Leading Fiji to Economic Success - State of the Economy Presentation

1. OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Success Leading Fiji to Economic Success OUR VISION Leading Fiji to Economic Succ PRESENTATION AT THE CONSTRUCTION INDUSTRY COUNCIL CONFERENCE STATE OF THE ECONOMY 15 JUNE 2019

2. PRESENTATION OUTLINE • International Economy • Domestic Economy • Monetary Policy: RBF’s Twin Objectives • A Snapshot of the Construction Industry • Key issues for the Construction Industry • Summary

3. GLOBAL ECONOMY

4. Global growth is expected to strengthen… TRADING PARTNER GROWTH Real GDP Growth Projections (percent change from earlier forecast) Sources: IMF World Economic Outlook April 2019; *Australia and New Zealand from October 2018 WEO

5. DOMESTIC ECONOMY

6. FIJI’S GDP GROWTH OUTLOOK Favorable outlook in the medium term though not quite the 5% we are looking for % Average 5 Years = 4.7% Average 10 Years = 3.4% Source: Macroeconomic Committee

7. SECTORAL FORECASTS FOR 2019 Sugarcane Production: +10.3% Visitor Arrivals: +2.5% Sugar Production: +29.7% Fisheries & Aquaculture: +0.1% Electricity Generation: +5.0% Gold Production: -4.0% Forestry & Logging: +0.3% Source: Macroeconomic Committee

8. CONSUMPTION Annual percent change (unless otherwise specified) Source: Industry contacts

9. INVESTMENT Annual percent change (unless otherwise specified) Source: Industry contacts

10. BUSINESS SENTIMENTS What are the sentiments on overall business confidence? BES Survey Overall Business Confidence (Net %) Source: Reserve Bank of Fiji – BES

11. MEDIUM-TERM INVESTMENT OUTLOOK What are the sentiments on investment? Source: Reserve Bank of Fiji – BES

12. INVESTMENT Need to sustain the 25% target Government Target: 25% *Estimated change in inventories to be around 2.0% of GDP in 2017 while FBOS kept it at zero Sources: FBOS and RBF Estimates

13. TOURISM EARNINGS PERSONAL REMITTANCES 5.0% Sources: OET & Macroeconomic Committee

14. GOVERNMENT EXPENDITURE Where is the rise in expenditure diverted to? Revenue Expenditure Expenditure Mix *Revenue for FY2017-18 includes asset sales. Source: National Budget Supplements

15. GOVERNMENT DEBT Is rising in value terms but stable as a ratio to GDP Sources: MOE & RBF

16. MONETARY POLICY Accommodative stance supported the economic activity in recent years Outstanding Loans & Advance Outstanding Lending Rate Banks’ Liquidity Source: RBF As at 13 June 2019

17. MONETARY POLICY: RBF’s TWIN OBJECTIVES INFLATION FOREIGN RESERVES

18. INFLATION What's driving prices? Contribution to Inflation – May Headline Inflation – May *Others include Communication, Restaurants & Hotels, Furnishings, Hhld., Equip. Routine Hhld. maintenance, Recreation & Culture, Health and Misc. Sources: RBF and FBOS

19. FOREIGN RESERVES Is adequate Retained Imports Cover Source: Reserve Bank of Fiji

20. A SNAPSHOT OF THE CONSTRUCTION INDUSTRY

21. WHY IS THE CONSTRUCTION INDUSTRY SO IMPORTANT FOR US? • Represents the building blocks of an economy -represents the fundamental foundations of a strong economy. • Without the industry, there will not be any schools, hospitals, homes, offices, factories or shops. • Drives economic growth • Creates new jobs • Provides solutions to address social, climate and energy challenges • Industry has important linkages with other sectors such as manufacturing, retail, transport, real estate etc

22. CONSTRUCTION SECTOR vs GDP GROWTH Construction sector grew strongly in the last 3 years due to rehabilitation activities post natural disasters % Sources: FBOS & Macroeconomic Committee

23. WHAT DO THE PARTIAL INDICATORS SUGGEST? Completion Certificates Issued Building Permits Issued Domestic Cement Sales Value of Work put-in-place Sources: Fiji Bureau of Statistics and Industry Contacts

24. EMPLOYMENT Employment by the sector constituted 7.4% of total employment in 2015-16 A total of 11,747 people were in paid employment in 2017 - an increase of 1.5% over 2016 Sources: FBOS 2015-16 Employment and Unemployment Survey and 2017 Employment Survey

25. BANK LENDING TO THE CONSTRUCTION SECTOR Commercial Banks’ New Lending Commercial Banks’ Outstanding Lending Source: Reserve Bank of Fiji

26. BANK LENDING TO THE CONSTRUCTION SECTOR Commercial Banks’ Outstanding Lending Interest Rates Source: Reserve Bank of Fiji

27. GOVERNMENT INCENTIVES FOR THE CONSTRUCTION SECTOR Incentives for construction of warehouses or similar investments Incentives for Renovations of Buildings Losses carried forward Hotel Investment Incentives Tax incentives for retirement villages and aged care facilities Private public partnership on rental housing Residential housing development incentives Duty Concessions for the hotel industry

28. KEY DISCUSSION POINTS • Some major issues related to the construction sector which affect or hinder economic activity/growth include: • Capacity constraints/skilled labour shortage • Availability and consistent supply of raw materials • Climate change and natural disasters • Challenges the industry faces – climate change, resource scarcity and fast pace of urbanization. • The industry remains a crucial player in the Government’s target that all citizens have access to decent and affordable housing. • Keeping up with technology and innovations that will drive the future of the industry • green construction projects (environmentally friendly/eco-conscious construction/sustainability of building plans/ • waste reduction and low emission designs. • use of prefabrication techniques in hotels, offices and apartment buildings. • .

29. SUMMARY ON THE MACROECONOMY • The construction industry has important linkages with other sectors. Therefore, its impact on GDP and economic development goes well beyond the direct contribution of the construction activities  • Domestic economy is forecast to achieve 10th year of consecutive growth, however, at a slower pace • The current monetary and fiscal policy stance remains appropriate and supportive of economic growth • Monetary policy objectives remain intact • Inflation stood at 2.1 percent in May and is expected to remain around 3.2 percent by year-end • Foreign reserves are forecast to remain adequate by year-end

30. THANK YOU

31. SPARES

32. FIJIAN ECONOMY How has it transformed since independence? Source: Fiji Bureau of Statistics

33. GOVERNMENT INCENTIVES FOR THE CONSTRUCTION SECTOR Sources: 2019-20 National Budget Supplement -Tax Policy Measures

34. GOVERNMENT INCENTIVES FOR THE CONSTRUCTION SECTOR Sources: 2019-20 National Budget Supplement -Tax Policy Measures

35. GOVERNMENT INCENTIVES FOR THE CONSTRUCTION SECTOR Sources: 2019-20 National Budget Supplement -Tax Policy Measures

36. 2019 CONTRIBUTION TO GROWTH+2.7% Source: Macroeconomic Committee

37. 2020 CONTRIBUTION TO GROWTH+3.0% Source: Macroeconomic Committee

38. TRENDS IN GLOBAL CONSTRUCTION • Pace of expansion in the global construction industry is expected to average 3.6% a year over 2018-2022 • Global construction output is forecast to rise to US$12.7 trillion in 2022; from US$10.6 trillion in 2017 • Major drivers for growth include increasing housing needs and infrastructure due to urbanization and growing population • Emerging trends which have a direct impact on the dynamics of construction industry include: • Increasing demand for green construction • Enhanced life of building structures • Building information systems for efficient building management • Use of fibre reinforced polymer composites for rehabilitation of aging structures Source: Global Construction Outlook to 2022, Research and Markets

39. CONSTRUCTION SECTOR VALUE ADDITION Contributed an average 3.2 percent to Gross Value Added in the 2014-2018 period $M Sources: FBOS & Macroeconomic Committee

40. CONSTRUCTION SECTOR CONTRIBUTION TO GVA The sector is estimated to have contributed around 0.28pp to overall GVA growth in 2018 PP 3.27 3.14 2.38 1.71 1.52 0.55 Sources: FBOS & Macroeconomic Committee

41. COMPONENTS OF CONSTRUCTION SECTOR Private construction constitutes around 65% of total construction activity Sources: FBOS & Macroeconomic Committee

42. BANK LENDING TO THE CONSTRUCTION SECTOR Commercial Banks’ New Lending Interest Rates Commercial Banks’ Outstanding Lending Interest Rates Source: Reserve Bank of Fiji

43. CONSTRUCTION SECTOR WEIGHTS How have the weights changed ? 2014 Base Source: Fiji Bureau of Statistics

44. GOVERNMENT INCENTIVES FOR THE CONSTRUCTION SECTOR Sources: National Budget Supplements -Tax Policy Measures and FNU

45. GOVERNMENT REVENUE Source: 2019-2020 National Budget Supplement

46. GOVERNMENT EXPENDITURE Expenditure Mix Sources: 2019-2020 National Budget Supplement & Estimates

47. GOVERNMENT BALANCE Source: 2019-2020 National Budget Supplement

48. GOVERNMENT DEBT Sources: 2019-2020 National Budget Supplement

49. MEDIUM-TERM INVESTMENT OUTLOOK What are the sentiments on investment? Source: Reserve Bank of Fiji – BES

50. CONSUMPTION SPENDING What do the key indicators reveal? Vehicle Registrations Net VAT Collections Commercial Banks’ New Consumption Lending Wholesale & Retail Trade Survey Source: Industry contacts