The eyes of the world have been on Papua New Guinea (PNG) this year with several high-profile state visits.
French President Emmanuel Macron made a state visit, as did the Indian Prime Minister, Narendra Modi.
President Biden was scheduled to visit until he withdrew to sort out debt ceiling negotiations back home.
State Secretary Anthony Blinken stepped in instead.
President of Indonesia Joko Widodo also visited.
The country’s geopolitical importance is clearly growing.
Less well known is that PNG’s economy is on the cusp of a ‘golden’ era of resources investment that will power spectacular growth.
Prime Minister Marape, at the 2023 PNG Chamber of Resource and Energy Conference in Sydney in mid-December, declared PNG is now home to the ‘Big 4’ of the global resource industry.
The world’s top two gold producers, Newmont and Barrick, are major investors as are the energy superpowers, ExxonMobil and TotalEnergies.
By far the largest economy in the Pacific, PNG’s Gross Domestic Product (GDP) was US$20 billion (FJ$44.17bn) in 2022.
Over the next five to eight years, that is likely to double to US$40 billion (FJ$88.36bn). That converts to real GDP growth of about 9 per cent per year over the next eight years, which is a giant leap from the 2.6 per cent average growth in the previous eight years.
We believe gas investments alone could lift PNG from being a US$32 billion (FJ$70.69bn) economy (in current prices) to a US$60 billion (FJ$132.54bn) economy by the end of this decade, initially through construction and later production, which is the current government’s target.
The foreign currency that would come into the country with the restart of the Porgera Gold Mine and the capital inflows from the ramp up of work on Papua LNG, should also end a difficult period of foreign currency rationing by late 2024.
Gas investment will lead the way, followed by mining
Phase I of PNG’s resources investment boom was the US$19 billion PNG LNG project (see chart). The US$10 billion (FJ$22.09bn) Papua LNG project will kick off Phase II. The US$12 billion (FJ$26.51bn) P’nyang upstream development, including an additional train at the existing PNG LNG park, will be the next major project and is expected to commence in 2028.
Between these two mega-projects is a host of smaller gas projects.
These include the Pasca A offshore gas project, Stanley Project, Pandora and PNG’s ‘stranded’ gas fields.
Mining projects will then join the party. The ‘greenfield’ US$2.8 billion (FJ$6.19bn) Wafi-Golpu gold and copper mine, currently in the advanced permitting stage, is close to receiving a special mining lease for ore development.
The New Porgera Gold Mine has secured its lease and commenced operations on December 22. Then there are Stage 3 and 4 expansions at Kainantu Gold Mine and upgrades at Lihir and Ok Tedi.
A diversified economy, sustainable growth and a higher standard of living
The real opportunity this brings to PNG is to set up the economy for the future. There are not many other nations with this kind of launchpad opportunity.
Naturally, PNG faces immediate challenges, like the shortage of foreign currency, the reliability of power, law and order, and road connectivity.
But it can meet many of these challenges head on. Successfully making sustainable headway means embracing a new level of diversification in the economy.
Nearly nine and a half million people live in PNG. Right now, it has the foundations to transition into a successful diversified economy.
PNG could become a significant producer of sustainable energy, which would help reduce costs around existing forms of energy.
Opportunities abound in food and beverage manufacturing. Its fishery sector has room for expansion through good quality foreign investment and innovation.
Downstream processing would also add value to its forestry other rural commodities such as cocoa.
The construction phases of the mega projects will lift employment and boost people’s spending power.
Everybody needs telecommunications, electricity, health, education and business services, all of which should do well over the next decade.
Funding is holding the country back from achieving balanced-economy status.
The good news is that the government has committed to building more infrastructure once the next phase of major projects is complete.
The government has said it intends to show budgetary discipline and to resist crowding out private investment.
It aims to move the budget to a surplus by 2027 and to repay all debt by 2034. This will put state finances in a very strong position by 2030, particularly as the PNG LNG debt will be retired by then.
Better government finances should see publicly funded infrastructure projects step in to rectify previous underfunding and fill any gaps left by private sector projects.
As transport and utilities infrastructure is rolled out, PNG will unlock the potential in its other industries, which will create a better balance in the economy and prevent the boom-bust cycles often associated with resources investment.
That is the key to PNG’s development. When this happens, it will be the envy of Asia-Pacific.
PNG’s next construction wave will be a super cycle
With PNG set to become the powerhouse of the Pacific, can Fiji benefit from its success? The short answer is, yes.
The two economies have a lot in common. Both are members of the Melanesian Spearhead Group (MSG) and operate under the MSG 2038 Prosperity for All Plan framework.
We believe PNG will share its economic success with Fiji and other Melanesian trading partners. PNG’s Prime Minister, James Marape has said he wants to see his country become the ‘food basket’ of Asia.
Fiji has abundant land but it lacks the cool-climate regions needed to grow things like horticultural crops. PNG has those and its organic fruit and vegetables are among the best in the world. Vanilla, sweet potatoes, nuts, kava and other vegetables could also find a market in Fiji, especially in its hospitality sector, building on the success of PNG’s Ox and Palm corned beef, beloved in Fiji.
High shipping and freight costs are currently a major impediment to trade. Low volumes make it uneconomical to run direct shipping routes. Added to this are high inter-island shipping charges. For example, freight costs from Lae to Port Moresby can be more expensive than Suva to Lae.
Liquid natural gas, vital for electricity is another way PNG could support Fiji. At present nearly 40% of electricity generated in Fiji’s islands uses diesel. The “LNG in a box” concept could be revived, where a ship delivers LNG to island-based electricity generating plants.
PNG–Fiji trade not a one-way proposition
Fiji’s exports to PNG are currently small, in volume and range. Last year, Fiji exported insulated wire cables, electric accumulators, personal hygiene products, flour and sweet biscuits to PNG, totalling just under F$25 million (K35 million). But PNG unemployment will fall and incomes will rise once new resource projects are under way.
We can see Fiji’s food manufacturers helping to meet PNG’s growing demand over the next decade. Other potential goods from Fiji could include fast moving consumer goods, electronics, wines and spirits, and top-end retail and luxury goods.
Fiji businesses have decades of experience trading in these goods, through tourism and duty-free sectors, and could expand to reach PNG’s rising middle class or through joint ventures trading directly to PNG.
Telecommunications is another area where Fiji businesses could find a foothold in PNG.
Taking a long-term view
Short-term challenges can be a distraction. PNG will be a different country in five to 10 years, so traders who can take a longer view and stay focused to win will be successful.
Foreign businesses that have done well in PNG have generally embraced local culture. They have also employed and trained local workers to hold senior positions within the business. Being in-country helps as it allows for better relationship building with customers and stakeholders.
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