Poverty reduction lags as PNG economy booms
Updated
Papua New Guinea is in its seventh consecutive year of economic growth, with the level of poverty estimated to have dropped 8-point-8 percentage points. Compared to the stunning economic growth though, its impact on poverty reduction in the country is miniscule. That is according to a new report from the Lowy Institute, an independent think tank, which examines the relationship between economic growth and poverty in Papua New Guinea.
The reports author, Lawrence Chandy, is a Research Associate with the Wolfensohn Centre for Development at the Brookings Institute, and he explains why is such a huge gap between economic growth and poverty reduction.
Presenter: Geraldine Coutts
Speaker: Lawrence Chandy, Research Associate with the Wolfensohn Centre for Development at the Brookings Institute, New York
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CHANDY: Papua New Guinea has experienced an extraordinary period of growth, the longest one in its post-independence experience, and the effect on poverty has been muted. As you said it was an 8.8 percentage point reduction, which is not to be scoffed at, but it's less than it could have been. The explanation is how the money which the growth has helped to generate has been moved around the economy, and whether it has actually reached the poor. What I argue is that not enough of that money has actually reached the poor.
COUTTS: Well 80 per cent of Papua New Guinea's population probably are poor because they live in the rural sector, so let's just divide up this money that's coming in and will increasingly do so. It's going to government and businesses and that's where it ends?
CHANDY: Yeah I think that's right. So if you take for an example the new LNG project which is on everyone's lips at the moment. It's a massive project which will involve a huge investment in the country. They describe it as a $16 billion project with possible export revenues of around $3.8 billion a year over an extended period. Now that money, the question is, as you asked, where does it go? Well a lot of it goes to the company or goes to Exxon Mobil and its partners and they will take that money in terms of profits. Given that the major companies who are operating that project are foreign-owned, those profits which go in dividends to the owners of those companies essentially leave the economy immediately so it has little impact on Papua New Guinea. Now the government is a major recipient of the income which will be generated from the project. The question is what will the government do with that money and will it be able to channel it to the poor or not? And unfortunately in Papua New Guinea the government has a fairly poor record in using its money effectively.
COUTTS: Well have the analysts, the government and people's socio-economic performances, have they been misinterpreted? I mean have they been taking the wrong approach? You say in your report that the pre-poor have traditionally focused on the country's characteristics and the prevalence of constraint, so that's not the right approach?
CHANDY: Well I certainly think there's scope for some changes in the approach and how the government tries to generate growth and how it uses its money, and it seems to me that there is still a large bulk of the poor, a large share of those people you describe in the rural areas who remain very disconnected from the rest of the economy and what the government needs to do is think very seriously about how it can connect those poor to the rest of the economy. And the way to do that and one of the most obvious ways to do that is through infrastructure. At the moment there's a very limited road network in the country. It's not in very good condition. It's been improved but it's still in very poor condition. And if you look at the geography of the poor it's remained very similar over the last 30 years and that's because there hasn't been enough infrastructure development to link those poor to the rest of the economy.
COUTTS: Well can we just have a little bit of a look at that because what is the approach? I mean the Millenium Challenge, most countries in the Pacific are failing that because they're failing to meet poverty-reduction challenges. Where to from here, what do you do? I mean 80 per cent of the poor in PNG are in the rural sector. Micro-finance doesn't work, is the cash economy the answer or should we be looking elsewhere for poverty reduction solutions?
CHANDY: Well I mean I think there isn't a silver bullet and I think in some ways the government wishes there was, and I think have used this LNG project as possibly the silver bullet, which I think there's a very serious danger it won't be that. I think what the government needs to do is it needs to look back at the strategies which it came up with a few years ago. They have a great strategy in the medium term development strategy. It's a five-year plan of theirs, and they pledged in that strategy to focus on infrastructure, to focus on law and justice, to focus on reducing the costs of business, and also to focus on human development. Now the budget which they passed last week really paid only lip service I would say to that strategy. Instead it was focused on other things, sort of pet projects, ones associated with particular ministers, and there was very little focus on those priorities which the government really needs to keep its focus on.
COUTTS: So what do you recommend then that governments do to overcome the flow of income, revenue not getting out to 80 per cent of the population?
CHANDY: Well I think there are a few things they could do, I think they need to provide the sorts of incentives which might encourage companies to reinvest back into the country. You can do that through fiscal measures, no tax rebates, that sort of thing. You can also do it by trying to address the high cost of business in the country, that can be done through improving infrastructure, through improving security, fixing utilities. I think the government can also work to try and encourage individuals to pass their money around more efficiently around the economy. That can be done through the sort of financial development you mentioned with micro-finance. It can also be done by increasing employment opportunities in the country, and that always starts probably with education.
