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Time for a change

Namaliu looks for a way around his current economic dilemma

By Robin Bromby

GREATER foreign investment is

to be encouraged by the Papua New Guinea Government as a way around its current and pressing economic problems. Prime Minister Rabbie Namaliu has announced sweeping changes, which will include administrative, economic, legal and social measures aimed at generating a growth rate of between seven and nine per cent by 1995. The foreign investment

changes are particularly significant given

the problems that foreign companies have had in the country with restrictive visa and work permit policies, calls for nationalisation and the very serious breakdown in law and order. But also important is the drastic extent of the Prime Minister’s new initiatives in one hit, he has promised to tackle all the various problems which have been identified as impeding economic progress, such as the often ridiculous compensation claims.

The Government in Port Moresby is confronted by developments which have been closing off the economic options, or threatening to create even worse problems. The huge gap left in its revenue by the closure of the Bougainville copper mine has resulted in

the Namaliu admin istration working with one hand tied behind its back.

Unemployment in the urban areas is growing rapidly threatening law and

Lack of economic growth will cause internal upheaval

order in the towns which makes the task of creating new jobs one of extreme urgency.

Namaliu said his Government would simply open up its economy to foreign investment and give it a free hand. His new proposals include a drastic reduction in the size of the public service; law and order measures; abolition of the National Investment and Development Agency; reclassification of foreign companies from ones having 75 per cent overseas ownership to those with 50 per cent foreign-held equity; increasing involvement of Papua New Guineans in business; a mortgage

finance company providing long-term

housing loans; disposal of all surplus Government land to the private sector; a committee to review regulations; rural diversification; eradication of compensation claims; allowing resident status to people investing more than K 250,000 (U 55245,100); tax holidays for pioneer industries; removal of duty on materials needed by manufacturers and wage restraint.

Namaliu said the Government’s role should be merely to create the right climate for investment and for real private sector growth. “That means smaller Government, more accountable for its spending and more responsive to

the changing needs of a young nation, rich in resources

including human

resources,” he said.

“It most certainly means less Gover nment involvement

in business, not more.”

The Prime Minister said the Government spending would not increase in real terms between 1990 and 1993 and this year it was planned to cut 7.5 per cent off the budget.

Recent statements by deputy Prime Minister Ted Diro show the extent of the Government’s concern: he warned that lack of economic growth and development will cause internal upheaval and invite intrusion by outside powers.

He said Papua New Guinea leaders must not pretend that all is well when the country cannot provide jobs for as many as 70,000 school leavers and undergraduates each year.

This matter is also of great concern in the private sector. Lae Chamber of Commerce president Cedric Holland

said recently that increasing population

growth was having a serious effect on

job availability, particularly in urban

areas. The private sector was becoming worried about the pressure being placed on it to give work to more people. “On the one hand we are receiving demands for pay increases and better conditions while on the other hand there is very little growth in the private sector,” he said. “What it will do is put out of business companies which are operating on marginal lines.”

Holland presented a research paper which showed that while Papua New Guinea’s population as a whole was growing at about 2.3 per cent a year, the urban numbers were running at more than five per cent. In 1966 only five per cent of the population lived in urban areas today, more than 13 per cent are in towns. At this rate more than 1 million people would live in urban centres by the year 2000, 2.3 million by 2015.

Holland said one of the main objectives should be to create import

substitution industries, thereby creating

more jobs for the growing population.

Unemployment was a particular problem

with the young, many of whom were displaced and disillusioned and turning to crime. About 48 per cent of all serious crime in the country is committed by youths aged between 17 and 25 years, and 11 per cent by those aged between 13 and 16. The report said that, with

rapid population growth, the number of

urban youths aged between 12 and 25 will increase from about 160,000 today to 270,000 by the year 2000, and 625,000 by 2015.

The problem of urban migration is, naturally, most acutely felt in Port

Moresby.

Senior officials of the National Capital District Interim Commission (NCDIC) have now called for immediate controls on urban migration they said the city authorities were no longer able to keep pace with the increasing population and its need for services. NCDIC commissioner Sir Hugo Berghuser said the biggest cause of urban drift lay outside the city and much of the blame lay with provincial governments. “These money-burning, ineffective, corrupt, totally useless bodies known as provincial governments ... have totally failed the people at all levels in most provinces, especially in Central and Gulf where most of Port Moresby’s urban drift comes from,” he said. The urban migrants came to Port Moresby in search of health, education and other services which the provincial governments had failed to provide.

A new report from the Asian Development Bank (ADB) shows that body is concerned about the future of Papua New Guinea. Its Asian Development Outlook 1990 study said that events in 1989 highlighted the structural weaknesses in the country’s economy.

There were weak linkages between the mining and non-mining sectors, but the lack of development in the latter was also a result of most of the state’s income

from mining being channelled through

the Mineral Resource Stabilisation Fund (MRSF). This fund had been building up reserves on which the Government could draw to finance its budget.

The ADB said that with the projected mining and oil boom, the prospects for the country over the medium term would have been bright had it not been for the possible extended closure of the Bougainville copper mine. Therefore, the Government was likely to face severe resource constraints in the next two

years, making sharp spending cuts

necessary. The balance of payments situation was forecast to deteriorate

sharply, most probably requiring more

external assistance. The bank has

predicted inflation will reach nine per cent this year, 10.5 per cent in 1991 way out of line with the Government’s own allowance for a six per cent inflation rate in the current Budget.

Agriculture will have to be given priority as the main source of income and employment for the bulk of the population. But the ADB also urges the sort of changes in the foreign investment climate which Prime Minister Namaliu now seems ready to make. The report

said the Government had to reduce the high cost structure of the economy, costs which stem largely from a rigid labour market.

The bank has predicted the current account deficit in 1990 will increase from US$72O million to US$l.3 billion equivalent to 35 per cent of gross domestic product. The country’s debt-service ratio (interest charges on debt as a proportion of export income) will rise to 40 per cent. □

Hides contract awarded AN Australian engineering firm, Kinhill Engineers, has won a contract to develop the Hides gas field in the Papua New Guinea Highlands which will supply power to the Porgera gold mine, 70 km away. Kinhill will build the plant to house a gas turbine power station, in cluding the gas pipeline from the well head to the station, roads and other in frastructure. The project will employ 240 people and the company had pledged to use as many local employees

as possible.

Deal with Soviet Union PAPUA New Guinea and the Soviet Un ion have, after an earlier signing was called off, finally put their signatures on a new fishing agreement. The Soviets will help the Papua New Guinean indus try in the areas of harvesting resources and marketing, as well as research, train ing and technical assistance. Soviet traw lers will be able to start fishing in the country’s exclusive economic zone by the end of this year. The Russians say they plan to use two purse seiners to fish for tuna, and may also look for mackerel.