Interview: Prime Minister Peter O’Neill
What more needs to be done to insulate Papua New Guinea’s economy from external forces such as commodity prices and natural disasters?
PRIME MINISTER PETER O’NEILL: PNG has been through many similar challenges in the past, and has come out of these in better shape than many other countries. This is because we have, to a certain degree, an insulated economy, meaning that Papua New Guineans are quite able to adjust to extreme global economic shocks and conditions. In the previous global recession, we were able to reduce our non-priority expenditure in government and at the same time adjust the budget to reach the revenue targets that are expected in a downturn situation.
In light of the global declining commodity prices in past years, we have had to readjust our budget estimates, reduce our focus on revenue and cut expenditures that were not priorities in terms of our core policies. At the same time, we have a mandate to maintain a sustainable level of growth and continue investments in essential services such as health care, education, law and order, and infrastructure.
PNG actually stacks up well in this regard in comparison to other similar developing nations, especially those which are resource dependent. Our goal is to come out of these challenges in better shape than we went in, especially given that commodity prices are still on the rebound. Prices are not where we expected them to be, but as they continue to recover our economy will continue to grow. In the meantime, we must continue to broaden the base of our economy so that we are not subject to the boom-and-bust cycle of the resource sector. Sectors such as agriculture, tourism and manufacturing can be built around the resource base and assist in further diversifying the economy.
What are the options and viability of solutions to the problem of hard currency shortages?
O’NEILL: This has come about because of past decisions that allowed our export dollars to be kept in foreign bank accounts, creating a lack of hard foreign currency onshore. This prevented our economy from reaping the full benefits of our exports, largely because of agreements that were signed between PNG’s previous government and investors to the detriment of our economy. The current situation we find ourselves in is not necessarily because the economy or our exports are not doing well, but because of short-sighted agreements. We understand the need for such agreements to give investors confidence, but we need to strike a balance whereby the bulk of money is kept onshore to ensure a high level of transparency and accountability.
A large amount of tax revenue is missed this way, but we are slowly closing the loopholes and bringing funds onshore. We still give flexibility to transfer money outside of the country to meet businesses’ operational expenses. The more visibility there is in the system, the more flexible we can be in the way we do business. As times goes by, you will see that the partnership we developed between business and government will continue to improve, and these agreements can be put to better use for the good of the economy.
How can PNG boost investor confidence and attract foreign direct investment?
O’NEILL: Despite doubts about our ability to deliver mega-projects, PNG has proven that we can not only deliver on time and on budget, but also to high-quality standards. The ExxonMobil PNG LNG project was the largest privately funded project in the world to be delivered successfully.
We have also been able to ensure that PNG maintains its reputation as a country that meets all of its international obligations. To date, every obligation signed by the country has been met without fail. This demonstrates that our commitments are taken very seriously and are honoured at the highest level.
As the country starts to borrow money we will maintain this track record. These outcomes go to show the confidence that investors have in PNG. Our cost structure is very low and our judicial independence is strong. Political stability is also a staple, both in policy and predictability. These fundamentals highlight PNG as a premier investment destination on the global stage.
How is the government working to establish a more robust economy that will have the potential to develop more value-added industries?
O’NEILL: Through our commitments with our partners we have ensured that there are enough resources in-country to establish industries that will generate more revenue, value and employment for our people. Value-added industries are an area that we are fully committed to. For example, by the end of the year 2020 round logs will no longer be exported out of the country. This means that all of our timber resources will have to be processed downstream before being exported. In fishing, we are trying to limit foreign registered vessels operating in PNG and are moving toward only allowing Papua New Guinean vessels servicing domestic factories to take part in the fisheries sector.
We are creating new opportunities and employment for our people and moving the country to the next stage of development. To enable more industries to grow, we seek to ensure that the costs remain low and competitive, while incentives are given to the industries that can make substantial investments. New Infrastructure, which we are building in all sectors, enables us to further enhance cost structure efficiencies, which encourages the establishment of more value-added industries. Infrastructure is an enabler for the economy, and our focus now is on more ports, roads and airports. PNG is only six hours away from some of the largest populations in the world. India, China and Indonesia are right around the corner, so it only makes sense to further enhance supply chain infrastructure that will enable access to these markets. PNG’s location also represents a competitive advantage, considering that only a few places in the world have direct access to these large consumer markets.
What priority is placed on social services such as investments in health and education?
O’NEILL: The current generation of Papua New Guineans is emerging from a society that has traditionally had low levels of formal education and a small skill base. Investment in education and health, therefore, is a top priority for our government.
We have made it possible for a much greater number of children to have access to education through our innovative policies. We will only continue to strengthen these policies to enable more skill-based training, which will give each individual an opportunity to gain employment and upskill to become self-reliant.
An educated and healthy population enables business to prosper, and this is a key driver of the future economy. We are five years into an education programme that will increase the number of children in school from less than 1m in 2012, to over 2m today.
In terms of health care, we are building more and more hospitals across the country and training more doctors than ever before. We are also bringing medical specialists into the country to treat cases previously considered untreatable in PNG, providing the population with access to the health care needed to live longer and more healthy lives.
As the middle class continues to grow and demand more services, the private sector will need to meet that demand. The government has an obligation to deliver core services to the population, and we will continue to push forward investment and infrastructure to support this aim. For the first time in the history of our country funds are going directly to the districts and the provinces to be invested in these areas. There is a mix of public and private services in education and health now, but as incomes rise more opportunities will be made available for private sector investment.
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