Investments are critical for faster growth

While the fast growing Asian economies were aiming for double digit growth levels, PNG became mired in sharing a “cake” that was becoming relatively smaller.

After 30 years of independence, no lessons have been learned. We can witness even today politicians who give cash handouts and the squandering of millions of kina paid out in royalties.

These are some of the reasons why private and public investment has been totally inadequate and show no signs of growing to levels needed to ensure modest growth rates of more than 5 per cent annually.

The Somare Government has made investment in mining and oil much more welcome. As we all know, mining and oil can generate increased export income and government taxes but will not create much employment.

The third article, the lead item in the Pacific Economic Bulletin, suggests that without substantial microeconomic reforms, the recent period of stability and growth “will disappear into thin air”.

The article is by Charles Yala, of the National Research Institute, and Ron Duncan, executive director of the Pacific Institute of Advanced Studies in Development and Governance at the University of South Pacific in Suva.

Poorly run and mismanaged public utilities continue to inhibit the flow of foreign direct investments into PNG and are a key contributor to the high-cost environment facing all businesses.

As one major corporate investor told the recent Australia-PNG business forum in Cairns, companies like his could do something to fix up bad roads but there was little they could do about telecommunications.

Most businesses are also forced to rely on expensive diesel generators to keep their operations going amid the many blackouts and brownouts that occur.

Like Messrs Yala and Duncan, many analysts are concerned that even though the economy has been well managed by the present government, little has been done to progress reforms of the previous Morauta Government, particularly in financial services.

This paper was critical of tariff protection but much has been done in recent years to greatly reduce tariff levels and high tariffs only persist in a few areas such as protection for the sugar industry.

Although it is true that macroeconomic reforms have been successfully attained after several periods of economic instability, this is clearly another factor that inhibits investment and growth.

Sensible macroeconomic policies are just as critical in providing a stable environment attractive to investors who would certainly prefer not to face volatile inflation and interest rates not to mention unpredictable exchange rates.