Increased cooperation offers mutual opportunities

Australian Prime Minister Tony Abbott flew into Port Moresby in late March 2014 accompanied by a major delegation of business leaders, with trade and investment on their minds. And, after a busy agenda, he left three days later with an economic treaty and the basis of potentially the most productive relationship Australia and Papua New Guinea have enjoyed in years.

Specifics

While details of how the economic treaty will actually work to increase trade and investment will not be made public until after ratification, Abbott’s todo list included making progress on the Regional Resettlement Agreement (RRA) concerning asylum seekers (the greatest source of friction between the two countries), assisting PNG with infrastructure delivery and helping it prepare to host the APEC summit in 2018.

Priorities for his host, PNG Prime Minister Peter O’Neill, included the liberalisation of Australia’s visa regime for PNG business travellers, gaining more control over aid funding, and working out the details for the approximately AUS$420m ($389.8m) worth of projects that are part of the RRA.

Both sides were able to declare at least partial success. Abbott, who categorised Australia’s relationship with PNG as “more like family”, gave assurances he would address the visa issue, while O’Neill claimed asylum seeker processing would be concluded and resettlement commenced by June 2014 – although legislation to enable this had not yet been passed at the time of publication. In addition to these remarks, there were some other concrete measures, such as the announcement of an annual prime ministerial meeting. This is on top of the new, monthly Joint Ministerial Forum to oversee implementation of the RRA, and is a welcome sign that the relationship between the two countries is getting the official attention it deserves.

“It sends a message that Australia is very interested in business relations with PNG at the highest level and it is also important from a person-to-person relationship between two prime ministers,” said Peter Taylor, president of the Australia-PNG Business Council.

Building The Foundations

Abbott’s government came to power in September 2013 and made relations with PNG a foreign policy priority. The recent state trip, at the invitation of O’Neill, was the culmination of more than six months of groundwork by Abbott’s foreign minister, Julie Bishop, who has so far done the government’s heavy lifting in the relationship.

Bishop is a familiar face in PNG, having made three lengthy visits there while a member of the opposition. In government, she has been Abbott’s best asset as he seeks to improve and deepen ties, with Bishop focusing on promoting the economic empowerment of women within PNG during her first trip as foreign minister in February 2014. That is a project that is both economically vital to PNG and one guaranteed to cement Bishop’s popularity in a country to which she has shown affection. It is a welcome trend in both countries. The relationship between PNG and Australia has often appeared to have been taken for granted in official channels. For several years, before O’Neill’s re-election in 2012, the two countries drifted apart and much of the credit to putting the relationship back in the spotlight must go to the pragmatic PNG prime minister.

Work To Do

While some of his engagements with Australia, notably the agreement to resettle asylum seekers in PNG, have caused friction at home, his approach has put him in a powerful position in dealing with his southern neighbour. Australia has AUS$18.6bn ($17.26bn) invested in PNG – largely via the massive liquefied natural gas (LNG) project that began exports in May 2014 – which is almost the same as the country’s interests in China. Merchandise trade totals AUS$5.7bn ($5.3bn), making PNG Australia’s 15thlargest merchandise trading partner and its 13th-largest merchandise export market in 2012-13.

Australia has spent AUS$1.37bn ($1.27bn) on PNG’s development over the past three years and its total aid package for FY 2014 at AUS$528m ($490m), with the government making this commitment while simultaneously reducing the country’s overall budget for aid. Furthermore, an additional AUS$420m ($389.8m) over four years is expected as part of the RRA.

Deep Potential

PNG’s investments in Australia, its largest trading partner, total AUS$1.8bn ($1.67bn), while Australian tertiary institutions are the most popular destination for PNG students. PNG is, of course, a vital sphere of operations for many Australian resources companies, but with the Asian Development Bank forecasting economic growth forecast for PNG of 6% for 2014, rising to 21% in 2015, Canberra has swung focus to the potential for industries beyond mining – a logical shift as both countries face the prospect that the best days of the resources investment boom are over.

Abbott’s delegation, some of who were visiting PNG for the first time, included leaders from energy, engineering and agricultural companies, as well as from banks. Even Australia’s national rugby league, in which PNG has long wanted to place a team, was represented in a telling piece of soft diplomacy.

Bishop has also identified opportunities for Australia in building partnerships to pursue trade throughout the Pacific, as well as in PNG’s growing business service sector, infrastructure development and tourism. She points out that PNG has recently built up considerable capacity in the business services sector, accelerated by the PNG LNG project. “These services, including transport, communications, financial services and construction, provide a solid foundation on which to further diversify PNG’s economy,” she told OBG, while describing it as “logical” that there would be a “shared ambition to build” the tourism market together.

Not Without Its Challenges

PNG has, with some justification, long been frustrated by the narrow focus of the Australian public and business community, which has tended to be captured by media focus on mining, law and order issues, and corruption. The recent deadly violence at the Manus Island detention centre, and the slow progress towards permanently resettling refugees, has the most corrosive potential and threatens to overshadow other, more profitable initiatives between the two countries. To their credit, it is a risk that both governments have been quick to recognise.

In early April Scott Morrison, Australia’s minister of immigration, and Rimbink Pato, PNG’s minister for foreign affairs and immigration, held their first monthly Joint Ministerial Forum to oversee implementation of the RRA. For Australia, it is vital to know that PNG will stay the course on its asylum seeker commitments and Abbott will be pressing O’Neill to make good on his promises to move as quickly as possible on the issue.

For O’Neill, the issue, while causing tensions at home, has strengthened his hand with Australia. As Stephen Howes, director of the Development Policy Centre at the Australian National University, recently commented, the resettlement programme has reduced Australian leverage in PNG. “It is impossible to run a $500m aid programme effectively in a country such as PNG without leverage, and it is showing,” he wrote recently.

Howes’ chief concern is PNG’s apparent u-turn on establishing a sovereign wealth fund, a move PNG seems determined to take. Australia, along with donors such as the IMF, Asian Development Bank and World Bank, have invested millions of dollars and years of effort in the project since in 2009. The fund was to have been set up to manage the proceeds from the LNG project. Observers now expect the funds may be used as collateral for strategic energy projects.

A long-running matter complicating the bilateral relationship with Australia is visas. Less than a month before Abbott’s arrival, PNG cancelled the visa-on-arrival arrangement for Australian citizens, clearly flagging that the move was all about reciprocity for PNG citizens visiting Australia. However, this makes PNG the only country in the Pacific where Australian citizens must pre-apply for visas and is a double-edged sword for O’Neill. The process of obtaining a visa is bureaucratic and sends an odd message when seeking deeper and broader engagement with Australian businesses.

Mutually Beneficial

While there are legitimate concerns that these issues, particularly asylum seeker resettlement, could stand in the way of building on the work of Bishop and Abbott, there are reasons for hope. Australia is committed to help PNG prepare for the APEC summit in 2018, which Abbott hailed in Port Moresby as a “coming of age” for the country. The process should be a bonding one and place this key bilateral relationship on a sound footing.

For Australia, a closer relationship with a rapidly growing economy where it has considerable experience and a wealth of longstanding person-to-person relationships holds clear benefits. PNG, meanwhile, needs Australia’s experience in infrastructure planning and delivery, and health and education provision, particularly in remote areas. Abbott and O’Neill have made a good start, building on the solid work of Bishop and, before her, PMs Julia Gillard and Kevin Rudd. The challenge now is to maintain momentum. In a changing global commodities environment, and with China and ASEAN trying to assert their influence in the region, the time to focus on building a stable and integrated trade route within the South Pacific has never been more opportune.

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The Report: Papua New Guinea 2014

Trade & Investment chapter from The Report: Papua New Guinea 2014

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