Cogito, ergo sum. I think, therefore I am. (René Descartes, mathematician and philosopher,1599-1650)

Saturday 20 November 2010

Fiji Waters Run Deep: The Bottled Water Affair

             
by Crosbie Walsh and Others

A Book of Verses underneath the Bough,
A Jug of Wine Fiji Water, a Loaf of Bread--and Thou dear Lynda Rae
Beside me singing in the Wilderness--
Oh, Wilderness were Paradise enow!"
-- Rubaiyat of Omar Khayyam  Aiyaz Khaiyum Stewart Resnick 

"  More than half of the drinkers of Fiji Water in the USA think it comes from Mount Fuji in Japan."


Reasons for Ratu Epeli Ganilau's resignation proliferate, as they always do when the PM is out of the country. But the most likely one so far concerns Fiji Water Director for External Affairs David Roth who left the country for Los Angeles late last night. Yesterday, Ratu Epeli confirmed that his decision to step down from his ministerial post was in relation to issues surrounding David Roth, hinting at a difference of opinion with the PM. Roth was allegedly deported but his work permit is valid for another three years and his wife and family remain in Fiji, at least for the moment.

David Roth's alleged deportation has been interpreted diffently by two well known overseas journalists. Rowan Callick, Asia-Pacific editor for The Australian sees it as evidence that the Bainimarama regime is targeting  foreign businesses: a follow up on the forced sale of The Australian's sister newspaper, the Fiji Times. He claimed , “Sources close to Fiji Water ... said that it was believed the government wished to localise Mr Roth's position and to take steps towards changing the access to the 40m-deep artesian aquifer in the Yaqara valley in the north of Viti Levu, the main island, which is the source of the water.” Which could be interpreted as a possible first step to taking over over Fiji Water.

Hamish McDonald, Asia-Pacific Editor for the Sydney Morning Herald, however,  thinks it is more a tax issue   because Fiji Water has paid no tax since setting up business in Fiji in 1996. He warns abou the political and economic dangers of  “taking on the biggest US investor when the regime is cultivating Washington's support for its lengthy election timetable.” McDonald provides further background:

The Company

Fiji Water, which bottles water drawn from an aquifer in the mountains of northeast Vitu Levu, has been an incredibly successful business due largely to clever marketing. It is the top imported brand in the US, seems likely to globally overtake French bottled water, and the company ships $US150 million worth each year, about 20% of Fiji's exports, contributes 3% of Fiji's GDP , and directly employs about 350 people But its contribution to Fiji's government revenue is small. When founded by a Canadian mining magnate, David Gilmour, in 1995 it was given a lengthy tax-free status because of its risky nature.

The company also spends $US1.3 million a year on local projects but this is a lot less than the 30% corporate tax it would normally pay. The company argues: "Fiji Water has been an important source of foreign investment, and a powerful advertisement for Fiji abroad, driving global interest in tourism and spurring economic development."

The American billionaires Stewart and Lynda Rae Resnick, who bought it for $US63 million via a company in the Luxembourg tax haven in 2004, objected when the tax exemption expired in 2008 and Commodore Bainimarama tried to impose a 20¢-a-litre royalty on bottled water. The company said this was ''draconian'', shut its bottling plant at Rakiraki temporarily, and threatened to pull out. Under advice from the IMF to lift revenue to make a $US150 million bond repayment next year, Commodore Bainimarama has returned to the issue.

McDonald concludes that  “taking on the biggest US investor when the regime is cultivating Washington's support for its lengthy election timetable is a high risk move for Commodore Bainimarama.Without its US distribution chain, Fiji Water is just water in Fiji. But Barack Obama may also wonder how much US tax is paid on the trendy water he sips.”

What Readers Think

Personal ties said... Croz,  The revelation that Fiji Water executive David Roth was a personal friend of Ratu Epeli's and used to visit his house, adds a whole new dimension to this saga. How could Ratu Epeli have signed the deportation order in this case? It would have been impossible for him to do so and still uphold traditional values, especially if this was all about the regime sending a message to Fiji Water and nothing personal. Given the amount of global coverage this story is getting, the sooner we get a more detailed explanation from the PM, the better.

Business confidence said... Croz, You haven't mentioned the issues/debate surfacing around Fiji Water. Perhaps because up until now it was only rumour. What is clear now is Ganilau has said he disagreed on issues relating to Fiji Water and its CEO David Roth. Talk is he was asked to have him removed from the country.

Let's be clear on Fiji water. It's not about the water. It's branding and distribution. That's the reason
other manufactures have failed to come anywhere near Fiji Water. Make Fiji Water local and business will go the way of FSC.

Regardless of what happens, business confidence in Fiji just took another huge blow. Fancy websites and government promises and incentives mean nothing. If there is a threat that government will overtly interfere in your business, stop you repatriating profits or remove your executives these are all really good reason to not invest.

The former finance minister had Fiji Water in his sights and with his removal the business community sighed relief. It is the Reserve Bank governor who took his place. He already had a go at the banks but the IMF warned him to back off. Most know of his distaste for Fiji Water and a desire to punish them because he was also backing the former finance minister.


Wai Oh Wai Oh Wai left this comment: There is disagreement within the government over the handling of Fiji Water and David Roth. The question is did the PM and the AG have a problem with David Roth alone or do they have an ongoing problem with Fiji Water. If it is David Roth alone then there is some hope but what could a business executive have done to have proved a security threat? We shall never know because there is no transparency over these matters. However, other ex-pat business execs must be feeling nervous at the moment. One consequence of this action will be a further deterrent to investment.

If the Government has a problem with Fiji Water then the consequences for Fiji will be catastrophic. It is the country’s single largest exporter. It contributes about $150m to the Foreign Exchange reserves every year. It employs hundreds of people directly and many more indirectly. It also spend millions branding Fiji as a clean and beautiful country. Over 200m bottles go out every year singing the praises of this country.

One can only assume that the government would not put that at risk. They cannot nationalize the factory or do a Fiji Times-style Media decree. Well of course they can, but what do they end up with; the most efficient bottling plant in the South Pacific producing millions of bottles but nowhere to sell them. They can’t use the Fiji Water brand or packaging overseas. And the US Government would not allow them to be imported because they will have taken over a US company by unfair means.

So perhaps they are looking to put pressure on Fiji Water for something else. Who knows but it is a risky game. In the current economic situation the closure of Fiji Water would mean that 2011 is starting with a 3% reduction in GDP.

Whatever the government thinking, their actions are damaging to the investment prospects of the country. Fiji needs growth more than anything and the deportation this week is just another good reason for potential investors to look elsewhere.

To which another reader replied ... Wai oh Wai oh Wai, You make some very good points here but ignore a major factor that underscores this whole dispute. That is the refusal of Fiji Water to consider making any further contribution to a struggling national economy when it so clearly has the means to do so. Fiji Water enjoys a ludicrously low level of tax compared to a comparable operation on the US mainland. It's had a tax free holiday for years while other businesses in Fiji
have been saddled with a corporate tax of 30 per cent. When the regime — quite legitimately in my view — wanted a levy of 20 per cent on every bottle sold, what did Fiji Water do? Behave like a corporate terrorist by suspending production and exports and putting the whole economy at risk. The regime had no choice but to back down but you can imagine how much this rankles at senior level, especially when we're in such dire straights.

It didn't help when Fiji Water's vice president told a US magazine writer that without Fiji Water, the country was "screwed". Hardly the most diplomatic thing to say when its American owners are making millions of tax-free dollars from a precious natural resource that arguably belongs to the nation as well. No-one wants Fiji Water to leave and everyone is proud of the way a wholesome, fresh- tasting product is giving Fiji positive global exposure. But this is a question of fairness and the right of all Fijians to benefit from a huge global business.

The miserable Michael Field wrote an appalling piece in NZ yesterday saying the regime wanted to "take over" Fiji Water. This is yet another attempt by this reckless polemicist to wreck the Fiji economy by raising a question mark over the security of foreign investments. And it's utter rubbish. Without its global distribution and marketing network, Fiji Water is just water sitting in an aquifer in Yaqara. What the hell would new local owners do with it? What government wants is a legitimate slice of the company's earnings in tax revenue, just like any other business in Fiji and certainly just like any other business in the US. Does anyone seriously think these guys would be given such slack by the Internal Revenue Service in the US? The Fiji Government originally asked for 20 cents in the dollar of every bottle of Fiji Water sold around the world.

Don't want to pay 20 cents? OK let's talk about 15 cents or 12. But for Fiji Water to cry "nothing" and then put a gun at Frank Bainimarama's head, was hardly the smartest thing to do. Its billionaire US owners need to negotiate a way forward in the interests of everyone and not just themselves. Or this is going to get ugly for everyone.

Radiolucas took another angle ... I am not surprised at all. The Fiji Water CEO probably wouldn't agree to a higher tax rate and now has to bear the consequences: summary deportation.  Arbitrary rule of law, media suppression and constant resignations? This is a shameful way to run a country. But as Napoleon once said: "Never interrupt your enemy when he is making a mistake."

Proud fijian said... A team has goals that needs to be achieved. A member has to play as part of the team if he is not ready to play his role then he should leave. Ratu Epeli has shown the honorable thing and resigned. What ever relationship he had with the Fiji Water guy was a hindrance to the goal of the the government. As usual with most foreign investing in Fiji all provide as a benefit is employment. Fiji needs to maximise its benefits with these foreign companies.

While another reader said... Yes, it's unfortunate that a US company is being targeted just when the Americans are being more accommodating about 2014. Yet there's an equally strong argument that the Fiji taxpayer deserves to get more of the spoils from what is, after all, a valuable national resource.

Editor adds: New Zealanders will not be surprised if this story turns out to be all about an American company not wishing to pay tax because of all the other benefits it brings to a country, and a government not knowing how to handle it. Recently, we saw Warner Bros threatening to pull out of a NZ-based Hobbit production to be produced by New Zealander Michael Jackson unless we gave up on tax and eased our labour laws. Some people spoke about national dignity and selling out to an overseas company; others talked about the possible damage to the economy. Guess who won? And that, for the moment, just about sums it up.

25 comments:

Proud Fijian said...

You're right Croz about Warner Bros scenario being similair to the Fiji Waters one.

The Government has learnt from the handling of the Fiji Times (owned by billionaire Rupert Murdoch) that they can stand their ground and still get a result that's a win-win.

Win for employees who still keep their jobs, win for News Ltd who sell their company and win for new owner to make a profit, win for Government in its Press goals.

Fiji Waters has to come to the negotiation table. And they can't repeat 2008.

The NZ scenario I would say was well handle by John Key. Despite giving Warner bros the money incentives he got a tourim marketing video and logos of NZ tourism on the DVD's that were to be sold.(That would be worth millions)

Only difference is Warner Bros has a choice to take the movie elsewhere. Fiji Water is Fiji Water.

We need investors in Fiji who are willing to contribute to the economy in paying taxes. What makes us think that this will stop investors coming to Fiji.

Actually by doing this we choose who we want as business partners to invest in Fiji- ethical companies with a win-win approach.

Wai Oh Wai Oh Wai said...

Wai the Fuss. I have a couple of comments.
1- The 20 cent per litre tax was imposed on the bottled water industry as a whole, not just Fiji Water. As one they responded because it would have closed the industry . A few months after the Government backed down all parties met and negotiated a suitable rate. This is currently being levied and paid by all the bottlers over a certain size in Fiji. Please note Fiji Water is the only bottler paying this levy at the highest rate. All Parties followed your advice but about 2 years ago.
2- To put it in perspective a 20 cent tax in Fiji after distributors and retailers and hotels put their margins on will amount to between 20 US cents to a dollar a bottle increase in cost to the consumer. There are hundreds of bottled waters in the US and a 20% increase in price would seriously affect the sales of Fiji Water.
3- Fiji Water's Tax Break came to an end a couple of years ago. They pay tax like any other company in Fiji.
4- In a struggling national economy the Government should be doing everything to encourage investment in Fiji. Instead we have had increasing attacks on foreign business over the past few months. The result is that investment is at an all time low.
5- You say Fiji Water would not be given such slack from the IRS of the US. Do you really think the US Government would impose a 20 cent levy on an industry without discussing it first with the industry and then debating it in Congress and the Senate. It is by debate other governments avoid making ill thought out decisions.

Overall I am sure Fiji Water are not without fault but are a good corporate citizen.

As you said the water is just water sitting in an aquifer. Fiji Water invest tens of US millions every year turning into the most desired water in the world. That is why it is 20% of Fiji's exports and 3% of GDP. It is also the biggest contributor to Brand Fiji which sustains our tourism industry. All this without a cent of Government money.

justice said...

Without Fiji, Fiji Water is nothing. Period.

All businesses and citizens HAVE to pay their fare share of income tax for the country to develop.

Income and business taxes in Fiji are low, under 30%. Try to find that in Canada, the country of Mr. Gilmour.

Amazing that Fiji Water's bluff some time ago (Mr Chaudry was handling the case then) did work. You close down the factory for a few days and BINGO, the government will do what you want.

Mr Bainimarama, just do what you have to do. Make sure that Fiji Water pays the same level of tax that I am paying (i am also a foreign investor from Canada) and don't deport anyone. They will cry for a little while but when they will realize they are losing so much money, they will change their attitude.

Without Fiji, Fiji water is nothing. Customers in America want to have Fiji Water, not China Water, not Qatar Water, not Somalia Water... Fiji Water.

So let's be honnest with everybody here and make sure Fiji Water does pay 30% taxes.

It's about fairness said...

This is the problem with giving foreign companies tax-free holidays. It's a legitimate concession to lure investors to set up in Fiji but ought to be finite. Fiji Water seems to think it has carte blanche to operate tax free indefinitely. If it was struggling in the international marketplace, it might have a case. But this is now a huge global business generating huge profits for its California owners. Their own government wouldn't allow them to pay anything under normal rates. So when they're doing so well, why should ours? They need a lesson in the principles of equity and fairness and good on Frank for giving it to them. The same goes for other investors in Fiji. We're prepared to give you start-up assistance until you become profitable but not to be nannied for the term of your natural life.

Wai on the brain said...

Croz, worth looking at a piece on the Mother Jones website by Anna Lenzer, the reporter whose investigation into Fiji Water caused a fuss in the US sometime back. While Fiji Water hasn't yet made any comment to her about the David Roth issue, this is part what she says about the company's role in Fiji:
---
...the bottled-water company has always maintained that it stays out of Fijian politics: Owner Lynda Resnick has said that "they don't have any guns there, but they still manage to have these coups all the time. They have a rogue government that changes every five years with a new coup. So sometimes it's very hard to be in Fiji, but we do it."
---
These are pretty extraordinary comments by the owner of one of Fiji's biggest exports. She seems completely out of touch. "Hard to be in Fiji"? My dear, you'd have trouble making your millions selling its water if you weren't. Sounds high time to me for the latest "rogue government" to bring out the big guns and make this woman pay her fair share of tax for a change.

Reality check said...

In a statement released from China, Fiji’s interim Prime Minister Commodore Frank Bainimarama said Mr Roth had been deported after it was found he’d been acting in a manner prejudicial to good governance and had been intefering in internal affairs.

Well that clears things up - Mr Roth dared to have a opinion on something. Everyone knows opinions other than those of the PM and his military are not to be tolerated.

As to protecting investors - yea right. More hollow words from a military man who has again shown he knows nothing about how economies work.

Fiji is not a safe place to invest. Everyone knows that and it gets worse everyday. Cross the PM or his team and you are done for. Simple as that. Make a profit and you are a target.

Our pro investment PM said...

Perhaps our pro industry, pro investment PM could provide us with a list of the significant investments made in Fiji in the last 12 months...and don't include those already underway and committed before the coup....nd don't include promises of investment in the future.

I'll give you a hint. It will be a very short and very shallow list.

Facts said...

Lets get some of the facts right on Fiji water.

It had a tax holiday but it finished 2 years ago. You can't retrospectively change that. This government is offering tax breaks for a new operation (casino). Its no different. Fiji Water pays the same tax rates as other businesses. It also pays a water extraction tax agreed with government 2 years ago. It also pays the owners of the land it operates on and supports employment for these six villages. It makes a lot of money but it has invested a lot of money. It spends more money on distribution and marketing it in the states and around the world than it does on extracting the water and bottling it in Fiji. That is why profit is also made offshore.

The former finance minister, the current reserve bank governor and AG all had big stars shining in the military guys eyes by promising huge flows of cash from Fiji water. It did not happen and Mahen lost his job (for this and other reasons). These guys can't help themselves. There are no quick fixes to governments finances. You have to do the hard work.

The problem is they don't trust anyone, are suspicious of success and are only just smart enough to know they are failing in one of their first promises in 2007 after the coup. They promised to fix the economy on that front it has gone back wards every year for four years.

Like it or not consumer confidence IS IMPORTANT and this government continue to ignore that. In fact they seem to want to piss on every potential investor old and new.

done said...

The PM has effectively admitted there is no cabinet - only him and his orders. He gave a order and Epeli did not obey so now he is gone. This is how this 'government' works and this is why it is unlikely to ever be successful.

Joe said...

"PM clarifies David Roth issue"

As per Fijivillage. If that is what clarification is, Fiji really has no hope. What is your take on this Croz? Unsubstantiated claim under the guise of "you name it".

Joe said...

"PM clarifies David Roth issue"

What has he clarified????

That David Roth was a threat to national security and that one of his own illegal ministers was rubbing shoulders with him? Is it a case of the "pot" calling the kettle "black"?

Anonymous said...

as some said earlier, it is the FIJI brand that markets Fiji Water. the question to ask is who owns the trademark...and I think that this is where the interinm government has to be careful about how it treats this case. there is nothing to stop these guys from moving to nz, samoa, vanuatu and still sell FIJI Water - all they have to do is to put a samll note on the label saying 'bottled at source in Samoa' ! there goes our forex income of whatever we are currently earning.

Proud Fijian said...

@ Anonymous

They cant move the processing elsewhere and call it "Fiji Water".

Example has been the precedent set by Champagne in France. No other country can produce the sparkling wine and call it Champagne.

@ Joe

the "Clarify" headline was by Fiji Village. Th PM put out a statement.

BASA said...

It took 16 years of court action to protect the type of drink that is called Champagne. There is no similar case for Fiji Water as the drink is water. The brand that is Fiji Water is trademarked to the owners of Fiji Water and could be used for any purpose they wish and there is no legal requirement for Fiji Water to come from Fiji.

sara'ssista said...

How naive to think that the owners of Fiji water can,t just retain the name, move offshore to Tahiti, then market the he'll out of Tahiti spring water and and get a few stars to hold the bottle. This is the market and this regime has made it clear they have no idea how the market and confidence works. You really think deporting an executive over a tax matter is helping Fijian national security. I can only wait to see this regime decree that all businesses must be 51 percent Fijian owned and the country will shut up for good. Fiji water can hold on to the trade mark as long as they like, presuming that this regime doesn't respect trademarks either.and try a nationalization drive.

justice said...

@ Facts . You said that "Fiji Water pays the same tax rates as other businesses." Can you give us the percentage, please?

All businesses in Fiji have to pay all sorts of taxes, like in any other country. Fiji Water is no exception.

The only thing I can't understand is why there is a need to expell Mr. Roth. That sends a bad signal to foreign investors...

Would foreign investors be afraid to invest in a country where the CEO of a particular company is crying because a 10 years tax exemption for his company has ended? NO. Would they be afraid to invest in a country where investors get kicked out for obscure reasons? YES.

Fiji needs more stability. In this particular case, I am so sorry for Mr. Roth, I think he would have been able to live with the normal tax rate of Fiji anyway. I do.

Proud Fijian said...

@ BASA - You're wrong to claim "The brand that is Fiji Water is trademarked to the owners of Fiji Water and could be used for any purpose they wish and there is no legal requirement for Fiji Water to come from Fiji."

TRIPS Agreement (Trade Related aspects of Intellectual Property Rights) Article 22 states that all governments must provide legal opportunities in their own laws for the owner of a GI (Geographical Indication) registered in that country to prevent the use of marks that mislead the public as to the geographical origin of the good. This includes prevention of use of a geographical name which although literally true "falsely represents" that the product comes from somewhere else.

Fiji Water Cannot Use That Trademark for water other than soourced in Fiji.

And Fiji Water does not own the words Fiji Water. They own the logo or trademark "Fiji Water" which is quite specific.

Proud Fijian said...

Hi Croz

Jone Baledrokadroka has blogged a lot on coup 4.5 website. I believe that as you had mentioned previously he is not independent and his being at ANU is suspect and points to possible Australian attempts to influence him and other officers in early 2006 to depose the then Commander Bainimarama.

An interesting article about those vents and the susequent investigation on wikipedia - this is the link.

http://en.wikipedia.org/wiki/Baledrokadroka_incident

Global Citizen said...

Its pleasing to see that Bainimarama has followed up his extensive sympathy note to South Island Quake victims with another note of sympathy and support for the miners. His touching support is deeply appreciated.

MJ said...

The statement from the PM seems to say that this has nothing to do with wanting Fiji Water to pay more tax. Rather, Roth was involving himself in Fijian internal politics. Maybe, as several have stated above, Fiji water does pay tax now and whatever he was doing was trying to reducing their tax back to the old days.

Fiji water could move from Fiji, but due to advertising laws in many countries would not be able to put the picture of Fiji on the back and have the blurb about the source of the water being pristine Fiji. Even the name "Fiji Water" implies that it is from Fiji so they may have trouble with false advertising if the use another source. Since they have put so much into the marketing of the Fijian source of the water, I would not think that going to another source would be feasible.

justice said...

@MJ

You said that "Fiji water does pay tax now and whatever he was doing was trying to reducing their tax back to the old day"

Maybe that's a good point.

We know for sure that when Chaudry was there, they didn't pay taxes. That was in 2008, isn it?

We all remember that Fiji Water closed down their factory and it was during the period when Vatukoula was closing down and the Fiji Times was not censored. It was very difficult for the government to deal with the economic situation, and we know for sure that Fiji Water was playing a hard game with the government. They won in 2008.

So if we assume that "threating" the government or at least taking advantage of its unfavorable position is the way Fiji Water is doing business in Fiji, then we have a good clue about what's going on...

I still believe that, considering the whole story was not a public one, the government of Fiji could simply have ignored the requests of Fiji Water without expulsing Mr. Roth. That would have been a more diplomatic thing to do from a business point of view.

Radiolucas said...

@ justice

Agreed. Deporting foreign nationals for what a company does is not an act of responsible government - negotiation and legal action is what normal governments usually do because they are methods by which governments maintain public and foreign respect of a nation's laws and due process.

Once again, Frank and his band of cretins have figuratively shot themselves in the head. What a farce.

snoopy said...

Fiji Water has not been paying its fair share for too long. Paying taxes is not enough as they are using a limited resource. Fiji Water should be paying a royalty on such a profitable product. F20c seems cheap to me.

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