Inia Naiyaga: Growing the private sector - the micro, small to medium
businesses
Address by Mr Inia Naiyaga, Deputy Governor of the Reserve Bank of Fiji, at the Fiji
Indigenous Business Council 2014 Symposium "Indigenous businesses - creating our
future", Suva, 20 March 2014.
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The President, Mr Ulai Taoi and office bearers of the Fiji Indigenous Business Council,
Members of the Council, Distinguished Guests, Ladies and Gentlemen
Ni sa bula vinaka and a Very Good Morning to you all.
It is indeed a great pleasure for me to participate in today's forum with the appropriate and
topical theme "Indigenous businesses - Creating our future". At the outset, let me commend
the Fiji Indigenous Business Council for holding such an important forum and for looking at
such a critical issue as a strategy for encouraging employment and commercial opportunities
for our I'taukei.
I was asked to speak on the subject "Growing the private sector: the small to medium
business". I have taken the liberty to add Micro businesses as well in my speech today as
this is not just a buzz word but a reality, as most, if not all, businesses start as a micro
enterprise with Fiji's well known large businesses being no exception.
My presentation today is divided into four parts.
• Firstly, I have taken this opportunity to provide an update on the current state of the
Fiji economy;
• Secondly, I will highlight the importance of the Micro, Small & Medium Enterprises,
or MSMEs to the economy;
• Thirdly, I wish to highlight some recent initiatives and incentives by Government and
the RBF to the MSME sector; and
• Finally, share my thoughts on how the indigenous or we, the I'taukeis can increase
our participation in business.
1. The current state of the Fiji economy
Ladies and gentleman, the recovery in the Fijian economy which started in 2010 has now
gained a much firmer footing, despite the continued sluggishness in key trading partner
economies during the same period.
The Fijian economy is estimated to have expanded by 3.6 percent last year following a
2.7 percent and 1.7 percent expansion in 2011 and 2012, respectively. We now have four
years of consecutive growth not normally seen in our history. Last year, all sectors of the
economy, with the exception of the mining and fishing sectors, contributed positively towards
this growth.
This improved confidence can be attributed to a number of factors such as increased
spending by Government in infrastructure development and social welfare and
accommodative monetary policy by the Reserve Bank and the consequent easier access to
credit and historical low interest rates. Furthermore, the concerted effort by Government
towards an inclusive parliamentary democracy in 2014 has also been a major contributor to
regained confidence amongst investors and consumers alike.
The improved confidence is well reflected in our major macroeconomic indicators. Consumer
spending has been buoyant throughout 2013 underpinned by better labour market
conditions, increases in the income tax threshold and wages for Government workers, higher
inward remittances and increased lending by financial institutions. Partial indicators such as
Value Added Tax (VAT) collections, new consumption lending, new vehicle sales and
imports of consumption goods have all noted annual increases in 2013.
Additionally, investment indicators showed continued resilience and growth last year as well.
Total investment is estimated to have been around 28 percent of GDP last year as all partial
indicators such as imports of investment goods, lending for investment, domestic cement
sales and value of work-put-in-place registered annual increases.
The improved investment climate and confidence has translated well into the demand for
labour. The Reserve Bank survey based recruitment measure showed that the number of job
advertisements rose by 9.3 percent in 2013, driven by improved recruitment intentions in the
community, social & personal services followed by the wholesale, retail trade, restaurants &
hotels, construction and the manufacturing sectors.
The improved economic prospects are also a result of Government's expansionary fiscal
policy stance in 2013. In an effort to stimulate economic growth and investment, a substantial
amount was spent on capital works, particularly infrastructure development.
Inflationary pressures remained generally soft in 2013, mainly on account of stable food and
oil prices. The year-end inflation rate stood at 3.4 percent compared to 2.5 percent at the end
of 2012.
However, our external sector continued to face some challenges. Export performance has
been unsatisfactory and data up to November 2013 reveal that total domestic exports
declined by 2.7 percent. As alluded to earlier, imports continued to surge due to the pick-up
in demand across the economy. As a result the trade deficit widened further last year, though
this was supported to some extent by favourable inflows of tourism and remittances.
Remittances performed exceptionally well last year and reached a new record of
$339 million. Nonetheless, our overall external position remained stable and foreign reserves
was recorded at $1.8 billion at the end of last year, sufficient to cover 4.9 months of retained
imports of goods and non-factor services.
Ladies and gentleman, what is in store for us in 2014? Pre-2014 National Budget forecast for
growth in 2014 was 3.0 percent. However, given the significant increase in Government
expenditure on infrastructure, wages and salaries and social benefits such as free education
as announced in the 2014 National Budget, growth is now forecast to surpass the projection
and is currently being reviewed. Additionally, the surge in consumption and investment
spending is expected to continue and can even be further boosted by the increased
disposable income.
Confidence in the economy is expected to remain strong and is supported by sentiments
expressed by retailers and businesses in RBF's business expectations and retail sales
surveys which suggests a positive outlook for consumption and investment activity in 2014.
Macroeconomic fundamentals are poised to remain strong and conducive to growth in
business in 2014. A growing economy should therefore augur well for the Micro, Small, and
Medium Enterprises.
2. Importance of the Micro, Small & Medium Enterprises (MSMEs) to the
Economy
We all recognise that micro, small and medium enterprises (MSMEs) play a vital role in
economic development. They are an important engine of economic growth not only for less
developed economies but also the advanced nations. I am sure you all know why MSMEs
are important. I will therefore re-iterate these factors briefly:
• It Raises Economic Growth: In developing countries in Asia, SMEs make up the bulk
of their economies, some as high as 60 percent of GDP. In Fiji, there are
approximately 4,200 registered MSMEs, mainly in the agriculture, fishing,
manufacturing and retailing and tourism sectors. It is estimated that the MSMEs
sector accounted for almost 12 percent of our GDP in 2013 valued at around
$800 million. However, total outstanding borrowing by this sector from the
commercial banks was $316 million as at the end of 2013 or just above 8 percent of
the total loans portfolio. This shows that this sector is still largely untapped and there
is a lot of potential to develop a strong MSME sector as this leads to job creation,
empowering individuals, increase exports and investments and in turn economic
activity.
• It Raises Exports/Investment: Small businesses do not always stay small; they grow.
Many of our now large companies like Tappoos, Motibhais, Hotbread Kitchen and
many others were once MSMEs. I am confident that as our small businesses grow
they can help raise exports and investment in Fiji. They can also help in
importsubstitution thereby reducing our imports bill and narrowing the trade deficit.
• It Creates Employment: Small businesses are the answer to our unemployment
problem. Our formal sector cannot absorb all our school leavers - this is the same in
all developing countries. The employment growth required for our future can come
from the small business sector. Rough estimates suggest that close to 60 percent of
Fiji's labour force is involved in various forms of businesses that fall under the
heading of MSMEs.
• It Combats Poverty: MSMEs are also a way to combat poverty and can help us
achieve our Millennium Development Goals. MSMEs allow people to help
themselves rise above poverty, by supplying the means to provide for basic needs
such as education, food, shelter and clothing. SMEs give people the dignity of
working for a living.
3. Let me now move on to recent government and RBF policy initiatives to
support the MSMEs
Over the years, the Government and the RBF has put in place various incentives and
supportive policies to create a conducive environment for MSME activity.
As a way to increase the involvement of the financial sector and to enable greater access to
finance by micro-entrepreneurs around the country, the RBF in 2010 required all commercial
banks to set-up microfinance units at their branches. Commercial banks also established
agents in rural areas using merchants and post office agents to facilitate finance activity. At
the end of 2013, 81 agents were in operation providing basic banking services such as cash
withdrawals, deposits and payments.
In addition, since 2010, a total of 17 Microfinance expos have been held. These expos bring
together financial stakeholders that provide financial services, financial literacy training and
create more awareness on microfinance activity to those in the surrounding vicinity of the
expo.
The RBF's Import Substitution and Export Finance Facility (ISEFF) were set up to improve
Fiji's BOP position by assisting exporters, renewable energy and import substitution
businesses to obtain credit at concessional interest rates. Currently, the maximum interest
rate charged on the facility is 5% p.a. The Bank, from July 2010 to 31 January 2014
approved around $54 million under the Facility. Of this amount, $44.7 million was approved
for export finance, around $5.7 million for import substitution businesses, $4.0 million for
energy projects. Of the total $80 million allocated by the RBF for the Facility, approximately
$25.6 million still remains unutilised.
The Government also continues to support MSME development with various funding
allocations and policies in its National Budgets.
To better monitor the development of the MSME sector, the RBF and Solicitor General's
office will work together to put in place a legal framework for the governance of MFIs.
In 2012, the Government announced the SME Credit Guarantee Scheme. Under the
scheme, the Government guarantees to pay 50 percent of the principal outstanding amount
on defaulted SME loans, up to a limit of $50,000 per business. Today, the total allocation for
this scheme has increased to $4 million with a total of 483 loans covered under the scheme
at a value of $28.6 million, to date.
Moreover, to support and facilitate economic activity, the Government has in recent years
focused its funding on the development of infrastructure - particularly on roads and bridges
and utilities - which will improve access and encourage MSME activity.
In 2013, the Reserve Bank introduced the first ever National Microfinance Awards with three
categories the Best Microfinance Entrepreneur - Individual, the Best Microfinance
Entrepreneur - Partnership and the Best Microfinance Service Provider to recognise the
contribution of MSME's and micro-entrepreneurs in Fiji.
4. I now move on to some personal observations for us, the I'taukeis to succeed
in business
When I was invited by Mr Joe Taoi to deliver this presentation, my initial reaction
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was that I am not an authority on the subject matter as I do not have the experience
of being in a private business. However, my background as an Accountant and my
almost four decade experience as a central banker has taught me some lessons
that I feel are important to share with you at this forum. My first advice to aspiring
I'taukei businessmen and women is that revenue is NOT EQUAL to profit. A lot of
businesses, including our I'taukei businesses fail because of this simple
misconception.
Secondly, to invest in a business, we first must learn to save. As I'taukeis our
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savings rate is much lower compared with others. If we do not save, we will not be
able to start a business or use our saving as equity to borrow from the banks.
Building up Savings and prudent management of our finances are very critical for us
to succeed in businesses.
• One of the most challenging aspects of Financial and Business Management I have
noticed with most I'taukei businesses is the lack of budgeting and lack of financial
discipline. Financial and Business literacy is, in my review, the key to our success.
• One of the reasons many small businesses fail is because we sell goods on credit.
Selling goods on credit means that your cash flow as a small business is affected
resulting in the inability to restock or repay your loans. In most cases, such credit
become bad debt and as a small business operating with narrow margins and low
volumes, this can be disastrous. When you walk into a store owned by a
nonI'taukei, you will see a notice prominently displayed which says "No Credit". We
therefore must follow this same rule of "no kerekere" if we are to succeed in
business.
• I often hear our own people saying that we the I'taukeis do not have it in us to
succeed in business. I totally disagree as there are some of you here are a living
testimony of businesses that have been successful. It is therefore important that we
tell ourselves that We CAN succeed in business otherwise the battle will be lost
before the contest begins.
• As I had highlighted earlier, the Government introduced a SME credit guarantee
Scheme. In my view, this facility is well suited for the I'taukei to take advantage of as
the interest rate on such loans does not exceed 10% p.a. and the Government
guarantees to pay 50 percent or whichever is less, of the SME loans that go bad.
Our assessment is that very few I'taukei business people have accessed this Facility
out of the 483 loans advanced to date. It is, therefore, important for us to take
advantage of this Facility as well as the ISEFF which attracts a maximum interest
rate of 5% p.a.
• While I am of the view that I'taukei businesses must be assisted, we must also be
careful not to give too much handouts as it has the potential to create this "handout
mentality with no responsibility and accountability as it is given free". We must
change this hand-out mentality.
• Talking of changing behaviours is easy but most importantly, how do we go about
changing them? We all cannot be business people. However, we can create the
right environment for our children and future generations to be successful in
business. You may be aware that Financial Literacy is now being integrated into the
school curriculum and taught in all primary and secondary schools in Fiji since 2013.
A pilot program with 28 schools commenced in 2012. Starting early at primary
school level will ensure that our citizens of tomorrow will not only be financially
literate but more important we are instilling in our children some form of
responsibility and financial discipline at an early age.
• Finally, Ladies and Gentlemen, we have some successful business people in this
Council and in this room. You are important role models and mentors for upcoming
I'taukei business entrepreneurs. If we look at the non I'taukeis we will note that the
tricks of the trade are passed down from one generation to another. I therefore urge
you as I'taukei business leaders to please continue to mentor our people who are
thinking of starting a business or have just started one. There are no better role
models than you to help them succeed.
I wish you every success.
May your business ventures continue to be a blessing to you, your families and our beloved
Country, Fiji.
Vinaka vakalevu.