Sunday, December 4, 2011

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 or text me on 7688 0033 or 7280 4588.

Saturday, November 19, 2011

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 or text me on 7688 0033 or 7280 4588.

Thursday, November 3, 2011

“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 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 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 or text me on 7688 0033 or 7280 4588.

Sunday, October 16, 2011

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.

Thursday, October 6, 2011

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.

Thursday, September 29, 2011

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.

Sunday, September 18, 2011

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.

Sunday, September 11, 2011

The Financial Treadmill

Last week I discussed the lifestyle of people who run the ‘financial rat race’. I described it as one of working hard, getting paid, meeting expenses, and going back to work again – basically running around in circles, akin to rats running around in a maze.

I hope the article made some readers of this column mad at themselves and the lives they have been living – mad enough not only to vow but actually do what it takes to get out of the rat race at all cost.

Somebody sent me a text message to announce that he was going to leave his current job and look for a better one. This is not what I mean by getting out of the rat race. Getting a high-paying job will not get you out of the rat race. If you compete with others in the workplace, beat them and win in this race (get promoted, higher pay etc), it doesn’t mean you have come out. You may be highly educated, highly qualified, and highly paid, but you are still a rat!

Today’s article is on the ‘financial treadmill’. As many of us would know, a treadmill is a machine you find in many gyms. It is basically has a moving belt which people run or jog on, and it has instruments which indicate the time someone has run on it. It also indicates the distance the person would have covered had he or she actually run on the road. Some treadmills also show the speed at which the belt has run.

When someone runs on a treadmill, he or she feels several effects on the body. After a few minutes breathing intensifies and sweat begins to pour out on the forehead and other parts of the body. The person will also feel tired after some time. The ultimate effect would be a loss in weight and hence a lightness in the body. Continuous running will lead to a firming of the muscles and better health.

A financial treadmill is once again a lifestyle which people live, and it is determined by the way they conduct their financial affairs. It may involve all or many of the following (not necessarily in sequence):

• Going to school and getting a job;
• Getting married and having children;
• Receiving further training;
• Getting promotion and climbing the corporate ladder;
• Receiving pay rises and other perks and privileges;
• Increasing expenses to meet income;
• Living beyond means and getting into habitual debt;
• Ageing (graying for both sexes or bald for males); and
• Nothing to retire on during old age.

In essence, the financial treadmill records the time and effort put in over a life-time, but whereas running on a normal treadmill leads to better health, running the financial treadmill leads to little or no wealth. It is jogging on the same spot for years and thinking that you are making progress, but actually not getting anywhere.

I read a short statement made by John C. Maxwell, American leadership guru, which has stuck with me for some time now. He said, “Activity does not equal progress.” He was referring to companies and organizations such as churches engaging in a lot of activities, spending money etc, but not necessarily making money or achieving results.

I believe that the statement applies as much to the majority of working people. There may be a lot of getting up in the morning, taking a quick shower and breakfast (if at all), rushing off to the office, working whole day, coming home tired and worn out, taking a shower, having dinner, watching TV, and sleeping, and repeating the same routine the following days – for years! A lot of commotion and activity, but not necessarily getting anywhere.

If you this has been how you have been living your life up to this point in time, I propose to you that it is time you made drastic changes in your life. You just cannot go on living like this and expect to succeed financially. As Albert Einstein has said, “Insanity is doing the same thing and over and over and expecting a different result.”

The ‘Financial Rat Race’

In a previous article I mentioned the ‘financial rat race’. I wish to elaborate on this term in this article. I hope that you will see whether you have been running that race. I also hope that you will make a commitment to get yourself out of the lifestyle I will be describing if it speaks of you.

Rats are favourite animals for scientists when it comes to experimentation. Over the years they have conducted many experiments on rats and the results have contributed to their understanding of the behaviour of human beings.

To understand the behavior of rats, and hence people, scientists usually place the animals in a maze, which is a box with many hallways and doors inside it, and they set the rats loose. The scientists look down upon a box, but to the small minds of the rats inside the box, it is a huge place with many passages and doors. So the rats run around in the box, thinking that they have taken a long journey, whereas the truth is that they have been running around inside a box. And the first rat that comes out at the other end of the maze gets a cheese as a reward. This is a literal ‘rat race’.

A ‘financial rat race’ is a term used to describe a lifestyle that basically involves working at a job, getting paid, paying off debt, taxes and bills, and going back to work again, without any savings, no investments and a lot of debt. It is being an active part of a system that was designed to get people to work hard without making progress in their lives.

People that have been working for a long time, progressed professionally, received higher pay over the years, but have nothing to show for it, have been running the financial rat race. They don’t have any savings or investments. Instead, they live from payday to payday. When unexpected events take place, they take payday loans, usually from informal lenders who charge very high interest rates. Borrowing is the way they solve their financial problems.

I have conducted personal financial management and investing seminars for the employees of corporate organizations for several years now. What I have found is that the majority of working people in PNG spend almost all of what they earn within a few days of the money landing in their accounts. Many have in fact borrowed against future income, so they have effectively spent the money before they have received it! Such people don’t have any savings. What they leave in their accounts is the minimum balance required by their banks to keep the accounts current. Many have surrendered their bank cards to lenders, who keep the cards until the loans are repaid in full.

Another interesting thing is that the people with the most financial problems are those that are relatively highly educated and occupy higher-paying positions. It seems that the higher the pay, the higher the level of indebtedness. In other words, the more they earn, the more they misuse, and the more they borrow. On the other hand, low paid employees (especially cleaners and tea boys) tend to save a lot of money, and they tend to lend to their highly-paid colleagues.

If what I have briefly described is the kind of lifestyle you have been living, it is time for you to take a really hard look on your financial life and make the changes you know are necessary for you to get out of the rat race. You may think that it is hard to save money in this high and rising cost economy, but the truth is that you can. You just need to be determined to analyse your costs and cut out all unnecessary items, do a budget and stick with it no matter what. You just cannot go on working, earning and spending like you have been doing up to now, especially now that you know what a ‘financial rat race’ is.

High Food Prices: Problem Or Opportunity?

An important conference took place this week at the National Research Institute which brought together policy makers, farmers, food manufacturers, scientists, academics, researchers and interested members of the public. It was the Food Security Policy Conference on High Food Prices In Papua New Guinea.

The major concerns addressed by conference participants were:

1) What are the drivers of unprecedented food prices?
2) What are the impacts of escalating food prices on consumers? and
3) What can be done to reduce food prices for the benefit of the population?

Presentations were made under several sub-themes. These were:

1. Global and regional perspectives: trends in food prices and volatility, trade and international relations;
2. Food production and processing: industry and farmer perspectives, challenges, costing and pricing issues;
3. Food provision: food imports, packaging, marketing, transport and distribution;
4. Food consumption: impacts, affordability and coping mechanisms; and
5. Stakeholder interventions, strategy and options: the way forward.

The major lesson that has emerged from the conference is that food prices have been rising both internationally and domestically, and they are likely to escalate further. The concern in Papua New Guinea is not only that food prices are expected to rise, but the general price level for all goods and services (i.e. inflation) is expected to go into double-digits (meaning in excess of 10%) for the first time since 2003. The sum total of these developments is that people in the country will have to fork out more money from their pockets for food and others goods and services.

My presentation was on the major impediments or constraints, problems and challenges faced by food producers in the Highlands. High food prices indicate that there is a lot of demand for all kinds of food, but supply is low. In other words, high prices are supply-related.

There are many challenges faced by all farmers in producing and supplying food in the country, and the ones I highlighted are in fact common throughout the country. These are:

1. Market access. High prices of food indicate that there is a huge market for locally produced food, but access to those markets is a major impediment faced by farmers, due to reasons such as very bad road conditions, unavailability of transport and high fuel costs.

2. Increasing lawlessness discourages farmers from producing food. Many food gardens are destroyed during tribal conflicts. Food gardens, small-scale piggeries and poultries are also the subject of theft, and most farmers are subject to harassment by unemployed youth roaming in towns, drug addicts, and criminals.

3. Food producers are faced with high costs of imported production inputs such as fertilizers, weedicides, insecticides, seeds, feed, etc. Import duties contribute to high prices of these inputs.

4. In many parts of the Highlands arable land is becoming scarce with the increase in population. This is particularly so in areas which are near the main centres where access to markets is relatively easier. Land shortage is not yet a problem in more remote areas, but farmers in such areas have to carry farm produce on their backs for long distances in order to get to the main roads.

5. Generally, people who have been producing food and keeping the rest of the country fed have grown old over the years. Dwindling physical strength reflects itself in smaller quantities produced. Young people would rather look for jobs in the major centres than go back and work on the land. This may be a result of plain laziness or the mental programming they are subjected to while in school which conditions them to seek employment.

6. Efficient marketing systems are absent. Most farmers waste time and money transporting their produce to markets in Lae, Madang and Port Moresby. In the process they not only pay high costs of transport but also experience losses due to improper packing and handling, break down of trucks, bad market timing, etc. For instance, it costs about K70 to transport a bag of kaukau from a village in Mount Hagen to Port Moresby. When farmers lose money in the process, they get discouraged and stop producing altogether. It’s a case of ‘once bitten, twice shy’.

7. Food producers and farmers in general lack business skills such as farm planning, budgeting, costing, pricing, financial management, investing, etc. Highlands farmers tend to make huge gardens, plant and harvest them in one go, and when they make money, they tend more to spend the income than to save it. When they have money, they take long holidays. Farming is therefore ad hoc and unsustainable.

8. Commercial banks view farming as very risky and unbankable, so farmers don’t have access to credit.

I concluded by stating that food security equals national security. Papua New Guinea cannot go on importing food from other countries in the face of wars, terrorism, bio-terrorism, pollution, diseases, contamination, unfavourable weather due to climate change etc. The country lives a hand-to-mouth lifestyle; what it produces or imports, it consumes, hoping that food will keep on coming. There are not many food manufactures in the country, and no warehouses with strategic stocks. This is a very risky lifestyle.

Policy makers and other relevant authorities must create an environment that is conducive for food producers in the country, because everybody from the Prime Minister downwards eats on a daily basis. This becomes more imperative in light of an ever growing population. The farmers have land, time, labour and capital to produce, and they are willing to work because they too live in a world where they need money. If the major impediments are effectively addressed, our farmers can rise to the occasion and keep us all fed and healthy.

The title of this article is a question I posed at the conference: Is high prices a problem or an opportunity? The answer depends on which side of the market you are on. If you are a consumer, high prices of food is a major problem, because now you have to spend more money for the same quantity or basket of food you normally purchase for your household. Either that or you go for cheaper, lower-quality food, thereby placing your health and general welfare at peril.

But if you are a producer, high food prices is a great opportunity to take advantage of. I have been going around the country encouraging people, particularly young people, to till the land. To me, now is an opportune time for farmers in the country to make money. It is their time to become fully engaged in the cash economy, because now they have what the whole country needs: food. They have the opportunity to share in the wealth of the nation by working on their land, not receiving hand-outs.

High prices of food also provides an opportunity for the hundreds of thousands of unemployed young people to return to their villages and work the land. My assessment of the whole situation in the country is that people who will be handling most of the money coming out of the LNG and other resource projects are those who are self-employed: business people and farmers. Working class people will miss out, because they will be spending more, seeing the average family in PNG spends between 50 and 60% of their income on food.

I see rising food prices as an opportunity for PNG to experience a shift from rural-urban migration to urban-rural drift. I foresee unemployed young people as well as working people returning to their village as they realize that there is more money to be made there than in the towns. At least the land is rent-free, and the income is tax-free also.

The way I see it, politicians and policy-makers have no choice but to be more serious and committed in addressing the impediments faced by food producers in the country, whether they are farmers or manufacturers. It is in the personal interest of decision-makers to do it, because high food prices are hitting them in their hip pockets and just above their belts! It is now going to be a case of “address the problems of food producers and eat” or “neglect them and starve”!

My encouragement to unemployed young people and students reading this article is that they must seriously consider farming as a means of living. In fact I should extend it to working class people as well. Imagine a farm as your private pipeline into the economy. It is definitely not like sitting in an office for ten days and receiving a pay cheque, but you will never go wrong producing food. High and rising prices of food present a great opportunity to make a sustainable, comfortable, healthy and wealthy living. At least that is the way I see.

Finally, if you are already into producing food crops and livestock, you are doing the right thing at the right time. I encourage you to keep on keeping on. Do more of what you have been doing. The country needs you now more than ever. Shortage of food is the country’s problem; your problem may be money. Solve the country’s problem, and your problem will be solved. How about that?

Free Education Plus Unemployment Equals Disaster

Last week I had the privilege of participating at the National Development Forum on the theme ‘Creating Employment And Broad-Based Economic Opportunities And Government Actions For Implementation’. My paper was titled ‘Self-Employment: The Answer To Unemployment.’

The essence of my presentation was that Papua New Guinea’s workforce of some 3.8 million people has three options.

The first is to look for and secure paid employment. This is a nightmare for the majority of people today, particularly school leavers, because there just aren’t enough jobs for everyone. My estimate is that only 500,000 people of the total workforce are on salaries and wages employment (In fact the total number of people is probably around 400,000, but I am being generous here). If these estimates are correct, currently only 13% of the working-age population holds a paid job. The unemployment rate is very high - around 87%.

The situation is getting worse by the year, considering that the education system produces some 53,000 school leavers (or job seekers) while the economy generates around 10,000 new jobs in a year. The result is that over 40,000 young people cannot find the jobs that were promised them by the system.

Large resource development projects cannot generate enough jobs, because they are very capital-intensive. A classical example is the much-acclaimed LNG project. This multi-billion Kina project is expected to generate only 15,000 jobs during the construction phase (of which 5,000 will be nationals). When the project is operational, it will employ less than 1,000 jobs. The spin-off activities might actually provide more employment opportunities than the project itself. The same can be said of all the other projects.

The Government’s Medium Term Development Plan (MTDP) 2011-2015 aims to create 202,835 jobs by 2015 and 2,000,000 by 2030. But at an average growth rate of 2.3% per year, the country’s population will be around 11 million by 2030. It is clear that there will always be more job-seekers than the number of jobs available.
The conclusion that can be drawn from this analysis is that a paid job will not be a dream-come-true for the majority of school leavers. This leads to the second option available to people, which is to roam the streets in search of jobs. The situation is already explosive, with thousands of young people wandering around the streets of the major centres every day, looking for opportunities to make ends meet. I have stated in previous articles, and other people have said so too, that educated but unemployed young people in Papua New Guinea can be likened to a ‘time-bomb’. You can feel the bomb ticking as you go through the towns, markets, highways etc. The rise in social problems such as crime, prostitution, drug addiction etc are symptoms of the very high unemployment level in the country.

Given that this is the situation as it is, just imagine what it will be like when we push a lot of young people through the education system as a result of the proposed free education policy! We will have hundreds of thousands of educated people who cannot get jobs in the country. I say that is a recipe for disaster.

To avoid this inevitability, our young people must be a given a third option, which is self-employment. As regular readers of this column will have gathered by now, I am a preacher as it were of the gospel of self-employment. I am convinced that the logical and most viable alternative to paid jobs is for people to start small businesses and become self-employed.

We need to realize that our unemployed young people are not good-for-nothing failures and drop-outs. They are human beings with a lot of potential just like the few of us that are well-to-do. They possess intelligent minds (which may need to be reprogrammed to think of starting their own businesses rather than looking for jobs), skills and knowledge, time, strength and energy, natural talents and abilities, dreams and aspirations. Many have land in their villages. These are assets the nation can mobilize for development.

Most if not all young people do not realize that they have all the above. They have been so indoctrinated into expecting paid jobs at the end of the education process that they lose their self-belief once they get labeled as drop-outs or become unemployed. They need help to look within themselves to appreciate the greatness that lies within them. Somebody once said that what lies is above or around us pales into insignificance when compared to what lies within us. This is so true so far as our young people are concerned. They possess so much but don’t know that they do so, so they park at the minimum of their potential.

The following are the recommendations I made at the forum to tackle the high level of unemployment but also to provide real hope to the majority of the country’s workforce:

1. The Government to provide a business-friendly environment by introducing appropriate legislation and policies. A conducive environment for business includes better transport infrastructure, readily-available and low-cost utilities, law, good order and justice. Some laws and policies have to discriminate in favour of national businesses.

2. The National Government to introduce a National Entrepreneurship Training Program aimed at equipping school leavers and unemployed people with basic business skills. Ideally the program should be conducted by people that are already in business, not classroom teachers or academics, under a public-private partnership arrangement. The program should enable participants to gain a working knowledge of all business-related subjects (economics, accounting, law, management, investing, etc) as well as personal viability, ethics, leadership, etc.

3. The National Government to establish a Business Incubator Grant which people that have undergone the entrepreneurship training can access to start their own small businesses. The Independent Fellowship Scheme operates along these lines, but what I am proposing is a bigger program which gives most of the unemployed people an opportunity to be involved and engaged.

4. Provincial Governments to build up the capacities of their Divisions of Commerce and Primary Industry in order to provide advice and technical support to small business people in the provinces. Most of the businesses envisaged under the program will be agriculture-related.

5. The program to include on-going coaching and mentoring in order to minimizing the number of failed enterprises.

Papua New Guinea desperately needs more local businesses. It is business people that generate cash flow, multiply wealth and create jobs. The country needs thousands of them who can provide employment and hope to the thousands more that are living in hopelessness and poverty.

Even if the above proposal is not acceptable, something has to be done seriously to address the very high and increasing level of unemployment in the country. Otherwise, pushing more young people through school will be counter-productive in the long-run. The country will be filled with educated people without jobs who engage in unlawful activities to put food on the table. Lawlessness will repel both foreign and local investment, leading to more unemployment and lawlessness, and the vicious circle will continue.

In concluding, free education is a good policy. However, if it is for paid jobs that people go to school for, I have argued that there will never be enough for everyone. The best alternative is to empower the majority who are not likely to get jobs to start their own small businesses. The recommended training, funding and mentoring program should be introduced immediately, starting with the large number of unemployed people we already have in the country. The only other alternative is to allow unemployed people to continue to roam the streets, which will be bad for all of us.

Wednesday, August 31, 2011

Inflation And Its Effect On Real Income

Inflation is having a huge impact on everybody’s income. Inflation refers to a rise in the prices of goods and services over a period of time. In PNG it is measured by the Consumers’ Price Index, or CPI.

Inflation occurs for two main reasons. Firstly, when there is an increase in the cost of inputs which are used to produce goods and services. This is referred to as cost-push inflation. Secondly, when there is an increase in the demand for the goods and services (demand-pull). In this instance it is also referred to as “too much money chasing too few goods”.

When an economy grows, there is usually an increase of cash flow and liquidity, meaning that many people and entities such as private companies and the government have money to spend. This generates a demand for goods and services which are usually limited in supply. Excess demand forces prices upwards, leading to an increase in inflation.

This is our situation in PNG currently. It has been reported that inflation during the June quarter of this year was 9.6%. What this means is that prices have risen by that much over the March quarter of 2011.

Inflation affects different people in different ways and to different extents. But what it means for everyone is that real incomes fall when prices rise. This is so for the country as well as for individuals. Inflation reduces the Kina’s ‘purchasing power’, meaning that people need more money to buy the same basket of goods and services they had purchased prior to the rise in prices. So when the Bank of PNG reports that inflation was 9.6%, it is actually saying that incomes have fallen by 9.6% in real terms.

We have been hearing calls for employers to raise salaries and wages. We have also been hearing calls for a reduction in personal income taxes. These are all said to be measures which need to be taken to combat the effect of inflation on personal incomes, and hence the livelihoods of workers. But is raising wages or reducing income tax a solution to dealing with the impact of inflation?

The answer is no. While such measures may offer temporary relief, they cannot be long-term solutions, because there is a limit to how much salaries and wages can be raised, and how much taxes can be lowered.

What people can do to combat inflation is to start by cutting down on all unnecessary items of expense that they waste money on. Now when I say this, you may be thinking that you don’t waste money and that there are no unnecessary expenses. The truth is that most people waste a lot of money on unnecessary items. Four items which a lot of Papua New Guineans waste money on are cigarettes, betel nuts, alcohol and gambling. These are what I call expenses that add neither to your wealth nor your health. People spend thousands of Kina on these items without realizing it. Others may include mobile phone credits as a result of uncontrolled phone calls, giving to wantoks, customary obligations, etc.

The second way to combat inflation and maintain your lifestyle is to start a business. A business may not take off as you anticipate, and you may lose your investment, but it does give you the opportunity to realize returns which are higher than the rate of inflation. It also allows you to raise your prices as the prices of your inputs rise, such that some if not all of the rise in costs is passed on to consumers.

The way things are shaping up in PNG, inflation is going to be big headache for the majority of us. While the government and Central Bank use their different policy instruments to minimize inflation, we need to realize that rising prices is a necessary consequence of economic growth. As the economy grows, both the private sector and the government will spend money. This will generate a lot of demand for limited goods and services in the country, with the result that prices rise significantly, with a resultant negative impact on incomes.

My advice to readers is therefore that the time for throwing money around on unnecessary expense items is over. It is now time to tighten our belts, so to speak, and become more prudent in managing money.

Tuesday, August 23, 2011


I use many stories to teach valuable life principles in my books and seminars. One of my favourites is taken from a book titled “Acres of Diamonds”, which contains several speeches given by a gentleman by the name of Russel H. Cornwell.

In this book the author relates the story of an Iraqi farmer called Al Hafed. Al Hafed was a very rich man. He owned a large farm, a large number of servants, and of course, had a lot of money. He was content because he was rich, and rich because he was content.

One day an old Buddhist priest came to Al Hafed’s house. The two men talked well into the night, until the old man started talking to Al Hafed about diamonds. He told the host how diamonds were formed, and how priceless they are. He even told Al Hafed that if he had a diamond, he could buy a whole country. The story goes that that night, as the two parted to rest, Al Hafed went to bed a poor man – poor because he was discontented, and discontented because he thought he was poor. When he compared a diamond to his possessions, in his mind, he saw that he was poor. That night he made a very important decision. He was going to sell his farm and go out to the world searching for diamonds.

Very early in the morning Al Hafed asked the old man how he could find diamonds, to which the priest replied, “Diamonds are everywhere. If you look hard enough, you can find them anywhere.” With that, he was off on his journey. But before he departed, Al Hafed announced that he was going to sell his farm, leave his family with his relatives, and go out searching for diamonds.

The story goes that he searched all over the Middle East, then parts of Asia and Europe, until he came to Barcelona (Spain), a very tired and wretched man. He spent all his money, and by the time he landed in Barcelona, he was destitute. He stood over a cliff looking down at the sea crashing against the walls of the cliff, and couldn’t resist the temptation of jumping down and ending his life. After a few minutes of visualising his family and ex-farm and regretting the decision he had made, Al Hafed quietly jumped down the cliff end ended his miserable life.

The story continues that one day as the man who bought the farm off Al Hafed was walking by the creek that ran through the farm, he noticed something glistening in the water. He reached down and picked up a stone. Not knowing what kind of stone it was, he took it and placed on the window seal of his living room. Every time the sun came up in the morning, the stone would give off all kinds of colours.

One year later the same old priest came around on his annual rounds. He lodged with the new owner of the farm. Early the next morning he got up, and upon reaching the living room, he saw the stone on the window seal. He asked the host, “Has Al Hafed returned?” The man of the house responded, “We haven’t heard from Al Hafed for a year now. Maybe he died along the way.”

The priest replied, “If Al Hafed has not returned, how come I see a diamond in this house?” His host asked, “Where is the diamond?” The priest pointed to the stone on the window seal. The man told him it was just a good-looking stone, not a diamond, to which the priest replied, “I know a diamond when I see one. Where did you get it?” The man replied, “I picked it from the creek at the back of the house. There are many there.” So the excited priest and host went to the creek, and sure enough, they found so many nuggets. In fact the whole farm and the neighbouring area was an acre of diamonds! So the man who bought the farm from Al Hafed went on to becoming the richest man of his country.

The moral of the story is this: Many times the things which would provide us a decent living and even make us rich are around us, under us, or in us, but we overlook them because we think they are elsewhere. So we search far and wide in the places we think those things exist, and most of us die en route. If only we could search within us, we would find that we already possess what we need for our livelihood.

I don’t know about you, but ten years ago I was in the same position as our friend Al Hafed. I left my last job at the beginning of 2001. For the next 7 months I was unemployed. I wrote many letters to potential employers, only to be told that there weren’t any jobs for my set of qualifications and experience. Around August of that year, our church pastor came to encourage us. In the process, he made a mind-opening statement. He said, “Farmers use spades and knives to make their living; mechanics use spanners and screwdrivers; carpenters use hammers and saws.” Pointing to my desktop computer, he continued, “You can use that computer to make a living.”

That statement switched a light on in my mind. Suddenly I realised that I could combine the computer and my knowledge to make some money. I quickly wrote a short course on coffee exporting, which was then my area of speciality. I used the computer on my desk, and the knowledge I had inside my head. It took me one week to write the course, and another week to promote it among coffee exporters. I spent around K500 to print the course materials and hire the venue.

Within three weeks I made K12,000 from a five-day course. The net salary in my last job was K6,000 per month (or K1,500/week). By running the course, I made 8 times what I was paid, and it was tax-free too. My return on the K500 investment was 2,400%!

That experience changed my beliefs about myself, and the course of my life. It dawned on me that I was worth more than what people had been paying me. I have been self-employed since. When people have offered me jobs, I have refused, because I know that I can make more than they will ever pay me. I would simply be overworked and underpaid. Being on my own has given me the freedom to create several ways of making a living. I work as a freelance consultant. I have written five books so far, and am writing more. I have designed motivational seminars on academic excellence, personal finance, business, investing, book publishing etc. My “Seven Steps To Financial Freedom” motivational seminar has been well-received by several corporate organisations. I wouldn’t be living this kind of life if I was employed. Being unemployed has been the most positive thing that has happened in my life.

I have related Al Hafed’s story and my own experience to impress upon you that you already have what you need to succeed in life. In last week’s article I mentioned 6 things you have which if you appreciate and use, can set you for life. They are your mind, basic common sense, time, physical strength, natural talents, and land. If you combine these, money will come to you. If you think that you don’t have what you need to succeed, you will become discontented. You will become mentally blind to what you have in your hands, within you, or around you. Your mind will shut down. You will set your mind on far off things, and wish that you possessed those things, and therefore be filled with hopelessness.

Let me conclude by saying this: Your ‘acre of diamonds’ may be right where you are. What you need to start your own business or live a successful life may be in your head, under you feet, in your house, in your backyard, or in your hand. So look within before you look without.

One final thought: In the Biblical story of Moses at the burning bush, God asked Moses what he had in his hand. Moses told God it was just a shepherd’s rod, but God told Moses that it was a mighty instrument of deliverance from bondage for a nation. What have you in your hand? What have you in your head? What have you got in your house or backyard? What have you got under you feet?