Forex shortages in Papua New Guinea have acted as a handbrake on both economic growth and foreign direct investment over the past decade, according to the International Monetary Fund. However, while a fix to the forex issue is slowly introduced, domestic and concessional investors have stepped in to keep PNG’s economy moving.

An aerial shot of Kumul Petroleum’s fabrication facility site. Credit: Kumul Petroleum

Has the last decade in Papua New Guinea been a decade of lost economic opportunity? Commentary by the International Monetary Fund’s (IMF) PNG Resident Representative, Sohrab Rafiq, at last month’s Business Advantage PNG Investment Conference suggests it may have been.

“Since 2014, when the kina was revalued to an artificially high rate and the fx [foreign exchange, or forex] shortages began, you can see that PNG’s average growth rate has gradually declined over a rolling four-or-five year period,” he told delegates at our annual conference. “If the country had been able to maintain its average four-to-five-year growth rate at its 2014 level, the economy would be billions of US dollars bigger than is actually the case right now.

“Foreign exchange shortages and an overvalued kina have imposed huge costs on PNG’s economy.”

Here’s Rafiq’s graph below, which indicates just how much the shortage of forex has affected economic growth.

Source: IMF

Over the same period, Rafiq observed, PNG’s success in attracting foreign direct investment (FDI) had been “really, really poor” compared to PNG’s main trading partners, and its inflation higher.

Handbrake coming off?

If an over-valued kina has been a handbrake on PNG’s economy then, over the next two years, PNG’s central bank aims to let go of that handbrake, with the IMF’s support.

More forex has already been flowing this year, with a gradual reduction in the value of the kina against foreign currencies already apparent.

“While we wait for Papua LNG, forex improvements and better flows of FDI, there are significant domestic investments taking place in PNG.”

Many delegates at the conference told us how important Rafiq’s presentation was to them: they have felt this drag on their own businesses and have been wondering when PNG’s next cycle of growth would start. They’ve been waiting a long time.

No wonder so many hopes have been tied up in the US$10 billion TotalEnergies-led Papua LNG project, the construction phase of which would probably solve PNG’s immediate foreign exchange shortages in one fell swoop.

However, as we heard from Kumul Petroleum’s Managing Director, Wapu Sonk, that project continues to be pushed back, as its proponents attempt to reduce its inflated construction costs. A final investment decision is now likely in late 2025 or early 2026 – almost seven years after the agreement to do the project was signed with PNG’s government.

This economic lag has translated into social and political pressure too, with the Marape government set to face a Vote of No Confidence in Parliament this Thursday (12 September).

Domestic investors fill gap

Does that mean the next two years are going to be quiet years? Not necessarily. While we wait for Papua LNG, forex improvements and better flows of FDI, there are significant domestic investments taking place in PNG.

Here are just some featured at the conference:

• The Paga Hill tourism zone in Port Moresby, featuring a new Radisson Blu resort and cruise ship terminal
• PNG Ports’ new Westside industrial park and logistics hub in Lae
• Kumul Petroleum’s fabrication facility outside Port Moresby
• The continued expansion of the Kainantu mine by K92 Mining, funded principally from the mine’s cashflow
• The extension of the life of PNG’s largest mine and biggest forex earner, OK Tedi, out to 2050
• New investment in Lae by manufacturers Coca-Cola Europacific Partners, Nestlé, Goodman Fielder and Lae Biscuit Co
• Airport improvements under the ADB’s CADIP 2 (Civil Aviation Development Investment Program)
• PNG Dataco’s rollout of the second phase of its national transmission network
• Vodafone PNG’s continued rollout of its own mobile tower network
• Steamships’ Northside industrial park next to Motukea port, under construction
• Kumul Consolidated Holdings’ redevelopment of Port Moresby’s old port site

The first three on the above list are likely to be classified as Special Economic Zones (SEZs) – a new move by the government to encourage investment in specific locations by offering incentives. While, as Denton’s Managing Partner Wavie Kendino Leki observed, the regulations for SEZs are not quite aligned with the enabling legislation, some anchor tenants are already moving into these locations.

Beyond this, there are other resources investments to watch out for.

As we heard from Kumul Minerals’ Managing Director, Sarimu Kanu, production at the reopened Porgera mine continues to ramp up and there are expectations that an agreement for the US$4 billion Wafi-Golpu mine in Morobe Province may be signed by year’s end.

Meanwhile, ExxonMobil is quietly working away on its PNG LNG pipeline tie-in project, Angore. Twinza Oil’s Pasca A project, PNG’s first offshore gas project, has also lined up a powerful ally in the form of the Mineral Resources Development Corporation.

While PNG’s economy waits for the next wave, it is also instructive that its major international donors are committing to support its economy. Three of these – the IMF, Asian Development Bank and the International Finance Corporation – outlined their significant support for PNG at the conference.