The Report: Papua New Guinea 2012
The largest of the Pacific Island nations, Papua New Guinea (PNG) occupies the eastern half of New Guinea and hundreds of nearby islands. A mountainous and forested terrain has led to astonishing cultural and linguistic diversity, even as it inhibited development. The vast majority of the country’s population is engaged in agriculture, which accounts for approximately one third of GDP. Exports, however, are dominated by minerals, primarily copper and gold. A massive liquefied natural gas plant, meanwhile, is expected to transform PNG’s economy and society over the next several decades. PNG’s challenge will be to harness these increased revenues in a transparent and equitable manner to develop the country.
Country Profile.
This chapter focuses on PNG’s rich natural resources, its ethnic diversity and relations with regional neighbours, with a specific focus on trade between mineral-rich PNG and resource-hungry China. This chapter includes viewpoints from Prime Minister Peter O’Neill; Julie Bishop, Australia’s Shadow Minister for Foreign Affairs and Deputy Leader of the Opposition; and William Hague, UK Secretary of State for Foreign and Commonwealth Affairs.
Explore chapterEconomy.
PNG’s GDP grew 8.9% in 2011, thanks in large part to the fact that construction work on the PNG LNG project is in full swing. While growth likely cannot sustain such a high pace, government officials hope that revenues from the LNG facility will catalyse an economic transformation. Analysts, however, are worried about Dutch disease, where resource-driven growth drives inflation and makes local manufacturing uncompetitive. The challenge will be to expand the formal economy, which accounts for just 15% of GDP. This will require major improvements in the security situation, infrastructure development, and investment in education. This chapter includes interviews with Ivan Pomaleu, Managing Director, Investment Promotion Authority; Karel De Gucht, EU Trade Commissioner; David Cox, Managing Director, Steamships Trading Company; Caleb Jarvis, Trade Commissioner, Pacific Islands Trade and Invest; and Surin Pitsuwan, Secretary-General, ASEAN.
Explore chapterBanking.
PNG’s banking sector is dominated by three major players: BSP, ANZ and Westpac. The challenges they face are familiar to emerging markets, including limited capital, riskier commercial loans and a largely unbanked population. The current issue is an excess of liquidity, as banks have accumulated plenty of cash through a build-up of foreign exchange reserves, yet are hesitant to lend it out. To incorporate more people within the formal banking system, the government is expanding the National Development Bank, while the private sector is counting on mobile banking to reach rural inhabitants. This chapter includes interviews with Loi M Bakani, Governor, Bank of Papua New Guinea; and a roundtable discussion with Vishnu Mohan, CEO (PNG), ANZ Banking Group; Ian Clyne, CEO, Bank South Pacific (BSP); and Ashleigh Matheson, Managing Director, Westpac Bank (PNG).
Explore chapterCapital Markets
With only 20 firms listed, the Port Moresby Stock Exchange (POMSoX) is subject to volatility, but market capitalisation is on an upward growth trend. Like the country’s formal economy, the bourse is dominated by mining and energy firms, along with related sectors like financial services and transport. PNG also has a thriving primary bond market, driven by commercial banks purchasing T-bills and C-bills with a short-term maturity. The government is working with POMSox to develop a secondary bond market for these instruments, which could boost PNG’s international credit rating and make it more attractive as an investment destination. This chapter features interviews with Geoff Mason, General Manager, Port Moresby Stock Exchange (POMSoX); and Ian Mason, General Manager, BSP Capital.
Explore chapterInsurance
PNG’s insurance sector is seeing strong growth from a low base, with general insurance assets rising from PGK700m ($333m) in 2006 to PGK1.2bn ($571m) in 2009. Given the relative newness of insurance products to the country’s populace, non-life premiums outweigh life. High-volume subsectors include property, motor and civil construction insurance, but most of the major projects that fuel PNG’s economy are too big to be covered by local insurers. The industry is looking at motor and life insurance as growth areas, but penetrating the rural, unbanked majority of the country’s population will be difficult.
Explore chapterEnergy.
The energy sector in PNG, which has seen declining production for decades, is set to become a major driver of the economy as new investments come online. Gas is now the focus, with the $15.7bn ExxonMobil-led PNG LNG project due to start production in 2014. The megaproject has driven construction growth and set off a real estate boom in the nation’s capital thanks to an influx of foreign contractors and consultants. Oil investment is also picking up: given falling production at PNG’s mature fields, companies are exploring hard-to-reach oil fields, and license approvals by the regulator are at a peak. Meanwhile, the state-run PNG Power is battling geographic and funding obstacles to expand access to electricity. This section features interviews with Peter M Graham, Managing Director, Esso Highlands; Phil E Mulacek, Chairman and CEO, InterOil; and Tony Koiri, CEO, PNG Power.
Explore chapterMining
Mining has long been the mainstay of the PNG economy, representing more than two-thirds of the government’s revenues in 2011. Moreover, with its top commodities of gold and copper selling at near-record prices on global markets, the country is drawing increased attention from resource firms. Indeed, more than half of the country’s land area is covered by mining permits in the application process. These include China’s biggest investment in the South Pacific, the $1.5bn Ramu nickel and cobalt mine, as well as several forays into deep-sea mining. It remains to be seen, however, whether PNG’s renewed mining push will safeguard against the social and environmental hazards that have plagued it in the past. This chapter includes interviews with Byron Chan, Minister of Mining; Greg Anderson, Executive Director, Papua New Guinea Chamber of Mines and Petroleum; and Peter Aitsi, Country Manager, Newcrest Mining.
Explore chapterTelecoms and IT
PNG’s telecoms market is emerging from the stagnation of a government monopoly and has seen steady growth since liberalisation in 2007. With fixed-line penetration limited by geography, the country is targeting a rapid expansion of mobile networks in a bid to connect all of its citizens. Digicel, the top mobile provider, has been the primary benefactor in this shift, increasing its subscriber base to 1.6m and its market share to 84%. At the same time, the focus on mobile has done little to help boost internet connectivity, which suffers from slow speeds and strict bandwidth caps. This section has interviews with Jim Miringtoro, Minister for Communication and Information Technology; Charles Punaha, CEO, National Information and Communications Technology Authority (NICTA); and John Mangos, CEO, Digicel (PNG).
Explore chapterIndustry and Manufacturing
Most of PNG’s industrial strength derives from its abundant minerals, hydrocarbons and agricultural products. Export markets are, however, naturally constrained by the country’s remoteness and its weak infrastructure, suggesting that PNG will be importing many of its finished goods for the indefinite future. The most successful industries, like food and beverages, cater to domestic consumption. There is room for expansion in downstream industries; for example, PNG accounts for up to 17% of the world’s tuna fish harvest but only processes 20% of the catchment locally. Investments in processing facilities for agricultural commodities like tuna and timber could bring in export dollars while boosting employment in the formal sector. This chapter includes interviews with Charles Abel, Minister of Trade, Commerce and Industry; Murray Woo, Chairman, Manufacturers Council of Papua New Guinea; and Michael Kingston, General Manager, K. K. Kingston.
Explore chapterTransport
Infrastructure deficits are one of PNG’s most pressing economic concerns, affecting the competitiveness of industry and agriculture while hindering development in the country’s interior. Thanks to increasing revenues, however, the government is now in a position to address its inadequate land and sea transport systems. The first of four development plans will spend $11.7bn on transport over five years, with the goal of eventually tripling the size of the road network, expanding over-capacity ports, and modernising airports. The challenge will be to marshal the necessary investments while overcoming the bureaucratic and parochial tendencies of PNG’s political system. This chapter features interviews with Wasantha Kumarasiri, CEO, Air Niugini; Stanley Alphonse, CEO, PNG Ports Corporation; and Joseph Kintau, Managing Director, National Airports Corporation.
Explore chapterConstruction & Real Estate
The construction sector in PNG has been booming over the past half-decade, driven by major initiatives such the PNG LNG project. The wealth of contracts available has fostered healthy competition between Australian firms, traditionally dominant in the local market, and newly arrived Western companies. Hoever, the influx of money and workers has created a bubble in office and residential prices and will almost certainly lead to oversupply when the major projects wrap up. At the same time, the anticipated increase in wealth will fund construction projects around the country, including urban developments outside of the big cities that will hopefully staunch urban migration. This section features an interview with Keith Fletcher, Managing Director, Fletcher Morobe Construction.
Explore chapterAgriculture & Plantations
Even though mining revenues account for most of GDP, agriculture is the way of life for about 85% of PNG’s people. Infrastructure difficulties limit the potential for exports, but PNG does specialise in several cash crops, including palm oil, rubber, coffee, cocoa, copra and tea, in addition to fish and timber. The agriculture sector is host to dozens of initiatives to develop high-yielding crops, boost productivity, and increase access to markets. One of the major challenges, however, is the uncertain legal status of most of PNG’s land, which is governed by customary land rights for indigenous groups. Timber exporters are also suffering from bans on non-certified lumber imports in Australia, the EU, and the US. This section features interviews with James Lau, Managing Director, Rimbunan Hijau PNG; and Pedro Celso, Managing Director, RD Tuna, and Chairman, Fishing Industry Association PNG.
Explore chapterTourism
Given the country’s remoteness from traditional tourist markets, PNG understandably remains a niche market, catering to travellers looking for a truly out-of-bounds experience. PNG’s strategy is not to appeal to the mass market, but to increase its prominence in the adventure tourism sector. One key accomplishment was the passage of a land act that will allow developers to negotiate the use of and purchase native customary land, making hotel building and trekking easier to manage. In addition to the country’s low profile, however, PNG tour operators also have to contend with high airfare prices and crime levels. This chapter contains an interview with Peter Vincent, CEO, Papua New Guinea Tourism Promotion Authority (PNG TPA).
Explore chapterEducation
Decades of underinvestment in PNG’s education sector have led to declining standards: literacy rates had reportedly dropped to as low as 15-25% by 2011, and state spending on universities has fallen tenfold since independence. New state revenues, however, have many optimistic that these trends will be reversed. In 2009, the government abolished school fees for grade 1-10, which has increased retention rates. Additionally, the number of teachers more than doubled from 2003 to 2010, and the Department of Education plans to add more. Still, PNG will need major, sustained investment in its education system if it hopes to recover from years of neglect. This section contains an interview with David Arore, Minister of Higher Education, Research, Science and Technology (RST).
Explore chapterTax
In conjunction with DFK Hill Mayberry, OBG explores the taxation system. Tony Canning, Partner, DFK Hill Mayberry, shares a viewpoint on the challenges of establishing a company in PNG.
Explore chapterLegal Framework
In partnership with Leahy Lewin Nutley Sullivan Lawyers, OBG takes a look at PNG’s legal system. Key points include investment incentives for foreign companies and the special status of much of PNG’s land. John Leahy, Partner, Leahy Lewin Nutley Sullivan Lawyers, shares a viewpoint on the origin of PNG’s legal code.
Explore chapterThe Guide
This section includes an article about the historic Kokoda Trail, as well as information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
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