Our costly coups: the impact on GDP
[The Fiji Times, 24 Dec 2000]
Ask any Tomu, Dikay, and Hari, what are the economic costs of the millenium coups, you will get the usual list: the businesses and houses burnt, the jobs lost, the pay cuts, families driven out of farms, the lives lost, education retarded, kids dropping out of school, the increasing crime, homelessness, prostitution, poverty.
All obvious, and terribly painful.
But these items do not give the full picture of the real medium-term and long-term catastrophic effects of our coups.
Because we seldom think of what our economy could have been, of what we are not gaining, of what we are effectively losing, because our economy is not growing as fast as it could be.
Most of us also do not fully comprehend the extent to which all assets in Fiji, like our mahogany plantations, horribly lose value, just because investors think that the risk of doing business inFijiis considerably higher than before (but that needs another article).
To understand the damaging impact of the growth factor alone, look at the effect on Gross Domestic Product (roughly our national income) of compound economic growth rates of 4%, as compared to a mere 1%, over just ten years.
Only then can we understand what our country has thrown down the drain for the last ten years, and what we are going to throw down the drain for the next ten years, if our power-brokers and politicians do not get their act together for the sake of the country.
GDP Scenarios Over 10 Years
From 1987, when the first coups took place, to 1999, theFijieconomy virtually stagnated, except for the garments industry (which thrived through preferential arrangements).
Investors were worried about political stability, investment as a proportion of Gross Domestic Product declined from above 25 percent of two decades ago, to less than 10 percent for the last decade. The resultant average real growth rate for the last 10 years, dropped to around 1 percent.
If our political mess continues indefinitely. If the ALTA problems are not solved; if economic sanctions are applied by NZ,Australia, US and EU; and if theLOMEpreferences disappear in five years time, we may even see negative economic growth.
But let us not be so pessimistic. Suppose that our people, despite the bungling by the political power-brokers, work hard work to keep the economy ticking over, growing at 1% per year. What happens toFiji’s GDP (national income) over ten years?
But what about the optimistic picture? Most economists see tremendous potential for growth- in tourism, agriculture, fisheries, timber, garments. Fiji’s economy could easily grow at 6 percent per annum for the next ten years. (Other countries have grown at 9 percent for more than a decade).
But just suppose thatFiji’s GDP grew at 4% per year, over 10 years, instead of at 1% per year. The table below gives the two growth scenarios.
Year GDP ($millions)
at 1% at 4% Difference
2000 3330 3330 –
2004 3465 3861 396
2007 3570 4343 773
2010 3678 4885 1207
Far more useful, is to look at the differences in national income, between the two scenarios (see the graph). The top line gives the extra GDP (in $millions) which can be earned by the country every year if the economy grew at 4%, instead of 1%.
Fiji’s people could be earning an extra $396 millions within 4 years, and an extra $1207 millions at the end of 10 years.
Put alternatively, by the year 2010, the extra national income could amount to an extra $5,000 per household per year.
Differences in Government Expenditure
Another way of looking at the enormous benefits of solid economic growth is through the impact on Government revenue and expenditure.
Assuming roughly, that Government revenue and expenditure stays at around 25 percent of GDP, the Graph also shows the extra amounts available for Government Expenditure, were the economy to grow at 4% rather than 1%.
By the year 2004, Government could have an extra $99 millions to spend, by 2007 an extra $193 millions, and by 2010, an extraordinary extra $302 millions per year. These are not small sums of money.
With extra revenues like these, Government can afford to spend tens of millions on affirmative action for indigenous Fijians, without depriving any other Ministry.
Government could afford to provide enough subsidies to double or triple the current rents being paid for all the native leases under ALTA, NALTA or whatever scheme is found sustainable of efficient commercial farming. Government could spend decent amounts resettling displaced farmers into productive livelihoods.
Government would have enough left over to further boost education and health, and give far more to social welfare than it does currently. Heaven forbid, we could even pay for another NBF disaster!
But to give extra lollies out requires good economic growth. And that requires the confidence of thousands of citizens and investors, big and small, nationals and expatriates.
Sadly, that confidence is not here and there is little evidence of it returning.
Investors see a legitimate government deposed, without any evidence of wrong-doing- towards indigenous land, or Fijian institutions of authority, or other similar allegations.
Yet others accused of blatant wrong-doing are let off by the authorities, for all kinds of strange reasons.
Investors are puzzled why a political solution is not emerging.
The leaders of the deposed Government have made the critical concession of agreeing to a Government of National Unity, which would include members of the current Interim Administration.
Yet the Interim Administration does not respond, except for hollow calls for reconciliation
Investors worry that the Interim Administration continues to support a Constitution Review Committee which has been declared illegal by the High Court, and the majority of whose members, do not have the confidence of the bulk of the thinking people of the country.
What will their findings achieve?
Investor confidence cannot be turned on and off like a water tap or a light switch.
Even if some political consensus were reached tomorrow, by the wave of a magical wand, investors will cautiously wait for a few more years to see if the peace and harmony is genuinely long-lasting.
They will fear that another group of power-hungry people, with selfish agendas, may again throw another spanner in the works.
Long-term growth is going to be a long-time coming. And every year, our people fail to realise and enjoy our full growth potential, as I have outlined above.
Come on, politicians and power-brokers behind the scenes. Give this country a break.
But break up our country any more, and like Humpty Dumpty, our children will not be able to put the pieces together again.
[Appeared as “Costly coups”. The Fiji Times, 24 Dec 2000.]