By ROWAN CALLICK
PAPUA New Guinea is entering a period of opportunity unmatched since its springtime of optimism in the independence period 30 to 35 years ago. Last week’s budget provided the numbers underpinning that renewed hope, especially the anticipated 8.5% growth in gross domestic product next year. This year, in the middle of a global recession, it hasn’t done so badly either, growing at almost the Chinese rate, an estimated 6.2%.
Other countries in the Pacific are performing reasonably well, especially Samoa, despite the recent tsunami, and Vanuatu. It is PNG, though, that has the giant opportunities, dominated by the US$15.6 billion ExxonMobil-led liquefied natural gas project. It will be responsible, if it goes ahead as planned, for 35% of the country’s growth next year – and possibly even a higher amount later.
But PNG’s capacity constraints are also massive, ensuring that this and the plethora of smaller mining projects getting under way will throw up new social and economic challenges even as they answer budgetary needs. The core of the problem for PNG was highlighted recently by former prime minister Julius Chan, who was finance minister at Independence in 1975, and who returned to parliament two years ago.
In 1975, he pointed out, PNG was ranked 77th of 150 countries on the UN’s annual human development index, which measures core living standards data, especially on health and education. In the latest index, PNG came 148th of 182 countries listed, just above Haiti and Sudan. This points to the poor state of governance in PNG, and to the ineffectiveness of the vast volumes of aid that have poured into the country.
Corruption has diverted and misallocated revenues, and government services remain poor and sporadically delivered. Much of the money that might be used for this core task of government is instead paid out by cheque to individual MPs, who provide little or no accounting.
The Government of Sir Michael Somare – now 73, and after 41 years at the centre of national life still without any clear succession plan – has done a good job in macro-economic management, with the help of bountiful revenues from the commodities boom. But as prices and demand have flattened, they have dug deep into the trust funds established to handle windfall revenues from resource taxes, to quarantine this income for a truly rainy day.
Instead, in the first nine months of this year, the Government drew down what Deloitte’s describes as a “staggering” K1.75 billion of these funds. Even the Treasury secretary, Simon Tosali, described the drawdown, during the budget lock-up, as “excessive spending”. He said: “The stimulus will exert demand pressures on the economy, which risks increasing inflation, interest rates and imports, and crowding out of private investments.”
Inflation is expected to leap to 9.5% next year, triggering strong warnings from Central Bank Governor Sir Wilson Kamit, who urges the Government to let the bank supervise the administration of the trust funds instead.
The gas project is already helping drive up inflation, with its demand on limited capacity. It will do the same for the kina, slashing export receipts – with an especially big impact on the millions who depend on tree crop sales, including coffee, cocoa and copra.
And tourism, an industry with a huge potential, which could do wonders for the country’s rampant unemployment once crime is credibly reduced, is too fragile to resist being swamped by the massive price rises under way for hotel rooms, air travel and other services required for the gas project.
The other big challenge comes from the influx of about 6,000 workers, most of them from Asia. Beginning with the Bougainville mine – which did a remarkable job of training PNG tradesmen – the country has benefited widely from the skills learned in the resources sector.
But the scale of the gas project, and the simultaneous development of several mines, will exhaust the pool of trained workers. As governments have failed to provide adequate schools and colleges, disappointed parents have kept their children home – or working on family crops.
ExxonMobil will do its best to train Papua New Guineans, but despite this, there will be thousands of new Asians living in and around Port Moresby. This comes as a parliamentary inquiry is under way to examine rioting and looting in May that shut down many of PNG’s major towns and involved tens of thousands of people.
Underlying these riots, and continuing tensions, is a sense that PNG’s development has left much of its own population behind. This will present an especially palpable challenge as thousands of comparatively highly paid foreigners arrive in Port Moresby. – The Australian
* Rowan Callick is the Asia-Pacific Editor of The Australian newspaper and an old PNG hand.