TFF scheme,

it’s part of a winning hand

By Martin Tiffany

THEIR ace up their sleeve, their wild card, their winning hand call it what you like Fiji’s Tax Free Factory (TFF) scheme is proving it’s no

joker.

Just over three and a half years have passed since the scheme was introduced but it has risen to become one of the major generators of employment and

foreign exchange earnings.

Since it was introduced in 1988 the scheme has progressed in leaps and bounds. To date 313 projects have been approved for Tax Free Factory Status - 87 in 1988, 115 in 1989, 71 in 1990 and 40 in the first six months of this year.

It has been remarkably successful in attracting new export industries, even to the extent of creating a whole new industry the garment industry in a very short space of time.

At the end of last year the TFF sector employed 9503 and its exports totalled F 5231.1 million. This compares with

7935 employed in 1989 and exports totalling F$ 160.8 million.

Total investment in the sector was FS 13.7 million in 1988 rising to F 534.3 million in 1989, an increase of 157 per cent. Last year total investment in creased by 55.4 per cent to F 553.3 million.

The TFF scheme was one of several measures implemented by the interim government to develop export industries.

The devaluation of the Fiji dollar by 33 per cent in 1987 provided the initial stimulus to the TFF sector and in particular to che garment industry.

Last year the garment sector employed 7829 people or 82.4 per cent of total TFF employment and exported FS 159.4 mil lion of the total TFF exports of F 5231.1 million.

Other industries which developed un der the scheme are wood related indus tries, in particular furniture, footwear, buttons, food processing and other mis cellaneous industries such as plastics, fibreglass boats, sails, computer softwear and cans.

However, according to the Fiji Trade and Investment Board (FTIB), these sectors are small and have a lot of capacity for expansion especially in the areas of wood related industries, leather and footwear and food processing.

Fiji’s deputy Prime Minister and

Minister of Finance and Economic Planning, Josevata Kamikamica, says the government continue to monitor the impact of the TFF/Tax Free Zone (TFZ) scheme, both from the point of view of its attraction of investment and its cost to government in foregone revenue.

“At the moment, the priority is the get a Tax Free Zone established and work is going ahead on this. To date all concessions have been in relation to Tax Free Factories.

“Those who have invested under the scheme need have no concern but that they will continue to benefit from the agreed concessions. But they are likely to be modifications to the scheme as circumstance change,” said Kamikami ca.

Earlier this year there was some concern by foreign firms that the Fiji government was reneging on TFF prom ises made in 1988 - these included a 13-year tax holiday, cheap electricity and freedom to bring in specialised expatriate staff.

To counter this and stress that it would honour all promised incentives to foreign investors, the government took out a press advertisement in New Zealand.

Kamikamica described the scheme as “remarkably successfully” and said it emphasised also the commitment of the interim government to the pursuit of

export orientation - a major break with previous economic policy.

“The TFF/TFZ scheme has also been remarkable successful in creating em ployment. Much of the growth in employment that has been achieved over the last three years has been in manufac turing and directly related to the oper ation of the TFF/TFZ scheme,” said Kamikamica.

In the TFF sector local firms dominate in terms of equity participation. 58 firms out of 114 are locally owned with 20 firms in joint-venture with foreign companies.

This gives a total of 78 firms or 68.4 per cent of the firms with local interest.

On the other hand 36 or 31.6 per cent of the firms were wholly foreign owned.

The breakdown of the 36 are: New Zealand 16, Australia 13, Singapore 3, Malaysia 2, Taiwan 1 and the United

Kingdom 1.

While the TFF scheme has seen many successes there have also been some failures.

Twelve firms ceased operation last year which makes a total of 23 firms that have closed since the scheme was intro duced. However, the loss in foreign

exchange earnings and employment

have been more than compensated for by expansion of existing TFFs and establish ment of new ones.

For example, at the end of June this year 113 TFF projects were in operation which compares with 114 projects in operation last year.

Of this 114, 12 projects closed oper ations during the latter part of 1990 and in early 1991. But 11 new projects were implemented in the first six months of this year to give a total of 113 projects in

operation.

According to the FTIB two major reasons which are inter-linked have been responsible for a number of firms closing down. These are markets and availability of finance.

Almost all the firms which closed down were small firms with Jess than 50 employees. They were involved in gar ments, furniture and other miscellaneous industries.

These small firms with weak market links (small orders on ad hoc basis, exporting to one country and one company) were greatly affected by cur rent recessions in export markets.

Lack of export orders created cash flow problems leading to financial crisis which forced close downs. The difficulty to raise local finance compounded the problem.

A button factory closed down due to difficulty in procuring raw material (trochus shells). The shells are sold to Japanese and Koreans at prices higher than local firms can afford.

Another factory closed down simply because the factory to which it was supplying also ceased operation.

For the future new locations around the country are being examined to meet the expected future demand of TFFs.

Future progress includes the develop ment of industrial sites, greater inter departmental co-ordination and clear cut policies and guidelines which will further enhance the industrialisation efforts under the TFF scheme.

Which ever way you look at it the cards certainly seem to be falling in Fiji’s favour. □