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?


Paid jobs are scarce in Papua New Guinea. Of the tens of thousands of students coming out of our educational institutions, only a small proportion can get jobs after graduating with certificates, diplomas and degrees. Estimates I have seen are around 50,000 school leavers compared to around 10,000 new jobs, which means around 40,000 educated young people cannot find paid jobs, leading to an estimate 80% unemployment in urban areas. This is a cause of much frustration, both on the side of students and parents or sponsors. I believe that the inability to find paid jobs is one of the root causes of lawlessness in the country.

One of the major failures of the education system is that it prepares and mentally conditions students to expect paid jobs after leaving school. Those managing the system do not actually tell people that young people should be sent to school so they can get jobs, but the understanding and expectation exists. This is despite the fact that there aren’t enough jobs for everyone. The result is that every year parents pay a lot of money in school fees, hoping that their children make it as high up the educational ladder as possible, and ultimately end up with a degree in a particular field and a well-paying job. This dream actually turns out to be a nightmare for the majority of students and their parents.

When we look into history, we see that schools were introduced to train workers, either for the government or for private businesses, particularly following the Industrial Revolution. Prior to that, people basically lived off the land, like 85% of our people do today. In most countries, kings owned all the land. Everyone else was a peasant who worked the land belonging to the royal families. They handed over much of the harvest from the land to the landlords and lived off the rest. In Papua New Guinea, it was different. There were chiefs in most societies, but the land belonged to the tribes, clans and families. So basically, everybody worked on their own land. They were self-employed. Not many worked for others for payment.

Schools were introduced into Papua New Guinea by European missionaries and colonisers, to train mission and government workers. They came to Papua New Guinea from a background of making their living from paid jobs. The missionaries actually preached about going to heaven. That is how the missions were able to secure a lot of prime land in the country. They promised the people a better life in heaven, and stole their land in the process. The colonists introduced the idea of working for a regular pay, which was a completely new concept too. They even imposed taxes – and jailed those who didn’t pay up – so as to force people to go school to work for others.

The introduction of schools was done with good intentions, but one of the negative consequences was that school disengaged children from their land. By promising jobs with pay, school caused people to look away from their land which had provided their ancestors with a sustainable livelihood for generations. The education curriculum made English, Maths, Science and Social Science as the core subjects, and relegated Agriculture to being an optional or non-core subject. Even then, students were taught the science of agriculture, but not the business aspects of the subject.

That is why today, not many educated young people think about going back to work on their land after they drop out of the system or successfully graduate with various educational qualifications. All students look for jobs immediately upon graduating. Most that end up back home waste their time and lives doing nothing (and feeling really hopeless and good-for-nothing), while others flock into urban areas in search of paid jobs. This is all the result of the mental conditioning and programming they went through while at school. The brainwashing has been so perfectly accomplished that I would say not one student ever thinks about going back home and using their knowledge to work on their land.

These people do not believe that they can live comfortably by working their land. Even though they can see with their physical eyes how their relatives who have never been to school live in relative abundance, mentally, they become blind to the opportunities that surround them. All they think and dream about is paid jobs, and they are satisfied when they get very low paid jobs like security guards or shop assistants. They don’t earn much cash from these jobs, but they are content as long as they are employed. Being able to get a job inflates their ego so much that they become blind to the fact that uneducated people earn more from working on the land in a day than they earn from their jobs in a fortnight. This again is part of the mental programming they have received.

One of the messages I have been promoting through my books, seminars and talks at educational institutions, youth groups, associations and church gatherings is self-employment as a viable option to employment. Seeing that there aren’t enough opportunities to work for other people, young people need to seriously consider working for themselves. I am glad to report that a growing number of young people have taken the message to heart and have started going back to the land. I will publish actual life-stories of some of these young people in later articles. But it has not been an easy job demolishing the mental strongholds people have built up over the years in favour of paid jobs as a source of livelihood. Reprogramming peoples’ minds to think different is a difficult task.

I am convinced that the answer to unemployment in the country is not employment (i.e. paid jobs) but self-employment (i.e. informal business). Why do I say that? Because there will always be an excess of job seekers over the number of jobs available in the country. The education system will continue to produce workers far in excess of the number of new jobs being created by the public and private sectors on an annual basis. Even the large development projects cannot provide the jobs people need. The conclusion therefore is that only the agriculture and informal sectors possess the capacity to accommodate the large number of job seekers. These sectors provide the greatest opportunity for small business activities. That is why I say that self-employment is the way to go.

If the Government plays its role right (by building or maintaining roads, maintaining law and order, introducing subjects such as agriculture business and financial management etc into the education curriculum, providing training and credit), the rural areas can accommodate the majority of educated young people, leading to a substantial drop in the unemployment rate. When this happens, many other problems associated with unemployment can be effectively (and indirectly) addressed, with the result that PNG becomes a peaceful and prosperous country where everybody who is willing to work can live comfortably.

If you are unemployed, let me encourage you not to look down on yourself. Do not allow the fact that you don’t have a job rob you of your self-esteem. Don’t feel like you are useless or good-for-nothing. Don’t allow other people to make you feel that way. You have to break away from that kind of mindset. You have to look upon being unemployed as an opportunity, not a problem. It is an opportunity to create your own job and become your own boss.

The system has programmed you to believe that you need to be educated and have a job to become a success in life. The truth is that a university degree is not a necessity for success, and a paid job is certainly not necessary for one to live a good life. You can succeed just as you are, and you can start with what you have, right where you are. I will discuss more on this in future articles.

Think about working for yourself instead of working for somebody else and making them rich at your expense. When you get a job, you surrender your time, strength and skills to your employer for a salary. He pays you only a small proportion of what you make for him. He benefits more than you. When you work for yourself, everything you make is yours. You benefit fully from your time, knowledge, strength and skills.

So think about becoming your own boss. Stop thinking about becoming employed and start thinking about becoming self-employed. Think about starting and minding your own business.

Monday, August 22, 2011

The Rich Don’t Work For Money

The title of last week’s article was “Money: A Faithful Servant But A Terrible Master”. I stated that when money is servant, it works for you, but when it is master, it works against you.

I also stated that this is a secret rich people keep to themselves. They have designed the legal, economic, financial and education systems to keep the majority of people working for money while they themselves live in freedom. They use the media a lot to emphasise spending over saving and investing, so much so that people go to school, work for money, spend it on debt and expenses, and go back to work again. This is called the ‘financial rat race’. Sadly, the majority of the world’s population lives this lifestyle.

There are three classes of people all over the world: the rich, the poor, and the working or middle class. If you study the lives of rich people, you will notice that their lifestyles are different from the working class and the poor. One of the major differences you will see is what these three classes of people do. You will basically see that while the working class and the poor work their guts out for a living, the rich take life easy. For example, while the other two groups are working, the rich play golf all day or go to the gym and run on the treadmill. They are working on the next business deal, taking a trip somewhere, or just sleeping and reading while the others are running the ‘financial treadmill’.

Why are the lifestyles of these people different? It is basically because rich people have been able to capture money, tame it, and put it to work for them. They have been able to make money become their slave. Some rich people inherited their money, but many are self-made, meaning that they started by working, saving money, and investing in businesses and other assets. Once the money invested in the assets has started working, they (the people) have had to work less and less, until they have come to a point where they don’t need to work any longer. The harder and faster their money has worked to meet all their living expenses, the more relaxed their lives have become, until they have had to stop working for good.

This has been a process, and it has not been easy. In fact self-made rich people have worked very hard – even harder than the working class – during the initial stages. But unlike the working class and the poor who have spent all or most of what they have earned, those who have chosen to be rich have disciplined themselves. They have set financial goals, budgeted the money they have made, saved it, and invested it. They have taken a different route, which is why have ended up with a different result and destiny in life.

Notice I have stated that self-made rich people have chosen to be rich. It has been a definite decision they have made. You see, you decide whether you will become rich, poor or working class. The moment money falls into your hands is the time you decide what lifestyle you are going to live. In other words, when you have money in your palms, you are staring at your financial destiny right there. If you spend it, you will become poor; but if you save and invest it, you are destined to be rich.

Here is a statement Bill Gates, the founder of Microsoft Corporation and richest man on the planet has made: “If you are born poor, it’s not your fault; if you die poor, it’s your fault.” You may have been born poor, but that does not mean you have to die poor. It depends on how you handle the money you make from your job, farm, or sales you make if you are a street seller. If you spend it all, you will die poor, and you cannot blame anybody for that. But if you make money work for you by investing it, you can become and die rich.

Money: A Faithful Servant But A Terrible Master

A large proportion of the population of the country is struggling financially. Most of our folks in the rural areas think that people who hold jobs and work for money have a lot of money. This may have been true in the past but today the majority of working people are up to their necks with financial problems, especially debt. In fact, I would say that they are up to their noses in debt, barely breathing.

My conclusion from observing both farmers and the working class is that the great majority of them earn enough. Their problem is not making money; it is managing it, and multiplying it.

Financial literacy is a big need in this country. People need to learn how to make money work for them. I guess I wouldn’t be wrong if I said that people like accountants and economists are financially illiterate. You know why I say this? My answer is that if they were literate, they would be the most financially successful people around. The fact is, the majority of accountants and economists – people who have received financial training in school – are living hand-to-mouth lifestyles. They earn a lot, but they also spend a lot (in fact over spend), live beyond their means, and borrow a lot. They are academically bright and professionally successful, but financially unsuccessful.

One thing we all need to know is that money is a very faithful servant, but a very terrible master. Money is neutral the moment it lands in our hands. When we have it in our hands, we decide whether it will become our servant or our master. When we manage it well, save it and invest it, we turn it into our servant. We make it work for us. And it works on a 24/7/365 basis, which is to say, 24 hours a day, 7 days a week, and 365 days a year. It does not get tired, rest, sleep, observe public holidays etc. The faster it works (depending on where you have invested it), the more it produces more of its own kind. This, I believe, is the secret of the rich, which most of us have not been taught.

What the majority of us know is money as a master. We work our guts out for it, but when we get it into our hands, we don’t know how to harness its power for our benefit. The more we earn, the more we spend. This why coffee growers in the Highlands don’t have anything to show for the good international prices of the past two coffee seasons. And this is why the majority of salaried people have nothing to show for their educational qualifications, experience and the long years they have held paid jobs.

When money is servant, it works for us; when it is master, it works against us. When we work for money, it escapes us. It acts as if to say, “Catch me if you can.” But when money works for us, it reproduces itself. The more it does that, the less you need to work for it.

I hope you take stock of your financial affairs and the way you have been handling money up to now, and start giving it work to do instead of spending it all and going back to work for it yourself. I hope that you start making money your servant and not your master.


The education system programs the minds of both students and parents to look forward to paid jobs after graduating from school. Unfortunately the majority of young people cannot get jobs because there aren’t enough jobs for everyone.

I have talked with many young people who roam the streets of centres like Goroka, Hagen, Lae and Moresby, and I have discovered that all of them had been to school at some stage. Many had dropped out, while a good number had completed their education, meaning they had attained certificates and diplomas. I have found degree holders on the streets too! The problem facing all of them is that they have not been able to find the jobs they had expected (or rather been led to expect).

I have reflected on the plight of these people, who I believe now number in the hundreds of thousands and are everywhere in the country. These are human beings, full of raw energy and potential, but that potential is being utilized for destructive purposes and not building up this nation due to hopelessness and despair. Most of them have admitted to stealing for a living. Some of them have even expressed how unfairly they are viewed and treated by other members of society. While they steal to survive each day, others who are already well-to-do steal millions and are allowed to get away with it. This adds to their frustration.

I have also had the privilege of providing advice to a large number of former drug addicts in the Western Highlands Province who are members of an organization called Operation Rausim Drugs Inc. The majority of members of this group (including females!) are school leavers who sought solace in drugs after job searching proved unfruitful.

The few of us who are privileged to hold jobs or own businesses, live in good houses behind razor-wire fences, drive around in air-conditioned vehicles, dine in hotels and restaurants etc, can feel the anger of the under-privileged in the air. You may be a highly-paid and well-respected high-flyer in your office, but you don’t feel safe on the streets which are increasingly under the control of the have-nots. Today you cannot move around without constantly looking over your back, or expecting a road block at every corner of our highways.

The situation is getting worse by the year, as the education system continues to produce over 50,000 school leavers while the public and private sectors can cater for only 10,000 people in terms of providing them with jobs. Education in this country for the majority of those coming out of school is a dead-end road. It is like a river over-shooting its banks when it floods. Educated but unemployed young people are filling both the rural and urban areas, and are literally spilling onto the streets.

I have been conducting motivational seminars for students and youth groups for a few years now. One thing I have come to appreciate is that most of our young people already know what they need to do. What they lack is encouragement to believe in themselves and to actually do what they already know is good for them. They need to be lifted on the inside, given a little push from the back, and provided some indication as to where they need to go. In other words, they need inspiration, motivation and direction.

Every young person needs to be told that not getting a job (or getting sacked from a job) is not the end of the world, and that the closing of one door means the opening of another. They need assurance that becoming a drop-out or not being able to get a paid job is an opportunity, not a problem. It is really a blessing in disguise. It is an opportunity life is offering them to combine the little knowledge they have gained from school with their physical strength, time and natural talents to start their own businesses and become their own bosses. As I tell church people, man’s disappointments are God’s appointments.

This is my message to you if you are a school drop-out or unemployed youth reading this article. You’ve got to be positive about your prospects in life. You’ve got to believe in yourself that you can carve out a living for yourself in the midst of all the seemingly insurmountable problems that surround you. You have been positively engineered and wired to succeed, so don’t be negatively geared in your mind. You’ve got to think a little different from the crowd you hang out with. You’ve got to think a bit deeper than you have been thinking up to now. You have a future ahead of you. Don’t short-circuit it with negative and shallow thinking.

If you care to look around you, you will realize that most self-made successful people started out with little education and little money. In fact, adversities like being drop-outs or getting terminated unexpectedly pushed them into business. I myself started out as a freelance consultant with less than K500 after my employer forced me to resign. I am living much better as my own boss than I would have as an employee. If I and such people have been able to make it, so can you. You just have to believe that you can do it too.

If you are a student attending the University of Goroka, University of Technology, University of PNG and Divine Word University, I encourage you to come to a free motivational seminar I will be conducting. The tentative dates are:

9th August – UoG
13th August – Unitech
27th August - UPNG
To be advised - DWU

The topic is ‘Becoming Your Own Boss’. I will be discussing why students need to think about starting their own businesses, followed by seven basic steps to business start-up. My objective is to present business as a viable option to a paid job, knowing that the majority of the participants will not be able to get jobs immediately upon graduation. I know from experience that the seminar will be a destiny-making experience for some students.

The seminar is my small contribution to addressing unemployment and the associated social and law and order problems in the country. When our young people are busy running their own businesses, they will have no time to create problems for the rest of us. And the more young people get into business, the brighter our corporate future.

It is my contribution to encouraging more national business people in light of the present situation where 90% of businesses in the country are in the hands of foreign entities after 36 years of independence. PNG may be a rich country, but if the wealth is controlled by foreigners, we will end up poor in the future.

Finally, it is my contribution to wealth creation under Vision 2050.