OBG talks to Richard Borysiewicz, General Manager, BSP Capital

Interview: Richard Borysiewicz

How well did the Kina Security Index perform in 2013 compared with other regional securities?

RICHARD BORYSIEWICZ: 2013 was not a very successful year for the Kina Security Index, which continued to be driven by large stocks such as Oil Search and BSP, both of which softened. However, this should not be regarded as a statement about the market as a whole, as both stocks remain strong, but rather speaks to the lack of liquidity and the desire to diversify. We are looking forward to InterOil’s new partnership and its benefits in 2014 and beyond. This will set the tone for the whole year, alongside GDP growth that will be modest by Papua New Guinea’s standard growth rate of 5-6%, but considerable when compared to more mature economies. Beyond that, everyone expects improvement, because of the government’s considerable investments in infrastructure, health and education.

What do the capital markets in PNG need to do in order to attract additional investments?

BORYSIEWICZ: What we are missing here are options and products. Those with liquidity are likely to invest offshore, often in overpriced real estate in Australia, or will keep it as cash, therefore undertaking currency risks. Another option would be to leave money parked in a bank account, with a current inflation rate of 3-4%, which would mean going backwards, and encourage a tendency to swing from high risk to nothing and back to high risk, with very little in the middle. What the market here requires is a wider range of wealth management products, improved financial literacy and more financial institutions, so long as they contribute toward financial inclusion by offering a range of services. PNG boasts a young population, so the challenge is to instil a culture of savings at an early age. At the moment PNG is characterised by a buy and hold mentality, where investors hold onto their bonds until maturity. However, this country boasts a very young population, and so the government ought to focus on instilling a culture of saving as opposed to a culture of consumption.

What can be done to improve the international perception of PNG as an investment destination?

BORYSIEWICZ: PNG clearly suffers from its sovereign debt rating. As a result, so do the institutions that operate here as well. Negative reporting on law and order, corruption and lack of transparency can often put investors off, even if most of this negativity is, as I believe, overstated. However, there is a brighter picture emerging from the country’s energy sector, and international brokers and fund managers, especially in Australia, are finally pushing PNG as a potential area of growth for their businesses, including Oil Search, Horizon Oil, Kina Petroleum and other players.

In what ways is the financial market likely to evolve considering its current position within the region?

BORYSIEWICZ: The obvious future for PNG would be to tap into the Australian superannuation industry, which is the fourth-largest pension market in the world – worth $1.73trn. Funds there invest in emerging market equities and bonds, alternatives and infrastructure projects. Incredibly enough, they often bypass PNG on their way to other markets. Considering that the distance from Sydney to Port Moresby is almost the same as the distance from Sydney to Perth, PNG appears to be an obvious location, as the country is Australia’s closest neighbour and can offer tremendous opportunities for growth. Given that the typical transaction size by a large superannuation fund in Australia is around $90m, and PNG’s need for capital and investments, it makes sense for closer co-operation between the two countries: it is a win-win for all. Beyond Australia, the other logical step will be to foster integration with Asian financial markets, including Singapore, Jakarta and Kuala Lumpur. These markets are hungry for resources and investment opportunities, and would welcome a new player in the region. The challenge for PNG, from a financial perspective, is to not simply generate wealth by pulling things out of the ground, but to become a player and business partner in the regional economy.