B’ville economic independence may take longer: Report

Below are excerpts from the “Increasing revenues for the Bougainville Government” report produced by National Research Institute recently.

WHILE the nature of the political settlement to be reached between the Government and the Autonomous Bougainville Government is soon to be decided, both governments are looking to a future where Bougainville will have economic independence.
This goal will, among other aspects, includes progress towards attaining fiscal independence, defined as the capacity of the ABG to fund its budget from locally-generated revenues.
The ABG is well short of realising fiscal independence.
The total appropriation for the 2020 ABG budget was around K440 million.
The recurrent expenditure amounted to K179 million (41 per cent of the total).
Of this, 84.4 per cent was sourced from the Government, meaning that internal revenue sources in Bougainville made up just 15.6 per cent (K28 million) of the recurrent expenditure.
The Autonomous Region of Bougainville held a referendum between Nov 23 and Dec 7 in 2019 where 181,067 votes were cast.
Of that, 176,928 (97.71 percent) opted for independence from PNG.
The total appropriation for the 2020 ABG budget was around K440 million, of which the recurrent expenditures amounted to K179 million.
The main items were: education (43 per cent), personnel management and administrative services (17.6 per cent), and ABG parliamentary services (10.1 per cent).
The short-term opportunities from agriculture particularly cocoa for export comes first, followed by fishing and boutique tourism.
Given the potential for mining as a source of growth for the economy, a separate section is devoted to how revenues from sale of public (largely mineral) assets may be managed.
Bougainville covers around 8,788 square kilometres.
An estimated 332,000 hectares is considered suitable for agriculture.
From the 1980 census, it was estimated that 15,792 smallholder cocoa growers cultivating 18,035 hectares of cocoa and 9,186 smallholders cultivating 34,285 hectares of coconuts.
But most cocoa areas were intercropped with coconuts.
Cocoa production supports about two-thirds of the population.
In 1988, cocoa exports were 30,000 tonnes.
Cocoa output suffered during the crisis but recovered to a level of 26,000 tonnes in 2009, when the cocoa borer devastated production and reduced output to 13,000 tonnes.
The output decline was aggravated by the fact that the cocoa tree stock was aged.
By 2014, cocoa exports had recovered, with 23,000 growers selling to four major exporters for K68 million.
Apart from the difficulties faced by the cocoa industry, cocoa production is suffered from poor access to support services, limited labour availability, and inefficient cocoa supply chains.
To counter these problems, the Australian centre for international agricultural research funded a five-year programme from 2016 to 2021.
Through the commodity support facility, 26 cocoa farming groups of smallholders were formed across Bougainville.
Each group comprises of 50 farmers and grants have been provided to improve the quantity and quality of cocoa produced.
It is estimated that Bougainville could triple its output with better access to quality hybrids, better management of the cocoa pod borer pest and an increased technical assistance (to increase yields from the current 200 to 500 kg/ha to 1,500 kg/ha).
But this would only bring yields back to where they were during the peak.
Still, there is some expectation that yields could increase six-fold.
The commodity support facility expects that between 2021 and 2025, additional farmer income from the improved cocoa production will be around K32 million. Additional income per household would be around K2,300 in 2021 and rising to K12,800 annually by 2025.
One of the problems afflicting cocoa revenues is the inefficient supply chains.
A particular problem is that buyers and exporters of cocoa largely do not grade and sell cocoa by quality.
This practice restricts the quantity of good quality cocoa sold in higher value markets.
The ABG and the Government of PNG have collaborated to develop policy frameworks for regulation of agriculture and fisheries.
Under the proposed arrangements, cocoa exporters will be required to register with the Department of Primary Industry but not to hold a formal licence.

TUNA:
The rich and fertile tuna-fishing grounds in the waters of Bougainville already earn licensing fees from distant water fishing nations for PNG.
Preliminary estimates of the contribution licencing fees raised from distant water fishing nations could make to the ABG budget range from K30 million to K130 million annually.
It depends in part to the licence fees paid under the vessel day scheme now in place.
This is a lot more than the K5 million that ABG was allocated from the PNG National Fisheries Authority (NFA) in 2020.
Securing these payments, however, will require collaboration with and support from the PNG government.
Under the Bougainville Peace Agreement, the fishing licence revenues have to be shared between PNG and Bougainville according to a formula still to be negotiated.
It has to be expected that tuna receipts will vary significantly from year to year as tuna harvests and tuna prices are very variable.

TOURISM:
Bougainville has natural beauty and extensive war relics from the WWII.
General Yamamoto of the Japanese imperial army was killed in South Bougainville when his aircraft was shot down there.
A few Japanese tourists visit the site and the school nearby is named after him.
Besides, many Americans, Australians, Indians and Pacific Islanders were killed in Bougainville during the war, and their involvement would attract visitors from abroad.
Consequently, prospects for the growth of boutique tourism to serve these niche markets around war relics and game fishing are significant.
But Bougainville needs better connectivity, improved transportation and accommodation, and greater personal security for growth of tourism.
The role tourism may play in the growth of the economy is elaborated in the next chapter.

PUBLIC RESOURCES:
Bougainville has large known deposits of copper and gold mined before the suspension of the operations of Bougainville Copper Ltd (BCL) in 1989.
These deposits may be accessed but doing so will require significant and sustained foreign direct investment that to date has been difficult to attract.
An immediate challenge is managing revenues from the sale of assets that belong to the public to fund services for the benefit of the wider community, including those yet to be born.
The effective management of the revenues from the sale of public resources such as minerals, forestry and fishing has long been a challenging problem for developing countries.
Much of the discussion about this issue has been on the forms of the holding of the revenues, usually by the government.
However, it is important to note that the primary management problem has been with the effective expenditure of the resource revenues.
That is, it is one thing to have effective control over the revenues going into, say, a trust fund and quite another to spend the money wisely.
Complicating the choices further is a decision on the proportion to spend for the benefit of the current generation versus that to save for those yet to be born.
Indeed, the latter has been a fundamental problem in Papua New Guinea, where resource booms have been followed by excessive expenditure and fiscal deficits.

CONCLUSION:
The transition to economic independence will take time.
It will need to be staged and it will require support from the PNG Government.
A successful transition to fiscal independence – meaning the capacity to fund the recurrent budget from internally generated revenues – requires growth of the formal economy and improvements in tax effort.