The Report: Papua New Guinea 2020
The economic downturn resulting from lower global commodity prices and the completion of the PNG LNG project means the future of Papua New Guinea must be navigated with care. The country possesses plentiful natural resources, which, given effective management, could provide new revenue to spur diversification, as well as sustainable and equitable growth in all provinces.
Country Profile
Papua New Guinea is a vast archipelago, of which the main island – shared with Indonesia – forms the largest tropical island on Earth. Known for its unique flora and fauna, the country is famous for its environmental variety. However, with more than 850 languages spoken within its borders, it is also considered one of the most culturally diverse nations in the world. Enjoying heterogeneous landscapes and cultures, PNG is seen as a frontier market in economic terms. Hydrocarbons and mining are the cornerstones of production, thus there is significant scope for the development of nearly all other sectors. Agriculture and tourism are seen as prime engines for diversification, offering the potential to generate foreign exchange and employment. This chapter contains a viewpoint from Prime Minister James Marape.
Explore chapterTrade & Investment
In recent years Papua New Guinea’s trade and investment environment has been characterised by government policies aimed at generating wider fiscal and social benefits from the country’s resource wealth, while simultaneously growing exports and decreasing imports as it develops a broader economic base. Around 86% of exports from PNG are generated by the extractive industries, principally liquefied natural gas and gold. The government is keen to nurture the development of other high-potential segments such as agri-business – particularly given that around 85% of the population is dependent upon agriculture for their livelihoods. Following uncertainty created by the US-China trade war, the global trade and investment environment has been further clouded by the Covid-19 crisis in 2020. Nevertheless, PNG remains a country with rich potential, thanks to its untapped natural resources and strategic proximity to the high-growth markets of Asia. This chapter contains interviews with Scott Roger, Mission Chief for Papua New Guinea, IMF; and Clarence Hoot, Managing Director, Investment Promotion Agency.
Explore chapterEconomy
Papua New Guinea has an abundance of wealth in hydrocarbons and minerals that provides it with a solid foundation for economic growth, but also leaves the country vulnerable to the volatility of global commodity markets. As such, the government is following a long-term economic development strategy that aims to expand the state’s revenue share from lucrative extractive projects, encourage offshore processing of natural resources, promote inclusive growth and attract new investments in sectors deemed to offer significant potential, notably agriculture. The government took decisive actions to prevent community transmission of Covid-19, which constrained business activity in the first half of 2020 but also left the country well placed to bounce back without widespread public health consequences. If policymakers can maintain their success in containing the virus and conclude negotiations for resource projects while channelling revenue towards other productive sectors, the prospects for investment are bright. This chapter contains interviews with Sasindran Muthuvel, Minister for State-Owned Enterprises; and Ian Ling-Stuckey, Treasurer.
Explore chapterBanking
Prior to the outbreak of Covid-19, Papua New Guinea’s banking sector was healthy. Liquidity increased substantially over recent decades, with the liquid asset ratio of commercial banks growing from 40% in 2003 to 49.6% in 2017. However, the pandemic has brought substantial macroeconomic challenges throughout the world, leaving no country unaffected. Although PNG has benefitted from its geographical isolation in terms of public health, its economic recovery will be highly dependent on international commodity prices, from where it receives the majority of its foreign currency. Nevertheless, the banking sector remains resilient due to the strength of key market players and decisive action on the part of policymakers. Ongoing policy initiatives to address spatial and social inequalities will prove crucial to the sector’s long-term objectives, as will efforts to boost digital penetration and financial education. This chapter contains interviews with Loi Bakani, Governor, Bank of Papua New Guinea; and Ian Tarutia, CEO, National Superannuation Fund.
Explore chapterInsurance
Papua New Guinea’s insurance market is closely indexed to the country’s economy, which prior to the Covid-19 outbreak in early 2020 had been projected to grow at an average of 3% per year through to 2022. However, the pandemic effectively shuttered PNG for several months, and reduced global demand for the commodities that drive its export earnings. The insurance market therefore faces an uncertain future. On the one hand, the impact of Covid-19 may pose a substantial challenge to the country’s health system and economy in the recovery period, with repercussions for insurers. On the other hand, the economic pressures caused by the crisis may result in healthy restructuring of the industry, particularly as measures to reduce transmission drive the uptake of digital insurance services. The sector’s future will also be contingent on the government’s ability to continue important financial sector reforms, as well as the level of demand for mega-project risk-mitigation services. This chapter contains an interview with Jeremy Norton, General Manager, Tower Insurance.
Explore chapterMining
Alongside the upstream energy sector, mining has long served as the backbone of Papua New Guinea’s economy. In 2019 the mining and quarrying sector accounted for 10.3% of GDP and was a major source of foreign exchange earnings. Like the other extractive industries, mining has emerged as a priority for reform under the administration of Prime Minister James Marape. The country has significant deposits of gold, copper and other precious metals, many of which remain untapped. However, the future of some mining projects in the pipeline remain uncertain, given protracted negotiations between the government and mining companies. Looking further ahead, the government appears keen to rebalance the sector towards greater public ownership of mines, although it is expected that the capital and expertise of private investors drawn to transparent regulations will still be required. This chapter contains an interview with John Lewins, CEO, K92 Mining.
Explore chapterEnergy
Papua New Guinea’s development has been driven by its resource wealth and, while policymakers are focused on long-term diversification, extractive industries still underpin the economy. Since his election, Prime Minister James Marape has made clear his intention to secure greater revenue for the government from future extractive projects, with the aim of nurturing economic growth and investing in human capital development. As such, his first year in office has seen protracted negotiations on major new liquefied natural gas (LNG) projects, including the $13bn Total-led Papua LNG project and the expansion of the P’nyang gas field. In terms of power, meanwhile, there is political will and international support to help PNG reach its goal of 70% electrification by 2030. However, creativity will be needed to mitigate the challenges presented by the country’s difficult terrain, low population density, complex land rights framework and lack of spending power in rural communities. This chapter contains an interview with Kieran Wulff, Managing Director, Oil Search.
Transport & Logistics
Papua New Guinea’s topography is characterised by mountainous terrain, rivers and around 600 islands. Travelling by road can be complicated and expensive, with many routes in need of maintenance; as a result, the transport of people and goods often relies on sea and air networks, which incur high costs for businesses operating in PNG. The ripple effects of improved transport infrastructure are vast – not only because the easier movement of goods and people can benefit the high-potential agriculture and tourism sectors, but also since improved connectivity will facilitate greater development opportunities for rural communities. While the full impact of Covid-19 on the sector remains to be seen, developing transport infrastructure is integral to the country’s medium- and long-term goals, and a vital stepping stone to economic diversification. Better connections and improved integration between different modes of transport will lower the cost of doing business and make the country a more attractive destination for investment. This chapter contains interviews with Robert Howden, Managing Director, Express Freight Management; and Rupert Bray, COO, Steamships Trading Company.
Explore chapterConstruction & Real Estate
The government has demonstrated notable early enthusiasm to boost the ease and transparency of land ownership processes, which should stimulate activity in the construction sector. Recent years have seen the industry hindered by vulnerability to foreign currency shortages, limited availability of land for development, a lack of transparency and insufficient human capital. Ongoing efforts to improve road connectivity and affordable housing supply are also poised to provide steady demand for construction around urban areas, before expanding outwards into rural communities. Housing availability is indeed a pressing issue, especially as real estate prices have been driven up by the limited availability of land and high cost of construction. The government has prioritised this issue and shown its commitment to improving the supply of basic utilities to support developers and local communities. There is also potential for both affordable and high-end developments to be buoyed by large-scale extractives deals, which would increase demand for property and provide trickle-down benefits for the wider economy. This chapter contains an interview with Brian Hull, Executive Chairman, Century 21 Siule.
Explore chapterIndustry & Retail
With the Covid-19 pandemic set to significantly slow economic growth worldwide in 2020, Papua New Guinea’s industrial sector can expect some headwinds; however, growth is forecast to return in 2021. The authorities hope the industrial sector can benefit from the rebound and help to improve national self-sufficiency in areas such as food production, while boosting export revenues in the process. Plans to fuel the creation of small and medium-sized enterprises across a wide range of industries also bode well for future expansion. If successful, this should spur the emergence of downstream activities centred around the country’s natural resources. Meanwhile, key players in the retail sector have adapted quickly to meet the challenges presented by the pandemic. In many cases, brands have transitioned from physical stores to online platforms. Supply chains have remained relatively resilient, indicating that the sector can expect to return to the growth trajectory witnessed over recent years, fuelled by urbanisation and a rapidly growing middle class. This chapter contains interviews with James Rice, CEO, Paradise Foods; and Alfred Yau, Director, Papindo.
Explore chapterAgriculture & Fisheries
Agriculture is a central pillar of Papua New Guinea’s economy. In 2019 it made up 25% of GDP and contributed to the livelihood of 85% of the population. PNG’s commitment to place agriculture at centre stage and promote the socio-economic development of smallholder farmers bodes well for the future. Currently, the sector remains dependent on export revenues from key crops such as palm oil, cocoa and coffee, as well as fisheries, which makes it vulnerable to changes in commodity prices. The goal of reaching self-sufficiency in food production goes hand-in-hand with the need to develop self-reliant food systems and address the concerns posed by climate change. Although the global spread of Covid-19 has highlighted long-standing transport and logistical challenges, political determination and sustained support from development partners could potentially result in an era of rapid development for the sector. This chapter contains an interview with Alan Bird, Governor, East Sepik Province.
Explore chapterICT
The laying of two subsea fibre-optic cables – one international and one domestic – are among the recent and promising ICT developments in Papua New Guinea. There is optimism that these will help expand access and reduce costs in rural areas, which are home to over 80% of the country’s 8.6m-strong population. To keep pace with these developments, moves have been made to enhance data protection and cybersecurity, improve quality and pricing, and guide the progress of PNG’s digital networks. The government has also prioritised digital literacy and the upskilling of personnel to equip the country with a workforce capable of adapting to an increasingly digital world. These efforts will help PNG better capitalise on improved ICT infrastructure and leverage technological advancements for the benefit of the wider economy. This chapter contains an interview with Paul Komboi, Managing Director, DataCo.
Explore chapterTourism
Successive governments have identified tourism as a promising avenue for Papua New Guinea to diversify its economy away from a reliance on extractive industries. PNG’s biodiversity and rich cultural traditions offer a range of tourism opportunities that stand to be unlocked by improved infrastructure and effective marketing strategies. Prior to the Covid-19 pandemic, the country seemed poised to reap longer-term benefits from hosting the 2018 APEC Leaders’ Summit, which placed it under the international spotlight. Moreover, visitors who made the trip to PNG largely reported positively on their experiences: more than 90% of visitors in 2018 stated they would return. Tourism, however, is expected to be among the final industries to recover from the pandemic. When international travel picks up again, the challenge will be to make a wider range of destinations accessible, while also ensuring that they are protected from overdevelopment and environmental damage. This chapter contains an interview with Tony Honey, Owner, Tufi Resort.
Explore chapterTax
Papua New Guinea is in the process of significant changes following recent amendments to the tax code, which include new rules for the taxation of extractive industries, while proposed reforms include the introduction of a capital gains tax and the rewriting of the Income Tax Act. The 2020 budget is focused mainly on reforming the revenue administration system. It also includes a limited number of changes to the tax regime, including introducing a new tax system for small and medium-sized enterprises, reducing the permitted debt-to-equity ratio for resources companies and amending the tax dispute resolution process. This chapter contains a viewpoint from Jonathan Seeto, Managing Partner, PwC Papua New Guinea.
Explore chapterLegal Framework
This chapter explores Papua New Guinea’s legal system across the national, local and provincial levels, including the laws that may impact a foreign enterprise in its business dealings in PNG; the taxes and import duties imposed on individuals and business organisations; the rules regarding the use of customary land; and the conditions under which citizens of the country can be employed. The chapter includes a viewpoint from John Leahy, Principal, Leahy PNG Law.
Explore chapterThe Guide
The Guide contains selected listings of hotels in Port Moresby and Lae, as well as information for business and leisure travellers covering visa requirements, health and safety considerations, and local language and culture. This chapter contains an interview with Materua Tamarua, CEO, Australia Papua New Guinea Business Council.
Explore chapterTable of Contents
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