Sada Reddy: Tourism in Fiji's economy
Presentation by Mr Sada Reddy, Deputy Governor of the Reserve Bank of Fiji, to the Fiji
Tourism Forum 2008, Suva, 22 August 2008.
* * *
Introduction
I am delighted to make a presentation on Tourism in Fiji's Economy. The areas I have been
specifically requested to address are the following:
•
The contribution of tourism to foreign exchange earnings
•
The potential of tourism in reviving the economy
•
Retention level
Outline
The outline of my presentation is as follows:
•
Global economic conditions
•
Domestic economic conditions
• Fiji's tourism industry
•
Retention rate and economic impact
•
Policy implications
•
Summary
Global economic conditions
Global growth is slowing. The International Monetary Fund (IMF) expects global growth to
slow to 4.1% in 2008 and to soften further to 3.8% in 2009. Our major trading partners and
visitor source markets have a sluggish outlook for the next two years. However, emerging
market economies, like China and India, will continue to experience firm growth rates and
provide stability to global growth.
Domestic conditions
•
GDP growth: After contracting in 2007 (-6.6 percent), our economy is undergoing
some recovery in 2008 (1.7 percent). Forecasts for 2009 and 2010 are 1.1 percent
and 1.6 percent, respectively. These forecasts were released by the Macroeconomic
Policy Committee in April 2008. These growth rates are too low and insufficient to
generate sufficient employment opportunities.
•
2008/2009 growth sectors: Tourism is one of the key growth sectors for 2008 and
2009. Tourism also contributes to the growth of the other sectors.
•
Inflation: Inflationary pressures will continue through to the end of the year. Inflation
is expected to exceed 8 percent by September before settling at around 7.5 percent
by year end.
•
Foreign Monetary policy of the Reserve Bank in recent years was
reserves:
focussed on protecting foreign reserves. Foreign reserves levels are holding up well
at around $940 million. Current levels are sufficient to cover around 4.0 months of
imports of goods. This is a very comfortable level.
•
Lending rate of banks: Interest rates have trended down since early 2007 to
around 8 percent now.
•
Commercial banks' private sector lending: Despite the credit ceiling imposed by
the Reserve Bank, lending to the private sector has exceeded the credit ceiling due
to special approvals given by the Reserve Bank for special investment projects.
Special approvals have totalled $250 million dollars. Approvals for the Building &
Construction have reached $125 million followed by Transport, Storage &
Communication ($21 million), Electricity, Gas &
Water ($16 million) and
Manufacturing ($16 million). Other miscellaneous approvals totalled $72 million.
Recent figures show a moderate recovery in bank lending.
Fiji's tourism industry
•
Visitor Visitor arrivals are at historical highs. A strong recovery in visitor
arrivals:
arrivals by an annual 12 percent was seen in the first seven months of the year.
Using the Fiji Islands Visitors Bureau's growth forecast of around 571,000 visitors for
2008 translates to a projected annual growth rate of around 6 percent.
•
Visitor arrivals by country: Our nearest neighbours, Australia and New Zealand,
account for more than half (56%) of our visitor source market. The growing markets
of US (12%), Canada (3%) and Europe (15%), provide us with 30% of our visitors.
•
Tourism earnings: While we note historically high levels in visitor arrivals, tourism
earnings is what ultimately matters - for the industry and for the country in terms of
foreign exchange, employment and investment. Tourism earnings have largely been
flat since 2004. In 2008, we expect a marginal improvement over 2006 earnings
levels, a 6.7 percent rise in 2009 and a 14.6 increase in 2010. Thereafter we are
hopeful that the tourism earnings will reach and surpass the $1 billion mark.
•
Gross foreign exchange earners in 2008: Tourism is the major source of foreign
exchange for Fiji forming around 23 percent of total foreign exchange receipts1 in
gross terms.
•
Occupancy: There has been a huge level of investment into the hotel industry in the
last few years where we have seen new hotels, renovations/extension of existing
ones and an expansion of services provided (weddings/spas/conventions). The
increase in hotels and rooms have seen occupancy levels fall. 50 percent of tourism
capacity in terms of room days is unutilised. The challenge for the industry and for
the country is to fill these rooms.
•
Employment: The Hotels & Restaurants sector directly employed around 9,000
workers in 2007. Using the hotels employment multiplier of 2.6, the total
employment generated by the tourism industry is approximately 23,400 workers.
The employment multiplier was sourced from a 1990 study by the Tourism Council
of the South Pacific (TCSP).2
Fiji's tourism industry - retention rate and economic impact
•
Retention rate: The 1990 study by the TCSP showed the tourism industry in Fiji
has a retention rate of 44 percent. Hence for every $1000 of tourist dollars spent in
the country, $438 is retained in the economy after deducting import requirements
(direct, indirect and induced).
•
Factors contributing to higher leakage: These include:
1. An industry which is not fully integrated into the domestic economy
2. Import of food and other requirements
3. Repatriation of income and interest payments on foreign loans
4. Overseas marketing costs
5. Other foreign services
•
Tourism's impact on the economy: Based on the methodology and tourism
multiplier (2.9) provided in an in-house study, which compares well with the 1990
study by the TCSP, and using projections for 2008, the tourism industry is expected
to contribute $1,424 million this year, equivalent to 24 percent of GDP.
•
Policy implications
Given that there is 50 percent spare capacity, strategies must be put in
o
place immediately to increase visitor arrivals!!
o Improve local input into tourism industry. Possible ways are:
- Improve the quality and consistency of local fruits & vegetables,
thereby reducing imports
- Examine ways to increase production of beef and other meat and
dairy products
- Encourage manufacturers to produce goods demanded by tourists
- Provide more opportunities for tourists to spend locally (eg,
expanding retail opportunities)
Summary
•
Tourism is a key driver for economic growth in Fiji
•
Provides vital support to Balance of Payments
•
Highly resilient, has quick bounce-back
• Industry with substantial spare capacity to immediately propel growth to higher
levels
•
Need to remain competitive
•
Some downside risks:
The global slowdown
o
o Rising oil and food prices