Fiji's three-speed economy

The economy is doing better than it was in 2019 with tourism leading the rebound. Visitor arrivals in 2022 exceeded most expectations and last year inbound demand surged past the record arrivals of 2019.

"Pent-up international travel demand in key markets and advanced readiness for open borders, with careful and detailed planning, put Fiji in a prime position to return its tourism industry to pre-pandemic output.”

ANZ Research believes Fiji is getting close to the summit of the tourism cycle. Another good year is locked in this year before tourism’s contribution to Gross Domestic Product (GDP) growth is likely to start dropping.

Room to grow

Tourism’s problem in Fiji is supply not demand.

When international borders reopened on 1 December, 2021, pent-up demand in main markets drove a rapid rebound in accommodation and food services activity.

In 2023 record numbers of mostly high-yielding tourists saw the sector exceed pre-Covid numbers.

A number of industries benefit directly from international tourism including accommodation, food services and transport. These industries are expanding and are expected to have another good year before tapering off.

Capacity constraints – or the number of rooms available - in the hotel sector are likely to see growth ease in line with inbound demand.

Gross value-added growth is expected to ease to 8.2 per cent next year and moderate to 3.2 per cent in 2025; a solid result.

That said, capacity limits may spark a phase of investment in tourism facilities and services, as new facilities may be needed to cater to the growth in demand.

But to increase capacity takes time.

Beside the ‘fast lane’ industries, Fiji has a series of so-called ‘middle lane’ sectors which are growing more moderately.

These include wholesale and retail trade, manufacturing, agriculture as well as information, communications and technology.

Offshore remittances continue to support these industries, offset somewhat by soft investment and employment growth, net overseas migration and elevated food prices.

Tech upgrade

One ‘middle lane’ sector with a promising outlook is information and telecommunications. This sector consists of traditional media such as radio, TV, film, print but also software publishing, information services such as libraries and archives and telecommunications including internet service providers and web hosting.

Output contracted 1.1 per cent on average between 2017 and 2019 and fell a further 14.5 per cent (cumulative) across 2020–21.

Activity has since rebounded and we believe it is now on par with 2019 levels.

The outlook is positive too. Wireless telecommunications activity is expected to grow rapidly as new technologies are taken up. Existing internet service providers are consistently upgrading to increase download speeds, reliability and coverage and to offer new products.

With more products and a greater uptake of streaming services, it should lift output. Fiji’s business process outsourcing sector is growing and the need for faster data processing and hosting requirements is likely to boost growth in information and telecommunications over the next two years.

According to media reports, Google is interested in laying its own fibre optic cable with a landing station on Fiji’s coral coast - a key tourist hub.

If this project comes through, information and telecommunications output could permanently shift to a higher plane.

Agriculture

Agriculture and fishing is Fiji’s third-largest sector in terms of gross value and remains important, due to its contribution to export earnings.

Sugar cane has been the mainstay of this sector, although output has been impacted in recent years by farmers exiting the industry when their leases expire.

Nonetheless, sugar cane provides a stable income for many in Fiji’s rural population and this could pick up if the idled Penang Mill is reopened.

Production of yagona (also known as kava) has shot up since 2014, more than offsetting the decline in sugar cane and contributing to the sector’s expansion.

We’re forecasting agriculture sector growth to remain steady, averaging 3.2 per cent over 2024 and 2025.

The ‘slow lane’ industries are constrained now but will pick up as the economy strengthens. These include construction, business services and, to a lesser extent, mining.

New investment is the key, notwithstanding existing labour constraints. Once a cluster of new projects starts, these industries are likely to pick up and change lanes.

Shifting gears

Pent-up international travel demand in key markets and advanced readiness for open borders, with careful and detailed planning, put Fiji’s tourism industry in a prime position to return to its pre-pandemic levels.

That recovery is now complete. With limited new sources of growth, Fiji goes back to the pre-pandemic average where GDP grows by about 3 per cent each year.

To shift gears, Fiji could speed up its ‘slower lane’ industries, in particular construction.

On top of this, several opportunities exist in the ‘new’ energy space such as upgrading water infrastructure and strengthening the transport network including airport, ports, jetties and roads.

A pick up in construction would broaden to the business services sectors, putting Fiji on a higher growth plane. A diversified economy can come on the back of improved infrastructure.

Kishti Sen is Pacific Economist and Tom Kenny is Senior International Economist with ANZ

This is based on the research note Fiji: three speed economy, published May 20, 2024.