The first time I ever heard the term ‘Dutch Disease‘ was from Tavuvur’s enlightening post on the matter. The idea essentially being that when mining and petroleum industries are in boom, manufacturing (and agriculture) seems to start heading the opposite direction primarily because the latter industry becomes under resourced among other things. Paul Barker from the INA mentioned the term again in a commentary recently, so I’m getting the feeling that this must be an important term or yard stick that we must note as we move towards 2012 when full production at the PNGLNG is expected to commence.
I would assume therefore that the ‘Dutch Disease‘ is more of an indicator of where the Governments long term priorities lie. The ultimate victims of the Disease however appears to be employment and entrepreneurship since the bulk of the PNG population live in the rural parts of PNG. I’m guessing that to avoid or immunise ourselves against contracting the ‘Dutch Disease’ the Government needs to enable more Papua New Guineans at whatever level of society to be contributing in some way to the economy, be it formal or informal.
John B Varey, (a program coordinator for the Informal Economy Committee that operates under the Consultative Implementation and Monitoring Council), wrote a good article on the untapped potential of the informal sector. It was appropriately titled, ‘Will LNG Really Boost PNG..?‘ I myself can say that I have been effected by the LNG project; we designed the PNGLNG website for Exxon Mobil with ongoing work this year, so I have work directly related to the project. What John Varey was asking in his commentary though was, what about every other person in PNG?
He makes a good point. The LNG project should be part of a varied diet for our economy. It is not a silver bullet for economic growth. He believes that “The Prime Minister is over confident of the Liquefied Natural Gas to be the biggest macroeconomic project ever undertaken in the history of PNG…Unless the Government places more emphasis in developing a vibrant micro economy from informal to small and medium enterprise to compliment its macro economic activities, LNG will not raise the PNG income per capita and address the increase levels of poverty.”
I particularly liked the figures that John laid out to illustrate his point that it is really the informal sector that is our hope for ‘poverty alleviation [and/] or wealth creation‘:
- The LNG project is expected to deliver around 7,500 jobs at peak construction. Out of which 1,500 will be Papua New Guineans and 6,000 will be expatriates.
- Looking at employment in the petroleum and mining industries in 2007, total direct employment provided by Oil Search, Lihir Gold, Pogera, Kainantu, OK Tedi, Tolukuma, Ramu Nickel, Hidden Valley, Sinivit and Simberi put together was 10,003 and around 7,500 was contractual. Mining and petroleum industries do not provide significant formal employment opportunities to improve the quality of life of the citizens.
- In the period since Independence, GDP has grown nearly 10-fold from K1.5 billion at Independence to an estimated K13 Billion in 2008. But the formal private sector employment was about 192,000 in 2007, while the public sector was around 77,000 employees in 2008, making a total formal sector employment around 269,000 or about 4.8% of the population. Even if it had doubled to 500,000 it would still only represent less than 10% of the estimated population of around six million people. This means that the remainder of Papua New Guineans (95%) rlies on the informal economy inlcuding the subsistence sector for their existence.
- The number of people earning $1 per day was 1.2 million in 1990 and grew to 2.4 million 2007; the number earning $2 per day went from 2.3 million in 1990 to 4.3 million in 2007. Thus almost 95% of Papua New Guineans rely on the informal sector for whatever income they receive.
So John’s suggestion is that we make a ‘paradigm shift in our focus from macro economic activity to micro economic activity to boost the economy in a sustainable manner for many generations to come‘.
On a practical level, what will implementing that ‘paradigm shift’ look like? As someone who runs a small business, there are simple things that would make running a small business a whole lot easier for myself and I imagine this would be generally the same for anyone else be they a buai seller or a potato grower and they are:
- Cheaper Communications (internet, wired and wireless telephony)
- Sealed Roads, (so I have to spend less on vehicle maintenance)
- Reliable Power Supply( so I don’t have to keep replacing UPS’s and Power Boxes or spending money on diesel for a generator)
- Cheaper Financing, (I’ve recently acquired a loan through a financial institution from overseas because it was simply cheaper to borrow from a bank outside of PNG).
But I’ve never, ever in my life had a call from the government to ask how I was going and if there were ways it could make running a small business easier.
If we as a country are going to make good of this huge opportunity to put money into infrastructure and policies to grow jobs and insulate against the ‘Dutch Disease’ it won’t hurt also to look at the history of other nations to avoid all the pit falls. A Bill Powell in TIME Magazine put it this way:
It’s called the “resource curse” — and what it means is that many economists have come to accept that for developing countries, less is more. Think of Ghana and Zambia, which upon independence expected that their cocoa plantations and copper deposits would ease their way to prosperity — and were quickly disabused of the idea. Think of Saudi Arabia, where they import Filipinos and Palestinians to do the work as the sheiks jet off to party and shop in London and Paris. When the Netherlands in the 1950s and ’60s discovered a huge amount of natural gas off its shores, only to see the rest of its economy subsequently go into the tank, the phenomenon became known as the “Dutch disease.”
Yet aside from all the economic theories, all the government policies, the politics and all the money at the end of the day one huge factor seems to stand out, which if we get right should allow us to deal with anything be they good or bad. That simple factor is ‘Governance’. ‘Governance’ is the only key that has allowed developed countries to almost seamlessly evolve from their resource booms to the information economies they are today. If we want our Government to start looking at developing the informal sector and putting our money in sustainable investments for our children, then all their work must be done under the watchful eyes of ‘Good Governance’.
As Bill Powell put it, at the start of the 20th Century there was one such country that had a resource boom. A boom with Gold and Oil, which brought all sorts of men to its shores. If you’ve ever watched the movie ‘There will be Blood‘ then you might have an idea of the ‘every man for himself’ attitude that was prevalent at the time. But the United States of America seems to have come out of that phase pretty well. Even a country like United Arab Emirates with men like Sheikh Zayed bin Sultan Al Nahyan should be studied, in how they turned their tribally organised desert into a modern Paradise on the back of energy resources. My brother who is based in Abu Dhabi tells me that 80% of the UAE’s population is comprised of foreign workers who all work for the nationals of UAE who own everything themselves.
So what’s our story to be? Will more mean less or will less mean more?