Inside Story

PNG’s peril is Beijing’s chance

Are economic troubles edging Papua New Guinea closer to China?

Rowan Callick 16 July 2020 2483 words

Entering the danger zone? Papua New Guinea’s prime minister James Marape (centre). Mick Tsikas/AAP Image via Getty

Papua New Guinea was the only country in the Pacific region to back China’s harsh new security legislation for Hong Kong when it was raised at the UN Human Rights Council this month. It was another sign that Port Moresby is shifting towards Beijing as inexorably as its economy is declining — despite prime minister James Marape having proclaimed, in his first parliamentary speech after taking over a year ago, that he would make PNG “the richest black Christian nation on Earth.”

The country’s rate of economic growth sank rapidly from 13.5 per cent in 2014 to a 1.1 per cent contraction in 2018, before a temporary bounce-back to 5 per cent last year. The latter came too late to save Marape’s predecessor, Peter O’Neill. In June, the government was forced to seek a rapid credit facility loan of A$490 million from the International Monetary Fund, coming on top of a A$440 million loan from the Australian government last November to repay debt.

Workers in clinics and hospitals around the country — which are mostly operated in rural areas by the mainstream churches — are funded chiefly by the government. They had to wait until the start of July for their March wages, and have yet to be paid for their work since then. Ulch Tapia, the chief executive of Church Health Services, said he had hurried to deposit the cheque for March’s wages: “I hope it clears because sometimes the cheque bounces.”

According to John Leahy, the president of the PNG Chamber of Commerce and Industry, the government owes businesses more than a billion kina (A$408 million). “Failure by the national government to pay its debts is a major concern identified by chambers throughout the country,” he told the National newspaper. “It is a major issue for all businesses but for small to medium enterprises it can be crippling.”

Medical supplies and GST refunds for exporters have also gone unpaid, Leahy added, while “we are aware that substantial payments have been made to road construction contractors for the Highlands Highway for work that has not been done.” That road construction — and in fact most contracting work — is now conducted by Chinese state-owned corporations.

The view ahead isn’t any rosier. The Asian Development Bank expects inflation to reach a worrying 4.4 per cent next year, and is forecasting PNG’s economy to contract by 1.5 per cent in 2020. The World Bank anticipates worse, a 2 per cent contraction. Public debt is projected to rise to 45.4 per cent of GDP in 2021. Covid-19 restrictions have added to these burdens, with a Business Council of PNG survey finding only two-thirds of respondents to be confident that their firms can survive another year under current conditions.

The country’s core problems aren’t new, but they are worsening as its population of 8.5 million grows (currently at a rate of 2 per cent, or slightly more, each year). Fortunately, a significant though declining proportion of families retain enough access to traditional land to feed themselves. But this once-lauded “subsistence affluence” has slumped into a form of poverty with the growing importance of the cash economy, even in deeply rural areas — via mobile phone towers beaming signals into remote valleys and islands, for instance.

Although PNG has hosted a series of increasingly large commodity projects over the decades, the central government has failed to convert the revenue into a broad-based upscaling of the country’s skills and infrastructure to attract the domestic and foreign investment needed to create jobs. Of course, some of the resource revenue has been used to pay for services in this geographically challenging country. But progress has been slow, and in some core areas, including health and education, standards have declined, at least in the view of many Papua New Guineans.

Agriculture is the most obviously sustainable sector for widely accessible growth, tourism being ruled out for now because of infrastructure and security challenges. Marape agrees, saying recently: “I want hardworking citizens in PNG to become millionaires. Eighty per cent of the people rely on land but are dependent on the 20 per cent who have some form of formal income to solve their financial needs. Although the 80 per cent own land, they do not fully utilise the land to make money.”

His answer is a new national export agency. This, he says, would significantly benefit crops like coffee, the country’s biggest agricultural export. While production has slumped from one million to 600,000 bags, Marape claims the agency — with help from MPs, each of whom his government is giving A$615,000 this year to boost business activities — will see three million bags of coffee produced annually within a decade. “You can see your MPs and access these funds in the district,” the PM says, apparently confident of hope trumping experience.

Inevitably, corruption is blamed for the gap between expectations and reality. Peter O’Neill has been charged over the purchase of two Israeli-made generators in 2013, allegedly facilitated by an unauthorised payment of A$20.5 million. He has denied all charges, is on bail, and remains an active MP and leader of the National People’s Congress, the largest party in parliament.

The country has a poor record of prosecuting corruption, a task chiefly in the hands of an often under-resourced Ombudsman Commission that has often lacked political backing. The attempted assassination of former chief commissioner Chronox Manek in 2009 illustrates the dangers inherent in tackling corruption in PNG; he died less than three years later, having never fully recovered from the shooting.

The fierce independence of PNG’s courts also appears to be on the wane. Late last month, magistrate Ernest Wilmot, sitting alone, dismissed twenty-two serious criminal charges against PNG’s most powerful lawyer, Paul Paraka, bringing to an abrupt end (without an expository judgement) a case laid seven years ago.

The charges emerged from the troubling 818-page report of an inquiry chaired by retired judge Maurice Sheehan. It revealed massive, cunningly conceived fraud in various government departments, and recommended the criminal prosecution of fifty-seven people, including some of PNG’s top bureaucrats and lawyers. Among those named was Isaac Lupari, who retained his position as chief secretary to the government when O’Neill was pushed aside in May last year.

In another case, just last month, foreign minister Patrick Pruaitch was automatically suspended from office when the chief justice appointed a leadership tribunal to hear allegations by the Ombudsman Commission. But Pruaitch continues to run the foreign ministry regardless, presumably with Marape’s backing.

The commission’s reference related to a series of offences he allegedly committed when he was forests minister a decade and a half ago. A staunch supporter of a greater Chinese role in the region, Pruaitch has vowed to review the agreement that gave Australia and the United States the right to redevelop PNG’s Manus naval base as a deep-water port.

The most recent of PNG’s high-profile corruption cases, revealed last year by a parliamentary committee, involved extensive bribery of health department officials by companies supplying and distributing medicines. The committee found that the integrity of the contractors and the quality of their drugs were rarely subjected to due diligence.

Crimes like these will be investigated when the country’s Independent Commission Against Corruption finally begins operation after a decade of promises. All that needs to happen now is the enabling legislation’s final parliamentary reading, which is due next month. Health minister Jelta Wong says the first corruption commissioner should come from overseas “so that it’s a fair and just system.”

Opposition leader Belden Namah is testing the balance of power in parliament by challenging the constitutionality of James Marape’s election as prime minister last year. Marape, a Seventh Day Adventist elder who was finance minister for seven years, comes from the same Southern Highlands region as his predecessor, Peter O’Neill, who has again become highly active in recent weeks. Perhaps O’Neill senses an opportunity to return to the leadership via a parliamentary vote, regardless of the charges hanging over him.

It’s unlikely that Namah would muster the numbers to unseat Marape, but O’Neill might. The complex PNG constitutional arrangements permit a vote of no-confidence in a prime minister from 28 November this year to 24 July next year, after which a PM is “safe” until the next five-year parliamentary election in mid 2022.

At such a time in the parliamentary calendar, a challenger stands a chance of taking power. Jobs can be promised to potential supporters, and ministers and vice-ministers have a strong chance of surviving in office until the next election, reinforcing their campaign resources.

Despite its persisting “big man” mode, though, PNG’s political system remains vibrant and contested, and the military under the direction of the civilian government. Court processes are mostly fair and free, although where power is at its zenith judges increasingly find the going heavy.

The country can still retain, attract and lure back talent. While some of its best and brightest have chalked up achievements internationally, the majority return. Thus, for instance, the flourishing of Niugini Geeks, an ICT company with a strong software base, owned by developer Glory Group. As its general manager Claire Lee told Business Advantage PNG, “We have a big dream. We hope to create a PNG version of Silicon Valley in Port Moresby.”

And the country’s middle class continues to grow. Despite Covid-19 constraints, a new A$12.5 million shopping mall has just opened in Port Moresby; the developer is the Brian Bell Group, founded by a Queenslander who devoted his life to PNG.

Whoever is in government when the music stops is unlikely to be left with money in the kitty, however — unless Beijing rides to the rescue, big-time. The loans from the IMF, and possibly from the World Bank and the Asian Development Bank, and the generosity of Australian taxpayers are likely to be fully drained to pay public service wages and keep essential services going.

China offers loans rather than grants through its Belt and Road Initiative — but it’s the cash that counts in the Great Game of PNG politics, not where it comes from. Beijing’s influence on the PNG government has leapt under ambassador Xue Bing, a diplomat whose vast experience in the Pacific region includes senior postings in Canberra. For its part, Australia has struggled to advance its “Pacific Step-Up” program.

Meanwhile, the biggest single source of revenue during PNG’s forty-five independent years, mining and hydrocarbons, is hitting hurdles, some of them home-made. Discerning a clear trend in decision-making is difficult, but Chinese companies are figuring as both victims and, more often, beneficiaries of evolving government policy.

In June, the Marape government amended both the Oil and Gas Act and the Mining Act to fulfil its slogan to “take back PNG,” specifying that the state will take a larger role in resource projects. “Attracting foreign investors and capital is important,” the prime minister told parliament, “but this cannot remain unchecked forever.”

The government had decided in late April not to renew the lease of the vast Porgera mine, which is operated by the world’s second-largest gold producer, Canadian company Barrick Gold, with Chinese firm Zijin Mining Group. The mine, with monthly revenue of about A$50 million, consequently closed down and 2700 people were made redundant, almost all from the Enga province in the central Highlands. Barrick has initiated a legal challenge.

Plans have long been under way to massively increase the country’s liquefied natural gas output. Exxon, the operator of the LNG plant in Port Moresby, is leading one of two huge new projects, P’Nyang, while French giant Total leads Papua LNG. The former has been on hold since a renegotiation was ordered after Marape became prime minister. The need to reduce costs by sharing some facilities has also delayed Papua LNG.

As the resources investment climate thus cools, Oil Search — the country’s largest company, and a partner in all of the gas ventures — has made 550 employees redundant.

Through RamuNico, China already operates what is now probably the largest mining business in PNG, and that country seems to have an appetite for more involvement. Its Frieda River gold project may prove overambitious, but the determination of the Chinese, the record of challenging resource projects proceeding in PNG, and the government’s desire to grant greater access to Chinese businesses mean that its approval and operation shouldn’t be ruled out.

China’s increasing capacity to influence PNG has also seen immigration minister Westly Nukundj halt a massive police operation against the large-scale use of illegal immigrants in logging, mining and other projects in the Central and Gulf provinces. In response to widespread online criticism, Nukundj said that he will instead initiate a departmental investigation. Grassroots protests have grown in response to the purchase of retail businesses by immigrants, including many from China.

On 13 May Patrick Pruaitch co-chaired a video conference on Covid-19 with China’s vice–foreign minister Zheng Zeguang. In attendance were China’s ten diplomatic partners in the islands region, including recent converts Solomon Islands and Kiribati. A month later Pruaitch participated in a “high-level” video conference on the Belt and Road Initiative, of which PNG is an eager signatory, during which he said it was “every Papua New Guinean’s dream to have our country connected from east to west and north to south by railway, which I see happening through the BRI program.”

Finally, the immense challenges facing Marape also include the fate of Bougainville. Last December, 88 per cent of registered electors voted in a referendum on independence, with 98 per cent of them supporting the move. The longer this issue is left effectively unattended, the greater the risk of an eventual explosion of frustration.

The PNG government will need to deal with this clearly expressed desire of Bougainvilleans or face the risk of a return to the civil war that debilitated not just the region itself but the whole of the country for a decade. Recent skirmishes between undisciplined soldiers and police in Port Moresby, including a murder, underline the fact that the military option is not realistic, if it ever was. Constitutional alternatives need to be considered and clearly articulated — perhaps including a federation that permits free trade and movement of people while ceding political sovereignty.

No PNG prime minister wishes to be viewed as responsible for “losing” a significant part of the nation. But Port Moresby can’t expect the current grace period to be extended ad infinitum by the rising Bougainvillean generation, whose patience may not match that of the region’s statesman-like outgoing president, former Catholic priest John Momis.

With the window for a no-confidence vote opening on 28 November, Marape faces a period of grave political danger. But one element of the future is known: he will not be replaced by what would be PNG’s first female PM. There is not a single woman among the 111 members of this parliament. •