Keynote Address by ADB President Takehiko Nakao on 25 June 2013 at the Port Moresby Chamber of Commerce in Papua New Guinea
Good morning, ladies and gentlemen.
I am very pleased to be here with you today, and I thank the Port Moresby Chamber of Commerce for inviting me.
Today, I would like to speak about the opportunities and challenges facing Papua New Guinea (PNG) in its quest for a brighter future. In my view, to achieve sustainable growth, PNG must become more inclusive, more integrated and more innovative. I will touch on each of these issues briefly during my speech.
However, let me first set the stage with an economic overview of Asia and the Pacific as a whole.
The challenges facing developing Asia and the Pacific are both external and internal. Externally, while the worst of the global economic crisis appears to be over, global growth remains slow. As a result, the region's growth is also moderating.
But the region’s economy has been more robust than expected after the global crisis, and remains so. Developing Asia and the Pacific is expected to grow by 6.6% this year and 6.7% next year, with increased dynamism in many areas of the region.
Importantly, the region is making the transition to growth led by domestic and regional demand. Consumption is becoming a major source of growth, supported by strong demand for both durable and non-durable goods. Once people start enjoying conveniences such as refrigerators, cars and smart phones, this trend cannot be stopped.
Along with strong internal demand, supply capacity is expanding, including through the region's well-organized cross-border production networks.
While the region’s process of rebalancing continues, Asia and the Pacific cannot be complacent.
More than 800 million of the region's people still live in absolute poverty. Inequality is rising. And while the region has made major contributions to the achievement of the global Millennium Development Goals, not all countries are on track. Malnutrition, infant mortality and gender inequities are among the region's persistent challenges. And we must not forget about our environmental challenge.
How will this outlook for Asia and the Pacific impact region PNG?
Certainly, in recent decades, PNG has benefitted tremendously from the region’s rise in the global economy. Regional demand has encouraged foreign investment and driven up prices for PNG’s key commodity exports. Export revenues have increased three-fold since 2000. This has stimulated output, boosted government revenues, and buffered the economy against some recent global economic shocks. And PNG has now undergone a remarkable 11 straight years of economic expansion - with GDP growth averaging at just under 6% per annum.
I would like to emphasize here that while regional growth has been one of the reasons for PNG’s strong economic performance, PNG’s growth has also been made possible by better government policies. In this regard, I would like to admire the efforts and achievements of the Government of PNG.
ADB is also playing a role in supporting good policies of PNG. ADB supports the improved monetary and fiscal policies that PNG has adopted over the last decade to create macroeconomic stability. ADB has assisted important structural reforms in such areas as financial services, SME finance, aviation, telecommunications sector restructuring, and regulatory reforms in many sectors. These reforms have boosted business investment and enabled initial progress towards economic diversification.
Despite this progress, PNG continues to face significant challenges in making the economy more broad-based, with sustainable and inclusive development outcomes. Available data shows that less than 10% of the country’s working age people are able to access formal private sector job opportunities. And many areas of service delivery, such as health, education, transport, energy and water, remain weak, particularly in rural areas. PNG appears unlikely to meet the Millennium Development Goals by 2015.
In the face of these challenges, it is critical for PNG to maintain its growth momentum to reduce poverty and increase prosperity. However, economic growth will not be enough.
As I said at the outset, I believe PNG must become more inclusive, more integrated and more innovative to achieve sustainable, widespread improvements in the lives of all its people. Let me touch briefly on each of these.
A more inclusive PNG
First, we should pursue a more inclusive PNG.
For growth to be sustainable, it also needs to be inclusive. By this I mean that PNG should ensure that growth delivers benefits to all PNG people. Jobs are crucial for inclusiveness. For this to happen, PNG needs a more conducive environment for the private sector to expand and create jobs.
ADB can also play an important role in facilitating private sector development. We continue to work in partnership with the Government in reforming state-owned enterprises (SOEs) to strengthen their commercial orientation. This includes measures such as stronger corporate governance, greater transparency and minimizing the drain they place on public revenues.
PNG also needs to work towards a financial system that embraces SMEs, which have been a key source of job creation across Asia and the Pacific region. In addition, financial inclusion is another important element of inclusiveness. For this reason, ADB in partnership with the Australian Government is an active supporter of the Government’s Microfinance Expansion project. Together with supporting the supply of microfinance, the project aims to provide financial literacy training to 120,000 people by 2017.
For promoting growth and inclusiveness, PNG also needs to connect people from their rural homes to local, regional and international markets. This is related to my next “I” of a more integrated PNG.
A more integrated PNG
My second point is on the importance of integration, both domestic and regional.
Regarding domestic integration, in fact, PNG has an increasingly dual economy. On the one hand, it has a large, capital-intensive mining sector. On the other is the informal, agriculture-based subsistence economy. The continued presence of a dual structured economy can severely weaken the overall productive capacity of the entire economy. It can also affect society in general by creating disharmony and a sense of deprivation.
To address this in PNG, the government must use revenues effectively to restore and upgrade national infrastructure network. It must ensure that different parts of PNG economy are well connected and that the benefits of economic growth are shared equitably.
Connectivity facilitates the availability of technology, know-how and other services. It helps to make goods cheaper and more widely available. It also weakens the grip of local monopolies, and promotes competition.
For this reason, ADB will continue to support the Government’s renewed effort to improve the overall quality of its transport infrastructure. By end of 2013, we expect to have an active lending portfolio reaching $1 billion. And 70% of this will be directed to enhancing road, civil aviation, shipping and port infrastructure networks.
ADB’s flagship Highlands Region Road Improvement Investment Program is one important example. The program is investing up to $750 million in rehabilitating 1,400km of the Highlands Region Core Road Network by 2015.
Improving PNG’s national transport networks will also enable the country to leverage regional cooperation and integration in the Asia and Pacific.
In addition to pursuing enhanced integration within the Asia and Pacific region, PNG should also continue to pursue a policy of open regionalism that has served the Asia and Pacific region so well in the past. I am pleased to say that, since joining the World Trade Organization (WTO) in 1995 and undertaking a comprehensive tariff reduction program, PNG now maintains one of the least restrictive trade regimes in the region.
ADB is supporting the Government’s efforts to expand its trade ties with Indonesia through its Pilot Border Trade and Investment project. This initiative aims to remove infrastructure and regulatory bottlenecks along the northern transport corridor connecting West Sepik Province and Papua Province of Indonesia.
A more innovative PNG
Finally, I would like to highlight the importance of innovation. To sustain growth, PNG, like the rest of Asia and the Pacific, must become more innovative. Indeed, for truly inclusive growth, PNG must become more than an exporter of raw materials. The need for enhanced innovation and productivity is perhaps greater now than ever before.
Here again, I would stress the importance of the private sector. As I mentioned, infrastructure development - one of ADB's key strengths - is critical to this, as the country’s infrastructure deficit has often been seen as a barrier to investment.
But while infrastructure is a necessary condition for innovation, it is not a sufficient condition. For this reason, ADB supports investments in new technologies, such as mobile telephony. New technologies are critical to reduce the country’s geographical limitations. Moreover, new technologies will change PNG's economic landscape by opening up new business opportunities, and provide more effective means of delivering services like rural health and education.
ADB is also increasing its investment in renewable energy including hydropower using new technologies. This will help to expand access and address the high cost of power generation that has traditionally hobbled development.
Yesterday, I was able to visit the Rouna Hydropower Station, which will be upgraded under the recently signed Port Moresby Power Grid Development project. The $67 million loan will be used to upgrade and rehabilitate two hydropower plants currently generating electricity for Port Moresby. The investment aims to boost electricity access rates in Port Moresby to 74% and extend the city’s power grid to an estimated 3,000 new low-income households.
Ladies and gentlemen, ADB is privileged to be a partner in PNG’s development. In line with our traditional strength in infrastructure, we remain committed to strengthening PNG’s energy, and transportation networks--sectors that are critical for a vibrant investment climate. At the same time, we are supporting PNG in such areas as access to microfinance, health, and SOE reforms.
PNG must become more than simply an exporter of primary resources. PNG faces a lot of challenges, but it also has a lot of opportunities. By making its economy more inclusive, more integrated and more innovative, PNG can strengthen broad-based, sustainable growth, further reduce poverty, and become a truly integrated part of the Asia and Pacific region.