Papua New Guinea

Business outline for Papua New Guinea

Economic Overview

After several consecutive years of contraction, the GDP of Papua New Guinea (PNG) made a progress of almost 7% in 2008, due to the good performance in prices of raw materials of the mining and agricultural sectors and to the success of the discipline in budget policies. After slowing down by 4.5% in 2009 due to the international financial crises, growth recovered in 2010, reaching 8%. The vast project of liquefied natural gas production has recently started and gives hope for future years of strong growth.

A difficult topography, poor quality infrastructures and the state’s control over its facilities have obstructed the development of the economy. The priority of the government is to preserve the economic stability and to counter the effects of the crisis by managing strict monetary policies. It also pursues a previously defined middle-term program concerning the management of its debt, development and taxing system. In a more long-term perspective, the government is also conscious of the progress which must be made in terms of education, healthcare, the justice system, infrastructures and transport.

Papua New Guinea has one of the highest birth rates of the Oceania region (4.6 children per woman), the population also has one of the lowest life expectancy (53.7 years for men and 54.8 years for women) and the literacy rate is among the lowest of the region (56%).

 

FDI in Figures

Already weak, FDI stocks as a percentage of GDP registered further decline in 2008-2009 as a consequence of the degradation of the international economic situation. The FDI influx however clearly rose in 2009.

In spite of its richness in natural resources, insufficient equipment, state monopolies and political instability are hindrances to the inflows of FDI.

The mining and oil sectors attract most of FDI coming from the main investing countries which are Australia, Bahamas, the United Kingdom and Malaysia.

 Investment Incentives

Investors willing to explore business opportunities in Papua New Guinea have available to them numerous incentives to assist in their investment decision-making.

The government has a range of direct and indirect taxation based incentives for large and small proposals.
The international treaties, agreements and pacts which give Papua New Guinea manufactured goods preferential access to various export markets, including duty free and reduced tariff entry to some of the largest markets in the world, for example the European Union (EU) under the Cotonou Agreement. The labour market has been deregulated, offering employers and employees the opportunity to ensure productivity and wages remain in step with one another.

INVESTMENT PROTECTION AND GUARANTEES

  • Foreign investment in Papua New Guinea is facilitated, regulated and monitored by the Investment Promotion Authority Act (the Act).
  • Investment Promotion Act
  • Section 37 of the Act guarantees that the property of a foreign investor shall not be nationalized or expropriated except in accordance with law, for a public purpose defined by law and in payment of compensation as defined by law.
  • Multilateral Investment Guarantee Agency
  • The Multilateral Investment Guarantee Agency’s (MIGA) principle responsibility is promotion of investment for economic development in member countries through:
  • guarantees to foreign investors against losses caused by non-commercial risks; and
  • advisory and consultative services to member countries to assist them in creating a responsive investment climate and information base to guide and encourage flow of capital.
  • APEC and WTO

Business Sector Profiles

Papua New Guinea genuinely welcomes foreign investment that contributes to the economic development and prosperity of the country and its people. The business environment is relatively uncrowded and there are many opportunities for profitable investment. As such, investing in Papua New Guinea can be a profitable exercise, irrespective of the size of the project.

In this section, we give an overview of some of the resource and/or service industries that exist in Papua New Guinea and the potential for investment/trade that the sectors each possess.

Key Sectors:
Agriculture

Agriculture has been of immense importance and will always remain the backbone of Papua New Guinea sustenance with over 85 percent of the population involved in subsistence farming. The moderate tropical climate with high levels of seasonal rainfall is highly favourable for agricultural activities.

Fisheries

The waters around Papua New Guinea contain large stocks of marine resources. Within the 200 mile economic zone are large varieties of fish, including migrating schools of tuna. Besides abundant tuna and other pelagic species, several other commercially important fish, shellfish, and sedentary species are found in Papua New Guinea’s waters. More than 10,000 species of fish, molluscs and crustaceans have so far been identified.

Forestry

The Papua New Guinea Forest Authority (PNGFA) is the government body responsible for monitoring and controlling the wood and forest-based industries and the management of PNG’s forest resources.

There are three key arms of the forestry administration of PNG including the National Forest Board, respective Provincial Forest Management Committees and the National Forest Service. The respective Provincial Forest Management Committees contribute to the decisions relating to the management of the forest resource within the provinces. The Papua New Guinea Forest Industry Association Inc. (PNGFIA) promotes and protects the interest of the forest industry.

Mining & Petroleum

Papua New Guinea has been a gold exporter since the 1930s and has ranked as the 11th largest gold producer in the world over the last few years. Papua New Guinea also ranks 10th in the world in terms of copper production, and has a very real potential to exceed the present production level. Also, silver is a commercial by-product from most of the mines. Papua New Guinea has extensive reserves of natural gas and oil.

Manufacturing

Currently, Papua New Guinea imports most processed food, clothing and footwear and most of the inputs to industry and commerce. However, there are potential investment opportunities in downstream activities.
Whilst the manufacturing sector’s contribution to the national GDP maybe lower than other economic sectors of the country, the sector indeed plays a vital role in the lives of the majority of the country’s population.

Tourism

Papua New Guinea is one of the most naturally beautiful countries in the world. Soaring mountain peaks, unspoiled beaches, lush rainforests, unique flora and fauna and the cultural richness of the people combine to make Papua New Guinea an increasingly popular destination for tourists.

Financial Services

The Papua New Guinea banking system is made up of the Central Bank of Papua New Guinea (BPNG), four commercial banks and several licensed financial institutions and credit unions (or savings and loan societies). The key financial institutions are supported by overseas-related companies and associates.

Telecommunication

The PNG telecommunications network comprises of an extensive, well-established and rapidly evolving network of microwave radio, satellite and intra-city optical fibre transmission systems that interconnect a nationwide network of telephone exchange and data switches. The network is 100% automatic, with international links to over 160 countries in the world and domestic services to all urban centres and major villagesivity and wages remain in step with one another.

 

Foreign Trade Overview

Foreign trade represented 115% of the country’s GDP in 2009. Papua New Guinea is liberalizing its trade and investment regime. The country provides MFN treatment to WTO members and benefits from preferred rights of access to the European Union market since the signing of an interim agreement on economic partnership in July 2009. Therefore, imports from Papua New Guinea have, from now on, duty-free access to the EU market.

Customs duties are relatively low. However, in order to protect domestic producers, high tariff rates are applied to certain food and plastic products. Unprocessed products are subject to the highest tariffs. The economic instability, inefficient state institutions and the vulnerability to international commodity prices are some trade deterrents. However, transparent and non-discriminatory trade measures are the main trade boosters.

The trade balance of the country, positive during the recent years, worsened considerably in 2009, due to the falling exports. It should nevertheless remain positive in the coming years.

Its main trading partners are Australia, Japan and China.