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Saturday, January 23, 2010

No impact of resources on social development: Report

PAPUA New Guinea's GDP growth over the past few decades from mineral and oil exports have had little impact on social development.

This is according to excerpts of a report titled, Risky Business by Jubilee, Australia, a Sydney based anti-poverty NGO challenging the economic policies and practices that are keeping people, communities and countries poor, and putting profits before people in the Asia Pacific.

The report was on Australia's official 'Government owned' export credit agency- the Export Finance Insurance Corporation (EFIC) and its role in supporting extractive projects in developing countries. PNG's mining and petroleum sector including the LNG project were covered by the report.

Jubilee said in the report that the UN Human Development Index attests that although GDP has significantly grown over the past two decades, human development has not matched this growth.

It said over 50 per cent of the population lives in poverty with over one million people living in areas without access to education, health or transportation. Additionally, PNG was ranked among the bottom 20 per cent of all countries on the United Nations Human Development Index.

"Despite the rise in GDP, PNG's Human Development Index rank has dropped from 126th out of 172 in 1995 to 146th out of 177 in 2008. Furthermore, PNG's HDI score has declined since 2000 to levels lower than those achieved in 1995. National poverty levels have also risen. The proportion of the population in poverty increased from 37.5 per cent in 1996 to almost 54 per cent in 2003," Jubilee said.

It said economic disparity within PNG is pronounced. In 1996, it was reported that the poorest 10 per cent of the population had access to only 1.7 per cent of national GDP, whereas the richest 10 per cent had access to 56.5 per cent of state revenues.

"The GINI coefficient- measuring a country's levels of inequality- ranks PNG as one of the worst in the South Pacific region with a score of 51. In spite of the growth in GDP and government revenue, basic service delivery has declined. "Problems of transportation, infrastructure, and education delivery have been acknowledged as areas of concern by the government, yet few changes have taken place and infrastructure continues to erode.

"Interestingly, as mining sector revenues, and consequently GDP, declined by almost 50 per cent in the mid 1990s, poverty increased only 14 per cent. As the World Bank Poverty Assessment affirmed: 'the decline in the mining sector has had only a small effect on household welfare because the sector employs few workers, and because its enclave structure limits its impact on other economic activities'.

"It is debatable whether PNG's social development has benefited from the lucrative oil and mineral riches in the country. This fact will not surprise anyone familiar with the plight of resource-rich developing countries, which all too often are unable to reap promised benefits from their ample wealth. This phenomenon has become known in the literature as the 'resource curse'.

"Unfortunately, PNG - like the Congo and Nigeria- is a typical resource curse country. It has remained mired in endemic poverty, corruption, conflict, and environmental destruction despite, orperhaps because of, its mineral wealth. PNG exhibits characteristics typical of a country suffering the so-called resource curse in a number of ways.

"A chief problem of resource-dependent economies is that more productive elements of the economy tend to suffer when a resource boom occurs. Non-mining sectors of the economy are far more important in improving the general standards of living and reducing poverty than the extractive sectors, which employ fewer people and have selflimiting lifespans. Furthermore, most natural resource exploitation is performed by multinational companies which send revenues offshore and use expatriate skilled labour.

"To make matters worse, revenues that do flow into the economy from extractive industries can distort the exchange rate and spur high inflation, making it even harder for other infant industries to compete with a booming extractives sector- a condition known in economic literature as 'Dutch disease'.

"Thus the abilities of states to invest in and develop more productive elements of the economy are compromised when natural resources are present," Jubilee said.

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