ECO­NOMIC UP­DATE

Pa­pua New Guinea’s econ­omy is now emerg­ing from a pe­riod of hia­tus fol­low­ing the com­ple­tion of its mas­sive liq­ue­fied gas project. An­drew Wilkins talks ex­clu­sively to some of PNG’S top ex­ec­u­tives to find out their views on the coun­try's eco­nomic progress.

Business Advantage Papua New Guinea - - Front Page -

In May 2014, Pa­pua New Guinea achieved what some thought it would never do—it joined the ex­clu­sive club of liq­ue­fied nat­u­ral gas-ex­port­ing coun­tries.

The US$19 bil­lion Exxonmo­bil-led PNG LNG project, which achieved fi­nan­cial com­ple­tion in early 2015 and is now bring­ing much­needed rev­enue to the coun­try, has not only put PNG into the top 15 LNG pro­duc­ers world­wide; it has put this fast-grow­ing econ­omy of just six mil­lion peo­ple firmly on the global map for busi­ness.

The com­ple­tion of the project has had sig­nif­i­cant con­se­quences.

Not only are there more LNG projects in the pipe­line, with French ‘su­per ma­jor’ To­tal SA now in PNG (see page 27), but the con­struc­tion over sev­eral years of such a large, world­class gas devel­op­ment has lifted ca­pa­bil­i­ties and skills across the econ­omy.

‘We’re be­ing en­cour­aged that more and more peo­ple from the ANZ Group want to come to PNG,’ says Mark Baker, Man­ag­ing Direc­tor of ANZ’S PNG op­er­a­tions. ‘PNG is seen in a pos­i­tive sense for peo­ple … who are mid-ca­reer, who want to make a dif­fer­ence and want to get that ex­po­sure in a de­vel­op­ing mar­ket.'’

Great ex­pec­ta­tions

PNG’S suc­cess has also, of course, raised ex­pec­ta­tions—both of what such large GDP growth, pro­jected to be around 15.5% for 2015, can de­liver to the peo­ple of PNG (85% of whom live out­side the for­mal econ­omy) and also from a busi­ness sec­tor keen to see some of the im­ped­i­ments to growth ad­dressed by gov­ern­ment.

As our an­nual sur­vey of PNG’S lead­ing CEOS in­di­cates (see page 10), there are still many con­straints to growth in PNG’S econ­omy, and many of th­ese—un­re­li­able util­i­ties, law and or­der prob­lems, lack of gov­ern­ment ca­pac­ity and red tape—fall un­der the re­mit of gov­ern­ment.

The con­struc­tion phase of the PNG LNG project, which was given un­der­stand­able pri­or­ity by gov­ern­ment, ac­cen­tu­ated some of th­ese is­sues. Now con­struc­tion is com­plete, re­sources are be­ing di­rected to where they are badly needed.

The largest Na­tional Bud­get in PNG’S his­tory was de­liv­ered by Trea­surer Pa­trick Pru­aitch at the end of 2014, with ex­pen­di­ture on in­fra­struc­ture, ed­u­ca­tion, health, and law and or­der now ac­count­ing for 50% of all ex­pen­di­ture.

Im­proved in­fra­struc­ture will have a trans­for­ma­tive ef­fect on PNG’S typ­i­cally high-cost busi­ness en­vi­ron­ment.

‘If we can get the in­fra­struc­ture devel­op­ment right … it will cre­ate the op­por­tu­nity for our man­u­fac­tur­ing sec­tor to start be­ing more com­pet­i­tive.’

‘If we can get the in­fra­struc­ture devel­op­ment right— whether it’s PNG Power with more ef­fec­tive, re­li­able and lower cost en­ergy, or the ports for our in­ter­na­tional trade, or the high­ways—it will cre­ate the op­por­tu­nity for our man­u­fac­tur­ing sec­tor to start be­ing more com­pet­i­tive and in­crease their own in­vest­ment in their plant in­fra­struc­ture,’ notes Robin Flem­ing, Chief Ex­ec­u­tive Of­fi­cer of Bank of South Pa­cific, PNG’S largest bank.

Progress in in­fra­struc­ture

While the ef­fi­cient dis­burse­ment of gov­ern­ment funds re­mains a chal­lenge, there are un­doubted signs of progress.

The com­ple­tion of the land­mark devel­op­ment of PNG’S busiest com­mer­cial port in Lae at the end of 2014, com­pleted with fund­ing from the Asian Devel­op­ment Bank, will greatly

While that might have meant some lay-offs in 2014, 2015 is again look­ing pos­i­tive.

‘We are ex­pand­ing,’ con­firms Ma­hesh Pa­tel, Chair­man of the CPL Group, PNG’S largest re­tailer. ‘We’re not go­ing to slow down be­cause we know it’s go­ing to turn. Now, when is the mil­lion dollar ques­tion, be­cause over 30 years I’ve been through this cy­cle three or four times.’

Cur­rency fluc­tu­a­tions

Man­ag­ing busi­ness rev­enues has been made more chal­leng­ing by falls in the value of PNG’S cur­rency, the kina, against its ma­jor trad­ing cur­rency, the US dollar, and moves by the coun­try’s cen­tral bank to man­age that fall.

In June 2014, the Bank of Pa­pua New Guinea set a higher value for the kina and also man­dated a fixed trad­ing band for the kina against the US dollar, ef­fec­tively con­trol­ling the mar­gins be­ing made on for­eign ex­change trans­ac­tions. The kina has con­tin­ued fall since against the US dollar (although ris­ing against the Aus­tralian dollar over the same pe­riod), but more slowly and with­out ex­ces­sive volatil­ity.

While this was seen as tem­po­rary mea­sure—nec­es­sary un­til dollar rev­enues from the PNG LNG project start flow­ing—it was still in place in March 2015 and has un­doubt­edly had an im­pact.

‘It is a prob­lem for many busi­nesses in get­ting suf­fi­cient for­eign cur­rency to pay sup­pli­ers and get goods off the wharves,’ Greg Paw­son, Pres­i­dent of the Australia–pa­pua New Guinea Busi­ness Coun­cil, told Busi­ness Ad­van­tage PNG in March 2015.

Non-min­eral com­modi­ties

A weaker kina has made PNG’S vi­tal agri­cul­tural com­modi­ties—palm oil, cof­fee and co­coa—some­what more cost com­pet­i­tive in­ter­na­tion­ally. In­deed, pro­vi­sional Bank of PNG fig­ures sug­gest the value of PNG’S agri­cul­tural im­ports in­creased year on year by 18% in the 12 months to 30 Septem­ber 2014—an en­cour­ag­ing sign for ru­ral pro­duc­ers, who still form the back­bone of PNG’S econ­omy (see page 50).

Marine ex­ports also in­creased sharply in the Septem­ber 2014 quar­ter—up 30% on the cor­re­spond­ing pe­riod in the pre­vi­ous year. This is a sec­tor experiencing gen­uine growth in on­shore value-adding (see page 47), pro­vided is­sues of longterm sus­tain­abil­ity in the Pa­cific fish­ery can be ad­dressed.

Port Moresby’s port is sched­uled to be re­lo­cated— a ma­jor project that will open up its cen­tral busi­ness dis­trict for re­de­vel­op­ment.

An­drew Wilkins

Lae’s new port is now ready to re­ceive ten­ants, fol­low­ing its long- awaited com­ple­tion in De­cem­ber 2014.

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