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Charles (Chip) Krakoff is publisher and principal author of the Emerging Markets Outlook blog, as well as founder and Managing Partner of Koios Associates LLC, a firm specialized in investment and trade, in emerging and frontier markets. He has over 25 years of corporate, financial, consulting,... More
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  • Papua New Guinea: Democracy and Development in a Natural Resource Boom 2 comments
    Sep 16, 2009 4:24 PM

    To anyone who has studied anthropology – it was my major in college – a visit to Papua New Guinea can’t fail to excite. PNG, a country with over 1,000 tribes and 700 languages – nearly half the world’s total – has almost certainly been the source of more anthropological monographs than any other place on earth. They include Bronislaw Malinowski’s classic “Argonauts of the Western Pacific,” about the Trobriand Islanders, and Margaret Mead’s “Sex and Temperament in Three Primitive Societies,” which became a basic text of the feminist movement for its depiction of three tribes in the Sepik River basin, one of which was determinedly pacifist, one female dominated, and one in which women and men were equally warlike. The body of Mead’s work tends to reflect her own sexual and political fantasies more than it does closely observed social behaviors, but never mind that.

    I am here on a quick visit to negotiate a contract with the government, which has selected my firm, together with a local consulting firm, to prepare a strategy for the development of free trade zones and/or special economic zones throughout the country. I won’t get out of Port Moresby, the capital, on this trip, but once the project actually starts up I expect to visit several fairly out of the way places, including Daru near the mouth of the Fly River (another ethnographic mother lode) in Western Province near the border with Indonesia; Buka, on the island of Bougainville; Kerema, on the Gulf of Papua; and Manus, in the Admiralty Islands. I plan to fit in at least one visit to the Highlands, home to many of the country’s tribes and languages.

    Even though the government has banned it in the National Capital District, the sidewalks in Port Moresby are stained red, not with blood, but with betel nut spittle. Betel, a mild stimulant that stains habitual users’ teeth red, is a national passion, and on every street you can find one or more vendors squatting on the sidewalk in front of a small pile of the nuts in their fleshy, green pods.  Hotels, office buildings, and rental cars all post prominent signs “No Smoking. No Betel,” accompanied by the international sign for forbidden things, in this case a red circle with a dark rugby ball shape inside and a red diagonal slash through the middle.

    Today the country celebrates the 34th anniversary of its independence from Australia, which had ruled the former German colony under a League of Nations mandate since 1920. People everywhere are wearing shirts depicting the national flag, which depicts the Southern Cross (white on a black field)  and the Bird of Paradise (yellow on a red field). The Independence Day festivities coincide with the annual Hiri Moale festival, which commemorates the epic voyages in outrigger canoes of the Motuan people from Central Province east of Port Moresby to trade and socialize with the Erema people of the Gulf of Papua. Yesterday the lobby of the Crowne Plaza Hotel was crowded with bare-breasted young girls wearing elaborate grass skirts and headdresses, their faces and bodies painted with black geometric designs, who are here to compete for the title of Hiri Moale Queen, who will be crowned and feted tonight in the Kambuingini Ballroom, an event to which I regrettably have not been invited.

    India is frequently and justly praised for its ability to sustain a functional democracy in a land of staggering ethnic diversity, crushing poverty, and widespread illiteracy, but PNG’s achievement is even more impressive. Some tribes in remoter areas of the Highlands had no contact with the outside world until the 1990s, but they now vote in parliamentary elections even as they engage in more or less continuous warfare with neighboring villages.

    A good part of the front page of the Papua New Guinea “Courier-Press” over the past week has been given over to a scandal in Yamine Village in the Tekadu area of Wau in the Morobe Province, where a new cult has surfaced, promising a tenfold increase in the banana crop for those who engage in public sex. The cult leader, it seems, has terrorized villagers into practicing public nudity and fornication, and kept the village magistrate, who objected to the practice, locked in a hut for four months until he managed to escape and walk 12 hours to the nearest police station. The police then mounted an expedition, which marched 12 hours back to Yamine to arrest the cult leader, only to find he had fled. According to the magistrate, the leader had launched the cult because the people had received no government services and needed to find other ways to improve their welfare.

    What is most interesting is not the sex cult itself. We have had more than a few of those in the U.S., though many of them seek religious fulfillment or Maslovian self-actualization rather than more productive banana trees. No, what astonishes is that these villages are separated by 30 miles of jungle footpath from the nearest road or telephone or electric light. Making democracy function in that kind of environment cannot be easy.

    Freedom House’s Index of Political Freedom classifies the country as “partly free” with a score of 3.5 (one being fully free), the same as Colombia and the Philippines and not too far behind India itself, noting that the most recent elections, in 2007, were marked by widespread irregularities. The Freedom House report also pointed to corruption scandals surrounding the Prime Minister and a sometimes-violent separatist movement in Bougainville, which the government has not always dealt with in the most sensitive fashion. Still, the press does not shy away from criticizing the government, the judiciary is widely recognized as independent, and the Prime Minister’s own party won only 27 out of 100 seats in the 2007 elections, so must rule in a coalition government.

    PNG also scores pretty well in the Heritage Foundation’s Index of Economic Freedom, especially in areas like trade, taxation, business licensing, and labor, though its overall ranking is dragged down by a high level of corruption and a lack of secure property rights, the latter unsurprising in a country in which most land is under customary tribal tenure.  Still, the challenges the country faces in trying to develop a modern economy are enormous. Far too many of the people I see on the streets of Port Moresby have the shell-shocked and blotto look, common among American Indians, Inuit, and Australian Aboriginals, of indigenous peoples forcibly uprooted from their traditions and cast into the lower reaches of the modern world, which has little time or use for them. Alcoholism, family violence, street crime, and HIV are rampant. People warn me not to take even a licensed taxi. “They will take you somewhere else and rob you.”

    PNG, however, is about to come into great wealth, which may be the biggest challenge of all. The huge Ok Tedi copper mine in Western Province, which has been the source of most of the country’s export revenues and a significant chunk of total GDP for the past 20 years, is expected to shut down in 2013, its reserves exhausted. But a natural gas bonanza is in the offing. In 2008 the government signed a $10 billion agreement with a consortium led by Exxon Mobil to develop gas fields in the Southern Highlands and to build a pipeline to transport it to a new port and LNG terminal and refinery.The project is expected to export over 6 million metric tons of LNG annually and promises to double, or even quadruple, national GDP, transforming Papua New Guinea from a least-developed to a middle income country. PNG also has vast mineral resources, and the government in 2006 signed a $1 billion deal with state-owned China Metallurgical Construction Corp. to develop the Ramu nickel mine.

    With corruption already endemic, PNG risks joining the legion of countries – think Nigeria, Congo – whose natural resource wealth has impoverished them through “Dutch Disease,” the sudden currency appreciation that can destroy a country’s agricultural and manufacturing base, and a shift from democratic governance to kleptocracy. To its credit, the government here seems to recognize the challenge and appears determined to use the country’s resource wealth to improve the lot of its people, 40 percent of whom live on a dollar a day or less. The free trade zone/special economic zone program is one small part of that, an effort to create a sustainable non-resource economy, and it goes together with other initiatives to build road, telecoms, and port facilities, and to build low-cost electricity generating capacity based on the gas and the county’s abundant hydroelectric potential, which can fuel development of energy-intensive industries like aluminum smelting. Its location on the Torres Strait, a major shipping route between China and Australia and New Zealand, gives Papua New Guinea a big location advantage too.

    The ingredients for success are there, and the signs are positive. Macroeconomic management is good, and PNG is not highly indebted. Moody’s gives it a B+/Stable credit rating. It’s exciting to see a country poised for an economic transformation and to participate in some small way in trying to make things come right.

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  • Tom Au, CFA
    , contributor
    Comments (6879) | Send Message
    I've always thought of Papua New Guinea as the place where you DON'T want to talk to headhunters. But maybe you know something I don't.
    16 Sep 2009, 04:41 PM Reply Like
  • Paul Harper
    , contributor
    Comments (306) | Send Message
    another stop us in our tracks post Chip, thanks, great insights. On anthropology & PNG, you may want to have a look at this, have been following it on BBC for some time, this was shown recently, an amazing 3 weeks with the Kombai :
    17 Sep 2009, 01:32 PM Reply Like
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