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by SOLOMON
KANTHA
Lower costs will spur growth
FIVE years ago, the Somare government
embarked on an export-driven strategy to help the poor economy
recover.
The ultimate objective was to reduce poverty and boost rural
development.
The economic sectors were expected to formulate appropriate
policies and action plans to make a constructive contribution
towards the national effort of a self-sustaining economy.
It was believed that industralisation would create employment
opportunities and absorb excess labour in the rural sector by
creating downstream activities.
Its reciprocal effect would raise output per head and living
standards throughout the economy and significantly induce
desirable changes in social and cultural attitudes and
institutions through the modernising impact of imported
organisational methods and technologies.
Industries in the private, in particular manufacturing, would be
the major drivers of the export-driven strategy.
Over the years, the industrial sector has experienced many
difficulties
in expanding and sustaining their operations.
These impediments include high transportation and electricity
costs, poor transport infrastructure, rising costs of labour, and
law and order problems impacting on delivery services and
operations.
Although the export-driven strategy may seem a blessing to
industries by providing them tax breaks, reduced bank interest
rates, export concessions, and price reduction for intermediate
goods, the irony is that the prevailing impediments still remain
unaddressed.
The industries in the private sector have been left to fend for
themselves and come up with their own measures to drive the policy
forward.
The private sector cannot participate effectively if the
impediments to their operations are still very much entrenched in
the economy.
These problems will require separate policy options to resolve in
order to pave the way for a viable export-driven policy.
An export-driven strategy will not be feasible if the enabling
environment is not created by complementing policies.
Policies must be integrated to address the various impediments to
get the export-driven strategy off the ground.
While the target of the policy is explicit in identifying the
major participants and beneficiaries, there are still major issues
that need to be taken into account to enable the benefits to reach
the targets.
Processes, participation and coordination are important
considerations in any policy formulation process that should
include all stakeholders of the policy such as industries,
businesses, government institutions including community-based
organisations.
There should be coordination and mutual adaptation between the
Government, the private sector and the civil society so as to
understand their specific roles in the policy.
In order the propel growth through the export-driven agenda, there
should be consultation with key economic sector agencies and the
private sector.
At the moment, there is a lack of plurality in planning and policy
advocacy where the different actors are left to their own devices.
This perhaps is a major shortcoming in the export-driven strategy.
While the policy has a people-based approach targeting the rural
population, another significant consideration that it should
encompass is a place-based approach in addressing spatially
concentrated poverty.
This basically implies that industries should not be concentrated
in the urban industrial areas but must spread out to less
developed areas of the country so that the rural population can be
absorbed into the industries thus utilising the excess labour,
reducing unemployment and preventing urban migration.
Manufacturing industries are now still heavily concentrated in Lae
and Port Moresby and such concentration of industries in certain
provinces can lead to regional development disparities.
This also brings up an important issue on the equality of
opportunities and outcomes.
Dispersing industries would certainly provide equal opportunities
to the rural population where not only a particular locality will
benefit.
Only when there is an equality of opportunity, then we may
anticipate an equality of outcomes that the policy will create.
Even so, when considering the obstacles faced by the industries
such as transport infrastructure, electricity costs and the
efficiency and access to major ports, it would be difficult for
industries to operate outside of the confines of urban centres.
An export-driven strategy would certainly require more than the
Government’s allocated budget.
The lack of Government funding and political commitment over the
years has deterred the effective implementation of past industrial
policies.
The progressive budget deficits signify the Government’s limited
capacity in financing its objectives and in effectively
translating policies into programmes and projects.
In financing an export-driven policy agenda, foreign investment
will be a crucial component.
Unless drastic policy measures are taken to attract the
much-needed foreign investment, PNG will still receive less
foreign capital to see the policy through.
The Government will have to fall back on the private sector which
has the capacity in generating the much needed foreign investment.
However, if the constraints to the growth of industries are
neglected, it will be very difficult to attract foreign investment
and capital.
The experiences of successful East Asian countries that
endeavoured into export-oriented policies have shown that foreign
investment is an indispensable prerequisite of the policy.
More so, political commitment and stability is vital to attract
foreign investment and the management of loans to facilitate an
export-driven policy.
A retrospection of Asean countries such as Indonesia, Thailand,
Malaysia and Singapore showed that these countries followed a
familiar part of import-substitution before export-orientation in
their manufacturing.
PNG has not really tapped into the import-substitution phase.
The Government should focus on providing the enabling environment
for manufacturing such as investment, roads, infrastructure, and
security.
A mix of policies should be in place to improve the deficiencies
in the prerequisites for industrialisation such as capital,
technology, skilled labour and physical and institutional
infrastructure. Export-orientation should not mean an abandonment
of import-substitution as they are not mutually exclusive.
They should be pursued on a parallel fashion.
An important lesson to learn from the experience of Asean
countries is that import-substitution helps pave the way for
export-oriented industrialisation by building up infrastructure
and labour and entrepreneurial skills.
Another key issue is the timing of transition from
import-substitution to export promotion.
Is it the right timing for PNG?
It is essential that more focus be placed on import substitution
at this juncture at least for some time given the economic
composition of the country to provide the springboard for a
successful export-oriented strategy.
PNG as a developing country has much to learn from the experiences
of other countries in order to design appropriate policies that
will enhance its capacity in gaining from the export-driven
strategy.
While PNG is fortunate to have an abundance of natural resources,
it lacks a well-developed industrial base to produce value-added
products that will be competitive in the international market.
The Government must have the resolve to eliminate internal
constraints if wants to achieve its export-driven strategy.
The private sector will be a major driver of the policy and so
alternative policies must focus on eradicating the impediments
they face.
This will require planning, plurality and advocacy as essential
components of the policy formulation process.
Unless these considerations are taken into account, the
export-driven strategy will remain a long haul agenda.
Note: The writer is pursuing his Masters
in Political Science at the University of Hawaii in Honolulu.
 
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