Increased wages and improving productivity for the MSME sector
Our new national budget has given almost all waged employees, almost at all levels and almost in all sectors, a pay rise.
The question among many MSME owners is — will these wage increases actually result in increased productivity, in both the public and private sector and in our current economic climate?
The public sector wage increases range from as high as 138 per cent for those that hold high office to as low as 7 per cent for civil servants.
For most private sector waged employees, the national minimum wage has increased by 25 per cent. This marks a historical 46.4 per cent increase in the last 3 years. In addition, the 10 sectoral wage rates have all increased by 50 cents.
Economic experiments have shown that increased wages can have a positive effect on productivity.
Wage rates have lagged behind the increase in cost of living in Fiji for many years. These increased wages combined with Government’s pro-poor social protection initiatives will benefit many workers and their families.
However, the private sector and MSME focus now turns to the expectation that the productivity-pay gap will be reduced. It basically means that worker productivity must now match wages growth.
So how well is Fiji doing in terms of productivity?
In fact, the short answer is that we have regressed.
That’s what the 2023 Fiji’s National Voluntary Report (NVR) says, when specifically reporting under SDG8.2: achieve higher levels of economic productivity through diversification, technological upgrading and innovation, including through a focus on high value added and labour-intensive sectors.
Most likely, COVID-19 would have contributed to this situation. However, historically Fiji has had low productivity growth of 1.2 per cent a year.
Fiji’s last participation in the Global Innovation Index in 2015 ranked Fiji 64 out of 141 countries. With less than half of the maximum possible score, Fiji performed poorly for market sophistication, which is a composite of credit market, investment environment, and trade and competition; as well as for quality of infrastructure and institutions.
What is the plan to reduce the productivity-pay gap? Is the plan adequate for the MSME sector?
The 10-year Fiji National Productivity Master Plan was launched in 2021. The master plan aims to grow productivity by 3.2 per cent annually. This is not only ambitiously twice Fiji’s annual productivity trend rate, it is nowhere close to the increase in annual minimum wage rate of 15.47 per cent in the last 3 years.
The objective of this master plan is already not working for the private sector, including for MSMEs.
The master plan has a strategy to raise the productivity levels for MSMEs by:
- setting up an SME development agency (SDA) to oversee the development of micro, small, and medium enterprises in the country;
- enhancing capabilities of SMEs in managing their operations;
- developing more promising SMEs to support large enterprises in clusters and to link to the higher ends of their value chains: and
- giving MSMEs recognition for their efforts and achievements in productivity improvement.
These may not be adequate to accelerate productivity and support the Minister for Trade, Cooperatives, SME and Communication, Honorable Manoa Kamikamica’s plans to grow the MSME sector by 12 per cent of GDP in the next 10 years.
What is missing from the plan?
The master plan is missing the major economic headwinds that the MSME sector is facing.
For almost a year now, the Reserve Bank of Fiji’s (RBF) monthly economic reviews have repeatedly published that the loss of skilled labour, increasing cost of doing business, constraints in the completion of investment projects and impact of climate change are risks to the domestic economy.
Let’s just take one obvious challenge that puts our productivity master plan in fantasy land – the loss of skilled labour.
In April this year the Minister of Finance Professor Biman Prasad said that Fiji had lost 70,000 to 80,000 people in the last 18 months. 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.
Institutions that MSMEs depend on for their operations are facing the same problem. Water Authority of Fiji (WAF) reported losing 950 skilled workers and Energy Fiji Ltd (EFL) reported losing over 200 technical personnel in the past four years.
The revelation by the Fiji National University (FNU) that it is on track to train 100,000 people in Technical and Vocational Training (TVET), is not going to solve the quality and experience component of the loss of skilled labour. MSMES will have to re-train and supervise new graduates to do what they are paid to do, effectively and efficiently.
We are also losing experienced and skilled professionals in Government. And MSMEs are also concerned about capacity issues within Government to expedite their business enabling roles and allocated budgets efficiently.
The delays in the issuance of work permits that does not allow the private sector to quickly bring in skilled workers, so that operations and productivity is not impacted, is just one relevant example.
Employers have experienced more than four months delay in the processing of work permits, the longest and perhaps the most expensive lead time in their whole recruitment process. The employer’s foreign recruitment process and costs (recruitment and loss of production) start 2-3 months prior to the work permit application lodgement with the Immigration Department.
There have been instances where employers have lost foreign workers to other countries due to work permit delays.
What should happen next?
In one of the economic reviews close to the national budget announcement, the RBF explicitly mentions the risk to our domestic economy in increasing the minimum wage if not supported by productivity. This advice should not be taken lightly.
The private sector has stated publicly that with the increased minimum wage, if employee productivity and sales do not increase, the cost of goods will go up.
The Government needs to urgently establish a national tripartite peak body to provide policy advice and direction on improving economic productivity. Through the spirit of tripartism, the Fiji Commerce & Employers Federation (FCEF) and the Fiji Trades Union Congress (FTUC) need to be consulted and included.
The next step should be to review the Fiji National Productivity Master Plan (2021-36) in light of the major economic headwinds facing the MSMES sector and the economy. The review must include a good monitoring framework, so we can also measure the productivity of our productivity plan – very important.
The revised master plan must also have a strong focus on improving productivity in the Public Sector, including municipal councils. Good productivity gains in the public sector will mean higher productivity in the private sector.
Enterprise level bi-partite initiatives and campaigns need to be developed where the employers and workers representatives work together to develop and implement strategies that will improve workers productivity. Perhaps formalise such arrangements and intended productivity outcomes in the Collective Bargaining Agreements (CBA).
Specifically, for the MSME sector, Government, donor agencies and development partners supporting business incubator and accelerator programs or disbursing grants for business start-up and expansion, should consider including improving productivity as a major criteria and indicator.
- 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 UN, Fiji Government, University of the South Pacific, Fiji National University and the private sector.
