PAPUA NEW GUINEA

COUNTRY OVERVIEW

LOCATION AND SIZE.

Papua New Guinea occupies the eastern half of the island of New Guinea (the western half, called Irian Jaya or West Papua, is part of Indonesia), as well as some nearby islands. New Guinea is part of the Pacific island region known as Melanesia. Papua New Guinea lies at the southeastern edge of Southeast Asia, to the east of Indonesia, and north of Australia. The total area of Papua New Guinea is 459,854 square kilometers (285,753 square miles). Papua New Guinea's only land border is with Indonesia, and it is 820 kilometers (509 miles) long. The country's coastline is 5,152 kilometers (3,201 miles) long. Papua New Guinea is about the same size as California. The capital, Port Moresby, is located on the southern side of the mainland, on the Coral Sea.

POPULATION.

Papua New Guinea has perhaps the world's most diverse population, with at least 846 indigenous languages spoken. The population is almost entirely indigenous Melanesian, with small numbers of European and Asian immigrants. The population was estimated at 4.7 million in 2000. The growth rate of the population was estimated at 2.3 percent in the same year. Although the overall population density of Papua New Guinea remains low, there are great differences between regions. In general, the low-lying, coastal parts of the country have fairly low population densities, while the mountain valleys, or "highlands," have much greater population densities. For example, the Western Province averages only 1 person per square kilometer (2.6 per square mile), while parts of the highlands average up to 100 people per square kilometer (260 per square mile).

Papua New Guinea has few large cities. The largest is the capital, Port Moresby, with a population over 400,000. The most serious population issue facing the country is the migration of rural residents to the cities, especially to Port Moresby and to the second largest city, Lae. Many of these migrants are unable to find jobs, leading to crime and other social problems. The Papua New Guinea government has sought ways to control population growth but faces an uphill battle.

The population of Papua New Guinea is generally quite young, with 39 percent between the ages of 0-14, 58 percent between the ages of 15-64, and only 3 percent over the age of 64.

OVERVIEW OF ECONOMY

The extraction of Papua New Guinea's rich mineral and petroleum resource base dominates the national economy, accounting for 72 percent of export earnings. Gold, copper, and petroleum are the most important of these resources. Mining, however, is concentrated in only a few areas, employs only a small percentage of the country's population, and is dominated by international corporations. Most Papua New Guineans (85 percent) depend on subsistence agriculture, in which crops are grown for family and local use and not exported. Papua New Guinea's tropical climate and rich soil allow both subsistence and commercial agriculture to flourish. The commercial agricultural sector, which once dominated the economy, has greatly decreased in size relative to the growing mining sector. Coffee, palm oil, cocoa, and coconut products (a dried form called copra and coconut oil) are the most important agricultural exports. Forestry is also a growing economic sector. Despite its rich mineral and agricultural resource base, Papua New Guinea has limited manufacturing and service sectors, and must import most manufactured products such as machinery, motor vehicles, and many foods.

The diversity of the population, political disputes, and the ruggedness of Papua New Guinea's landscape have been the key factors limiting economic development in the country. Changing political leadership and policies since independence in 1975 have hampered long-term planning. Additionally, the rugged terrain of much of the country, with extensive swamps, mountains, and scattered islands, requires expensive communications and extraction infrastructure with high maintenance costs. Conflicts between the national and provincial governments reflect the country's diversity and add to the difficulties of formulating economic policy. A revolutionary movement on the island of Bougainville, the location of one of Papua New Guinea's largest mines, led to sabotage and closure of the mine in 1989. The mine has not reopened but recent peace talks are putting an end to the conflict.

Papua New Guinea's total external debt is estimated at US$2.4 billion (1999). In 1998, the country's debt service stood at US$178 million. Australia is by far the largest donor of foreign aid, giving about US$150 million each year. Much of this aid is used for the development of health services, infrastructure, education, and the maintenance of law and order. Papua New Guinea also receives aid from other donors such as the Asian Development Bank. Donors have also provided additional aid in times of crisis, such as during the devastating 1997 drought.

POLITICS, GOVERNMENT, AND TAXATION

The territory comprising today's Papua New Guinea was colonized in the 19th century by both Germany and Great Britain. The British territory was transferred to Australia in 1906. During World War I, Great Britain acquired the German territory and in 1920 transferred control of this territory to Australia as well. Australian policy and culture shaped much of modern Papua New Guinea, and the country remains a constitutional monarchy within the British Commonwealth, with Queen Elizabeth II as the ceremonial head of state. The parliament is unicameral (it has only 1 chamber) and the prime minister is a member of parliament. Mekere Morauta became prime minister in 1999 at the head of a coalition government. Papua New Guinea's parliamentary, political, and judicial institutions are similar to those in Australia and Great Britain.

The cultural and regional diversity of Papua New Guinea's population means that there are many political parties. The main ones are the Black Action Party, Bougainville Unity Alliance, Christian Democratic Party, Hausman Party, League for National Advancement, Liberal Party, Melanesian Alliance, Melanesian Labour Party, Milne Bay Party, Movement for Greater Autonomy, National Alliance, National Party, Papua New Guinea First Party, Christian Country Party, Papua New Guinea United Party, Peoples Action Party, and Peoples Democratic Movement. In the 1997 elections the People's Progress Party won the most votes, with just 15 percent, and led the coalition government. Because of the high number of parties, governments are composed of coalitions between several parties.

Papua New Guinea is divided into 19 provinces plus the national capital district. Legally, the national government retains most political power, and the provinces are therefore politically quite weak. In practice, however, the national government is often unable to exert its authority in provincial matters. The weakness of the national government in practice is demonstrated in the continuing difficulties on the island of Bougainville. In 1989, a rebel movement called the Bougainville Revolutionary Army (BRA) seized control of the Panguna mine on the island and demanded full independence for the province. The mine was closed and is not likely to reopen. Peace negotiations have been taking place over the past 3 years and are close to being resolved.

Papua New Guinea's government has in general encouraged foreign investment, especially in the mining industry. This is done by offering favorable tax rates for mining companies. The national government often takes a part interest in large mining projects by owning a portion of the stock in these projects, which provides revenue for the government. The national government also gathers revenue from personal taxes (on property and vehicles), a value-added tax (VAT), corporate income taxes, and mining taxes.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Papua New Guinea currently has a limited infrastructure, largely due to the country's rugged terrain. Extreme weather, such as storms and floods, means that roads and other infrastructure deteriorate quickly. Political disputes and corruption, leading to unnecessary infrastructure and the diversion of money away from useful projects, also contributes to the problem. Papua New Guinea has 19,600 kilometers (12,179 miles) of roads, of which only 686 kilometers (426 miles) are paved (approximately 3.5 percent of the total). The main ports are at Port Moresby, Lae, Madang, and Rabaul. There are 492 airports, but only 19 have paved runways. The national air carrier is Air Niugini, which flies domestically as well as to Australia, several Asian countries, and the Solomon Islands. There is no rail system in the country.

About 70 percent of Papua New Guinea's electricity comes from fossil fuels, with hydroelectric power providing the remaining 30 percent. The total electricity consumption in 1998 was 1.618 billion kilowatt hours (kWh).

Telecommunication systems in the country are generally adequate. Papua New Guinea had 44,000 telephone mainlines in use in 1995, and has recently established a cellular telephone network in several areas. By 1997,

there were 3,053 mobile cellular subscribers. In 1999, the country had 2 Internet service providers.

ECONOMIC SECTORS

Papua New Guinea is heavily dependent on the development of its natural resources. Its rich mineral deposits make the country a leading world supplier of gold and copper. Mining began on a large scale in the 1970s and rapidly surpassed agriculture as the largest source of export earnings. However, the mining industry is concentrated in a few areas and does not employ many people. Most of the population still depends on subsistence agriculture for its livelihood. The manufacturing and service sectors remain extremely small in comparison. In 1999, agriculture represented 25 percent of GDP, industry represented 35 percent, and services 40 percent. Papua New Guinea's mineral-based economy is subject to world market fluctuations in commodity demand and prices.

AGRICULTURE

Agriculture is important to Papua New Guinea for both income and as a source of food. In total, the agricultural sector contributes 25 percent of gross domestic product (GDP), not including subsistence agriculture. This contribution comes primarily from the production of crops such as coffee, oil palms, cocoa, and coconuts, all of which grow well in the country's tropical climate. Coffee, palm oil, cocoa, and coconut products (copra and oil) are the main agricultural export revenue earners, with US$240.3 million total value in 1998, and their production employs an estimated 77 percent of labor in the country. The bulk of Papua New Guinea's export agricultural products are produced by villagers. Australia, Japan, and South Korea have consistently been the major buyers of the country's agricultural exports since 1970.

Most Papua New Guineans own the land on which they grow their own food crops, of which sweet potatoes, sago, bananas, coconuts, taro, and yams are the most important.

Forestry is an emerging part of the agricultural sector, and about one-third of forest lands have been opened to commercial exploitation. Much of the timber industry is dominated by Malaysian companies. Papua New Guinea is now the world's second-largest exporter of round tropical logs, most of these going to Japan and Korea.

INDUSTRY

MINING.

Since the 1970s the mining of rich mineral deposits has dominated the Papua New Guinea economy. In contrast to the agricultural sector, mining in Papua New Guinea is characterized by large and highly mechanized operations. Copper, gold, and crude oil are the key income earners for the country.

In 1970 mineral exports were a mere 1 percent of total exports. Within 2 years, this figure had risen to 55 percent. By the start of the 1990s the contribution of the mining sector to total exports had continued to rise, reaching 70 percent. The large Panguna mine on the island of Bougainville opened in 1972, and until its closure in 1989 was one of the largest copper mines in the world. The shutdown of the mine was due to what many people have charged was environmental havoc created by the mine. It also became a flashpoint for resentment against the Papua New Guinean government by the indigenous people on Bougainville.

Since the closure of the Panguna mine, gold has been the main mineral export earner for the country, with a peak contribution to export value of 50.9 percent in 1991. In 1994, gold was contributing 26.4 percent of the value of total exports, equal to crude oil as the dominant export earner. Gold is mined at Porgera in the highlands and at several other locations, and in 1997 a new gold mine on Lihir Island opened. The Lihir mine reserves are estimated to be 103.4 million tons of ore, with a mine life of approximately 37 years, making it one of the world's largest gold reserves.

The Ok Tedi copper mine near the border with Indonesia has in some respects replaced production from the closed Panguna mine. Ok Tedi is expected to operate for about 10 more years, though because of a lawsuit resulting from environmental damage caused by mining, the main operating company, Broken Hill Proprietary (BHP), would like to close the mine earlier, against the wishes of the Papua New Guinea government.

MANUFACTURING.

The manufacturing sector in Papua New Guinea is small. In the 15 years between 1977 and 1992, the manufacturing sector's contribution to GDP varied between 15-18 percent. Food processing, beverage production, and tobacco processing are the main products manufactured in the country.

The Papua New Guinea government uses tariffs and subsidies, as well as direct industry support, to keep this sector afloat. While the industry has become dependent upon such measures, the government sees the manufacturing sector as providing employment for the increasing number of urban migrants. Most manufacturing is for domestic consumption only, and does not generate any export earnings.

SERVICES

The services sector in Papua New Guinea is small and almost entirely in the public sector. This sector employs an estimated 17.2 percent of the labor force, consisting mainly of government employees such as administrators, teachers, and health care workers. Approximately 66,000 tourist visas were issued in 1997, though under 10,000 of these are "real" tourists, with the others being people visiting relatives and other temporary visitors. Tourism generated US$72 million in 1997, but the high cost of travel to and within the country limits tourism development at present. Financial services are likewise a limited sector.

INTERNATIONAL TRADE

Papua New Guinea's traditional trading partners have been consistent for both exports and imports since the

early 1970s. Prior to independence in 1975, Australia was the main buyer of Papua New Guinean exports, and while this relationship has continued, Japan, South Korea, Germany, and New Zealand have since played major roles as importers of Papua New Guinean goods. In 1998 20 percent of Papua New Guinea's goods went to Australia, 13 percent to Japan, 7 percent to Germany, 5 percent to South Korea, 4 percent to the Philippines, and 3 percent to the United Kingdom. Traditionally, the major exports to these countries have been cash crops such as copra, cocoa, and coffee. Australia has been a major buyer of Papua New Guinea's gold. Minerals are also exported to such countries as Japan and Germany. Papua New Guinea purchases most of its imports (machinery, foods, and technology) from these same countries, and especially from Australia. In 1998 Australia accounted for 51 percent of the country's imports, Singapore 10 percent, Japan 8 percent, the United States and New Zealand 5 percent, and Malaysia 3 percent. In 1999 the country enjoyed a positive trade balance of nearly a billion dollars on exports of US__BODY__.9 billion and imports of US__BODY__.0 billion.

MONEY

Since 1994 the kina has fallen dramatically relative to the U.S. dollar. The depreciation of the kina means that imports into the country become more expensive, limiting Papua New Guinea's ability to purchase technology and manufactured goods. In general, the country's

finances have been characterized by relatively low inflation since independence, except for a period of higher inflation in the 1990s. The inflation rate was 16.5 percent in 1999.

Papua New Guinea's first stock exchange, in Port Moresby, opened in 1999. The first 4 companies listed were Oil Search, Orogen Minerals, Lihir Gold, and Steamships Trading.

POVERTY AND WEALTH

Papua New Guinea has a complex distribution of wealth. The extremely varied and rugged terrain kept some indigenous people of the country isolated from any connection with the "modern world" until as late as 1970. This factor, combined with the belated and rapid economic development from the 1970s, has produced a highly variable distribution of income and wealth. While much of the wealth from economic development has been concentrated in urban centers, cultural factors also feature in the distribution of poverty and wealth. Much of Papua New Guinean society is still very traditional, and differs from European-based societies in several important ways. Papua New Guinean society is centered around agriculture and attachment to the land. Land is rarely sold, but instead is inherited by children. Papua New Guinean society has a complex structure, with many bonds among family members, distant relatives, and neighbors. These bonds include obligations to share wealth, and to give and receive gifts. Papua New Guinean society did not and does not have a tradition of chiefs or leaders who gain their status through inheritance. Instead, in traditional Papua New Guinea society men become leaders through their own efforts, especially through the gaining and sharing of wealth. All of these factors are important in the way that wealth is distributed in the country.

Despite these cultural factors, the Papua New Guinea government has made some efforts to decentralize services—especially health and education—and to provide equal access to them throughout the country. These efforts, begun in the 1970s, have made little difference, if any, in greatly varying levels of income and wealth between

urban and remote areas. About 85 percent of the population still depends on subsistence agriculture, and 37 percent of these people are below the poverty line.

WORKING CONDITIONS

Papua New Guinea has a total workforce of 1.941 million, and the unemployment rate has fluctuated between 3 and 10 percent since the 1980s. The development of new sectors in the Papua New Guinea economy has shaped the characteristics of employment. Before 1950, plantations provided almost the sole source of employment for both women and men, with only a fraction of the workforce employed formally. Little changed until after World War II, when both a legal minimum wage was set and the transition to a formal cash wage system was under way. By the 1950s Papua New Guineans were extensively employed in all areas of the country's economy. Women's participation in the formal employment sector has remained very small, with an estimated 14 percent of wage employment in 1980. Women and unskilled men are still subject to difficulties in job advancement. Regional differences in employment are extreme. Most formal employment is in the urban centers, especially Port Moresby.

Working conditions vary accordingly. The plantations have traditionally required a young workforce, owing to the early retirement of plantation employees, whose work is hard and largely unregulated. In contrast, those sectors such as mining, which have been driven by the infrastructure created by international corporations, provide considerable salaries (and benefits to land owners). However, the value of mineral exports in relation to agricultural subsistence or commodity exports means that the proportion of those involved in the mining sector remains very small in comparison. Papua New Guinea also has a substantial informal sector, consisting of small businesses that do not typically pay taxes or keep accounting records. Such businesses receive little support from the government, even though they may be in great need of loans to help start and expand their activities. Life for these small businesses is made even more difficult by laws that require them to, for example, obtain licenses or record their profits.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

1526. First European exploration by Spaniard Don Jorge de Meneses, naming the principal island "Papua."

1545. Spaniard Ynigo Ortis de Retez names the island "New Guinea."

1828. The Dutch East India company, which controls the western part of the island, declares the island to be a colonial possession attached to the Dutch East Indies.

1884. Germany takes possession of the northeast part of the main island and the nearby smaller islands, while Great Britain establishes a protectorate on the southern coast of Papua.

1920. Britain, which took control of German possessions on the island during World War I (1914-1918), grants control of the entire territory to Australia.

1942. Japan takes possession of the Australian territories of New Guinea and Papua early in World War II. Following the Japanese surrender in 1945, the Territory of Papua is joined in administrative union with the Territory of New Guinea.

1964. The first House of Assembly opens, replacing the Legislative Council.

1972. The name of the territory is changed to Papua New Guinea; the Panguna copper mine on Bougainville island opens.

1973. Papua New Guinea receives self-government.

1975. Papua New Guinea achieves independence.

1984. The Ok Tedi copper and gold mine opens near the Indonesian border.

1990. The environmental consequences of mining come under scrutiny following natural disasters at Wau and Bulolo from disposal of tailings into Bulolo River.

1997. Lihir gold mine opens on Lihir Island.

1999. Port Moresby Stock Exchange opens; Sir Mekere Morauta becomes prime minister following the resignation of Bill Skate.

FUTURE TRENDS

Papua New Guinea will continue to depend heavily on mineral exports for the bulk of its foreign currency earnings, while simultaneously remaining a largely agricultural country in terms of employment and food production. Exploration for new mineral deposits continues on a large scale, and several projects, such as a nickel mine in Ramu, are likely to open within the next few years. The Lihir gold mine, one of the world's largest, has recently started operating and production is expected to increase. As always, the mining sector is subject to international market conditions, especially demand for minerals and changing prices.

The country's mining sector is coming under increased international scrutiny for its environmental practices. For example, villagers downstream from the Ok Tedi mine have accused the mining company of negligence in releasing toxic materials into local rivers and other water sources.

Papua New Guinea is also likely to see a continuation of political tension, especially with respect to tensions between the national and provincial governments. The independence movement on Bougainville island still simmers, although there is hope that peace talks will finally resolve the dispute. Other provincial governments are demanding greater powers and the national government will have to come to terms with these demands.

DEPENDENCIES

Papua New Guinea has no territories or colonies.

BIBLIOGRAPHY

Australian Agency for International Development (AusAID). Papua New Guinea: Improving the Investment Climate. Canberra, Australia: ANUTECH, 1995.

Connell, John. Papua New Guinea: The Struggle for Development. London: Routledge, 1997.

Economic Insights Pty Ltd. The Economy of Papua New Guinea .Canberra: Australian Agency for International Development (AusAID), 2000.

Economist Intelligence Unit. Country Report: Papua New Guinea. London: Economist Intelligence Unit, 2001.

Lal, Brij V., and Kate Fortune, eds. The Pacific Islands: An Encyclopedia. Honolulu: University of Hawaii Press, 2000.

U.S. Central Intelligence Agency. World Factbook 2000. <http:// www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. Background Notes: Papua New Guinea. <http://www.state.gov/www/background_notes/png_0011_bgn.html>. Accessed August 2001.

—Michael Pretes

Rory Eames

CAPITAL:

Port Moresby.

MONETARY UNIT:

Kina (K). One kina equals 100 toea. There are coins of 1, 2, 5, 10, and 20 toea, and 1 kina. There are notes of 2, 5, 10, 20, and 50 kina.

CHIEF EXPORTS:

Oil, gold, copper ore, timber, palm oil, coffee, cocoa, coconut products.

CHIEF IMPORTS:

Machinery and transport equipment, manufactured goods, food, fuels, chemicals.

GROSS DOMESTIC PRODUCT:

US$11.6 billion (purchasing power parity, 1999 est.).

BALANCE OF TRADE:

Exports: US__BODY__.9 billion (f.o.b., 1999 est.). Imports: US__BODY__ billion (f.o.b., 1999 est.).