High Commissioner’s Address to Lae Chamber of Commerce
7 February 2007; Lae
Australian High Commissioner to PNG, His Excellency Mr Chris Moraitis
Ladies and gentlemen,
I am honoured to be here today to speak to you about one of Australia’s closest and most complex bilateral relationships.
Although I’ve only been in Papua New Guinea for a short time, I’ve already gained an appreciation of its enormous cultural, geographical and linguistic diversity.
Australia’s relationship with Papua New Guinea was forged in the era of colonialism and strengthened during times of war. But it is now very much a partnership between two proud, independent nations.
Perhaps the most striking feature of our relationship with PNG is its sheer scope:
We have strong trade and investment ties and expansive people-to-people linkages – illustrated by the growing popularity of the Kokoda Track among Australian travelers, sporting exchanges, and the large and growing group of Australians who have lived and traveled in Papua New Guinea and Papua New Guineans who have experienced life down South, particularly as students in our schools and universities.
Many Papua New Guineans have come to know Australia through our extensive aid program. PNG is the largest single recipient of Australian aid, and our program touches the lives of Papua New Guineans throughout the country and in a range of sectors, helping to deliver health care, education and to maintain and rebuild vital roads.
Another crucial element of our bilateral ties is the Defence Cooperation Program, which encompasses combined exercises between our two defence forces, military education for PNG Defence Force personnel, technical advice, infrastructure projects and in-line support.
The Enhanced Cooperation Program (or ECP) also remains an important element of the relationship. While we remain disappointed that we were unable to continue with the ECP’s policing component, we should not forget the enormous contribution the ongoing elements of the program are making in a number of key government agencies in PNG.
All that being said, I’m sure I don’t need to remind you that relationships between long-standing partners are not always easy, and that the relationship between Australia and PNG certainly experiences ups and downs. You are no doubt aware of my comments last week about recent differences with PNG and our position on them.
Commercial relationship
I would now like to say a few words about the commercial relationship between Australia and PNG.
Given our geographical proximity and traditionally close ties, it is not surprising that Australia and Papua New Guinea enjoy a strong bilateral trading relationship. Australia is – by a considerable margin - Papua New Guinea’s largest source of imports and its number one export market.
And while PNG does not figure quite so prominently as a trading partner for Australia as Australia does for PNG, it is nonetheless our 20th largest merchandise trading partner and accounts for 1.2 per cent of our total merchandise trade. In terms of the global ranking of Australia’s trading partners, this puts PNG just behind countries such as Vietnam, the Netherlands and South Africa and ahead of countries such as Canada, Saudi Arabia and Sweden.
The value of our bilateral merchandise trade has fluctuated in recent years, but there has been a clearly discernible upward trend. In 2005-06, Australia’s exports to PNG reached around A$1.4 billion, which was almost $400 million higher than the level recorded five years earlier.
Tangible evidence of the Australian Government’s commitment to the bilateral trade relationship is the fully resourced Australian Trade Commission – or Austrade - post located within the Australian High Commission.
Austrade officers undertake an extensive annual trade promotion programme including in-bound trade missions, product sampling showcases, individually tailored market visit programs for Australian businesses and PNG buyer visits to Australia. In 2005 – 2006, over 3,800 individual Australian businesses sold into the PNG market – only five other countries provided markets for a greater number of individual Australian exporters, including economic powerhouses such as the United States and Singapore.
A major event on the Australia PNG bilateral calendar for 2007 is the Australia PNG Business Forum, which will again be held in Cairns next month.
A new initiative for the Forum this year will be an expanded Trade Expo held over the duration of the Forum proper. Austrade and PNG’s Investment Promotion Authority are actively promoting the Trade Expo as a joint bilateral trade promotion introducing Australian and PNG suppliers to prospective customers.
While Australia’s exports to PNG have grown strongly, the expansion in PNG’s exports to Australia has been even more marked. PNG enjoys a substantial and growing trade surplus with Australia, equal to around $900 million. In 2005-2006, Australia imported $2.3 billion worth of goods from PNG, a 34 per cent increase on the previous year. It should be pointed out, though, that this dramatic increase essentially reflected a leap in imports of crude oil, which is one of PNG’s principal exports to Australia - the other being gold. In fact, these two commodities account for around 96 per cent of our purchases from PNG.
Australia’s services trade with PNG is reasonably substantial but has not grown noticeably in recent years. In 2005-2006 Australian service exports to PNG reached $386 million, while our services imports from PNG were valued at $214 million.
Travel linkages are an important element of our bilateral relationship, though it has to be said there seems to be plenty of room for expansion. In 2005, only around 28,000 Papua New Guineans visited Australia, while just under 42,000 Australians visited PNG. Only around 20 per cent of those Australian travelers – or roughly 8,000 people - came to PNG for tourism purposes. Meanwhile, in the same year Fiji attracted around 200,000 Australian visitors and Vanuatu 38,000.
Another important aspect of Australia’s commercial relationship with PNG is its investment ties. Mirroring its dominant position as a trading partner, Australia is also the leading foreign investor in PNG, measured both by its total equity holdings and by the number of individual investment projects.
While the commercial relationship between Australia and PNG is in good shape, we should perhaps be asking ourselves whether there is scope for it to expand further.
The framework for an expansion in bilateral trade is already in place. With very few exceptions, Australia already allows tariff-free entry to goods of PNG origin. And PNG has rightly been applauded for its demonstrated commitment to the Tariff Reform Program, which has made access to the PNG market easier for Australian exporters.
Yet, even with the Tariff Reform Program, certain items continue to enjoy fairly high levels of protection under the PNG tariff regime and, as you will be aware, the PNG government decided to impose temporary tariff increases on three items as part of the 2007 Budget – namely, canned baked beans, dark meat canned tuna and carbonated soft drinks.
We look forward to seeing the outcomes of the tariff policy review which I understand is due to be undertaken later this year.
But it is the level of PNG’s economic development that is perhaps the most important factor relevant to increasing the volume of bilateral trade with Australia – and indeed to a higher volume of trade between PNG and the rest of the world.
Import demand in Papua New Guinea has been relatively flat in recent years, if we exclude imports by mining and petroleum companies.
Under the ‘general’ import category – which excludes imports by the resource sector – PNG’s total import demand declined in 2005 and increased only marginally over the first half of 2006.
A critical factor in terms of providing greater opportunities for Australian exporters in PNG is increasing disposable incomes among average Papua New Guineans. While figures for the last two years suggest there has been no significant increase in income, at the same time the PNG government has recognized the importance of generating greater income-earning opportunities for its people by including this as one of the seven priority areas in the Medium Term Development Strategy, or MTDS.
The challenge, of course, is to make the goal a reality. Rehabilitating transport infrastructure, improving the law and order situation, removing regulatory impediments to doing business and upgrading essential services are all vital components of efforts to enhance income-earning opportunities, particularly among the rural majority.
For example, many of Papua New Guinea’s farmers are currently unable to maximize their income-earning potential due to the difficulties they face in getting their produce to market. If this fundamental obstacle to economic development in PNG can be overcome, everyone will benefit, including Australian businesses, whose markets and customer base will inevitably expand.
Development cooperation
As mentioned earlier, Development Cooperation is a significant element of the bilateral relationship. Australia has a strong national interest in a stable and prosperous Papua New Guinea. Most of you will be familiar with the fact that Australia provides development assistance valued in the order of $300 million per year. This program has evolved substantially over the years, from untied budget support, to a series of projects delivered in parallel to PNG Government systems, to an increasing focus on program-based approaches to assistance.
Program approaches involve Australian aid supporting PNG Government priorities and plans in a sector, assisting the Government and civil society to deliver their own programs.
The past 12 months have seen a significant strengthening of our aid partnership with PNG:
A ‘matching funds’ principle has been enshrined in the new Development Cooperation strategy agreed in April 2006, by which we mean that PNG must increase its own resource allocations to key development priorities. We are pleased to see the PNG government continue to place priority in the budget on these priority areas – notably roads, health, education and law and justice;
We have introduced a $30 million performance grant addressing central public sector performance issues, and linked to a more rigorous performance dialogue;
Anti-corruption has been made an explicit focus of the aid program;
We are developing a coherent approach and tighter linkages between the Enhanced Cooperation Program and the broader aid program; and
The PNG Government has begun to develop a more robust and positive dialogue with the range of its development partners.
We continue to focus our assistance on core areas where we can make the most difference:
On improving governance and nation building efforts;
On supporting broad-based economic growth;
On improving service delivery and hence stability; and
Supporting a strengthened, coordinated and effective response to HIV and AIDS.
While the PNG Government is our key partner, we seek to work with a broad spectrum of development partners, especially the churches and also NGOs, the media, sporting bodies, agricultural peak bodies and the private sector. Increasingly we seek to work with those who have a demonstrated commitment to good governance, to achieving results and tackling problems in innovative ways.
Ultimately it is private sector investment that will drive economic growth, including through its role in increasing entrepreneurial capacity. Through the aid program, Australia supports the private sector to generate growth through a number of programs including:
Providing business support services to a range of industry organisations and small-to medium enterprises, targeting technical skill development, marketing and organisational capacity in areas as diverse as fisheries, tourism, forestry and agriculture; and
Working with local financial institutions to improve access to finance.
It is fair to say that economic growth is an area that we want to put more emphasis on in our new five year development strategy with PNG. As I am sure you will appreciate, however, there are no off-the-shelf answers for how growth in PNG can be boosted.
We do look to actively support the involvement of the private sector in delivering our aid program. Australian support for road building and maintenance provides a good example of opportunities for private sector involvement in the aid program. Lae City has benefited from the $63 million Lae City Roads upgrading project from 1995-2005. Under this program a number of locally owned road maintenance companies and community groups have benefited from AusAID-funded contracts awarded through the Department of Works.
Despite the claims of “boomerang aid” that are frequently heard, we are very committed to ensuring Papua New Guineans and Papua New Guinean firms participate in the delivery of Australia’s assistance. It is worth restating that Australian aid has been completely untied – that is procurement of project management services as well as goods for AusAID funded activities is now open to all international bidders, including those from PNG. I expect that the number of, and the value of, contracts for PNG owned businesses providing goods and services to the aid program to increase in the coming year.
While we are talking about Lae roads in particular and infrastructure for improving transport networks in general, I would like to highlight the importance that the Australian government places on matching funds and good governance.
I am aware that the ongoing deterioration of the Lae city roads is a matter of concern to the community here. However, I would like to be clear that AusAID has not been able to continue to provide support for Lae road maintenance due to the City Council’s failure to acquit funds provided in 2004. Moreover, in order for support to continue we require a clear commitment that “matching” funds will be provided from national or provincial governments for ongoing maintenance works.
I do however understand from recent press reporting, that in its 2007 budget, the Morobe provincial administration has allocated K3 million for city road maintenance. If that is the case, we would be very pleased that such a significant investment is being maintained. Effective utilisation of that funding will be the key issue.
No-one is satisfied with PNG’s disappointing development performance, as measured in terms of life expectancy, literacy, personal safety and access to markets for rural Papua New Guineans. These statistics are stark. Papua New Guineans live on average for only 57 years; only 40% of children are in school; child mortality is more than double the regional average; and more than 1.5 million people live more than 4 hours walk from a main road.
PNG is at a development crossroads. Its improved economic and fiscal management give us reason to be cautiously optimistic that, if economic growth can increase to levels of 6-7% per annum and if good governance measures can be strengthened, our development cooperation partnership will further strengthen and we may begin to see real improvements in the lives of average Papua New Guineans. Those are, of course, two large ‘ifs’, and we will continue our engagement with the current and incoming PNG governments this year towards the objectives of strengthening governance, addressing corruption and maintaining sound economic management.
I’d like to touch briefly on Australia’s support to PNG’s Provincial Performance Improvement Initiative as this has been an innovative shift in AusAID’s capacity to engage on issues relating to decentralisation.
In PNG’s decentralised system, the provinces and districts have a crucial role to play in front-line service delivery. In order for service delivery improvements to be felt in the villages, provincial and district level capacity requires support and development.
For the last two years, AusAID has had officers based in three pilot provinces – East New Britain, Eastern Highlands, and Central - working closely with the Provincial Management Teams on issues of planning, budgeting and coordination. This approach has helped us to better understand the challenges and issues at provincial level, to take a more hands-on approach to supporting better service delivery and will also increasingly support better coordination of Australian inputs to a particular province. In 2007, 5 more provinces will join PNG’s Provincial Performance Improvement Initiative – Simbu, Oro, West New Britain, Sanduan and Milne Bay.
We are also supporting key coordinating functions at the national level through the Dept of Provincial and Local Government Affairs and the work of the National Economic Fiscal Commission to develop a fairer system of intergovernmental financing.
THE HIV/AIDS challenge
Let me focus in conclusion on one specific aspect of the development challenges facing PNG: the HIV and AIDS epidemic.
HIV/AIDS is a serious threat to development in PNG. Approximately 2% of adults in Papua New Guinea (64,000 people) are infected with HIV. Unless interventions to address the spread and impact of HIV/AIDS in PNG are scaled up, it is estimated that by 2025 over half a million Papua New Guineans will be living with the virus.
Australia is committed (and I emphasise this word) to working with the Government of PNG, the churches and private sector community groups to fight HIV, through a new scaled-up HIV/AIDS program, Sanap Wantaim (‘stand together’). $A100 million has been committed to fund this new program over the next five years.
However, fighting the spread of HIV needs to be a key priority for all sectors – government, churches, civil society, private sector – as well as the Australian Government and other donor partners. And all of us, as individuals, need to take responsibility for tackling the spread of HIV.
The epidemic threatens PNG’s private sector directly. Your greatest asset, your skilled people, are not immune to this epidemic and in many of PNG’s industries should be considered at high risk of contracting the virus. HIV therefore threatens the capacity, bottom line and ultimately the viability of your businesses.
I am very pleased that PNG’s business community has begun to take up the challenge of addressing HIV and AIDS by forming the PNG Business Coalition against HIV/AIDS.
Ladies and Gentlemen,
In conclusion, let me thank you for giving me the opportunity to address you today and to meet you all.
It is still early days in my new assignment as Australian High Commissioner, and there is much to learn about this fascinating country. I particularly look forward to working with you, as a group and individually, in the years ahead to strengthen and nurture the well-established and important links that unite Australia and Papua New Guinea.