The new national minimum wage will be announced with the 2024-25 National Budget in a few weeks. It will come into effect from 1st August 2024, officially becoming our fifth increase, in a span of two years and two months.
Micro, Small and Medium Enterprises (MSMEs), the sector that currently contributes 19 per cent to our Gross Domestic Product (GDP) and employs 60 per cent of our workforce, are very cautiously watching this space. Any significant increases to the national minimum wage could potentially set them back into the red again or even off the books.
Many MSMEs are still trying to recover their losses from COVID-19. Increasing costs and the impact of natural disasters like the recent floods in the Western Division continue to disrupt MSME operations. From this year and despite their challenges, MSMEs have started to repay their concessional loans, amounting to a total of $130million.
Government’s plans to increase MSME GDP contribution to 20 per cent is on an accelerated track. Led by the Deputy Prime Minister, Honourable Manoa Kamikamica and his great team at the Ministry of Trade, Cooperatives, SME and Communication (MTCSMEC), they have pushed through two draft legislations and one strategic plan, created spaces for MSMEs to engage in policy dialogue, increased grant funding and improved business processes through the BusinessNow Fiji platform.
It will be counter strategic for one ministry to invest in creating an enabling environment to grow the MSME sector and with it jobs, while another Ministry in the same Government could potentially run MSMEs out of business and stifle the sector that creates most of the jobs in Fiji.
High cost of doing business
I recall my article published in the Fiji Times on 3rd February 2024, titled Haemorrhaging MSMEs. In this article, I deduce that the cost of doing business in Fiji has potentially increased by 35-40 per cent for MSMEs, post COVID-19.
Between April 2022 to January 2023, our national minimum wage increased from $2.68 to $4.00. A 33 per cent increase in nine months. This also resulted in many MSMEs increasing the wage rates of their senior/professional staff to address moral and adjust position compatibility.
The increase in VAT by 6 per cent in the current national budget, consequently increased some business service fees while still maintaining many archaic business processes.
The Asian Development Bank (ADB) says that “the recent brain drain also made it increasingly difficult for MSMEs to find employees for their operations”. This means that MSMEs are having to invest more than before in sourcing, attracting and retaining workers, from the limited and diminishing labour pool, competing among themselves and against large businesses and even the Government.
Similar to large businesses, MSMEs are not excluded in the restoration of the 18 per cent superannuation contribution as of January 1, 2024. This meant that MSME owners had to front up an additional 4 per cent, from their profits, for every person they employ.
Our inflation rate in December last year hit a 10-year end high at 5.1 per cent, mainly underpinned by the higher import commodity prices and an increased VAT and tariff rates. Our current inflation rate stands at 4.6 per cent.
Politics of wages
There is no denying that for many years, wage rates have lagged behind the increasing cost of living. Post COVID-19 has seen a spike in inflation, diminishing the purchasing power of the wage’s workers receive.
Minimum wage is a very strong political instrument used by governments, trade unions and employer organisations.
The last Government was anti-union and starved off any suggestions of an increase to the minimum wage in their eight-year parliamentary rule. Their efforts to dismantle tripartism, among other things, brought about the Commission of Inquiry by the International Labour Organization (ILO).
It was only in 2022, just before the national elections that the last Government legislated the four consecutive increases to the minimum wage. Good for unions and workers but ultimately not so good election results for the Fiji First.
The current Government is leading the process of setting the new national minimum wage rate. It is no secret that this is part of their political aspirations, initially revealed through their party campaigns leading up to the last elections that got them trade union support and workers votes.
The Fiji Trades Union Congress (FTUC) recognises the need for workers to earn a decent wage, moving closer to their goal for a living wage. They have launched a very visible campaign of $6 an hour that has got many workers excited and at the same time many MSMEs worried.
In 2016 FTUC’s campaign was $4 an hour, when the minimum wage was $2.32. Since then they have been persistent and strategic in their lobbying.
Obviously, the employers will lobby against any substantial and unjustifiable increase in the national minimum wage. Wage increases mean higher costs and lower profit. Well, perhaps not lower profits as typically large businesses will pass the increase in cost onto customers, including workers. This could spike inflation further.
The Fiji Commerce & Employers Federation (FCEF) is constantly lobbying for better productivity including less absenteeism from workers. Increased productivity could justify any increases in minimum wage.
The lack of productivity of workers could also mean employers hiring more productive foreign workers to justify any increase in minimum wage.
Economics of wages
Typically, minimum wage setting is meant to provide decent wages to unorganised workers. These are workers that are not part of or represented by unions and therefore do not have collective bargaining privileges.
In a free market economy, the wage rates are set by the market forces.
In the last Parliament session, the Deputy Prime Minister Honorable Biman Prasad announced that due to the shortage of labour, formal sector employment has not only increased but the wages in the formal sector has increased by about 10-12 per cent. This would indicate that the market forces are working.
Inward remittance peaked to $1.3billion last year. This would indicate that household income has increased.
The current Government has recognised the extent of poverty in Fiji and has packed into the 2023-24 National Budget a range of social protection measures to provide relief for the vulnerable, including workers. Approximately $8million to $12million from the Employers 1 per cent levy goes into funding doctors and accident compensation for the public and workers.
A similar pro-poor national budget is expected to be announced in a few weeks.
At the macro-economic level, our GDP forecast for this year is about 5 per cent lower than last year and forecasted to further decline in 2025. This puts us behind six countries in the region including Tuvalu, Kiribati and Samoa.
The good news is that inflation is forecasted to remain below 4 per cent, lower than nine other countries in the region. However, it does not seem to factor in the impact from an increase in minimum wage.
National plans to grow the economy and jobs
There are no confirmed long-term plans.
This is one major reason the private sector and MSME owners are very skeptical about the increase in minimum wage. MSME owners are not able to craft and implement their long-term business plans guided by any long-term national plans.
All national plans are in the consultation phase. They include the National Development Plan and the National Human Resource Development Plan. We are not sure where the Ministry of Employment, Productivity and Industrial Relations (MEPIR) is at with our new National Employment Policy (NEP).
The ministry started consultations on the NEP in 2022 and the Fiji Commerce & Employers Federation (FCEF) representative at an ILO supported workshop highlighted the need for the NEP to also address future employment challenges. Four years after COVID-19 and in the midst of a labour and skills crisis, there is still no NEP.
With the Cabinet recently approving the development of the Labour Mobility Framework and Strategy, the Private Sector and MSMEs are looking at another round of consultations for yet another pipeline plan.
MSMEs need to plan on how they will source raw materials, attract, train and retain staff and repay their loans. MSMEs make up 93% of Fiji Development Bank’s (FDB) loan portfolio.
Broad economic and educational aspirations have been shared from the National Economic and Education Summits. Unfortunately, these are not adequate for the private sector and MSMEs to plan and implement their long-term business plans that will sustain their enterprises and generate more jobs for Fijians.
Setting the new minimum wage
A group of academics have been contracted to collect data through consultations and surveys. There seems to be no baseline data collection on how Fiji is fairing in terms of paying wages in the region or global average wage rates.
The consultants will advise the Minister for Employment, Productivity and Industrial Relations (MEPIR) directly on what the new national minimum wage rate should be. Their report does not go through the Employment Relations Advisory Board (ERAB), a tripartite body that is supposed to be advising the Minister.
Minimum wages are addressed in the ILO Minimum Wage Fixing Convention, 1970 (No. 131). This standard encourages tripartite decision-making process and highlights two main areas for minimum wage setting. They are:
(a) the needs of workers and their families, taking into account the general level of wages in the country, the cost of living, social security benefits and the relative living standards of other social groups;
(b) economic factors, including the requirements for economic development, levels of productivity and the desirability of attaining and maintaining a high level of employment.
Disproportionate impact on MSMEs
IT will be very difficult for MSMEs to pass on the increased cost to customers. Compared to large businesses, their cost structures, production methods and clienteles are very different.
MSMEs will need to consider reducing their profits and consequently risking the sustainability of their enterprises. They may also need to consider reducing their staff and operations, again, risking the sustainability of their enterprises.
One MSME owner who operates a bakery and employs 100 staff will not be able pass the cost to the consumer. Her bread is price controlled so any increase in minimum wage will eat into her profits and disrupt her future plans to open more branches and employ more people. She is contemplating letting go of some staff and even closing some outlets.
Another MSME owner has existing cleaning and hygiene contracts with organisations and employs mainly women. Her clients will not allow her to revise her quote based on any increase in minimum wage. She will need to dig into her profits and re-think her plans to train and employ more women.
There are many similar MSME owners, including women-led, youth-led and persons with disabilities led enterprises out there with their own stories, bracing for this disruption.
According to the Fiji National Provident Fund (FNPF), out of the 7401 contributing employers, the majority 92 per cent are MSMEs.
In anticipation of an increase in the minimum wage, the Fiji Micro, Small & Medium Entrepreneurs Community (FMSMC) has recommended in their national budget submission for Government to introduce a wage subsidy scheme amounting to $2million for micro and small enterprises that genuinely may not be able to afford the increase in minimum wage.
One size fits all national minimum wage is not the solution for sustaining and growing the sector that employs the majority of Fijians. Many micro enterprises operate at the grassroots levels and contribute to rural and maritime development.
All businesses are not homogenous and therefore a blanket minimum wage could prove unrealistic for MSMEs. Specific legislative protection and budgetary provisions need to be put in place for MSMEs, particularly for those who genuinely cannot afford the increased national minimum wage.
Edward Bernard is a regional development consultant specialising in private sector/ MSME development and disaster assessment and recovery. He has a Masters in Business Administration (MBA) and has more than 20 years of experience working for the United Nations, Fiji government, University of the South Pacific, Fiji National University and the private sector.
