The impact of large investments in the resource sector has increased the pressure to diversify the PNG economy.

The economic and financial stresses being experienced in the PNG economy are in part due to the narrowness of the industry base, according to a report by the Asian Development Bank. There is a compelling argument for industry diversification; with the Manufacturers Council saying the focus should be on creating stable employment.

The ADB’s Asian Development Outlook 2016 notes that the greater dependence on resources has elevated the influence of global commodity price volatility 
on the PNG economy.

‘Strong global commodity prices attracted large investment in mineral extraction, triggering episodes of high growth. While this has significantly boosted government revenues and enabled large increases in public spending, the distribution of benefits has tended to be narrow.

‘Our focus really needs to be about the industries that have the potential to employ the most people.’

‘To encourage inclusive and sustainable growth, the government needs to ensure that other sectors—agriculture, manufacturing, and services—do not suffer as a result of growth.’

The Outlook adds that inadequate infrastructure, inflated operating costs, and an unfavorable business environment have deterred investors and kept productivity low in the non-resources sectors. The report claims this has inhibited sustainable economic growth.

Jobs

Chey Scovell, Chief Executive of the Manufacturers Council

Chey Scovell, Chief Executive of the Manufacturers Council, says when thinking about diversifying the nation’s industry base, the overwhelming imperative should be to create jobs.

‘Our focus really needs to be about the industries that have the potential to employ the most people: the fisheries sector and the agricultural sector, the hospitality sector.

‘Recognition also needs to be given to local companies—such as Paradise Foods, Mainland Holdings, Prima Smallgoods or Pelgen’s German Smallgoods—that support longstanding SME businesses in farming, transport, machinery and other trades and services.

‘We have to be the only country in the world that has an 8–10 million customer base and people say you don’t have the market here to produce your own products.

‘Maybe when we get to 70–80 per cent employment—which is still having a massive number of our people not formally employed—then you can talk about liberalising systems more.’

‘New Zealand has only four million people and they have quite a vibrant manufacturing sector in fast moving consumer goods (FMCG) products. That is the real crux, we need local jobs, long-term jobs, not seasonal or project jobs.

Low formal participation

Scovell says the focus should be on creating long term employment opportunities. ‘Maybe when we get to 70–80 per cent employment—which is still having a massive number of our people not formally employed—then you can talk about liberalising systems more.

‘I just defy anybody to say it is not in PNG’s interest to not address the problem of 95 per cent unemployment.

‘The previous minimum wages review and recent tax review suggest less than five per cent of our people are in formal employment.

‘Tell me which countries have been able to successfully address even 10 per cent unemployment without putting incentives into job creation?’

‘When we say we have got 85 per cent of people in the informal sector, it is not painting an entirely accurate picture, if we look at numbers of those formally employed and businesses registered and making monthly contributions to the State coffers, the scales are even more off kilter.’

Long term

Scovell says when the last tax review was conducted, at the height of the LNG boom, PNG had about 420,000 formal workers. The numbers have since dropped to ‘perhaps 320-350,000.’

Tell me which countries have been able to successfully address even 10 per cent unemployment without putting incentives into job creation?

‘Every effort needs to be made to attract local and foreign investment into businesses that will provide long term meaningful employment.

‘The contributions of capital and new technology have been negligible except during periods of high investment in mining.’

‘These investments need to be incentives created by broad reforms, not wholesale exemptions from tax and local content for a specific company delivering a specific project.

Productivity

The Outlook says that says that past increases in economic output have resulted largely from increases in the labor force. ‘The contributions of capital and new technology have been negligible except during periods of high investment in mining.’

It says total factor productivity (which takes into account both labour and capital) is estimated to have stagnated during the first 3 decades after independence.

‘This highlights the deterioration in the operating environment and the extent of productivity stagnation in sectors other than mining.’