WHILE the PNG LNG project will remain as one of PNG’s greatest achievements, the biggest question facing the government centres on its ability to transfer the huge revenue inflows to the bulk of the population.
This is a major challenge given that PNG does not have the systems and infrastructure to support the direct transfer of monetary benefits to its citizens.
Therefore, the government’s move to introduce a national identification system and a social protection policy including a pension scheme can be seen as concrete steps towards achieving equitable wealth distribution.
Regular population data collection and updating has been a great challenge and it is hoped that the national identification system will ensure that real time data is available to support the planning process.
In addition, only a small proportion of PNG’s total population is employed within the formal sector therefore using the taxation system - specifically income tax - to spread benefits will only reach 15-20% of Papua New Guineans.
While the PNG Sustainable Development Program was set-up by the government to manage and take care of mine-impacted landowners in Western Province and also provide funds for community projects in other areas of PNG, over the years investment by government on key developments such as roads, health and education has not yielded much tangible benefit to the majority of PNG’s people.
As a result PNG has suffered greatly and most of its services and infrastructure are in a diabolical state. This has contributed to many social problems such as poor maternal health, public hygiene issues and high rates of school drop-outs in rural areas.
Such scenarios warrant a new approach to delivering benefits to the people derived from government investments including in big resource projects.
For their part, financial institutions led by the Central bank of PNG have been gradually improving their operations to make them friendlier to the people. It is hoped that this will improve the payment system in PNG.
A major strategy for improving both the delivery of financial services and service delivery in general needs to focus on nurturing the growth of the informal economy.
This is by far the largest sector in the PNG economy and yet the most neglected.
A key problem with the informal economy is the lack of understanding by government and segments of the general population of its role in shaping the socio-economic dimension.
For instance, in the absence government-funded social protection, the informal economy has been the “safety net” supporting the most vulnerable segment of the population.
The informal economy also has an interesting feature most people don’t recognize. Not only does it act as a form of social protection but most importantly it enables productivity. It is a social protection mechanism that makes people to work for their money.
As a result, it produces outputs that can be consumed at individual and family level at reasonable cost. Making a living in the informal economy is always a major challenge and people who are involved in it should not be viewed by government and general populous as “lazy”.
The informal economy has another important function and that is its ability to transfer wealth in a fair way to the bulk of the population it supports.
Regardless of one’s circumstances, the informal economy does not discriminate when it comes to income generationand distribution. There is a strong case for the government to undertake a nationwide stocktake on the types of informal economic activities and the segment of the population are involved in them.
This will enable the size of the informal economy to be compared to the whole economy of PNG.
While it is commendable for the government to explore the idea of introducing a pension scheme, the fact is that not all who are considered vulnerable will be included in the initial phase of the project.
Resource constraints, especially to do with the availability of adequate funds, are major factors that will limit the pension funds’ outreach. It looks certain that most of the funds will come from the proceeds of PNG LNG given that the PNG tax base is still narrow.
If that is the case, recent projections that the government will not be able to generate its revenue from the project within the expected timeframe could mean that the pension scheme will be delayed accordingly.
In addition, the efficiency of the payment system will also determine its outreach. At the moment this is a work in progress in most rural areas of the country which are stillbeyond the reach of financial institutions.
Although the advances in mobile technology has allowed banking to be done electronically, the lack of facilities such as ATMs to convert electronic transfers to “physical cash” still remain a big problem in most parts of PNG.
Therefore, in the interim, it looks as though the bulk of the vulnerable segment of the population will have to fend for themselves until such time as they are brought into the scheme.
It will also be interesting to see how poorer economic times will affect the government’s ability to maintain this scheme. Will it cut back on the amount disbursed or will it temporarily halt the roll out of the scheme until the economy picks up again?
Even in a booming economy, the rise in inflation may force the government to adjust the amount disbursed to assist in maintaining some level of consistency in the purchasing power of the targeted population. Otherwise the pension will not be sufficient to allow beneficiaries to buy the basic necessities of life.
Opting for alternative arrangement in place of physical cash, such as distribution of food stamps, is not feasible given the remoteness of most PNG communities.
The informal economy on the other hand will always remain a viable “safety net” regardless of changes in the economic cycle or level of technology.
In the face of economic recession it still provides opportunities for the unemployed to generate income while, during better times, it provide people with the opportunity to supplement their incomes to maintain real purchasing power.
The informal economy should be supported by the government to absorb any spillover effects created by changes in the economy impacting on the proposed social protection scheme. That means, at the minimum, the government should be ready and willing to support those pensioners willing to take up informal economic activities to supplement the government hand-outs through the scheme.
It is high time that the PNG government ensured that major projects, especially those in the extractive industry, developed synergies with the informal economy.
Downstream processing has been an idea much talked about and yet nothing constructive is happening apart from contracts being awarded to local landowner companies to run catering and transport businesses.
It is only supply chains linked to the informal economy that will encourage participants to explore moving into the SME sector.
It is important that a social protection policy recognise and support the informal economy as a “market driven social protection mechanism”.
The unique thing about the informal economy in PNG is that it is essentially made up of family units and not necessarily driven by individuals as is often the case in most advanced economies around the world.
This does provide the government a big opportunity to utilise the informal economy through the supply chain or downstream processing model to distribute the nation’s wealth far and wide to cover as many people as possible.
Busa Wenogo is an economist and Senior Project Officer with the Consultative Implementation and Monitoring Council. He specialises in the informal economy of PNG