CMDA CONFERENCE: “EFFECTIVE GOVERNANCE: ATTRACTING LONG TERM INVESTMENT”  - RADISSON RESORT, DENARAU, 28 SEPTEMBER 2007  KEYNOTE ADDRESS BY HE MR JAMES BATLEY
AUSTRALIAN HIGH COMMISSIONER

Thank you for doing me the honour of inviting me to give the keynote address this morning. I think it’s always a bit presumptuous for someone who is both a civil servant, and a foreigner, to stand up before a mainly private sector audience and talk about any aspect of the economy in Fiji. So let me start by flattery: I congratulate the Capital Markets Development Authority for organising this conference on a most important aspect of doing business in today’s globalised economy, and I commend you all for attending.

The Pacific Region – falling behind globally

I don’t need to explain to anyone here that Fiji’s economy is not doing very well at the moment.

Obviously the coup of last December has a lot to do with that, but it’s by no means the whole story. Why do I say that? Governments in the Pacific region face the same challenges as governments around the world. That said, experience over the past few decades, and especially more recently, suggests that governments in the Pacific Islands are struggling to meet those challenges. Rates of economic growth among Pacific Island countries have, with few exceptions, not kept pace with population increases so that real economic growth has essentially stagnated over a generation.

The news is not all bad. The World Bank’s latest Ease of Doing Business Index, released only this week, rates Fiji relatively high at number 36, although the detailed data show that Fiji has slipped against a range of indicators over the past 12 months.

And in the end, the economic growth figures can’t be ignored. In recent years, economic growth in Pacific countries – including Fiji – has consistently underperformed that of other developing countries. This underperformance has taken place at a time of a historic global boom: in recent years economic performance in East and South Asia has been very strong indeed and even Africa has sustained five to six percent growth.

For the countries of the region, including Fiji, there is no simple answer to this problem. But a problem it is. Action needs to be taken on several fronts to turn the economy around.

One of those fronts – a critical one - is highlighted in the title of your conference: attracting long term investment.

And one of the keys to attracting investment to particular markets is effective corporate governance – both in the sense of an effective regulatory environment, and in the sense of individual corporate practice.

What is effective governance and why is it important?

To me, the principles of effective governance in business are the same as they are in government: predictability, transparency and accountability. In situations where these principles are flouted or ignored, you can be confident that - at the very least - you’ve got underperformance. At worst, you’ve got a disaster on your hands. This holds true in the world of politics as well as in the world of corporate governance.

That is the importance of this conference.

In today's globalised market, investors are looking for a predictable legal and regulatory environment, an effective dispute resolution system, proven transparency of transactions, and evidence of good corporate governance. Individual enterprises – wherever they operate around the globe - are assessed on whether or not they have sound or poor corporate governance practices.

Both regulators and companies need to be responsive to these new rules of the game if Fiji is to be able to compete for the investment dollar.

A global survey conducted a couple of years back by McKinseys suggested that investors are willing to pay hefty premiums for good corporate governance, constituting between 12% and 30% in various projects from North America to Asia, Latin America, Africa and Eastern Europe.

Lest all this talk of principles of governance and global surveys of investor opinion take us too far into the clouds, let us not forget that these issues are not theoretical ones for the garment factory worker; the hotel waiter; the data entry operator; the clerk; the taxi driver; or the vegetable farmer - in Fiji or in any developing country. Investment decisions affect the lives of people just like this; they have a direct bearing on how much they earn and how much they eat.

Australia’s role in supporting CMDA

Australia has provided $100,000 to the Capital Markets Development Authority to assist it in its efforts to promote principles of good corporate governance and best practice within the securities industry in Fiji.

As part of the Australian funding arrangement, a set of Principles of Good Governance and Best Practice Recommendations for Practitioners will be developed by the Corporate Governance Council and through collaboration and consultation with CEOs and managers of relevant players in the securities industry.

The Principles will draw on international best practice and will fit Fiji’s business conditions. They will set high corporate governance standards to be implemented throughout the industry. The Recommendations will assist in improving the legal, institutional and regulatory framework which underpins corporate governance within the capital markets and securities industry.

As long as the Principles and Recommendations are accepted and followed, they will foster an environment where investors can have confidence in Fiji’s capital markets and securities industry. The practical guidance and suggestions will help the stock exchange, licensed entities, corporations, and other parties meet their responsibilities and contribute to a competitive capital market.

I acknowledge that it will be important to strike a balance: to ensure that the Corporate Governance Principles and the legal framework do not stifle innovation. Rather, by providing confidence to investors through transparent and accountable practices, that the Corporate Governance Principles should become an important ingredient in encouraging investment and therefore economic growth.

I note that AusAID is not the only source of assistance for CMDA. CMDA also receives assistance from the Australian Securities and Investment Commission, whereby staff are seconded to various directorates within ASIC. I understand CMDA has also reached agreement with the New Zealand Securities Commission and the New Zealand Exchange to offer secondment opportunities for staff at CMDA, NZX and NZ Securities Commission. In broad, the methodologies applied by CMDA are very similar to those used by ASIC and the New Zealand Securities Commission.

In addition, CMDA sends staff to training programs all around the world to meet its business needs.

Such international engagement and benchmarking is essential if CMDA is to fulfil its responsibility to develop and regulate capital markets in Fiji.

Australian support for private sector development

Let me take this opportunity to discuss briefly the role the Australian Government is playing more broadly in support of private sector development in Fiji.

Australia recognises fundamentally the importance of a healthy private sector. Our 2006 White Paper on Aid emphasised the importance of economic growth and recognises the need to work directly with the private sector to provide this growth.

You may, for instance, be aware that Australia is providing $3.2 million over three years to boost productivity in Fiji’s textiles, clothing and footwear industries. This funding recognises the importance of this industry to Fiji’s economy, to its exports and to its employment.

You will also be aware of the impact on economic development in the region of skills shortages in a range of occupations. In the middle of this year the Australia Pacific Technical College was established with the aim of skilling and qualifying Pacific Islanders for a range of vocational occupations needed throughout the Pacific. Campuses are being established in four countries of the region, including Fiji. Courses are to be offered in the following areas: automotive, construction and electrical, manufacturing, tourism and hospitality and health and community services. These courses will complement, not compete with, training offered by existing institutions. The Australian Government has provided AUD150 million over the next four years for the College.

I am pleased today to provide a preview of another Australian Government program aimed at providing support to the development of the private sector in Fiji and elsewhere in the region: the Enterprise Challenge Fund.

The Enterprise Challenge Fund, which will be officially launched on 17 October, is designed to increase the private sector’s contribution to poverty reduction. The Australian Government has approved AUD20.5 million over six years to pilot the fund in a small number of markets in the Asia Pacific region, including Fiji.

Under the Enterprise Challenge Fund, business projects that will positively impact on the poor - but that cannot obtain commercial financing - will be able to compete for grants of between AUD100,000 and AUD1.5 million. Businesses must provide at least 50% of the project costs and all projects must be commercially self-sustaining within three years.

The types of interventions that the Fund is likely to support could relate to an extension of financial services, agricultural advisory services to poor people, and investments that create new or improved market linkages.

This Fund breaks new ground for AusAID and I hope that it leads to even greater engagement with the private sector to promote economic growth, which is vital to reducing poverty.

Looking to the future

Let me conclude by looking at Fiji’s broader links in the region and beyond.

There used to be only two things certain in life – taxes and death. I think we can safely add “increasing globalisation” to the list. And Fiji is part of this trend.

Fiji, along with other island countries, is currently in the final phase of negotiations with the European Union on an Economic Partnership Agreement (EPA). What the final outcome will be remains to be seen.

Closer to home, in the coming years Australia and New Zealand aim to sit down with Pacific Island countries to negotiate a comprehensive free trade agreement covering both goods and services. This agreement, known as PACER Plus, will be vital to the region’s future prospects. Fiji and the other island countries have already agreed to hold informal discussions with Australia and New Zealand in 2008 on a possible way forward.

There is no doubt that the agreement will impose adjustment costs on Pacific Island economies. That is why both Australia and New Zealand have said the negotiations will take into account island countries’ respective needs and resource and capacity constraints, and have committed themselves to a process of phased and asymmetrical regional trade liberalisation.

But there is equally no doubt that the agreement would open up significant new opportunities for economies like Fiji’s. I am convinced that the future of our region lies in the sort of openness and closer integration which such agreements can provide.

For a country like Fiji, an agreement like PACER Plus holds out the prospect of increasing its attractiveness as a destination for investment.

Which brings me back to where I started: the importance of investment for Fiji’s future, and the importance of high standards of corporate governance to underpin that investment.

On that note let me once again congratulate CMDA on its initiative in holding this conference. I wish you all productive discussions over the next couple of days.