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“Making rich Fijians richer”: contextual statement for Defense Counsel for Mr Qarase.

01/09/2012

Fiji must “make rich Fijians richer”:

Contextual statement for the Defence Counsel for Mr Laisenia Qarase

  [This contextual statement was prepared for the Defence Counsel in the recent case against Mr Qarase.

It does not address the legal issues- merely the economic context in which allegations are made that certain individuals’ objectives were to “make elite Fijians richer”.  In this allegation is an implicit assumption that any Affirmative Action policy that tries to make elite Fijians richer is somehow immoral and undesirable for Fiji.

This contextual statement argues that it is important for the future political stability of Fiji that there MUST BE affirmative action that attempts to increase the share of the corporate economy that is currently held by indigenous Fijians- probably less than 5% of all corporate wealth in Fiji.  I argue that such affirmative action would be no different from the support given by public taxpayers to corporate interests from other ethnic communities in Fiji- whether of European, Indo-Fijian, Chinese or any other ethnic group.

In the event, Defence Counsel did not use the statement.]

1.       Indigenous Fijians must share equally in the economy

  The colonial “three-legged-stool” cliche was that Fijians would provide the land, Indo-Fijians the labour and Others (Europeans, Part-Europeans, Chinese etc.) would provide the capital and know-how.

In the post-1970 period, however, that cliche was well and truly put to rest for Indo-Fijians, who now have a substantial ownership of the corporate sector, along-side Australian and NZ businesses, and those of other ethnic groups.

While the entrepreneurship and business acumen of the Indo-Fijian business community no doubt played a part, also critical, indeed essential was the protectionist policies followed by virtually all governments (Alliance, SVT, FLP, SDL, and current Military Government).

It was only through fiscal subsidies, import duty protection, the grant of monopoly, etc., that the protected businesses and industries thrived in many sectors of the economy. These businesses were effectively subsidized by consumers (who paid a higher price, often for inferior products) and tax-payers whose burden was higher because of tax-holidays and duty exemption granted to the relevant businesses. Most of these businesses would have collapsed had it not been for tax-payers’ subsidies.

The examples of such businesses are numerous: rice, cooking oil, dairy products, exercise books, nails, roofing iron, cement, breweries, distilleries, airport concessions, just to name a few.  The list is considerably longer and continues to grow even today.

Some 95 percent or more of these businesses have been Indo-Fijians, or European or Chinese.  Very few have been owned by indigenous Fijians.

One may note that most of the Fijian political leaders whose annual budget decisions on duties, tax subsidies etc (such as Ratu Sir Kamisese Mara, Sitiveni Rabuka, etc) have not themselves acquired any ownership in the corporate sector.

Indeed they can hardly be said to have acquired any great wealth at all, while they have assisted businessmen of  other ethnic groups to become multi-millionaires, with assets running into the tens and hundreds of millions.

What is clear also is that for some two decades after 1970, indigenous Fijians in general, while becoming a substantial part of formal sector employment, failed to make inroads into the corporate sector and urban home ownership to the extent that one prominent Fijian political leader is supposed to have said that if Suva were to burn down, Fijians would only lose their debts.

The lack of Fijian ownership of house, car and other assets is obvious to anyone looking at the urban areas, especially the upper class suburbs.  This is changing only now.

Without doubt there are very little ethnic differences in those earning wages and salaries (there is ample data in the Reports on the recent 2008-09 Household Income and Expenditure Surveys of the Fiji Bureau of Statistics to support this), to show that the bulk of indigenous Fijians and Indo-Fijians are pretty much the same- in poverty and in the middle classes.

There is no particular need for Affirmative Action for Fijians at the bottom.

However, there is a substantial the gap at the top incomes and especially in the business and corporate sectors.   Some idea of the lack of indigenous Fijian business involvement may be seen from the following table derived from 2004 FIRCA data:

Fijians

Indo-F

Others

Total

Total filling in Form B

784

8,336

924

10,044

Percent

8

83

9

100

Earning > 120,000

20

90

44

Only 8% of businesses taxpayers were indigenous Fijian, and a mere 20 reported earning more than $120,000.  [Of course, the numbers of Indo-Fijians and Others earning more than $120,000 would be far larger than indicated here (because of the generalized practice of under-reporting of incomes by small businesses. Just add up the numbers of retail shops in Suva, Nadi, Lautoka etc to get an idea of how many high corporate earners there are in Fiji).]

For Fiji, this was not a healthy situation politically and sadly provided much grist to those who supported the 1987 coup, whether justified or not.

May I also point out that if you have a “perfectly level playing field” than those with superior capital, experience (business and cultural), frugality,  and social competitiveness will always win out over those who do not have these attributes.

You must have Affirmative Action at the top, in the business and corporate sector, if Fiji is going to see any closing of the real gap between indigenous Fijians and other ethnic groups.

This is where Fijian Holdings Limited has played a significant part.

The need for Affirmative Action for indigenous Fijians is only at the top

  I accept that the creation of FHL largely involved assisting indigenous Fijians and provincial councils to obtain ownership in the very profitable businesses quite astutely identified and invested in with the advice of Mr Lyle Cupit, an extremely experienced corporate manager of Burns Philps.

(I hope that there will some day be the proper acknowledgment of Lyle Cupit’s great foresighted contribution to Fijian business development and ownership).

The shareholders did not ipso facto thereby become entrepreneurs which has to be the ultimate aim for Fijian development.

But one should note that while many of the older generation Indo-Fijian businessmen really struggled against the odds to become entrepreneurs, their next generation merely inherited the businesses the older folk built up.

Some of the younger generation have gone on to greater things, while others have simply enjoyed the wealth that their parents created. That is the nature of capitalism- some grow and some die.

I also accept that it was not desirable to have a differentiation of Class A and Class B shares.  But I would point out that Fiji people have been extremely averse to choosing investments with high returns: a case in point is the FNPF pension option which only 10% of retirees took up even when the return was an unsustainable but extremely generous 25%.

One might also note that even with a promised 20% dividend for Class A shares, there was still a residual a risk involved if the investments were badly managed in the future and the earnings were to seriously decline.

One may point indeed to the disastrous experience of the National Bank of Fiji which also tried to foster Fijian ownership (amongst other nefarious objectives of some of the managers) through easy loans etc.  Some succeeded; most failed, with a serious loss of tax-payers’ money.  In this regard, FHL is largely still a success story (although fraying at the edges).

One can confidently state that ownership of shares inevitably requires a certain degree of learning about the need for sound investments and business decisions, and involvement in annual shareholders’ meeetings.

For a diverse group of companies such as FHL to thrive, also require that the Fiji economy is able to grow smoothly without political or social dislocations or any disturbances that will affect not just the FHL group of companies, but also the generalized economy, on which the welfare of FHL depends.  If the Fiji economy collapses, so also will the FHL be in dire straits.

It is clear therefore that widespread family ownership of FHL also evinces a commitment from the shareholders to ensure, where they are able to have an influence, that the economic and political environment is not destabilized.  Because of their ownershiop of FHL, indigenous Fijians  today can no longer say that “if Suva burns, all they will lose is their debts”.

In this regard therefore, as an economist, as an economic historian who has closely monitored the growth and development of the business and corporate sector in Fiji over the last forty years, I view the widespread ownership of shares in Fijian Holdings Limited as an extremely healthy political development for Fiji.

The allegation that “only Fijian elites” have benefited

  It has been extremely disappointing how some political parties have used the FHL as a political football- castigating Fijian political parties of helping the elite Fijians.

Of course, ownership could have been distributed amongst all the ordinary Fijians and not just the educated, and of course, there could have been only one class of shares.

But really, who else amongst the Fijians would have the financial and intellectual capacity to invest in such shares, even if the funds were available at concessionary rates, compared to the promised returns?

Who amongst Fijians can one reasonably expect the future class of Fijian entrepreneurs to emerge?

Why not Mr Qarase?

  I would say that the future Fijian entrepreneurial class will come, not just from the myriads of self-employed BBQ sellers, carriers drivers, fishermen, yaqona and dalo farmers, but also from the top civil servants, and senior managers in statutory authorities, and dare I say from the crop of managers of commercial and development banks- including the Fiji Development Bank of which Mr Laisenia Qarase was a General Manager.

I point out that in the decade after the 1987 coup, there was a frenzy of activity by all Fijian parties, designed to increase Fijian corporate  and business involvement, through entrepreneurship and ownership, so that political tensions could be reduced.

The Fijian business and political world was a very small world, with a very small number of Fijian households and families capable of venturing into the bigger corporate world.

My personal opinion is that most of those involved in that world, would have known who were the ultimate shareholders behind each company, whether declared or not.

I would say that were I to be charged with accelerating the involvement of indigenous Fijians in Fiji’s business and corporate sector, Mr Qarase, the General Manager of the Fiji Development Bank, would have been one of the prime candidates.

Why would one exclude someone who was personally central to the process of the involvement of indigenous Fijians and their institutions in the Fiji business and corporate sector, even if with the support of public taxpayers’ funds.

Many other business and corporate leaders of other ethnic groups have received far more financial assistance than did Fijian Holdings Limited, or its shareholders.

No one accuses them of any wrong-doing.

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