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

The Independent Consumer and Competition Commission (ICCC) is charged with fostering competition. While there are transparent policies in place, the competition regime is oriented towards regulating existing monopolies and does little to foster competition. Tax, labor, environment, health, and safety and other laws do not distort or impede investment. There are long bureaucratic delays in the processing of work permits and frequent complaints about corruption and bribery in government departments.

The IPA and the Government are moving, with the assistance of the International Finance Corporation, towards a more streamlined regulatory framework to encourage foreign investment. One example of this trend is the IPA’s move to an online registration process for businesses. There are informal regulatory processes managed by nongovernmental organizations and private sector associations. There are impediments to the licensing of skilled foreign labor that are imposed by local professional associations, such as the Papua New Guinea Institute of Engineers and the Law Society (both of which have their own regulatory processes), that foreigners must go through before they can work/practice in the country.

There are no private sector or government efforts to restrict foreign participation in industry standards-setting consortia or organizations. Proposed laws and regulations are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers or regulators. Legal, regulatory, and accounting systems are transparent and consistent with international norms, but there are delays in the dispute resolution system due to a lack of human resources in the judiciary.

The Companies Act requires all banks and financial institutions, insurance companies, listed companies on the stock exchange, securities companies, superannuation funds, and private companies (including exempt companies) to utilize the International Financial Reporting Standards (IFRS) when preparing their financial statements. Foreign companies and their subsidiaries are required to follow similar financial reporting and audit requirements as domestic companies, regardless of size. Although the Listing Rules of the Port Moresby Stock Exchange do not set out additional financial reporting requirements for listed companies, the rules do require listed companies to publicly disclose their audited financial statements.

The government, through the Environmental Act 2000, encourages businesses to prevent and minimize environmental harm. The Conservation Environmental and Protection Authority (CEPA) ensures businesses comply with environmental regulations imposed under the Environmental Act 2000. Companies seeking to invest in businesses that pose a threat to the environment are required to conduct an environmental impact assessment report. However, these reports are rarely made available to the public.

When possible, proposed laws are made available for public comment, but comments are not always taken into consideration or acted on by lawmakers. Frequently, important Parliamentary decisions, such as the annual budget, are taken with no hearings and little or no debate before voting.

Regulatory decisions can sometimes be capricious and opaque, but they do not specifically target foreign-owned businesses. Most regulatory decisions can be appealed to courts with jurisdiction. Many PNG government functions and documents are available online, but not all, and they are not centralized. Government agencies have acts and regulations that encourage transparency in the administrative process, which are rarely enforced.

The Treasurer, Ian Ling-Stuckey commissioned the review and amendment of the Central Bank Act 2000 by an appointed independent advisory group. The findings were made public and proposed amendments to the act were passed in parliament which included governance reforms. The reserve bank’s objectives were also expanded from primarily controlling inflation and unemployment to now include economic growth, the general development of PNG economy, and managing national economic crises. Following these changes, the government appointed a monetary policy board and replaced the head of the reserve bank. The Marape government also amended the Kumul Consolidated Holdings Act to promote good governance, increase transparency, and improve the performance of the country’s state-owned enterprises (SOEs).

There is strong political will in PNG to restore public confidence and engagement in the government’s fiscal reporting systems. However, greater action by reporting agencies is critical to realize full and timely reporting practices in PNG’s public finance management systems.

Overall, the government needs greater coordination among reporting agencies to deliver their mandated functions and responsibilities effectively. This includes all government agencies consistently and fully reporting all required financial activities, with proper financial statements to the supreme audit institution. The lack of full and timely reporting practices continues to undermine public finance management systems, and publicly available budget information.

At the same time, most budget documents remain incomprehensible to many ordinary citizens due to low financial literacy levels and the lack of proper public and civic awareness programs.

PNG is a party to the Melanesian Free Trade Agreement. The agreement came into effect in 2017 and does address the need for competent regulatory authorities in each country (PNG, Solomon Islands, Vanuatu, and Fiji). However, the regulatory chapter is small and is designed to be strengthened and improved going forward.

When international standards are used in PNG, they are most often Australian models due to PNG’s history under Australian colonial governance and their continuing close economic ties.

The government has notified the WTO Committee on Technical Barriers to Trade only once. That notification covered food safety issues and was issued in 2006.

The legal system is based on English common law. Contract law in Papua New Guinea is very similar to and applies in much the same way as in other common law countries such as Great Britain, Australia, Canada, and New Zealand. There is, however, considerably less statutory regulation of the application and operation of contracts in Papua New Guinea than in those other countries.

The Supreme Court is the nation’s highest judicial authority and final court of appeal. Other courts are the National Court; district courts, which deal with summary and non-indictable offenses; and local courts, established to deal with minor offenses, including matters regulated by local customs.

While often painstakingly slow, the judiciary system is widely viewed as independent from government interference. The Supreme Court has original jurisdiction in matters of constitutional interpretation and enforcement and has appellate jurisdiction in appeals from the National Court, certain decisions of the Land Titles Commission, and those of other regulatory entities as prescribed in their own Acts. The National Court also has original jurisdiction for certain constitutional matters and has unlimited original jurisdiction for criminal and civil matters. The National Court has jurisdiction under the Land Act in proceedings involving land in Papua New Guinea other than customary land.

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 the 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. 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 5 million US$ 1.53 million in assets, with a minimum of 25 shareholders, and more than 100 employees.

In recent years, this law was not used to prevent ExxonMobil’s acquisition of InterOil or Chinese company Zijin Mining’s purchase of 50 percent of the Porgera Joint Venture gold mine. The IPA website (https://www.ipa.gov.pg/ ) is the official online information platform to engage with the public on matters relating to the IPA’s mandated roles and function.

The 2002 Independent Consumer and Competition Commission Act is the law that governs 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 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 ICCC’s website is http://www.iccc.gov.pg .

The ICCC reviewed the merger and acquisition of Oil Search Limited by Santos Australia, Digicel Pacific by Telstra Australia, and the proposal by Kina Bank to acquire Westpac. ICCC conducted stakeholder consultations for each of the mergers and acquisitions to determine the effect on consumers and market competition. It approved the Santos/Oil Search and Digicel/Telstra deals while denying the acquisition of Westpac by Kina.

The judicial system upholds the sanctity of contracts, and the Investment Promotion Act of 1992 expressly prohibits expropriation of foreign assets. The 2013 nationalization of the Ok Tedi copper-gold-silver mine was an Act of Parliament, considered and voted on in the regular order of business. There was no recourse or due process beyond the Parliament.

ICSID Convention and New York Convention

PNG signed the instrument of Accession to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) on June 22, 2019. The Instrument of Accession was deposited with the UN Treaties Depository in New York on July 17, 2019, and PNG became the 160th country to accede to the New York Convention. As a signatory to the New York Convention, PNG’s National Executive Council endorsed reform to the country’s outdated Arbitration Act 1951 (Chapter 46 of the Revised Laws of PNG) through the adoption of new legislation based on international model laws to implement the New York Convention and to provide enhanced support for modern arbitration in PNG.

PNG has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention) since 1978. In agreements with foreign investors, GPNG traditionally adopts the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL model law). While no specific domestic legislation exists for enforcement of awards under the 1958 New York Convention or ICSID Convents, in early 2018, an Arbitration Technical Working Committee (ATWC) was formed to advance arbitration reform in PNG. Consisting of members of the PNG Judiciary and representatives of the First Legislative Counsel and other relevant inter-governmental departments and agencies, the ATWC produced a draft Arbitration Bill 2019 in consultation with the United Nations Commission on International Trade Law (UNCITRAL), Asian Development Bank and internationally recognized arbitration experts. The draft Arbitration Bill 2019 aims to conform with best modern international arbitration law practice. The draft bill is subject to further vetting before its enactment.

Investor-State Dispute Settlement

Investment disputes may be settled through diplomatic channels or through the use of local remedies before having such matters adjudicated at the International Centre for the Settlement of Investment Disputes or through another appropriate tribunal of which Papua New Guinea is a member. The Investment Promotion Act 1992, which is administered by the IPA, also protects against expropriation, cancellation of contracts, and discrimination through the granting of most favored nation treatment to investors. PNG does not have a Bilateral Investment Treaty (BIT) with the United States, and no claims have been made under such an agreement. There is not a recent history of international judgments against GoPNG nor is there a recent history of extrajudicial action against foreign investors. PNG does not have a Bilateral Investment Treaty (BIT) or Free Trade Agreement (FTA) with an investment chapter with the United States.

Over the last 10 years, there here have been no known disputes involving a U.S. person or other foreign investors, nor have the local courts heard cases to recognize or enforce foreign arbitral awards issued against the governments. There is no history of extrajudicial action against foreign investors.

International Commercial Arbitration and Foreign Courts

According to the Port Moresby Chamber of Commerce & Industry, local and foreign parties settle disputes in Papua New Guinea through the courts. Litigation in PNG is perceived to be an expensive and drawn-out process, sometimes taking years for a decision to be handed down.

There is no domestic arbitration body outside of the courts and contract enforcement. A 2015 international arbitration decision in favor of Interoil (which has since been acquired by ExxonMobil) and against Oil Search was reportedly respected in PNG. To date, there have been no cases in which SOEs were involved in investment disputes.

Papua New Guinea’s bankruptcy laws are included in chapter 253 of the Insolvency Act of 1951 and sections 254 through 362 of the Companies Act of 1997, which covers receivership and liquidation. Bankruptcy and litigation searches can only be conducted in person at the National Court in Port Moresby.

According to the World Bank’s Doing Business Report, resolving insolvency in Papua New Guinea takes an average of three years, and typically costs 23 percent of the debtor’s estate. The average recovery rate is 25.2 cents on the dollar. Globally, Papua New Guinea stands at 141 out of 189 economies for the Ease of Resolving Insolvency on the World Bank Ease of Doing Business Survey.

4. Industrial Policies

Performance requirements/incentives are applied uniformly to both domestic and foreign investors. The investment incentives currently available are designed primarily to encourage the development of industries that are considered desirable for the long-term economic development of Papua New Guinea or specific underdeveloped regions within the country.

A 10-year exemption from tax is available where certain new businesses are established in specified rural development areas. Businesses, resident, or non-resident, engaged in the following activities qualify for this exemption:

  1. Agricultural production of any kind;
  2. Manufacturing of any kind;
  3. Construction;
  4. Transport, storage, and communications;
  5. Real estate;
  6. Business services; and
  7. Provision of accommodation, motels, or hotels.

The following have been specified as rural development areas:

  1. Central province – Goilala;
  2. Enga province – Kandep, Lagalp, Wabag, Wapenamunda;
  3. Gulf province – Kaintiba, Kikori;
  4. Eastern Highlands province – Henganofi, Lufa, Okapa, Wonenave;
  5. Southern Highlands province – Jimi, Tambal;
  6. Madang province – Bogia, Rai Coast, Ramu;
  7. Milne Bay province – Losula, Rabaraba;
  8. Morobe province – Finschaffen, Kabwum, Kaiapit, Menyamya, Mumeng;
  9. East New Britain province – Pomio;
  10. West New Britain province – Kandrian;
  11. East Sepik province – Ambuti, Angoram, Lumi, Maprik;
  12. West Sepik province – Amanab, Nuku, Telefomin; and
  13. Simbu province – Gumine, Karimui.

The Investment Promotion Act contains guarantees that there will be no nationalization or expropriation of foreign investors’ property except in accordance with law, for public purposes defined by law, or in payment of compensation as defined by law.

Accelerated depreciation rates are available for new manufacturing and agricultural plants, generous deductions are available for capital expenditure on land used for primary production, and accelerated deductions are available for mining and petroleum companies. A 10-year exemption from tax is available where certain new businesses are established in specified rural development areas. The exemption does not apply to businesses in areas in which a special mining lease or a petroleum development license is granted.

Businesses that commence exporting qualifying goods manufactured by them in Papua New Guinea are exempt from income tax on the profits derived from those sales for the first three complete years. For the following four years, the profit derived from the excess of export sales over the average export sales of the three previous years is exempt from income tax. The list of qualifying goods includes, among other items: motor vehicles, matches, paint, refined petroleum, soaps, wooden furniture, dairy products, flour, chopsticks, artifacts, clothing and manufactured textiles, and jewelry.

A wage subsidy is payable to new businesses that manufacture new manufactured products. The business will receive a prescribed percentage of the value of the minimum wage paid by the business, multiplied by the number of Papua New Guineans permanently employed by the business.

Eligible products are, broadly, all products listed under division D of the International Standard Classification of All Economic Activities (Third Revision), provided the products are not subject to quota pricing without import pricing or to tariff protection.

Registered foreign companies must file an annual certification with the Registrar of Companies accompanied by audited financial statements. A foreign company must apply for Certification under the Investment Promotion Act 1992 within 14 days of registering. Any foreign company automatically falls under this category and therefore must complete the same process.

However, a company may apply to be exempted from certain requirements. A company which chooses to conduct business through a branch registered in Papua New Guinea can repatriate its profits without being subject to withholding tax. On the other hand, the dividends of a Papua New Guinea incorporated subsidiary may attract dividend withholding tax. A higher rate of income tax is imposed on non-resident companies. If a foreign company merely wishes to have a representative office in Papua New Guinea, it may be exempt from lodging tax returns if it derives no income in Papua New Guinea. The Companies Act adopts similar principles and standards of corporate regulation to those in place in New Zealand. Companies registered in Papua New Guinea must lodge an annual return every year with the Registrar of Companies within six months of the end of its financial year. Currently, the Papua New Guinea government is reviewing its structure.

There are no discriminatory or preferential export and import policies affecting foreign investors, and there are low levels of import taxes.

The government is removing import taxes on electric vehicles, effective in 2022 to support green energy investments; there are no other tax incentives for green investments.

The creation of Special Economic Zones (SEZs) in PNG have been a policy initiative by the past two administrations but continue to lack appropriate legislative framework. The following geographical areas have been designated for SEZs:

  1. Ihu SEZs in Gulf Province
  2. Vanimo Free Trade Zone
  3. Sepik Special Economic Zone
  4. Manus Special Economic Zone
  5. Bana (AROB) SEZ
  6. Agriculture Province in EHP, WHP, Morobe, Sepik and others
  7. Paga Hill Special Tourism Economic Zone, NCD
  8. Nadzab Industrial SEZ
  9. Western Province SEZ
  10. Pacific Marine Industrial Zone (PMIZ)

For each SEZ, the government plans to operate Gold and Regional Value Chain Industries, maintain one-stop shop regimes, and grant fiscal and customs and operational incentives up to ten years. The government is progressing the IHU SEZ, and PMIZ, allocating US $28.5 million for the PMIZ in 2022, and received a loan of US $28.5 million from PRC to develop the IHU SEZ.

All non-citizens seeking employment in PNG must have a valid work permit before they can be hired. The work permit must be granted by the Secretary of the Department of Labor and Industrial Relations (DLIR) in accordance with the Employment of Non-Citizens Act of 2007. It can take weeks or even months to obtain both a work permit and visa for non-citizens to work in Papua New Guinea, and delays are common due to a lengthy bureaucratic clearance process. In the past, the government has used its immigration powers to block visas for personnel coming to Papua New Guinea to fill positions that it believes can be filled by Papua New Guineans.

There are no governmental authority-imposed conditions on permission to invest, nor forced localization imposed on foreign investors.

NICTA (National Information & Communication Technology Authority) Data Integrity Act called CCE (Controlled Customer Equipment) is strictly enforced. Only illegal transmission of state/military data will be charged against the state or military. These are the two Acts that enforce data integrity (Data Interference and System Interference). In any case the fine is an amount not exceeding US $28,500 or 10 years in prison.

5. Protection of Property Rights

Property rights exist and are enforced. Mortgages and liens do exist. For non-customary land, the system is reliable. PNG’s legal system does not allow direct foreign ownership of land. To get around this limitation, long-term government leases are used. The legal system protects and facilitates acquisition and disposition of all property rights, but there are substantial delays particularly within the Department of Lands.

The IPA through the Intellectual Property Office of PNG (IPOPNG) administers the Trademarks Act, Chapter 385, Copyright and Neighboring Rights Act (2000) and the Patents and Industrial Design Act (2000).

Protections for intellectual property rights relating to the reproduction and sale of counterfeit and pirated products, particularly music and movies, are insufficient. Such counterfeit products are openly sold on the streets and in shops. Sales persist despite sporadic law enforcement action. Other counterfeit products that infringe on copyrights, patents, and/or trademarks are often imported from Asian countries and sold in Papua New Guinea. Customs periodically seizes such shipments, but there are significant gaps in their enforcement regime. Adequate protection for trade secrets and semiconductor chip layout design exists in law, and minimal infringements appear to occur.

PNG primarily tracks seizures of counterfeit good through media reports, as no formal publication process exists. PNG does prosecute IPR violations. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

6. Financial Sector

Portfolio investments are unregulated and limited to the availability of stocks. PNG has one stock market in Port Moresby, PNGX Limited (Formerly POMSoX). Founded in 1999, it is closely aligned with the Australian Stock Exchange (ASX) and mimics its procedures.

Credit is allocated on market terms, and foreign investors are able to get credit on the local market, much more so than in previous years due to the liberalization of policies, provided those foreign investors have a good credit history. Credit instruments are limited to leasing and bank finance.

PNG’s commercial banking sector comprises four commercial banks. Two are Australian institutions, Westpac and Australian and New Zealand Group (ANZ) banks, with local banks Bank of South Pacific (BSP) and Kina Bank.

BSP is both the largest bank and non-mining taxpayer in PNG. BSP operates 79 branches, 52 sub-branches, 351 agents, 499 ATMs, 11,343 electronic funds transfer at point of sale (EFTPOS) units and 4261 employees.

Official government sources indicate that much remains to be done in terms of financial inclusion, with nearly three quarters of PNG’s population lacking access to formal financial services. Most of those excluded represent the low-income population in rural areas, urban settlements, especially women.

Based on the Oxford Business Group business update issue of 2018, assets in the commercial sector have recorded exponential growth since 2002, with the Bank of PNG reporting that total commercial banking assets rose from US $1.2 billion in that year to reach US $6.3 billion in 2011. Growth has been slower in recent years, however, with total assets rising from US $7.1 billion in 2012 to a high of US $8.49 billion 2020.

The banking system in Papua New Guinea is sound. The Bank of Papua New Guinea acts as the central bank for Papua New Guinea. The Central Banking Act of 2000 outlines the powers, functions, and objectives of the Bank. Foreigners are required to show documentation either of their employment or their business along with proof of a valid visa in order to register for a bank account.

Foreign Exchange

While there are no legal restrictions on such activities, a lack of available foreign exchange makes such conversions, transfers, and repatriations time consuming. Bank of Papua New Guinea requires that all funds held in PNG be held in PNG kina. This rule was announced with little notice and caught many businesses off-guard in 2016. While there was an appeal process for businesses that wished to keep non-PGK accounts, none of the appeals were granted. Due to the backlog on demand, and insufficient foreign exchange, the reserve bank rations foreign exchange. The reserve bank rations foreign exchange, by prioritizing business activities, and demand.

The reserve bank determines the exchange rate policy, and since 2014 uses a crawling pegged foreign exchange rate policy, such that the local currency is pegged and fluctuates, with its major trading partners currencies including the USD.

Remittance Policies

There have been no recent changes or plans to change remittance policies. Remittance is done only through direct bank transfers. All remittances overseas in excess of US$ 15,340 per year require a tax clearance certificate issued by the Internal Revenue Commission (IRC). In addition, approval of PNG’s Central Bank – the Bank of Papua New Guinea – is required for annual remittances overseas in excess of US$ 153,420

While there are no legal time limitations on remittances, foreign companies have waited many months for large transfers or performed transfers in small increments over time due to a shortage of foreign exchange.

Sovereign Wealth Funds

A Sovereign Wealth Fund Bill was passed in Parliament on July 30, 2015. However, falling commodity prices have severely impacted government revenues. Plans for the SWF have been put on hold indefinitely. Following legislative changes to SOE’s policy on dividend payments to the government, enabling the Marape administration to transfer annually seven percent of dividends received from SOE’s in the resources sector to the SWF.

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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