OBG talks to Ivan Pomaleu, Managing Director, Investment Promotion Authority (IPA): Interview

Interview: Ivan Pomaleu

What measures is the business community proposing in response to the persistence of low commodity prices on the international market?

IVAN POMALEU: A drop of 30% in economic activities is to be expected in the 2016 financial year, specifically in sectors such as merchandising, wholesale and retail, and the fact that we have a very tight budget is an additional deterrent. Considering this state of affairs, there is a school of thought suggesting that the government should continue to invest in priority sectors such as infrastructure, health and education to jump-start the economy, even if this translates into additional borrowing. As long as any extra borrowing is subjected to an independent monitoring mechanism, perhaps led by institutions like the World Bank or the Asian Development Bank, we can be certain that the funds are utilised and taxed exclusively for the project to which they have been allocated.

Inevitably, there is a segment of the business community that is against this measure, especially those advocating a curtailing of expenditure to control debt. I can also understand the government’s position of wanting to bridge the gap until the launch of the next major energy project, like the Papuan Liquefied Natural Gas project, the expansion of the P’nyang field or Newcrest’s Wafi-Golpu mine in Morobe Province. Each one of these significant projects would serve to inject several billion dollars into the national economy, but there are still a few years to go before they come on-line, and the country certainly needs to prioritise expenditures in the meantime.

Would the current situation be helped by further negotiations concerning policies for small and medium-sized enterprises (SMEs)?

POMALEU: The SME policy has been one of the flagship policies of the current administration’s agenda, specifically the Ministry of Trade, Commerce and Industry, but as the details are becoming clearer, a certain concern has been raised in the industry, especially when it comes to land reform, as there is a proposal to change the duration of land tenure from 99 years to 30. Businesses that have established long-term financing arrangements with commercial banks have raised questions about the security of those land titles. The same is true for leases under licences for extractive industries, as they will also fall under arrangements on land tenure as well.

In addition, there are other concerns in relation to the proposed activities that are to be reserved solely for Papua New Guineans, specifically for those businesses with a turnover of less than PGK10m ($3.4m). It would be interesting to look at the individual profiles of businesses and determine whether those currently owned by foreign companies would fall under the cap, especially businesses such as trade stores, wholesale operations and general merchandising, as well as some services and organisations like accountants and lawyers. The impact on economic activities of the proposed limitation on foreign ownership and eventual change of ownership within the three-year period prescribed by the policy could have serious repercussions. I personally think there is an intention on the part of representative bodies of major businesses to look again at the details of the policy, and determine if there is room for further negotiations, a policy review or even a proposal of new ideas.

Because the details are very unclear at this stage, there is a certain amount of speculation going around that, unfortunately, the policy indicates the government is thinking about protectionist measures. This is generally something that is not perceived as a good investment policy, even though, globally, the debate around the benefits of the so-called Washington consensus, which prescribed open market policies, has been questioned. This is because the intentions of large players may not match the interest of smaller and developing economies like Papua New Guinea.