Servant Leadership: The Greatest Need Of The Hour!

Students from the University of Technology will be travelling to different parts of the country to educate the people to make good choices during the 2012 General Elections. What follows is an abbreviated version of a speech I gave at a corporate dinner they organized at the Holiday Inn hotel recently.

Millions of people in this country have been crying out in pain, hopelessness and despair. They have heard a lot about all the natural resources which the Government has been bringing overseas investors to develop. They have heard a lot about the economic growth the country has been experiencing. They have heard that there is a lot of money in the country. They have heard of the many supplementary budgets the Government has had to bring down because of excess revenue. They have also heard that the banks are flush with cash.

But hearing is all they have done. They have not seen any difference in their lives. So they have been praying and crying out to God in heaven, since their cries to fellow human beings in responsible positions have fallen on deaf ears.

If we look at Biblical history, one lesson we learn is that God always responded to His people every time they cried out to Him when they were oppressed by their enemies. And God’s answer was a simple one: He just gave the people a leader and worked through that person. When the people of Israel cried to God under slavery in Egypt, God gave them Moses. When they cried out to Him during the period of the judges, He gave them leaders like Othniel, Ehud, Deborah, Gideon, Jephtah and Samson. Later He gave the people the prophet Samuel, and Saul, David, Solomon and other kings.

The Bible says that God is the same yesterday, today and forever. What does that mean in the context of the prayers and cries that have been sent heavenward over the years by the common people of PNG? The answer is this: He will do what He did for the people of Israel. He will give the people leaders who will bring them out of slavery and poverty, and into prosperity and abundance.

But there is a major difference between the time of the Israelites and our time. Back then, God simply chose, anointed and presented leaders to the people. He didn’t ask anybody’s permission, not even the people He had chosen! (Remember Moses, and the excuses he gave to God, as to how unprepared and unqualified he was!). God didn’t call for a meeting with the elders or even conduct an election. He just chose one person.

In those days the nation of Israel operated under a theocratic system of government, which means that God was their ruler and He chose the human leaders.

The system we operate under is different and opposite. It is a democratic system, which means that men choose leaders among themselves through the voting process. God has therefore got to work within that system through the people to bring out the men and women He has appointed to lead at such a time as this. This means that the people play a big part in realising the answers to their prayers for leadership.

Our people need to be educated as to what constitutes good leadership, because today the majority of them equate good leadership to people who hand out the most cash and goodies such as rice and tinned fish, beer, lamb flaps, etc. Others define good leaders as people who shout the loudest (people who are very vocal but don’t necessarily talk sense) or those who help them make false claims against the Government, or even people who lead them in fighting with their enemies.

But these are not proper definitions of what constitutes good leadership. I would like to use this column to share with you my thoughts on what our people should be advised to look for in people aspiring to lead them.

The first thing they need to do is to pray and wait for God to show them the men and women He has appointed. I say pray and wait, because I have observed that many church leaders and their people do pray, but then they go around with lists of their members to various candidates seeking support for all kinds of needs and projects. In the process they end up voting the wrong people into power, and they suffer the consequences.

Apart from praying, here are three things to look for in candidates:

1. Character
Character refers to the kind of person a candidate is. Some relevant questions to ask are:
• Is the person someone that is honest?
• Is he or she someone people can trust?
• Does he or she fear God?
• What is their marriage life like? Broken marriages, polygamous relationships or promiscuous lifestyles are a warning signs. (If people are unfaithful to their spouses, how can they be faithful to other people?)
• How are the lives of the candidate’s children? (Leadership starts at home. If candidates’ homes are in shambles, how can they lead other people?)
• Is the person generous and compassionate during normal times?
• Does the person get drunk or gamble? (People who engage in such activities will do so on a magnified level when they get into power).
• Is the candidate humble and teachable, or is he or she proud, arrogant and a know-it-all?

These are just some of the character indicators voters need to look for in people aspiring to be their leaders.

2. Qualification and experience
This refers to what the candidate knows. This is an important quality because we live in a knowledge-based and knowledge-driven world. It is especially important that leaders are highly educated and are conversant with issues affecting the world and the country. We need leaders who can think critically and independently; leaders who can think for themselves and not rely on so-called consultants and mainly foreign advisors to do the thinking for them. We need people who can analyse information and debate issues intelligently before making decisions.

Importantly, our people need educated people who have a heart for them. I am making this point because many times educated people live in the towns and cities and go home only during the elections. They don’t really feel the pulse of the people because they don’t live among them. When they win, they forget the people.

Another important point I must point out is that educated people who aspire to lead the people must have proven track records of using their knowledge and contacts to bring services to the people. Many such people may be high-flyers at the national level, but they may not have the ability to bring services to the small people. They may point people to their knowledge and contacts and make promises, but if they haven’t done anything for the people using their knowledge and contacts as ordinary citizens, what guarantee is there that they will do so when they become Members of Parliament?

3. Vision
Election time is a time when all kinds of promises are usually made to voters. Vision is what the candidate says he will do if voted into office.

If you care to listen to what candidates say, the first thing they will tell people is what others have done or not done. Candidates usually criticize their opponents more than focusing on what they intend to do. This is one sign that those people do not know what they want to do. They take their cue from the failures of their fellow candidates. They don’t have their own dreams and plans.

Our people need to be told to look for candidates who have a vision and a comprehensive plan as to how they will make the dream become a reality. And the people must see themselves in the visions and plans as well. The voters must see where they fit in.

Finally, when judging candidates, visions and plans must be related to educational qualification and experience. And the visions and plans and qualifications must be undergirded or supported by the character of the person.

PNG’s greatest need of the hour is leadership. Money is not a problem; leadership is the problem. Let me make it clear that I am not saying we need politicians. I am saying we need leaders, because not all politicians are leaders. We have many politicians, but not many leaders who are willing to become servants of the people. That is the problem. And that is why the 2012 National Elections are vital. The Election provides a once-in-five-years opportunity to have a say in who leads us. It is really a choice between progress and prosperity versus poverty and suffering.

The people of PNG are at a cross road. The country may have progressed, but the people have been stagnant as far as their quality of life is concerned. All in all, we can say that the country and the people have been going around in circles, in a similar manner to the wandering of the children of Israel in the wilderness. We have been wandering in the wilderness for 36 years now.

Our prayer and expectation is that the 2012 Elections will give us the Joshuas that will lead us into our Promised Land come 2016 and beyond, after the country reaches its 40th birthday on 16 September 2015. The fact that the export of LNG will start at the end of 2014 is no coincidence! The timetable is divinely set. God has a plan for this nation. He has a plan for each one of us, particularly the young people of this generation.

His plan is for prosperity and not disaster. His plan is for PNG to rise up and be counted among the great nations of the world, as we have been proclaiming every time we have sung our National Anthem in the last 36 years. That is the reason He has blessed the country with so many resources.

The prayers offered to God during the 1997 ‘Operation Brukim Skru’ prayer movement and others since then will be answered in 2012. God hears all prayers but answers in His own timing. I believe 2012 is when He will unleash the answers that have been piling up over the years.

But we the voters must be ready to become answers to our own prayers. We must pray and wait on God to reveal to us the men and women He has appointed as the Joshuas for PNG who will lead us to ‘the land flowing with milk and honey’.

If you are looking for someone who is part of a crowd, you cannot locate him or her easily by walking among the crowd. But you can easily spot him or her by isolating yourself from the crowd. In the same way, we will not spot God’s men and women by joining in the singing, the dancing, the long convoys, the giving of handouts and the euphoria that has come to be part of the election tradition in PNG. Our people need to stand apart and prayerfully judge aspiring leaders on the basis of their character, qualifications and visions before casting their votes.

Only then can we get God’s appointed people into Parliament in 2012. Only then will they make good decisions. And only then will our peoples’ years of wandering come to an end, and they will enter into their rightful inheritance.

Send your comments to secos@global.net.pg or text me on 7688 0033 or 7280 4588.

Empowering Ordinary Papua New Guineans To Create Wealth Through Business And Financial Management Training
I was privileged to be invited to participate in the joint Certified Practising Accountants PNG and Australia Conference this week. The theme of the conference was “Wealth Creation, Management and Sustainability – The Accountant’s Role." What follows is an abbreviated version of my speech.

The topic I have chosen to speak on – Empowering Ordinary Papua New Guineans To Create Wealth Through Business And Financial Management Training - is very important because I am convinced that Papua New Guinea is at the social cross-road! The development journey we took as an independent country 36 years ago has not led anywhere for the majority of our people. Most of the ideals our founding fathers aspired to and wrote into the preamble of our Constitution have yet to become a reality. We basically started off well but lost track along the way.

Our development experience thus far can be summarized as follows: The country has been advancing economically, but the lives of the majority of the people have not improved. By majority, I am referring to 85% of the 7 million people that are not educated like all of us in this room are. We are indeed a privileged lot, and I have come here to remind us to spare a thought for our fellow Papua New Guineans who are struggling to make a living on a daily basis.

I will be making reference to various social indicators to lend support to my assertion that the lives of the majority of our people have stagnated in the face of economic growth. Let me refer you firstly to the United Nation’s Human Development Index (HDI), which is usually used to determine the level of progress made by the people in different countries of the world.

The UN uses four indicators to determine the level of human development in its HDI. They are:

1) Life expectancy at birth;
2) Mean years of schooling;
3) Expected years of schooling; and
4) Gross national income per capita.

These indicators are further divided into three dimensions of human development:

1. Health;
2. Education; and
3. Living standards.

This year PNG has been ranked as a country where human development is low on the UN HDI. The UN gives scores between 0 to 1 to determine where countries rank on its HDI. For 2011, this is what the UN has stated about PNG: “Papua New Guinea's HDI is 0.466, which gives the country a rank of 153 out of 187 countries with comparable data. The HDI of East Asia and the Pacific as a region increased from 0.428 in 1980 to 0.671 today, placing Papua New Guinea below the regional average.”

If we consider this ranking from the least developed to the most developed country, Papua New Guinea comes out number 35, which is near the bottom of the pile.

The Vision 2050 document states that Papua New Guinea aspires to be among the top 50 countries on the UN HDI in 2050. If we are currently ranked as 35th least developed after 36 years of nationhood, can we be counted among first 50 countries in 2050? We shall know in 40 years’ time.

In comparison, Samoa and Fiji, which are much smaller and less endowed countries, are categorized as medium development countries on the HDI. These countries are ranked 99 and 100 respectively.

Referring to Fiji, the UN report states as follows: “Fiji's HDI is 0.688, which gives the country a rank of 100 out of 187 countries with comparable data. The HDI of East Asia and the Pacific as a region increased from 0.428 in 1980 to 0.671 today, placing Fiji above the regional average.”

The Fijian people have done better than Papua New Guineans over the past 21 years, despite the political problems they have been through, and despite not being endowed like we are.

Let me present to you some more social indicators. All of us are no doubt familiar with them, but I would like to remind us in order to build up my case for the topic I have chosen to speak on at this conference.

• The proportion of people living under the international poverty line of US$1/day (US$365 = K870/year) has increased from 25% in 1996 to 40% today. This means that around 2.8 million people in PNG don’t see K900 in a year. PNG is a resource-rich country filled with cash-poor people.

• The number of school drop-outs is very high – over 80%.

• 90% of school-leavers cannot find jobs upon graduation.

• The army of educated but unemployed young people is filling the streets at a rate of approximately 40,000 per year.

• Only 500,000 people out of a workforce of 4.8 million in the country hold paid jobs. The unemployment / under-employment rate is 87%.

• Frustration and disillusionment among the youth is mounting…the “time-bomb” is ticking!

• While the elites find security behind barbed-wire fences (prisons), the under-privileged are taking control of the streets and the highways.

• After 36 years of independence, only 10% of businesses are nationally-owned while 90% is foreign-owned. The wealth of the nation is in the hands of foreign entities! The majority of Papua New Guineans are passive spectators on the “economic playing field”.

• Prostitution is on the rise. An increasing number of women are selling their bodies for a living.

• Prostitution and promiscuity stand as major impediments to the fight against the spread of HIV/AIDS.

• The rise in the number of so-called “single mothers” indicates that the family – the basic unit of society – is falling apart.

• The rise in the number of “street kids” shows that many parents are not able to look after their children. They are either poor or negligent.

• The increasing rate of drunkenness and drug addiction indicates peoples’ desire to escape the realities of life in 21st century Papua New Guinea.

I am involved with a growing number of former marijuana smokers in the Western Highlands Province. When I ask them why they decided to take the drug, the common reply I get is, “Laif em hard.” In other words, taking drugs helps them to forget their hardships. They find comfort in living in an imaginary world because the real world has nothing good to offer them. I guess the same goes for young people (both males and females) who are drinking ‘steam’ and other alcoholic beverages on a habitual basis.

Ladies and gentlemen, the acid test of development is peoples’ living standards. Development is not about constructing nice buildings like hotels, office complexes, cities, roads, etc. These are only means to an end. Development is really about raising peoples’ living standards. That is the bottom line. Sadly, the majority of Papua New Guineans are getting left behind.

Economic growth hasn’t trickled down to the micro or people level. The past 9 years of consistent growth have not been translated to raising the peoples’ quality of life. Growth has actually improved the lot of a very small minority while the vast majority has heard about it but not seen it impact their lives.

The picture on the human front is depressing.

Is all hope lost? Can something be done? Whose responsibility is it? Can I do something?

These are probably the kinds of questions going through your minds right now as concerned Papua New Guineans or friends of the people of Papua New Guinea as the case may be.

Let me suggest to you what you as an accountant can do to address some of the social problems the Papua New Guinean people are facing right now. This, I guess, is the gist of my message at this conference.

Let me start by making this statement: Financial problems lie at the root of social problems and law & order problems in PNG. I have been either directly involved in or interacted with several NGOs, churches and charity organizations who work with disadvantaged and under-privileged people in different parts of the country. What they have told me invariably is that most of the social problems they have encountered in their work are related to people’s need for money. People steal, kill, rape, hold up others, get involved in prostitution, etc because of lack of economic opportunities.

But I have established that what our people really need is not money (handouts), but empowerment through information and ideas with which they can sustain their lives. Yesterday somebody raised the issue of information-sharing in the workplace. I am saying that we also need to share our knowledge and ideas with the common people as well.

We all know the Chinese saying which goes: “Give a man fish and you feed him for a day; teach him how to catch fish and you feed him for life.”

My version of that philosophy for the purpose of this conference is this: If we the educated elites give ordinary people money, we feed them for a while; but if we give them information and ideas, we will empower them to feed themselves for life.

This includes both other people and our ‘wantoks’ – yes especially our ‘wantoks’! A lot of our people have land, their physical strength, skills, time etc with which they can make money. When we give money to them, we help them become lazy and dependent. They go away for a while but return again when they have financial problems. So we don’t really help them; we actually destroy them.

Coming back to the topic of empowering ordinary Papua New Guineans to create wealth, my proposal to all of us that are gathered here is this: The accounting fraternity needs to design and deliver simple training programs aimed at enabling ordinary people to make money as well as to manage and multiply it.

School drop-outs and other under-privileged people (youths) need training to start their own small businesses. And they need training to manage as well as grow their businesses.

As some of you may know, I have been publishing articles in the news papers. In the Sunday Chronicle I encourage readers to start their own businesses, while in the Post-Courier I discuss financial management and investing. I also go around conducting motivational seminars with students, unemployed youth, working class people etc. A lot of the work I have been doing has been free of charge too. Why have I been doing this when I could be busy minding my own family’s interests as most of you in this room have been doing?

Here is what I believe: As long as people don’t have enough money to look after themselves, they will cause problems for everyone else. They will stop scratching for a living, and start scratching and pinching us! I trust you know what I mean.

I would actually go as far as making this statement, which I hope you take home with you for this conference: As long as there is a wide gap between the “haves” and the “have-nots” in PNG, the “have-nots” will ensure that the “haves” do not enjoy what they have.

We may have our businesses, money, nice houses and cars, jobs etc, but we will not enjoy what we possess as long as the majority of the people are mere spectators. We will always live under a sense of fear and insecurity.

You only have to look at what has been happening in Lae recently to appreciate what I am saying. The situation there started with Morobeans aiming at driving off unemployed youth from the Highlands who were harassing other people on the bus stops and streets of Lae City, but ended up with business people from that region becoming the target of peoples’ anger and frustration.

My prediction is that it is not going to be long before riots and civil disturbances go from ethnic clashes to clashes based on social status, basically the “have-nots” fighting the “haves”. In other words, it is going to be the “have-nots” fighting the “haves” to have what the “haves” have.

The greater the gap between elites and ordinary people, life will become risky for the elites, such that many will migrate out in search of peace and prosperity.

It is in therefore in the personal interest of educated elites to empower the ordinary people to live sustainable lives. Empowering people is not just a role for the Government, NGOs, donor agencies etc. We the educated people need to do our part. In fact we are better-placed to teach, train and motivate our people to improve their own lives.

Ordinary Papua New Guineans must be transformed from being passive spectators and beneficiaries of handouts to becoming active players on the economic playing field. The people in this room have a very important role in this regard.

The Prime Minister stated in his address that accountants used to be number crunchers but are more becoming strategic business advisors. I am saying that accountants need to take their skills and knowledge to the ordinary people of this country, not just limit their activities to the walls of their corporate organizations.

Papua New Guineans need to shift from a poverty-alleviation (scarcity) mindset to a wealth-creation (abundance) mindset. Once again, the accounting fraternity can facilitate this transition.

Ladies and gentlemen! When I was asked by the organizers to participate in this conference as one of the speakers, I knew exactly what I wanted to accomplish. Instead of just providing some information to add to what you already know, I wanted action from members of CPA to rise up and contribute to addressing the social problems we face in our country.

I came to an assignment to this conference. My assignment was this: To motivate elites to leave your high offices and go down to the level of ordinary people and empower them to rise up from poverty, create wealth, and live sustainable lives.

I hope I have succeeded in getting some of you to think about and see things that are happening in the lives of our ordinary people a little differently. Instead of just blaming them or the Government for the problems, I have brought part of the responsibility for solving those problems straight to your door step. I hope that you will rise to the challenge.

I trust that some of you will start talking to your relatives and sharing ideas with them this coming holiday period instead of just handing them money.

I hope some of you will gather a group of unemployed people and talk to them about starting their own businesses.

I hope that some of you will use your holidays and free time to offer free financial advice to struggling local business people.

Thank you ladies and gentlemen for your attention!

I really hope that the accountants took something back from my presentation. I also hope that elites in other professions take this message to heart. Send your comments to secos@global.net.pg or text me on 7688 0033 or 7280 4588.

“How Do Sell My Shares?”

Last week’s article was on to buying shares on the Port Moresby Stock Exchange (PomSox). This article sets out the basic steps people who hold shares and want to offload or sell their shares have to go through. The steps are basically the opposite to those of buying shares.

Here the basic steps to selling shares:

Step # 1: Contact your broker by phone or email and advise them that you want to sell shares. Confirm with them the number of shares you currently hold in the particular company whose shares you want to sell.

Step # 2: Place a “sell” order with stock broker. The order is either “at market” or “at limit”. Once again, a “at market” order tells the broker that the transaction is to be completed at or near the prevailing market price. For example, if the closing price on the last trading day was K1.20, that is the price the broker will attempt to sell at. Failing that, a “at market” sell order gives him the freedom to sell at K1.15 toea if he cannot attract any buyers at K1.20/share. If you say that your sell order is “at limit”, you will also need to state the exact price or price the range within which the broker will sell your shares.

Once again, your instructions to the broker must be very clear, and verbal orders must also be confirmed in writing (fax or email). Good brokers should repeat the order back to you to verify what you have asked them to do.

Step # 4: The sell order is then placed on the market through the electronic trading system. The matches your “sell” order with “buy” orders. A trade occurs when “sell” and “buy” orders are matched by the electronic system. Please note that the matching process takes place immediately as information is entered into the system, but that does not necessarily mean that a transaction takes place. Sometimes (and this is especially so in an illiquid market such as PomSox) orders will takes days, weeks and months to be completed, simply because there aren’t any “buy” orders in the system that match your “sell” order.

Step # 5: Once a transaction is successfully executed, the broker should send you a note specifying relevant particulars of the transaction, especially the number of shares he has sold on your behalf. The note should also show the broker’s charges associated with the transaction.

Payment of the shares sold and the brokerage charges are required to be settled within 3 days of transaction being completed. The broker should credit your account with the proceeds of the sale, minus his charges. He will then send you a cheque or deposit the money into your bank account and advise you accordingly.

Step # 6: Once settlement is made, the broker arranges with the company’s share registry for the shares to be registered in the buyer’s name and your name to be struck off the list of shareholders.

The steps to buying and selling shares are straight forward, but the secret to making money on the share market is timing. In other words, when to buy or sell is very important. Your reason or motive for wanting to buy or sell shares is also important. If you just want to feel the pride of owing shares, I guess timing isn’t important. You can buy shares in any company at any time and at any price. But if your objective is to make money, your entry and exit times are vital.

I have referred to the PomSox as being an illiquid share market. This means that the number or participants is very small, such that you cannot buy or sell shares as easily as when there are many buyers and sellers. If you look at the list of shareholders of the companies that are listed on PomSox (you can obtain the information from individual companies’ annual reports which are published on the PomSox website), you will realize that the bulk of shares are owned by corporate entities such as the super funds rather than individuals.

There may be many reasons for this, but I suspect that one reason is lack of information and understanding on the part of Papua New Guineans of how the share market works. Because people don’t understand, they don’t participate. I hope that this column will shed some light.

Send your comments to secos@global.net.pg or text me on 7688 0033 or 7280 4588.

Should I Invest In The Share Market?

Many readers have been asking the question, “Should I invest in shares as a way of making money work for me?” My answer has been both “Yes” and “No”. Yes, it is a way of making money work for you; no, because most readers are probably not ready yet.

Before I explain why I think most readers of this column may not be ready to invest in shares, let me briefly explain what the share or stock market is. Shares are basically parts of a company which the owners of the company make available to members of the public as a way of raising funds to either start or expand the operations of the company. When you buy shares, you become a shareholder, or part-owner of the company. A stock market is where such shares are bought and sold.

You can buy shares when a company first sells them. This is called an Initial Public Offer (IPO). can also buy shares when those who bought during the IPO decide to sell their shares for whatever reason.

Another point that needs to be made is that you can buy and sell only through stock brokers. There are two such companies in PNG. They are BSP Capital Ltd and Kina Securities Ltd.

You can make money in two ways. Firstly, by buying and holding shares. When the company makes money (a profit) and the directors decide to pay the shareholders, you get your portion depending on the declared dividend rate and number of shares you hold in the company. Dividends are paid periodically (quarterly, half-yearly or yearly). When you buy and hold for dividends, you are an investor.

The second way is by buying and selling. You buy shares when prices are low, and sell when they are high. For instance, you may decide to buy a certain number of shares of a particular company when the price is K1.00 per share, and sell when the price rises to K2.00 per share. Your profit (also called a capital gain) is K1.00 per share minus transaction costs. When you buy and sell, you are a share trader. You may also be regarded as a speculator if you buy shares with the expectation and intention of selling them when prices will rise.

So, yes, you can make money by buying and holding shares or by buying and selling.

Now, why do I think most readers of this column are not ready? Two reasons are as follows:

1. The share market is risky. You can make money, but you can also lose money if the company does not make money or the share price falls. You don’t have any control over what happens to your shares, because share prices are driven by the market forces of supply and demand. A large portion of the risk is also associated with ignorance of the market and how it works. My assessment is that most people in PNG have little if any knowledge of the stock market.

2. To really make money, you must hold a significant number of shares. You can make small amounts by investing small amounts, but we are talking about making money work. The majority of readers of this column would not have the kind of money that is required to make real money.

My advice to readers is usually that they need to learn about the share market first. In other words, people need to invest in themselves first before they consider investing their money in the share market. They can get educated by reading books, attending seminars, and even asking people who know about the subject.

Secondly, I advice is to start a business first. A business presents you the opportunity to make the most money. A business is essentially a money printing system. The business may fail, but it can also succeed. When it fails, you lose their investment. This is always possible. But it is also possible that the business really takes off and makes a lot of money for you.

When the business makes money, my advice is for you to invest in rental properties. When you have a firm asset base of several properties which are generating income, you can start investing in the share market. Hopefully by now you would have educated yourself as well, so you can make real money investing or trading shares.

Send your comments to secos@global.net.pg or text me on 7688 0033 or 7280 4588.

“How Do Buy Shares?”

In last week’s article I discussed whether you can invest in the share market now. My advice was basically that in order to really make money in the share market, you need to educate yourself first; and secondly, that you should start a business and invest in real estate as necessary steps towards investing in shares.

However, from the feedback I have received from readers, it seems like share market investing holds a lot of fascination for Papua New Guineans. As this column is about empowering readers with information to help them become financially literate and thereby make wise financial decisions, I have decided to provide the basic steps people go through in buying shares. This is for those who really want to buy shares. My advice on starting a business and buying rental property still stands.

Here they are the basic steps you will have to go through to buy shares in the Port Moresby Stock Exchange (PomSox):

Step # 1: Make contact with one of the stock brokers. Establish what type of services they provide, and the fees they charge per transaction.

Step # 2: Sign a client agreement and establish an account with the broker. The agreement states basically that you have authorized the broker to act on your behalf. The account opens the way for you to deposit funds which the broker will hold in trust for you and pay for the shares.

Step # 3: You place a “buy” order with stock broker. The order is either “at market” or “at limit”. A “at market” order tells the broker that the transaction is to be completed at or near the prevailing price of the particular share you are interested. A “at limit” order tells the broker that the transaction is to be completed at or within a specific price limit. Brokers usually charge different commissions for “at market” and “at limit” orders. Usually “market” orders are easier and cheaper to execute than “limit” orders.

There are also other (more exotic) types of orders. Examples include “stop orders” (which remain dormant until a certain price level is reached, when it becomes a market order.); “all or none” (the broker has to buy/sell the entire quantity of stock, or none at all; and “good till cancelled” (the order remains active until you decide to cancel it).

It is usually a requirement that the order is repeated so that there is no ambiguity as to what the broker is expected to do. Verbal orders must also be confirmed in writing (fax or email).

Step # 4: The order is placed on the market through a computerized (electronic) trading system. All participants in the market are connected to the exchange, so every time an order is placed; it appears on their computer screens. This makes the market transparent, and enables all the participants to see what is happening in the market. The system operates to match “buy” orders with “sell” orders. A trade occurs when “buy” and “sell” orders are matched by the electronic system.

Step # 5: Once a transaction is successfully executed, the broker sends the buyer a contract note specifying relevant particulars of the transaction, especially the number of shares bought and the price. The note also shows the broker’s charges.

Payment of the shares purchased and the brokerage charges are required to be settled within 3 days of transaction being completed. The broker draws on the buyer’s account to pay for the shares as well as receive his charges.

Step # 6: Once settlement is made, the broker arranges with the company’s share registry for the shares to be registered in buyer’s name. The registry is usually an independent organization which maintains the details of all the shareholders of companies whose shares are traded on the stock exchange. Previously share certificates were posted to owners. Today shares are usually kept on the registry.

The buyer is now a proud shareholder!

There may be some additional processes you are required to go through to buy shares, but the above 6 are the basic steps. You need to ask your chosen broker if there is anything else you need to do to buy shares.

The following are some of the privileges of being a shareholder:

1. You receive company updates including annual reports.
2. You attend annual general meetings and participate in decision-making.
3. You receive dividends if declared by directors.
4. You participate in dividend-reinvestment plans.
5. You receive other benefits such as discounts on company products or preference on new share issues.

Next week’s article will be on how to sell shares.

Send your comments to secos@global.net.pg or text me on 7688 0033 or 7280 4588.

Is A CPI Adjustment What It Looks Like?

Last week’s article (Savers Are Losers) generated the most number of queries and comments from readers so far on this column. For the sake of people who may not have read the article, the four main reasons people who save money end up losing instead of making money are:

1. Banks charge account keeping fees;
2. Interest rates on deposits are very low;
3. The government charges interest withholding tax at 15%; and
4. Inflation wipes out most if not all of what savers may earn from interest after taking account of the above three reasons.

One thing about the effect of inflation is that it cannot be seen. Savers can see from their monthly statements the fees that are charges by banks; they can easily see the interest rates that are offered by banks for various types of saving accounts; and they can easily see the amounts the government collects in taxes on interest earned. But they cannot see how inflation works to wipe out the ‘purchasing power’ of both their savings and the interest they earn on deposits.

Savers with the super funds, for instance, may get excited that their so-called retirement savings been growing in recent times. They may have received double-digit returns, but what they may not realize is that high inflation means reduced real returns.

Let me now look at upwards adjustments in salaries working people see in their salaries on account of increases in the Consumer Price Index or CPI.

I have met many people in my personal financial management and investing seminars who have admitted that they have raised expenses or borrowed money when they have received CPI adjustments in their salaries. They have been misled into thinking that their salaries have been increased (so they can now afford to spend more or borrow), whereas the truth is that they have merely been compensated for the reduction in their real incomes on account of rising costs of living.

Such CPI adjustments used to be by the full rate of inflation as announced by the National Statistical Office. In recent times adjustments have gone only part of the way, and that only after employees have raised the issue with their employers. Rising costs also affect employers so they are not so keen to talk about CPI adjustments. My prediction is that CPI will be a thing of the past in PNG as inflation goes into double-digits in the coming years. I also predict that there will be more calls for pay increases as workers find their salaries buying less and less. It will come to a point where workers have to decide between fighting for higher salaries and losing their jobs, or keeping their jobs and being content with stagnating nominal (cash) incomes and falling real incomes, and hence living standards.

The other thing about CPI adjustments is that it has the potential to push workers into higher income brackets, with the result that they end up paying more income tax. Effectively the government gets a raise in income tax every time workers get compensated for rising costs of living. The twin effects of inflation and income tax usually pushes workers back in terms of their standards of living.

So in answer to the question “Is a CPI adjustment really what it looks like?”, the answer is “No”. You simply cannot take things at face value. You have to look deeper at the inflation rate as well as the income tax implications before getting excited whenever the employer announces that you will receive a CPI adjustment in your salaries.

He Who Produces Food Shall Rule And Reign!

In several past articles I have discussed the food shortage situation in the country. The articles were based on what was presented at the recent National Food Security Policy conference at the National Research Institute.

In this article I would like to look at a story in the Bible. It is about Egypt’s food security program under Joseph’s stewardship.

The story starts with King Pharaoh having two consecutive dreams. In the first, the king saw seven fat cows coming out of the Nile River. While they were grazing by the river, seven ugly and bony cows also came out of the river, and ate up the fat cows. Pharaoh woke up, and when he slept again, he saw seven heads of grain on one stalk that were plump and good looking. Then he saw another seven heads which were blighted by the wind. While he watched, the seven blighted heads of grain ate up the seven good ones.

Pharaoh woke up and immediately called all the wise men and magicians of Egypt together and told them his dreams, but none of the men could interpret it for him. Finally Joseph was called out of the dungeons of Egypt, and he told Pharaoh that the dreams meant the same thing. There were going to be seven years of abundance in Egypt, followed by seven years of famine. The famine would be such that the good years would be obliterated from peoples’ memories.

Joseph therefore advised the king as what he should do to ensure the country’s food security during the famine years. His advice was basically that the king should establish warehouses in every city in the country where the excess food from the good years would be collected and stored under the stewardship of a wise and prudent man. This food would be available to the people during the seven years of famine.

The king accepted the advice and appointed Joseph to take charge of the program. In fact Pharaoh appointed Joseph as his second-in-charge, or Prime Minister of the country. Joseph therefore went throughout the country, built large warehouses, and collected the excess food and stored them. There was so much food that Joseph’s officials gave up trying to keep records!
The story gets interesting as the famine begins. It goes that the people came to Joseph to buy the food which they had initially given away to be stored during the years of plenty. Joseph gathered up all the gold and silver in the land of Egypt by selling food. When all the money was transferred from the people to Pharaoh, the people came and offered their livestock in exchange for food. So Joseph gathered up all the animals in the country for Pharaoh. In the following year, the people came and told Joseph: “All our money and livestock is gone from us. There is nothing left but our bodies and our land.”

Joseph told the people to trade their land for food, which the people were more than willing to do (when survival is at stake, people can get desperate). So Joseph bought up every piece of real estate in Egypt for Pharaoh, and he moved the people off the land into the cities. The foot note in one of the translations of the Bible says that Joseph ‘made the people virtual slaves.’ The only people who were given free food and whose land Joseph didn’t buy were the priests.

By the time the good times returned again, the people had been displaced from their land. They were all at Pharaoh’s mercy. They were then given seed to sow – on Pharaoh’s land – and told to return 20% of the harvest to the landlord while they kept 80% for themselves. So the people of Egypt went from being land owners to peasants with a 20% tax on the produce of the land. Pharaoh’s rule over them therefore became more entrenched.

If you are not familiar with the Bible, the story is found in the book of Genesis chapters 41 and 47. To summarise the story, we can say that the people of Egypt traded their money for food, then they traded their livestock for food, followed by exchanging their land for food, and finally their lives for food. In short, it was:

• Gold and silver (money) for food;
• Livestock for food;
• Land for food; and
• Lives for food.

One important lesson we can deduce from this story which took place thousands of years ago is that one can never go wrong producing or trading in food. If you have food, you get sell it for money. In a situation where the demand for food exceeds its supply, you can sell at very high prices. And if you are the only one selling food, you can sell at monopoly prices.

With the money you can buy and own livestock, which is another form of wealth. This is especially so in the Highlands region, where pigs in particular are in very high demand such as to cause prices to triple in the past few years.

You can also use the money to buy land anywhere in the country. Can food empower you to become a real estate owner? According to this Biblical story, the answer is ‘Yes’. You start by producing food on your own land in the village, and slowly make you way into the urban areas.

And you can use the money from your farm to buy slaves (also known as employees). It doesn’t matter whether you have been to school or not. If you use your knowledge of gardening which you have received from your primitive ancestors, you can eventually make very highly-educated people work for you.

The ultimate result? You rule and reign over the land and other people. You become a Pharaoh in your own way.

If you are a landowner reading this, I hope you get the lesson from this ancient story. I hope you start producing food tomorrow. If you are unemployed and looking for a job in town or just hanging around in your community, I am telling you that there is hope and money – and it is in your land in the village. There is more than enough money in the land for you to build a high-covenant house or buy the latest model Toyota Land Cruiser with cash!

If you have a job, you will realize that the bulk of the money you earn goes to buying food and keeping yourself alive. You are working, buying food, and working – without getting anywhere financially. It is probably time for you to cast aside your educational qualifications and your job, and return to the village to till the land. You can start from scratch as a farmer, then work your way back into town as a real estate investor and an employer.

I have said this several times on different occasions, and I will say it again: In the kind of economy we are living in today, the people who are going to make the most money are business people and farmers. Working class people are the ones who will become poor while farmers and those in business become rich.

Savers Are Losers

In a previous article I described money as a faithful servant but a terrible master. In another, I stated that rich people don’t work for money. In other words, they have learnt how to make money become their servant. While money works for them, they live the life of their dreams.

I have received a lot of feedback on the articles. One question readers have asked is whether saving money in the bank is a way to make money work for you. I would like to respond to this query in this article.

You can save for different reasons. Most people save for a ‘rainy day’, meaning that they put money aside to meet unexpected expenses. Others save for school fees, to buy household items, meet customary obligations, etc. In other words, they save for consumption. They save to spend.

Other people save for their retirement. In PNG, the majority of working people save with one of the superannuation funds or savings and loans societies. Currently the law says that workers are to contribute 6% of their gross salaries towards their super fund savings while employers contribute 8.4%, for a total of 14.4% every fortnight. Some employees save more than 6% of their salaries in their super fund accounts.

A third group, and I would say a very small minority at that, save for the purpose of investment. That is to say, they save money to start businesses, purchase investment property, shares etc.

For whatever reason you save, what you need to realize is that you could be losing money by just saving it, for several reasons.

Firstly, banks charge account keeping fees. You essentially pay them for maintaining an account with them. The result is that the balance in your account drops even though you have not made any withdrawals. Your bankers will tell you how much it charges if you care to ask them.

Secondly, interest rates are so low that you could in fact not be making any money from your savings account. Current interest rates for deposits with the country’s leading bank range from 0% to 3% per year for amounts ranging from K9,999 to K100,000 respectively. Interest rates for deposits are at an historical low because of very high liquidity in the banking system.

Thirdly, the Government charges an interest withholding tax of 15% per year. This means that for every Kina you earn in interest, 15 toea goes to the Government and you receive 85 toea. It makes no sense to penalize people for saving, but that is as the law stands today.

Finally, in times of high prices for goods and services, such as we are faced with currently, the purchasing power of both the principal and interest earned on savings is reduced by inflation. The Bank of PNG has reported that inflation for the June quarter of 2011 was 9.6%, and it is forecast that inflation will exceed 10% by the end of the year and beyond.

Let us see what this means for savers. The interest being paid by the leading bank for term deposits for 12 months is 3%. If you had earned this kind if interest, and with inflation at 9.6%, your real income would be minus or negative 6.6%. You would have lost money instead of making it. It would have been like taking one step forward and three steps backwards. In the meantime, the bank would have made money using your money by lending at interest in excess of 14%.

This article is titled ‘savers are losers’ because people who save money, even in super funds, do not realize that they actually lose money by doing so – unless the interest rates they earn on their money are higher than the rate of inflation. In today’s economy, interest on deposits are actually very low, rendering it difficult for savers to really make money work for them.

Most people would say that saving money is good because of compound interest, which works as follows: You save some money which earns interest, then the interest earns interest. So it goes that money grows over time without any effort from savers. But for the reasons given above, compound interest does not work as it used to in the past. Even if the cash or nominal amount increases, the real interest income would be either very low or negative.

Given that this is the case, you would be wise to save whatever you can, then invest your savings in a business. A business is a vehicle that can empower you to either ride on or beat inflation. More on this later.

Papua New Guinea’s Development Scorecard: 1975-2011

Papua New Guinea is now 36 years old as an independent nation. This article looks at the country’s development record to see how well we have done. The figures quoted below are taken from official documents such as the PNG Vision 2050 and the PNG Development Strategy 2010-2030. Reference has also been made to a report published by the National Research Institute titled “Papua New Guinea Development Performance 1975-2008”, as well as reports published by various donor agencies and international organizations such as the World Bank, the United Nations and Transparency International.

Eight basic development indicators taken from the above sources are quoted along with brief commentaries so as to show how PNG has fared since 1975. Please be forewarned that some of the data are a few years old.

1. The infant mortality rate, which shows the number of infants who die before the first birthday out of every 1,000 babies born in the country in a year, is 57. Infant mortality in Fiji is 18 per 1,000 births, and the whole of East Asia and the Pacific is 31. More babies die than anywhere else in this art of the world.

2. The maternal mortality rate is 733 per 100,000. This means 733 women die out of every 100,000 woman during child birth in PNG. This is four times higher than countries in the Pacific.

3. PNG’s current life expectancy at birth is 62 years. This compares with an average of 67 years for all developing countries and 72 years for East Asia and the Pacific. People in neighbouring countries live longer than Papua New Guineans.

4. Only 57% of adults in PNG are literate. This compares with 93% in the East Asia and Pacific region and 82% in the world. More people cannot read and write in PNG than elsewhere in the world.

5. Unemployment is very high. Only 500,000 people (13%) hold paid jobs out of a working-age population of some 3.8 million. The implicit level of unemployment is 87%.

6. School drop-out rates at Grades 8, 10 and 12 are 50%, 80% and 70% respectively. This means only half of Grade 8 students go on to Grade 9; 20% of Grade 10s go to Grade 11; and 30% of Grade 12s get accepted into tertiary institutions. The main reason for the very high dropout rates is lack of facilities and spaces in educational institutions.

7. The Human Development Index (HDI) is a measure used by the United Nations to assess countries in three areas of human development — life expectancy, adult literacy, and school enrolment. It also takes into account peoples’ standard of living as measured by the gross national product per capita. In 2010 PNG was ranked 137 out of 169 countries, making it the 33rd least developed country in the world.

8. The proportion of the population living below the international poverty line of US$1.00 per day (or approximately K1,000 per year) was 40% in 2010. Estimates in 1996 and 2006 respectively were 25% and 37%, meaning that an increasing proportion of the population has been progressively becoming poorer. PNG is a rich country full of poor people.

There are many other indicators of development but the above show that PNG has not done well in terms of its people experiencing improvements in their living standards. Commentators state that the country experienced many positive developments between the 1960s and the 15 years following independence in 1975, but indicators have either stagnated or worsened since the 1990s. Smaller and less-endowed countries like Fiji, Solomon Islands and Vanuatu have done much better than PNG.

Some of the reasons advanced for this not so impressive record are the two international oil crises of the 1970s, the Bougainville crisis which started in 1989 and ensued over the next 15 years, political instability which resulted in changes of government every 2.5 years up until 2002, natural disasters like the volcanic eruption in East New Britain, the tsunami which hit Aitape, the cyclone which affected parts of Milne Bay and Oro Provinces, several structural adjustment programs imposed by the World Bank as a result of a high level of public debt due mainly to uncontrolled government expenditure, and the El Nino-induced prolonged drought.

One glaring issue which has had a direct negative impact on development and ultimately on the peoples’ living standards is corruption, which emerged in a more pronounced manner in the 1990s. Corruption has become entrenched and endemic, such as to cause former Prime Minister Sir. Mekere Morauta to describe it as ‘systemic and systematic’.

Transparency International, which issues a Corruption Perceptions Index (CPI) every year, has been tracking the extent of perceived corruption in nearly all countries in the world for many years. It scores countries from 1 to 10, with 1 being the most corrupt and 10 being clean. In 2010 PNG was given a score of 2.1, together with countries such as Russia, Laos, Kenya and the Central African Republic. PNG’s ranking was 165 out of 178 countries, making it the 25th most corrupt country on the planet!

The burning question is, “Can our people realize better and improved livelihoods in the 37th year of independence and onwards?” This question can best be answered by our leaders and bureaucrats.

The country has experienced consistent economic growth in the past 6 or so years but this growth at the macro level has not trickled down to make a real difference where it matters the most: at the micro or people level. In fact, the years of positive growth seem to have coincided with an increase in poverty among a large proportion of the population, unemployment, lawlessness, breakdown of infrastructure, etc. The situation can be summarized as follows: ‘The richer the country, the poorer the people’.

This, again, can be attributed in large part to corruption. As we have seen above, PNG is listed among the least developed and the most corrupt countries. There is a direct relationship between corruption and development.

The new O’Neil-Namah Government has made several very popular decisions since coming into office on 2nd August which are as a breath of fresh air to the people. In addition to free and subsidized education from next year onwards, the decision to fight corruption is the most significant in light of the development experience as highlighted above. We hope that the current investigations into corruption at the Department of National Planning are followed through with prosecution of those found guilty. We also look forward to the establishment of the Independent Commission Against Corruption.

Unless we take drastic action against corruption, our social indicators will continue to worsen despite the country being flush with cash from the proceeds of the LNG and other resource projects emerging all over the country.

Hungry People Are Angry People

Last week’s National Food Security Policy conference organized by the National Research Institute was one of the best meetings I have attended. If my memory serves me right, it was probably the first meeting I have attended where participants filled the room and actively participated right up to the last hour of the three-day conference. It was a demonstration of how important food is to everyone, and how threatening rising food prices are, considering that everyone eats.

In my article last week, I explained why I think rising food prices is an opportunity to encourage people in rural areas, and particularly unemployed young people in urban areas, to go back to cultivating the land. If the Government can address the major impediments facing farmers in the country, such as transport infrastructure, lawlessness, the absence of an efficient marketing system, lack of credit etc, our people can rise up to the occasion and produce food so that all of us are fed and kept healthy. I asserted that politicians and policy-makers now have no choice but to be serious about addressing farmers’ problems, because they are the ones being hit by rising food prices. If we can make rural life attractive, thousands of unemployed youth will return to the villages as they realize that they can sustain their lives as well as make money producing fresh food, raising livestock, etc.

In addition to the above, I would like to raise an important issue in today’s article, and that is that much of the break down in law and order can be linked to people engaging in unlawful activities just to keep food on the table. As one of the speakers at the food conference put it, some people live to eat but many in PNG eat to live. Those who eat to live are the ones who wake up each morning not knowing where the next meal is coming from, while the ones who live to eat overdo it, become obese and unhealthy.

I once took several leaders of a reformed gang in Goroka to lunch, and spent the whole afternoon listening to their life stories. One thing they told me which I will never forget is that each morning they would get up and promise their wives and children that they would bring food home for the night. They said that once they made the promise, they had to get whatever they promised, no matter what. They related how they would carry out robberies or risk their lives in other ways just to feed their families. I was reminded of this conversation when the gentleman at the conference made reference to people who eat just to live each day.

Sir Henry Chow, owner of Paradise Foods and Chairman of the NRI Council, made this very pertinent statement: “Empires fall on empty stomachs.” What he meant was that when people are hungry, they can do anything, even to the point of revolting against rulers. Look at what has been happening in Israel lately. And consider what happened in Germany which culminated in the rise of Adolf Hitler!

Hunger is a very strong motivating force. When people are hungry, they don’t care about laws, rules and regulations. They will do everything and anything to satisfy their hunger. This is actually an age-old issue. There are many Biblical incidences too. Consider why Esau sold his birthright to Jacob, and why the people of Israel thought slavery was better than freedom. Or consider why people gave their money, their livestock, their land and even their lives to Joseph and King Pharaoh of Egypt. It was all for food!

One group of people who are fighting for survival on a daily basis in PNG is squatter settlers who live on the fringes of the urban centres. While working people have money to buy food (low income earners may not be among those who can afford it) and village people grow their own food, settlers don’t have any regular income or food gardens. It is also generally accepted that settlements are breeding grounds for people who engage in unlawful activities as a way of living. These people have been struggling to feed themselves when prices have been low. Now that prices are escalating, we can imagine these people really feeling the impact harder than workers and rural dwellers. When these people become hungry, they become very angry, and they can make life difficult for everyone else.

PNG is not like other countries where food is so short as to cause a famine. There may be small pockets of the country where the possibility for extreme hunger exists, but generally, there is a lot of food grown in the country. The problem therefore is not one of availability, but of accessibility. There may be a lot of food available in the country, but having access to it is a problem. That, I believe, is what is giving rise to escalating food prices. And that is why our leaders need to allocate resources towards fixing the country’s transport infrastructure and law and order as matters of national importance.

It is actually on indictment on our leadership over the years that in a country which the rest of the world refers to as Paradise, a large proportion of the population lives in poverty after 36 years of independence. I have heard several commentators refer to PNG as a country of paradoxes, one of which is that it is a very rich country full of many poor people. Let it not be said of PNG that it is a food-abundant country full of hungry people. Poverty is out of place in Paradise; so is hunger.

In conclusion, the increasing price of imported food provides an opportunity for our farmers to cash-in by increasing the production of locally-grown food. It is an opportunity for PNG to replace imported food with more healthy and locally-grown food. But as well as being an opportunity, it is a major problem for the increasing number of low income and settlement dwellers in the country. When these people become frustrated and angry because they cannot afford to get access to food, they can get violent.

We hope our leaders remember that hungry people are angry people. We also hope they remember that empires fall on empty stomachs.