BALANCING WAGE INCREASES A ND ECONOMIC REALITIES IN FIJI
Mr Arvind Maharaj is an esteemed educationist and entrepreneur with over 25 years of extensive experience across educational and private sectors.
From 2012 to 2016, he served as Deputy Chancellor and Deputy Council Chair at Fiji National University (FNU), guiding strategic direction and overseeing academics, policies, and governance.
The critical issue of the National Minimum Wage (NMW) review in Fiji holds significant implications for both workers and businesses alike.
Many views have been raised since early 2024. While there’s a clear need to uplift workers’ wages to match the rising cost of living, it’s equally important to consider the difficult conditions that businesses, particularly Micro, Small, and Medium Enterprises (MSMEs), are facing in today’s challenging economic climate.
Current Challenges Faced by Employers Rapid Minimum Wage Increase:
• The previous Government implemented a steep 50 per cent increase in the NMW between April 2022 and January 2023 (from $2.68 to $4.00 per hour) without proper consultation, catching many businesses off-guard and leaving them scrambling to adapt.
• This sudden and substantial increase has put immense pressure on businesses, particularly MSMEs, which are the backbone of our economy and provide essential goods, services, and employment to our communities.
• Many MSMEs are struggling to absorb the increased labour costs while desperately trying to maintain their profitability and competitiveness in an already challenging market. The stark reality is that some businesses may not survive this shock.
Recent Financial Pressures:
• Value Added Tax (VAT) increased by a whopping 6 per cent, significantly raising the cost of goods and services for businesses and consumers alike, further straining already tight budgets.
• Corporate taxes were raised by 5 per cent, from 20 per cent to 25 per cent, directly impacting companies’ bottom lines and severely reducing their ability to invest in growth, expansion, and job creation.
• Fiji National Provident Fund (FNPF) contributions were restored to pre-COVID rates, placing yet another financial burden on the shoulders of employers who are already struggling to keep their heads above water.
• These changes have placed an enormous strain on businesses, particularly MSMEs, which often operate on razor-thin profit margins and have limited resources to cope with such sudden and drastic increases in operating costs. Many are at breaking point.
Economic Sustainability and Growth:
• The latest economic indicators and forward-looking information from the Reserve Bank of Fiji (RBF) paint a concerning picture, leading to a downward revision of Fiji’s 2024 Gross Domestic Product (GDP) growth forecast to 2.8 per cent from the 3.4 per cent projected in November 2023.
• The RBF Governor and Chair of the Macroeconomic Committee has expressed serious concerns about the softer economic outlook, moderated consumption spending, and the severe impact of elevated cost of living on the economy.
• These troubling factors, combined with the immense challenges faced by businesses, highlight the critical need for a cautious and measured approach to any further increases in the NMW and sectorial wage rates. It seems prudent to proceed with the utmost care.
Risks to the Economic Outlook:
• Fiji is losing its skilled labour at an alarming rate due to migration, with the RBF reporting that up to 15 per cent of our workforce has already left our shores in search of better opportunities abroad. This brain drain threatens to cripple key industries.
• The rising cost of doing business is making it increasingly difficult for companies to remain competitive, invest, and create jobs. This erosion of our business environment could have long-lasting consequences.
• The constant threat of climate change and natural disasters looms large, with the potential to devastate livelihoods, infrastructure, and entire communities in the blink of an eye.
• Heightened geopolitical tensions and delayed regulatory approvals add further uncertainty and risk to an already precarious situation.
• These risks pose significant challenges for businesses and could severely hinder economic growth and stability if not addressed with the utmost urgency and care.
Importance of Key Sectors:
• The Reserve Bank of Fiji (RBF) has emphasised the crucial importance of key sectors such as financial, agriculture, transport, accommodation, wholesale and retail sales, manufacturing, information and communication, electricity, construction, mining, and administration in contributing to economic growth in 2024.
• A large portion of this growth is projected to come from the private sector - the engine that drives our economy and creates the wealth and opportunities that benefit us all.
• It is absolutely essential that any changes to the NMW and sectorial wage rates do not adversely impact these vital sectors and their ability to drive our economic recovery and growth. We must nurture and support these industries, not burden them further.
Comparison of Minimum Wage Increases
It is essential that we consider the recent minimum wage increases in Fiji in the context of recent wage adjustments in other countries and the historical Consumer Price Index (CPI) changes here at home.
While Fiji experienced an unprecedented 50 per cent increase in the NMW between April 2022 and January 2023, other nations have taken a far more gradual and measured approach to wage increases, recognising the need for balance and sustainability.
Historical CPI Changes in Fiji:
• Analysis of the monthly CPI data provided by the Reserve Bank of Fiji over a period of 15 years from 2009 to 2023 reveals that the average annual CPI increase during this time was a mere 2.49 per cent.
• In stark contrast, the 50 per cent minimum wage increase implemented between April 2022 and January 2023, a span of just nine months, is a staggering 20 times higher than the average annual CPI increase over the past 15 years. This is simply unsustainable.
• This glaring disparity clearly demonstrates that the recent wage increase was grossly disproportionate and far outpaced the historical rate of inflation in Fiji. It has created a shock that many businesses are struggling to absorb.
When considering a potential wage adjustment for 2024, it is imperative that we align any changes with the historical CPI trends and the realities on the ground.
Given the already substantial 50 per cent increase in the recent past, which businesses are still grappling with, it would be prudent to implement a significantly smaller increase, if any at all, to maintain economic stability and support business recovery.
We must give them time to adjust and adapt.
Impact on Micro, Small, and Medium Enterprises (MSMEs)
MSMEs, which represent the lifeblood of Fiji’s economy, are particularly vulnerable to the adverse effects of rapid minimum wage increases.
These businesses, often familyowned and deeply rooted in our communities, are the ones that will bear the brunt of any further shocks.
COVID-19 Recovery and Loan Repayments:
• Many MSMEs are still struggling to recover from the devastating impacts of COVID-19, including the heavy burden of repaying $130 million in concessional loans taken out just to survive the pandemic.
• The projected 6 per cent inflation by the end of 2023 is expected to further impact savings, spending, and loan repayments, placing an even greater strain on these already struggling businesses.
High Cost of Doing Business:
• MSMEs are grappling with the increasingly high cost of doing business, including the recent increases in VAT, corporate taxes, FNPF contributions, and the additional investments required to source and retain workers in a tight labour market.
• RBF has explicitly highlighted the “high cost of doing business” as a major risk in its November 2023 Economic Review and recent downward revision of Fiji’s 2024 GDP growth forecast. This is a clear warning sign that cannot be ignored.
Productivity Challenges and Skills Shortages:
• MSMEs face significant productivity challenges and have not been spared from the difficulties of labour and skills shortages that plague our economy.
• Many businesses invest heavily in on-the-job training for their employees, only to see them resign and seek employment opportunities abroad, making it increasingly difficult and costly for MSMEs to find and retain the workers they need to operate and grow.
Lack of Finalised National Plans:
• The absence of finalised national plans, such as the Human Resource Plan, National Development Plan, and National Employment Policy, creates a climate of uncertainty and unpredictability for MSMEs.
• Without clear, long-term economic plans and strategies in place, MSMEs are left in the dark, unable to make informed decisions or plan effectively for the future. This stifles investment and growth.
Potential Derailment of MSME Growth Efforts:
• The Ministry of Trade and SME has set an ambitious goal to grow the MSME sector from 18 per cent to 20 per cent of GDP, recognising the vital role these businesses play in driving economic growth and creating jobs.
• However, any further increase in the minimum wage rate in the short term by the Ministry of Employment could derail the government’s overall plans to grow and support the MSME sector, undermining these critical efforts.
Request for MSME Rate Review Mechanism:
• It would be beneficial for the consultants to modernise the way the minimum wage is set, taking into account factors such as sector, rural/urban location, size, and number of employees, rather than applying a blanket figure for all businesses regardless of their unique circumstances and challenges.
Importance of Productivity Linkage to Wages
It is absolutely vital that we emphasise the importance of linking wage increases to productivity improvements. Productivity growth is the key to ensuring that businesses can afford to pay higher wages without compromising their competitiveness or viability. In Fiji, productivity challenges are significant, and addressing these issues is crucial for sustainable wage growth and a thriving economy.
• Productivity and Wage Growth: There is a direct and undeniable correlation between productivity and wage growth. Higher productivity leads to increased output and profitability, enabling businesses to offer higher wages and better benefits to their workers. Conversely, wage increases that are not aligned with productivity can lead to higher costs without corresponding gains in output, reducing competitiveness and threatening the very survival of businesses.
• Training and Skill Development:
Investing in training and skill development is absolutely essential to enhancing worker productivity and laying the foundation for higher wages. Businesses and the government must collaborate closely to provide upskilling opportunities for workers, ensuring that wage increases are supported by genuine improvements in productivity and capability. This is the only sustainable path forward.
Inflation and Its Impact on Workers and the Economy
Raising the minimum wage without corresponding productivity improvements can lead to inflationary pressures that threaten to undermine the very benefits we seek to achieve. When businesses face higher wage costs, they may have no choice but to increase the prices of goods and services to maintain their profit margins and stay afloat. This, in turn, can lead to a rise in the overall cost of living, negating the benefits of the wage increase for workers and creating a vicious cycle that hurts everyone.
Inflationary Spiral:
• Increased Costs: Businesses forced to pass on higher wage costs to consumers can lead to increased prices for goods and services across the board, making life more expensive for everyone.
• Reduced Purchasing Power: As prices rise, the purchasing power of workers’ wages may decline, offsetting any gains from the wage increase and leaving them no better off than before.
• Economic Instability: Persistent inflation can lead to economic instability, as rising costs erode consumer confidence and spending, further impacting businesses and the economy as a whole. This is a dangerous spiral that we must avoid at all costs.
Untimely Review and Grave Situation for Businesses
The current review of the NMW and sectorial wage rates appears untimely and ill-advised, considering the facts, data, and the incredibly challenging situation businesses find themselves in today.
The stark reality on the ground paints a picture of businesses on the brink, struggling to survive in the face of unprecedented challenges and pressures.
Recent Financial Shocks:
• Businesses, particularly MSMEs, are still reeling from the impact of the steep 50 per cent increase in the NMW implemented between April 2022 and January 2023. This shock has left many businesses battered and bruised, struggling to stay afloat.
• Many businesses have not had sufficient time to adapt to the new wage levels and are fighting an uphill battle to maintain their operations and retain their workforce in the face of rising costs and shrinking margins.
Cumulative Impact of Policy Changes:
• The recent increases in VAT, corporate taxes, and FNPF contributions have further compounded the financial pressures on businesses, adding fuel to an already raging fire.
• These policy changes, along with the minimum wage increase, have created a perfect storm of challenges for businesses, making it extremely difficult for them to remain viable and competitive in an increasingly hostile environment.
On-going Economic Uncertainty:
• The downward revision of Fiji’s 2024 GDP growth forecast and the concerns expressed by the RBF Governor and Chair of the Macroeconomic Committee highlight the uncertain and precarious state of our economy. Storm clouds are gathering on the horizon.
• Businesses are already grappling with a softer economic environment, moderated consumption spending, and the crippling impact of elevated cost of living on their bottom lines. They are in survival mode.
• Introducing further wage increases amidst this uncertainty would be akin to throwing an anchor to a drowning man - it would only exacerbate the challenges faced by businesses and further hinder their ability to contribute to our economic recovery.
Risks to Business Sustainability:
• The loss of skilled labour due to migration, rising cost of doing business, constant threat of climate change and natural disasters, and other risks pose existential threats to the sustainability of businesses in Fiji.
• Imposing additional wage increases at this juncture would be like adding insult to injury, further straining businesses that are already at breaking point and potentially leading to widespread job losses, reduced investments, and even business closures. The human cost would be immeasurable.
Importance of the Private Sector in Fiji’s Economic Engine Lifeblood of the Economy:
• It is the hard-earned profits and tax revenues generated by the private sector that serve as the lifeblood of our economic engine and fill the government’s coffers, enabling it to provide the essential services and infrastructure upon which we all depend.
• These funds are the wellspring that enables the provision of vital services, critical infrastructure, and essential social programs that form the bedrock of our society and underpin the welfare of each and every Fijian.
Consistent and Unfair Burden on Businesses:
• Businesses, the wheels upon which our economic engine turns, are consistently and unfairly burdened by the ever-shifting sands of political agendas and policy changes, leaving them struggling to keep pace and adapt.
• Governments may come and go, political party mandates may keep changing, but businesses remain the unwavering foundation upon which our nation’s prosperity rests. They deserve our support and understanding, not further burdens.
Jeopardising Government’s Capacity:
• Disregarding the reality of the private sector’s importance and imposing further burdens on businesses risks jeopardising the government’s capacity to fulfill its promises and meet the needs of our people.
• If businesses are overburdened and unable to generate the profits and revenues that fill the government’s coffers, the government’s commitments risk becoming mere hollow rhetoric, with grave consequences for us all.
National Budget 2024-2025 and the Role of the DPM and Minister for Finance
In these challenging times, it is heartening to know that the Deputy Prime Minister and Minister for Finance, Biman Prasad, a highly respected academic and economist, is in the economy’s driver’s seat. With his deep understanding of economic principles and the realities on the ground, he is perhaps the only person who truly grasps the ramifications of untimely and disproportionate wage increases on our fragile economy.
One can hope that the Deputy Prime Minister will consider and champion policies that support the long-term health and vitality of our economy, rather than short-term populist measures that could do more harm than good and deliver the National Budget 2024-2025 accordingly.
Review and Restructure WageSetting Mechanisms Establish New Wage Councils:
• To address gaps in the current wage-setting mechanism, the creation of industry-specific
Wage Councils for sectors like Local Government, Food and Beverage, and others that are currently not covered could be beneficial.
• These new Wage Councils could be aligned with the Reserve Bank of Fiji’s GDP classifications as well as others, to ensure comprehensive representation of all economic sectors and the unique challenges they face.
• By having dedicated Wage Councils for each industry, the unique challenges and market conditions of each sector can be taken into account when determining appropriate wage rates and working conditions for the future, ensuring a more targeted and effective approach.
Review Wage Structures:
• A thorough review of wage rates and worker classifications within each Wage Council is necessary to ensure that they reflect the realities on the ground and the needs of both workers and businesses.
• This review should aim to ensure fair, competitive, and sustainable compensation for workers while taking into account the financial viability and challenges faced by businesses in each sector.
• The review process should involve extensive consultations with employers, trade unions, and industry experts as a tripartite measure to gather comprehensive insights and data on ground realities from all relevant perspectives. We must listen to all voices.
• The findings of the review should form the basis for any future adjustments to sectorial wage rates, taking into account factors such as affordability, productivity, skills, and market conditions. Decisions must be based on evidence and data, not populist rhetoric.
Address Root Causes of Low Pay:
• It is essential that we examine and address the root causes of low pay, such as skills gaps, lack of work readiness among workers, and the high costs of training and retraining borne by employers. These are complex, structural issues that require a holistic, longterm approach.
• By focusing on these underlying issues and implementing targeted interventions, such as skill development programs, improved education and vocational training, and closer partnerships between businesses and educational institutions, we can create a more skilled, productive, and valuable workforce that commands higher wages and contributes more to our economy.
• This is the sustainable path to higher living standards and shared prosperity, not arbitrary wage increases that businesses cannot afford and that do not address the fundamental drivers of low pay. We must treat the disease, not just the symptoms.
Consider Alternative and Direct Forms of Assistance:
• While recognising the importance of supporting low-income workers and ensuring that every Fijian can meet their basic needs and live with dignity, it is crucial that we consider alternative forms of assistance that do not put undue pressure on businesses, particularly MSMEs.
• The Government already provides various support measures, such as low and free bus fares, schooling assistance, new home allowances, 0 per cent VAT on essential food items, social welfare payments, and others. These targeted interventions help to directly improve the lives of those who need it most.
• These existing measures can be expanded and strengthened to provide more direct and effective assistance to marginalised workers and their families, without resorting to unsustainable wage increases that could cripple businesses and lead to job losses and economic instability.
Focus on Economic Growth and Productivity:
• Ultimately, the only sustainable way to create a conducive environment for businesses to grow, invest, and generate higher wages is to prioritise policies and initiatives that promote economic growth, diversification, and productivity.
• By fostering a favourable business climate, attracting investments, supporting innovation and entrepreneurship, and investing in key sectors and infrastructure, we can create more and better employment opportunities and drive sustainable wage growth across the economy.
• This is the path to a stronger, more resilient, and more prosperous Fiji - one where businesses thrive, workers earn decent wages, and all Fijians have the opportunity to build better lives for themselves and their families. It is a vision worth striving for.
Collaborative Approach:
• As Fiji navigates these challenging times and works to build a brighter future, it is more important than ever that all stakeholders come together in a spirit of collaboration, mutual understanding, and shared purpose.
• By fostering a culture of cooperation, respect, and trust, and by working hand in hand towards common goals, Fiji can tap into its collective wisdom and resources to chart a course towards a more inclusive, sustainable, and prosperous future for all its citizens.
Conclusion
Fiji stands at a critical juncture, facing complex challenges that demand careful consideration, wise leadership, and a shared commitment to the greater good. As stakeholders consider the way forward, it’s crucial to be guided by the principles of balance, fairness, and sustainability, recognising that the long-term health and vitality of our economy and society depend on getting this right.
The Consultative Committee, the government, and all stakeholders should heed the concerns and recommendations put forth by the business community, workers, and experts who have studied these issues in depth.
Economic realities, historical trends, international comparisons, and the very real risks and challenges that lie ahead must all be taken into account.
At the heart of this debate are the lives and livelihoods of real people - workers, business owners, and the communities that depend on them. Decisions made today must promote their wellbeing, protect their interests, and secure a brighter future for generations to come.
By working together in a spirit of goodwill, guided by evidence and expertise, and motivated by a shared love for the nation, Fiji can navigate these turbulent waters and emerge stronger, more united, and more prosperous than ever before. While the challenge is significant, it’s one that must be met for the sake of all Fijians and the future they will build together.