A country of contrasts

Kate Bystrova

Spotlight Papua New Guinea

PNG suffers from the ‘paradox of plenty’ – a term economists use to describe the phenomenon whereby countries that have abundant minerals and other natural resources paradoxically tend to see lower economic growth and slower human development than countries with fewer natural resources


Papua New Guinea (PNG) is a country of contrasts, rich in gold, oil, gas, timber and fisheries. Its people are strikingly diverse, organised in small, fragmented social groups and speaking many different languages; its economy highly dualistic, consisting of an enclave-based formal sector that focuses mainly on the large-scale export of natural resources, and an informal sector dominated by the subsistence activities of the majority rural population, although a local non-mineral small and medium enterprise sector is now emerging.

The World Bank marvels at PNG’s strong macroeconomic management, which has transformed successive positive external income shocks and hefty new investments into the longest stretch of economic growth the country has seen since independence in 1975. But here, a ‘paradox of plenty’ governs, reminding us all that economic growth does not guarantee the equitable trickledown of development benefits. In a country rich in mineral and agricultural resources, social development has stagnated in its early stages, hampered by volatile export prices and difficult terrain.

Home to more than seven million people – a population greater than that of all the other Pacific countries combined – and spanning 462,840 sq km, Papua New Guinea holds an immense wealth of natural resources. From gaping mines to titanic gas projects, the extractive industries have seen PNG become a strong and stable economic performer in the region, with revenue from the sector soaring since commercial gold-mining first kicked off in 1989, helping the country average seven per cent GDP growth annually. However, this growth has been far from inclusive.

PNG suffers from persistently high levels of poverty and social inequality, ranking 156th out of 186 countries in the UNDP’s 2012 Human Development Index. According to estimates, two-fifths of the population live on less than US$1 a day, while three-quarters of households depend on subsistence agriculture for their livelihoods – this includes the many tribes that exist in mountainous areas and have little to no contact with one another, let alone with the outside world. Per capita, the gross national income works out at $2,010, with life expectancy averaging 61.6 years and around a quarter of children out of school.

Corruption is rife, with Transparency International rating PNG as one of the most corrupt countries in the world in 2012 – a by-product of the patronage system of governance, with many politicians doubling as businessmen. Police brutality is commonplace and there are disproportionately high levels of crime and violence, targeting women and refugees in particular. HIV/AIDS levels are high and many diseases, such as malaria and cholera, endemic.

“On all the indicators for the Pacific, they have the lowest levels of human development, the highest rates of poverty and infant mortality, and the lowest rates of literacy,” says Glenn Banks, associate professor at Massey University. “How to translate that resource wealth into better human development is something the PNG government and people struggle with.”

Banks spent two months in PNG working with the government, development agencies and mineral sector actors to produce the country’s first UNDP Human Development Report in 15 years – From Nature to People: Translating Resource Wealth into Sustainable Human Development. He points out that the rate of sector development in PNG has been sheer.

“Within their lifetime, highland communities have gone from no European contact to having a billion-dollar gold mine and LNG gas projects on their back doorstep. The transformation and rate of change in that society is incredible, and there’s a huge opportunity now to improve the levels of human development across the country.”

PNG’s mineral sector is a major contributor to the economy, directly responsible for providing around 80 per cent of exports and a third of government revenue each year. Proven reserves of natural gas, estimated in January 2013 to be 400 billion cubic metres, are driving the banking sector’s growth, which started from a low base – in 2013, there were just 1.5 million active bank accounts in the country. Following national policy, the government has taken out shareholdings in most of the major industrial and mining developments.

A massive ExxonMobil gas project is set to be fully operational by 2017, when it is forecast to raise the country’s GDP and tax revenue by up to 50 per cent. By May 2014 it had managed to ship its first cargo of liquefied natural gas (LNG) months ahead of schedule.

The $19 billion PNG LNG project, in which ExxonMobil holds a 33.2 per cent operating stake, is expected to produce around 6.9 million tons per year – that’s more than nine trillion cubic feet of gas and 200 million barrels of associated liquids over its scheduled 30-year lifespan. According to ExxonMobil’s Economic Impact Study, the project is the largest private sector investment ever contemplated in the country, and there are hopes that it will boost PNG’s economy and help fund government development efforts, as well as create more employment opportunities for citizens.

Currently, around 85 per cent of the country’s labour force is employed in the agriculture sector, working mostly as smallholders. Only a very small fraction of land is able to sustain cash crops, such as coffee and cocoa, and while abundant stretches of rainforest provide ample opportunity for logging, such activities have been heavily criticised by conservation groups. Although initiatives are being undertaken to increase production and foster access to niche markets, many obstacles remain – among them limited market access, lack of access to credit, poor training and institutional support, and general land issues.

UNDP administrator Helen Clark met with Papua New Guinean private-sector leaders in Port Moresby to discuss the sector’s potential in April of this year.

“Evidence shows that extractive industries can play a significant role in equitable growth, if they are well managed. PNG as a ‘late starter’ can learn from the positive experiences of Norway, Botswana, Ghana and some other countries, and ensure that the proceeds from extractives lead to real improvements in human development,” says Clark. “The challenge to the private sector and the government is to decide their respective roles and how they can work together to maximise resource benefits for all.”

So far, PNG has focused on a select portion of its resources for economic development, typically neglecting its primary resource, which is – in common with every other country – its people. The workforce is and should be the lifeblood of the economy, and its prioritisation is paramount to significant and widespread development. While it remains a country of contrasts, with the right initiatives there is an opportunity to make these into a colourful spectrum of activities that would develop Papua New Guinea’s economy and help lift its people out of poverty

About the author:

Kate Bystrova is Global's features editor


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