The Report: Papua New Guinea 2019
Efforts to improve public governance are gradually bolstering confidence in Papua New Guinea’s economy, despite national performance being heavily dependent on the extractive industries. Backed by macroeconomic development plans, Prime Minister James Marape’s administration is seeking to improve debt management, reduce foreign exchange imbalances, widen access to social services and provide greater employment opportunities.
Country Profile
Papua New Guinea is a vast archipelago, of which the main island – shared with Indonesia – forms the largest tropical island on Earth. Known for its unique flora and fauna, the country is famous for its environmental variety. However, with more than 850 languages spoken within its borders, it is also considered one of the most culturally diverse nations in the world. While it enjoys heterogeneous landscapes and cultures, PNG is seen as a frontier market in economic terms. Hydrocarbons and mining are the cornerstones of production, thus there is significant scope for the development of nearly all other sectors. Agriculture and tourism are seen as prime engines for diversification, offering the potential to generate much-needed foreign exchange and employment. This chapter also contains interviews with Prime Minister James Marape; and Powes Parkop, Governor of the National Capital District.
Explore chapterTrade & Investment
Papua New Guinea’s international profile received a boost when it chaired the APEC forum in 2018, an event that culminated in the APEC Leaders’ Summit in Port Moresby in November of that year. During the meeting, leaders from some of the world’s largest economies congregated in the capital to discuss a host of regional issues. While the business climate is hampered by regulatory obstacles and a shortage of land for development, the high-profile geopolitical event gave the island nation a chance to showcase its maturing economy and areas of untapped potential to more than 20,000 visitors from 21 APEC member states throughout the course of the year. This chapter also contains interviews with Stefano Mocci, Country Manager for Papua New Guinea, World Bank; Stephanie Fahey, Chief Executive, Austrade; Moustapha Magumu, Principal Coordinator for the Pacific Region, European Commission; and Clarence Hoot, Managing Director, Investment Promotion Authority.
Explore chapterEconomy
Efforts to increase public governance are gradually bolstering confidence in Papua New Guinea’s economy, despite national performance being heavily dependent on somewhat-unpredictable extractive industries. These were affected in the first half of 2018 by an earthquake in February, and recovered in the second half when international commodities prices rose. Recovery in liquefied natural gas production and mining operations after the earthquake continued into 2019, yet weeks of political unrest led to the resignation of Peter O’Neill as prime minister in May. Succeeded by James Marape, the former minister of finance, the new coalition government has inherited significant challenges alongside a host of exciting opportunities. This chapter also contains interviews with Dairi Vele, Treasury Secretary; Robert Nilkare, President, Business Council of Papua New Guinea; Paul Barker, Executive Director, Institute of National Affairs; and Stacey O’Nea, CEO, Port Moresby Chamber of Commerce and Industry.
Explore chapterBanking
Despite a tight supply of foreign exchange and a slowdown in economic growth in 2018, Papua New Guinea’s banking sector remained well capitalised and registered a robust performance, aided by supportive policies from both the government and the Bank of PNG, the country’s central bank. The successful issuance in September 2018 of the country’s first dollar-denominated sovereign bond raised $500m at a relatively attractive interest rate of 8.375%, helping to relieve some of the foreign exchange pressures, while ongoing economic stabilisation efforts supported business growth. Although commercial banks responded well to challenging macroeconomic conditions, their overall performance remains hindered by the lowest loan-to-deposit ratio of any country in the Pacific region, a consequence of PNG’s legacy of community-based mutual credit transactions. Domestic commercial banks remain well capitalised, but they are nevertheless part of a system that is under some strain. This chapter also contains an interview with Loi Bakani, Governor, Bank of Papua New Guinea; and a viewpoint from Mark Baker, Managing Director, ANZ Papua New Guinea.
Explore chapterInsurance
With a low penetration rate of below 2%, Papua New Guinea’s insurance sector has significant growth potential. The economy is expected to benefit from a range of new extractive projects and this, coupled with growing awareness about the benefits of insurance coverage, is set to increase demand. However, some notable challenges will need to be addressed to ensure the long-term expansion of the industry. While efforts have been undertaken to modernise the sector in recent years, the legislation governing the industry is not fully aligned with international best practices, and uncertainty remains regarding the division of responsibilities between different regulatory authorities. Despite a host of challenges, efforts to expand coverage across PNG to lower-income households are being made, with micro-insurance a key driver of penetration. This chapter also contains an interview with Raho Samuel, Insurance Commissioner.
Explore chapterCapital Markets
Papua New Guinea has made strides in recent years to expand its capital markets and promote liquidity. However, the performance of the country’s stock exchange – which changed its name to PNGX Markets in July 2019 – has been affected by a series of economic disruptions. The 7.5-magnitude earthquake that struck PNG in February 2018 contributed to a contraction in economic activity for most of the year, following steady growth in 2017. Extractive industries suffered extensive damage, but fears of a recession had dissipated by the end of 2018 as macroeconomic recovery led to an uptick in market activity for the last few months of the year. Political unrest after the resignation of long-serving Prime Minister Peter O’Neill in May 2019 generated concern over future investment. However, the new government, led by Prime Minister James Marape, is now in a position to strengthen the national economy through the capital markets. This chapter also contains an interview with Anthony Smaré, Chairman, Nambawan Super.
Explore chapterMining
The mining industry is one of the main pillars of economic growth in Papua New Guinea. In 2017 the sector accounted for 29% of GDP and generated 86% of export revenue. Gold and copper account for the majority of mining export revenue, respectively comprising 76.8% and 13% of total sector exports in the first five months of 2019. The mining industry also remains an important source of job creation, employing more than 20,000 individuals and indirectly supporting another 45,800 people. Mining in PNG is closely tied to demand from China. Therefore, if China’s imports of key commodities fall in response to its trade war with the US, it will adversely impact mining in PNG. The political environment may also affect sector investment. Prime Minister Marape has signalled a more cautious approach and intends to acquire greater financial benefits for PNG from the extractive industries. This chapter also contains an interview with Jerry Garry, Managing Director, Mineral Resources Authority.
Explore chapterEnergy
Although Papua New Guinea relies mostly on fuel oil and diesel to generate electricity, it holds an abundance of gas, geothermal, hydro and solar energy potential. If exploited sustainably, PNG could not only meet its domestic energy requirements, but also supply reliable, cost-competitive power to its neighbours. The extractives industry is the highest consumer of energy, at 45% of the total, followed by transport (40%), and agriculture, residential and commercial activities (15%). Although crude oil production is set to decline, liquefied natural gas output is expected to double to 16m tonnes by 2024, provided the planned expansion and development projects go ahead. The temporary disruption in oil and gas production as a result of the earthquake that struck in February 2018 was offset by a rise in international oil prices over the year. The government expects oil prices to average $57-66 per barrel between 2019 and 2022, while LNG prices are to remain steady at $9 per 1000 cu feet. This chapter also contains interviews with Hiroshi Hosoi, CEO, JX Nippon Oil & Gas Exploration Corporation; Wapu Sonk, Managing Director, Kumul Petroleum; and Peter Botten, Managing Director, Oil Search.
Explore chapterTransport & Logistics
The quality of a destination’s transport infrastructure is key to attracting foreign investment. In Papua New Guinea this is an area with room for improvement. The poor condition of roads, ports and airports has raised the cost of doing business and rendered a number of sectors of the economy increasingly uncompetitive. Because of this, inland transport costs currently account for 10-15% of the on-board price at the port. Since potholed roads and poor connectivity can cause delays in fresh farm produce reaching the market on time, transport infrastructure also impacts the agriculture sector. Therefore, supermarkets in Port Moresby are stocked with imported fruits and vegetables, while many varieties produced in the Highlands go to waste. This chapter also contains an interview with Alan Milne, Managing Director, Air Niugini.
Explore chapterConstruction & Real Estate
Papua New Guinea’s hosting of the 2018 APEC Leaders’ Summit proved to be something of a catalyst for the construction sector. Although the authorities had to mitigate the shortage of high-end hotels in the capital city by hiring cruise liners to accommodate international delegates attending the event, a host of construction projects were launched to meet the other infrastructure needs of the summit. Similarly, while the completion of PNG’s flagship liquefied natural gas project, PNG LNG, in 2014 ended the boom witnessed in the real estate sector, the momentum provided by increased construction activity between 2008 and 2014 continues to support the market. The commercial real estate sector in the capital Port Moresby has undertaken some notable projects in recent years. Meanwhile, a number of housing projects are under way, and a culture of homeownership has taken hold. This chapter also contains an interview with Ken Richardson, General Manager, Strickland Real Estate.
Explore chapterIndustry & Retail
Already major contributors to the nation’s revenue base, Papua New Guinea’s industry and manufacturing sectors hold significant potential for future investment and development. As such, the administration of Prime Minister James Marape remains devoted to a course that will encourage and protect businesses while working towards a reduction in the national import bill. This policy serves to both hedge against the boom-and-bust cycle of the resource economy, and avoid the ongoing issues the country has faced in obtaining foreign currency by replacing imported inputs with domestic produce. Meanwhile, with a mood of cautious optimism, PNG’s retail sector is recovering from a period of uncertainty caused by the earthquake in Hela Province in early 2018. That same year was marked by sluggish growth, before the APEC Leaders’ Summit in November 2018 triggered an upturn in the hospitality and general retail sectors, and encouraged businesses to invest with more confidence. This chapter also contains interviews with Stan Joyce, Managing Director, South Pacific Brewery; Mahesh Patel, Managing Director, CPL; and Nathaniel Ho, Executive Director, Rimbunan Hijau Group.
Explore chapterAgriculture & Fisheries
Prime Minister James Marape is intent on putting agriculture, forestry and fisheries at the forefront of the government’s development agenda, with an eye to boost downstream processing of farmed resources. As attempts to galvanise the sector spur the development of Papua New Guinea’s key crops and catches, reforms are under way to ensure the country maximises the potential of its rich soil and biodiversity. The government is also taking steps to increase PNG’s self-sufficiency in food production. Furthermore, PNG must promote agricultural development and encourage its population to participate in reaching this goal. Efforts should be channelled towards structural reforms aimed at improving the ability of state institutions to work with the private sector. Solving issues of landownership will improve investor confidence and encourage domestic and international players to support PNG’s potential for agricultural development. This chapter also contains an interview with Graham King, General Manager, Hargy Oil Palms; and a viewpoint from Goodwill Amos, Former Managing Director, Papua New Guinea Forest Authority.
Explore chapterICT
With the completion of two undersea fibre-optic cable projects due in the near term, Papua New Guinea’s ICT industry is on the cusp of significant change. The new infrastructure should bring down costs, improve internet speeds and reliability, and galvanise the ICT sector through the proliferation of digital and cloud-computing industries. Internet costs in PNG are among the highest in the region, with many businesses paying extra to have a combination of fixed-line, satellite and microwave wireless plans to ensure continuity of service in the event of disruption. As service provision improves in the coming years, funds previously allocated to securing a stable connection will be channelled towards other investments. In this light, the government has identified the digital economy as a primary area of focus. Solid foundations should allow small and medium-sized enterprises to tap global e-commerce channels, while enabling digital businesses to flourish across the broader economy. This chapter also contains an interview with Paul Komboi, Managing Director, DataCo.
Explore chapterTourism
With the new administration of Prime Minister James Marape committed to easing dependency on extractive industries, supporting diversification and stimulating job creation, the tourism sector offers significant potential. However, travelling in Papua New Guinea at present requires patience, perseverance and fortitude. Considerable scope remains for savvy local and international operators to exploit shallow product offerings in niche markets, notably adventure, cultural tours and ecotourism. In addition, many Chinese tourists have been made aware of PNG through coverage of the APEC summit. Convincing them to visit will require targeted measures. More broadly, ongoing improvements to transport infrastructure, code-share agreements between airlines and a coordinated effort to counter the perception that PNG is unsafe are essential. This chapter also contains an interview with Heidi Kunkel, Vice-President of Australasia Operations, Hilton.
Explore chapterTax
This chapter examines the tax system of Papua New Guinea, focusing on those budget and tax changes guided by the Medium-Term Revenue Strategy 2018-22, including: new revenue measures under the 2019 National Budget; the Companies Act Requirement; the Investment Promotion Act; the rules on corporate taxation; withholding tax; non-resident insurers tax; overseas shippers tax; and tax credits, incentives and various types of tax duties. This chapter also contains a viewpoint from Jonathan Seeto, Territory Senior Partner, PwC.
Explore chapterLegal Framework
This chapter examines the legal system of Papua New Guinea, as distributed across the national, provincial and local levels, including those governing: investment promotion; regulation of companies; taxation and tax credits; partnerships and joint ventures; personal property; power of attorney; land rights; patents; employment conditions; foreign exchange control; and sector-specific legislation across the extractive industries. This chapter also contains a viewpoint from Eunice Parua, Partner, Leahy Lewin Lowing Sullivan Lawyers.
Explore chapterThe Guide
This chapter contains selected listings of some of the Papua New Guinea’s top hotels; contact details for embassies, ministries and organisations; helpful tips for business and leisure travellers; and other useful suggestions for travellers to the country.
Explore chapterTable of Contents
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