In the wake of the recent global recession, many investors have looked to Asia to lead the way to recovery.

Emerging economies such as China and India have continued to expand at impressive pace, while Australia was recently one of the first developed markets to raise interest rates. But among these hot zones, Japan remains mired in an economic slump that is threatening to result in another “lost decade” for the world’s second largest economy. Many national stock markets have risen sharply in 2009, but Japanese benchmarks remain nearly flat, unable to gain any traction towards a return to growth.

Despite some hopeful signs – cautious optimism over corporate earnings and unemployment has sprung up – Japan has sunk back to deflation and stocks have been hammered by the yen’s strength relative to the U.S. dollar. Now, the Japanese government is preparing its third massive stimulus package of the year, planning to inject nearly $80 billion in a controversial effort to jump-start the sputtering economy.
Third Time A Charm?

The latest version of the stimulus plan would generate billions of dollars of fiscal spending, including environmental projects and efforts to promote earthquake-proofing of homes to boost the building market. Japan’s stock market has surged over the last week on hopes that the new plan would prove more effective than the first two cash injections this year.

The stimulus was expected to be approved last week, but has now been delayed by political disagreements. Although the plan as proposed includes nearly $80 billion of new spending, some believe that the amount should be more, and that going forward at current levels will result in failure. Although the Democratic Party of Japan won a historic victory in August, prime minister Yukio Hatoyama has been hesitant to overrule his junior coalition partners, including Shizuka Kamei, leader of the People’s New party and minister for financial services. Kamei has said that the government should spend whatever it takes to ensure a recovery.

Some analysts believe the delay of the stimulus reflects the weakness of the current governing alliance, perhaps signaling deeper problems in the Japanese economy in years ahead. Others believe that government efforts should be focused elsewhere, such as the oft-criticized corporate tax system. “Less than 30 percent of Japanese companies booked a profit for tax purposes last year — a figure that implies either that the majority of the economy makes no money at all, or that corporate tax evasion is rife at all levels of business,” writes Leo Lewis.
ETF Plays On Japan

For investors who believe Japan may make a push to catch up with the rest of the world, there are several exchange-traded products offering various levels of exposure to the market (see a complete list here). These ETFs include:

iShares S&P/TOPIX 150 Index Fund (ITF): Linked to the S&P Tokyo Stock Price Index, this ETF offers exposure to many of the largest publicly-traded Japanese companies. Although listed in Japan, ITF’s largest holdings are generally global companies that operate around the globe, such as Toyota , Honda , Mitsubishi , and Canon.

SPDR Russell/Nomura Small Cap Japan ETF (JSC): Whereas ITF features primarily mega-cap companies, JSC focuses on small cap Japanese equities. The index underlying this ETF has a median market capitalization of just $235 million. JSC offers impressive depth of exposure, investing in nearly 400 individual securities.

WisdomTree Japan Total Dividend Fund (DXJ): This ETF invests in dividend-paying companies in Japan, and determines allocations based on cash dividends paid. Many of the largest companies held by this fund are large, well-known companies, including Honda, Toyota, and Panasonic (PC).

Inverse ETF Options

For those who believe the thought of another stimulus package has given false hope to an economy that remains fundamentally weak, there are ways to bet against the Japanese markets through ETFs as well. The ProShares UltraShort MSCI Japan (EWV) seeks to deliver daily returns equal to -200% of the daily returns on the MSCI Japan Index.

Last week was a busy time in Papua New Guinea. On Tuesday the Treasurer presented the 2010 budget to Parliament, and as these things tend to do it had something for everyone, most notably a 7.5 billion Kina ($3.2 billion) increase in spending and no increase in taxes. Major beneficiaries were education and government employees, whose pension benefits rose.

The gap is to be funded by an expected rise in revenues from mineral royalties and taxes as the world economy recovers, and from the long-awaited natural gas boom. The agreement between ExxonMobil and the government on a $10-billion investment in a liquefied natural gas (LNG) project was signed earlier this month and the final project go-ahead will come on December 8, with construction expected to start before the New Year.  In a departure from its normal budget guidelines, which call for any windfall gains from higher mineral prices to be spent on major investment projects and to pay off public debt, this year’s budget allocated over 500 million Kina for additional “priority expenditures.” It’s uncertain how quickly the multiplier effects from the LNG investment will result in higher tax revenues for government, but it’s unlikely that it will happen within the next budget cycle.  Meanwhile, government plans to draw down its trust accounts in anticipation of the coming bonanza.

The Prime Minister declared Wednesday a public holiday for government employees to celebrate its delivery of the “Vision 2050” Plan to make PNG a “richer, safer, and healthier” country by 2040. The festivities began before dawn on Independence Hill with Boy Scouts and Girl Guides offering prayers, and continued with traditional dances and ceremonies interspersed with speeches. At around noon the festivities moved to the national stadium, where the plan itself was unveiled, accompanied by more speeches. There followed a feast of roast pig and beer, and the party continued well into the evening.

Prime Minister Sir Michael Somare called the Vision 2050 document  “a gift from the Government to the people,” and called on the public service to “rise to the occasion and the challenge, lift their game, and with a sense of patriotic spirit, carry out the work required to give full effect to the country’s fresh, long term, strategic development plan.” The Prime Minister went on to proclaim the day, November 18, 2009, “as the date we charted a destiny for our children, their children and generations to come,” and called the Vision 2050 the most significant instrument since adoption of the national constitution in 1975. “The vision is a beacon of fresh hope for our people now and for the generations to come” he said. “The PNG Vision 2050 maps out the future direction our country should take, reflecting the hopes and aspirations of our people.”

I have not read the document, though I understand it is based on seven “pillars” of development, of which government service delivery, wealth creation, and human capital development are said by government to be the most important. It is easy to be sceptical of vision statements. Late in the last decade and early in this one, “Vision 2020” statements were in vogue in many countries and PNG had one of its own, but with only 10 years remaining until 2020 new horizons must be found. At least PNG’s vision statement is brief: at 60 pages it is light reading compared to Afghanistan’s National Development Strategy, introduced in 2008, which weighs in at over 1,000 pages and contains several hundred “priority” actions that government must undertake for the vision to be realized.

But most local people I spoke with were dismissive of Vision 2050 and the hoopla surrounding it. “They should celebrate when it is implemented, not when it is introduced,” said one acquaintance. Letters to the Editors of the national newspapers were even harsher in their criticism. One writer pointed out that most of the goals in PNG’s Vision 2020 remained unachieved, and others stressed that it is easy for politicians to make vague pronouncements about a vision that will come to pass, if at all, after most of them are dead, but that it is much harder to do something concrete and specific about the problems the country faces today.

Personally, I found it most interesting that the Vision was described as a gift by government to the people. PNG in many ways remains a traditional society in which most benefits – land, wives, livestock, money – are given by a village or tribal chief to his subjects. Much of that system has been transferred with little friction into modern governance with its patronage based on tribal, clan, and family relationships. In this context it is understandable that the P.M. and his Ministers, in many ways equivalent to the chief and tribal elders, should consider the Vision and its promised benefits as largesse bestowed on a grateful people. The view that most good things flow from government is not unique to Papua New Guinea, and we can find more than a few traces of it in current-day America, but it is not a mindset that bodes well for the future of private business. Even as they stress the importance of the private sector to economic growth, few career politicians have any real understanding of private business. In Papua New Guinea, where most good things look as if they will come from an enormous joint venture between the government and ExxonMobil, with China’s state-owned Sinopec an important party to the deal, encouraging entrepreneurship may not be the most important preoccupation of government or the citizenry.

On Thursday most government offices remained empty. The senior officials were huddled in various budget-related meetings while most of the others slept off their hangovers, and then there was hardly any point coming into the office on Friday.

My week had started with promise, but quickly slid downhill. My team of consultants, accompanied by a couple of people from the Department of Commerce, flew on Sunday to Manus, PNG’s smallest province by population, which consists of one large island surrounded by hundreds of smaller ones, home to about 50,000 people. The province, known to geographers as the Admiralty Islands, lies in the Bismarck Sea north of the main island of New Guinea. From there it is a straight shot over several thousand miles of ocean to Japan.  Our project terms of reference call for us to evaluate Manus as one of several potential locations for a free trade zone.

American troops landed on Manus in 1944 and seized the island from the Japanese, whereupon it became the staging point for the northward island-hopping campaign that would have culminated in the invasion of mainland Japan had Truman not first dropped the atom bomb to end the war.  Douglas MacArthur spent time there, and at one point over a million servicemen occupied the island while more than a thousand ships were anchored in the harbor.  The base saw some use during the Vietnam War, but not much has happened since then. We visited the Lombrun Naval Base, about 20 miles along the coast from Lorengau town, the provincial capital. Nothing remains of the original jetties, but the 800-square kilometer site is dotted with hundreds of 65-year-old Quonset huts. In recent years the Australians built a new jetty, where two PNG Navy patrol boats were tied up, and a few hundred yards away a tugboat rode at anchor, its sole function to tow the monthly fuel tanker in and out of the harbor. In addition to the Quonset huts and the house where General MacArthur stayed, the U.S. bequeathed a 10,000-ton fuel depot and, on a nearby island, an airbase, which we did not get to see.

A few hundred yards in the opposite direction from the tugboat anchorage, the National Fisheries Authority recently built a fishing pier.  Manus is without doubt a very strategic location from which to stage an Asian war, but the national and provincial governments believe it is equally strategic as a hub for the South Pacific tuna fishery, which accounts for 70 percent of the world’s supply of bluefin tuna, much of it caught within PNG’s 200-mile exclusion zone. The fleet itself comes from everywhere: Japan, Taiwan, Spain, the Philippines. PNG charges royalties on the catch within its waters, but the tuna itself goes mainly to Thailand for processing and the boats either refuel and resupply on the high seas or put in to Guam or Manila.  If the base at Manus were declared a free trade zone it could offer cheap fuel to the fishing boats, and around that an entire resupply and repair industry could develop.

Or so the thinking goes.  The challenges are many. PNG has just raised the minimum hourly wage to nearly a dollar, and even the country’s most enthusiastic boosters admit that the work force is unproductive and uncompetitive, especially compared to places like the Philippines. This gap is likely to worsen as the LNG causes the Kina’s value to appreciate and as the citizens start to receive more generous cash transfers and subsidies from the national government. Manus has no port capable of accommodating container ships – the U.S. forces used front-opening landing vessels to discharge cargos – and it is far from most of the main Southeast Asian and Pacific shipping routes. The national government several years ago granted a Canadian-Australian company a monopoly on imports of refined petroleum products, and this company also operates the country’s only refinery. Fuel is not cheap. Finally, Manus is remote. Even if it had a proper port, the transport costs alone could make it uncompetitive with the likes of Guam or Manila. None of these problems is insurmountable, but the cost for government to fix them – it’s hard to imagine a private investor stepping up to the plate – would run into the hundreds of millions of dollars, a high price to create a few hundred jobs.

Lorengau, which from the sound of it was founded by the Germans when they were the colonial power, has nothing much to recommend it. There is a decent paved road from the airport, which turns into the main drag, along which there are the post office, the provincial government offices, a general wholesaler, a Chinese-owned supermarket, the Air Niugini office, a gas station, the Bank South Pacific office, the open-air market, a scuzzy-looking ice cream place, a public boat landing, and the Harbourside Hotel, where we stayed. That’s it. My room at the Harbourside was clean and harbored no vermin I could see, though management did thoughtfully provide a can of bug spray. Though it sits right on the water, a high chain link fence topped with barbed wire separates the grounds from the sea itself, apparently to keep out the lawless element. This doesn’t matter much anyway, since there are no real beaches and the hard coral bottom comes up almost to the high water line. The hotel bar was a sort of screened terrace with a dangerous-looking green carpet, overlooking the pool, which was filled to a depth of about two feet with slimy green water.

We arrived around noon on Sunday and after checking into the hotel and eating a quick lunch we visited the base. The plan was to meet a few government officials and members of the business community in the evening or the next morning before leaving on the early afternoon flight. The Governor was hosting a dinner that evening, but we met with him in the morning, and then held a quick conference with the “private sector,” at which the participants consisted exclusively of people from provincial government offices apart from the Chairman of the Manus Chamber of Commerce.  Having done our contractual duty with respect to Manus, we got into the hotel bus to go to the airport, but Air Niugini had other plans, cancelling the flight for mechanical reasons. This is no joke in a place served by only four scheduled flights a week, but assurance soon came that they would put on a flight the next day.

With nothing else to do, we set out to explore the town. My partner’s wife’s family hails from Manus, so there was a flock of family members hanging about their hotel room. As we stepped onto the streets of Lorengau Uncle Paul (pictured) appointed himself our guide.

Uncle Paul and friend

Paul himself is an interesting fellow, formerly with the traffic section of the National Police, who was sent to Australia for training and then served in various locations in PNG before taking early retirement and moving back to Manus to live on his pension.  Well-informed about the world, he lives contentedly in this backwater, and although he must own a pair of shoes I never saw him wearing any. He gladly accepted our invitation to drink beer and dine with us, but gave no sign he expected anything at all.

We visited the local market, in which fully half of the merchandise on sale was betel nut and the lime powder and wild mustard pods that are chewed with it. As for the rest, there were some sad-looking bananas, a few lonely pineapples, a large number of local vegetables I couldn’t identify, and stall after stall selling smoked or dried fish. Smoking and drying fish are the only ways to preserve it when there is no refrigeration, and varieties of it are common all over the world, but I couldn’t grasp why, in a seaside town where anyone can go out on the reef in a boat and catch or spear a fish, the people would eat this instead of fresh fish, of which I saw none in the market. The meat section was limited to a woman sitting behind a table on which were arrayed the dried carcasses of a tree dwelling rodent or marsupial about the size of a house cat – known as a cass-cass – whose long naked tails curled up behind them.

One of the tour’s highlights was a stop at the Chinese supermarket. The two tills in the store were manned by the owner and his wife, and what I took to be the couple’s two adolescent sons sat perched like vultures atop stacks of cardboard boxes flanking the store’s entrance, surveying the movements of every customer.  The Chinese are unpopular in PNG for many reasons, but their approach to customer relations may be one of them. The shelves were given over largely to tinned meat and fish. Pork-based lunch meats, corned beef, ox tongue, sardines, mackerel, tuna. SPAM, introduced by the armed forces in WWII, is well-known as one of America’s main contributions to the culture and lifestyle of the South Pacific. Hawaii consumes more of the stuff than any other state, but Hawaiian consumption is dwarfed by that of places like Samoa, Tonga, and Yap. In PNG, however, the original has been supplanted by a proliferation of local brands. In a place like Manus, if you don’t have your own boat to go fishing on the reef SPAM and its equivalents are cheaper than fresh fish.

Immediately following the Second World War the Allied troops departed from PNG and other South Pacific islands, leaving behind anything it was cheaper to abandon than ship home. Wrecked ships and Jeeps, Quonset huts, tires, cigarettes, matches, combat boots, and SPAM. An entire set of religious beliefs and practices, known as cargo cults, sprang up as the supplies ran out and the natives waited vainly for more cargo ships to arrive. Elaborate rituals developed to encourage the gods to send more cargo. These included building landing strips in the jungle for the cargo planes to land and lighting fires along the runways to guide the planes in, as well as performing military parade ground drills with abandoned weapons or sticks.

Most of my meetings in Manus had something of a cargo cult flavor, minus the ritual. “If it was militarily viable then it has to be commercially viable now,” was a frequent refrain. World War II is a constant memory even to those who were born long after the Vietnam War. People in Manus truly believe that they will once again see hundreds of ships riding to anchor in Lombrun Harbor and that jobs and cargo will again become plentiful. Most frightening, they look to my team of consultants to give them the key to that future. There may be things that the provincial and national governments can do to help Manus, but none of them are likely to involve massive infrastructure projects.  I may write something about these possibilities in a future post. But for now, managing those expectations is something close to a full-time job.

This past Thursday in the village of Tari in the Southern Highlands of Papua New Guinea a delegation of senior government ministers and members of Parliament were pelted with stones by an angry mob.

The police fired several shots in the air, which were met by a single shot from the crowd. No casualties were reported. The group was in Tari to hold a forum on the agreements, currently under discussion, for sharing of benefits between government and local landowners from a huge project that will take gas from the Southern Highlands, transport it by pipeline to the capital, Port Moresby, where it will be converted into liquefied natural gas and shipped to China, Japan, and other markets.

Universally referred to as “the LNG,” the project, led by ExxonMobil in partnership with several other companies and the government of Papua New Guinea, will cost an estimated $10 billion to develop, and will produce direct government revenues from royalties, taxes, and the government’s equity stake, of about $30 billion over the 30-year project life. This is a lot of money sloshing around in a country of 6.5 million people. Oil already accounts for a significant chunk of export revenues and there is another, even larger, gas project in the planning stages and several huge mining projects, which together are expected to at least quadruple the country’s GDP over the next 30 years or so.

Papua New Guinea, a country known to most people, if at all, as a land of jungles, cargo cults, and painted cannibals with bones through their noses, both differs from and corresponds to the stereotypes, as most places do.

This is not a travelogue, so I won’t go into detail, but PNG is a country where over 700 distinct languages are spoken, where some people do go around with their bodies painted and noses pierced, and where huge areas covered with jagged mountains and dense forest remain accessible only by jungle footpath. As for cannibalism and cargo cults, their past existence is well-documented but I’ve read and heard nothing about current practice.

The Tari villagers were upset that their area had been excluded from the mapping of development license areas, and feared they would be deprived of their fair share of the revenues. Thursday’s altercation in Tari presages what could become a conflict that expands in scope and intensity to engulf the entire country. The problems are compounded by Papua New Guinea’s system of customary land tenure, which covers over 97% of the national territory.

Communities are now allowed by law to form corporations, which hold the communal land and can enter into contracts with private companies and government agencies. These corporations, known as “landcos,” are in some ways an improvement over the traditional system, but many villagers fear – with reason – that a few insiders, possibly acting in cahoots with politicians, will misappropriate the funds meant to contribute to local development. Endemic corruption makes this more than just a theoretical possibility.

There is an equal risk that the people in these communities will spend all the money on drink and cars and shopping trips to Australia and will end up much worse off for the wealth they have frittered away. There are so many examples from around the world of both kinds of responses to a sudden surge in mineral wealth that there is a name for it: the resource curse. From Native Alaskans, reduced by oil revenues to drunkenness and domestic violence, to Sierra Leoneans who lost their lives or limbs to Charles Taylor’s mad pursuit of diamonds, the world is littered with failed or nearly failed states and communities that would have been far better off if their wealth had remained buried in the ground.

Even leaving aside the most apocalyptic scenarios, the resource curse, which often entails a rapid appreciation of the currency, often destroys most other sectors of the economy, making it impossible for them to export or compete against cheaper imports. Think of Nigeria, formerly a food exporter, which is only now, after 40 years neglect, trying to rebuild its agricultural base.

Apart from a handful of manual laborers, the LNG will employ few Papua New Guineans. The project will require more welders than there are in the entire country, most of whom have inadequate skills and training to do the job. The project is already sucking up most of the available labor in any case. Local businessmen say they lose workers every day, but how could they not? A truck driver who ordinarily would earn $1.25 an hour can make three or four times that much working for ExxonMobil.

To its credit, the national government is aware of all these risks and is determined to combat them. It is working on establishment of a sovereign wealth fund, modeled on those owned by the likes of Norway and Abu Dhabi, to preserve some of the wealth for future generations. It has worked hard to reach agreements with the landcos to ensure that they don’t feel left out of the bonanza, and it has plans to spend money intelligently to upgrade transport infrastructure, increase the supply of electricity, and improve education, training, sanitation, and health care. Senior officials have often expressed the conviction and determination that PNG will transform itself into something resembling Singapore. This may be a dream, but it is certainly possible for the country to follow the example of Botswana, a country that has used its mineral wealth to build a stable and relatively prosperous society.

To its advantage, Papua New Guinea is unlike many other resource-rich countries such as Botswana,  in that it has numerous other industries ripe for development. With hundreds of islands, pristine beaches, rugged mountains, coral reefs, unique ecosystems, and a profusion of unique cultures, the country could make as much money from tourism as it will from natural gas. From diving holidays to big game fishing to jungle trekking and cultural tourism, there is almost an infinity of experiences the country can offer.

But my flight last week from Port Moresby to Buka, in the Bougainville autonomous region (see picture) cost over $1,000 for the round trip (okay, I flew business class, but even in economy it would have cost around $600), similar to the cost of a return economy class fare from Australia, Hong Kong, or Singapore, the nearest international destinations. From Japan, the U.S. or Europe, you’d be doing well to get there and back for less than about $3,000. This means that a family of four, intending to visit, say, three different locations in PNG, would have spent a good $20,000 on airfares alone, before spending a nickel on hotels, meals, drinks, diving lessons, and souvenirs. This may decrease, as government improves airports and civil aviation and allows greater competition in the air. Right now, Qantas and Air Niugini have a virtual monopoly on flights both into and within the country, but at least one private airline has started operating and others could follow.

The Markham Valley in Morobe Province could potentially supply all of PNG with fresh produce and grains, as well as exporting to markets in East Asia and Australia. If Zimbabwe even now can export freshly-picked French beans to supermarkets in the U.K. and Kenya can supply cut flowers to the markets in Amsterdam and Dubai, there is no reason PNG could not do the same in its region. The region is also the source of most of PNG’s coffee, which has begun to develop a premium image in export markets. I have even bought PNG coffee at Trader Joe’s.

If Rwanda and Ethiopia can succeed at this, there is no reason PNG cannot. Projects to improve the Highlands Highway that runs through the valley and the airport and seaport at Lae, could unlock this potential, and a few intelligent irrigation and water management schemes could help, and there are plenty of indications the government and international donors are trying to make this happen. Even now, after a decade of armed separatist conflict and laborious reconstruction, Bougainville produces some of the world’s most coveted cocoa, which commands a premium price with European and Japanese confectioners. It’s not far-fetched to think we will soon see seven-dollar Bougainville-origin chocolate bars in Whole Foods, alongside similar products from Ecuador, Venezuela, and São Tomé.

F. Scott Fitzgerald’s novel This Side of Paradise, and the Rupert Brooke poem Tiara Tahiti from which he took his title, both concern coming of age, loss of innocence, and recognition of one’s own mortality. Both works contain ambivalence about this transformation and it is never entirely clear on which side of the divide paradise truly lies. It depends, of course, on which side of the divide you are standing. It is possible that Papua New Guineans thirty years hence will wake up with a massive hangover amidst the wreckage of what was once their beloved homeland, now strewn with wasted lives and expensive monuments to vanity and greed. It is equally possible that they will look back, if not from the vantage point of a Singapore-like high tech marvel, at least from a position of solid and sustainable prosperity and opportunity.

The choice is not entirely theirs: the global economy and geopolitics are a big part of the equation. But if Papua New Guineans and those who govern them can put aside clan and ethnic rivalry and keep personal greed within acceptable limits, I’d have to rate the chances of success pretty high.

Ensuring domestic food security and developing a viable export sector are at the heart of Brunei’s efforts to establish a strong commercial food processing industry.

However, the country has to balance its staunch commitment to environmental protection with the need to achieve self-sufficiency in basic staples. At present, Brunei Darussalam’s agriculture only partially meets the country’s food needs, with a small contribution to both employment and the economy, something that may well change in the near future.

Last year, the total output of Brunei Darussalam’s domestic food sector was just $158m, though under a new strategy developed by the Department of Agriculture this is to increase to $430m in 2013 and $1.9bn by 2023. While the strategy aims to improve yields from farms, the emphasis is on growing the agri-industry.

Speaking at the launch of the new strategy on October 10, the industry and primary resources minister, Pehin Yahya Bakar, said the challenge was to develop sustainability.

“I wish to stress that the basis of agricultural development for the next two decades will be directed at efforts to strengthen the capacity in the agricultural sector, not only in increasing primary agricultural commodity production sustainably, but more so in the development of the capacity of the secondary sector, food processing, which will invite more agri-business opportunities, locally and internationally,” he said.

One of the cornerstones of Brunei Darussalam’s ambitions is the Agro Technology Park to be located near the capital, a project being developed on a 260-ha site to cater to the needs of the industry. When operational in 2011, the park is expected to create up to 8000 jobs and combine research and logistics hubs alongside a processing cluster. With the state contributing $140m and private investors expected to match that, the project is one of the largest industrial developments outside of the energy and petrochemicals sectors.

The other building block on which the Sultanate’s food processing sector is to be constructed is the state policy of supporting the halal food industry, promoting the production of fresh and processed foods that comply with the requirements of sharia laws.

Brunei Darussalam officials have identified the growing demand for halal products, a market that already represents around 12% of global food sales and which is expected to increase to 30% by 2025, as an industrial niche the Sultanate can help fill, both through testing and certifying products from overseas through the Brunei Halal Brand and by expanding domestic production.

Though Brunei Darussalam wants to boost its agri-industrial base, along with the primary industries needed to support it through the growing of raw materials, there are a number of constraints that may restrict the scope of development. One of these is a shortage of land.

Though the Agro Technology Park and other smaller-scale projects are being developed to serve the food industry, there is only a limited amount of land available for extending agricultural production.

According to figures released by the minister of development, Pehin Abdullah Bakar, on October 17, just 5% of Brunei Darussalam’s land is listed as accessible for housing or industrial purposes, with housing having the priority.

There are only some 28,825 ha of the country’s total landmass of 576,500 ha that has not been marked for preservation or that is already being utilised, the minister said.

With some 17,000 applicants on waiting lists for state housing, a figure that is expected to rise to 30,000 by 2012, the minister said care had to be taken to manage land resources.

“So far, the nation’s housing scheme requires 5000 ha of land, which is 17% of the land available,” Pehin Abdullah said. “This shows the need for us to use land more wisely.”

To combat the lack of wide open spaces, Brunei Darussalam officials are promoting the better use of what land is available, both through utilising improved technology and techniques, and by focusing on crop strains that are best suited to local conditions. One example of this is the introduction of a specially developed high yield rice variety, Bera Laila, part of the campaign to meet 20% of domestic rice demand by 2010, up from the current single-digit levels.

Another way that Brunei Darussalam is looking at overcoming its deficit of primary produce for processing is through imports, a strategy outlined by Abdul Latif Sani, a senior official with the Department of Agriculture’s Halal Development Division.

Brunei Darussalam was considering forming partnerships with foreign firms to provide bulk raw materials to be exported to the Sultanate where they could be processed so as to meet halal standards, Abdul Latif told the Borneo Bulletin while attending the sixth China-ASEAN Expo in late October.

“Basically the objective is, as a Muslim nation, to provide halal food to Muslims worldwide,” he said. “The second objective is that we are tapping into the lucrative halal global market, which is believed to be worth billions of US dollars. The third is that we want to take the small and medium-sized enterprises’ products to explore the global halal market.”

While it will take time for Brunei Darussalam’s agri-industry to fully get off the ground, having identified a potential growth market, the government is putting in place the necessary capital and infrastructure to sustain the sector’s development.

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The Oxford Business Group’s series of publications are renowned as the leading source of economic information for nearly 30 countries across The Middle East, Africa, Asia, Eastern Europe and the Caribbean.

UBS has upgraded its growth outlook for the Philippines for next year alongside a modest global recovery and benign inflation prospects. UBS also sees a long-term bearish trend for the U.S. dollar, which in turn could fuel a peso appreciation against the greenback.

In a briefing on Thursday, UBS global economist Paul Donovan cautioned against overoptimism on the global economic rebound, noting that small businesses in Western economies were still facing tough economic conditions and that banks were still lending below normal levels.

If he were to characterize the pace of global recovery, Donovan said ” It’s like the swoosh in the Nike trademark – the world is seeing a recovery but it may not be as good as the financial markets are hoping for. But from the perspective of Asian economies, the good news is things are getting better”

Supported by pent-up demand & a sharpened inventory cycle as well as relaxed fiscal  policy, UBS has raised its growth 2010 forecasts for the five largest economies of Southeast Asia, including the Philippines. The Philippines’ gross domestic product (GDP) is now seen growing by 5% in 2010, up marginally on an earlier forecast of 4.6% & considerably better when compared to this year’s projected 1.3 percent.

However, Fillipino growth next year will  likely remain slower than the growth forecast for neigbouring countries; Singapore – 7%, Malaysia 6%, Thailand & Indonesia, both with 6% forecast GDP increases.

With a relatively buoyant outlook, Donovan said central banks in some emerging markets would likely start raising interest rates by next year, maybe even ahead of the modest monetary tightening by the U.S. Federal Reserve, European Central Bank and Bank of England. These major Western central banks areprojected to shift to a cycle of monetary tightening by the second half of next year.

Asked whether the 2010 presidential elections in the Philippines would likely dampen investor sentiment on the country, Donovan said: “Risk aversion is going to decline among international investors over the next one to two years so they will be more interested in higher risk assets so that generally means, there will be less concern on political risks.”

In the cousrse of the next three to six months, Donovan said the US dollar would likely strengthen a little (5%-10%) asfinancial markets may be disappointed with the pace of global recovery and thus reconsider the greenback as a short term “safe haven.”

Donovan also said the macroeconomic fundamentals that have weakened the US dollar, including the continuing current account deficits, would likely last foranother five years. Orderly depreciation of the US dollar and a consequent appreciation of Asian currencies, will not necessarily hurt economic prospects in the Philippines.

Donovan also noted, as the currencies of the Phillipines regional peers, with which the country is competing with in terms of exports, are also following the same uptrend, local currency appreciation won’t necessarily weigh down competitiveness.

To anyone who has studied anthropology – it was my major in college – a visit to Papua New Guinea can’t fail to excite. PNG, a country with over 1,000 tribes and 700 languages – nearly half the world’s total – has almost certainly been the source of more anthropological monographs than any other place on earth.

They include Bronislaw Malinowski’s classic “The Sexual Life of Savages in North-Western Melanesia,” about the Trobriand Islanders, and Margaret Mead’s “Sex and Temperament in Three Primitive Societies,” which became part of the feminist canon for its depiction of three tribes in the Sepik River basin, one of which was determinedly pacifist, one female dominated, and one in which women and men were equally warlike. The body of Mead’s work tends to reflect her own sexual and political fantasies more than it does closely observed social behaviors, but never mind that.

I am here on a quick visit to negotiate a contract with the government, which has selected my firm, together with a local consulting firm, to prepare a strategy for the development of free trade zones and/or special economic zones throughout the country. I won’t get out of Port Moresby, the capital, on this trip, but once the project actually starts up I expect to visit several fairly out of the way places, including Daru near the mouth of the Fly River (another ethnographic mother lode) in Western Province near the border with Indonesia; Buka, on the island of Bougainville; Kerema, on the Gulf of Papua; and Manus, in the Admiralty Islands. I plan to fit in at least one visit to the Highlands, home to many of the country’s tribes and languages.

Even though the government has banned it in the National Capital District, the sidewalks in Port Moresby are stained red, not with blood, but with betel nut spittle. Betel, a mild stimulant that stains habitual users’ teeth red, is a national passion, and on every street you can find one or more vendors squatting on the sidewalk in front of a small pile of the nuts in their fleshy, green pods.  Hotels, office buildings, and rental cars all post prominent signs “No Smoking. No Betel,” accompanied by the international sign for forbidden things, in this case a red circle with a dark rugby ball shape inside and a red diagonal slash through the middle.

Today the country celebrates the 34^th anniversary of its independence from Australia, which had ruled the former German colony under a League of Nations mandate since 1920. People everywhere are wearing shirts in the colors of  the national flag, which depicts the Southern Cross (white on a black field)  and the Bird of Paradise (yellow on a red field). The Independence Day festivities coincide with the annual Hiri Moale festival, which commemorates the epic voyages in outrigger canoes of the Motuan people from Central Province east of Port Moresby to trade and socialize with the Erema people of the Gulf of Papua. Yesterday the lobby of the Crowne Plaza Hotel was crowded with bare-breasted young girls wearing elaborate grass skirts and headdresses, their faces and bodies painted with black geometric designs, who are here to compete for the title of Hiri Moale Queen, who will be crowned and feted tonight in the Kambuingini Ballroom, an event to which I regrettably have not been invited.

India is frequently and justly praised for its ability to sustain a functional democracy in a land of staggering ethnic diversity, crushing poverty, and widespread illiteracy, but PNG’s achievement is even more impressive. Some tribes in remoter areas of the Highlands had no contact with the outside world until the 1990s, but they now vote in parliamentary elections even as they engage in more or less continuous warfare with neighboring villages.

A good part of the front page of the Papua New Guinea “Courier-Press” over the past week has been given over to a scandal in Yamine Village in the Tekadu area of Wau in the Morobe Province, where a new cult has surfaced, promising a tenfold increase in the banana crop for those who engage in public sex. The cult leader, it seems, has terrorized villagers into practicing public nudity and fornication, and kept the village magistrate, who objected to the practice, locked in a hut for four months until he managed to escape and walk 12 hours to the nearest police station. The police then mounted an expedition, which marched 12 hours back to Yamine to arrest the cult leader, only to find he had fled. According to the magistrate, the leader had launched the cult because the people had received no government services and needed to find other ways to improve their welfare.

What is most interesting is not the sex cult itself. We have had more than a few of those in the U.S., though many of them seek religious fulfillment or Maslovian self-actualization rather than more productive banana trees. No, what astonishes is that these villages are separated by 30 miles of jungle footpath from the nearest road or telephone or electric light. Making democracy function in that kind of environment cannot be easy.

Freedom House’s Index of Political Freedom classifies the country as “partly free” with a score of 3.5 (one being fully free), the same as Colombia and the Philippines and not too far behind India itself, noting that the most recent elections, in 2007, were marked by widespread irregularities. The Freedom House report also pointed to corruption scandals surrounding the Prime Minister and a sometimes-violent separatist movement in Bougainville, which the government has not always dealt with in the most sensitive fashion. Still, the press does not shy away from criticizing the government, the judiciary is widely recognized as independent, and the Prime Minister’s own party won only 27 out of 100 seats in the 2007 elections, so must rule in a coalition government.

PNG also scores pretty well in the Heritage Foundation’s Index of Economic Freedom, especially in areas like trade, taxation, business licensing, and labor, though its overall ranking is dragged down by a high level of corruption and a lack of secure property rights, the latter unsurprising in a country in which most land is under customary tribal tenure.  Still, the challenges the country faces in trying to develop a modern economy are enormous. Far too many of the people I see on the streets of Port Moresby have the shell-shocked and blotto look, common among American Indians, Inuit, and Australian Aboriginals, of indigenous peoples forcibly uprooted from their traditions and cast into the lower reaches of the modern world, which has little time or use for them. Alcoholism, family violence, street crime, and HIV are rampant. People warn me not to take even a licensed taxi. “They will take you somewhere else and rob you.”

PNG, however, is about to come into great wealth, which may be the biggest challenge of all. The huge Ok Tedi copper mine in Western Province, which has been the source of most of the country’s export revenues and a significant chunk of total GDP for the past 20 years, is expected to shut down in 2013, its reserves exhausted. But a natural gas bonanza is in the offing. In 2008 the government signed a $10 billion agreement with a consortium led by Exxon Mobil to develop gas fields in the Southern Highlands and to build a pipeline to transport it to a new port and LNG terminal and refinery.The project is expected to export over 6 million metric tons of LNG annually and promises to double, or even quadruple, national GDP, transforming Papua New Guinea from a least-developed to a middle income country. PNG also has vast mineral resources, and the government in 2006 signed a $1 billion deal with state-owned China Metallurgical Construction Corp. to develop the Ramu nickel mine.

With corruption already endemic, PNG risks joining the legion of countries – think Nigeria, Congo – whose natural resource wealth has impoverished them through “Dutch Disease,” the sudden currency appreciation that can destroy a country’s agricultural and manufacturing base, and a shift from democratic governance to kleptocracy. To its credit, the government here seems to recognize the challenge and appears determined to use the country’s resource wealth to improve the lot of its people, 40 percent of whom live on a dollar a day or less. The free trade zone/special economic zone program is one small part of that, an effort to create a sustainable non-resource economy, and it goes together with other initiatives to build road, telecoms, and port facilities, and to build low-cost electricity generating capacity based on the gas and the county’s abundant hydroelectric potential, which can fuel development of energy-intensive industries like aluminum smelting. Its location on the Torres Strait, a major shipping route between China and Australia and New Zealand, gives Papua New Guinea a big location advantage too.

The ingredients for success are there, and the signs are positive. Macroeconomic management is good, and PNG is not highly indebted. Moody’s gives it a B+/Stable credit rating. It’s exciting to see a country poised for an economic transformation and to participate in some small way in trying to make things come right.

Contributor Chip Krakoff is publisher and principal author of Emerging Markets Outlook, as well as founder and Managing Partner of Koios Associates, a firm specialized in investment, trade, and financial strategy in emerging markets.

As part of these efforts the Malaysian stock exchange is looking to encourage wider bond activity, having announced plans to launch a secondary trading platform for bonds, including Islamic paper.

Though no exact timeline has been set for the move, Raja Teh Maimunah Raja Abdul Aziz, Bursa Malaysia’s global head of Islamic capital markets, said the introduction of a secondary bond trading platform was a response to demand from retail investors and would improve transparency.

“The only way to bring retailers on would be through the exchange,” she said in an interview with the Reuters news agency in early October. “The over-the-counter market is not transparent in terms of pricing so you cannot get the retailers to come on.”

Once issued, there is little trading in most Islamic bonds, with Raja Teh describing the focus on fixed income as a defensive investment. Defensive or not, there are some, such as Mohd Razlan Mohamed, the chief executive officer of Malaysian Rating Corporation Berhad (MARC), who question the timeliness of the proposed secondary trading platform.

“The local markets are not ready for a secondary trading system for three reasons, investors can invest in bond funds already, which provides them with exposure; there are cost implication for bond issuers, this will drive up costs; and thirdly, this is for sophisticated investors only, most don’t understand a lot of the existing products on the market.”

For Steven Choy, the chief executive officer of Cagamas Berhad, Malaysia’s national mortgage corporation and leading securitisation house, said there needed to be more issuance to develop the secondary bond market.

“We are already the largest in South-east Asia, the third in Asia, but it is mostly buy-and-hold insurance companies who want long term-paper and they do not trade. Therefore, we need more depth and issuance,” he told OBG.

The government has moved to address the question of issuance, setting up Danajamin Nasional, a state-owned institution tasked with providing financial guarantees to issues of private debt and Islamic securities, in March this year as part of its economic stimulation programme.

The agency was provided with a paid-in capital of $290m when established, a figure officials said could be doubled, and its charter allows it to offer insurance for investment-grade public debt or Islamic securities totalling up to $4.3bn.

On October 8, Prime Minister Datuk Seri Najib Razak told a press conference that Danajamin had already received seven applications so far, though he did not clarify whether these had been finalised.

While the government believes Danajamin will broaden the base of the bond sector and encourage more investors to buy into the market, not all agree, taking issue with the agency’s focus on the already well-served triple-A bonds segments.

Cagamas’ CEO warns that rather than strengthen the bond market, Danajamin could have an adverse effect by targeting triple-A bonds to the exclusion of others.

“Danajamin’s role in the market has been to distort it. If they issue for only triple-A bonds then who will buy BB for example,” said Choy.

With the economic crisis having hit at lesser rated bonds, there has been a drying up of credit for smaller companies, according to Razlan.

“Up until Q2 2008 business was good, but then risk aversion set in and investors did not even want to know about single-A rated bonds, they would only look at triple-A bonds,” he said. “No one wanted to invest or underwrite these bonds yet they form 30-40% of the market. This was not because of a lack of liquidity but risk aversion.”

Tan Sri Datuk C Rajandram, the executive deputy chairman of Rating Agency Malaysia Holdings (RAM), concurs, saying that the demand side has become more risk averse, with bonds lower than AA not coming onto the market.

“The economy is down and so the requirement for funding has also dropped. Much will depend on the stimulus packages,” he said in an interview with OBG. “Everyone is avoiding the corporate sector, with no attraction to place bonds on the market, even though in Malaysia banks are very liquid.”

Though most experts agree that there are high levels of liquidity in the market, more needs to be done to increase the appeal of bonds below triple-A. According to a report issued on October 9 by MARC, the value of newly rated bonds assigned and announced in Malaysia for the first nine months of the year totalled $9.3bn, mainly at the top of the ratings range.

While this trend is expected to continue in the short term, with the Malaysian economy set to move out of recession and post solid growth next year, investors could be less adverse to a bit of risk, and more enthused for bonds.

Certainly much is owed to lessons learned in the form of strong monetary and fiscal policy reforms after the Asian financial crisis in 1997-98. Relatively conservative banking practices also played a significant role in sheltering the country’s finances during what has proven to be one of the most siginificant economic downturns in recent history.

The overall risk management framework of the banking industry has improved greatly, thanks to sensible banking supervision and monetary guidance. Reforms initiated by the country’s central bank, Bangko Sentral ng Pilipinas (BSP), have created solid fundamentals that are currently underpinning the banking sector today. The BSP’s adoption and implementation of Basel II in July 2007 was a significant step in ensuring that the Philippines’ banking sector is in line with international standards.

Sanjiv Vohra, the country officer of Citibank, told OBG, “There is certainly a correlation between the Asian countries that were impacted by the Asian crisis and those that have managed to limit the effects of the current financial turmoil. Those countries, such as the Philippines, that were affected in 1997-98 have generally been able to implement the necessary reforms to withstand the current crisis.”

In fact, today’s average capital adequacy ratios (CARs) among banks are pushing close to 15%, well above the international standard of 8%. Asset quality ratios also performed well in 2008, as non-performing loans (NPLs) fell below 5% of total assets last year.

Despite the solid progress made in the financial world, other sectors of the Philippine economy, particularly those heavily reliant on foreign demand, such as the manufacturing of semiconductors, have been caught up in the global economic slowdown. The decrease in activity in these sectors is expected to feed through to the banking sector.

Nevertheless, in recognition of its stability, especially within the financial arena, Moody’s Investors Service has upgraded the Philippines credit rating from B to Ba3 for the first time in over four years in late July. In a statement to the press Moody’s executive vice-president, Thomas Byrne, said, “The upgrade was prompted by the relatively high degree of resiliency exhibited by both the country’s financial system and external payments position in the face of the global financial and economic crises.”

Indeed, liquidity in the country has reached a new high as foreign currency reserves have peaked at $39.6bn, while some economies are suffering from declining foreign capital.

Headline inflation, which peaked just 12 months ago at 12.3%, dropped to a record low of 0.2% in July, bringing the average of the first seven months of 2009 to 4.3%, as increases in prices of commodities have slowed recently. The BSP predicts an annual inflation rate between 2.5% and 4.5% in 2009 and 3.5% and 5.5% in 2010.

The dramatic decrease in inflation over the past year has provided the BSP with adequate room for monetary policy easing. The crucial inter-bank lending rate is currently at an all-time low of 4%, having been decreased six times since December 2008.

Responding to questions from local press, the governor of the BSP, Armando Tetangco Jr, said, “We believe our current stance remains appropriate. Nevertheless, we are closely monitoring developments, particularly the firming of global demand to check for any price press build-ups. We will then make adjustments to our stance as needed.”

Perhaps one of the most positive signs of a return to substantial growth is the fact that foreign direct investment (FDI) in the Philippines, which dropped dramatically by 77% in 2008, has posted an 86% increase in the first seven months of 2009, reaching just over $1bn in FDI, according to the BSP. Tetangco later hinted at the emergence of some positive signals, stating, “The emerging signs of stabilisation of global financial markets and economic conditions are expected to encourage the gradual return of capital flows to Asia. With the ongoing realignment in risk perceptions, flows to emerging economies, particularly those with sound macroeconomic policy and good growth prospects, are expected to improve in the second half of 2009 and in 2010.”

Despite the current stability in the sector, some experts have observed a large number of relatively weak small and medium-sized banks in the industry. Consolidation within the sector has slowed due to the current economic climate and it is not likely to see any major movements within the top tier of the banking sector in the remainder of the year. The merger between Philippine National Bank and Allied Bank, which was due to take place in 2008, appears to have stalled again and likely won’t take place for another six to nine months. For its part the BSP has strongly encouraged mergers and acquisitions in an effort to strengthen efficiencies within the sector. Typically mergers are subject to regulatory penalties, which the Monetary Board has been willing to waive if the merging banks are able to prove substantial friction costs.

Although the financial industry of the Philippines remains strong, its overall economic performance continues to be called into question after posting a surprisingly low first quarter of just 0.4% growth. The slow economic growth of the country has created an air of caution among bankers as they have seen some adverse affects on profit margins. However, the financial stability of the country, combined with the resiliency of the economy will certainly bode well for the country in 2010.

Original editorial : MyStockVoice

There was mixed news for the transport sector in data released by the Department of Statistics on August 26, which showed that while still in recession, the rate of negative growth in the Malysian economy is slowing. Having declined by 6.2% in the first quarter of 2009, GDP contracted by 3.9% in the second, the curve being smoothed out due to increased public spending and positive growth in private consumption. This should be encouraging for the transport sector, which has seen productivity fall as demand for moving cargo locally and internationally plunged.

Less equivocal data indicating an improvement in the sector came in early August, with statistics showing a sharp rise in cargo-handling activity at Malaysia’s ports. Movements of containers at the country’s 10 major ports rose by 10.2% in the second quarter compared to the first three months of the year, with 3.79m twenty-foot equivalent units (TEUs) being handled against 3.44m TEUs in the first quarter. Of the second-quarter figure, 2.49m TEUs was trans-shipment traffic, up 11.7% on the previous quarter; 670,718 TEUs carried exports, a rise of 10.2%; and the remaining 640,469 TEUs containing imports, a 4.4% increase.

While a solid performance, the six-month total of container movements was still down 7.7% on the January-to-July figure for 2008, though this decrease in activity is far less than that recorded by some of Malaysia’s near neighbours, with throughput at ports in Thailand and the Philippines down by 35% and 20.6%, respectively.

Another hint that the transport sector is on the road to recovery was a jump in commercial vehicle sales, which hit a six-month high in July, with 4800 units rolling off the lots, almost 20% higher than the previous month.

Exhibiting robust health is national carrier Malaysia Airlines (MAS), which posted its best-ever quarterly net profit in the April-to-June term, bouncing back from losses of $193.7m in the first quarter and $244m in the second. Key to the airline’s return to form was an aggressive advertising campaign, cost reductions, cutting fares on off-peak flights to increase passenger take up, and reversing losses on fuel hedging.

It is not just MAS that benefitted from the steep drop in fuel prices, one of the transport sector’s highest costs. In the 12 months to the end of July, transport charges had fallen by 19.9%, according to figures released by the Department of Statistics in mid-August, though this could reverse as the price of fuel has once again started to climb. Month on month, transport charges rose by 0.1% in July, in line with the overall movement of the consumer price index.

If, as is widely predicted, the Malaysian economy continues its push out of recession in the third quarter and returns to positive growth in the fourth, the upturn should carry the transport sector in its wake, especially if the pick up in domestic demand is matched by that in the country’s export markets. Our expectation is that this would confirm that the iShares MSCI Malaysia Index Fund (NYSE:EWM) is set to add to its succesful growth over the last 6 months. The Malaysia ETF has not exploded as some of its emerging market counterparts, but has shownsteady & sustained growth, with very little volatility. A solid buy in torrid times.