Political And Regulatory Risks Cloud Opportunities In Tourism

BMI View: Fiji's tourism sector continues to be one of the major earners of foreign currency for the country, and is home to some of the region's best known hotels and resorts. In its latest 2013 budget, the government has further reduced the costs for foreign investors to enter the market, further supporting pro-investment policies that are already in place. Despite the ample opportunities in the sector and welcoming government policies, we believe that the uncertain regulatory environment and escalating political risks are likely to deter investors from making large long-term investments.

Tourism remains one of the key sectors that generates foreign receipts for Fiji, with several local hotels clinching top rankings from tour agencies and known internet review sites amongst the hotels in the South Pacific. As of 2011, tourism is estimated to have represented some 25% of the island's GDP and provided employment for approximately 6% of the country's workforce, according to the government's tourism agency, Tourism Fiji. We believe that the government's recent efforts will likely make the industry more attractive to foreign investors and help in the sector's development, but only if similar steps are taken to ensure that political risks are kept in check.

Pro-Investment Policies In Place…

The government has maintained its previous policy stance, providing FJD23.5mn (US$13.2mn) for the third year in a row to promote the country as a destination to overseas tourists. Moreover, the government has made further efforts to enhance the industry's attractiveness to foreign investors, recently removing the minimum investment requirement of FJD250,000, while maintaining other tax incentives and import duty exemptions for imported capital goods.

Growth And Opportunities Not Without Risks
Fiji - Visitor Arrivals & Hotel Turnover (FJDmn, RHS)

Apart from the traditional tourism market, there has been growing interest from foreign investors to buy land for development of private residential communities, retirement facilities and hospital resorts. One such new development is the Nanuku Cove Estates, a beachfront community and resort which has floated the possibility of investing in airport infrastructure to cater to residents. These longer-term projects present another avenue for the government to attract foreign investment and have the potential to also tap on niche overseas consumers, which could make the industry more resilient to global economic uncertainty. Such a positive development in Fiji's tourism industry would also likely provide long lasting benefits to the community in the form of employment and supporting infrastructure.

…Political And Regulatory Risks Remain Key Obstacles

Despite these opportunities, regulatory and political risks remain the largest threats facing foreign investors looking to invest in the island. Government approval is required and a Foreign Investment Registration Certificate must be issued (at the cost of FJD2812.50 or US$1580.00) before an investment can be made. Moreover, only approximately 10% of the land is freehold that can be owned by foreigners (the other 83% is native land held by indigenous Fijians and the remaining 7% of Crown land is owned by the government) and while there is a title registration system, the market is largely unregulated. As such, there have been numerous cases of conflicting claims to parcels of land.

More worrying is the lack of concrete improvements in the political climate, as the government has missed the deadline it set itself for the public release of another constitution (for more colour, see International Community Could Keep Election Goals On Track, January 29 2013). Moreover, the government's stance to support the security personnel who were shown to torture two men in a video released on the internet in early March and reject an independent, external investigation has cast a negative light on the military's possible abuse of power. As such, despite Fiji's history of upholding contractual rights, questions remain as to whether the independence of the judicial process will persist beyond the 2014 elections. We have therefore downgraded our short-term political risks outlook for Fiji to 51.5 from 53.5, and may look to cut our long-term political risk rating in the near future from the current level of 38.6.

This article is tagged to:
Sector: Country Risk, Tourism
Geography: Fiji, Fiji, Fiji, Fiji

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