Attitude toward Foreign Direct Investment
On paper, PNG has a liberal investment regime, and the government has recently placed a priority on the downstream processing of its extractive resources to spur economic growth. Prime Minister Peter O’Neill is known as being business friendly, and has been hailed for providing the political impetus to allow ExxonMobil PNG’s massive LNG project to proceed and produce its first gas cargo ahead of schedule. Many businesses in PNG are foreign-owned, although this has caused some PNG nationals and politicians to raise concerns that foreign investment engagement does not allow for a fair operating environment for PNG entrepreneurs.
In 2013 and 2014, the GPNG took several steps to create additional opportunities for PNG business owners and to protect certain industries from foreign investment. PNG expropriated a mining company, which was the largest source of tax revenue in the country, in order to remove its foreign national leadership and also in an effort to ensure that the company’s mission was directed towards benefiting the local economy.
The GPNG has made progress by creating policies and systems to streamline the regulatory and administrative requirements for foreign investors. The 1992 Investment Promotion Authority (IPA) promotes and facilitates investment and acts as a one-stop shop for investors. Foreign investment does require government approval and the procedure it implements by the government with the assistance of the IPA per the Investment Promotion Act. More information on the IPA can be found at: www.ipa.gov.pg.
The IPA facilitates investment proposals, identifies relevant government departments, and helps investors obtain the required approvals, licenses, and permits, all free of charge. Fees are applicable for company registrations, foreign enterprise certification, and registration of intellectual property.
While delays in the IPA’s certification process have a direct effect on investment, this challenge is not unknown to foreign investors and it affects them all in the same manner. In early 2016, the IPA introduced an online registry system that will significantly speed up the registration of companies.
Certification conditions apply to IPA approval, and the IPA may suspend or cancel a certificate if a foreign enterprise breaches its terms. A certified foreign enterprise must notify the IPA of certain changes in control of the enterprise (other than one that is a public company listed on a stock exchange that is a member of the Fédération Internationale des Bourses de Valeurs) and would need to obtain a re-certification. Certified enterprises wishing to expand or diversify their operations have to submit an Application for Variation to the IPA. Registering a new or overseas company takes between 24 hours to three weeks and costs 500 kina (PGK), which is approximately USD 158. Certifying a foreign company takes two to five weeks and costs PGK 2,000 (USD 632).
Other Investment Policy Reviews
PNG has not undergone any recent Investment Policy Reviews by UNCTAD or the OECD.
PNG has been a World Trade Organization (WTO) member since 1996. Its last Trade Policy Review (TPR) conducted by the WTO was in 2010, and that report can be found here: https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S009-DP.aspx?language=E&CatalogueIdList=92424,108906,94338,83592,20952,39427&CurrentCatalogueIdIndex=1&FullTextSearch=.
The review found that PNG’s resource-rich economy remains heavily reliant on subsistence agriculture, heavily dependent on trade (both on primary exports and manufactured imports, including inputs), and deeply vulnerable to world commodity price movements.
The TPR found that PNG's trade policy has been focused on greater domestic value-added manufacturing and services across sectors, especially fishing, to promote processing, import substitution, and as an effort to diversify the economy. Although PNG adopted an Export Driven Economic Recovery and Growth strategy in 2002, reform of outdated trade-related laws has generally been slow and incoherent, somewhat handicapped by PNG's limited institutional, and technical capacities. PNG controls certain imports predominantly for national health, safety, security, and environmental reasons. The review also found that government procurement, while reformed, is an important instrument of industrial policy. Contracts worth less than PGK one million (USD 316,000) are reserved for local suppliers, who also receive a preferential margin of 7.5 percent on larger contracts up to PGK ten million (USD 3.16 million). State-owned enterprises (SOEs) dominate many key utilities and service industries such as power, telecommunications, aviation, water, sewerage, postal services, and the administration of ports.
More recently, PNG requested an external review of the five regulatory regimes covered by the Ease of Doing Action Plan launched at the Asia-Pacific Economic Cooperation’s (APEC) 21st Annual Ministerial Meeting in Singapore in November 2009. In response to this request, in 2013 an assessment was carried out through the APEC Technical Assistance Training Facility (TATF), a USAID-funded program.
Laws/Regulations on Foreign Direct Investment
Foreign investors can either be incorporated in PNG as a subsidiary of an overseas company or incorporated under the laws of another country and therefore registered as an overseas company under Papua New Guinea Companies Act 1997.
The 1997 Companies Act and 1998 Companies Regulation oversee matters regarding private and public companies, both foreign and domestic. All foreign business entities must have IPA approval and must be certified and registered with the government before commencing operations in PNG. While government departments have their own procedures for approving foreign investment in their respective economic sectors, the IPA provides investors with the relevant information and contacts. The regulations governing foreign investments in PNG include:
Free Trade Zone Act 2000;
Investment Promotion Act 1992;
Papua New Guinea Companies Act 1997;
Forestry Act 1991;
Mining Act 1992;
Fisheries Act 1994; and
Oil and Gas Act 1998.
In 2014, the government amended the 1997 Companies Act to improve corporate governance and ease regulatory burdens. This amendment will allow IPA to begin using its online company registry. The main six changes to the act are as follows:
Increased protection and benefits for shareholders;
Clarification of duties imposed upon directors;
A more transparent and streamlined process of issuing shares;
Increased protection of creditors, including a more disciplined liquidation process;
A clearer process for filing annual returns; and
Streamlined filing requirements in anticipation of implementing an online registration.
A summary of the changes to the Act can be found on the IPA website: http://www.ipa.gov.pg/wp-content/uploads/Changes-to-the-company-Act.pdf.
In 2013, the government amended the Takeovers Code to include a test for foreign companies wishing to buy into the ownership of local companies. The new regulation states that the Securities Commission of Papua New Guinea (SCPNG) shall issue an order preventing a party from acquiring any shares, whether partial or otherwise, if the commission views that such acquisition or takeover is not in the national interest of PNG. This applies to any company, domestic or foreign, registered under the PNG Companies Act, publicly traded, with more than five million PGK (USD 1.6 million) in assets, with a minimum of 25 shareholders, and more than 100 employees.
In 2013, PNG used this regulation to reject a bid by Malaysian palm oil company Kulim who was looking to increase its ownership in New Britain Palm Oil Limited (NBPOL). NBPOL is one of PNG’s largest employers, and the largest domestic sugar (Ramu Sugar) and beef producer in PNG. (See decision here: http://www.nbpol.com.pg/wp-content/uploads/downloads/2013/08/NBPOL-Target-Company-Statement-6-Aug-2013.pdf).
Businesses can register online at the Investment Promotion Authority’s website. (http://www.ipa.gov.pg/) The process was recently brought online, replacing a paper method. Prior to the online registration, a company must obtain a physical company seal. Procedural steps after the company seal and online registration include registering with tax authorities and the employment register at the Internal Revenue Commission, applying for a trade license from the local commission, opening an account at an authorized superannuation fund (pension), and registering with private insurers for worker injuries. While some of these steps can be completed simultaneously, a total of two to three months should be expected to complete them all.
GPNG uses its IPA to attract and facilitate foreign investment. There are various incentives available to large and small proposals.
GPNG defines micro, small, and medium enterprises somewhat differently based on industry sectors in its new SME policy, but the following is a rough guide:
Micro: Annual sales turnover of less than PGK 200, 000
Fewer than five employees
Assets of less than PGK 200, 000
Small: Annual sales turnover of more than PGK 200, 000 and less than PGK five million
More than five, but fewer than 20 employees
Assets of more than PGK200, 000 and less than PGK five million
Medium: Annual sales turnover of more than PGK five million and less than PGK ten million
More than 20, but fewer than 100 employees
Assets of more than PGK five million and less than PGK ten million
The PNG government’s economic development and industrial policies are aimed at increasing value-added products. Government policies encourage the development of non-mining sectors including manufacturing, business services, and renewable resources such as agriculture and fisheries to promote economic self-sufficiency. These policies focus on creating industries and business that will generate employment and sustainable growth to the local economy.
PNG’s mining and petroleum sectors are still relatively underdeveloped, and consequently, the government continues to place a high priority on further expanding this sector. There are growing opportunities for investors to establish businesses that support the downstream sector. Investors seeking additional information on investment opportunities in these sectors should contact the Investment Promotion Authority (contact information available online here: http://www.ipa.gov.pg/). For extractive industries, PNG’s seismic data is often outdated and/or unreliable. Most extractive companies have completed their own surveys before entering PNG.
New government policies aim to promote the development of small to medium enterprises (SME). There is an interest in knowledge transfer and learning how to adopt more efficient technology. The main objective is to instill a more formalized business culture and ensure long-term sustainability. PNG’s priority sectors include agriculture (production and processing), fisheries, forestry, manufacturing, and tourism/travel. The government rolled out a new SME policy in early 2016 to grow the number of SMEs from 49,500 to 500,000 by 2030, thereby creating two million jobs. The governments aims to achieve these goals by “creating an enabling environment, building the entrepreneurial mindset of our people, providing easy access to business finance, enabling infrastructure and training and support services.”
Papua New Guinea’s Vision 2050 sees the tourist industry becoming a significant driver with the development of the local economy. The government offers tax incentives for tourism/travel such as double deductions for costs associated with export market development, and double deductions for staff training costs. Accelerated depreciation is yet another form of tax incentive whereby capital investment in eligible tourism facilities qualifies for 55 percent increased initial-year depreciation. Investors in large-scale tourist/travel accommodation facilities may be eligible for a concessional tax rate of 20 percent. Despite these efforts, there has not been a large increase in tourist arrivals or tourist spending in PNG over the last few years. Concerns about crime and infrastructure continue to negatively impact tourism promotion efforts.
Limits on Foreign Control and Right to Private Ownership and Establishment
In the natural resources sector foreign ownership is limited. In most other cases 100 percent foreign-owned enterprises are allowed. Joint ventures with local partners are highly encouraged. The amended regulations from the Investment Promotion Act contain the list of restricted business activities as well as those that require a minimum 50 percent local ownership. Activities restricted to citizen enterprises are listed in the Cottage Business Activities List (CBAL).
Foreign enterprises cannot conduct business in activities listed under CBAL. Restricted activities under the CBAL are listed as follows:
Cultivation and growing of vegetables and other market produce with annual sales of PGK 50,000 (USD 15,800) or less;
Farming of animals with annual sales of PGK 50,000 (USD 15,800) or less;
Poultry farming with annual sales of PGK 50,000 (USD 15,800) or less; and
Hunting, trapping, and game propagation including related service activities.
Forestry, logging and related activities
Gathering of wild growing forest materials, including balata and other rubber-like gums; cork; lac; resins and balsams; rattan; vegetable hair and eel grass; acorns and horse-chestnuts; mosses, lichens and cut evergreen trees used for festive occasions; saps; bark; herbs; wild fruits; flowers and plants; leaves; needles; reeds; roots; or other wild growing materials; and Wokabaut (Mobile) sawmills.
Hunting or collecting of non-protected fauna, including insects, shells, animal teeth, tusks, feathers, declared sedentary organisms and similar products, and living or dead fauna.
Fishing on a commercial basis in coastal and inland waters. "Coastal" means within three miles of the shoreline;
Taking of marine or freshwater crustaceans and mollusks. Hunting of aquatic animals such as turtles, sea squirts, and other tunicates, sea urchins or other echinoderms and other aquatic invertebrates; and
Gathering of marine materials such as natural pearls, sponges, coral, and algae.
Alluvial mining, according to the definitions of the Department of Mining.
Mobile food delivery service.
Wholesale and Retail Trade
Wholesale and retail sale of wild growing materials including balata and other rubber-like gums; cork; lac; resins and balsams; rattan; vegetable hair and eel grass; acorns and horse-chestnuts; mosses, lichens, and cut evergreen trees used for festive occasions; saps; barks; herbs; wild fruits; flowers and plants; leaves; needles; reeds; roots; or other wild growing materials;
Retail sale through stalls, tucker shops and markets;
Wholesale and retail sale of secondhand clothing and footwear;
Retail sale carried out from a motor vehicle or motorcycle;
Wholesale and retail sale of handicraft and artifacts; and
Repair of footwear when not done in combination with manufacture or wholesale or retail of these goods.
Other Cottage Business Activities
Weaving: Includes, but is not limited to, weaving of cane products, textiles, baskets, nets, dishes, ropes, and bags that are saleable at home, street market, or retail outlet for a fee;
Bilum (string bag) Making: Making of string bags (bilums) from traditional bush ropes and cottons taking traditional and contemporary designs that are saleable at home, street market, or retail outlet for a fee;
Knitting: Includes knitting of textile, wearing apparel, cloth, garment, designs, fabrics, and decorations that are saleable at home, street market, or retail outlet for a fee;
Arts and crafts Making: All sorts of handcrafts and artistic designs that are saleable at home, street market, or retail outlet for a fee;
Carving: Wood carvings and sculptures for a fee (contract) or assorted carvings that are saleable at home, street market, or retail outlet for a fee;
Pottery Making: All sorts of pottery products including clay pots, cups, mugs, dishes, plates, sculptures, and other art forms that are saleable at home, street market, or retail outlet for a fee;
Painting: All sorts of paintings in any shape, type, and form including portrait paintings, screen paintings, sand paintings, and oil paintings, saleable at home, street market, or retail outlet for a fee;
Screen Printing: Screen printing of designs including emblems, logos, traditional and contemporary art forms, commemorations and special events on apparels including lap-laps, shirts, T-shirts, and other garments and textile materials, suited to the event, situation or purpose to which they relate, that are saleable at home, street market, or retail outlet for a fee;
Sewing: Sewing of garments, textile materials, wearing apparels, cloths, and fabrics that are saleable at home, street market, or retail outlet for a fee;
Jewelry Making: Making of simple jewelry products including necklaces, earrings, arm bands, primarily from sea shells, tusks, and beads for sale at home, street market, or retail outlet for a fee;
Baking: Baking of fresh bakery products including bread loaves, cakes, pies, cookies and scones, saleable at home, street market, or retail outlet for a fee;
Coffee Pulping: Coffee pulping using manual pulping machines with the beans saleable at buying points or at coffee depots;
Crocodile Hunting/Processing of Skins: Hunting and processing of crocodile skins for sale at established market outlets; and
Operation of Tire Repair Service: Operation of small tire repair shops, where not done as incidental to the core business of Maintenance and Repairs.
As part of its SME policy, the government noted that several industries, including extractives, construction, and retail are almost entirely controlled by foreign operators. The new policy calls for foreign construction companies that win government tenders to subcontract 50 percent of the work in their contract to local businesses. The government move seems to be in response to public pressure to increase the number of PNG-owned businesses. A noted concern is that as a direct result of closing these sectors to foreign investment, the services would cease to exist because local entrepreneurs may not step in to fill gaps, due to a lack of expertise, financing, or knowledge.
There is no formal privatization program in place and thus no guidelines or structure on when and how foreign investors are allowed to participate in privatization programs. The government has funding available for privatization and is currently using the Public Private Partnership (PPP) structure as a model for privatization. The trend has been towards growing SOEs. The cumulative asset value of SOEs grew from USD 1.58 billion in 2012 to USD 6.32 billion by the end of 2015.
Screening of FDI
The GPNG screens foreign direct investment (FDI). When reviewing an FDI proposal, the IPA may consider a number of factors, including the:
Potential for positive development of human and natural resources;
Investor’s past record in Papua New Guinea and elsewhere;
Creation of additional employment and income-earning opportunities;
Likelihood the proposal will generate additional government revenue and contribute to economic growth;
Transfer of technologies and skills and the contribution to training citizens of Papua New Guinea; and
There is no specific investment level. The IPA may, however, pursuant to Section 28(7) of the Investment Promotion Act require an applicant for Certification to deposit the prescribed amount prior to a Certificate being issued. The prescribed amounts are per Section 6B of the Investment Promotion Regulation:
Individual – PGK 50,000 (USD 15,800);
Partnership – PGK 50,000 (USD 15,800) per partner; and
Corporate Body – PGK 100,000 (USD 31,600).
The purpose of the screening mechanism is to assess the net economic benefit and consistency with national interest. The possible outcomes of a review are prohibition, divestiture, and imposition of additional requirements. The IPA and other regulatory bodies in particular sectors make the decision on the outcome.
Appeal processes differ among the sectors. For IPA- related matters, a company must submit its appeal to the Ministry of Commerce and Industry. An accompanying fee of PGK 200 (USD 63 – check exchange rate) is required. Appeals may be lodged in response to any decision made by the IPA, including rejection of an application or the cancellation of a registration.
The Bank of Papua New Guinea, PNG’s Central Bank, has to approve all foreign investment proposals. Such proposals include the issue of equity capital to a non-resident, the borrowing of funds from a non-resident investor or financial intermediary, and the supply of goods and services on extended terms by a non-resident. In its review, the Bank is mostly concerned that the terms of the investment funds are reasonable in the context of prevailing commercial conditions and that full subscription of loan funds are promptly brought to Papua New Guinea. A debt/equity ratio of 5:1 is generally imposed with respect to overseas borrowings and a ratio of 3:1 with respect to local borrowings.
The 2002 Independent Consumer and Competition Commission Act, is the law that governs in the area of competition. It also established the Independent Consumer & Competition Commission (ICCC), the country's premier economic regulatory body and consumer watchdog; introduced a new regime for the regulation of utilities, in particular in relation to prices and service standards; and allowed the ICCC to take over the price control tasks previously undertaken by the Prices Controller as well as the consumer protection tasks previously undertaken by the Consumer Affairs Council.
The Act’s competition laws, contained in Part VI of the Act, prohibit:
Entering into, or giving effect to contracts, arrangements or understandings having the purpose, effect or likely effect of substantially lessening competition (Section 50);
Arrangements between competitors that contain exclusionary provisions, which have the purpose of preventing, restricting or limiting dealings with any particular person or class of persons who are in competition with one or more of the parties to the arrangement;
Price fixing agreements between competitors (but fixing prices of joint venture products, recommended prices and joint buying and promotion arrangements, are not absolutely prohibited, although they may still be subject to the prohibition on contracts, arrangements, and understandings that substantially lessen competition) (Sections 53-56);
A person with a substantial degree of market power from taking advantage of that power for the purpose of restricting the entry of a new competitor into a market, preventing or deterring a competitor from engaging in competitive conduct, or eliminating a competitor from that market (Section 58);
The practice of resale price maintenance, which occurs where a supplier tries to specify a price below which a reseller may not sell the supplier's product. This prohibition also applies to third parties seeking to insist that products not be resold below a specified price (Sections 59-64); and
Mergers or acquisitions that would have the effect or likely effect of substantially lessening competition in a market (Section 69).
The ICCC’s website is http://www.iccc.gov.pg, but it is unclear whether it is being maintained. Interested parties may instead want to go to the ICCC’s Facebook page for information on changes in policies and regulations: https://www.facebook.com/pngiccc/timeline. A paper by the ICCC on competition law in PNG is available here: http://www.jftc.go.jp/eacpf/05/APECTrainingProgramAugust2004/png.wasina.pdf.