No Matter How Rich We Are In Natural Resources, PNG Will Still Remain Poor and Unpredictable

By Lucas Kiap

If the current economic scenario in the country of the depreciating PNG kina is something that we can learn to predict the future, certainly we have a future that is unpredictable and worse with growing uncertainties despite our riches in natural resources.

The government and the Bank of PNG are telling the people that the depreciating of the PNG Kina is a normal thing and the economy will recover soon but they can’t exactly outline how it will be recovered or what measures they are considering to mitigate the falling of the PGK from further hurting the people. What has been said and explained so far is nothing more than misleading statements because they don’t want to admit their failures or simply don’t know what they are talking about.

I am not an economist to make such blunt statements but I believe our leaders are simply not telling the truth or simply misleading the people of the whole economic picture in the country. There is nothing they can do to mitigate the current problem except wait and preach garbage. Probably the most obvious solution they can offer is to wait for the PNG LNG project to come on-stream in 2014.

Our economy is import driven. We import more than what we produce and sell. Once we buy more than what we produce and sell, and this will cause a deflation as we used up foreign currencies to buy those imports, depleting the foreign reserves. 

What we export are only commodities and natural resources which their prices depends on the world market prices. Once a fall in the prices of these raw products will certainly affect the PNG economy causing the depreciation of the PNG Kina, is partially what is happening now.

Our leaders know all alone that one day this was going to happen. Now we have a depreciating PNG Kina which is hurting the people more who are already victims of the ever increasing high cost of living in the county. We are in fact having an economic situation in the country that is most unpredictable as I will show you why in the following.

• Our leaders have been boasting all alone about our natural resources but they have failed to utilize the revenues generated to develop and diversify the economy to develop every economic potential of the country such as agriculture, manufacturing industries, tourism, downstream processing, SMEs, etc. If our leaders had done that, they would have created more employment and business opportunities for our people, which should contribute directly to the economic growth of the country as well as sustained it against commodity price fluctuations. But they haven’t done that over the last 38 years, letting our economy expose and will always be subjected to unforeseen outside pressures. Thanks to the PNG LNG project or otherwise a single mistake by the government in mismanaging the economy will definitely hurt the people deeply and prolong their suffering.

• Poor infrastructures or the lack of it are not good for businesses as it drives operational cost high. Our leaders have not been thinking about developing high standard and modern infrastructures which will be needed in the future to support and sustain economic growth with increasing population. Instead they have been building high cost, substandard and poor quality infrastructures, which are slowly deteriorating and require more funds to maintain them. As a result, the future will remain worse as the infrastructures we built today will no longer be there after all the natural resources are depleted. Instead what we expect are impassable roads with crater like potholes, washed away bridges, rundown wharfs and airports, rubbish filled ghost towns with rundown buildings, etc. The question that we should ask now is - where do we expect the future generations to find the money to build their infrastructures if our approach is temporarily while depleting the natural resources?

• Our leaders have been giving tax breaks to foreign multi-corporations to exploit our people and our natural resources. The first revenue inflows from these resources go straight to the coffers of these foreign multi-corporations to recover their initial capital cost. The State takes its share of the first revenue inflows from its share but some of it is used to service the loans the State obtained from overseas to fund its share of the startup capital cost to participate. Some if it is used on building high cost, substandard and poor quality infrastructures, which deteriorates quickly. While others simply consumed by corruption. As a result PNG will still remain poor no matter how rich we are in terms of natural resources.

• The public service mechanism in the country has been dysfunctional and lacked capacity to effectively and efficiently implement and monitor government development policies and strategies. It is more of a liability than an asset. However, it is one of the largest consumers of the national budget with little or no output. Yet the government over the years delivered big budget plans for development projects to be implemented public service. Most of these projects never get fully implemented or the standard and quality of the projects is far below the required level despite inflating project costs. With no check and balances to account for these funds, most of the funds simply disappeared without a trace. 

• The education system in the country is just another sad story and a mess. It has been producing more failures than success with high unemployment rates. The education standard and quality is also is far below international acceptable standards. It is not designed to achieve any desired level of skills or knowledge to build and advance the country to achieve certain visions and development strategies. While on the other hand, expatriates have filled those positions which requires special skills and knowledge which our education system has been unable to produce. PNG will forever depend on foreigners for providing technical advice, while wasting millions of PNG kina on consultants’ fees.

• The economic lifeline of a country depends on energy and it is known as energy security. The rate of economic activity in a country is driven by the cost of energy. In Papua New Guinea the cost of energy is very high. Yet the government does not have a white paper outlining the energy development and utilization in the country to drive down the cost of doing business in the country. We have abundance of natural energy sources such as hydro, solar, thermal, wind, sea waves, steam, hydro carbons, etc. that can be developed to adequately meet our local energy demands. As much as the leadership has failed to develop the energy resources, they haven’t established educational institutions that are needed to produce the skilled human capital to develop those energy sources. We are far from what we want to become if there

• This country has so much economic potential in agriculture, tourism and downstream processing. However, law and order problems are key drivers in driving and attracting investment into those sectors. We have worse law and order problems happening right across the country. Most investors and tourists consider PNG as a high risk country for investment or to visit.

• Tribal fights with guns and ethnic violence are still a grave concern and a major security threat to the country. They are capable of causing mass destruction to State assets and properties once it is initiated are uncountable. Yet the government so far after 38 years does have any plans to contain or eliminate such threats. In such scenarios the security forces are always outnumbered and outgunned. 

• For some reasons as those discussed above, the cost of doing business in the country is far more expensive than some countries. Even though many times this has been said and pointed out to the government, the government over the years has done very little or nothing at all to make PNG as an attractive investment destination. But the government has paid considerable attention to the exploiting of our natural resources by giving tax breaks and exemptions to foreign multi-corporations. As a result, the future of the country is still uncertain once all the natural resources are depleted.

Therefore, no matter how rich we are in natural resources, PNG will still remain poor and unpredictable. The leadership has failed this country miserably. They are lying to the people that the future is bright when in fact it is clouded with great uncertainties.

Now diversification of the economy to rural agricultural and industrialized based, providing free universal education up to Grade 12 and high quality education through a dual education system with emphasis on technical skills, creating more employment opportunities by diversifying the economy, building high standard and quality infrastructure for long-term use, reducing the energy cost, creating a peaceful and safer society through the modernization of the security forces with special emphasis on tribal warfare and ethnic violence, are among key priority areas to create an economically independent, fully literate and peaceful society with low cost and efficient transportation.