The Secretary
Foreign Affairs, Defence and Trade Committee
Australian Senate, Parliament House
Canberra, ACT 2600
email: fadt.sen@aph.gov.au
tel: 02-6277-3535

26 March 2003

Dear Committee

Inquiry into Australia's relations with Papua New Guinea and the island states of the South West Pacific

This is a written submission to your Committee's Inquiry. I am sorry, I will not be able to attend to give evidence in Canberra this Friday. However in this letter I would like to address some aspects of Australia's economic relationship with Papua New Guinea, making some observations on PNG's problems, and the role of AUSAID in PNG.

1. Papua New Guinea's problems 

As the former colonial power, the major aid donor, and as an influential Director of the World Bank and the Asian Development Bank in this region, the Australian Government shares direct responsibility for most of the current economic problems of PNG. It is either foolish or deceitful to suggest, as some analysts do, that Australia has simply played a "hands off" and a "generous" role (Windybank and Manning 2003), and to suggest that PNG's very serious problems are largely of indigenous origin. 

PNG's problems are commonly cited as corruption, poor security (the 'breakdown in law and order'), poverty and ineffective 'development'. Yet to these we must add the serious failures in mass education and health, and the failure to build effective indigenous institutions from public, community and private investment.

Corruption in PNG begins at the top, and is not simply 'home grown', but rather a logical corollary to the private-profit and privatisation driven development agendas. Successive World Bank officials have signed up as highly paid government consultants, and highly paid Australian consultants have become accustomed (over decades) to taking a large share of PNG's aid and development moneys. Little wonder, then, that many PNG political leaders have successfully joined this parasitic class, through both legal and illegal means.

Security problems in PNG are not nearly as widespread as imagined, but they are very bad in some of the major cities (Port Moresby and Lae), and on the Highlands Highway. However they are not fundamentally a product of fierce tribalism (as is sometimes suggested in Australia) but mostly a response to the gross inequalities of the dual economy, in the major cities, and to the breakdown of community support structures - structures that function quite well in regional and village settings. The shocking and concentrated inequality, for example in Port Moresby, is widely seen as illegitimate (a refusal to share) - but the aid industry generates, tolerates and flaunts this inequality. World Bank consultants (paid around US$1,000 per day) continue to argue for the abolition of a minimum wage (of around US$2 per day). Inequality and illegitimacy are a potent mix, when it comes to generating crime. So pouring millions of dollars into a deeply corrupt police force is hardly a serious answer to PNG's security problems.

PNG's social indicators are bad, though these were recently misrepresented by the former regional head of the World Bank. In a speech at Sydney University in October last year Klaus Rohland claimed that PNG ranked 164th on the UNDP's Human Development Indicator listing, near Djibouti and Chad. In fact, in the UNDP's Human Development Reports for that past three years (2000-2002), PNG has ranked 133rd, with an average life expectancy 10-13 years more than Djibouti and Chad (ranked 149 and 166, respectively).

The reason I point out this error is to demonstrate that figures and criticisms (let alone suggested remedies) are often used rather loosely when it comes to PNG, including from those who should know better. This loose talk also often leads to an underestimation of the strengths of PNG, as a country and a people. The country is, for example, resource and food rich. Its biodiversity, cultural diversity and tourism potential are all absolutely world class. But it has been let down badly by its development advisers, as well as its leaders.

The great failure of aid and 'development' planning, in the quarter century since independence, has been the failure of mass education and health. I have been in many poor countries which have better mass education outcomes than PNG. The UNDP tells us that adult literacy is now about 64%, up somewhat from 53% in the mid 1980s, but still very poor in international terms. The UNDP says (on the basis of PNG Government information) that primary enrolment is about 85%, but other surveys tell us that 40% of PNG women have never been to school. Official figures show a crash in enrolments at secondary level, to only 22%. The reason for this is rather obvious - secondary school fees are 1,000 Kina per year or more, and most poor families (who do value education for their children) can't afford to pay for one child to go to secondary school, let alone five or six. 

This failure in education aggravates health outcomes. While there are a number of health facilities throughout the country, there are very few trained health workers. A World Bank report from 1999 tells us that PNG - compared to Indonesia and China - has two to three times the health centres and hospital beds, but much worse infant mortality and maternal mortality figures (see table). This is mainly due to a lack of trained health workers. PNG's current maternal mortality figures are amongst the worst in the world. This just should not be happening. PNG has a higher average GDP per capita than either Indonesia or China, but the 'trickle down' effect is clearly not working. 

Local communities have not benefited from commercial logging and large mines. For example, a survey last year (published in Ok Tedi's own newsletter) in the 33 villages between the Ok Tedi mine and the port at Kiunga, in Western Province (the centre of current logging and mining operations), less than 1% had electricity, only 12% had some form of secondary education, and 96% had no source of money income.

2. The failure of export oriented development

At the root of these failures in social indicators is the model of development. Rather than respect and build on PNG's wise constitutional principles of development , both the Australian Government and the World Bank have demanded a growth-dominated, export-driven approach to development. This has been a spectacular failure in PNG. 

The country has had phenomenal long term success as an exporter. But this has not helped most PNG people. The World Development Report of 1988 tells us that, between 1965 and 1980, PNG's average annual export growth rate was a massive 12.8% - while imports only grew at an average 5.6%. Export growth then fell in the 1980s, but throughout the 1980s and 1990s it remained at very high levels - consistently above 40% of GDP (Table 1). Using conventional indicators, this should have been a world class success story of export oriented development - but it was not. Progress with social indices is very poor (Table 1). 

Further, PNG's dependence on imported grains (principally rice) has worsened, over the long term. PNG was importing about 70,000 tonnes of grains in the mid 1970s, but more than 220,000 tonnes in the mid 1990s. The World Bank seems to have no problem with such food import dependence, but as a development economist I believe it is a serious problem, especially for a resource-rich but cash-poor country. PNG's GDP per capita has fallen in the last few years, but the long term trend has been fairly strong. So success in conventional economic terms simply has not translated into benefits for most PNG people.

The mining and logging operations have lifted PNG's GDP per capita, creating the illusion of a higher income society, but in fact undermining community welfare, in most cases. It is now fair to say that no PNG local community enjoys any lasting benefit from large scale commercial logging or mining operations. On the other hand, many suffer lasting damage. Nor does the wider society see much benefit - the economic cross-linkages created by mining and logging developments are extremely weak. I mentioned above the failure of the Ok Tedi mine to benefit communities between the mine and the port, while at the same time devastating the ecological systems of the huge Fly River. The position is much the same with export driven logging - still at the centre of PNG's developmental strategy. More than half the accessible rainforest of PNG has now been logged, devastating the country's natural heritage, and adding next to nothing to current living standards.

The World Bank's purported attempts (over more than a decade) to ensure the integrity and ecological sustainability of forestry sector have failed completely. A recent report (unpublished, February 2003) to the PNG Government, organised by the Forestry and Conservation Project, has reported that three new logging approvals, since new guidelines were established, (2 and 3 Trans-Island Highway, Western Province; Simbali, East New Britain; and Bonua Magarida, Central Province) were all unlawful, without proper landowner consent, made no attempt to follow proper procedures, were all in breach of the Forestry Act and in each case there was evidence of a conspiracy to avoid proper process and the law. Another two recent approvals (Wawoi-Guavi, Western Province; and Vailala 2 and 3, Gulf Province) are currently the subject of a report, by the same team. The PNG Government will soon have to respond to these reports, and the World Bank and the Australian Government will have to decide what to do with an environmental process and a key developmental industry (large scale commercial logging) which has utterly failed. 

A rampant drive for exports has overwhelmed procedures supposed to protect communities and their environments. This is not simply the fault of a deeply corrupt PNG Government. The World Bank and the Australian Government's over-arching demand has been for an export driven industry, making use of PNG's rich resources. They have succeeded in this aim, but they have failed the people of PNG.

Some of the other export oriented industries, such as oil palm and tuna canneries, have had similar harmful impacts and delivered few benefits. The oil palm industry (supported at various times by the World Bank and AUSAID) has helped provide some extra income to some small holders, but these small holders are at the mercy of price-fixing monopoly companies (in New Britain and Oro), and get very small returns. There are other problems. In many places oil palm projects have been a front for illegal logging operations (oil palm often requires clear-fell logging). The large mills are most often the main beneficiaries of aid projects - e.g. the road works currently funded by AUSAID in Oro Province, mainly help the large Higaturu Mill trucks collect their underpriced fruit from the small holders. In the Upper Ramu, a conflict is looming over an oil palm agreement between the Provincial Government and Ramu Sugar - a contract signed behind the backs of the local landowners. 

3. The question of aid

The aid industry has generated a widespread culture of dependence and hopelessness, from which PNG people will take some time to recover. The PNG Government now routinely withdraws from infrastructure projects which are supported by the World Bank or AUSAID. And local communities are now just beginning to resist large industrial projects, which are often supported by the World Bank and AUSAID. A handful of major court cases are at present derailing some of these projects. This conflict comes from the widespread recognition, in PNG, that most large aid and 'development' projects generally benefit the elites. For example, AUSAID's Incentive Fund is currently backing the construction of world class facilities for two of the six tertiary institutions in Madang (the Catholic Church's Divine Word University, and the Maritime College); but Madang has only one secondary school.

It is sobering to reflect on the difference there might now be in PNG society, had aid projects focussed on mass education and health, rather than misguided subsidies for export oriented industries, or elite 'icon' projects. This is the great failure of aid, but also the challenge for aid. Consistent support for primary and secondary education, across ten to twenty years, could still make a huge difference in PNG.

Such an approach would also draw attention to the need to support genuine moves towards political and economic self-determination. This basic right is not simply a matter of parliamentary democracy, and the electoral process, but of supporting communities and social institutions. Where, for example, has been the respect for local landowners (Papa Graun) in the history of drives for land mobilisation and land registration, as backed at various times by the World Bank and AUSAID? These drives have been resented and resisted by PNG society. Yet the World Bank keeps this offensive issue on its developmental agenda. Customary land ownership may be inconvenient for companies and investors, but it is entrenched in the PNG Constitution, in law and in culture, and it is not going to change. Investors must find ways to accept and respectfully deal with customary landowners - some already have. But no Australian Government programs should support 'land mobilisation' plans, which are widely seen as undermining communities, their natural and cultural heritage, and their food security.

For the same reason, AUSAID programs which undermine PNG public institutions should change. The Incentive Fund, for example, is misconceived. This very large project ($150m over 5 years) acts like a parallel government, funding infrastructure on an ad hoc basis and destroying whatever little coordination function might still remain in the PNG Departments of Education, Public Works and Finance. Klaus Rohland was right (October 2002) to criticise the damage such projects do to the institutional trust ('social capital') in PNG. Some of the Incentive Fund projects, in themselves, seem decent enough; although most involve huge subsidies to Australian companies. But supporting a range of elite schools and colleges is a very poor substitute for a mass education policy. It is entirely appropriate to demand greater accountability, in the face of large scale corruption, but somehow decent, indigenous social institutions of education and health must emerge and be supported.

Yours sincerely

Tim Anderson (Dr)
Lecturer in the Political Economy of Development
The University of Sydney
PO Box 109
Glebe, NSW 2037
tel: 02-9660-4580
email: timand@ozemail.com.au

Table 1: PNG: historical series of select social indicators (1970-2001)
	
	1970/75	 1985/86 	 1990/92 	1995/00	 2000/01 	
life expectancy, years	44.7		55.3	55.6	56.7	
Adult literacy, %		52.7	65.3		63.9	
Net primary enrolment, %				85		
Net secondary enrolment, %				22		
Infant mortality, per 1000 live births	90		54		79	
Maternal mortality, per 100,000 live births			700	370	930 *
(1999)	
Under-five mortality rate, per 1000 live births	130				112	
Public spending on health, % GDP			3.1	2.5 (1998)		
Exports as % GDP	18	45	41		45	
ODA received, % GDP		10.9	12.8/11.3	10.3	7.2	
Net FDI inflow, % GDP			4.8		3.4	
Sources:  2000-01, 1970 and 1985 figures: UNDP (2002) Human Development Report 2002;  1992 figures: UNDP (1994) Human Development Report;  1986 figures: World Bank (1988) World Development Report;  additional 1970 and 1992 figures: World bank (1994) World Development Report;  * 1999 maternal mortality figures: World Bank (1999) Papua New Guinea: improving governance and performance, October 22	

Table 2: PNG: current select social indicators (2000-01)	
	2000/01	
GDP pc US$ PPP	2,280	
GDP growth rate (1990-2000)	1.4	
Inequality: richest 10% to poorest 10% (consumption)	23.8	
Inequality: richest 20% to poorest 20% (consumption)	12.6	
Births attended by skilled health staff, %	53	
Source: UNDP (2002) Human Development Report 2002