Three years ago, ‘Airport Economist’ Tim Harcourt came to Papua New Guinea to see how it was coping after the global financial crisis. In this excerpt from his forthcoming book, Trading Places – The Airport Economist’s Guide to International Business, he reflects on what he found.

Tim Harcourt, alias The Airport Economist.

As The Airport Economist I get to have some funny experiences.

En route to Papua New Guinea (PNG) I noticed on my Air Niugini flight from Brisbane to Port Moresby that the instructions in the toilets were in Icelandic! Now Reykjavik is a fair trek from Port Moresby (and not many Vikings have walked the Kokoda Trail last time I checked) so I was a bit surprised to see a Nordic language sign on an Air Niugini flight.

But I assumed in this amazing globalised world that PNG’s national flag carrier, Air Niugini must have bought or leased aircraft off Icelandic Air. After all, Iceland has been a big casualty of the Global Financial Crisis (GFC) and after their very public financial ‘meltdown’, Icelanders need all the cash they can get!

But PNG is a different kettle of fish than Iceland and is almost as far as you can get from Iceland, in terms of geography, climate and economic development.

Trade and aid partners

PNG is one of Australia’s closest neighbours and most important economic partners in terms of trade and aid.

When I joined the Australian Trade Commission (Austrade), from the ACTU, I discovered how important PNG was as a destination for Australian exporters – particularly the small and medium sized enterprises (SMEs).

According to the latest Austrade/ABS research, there are 4,233 Australian businesses exporting goods to PNG, which puts PNG in 7th place overall in terms of exporter destinations, just behind China, but ahead of Malaysia and Japan in the top ten.

In terms of exporting SMEs, Austrade/Sensis research puts PNG again in the top ten, level with Japan.

PNG is one of Australia’s closest neighbours and most important economic partners in terms of trade and aid.

According to John Brand, Australia’s Senior Trade Commissioner to PNG: ‘In terms of export traffic, this is a busy spot. We get lots of small businesses through here many in construction, education, tourism, and of course, mining and petroleum.

‘And now we have seen a lot of new exporters use PNG as a bit of a test bed to see how they’d go in the Pacific generally, and of course, Australia is widely involved in both the physical and social infrastructure right across the highlands as well as around Port Moresby.

‘And when things catch on here, they catch on.

‘When the telecommunications company Digicel set up mobile phone services, the people in the highlands as well as Moresby voted with their ears.’

Aid development

Of course, aid is a big part of the economic relationship between Australia and PNG. AusAID’s PNG chief, Bill Costello, Bill Costello explained that they had moved AusAid’s PNG operations from Canberra to Port Moresby to be closer to the delivery of the programmes.

He explained that as an Australian development professional, there’s almost no more exciting and responsible job than heading the operations in Port Moresby.

‘It’s the equivalent of captaining Liverpool or Manchester United in soccer terms.’

Business support for aid

Australia’s official aid programme is also supported by Australian businesses in PNG.

Local Australian businesses set up the PNG Business Coalition against HIV-AIDs.

But how the resources are managed will be the real test.

According to John Brand: ‘It’s a social problem in PNG but also an economic problem. We are going to need an educated, healthy workforce in the future and the high incidence of HIV-AIDs amongst the 25-45 age group is a problem for the future.

‘That’s why local and expatriate businesses are trying to help the PNG community with this major social issue, along with domestic violence against women,’ he says.

GFC impact

So how did PNG cope with the Global Financial Crisis (GFC)? According to Bill Costello and his economics team, the negative impact of the GFC was transmitted through sharply lower commodity prices for oil, most metals and agricultural commodities… which substantially reduced PNG’s company receipts and the PNG Governments bottom line (through falling revenues).

However, Costello also noted some bright spots including high gold prices (PNG is a major gold exporter), prudent fiscal policy in previous budgets, a sound banking system (with ANZ and Westpac playing a strong role), and expected strong growth in construction and transport, storage and communications.

Labour market potential

The ANZ’s Garry Tunstall believes the liquefied natural gas (LNG) project is the key to PNG’s economic future: ‘It could double GDP’, he says.

But how the resources are managed will be the real test.

Westpac’s Ross Hammond agrees: ‘There’s no doubt, the world wants gas, and PNG has got it.’

But we also remember that it goes both ways. PNG has done a lot for Australia too.

One very experienced PNG hand is Syd Yates, OBE, who heads Kina Securities (and was also PNG’s Aide-de-Camp at the Beijing Olympics).

‘Dutch Disease’

Yates is always watchful of the potential of ‘Dutch Disease’ (known in Australia as ‘The Gregory Effect’ after famous Australian National University economist Bob Gregory) whereby a rise in a commodity prices due to a resources boom causes an appreciation of the currency that adversely affects the competitiveness of residual sectors in the economy.

In PNG, that’s agriculture, whilst in Australia, where Gregory devised his thesis, it was in manufacturing. Yates says the Dutch Disease is a risk but he also points to some other positive developments such as the establishment of the PNG stock exchange 11 years ago.

‘We have 16-17 listed companies now.’

Two-way street

It is true Australian business and government representatives are doing their bit in PNG.

But we also remember that it goes both ways. PNG has done a lot for Australia too.

It’s an important part of Australian history, that the “Fuzzy Wuzzy angels” of PNG saved Australian lives on the Kokoda Trail during World War Two their individual contribution were commemorated by Kevin Rudd on Anzac Day in 2009.

However, some of the characteristics that the PNG economy shares with Australia – through trade and aid – have helped PNG absorb the some of the worst aspects of the global downturn. And those ties – from a world war seventy years ago to a world economic crisis in modern times – will always be strong between PNG and Australia.

Tim Harcourt will be a keynote speaker at the 2013 Papua New Guinea Advantage International Investment Summit in Port Moresby on 9 and 10 September.