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TOURISM SHOWS NO SIGNS OF SLOWING DOWN Welcome to Pacific Palm Marina Resort Fiji

All indications are that Fiji’s tourism will grow. How much and how fast it will grow depends on many factors, both internal and external. Australia and New Zealand have so far been Fiji’s major markets, supplying over 40 percent of tourists as recently as 1997. Expanding those markets should be relatively easy because of their proximity and close economic ties to Fiji. Expanding markets in Japan and North America, however, will remain a bigger challenge but one that is critical to diversification. One way that will help Fiji expand and diversify its tourist markets, especially in North America and Japan, is to attract more global and regional hotel chains. Secondary activities that arise from the presence of major hotel chains can also be significant contributors to the local economy.

As the Asian economies recover from their current downturns and others such as North America continue to grow, the demand for travel to tropical markets should rise. This holds true for Asia-Pacific travelers not to only Fiji, but also to other island destinations such as Guam and Hawaii. Fiji has a better combination of resources and infrastructure than some of its neighbours, which makes it a more desirable tourist destination. The question of how much tourism is optimal and what other industries can benefit from tourism is yet to be answered.

All indigenous resource owners may gain from the development of tourism along with agriculture and other means of production. Fiji’s relatively large land mass and numerous potential resort locations make it possible to develop competing industries without serious problems of encroachment. Development of multiple industries in turn creates work for the largest possible proportion of the labour force.

With political and economic uncertainty diminishing as a result of the government’s commitment to reforms, tourism can certainly be one of the major beneficiaries. Unlike some of the smaller island economies where even the basic infrastructure is rudimentary, Fiji has reasonably good physical facilities that can easily be upgraded and expanded. By unveiling the Fiji Tourism Development Plan: 1998-2005 (FTDP), both the industry and the government have shown their enthusiasm for developing tourism. Fiji’s potential as a destination and what it will take to reach that potential can now be identified.

The first step is to determine the optimal number of tourists annually. This number is a function of air service and lift capacity, infrastructure on the ground and, of course, the disposable income of potential tourists. The experience of other destinations in the Pacific, especially Hawaii and Guam, should offer some useful directions. Hawaii, one of the world’s major destinations, received nearly seven million tourists at the peak of the cycle in the early 1990s when Japan became a far more important market than before. While that momentum has not continued, Hawaii is still a destination of seven million visitors a year. Guam has received up to 1.4 million a year and aims for 2.0-2.5 million as its optimal market size. It will most likely achieve that number in the next 5-10 years.

The optimal visitor count for Fiji is dependent on not only the market forces but also the degree of Fiji’s desire to develop tourism. The FTDP suggests Fiji’s optimal tourist count may be 600,000 over ten years. Achievement of that goal is likely even without any special effort since the current rate of 5.6 percent growth a year (excluding extraordinary years such as 1997-98 that are shaped by global financial crises) is sufficient. At this rate, Fiji’s tourists will total about 620,000 in 2009.

Fiji can, however, reach its optimal tourist level sooner if it puts in place both the institutional and physical infrastructures to facilitate the growth of a world class destination. The government not only needs to encourage tourism, but make investing in tourism facilities more attractive. Streamlining the permit process, lands lease issues and offering other incentives may be necessary to expand tourism more rapidly.

Regardless of the development pace, Fiji has to compete for capital in a highly competitive global market. The market for capital is now shrinking rapidly because the Asian financial crisis has turned economies with capital surplus to economies with serious capital shortfalls. T The e usual market conditions (e.g. production and distribution trends returning to normal as a result of the so-called business cycle) no longer apply. The stock of capital is shrinking, but the demand for higher investments (higher levels of income) is rising. Only the most reliable and potentially most profitable markets will receive this scarce capital. Fiji can compete in capital markets on the strength of its resources and by adopting a new attitude toward foreign capital.


INVESTMENT IN TOURISM IN THE SOUTH PACIFIC is being captured overwhelmingly by Fiji, the region's main destination, followed by Samoa and the Cook Islands, according to a survey by the Fiji-headquartered South Pacific Tourism Organization (SPTO), an agency representing 12 national tourist promotion offices, including Fiji and French Polynesia.
In 2004, Fiji's estimated number of visitor arrivals exceeded half-a-million for the first time, growing by 18% over the 2003 figure (430,000), according to a Fiji Visitors Bureau estimate.

The Fiji and Vanuatu bureaus have both reported that tourist traffic is being swollen by low cost flights from Australia which began last September by the Australian carrier, Virgin Blue, operating as Pacific Blue, and in Fiji's case also flights by a New Zealand no-frills airline, Freedom Air, a subsidiary of Air New Zealand.

During 2004 actual investment primarily in hotels and tour businesses jumped regionally to about US$65 million from about US$25 million in 2003, and only about US$7 million in 2003, according to figures available to SPTO.

Total approved investments in 2004 ranged from more than US$120 million in Fiji and about US$30 million in Samoa to several million dollars in Vanuatu, the Cook Islands and Tonga, and negligible amounts in other countries.

In Fiji, investment authorities claim that about F$1000 million (US$580 million) is committed to at least five large resort projects alone.

The SPTO survey was conducted during October/November 2004 and is based on information from nine of the 12 countries asked for it. Three did not respond.

The survey shows that regionally the total level of approved tourism investment rose from very little in 2002 to about US$180 million in 2003, mainly for accommodation. It dipped slightly to about US$170 million in 2004. Fiji accounted for US$100 million worth of approvals each year.

In these two years investment approvals for accommodation were around US$100 million in Fiji; US$35 million in the Cook Islands; and US$20 million and US$25 million respectively in Samoa.

Approvals for investment in tour businesses were about US$2.5 million in Vanuatu in 2002 and 2003, negligible in other countries. But in Fiji in 2004 it jumped to US$30 million.

The European Union was the leading source of funds for infrastructure in 2004, contributing US$130 million, followed by China, US$110 million; public authorities, bank loans and self-generated cash, US$84 million; and private investment just over US$60 million.

Tourism is now the South Pacific's leading industry, according to the SPTO survey. The region received 1,080,000 visitors in 2003.

SPTO had forecast growth of eight percent for 2004, with a final figure to be available in March, and eight percent for 2005.

Tourism’s Future

Mechanisms that need to be put in place to attract more capital to Fiji include tax holidays, rapid depreciation and other programs to make it possible for business to set up shop and expand. There are also proposals to restructure government, privatize public enterprises and commit to developing a dynamic market economy, but transforming a communal economy with market elements to a market economy will take time. Meanwhile, the change in mood, from uncertainty to certainty, is a positive trend for Fiji’s business community. Air Pacific, Fiji’s international airline, will take delivery of new aircraft by the middle of next year, which will increase its lift capacity and add to the visitor count. And its new code sharing agreement with American Airlines is a major first step toward expanding its North American market share. By rejoining the Commonwealth, Fiji has clearly learned that access to large markets is critical to economic vitality. Having taken an immensely important step toward normalcy and stability, Fiji now needs to embark on a new path to reform and aggressively market itself in order to gain worldwide recognition as a viable economy.

According to the World Bank, Fiji’s economy can easily grow five percent annually if it takes full advantage of its productive capacity. It follows that the economy can grow even faster if it incorporates new tools such as information technology to enhance production and distribution.

Fiji’s economic performance will depend on the flexibility of its institutional, market and technological systems. Fiji will be poised to become a regionally competitive economy only when it makes the market changes that will allow for efficient production and distribution of competitively priced products for both domestic and global markets. Fiji’s economic expansion of more than five percent annually after independence showed that the economy could perform at a high level.

With the Asian financial turmoil coming to an end, the regional markets should stabilize. Depending on how soon the drought ends, the Fijian economy should also begin to stabilize next year and then start to grow once again.

Government, business and labour need to come up with a new economic development strategy that builds upon what has already been accomplished since Bank of Hawaii’s last report two years ago. Fiji’s recession should hit bottom at the end of this year and the economy should begin to grow 3-5 percent next year. With an effective campaign to market the new politically stable and economically reformed Fiji, foreign capital and skills should once again flow to Fiji making this potentially one of the most dynamic economies in the entire Pacific.

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