Savenaca Narube: Improving our lives and those of our families
Keynote address by Mr Savenaca Narube, Governor of the Reserve Bank of Fiji, at the Fiji
Development Bank 2006 Small Business Awards, Suva, 23 November 2006.
* * *
Mr. Tukana Bovoro, Chief Executive Officer, Fiji Development Bank;
Fellow Sponsors;
Small Business Owners;
Ladies and Gentlemen.
It is a pleasure for me to participate in today's Awards. I have a dual role to play this evening. The first
is as a sponsor and this is perhaps the role that I would prefer to have. The other is as the guest
speaker and here I will be brief.
Introductory comments
At the outset, let me commend the Fiji Development Bank for this excellent initiative, which
acknowledges the outstanding achievements of small business owners in Fiji. This is a good
opportunity to recognise your efforts and your contributions to the economy.
I understand that FDB has run the small Business Awards competition for 3 years now. I like this
year's theme: "Bisinisi lailai - paisa accha", "Small business - good money."
It may be useful to recall the objectives of the Awards which are:
•
To promote small and micro enterprise development;
•
To recognize successful, innovative and creative entrepreneurs for national development;
• To encourage self-employment;
•
To encourage supply chain linkages to bigger manufacturing businesses; and
•
To encourage the use and value adding of local resources.
These are laudable objectives. But good sounding objectives aside, to me, I would like to translate
them into a simpler interpretation: "Improving our lives and those of our families" and I would like
to make this the theme of my address this evening.
The Fiji economy and challenges
Let me firstly put this theme in the context of the economy.
This year, Fiji is expected to record its sixth successive year of economic growth. Investment is
growing. Inflation is low. Foreign reserves are adequate. Our financial system is sound. Our debt is
moderate by international standards.
But we face several challenges. Let me mention three now:
• The biggest challenge is that our growth rate has been too low. Our growth rate has
averaged 2.4 percent over the past 5 years and is expected to be around the same level in
the next 3 years. This growth rate is not enough to absorb many of our school leavers. At
this rate of growth, we will double our economy in 50 years and that is a half of a century.
This is too long. If we lift our growth rate to say 5 percent per year we will double the size of
our economy in 20 years and that is a huge 30 year difference. If we can even grow by 8
percent per year, we can do the same in only 12 years. So the difference can be a lifetime.
•
The second challenge is that we need to raise our investment to over 25 percent of GDP.
That ratio currently stands at 18 percent of GDP. Attracting foreign investment is not easy for
small nations like Fiji. Other countries some of which are big and richer are competing
fiercely for the same investment dollar. So our task is cut out for us. We can however be
more successful if we also try to incite our local people to invest more in Fiji.
•
The third challenge is that we need to narrow the widening gap between our exports and our
imports. We can do this in two ways. We can increase our exports which are not doing too
well. We can also decrease imports which are rising fuelled by the increase in oil prices.
To raise exports Government is implementing a new national export strategy. But this will
take time. In the meantime, we must try to slow down the growth of imports. The Reserve
Bank has therefore raised interest rates. The National Budget has also introduced new
revenue measures that will help reduce the rate of import growth.
Potential for small businesses and micro enterprises
The good news is that small and micro businesses can help address all the three challenges that I
have mentioned.
They can help the country raise its growth rate. In developing countries in Asia, small and micro
businesses make up the bulk of their economies, some as high as 60 percent of GDP. For those of us
that have visited some of these countries in Asia, we can attest to the roadsides crowded with hawkers
selling all kinds of wares. In Fiji we are beginning to see small businesses springing up all over the
place. This is very encouraging. But it is not enough and well below our true potential.
In Fiji we will be struggling for small businesses to make up 10 percent of the economy. The potential
in these small businesses for us is therefore huge. This sector is the answer to our jobs that the formal
sector cannot provide enough of. Rough estimates put close to 60 percent of Fiji's labour force as
being involved in various forms of business that fall under the heading of small and micro enterprises.
Small businesses do not always stay small. They can grow into medium and big businesses. Many of
our large companies like Tappoos and Motibhais started from very humble beginnings. This brings
hope to everyone. The key is hard work, perseverance and prudence. When these small businesses
grow they can look at the export market and also add to investment.
Small businesses can directly help in import substitution. We can use more of our natural resources to
fulfil our basic needs. They are not only cheap they are healthy.
Constraints
Let me pose this question: What are the constraints to starting and operating small businesses? Some
of the more common answers are difficult access to finance, lack of skills and lack of access to
markets.
On finance, I am glad that the Fiji Development Bank is putting its money where its mouth is. The
National Centre for Small and Micro Enterprise Development is also a financing option. The Reserve
Bank is currently examining ways that can facilitate access to financing for small businesses.
Still on this issue of finance, we have been amazed at the increase in personal remittances from
abroad which have provided us with much needed foreign exchange. One of the issues that we are
encouraging is for us to spend these remittances in a more useful manner. One of the best ways of
doing this is to use these remittances to start small businesses. The benefits will last for a long time.
The Reserve Bank is also looking at ways in which we can help facilitate this.
We are also talking with commercial banks on how we can work together to help small businesses.
One of the issues that I am hopeful that we can collaborate on is the provision of training on how to
plan and successfully run small businesses.
Debt
The National Budget was voted on in the House yesterday. Let me say a few things on this topical
issue.
Another of our major challenges is to reduce our rising debt level. I am encouraged that the
Government has addressed this challenge in the 2007 Budget. It has made the commitment to lower
the fiscal deficit to 2 percent of GDP in 2007 and to maintain this level over the next five years. This is
expected to bring government debt back down to 45 percent of GDP by 2011.
The other aspect of the Budget that was encouraging is the implementation of the Government's
Policy Support Program. It will be important that this Program is heavy on reforms in the key areas of
the civil service, public enterprise and public financial management.
Budget strategy supports monetary policy
It was also important to see that fiscal policy is complementing monetary policy. Government's
reduction in deficit, as well as the higher fiscal and excise duties on certain commodities are expected
to dampen import demand. As the largest component of our imports is that of mineral fuels, the
consideration of alternative sources of energy is also an important step. These measures will assist in
bringing about improvements in the balance of payments.
VAT & the poor
Finally, on the Budget, a brief comment on VAT. As we all know, public debate on the Budget has
been centered on the increase in VAT. This measure was put in place to help reduce the debt and at
the same time help fund government development plan and social obligations.
The way the debate raged, one can be forgiven in believing that VAT was the target and not poverty
reduction. The arguments seem to suggest that lowering VAT will solve the problems of poverty. We
all know that this is not true. Poverty is a wide ranging issue and solutions are complex and
comprehensive. VAT is of course paid by everybody including the poor. While the mitigating factors
that the Government has introduced will alleviate the burden on the poor, the more relevant question
to me is: "What is the most effective way to reduce poverty in Fiji?" And there are bound to be more
than one solution. It would have to be a package.
One of the most effective components of this package should be to provide income earnings
opportunity to the unemployed and the poor. In this manner, they can walk out from poverty for good
and more importantly they will do so with dignity and pride. This is where small businesses have their
greatest impact. Starting a small business will provide basic needs such as education, food, shelter
and clothing. Government can then use the revenue from VAT to provide access to clean water,
power, sanitation and roads. This is a most effective partnership to reduce poverty.
At the same time, we can do a lot to avoid paying VAT. We can encourage our people to better use
the resources around us like land and the sea to provide food for our families. I know from my own
experience, that leisure appears to be more important than work in many of our villages. As the small
business owners have shown, hard work can provide lasting answers to addressing poverty and this
should be stressed as well.
The importance of the SME sector
Tonight, I am of course talking to the converted, either to those who already are in business or to us
supporters. For small business owners that are here today, you have created your own income stream
on your own initiative and carved out a livelihood for you and your families. You are also providing for
the livelihood of many others by giving them jobs.
Right environment is critical
As I said at the beginning, my key message today is that small business is the answer to raising our
living standards and reducing poverty. However, it is important that we build the right environment to
allow this sector to grow. This environment must be created with sound policies and appropriate
infrastructure and support services. It must be stable - politically, economically and socially.
Any threat to this stable environment will scare away visitors and investors from coming to Fiji. We
have all heard the phrase: "The World is a Global Village". We should take this as a warning that, if
we don't have the right environment in place, there are many countries that tourists can go to and
investors can start their businesses in, instead of Fiji.
In this regard, the current political uncertainty is already having negative repercussions on tourism
which has been our only star performer in the last six years. It threatens the hard work that we have
put in to raise growth and investment.
Standard & Poors
The political situation has had disastrous consequences on the international perception of Fiji.
Standard & Poors has already downgraded Fiji's credit rating.
I can understand the concern S&P had regarding the political stand-off. However, I was disappointed
on the error they made on Fiji's reserves position which they said in their press release was 400
million Fiji dollars when it was nearly twice that level. Realising their mistake, S&P silently changed the
Fiji dollar sign to US dollars on their website, without the fanfare that accompanied the earlier release.
At the same time, they said that foreign reserves had further weakened while in fact it has remained
the same or perhaps increased since they first rated Fiji in September. This is extremely
unprofessional for a reputable rating agency like S&P.
This error appears to have added fuel to many of our local soothsayers, who the press loves to solicit
views from. I welcome the views of these theorists. But from reading our daily newspapers, they seem
to be problem driven, talking about the obvious and shooting from the hip. I envy their position where
they can simply shoot off their opinions but are not accountable for any policy implementation. These
theorists seldom propose solutions except to speculate on the currency.
Let me therefore clarify my position on devaluation. I believe that devaluation is not the answer given
the nature of our problems on the export front. In my view, devaluation will only raise prices and is
unlikely to help our balance of payments or raise economic growth. There is therefore no need for
devaluation. Fiji's external reserves remain at comfortable levels. In fact, at the end of September,
Fiji's reserves stood at $817 million, rising at the end of October to $840 million, which is equivalent to
3.4 months of imports.
The way forward
I cannot conclude without saying something on the future economic scenario that we can look forward
to. Economic growth will continue in the next three years but at the same level as we have seen in the
last five years. I therefore very much hope that the program of reform that the Government has
announced will be smartly implemented. I also hope that the national export strategy becomes a reality
sooner rather than later. If we lift exports at least to their potential and accelerate reforms, we can look
forward to a higher rate of growth in the next five years.
Let me add though that we cannot just keep on talking about these issues, or writing reports analysing
the same problems that I have talked about today. We do not need new reports to tell us the same
things that we already know. I have only three words on what we need to do now: Implementation,
Implementation, Implementation.
However, right now the political uncertainty looms menacingly over everything else that we do. It is
already damaging the only industry that has carried the nation so far. The ramifications of this political
climate continuing are too dire. We pray for a speedy resolution.
Concluding remarks
I conclude by saying:
To my fellow sponsors:
I would like to thank you for your support and look forward to your continuing assistance to small
businesses.
To the small business owners:
Very soon we will know the decisions of the judges for the various award categories. In my book you
are all winners. You should all be proud both of your efforts and of your contribution to Fiji's economy.
I wish you the very best tonight and every success with your business plans and ambitions in the
future.
Thank you.