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PAPUA  NEW  GUINEA  

DEVELOPMENT STRATEGIC PLAN

2010-2030

          “Our guide to success”              

Department of National Planning and Monitoring

Port Moresby

March 2010

  For more information contact:  Department of National Planning and Monitoring P O Box 631 Waigani National Capital District Papua New Guinea  Telephone: +(675) 3288302 /3288324 Facsimile: +(675) 3288399/3288384   Published by Department of National Planning and Monitoring Port Moresby Papua New Guinea 2010   ISBN :  978-9980-86-235-8          

Consulting Designer: Greta Designs Ltd

Photos : Compiled by Department of National Planning & Monitoring

Copyright © 2010 Department of National Planning and Monitoring of Papua New Guinea

Contents   Foreword vii Remarks ix Introducing the PNGDSP   xi Goal and vision 1 Building the PNGDSP from the guiding principles of the Constitution 2  PART 1 Introduction 3 1.1 The objectives of Papua New Guinea Development Strategic Plan, 2010-2030 4 1.2 An overview of development planning in PNG 6 1.3 PNG‟s 20 year development plan 7 1.4 Conceptual framework of the PNGDSP 8 1.5 PNG‟s state of development 9 1.6 Projected impact of the PNGDSP, 2010-2030 12 1.7 Impacts of sectoral strategies 14  PART 2 Economic corridor concept 17 2.1 Economic corridors for integrated development and broad based growth 18 2.2 Proposed economic corridors 18 2.3 Economic corridor development features  19 2.4 The petroleum resource area economic corridor (PRAEC) 20 2.5 Operationalising the PRAEC 22 2.6 A model of an economic corridor 22  PART 3 Macroeconomic management and financial sector 29 3.1 Fiscal policy 30 3.2 Monetary policy 32 3.3 Developing the financial sector 33 3.4 Business and investment 34 3.5 Competition and consumer protection 36 3.6 State owned enterprise reform 37 3.7 Trade 38 Part4 Land, services, transport & utilities development strategies 41 4.1 Land development 43 4.2 Law and order 45 4.3 Health 47 4.4 Primary and secondary education 54 4.5 Higher education 59 4.6 Human resource development and training 63 4.7 Research, science and technology 64 4.8 Transport sector development 65 4.9 Utilities 73 4.10 Information and communication technology 75 4.11 Energy development 76 4.12 Rural development 81 4.13 Urban development 84  Part 5 Economic sectoral strategies 87 5.1 Agriculture and livestock 89 5.2 Fisheries 92 5.3 Forestry 94 5.4 Petroleum 95 5.5 Minerals 98 5.6 Non-agricultural informal sector 99 5.7 Small and medium enterprises 100 5.8 Manufacturing 101 5.9 Tourism 103  Part 6 Cross-cutting policies 107 6.1 Population 108 6.2 Youth 110 6.3 Gender 111 6.4 HIV/AIDS 113 6.5 Vulnerable and disadvantaged groups 116 6.6 Environment 117 6.7 Climate change 118 6.8 Natural disaster management 121 6.9 Public sector management 122 6.10 National statistics systems 124 6.11 International relations and security 125  Part 7 Partnership and cooperation 133 7.1 Whole of government collaboration 134 7.2 The private sector 135 7.3 Development partners 136 7.4 Churches 137 7.5 Civil societies and community based organisations 137  Part 8 Resourcing the PNGDSP 139 8.1 Resourcing the PNGDSP Strategies 140 8.2 Sequencing the PNGDSP Strategies 143 8.3 Managing mineral revenues through a public finance & investment strategy 143 8.4 Managing risk – sensitivity analysis 146  Part 9 Implementation, monitoring and evaluation framework 149 9.1 Introduction 149 9.2 Protocols 149 9.3 The framework for implementing the PNGDSP 149 9.4 Monitoring and evaluation framework 151  Appendices 153 A. Definitions 153 B. Acronyms 154   

Foreword

On 16th September 1975 Papua New Guinea (PNG) took a big step in entering into an unknown territory as an independent sovereign nation. Transition of a people of many languages and cultures to a global economy within three decades is in itself an achievement and testimony of the resilience of the people of PNG.

PNG has progressed and is now at the crossroad of economic development. The next 20 years will be most crucial. Therefore, what matters now is not what we would have liked being done but what we must be able to do together as a nation. The people of PNG rightfully expect a policy that has the courage to change the future, and the strength to change and transform things. I challenge Papua New Guineans to stop spending time thinking about what is not possible. Instead, let us ask ourselves what each of us can contribute to make things possible in the future ahead. Together we can shape our destiny and that of our future generation.  Many challenges lie ahead for our young and vibrant democratic nation. And these challenges are increasing domestically, regionally and globally. At the same time the opportunities that lie ahead also look brighter for our country to achieve sustained growth and economic development in the next 10-20 years. However, these opportunities and the challenges that face us cannot be harnessed and appropriately addressed in future without a long term strategic action plan to guide our development pathways. Having realised this scenario, the Government under my leadership directed the Department of National Planning & Monitoring as the mandated central planning agency of the nation in early 2008 to undertake formulation of a 20-year long term development blueprint for the country, the Papua New Guinea Development Strategic Plan, 2010-2030 (PNGDSP). This PNGDSP document now for the first time attempts to translate the dreams of the founding fathers as contained in the directive principles of our National Constitution into workable plans. At the same time it maps out the „how to get PNG to where our Papua New Guinea Vision 2050 wants us to be‟. It therefore sets out the broad framework, targets, and strategies to achieve the vision of the Government. The PNGDSP is designed to quadruple the national income which should give all Papua New Guineans an improved quality of life by exploiting the available opportunities and enable them to become key players in the overall socioeconomic development of this country. It is designed to strategically inform and guide Papua New Guineans in all walks of life to engage in the development process of our country.     

We have, for far too long, been swindling on the back of rhetoric and ad-hoc decision making processes which do not reflect Government policy objectives. These in turn reflect badly on PNG‟s development goals and priorities thus leaving our rural majority population with minimal or no economic options to become key players in the socio-economic advancement of our country. The PNGDSP is also designed to change this practice. I am proud to say that the PNGDSP 2010-2030 is a fully homegrown document taking into account concerns and aspirations of the Government, non-Government, private sector and most importantly the people of this nation. I take this opportunity to ask every Papua New Guinean importantly to take full ownership of this important development strategy which will guide the continued progress of our nation in the next 20 years. It is yours, Em bilong Yu, Oi Emu.  

 Rt. Honourable Grand Chief Sir Michael T. Somare, GCL, GCMG, CH, CF, KStJ    Prime Minister  Independent State of Papua New Guinea    

Remarks

Papua New Guinea‟s (PNG) current Medium Term Development Strategy (MTDS) 2005-2010 expires at the end of 2010. As such the Government has again, under the leadership of our nation‟s founding father and Prime Minister Grand Chief Sir Michael Somare, directed my Ministry and Department in 2008 to undertake formulation of a development strategic plan. 

Hence, the Papua New Guinea Development Strategic Plan, 2010-2030 (PNGDSP) document is the final outcome of this important direction from the National Executive Council. It is a testimony of the Government‟s continued vision and commitment towards improving the livelihoods of the people of PNG. It reflects the determination of the government‟s willingness to direct the bureaucratic systems to come up with a comprehensive long-range plan to direct the path for PNG‟s development. Failing to plan is a recipe for failing and PNG must avoid this at all cost.  I commend the Department of National Planning & Monitoring and all other Government departments and agencies, churches and civil society organisations, private sector, international friends and development partners, and the wider community throughout PNG for responding positively in the formulation of this important strategy of our country. Individuals directly or indirectly involved in putting together the PNGDSP document must also be commended for their commitment and effort. The PNGDSP will now provide the strategic guidance for our country‟s development aspirations in the next 20-years. At a time when our country enters a critical phase of its development progress after three decades as a sovereign nation, the PNGDSP is critical in charting us forward. Taking stock of our past mistakes, meaningfully gaining the rewards out of the opportunities ahead, and taking new approaches to the development process in view of rapid globalisation are central to the strategy that the PNGDSP document tries to pronounce. All Papua New Guineans should work together towards realising the vision and objectives spelled out in the PNGDSP. Let‟s take pride and ownership of it and become central players to the development process of our nation as we continue to move forward.    

Thank you and God bless Papua New Guinea.

 Hon. Paul Tiensten, LLM, MP Minister for National Planning & District Development                     

Introducing the Papua New Guinea Development Strategic Plan, 2010-2030

Not so long ago, Papua New Guinea witnessed the launching of the Papua New Guinea Vision 2050 which describes a day in the future where the welfare of every Papua New Guineans will be well looked after. 

The challenge is to achieve this Vision within 40 years, by 2050. It is a tough call, but a call nonetheless and this call should bring all Papua New Guineans together, both present and future, to contribute to the development of their country and to do greater things in the years ahead.  I call on the public service at the national and sub-national level, the Donor Partners, Churches and Civil Society Organizations to align their sector plans and strategies to achieve the targets that are being set forth in the Papua New Guinea Development Strategic Plan, 2010-2030. These targets are fully modeled using the PNG General Equilibrium Model, thus implying that the Plan is truly an integrated one and the dynamic structure of the model has enabled long range planning to be possible.   All sector policies, plans and strategies must be reviewed to create closer alignment with the Papua New Guinea Development Strategic Plan, 2010-2030 so that resources can be mobilized and directed on sector- activities that will enable the 20 year targets to be achieved. The Department of National Planning and Monitoring will continue to coordinate and assist all agencies of Government to achieve the targets that have been set out in the Papua New Guinea Development Strategic Plan, 2010-2030.  The Papua New Guinea Development Strategic Plan, 2010-2030 is truly a remarkable Plan that has moved away from the past traditional planning approaches and sets forth new directions and parameters for development planning in this country. It has finally translated the Five Directive Principles of the National Constitution, the Eight Point Improvement Plan and the Vision 2050 so that the aspirations of our leaders can be achieved through the annual planning, programming and budgetary processes.   It would be amiss of me not to acknowledge the hardworking staff of the Department of National Planning for producing this fully home-grown Papua New Guinea Development Strategic Plan, 2010-2030, a task that has taken 10 months to complete.   I also acknowledge the Hon. Paul Tiensten, LLM, MP, Minister for National Planning & District Development who has provided solid and consistent political direction and leadership during the formulation of this Strategic Plan.       

It is therefore with much humbleness that I commend the Papua New Guinea Development Strategic Plan, 2010-2030 as a guide to a successful future for Papua New Guinea.      JOSEPH LELANG Secretary   

GOAL

A high quality of life for all Papua New Guineans

VISION

Papua New Guinea will be a prosperous middle-income country by 2030

Building the PNGDSP from the guiding principles of the Constitution

 The PNGDSP embodies the principles of the Constitution of PNG and reinforces the fundamental directives required to advance PNG into a middle-income country by 2030. 

PNGDSP interpretation

The PNGDSP will deliver ….

1.1.The broad objectives of the PNGDSP, 2010-2030

Guided by the directives and goals of the National Constitution, the Papua New Guinea Development Strategic Plan (PNGDSP) elaborates how PNG can become a prosperous, middle income country by 2030. The directives and goals of the Constitution form the broad objectives of Papua New Guinea‟s Development Strategic Plan in the following ways. Integral human development Integral human development is essential to provide all citizens with the opportunity to achieve their potential. Quality education for all and a world class health system are key elements of the PNGDSP for human development, helping to develop a highly skilled workforce and equipping PNG‟s entrepreneurs with the skills they need to grow their businesses. Equality and participation All citizens should have equal opportunity to participate in and benefit from the nation‟s development. Prosperity in rural areas of PNG is a major emphasis of the PNGDSP, because the vast majority of citizens live in rural PNG. The PNGDSP specifies how service delivery to rural PNG will be achieved, including transport services, electricity, education, health and business assistance.  National sovereignty and self reliance PNG‟s national sovereignty will be strengthened by PNG‟s economic and political success. Good governance and broad based growth will help build PNG into a prosperous nation including by facilitating PNG investors. Among other things, PNG‟s prosperity will alleviate the country‟s reliance on aid. Natural resources and environment PNG is well endowed with a wealth of natural resources. These resources must be managed sustainably to ensure they benefit both future and current generations. In particular, resource revenues need to be focused on nation building, while at the same time protecting the environment.  Papua New Guinea ways PNG has a rich heritage of traditional wisdom and knowledge, reflecting the greatest cultural diversity of any nation of the world. PNG‟s development will be fostered in ways that learn from and build upon PNG‟s cultural heritage. The PNGDSP policy measures for law and order, land, education and health, for example, draw on PNG ways to improve the effectiveness of service delivery in these sectors.

The PNGDSP also translates the focus areas of the Papua New Guinea Vision 2050 into concise directions for economic policies, public policies and sector interventions with clear objectives, quantitative targets, and baseline indicators. It is envisaged that Papua New Guinea will have two Development Strategic Plans under the Vision 2050, each covering a 20 year period. 

The PNGDSP strategises the aspirations of the PNG Vision 2050 in line with the following core objectives:

i.Strategic planning

· The PNGDSP is a strategic planning document, which articulates long-term national goals and formulates strategies that provide guidelines for action plans and resources programming. If applicable, the goals are quantitatively targeted and scenarios derived, using the PNG Government‟s computerised general equilibrium model (PNGGEM).

· A strategic plan acts as a road map for achieving long-term results. Strategic planning anticipates changes in the environment that implicitly suggest radical moves away from current practices. 

· Four five-year Medium Term Development Plans (MTDPs) are envisaged to be aligned to the PNGDSP 2010-2030. This implies that an MTDP‟s action plans, objectives, resources programming and implementation protocols should be in conformity with the strategic direction of the PNGDSP. Similarly, other statutory plans, such as the lower-level government plans, line departments and agencies plans and corporate plans, as well as the annual budgets, must be aligned to the MTDP. 

ii.Systems and institutions

· The PNGDSP dedicates a section to ensuring that good governance principles are upheld and that current institutions become more effective. 

· The PNGDSP outlines exactly how development stakeholders will partner and cooperate with the Government to enable achievement of the expected outcomes.

iii.Human development

· The PNGDSP is heavily focused on how investment in human resources can accelerate the development process. It considers the development of human resources to be an issue which cuts across all sectors.

iv.Wealth creation

· The PNGDSP sets the direction for the economy to move from an economy heavily dependent on non-renewable natural resources to one which has a broader base with dynamically developed industries in both secondary and tertiary sectors and with well connected and vibrant markets. The PNGDSP specifically addresses the manufacturing and tourism industries.

v.Security and international relations

· The PNGDSP contains specific directions for defence and security, and states the broad objectives and strategies for foreign policy and foreign aid.

vi.Environment and climate change

· The PNGDSP will be pursued with consideration to environmental issues such that the health of the environment will not be compromised. Strategies under the extractive sectors as well as energy sectors are designed to be pursued with clear consideration for environment sustainability as well as addressing the issues of climate change in ways that best suit PNG‟s developmental needs. 

vii.Partnership with churches for integral human development

· The PNGDSP recognises churches and other organisations as important partners in development and will rely on them to work towards achieving the PNGDSP goal of a quality life for all Papua New Guineans. Churches play an important role in meeting the spiritual needs of the people.  

1.2.An overview of development planning in PNG

The formulation of Papua New Guinea Development Strategic Plan, 2010-2030 (PNGDSP) is the initiative of the Somare Government. This long term development framework is intended to promote and guide PNG onto a path of sustainable economic growth, achieving economic prosperity and a high quality of life for all Papua New Guineans.  Growth and development in PNG has been sporadic and does not reflect the progress made by many countries within the region and elsewhere. Botswana and Malaysia, for instance, are resource rich countries like PNG and in fact were at a similar stage of development to PNG in 1975. But Botswana and Malaysia have now become prosperous middle-income countries, lifting their GDP per person more than ten-fold, while PNG has been left behind (figure 1A).  PNG can draw inspiration and guidance from the experiences of countries such as Malaysia and Botswana. They demonstrate to PNG that high ambitions and aspirations are achievable. Importantly, both countries are currently implementing long term plans with shorter 5 year plans built around these. The PNGDSP is influenced by what these countries have done.

1A

Historical economic performance of PNG 

Comparison with Malaysia and Botswana, 1975-2008

Prior to 1996, development planning was guided by the annual budget process. Planning was therefore short term in line with the annual budget cycle. This created the tendency for development outcomes to be dictated by expenditure considerations and by revenue constraints. In the 1980s, attempts at some form of cohesive planning resulted in the creation

of the National Public Expenditure Plan. Rural development was a key focus of the National Public Expenditure Plan, which was implemented through various integrated development programmes in the provinces. The National Public Expenditure Plan paved the way for the Public Investment Plan. The Public Investment Plan was essentially a list of programmes and projects rather than being a plan for development.  The separation of the Department of Finance and Planning in 1996 into the Department of Finance and the National Planning Office represents the first attempt by the PNG Government to address the problem of “short term budget-driven” planning. The Medium Term Development Strategy (1997-2002) was PNG‟s first medium term plan. However the annual budget remained an overriding factor as evidenced by the emphasis on expenditure priorities instead of on development policy priorities. The Medium Term Development Strategy (2005-2010) is the plan that precedes the PNGDSP. It provides strategies to guide other planning processes including the annual budget. However it lacks an economic development framework that would enable policy proposals to be prioritised and properly sequenced. It also lacks quantifiable objectives or performance indicators that would make it easier to monitor progress. In contrast, the PNGDSP 2010-2030 is an integrated policy document that considers all objectives and strategies in terms of how they will contribute to the vision of PNG‟s prosperity. The PNGDSP 2010-2030 will thereby guide development by guiding how best to utilise scarce resources and by focusing development efforts on policy areas with the greatest potential. 

1.3.PNG’s 20 year development plan 

The 20 year development strategy sets long term goals and targets that will guide development planning and importantly, will set the priorities for development expenditure. In so doing, it dismantles the dominance of short term, annual budgets over the allocation of resources. Its formulation is therefore a historic moment in PNG‟s development.  In short, the PNGDSP does three things. First, it outlines where PNG is at now; second, it provides targets of where PNG will be at in 2030; and third, it outlines how PNG will get to its 2030 targets. The PNGDSP 2010-2030 will be implemented through four five year Medium Term Development Plans. The PNGDSP and the four Medium Term Development Plans will mobilise domestic resources, dictate expenditure priorities, spell out intended outcomes and will provide clear targets. The priorities and directions provided in the PNGDSP will guide the development of sector policies, plans and strategies. The PNGDSP framework will thereby provide policy clarity, cohesiveness and certainty, including to development partners who require such predictability for aligning their country strategies to support PNG‟s development priorities and goals.   

1.4.Conceptual Framework for the PNGDSP

The PNGDSP is formulated with a conceptual framework that is comprehensive and realistic with clear establishment of forward and backward linkages within the economy, of policies and of whole of government operations. Figure 1B illustrates the PNGDSP Framework with five stages. The first stage (A) begins with the consideration of the economic environment and existing economic policies including the Government‟s fiscal and debt management strategies. This recognises that the Government cannot develop its PNGDSP framework in isolation of the economic environment (eg, development of LNG Gas) or current policies (eg, fiscal, exchange rate and monetary policies).

   PNGDSP Conceptual framework  

1B

  The second stage (B) considers the existing public policies like foreign and immigration policies, privatisation, work permits, investment incentives, public private partnership policy and associated regulations and legislations. Such public policies affect the environment in which the PNGDSP is expected to function and are important to the implementation of the public investment programs and public service delivery system in PNG. Relevant agencies of government are responsible for implementing these policies and the way their respective mandates and actions affect or are affected by interventions in the PNGDSP needs to be monitored so as to improve coordination of efforts and avoid wastages and inconsistencies. The third stage (C) is the most important stage and highlights the areas of key interventions by the Government through the different sectors. This is the area in which the Department of National Planning and Monitoring (DNPM) plays a pivotal role to ensure:

· the priorities of the Government are clearly outlined in the PNGDSP;

· targets and measurable indicators consistent with local priorities and international obligations are captured;

· concise sector priorities and strategies are clearly outlined and analysed with economic modelling;

· concise sector policies and plans are developed for each sector for implementation through the MTDPs;

· appropriate monitoring of all project activities, project spending and donor activities across the country;

· development of new policies and sector strategies including legislation (where necessary) to align all sector plans and strategies to the PNGDSP;

· the PNGDSP and all relevant sector interventions are legislated to achieve the outcomes anticipated under the PNGDSP; and

· mechanisms to provide regular reporting to the National Executive Council and Parliament on the implementation status of the PNGDSP.

 The development of the PNGDSP must be done by the agency that has the responsibility and mandate over the development affairs and planning of the country. This is important because of the need to institutionalise the necessary mechanisms to account for and report on the implementation progress of the PNGDSP. DNPM is the relevant agency of the Government responsible for this function as established in 2005 through NEC Decision No. 251/2005. The fourth stage (D) is the end result of development efforts by all government agencies. It is the culmination of efforts by Treasury and the Central Bank in managing the economy through manipulation of economic policies (exchange rate, fiscal, and monetary), implementation of public policies by relevant Government agencies, and DNPM‟s efforts to coordinate implementation of sector policies through public investments and coordinate effective utilisation of donor funding towards government priorities. Through these interventions (policy and sector strategies), the Government can influence economic growth and development in PNG. This is the focus and core of the PNGDSP framework which is inclusive of the entire business of Government and directs all stakeholders toward common objectives. The fifth stage (E) represents the primary vision of the Government. This is the ultimate aim of the PNGDSP which is to provide a high quality of life for all Papua New Guineans. 

1.5.PNG’s state of development

PNG is poised at a critical juncture in the nation‟s history. While PNG is gifted with natural resources, most people are without formal employment and face considerable hardship. In 2008-09 the developed economies confronted the most serious downturn since the Great Depression. However, the PNG economy continued to grow, benefiting from a number of prudent reforms and policy decisions. PNG is now in a good position to prosper from implementing the PNGDSP and to benefit from the PNG LNG Project.

Although a young country – attaining independence in 1975 – PNG‟s political system is growing in stability. Prior to the introduction of the Integrity of Political Parties Bill in 2000, PNG‟s national government was often destabilised by frequent votes of no confidence and changes of Government. As a result of the law, for the first time since independence the elected Government of 2002 was able to serve its full five year term. PNG‟s total economic output measured in Gross Domestic Product (GDP) is estimated to be around K21.5 billion in 2008. This translates to approximately K3,500 per person (US$1,300 per person) and places PNG among the world‟s lowest income countries and much less than the regional average (figure 1C). 

  Other development indicators reinforce this view. A few examples suffice. Consumption poverty, or an inadequate intake of calories, is widespread, affecting as many as 38.8 per cent of the population living in the Momase region, and at least 16.3 per cent of the population living in the National Capital District. In terms of health, child mortality rates are high, with 75 children dying by the age of five for every 1,000 live births. Maternal mortality rates are also high, four times higher than the average among Pacific islands. At the same time literacy and numeracy levels are poor and have not improved since 1990.  The UN combines indicators such as these into the Human Development Index, providing a way to compare development in PNG against that of other countries. The Human Development Index ranks PNG as 149th out of 179 countries. Its score is only slightly above the average for sub-Saharan Africa and below the average for low income countries (figure 1D). The average Human Development Index amongst countries of East Asia and the Pacific is much higher than in PNG, as is the average for middle income countries. The Human Development Index comparison resembles the above comparison of GDP per capita. This is not surprising as it is higher income that drives improved living conditions.

1C

International comparison of GDP per person

2006, purchasing power parity US$*

*This figure reports GDP in purchasing power parity dollars which is an adjusted amount based on the cost of living in each country.

 PNG‟s economy is dominated by primary production. Primary sectors, comprising agriculture, forestry, fisheries, oil, gas and mining, contribute 63.4 per cent of GDP (figure 1E). Of these key sectors, agriculture, including subsistence agriculture, provides the livelihood for close to 85 per cent of Papua New Guineans. The oil, gas and mining sectors, on the other hand, are also important, but not for generating jobs. Rather, they provide an important source of revenue to the Government for nation building.  PNG has an open economy with exports in 2008 reaching K15.4 billion which is 71 per cent of GDP. This marks a rise from 59 per cent of GDP in 2003 as a result of a global commodity price boom from 2003 to 2008.

1D

Human Development Index comparison

The performance of PNG on the international stage, 2006

  Until 2004, fiscal mismanagement and monetary instability typified PNG‟s economy, constraining development. Large and persistent fiscal deficits led to gross underfunding of public investment in developing and maintaining infrastructure. The exchange rate was volatile which fed into high and volatile inflation and interest rates. Commercial lending rates often exceeded 20 per cent, depressing private sector investment.

1E

The composition of the PNG economy

GDP share by major sector, 2006

Since 2004, there have been significant improvements in macroeconomic management as outlined in part 3. PNG has entered into a new era of fiscal surpluses, low inflation, a stable exchange rate and low interest rates. As a result, the private sector has responded with a new confidence to invest. The economy has grown more rapidly and there has been a new impetus in the formal labour market with private sector jobs rising 6.6 per cent a year since 2005, or by about 15,000 jobs a year (figure 1F). Growth has occurred in all sectors, including agriculture.  

1F

Private sector formal employment

1978-2008

1.6.Projected impacts of the PNGDSP 2010-2030

National income will be more than five times higher by 2030 under the PNGDSP.

Formulation of the PNGDSP is being supported by quantitative analysis using the PNG Government‟s general equilibrium model (PNGGEM). It is projected that through the Government implementing the PNGDSP 2010-2030, approximately 2 million jobs will be created. This is equivalent to 20 per cent of the country‟s projected population at 2030. 

National income is expected to grow five-fold, with PNG‟s growth rate projected at 8.4 per cent a year on average. Figures 1G and 1H show that without deliberate intervention by the Government through the PNGDSP, the PNG economy would continue to grow at just under 3 per cent a year, as it has done since independence. This is barely enough to keep up with population growth. Economic development under the PNGDSP will be broad based, facilitating entrepreneurial enterprise both in rural and urban PNG. An expansion in agricultural businesses under the PNGDSP is expected to generate over 800,000 full-time equivalent rural jobs in the next 20 years. Importantly, over two-thirds of these new jobs will be in formal agriculture, as PNGDSP strategies provide small scale enterprises with the opportunity to expand. In urban areas, entrepreneurship will be encouraged, helping to create an estimated 49,000 informal jobs in urban areas, and thereby resulting in a decline in the number of people engaged in crime.

1G

Impact of the PNGDSP on national income

Growth in national income with and without implementation of PNGDSP, 2010-2030

GNI is gross national income and measures the economic welfare of PNG.

GDP is gross domestic product and measures production in PNG

1H

Impact of the PNGDSP on employment

Growth in full-time equivalent jobs, with and without the PNGDSP, 2010-2030

1.7.Impacts of sectoral strategies

The economic achievements of the PNGDSP will be based on key sectoral strategies.

The PNGDSP outlines strategies and targets for every sector of the economy. PNGGEM is used to generate the quantitative analysis contained in this document, the results of which are summarised in tables 1.1 and 1.2. The impacts on GDP (economic output) are generally higher in Kina terms than the impacts on GNI (national income). The difference between the two measures are mostly explained by the benefits from economic output that accrue to foreign labour and foreign companies operating in PNG. The GNI results are a more accurate measure of the benefits of the sectoral strategies that accrue to PNG.  It is clear from the national income and employment impacts in tables 1.1 and 1.2 that the key platforms for the future prosperity of PNG will be strategies to sharply reduce the law and order problems and the implementation of land reforms that will empower landowners to make the most of their land. It is important to note that the results for many other sectors, for example agriculture and tourism, are premised on the success of law and order and land reforms.   

1.1

Note: These results are for individual sector specific scenarios. The results in figure 1G are not simple additions of the results in this table. Rather, they are for a scenario that includes all strategies and will include the interdependencies between strategies that the individual scenarios will not pick up.  In 2030, GNI is estimated to be K12.7 billion higher than it would have been without land reforms and the boost in economic activity would lead to an additional K9.3 billion in tax revenue. Strategies to sharply reduce law and order problems is estimated to result in an even higher K15.0 billion gain in GNI in 2030. An additional 600,000 jobs are estimated to be generated by 2030 as a result of strategies to reduce law and order and 680,000 jobs due to the implementation of land reforms. In addition to the economic benefits to PNG, reductions in law and order problems will bring considerable social benefits which are not measured. Of the sectoral strategies, the next biggest impact will be due to the PNGDSP target of two major gas projects. An additional K5.1 billion in revenues are expected in 2030 and GNI is estimated to be K9.7 billion higher. The gas projects will be capital intensive rather than labour intensive and as a result, the estimated gain in jobs of 56,000 is less than for many of the other sectors. The high degree of foreign capital will mean that the GNI impact will be about half the GDP impact. As these results refer to two large scale gas projects, they may be viewed as conservative given the potential for further development of natural gas resources.  

1.2

Note: These results are for individual sector specific scenarios. The results in figure 1H are not simple additions of the results in this table. Rather, they are for a scenario that includes all strategies and will include the interdependencies between strategies that the individual scenarios will not pick up. Agriculture, tourism and manufacturing will be the economic sectors driving broad based economic growth. Strategies associated with each of these sectors will result in estimated gains in GNI of over K5 billion in 2030 and in tax revenue of over K2 billion. These sectors in turn depend on the successful implementation of the education and infrastructure strategies.  Significantly, the tourism target is one of the most important initiatives for delivering jobs in PNG, creating 310,000 jobs by 2030. This increase in jobs is much higher than for manufacturing as tourism is a labour intensive sector. Agriculture is also labour intensive and as a result 267,000 jobs will be created in this sector.  Strategies to significantly upgrade higher education will lead to an estimated gain in GNI of K4.1 billion in 2030 and more than 200,000 new jobs. Much of this gain is attributable to skilled jobs being occupied by Papua New Guineans rather than foreigners who remit most of their income abroad. The estimated economic impact of the strategies for primary and secondary education are conservative in that they do not fully account for the benefits. In addition there are substantial social benefits that are not quantified. Similarly, the benefits of health strategies are mainly social and no attempt was made to measure the economic benefits. Strategies for transport and electricity infrastructure will also provide important social benefits that are not measured. The combined gains in GNI of transport and electricity strategies is over K6 billion in 2030 with more than 270,000 additional jobs. These gains mainly relate to the stimulus to economic activity in rural areas.

2.1Economic corridors for integrated development and broad based growth. 

Economic corridors are proposed to alleviate poverty. Corridors of poverty will be transformed into economic corridors. Without the corridor system people in poverty will not be integrated into the mainstream economy. An economic corridor is a region in which the Government provides a well planned zoning system, a comprehensive and effective network of transport and utilities, and quality education and health services. Within this region, businesses are able to operate at low cost and under well designed incentives, thereby encouraging foreign and domestic private sector investments. By concentrating the construction of essential infrastructure within certain regions the economic corridor approach takes advantage of the substantial economies of scale and scope associated with large service sector infrastructure. This reduces the cost to state owned enterprises and other providers of essential infrastructure, while raising their returns. Building on this infrastructure, effective sequential and spatial planning will help to expand economic activities like agriculture, tourism and manufacturing. The economic corridor concept has been applied between countries with common borders, such as the Mekong Economic Corridor, to promote development and integration. It has also been applied within a single country, including China, to attract investment and thereby promote economic development. Economic corridors will be located in the poorest regions of PNG with the aim of extending the benefits of development to the most disadvantaged regions. They will be located where the gains are likely to be greatest, particularly where land is fertile or where the three modes of transport – air, sea and land – are able to come together to provide efficient trade hubs. The selection of regions is therefore independent of provincial or district borders.

2.2The economic corridors

The Government has identified ten regions of PNG to be categorised as economic corridors for the purpose of development (map 1A). These are:

1. Petroleum Resource Area Economic Corridor (PRAEC): Southern Highlands, parts of Enga, Gulf, and Central provinces. The PRAEC was approved by Cabinet in May 2009

2. Border Corridor (Western, Southern Highlands and Sandaun provinces)

3. Central Corridor (Central, Milne Bay, Oro and Morobe)

4. Madang-Baiyer-Karamui-Gulf  Corridor (Madang, Simbu, Gulf and Western Highlands)

5. Morobe-Madang Corridor

6. Enga-Sepiks Corridor (Enga and East & West Sepik Provinces)

7. South Coast Corridor (East New Britain and West New Britain)

8. Momase  Corridor ( Madang, East Sepik,  and West Sepik provinces)

9. Solomons Corridor (Autonomous Region of Bougainville)

10. Free Zone Corridor (Manus, New Ireland, East and West Sepik)

2.3Economic corridor development features

The PNGDSP in large part will be implemented through the economic corridor concept, accounting for half the Development Budget in future years. The Government has already established the Border Development Authority, which will have responsibility for coordinating the development of the border corridors (the Border Corridor, the South Coast Corridor, the Solomons Corridor and the Free Zone Corridor). The Government will enact further legislation to establish an Economic Corridor Implementation Authority (ECIA) over each of the remaining economic zones. Legislation will set out the powers, functions and responsibilities of an ECIA in mobilising, planning and managing development in the economic corridor.  Corridor authorities will play a unique role that goes beyond provincial boundaries. They will work closely with provincial, district and town authorities to harmonise development initiatives, coordinating efforts in order to bring about greater results in the corridors. Economic corridor authorities will only initiate flagship projects of national interest in their various corridors, specifically in economic infrastructure (transportation, energy, telecommunication), social infrastructure (health, education and research and development), and projects for economic pursuit (agriculture, fisheries, forestry, downstream processing, and small-medium enterprise development). This will require corridor authorities to work closely with state owned enterprises and other major investors in economic and social infrastructure, coordinating all investment activities. Corridor authorities will not implement development initiatives at provincial and local levels, instead leaving this to the provincial and lower level authorities.  Legislation will allow ECIAs to operate as corporate entities with specific operational functions for running their own budgetary resources. Finance for corridor development will come through the Border Development Authority and ECIAs from both the public and private sector and include foreign direct investment, foreign aid, government loan financing, grants from companies, public enterprises through dividend policy, and from the Development Budget as outlined in figure 8C of part 8.  Legislation could provide for economic corridor authorities to retain a portion of revenue raised in the corridor areas and provide for other financing means in order to secure a budget for the purposes of maintenance and organisational operations. This could include mechanisms such as levies and fees and revenue from leasing land. Also, once the governance structure of corridor authorities is finalised, the process of resource mobilisation for investment in the three areas (economic infrastructure, social infrastructure, and economic pursuit) will be clearly distinguished so that all efforts will be harmonised and integrated under the leadership of each corridor authority. This includes, for instance, ensuring that investment undertaken by state owned enterprises, such as PNG Power Limited, are harmonised with the operation and activities of the economic corridor authority. 

The economic corridor approach will integrate all aspects of development through spatial planning and proper sequencing of developments. Service delivery will be improved by providing basic social, transport, electricity and communication infrastructure. The supply of infrastructure will encourage private sector investment, as will the use of incentives such as the provision of market places with social amenities. Government financed investments will all take into account population growth and population density, together with the suitability of areas for agriculture, tourism and other industries.

2.4The Petroleum Resource Area Economic Corridor (PRAEC)

The PNG Liquefied Natural Gas (LNG) project will be one of the big impact projects for PNG during the PNGDSP period. The Petroleum Resource Area Economic Corridor (PRAEC) will extend the benefits of the LNG project beyond the gas site to the nation as a whole. The PRAEC will direct LNG revenues into a network of transport, utilities and services in the PRAEC area that is fully integrated with the national network. The PRAEC will be one of the first economic corridor implemented under the PNGDSP, together with the border corridors.  Building on the previous discussion of the objectives and benefits of the economic corridor concept, the PRAEC will deliver the following:

· improve the quality of life for people in the PRAEC zone by investing in the zone;

· improve the quality of life for people throughout PNG by integrating infrastructure and services in the PRAEC with the national network;

· ensure that gas revenues bring about tangible and sustainable improvements to the living standards of PNG‟s people;

· develop sources of investment funds that are independent of the national Government Budget, in order to sustain investment and maintenance expenditures;

· replace cash hand outs with a well managed and well coordinated system of investment to the benefit of affected communities;

· instill high standards for the scoping, design and costing of projects; 

· guide the investments of state owned enterprises; and 

· coordinate all stakeholders that provide funds or otherwise invest in the development of the PRAEC zone.

Map 2A – Proposed 10 economic corridors  

2.5Operationalising the PRAEC

Initially, the PRAEC will be administered by DNPM. However legislation and regulations will be put in place to establish an ECIA to oversee the PRAEC. The legislation and regulations setting up the Border Development Authority will guide the creation of the ECIA legislation. The establishment of the PRAEC‟s ECIA is critical because it will be the benchmark for establishing the other ECIAs. The DNPM will put in place appropriate governance and organisation structures for the PRAEC ECIA. The PRAEC ECIA will coordinate resources and will manage the implementation of projects. The PRAEC ECIA may therefore involve representatives from affected provinces and districts, national Government agencies and other stakeholders engaged in investments or development activities in the PRAEC area.

2.6A model of an economic corridor

When fully developed, a corridor will have a combination of the following development features: 

· an electricity grid powered mainly by hydro and other renewables and connected to the national grid where feasible;

· utilities such as water and sewerage, telecommunications, broadband internet, and post office;

· transport infrastructure comprising a network of roads, marine facilities and air that is integrated with the national network; 

· social infrastructure including health and education programs;

· agricultural, forestry and/or fishery based industries, for example sago, livestock, fish processing and plantation forests; and

· industrial estates and well serviced residential housing estates.

The strategies of the PNGDSP are aimed at providing the above infrastructure and services, especially those strategies outlined in parts 4, 5 and 6. Figure 2A shows a hypothetical economic corridor, providing an illustration of how a corridor will be developed. The following features are demonstrated in figure 2A:

· an efficient road network that connects four urban centres and two rural developments. The road network opens up areas with considerable economic potential;

· electricity supply is generated and distributed along transmission lines that are connected to a national grid system;

· industries of various scope and scale that have been developed by the private sector in response to the conditions and infrastructure put in place by Government. Industries include:

- area 1 – livestock, crops and an agricultural processing plant;

- areas 2 and 3 – downstream processing facilities and agricultural farms;

- area 4 – tourism, service centre and downstream processing; 

- area 5 – heavy industries and international trading zones; and

- area 6 – light industries and international service and trading zones.

· utilities and services that are developed to world standards in the four urban centres with the rural village in area 1 well connected to services; and

· the four urban centres serviced by airports and ports of international standards.

2A A depiction of an Economic Corridor for PNG

 Recent years of macroeconomic stability in PNG have laid the foundation for consistent growth, even through the 2008-09 global financial crisis. Maintaining this record of macroeconomic stability will underpin the success of the PNGDSP. There is also the need for fundamental microeconomic reform to improve the productivity and efficiency of the economy and promote a dynamic and expanding private sector. To this end microeconomic policy reforms will be directed at achieving improvements in economic performance at the sectoral level. This is undertaken through facilitating competition, enhancing the operation of markets, improving the effectiveness of government services relied upon by the private sector and removing impediments. Key Development Indicators 

3.1.Fiscal policy 

GOAL Prudential management of fiscal policy and budgeting discipline  Fiscal performance Since 2003, the Budget has been well managed, resulting in prevailing budget surpluses. However prior to 2003, fiscal instability and mismanagement were typical. There were periods of large fiscal deficits in the early 1990s and in the period 1998-2002 (figure 3A). The Budget went back in to deficit in 2008 as a result of the global financial crisis which led to a collapse in commodity prices later that year. A boom in commodity prices between 2003 and 2007 provided a surge in revenues that underpinned the strong budget position in those years. Revenues have risen sharply from around 28 per cent of GDP in the early 2000s to 33 per cent of GDP in 2008. Improved management has resulted in these increases being diverted to development expenditure while recurrent expenditure has held steady at appropriate levels of around 18 per cent of GDP. Public debt has been reduced to 31 per cent of GDP in 2008 compared with an average of 63 per cent of GDP in the three years up to 2003. 

Strategies The Department of Treasury is responsible for managing fiscal policy, including the recurrent budget. The Department of National Planning and Monitoring is responsible for the development budget. Delegation of the Development Budget to the Planning Department   demonstrates that the Government places high importance on its public investment program as the primary vehicle for implementing development policies and priorities.

 The Medium Term Fiscal Framework, the Medium Term Debt Management Strategy and the Fiscal Responsibility Act (2006) provide the policy framework that guides decisions when formulating annual budgets. The Public Finance (Management) Act (2008) and Financial Instructions guide the management, disbursement and accountability of public funds through the annual budget cycle. The focus of the fiscal policy framework is to maintain fiscal discipline, maintain low levels of debt and reduce high risk foreign debt. This focus remains a sound fiscal strategy. However the way in which this is pursued needs to account for the changing financial and economic conditions. The 2006 policy of using 30 per cent of windfall revenues to reduce debt is no longer appropriate now that PNG debt levels are sustainable. Such a narrow policy is only appropriate when debt levels are high. The public investment strategy outlined in part 8 is a more prudent approach to managing windfall revenues, encompassing the need to maintain low debt levels while also ensuring revenues contribute to development when debt levels are low. The Government will continue to support fiscal discipline, but through the public finance and investment strategy outlined in part 8. The Fiscal Responsibility Act (2006) will be revised to give effect to this change in emphasis. The Medium Term Debt Management Strategy also will be revised to ensure it is consistent with economic realities and to accommodate development investment decisions by Government. For instance, in the PNGDSP the sequencing principles entail undertaking huge investments in the „enablers‟, such as the transport network and electricity grids, which can be financed through State borrowing by leveraging future revenues from the minerals sector.   

3A

Budget outcomes, 1990-2008

Surplus (deficit) as a share of GDP 

3.2.Monetary policy

GOAL Maintain price stability  Recent history PNG‟s recent monetary stability follows a period of extreme volatility from 1994 to 2002 (figures 3B, 3C). This was caused by weak monetary and exchange rate policy that followed a crisis triggered by fiscal mismanagement in the early 1990s. The exchange rate was fully floated leading to sharp changes in the exchange rate from week to week and large depreciations that would feed through to high and volatile inflation (figures 3B, 3C). Interest rates were also high and volatile in this period, in large part due to a failed attempt to use interest rates as an instrument to control exchange rate depreciations. Commercial lending rates were unpredictable and often exceeded 20 per cent, placing considerable pressure on the private sector. Investment dried up, underpinning the prolonged recession over this period.

 The health of the PNG economy since 2002 can in large part be traced to reform in monetary and exchange rate policy. Reform was underpinned by the Central Bank Act of 2000 which granted full independence to the Bank of PNG. Importantly, the Bank has been successful in managing the exchange rate with an emphasis on stability and preventing the sharp fluctuations that prevailed prior to 2002 (figure 3C). As a result, inflation since 2003 has been low and stable, apart from 2008 when global fuel prices surged – a factor outside the control of PNG. Similarly, interest rates have become stable.  During the 2008-09 global financial crisis, the Bank has tended to allow the Kina to move with the US dollar, rather than providing stability against a mix of currencies. This is the cause of the greater exchange rate volatility experienced since the second half of 2008 (figure 3B).

3B

The exchange rate, 1991-2009

Annual change in the trade weighted exchange rate index*

*The trade weighted exchange rate index is a measure of the average exchange rate of the PNG Kina against the currencies of its main trading partners. The data for 2009 refers to the annual change to June.

 Strategies The key to sound monetary and exchange rate policy will be stability. The recent performance points the way forward, however, the Bank should revert to stability of the exchange rate against a trade weighted mix of currencies rather than against the US dollar alone. Importantly, the Bank of PNG should retain autonomy over monetary instruments and continue as the sole agency responsible for price stability and the exchange rate. As part of maintaining macroeconomic stability the Bank of PNG will continue to develop safeguards against factors that destabilise the banking sector, external accounts, and other important areas in its responsibilities.   

3C

PNG’s annual inflation rate 

1990 to 2009* 

*The data point for 2009 refers to the inflation rate to June. 

3.3.Developing the financial sector 

GOAL Strengthen financial and banking services in PNG  PNG’s growing financial sector The financial and banking sector in PNG uses cash and paper as the main instruments for financial transactions. The Bank of PNG has supervisory and regulatory responsibility of the sector and oversees the payments and settlements system in PNG. The regulatory strength of the financial and banking sector has helped protect PNG from the global financial crisis of 2008-09. Credit to the private sector has grown substantially from around 12 per cent of GDP in 2002 to 22 per cent of GDP in 2008. This is a reflection of a strengthening financial and banking system with stable interest rates and an increasing depth of services. Most of the commercial lending has been extended to established large corporate businesses and construction industries. Small enterprises and newcomers have difficulty securing investment funds from commercial banks due to higher risk premium. 

The depth of services remains thin and underdeveloped in rural areas where the financial sector has failed to reach the majority of the population. Microfinance has been growing

rapidly to bridge this gap, but there remains a long way to go. The capital markets, including the Port Moresby Stock Exchange, remain small but are growing. Strategies Facilitating competition in the financial sector will improve service delivery. Under competition, market participants will need to put greater effort into customer care, providing timely service, making better use of technological innovations such as electronic banking, offering a greater range of financial services, and otherwise improving the quality of service at a lower cost. Prudential controls will remain the responsibility of the Bank of PNG, however the Bank of PNG and the ICCC will need to work together to engender a competitive and efficient financial sector. PNG‟s progress depends on the depth, transparency and resilience of the country‟s capital markets. Key institutions such as the stock exchange and the market in Government bonds need to be developed accordingly. A comprehensive review of the finance sector is required to guide the development of capital markets and of the operations of the finance sector. The Bank of PNG should progressively guide the development of the capital market to ensure it achieves the desirable standards in terms of depth, buoyancy and elasticity to facilitate community development and to enable investment by the private sector. At the same time, commercial and investment banks should be encouraged to diversify their financial products to competitively meet the demands of local entrepreneurs and small businesses.   Significant progress is needed in extending the availability of low cost financial services to the general population. Informal financial institutions – such as informal microfinance societies – that operate savings, credit and other financial services will be relied upon to extend financial services to the grassroots economy. To this end, a suitable regulatory framework will need to be designed and implemented. 

3.4.Business and investment

GOAL PNG will be an attractive destination for business and investment  It is business investment that will generate the income growth and jobs projected in the PNGDSP for agriculture, tourism, manufacturing and other sectors. The Government has a key role in providing the right conditions that make it attractive for the private sector, particularly local businesses, to establish and expand. In this environment, Papua New Guineans will become actively involved in overall development, including as both land owners and entrepreneurs. On the same token, necessary conditions will be created to encourage foreign investment through venture finance, joint-ventures businesses, and direct investment. Foreign finance has been an important source of investment for PNG in the past, and will continue to support growth into the future. Foreign equity investment in 2007, for example, was almost K4.2 billion. While 73.6 per cent of this foreign equity investment was accounted for by the large mineral sector, the manufacturing sector also benefited substantially from foreign investment amounting to K383 million.

Key development areas  Each year, the World Bank measures the “ease of doing business” for many countries. While the indicators are only an approximation, they are currently the best available gauge of PNG‟s ability to attract investment. PNG is currently ranked just outside the top 50 per cent out of 181 countries (figure 3D). By comparison, Singapore is the top ranked country for doing business, and Malaysia and Botswana are ranked amongst the top 25 per cent. 

 Ten separate criteria are used to estimate an overall “ease of doing business” indicator and PNG performs well on two criteria: “protecting investors” and “employing workers”, with a ranking among the top 25 per cent in the world (figure 3E). To attract higher levels of business investment, PNG needs to improve on other criteria. In “enforcing contracts”, PNG ranks in the lowest 10 per cent. “Getting credit” and “dealing with construction permits” are areas where PNG ranks among the lowest 30 per cent of countries in the world. Real progress against each of these criteria will help to attract the investment that PNG needs to develop into a middle income country. The 2030 target is for PNG to be among the top 25 per cent of countries for each of the ten criteria.  Strategies to attract private investment Lowering transaction costs and reducing risks are two important elements for attracting both local and overseas investors. Recognising this, the Government will provide, among other things:  • a sound legal system;  • well-defined and protected property rights; • a transparent and mature property market;  • a reliable and competitive financial system; and  • low transaction costs in setting up and running businesses.

3D

Ease of doing business in PNG, 2009

Global rank in World Bank indicator: “ease of doing business”

Foreign direct investment will be a critical source of the finance and technology PNG will need for rapid development, including to invest in essential infrastructure. However it is also important that PNG learns from foreign investors, thereby improving how PNG enterprises do business. For this purpose, foreign direct investors will be encouraged to invest in joint ventures with local businesses. In this way, foreign direct investment will support local entrepreneurship.

3E

Targeted progress in ease of doing business, 2009-2030

Ranking in 2009 by criteria and the progress required to reach the top 25 per cent by 2030

Note: The full definition of these indicators is given in the World Bank‟s Ease of Doing Business Indicators website.

3.5.Competition and consumer protection

GOAL Promote competition that benefits PNG and protects consumers  Competition between businesses needs to be harnessed to benefit consumers. When businesses compete to sell a similar product, they work hard to innovate, to lower prices, to lift quality and to provide a larger range of options to consumers. With this competition, PNG consumers will gain. However rules are required to ensure businesses focus on serving customers rather than on undermining competitors. To promote this type of competition, Government regulations must establish rules that treat all businesses the same, that prevent anti-competitive behaviour and that direct business efforts towards improving the well being of consumers. PNG‟s success in implementing telecommunications competition illustrates this well. Following the introduction of Digicel into the mobile phone market, mobile phone prices have dropped, the quality of service has improved and access to mobile phones has soared. In 2009 more than one million Papua New Guineans subscribed to a mobile network. 

Competition is lacking in several other sectors, including cement and processed food products, resulting in high costs to PNG consumers and businesses. This is a result of a number of factors including protection being granted to incumbent operators through monopoly rights as well as other structural impediments to doing business. This lack of competition results in poor service and high prices for Papua New Guineans, because a monopolist of an essential service does not have to work hard to attract and retain customers.  Strategies Competition needs to be promoted across the economy, including in key service sectors such as telecommunications, electricity and transport. This will require strengthening the role of the Independent Consumer and Competition Commission (ICCC) in investigating the competitiveness of markets and prosecuting anti-competitive behaviour. However the ICCC will be better able to focus on these important functions if its function of developing policy to promote competition is vested in another entity. A separate entity will therefore be mandated or established to analyse markets and develop policy to promote competition and consumers, with the ultimate goal of improving the living standards of Papua New Guineans. Consumer protection is another important aspect of competition policy. Consumers need to be well informed of their rights and avenues to ensure that retailers and other service providers are providing quality goods and services. By ensuring consumers are well informed and well supported, the ICCC will better meet its mandate to protect consumers.

3.6.State owned enterprise reform

GOAL A high standard of service delivery by state owned enterprises  The Government owns or controls a number of enterprises that provide key services. There is a clear role for Government ownership or control in service industries where investments are large scale, with a long time frame and often involve significant benefits beyond the capacity to pay of the service recipients. The private sector will not make such investments without Government. State owned or controlled enterprises have been set up to undertake these vital investments. Under the Government‟s Public Private Partnership Law, state owned enterprises can engage with the private sector to leverage greater resources for investment.  The Government intends for state enterprises to operate on commercial principles, to be subject to competition and consumer protection policies, and to be accountable to the people – its ultimate stakeholders. When state owned enterprises perform poorly, the result is ineffective service delivery to the majority of the population. However state owned enterprises cannot undertake the investments needed for service delivery without adequate resourcing and effective management. Strategies The Government recognises that formulation of a dividend policy is required to guide how much revenue from a state owned enterprise is re-invested into the enterprise, as opposed to being allocated to the general budget. Failure to adequately invest in infrastructure will undermine future service delivery. 

Competition will play an important role in motivating state owned enterprises to deliver good services. Community services obligations are ineffective without competition, as demonstrated by the poor delivery of community services obligations in the past by state owned monopoly service providers. The introduction of competition, where feasible, will place pressure on Government owned enterprises to upgrade their performances to that expected of them and required by the people of PNG. However the introduction of competition in each sector will need to be guided by a strategic review that draws on the experiences of other economies, while also accounting for the unique circumstances in PNG.  There is a need to comprehensively define community services obligations that are clear and measureable for the provision of services by state and private enterprises. The ultimate goal for community service obligations is that of enhancing the welfare of all Papua New Guineans, particularly those who lack the capacity to pay. For private enterprises, these obligations would be specified in the tender process as output based specifications and in the contract for the provision of their services.    When state owned enterprises are accountable to the Government and to the people of PNG, they will be motivated to meet the expectations of these key stakeholders. To this end, the financial management practices of state owned enterprises need to be improved and audited. The use of public private partnerships (PPPs) is necessary as a means for sharing the risks and the financial burden of infrastructure developments with the private sector. The Government‟s PPP policy and the enactment of the PPP Law will open the way for state owned enterprises to work with private sector participants. The nature of partnerships will vary from sector to sector.

3.7.Trade

GOAL To realise the benefits of trade for PNG  Objectives

· That trade with the rest of the world will flourish; and

· That PNG will effectively represent PNG‟s best interests and those of other Pacific Island countries in international and regional trade negotiations.

Current situation International trade not only provides PNG with market opportunities, but is also a vehicle for the transfer of world best technologies into PNG.  Over recent years PNG has considerably reduced barriers to trade, including by abolishing import quotas and sharply lowering import tariffs. As a result, barriers to imports are low by international standards and lower than most industrialised countries. Moreover, PNG‟s exports attract little support in the way of subsidies. This is in sharp contrast to the high degree of export support provided in industrialised countries, particularly for agricultural commodities.

Strategies  PNG‟s foreign policy will be focused on supporting PNG‟s trade and development, as reflected in part 6.11. In particular, PNG needs to participate in international trade negotiations to support developing country efforts in addressing the imbalance in trade barriers between industrialised countries and developing countries – particularly in agriculture. It is also important for PNG to take a leadership role for Pacific island countries in these forums.  Trade negotiations Trade negotiations are in progress for the creation of a free trade zone amongst Pacific Forum countries, including Australia and New Zealand, known as PACER Plus. There is a strong imbalance in these negotiations between the Pacific island countries and Australia and New Zealand. This places much responsibility on PNG to properly represent the interests of the Pacific island countries to ensure that any agreement will be to the clear benefit of PNG and its Pacific neighbours. This equally applies to WTO negotiations and any other free trade proposals that may emerge over the PNGDSP period. The international experience of free trade agreements between developing and industrialised countries is that it is the industrialised countries that have benefited most. This includes things like intellectual property conditions which have prevented developing country access to low cost medicines whilst at the same time allowing multinational companies to obtain legal rights over traditional medicines – an area where PNG and other Pacific countries are particularly vulnerable.  In this area, PNG will pursue the following objectives:

· address both trade barriers and technical barriers to trade through systematic reforms and trade dialogue;

· proactively engage in global integration through 

- regional trade agreements and 

- regional production networks; and

· take a leadership role amongst Pacific island countries in global and regional trade negotiations.

 Outward-oriented trade policies PNG is mindful of the benefits and costs of trade liberalisation and will endeavour to facilitate the process through discrete policy choices. In order to maximise economic benefits from its rich natural resources, appropriate trade policy, especially outward-oriented policies, will be pursued. An outward-oriented trade policy has already been pursued in previous Government plans through the export-led growth strategy and the PNGDSP will emphasise export promotion rather than import-substitution. This will require:

· the creation of a well functioning domestic economic base with sound infrastructure and utilities development as outlined in part 4;

· opening up access to export markets by: 

- developing domestic marketing and technological capabilities to improve productivity;

- striving to minimise the regulatory burden upon businesses, particularly those that are export oriented in order to improve their ability to compete in the world market; and

- providing a low cost, low risk environment to run a business to enable export oriented businesses to be highly competitive;

· promoting export led growth in all industrial sectors through careful planning that utilises cost advantage, economies of scale and linkages of inputs to production; and  

· promoting targeted investment through the economic corridors outlined in part 2, including free trade and export processing zone arrangements.

    Accommodative trade policies Trade policies will be pursued that support trade and growth. These are known as accommodative trade policies. Accommodative policies include addressing trade barriers, strengthening institutions, improving governance and ensuring macroeconomic stability. In particular, the focus will move away from liberalisation of imports to facilitation of exports. For example, as discussed in section 5.1, the Government will facilitate the establishment of international standards in the handling and marketing of agricultural produce in order to gain access to foreign markets. Another specific strategy will be to establish a Trade Development Board that will effectively and strictly coordinate and pursue trade, especially exports promotion.  

 Land, law and order, education, health, transport and utilities are all crucial issues for economic and social prosperity. They are fundamental to economic growth and are prerequisites for development of the economic sectors outlined in part 5. The PNGDSP will implement strategies that will result in substantial progress in each of these areas. The economic and employment impacts of sector strategies outlined in part 4 are summarised in figures 4A and 4B. In addition, there are considerable benefits in social welfare and quality of life not picked up in these figures. 

4A

Economic impact of implementing sectoral strategies in Part 4 

Increase in national income in 2030*

*Data from table 1.1

4B

Employment impact of implementing sectoral strategies in Part 4 

Increase in employment in 2030*

*Data from table 1.2

4.1.Land development

GOAL Provide a secure, well administered land market that serves the needs of landowners and contributes to the nation’s strategic development  The importance of land Secure access to land is fundamental for the future development of PNG. Although PNG is endowed with abundant land resources, land has been difficult to access for development. This is true of the 97 per cent of land held under customary tenure and of the 3 per cent of alienated land that is mostly owned by the State. For both customary land and alienated land, poor administration and an inadequate legal framework have prohibited productive land use. Improving the administration of all forms of land is central to achieving sustained broad based economic growth and development. Key strategic areas

 Strategies for making land available for development The implementation of appropriately designed land reforms is necessary to ensure that land is available for development. The Government‟s Land Development Program is a PNG initiative that works within the context of PNG‟s many systems of land ownership. The emphasis of the Land Development Program is on improving the existing administration of customary and alienated land, including dispute resolution, and on strengthening the PNG institution of Incorporated Land Groups. If the program is well implemented, at least 682,000 extra jobs will be generated by 2030 and there will be an additional K18 billion of GDP (figure 4B, table 1.1). These gains will be a result of the introduction of tenure security and transparent land markets, which will lead to higher rates of investment and higher productivity in land intensive industries such as agriculture.

Land administration Land administration underpins the security of land, whether it be alienated land or customary land. The Government is resourcing and otherwise improving the land administration system to ensure certainty over ownership and land use rights and to facilitate the marketing of customary and alienated land. Among other substantial benefits, proper administration of land is expected to reverse the growth of illegal settlements in the cities. An important element of administration is dispute resolution. To resolve disputes efficiently and effectively it is important to enhance and fast track the implementation of reforms to the land dispute settlement system. The Government‟s introduction of a single land court will contribute to better outcomes in this area. Importantly, magistrates and judges who specialise in land law will be more proficient in land disputes. The Government also has a key role in facilitating the development of an effective, transparent market for leased land, including by providing clear guidelines for market institutions, and by assisting land owners to market their land effectively. Government assistance in marketing land should be concentrated in areas where the returns to land development are high, for example in peri-urban areas where land is in high demand, in highly productive agricultural areas and otherwise within the Economic Corridors. 

 Customary land reforms Land is an abundant resource in PNG, but landowners will not choose to make their land available for development unless their rights are protected. Therefore, it is necessary to enhance and fast track the implementation of the Government‟s reforms that will allow customary landowners to register their land, to bring specified portions of land out of customary tenure and in under statutory tenure, and to then use leasing mechanisms to make their land available to the market. A central aspect of these reforms is strengthening PNG‟s Incorporated Landowner Group (ILG) process. Developed for the PNG context, ILGs will remain a key institution for coordinating multiple owners of a single piece of land.

4C

Land area operating within the formal administration system

Information campaign None of these strategies will be effective if people remain largely ignorant of the new opportunities available to them. It is therefore necessary to promote awareness of the opportunities to utilise customary land. 

4.2.Law and order

GOAL Provide a safe, secure and stable environment for all citizens, visitors, communities and businesses to conduct their affairs freely  The crime situation Governments have a duty to establish and enforce the rule of law and to provide security and safety to its citizens and visitors. A number of surveys have confirmed that law and order stands out as by far the biggest impediment to business and investment, more so than infrastructure, governance, regulatory and urban land issues. As much as 9 per cent of business revenues are consumed by the law and order problem. As well as deterring foreign investment, PNG‟s alarming law and order problem is hindering economic activities such as tourism. The resources and capacity of law enforcement institutions are inadequate to deal effectively with this problem. Real expenditure on law enforcement has remained virtually unchanged since the 1970s, while the rate of crime has dramatically increased by more than 12-fold.

Key strategic areas

Note: Average victimisation rate is an average across urban centres and an average across burglary, assault, sexual assault, violence, vandalism and vehicle theft.

Strategies for reducing the crime rate The law and justice system of PNG rests on three pillars: deterrence of crime, coordination of law and justice agencies and restorative justice.  The core strategy for achieving the target of a 55 per cent reduction in crimes is to build an effective deterrence system, which includes raising the operational capacity of the police force to international standards. This will involve improving skills and technological capacity as well as expanding the size of the force. A ratio of one police officer for every 600 people will be reached by 2016 and then one for every 400 people by 2030 in order to provide a safe society for citizens, visitors and businesses. Importantly, the effectiveness of police will need to be strengthened by developing systems to improve productivity, loyalty and adherence to procedures, and to eliminate corruption. A lack of resources hinders the judiciary system in the resolution of criminal cases. Court houses, lock ups and magistrate‟s accommodation are needed in key locations and will be provided under the PNGDSP. Measures will also be taken to address the inadequate number of magistrates and to improve case management practices. The high cost of the circuit service has been a large burden on the magisterial services budget. Transport costs will come down in the longer term as a result of strategies being implemented under the transport sector (section 4.8). In the meantime, additional resources will be required to support an effective circuit service. Establishing sector coordination mechanisms that allow and encourage dialogue with the agencies in the law and justice sector will improve the effectiveness of the system. The use of national court circuits to serve districts is encouraged, but this must be accompanied by subsequent programs to roll out police posts and rural lock ups at district levels as further steps to reduce the overall costs of transporting prisoners to main centres. Other measures will also help ensure a safe society, including the introduction of reserve police, sector patrols, neighbourhood watch and the improvement of police-community relations. Initiatives such as the use of village peace officers and traditional law enforcement measures can also be effective for deterring crime, thereby reducing the overall cost of combating crime. Traditional measures for dispute resolution need to be utilised to complement the statutory court system. Mediation that characterises many of PNG‟s traditional legal systems can be effective in resolving disputes while at the same time promoting reconciliation and relieving the pressure on the court system.  As a complement to the core strategy of deterrence, increased efforts will be put into crime prevention and restorative justice, in partnership with churches, the community and the civil sector. This includes supporting efforts to divert people away from criminal lifestyles by promoting ethics and legitimate livelihoods. Key initiatives include strategies to integrate youth into the community (section 6.2) and the provision of tourist police (section 5.9).

The law and order Budget and the crime reduction target

The sharp fall in the crime rate will lead to a considerable boost to economic activity, which in turn will generate K6.2 billion in additional tax revenue in 2030 (table 1.1) and nearly K57 billion in additional tax revenue over the years 2010-2030. The additional government resources committed to law enforcement are calculated to be Budget neutral so that the expenditures are offset by these additional tax revenues (figure 4D). The average annual increase in the law and order Budget will be 20 per cent from 2011 to 2019, and then 10 per cent annually from 2020 to 2030. The target of a 55 per cent fall in the crime rate has been calculated based on the impact of committing these additional resources (figure 4E). Over and above the benefits in quality of life that the 55 per cent reduction in the crime rate will bring, the economy will be K15 billion better off in 2030 and nearly 600,000 jobs will be created (figures 4A, 4B).

4E

4D

The size of the law and order budget however, is only indicative and would reflect the drastic efforts required under PNGDSP to bring the crime rate down by 55 percent. For instance, if strategies to increase investment, job creation, restorative justice, community policing, strengthening traditional ways and process, etc. are not properly addressed under PNGDSP then the Government would require, for instance, K6.2 billion alone in the 2030 budget to fund this sector. But under PNGDSP, development strategies are integrated so that the efforts in law and order can be greatly enhanced by development elsewhere and would reduce the fiscal burden.   

4.3.Health

GOAL Achieve an efficient health system which can deliver an internationally acceptable standard of health services  The state of the health system Considerable health gains were made in the first two decades after PNG‟s independence in 1975. However, progress in a number of key health indicators has worsened or slowed since the mid 1990s (as reported below). This coincided with the transfer of responsibility for rural health services to the local level government under the Organic Law on Provincial and Local Level Government (1995). The deterioration of health services has complex causes. These include: 

· poor access to quality health services and facilities such as specialist hospitals, aid posts, health centres and equipment – a situation made worse in the context of rapid population growth; 

· the inadequate state of transport infrastructure and other utilities, denying many people adequate access to health services;

· law and order issues, for example, health facilities have been burnt down or health workers have been attacked, resulting in the closure of service centres; 

· closure or limited operation of facilities due to shortage of staff (doctors, nurses and community health workers), insufficient medicines, malfunctioning equipment and poor maintenance of buildings. In particular, approximately 50 per cent of rural health facilities are not functional; 

· lack of emphasis on primary and preventative health practices, healthy lifestyles and dietary practices; and

· poor management of the highly decentralised and fragmented National Health System, including failure by provincial governments to adequately resource health services through their annual budgets.   

Key strategic areas Current indicators show the poor state of PNG‟s health system by international comparison. The targets are set with reference to the levels currently achieved by low to middle income countries. Map 4A is provided for reference to the location of the facilities reported in the following table.

Case Study: SPECIALISED HOSPITALS FOR PNG

PNG needs to have the best available medical services and facilities to cater for its growing population. Its citizens continue to spend large amounts of financial resources and time seeking overseas medical services for specialised treatments. To address this issue the Government intends to set up four specialised regional hospitals, which will be formed by upgrading existing provincial hospitals. The specialised hospitals will be set up using international benchmarks that distinguish a hospital as „specialised‟, equipped with modern medical equipment.

The Angau General Hospital in Morobe province will be the first specialised hospital to be established, while discussions are ongoing regarding the other specialised hospitals. A concept design for the Angau specialised hospital is in place in 2009 and a more detailed architectural design, together with other detailed ground work, is underway. The concept design already sets the minimum standards for a specialised hospital. For instance, the Angau specialised hospital will have the facilities and capabilities for heart transplants.

Since the concept is new, the progress of Angau will be critical. Once Angau is established, building the other three specialised hospitals will be easier, in terms of replicating architectural designs and other specifications. 

Strategies for developing a world class health system Achieving the targets for 2030 will require a complete transformation of the health system. Strategies for doing this are outlined as follows. Management As reflected in the 2001-2010 National Health Plan, effective management of the health system is vital if resources are going to be used well. It is therefore important to strengthen the capacity of management at all levels, including a clear demarcation of the functions of different levels of management. Given the small population of PNG, and the large and growing rate of migration within the country, it will be more cost effective to centralise delivery of health services. This will require legislative changes and further reforms to the public health system. Quality The quality of health service delivery, including accurate diagnosis and treatment, depends on the skills of health workers. It is always a priority to increase both the number and quality of health workers through better training. This will be achieved by upgrading and expanding training facilities for medical practitioners, nurses and for community health workers generally to meet the projections outlined in figure 4F. Further strategies for building the capacity of tertiary education in general are outlined in section 4.5. Modernising health facilities will also improve the quality of service delivery. The introduction and improvement of medical technologies, information and communication technologies (ICT) including tele-health and medical laboratories, both diagnostic and research, are all necessary. Efficient procurement, storage and distribution of basic drugs and medical equipment is essential. Achieving this may require the Government to establish bulk stores or warehouses, including the introduction of an information technology network that will require all hospitals to monitor levels of drug supplies. Engaging with private enterprise under the Government‟s PPP policy is an option to promote efficiency and guarantee an effective distribution system. 

4F

Number of health workers, 2009 to 2030

Growth in health workers to meet the PNGDSP health targets

Map 4A – Distribution of hospitals & health facilities   

Access Access to health services in rural areas is poor. Improving access is critical for achieving gains in health outcomes. Fundamental to this is the extension of transport, electricity, and utility services into rural areas as outlined in sections 4.6-4.8. Also important is the strategy of universal education which will assist people in understanding and addressing health issues.  To ensure that health services are accessible to the whole population, a number of additional strategies are proposed. Firstly, existing health facilities are to be recapitalised and upgraded. Four regional hospitals will be upgraded to become specialised hospitals. District health centres will be equipped and expanded to become hospitals in order to deliver better primary health care in rural areas. Secondly, strong partnerships with churches and other non government organisations (NGO) health service providers will be important. Such a partnership has been achieved in the “Church – State Partnership Framework” signed on 7th October, 2008. A strong partnership is necessary to achieve 100 per cent coverage in the delivery of more effective health services to the majority of the rural population. Attracting physicians to live and work in rural areas is a priority for extending rural medical services. Through the economic corridors, service centres will be established, constituting a hub of shops, health services, schools, communication services and other services. Accommodation for key personnel, including physicians will be provided at these points, to make rural service more attractive to physicians. Hospital outreach programs are recognised as an effective approach to improve the accessibility of health services to rural populations. Specialist doctors and nurses will be scheduled to visit different parts of the provinces to administer and treat rural population several times a year. These visits will be made public in advance through the media. Preventative health A number of strategies are proposed to prevent illnesses. The provision of clean water and sanitation is vital for reducing the spread of disease, yet only 9 per cent of the population have access to piped water. Strategies discussed in later sections to improve water and sanitation are therefore essential for raising the health of the population generally.  Immunisation is a key strategy in preventing disease. The rate of immunisation is currently 69 per cent, and, if raised significantly, will help control disease. Development of preventative programs to contain malaria and tuberculosis are also important. Lifestyle is critical for good health. A balanced diet and regular exercise will help lower coronary illnesses, various cancers and many other lifestyle health problems that characterise high income nations. Educating the population and encouraging people to maintain a healthy lifestyle will be a major part of the strategy for health, thereby avoiding the high cost of treating lifestyle illnesses later on. 

4.4.Primary and Secondary Education

GOAL Achieve a better future by promoting and enhancing integral human development  The state of the education system A highly literate and numerate workforce is desirable as this plays a fundamental role in sustaining strong economic growth and social development.  However PNG‟s youth literacy rate is less than 64 per cent and numeracy standards are also poor. This is partly because the majority of school aged children are not attending school. Standards of numeracy and literacy are also low due to under-trained teachers and a poor quality curriculum. Furthermore, high attrition rates at primary and secondary levels, low transition rates between primary and secondary education, weak management and administration, declining resources despite high unit costs and variable teacher performance and attendance all demonstrate that further reforms are needed to the country‟s education system.

Key strategic areas

 Strategies to provide quality education Providing quality education for children today will help create a productive workforce in the future. If most of the population is able to read, write and do mathematics by 2030, it is estimated that the PNG economy will be K3.5 billion better off in terms of GDP. The contribution of education to PNG‟s economy will continue to increase after 2030 as literacy and numeracy rates among the population continue to increase. However to achieve this, a radical change to the education system is required.  Education reform An overhaul of the country‟s education system is necessary to prepare PNG for high and sustained growth and development. The recent introduction of an elementary education system based on the vernacular language has been counterproductive. English is the national language, is the language of later years of schooling and is an important language of international commerce. Children need to be competent in English to later access the benefits of education and formal employment. The National Government will therefore no longer fund elementary education in the vernacular language. Across all levels of schooling, curriculum reform is needed to promote student activities that facilitate understanding of key subject matters like English, mathematics, information technology, science, foreign languages and also health education and PNG history. In this age of information technology, computer literacy has the capacity to greatly enhance productivity in PNG, bringing the country closer towards achieving a knowledge based economy. Understanding key foreign cultures and languages is also important in this modern world, particularly when it comes to accommodating tourists, influencing foreign affairs and engaging with international business partners.  Universities and technical colleges will be represented on the curriculum panel for secondary school. This will help ensure that schools are preparing students well for further education. The high school system will be flexible in order to direct students into the type of education that matches their interests and abilities. This will address the issue of “school drop outs”. 

In the first place, students with technical abilities will be provided with easy access into vocational and technical colleges, including polytechnic colleges and community colleges. This includes ensuring that vocational and technical training is provided to students while still at secondary school as well as to school leavers. More broadly, the vocational training system will be made flexible to be easily available to those currently employed or at school, or who are moving out of employment or school. Programs will be developed that cater for all such students. Furthermore, the national high school system will be reinvigorated to ensure that students entering university are well prepared for tertiary studies. To prepare for tertiary training, students require access to costly equipment such as science labs, computers and well stocked libraries. They also require excellent teachers. The national high school system allocates these resources where the students have the greatest capacity to benefit. This in turn will raise the returns to PNG‟s higher education expenditure, resulting in better qualified graduates from PNG‟s tertiary system. Providing incentives will enhance the performance of schools, teachers and students. An incentive fund will reward all schools for performance in retention rates and in student results, motivating schools to be committed to providing the quality education PNG needs. Another strategy will be to make known the results of national exams for each school, in order to motivate schools and teachers to perform highly on these exams. Test results can be used to guide policy and to inform parents in their choice of schools. Universal education access  Universal access to education is necessary for equity and for PNG‟s development. Universal access to primary education will therefore be introduced as an immediate priority. Subsequently, universal secondary education will also be introduced through to year 10, together with mechanisms that retain students to year 12 or that smooth the transition into technical colleges. This will help guarantee that PNG‟s future workforce will have a quality education with options available to develop further skills needed in the modern workforce.  As education becomes universally available, it will be made compulsory for children to attend school as there are high public returns to children receiving a quality education. At the same time, school fees will be phased out. Building education capacity Achieving universal access to a high standard of education up to year 10 will require substantial investments in the capacity of schools and associated infrastructure, and in the education of teachers. Preliminary estimates indicate that the Government will need to invest K50 billion between 2010 and 2030 to deliver quality universal education up to year 10, while also reinvigorating the national high school system to year 12. To put this figure into perspective, it represents less than 20 per cent of the revenues the PNGDSP is expected to generate between 2010 and 2030. The Government can reduce the budget costs of expanding education access by proactively seeking the participation of the private sector as discussed below. Universal access is expected to result in a rise in student numbers in the 6-14 age group from 0.8 million in 2010 to 1.9 million in 2030 (figure 4G). At the same time, students will need access to libraries, to the internet and to other information and computing technology (ICT) resources in order to achieve a quality standard of education. This means substantial investment in expanding existing resources. In addition to a physical expansion in infrastructure, a rehabilitation of existing infrastructure is required, including the provision of sufficient education materials. 

 Further, the number of teachers and support staff will need to rise at a greater rate than the rise in student numbers in order to improve the quality of education services and to reach the target of reduced average class sizes (figure 4H). The quality of teaching must also improve. Secondary school teachers will be trained as subject specialists so that they are able to teach their subjects to a high standard. 

4G

Growth in school capacity for 6-14 year olds, 2010 to 2030

Growth in student places to achieve the PNGDSP education targets for 6-14 year olds

4H

Number of teachers and support staff, 2010 to 2030

Growth in numbers required to meet the PNGDSP education targets

Map 4B – Distribution of schools in PNG 

Distribution of school materials and supplies The quality of education and teaching services in PNG schools, particularly those in rural areas, suffers from the lack of textbooks and school supplies. As indicated by Map 4B, many schools are located in the rural areas of PNG. To provide materials to all schools, including rural schools, a concerted effort is needed to establish bulk storage warehouses and an effective distribution system through a public private partnership arrangement. Legislative changes will also help by ensuring that all educational materials prepared for PNG are reproducible without any copyright restrictions throughout PNG. Materials may then be printed and distributed promptly as needed.  Partnering with the private sector Private education reduces the burden on the public education budget. Many areas of PNG are sparsely populated with many remote communities. Map 4B compares the spread of PNG‟s population with the distribution of schools. It is costly to provide access to schooling across such a large and difficult terrain. By targeting remote areas, private schooling would greatly alleviate the financial burden on the public education sector. The supply of private schooling by churches, the International Education Agency and other private education providers will therefore be facilitated by Government policy, particularly in remote regions.  Other legislative reforms Legislative changes are required to centralise and standardise the delivery of education functions in order to  improve delivery or reduce cost, for example in forming education policy, in determining education curriculum standards and in providing national testing methods  to monitor standards.  

4.5.Higher education

GOAL Develop the higher skills needed for PNG’s prosperity with a world class tertiary education sector  The role of higher education Higher education – which includes universities and other tertiary educational establishments – is crucial for supplying the skilled workforce that is required for the country‟s development. No nation has become prosperous without developing a highly skilled workforce. The Government therefore has an important role in ensuring that a sufficient number of people are graduating to supply the country‟s skill requirements in all sectors of the economy. Additionally, graduates need to be of an international standard and to have secured the right types of skills to meet PNG‟s future market demand. For example, engineers, teachers, nurses and doctors are all crucial to support the rapid development envisaged in the PNGDSP. The huge number of foreign workers that PNG relies on to fill skilled jobs is proof that the higher education system is not delivering, resulting in K780 million leaving the country every year in the form of foreign remittances.

Key strategic areas

 Strategies to develop higher education services Rapid development in PNG through the implementation of the PNGDSP will require 315,000 tertiary educated skilled personnel by 2030 (figure 4I). If PNG is to rely on foreign labour to meet this target, then projected economic gains under the PNGDSP will be adversely affected as foreign wages are transferred abroad. Therefore, the number of foreign skilled workers is targeted to fall slightly to 20,000 by 2030 and PNG skilled workers will increase to 295,000. To meet this target, tertiary institutions will need to produce an increasing number of graduates, growing from the current level of 6500 a year to reach 17,500 a year by 2030. This, in turn, will require 45,000 tertiary places in 2030. While most of these places will need to be in universities, strong growth will also be required at other institutions (figure 4J). In particular, the number of places at teacher colleges will be required to rise rapidly in the next five years to support the PNGDSP goal of expanding education. In all, 265,000 graduates will be required by 2030 to build a skilled workforce of 295,000.

To achieve a rapid expansion in students at universities and other institutions, a reform of the country‟s education system is required, as discussed in section 4.4. A particular initiative is the introduction of a flexi high school system that smoothes the path for students to move into technical and tertiary training options. By attaining the targets of 295,000 skilled local workers by 2030 (figure 4I) and 265,000 graduates by 2030, PNG‟s economic welfare will be K4.1 billion higher and the size of the economy in terms of GDP will be K6.4 billion larger (figure 4A, table 1A). Furthermore, the stimulus to economic activity will result in the creation of 208,000 additional jobs (figure 4B). Case Study 2: ADDRESSING THE NEED FOR A SKILLED WORKFORCE There is a considerable shortage of skilled people in PNG. The existing tertiary institutions in PNG are not able to produce all of the manpower and skills required by industries. In addition, as a result of a mismatch between courses and skills demanded, many tertiary graduates are not able to find work. Building the institutional capacity to produce the kind of skills required under the PNGDSP will take time and alternative means have to be pursued in the short-term. In 2009, the Government undertook an important initiative to send up to 2000 students to Australian TAFE colleges from 2010-2015. Under a National Technical and Vocational Education Training (TVET) scholarship program students will be selected to specialise in skills and trades relevant to PNG‟s development needs. The TVET scholarship program will be demand driven. In addition, options to send students for similar training in Asian economies will be explored. The program will be phased out when PNG develops its own institutions and capacity to provide specialised courses and training.

 Significant investments in the capacity of the tertiary education institutions will be required to achieve these gains. This will involve a physical expansion and recapitilisation of existing institutions, while at the same time taking full advantage of internet and communication technologies. The capacity and quality of vocational schools, community colleges, technical and polytechnic training institutions will need to expand to fully absorb year 10 and 12 graduates. In addition to raising the capacity of tertiary institutions, the following strategies will improve the quality of tertiary education:

4I

The skilled workforce, 2010 to 2030

Growth in the skilled workforce required for the PNGDSP, and the target splits between foreign and PNG labour

· implement higher education reforms to reach global standards with effective and autonomous management of tertiary institutions and enhanced quality assurance and accreditation. The highest performing tertiary institutions in the world are characterised by autonomy over how they manage staffing, teaching and finances. However, external auditing and standardisation of assessment standards are elements of management that need to be managed outside of the institutions;

4J

Growth in capacity of tertiary institutions, 2010 to 2030

Number of student places in tertiary institutions

· realignment of public higher education funding to target training to meet the demand for skills and thereby promote economic development in PNG. This is to ensure that public resources will not only benefit individual graduates, but will benefit PNG as a whole;

· redirect higher education funding to students based on their performance in national exams at the end of their secondary schooling, and based on success in their higher education studies. This is to ensure higher education institutions have a financial incentive to attract and retain students;

· tertiary institutions need to forge partnerships with reputed tertiary institutions in other countries and thereby learn from their experience and benefit from their resources, including through the use of internet and communication technologies;

· tertiary institutions need to forge partnerships with industry and with government institutions at national, provincial and local levels to ensure that institutions are providing the skills required;

· Government and donor research and development funding will prefer tenders that develop and use research and development capacity within PNG institutions including PNG tertiary institutions. This will reinforce the development of PNG‟s science and technology capacity (see part 4.7);

· training standards need to be nationally aligned to the PNG qualifications framework; and

· the higher education sector needs to achieve the 2030 target of 265,000 skilled graduates across the range of professions that best contribute to the development of the nation.

4.6.Human resource development and training 

GOAL Provide a workforce that is professional and skilled by developing a coherent human resource development strategy  Brief background PNG, like many developing countries, faces skills shortages in a number of critical areas. This skills gap is being filled by consultants and foreign workers at a high cost. Human resource development and training enhances the productivity of private and public sector organisations by equipping the workforce with the skills they require. The current National Training Policy has been in place since 1989 and is long overdue for review. Under the PNGDSP, the number of workers will rise rapidly across the economy. The nation‟s capacity to provide timely, well directed training to workers will therefore also need to increase markedly. In the education sector, for example, the number of teachers and support staff will rise from 40,000 in 2010 to 111,000 by 2030. In the health sector, 45,000 health professionals will be needed by 2030, an increase from 7,000 in 2010. Strong growth in personnel needs is also envisaged in other large sectors, for example in the tourism, manufacturing and construction sectors.  Strategies Improvements in education outlined in sections 4.4 and 4.5 will go a long way toward raising the capacity of human resources. There remains, however, an important role for on-the-job training in the public and the private sectors. Specific measures for human resource development and training are outlined as follows:

· develop a coherent human resource development strategy that is reflective of the industry and development needs of the country; 

· extend the reach of human resource training to rural areas according to development needs;

· ensure the private sector is well engaged in the resourcing and provision of human resource training, including through the National Training Council, so that the training requirements of the private sector are being met;

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