The Report: Papua New Guinea 2015

Following successful completion of the Papua New Guinea liquefied natural gas project, the country is experiencing a surge of optimism about foreign investment and overall economic growth. PNG remains favoured by its traditional investors such as Australia, but it is increasingly a target for new players, including China and Japan. Hopes are high that real change is on its way; the country’s political, administrative, financial and technical leaders now have to find a way to ensure the most productive distribution and use of financial resources. Many international actors are watching closely to see how this young country negotiates its path.

Country Profile

Culturally one of the world’s most diverse countries, Papua New Guinea is widely considered to be among the last frontiers for tourism and business opportunities. The island of New Guinea shelters 6-8% of global species, hosts one-sixth of known languages, and rivals Borneo, the Amazon and the Congo in terms of biodiversity. The country is also an important exporter of natural resources (gold, copper and oil) and agricultural products. Cash crops include coffee, oil palm, cocoa, coconut and, to a lesser extent, tea and rubber. PNG has steep mountains, tropical rainforests and hidden valleys, and the political, social and economic terrain currently faced by the country is similarly demanding in its nature.

This chapter contains an interview with Prime Minister Peter O’Neill.

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Trade & Investment

Despite Papua New Guinea’s low ranking in the World Bank’s “Doing Business 2015” report, it regularly draws foreign capital in the billion-dollar-a-year range. The country is attractive for a number of reasons. It remains one of the most liberal economies in the developing world, offering national treatment and few restrictions on investment. It is also blessed with abundant natural resources. The country has sizeable deposits of copper, oil, gas and silver, as well as significant tracts of saleable lumber. On the trade side, it is an open market with low tariffs. With one major resource project already completed and another going ahead, PNG has set the right tone to attract investors and has a good pipeline of activity. More major projects could follow, and importantly smaller players and non-resources investors are starting to see the potential of the nation.

This chapter contains a viewpoint from Xi Jinping, President of China; and interviews with Josaia Voreqe Bainimarama, Prime Minister of Fiji; Miguel Arias Cañete, EU Commissioner for Climate Action and Energy; and Ivan Pomaleu, Managing Director, Investment Promotion Authority (IPA). 

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With a strong economy in recent years, the GDP growth rate rose to a high of 8.9% in 2011, after stagnating in the early 2000s, only to fall back in 2013 to around 5% and then rise again to more than 8.4% in 2014. Construction work on the Papua New Guinea liquefied natural gas (LNG) project led to the economic boom in 2011, while the slowdown was the result of the end of that phase and the hiatus before the start of production. Despite the positive impact that the PNG LNG project is expected to have, the price of LNG has been falling along with commodities worldwide, and this will feed through to PNG’s returns in the near term. The key for the country is the development of the infrastructure and the non-minerals sectors, which will require careful spending and a measured, but proactive, policy.

This chapter contains a viewpoint from Shinzo Abe, Prime Minister of Japan; and interviews with James Marape, Minister of Finance; Wapu Sonk, Managing Director, National Petroleum Company; James Lau, Managing Director, Rimbunan Hijau (PNG) Group; Ben Micah, Minister for Public Enterprises & State Investments; and Frederick Reiher, Chairman, Air Niugini.

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The banking sector in Papua New Guinea is sound, growing and remarkably profitable. Its largest and only publicly traded institution, Bank South Pacific, reports return on equity 10 percentage points higher than the large Australian banks, which are among the most profitable in the world. Furthermore, continued expansion is expected. With 80% of the country unbanked, growth is almost assured as inclusiveness rises and more people open accounts. Unlike the various over-banked parts of the West and Asia, PNG’s sector is not saturated and has plenty of room to grow. While the central bank works to make commercial banks more competitive, institutions are pushing to expand into under-served areas. If these efforts are managed well, banks may experience significant growth and find margins largely intact. The increase in competition and the lowering of rates and fees, meanwhile, could have a positive effect on the economy and in turn create more business for the banks.

This chapter contains interviews with Loi Bakani, Governor, Bank of Papua New Guinea (BPNG); and Robin Fleming, CEO, Bank South Pacific.

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Capital Markets

Of all the subsectors within Papua New Guinea’s financial system, the capital markets are the least mature. The banks are strong, growing and becoming increasingly competitive; the insurance sector has been active for more than a century and is substantial for a developing country; and the superannuation funds are large, stable and vital to PNG society. On the other hand, the stock market has only two brokers, two owners, 18 securities and little liquidity. The lack of capital markets development has not gone unnoticed, and the exchange has been targeted for major upgrades, while the reform of the debt market is being discussed. These efforts have support at the highest levels, with Prime Minister Peter O’Neill backing the transformation of the stock exchange.

This chapter contains a viewpoint from Syd Yates, CEO, Kina Securities; and an interview with Richard Borysiewicz, General Manager, BSP Capital.

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Due to several factors, Papua New Guinea is one of the least insured countries in the world. However, the low take-up of insurance is not, in this case, the result of a lack of experience. PNG has had an insurance sector for more than a century and it was once administered by Australia, an historically insurance-conscious society. The problem is more the result of geography, topography and income. Despite its many challenges, the PNG insurance market is healthy and competitive. PNG has no limits on foreign investment in the sector, and foreign insurers are active as investors and as indirect participants through reinsurance and brokerage. The sector is open, profitable and has great potential. Given the low penetration rate and growing economy, more policies will likely be sold and more risk can be covered. Still, the sector must develop, especially in terms of best practices and pricing.

This chapter contains an interview with Philip Tolley, Managing Director, Capital Insurance.

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The long wait for the Papua New Guinea liquefied natural gas (LNG) project is now over, and the energy sector is transforming from a major investment vehicle into a primary revenue generator for the economy. In fact, the project is expected to have so much of an impact during its first full year of LNG exports that PNG was projected to lead all Asian economies in GDP growth in 2015, at nearly 15%, with the Asian Development Bank forecasting an equally robust expansion. While the government has had to revise its budgetary forecast for GDP growth from 15% to 6.9% due to the decline in oil prices, the optimism generated by the PNG LNG project has encouraged further investment. PNG’s plentiful untapped reserves and resolve to become a major regional gas exporter look to provide ample incentive and means to move forward with at least one additional LNG project.

This chapter contains interviews with Grant Christie, Vice-President and Country Manager, Talisman Energy, Repsol Group; Philippe Blanchard, Managing Director, Total PNG; Brent Emmett, CEO, Horizon Oil; and Lesieli Taviri, General Manager, Origin Energy.

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Long a mainstay of Papua New Guinea’s economy, the mining sector has not been immune to the global economic turbulence that continues to buffet the industry. Slack demand for base metal products and decreased access to cash for junior operators has curtailed exploration and development worldwide, affecting a number of PNG operators in the process. Together with local administrative and logistical hurdles, these challenges have delayed a number of high-potential mineral prospects from entering into later development and production phases. While none of these next-generation projects have come on-line as of yet, parent companies continue to show resolve in bringing them to fruition with ongoing developmental expenditures, which should in time bring new and profitable projects to the market as the older legacy mines wind down their operations.

This chapter contains interviews with Greg Anderson, Executive Director, PNG Chamber of Mines and Petroleum; and Fred Hess, Managing Director, PanAust.

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The telecommunications sector in Papua New Guinea, long synonymous with high prices and poor service, is undergoing a sea change as fresh competition, infrastructure rollout, and market reforms result in increased coverage and access. More connections to major international subsea cable systems are being put in place. Domestically, with fibre as the backbone and microwave links and satellite systems acting as complementary technologies offering redundancy and connectivity to more remote parts of the country, the government’s goal of achieving 50% broadband penetration by 2018 seems on track. As speeds increase, capacity improves and costs come down, ICT is set to become a more integral part of many PNG businesses and help them improve their competitiveness and global integration.

This chapter contains interviews with Jimmy Miringtoro, Minister for Communication and Information Technology; Bhanu Sud, CEO, EMTV; and Reuben Kautu, Chairman, Dataco.

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Divided by ridges of high mountains and dense with tropical rainforests, Papua New Guinea has some of the world’s most difficult terrain to traverse. The country also possesses around 800 islands, with much of its 6500km of coastline only accessible by sea. Thus, transport and logistics in the country has long been a major challenge. Still, much of the country’s overall economic development hinges on these transport barriers being faced and overcome. New plans and strategies are being rolled out, with some of the state’s new largesse, gleaned from new hydrocarbons activities, finding its way into a major new infrastructure boost. For investors, the opportunities are significant, with the country looking for everything from project financing, to international expertise in design and engineering. PNG may well be a challenging environment, but it remains one that is also full of possibility.

This chapter contains an interview with Greyling Park, CEO, Post PNG.

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Construction & Real Estate

Although Papua New Guinea’s construction sector contracted in 2014 after a four-year boom from the massive PNG liquefied natural gas project, industry growth is expected to pick up again in 2015. New petroleum revenues are set to support the government’s sizeable infrastructure investment programme, which is seeing major improvements to roads, ports and airports in preparation for the 2015 Pacific Games and the 2018 APEC summit. The business environment remains challenging for private contractors, particularly in terms of obtaining construction permits; however, a growing emphasis on public-private partnerships (PPPs) and rising foreign financing has improved the near-term outlook, and new efforts to supply affordable housing and expand home ownership will certainly underpin steady, long-term growth. Rising inflation, as recorded in the country’s consumer price index (CPI) housing category, saw property prices and rental rates spike between 2008 and 2013. This trend continued into 2014, suggesting that the property market is likely to remain on an upwards trajectory, reinforced by robust GDP growth and a growing urban population.

This chapter contains interviews with Marcelo Minc, Country Director, Asian Development Bank’s Papua New Guinea Resident Mission; and Andrew Potter, General Manager, Pacific Palms Property.

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While Papua New Guinea has a long history of manufacturing, the sector accounts for only around one-tenth of GDP, and output is mostly confined to staple goods bound for the domestic market. PNG is endowed with a number of highly traded global commodities including timber, coffee, cocoa, palm oil and fish, although currently much of this is exported in raw form. With hydrocarbons production pegged to expand the economy by 15% in 2015 and 5% thereafter, there are prospects for more advanced manufacturing to take root, and for locally extracted commodities to receive more in-country value addition prior to export. Should ongoing reforms result in improved perceptions of the ease of doing business in the country, PNG could emerge as a regional destination for the processing of a number of mid-stream and finished goods.

This chapter contains a viewpoint from Somu Bhattacharya, General Manager, Coca-Cola Amatil; and an interview with Michael Kingston, CEO, KK Kingston.

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Agriculture & Fisheries

While overshadowed by energy and mining investments, Papua New Guinea’s agricultural sector is a key earner of foreign currency and a primary employer for many of its citizens. The country’s fertile land makes the sector and its downstream processing and value-added spin-offs the most viable option for absorbing its growing workforce, while continuing to provide potential for the economy in the long term. The palm oil industry dominates the sector, accounting for two-thirds of all agriculture exports excluding the forestry and fisheries industries. While the smaller fisheries benefit the country by supplying local markets with fish and modest exports when their respective fisheries are healthy, the sector remains largely reliant upon the tuna trade. The government has allocated significant funding for agriculture development, which should help the industry become more cost competitive in the long run. Growth will come from several subsectors, including improvements in the cultivation of coffee and cocoa as a result of yield-boosting initiatives.

This chapter contains interviews with Pedro Celso, CEO, RD Tuna; and John Nightingale, Managing Director, Agmark.

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With fewer than 50,000 visitors travelling to Papua New Guinea each year for leisure, according to figures from the PNG Tourism Promotion Authority (TPA), the country is far from a mainstream tourism destination. The sector remains largely undeveloped and is a relatively minor contributor to the overall economy. PNG is a challenging destination to travel to and within. Yet the more intrepid traveller who is willing to overcome some of the associated concerns and costs will be rewarded with a sense of adventure and authenticity that is difficult to match elsewhere. PNG boasts a diversity of attractions bundled together. And while not catering to the mass holiday market, enthusiasts in pursuit of any combination of distinct local cultures, history from the Second World War, unique flora and fauna, and some of the world’s best hiking, surfing and dive spots will not leave disappointed.

This chapter contains an interview with Richard Knight, Owner, Loloata Island Resort.

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Across its four regions and 22 provinces, Papua New Guinea contains an impressive diversity of linguistic, ethnic and cultural groups. From the coasts of autonomous Bougainville to the rocky peaks of the Bismarck range in the highlands, and from the dense quarters of the National Capital District to the remote and less-inhabited tributaries of Western Fly Province, these areas – even within themselves – show a high degree of geographical, cultural, and political variety. Among the most dynamic patches is the province of Morobe, on the north-east coast, due north of Port Moresby. This region is PNG’s industrial heartland, as well as a thriving commercial hub. Its capital, Lae, is also an educational centre and the staging point for transport into the highlands and beyond. Through its port, Lae connects the farm and mineral produce of the interior with the busy shipping lanes of the South Pacific. With abundant natural resources and a strategic location, Morobe is likely to benefit considerably from PNG’s economic growth in the near to medium term.

This chapter contains a viewpoint from David J Alcock, CEO, Mainland Holdings; and an interview with Kelly Naru, Governor, Morobe Province.

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Health & Education

Papua New Guinea’s health care system is delineated in the National Health Plan 2011-20, which places a distinct emphasis on the provision of basic care for the country’s poor and rural population. A new free primary care programme, launched by the government in 2014, eliminates all user fees from medical centres and clinics, with the aim of making basic health care free for all Papua New Guineans. The shortfalls in PNG’s health sector are numerous and the reasons complex. Many of the challenges are linked to obstacles in other sectors, such as transport, infrastructure, manufacturing, education and security. It will be difficult for the health sector to improve without concurrent improvements in these areas. The international community is contributing and playing its part to help PNG improve its health care delivery, facilities and services, but there is room for more activity, especially from the private sector. As PNG sees its population increase, the demand for education at all levels is also rising. The country is starting to build the infrastructure and train the educators necessary to cater for this large group of students. However, the sector is still in its early days, and outside assistance and investment is very much welcome in terms of funding and managerial assistance.

This chapter contains an interview with Dr Amyna Sultan, CEO, Pacific International Hospital.

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This chapter examines Papua New Guinea’s taxation rules, outlining the government’s focus on improving tax compliance, new double tax agreements recently signed and current corporate taxation guidelines. It also contains a viewpoint from Jonathan Seeto, Managing Partner, PwC.

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Legal Framework

This chapter examines the legislation in Papua New Guinea that affects enterprises and investors. It focuses on the laws that encourage investment, on the creation of a new environment protection authority and on the rules governing the registration of business names.

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The Guide

This chapter offers useful facts for visitors, including information about local customs and etiquette, access to health care, visas and local languages. Readers can also find a hotel listing and contact information for foreign missions, legal services, banks, airlines and other institutions. This section also contains a viewpoint from Brian Kelly, CEO, Black Swan International.

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