Papua New Guinea ‘low risk’ for foreign investors says head of Chamber of Commerce and Industry

Papua New Guinea is a ‘low risk’ country for foreign investors, according to John Leahy, President of the Papua New Guinea Chamber of Commerce and Industry (PNGCCI). But he tells Business Advantage PNG that it is important to prepare thoroughly in order to be a successful investor.

PNGCCI’s John Leahy

Leahy says the issues that usually need addressing by new investors are the foreign exchange shortages, investor protection provisions, taxation and the enforceability of contracts.

He warns against trying to structure transactions to circumvent the difficulties with foreign exchange.

‘It is a fairly temporary thing, although it is an issue,’ he concedes. ‘It is manageable as long as you understand the rules and manage your expectations and appropriately deal with the contractual aspects: for example, to make sure that failure arising from the present shortage of foreign currency doesn’t give rise to a default under a contract.’

Mature

Leahy says PNG has a strong track record with foreign investment. ‘Historically, PNG has had a pretty good record from a political risk perspective. Bougainville is a special case. Moreover, I can’t think of an example where there has been an expropriation by the state, or a default on a loan.’

Although there are ‘traps for the unwary’, Leahy says they are manageable with good advice.

‘The land issues are quite complex, but generally people can get on with their projects if they know how to navigate them.

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‘Look at the big mining companies’ projects. There are quite sophisticated mechanisms to deal with and provide security of tenure for projects despite their co-existence with customary land owners and the entitlements they have to share in the benefits of the projects.

‘There was about one million people [landowners] involved with the PNG LNG footprint. ExxonMobil acknowledged that it was possibly unique, even in their experience, to get something like that put away to then go ahead with the project. It is quite amazing what can be done.’

Courts

Leahy says PNG’s court system functions ‘tolerably well, albeit slowly’. He says there has been some improvement in recent years.

‘Commercial matters are dealt with by judges who are developing some special expertise.’

‘There is growing Chinese interest in countries like PNG.’

He believes there is less ‘paranoia’ about PNG with international investors, saying that the PNG LNG project—an US$18-20 billion project that involved about 22 international banks—sent a powerful signal to the international investment community that ‘no amount of talking could have done’.

Leahy says that PNG could market some of its other industries better, however.

‘Everybody knows about the opportunity with the resources sector: gas, copper, gold, nickel and the other metals. What is not so well known is the opportunities in agriculture and tourism and even manufacturing.’

Chinese interest

Wage costs in China are rising, says Leahy, which means there is growing Chinese interest in countries like PNG. He says a Memorandum of Understanding was signed between the PNGCCI and other chambers along the ’21st Century Maritime Silk Road’ to work together over the One Belt One Road Initiative, a massive infrastructure initiative that is intended to span much of Eurasia, North Africa and South East Asia.

‘There has been quite a bit of Chinese investment in Papua New Guinea in infrastructure, roads and soft loans. They haven’t labelled it One Belt, One Road but it is in the same direction.’

‘We have seen a large increase in the availability of hotel rooms in PNG over the past decade.’

As the Chinese middle class grows, Leahy says, there will be intensifying demand for products PNG can supply.

‘They are particularly interested in agricultural commodities, but also things for use in cosmetics and perfumes. PNG is very well placed to supply some of those commodities.

‘Things like Noni juice for example. That is presently supplied to China out of Samoa but they have been keen to get contacts in PNG because they don’t see Samoa being able to meet demand over time. There could be quite a significant opportunity.’

Leahy says coffee is another potential growth market having expanded substantially already in the past decade or so. ‘I can see chocolate going the same way.

‘PNG is very well placed having so much productive land within quite a narrow band around the equator where it is feasible to grow cocoa.’

‘Finally, we have seen a large increase in the availability of hotel rooms in PNG over the past decade. Right from the lodge style up to the top end and of course more hotels are under construction. The future for tourism is bright.’

John Leahy will be one of 40 speakers at the Business Advantage Papua New Guinea Investment Conference on September 7-8 in Sydney.

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