Interview: Richard Borysiewicz
What is your assessment of the current business environment in Papua New Guinea?
RICHARD BORYSIEWICZ: The first six months of the year have been tough compared to 2014, and the shortage of hard currency is perhaps one of the major stumbling blocks in the economy, as it hinders the overall growth potential. It is increasingly difficult for businesses to buy products and equipment internationally and the shortage of liquidity has had a negative effect. The windfall of liquefied natural gas revenues will not have much effect during the 2015 financial year, but more likely in 2016 and beyond. Until then, some smaller firms will finding it tough and larger ones will be consolidating their businesses.
Within the current scenario, it is a good time to be investing in PNG. Many international investors remain sceptical about the market, mainly because of the lack of information available to them, but there is a growing minority who actually see opportunities in overcoming local challenges, which is probably the correct way to look at PNG.
How is the drop in oil prices affecting foreign investment in PNG?
BORYSIEWICZ: The price of oil has clearly had an impact on energy companies’ profitability, as well as on their levels of comfort to keep on investing in new exploration activity. Worldwide, some of these projects will experience delays, especially those taking place in high-cost areas like Australia, but the good news is that PNG remains an attractive destination for investment – even when the price of oil is around $60 a barrel – mainly because the cost structure of operations here are considerably cheaper compared to those in more developed markets.
However, the perception of PNG as an investment destination continues to be mixed, and attracting offshore investors is not always an easy task, despite the opportunities available. PNG has a stable democracy, it has never defaulted on its national debt and there is the rule of law, which is not always the case in many other emerging markets. The present government is also doing an impressive job in allocating spending to physical infrastructure, although plenty more remains to be done. Over the coming 10 years, there will be significant new opportunities with the oil and gas projects coming on-stream, providing both a steady and growing source of income. If the revenues from these are wisely spent, this country could find itself in an enviable position within the region and beyond. It will certainly be a more prosperous and better place to live.
PNG is expected to double its GDP growth in 2015. How will that translate into real economic activities for the local market?
BORYSIEWICZ: GDP growth is meaningful when you have small and medium-sized enterprises starting up, even if they employ less than three people. When economic growth is driven by a single commodity or a single project, it is a risk, in my opinion. The main difference between the US economy and that of Saudi Arabia, for example, is that the energy sector accounts for less than 10% of GDP in the former and 90%, if not more, in the latter. Putting all your hopes in LNG production poses a high risk, as we have seen from previous experiences around the world.
While PNG is close to the Asian markets that are driving global energy consumption and has a commodity that is in high demand on the international market, the country needs to focus on more sustainable industries like agriculture and fishing.
Agriculture has had its ups and downs in PNG, but generally it is not as prominent as one should expect. Asia needs minerals and energy, but also food, especially proteins in the form of fish. PNG could definitely turn into the region’s main supplier. I feel the country has to diversify away from energy, as the agriculture and fisheries sector has historically been obscured by the wealth of the extraction industry.
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