OBG talks to James Lau, Managing Director, Rimbuna Hijau (PNG) Group

Interview: James Lau

How would you assess Papua New Guinea’s investment climate when compared to the wider region?

JAMES LAU: The investment climate is mixed; however, there is recognition that PNG will require overseas funds if the country is to achieve its development goals and meet its potential as a major exporter to Asia. As PNG is rich in natural resources, it is an attractive target for mining and energy companies. However, the country’s current stage of development means that some costs, including transport and power, are comparatively high.

The complex nature of customary land ownership can also be an obstacle. It is difficult for communities to secure a tangible title to their land, which they can then use for business purposes. The government is making attempts to facilitate land registration, and PNG would benefit greatly from overseas help in creating a functional national land registry. This would be an important step towards allowing landowners to gain more income from their land, by cultivating it themselves, or by seeking external development partners.

What is the likely effect of the liquefied natural gas (LNG) project once gas delivery begins in late 2014?

LAU: Economic growth and revenues created through the sale of LNG represent a great opportunity for PNG, but the project also carries economic risks. Sales of LNG will drive up the value of the kina, for example, making it difficult for other export industries to stay competitive. The government should take further measures to ensure that the kina is kept under control, costs are reduced for non-energy exporters and red tape is removed for international companies. This would encourage a broader distribution of wealth and allow a middle class to emerge in a country that, until now, has exhibited significant income inequality.

How can the government add value to natural resources and enhance manufacturing capacity?

LAU: For the timber industry, high currency value, and high wage, power, and transportation costs make it very difficult to produce processed timber at an affordable cost. These cost structures result in manufacturers in PNG losing market share to other countries in the region. The government must address these areas and provide manufacturers with incentives to expand operations if we are to see greater value adding in PNG.

What is the growth potential of the domestic retail sector, considering the downturn in 2013?

LAU: It is likely that both the recent drop in inflation and in currency value will dampen the retail sector in the short term. However, if the government is successful with improving the country’s budget position, retail will recover over the medium term. PNG citizens are demanding a wider selection of quality goods, with retail competition continuing to grow. As the economy expands, domestic consumption will increase, and the retail sector will benefit from this trend.

How can foreign investors boost their role in the property and hospitality segment, and what factors are key for designing a long-term strategy in PNG?

LAU: Foreign investment in property and hospitality, and the increased competition that it brings, will help to raise standards across the sector. Consumers will ultimately have wider choice and more competitive prices. Domestic operators may initially resist foreign investment; however, over the longer term, greater competition will be beneficial for the sector as a whole, and also for PNG’s consumer base.

Investors should consider both recent levels of economic growth and developmental constraints that still hamper the country. Specifically, investors should evaluate political stability and perform a comprehensive analysis of the costs of doing business. This should include understanding bureaucratic obstacles, the state of infrastructure and utilities, and the availability of suitable labour. We have consistently expanded our business operations in the country by learning from past experience and by identifying key trends over time.