Countries and Regions

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p. 3 of 5 BACK | NEXT I. Country Strategy II. Current Development Trends and Issues III. Implementation of the Country Strategy and Program IV. Portfolio Management Issues V. Country Performance and Assistance Levels

Country Strategy and Program Update 2003-2005: Fiji Islands, Republic of the

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III. Implementation of the Country Strategy and Program

A. Progress under the Poverty Partnership Agreement

11. Poverty pervades all communities in the Fiji Islands. It is significant and increasing. The quality of life has been deteriorating due to non-renewal of land leases resulting in increases in the numbers of slum dwellings, street children, and petty crimes, as well as prostitution. The most recent reliable source of data on poverty remains the 1990-91 Household Income and Expenditure Survey (HIES). Poverty lines constructed under the 1996 Poverty Study of the United Nations Development Programme (UNDP) estimated that around 23-25% of the population lived in poverty in 1991, with a further 20% living close to poverty. It is believed that many of this latter group are now below the poverty line. To assess the latest poverty situation, ADB will assist in undertaking a qualitative assessment of poverty in 2003 and expects that a poverty partnership agreement will be finalized and signed by the Government and ADB by the end of the year. Under this partnership, the Government will analyze the concept of poverty; design appropriate strategies to reduce poverty; and implement these strategies through the country's development plan, strategies, and priorities. Through the partnership, ADB will assist the Government in achieving specific Millennium Development Goals for poverty reduction.

B. Progress in the Country Strategy and Program Focus Areas

1. Good Governance

12. Both the Government's budget for 2002 and the SDP for 2002-2004 emphasize good governance as key to economic development and growth. Political and economic instability in the past has mainly been due to the inability to enforce the rule of law. Rising crime rates, particularly against businesses, a recent agricultural support program scam, migration of skilled government and private sector employees, and delays in implementing key legislation are emerging as major concerns of investors. The Government is committed to implementing the Public Financial Management Act 1999, adopting the International Monetary Fund's standard of fiscal transparency, and implementing the ADB-Organisation for Economic Co-operation and Development Anti-Corruption Action Plan to ensure accountability and fiscal discipline. The Government is allocating additional budgetary resources to the police, military, judiciary, and the Office of the Auditor-General to strengthen enforcement of good governance. The Government is also strengthening measures against money laundering to minimize corruption and fraud. The recent conclusion of the general election and the conviction of the coup leader are positive signs that the current Government is committed to enforcing the rule of law. The Government is also committed to pursuing public sector reforms involving public enterprises (including sugar industry reform), the civil service, the financial sector (including capital markets), and labor markets. The public enterprise reform program aims at improving the efficiency, productivity, and accountability of public companies, statutory bodies, and government commercial activities. The current weaknesses in the economy have added pressure on the Government to vigorously pursue the ongoing reforms, and to be more consistent with respect to formulating and implementing policies for encouraging private sector investment.

13. ADB is currently assisting with TAs in public enterprise reforms, capital market development, preparation of a medium-term plan, debt management, and land mapping for the Native Lands Trust Board. ADB will also support the Government's request for TA to assist the sugar industry restructuring. To address governance and poverty reduction, a cluster TA is proposed and will seek funding from Governance Cooperation Fund (Canada) to further assist in strengthening the demand for good governance in the delivery of essential pro-poor services.

2. Private Sector Development

14. Private sector development (PSD) will be critical to achieving the Government's objective of sustained growth and employment generation. A stagnant rural sector, especially with the difficulties confronted by the sugar industry, warrants substantial government support for rural people to identify alternative livelihoods. Investment opportunities exist but there is a need for institutional strengthening in support of a fair regulatory environment. One of the key issues affecting the Fiji Islands is the expiry of the Agricultural Landlords and Tenancy Act (ALTA) leases introduced in 1976. Many of the sugarcane land leases granted under ALTA to Indo-Fijian farmers have expired and are not being renewed. The development of appropriate management regimes to ensure that resource owners receive a reasonable share of the economic rents is also needed. Market supporting institutions are critical to successful PSD and there is a need to examine the roles and activities of various financial and other related institutions. ADB will ensure that its PSD strategy and operations continue to support government initiatives to develop the legal, regulatory, and institutional frameworks that will enhance and sustain private sector activities. ADB is currently providing TA for capital market development and will consider private-public partnerships in future loans. ADB's partial credit and potential risk guarantees could also offer support for PSD in the Fiji Islands. Political stability is crucial for reestablishing investor confidence.

3. Economic Growth

15. The rapid expansion of the garment industry, fish, fresh fruit and vegetables, and yaqona exports proves that the economy can adapt and move away from over-reliance on the sugar and tourism sectors. The Government has recognized that political stability, good governance, upholding the rule of law, and implementing key reforms are essential for sustainable growth and employment generation. This will entail focusing on macroeconomic and structural reforms, including creating an enabling environment for the private and financial sectors, and for capital market development. Further economic growth will require expansion and diversification, as well as further reforms in key sectors, including sugar and other natural resources, tourism, and manufacturing. To face the imminent loss of preferential garment and sugar support from developed country markets, further restructuring of the economy will be essential. There are opportunities for increasing agricultural productivity, agro-industrial development, crop diversification, and alternative livelihood programs, such as SME development, which are critical to raising incomes and living standards. The proposed assistance pipeline for 2003-2005 will provide support to improve sustainable economic growth.

16. The Government is committed to improving the quality of public infrastructure through greater private sector involvement, in both construction and maintenance. The Government is also committed to rural infrastructure development, such as rural electrification, interisland shipping, rural water supply, and roads. Major issues related to infrastructure include institutional reforms, especially addressing cost recovery in the water supply and sanitation sector. ADB's lending program for 2003-2005 will continue to support public sector investments, capacity building, and institutional reforms in infrastructure development targeted at disadvantaged areas. These include infrastructure investments such as roads, airports, and ports rehabilitation, upgrading water supply and sewerage systems, and rural electrification.

17. In the medium term, the Government is committed to fully implementing the Fiji National Transport Sector Plan (NTSP) recommendations to promote efficiency through corporatization and commercialization, and to enhancing the role of the private sector in providing and maintaining transport infrastructure and services. In support of the Government, there is a need for further assistance to improve outer island infrastructure, including jetties and wharves, to facilitate increased transportation needs of the remote outer islands for economic and social growth. The international airports in Nadi and Nausori (Suva) need major upgrading (runways, terminals, navigational aids, etc.) to meet the increasing demand for air traffic as well as to facilitate increased tourist arrivals. Airports Fiji Limited is in the process of finalizing a strategic development plan. ADB will support public-private partnerships in funding such developments.

a. Agriculture and Natural Resources

18. About 30% of GDP and 70% of exports can be attributed to agriculture and natural resources activities. In addition, tourism, to a large degree, is a nature-based industry in the Fiji Islands. The country's foreseeable future will remain largely natural resources based. Sugar remains fundamentally important to the country's economy. Sugarcane occupies 50% of arable land, employs 13% of the labor force, contributes directly to 9% of GDP, and generates about 30% of domestic exports. It was estimated that the multiplier impact of income generated by the sugar industry was 2.23 at market prices, and that generated by the tourism sector was 1.58. Several constraints face the future of the sugar industry, including uncertainty over renewal of expired land leases, an inefficient pricing system, and the possible phasing out of sugar support by the European Union (EU). With the ongoing nonrenewal of leases, and imminent loss of the EU price premium, about 12,000 displaced sugarcane growers will need to find alternative livelihoods. This adjustment will inevitably require large public investment to counter poverty and potential social unrest.

19. To identify alternatives to sugar, a comprehensive review of the agriculture sector was undertaken by ADB in 1995 (footnote 1). The study concluded that the country's competitive advantage lies in the export of high-value products to niche markets and in traditional food production. Based on the findings of this study, there has been a steady increase in the exports of non-sugar agricultural products, but further promotion is required. The proposed alternative livelihood project in 2003 will further enhance non-sugar agricultural production for exports.

20. Other natural resources, such as forestry, are poised to become major revenue earners for the Fiji Islands. The country has more than 50% forest cover with 850,000 hectares (47%) native forest, 42,000 ha (2%) pine plantation, and 51,000 ha (3%) hardwood plantation. The forestry sector contributes about 2.5% of GDP. The hardwood plantations, including mahogany, have enormous value-adding potential of up to US$200 million annually. Major constraints facing the sector include lack of proper infrastructure, inadequate skilled personnel, poor timber utilization, and the inability to sustain quality and quantity for domestic and export markets. In the 2002 budget, the Government allocated about US$1.5 million for the construction of a Timber Industry Training Institute and a Forestry Training Center.

21. With about 1.3 million square kilometers in its exclusive economic zone, the Fiji Islands has outstanding potential for fisheries development. Fisheries account for about 4.9% of GDP. Major constraints include lack of related infrastructure, such as fishing wharves, and electricity for refrigeration and processing in rural areas. ADB's current lending program includes advisory support for intermediation of the sugar sector restructuring and a project preparatory TA for an alternative livelihoods project. ADB will also support capacity building for the development of the natural resources sectors, especially forestry and fisheries.

4. Human Development

22. Human development is about expanding the choices people can take to lead their lives. The UNDP human development index categorized the Fiji Islands in the "medium human development category," ranking 67th among 174 countries. The literacy level is about 93%. Enrollment in primary and secondary schools is high compared with other Pacific developing member countries (DMCs). The infant mortality rate is low, with 18 per 1,000 live births, and life expectancy is about 68 years. About 70% of the population have access to safe drinking water and access to sanitation. The Fiji Islands' population has a relatively high standard of living compared with other DMCs, although the poverty incidence has increased. In 2001, per capita GDP was estimated at US$1,684 compared with US$1,707 in 2000. ADB is assisting in human resources development mainly by targeting the improved delivery of essential public services. For the water supply and sanitation sector, the Government is pursuing ADB support for the proposed Suva-Nausori Water Supply and Sewerage Project for possible funding in 2002. However, the Government needs to resolve some of the institutional and cost-recovery issues for sustainability of the project.

5. Gender and Development

23. The Fiji Islands ranks 63rd among 174 countries on the gender development index. Women in the country have a life expectancy of 71 years, surpassing that of men (68 years), which is among the highest in Pacific DMCs. Female literacy is high at 95%. However, there is a wide disparity in incomes and employment. Women comprise only 21% of the labor force and are concentrated in lower skilled jobs. The Government's target for participation of women in public decision-making bodies was set at 30% by 2001 and 50% by 2003. Currently the achievement is only about 12%. Several institutions, including the National Women's Advisory Council, Inter-Ministerial Committee on Women, and gender training units in the Ministry of Women, Social Welfare and Poverty Alleviation (MWSWPA) have been established to promote gender equality and concerns. To address gender issues, MWSWPA has been tasked to mainstream women's concerns in national policies and programs. In 1998, following wide consultations, the Women's Plan of Action 1999-2008 was launched. ADB is supporting the Plan through a TA, which is under implementation. ADB will continue to promote mainstreaming gender issues in its Fiji Islands operations.

6. Environment

24. The Fiji Islands' environment is generally in good condition, but relatively fragile due to its location, smallness, and geographic isolation. As one of the global centers of biodiversity, it is important to maintain the country's ecological uniqueness. Its environmental challenges are largely due to population pressures, especially in urban centers, as well as inappropriate agricultural practices. Pressures on agricultural land are forcing farmers, especially sugarcane farmers, to cultivate on steeper slopes, which are prone to erosion. Emission of industrial effluents from sugar mills and other factories, and untreated sewerage seepage need to be monitored and could become a threat to the tourism industry. There is also a need to monitor the impacts of climate change and rising sea levels. In 1992, the Government prepared a report on the state of the environment and in 1993 issued a National Environment Strategy. A Sustainable Development Bill has been drafted but not yet enacted. It will provide guidance on various development planning policies and project implementation. One of the main problems facing environmental management in the country is institutional weakness in implementing and enforcing legislation. ADB will focus its approach on assisting the Government ensure that environmental management concerns are adequately addressed and integrated into ADB's future loans.

C. Highlights in Coordination of External Funding and Partnership Arrangements

25. The Fiji Islands' largest external funding agency and the main source of multilateral aid funds is the EU, which mainly provides support to the sugar protocol under the Lomé Convention. Other major bilateral funding agencies are Australia, New Zealand, and Japan. ADB continues to play a strong catalytic role in strengthening macroeconomic analysis, and public and finance sector reforms, together with other development partners. The proposed Suva-Nausori Water Supply and Sewerage and agriculture sector projects provide an excellent opportunity for cofinancing, coordination, and policy level exchanges with important external funding agencies in the sectors, including the European Investment Bank, EU, and the Australian Agency for International Development. There is also scope for project cofinancing through local commercial banks. The recently approved Ports Development Project was substantially cofinanced by a local bank in the country. Development coordination is summarized in Appendix 2, table A2.5.

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