CEOs in Papua New Guinea comment on government policy priorities

While the National Executive Council under new Prime Minister James Marape may have received a healthy sprinkling of fresh talent, the latest political leaders at the helm find themselves facing familiar problems as they attempt to steer Papua New Guinea into its next phase of economic development. According to the results of the latest OBG Business Barometer: PNG CEO Survey, a significant number of C-suite executives believe that solving the foreign currency shortage should be the number-one priority for the government. Some 31% of CEOs who participated in our face-to-face survey chose this option, which means the result is unchanged from a year earlier, despite the success of PNG’s first sovereign bond issuance and concerted efforts by the central bank to improve liquidity in the foreign exchange (FX) market.

Caution in the Face of FX Doubts 

Uncertainty over the availability of FX may have influenced the fairly cautious investment climate, with 65% of CEOs indicating their firm was likely or very likely to make a significant short-term capital investment, compared to an average of 75% in our survey of four South-east Asian countries, published in March 2019. Although CEOs remain concerned with the FX shortage, light is appearing at the end of the tunnel. With the government raising $500m in its debut sovereign bond issuance, the authorities have made progress in clearing the backlog of FX orders. This has been supported by improved export performance in the extractive industries, which were impacted by the earthquake in February 2018. As a result of proactive measures to boost market liquidity, the central bank estimated the backlog in FX orders fell from PGK1.7bn ($515.6m) at end-2017 to PGK320m ($97.1m) by February 2019, and business executives will be hoping that progress continues so they can they can feel secure in long-term investment decisions.

However, there has been no indication so far that the authorities intend to end the over-valuation of the kina by allowing much greater exchange rate flexibility. Prime Minister Marape is known to favour policies that generate more economic and social benefits from major extractive projects. In the longer term efforts to diversify the economy, lower import dependency and encourage onshore processing in the agriculture, fisheries and forestry industries should also help bring stability to the FX market.

Marape’s Myriad Challenges 

When asked what they believed should be the government’s primary target for the year ahead, CEOs gave a wide range of answers, indicating that there are a number of problems to be addressed. After solving the FX shortage, the next most popular responses from CEOs were improving health and education (21%), infrastructure development (20%), economic diversification (13%), and improving law and order (13%). PNG faces a unique set of difficulties due to its vast size, mountainous and heavily forested terrain, and low population density. Such conditions pose challenges for policymakers wishing to address gaps in infrastructure and social services. Advancements in technology have the potential to address some shortfalls, but widespread digital illiteracy and a lack of reliable internet access prevents the extensive use of such innovations in remote regions. In 2018 the US, Japan and New Zealand pledged to collaborate with PNG to boost electrification from less than 15% in 2018 to 70% by 2030. Thus far, however, we have heard scant details about how they will achieve this.

Supporting Local Communities 

If PNG is to fulfil its considerable potential, it is important for businesses entering the country to carefully consider not only shortterm development costs and long-term export revenue, but also how they can create positive multiplier effects for the local community. Examples of how this can be achieved include skills transfer, the provision of health and education services, and programmes to promote digital and financial literacy. Such commitments should not be viewed solely as corporate social responsibility initiatives, as they also have the potential to reduce business costs over time. Looking at the results of our survey, when asked to pinpoint the skill most in need among the local workforce, the most popular response by some distance was leadership (59%), reflecting a widespread desire for more local managers to oversee key elements of projects, execute strategy and nurture junior talent.

Long-term Apec Boost 

While the remote areas of the country present their own challenges, the capital Port Moresby has benefitted from accelerated infrastructure development following PNG’s chairmanship of APEC in 2018. Although there was some domestic criticism related to spending public money on hosting world leaders in a moment of elevated national debt, 76% of CEOs expected the long-term economic impact of APEC 2018 to be positive or very positive, with only 1% expecting it to have a negative impact. It is hoped that PNG’s year in the APEC spotlight will translate into mutually beneficial trade and investment relationships with the region’s major powers.

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The Report: Papua New Guinea 2019

Trade & Investment chapter from The Report: Papua New Guinea 2019

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