987 remain in place.  Inflation continues to be low (CPI increases averaged 5.5 per  cent for the decade), the balance of payments remains reasonably sound (the ratio of gross foreign reserves to monthly imports has averaged 5.7 since 1988), and external debt remains at a manageable percentage of GDP (e.g., 14.6 per cent in 1994). However, the financial stability that has been the hallmark of post-independence Fiji is under threat, with the government required to make large cash injections that exceed the size of capital budget into the National Bank of Fiji in order to save it from insolvency.  That has placed considerable pressure on government finances and made it more difficult to finance initiatives and measures related to the environment even with policy support.  The financial problems of the National Bank of Fiji have created an unfavourable credit environment, which has been a contributing factor to private investment slipping below 5 per cent of GDP.

Despite the recent poor showing of economic indicators, such as growth, employment, and investment, Fiji like many Pacific island countries has a hidden strength in the value of its subsistence and traded traditional food crops. The contribution of those crops to GDP is similar to that of sugar (an average of 40 per cent of total agricultural GDP at current prices). Levels of food imports to the country are still comparatively low, suggesting that domestic food supply has been able to expand with increases in demand from the growing urban population. The importance of subsistence and traditional foods highlights the high degree of dependence among the population on the environment for a sustained livelihood.

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