Economic and security challenges facing PNG and the Pacific Islands

Volume I – Economic and security challenges facing Papua New Guinea and the island states of the southwest Pacific

© Commonwealth of Australia 2009
ISBN 978-1-74229-150-5

19 November 2009

Executive Summary
In this report, the committee considered the nature and extent of the key economic challenges facing Pacific island countries and Australia’s bilateral and regional endeavours to help these countries meet such challenges. The committee covers security matters in a separate companion volume.

The committee identified a range of impediments to economic growth in Pacific island countries. Some of these are inherent structural problems that are beyond the control of these countries—small populations and land mass, limited range of natural resources, remoteness and susceptibility to natural disasters. These physical and geographical limitations often produce conditions that inhibit the ability of Pacific island countries to develop their economies. They include little scope to achieve economies of scale, difficulties developing the human capacity necessary to support and sustain a growing economy, narrow economic base, reliance on a small range of export products and the need to import key strategic products, such as energy. These circumstances, however, are not fixed and can be moderated to minimise their adverse effects on economic development.

Thus, although difficult, it may be possible for Pacific island countries to diversify their production base, build much-needed human capacity, expand their export markets, minimise dependency on imports, and make the environment more resilient to the damaging effects of natural disasters. A number of submitters, however, pointed to the poor or lacklustre economic performance of Pacific island countries and suggested that they are not fulfilling their potential; that, despite their disadvantages, they could do more to help themselves toward increased growth and better development outcomes.

Australia is actively assisting Pacific island countries to meet their many economic challenges with its extensive aid program in the region. Work is being done in agriculture, fisheries, forestry, mining, natural disaster management, climate change, economic infrastructure, education, health, financial management, governance, law and order, land tenure and financial services. Across all these key areas, Australian funding is being used for research and development, building and improving infrastructure, and to provide advice, training, education and technical assistance.

Although the region has been receiving high levels of assistance for many decades from overseas donors, including Australia, many Pacific island countries still struggle to meet their economic and development challenges. In particular, capacity constraints, both in physical and human resources, continue to impede economic development in the region. In this context, the committee expressed a number of concerns about aid delivery to the Pacific which have direct relevance to Australia’s official development assistance (ODA) program. The committee found:

  • aid does not always reach the intended beneficiaries or those most in need of assistance;
  • Australia’s response to the effects of climate change in the region does not seem to match the islands’ urgent call for action—importantly environmental matters are not yet a mainstream concern guiding the formulation of Australia’s ODA policy;
  • more effective ways need to be found to help ease the burden on Pacific island countries of monitoring and policing activities in their EEZ, forests and around their border crossings;
  • although over 50 per cent of Australia’s bilateral ODA to the region goes to governance, one of the main weaknesses remains the inability of bureaucracies in Pacific island countries to deliver essential services on the ground—whether it relates to resource management, education or economic infrastructure;
  • the tendency for the benefits from aid programs to fade as projects come to an end and funds and technical assistance are withdrawn;
  • ODA could be aligned more closely with the needs and priorities of the recipient country—for example, evidence suggested that there was a serious disconnection between the courses offered by training institutions in the region and the requirements of local businesses and industries;
  • better use could be made of the private sector to help alleviate poverty in the region and boost economic activity—sustainable tourism in particular holds much promise;
  • aid work could be better coordinated with the activities of other donors, including within Australia (state and local governments and NGOs) and with donors from other countries;
  • Australia’s ODA policy framework could be strengthened by integrating the many and varied activities into a concerted whole-of-government effort—indeed, even within sectors, there appears to be a lack of policy coherence, such as in governance;
  • a need to ensure that there are strong links between Australia’s response to conflict and complex emergencies and the need for longer-term assistance in capacity building and disaster management;
  • statistics on key development indicators such as school attendance, literacy, numeracy, employment and workforce participation are sketchy, unreliable and out-of-date, which makes policy-making difficult for the governments of Pacific island countries and for aid donors; and
  • monitoring and evaluation of Australian aid programs, critical to achieving continuous improvement, could be more robust.
  • Finally, Australians working in the region have accumulated, and continue to add to, an impressive body of understanding and experience in the complex and difficult task of building capacity, especially in the transfer of skills. It is important that this knowledge is captured and used to benefit all those engaged in Australia’s ODA.

View the report as separate downloadable parts:

  Spacer Image
Members of the committee (PDF 47KB)
Acronyms and abbreviations (PDF 49KB)
Executive Summary (PDF 70KB)
Chapter 1 – Introduction and conduct of inquiry (PDF 74KB)
Referral of inquiry
Terms of reference
Conduct of inquiry
Scope of inquiry
Structure of the report
Part I – Overview of the economic performance of Pacific island countries
Chapter 2 – Economic performance (PDF 104KB)
Economic growth
Overseas aid
Global economic turmoil
Human development
Chapter 3 – Structural impediments to economic growth (PDF 106KB)
Land mass
Natural endowments
Proximity to major markets
Natural disasters and climate change
Part II – Sustainable development and commercial opportunities
Chapter 4 – Food security—agriculture and fisheries (PDF 680KB)
Food security
Sustainable development
Coastal fisheries
Commercial fisheries
Chapter 5 – Forestry and mining (PDF 209KB)
Forests and sustainable development
Sustainable development, natural disasters and climate change
Chapter 6 – Australia’s assistance—sustainable development (PDF 831KB)
Food security
Agriculture—research, development and capacity building
Fisheries—research, development and capacity building
Minimising the effects of natural disasters and climate change
Chapter 7 – Opportunities for commercial development (PDF 242KB)
Cash crops
Impediments to commercial production
Quality of produce and reliability of supply
Quarantine restrictions
Business management skills
Marketing and negotiation skills
Mining—expanding export earnings
Chapter 8 – Australia’s assistance—expanding markets (PDF 98KB)
Research and development
Non-tariff barriers
Trade negotiation skills
Pacific Investment Commissioner
Chapter 9 – Business environment—infrastructure (PDF 632KB)
State of infrastructure
Australia’s assistance
Chapter 10 – Education and training (PDF 231KB)
Skills shortages and unskilled workforce
Impediments to higher educational standards
Chapter 11 – Australia’s assistance—education and training (PDF 923KB)
Regional initiatives
Australia’s engagement in Pacific education and training
Review of Australia’s assistance to education and training in the region
Chapter 12 – Workforce (PDF 98KB)
Employment in Pacific island countries
Unemployment and underemployment
Opportunities for job creation
Chapter 13 – Australia’s response to unemployment (PDF 245KB)
Pacific Seasonal Labour Pilot Scheme
Benefits of the scheme
Concerns about the scheme
Suggested improvements
Chapter 14 – Economic management and state institutions (PDF 98KB)
Public administration and economic performance
Capacity to deliver essential services
Financial management
Chapter 15 – Australia’s assistance—strengthening governance (PDF 103KB)
Effective administration
Public sector capacity
Key institutions—oversight and accountability
Parliamentary oversight
Policy coherence
Chapter 16 – Private sector—driver of economic growth (PDF 113KB)
Encouraging private enterprise
Ease of doing business
Capacity to reform regulatory environment
Control of corruption
Law and order and political stability
Australia’s assistance
Chapter 17 – Land tenure and access to finance (PDF 859KB)
Land ownership—obstacles to development
Australia’s assistance
Access to credit and financial services
Australia’s assistance
Part III – Effectiveness of Australia’s assistance to the region
Chapter 18 – Effectiveness of Australian aid—policy framework (PDF 139KB)
Australian official development assistance to the Pacific
Capacity building and institutional strengthening
Continuity of funding
Ownership and complementarity
Other donor countries
Strategic planning
Measuring effectiveness—Office of Development Effectiveness
Chapter 19 – Pacific Partnerships for Development (PDF 82KB)
Priorities and commitments
Coordination with other donors
Chapter 20 – Australia’s development assistance—on the ground (PDF 98KB)
Technical assistance
Institutional strengthening
Training and preparedness