Economist Criticizes PNG Government's Approach to Special Economic Zones
An economist from the Institute of National Affairs, Paul Barker, has raised concerns over the government's decision to introduce multiple Special Economic Zones (SEZ) across the country, citing potential issues with patronage, cronyism, and corruption within these designated areas.
Speaking out against the move, Barker emphasized that while creating an environment with tax incentives for selected companies might seem appealing, it could lead to detrimental consequences. He suggested that transforming the entire country into an SEZ with attractive investment opportunities for both Papua New Guinean and international investors would be a more prudent approach.
"The current strategy undermines fair competition as it subsidizes certain companies at the expense of others, sending negative signals to potential investors," Barker stated. He further explained that implementing a variety of tax systems could disrupt the country's revenue system and potentially favor specific businesses over others.
Barker pointed out previous instances, such as selected mining projects receiving substantial tax holidays, citing the Ramu Nickel project, which allowed a significant influx of overseas workers to perform tasks typically carried out by locals. He highlighted the adverse impact of such practices and stressed the importance of learning from past mistakes.
Furthermore, Barker questioned the nature of companies seeking preferential treatment, exemplifying the Paga Hill development, which received tax inducements despite controversial actions, including the alteration of a former reserve and recreational area.
He criticized the Pacific Maritime Industrial Zone (PMIZ) for resulting in preferential land deals benefiting political figures without yielding output despite years of expenditure.
The economist argued for a level playing field, suggesting that businesses unable to thrive without tax incentives should make way for others willing to pay taxes and create local employment opportunities.
Addressing specific industries, Barker expressed opposition to offering subsidies to polluting sectors like cement and advocated for the imposition of carbon taxes unless they transition to lower emission energy sources.
While acknowledging successful SEZ models globally, Barker cautioned against assuming similar success in Papua New Guinea, citing differences in labor dynamics and the inability of the local workforce to sustain very low wages. He underscored the importance of prioritizing the country's development objectives over favoring foreign workers.
The economist concluded by urging the government to reconsider its approach to SEZs, emphasizing the need for policies that foster fair competition, generate diversified growth, and encourage sustainable revenue without undermining local businesses and the country's development goals.
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