With the new O’Neill Government’s first National Budget released just yesterday, Paul Barker assesses the prospects for business under PNG’s new Government.

The INA’s Paul Barker

Since its election in August 2012, the Government led by Prime Minister Peter O’Neill has sent a mixed bag of messages to business, while its policy positions are being consolidated.

However, the Prime Minister, together with Minister for National Planning Charles Abel, has been sending the right signals on investment priorities, transparency and law and order. While being generally accepting of the long-term national development goals documented by the previous government, the new government has indicated it wants to review them.

National Budget

Yesterday’s US$6.5 billion 2013 National Budget focuses on restoring and upgrading infrastructure, extending basic education and primary health services, with an emphasis on decentralising funding to the subnational levels.

It also provides substantial funding for small-to-medium enterprises, and the reinforcing of nationally-owned businesses which have been marginalised over recent years.

A concern is the level of (domestic) public borrowing to finance this major increase in expenditure, with a planned deficit and a weak capacity at the subnational level to implement projects and services, regardless of the funding provided. There seems to be inadequate support for capacity building, strengthening governance and oversight at the provincial, district and local levels.

The Budget is perhaps somewhat optimistic over commodity prices and revenue. Despite the forecast increase in the ratio of debt to GDP (to 34% in 2014), it envisages that this will be brought back down to the current 25% (approx.) by 2017, largely as a result of GDP growth.

Nevertheless, these are more uncertain global economic times, and despite major new resource projects, many of PNG’s current projects are in late maturity, and PNG cannot expect to be relatively immune from the global financial and economic forces, as it was during the 2008 crisis.

Local business

A positive signal was also sent earlier this month when Cabinet for a third time rejected the proposed commercial rice project in PNG’s Central Province, initiated by Naima Investments Ltd, which many considered a rice trading monopoly.

On the other hand, Commerce Minister Maru has been looking at increased import tariffs to protect local businesses such as poultry farmers. Encouraging the development of local business is sound if it’s done in the right way. If it’s done with undue 1960s-style protectionism, it would concern some players in the private sector.

In any case, markedly greater attention is needed than over recent years to safeguard and improve the prospects of domestic agriculture.

State-owned enterprises

The reform of state-owned enterprises already signalled by new Public Enterprises Minister Ben Micah would be welcomed. It’s pleasing to see Micah is not just following on from his well-respected predecessor in the post (Sir Mekere Morauta) by taking action but is also giving everyone a fair hearing.

Cost sharing

The recent increased costs for the PNG LNG project development and the cost sharing burden on the State of PNG, but also negotiations for a six billion kina loan facility from China Exim Bank for infrastructure development are also causes for some concern.

Although the latter has not been finalised and it is not yet clear which projects might be supported, caution has been widely expressed. Naturally, the private sector would like to upgrade and maintain core infrastructure but there is a concern that related contracts could go unduly offshore and without competitive tendering. Then there’s the issue of borrowing in yuan, an appreciating currency. There could be cheaper ways of getting the money.

Peter O’Neill’s background as a businessman, with an awareness of the issues facing business is relevant. We’re living in a global economy now. We need to be competitive but have a diversified economy providing jobs to a rapidly growing population. The Planning Minister has indeed emphasised the need to restrain this rate of population growth, suggesting PNG should aim for a population ceiling of around 10 million.

Government for the people

We also need a government with an adequate feeling for the people’s needs and situation. While we’ve had a growing economy, in reality PNG has become one of the most unequal societies in terms of income disparity in the Asia-Pacific region.

There’s a real need to respond to public needs: the Consumer Price Index has been restrained in 2012 by both the kina’s appreciation and the O’Neill Government’s introduction of free education. The next step would be to improve people’s ability to get their goods to market and better access goods and services.

Removing impediments

The Government has also had discussions on simplifying a variety of impediments to business and investment, including the process of issuing working visas in PNG. The Government has committed itself to improved dialogue with the business sector and civil society and churches, both through the Consultative Implementation and Monitoring Council and the National Working Group on improving business and trade.

Also related is the issue of dual citizenship. There are a significant number of overseas nationals who also have a loyalty to PNG and could and should also have rights to PNG citizenship. It would be a win–win for PNG if they could acquire co-citizenship.

Paul Barker is Director of the Papua New Guinea Institute of National Affairs, a privately funded, non-profit think-tank based in Port Moresby.