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Papua New Guinea

Executive Summary

Papua New Guinea (PNG) is the largest economy among the Pacific Islands and offers enormous trade and investment potential. Key investment prospects are in infrastructure development, a growing urban-based middle-class market, abundant natural resources in mining, oil and gas, forestry, and fisheries.

Under the banner of “Take-Back PNG,” Prime Minister James Marape’s government endorsed a fair, open, and collective approach in its decision-making processes, especially decisions concerning the proper management of the country’s resources and investment returns.

Under Marape, PNG reaffirmed its openness to trade and investment, is stepping up reforms to recover from high debt levels and seeks to attract more foreign direct investment (FDI), especially in the natural resources sector to stimulate its economy.

Since taking office, the Marape Administration – despite being comprised of many of the same officials as the prior O’Neill Administration – blamed the O’Neill Government for the country’s poor fiscal regime, lack of infrastructure development, the high cost of logistical services, the breakdown of law and order, a cumbersome public sector, and poorly performing state-owned enterprises. To address these problems, the government regularly reaffirmed its need for FDI to stimulate its economy, announced a fiscal stimulus package which supports funding for local business to aid PNG’s economic recovery.

The country has faced dwindling FDI compared to pre-COVID-19 years, however investments increased at the start of 2021. Business confidence increased in 2022 sparked by renewed interest in PNG and evidenced by several key mergers and acquisitions in late 2021. Mining companies continue to be an attractive investment destination. Growth in mining industry is estimated to be 5.4%, underpinned by the expected reopening of the Porgera mine and improvements in OK Tedi and Wafi Golpu production in 2022. Furthermore, telecommunication companies are also anticipating growth and seen as good foreign investment opportunities in PNG and the Pacific. Telstra Australia acquired telecommunication giant Digicel Pacific which has the largest market share in PNG. Vodafone PNG – Amalgamated Telecom Holdings Ltd which operates across Fiji, Western Samoa, American Samoa, Kiribati, Cook Island and Vanuatu started operations as the third mobile operator in PNG with an anticipated investment exceeding US $399 million. Australia was the top investing country in 2021, followed by Malaysia, the USA, Hong Kong, and the PRC. By sector investments, the energy sector had the highest investments, and investment proposals, followed by the retail, and wholesale sector, then manufacturing, mining and petroleum, and other sectors; despite recording increase in investments.

The government recognizes the need for climate change action and has submitted its Enhanced National Determined Contributions (NDC). PNG’s proposed climate change mitigation, and adaptation strategies to achieve full carbon neutrality by 2050 are conditionally. The government has mainstreamed climate change mitigation and adaptation strategies into its national long-term visions, plans, and strategies. PNG’s climate change envoy at the COP26, stressed, and leveraged preservation of the country’s rainforests for climate change action, and the need for economic development and sustainable FDI along these lines.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 124 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index N/A N/A https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2016 $ 235 million https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $2.72 billion https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

PNG does not have a national action plan for responsible business conduct (RBC). However, most multinational companies in PNG do operate with a set of standards. The concept of social responsibility activities is pervasive in the extractive industries and guides conducive interactions with all stakeholders. There are currently no NGOs specifically monitoring RBC in PNG.

While PNG does not have specific policies, most large, international companies use international best practices as standards.

PNG is a member of the Extractive Industries Transparency Initiative (EITI). PNG EITI’s efforts have thus far been hampered by a lack of cooperation from relevant government ministries and a severe lack of data.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

The national climate change strategies, and policies are aimed at addressing climate change and achieving economic development, and growth, without specific expectations on the private sector to divest from intensive greenhouse gas emitting input sources.

Although, there are existing policies for sustainable forest management, conservation of biodiversity, and other ecosystem management, these are laws, and regulations without substantial incentives for encouraging sustainable environmental, and resources management. During the Somare led government carbon trading schemes were trailed through the REDD+ program as an incentive for rainforest preservation, however yielded substandard outcomes due to poor governance, limited information sharing on the carbon trading scheme. This incentive has been pursued again by the Marape government, which in 2021 signed an agreement with the Australian government to develop the carbon trading markets in the country.

The country’s national procurement policy considers the efficient use of resources, and environmental sustainability. Public investment projects are either funded by donors or co- financed through loans from development partners that have their own procurement policies and guidelines, which the PNG government includes in its procurement process when tendering projects. For example, the Australian loan funded of US $420 million for the upgrading of PNG’s major port infrastructure, and the upgrade of the Milne Bay wharf funded through the Strategic Climate Fund Pilot Program for Climate Resilience. Although the national procurement policy includes environmental considerations, however, fully funded government infrastructure projects are rarely climate resilient and environmentally sustainable. The awarding of infrastructure contracts follows procurement policies but lack monitoring and compliance checks on the quality and standard of infrastructure built.

The government has several national climate change action strategies, including; the Sustainable Development Goal 13 Roadmap, the Climate Compatible Development Policy, PNG’s Action Plan for Enhanced Transparency Framework on AFOLU, and the REDD+ National Forest Monitoring System (2021–2025); National REDD+ Strategy (2017) PNG REDD+ Finance, and the Investment Prospectus (2020). These strategies outline the country’s response to climate change and map a pathway to reduce the country’s climate change vulnerability and greenhouse gas emissions.

The Change Development Authority (CCDA) is the agency responsible for coordinating and facilitating climate change actions, working in partnership with the PNG National Forestry Authority (PNGNFA) and CEPA to monitor natural resources. The CCDA and PNGFA are developing and maintaining a monitoring and reporting database on forest change and greenhouse gas emissions.

The government started implementation of the SDG13 Roadmap by banning round log exports starting in 2030; ceasing the issuance of new logging permits; piloting a forest conservation program; developing carbon trade markets with the assistance from the Indo Pacific Carbon Offset Scheme; and restricting the import, trade, and handling of ozone depleting substances in all equipment in 2022 to be followed by a complete ban in 2025.

 

9. Corruption

Corruption is widespread in Papua New Guinea, particularly the misappropriation of public funds, “skimming” of inflated contracts, and nepotism. In January 2021 Transparency International ranked PNG 124 out of 180 countries and rated it the most corrupt of the Pacific Island nations. The country’s improvement in corruption rankings is attributed to the establishment of the Independent Corruption Advisory Committee in 2021.

Although giving or accepting a bribe is a criminal act, penalties differ for Members of Parliament (MPs), public officials, and ordinary citizens. For MPs the penalty is imprisonment for no more than seven years; for public officials the penalty is imprisonment for no more than seven years and a fine at the discretion of the court; for ordinary citizens the penalty is a fine not exceeding US$ 123 or imprisonment of no more than one year. A bribe by a local company or individual to a foreign official is a criminal act. A local company cannot deduct a bribe to a foreign official from taxes. The government encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. However, overall enforcement of existing laws is insufficient.

Most of the larger domestic companies and international firms from Europe, North America, Japan, Australia, and New Zealand have effective internal controls, ethics, and compliance programs to detect and prevent bribery. Many firms from elsewhere in East and Southeast Asia, particularly those in the resource extraction sectors, lack such programs.

Papua New Guinea has signed and ratified the UN Convention against Corruption. Papua New Guinea is not a party to the UN Convention against Transnational Organized Crime or the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

PNG’s Ombudsman Commission and the Police Fraud & Anti-Corruption Directorate are generally the main avenues to report and seek protection to matters pertinent to investigating corruption. The Ombudsman Commission is mandated to investigate and recommend to concerned authorities to take action, while the Police Fraud & Anti-Corruption Directorate has the powers to prosecute.

U.S. firms routinely identify corruption as a challenge to foreign direct investment. Some critical areas in which corruption is pervasive include budget management, forestry, fisheries, and public procurement. In addition, the findings from the recent business survey, “Results of the 2017 Survey of Businesses in Papua New Guinea,” highlighted that “corruption is becoming an increasing problem with most firms reporting that they make ‘irregular payments’ to government officials.” A considerable number of those surveyed indicated that problems lay in either Lands or Customs/Finance/Tax institutions.

Resources to Report Corruption

Twain Pambuai
Director of Corporate Services
Ombudsman Commission
+675 308 2618
Twain.pambuai@ombudsman.gov.pg 

Arianne Kassman,
Executive Director
Transparency International
+675 320 2188
exectipng@gmail.com 

Lawrence Stephens,
ChairmanTransparency International
+675 320 2188
taubadasaku@gmail.com 

10. Political and Security Environment

Tribal conflicts occur regularly, particularly in the Highlands and Sepik regions of the country, and election-related violence broke out following the 2017 national elections. While foreign investors/interests are not generally the target of these confrontations, project infrastructure can be inadvertently damaged, or their operations disrupted.

Most of the disruption and damage caused to projects is due to disputes between landowners and the central government, which are fueled by an often-true perception that the central government has failed to uphold its financial commitments to landowners. Landowners in these disputes have taken out their frustration with the central government by damaging the infrastructure or disrupting the operations of foreign projects in their regions.

The central bureaucracy is increasingly politicized, which has eroded the capacity of government departments and allowed nepotism and political cronyism to thrive in parts the public service. Civil disturbances have been triggered by the government’s failure to deliver financial and development commitments, particularly to landowners in the resource project areas. They have also occurred in major urban areas based on disputes between long-term residents and newly arrived migrants or between competing criminal networks.

11. Labor Policies and Practices

Papua New Guinea does not have a primary information system to keep track of the country’s labor market, according to PNG’s Department of Labor & Industrial Relations. PNG’s Department of Labor & Industrial Relations is responsible for labor and industrial matters in the country. The absence of a proper information system hinders reliable and readily available labor data and statistics. In addition, the lack of specific legislative and policy guidelines has limited plans and exercises on collecting data on a regular and reliable basis over the years. The Department confirmed the use of sectoral employment movements and trends to track PNG’s labor market.

PNG’s informal economy sector is concentrated in the sale agricultural products in primarily local open marketplaces. According to the United Nations Socio-Economic Impact Assessment Report 2020, the informal sector contributes 30 percent of the country’s GDP, where 65 percent of informal sector workers are in rural areas engaged in cash cropping, vegetable farming, and retailing. In urban areas the informal activities include the selling of vegetables; roadside and street vending of retail products; and services and labor-intensive manufacturing services. The government rarely regulates informal market activities, providing the opportunity for individuals to engage in the selling of counterfeit and cheap manufactured products. Transactions in the informal sector rely on social networks and kinships utilizing verbal agreements. There have been reported cases of exploitation of these informal agreements by foreign nationals to acquire traditional and customary land to establish businesses.

The Central Bank of Papua New Guinea’s quarterly employment index is the widely used reference for labor market statistics in the country. The index covers 500 private companies, which represent 80 per cent of the formal private sector, employing about 10,000 workers. The Bank conducts periodic interviews with each company to verify their employment and revenue levels on a quarterly basis. The index generally represents employment levels by region and industry throughout the country.

With limited accountability in PNG’s labor market, most private businesses tend to have more bargaining power to determine the size and level of skilled workers for their operations. This has largely seen highly paid jobs dominated by mostly expatriate workers under contractual arrangements. It has also given rise to large numbers of skilled jobs occupied by expatriate workers. The lack of proper national labor market surveys continues to keep the actual availability of employment and workforce unchecked and open to displacement of national skilled workforce.

Youth unemployment is rampant throughout the country with fifty per cent of the population under the age of twenty-five years. The high unemployment figures reflect the small sector of formal business activities, as well as a downturn in the extractive resource sectors, which is heavily relied on to generate government revenue streams and create employment.

The country continues to see a shortage of highly skilled or specialized and experienced workforce in financial and industry management capacities. This is mainly due to high turnover in national staff in organizations and the slowness in localizing roles in a business.

Department of Labor & Industrial Relations 2009 Work Permit Guideline explains the Papua New Guinea Classification of Industrial Divisions and the country’s Classification of Occupations, which are an integral part of the Work Permit System. In practice, the Guideline is accommodative to industry labor demands. Permits are accessible by providing a simple justification suitable for hirer’s work requirements.

There are no seasonal adjustment restrictions in PNG. While companies do provide severance packages as a practice when conducting layoffs, there is no specific legal requirement to do so. There is no social insurance or other safety net programs for unemployed workers.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2020 $23.26 2020 $23.59 www.worldbank.org/en/country
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $2411 2016 $235 BEA data available at https://apps.bea.gov/international/
factsheet/
Host country’s FDI in the United States ($M USD, stock positions) 2020 N/A 2020 $2 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2020 27.1% 2020 16.6% UNCTAD data available at

https://unctad.org/topic/investment/
world-investment-report
  

* Host Country Source: Central Bank of PNG,PNG Investment Promotion Authority.

Table 3: Sources and Destination of FDI

No updated data is available.

14. Contact for More Information

Geoffrey Grimes
Economic Officer
GrimesGT@state.gov 

Kathleen Natera
Economic Specialist
NateraK@state.gov 

US Embassy Port Moresby +675 308-2100

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