By On Tuesday I was invited by the World Bank to attend the Video Conference seminar for the World Banks launch of the East Asia & Pacific half yearly regional update. I’m not exactly sure why I was invited because I’m not an economist and allot of the language flew over my head, but in any case it was still a throughly absorbing event for me.
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The seminar was based on the paper, ‘East Asia Update: Testing Times Ahead’ Economies Still Buoyant Amid Faltering Global Economy, Says World Bank’s Six-Monthly Review. The basic gist was as follows:
With the slowdown of the US economy, what spillover effects will it have on East Asia and the Pacific? With China as a powerful regional locomotive, has the region “decoupled” from the US economy? Will the region’s economic fundamentals be strong enough to help it weather the volatility? With its large reserves, could the region withstand further shock if the financial situation in the US worsens? These are some of the questions addressed in the report.
[Vikram Nehru, World Bank Chief Economist for the East Asia and Pacific Region, will be online on Tuesday, April 8, at 11:00 a.m. EDT to discuss the findings of the Update. You may access the new edition at www.worldbank.org/eapupdate. Read more about Vikram Nehru]
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There were a handful of us there and I came in a little late so I was too shy to have a good look around to see who was there or if I knew anyone. The Seminar was held in the World Bank Development Cooperation Centre on the 14th Floor of the Deloitte Tower. The office boasts a high speed satellite link for it’s video conferencing services. This is the first time I’d been to anything like this and I’m sure those of you who didn’t go to University in PNG may be familiar with this but I was quite impressed on a technology level. (Had some ideas going through my head about using the facilities for business/technology/entrepreneurship seminars, which could be fed live to PNG so we could participate without leaving Port Moresby).
Mr. Nehru’s seminar was being broadcast from Tokyo, so along with PNG and Tokyo, Beijing, Ulaanbataar, Dili and Sydney all joined in for the presentation. After the seminar each country was shown live on camera to ask Mr. Nehru questions. I was dissapointed that our country did not ask more than one question. Is it a PNG thing to be embarrassed all the time so we don’t meaningfully participate in opportunities like this? I would have asked a question myself if I knew how to word it like an economist, I swear they speak another language.
Essentially the message that I got from it was that, there was now a re-balancing of trade imports in the Asia Pacific region and so the US now accounted for less than 30% of that which is a huge shift from say 10 years ago. In doing so the US situation now has less of an impact on the region although the decline was important. Again, I’m not going to try and even attempt to explain the economic implications etc, so if you want to read a round up here is a good blog to have a look at.
Another point I picked up on was that commodity prices have increased drastically and PNG has greatly benefited from that with exports. But on an imports side that makes food especially expensive. So on a regional and global level there is still not enough agricultural production and yields have to be increased to keep costs low and for food security. There is much debate and talk about PNG re-investing in agriculture as opposed to the heavy reliance on mining revenues and clearly PNG is well poised geographically to be a major exporter of food. But if only?? and we all know too well the hurdles for us reaching our potential here.
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So getting back to the report, it appears that from the Pacific they only covered Fiji, Solomon Islands and PNG. I’ve put them below for us to read:
Fiji
Since the takeover of Fiji’s Parliament in December 2006, the Interim Government led by the military commander has continued to face international sanctions by some donors. These include the suspension of parts of the aid program and immigration restrictions. Restoration of bilateral relations with key external partners remains largely dependent on the Interim Government’s demonstrating a commitment to return Fiji to democracy. National elections are expected in the first quarter of 2009.
Fiji’s real GDP contracted by an estimated 4 percent in 2007, largely reflecting the effect of recent political events on the tourism and construction sectors. Tourism earnings fell by an estimated 20 percent while construction activity declined by one‐third in the first 9 months of the year. Sugar production declined by 23 percent due to unfavorable weather conditions and supply chain inefficiencies. Copra production declined by 9 percent. Garment export earnings have remained subdued since the expiry of the US preferential agreement in 2005.
The trade balance showed some improvements in 2007. Export earnings rose slightly (led by mineral water, fish, and timber), while imports dampened, reflecting tightened credit conditions (following the imposition of credit ceilings on commercial banks). The trade and current account deficits remain large at approximately 27 percent and 16 percent of GDP, respectively. Despite the current account deficit, the balance of payments recorded a small surplus largely attributable to foreign direct investment. With the import cutback driven by investment goods, investment declined from 19 percent of GDP in 2006 to approximately 15 percent in 2007. Domestic demand weakened in 2007, as indicated by slower domestic credit growth (from an average of 28 percent in 2006 to 6 percent in September 2007), sluggish employment conditions, fall in remittance receipts, and declined imports of consumption goods.
On a positive note, gross foreign reserves stabilized in 2007 to reach US$618 million as of December. Excluding foreign assets of non‐bank financial institutions, gross reserves were estimated at US$510 million at end‐2007 (sufficient to cover approximately 3 months of imports).
The budget was in near balance in 2007 through a substantial reduction in capital expenditure and a cut in civil service wages. The 2008 budget targets a fiscal deficit of 2 percent of GDP, focusing on consolidating Fiji’s fiscal position and reducing public debt from 50 percent to 45 percent of GDP over the next 3 years.
Inflation for 2007 was estimated at 4 percent, reflecting increases in excise duties and higher food prices following supply shocks (flood‐ and cyclone‐related losses). However, it jumped to 7.4 percent at end‐January 2008 as higher global oil prices affected domestic transport and electricity costs, and higher international wheat prices and cyclone‐led disruptions in local supply increased food prices. The inflation rate projected for end‐2008 has been revised upwards to 5 percent.
A modest recovery of approximately 2 percent real GDP growth is forecast for 2008 linked to expected growth in tourism. However, economic recovery remains vulnerable to political instability, natural disasters (cyclones, floods), high global oil prices, and uncertain relations with key development partners. Reforms in macroeconomic policy, public sector management, land, and the sugar sector are much needed but difficult to implement under present circumstances.
Solomon Islands
Macroeconomic stability has been maintained since the start of the Australian‐led Regional Assistance Mission to Solomon Islands (RAMSI) in 2003 to help end the civil conflict in the islands. Law and order has been restored. Economic growth averaged 6 percent in 2003–07, but is heavily reliant on logging and foreign aid. Per capita income is the lowest in the region.
The political environment remains fluid. A motion of no confidence was recently voted against the Prime Minister. A new Prime Minister was elected on December 21, 2007 and has formed the Coalition for National Unity and Rural Advancement. The new government has publicly stated support for RAMSI operations and is looking to improve cooperation with RAMSI.
Non‐logging real GDP grew by an estimated 3.5 percent in 2007, aided by increased production of palm oil, cocoa, and copra boosted by rising international prices. Including logging activity (10 percent of GDP and 70 percent of exports), real GDP growth was estimated at 5.5 percent in 2007. However, the current unsustainable logging rate implies a rapid decline
in timber stocks ending in depletion by 2015.
The current account deficit widened from 26.5 percent of GDP in 2006 to an estimated 40 percent of GDP in 2007. The increase was attributable to a larger food, fuel, and investmentrelated import bill. Gross foreign reserves are expected to remain at reasonable levels— covering approximately 4 months of next year’s imports of goods and services—thanks to
continued strong official development assistance and FDI linked to palm oil and gold mine projects.
The budget surplus narrowed from 4 percent of GDP in 2006 to an estimated 0.5 percent of GDP in 2007. The reduction stemmed mainly from higher spending related to disaster relief efforts and an increase in the public wage bill. A government proposal to raise reference prices for logs as of October 2007 was deferred, resulting in a loss of potentially significant log revenue collection.
Government initiatives to regularize debt and its current policy of no new borrowing have reduced debt levels. Total public debt declined from 73 percent of GDP in 2006 to 67 percent in 2007, and is projected to continue to decline in the medium term. The external debt service ratio is estimated to have fallen from 7 percent of exports in 2005 to 4 percent in 2006 and 2007. However, the current debt burden remains at high risk of distress.
Inflation decelerated from 8 percent in 2006 to approximately 6 percent in 2007, led by easing pressures on prices for domestic food and other goods. On the other hand, rising prices for diesel and petrol continue to pose risks to the inflationary outlook.
Real GDP growth of approximately 4 percent is forecast for 2008, with non‐logging growth expected to strengthen to 4 percent–5 percent as new investment projects commence.
Reforms for improving natural resource management and revenue collection, continued fiscal discipline and targeted spending on priority areas, and reducing the cost of doing business (improving utilities, transportation, and the predictability of the investment environment) remain important for long‐term sustainable growth.
Papua New Guinea
A prudent macroeconomic policy mix together with favorable terms of trade trends has helped Papua New Guinea maintain macroeconomic stability, strong external balances and solid economic growth over the past five years. Formal employment, although very low as a share of the labor force, has also expanded. The country, however, faces difficult
development challenges, including weaknesses in governance, infrastructure, human development, the business climate, public financial management, security, and service delivery.
The political situation in PNG has stabilized in recent years. The coalition government headed by Prime Minister Somare between 2002 and 2007 was the first since independence to serve a full term. The mid‐2007 national elections returned PM Somare’s coalition to power. Political stability and the resulting greater consistency of policies have contributed to the recent strong macroeconomic performance.
In the past five years, PNG has seen the longest period of uninterrupted growth since independence in 1975. Real GDP growth in 2007 climbed to around 6 percent, the highest in a decade. Growth was led by construction, telecommunications and export‐oriented agriculture (coffee, copra and palm oil) and mining. Formal employment across most sectors has grown by around 10 percent annually since 2005. Growth is expected to continue although structural constraints are likely to slow its pace over the medium term.
The fiscal position remains strong. Budget revenue is booming as world market prices for PNG’s key exports (oil, copper and gold) reach new highs. The government has prudently restrained expenditures, directing part of the windfall mineral revenues to public debt repayments and saving a part in trust accounts for one‐off investment spending in the future.
As a result the central budget had a strong fiscal surplus (around 6 percent of GDP) in both 2006 and 2007. The non‐mineral budget deficit, meanwhile, remained relatively steady over the past two years at around 7‐8 percent of GDP, indicating that the injection of windfall revenues into the economy remains under control. By end‐2007 the windfall revenues in trust accounts designated for future investment reached about 17 percent of GDP. The 2008 budget and the newly prepared medium‐term fiscal framework envision continued fiscal restraint and expenditure smoothing over the commodity price cycle.
The public sector debt burden has been substantially reduced in the past five years. Healthy growth, an appreciation of the real exchange rate, tighter external borrowing policy and prepayment of public debt using a portion of windfall revenues, have led to a fall in the public debt‐to‐GDP ratio from over 60 percent in 2003 to around 35 percent in 2007, and the
declining trend is expected to continue in coming years. Inflation appears to remain subdued: consumer prices rose by an average of 0.9 percent in 2007 compared to 2.3 percent in 2006.17 But average consumer price inflation excluding seasonal products, goods subject to price controls, and changing excises, was close to 7 percent in 2007, an acceleration compared to the previous year. In the medium term inflation is expected to pick‐up as the economy will have to cope with continued monetary expansion coming from accumulation of foreign exchange reserves, strong growth of credit to the private sector, and record low interest rates.
The current account surplus rose to over 4 percent of GDP in 2007, thanks to high commodity prices. In the medium term it is expected to decline as import growth rises in line with per capita income, investment, and output. International reserves increased from US$1.4 billion at end‐2006 to US$2.1 billion at end‐2007, equivalent to about 4.5 months of imports of goods and services or about a year of non‐mineral project‐related imports. Reserves have stabilized in early 2008 as imports have been increasing. The kina has been fairly stable in recent years, appreciating against the US dollar in 2007 by around 2 percent. Given the expected continued strong commodity export inflows, some appreciation pressure on the kina will remain in the coming year or two.
Notwithstanding Papua New Guinea’s comfortable macro‐fiscal position, significant structural and policy challenges limit its long‐term growth potential. Most notable among these is the institutional and policy framework for public financial management. Critical areas for improvement are the integrity of budget processes, intergovernmental financial arrangements, efficiency of sectoral expenditure and service delivery, performance of the civil service and parastatals, and transparency and accountability in budget management. To stimulate private sector investment, particularly outside mining, the critical priority is improvement in the business climate, especially by opening more markets to competition,
reducing the regulatory and licensing burden, clarifying property rights (especially for land), and maintaining law and order.
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April 4, 2008 at 10:51 am
Emmanuel
Some News from Islands Business Magazine:
Tourism still #1 industry
Papua New Guinea recorded the highest percentage of visitor arrivals in the region last year, beating its 2006 record by 34 percent.
The country saw 104,122 visitors compared to 77,731 in 2006.
Overall, the region was visited more by 4.1 percent than in 2006, a result that has pleased south-pacific.travel.
“Given the increased cost of oil, this level of growth is a pleasing result.
“It shows that tourism continues to lead economic development in the South Pacific,” chief executive of south-pacific.travel, Tony Everitt said.
A total of 1,344,685 visitors mostly from Australia and New Zealand visited Cook Islands, Fiji, French Polynesia, Kiribati, New Caledonia, Niue, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu who are members of the south-pacific.travel.
This is compared to the 1,282,267 visitors that visited our shores in 2006.
“Contribution from our southern markets has grown from 39 percent of total visitors to 49 percent in 2007.
“We think this is about a good level to maintain—southern and northern markets each contributing half of our total visitors.
“For one thing, the South Pacific is an ideal winter escape for people living in temperate countries. We have two winters on our planet so it makes sense to draw on both. Also, we want to keep a balanced portfolio of markets so that we don’t become overly exposed to any local downturn,” Everitt said.
In terms of numbers, Vanuatu was behind PNG in number of arrivals with 13,166 visitors—bringing their total number of arrivals to 81,345. Tonga’s arrivals totalled 46,040—an increase of 6589 visitors largely because of the Pacific Islands Forum meeting, while Samoa’s arrivals increased by 6368 to 122,250.
Visitors to the Cook Islands increased by 4937—taking their total number of visitors to 97,019. Increases were also recorded for New Caledonia, Solomon Islands, Niue and Kiribati. Tuvalu visitor arrivals was 1130—a decrease of one visitor.
Factors driving this growth, Everitt said was increased air services and destination marketing. The two big tourist destinations in the region, Fiji and French Polynesia still had the highest number of arrivals. But these numbers were lower than the 2006 arrivals.
Fiji was the leading destination in the region with 539,255 visitors but this was a decrease of 5913 from its 2006 record.
The political instability was the cause of the decline in the number of visitors to Fiji and lost earnings during the year which was estimated at F$200 million.
“Publicity of political events in Fiji impacted on visitor numbers in 2007. Some visitors may have diverted to other South Pacific destinations as a result.
French Polynesia recorded 218,241 visitors, a decline of 221,549 from 2006.
“In French Polynesia’s case, the USA is a key market and its downturn as a result of the economic issues there has impacted the total result. It’s pleasing to see increases in smaller destinations like Kiribati. The introduction of Air Pacific’s reliable weekly service to Kiritimati has allowed further development of niche tourism products, such as fishing tours in the Japanese market,” Everitt says.
Visitors to the region from Australia increased by 6.9 percent to 374,286 while from New Zealand it grew by 7.8 percent to 270,371.
“This continues a trend this decade of strong growth from our southern markets. There was a decline in visitors travelling from northern markets of Europe, Japan and the USA, although visitors from Asia and Canada grew strongly,” Everitt says.
The figures do not include cruise visitors (because historically these have been reported separately) but Everitt estimates the cruise visitor arrivals to be 900,000.
“The industry’s target earnings of US$2 billion per annum by 2010 could be challenged by current external events, especially the price of oil, a possible US recession and a possible economic slowdown in our second largest market—New Zealand.
“Whilst we imagine that most airlines will have some forward cover on the price of oil which may protect them for a short period from current price spikes above US$100, if oil stays at this level for an extended period there could be further price increases for consumers.
“Therefore, tourism businesses need to work even harder to target consumers who are less price sensitive.
“As our third largest market, a US recession would also be a dampener. Businesses should right now be carefully looking at their market portfolios to see where they could get some relief.
“Emerging markets for example may provide an opportunity to partially offset any ongoing losses from the US.
“Some economists think Asia might be less affected by a global economic slowdown.
“It is encouraging to see strong growths in Asian visitors to the South Pacific in 2007, albeit off a small base.
“Cruise is another area we think may be less impacted by both economic conditions and oil costs. Cruise customers are mostly retired with freehold property, so are less affected by real estate market downturns and high interest rates.
“And obviously, cruising is a more fuel efficient form of transport.” Everitt said.
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Reviving interest in PNG mining
Mining, which continues to be a driving force in Papua New Guinea’s economy, is undergoing a resurgence aimed at reviving interest in undeveloped prospects to further boost investment in the sector.
The Minerals Resources Authority (MRA), a new body set up by the government, has been tasked to stimulate mineral exploration through its Geological Survey Division (GSD).
“We have to be thinking ahead trying to find now in 2008, the mines that will be developed in 10-20 years time.
“So it’s an ongoing game where you have exploration, discovery and a delay of at least 10 or 20 years usually before a mine is developed.
“If you don’t have exploration, then you are reducing the prospects of being able to continue as a successful mineral-based economy,” says GSD Executive Manager, Professor Hugh Davies.
Mines like Ramu Nickel and Hidden Valley projects which are currently on advance development stages were discovered more than 20 years ago.
To encourage exploration, the GSD is developing new information and ideas that would help exploration companies to explore in new areas and hopefully find minerals which could result in new mines.
This information includes geological maps and information on how rocks originated and how the earth’s crust has moved with time.
The division will re-write a lot of work that was done in the past which are at the moment in manuscript forms. This information will be digitised and published in the MRA website so investors can easily access without having to come to PNG.
Work which are in manuscript forms include reasonably detailed geological maps on the western part of the Central ranges, which the then PNG Geological Survey and the Australian government geologists prepared in 1971-1972.
“We are now improving those maps by digitising them. We can now print them in colour, we can now make the digital maps available on the web,” says Davies.
The maps from the past contain information including places where people have discovered minerals previously.
A map may contain a “dot” and “Au” meaning that gold was found in this point and in the information accompanying that map it will state whether this was just an occurrence of few flakes gold or whether there was an act of alluvial mining at that point.
This information can be used as a factor in determining the potential of gold in that particular area and hence a decision to explore the area which may lead to a new mine.
“Other reports that will be digitised include those that were submitted by mining companies and our own geologists and overseas researchers. New exploration companies may be interested in previous geological work including results of drilling and stream sediment sampling.
“If people don’t know about those reports, then they can’t use them in developing their own ideas,” said Professor Davies.
He said that exploration was an ideas game. Exploration companies must believe that they could improve what has been done previously, either by obtaining new data or by applying new concepts.
Under the MRA, the GSD aims to recruit the best geologists to effectively implement its goals. It is hoped this will result in lifting the profile of the industry and encourage further investment and exploration.
The GSD’s efforts to stimulate exploration are in line with the MRA’s mission which is to effectively promote a healthy and sustainable mineral industry.
Davies’ study of Papua New Guinea’s geology spans half a century—beginning in the 1950s.
He has seen the mining industry grow from alluvial mining to world class copper and gold mines and operated under all sorts of administration from the colonial administration in small teams right through to the fully-fledged Department of Mining before its replacement.
The GSD’s general function is to acquire and generate geoscience data, store it systemically and make it readily available to stakeholders including exploration companies, geoscience researchers and members of the public.
This data includes geological, geochemical and geophysical data.
Mining companies need these sorts of information to be able to further research and determine which rocks have mineral deposits and which do not.
Unless companies have this information on hand, they cannot advance further in their efforts to explore for minerals.
Other data collected are used for awareness of geological hazards and advice on such matters as prospectivity.
The economy of Papua New Guinea has enjoyed good returns from mineral export receipts in the last five years.
In the December quarter of 2005, the Bank of Papua New Guinea reported in its Quarterly Economic Bulletin (QEB) that the minerals sector contributed 52.9% of total merchandise exports receipts to the government.
In 2006, total mineral export receipts excluding crude oil were K7499.3 million. This represented 59% of the total value of merchandise export which was K12, 617 million.
Last September quarter, mineral export receipts excluding crude oil totaled K1832.3 million and represented 55.7% of total merchandise exports, which was K3289 million. —By Sam Vulum
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Trukai’s remarkable breakthrough
Low rice supply in the Australian market resulting from prolonged drought conditions provided an opportunity for a Papua New Guinea company, Trukai Rice Limited, to take what is seen as a historic move by any PNG firm in the manufacturing sector.
It is a remarkable breakthrough for Trukai which is now leading the way by milling and packing rice in Lae to supply the Australasian market.
Trukai has further upgraded its high-tech manufacturing facility to world-class food technology standard and is processing paddy rice from Thailand and other sources for direct placement into Australian and also New Zealand supermarkets.
Trukai made a multi-million Kina investment in the Lae rice mill, which now works 24 hours a day to meet the demand for its packaged products, boldly addressing the import-export balance between PNG and its largest neighbouring market.
Apart from the Australian drought conditions, the opportunity has also arisen partly because Papua New Guinea has demonstrated its ability to mill and pack to the highest standards, with some relative cost advantages.
Trukai has been supplying a major share of the PNG market as well as exporting to the Solomon Islands for several years.
The recognition of its competitive efficiency by the Australian import and supply industry is a very pleasing development for one of Papua New Guinea’s most determined and committed manufacturers.
“We have employed extra people, because we have increased our work pattern from 10 shifts a week to 21.
“In other words, we are now a 24/7 operation,” manufacturing manager Steven Olds said.
“This is the era of globalisation and with new equipment and capital investment, plus skills and determination of our staff, we are meeting the challenge of being a first-choice manufacturer.
“We meet the stringent quality standards of the Australian market because we were already producing a top quality product for our PNG customers.
“The new equipment, planning and training and the need to be globally competitive in our costs and productivity, are all driving the business to better performance levels.
“The news is good for PNG manufacturing, and it’s also a very tangible boost to the morale of our workforce,” Olds said.