Indo-Melanesia regional strategy

Maru’s‘Walk-Across-Asia’ lays out a two-way foreign policy canvass toward an expanded Indo-Melanesian free trade area with Asean plus China
By DOMINIC NAVUE SENGI
THE Marape-Rosso Government has broken the hoodoo that has prevented PNG’s active engagement with Indonesia.
The Government has made it plain it desires to ‘walk across to Asia’ through Indonesia as it embraces a trade-based and market-oriented economic growth. Indonesia holds a reservoir of beneficial knowledge on how to grow economies of scale toward industrialisation to which can torch-light PNG, if not the Melanesian sub-region as a whole.
Though late, PNG has realised such a strategy holds the only option it has in modernising the growth of its economy that Prime Minister James Marape postulated to reach K200 billion by 2030 to enable PNG achieve its grand development vision of becoming a comparable middle-income economy by 2050.
The major public policy strategic move could cause a convergence effect whereby Melanesian sub-group economies – Fiji, Vanuatu, Solomon Islands and Kiribati – would see fresh air for resuscitating the constricted Melanesian Spearhead Group (MSG) free trade market with that of Indonesia, Asean and China.
Furthermore, the foreign policy and strategic bent toward Indonesia has the potential of subjecting PNG and MSG economies into the global market place, including fostering economic inter-dependence. This profound tilt undoubtedly has relegated Australia, PNG’s traditional major trading and development partner to ‘priority 2’.
International Trade and Investment Minister Richard Maru wasted no time in announcing the Government’s intention to commence negotiations for the conclusion of a free trade agreement (FTA) with Indonesia. This would implement Marape’s inaugural policy forecasts made during the opening session of the 11th Parliament.
Marape had said “our agriculture and fishery exports to Indonesia and China in particular will increase…foreign exchange earnings as these countries have comparable populations and demand for food consumption.
“The ministry of trade and investment must implement the National Trade Policy and work in tandem with all relevant ministries, especially Agriculture, Oil Palm, Livestock, Coffee, Mining, Petroleum and Energy in a coherent manner given these sectors potential to be competitive on global markets and generate revenue streams that will support the national budget.
“The immediate to long-term approach is to venture into value-added downstream processing to become self-sustaining, achieve food security, address export opportunity and import substitution.
“We need to continue encouraging value-adding and downstream processing of our vast timber, fisheries, oil and gas and petroleum and our rich organic agriculture produce for domestic consumption and global export markets.
“We must immediately undertake a foreign policy review and develop a white paper to find solutions on how best we can develop an effective foreign service that is focused with a strategic outlook to attract foreign direct investment (FDI) and developing international markets for our products…”
His directive for international trade and investment focus to Indonesia plus China is clear. He is on course to build a resilient growth economy.
Earlier in 2019 soon after wresting power off Peter O’Neill following a successful vote of no confidence, Marape had declared in his political party manifesto for a trade-led foreign policy for PNG. He has now rightly, summoned the leadership clout and acumen of Richard Maru to front-roll his government’s economic and trade agenda for stimulating development and growth of the PNG economy.
Lofty and ambitious it might seem, Marape has confidence in Maru as the minister with the intuition and intellectual energy of laying down the broad frameworks for PNG to lift its game of development.
Encouraging economic indicators
Indonesia’s political and economic indicators are encouraging. The dual-functioning democratising state enjoys her place as member of the G20, ranking 16th in the pecking order of industrialised economies. Indonesia has a consumer market population of over 275 million people and a strong economy by nominal GDP at around US$1.159 trillion (about K4 trillion). Also enticing is Indonesia’s annual growth rate of 5 per cent.
PNG sees attraction in the availability of Indonesian technical expertise in hydrocarbons, mining, agriculture, textiles, industrial technology and other sectors.
“PNG and Indonesia share the same landmass and our ancestors have been trading with the Indonesians long before colonisation. Goods and service trade amongst our people living along the border is already happening. It’s a matter of formalising it, recognising this on-going trade and making it simpler and friendlier through a formal trading arrangement so trade can flourish”.
Indonesia’s Ambassador to PNG Andriana Sarkundy was quick at responding positively to PNG’s move to embrace Indonesia’s industrialised market that sits within the Asean Free Trade Area. Effectively, Indonesia had positively accepted a two-way pivotal role as PNG’s ‘Walk across Asia’ and the Indo-Melanesia Regional Strategy unfold.
Indonesia announced as PNG celebrated her 47 independence anniversary that she is “…. steadfast and ready to constructively partner with Papua New Guinea to reach her full potential in all areas of society, be it law and order, agriculture (palm oil, coffee, livestock, etc.), communications, infrastructure, health, investment, trade, tourism, transportation, mining and education as well as other issues of mutual concern.
“This is done in good faith and with no hidden agenda, rightly befitting Indonesia’s intent to partner with the brothers and sisters of Papua New Guinea.
If we leave the differences and focus on the commonalities between countries, leave the challenges and focus on the opportunities between us, that both Indonesia and Papua New Guinea can develop bilateral arrangements and policies that will be of benefit for the people of both countries.
“Tackling their needs, shoulder to shoulder as proud and earnest members of the global family through trade and economic cooperation is the first step. Indonesia is mindful and humbled by the various announcements of prime ministers, and members of parliament……who have prioritised Indonesia as the main partner for Papua New Guinea into the next millennium.
“Indonesia stands ready and able to validate…trust in Indonesia as the number one priority to the launching of a FTA with Indonesia”.
Favouring Indonesia over Australia, Maru is seeking a bargain with Australia, requesting for a conditional ‘strong programme’ for technical cooperation between Australia and PNG that addresses the pertinent issues of concern to PNG. He told Australia that PNG prefers a speedy TIifa – trade in investment framework- with assuring protocols addressing non-tariff measures (NTMs) in Australia that are necessary for developing the supply side capacity for PNG products with relative comparative advantage (RCA) or niche products seeking access in the Australian market.
He also demanded for an implementation programme for reducing the cost of shipping between them, including PNG’s contingent preference that Australia erects and implements a World Trade Organization (WTO)-compliant FTA that quintessentially demonstrates effective and successful implementation of the TIFA.
Does Australia care about what PNG desires, even when she remains a big investor in the non-renewable sector and commanding a healthy market share of the PNG economy in this respect?
Furthermore, will PNG’s nudging snob of Australia’s friendly, deep-historical cordial trade and investment relationship matter now that she has courted Indonesia? Leave this to academic conjecture.
National security interests
Australia’s national security, geopolitics, strategic foreign policy and defence interests far outweigh her interest for seriousness in acquiescing to what Marape and Maru’s national interest desires.
Marape had publicly also asked Australia’s businesses to invest in downstream and manufacturing sector in PNG in a message he delivered to Australia Foreign Minister Penny Wong during her visit in August. But Marape’s ask was overshadowed by security concerns about China’s presence in PNG and the Melanesia sub-region understating therefore Australia national security and defence interest over that of trade and investment.
On balance of correlation terms, it is easy to deduce that Australia’s bloated appetite for strategic contest based on her traditional fear of China could well undermine her genuine interest in supporting an active bilateral trading arrangement with PNG, based on the obvious differences in the balance of trade.
According to Maru, trading agreements such as Sparteca, Picta and Pacer have been around for a very long time.
“They have not served to increase trade in favour of PNG, passing the present trade relationship as “heavily skewed in favour of Australia”.
In 2020, PNG’s total non-renewable sector exports to Australia were worth $2.39 billion (about K5.45 billion) with gold dominating at $2.21 billion constituting a bolstering 92.47 per cent of exports. This comprises of crude oil ($6.41 million); and silver ($62.6million) including other mineral exports. This sector’s trade imbalance clearly has left just 2.24 per cent worth $53.7 million of the renewable sector exports to the Australian market.
“All other commodities from the renewable sector from PNG is showing a declining market share even as Australia’s own share continues to increase for most of its imports which are imported from other countries even though PNG is producing and exporting them such as tuna.
“Australia’s share in PNG’s imports were found to be increasing even when PNG’s overall world imports were decreasing,” says Maru.
In the trade in services sector, a revealing imbalance exists. Australia enjoys significant services trade surplus in the PNG market whilst PNG experiences great difficulty to supply services connected with the temporary movement of natural persons. Current statistics indicate that Australia’s service export to PNG is valued at between $400-500 million (about K1.14 billion) while PNG exports remain nil apart from those few going as fruit pickers.
He sees Australia’s discriminated trading act in the form of NTMs in terms of PNG’s products entering her market. The NTMs are obvious barriers responsible for locking out PNG products penetrating the market even though Australia boasts of the free market access for PNG products.
The second challenge for Australia relates to supply-side capacity. PNG products that are in strong demand in Australia are not produced in sufficient volumes in PNG to have a viable presence in the Australian market. Lack of adequate transportation, quarantine and logistic infrastructure capability also has bearing on market access and trading deficiencies that Australia has not been keen to assist.
Fearless, Maru plays PNG’s China card, bringing the dragon super economy up third priority much perhaps to serve as an optic for a win-win bargain with Australia in terms of trade and investment.
“My third priority will be to undertake accelerated work on a possible free trade agreement with China.
“…trade and investment relations between PNG and China have grown from strength to strength…formal trade relations between the two countries is inevitable,” says Maru.
China had granted PNG K1 million to complete a national feasibility study, and notes are being exchanged currently on the terms of reference for a joint feasibility study providing the basis for a heightened relationship with China.
It signifies China’s pre-emptive effort and openness to unlock institutional handicaps common among weak, developing and fragile states in Melanesia and countries of the Pacific Rim, without prejudice of the obvious huge imbalance in economic security correlates.
China development aid to PNG has increased substantially to over $632 million dollars (about K2.22 billion) and, increasing.
The move by the Government could not have come at a better time.
The World Bank last week predicted a four per cent increase this year from one per cent in 2020. This healthy forecast of the PNG economy returning to growth following a sharp contraction of negative 3.5 per cent in 2020 is mostly driven by strong performance in the non-extractive sector with agriculture being among the key contributors to economic recovery.
In spite of external environment shocks, recovery is also projected in the extractive industry sector, higher commodity prices and a gradual recovery in economic activity.
-To be continued next week.

• Dominic Sengi is a former foreign service officer.