Interview: Mark Baker
In what ways will Papua New Guinea’s liquefied natural gas (LNG) project benefit the local economy, given the government’s debt arrangements?
MARK BAKER: Although some analysts have speculated that significant proceeds will not enter the market for a couple of years if not longer, I do not believe that this will be the case. Of course, considering the government’s debt arrangements with private lenders, there will be a waterfall as debt providers and shareholders recover their investments. However, we expect 2015 to be the first full year when revenues from gas exports are injected into the economy, provided that the sovereign wealth fund is constructed with world-class principles.
How would you assess PNG’s regional position, given that the project is expected to generate as much as $30bn over the next three decades?
BAKER: The project is bound to have a transformational impact on an economy the size of PNG, especially as it has proved the possibility of executing a world-scale project in a difficult environment. Considering these factors in the context of a global economy, where demand for natural resources and agriculture commodities is shifting towards Asia, PNG’s economic future within the wider region could turn out to be very bright indeed.
Having said that, there is need for greater private sector involvement in critical industries such as natural resources, infrastructure and agriculture to meet these opportunities. The government is unable to take such steps on its own. After all, when one considers the difference in return between a dollar invested in a state-owned enterprise (SOE) and a dollar invested in a private company, the disparity is significant. It is also worth remembering that, typically speaking, the private sector has been extremely effective in allocating capital in areas where it is expected to garner the best returns. As a result, its involvement in the growth of SOEs will be important in the future.
What can be done to mitigate concerns stemming from low commodity prices and a falling kina?
BAKER: 2014 will be a transitional year for PNG’s economy, especially from the point of view of foreign exchange. The market has undoubtedly changed in various ways over the past year. The generators of foreign currency, whether from the mining or agricultural sector, are experiencing a downturn, while the inflow from the PNG LNG construction phase has largely dried up and returned to pre-construction levels. Put differently, there are less dollars in the market at the moment, but at the same time, the country’s overall demand for imports remains high. As a result, there is a structural unbalance that will take time to normalise. The outcome will depend to a large extent on what happens once the gas finally comes on-stream in 2014.
To what extent is the banking sector helping to attract foreign direct investment in PNG?
BAKER: One of our tasks as an international financial institution is to capture capital and investment flows between Australia and the Asia-Pacific region, especially when it comes to natural resources, infrastructure and agriculture, three of the most promising sectors in PNG’s economy.
At the corporate and institutional end, we bring in structured solutions in order to encourage the entry of foreign capital into the country, especially by providing well documented facilities that attain global standards. In addition, we want to provide infrastructure expenditure funding models that can be used by state-owned enterprises. Foreign investors do not look at PNG in isolation, but instead compare it to other countries within the region.
PNG has a story to tell, and one that is very different from what is currently heard around the world. It is the story of a country with incredible natural resources, where long-term rewards would be reliant upon continued persistence on the part of investors.
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