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Phil Goff: Address To The NZ-PNG Business Council

Phil Goff: Address To The NZ-PNG Business Council


Address To The NZ-PNG Business Council

Thank you for inviting me back to address the New Zealand Papua New Guinea Business Council. I am sorry that parliamentary urgency prevented me from attending the planned luncheon last December.

Today, I propose to talk about economic and trade issues affecting Papua New Guinea in the context of New Zealand's wider Pacific policy. Many of you have been operating in PNG for some time and know the challenges, and opportunities, of working there far better than I do. I would welcome questions afterwards but I am equally interested in your views as practitioners of the prospects for PNG and for New Zealand/PNG trade relations.

Overview

This year we held the 33rd Pacific Islands Forum, the first for many years when all the leaders of the 16 Forum member countries were able to be present. Over the years, the Forum has served an integral role in regional cooperation. Through the Forum, the region has managed to shape its responses to the global challenges facing the Pacific.

The region has responded to the terrorist attacks of September 11 with a renewed commitment to implementing the measures originally espoused in the Honiara Declaration of 1992. The region is also relatively united in terms of environmental issues, with the sea being core to most Pacific Island cultures and economies. We have now adopted a regional Ocean Policy, which lays out guiding principles for promoting the Pacific as a maritime environment in support of sustainable development. And, the barriers to regional trading relationships may soon be a thing of the past with the implementation of new regional trade agreements in the Pacific.

Papua New Guinea

Papua New Guinea's influence in the region draws from its dominance in land mass, population and economy, when compared to its Pacific Island neighbours. PNG has also historically had an important strategic relationship with Australia that has tended to emphasise its role in the region.

After a difficult and protracted election in June and July this year, the new PNG government, led by Chief, Sir Michael Somare, has the task of working towards PNG's domestic development and its contribution to regional initiatives. The cabinet includes several experienced, talented and reform minded ministers. The new government's stated priorities are good governance, rural development, and pursuing an export driven economic growth strategy to both enhance macroeconomic stability and facilitate greater private investment and competition.

In his first policy statement, Sir Rabbie Namaliu, the new Foreign Minister, emphasised PNG's "very important" relations with New Zealand and announced that "selective engagement", including with New Zealand, will be the mainstay for the new government's foreign policy. That signals a period of increased cooperation between PNG and New Zealand on the bilateral front.

Economy

There are many challenges on the domestic front for the new PNG government to address. Despite the previous government's reformist policies, Sir Michael's administration has inherited a moribund economy, a weakening currency, a growing budget deficit and shrinking foreign investment. Intervention by the central bank to support the kina earlier this year has also reduced the external reserves which had been built up in the past few years. The government clearly faces a difficult task to turn around the economy.

The supplementary budget announced by the Treasurer, Bart Philemon, represents a good start. I understand it was generally welcomed by business and other commentators. The real test will be whether the administration is able to implement the programmed government spending cuts and make progress in getting the budget deficit under control. External factors, especially agriculture commodity prices, will have an impact on PNG's success in this regard.

The PNG government wants to encourage further direct foreign investment in PNG. Most of the existing joint venture projects in the resource extraction field, which contribute significantly to government revenues, will soon be nearing the end of their lifespans. Further direct foreign investment is therefore required to develop and exploit PNG's abundant natural resources and guarantee revenue for the coming years.

One of the difficulties in attracting potential investors is the worrying law and order problems endemic in parts of the country, particularly in the Southern Highlands. Inter-tribal fighting and politically motivated violence are having a severe impact on the functioning of local government, on the provision of public services and on the economy in general. The growth in the availability of high-powered weapons is having a major impact on the security situation and raises the potential for increasingly serious violence in the highlands.

The political instability has an obvious flow-on effect to the economic and trading situation as evidenced by the recent temporary closure of the Porgera mine. Loss of ongoing revenue from the major resource projects and damage to investor confidence would have severe consequences for PNG's economy particularly in regard to the prospects for the proposed Queensland gas pipeline.

The PNG government recognises the importance of addressing these political and security issues. Sir Peter Barter, the Minister for Provincial Affairs and Bougainville, has already made three visits to the Southern Highlands Province since becoming Minister. Three other Ministers: the Minister for Petroleum and Energy; the Minister for Mining; and the Minister for Land and Physical Planning, accompanied Sir Peter on his latest visit to see the scale of the problems first hand. Sir Peter is urgently seeking to resolve the political and social issues and to implement a strategy to stabilise the province. We must all hope that he will be successful.

Business in PNG

While there are still daunting challenges for the PNG economy, clearly for many of you here today, it remains a viable business option. It is not an easy environment, especially for newcomers to the market, and for first time exporters. But as Lucy Bogari, the PNG High Commissioner to New Zealand commented at PNG's recent national day celebration, many companies, large and small, are realising sound profits in PNG. There are opportunities for New Zealand exporters. There is a population of more than five million and a middle class with money to spend. But to be successful in PNG exporters must do their research, build their networks and be prepared to stay the distance.

PNG is New Zealand's third largest market in the South Pacific after Fiji and French Polynesia. Total exports to PNG for the year ending in June 2002 fell by $3.5 million over the previous year but were still worth more than $95 million. Our most successful exports are in aluminium products (over $19 million), sheep meat ($14 million) and iron and steel products ($9.6 million). PNG sales to New Zealand during the same period totalled nearly $79 million, a significant increase on the previous year due to petroleum sales. While, by our standards, PNG tends to have a relatively high tariff structure, most tariffs are progressively being reduced which may well open up other prospects for New Zealand exporters.

One of the recent high profile stories on the trade front is the arrangement between Air New Zealand and Air Niugini. Air New Zealand is providing training for both the flight crew and the cabin staff and five year maintenance contract for a new Boeing 767 leased by Air Niugini. This is helping to strengthen Air Niugini, while providing Air New Zealand with experience of a part of the Pacific it has not been much involved with before. The contract is worth around US$ 12 million over five years.

Bougainville

New Zealand has been closely involved in efforts to re-establish peace on Bougainville. We continue to contribute to the four-nation Peace Monitoring Group and remain financially, militarily and politically committed to weapons disposal and to the overall peace process.

Significant positive progress has been made in the past 18 months, both on the handing in of weapons and on preparations for a constitution for an autonomous Bougainville government. With the ongoing commitment of the people of Bougainville and the support of the new Papua New Guinea government and the donor community there is a real prospect for lasting peace on the island after more than 10 years of violence and social upheaval during the civil war.

Substantial work will be required to rebuild and develop Bougainville's shattered economy. International donors are assisting with key infrastructure projects including road and wharf construction and capacity building. A return to normal economic and social life on Bougainville is still some way off, but there is a glimmer of hope for export and investment opportunities in the future.

Regional Trade Agreements

At this point I would like to provide a quick overview of other factors in the region, which may impact on the PNG/New Zealand bilateral relationship.

At the regional level, there remain many opportunities for increased trade and investment. Over the past few years the Pacific Island Countries have successfully negotiated and concluded new regional trade arrangements within the Pacific. Both the overarching trade and economic framework agreement - the Pacific Agreement on Closer Economic Relations (PACER) to which both Australia and New Zealand are parties, and the Pacific Island Countries Trade Agreement (PICTA) have put in place modern arrangements to achieve closer trade and economic integration in the region over the medium term. The PICTA is a free trade agreement in goods amongst Forum Island Countries. The PACER provides a framework for future development of trade and economic cooperation for all the Forum members in the region and for free trade to be established gradually among Forum members, in line with the stepping stone approach preferred by the island states.

The required number of ratifications are now in place and the PACER will enter into force in early October. The PACER provides that once the Forum Island Countries commence trade negotiations with the EU, as is expected under the Cotonou Agreement, New Zealand and Australia will be able to seek a similar opportunity to enter into discussions towards a free trade agreement.

The PACER also provides for the establishment of a programme of trade facilitation measures for Forum Island Countries within one year of it entering into force. New Zealand has provided funding of $250,000 to the Forum Secretariat for this and our officials will shortly be in discussion with the Forum secretariat on developing a multi-year programme of assistance to Forum Island Countries in sanitary and phytosanitary issues, customs procedures and standards and conformance. These programmes will be of benefit to New Zealand, PNG and the other Forum Island Countries through smoothing trading and economic growth within the region.

Micronesia

Micronesia is of increasing significance to us and I would urge the business community to take another look at the prospects. There are economic divergences among the countries that make up Micronesia, with Palau, Federated States of Micronesia and the Marshall Islands having close links to the US while Guam remains a US territory. These links, which are enshrined in a variety of Compact of Association Agreements with the US, help to ensure a degree of relative prosperity for those countries. Kiribati is less well off. But the other three countries offer potentially useful niche markets for staple food exports from New Zealand, including wine and kiwifruit. As Australian products are to be seen throughout all these countries, to the point where it dominates the Federated States of Micronesia wine market, there would appear to be a number of genuine possibilities to explore.

We are also seeking to cooperate with the Micronesian countries in current negotiations to establish a new Tuna Commission under the Western and Central Pacific Fisheries Convention. The Convention establishes - or will when it enters into force in perhaps couple of years - a conservation, management and sustainable development regime in the Western and Central Pacific for tuna. Micronesian countries have among the largest exclusive economic zones within which these fish are caught and well over half the world's supply of tuna comes from the Pacific fisheries.

Overall, Micronesia and the place we give it in our regional commercial and political relations needs another look. The time is right for this and I am keen to see it happen. To launch the process, I am planning to visit this part to the Pacific in the first half of next year.

Solomon Islands

In a part of the region closer to PNG, the situation in the Solomon Islands continues to be a cause for concern. There seems to have been a further deterioration in law and order in Solomon Islands, with an escalation of violence involving the killing of innocent civilians. It is too soon to say if recent actions are the prelude to a descent into more generalized conflict or violence, but the situation is a cause for grave concern. Recent violence comes against the backdrop of several years of unrest, which has hobbled Solomon Islands politicians and public servants as they attempt to develop and deliver effective governance.

Under these circumstances, recent efforts by the Solomon Islands government to promote economic recovery and improvement in the rule of law are a welcome development.

The role of others in the region in responding to the situation in Solomon Islands is still being worked through. But PNG is in a unique position to help its Melanesian neighbour. Having very recently worked through the internal ethnic strife on Bougainville, it is probably better placed than any of us to empathise and respond to the situation there.

Clearly, assistance from others in the region will be needed. It is not proving easy to determine exactly what New Zealand can do that will make an effective difference, but law and order and economic reconstruction are obvious priorities. They also go hand in hand - improving stability and supporting the rule of law will help to develop the conditions for improvements to the economy in the Solomons.

New Zealand will participate in an economic governance mission involving several key donors which will visit Solomon Islands in the next few weeks. It will work with the Solomon Islands government to develop a strategy to assist Solomon Islands to improve its economic prospects. This will require a focus on immediate needs as well as longer-term recovery issues. In the law and order area, steps to deliver assistance are already underway. A New Zealand project involving the deployment of 10 frontline New Zealand police officers to work alongside Solomons counterparts will begin next month, complementing activities in this area by other donors. More broadly, because of our concern about the situation a team of top level Australian and New Zealand officials will visit Solomon Islands in early October in an effort to establish how our two countries might help Solomon Islands to pull back from the economic and social failure. This will provide an opportunity to examine a range of possible interventions.

None of these steps has any guarantee of success. They are incremental - aimed at supporting the Solomon Islands government stabilising the situation, and working towards longer-term recovery. At the recent Pacific Island Forum in Fiji, leaders mandated an Eminent Persons Group which visited Solomon Islands in June to remain engaged in order to help Solomon Islands get back on the road to recovery.

Fiji

Fiji has gone from strength to strength this year, particularly in its role as international host for the 3rd Summit of the African, Caribbean and Pacific (ACP) leaders in July and the 33rd meeting of the Pacific Islands Forum in August. Fiji has been granted leadership of the ACP membership, which comprises 78 states and 650 million people.

The ACP Summit produced the Nadi Declaration and the Forum resulted in the Nasonini Declaration. Both reaffirmed the group's condemnation of the September 11 terrorist attacks and commitment to implementing improved security measures. Both Declarations also note a commitment to the principles of good governance, which are also presently at the fore of Fiji's domestic politics. Fiji is able to reflect 'personally' on the damage a country can suffer through failures in the area of good governance and has been strong in championing the importance of good governance in both regional meetings and at the UN.

Fiji however still has a lot to work through. Parliamentary democracy was re-instituted through the general election of August 2001, but following the election there were problems regarding the incorporation of the Fiji Labour Party into the Cabinet, as provided for in Fiji's Constitution. Over a year later, this issue remains unresolved. Fiji's Chief Justice has stated that the Supreme Court case on this issue will follow a backlog of other cases waiting to be heard, meaning that the multi-party case is unlikely to be heard before next year. Unfortunately, Fiji's achievements elsewhere may be somewhat undermined if a political resolution in the domestic context continues to be delayed.

New Zealand's relationship with Fiji has been rebuilt at a pace that matched the domestic evolution within Fiji. We stand ready to support Fiji, and are hopeful that the last hurdle of the Supreme Court case will result in the restoration of full constitutional democracy. Fiji is a valued bilateral partner to New Zealand, as well as being the hub in the network of regional cooperation.

Vanuatu

In Vanuatu, too, recent events, including an operation by members of the police against their own commissioner and a number of senior officials; an armed standoff between the police and the Vanuatu Mobile Force; and mutiny charges against the 26 police involved in the first operation, have been of great concern to New Zealand and others who wish to see stability in the region. It is hoped that following traditional reconciliation ceremonies any outstanding issues can now be resolved in the courts. Despite the uncertainty around the actions of the law enforcement agencies, law and order in Vanuatu has been maintained and Port Vila has remained calm throughout.

I have strayed some distance from PNG with this quick regional sweep of the 'problem end' of the Pacific but I thought it might be of interest to you to hear what we are thinking about issues in the wider region. There are some serious and intractable problems in this ocean which bears the name 'Pacific' and New Zealand is engaged deeply in working with all our Pacific neighbours to assist them to deal with these problems and bring peace and prosperity to their peoples.

Thank you once again for the opportunity to speak with you. I look forward to your questions.

ENDS


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