University of Missouri, St. Louis IRL @ UMSL Dissertations UMSL Graduate Works 12-13-2011 Explaining Investment Policies in Microstates: The Case of the Fiji Islands Sudarsan Kant University of Missouri-St. Louis Follow this and additional works at: https://irl.umsl.edu/dissertation Part of the Political Science Commons Recommended Citation Kant, Sudarsan, "Explaining Investment Policies in Microstates: The Case of the Fiji Islands" (2011). Dissertations. 395. https://irl.umsl.edu/dissertation/395 This Dissertation is brought to you for free and open access by the UMSL Graduate Works at IRL @ UMSL. It has been accepted for inclusion in Dissertations by an authorized administrator of IRL @ UMSL. For more information, please contact [email protected]. Explaining Investment Policies in Microstates: The Case of the Fiji Islands By Sudarsan Kant A Dissertation Submitted to the Graduate School of the University of Missouri-St. Louis In Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy In Political Science November 15, 2011 Advisory Committee Kenneth Thomas, PhD., (Chair) Nancy Kinney, Ph.D. Eduardo Silva, Ph.D. Daniel Hellinger, Ph.D. Abstract . Prevailing theories have failed to take into account the development of policy and institutions in microstates that are engineered to attract investments in areas of comparative advantage as these small islands confront the challenges of globalization and instead have emphasized migration, remittances and foreign aid (MIRAB) as an explanation for the survival of microstates in the global economy. This dissertation challenges the MIRAB model as an adequate explanation of investment strategy in microstates and argues that comparative advantage is a better theory to explain policy behavior of microstates. These small economies can take advantage of their exotic locations and natural endowments of sun and sand to develop a robust tourism sector through prudent investments and incentives in collaboration with stakeholders in the industry. This case study on the Fiji Islands will demonstrate that microstates are capable of developing policy instruments that encourage investments, even during periods of deep political crisis, thus underscoring a maturation of institutions in small post-colonial societies. The development of the tourism industry in Fiji was neither an ad hoc exercise nor an instance of creation ex nihilo, as both government and the private sector recognized over time the economic potential of tourism as a conduit for national development. The state collaborated in this endeavor by building institutions and supporting investments in hopes of capitalizing on the positive spillovers that could occur from a robust tourist industry. This dissertation argues that investments undertaken by the Fiji Islands in the tourism sector was a rational strategy to fully exploit its comparative advantage through the development of sophisticated institutional and organizational structures that emerged to meet the challenges of a complex global industry. ii Acknowledgements I gratefully acknowledge the dissertation fellowship awarded to me from the Graduate School of the University of Missouri-St. Louis that enabled me to complete this project. The Department of Political Science at the University of Missouri- St. Louis has been an amenable place to study and research these many years and the Assistantship Awards which made my stay possible. I could not have asked for a better committee to guide me through this project. The Department of Political Science at the University of Missouri-St. Louis, the Graduate Student Association and Dr. Marty Rochester generously underwrote the costs of presenting at two conferences in Hawaii and Auckland which provided me an opportunity to further refine my thinking about my project on microstates in Oceania. I also wish to thank the staff at the Fiji Bureau of Statistics in Suva, the staff at the University of the South Pacific (especially the Pacific Collections section), individuals in the Office of the Attorney General in Suva and Managers at the Fiji Trade and Investments Board who assisted me with data, information and material related to my research during my fieldwork to the Fiji Islands in Summer 2010. iii EXPLAINING INVESTMENT POLICIES IN MICROSTATES: THE CASE OF THE FIJI ISLANDS TABLE OF CONTENTS CHAPTER 1 Introduction 1 Motivations 6 The MIRAB Model 8 Theoretical Foundations 12 Argument 18 Methodology 20 2 Tourism as a Developmental Strategy 36 Introduction 36 The Advent of Mass Tourism 38 Competing Theories of Tourism Development 41 Enclave Model 45 Functional Model 47 Developing Tourism 51 Tourism and Culture 53 Tourism and the Environment 60 Defining Sustainable Tourism 62 Conclusion 64 3 The Development of Tourism in Fiji 67 Introduction 67 Historical Origins of Tourism 68 Institutional Development of Tourism 70 Organizational Structure of Tourism 74 Role of the Fiji Trade and Investments Board (FTIB) 77 Policies and Incentives 78 Five Year Development Plans 80 Brief Analysis of the Development of Tourism in Fiji 85 4 Analyzing Investment Strategies in the Fiji Islands 87 Introduction 87 State Investments in Tourism 87 Preliminary Analysis 90 The Fiji Sugar Industry 92 iv The End of the Sugar Protocol 97 The Problem of Land in Fiji 98 Political Instability in Fiji 104 Tourism and Political Instability 107 Tourism and the Construction of Risk 112 The Case of Fiji 116 Conclusion 119 5 Policy Challenges 122 Introduction 122 Policy Response to Crises 125 Natural Crisis 127 Political Crisis 129 Building Infrastructure 133 Building Accommodations 136 Alternative Tourism 141 Sustainable Tourism Projects 145 Conclusion 150 6 Conclusion 153 Introduction 153 Tourism and Employment 154 Analysis of Employment in Fiji 158 The Future of Tourism in Fiji 161 Microstates in the Global Economy 163 Bibliography 166 v TABLES 1.1 Microstates 1.2 National Regulatory Changes Towards FDI, 1995-2006 1.3 Hypothesis 1.4 Microstates with Population <1 Million (2009) 1.5 Politics and Governance in Microstates 1.6 Fiji Islands Trade and Investment Board (FTIB) Incentive Targets 1.7 Design & Data: Explaining Investment Policy in Microstates of Oceania 2.1 Tourism Demand in Oceania (1996-2001) 2.2 Milestones in the Human Right to Travel and Tourism in the modern era 2.3 Competing Theories of Tourism Development 2.4 Conditions for Developing Tourism 2.5 Range of Development Options 2.6 Tourist Attraction Criterion 2.7 Ecotourism and Development in the Pacific 3.1 Visitor Arrivals to Fiji: 1960-1970 3.2 Visitor Arrivals to Fiji: 1991-1999 3.3 Summary Report on Effect of Climate Change in the Tourism Sector in Fiji 3.4 Policies and Incentives (FTIB) 3.5 Capital Expenditure Program: Tourism (Thousands) 3.6 Types of Tourism Destinations 3.7 Potential for Labor Absorption in Tourism during Development Plan 9 3.8 Government Grants to the Fiji Visitors Bureau and Related Agencies 1981-1993 4.1 Quota Percentages and Income Transfers for ACP Countries 4.2 Sugar Proceed Sharing Ratios (Master Award) 4.3 Raw Sugar (EU Price vs. World Price) 4.4 Expiring Land Leases in Fiji (1997-2001) 4.5 GDP Fiji Islands 1980-1988 4.6 Visitor Arrivals to Fiji (1980-1990) 4.7 Visitor Arrivals during Political Instability (1985-1990; 1998-2003; 2004-2010) 4.8 Disruptions to Tourism 4.9 Tourism Related Offences- Coral Coast 2004-2009 vi 5.1 Comparative Gross Foreign Earnings 1975-2009 (FJD Millions) 5.2 TAG Action Plan following the 2000 Coup 5.3 Water and Sewage Construction for Tourist Sites-2004 5.4 Selected Islands in Oceania with Access to Piped Water (% of Pop-1990, 2000, 2008) 5.5 Ten Largest Hotel Groups (2010) 5.6 Hotel Ownership in Africa (2006) 5.7 State Response to Problems of Infrastructure Development in Tourism 5.8 Hotel and Accommodation Ownership in the Fiji Tourism Industry 5.9 Ten Largest Hotels in Fiji 5.10 Characteristics of Solid Waste in Selected Pacific Island Countries (1990-94) 5.11 Regional Agreements/Conventions 5.12 Global Agreements/Conventions 5.13 Rules Regulating Physical Development in Fiji 5.14 Selected Forest & Nature Reserves in Fiji 5.15 Bouma Forest Reserve Ecotourism Project 5.16 Summary of Costs of the Bouma Ecotourism Development 5.17 Income and Expenditures at Tavoro Falls in Bouma Forest Reserve (1/7/93-30/6/93) 5.18 Income and Expenditures at Tavoro Falls in Bouma Forest Reserve (1/7/93-30/6/93) 6.1 SWOT Analysis 6.2 Sectoral Comparison of Paid Employment and Wages in Fiji (1975-2004) DIAGRAMS 2.1 Public Private Partnerships for Developing Tourism 2.2 Enclave Model of Third World Tourism 2.3 Developing Tourism 5.1 Fiji Tourism Natural Disaster Management 5.2 Model of a MIRAB Economy 5.3 Comparative Advantage and the Political Economy of Tourism GRAPHS 2.1 Worldwide Growth in Tourism 4.1 Fiji Sugar Protocol vii Chapter One Introduction MAP: OCEANIA Introduction This dissertation explains investment policy in microstates of Oceania through exploring the experience of the Fiji Islands from 1975 to 2010. The study of investment policy in microstates fills a gap in the expansive literature on investment policies over the last three decades (Diamond and Diamond 2006; OECD 2003; Anthoine 1979) and gives us a lens to examine the survival strategies of small island states in the international system. A careful enquiry on the Fiji Islands as a typical microstate will demonstrate both the challenges and capabilities of microstates in developing policy instruments to encourage investments even through periods of deep political crisis, thus underscoring a maturation of institutions in small post-colonial societies. (a) From Sugar to Tourism The Fijian economy for the better part of a century was dominated by sugar production which began with the early European settlers in the 1860s and developed into an export commodity by the colonial government in 1883, lasting through Independence into the 1980s.1 Since then, the production and export of sugar in Fiji has steadily declined due to a pair of internal and external reasons which will be explored later in greater detail, such as the intractable problems of land tenure and the World Trade Organization (WTO) ruling against sugar subsidies.