Agri-business projects could accelerate development of Papua New Guinea's first special economic zone

Papua New Guinea’s efforts to establish special economic zones (SEZs) began in 2000 with the passing of the Free Trade Zones Act. However, PNG has yet to develop its first SEZ due to conflicts between the central and provincial governments, resulting in policy inconsistency and land disputes. For example, in February 2018 Allan Bird, governor of East Sepik Province, issued a statement that an agriculture project in the Sepik Plains involving Israel’s LR Group would not go ahead as planned as the provincial government was unaware of any such plans. Richard Maru, then-minister of national planning and monitoring, had reportedly announced the project without receiving confirmation from regional authorities. SEZs have also been met with opposition from the business community, which fears that they would distort the market and disadvantage local firms by offering incentives to companies that have not spent time and energy investing in PNG.

Agri-Business 

Despite conflict between the provincial and national governments, plans for the Sepik Plains SEZ appear to be advancing, with several major investments in recent years. In 2018 PGK5m ($1.5m) was allocated to the project, PGK1m ($303,000) of which will be used to develop police barracks. In October 2018 local company Innovative Agro Industry (IAI) committed to buying a 50% stake in a commercial farming project planned for the SEZ, for PGK15m ($4.5m).

The project, located in the Yangoru-Saussia District, involves several local and national partners, as well as landowner organisations. The venture is scheduled for completion in 2020, and will include facilities for grain production, stock feed processing and poultry farming. Bird told local media in February 2018 that the provincial government was assisting with the development of a 200,000-ha oil palm plantation in the Sepik Plains, and had been approached by two large-scale producers of rice and corn interested in investing in the region.

IAI’s Sepik Plains project builds on the success of the company’s PGK128m ($38.8m) dairy farm on the outskirts of Port Moresby. As of January 2019 the facility produced 6m litres of milk per day, and in August that year it began producing yoghurt. It plans to diversify further and offer ice cream and other dairy snacks. In January 2019 the NEC approved IAI’s plans for a second dairy project, in Morobe Province. The company is also set to launch a maize outgrower programme in 2019.

For its part, PBF Agro Business, a subsidiary of local private equity firm Pacific Balanced Fund, is spearheading plans to develop the 5000-ha Koitaki Agro Food Park in Central Province. IAI is the initial investor in the venture and has committed PGK26m ($7.9m) for an egg-processing facility aimed at serving local markets. Jerry Kootz Simon, CEO of PBF, told media in late 2018 that the firm is seeking investment from honey farmers, spice growers, and meat and vegetable producers.

Fisheries 

In Madang Province, plans to develop the Pacific Marine Industrial Zone have stalled multiple times due to allegations of misuse of public funds, and conflict between the provincial and national governments. However, there is still potential for PNG to capitalise on the 2.5m-sq-km Exclusive Economic Zone.

According to industry press, PNG waters host around 18% of the world’s tuna supply and account for some 750,000 tonnes of the annual catch. The country is also a signatory of the Nauru Agreement, which provides access to the tuna-rich waters of the wider Central Pacific, enabling PNG to offer fishing licences in exchange for investment in onshore processing facilities, as part of a wider strategy to reclaim business from countries that reap multibillion-dollar revenues by processing PNG tuna exports.

Enter China 

In April 2019 then-Prime Minister Peter O’Neill signed a $168m loan from the Export-Import Bank of China to finance the development of marine processing infrastructure, with a fishing wharf and container berth, to support 10 new tuna canneries around the Madang Lagoon. However, the project – which is likely to offer participating firms tax breaks – still lacks a plan to resettle residents, or involve local businesses and communities in the proposed economic benefits.

The loan is just one of a number of Chinese-financed projects. Another notable proposed project is the $300m PNG-China Integrated Agriculture Park Project, negotiated as part of a package of deals after PNG signed up to the Belt and Road Initiative in 2017. The project is designed to cultivate export crops such as mushrooms, rice and livestock, supported by a science and technology research base and training centre located at two sites – Korofeigu in the Eastern Highlands and the Highlands Agriculture Training Institute in the Western Highlands. In June 2019 Prime Minister James Marape told local media he would support the project if it “followed proper economic rationale” and if there is “a return on [PNG’s] investments”. This will require the completion of commercial and feasibility studies, and an agreement between the local and central governments, with China Railway Construction Corporation helping to secure the land leases.

Additionally, in West Sepik Province, Chinese investors signed a memorandum of understanding with the PNG government in 2017 to develop a $3.8bn industrial park, including a centre for processing steel and cement. The agreement also promises the construction of an agricultural processing cluster, which will focus on fish, cassava, tropical spices and timber.

Land Issues 

One of the chief obstacles to developing SEZs is insufficient access to land and supporting infrastructure. “SEZs are unlikely to be established in the short term as there is a lack of power, water and sewage,” Rio Fiocco, president of the Port Moresby Chamber of Commerce and Industry, told OBG. “Land rights are also an issue, as it is still difficult to determine landownership.” In response to these concerns, the National Executive Council formed Kumul Agriculture Limited (KAL) in 2018. The state-owned entity (SOE) was designed to partner with investors and agri-business companies to solve land and infrastructure issues. Although KAL has yet to bring tangible results, with local media reporting in June 2019 that it was one of 10 SOEs on the verge of bankruptcy, sector players are hopeful the new administration of Prime Minister Marape will revitalise operations. The government has shown interest in developing the sector, suggesting that new agri-business zones could be in the pipeline.

Despite this, some sector stakeholders argue that the development of an SEZ alone would not sufficiently tackle PNG’s infrastructure deficit. “The lack of canneries and fish-processing facilities is not due to the absence of an SEZ,” Chey Scovell, CEO of the Manufacturers Council of PNG, told OBG. “It is because PNG lacks functional ports and affordable ice-making factories. Power is also expensive, at around $0.35 per KWh, and often does not work.”

New Zones 

However, major projects in other sectors may help to accelerate the development of supporting infrastructure. For example, the $13bn Papua LNG project in the Kikori District of Gulf Province has opened the door for an accompanying zone, known as Ihu SEZ, that would feature a free trade zone, a petroleum park, an industrial zone, a technology park, a forestry zone, a marine park, a deepsea port and airport, hotels and resorts, and a government and administration area.

“The seaport and airport in Kikori have the potential to be major freight ports in the Pacific due to their importance to the gas industries and associated exportdriven sectors such as agriculture, forestry, fisheries, mining and ecotourism,” Peter KenGemar, project director of Ihu SEZ, told local media in March 2019.