Business Advantage PNG‘s exclusive annual survey of PNG’s major companies indicates that the Papua New Guinea economy is undergoing a contraction, although there is still significant confidence in its future.

This is the third year in a row that Business Advantage International has run its exclusive survey of executives in PNG’s largest companies—the PNG 100 CEO Survey.

Designed to gauge business confidence among PNG’s largest businesses, the survey seeks to uncover their profit, investment and recruitment expectations for the coming year. It also encourages PNG’s leading businesses to identify the key issues they are facing.

Profits below expectations

The survey clearly indicates that PNG’s largest companies experienced a downturn during 2013, with almost half—46.9%—reporting profits below expectations (last year, only 15.2% reported such disappointment).

Notably, too, last year no respondents reported a ‘substantial’ drop in profits; in this year’s survey, however, 15.6% did.

The picture was not unremittingly gloomy: 12.5% reported profits had substantially exceeded expectations, and a further 25% said profits in 2013 had been slightly above expectations.

2013 was the year when PNG lived up to its reputation as the land of the unexpected—just 15.6% of our respondents reported profits at expected levels, compared to 24.2% in our last survey.

Lower confidence

In spite of the downturn, a decent proportion of business leaders were still bullish about the prospects for profits for 2014, with 43.7% expecting an improvement on those of 2013.

While this is around double the number of those who were expecting lower profits, suggesting an overall positive picture, it is down notably on last year’s survey, when just over half (53%) of respondents said they were expecting better profits in the year ahead.

‘The number of CEOs planning to increase staffing levels has fallen to 31.3%, and almost as many—28.2%—are planning staff reductions in 2014’

Meanwhile, the number of CEOs expecting a drop in profits has doubled from last year’s survey, up from 11.8% to 22.1%.

Investment and employment intentions

The PNG 100 CEO Survey is designed to capture investment and employment intentions in PNG’s largest companies over the coming year, and it is in these two areas where we see a marked difference between this and previous surveys.

Last year, almost 70% of respondents were planning to increase their investment in plant, equipment and other assets during 2013. One year later, that figure has fallen to just over 40%, with 28.2% of respondents planning to reduce their investment expenditure.

Nevertheless, the picture is not too harsh: almost a third of respondents intend to invest a similar amount in 2014 as they did in 2013.

Expect lay-offs

In Business Advantage PNG‘s last two surveys, the number of employers planning to reduce their workforce has been negligible—7.4% in 2012 and 5.8% in 2013. In addition, in both surveys around 50% of respondents said they were planning to increase their headcount over the coming year.

‘There was one major new issue to appear on this year’s list of concerns—currency exchange rates.’

This year, expect lay-offs: the number of CEOs planning to increase staffing levels has fallen to 31.3%, and almost as many—28.2%—are planning staff reductions in 2014, a five-fold increase in just one year.

Issues affecting business

The issues facing PNG’s largest companies have changed little over the three years of our survey, although the top issue has changed each year. In 2012, at the peak of the LNG construction boom, it was the skills shortage. In 2013, it was security and law and order—a perennial, mission-critical concern for our respondents, and one that shows only marginal signs of improvement.

In this year’s survey, the top concern was the unreliability of state-owned utility services, which place an immense cost burden on business. Our survey indicates PNG’s largest businesses are still awaiting the benefits of the PNG Government’s increased infrastructure investment.

There was one major new issue to appear on this year’s list of concerns—currency exchange rates. PNG’s currency, the kina, lost almost 14% of its value against the US dollar in the four months leading up to the commencement of our survey in November 2013. The high rating for this issue among CEOs indicates just what an impact that fall had on business.

The PNG 100 CEO Survey 2014 was conducted by Business Advantage International between late November 2013 and early February 2014. The survey included senior executives from a representative sample of Papua New Guinea’s largest companies across all sectors of the economy.