Oxford Business Group
AFTER ANOTHER YEAR of strong economic performance, Papua New Guinea is brimming with confidence.
The 2013 budget, announced in November and valued at K13 billion, is PNG’s largest-ever and one which the government is borrowing more than $1bn to fund.
Centred on the development of core services, such as education, health and infrastructure, PNG’s budget is paving a path toward sustainable and inclusive growth, largely due to substantial gains in 2012.
The 2013 budget is also cashing in on PNG’s improved political fortunes, following Prime Minister Peter O’Neill’s election in August. This effectively closed the door on a period of intense political instability, as divided loyalties amongst the bureaucracy threatened to spill over into a military coup d’état.
It is worth noting, however, that the government has extended a ban on votes of no confidence from 18 to 30 months.
The O’Neill administration has laid the groundwork for an expansion of government-led national development in the years ahead, which will largely be bank-rolled by revenues from the $19bn, Exxon-Mobil-led liquefied natural gas project.
However, the project is not set to begin delivering gas until late 2014, nor profits until at least 2018, which is why the government has reiterated a commitment to establishing a sovereign wealth fund to address the risks associated with large-scale projects such as PNG LNG.
Once up and running, though, the PNG LNG project is expected to collect revenue in the form of tax and dividend payments, which are estimated to be between K2 and K13 billion a year in the 2014-42 period, according to Loi Martin Bakani, the governor of the Bank of Papua New Guinea, the country’s central bank.
Moreover, the economy is on a firm footing. According to BPNG, the economy is expected to grow 9.2% in 2012, up from the 7.8% predicted in 2011, but down from the 9.9% anticipated mid-year. This is still robust growth – PNG’s 12th consecutive year, in fact – and has been principally fuelled by activity in the non-mining sectors.
Construction, transport, storage, information and communications technology, wholesale and retail trade were all top performers this past year, while the mining, quarrying, petroleum and gas sectors all slowed in the second half of the year in response to local conditions and global market prices.
The most-dramatic changes in the year ahead, however, will likely be seen in those sectors that have benefitted most from the LNG project’s construction phase.
Accordingly, 2012 likely marked the zenith of PNG’s construction sector, which is anticipated to have grown 24%. While domestic confidence has seen further investments in infrastructure, particularly in PNG’s key urban locations, the culmination of the LNG construction phase is expected to bring a four-fold drop in the sector’s 2013 performance to 4.4%.
Moreover, a looming real estate bubble burst now looks imminent. With Port Moresby globally ranked the eighth most-expensive city for expatriates, corrections in market supply and demand seen in 2012 will certainly accelerate throughout 2013 and into 2014.
PNG’s other great growth engine, agriculture, is expected to reap the rewards of higher crop prices in 2013 following a drop in 2012. Having grown 8% in 2011, its strongest-ever recorded growth, the government is estimating that the agriculture/forestry/fisheries sector will rebound from 0.8% to 2.8% in 2013.
Mining, following this year’s poor performance, is expected to stage a recovery to 17.8% growth in 2013, while the petroleum sector continues its decline of the past eight years as PNG’s oil fields continue to be depleted.
While the Exxon-Mobil led LNG investment has fuelled PNG’s economic transformation over the past seven years, in which time its private sector as doubled in size, times are changing.
The Ministry of Treasury and Finance expects real GDP growth in 2013 to be 4%, and with 80% of PNG’s population in the formal and informal agriculture sector, the government’s challenges are just beginning.
It is now the government’s priority to create an enabling and inclusive environment for wider economic development.
This is set to become a defining mantra of 2013 and in the years to come. The budget includes the first K80 million of a K500 million stimulus package aimed at empowering small and medium-sized enterprises through a raft of incentives. It is a program that O’Neill projects will create 500,000 new businesses and 2 million jobs by 2050.
As PNG’s economy continues to heat up, the inevitable wider development and diversification of the economy, fuelled by its vast LNG reserves, means 2013 will likely mark the beginning of the country’s emergence onto the Asian stage as a key energy, minerals and food exporter.