Economic update: Papua New Guinea changes gear


Papua New Guinea’s economy is now emerging from a period of hiatus following the completion of its massive liquefied gas project. Andrew Wilkins talks exclusively to some of PNG’s top executives to find out their views on the economy.


In May 2014, Papua New Guinea achieved what some thought it would never do—it joined the exclusive club of liquefied natural gas-exporting countries.

The US$19 billion ExxonMobil-led PNG LNG project, which achieved financial completion in early 2015 and is now bringing much-needed revenue to the country, has not only put PNG into the top 15 LNG producers worldwide; it has put this fast-growing economy of just six million people firmly on the global map for business.

The completion of the project has had significant consequences.

Not only are there more LNG projects in the pipeline, with French ‘super major’ Total SA and Spain’s Repsol now in PNG, but the construction over several years of such a large, world-class gas development has lifted capabilities and skills across the economy.

The ANZ's Mark Baker

ANZ’s Mark Baker

‘We’re being encouraged that more and more people from the ANZ Group want to come to PNG,’ says Mark Baker, Managing Director of ANZ’s PNG operation. ‘PNG is seen in a positive sense for people … who are mid-career, who want to make a difference and want to get that exposure in a developing market.’

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Great expectations

PNG’s success has also, of course, raised expectations—both of what such large GDP growth, projected to be around 15.5% for 2015, can deliver to the people of PNG (85% of whom live outside the formal economy) and also from a business sector keen to see some of the impediments to growth addressed by government.

As our annual survey of PNG’s leading CEOs indicates, there are still many constraints to growth in PNG’s economy, and many of these—unreliable utilities, law and order problems, lack of government capacity and red tape—fall under the remit of government.

‘If we can get the infrastructure development right … it will create the opportunity for our manufacturing sector to start being more competitive and increase their own investment in their plant infrastructure.’

The construction phase of the PNG LNG project, which was given understandable priority by government, accentuated some of these issues. Now construction is complete, resources are being directed to where they are badly needed.

BSP's Robin Fleming

BSP’s Robin Fleming

The largest National Budget in PNG’s history was delivered by Treasurer Patrick Pruaitch at the end of 2014, with expenditure on infrastructure, education, health, and law and order now accounting for 50% of all expenditure.

Improved infrastructure will have a transformative effect on PNG’s typically high-cost business environment.

‘If we can get the infrastructure development right—whether it’s PNG Power with more effective, reliable and lower cost energy, or the ports for our international trade, or the highways—it will create the opportunity for our manufacturing sector to start being more competitive and increase their own investment in their plant infrastructure,’ notes Robin Fleming, Chief Executive Officer of Bank of South Pacific, PNG’s largest bank.

Progress in infrastructure

Lae’s new port is now ready to receive tenants, following its long-awaited completion in December 2014. Credit: ADB

Lae’s new port is now ready to receive tenants, following its long-awaited
completion in December 2014. Credit: ADB

While the efficient disbursement of government funds remains a challenge, there are undoubted signs of progress.

The completion of the landmark development of PNG’s busiest commercial port in Lae at the end of 2014, completed with funding from the Asian Development Bank, will greatly relieve port congestion, while the government has embraced reform in both power generation and telecommunications, which should encourage greater private sector involvement and reduced costs for business.

Resources sector

While such investment is badly needed, it comes at a time when government revenues are falling. According to the Asian Development Bank’s December 2014 Pacific Economic Monitor, mining and petroleum taxes were down 32% on projections in 2014, while consumption tax was down by 36%.

Like many resources-rich economies, PNG was affected by lower prices for its major mineral exports—gas, gold, silver and copper. The drop in prices has caused the operators of PNG’s mines rein in costs, with consequences for the domestic economy, while exploration has largely come to halt. Two notable prospects continue to make progress, however: the Wafi-Golpu project in Morobe Province and Nautilus Minerals’ deep sea mining project in the Bismarck Sea.

The prospects for PNG’s gas sector look more positive, with Total SA and Talisman Energy (the subject of a takeover from Repsol) both pursuing projects, and a third train looking increasingly likely for the PNG LNG Project.

Managing revenues

While lower revenues and higher expenditure mean PNG’s Government is now set to run a deficit budget until at least 2017, the general view is that the windfall from the PNG LNG project, set to be around K1.8 billion in 2015 alone, will soften the blow, especially if the Government is able to finalise the creation of its ‘onshore managed, offshore invested’ Sovereign Wealth Fund.

‘My observation is that Papua New Guinea has a tendency to change gears without using a clutch.’

‘It’s one of the most effective mechanisms being used in a lot of countries for trying to quarantine the Budget from cyclical trends and inflationary and Dutch Disease implications from major export earnings,’ Paul Barker, Executive Director of industry-funded think-tank, the Institute of National Affairs, tells Business Advantage PNG.

New paradigm

In the meantime, business has been getting used to a new paradigm. The times of year-on-year, double-digit revenue growth are over for the time being, and 2014 was clearly a year of consolidation for many businesses.

Pacific MMI Insurance's Wayne Dorgan

Pacific MMI Insurance’s Wayne Dorgan

‘We all expected after the LNG that things would drop off,’ notes Wayne Dorgan, Managing Director of Pacific MMI Insurance, one of PNG’s largest insurers. ‘There was obviously a lot of activity going on … and now the LNG build has been completed, the economy’s sort of dropped back, although I wouldn’t say drastically.’

‘My observation is that Papua New Guinea has a tendency to change gears without using a clutch,’ suggests Stan Joyce, Chief Executive Officer of S P Brewery, PNG’s major brewer. ‘I think my view is that some people got caught.

While that might have meant some lay-offs in 2014, 2015 is again looking positive.

CPL Group's Mahesh Patel

CPL Group’s Mahesh Patel

‘We are expanding,’ confirms Mahesh Patel, Chairman of the CPL Group, PNG’s largest retailer. ‘We’re not going to slow down because we know it’s going to turn. Now, when is the million dollar question, because over 30 years I’ve been through this cycle three or four times.’

Currency fluctuations

Managing business revenues has been made more challenging by falls in the value of PNG’s currency, the kina, against its major trading currency, the US dollar, and moves by the country’s central bank to manage that fall.

In June 2014, the Bank of Papua New Guinea set a higher value for the kina and also mandated a fixed trading band for the kina against the US dollar, effectively controlling the margins being made on foreign exchange transactions. The kina has continued fall since against the US dollar (although rising against the Australian dollar over the same period), but more slowly and without excessive volatility.

While this was seen as temporary measure—necessary until dollar revenues from the PNG LNG project start flowing—it was still in place in March 2015 and has undoubtedly had an impact.

‘It is a problem for many businesses in getting sufficient foreign currency to pay suppliers and get goods off the wharves,’ Greg Pawson, President of the Australia–Papua New Guinea Business Council, told Business Advantage PNG in March 2015.

Non-mineral commodities

A weaker kina has made PNG’s vital agricultural commodities—palm oil, coffee and cocoa—somewhat more cost competitive internationally. Indeed, provisional Bank of PNG figures suggest the value of PNG’s agricultural imports increased year-on-year by 18% in the 12 months to 30 September 2014—an encouraging sign for rural producers, who still form the backbone of PNG’s economy.

Marine exports also increased sharply in the September 2014 quarter—up 30% on the corresponding period in the previous year. This is a sector experiencing genuine growth in onshore value-adding, provided issues of long-term sustainability in the Pacific fishery can be addressed.

Andrew Wilkins is Publishing Director at Business Advantage International.

This article was first published in Business Advantage Papua New Guinea 2015, PNG’s annual business and investment guide, published April 2015.


  1. lawrence lukale says

    Industrialisation and downstream processing of resources not only brings windfall results to png economy but creates huge employment opportunities for it’s citizens. Additional TAFE college facilities should be built in each region to provide skilled and up-skilling of its human resource for the job market in processing industries. Specialised courses relevant to downstream processing must be explored and implemented in an appropriate learning environment suitable to industry requirements. Universities need to be upgraded to equip graduates with the level of skills in engineering and middle management levels. Students should be prepared early in these areas of industry to catch job opportunities as they become available. Foreign skilled work force should not dominate the job market without first providing job placements to nationals. Png should balance its agricultural export commodities, mineral resources, petroleum and LNG products with export of both raw materials and manufactured products depending on productivity and cost benefit it derives from the sale of both raw and manufactured products.

  2. Yongi Andale says

    Stanis Hulahau’s idea of industrialization is correct. The government must aggressively consider the extractive sector, especially oil and gas sector for further processing and development of condensates to finish products here in PNG.
    The chemical hydrocarbon composition of PNGLNG projects such as ethane, propane, butane, pentane….etc… can be considered for downstream processing. For example; we need to integrate an ethylene plant with PNGLNG plants utilizing available ethane which is a by-product. This plant can further be integrated into polyethylene plants to produce finish products. This will definitely open up petrochemical industries and other spin off business activities in this country adding huge value to economic development.
    Our current Prime minister has raised and promoted the concept of midstream and downstream processing of our own oil and gas; refer to national news paper dated Tuesday 19th May 2015.

  3. Jayaprasad says


    What if all the developing economies plan to grow focussing on export? Should we focus on export at all?/ then comes the question of processed or raw.
    Disclaimer; I am not an economist.

    Can villages / communities target to be self reliant and thus sustainable.

  4. kulwap says

    Good points and good article. The current investments in Infrastructure such as Ports, airports, roads and bridges is a good one. Free education and health is good, but quality must be improved. The next sleeping giant apart from our extractive resources is Agriculture. We need Agriculture to wake up. We can have the largest cocoa, copra coffee, tea, palm oil plantations in the world. Asia will need beef and we must invest aggressively. Rice must be produced and exported from PNG commercially. Peter O’Neil is doing right but Agriculture is a failure.

  5. Stanis Hulahau says

    While our economy is showing signs of growth at the macro level with revenue gains from the LNG and the mineral sector, I think there is also a need to look at our domestic financial markets and create favourable conditions in the loanable fund markets for individuals (households) to access for SME purposes. I believe three (3) of our leading Commercial Banks and other financial institutions have established SME loan schemes to support existing SMEs in the country. However, at the Micro level, most individuals who want to start up small businesses do not have sufficient collaterals or no collateral at all but have a very good business idea. Such people will obviously not qualify for SME loans because they do not have material evidence (cash flow for last 12 months, income statement etc..) to proof their ability to repay loans. I guess the question is; How are they going to be supported by our domestic financial markets? I believe individuals (households) hold vast potential in creating wealth and generating domestic demand which will lead to increase productivity and economic growth. I think this is an area that needs consideration as well.

  6. Lapiu Kalai says

    Agree with Stanis Hulahau, we should be processing all our primary products to finished products adding value to all our products before exporting to the world market. In this way we can get the maximum revenue in the world market rather than semi-process the products export them and when fully processed in other countries, we buy our own semi-processed products at a higher world market price. The government should look into this and assist business investors who have the capacity and are willing to process onshore before exporting to the world market.

  7. Stanis Hulahau says

    As a citizen, I am happy with our country’s economic development thus far. However, I see that more than approximately 60 % of the efforts and resources have been concentrated on the extractive sector (oil, gas, minerals etc) while 40% of the efforts are spread in the other sectors. Even though our country spend approximately 60% effort in developing the extractive sector, our exports are mostly raw minerals and gas with low value added). Also, our economy is more susceptible to economic shocks in the event of a decline in world market prices of minerals, oil and gas as in the current circumstance.
    I strongly believe, PNG should revisit its current economic policies and strategies and consider the option of industrialisation and manufacturing of high value added or finished products for export in all the sectors of the economy.

    We also need to focus more on the service sector such as telecommunication, IT, electricity, tourism and hospitality which we have vast potential. We should start package tourism, telecommunication, electricity and sell as commodities both domestically and internationally. My main point here is; enough of exporting primary products will very low value. Let us look at the examples of emerging economies such as Taiwan, Singapore, South Korea, Malaysia and adjust our economic policies. If they are able to accelerate their economic growth from being some of the lowest in the world to where they are now, we can do it too.

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