With the new budget currently being prepared, it might be useful to reflect on Fiji's balance of payments in recent times. In particular, it might be wise to look at current global trends in substituting fossil fuels with renewable forms of green energy within the context of climate change.
Recently, the Governor of the Reserve Bank of Fiji outlined the constrained RBF policy to keep the value of imports to a point where it is below 5 per cent of the country's Gross National Product (Fiji Times, September 29, 2009).
In view of the current policies, it might be worthwhile to explore the country's economic and financial position since the 5/12 coup. While the data of 2009 is still being collected and summarised, it might be useful to examine the 2008 data for patterns and insights.
Trends in Fiji balance of payments
In 2008, the value of total exports was $F1.5 billion while the total value of imports was in the vicinity of $F3.6 billion leaving a deficit of $F2.1 billion. Given these figures, a number of critical questions arise with regard to what are the major imports, their approximate value and places of origin. Similar questions could in turn be raised about the country's exports.
Since 1985, Fiji has never had a surplus trade balance. In 2003 for example, the deficit exceeded a Fiji billion dollars. Strangely, the lowest trade deficit was in 1987, the year of the first coup.
Principal imports
During the year under review (2008) and for many years earlier, the principal import was mineral fuels (motor spirit, aviation turbine fuel, automotive distillate fuel and industrial distillate fuel) from Singapore. The value of these imports was approximately $F1.3 billion last year. In return, Singapore and indirectly the Middle East, imported relatively little of the Fiji products. The next major import item was machinery and transport equipment which in 2008 was $F726.5 million. Country of origin of these products was not reported in the government statistical bulletins and therefore not discussed here.
The third major imports were categorized as foods including fish for a total of $F520 million. Manufactured goods including textiles were a close fourth with a value of $F460.8 million. Surprisingly, the country also imported $F278.6 million of manufactured goods which included garments. Some of these imports were obviously used in manufacturing and re exported.
Import sources
Of the countries that contributed relatively large deficits to Fiji's economy were: Singapore $F1.2 billion, Australia $F526,859 million, New Zealand $F394,751 million, People's Republic of China $F149,224 million, India $F121,457 million followed by Thailand $F104,794 million. Of all the developed countries trading with Fiji, it appears that the trading partnership with Japan has been the most stable and fair. In 2008, Fiji imports were about $F81.8 million while the exports to Japan were about $F63.9 million, thus having a surplus of only about $F17.9 million in its favour. Fiji's best trading partner, however, has been the United Kingdom.
Principal exports by receipt
The total exports including re-exports amounted to approximately $F1.5 billion of which $F218 million was from sugar alone. Much of the sugar was exported to United Kingdom giving Fiji a surplus balance of trade of about $F187 million in 2008.
The next in food exports consisted of canned and fresh fish with a value of $F134 million and $F117 million respectively.
Dalo made only about $F22 million in exports in 2008. Exports of mineral water were around $F110 million. Exports of yaqona stood around $F5 million while copra recorded an all time low with no exports. It is presumed that much of copra was used to produce coconut oil which showed an export value of about $F8 million. Of the manufactured items, $F100 million worth of textiles and $F2.1 million of footwear were exported.
In 2008, about 21,000 fine ounces of gold worth about $F27 million of gold was exported. The re-exports including petroleum products was about $F488 million in 2008.
Strategies to improve balance of payments
There are two obvious strategies in obtaining a healthy balance of payment. These strategies are: one, maximising import substitution and two, by correcting structural deficiencies inherent in our export products. The second item will be discussed first.
Correcting structural deficiencies
In many developing countries with colonial histories the export item has been oriented towards producing raw materials; very little, if any effort has been made in processing the raw materials. Generally, the value adding components were left in the hands of the colonisers. This structural deficiency continues to this day in many former colonial territories. In the case of Fiji, for example, raw sugar is being exported. Little effort has been made to refine the sugar and or explore new sugar products e.g. chocolates, Indian sweets and so forth.
Additionally, there seems to be little innovative marketing to explore the possibility of brand positioning with such labels as 'Fiji sugar' and retailed globally to airlines, restaurants and hotels in addition to selling the bulk to the European Union as is currently being done.
The processing element would generate much needed revenue and employment; hopefully it would also improve Fiji's balance of payments.
Innovative thinking could further explore processing and brand positioning of other food products within the context of 'healthy living and longevity' associated with the product in question.
Such strategies would also be a good forward planning exercise in preparation for free trade. Economic survival with the advent of World Trade Organisation (WTO), trade would require marketing the unique elements of a product to achieve global acceptance in face of intense competition fuelled by the law of comparative advantage devoid of protectionist policies. It is envisaged that WTO policies of non governmental intervention in trade matters would also include a less stringent movement of capital and labour.
Import substitution
As earlier noted, the major import item from Fiji was mineral products (fuel). It would thus seem only logical to explore alternative fuel sources. These could be either in form of biofuels or biodiesel. Biofuels could be produced from cassava, sugar cane, palm oil, sea weed, pogamia including possibly water melon. Additionally, coconut oil could be used in conjunction with diesel to reduce dependence on diesel fuels in agricultural and transportation industries.
The massive savings that would accrue from the production of alternate fuel sources could be used for investment in the biofuels industry. Biofuels production from cassava, for example could potentially generate thousands of jobs in rural Fiji. However, such alternate fuel sources could be done in conjunction with creative expansionary monetary policies and appropriate biofuels legislation.
While the current initiative of the Government towards increased production of food items such as rice is applauded, the savings from these products may be considered modest compared to the potential savings from locally produced green fuels.
With a view to having a vibrant stable economy, perhaps the Government could explore the benefits of 'fixed exchange rate' within the context of innovative monetary policies. Obviously this may necessitate a cautious restraint on gold exports.
Additionally, the expansionary fiscal policies could be geared to government spending on infrastructural needs of the country. This could result in improving rural roads, ensuring good quality drinking water in rural areas, rural electrification and telecommunications. Government is already committed to improving the living standards in rural areas; however this could be accelerated with domestically produced energy from biofuels, wind farms and the like. Such initiatives would contribute to a healthy balance of payments and with it a vibrant and stable Fiji economy (in Oceania), comparable to Singapore in South East Asia.
Concluding remarks
Following the global recession, it seems that innovative low carbon forms of green energy (for household use and use by business firms and municipalities) would be a way forward world wide, including in small island states like Fiji. It would seem that the depleting oil reserves, rising oil prices and the negative environmental effects of burning fossil fuels (with six undisclosed life destroying toxic gases) would hasten the technological developments of green energy in all sectors of the national economy.
An analysis of the Fiji balance of trade shows that the country continues to lose large amounts of money through imports. The most disturbing feature is the huge amount of money being spent on fossil fuels. It would thus seem reasonable to suggest that the Government make a concerted effort in reducing its dependence on fossil fuels by supplementing fossil fuels with Fiji produced biofuels as well as solar, wind and hydro generated energy.
Pursuit of these alternate forms of green energy would be in line with the recent global concerns about climate change and global warming resulting from excessive use of fossil fuels. Such measures would improve, too, our balance of payments and replace annual deficits with a surplus.
Jagjit Singh is a lecturer at the University of the South Pacific's School of Economics
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