A new path for development policy in Papua New Guinea

Written by Russell Hangatt

This is a guest post by Russell Hangatt and Clara Momoi of the Department of National Planning and Monitoring in Papua New Guinea.

The Papua New Guinea Development Strategic Plan (PNGDSP) 2010-2030 maps out a path to transform PNG into a middle income country. It answers the questions of “where is PNG now?”, “where do we want it to be in 2030?” and “how will PNG get there?”. This is the first time PNG has taken a long term focus on development planning and is the first time planning has been fully home grown with donors shut out of the formulation of the PNGDSP. It is the first time we see clearly articulated targets – targets that set middle income standards, that are achievable, and that can be monitored. Importantly it aims to transform poverty corridors into economic corridors with the 10 corridors planned for development covering some of the poorest areas of PNG.

The PNGDSP will be implemented through four 5-year medium term development plans (MTDPs) – the first of which is the MTDP 2011-2015. Key to the MTDP is the planning of resource allocation for achieving targets by 2015 that set a pace of progress consistent with the 2030 targets in the PNGDSP. The MTDP 2011-2015 has now been set in motion in the 2011 Budget.

Economic Comparison

In 1975, PNG, Botswana and Malaysia were at a similar level of development as measured by their GDP per capita (chart 1). Like PNG, Botswana and Malaysia are countries rich in natural resources. However, unlike PNG, these countries have escalated to a higher level with GDP per capita, health and education indicators now at the level of middle income countries. Why not PNG? The answer to this question can be found in the different approaches to development planning. Planning in these countries has been with ambition and aspiration with a long term focus built around long term development strategies and with economic development the key. In PNG, planning has been short run focused, donor dominated, without ambition, and without an economic development focus. The government of PNG has taken a big step forward to come up with the PNGDSP and has now set the scene for a new and unprecedented era of economic development.

Economic Corridor Concept

The economic Corridor Concept aims at converting corridors of poverty into economic corridors. The objective is to bring economic prosperity to remote areas of PNG where government and infrastructure services do not reach the people, but are areas that have strong economic potential. As such this concept has been adopted to act as a main vehicle through which the PNGDSP will be implemented to improve the standard of living for the disadvantaged in rural areas of PNG. This will be done by setting a well planned zoning system built around the economic potential of the area, a comprehensive and effective network of transport and utilities, and quality education and health services in regions of the country. Ten Economic Corridors have been identified under the PNGDSP from which the Petroleum Resource Area Economic Corridor (PREAC) along the PNG Liquefied Natural Gas (LNG) project is the first one to be implemented under the PNGDSP. The corridors are highlighted by the blue shaded areas.

 

Overall Impact of PNGDSP (annual impact by 2030)

The PNGDSP is based on comprehensive analysis including the economic modeling of many strategies and scenarios using the PNG General Equilibrium Model (PNGGEM). The model tells us that the economic impacts on all sectors will be massive under the PNGDSP strategies. The key projected gains far outweigh the costs for implementing this revolutionary plan. GDP will increase from K23 billion to K98 billion, GNI will increase from K20 billion to K73 billion, tax revenue will increase from K6 billion to K33 billion and GDP per capita will increase from K3,700 to K10,000 by 2030. This will create at least 2 million additional jobs. With or without the PNGDSP, the population will expand to over 9 million by 2030. Without jobs, they will be forced to turn to crime and other unfortunate activities just to survive. The PNGDSP will ensure they are either employed, in education, in vocational training or in the informal business sector.

Transport Infrastructure

Transport infrastructure in PNG has been poorly managed and maintained. About 2600 kilometres of roads are in poor condition in national, provincial and district levels. This has contributed poorly to service delivery by the government to the 85 per cent of the Papua New Guineans in rural areas. Only 2700 kilometres of roads are in fair condition and another 2700 kilometres are in good condition. The PNGDSP target is to make sure that by 2030 all roads (national, provincial and district) should be in good condition so that there will be an effective and efficient service delivery to the rural majority. In addition, the national road network will be tripled in size to 25,000 kilometres. Airports will be rehabilitated and upgraded to meet international standard to meet the large expansion of tourist and business travel that is expected. The domestic capacity in water transport will be upgraded and expanded to accommodate the rapid expansion in trade envisioned in the PNGDSP as well as an expansion in ferry services.

Land Development

With 97 per cent of the land in PNG customarily owned, a priority of the PNGDSP is to unlock opportunities for customary land owners to open up their land for development. Under the PNGDSP, 20 per cent of the land is targeted to be converted into bankable assets. Landowners will gain more benefits not only in rentals and royalties but become equity partners without risking one’s traditional land status.

Energy Development

Energy development provides the foundation for which chain development activities in all sectors can take place, ensuring the future success and prosperity of PNG. Currently PNG has 503 MW of electricity generation capacity of which 50 per cent is provided by the mining sector. Just under half is hydro electricity generation capacity and one-third is diesel generation. The average consumption of electricity on a daily basis is 290MWH. The PNGDSP will focus on access to electricity with a target of connecting at least 70 per cent of households. To meet a rapid expansion in demand, generation capacity will be targeted to increase to 2000 MW by 2030 with hydro, geothermal, and other renewable generation capacity leading the way. Diesel generation capacity will reduce to 40 MW and coal generation will be just 30 MW. At the same time a national electricity grid will connect all major towns and cities of PNG. There will also be an initiative to connect to Australia’s national grid, providing substantial scope for the export of electricity while keeping costs for domestic supply in PNG competitive.

Health

The health sector is one of the key enablers of socio- economic development in PNG in the lifespan of the PNGDSP 2010-2030. There were considerable health gains in the two decades after PNG gained its independence in 1975, but progress in a number of key health indicators such as maternal mortality and infant/child mortality rates have slowed down in the mid 1990s. Thus, PNG aims through PNGDSP at making substantial inroads in health indicators with 2030 targets in line with a middle income country. For example, the under five mortality target for 2030 is below 20 per 1000 live births and the maternal mortality target is below 100 per 100,000 live births. To support these targets, by 2030, 20,000 nurses and 5000 physicians will be employed, hospitals will be upgraded and expanded, and 7500 aid posts will be in place across PNG.

Education

Currently the youth literacy rate is less than 64 per cent and numeracy standards are also poor in PNG due to the majority of school age children not attending schools at the primary and secondary school levels. By 2030, through PNGDSP, PNG aims to increase the net admission rate close to 70 per cent and completion rate to level 8 close to 100 per cent. On the other hand the higher education institutions, including universities and other tertiary institutions, are currently not producing enough skilled people to meet the labour force demand in all sector of the economy as well as to be competitive at the international level. Therefore, over the next 20 years, PNG is aiming at increasing the quality  and capacity of spaces at tertiary levels to achieve 17,500 graduates per year from the current 6500 graduates. This will require a total of 45,000 tertiary spaces in 2030.

Law and Order

According to a number of surveys done in PNG, the law and order problem stands out to be by far the greatest impediment to business and investment – more than infrastructure, governance, regulatory and urban land issues. About 9 per cent of business revenues are consumed by law and order problems. The law and order problem is considered a critical area of concern in the PNGDSP for the overall socio-economic development of the country. The target under the PNGDSP is that by the year 2030, the crime rate will be reduced by 55 percent from the current average victimisation rate of 9.7 per cent. To achieve this, the capacity in law and order services will need to be raised substantially, including a 5-fold increase in the number of police officers to 24,000.

Economic Sector Strategies

In PNG, the main economic sectors are agriculture, fisheries, forestry, petroleum, mineral, informal sectors, manufacturing and tourism. An overall aim of the PNGDSP is to diversify the economy beyond mining and petroleum by laying the foundations for prosperity in each of these sectors. Agriculture, including downstream processing is the most important sector as it relies on the factors readily available to the people – land and labour. As a result, ambitious targets are set for agriculture with substantial public investments for raising the viability of agriculture. The biggest employer in the economy will continue to be agriculture, but manufacturing and tourism are planned in the PNGDSP to accommodate substantial employment growth. The target for 2030 is for 1.5 million tourists to be visiting PNG each year. The economic impact of achieving the targets for tourism is expected to be K7.3 billion a year, compared with K7.2 billion for agriculture and K5.8 billion for manufacturing. By comparison, the target of 3 gas projects by 2030 will contribute K9.7 billion. In terms of employment, tourism is expected to generate an additional 310,000 jobs by 2030, agriculture an extra 270,000 jobs, manufacturing 180,000 jobs, and mining and petroleum 100,000 jobs.

Cross-cutting Policies

The PNGDSP incorporates cross cutting issues that cut across all other sectors. Population, youth, gender, HIV/AIDS, vulnerable and disadvantaged groups, environment, climate change, natural disaster management, public sector management, national statistic systems, international relations and security, foreign policy, immigration, foreign aid, and defence and security are all cross cutting issues in the PNGDSP. The important issues are to provide public service machinery within the public service in order to effectively deliver other government services to meet the security of PNG. An important sector to address in general is the population of PNG. In 2000 census, the population reached 5.2 million and was estimated over 6 million in 2009. The productive youth population is currently the main target of HIV/AIDs reduction where the Health Department has recorded that most young people are tested HIV/AIDs. The lack of education opportunities has hampered teaching of  issues such as maternal health and HIV/AIDs.

Partnership and Cooperation

The collaborative effort by the system of government, development partners, churches and non government organisation is very important and crucial in implementing PNGDSP. That means all their plans and programmes should be aligned to the PNGDSP and MTDPs to achieve the main goal of the PNGDSP. Development partners in particular will be required to align to these plans and so will need strong and decisive leadership in driving the aid program forward to achieve the PNGDSP goals of sustainable economic growth. This will require a substantial reduction in technical assistance whilst continuing to welcome initiatives of development partners to fund PNGDSP and MTDP investments and essential services. Churches will provide effective health, education and community service delivery through a close and sustainable partnership with government and develop strategies for strengthening service delivery through partnership by implementing and further developing the policy framework that guides the partnership between the state and the churches. This will contribute to the goals of the PNGDSP.

Resourcing the PNGDSP

Implementation of the PNGDSP requires effective mobilisation of physical and financial resources. This will be done through interventions at sectoral and provincial levels requiring careful scoping to achieve the greatest benefits from the limited available resources. The PNGDSP will require very large amounts of money, but will be self financing to the extent that PNGDSP initiatives will generate tax revenues as a direct result of the expected surge in economic activity. More jobs will result in additional income tax and higher household incomes will lead to higher government revenue in the form of GST. The estimates of both the costs of implementation and revenue earnings indicate that the funding of the PNGDSP will not require a long term expansion in government debt. Furthermore, policy measures can be implemented to deliver efficiencies and greater budget savings.

Implementing, monitoring and evaluation framework

The successful implementation of the PNGDSP depends on whether

  • The key stakeholders discharge the responsibilities in its implementation
  • Monitoring, evaluation and reporting is effective, including effective responses to underperformance.

How will the Government monitor and evaluate the progress of projects and programmes? There will be two levels for monitoring, reporting and evaluating.

  1. The DNPM and the implementing or line agencies will strategically be responsible to ensure that project outputs contribute to the outcomes identified in the PNGDSP and the MTDPs.
  2. The DNPM and the line agencies will monitor project inputs and outputs to ensure that monies are used as intended on the ground.

Russell Hangatt

9 Comments

  • Have a positive attitude and mind set towards the development of PNG. If we want to change our nation, the change must begin in our mind before actions are implemented.
    God bless PNG.

  • There are so many plans that are filling up the cabinets of the National Planning Department. We have a Capitalist economy which states, people struggle to get up there; and only few are up there and the majority are below; the rich getting richer and poor getting poorer. Papua New Guinea is a Melanesian society, based on collectivism rather than indvidualism. I would like to refer to The Melanesian Obligatory Network by Father Clower (UPNG, Civics & Ethics, 2014), that malensian societies, people goals, dreams, efforts, achievements, are reflected in the group dynamics rather than oneself. A man’s fortnight pay is for the whole family and relatives, and not just himself. So the Melanesian society obligatory network can be seen a horizontal rather than vertical which is going up.

    If we can get the plans inclined to our way of doing things, I believe we will see this country move forward. See Malaysia & Japan, they develop developmental planning accroding ot their culture and ways of doing thing, that’s why they have changed rapidly compared to us PNG, who are living in a melanesian culture and trying to practice western concepts in development.

  • The conceptional framework of the PNGDSP sounds very interesting as it is the way forward for all Papua New Guineans. The executive government of the day is now in effort to stream line its strategic vision 2030 to transform Papua New Guinea from the poverty line to a medium income standard. However I wish to point out that every successive government keep on fabricating strategic development policies but noting of substance are being materialize to the district, LLGs and ward areas. It is always the case that only quarter of the policy segment is deliver and where it the entire benefits? People are still dying for curable disease and are still drinking drum water constantly. It all boils down to the so call public servants in the provinces, districts and LLGs areas. They are the implementing agencies of the government services but they fail to deliver the government policies to a maximum effort as it is there mandated duties and obligations. For the PNGDSP to be realistic the onus is now with the national government to revisit the public servants at the three levels and coordinate their duties in an impartial and objective manner. If it means to re constitutionalized the existing policies governing the department of public service and personal management with the focus to eradicate maladministration and zero tolerance of corrupt practices than do so for the good of all. Otherwise PNGDSP the path to vision 2030 & 2050 will be unrealistic.

  • Yeah! I love to read it but the question is, Are we going to achieve these goals? With high levels of political corruption how can rural people benefit from all these projects coming up?

  • Thanks to Russell Hangatt and Clara Momoi for their helpful introduction to the PNGDSP (‘the Plan’). My interest is in the prominence the document gives to the ‘informal sector’ as a source of livelihood in PNG. The informal economy is a much misunderstood component of the PNG economic system and I applaud its explicit inclusion in the Plan.
    It’s good also to see the informal ‘sector’ acknowledged as a functional element of the private sector, and to have planners accepting that informal enterprises are different and quite distinct from SMEs (instead of treating them as inconvenient and embarrassing appendages of the SME sector). The Plan implies, correctly, that the policy framework for informal enterprises should differ from that applied for SMEs. I have some difficulty with the Plan’s demarcation of the border line between the two categories, but we’ll get to that later.

    Other positive aspects of the treatment of informal enterprises in the Plan include its recognition of their role in lowering the cost base for the formal economy, its recommendations for the provision of public goods and services of particular value to informal economic activities, and its emphasis on microeconomic reforms likely to be at least as helpful to the informal as to the formal economy. The Plan gives welcome emphasis to the need for operators in the informal economy to have access to financial services and points to the particular inadequacy of such access in rural areas. It does well to suggest that financial regulators should pay attention to the unmet financial service needs of the poor and the isolated, and to remind us of the need for financial institutions to diversify their products to meet their needs.

    Having said that, I need also to point to some difficulties in the Plan’s treatment of the informal economy, which it classifies as a ‘sector’, alongside agriculture and manufacturing, and other sectors as conventionally understood. But the informal sector is not a ‘sector’ in that sense. The informal ‘sector’ is actually ‘cross-sectoral’. Almost every structural sector of the PNG economy has an informal component, in which informal labour and enterprise are engaged in the production of goods and/or services of economic value. This informal contribution occurs, to varying degrees, in agriculture, fisheries, mining, forestry, manufacturing, construction, financial services, retailing, and tourism. Telecommunications, thanks to the rapid spread of mobile phone technology, is the sector most recently opened up for informal economic activity.

    Since the ‘informal sector’ is not a sector in the conventional sense, why don’t we just agree to call it the ‘informal economy’? This usage has been adopted in the international literature for some time now, and has a number of additional advantages. Among these is that it focuses attention on the positive economic contribution of informal economic activities rather than on stigmatizing the people in it as a social problem. This is one reason why the policy brought to the NEC by Dame Carol Kidu last year, and approved by it, was titled ‘A National Policy for the Informal Economy’. It is perhaps unfortunate that this occurred too late to influence the language and content of the Plan, but if the Department of Community Development can drop the term, ‘informal sector’, why can’t National Planning and Monitoring do the same? The old name carries a lot of bad-news baggage and we’d be better off without it.

    My principal problem with the Plan concerns its treatment of financial services. In considering the financial service needs of people in the informal economy, it has failed to adopt a ‘financial inclusion’ approach, which would emphasize the need to bring the ‘unbanked’ under the umbrella of financial services in general. Emphasis in modern microfinance has switched to the need to provide a portfolio of services for the poor, principally deposit accounts, but also remittance and payments services, aside from credit. Instead the Plan proposes ‘a specific credit line with the National Development Bank to enable growth and development of indigenous micro-enterprises’. This would tie the fortunes of the informal economy to an institution not even licensed to accept deposits. The Plan appears almost to equate ‘finance’ with credit; this at a time when the beneficial impact of micro-credit on the well-being of the poor is under empirical challenge. Further, although it has correctly identified a financial services gap, the Plan appears to place too much reliance on ‘informal’ microfinance institutions to bridge that gap. It gives insufficient attention to the capacity of regulated financial institutions (including new small regulated banks with authority to mobilize deposits) and new technologies to do the job. For example, despite giving much attention to ICT issues, it fails to mention the potential of mobile phone banking to serve isolated and poor clients.

    As mentioned above, informal microenterprises and SMEs are discussed separately and different policy recommendations are presented for each. A clear statement of how planners understand the differences between the two categories is lacking, and it would be helpful if the Plan could spell this out. (Example: genuine SMEs need access to credit, but for microenterprises credit is a secondary consideration). The SME ‘sector’ in PNG is said to be small, weak and undiversified by international standards. Even so, the Plan appears to exaggerate SME numbers. ‘Tucker shops’, most of which are surely informal entities in terms of culture and capitalization, are said to comprise almost half of all SMEs. This characterization seems to reflect bureaucratic claims on turf, more than any concrete reality. A related disconnect between aspiration and reality is seen in the ‘rags-to-riches’ scenario depicted in a chart (5H: ‘the entrepreneurial career: from unemployment to a formal business’). Alas, while some fortunate and gifted individuals may make the transition described, better policy would focus realistically on facilitating the participation of larger numbers of households in a thriving informal economy.

    There are many more opportunities for informal income generation than appear in the Plan. For example, ambitious targets are proposed for home building without any role envisaged for informal and self-help contractors, while the possibilities for provision of a wide range of services, both urban and rural, are not explored. In fact, the Plan’s ambitions for informal economy job creation are rather modest, especially when compared with the numbers of formal jobs expected to flow from the PNGDSP, as modeled. Chart 1H and the accompanying table suggest that only some 49,000 new informal sector jobs will be created by 2030, compared with more than a million formal, non-agricultural, jobs. But perhaps this number is an artifact of the modeling process. If informal ‘sector’ employment is regarded as a residual, unemployment is held at 5%, and some 1.7 million ‘formal’ jobs are created, there aren’t really many able-bodied people left to work in the informal economy.

    John Conroy, Visiting Fellow, Crawford School

  • Thanks Satish, your excellent 2007 paper, which can be found here, is a must read on the importance of governance, including combating corruption and government effectiveness, for growth.

    This paper argues for improved policy choices for growth of incomes as the priority for a reform-minded Papua New Guinea government due to take office following the elections in mid 2007. Amongst the policy initiatives are a committment to improved governance including a campaign to clean up corruption; greater investments in public infrastructure to deepen the trade and cultural bonds between the disparate parts of the nation; concerted efforts at reducing the costs of doing business to raise the level of investment and employment generation; and placement of an arms-length, results-based, evaluations and monitoring framework to track progress on each of the above-mentioned. Some thoughts on the role an active donor community could play are also provided

    I agree with you that the rate of growth has picked up in recent years, but this does not appear to be correlated with improved governance (at least not positively–see chart.)

    I agree with you that the link between growth and governance should hold for longer-term growth. However, this short-term upturn in growth can largely be explained by the upturn in commodity prices and investment in the LNG project. For welfare and longer-term growth, the important link is between governance and the delivery of basic services and investments in infrastructure.

  • PNG has never been short of excellent plans and superb policy recommendations. For Matt’s information, I had created the Botswana, Malaysia, and Nigeria scenarios for PNG that was published in the PEB in 2007 (volume 22 (1); pages 70-82). The billion Kina question is if these excellent plans in the form of the PNGDSP and MTDS will ever be fully implemented. The past does not provide reasons for hope, but things may have changed in PNG. The rate of economic growth has!

  • Clara and Russell,

    Thank you for producing a summary of Papua New Guinea’s Development Strategic Plan (DSP) and Medium Term Development Plan 2011-2015. There is a lot of interest in both of these development policy documents and your article will encourage people to read further and continue the discussion.

    The PNGDSP and MTDP set out ambitious targets for development in PNG. Meanwhile large revenues from the LNG sector open up a range of possibilities.

    One scenario is that the PNG government invests revenues well: allocating resources to services and programs with high economic and social returns, and implementing these both efficiently and effectively. As you point out, this could also be called the Malaysia scenario.

    Another scenario is business as usual. Misallocations of resources continue, implementation remains weak and fragmented, and services suffer. (My blog on the 2011 budget is along these lines.)

    In a worst case scenario, Papua New Guinea could experience a full blown resource curse, characterised by rising corruption and waste, loss of competitiveness, and possibly conflict. We could also call this the Nigeria scenario.

    While the PNGDSP and MTDP present a case for the first of these scenarios, the second two are possible, and some would argue more probable.

    In discussing the PNG government’s new development policies, there are several questions that we might want to consider:

    1) Are the policies set out in the DSP and MTDP likely to lead to the results envisaged? Do they represent good value for money?

    2) Does the government have the capacity to delivery the DSP and MTDP? If not, what can it do to create an enabling environment for other partners (NGOs, churches, companies, donors) as part of a broader service delivery system? What is the role of aid?

    3) Given that so much depends on implementation, what can be done to strengthen the accountability of service providers (and MPs?), especially to the people who are supposed to be receiving services? And what can be done to strengthen feedback from recipients to Planning, service providers and MPs on the availability and quality of services? (Also see Paul Barker’s blog on this.)

    These are just a few questions, to get a discussion going. Once again thank you for producing the summary of the DSP and MTDP and the documents themselves can be found here and here.

    Will PNG follow a similar path to Malaysia or Nigeria, or muddle through? I hope it is the former, and that’s why we need a full discussion of policies, implementation and accountability.

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