Fiji Waters Run Deep: The Bottled Water Affair

             

by Crosbie Walsh and Others

A Book of Verses underneath the Bough,

A Jug of Wine Fiji Water, a Loaf of Bread--and Thou dear Lynda Rae

Beside me singing in the Wilderness--

Oh, Wilderness were Paradise enow!"
-- Rubaiyat of Omar Khayyam  Aiyaz Khaiyum Stewart Resnick 

"  More than half of the drinkers of Fiji Water in the USA think it comes from Mount Fuji in Japan."

Reasons for Ratu Epeli Ganilau's resignation proliferate, as they always do when the PM is out of the country. But the most likely one so far concerns Fiji Water Director for External Affairs David Roth who left the country for Los Angeles late last night. Yesterday, Ratu Epeli confirmed that his decision to step down from his ministerial post was in relation to issues surrounding David Roth, hinting at a difference of opinion with the PM. Roth was allegedly deported but his work permit is valid for another three years and his wife and family remain in Fiji, at least for the moment.

David Roth's alleged deportation has been interpreted diffently by two well known overseas journalists. Rowan Callick, Asia-Pacific editor for The Australian sees it as evidence that the Bainimarama regime is targeting  foreign businesses: a follow up on the forced sale of The Australian's sister newspaper, the Fiji Times. He claimed , “Sources close to Fiji Water ... said that it was believed the government wished to localise Mr Roth's position and to take steps towards changing the access to the 40m-deep artesian aquifer in the Yaqara valley in the north of Viti Levu, the main island, which is the source of the water.” Which could be interpreted as a possible first step to taking over over Fiji Water.

Hamish McDonald, Asia-Pacific Editor for the Sydney Morning Herald, however,  thinks it is more a tax issue   because Fiji Water has paid no tax since setting up business in Fiji in 1996. He warns abou the political and economic dangers of  “taking on the biggest US investor when the regime is cultivating Washington's support for its lengthy election timetable.” McDonald provides further background:

The Company

Fiji Water, which bottles water drawn from an aquifer in the mountains of northeast Vitu Levu, has been an incredibly successful business due largely to clever marketing. It is the top imported brand in the US, seems likely to globally overtake French bottled water, and the company ships $US150 million worth each year, about 20% of Fiji's exports, contributes 3% of Fiji's GDP , and directly employs about 350 people But its contribution to Fiji's government revenue is small. When founded by a Canadian mining magnate, David Gilmour, in 1995 it was given a lengthy tax-free status because of its risky nature.

The company also spends $US1.3 million a year on local projects but this is a lot less than the 30% corporate tax it would normally pay. The company argues: "Fiji Water has been an important source of foreign investment, and a powerful advertisement for Fiji abroad, driving global interest in tourism and spurring economic development."

The American billionaires Stewart and Lynda Rae Resnick, who bought it for $US63 million via a company in the Luxembourg tax haven in 2004, objected when the tax exemption expired in 2008 and Commodore Bainimarama tried to impose a 20¢-a-litre royalty on bottled water. The company said this was ''draconian'', shut its bottling plant at Rakiraki temporarily, and threatened to pull out. Under advice from the IMF to lift revenue to make a $US150 million bond repayment next year, Commodore Bainimarama has returned to the issue.

McDonald concludes that  “taking on the biggest US investor when the regime is cultivating Washington's support for its lengthy election timetable is a high risk move for Commodore Bainimarama.Without its US distribution chain, Fiji Water is just water in Fiji. But Barack Obama may also wonder how much US tax is paid on the trendy water he sips.”

What Readers Think

Personal ties said... Croz,  The revelation that Fiji Water executive David Roth was a personal friend of Ratu Epeli's and used to visit his house, adds a whole new dimension to this saga. How could Ratu Epeli have signed the deportation order in this case? It would have been impossible for him to do so and still uphold traditional values, especially if this was all about the regime sending a message to Fiji Water and nothing personal. Given the amount of global coverage this story is getting, the sooner we get a more detailed explanation from the PM, the better.

Business confidence said... Croz, You haven't mentioned the issues/debate surfacing around Fiji Water. Perhaps because up until now it was only rumour. What is clear now is Ganilau has said he disagreed on issues relating to Fiji Water and its CEO David Roth. Talk is he was asked to have him removed from the country.

Let's be clear on Fiji water. It's not about the water. It's branding and distribution. That's the reason

other manufactures have failed to come anywhere near Fiji Water. Make Fiji Water local and business will go the way of FSC.

Regardless of what happens, business confidence in Fiji just took another huge blow. Fancy websites and government promises and incentives mean nothing. If there is a threat that government will overtly interfere in your business, stop you repatriating profits or remove your executives these are all really good reason to not invest.

The former finance minister had Fiji Water in his sights and with his removal the business community sighed relief. It is the Reserve Bank governor who took his place. He already had a go at the banks but the IMF warned him to back off. Most know of his distaste for Fiji Water and a desire to punish them because he was also backing the former finance minister.

Wai Oh Wai Oh Wai left this comment: There is disagreement within the government over the handling of Fiji Water and David Roth. The question is did the PM and the AG have a problem with David Roth alone or do they have an ongoing problem with Fiji Water. If it is David Roth alone then there is some hope but what could a business executive have done to have proved a security threat? We shall never know because there is no transparency over these matters. However, other ex-pat business execs must be feeling nervous at the moment. One consequence of this action will be a further deterrent to investment.

If the Government has a problem with Fiji Water then the consequences for Fiji will be catastrophic. It is the country’s single largest exporter. It contributes about $150m to the Foreign Exchange reserves every year. It employs hundreds of people directly and many more indirectly. It also spend millions branding Fiji as a clean and beautiful country. Over 200m bottles go out every year singing the praises of this country.

One can only assume that the government would not put that at risk. They cannot nationalize the factory or do a Fiji Times-style Media decree. Well of course they can, but what do they end up with; the most efficient bottling plant in the South Pacific producing millions of bottles but nowhere to sell them. They can’t use the Fiji Water brand or packaging overseas. And the US Government would not allow them to be imported because they will have taken over a US company by unfair means.

So perhaps they are looking to put pressure on Fiji Water for something else. Who knows but it is a risky game. In the current economic situation the closure of Fiji Water would mean that 2011 is starting with a 3% reduction in GDP.

Whatever the government thinking, their actions are damaging to the investment prospects of the country. Fiji needs growth more than anything and the deportation this week is just another good reason for potential investors to look elsewhere.

To which another reader replied ... Wai oh Wai oh Wai, You make some very good points here but ignore a major factor that underscores this whole dispute. That is the refusal of Fiji Water to consider making any further contribution to a struggling national economy when it so clearly has the means to do so. Fiji Water enjoys a ludicrously low level of tax compared to a comparable operation on the US mainland. It's had a tax free holiday for years while other businesses in Fiji

have been saddled with a corporate tax of 30 per cent. When the regime — quite legitimately in my view — wanted a levy of 20 per cent on every bottle sold, what did Fiji Water do? Behave like a corporate terrorist by suspending production and exports and putting the whole economy at risk. The regime had no choice but to back down but you can imagine how much this rankles at senior level, especially when we're in such dire straights.

It didn't help when Fiji Water's vice president told a US magazine writer that without Fiji Water, the country was "screwed". Hardly the most diplomatic thing to say when its American owners are making millions of tax-free dollars from a precious natural resource that arguably belongs to the nation as well. No-one wants Fiji Water to leave and everyone is proud of the way a wholesome, fresh- tasting product is giving Fiji positive global exposure. But this is a question of fairness and the right of all Fijians to benefit from a huge global business.

The miserable Michael Field wrote an appalling piece in NZ yesterday saying the regime wanted to "take over" Fiji Water. This is yet another attempt by this reckless polemicist to wreck the Fiji economy by raising a question mark over the security of foreign investments. And it's utter rubbish. Without its global distribution and marketing network, Fiji Water is just water sitting in an aquifer in Yaqara. What the hell would new local owners do with it? What government wants is a legitimate slice of the company's earnings in tax revenue, just like any other business in Fiji and certainly just like any other business in the US. Does anyone seriously think these guys would be given such slack by the Internal Revenue Service in the US? The Fiji Government originally asked for 20 cents in the dollar of every bottle of Fiji Water sold around the world.

Don't want to pay 20 cents? OK let's talk about 15 cents or 12. But for Fiji Water to cry "nothing" and then put a gun at Frank Bainimarama's head, was hardly the smartest thing to do. Its billionaire US owners need to negotiate a way forward in the interests of everyone and not just themselves. Or this is going to get ugly for everyone.

Radiolucas took another angle ... I am not surprised at all. The Fiji Water CEO probably wouldn't agree to a higher tax rate and now has to bear the consequences: summary deportation.  Arbitrary rule of law, media suppression and constant resignations? This is a shameful way to run a country. But as Napoleon once said: "Never interrupt your enemy when he is making a mistake."

Proud fijian said... A team has goals that needs to be achieved. A member has to play as part of the team if he is not ready to play his role then he should leave. Ratu Epeli has shown the honorable thing and resigned. What ever relationship he had with the Fiji Water guy was a hindrance to the goal of the the government. As usual with most foreign investing in Fiji all provide as a benefit is employment. Fiji needs to maximise its benefits with these foreign companies.

While another reader said... Yes, it's unfortunate that a US company is being targeted just when the Americans are being more accommodating about 2014. Yet there's an equally strong argument that the Fiji taxpayer deserves to get more of the spoils from what is, after all, a valuable national resource.

Editor adds: New Zealanders will not be surprised if this story turns out to be all about an American company not wishing to pay tax because of all the other benefits it brings to a country, and a government not knowing how to handle it. Recently, we saw Warner Bros threatening to pull out of a NZ-based Hobbit production to be produced by New Zealander Michael Jackson unless we gave up on tax and eased our labour laws. Some people spoke about national dignity and selling out to an overseas company; others talked about the possible damage to the economy. Guess who won? And that, for the moment, just about sums it up.