Blast from the past: Papua New Guinea’s economy in 2020


The year 2020 looks like being a watershed year for Papua New Guinea, with a number of transformative projects awaiting the green light and a new government seeking to implement an ambitious agenda. Business Advantage PNG talks with some of PNG’s business leaders as they wait patiently for a new cycle of investment to begin.

Port Moresby’s Ela Beach from above. Credit: David Kirkland

According to PNG’s Prime Minister, James Marape, 2020 is to be ‘the year of implementation’. The last time a PNG Prime Minister used this phrase was 2013 and Marape’s predecessor, Peter O’Neill, was setting about a program to reform state-owned enterprises, increase support for locally owned businesses and increase expenditure on infrastructure against the background of a slowing economy and a growing budget deficit.

Seven years later, some might have a sense of déjà vu.

While the unexpected mid-term ousting of O’Neill in May 2019 changed the country’s political rhetoric – the country’s new leader promising to ‘take back PNG’, with the goal of making it the ‘richest black Christian nation on Earth’ – many of the challenges facing PNG in 2020 appear familiar.

At the end of 2019, new Treasurer Ian Ling-Stuckey delivered a 2020 National Budget with a record K4.63 million deficit, projecting GDP growth of just two per cent for 2020 – down from 2.9 percent in 2019 (both the Asian Development Bank and ANZ Bank have similar 2020 predictions).

‘What these businesses are asking in early 2020 are: when will the cycle start, and what do we do while we wait for it?’

The large deficit will ensure that record capital expenditure of K5.98 billion (US$1.75 billion) will be preserved for spending on infrastructure (including the newly dubbed ‘Connect PNG’ program, aimed at building economic growth corridors across the country), in spite of lower-than-expected government revenues. The Budget also contained tax concessions aimed at encouraging the development of small and medium enterprises.

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Meanwhile, Minister for State Enterprises Sasindran Muthuvel has announced that 2020 will be the year of ‘major restructuring’ of state-owned enterprises in ‘key sectors such as energy and telecommunications.’

Different times

The Motukea Port in 2018. Credit: PNG Ports

However, while there are similarities between 2013 and 2020, there are also significant differences.

In 2013, PNG’s economy was contracting after a period of frenetic business activity related to the completion of the ExxonMobil-led PNG LNG Project, PNG’s first gas project. In 2020, PNG is on the cusp of what ANZ has described as a potential ‘super-cycle’ of resources investment – potentially the largest wave of investment ever to hit the Pacific’s largest economy.

This wave could see the creation of PNG’s second LNG project – the US$10 billion Total-led Papua LNG – together with major new copper–gold projects: the Newcrest Mining/Harmony Gold Wafi-Golpu joint venture and PanAust’s Sepik Development Project. (At the time of writing, a third LNG project, P’nyang, looks unlikley to progress promptly but negotiations are ongoing.)

Allied to an expansion of PNG LNG, these projects have the potential to transform PNG’s economy in the 2020s.

Another difference is the country’s capacity to accommodate such major projects.

‘A major program of investment in the country’s airports continues, with key airport Lae Nadzab scheduled for major redevelopment this year.’

There is no question that the country suffered considerable growing pains during the last LNG construction boom. Its ports and airports were congested and inefficient; insufficient office space, warehousing and accommodation drove rental prices through the roof and there were major skills shortages.

Star Mountain Plaza Stage 2 under construction Credit: BAI

The country is arguably much better placed in 2020. The capacity and operational efficiency of its two major ports have improved greatly, with the opening of Port Moresby’s new port at Motukea Island and the expansion of the country’s busiest port in Lae. A major program of investment in the country’s airports continues, with key airport Lae Nadzab scheduled for major redevelopment this year.

While skilled labour of all kinds remains very much in demand, PNG now possesses a body of expertise in gas projects it did not possess a decade ago, and better training facilities, such as the Kumul Petroleum Academy.

The past seven years have also seen a steady stream of new office and residential developments, especially in the capital, Port Moresby. This year is expected to see the commencement of Steamships’ 21-storey Harbourside South complex, progress on stage two of Star Mountain Plaza (stage one included PNG’s first Hilton Hotel) and the ongoing expansion of Harbour City in Konedobu.


While, PNG is better placed for the next cycle of investment, what these businesses are asking in early 2020 are: when will the cycle start, and what do we do while we wait for it?

Even assuming resources projects receive a prompt green light, 2020 is set to be a quiet year for business in PNG. The country’s largest bank, Bank South Pacific, is reporting ‘minimal’ growth in lending, and the country’s major business chambers reported subdued trading through late 2019 and into 2020.

John Byrne. Credit: BAI

‘In many ways it will be business as usual, with forex still tough and many waiting on a large project announcement,’ says John Byrne, President of the Chamber of Commerce in Lae, PNG’s manufacturing hub, which is set to benefit particularly from Wafi-Golpu.

‘We’ve got to trade through [2020] regardless of whether Papua LNG happens or it doesn’t, and I think we’re quietly optimistic,’ notes Cameron Mackellar, CEO of major retail chain, Brian Bell.

Meanwhile, Byrne’s Port Moresby counterpart sounds a note of caution.

‘Unless we hear a positive announcement on one or more resources projects, there’s nothing new to stimulate the economy, and therefore sales will remain as they are now, which is flat-to-going backwards,’ says Rio Fiocco, President of the Port Moresby Chamber of Commerce and Industry.

Indeed, in its December 2019 outlook for PNG, ANZ Research warned that ‘loss of business confidence because of political instability, delays to commencement of new large gas and mineral projects, and continued misalignment in the exchange rate and associated unavailability of foreign currency are also important factors behind the weak revenue trend.’


Puma Energy’s Hulala Tokome. Credit: Nasfund

The latest annual PNG 100 CEO Survey, run by Business Advantage International in association with Westpac, confirms the ongoing shortage of foreign exchange as the major impost on business.

Since 2015, this has prevented the free flow of dividends out of the country and slowed down payments to overseas suppliers. In spite of recent foreign currency inflows from the Asian Development Bank and Australia’s Export Finance Corporation, the situation has only intermittently improved.

Hulala Tokome, General Manager of PNG’s largest purchaser of foreign exchange, Puma Energy, sums up the challenge:

‘It’s been a case of tightening our belts as well and, at the same time, being a bit more resilient in the way we do things.’

‘Until resources investment returns to PNG and overseas demand for kina-denominated assets increases, the foreign exchange situation in PNG is likely to remain challenging.’

The main cause of the shortages, Bank of Papua New Guinea Governor Loi Bakani tells Business Advantage PNG, is a lack of activity of the kina (the national currency) in the interbank market: ‘where banks can sell their surplus foreign currency and those who need it can buy it.’

Until resources investment returns to PNG and overseas demand for kina-denominated assets increases (the central bank’s work with the national stock exchange, PNGX, to market government securities internationally should help), the foreign exchange situation in PNG is likely to remain challenging.


Kumul Submarine Cable. Credit: DataCo

While PNG awaits the commencement of the next wave of resources investment, there is still plenty to do.

‘We’re using this lull to prepare for the future, putting the systems in place and buying the equipment,’ says Anil Singh, Chief Executive Officer at ICTSI South Pacific, which runs PNG’s two largest ports.

Other infrastructure is also improving, most notably in telecommunications.

PNG’s internet connectivity received a major boost at the start of 2020 with the completion of the Coral Sea Cable System, the fibreoptic undersea cable that now connects the country to Australia and the Solomon Islands. Immediately, industry regulator, the National Information and Technology Authority, mandated a 70 per cent drop in wholesale internet prices, which is likely to provide a boost to business and consumers.

The job of bringing internet to the masses through a National Transmission Network is very much a work-in-progress, but the expected completion by state-owned wholesaler PNG DataCo in 2020 of a domestic fibreoptic network around PNG’s coastline – the Kumul Submarine Domestic Network – will represent another major advance.

The past few years have also seen a growth in local food production – including fresh fruit and vegetables, dairy produce and meat – partly in response to the difficulties of funding imports and partly due to a growing middle class.

‘We keep growing our local produce and cutting back on the imports,’ says Mahesh Patel, CEO of the country’s largest retailer, CPL Group. ‘We’re encouraging farmers to grow more and more.’

However, he observes, ‘the biggest challenge is logistics.’

The launch of PNG’s new 20-year National Road Network Strategy in 2019 was an encouraging start. Business will be hoping that new funding, such as the US$1 billion being provided by the Asian Development Bank for the renovation of the critical Highlands Highway, will be forthcoming.

In Port Moresby, the electricity generation situation has improved with the commissioning of NiuPower’s 58-megawatt power plant – the country’s first gas-fired power station – but state utility PNG Power remains under-capitalised.

Economic vision

James Marape

PNG’s Prime Minister, James Marape.

While the new Marape government is still establishing its credentials, arguably there is still broad political consensus about PNG’s long-term economic goals, which are set down in the Vision 2050 national strategic plan, first published in 2011. This is itself broken down into five-year medium term development plans, aligned to the country’s fixed five-year parliamentary terms.

The guiding economic goal of Vision 2050 is shifting PNG’s economy from a reliance on mining and energy to reliance on agriculture, forestry, fisheries, eco-tourism and manufacturing.

Indeed, Prime Minister Marape emphasised this continuity of policy by urging senior bureaucrats to measure their work programs for 2020 against this national planning blueprint in an address at the start of 2020.

‘2020 will be a difficult year but we would also suggest it is a transition year given the government’s initiatives.’

Key to the vision will be the creation of more SMEs. Following recent taxation measures announced in the 2020 National Budget, and earlier government procurement guidelines that favour local business, 2020 should see further details on the government’s plans to give small and medium enterprises better access to cheap finance, initially through the National Development Bank.

Beyond the hiatus

If PNG can manage the current hiatus, generally there is confidence in the country’s medium-to-long term prospects among business leaders.

‘2020 will be a difficult year but we would also suggest it is a transition year given the government’s initiatives,’ says Greg Pawson, CEO of what is now PNG’s second-largest bank, Kina Bank, following the completion of its acquisition of ANZ’s PNG retail banking business in 2019. ‘In the immediate future, a decline in discretionary spending and continuance of a two-speed economy reflects the general weakness in the domestic economy. But we expect the resources export sector to remain buoyant.’

With international markets carrying their own uncertainties, having trade and balance of payments surpluses will provide PNG with some stability while its economy transitions.

The article ‘Blast from the past: PNG’s economy in 2020’ was first published in Business Advantage PNG 2020, click here to download the publication.

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