PNG

PNG

Monday, October 22, 2012

Dutch disease anyone?

THE government and, indeed the whole of PNG, have been carried away by the advent of the liquefied natural gas project.

An agreement was signed into existence in the greatest of haste and meetings to tie up benefits sharing agreements were done in whirlpool tours that left participants exhausted and landowners dazed and confused.

In the end, the government might have given away more than it ought to have but time will tell.
But the impact of the LNG project is immediate and devastating upon the agricultural sector in Papua New Guinea, the industry which supports the majority of the population.

Costs have gone up exponentially for the agriculture and manufacturing sector as a direct result of the LNG project in what is termed the Dutch Disease.

Also described as the resources curse, this term refers to the economic phenomenon where an increase in exploitation of natural resources often results in a decline in other sectors such as manufacturing and agriculture.

An increase in revenues from the harvest of natural resources will make the country’s currency grow stronger against the currencies of others. In PNG’s case, the kina has appreciated against the US dollar by 35% since the start of the LNG project. When that happens, it makes the country’s exports less competitive on the world market. There is also flight of expertise from those sectors whose pay might not be attractive into the more lucrative resources sector leading to demise in those other areas of the economy.

That was the theory and it was discussed in this newspaper on a number of occasions in the past when the LNG project was deliberated.

Today, it is no longer theory. The Dutch Disease has hit home and the agricultural sector is reeling from the shock. The kina has appreciated against the US dollar by as much as 35%. A 20ft container, which used to cost K2,500 to transport from the sea coast to the highlands, today costs in excess of K8,000. Cost of factory inputs and other imports have gone up by 30% in the last two years.

Welders, carpenters, accountants and other skilled work force have withdrawn their services to the agricultural sector for the far-richer mining and hydrocarbon sector.

Added to these are the crippling impacts of the chronic breakdown in transport infrastructure throughout the country. When companies, out of desperate necessity, try to do their own maintenance, they only increase the cost of production and end up making their exports uncompetitive on the global market.

We take up the Palm Oil Council’s submission to increase the tax credit limit from 1.5% of taxable income up to 5% so that companies can maintain roads without eating too much into their operations.

A big effort needs to be made to improve the protracted delays in processing work permits and visas in order for expertise to be brought onshore quickly to progress capital investments. Changes need to be made to the Land Registration Act and Land Groups Incorporation Act to ensure available land is freed up and that there are no problems with titles once developments begin on the land.

Oil Palm alone contributed K1.8 billion to the PNG economy last year. It employed 27,000 people who supported 200,000 others, making it the biggest employer outside of the public sector.

Together with coffee (K900 million), copra (K200 million) and cocoa (K200 million), tree crops alone produced K3.1 billion. That is money that goes to the smallholder growers, money that supports the community in the rural areas.

Any government worth its salt must protect such a sector at all costs.

De Nesonilis