by BRIAN GOMEZ
Great prospects for next Government

Successive governments in PNG have been credited for a good record in macroeconomic management between independence in 1975 and the end of the 1980s.
Nevertheless, economic performance during this period was somewhat lacklustre and living conditions for most people were stagnant at best.
Among the reasons for this was the big exodus of Australians from PNG soon after independence and a reliance on policies that were inappropriate for a developing country.
In the latter category, many analysts would place the hard currency policy that had been adopted with the encouragement of Australian economic advisers.
This was excellent for the small minority of people in the formal sector but a massive disincentive to people in the rural sector, making it extremely difficult for the agricultural sector to grow and prosper.
It is one of the reasons that until today, some 80
to 85% of the population are broadly categorised as subsistence farmers.
The extremely strong kina – some might remember the time it was stronger than the mighty US dollar – also meant it was very difficult for other export-oriented enterprises or even import substitution activities to prosper.
In such an environment Papua New Guineans had little incentive to develop the requisite entrepreneurial skills and work ethic to make the country prosper and these policies also acted as a disincentive to investments outside the resources sector.
It is partly with this backdrop in mind that some commentators have suggested that the present Somare Government has been, in a broad sense, the best Government the country has had since independence.
This was a point made some two years ago by Bank South Pacific managing director Garth McIlwain but, if anything, the economic situation has improved even more since then – in part due to windfall revenues from high commodity prices but also due to improved management of the economy.
As pointed out previously in this column, some benefits have also flowed from important legislative changes made by the former Morauta government.
The Organic Laws on Integrity of Political Parties certainly contributed to helping the Somare Government become the first ever to enjoy a full five-year term in office.
New laws covering the Central Bank and the financial services sector have ensured greatly improved corporate governance, particularly for the nation’s superannuation funds, which have been irresponsibly managed in the past.
But despite those gains, the economy had been badly managed in the 1997-2002 period with mineral exploration activity falling to its lowest level ever with the forestry sector in constant turmoil.
The top position in the PNG Forest Authority had been subject to many court challenges.
Despite some improvement in the fiscal situation under the Morauta government, the final election year proved financially disastrous with the Somare Government handed the worst budget deficit in the country’s history when it took office in mid-2002.
After four successive years of negative economic growth, the Somare Government this year would have overseen five successive years of positive economic growth.
Gross domestic product is anticipated to increase by a fairly impressive 4.5% this year.
The signs of growth are pretty obvious.
Traffic in Port Moresby has risen at least four-fold over the past five years, supermarkets are doing a record business and major new investments are being planned on many fronts.
The amount of building construction currently being undertaken, or about to commence, is greater than the sum total of building activity during the previous decade. This includes work on the country’s first two five-star hotels and at least one four-star hotel and mixed residential and commercial development in Port Moresby – all indicators that tourist numbers are likely to climb significantly in the coming years.
For the first time in well over a decade, new housing estates are being built to cater for the country’s growing middle class.
Unlike the situation that faced it when the Somare Government took office, the political party that takes up the reins of the National Government after this year’s general elections will be luckiest to win office since independence.
This may seem a bold claim to make but, for the first time ever, the economy is firing on several cylinders encompassing mining, construction and financial services.
As is widely known, the three supplementary budgets passed last year has meant that at least K1.1 billion is waiting to be spent on rehabilitation of infrastructure at schools and tertiary institutions and health facilities.
Due to supply constraints, most of these activities – significantly larger in scale than Australia’s annual bilateral aid programme – will be carried out over the next three to five years, providing an excellent backdrop for other economic activities.
In a matter of weeks, New Guinea Gold will start up its 35,000 ounces a year Sinivit gold mine, while Allied Gold will begin production from its 84,000 ounces a year Simberi mine by around October.
Other projects that will come into production during the term of the next government will include Harmony’s 300,000 ounces a year Hidden Valley operation in Morobe and the massive US$820 million Ramu nickel project.
Many other projects would be moving towards feasibility and development in this period, including Marengo Mining’s Yandera copper-molybdenum project and Frontier Resources’ Kodu project.
Except possibly for Hidden Valley, all the other projects are only coming into production because of initiatives by the Somare Government to improve the investment climate for mining and exploration.
The overall scenario provides for a level of optimism that could not even have been imagined a few years ago – and we have not even mentioned the massive potential likely from plans for a multi-billion dollar LNG plant and two petrochemical plants, for which construction should begin within the next two or three years.