FIJI BUILDING INCLUSIVE InstitUTIONS foR SUstained GROWTH COUNTRY DIAGNOSTIC STUDY ASIAN DEVELOPMENT BANK FIJI BUILDING INCLUSIVE InstitUTIONS foR SUstained GROWTH COUNTRY DIAGNOSTIC STUDY Economic Research and Regional Cooperation Department November 2015 ASIAN DEVELOPMENT BANK Creative Commons Attribution 3.0 IGO license (CC BY 3.0 IGO) © 2015 Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Tel +63 2 632 4444; Fax +63 2 636 2444 www.adb.org; openaccess.adb.org Some rights reserved. Published in 2015. Printed in the Philippines. ISBN 978-92-9257-099-6 (Print), 978-92-9257-100-9 (e-ISBN) Publication Stock No. RPT157617-2 Cataloging-In-Publication Data Asian Development Bank Fiji: Building inclusive institutions for sustained growth. Mandaluyong City, Philippines: Asian Development Bank, 2015. 1. Economic development. 2. Fiji. I. Asian Development Bank. 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ADB recognizes “Kyrgyzstan” as the Kyrgyz Republic. Note: In this publication, “$” refers to US dollars, unless otherwise stated. Foreword With its vision of “A Better Fiji for All,” the Fijian Government adopted the Roadmap for Democracy and Sustainable Socio-Economic Development 2010–2014. This Roadmap outlined the key policy objectives for achieving the country’s goal of national unity, good and just governance, and socioeconomic prosperity for all Fijians. Since implementing that Roadmap in 2010, Fiji has seen one of the longest spells of sustained growth in its history. This growth was made possible by prudent macroeconomic management and wide-ranging structural reforms, including several reforms in public financial management and in state-owned enterprises. With the successful conduct of general elections in 2014, business confidence in the economy has continued to improve, setting off a resurgence as well as growth in private investments. Considerable progress has already been made by Fiji towards achieving the MDGs, in particular the goals relating to universal primary education, reducing child mortality, improving maternal health, and ensuring environment sustainability. Though poverty has declined in Fiji, nearly 30% of the population remains poor. The number of jobs created in the formal sector is insufficient to meet the demand of job seekers annually, with the majority working in the informal sector and with many underemployed or not earning enough from their primary job. To address these challenges to inclusive growth, the Government has found it necessary to significantly expand its social programs. Crucial to generating more and better employment opportunities—which is also the key to making that growth inclusive—is high and sustained growth. It is the government’s goal to enable every Fijian to enjoy the fruits of that growth, and to provide adequate social safety nets to those who live below the poverty line to help them get on their way to likewise achieve that goal. This report on Fiji’s critical development constraints will serve as a useful reference to the Government of Fiji in preparing its next medium-term development plan. It has clearly identified the major barriers to achieving inclusive growth, and the insights that it provides can greatly enhance the cooperation and understanding between Fiji and its development partners. The Government of Fiji gratefully acknowledges the support of the Asian Development Bank in providing this timely and effective assessment of the Fijian economy. Filimone Waqabaca Permanent Secretary for Finance Government of Fiji iii Preface Fiji’s economy grew at an average annual rate of 3.3% during 2010–2014, nearly four times its growth rate during 2000–2009. This improved performance was brought about by accommodative macroeconomic policies, both fiscal and monetary, as well as by structural reforms. Extreme poverty—less than $1.25 a day—in Fiji is a low 6%, having gone down by 23 percentage points from the 2002/03 levels. A large number of Fijians continue to have difficulty meeting their basic needs. One in three live below the national poverty line, with poverty incidence higher in the rural areas. Income inequality has also increased nationally. Even if the headline unemployment rate is low at 4.7%, many of those employed are in the informal sector, living below the poverty line or need to supplement money income with subsistence work. To alleviate this poverty incidence, Fiji needs not only to maintain or surpass its recent growth momentum but also to make its growth inclusive. In particular, it has to create more productive employment opportunities to achieve that inclusive growth. Using an inclusive growth framework, this country development study on Fiji has identified these four critical constraints to inclusive growth: (i) weaknesses in the regulatory ecosystem for registering, starting, and operating new businesses; (ii) deficiencies in its existing infrastructure and related services, particularly the inadequate upgrading and maintenance of roads and the capacity shortage at its main ports; (iii) uneven access to productive assets, particularly to land and finance, owing in part to the customary ownership of land in Fiji; and (iv) lack of productive and adequately paying job opportunities, limited alternative career pathways, and poor labor market outcomes due to a mismatch between training and market demand. Political stability and policy certainty are essential to effectively address all these constraints to Fiji’s growth. The country needs to build on the first crucial steps that it has taken in this direction when it adopted a new Constitution and successfully conducted national elections in September 2014. Its growth trajectory is likely to be defined by productive sectors that can surmount the constraints of the country’s smallness and remoteness. One possible route for overcoming such challenges is the development of niche products and services for which a higher price can be charged without becoming uncompetitive in the world market. Private investment in addition to public investment is crucial to the success of this effort, so the private sector’s entry and participation in this high-potential growth area need to be strongly encouraged and fully supported. The Asian Development Bank looks forward to a continuing productive dialogue with the government of Fiji and other stakeholders on ways to achieve the government’s vision of “One Fiji and A Better Fiji for All.” Shang-Jin Wei Chief Economist and Director General Economic Research and Regional Cooperation Department Asian Development Bank iv Acknowledgments The Fiji country diagnostic study was conducted under the regional technical assistance project (RETA 7686), Diagnosing Critical Constraints to Growth and Structural Transformation in Selected Developing Member Countries, which was approved by the Asian Development Bank (ADB) on 7 December 2010. The study is intended to help strengthen the planning capacities of ADB developing member countries through the use of diagnostic approaches. The Fiji study was undertaken by a team from the Economic Analysis and Operational Support Division (EREA), of ADB’s Economic Research and Regional Cooperation Department (ERCD) under the overall supervision and guidance of Cyn-Young Park, director, EREA.