2009 Index of Economic Freedom

Quick Facts

Population:

• 0.8 million

GDP (PPP):

• $3.8 billion
• 3.6% growth
• 2.8% 5-year compound annual growth
• $4549 per capita

Unemployment:

• 6.4%

Inflation (CPI):

• 4.8%

FDI Inflow:

• $102.6 million

Fiji's economic freedom score is 61, making its economy the 80th freest in the 2009 Index. Its overall score decreased by 0.8 point from last year, reflecting deterioration in four of the 10 economic freedoms. Fiji is ranked 13th out of 41 countries in the Asia–Pacific region, and its overall score is slightly above the world average.

Fiji scores higher than the world average in seven of 10 economic freedoms but is very strong in only two areas: government size and labor freedom. The flexible labor market operates with minor restrictions on hiring and firing. Government expenditures are relatively low, but economic dominance by state-owned enterprises and excessive public debt hinder more vibrant economic growth. Government interference is also evident in price controls on a number of products.

Fiji is weak in investment freedom and property rights. All foreign investment is subject to government approval. Foreign ownership of real estate is technically allowed, but leasing is more often the reality for non-nationals. The judicial system's enforcement of regulations remains erratic, and court dockets are clogged by a significant backlog of cases.

Background Back to the top

The Pacific island nation of Fiji is ruled by an interim government backed by military forces led by Commodore Frank Bainimarama, who seized power in 2006 and dismissed the elected government. Fiji has long suffered from ethnic tension between the indigenous, mostly Christian population and a large minority of Hindu or Muslim Indo–Fijians. The recent military coup has stunted the crucial tourism industry. Fiji’s main trading partners, including the European Union and Australia, have imposed economic sanctions that have hurt vital agriculture, clothing, and fishing industries.

Business Freedom 66.0 Back to the top

The overall freedom to conduct a business is relatively well protected under Fiji's regulatory environment. Starting a business takes an average of 46 days, compared to the world average of 38 days. Obtaining a business license takes about the world average of 18 procedures. Bankruptcy proceedings are generally straightforward, but the lack of transparency impedes entrepreneurial activity.

Trade Freedom 69.6 Back to the top

Fiji's simple average tariff rate was 10.2 percent in 2006. Some import taxes, import licensing restrictions, some quarantine delays, weak enforcement of intellectual property rights, and tax concessions for exporters add to the cost of trade. Ten points were deducted from Fiji's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 76.0 Back to the top

Fiji has moderately high tax rates. The top income and corporate tax rates are 31 percent. Other taxes include a value-added tax (VAT) and a land sales tax. In the most recent year, overall tax revenue as a percentage of GDP was 21.8 percent.

Government Size 76.0 Back to the top

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 28.3 percent of GDP. The monopoly position of state-owned enterprises adds growing costs to the economy. Public debt hovers around an unsustainable 50 percent of GDP.

Monetary Freedom77.3 Back to the top

Inflation is relatively moderate, averaging 4.0 percent between 2005 and 2007. The government influences prices through state-owned utilities and controls the prices of various products, including food. Ten points were deducted from Fiji's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom30.0 Back to the top

Fiji restricts foreign investment but also offers tax incentives to investors in preferred activities. A number of investment areas are reserved for Fijian nationals, and investors must meet certain conditions before investing in some other restricted industries. Foreign investors are discouraged from acquiring controlling interest in or taking over established, locally owned enterprises. The government requires foreign investors to undergo several bureaucratic registration procedures and must approve all investments, often in a non-transparent manner. Residents may hold foreign exchange accounts subject to approval by the government; non-residents also face certain restrictions. Most payments and transfers (including capital) are subject to government approval and limitations on amounts. Foreign real estate ownership is technically permitted, but leasing is the typical approach to land use.

Financial Freedom60.0 Back to the top

Fiji's stable financial system is relatively well developed, but much of the population has limited access to credit. Banking accounts for about 35 percent of financial system assets and is largely private, though the state-owned Fiji Development Bank offers business development loans and some commercial banking services. The government withdrew from commercial banking in 2006, selling its minority stake in the National Bank. Foreign participation in banking is significant. The two largest banks are Australian and account for 80 percent of the market; three other foreign banks operate freely. The insurance sector consists of 10 companies and is dominated by foreign firms. Fiji's stock exchange has listed fewer than 20 companies in recent years but is developing. In the aftermath of the December 2006 coup, the Reserve Bank of Fiji tightened foreign exchange controls to curb credit growth and avoid a devaluation of the Fiji dollar. This has limited the amount of investment profit and capital that may be repatriated. Some controls were eased in June 2007, and others are to be phased out.

Property Rights30.0 Back to the top

Protection of property is highly uncertain. The backlog of cases in the courts is significant, and there is a shortage of prosecutors. Government actions have undermined the judiciary's independence, and several judges have resigned. The many difficulties involved in obtaining land titles seriously impede investment and growth.

Freedom From Corruption40.0 Back to the top

Corruption is perceived as significant. Fiji was ranked 55th out of 158 countries in Transparency International's Corruption Perceptions Index for 2005. It was not ranked by TI in 2006 or 2007. Fiji has a small population and a limited number of persons in positions of power, and personal relationships can be a significant factor in business and government decisions.

Labor Freedom84.8 Back to the top

Fiji's flexible labor regulations enhance employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is costless. Restrictions on increasing or contracting the number of work hours have become more flexible.