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Economic and security challenges facing Papua New Guinea and the island states of the south-west Pacific

CHAIR —I welcome Mr Tunstall from the ANZ Banking Group. A copy of today’s opening statement has been provided to you. Do you have any questions regarding that document?

Mr Tunstall —No, not all.

CHAIR —The committee has before it submission No. 51 from the ANZ. It is a public document. Do you wish to make any amendments to your submission?

Mr Tunstall —No.

CHAIR —I now invite you to make a brief opening statement and then we will proceed to questions.

Mr Tunstall —Gutpela apinun pundaun antap long olgeta, which in pidgin means ‘good afternoon to you all’. First of all, thanks very much for the opportunity to appear before the Senate Standing Committee on Foreign Affairs, Defence and Trade for this inquiry into the economic and security challenges facing Papua New Guinea and the island states of the south-west Pacific. ANZ’s submission draws on our experience of running banking operations in Papua New Guinea—and the Pacific more broadly—and outlines our assessment of the main barriers to that country’s economic development, and that is what my comments will also focus on. Rather than reiterate points contained in our submission, I will limit my opening remarks to an overview of ANZ’s presence in the region, the impediments we experience in running our business in Papua New Guinea and some remarks about the impact of the global economic downturn on Pacific Island states.

ANZ has been operating in the Pacific for over 130 years. We are the largest bank in the Pacific, holding around 42 per cent market share, and operate full-service retail and commercial banking in 11 countries. Of these, PNG is our largest market. We employ around 2,000 people across the region and operate 70 branches, which serve over 400,000 customers. We are investing heavily for growth in the region and have opened a number of new branches in Papua New Guinea and other countries in the region in recent years. ANZ aims to play a leading role in assisting the development of governance standards and regulations in the Pacific Island states in which we operate. Through this work we have been recognised by local regulators for improving standards of governance within the region more broadly through both private and public sector forums and committees.

ANZ is committed to financial literacy and inclusion, and runs a program called Banking the Unbanked. The program aims to deliver basic, affordable and reliable banking services to remote communities in the region, including Fiji, Samoa, Tonga, American Samoa, Vanuatu and Solomon Islands, and, in partnership with the United Nations Development Program, UNDP, to provide financial literacy education. Some 75,000 previously ‘unbanked’ people in these countries have now opened savings accounts. ANZ has also developed a branchless banking model called WING, which specifically targets financially excluded communities. We are currently rolling out this product in Cambodia. WING provides individuals and businesses with safe, convenient and inexpensive ways to bank and transfer money through mobile phones, and we are currently looking at this particular product and service for Papua New Guinea. The WING model is highly adaptable to other markets and can connect to any mobile or bank network. We are working to extend the reach of WING to other countries and communities.

PNG has made sound progress in the development of its financial sector, including through a series of reforms that have strengthened the independence and regulatory authority of the central bank. Expansion of retail banking services are not inhibited by PNG’s banking policies or regulations but principally by considerations such as law and order, infrastructure constraints and access to reliable utilities and skilled staff. Our operations are principally confined to those areas where we have access to infrastructure and utilities that can reliably support those operations.

The global financial crisis has driven the world’s major economies into recession. Global economic growth is expected to be the slowest since World War II, at just under 0.2 per cent in 2009, down from an estimated three per cent in 2008. The downturn in activity will be spread across all regions. Commodity prices have declined sharply since 2008 in response to very weak demand in both the advanced and developing economies. However, the Pacific Islands, by virtue of being less connected to the global economy, will fare somewhat better, although lower exports, tourism and remittances will weigh on activity in 2009. PNG will also be further cushioned as a result of its gas reserves and the proposal to develop them through the construction of an LNG plant.

The Pacific Island states will not escape the current global downturn. The large drop in price of commodities such as copper has meant that countries that have a reliance on commodities, such as PNG and the Solomon Islands, are feeling the effects of the fall of these prices. But the drop in commodity prices is not all bad for the Pacific: the price of oil has fallen sharply and the price of food such as rice is starting to fall. While the benefits of cheaper prices may take time to trickle through, this is good news for many Pacific countries, which have confronted high inflation in recent years.

Many Pacific countries are recipients of foreign aid, and it is possible that aid flows will be affected as donor countries experience domestic difficulties. In this regard, it will be critical that Australia maintain and, ideally, increase its current level of aid to PNG and other Pacific Island states in support of efforts to strengthen economic performance and government frameworks, boost private sector development, improve health services and engage in enhanced governance structures. In conclusion, as the benefits of fiscal discipline have become clearer to the wider PNG population, with a greater consensus around the need for the government to maintain this discipline, it will be important to ensure that the global financial crisis does not lead the government to deviate from this path. Again, thank you for the opportunity to address the committee.

CHAIR —Thank you. I note that your submission, Mr Tunstall, when you first put it in, was dated 17 October. In the six months since then there has been a fair bit of change in the world economic scenario. In terms of the GFC and its impact on the Pacific—drop in demand for commodities, prices down, trust funds being tapped into, remittances way down, FDI scarce—it is a fairly bleak picture, is it not?

Mr Tunstall —I would not suggest so, if you consider the investment that is coming into the country.

CHAIR —Are you only talking of PNG?

Mr Tunstall —Yes. Are you looking more at the broader picture?

CHAIR —I was. I think you have branches in some 11 or 12 countries, so you have a pretty wide view.

Mr Tunstall —We do.

CHAIR —So at this stage we might talk PNG, heading east.

Mr Tunstall —Okay. I think you are quite right. As I have already indicated, tourism in places such as Fiji is obviously impacted. Copper prices, as an example, in PNG and Solomon Islands have an impact. The smaller island states generally have main commodities such as agriculture, fishing and also a lot of foreign aid. I think aid funds are essential to keep those countries running. So for the smaller countries it is really an aid question as opposed to a financial question.

CHAIR —But not so much an aid question in terms of PNG or Solomons?

Mr Tunstall —I would not say so. PNG is well known for its resources. The LNG plant, in particular, is something that everyone is holding out for.

CHAIR —Where is the LNG plant at?

Mr Tunstall —They are going through a FEED stage. The PNG LNG company is spending US$350 million on the FEED process. Once they have completed FEED by the end of this year, they will make a decision of whether they proceed. The project is a US$12 billion project which will be funded from a collection of both debt and equity.

CHAIR —When you say ‘FEED’, what do you mean by that?

Mr Tunstall —Front-end engineering and design.

CHAIR —Where is the market for that gas likely to be?

Mr Tunstall —The market was in Asia.

CHAIR —Is it still presumed to be Asia?

Mr Tunstall —There is some question about that at the moment in terms of gas supply. There is reportedly a window of opportunity for the LNG project for gas supply out five years hence. There is now some question that there is an oversupply of gas as opposed to an undersupply, and that may interrupt the project. But that is only rumour at this stage as opposed to actual fact.

CHAIR —Is the government up there actively supporting the project?

Mr Tunstall —They are. If the project proceeds it is likely to double GDP growth.

CHAIR —For what period of time—four or five years?

Mr Tunstall —It is out 15 years.

CHAIR —So it is not just the construction.

Mr Tunstall —It is a long-term benefit, not just a short-term one.

CHAIR —Is this the plant they were talking about some years ago with a pipeline coming down the east coast of Australia?

Mr Tunstall —No, it is a different project. That original project was cancelled.

CHAIR —We have had some fairly bleak evidence today, particularly from a couple of witnesses this morning, on the prevalence of crime, lack of law and order, development of crime gangs and triad influence, particularly into PNG. I noted your submission said that you only put branches and operated centres where you had provision of infrastructure—so where there is some development already. From a commercial perspective, how serious are the crime and associated issues in PNG and the other states?

Mr Tunstall —Very serious. As an organisation, in the last 18 months we have had two kidnappings of groups of staff, which is quite serious. We have also had rumours of robberies. We have to employ armed security guards for all cash shipments. The cost of doing business up there is quite horrendous in terms of having those armed security guards and also from a timing perspective. So it is quite difficult.

CHAIR —Policing and government attitude to crime?

Mr Tunstall —I think there are some very good police up there that are trying to do the right thing, but I do not think the government necessarily have the political will or the support.

CHAIR —Why is that?

Mr Tunstall —You would have to ask them.

CHAIR —I presume that you and your executives are in contact, through various chambers of commerce, with the government on various issues from time to time.

Mr Tunstall —We are.

CHAIR —You would raise issues of criminal activity—the cost to business of prevention and of expansion of criminal activity. How do they respond to you in those forums?

Mr Tunstall —They are generally positive around trying to do something about it. I think they just lack the capacity to deal with the situation—the numbers and the strength. As an example, policing has just had an increase in funding by the PNG government to help support it. But it was only minor—of some 3 million kina, I think. The reality is there are a very small group of people on the ground compared to what we would require in Australia, as an example. I think they have 3,000 employed as police. They probably need about 10,000.

CHAIR —Three thousand in a population of what—10 million?

Mr Tunstall —6.2 million. You talked about infrastructure before. One of the major difficulties we have as a commercial business is telecommunications. Telecommunications is quite poor countrywide. We constantly have our branch telecommunication networks down on a regular basis—and I am talking weekly—for anything up to two or three hours a day and sometimes anything up to a week. That could be for a whole range of different reasons, including infrastructure breaking down, towers being pulled down or not working and solar panelling not working.

CHAIR —Because they are being interfered with?

Mr Tunstall —Correct.

CHAIR —Are the comments you make about criminal activity and its impact on business in PNG confined to PNG, or are criminal activity and its impact on business widespread across the Pacific in the countries you operate in?

Mr Tunstall —I think they are, to a varying degree, in different Pacific countries. I was fortunate to work in Vanuatu and Samoa and to spend a little time in Fiji. I think the policing in those countries is much sounder and stronger than it is in a place like Papua New Guinea, as an example. But they also have their issues that they need to deal with, but perhaps on a smaller scale.

CHAIR —So it is much more serious in PNG.

Mr Tunstall —Yes.

CHAIR —Your submission makes reference to microfinancing. Loans can be as little as $100 or a similar amount for a range of things. How do you make a profit on a $100 loan?

Mr Tunstall —The answer to the question is that you do not. What you do is actually encourage people to save and encourage people to, over time, grow their businesses and develop larger scale borrowings. To give you an example, in Fiji when we started the unbank program there was one customer that started saving money and then borrowed FJ$100 for his business. Five years later he borrowed $100,000 to develop his business. So I think there is a road that you can go down with the right people.

CHAIR —In the 11 countries you operate in, is your lending base derived principally from domestic savings or from credit you provide out of places you—

Mr Tunstall —Primarily domestic savings. As an example, in Papua New Guinea we would be lent to about 50 per cent of our balance sheet.

CHAIR —That much?

Mr Tunstall —Only 50 per cent, as opposed to Australia where it is about 106 per cent.

CHAIR —Why is the limit so low there?

Mr Tunstall —Lack of people wanting to borrow, lack of good creditworthiness in terms of customers, more depositors than there are borrowers.

Senator KROGER —Why does ANZ invest there? What is your rationale to your shareholders to invest in the area?

Mr Tunstall —To make money, basically. We are an organisation that generates profit for our stakeholders and our shareholders. Most of our business is—

Senator KROGER —You make a profit in PNG?

Mr Tunstall —Yes, we do. We make a very good return in PNG.

Senator KROGER —Yes, that is interesting. We had a meeting with the High Commissioner in PNG and he discussed at length the issue of infrastructure and its cause and effect in terms of the high level of crime and lack of law and order—the vicious cycle, if you like—and ways in which it is holding back overseas investments in the area of infrastructure and so on. Have you seen, say, in the last decade, any advances in terms of investment in the area which has improved critical infrastructure such as roads and so on?

Mr Tunstall —Certainly. There has been gradual development in Papua New Guinea. I was there in the early nineties. There was a greater level of infrastructure—and I am talking about road transport—and there is more today than there was back in the early nineties. There is a larger number of high-rise buildings. There is a larger number of well developed properties. The telecommunications at that time was much sounder than it is today. However, with Digicel coming into the region and bringing mobile phone capacity into the region, that has helped Telecom develop a push to improve their infrastructure. So they are currently on a course of developing that. I think that in all Pacific countries that I have lived in there is a gradual improvement occurring all the time, but it depends on what standard you assess that at. If it is at the standard of what we rely on in Australia then you can see a gradual improvement towards that standard but we are long way away in all Pacific countries from that standard. But has been a gradual improvement over the last 10 years? Yes, without a doubt. In terms of the investment in infrastructure you can see in the last four years a tremendous amount of investment coming into the country, particularly in the natural resources sector, the mining area. That is starting to dwindle now, and in the last quarter we have seen a run-off of foreign currency in the country as a result of the reduction in commodity prices. But it has really only been in the last quarter that it has reduced.

CHAIR —Does PNG have a fixed or floating currency?

Mr Tunstall —It has a floating currency.

CHAIR —So the heavy investment in natural resources would have raised the value of their kina, wouldn’t it?

Mr Tunstall —Yes. The kina has developed from 37c Australian to 53c Australian. In the last couple of weeks it has come up to about 49c to 50c.

CHAIR —But over time it has gone up seriously, hasn’t it?

Mr Tunstall —It has, only in the last year and a half to two years. Most of the funding comes in in US dollars, as you would appreciate.

CHAIR —They would purchase local currency with the US dollars?

Mr Tunstall —Not always, because you are able to hold your foreign currency offshore, so a lot of the mining clients will receive US dollars, hold some of the US dollars offshore and not bring them into local currency. They only bring them into local currency to fund their operations in PNG and their working capital on infrastructure needs.

CHAIR —But if you are building a gas field, a copper mine or a gold mine—whatever it is—sooner or later the operational costs, the capital costs and the construction costs would have to be funded.

Mr Tunstall —Not necessarily all in kina though. You will only fund what you need to fund. If it is a US dollar investment, it is a US dollar income that is coming in from it, so gas is sold in US dollars and receipted in US dollars. If you are building infrastructure, sure, you have to bring it in and pay the wages to the people who are building the infrastructural plant and it will change to kina. If you have capital goods that you are bringing in, you might have to pay Australian dollars for some of the goods that are coming in or you might have to pay US dollars for some of the goods. So they would not necessarily convert all the US dollars to kina.

CHAIR —Are you able to give us an indicative figure of the conversion of foreign currency to kinas in terms of these major projects? Is it 30 per cent, 50 per cent or 70 per cent?

Mr Tunstall —No, I could not give you that.

CHAIR —It is different for each project? Notwithstanding that, the kina has appreciated seriously in the last 12 months or so.

Mr Tunstall —It has.

CHAIR —Have you noticed any effect yet on the price of agricultural export products because of that?

Mr Tunstall —Not because of the kina revaluation, but we have seen an improvement in domestic inflation as a result of that because still most of the trade goods are coming from Australia so it is obviously cheaper to import them. That is reflective of the domestic inflation in the country. However, having said that, over the last decade there has been a 15 per cent growth in trade from Asia and over the last five years up to 27 per cent of trade is now coming from Asia. So there is a trend.

CHAIR —Finished products or commodities?

Mr Tunstall —Both, but mainly finished products I suggest.

CHAIR —Coming in and commodities going out.

Mr Tunstall —Yes.

Senator KROGER —What proportion of the population would be engaged, for want of a better word, in the formal economy?

Mr Tunstall —A very tiny amount in the formal economy. Most of the employers are in the informal agricultural sector.

Senator KROGER —Subsistence farmers?

Mr Tunstall —Yes. I could not give you the numbers but—

CHAIR —We had some figures this morning. The formal labour sector in PNG is 220,000 and there are 1.5 million unemployed and underemployed men.

Mr Tunstall —That would be reasonably accurate.

CHAIR —So almost a figure of six to one.

Senator KROGER —Thank you.

Mr Tunstall —You talked about the agricultural sector before. As an example there is a palm oil plantation in West New Britain run by New Britain Palm Oil. They have 7,000 employees and they have 7,000 private out growers. That one palm oil plantation provides tremendous opportunity for that part of the country.

CHAIR —That is almost seven per cent of their formal labour force—7,000 and 7,000—and that is one employer in one province.

Mr Tunstall —The figures you are referring to here I suggest would be from government around the public service sector. I think there are about 60,000 in the public service sector.

CHAIR —We would have to check that. What I have says that the formal sector labour force in PNG is 220,000 and that there are 1,485,000 unemployed and underemployed men. But that does not address females.

Senator FORSHAW —Thank you for your submission. I officiated at an opening of a training centre for Indigenous Australians in Macksville up the North Coast yesterday and I was told about some of the programs that your company is involved in with the TAFE or state training services about employing and training Indigenous Australians, Aborigines. This leads me to ask this question. You say you have over 2,000 staff. Can you tell us about the level of locally engaged staff, which I would assume would be fairly high but also the method of recruitment and any training initiatives abroad that you would do. Can you tell me how you go about that.

Mr Tunstall —The method of recruitment is the same in any of those countries as it is in Australia. We advertise positions. We have prospective employees interviewed. We go through a detailed interview process. It depends on the level of the post but, if it is a high level, we will put them through a program of testing as to their capabilities. In certain countries we look for graduates.

Senator FORSHAW —You participate in the graduate recruitment programs in Australia, through the universities—

Mr Tunstall —We do.

Senator FORSHAW —like a lot of banks and other employers do. So you do that in these other countries, but they do not have as many tertiary institutions, I would imagine.

Mr Tunstall —Basically, the answer to your question is: we try and find the very best people we can, the best-educated people we can. A lot of the people we find are educated outside those Pacific countries, in Australia, New Zealand or the US. For example, there are a lot of employees who come back to Samoa who have been educated in Hawaii or US territories. We then develop them in particular roles, but we do not only send them to local training and development courses; we also send them to offshore postings if they are bright, young people.

Senator FORSHAW —Are they local training courses that the bank runs, or are you working with whatever the appropriate educational institution is in the country?

Mr Tunstall —As an example, in Papua New Guinea we work with the training college there, and we encourage all our staff to go through that particular training program, which covers a whole range of technical and capability skills around banking and finance. We also send some of our brighter people offshore for postings in other Pacific countries and also in Australia, for two or three years at a time. They work in various roles, gain experience and training, and we bring them back to the Pacific country to take on that role there. For example, in PNG, the most people we have had offshore at any one time is 12 or 13 people, out of a total of 460 within the bank.

Senator FORSHAW —Out of your 2,000 employees, how many Australian or other non-indigenous people would be working for ANZ?

Mr Tunstall —I will cover PNG first because I know it better: out of 460 staff, we have 19 expatriates. That would give you an indication.

Senator FORSHAW —That is pretty high.

Mr Tunstall —So it is much less than 10 per cent. In other countries, it would probably be 10 per cent or less.

Senator FORSHAW —Expats?

Mr Tunstall —Yes, expatriates.

Senator FORSHAW —There is a second issue following on from that. I am aware that some firms, maybe law firms, from both Australia and other countries—I am more familiar with a couple of examples in the Pacific Islands rather than in PNG—have staff employed in those countries who assist or are seconded for periods of time to government institutions and departments. The law, I know, is one area where this happens. Is that something that your company is involved in? Do some of your expat staff do that?

Mr Tunstall —We have considered that at times, but we have never really had too many staff that have done that.

CHAIR —Thanks.

Senator McEWEN —Mr Tunstall, you mentioned before the increasing trade from Asia—and I am thinking about Papua New Guinea in particular but not necessarily just PNG. Has the increase in trade seen an increase in the number of small businesses setting up in the Pacific; and, if so, are those small businesses being run by indigenous Papua New Guineans or indigenous islanders?

Mr Tunstall —I would say it has. I do not know the exact numbers, so I cannot be precise. But it certainly has increased the number of small businesses. The difficulty is that in most Pacific countries you have formal and informal small business, and the informal sector is generally larger than the formal sector. So it is very hard to get accurate figures on how strong it is. Having said that, in PNG, for example, we have developed financial literacy programs for the small to medium enterprise market as well as for the consumer market. With the small to medium enterprise market we have developed a program to develop those businesses, in conjunction with putting on an extra 15 or 16 staff specifically catering for small to medium enterprise in Papua New Guinea alone. We are also doing that in other countries. So we actually have our own small to medium enterprise segment and a customer value proposition that supports it.

Senator McEWEN —In terms of microloans, do you have statistics about how many microfinance loans you have extant, say, in PNG, or in other islands?

Mr Tunstall —We generally do not get involved in the small microloans. As an example, in Samoa there are approximately 100 small loans written a day. They would be for anything up to perhaps $1,500 Samoan tala, so we are not talking very small micro; we are talking higher. They are generally lent for fa’alavelaves, which are funerals, family events and things of that nature. The peak would be 100 a day. On average, we would probably write 50 or 60 a day in a place like Samoa. In Papua New Guinea we would not write very many small loans at all. Our business is predominantly commercial small to medium enterprise commercial and corporate business. In Vanuatu we would not have that many either; we would only have a very small number. In most of the Pacific Islands we would have small numbers. In Kiribati we have 100 per cent market share, so whoever wants a loan gets one.

Senator McEWEN —In terms of foreign investment in the Pacific, clearly you are in a position in which, I assume, you get approached by foreign companies that are interested in investing, setting up businesses or whatever.

Mr Tunstall —Yes.

Senator McEWEN —What are the main reasons that prevent them from setting up, assuming that they can get finance? What infrastructure problems and things are preventing the establishment of successful foreign investment?

Mr Tunstall —There is a combination of things. It is not any one thing that you can pinpoint, but there are obviously land issues. In particular, say, PNG land owner disputes and problems with titles, ownership—that sort of thing. You have infrastructural problems such as telecommunications. You have road transport issues. You also have bureaucracy and perhaps difficulty getting licences completed efficiently. Visas for employees are an example. Just getting a visa for an expatriate to come in can take anything up to three to six months sometimes.

Senator FORSHAW —Can I define the use of the terms ‘microloan’, ‘microfinance’ and ‘microcredit’? You have not mentioned microcredit, but these are not all the same things as far as your submission is concerned. As I read it, there are programs of microcredit around the world which the UNDP and other aid agencies and others are involved. You are not talking about microcredit, as I read it.

Mr Tunstall —No.

Senator FORSHAW —These are very small loans.

Mr Tunstall —Yes. However, we are involved in microcredit in areas such as Fiji, where we bank the unbanked. We actually send a truck with bank staff out to the villages. We provide savings accounts and microloans when necessary up to, say, 100 Fijian dollars, so that is the case. We also have that in the Solomon Islands but they are not significant in the overall banking position. They are relatively small. We have opened 75,000 accounts in some of those countries for banking the unbanked, primarily in Fiji, in the villages, but you cannot do that in Papua New Guinea because of the security issues. You cannot have a truck driving around with cash in it.

Senator FORSHAW —I know that in a number of Asian countries microcredit is driven quite substantially from—

Mr Tunstall —There are other microfinance institutions in Papua New Guinea that have been set up specifically for that particular part of the market. They are generally shareholders through the World Bank and others.

Senator FORSHAW —You mentioned earlier that somebody got a loan for 100 dollars or thereabouts—

Mr Tunstall —That was in Fiji.

Senator FORSHAW —in Fiji and then later came back. I thought, ‘Hang on, that sounds a bit like a microcredit facility’.

Mr Tunstall —Correct.

Senator FORSHAW —Thanks for clarifying that.

CHAIR —Your submission makes reference to the importance of forestry, fishing, agricultural, mining and petroleum type products in terms of the overall development of PNG. You then go on, however, and refer to policy and institutional weaknesses that have facilitated rent-seeking behaviour by public officials. To what extent is corruption a problem in PNG?

Mr Tunstall —I am often asked this question, so I have a fairly standard answer—that is, there is a lot of rumour, innuendo and supposed evidence of corruption within PNG and other countries, but it is very difficult to find factual evidence to support that, yet we believe it all goes on. Finding factual evidence to support corruption is very difficult.

CHAIR —Are you aware of it?

Mr Tunstall —I have been told of it. Put it this way: we do not enter into those sorts of activities.

CHAIR —No, I was not suggesting you do. That was not the path I wanted to drive down.

Mr Tunstall —If you are trying to get a visa for an expatriate, there may be a situation where a wontok within the bank will ring the other wontok within the bank and they will get it done. From our situation, you do not know how they get that done sometimes, but I have heard from other companies. It may well be a basket of goods or something of that nature; I do not know.

CHAIR —At the moment Treasury has officers working in government departments in PNG, Solomon Islands and Nauru, to assist with budget planning and other financial management issues and, when the next round of PPDs—Pacific Partnerships for Development—are concluded over the next five or six months, there are going to be a lot more Treasury and Finance type officials doing budget planning, budget management and budget accountability and those sorts of issues. Are you in any position to comment on the utility of that contribution?

Mr Tunstall —I think it is excellent, to be quite honest. I think it is essential. In PNG we have seen an improved strategy towards financial planning of the government, and I think it is through the efforts of the Australian government in the support staff that work there. They are helping guide those countries in the right direction. I would suggest it would be essential to have those people continue in those roles and help push in the right direction. As an example, five years ago in PNG the debt profile of the country was quite difficult compared with GDP. I think it was up around over 65 per cent of GDP. I think it has been reduced to under 40 now. I think it is around 37 or something like that; I do not know the precise numbers. That has been largely driven by the Treasury people within that country providing longer-term and medium-term strategies for the country and the governments of the country adopting those strategies. That is my sense of it without knowing the true facts.

CHAIR —Are you observing the penetration of those skill levels from Australian Treasury officials starting to descend to the government bureaucracy and government entities up there?

Mr Tunstall —Yes, we are. I give credit to the people who have been in PNG. When they attend meetings—we have regular meetings with the Treasury group—they encourage the national staff to take the role of leading those discussions. I think it has been excellent.

CHAIR —I will ask this question and you can choose whether or not to answer it. With regard to land ownership, land title and communal land title, it has been suggested by two or three groups of witnesses that there needs to be a radical rethink and we need to go to a more formal position where land can be measured, priced, valued, and bought and sold like any other product, or any other input. What is your view on that argument and on the significance of communal title in a lot of those areas?

Mr Tunstall —There are two schools of thought. My view is that there should be. It would be preferable to have a land title system that worked where you could buy and sell land. I believe that would be appropriate. But it is whether or not the people themselves want that. That, I guess, is the alternative. The Pacific Islanders themselves might not necessarily want a land title system. They may want to have their traditional land ownership through custom maintained. They are the people to ask whether they want it or not. From a commercial and business perspective, it would be much preferable to have that. In Papua New Guinea less than three per cent of all land is saleable. It is either leasehold or freehold. The rest of it is custom. Government takes large plots of land under leasehold for large mining sites, investment and things of that nature. So I think there are two sides to it.

CHAIR —How can you get significant long-term development, growth over time and more inclusion in the formal sector, as opposed to the informal sector, if you have not got a land tenure system that allows for buying and selling?

Mr Tunstall —It is very difficult.

CHAIR —Is it impossible?

Mr Tunstall —I would not say it is impossible, because if you have the cash to do development on custom land then you have the cash. But if you want to borrow money and undertake investment by borrowing money then a financial institution is unlikely to lend that money on custom land.

Senator McEWEN —So how did the palm oil plantation in West New Britain that you talked about work?

Mr Tunstall —The palm oil plantation is all on leasehold land. The government has converted that land to leasesold, which allows the operator to plant palm oil. The 7,000 outgrowers are all on custom land and they own the land themselves. So the villagers actually produce their own palm oil plantation. They sell the palm nuts to the plantation and receive an income from that.

Senator McEWEN —So the government leases the custom land.

Mr Tunstall —No. The custom land is all owned by the villager, so the villagers in the area own the land under custom rights. They develop their own plantations with the assistance of the company in terms of getting the appropriate trees. They own the trees and they sell the nuts to the palm oil operator. However, there is a large plot of land that the palm oil operator owns under a leasehold title, so there are two types.

CHAIR —So presumably the palm oil operator some time ago made an approach to the national government for a big investment project and the land was made available.

Mr Tunstall —It goes back to the early seventies. You mentioned forestry and the rent issue. What you would need to do is take a trip to Papua New Guinea and go and visit some of the plantations and the forestry areas to see the good that some of that does for the country.

CHAIR —In terms of development?

Mr Tunstall —Yes. Some of these organisations develop roads and start to build infrastructure for people in outlying areas who had never had them before. They also build churches, schools, health facilities and all those sorts of things. That actually provides a community with social wellbeing that they never had previously. You really need to go and visit the country and have a look at some of their sites to see for yourself what good it does, as opposed to just hearing the negatives all the time.

CHAIR —Thank you.

Senator McEWEN —Does it matter which country is putting the investment in? For example, it is controversial that the Chinese have opened a copper mine in the Ramu Valley up around Madang. It has meant that the roads and infrastructure around there have improved, but there is controversy about them not employing locals there, environmental degradation and stuff like that.

Mr Tunstall —Yes. Being biased, I would prefer it was Australian! To answer your question, I do not think it matters in terms of the investment coming into the country and the earnings for government, but I do think it makes a difference if they are socially minded—their thought processes and behaviour around developing the mine sites themselves, if they have strict regimes in the countries they come from.

Senator McEWEN —Sure. Thank you.

CHAIR —Mr Tunstall, are you on a deadline?

Mr Tunstall —We are okay for a while.

CHAIR —All right. Let us know when you have to go.

Senator TROOD —Mr Tunstall, I was not clear when you were answering Senator Forshaw—and I am not sure this was a question he put to you—but I am interested to know how difficult you find it to recruit people at the lower levels of your banking operations throughout the Pacific. Do you have difficulty finding tellers and clerks and people at that level or not?

Mr Tunstall —We do not have difficulty finding recruits; we have difficulty finding good recruits.

Senator TROOD —I mean people who are qualified to undertake the work that you demand of them.

Mr Tunstall —Yes, it is difficult, but there is a training regime that we need to actually implement. For example, if you are recruiting just a bare, basic teller or salesperson, they come in and they need an induction program over a week; they then need training and development over, sometimes, up to six or eight weeks on understanding systems and technology processes, sales—the whole gambit; and then we also have on-the-job support for those people while they are in those roles, for a period of time. Then we let them go their own way. But it is difficult.

Senator TROOD —I am interested in whether or not you are confident that there is a labour force of sufficient literacy and numeracy to draw upon to meet your needs.

Mr Tunstall —No is the answer to the question. There is not. There is 49 per cent literacy in PNG. We have a very basic test that we run people through for those lower-level tasks. Some of the people that we employ are graduates of the local university. We employ probably three out of 100 applicants that pass that test.

Senator TROOD —That is in PNG?

Mr Tunstall —In PNG.

Senator TROOD —And is that typical across the Pacific, in your opinion?

Mr Tunstall —No, I think it is quite different in different countries. In Samoa, for instance, there is a better literacy rate; the Polynesians are better educated. In Vanuatu, they appear to be better educated. So it is different depending on which country you go to. Solomon Islands has 39 per cent literacy, so it is very poor and very difficult to find qualified people.

Senator TROOD —So am I right in saying it is generally difficult?

Mr Tunstall —Yes, it is.

Senator TROOD —What percentage of banking operations across the region would the ANZ command? How much of the market share do you have? Does ANZ have a lot of competition in lots of these places?

Mr Tunstall —We have about a 42 per cent market share across the region and, yes, we do have a lot of competition. Westpac is in several of the countries that we are in—another Australian owned bank, as you know. The other competition in Papua New Guinea is Bank South Pacific, which is a locally owned bank, primarily owned by government but through superannuation funds et cetera; they have about a 53 per cent market share in the country. The other countries are not terribly well ‘banked’ in terms of bank numbers.

Senator TROOD —So is it fair to say that you and Westpac are the largest banking enterprises throughout the Pacific Islands? Is that right?

Mr Tunstall —Generally.

Senator TROOD —And you have both been there for, obviously, a long period of time.

Mr Tunstall —Yes.

Senator TROOD —I am interested to know, as perhaps an indicator of economic development, whether or not there has been an increasing level of sophistication in the kinds of banking opportunities or the retail banking services that you have offered over a period of time. Has it become an increasingly sophisticated commercial market or has it not changed a great deal?

Mr Tunstall —It has not changed a great deal. You talked about people’s financial literacy before. As an example, in 1991 there were 46 expatriates in Papua New Guinea. Today there are 19. That gives you an indication that education is improving and that we have been employing more Papua New Guineans over a period of time. In terms of products and services, they have remained relatively stable and static—that is, basic, core products within the market, not sophisticated derivatives or anything of that nature. However, on the investment side of things—Natural Resources group—we often employ the services of Australian expatriates who work for the organisation to come in and do specialist funding around mining and that sort of thing.

Senator TROOD —In a sense you are the public face of Australia in this region. I assume it is generally well known that ANZ is an Australian banking operation. Have you noticed any correlation between the strength of your business and occasions when there are difficulties with the Australian government? That happens periodically. For example, a couple of years ago we had awkward relations with PNG. Is there any kind of correlation between the political state of bilateral relations and the state of your business?

Mr Tunstall —I would rather not comment, but I will say that since the Rudd government has been in power there has been a definite benefit to the relationship in Papua New Guinea, as an example. You can see that quite openly. There is a warm relationship, whereas previously there was not. I think that actually does have an impact on ANZ, Westpac and other Australian companies working in those countries. If you have good, strong bilateral relationships between the two governments then it allows the Australian companies to operate in a much stronger way.

Senator TROOD —I actually was not seeking to make a political point about this. I was trying to get a sense of the correlation between business activity and Australia’s place in the region, not just over the last couple of years but over a period of time. If you took a time line over 15 or 20 years, is it generally the case that you can separate politics from doing business in the region?

Mr Tunstall —I think you always separate business from politics.

Senator TROOD —I am sure that is what you would want to do.

Mr Tunstall —I think you do, but I think there is a minor correlation. If you have strong bilateral relationships between the countries then it is easier for Australian based companies to operate in those countries than if you have a strained relationship.

Senator TROOD —Finally, throughout the region are there any significant structural impediments to the expansion of your business operations, should you choose to do that, or the business operations of your customers? When someone comes to you in the Cook Islands, Samoa or wherever you might be and makes a business proposition to you, leaving aside questions of whether they can finance and pay for it, are there any notable impediments imposed by local governments that are a significant constraint on business development?

Mr Tunstall —No, only the ones that we have discussed previously. That is really around gaining approvals, telecommunications infrastructure and support for the business that they may be bringing in.

Senator TROOD —I am thinking of things like non-tariff barriers, which are sometimes imposed by governments and create a challenge to be overcome by business.

Mr Tunstall —I think investors are well aware of what is required when they come into the country. They actually understand what limitations they may have in investing. They have already made the decision before they are in there as to whether they are going to be prepared to invest or not.

Senator TROOD —Along those lines, is Austrade an important partner in the region from your perspective?

Mr Tunstall —It certainly is. Austrade is very helpful in connecting Australian business to the right people within the right parts of the country and to the right businesses. It even extends to the Middle East, as an example. I have worked in the UAE, and it was also very positive over there. It is not limited to the Pacific; it is everywhere.

Senator TROOD —Thank you.

CHAIR —Thank you for coming along today. Your perspective has been most valuable and is much appreciated.

[2.30 pm]