The Asian Development Bank’s departing Papua New Guinea economist, Aaron Batten, says agriculture is the big winner with the current downturn in commodity prices, while its Country Director Marcelo Minc flags further bank investment in PNG.

New wharf facilities at Lae Port. Credit: Asian Development Bank

Economist Batten, who has taken up a new position at the ADB in Vietnam after three and a half years in PNG, says the non-mineral economy ‘has slowed significantly, and the drop in global commodity prices is certainly hurting on a number of fronts’.

Outgoing Asian Development Bank Country Economist, Aaron Batten

‘Lower oil and LNG prices will lower revenue, and also lower commodity prices will impact on agricultural exports.

‘But the PNG economy is responding in ways that it should,’ he told Business Advantage PNG.

‘The exchange rate has dropped significantly following the conclusion of the LNG construction phase, and whilst that’s hurt some importing business, it’s provided a major boost to a lot of exporting businesses, and that is really a key driver of growth and employment and welfare for most Papua New Guineans.

Agriculture income higher

‘The Kina value of agricultural export crops has gone up significantly over the last twelve months, in spite of the drop in global prices, and when you consider that perhaps three-quarters of the population rely on agricultural exports, cash crops for their subsistence and their cash income, the majority of Papua New Guineans are probably better off now that the Kina is at a lower value,’ he noted.

‘The exchange rate has dropped significantly …. and whilst that’s hurt some importing business, it’s provided a major boost to a lot of exporting businesses, and that is really a key driver of growth and employment and welfare for most Papua New Guineans.’

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Batten says the palm oil industry can provide a lot of lessons to other agricultural sectors.

‘Its success has revolved around the establishment of hub-and-spoke arrangements, where you’ve had a large international conglomerate [New Britain Palm Oil Limited] with strong management capacity, capital and knowledge that has been able to establish production centres. They’ve been able to get local landowners on board to plant oil palm and service those production centres, and give them grower support.

‘The Kina value of agricultural export crops has gone up significantly over the last twelve months …. (and)  the majority of Papua New Guineans are probably better off now that the Kina is at a lower value.’

‘They do the quality control, they do the marketing, and they’ve done that very effectively to make oil palm a successful commercial crop in PNG.

‘I think the other sectors like coffee and cocoa could learn a lot from that model, where large scale corporates operate in partnership with small holder landholders.

‘It doesn’t require major land reform in order to be able to increase agricultural output in PNG, and oil palm has demonstrated that.’

Lae port

The Asian Development Bank’s Marcelo Minc

Meanwhile, the ADB’s Country Director, Marcelo J. Minc, says he expects the newly-established port of Lae will be operating under a public-private partnership agreement.

Lae Port, the county’s largest and busiest port, has just had a K700 million expansion, with new facilities including a tidal basin, a third multipurpose berth, and terminal works including buildings, storage areas, roads, drainage, water, electricity and sewerage services.

‘In terms of airports, we are upgrading all the national airports to the International Civil Aviation Organisation standards. Civil aviation has become a lifeline, so that’s a really important program.’

Prime Minister Peter O’Neill says the port will create 5,000 new jobs and up to 10,000 ‘as port business increases in the coming years.’ When fully operational, the port will be able to process significantly more than the 55 container ships it currently processes a month.

Although its role in the expansion of port infrastructure is over, the ADB will support the national government decision on the future management of the port.

‘We understand that a number of world class operators are interested in taking on this new facility and make it a regional hub,’ Minc told Business Advantage PNG.

Lae Port. Credit: ADB

Upgrades

While the development of the Port has been the largest project the ADB has undertaken in the Pacific, Minc says it will continue with infrastructure projects, such as roads and airport upgrades.

‘In terms of airports, we are upgrading all the national airports to the International Civil Aviation Organisation standards.

‘Civil aviation has become a lifeline, so that’s a really important program.’

Minc says the ABD is also looking for other opportunities to invest in potential infrastructure projects and companies. It already has a 5% stake in telecommunications company, bmobile.

The ABD has also been helping develop PNG’s Electricity Industry Policy, and the government’s policy framework in the energy sector has provided a clear mechanism for private sector involvement, adds Batten.