Economic Update

Published 11 Dec 2018

Host nation Papua New Guinea has benefitted from the superpower rivalry that dominated this year’s APEC summit, accumulating a series of economic benefits associated with holding the 21-member bloc’s rotating chair for 2018.

Though there was some criticism of the bloc’s smallest economy spending heavily to stage the two-day leaders’ summit, held over November 17 and 18, and numerous other events during the year, senior officials have said the returns on investment are already being accrued.

“PNG is getting the attention and the support it never used to get before, and all this is happening because of APEC,” Justin Tkatchenko, the minister for APEC, told a press conference on November 20.

“It’s an event that is setting the stage for our country and the Pacific region to see the many changes and good things happening in the years to come.”

International rivalry leads to investment

The increased attention associated with hosting the summit has led to key strategic investments, which have been carried out amid tension between the delegations from the US and China.

The Port Moresby summit was the first in APEC’s 29-year history in which a final joint-statement was not released, reflecting the differences between the major players on issues such as trade and investment.

Not least of these was China’s Belt and Road Initiative, which involves a series of major infrastructure investments throughout the region. Although seen by China as a way of speeding up development in emerging economies, the US has criticised the strategy, saying it places an excessive debt burden on smaller countries.

PNG announced in June it would formally sign on to the initiative, paving the way for greater inflows of Chinese investment, with negotiations being finalised over the terms of a new project to expand China’s involvement in PNG’s utilities sector.

In September government officials announced that Chinese company Shenzhen Energy would lead the proposed PGK3bn ($920m), 180-MW Ramu 2 hydroelectric power project, to be located in the Eastern Highlands Province.

Although still awaiting final approval, the proposal will see Shenzhen take 70% ownership of the project, with the other 30% to be held by various state stakeholders. Construction is expected to begin in 2019 and be completed by 2024.

US leads investment in electricity and digitalisation projects

In an effort to balance Chinese investment, the US and its allies Australia and Japan used the APEC summit to unveil a major project of their own, announcing a $1.7bn plan to help PNG achieve its goal of supplying electricity to 70% of the population by 2030.

Currently, less than 15% of the population, mainly those in urban areas, have access to a reliable supply of electricity, and this is seen as a major restriction to economic development.

Under the 12-year project, investment will be made in new generation capacity, as well as transmission and distribution lines, to connect households, service providers and businesses to the grid.

Associated with the electrification programme will be the rollout of fibre-optic cabling to facilitate greater digital penetration across the country.

This element of the project is significant as it aligns with the main theme of PNG’s term as APEC chair. Under the title of “Harnessing Inclusive Opportunities, Embracing the Digital Future”, a series of meetings have taken place throughout 2018 to look at ways to narrow the digital divide in the APEC zone.

With PNG identifying infrastructure as the single largest hurdle in this field, the fibre-optic rollout, along with supporting submarine cable links to Australia and Solomon Islands – a separate $137m ($100.2m) project funded by Australia – should help bolster existing connections and bridge digital discrepancies in the region.

Officials confident benefits will outweigh costs

While PNG’s role as host of APEC has led to some considerable investment in key infrastructure, there has been some criticism of the costs involved, particularly given economic troubles in recent times.

The government allocated some PGK800m ($245.3m) to host the event; however, in 2015 the IMF estimated it would spend as much as PGK3bn ($920m) in APEC-related funds over 2015-18, including spending to upgrade infrastructure such as airports and roads.

This comes as the fund forecasts the economy will contract by 1.1% this year, with Treasury figures showing the budget deficit will stand at 2.5% of GDP.