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PNG needs a master blueprint
By PETER PAMUNDI
IT is unfortunate that there is no
long-term plan to guide the destiny of Papua New Guinea from the
day we gained our independence in 1975.
I have searched for some master blueprint of some sort but have
not been able to find any long-term socio-economic plans that
successive governments have embraced to guide the country’s
development.
I have decided to provide a narrative of the journey PNG took as a
developing economy during the past 30 years and what we need to do
in the next 30 years in order for it to graduate into an emerging
industrialised country by the year 2035.
The political and economic landscape of PNG went through different
stages, reacting to internal and external challenges.
Initially, the internal challenges were to unify a land of
thousands of tribes and cultures speaking over 800 languages and
being isolated geographically in rugged terrains and small
islands.
The task of delivering basic goods and services to every community
alone was a daunting task for the fledgling government after
independence, given the limited capacity and resources and the
poor infrastructure.
Externally, as a newly-independent country, PNG was exposed to
recession and other worldwide shocks, including the 1973-1975 oil
crisis.
The government had to come up with appropriate policies to
insulate the country from the external forces.
Between 1975 and 1980, achieving stability was the ultimate
objective of the then government.
Our founding father, Sir Michael Somare was determined that the
world took a serious view of the country’s independence and be
convinced that PNG was capable of determining its own destiny.
He believed the way to achieved this was to ensure stability in
the country.
Two key elements of this policy were politics (no political
disintegration) and the economy (macroeconomic policy
interventions such as the “hard kina” policy).
Looking back, one would say that Sir Michael was inspired by God
to take those decisions to lay the foundation for PNG’s
nationhood.
It was unfortunate that he only remained as prime minister for two
years before being ousted by a vote of no-confidence.
It has taken about 30 years for Sir Michael to introduce measures
to help ensure that future prime ministers can serve their full
term and not be subjected to political blackmails.
In terms of economic stability, one would not deny the fact that
the “hard kina” policy at that time served its purpose by
insulating the economy from imported inflation and also supported
the kina to be an internationally-accepted currency.
PNG could afford to have a “hard kina” policy from 1975 to 1980
because of the country’s strong balance of payments position
thanks to the revenue from the mining and forestry sectors.
Between 1980 and 1990, the emphasis by the different prime
ministers switched to economic growth.
However, the lack of fiscal discipline and over-spending by the
successive governments in non-productive areas coupled with
inconsistent policies to promote economic growth contributed to
various problems.
Towards 1989, the Bougainville crisis led to the closure of the
BCL (Panguna mine) which had been providing 40% of the
government’s revenue. The economy suffered.
The mine’s closure prompted the government, in consultation with
the World Bank, to introduce various structural adjustment
programme (SAP) to diversify the economy through the development
of other mines and also to boost investments in non-mining
sectors.
Among the SAP measures introduced between 1990 and 2000 was the
privatisation of State-owned enterprises and devaluation of the
currency.
The government had no choice but to devalue the kina due to
capital flight by the private sector and overspending by the
public sector.
Soon after coming into power in the 2002 general election, the
National Alliance-led government adopted an export-driven policy
with the theme, “Recovery and Development”.
As part of the policy, Sir Michael instituted tight expenditure
control to ensure that all government agencies operated within
their means and focused on improving the economy based on
sustainable exports of primary and secondary products, and
services.
During the last 30 years, the economy has been dependent on
revenue from agriculture, fisheries, forestry, mining and
petroleum exports which constituted more than 54% of the GDP.
The tertiary sector which constitutes the trading, transport,
banking and finance, professional services, tourism and so on
constituted about 30% with the secondary industry taking up the
rest.
This explains why PNG is not experiencing any sustainable economic
growth and employment creation because of the small secondary
indus-try.
PNG’s policies have been supporting mainly the primary and, to
some extent, the services sectors.
There has been little incentive and policy intervention to promote
export-oriented secondary industries which would have otherwise
triggered overall growth in a sustainable manner.
In all newly-industrialised countries, the secondary sector on the
average grew from 10% of the GDP to 40% with the primary and the
services sectors remaining at about 30% each.
If PNG can grow the GDP composition of its secondary industries
from current 6% to over 30% in the next 30 years, it will be on
its way to being a vibrant newly-industrialised country in the
Pacific region.
PNG will graduate from being a net recipient of foreign aid to a
net donor of foreign aid, especially to other vulnerable and poor
developing countries in the region.
That should be the vision of the new government coming in this
year to set its priorities and targets on leading more local
entrepreneurs to venture into export markets while attracting more
foreign investments into manufacturing and value-added activities
to sustain economic growth and employment levels.
School-leavers coming out of the education system every year have
great difficulty finding employment because the country lacks
investment incentives to attract investments which would create
more jobs.
The following actions are required:
*Provide attractive tax incentives to new export-oriented
secondary industries;
*Introduce protective tariffs for products of secondary industries
that are facing unfair and stiff competition from imports;
*Impose export levies for raw materials to encourage more
downstream processing;
*Exempt imported capital inputs such as plant and machineries from
the 10% GST to attract investments; and
*Enact a Natural Resource Act to automatically give the State a
free 30% equity in new and past discoveries of oil, gas and
minerals with landowners and the provincial governments taking 10%
of the 30%.
Note: The author is a freelance writer.
 
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