Papua New Guinea moves towards long-term reform in key sectors

The former minister of finance, James Marape became the eighth prime minister of Papua New Guinea on May 30, 2019 following the resignation of his predecessor, Peter O’Neill, after eight years in office. In a break with O’Neill’s approach, Prime Minister Marape struck a somewhat nationalistic tone in his first speech to Parliament, and afterwards told media that his government would focus on “taking back the economy”. This statement sparked concerns among foreign businesses and overseas investors who are bracing for sweeping changes to the local business environment.

Resource Laws  

Marape made waves when he resigned as the minister of finance in April 2019, citing his dissatisfaction with the government’s $13bn deal to develop the Papua LNG project, led by French energy giant Total. Some analysts have raised concerns that the change of leadership could impact expected production increases at the ExxonMobil-led PNG LNG project, especially as Marape has remarked that the country’s resource laws need updating. The prime minister believes that greater amounts of revenue should be coming back to the government and local communities to fund development initiatives. However, after months of uncertainty surrounding the project, in September 2019 the government officially announced that the Papua LNG project was cleared for implementation, though Total had yet to publicly comment at this time. While any other changes are not expected to be retrospective, updates to laws governing the extractive industries are likely to have a significant impact on the economy going forward, whether positive or negative.

Agriculture 

To ease dependency on hydrocarbons and mining operations, agriculture is receiving a renewed emphasis by the government. Prime Minister Marape is looking to increase processing capacity as a means of boosting earnings for the sector, which account for around 25% of GDP and the livelihoods of some 85% of the population. To this end, the administration is applying for an EU grant to develop the cocoa industry in the Momase Region. Marape has also tentatively lent his support to the proposed $600m PNG-China Integrated Agriculture Park Project as long as the development follows “proper economic rationale” and that there is a “return on our investments”. The organic subsector has been identified as having particular growth potential, and PNG’s location can help it export produce to lucrative Asian markets such as China, Singapore and Hong Kong.

Economic Rescue Plan

Even with his ambitious plans to update legislation and reinvigorate key sectors, Prime Minister Marape begins his premiership at a challenging time for the economy. Opposition politicians have called on the government to develop a rescue plan for what it describes as an “economic crisis”, while the prime minister has justified his proposed policy reforms by saying the economy is “struggling and bleeding”. Politicians have drawn attention to three key issues: increasing levels of public debt, which rose from 16.3% to 36.9% of GDP over the course of O’Neill’s tenure; a heavy reliance on the extractive industries; and concerns related to the health and education sectors.

To help address some of the fiscal concerns, Prime Minister Marape is seeking to restructure many of the country’s state-owned enterprises (SOEs) to improve their financial efficiency, and the profits of companies may go towards the creation of a sovereign wealth fund. The possibility has been raised that some SOEs could even be privatised. The need for further economic diversification, meanwhile, was highlighted by the earthquake that struck Hela Province in February 2018. In addition to claiming the lives of some 200 people, damage to industrial infrastructure halted a number of production of major extractive projects such as the PNG LNG plant and the Porgera gold mine for several months. As a result, the economy recorded near-0% growth in 2018. This is expected to bounce back, however, with the IMF and World Bank forecasting GDP expansion of 3.8% and 5.1%, respect ively, in 2019.