Market Overview

The Vision Thing: Papua New Guinea’s Government Unveils the Future

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Last week was a busy time in Papua New Guinea. On Tuesday the Treasurer presented the 2010 budget to Parliament, and as these things tend to do it had something for everyone, most notably a 7.5 billion Kina ($3.2 billion) increase in spending and no increase in taxes. Major beneficiaries were education and government employees, whose pension benefits rose.  The gap is to be funded by an expected rise in revenues from mineral royalties and taxes as the world economy recovers, and from the long-awaited natural gas boom. The agreement between ExxonMobil and the government on a $10-billion investment in a liquefied natural gas (LNG) project was signed earlier this month and the final project go-ahead will come on December 8, with construction expected to start before the New Year.  In a departure from its normal budget guidelines, which call for any windfall gains from higher mineral prices to be spent on major investment projects and to pay off public debt, this year’s budget allocated over 500 million Kina for additional “priority expenditures.” It’s uncertain how quickly the multiplier effects from the LNG investment will result in higher tax revenues for government, but it’s unlikely that it will happen within the next budget cycle.  Meanwhile, government plans to draw down its trust accounts in anticipation of the coming bonanza.

The Prime Minister declared Wednesday a public holiday for government employees to celebrate its delivery of the “Vision 2050” Plan to make PNG a “richer, safer, and healthier” country by 2040. The festivities began before dawn on Independence Hill with Boy Scouts and Girl Guides offering prayers, and continued with traditional dances and ceremonies interspersed with speeches. At around noon the festivities moved to the national stadium, where the plan itself was unveiled, accompanied by more speeches. There followed a feast of roast pig and beer, and the party continued well into the evening.

Prime Minister Sir Michael Somare called the Vision 2050 document  “a gift from the Government to the people,” and called on the public service to “rise to the occasion and the challenge, lift their game, and with a sense of patriotic spirit, carry out the work required to give full effect to the country’s fresh, long term, strategic development plan.” The Prime Minister went on to proclaim the day, November 18, 2009, “as the date we charted a destiny for our children, their children and generations to come,” and called the Vision 2050 the most significant instrument since adoption of the national constitution in 1975. “The vision is a beacon of fresh hope for our people now and for the generations to come” he said. “The PNG Vision 2050 maps out the future direction our country should take, reflecting the hopes and aspirations of our people.”

I have not read the document, though I understand it is based on seven “pillars” of development, of which government service delivery, wealth creation, and human capital development are said by government to be the most important. It is easy to be sceptical of vision statements. Late in the last decade and early in this one, “Vision 2020” statements were in vogue in many countries and PNG had one of its own, but with only 10 years remaining until 2020 new horizons must be found. At least PNG’s vision statement is brief: at 60 pages it is light reading compared to Afghanistan’s National Development Strategy, introduced in 2008, which weighs in at over 1,000 pages and contains several hundred “priority” actions that government must undertake for the vision to be realized.

But most local people I spoke with were dismissive of Vision 2050 and the hoopla surrounding it. “They should celebrate when it is implemented, not when it is introduced,” said one acquaintance. Letters to the Editors of the national newspapers were even harsher in their criticism. One writer pointed out that most of the goals in PNG’s Vision 2020 remained unachieved, and others stressed that it is easy for politicians to make vague pronouncements about a vision that will come to pass, if at all, after most of them are dead, but that it is much harder to do something concrete and specific about the problems the country faces today.

Personally, I found it most interesting that the Vision was described as a gift by government to the people. PNG in many ways remains a traditional society in which most benefits – land, wives, livestock, money – are given by a village or tribal chief to his subjects. Much of that system has been transferred with little friction into modern governance with its patronage based on tribal, clan, and family relationships. In this context it is understandable that the P.M. and his Ministers, in many ways equivalent to the chief and tribal elders, should consider the Vision and its promised benefits as largesse bestowed on a grateful people. The view that most good things flow from government is not unique to Papua New Guinea, and we can find more than a few traces of it in current-day America, but it is not a mindset that bodes well for the future of private business. Even as they stress the importance of the private sector to economic growth, few career politicians have any real understanding of private business. In Papua New Guinea, where most good things look as if they will come from an enormous joint venture between the government and ExxonMobil, with China’s state-owned Sinopec an important party to the deal, encouraging entrepreneurship may not be the most important preoccupation of government or the citizenry.

On Thursday most government offices remained empty. The senior officials were huddled in various budget-related meetings while most of the others slept off their hangovers, and then there was hardly any point coming into the office on Friday.

My week had started with promise, but quickly slid downhill. My team of consultants, accompanied by a couple of people from the Department of Commerce, flew on Sunday to Manus, PNG’s smallest province by population, which consists of one large island surrounded by hundreds of smaller ones, home to about 50,000 people. The province, known to geographers as the Admiralty Islands, lies in the Bismarck Sea north of the main island of New Guinea. From there it is a straight shot over several thousand miles of ocean to Japan.  Our project terms of reference call for us to evaluate Manus as one of several potential locations for a free trade zone.

American troops landed on Manus in 1944 and seized the island from the Japanese, whereupon it became the staging point for the northward island-hopping campaign that would have culminated in the invasion of mainland Japan had Truman not first dropped the atom bomb to end the war.  Douglas MacArthur spent time there, and at one point over a million servicemen occupied the island while more than a thousand ships were anchored in the harbor.  The base saw some use during the Vietnam War, but not much has happened since then. We visited the Lombrun Naval Base, about 20 miles along the coast from Lorengau town, the provincial capital. Nothing remains of the original jetties, but the 800-square kilometer site is dotted with hundreds of 65-year-old Quonset huts. In recent years the Australians built a new jetty, where two PNG Navy patrol boats were tied up, and a few hundred yards away a tugboat rode at anchor, its sole function to tow the monthly fuel tanker in and out of the harbor. In addition to the Quonset huts and the house where General MacArthur stayed, the U.S. bequeathed a 10,000-ton fuel depot and, on a nearby island, an airbase, which we did not get to see.

A few hundred yards in the opposite direction from the tugboat anchorage, the National Fisheries Authority recently built a fishing pier.  Manus is without doubt a very strategic location from which to stage an Asian war, but the national and provincial governments believe it is equally strategic as a hub for the South Pacific tuna fishery, which accounts for 70 percent of the world’s supply of bluefin tuna, much of it caught within PNG’s 200-mile exclusion zone. The fleet itself comes from everywhere: Japan, Taiwan, Spain, the Philippines. PNG charges royalties on the catch within its waters, but the tuna itself goes mainly to Thailand for processing and the boats either refuel and resupply on the high seas or put in to Guam or Manila.  If the base at Manus were declared a free trade zone it could offer cheap fuel to the fishing boats, and around that an entire resupply and repair industry could develop.

Or so the thinking goes.  The challenges are many. PNG has just raised the minimum hourly wage to nearly a dollar, and even the country’s most enthusiastic boosters admit that the work force is unproductive and uncompetitive, especially compared to places like the Philippines. This gap is likely to worsen as the LNG causes the Kina’s value to appreciate and as the citizens start to receive more generous cash transfers and subsidies from the national government. Manus has no port capable of accommodating container ships – the U.S. forces used front-opening landing vessels to discharge cargos – and it is far from most of the main Southeast Asian and Pacific shipping routes. The national government several years ago granted a Canadian-Australian company a monopoly on imports of refined petroleum products, and this company also operates the country’s only refinery. Fuel is not cheap. Finally, Manus is remote. Even if it had a proper port, the transport costs alone could make it uncompetitive with the likes of Guam or Manila. None of these problems is insurmountable, but the cost for government to fix them – it’s hard to imagine a private investor stepping up to the plate – would run into the hundreds of millions of dollars, a high price to create a few hundred jobs.

Lorengau, which from the sound of it was founded by the Germans when they were the colonial power, has nothing much to recommend it. There is a decent paved road from the airport, which turns into the main drag, along which there are the post office, the provincial government offices, a general wholesaler, a Chinese-owned supermarket, the Air Niugini office, a gas station, the Bank South Pacific office, the open-air market, a scuzzy-looking ice cream place, a public boat landing, and the Harbourside Hotel, where we stayed. That’s it. My room at the Harbourside was clean and harbored no vermin I could see, though management did thoughtfully provide a can of bug spray. Though it sits right on the water, a high chain link fence topped with barbed wire separates the grounds from the sea itself, apparently to keep out the lawless element. This doesn’t matter much anyway, since there are no real beaches and the hard coral bottom comes up almost to the high water line. The hotel bar was a sort of screened terrace with a dangerous-looking green carpet, overlooking the pool, which was filled to a depth of about two feet with slimy green water.

We arrived around noon on Sunday and after checking into the hotel and eating a quick lunch we visited the base. The plan was to meet a few government officials and members of the business community in the evening or the next morning before leaving on the early afternoon flight. The Governor was hosting a dinner that evening, but we met with him in the morning, and then held a quick conference with the “private sector,” at which the participants consisted exclusively of people from provincial government offices apart from the Chairman of the Manus Chamber of Commerce.  Having done our contractual duty with respect to Manus, we got into the hotel bus to go to the airport, but Air Niugini had other plans, cancelling the flight for mechanical reasons. This is no joke in a place served by only four scheduled flights a week, but assurance soon came that they would put on a flight the next day.

With nothing else to do, we set out to explore the town. My partner’s wife’s family hails from Manus, so there was a flock of family members hanging about their hotel room. As we stepped onto the streets of Lorengau Uncle Paul (pictured) appointed himself our guide.

Uncle Paul and friend

Uncle Paul and friend

Paul himself is an interesting fellow, formerly with the traffic section of the National Police, who was sent to Australia for training and then served in various locations in PNG before taking early retirement and moving back to Manus to live on his pension.  Well-informed about the world, he lives contentedly in this backwater, and although he must own a pair of shoes I never saw him wearing any. He gladly accepted our invitation to drink beer and dine with us, but gave no sign he expected anything at all.

We visited the local market, in which fully half of the merchandise on sale was betel nut and the lime powder and wild mustard pods that are chewed with it. As for the rest, there were some sad-looking bananas, a few lonely pineapples, a large number of local vegetables I couldn’t identify, and stall after stall selling smoked or dried fish. Smoking and drying fish are the only ways to preserve it when there is no refrigeration, and varieties of it are common all over the world, but I couldn’t grasp why, in a seaside town where anyone can go out on the reef in a boat and catch or spear a fish, the people would eat this instead of fresh fish, of which I saw none in the market. The meat section was limited to a woman sitting behind a table on which were arrayed the dried carcasses of a tree dwelling rodent or marsupial about the size of a house cat – known as a cass-cass – whose long naked tails curled up behind them.

One of the tour’s highlights was a stop at the Chinese supermarket. The two tills in the store were manned by the owner and his wife, and what I took to be the couple’s two adolescent sons sat perched like vultures atop stacks of cardboard boxes flanking the store’s entrance, surveying the movements of every customer.  The Chinese are unpopular in PNG for many reasons, but their approach to customer relations may be one of them. The shelves were given over largely to tinned meat and fish. Pork-based lunch meats, corned beef, ox tongue, sardines, mackerel, tuna. SPAM, introduced by the armed forces in WWII, is well-known as one of America’s main contributions to the culture and lifestyle of the South Pacific. Hawaii consumes more of the stuff than any other state, but Hawaiian consumption is dwarfed by that of places like Samoa, Tonga, and Yap. In PNG, however, the original has been supplanted by a proliferation of local brands. In a place like Manus, if you don’t have your own boat to go fishing on the reef SPAM and its equivalents are cheaper than fresh fish.

Immediately following the Second World War the Allied troops departed from PNG and other South Pacific islands, leaving behind anything it was cheaper to abandon than ship home. Wrecked ships and Jeeps, Quonset huts, tires, cigarettes, matches, combat boots, and SPAM. An entire set of religious beliefs and practices, known as cargo cults, sprang up as the supplies ran out and the natives waited vainly for more cargo ships to arrive. Elaborate rituals developed to encourage the gods to send more cargo. These included building landing strips in the jungle for the cargo planes to land and lighting fires along the runways to guide the planes in, as well as performing military parade ground drills with abandoned weapons or sticks.

Most of my meetings in Manus had something of a cargo cult flavor, minus the ritual. “If it was militarily viable then it has to be commercially viable now,” was a frequent refrain. World War II is a constant memory even to those who were born long after the Vietnam War. People in Manus truly believe that they will once again see hundreds of ships riding to anchor in Lombrun Harbor and that jobs and cargo will again become plentiful. Most frightening, they look to my team of consultants to give them the key to that future. There may be things that the provincial and national governments can do to help Manus, but none of them are likely to involve massive infrastructure projects.  I may write something about these possibilities in a future post. But for now, managing those expectations is something close to a full-time job.

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The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

 

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