Papua New Guinea has been placed as one of Indonesia’s top non-traditional market priorities as the country leader President Joko Widodo prepares for his visit Port Moresby next month for the Asia Pacific Economic Cooperation (APEC) leaders summit, reports the PNG Post-Courier.
President Widodo addressed the 33rd Trade Expo Indonesia (TEI), the largest annual tradeshow in Indonesia, last week where he talked about reaching out to Indonesia’s non traditional markets, of which PNG now tops their agenda.
Madang Governor Peter Yama and his entourage had a session with Indonesia’s Chamber of Commerce and Trade team led by president and chairman Bernardino M Vega Jr.
Madang provincial administrator John Bivi gave a presentation on Madang’s investment proposal to Indonesia identifying where they needed attention most.
Bernardino said one of the major agendas when they attend APEC in Port Moresby on November 17-18 will be to look at investment opportunities in PNG, singling out Madang.
Papua New Guinea’s government is under mounting pressure to account for a purchase of 40 luxury vehicles for next month’s Asia Pacific Economic Cooperation (APEC) summit in the capital of Port Moresby.
Shipments of the Maserati sedans from Italy arrived in Port Moresby last week, to be used for ferrying around APEC leaders and other dignitaries at the summit on November 17-18.
APEC Minister Justin Tkatchenko said the Maseratis were “being committed to be paid for by the private sector” where demand was so keen they would sell “like hot cakes”.
Putting the value of each car at a little over US$100,000 (NZ$150,000), Tkatchenko initially said the Maseratis were being paid for with “no overall cost to the state”.
Amid a public outcry about the Maseratis, the opposition Madang MP Bryan Kramer said the deal could be illegal if the vehicles have been bought by the private sector without any cost to the government.
With PNG’s Public Finance Management Act requiring any state assets to be acquired or disposed of by calling for public tender, Kramer said the government must reveal when the public tender was called.
He has linked the purchase to an invoice for US$6,357,684 to PNG’s government from a Sri Lanka-based auto spare parts and sales company, Ideal Choices.
Since his earlier statement, the minister admitted to Australian media that the government paid a deposit for the purchase. But he has not explained how it would recover its costs after on-selling cars at what is expected to be a depreciated price tag.
Meanwhile, as the jigsaw around the costs of this opaque deal falls into place, the company which transported the cars, Air Bridge Cargo, confirmed its freight planes were chartered by PNG’s government.
Strike looms Opposition MPs have called for a nationwide strike later this week in protest against the government’s Maserati deal, which has been criticised as being excessively extravagant for a government struggling to fund basic health services.
“While the country faces a polio outbreak, failing health and education systems, systemic corruption, and escalating law and order issues, prime minister (Peter) O’Neill appears to be more concerned about impressing world leaders,” Kramer said in a statement.
“The bottom line is, we cannot afford to be this extravagant. Our country is broke and the O’Neill government continues to be irresponsible and reckless.”
Papua New Guinea APEC Minister Justin Tkatchenko … facing calls to be sacked. Image: Koroi Hawkins/RNZ
Facing calls to sack Tkatchenko and step down himself, O’Neill said yesterday that the vehicles would be sold to the private sector in a public tender.
This would happen in a transparent process, he explained, as soon as the APEC summit concluded in mid-November.
“Like many other international events that we have hosted in the past in the past 40 years, there has always been an arrangement where the private sector will buy those vehicles, so that it saves government money,” the prime minister explained.
Disastrous ‘optics’ But the Maserati deal has made for disastrous “optics”, triggering global media attention and outrage among Papua New Guineans.
“The Italian automobile manufacturer must now come out publicly to explain why they agreed to sell 40 Maseratis destined for PNG APEC to a small dealership based in Colombo, Sir Lanka,” said Kramer.
The outspoken MP said he could not envisage world leaders agreeing to be ferried in luxury vehicles that appear to be procured through a small backyard dealership.
However, Tkatchenko continues to defend the import, saying the kind of service provided through Maserati was standard for APEC summits.
This article is republished under the Pacific Media Centre’s content partnership with Radio New Zealand.
LI Yong, UNIDO Director General and Mr. Hongjoo Hahm, Officer-in-Charge, ESCAP
The business case for making our economy more sustainable is clear. Globally, transitioning to a circular economy – where materials are reused, re-manufactured or recycled-could significantly reduce carbon emissions and deliver over US$1 trillion in material cost savings by 2025. The benefits for Asia and the Pacific would be huge. But to make this happen, the region needs to reconcile its need for economic growth with its ambition for sustainable business.
Today, the way we consume is wasteful. We extract resources, use them to produce goods and services, often wastefully, and then sell them and discard them. However, resources can only stretch so far. By 2050, the global population will reach 10 billion. In the next decade, 2.5 billion new middle-class consumers will enter the fray. If we are to meet their demands and protect the planet, we must disconnect prosperity and well-being from inefficient resource use and extraction. And create a circular economy, making the shift to extending product lifetimes, reusing and recycling in order to turn waste into wealth.
These imperatives underpin the 5th Green Industry Conference held in Bangkok this week, hosted by the United Nations Industrial Development Organization (UNIDO) in partnership with the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and the Royal Thai government. High-level policymakers, captains of industry and scientists gathered to discuss solutions on how to engineer waste and pollution out of our economy, keep products and materials in use for longer and regenerate the natural system in which we live.
The goal is to embed sustainability into industries which we depend on for our jobs, prosperity and well-being. Action in Asia and the Pacific could make a major difference. Sixty percent of the world’s fastmoving consumer goods are manufactured in the region. Five Asia-Pacific countries account for over half of the plastic in the world’s oceans. The region’s material footprint per unit of Gross Domestic Product is twice the world average and the amount of solid waste generated by Asian cities is expected to double by 2025.
If companies could build circular supply chains to reduce material use and increase the rate of reuse, repair, remanufacture and recycling – powered by renewable energy – the value of materials could be maximized. This would cushion businesses, manufacturing industries in particular, from the volatility of commodity prices by decoupling production from finite supplies of primary resources. This is increasingly important as many elements vital for industrial production could become scarce in the coming decades.
With these goals in mind, the United Nations is working with governments and businesses to support innovation and upgrade production technologies to use less materials, energy and water. UNIDO is engaged across industrial sectors, from food production to textiles, from automotive to construction. Over the past twenty-five years, its network of Resource Efficient and Cleaner Production Centres has helped thousands of businesses to “green” their processes and their products. The Global Cleantech initiative has supported entrepreneurs to produce greener building materials. Industrial renewable energy use is being accelerated by the Global Network of Sustainable Energy Centres. New business models such as chemical leasing help reduce chemical emissions. And the creation of eco-industrial parks has contributed to the sustainable development of our towns and cities.
In Asia and the Pacific, the UN is intensifying its efforts to reducing and banning single use plastics. The Platform for Accelerating the Circular Economy is implementing programmes to reduce plastics consumption, marine litter and electronics waste, and encourage sustainable procurement practices. UNESCAP is identifying opportunities in Asian cities to return plastic resources into the production cycle by linking waste pickers in the informal economy with local authorities to recover plastic waste and reduce pollution.
The 5t h Green Industry Conference is an opportunity to give scale to these efforts. The gap between our ambition for sustainability and many business practices is significant. So it’s essential for best practice to be shared, common approaches coordinated, and success stories replicated. We need to learn from each other’s businesses to innovate, sharpen our rules and increase consumer awareness. Let’s step up our efforts to build a circular economy in Asia and the Pacific.
World Economic Forum, Towards the Circula r Economy. Available from http:// www3.weforum.org/docs/WEF_ENV_TowardsCircularEconomy_Report _2014 . pdf
Mr. LI Yong is Director General of the United Nations Industrial Development Organization (UNIDO)
Mr. Hongjoo Hahm is Officer-in-Charge of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP)
When I left Fiji 30 years ago, a week after the first coup in 1987, I planned to write a book titled “The flight of the myna” – a pesky, noisy bird, which can talk if trained and was introduced to Fiji by our forefathers from India.
The book wasn’t to be, but that very thought crossed my mind again as the plane taxied down the runaway to a halt at Suva’s Nausori International Airport.
I had been back to Fiji only once before in 30 years – but very briefly to the West, not Suva, the bustling Capital City.
My first impressions in the night arrival were that houses were lit up everywhere, signalling a population growth – Fiji now has a population of 913,537 (according to the World Population Review website, the official census in 2007 had it at 837,200) and is tipped to surpass the 1 million mark by 2020.
Suva and its surrounding towns of Nasinu, Nausori and Lami has an estimated combined population 330,000 – small wonder then of population growth, which can lead to problems akin to New Zealand.
Homelessness, poverty and housing shortages are today’s reality for the government that will take office after this year’s general election, the second since the 2006 coup.
At the same time, there it was — McDonald’s — with its golden arches, seemingly as busy as the restaurant in downtown Auckland, and Damodar City Centre, a mall like any other, owned by the same family that was heavily invested in movies and movie houses from 30 years ago.
A mall and McD’s signified some wealth, and there is little doubt that Fiji has its fair share of the wealthy, combined with the traffic, just as bad as Auckland’s.
Bustling city In many respects, Suva remains the same bustling city with the same charming smile and a friendly “bula”, regardless of opportunistic crime, with the “street boys” sometimes targeting unwary visitors and inebriated revelers.
As an academic said: “We have car sales as a big business, because people can hop into their cars and drive to malls.”
Three decades ago you drove, walked or caught on open-air rattler of a bus to “town”.
Malls? What were they?
As for cellphones – they have them everywhere and anywhere, creating the same social problems of any major city – killing conversation and dialogue.
However, the question remains – where is the investment and money coming from?
“Fiji now owes over $500 million to China which amounts to be about 40 percent of all our external debt,” suggests economist Professor Biman Prasad of the National Federation Party.
However, Fiji’s Economy Minister Aiyaz Sayed-Khaiyum wasn’t as concerned and earlier this year said the World Bank had done a thorough analysis of the national debt and was convinced that it was manageable. Loans are used to strengthen infrastructure and stimulate the economy.
China concerns China’s “One Belt, One Road” policy is cause for concern long term, and its growing influence in Fiji is alarming for some. Not just Fiji, but for the whole Pacific.
Other investments, anecdotally, come from the myriad of people, about 200,000 who left Fiji after the coups – returning, because they can get their citizenship reinstated.
They are coming home as business entrepreneurs and investors and that is very noticeable in the popular drinking holes.
While the smiles are genuine, there is always a feeling of a cloud hovering around, and it’s just not the media decrees that are doing it.
Every person of note and authority seems to be walking around with a well-thumbed copy of the 2013 Constitution in their back pockets.
The dog-eared constitutions. Some with post-it notes, are ready to be pulled out at will, citing chapter and section – much akin to the holy books.
Regardless of the bustling nature of Suva, famous iTaukei smiles and being readily approachable, with their laid-back style of Fiji time, where appointments are seldom kept on the dot – paradise is troubled.
Shoulder looks You always get the feeling of someone looking over shoulder, muted closed discussions in hushed tones of politics in Fiji – as the Second World War saying goes: “Walls have ears”.
But to get into conversation about politics is a revelation: most people have a view, many of them intelligent, and a surprise to the ears of a supposed-leprechaun who has been away for 30 years.
As a frustrated lawyer at the iconic Holiday Inn said: “Do we want good roads or do we want free speech?” Or the doctor who beamed and said: “There are issues around land.”
However, Fiji is between the devil and the deep blue sea, for a country that is weary and yearns for the stability of the past. It can stay with current FijiFirst government (which gained 60 percent of the vote in 2014) or venture into the unknown. The election, just weeks away, will reveal which direction the voters choose to go.
So, as the old motto from the old Fiji Visitors Bureaus used to say, “Fiji, the way the world should be”.
Exactly, the view of myna bird.
Sri Krishnamurthi is a journalist and Postgraduate Diploma in Communication Studies student at Auckland University of Technology. He is attached to The University of the South Pacific’s Journalism Programme, filing for USP’s Wansolwara News and the AUT Pacific Media Centre’s Asia Pacific Report.
First-year journalism and politics student Dhruvkaran Nand (left) talks to Sri Krishnamurthi about the impending 2018 Fiji general election. Image: Wansolwara Staff
Bryce Edwards’ Political Roundup: Is Labour yielding too much to business?
It might traditionally be the “workers party”, but at the moment Labour is making a serious play of inviting business into the tent, in order to stop their traditional foe lobbing bombs from the outside. That’s the upshot of this week’s major charm offensive from Prime Minister Jacinda Ardern to the business community.
Her speech to business leaders in Auckland on Tuesday came with the announcement of a new Business Advisory Council, which is supposed to allow business interests more influence at the highest levels of Government.
Obviously, the Labour-led Government is attempting to mollify business with this announcement, along with other concessions spelt out in Ardern’s speech. The objective is to turn around the so-called plummeting business confidence surveys that Labour is embarrassed by.
But isn’t this going too far? Does it mean Labour has capitulated to vested interests? Certainly, some are worried that the Government is placing the demands of business interests too high in the policy-making process.
Herald business journalist Fran O’Sullivan points out just how influential the new business group will be: “Ardern says the council’s role will be to build closer relationships between Government and business, provide high-level free and frank advice to the Prime Minister on key economic issues, and to create a vehicle to harness expertise from the private sector to inform the development of the Government’s economic policies” – see: Anointing Christopher Luxon a smart move by Jacinda Ardern.
Ardern herself has said “I want to work closely with, and be advised by, senior business leaders who take a helicopter view of our economy”, and she has invited business leaders to “join us in taking the lead on some of the important areas of reform the Government is undertaking”.
Writing in the NBR, Brent Edwards reports how the head of Business New Zealand, Kirk Hope, is impressed with the new initiative, saying “the new body is important because it gives business a direct line to the prime minister” – see: Prime Minister urged to slow the pace of employment law changes. Hope is quoted saying, “As another conduit to government and as a formal mechanism for engagement with the prime minister over policy I think … it’s probably a smart idea and a really critical channel for business.”
But Edwards notes that “Business New Zealand is already represented on five government-initiated working groups, including reviewing the tax system, the future of work and pay equity.”
Business journalist Rob Stock points out that, in general, business interests are already incredibly dominant in the policy making process, and it is therefore absurd to give them even more power: “I can think of many interest groups who lack a political voice. Business is not one of them. Business has money. It is well organised. Its opinion on anything is easily gauged. It has a powerful voice. It has its business membership groups – a bewildering number of them” – see: The Business Advisory Council is a waste of time; or is it a belated masterstroke?
After listing a large number of powerful business interest groups, Stock then explains their current political power: “Each has a staff of experts, policy officers, lobbyists, and communications people. On literally no topic is it possible for the government not to know what business thinks and wants.”
And, says Stock, these groups have a big impact on legislation: “I hear the voice of business echoing in all government discussion papers. It works like this. A minister announces a review. A few policy options are flagged. Business lobbyists go about their work. When the discussion paper comes out, much of the watering down has already happened… And then comes the whole consultation, and law-making process.”
The same article also includes the analysis of Stuff’s new national business editor Rebecca Stevenson, who is much more enthusiastic about integrating business more into government’s decision-making. She says: “This announcement is a smart one in my view. It makes business feel included, which has been sorely lacking”.
Stevenson lists various ways in which the current Government has apparently sidelined business interests, including when “the prime minister failed to turn up for the Deloitte Top 200 awards in November” and when “business failed to gain even one single mention” in the Budget (“That had to sting”). Therefore, for her, the new advisory council is “the least the Government could do for business. Literally.”
Like Stock, The Spinoff’s Toby Manhire also sees the absurdity of the Government attempting to give business even more power: “There is of course something fairly hilarious about the creation of an advisory group for big business. If you’re searching for underrepresented voices who go unheard in the corridors of power, who lack the resource and networks to put their case in policy making, big business is probably not going top of the list. But that just underscores the symbolism in all of this” – see: Jacinda Ardern takes on the elephants and albatrosses in the business zoo.
Nonetheless, Manhire believes Ardern’s charm offensive has probably worked. He says that her main message to business is “We promise you we are listening”, and he thinks “she’s probably done enough to shake something of that albatross” of low business confidence from around Labour’s neck.
Business journalist Jason Walls has also reacted with surprise, saying there are already ample opportunities for business interests to have input into the workings of this government. He questions whether another is needed: “what about the Treasury? What about the Ministry of Business, Innovation and Employment (MBIE)? The Reserve Bank? BusinessNZ? Surely they should be doing this type of work already. On top of that, we have a Minister of Finance who has not one, not two but three Associate Ministers as well as a Minister of Revenue and Small Business. And already this year, the Government has already established two other business-led groups to help advise the Government – the Tripartite Future Work Forum and the Small Business Council” – see: Jacinda Ardern’s latest pitch to woo business won’t work – here’s why.
Does business even deserve to have more influence? That’s the question asked by University of Auckland professor of economics Tim Hazledine, who hopes “that the talking at the Council’s meetings is not all in one direction” – see: Business Advisory Council could prick ‘lack of confidence’ bubble. He thinks that the Prime Minister should be using the new council to tell business to get its act together.
Hazledine agrees that New Zealand has a business confidence problem, but of a different sort: “there is indeed a substantive ‘business confidence’ issue in New Zealand: it is about our, the people’s, lack of confidence in them – specifically, in the big business corporate sector. Overall, the corporate sector in New Zealand has been a conspicuous poor performer over the past thirty years.”
Possibly the most interesting and challenging criticism of the Government’s new business working group comes from former Reserve Bank economist Michael Reddell, who has two big problems with the new approach – see his blog post, A country is not a company.
First, “such councils can be a path towards cronyism. On the one hand, attracting sycophants who like to be able to tell their mates they have the ear of the Prime Minister. And on the other, more concerningly, enabling selected business heads to bend the ear of ministers and put pressure on them to make decisions favourable to the specific economic interests of those involved and their employers.”
Second, he challenges the very notion that businesspeople have expertise in running economies: “what do chief executives of businesses know about overall economic management, and the challenges of New Zealand’s longstanding productivity underperformance?”. Reddell argues that “Expertise on economic management, and the particular confounding challenges the New Zealand economy faces, just aren’t the sort of thing that tends to be fostered in the course of a corporate career.”
There were other aspects of the Prime Minister’s speech to business that the audience should have been appreciative of, according to the New Zealand Herald – see its editorial: Two small words from PM should lift business confidence. In particular, they should be thankful to the PM for saying “We won’t” on the issue of relaxing the conservative fiscal policies contained in their Budget Responsibility Rules. And the editorial points out that Ardern reiterated that planned industrial relations reform will not “fundamentally disrupt the employment relations landscape” established by the National Government.
According to Stuff political editor Tracy Watkins, such statements about industrial relations reform show that this government is now shifting away from a more radical and transformative approach, and towards a moderate and incrementalist approach – in the same way that Helen Clark and John Key pragmatically ran their governments – see: Prime Minister Jacinda Ardern’s plan to bring the boardroom into the Beehive.
Could it be that this Government has rolled over too easily in the face of business grumpiness? Pattrick Smellie writes today that “The degree of political attention paid to the decline in business confidence… is overblown”, and the “Government has let itself be spooked, which may say something about its internal confidence about the cohesion of the economic plan it says it’s pursuing” – see: Magnifying the elephant in the boardroom.
Finally, the capitulation of the Government to business might actually be the opposite of how it looks. Mike Hosking argues that Labour is simply co-opting business leaders in order to blunt their opposition, because “what you are achieving is getting buy-in from them. They are signing up for the plan. They are on board with the government because they are in the pay if not debt of the government… once you’re on a government board you work for the government” – see: Jacinda Ardern’s Business Advisory Council is political genius.
Cryptocurrencies are a controversial phenomenon that have risen from a technical experiment, with zero monetary value, to an industry with a combined market capitalisation of US$225 billion – after shedding more than $30 billion this week. Their future is uncertain, with analysts ranging from enthusiasts to sceptics, but James Halpin of Asia Pacific Journalism profiles a bold scheme for Papua New Guinea.
Cryptocurrencies give developing nations the ability to bring payment systems to people in remote locations, bypassing commercial banks. Torokina, a cryptocurrency in development out of Papua New Guinea, will do just that, says creator David Eri.
Eri, an employee at Oilsearch Limited, is in the process of securing funding to launch Torokina.
After attending the Kumul Game Changers incubator, which brought together startups from Papua New Guinea, Fiji, Tonga and Samoa, and learning how to start a start-up with little to no capital, Eri was selected out of that cohort.
Sponsored by Oilsearch Limited to attend Draper University through its Citizen Development Programme, which aims to give high-performing Papua New Guinean citizens pathways into leadership roles within the company, Eri was able to present Torokina to Silicon Valley entrepreneurs.
He says he received positive feedback.
“I got excellent feedback and have a ways to proceed so I have been working on my project since then,” he says.
Now back in Papua New Guinea, Eri faces the daunting challenge of getting his dream off the ground.
Kina weakness One of the big issues Eri wants to solve is the weakness in the kina’s value overseas.
“When Papua New Guineans take K1000 overseas they usually get US$250 or A$350. Our kina loses 75 percent of its value as soon as it leaves our shores.”
One way to ensure the stability and attractiveness of Torokina is to take advantage of Papua New Guinean’s natural endowment and peg Torokina to the price of gold.
“One thing we are abundantly blessed with is our natural resources, particularly gold. PNG accounts for 0.7 percent of the world’s gold. Relatively minor but this adds up to US$2.1 billion extracted a year,” he says.
“The aim of Torokina was to combine our natural resources and combine it with current technology to create a gold backed cryptocurrency that performs on par with major currencies like the USD, AUD, JPY, GBP etc in trade and commerce.
“And by pegging the cryptocurrency with a valuable commodity hedges the volatility of the cryptomarket.”
A gold-backed cryptocurrency would work by x amount of the cyrptocurrency representing one unit of gold. If the cryptocurrency increases in price, then more currency is needed to buy the same amount of gold. If the cryptocurrency doesn’t increase in value, then it is unlikely to go below the price of gold.
Gold buying reserves However, backing the cryptocurrency to gold does force Torokina into actually having to buy or have reserves to buy the gold, forcing purchasers to put their faith in Torokina’s ability to be able to survive a run on selling Torokina.
Gold-backed cryptocurrency has precedents though, and has been done before with the cryptocurrency E-gold emerging as the forerunner in 1995.
Remittances are a minor part of PNG’s GDP at just under US$3million, according to the World Bank. One reason for this is the 10 percent fee that the government takes from remittances.
Using blockchain technology, Torokina would be able to remove the fee barrier for Papua New Guinean nationals sending money back to PNG. This would also remove the remittance firm’s cut and increase income received by families in PNG, of which 75 percent live on subsistence.
Cryptocurrencies give criminals another avenue with which they can move money. However, because of the blockchain they are completely anonymous.
Eri recognises this negative view of a cryptocurrency in a developing country that is prone to money laundering.
“Cryptocurrencies offer cyber-criminals, corrupt officials, transnational criminal organisations, and foreign terrorist organisations the ability to conduct pseudonymous financial transactions outside of traditional banking channels.”
The report adds that cryptocurrency can be used for “laundering money, fraudulently investing, and buying prohibited goods and services on the Deep Web”.
Torokina’s way of solving this issue would be to have large scale buyers being forced into signing up onto a secure database. While this would limit large scale crime, small transactions would still go unnoticed.
Bank of PNG cautious The Central Bank of Papua New Guinea is cautious about cryptocurrencies and recently released an advertisement to warn people of investing in them.
Authorised by the Governor, Loi M. Bakani, the advertisement states that cryptocurrencies do not hold any legal standing as they are not regulated by the bank.
The Central Bank has also been looking into blockchain as a technology platform. At a conference in 2017 it was announced the central bank was setting up a PNG Digital Commerce and Cryptocurrency Association.
“This will allow PNG to join the global blockchain forum… there is no reason why PNG can’t be a leader for emerging markets,” Bakani said.
Currently 85 percent of Papua New Guineans live outside the conventional banking system, being able to access cryptocurrencies and blockchain technology would allow remote Papua New Guineans to catapult over having to deal with commercial banks.
Without having to pay fees for commercial banks, remote Papua New Guineans would be more willing to keep their savings as currency rather than as material items, building wealth.
Eri recognises these hurdles to solve before the launch of Torokina.
“It’s an idealistic dream but one I intend on seeing through,” he says.
“Whether it succeeds or fails will be dependent on factors I have looked at and hopefully took into careful consideration and mitigating the risks as best I can.”
James Halpin is a student journalist on the Postgraduate Diploma in Communication Studies (journalism) reporting on the Asia-Pacific Journalism course at AUT University.
Four Indonesian ministers gathered to witness the signing of an agreement between state-owned mining holding group PT Indonesia Asahan Aluminium (Inalum) and Freeport-McMoran (FCX) to take over Papua’s PT Freeport Indonesia (PTFI) in complex deals worth $3.85 billion.
Under the agreement, Indonesia will take control of 51 percent of Freeport Indonesia’s equity, and hold a majority stake in the company that operates the world’s largest gold mine, Grasberg in Papua.
The signing was the culmination of years of negotiations, preceding the current administration of President Joko “Jokowi” Widodo, and a tug-of-war between Indonesia and the American company.
The presence of four ministers at the signing was an indication of the economic and political importance of the deal to the Jokowi administration. But it is not yet a done deal, as officials have liked to claim.
The agreement requires the two parties to conduct further negotiations to finalise the details of the divestment. The government expects to finish ironing out the details sometime in August.
Freeport’s footprint in Indonesia Here is your guide to understanding the seemingly never-ending negotiations, and why it matters for Indonesia to cement the deal as soon as possible:
Freeport-McMoran has operated in Indonesia since it signed its first contract in 1967 in a deal that was good for 30 years. In 1997, it received an extension for its operation until 2021. The two contracts in essence covered mining for copper, with gold and silver treated as associated resources found alongside copper ores.
Both contracts were signed during the regime of president Suharto. The first contract in 1967 was widely hailed as a landmark moment, symbolising the ushering in of Indonesia’s open-door policy to foreign investment under the pro-Western General Suharto, who had just taken over power from the socialist-leaning Sukarno a year earlier.
Developing the mines deep in the mountainous jungles of Papua required huge initial investment to build core infrastructure, including roads, housing and power plants, as well as preparing the pool of workers. In return for this investment, Freeport received generous tax breaks.
Freeport’s first phase of operations exploited the Ertsberg Mountain in Mimika regency. Once the mountain was flattened, Freeport turned to mining the adjacent Mt Grasberg, which turned out to contain even larger reserves. Freeport is looking to mine the large gold reserves underground, assuming the latest agreement holds.
Bloomberg Intelligence estimates that the reserves at the world’s biggest gold deposit and second-largest copper mine are worth about $14 billion.
Freeport-MacMoran’s operations in Indonesia accounted for 47 percent of its operating income in 2017, according to Bloomberg.
Freeport’s huge profits have been a source of contention with long-standing criticism that the tax and royalty revenues paid to the Indonesian government represent only a pittance of its true income.
Indonesia’s 9.36 percent stake in PTFI, as stipulated in the 1991 contract of work (CoW), also does not amount to much, particularly as Freeport has at times withheld paying dividends.
For example, PTFI paid Rp 1.4 trillion in dividends in 2017 after three years of failing to make any payments, according to the Finance Ministry.
Freeport has also attracted controversy for the environmental and social impacts of its operations in the heart of Papua.
Last year, the Supreme Audit Agency (BPK) came out with a damning report claiming that Freeport had caused $13 billion in environmental damages.
Wind of change for Freeport In 2009, Indonesia passed the Coal and Mineral Mining Law, or Law No. 4/2009. The law requires all foreign mining companies to divest 51 percent of their shares to the Indonesian government, state-owned or regional-owned enterprises or private Indonesian companies within 10 years of the start of operation.
Freeport has managed to work its way around the regulation by indicating that it is operating under a CoW, which is good until 2021.
In January 2017, the government issued a new regulation requiring all mining contracting companies to switch to special mining permits (IUPK) in order to export products in the form of concentrates, which is one step above ore but still not refined.
Freeport refused to fully comply, arguing that the IUPK was not a nailed-down scheme because the stipulations, including the taxation scheme, could change according to changes in government regulations.
In February 2017, the Energy and Mineral Resources Ministry issued PTFI an IUPK saying the company had finally agreed to the terms, paving the way for the divestment deal signed on Thursday.
Series of agreements In August 2017, following pressure from the government to divest its shares in PTFI, Freeport-McMoran’s top management agreed to increase Indonesia’s share in PTFI to 51 percent, as well as to develop a smelter and increase Indonesia’s revenue from PTFI’s tax and royalty payments.
The Indonesian government chose state mining holding company Inalum to become the majority shareholder in PTFI.
However, questions remain regarding the price tag and how Inalum will pay for its stake in Freeport. Inalum president director Budi Gunadi Sadikin said on Thursday that the company would have to pay $3.85 billion in August and that it had already secured loans from 11 banks.
What are the benefits of majority ownership in Freeport?
Bisman Bakhtiar, the executive director of the Center for Energy and Mining Law (Pushep), said it was time for Indonesia to take control over the huge gold reserves in Papua, as 50 years had passed since PTFI began operations.
“Too much of our resources have been exploited. Surely after 50 years, we have the capability to operate it ourselves,” Bisman said.
Indonesia will reap the largest share of the profits and dividends, which in the past had almost entirely gone to PTFI. The government will also continue to enjoy taxes, royalties as well as a cut of the revenue.
“There are many ways to maximise the benefits from PTFI for the people, and divestment is one of them,” he said.
However, Bisman urged the government to ensure that Indonesia benefited from the next phase of negotiations to finalise the divestment deal.
“Even though we will finally become the majority owner in August, we need to look at the tax, royalty and revenue sharing arrangements. Are they better or not?”
Stefanno Reinard Sulaiman is a journalist with The Jakarta Post.
Business interests aren’t very happy at the moment. We know this from numerous “business confidence” surveys, media interviews with CEOs, and increasingly restive business groups. Of course, as discussed in yesterday’s Political Roundup column, much of this might be put down to “business bias” against a Labour government – quite simply, businesses are struggling with the pledge the government made when it came to power, that “capitalism must regain its human face”.
There is more to it than this, though. At the moment, there seem to be three main concerns for business: 1) A belief that this coalition government arrangement is unstable and unpredictable, 2) The oil and gas exploration decision, and 3) Proposed employment law reforms. These are all explored below.
1) An unstable and unpredictable coalition government arrangement
Armstrong worries that Cabinet ministers are in an arrogant phase, believing they are “infallible”, and that “Ardern’s troops have become battle-hardened” with a strong belief in the need to “remain staunch rather than being seen to be caving in to employers hell-bent on blocking reform.” They don’t seem to realise, that “the Government’s honeymoon is long over.”
Although Armstrong puts some of the government’s relationship “disconnect” with business down to ideology (“Under the leadership of first Andrew Little and then Ardern, Labour has also undergone a marked shift to the left”), his most important point is that business doesn’t think the government’s reform agenda is clear and consistent enough, and “Business hates inconsistency. It hates uncertainty”.
Rightwing commentator Matthew Hooton also published a column on Friday that explained that falling business confidence is “driven by huge policy uncertainty”, which is further undermined by “questions about Government’s decision-making processes” – see: Business uncertainty to get worse.
The problem isn’t so much the Labour Party, according to Hooton, but the struggling New Zealand First and Green parties, whose fight for survival will necessitate asserting themselves with some bolder policy initiatives as time goes on: “As the election emerges on the horizon, the pressure on NZ First and the Greens to make ever-more outlandish demands will only increase and Labour’s ability to say no will decline. Even the most peculiar policy proposal or sudden carve-out for your competitor will become possible. No one can really anticipate what will happen. But only the most brave or reckless businesspeople will see the next two years as a good time to take a risk.”
The latest editorial in the Listener also says business has little problem with “fiscally conservative” Grant Robertson, and is instead more worried about his colleagues who have made a habit of taking “potshots” at business: “Robertson’s mission is to convince business it does not face wild policy lurches or instability. Yet fellow ministers have repeatedly undermined Robertson’s message. So far this is more a matter of careless and self-aggrandising rhetoric and poor communications than of actual business-hindering policy. But an understandable sense of enmity has ensued” – see: NZ’s falling business confidence reflects the true price of ministers’ potshots.
The Listener singles out Employment Minister Iain Lees-Galloway and “ad hominem attacks on Air New Zealand and Fonterra” from Regional Economic Development Minister Shane Jones.
2) The oil and gas exploration decision
The surprise decision of the Government to essentially ban further oil and gas exploration apparently still has many in the private sector reeling. This isn’t simply because they disagree with the actual decision, but because the decision-making process has scared them. Concern has actually increased as more information has come to light. Last month official documents were released that indicate the decision was made quickly, without proper Cabinet involvement, no industry consultation, and minimal advice from government department officials.
Matthew Hooton has been the biggest critic of the process in the media, suggesting that businesses are rightfully fearful that their own sectors could be vulnerable to similar interventions by the government. He wrote about this in detail last month in his column, Crisis-filled month triggered Ardern’s oil & gas move.
To Hooton, the decision involved very poor process, and was not actually driven by environmental considerations, but essentially by pragmatic and strategic considerations: “Could there be a more cavalier and shameful way for a Government to behave when making decisions affecting 8481 jobs, billions of dollars of exports and which it had been advised would most likely increase greenhouse emissions and thus worsen climate change? The reason for the urgency is suggested by its context. After Labour’s mishandling of the sexual assault allegations at its summer camp, Winston Peters’ inexplicable stance on the Russian chemical weapons attack in the UK, Phil Twyford’s comical Pt Chevalier KiwiBuild announcement, and the scandal involving Clare Curran and RNZ, Ardern was desperate for something — anything — to reassure her core supporters.”
These points were also made strongly by Fran O’Sullivan, who argued the decision was rushed in order to aid the PM’s diplomatic trip to Europe: “Ardern put her debut as a global climate change warrior ahead of making credible plans to transition New Zealand away from a reliance on fossil fuels towards clean energy. There’s no other way to interpret the documents and emails that have been released this week” – see: Ardern’s Orwellian move to ban exploration.
Although pro-business commentators might be expected to criticise the process, some on the political left were also unimpressed. The No Right Turn blogger said: “Like many, I welcomed this decision – we need to decarbonise, and slowly shutting down the oil industry is a necessary step to that. But the process they followed to do it all seems a bit Mickey Mouse” – see: Government by press conference.
The blogger condemned the PM’s decision not to involve Cabinet and government departments in such a controversial decision, pointing to the Cabinet Manual’s rules about this. He concluded: “fundamentally, this is not how decisions are supposed to be made in our system of government. And it raises the question of exactly why the government chose to sidestep Cabinet in this manner. And if it was to avoid their obligations under the Public Records Act and Official Information Act, then that is looking very dubious indeed.”
Many journalists have since reported that business leaders have been concerned about this episode of governance. But Hamish Rutherford has reported that Finance Minister Grant Robertson claims that few businesspeople raise the oil and gas decision with him: “On Tuesday he played down the degree to which the abrupt decision to end offering offshore oil permits has dented investment confidence, saying it was hardly ever raised with him. If that really was the case, that seems likely to be a sign that business has not yet become comfortable being candid with the finance minister” – see: To inspire confidence, Grant Robertson must do more than repeat the message.
3) Employment law reforms currently proposed
In all likelihood, the main problem that the business sector has with the new leftwing government is the perennial “class struggle” issue of wanting to retain its advantages over employees. With the Labour-led government carrying out all sorts of industrial relations reform, business is simply unhappy to have profitability under threat.
The chief executive of Wellington Chamber of Commerce, John Milford is fairly upfront about this, saying in a recent newspaper column on business confidence surveys, that “The problem for the Government is that confidence is not going to improve as long as they insist on pushing ahead with their proposed changes to industrial legislation” – see: Minister, concerns from business aren’t junk.
Milford makes it clear that employers regard the reforms as a backwards step: “What’s proposed is old thinking that’s threatening to take us back to the industrial strife of the 1970s.” And he outlines what they don’t like: “the Employment Relations Amendment Bill as it’s drafted that will further reduce flexibility and harm the growth prospects of businesses. They are provisions that allow union reps to enter a workplace without permission, force businesses to settle collective agreements even if they don’t or can’t agree, and force them to join a multi-employer collective agreement (MECA).”
So, some degree of union power is being restored by this government, and understandably this isn’t welcomed by those who might be negatively impacted. This has also been discussed by John Roughan: “The Government is on a mission to raise incomes at the lower levels and rightly so. It proposes to do so not just with steeper annual increases in the statutory minimum wage but by strengthening trade unions. This is probably what is keeping business confidence low, and rightly so” – see: Striking state servants will be chilling business confidence.
This is also dealt with in Liam Dann’s column, Business heads for winter of discontent. Here’s the main point: “Feedback from groups like the Employers and Manufacturer Association (EMA) and Business NZ suggests that despite a broad acceptance that the new Government is not radical, there is genuine concern about the impact of new labour laws. This is less about rises to the minimum wage and more related to issues like the repeal of the 90-day trial period for businesses with more than 20 staff and changes to collective bargaining rules which will give unions more clout in some workplaces.”
Fran O’Sullivan reports that business groups have launched a campaign against the reforms: “employer groups confirmed they are launching an advertising campaign which will include billboards, newspaper and digital advertising. The ‘Please Fix the Bill’ campaign is funded by BusinessNZ’s member groups” – see: Business returns to fighting the same old fight.
Finally, not all businesses are complaining about the Government. Today, Graham Adams writes about one big business that is very happy, and he quotes their latest annual report: “As a business, we are pleased with the youthfulness and energy of New Zealand’s new government. Given the problems they face, we are impressed with the speed at which they are coming to grips, and we wish them well” – see: Mainfreight: A dissenting business voice on the government .
Bryce Edwards’ Political Roundup: Should politicians care about “business confidence”?
The business community’s confidence in the economy – and therefore the Government – seems to have hit a new low recently. There have been dozens of articles published in the last couple of weeks highlighting business concerns. So how seriously should politicians take the constant surveys about business confidence?
A looming “Winter of discontent”?
According to the reports of political and business journalists there are genuine fears of an impending “Winter of discontent”, in which the business community signals its strong hostility to what the Labour-led government is doing, and thereby attempts to change its direction.
Comparisons are being made with the last time a Labour-led government came into power, in 2000, when business apparently went into opposition mode, fighting strongly against planned employment changes. This is best covered by Richard Harman in his column, Another winter of discontent?
Harman reports “BusinessNZ is warning of a drop in business confidence – raising questions about whether like the Clark Government, the Ardern Government faces a first-year winter of discontent from business.” And he suggests that the new Government might be about to revive the type of business-friendly charm offensive that Helen Clark and Michael Cullen used back in 2000, in order to woo back the support of CEOs.
According to Marcetic, although there are some parallels with 2000, the 2018 situation is not so severe: “If we’re currently reliving the events of 2000, this iteration has been far milder – perhaps more a ‘cold snap of discontent’ than a full-blown winter. Nothing so far matches the ferocity of the business revolt faced by Clark, nor the unceasing march of negative news coverage and even international condemnation from right-wing commentators her government faced. New Zealand businesses have surprisingly acquiesced to certain policies that were condemned 18 years ago, such as a higher minimum wage.”
A business-friendly government?
Marcetic suggests the Labour-led government has been surprisingly accommodating to business, and its leftwing reforms have been relatively mild.
This is also one of the main points made by Matthew Hooton, who wrote on Friday about how little business leaders have to fear from the new Minister of Finance: “Pity Finance Minister Grant Robertson. The former student leader, junior diplomat and political staffer has done almost everything right to avoid repeating the Winter of Discontent that rocked Helen Clark’s first term. He has assiduously networked with industry groups and tries hard to bond with businesspeople despite the enormous gulf between his outlook and theirs. His fiscal rules were designed to avoid allegations of profligacy to the extent of upsetting the Labour left” – see: Business uncertainty to get worse.
Hooton says Robertson has tried hard to pacify business, in part through very orthodox economic management, and suggests teachers and nurses wanting pay rises have greater reason to complain about the Minister of Finance than business. What’s more, he points out that the sharemarket is at a record high, changes to the Reserve Bank have been only “cosmetic”, free-trade agreements continue to be progressed, and even the feared cuts to immigration haven’t materialised.
In fact, the Finance Minister has already been assiduously cultivating business interests, according to Tracy Watkins: “Robertson has been living on the road since the Budget, cultivating and wooing business audiences and carrying on where he and Prime Minister Jacinda Ardern left off with their pre-Budget charm offensive on a sceptical business sector” – see: Less is more: Why Labour is happy to slow the pace of change.
Watkins suggests he’s doing well – “Robertson is an entertaining and engaging speaker” and his speeches are “about reassuring business…that the focus on the fundamentals hasn’t changed.”
She also points out that business should be relatively happy with the main way that the new government is carrying out change – with reviews and committees: “there’s no harm in slowing down the pace of change by putting big decisions out to consultation and expert review. It shows Labour is willing to be flexible and pragmatic. And it lets everyone take a breath. Sometimes in politics, less really is more.”
Should the numerous surveys about business confidence be taken that seriously? The accuracy of business perception as a useful gauge of the state of the economy has been questioned. The economic consulting business BERL has found a distinct lack of correlation between business confidence and the performance of the economy: “between 2000 and 2008, when Labour last led the government, business was pessimistic for 82 months, yet the economy grew on average 3.2% a year and the government recorded nine years of budget surpluses. In contrast from 2009 to 2017, when National led the government, business was optimistic for 87 months but the economy grew on average just 1.98% a year as the country felt the effects of the global financial crisis and the Canterbury earthquakes” – see Brent Edwards’s NBR article, Don’t read too much into business confidence surveys, economist says (paywalled).
BERL’s chief economist, Ganesh Nana is quoted saying that business confidence surveys “really reflect changes in government rather than changes in the economy.”
This is also the point CTU president Richard Wagstaff makes when he says such surveys are about partisan politics: “Business confidence is just a one-sided opinion poll of a handful of very wealthy people” – see: The views of business matter, but they are not a magic guide to the economy. Wagstaff suggests that in a democracy, such views should not carry more weight than those of ordinary voters: “Of course the views of business leaders do matter – exactly as much as the views of everyone else.”
For more on why it’s anti-democratic to pay so much attention to the “political tantrums” of business leaders, see Bryan Gould’s Business confidence – or confidence trick? He suggests that current CEOs simply have “their own axe to grind” over the National government losing power, because these employers are “pretty much in favour of profits and capital gains, and they don’t like trade unions or workers’ rights or higher wages very much.”
Here’s Gould’s main point: “Business sentiment, in other words, is not based on anything concrete but is rather a reflection of the disappointment felt by business leaders at having to deal with a Labour-led government – a matter of political prejudice rather than economic fact. It is almost as if, having lost the election, they want a second crack at it, to see whether they can unsettle the elected government and push it off its stride, through the simple mechanism of proclaiming that they don’t like it and would have preferred to carry on with the easy ride offered by the previous government.”
Can business concerns be ignored?
Even if they are unfounded and inaccurate, the problem for the government is business concerns can’t simply be ignored. And that’s one of the main themes of the reporting on “business confidence” – the idea that regardless of the justice of business perceptions, perception can become reality if businesses stop investing, stop employing more people and essentially “go on strike”.
As BERL’s Ganesh Nana puts it, “The concern is it becomes a self-fulfilling prophecy because businesses talk themselves into a bit of gloom and they see, or they hear, that other businesses are in a similar gloom so they put off decisions and that becomes a self-fulfilling prophecy, which can turn the economy into a spiral.”
Finally, Chris Trotter explains that business confidence surveys are very real indeed, as they are “a sharp reminder about who it is that really runs the country”. Not only are the surveys a “winking warning-light on the capitalists’ dashboard”, they are the forerunner to an “investment strike”, which is the way that business interests ultimately assert their control over government policy – see: The Strike that Labour fears most.
Remember the ‘knowledge economy’. It was a buzz-expression around 20 years ago. The impression was that the leading growth sectors would be in education, information, and communication. So, what has happened?
The chart converts employment numbers (fulltime equivalent jobs, where part-time jobs are counted as half a job) into indexes with a base of 1000 set at the year to March 2009 (the year of the Global Financial Crisis – GFC).
Prior to 2009, the growth sectors were ‘Information Media and Telecommunications’ and the assortment called ‘Professional, Scientific, Technical, Administrative and Support Services’. ‘Education’ and ‘Real Estate’ were slower growing sectors despite obvious boosts to the demand for these services in the 2000s’ decade.
After the GFC, the sector dominated by real estate (‘Rental, Hiring and Real Estate Services’) grew sharply, until the last 12 months when it dropped off markedly. Few surprises, except that the same thing did not also happen from 2003 to 2008.
The big employment stories this decade are the dramatic retrenchment of the 2000s’ darling ‘Information Media and Telecommunications’. And the flatlining of the education sector.
To understand what has been happening – rather than what has not been happening – we need to unpack the ‘Professional …’ hodgepodge. This assortment of services now represents 15% of all employee jobs, up from 10% in 2000.
Basically, this industry sector is ‘non-financial business services’, though there are many services to businesses in the other sectors as well. (The chart only shows 4 of 16 employment sectors.) The keywords are: ‘design’, ‘legal’, ‘accounting’, ‘marketing’, ‘management’ and ‘consulting’ services. These are sometime called ‘transaction services’, which represent ‘transaction costs’; ie the outsourced costs of other businesses doing business. We note that these services are not growing as a direct response to increased desire by consumers for these activities. Increased productivity in these sub-sectors should mean them releasing workers into other parts of the economy.
Another way of characterising these services is as ‘problem-resolving’ services. That means the increased demand for them is generated by an increased incidence of problems faced by businesses in other sectors. It also suggests that these are sub-sectors that grow as a result of their own failure; and that growth here follows from the persuasiveness of these professionals in convincing other businesses to purchase more of their professional services.
If meaningful economic growth represents the removals of obstacles (problems, barriers) that absorb too many of our resources, then this kind of employment should decline as these problems are solved, while employment in high level consumer services (which include media and liberal education) should be expanding in line with those services capacities to satisfy the higher levels of Maslow’s ‘hierarchy of needs’ (see Youtube explanation).
Why is employment in education increasing so slowly compared to employment growth generally? Why do we need 100 percent more transaction service professionals in 2018 compared to 2000, but only 15 percent more teachers? These business service professionals are very much embedded in the marketplace, yet no orthodox economic theory can explain the dramatic increase in our purchases of their services.
Lists of industries within the broad sectoral categories:
Professional, Scientific, Technical, Administrative and Support Services
surveying and mapping services
engineering design and consulting services
computer system design and related services
other specialised design services
scientific research services
scientific testing and analysis services
professional photographic services
market research and statistical services
corporate head office management services
management advice and related consulting services
travel agency services
other administrative services
building and other industrial cleaning services
building pest control services
packaging and labelling services
Information Media and Telecommunications
newspaper, periodical, book and directory publishing