A Cost-Benefit Analysis of PNG APEC 2018

By Francis Hualupmomi, New Zealand
Oct 27, 201671

This is a Cost-Benefit analysis of the Asia-Pacific Economic Cooperation (APEC) Meeting to be hosted in Papua New Guinea (PNG) in 2018 at a cost of about K3b.
What is APEC?
APEC is a regional economic forum in Asia-Pacific region. The forum initially started as an informal dialogue of economic leaders in 1989 in Canberra, Australia. It was formally established in 1993 with 12 members. Currently, APEC has 21 member economies. APEC Vision as reflected on ‘Bogor Goals’is to achieve free and open trade and investment in the Asia-Pacific by 2010 for industrialised economies and 2020 for developing economies. The current theme centers on economic integration, sustainable and inclusive growth. PNG joined APEC as a full member in 1993. However, it has not been a very active member until APEC approved Somare government’s proposal to host the meeting in 2018.

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Is the APEC Worth It?
It is also important that we understand the advantages and disadvantages of being a member of APEC.

Advantages
APEC is often referred to as the most dynamic engine growth of the world’s global economy driven by its trade and investment value and contribution. This holds true for its population of about 2.8 billion people which represents approximately 57% of the world’s GDP and about 49% of the world trade (as of 2013). This suggests that developing countries stand to gain increasing benefits. First, APEC’s informal approach of dialogue and collaboration encourages more participation compared to other rules-based economic forums/organisations. Secondly, not only will they benefit from the development of procedures, policy frameworks and systems to deal with contemporary issues ranging from transparency and governance to financial sector reform and customs procedures but the opportunity to learn new skills and best practices from other economies. Third, they are able to set agendas and have much say, just like any other bigger players in the forum.
Moreover, it is becoming clear that the exponential growth in the region will continue to reduce poverty across the region with deepening trade and investment. For instance, over the last two decades, we have observed that there has been a reduction in poverty and growing middle class as real GDP doubled from USD 16 trillion in 1989 to USD 31 trillion in 2013.
Finally, developing countries will benefit from APEC’s effort in integrating the region’s economies and promoting trade while addressing sustainability and social equity. Some of these initiatives are: Promoting Regional Economic Integration and Trade; Making it Easier to Trade Across Borders; Making it Easier to do Business Faster Customs Procedures; Structural Reform; Connecting the Region; APEC Business Travel Card; APEC Supply Chain Connectivity; A Sustainable Future for the Asia-Pacific; Environmental Goods List; Increasing Energy Efficiency and Renewables; Inclusive Growth: Ensuring Everyone is On Board (Nurturing Small Businesses, Enhancing Social Equity in the Region).
Disadvantages
While the advantages seem highly beneficial there are also some disadvantages of developing countries being part of APEC. Firstly, it seems advanced countries will continue to benefit more than developing countries due to the advanced technology and technical know-how that enhances their competitive and comparative advantage power. Small economies such as PNG will continue struggling to find their niche in the regional value chain. In addition, it appears that some of the Bogor Goals of APEC have not been achieved to date. This suggests that there is no guarantee that developing countries’ agendas expressed through high-level policy goals will be achieved. This is largely attributed to the complexity of geopolitics and interaction of other forces influencing the value chain. Lastly, the rule of corporate giants will continue to influence the value chain in the long run as it seems. Giant corporations’ interests will be politically driven at the institutional level; they will be the ‘winners’ at the expense of developing countries.
Is Hosting of APEC Worth It?
The question of whether APEC is worth hosting it by the PNG government in 2018 is necessary at this time when the country is facing an economic problem. Experiences from other member countries such as the recent host, Philippines suggest that the benefits will outweigh the cost initially invested. For instance, Philippines as a host of two APEC meetings (1995 and 2015) is currently experiencing a growth rate of 8% as a result of heavy investment in between those years. But what are the likely benefits of hosting APEC in PNG despite the current economic situation?
First, is that benefits outweigh the cost in the long run. This implies that there is an opportunity cost; in the immediate term the cost will seem exorbitant but over time benefit will accrue. Second, there are immediate returns through increased economic activities during the time of the event. For instance, there will be increased investment from tourists and businessmen so as the creation of jobs. Third, not only will it bring returns in the immediate term but also restore the credibility of the state in hosting future high-level meetings. At the same time, investment in the meeting will boost our socio-economic infrastructures such as modern university facilities and improve our security and defence capability and capacity.
As far as the long term benefits are concerned, this meeting will increase and deepen PNG’s trade and investments in the region. This will further be boosted by labour and skilled mobility, technology and knowledge transfer and financial transfer. SMEs are expected to benefit in this multi-relations. Socially, it will help increase collaboration and cooperation in combating governance and transparency and climate change issues. Another important point is that not only will PNG showcase its unique culture and tradition in the region but as an emerging Pacific leader it will fulfil the Pacific dreams of connecting the small island countries to the bigger APEC community through Pacific Islands Forum and Melanesian Spearhead Group. If that is well executed, there is a high possibility for PNG securing its full membership in ASEAN.
Conclusion
The analysis suggests that the opportunity cost of hosting 2018 APEC Meeting would accrue moderate returns in the immediate term and higher returns in the long term despite high cost in the short term. The hosting of APEC is a strategic decision of the government based on calculated risks. Since it takes time for investments to maximise returns, vibrant leadership and effective good governance system is highly necessary. Political disturbance at this time would not only embarrass PNG’s international credibility but also jeopardise the opportunity to host future high-level meetings and access to other regional and global forums/organisations.
The author is a Political Scientist and PhD Candidate in Public Policy at the School of Government, Victoria University of Wellington, New Zealand. He holds a BA in Political Science and Public Policy and Management (UPNG), BA Honours in Political Science and International Relations (UPNG), Master of International Politics (Jilin University, P.R China) and Post Graduate Certificate in Higher Education Policy Management (Melbourne University). The views expressed here are his own. francishualupmomi270@gmail.com

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Pros and Cons of Hosting the APEC Meeting in Papua New Guinea

By: Ludwig Aur Aba

Asia Pacific Economic Cooperation (APEC) is a very important international organization and PNG hosting APEC meeting will bring together very important leaders of superpower countries like USA, Russia, China, Brazil, Australia, Indonesia, Japan and others. There will also be other observer countries as well. PNG was privileged to have been awarded the hosting rights in the last meeting, mainly because of its status as one of the fastest growing economies in the Pacific and the APEC leaders at that time were impressed on the performance of PNG economy, hence the nomination and selection. It was indeed a privilege for PNG in the eyes of the world to have been selected ahead of other countries, which were also nominated.

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A good number of people have raised concerns about the benefits of hosting the APEC meeting in 2018, at a back of a suppressed economy and dilapidated state institutions and infrastructure. Several responses were provided but it does not give detailed information about how the country is going to benefit from such an important international event. At the outset, it is quite understandable why people are unhappy about hosting such an international event, when the country has cash flow problems, limited employment opportunity, dilapidated infrastructure, break-down of state institutions, poor social and health indicators. They are questioning why spending K120 million (could be more) on the event, when the economy is in bad shape.

It is worthwhile, a detailed explanation of the pros and cons of hosting such an important event is made to every concerned citizen so they are aware of the costs and benefits.

 

Pros

1. Raise profile of Port Moresby and Papua New Guinea

Raising the profile of our city can lead to lasting economic benefits, not only for POM but PNG as well. For example, cities which hosted the Olympics and other international events have seen a persistent increase in recognition and tourism. Like other international meetings, hosting the APEC raises a country’s profile, which are important in generating new economic benefits and business investments since the day PNG was selected to host the APEC. The importance of this is that it can change the views of the world on Port Moresby, and PNG, especially when POM was ranked as one of the most unlivable cities in the world and PNG has the most corrupt country. There are other aspects of Port Moresby and PNG the world does not see, let’s work together and give them these. Port Moresby is always in the front pages for the wrong reasons, PNG should capitalize on this event to get united and show the world that PNG is different from the rubbish that are published in the media. If there is going to be any chance to increase the profile of Port Moresby and PNG, it is definitely the hosting of APEC.
Why is Port Moresby given too much attention and not other centers? The first answer is Port Moresby is the capital city of PNG and as such, it must be treated as a capital city. You look at Sydney, Tokyo, London, New York, their governments and the private spend lots of resources to bring to where they are now. The country is changing and we must change and accept new developments. Most of these infrastructures have created thousands of jobs for our people. These infrastructures will still be here for our future generations to use. In my opinion, we must give Port Moresby the treatment it deserves to be our capital city, which all of us can be proud of, and our visitors can enjoy.

2. Long term Trade, Investment and Jobs

A significant benefit Port Moresby and PNG benefited is the long-term investment, which comes from preparing for hosting APEC. The preparation did not start yesterday, it started when PNG was selected as the host country for APEC 2018. The POM and PNG will have a legacy of improved infrastructure including venues that should address some of our daily traffic worries. Unlike, other investments, infrastructure is very expensive to build and people should accept this fact. POM should invest heavily in infrastructure and public transport to cater for the influx of not only our visitors but our increased population. This will leave a legacy for residents of POM, they will benefit from improved public transport. Any new investment bring with it jobs, and this may proof beneficial for PNG because the several years of planning and investment will help create jobs and can revive POM and can boost economic output.
Apart from the investments infrastructure and public transport, leaders of major business corporations will be here as well. They will be looking for opportunity to invest their dollars. They may strike trade deals with PNG-based corporations or resources owners. New Business deals could be struck and the employment benefits will be immense. In the long run, such deals will continue to provide employment and tax benefits to the country. Countries may also sign trade treaties or other areas of cooperation that may benefit PNG as well.

Some of the short-term benefits of hosting such events are the logistical and transportation services, which will also benefit from hosting such events. The hotels and catering services will serve our guests (in terms of bed, food, drinks etc). The security services will be increased. These will be immense. Added to these are the inflows of foreign currency, especially US dollars. Some of the leaders will be here with their spouses and other relatives and would like to spend on something that they will remember. These will benefit cultures. We should showcase our cultures to the world. PNG should be showcasing our cultural diversity, the more than 850 different languages to the world leaders as a promotion to attract more tourists into PNG in the future. East New Britain will also host some of the APEC meetings, they will also benefit from the meetings, including hotels, security, showcasing our cultures and selling artifacts etc.

These long and short term investments and spendings are important given the state of economy, by creating jobs, and can help create economic recovery. The investment has potential for leading to higher growth and higher future tax revenues.

 

Cons

Although hosting such important events are beneficial in economic wise, there are other things which may not be so good. For example;

1. Cost of building the infrastructure

To host an Important Event like this, require huge capital investments, which should be paid for by tax payers, unfortunately. The Costs of building these infrastructures have a tendency of going up and could be much greater than expected. Associated with the cost over-runs are the over inflated contracts, and the involvement of politicians in such contracts. These are the main issues. Politicians should not get the dirty fingers in such big projects. Unfortunately, we are in PNG and cannot avoid that.

2. Short-Term use

The other important thing is that many of facilities built for the APEC can never be fully used again. It will rarely be full outside of the Olympics. This can be mitigated by careful planning.

3. Potential for negative publicity

If things go well, a POM can benefit from positive publicity, but if things go badly, it can cause the opposite.

4. Cost of Security

The budget for the security will be biggest slice of the cake. Like any major events, this APEC should increasingly implement higher levels of security. This is both costly and can restrict freedom of movement of local citizens during the meetings.

4. Borrowing and Increase in Debt

Also, one bad thing about hosting such events is that, it eats into the budget of the host country. With the current difficult economic times PNG is facing, it has no choice but to borrow and fund the activities leading up to the APEC meetings. This may add to the overall Government debt of PNG, which will eventually be paid by the tax payers.

 

Conclusion

In my view, it is understandable why people complain about the spending by the Government to host the APEC, while other areas are suffering. But developing Port Moresby is not wrong, it is our capital city and we have to develop it. In life, there are always trade-off, we can’t get all we want. We should make some sacrifices, and in the meantime, the sacrifices are being made by the 7.5 million people of PNG to host this very important economic meeting. Let’s make use of every opportunity from this meeting and try and get something out of it to compensate for our sacrifices.

The importance of this is that it can change the views of the world on Port Moresby, and PNG, especially when it is ranked as one of the most unlivable cities and the most corrupt countries in the world. There are other aspects of Port Moresby and PNG the world does not see, let us work together and give them these. Port Moresby is always in the front pages for the wrong reasons, PNG should capitalize on this event to get united and show the world that PNG is different from the rubbish that are published in the media more frequently. If there is going to be any chance to increase the profile of Port Moresby and PNG, it is the hosting of APEC.

Let us not kill the enthusiasm to host such international events. PNG has come of age, though we have problems, they are not unique to PNG. Every country has its own set of problems, it’s not only PNG. President of US, China, Japan, Russia and others will be here. PNG just had this rare opportunity to host them. We should feel privileged to host such very powerful and important leaders on earth.

I hope I make some sense here.

Cost-Benefit Analysis for Public Funds use in Papua New Guinea

by: Jonny Andrews

 

In government and private sector decision-making there are always competing priorities for limited funds. Many of our local Governments and sometimes the National Government tend to fund projects without doing a Cost-Benefit Analysis. The purpose of doing a CBA is to allow competing policy priorities to be compared in a consistent way, and for their economic, social and environmental impacts to be assessed.

In all areas of policy, the function of the CBA is to assist policymakers to identify the best way to deliver the strategic objectives of governments.

Government funds for investment in infrastructure and public policy initiatives are limited. These funds come at a significant cost to Papua New Guinea, through taxes collected by state entities. If governments had not collected these taxes, the funds would have been available to private individuals and businesses to spend, save or invest.

One example is in the development of our cities. Cost–benefit analysis can help to achieve the strategic aims of a holistic metropolitan plan by weighing up the economic, social and environmental impacts of different transport infrastructure options and identifying the best approach for the long term.

 

What are the essential elements?

  1. Cost–benefit analysis needs to be future looking

A good cost–benefit analysis will guide decision-making in the best interests of current and future generations by taking a long-term view those factors in economic and population growth over time.

The CBA methodology also allows for the consideration of future benefits and risks that are largely unknown or difficult to quantify.cost-risk-benefit

Governments have to pursue policy priorities where there are unknowns – because they are seen to be in the public good or because they are necessarily based on future assumptions. The CBA discipline can help policymakers to wrestle with intangibles and communicate assumptions and judgements in a transparent way.

Uncertainty about the future is no reason to avoid a CBA. In fact it makes the case for undertaking rigorous and transparent CBA even stronger.

 

  1. Cost–benefit analysis needs to be objective

Objectivity is critically important when determining the expected costs and benefits of a policy or project. CBAs (both private and public) often fail because future costs are underestimated and future benefits overstated, due to a tendency for ‘optimism bias’.

Independent assessment is a good way to build objectivity into the CBA.

Objectivity also requires that the main findings are based on a realistic ‘central case’ that depicts the most likely outcomes for costs and benefits in the future. It is then fine to test alternative outcomes under best case and worst-case scenarios.

 

  1. Cost–benefit analysis needs to consider implementation risks

Cost–benefit analysis ensures implementation risks can be identified and assessed upfront so they can be factored into a project’s implementation program. CBAs can be applied to capital projects as well as major policy and change management initiatives.

 

  1. Cost–benefit analysis needs to be easily understood so it can be subject to a degree of contestability

A CBA needs to be straightforward and readily understood by a wide range of people. The idea is not for them to be ‘black boxes’ for technicians but tools that people can use to look at priorities and contest them.

Finally; Investment decisions by governments need to be based on robust assessment of their future costs and benefits to ensure they are making the best use of taxpayers’ funds and deriving the maximum benefits for society.

CBA is one of the key tools that can assist in the development of evidenced-based policy if it is conducted with transparency and objectivity. It provides a framework for weighing up different impacts

 

Telikom Papua New Guinea prepares for LTE launch

(Source: BuddeComm)

Network deployment costs are high in PNG due to the relatively low subscriber base, the impervious terrain, and the high proportion of the population living in rural areas. As a result, fixed telecom infrastructure is almost inexistent outside urban centres, leaving most of the population unserviced. With fixed teledensity having seen little change over the past two decades, progress in telecommunications has come primarily from mobile networks, where accessibility has expanded from less than 3% population coverage in 2006 to over 80% by early 2016.

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This impressive growth was triggered by the start of mobile competition in 2007. When it entered the market, competing mobile operator Digicel brought mobile services to previously unserviced areas and at the same time slashed prices. The result was a substantial increase in mobile penetration – from 1.6% in 2006 to 49% by early 2016. This remains low by international standards, and though there remains considerable room for growth this could be stymied by the latent difficulties within the market, including the high cost of deploying infrastructure, the relatively low income base among potential subscribers, and the geographical dispersal of the population. As a result of these conditions PNG remains one of the least affordable mobile markets in the Pacific.

Despite the opening of the market to competition, internet access is expensive in PNG and far beyond the means of most of the population. Throughout much of the country, internet access is simply unavailable. Mobile coverage into 2016 is extensive, though most rural areas still have only 2G services.

Nevertheless, mobile broadband is proving far more successful than fixed-line broadband, and both Telikom and Digicel are planning to provide LTE services by the end of 2016. The number of mobile broadband users is expected to continue to grow strongly as these operators expand their 3G and LTE networks in the coming years.

To overcome the country’s communication shortcomings, the government is deploying a National Transmission Network, which is expected to boost bandwidth and encourage market competition. It is managed by the state-owned PNG DataCo, which acts as wholesaler.

Given the underdeveloped telecom services, PNG’s telecom market has enormous growth potential. Despite the challenges, the country offers many investment opportunities. An increasing number of Papuans are embracing the digital age, particularly the younger generation, and mobile phones in particular are becoming a more important source of social interaction.

Key developments:

  • SIM card registration enforced;
  • Regulator issues tender for 3G mobile services;
  • Digicel Pacific extends capacity with new O3b Networks deal;
  • DataCo inhibited by slow transfer of telecom infrastructure;
  • Telikom PNG expecting LTE launch by end-2016;
  • PNG’s state-owned incumbent Telikom is being restructured to focus on retail services while its network is transferred to the state-owned company DataCo;
  • Telikom PNG reduces retail and wholesale internet charges to stimulate take-up of services;
  • PNG’s National Transmission Network has international connectivity via the PPC1 submarine cable landing in Madang, offering additional bandwidth to the APNG-2 cable landing near Port Moresby;
  • Submarine cable network ICN2, connecting PNG to Vanuatu, expected to be lit by mid-2016;
  • PNG’s telecom regulator, NICTA proposes mandatory sharing of mobile network infrastructure.
    Market penetration rates in PNG’s telecoms sector – 2015 (e)

Penetration of telecoms services: Penetration
Fixed-line telephony 1.9%
Fixed internet users 9.4%
Mobile SIM (population) 49%

(Source: BuddeComm)

 

Reduce Fuel Prices in Papua New Guinea

Last week, Board Chairman of Air Niugini Sir Frederick Reiher on christening the 4th Fokker 70 aircraft in Alotau, spoke on the Air Niugini’s submission to making air travel affordable for Papua New Guineans by reducing Government Taxes.

While that is a great initiative from Air Niugini to encourage Tourism and lower airfares, the Government would do the people of Papua New Guinea justice by lowering the Fuel prices in Papua New Guinea.

One way to achieve that is to encourage InterOil who has a refinery in Port Moresby to sell cheaply to local suppliers and additional to provide a Tax subsidy for distributors.

Lower fuel prices leads to lower overall transport costs around Papua New Guinea…..as transport costs drives the price up……

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Air Niugini to push for cheap airfares
September 30,2016, 12:00 pm – Post Courier

Air Niugini will put a submission to the National Government to make air travel affordable for Papua New Guineans.

The announcement was made by the airline’s board chairman Sir Frederick Reiher at the naming ceremony of another Fokker 70 aircraft. The plane, the fourth in the series, was christened ‘Alotau’.

He said the national airline was keen to partner with the National Government to achieve two goals: a significant growth in tourism and tourism numbers and to help make it easy for PNG families to travel on domestic air services.

He said it is probably not known that government taxes and charges make up a substantial proportion of the total cost of domestic airline tickets.

He said the level of taxes and charges vary on routes that Air Niugini and its subsidiary airline Link PNG serve. Up to a third of the total cost of an average ticket comprises taxes and charges.

“Air Niugini is also impacted of course by fuel taxes, the cost of which is passed on to our passengers. We have been considering for some time how we might be able to work with National Government to make airfares more affordable firstly for families and local businessmen and women and secondly for our tourists,” he said.

“I appreciate the national budget is also impacted by economic circumstances but I am confident this measure will would provide a real lift to the economy and would deliver higher return to the government over the medium term.”

Planning Minister Charles Abel, who was present for the event, noted the concerns and admitted that tax did constitute up to 50 per cent of the cost of airfares.

He said government revenue was constrained to some degree and there was a reluctance to reduce taxes. But all options will be considered given the broader implications and gains expected.

“Lowering airfares will support tourism and create these huge economic benefits at home so we do acknowledge that and we do commend the PX board and management and staff for the reforms it has undertaken in these difficult times,” he said.

By the same token he also highlighted that while times were tough there had been some positives including a reduction in fuel prices. He challenged the airline to see if this could translate to lower airfares on fuel surcharge.