Economy far from recovery: Exec

Business

The pandemic has affected some countries more than others, including those heavily dependent on the most affected industries such as tourism and hydrocarbons. Business Reporter DALE LUMA and Institute of National Affairs executive director PAUL BARKER discuss the state of the economy and the high cost of living in Port Moresby.

THE PNG economy has been in an extended lull since 2014, and in some years sinking into recession, according to the Institute of National Affairs.
Executive director Paul Barker said the severe fall in commodity prices from late 2014, in 2016, and from the start of the Covid-19 epidemic, combined with the impact of the pandemic control measures locally and globally, restrained economic activity, jobs, foreign exchange earnings and State revenue.

Q: What is PNG’s current economic status?
BARKER: PNG’s economy is somewhat more diverse than others, including in this region.
But the impact of the pandemic came on top of any already weak economy and tight fiscal situation, with growing debt and debt servicing costs, plus a shortfall of forex needed by the business sector to pay for imported inputs and to sustain their activities.

Has the economy fully recovered from the time it went into a recession?
No, the economy is still far from full recovery.
Some industries are doing surprisingly well.
Even some hotels are filled with travellers in quarantine.
But the travel and tourism sector, including domestic and international cruise and dive vessels, remains severely restrained.
The extractive sector is recovering well despite continued restrictions on staff movements and higher Covid-19 case numbers around the country, especially around North Fly since March.
There is also some optimism in LNG, with the enhanced prospects of progress on Papua LNG and even P’nyang over the next few years, despite delays for Twinza.
Smaller mines like K92 are making solid progress.
But with the country’s third largest mine still closed, the sector remain well off earlier levels.
Tax revenue will continue subdued, as many of the newer projects still have major debts to pay off before large inflows of forex or increased tax contributions.
Porgera will take an extended period to revive the mine site and equipment and the further major outlay will restrain renewed corporate tax for a fair while.
Increased law and order problems are also taking their toll on the economy, including in some of PNG’s hitherto more peaceful provinces, where one would have expected a range of industries to have taken off, including tourism.
Governments in other countries played a major role in safeguarding the economy and household incomes during the Covid-19 downturn, as well as stimulating it back to recovery subsequently.
In PNG, the existing and accumulating high debt scenario, and weak instruments to provided effective business and household relief, limited the capacity restrain the economic and social impact in 2020 and interventions to revive the economy in 2021.
Much of the money borrowed internationally in 2020 and 2021 was used to support the public sector, which, although not the most dynamic public sector does provide a range of critical services, including education and health.
An even greater cut there in 2020-21 would have further undermined these critical services, but also undermined a large portion of the country’s purchasing power, which in turn drives many industries, for example in retail and agriculture for domestic supply.
Most of the bigger construction projects were suspended during the pandemic, including as a result of budget cuts.

What are some of the drivers for the economy in recent times?
We need a diverse and dynamic private sector to stimulate the economy and generate jobs in PNG’s hopelessly small formal sector.
Jobs and incomes provide opportunities for households and dependents, but also for the growth of other industries.
Salaries and wages taxes provide the largest slice of revenue to the State, even in the extractive sector.
However, Government plays a relatively unhelpful role with the private sector in stimulating the economy.
Investment, particularly in industries which entail major initial outlay, requires sound investment conditions, but also policy stability.
Unfortunately, the Government is constantly threatening new policies, including restrictions or benefit sharing arrangements on foreign businesses, while provincial governments are also imposing a range of new taxes and levies, which all add to cost and risks of doing business.
Generally, businesses are prepared to pay a somewhat higher tax rate if they know that there won’t be constant changes or increases or business restrictions imposed, and preferably, if they see useful outcomes from their tax payments, in terms of reliable public goods, including utilities.
PNG undermines direct foreign investment, which can readily choose to invest elsewhere, but also domestic investment by this policy uncertainty, which adds to risk, but also the deficient provision of public goods, which greatly adds to the business costs, as they must then install and operate back up power, heavy security presence and experience extended delays and uncertainty over transactions, such as over land or other interactions with Government.
Clearly, good or recovering commodity prices and the appearance of a good crop, such as in coffee this year, are drivers of certain industries and affect the wider economy.
Restoring long established major businesses like the Porgera mine, which has a large workforce and long established local supply lines, will be a critical driver in the Porgera areas, in Enga and down to Lae.
More positive prospects for some major new resource projects provides some cautious business optimism, but progress will be watched closely, especially in this lead up period to the 2022 general elections and associated election promises and disruption.
If some of these projects progress well over the next months, there will be very little impact on the ground for some time, but various firms will be increasingly positioning themselves, with respect to supply of skills to capacity to provide transport and needed plant and equipment.
These projects will also step up their local engagement in various ways.
Improved internet services, as a result of the Coral Sea and domestic Kumul submarine cables, have triggered some economic stimulus, although restrained to date by access and pricing arrangements for ISPs with the wholesale provider (DatoCo) , plus a 2019 earthquake seemingly cutting the cables in and out of Lae in 3 places, only to be repaired in 2022.
Nevertheless, so long as DataCo can survive the level of accumulated debt it faces from its EXIM bank loans, the NTN infrastructure, combined with extended private sector internet access, does provide opportunities for a wide range of e-commerce, as well as e-education and culture and other e-government services.
The pandemic gave a great stimulus to e-commerce around the world, as more traditional supply lines and activities, including cultural activities, were disrupted. PNG was less able to adopt this opportunities, with limited platform being in place.
However, it did occur here too, and can be expected to roll out much more over the next months, giving opportunities including to small and medium enterprises.
Access to greater international finance, including international super-powers and regional powers, poses significant risks, but also provides a lot of opportunities to roll out critical infrastructure, for power, transport and other utilities, which can provide opportunities to businesses constrained by current poor facilities.
However, the risks from pursuing unduly accessible funds, and signing up to costly financing, with substandard contracting and poor local participation and outcomes is very real, as apparently with costly ventures, such as the PMIZ.
Fisheries can be one of the local drivers, as we receive only a fraction of the potential benefits from the world’s largest tuna resource on our doorstep.
SMEs have good potential in PNG.
Papua New Guineans have ideas, energy and many have business talent, but also face many business handicaps.
The handicaps facing all businesses, from poor infrastructure, law and order problems all affect PNG small businesses, but they also are handicapped by a range of additional challenges, such as access to credit as startups, as well as business, information and marketing, accounting and related skills and experience.
Some measures are being taken by different players to address these challenges, but some will require more sustained effort than others from a wide range of partners.

The cost of living in PNG is high, with Port Moresby rated as one of the least livable cities in the world. What are your thoughts on this?
Yes, living costs are high, especially in the National Capital District, which has suffered from limited land available for housing a fast growing population, mostly with limited income, and far removed from much of Papua New Guinea’s fresh produce supply, notably in the Highlands.
Poor planning and roll out of power generation and other utilities over the decades has resulted in excessively costly and unreliable services, and monopolies or near monopolies, nationally or locally, has also contributed to high costs and prices, included those added costs of running back up power and high security costs.
Corruption also imposes costs in different ways on the whole community, including from over-priced contracts by the State. Deficient venues for micro-small-medium businesses weaken opportunities both to conduct business and for consumers.
There’s been some recent upgrade of facilities, such as Gordon market.
But unlike say Asian cities, which have extensive areas and facilities for trading and local micro-manufacturing, PNG’s urban areas still have a long way to go.

What can the Government do to bring the cost of living down in Port Moresby and the country?
The Government tends to be comprised of multiple institutions operating as separate fiefdoms, with major overlapping responsibilities, providing deficient goods and services, but often charging high or even duplicate fees and charges.
Concentrating on a fewer range of public functions and doing them much more efficiently, including land administration and making land available for certain business functions, and privatising or shifting to the market the provision of some other functions, but requiring competitive services, such as with motor vehicle insurance would all assist.
Making Government (including SOEs) contracting and project financing open (transparent) and more competitive in the NCD and in the districts, rather than committing to major over-priced infrastructure schemes and services which will burden state businesses such as PNG Power and KTH/DataCo for years to come (and hence consumers also) would make a huge difference over time.