What We Need to Grow the Economy by Biman Prasad

This is the second half of Professor Biman Prasad's address to the Fiji Fuel Retailers Association Annual General Meeting on  May 23rd. After reviewing unsatisfactory levels of growth and shortcomings in the sugar industry, Professor Prasad continued:

We have to acknowledge that the Bainimarama government has delivered changes in some areas which have been useful for the economy. The deregulation of the telecommunication industry is a very good example. However,
there have been numerous decrees which have created new layers of regulations and bureaucracy. This has not only led to an increase in the cost of doing business but has also created uncertainty and lack of confidence. We have to guard against overregulation in the economy. In fact we need to do a cost-benefit analysis to see how these regulations are inhibiting or supporting investment.

In the last five years, the government has come up with some innovative incentives schemes to attract foreign investment. However, the investment level has not gone up. The main reason incentives have not worked is because there is lack of confidence in the economy. There is a clear relationship between the rule of law, confidence and economic growth. We all know that growth requires investment and spending in an economy. People will invest where they are confident the economy will grow and their investment is safe. Consumers will spend (to improve their living standards) if they are confident that the economy will sustain them (continued employment, future growth in their earnings) – otherwise they will save and thus the vicious cycle (no spending, no growth, no spending…) begins.

Behind investors are people. If they do not have confidence, they will not risk their capital. They will look for alternative locations for investment. The 2012 budget in my view was bold but it is fraught with serious risks. The reduction in income tax and company tax was intended to spur spending and investment. However, both spending and investment require confidence. Without the expectation that the future will be better, both consumers and investors will not act.

Fiji’s past history has shown that the economy performed well when we had periods of political stability. This is why from the point of view of investment and spending, the start of the Constitutional Consultation process and the progress towards the election in 2014 can be a major boost to confidence in the country. Fiji must not miss this opportunity as this could define the future of the country beyond 2014. That is why it is absolutely vital that the Constitutional Consultation process must have an inclusive, transparent and open mechanism to arrive at a new Constitution. Only this can guarantee confidence and progress for us economically.

In addition, the government needs to revisit some of its economic incentives and see why some of them are not working and why private investors are not responding to those incentives. The use of price control by the Commerce Commission to deal with inflation and anti-competitive behaviour may be justified in some areas but it should not be a major policy tool. I know that fuel retailers need not be subject to price control regulations. In my view there would be enough competitive behaviour on the part of the fuel retailers to keep the price at a level which will be justified and acceptable to consumers. In fact the Commerce Commission should pay more attention to the wholesalers, that is the oil companies and see whether prices are fairly established at that level. I know the Commerce Commission has done some work and has made progress in ensuring that oil companies do not raise prices for oil in the stock whenever there are global changes.

Let me once again turn to the issue of confidence. We have a huge confidence deficit in this country and this goes back to 1987 and it will take years for us as a country to reduce that. While the Bainimarama government must be given credit for articulating equal citizenship and the principle of non-discrimination, it must not ignore what is happening on the ground especially in the civil service and statutory organizations where appointments continue to be made on a racial and provincial basis.

The Constitutional Consultation process allows us a good opportunity to build that national confidence and an expectation of a better Fiji. This expectation of a better future will itself be a huge boost for our citizens who may be thinking of leaving, and our investors who are thinking of moving their investments to other countries, to stay back, live, and invest in Fiji. A country cannot progress if its citizens are constantly faced with an uncertain environment, when its people are always thinking of migrating. Fiji has the potential to turn all this around and achieve prosperity if we take note of these issues and do something about it.

Coming together as a country once again to work out the next Constitution of Fiji in an inclusive, open and transparent manner may be the beginning of the end of our chronic political problems.


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