Modern Economy of Papua New Guinea

The modern economy of PNG has been dependent upon the export of cash crops and minerals. From colonization in the late 19th century until World War II the main exports were copra and cocoa, small quantities of coffee and rubber and gold. In the 1950s plantations destroyed during the war were reestablished, and villagers were encouraged by the Administration to plant coffee and cocoa on small holdings. Palm oil estates were established late in the colonial Administration, and sugar cane estates after Independence. Export prices for these, and other cash crops, declined sharply in the 1980s and in 1989 fell to the lowest level in 14 years. Between 1978 and 1992 agriculture’s share of the formal economy dropped from 35 percent to 30 percent. In 1992 the government increased subsidies for cash crop exports. In 1992 agriculture represented 26 percent of GDP.

Major mineral production began with the Bougainville Copper Ltd (BCL) mining project in 1972, and post-Independence gold mining with the Ok Tedi project in 1984. In 1992 major mines were operating at Porgera (gold) and Ok Tedi (copper and gold), and there were petroleum developments at Kutubu (oil) and Hides (gas). Mining and petroleum now dominate the modern economy. In 1992 the sector represented 60 percent of GDP. Significant commercial exploitation of forests began in the 1970s, but to date the forestry industry has made no substantial contribution to GDP and employs few people. There has been little exploitation of marine resources. PNG has a small manufacturing sector which accounted for less than 8 percent of GDP and 6 percent of the work force in 1992. Copper, gold, oil, timber and agricultural products are exported to Australia, Japan, Germany and South Korea. Machinery, manufactured goods and food are imported from Australia, Japan, the United States and Singapore.

Although PNG is rich in renewable, as well as nonrenewable, natural resources, and has received substantial development aid, economic growth between Independence in 1975 and 1990 was modest. In 1993 PNG was still classified by United Nations agencies as a lower-middle-income country with a per capita income of less than $US 1,000. PNG has been unable to generate adequate investment in the non-mining sectors of the economy. Non-mining private investment fell from 13.5 percent of GDP in 1981 to 8 percent in 1991 and public investment declined from 9 percent to 5 percent in the same period. Per capita incomes in 1990 were less than in 1975. The economy suffered severely from the closure of the BCL mine and the collapse of cash crop prices in 1989. In 1990 investment totaled K845.2 million. (Construction K105.1 million, fishing K.4 million, forestry K12 million, manufacturing K4.4 million, mining K700.5 million, trading K5.6 million and transport K9.6 million). Substantial investment in mineral and petroleum projects accounted for strong growth in the economy between 1991 and 1993. The GDP grew in real terms by 9.5 percent in 1991 and the 1993 budget projected real growth rates of 8.5 percent in 1992 and 10.6 percent in 1993. With the help of international agencies and aid from individual countries, the government is implementing a Structural Adjustment Programme which it hopes will allow it to capitalize on this growth during the remainder of the decade.

Factors which have held back growth in the modern economy include: distance from export markets; lack of domestic capital; high costs of labor (relative to competitor countries) and transport; costly and inadequate infrastructure; problems associated with land ownership and unrealistic compensation claims; and concern about the effect of development on the physical and social environment. Problems associated with dependence on the mineral and petroleum sector include environmental damage and the capital-intensive nature of these industries. In 1992 the mineral and petroleum sector accounted for only 3 percent of people in formal employment. The economy cannot absorb the estimated 50,000 who seek to enter the work force each year.

In 1993 Prime Minister Paias Wingti’s Government seemed to be making some progress towards meeting its stated goals of revitalizing the commercial agriculture sector, privatizing statutory bodies, promoting local manufacturing industries and increasing participation of PNGans in the modern economy. In the meantime, over 85 percent of the population is dependent to some extent upon the traditional economysubsistence agriculture, hunting and gathering and fishing.

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