The Report: Papua New Guinea 2014
Papua New Guinea is poised for change, as the country’s mineral riches are providing a major opportunity for economic development through the exploitation of natural resources. The government’s five-year strategic plan focuses on key development enablers such as free education, improvements to health services, the strengthening of law and order, rural development projects and infrastructure construction.
Country Profile
Some 80% of Papua New Guinea’s population lives in rural areas, which includes huge rain forests, rugged mountains and steep river valleys. Indeed, the difficulty of the terrain is a major reason why there are some 850 different native languages in the country, as clans and tribes have inhabited territories that are often close, but largely inaccessible, to each other. Comprising the eastern half of the largest tropical island on earth, PNG is home to a wide range of peoples, languages and cultures, as well as significant biodiversity. In addition, the country is an important exporter of valuable natural resources, including gold, copper and hydrocarbons. It is also a key producer of agricultural products: the nation’s cash crops include coffee, oil palm, cocoa, coconut and, to a lesser extent, tea and rubber. The country is expected to become a major exporter of natural gas in coming years, which will provide a significant boost to the size and strength of the economy. This chapter contains an interview with Prime Minister Peter O’Neill.
Explore chapterTrade & Investment
Although lower international commodity prices are impacting the pipeline of projects in the traditionally dominant mining sector, Papua New Guinea’s emergence as a major liquefied natural gas (LNG) exporter in 2014 has attracted global attention, with a second landmark LNG project moving towards a final investment decision in 2016. Construction of the PNG LNG project has increased the country’s profile in recent years, with investment inflows of more than $5.7bn between 2009 and 2013. While Australia remains the largest investor in the country, with $17.86bn in 2013, Japan has been the fastest-growing source of investment in recent years. Changes to PNG’s trade patterns mirror the growing diversity in the sources of inward investment. The country is the largest exporter among Pacific Island states and, with China and the Association of South-East Asian Nations trying to assert their influence in the region, the time to focus on building a stable and integrated trade route within the South Pacific has never been more important. This chapter contains interviews with Julie Bishop, Australian Minister for Foreign Affairs; Andris Piebalgs, EU Commissioner for Development; Carlos Pascual, Former Special Envoy & Coordinator for International Affairs, US Bureau of Energy Resources; and Ivan Pomaleu, Managing Director, Investment Promotion Authority.
Explore chapterEconomy
Buoyed by high commodity export revenues and, since 2009 the development of the Papua New Guinea Liquefied Natural Gas project, GDP growth has remained above 6% since 2007, reaching 8.9% in 2011 and 8.1% in 2012. A heavyweight among the Pacific Island states, PNG, together with Fiji, accounted for 80% of regional GDP in 2013, as per UN figures. Agriculture, fisheries and forestry made up the largest part of the economy at 29% in 2012, while the construction sector accounted for 20% of GDP and the mining, oil and extractive industries were responsible for 15%. For investors, any project worth more than $50m could qualify for a public-private partnership (PPP) structure; however, the government has been emphasising the potential for PPPs in the power generation and transport sectors. While attracting private investment will depend on the successful implementation of public sector reforms, the authorities will need to strike a balance between encouraging investment and the need to protect domestic enterprise. This chapter contains interviews with James Marape, Minister of Finance; Charles Abel, Minister for National Planning; Wasantha Kumarasiri, Managing Director, Independent Public Business Corporation; and Geoff Cundle, Managing Director, Steamships Trading Company.
Explore chapterBanking
Despite significant challenges linked to poor infrastructure, inadequate credit information and a largely rural population, commercial lenders are developing innovative means of broadening the sector’s reach. Framed by the government and the country’s central bank, the National Financial Inclusion and Financial Literacy Strategy encourages private banks, microfinance institutions, non-bank financial institutions and savings and loans societies to partner with non-financial actors to bridge the gap to access. Ongoing upgrades to Papua New Guinea’s financial infrastructure will improve banks’ efficiency and support alternative means of reaching out to low-income clients. Although lending growth is expected to cool in line with the wider economy in 2014, bankers have their eyes set on significant public infrastructure spending to sustain their loan books. Financial institutions are making progress in terms of providing services to PNGs unbanked population and lenders’ role as financial intermediaries is growing. Seeing through reforms will be key to making the financial system more efficient and broad-based. This chapter contains interviews with Loi M Bakani, Governor, Bank of Papua New Guinea; Mark Baker, Managing Director, ANZ Papua New Guinea; and Tony Westaway, Managing Director, Nationwide Microbank.
Explore chapterCapital Markets
Although still fledgling, Papua New Guinea’s capital markets have strong prospects for growth as the economy looks forward to significant foreign currency inflows linked to the liquefied natural gas project and the development of new resource projects. With 13 dual-listed stocks on the exchange, share prices on the Port Moresby Stock Exchange are highly dependent on movements in foreign bourses, with a one to two day delay. PNG’s stock exchange is relatively shallow, with only 20 listed equities in total and one convertible note. The bourse has shown little growth since 2009, but, with prospects of a second major liquefied natural gas project and future mining deals, global investor appetite for frontier markets could broaden to PNG in coming years. Meanwhile, the strong growth in outstanding government bonds through primary auctions should generate enough momentum in PNG to launch a regulated secondary market in the near term. This chapter contains interviews with Richard Borysiewicz, General Manager, BSB Capital; and Ian Tarutia, CEO, National Superannuation Fund.
Explore chapterInsurance
The market has seen several new entrants in recent years, with the total number of licensed insurance underwriters reaching 14 in 2014. While limited in size and reach, the insurance market in PNG recorded double digit growth in five years to 2013. Driven by the non-life corporate segment, growth has attracted a number of new players. However, the market remains shy of its potential, with low penetration for retail products, while large mining and hydrocarbon projects typically have their risks insured offshore. Establishing and enforcing consistent rules will be key to supporting medium-term growth. Expanding penetration for individuals and businesses will be critical as well, in line with the state’s financial inclusion strategy. This chapter contains interviews with Wayne Dorgan, Managing Director, Pacific MMI Insurance.
Explore chapterEnergy
The near future will bring positive change for the energy sector and the economy as a whole, as the investment and construction phase of the $19bn Papua New Guinea liquefied natural gas (LNG) project winds down and the first shipments of gas begin to flow. Progress is also being made in the utilities sector, with major power generation projects and the expansion of water and sewage networks. The billions of dollars invested in the PNG LNG project have trickled down across nearly all sectors of the economy, from services to real estate, as the country waited for export revenue streams to come on-line. The government will now start to see a more direct impact on its bottom line as LNG exports begin to move. How much progress takes place across the sector – and how rapidly it occurs – may rely in large part on government cooperation with the private sector and on ongoing changes to the regulatory framework. This chapter contains interviews with Peter Graham, Managing Director, ExxonMobil PNG; Michael Hession, CEO, InterOil; Peter Botten CEO, Oil Search; and Raka Taviri, Water PNG.
Explore chapterMining
In spite of the logistical challenges posed by Papua New Guinea’s geography, strong global demand for raw materials against the backdrop of the commodity super-cycle continues to fuel investment in the country’s mining sector. Mining and petroleum taxes are expected to increase their contribution to the national budget, rising from $331.6m in 2013 to a projected $406.5m for 2014. Joint-venture agreements have seen new mining activity being added to the country’s portfolio, which could help enhance gold, silver and ore output in the medium term. Notwithstanding the challenges facing the sector, which stem from the global economic situation as well as local regulatory uncertainties, the mining sector is projected to remain a major contributor to the economy for many decades to come, with Australia-based ANZ Bank forecasting gold and copper exports of $3.3bn and $3bn up until 2030. This chapter contains an interview with Byron Chan, Minister for Mining, and a viewpoint from Nigel Parker, Managing Director & CEO, Ok Tedi Mining.
Explore chapterTelecoms & IT
While communications will always be difficult in a country where much of the population is geographically isolated and the terrain is so challenging, the relevant infrastructure in PNG is quickly developing towards international standards – and at prices that are near to international norms. For example, prior to competition entering the market, mobile phone SIM cards were sold for $54; however, after a second mobile operator was introduced, prices dropped to around $10. As internet speeds increase, capacity improves and costs come down, ICT is set to become a more integral part of many Papua New Guinean businesses, as they seek to improve their competitiveness. If all goes according to plan, international connectivity is set to receive a major boost, local connectivity will become faster and cheaper, and costs will fall further. It is also likely that consumers will have more choice as new players enter the market. This chapter contains an interview with Jimmy Miringtoro, Minister for Communication & Information Technology.
Explore chapterTransport
Papua New Guinea’s transportation sector looks to be turning a corner as a number of substantial infrastructure upgrades are now in full swing. Under the PNG Strategic Development Plan 2010-30 the government aims to expand the national road network from 8460 km in 2014 to 25,000 km by 2030 and raise the proportion of roads in good condition from 28.7% to 100%. The government is encouraging private sector investment through the infrastructure tax credit scheme, which is available to taxpayers that build infrastructure to support their mining, petroleum, natural gas, primary production or tourism activities. Improvements at ports, combined with the eventual relocation of government-owned facilities in the capital, should further ease congestion for domestic and international shipping lines, although monopolistic domestic shipping practices could offset some of the efficiencies gained. In the skies, much-needed improvements to the country’s airports and airlines should also improve efficiency, comfort and safety. This chapter contains interviews with Tim Blackburn, Managing Director, Swire Shipping; and Zoë Harrison, Country Manager PNG, DHL.
Explore chapterIndustry
Although consumer spending has weakened recently, in the long term the country will benefit from economic growth and related foreign investment, which will in turn help support consumer demand. New firms are being developed, while existing business are improving their operations. The retail sector is developing rapidly, and shopping malls are proving increasingly popular compared to the traditional general stores. When returns from the Papua New Guinea Liquefied Natural Gas project begin to feed through to the economy, the retail sector is expected to grow strongly and those who have invested in their businesses will benefit. Higher demand, the growing middle class, increased competition, and the development of more and better infrastructure will reward those who are able to supply the right products and services, and who are prepared to evolve with the economy. This chapter contains an interview with Ravi Singh, CEO, CPL Group, and a viewpoint from Michael Penrose, General Manager, British American Tobacco.
Explore chapterConstruction & Real Estate
From 2008 to 2012, the construction sector posted average real annual growth of 20.4%. The value of construction projects in 2013 was estimated at $1.4bn, up from the $1.2bn in 2012, $984m in 2011 and $744m in 2010. A host of big-ticket items are listed in the 2014 budget, including $577m to construct and maintain roads and bridges; $152m to finish facilities for the 2015 Pacific Games; $25m for housing and land development; $91m for university infrastructure; and $109m for hospital redevelopments. Although there has been some sector deceleration, much of this is being offset by a substantial surge in government outlays for infrastructure. Meanwhile, growth in property values is slowing and demand is starting to cool as the unprecedented property demand surge prompted by the Papua New Guinea Liquefied Natural Gas (LNG) project has begun to subside. This decline has led to market correction in certain areas, but some real estate categories have been affected more than others. With an estimated 28% of the urban population in PNG living in informal settlements, the government has been rolling out a number of policy changes to reduce this figure to 15% by 2030. One industrial development that could become a game changer received new life in 2013: the prospect of moving forward with the long-dormant Konebada Petroleum Park. Any rebound in the kina should help stabilise property prices, with real GDP projected to grow through to 2018 as revenues from PNG LNG and other resource extraction projects begin to materialise in late 2014. This chapter contains interviews with Francis Awesa, Minister for Works and Implementation; Stuart Bowman, Country Manager & Director, Leighton PNG; and James Lau, Managing Director, Rimbuna Hijau (PNG) Group.
Explore chapterAgriculture & Fisheries
As part of efforts to tackle the country’s over-reliance on mineral and energy exports, the government is supporting the growth of the agriculture sector to promote diversification. Forestry, agricultural and fishery activity currently accounts for one third of the economy and remains the principle livelihood of the vast majority of Papua New Guinea’s citizens. Agriculture exports dropped from $1.54bn in 2011 to $1.1bn in 2012, according to the central bank, with much of the decline due to falling commodity prices. Looking forward, commodity prices should rebound with demand gaining momentum after a stronger first quarter in 2014. Several agricultural subsectors such as forestry, palm oil and fisheries have developed highly profitable, yet more environmentally responsible, business models. Planned improvements in transportation infrastructure are due to pave the way for more efficiency and expansion into untapped areas. This chapter contains interviews with Greg Worthington-Eyre, CEO, Trukai Industries; and John Kasu, Managing Director, National Fisheries Authority, and a viewpoint from Tommy Tomscoll, Minister of Agriculture and Livestock.
Explore chapterTourism
As a country of over 600 islands, 800 languages and unmatched biodiversity, culture and nature are the primary attractions for visitors to Papua New Guinea. Although the country has a long history of tourism, the sector has remained largely undeveloped and accounts for only a small part of PNG’s economy. As the costs of travel are falling, thanks to factors such as an increase in hotel rooms and the depreciation of the kina, PNG is becoming a more attractive destination. Airport infrastructure is being upgraded and the country’s main airports are under renovation. The National Airports Corporation is also looking at the possibility of linking more of the regional airports to international destinations. Meanwhile, cruises are becoming a popular way to see the country and an increasing number of cruise operators are adding PNG to their itineraries. Still, PNG faces many challenges; given its terrain and environment it will be difficult for the country to beat neighboring Thailand and Indonesia in terms of sheer visitor numbers. However, with selective investments and the right policies, the country could find itself with a strong and growing local tourism industry. This chapter contains an interview with Tony Honey, Owner, Tufi Resort.
Explore chapterHealth & Education
Health care in PNG is poised to see major changes. Perhaps the most significant recent development has been the introduction of fee-free health care. The government committed $8.13m to the programme in 2014, which began officially on February 23 of that year. The refurbishment of Port Moresby General Hospital is receiving major government support, as it is hoped that the renewed facility will act as a catalyst for improvements throughout the country. PNG needs to put the resources being committed to good use while they are available and not waste the political capital that is being expended. If the planned reforms are successful, they could have a widespread social and economic impact. Meanwhile the government continues to view the improvement of the education system as a top priority. It has set aside $4.06m in 2014 for the Higher Education Institution Recapitalisation programme, which aims to establish a task force to improve university infrastructure. To address the shortage of teachers in PNG the government is increasing salaries and is actively recruiting foreign staff. The country is committed to the sector in terms of political will and increasing expenditure, and over time schools have seen great improvements as resource wealth enters the economy and supports the national budget. This chapter contains interviews with Pascoe Kase, Secretary of Health; Grant Muddle, CEO, Port Moresby General Hospital; and Joe Williams Lalie, Executive Director, International Education Agency.
Explore chapterTax
This chapter breaks down the tax environment in Papua New Guinea, examining corporate taxation, residence rules, and other information useful for those interested in investing in PNG. It also features a viewpoint from Jonathan Seeto, Territory Senior Partner, PwC, analysing how PNG’s current tax review initiative may contribute to the economy.
Explore chapterLegal Framework
This chapter examines the legal framework related to doing business or investing in Papua New Guinea. It also features a viewpoint from Stephen Lewin, Partner, Leahy Lewin Nutley Sullivan Lawyers, on the laws surrounding customary land in PNG.
Explore chapterThe Guide
This chapter features useful information for visitors to Papua New Guinea, including a suggested hotels listing, contact information for government ministries, business associations, foreign missions and other important resources, as well as facts about languages, visas, etiquette and other tips. It also includes a features piece about coral conservation efforts in the waters of PNG.
Explore chapterTable Of Contents
There are no articles in this chapter. To view the table of contents, please open click the "View in online reader" link above.
Explore chapter
