SME Business Survey

F I J I

Summary of Findings

December 2003

TABLE OF CONTENTS

1. KEY FINDINGS 1

1.1. General Findings 1

1.2. Sectors 2

2. BACKGROUND INFORMATION 3

2.1. The Economy 3

2.2. Assistance to the Private Sector 3

3. THE SURVEY 7

3.1. Survey Format 7

3.2. Sample Characteristics 7

3.3. Survey Limitations 8

4. DETAILED FINDINGS 9

4.1. Characteristics of Sampled Businesses 9

4.2. Main Problems in Managing Businesses 12

4.3. Access to Capital 16

4.4. Business Development Services (BDS) 17

4.5. Management Training 19

4.6. Computers 20

4.7. Co-operation and Business Associations 20

4.8. Administrative & Regulatory Obstacles 21

4.9. Specific Sectors 21

5. POTENTIAL INTERVENTIONS 24

5.1. Private Sector Business Advice Network 24

5.2. Business Associations 25

1. KEY FINDINGS 1.1. General Findings The major findings from the survey can be summarised as follows: 1. the SME sector reflects the structure of the overall Fiji economy with a bias towards

the services sector (50% of respondents). Manufacturing (20%) and Trade (18%) are also important sectors;

2. Indo-Fijians dominated firm ownership amongst the sample (58%), while Indigenous

Fijians (13%) fell behind foreigners (15%) in terms of the number of businesses owned. It should be noted that these figures reflect the sampling structure chosen by PEDF for Fiji and not the ownership structure for the entire population of SMEs. For example, the 13% figure given here for indigenous firms is the proportion of indigenous firms captured by our survey, not the actual proportion of total firms that are indigenous owned. Anecdotal evidence suggests this figure could be as low as 2%;

3. there are a number of positive signs that suggest the SME sector is in quite good condition – 30% of surveyed firms are 20 years or older, there is a large number of firms with relatively high turnover (27% in excess of FJD$1.0 million) and high levels of education amongst owners and managers (57% have tertiary qualifications);

4. Fiji firms experience a broad range of problems driven more by individual circumstance than by underlying weaknesses in the macroeconomic environment. The most common problems relate to staff, government, insufficient sales, operational concerns and lack of working capital;

5. effective solutions are likely to be those which deliver knowledge and skills to individual businesses, thereby allowing them to solve their own problems (i.e. training and consulting);

6. there is a marked divide between the high usage of non-discretionary BDS (e.g. communications, courier services, etc) and low usage of discretionary “knowledge” BDS (e.g. training, consulting, etc);

7. access to finance is not a particularly significant problem in Fiji, although improvement is still possible;

8. there are currently low levels of cooperation between firms and there is little business association activity. Membership of associations is 53% although actual participation is low at 35%. Indigenous businesses have higher membership and participation levels; and

9. few firms experienced significant administrative or regulatory obstacles and the reported incidence of unofficial payments is low.

December 2003 1

SME Business Survey FIJI 1.2. Sectors In the Fiji survey, some sectors were singled out for further analysis. This revealed the following: • Small Hotels sector - problems facing businesses in this sector included a lack of

government support, a lack of sufficiently skilled staff, a lack of customers and difficulties with transport and freight services (probably due to their less central locations). Higher participation rates in business associations reflect the cooperative character of the tourism sector;

• Textile, Clothing and Footwear (TCF) sector - this sector had (relatively) low awareness of “knowledge” BDS services. There are already relatively high levels of co-operation in the TCF industry but there are problems coping with high levels of foreign competition. The sector currently appears to be healthy and is a significant earner of foreign exchange for Fiji; however, it has significant problems with finding staff and with staff productivity. It is unclear how significant a role this sector will continue to play as Fiji’s economy develops;

• Private Education sector - this sector appears to be somewhat distressed. There is evidence of significant recent failures and existing firms complain of excess competition. Firms are small with low turnover and have working capital problems stemming from difficulty in obtaining payment from debtors. Intervention into this industry would not be warranted based on its direct contribution to the economy. However, as a BDS provider consideration must be given to its indirect contribution;

• Indigenous firms - the main distinguishing feature of indigenous firms is a high level of concern with working capital. There may also be lower awareness of BDS services amongst indigenous firms. However, there are a number of encouraging signs for this sector (higher than average association membership and attendance, high levels of management training, etc);

• Female respondents - women were much more likely to be the respondents from service firms (e.g. hotels, private education) which tend to be newer and smaller. These firms tend to have more problems with working capital and a lack of customers.

December 2003 2

2. BACKGROUND INFORMATION 2.1. The Economy The Fiji economy ($4.7B – 20021) exhibited strong growth in 2001 (4.3%) and 2002 (4.4%) and is expecting further strong growth in 2003 (5.1%) and 2004 (3.6%). However, this growth can be partially attributed to a recovery from the contraction (-3.2%) in 2000 caused by political instability and civil disorder. Thus, there are some concerns as to the sustainability of this rate of growth. The 2003 budget “Securing Sustained Growth” and several related initiatives are all targeted at ensuring a long-term growth rate above the historic average of 1.5% - 2.5%. The retail and wholesale sectors are expected to lead growth in 2003, supported by construction and transport. The war in Iraq and SARS combined to stall tourism growth this year and future prospects will continue to be strongly influenced by global / regional issues. Concurrently, cyclone Ami inflicted damage on the agricultural sector which may result in a delay to a much needed restructure of the sugar industry. Finally, there was a continuation of strong growth in the fisheries sector. The strong growth has resulted in improved labour market conditions. However there is still a problem with emigration of skilled professionals. Other good signs include a fall in the real exchange rate indicating an improvement in international competitiveness and a low inflation rate. An increase in the VAT rate (10% 12.5%) may cause upward pressure on inflation in 2003/2004. 2.2. Assistance to the Private Sector Fiji has approximately 14,000 registered businesses including almost 200 hotels and guesthouses, 65 approved private education providers and 100 Textile, Clothing and Footwear (“TCF”) manufacturers. These sectors were chosen for more detailed examination as they are expected to be important to the Fiji economy in terms of employment, prospects for growth and foreign exchange earning potential. Based upon a list supplied at the time of the survey the indigenous business council had 50 members but we understand that this figure has nearly doubled since. Indigenous owned firms have been targeted for further examination as the proportion of these firms in the economy is smaller than would be expected based on the proportion of indigenous Fijians within the population. Any initiative which utilises this under-utilised resource would greatly improve the growth of the economy as a whole. In addition to PEDF, there are a number of organizations whose goal is to assist and support the SME sector in the Pacific region. Some of these have programmes which may contribute to Fiji’s development, including:

1 All amounts in $US unless otherwise noted. GDP figures adjusted for purchasing power parity.

December 2003 3

SME Business Survey FIJI • UNDP - Prefers regional programs (vs. country specific ones) with their Pacific

Sustainable Livelihoods Programme (PSLP) and the Smart Partnership Program (see above) being relevant for the Fiji SME sector. Regional HQ is based in Suva.

• ADB - Plans to use a Pacific regional strategic plan for majority of Pacific nations; but also may develop a country strategic plan for Fiji. ADB provides assistance in respect of a number of large infrastructure / governance issues. Of direct benefit to the Fiji SME sector is their technical assistance to the capital markets.

• ILO – Office for the South Pacific - Regional HQ is in Suva. Currently Fiji is one of only four members from the Pacific but the ILO is expecting several more Pacific Island countries to join in near future.

• Agence Francaise de Development – PROPARCO - part of the French Government’s Aid program for developing countries, PROPARCO provides venture capital and loans to the private sector either directly or, preferably, via local banks.

• The Secretariat of the Pacific Community - aims to develop the technical, professional, scientific, research, planning and management capability of Pacific Island people and directly provide information and advice, to enable them to make informed decisions about their future development and well-being. Programs which impact Fiji include the Oceanic Fisheries Program and work with Taro.

• AESOP - An Australian organisation providing experienced professionals to firms for short-term projects (1-2 months). Similar organisations are run by a number of countries (e.g. Japan, England).

• EU/ACP - the European Union, under its ACP (Africa, Caribbean, Pacific) programme, runs the Centre for the Development of Enterprise and the EU-ACP Business Assistance Scheme.

• Pacific Island Secretariat - Runs a number of schemes aimed at enhancing firms capacity to successfully export (Market Support Fund, Pacific Islands Centre, NZ and Australian Pacific Island Trade and Investment Commissions) as well as several other programs (Industrial Development and Training, Short Term Advisory Services, Forum Secretariat Fellowship Schemes, etc).

• Commonwealth Secretariat – Export and Industrial Development Division (EIDD): advises Governments on all aspects of export marketing, industrial, small business and entrepreneurial development.

• Canadian International Development Agency – Industrial Cooperation Programme - encourages Canadian businesses to develop partnerships with local businesses.

December 2003 4

SME Business Survey FIJI More specifically, there are a number of organizations whose goal is to assist and support the SME sector in Fiji itself, including: • National Centre for Small and Micro Enterprise Development (NCSMED) -

recently established umbrella organisation which integrates various functions previously carried out by a number of Government departments.

• Integrated Human Resource Development Programme for Employment Promotion

(IHRDPEP) - an ILO/ UNDP/ Fiji Government project aimed at creating 3,000 jobs over a three year period via 7 sub-programmes following its implementation year in 2000.

• National Micro-Finance Unit (NMFU) – a pilot program by the Government of Fiji, designed to create an enabling environment for the development of a micro finance industry. One initiative in the development stage is the Micro Finance Individual Lending Program which will be administered by other organisations once it is properly established.

• Fiji Development Bank - provides finance, financial and advisory services to assist in the economic development of Fiji and in particular in the development of agriculture, commerce and industry. The bank runs a number of lending schemes which target, amongst others the eco-tourism, fishing and forestry industries, indigenous Fijians, small business, and rural women.

• Fiji Islands Young Entrepreneurs Association (FIYEA) - launched in February, 2003 after members had attended a UNDP Young entrepreneurs retail skills training workshop.

• Fiji Investment Corporation - established by the Government to provide capital to eligible ventures lacking funds.

• Fiji Islands Trade and Investment Bureau - provides export incentives for all Fiji businesses. FTIB also runs the Business Training Fund, and the Export Enhancement Fund (both are initiatives of the Fiji – New Zealand Business Council).

• Small Business Advisory Unit - a branch of the Ministry of Commerce, provides training and advisory services and can also refer people to more specialised assistance providers.

• Smart Partnership Program - involves the UNDP office in Suva working with selected rural-based micro-enterprises, cooperatives and individual producers in order to identify potential customers and to develop a marketing strategy to satisfy these customers.

• Small & Micro Enterprise Council - A NGO which holds “Start Your Business” workshops (these are a requirement for obtaining a Development Bank loan) and utilises its network to assist small business members.

December 2003 5

SME Business Survey FIJI • Credit Corporation (Fiji) Ltd – A publicly listed company largely owned by the

Credit Corporation (PNG) Ltd, which provides general finance, leasing and hire purchase to SMEs and individuals.

• Reserve Bank of Fiji – runs an Export Finance Facility which assists exporters of “non-traditional” products to obtain credit at concessional interest rates. The Reserve Bank also requires that 5% of commercial bank loans be to eligible exporters.

• Eco-Tourism Fund – administered jointly by the Ministry of Tourism and the Development Bank the fund provides equity and debt capital for tourism projects which have positive economic and social impacts, are environmentally aware, and maximise the involvement of local communities.

• Small Business Equity Scheme – run by the Fijian Affairs Board via the provincial and urban councils, the scheme provides funds to be lent to indigenous business people at concessional rates.

• Women’s Social and Economic Development Programme – a micro-enterprise development programme initiated by the Ministry of women and Culture. The programme provides training to groups of five women on a weekly basis and provides small loans (larger loans are referred to the Development Bank).

• British High Commission – provides general advice to entrepreneurs.

• Centre for Appropriate Technology and Development – Offers a number of technical vocation training courses and provides technical assistance and advice regarding the use of “appropriate” technology.

• Consumer Council of Fiji – A statutory body which provide training, technical advice, and research on consumer related issues.

• Fiji Visitors Bureau – A statutory body involved in marketing and promotion of Fiji tourism products in overseas markets. FVB also provides visitor information services for tourists.

• Pacific Foundation for the Advancement of Women – provides a range of training programs and undertakes research into the gender impact of economic reforms and trade policies.

• Partners in Community Development (Fiji) – A statutory body which acts in partnership with Government ministries, NGOs and other stakeholders to build the capacity of, especially rural, communities.

• Suva Vocational Centre – trains students in catering, tailoring, art and craft skills which are intended to prove to be marketable and thus income generating.

• AGLOW – An interdenominational Christian women’s organisation which provides training, micro-finance and consultation in 148 countries worldwide.

December 2003 6

3. THE SURVEY 3.1. Survey Format PEDF used professional market research firms to help design the questionnaire, conduct the survey and to analyse the data. Tebbutt Research Pty Ltd of Suva, Fiji conducted the survey and analysed the results in several countries including Fiji. The survey involved the completion of a detailed questionnaire comprising 104 questions conducted face-to-face with a sample of 301 firm owners or managers in Fiji in April/May 2003. The survey was based on prior questionnaires used by PEDF’s sister organisations elsewhere in the world and was customised for the Fiji context. It covered the following areas:

• demographic data to identify groups and sectors which may benefit from targeted interventions;

• main problems facing SMEs in Fiji;

• knowledge, usage and satisfaction levels for 18 different business development services (including reasons why services were used or not used and how suppliers were selected);

• usage of management training, consulting and financial services;

• membership and usage of business associations and levels of cooperation; and

• the impact of regulatory and policy issues. 3.2. Sample Characteristics In selecting the sample some segments were given deliberate weighting to ensure sufficient representation. These were selected as they were thought to have potential for targeted interventions (significant employer, high growth, competitive advantage and sustainability). In particular, the TCF; small hotels and guest houses; private education and indigenous-owned businesses were targeted. In addition the following criteria were applied: • firms must have a majority private ownership; • no informal sector or very large enterprises; and • firms were drawn mainly from Suva, Nadi and Lautoka (82% of total interviews),

and six other locations (18%).

The target sample size was 300 completed interviews. Of these, 150 were to be drawn randomly from total pool of all eligible firms, 50 from each of the small hotels and guest houses, TCF and the private education sectors. Within these, the sampling required no fewer than 25 indigenous-owned firms.

The actual sample totalled 301 firms - 176 from total pool; 50 from small hotels and guest houses; 50 from TCF, 25 from the private education sector. The shortfall in the private education sector was due to a high rate of refusal to take part in the survey. Fifty firms with some indigenous ownership were included in the sample of which 38 where 100% indigenous owned.

December 2003 7

SME Business Survey FIJI 3.3. Survey Limitations This survey was designed to provide input to PEDF’s internal strategy planning process. It was not a theoretical stand alone survey designed for public distribution. Despite this, PEDF believes that the findings were of sufficient quality, especially given the paucity of information concerning this region, that they should be made more broadly available. Users of this information need to have regard to the following limitations of the survey:

• The survey captures only existing businesses in the formal sector. The issues which confront failed firms and/or individuals who failed to establish a business, can be expected to be different from the on-going concerns of these existing businesses.

• The survey captures the opinions of the end-users (“customers”) of PEDF’s interventions. As such the survey will contrast with other more theoretical studies which tend to discount the value of SME operator’s “hearsay” opinions. This was done so that PEDF could contrast these opinions with its own experience and understanding of the area. We believe that value might be added by integrating these findings with other more theoretical work. However, we note that the opinions expressed may be subject to short-term bias (i.e. currently relevant issues such as currency devaluations may be over emphasized), and may not be economically sound (i.e. calls for the government to increase protection of industries).

• Although a common framework was used in each country, different survey approaches were used depending on the particular circumstances of each country. Most notably, quantitative studies where carried out in the larger counties, while focus groups and individual interviews were used for the smaller economies. This made practical sense for developing PEDF’s own strategy and should allow comparison of qualitative findings but it limits quantitative comparability across the region.

• The survey in PNG was carried in cities of Lae and Mt Hagan only. This was premised on PEDF’s intention to use these locations as pilots for future interventions.

• In Tonga and Vanuatu, an existing ADB survey of BDS services was used as the cost effective basis for our broader research. As our survey occurred a year later it may be biased by the removal of firms which failed during the intervening period.

• The Fiji, PNG and Samoa samples were designed to include sufficient small and medium firms to allow analysis and comparison of these subsets. The ADB samples are more reflective of the SME population (i.e. primarily micro and small firms) but this limits our ability to make regional comparisons concerning medium size firms and it needs to be considered for regional comparisons of any other issue.

• The Fiji, PNG and Samoa samples contain targeted subsets of firms from particular industries which appeared favourable for industry specific interventions. As such the “all others” segments may be a better indicator of “average” characteristics of the overall SME population in these countries. Furthermore, the Fiji sample deliberately targeted indigenous Fiji firms to allow analysis and comparison of this group. The proportion of indigenous firms captured is not reflective of their presence in the overall population.

• Extrapolation of the data to the general SME population is hampered by the lack of reliable statistics regarding the size and structure of these sectors.

December 2003 8

4. DETAILED FINDINGS 4.1. Characteristics of Sampled Businesses These are the characteristics of our sample. They need not (and in some cases are definitely not) the characteristics of the greater SME population. Location More than 80% of businesses surveyed were in the main population centres on Viti Levu: Suva, Nadi and Lautoka. The others were spread through eight locations.

Suva53%

Nadi19% Lautoka

10%

Ba3%

Savusavu2%

Levuka2%

Lami2%Nausori2%Sigatoka1%Rakiraki1%

Other18%

Labasa5%

Suva53%

Nadi19% Lautoka

10%

Ba3%

Savusavu2%

Levuka2%

Lami2%Nausori2%Sigatoka1%Rakiraki1%

Other18%

Labasa5%

Ownership The graph below indicates that a majority of the surveyed businesses were owned by Indo-Fijians. This ownership pattern is not representative of the entire SME population in Fiji, just the sample selected. In particular the 13% indigenous ownership indicated simply means that 13% of the surveyed firms were chosen from the indigenous sector, and gives no indication of the actual overall indigenous participation in SME activities, which is much smaller.

58%

15%

13%

8%

6%

Indo-Fijian

Foreign

Indigenous

Mixed

Naturalised Citizens

Level of Education More than half of the owners/managers surveyed have been educated to tertiary level which suggests there should be a strong appreciation for the beneficial impact of education and training in improving business performance, and hence competitiveness and profitability.

1%

3%

39%

18%

32%

7%

Elementary not completed

Elementary completed

High School completed Technical school completed

College/ University graduate

Postgraduate

Tertiary 57%

December 2003 9

SME Business Survey FIJI Gender Only 19% of respondents were female (lowest in region). Female businesses tended to be smaller and younger. Females are over-represented in the hotels and private education sectors; and under-represented amongst organisations with Indo-Fijian and mixed ownership. Legal Form of Firms Not surprisingly, the legal form of firms is strongly related to size. The proportion of limited liability companies in Fiji is above average for the region, indicating an efficient business registration system.

51%

39%

8%

2%

Limited companies

Sole proprietorships

Partnerships

Other Forms

Year of Enterprise Start-up A high proportion of the firms are mature, with 60% being over a decade old and 21% having survived for over a quarter of a century. Together with a large number of new entrants (particularly between 1994 and 1998) this indicates a healthy, competitive economy. Fiji is the only economy in the region with this proportion of long-lived firms (another positive sign re Fiji’s economic stability). The smaller than expected number of businesses established after 1999 may be attributed to the political instability in 2000.

8%

4% 5%

4% 9%

10%

21%

26% 14%

1963 or earlier 1964-1968 1969-1973 1974-1978 1979-1983 1984-1988 1989-1993 1994-1998

1999 or later

December 2003 10

SME Business Survey FIJI Economic Sector This outcome might have been influenced by our targeted sampling approach. The figures below are for the firms drawn randomly from the pool of all firms. If the targeted sectors are also included the overall pattern is maintained with the proportions changing slightly – 56% in services, 27% in manufacturing, 13% in trade, 2% in agriculture, and 1% in fisheries.

50% 20%

18%

6% 4%

2% 1%

Services Manufacturing

Trade Other

Agriculture Fisheries

Mining

Micro18%

Small 50%

Medium 32%

Employee Numbers Half the sample were small businesses (5-20 employees). Almost a third were medium sized business (> 20 employees) and the remainder were micro businesses (<5 employees). The TCF sector and older businesses have significantly more employees. Private education businesses tend to be smaller and newer.

Sales A good range of business activity was covered by the survey. More than half the businesses (51%) achieved total sales of more than US$125,000 in 2002, with 27% recording sales in excess of US$500,000. Nearly a third of the sample firms (31%) reported sales of the equivalent of US$50,000 or less, with 10% reporting sales of US$5,000 or less in 2002.

10%

21%

18%

24%

27%

<US$5,000 5,000-50,000 50-125,000 125-500,000 >500,000

December 2003 11

SME Business Survey FIJI Exports Twenty-seven percent of firms responded that they exported. The TCF industry exported the majority of its product. While only 66% of TCF firms export, those that do tend to be the larger firms (thus the majority of TCF output is exported). Interestingly, while 54% of medium sized firms export (well above regional average), only 6% of micro firms export (similar to regional average). This may be an reflection of the fact that TCF firms are typically larger. However, it might also indicate a potential for future programmes to support export by smaller firms (especially given this sector is under serviced by BDS providers and reported higher levels of concern with demand and sales issues). Almost all exports go to the Pacific, including other Pacific islands (44%), Australia (33%), North America (10%) and New Zealand (4%). TCF exports go primarily (63%) to Australia which exposes this industry to fluctuations in this market. 4.2. Main Problems in Managing Businesses Respondents were asked to list the three main problems they had in running their business2. In Fiji there was a broad range of problems. Based on the general health of Fiji’s economy, it is suggested that this increased heterogeneity results from a lack of any particular issues within the economy. Instead firms’ problems are driven more by their individual circumstances. This is encouraging but makes design of interventions more difficult.

Staff 65%

Government 53%

Demand/Sales 44%

Operational44% Working Capital

42%

Services/Inputs – 30%

Skills – 13%

Long-Term Debt – 6%Growth – 3%Environment – 1%

Other53%

Major common areas of concern for Fiji firms include Staff, the Government, Low Demand, Operational Issues, and a Lack of Working Capital.

2 The problems reported by the firms therefore add up to 300%.

December 2003 12

SME Business Survey FIJI Staff

Finding & Retaining Staff43%

Productivity of staff 22%

Staff 65%

Shortage and retention of skilled labour is a major problem for businesses taking part in the survey (reported by 43% of respondents). This lack of skilled labour is particularly acute for businesses in the TCF sector, where 67% mentioned it. Staff productivity problems are also a common complaint, being raised by 22% of the firms. Again the highest reported incidence of staff productivity problems occurs for TCF firms (33%). Staffing problems increase with size (from 30% of micro firms to 95% of medium sized firms). Initially, there would seem to be a considerable need for specific job-related training. However, several firms commented that they don’t provide training due to the increased probability of a trained person emigrating. This is reflected in low demand for training services (see below). Consideration must be given to the possibility that problems with staff are a result of poor management skills as opposed to the staff themselves (anecdotal evidence that the problem is not shared by all firms suggests management can at least partially address this problem). Training and advice in personnel management would assist in this regard. Where training of staff is desirable, our attempt to sample the private education sector suggests there may be information market failures. Training is an “experience” good where the quality of a service is hard to judge prior to purchase. This means that firms must be able to rely on other means of judging quality (e.g. reputation, third-party certification). Given the highly dynamic nature of this sector it may be hard for some purchasers to make informed buying decisions leading to an economic phenomena referred to as the “lemon effect” wherein consumers can’t identify quality providers so they choose randomly or choose not to purchase. Both actions hurt quality providers which are assumed to have a higher cost base causing some to leave, this reduces the overall quality of the market further lowering demand, further hurting quality providers, etc, etc until no quality providers remain. Consideration may be given to assisting a business association develop some form of rating system to overcome this problem. Alternatively, industry associations may be able to develop joint training (already occurring to some extent in TCF and hotel industries) and encourage members to engage in benchmarking activities to their mutual benefit.

December 2003 13

SME Business Survey FIJI Government

Lack of Support – 10%

Stability – 20%

Tax – 5%

Too many Regulations – 17%

Government 53%

Over one-half of respondents raised issues concerning the Government. This could be interpreted negatively (a need to improve Government services) or positively (firms lack anything else to complain about and no-one likes the Government). Both interpretations are probably partially valid. Political instability going back to the 1987 coups, the more recent events of 2000, and ongoing uncertainty could contribute to the high concern about stability. Concurrently, while 17% of respondents complained about regulations, the large majority of firms (70%) do not report any serious administrative or regulatory obstacles. For firms which are sensitive to security, law and order and Government stability issues there may be a potential for the business development service sector to advise on risk management strategies. Alternatively, training in risk management could be desirable. Nearly one in four (24%) of respondents in the small hotel sector nominated lack of government support as a problem, compared with 10% of total. There appears to be potential for the industry organisation to improve advocacy capability in order to better support member firms in this industry. Demand and Sales Lack of demand and competition are problems reported by a substantial number of firms. The hotel sector nominates ‘lack of customers’ as its key problem (41%). While some factors are beyond local control (e.g. SARS, global economy, etc) there are still several mechanisms to mitigate this exposure (see risk management comments above) such as cooperative marketing and development of other additional markets (e.g. the corporate meetings and incentive segments). Strong and up-to-date market intelligence is particularly important in this dynamic environment to mitigate the disadvantage and to allow effective opportunistic marketing. Competition is a problem for 40% of the private education businesses and 24% of TCF firms. For private education businesses the issue may be (as discussed above) failure of the market to efficiently eliminate lower quality competitors. Low barriers to entry and low discrimination by buyers (due to subsidised prices) may also be relevant. In the case of the TCF firms, competition is primarily overseas, creating the opportunity for cooperative efforts between firms. Long-term it is unclear what part the TCF industry will play for Fiji. It is expected it will lose its protected position. If the Fiji economy continues to grow, it can be expected to bring improved wage levels, which could place TCF manufacturers at a disadvantage compared to manufacturers with access to cheaper labour in less developed markets.

December 2003 14

SME Business Survey FIJI

Competition 18%

Lack of Customers 26%

Demand / Sales 44%

Operational Issues The most often quoted operational problem relates to inefficiencies and defects in the production process (22%) which was a consistent problem across sectors although perhaps surprisingly most frequently mentioned by hotels (32%) and much less frequently by TCFs (14%). This suggests a continuing need for technical advice at the operational level.

Business space – 8%

Equipment – 8%

Lack product / tech info – 2%

Production process – 22%

Quality – 4%

Operational44%

Working Capital Fiji is the only country in the region where working capital issues are not amongst the most common problems. However, it is still an area of concern for the private education sector (40% concerned with management of debtors) and indigenous businesses3 (70% reported working capital problems). In comparison to other firms, indigenous firms have fewer concerns with debtor management but much greater concerns with both lack of demand (33%) and liquidity (21%). Training or advice services targeting working capital management should prove beneficial for all firms generally and for indigenous firms in particular.

3 Defined as being firms with 100% indigenous ownership.

December 2003 15

SME Business Survey FIJI

Debtor management – 17%

Poor Liquidity – 10%

Due to low orders – 10%

Family / Donations – 2% Need Short-term loan – 2%

Working Capital

42%

4.3. Access to Capital As well as assessing respondents’ overall issues, particular attention was paid to respondents’ finance problems and their ability to access capital. Thirty seven percent (highest in region) responded that they had no major problem in financing their business. The most common problems were getting debtors to pay (25%), access to capital (12%), and cashflow/working capital generally (11%). The main source of start-up capital was given as ‘own savings’ or from family and friends (64%). Commercial or bank loans were provided to 22% at start-up; informal lenders provided loans to 12%; and 8% borrowed from abroad. The consistently high proportion of businesses across the region which relied on their own or family resources for start-up funding may be a reflection of positive (stronger family structures) or negative (low entrepreneurial drive) cultural stereotypes. However, variations across the region may be explained by the willingness or otherwise of banks to lend to new start-up enterprises. The proportion of Fiji firms relying on friends and family savings is the lowest in the region. This is encouraging as it indicates they are not limited to this source of start up capital. About two-thirds (65%) of respondents have received loans, overdrafts or revolving facilities from banks, indicating familiarity with and high use of banks for operational or capital purposes. Only 4% of those who applied for a loan were unsuccessful. Thirty-two percent of respondents have not applied for loans. A third of respondents (33%) said they currently needed a long term loan, mainly to improve or enlarge production facilities (22%). This suggests a developed market with growth potential. While there were difficulties in applying for loans, in most cases they did not appear to be insurmountable. However, banks, in co-operation with business, could consider how the amount and complexity of paperwork required could be diminished (51% found difficulties in accessing a bank loan, with the most common difficulty being paperwork – 59%). Another common difficulty was lack of acceptable collateral (usually land) (15%). Surprisingly, Indo-Fijians and other nationals expressed more difficulty obtaining capital (20% and 25% respectively) than did indigenous firms (12%). This result needs to be investigated further. One possibility is that inability to use land for collateral is a terminal problem for indigenous firms (thus they would not be caught in this survey) while other ethnic groups can overcome these problems via other means, thus explaining the low proportion (relative to population) of indigenous businesses.

December 2003 16

SME Business Survey FIJI 4.4. Business Development Services (BDS) We examined a range of BDS services in order to gain an understanding of the broad BDS environment. Our analysis was structured on the evolution of an SME from being unaware of a BDS through awareness, trial, purchase and ultimately satisfaction with their purchase4. Note that the percentages given are of the preceding group, not of the sample, i.e. the Satisfied / Purchased figure is the proportion of those who purchased a BDS who are satisfied.

BDS Aware / Sample

Use / Aware

Purchase / Use

Satisfied / Purchase

Accounting 97% 82% 95% 78% Advertising 95% 82% 97% 67% Communication 99% 92% 98% 47% Courier and Transport 97% 80% 94% 72% Legal 95% 70% 94% 72% Money Transfer 92% 66% 89% 71% Secretarial 89% 21% 67% 63% Trade Fair Assistance 74% 31% 81% 61% Provision of Business Info 73% 26% 70% 69% Consultancy - Business 75% 14% 74% 88% Consultancy - Financial 77% 21% 76% 79% Consultancy - Marketing 72% 15% 72% 73% Consultancy - Operations 71% 14% 77% 79% Training - Business 79% 16% 72% 72% Training - Financial 84% 25% 79% 57% Training - Marketing 78% 18% 80% 59% Training - Operations 78% 21% 81% 71%

Two distinctive groups emerge based on the usage figures. There seems to be near universal awareness, high usage and very little market distorting free provision of what could be termed “non-discretionary services” (top 6 in the table above). The only point of note for these services is the low satisfaction with communication services. There are few economies of scale involved in PEDF directly intervening in this issue; however, there may be scope for PEDF to inform, and provide assistance to, a business association, which could represent small business in this issue. The low usage of external secretarial services arises due to the usage of in-house secretaries (89%). As such, there is little to indicate the potential for developing this market. We have similarly separated trade fair assistance based on our assessment that any intervention would be best supplied by a business organisation.

4 Respondents were asked whether they were extremely dissatisfied, dissatisfied, satisfied or extremely satisfied. Most respondents chose satisfied which could be considered a default response. The proportion of people satisfied / extremely satisfied was thus uniformly high and did little to distinguish between services. Instead, the portion of people expressing extreme satisfaction is a better indicator of BDS quality and, thus, this is the figure used here.

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SME Business Survey FIJI Awareness levels of the remaining “discretionary” or “knowledge” BDS services are very good (average – 77%), especially for consultancy services, in comparison to other countries in the region. Indigenous firms have a lower awareness of these sort of services (67%) compared to the average sample, as do the TCF companies (69%) suggesting some form of awareness campaign may prove beneficial here. Usage levels (average 19%) are median for the region; however, this could be regarded as disappointing given Fiji’s predominance in other areas. Indigenous firms have a higher usage of knowledge services (27%), which more than offsets their lower expressed awareness. It is impossible to determine if this indicates that an initiative to improve awareness amongst indigenous firms will result in a marked increase in overall usage or whether indigenous firms have been more conservative in claiming awareness. Relative to other countries, the usage of BDS services in Fiji is heavily skewed towards larger firms, suggesting there may be room for new entrants targeting supply to micro and small firms. We suspect supply would have to be low cost and generic based on an assumption of low discretionary funds within smaller businesses. In comparison to other countries there were very few supply side reasons (e.g. no suitable suppliers) given for low usage. Thus, any attempt to improve usage levels should concentrate on the demand-side (e.g. education as to benefits involved, voucher systems etc). The main reasons given indicated no demand (‘don’t need this service’ – 48% and “don’t have this problem” – 9%) or only a potential demand if price was lowered (“too expensive” – 11%, and “do it in-house” – 23%).

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Provision of business info

Consultancy - business Consultancy - financial

Consultancy - marketing Consultancy - operations

Training - business Training - financial

Training - marketing Training - operations

No Demand

Potential Demand

No Supply

The proportion of knowledge services purchased (76%) is the highest in the region; however, the proportion of services provided by the private sector is median due to a large supply of training services by educational facilities (38%). This may be a result of the Training and Productivity Authority of Fiji (TPAF) – formerly known as the Fiji National Training Council which uses a levy on all firms (1% of wages) to fund a rebate on approved training courses. Consideration will need to be given to the distortionary impact the TPAF scheme will have on any intervention aimed at strengthening the private training market. Of particular concern is the fact that TPAF also acts as a supplier of courses, and there is evidence that this has on at least one occasion resulted in an unfair exercise of its regulatory power.

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SME Business Survey FIJI

Potential Demand

Provision of business info Consultancy - business Consultancy - financial

Consultancy - marketing Consultancy - operations

Training - business Training - financial

Training - marketing Training - operations

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Potentially Distorting Supply

Educational Institution

Private Sector Supply

Donor organisations supply some consulting services. However, overall the Fiji market appears to be relatively free of distortion. The lack of free services may explain why Fiji has relatively low usage of these services compared to other countries. Satisfaction levels (70%) are amongst the highest for the region, again suggesting that interventions will need to concentrate on developing demand as opposed to improving supply. Satisfaction was lowest for micro sized businesses (57% - see comment regarding potential neglect of this sector above) and for indigenous firms (47%). 4.5. Management Training In addition to the training examined as part of the BDS analysis, a more detailed examination was made of the usage of and desire for management training. One quarter of respondents have attended management training since the beginning of 2001. Of those who had not, 32% believed they had no need and 24% that they had no time. Highest users were: larger businesses (42%); indigenous businesses (37%); and hotels (30%). Seventy seven percent of respondents stated an intention to attend or send management staff to training in the future. Relative to other countries, respondents desired a broad range of courses (probably reflective of the wider variety of problems faced by firms).

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Selling

Communication

GeneralManagement

Marketing

Problem Solving

Decision Making

Negotiation

Quality Control

FinancialManagement

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SME Business Survey FIJI Respondents preferred 3-5 days courses (63%) and courses in the evenings (45%) or during work hours (37%). The preferred modes were ‘on the job’ (53%) and classroom group study (41%). Thirty five percent said they were interested in using work books. Preferred trainers were work-experienced managers (49%) or industry experts (36%). Most (91%) had undertaken some form of self study, typically reading books (66%), reading magazines (47%), searching online for information (24%) and/or using email in an educational manner (20%). Acceptable median payment for a three-day course was US$125; which was significantly higher than most other countries in the survey. This could be regarded as an indication of firms’ seriousness in respect of committing to management training and/or it could indicate expectations of a higher quality of training. It should be noted that the willingness to pay varied considerably between respondents. 4.6. Computers More than 83% of the businesses surveyed used computers and a similar percentage indicated possible interest in studying on their computer, using the Internet or email. Computer usage is higher in the TCF (90%) and Private education (100%) sectors and lower (76%) for indigenous businesses. Computers are primarily used for word processing (89%), accounting (82%), payroll (58%), email and internet access (82%), budget forecasting (52%) and production process (43%). High computer ownership, but limited range of use, indicates a potential opportunity for advice and training at both management and keyboard worker levels on how firms may better leverage their IT investment. 4.7. Co-operation and Business Associations Generally, respondents reported little co-operation among companies, except for: • sharing of information (46%) across all sectors; • training of workers (41%) and marketing (45%) in the hotel sector; and • lending/borrowing machinery (60%), sub-contracting (52%), product development

(40%), purchase of inputs (38%), and training (38%) amongst TCF firms. Most (53%) respondents are members of business associations or chambers of commerce. However, only 35% had attended association functions during the previous year. The larger, more stable, hotel and TCF industries had higher membership and attendance, while the private education sector had low membership, little co-operation and little exchange of information. Indigenous businesses had above average membership and attendance levels. Smaller businesses with lower membership rates could be encouraged to join associations to facilitate information sharing, problem solving and to provide strength of advocacy on issues of concern. Increased inclusion will make it easier for service providers to identify needs and offer assistance. Consideration needs to be given to whether membership is a demand or supply (pricing) issue. The latter can be addressed by introducing a small firm membership discount. However, the former may require more proactive efforts (e.g. presenting case studies showing how associations can help individual SMEs, providing incentives to join, etc).

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SME Business Survey FIJI 4.8. Administrative & Regulatory Obstacles For each administrative or regulatory regime investigated the majority of firms reported no major obstacle (average across all problems 78%), with an average of 15% reporting only minor problems. The two areas causing most concern were customs regulations (8% rated the obstacle as major or severe) and tax administration (7%). More businesses managed by indigenous Fijians reported problems with customs regulations (12%) and tax administration (10%). Eighty percent of senior management spent 10% or less of their time dealing with government regulatory and administrative requirements. The level of corruption appears to be extremely low (only one of the 301 admitting to having made an unofficial payment to tax officials in the previous year). 4.9. Specific Sectors Hotels and Guest Houses This sector is spread out geographically and is growing, with 30% of the businesses having been established during the past five years, despite recent set-backs (political instability in Fiji, global impacts on the tourism industry). There is high levels of foreign ownership (32%) and more female respondents (38%). Hotels are a significant employer, having an average of 20 full time and three part time staff. Nearly a quarter (24%) report problems in finding sufficient skilled staff. Other major problems are lower than desired occupancy (30%) and difficulties with transportation and freight services (26%). Difficulties with transportation and freight services are probably a product of the remote location of some of the properties. However, there would appear to be opportunities to provide advice on these issues. Another complaint (18%) was lack of government support. Textiles, Clothing & Footwear This is the highest employment sector of those targeted, with businesses having an average of 88 full time staff. It also earns the highest revenue (34% of businesses at US$500,000 or more) a high proportion of which is from exports. Males dominate management (84%) and education levels of management are lowest among the sectors. Indo-Fijians make up 52% of the ownership, with a further 30% owned by Foreigners. Major problems identified included lack of skilled employees (56%); dissatisfaction with productivity of employees (28%); competition in the market (20%) and not enough customers (16%). Also, 18% complain that they have to comply with too many government regulations, which is costly. Entry of new businesses was lower (18%) in the past five years than the average for all (24%). While the sector appears to be healthy, it is concerned about productivity and the shortage of skilled labour. In the longer term, productivity and shortage of skilled labour issues will likely adversely affect Fiji’s place in the highly competitive global market (especially if preferred access to certain markets is withdrawn). Currently the sector has high levels of cooperation but consideration could be given to how this may be improved further (additionally, the existence of some cooperation shows an openness to this concept which may be less evident in other sectors).

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SME Business Survey FIJI Private Education Sector Though this sector does not generate export revenues it does attract a small but increasing number of foreign students both from near-island neighbours and parts of Asia. At it’s current stage of development the sector is not considered an important contributor to the economy itself, but as a BDS sector, any positive intervention has the potential for benefits to be leveraged across the economy. Businesses are newer and smaller and sole proprietorships dominate the sector (64%). This is the lowest employment sector (60% have between one and three full time employees). Revenues are low, with 40% earning less than US$5,000 and 64% under US$50,000 and we suspect profits are similarly low. In fact more than 10% of the establishments on the list which was obtained for our survey were no longer in business. With so many small operators and high levels of competition and cash flow problems, the sector can expect further rationalisation. Ownership is predominately local, dominated by Indo-Fijians (80%). Only 8% of owners are foreign. Owners/managers are the best educated of any sector, with 60% having university or college qualifications. All respondent institutions owned computers. However, the greatest training need was for IT and computer skills, suggesting current IT resources may be under-utilised. Encouragement of intra-sector co-operation, formation of a sector association and exchange of information could help deal with the problems identified. However, this sector gives little indication of exchanging information on common interests and intra-sector co-operation, and reports only limited membership of business associations. Alternatively, given the BDS impact of this sector, there may be value in promoting an intervention designed to improve transparency of the sector and perhaps quality standards as well. PEDF will need to give consideration to the impact of the design of any interventions on this sector as well as the individual providers as they are likely to be vulnerable to market distortions. Indigenous Owned Firms Indigenous firms are more concerned with working capital and have lower awareness of BDS services. Otherwise there was little to distinguish this sector from the overall population of firms surveyed. We interpret this to mean that once in business Indigenous firms are faced with the same commercial pressures as non-Indigenous firms undertaking business in Fiji. We note that our survey consists of existing firms and does not incorporate firms which have failed or which were never established. There are a number of encouraging signs for this sector (higher than average association membership and attendance, high levels of management training, etc) which suggests that even further progress can be made in developing this sector.

December 2003 22

SME Business Survey FIJI Women in Business Seventy eight percent of women owners/managers are in service industries. Their businesses are newer and smaller, they are more likely to be sole proprietors than to operate in limited liability companies, and revenues tend to be lower. Women are over-represented in the hotel and private education sectors. They were under-represented in firms with Indo-Fijian ownership. Their businesses are less likely to export, but this is probably due to the sectors women favour. The tendency of women owner/managers to be involved in micro-businesses would suggest that the issues encountered by women in business should be given special attention. Further research could be undertaken to identify special needs of women in business to ensure that their role is optimised. A business women’s association aligned with the current Women in Business group but more specifically focused on the needs of firms at the very small end of the business spectrum might provide much needed cooperative assistance at a vulnerable stage in these firms’ life-cycle. It might also assist overcome existing gender imbalances in the Fiji business community.

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5. POTENTIAL INTERVENTIONS The survey has provided PEDF with a great deal of data across a broad range of subjects. It is important to note that the interventions listed here: • will require additional research (the survey was designed as a broad review to

identify potential interventions, not to provide the detail required for design of specific interventions); and

• form an expansive list from which PEDF will need to select and prioritise in order to avoid a diffusion of PEDF’s focus and to remain within its budgetary constraints.

Survey findings supported the positive macroeconomic outlook for Fiji’s economy. There is a mixture of old and new firms indicating a dynamic competitive market in which firms can succeed and prosper. There are few problems with regulations and the major problems faced by firms appear to be determined more by the firm’s particular circumstances as opposed to any consistent flaw in the economy. Fiji is the only country surveyed where working capital issues did not top respondents’ concerns. For PEDF the lack of any consistent flaw in the economy suggests the need for flexible solutions which can benefit a broad range of firms independent of their particular situation. Inherent within this is the need for PEDF to develop mechanisms to “distribute” these solutions as broadly as possible. Two potential distribution mechanisms were considered. 5.1. Private Sector Business Advice Network In developing this network PEDF will need to give consideration to existing providers and to an expressed lack of demand for additional services. Hopefully, PEDF will be able to leverage its existing business planning advisory network to assist in developing this network. Potential services include:

• low cost generic consulting and training services for micro / small sized firms;

• risk management advice and training;

• training and advice on how to manage working capital issues (in particular targeting indigenous businesses);

• training and advice on personnel management skills to address any management skill element of staffing issues; and

• provision of business information generally and to specific industries (e.g. hotels).

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SME Business Survey FIJI 5.2. Business Associations An alternative distribution system is required for public good solutions which benefit the economy and specific sectors but which are not rationally undertaken by individual firms. Overall, our analysis of the targeted sectors revealed that where specific issues were identified these could best be addressed via some form of cooperative undertaking. Thus, any industry based intervention undertaken by PEDF would benefit from a partnership with an industry association. A subsequent step for PEDF will be to identify and assess strengths and weaknesses of various industry organisations to determine which would best leverage PEDF support to assist their membership and ultimately the entire economy. The survey identified a large number of potential projects where PEDF could assist or partner a business association. For example: • an hotel sector association could advocate for more government support as well as

providing some of that support itself (e.g. help members with access to market intelligence, designing targeted training interventions). Further it could help firms co-operate to resolve issues (e.g. benchmarking of processes to eliminate inefficiencies). Note: there are already some cooperative efforts involving training of workers and sharing of information within this sector;

• the TCF association may assist with relative low awareness of BDS services. It might also help further develop cooperation in an industry facing foreign competition and suffering from staffing shortages (e.g. develop an industry training centre). Note: there are already relatively high levels of co-operation in the TCF industry;

• development of a rating system to improve transparency in the private education sector would benefit both users and suppliers in that sector;

• an indigenous association (such as the Fiji Indigenous Business Council) could be used as a vehicle to mobilise working capital management training and to raise the awareness of the benefits of BDS services; and

• a more focused business women association (aligned to the current WIB entity) could help raise cooperation levels amongst smaller newer firms which could most benefit from this form of assistance. Stereotypes suggest that such cooperation might be more easily developed amongst female respondents. Such a business women’s association might also assist in addressing the under representation of women within Fiji’s business community.

December 2003 25