What can PNG learn from the BRIC countries?

This week I enjoyed the opportunity to speak at the PNG Advantage Investment and Infrastructure Summit 2014, a gathering of the local business and international investment community to explore opportunities, challenges and threats for PNG, a country richly endowed with natural resources, including mineral and renewable resources such as forests, marine, food and agriculture.

I was given the honour of speaking straight after the Prime Minister, The Honourable Peter O’Neill (pictured with me above) on the topic of “What can PNG learn from the BRIC countries”, a rare and unique opportunity to influence and/or support the political process, so here follows a quick summary of the five main points I offered the PNG Government:

1. Choose your friends carefully

The BRICS Leadership Group is a great example of five countries, with very little natural geographical, cultural or historical ties, coming together to focus on mutual opportunities and challenges. I was interviewed by the Conference Organisers, Business Advantage PNG, on this topic in the days before the Conference (click here to read the article) and highlighted the remarkable achievement of establishing the BRICS Development Bank as their response to the collective view that the IMF, World Bank and other western influenced institutions are not doing enough to support and invest in developing countries.

PNG is a member of many groups and forums, including APEC, the Pacific Islands Forum and CHOGM, and has strong relationships and historical ties with Australia, New Zealand, Malaysia and the Philippines, amongst many others. My advice to PNG is to think hard about the countries that can and/or will have the most impact on their future direction and progress, and work hard to establish a tight knit group of like-minded leaders who meet regularly to make things happen. This can be achieved (as with the BRICS) without upsetting or excluding other countries who are important from a trade or investment perspective.

2. Attracting Foreign Investment

China is the most significant investor in the region and with a well developed “Going Out” strategy to focus on energy and food security, PNG is very well placed to attract substantial investment from China, particularly in the mining, resources, food and agriculture sectors. Australia has achieved great success in attracting investment from China and appears well placed to attract much more as China looks to invest in the food supply chain.

PNG has a chequered history with Chinese investment, with local stories of cultural misunderstandings, poor execution and even corruption, and is perhaps not focusing as much on China as as it should. I encouraged the Governor of Port Moresby (who was sitting to my right) to work hard on their sister city relationship with Jinan in the province of Shandong (he mentioned that he would be leading a delegation there in October) and the PM to make regular visits to Beijing.

3. Accelerate PNG’s Urbanisation program

I mentioned the importance of Urbanisation as a driving force for economic growth and expansion (urban growth alone produces an increase of 20% GDP per capita). It increases rural productivity, boosts demand for resources, commodities and energy and drives domestic consumption (urban residents spend 3.6 times more than rural dwellers). Just on PNG’s doorstep, Indonesia is the fastest urbanising country in the world and is witnessing growth in the numbers of middle class consumers, and all of the BRICs are benefiting from rapid urbanisation, notably China and India.

By contrast, PNG is a rural and agricultural economy with only around 18% of the population currently living in urban centres. Furthermore, Port Moresby, PNG’s capital, is ranked as the world's third worst city for liveability by The Economist magazine, with 50% of the estimated population of 700,000 living in slum-like conditions. PNG towns and cities are under major stress from unmanaged urbanisation and, unless properly managed, quality of life issues including urban security, customary land development and affordable housing issues will further deteriorate.

In 2010, the Government of PNG adopted the "National Urbanisation Policy 2010-2030" which is intended to guide the urbanisation process in Port Moresby, as a model for the management of urban development in PNG over the next 20 years. My advice was to speed up this process.

4. Stability is the key

I used Brazil as a good example of how political and fiscal stability can lead to substantial economic growth by comparing two periods in Brazil’s recent history:

From 1980 to 1994 (14 years):

• 5 presidents

• 15 finance ministers

• 14 CB presidents

• 6 currencies

• 730% average annual inflation

• Inefficient public sector

• Closed economy

• Balance of payment crisis

• Incipient monetary policy

• Fiscal mess

From 1995 to 2010 (15 years)

• 2 presidents

• 3 finance ministers

• 5 CB presidents

• 1 currency

• 7% average annual inflation

• Privatisation

• A more open economy

• Lower external vulnerability

• Inflation targeting

• Improved fiscal policy

During the latter 15 year period, two popular and reforming Brazilian Presidents, Fernando Henrique Cardoso and Lula Da Silva, created political stability which led to an increase in domestic confidence, an influx of foreign investment and a period of strong economic growth which has propelled Brazil to the top table of economic giants.

My advice to PNG is to become a beacon of political stability amongst the Pacific Islands, and the region as a whole.

5. The Importance of Planning

I cited China as an example of a planned economy which benefits greatly from the existence of a well developed Five Year Plan but, more importantly, a long track record for having met and exceeded almost all of the targets, milestones and objectives outlined in each of the 11 Five Year plans over the past 60 years.

Like many western democracies, PNG has a big vision of what it would like to become and a high level plan of how it will get there. The PNG Government's long term “Vision 2050” and shorter term policy documents and white papers, including the 2014 “Responsible Sustainable Development Strategy”, emphasise the need for a more diverse economy, based upon sustainable industries, improved infrastructure, the development of SMEs and greater collaboration with foreign investors and the private sector. These grand plans are admirable and necessary but my advice was to gain a reputation for not just having a vision, but for execution, implementation and deliverables. I don’t think anyone would disagree with that!

I enjoyed my brief visit to PNG, including a brief but enlightening tour of Port Moresby with the local CEO of the Port Moresby Chamber of Commerce & Industry, David Conn, and I hope to go back again one day to see how much has changed. From talking to the locals, its hard to come away without the impression that PNG is going places, and as hosts of the Pacific Games 2015 and the APEC Summit 2018, it seems we’ll all be going there soon!