PAPUA NEW GUINEA IN BRIEF
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.
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).
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.
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.’