(+B) Minimum Wages and the Garment Industry: Government Keeps Promise But Could Make New Powerful Enemies

UPDATE June 27, 2009.
NARSEY: SMALL EMPLOYERS CAN SEEK RELIEF; LARGER EMPLOYERS CAN PAY

Economist Dr Wadan Narsey says “there will be no doubt that small employers will feel the pinch of dishing out extra wages" and those who think they cannot cope can show their audited accounts to the Wages Council. However, "larger employers have been making big profits for too long without raising wages [and] can comply with the minimum wage rate." A 20 percent wage increment would mean a dent of thousands of dollars in their profit margins, but the average worker has been denied increments for more than ten years and has been living under the poverty line for a long time. “It will make a difference to people who earn $70 a week. What can one buy nowadays with that much money?” Based on FijiLive.

The news that the Government will go ahead with the minimum wage award, deferred from February,at employers' request, on July 1st has, understandably, received a mixed reception. Retail Association President Himmat Lodhia says the increase is unsustainable in the present economic climate and will result in layoffs and shorter working hours. Others called the increase "suicidal" and counter to last week's Reserve Bank pleas to keep inflation in check. Spokesmen for most industries think the increases will most affect small operators.

Wage Council Chairperson Fr Kevin Barr acknowledges the employers' difficulties, but thought the small increases would help stimulate the economy with workers having a little more to spend. Referring to the garment industry, he said the industry "should not expect to survive on the basis of poverty wages." Even after the increases an experienced garment worker on $1.78 an hour working for a 40-hour week will only earn $71, less than one-half of the $164 poverty line. They have received no wage increase, or allowances for increases in the cost of living, for over three years. No journalist apparently thought to ask the opinions of the workers concerned.

Background on the Garment Industry

The industry flourished after the 1987 Coup when the Government cut tariffs and import taxes, established tax-free factories (TFF) and tax-free zones (TFZ), and offered tax-free packages to attract foreign investors and entice local manufacturers to increase production. Overseas and local manufacturers were allowed to repatriate profits in full. Government provided or heavily subsidized infrastructure. Protected by preferential tariffs on exports to Australia, NZ and the USA, the industry flourished. At its peak in 2000-2001 the industry was responsible for 12% of Fiji's GDP, 33% of its exports by value (it's now about 14%), and employed 20,000 workers, or 29% of Fiji's wage workers, most of them women, and two-thirds of them Indo-Fijians.

From then it has been all downhill. The preferential tariff to the USA expired, SPARTECA* was extended(from 2004 to 2011) but to little effect (for the volume and value of exports decreased); factories closed or merged; most foreign firms left; Government withdrew its TFF and TFZ concessions. Owners complained of low productivity and competition, for low as their wages were, Fiji workers were paid four times more than their Chinese counterparts. Even before the 2006 Coup things looked bleak for the industry. The reality then, and now, is that the industry cannot compete with China. The new wage awards are a minute part of the problem. To survive, the industry has to upgrade skills and equipment, develop new products, find niche markets and improve productivity by better employer-employee relations, and decrease its dependence on Australia and New Zealand (Walsh 2006).

It is the nature of capitalism that inefficient firms collapse, and smaller firms are swallowed by bigger ones. Reseacher Wadan Narsey found no evidence of firms collapsing simply because of higher wages. The remaining firms should use this opportunity to upgrade their act. Their exports will be helped by the 20% devaluation of the Fiji dollar; Government has indicated it will help all it can, and Australia and NZ could assist with markets and skill upgrading. And once they are confident they will survive, the garment factory owners can bring back some of the untaxed profits they sent overseas in the "good years" and reinvest it, at a much improved exchange rate, in their more efficient factories.

Bainimarama has kept his promise (we will know definitely by next Wednesday) but the decision to proceed with the minimum wage award is a courageous one. Employers constitute a powerful political lobby, far stronger than un-unionized female garment workers, most of whom would have supported Bainimarama anyway.

The New Minimum Wage Rates
The July minimum wage increase will see current garment worker wages for beginners increase from F$1.25 to $1.50 an hour, and for those employed for over five months from $1.48 to $1.78. Over the nine industries affected, the increases are: garment, wholesale and retail 20%; road transport 5%; manufacturing, beginner printers 50 cents; building, saw milling, civil and electrical engineering 40-50 cents, hotel and catering 35 cents, security 30 cents. The Fiji dollar is worth 80 cents NZ, and 60 cents Australian.

* See SPARTECA report for Australia's highly critical view of the industry, and February Fiji Times article and comments when the increases were thought imminent. I now see why the question was asked: What does it profit a man if he should gain the whole world and lose his own soul? Matthew 6: 19-21

Photo: Fiji Live.