As the largest and most resource-rich nation in the central South Pacific, Fiji also enjoys the region's largest and most developed economy. Still, its reliance on a single resource—sugar—makes it economically vulnerable, exposed both to an unpredictable tropical climate and an unstable world market. Attempts to expand and diversify the economy are being seriously undercut by Fiji's ethnic tensions and ongoing political uncertainty.
Since its introduction by Fiji's British colonizers in the 1870s, sugar production has been the mainstay of the Fijian economy. While the country has had some significant success in developing supplementary industries in mining, fishery, timber, clothing, and especially tourism, sugar continues to account for nearly a quarter of its export earnings. The industry's fragility was painfully demonstrated in late 1998 when an unusually severe drought, followed by widespread cyclonic flooding, saw sugar exports drop by almost 30 percent and earnings by more than US$100 million. Similarly, upsets in the world sugar cane price can be sudden and sharp. If pressure from the World Trade Organization (WTO) erodes the special, fixed prices (well above world market levels) that Fijian sugar enjoys in the European sugar market, the industry will face even further strain.
Recent ethnic strife between indigenous Fijians and the nation's East Indian population continues to threaten the stability of the nation's government. From 1879 to 1916, Britain imported tens of thousands of contract laborers from India to work on the sugar plantations, and their descendants remain an ethnically and culturally distinct community. In 1987 hostility erupted during the first of a series of coups designed to preserve and formalize indigenous Fijian political power. Subsequent efforts at reconciliation have failed to achieve a workable solution. In early 2000 there was a fresh outbreak of violence and rioting against Indian businesses, and Fiji's government buildings were seized by armed indigenous dissidents. Such unrest has had a devastating effect on Fiji's economy, paralyzing its tourist industry, and frightening away much of the foreign investment the country needs to develop its infrastructure and expand its economic base. The Reserve Bank of Fiji, its central bank, forecast an economic contraction of 8 percent in 2000 (down from its original estimates of 13-15 percent, however). Growth since 1987 has averaged less than 2 percent—well below half that of the average for developing nations.
Ethnic tensions also have a direct impact on the sugar industry. Indian planters control some 90 percent of Fiji's commercial sugar cane production, but 80 percent of plantations are on land leased from indigenous Fijian property owners. Given the country's volatile ethnic politics, it is expected that many of these 18,000 leases will be ceded to indigenous growers, thus threatening widespread displacement of Fijian Indian farmers. This is a problem for which the government has not yet found an adequate solution.