1 Scott (1973) presented figures up to 1990. The
projections in the thesis assume that capital will be kept intact to the end of the period while production
falls as shown in Chart 8.1.
It will be possible to replace these assumptions as more accurate information about any new copper mining ventures becomes available.
Table 8.4: Inputs to the copper projects
Construction Phase Production Phase Inputs per $'m expenditure on investment Input per $'m ou tpu t Emplovment ('000 persons) (figures in brackets: % of total employment) unskilled 0.029 (58.0) 0.010 (60.1) skilled 0.017 (33.9) 0.006 (33.3) subprofessional 0.003 ( 6.3) 0.001 ( 3.4) professional 0.001 ( 1.8) 0.001 ( 3.2) TOTAL 0.051 (100) 0.018 (100)
Demand for industrial poods and services ($'m)
proportion met from domestic production
0.901 0.183
1971 0.36 0.25
1986 0.36 0.28
2006 0.36 0.31
N o t e : These coefficients, taken from Scott (1973) for the Bougainville copper project, are assumed to apply for the second copper project.
The proportion of demand for industrial products supplied from domestic sources is assumed to increase linearly over the production phase.
Value added during the construction phase consists of the wage bill for employment on the construction sites. Demand for industrial goods and services generated by the investments is met partly from imports, and partly by the domestic industrial sectors of production, contributing to production and value added in those sectors.
All of the production of the copper projects is exported in the basic projection.^" Value added in the
production phase is the value of output less the relatively insignificant demand for intermediate inputs of industrial products. Taxable profits are derived by deducting the
wage bill and the cost of replacement investments from value added. As in the plantation and modern industrial sectors, the rate of tax levied on this surplus is set by government strategy so as to allow a specified rate of return on the
2
value of capital invested. Profit after tax is then used to repay loans incurred during the construction phase. Most of these loans are repaid during the initial years
3
of the production phase. The remaining profits are then allocated to the owners of capital. Twenty per cent accrues as revenue to the government, according to the strategy on ownership used in the basic projection. The remaining 80% is remitted to foreign owners.
The importance of taxes and dividends from the profits in the projected growth of government revenue will be illustrated in Chapter 11. These flows depend crucially on the strategies with respect to the share of government
ownership and the permitted rate of return to foreign capital.
1 In Chapter 15, allowance is made for some of the
copper production to be refined before being exported,
using hydroelectric power from an additional major project. 2 The basic strategy for the taxation of the modern
sectors of the economy is described in Section 10.2.
In the model all taxes on the projects (including royalties, withholding tax on dividends etc.) are assumed to be
recalculated as a total rate of tax on profits set to yield the policy-determined rate of return to capital. 3 Data on lending and repayment are taken from Scott (1973)
for the Bougainville project, and scaled appropriately for the second copper project.
While projections can be generated for different choices for each project, the thesis does not present alternative
projections for the two copper projects. However, three
alternative strategies concerning ownership and taxation of the hydroelectric project are discussed in Chapter 15.
Section 8,6: Small-scale industry
Domestic production of industrial goods tabes
place in three sectors. The model allows for a modern
industrial sector, located in urban areas, where allowance is made for the relative inputs of labour and capital to adjust to changes in productivity and relative factor prices
over the period. Industrial goods and services are also
produced in small-scale sectors in either location. These
sectors are assumed to be less capital-intensive and rely on self-employment rather than wage employment.
The informal or small-scale industrial sectors are currently very small in Papua New Guinea, compared to the
modern industrial sector (see Section 2.2, and Conroy (1973)). The total domestic production of industrial goods and services is limited by the growth of demand for these products.
However, it is assumed that government actions will ensure that the growth of the small-scale sectors will not be limited by demand constraints.
The determination of production is similar to the model used for the smallholder agricultural sectors.
The time path of production is derived from the accumulation of capital in the small-scale industrial sector in either
location. In each case, net investment in any year is
calculated from the disposable incomes of participants^
1 For projections presented in this study, it has been
assumed that there is no government lending to finance investment in the small-scale industrial sectors.
in the rural or urban self-employed workforce. The derivation of these incomes and the determination of the shares
allocated to investment in the small-scale industrial sectors are presented in Sections 9.2 and 9.4.
For simplicity, it has been assumed that the initial values for capital/output ratios, rates of
depreciation and the intermediate input requirements per unit of output are the same in both rural and urban small- scale industry. The initial capital/output ratio is in both cases set to 1.27, two-thirds of the initial ratio in modern industry. The annual rates of depreciation are set to 20%, four times the rate in modern industry."^
As in the case of the smallholder sectors, the model makes allowance for improvements in the productivity of capital in these sectors. The capital/output ratio
is assumed to fall over the period; the decline is derived from the provision of infrastructure to rural and urban areas, and from the changes in the educational composition of the self-employed workforce in either location over the period. The derivation of changes in the capital/output ratio is
based on the equations (8.1) to (8.3) discussed in Section 8.2, and the same parameters are used to link changes in
productivity to these two influences.
Value added in the small-scale industrial sectors is derived from total output by subtracting the value of
2
intermediate inputs. It has been assumed that no taxes are levied on small-scale industry. After deducting the
1 Similar assumptions have been made to relate capital/
output ratio and depreciation rates in smallholder
agriculture to the corresponding estimates for the
plantation sector.
2 Input-output coefficients are presented in Table 9,
cost of replacement, the remainder of value added in rural or urban small-scale industry is assumed to be shared among the self-employed members of the workforce in either location.