Interview: Kostas Constantinou
What regulations and incentives are needed to incubate private sector economic growth?
KOSTAS CONSTANTINOU: Most private sector businesses look for stability and consistency in policies related to tax, investment and labour. Sometimes what is more important is not what should change but what should be preserved. For example, if there are tax laws in place when businesses make investment decisions that extend over five to 10 years, then to the extent possible the broad underlying principles of the tax regime should be undisturbed. Equally, if there are foreign ownership or land title laws, then existing legislation should be preserved, with refinements, to allow more access to land, rather than suggesting changes that could be seen as putting at risk legitimate and longstanding land ownership under existing laws.
To what extent is growth of the economy tied to the level of external investment?
CONSTANTINOU: All emerging market economies are dependent on external investment to stimulate and grow the economy. Capital markets in such emerging economies are underdeveloped and lack the capacity to fund and undertake the large-scale investments required to transform an economy. In resource-rich countries such as Papua New Guinea (PNG), these investments will be typically related to the extractive industries, as they provide the returns that investors require to support projects outside of their home markets. As well as introducing foreign exchange during the development and construction phases of the projects, there are large flow-on effects across a number of sectors, including construction, retail and wholesale, property, transport and communications, which come in addition to increases in employment. Benefits of projects during the development and construction phase are generally sectorally broader than during the production phase, which has a narrower footprint via government fiscal revenues. This highlights the importance of promoting PNG as a country that is open and that welcomes foreign investment.
How can the economy work towards being less influenced by external shocks?
CONSTANTINOU: As globalisation rapidly increases and global markets become more intertwined and interdependent, no country can isolate itself from global events and the attendant shocks to the economy. While you cannot insulate yourself from these shocks, sovereign wealth funds should be used for both future budget support in times of lower commodity prices, and also as sinking funds for infrastructure maintenance and development. Unfortunately, the oil price shock that presented itself soon after the completion of the PNG LNG project resulted in anticipated revenues for the sovereign wealth fund being substantially short of initial expectations. When prices do recover it will be important to direct any future super revenues to the fund to help build up budget resilience for the years to come.
What role can the private sector play in building the core infrastructure needed in PNG?
CONSTANTINOU: The private sector is important in infrastructure development. Mobile telecommunications investments in PNG have illustrated how access to mobile telecoms is a key enabler of economic activity across many sectors. To participate in public-private partnerships (PPPs) the private sector is generally looking for strong governance structures, independent of government and with the capacity for partners to fully fund existing and future capital demands. If the government has constraints in regards to capital funding, equity participation should be scaled accordingly, recognising that a profitable PPP will contribute tax and other revenues that may well have otherwise not been received, as well as improving the quality and cost effectiveness of critical national infrastructure.
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