IFC ALLAYS FEARS IN PNG SEZ, But record in other countries worries local people

Dionisia Tabureguci

Despite negative criticisms in Papua New Guinea over the government’s proposed Special Economic Zone (SEZ) concept, the International Finance Corporation (IFC) believes it will boost PNG’s attractiveness as an investment destination.

IFC—the investment arm of the World Bank–is helping the PNG government develop the legislative framework to allow the establishment of SEZs there.

“SEZ is one way countries can use to attract investment,” the IFC said in a statement regarding its involvement in the PNG SEZ.

“To be successful however, they need to be supported by the appropriate legislative and regulatory frameworks that protect local interests while ensuring development and investors meet international best practice.

“Best practice dictates that governments assign additional administrative resources to ensure efficiencies and to make certain that companies comply with the necessary regulations,” the IFC said.

PNG’s proposed SEZ concept and the involvement of IFC in it have been getting negative publicity in PNG blogs.

Critics have questioned what they perceive to be insufficient information supplied by the IFC on its involvement in the project.

Others say the concept will only serve to further the interest of “foreign-owned companies while locals are left with the crumbs”.

“Social problems, poorly paid jobs and abuse of workers” are also among doomsayers’ expectations, fuelling their reluctance to support the project.

ISLANDS BUSINESS had sought comments, but IFC had yet to respond when this edition went to press.

It did indicate, however, that it was preparing written materials for its website regarding the work it is doing on SEZ in PNG.

In its statement, the IFC is promoting the SEZ as a way to absorb PNG’s unemployed, at a time when employment is scarce and the population growing.

“When good practice policy and legal and regulatory frameworks are provided and are aligned with national economic strategies, SEZ create jobs, open up new markets and provide new opportunities to develop skills and improve productivity,” it said.

Critics

“Well run SEZs result in export growth and export diversification. Increased foreign exchange earnings also result in increasing government’s ability to provide services and infrastructure to the wider population.

“Longer-term benefits include indirect employment creation, skills upgrading, female employment, technology transfer, the ‘demonstration effect’ arising from application of ‘best practices’ and regional development.

“To achieve these results, the SEZ must operate under a good practice framework linked to targeted government objectives and economic growth.”

The IFC has not been spared by the online community of critics watching over Papua New Guinea's developments. They see it as an entity promoting the interests of foreign-owned companies that will come in to operate in the SEZ. Companies that will, they believe, protect their own interests by maintaining poor working conditions and poor wages to locals who do get employed in the SEZ.

“We alerted readers several days ago to the malevolent plans of the World Bank to push for the establishment of sweat shop factories in Papua New Guinea. Now, the bank has gone public with its intentions, advertising in the media for a lawyer to draft the legislation that will allow the establishment of Special Economic Zones,” wrote bloggers on http://pngexposed.wordpress.com following last month’s advertisement by IFC in PNG for local lawyers to help in drafting the SEZ legislation.

“Apparently oblivious to the blatant colonial implications and completely contemptuous of Papua New Guinea’s own democratic procedures, the World Bank is advertising for a lawyer to draft legislation for Papua New Guinea before Parliament has even debated whether such legislation is desirable or needed.

“Normal process would dictate that should parliament decide Special Economic Zones are a good idea, then it would be the job of Papua New Guinea’s public service to draft a policy and subsequent legislation.

“But the World Bank clearly has no time for such niceties and is happy to run a bulldozer through notions of independence and national sovereignty in its pursuit of the economic interests of the transnational corporations.

“Those corporations, of course, want duty free access to PNG resources and to process and add value to our raw materials without bothering with domestic niceties like minimum wages and health and safety laws—and they certainly don’t want to be bothered with paying any taxes,” the bloggers wrote.

The IFC and World Bank have themselves been subjects of cutting criticisms in the role they play in developments in other parts of the world, according to critiques periodically put out by Bretton Woods Project (http://www.brettonwoodsproject.org/), an organisation that closely scrutinises their involvement.

The IFC’s work in drafting legislation in Yemen’s mining industry, for instance, came under the spotlight when it assisted the Yemeni government in its tax reform programme favouring lower corporate taxes while it also provided, via its regional advisory service agency, the Private Enterprise Partnership Middle East/North Africa (PEP-MENA), assistance in the drafting Yemen’s mining legislation.

“While the IFC is encouraging the reduction of corporate taxes and PEP-MENA is helping to draft the mining code, it is very likely the IFC will expand their extractive investments in Yemen’s mining, oil and gas sectors,” wrote Nadia Daar, of the US NGO Bank Information Center.

“The legal and tax reforms make it cheaper and easier for the IFC to invest in the industry. This trend is clear in Egypt, where the IFC helped draft the country’s new mining laws and also has substantial investments in the mining industry.”

What was highlighted in Daar’s analysis was the conflict of interest in the work carried out by the two organisations and their related interests, as well as their backing of mining ventures that were subsequently linked to human rights violation and environmental abuses.

Regarding PNG’s SEZ, the IFC maintained its involvement was a response to the PNG government’s request for assistance and that environmental concerns would be taken into account.

“Well-run zones have strong environmental controls and practices,” the bank said.

“IFC’s work focuses on the development of high calibre environmental and social compliance standards for zones, which sets rigorous standards and requires compliance with environmental impact assessments.”

With regards to whether companies operating in SEZ should be tax free, the IFC said: “No. In best practice, SEZs companies face the same income tax arrangements as any other company operating in the country. International best practice is for zones to compete on the basis of facilitation, facilities and services rather than on the provision of special fiscal incentives.

“In PNG, IFC is recommending that the existing national income tax laws apply in SEZs. SEZs generally allow companies to import materials duty-free. Duty is applied when the products leave the SEZ for the rest of the country and overseas exports are not subject to duty.

“These arrangements allow exporters to be internationally competitive, providing jobs and incomes domestically that would otherwise be lost to overseas markets."

‘Duty suspension’ schemes are common around the world—for instance, Fiji provides for duty-free import of materials that are to be used in exports. Locally extracted mineral resources taken into an SEZ would still be liable for the relevant resource royalty.

Regarding IFC’s work in PNG’s SEZ legislation, the bank said the draft legislation will be considered by the PNG’s Department of Commerce and Industry, after which a wide public consultation will follow.

“Once this process is complete, the draft legislation will be reviewed by the State Solicitor and the First Legislative Counsel and once any necessary changes are made, the entire package of policy and draft legislation will be considered by the PNG Cabinet—the National Executive Council.

If it is endorsed by the NEC, the draft legislation will then be introduced for consideration and debate by the Parliament,” the IFC said.

The IFC has done SEZ work in many countries globally and in East Asia and the Pacific, it is currently working on zone regimes in Indonesia and Cambodia.

It has put out its 2008 Report on SEZ, in which it analysed successes and failures of SEZ practice around the world.