The changing face of investment in Papua New Guinea


With PNG expected to grow faster than China in 2011, Business Advantage examines just who is investing in PNG and in what sectors, and asks where the best opportunities lie in the future.

K K Kingston founder Keith Kingston (left) with Lars Thunell, Executive Vice president and CEO of the International Finance Corporation. The IFC, part of the World Bank Group, became a major investor in the PNG firm in 2010.

K K Kingston founder Keith Kingston (left) with Lars Thunell, Executive Vice President and CEO of the International Finance Corporation. The IFC, part of the World Bank Group, became a major investor in the PNG firm in 2010.

‘We’re at the start of a very long term growth period—the outlook long-term is extraordinary,’ says Rod Mitchell, the joint-CEO of PNG super fund, NASFUND. With the construction phase of the US$15 billion PNG LNG project only just moving into overdrive, the PNG economy is already expected to grow at more than 9% in 2011.

The Exxon-led project appears set to have a profound and longlasting effect on the PNG economy. In investment terms, it is not only the largest ever investment in PNG by some margin, but is also putting PNG firmly on the map of the global investment community, showcasing PNG’s vast natural resources and broadcasting a confident message that PNG is open for business.

Flow-on benefits

Apart from the investment itself, the project is also acting as a trigger for other companies to follow in its slipstream, especially service providers, as Managing Director for Westpac PNG Ashleigh Matheson reports: ‘We are seeing project managers, architects and engineering firms looking to either establish a new business here or increase the capacity of their businesses to service the growth.’

Some, such as UK-based firms Orion (recruitment) and G4S (security), are entering PNG for the first time Others are increasing their presence and the scope of their activities, such as global healthcare services provider, International SOS. A preferred supplier to the PNG LNG project, International SOS has been in PNG since 1994 but had just five staff in the country at the end of 2008. By the end of 2011, it expects to have 200, and recently opened a new clinic within the Airways Hotel complex in Port Moresby.

Not just LNG

The PNG LNG project may be getting all the headlines, but it is by no means the only string to the PNG economy’s bow. It is worth remembering that the PNG economy grew at 6.7% in 2008, before the PNG LNG deal was even signed.

Mining may have made the greatest contribution to the nation’s GDP in 2008, but its fortunes have actually picked up significantly since then with one mining commentator suggesting that PNG has ‘only begun to unveil its mineral wealth’.

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Syd Yates, CEO of leading investment firm the Kina Group sums up the current state of play as follows: ‘If you’re in the mineral sector, PNG’s the place to be over the next five years. You’ve got Hidden Valley, Wafu-Golpu, Frieda River, Ramu Nickel, the possibility of the Bougainville copper mine opening up again. Even under the sea there’s the Nautilus Minerals project.’

Partnering to overcome challenges

But not all sectors are proving as attractive to foreign capital as mining and petroleum. In some ways, the sustained boom is actually constraining new foreign investors, as demand for business premises and skills outstrips supply. Westpac’s Ashleigh Matheson explains: ‘If you want to start up a business here you’ve got to find somewhere not only to work from, but also somewhere to live, and renting in both circumstances at the present time is extremely expensive. Then, there is the cost of security and the amount of time it takes to get work permits. That said, for those wanting to do business here; if they read the market right and deliver, the opportunities are here.’

Of course, one way of mitigating these challenges is to buy into an existing business or form a joint venture. In 2009, a clutch of such deals were done. Australian engineering firm Ausenco merged with leading PNG firm Kramer Group to form KramerAusenco, while another specialist recruiter from the UK, Air Energi, purchased Pacifica HR, forming Air Energi Pacifica. Finally, the Clough Curtain Joint Venture was established: a 65/35 joint venture between the local subsidiary of major Australian engineering firm Clough and the long-established Curtain Bros.

Local businesses drive growth

In fact, much of the recent economic growth has been financed by existing locally-based businesses, both PNG- and foreign-owned, as well as PNG’s two powerful superannuation funds, Nambawan Super and NASFUND.

‘We’re recording strong growth in demand for our Advisory Service’ says Jonathan Seeto, Managing Partner of PwC (formerly PricewaterhouseCoopers), which celebrates its 50 year anniversary in PNG during 2011. ‘This is not just from new entrants to PNG, but also local firms who are transforming themselves to better service the country’s growing middle market.’

For example, in the manufacturing sector long-established firms such as K K Kingston, S P Brewery, Lae Biscuit Company, Coca-Cola Amatil PNG and Paradise Foods have implemented major expansion programs to accommodate sharply rising domestic demand.

Other sectors of interest

  • Retail. According to the Bank of PNG, this sector grew by around 30% in the 2009/10 financial year, yet still remains under-developed. New developments in the capital such as Vision City Mega Mall and Harbourside should provide the ideal setting for outlets that cater to PNG’s emerging middle-class and rapidly-growing expat community. For instance, in April 2011 PNG retail group City Pharmacy Ltd announced that it would create a new cinema in Vision City with Fijian partners.
  • Services. PNG remains chronically under-serviced in so many areas. Health care and education are expected to be major growth areas over the next decade. Furthermore, full deregulation of the telecommunications sector is likely to open the door to providers of niche services.
  • Agribusiness. NASFUND’s purchase of a major stake in diversified agribusiness Mainland Holdings in late 2010 underlined the potential for growth in this sector. Although land tenure often poses a challenge, the ever-expanding New Britain Palm Oil Ltd has demonstrated obstacles can be overcome.
  • Property development. Although opportunities surely remain in the capital, a sustained construction boom coupled with sky-high rents means caution is presently being advocated by dealmakers. Other urban centres such as Lae and Madang are starting to attract more attention, however, with Nambawan Super CEO Leon Buskens describing Lae as being ‘where Port Moresby was three years ago’ in real estate terms.

This article first published in Business Advantage PNG 2011/2012

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