CEOs in PNG: “The Country Is Open for Business”

View the OBG Business Barometer: PNG CEO survey infographic

Papua New Guinea’s economy appears to be accelerating once more following a period of slow expansion. The improving performance of the economy, which relies heavily on mineral and agricultural exports, is reflected in the positive business sentiment of C-suite executives polled in Oxford Business Group’s inaugural OBG Business Barometer: PNG CEO Survey.

More than 60% of those surveyed have either positive or very positive expectations of business conditions. Though oil and gas prices remain subdued, the prospect of new discoveries, and the delivery of the landmark PNG LNG liquefied natural gas project has improved investment outlook in the country. PNG LNG, undertaken by global energy giant ExxonMobil, was the largest resource-extraction project in the region.

While stakeholders initially predicted that the project would dramatically transform PNG’s economy, declines in global commodity prices and a reduction in related construction activity blunted benefits.

The focus has since shifted to other sectors, however, including consumer-related services,  agriculture, minerals and high-potential industries such as tourism. As a result, GDP is expected to grow by 2.5% in 2017.

Despite an improved outlook, this rate of expansion is well below the levels of growth experienced in other developing countries, and well below the 13.3% growth PNG recorded in 2014.

With 2017 being an election year, there has been significant political pressure on leaders to address important issues such as crime, poverty, health and education.

Given PNG’s vast natural resources, there is an expectation on the government to provide better services to its citizens and invest in upgraded infrastructure. PNG is regarded as one of the least-developed countries in the region, with many rural areas lacking basic infrastructure and adequate transport links.

The government has historically resorted to running high fiscal deficits to fund these social priorities. However, inflationary pressures and a falling exchange rate have necessitated financial discipline.

Depreciation of the kina and a shortage of US dollars are some of the biggest challenges currently facing the country. Though on the positive side, 50% of business leaders surveyed by OBG said they have either easy or very easy access to credit – a sign of the country’s maturing banking sector.

OBG sources also observed robust activity in the small and medium-sized enterprise segment. However, at the same time access to credit in rural areas remains one of the biggest challenges facing the high-potential agriculture and tourism sectors.

In terms of business, an overwhelming majority of respondents cited leadership skills as the missing element needed to propel the country forward. In particular, the business community is looking for political leaders to promote policies of growth.

Nonetheless, the prevailing consensus in the region – and a view shared by OBG – is that PNG remains one of the most attractive frontier markets in the world. In competing for risk capital with other high-growth-potential countries such as Myanmar, Sri Lanka and Mongolia, PNG offers a broader spectrum of opportunities.

Already established in liquefied natural gas, PNG should now intensify efforts to promote the country as a destination for high-end travellers in the adventure tourism segment. There are also large, untapped opportunities in agriculture, with PNG enjoying diverse climates suitable for growing nearly all types of agricultural commodities. Last but not least, mining presents huge opportunities for growth, with further investment needed to see the sector to reach its potential.

Given these many underdeveloped assets, the priority for government officials is to create a stable, investor-friendly macroeconomic environment that sends a clear message to the world that PNG is open for business.

Only 36% of respondents described the tax environment as competitive or very competitive, leaving much room for simplifying and reforming fiscal procedures. Administrative burdens and a lack of confidence in macroeconomic stability has deterred a number of investors from establishing operations in the country.