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Lucrative oil and mineral riches doing little
Sam Vulum
Papua New Guinea had once been described as a “mountain of gold floating on sea of oil” to highlight the significance of its minerals and oil wealth.
Economically, the wealth has done well for the country so far. The minerals and petroleum sector has played a pivotal role in the development of the country to-date.
Minerals and petroleum exports account for majority of the exports and hence constitute major sources of vital foreign exchange earnings.
The severe dislocation of businesses in many parts of the country following the closure of the Bougainville copper mine in 1989 is evidence of the significant impact mining has on the economy.
Socially, however, this lucrative oil and mineral riches do little to improve human development.
Over 50 percent of the population still live in poverty. The biggest fraction is found in the rural areas where children are malnourished because of not enough protein, the economic opportunities are very few, they are cut off from public services and live precariously given their vulnerability to a host of threats, including infectious diseases, poor harvests, natural disasters, violence and other crimes.
According to some experts, PNG is suffering from the so-called “resource curse”, a phenomenon where resource-rich developing countries are unable to reap the promised benefits from their ample wealth.
Various reports on the country by international organisations including the United Nations have disturbingly cited the country’s failure to use the riches to improve its social ills.
While highlighting the country’s plight based on the resource curse phenomenon, Jubilee Australia, a Sydney based anti-poverty NGO, challenging the economic policies and practices that are keeping people, communities and countries poor, and putting profits before people in the Asia Pacific, said PNG’s situation is worse.
“Unfortunately, PNG—like the Congo and Nigeria—is a typical resource curse country. It has remained mired in endemic poverty, corruption, conflict and environmental destruction despite its mineral wealth.
Jubilee Australia said in its December 2009 report that PNG’s GDP growth over the past few decades from mineral and oil exports have had little impact on social development.
Jubilee said the UN Human Development Index attests that although GDP has significantly grown over the past two decades, human development has not matched this growth.
It said over 50 percent of the population live in poverty with over one million people living in areas without access to education, health or transportation.
Economic disparity
Additionally, PNG was ranked among the bottom 20 percent of all countries on the United Nations Human Development Index.
“Despite the rise in GDP, PNG’s Human Development Index (HDI) rank has dropped from 126 out of 172 in 1995 to 146 out of 177 in 2008. Furthermore, PNG’s HDI score has declined since 2000 to levels lower than those achieved in 1995. National poverty levels have also risen.
“The proportion of the population in poverty increased from 37.5 percent in 1996 to almost 54 percent in 2003,” Jubilee Australia said.
It said economic disparity within PNG is pronounced. In 1996, it was reported that the poorest 10 percent of the population had access to only 1.7 percent of the national GDP, whereas the richest 10 percent had access to 56.5 percent of state revenues.
“The GINI coefficient— measuring a country’s level of inequality— ranks PNG as one of the worst in the South Pacific region with a score of 51.
In spite of the growth in GDP and government revenue, basic service delivery has declined.
“Problems of transportation, infrastructure, and education delivery have been acknowledged as areas of concern by the government, yet few changes have taken place and infrastructure continues to erode.
“Interestingly, as mining sector revenues, and consequently GDP, declined by almost 50 percent in the mid-1990s, poverty increased only 14 percent.
As the World Bank Poverty Assessment affirmed: “The decline in the mining sector has had only a small effect on household welfare because the sector employs few workers, and because its enclave structure limits its impact on other economic activities.”
Another comprehensive international report of September 2009 has reminded PNG of its 37.5 percent rate of extreme poverty as per the $1 a day international line.
The report titled Linking Growth and Poverty Reduction in Papua New Guinea by Lowy Institute for International Policy, an international think-tank based in Sydney, Australia, said the use of the term ‘poverty’ is often met with a degree of unease in PNG, quoting Prime Minister Grand Chief Sir Michael Somare in a speech in 2009.
The report said Prime Minister Somare reinforced this point in April 2009, when he asserted, ‘Our people have plenty in their villages…No one is starving in Papua New Guinea. We always have something to eat’.
“Yet there can be little doubt that by any standard measure, poverty exists in PNG and pervades much of the country.
On the most recent desk-based estimate using the international poverty line of $1 a day, 37.5 percent of the population lived in extreme poverty in 2004.
“PNG stands 145 on the UN’s Human Development Index, one place above Haiti, and as the largest of the Pacific Islands nations contains the bulk of the region’s poor.
“Like the poor elsewhere, PNG’s poor are typically malnourished (particularly in terms of protein), face few if any economic opportunities, are cut off from public services and live precariously given their vulnerability to a host of threats, including infectious diseases, poor harvests, natural disasters, violence and other crime.
“Many of their deprivations can be defined in terms of lack of access: to jobs and cash, land, education, health care and clean water, transport and roads.
“In contrast to most other countries, poorer households in PNG tend to have fewer members: fewer adults to contribute their labour, but also fewer children, as offspring are fostered by other households better able to support them,” the report said.
It said in a country that is less urbanised than any others except Burundi, poverty in PNG is fundamentally a rural problem. Not only is the incidence of poverty higher in rural areas, the rural poor are found further below the poverty line than their urban counterparts and experience lower growth rates.
Poverty
It said four fifths of the country’s poor rely on the land for their livelihoods, whether for cash crops or subsistence alone. One in six of the poor earn no cash income whatsoever.
“Contrary to the romanticised notion of rural simplicity, reliance on agriculture is rarely straightforward. In Hanson’s authoritative PNG Rural Development Handbook, the majority of the PNG landmass is judged to be of low or very low quality, with less than 1 percent considered of very high quality land.
“The weakness of the rural sector is compounded by the paucity of public infrastructure, which isolates the poor. It is a little wonder then that the spatial pattern of poverty has been historically rigid in what amounts to a series of geographical poverty traps,” the report said.
It said the government’s inability to meet and overcome the challenges posed by the country’s geography means that environmental determinism has effectively won over.
“The government’s Performance Monitoring Framework for the Medium Term Development Strategy provides an up-to-date account of the daily struggles of Papua New Guineans.
“According to data released in the past 18 months, only 35 percent of birth deliveries are currently supervised by healthcare professionals; 45 percent of the current generation of school-leaving age completed their primary education; and 27 percent of the national road network is judged to be in good conditions,” the report said.
Types of growth
The report also urged PNG to use its uninterrupted seventh year economic growth to eradicate extreme poverty and hunger by 2015.
It said in the summary of the report that during this period, the level of extreme poverty in PNG is estimated to have fallen by 8.8 percentage points. Yet this reduction would be insufficient to reel in the spread in poverty which is understood to have occurred over the late 90s and early part of this decade.
The 22-page report said: “Increasing the poverty-reducing effects of growth would greatly enhance PNG’s ability to achieve the first Millennium Development Goal—to eradicate extreme poverty and hunger by 2015.
Policymakers should consider favouring types of growth in which more income reaches the poor and craft interventions which can better integrate them with the remainder of the economy.
“The highly anticipated LNG project lends weight to these arguments. The high rate of growth presaged by the project will reinforce the existing structure of the economy in which the poor are largely excluded, rather than ushering in much needed structural reforms.
“Maximising the benefits of the project for the poor will require a radically different approach by government. Government should rethink its approach to the appraisal of foreign investments, placing greater onus on what investments offer in terms of domestic employment, beyond their effect on government revenue,” the report said.
“Foreign-owned companies should be encouraged to reinvest their profits within PNG through fiscal incentives.
“In a move back to basics, the Papua New Guinea government should narrow its expenditure on the provision of essential public goods and services, in recognition of its limited capacity. While the range of goods and services government attempts to provide should be circumscribed, their reach must be expanded to bridge the gap to those poor who are currently overlooked.”
The report said by placing the MDGs at the centre of their new Pacific Partnerships, the Australian government shares some of the accountability for progress on poverty reduction in PNG. Its challenge is to revise its policies and interventions in light of this goal, which will require a more satisfactory accommodation of the role of growth.
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