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Countries and Regions Country Assistance Plans Document
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Country Assistance Plans - Papua New Guinea : III. Sector Strategies
A. Agriculture1. Agriculture and Rural Development31. Agriculture is the key sector in terms of improving living standards since about 85 percent of the population is engaged in production of food crops for own-consumption and cash crops for sale. Subsistence activities predominate. Income generating opportunities are mostly in tree crops (coffee, cocoa, oil palm, coconut) suited to the climate. Smallholders account for 96 percent of agricultural output and two thirds of agricultural exports, and have proved remarkably resilient in the face of variable export prices. Unfortunately, food and tree crop output was hit hard by the 1997-1998 drought; life threatening shortages of food in 1997 required an international food relief effort. Subsistence production recovered in 1998, with tree crop production increasing in 1999 (except for coffee). Utilization of land and (male) labor surpluses would permit an increase in agricultural production and rural living standards; However, limited access to markets acts as a major constraint. About one quarter of the non-urban roads in PNG either are impassable or cannot be used throughout the year; the poor quality of the rest adds significantly to transport costs. Road rehabilitation is a priority area for rural development. 32. The ADB has been assisting in strengthening support services for smallholders (1998 loan). Further support for smallholder sector activities is programmed for 2001 and 2002. This includes a rural linkages project to lower the constraints to informal sector activities in the rural areas and another project to exploit the potential of innovative agro-industry interventions to reduce poverty in a sustainable manner through partnerships with the private sector. Regional development efforts in later years aim directly at poverty reduction. Road and maritime infrastructure rehabilitation is a key focus. 2. Forestry and Natural Resources33. Exploitation of PNG's accessible hardwood forest of about 15 million hectares almost entirely takes the form of harvesting by foreign companies for log export, with some logs sold locally for building and processing into sawn timber. The rate of extraction accelerated in the early 1990s. As a result of the Asian economic crisis, the export volume dropped to 1.07 million cubic meters in 1998; but it increased to 1.30 million cubic meters in 1999 as log export prices recovered. In the latter year, log exports accounted for just over 5 percent of total domestic exports by value. Relatively little revenue from logging has reached local communities. The 1991 Forestry Act provides the legislative framework for the management of forest resources as a renewable asset, and for genuine landowners to acquire a greater share of revenue. However, harvesting at unsustainable rates and inequitable distribution of benefits from logging remain major concerns. The SRP provides for an immediate moratorium on all new forestry licenses, extensions, and conversions as the first step in improving governance in this sector. 34. Fisheries is an underexploited resource in terms of the benefits flowing to national interests. PNG's waters are rich with marine resources, but the sector accounts for only 1 percent of GDP. Artisanal fishing is commonplace, largely for subsistence. Rent from fisheries is derived mostly as distant-water license fees, averaging about $20 million annually, in relation to the estimated $300 million worth of tuna taken from PNG waters annually by foreign fleets. However, the domestically based fleet has been growing rapidly, and there are promising signs of future potential. It is vital that the resource is properly managed. The National Fisheries Authority has been set up in recent years to address issues of licensing, management, surveillance and monitoring. The ADB has been the lead external agency in the sector. The ADB is assisting the Authority to develop into a strong, independent regulatory agency and is helping with infrastructure development in support of private sector involvement on competitive terms. Further support for provincial coastal waters fisheries development is envisaged for the earlier years of the program. 35. Mining (mainly gold and copper) and petroleum and gas extraction are major revenue sources. In 1999, mining and petroleum accounted for 24 percent of GDP and 72 percent of exports. The most notable recent developments include the significant Ramu nickel project, which is in an advanced state of development, and the PNG-Queensland gas project, which would involve collection and processing of the Highlands gas and transporting by pipeline to Queensland. The gas project would require investments of about $3 billion and is targeted to begin in 2002. Prospects of further mineral discoveries are good, but exploration activity has declined dramatically over the 1990s because PNG has been seen as an increasingly risky country to invest in. This perception in turn reflects the growing personal security and crime problem, political instability, the Bougainville civil war and repeated Government policy changes on equity participation in projects and the fiscal treatment of mineral projects. The ADB has been assisting in a study of the fiscal regime for mining and hydrocarbons, but no other role for the ADB is envisaged.
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