TO TURN THE ECONOMY AROUND, NEW GOVERNMENT NEEDS TO LOOK NO FURTHER THAN SOMARE AND WHAT HE TAUGHT US IN 2002.
Posted On August 9, 2022
The Business Help Desk this week will feature an opinion piece from a renowned Papua New Guinean in the business world ANTHONY SMARE who suggested what the new government needs to look at to turn around the economy.
BY ANTHONY SMARÉ
Today the new parliament convenes, and barring last minute political drama over the next few days, James Marape will most likely be installed as Prime Minister after a domination of the 2022 national elections by his Pangu Party. The mantra of all the parties leading into the elections was to restore the economy, and as many of them under Marape’s leadership look to chart a path for the next five years, they will be trying to work out how best they can ‘fix’ the economy.
Marape needs not look far, but cast his mind to nearly exactly 20 years ago when as a first term MP from Tari, he walked in for the first day of parliament and voted along with 87 other MPs for a teacher cum radio announcer Sir Michael Somare as Prime Minister on 5 August 2002. Due to his unique style of leadership and his outlook, Somare was to craft the most impactful 12 months of PNG’s economic history, setting PNG to a much higher plane of economic benefits.
And it started with his first speech made on the floor of parliament after he won the vote on the floor of parliament 88-0 with his ruling National Alliance party holding 19 seats.
The economy Somare was inheriting was in tatters. People forget that despite his significant economic reforms – establishing independence of Central Bank and independence of the super funds – the economy was not doing well under Sir Mekere Morauta’s government, with kina falling to 18c US and Bank of PNG was out of forex reserves to support it. Bank interest rates were above 15%, and well over 20% if you were a small PNG business. Public debt was at K7.15 billion, nearly 72 % of PNG’s GDP of US$3 billion. PNG’s GDP had decreased by negative 2.5% in 2000, negative 0.1% in 2001 and did not grow in 2002. International investment had fled PNG due to political and regulatory uncertainty during the Skate years, with mining exploration falling to historic lows of K3m the previous year, and the mooted PNG to Qld Gas Pipeline project struggling to make headway given significant international doubts about PNG’s prospects and lack of support from Qld government and other players that did not want to see PNG gas come into their market and challenge their own gas.
Things looked bleak. Somare made rebuilding his economy his overwhelming priority. Somare’s rebuilding efforts started with his first comments on the floor of parliament when he was voted by parliament as PM.
Sir Michael focused on an export led recovery – he had formed that view that attracting international investment would lift the PNG economy and carry it forward and he had to restore confidence. His first speech on the floor of parliament was critical. He signalled that he would do what it would take to ensure that the economy was rebuilt, foreign direct investment would be attracted, jobs would be created, and business opportunities for PNG SMEs and communities. He knew from his childhood, that if you want to catch the big fish, you don’t splash the water to scare them away.
The business and international community were then able to build on those comments and promote PM Somare’s agenda and PNG in general, and history was made. Although Somare’s new cabinet of 28 members had 19 new MPs, he appointed Dr Allan Marat as his Deputy PM, Moi Avei Petroleum Minister, late Sam Akoitai as Mining Minister, and importantly, Bart Philemon as Treasurer who all played a leading role in plotting PNG’s economic resurgence. Somare set about a program to: Cut the discretionary budget; Reduce corporate taxes; and Reduce state debt.
Appointed well credentialled and positive ministers to the key ministries as part of engaging the best minds into the rebuild program and importantly made sure that everything he said publicly was positive for investment.
Somare also embraced different viewpoints, even those critical to him, as he understood that everybody believed in building a better PNG. He abandoned Mekere’s privatisation program and instead appointed the most senior business leaders to all the boards of the SOEs with a focus on restoring value to the SOEs.
Money and investors started pouring in. In 2001, only bout K3m total was spent on mineral exploration. By 2007, it had increased to K300m per annum and then doubled to K600m the following year because of Somare’s policies and because of his consistent public messaging; this led to advanced development of Wafi and construction and commissioning of Ramu Nickel and Kainantu mines.
Somare saw that the Qld government and Australian stakeholders were not supporting the PNG to Qld gas pipeline, and so he encouraged the transition that saw Chevron’s PNG stake get acquired by Oil Search, Exxon take the senior role in changing that project into a LNG gas export project which focused on selling to international markets, particularly Asia which Somare had confidence in. This in turn led over the next 7 years to the successful development of the PNG LNG project, with cornerstone markets secured in the Asian markets which Somare had belief in. Many so called international and local experts said that a massive LNG project in PNG could never be achieved, Somare made the US$20 billion project happen with willing corporate partners and building on his relations and trust with Asian countries who believed his assurances that supplies would not be interrupted by social disputes.
The economy was struggling and GDP was only US$3b when Somare became PM in August 2002. When Somare was deposed at the end of 2011, GDP was $21.3b. In nine short years, Sir Michael grew the economy 7 times over – by 700 per cent! Last year PNG’s GDP was $26.6 billion, having growing by 1.5% in 2021. In the 10 years since Sir Michael was deposed, the economy has only grown by 24.8%.
Somare’s legacy led to significant development and economic opportunities flowing to areas that had not reached much development. GDP or Gross Domestic Product is a measure of the value of all goods and services produced in a country in a year, and is a measure of the general economic health of the country. If GDP is higher in one year than a previous year, it means that more goods and services were produced, meaning more jobs, more income, more business opportunities and more opportunities for the country’s citizens to participate in the production of those goods and services. In Somare’s 9 years, he increased the GDP by 7 times, but his achievements set the table for the future growth.
An example of the Somare economic legacy is the PNG LNG project – it largely came about because of Somare. Last week, PNG LNG deposited a cheque of K1.6 billion tax payment into the government coffers, and that will form the basis of the supplementary budget that the new government will announce in a few weeks. This payment follows on PNG LNG’s payment of K1.2 billion to IRC in April and they are expected to have paid over K4 billion in tax for 2022 by year’s end. Since the project started production in 2014, 2 years after Somare had left the PM’s office, the PNG LNG project has distributed K7.5 billion to Kumul Petroleum, K1.3 billion to MRDC for landowners, K800 million in royalties to landowner accounts, and over K6.2 billion in tax. During this new 5 year term of Parliament, distributions to the PNG government through tax payments and Kumul Petroleum’s share could total over K40 billion at moderately low oil prices. This does not count the billions to be paid in payroll tax by PNGLNG employees, or the taxes paid on profits made bythe hundreds of PNG companies that provide services to the project and its partners. This is part of Somare’s economic legacy.
(If you are reading my opinion on your phone or tablet in a location outside of a provincial capital then you can thank Somare for that too! Despite significant political opposition from some within his party, he allowed the telecom sector to be deregulated and for Digicel to enter PNG – which is largely why now more than 6 million Papua New Guineans have access to the internet and mobile phones, more than the 30,000 users in 2002!)
Somare in his book Sana talks about the role of the true Melanesian leader – kill the pig, cut the pig, give the people all the flesh until you are only left with the bare bones. Part of the great Somare legacy, is the future generations (and governments) will be feeding of the flesh of the pig that he killed, after he has passed on. To borrow another analogy – he planted and nurtured a mighty tree that we are now enjoying the shade of.
So it is critical for the incoming Prime Minister to follow the legacy of Somare. Build the economy, attract investment to create jobs, and economic opportunities for young Papua New Guineans, and bring development and economic opportunities to those places that need it. Engage and recruit the best PNG minds from all sectors into the corporate turnaround plan. Don’t splash the water, but start the hunt for the big fish with your sharpest and strongest hooks and lines.
The incoming PM can kill pigs like Somare, if he chooses to. The Papua LNG and P’nyang are ready to start construction and are staggered over six years to ensure a longer time frame of economic impact and foreign exchange support to the tune of US$21.5 billion (K70+ billion).
There are mining projects slated to go into development, pending approvals and environmental clearances. The country has yet to tap the opportunities with green hydrogen energy development and the transition to renewable energy, which could be worth untold billions to the country and its people.
Somare showed the world that PNG can host a world class project and we have now had eight years of large uninterrupted production. The incoming PM can show that we can extend that to other mega projects, whilst at the same ensuring that the boxes of fair return and social inclusive development are ticked.
He can signal this legacy through the speech he delivers on the floor of parliament he is voted in. He does not have to play the political card anymore, and use the political language, because he has now won an election, he has the mandate of the national constituency. Now he has to rebuild an economy. He has to follow the lead of his mentor Somare.
So when the incoming PM delivers this speech on the floor of Parliament, look to see whether he is heeding Somare’s example from 2002 and whether he hits any or all of these points in his maiden speech –
(a) We will rebuild the economy;
(b) We will attract international investment;
(c) We will give a level playing field with regulatory stability;
(d) We will not introduce any new taxes;
(e) We will engage all of our brightest minds in our rebuilding plan;
(f) We will support all projects and get them executed quickly so that they can contributing to rebuilding the economy. We will ensure that all projects will be on fair terms, so the people of PNG, and our corporate partners, get a fair return for their contributions and risk; and
(g) We will be anti-corruption and pro accountability.
We all, in every sector, stand ready to join hands with the new Government to build on the economy further and together develop a better future for PNG.
ABOUT THE AUTHOR
Anthony Smaré has law and applies science degrees from QUT and has studied leadership at Harvard, Stanford, Oxford and Princeton Universities.
He is a former partner of an Australian law firm and has held directorships in companies in retail, telecoms, finance, investments, mining and technology. He chaired Nambawan Super for 7 years and led it through its transformation and growth from a K3 billion superfund to over K8 billion.
He is the chair of Paradise Foods and Laga Industries and is the first independent President of the PNG Chamber of Mines & Petroleum.
He now focuses on his family business and investment interests in PNG and around the world and is contributing to the development of PNG entrepreneurship through the Kumul Foundation Inc.
In 2010 he was named QUT’s Outstanding Young Alumnus, and in 2014, he was named a Young Global Leader of the World Economic Forum by WEF.