via PINA

Papua New Guinea’s investment in Australia reached US$1.2 billion, equal to 12.8% of gross domestic product (GDP) in 2010, according to Asian Development Bank country economist Aaron Batten.

This was 350% higher than the amount of money invested by Australian companies in PNG, he said.

Batten said the benefits of strong economic growth were being undermined by rising inequality.

“Rising inequality is partly a result of constraints on diversified business investment.” Batten said.

“Whilst the stock of private sector employment has doubled over the last decade, ADB estimates show that less than 5% of the population – or roughly 10% of the working age population – are currently able to earn a wage in the formal economy.

“PNG’s chief operating officers’ survey highlights that a shortage of skilled labour, poor law and order, lack of technical expertise, unreliable utilities from state-owned enterprises (SOEs) and the poor state of transport infrastructure impose major barriers on investment in the more labour-intensive and pro-poor, non-mineral economy.

“These constraints combined with rising firm profitability, have led to a dramatic outflow of investment funds from PNG over the last decade.”

Batten said PNG’s macroeconomic success masked a growing sense of unease about the distribution of the benefits of growth and the government’s ability to translate wealth and macroeconomic stability into better public services.

“Progress has been made in some areas,” he said.

“The proportion of the road network classified as being in ‘good’ condition has risen from 10% in 2003 to 33% last year, and under-five mortality rates have fallen in many provinces.

“However, available evidence suggests that many areas of core public services have deteriorated over the last decade, particularly in rural and remote areas.

“PNG is one of a handful of countries not on track to meet any of the Millennium Development Goals.”

Batten said high inflation also undermined the inclusiveness of growth.

“Although wage earners can negotiate higher wages when costs rise, the roughly 85% of the population reliant on cash crops for their semi-subsistence livelihoods have seen their purchasing power deteriorate rapidly in recent years,” he said.

“Structural constraints in land and housing markets have restricted the supply response to rising property demand and contributed to sharply increasing rental prices.

“As a result, a growing portion of urban residents are now forced to live in informal urban settlements, which have poor access to power and sanitation facilities and significant security risks.”

Batten said PNG’s booming mining sector was creating growing inequalities at the village level as well.

“With low education and financial literacy, members of some segments of the PNG population find it difficult to hold leaders to account for the equitable distribution of mining royalty payments,” he said.

“A particularly difficult challenge for government during the next 12 months will be managing the 8,000 local workers who will begin to be retrenched from the LNG project.

“Landowner groups are now highlighting the potential for social unrest if alternative work arrangements for their workers cannot be found.”