The Report: Papua New Guinea 2017

After a number of challenging years, PNG is starting to hit its equilibrium point again. It has largely passed through the period of difficult adjustments, and now some balance has returned. A number of long-planned projects are progressing and new areas of opportunity are being explored.

Country Profile

With an election in 2017, the year has proven be a challenging one in Papua New Guinea. The economic downturn following the completion of the PNG liquefied natural gas project has resulted in criticism of the current government, amid accusations of mismanagement. Despite this, Prime Minister Peter O’Neill secured a fourth term, winning 78% of the votes cast in his district. Boosting social and economic infrastructure, improving inclusiveness across the country and combating corruption – both real and perceived – are key challenges for political decision-makers. Yet, despite these difficulties, PNG possesses enormous natural resources, which future leaders must manage in order to boost growth and spur development.

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

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Trade & Investment

The international position of Papua New Guinea has improved in recent years as the country continues to benefit from a number of positive trends. A stabilisation in commodity prices, strong output from the country’s major projects and an end to the El Niño drought have brought major trade indicators back into line. A lack of US dollars and the weak kina have helped as well by boosting exports and lowering imports. PNG’s balance of trade remains at or near a record high, while the current account has been positive for a number of years following a long period in the red. Prospects are good for keeping the totals at the right levels and also seeing possible improvements across the board.

This chapter contains interviews with Clarence Hoot, Acting Managing Director, Investment Promotion Authority and Steven Ciobo, Minister for Trade, Tourism and Investment of Australia; and viewpoints from Gerry Brownlee, Minister of Foreign Affairs of New Zealand and Shamshad Akhtar, Executive Secretary, UN Economic and Social Commission for Asia and the Pacific.

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Despite some weak headline numbers, Papua New Guinea’s economy is set to see a recovery in 2017. Depreciation of the kina and the shortage of US dollars have slowed imports and led to pockets of strength. Robust activity at the small and medium-sized enterprise level and in the informal sector is ongoing, while key statistics, such as the current account, are indicating a return to balance. The recent drought has come to an end, and two major mines are back on-line and ramping up production. Importantly, commodity prices seem to have stabilised globally. The near- to medium-term conditions are right for GDP to edge back up into a more comfortable range. Major gas and mining projects could contribute significantly to growth, while reforms currently being put into place are likely to add to the sustainability of the economy.

This chapter contains interviews with Thomas Abe, Managing Director, Kumul Consolidated Holdings; Dairi Vele, Secretary of the Treasury; and Sir Kostas Constantinou, Managing Director, Lamana Development.

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Papua New Guinea’s banking sector is sound, stable and profitable. Despite slow economic growth in the country in recent years, institutions have managed their exposures well and entered the current weak patch in a strong position. They are generating good results and investing in future growth. Regulation is solid and improving, with the central bank updating key laws and bringing the sector closer to international standards in terms of anti-money laundering. Innovation is helping to improve customer experience and geographical coverage, while it also promises to revolutionise the way money moves throughout the country. The establishment of Kina Bank in 2015 did not result in a dramatic change in the competitive landscape, but the dynamics of the sector are evolving, with institutions increasingly responsive on price and offering. At the highest levels work on inclusion continues.

This chapter contains interviews with Loi Bakani, Governor, Bank of Papua New Guinea and Mark Baker, Managing Director, ANZ Bank Papua New Guinea.

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Capital Markets

After a flurry of activity in 2015, including dual-listing initial public offerings, a key stock returning to the exchange after suspension and the writing of a series of major reforms, Papua New Guinea’s capital markets are rebounding. The benchmark stock index started to climb again in 2016 and continued to do so through early 2017, following years of decline since hitting record highs in 2010. The market remains sound, well managed and well prepared for the economic upturn expected with the next large liquefied natural gas investment. Work continues in the background on improvements and upgrades, while expected reforms, which include changes to legislation, structures and governance, should be in place by the end of 2017. Incremental refinements in the bond market, led by the central bank, are ongoing, as are the bank’s efforts to get the attention of international custodians.

This chapter contains an interview with Richard Borysiewicz, General Manager, BSP Capital.

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Insurance in Papua New Guinea remains a sector that offers significant opportunity. With a low penetration rate – estimated at under 2% – and the overall economy set for rapid growth as a result of ExxonMobil’s liquefied natural gas project, demand is projected to increase over time. Other trends and events also suggest good prospects. A new acting insurance commissioner has been appointed and is starting to push for increased and more effective oversight; banks have shown a growing interest in being more active in the sector; and much is being done to develop coverage for people and companies outside of urban centres.

This chapter contains an interview Matthew Kearns, General Manager, QBE Insurance.

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Commodity price fluctuations have rendered sporadic development across Papua New Guinea’s mining sector in recent years. Nevertheless, a diverse basket of minerals continues to attract international investors, who remain eager to unearth the nation’s resources, which have fuelled economic expansion. However, a lack of hard infrastructure and challenging natural conditions continue to escalate operating costs, which hampers revenue streams across the industry. Despite infrastructure drawbacks, mining continues to play a crucial role in the economy, contributing more than 34% of export revenues, according to figures from the Mineral Resources Authority. The sector registered impressive production numbers throughout 2016, following a weaker performance in 2015, which was characterised by a depressed commodities market and a temporary closure of one major mine.

This chapter contains an interview Peter Graham, Managing Director and CEO, Ok Tedi Mining and Chairman, Kumul Minerals Holdings.

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Papua New Guinea’s energy sector has undergone a dramatic transformation over the previous decades, with liquefied natural gas (LNG) becoming the sector’s biggest growth driver. The multibillion-dollar PNG LNG project is now operating well above nameplate capacity, and LNG export revenues are expected to remain a major pillar of the economy in the coming decades. Ongoing exploration activities will offer a clearer understanding of the country’s hydrocarbons reserves and further support plans to expand LNG production. Major international oil companies such as ExxonMobil and Total are looking to additional gas fields for new supply.

This chapter contains interviews with Peter Botten, CEO, Oil Search and Andrew Barry, Managing Director, ExxonMobil PNG.

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A challenging, disparate geography and low population density have created a unique set of issues for Papua New Guinea’s transport industry. Costs are high across all major modes of transport, and a lack of connectivity presents a serious challenge to doing business outside of Port Moresby. The country’s recent construction boom in the lead up to ExxonMobil’s $19bn liquefied natural gas project has not been as beneficial to public spending as initially anticipated, and budgetary shortfalls caused by low global commodities prices and a wider macroeconomic slowdown have significantly affected the delivery of planned new transport upgrades. As a result, public spending on transport is projected to further contract every year until 2021.

This chapter contains an interview with Richard Yolo, Acting Managing Director, National Airports Corporation.

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Construction & Real Estate

Although it recorded double-digit expansion during the boom years of 2010 to 2013, Papua New Guinea’s construction industry faces a challenging operating environment in 2017. Growth contracted in 2014 following the completion of a major liquefied natural gas project, and contractors have since struggled to regain the momentum seen earlier in the decade. The sector rebounded in 2015 and 2016, with preparations for the 2015 Pacific Games and the APEC 2018 summit helping to maintain stability. Although the real estate industry is experiencing a downturn, a moderation of unsustainably high prices is expected to benefit long-term growth. Affordable housing also retains considerable potential for future expansion, and recent consumer sentiment surveys reveal pent-up demand for mid-market properties.

This chapter contains an interview with Jason Yip, Managing Director, DAC Real Estate.

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Industry & Retail

Although smaller than its petroleum, mining and agricultural sectors, Papua New Guinea’s industry and manufacturing are major contributors to the nation’s revenue base, and hold significant potential for future investment and development. Manufacturers face several challenges, including high transportation, utilities and security costs, import dependency, currency depreciation, a foreign exchange shortage and land acquisition difficulties. However, the country benefits from a wealth of natural resources that holds considerable potential for value-added processing, most notably in the fisheries and agriculture segment. Long-term industrial development should also support investment in construction materials and petrochemicals, a crucial step in government efforts to reduce imports and build up a robust local production base.

This chapter contains interviews with Paulus Ain, Commissioner and CEO, Independent Consumer and Competition Commission and James Lau, Managing Director, Rimbunan Hijau (PNG) Group.

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Agriculture & Fisheries

With a seemingly endless supply of fertile land, the agriculture sector in Papua New Guinea has enormous potential to strengthen the economy and increase the prosperity of local farmers. While a number of challenges stand in the way of these opportunities, PNG’s organic and fair trade credentials are gradually opening high-value niche markets and bolstering export figures. As such, the advancement of crop production is a major priority for the government. As the largest employment sector and the third-largest export revenue generator, agriculture is widely recognised as the country’s best means of diversifying its basket of goods and easing reliance on extractive industries.

This chapter contains interviews with Ilan Weiss, Chairman, Innovative Agro Industry and Sir Brown Bai, Director, New Britain Palm Oil.

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Papua New Guinea’s ICT market is in the midst of a dynamic restructuring. Over the last decade the sector has experienced significant growth. However, despite advancements, pockets of isolated communities remain unconnected. As a result, the government has set out to expand the National Transmission Network, and along with the amalgamation of key state entities expected to encourage competition, the cost and availability of ICT services are set to briskly improve. Since the arrival of international competition in 2007, PNG has experienced a major shift in communications technology. Nevertheless, affordability remains a pressing issue and mobile adoption lags behind regional penetration rates, with PNG’s penetration rate representing one of the lowest in the South Pacific region.

This chapter contains an interview with Mahesh Patel, Chairman, Telikom PNG.

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As one of the world’s most culturally diverse nations, Papua New Guinea offers visitors the chance to experience a country with genuinely unique appeal. Surrounded by coral reefs and volcanic islands, the natural beauty of PNG has seen the country gain international recognition as an increasingly popular tourist destination. However, despite this vast appeal, PNG’s arrival ports continue to be heavily dominated by business travellers, although recent trends have seen an increase in tourists who are venturing in greater numbers to the country to experience its many attractions, consisting of diverse scenery such as mountain ranges, thousands of miles of coastline and dense forests that are home to rare wildlife.

This chapter contains an interview with Jerry Agus, CEO, Papua New Guinea Tourism Promotion Authority.

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This chapter offers a guide to PNG’s taxation rules and regulations. It also examines the national budget for 2017, which introduces new changes, and explains several credits and incentives available for businesses.

This chapter contains an interview with Jonathan Seeto, Territory Partner, PwC.

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Legal Framework

This chapter examines the laws that affect operations of foreign companies as well as regulative acts that protect land and resources. New securities legislation – yet to be implemented – is also explained.

This chapter contains a viewpoint from Michael Sullivan, Partner, Leahy Lewin Lowing Sullivan.

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The Guide

This chapter contains a list of recommended hotels located around the country, contact information for government bodies and foreign embassies and the listings of various businesses and organisations. It also offers travel tips and cultural facts for visitors.

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