Papua New Guinea considers boosting minimum wage as reforms gain pace

The stage is set for Papua New Guinea (PNG) to increase its national minimum wage next year, in a move which is seen as providing much-needed redress for the country’s labour pool.

The decision to consider revising the rate of pay, which has remained untouched for the past five years, forms a key part of the government’s plans to create a more inclusive, modern economy.

However, with much of the workforce still operating in the informal economy, and a lack of skills leaving many locals unable to participate in key projects, the government will be keenly aware of the challenges ahead.

PNG’s minimum wage was increased from a fortnightly rate of $30 to $74 when last reviewed in 2008, marking a rise of 146%. A newly appointed board began a series of public hearings in October, with a remit to finalise its findings and pass them on to the National Executive Council in January 2014.

The timing of the latest review should work well for PNG, which has enjoyed several years of impressive economic growth and high levels of international investment. A $19bn LNG project has been instrumental in driving the economy forward, helping the country to notch up average annual GDP growth of 9.5% between 2009 and 2012.

The current minimum wage has provided a stable foundation for investors and industry to predict labour costs, but it has not kept pace with inflation, which has averaged 6.4% since 2009. This is lower than expected given the rate of economic growth, but price increases remain a concern. Inflation peaked at 8.6% in 2011, dropped to 2.2% in 2012 and is expected to come in at 5.5% in 2013

Job creation through the support of SMEs

While the LNG project has spearheaded PNG’s economic expansion, few locals were able to contribute to its construction, due to their lack of skills, finding themselves, instead, sidelined in favour of foreigners.

A large part of the local workforce – around 40% – is employed by the informal sector, according to a World Bank survey. Of these, around 80% hold jobs in the wholesale trade, retail, restaurant and hotel sectors. Of people who work in the formal economy, 47% hold positions at private companies, while another 37% are employed by the public sector or the military.

The government is keen for the private sector, particularly small and medium-sized enterprises (SMEs), to spearhead new job creation and more generally lead PNG’s economic development.

The part that smaller business ventures could play in changing the economic landscape was the main theme of a conference held in Kokopo in April 2011. The Kokopo Summit also led to the setting up of the Indigenous Business Council of PNG.

With 90% of PNG’s formal economy still owned by foreign players, the government has begun cultivating more opportunities for local businesses. Some of the proposals which came out of Kokopo, such as restriction on foreign investment, ownership and subsidies for PNG-owned firms, were enacted this year.

PNG’s 2013 budget also had a focus on smaller enterprises, providing the first PGK80m ($30.3m) disbursement of an SME-specific $238.5m stimulus package, which is expected to create 500,000 new businesses and 2m jobs by 2050. In addition, the resurrected ‘stret pasin’ scheme will offer business training and affordable credit through the National Development Bank.

A move this year to decentralise the control of rural budgets is also expected to produce results. PNG’s provinces, districts and local-level governments have been the recipients of direct financing throughout 2013, which will total PGK1.49bn ($560m) by year-end, and the recently announced 2014 budget has allocated more than PGK3.6bn ($1.4bn) to the provinces.

The funds will help stimulate the economy at a local level, while also supporting essential services and infrastructure. The government has already moved to increase the salaries of key workers, including teachers, who were awarded a pay rise from October 2013, while additional allowances for local government officials will be phased in over the next three years.

Critics have voiced concern that current policies risk fostering a dependency on government subsidies. For now, however, the government appears committed to providing nationals with targeted opportunities which were laid out in its election campaign.

A revised national minimum wage should help PNG create a strong, formal labour pool, which will generate dividends in the decades ahead, while acting as an important building block in the efforts to construct a more inclusive economy.

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