Bougainville Referendum: What About Financial Independence?

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Bougainville Referendum: What About Financial Independence?

Earlier this month (October 8), the Lowly Institute published an article titled “Bougainville Referendum and Beyond” where it states that majority (3/4) of the 300, 000 people prefer independence, come 23 November 2019 (Bohabe, 2019) – see link to the article below. The Prime Minister’s James Marape prefers Bougainville remains an autonomous region of PNG, but will respect the will of the Bougainville people. Whether voting for independence or autonomy is the easy part. What lies ahead is more challenging. The main challenge is for Bougainville to raise enough internal revenue to sustain an independent Bougainville.

So how much is need to run an independent Bougainville?

According to University of NSW Professor Standish Chand (Chand, 2018), it is estimated that Bougainville will need three times the budget Bougainville has now as an autonomous region to run an independent Bougainville. This calculation is based on population-weight average of neighbouring Melanesian countries of Fiji, Vanuatu, Solomon Islands and Papua New Guinea. 

The total budget for Bougainville in 2016, the year for which data is available, is K286 million (USD 84.6 million). Three times this amount is K858 million. In the same year, revenues collected internally from all sources, including company tax, custom duties and 70% of value added tax, was K23. 2 million. Majority of the budget was funded from outside Bougainville, including a recurrent grant of K41.3 million from the national government (PNG). Read Standish Chand’s article for more on the economic challenge/opportunities – link provided below.

The good news is, fiscal autonomy is not a pre-requisite for independence, that is, Bougainville does not need to demonstrate that it can raise K858 million annually in a sustainable manner to be able to vote for, and become independent as per the Bougainville Peace Agreement. However, as we have experienced in PNG after 1975, if your are not economically independent, political independence does not mean much.

Where would Bougainville raise the revenues needed?

There is no question the abundant resources Bougainville is endowed with. Panguna mine was almost solely responsible for the internal component of PNG’s budget after independence, and it is expected by many to play the same role for Bougainville. However, reopening Panguna won’t be that easy for several reasons. Beyond some of the unresolved issues that contributed to the crisis, it would take US$4-6 billion in construction costs, and if started now, would be ready by 2025 (see Bohane’s 2019, link provided below). It is a mine of staggering US$58 billion worth, from a potential 5.3 million metrics tonnes of copper, and 19.3 million ounces of gold.

Other sources of revenue:

There are more sustainable sources, such as cocoa and fisheries, which, if they consider manufacturing, may provide much needed jobs and benefit more from value added taxes. The National Fisheries Authority reported in 2018 that the fisheries sector in PNG employs about 40, 000 people. Setting up canned tuna manufacturing sector in Bougainville would help with employment. Minning an other extractive sectors, for all its worth, are ‘enclave.’ They MOSTLY employ highly qualified skilled workers, because of the nature of the activities, and with almost a generation of Bougainvilleans’ education disrupted by the civil war, they will become spectators in their own land. Mines will only pay taxes, and nothing beyond. Manufacturing sector, as in cannery, requires massive low skilled labour. Bougainville will benefit more via employment, and and wealth will be more distributed in a manufacturing sector more than mining.

Also in 2018, NFA paid a dividend of K60 million to the government. Estimates shows that Bougainville’s Exclusive Economic Zone (EEZ) is about 30% of the total PNG EEZ. For lack of better formula, let’s assume that 30% of the tuna cught within PNG waters is caught within Bougainville’s EEZ. Calculate 30% of the K60 million (or so) NFA collects in taxes, licenses, rents etc. and give to Bougainville. That would be K18 million. 

Concluding opinion….

I hope Bougainville votes for greater autonomy, and there are numerous cases in the Pacific, which shows it works very well. Take New Zealand and the Pacific Islands for instance: Tokelau is a dependent territory of NZ, and the Cook Islands and Niue are two associated states. In a similar arrangement, Bougainville can use its vast resources to develop itself, and exercise extensive autonomy than it currently has. 

In the future, PNG should consider a federation, as in Australia and elsewhere, where each state is autonomous, but part of a greater whole. States make their own laws, raise their own revenues, have pride in their states (remember QLD Maroons vs NSW Blues?)… We could easily have such arrangement with Southern, Momase, NGI and Highlands regions. One thing is for sure, PNG is a land of 1000 tribes, and a preferable governing option is greater autonomy in a federal arrangement. 

Finally, whatever Bougainville decides, let’s help them. They are our own. God Bless PNG.

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Articles that I referred to in this piece can be accessed here:

For article by (Bohabe, 2019):

https://www.lowyinstitute.org/sites/default/files/Bohane_The%20Bougainville%20referendum%20and%20beyond.pdf).

For article by (Chand, 2018):

Click to access Financing_for_fiscal_autonomy-_Fiscal_Self-reliance_in_Bougainville_.pdf

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