Business Advantage Papua New Guinea - - Economic Update -

Pop­u­la­tion: 7.167 mil­lion (2012, source: World Bank)

im­prove port con­ges­tion (see page 42), while the gov­ern­ment has em­braced re­form in both power gen­er­a­tion (see page 37) and telecom­mu­ni­ca­tions (page 39), which should en­cour­age greater pri­vate sec­tor in­volve­ment and re­duced costs for busi­ness.

Re­sources sec­tor

While such in­vest­ment is badly needed, it comes at a time when gov­ern­ment rev­enues are fall­ing. Ac­cord­ing to the Asian Devel­op­ment Bank’s De­cem­ber 2014 Pa­cific Eco­nomic Mon­i­tor, min­ing and petroleum taxes were down 32% on pro­jec­tions in 2014, while con­sump­tion tax was down by 36%.

Like many re­sources-rich economies, PNG was af­fected by lower prices for its ma­jor min­eral ex­ports—gas, gold, sil­ver and cop­per. The drop in prices has caused the op­er­a­tors of PNG’S mines rein in costs, with con­se­quences for the do­mes­tic econ­omy, while ex­plo­ration has largely come to halt. Two no­table prospects con­tinue to make progress, how­ever: the Wafi-golpu project in Morobe Prov­ince and Nau­tilus Min­er­als’ deep sea min­ing project in the Bis­marck Sea.

The prospects for PNG’S gas sec­tor look more pos­i­tive, with To­tal SA and Tal­is­man En­ergy (the sub­ject of a takeover from Rep­sol) both pur­su­ing projects, and a third train look­ing in­creas­ingly likely for the PNG LNG Project. (For our spe­cial sup­ple­ment on the coun­try’s min­ing and petroleum sec­tor, turn to page 25).

Man­ag­ing rev­enues

While lower rev­enues and higher ex­pen­di­ture mean PNG’S Gov­ern­ment is now set to run a deficit bud­get un­til at least 2017, the gen­eral view is that the wind­fall from the PNG LNG project, set to be around K1.8 bil­lion in 2015 alone, will soften the blow, es­pe­cially if the Gov­ern­ment is able to fi­nalise the cre­ation of its ‘on­shore man­aged, off­shore in­vested’ Sovereign Wealth Fund.

‘It’s one of the most ef­fec­tive mech­a­nisms be­ing used in a lot of coun­tries for try­ing to quar­an­tine the Bud­get from cycli­cal trends and in­fla­tion­ary and Dutch Dis­ease im­pli­ca­tions from ma­jor ex­port earn­ings,’ Paul Barker, Ex­ec­u­tive Direc­tor of in­dus­try-funded think-tank, the In­sti­tute of Na­tional Af­fairs, tells Busi­ness Ad­van­tage PNG.

New par­a­digm

In the mean­time, busi­ness has been get­ting used to a new par­a­digm. The times of year-on-year, dou­ble-digit rev­enue growth are over for the time be­ing, and 2014 was clearly a year of con­sol­i­da­tion for many busi­nesses.

‘We all ex­pected af­ter the LNG that things would drop off,’ notes Wayne Dor­gan, Man­ag­ing Direc­tor of Pa­cific MMI In­sur­ance. ‘There was ob­vi­ously a lot of ac­tiv­ity go­ing on … and now the LNG build has been com­pleted, the econ­omy’s sort of dropped back, although I wouldn’t say dras­ti­cally.’

‘My ob­ser­va­tion is that Pa­pua New Guinea has a ten­dency to change gears with­out us­ing a clutch,’ sug­gests Stan Joyce, Chief Ex­ec­u­tive Of­fi­cer of S P Brew­ery, PNG’S largest brewer. ‘I think my view is that some peo­ple got caught.’


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