Tony Canning, Partner, DFK Hill Mayberry, on the challenges of establishing a company in PNG

 Tony Canning, Partner, DFK Hill Mayberry

 

As the world grapples with fuel and energy shortages, countries like PNG, with huge deposits of minerals and hydrocarbons, are benefitting greatly. The government’s efforts to attract foreign investment and skills by providing direct assurance and various tax incentives has caught the attention of the international business community, which has been lining up to take advantage of the commercial opportunities on offer. At the same time, PNG’s poor infrastructure and administrative capabilities make it difficult for businesses to succeed, even when they have invested millions. This is borne out by the World Bank’s “Doing Business 2012” publication, which ranks PNG 101 out of 183 economies worldwide, down four places from 2011. Some of the biggest impediments to doing business in PNG are as follows: (a) Unexpected delays in starting up a business: Any foreign company wishing to set up shop in PNG is faced with immediate delays in registering and obtaining the necessary approvals and permits. Moreover, these approvals are often inter-dependent, making it all the more difficult to get them in time. For example, to obtain an Investment Promotion Authority (IPA) certificate a business must possess Registrar of Companies registration. To register for goods and services tax, a firm must possess IPA certificate, and to obtain work permits and visas, a foreign business must posses an IPA certificate. Overall, registering a business may take between three and six months, making it very difficult for companies that are awarded short-term contracts to carry out work within the agreed timeframe. (b) Shortage of skills and lack of adequate training facilities to bridge this gap: The shortage of skills is a major impediment to businesses setting up in PNG. Resource-based and large-scale projects demand more highly skilled labourers than are available. The government has tried to address the situation by fast-tracking the work permit and visa approval process for the PNG liquefied natural gas project, and allowing businesses to bring in expatriates with a required skill set.

However, the lack of capability and manpower at the Department of Labour and Immigration is not helping matters. Moreover, spiralling rental prices have greatly increased the cost of importing expatriates, suggesting a shift to reliance on local labour. However, this will require time and money for training, especially given the dearth of quality technical training providers in PNG. (c) Lack of infrastructure: Businesses rely on timely and continuous supplies, which requires a well-established transport link between major centres and manufacturing facilities. Businesses chronically suffer from delays in their supply chains in PNG, owing to bad roads and an undeveloped transport system.

The boom in the economy may have given many people living in the major cities and towns access to the latest technologies and modern lifestyles, but it has made no difference to the lives of the majority of the population that live in remote areas. Moreover, feelings of deprivation have led some to vent their anger against foreign businesses through roadblocks and violence. (d) Lack of finance and insurance: Growth in PNG is hampered by the inability of small and medium-sized enterprises to raise finance from banks and financial institutions. Such attitude from lenders can be traced back to the poor economic conditions that prevailed in the past. Another reason is the lack of competition – there are very few viable players in each sector. Insurance is also unaffordable for many businesses, given the high risk of operating in PNG. In recent times, we have seen more international insurance companies coming into PNG, and existing insurance firms have formed a consortium to address the pressing need for affordable coverage, but it remains a major problem.

PNG saw a major political drama play out in 2011, with a leadership change and a continuing battle over control of the government. Businesses were affected as ministers were shuffled and expected government tenders were not finalised. With elections planned for June 2012 it will be interesting to see how PNG addresses the obstacles faced by businesses in the years ahead.

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