PNG expands transport projects to ease flow of goods

As the largest trading economy in the Pacific region, with links to Australia, Pacific island nations and Asian economies, it is essential that Papua New Guinea have efficient transportation and logistics infrastructure to maximise its trade potential. PNG’s economy is dependent on international trade, both in terms of revenue generation from exporting energy, mining and agricultural products as well as relying on imports from Australia and other countries for food, machinery and equipment.

International Story

The country’s interdependence is expected to continue, given the trend of increased trade within the Asia-Pacific region. Interconnectivity between Asia and Western markets has improved over the past few decades along, with intra-regional trade pacts like ASEAN. With robust growth in the West proving elusive, regional markets are more attractive among Asian countries, including PNG, highlighting the importance of enhancing integration.

Economic growth in Asia continues to outpace most other regions, with the IMF projecting GDP growth for Asia of 5.6% in 2015 and 5.5% the following year. The UN was slightly more optimistic in its projections, placing economic growth of the East and South Asia region at 6% for 2015 and 2016, compared to global growth of 3.1% and 3.3%, respectively. Over half of the world’s trade takes place between members of regional trade agreements and while South-east Asia is shoring up its economic integration efforts through ASEAN, South Pacific nations remain less strongly integrated both economically and politically through the deals such as the South Pacific Regional Trade and Economic Cooperation Agreement, Melanesian Spearhead Group and the Pacific Island Countries’ Trade Agreement.

Realising Potential

While PNG is uniquely placed within the region to provide a wide array of raw materials and, eventually, value-added products to eager buyers throughout the Asia Pacific sphere, substantial work needs to be done to create the logistical infrastructure necessary for efficient and profitable trade. The lack of road links from the resource-rich interior of the country remains an impediment to trade, and continues to constrain the agricultural and mining industries operating there. Upgraded sea and air links are also necessary, particularly due to the lack of other transport options, while administrative and bureaucratic procedures are also in need of streamlining.

Mixed Scores

The World Bank gave PNG a score of 2.43 out of 5 on its logistics performance index in 2014, placing it 126th of the 160 countries in the survey. The international score uses six factors to benchmark countries’ performance. Calculated on a weighted average, these six key dimensions are: efficiency of the clearance process (speed, simplicity and predictability of bureaucracy) by border control agencies, including Customs; quality of trade and transport infrastructure (ports, railroads, roads and information technology); ease of arranging competitively priced shipments; competence and quality of logistics services; ability to track and trace consignments; and extent to which shipments reach their destinations on time. The 2.43 score is the highest achieved by PNG to date, although the country has overall shown little forward progress over the past seven years after posting scores of 2.38 in 2012, 2.41 in 2010 and 2.38 again in 2007.

The highest-rated category for PNG was timeliness at 2.73, down from 3.01 in 2012, though it ranked 135 out of the 160 countries included. The next two dimensions registered identical scores – 2.47 for international shipments (ranked 126) and logistics competence (ranked 115). Customs garnered a score of 2.4, a marked improvement from 1.98 in 2012, with the category capturing the rank of 107. Tracking and tracing was rated at 2.27 for a ranking of 135 with infrastructure faring the worst at 2.23 and a ranking of 127. Meanwhile, scores for both the infrastructure and Customs categories have shown moderate improvements – 0.23 and 0.24, respectively – since the initial index was created in 2007. International shipments, logistics competence, tracking and tracing, and timeliness have all demonstrated declining performance over the same period.

Martime Woes

PNG’s maritime transport segment – the most crucial to foreign trade – was also found to be lacking in a number of categories. The liner shipping index ranking compiled by the World Bank indicates a country’s integration level into global shipping networks. PNG’s score was 6.61 out of 100 in 2013, putting it in the bottom 10% worldwide. This figure improved somewhat in 2014 to 9.02. The metric is based on five components of the maritime transport sector: number of ships, container-carrying capacity, maximum vessel size, number of services and number of companies that deploy container ships in a country’s ports.

A 2014 report on PNG included in the Bertelsmann Stiftung’s Transformation Index echoed this sentiment, stating, “The government encourages foreign trade, especially with those states participating in the Melanesian Spearhead Group Preferential Trade Agreement, which includes Vanuatu, PNG, the Solomon Islands and, recently, Fiji. However, bureaucratic red tape and the high cost of transportation between the island states constitute significant barriers to free trade and foreign investment. In practice, this means large and well-established companies have a distinct advantage over new entrants and small companies.”

Unfortunately, these issues have not been showing marked improvement in recent years, according to the World Bank’s “Doing Business 2015” report. The time it takes to import goods has increased from 2006 to 2014, from 29 days to 30 days, while the cost has risen from just over $1000 in 2006 to $1350.

The time needed to export goods has remained static at 23 days and costs $1335, compared to less than $1000 per container in 2006. Globally, PNG stands at 138 in the ranking of 189 economies on the ease of trading across borders – a relatively low ranking compare with the regional average for East Asia and the Pacific, which is significantly higher at 82.

New Plans

To address shortcomings, the government has rolled out several development plans, including the National Transport Strategy 2014-30 and the PNG Road Fund. The importance of reform is reflected in budget allocations for infrastructure. A total of PGK2.7bn ($1bn) was earmarked for infrastructure spending in the 2015 budget – equal to 16.7% of annual expenditures – following an equal amount allocated in 2014 and up from PGK1.9bn ($719m) spent in 2013. These outlays are complemented by development programmes funded by foreign aid organisations and governments, along with entities such as the IMF, the Asian Development Bank (ADB) and others. The ADB, for instance, has set aside $484m to improve transportation in the Pacific region in the 2014-16 period, with PNG the single largest investment target in civil aviation, road, port, border and community water projects.

The WTO includes PNG in its Aid for Trade (AFT) programme, which targets developing countries facing supply-side and trade-related infrastructure obstacles that constrain their ability to participate in international trade. The country received $157.76m in AFT funds in 2013 for the transportation and storage sector, up 164% from the $59.7m allocated from 2006-08.