Speech

Parliament House, Canberra, 1 December 2004

Papua New Guinea: The Road Ahead

A Speech at the launch of the DFAT Economic Analytical Unit report

Introduction

The High Commissioner of Papua New Guinea, His Excellency Mr Renagi Lohia, other members of the diplomatic corps, distinguished guests, ladies and gentlemen.

It gives me great pleasure to welcome you here to launch my department's new report, Papua New Guinea: The Road Ahead.

I congratulate Nicholas Coppel and the Department of Foreign Affairs and Trade's Economic Analytical Unit on producing another high quality report.

I thank AusAID and the ANZ Banking Group for their sponsorship.

Tackling the Challenges

Ladies and gentlemen

All of us gathered here today share a strong interest in the emergence of a secure, stable and prosperous PNG.

We are all aware that recent times have been difficult and challenging for PNG and its people.

What we have set out to do through this report - and in my view achieved admirably - is to encourage a better and wider understanding of the issues and challenges at hand and the priority of cooperating to address them.

None of us is in doubt as to the serious and systemic nature of the problems PNG must tackle today as a result of the economic and social decline of the past decade:

• the PNG economy contracted in all but two of the years covering the period 1995 to 2002

• and was characterised by high inflation, soaring budget deficits and public debt, outflows of foreign investment and rising unemployment.

Per capita income fell significantly, poverty levels rose and other social indicators worsened, including the incidence of HIV/AIDS, which I shall discuss in some detail in a moment.

As a concerned friend and neighbour who recognises the severity and complexity of the problems facing PNG, Australia has been working closely with the PNG Government to devise a comprehensive strategy to address the issues of concern.

A year ago in December 2003, Australia and Papua New Guinea agreed to an Enhanced Cooperation Program, or the 'ECP' as we refer to it.

The ECP is designed to assist Papua New Guinea to:

• deal more strategically with law and order issues;

• identify and reduce corruption;

• strengthen economic management and public sector reform

• and deal with pressing problems in border control, and transport security and safety.

Australia is providing new funding, estimated at $805 million over four years to 30 June 2008, for the ECP

• with the remaining costs to be absorbed within the existing $300 million annual bilateral aid program.

A such, the ECP is one of my Government's most important and ambitious foreign policy initiatives.

It illustrates the commitment of this Government to advancing our bilateral relationship with PNG in a way that will make a fundamental and positive difference to PNG and its peoples.

ECP is in the early stages of implementation, but we have commenced with the deployment of officials and police to work alongside PNG colleagues.

By early next year it is anticipated the ECP will have around 210 Australian Federal Police working side-by-side with their RPNGC counterparts

• in fact, the first joint police patrols in Port Moresby will commence tomorrow.

As part of the ECP there will also be:

• senior judicial and legal sector appointments

• senior in-line economic and financial managers

• and a range of officials working in agencies responsible for customs, immigration, aviation and maritime security.

The ECP contribution in terms of economic expertise is already in evidence, assisting with the framing of a very responsible PNG budget handed down on 15 November.

This is an encouraging development and one which backs up the the EAU re port's analysis that the PNG Government has made good progress recently on budget management processes and a well-designed public sector reform program.

These developments, combined with strong commodity prices and good prospects for the Highlands gas project, are all contributing to an improved economic outlook.

Importantly, this strengthens PNG's capacity to push ahead with much-needed public sector and fiscal reform

• it is certainly not a reason to take a break from these challenging tasks.

Papua New Guinea's fiscal situation needs to remain tight to avoid increases in indebtedness and interest rates.

The focus needs to be on getting the most development out of each kina in the budget.

This means less expenditure on public service wages and salaries and more on development and the delivery of essential services, especially in rural areas.

Driving Growth

The Economic Analytical Unit report correctly stresses the critical importance of a strong and dynamic private sector for economic growth

• and with that the need to create an environment in which the private sector can flourish.

As well as assisting government agencies, the ECP is seeking to improve the outlook and prospects for the private sector in Papua New Guinea

• indeed, we have liaised closely with the Australia-PNG Business Council over the past year on these matters.

In significant terms, Papua New Guinea's economic future will be shaped by developments in the mining, oil and gas sectors.

My Department's report considers the outlook for mining, oil and natural gas.

As the report states, mining - principally gold, copper and silver - accounts for 21 per cent of Gross Domestic Product and some 75 per cent of export earnings.

There has been an increase in exploration activity and there are signs that the Papua New Guinea-Queensland gas pipeline and the Ramu nickel and cobalt mine will proceed to development.

The critical question is whether the income stream from new projects will be sufficient to offset declining output from existing projects and fields over the next decade or so.

The report finds that the new projects would provide a much-needed boost to export income, national income and government revenue.

But they alone are not enough to produce a steady increase in per capita income.

Other sectors of the economy, especially agriculture and the informal sector, also need to grow.

The majority of Papua New Guinea's population support themselves through semi-subsistence agriculture.

Nothing improves the standard of living of ordinary Papua New Guineans more than improving smallholders' productive capacity and their access to markets.

Colonial era regulatory impediments to the growth of small, informal businesses need to be reviewed.

In the end - and as is the case for large prosperous economies and smaller developing economies alike - the expansion and diversification of PNG's private sector will require an unswerving commitment to:

• good governance;

• trade and investment policies that promote openness and productivity;

• policies that promote competition and minimal state interference;

• and adequate provision of basic social and physical infrastructure.

The Challenge of HIV/AIDS

PNGs economic prosperity, social stability and the growth of its private sector will be best served by a healthy and able populace.

But today - World AIDS Day - it is necessary for us all to acknowledge the extraordinary challenge PNG faces in dealing with the rapid spread of HIV/AIDS.

In November this year a Consensus Conference of HIV/AIDS experts estimated that up to 67 000 people in Papua New Guinea were likely to be already infected with the HIV virus.

As my Department's report notes, the growing incidence of AIDS will have a dire economic impact on households, firms and the Government.

Papua New Guinea's health system is already under-resourced and struggling to provide services at all levels.

It is not equipped to deal with an HIV/AIDS epidemic.

The Australian aid program has been helping Papua New Guinea address HIV/AIDS.

In 2000, the Australian Government agreed to fund a five year $60 million National HIV/AIDS Support Project.

And we are currently developing new programs of support in a number of areas.

Australia also is mainstreaming AIDS prevention activities across its whole aid program to Papua New Guinea

• ensuring infrastructure and transport projects do not increase the risks of HIV infection

• and building HIV education into training in fisheries, correctional services and law enforcement.

External assistance can play a part in the fight against AIDS, but the real leadership and commitment must come from the PNG Government and people.

There are indications of a greater recognition of the threat:

• the PNG Government recently enacted important legislation to help protect the rights of people with AIDS

• the 2005 budget saw a modest increase in support for the National AIDS Council

• and an increasing number of public figures are speaking out about the disease.

Conclusion

Australia has a real interest in a stable, prosperous, secure and well-governed Papua New Guinea.

We wish to do all we reasonably can to return Papua New Guinea to long-term growth and to deliver a better future for its growing population.

On 15 December I will travel to Papua New Guinea with my ministerial colleagues for our annual Australia-PNG Ministerial Forum.

Our meeting will provide an opportunity to review progress with the ECP and to discuss other bilateral issues.

I look forward to providing my PNG colleagues with copies of this excellent report.

I believe my Department's report will add materially to our collective understanding of the economic and associated challenges facing Papua New Guinea.

It will be a valuable resource for business and government alike

• helping us to achieve our mutual goals and to lay a stronger foundation for PNG's future.

I commend Papua New Guinea: The Road Ahead to you.

Thank you.